SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
|X| Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the fiscal year ended December 31, 1999.
|_| 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 0-24293
-----------
LMI Aerospace, Inc.
---------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Missouri 43-1309065
- --------------------------- -------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
3600 Mueller Road, St. Charles, Missouri 63302-0900
- -------------------------------------------- -------------------
(Address of Principal Executive Officer) (ZIP Code)
(636) 946-6525
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area code)
Securities to be registered pursuant to Section 12(b) of the Act:
None
------------
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.02 par value
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether 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, and (2) has been subject to such filing requirements
for the past 90 days. YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant (computed by reference to the closing price of such voting stock on
the NASDAQ National Market on March 24, 2000 of $2.75) was approximately
$8,181,327.
There were 8,208,247 total shares of common stock outstanding as of March 24,
2000.
Documents Incorporated by Reference
1) The following document is incorporated into this Report by reference:
Part III: Portions of the definitive proxy statement of the Registrant
(to be filed pursuant to Regulation 14(A) for Registrant's 2000 Annual
Meeting of Shareholders, which involves the election of directors), are
incorporated by reference into Items 10, 11, 12 and 13 to the extent
stated in such items.
Forward-Looking Statements
Any forward-looking statements set forth in this report are necessarily subject
to uncertainties and risks. When used in this report, the words "believes,"
"anticipates," "intends," "plans," "projects," "estimate," "expects" and similar
expressions are intended to identify forward-looking statements. Actual results
could be materially different from those reflected in such forward-looking
statements as a result of various factors. Readers are cautioned not to place
undue reliance on forward-looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the results of
any revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
TABLE OF CONTENTS
Item No. Page
- -------- ----
PART I
1 Business 1
2 Properties 9
3 Legal Proceedings 10
4 Submission of Matters to a Vote of Security Holders 10
4(a) Executive Officers of the Registrant 10
PART II
5 Market for Registrant's Common Equity and Related
Stockholder Matters 12
6 Selected Financial Data 14
7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
7(a) Quantitative and Qualitative Disclosures about Market Risk 18
8 Financial Statements and Supplementary Data 18
9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 32
PART III
10 Directors and Executive Officers of Registrant 32
11 Executive Compensation 33
12 Security Ownership of Certain Beneficial Owners and
Management 33
13 Certain Relationships and Related Transactions 33
PART IV
14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K 33
PART I
Item 1. Business.
General Overview
LMI Aerospace, Inc. (the "Company") is a leader in fabricating, machining,
finishing and integrating formed, close tolerance aluminum and specialty alloy
components for use by the aerospace industry. For over 50 years, the Company has
been engaged in manufacturing components for a wide variety of aerospace
applications. Components manufactured by the Company include leading edge wing
slats, flaps and lens assemblies; cockpit window frame assemblies; fuselage
skins and supports; and passenger and cargo door frames and supports. The
Company maintains multi-year contracts with leading original equipment
manufacturers ("OEMs") and primary subcontractors ("Primes") of commercial,
corporate, regional and military aircraft. Such contracts, which govern the
majority of the Company's sales, designate the Company as the sole supplier of
the aerospace components sold under the contracts. Customers include Boeing,
Lockheed Martin, Northrop Grumman, Gulfstream, Learjet, Canadair, DeHavilland
and PPG. The Company manufactures more than 15,000 parts for integration into
such models as Boeing's 737, 747, 757, 767 and 777 commercial aircraft,
Gulfstream's G-IV and G-V corporate aircraft, Canadair's RJ regional aircraft,
and Lockheed Martin's F-16, F-22 and C-130 and Boeing F-15, F-18 and C-17
military aircraft.
