|
|
|
|
Item 1.
|
Financial Statements.
|
|
LMI Aerospace, Inc.
Condensed Consolidated Balance Sheets
(Amounts in thousands, except share and per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
|
Assets
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
723
|
|
|
$
|
2,491
|
|
|
Accounts receivable, net
|
59,117
|
|
|
51,269
|
|
|
Inventories
|
130,259
|
|
|
122,761
|
|
|
Prepaid expenses and other current assets
|
4,566
|
|
|
3,586
|
|
|
Total current assets
|
194,665
|
|
|
180,107
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
101,175
|
|
|
99,515
|
|
|
Goodwill
|
62,482
|
|
|
62,482
|
|
|
Intangible assets, net
|
38,064
|
|
|
38,852
|
|
|
Other assets
|
2,454
|
|
|
2,676
|
|
|
Total assets
|
$
|
398,840
|
|
|
$
|
383,632
|
|
|
|
|
|
|
|
Liabilities and shareholders’ equity
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
$
|
31,859
|
|
|
$
|
29,378
|
|
|
Accrued expenses
|
20,594
|
|
|
25,543
|
|
|
Current installments of long-term debt and capital lease obligations
|
2,725
|
|
|
2,655
|
|
|
Total current liabilities
|
55,178
|
|
|
57,576
|
|
|
|
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
Long-term debt and capital lease obligations, less current installments
|
260,479
|
|
|
237,398
|
|
|
Other long-term liabilities
|
2,412
|
|
|
3,117
|
|
|
Total long-term liabilities
|
262,891
|
|
|
240,515
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
Common stock, $0.02 par value per share; authorized 28,000,000 shares; issued 13,701,350 and 13,625,205 shares at March 31, 2017 and December 31, 2016, respectively
|
274
|
|
|
273
|
|
|
Preferred stock, $0.02 par value per share; authorized 2,000,000 shares; none issued at either date
|
—
|
|
|
—
|
|
|
Additional paid-in capital
|
101,630
|
|
|
99,955
|
|
|
Accumulated other comprehensive loss
|
(260
|
)
|
|
(282
|
)
|
|
Accumulated deficit
|
(20,873
|
)
|
|
(14,405
|
)
|
|
Total shareholders’ equity
|
80,771
|
|
|
85,541
|
|
|
Total liabilities and shareholders’ equity
|
$
|
398,840
|
|
|
$
|
383,632
|
|
See accompanying notes to condensed consolidated financial statements.
3
|
LMI Aerospace, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Amounts in thousands, except share and per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2017
|
|
2016
|
|
Sales and service revenue
|
|
|
|
|
Product sales
|
$
|
78,572
|
|
|
$
|
75,862
|
|
|
Service revenue
|
5,248
|
|
|
11,469
|
|
|
Net sales
|
83,820
|
|
|
87,331
|
|
|
Cost of sales and service revenue
|
|
|
|
|
Cost of product sales
|
65,363
|
|
|
60,336
|
|
|
Cost of service revenue
|
6,016
|
|
|
10,765
|
|
|
Cost of sales
|
71,379
|
|
|
71,101
|
|
|
Gross profit
|
12,441
|
|
|
16,230
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses:
|
|
|
|
|
Selling, general and administrative expenses
|
10,834
|
|
|
11,853
|
|
|
Merger expense
|
2,534
|
|
|
—
|
|
|
Restructuring expense
|
(20
|
)
|
|
947
|
|
|
Total selling, general and administrative expenses
|
13,348
|
|
|
12,800
|
|
|
(Loss) income from operations
|
(907
|
)
|
|
3,430
|
|
|
|
|
|
|
|
Other (expense) income:
|
|
|
|
|
Interest expense
|
(5,218
|
)
|
|
(5,263
|
)
|
|
Other, net
|
(333
|
)
|
|
(90
|
)
|
|
Total other expense
|
(5,551
|
)
|
|
(5,353
|
)
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
(6,458
|
)
|
|
(1,923
|
)
|
|
Provision (benefit) for income taxes
|
10
|
|
|
(164
|
)
|
|
Net loss
|
(6,468
|
)
|
|
(1,759
|
)
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
Change in foreign currency translation adjustment
|
22
|
|
|
(13
|
)
|
|
Total comprehensive loss
|
$
|
(6,446
|
)
|
|
$
|
(1,772
|
)
|
|
|
|
|
|
|
|
|
Amounts per common share:
|
|
|
|
|
Net loss per common share
|
$
|
(0.49
|
)
|
|
$
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
Net loss per common share assuming dilution
|
$
|
(0.49
|
)
|
|
$
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
13,213,051
|
|
|
12,975,485
|
|
|
|
|
|
|
|
|
|
Weighted average dilutive common shares outstanding
|
13,213,051
|
|
|
12,975,485
|
|
See accompanying notes to condensed consolidated financial statements.
4
|
LMI Aerospace, Inc.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2017
|
|
2016
|
|
Operating activities:
|
|
|
|
|
Net loss
|
$
|
(6,468
|
)
|
|
$
|
(1,759
|
)
|
|
Adjustments to reconcile net loss to net cash used by operating activities:
|
|
|
|
|
Depreciation and amortization
|
4,462
|
|
|
4,900
|
|
|
Amortization of debt issuance cost
|
469
|
|
|
478
|
|
|
Stock based compensation
|
273
|
|
|
345
|
|
|
Other non-cash items
|
(47
|
)
|
|
(65
|
)
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
Accounts receivable
|
(7,862
|
)
|
|
(6,475
|
)
|
|
Inventories
|
(7,654
|
)
|
|
(4,740
|
)
|
|
Prepaid expenses and other assets
|
(910
|
)
|
|
(387
|
)
|
|
Current income taxes
|
5
|
|
|
(38
|
)
|
|
Accounts payable
|
4,781
|
|
|
7,388
|
|
|
Accrued expenses
|
(3,419
|
)
|
|
(6,891
|
)
|
|
Net cash used by operating activities
|
(16,370
|
)
|
|
(7,244
|
)
|
|
Investing activities:
|
|
|
|
|
Additions to property, plant and equipment
|
(8,101
|
)
|
|
(2,418
|
)
|
|
Proceeds from sale of property, plant and equipment
|
—
|
|
|
6
|
|
|
Net cash used by investing activities
|
(8,101
|
)
|
|
(2,412
|
)
|
|
Financing activities:
|
|
|
|
|
Proceeds from issuance of debt
|
—
|
|
|
1,465
|
|
|
Principal payments on long-term debt and notes payable
|
(666
|
)
|
|
(874
|
)
|
|
Advances on revolving line of credit
|
53,000
|
|
|
2,000
|
|
|
Payments on revolving line of credit
|
(29,500
|
)
|
|
(2,000
|
)
|
|
Other, net
|
(131
|
)
|
|
—
|
|
|
Net cash provided by financing activities
|
22,703
|
|
|
591
|
|
|
Net decrease in cash and cash equivalents
|
(1,768
|
)
|
|
(9,065
|
)
|
|
Cash and cash equivalents, beginning of period
|
2,491
|
|
|
10,504
|
|
|
Cash and cash equivalents, end of period
|
$
|
723
|
|
|
$
|
1,439
|
|
|
Supplemental disclosure of non-cash transactions:
|
|
|
|
|
Defined contribution plan funding in Company stock
|
$
|
1,535
|
|
|
$
|
1,472
|
|
See accompanying notes to condensed consolidated financial statements.
5
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2017
|
|
|
|
1.
|
Summary of Significant Accounting Policies
|
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, all recurring adjustments considered necessary for a fair statement have been included. Operating results for the
three
months ended
March 31, 2017
are not necessarily indicative of the results that may be expected for the year ending
December 31, 2017
. These financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes included in the Annual Report on Form 10-K, as amended, of LMI Aerospace, Inc. (the "Company”, "us", "we", "our") for the year ended
December 31, 2016
, as filed with the Securities and Exchange Commission on April 4, 2017.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from these estimates.
Pending Merger
On February 16, 2017, the Company entered into a Merger Agreement with Sonaca S.A. relating to the proposed acquisition of the Company. As a result of the pending merger, the Company incurred $2,534 in legal and other transaction costs in the first quarter of 2017. These costs were reflected in the selling, general, and administrative section on a separate line of the Condensed Consolidated Statements of Comprehensive Income (Loss).
Additional information regarding the merger transaction may be found in the Company's definitive proxy statement and form of proxy filed with the SEC on Schedule 14A on April 24, 2017, which was also mailed to shareholders of the Company on or about April 28, 2017.
Recent Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, "Revenue from Contracts with Customers" (Topic 606). The new standard is effective for reporting periods beginning after December 15, 2017 and the Company plans to adopt the standard in the first quarter of 2018. The standard supersedes existing revenue recognition guidance, including industry-specific guidance, and provides companies with a single revenue recognition model for recognizing revenue from contracts with customers. The standard requires revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. The adoption of the new standard may have a material impact on our income statement and balance sheet but we have not completed the quantification of that impact at this time.
