3. Subsequent EventsOn April 1, 2001, the Company purchased certain assets and liabilities of Tempco Engineering, Inc. and Hyco Precision, Inc. (together referred to as “Tempco”), two related companies in Sun Valley, California for $14,250. The Company may pay additional contingent consideration of up to $1,250, based on the financial results of Tempco over the next two years. Tempco had sales of $16,000 for the year ended December 31, 2000 and had total assets of $10,000 as of December 31, 2000. This acquisition will be accounted for under the purchase method of accounting and has been excluded from the consolidated financial statements of the Company as of March 31, 2001. The cost to acquire Tempco will be allocated to the assets acquired and liabilities assumed according to their estimated fair values at the time of the acquisition. In order to facilitate the acquisition of Tempco, the Company amended its current loan agreement entering into a three year borrowing agreement ("Borrowing Agreement") on April 2, 2001. This Borrowing Agreement provides financing up to $15,500 and bears interest at LIBOR plus 3%. The Company drew $14,250 on this Borrowing Agreement on April 2, 2001. The Borrowing Agreement is secured by all assets of the Company, excluding real property, and contains financial covenants requiring minimum levels of cash flow coverage and EBITDA. As of March 31, 2001, the Company has not drawn upon the original loan agreement, which is a $7,000 secured line of credit. Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONSExcept for the historical information contained herein, the following report contains forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled Management’s Discussion and Analysis of Financial Conditions and Results of Operations. OverviewLMI Aerospace, Inc. is a leader in fabricating, machining and integrating of formed close tolerance aluminum and specialty alloy components for use by the aerospace industry. The Company has been engaged in manufacturing components for a wide variety of aerospace applications. Components manufactured by the Company include leading edge wing slats, flaps and lens assemblies; cockpit window frame assemblies; fuselage skins and supports, and passenger and cargo door frames and supports. The Company maintains multi-year contracts with leading original equipment manufacturers and primary subcontractors of commercial, corporate, regional and military aircraft. Such contracts, which govern the majority of the Company’s sales, designate the Company as the sole supplier of the aerospace components sold under the contracts. Customers include Boeing, Lockheed Martin, Northrop Grumman, Gulfstream, Learjet, Canadair, DeHavilland and PPG. The Company manufactures more than 15,000 parts for integration into such models as Boeing’s 737, 747, 757, 767 and 777 commercial aircraft and F-15, F-18, C-17 military aircraft, Canadair’s RJ regional aircraft, Gulfstream’s G-IV and G-V corporate aircraft, and Lockheed Martin’s F-16 and C-130 military aircraft. Quarter Ended March 31, 2001 vs. March 31, 2000 Net Sales. The Company enjoyed an increase in net sales of 10.5% in the quarter, with sales reaching $16.0 million in 2001. Shipments on Boeing commercial models added $1.4 million in the quarter. This increase in shipments to Boeing was primarily due to $2.4 million in sales of Boeing 747 components in 2001, which represents an increase of $0.8 million from 2000. Net sales on the 737 NG were $4.1 million in 2001, up from $3.9 million in 2000. Sales to Bombardier totaled $1.4 million in 2001, up $0.5 million from 2000, predominately due to sales of components and tools for Learjet aircraft of $1.0 million, up $0.4 million from 2000. Sales on Lockheed Martin’s F-16 continued the strong performance in late 2000, contributing $1.2 million in the quarter, up $0.4 million from the first quarter of 2000, due to increased production rates and the customers desire for accelerated deliveries. Sales on Gulfstream’s G-IV and G-V aircraft were $1.6 million in 2001, down $0.4 million from 2000. This decrease is due to an inventory correction by Gulfstream, which the Company expects to work through during the second quarter of 2001. Gross Profit. Gross profit for the first quarter of 2001 was $3.7 million (23.1% of net sales), up from $2.2 million (15.4% of net sales) in 2000. This increased gross profit was primarily due to improved labor efficiency, evidenced by decreased manufacturing payroll and fringes cost of $0.1 million and increased sales of $1.5 million. Selling, General, and Administrative Expenses. Selling, general, and administrative expenses were $2.3 million in the quarter, a decrease of $0.2 million from 2000. During the first quarter of 2000, the Company recorded a bad debt expense of $0.4 million related to a customer that filed bankruptcy. Excluding this one time charge in 2000, selling, general, and administrative expenses increased $0.2 million, primarily resulting from increased payroll and fringe costs. Cumulative Effect of Change in Accounting Principle.In the fourth quarter of 2000, the Company changed its method of accounting for revenue recognition in accordance with Staff Accounting Bulleting (SAB) No. 101, Revenue Recognition in Financial Statements. The new accounting method was adopted retroactive January 1, 2000. The cumulative effect of the change on prior years resulted in a charge to income of $164, net of income tax benefit of $88, which is included in income for the three months ended March 31, 2001. All 2000 amounts have been restated for this change in accounting principle. Refer to note 1 to the financial statements for further information on this change. Liquidity and Capital Resources.Cash was materially unchanged in 2001. Cash from operations totaled $1.1 million. The Company’s net income of $0.9 million was offset by an increase in accounts receivable of $1.1 million. Additionally, there was benefit of $0.9 million from non-cash expenses of depreciation and amortization as well as accruals of tax liabilities that are not yet paid. The operating cash was used to fund capital expenditures of $1.0 million and treasury stock purchases of $0.1 million. Subsequent to the end of the quarter, the Company purchased certain assets and liabilities of Tempco Engineering, Inc. and Hyco Precision, Inc. The Company amended its current loan agreement (referred to as the "Borrowing Agreement") to fund the purchase price. The Borrowing Agreement provides financing up to $15.5 million. The Company drew $14.25 million on the Borrowing Agreement on April 2, 2001. The Company also maintains its revolving credit agreement of $7.0 million which it expects to cover its normal operating and capital expenditure requirements.
PART II
OTHER INFORMATIONItem 6. Exhibits and Reports on Form 8-K |
