UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 2007
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 |
| 3350 |
| 20-4065041 |
(State or other jurisdiction of |
| (Primary Standard Industrial |
| (I.R.S. Employer |
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 x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The number of shares of the registrant’s common stock outstanding as of May 1, 2007 was 1,000,024.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION |
| 3 | |
Item 1. | Financial Statements |
| 3 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| 36 | |
| 50 | ||
| 50 | ||
| 51 | ||
| 51 | ||
| 51 | ||
| 51 | ||
| 51 | ||
| 51 | ||
| 51 | ||
| 51 | ||
| 52 |
2
INDALEX HOLDINGS FINANCE, INC.
CONSOLIDATED BALANCE SHEETS
As of April 1, 2007 and December 31, 2006
(Dollars in thousands)
(Unaudited)
|
| April 1, 2007 |
| December 31, 2006 |
| ||||||
ASSETS |
|
|
|
|
|
|
|
|
| ||
Current Assets: |
|
|
|
|
|
|
|
|
| ||
Cash and cash equivalents |
|
| $ | 3,950 |
|
|
| $ | 11,157 |
|
|
Accounts receivable, less allowance of $4,904 in 2007 and $4,462 in 2006 |
|
| 134,409 |
|
|
| 103,924 |
|
| ||
Receivable from suppliers |
|
| 8,013 |
|
|
| 8,980 |
|
| ||
Inventories |
|
| 92,216 |
|
|
| 67,182 |
|
| ||
Prepaid expenses and other current assets |
|
| 10,944 |
|
|
| 10,765 |
|
| ||
Total current assets |
|
| 249,532 |
|
|
| 202,008 |
|
| ||
Investment in AAG |
|
| 101,867 |
|
|
| 96,950 |
|
| ||
Property, plant, and equipment, net |
|
| 198,205 |
|
|
| 199,638 |
|
| ||
Goodwill |
|
| 3,537 |
|
|
| 3,537 |
|
| ||
Other intangibles, net |
|
| 75,656 |
|
|
| 78,264 |
|
| ||
Deferred financing costs |
|
| 13,998 |
|
|
| 14,594 |
|
| ||
Other assets |
|
| 1,604 |
|
|
| 2,692 |
|
| ||
Total assets |
|
| $ | 644,399 |
|
|
| $ | 597,683 |
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
| ||
Current Liabilities: |
|
|
|
|
|
|
|
|
| ||
Accounts payable |
|
| $ | 76,526 |
|
|
| $ | 66,780 |
|
|
Income taxes payable |
|
| 983 |
|
|
| 2,648 |
|
| ||
Deferred income taxes |
|
| 2,450 |
|
|
| 2,456 |
|
| ||
Accrued expenses and other current liabilities |
|
| 49,919 |
|
|
| 38,478 |
|
| ||
Accrued interest |
|
| 6,496 |
|
|
| 13,806 |
|
| ||
Capital lease obligation |
|
| 1,272 |
|
|
| 1,243 |
|
| ||
Revolver borrowings |
|
| 98,260 |
|
|
| 55,717 |
|
| ||
Total current liabilities |
|
| 235,906 |
|
|
| 181,128 |
|
| ||
Other liabilities |
|
| 30,435 |
|
|
| 30,667 |
|
| ||
Capital lease obligation |
|
| 4,364 |
|
|
| 4,674 |
|
| ||
Long-term debt |
|
| 267,064 |
|
|
| 266,957 |
|
| ||
Deferred income taxes |
|
| 23,868 |
|
|
| 24,859 |
|
| ||
Total liabilities |
|
| 561,637 |
|
|
| 508,285 |
|
| ||
Commitments and contingencies (Note 14) |
|
|
|
|
|
|
|
|
| ||
Stockholders’ equity: |
|
|
|
|
|
|
|
|
| ||
Common stock ($.001 par value per share). Authorized shares 2,900,000. Issued and oustanding 1,000,114 |
|
| 1 |
|
|
| 1 |
|
| ||
Additional paid-in capital |
|
| 110,876 |
|
|
| 110,665 |
|
| ||
Treasury stock, 90 shares at $111.11 per share |
|
| (10 | ) |
|
| (10 | ) |
| ||
Accumulated retained deficit |
|
| (30,585 | ) |
|
| (23,898 | ) |
| ||
Accumulated other comprehensive income |
|
| 2,480 |
|
|
| 2,640 |
|
| ||
Total stockholders’ equity |
|
| 82,762 |
|
|
| 89,398 |
|
| ||
Total liabilities and stockholders’ equity |
|
| $ | 644,399 |
|
|
| $ | 597,683 |
|
|
See accompanying notes to consolidated and combined financial statements.
3
INDALEX HOLDINGS FINANCE, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
|
| Three months ended |
| |||||||||||||
|
|
|
| April 2, 2006 |
| |||||||||||
|
| April 1, 2007 |
| Jan 1-Feb 1 |
| Feb 2-Apr 2 |
| |||||||||
|
| (Successor) |
| (Predecessor 2) |
| (Successor) |
| |||||||||
Net sales |
|
| $ | 291,222 |
|
|
| $ | 100,019 |
|
|
| $ | 210,912 |
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Cost of sales |
|
| 277,089 |
|
|
| 95,127 |
|
|
| 199,820 |
|
| |||
Selling, general, and administrative |
|
| 13,954 |
|
|
| 5,548 |
|
|
| 8,855 |
|
| |||
Management fees to affiliates |
|
| 319 |
|
|
| 125 |
|
|
| 308 |
|
| |||
Amortization of intangible assets |
|
| 2,608 |
|
|
| 920 |
|
|
| 1,939 |
|
| |||
Other (income) expense |
|
| (885 | ) |
|
| 195 |
|
|
| 428 |
|
| |||
Restructuring charges |
|
| 1,618 |
|
|
| — |
|
|
| — |
|
| |||
(Gain) loss on disposal of assets |
|
| 58 |
|
|
| — |
|
|
| (140 | ) |
| |||
Mark-to-market on derivatives |
|
| (1,476 | ) |
|
| (3,619 | ) |
|
| 1,039 |
|
| |||
Total costs and expenses |
|
| 293,285 |
|
|
| 98,296 |
|
|
| 212,249 |
|
| |||
Income (loss) from operations |
|
| (2,063 | ) |
|
| 1,723 |
|
|
| (1,337 | ) |
| |||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
External interest expense |
|
| (9,893 | ) |
|
| (24 | ) |
|
| (6,418 | ) |
| |||
Deferred financing costs |
|
| (596 | ) |
|
| — |
|
|
| (401 | ) |
| |||
Income from equity method investment in AAG |
|
| 4,917 |
|
|
| 643 |
|
|
| 1,143 |
|
| |||
Affiliated acquisition fees |
|
| — |
|
|
| — |
|
|
| (5,475 | ) |
| |||
Income (loss) before income taxes |
|
| (7,635 | ) |
|
| 2,342 |
|
|
| (12,488 | ) |
| |||
Income tax provision (benefit) |
|
| (948 | ) |
|
| 703 |
|
|
| (4,065 | ) |
| |||
Net income (loss) |
|
| $ | (6,687 | ) |
|
| $ | 1,639 |
|
|
| $ | (8,423 | ) |
|
See accompanying notes to consolidated and combined financial statements.
4
INDALEX HOLDINGS FINANCE, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
|
| Three months ended |
| |||||||||||||
|
|
|
| April 2, 2006 |
| |||||||||||
|
| April 1, 2007 |
| Jan 1-Feb 1 |
| Feb 2-Apr 2 |
| |||||||||
|
| (Successor) |
| (Predecessor 2) |
| (Successor) |
| |||||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Net income (loss) |
|
| $ | (6,687 | ) |
|
| $ | 1,639 |
|
|
| $ | (8,423 | ) |
|
Adjustments to reconcile net income (loss) to net cash from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Depreciation |
|
| 8,269 |
|
|
| 2,821 |
|
|
| 5,923 |
|
| |||
Amortization of intangible assets |
|
| 2,608 |
|
|
| 920 |
|
|
| 1,939 |
|
| |||
Amortization of deferred financing costs |
|
| 596 |
|
|
| — |
|
|
| 401 |
|
| |||
Amortization of bond discount |
|
| 107 |
|
|
| — |
|
|
| 72 |
|
| |||
(Gain) loss on disposal of assets |
|
| 58 |
|
|
| — |
|
|
| (140 | ) |
| |||
Other |
|
| — |
|
|
| 743 |
|
|
| 18 |
|
| |||
Income from equity method investment in AAG |
|
| (4,917 | ) |
|
| (643 | ) |
|
| (1,143 | ) |
| |||
Stock-based compensation |
|
| 211 |
|
|
| — |
|
|
| — |
|
| |||
Management fees to affiliates |
|
| — |
|
|
| 125 |
|
|
| — |
|
| |||
Deferred income taxes |
|
| (1,136 | ) |
|
| 988 |
|
|
| (5,902 | ) |
| |||
Changes in operating assets and liabilities, net of the effect of the acquisition: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Accounts receivable |
|
| (30,117 | ) |
|
| (12,255 | ) |
|
| (38,649 | ) |
| |||
Receivable from affiliates |
|
| — |
|
|
| 1,854 |
|
|
| — |
|
| |||
Inventories |
|
| (24,796 | ) |
|
| (2,652 | ) |
|
| (7,670 | ) |
| |||
Prepaids and other assets |
|
| 1,905 |
|
|
| (3,684 | ) |
|
| (231 | ) |
| |||
Income taxes payable/refundable |
|
| (1,672 | ) |
|
| (292 | ) |
|
| 1,500 |
|
| |||
Checks issued in excess of bank balance |
|
| — |
|
|
| (242 | ) |
|
| 3,034 |
|
| |||
Accounts payable |
|
| 9,416 |
|
|
| (6,586 | ) |
|
| 38,321 |
|
| |||
Accrued expenses and other liabilities |
|
| 3,787 |
|
|
| 19,798 |
|
|
| (2,516 | ) |
| |||
Payable to affiliates |
|
| — |
|
|
| 812 |
|
|
| 150 |
|
| |||
Net cash from operating activities |
|
| (42,368 | ) |
|
| 3,346 |
|
|
| (13,316 | ) |
| |||
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Capital expenditures |
|
| (6,889 | ) |
|
| (3,006 | ) |
|
| (5,171 | ) |
| |||
Proceeds from sales of property, plant and equipment |
|
| (12 | ) |
|
| — |
|
|
| 140 |
|
| |||
Cash paid for acquisition |
|
| — |
|
|
| — |
|
|
| (418,256 | ) |
| |||
Payment of acquisition transaction cost |
|
| — |
|
|
| — |
|
|
| (1,735 | ) |
| |||
Net cash from investing activities |
|
| (6,901 | ) |
|
| (3,006 | ) |
|
| (425,022 | ) |
| |||
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Dividends and distributions |
|
| — |
|
|
| (6,809 | ) |
|
| 21 |
|
| |||
Payments on capital lease obligation |
|
| (308 | ) |
|
| (58 | ) |
|
| (154 | ) |
| |||
Revolver borrowings |
|
| 42,329 |
|
|
| — |
|
|
| 17,526 |
|
| |||
Net payments to affiliates on notes |
|
| — |
|
|
| (1,620 | ) |
|
| — |
|
| |||
Revolver borrowings, acquisition |
|
| — |
|
|
| — |
|
|
| 68,839 |
|
| |||
Borrowings on long-term debt, acquisition |
|
| — |
|
|
| — |
|
|
| 266,563 |
|
| |||
Capital contributions |
|
| — |
|
|
| — |
|
|
| 111,250 |
|
| |||
Debt issuance costs |
|
| — |
|
|
| — |
|
|
| (21,630 | ) |
| |||
Net cash from financing activities |
|
| 42,021 |
|
|
| (8,487 | ) |
|
| 442,415 |
|
| |||
Effect of changes in foreign exchange rates on cash |
|
| 41 |
|
|
| (27 | ) |
|
| (152 | ) |
| |||
Net change in cash and cash equivalents |
|
| (7,207 | ) |
|
| (8,174 | ) |
|
| 3,925 |
|
| |||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Beginning of period |
|
| 11,157 |
|
|
| 9,366 |
|
|
| — |
|
| |||
End of period |
|
| $ | 3,950 |
|
|
| $ | 1,192 |
|
|
| $ | 3,925 |
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Cash paid for interest |
|
| $ | 17,096 |
|
|
| $ | 18 |
|
|
| $ | 108 |
|
|
Cash paid for income taxes |
|
| 1,859 |
|
|
| — |
|
|
| 10 |
|
| |||
Supplemental disclosure of non cash investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Property and equipment acquired under a capital lease |
|
| $ | — |
|
|
| $ | — |
|
|
| $ | 3,198 |
|
|
Supplemental disclosure of acquisition of a business: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Fair value of assets acquired |
|
| $ | — |
|
|
| — |
|
|
| $ | 627,568 |
|
| |
Fair value of liabilities assumed |
|
| — |
|
|
| — |
|
|
| 209,312 |
|
| |||
Cash paid for acquisition |
|
| $ | — |
|
|
| $ | — |
|
|
| $ | 418,256 |
|
|
See accompanying notes to consolidated and combined financial statements.