The Company performed a preliminary review of its significant contracts and has identified differences that would result from applying the new standard to those contracts. Based on this review, we currently expect that the timing of the recognition of revenue and related costs may change for a significant portion of our business. Some of our contracts on which we currently recognize revenue when risk of loss is transferred to the customer may recognize revenue as costs are incurred under the new standard. In addition, some long-term production contracts for which we currently recognize cost at an average expected margin over the life of the contract may recognize costs attributable to each individual unit as control is transferred to the customer. under the new standard. Adoption of the new standard will not change the total amount of revenue recognized on these contracts, only
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2017
the timing of when revenue is recognized. These changes also have the potential to significantly alter the amount of deferred contract costs in inventory reported on our balance sheet.
The Company is currently evaluating the transition method to be used and is implementing changes to business processes, systems and controls to support adoption of the standard.
In February 2016, the FASB issued ASU 2016-02, "Leases." The standard requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The new standard also expands the required quantitative and qualitative disclosures surrounding leases. The provisions of this new guidance are effective as of the beginning of the Company’s first quarter of 2019. This new standard will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is currently evaluating the effect of this standard on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," which amends Accounting Standards Codification (“ASC”) Topic 718, Compensation – Stock Compensation. The standard requires excess tax benefits or deficiencies for share-based payments be recorded in the period shares vest as income tax expense or benefit, rather than within Additional Paid-in Capital. Cash flows related to excess tax benefits will be included in operating activities and will no longer be separately classified as a financing activity. The new standard is effective for reporting periods beginning after December 15, 2016 and early adoption is permitted. The Company adopted the new standard on January 1, 2017 which did not result in a material impact to our financial statements.
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments." The guidance addresses the classification of cash flow related to (1) debt prepayment or extinguishment costs, (2) settlement of zero-coupon debt instruments or other debt instruments with coupon rates that are insignificant in relation to the effective interest rate of the borrowing, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5) proceeds from the settlement of corporate-owned life insurance, including bank-owned life insurance, (6) distributions received from equity method investees and (7) beneficial interests in securitization transactions. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The guidance will generally be applied retrospectively and is effective for financial statements issued for annual reporting periods beginning after December 15, 2017. Early application is permitted and the Company adopted the new standard on January 1, 2017. The adoption of this standard did not result in a material impact to our financial statements.
All other issued but not yet effective accounting pronouncements are not expected to have a material impact on our Condensed Consolidated Financial Statements.
|
|
|
|
2.
|
Assets and Liabilities Measured at Fair Value
|
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described below:
|
|
|
|
Level 1:
|
Quoted prices in active markets for identical assets or liabilities.
|
|
|
|
|
Level 2:
|
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
|
|
|
Level 3:
|
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. There have been no changes in the methodologies used at
March 31, 2017
. There were no transfers between levels during 2017 and 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
Assets and Liabilities at Fair Value
|
|
Total
|
|
|
as of March 31, 2017
|
|
Gains
|
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
(Losses)
|
|
Non-recurring Fair Value Measurements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset:
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
$
|
38,064
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
38,064
|
|
|
$
|
—
|
|
|
Goodwill (1)
|
$
|
62,482
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
62,482
|
|
|
$
|
—
|
|
(1) The fair value of goodwill is tested at least annually for impairment.
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
Assets and Liabilities at Fair Value
|
|
Total
|
|
|
as of December 31, 2016
|
|
Gains
|
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
(Losses)
|
|
Non-recurring Fair Value Measurements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset:
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net (1)
|
$
|
38,852
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
38,852
|
|
|
$
|
(4,066
|
)
|
|
Goodwill (2)
|
$
|
62,482
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
62,482
|
|
|
$
|
(24,302
|
)
|
(1) The fair value of intangibles relating to the acquisition of Valent Aerostructures LLC was determined by third parties in connection with the purchase and recorded at those values. The intangibles relating to the Engineering Services reporting unit were deemed impaired during 2016 and a
$4,066
impairment charge was recorded in the Consolidated Statements of Comprehensive Income (Loss) for the year ended December 31, 2016.
(2) The Company performed its annual impairment analysis of goodwill related to the Aerostructures reporting units during the fourth quarter of 2016 and determined no adjustments to the carrying value were necessary. The value of the goodwill relating to the Engineering Services reporting unit was deemed fully impaired during 2016 and a
$24,302
impairment charge was recorded in the Consolidated Statements of Comprehensive Income (Loss) for the year ended December 31, 2016.
|
|
|
|
3.
|
Accounts Receivable, Net
|
Accounts receivable, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Trade receivables
|
$
|
54,454
|
|
|
$
|
44,927
|
|
|
Unbilled revenue
|
3,310
|
|
|
4,318
|
|
|
Other receivables
|
1,736
|
|
|
2,372
|
|
|
|
59,500
|
|
|
51,617
|
|
|
Less: Allowance for doubtful accounts
|
(383
|
)
|
|
(348
|
)
|
|
Accounts receivable, net
|
$
|
59,117
|
|
|
$
|
51,269
|
|
Under contract accounting, unbilled revenues arise when the sales or revenues based on performance attainment, though appropriately recognized, cannot be billed yet under terms of the contract as of the balance sheet date. Included in unbilled revenue at
March 31, 2017
and
December 31, 2016
are
$1,009
and
$926
, respectively, related to unpriced change orders or claims that are subject to negotiation. The final resolution of these unpriced items could result in either a favorable or unfavorable change in the revenue recognized to date on the associated contracts.
Accounts receivable expected to be collected after one year is not material.
The Company records changes in contract estimates using the cumulative catch-up method in accordance with the Revenue Recognition topic of the FASB Accounting Standards Codification. Cumulative catch-up adjustments had the following impacts to operating income for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2017
|
2016
|
|
Favorable adjustments
|
|
$
|
303
|
|
$
|
83
|
|
|
Unfavorable adjustments
|
|
(282
|
)
|
(168
|
)
|
|
Net favorable (unfavorable) operating income adjustments
|
|
$
|
21
|
|
$
|
(85
|
)
|
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2017
At
March 31, 2017
and
December 31, 2016
, the Company had recognized a loss reserve of
$3,938
and
$3,895
, respectively, on the Mitsubishi Regional Jet design-build program. Adjustments related to this program were recorded as a reduction to revenue in the Consolidated Statements of Comprehensive Income (Loss).
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Raw materials
|
$
|
17,050
|
|
|
$
|
12,822
|
|
|
Work in progress
|
25,855
|
|
|
23,795
|
|
|
Manufactured and purchased components
|
22,585
|
|
|
20,922
|
|
|
Finished goods
|
27,897
|
|
|
28,346
|
|
|
Product inventory
|
93,387
|
|
|
85,885
|
|
|
Capitalized contract costs
|
36,872
|
|
|
36,876
|
|
|
Total inventories
|
$
|
130,259
|
|
|
$
|
122,761
|
|
Inventories include capitalized contract costs relating to programs and contracts with long-term production cycles. The Company believes these amounts will be fully recovered over the life of the contracts. In accordance with ASC 605-35-45-1&2, the provisions for anticipated losses on contracts are accounted for as additional contract cost and recognized as part of cost of sales. Provisions for losses are recorded as a reduction of related contract costs recorded in inventory. At
March 31, 2017
and December 31,
2016
, the Company had no contracts with loss reserves accounted for as a reduction of inventory.
The following table illustrates the market to which capitalized contract cost at
March 31, 2017
and December 31,
2016
related:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Large commercial aircraft
|
$
|
10,693
|
|
|
$
|
10,852
|
|
|
Corporate and regional aircraft
|
21,179
|
|
|
21,081
|
|
|
Military
|
5,000
|
|
|
4,943
|
|
|
Total capitalized contract cost
|
$
|
36,872
|
|
|
$
|
36,876
|
|
|
|
|
|
5.
|
Goodwill and Intangible Assets
|
Goodwill
The following table summarizes the net carrying amount of goodwill by segment at
March 31, 2017
and
December 31, 2016
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerostructures
|
|
Engineering Services
|
|
Total
|
|
|
March 31,
|
|
December 31,
|
|
March 31,
|
|
December 31,
|
|
March 31,
|
|
December 31,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Balance at:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Goodwill
|
$
|
141,953
|
|
|
$
|
141,953
|
|
|
$
|
50,741
|
|
|
$
|
50,741
|
|
|
$
|
192,694
|
|
|
$
|
192,694
|
|
|
Accumulated impairment loss
|
(79,471
|
)
|
|
(79,471
|
)
|
|
(50,741
|
)
|
|
(50,741
|
)
|
|
(130,212
|
)
|
|
(130,212
|
)
|
|
Net Goodwill
|
$
|
62,482
|
|
|
$
|
62,482
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
62,482
|
|
|
$
|
62,482
|
|
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2017
The carrying value of goodwill is assessed annually, during the fourth quarter, unless a triggering event occurs. Following an assessment, an impairment charge is recorded if appropriate. A triggering event did not occur in the
first
quarter of
2017
that would require the Company to perform an impairment evaluation.
