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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 30, 2008 | |
OR | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission file number: 333-138178
INDALEX HOLDINGS FINANCE, INC.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) | 3350 (Primary Standard Industrial Classification Number) | 20-3730880 (I.R.S. Employer Identification No.) | ||
75 Tri-State International, Suite 450 Lincolnshire, IL 60069 Telephone: (847) 810-3000 | ||||
(Address, including zip code, and telephone number, including area code, of registrants' principal executive offices) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer ý (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý
The number of shares of the registrant's common stock outstanding as of April 30, 2008 was 1,000,024.
PART I. FINANCIAL INFORMATION | 3 | |||
Item 1. | Financial Statements | 3 | ||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 35 | ||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 47 | ||
Item 4. | Controls and Procedures | 47 | ||
PART II. OTHER INFORMATION | 48 | |||
Item 1. | Legal Proceedings | 48 | ||
Item 1A. | Risk Factors | 48 | ||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 48 | ||
Item 3. | Defaults Upon Senior Securities | 48 | ||
Item 4. | Submission of Matters to a Vote of Security Holders | 48 | ||
Item 5. | Other Information | 48 | ||
Item 6. | Exhibits | 48 | ||
SIGNATURES | 49 |
INDALEX HOLDINGS FINANCE, INC.
CONSOLIDATED BALANCE SHEETS
As of March 30, 2008 and December 31, 2007
(Dollars in thousands, except per share amounts)
(Unaudited)
| March 30, 2008 | December 31, 2007 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
| (Successor) | (Successor) | ||||||||
ASSETS | ||||||||||
Current Assets: | ||||||||||
Cash and cash equivalents | $ | 1,242 | $ | 7,919 | ||||||
Accounts receivable, less allowance of $3,805 in 2008 and $3,862 in 2007 | 120,557 | 83,288 | ||||||||
Receivable from suppliers | 15,125 | 5,241 | ||||||||
Inventories | 46,649 | 58,265 | ||||||||
Prepaid expenses and other current assets | 18,288 | 10,407 | ||||||||
Deferred income taxes | 5,316 | 5,434 | ||||||||
Total current assets | 207,177 | 170,554 | ||||||||
Property, plant, and equipment, net | 193,872 | 192,391 | ||||||||
Other intangibles, net | 62,046 | 64,306 | ||||||||
Deferred financing costs | 9,029 | 9,563 | ||||||||
Other assets | 2,699 | 2,604 | ||||||||
Total assets | $ | 474,823 | $ | 439,418 | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||
Current Liabilities: | ||||||||||
Accounts payable | $ | 73,041 | $ | 69,125 | ||||||
Income taxes payable | 321 | 271 | ||||||||
Accrued expenses and other current liabilities | 47,326 | 35,206 | ||||||||
Accrued interest | 4,443 | 10,160 | ||||||||
Capital lease obligation | 1,600 | 1,563 | ||||||||
Checks issued in excess of bank balance | 4,447 | — | ||||||||
Revolver borrowings | 107,468 | 67,500 | ||||||||
Total current liabilities | 238,646 | 183,825 | ||||||||
Other liabilities | 39,544 | 40,767 | ||||||||
Capital lease obligation | 3,289 | 3,662 | ||||||||
Long-term debt | 196,217 | 196,138 | ||||||||
Deferred income taxes | 4,509 | 6,191 | ||||||||
Total liabilities | 482,205 | 430,583 | ||||||||
Commitments and contingencies (Note 13) | ||||||||||
Stockholders' equity (deficit): | ||||||||||
Common stock ($.001 par value per share). Authorized shares 2,900,000. Issued and oustanding 1,000,114 | 1 | 1 | ||||||||
Additional paid-in capital | 35,303 | 35,124 | ||||||||
Treasury stock, 90 shares at $111.11 per share | (10 | ) | (10 | ) | ||||||
Accumulated deficit | (47,416 | ) | (30,874 | ) | ||||||
Accumulated other comprehensive income | 4,740 | 4,594 | ||||||||
Total stockholders' equity (deficit) | (7,382 | ) | 8,835 | |||||||
Total liabilities and stockholders' equity (deficit) | $ | 474,823 | $ | 439,418 | ||||||
See accompanying notes to consolidated financial statements.
3
INDALEX HOLDINGS FINANCE, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
| Three months ended | ||||||||
---|---|---|---|---|---|---|---|---|---|
| March 30, 2008 | April 1, 2007 | |||||||
| (Successor) | (Successor) | |||||||
Net sales | $ | 250,588 | $ | 291,222 | |||||
Costs and expenses: | |||||||||
Cost of sales | 243,835 | 277,089 | |||||||
Selling, general, and administrative | 13,490 | 13,954 | |||||||
Management fees to affiliates | 250 | 319 | |||||||
Amortization of intangible assets | 2,259 | 2,608 | |||||||
Other income | (859 | ) | (885 | ) | |||||
Restructuring charges | 3,681 | 1,618 | |||||||
Impairment of long-lived assets | 389 | — | |||||||
(Gain) loss on disposal of assets | (501 | ) | 58 | ||||||
Mark-to-market on derivatives | (2,632 | ) | (1,476 | ) | |||||
Total costs and expenses | 259,912 | 293,285 | |||||||
Loss from operations | (9,324 | ) | (2,063 | ) | |||||
Other income (expense): | |||||||||
External interest expense | (7,437 | ) | (9,893 | ) | |||||
Deferred financing costs | (535 | ) | (596 | ) | |||||
Interest income | 29 | — | |||||||
Income from equity method investment in AAG | — | 4,917 | |||||||
Loss before income taxes | (17,267 | ) | (7,635 | ) | |||||
Income tax benefit | (725 | ) | (948 | ) | |||||
Net loss | $ | (16,542 | ) | $ | (6,687 | ) | |||
See accompanying notes to consolidated financial statements.
4
INDALEX HOLDINGS FINANCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
| Three months ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| March 30, 2008 | April 1, 2007 | ||||||||
| (Successor) | (Successor) | ||||||||
Cash flows from operating activities | ||||||||||
Net loss | $ | (16,542 | ) | $ | (6,687 | ) | ||||
Adjustments to reconcile net loss to net cash | ||||||||||
from operating activities: | ||||||||||
Depreciation | 8,501 | 8,269 | ||||||||
Amortization of intangible assets | 2,259 | 2,608 | ||||||||
Amortization of deferred financing costs | 535 | 596 | ||||||||
Amortization of bond discount | 79 | 107 | ||||||||
(Gain) loss on disposal of assets | (501 | ) | 58 | |||||||
Impairment of long-lived assets | 389 | — | ||||||||
Other | (1 | ) | — | |||||||
Income from equity method investment in AAG | — | (4,917 | ) | |||||||
Stock-based compensation | 179 | 211 | ||||||||
Deferred income taxes | (875 | ) | (1,136 | ) | ||||||
Changes in operating assets and liabilities | ||||||||||
Accounts receivable | (38,542 | ) | (30,117 | ) | ||||||
Inventories | 10,988 | (24,796 | ) | |||||||
Prepaids and other assets | (18,212 | ) | 1,905 | |||||||
Income taxes payable/refundable | 85 | (1,672 | ) | |||||||
Checks issued in excess of bank balance | 4,583 | — | ||||||||
Accounts payable | 4,986 | 9,416 | ||||||||
Accrued expenses and other liabilities | 5,685 | 3,787 | ||||||||
Net cash from operating activities | (36,404 | ) | (42,368 | ) | ||||||
Cash flows from investing activities | ||||||||||
Capital expenditures | (10,599 | ) | (6,889 | ) | ||||||
Proceeds from sales of property, plant and equipment | 834 | (12 | ) | |||||||
Net cash from investing activities | (9,765 | ) | (6,901 | ) | ||||||
Cash flows from financing activities | ||||||||||
Payments on capital lease obligation | (358 | ) | (308 | ) | ||||||
Revolver borrowings | 40,144 | 42,329 | ||||||||
Net cash from financing activities | 39,786 | 42,021 | ||||||||
Effect of changes in foreign exchange rates on cash | (294 | ) | 41 | |||||||
Net change in cash and cash equivalents | (6,677 | ) | (7,207 | ) | ||||||
Cash and cash equivalents | ||||||||||
Beginning of period | 7,919 | 11,157 | ||||||||
End of period | $ | 1,242 | $ | 3,950 | ||||||
Supplemental cash flow information: | ||||||||||
Cash paid for interest | $ | 13,074 | $ | 17,096 | ||||||
Cash paid for income taxes | 42 | 1,859 |
See accompanying notes to consolidated financial statements.
5
INDALEX HOLDINGS FINANCE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
| Common Stock | Additional Paid-in Capital | Treasury Stock | Accumulated Deficit | Accumulated Other Comprehensive Income | Total | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Successor balance, January 1, 2008 | $ | 1 | $ | 35,124 | $ | (10 | ) | $ | (30,874 | ) | $ | 4,594 | $ | 8,835 | ||||||
Net loss | — | — | — | (16,542 | ) | — | (16,542 | ) | ||||||||||||
Stock-based compensation | — | 179 | — | — | — | 179 | ||||||||||||||
Translation adjustment | — | — | — | — | 146 | 146 | ||||||||||||||
Successor balance, March 30, 2008 | $ | 1 | $ | 35,303 | $ | (10 | ) | $ | (47,416 | ) | $ | 4,740 | $ | (7,382 | ) | |||||
See accompanying notes to consolidated financial statements.
6
INDALEX HOLDINGS FINANCE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
| Common Stock | Additional Paid-in Capital | Treasury Stock | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Successor balance, January 1, 2007 | $ | 1 | $ | 110,665 | $ | (10 | ) | $ | (23,898 | ) | $ | 2,640 | $ | 89,398 | ||||||
Net loss | — | — | — | (6,687 | ) | — | (6,687 | ) | ||||||||||||
Stock-based compensation | — | 211 | — | — | — | 211 | ||||||||||||||
Translation adjustment | — | — | — | — | (160 | ) | (160 | ) | ||||||||||||
Successor balance, April 1, 2007 | $ | 1 | $ | 110,876 | $ | (10 | ) | $ | (30,585 | ) | $ | 2,480 | $ | 82,762 | ||||||
See accompanying notes to consolidated financial statements.
7
INDALEX HOLDINGS FINANCE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
| Three months ended | ||||||
---|---|---|---|---|---|---|---|
| March 30, 2008 | April 1, 2007 | |||||
| (Successor) | (Successor) | |||||
Net loss | $ | (16,542 | ) | $ | (6,687 | ) | |
Translation adjustment | 146 | (160 | ) | ||||
Comprehensive loss | $ | (16,396 | ) | $ | (6,847 | ) | |
See accompanying notes to consolidated financial statements.
8
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
NOTE 1—GENERAL
The Company is the second largest aluminum extruder, and the largest independent aluminum extruder, in the United States and Canada, based on shipment volume data compiled by the Aluminum Association, the Aluminum Extruders Council, and management estimates. As an independent aluminum extruder, the Company is not involved in aluminum mining, refining or smelting. In 2007, approximately 94% of the Company's products were customized, made-to-order aluminum extrusions for use in a wide array of end-user markets. In addition to aluminum extrusion, the Company also offers a broad range of services, including fabrication, painting and anodizing. The Company serves over 3,700 customers, including a broad spectrum of national, regional and local accounts.
The consolidated financial statements have been prepared by management and have not been audited by the Company's external auditors. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company at March 30, 2008, and the results of operations and cash flows for the three months ended March 30, 2008 and April 1, 2007. The results of operations and cash flows for the three months ended March 30, 2008 should not necessarily be taken as indicative of the results of operations that may be expected for the entire year. The financial information as of March 30, 2008 should be read in conjuction with the financial statements for the year ended December 31, 2007 contained in our Form 10-K filed on March 31, 2008.
On February 2, 2006, Indalex Holding Corp. acquired (the "Indalex Holdings acquisition"), Indalex Inc. and Indalex Limited, wholly owned subsidiaries of Honeywell International, Inc. ("Honeywell"). Indalex Holding Corp. is a holding company that is a wholly-owned direct subsidiary of Indalex Holdings Finance, Inc., (together with its predecessors, the "Company") which is beneficially owned by affiliates of Sun Capital Partners, Inc., certain other investors and members of the Company's management team. Honeywell had previously acquired (the "Honeywell acquisition") the former parent company, Novar plc ("Novar"), on March 31, 2005. Both the Indalex Holdings and the Honeywell acquisitions were accounted for under purchase accounting. The financial statements presented after the Indalex Holdings acquisition are referred to as the "Successor Company."
The Company reports its interim results on a 4-4-5 accounting calendar, therefore, the ending date for a period typically differs from a calendar month end. The consolidated financial statements for the first quarter 2008 are those for the 13 week period ended March 30, 2008.
NOTE 2—RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued Statement of Financial Accounting Standard ("SFAS") No. 157, "Fair Value Measurements" (SFAS No. 157). SFAS No. 157 establishes a common definition for fair value to be applied to U.S. GAAP requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. SFAS No. 157 is effective for financial assets and financial liabilities for fiscal years beginning after November 15, 2007. Issued in February 2008, FSP 157-1 "Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13" removed leasing transactions accounted for
9
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
NOTE 2—RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
under Statement 13 and related guidance from the scope of SFAS No. 157. FSP 157-2 "Partial Deferral of the Effective Date of Statement 157" (FSP 157-2), deferred the effective date of SFAS No. 157 for most nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008.
The implementation of SFAS No. 157 for financial assets and financial liabilities, effective January 1, 2008, had no impact on the Company's consolidated financial position and results of operations. The Company is currently assessing the impact of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities on its consolidated financial position and results of operations.