5
INDALEX HOLDINGS FINANCE, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Period January 1, 2007 through April 1, 2007
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
|
| |||||||||||||||||||
|
|
|
| Additional |
|
|
| Accumulated |
| Comprehensive |
|
|
| Other |
| |||||||||||||||||||
|
| Common |
| Paid-in |
| Treasury |
| Retained |
| Income |
|
|
| Comprehensive |
| |||||||||||||||||||
|
| Stock |
| Capital |
| Stock |
| Deficit |
| (Loss) |
| Total |
| Loss |
| |||||||||||||||||||
January 1, 2007 |
|
| $ | 1 |
|
|
| $ | 110,665 |
|
|
| $ | (10 | ) |
|
| $ | (23,898 | ) |
|
| $ | 2,640 |
|
| $ | 89,398 |
|
|
|
|
| |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,687 | ) |
|
| — |
|
| (6,687 | ) |
| $ | (6,687 | ) |
| ||||||
Stock-based compensation |
|
| — |
|
|
| 211 |
|
|
| — |
|
|
| — |
|
|
| — |
|
| 211 |
|
| — |
|
| |||||||
Translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (160 | ) |
| (160 | ) |
| (160 | ) |
| |||||||
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (6,847 | ) |
| ||||||
April 1, 2007 |
|
| $ | 1 |
|
|
| $ | 110,876 |
|
|
| $ | (10 | ) |
|
| $ | (30,585 | ) |
|
| $ | 2,480 |
|
| $ | 82,762 |
|
|
|
|
|
See accompanying notes to consolidated and combined financial statements.
6
INDALEX HOLDINGS FINANCE, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Periods January 1, 2006 through February 1, 2006 and February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
| Accumulated |
| Other |
|
|
|
|
| ||||||||||||||||
|
|
|
| Additional |
| Retained |
| Comprehensive |
|
|
| Other |
| ||||||||||||||||
|
| Common |
| Paid-in |
| Earnings |
| Income |
|
|
| Comprehensive |
| ||||||||||||||||
|
| Stock |
| Capital |
| (Deficit) |
| (Loss) |
| Total |
| Income (Loss) |
| ||||||||||||||||
Predecessor 2 balance, January 1, 2006 |
|
| $ | 391 |
|
|
| $ | 411,515 |
|
|
| $ | 9,712 |
|
|
| $ | 1,488 |
|
| $ | 423,106 |
|
|
|
|
| |
Dividends and distributions |
|
| — |
|
|
| (12,708 | ) |
|
| — |
|
|
| — |
|
| (12,708 | ) |
|
|
|
| ||||||
Divestiture incentive payment |
|
| — |
|
|
| 743 |
|
|
| — |
|
|
|
|
|
| 743 |
|
|
|
|
| ||||||
Net income |
|
| — |
|
|
| — |
|
|
| 1,639 |
|
|
| — |
|
| 1,639 |
|
| $ | 1,639 |
|
| |||||
Management fees to affiliates |
|
| — |
|
|
| 125 |
|
|
| — |
|
|
| — |
|
| 125 |
|
| — |
|
| ||||||
Translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (141 | ) |
| (141 | ) |
| (141 | ) |
| ||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,498 |
|
| |||||
Predecessor 2 balance, February 1, 2006 |
|
| $ | 391 |
|
|
| $ | 399,675 |
|
|
| $ | 11,351 |
|
|
| $ | 1,347 |
|
| $ | 412,764 |
|
|
|
|
| |
Successor balance, |
|
| $ | — |
|
|
| $ | — |
|
|
| $ | — |
|
|
| $ | — |
|
| $ | — |
|
|
|
|
| |
Capital contributions |
|
| 1 |
|
|
| 111,249 |
|
|
| — |
|
|
| — |
|
| 111,250 |
|
|
|
|
| ||||||
Net loss |
|
| — |
|
|
| — |
|
|
| (8,423 | ) |
|
| — |
|
| (8,423 | ) |
| $ | (8,423 | ) |
| |||||
Translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (561 | ) |
| (561 | ) |
| (561 | ) |
| ||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (8,984 | ) |
| |||||
Successor balance, April 2, 2006 |
|
| $ | 1 |
|
|
| $ | 111,249 |
|
|
| $ | (8,423 | ) |
|
| $ | (561 | ) |
| $ | 102,266 |
|
|
|
|
|
See accompanying notes to consolidated and combined financial statements.
7
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 1—GENERAL
The consolidated and combined 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 and combined financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company at April 1, 2007, and the results of operations and cash flows for the periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and February 2, 2006 through April 2, 2006. The results of operations and cash flows for the period January 1, 2007 through April 1, 2007 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 April 1, 2007 should be read in conjunction with the financial statements for the year ended December 31, 2006 contained in our Form 10-K filed on April 2, 2007.
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 prior to the Honeywell acquisition are referred to as “Predecessor 1”, and the statements following the Honeywell acquisition and prior to the Indalex Holdings acquisition are referred to as “Predecessor 2.” The financial statements presented after the Indalex Holdings acquisition are referred to as the “Successor Company.” Results prepared for each of these periods are not comparable.
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 2007 are those for the 13 week period ended April 1, 2007.
NOTE 2—RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, the FASB issued FASB Interpretation (FIN) No. 48 Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement 109. FIN 48 establishes a single model to address accounting for uncertainty in tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no benefit is recognized.
8
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 2—RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The adoption had no effect on the Company’s consolidated financial position and results of operations. During the next twelve months, the Company may have changes to unrecognized tax benefits that could have a material impact on the results of operations related to tax positions that could be taken associated with the sale of the Company’s investment in AAG as described in Note 19.
The Company (excluding Indalex Limited and subsidiaries) was included in the combined federal income tax return of Novar USA Inc. through March 31, 2005. From April 1, 2005 to February 1, 2006, the Company was included in the federal income tax return of Honeywell. Tax years prior to February 1, 2006 are also subject to an indemnification agreement with Honeywell so there are no open IRS audits for these years.
The respective state corporate income tax returns of each subsidiary are filed on a separate or combined entity basis as applicable. With few exceptions, the Company is no longer subject to state income tax examinations by tax authorities before 2002. Indalex Limited and each of its subsidiaries file separate income tax returns. Indalex UK Limited files separate income tax returns in the United Kingdom. The Company is subject to examinations in foreign jurisdictions through 2000. Examinations by taxing authorities of state and foreign returns for years February 1, 2006 and prior are also subject to an indemnification agreement with Honeywell.
The Company recognizes interest and/or penalties related to income tax matters in income tax expense. The Company did not have any amounts accrued for interest and penalties at January 1, 2007.
In September 2006, the FASB issued FASB Staff Position (FSP) AUG AIR-1 Accounting for Planned Major Maintenance Activities (FSP AUG AIR-1). FSP AUG AIR-1 amends the guidance on the accounting for planned major maintenance activities; specifically it precludes the use of the previously acceptable accrue in advance method. FSP AUG AIR-1 is effective for fiscal years beginning after December 15, 2006. The implementation of this standard had no impact on the Company’s consolidated financial position or results of operations.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 establishes a common definition for fair value to be applied to US 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 fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS No. 157 on its consolidated financial position and results of operations.
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 is currently assessing the impact of SFAS No. 159 on its consolidated financial position and results of operations.
9
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 2—RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
In March 2007, the FASB ratified Emerging Issues Task Force Issue No. 06-10 “Accounting for Collateral Assignment Spilt-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 Company is currently assessing the impact of EITF 06-10 on its consolidated financial position and results of operations.
NOTE 3—THE INDALEX HOLDINGS ACQUISITION
On February 2, 2006, Indalex Inc. and Indalex Limited were acquired by Indalex Holdings Finance, Inc. through its wholly-owned, Indalex Holding Corp. for a purchase price of $418,256, net of acquired cash. The table below summarizes the allocation of purchase price based on estimates of the fair values of the assets acquired and liabilities assumed at the date of acquisition.
ASSETS |
|
|
| |
Accounts receivable, net |
| $ | 125,872 |
|
Receivable from suppliers |
| 8,986 |
| |
Inventories |
| 71,860 |
| |
Prepaid expenses and other current assets |
| 20,032 |
| |
Investment in AAG |
| 90,000 |
| |
Property, plant, and equipment, net |
| 217,806 |
| |
Goodwill |
| 3,537 |
| |
Other intangibles |
| 89,000 |
| |
Other assets |
| 475 |
| |
Total assets |
| 627,568 |
| |
LIABILITIES |
|
|
| |
Accounts payable |
| 59,064 |
| |
Accrued expenses and other current liabilities |
| 67,461 |
| |
Pension and other post-retirement benefits |
| 37,162 |
| |
Other liabilities |
| 4,788 |
| |
Capital lease obligation |
| 3,796 |
| |
Deferred income taxes |
| 37,041 |
| |
Total liabilities |
| 209,312 |
| |
NET ASSETS ACQUIRED |
| $ | 418,256 |
|
Of the $89,000 acquired intangibles, $17,000 was assigned to a trade name, which is being amortized using a declining balance method over a 15-year life. The remaining $72,000 of acquired intangible assets relates to customer relationships that are being amortized using a declining balance method and a seven
10
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 3—THE INDALEX HOLDINGS ACQUISITION (Continued)
year life. The other intangibles have a weighted average useful life of 10.7 years. Goodwill acquired of $3,537 is not being amortized and is not deductible for tax purposes.
In connection with the Indalex Holdings acquisition certain executives of the Company received divestiture incentive payments totaling $743 that were paid by Honeywell. The payments were accounted for as compensation expense in selling, general and administrative expense, and as an increase to additional paid-in capital.
NOTE 4—EQUITY METHOD INVESTMENT
Indalex UK Limited holds a 25% interest in Asia Aluminum Group (“AAG”), which is accounted for using the equity method of accounting. AAG manufactures and sells aluminum and stainless steel products and provides design and test services for aluminum products. 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%, 4%, and 3% of the Company’s net sales were sourced from AAG for the periods January 1, 2007 to April 1, 2007, January 1, 2006 to February 1, 2006, and February 2, 2006 to April 2, 2006, respectively. The Company’s investment in AAG at April 1, 2007 was $101,867. The carrying value of the Company’s investment in AAG exceeds the amount of underlying equity in net assets by $10,852 and represents goodwill that is not amortized.
Summarized financial data for AAG’s operations as of April 1, 2007, February 1, 2006, and April 2, 2006 and for the periods ended is as follows:
|
| Three months ended |
| |||||||||||
|
|
|
| April 2, 2006 |
| |||||||||
|
| April 1, 2007 |
| Jan 1-Feb 1 |
| Feb 2-Apr 2 |
| |||||||
|
| Successor |
| Predecessor 2 |
| Successor |
| |||||||
Sales |
| $ | 209,473 |
|
| $ | 27,840 |
|
|
| $ | 74,870 |
|
|
Gross profit |
| 38,901 |
|
| 6,067 |
|
|
| 16,104 |
|
| |||
Net income |
| 18,238 |
|
| 2,573 |
|
|
| 4,569 |
|
| |||
Current assets. |
| 514,430 |
|
| 427,003 |
|
|
| 459,940 |
|
| |||
Current liabilities. |
| 587,063 |
|
| 350,990 |
|
|
| 399,651 |
|
| |||
Non-current liabilities. |
| 38 |
|
| 42,964 |
|
|
| 43,980 |
|
| |||
Total assets. |
| 951,018 |
|
| 695,343 |
|
|
| 729,688 |
|
| |||
Stockholders’ equity |
| 363,916 |
|
| 301,390 |
|
|
| 286,057 |
|
| |||
Retained earnings |
| 283,656 |
|
| 218,160 |
|
|
| 203,274 |
|
| |||
Pursuant to the AAG shareholders agreement, the Company agreed in certain limited circumstances upon the request of AAG’s lenders to provide guarantees of certain borrowings of AAG that were
11
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 4—EQUITY METHOD INVESTMENT (Continued)
outstanding on June 8, 2001, the date the Company entered into the AAG shareholders agreement, in proportion to its approximately 25% equity ownership in AAG in the event that any of such borrowings are cancelled by a lender or are required by a lender to be restructured or renewed. The Company has not guaranteed or been asked to guarantee any borrowings of AAG under this provision since the execution of the AAG shareholders agreement on June 8, 2001. The aggregate U.S. dollar equivalent (based on exchange rates at April 1, 2007) of the borrowings the Company potentially could have been required to guarantee at the time it entered into the AAG shareholders agreement was its approximately 25% share of approximately $71.0 million, or approximately $17.8 million. Based on the information the Company has received from AAG through April 1, 2007, the Company believes that the borrowings have been cancelled, repaid, restructured or refinanced. Based on the Company’s interpretation of the AAG shareholders agreement, the Company believes that its potential obligation to guarantee any item of the specified borrowings applies only to the first such cancellation, restructuring or renewal thereof and is thereafter extinguished. As a result, based on the information the Company has received from AAG through April 1, 2007, the Company does not believe it could be required to guarantee any amounts outstanding as of the date hereof.