In addition to supplying quality components, the Company provides its customers
with value-added services, including engineered tool design, production and
repair; heat treating; chemical milling; assembly; and metal finishing
processes, such as polishing and painting. The Company believes that such
value-added services provide significant benefits to its customers including:
(i) reduced administrative costs resulting from the Company's ability to serve
as a single point of purchase for a wide array of required products and
services, (ii) faster, more efficient production rates, and (iii) greater
consistency in meeting scheduled delivery dates. As a result, the Company
believes that its value-added services are an increasingly important factor in
the selection of the Company to provide aerospace components.
LMI Aerospace, Inc. is a Missouri corporation with headquarters at 3600 Mueller
Road, St. Charles, Missouri. The Company maintains facilities in St. Charles,
Missouri; Auburn, Washington; Tulsa, Oklahoma; Wichita, Kansas and Irving,
Texas.
Customer Concentration
The Company manufactures and supplies over 15,000 parts to leading OEMs and
Primes of commercial, corporate, regional and military aircraft, primarily under
multi-year contracts. Such contracts designate the Company as the sole supplier
of the aerospace components sold under the contracts. Customers include the
following leading OEMs and Primes:
Commercial Platforms
- ---------- ---------
Boeing 737 Classic, 737 Next Generation ("737NG"), 707,
727, 747, 757, 767 and 777
Northrop Grumman 747, 757 and 767
PPG 737NG, 747, 767, 777 and MD-80
National Machine 737NG
Canadair 767
Hexcel 737NG
Corporate and Regional Platforms
- ---------------------- ---------
Gulfstream G-IV and G-V
Canadair Regional Jet and Challenger 604
Learjet Models 31, 45 and 60
DeHavilland CL415 and Dash-8
Boeing 737 Business Jet
Nordam Citation V, VII, VIII, Ultra, Bravo and Excel,
Lear 60, and Beech 400A
PPG Citation III, VII, X and Excel
Northrop Grumman G-IV and G-V
Raytheon Horizon
Military Platforms
- -------- ---------
Lockheed Martin F-16 and C-130
Boeing AWACS, F-15, F-18 and C-17
The Company has a long-standing relationship with Boeing, which has steadily
grown to include several Boeing business units, including Boeing Commercial
Airplane Group, Boeing North American, Boeing Military and Boeing Helicopter.
During 1997, 1998 and 1999, direct sales to Boeing business units accounted for
a total of approximately 59%, 62% and 54% of the Company's sales, respectively.
According to industry sources, Boeing holds approximately a 50% share of the
worldwide commercial aircraft market. Each of Boeing's business units operate to
a significant degree as autonomous manufacturers, and as such, the Company has
entered into one or more multi-year contractual relationships with many of the
Boeing business units with which it does business. In general, these agreements
provide for: (i) payment on a net 30 day basis; (ii) termination for convenience
upon 30 days notice; (iii) reasonable manufacturing lead time for delivery of
components; (iv) limitations on and specifications for the scope of work to be
performed; and (v) pricing of components by quotes. The Company is currently
re-negotiating its contracts with various Boeing commercial divisions into a
consolidated contract. Such contract is an attempt by Boeing to reduce
redundancy and provide one set of terms and conditions in exchange for specific
price reductions. The Company expects this new contract to be finalized in the
second quarter of 2000. In addition, these contracts are typically
"requirements" contracts under which the purchaser commits to purchase all of
its requirements of a particular component from the Company. Specific orders are
placed with the Company on a periodic basis. The Company believes that its
relationship with Boeing extends beyond the expressed language of the multi-year
contracts. Such belief is based on, among other things, discussions with Boeing
personnel, the longevity and growth of the relationship, and the Company's
experience with Boeing during occasional periods without an effective contract.
Products
The Company is a leading fabricator, finisher and integrator of formed, close
tolerance aluminum and specialty alloy components for use by the aerospace
industry. For approximately 50 years the Company has been engaged in
manufacturing components for a wide variety of aerospace applications. All
components are fabricated from designs prepared and furnished by its customers.