Intangible Assets
Intangible assets primarily consist of trademarks and customer intangibles. The carrying values were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Trademarks
|
$
|
778
|
|
|
$
|
778
|
|
|
Customer intangible assets
|
68,991
|
|
|
68,991
|
|
|
Other
|
1,274
|
|
|
1,274
|
|
|
Accumulated amortization and impairment
|
(32,979
|
)
|
|
(32,191
|
)
|
|
Intangible assets, net
|
$
|
38,064
|
|
|
$
|
38,852
|
|
Intangibles amortization expense was
$788
and
$1,036
for the three months ended
March 31, 2017
and
2016
, respectively. The accumulated amortization balances at
March 31, 2017
and
December 31, 2016
, respectively, were
$778
and
$778
for trademarks,
$31,155
and
$30,399
for customer intangible assets, and
$1,046
and
$1,014
for other intangible assets.
Intangible assets related to the acquisition of Valent Aerostructures, LLC are amortized on the straight-line method as this approximates the pattern of economic benefit of each intangible asset. All other remaining intangible assets are not material.
|
|
|
|
6.
|
Long-term Debt and Capital Lease Obligations
|
Long-term debt and capital lease obligations consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
|
|
|
|
|
Second priority senior secured notes at a fixed rate of 7.375% at March 31, 2017
|
$
|
224,175
|
|
|
$
|
224,175
|
|
|
Revolver under credit agreement, variable rate
|
23,500
|
|
|
—
|
|
|
Industrial Revenue Bonds at a fixed rate of 2.80% at March 31, 2017 and December 31, 2016
|
6,342
|
|
|
6,456
|
|
|
Capital leases, at fixed rates ranging from 3.00% to 4.50% at March 31, 2017 and December 31, 2016
|
9,925
|
|
|
10,293
|
|
|
Notes payable, principal and interest payable monthly, at fixed rates ranging from 2.45% to 5.00% at March 31, 2017 and December 31, 2016
|
2,194
|
|
|
2,377
|
|
|
Debt issuance cost
|
(2,932
|
)
|
|
(3,248
|
)
|
|
Total debt
|
$
|
263,204
|
|
|
$
|
240,053
|
|
|
Less current installments
|
2,725
|
|
|
2,655
|
|
|
Total long-term debt and capital lease obligations
|
$
|
260,479
|
|
|
$
|
237,398
|
|
At
March 31, 2017
, the Company had
$224,175
in outstanding second-priority senior secured notes maturing on July 15, 2019. The Company records these notes at cost. The fair value of these notes, based on the last market price transaction in the quarter ended
March 31, 2017
of 1.03625, was
$232,301
. Obligations under these notes are secured by substantially all of the Company’s assets and bear interest at
7.375%
, paid semi-annually in January and July.
The Company's revolving credit agreement provides for a revolving credit facility of up to
$90,000
. At
March 31, 2017
, the Company had
$23,500
in outstanding borrowings under the facility. Under the agreement, the co-collateral agents may establish a reserve against the facility. At
March 31, 2017
, the reserve established was
$15,000
, which reduced the maximum availability to
$75,000
. Based on the amount of eligible assets at
March 31, 2017
, reduced by outstanding revolving credit
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2017
borrowings and outstanding letters of credit of
$1,325
, the remaining amount available for revolving credit facility borrowings was
$50,175
.
The maximum amount, less reserves, available for borrowing at levels below $30,000 is based on a sum of 45% of eligible receivables, 30% of eligible inventories and an additional amount of eligible equipment up to 20% of total borrowings under the facility. The maximum amount, less reserves, available for borrowing at levels above $30,000 is based on a sum of 75% of eligible receivables, 45% of eligible inventories and an additional amount of eligible equipment up to 20% of total borrowings under the facility.
Borrowings under the facility are secured by a first lien on substantially all of the Company’s assets and bear interest at either the LIBOR rate plus a margin of
3.00%
to
3.50%
or the alternate base rate, which is the highest of the following plus a margin of
2.00%
to
2.50%
, respectively, with the applicable margins for the revolving credit facility subject to a grid based on the average availability ratio of the Company for the most recently completed quarter:
•
Prime rate,
•
Federal funds rate plus
0.5%
, or,
•
The adjusted Eurodollar rate for an interest period of one month plus
1.0%
.
For the
three
months ended
March 31, 2017
, the actual interest rate incurred for the revolving credit facility was
4.8%
on average outstanding borrowings of
$18,267
.
The Company is required to pay a commitment fee of between
0.375%
and
0.5%
per annum on the unused portion of the revolving credit facility, depending on the average revolver usage during the period as compared to the total available borrowings under the facility. At
March 31, 2017
, the commitment fee was
0.5%
.
The revolving credit facility matures on the earlier of July 15, 2019 or the date that is 91 days prior to the maturity date of the senior secured notes unless the notes are repaid, refinanced or otherwise satisfied in full. The maturity dates are subject to acceleration upon occurrence of an event of default. An event of default under the revolving credit agreement includes, among other things, failure to pay any material indebtedness, acceleration of payments by any lender prior to scheduled maturity, or judgments rendered against the Company requiring payments at or above certain levels.
The credit agreement contains a covenant that requires us to comply with a maximum first priority debt to EBITDA ratio on a quarterly basis. In addition, the agreement also contains certain restrictive covenants that limit and in some circumstances prohibit our ability to, among other things, incur additional debt, sell, lease or transfer our assets, make investments, guarantee debt or obligations, create liens, and enter into certain merger, consolidation or other reorganization transactions. These restrictive covenants prohibit the Company from paying dividends. These restrictions could limit our ability to obtain future financing, make acquisitions or needed capital expenditures, withstand any current or future downturns in our business or the economy in general, conduct operations or otherwise take advantage of business opportunities that may arise, any of which could place us at a competitive disadvantage relative to our competitors that have less debt and are not subject to such restrictions.
At
March 31, 2017
, the Company was in compliance with all of its covenants and expects to be in compliance with its covenants in future periods. If the Company fails to meet any covenants in the credit agreement, the Company would not be in compliance with the credit agreement and the lenders would be entitled to exercise various rights, including causing the amounts outstanding under the revolving credit facility to become immediately due and payable.
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2017
|
|
|
|
7.
|
Earnings Per Common Share
|
Basic net income per common share is based upon the weighted average number of common shares outstanding. Diluted net income per common share is based upon the weighted average number of common shares outstanding, including the dilutive effect of restricted stock, using the treasury stock method. The following table shows a reconciliation of the numerators and denominators used in calculating basic and diluted earnings per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2017
|
|
2016
|
|
Numerators
|
|
|
|
|
|
Net loss
|
|
$
|
(6,468
|
)
|
|
$
|
(1,759
|
)
|
|
Denominators
|
|
|
|
|
|
|
|
Weighted average common shares - basic
|
|
13,213,051
|
|
|
12,975,485
|
|
|
|
|
|
|
|
|
Dilutive effect of restricted stock
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
Weighted average common shares - diluted
|
|
13,213,051
|
|
|
12,975,485
|
|
|
|
|
|
|
|
|
Basic loss per share
|
|
$
|
(0.49
|
)
|
|
$
|
(0.14
|
)
|
|
|
|
|
|
|
|
Diluted loss per share
|
|
$
|
(0.49
|
)
|
|
$
|
(0.14
|
)
|
For the
three
months ended
March 31, 2017
and March 31, 2016, restricted shares of
256,793
and
83,603
, respectively, were not included in the calculation of diluted earnings per share, as their inclusion would have been anti-dilutive. These securities could be dilutive in future periods.
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2017
|
|
|
|
8.
|
Stock-Based Compensation
|
On July 7, 2005, the Company’s shareholders approved the LMI Aerospace, Inc. 2005 Long-term Incentive Plan (the “ 2005 Plan”). The 2005 Plan provided for the grant of non-qualified stock options, incentive stock options, shares of restricted stock, restricted stock units, stock appreciation rights, performance awards and other share-based grants and cash bonus awards to employees and directors. All share-based grants or awards were subject to a time-based vesting schedule.
All outstanding share-based grants under the 2005 Plan are in the form of restricted stock. A summary of the activity for non-vested restricted stock awards under the 2005 Plan is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Awards
|
|
Shares
|
|
Weighted
Average Grant Date Fair Value
|
|
Outstanding at January 1, 2017
|
|
168,550
|
|
|
$
|
13.53
|
|
|
Granted
|
|
—
|
|
|
—
|
|
|
Vested
|
|
(27,767
|
)
|
|
13.98
|
|
|
Forfeited
|
|
(18,912
|
)
|
|
14.53
|
|
|
Outstanding at March 31, 2017
|
|
121,871
|
|
|
$
|
13.08
|
|
Common stock compensation expense related to restricted stock awards granted under the 2005 Plan was
$70
and
$161
for the three months ended
March 31, 2017
and
2016
, respectively.