SFAS No. 157, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). SFAS No. 157 classifies the inputs used to measure fair value into the following hierarchy:
Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities | |
Level 2 | Unadjusted quoted prices in active markets for similar assets or liabilities, or | |
Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or | ||
Inputs that are derived principally from or corroborated by observable market data by correlation or other means. | ||
or | ||
Inputs other than quoted prices that are observable for the asset or liability | ||
Level 3 | Unobservable inputs for the asset or liability based on the Company's own assumptions |
Derivative contracts are valued using quoted market prices and significant other observable inputs. Such financial instruments consist of aluminum, foreign currency and interest rate contracts. The fair value of aluminum and foreign currency contracts are valued using broker quotations, or market transactions in either the listed or over-the-counter markets. As such these derivative instruments are classified within level 2 of the fair value hierarchy. Interest rate swaps do not have observable market quotes. For these financial instruments, management uses significant observable inputs (i.e., premiums for swaps) to value the derivative. As such these derivative instruments are classified within level 2 of the fair value hierarchy. The following table sets forth the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 30, 2008:
| March 30, 2008 | ||
---|---|---|---|
Assets: | |||
Commodity futures contracts | $ | 3,471 | |
Foreign currency contracts | 80 | ||
Interest rate swaps | — | ||
Liabilities: | |||
Commodity futures contracts | — | ||
Foreign currency contracts | 85 | ||
Interest rate swaps | 2,276 |
10
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
NOTE 2—RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
In February 2007, the FASB issued SFAS No. 159 "The Fair Value Option for Financial Assets and Financial Liabilities" (SFAS No. 159). SFAS No. 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company already records derivative contracts at fair value in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities, as amended (SFAS 133). The adoption of SFAS 159 had no impact on the Company's consolidated financial position and results of operations as management did not elect the fair value option for any other financial instruments or certain other assets and liabilities.
In March 2007, the FASB ratified Emerging Issues Task Force Issue No. 06-10 "Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements" (EITF 06-10). EITF 06-10 provides guidance for determining a liability for the postretirement benefit obligation as well as recognition and measurement of the associated asset on the basis of the terms of the collateral assignment agreement. EITF 06-10 is effective for fiscal years beginning after December 15, 2007. The implementation of this standard had no impact on the Company's consolidated financial position and results of operations.
In June 2007, the FASB ratified EITF 06-11 "Accounting for the Income Tax Benefits of Dividends on Share-Based Payment Awards" (EITF 06-11). EITF 06-11 provides that tax benefits associated with dividends on share-based payment awards be recorded as a component of additional paid-in capital. EITF 06-11 is effective, on a prospective basis, for fiscal years beginning after December 15, 2007. The implementation of this standard had no impact on the Company's consolidated financial position and results of operations.
In December 2007, the FASB issued SFAS No. 141(revised 2007), "Business Combinations" (SFAS No. 141R). SFAS No. 141R provides revised guidance on how acquirors recognize and measure the consideration transferred, identifiable assets acquired, liabilities assumed, noncontrolling interests, and goodwill acquired in a business combination. SFAS No. 141R also expands required disclosures surrounding the nature and financial effects of business combinations. SFAS No. 141R is effective, on a prospective basis, for fiscal years beginning after December 15, 2008. The Company will apply the standard when required and applicable.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements" (SFAS No. 160). SFAS No. 160 establishes requirements for ownership interests in subsidiaries held by parties other than the Company (sometimes called "minority interests") be clearly identified, presented, and disclosed in the consolidated statement of financial position within equity, but separate from the parent's equity. All changes in the parent's ownership interests are required to be accounted for consistently as equity transactions and any noncontrolling equity investments in unconsolidated subsidiaries must be measured initially at fair value. SFAS No. 160 is effective, on a prospective basis, for fiscal years beginning after December 15, 2008. However, presentation and disclosure requirements must be retrospectively applied to comparative financial statements. The Company will apply the standard when required and applicable.
11
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
NOTE 2—RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
In December 2007, the FASB issued SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133), Implementation Issue No. E23, "Hedging—General: Issues Involving the Application of the Shortcut Method under Paragraph 68" (Issue E23). Issue E23 amends SFAS 133 to explicitly permit use of the shortcut method for hedging relationships in which interest rate swaps have nonzero fair value at the inception of the hedging relationship, provided certain conditions are met. Issue E23 was effective for hedging relationships designated on or after January 1, 2008. The implementation of this guidance had no impact on the Company's consolidated financial position and results of operations.
In March 2008, the FASB issued SFAS No. 161, "Disclosures About Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133" (SFAS No. 161). SFAS No. 161 expands quarterly disclosure requirements in SFAS No. 133 about an entity's derivative instruments and hedging activities. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008. The Company is currently assessing the impact of SFAS No. 161 on its consolidated financial position and results of operations.
NOTE 3—EQUITY METHOD INVESTMENT
On May 15, 2007 Indalex UK Limited sold its 25.01% interest in Asia Aluminum Group ("AAG") to OK Spring Roll Limited Partnership, an investment vehicle in association with ORIX Corporation.
The investment in AAG was accounted for using the equity method of accounting. The principal business transactions between AAG and the Company include the sale of finished aluminum products where the Company uses AAG as a contract manufacturer. The Company purchases finished extruded aluminum products from AAG for resale to customers when it is more economical than manufacturing the product directly or when there are capacity constraints. Approximately 4% of the Company's net sales were sourced from AAG for the period January 1, 2007 to April 1, 2007.
Summarized financial data for AAG's operations as of April 1, 2007 and for the period ended is as follows:
| Period ended April 1, 2007 | ||
---|---|---|---|
| Successor | ||
Sales | $ | 209,473 | |
Gross profit | 38,901 | ||
Net income | 18,238 | ||
Current assets | 514,430 | ||
Current liabilities | 587,063 | ||
Non-current liabilities | 38 | ||
Total assets | 951,018 | ||
Stockholders' equity | 363,916 | ||
Retained earnings | 283,656 |
12
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
NOTE 4—INTANGIBLE ASSETS
As part of the Indalex Holding acquisition, identifiable intangible assets were recorded. The identifiable intangible assets are being amortized on a declining balance method. The useful lives range from seven to fifteen years. The table below summarizes the identified intangible assets and annual amortization expense.
| March 30, 2008 | December 31, 2007 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||
Customer lists | $ | 68,258 | $ | (18,593 | ) | $ | 49,665 | $ | 68,258 | $ | (16,824 | ) | $ | 51,434 | ||||
Indalex trademark | 17,000 | (4,619 | ) | 12,381 | 17,000 | (4,128 | ) | 12,872 | ||||||||||
Total | $ | 85,258 | $ | (23,212 | ) | $ | 62,046 | $ | 85,258 | $ | (20,952 | ) | $ | 64,306 | ||||
Future amortization expense is as follows:
Year Ending December 31, | | ||
---|---|---|---|
Remainder of 2008 | $ | 5,814 | |
2009 | $ | 7,316 | |
2010 | $ | 6,860 | |
2011 | $ | 6,449 | |
2012 | $ | 6,449 |
NOTE 5—RESTRUCTURING CHARGES
On January 9, 2008, the Company announced the closure of its aluminum extrusion facility located in Girard, Ohio. The facility ceased operations in March 2008. As a result of the closure, the Company recorded expense of $2,717 comprised of $2,515 in severance and related costs resulting from the termination of 250 people, and $202 of other exit costs during the period ended March 30, 2008. On March 19, 2008, the Company announced the closure of its aluminum extrusion facility located in Niles, Ohio. The facility ceased operations in April 2008. As a result of the closure, the Company recorded an impairment on long-lived assets of $389 during the period ended March 30, 2008 based on the appraised values of the assets expected to be disposed. During the period ended March 30, 2008, the Company recorded expense of $102 comprised of $100 of severance and related costs resulting from the termination of 37 people, and $2 of other exit costs.
In January 2008, the Company initiated an overhead restructuring program. During the period ended March 30, 2008, the Company recorded expense of $306 in severance and related costs resulting from the termination of 20 people.
On January 5, 2007, the Company announced the closure of its aluminum extrusion facility located in Watsonville, California. The facility ceased operations in June 2007. During the period ended March 30, 2008, the Company recorded expense of $556 comprised of $97 for employee-related costs and $459 for lease obligations and other exit costs. The cumulative expense resulting from the closure
13
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
NOTE 5—RESTRUCTURING CHARGES (Continued)
is $1,417 for severance and related costs resulting from the termination of 99 people and $1,299 for lease obligations and other exit costs.
The following table summarizes the status of the Company's total restructuring costs.
| Severance Costs | Asset Impairments | Exit Costs | Total | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at December 31, 2007 | $ | 1,175 | $ | — | $ | 16 | $ | 1,191 | ||||||
January 1-March 30, 2008 charges | 3,018 | 389 | 663 | 4,070 | ||||||||||
January 1-March 30, 2008 usage | (1,261 | ) | (389 | ) | (621 | ) | (2,271 | ) | ||||||
Balance at March 30, 2008 | $ | 2,932 | $ | — | $ | 58 | $ | 2,990 | ||||||
NOTE 6—DERIVATIVE INSTRUMENTS
SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities measured at fair value. In accordance with the Company's risk management policy, derivatives are limited to futures, forwards, swaps, and options, which are used to mitigate commodity price, foreign currency, and interest rate risk. These hedging relationships do not qualify for hedge accounting as defined by SFAS No. 133. Therefore, the derivatives are marked to market through the income statement.
As of March 30, 2008, the Company had 278 contracts to purchase 49.3 million pounds of aluminum at prices per pound between $1.10 and $1.44 (actual). These purchase contracts are scheduled to mature between April 2008 and June 2011, and the notional amount was $59,919. As of March 30, 2008, the Company had 45 contracts to sell 81.4 million pounds of aluminum at prices between $1.14 and $1.39 (actual). These sales contracts are scheduled to mature between April 2008 and July 2008, and the notional amount was $109,444. As of March 30, 2008, the unrealized gains related to these derivatives are recorded within other current assets in the amount of $4,196. The income statement reflects a gain of $3,646 for the period ended March 30, 2008.
As of December 31, 2007, the unrealized losses related to these derivatives are recorded within other current liabilities in the amount of $175. The income statement reflects a gain of $1,476 for the period ended April 1, 2007.
The Company transacts business in foreign currencies, giving rise to foreign exchange rate risk. The purpose of the Company's foreign currency hedging activity is to protect the Company from the risk that the eventual U.S. Dollar net cash outflows resulting from foreign purchases or net cash inflows denominated in foreign currency, will be adversely affected by the changes in exchange rates. As of March 30, 2008, the Company had two contracts to buy 8.5 million Swedish Krona (SEK) at prices per US Dollar between SEK 5.97 and SEK 6.72 (actual). These purchase contracts are scheduled to mature in April 2008, and the notional amount was $1,346. As of March 30, 2008, the Company had nine contracts to buy 13.2 million Canadian Dollars (CAD) at prices per US Dollar between CAD 1.00 and CAD 1.02 (actual). These purchase contracts are scheduled to mature between April 2008 and May
14
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
NOTE 6—DERIVATIVE INSTRUMENTS (Continued)
2008, and the notional amount was $13,013. As of March 30, 2008, the unrealized gains related to these derivatives are recorded within other current assets in the amount of $80, and the unrealized losses are recorded within other current liabilities in the amount of $85. The income statement reflects a loss of $160 for the period ended March 30, 2008, which includes a loss of $189 in other expense.
The Company's short-term debt consists of a revolving credit facility providing for borrowings up to $200.0 million. (See Note 10.) In order to manage the mix of fixed and floating rates in its revolving credit facility, the Company has entered into interest rate swaps to change the characteristics of interest rate payments from short-term LIBOR-based variable rate payments to fixed-rate payments for a portion of its total revolver balance. As of March 30, 2008, the Company had three interest rate swap contracts with a weighted average fixed rate of 5.11%. The contracts are scheduled to mature between July 2009 and September 2009, and the notional amount was $57,500. As of March 30, 2008, the unrealized losses related to these derivatives are recorded within other current liabilities in the amount of $2,276. The income statement reflects a loss of $1,043 for the period ended March 30, 2008.
NOTE 7—AFFILIATE TRANSACTIONS
During the periods ended March 30, 2008 and April 1, 2007, the Company incurred management fees of $250 and $319, respectively, to Sun Capital Partners, Inc. for operational management, debt financing support and corporate governance. Sun Capital Partners charges its fees to affiliates proportionately based on a percentage of EBITDA.
NOTE 8—INVENTORIES
Inventories consisted of the following:
| March 30, 2008 | December 31, 2007 | ||||||
---|---|---|---|---|---|---|---|---|
Raw materials | $ | 23,903 | $ | 33,206 | ||||
Work in process | 934 | 2,172 | ||||||
Finished goods | 26,631 | 26,551 | ||||||
51,468 | 61,929 | |||||||
Less LIFO allowance | (4,819 | ) | (3,664 | ) | ||||
Total inventories | $ | 46,649 | $ | 58,265 | ||||
Inventory stated on the LIFO basis amounted to $20,462 at March 30, 2008 and $34,123 at December 31, 2007.
15
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
NOTE 9—OTHER LIABILITIES
Other liabilities were comprised of the following:
| March 30, 2008 | December 31, 2007 | |||||
---|---|---|---|---|---|---|---|
| Successor | Successor | |||||
Pension | $ | 9,329 | $ | 10,314 | |||
Unrealized tax benefit | 19,185 | 19,289 | |||||
Environmental | 1,638 | 1,608 | |||||
Post-retirement benefits | 3,819 | 3,868 | |||||
Other post-retirement benefits | 552 | 639 | |||||
Other | 5,021 | 5,049 | |||||
Total | $ | 39,544 | $ | 40,767 | |||
NOTE 10—DEBT
The Company has significant debt service obligations. A revolving credit facility consists of a first-priority secured five-year asset-based revolving credit facility providing for borrowings up to $200.0 million. In addition, to fund the purchase from Honeywell, the Company issued $270.0 million of 111/2% Notes on February 2, 2006, which mature in 2014. The bonds were recorded net of a discount of $3,437, which is amortized over the term of the bonds. On June 21, 2007 the Company repurchased Notes with a face value of $71,945 with proceeds from the sale of its investment in AAG. The Notes were redeemed at a 5% premium plus accrued interest. The face value of the Notes is $198,055 and the discount is $1,838 at March 30, 2008.
Revolving Credit Facility
The revolving credit facility provides an aggregate principal amount of up to $200.0 million, all of which is available in the form of loans denominated in U.S. dollars to Indalex Holding Corp. and up to $80.0 million of which is available as a revolving credit sub-facility in the form of loans denominated in Canadian dollars and loans denominated in U.S. dollars to Indalex Limited or bankers' acceptances denominated in Canadian dollars, subject in each case to the borrowing base limitations described below. Up to an aggregate of $30.0 million will be available to Indalex Holding Corp., Indalex Limited and subsidiaries of Indalex Holding Corp., to the extent that Indalex Holding Corp. or Indalex Limited is a co-applicant, for the issuance of letters of credit. As of March 30, 2008, borrowings under the revolving credit facility bore interest at a weighted average rate of 5.29%.