The following table describes some of the Company's principal products
(consisting of manufactured components and assemblies) and the models into which
they are integrated:
Product Models
- ------- ------
Wing leading edge skins, 737 NG, Beech Horizon
flapskins
Detail interior components Boeing 737 Classic, 737 NG, 707, 727, 747,
757, 767, 777 and C-130
Wing panels and floorbeams 747
Door assembly structural 737 Classic, 737 NG, 747 and 757, Challenger
details 604, Regional Jet, F-16 and C-130
Thrust reversers and engine G-IV, CL415, 737 Classic and 777
nacelles/cowlings
Cockpit window frames and 737NG, 747, 767, 777, Citation III, VII and
landing light lens assembly Excel, DC-8 and 9, MD-80, KC-10 and F-16
Fuselage and wing skin Models 45 and 60 Dash-8 737 Classic, 737 NG,
747, 757, 767, 777, C-130 and F-16
Structural sheet metal & Various models
extruded components
Once a customer submits specifications for a product, the Company utilizes its
40 person engineering and planning group to evaluate and develop the tooling
requirements, design the manufacturing process and prepare a product flow plan.
The Company utilizes an advanced computer assisted design system to translate
customer provided specifications into computer numerical control ("CNC")
instructions for use with many of the Company's forming and milling equipment.
Backlog
The Company's backlog is displayed in the following table:
As of December 31,
(in millions)
1997 1998 1999
---- ---- ----
Total $48.9 $52.8 $45.5
Portion deliverable within 12 months 40.5 35.6 37.2
Historically, cancellations of such orders have been infrequent and immaterial,
however OEMs often modify purchase orders to accelerate or delay delivery dates.
The level of unfilled orders at any given time during the year will be
materially affected by the timing of the Company's receipt of orders and the
speed with which those orders are filled. Moreover, sales during any period may
include sales which are not part of the backlog at the end of the prior period.
Manufacturing Processes
The manufacturing facilities are organized on a work center basis focusing on a
particular manufacturing process. Each work center is staffed by a team of
operators who are supported by a supervisor, lead operators and quality
inspectors. Throughout each stage of the manufacturing and finishing processes,
the Company collects, maintains and evaluates data, including customer design
inputs, process scheduling, material inventory, labor, inspection results and
completion and delivery dates. The Company's information systems employ this
data in order to provide more accurate pricing and scheduling information to its
customers as well as to establish production standards used to measure internal
performance.
Consistent with the Company's strategy of continually emphasizing quality, all
employees participate in an on-going training program which combines classroom,
hands-on and on-the-job instruction. New employees attend an extensive
orientation seminar to acquaint them with the aerospace components industry and
the Company's quality expectations, history, mission, safety procedures and
other rules. To motivate employees to meet and exceed the Company's production
efficiency objectives, management has implemented a bonus program under which
the bonus amount payable by the Company is based on the amount of sales per paid
manhour and the value of product produced.
Furthermore, through the use of lean manufacturing techniques, the Company seeks
to eliminate waste generated in the movement of people, in the use of materials
and products, in lengthy set-ups, in production breaks and by misused space. The
Company's lean manufacturing methods include: (i) one piece work flow as opposed
to batch processing, (ii) pull versus push production control and scheduling
systems, and (iii) disciplined housekeeping and organization techniques. The
Company believes that its training and motivation programs, combined with
extensive use of lean manufacturing techniques, have greatly increased the
Company's efficiency, manufacturing capacity and profitability.
In manufacturing close tolerance components, the Company uses several forming
processes to shape or "form" a "work piece" (aluminum, stainless steel or
titanium sheet metal and extrusion) into components by applying pressure through
impact, stretching or pressing the raw material (sheet metal or extrusion) to
cause conformance to a die. The shapes may be simple with a single angle, bend
or curve, or may be complex with compound contours having multiple bends and
angles. Some processes incorporate heat to soften the metal prior to or during
forming. Forming processes include: drop hammer, bladder press, sheet metal and
extrusion stretch, skin stretch, stretch draw, hot joggle and brake forming.