Total unrecognized compensation costs related to non-vested, share-based awards granted or awarded under the 2005 Plan were
$291
and
$513
at
March 31, 2017
and
December 31, 2016
, respectively. These costs are expected to be recognized over a weighted average period of
0.9 years
at
March 31, 2017
.
As of July 7, 2015 the Company was no longer able to grant new awards under the 2005 Plan.
On June 24, 2015, the Company's shareholders approved the LMI Aerospace, Inc. 2015 Incentive Compensation Plan (the “2015 Plan”), which became effective on July 1, 2015. Under the 2015 Plan, the Company, through the Compensation Committee of the Board of Directors, may, at its discretion, grant stock options, restricted shares of common stock, and other various stock-based awards to directors, officers, employees and consultants. A total of
750,000
shares of the Company’s common stock have been reserved for issuance under the 2015 Plan.
All outstanding share-based grants under the 2015 Plan are in the form of restricted stock. A summary of the activity for non-vested restricted stock awards under the 2015 Plan is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Awards
|
|
Shares
|
|
Weighted
Average Grant Date Fair Value
|
|
Outstanding at January 1, 2017 (1)
|
|
274,128
|
|
|
$
|
8.46
|
|
|
Granted
|
|
9,098
|
|
|
8.62
|
|
|
Vested
|
|
—
|
|
|
—
|
|
|
Forfeited
|
|
(15,774
|
)
|
|
9.04
|
|
|
Outstanding at March 31, 2017 (1)
|
|
267,452
|
|
|
$
|
8.46
|
|
(1) Includes
6,129
shares for which service requirements are met that remain subject to deferral at March 31, 2017 pursuant to the LMI Aerospace, Inc. Non-Qualified Deferred Compensation Plan for Senior Executives and Outside Directors.
Common stock compensation expense related to restricted stock awards granted under the 2015 Plan was
$196
and
$174
for the three months ended
March 31, 2017
and
2016
, respectively.
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2017
Total unrecognized compensation costs related to non-vested, share-based awards granted or awarded under the 2015 Plan were
$991
and
$1,510
at
March 31, 2017
and
December 31, 2016
, respectively. These costs are expected to be recognized over a weighted average period of
1.7 years
at
March 31, 2017
.
|
|
|
|
9.
|
Business Segment Information
|
The Company is organized into
two
reportable segments: the Aerostructures segment and the Engineering Services segment. Through its Aerostructures segment, the Company primarily fabricates, machines, finishes, integrates, assembles and kits formed close tolerance aluminum, specialty alloy and composite components and higher level assemblies for use by the aerospace and defense industries. This segment manufactures more than 40,000 products for integration into a variety of aircraft platforms manufactured by leading original equipment manufacturers and Tier 1 aerospace suppliers. Through its Engineering Services segment, the Company provides a complete range of design, engineering and program management services, supporting aircraft product lifecycles from conceptual design, analysis and certification through production support, fleet support and service life extensions via a complete turnkey engineering solution.
Corporate assets, liabilities and expenses related to the Company's corporate offices, except for interest expense and income taxes, primarily support, and are recorded in, the Aerostructures segment. The table below presents information about reported segments on the same basis used internally to evaluate segment performance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
2017
|
|
2016
|
|
Net sales:
|
|
|
|
|
Aerostructures
|
$
|
79,236
|
|
|
$
|
76,954
|
|
|
Engineering Services
|
4,881
|
|
|
11,059
|
|
|
Eliminations
|
(297
|
)
|
|
(682
|
)
|
|
|
$
|
83,820
|
|
|
$
|
87,331
|
|
|
|
|
|
|
|
Income from operations:
|
|
|
|
|
|
|
Aerostructures
|
$
|
598
|
|
|
$
|
3,465
|
|
|
Engineering Services
|
(1,430
|
)
|
|
191
|
|
|
Eliminations
|
(75
|
)
|
|
(226
|
)
|
|
|
$
|
(907
|
)
|
|
$
|
3,430
|
|
|
|
|
|
10.
|
Customer Concentration
|
Direct sales, through both of the Company’s business segments, to our largest customer, Spirit Aerosystems (“Spirit”), accounted for
41.3%
and
36.6%
of the Company’s total revenues for the three months ended
March 31, 2017
and
2016
, respectively. Accounts receivable balances related to Spirit were
38.4%
and
31.8%
of the Company’s total accounts receivable balance at
March 31, 2017
and
December 31, 2016
, respectively.
Direct sales, through both of the Company’s business segments, to our second largest customer, Gulfstream Aerospace Corporation, a General Dynamics company (“Gulfstream”), accounted for
11.7%
and
11.5%
of the Company’s total revenues for the three months ended
March 31, 2017
and
2016
, respectively. Accounts receivable balances resulting from direct sales to Gulfstream were
10.7%
and
12.3%
of the Company’s total accounts receivable balance at
March 31, 2017
and
December 31, 2016
, respectively.
Direct sales, through both of the Company’s business segments, to our third largest customer, The Boeing Company (“Boeing”), accounted for
11.2%
and
10.9%
of the Company’s total revenues for the three months ended
March 31, 2017
and
2016
, respectively. Accounts receivable balances related to Boeing were
11.7%
and
8.5%
of the Company’s total accounts receivable balance at
March 31, 2017
and
December 31, 2016
, respectively.
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2017
The Company records income tax expense or benefit each quarter based on its estimated full-year effective tax rate. An income tax expense of
$10
and and income tax benefit of
$164
were recognized in the
three
months ended
March 31, 2017
and March 31, 2016, respectively. The Company continues to carry a full valuation allowance on its net deferred tax assets, which totaled
$21,540
and
$21,027
at
March 31, 2017
and
December 31, 2016
, respectively.
The Company committed to and implemented various restructuring plans in 2016 and 2017. Included in those plans were the relocation of the sheet-metal fabrication operation in Wichita, Kansas to other facilities within the Company. Other employment separation activities, which were primarily severance related, were also implemented as part of the Company's overall reorganization and cost reduction initiatives. The expense associated with these plans was reflected in the selling, general, and administrative section on a separate line of the Condensed Consolidated Statements of Comprehensive Income (Loss). The following table summarizes the incurred charges (reversals) associated with these restructuring activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31,
|
|
|
2017
|
|
2016
|
|
|
|
|
Wichita, Kansas sheet-metal operations relocation
|
(20
|
)
|
|
—
|
|
|
Other employment separation activities
|
—
|
|
|
947
|
|
|
Total
|
$
|
(20
|
)
|
|
$
|
947
|
|
|
|
|
|
|
|
Expense incurred by segment:
|
|
|
|
|
Aerostructures
|
$
|
(20
|
)
|
|
$
|
947
|
|
|
Engineering Services
|
—
|
|
|
—
|
|
|
Total
|
$
|
(20
|
)
|
|
$
|
947
|
|
The Company does not expect to recognize any additional restructuring expenses related to these plans, as all have been completed.
Cash payments were made associated with restructuring plans of
$203
and
$235
in the three months ended
March 31, 2017
and
2016
, respectively.
The following table summarizes the Company's restructuring activities during the
three
months ended
March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
Employee
|
|
|
|
Severance
|
|
|
|
|
|
Accrued restructuring balance as of December 31, 2016
|
|
$
|
285
|
|
|
Accrual reversals
|
|
(20
|
)
|
|
Cash payments
|
|
(203
|
)
|
|
Accrued restructuring balance as of March 31, 2017
|
|
$
|
62
|
|
Accrued restructuring of
$62
at
March 31, 2017
is expected to be paid in the second quarter of 2017.
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2017
The Company is not named as a defendant in a lawsuit that is outside the normal course of business that it deems material. In accordance with generally accepted accounting principles, management discloses the amount or range of reasonably possible losses in a lawsuit in which the Company is a named defendant. In the opinion of management, after consulting with legal counsel, any losses resulting from lawsuits in the normal course of business should not have a material effect on the Company’s financial position, cash flows or results of operations.
|
|
|
|
14.
|
Condensed Consolidating Financial Statements
|
LMI Aerospace, Inc. excluding its subsidiaries (“LMIA”) is the parent company, issuer and obligor of the second-priority senior notes due July 15, 2019 (the “Notes”). The payment obligations of LMIA under the Notes are guaranteed and secured by LMIA and all of its subsidiaries other than minor subsidiaries as further described below.
These Notes are guaranteed on a second-priority senior secured basis, jointly and severally, by LMIA (“Guarantor Parent”) and all of its existing and future 100% owned subsidiaries (collectively, the “Guarantor Subsidiaries”) other than minor subsidiaries. Such guaranties are full and unconditional. LMIA conducts substantially all of its business through and derives virtually all of its income from its subsidiaries. Therefore, its ability to make required principal and interest payments with respect to its indebtedness depends on the earnings of subsidiaries and its ability to receive funds from its subsidiaries.