NOTE 5—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.
|
| April 1, 2007 |
| ||||||||||
|
| Gross |
|
|
|
|
| ||||||
|
| Carrying |
| Accumulated |
| Net Carrying |
| ||||||
|
| Amount |
| Amortization |
| Amount |
| ||||||
Customer lists |
| $ | 72,000 |
|
| ($10,774 | ) |
|
| $ | 61,226 |
|
|
Indalex trademark |
| $ | 17,000 |
|
| (2,570 | ) |
|
| 14,430 |
|
| |
Total |
| $ | 89,000 |
|
| ($13,344 | ) |
|
| $ | 75,656 |
|
|
Future amortization expense is as follows:
Year Ended December 31, |
|
|
|
|
| |
Remainder of 2007 |
| $ | 7,283 |
| ||
2008 |
| $ | 8,440 |
| ||
2009 |
| $ | 7,649 |
| ||
2010 |
| $ | 7,175 |
| ||
2011 |
| $ | 6,748 |
|
12
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 6—RESTRUCTURING CHARGES
On January 5, 2007, the Company announced the closure of its aluminum extrusion facility located in Watsonville, California. The facility will operate through May 2007. During the period ended April 1, 2007, the Company recorded expense of $1,340 comprised of $1,125 for severance and related costs and $215 of lease obligations and other exit costs. The Watsonville plant has 99 full-time employees.
In September 2006, the Company initiated an overhead restructuring program. The Company recorded expense of $278 in severance and related costs resulting from the termination of ten people during the period ended April 1, 2007. The cumulative severance and related costs are $2,050 resulting from the termination of 42 people.
The following table summarizes the status of the Company’s total restructuring costs.
|
| Severance |
| Exit |
|
|
| |||||
|
| Costs |
| Costs |
| Total |
| |||||
Balance at December 31, 2006 |
|
| $ | 1,529 |
|
| $ | — |
| $ | 1,529 |
|
January 1-April 1, 2007 charges |
|
| 1,403 |
|
| 215 |
| 1,618 |
| |||
January 1-April 1, 2007 usage |
|
| (645 | ) |
| (215 | ) | (860 | ) | |||
Balance at April 1, 2007 |
|
| $ | 2,287 |
|
| $ | — |
| $ | 2,287 |
|
NOTE 7—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 fluctuations specifically related to aluminum and gas. 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 April 1, 2007, the Company had 286 contracts to purchase 57.5 million pounds of aluminum at prices per pound between $0.77 and $1.30 (actual). These purchase contracts are scheduled to mature between April 2007 and January 2009, and the notional amount was $67,212. As of April 1, 2007, the Company had 59 contracts to sell 82.7 million pounds of aluminum at prices between $1.16 and $1.26 (actual). These sales contracts are scheduled to mature between April 2007 and January 2008, and the notional amount was $104,018. As of April 1, 2007, the unrealized gains related to these derivatives are recorded within other current assets in the amount of $4,925. The income statement reflects a gain of $1,476 for the period ended April 1, 2007.
As of December 31, 2006, the unrealized gains related to these derivatives are recorded within other current assets in the amount of $3,449. The income statement reflects a gain of $3,619 for the period January 1, 2006 to February 1, 2006 and a loss of $1,039 for the period February 2, 2006 to April 2, 2006.
The Company purchases inventory in foreign currencies from international suppliers, giving rise to foreign exchange rate risk. The purpose of the Company’s foreign currency hedging activity is to protect
13
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 7—DERIVATIVE INSTRUMENTS (Continued)
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. 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.
NOTE 8—AFFILIATE TRANSACTIONS
During the periods January 1, 2007 to April 1, 2007 and February 2, 2006 to April 2, 2006, the Company incurred management fees of $319 and $308, respectively, to Sun Capital Partners, Inc. for acquisition costs, debt financing support, operational management and corporate governance. Sun Capital Partners charges its fees to affiliates proportionately based on a percentage of EBITDA.
For the period February 2, 2006 to April 2, 2006 the Company paid Sun Capital Partners fees associated with the Indalex Holdings acquisition of $5,475.
For the period January 1, 2006 through February 1, 2006, net cash generated under the Honeywell cash sweep arrangement in the United States of $5,899 was remitted as a return of capital. Cash generated of $6,809 was remitted to Honeywell as a dividend. The Company was not charged management fees by Honeywell during this period. The Company recorded expense of $125 in the statement of income as an estimate for the services provided by Honeywell during this period. The management fees for this period are reflected as an increase to additional paid-in-capital in the statement of stockholders’ equity.
NOTE 9—INVENTORIES
Inventories consisted of the following:
|
| April 1, 2007 |
| Dec 31, 2006 |
| ||||||
Raw materials |
|
| $ | 61,559 |
|
|
| $ | 37,883 |
|
|
Work in process |
|
| 3,023 |
|
|
| 4,251 |
|
| ||
Finished goods |
|
| 33,774 |
|
|
| 31,001 |
|
| ||
|
|
| 98,356 |
|
|
| 73,135 |
|
| ||
Less LIFO allowance |
|
| (6,140 | ) |
|
| (5,953 | ) |
| ||
Total inventories |
|
| $ | 92,216 |
|
|
| $ | 67,182 |
|
|
Had the FIFO basis been used to cost all inventories, the amounts by which inventories are stated would have increased by $6,140 and $5,953 at April 1, 2007 and December 31, 2006, respectively. Inventory stated on the LIFO basis amounted to $56,634 at April 1, 2007 and $35,922 at December 31, 2006.
14
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 10—OTHER LIABILITIES
Other liabilities were comprised of the following:
|
| April 1, 2007 |
| Dec 31, 2006 |
| ||||||
Pension |
|
| $ | 18,140 |
|
|
| $ | 18,345 |
|
|
Environmental |
|
| 1,556 |
|
|
| 1,565 |
|
| ||
Post-retirement benefits |
|
| 4,362 |
|
|
| 4,362 |
|
| ||
Other post-retirement benefits |
|
| 559 |
|
|
| 547 |
|
| ||
Other |
|
| 5,818 |
|
|
| 5,848 |
|
| ||
Total |
|
| $ | 30,435 |
|
|
| $ | 30,667 |
|
|
NOTE 11—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. The discount is $2,936 at April 1, 2007.
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 April 1, 2007, borrowings under the revolving credit facility bore interest at a weighted average rate of 7.3%.
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.
15
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 11—DEBT (Continued)
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.
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
16
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 11—DEBT (Continued)
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.
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 | % |
|
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 1111¤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
17
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 11—DEBT (Continued)
(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.
“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 a pro 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
18
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 11—DEBT (Continued)
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.
Registration Default
The Company was in a registration default that began on October 31, 2006 and ended on February 14, 2007, the date on which the Company’s exchange offer was completed. As a result of the registration default, holders are entitled to additional interest, payable on regularly scheduled interest payment dates, on the Company’s notes accrued from October 31, 2006 through but not including the date on which the exchange offer was completed.
NOTE 12—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).
NOTE 13—EMPLOYEE BENEFIT PLANS
Pension and Post-Retirement Benefits: The Company maintains defined benefit pension plans which 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.
In connection with the Indalex Holdings acquisition, the accrued pension was adjusted to exclude unamortized pension assets and liabilities at the acquisition date. In addition, part of the pension liability was retained by Honeywell. Also related to the Indalex Holdings acquisition, the Company executed a wind-up of part of its Canadian pension plan. The net impact of the Indalex Holdings acquisition was a $10.0 million reduction to the pension liability.
19
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and
February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 13—EMPLOYEE BENEFIT PLANS (Continued)
Net periodic pension cost for the plans includes the following components:
|
| Three months ended |
| |||||||||||||
|
|
|
| April 2, 2006 |
| |||||||||||
|
| April 1, 2007 |
| Jan 1-Feb 1 |
| Feb 2-Apr 2 |
| |||||||||
|
| Successor |
| Predecessor 2 |
| Successor |
| |||||||||
Service cost |
|
| $ | 131 |
|
|
| $ | 101 |
|
|
| $ | 172 |
|
|
Interest cost |
|
| 1,735 |
|
|
| 776 |
|
|
| 1,222 |
|
| |||
Expected return on assets |
|
| (1,672 | ) |
|
| (671 | ) |
|
| (1,133 | ) |
| |||
Recognized actuarial loss |
|
| — |
|
|
| 5 |
|
|
| — |
|
| |||
Settlement gain |
|
| (47 | ) |
|
| — |
|
|
| — |
|
| |||
Net periodic benefit cost |
|
| $ | 147 |
|
|
| $ | 211 |
|
|
| $ | 261 |
|
|
Net periodic post-retirement benefit cost for the plans includes the following components:
|
| Three months ended |
| |||||||||||||
|
|
|
| April 2, 2006 |
| |||||||||||
|
| April 1, 2007 |
| Jan 1-Feb 1 |
| Feb 2-Apr 2 |
| |||||||||
|
| Successor |
| Predecessor 2 |
| Successor |
| |||||||||
Service cost |
|
| $ | 15 |
|
|
| $ | 5 |
|
|
| $ | 10 |
|
|
Interest cost |
|
| 66 |
|
|
| 23 |
|
|
| 44 |
|
| |||
Amortization of prior service cost |
|
| — |
|
|
| (10 | ) |
|
| — |
|
| |||
Net periodic benefit cost |
|
| $ | 81 |
|
|
| $ | 18 |
|
|
| $ | 54 |
|
|
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.
The Company also participates in defined contribution and multi-employer pension plans. The contributions were $1,075, $343, and $675 and the expense was $1,106, $268, and $682 for the periods from January 1, 2007 to April 1, 2007, January 1, 2006 to February 1, 2006, and February 2, 2006 to April 2, 2006, respectively.
20
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and
February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 14—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 fixed billet premium. The Midwest Transaction average changes monthly. The minimum purchase commitments as of April 1, 2007 are as follows:
Years Ended |
|
|
| Amount |
| |
Remainder of 2007 |
| $ | 287,294 |
| ||
2008 |
| 71,864 |
| |||
2009 |
| 33,188 |
| |||
Total |
| $ | 392,346 |
|
The Company has also committed to purchasing natural gas. The commitments as of April 1, 2007 are as follows:
Years Ended |
|
|
| Amount |
| |
Remainder of 2007 |
| $ | 9,998 |
| ||
2008 |
| 10,126 |
| |||
2009 |
| 3,570 |
| |||
Total |
| $ | 23,694 |
|
As of April 1, 2007, the Company has committed approximately $6,575 for the purchase of property and equipment related to incomplete projects.
As of April 1, 2007, the Company has outstanding letters of credit commitments of $10,425 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 subject to a wide variety of environmental laws, which continue to be adopted and amended. The Company periodically assesses its environmental contingencies on a location-by-location basis and adjusts the environmental reserve to reflect expected future costs associated with environmental remediation. The Company’s environmental reserves totaled $1,633 as of April 1, 2007. Of this amount, $77 was included in current liabilities at April 1, 2007.
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.
21
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and
February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 14—COMMITMENTS AND CONTINGENCIES (Continued)
Environmental obligations
The Company established environmental reserves totaling $1,633 and $1,670 as of April 1, 2007 and December 31, 2006 respectively. $77 and $105 was included in current liabilities as of April 1, 2007 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. 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 $550 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 $265 to $1,305.
22
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and
February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 14—COMMITMENTS AND CONTINGENCIES (Continued)
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.
The Company believes its reserves for environmental matters are adequate, based on the information currently available.