The following are more detailed descriptions of several of the Company's
processes:
Drop Hammer Forming. The Company utilizes drop hammer forming to shape work
pieces by placing them between a mated die and a moving punch. The work piece is
placed on the working surface of the die and is formed into a component through
repeated impacts of the punch on the work piece. The impact causes the work
piece to take the shape of the punch and die. This process provides an
economical means of producing parts ranging in size from a few inches up to ten
feet in length with complex, compound contours. The Company has one of the
largest capacities for drop hammer forming in the aerospace components industry.
Bladder Forming. The bladder forming process (fluid cell press) utilizes a
bladder filled with hydraulic fluid which is placed under pressure to form the
component. The work piece is placed on top of a die which rests on a table. A
rubber blanket is then placed over the work piece and the table is moved into
the press. As the bladder is placed under pressure, it expands to cover the
rubber blanket and forces it and the work piece to conform to the shape of the
die. The Company employs bladder forming for components with formed simple
contours.
Stretch Forming. The stretch forming process involves the stretching and
wrapping of a work piece along the surface of a precisely shaped die. To obtain
the desired component shape, opposite ends of the material are held in the jaws
of the stretch form machine, then hydraulically stretched and wrapped to conform
to the working surface of the die. The Company utilizes several different types
of stretch form machines, each type designed to stretch form extrusion, sheet
metal or leading edge wing skins.
Hot Joggle. The Company uses the hot joggle process to create a clearance step
for intersecting parts. A work piece is placed between a mated die and punch and
is heated to a precise temperature to make it malleable enough to set a form,
but not hot enough to alter the temper of the metal. The joggle press then
creates the joggle by stepping down a surface from the original plane of the
work piece.
Cutting and Punching. Various cutting and punching processes, such as CNC turret
punch, CNC laser cutting, CNC and conventional milling, are used for cutting out
the shapes of flat pattern parts. Cutting, trimming and drilling functions such
as CNC and conventional milling, five axis CNC routing and other machine and
hand routing methods are used to complete formed components by trimming excess
material, cutting and drilling holes. CNC processes utilize computer programs
generated by Company employees from CAD models provided by the customer, which
direct the cutting, punching and/or drilling pattern of the machine. Other
trimming processes use dies, templates or fixtures as the guide for trimming
and/or drilling.
Most parts require heat treating after forming which helps to strengthen and,
then through controlled cooling, harden the material. This process along with
older dies and tools, can cause slight distortion which is then modified with
manual forming techniques also referred to as "line-up" or "check and
straighten." The Company's highly skilled craftsmen provide the customer with
great flexibility in utilizing customer's tools and small order quantities often
associated with spares production.
Value-Added Services
The Company offers its customers both cost and time savings by having the
process capabilities necessary for the production of most components from start
to finish.
Tooling. While most of the dies, tools and fixtures needed in the manufacturing
process are owned and supplied by customers, the Company offers its customers
the ability to produce fiberglass route and drill tools, chemical milling
templates, kirksite extrusion and sheet stretch blocks, and other original
tooling. It also has extensive capabilities in the repair and rework of tools
and dies originally supplied by its customers. The Company supports the tooling
operations with its own foundry which pours lead and kirksite tops for drop
hammer dies.
Heat Treat and Age. Most components require heat treating and/or aging as part
of the production process. The heat treat process is used to alter the temper of
the material for increased formability and retention of the formed shape. The
process involves heating work pieces to a prescribed temperature, usually in the
range of 850 degrees to 950 degrees Fahrenheit, for a prescribed period of time.
Multiple components can be heat treated at one time, so long as the prescribed
process time and temperature are the same. After heating, the components are
immediately submerged in a glycol solution or water to rapidly cool and suspend
the hardening of the metal. The components are then refrigerated at sub-zero
temperatures to retard work hardening until the forming process is completed. At
ambient temperatures the metal slowly hardens. After all forming, trimming and
drilling processes are complete, most components go through the age process,
which involves slow heating at lower temperatures (up to 400 degrees
Fahrenheit), to accelerate the hardening of the metal to its final temper.