The Notes are secured on a second-priority basis by liens on substantially all of LMIA’s and the Guarantor Subsidiaries’ assets, subject to certain exceptions and permitted liens. The liens securing the Notes are contractually subordinated to the liens that secure indebtedness under the revolving credit facility as a result of the lien subordination provisions of the intercreditor agreement to the extent of the value of the collateral securing such indebtedness as well as being subordinated by other existing indebtedness, including industrial revenue bonds, capital leases and other notes payable, to the extent of the value of the collateral that secures such existing indebtedness. As a consequence of this lien subordination and existing indebtedness the notes and the guarantees are effectively subordinated to the extent of the value of the collateral that secures them. Decisions regarding the maintenance and release of the collateral secured by the collateral agreement are made by the lenders under the modified revolving credit facility, and neither the indenture trustee nor the holders of the Notes have control of decisions regarding the release of collateral.
We have not presented separate financial statements and separate disclosures have not been provided concerning the Guarantor Subsidiaries due to the presentation of condensed consolidating financial information set forth in this Note, consistent with the Securities and Exchange Commission (the “SEC”) rules governing reporting on guarantor financial information.
Supplemental condensed consolidating financial information of the Company, including such information for the Guarantor Subsidiaries, is presented below. Investments in subsidiaries are presented using the equity method of accounting. The principal elimination entries eliminate investments in subsidiaries and inter-company balances and transactions.
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2017
CONDENSED CONSOLIDATING BALANCE SHEET
as of
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LMIA(Guarantor Parent)
|
|
Guarantor Subsidiaries
|
|
Consolidating/Eliminating Entries
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
607
|
|
|
$
|
116
|
|
|
$
|
—
|
|
|
$
|
723
|
|
|
Trade accounts receivable, net
|
715
|
|
|
58,402
|
|
|
—
|
|
|
59,117
|
|
|
Intercompany receivables
|
53,796
|
|
|
12,400
|
|
|
(66,196
|
)
|
|
—
|
|
|
Inventories
|
—
|
|
|
130,259
|
|
|
—
|
|
|
130,259
|
|
|
Prepaid expenses and other current assets
|
2,219
|
|
|
2,347
|
|
|
—
|
|
|
4,566
|
|
|
Total current assets
|
57,337
|
|
|
203,524
|
|
|
(66,196
|
)
|
|
194,665
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
8,009
|
|
|
93,166
|
|
|
—
|
|
|
101,175
|
|
|
Investments in subsidiaries
|
285,650
|
|
|
—
|
|
|
(285,650
|
)
|
|
—
|
|
|
Goodwill
|
—
|
|
|
62,482
|
|
|
—
|
|
|
62,482
|
|
|
Intangible assets, net
|
—
|
|
|
38,064
|
|
|
—
|
|
|
38,064
|
|
|
Other assets
|
1,641
|
|
|
813
|
|
|
—
|
|
|
2,454
|
|
|
Total assets
|
$
|
352,637
|
|
|
$
|
398,049
|
|
|
$
|
(351,846
|
)
|
|
$
|
398,840
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders’ equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
1,572
|
|
|
$
|
30,287
|
|
|
$
|
—
|
|
|
$
|
31,859
|
|
|
Accrued expenses
|
11,866
|
|
|
8,728
|
|
|
—
|
|
|
20,594
|
|
|
Intercompany payables
|
12,400
|
|
|
53,796
|
|
|
(66,196
|
)
|
|
—
|
|
|
Current installments of long-term debt and capital lease obligations
|
67
|
|
|
2,658
|
|
|
—
|
|
|
2,725
|
|
|
Total current liabilities
|
25,905
|
|
|
95,469
|
|
|
(66,196
|
)
|
|
55,178
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital lease obligations, less current installments
|
244,912
|
|
|
15,567
|
|
|
—
|
|
|
260,479
|
|
|
Other long-term liabilities
|
1,049
|
|
|
1,363
|
|
|
—
|
|
|
2,412
|
|
|
Deferred income taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total long-term liabilities
|
245,961
|
|
|
16,930
|
|
|
—
|
|
|
262,891
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
80,771
|
|
|
285,650
|
|
|
(285,650
|
)
|
|
80,771
|
|
|
Total liabilities and shareholders’ equity
|
$
|
352,637
|
|
|
$
|
398,049
|
|
|
$
|
(351,846
|
)
|
|
$
|
398,840
|
|
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2017
CONDENSED CONSOLIDATING BALANCE SHEET
as of
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LMIA(Guarantor Parent)
|
|
Guarantor Subsidiaries
|
|
Consolidating/Eliminating Entries
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
2,382
|
|
|
$
|
109
|
|
|
$
|
—
|
|
|
$
|
2,491
|
|
|
Trade accounts receivable, net
|
660
|
|
|
50,609
|
|
|
—
|
|
|
51,269
|
|
|
Intercompany receivables
|
244,792
|
|
|
312,332
|
|
|
(557,124
|
)
|
|
$
|
—
|
|
|
Inventories
|
—
|
|
|
122,761
|
|
|
—
|
|
|
122,761
|
|
|
Prepaid expenses and other current assets
|
1,548
|
|
|
2,038
|
|
|
—
|
|
|
3,586
|
|
|
Total current assets
|
249,382
|
|
|
487,849
|
|
|
(557,124
|
)
|
|
180,107
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
6,490
|
|
|
93,025
|
|
|
—
|
|
|
99,515
|
|
|
Investments in subsidiaries
|
375,738
|
|
|
—
|
|
|
(375,738
|
)
|
|
—
|
|
|
Goodwill
|
—
|
|
|
62,482
|
|
|
—
|
|
|
62,482
|
|
|
Intangible assets, net
|
—
|
|
|
38,852
|
|
|
—
|
|
|
38,852
|
|
|
Other assets
|
1,790
|
|
|
886
|
|
|
—
|
|
|
2,676
|
|
|
Total assets
|
$
|
633,400
|
|
|
$
|
683,094
|
|
|
$
|
(932,862
|
)
|
|
$
|
383,632
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders’ equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
410
|
|
|
$
|
28,968
|
|
|
$
|
—
|
|
|
$
|
29,378
|
|
|
Accrued expenses
|
13,912
|
|
|
11,631
|
|
|
—
|
|
|
25,543
|
|
|
Intercompany payables
|
310,644
|
|
|
246,480
|
|
|
(557,124
|
)
|
|
—
|
|
|
Current installments of long-term debt and capital lease obligations
|
89
|
|
|
2,566
|
|
|
—
|
|
|
2,655
|
|
|
Total current liabilities
|
325,055
|
|
|
289,645
|
|
|
(557,124
|
)
|
|
57,576
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital lease obligations, less current installments
|
221,101
|
|
|
16,297
|
|
|
—
|
|
|
237,398
|
|
|
Other long-term liabilities
|
1,703
|
|
|
1,414
|
|
|
—
|
|
|
3,117
|
|
|
Total long-term liabilities
|
222,804
|
|
|
17,711
|
|
|
—
|
|
|
240,515
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
85,541
|
|
|
375,738
|
|
|
(375,738
|
)
|
|
85,541
|
|
|
Total liabilities and shareholders’ equity
|
$
|
633,400
|
|
|
$
|
683,094
|
|
|
$
|
(932,862
|
)
|
|
$
|
383,632
|
|
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2017
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the
three
Months Ended
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LMIA(Guarantor Parent)
|
|
Guarantor Subsidiaries
|
|
Consolidating/Eliminating Entries
|
|
Consolidated
|
|
Sales and service revenue
|
|
|
|
|
|
|
|
|
Product sales
|
$
|
(24
|
)
|
|
$
|
78,572
|
|
|
$
|
24
|
|
|
$
|
78,572
|
|
|
Service revenues
|
10,890
|
|
|
5,248
|
|
|
(10,890
|
)
|
|
5,248
|
|
|
Net sales
|
10,866
|
|
|
83,820
|
|
|
(10,866
|
)
|
|
83,820
|
|
|
Cost of sales and service revenue
|
|
|
|
|
|
|
|
|
|
Cost of product sales
|
—
|
|
|
65,363
|
|
|
|
|
|
65,363
|
|
|
Cost of service revenues
|
10,803
|
|
|
6,079
|
|
|
(10,866
|
)
|
|
6,016
|
|
|
Cost of sales
|
10,803
|
|
|
71,442
|
|
|
(10,866
|
)
|
|
71,379
|
|
|
Gross profit
|
63
|
|
|
12,378
|
|
|
—
|
|
|
12,441
|
|
|
Selling, general and administrative expenses
|
—
|
|
|
10,834
|
|
|
—
|
|
|
10,834
|
|
|
Merger Expense
|
2,534
|
|
|
—
|
|
|
—
|
|
|
2,534
|
|
|
Restructuring expense
|
—
|
|
|
(20
|
)
|
|
—
|
|
|
(20
|
)
|
|
(Loss) income from operations
|
(2,471
|
)
|
|
1,564
|
|
|
—
|
|
|
(907