NOTE 15—LEASING ARRANGEMENTS
The Company leases property, plant, and equipment under operating leases which expire at various dates through 2013. At April 1, 2007, future minimum lease payments under noncancelable operating leases with terms of one year or more are as follows:
Years Ended |
|
|
| Amount |
| |||
Remainder of 2007 |
|
| $ | 1,694 |
|
| ||
2008 |
|
| 1,929 |
|
| |||
2009 |
|
| 1,220 |
|
| |||
2010 |
|
| 920 |
|
| |||
2011 |
|
| 366 |
|
| |||
Thereafter |
|
| 99 |
|
| |||
Total commitments |
|
| $ | 6,228 |
|
|
23
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and
February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 15—LEASING ARRANGEMENTS (Continued)
In December 2005, the Company renegotiated its lease of an extrusion press in Canada. In March 2006, the Company renegotiated its lease of an extrusion press in Elkhart, Indiana. Both leases qualify as capital leases. As of April 1, 2007, future minimum lease payments, including the final buyout payment, are as follows:
Year Ended |
|
|
| Amount |
| |
Remainder of 2007 |
| $ | 1,219 |
| ||
2008 |
| 1,712 |
| |||
2009 |
| 1,774 |
| |||
2010 |
| 1,641 |
| |||
|
| 6,346 |
| |||
Amount representing interest |
| (710 | ) | |||
Present value of net minimum lease payments |
| 5,636 |
| |||
Current portion |
| (1,272 | ) | |||
Long-term portion capital lease obligation |
| $ | 4,364 |
|
At April 1, 2007, the cost of the capital leases was $6,965 and accumulated depreciation was $1,789.
NOTE 16—STOCK-BASED COMPENSATION
In May 2006, 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 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. Key assumptions used to apply this pricing model are as follows:
Risk-free interest rate |
| 4.98 | % |
Expected life option grants (in years) |
| 6.42 |
|
Expected volatility of underlying stock |
| 26.3 | % |
Expected dividend yield |
| 0.0 | % |
24
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and
February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 16—STOCK-BASED COMPENSATION (Continued)
For the period ended April 1, 2007, the Company recorded compensation expense of $211.
A summary of stock option activity is provided below:
|
| Period Ended April 1, 2007 |
| ||||||||||||||
|
| Options |
| Weighted |
| Aggregate |
| Weighted |
| ||||||||
Outstanding at beginning of period |
|
| 70,000 |
|
| $ | 111.25 |
|
|
|
|
|
|
|
|
| |
Granted |
|
| n/a |
|
| n/a |
|
|
|
|
|
|
|
|
| ||
Forfeited |
|
| n/a |
|
| n/a |
|
|
|
|
|
|
|
|
| ||
Exercised |
|
| n/a |
|
| n/a |
|
|
|
|
|
|
|
|
| ||
Expired |
|
| n/a |
|
| n/a |
|
|
|
|
|
|
|
|
| ||
Outstanding at end of period |
|
| 70,000 |
|
| $ | 111.25 |
|
| $ | — |
|
|
| 9.89 |
|
|
Exercisable at end of period |
|
| 11,200 |
|
| $ | 111.25 |
|
| $ | — |
|
|
| 9.89 |
|
|
As of April 1, 2007, 58,800 options with a weighted average exercise price of $111.25 are due to expire in 2016. There were no options granted or vested during the period ended April 1, 2007.
NOTE 17—GEOGRAPHIC DATA
|
| Net Sales |
| Long-Lived Assets |
| |||||||||||||||||||||
|
| Three months ended |
|
|
|
|
| |||||||||||||||||||
|
|
|
| April 2, 2006 |
|
|
|
|
| |||||||||||||||||
|
| April 1, 2007 |
| Jan 1-Feb 1 |
| Feb 2-Apr 2 |
| Apr 1, 2007 |
| Dec 31, 2006 |
| |||||||||||||||
|
| Successor |
| Predecessor 2 |
| Successor |
| Successor |
| Successor |
| |||||||||||||||
United States |
|
| $ | 242,989 |
|
|
| $ | 85,253 |
|
|
| $ | 180,026 |
|
|
| $ | 189,675 |
|
|
| $ | 192,859 |
|
|
Canada |
|
| 47,655 |
|
|
| 14,497 |
|
|
| 30,181 |
|
|
| 205,192 |
|
|
| 202,816 |
|
| |||||
Other International |
|
| 578 |
|
|
| 269 |
|
|
| 705 |
|
|
| — |
|
|
| — |
|
| |||||
|
|
| $ | 291,222 |
|
|
| $ | 100,019 |
|
|
| $ | 210,912 |
|
|
| $ | 394,867 |
|
|
| $ | 395,675 |
|
|
25
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and
February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 18—CONSOLIDATED AND COMBINED GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
Indalex Holding Corp. (The “Issuer”) issued $270,000 of the notes on February 2, 2006. 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 and combined 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 and combined 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.
26
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and
February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 18—CONSOLIDATED AND COMBINED GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION (Continued)
Indalex Consolidated Balance Sheet—Guarantor and Non-Guarantor
As of April 1, 2007 (Successor)
|
| Parent |
| Guarantor |
| Non-Guarantor |
|
|
|
|
| |||||||||||||||
|
| Company |
| Company |
| Company |
| Eliminations |
| Consolidated |
| |||||||||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
|
| $ | — |
|
|
| $ | 1,489 |
|
|
| $ | 2,461 |
|
|
| $ | — |
|
|
| $ | 3,950 |
|
|
Accounts receivable, net |
|
| — |
|
|
| 94,723 |
|
|
| 39,686 |
|
|
| — |
|
|
| 134,409 |
|
| |||||
Receivable from affiliates |
|
| — |
|
|
| 6,170 |
|
|
| 7,183 |
|
|
| (13,353 | ) |
|
| — |
|
| |||||
Receivable from suppliers |
|
| — |
|
|
| 8,013 |
|
|
| — |
|
|
| — |
|
|
| 8,013 |
|
| |||||
Inventories |
|
| — |
|
|
| 66,447 |
|
|
| 25,769 |
|
|
| — |
|
|
| 92,216 |
|
| |||||
Prepaid expenses and other current assets |
|
| — |
|
|
| 8,153 |
|
|
| 2,791 |
|
|
| — |
|
|
| 10,944 |
|
| |||||
Deferred income tax |
|
| — |
|
|
| — |
|
|
| 572 |
|
|
| (572 | ) |
|
| — |
|
| |||||
Total current assets |
|
| — |
|
|
| 184,995 |
|
|
| 78,462 |
|
|
| (13,925 | ) |
|
| 249,532 |
|
| |||||
Notes receivable from affiliates |
|
| — |
|
|
| 158,194 |
|
|
| — |
|
|
| (158,194 | ) |
|
| — |
|
| |||||
Investment in AAG |
|
| — |
|
|
| — |
|
|
| 101,867 |
|
|
| — |
|
|
| 101,867 |
|
| |||||
Investment in subsidiary |
|
| 111,250 |
|
|
| — |
|
|
| — |
|
|
| (111,250 | ) |
|
| — |
|
| |||||
Property, plant, and equipment, net |
|
| — |
|
|
| 130,852 |
|
|
| 67,353 |
|
|
| — |
|
|
| 198,205 |
|
| |||||
Goodwill |
|
| — |
|
|
| 2,112 |
|
|
| 1,425 |
|
|
| — |
|
|
| 3,537 |
|
| |||||
Other intangibles, net |
|
| — |
|
|
| 49,208 |
|
|
| 26,448 |
|
|
| — |
|
|
| 75,656 |
|
| |||||
Deferred financing costs |
|
| — |
|
|
| 6,299 |
|
|
| 7,699 |
|
|
| — |
|
|
| 13,998 |
|
| |||||
Other assets |
|
| — |
|
|
| 1,204 |
|
|
| 400 |
|
|
| — |
|
|
| 1,604 |
|
| |||||
Total assets |
|
| $ | 111,250 |
|
|
| $ | 532,864 |
|
|
| $ | 283,654 |
|
|
| $ | (283,369 | ) |
|
| $ | 644,399 |
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Accounts payable |
|
| $ | — |
|
|
| $ | 40,887 |
|
|
| $ | 35,639 |
|
|
| $ | — |
|
|
| $ | 76,526 |
|
|
Payable to affiliates |
|
| — |
|
|
| 6,642 |
|
|
| 6,711 |
|
|
| (13,353 | ) |
|
| — |
|
| |||||
Income taxes payable |
|
| — |
|
|
| 269 |
|
|
| 714 |
|
|
| — |
|
|
| 983 |
|
| |||||
Deferred income taxes |
|
| — |
|
|
| 3,022 |
|
|
| — |
|
|
| (572 | ) |
|
| 2,450 |
|
| |||||
Accrued expenses and other current liabilities |
|
| — |
|
|
| 43,339 |
|
|
| 6,580 |
|
|
| — |
|
|
| 49,919 |
|
| |||||
Accrued interest |
|
| — |
|
|
| 6,215 |
|
|
| 281 |
|
|
| — |
|
|
| 6,496 |
|
| |||||
Capital lease obligation |
|
| — |
|
|
| 489 |
|
|
| 783 |
|
|
| — |
|
|
| 1,272 |
|
| |||||
Revolver borrowings |
|
| 10 |
|
|
| 77,940 |
|
|
| 20,310 |
|
|
| — |
|
|
| 98,260 |
|
| |||||
Total current liabilities |
|
| 10 |
|
|
| 178,803 |
|
|
| 71,018 |
|
|
| (13,925 | ) |
|
| 235,906 |
|
| |||||
Notes payable to affiliates |
|
| — |
|
|
| — |
|
|
| 158,194 |
|
|
| (158,194 | ) |
|
| — |
|
| |||||
Other liabilities |
|
| — |
|
|
| 25,374 |
|
|
| 5,061 |
|
|
| — |
|
|
| 30,435 |
|
| |||||
Capital lease obligation |
|
| — |
|
|
| 2,217 |
|
|
| 2,147 |
|
|
| — |
|
|
| 4,364 |
|
| |||||
Long-term debt |
|
| — |
|
|
| 267,064 |
|
|
| — |
|
|
| — |
|
|
| 267,064 |
|
| |||||
Deferred income taxes |
|
| — |
|
|
| 11,667 |
|
|
| 12,201 |
|
|
| — |
|
|
| 23,868 |
|
| |||||
Total liabilities |
|
| 10 |
|
|
| 485,125 |
|
|
| 248,621 |
|
|
| (172,119 | ) |
|
| 561,637 |
|
| |||||
Commitments and contingencies (Note 14) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Common stock |
|
| 1 |
|
|
| 1 |
|
|
| — |
|
|
| (1 | ) |
|
| 1 |
|
| |||||
Additional paid-in capital |
|
| 111,249 |
|
|
| 78,216 |
|
|
| 32,660 |
|
|
| (111,249 | ) |
|
| 110,876 |
|
| |||||
Treasury stock |
|
| (10 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10 | ) |
| |||||
Accumulated retained earnings (deficit) |
|
| — |
|
|
| (31,268 | ) |
|
| 683 |
|
|
| — |
|
|
| (30,585 | ) |
| |||||
Accumulated other comprehensive income |
|
| — |
|
|
| 790 |
|
|
| 1,690 |
|
|
| — |
|
|
| 2,480 |
|
| |||||
Total stockholders’ equity |
|
| 111,240 |
|
|
| 47,739 |
|
|
| 35,033 |
|
|
| (111,250 | ) |
|
| 82,762 |
|
| |||||
Total liabilities and stockholders’ equity |
|
| $ | 111,250 |
|
|
| $ | 532,864 |
|
|
| $ | 283,654 |
|
|
| $ | (283,369 | ) |
|
| $ | 644,399 |
|
|
27
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and
February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 18—CONSOLIDATED AND COMBINED GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION (Continued)
Indalex Consolidated Balance Sheet—Guarantor and Non-Guarantor
As of December 31, 2006 (Successor)
|
| Parent |
| Guarantor |
| Non-Guarantor |
|
|
|
|
| |||||||||||||||
|
| Company |
| Company |
| Company |
| Eliminations |
| Consolidated |
| |||||||||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
|
| $ | — |
|
|
| $ | 6,777 |
|
|
| $ | 4,380 |
|
|
| $ | — |
|
|
| $ | 11,157 |
|
|
Accounts receivable, net |
|