CMM Inspection and Engineering. The computer controlled coordinate measuring
machine ("CMM") uses a computer driven touch probe to measure the accuracy of
angles, contours and other features on a tool or component relative to customer
defined models or coordinates permitting the Company to accurately inspect close
tolerance components. The CMM also is used to reverse engineer a CAD model from
an existing part.
Chemical Milling. Chemical milling is used to reduce the amount of material in
specific places on a component in order to reduce weight within the aircraft and
to facilitate the mating of components. The working piece is first coated
(dipped or sprayed) with a maskant, which dries to a rubber-like finish sealing
the component. The Company uses a water based maskant which is much safer for
both employees and the environment than the traditional solvent based maskant.
After masking, the portion of the part to be reduced is scribed out by tracing a
template. These areas are then de-masked, and the part is dipped into the
chemical milling tank, containing an alkaline solution, for a prescribed period
of time. The solution then removes the metal in the exposed areas.
Metal Finishing, Polishing and Painting. Through its Tulsa facility the Company
provides anodizing, alodining, polishing and non-destructive testing. Alodine
and chromic acid anodizing processes are performed prior to paint or polish to
help control rust, corrosion and part deterioration. Penetrant inspection is a
non-destructive inspection method during which components are dipped into a dye
solution which penetrates any small defects on the surface of the part and makes
them visible under ultra violet light.
Most components are painted or polished before final shipment. Paint is applied
according to customer specification; some components receive a simple primary
coat while others receive primary and finish coats. Skin quality components such
as those in the leading edge wing program are polished with electric polishers
and by hand to a mirror finish which is visible on the exterior of the aircraft
after final assembly.
Consistent with the Company's commitment to maintaining environmental and
employee safety, the Tulsa facility has a state-of-the-art air circulation and
filter system as well as its own waste water treatment equipment. Waste water
from both the anodizing, alodining and chemical milling processes pass through
the treatment equipment and all metals and toxic materials are removed, making
the water safe for disposal through the normal sewer system. The metals are
condensed into filter cakes which are then disposed of through certified
hazardous waste disposal vendors.
Assembly. The Company completes small and medium sized assemblies, incorporating
its manufactured parts and those produced by other vendors. In the assembly
process the Company uses riveting, bolting, resistance and fusion welding, and
bonding. Customer supplied and Company manufactured jigs and fixtures are used
to ensure the proper alignment of edges and holes. The Company's new information
system and the expansion of its purchasing department further increase its
ability to acquire and track parts and hardware details from multiple vendors to
integrate with its own components into assemblies.
Supplies and Procurement Practices
Most of the Company's aerospace components are manufactured from aerospace
quality aluminum sheet metal and extrusion. From time to time the Company, and
the aerospace components industry as a whole, has experienced shortages in the
availability of aerospace quality aluminum sheet metal and extrusion. Such
shortages could inhibit the Company's ability to deliver products to its
customers on a timely basis. In an attempt to secure adequate supplies the
Company has entered into a multi-year aluminum sheet metal supply agreement with
Aluminum Company of America ("ALCOA"), a dominant domestic supplier of aerospace
quality aluminum, extending until the end of year 2000.
A recent strategy adopted by the Boeing Commercial divisions, requires that
Boeing subcontractors purchase aluminum sheet, aluminum extrusion and titanium
sheet from TMX Aerospace (Boeing designated raw material service provider). This
supply chain approach is intended to control raw material pricing and assure
adequate levels of inventory for both Boeing and its supply base. Essentially,
Boeing and its suppliers work in tandem to establish projected material
requirements for given work statements. These material requirements are then
consolidated across the supplier base. TMX placed orders with the mills
according to projected needs and performs inventory and administration functions
related to control of this inventory on Boeing's behalf.