|
)
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
Interest expense
|
(4,998
|
)
|
|
(220
|
)
|
|
—
|
|
|
(5,218
|
)
|
|
Other, net
|
5
|
|
|
(338
|
)
|
|
—
|
|
|
(333
|
)
|
|
Income (loss) from equity investments in subsidiaries
|
1,018
|
|
|
—
|
|
|
(1,018
|
)
|
|
—
|
|
|
Total other expense
|
(3,975
|
)
|
|
(558
|
)
|
|
(1,018
|
)
|
|
(5,551
|
)
|
|
(Loss) income before income taxes
|
(6,446
|
)
|
|
1,006
|
|
|
(1,018
|
)
|
|
(6,458
|
)
|
|
Provision for income taxes
|
—
|
|
|
10
|
|
|
—
|
|
|
10
|
|
|
Net (loss) income
|
(6,446
|
)
|
|
996
|
|
|
(1,018
|
)
|
|
(6,468
|
)
|
|
Other comprehensive income (expense):
|
|
|
|
|
|
|
|
|
Change in foreign currency translation adjustment
|
—
|
|
|
22
|
|
|
—
|
|
|
22
|
|
|
Total comprehensive (loss) income
|
$
|
(6,446
|
)
|
|
$
|
1,018
|
|
|
$
|
(1,018
|
)
|
|
$
|
(6,446
|
)
|
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2017
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the
three
Months Ended
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LMIA(Guarantor Parent)
|
|
Guarantor Subsidiaries
|
|
Consolidating/Eliminating Entries
|
|
Consolidated
|
|
Sales and service revenue
|
|
|
|
|
|
|
|
|
Product sales
|
$
|
58
|
|
|
$
|
75,804
|
|
|
$
|
—
|
|
|
$
|
75,862
|
|
|
Service revenues
|
11,378
|
|
|
11,527
|
|
|
(11,436
|
)
|
|
11,469
|
|
|
Net sales
|
11,436
|
|
|
87,331
|
|
|
(11,436
|
)
|
|
87,331
|
|
|
Cost of sales and service revenue
|
|
|
|
|
|
|
|
|
|
Cost of product sales
|
59
|
|
|
60,277
|
|
|
—
|
|
|
60,336
|
|
|
Cost of service revenues
|
11,395
|
|
|
10,836
|
|
|
(11,466
|
)
|
|
10,765
|
|
|
Cost of sales
|
11,454
|
|
|
71,113
|
|
|
(11,466
|
)
|
|
71,101
|
|
|
Gross profit
|
(18
|
)
|
|
16,218
|
|
|
30
|
|
|
16,230
|
|
|
Selling, general and administrative expenses
|
—
|
|
|
11,853
|
|
|
—
|
|
|
11,853
|
|
|
Restructuring expense
|
451
|
|
|
496
|
|
|
—
|
|
|
947
|
|
|
(Loss) income from operations
|
(469
|
)
|
|
3,869
|
|
|
30
|
|
|
3,430
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
Interest expense
|
(5,030
|
)
|
|
(233
|
)
|
|
—
|
|
|
(5,263
|
)
|
|
Other, net
|
2
|
|
|
(92
|
)
|
|
—
|
|
|
(90
|
)
|
|
Income (loss) from equity investments in subsidiaries
|
3,695
|
|
|
—
|
|
|
(3,695
|
)
|
|
—
|
|
|
Total other expense
|
(1,333
|
)
|
|
(325
|
)
|
|
(3,695
|
)
|
|
(5,353
|
)
|
|
(Loss) income before income taxes
|
(1,802
|
)
|
|
3,544
|
|
|
(3,665
|
)
|
|
(1,923
|
)
|
|
(Benefit) provision for income taxes
|
—
|
|
|
(164
|
)
|
|
—
|
|
|
(164
|
)
|
|
Net (loss) income
|
(1,802
|
)
|
|
3,708
|
|
|
(3,665
|
)
|
|
(1,759
|
)
|
|
Other comprehensive income (expense):
|
|
|
|
|
|
|
|
|
Change in foreign currency translation adjustment
|
—
|
|
|
(13
|
)
|
|
—
|
|
|
(13
|
)
|
|
Total comprehensive (loss) income
|
$
|
(1,802
|
)
|
|
$
|
3,695
|
|
|
$
|
(3,665
|
)
|
|
$
|
(1,772
|
)
|
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2017
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the
three
Months Ended
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LMIA(Guarantor Parent)
|
|
Guarantor Subsidiaries
|
|
Consolidating/Eliminating Entries
|
|
Consolidated
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net (loss)/income
|
$
|
(6,446
|
)
|
|
$
|
996
|
|
|
$
|
(1,018
|
)
|
|
$
|
(6,468
|
)
|
|
Adjustments for non-cash items
|
1,638
|
|
|
2,501
|
|
|
1,018
|
|
|
5,157
|
|
|
Net changes in operating assets and liabilities, net of acquired businesses
|
(510
|
)
|
|
(14,549
|
)
|
|
—
|
|
|
(15,059
|
)
|
|
Intercompany activity
|
(17,750
|
)
|
|
17,750
|
|
|
—
|
|
|
—
|
|
|
Net cash (used)/provided by operating activities
|
(23,068
|
)
|
|
6,698
|
|
|
—
|
|
|
(16,370
|
)
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
(2,070
|
)
|
|
(6,031
|
)
|
|
—
|
|
|
(8,101
|
)
|
|
Proceeds from sale of equipment
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
Net cash used by investing activities
|
(2,070
|
)
|
|
(6,031
|
)
|
|
—
|
|
|
(8,101
|
)
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt and notes payable
|
(24
|
)
|
|
(642
|
)
|
|
—
|
|
|
(666
|
)
|
|
Advances on revolving line of credit
|
53,000
|
|
|
—
|
|
|
—
|
|
|
53,000
|
|
|
Payments on revolving line of credit
|
(29,500
|
)
|
|
—
|
|
|
—
|
|
|
(29,500
|
)
|
|
Other, net
|
(113
|
)
|
|
(18
|
)
|
|
—
|
|
|
(131
|
)
|
|
Net cash provided (used)/provided by financing activities
|
23,363
|
|
|
(660
|
)
|
|
—
|
|
|
22,703
|
|
|
Net (decrease) increase in cash and cash equivalents
|
(1,775
|
)
|
|
7
|
|
|
—
|
|
|
(1,768
|
)
|
|
Cash and cash equivalents, beginning of period
|
2,382
|
|
|
109
|
|
|
—
|
|
|
2,491
|
|
|
Cash and cash equivalents, end of period
|
$
|
607
|
|
|
$
|
116
|
|
|
$
|
—
|
|
|
$
|
723
|
|
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2017
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the
three
Months Ended
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LMIA(Guarantor Parent)
|
|
Guarantor Subsidiaries
|
|
Consolidating/Eliminating Entries
|
|
Consolidated
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net (loss)/income
|
$
|
(1,802
|
)
|
|
$
|
3,708
|
|
|
$
|
(3,665
|
)
|
|
$
|
(1,759
|
)
|
|
Adjustments for non-cash items
|
(2,526
|
)
|
|
4,519
|
|
|
3,665
|
|
|
5,658
|
|
|
Net changes in operating assets and liabilities, net of acquired businesses
|
(8,787
|
)
|
|
(2,356
|
)
|
|
—
|
|
|
(11,143
|
)
|
|
Intercompany activity
|
4,776
|
|
|
(4,776
|
)
|
|
—
|
|
|
—
|
|
|
Net cash (used)/provided by operating activities
|
(8,339
|
)
|
|
1,095
|
|
|
—
|
|
|
(7,244
|
)
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
(778
|
)
|
|
(1,640
|
)
|
|
—
|
|
|
(2,418
|
)
|
|
Proceeds from sale of equipment
|
—
|
|
|
6
|
|
|
—
|
|
|
6
|
|
|
Net cash used by investing activities
|
(778
|
)
|
|
(1,634
|
)
|
|
—
|
|
|
(2,412
|
)
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt
|
—
|
|
|
1,465
|
|
|
—
|
|
|
1,465
|
|
|
Principal payments on long-term debt and notes payable
|
(22
|
)
|
|
(852
|
)
|
|
—
|
|
|
(874
|
)
|
|
Advances on revolving line of credit
|
2,000
|
|
|
—
|
|
|
—
|
|
|
2,000
|
|
|
Payments on revolving line of credit
|
(2,000
|
)
|
|
—
|
|
|
—
|
|
|
(2,000
|
)
|
|
Payments for debt issuance cost
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net cash provided (used) by financing activities
|
(22
|
)
|
|
613
|
|
|
—
|
|
|
591
|
|
|
Net (decrease) increase in cash and cash equivalents
|
(9,139
|
)
|
|
74
|
|
|
—
|
|
|
(9,065
|
)
|
|
Cash and cash equivalents, beginning of period
|
10,251
|
|
|
253
|
|
|
—
|
|
|
10,504
|
|
|
Cash and cash equivalents, end of period
|
$
|
1,112
|
|
|
$
|
327
|
|
|
$
|
—
|
|
|
$
|
1,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2017
|
|
|
($ in millions)
|
|
|
Aerostructures
|
|
Engineering Services
|
|
Elimination
|
|
Total
|
|
Net sales
|
$
|
79.2
|
|
|
$
|
4.9
|
|
|
$
|
(0.3
|
)
|
|
$
|
83.8
|
|
|
Cost of sales
|
66.2
|
|
|
5.4
|
|
|
(0.2
|
)
|
|
71.4
|
|
|
Gross profit
|
13.0
|
|
|
(0.5
|
)
|
|
(0.1
|
)
|
|
12.4
|
|
|
S, G, & A
|
12.4
|
|
|
0.9
|
|
|
—
|
|
|
13.3
|
|
|
Income from operations
|
$
|
0.6
|
|
|
$
|
(1.4
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2016
|
|
|
($ in millions)
|
|
|
Aerostructures
|
|
Engineering Services
|
|
Elimination
|
|
Total
|
|
Net sales
|
$
|
77.0
|
|
|
$
|
11.1
|
|
|
$
|
(0.8
|
)
|
|
$
|
87.3
|
|
|
Cost of sales
|
62.2
|
|
|
9.4
|
|
|
(0.5
|
)
|
|
71.1
|
|
|
Gross profit
|
14.8
|
|
|
1.7
|
|
|
(0.3
|
)
|
|
16.2
|
|
|
S, G, & A
|
11.3
|
|
|
1.5
|
|
|
—
|
|
|
12.8
|
|
|
Income from operations
|
$
|
3.5
|
|
|
$
|
0.2
|
|
|
$
|
(0.3
|
)
|
|
$
|
3.4
|
|
Aerostructures Segment
Net Sales.