The aggregate amount of loans permitted to be made to Indalex Holding Corp. under the revolving credit facility may not exceed a borrowing base comprised of the eligible accounts receivable, inventory, machinery and equipment and real property of Indalex Holding Corp. and its wholly owned domestic subsidiaries, subject to an aggregate total cap, when taken together with loans made to Indalex Limited, of $200.0 million.
The aggregate amount of loans permitted to be made to Indalex Limited under the Canadian revolving credit sub-facility may not exceed a borrowing base comprised of the eligible accounts
16
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
NOTE 10—DEBT (Continued)
receivable, inventory, machinery and equipment and real property of Indalex Limited and its wholly owned Canadian subsidiaries, subject to an aggregate sub-cap of $80.0 million and further subject to an aggregate total cap, when taken together with loans made to Indalex Holding Corp., of $200.0 million.
The Company's obligations under the revolving credit facility are guaranteed on a first-priority secured basis by Holdings and each domestic subsidiary of Indalex Holding Corp. The obligations of Indalex Limited under the Canadian revolving credit sub-facility will be guaranteed on a first-priority secured basis by Holdings, Indalex Holding Corp., each domestic subsidiary of Indalex Holding Corp. and certain foreign subsidiaries of Indalex Holding Corp., other than Indalex Limited.
Indalex Holding Corp.'s obligations under the U.S. portion of the revolving credit facility and the guarantees thereof are secured by a first-priority lien on all of the tangible and intangible assets of Holdings, Indalex Holding Corp. and each domestic subsidiary of Indalex Holding Corp., as well as 100% of the capital stock of Indalex Holding Corp. and the Company's domestic subsidiaries and 65% of the capital stock of the foreign subsidiaries directly owned by the Company or any of the Company's domestic subsidiaries. The obligations of Indalex Limited under the Canadian revolving credit sub-facility and the guarantees thereof are secured by a first-priority lien on all of the tangible and intangible assets of Holdings, Indalex Holding Corp., Indalex Limited, each domestic subsidiary of Indalex Holding Corp. and certain foreign subsidiaries of Indalex Holding Corp., as well as 100% of the capital stock of Indalex Holding Corp. and its domestic subsidiaries and 100% of the capital stock of the Company's foreign subsidiaries, including Indalex Limited.
Indalex Holding Corp. and Indalex Limited may, at their option, increase the aggregate commitments under the revolving credit facility by an additional $40.0 million, subject to the satisfaction of certain conditions precedent.
The credit agreement contains a number of restrictive covenants that impose significant operating and financial restrictions. The credit agreement limits the Company's ability to:
- •
- incur additional indebtedness and guarantee indebtedness;
- •
- pay dividends on or make distributions in respect of capital stock or make certain other restricted payments or investments;
- •
- enter into agreements that restrict distributions from restricted subsidiaries;
- •
- sell or otherwise dispose of assets, including capital stock of restricted subsidiaries;
- •
- enter into transactions with affiliates;
- •
- create or incur liens;
- •
- enter into sale/leaseback transactions;
- •
- merge, consolidate or sell substantially all of our assets;
- •
- make investments and acquire assets;
17
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
NOTE 10—DEBT (Continued)
- •
- make certain payments on indebtedness;
- •
- amend certain material agreements;
- •
- issue certain preferred stock or similar equity securities; and
- •
- change our fiscal year.
Also, the credit agreement requires the Company to maintain compliance with a fixed charge coverage ratio if either an average borrowing availability over a three-calendar-month period (or twelve-calendar-week period, as the case may be) or actual borrowing availability for four consecutive business days falls below $25.0 million.
The Company was in compliance with the covenants for the period ended March 30, 2008.
18
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
NOTE 10—DEBT (Continued)
111/2% Notes
Indalex Holding Corp. issued the 111/2% Notes on February 2, 2006. The 111/2% Notes will mature in 2014 and are guaranteed on a second-priority secured basis by each of the Company's domestic subsidiaries that incur indebtedness, and each of the Company's foreign subsidiaries that enter into a guarantee of any of the Company's senior indebtedness (other than indebtedness incurred by another foreign subsidiary). On the closing date, the 111/2% Notes were guaranteed by each of the Company's domestic subsidiaries and none of the Company's foreign subsidiaries. Interest on the 111/2% Notes is payable semi-annually in cash.
The 111/2% Notes are secured by a second-priority lien on substantially all of Indalex Holding Corp.'s and the guarantors' assets to the extent that such assets secure the borrowings under the Company's revolving credit facility and a second-priority pledge of 100% of Indalex Holding Corp.'s and its domestic subsidiaries' capital stock and 65% of the capital stock of the Company's foreign subsidiaries directly owned by Indalex Holding Corp. or any domestic subsidiary (in each case, subject to certain limitations.)
The indenture governing the 111/2% Notes, among other things, limits Indalex Holding Corp.'s ability and the ability of its restricted subsidiaries to: incur additional indebtedness; pay dividends on or make distributions in respect of capital stock or make certain other restricted payments or investments; enter into agreements that restrict distributions from restricted subsidiaries; sell or otherwise dispose of assets, including capital stock of restricted subsidiaries; enter into transactions with affiliates; create or incur liens; enter into sale/leaseback transactions; and merge, consolidate or sell substantially all of the Company's assets. These covenants are subject to important exceptions and qualifications. The Company was in compliance with the covenants for the period ended March 30, 2008.
Optional Redemption
Except as set forth below, the Company will not be entitled to redeem the Notes at its option prior to February 1, 2010.
On and after February 1, 2010, the Company will be entitled at its option to redeem all or a portion of the Notes upon not less than 30 or more than 60 days' notice, at the redemption prices (expressed as a percentage of principal amount on the redemption date), plus accrued and unpaid interest and additional interest thereon, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on February 1 of the years set forth below:
Period | Redemption Price | ||
---|---|---|---|
2010 | 108.625 | % | |
2011 | 102.875 | % | |
2012 and thereafter | 100.000 | % |
19
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
NOTE 10—DEBT (Continued)
Prior to February 1, 2009, the Company will be entitled at its option on one or more occasions to redeem Notes (which includes Additional Notes, if any) in an aggregate principal amount not to exceed 35% of the aggregate principal amount of the Notes (which includes Additional Notes, if any) originally issued at a redemption price (expressed as a percentage of principal amount) of 111/2%, plus accrued and unpaid interest and additional interest thereon, if any, to the redemption date, with the net cash proceeds from one or more Equity Offerings;provided,however, that
- (1)
- at least 65% of such aggregate principal amount of Notes (which includes Additional Notes, if any) remains outstanding immediately after the occurrence of each such redemption (other than Notes held, directly or indirectly, by the Company or its Affiliates); and
- (2)
- each such redemption occurs within 90 days after the date of the related Equity Offering.
Prior to February 1, 2010, the Company will be entitled on one or more occasions to redeem all or a portion of the Notes (which includes Additional Notes, if any) upon not less than 30 nor more than 60 days' notice at a redemption price equal to the sum of:
- (1)
- 100% of the principal amount thereof, plus accrued and unpaid interest and additional interest thereon, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date); plus
- (2)
- the Make-Whole Amount, if any.
The term "Make-Whole Amount" shall mean, in connection with any optional redemption of any Note, the greater of (1) 1.0% of the principal amount of such Note and (2) the excess, if any, of (A) the aggregate present value as of the date of such redemption of the redemption price of such Note on February 1, 2010 (as set forth in the table above) and the amount of interest (exclusive of interest accrued to the redemption date) that would have been payable in respect of such Note through February 1, 2010 if such redemption had not been made, determined by discounting, on a semiannual basis, such redemption price and interest at the Treasury Rate (determined on the business day preceding the date of such redemption) plus 0.5%, from the respective dates on which such redemption price and interest would have been payable if such redemption had not been made, over (B) the principal amount of the Note being redeemed.
"Treasury Rate" means, in connection with the calculation of any Make-Whole Amount with respect to any Note, the yield to maturity at the time of computation of United States Treasury securities with a constant maturity, as compiled by and published in the most recent Statistical Release that has become publicly available at least two Business Days prior to the redemption date, equal to the period from the redemption date to February 1, 2010. If no maturity exactly corresponds to such period, yields for the published maturities occurring prior to and after such maturity most closely corresponding to such maturity shall be calculated pursuant to the immediately preceding sentence and the Treasury Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month.
20
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
NOTE 10—DEBT (Continued)
"Statistical Release" means the statistical release "H.15(519)" or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded U.S. government securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination, then such other reasonably comparable index which shall be designated by the Trustee.
Selection and Notice of Redemption
If the Company is redeeming less than all the Notes at any time, the Trustee will select the Notes to be redeemed on apro rata basis to the extent practicable.
The Company will redeem Notes of $1,000 or less in whole and not in part. The Company will cause notices of redemption to be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address.
If any Note is to be redeemed in part only, the notice of redemption that relates to that Note will state the portion of the principal amount thereof to be redeemed. The Company will issue a new Note in a principal amount equal to the unredeemed portion of the original Note in the name of the Holder upon cancellation of the original Note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption.
Mandatory Redemption; Offers to Purchase; Open Market Purchases
The Company is not required to make any mandatory redemption or sinking fund payments with respect to the Notes. However, under certain circumstances, the Company may be required to offer to purchase Notes as described under the captions "—Change of Control", "—Excess Cash Flow Offer" and "—Certain Covenants—Limitation on Sales of Assets and Subsidiary Stock". The Company may at any time and from time to time purchase Notes in the open market or otherwise.
As noted previously, on June 21, 2007 the Company repurchased Notes with a face value of $71,945 at a 5% premium plus accrued interest. The offer to repurchase the Notes was required per the indenture agreement due to the sale of the Company's investment in AAG.
NOTE 11—DEBT ISSUE COSTS
As part of the transactions associated with the Indalex Holdings acquisition, the Company incurred $4.2 million and $12.6 million in debt issue costs for the Revolving Credit Facility and the 111/2% Notes, respectively. These costs are being amortized using the straight-line method over the life of the debt (5 years and 8 years, respectively).
As indicated in Note 10, on June 21, 2007 the Company repurchased Notes with a face value of $71,945 with proceeds from the sale of its investment in AAG. As a result of the tender offer for the Notes the Company expensed $2,757 of debt issue costs during the three months ended July 1, 2007 that were being amortized over 8 years.
21
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
NOTE 12—EMPLOYEE BENEFIT PLANS
Pension and Post-Retirement Benefits: The Company maintains defined benefit pension plans that provide retirement benefits for certain employees. The assets of the plans are invested primarily in equity and bond-based funds, debt and equity securities, and short-term cash investments. Pension costs are calculated using the accrued benefit model of actuarial valuation with projected earnings where appropriate. The Company also maintains for select employees a defined benefit plan that provides healthcare and life insurance benefits upon retirement. The plan is unfunded.
Net periodic pension costs for the plans include the following components:
| Three months ended | |||||||
---|---|---|---|---|---|---|---|---|
| March 30, 2008 | April 1, 2007 | ||||||
| Successor | Successor | ||||||
Service cost | $ | 76 | $ | 131 | ||||
Interest cost | 1,637 | 1,735 | ||||||
Expected return on assets | (1,599 | ) | (1,672 | ) | ||||
Amortization of unrecognized actuarial gain | (37 | ) | — | |||||
Settlement gain | — | (47 | ) | |||||
Net periodic benefit cost | $ | 77 | $ | 147 | ||||
During the period ended April 1, 2007, the Company recognized a net settlement gain of $47 as a result of executing a wind-up of part of its Canadian pension plan.
Net periodic post-retirement benefit cost for the plans include the following components:
| Three months ended | ||||||
---|---|---|---|---|---|---|---|
| March 30, 2008 | April 1, 2007 | |||||
| Successor | Successor | |||||
Service cost | $ | 9 | $ | 15 | |||
Interest cost | 60 | 66 | |||||
Amortization of unrecognized actuarial gain | (8 | ) | — | ||||
Net periodic benefit cost | $ | 61 | $ | 81 | |||
The Company also participates in defined contribution and multi-employer pension plans. The contributions were $1,065 and $1,075 and the expense was $968 and $1,106 for the periods ended March 30, 2008 and April 1, 2007, respectively.
NOTE 13—COMMITMENTS AND CONTINGENCIES
The Company has entered into several long-term contracts with metal suppliers to purchase aluminum billet. The price of billet is based primarily on the average Midwest Transaction price plus a
22
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
NOTE 13—COMMITMENTS AND CONTINGENCIES (Continued)
fixed billet premium. The Midwest Transaction average changes monthly. The minimum purchase commitments as of March 30, 2008 are as follows:
Year Ending December 31 | Amount | |||
---|---|---|---|---|
Remainder of 2008 | $ | 209,111 | ||
2009 | 32,724 | |||
Total commitments | $ | 241,835 | ||
The Company has also committed to purchasing natural gas. The commitments as of March 30, 2008 are as follows:
Year Ending December 31 | Amount | |||
---|---|---|---|---|
Remainder of 2008 | $ | 8,976 | ||
2009 | 10,119 | |||
2010 | 4,852 | |||
2011 | 379 | |||
Total commitments | $ | 24,326 | ||
As of March 30, 2008, the Company has committed approximately $6,894 for the purchase of property and equipment related to incomplete projects.
As of March 30, 2008, the Company has outstanding letters of credit commitments of $8,616 related to its general insurance coverage. The letters of credit expire after one year but renew automatically for another year unless the Company notifies the beneficiary at least ninety days prior to the expiration date.
The Company is involved in various legal proceedings, claims, and litigations arising in the ordinary course of business. While any litigation contains an element of uncertainty, management presently believes that the outcome of each such proceeding or claim which is pending or known to be threatened, or all of them combined, will not have a material adverse effect on the consolidated financial position of the Company or on the consolidated results of operations or cash flows.