The Company believes that its sources of supply of non-aluminum products and its
relationships with its suppliers are satisfactory. While the loss of any one
supplier could have a material adverse effect on the Company until alternative
suppliers are located and have commenced providing products, alternative
suppliers exist for substantially all of the products and services purchased by
the Company.
The Company has developed procurement practices to ensure that all supplies
received conform to contract specifications. Through its computerized material
resource planning system, the Company is able to track inventories and product
ordering to optimize purchasing decisions. For cost, quality control and
efficiency reasons, the Company generally purchases supplies only from vendors
approved by the Company's customers and/or with whom the Company has on-going
relationships. The Company chooses its vendors primarily based on the quality of
the products and services supplied, record for on-time performance and the
specification of such vendors by the Company's customers as the preferred source
of supply. The Company regularly evaluates and audits its approved vendors based
on their performance.
Quality Assurance and Control
The Company continually seeks to maintain high quality standards in the
processing of its products. Accordingly, the Company employs approximately 50
full time quality control and assurance personnel. Each work order introduced to
the Company's manufacturing facilities contains an inspection plan specifying
required inspection points. Quality inspectors are assigned to each work center
and are trained in the testing required in connection with products passing
through the assigned work center. Although a large percentage of the Company's
products are 100% inspected immediately prior to shipment by a customer employee
or a customer designated Company employee, Boeing has approved a sampling
inspection program for certain components using statistical process control data
maintained by the Company.
In March 1998, the Company became certified as compliant with Boeing's new
D1-9000 (Rev. A) quality assurance standard. During April 1998, the Company
distributed all revised procedures and integrated such new procedures with its
on-going employee training program and lean manufacturing techniques to assist
employees in becoming familiar with the new procedures. The Company has expanded
its existing internal audit program to ensure on-going compliance. In addition,
the Company intends to supplement its quality assurance and control program in
2000 with ISO 9002 certification of all of its facilities.
Sales and Marketing
The Company's sales and marketing organization consists of five program managers
and two independent sales representatives. The Company's sales personnel are
devoted to maintaining and expanding customer relationships through continual
education of existing and potential customers with respect to the Company's
capabilities. Specifically, the Company is focused on expanding its presence in
the fabrication of aftermarket spare parts and components for use in new
corporate, regional and military aircraft. As a result, sales personnel have
focused their efforts on diversifying the Company's product mix to include
aerospace programs unrelated to new commercial aircraft production.
A majority of the Company's sales to existing customers are awarded after
receipt of a request for quotation ("RFQ"). On receipt, the RFQ is preliminarily
reviewed by a team consisting of members of the Company's senior management, a
program manager, an estimator and the plant manager. If the Company determines
that the program is adequately compatible with the Company's capabilities and
objectives, a formal response is prepared by a member of the Company's estimator
group. Although a substantial percentage of programs are awarded on a
competitive bid basis, the Company has recognized a trend favoring direct
pricing. In direct pricing programs, the customer submits an indicated price
offer for acceptance or rejection by the Company. The Company expects that as
customers seek to limit the number of suppliers, direct pricing will become
increasingly common.
Competition
Components for new aircraft and replacement components for existing aircraft are
provided by a large fragmented group of companies, including certain business
units of or affiliates of the Company's customers. The Company believes that
participants in the aerospace components industry compete primarily with respect
to reliability of delivery, price and quality. Certain of the Company's
competitors, including business units affiliated with the Company's customers,
have substantially greater financial, production and other resources than the
Company.
Governmental Regulations; Environmental Compliance
The Company's operations are subject to extensive and frequently changing
Federal, state and local laws and substantial regulation by government agencies,
including the United States Environmental Protection Agency ("EPA"), the United
States Occupational Safety and Health Administration ("OSHA") and the Federal
Aviation Administration ("FAA"). Among other matters these agencies impose
requirements that regulate the handling, transportation and disposal of
hazardous materials generated or used by the Company during the normal course of
its operations, govern the health and safety of the Company's employees and
require the Company to meet certain standards and licensing requirements for
aerospace components. This extensive regulatory framework imposes significant
compliance burdens and risks on the Company and, as a result, may substantially
affect its operational costs.