| — |
|
|
| 66,840 |
|
|
| 37,084 |
|
|
| — |
|
|
| 103,924 |
|
| |||||
Receivable from affiliates |
|
| — |
|
|
| 9,994 |
|
|
| 3,440 |
|
|
| (13,434 | ) |
|
| — |
|
| |||||
Receivable from suppliers |
|
| — |
|
|
| 8,980 |
|
|
| — |
|
|
| — |
|
|
| 8,980 |
|
| |||||
Inventories |
|
| — |
|
|
| 46,254 |
|
|
| 20,928 |
|
|
| — |
|
|
| 67,182 |
|
| |||||
Prepaid expenses and other current assets |
|
| — |
|
|
| 8,641 |
|
|
| 2,124 |
|
|
| — |
|
|
| 10,765 |
|
| |||||
Deferred income tax |
|
| — |
|
|
| — |
|
|
| 567 |
|
|
| (567 | ) |
|
| — |
|
| |||||
Total current assets |
|
| — |
|
|
| 147,486 |
|
|
| 68,523 |
|
|
| (14,001 | ) |
|
| 202,008 |
|
| |||||
Notes receivable from affiliates |
|
| — |
|
|
| 156,728 |
|
|
| — |
|
|
| (156,728 | ) |
|
| — |
|
| |||||
Investment in AAG |
|
| — |
|
|
| — |
|
|
| 96,950 |
|
|
| — |
|
|
| 96,950 |
|
| |||||
Investment in subsidiary |
|
| 111,250 |
|
|
| — |
|
|
| — |
|
|
| (111,250 | ) |
|
| — |
|
| |||||
Property, plant, and equipment, net |
|
| — |
|
|
| 130,925 |
|
|
| 68,713 |
|
|
| — |
|
|
| 199,638 |
|
| |||||
Goodwill |
|
| — |
|
|
| 2,112 |
|
|
| 1,425 |
|
|
| — |
|
|
| 3,537 |
|
| |||||
Other intangibles, net |
|
| — |
|
|
| 50,913 |
|
|
| 27,351 |
|
|
| — |
|
|
| 78,264 |
|
| |||||
Deferred financing costs |
|
| — |
|
|
| 6,584 |
|
|
| 8,010 |
|
|
| — |
|
|
| 14,594 |
|
| |||||
Other assets |
|
| — |
|
|
| 2,325 |
|
|
| 367 |
|
|
| — |
|
|
| 2,692 |
|
| |||||
Total assets |
|
| $ | 111,250 |
|
|
| $ | 497,073 |
|
|
| $ | 271,339 |
|
|
| $ | (281,979 | ) |
|
| $ | 597,683 |
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Accounts payable |
|
| $ | — |
|
|
| $ | 41,634 |
|
|
| $ | 25,146 |
|
|
| $ | — |
|
|
| $ | 66,780 |
|
|
Payable to affiliates |
|
| — |
|
|
| 2,909 |
|
|
| 10,525 |
|
|
| (13,434 | ) |
|
| — |
|
| |||||
Income taxes payable |
|
| — |
|
|
| 2,130 |
|
|
| 518 |
|
|
| — |
|
|
| 2,648 |
|
| |||||
Deferred income taxes |
|
| — |
|
|
| 3,023 |
|
|
| — |
|
|
| (567 | ) |
|
| 2,456 |
|
| |||||
Accrued expenses and other current liabilities |
|
| — |
|
|
| 32,293 |
|
|
| 6,185 |
|
|
| — |
|
|
| 38,478 |
|
| |||||
Accrued interest |
|
| — |
|
|
| 13,617 |
|
|
| 189 |
|
|
| — |
|
|
| 13,806 |
|
| |||||
Capital lease obligation |
|
| — |
|
|
| 481 |
|
|
| 762 |
|
|
| — |
|
|
| 1,243 |
|
| |||||
Revolver borrowings |
|
| 10 |
|
|
| 40,090 |
|
|
| 15,617 |
|
|
| — |
|
|
| 55,717 |
|
| |||||
Total current liabilities |
|
| 10 |
|
|
| 136,177 |
|
|
| 58,942 |
|
|
| (14,001 | ) |
|
| 181,128 |
|
| |||||
Notes payable to affiliates |
|
| — |
|
|
| — |
|
|
| 156,728 |
|
|
| (156,728 | ) |
|
| — |
|
| |||||
Other liabilities |
|
| — |
|
|
| 25,673 |
|
|
| 4,994 |
|
|
| — |
|
|
| 30,667 |
|
| |||||
Capital lease obligation |
|
| — |
|
|
| 2,343 |
|
|
| 2,331 |
|
|
| — |
|
|
| 4,674 |
|
| |||||
Long-term debt |
|
| — |
|
|
| 266,957 |
|
|
| — |
|
|
| — |
|
|
| 266,957 |
|
| |||||
Deferred income taxes |
|
| — |
|
|
| 12,413 |
|
|
| 12,446 |
|
|
| — |
|
|
| 24,859 |
|
| |||||
Total liabilities |
|
| 10 |
|
|
| 443,563 |
|
|
| 235,441 |
|
|
| (170,729 | ) |
|
| 508,285 |
|
| |||||
Commitments and contingencies (Note 14) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Common stock |
|
| 1 |
|
|
| 1 |
|
|
| — |
|
|
| (1 | ) |
|
| 1 |
|
| |||||
Additional paid-in capital |
|
| 111,249 |
|
|
| 78,005 |
|
|
| 32,660 |
|
|
| (111,249 | ) |
|
| 110,665 |
|
| |||||
Treasury stock |
|
| (10 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10 | ) |
| |||||
Accumulated retained deficit |
|
| — |
|
|
| (23,821 | ) |
|
| (77 | ) |
|
| — |
|
|
| (23,898 | ) |
| |||||
Accumulated other comprehensive income (loss) |
|
| — |
|
|
| (675 | ) |
|
| 3,315 |
|
|
| — |
|
|
| 2,640 |
|
| |||||
Total stockholders’ equity |
|
| 111,240 |
|
|
| 53,510 |
|
|
| 35,898 |
|
|
| (111,250 | ) |
|
| 89,398 |
|
| |||||
Total liabilities and stockholders’ equity |
|
| $ | 111,250 |
|
|
| $ | 497,073 |
|
|
| $ | 271,339 |
|
|
| $ | (281,979 | ) |
|
| $ | 597,683 |
|
|
28
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and
February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 18—CONSOLIDATED AND COMBINED 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 |
| Guarantor |
| Non-Guarantor |
|
|
|
|
| |||||||||||||||
|
| Company |
| Company |
| 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 | ) |
|
29
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and
February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 18—CONSOLIDATED AND COMBINED GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION (Continued)
Indalex Combined Statement of Cash Flows—Guarantor and Non-Guarantor
For the Period January 1, 2007 to April 1, 2007 (Successor)
|
| Parent |
| Guarantor |
| Non-Guarantor |
|
|
|
|
| |||||||||||||||
|
| Company |
| Company |
| 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, net of the effect of the acquisition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
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 |
|
|
30
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and
February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 18—CONSOLIDATED AND COMBINED GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION (Continued)
Indalex Combined Statement of Income—Guarantor and Non-Guarantor
For the Period January 1, 2006 through February 1, 2006 (Predecessor 2)
|
| Parent |
| Guarantor |
| Non-Guarantor |
|
|
|
|
| |||||||||||||||
|
| Company |
| Company |
| Company |
| Eliminations |
| Combined |
| |||||||||||||||
Net sales |
|
| $ | — |
|
|
| $ | 71,591 |
|
|
| $ | 30,035 |
|
|
| $ | (1,607 | ) |
|
| $ | 100,019 |
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cost of sales |
|
| — |
|
|
| 68,152 |
|
|
| 28,582 |
|
|
| (1,607 | ) |
|
| 95,127 |
|
| |||||
Selling, general, and administrative |
|
| — |
|
|
| 4,157 |
|
|
| 1,391 |
|
|
| — |
|
|
| 5,548 |
|
| |||||
Management fees to affiliates |
|
| — |
|
|
| 125 |
|
|
| — |
|
|
| — |
|
|
| 125 |
|
| |||||
Amortization of intangible assets |
|
| — |
|
|
| 598 |
|
|
| 322 |
|
|
| — |
|
|
| 920 |
|
| |||||
Other (income) expense |
|
| — |
|
|
| (14 | ) |
|
| 209 |
|
|
| — |
|
|
| 195 |
|
| |||||
Mark-to-market on derivatives |
|
| — |
|
|
| (3,619 | ) |
|
| — |
|
|
| — |
|
|
| (3,619 | ) |
| |||||
Total costs and expenses |
|
| — |
|
|
| 69,399 |
|
|
| 30,504 |
|
|
| (1,607 | ) |
|
| 98,296 |
|
| |||||
Income (loss) from operations |
|
| — |
|
|
| 2,192 |
|
|
| (469 | ) |
|
| — |
|
|
| 1,723 |
|
| |||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
External interest expense |
|
| — |
|
|
| 1 |
|
|
| (25 | ) |
|
| — |
|
|
| (24 | ) |
| |||||
Income from equity method investment in AAG |
|
| — |
|
|
| — |
|
|
| 643 |
|
|
| — |
|
|
| 643 |
|
| |||||
Income before income taxes |
|
| — |
|
|
| 2,193 |
|
|
| 149 |
|
|
| — |
|
|
| 2,342 |
|
| |||||
Income tax provision (benefit) |
|
| — |
|
|
| 925 |
|
|
| (222 | ) |
|
| — |
|
|
| 703 |
|
| |||||
Net income |
|
| $ | — |
|
|
| $ | 1,268 |
|
|
| $ | 371 |
|
|
| $ | — |
|
|
| $ | 1,639 |
|
|
31
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and
February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 18—CONSOLIDATED AND COMBINED GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION (Continued)
Indalex Consolidated Statement of Income—Guarantor and Non-Guarantor
For the Period February 2, 2006 through April 2, 2006 (Successor)
|
| Parent |
| Guarantor |
| Non-Guarantor |
|
|
|
|
| |||||||||||||||
|
| Company |
| Company |
| Company |
| Eliminations |
| Consolidated |
| |||||||||||||||
Net sales |
|
| $ | — |
|
|
| $ | 152,682 |
|
|
| $ | 71,717 |
|
|
| $ | (13,487 | ) |
|
| $ | 210,912 |
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cost of sales |
|
| — |
|
|
| 145,419 |
|
|
| 67,888 |
|
|
| (13,487 | ) |
|
| 199,820 |
|
| |||||
Selling, general, and administrative |
|
| — |
|
|
| 6,418 |
|
|
| 2,437 |
|
|
| — |
|
|
| 8,855 |
|
| |||||
Management fees to affiliates |
|
| — |
|
|
| 308 |
|
|
| — |
|
|
| — |
|
|
| 308 |
|
| |||||
Amortization of intangible assets |
|
| — |
|
|
| 1,261 |
|
|
| 678 |
|
|
| — |
|
|
| 1,939 |
|
| |||||
Other expense |
|
| — |
|
|
| 7 |
|
|
| 421 |
|
|
| — |
|
|
| 428 |
|
| |||||
Gain on disposal of assets |
|
|
|
|
|
| (140 | ) |
|
| — |
|
|
| — |
|
|
| (140 | ) |
| |||||
Mark-to-market on derivatives |
|
| — |
|
|
| 1,039 |
|
|
| — |
|
|
| — |
|
|
| 1,039 |
|
| |||||
Total costs and expenses |
|
| — |
|
|
| 154,312 |
|
|
| 71,424 |
|
|
| (13,487 | ) |
|
| 212,249 |
|
| |||||
Income (loss) from operations |
|
| — |
|
|
| (1,630 | ) |
|
| 293 |
|
|
| — |
|
|
| (1,337 | ) |
| |||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest to affiliates, net |
|
| — |
|
|
| 2,984 |
|
|
| (2,984 | ) |
|
| — |
|
|
| — |
|
| |||||
External interest expense |
|
| — |
|
|
| (5,864 | ) |
|
| (554 | ) |
|
| — |
|
|
| (6,418 | ) |
| |||||
Deferred financing costs |
|
| — |
|
|
| (190 | ) |
|
| (211 | ) |
|
| — |
|
|
| (401 | ) |
| |||||
Income from equity method investment in AAG |
|
| — |
|
|
| — |
|
|
| 1,143 |
|
|
| — |
|
|
| 1,143 |
|
| |||||
Affiliated acquisition fees |
|
| — |
|
|
| (5,475 | ) |
|
| — |
|
|
| — |
|
|
| (5,475 | ) |
| |||||
Loss before income taxes |
|
| — |
|
|
| (10,175 | ) |
|
| (2,313 | ) |
|
| — |
|
|
| (12,488 | ) |
| |||||
Income tax benefit |
|
| — |
|
|
| (3,350 | ) |
|
| (715 | ) |
|
| — |
|
|
| (4,065 | ) |
| |||||
Net loss |
|
| $ | — |
|
|
| $ | (6,825 | ) |
|
| $ | (1,598 | ) |
|
| $ | — |
|
|
| $ | (8,423 | ) |
|
32
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and