Environmental obligations
The Company established environmental reserves totaling $1,744 and $1,724 as of March 30, 2008 and December 31, 2007, respectively. $106 and $116 was included in current liabilities as of March 30, 2008 and December 31, 2006, respectively. Liabilities are recorded when environmental remedial efforts or damage claim payments are probable and the range of possible costs can be reasonably estimated. In those cases where an amount within the range is judged most likely to be incurred, that amount is recorded. Where no specific amount within the range of possible costs is considered more probable to be incurred than any other, the lower end of the range is typically used. Such liabilities are based on the Company's best estimate of the undiscounted future costs required to complete the remedial work.
23
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
NOTE 13—COMMITMENTS AND CONTINGENCIES (Continued)
The recorded liabilities and ranges are adjusted periodically as remediation efforts progress or as additional technical or legal information becomes available.
The Company is subject to a wide variety of environmental laws including those governing air emissions, the generation, storage, handling, use and transportation of hazardous materials and employee health and safety. Costs of achieving compliance with environmental regulations are not included in the reserves, but instead are treated as operating items and expensed or amortized, as appropriate, based on the nature of the expenditure.
As an owner of real property and a generator of waste, the Company is subject to laws imposing responsibility for the cleanup of contaminated property, including its currently and formerly owned or operated properties. As part of its environmental management program, it is involved in investigatory and monitoring actions at some of these properties, but the Company has not identified any conditions that warrant active remediation efforts.
The Company is responsible for the cleanup of a formerly owned property that a release of hazardous substances occurred. There is the possibility of a claim for natural resources damages at the site and it is likely that the Company will have an obligation to pay compensation for that damage if the claim is asserted. The amount of natural resource damages to be paid would be determined by a formula. Based on the application of that formula, the Company estimates the total liability ranges from $500 to $1,850. The Company believes that the ultimate liability will be in the lower limits of the range. Also, an additional $100 has been reserved to cover the costs of further groundwater monitoring at this site. The Company has recorded a reserve of $600 for this location.
The Company has been identified as a potentially responsible party ("PRP") under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 or "CERCLA" with respect to approximately 19 offsite locations to which the Company's corporate predecessors sent waste materials. Although the designation of an entity as a PRP is rarely withdrawn, the Company's inquiries and evaluations have led it to conclude that it has little or no liability at most of these sites. For those sites where the Company is judged likely to share responsibility for cleanup and other costs, the Company has reserved a total of $480 of which $450 is attributable to one location. The full range of aggregate potential liability at these sites is estimated to be from $255 to $1,305.
The Company has installed groundwater-monitoring wells in one of its California facilities, and the Company performs semi-annual monitoring of those wells. Results to date indicate that a few constituents of materials used in the Company's processes are present in groundwater slightly above the selected screening criteria. However, this condition is very localized (within the boundaries of the Company's property), and the source of those constituents has been eliminated. In conjunction with the Regional Water Quality Control Board, the Company has agreed to continue to monitor the groundwater. Based on the results to date, no remediation is indicated. Management has established a reserve of $100 within a range of costs of $30 to $350 for this site.
The Company is not currently a party to any judicial or administrative proceedings.
24
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
NOTE 13—COMMITMENTS AND CONTINGENCIES (Continued)
The Company believes its reserves for environmental matters are adequate, based on the information currently available.
NOTE 14—LEASING ARRANGEMENTS
The Company leases property, plant, and equipment under operating leases that expire at various dates through 2015. At March 30, 2008, future minimum lease payments under noncancelable operating leases with terms of one year or more are as follows:
Year Ending December 31 | Amount | |||
---|---|---|---|---|
Remainder of 2008 | $ | 2,038 | ||
2009 | 1,932 | |||
2010 | 1,403 | |||
2011 | 733 | |||
2012 | 264 | |||
Thereafter | 440 | |||
Total commitments | $ | 6,810 | ||
The Company leases an extrusion press in Canada and in Elkhart, Indiana. Both leases qualify as capital leases. As of March 30, 2008, future minimum lease payments, including the final buyout payment, are as follows:
Year Ending December 31 | Amount | |||
---|---|---|---|---|
Remainder of 2008 | $ | 1,333 | ||
2009 | 1,657 | |||
2010 | 1,380 | |||
2011 | 579 | |||
2012 | 797 | |||
5,746 | ||||
Amount representing interest | (857 | ) | ||
Present value of net minimum lease payments | 4,889 | |||
Current portion | (1,600 | ) | ||
Long-term portion capital lease obligation | $ | 3,289 | ||
At March 30, 2008, the cost of the capital leases was $7,065 and accumulated depreciation was $3,461.
25
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
NOTE 15—STOCK-BASED COMPENSATION
Under the Company's stock option plan, certain employees of the Company were granted options to purchase shares of Indalex Holdings Finance, Inc. Stock options expire ten years from the date of grant.
Under the Plan, options are granted with an exercise price equal to or greater than the market value of the Company on the date of grant. A public market does not exist for the stock so the market value of the Company was based on its recent purchase price. The fair value of options on their grant date was measured using the Black-Scholes option-pricing model. The weighted average estimated value of employee stock options granted was $28.53 per share for the period ended March 30, 2008. Key assumptions used to apply this pricing model are as follows:
| Three months ended March 30, 2008 | ||
---|---|---|---|
Risk-free interest rate | 3.74 | % | |
Expected life option grants (in years) | 10.0 | ||
Expected volatility of underlying stock | 31.3 | % | |
Expected dividend yield | 0.0 | % |
The expected to vest options are based on forfeiture assumptions derived from historical experience. Forfeiture assumptions are reviewed through the vesting period, and adjustments are made if actual forfeitures differ materially from previous estimates. The cumulative effect of a change in estimated forfeitures is recognized in the period of change.
The expected volatility of the underlying stock for options granted during the period ended March 30, 2008 was based on the daily historical closing price volatility of the Dow Jones Industrial Metals Index over the period equal to the expected term ending on the grant date.
For the period ended March 30, 2008, the Company recorded compensation expense of $179. The Company expects to record future stock compensation expense of $875 over a weighted average period of 2.27 years.
A summary of stock option activity is provided below:
| Three months ended March 30, 2008 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| Options | Weighted Average Exercise Price | Aggregate Intrinsic Value | Weighted Average Remaining Term | ||||||
Outstanding at beginning of period | 64,600 | $ | 113.53 | |||||||
Granted | 2,000 | 111.25 | ||||||||
Forfeited | (400 | ) | 111.25 | |||||||
Exercised | n/a | n/a | ||||||||
Expired | n/a | n/a | ||||||||
Outstanding at end of period | 66,200 | $ | 113.48 | $ | — | 8.34 | ||||
Exercisable at end of period | 14,000 | $ | 113.36 | $ | — | 8.18 | ||||
26
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
NOTE 15—STOCK-BASED COMPENSATION (Continued)
As of March 30, 2008, 52,200 options with a weighted average exercise price of $113.51 are due to expire between 2016 and 2017.
As of March 30, 2008, 14,000 options have vested, and 50,455 options are expected to vest between 2008 and 2012. There were no options vested during the period ended March 30, 2008.
NOTE 16—GEOGRAPHIC DATA
| Net Sales | Long-Lived Assets | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three months ended | Years ended | ||||||||||
| Mar 30, 2008 | Apr 1, 2007 | Mar 30, 2008 | Dec 31, 2007 | ||||||||
| Successor | Successor | Successor | Successor | ||||||||
United States | $ | 200,467 | $ | 242,989 | $ | 178,206 | $ | 177,035 | ||||
Canada | 49,349 | 47,655 | 89,440 | 91,829 | ||||||||
Other International | 772 | 578 | — | — | ||||||||
$ | 250,588 | $ | 291,222 | $ | 267,646 | $ | 268,864 | |||||
NOTE 17—CONSOLIDATED GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
Indalex Holding Corp. (the "Issuer") issued $270,000 aggregate principal amount of the 111/2% Notes on February 2, 2006. On June 21, 2007, the Company repurchased $71,945 aggregate principal amount of the 111/2% Notes, and as of March 30, 2008, $198,055 aggregate principal amount of 111/2% Notes was outstanding. The Notes are jointly and severally guaranteed on a full and unconditional basis by Indalex Holdings Finance, Inc., the parent company of Indalex Holding Corp., and each of the domestic subsidiaries of Indalex Holding Corp. (the "Guarantor Companies"). Indalex Holding Corp. and the Guarantor Companies are 100% owned, directly or indirectly, by Indalex Holdings Finance, Inc. Indalex Holding Corp.'s foreign subsidiaries (the "Non-Guarantor Companies") do not provide guarantees.
The following consolidated financial information presents the financial information of Indalex Holdings Finance, Inc., the Guarantor Companies and the Non-Guarantor Companies in accordance with Rule 3-10 under the Securities and Exchange Commission's Regulation S-X. The financial information may not necessarily be indicative of results of operations or financial position had the Guarantor Companies or Non-Guarantor Companies operated as independent entities. The Guarantor Companies and Non-Guarantor Companies include the consolidated financial results of their wholly owned subsidiaries accounted for under the equity method. All applicable corporate expenses have been allocated among the Guarantor Companies and Non-Guarantor Companies.
27
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
NOTE 17—CONSOLIDATED GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION (Continued)
Indalex Consolidated Balance Sheet—Guarantor and Non-Guarantor
As of March 30, 2008 (Successor)
| Parent Company | Guarantor Company | Non-Guarantor Company | Eliminations | Consolidated | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
ASSETS | |||||||||||||||||||
Current Assets: | |||||||||||||||||||
Cash and cash equivalents | — | 1,233 | 9 | — | $ | 1,242 | |||||||||||||
Accounts receivable, net | — | 78,768 | 41,789 | — | 120,557 | ||||||||||||||
Receivable from affiliates | — | 4,799 | 19,427 | (24,226 | ) | — | |||||||||||||
Receivable from suppliers | — | 15,125 | — | — | 15,125 | ||||||||||||||
Inventories | — | 26,036 | 20,613 | — | 46,649 | ||||||||||||||
Prepaid expenses and other current assets | — | 7,332 | 10,956 | — | 18,288 | ||||||||||||||
Deferred income taxes | — | 5,005 | 311 | — | 5,316 | ||||||||||||||
Total current assets | — | 138,298 | 93,105 | (24,226 | ) | 207,177 | |||||||||||||
Notes receivable from affiliates | — | 39,158 | — | (39,158 | ) | — | |||||||||||||
Investment in subsidiary | 111,250 | — | — | (111,250 | ) | — | |||||||||||||
Property, plant, and equipment, net | — | 131,328 | 62,544 | — | 193,872 | ||||||||||||||
Other intangibles, net | — | 40,602 | 21,444 | — | 62,046 | ||||||||||||||
Deferred financing costs | — | 4,162 | 4,867 | — | 9,029 | ||||||||||||||
Other assets | — | 2,114 | 585 | — | 2,699 | ||||||||||||||
Total assets | $ | 111,250 | $ | 355,662 | $ | 182,545 | $ | (174,634 | ) | $ | 474,823 | ||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||||||||||
Current Liabilities: | |||||||||||||||||||
Accounts payable | $ | — | $ | 37,919 | $ | 35,122 | $ | — | $ | 73,041 | |||||||||
Payable to affiliates | — | 19,427 | 4,799 | (24,226 | ) | — | |||||||||||||
Income taxes payable (refundable) | — | (806 | ) | 1,127 | — | 321 | |||||||||||||
Accrued expenses and other current liabilities | — | 40,845 | 6,481 | — | 47,326 | ||||||||||||||
Accrued interest | — | 4,320 | 123 | — | 4,443 | ||||||||||||||
Capital lease obligation | — | 654 | 946 | — | 1,600 | ||||||||||||||
Checks in excess of bank balance | — | — | 4,447 | — | 4,447 | ||||||||||||||
Revolver borrowings | 10 | 96,690 | 10,768 | — | 107,468 | ||||||||||||||
Total current liabilities | 10 | 199,049 | 63,813 | (24,226 | ) | 238,646 | |||||||||||||
Notes payable to affiliates | — | — | 39,158 | (39,158 | ) | — | |||||||||||||
Other liabilities | — | 27,876 | 11,668 | — | 39,544 | ||||||||||||||
Capital lease obligation | — | 1,718 | 1,571 | — | 3,289 | ||||||||||||||
Long-term debt | — | 196,217 | — | — | 196,217 | ||||||||||||||
Deferred income taxes | — | (2,156 | ) | 6,665 | — | 4,509 | |||||||||||||
Total liabilities | 10 | 422,704 | 122,875 | (63,384 | ) | 482,205 | |||||||||||||
Commitments and contingencies (Note 13) | |||||||||||||||||||
Stockholders' equity (deficit): | |||||||||||||||||||
Common stock | 1 | 1 | — | (1 | ) | 1 | |||||||||||||
Additional paid-in capital | 111,249 | 5,043 | 30,260 | (111,249 | ) | 35,303 | |||||||||||||
Treasury stock | (10 | ) | — | — | — | (10 | ) | ||||||||||||
Retained earnings (accumulated deficit) | — | (84,089 | ) | 36,673 | — | (47,416 | ) | ||||||||||||
Accumulated other comprehensive income (loss) | — | 12,003 | (7,263 | ) | — | 4,740 | |||||||||||||
Total stockholders' equity (deficit) | 111,240 | (67,042 | ) | 59,670 | (111,250 | ) | (7,382 | ) | |||||||||||
Total liabilities and stockholders' equity (deficit) | $ | 111,250 | $ | 355,662 | $ | 182,545 | $ | (174,634 | ) | $ | 474,823 | ||||||||