Net sales were
$79.2 million
for the
first
quarter of
2017
, a
2.9%
increase
from
$77.0 million
in the
first
quarter of
2016
. The following table specifies the amount of the Aerostructures segment’s net sales by category for the
first
quarter of
2017
and
2016
and the percentage of the segment’s total net sales for each period represented by each category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Category
|
|
2017
|
|
% of Total
|
|
2016
|
|
% of Total
|
|
|
|
($ in millions)
|
|
Large commercial aircraft
|
|
$
|
45.0
|
|
|
56.8
|
%
|
|
$
|
44.8
|
|
|
58.2
|
%
|
|
Corporate and regional aircraft
|
|
19.4
|
|
|
24.5
|
%
|
|
17.3
|
|
|
22.5
|
%
|
|
Military
|
|
9.2
|
|
|
11.6
|
%
|
|
8.9
|
|
|
11.6
|
%
|
|
Other
|
|
5.6
|
|
|
7.1
|
%
|
|
6.0
|
|
|
7.7
|
%
|
|
Total
|
|
$
|
79.2
|
|
|
100.0
|
%
|
|
$
|
77.0
|
|
|
100.0
|
%
|
Net sales of large commercial aircraft products
increased
0.4%
in the
first
quarter of
2017
when compared to the
first
quarter of
2016
. The most significant increase in revenue in the category was attributable to sales on the Bombardier C-Series platform which contributed $1.6 million in additional sales volume when compared to the prior-year period. The Boeing 737 and 767 platforms, which generated sales in the
first
quarter of
2017
of $26.2 million and $2.6 million, respectively, compared to $25.0 million and $1.5 million, respectively, in the
first
quarter of
2016
, also contributed to the increase in sales. These increases in revenue were partially offset by a decline in sales of wing modification products of $0.9 million and declines in sales on the Boeing 787 and 777 platforms of $0.9 million and $0.8 million, respectively, in the
first
quarter of
2017
when compared to the prior-year period.
Net sales of components for corporate and regional aircraft increased
12.1%
during the
first
quarter of
2017
. The increase in sales in this category was primarily attributable to sales on the Gulfstream G500/600 and Bombardier Global 7000/8000 programs, which contributed $3.9 and $2.5 million, respectively, in the
first
quarter of
2017
compared to $1.4 million and $0.8 million, respectively, in the
first
quarter of
2016
. In addition, sales on a new Honda Jet program contributed $1.4 million in the
first
quarter of
2017
. These increases were partially offset by a decline in sales of $1.8 million on the Gulfstream G450/550 program, which contributed $1.8 million in the first quarter of
2017
compared to $3.6 million in the period-year period.
Cost of Goods Sold.
Cost of goods sold for the
first
quarter of
2017
was
$66.2 million
compared to
$62.2 million
for the
first
quarter of
2016
. The increase in cost of goods sold was attributable to the increase in sales, start-up and learning related to new programs and inefficiencies integrating work from a rationalized facility.
Gross Profit.
Gross profit for the
first
quarter of
2017
was
$13.0 million
(
16.4%
of net sales) compared to
$14.8 million
(
19.2%
of net sales) in the
first
quarter of
2016
. The reduction in gross profit margin was primarily attributable to unfavorable product mix, start-up and learning related to new programs and inefficiencies integrating work from a rationalized facility.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses were
$12.4 million
(
15.7%
of net sales) for the
first
quarter of
2017
, compared to
$11.3 million
(
14.7%
of net sales) for the
first
quarter of
2016
. The increase in selling, general and administrative expenses was primarily attributable to $2.5 million in legal and other transaction expenses related to the Company's pending merger with Sonaca, S.A., partially offset by lower restructuring costs and salary and related expenses of $1.0 million and $0.7 million, respectively. Excluding the impact of merger expenses, selling general and administrative expenses decreased $1.4 million in the first quarter of 2017 when compared to the first quarter of 2016.
Engineering Services Segment
Net Sales.
The Engineering Services segment generates revenue primarily through the billing of employee time spent on customer projects. Net sales for the Engineering Services segment were
$4.9 million
for the
first
quarter of
2017
as compared to
$11.1 million
for the
first
quarter of
2016
, a decrease of
55.9%
. The following table specifies the amount of the Engineering Services segment’s net sales by category for the
first
quarter in each of
2017
and
2016
and the percentage of the segment’s total net sales represented by each category.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Category
|
|
2017
|
|
% of Total
|
|
2016
|
|
% of Total
|
|
|
|
($ in millions)
|
|
Large commercial aircraft
|
|
$
|
1.4
|
|
|
28.6
|
%
|
|
$
|
5.9
|
|
|
53.2
|
%
|
|
Corporate and regional aircraft
|
|
1.7
|
|
|
34.7
|
%
|
|
2.6
|
|
|
23.4
|
%
|
|
Military
|
|
1.5
|
|
|
30.6
|
%
|
|
2.2
|
|
|
19.8
|
%
|
|
Other
|
|
0.3
|
|
|
6.1
|
%
|
|
0.4
|
|
|
3.6
|
%
|
|
Total
|
|
$
|
4.9
|
|
|
100.0
|
%
|
|
$
|
11.1
|
|
|
100.0
|
%
|
Net sales of services for large commercial aircraft were
$1.4 million
in the
first
quarter of
2017
,
down
76.3%
from
$5.9 million
in the
first
quarter of
2016
. The
decrease
in this category was primarily attributable to a decline in sales related to maintenance and repair services which contributed $3.3 million in the
first
quarter of
2016
compared to $1.0 million in the
first
quarter of
2017
. In addition, sales on the Bombardier C-series program also declined from $1.2 million in the
first
quarter of
2016
to $0.4 million in revenue in the
first
quarter of
2017
.
Net sales of services related to corporate and regional aircraft were
$1.7 million
in the
first
quarter of
2017
compared to
$2.6 million
for the
first
quarter of
2016
,
down
34.6%
. The decrease in this category was primarily attributable to the Bombardier Global 7000/8000 program, which completed in 2016 and contributed $1.3 million in the
first
quarter of
2016
.
Net sales of services for military programs were
$1.5 million
in the
first
quarter of
2017
compared to
$2.2 million
for the
first
quarter of
2016
,
down
31.8%
. The
decrease
in this category was primarily attributable to a decline in sales related to the Boeing F-18 program, which contributed $1.9 million in the
first
quarter of 2016 compared to $1.0 million in the
first
quarter of 2017.
Cost of Goods Sold.
Cost of goods sold for the
first
quarter of
2017
was
$5.4 million
compared to
$9.4 million
for the
first
quarter of
2016
. The decrease in cost of good sold was primarily attributable to lower volume. This decrease was partially offset by cost overruns on firm, fixed price contracts when compared to the prior-year period.
Gross Loss.