February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 18—CONSOLIDATED AND COMBINED GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION (Continued)
Indalex Combined Statement of Cash Flows—Guarantor and Non-Guarantor
For the Period January 1, 2006 through February 1, 2006 (Predecessor 2)
|
| Parent |
| Guarantor |
| Non-Guarantor |
|
|
|
|
| |||||||||||||||
|
| Company |
| Company |
| Company |
| Elimination |
| Combined |
| |||||||||||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net income |
|
| $ | — |
|
|
| $ | 1,268 |
|
|
| $ | 371 |
|
|
| $ | — |
|
|
| $ | 1,639 |
|
|
Adjustments to reconcile net income to net cash from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Depreciation |
|
| — |
|
|
| 1,966 |
|
|
| 855 |
|
|
| — |
|
|
| 2,821 |
|
| |||||
Amortization of intangibles |
|
| — |
|
|
| 598 |
|
|
| 322 |
|
|
| — |
|
|
| 920 |
|
| |||||
Other |
|
| — |
|
|
| 743 |
|
|
| — |
|
|
| — |
|
|
| 743 |
|
| |||||
Income from equity method investment in AAG |
|
| — |
|
|
| — |
|
|
| (643 | ) |
|
| — |
|
|
| (643 | ) |
| |||||
Management fees to affiliates |
|
| — |
|
|
| 125 |
|
|
| — |
|
|
| — |
|
|
| 125 |
|
| |||||
Deferred income taxes |
|
| — |
|
|
| 1,160 |
|
|
| (172 | ) |
|
| — |
|
|
| 988 |
|
| |||||
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Accounts receivable |
|
| — |
|
|
| (9,285 | ) |
|
| (2,970 | ) |
|
| — |
|
|
| (12,255 | ) |
| |||||
Receivable from affiliates |
|
| — |
|
|
| 3,212 |
|
|
| (1,358 | ) |
|
| — |
|
|
| 1,854 |
|
| |||||
Inventories |
|
| — |
|
|
| (774 | ) |
|
| (1,878 | ) |
|
| — |
|
|
| (2,652 | ) |
| |||||
Prepaids and other assets |
|
| — |
|
|
| (4,621 | ) |
|
| 937 |
|
|
| — |
|
|
| (3,684 | ) |
| |||||
Income taxes payable/refundable |
|
| — |
|
|
| (238 | ) |
|
| (54 | ) |
|
| — |
|
|
| (292 | ) |
| |||||
Checks issued in excess of bank balance |
|
| — |
|
|
| (242 | ) |
|
| — |
|
|
| — |
|
|
| (242 | ) |
| |||||
Accounts payable |
|
| — |
|
|
| (4,674 | ) |
|
| (1,912 | ) |
|
| — |
|
|
| (6,586 | ) |
| |||||
Accrued expenses and other liabilities |
|
| — |
|
|
| 18,108 |
|
|
| 1,690 |
|
|
| — |
|
|
| 19,798 |
|
| |||||
Payable to affiliates |
|
| — |
|
|
| 770 |
|
|
| 42 |
|
|
| — |
|
|
| 812 |
|
| |||||
Net cash from operating activities |
|
| — |
|
|
| 8,116 |
|
|
| (4,770 | ) |
|
| — |
|
|
| 3,346 |
|
| |||||
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Capital expenditures |
|
| — |
|
|
| (2,036 | ) |
|
| (970 | ) |
|
| — |
|
|
| (3,006 | ) |
| |||||
Net cash from investing activities |
|
| — |
|
|
| (2,036 | ) |
|
| (970 | ) |
|
| — |
|
|
| (3,006 | ) |
| |||||
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Dividends and distributions |
|
| — |
|
|
| — |
|
|
| (6,809 | ) |
|
| — |
|
|
| (6,809 | ) |
| |||||
Payments on capital lease obligation |
|
| — |
|
|
| — |
|
|
| (58 | ) |
|
| — |
|
|
| (58 | ) |
| |||||
Net (payments to) collections from affiliates on notes |
|
| — |
|
|
| (5,899 | ) |
|
| 4,279 |
|
|
| — |
|
|
| (1,620 | ) |
| |||||
Net cash from financing activities |
|
| — |
|
|
| (5,899 | ) |
|
| (2,588 | ) |
|
| — |
|
|
| (8,487 | ) |
| |||||
Effect of changes in foreign exchange rates on cash |
|
| — |
|
|
| — |
|
|
| (27 | ) |
|
| — |
|
|
| (27 | ) |
| |||||
Net change in cash and cash equivalents |
|
| — |
|
|
| 181 |
|
|
| (8,355 | ) |
|
| — |
|
|
| (8,174 | ) |
| |||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Beginning of period |
|
| — |
|
|
| — |
|
|
| 9,366 |
|
|
| — |
|
|
| 9,366 |
|
| |||||
End of period |
|
| $ | — |
|
|
| $ | 181 |
|
|
| $ | 1,011 |
|
|
| $ | — |
|
|
| $ | 1,192 |
|
|
33
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and
February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 18—CONSOLIDATED AND COMBINED GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION (Continued)
Indalex Consolidated Statement of Cash Flows—Guarantor and Non-Guarantor
For the Period February 2, 2006 through April 2, 2006 (Successor)
|
| Parent |
| Guarantor |
| Non-Guarantor |
|
|
|
|
| |||||||||||||
|
| Company |
| Company |
| Company |
| Eliminations |
| Consolidated |
| |||||||||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net loss |
| $ | — |
|
| $ | (6,825 | ) |
|
| $ | (1,598 | ) |
|
| $ | — |
|
|
| $ | (8,423 | ) |
|
Adjustments to reconcile net loss to net cash from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Depreciation |
| — |
|
| 4,180 |
|
|
| 1,743 |
|
|
| — |
|
|
| 5,923 |
|
| |||||
Amortization of intangible assets |
| — |
|
| 1,261 |
|
|
| 678 |
|
|
| — |
|
|
| 1,939 |
|
| |||||
Amortization of deferred financing costs |
| — |
|
| 190 |
|
|
| 211 |
|
|
| — |
|
|
| 401 |
|
| |||||
Amortization of bond discount |
| — |
|
| 72 |
|
|
| — |
|
|
| — |
|
|
| 72 |
|
| |||||
Gain on disposal of assets |
| — |
|
| (140 | ) |
|
| — |
|
|
| — |
|
|
| (140 | ) |
| |||||
Other |
| — |
|
| 16 |
|
|
| 2 |
|
|
| — |
|
|
| 18 |
|
| |||||
Income from equity method investment in AAG |
| — |
|
| — |
|
|
| (1,143 | ) |
|
| — |
|
|
| (1,143 | ) |
| |||||
Deferred income taxes |
| — |
|
| (5,121 | ) |
|
| (781 | ) |
|
| — |
|
|
| (5,902 | ) |
| |||||
Changes in operating assets and liabilities, net of the effect of the acquisition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Accounts receivable |
| — |
|
| (26,598 | ) |
|
| (12,051 | ) |
|
| — |
|
|
| (38,649 | ) |
| |||||
Receivable from affiliates |
| — |
|
| (3,078 | ) |
|
| (979 | ) |
|
| 4,057 |
|
|
| — |
|
| |||||
Inventories |
| — |
|
| (7,729 | ) |
|
| 59 |
|
|
| — |
|
|
| (7,670 | ) |
| |||||
Prepaids and other assets |
| — |
|
| 145 |
|
|
| (376 | ) |
|
| — |
|
|
| (231 | ) |
| |||||
Income taxes payable/refundable |
| — |
|
| 1,778 |
|
|
| (278 | ) |
|
| — |
|
|
| 1,500 |
|
| |||||
Checks issued in excess of bank balance |
| — |
|
| 3,034 |
|
|
| — |
|
|
| — |
|
|
| 3,034 |
|
| |||||
Accounts payable |
| — |
|
| 19,030 |
|
|
| 19,291 |
|
|
| — |
|
|
| 38,321 |
|
| |||||
Accrued expenses and other liabilities |
| — |
|
| (2,082 | ) |
|
| (434 | ) |
|
| — |
|
|
| (2,516 | ) |
| |||||
Payable to affiliates |
| — |
|
| 666 |
|
|
| 3,455 |
|
|
| (3,971 | ) |
|
| 150 |
|
| |||||
Net cash from operating activities |
| — |
|
| (21,201 | ) |
|
| 7,799 |
|
|
| 86 |
|
|
| (13,316 | ) |
| |||||
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Capital expenditures |
| — |
|
| (3,680 | ) |
|
| (1,491 | ) |
|
| — |
|
|
| (5,171 | ) |
| |||||
Proceeds from sales of property, plant and equipment |
| — |
|
| 140 |
|
|
| — |
|
|
| — |
|
|
| 140 |
|
| |||||
Cash paid for acquisition |
| (111,250 | ) |
| (361,665 | ) |
|
| (216,741 | ) |
|
| 271,400 |
|
|
| (418,256 | ) |
| |||||
Payment of acquisition transaction costs |
| — |
|
| (1,735 | ) |
|
| — |
|
|
| — |
|
|
| (1,735 | ) |
| |||||
Net cash from investing activities |
| (111,250 | ) |
| (366,940 | ) |
|
| (218,232 | ) |
|
| 271,400 |
|
|
| (425,022 | ) |
| |||||
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Dividends and distributions |
| — |
|
| — |
|
|
| 21 |
|
|
| — |
|
|
| 21 |
|
| |||||
Payments on capital lease obligation |
| — |
|
| (37 | ) |
|
| (117 | ) |
|
| — |
|
|
| (154 | ) |
| |||||
Borrowings (repayments) |
| — |
|
| 21,000 |
|
|
| (3,474 | ) |
|
| — |
|
|
| 17,526 |
|
| |||||
Revolver borrowings, acquisition |
| — |
|
| 40,839 |
|
|
| 28,000 |
|
|
| — |
|
|
| 68,839 |
|
| |||||
Borrowings on long-term debt, acquisition |
| — |
|
| 266,563 |
|
|
| 160,150 |
|
|
| (160,150 | ) |
|
| 266,563 |
|
| |||||
Capital contributions |
| 111,250 |
|
| 81,648 |
|
|
| 29,602 |
|
|
| (111,250 | ) |
|
| 111,250 |
|
| |||||
Debt issuance costs |
| — |
|
| (21,630 | ) |
|
| — |
|
|
| — |
|
|
| (21,630 | ) |
| |||||
Net cash from financing activities |
| 111,250 |
|
| 388,383 |
|
|
| 214,182 |
|
|
| (271,400 | ) |
|
| 442,415 |
|
| |||||
Effect of changes in foreign exchange rates on cash |
| — |
|
| — |
|
|
| (66 | ) |
|
| (86 | ) |
|
| (152 | ) |
| |||||
Net change in cash and cash equivalents |
| — |
|
| 242 |
|
|
| 3,683 |
|
|
| — |
|
|
| 3,925 |
|
| |||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Beginning of period |
| — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| |||||
End of period |
| $ | — |
|
| $ | 242 |
|
|
| $ | 3,683 |
|
|
| $ | — |
|
|
| $ | 3,925 |
|
|
34
INDALEX HOLDINGS FINANCE, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
For the Periods January 1, 2007 through April 1, 2007, January 1, 2006 through February 1, 2006 and
February 2, 2006 through April 2, 2006
(Dollars in thousands)
(Unaudited)
NOTE 19—SUBSEQUENT EVENT
On May 15, 2007 the Company sold its 25% equity holding in Asia Aluminum Group Limited (AAG) to OK Spring Roll Limited Partnership, an investment vehicle in association with ORIX Corporation. The Company received $153.2 million in cash, plus $2.0 million of special dividends.
35
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The financial information of Indalex Holding Corp. contained in this report is the combined financial information of Indalex Inc., Indalex America Inc., Indalex West Inc., Indalex Aluminum Solutions Inc. and Indalex Limited and each of their consolidated subsidiaries. On December 31, 2004, Indalex Aluminum Solutions Inc., Indalex West Inc. and Indalex America Inc. were merged with and into Indalex Inc. On March 31, 2005, Honeywell acquired our former parent company, Novar plc. On February 2, 2006, Indalex Holding Corp. acquired all of the outstanding capital stock of Indalex Inc. and Indalex Limited in connection with the Holdings Acquisition.