28
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
NOTE 17—CONSOLIDATED GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION (Continued)
Indalex Consolidated Balance Sheet—Guarantor and Non-Guarantor
As of December 31, 2007 (Successor)
| Parent Company | Guarantor Company | Non-Guarantor Company | Eliminations | Consolidated | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
ASSETS | |||||||||||||||||||
Current Assets: | |||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 7,179 | $ | 740 | $ | — | $ | 7,919 | |||||||||
Accounts receivable, net | — | 48,920 | 34,368 | — | 83,288 | ||||||||||||||
Receivable from affiliates | — | 3,190 | 17,229 | (20,419 | ) | — | |||||||||||||
Receivable from suppliers | — | 5,241 | — | — | 5,241 | ||||||||||||||
Inventories | — | 40,465 | 17,800 | — | 58,265 | ||||||||||||||
Prepaid expenses and other current assets | — | 2,238 | 8,169 | — | 10,407 | ||||||||||||||
Deferred income taxes | — | 5,188 | 246 | — | 5,434 | ||||||||||||||
Total current assets | — | 112,421 | 78,552 | (20,419 | ) | 170,554 | |||||||||||||
Notes receivable from affiliates | — | 40,351 | — | (40,351 | ) | — | |||||||||||||
Investment in subsidiary | 111,250 | — | — | (111,250 | ) | — | |||||||||||||
Property, plant, and equipment, net | — | 128,655 | 63,736 | — | 192,391 | ||||||||||||||
Other intangibles, net | — | 41,997 | 22,309 | — | 64,306 | ||||||||||||||
Deferred financing costs | — | 4,404 | 5,159 | — | 9,563 | ||||||||||||||
Other assets | — | 1,979 | 625 | — | 2,604 | ||||||||||||||
Total assets | $ | 111,250 | $ | 329,807 | $ | 170,381 | $ | (172,020 | ) | $ | 439,418 | ||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||||||||||
Current Liabilities: | |||||||||||||||||||
Accounts payable | $ | — | $ | 33,480 | $ | 35,645 | $ | — | $ | 69,125 | |||||||||
Payable to affiliates | — | 17,229 | 3,190 | (20,419 | ) | — | |||||||||||||
Income taxes payable (refundable) | — | (853 | ) | 1,124 | — | 271 | |||||||||||||
Accrued expenses and other current liabilities | — | 28,400 | 6,806 | — | 35,206 | ||||||||||||||
Accrued interest | — | 10,060 | 100 | — | 10,160 | ||||||||||||||
Capital lease obligation | — | 605 | 958 | — | 1,563 | ||||||||||||||
Revolver borrowings | 10 | 67,490 | — | — | 67,500 | ||||||||||||||
Total current liabilities | 10 | 156,411 | 47,823 | (20,419 | ) | 183,825 | |||||||||||||
Notes payable to affiliates | — | — | 40,351 | (40,351 | ) | — | |||||||||||||
Other liabilities | — | 28,328 | 12,439 | — | 40,767 | ||||||||||||||
Capital lease obligation | — | 1,793 | 1,869 | — | 3,662 | ||||||||||||||
Long-term debt | — | 196,138 | — | — | 196,138 | ||||||||||||||
Deferred income taxes | — | (1,306 | ) | 7,497 | — | 6,191 | |||||||||||||
Total liabilities | 10 | 381,364 | 109,979 | (60,770 | ) | 430,583 | |||||||||||||
Commitments and contingencies (Note 13) | |||||||||||||||||||
Stockholders' equity (deficit): | |||||||||||||||||||
Common stock | 1 | 1 | — | (1 | ) | 1 | |||||||||||||
Additional paid-in capital | 111,249 | 4,864 | 30,260 | (111,249 | ) | 35,124 | |||||||||||||
Treasury stock | (10 | ) | — | — | — | (10 | ) | ||||||||||||
Retained earnings (accumulated deficit) | — | (69,184 | ) | 38,310 | — | (30,874 | ) | ||||||||||||
Accumulated other comprehensive income (loss) | — | 12,762 | (8,168 | ) | — | 4,594 | |||||||||||||
Total stockholders' equity (deficit) | 111,240 | (51,557 | ) | 60,402 | (111,250 | ) | 8,835 | ||||||||||||
Total liabilities and stockholders' equity (deficit) | $ | 111,250 | $ | 329,807 | $ | 170,381 | $ | (172,020 | ) | $ | 439,418 | ||||||||
29
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
NOTE 17—CONSOLIDATED GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION (Continued)
Indalex Consolidated Statement of Income—Guarantor and Non-Guarantor
For the Period January 1, 2008 to March 30, 2008 (Successor)
| Parent Company | Guarantor Company | Non-Guarantor Company | Eliminations | Consolidated | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net sales | $ | — | $ | 172,855 | $ | 108,106 | $ | (30,373 | ) | $ | 250,588 | |||||||
Costs and expenses: | ||||||||||||||||||
Cost of sales | — | 169,195 | 105,013 | (30,373 | ) | 243,835 | ||||||||||||
Selling, general, and administrative | — | 9,957 | 3,533 | — | 13,490 | |||||||||||||
Management fees to affiliates | — | 165 | 85 | — | 250 | |||||||||||||
Amortization of intangible assets | — | 1,395 | 864 | — | 2,259 | |||||||||||||
Other income | — | (216 | ) | (643 | ) | — | (859 | ) | ||||||||||
Restructuring charges | — | 3,681 | — | — | 3,681 | |||||||||||||
Impairment of long-lived assets | — | 389 | — | — | 389 | |||||||||||||
Gain on disposal of assets | — | (451 | ) | (50 | ) | — | (501 | ) | ||||||||||
Mark-to-market on derivatives | — | (2,632 | ) | — | — | (2,632 | ) | |||||||||||
Total costs and expenses | — | 181,483 | 108,802 | (30,373 | ) | 259,912 | ||||||||||||
Loss from operations | — | (8,628 | ) | (696 | ) | — | (9,324 | ) | ||||||||||
Other income (expense): | ||||||||||||||||||
Interest to affiliates, net | — | 1,144 | (1,144 | ) | — | — | ||||||||||||
External interest expense | — | (7,273 | ) | (164 | ) | — | (7,437 | ) | ||||||||||
Deferred financing costs | — | (243 | ) | (292 | ) | — | (535 | ) | ||||||||||
Interest income | — | 27 | 2 | — | 29 | |||||||||||||
Loss before income taxes | — | (14,973 | ) | (2,294 | ) | — | (17,267 | ) | ||||||||||
Income tax benefit | — | (68 | ) | (657 | ) | — | (725 | ) | ||||||||||
Net loss | $ | — | $ | (14,905 | ) | $ | (1,637 | ) | $ | — | $ | (16,542 | ) | |||||
30
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
NOTE 17—CONSOLIDATED GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION (Continued)
Indalex Consolidated Statement of Cash Flows—Guarantor and Non-Guarantor
For the Period January 1, 2008 to March 30, 2008 (Successor)
| Parent Company | Guarantor Company | Non-Guarantor Company | Eliminations | Consolidated | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Cash flows from operating activities | |||||||||||||||||||
Net loss | $ | — | $ | (14,905 | ) | $ | (1,637 | ) | $ | — | $ | (16,542 | ) | ||||||
Adjustments to reconcile net loss to net cash from operating activities: | |||||||||||||||||||
Depreciation | — | 5,608 | 2,893 | — | 8,501 | ||||||||||||||
Amortization of intangible assets | — | 1,395 | 864 | — | 2,259 | ||||||||||||||
Amortization of deferred financing costs | — | 243 | 292 | — | 535 | ||||||||||||||
Amortization of bond discount | — | 79 | — | — | 79 | ||||||||||||||
Gain on disposal of assets | — | (451 | ) | (50 | ) | — | (501 | ) | |||||||||||
Impairment of long-lived assets | — | 389 | — | — | 389 | ||||||||||||||
Other | — | (1 | ) | — | — | (1 | ) | ||||||||||||
Stock-based compensation | — | 179 | — | — | 179 | ||||||||||||||
Deferred income taxes | — | (181 | ) | (694 | ) | — | (875 | ) | |||||||||||
Changes in operating assets and liabilities | |||||||||||||||||||
Accounts receivable | — | (29,848 | ) | (8,694 | ) | — | (38,542 | ) | |||||||||||
Receivable from affiliates | — | (1,609 | ) | (2,790 | ) | 4,399 | — | ||||||||||||
Inventories | — | 14,429 | (3,441 | ) | — | 10,988 | |||||||||||||
Prepaids and other assets | — | (15,113 | ) | (3,099 | ) | — | (18,212 | ) | |||||||||||
Income taxes payable/refundable | — | 47 | 38 | — | 85 | ||||||||||||||
Checks issued in excess of bank balance | — | — | 4,583 | — | 4,583 | ||||||||||||||
Accounts payable | — | 4,439 | 547 | — | 4,986 | ||||||||||||||
Accrued expenses and other liabilities | — | 6,201 | (516 | ) | — | 5,685 | |||||||||||||
Payable to affiliates | — | 2,198 | 1,755 | (3,953 | ) | — | |||||||||||||
Net cash from operating activities | — | (26,901 | ) | (9,949 | ) | 446 | (36,404 | ) | |||||||||||
Cash flows from investing activities | |||||||||||||||||||
Capital expenditures | — | (8,904 | ) | (1,695 | ) | — | (10,599 | ) | |||||||||||
Proceeds from sales of property, plant and equipment | — | 784 | 50 | — | 834 | ||||||||||||||
Net cash from investing activities | — | (8,120 | ) | (1,645 | ) | — | (9,765 | ) | |||||||||||
Cash flows from financing activities | |||||||||||||||||||
Payments on capital lease obligation | — | (125 | ) | (233 | ) | — | (358 | ) | |||||||||||
Borrowings | — | 29,200 | 10,944 | — | 40,144 | ||||||||||||||
Net cash from financing activities | — | 29,075 | 10,711 | — | 39,786 | ||||||||||||||
Effect of changes in foreign exchange rates on cash | — | — | 152 | (446 | ) | (294 | ) | ||||||||||||
Net change in cash and cash equivalents | — | (5,946 | ) | (731 | ) | — | (6,677 | ) | |||||||||||
Cash and cash equivalents | |||||||||||||||||||
Beginning of period | — | 7,179 | 740 | — | 7,919 | ||||||||||||||
End of period | $ | — | $ | 1,233 | $ | 9 | $ | — | $ | 1,242 | |||||||||
31
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
NOTE 17—CONSOLIDATED GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION (Continued)
Indalex Consolidated Statement of Income—Guarantor and Non-Guarantor
For the Period January 1, 2007 to April 1, 2007 (Successor)
| Parent Company | Guarantor Company | Non-Guarantor Company | Eliminations | Consolidated | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net sales | $ | — | $ | 213,792 | $ | 105,059 | $ | (27,629 | ) | $ | 291,222 | |||||||
Costs and expenses: | ||||||||||||||||||
Cost of sales | — | 204,049 | 100,669 | (27,629 | ) | 277,089 | ||||||||||||
Selling, general, and administrative | — | 10,768 | 3,186 | — | 13,954 | |||||||||||||
Management fees to affiliates | — | 236 | 83 | — | 319 | |||||||||||||
Amortization of intangible assets | — | 1,705 | 903 | — | 2,608 | |||||||||||||
Other income | — | (204 | ) | (681 | ) | — | (885 | ) | ||||||||||
Restructuring charges. | 1,582 | 36 | — | 1,618 | ||||||||||||||
Loss on disposal of assets. | 58 | — | — | 58 | ||||||||||||||
Mark-to-market on derivatives | — | (1,476 | ) | — | — | (1,476 | ) | |||||||||||
Total costs and expenses | — | 216,718 | 104,196 | (27,629 | ) | 293,285 | ||||||||||||
Income (loss) from operations | — | (2,926 | ) | 863 | — | (2,063 | ) | |||||||||||
Other income (expense): | ||||||||||||||||||
Interest to affiliates, net | — | 4,480 | (4,480 | ) | — | — | ||||||||||||
External interest expense. | — | (9,463 | ) | (430 | ) | — | (9,893 | ) | ||||||||||
Deferred financing costs. | — | (285 | ) | (311 | ) | — | (596 | ) | ||||||||||
Income from equity method investment in AAG | — | — | 4,917 | — | 4,917 | |||||||||||||
Income (loss) before income taxes | — | (8,194 | ) | 559 | — | (7,635 | ) | |||||||||||
Income tax benefit | — | (746 | ) | (202 | ) | — | (948 | ) | ||||||||||
Net income (loss) | $ | — | $ | (7,448 | ) | $ | 761 | $ | — | $ | (6,687 | ) | ||||||
32
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
NOTE 17—CONSOLIDATED GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION (Continued)
Indalex Consolidated Statement of Cash Flows—Guarantor and Non-Guarantor
For the Period January 1, 2007 to April 1, 2007 (Successor)
| Parent Company | Guarantor Company | Non-Guarantor Company | Eliminations | Consolidated | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Cash flows from operating activities | |||||||||||||||||||
Net income (loss) | $ | — | $ | (7,448 | ) | $ | 761 | $ | — | $ | (6,687 | ) | |||||||
Adjustments to reconcile net income (loss) to net cash from operating activities: | |||||||||||||||||||
Depreciation | — | 5,802 | 2,467 | — | 8,269 | ||||||||||||||
Amortization of intangible assets | — | 1,705 | 903 | — | 2,608 | ||||||||||||||
Amortization of deferred financing costs | — | 285 | 311 | — | 596 | ||||||||||||||
Amortization of bond discount | — | 107 | — | — | 107 | ||||||||||||||
Loss on disposal of assets | — | 58 | — | — | 58 | ||||||||||||||
Other | — | 2 | (2 | ) | — | — | |||||||||||||
Income from equity method investment in AAG | — | — | (4,917 | ) | — | (4,917 | ) | ||||||||||||
Stock-based compensation | — | 211 | — | — | 211 | ||||||||||||||
Deferred income taxes | — | (746 | ) | (390 | ) | — | (1,136 | ) | |||||||||||
Changes in operating assets and liabilities | |||||||||||||||||||
Accounts receivable | — | (27,883 | ) | (2,234 | ) | — | (30,117 | ) | |||||||||||
Receivable from affiliates | — | 3,824 | (3,677 | ) | (147 | ) | — | ||||||||||||
Inventories | — | (20,193 | ) | (4,603 | ) | — | (24,796 | ) | |||||||||||
Prepaids and other assets | — | 2,575 | (670 | ) | — | 1,905 | |||||||||||||
Income taxes payable/refundable | — | (1,861 | ) | 189 | — | (1,672 | ) | ||||||||||||
Accounts payable | — | (747 | ) | 10,163 | — | 9,416 | |||||||||||||
Accrued expenses and other liabilities | — | 3,344 | 443 | — | 3,787 | ||||||||||||||
Payable to affiliates | — | 3,733 | (3,876 | ) | 143 | — | |||||||||||||
Net cash from operating activities | — | (37,232 | ) | (5,132 | ) | (4 | ) | (42,368 | ) | ||||||||||
Cash flows from investing activities | |||||||||||||||||||
Capital expenditures | — | (5,776 | ) | (1,113 | ) | — | (6,889 | ) | |||||||||||
Proceeds from sales of property, plant and equipment | — | (12 | ) | — | — | (12 | ) | ||||||||||||
Net cash from investing activities | — | (5,788 | ) | (1,113 | ) | — | (6,901 | ) | |||||||||||
Cash flows from financing activities | |||||||||||||||||||
Payments on capital lease obligation | — | (118 | ) | (190 | ) | — | (308 | ) | |||||||||||
Revolver borrowings | — | 37,850 | 4,479 | — | 42,329 | ||||||||||||||
Net cash from financing activities | — | 37,732 | 4,289 | — | 42,021 | ||||||||||||||
Effect of changes in foreign exchange rates on cash | — | — | 37 | 4 | 41 | ||||||||||||||
Net change in cash and cash equivalents | — | (5,288 | ) | (1,919 | ) | — | (7,207 | ) | |||||||||||
Cash and cash equivalents | |||||||||||||||||||
Beginning of period | — | 6,777 | 4,380 | — | 11,157 | ||||||||||||||
End of period | $ | — | $ | 1,489 | $ | 2,461 | $ | — | $ | 3,950 | |||||||||
33
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three months ended March 30, 2008 and April 1, 2007
(Dollars in thousands)
(Unaudited)
NOTE 18—SUBSEQUENT EVENT
On April 23, 2008, the Company announced the closure of its aluminum extrusion facility in Modesto, California. At the time of the announcement there were 92 employees. The closure is expected to occur by July 31, 2008. As a result of the closure the Company will record in the second quarter an impairment on long-lived assets and severance and related costs of $2.1 million and $1.2 million respectively.