Gross loss for the
first
quarter of
2017
was
$0.5 million
(
10.2%
of net sales) compared to gross profit of
$1.7 million
(
15.3%
of net sales) in the
first
quarter of
2016
. The previously mentioned cost overruns and unfavorable fixed cost utilization on the decline in revenues negatively impacted gross profit in the first quarter of 2017 when compared to the prior-year period.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses for the
first
quarter of
2017
were
$0.9 million
, or
18.4%
of net sales, compared to
$1.5 million
, or
13.5%
of net sales, for the
first
quarter of
2016
. Intangible asset amortization and salary and wage expenses were each lower in the first quarter of 2017 by $0.2 million when compared to the prior-year period.
Non-segment Expenses
Interest Expense.
Interest expense decreased to
$5.2 million
for the
first
quarter of
2017
from
$5.3 million
for the
first
quarter of
2016
.
Income Tax Expense.
During the
first
quarter of
2017
, the Company recorded an income tax expense of
$0.01 million
compared to an income expense of
$0.2 million
in the
first
quarter of
2016
.
Non-GAAP Financial Measures
When viewed with the financial results prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and accompanying reconciliations, the Company believes earnings before interest, taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA provide additional useful information to clarify and enhance the understanding of the factors and trends affecting past performance and future prospects. The Company defines these measures, explains how they are calculated and provides reconciliations of these measures to the most comparable GAAP measure in the tables below. EBITDA and Adjusted EBITDA, as presented in this Form 10-Q, are supplemental measures of performance that are not required by, or presented in accordance with, GAAP. They are not measurements of financial performance under GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with GAAP, or as alternatives to net cash provided by operating activities as measures of liquidity. The presentation of these measures should not be interpreted to mean that future results will be unaffected by unusual or nonrecurring items.
The Company uses EBITDA and Adjusted EBITDA non-GAAP operating performance measures internally as complementary financial measures to evaluate the performance and trends of the business. The Company presents EBITDA and Adjusted EBITDA because it believes that measures such as these provide useful information with respect to its ability to meet future debt service, capital expenditures, working capital requirements and overall operating performance.
EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of the Company’s results as reported under GAAP. Some of these limitations are:
|
|
|
|
•
|
They do not reflect the Company’s cash expenditures, future expenditures for capital expenditures or contractual commitments;
|
|
|
|
|
•
|
They do not reflect changes in, or cash requirements for, working capital needs;
|
|
|
|
|
•
|
They do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on debt;
|
|
|
|
|
•
|
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
|
|
|
|
|
•
|
They are not adjusted for all non-cash income or expense items that are reflected in the statement of cash flows;
|
|
|
|
|
•
|
They do not reflect the impact on earnings of charges resulting from matters unrelated to ongoing operations; and
|
|
|
|
|
•
|
Other companies in the Company’s industry may calculate EBITDA and Adjusted EBITDA differently, limiting their usefulness as comparative measures.
|
Because of these limitations, EBITDA, Adjusted EBITDA and the related financial ratios should not be considered as measures of discretionary cash available to the Company to invest in the growth of the business or as a measure of cash that will be available to meet the Company’s obligations. Furthermore, the definitions of EBITDA and adjusted EBITDA calculated here are different than those contained in the Company’s credit agreement. You should compensate for these limitations by relying primarily on the GAAP results and using EBITDA and Adjusted EBITDA only supplementary.
However, in spite of the above stated limitations, the Company believes that EBITDA and Adjusted EBITDA are useful to an investor in evaluating the results of operations because these measures:
|
|
|
|
•
|
Are widely used by investors to measure a company’s operating performance without regard to items excluded from the calculation of such terms, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors;
|
|
|
|
|
•
|
Help investors to evaluate and compare the results of operations from period to period by removing the effect of the capital structure from operating performance; and
|
|
|
|
|
•
|
Are used by the management team for various other purposes in presentations to the Board of Directors as a basis for strategic planning and forecasting.
|
Adjusted EBITDA excludes acquisition and integration charges, as applicable, and provides meaningful information about the operating performance of the businesses apart from other non cash and non-recurring expenses, as well as interest and tax expense.
The following financial items have been added back to net income when calculating EBITDA:
The following additional financial items have been added back to net income when calculating Adjusted EBITDA:
|
|
|
|
•
|
Stock-based compensation;
|
|
|
|
|
•
|
Integration-related expenses;
|
|
|
|
|
•
|
Restructuring expenses;
|
Reconciliations of net loss to EBITDA and Adjusted EBITDA were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
Three Months Ended March 31,
|
|
|
2017
|
|
2016
|
|
Net loss
|
$
|
(6,468
|
)
|
|
$
|
(1,759
|
)
|
|
Depreciation and amortization (1)
|
4,462
|
|
|
4,900
|
|
|
Interest expense
|
5,218
|
|
|
5,263
|
|
|
Income tax expense (benefit)
|
10
|
|
|
(164
|
)
|
|
EBITDA
|
3,222
|
|
|
8,240
|
|
|
Merger expense (2)
|
2,534
|
|
|
—
|
|
|
Stock-based compensation (3)
|
762
|
|
|
752
|
|
|
Integration expenses
|
58
|
|
|
31
|
|
|
Restructuring expenses (4)
|
(20
|
)
|
|
947
|
|
|
Other, net
|
310
|
|
|
170
|
|
|
Adjusted EBITDA
|
$
|
6,866
|
|
|
$
|
10,140
|
|
|
|
|
|
(1)
|
Includes amortization of intangibles, amortization of long-term supply agreement consideration and depreciation expense.
|
|
|
|
|
(2)
|
Includes legal and other transaction costs incurred in association with the Company's pending merger with Sonaca.
|
|
|
|
|
(3)
|
Includes shared-based expense associated with the LMI Aerospace, Inc. 2005 Long-term Incentive Plan, the LMI Aerospace, Inc. 2015 Incentive Compensation Plan and the LMI Profit Sharing and Savings Plan.
|
|
|
|
|
(4)
|
The three months ended March 31, 2017 includes an adjustment related to the relocation of the Company's Wichita, Kansas sheet metal fabrication facility. The three months ended March 31, 2016 includes expenses associated with general employment separation activities.
|
Liquidity and Capital Resources
At
March 31, 2017
, the Company's primary source of outstanding indebtedness was second priority senior secured notes that mature in July of 2019. These notes accrue interest at 7.375% and require semi-annual interest payments. The Company believes that cash generated from operations combined with its cash and cash equivalent assets, in addition to available borrowings under its revolving credit facility, will provide the financial flexibility necessary to achieve its long-range strategic goals. For more information on the Company's debt structure, please see Note 6 - Long-term Debt and Capital Lease Obligations in the Notes to the Condensed Consolidated Financial Statements under Part 1, Item 1 of this Quarterly Report on Form 10-Q.
During the first
three
months of
2017
and
2016
, the Company's operating activities used cash of
$16.4 million
and
$7.2 million
, respectively. Net cash used by operating activities for the first
three
months of 2017 and 2016 was unfavorably impacted by increases in accounts receivable related to the timing of customer payments of
$7.9 million
and
$6.5 million
, respectively. Inventory also increased in the first
three
months of 2017 and 2016 by
$7.7 million
and
$4.7 million
, respectively, as the Company prepared for anticipated higher demand in subsequent quarters. In addition, in the first
three
months of
2017
and 2016, the Company made payments of $8.3 million and $8.6 million, respectively, for the semi-annual interest due on its outstanding notes. An increase in accounts payable, primarily associated with the increases in inventory, favorably impacted operating cash flow in the first three months of 2017 and 2016 by
$4.8 million
and
$7.4 million
, respectively.
Net cash used for investing activities was
$8.1 million
for the first
three
months of
2017
, compared to
$2.4 million
for the first
three
months of
2016
. Capital spending in both quarters primarily supported our increasing content on the Boeing 737 MAX platform.
In the
three
months ended
March 31, 2017
, the Company funded operations and capital spending by borrowing $23.5 million on its revolving credit facility and made principal payments of $0.7 million on other long-term debt. In the
three
months ended
March 31, 2016
, the Company borrowed $1.5 million to fund an equipment purchase and made principal payments on other long-term debt of $0.9 million.
The Company believes its use of cash will moderate in the later half of 2017. The Company expects to meet its ongoing working capital, debt service and capital expenditures needs, both presently and through the end of 2017, with a combination of cash on hand, cash flow from operations and cash available under our revolving credit arrangement. At March 31, 2017 the Company had $50.2 million available on its revolving credit facility.
The Company, in the ordinary course of business, evaluates strategies to enhance our results of operations, financial position, or liquidity. These strategies may include acquisitions, divestitures, opportunities to reduce costs or increase revenues, and other strategic initiatives to increase stockholder value. We are unable to predict which, if any, of these initiatives will be executed. The execution of these initiatives may have a material impact on our future results of operations, financial position, or liquidity.
Contractual Obligations and Commitments
For information concerning contractual obligations, see the caption “Contractual Obligations and Commitments” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results” in the Company’s
2016
Form 10-K, as amended.