The following discussion and analysis of our results of operations covers periods before the Transactions in some cases. Accordingly, the discussion and analysis of these periods does not reflect the subsequent impact that the Honeywell Acquisition and the Transactions have had on our financial condition, results of operations and cash flows, including, in the case of the Transactions, our significantly increased debt levels and liquidity requirements. You should read the following discussion and analysis in conjunction with the information set forth under “Unaudited Pro Forma Condensed Combined Financial Data” set forth in exhibit 99 to this annual report on Form 10-Q and our combined financial statements and the notes to those statements included elsewhere in this report.
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 , “Unaudited Pro Forma Condensed Combined Financial Data,” set forth in exhibit 99.1 to this report and our combined financial statements and related notes thereto included elsewhere in this report. See “Forward-Looking Statements.”
We are 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 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 2006, 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.
On September 16, 2005, the Indalex Holding Corp., a wholly-owned subsidiary of Indalex Holdings Finance, Inc., 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
36
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 Holdings Acquisition, the following events occurred. We refer to these events, together with the Holdings Acquisition and the use of the financing proceeds, as the “Transactions”:
· 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.;
· 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”);
· Indalex Holding Corp. issued $270.0 million of the outstanding 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 notes were subsequently sold to unaffiliated purchasers on July 18, 2006); and
· Indalex Holding Corp. paid approximately $21.7 million of fees and expenses incurred in connection with the Transactions.
The 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 Holdings Acquisition. The application of purchase accounting in connection with both the Holdings Acquisition and the Honeywell Acquisition (as defined below) resulted in new entities for reporting purposes. We refer to the Indalex entities prior to the Honeywell Acquisition as “Predecessor 1” and the Indalex entities following the Honeywell Acquisition and prior to the Holdings Acquisition as “Predecessor 2.” 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 will increase significantly in the periods following the consummation of the Transactions. As of April 1, 2007, we had $371.0 million of outstanding indebtedness (excluding unused availability of $91.3 million under our revolving credit facility). For the three months ended April 1, 2007, our interest expense was $9.9 million. See our annual report on Form 10-K “Item 1A. Risk Factors—Our substantial amount of indebtedness following this offering 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.”
We have historically operated as a business unit of Novar plc and subsequently Honeywell. The financial statements included in this report for periods prior to the Holdings Acquisition have been derived from the historical consolidated financial statements of Novar plc and, from March 31, 2005 through February 1, 2006, Honeywell, and include the assets, obligations and activities of indirect wholly-owned subsidiaries of Novar plc and Honeywell, as applicable. The historical financial information included in this report may not reflect what our results of operations, financial position and cash flows would have been had we operated as a separate, stand-alone company without the shared resources of Novar plc or Honeywell for the periods presented, and may not be indicative of our future results of operations, financial position and cash flows. See our combined financial statements and related notes thereto included elsewhere in this report.
The historical combined financial statements included in this document include amounts specifically attributable to Indalex’s operations and a portion of Novar plc’s or Honeywell’s, as applicable, shared
37
corporate general and administrative expenses, consisting of certain risk management, tax, legal and treasury services. In addition, a portion of Novar plc’s and Honeywell’s, as applicable, shared corporate general and administrative expenses that were not specifically identifiable to Indalex’s operations have been allocated to Indalex. Amounts allocated to Indalex are recorded in the income statements of Predecessor 1 and Predecessor 2 as “Management fees to affiliates.” Subsequent to the Holdings Acquisition, “Management fees to affiliates” reflects the management fee paid to Sun Capital as described below. In connection with the Holdings Acquisition, substantially all of the legacy corporate functions of Honeywell that were employed with respect to Indalex’s operations were retained by Honeywell. We now perform those services internally or through arrangements with third parties, and the costs are reflected in “Management fees to affiliates” and in additional “Selling, general and administrative expenses” in our income statements. The amount allocated by Novar plc and Honeywell for 2005 was $1.1 million.
In connection with the registration of our 11½% second-priority senior secured notes, we became subject to the reporting requirements of the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002. In anticipation of the issuance of the exchange notes, we have begun to incur substantial additional one time and ongoing costs as a result of having to comply with the Exchange Act and the Sarbanes-Oxley Act. See “Risk Factors—We will incur substantial ongoing costs to comply with federal securities law requirements.” in our annual report on Form 10-K. 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 our annual report on Form 10-K “Certain Relationships and Related Transactions—Management Services Agreement,” “Unaudited Pro Forma Condensed Combined Financial Data” and “Risk Factors—We may experience difficulties operating as a stand alone company.”
For all periods presented prior to February 2, 2006, Indalex’s operations, excluding Indalex Limited and its subsidiaries, were included in the consolidated income tax returns of Novar USA Holdings Inc. The respective state corporate tax returns of each subsidiary were filed on a separate or combined entity basis. However, in the historical combined financial statements included in this report, income taxes have been provided based on a calculation of the income tax expense that would have been incurred if we had operated as a separate taxpayer. Indalex Limited and each of its subsidiaries filed separate tax returns. Income taxes have been provided for all items included in the combined statements of income included herein, regardless of when such items were reported for tax purposes or when the taxes were actually paid or refunded. From February 2, 2006, Indalex has filed taxes as a stand-alone company and taxes have been provided for accordingly.
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 $14.8 million, $10.9 million $12.5 million and $4.9 million in 2004, 2005, 2006 and the three months ended April 1, 2007, respectively.
The dividends we received from AAG have 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 $3.1 million, $4.6 million and $4.9 million for AAG’s fiscal years ending June 30, 2003, 2004 and 2005, 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
38
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 the Company sold its 25% equity holding in Asia Aluminum Group Limited (AAG) to OK Spring Roll Limited Partnership, an investment vehicle in association with ORIX Corporation. The Company received $153.2 million in cash, plus $2.0 million of special dividends. Proceeds from the sale of our equity holding in AAG will be allocated in accordance with the terms of the indenture governing our 111¤2 % second-priority Senior Secured Notes.
Factors Affecting Our Results of Operations
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 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 2001 to 2006, shipment volume to manufacturers of truck trailers grew by a compounded annual growth rate of 12%, and we believe that volume increased by 9% in 2006. Rising fuel costs 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. In recent years, we have 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 during recent years, that market slowed considerably during the second half of 2006, and our shipments to that market were down 26% in the fourth quarter of 2006 as compared to the fourth quarter of 2005. According to data published by the U.S. Census Bureau, housing starts in the United States were down 30% year over year in the first three months of 2007. Remodeling activity has slowed as well. We continue to believe that there is good long-term growth potential for the residential building and construction market, but we cannot be certain of when the current downturn in this market will end.
39
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:
· Approximately 65% 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.
· For approximately 20% 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.
· 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.
· 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. More recent price increases implemented in 2006 have been generally well accepted.
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.
The price of aluminum ingot is primarily set by supply and demand balance on the London Metal 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
40
of our pricing mechanisms, such as spot pricing, can create short-term price risk on the base aluminum component of 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.
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.
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 4% of our shipment volume in the three months ended April 1, 2007 to aluminum extruders in China. Outsourcing to China has increased our shipment volume of lower-margin products and has increased our total operating profit.
We incurred restructuring expense of $1.6 million in the three months ended April 1, 2007, of which $1.3 million was related to the upcoming closure of our Watsonville, California plant, which will be closed in May of 2007. $0.3 million was related to an overhead restructuring program, which resulted in the termination of ten people.
41
We have historically restructured our overhead and plant operations on an ongoing basis. Since 2002 we have closed two 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.
Unaudited Pro Forma Condensed Combined Financial Data
We derived unaudited pro forma condensed combined financial data by applying pro forma adjustments to the historical combined financial statements of Indalex included elsewhere in this report. The unaudited pro forma condensed combined statements of operations data for the periods presented give effect to the Honeywell Acquisition and the Transactions, including the offering of the outstanding notes, and the application of the net proceeds therefrom, as if the Honeywell Acquisition and the Transactions had occurred at the beginning of the periods presented. For a description of the assumptions underlying the adjustments to the pro forma condensed combined financial data, please see Exhibit 99.1—Unaudited Pro Forma Condensed Combined Financial Data.
The Honeywell Acquisition was accounted for under purchase accounting. As a result, a portion of the total cost of the Honeywell Acquisition was allocated to our assets and liabilities based upon their fair value as of March 31, 2005, the date of the Honeywell Acquisition. The pro forma adjustments for the Honeywell Acquisition give effect to these purchase accounting adjustments as of the first day of the periods presented. We have also accounted for the Holdings Acquisition under the purchase method of accounting.
The unaudited pro forma condensed combined financial data is for informational purposes only and should not be considered indicative of actual results that would have been achieved had the Honeywell Acquisition or the Transactions been consummated on the date or for the periods indicated and do not purport to indicate results of operations as of any future date or any future period.
42
Results of Operations—Three months Ended April 1, 2007
The following table sets forth the results of operations of Predecessor 2 for period from January 1, 2006 to February 1, 2006, and Successor for the period from February 2, 2006 to April 2, 2006, and the three months ended April 1, 2007, all of which have been derived from the unaudited consolidated and combined financial statements included elsewhere in this report.
|
| Predecessor 2 |
| Successor |
| Successor |
| Pro Forma |
| ||||||||||||
|
| Period from |
| Period from |
| Three Months |
| Three Months |
| ||||||||||||
|
| (Dollars and pounds in thousands) |
| ||||||||||||||||||
Statement of income data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net sales |
|
| $ | 100,019 |
|
|
| $ | 210,912 |
|
|
| $ | 291,222 |
|
|
| $ | 310,931 |
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of sales |
|
| 95,127 |
|
|
| 199,820 |
|
|
| 277,089 |
|
|
| 287,184 |
|
| ||||
Selling, general and administrative |
|
| 5,548 |
|
|
| 8,855 |
|
|
| 13,954 |
|
|
| 13,940 |
|
| ||||
Management fees to affiliates |
|
| 125 |
|
|
| 308 |
|
|
| 319 |
|
|
| 408 |
|
| ||||
Amortization of intangibles |
|
| 920 |
|
|
| 1,939 |
|
|
| 2,608 |
|
|
| 2,903 |
|
| ||||
Other (income) expense |
|
| 195 |
|
|
| 428 |
|
|
| (885 | ) |
|
| 623 |
|
| ||||
Restructuring charges |
|
| — |
|
|
| — |
|
|
| 1,618 |
|
|
| — |
|
| ||||
(Gain) loss on disposal of assets |
|
| — |
|
|
| (140 | ) |
|
| 58 |
|
|
| (140 | ) |
| ||||
Mark-to-market on derivatives |
|
| (3,619 | ) |
|
| 1,039 |
|
|
| (1,476 | ) |
|
| (2,580 | ) |
| ||||
Total costs and expenses |
|
| 98,296 |
|
|
| 212,249 |
|
|
| 293,285 |
|
|
| 302,338 |
|
| ||||
Income (loss) from operations |
|
| 1,723 |
|
|
| (1,337 | ) |
|
| (2,063 | ) |
|
| 8,593 |
|
| ||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
External interest—net |
|
| (24 | ) |
|
| (6,418 | ) |
|
| (9,893 | ) |
|
| (9,503 | ) |
| ||||
Deferred financing costs |
|
| — |
|
|
| (401 | ) |
|
| (596 | ) |
|
| (603 | ) |
| ||||
Income from equity method investment in AAG |
|
| 643 |
|
|
| 1,143 |
|
|
| 4,917 |
|
|
| 1,786 |
|
| ||||
Affiliated acquisition fees |
|
| — |
|
|
| (5,475 | ) |
|
| — |
|
|
| (5,475 | ) |
| ||||
Income (loss) before income taxes |
|
| 2,342 |
|
|
| (12,488 | ) |
|
| (7,635 | ) |
|
| (5,202 | ) |
| ||||
Income tax (benefit) provision |
|
| 703 |
|
|
| (4,065 | ) |
|
| (948 | ) |
|
| (1,675 | ) |
| ||||
Net income (loss) |
|
| $ | 1,639 |
|
|
| $ | (8,423 | ) |
|
| $ | (6,687 | ) |
|
| $ | (3,527 | ) |
|
Selected operating data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Pounds shipped |
|
| 52,456 |
|
|
| 120,683 |
|
|
| 147,824 |
|
|
| 173,139 |
|
|
(1) Please see “Exhibit 99.1—Unaudited Pro Forma Condensed Combined Financial Data” for more information.