34
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The statements in the discussion and analysis regarding industry outlook, our expectations regarding the future performance of our business and the other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in "Item 1A. Risk Factors" set forth in our annual report on Form 10-K. Our actual results may differ materially from those contained in any forward-looking statements. You should read the following discussion together with the sections entitled "Item 1A. Risk Factors," set forth in our annual report on Form 10-K, and our combined financial statements and related notes thereto included elsewhere in this report. See "Forward-Looking Statements."
Overview
We are the second largest aluminum extruder in the United States and Canada, based on shipment volume data compiled by the Aluminum Association and management estimates. Our aluminum extrusion products are widely used throughout industrial, commercial and residential applications. Unlike a typical commodity metals business, extruded aluminum products are typically customized to meet end-user specific requirements and underlying commodity prices are passed on to the customer. As a result, we are largely insulated from aluminum price volatility. In addition to aluminum extrusion, we also offer a broad range of services, including fabrication, painting and anodizing. In 2007, approximately 94% of our products were customized, made-to-order aluminum extrusions for use in a wide array of end-user markets, including the transportation, residential building and construction, electric and cable, commercial building and construction, consumer durables and machinery and equipment end-user markets, as well as through distribution channels.
The Transactions
The Holdings Acquisition
On September 16, 2005, the Indalex Holding Corp., a wholly-owned subsidiary of Indalex Holdings Finance, Inc. ("Holdings"), entered into a stock purchase agreement pursuant to which it agreed to acquire all of the outstanding capital stock of Indalex Inc. and Indalex Limited, subsidiaries of Honeywell International Inc., for a total purchase price of approximately $425.0 million in cash (subject to a post-closing working capital adjustment of $5.9 million). Indalex Holding Corp. is a holding company that is a wholly-owned direct subsidiary of Holdings, which is beneficially owned by affiliates of Sun Capital Partners, Inc. and certain other investors and members of our management team.
On February 2, 2006, concurrently with the closing of the Indalex Holdings acquisition, the following events occurred. We refer to these events, together with the Indalex Holdings acquisition and the use of the financing proceeds, as the "Transactions":
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- certain of the equity investors contributed approximately $111.3 million in cash in the form of an equity investment in Holdings, which was contributed to Indalex Holding Corp.;
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- Indalex Holding Corp. and Indalex Limited entered into a five-year senior first-priority secured asset-based revolving credit facility providing for borrowings of up to $200.0 million, up to $80.0 million of which is available under a Canadian sub-facility (the "revolving credit facility");
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- Indalex Holding Corp. issued $270.0 million of the 111/2% second priority senior secured notes (the "111/2% Notes"), which included $15.0 million of notes issued to Sun Capital Securities Offshore Fund, Ltd., an affiliate of the equity sponsor (the $15.0 million of 111/2% Notes were subsequently sold to unaffiliated purchasers on July 18, 2006); and
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- Indalex Holding Corp. paid approximately $21.7 million of fees and expenses incurred in connection with the Transactions.
The Indalex Holdings acquisition was accounted for using the purchase method of accounting. As a result, the purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values as of the date of the Indalex Holdings acquisition. The application of purchase accounting in connection with both the Indalex Holdings acquisition and the Honeywell acquisition (as defined below) resulted in new entities for reporting purposes. We refer to Indalex following the Holdings acquisition as "Successor."
As a result of the Transactions, we substantially increased our debt levels in comparison to historical periods. As a result, our interest expense increased significantly in the periods following the consummation of the Transactions. As of March 30, 2008, we had $308.6 million of outstanding indebtedness (excluding unused availability of $32.3 million under our revolving credit facility). For the three months ended March 30, 2008, our interest expense was $7.4 million. See our annual report on Form 10-K "Item 1A. Risk Factors—Our substantial amount of indebtedness may adversely affect our cash flow and our ability to operate our business, remain in compliance with debt covenants and make payments on our indebtedness, including the Notes."
Stand Alone Company
In connection with the registration of our 111/2% Notes, we became subject to the reporting requirements of the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002. In connection with complying with our obligation to register the 111/2% Notes, we have incurred substantial one time and will continue to incur additional costs as a result of having to comply with the Exchange Act and the Sarbanes-Oxley Act. In addition, we pay Sun Capital Partners Management III, LP, an affiliate of our equity sponsor, a management fee equal to the greater of (a) $1 million and (b) 2% of our EBITDA (as defined in the management services agreement) for a given fiscal year. We will also reimburse Sun Capital Partners Management III, LP for all reasonable out-of-pocket fees and expenses it incurs in performing financial and management consulting services under the management services agreement. See "Item 13. Certain Relationships and Related Transactions, and Director Independence—Management Services Agreement" in our annual report on Form 10-K.
AAG Investment
Prior to May 15, 2007, we owned a 25.01% interest in Asia Aluminum Group, an aluminum extruder in China, as a result of an investment made in 2001. Under the equity method of accounting, we recorded income from the investment in AAG of $10.9 million, $12.5 million and $8.9 million in 2005, 2006 and 2007, respectively.
The dividends we received from AAG also benefited our cash flow. Pursuant to the shareholders agreement with AAG, we were entitled to receive dividends equal to our approximately 25% share of at least 40% of AAG's net realized profits. Our proportionate share of these dividends was $4.6 million, $4.9 million and $3.9 million for AAG's fiscal years ending June 30, 2004, 2005 and 2006, respectively. Cash dividends declared in respect of a fiscal period are sometimes paid in a subsequent period. We recognized these dividends in our cash flow statement in the period in which these dividends were received. Dividends declared by AAG in respect of earnings for AAG's fiscal year ended June 30, 2004 were not paid until 2005 and dividends declared by AAG in respect of earnings for AAG's fiscal year ended June 30, 2005 were not paid until the second quarter of 2006. We received $3.9 million of dividends declared for AAG's fiscal year ended June 30, 2006 in the second quarter of 2007.
On May 15, 2007 we sold our investment in AAG to OK Spring Roll Limited Partnership, an investment vehicle in association with ORIX Corporation. We received $151.2 million in cash, net of
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transaction costs, plus an additional $2.0 million of special dividends. We used the proceeds from the sale of our investment in AAG to repurchase $71.9 million aggregate principal amount of the 111/2% Notes in accordance with the terms of the indenture governing the 111/2% Notes, and distributed $76.6 million to our stockholders.
Factors Affecting Our Results of Operations
End-User Market Demand
Our profitability depends in part on the varying economic and other conditions of the end-user markets we serve. All of the end-user markets we serve, including our two largest markets, the transportation and residential building and construction end-user markets, are subject to volatility and, as a result, our customers' demand for our products may change due to changes in general and regional economic conditions, consumer confidence, weather, the housing market, fuel and energy prices and availability, employment and income growth trends and interest rates, each of which are beyond our control. These factors can cause a significant increase or decrease in the demand for our products, which would impact our shipment volume and our operating profitability. No single end-user market drives our overall performance, and individual end-user markets are influenced by conditions in their respective industries.
Demand for our products in the transportation end-user market generally correlates positively with the overall economy. For example, during the economic downturn from 2000 to 2001, manufacturers of truck trailers experienced shipment volume declines of 48%, which caused a negative impact on our operating profitability. In the period of general economic recovery from 2002 to 2006, shipment volume to manufacturers of truck trailers grew by a compounded annual growth rate of 12%. However, we believe that volume declined by approximately 22% in 2007, as the overall economy slowed. Rising fuel costs can have a positive impact on demand for aluminum extrusions in truck trailers, because it makes aluminum a desirable lightweight alternative to steel, although higher fuel costs tend to dampen demand in other transportation uses, such as recreational vehicles. Growth in imports from Asia has driven demand for truck trailers used to haul goods shipped from Asia from the coast to their destinations in manufacturing centers across the country. In other areas of the transportation end-user market, demographic trends can have an effect on the demand for our products. We expect the retirement of the aging "baby boom" generation to have a positive impact on demand for recreational vehicles.
Demand for our products in the residential building and construction end-user market is driven by new residential construction and remodeling activity, which are impacted by demographic trends, interest rate levels and overall economic conditions. From 2001 to 2006, we experienced strong demand in this end-user market due to strong new housing starts, the increasing size of new homes and increased remodeling and repair activity. However, after showing strong growth from 2001 to 2006, that market slowed considerably during the second half of 2006, and our shipments to that market were down 19% in 2007 as compared to 2006. According to data published by the U.S. Census Bureau, housing starts in the United States were down 25% year over year in 2007, and were down 30% in the first three months of 2008. Remodeling activity has slowed as well. We continue to believe that the residential building and construction market will recover eventually, but we cannot be certain of when the current downturn in this market will end. See "Item 1A. Risk Factors—Risks Related to our Business—The aluminum extrusion industry is highly cyclical and highly dependent on end-user markets in the United States and Canada, and the cyclicality and volatility of these markets could adversely affect us.
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Pricing and Margin
The principal raw materials in the aluminum extrusion process are aluminum billets and ingot. Aluminum is a commodity and, as such, is valued based upon a variety of market driven factors. The price of aluminum ingot is based on the base aluminum price, which consists of two components: the price quoted for primary aluminum ingot on the LME and the MWP. The price of aluminum billet is based upon the base aluminum price plus the "billet premium," which is a cost that is added to the base aluminum price and represents the charge from the smelter for converting aluminum ingot to billet. We manage the risk of base aluminum price increases through one of four pricing mechanisms and through several hedging programs. Our four pricing mechanisms and our estimate of the percentage of our shipment volume attributable to each are as follows:
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- Approximately 60% of our shipment volume is priced by a formula pricing mechanism based on the prior month's base aluminum price plus a conversion margin for our services. We use hedge instruments to mitigate our exposure to changes in the base aluminum price for the time period between our purchase of aluminum billet and when we process it for a customer order.
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- For approximately 25% of our shipment volume we enter into contracts for a specified period to provide customers with a fixed price for the aluminum. We use hedge instruments traded on the LME to specifically hedge our exposure under fixed price contracts.
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- Approximately 5% of our shipment volume is made through tolling arrangements in which customers provide aluminum ingot to us for extrusion and separately pay for our aluminum extrusion and other services.
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- The remaining 10% of our shipment volume is based on a spot price set by us. We review the spot price monthly and adjust the spot price periodically for changes in the base aluminum price.
We separately negotiate the billet premium we pay, and changes in the billet premium we pay affect our gross margin. We charge our customers a "conversion price," which is based upon our costs to produce, including non-aluminum raw materials costs, the billet premium we pay, shipping costs and what we charge for our services. We change the conversion price periodically to reflect changes in competitive pricing or escalating costs, or to enhance our operating margin, which can have a positive impact on our profitability. Conversion price adjustments were relatively infrequent until 2004. Since that time, increasing raw material, freight and energy costs have resulted in more frequent conversion price changes. Some of our conversion price increases have not been well-received by our customers. For example, in 2004, we raised our conversion prices due to billet shortages, and in 2005, we selectively scaled back some conversion prices in response to customer feedback.
Our gross margin is also impacted by factors such as product mix, shipping costs, scrap rates and labor costs. Gross margins vary depending on the type of customer, shape complexity and the amount of additional services provided, such as painting, anodizing and fabrication, and the extent to which we outsource from China. In general, our margins improve as we increase the level of shape complexity and services provided. In addition, scrap rates are relatively high in our industry, and high scrap rates negatively impact our gross margins. Labor costs, which are difficult to reduce in the short term, are impacted by benefits, workers compensation and base wage rate changes as well as changes in productivity.
Hedging
The price of aluminum ingot is primarily based on the London Metals Exchange, and is subject to periodic short-term fluctuations. We are largely insulated from this price volatility because the cost of aluminum ingot is generally passed on to our customers based upon prices established on the LME. Aluminum price volatility impacts our working capital levels significantly. Some of our pricing mechanisms, such as spot pricing, can create short-term price risk on the base aluminum component of
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sales, which we seek to mitigate through the use of financial derivatives. Under accounting principles generally accepted in the United States, these derivatives are required to be marked to market monthly, which can have a significant short-term impact on our operating results, but does not have a corresponding effect on our cash flows.
We purchase natural gas used for heating during the extrusion process from a third party using 36-month forward purchase contracts that we enter into on a monthly basis. While this hedging program has insulated us from recent increases in natural gas prices, it could have the opposite impact if natural gas prices decline and our forward purchase price is higher than the market price in the month of purchase. We build higher energy costs into our conversion margin, but short terms fluctuations in fuel costs can affect our operating results by increasing our costs of sales. Because Indalex does not own the derivatives, we do not record mark-to-market gains and losses for natural gas.