Three months Ended April 1, 2007 Compared to Pro Forma Three months Ended April 2, 2006
Net sales
Net sales decreased by $19.7 million, or 6.3%, from $310.9 million in the pro forma three months ended April 2, 2006 to $291.2 million in the three months ended April 1, 2007. Shipment volume fell 14.6% as a result of weak market demand, particularly in the Residential Building and Construction and Distribution end-user markets. Net sales were positively impacted by higher average base aluminum prices that are largely passed on to our customers. Base aluminum prices increased on average by 13.0% in the three months ended April 1, 2007 as compared to the pro forma three months ended April 2, 2006. The decrease in the relative value of the Canadian dollar versus the U.S. dollar resulted in a $1.0 million decrease in net sales.
43
Cost of sales
Cost of sales decreased by $10.1 million, or 3.5%, from $287.2 million in the pro forma three months ended April 2, 2006 to $277.1 million in the three months ended April 1, 2007, due primarily to lower volume, but partially offset by higher base metal costs, and higher unit freight, natural gas and electricity costs. Unit labor costs were slightly lower in the three months ended April 1, 2007 as compared to the pro forma three months ended April 2, 2006. Application of LIFO valuation to inventories resulted in a $0.2 million increase in cost of sales. Depreciation decreased by $0.5 million, or 5.4%, in the three months ended April 1, 2007, primarily due to the elimination of depreciation on our Winton and Watsonville facilities.
Selling, general and administrative expenses
Selling, general and administrative expenses were $14.0 million in the three months ended April 1, 2007, the same as the pro forma three months ended April 2, 2006. Higher stand alone costs were offset by lower employee incentive compensation and bad debt expense.
Management fees to affiliates
Management fees to affiliates decreased by $0.1 million, or 21.9%, from $0.4 million in the pro forma three months ended April 2, 2006 to $0.3 million in the three months ended April 1, 2007, 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 10.2%, from $2.9 million in the pro forma three months ended April 2, 2006 to $2.6 million in the three months ended April 1, 2007. 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) expense
Other income in the three months ended April 1, 2007 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.
In the pro forma three months ended April 2, 2006, other expense was $0.6 million, which included expenses related to foreign currency losses of $0.6 million for certain of our Canadian assets and liabilities due to increases in the Canadian dollar versus the U.S. dollar.
Restructuring charges
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.
(Gain) loss on disposal of assets
In the three months ended April 1, 2007, we recorded a loss of $0.1 million related to the disposal of equipment at our closed Fostoria, Ohio facility. In the pro forma three months ended April 2, 2006, we recorded gains of $0.1 million incurred in the ordinary course of business.
44
Mark-to-market on derivatives
In accordance with FAS 133, we recorded a gain on our forward aluminum hedging contracts of $1.5 million in the three months ended April 1, 2007 due to higher market prices in relation to the price at which we established our hedges. In the pro forma three months ended April 2, 2006, we recorded a gain on our derivatives of $2.6 million due to higher market prices in relation to the price at which we established our hedges.
Income (loss) from operations
Income from operations decreased by $10.7 million, from $8.6 million in the pro forma three months ended April 2, 2006 to a loss of $2.1 million in the three months ended April 1, 2007, primarily as a result of the decrease in sales, combined with the increase in restructuring expense and the reduced mark-to-market gain.
Interest expense
Interest expense increased by $0.4 million, from $9.5 million in the pro forma three months ended April 2, 2006 to $9.9 million in the three months ended April 1, 2007. The increase was primarily caused by penalty interest payments on the 111¤2% Notes, due to delays in registering the Notes with the SEC. In addition, the average interest rate on our revolver borrowings was higher in the three months ended April 1, 2007 than it was in the pro forma three months ended April 2, 2006.
Deferred financing costs
Amortization expense for deferred financing costs of $0.6 million is included in deferred financing costs for the three months ended April 1, 2007 and the pro forma three months ended April 2, 2006.
Income from equity method investment in AAG
Income from our equity investment in AAG increased by $3.1 million, from $1.8 million in the pro forma three months ended April 2, 2006 to $4.9 million in the three months ended April 1, 2007 as their volume increased significantly due to the completion of their new production facility.
In the pro forma three months ended April 2, 2006, we incurred affiliated acquisition expenses of $5.5 million related to the Transactions, payable to Sun Capital.
Income tax (benefit) provision
We recorded a tax benefit of $0.9 million in the three months ended April 1, 2007 compared to a tax benefit in the pro forma three months ended April 2, 2006 of $1.7 million. The primary reason for the decrease in the income tax benefit was deferred tax benefits for the three months ended April 2, 2006.
Liquidity and Capital Resources
Cash Flows
Operating activities
Net cash used in operations was $42.4 million in the three months ended April 1, 2007, primarily as a result of higher accounts receivable and higher inventories, partially offset by higher accounts payable. Accounts receivable, inventories, and accounts payable typically increase in the first three months of the year, due to seasonal volume increases. For the period from January 1, 2006 to February 1, 2006, cash flow from operations was $3.3 million, primarily as a result of higher accrued expenses, partially offset by an
45
increase in accounts receivable. For the period from February 2, 2006 to April 2, 2006, cash used in operations was $13.3 million, as higher accounts receivable and inventories were partially offset by higher accounts payable.
Investing activities
Net cash used in investing activities was $6.9 million in the three months ended April 1, 2007, as a result of capital expenditures of $6.9 million. For the period from January 1, 2006 to February 1, 2006, cash used in investing activities was $3.0 million, and consisted solely of capital expenditures. For the period from February 2, 2006 to April 2, 2006, net cash used in investing activities was $425.0 million. The acquisition used $420.0 million in the period from February 2, 2006 to April 2, 2006, including $418.3 million for the acquisition and $1.7 million of acquisition transaction costs. Capital expenditures were $5.2 million for the period from February 2, 2006 to April 2, 2006.
Financing activities
Net cash from financing activities was $42.0 million in the three months ended April 1, 2007, consisting primarily of revolver borrowings of $42.3 million. Net cash used in financing activities was $8.5 million for the period from January 1, 2006 to February 1, 2006, primarily consisting of a dividend of $6.8 million paid to Honeywell during the period. In the period from February 2, 2006 to April 2, 2006, cash from financing activities was $442.4 million, consisting of borrowings on long-term debt of $266.6 million, capital contributions of $111.3 million, and revolver borrowings of $86.4 million, partially offset by debt issuance costs of $21.6 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 April 1, 2007, we had outstanding $371.0 million in aggregate indebtedness, with an additional $91.3 million of borrowing capacity available under our revolving credit facility, net of $10.4 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 April 1, 2007 were $17.1 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 April 1, 2007, borrowings under the revolving credit facility bore interest at a weighted average rate of 7.3%.
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.
46
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.
111¤2% Second-Priority Senior Secured Notes due 2014
Indalex Holding Corp. issued 111¤2% second-priority senior secured notes due 2014 (the “notes”) on February 2, 2006. The 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 notes were guaranteed by each of our domestic subsidiaries and none of our foreign subsidiaries. Interest on the notes is payable semi annually in cash.
The 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 notes only to the extent that such capital stock can secure the 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 notes and the
47
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 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 each of Indalex Holding Corp. and Indalex Inc. exceeded 20% of the principal amount of the notes as of April 1, 2007. As a result, the pledge of the capital stock of these entities with respect to the notes is limited to capital stock of each such entity with an applicable value of less than 20% of the principal amount of the notes, or $54.0 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 April 1, 2007, the book value of each company whose capital stock constitutes collateral under the security documents is as follows:
· Indalex Holding Corp.—$82.8 million.
· Indalex Inc.—$90.5 million.
· Indalex Limited—$35.0 million, of which 65%, or $22.8 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 Holding Corp. and Indalex Inc., the applicable value capital stock that constitutes collateral under the security documents is limited to less than $54.0 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 April 1, 2007 prepared in accordance with U.S. GAAP.
Management estimated that the market value of the capital stock of Indalex Limited as of April 1, 2007 was $95.1 million, of which 65%, or $61.8 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 notes and the related guarantees may decrease or increase as the 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 notes, the value of the capital stock of each of those entities securing the 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 notes, 100% of the capital stock of that entity will secure the 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 notes, 65% of the capital stock of Indalex Limited will secure the 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 notes, the value of the capital stock of Indalex Limited securing the notes and the related guarantees will be limited to less than 20% of the aggregate principal amount of the 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 notes, 100% of the capital stock of each of those entities will secure the 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
48
principal amount of the notes, the value of the capital stock of that entity securing the notes and related guarantees will be limited to less than 20% of the aggregate principal amount of the notes.
As of April 1, 2007, the book value of capital stock, as a percentage of the principal amount of the notes, of each entity whose capital stock constitutes collateral exceeding 10% of the principal amount of the notes was as follows:
· Indalex Holding Corp.—ratio of (i) book value of the Company’s investment in Indalex Holding Corp. ($82.8 million) to (ii) principal amount of notes ($270.0 million) equals 30.7%.
· Indalex Inc.—ratio of (i) book value of Indalex Holding Corp.’s investment in Indalex Inc. ($90.5 million) to (ii) principal amount of notes ($270.0 million) equals 33.5%.
The indenture governing the 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 April 1, 2007, the net book value of the capital stock securing the notes was $67.6 million and the book value of all other property and assets securing the notes was $303.1 million.
Capital expenditures
We made $6.9 million in capital expenditures in the three months ended April 1, 2007. Our spending was for dies, quality and efficiency projects and replacement projects, and included $1.2 million related to an expansion at our Connersville, Indiana plant; $0.7 million related to a capacity expansion at our Modesto, California plant; $0.5 million for billet casting upgrades at our City of Industry, California plant; and $0.4 million for a billet furnace and saw at our Elkhart, 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.
49
Contractual obligations summary
The following table reflects our contractual obligations and commitments as of April 1, 2007.
Contractual Obligations and Commitments by Fiscal Year
|
| Total |
| Less than |
| 1-3 Years |
| 3-5 Years |
| More than |
| |||||||||||||
|
| (in thousands) |
| |||||||||||||||||||||
Letters of credit |
| $ | 10.4 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| $ | 10.4 |
|
| |||
Revolving credit facility |
| $ | 98.3 |
|
| — |
|
|
| — |
|
|
| $ | 98.3 |
|
|
| — |
|
| |||
Operating leases |
| $ | 6.2 |
|
| $ | 1.7 |
|
|
| $ | 3.1 |
|
|
| $ | 1.3 |
|
|
| $ | 0.1 |
|
|
Capital leases |
| $ | 6.3 |
|
| $ | 1.2 |
|
|
| $ | 3.5 |
|
|
| $ | 1.6 |
|
|
| — |
|
| |
Purchase obligations |
| $ | 422.6 |
|
| $ | 307.5 |
|
|
| $ | 115.1 |
|
|
| — |
|
|
| — |
|
| ||
Long-term debt |
| $ | 270.0 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| $ | 270.0 |
|
| |||
Fixed interest payments |
| $ | 217.4 |
|
| $ | 31.1 |
|
|
| $ | 62.1 |
|
|
| $ | 62.1 |
|
|
| $ | 62.1 |
|
|
Total |
| $ | 1,031.2 |
|
| $ | 341.5 |
|
|
| $ | 183.8 |
|
|
| $ | 163.3 |
|
|
| $ | 342.6 |
|
|
The table above does not reflect variable rate interest payments on our revolving credit facility. Based on the weighted average interest rate of 7.3% and outstanding borrowings of $98.3 million as of April 1, 2007, our annual variable interest rate payments would be $7.2 million.
The table above does not reflect any potential guarantees of indebtedness of AAG.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to our exposure to market risk since December 31, 2006.
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, 2006.
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 first three months of 2007.
None.
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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 18, 2007.
| Indalex Holdings Finance, Inc. | ||
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| By: | /s/ Timothy R.J. Stubbs |
|
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| Timothy R.J. Stubbs |
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| Its: | President and Chief Executive Officer |
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| By: | /s/ Michael E. Alger |
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| Michael E. Alger |
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| Its: | Executive Vice President, Secretary, |
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| Treasurer and Chief Financial Officer |
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EXHIBIT |
|
| DESCRIPTION |
|
| ||
| 3.1 |
|
| Amended and Restated Certificate of Incorporation of Indalex Holdings Finance, Inc. (the “Company”) (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). |
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| 31.1 |
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| 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 |
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| Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. |
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| 32.1 |
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| 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. |
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| 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. |
| ||
| 99.1 |
|
| Unaudited Pro Forma Condensed Combined Financial Data. |
|
53