Seasonality and Cyclicality
We have historically experienced increased demand for our products from March through October and reduced demand for our products and lower net sales from November through February. This slow down is largely due to the seasonal nature of the businesses for a large portion of our customer base, slower manufacturing during the holiday period, accompanied by reductions in year end inventory levels and slower ramp up by our customers. Cold weather during the winter months causes slow downs in the residential and commercial building and construction industry in Canada and the northern United States. As a result, we have excess plant capacity during this time, which usually results in reduced operating results during these months. However, during these months our working capital requirements decline. Working capital typically declines during downturns as a result of lower levels of customer receivables. Reductions in working capital mitigate the cash impact of cyclical or seasonal downturns. Conversely, periods of strong demand require greater levels of working capital.
Globalization
Imports of extrusions from China currently represent approximately 9% of the United States and Canadian aluminum extrusion market, up from less than 1% in 2000. We believe Chinese suppliers have the ability to increase their market share in the U.S. and Canadian market by at least one percentage point per year. Increased direct participation in the U.S. and Canadian market by extruders in other countries would increase competition, which could adversely affect our operating results.
Globalization of the aluminum extrusion industry also represents an opportunity for us to outsource high volume labor-intensive extrusions to lower-cost providers. We outsourced approximately 5% of our shipment volume in the three months ended March 30, 2008 to aluminum extruders in China. Outsourcing to China has increased our shipment volume of lower-margin products and has increased our total operating profit.
Restructuring
We incurred restructuring expense of $3.7 million in the three months ended March 30, 2008, of which $2.7 million was related to the closure of our Girard, Ohio plant, which closed in March 2008. $0.6 million was related to the closure of our Watsonville, California plant, which closed in June 2007. $0.3 million was related to an overhead restructuring program which was initiated in January 2008, which resulted in the termination of 20 employees, and $0.1 million was related to the closure of our Niles, Ohio facility, which closed in March 2008. We have historically restructured our overhead and plant operations on an ongoing basis. Since 2002 we have closed three facilities, consolidated certain shared services organizations and scaled back our fixed administrative and plant overhead. Severance, relocation and other restructuring cost levels have been significant but provide for a lower cost structure going forward, positively impacting operating results. The driving rationale behind our closures is moving volume from less efficient operations to more cost effective facilities.
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Results of Operations—Three months ended March 30, 2008
The following table sets forth our results of operations for the three months ended April 1, 2007 and the three months ended March 30, 2008, which have been derived from the unaudited consolidated financial statements included elsewhere in this report.
| Successor | ||||||||
---|---|---|---|---|---|---|---|---|---|
| Three Months Ended April 1, 2007 | Three Months Ended March 30, 2008 | |||||||
Statement of income data: | |||||||||
Net sales | $ | 291,222 | $ | 250,588 | |||||
Costs and expenses: | |||||||||
Cost of sales | 277,089 | 243,835 | |||||||
Selling, general and administrative | 13,954 | 13,490 | |||||||
Management fees to affiliates | 319 | 250 | |||||||
Amortization of intangibles | 2,608 | 2,259 | |||||||
Other income | (885 | ) | (859 | ) | |||||
Restructuring charges | 1,618 | 3,681 | |||||||
Impairment of long-lived assets | — | 389 | |||||||
(Gain) loss on disposal of assets | 58 | (501 | ) | ||||||
Mark-to-market on derivatives | (1,476 | ) | (2,632 | ) | |||||
Total costs and expenses | 293,285 | 259,912 | |||||||
Loss from operations | (2,063 | ) | (9,324 | ) | |||||
Other income (expense): | |||||||||
External interest—net | (9,893 | ) | (7,437 | ) | |||||
Deferred financing costs | (596 | ) | (535 | ) | |||||
Interest income | — | 29 | |||||||
Income from equity method investment in AAG | 4,917 | — | |||||||
Loss before income taxes | (7,635 | ) | (17,267 | ) | |||||
Income tax benefit | (948 | ) | (725 | ) | |||||
Net loss | $ | (6,687 | ) | $ | (16,542 | ) | |||
Selected operating data: | |||||||||
Pounds shipped | 147,824 | 132,678 | |||||||
Three months ended March 30, 2008 Compared to Three months ended April 1, 2007
Net sales
Net sales decreased by $40.6 million, or 13.9%, from $291.2 million in the three months ended April 1, 2007 to $250.6 million in the three months ended March 30, 2008. Shipment volume fell 10.2% as a result of weak market demand, particularly in the Transportation and Residential Building and Construction end-user markets. Base aluminum prices were 10% lower in the three months ended March 30, 2008 as compared to the three months ended April 1, 2007. The increase in the relative value of the Canadian dollar versus the U.S. dollar resulted in a $11.2 million increase in net sales.
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Cost of sales
Cost of sales decreased by $33.3 million, or 12.0%, from $277.1 million in the three months ended April 1, 2007 to $243.8 million in the three months ended March 30, 2008, due primarily to lower volume and lower average base aluminum prices, but partially offset by higher costs at our Girard and Modesto plants, and slightly higher unit labor costs. Application of LIFO valuation to inventories resulted in a $1.2 million increase in cost of sales. Depreciation increased by $0.2 million, or 2.8%, in the three months ended March 30, 2008 as compared to the three months ended April 1, 2007.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased by $0.5 million, or 3.6%, from $14.0 million in the three months ended April 1, 2007 to $13.5 million in the three months ended March 30, 2008. Lower overhead and lower stand alone costs were the primary causes of the decline, partly offset by higher employee incentive compensation expenses.
Management fees to affiliates
Management fees to affiliates decreased by $0.1 million, or 33.3%, from $0.3 million in the three months ended April 1, 2007 to $0.2 million in the three months ended March 30, 2008, because our EBITDA was lower. Management fees to affiliates reflects expenses of $1.0 million annually, or 2% of our EBITDA, whichever is greater, payable to an affiliate of Sun Capital Partners.
Amortization of intangibles
Amortization of intangibles decreased by $0.3 million, or 11.5%, from $2.6 million in the three months ended April 1, 2007 to $2.3 million in the three months ended March 30, 2008. The decrease was due to the use of the declining balance method for amortization. The amortization expense was incurred as a result of the application of purchase accounting in connection with the Honeywell acquisition and the Indalex Holdings acquisition, which resulted in an increase in the value of a trademark and our customer lists.
Other income
Other income in the three months ended March 30, 2008 was $0.9 million, which consisted primarily of foreign currency gains for certain of our Canadian assets and liabilities due to changes in the Canadian dollar versus the U.S. dollar.
In the three months ended April 1, 2007, other income was $0.9 million, which consisted primarily of income related to foreign currency gains of $0.7 million for certain of our Canadian assets and liabilities due to decreases in the Canadian dollar versus the U.S. dollar.
Restructuring charges
In the three months ended March 30, 2008, we recorded restructuring charges of $3.7 million, of which $2.7 million was related to the closure of our Girard, Ohio facility; $0.6 million was related to the closure of our Watsonville, California facility; $0.3 million was related to an overhead restructuring program initiated in January of 2008, which resulted in the termination of twenty employees; and $0.1 million related to the closure of our Niles, Ohio facility.
In the three months ended April 1, 2007, we recorded restructuring charges of $1.3 million related to the closure of our Watsonville, California facility and restructuring charges of $0.3 million related to an overhead restructuring program.
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Impairment of long-lived assets
In the three months ended March 30, 2008, we recorded impairment charges of $0.4 million related to the closure of our Niles, Ohio facility.
(Gain) loss on disposal of assets
In the three months ended March 30, 2008, we recorded a gain of $0.5 million, primarily related to a gain of $0.4 million as a result of insurance proceeds from a transformer at our City of Industry, California plant. In the three months ended April 1, 2007, we recorded losses incurred in the ordinary course of business.
Mark-to-market on derivatives
In accordance with FAS 133, we recorded a gain on our forward aluminum hedging contracts of $3.6 million in the three months ended March 30, 2008 due to higher market prices in relation to the price at which we established our hedges. In addition, we recorded a loss of $1.0 million related to interest rate swap contracts for the three months ended March 30, 2008. In the three months ended April 1, 2007, we recorded a gain on our aluminum derivatives of $1.5 million due to higher market prices in relation to the price at which we established our hedges.
Loss from operations
Loss from operations increased by $7.2 million, from a loss of $2.1 million in the three months ended April 1, 2007 to a loss of $9.3 million in the three months ended March 30, 2008, primarily as a result of the decrease in sales, combined with the increase in restructuring charges, partially offset by higher mark-to-market gains on derivatives and lower selling, general and administrative expenses.
Interest expense
Interest expense decreased by $2.5 million, from $9.9 million in the three months ended April 1, 2007 to $7.4 million in the three months ended March 30, 2008. The decrease was caused by lower interest expense related to the 111/2% Notes, as a result of our repurchase of $71.9 million aggregate principal amount of the 111/2% Notes on June 21, 2007.
Deferred financing costs
Amortization expense for deferred financing costs of $0.5 million is included in deferred financing costs for the three months ended March 30, 2008 and amortization expense for deferred financing costs of $0.6 million is included in the three months ended April 1, 2007. The decline was a result of the company's repurchase of 111/2% Notes with an aggregate principal amount of $71.9 million in June of 2007, which resulted in the expense of $2.8 million of deferred financing costs which were being amortized over eight years during the three months ended July 1, 2007. The expense was included in the statement of income as part of the loss on redemption of 111/2% Notes.
Income from equity method investment in AAG
We sold our equity method investment in AAG in May of 2007, so we did not record any income from that investment in the three months ended March 30, 2008. In the three months ended April 1, 2007, we recorded income of $4.9 million related to our equity method investment in AAG.
Income tax benefit
We recorded a tax benefit of $0.7 million in the three months ended March 30, 2008 compared to a tax benefit in the three months ended April 1, 2007 of $0.9 million. The primary reason for the decrease in income tax benefit was an increased allowance for net operating losses.
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Liquidity and Capital Resources
Cash Flows
Operating activities
In the three months ended March 30, 2008, net cash used in operations was $36.4 million, primarily as a result of a seasonal increase in working capital requirements, driven by higher accounts receivable and prepaids and other assets. In the three months ended April 1, 2007, net cash used in operations was $42.4 million, primarily as a result of higher accounts receivable and inventories.
Investing activities
In the three months ended March 30, 2008, cash used in investing was $9.8 million, primarily as a result of capital expenditures of $10.6 million. In the three months ended April 1, 2007, net cash used in investing was $6.9 million, as a result of capital expenditures of $6.9 million.
Financing activities
In the three months ended March 30, 2008, cash from financing activities was $39.8 million, consisting primarily of revolver borrowings of $40.1 million during the period.
In the three months ended April 1, 2007, cash from financing activities was $42.0 million, consisting primarily of revolver borrowings of $42.3 million.
The primary sources of liquidity for our business are cash flow generated from operations and borrowings under our revolving credit facility. We expect that our principal uses of cash will be debt service requirements, working capital and capital expenditures.
Debt and Commitments
We have significant debt service obligations. As of March 30, 2008, we had outstanding $308.6 million in aggregate indebtedness, with an additional $32.3 million of borrowing capacity available under our revolving credit facility, net of $8.6 million of outstanding letters of credit, which reduce availability. Our liquidity requirements are significant, primarily due to debt service requirements and the cyclicality of our business. Our cash interest payments for the three months ended March 30, 2008 were $13.1 million.
Revolving Credit Facility
The revolving credit facility provides for a first-priority secured five-year asset-based revolving credit facility in an aggregate principal amount of up to $200.0 million, all of which is available in the form of loans denominated in U.S. dollars to Indalex Holding Corp. and up to $80.0 million of which is available as a revolving credit sub-facility in the form of loans denominated in Canadian dollars and loans denominated in U.S. dollars to Indalex Limited or bankers' acceptances denominated in Canadian dollars, subject in each case to the borrowing base limitations described below. Up to an aggregate of $30.0 million will be available to Indalex Holding Corp., Indalex Limited and subsidiaries of Indalex Holding Corp., to the extent that Indalex Holding Corp. or Indalex Limited is a co-applicant, for the issuance of letters of credit. As of March 30, 2008, we had $107.5 million of borrowings under the revolving credit facility, which bore interest at a weighted average rate of 5.3%.
We used the borrowings under the revolving credit facility, together with the proceeds of the cash equity contribution and the proceeds of the offering of the 111/2% Notes, to pay the purchase price of the Indalex Holdings acquisition, to pay the fees and expenses in connection with the Transactions and for general corporate purposes, including working capital.
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The aggregate amount of loans permitted to be made to Indalex Holding Corp. under the revolving credit facility may not exceed a borrowing base comprised of the eligible accounts receivable, inventory, machinery and equipment and real property of Indalex Holding Corp. and its wholly owned domestic subsidiaries, subject to an aggregate total cap, when taken together with loans made to Indalex Limited, of $200.0 million.
The aggregate amount of loans permitted to be made to Indalex Limited under the Canadian revolving credit sub-facility may not exceed a borrowing base comprised of the eligible accounts receivable, inventory, machinery and equipment and real property of Indalex Limited and its wholly owned Canadian subsidiaries, subject to an aggregate sub-cap of $80.0 million and further subject to an aggregate total cap, when taken together with loans made to Indalex Holding Corp., of $200.0 million.
Our obligations under the revolving credit facility are guaranteed on a first-priority secured basis by Holdings and each domestic subsidiary of Indalex Holding Corp. The obligations of Indalex Limited under the Canadian revolving credit sub-facility will be guaranteed on a first-priority secured basis by Holdings, Indalex Holding Corp., each domestic subsidiary of Indalex Holding Corp. and certain foreign subsidiaries of Indalex Holding Corp., other than Indalex Limited.
Indalex Holding Corp.'s obligations under the U.S. portion of the revolving credit facility and the guarantees thereof are secured by a first-priority lien on all of the tangible and intangible assets of Holdings, Indalex Holding Corp. and each domestic subsidiary of Indalex Holding Corp., as well as 100% of the capital stock of Indalex Holding Corp. and our domestic subsidiaries and 65% of the capital stock of the foreign subsidiaries directly owned by us or any of our domestic subsidiaries. The obligations of Indalex Limited under the Canadian revolving credit sub-facility and the guarantees thereof are secured by a first-priority lien on all of the tangible and intangible assets of Holdings, Indalex Holding Corp., Indalex Limited, each domestic subsidiary of Indalex Holding Corp. and certain foreign subsidiaries of Indalex Holding Corp., as well as 100% of the capital stock of Indalex Holding Corp. and its domestic subsidiaries and 100% of the capital stock of our foreign subsidiaries, including Indalex Limited.
Indalex Holding Corp. and Indalex Limited may, at their option, increase the aggregate commitments under the revolving credit facility by an additional $40.0 million, subject to the satisfaction of certain conditions precedent.
We are currently in discussions with the lenders under our revolving credit facility to amend and restate that facility to, among other things, permit a new term loan under the credit facility, which would be funded by an affiliate of Sun Capital, our equity sponsor. The purpose of the term loan is to further enhance Indalex's liquidity position. The initial amount of the term loan is expected to be $15 million and the proceeds will be used to reduce borrowings under the revolving credit facility. We anticipate that the amendment would also permit the Company to borrow additional term loans up to $15 million in the future, subject to the consent of Sun Capital to such borrowings. Such amendment and restatement remains subject to the consent of our senior lenders.
111/2% Second-Priority Senior Secured Notes due 2014
Indalex Holding Corp. issued 111/2% second-priority senior secured notes due 2014 (the "111/2% Notes") on February 2, 2006. The 111/2% Notes will mature in 2014 and are guaranteed on a second priority secured basis by each of our domestic subsidiaries that incurs indebtedness, and each of our foreign subsidiaries that enters into a guarantee of any of our senior indebtedness (other than indebtedness incurred by another foreign subsidiary). On the closing date, the 111/2% Notes were guaranteed by each of our domestic subsidiaries and none of our foreign subsidiaries. Interest on the 111/2% Notes is payable semi annually in cash.
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The 111/2% Notes are secured by a second priority lien on substantially all Indalex Holding Corp.'s and the guarantors' assets to the extent that such assets secure the borrowings under our revolving credit facility and a second priority pledge of 100% of Indalex Holding Corp.'s and its domestic subsidiaries' capital stock and 65% of the capital stock of our foreign subsidiaries directly owned by Indalex Holding Corp. or any domestic subsidiary, in each case, subject to certain limitations, including the limitation that the capital stock will constitute collateral securing the 111/2% Notes only to the extent that such capital stock can secure the 111/2% Notes without Rule 3-16 of Regulation S-X under the Securities Act requiring us to file separate financial statements with the SEC or any other governmental agency (the "collateral cutback provision").
The collateral under the security documents includes the capital stock of the following companies: Indalex Holding Corp., Indalex Inc., Indalex Limited, Dolton Aluminum Company, Inc. and Caradon Lebanon Inc. In accordance with the collateral cutback provision, the collateral securing the 111/2% Notes and the related guarantees includes shares of capital stock only to the extent that the applicable value of such capital stock, determined on an entity-by-entity basis, is less than 20% of the principal amount of the 111/2% Notes outstanding. The applicable value of the capital stock of any entity is deemed to be the greatest of its par value, book value or market value. The book value and market value of the capital stock of Indalex Inc. and the market value of the stock of Indalex Holding Corp. exceeded 20% of the principal amount of the 111/2% Notes as of March 30, 2008. As a result, the pledge of the capital stock of these entities with respect to the 111/2% Notes is limited to capital stock of each such entity with an applicable value of less than 20% of the principal amount of the 111/2% Notes, or $39.6 million.
The capital stock of the following companies does not constitute collateral under the security documents: Indalex UK Limited, Indalex Holdings (B.C.) Ltd., 6326765 Canada Inc., Novar Inc. and Asia Aluminum Group Ltd.
As of March 30, 2008, the book value of each company whose capital stock constitutes collateral under the security documents is as follows:
- •
- Indalex Holding Corp.—($7.4) million.
- •
- Indalex Inc.—$72.8 million.
- •
- Indalex Limited—$59.7 million, of which 65%, or $38.8 million, constitutes collateral under the terms of the security documents.
- •
- Dolton Aluminum Company, Inc.—$0 million.
- •
- Caradon Lebanon Inc.—$0 million.
In the case of Indalex Inc., the applicable value of the capital stock that constitutes collateral under the security documents is limited to less than $39.6 million under the collateral cutback provision.
The Company determined the book value of each company whose capital stock constitutes collateral under the security documents based on the book value of the equity securities of each such company as carried on the Company's balance sheet as of March 30, 2008 prepared in accordance with U.S. GAAP.
Management estimated that the market value of the capital stock of Indalex Limited as of March 30, 2008 was $30.4 million, of which 65%, or $19.8 million, constitutes collateral under the terms of the security documents. The market value of the capital stock of each of Dolton Aluminum Company, Inc. and Caradon Lebanon Inc. is zero because there are no assets held by these entities.
The portion of the capital stock of Indalex Holding Corp. and the subsidiaries constituting collateral securing the 111/2% Notes and the related guarantees may decrease or increase as the
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applicable value of such capital stock changes. As long as the applicable value of the capital stock of each of Indalex Holding Corp. and Indalex Inc. exceeds 20% of the principal amount of the 111/2% Notes, the value of the capital stock of each of those entities securing the 111/2% Notes and related guarantees will not change. If the applicable value of the capital stock of any of Indalex Holding Corp. or Indalex Inc. falls below 20% of the principal amount of the 111/2% Notes, 100% of the capital stock of that entity will secure the 111/2% Notes and related guarantees. As long as the applicable value of 65% of the capital stock of Indalex Limited is less than 20% of the principal amount of the 111/2% Notes, 65% of the capital stock of Indalex Limited will secure the 111/2% Notes and the related guarantees. If the applicable value of 65% of the capital stock of Indalex Limited exceeds 20% of the aggregate principal amount of the 111/2% Notes, the value of the capital stock of Indalex Limited securing the 111/2% Notes and the related guarantees will be limited to less than 20% of the aggregate principal amount of the 111/2% Notes. As long as the applicable value of the capital stock of each of Dolton Aluminum Company, Inc. and Caradon Lebanon Inc. is less than 20% of the principal amount of the 111/2% Notes, 100% of the capital stock of each of those entities will secure the 111/2% Notes and related guarantees. If the applicable value of the capital stock of either Dolton Aluminum Company, Inc. or Caradon Lebanon Inc. exceeds 20% of the aggregate principal amount of the 111/2% Notes, the value of the capital stock of that entity securing the 111/2% Notes and related guarantees will be limited to less than 20% of the aggregate principal amount of the 111/2% Notes.
As of March 30, 2008, the book value of capital stock, as a percentage of the principal amount of the 111/2% Notes, of each entity whose capital stock constitutes collateral exceeding 10% of the principal amount of the 111/2% Notes was as follows:
- •
- Indalex Inc.—ratio of (i) book value of Indalex Holding Corp.'s investment in Indalex Inc. ($72.8 million) to (ii) principal amount of 111/2% Notes ($198.1 million) equals 36.8%.
The indenture governing the 111/2% Notes, among other things, limits Indalex Holding Corp.'s ability and the ability of its restricted subsidiaries to: incur additional indebtedness; pay dividends on or make distributions in respect of capital stock or make certain other restricted payments or investments; enter into agreements that restrict distributions from restricted subsidiaries; sell or otherwise dispose of assets, including capital stock of restricted subsidiaries; enter into transactions with affiliates; create or incur liens; enter into sale/leaseback transactions; and merge, consolidate or sell substantially all of our assets. These covenants are subject to important exceptions and qualifications.
As of March 30, 2008, the net book value of the capital stock securing the 111/2% Notes was $63.2 million and the book value of all other property and assets securing the 111/2% Notes was $256.2 million.
Capital expenditures
We made $10.6 million in capital expenditures in the three months ended March 30, 2008. Our spending was for dies, quality and efficiency projects and replacement projects, and included $4.9 million related to an expansion at our Connersville, Indiana plant.
We believe that funds generated from operations and anticipated borrowing capacity under our revolving credit facility will be adequate to fund debt service requirements, capital expenditures and working capital requirements. Our ability to continue to fund these items may be affected by general economic, financial, competitive, legislative and regulatory factors outside of our control.
We believe that our current financial position and financing plans will provide flexibility in financing activities and permit us to respond to changing conditions in credit markets. We cannot assure you, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available under our revolving credit facility in an amount sufficient to enable us to pay our indebtedness, including the 111/2% Notes, or to fund our other liquidity needs.
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Contractual obligations summary
The following table reflects our contractual obligations and commitments as of March 30, 2008.
Contractual Obligations and Commitments by Fiscal Year
(in millions)
| Total | Remainder of 2008 | 2009-2010 | 2011-2012 | Beyond 2012 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Letters of credit | $ | 8.6 | — | — | — | $ | 8.6 | ||||||||
Revolving credit facility | $ | 107.5 | — | — | $ | 107.5 | — | ||||||||
Operating leases | $ | 6.7 | $ | 2.0 | $ | 3.3 | $ | 1.0 | $ | 0.4 | |||||
Capital leases | $ | 5.7 | $ | 1.3 | $ | 3.0 | 1.4 | — | |||||||
Purchase obligations | $ | 273.1 | $ | 225.0 | $ | 47.7 | $ | 0.4 | — | ||||||
Long-term debt | $ | 198.1 | — | — | — | $ | 198.1 | ||||||||
Fixed interest payments | $ | 136.7 | $ | 11.4 | $ | 45.6 | $ | 45.6 | $ | 34.1 | |||||
Total | $ | 736.4 | $ | 239.7 | $ | 99.6 | $ | 155.9 | $ | 241.2 | |||||
The table above does not reflect variable rate interest payments on our revolving credit facility. Based on the weighted average interest rate of 5.3% and outstanding borrowings of $107.5 million as of March 30, 2008, our annual variable interest rate payments would be $5.7 million.
The Company has uncertain tax benefits of $19.2 million as of March 30, 2008. Uncertain tax benefits are excluded from the table since we are unable to estimate the timing of payments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to our exposure to market risk since December 31, 2007.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, we have carried out an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information we are required to disclose in reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms specified by the Securities and Exchange Commission. There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the period covered in this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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We are involved in various legal proceedings, claims and litigation arising in the ordinary course of business. We believe that the outcome of each such proceeding or claim which is pending or known to be threatened will not have a material adverse effect on our financial condition, cash flows or results of operations.
There have been no material changes to our risk factors as disclosed in Item 1A. "Risk Factors" in our annual report on form 10-K for the fiscal year ended December 31, 2007.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of Indalex Holding Corp. and Holdings during the three months ended March 30, 2008.
On January 9, 2008, we announced that we would close our Girard, Ohio plant by the end of March 2008.
This closure results from our need to realign our production capacity, in light of weak market conditions in the building and construction market.
At that time, the Girard plant had 245 employees who were members of the United Steel Workers.
As a result of the closure of the Girard plant, we have recorded expenses of $6.6 million, including $2.5 million of severance and other related costs; a $3.9 million non-cash impairment charge; and $0.2 million of other exit costs as of March 30, 2008. We will incur additional exit costs, but we cannot estimate those additional costs at this time.
The list of exhibits in the Exhibit Index to this quarterly report on Form 10-Q is incorporated by reference herein.
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The Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on May 14, 2008.
Indalex Holdings Finance, Inc. | ||||
By: | /s/ TIMOTHY R.J. STUBBS Timothy R.J. Stubbs | |||
Its: | President and Chief Executive Officer | |||
By: | /s/ PATRICK LAWLOR Patrick Lawlor | |||
Its: | Chief Financial Officer |
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EXHIBIT NO. | DESCRIPTION | |
---|---|---|
3.1 | Amended and Restated Certificate of Incorporation of Indalex Holdings Finance, Inc. (incorporated by reference to the Company's Registration Statement on Form S-4, Registration No. 333-138178, filed on October 24, 2006). | |
3.2 | By-laws of Indalex Holdings Finance, Inc. (incorporated by reference to the Company's Registration Statement on Form S-4, Registration No. 333-138178, filed on October 24, 2006). | |
10.1 | Employment offer letter for John R. Bagnuolo dated April 10, 2008 (incorporated by reference to the Company's Form 8-K filed on May 2, 2008). | |
31.1 | Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. | |
31.2 | Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. | |
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes- Oxley Act of 2002. | |
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes- Oxley Act of 2002. |
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TABLE OF CONTENTS
INDALEX HOLDINGS FINANCE, INC. CONSOLIDATED BALANCE SHEETS As of March 30, 2008 and December 31, 2007 (Dollars in thousands, except per share amounts) (Unaudited)
INDALEX HOLDINGS FINANCE, INC. CONSOLIDATED STATEMENTS OF INCOME Three months ended March 30, 2008 and April 1, 2007 (Dollars in thousands) (Unaudited)
INDALEX HOLDINGS FINANCE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Three months ended March 30, 2008 and April 1, 2007 (Dollars in thousands) (Unaudited)
INDALEX HOLDINGS FINANCE, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) Three months ended March 30, 2008 and April 1, 2007 (Dollars in thousands) (Unaudited)
INDALEX HOLDINGS FINANCE, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Three months ended March 30, 2008 and April 1, 2007 (Dollars in thousands) (Unaudited)
INDALEX HOLDINGS FINANCE, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Three months ended March 30, 2008 and April 1, 2007 (Dollars in thousands) (Unaudited)
INDALEX HOLDINGS FINANCE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Three months ended March 30, 2008 and April 1, 2007 (Dollars in thousands) (Unaudited)
Indalex Consolidated Balance Sheet—Guarantor and Non-Guarantor As of March 30, 2008 (Successor)
Indalex Consolidated Balance Sheet—Guarantor and Non-Guarantor As of December 31, 2007 (Successor)
Indalex Consolidated Statement of Income—Guarantor and Non-Guarantor For the Period January 1, 2008 to March 30, 2008 (Successor)
Indalex Consolidated Statement of Cash Flows—Guarantor and Non-Guarantor For the Period January 1, 2008 to March 30, 2008 (Successor)
Indalex Consolidated Statement of Income—Guarantor and Non-Guarantor For the Period January 1, 2007 to April 1, 2007 (Successor)
Indalex Consolidated Statement of Cash Flows—Guarantor and Non-Guarantor For the Period January 1, 2007 to April 1, 2007 (Successor)
PART II: OTHER INFORMATION
- ITEM 1. LEGAL PROCEEDINGS
ITEM 1A. RISK FACTORS
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
EXHIBIT INDEX