In addition, the Company may become liable for the costs of removal or
remediation of certain hazardous substances released on or in its facilities
without regard to whether or not the Company knew of, or caused, the release of
such substances. The Company believes that it currently is in material
compliance with applicable laws and regulations and is not aware of any material
environmental violations at any of its current or former facilities. There can
be no assurance, however, that its prior activities did not create a material
environmental situation for which the Company could be responsible for or that
future uses or conditions (including, without limitation, changes in applicable
environmental laws and regulation, or an increase in the amount of hazardous
substances generated or used by the Company's operations) will not result in any
material environmental liability to the Company or result in a material adverse
effect to the Company's financial condition or results of operations.
Employees
As of December 31, 1999, the Company had 638 permanent employees, of whom eleven
were engaged in executive positions, 117 were engaged in administrative
positions and 510 were in manufacturing operations. None of the Company's
employees is subject to a collective bargaining agreement, and the Company has
not experienced any material business interruption as a result of labor disputes
since it was formed. The Company believes that it has an excellent relationship
with its employees.
The Company strives to continuously train and educate its employees, thereby
enhancing the skill and flexibility of its work force. Through the use of
internally developed programs, which include formal classroom and on-the-job,
hands-on training, and independently developed programs, the Company seeks to
attract, develop and retain the personnel necessary to achieve the Company's
growth and profitability objectives.
Acquisition Strategy
The Company seeks to leverage its core capabilities in existing and new markets
by identifying and pursuing complementary acquisitions in the aerospace industry
that offer strategic value, such as cost savings, increased manufacturing
capacity, increased process capability and/or new customer relationships. The
Company believes that the fragmented nature of the industry for aerospace
components should provide the Company with additional opportunities to exploit
industry consolidation trends.
Item 2. Properties.
Facilities
The following table provides certain information with respect to the Company's
headquarters and manufacturing centers:
Square
Location Principal Use Footage Interest
-------- ------------- ------- --------
3600 Mueller Road Executive and Administrative 62,585 Owned
St. Charles, MO Offices and Manufacturing
Center
3030-3050 N. Hwy 94 Manufacturing Center and 92,736 Owned
St. Charles, MO Storage
3000-3010 N. Hwy 94 Assembly and Storage 30,074 Leased(1)
St. Charles, MO
101 Western Ave. So. Manufacturing Center 79,120 Leased(2)
Auburn, WA
2629-2635 Esthner Ct. Manufacturing Center 31,000 Owned
Wichita, KS
2621 W. Esthner Ct. Administrative Offices and 39,883 Leased(3)
Wichita, KS Storage
2104 N. 170th St. E. Ave. Finishing Facility 75,000 Owned
Tulsa, OK
2205 and 2215 River Hill Machining Facility 8,400 Leased(4)
Road, Irving, TX
3081 Elm Point Storage facility 18,812 Leased(5)
St. Charles, MO
(1) Subject to a yearly rental amount of $120,266 expiring on February 28, 2004.
(2) Subject to graduated yearly payments of $353,640 to $418,800 during the life
of the lease. The lease expires in 2005, but the Company retains the option to
extend the lease until June 30, 2008 at the monthly rate of $39,090.
(3) Subject to graduated yearly payments of $134,196 to $148,620 during the life
of the lease. The lease expires in 2009, but the Company retains an option to
extend the lease term for an additional 5 years.
(4) Subject to a yearly rental amount of $45,000 expiring on August 24, 2000.
The Company retains two options to extend the lease term for an additional 5
years each.
(5) Month to month lease of $6,174 subject to a 90-day cancellation notice.
Item 3. Legal Proceedings.
The Company is not a party to any legal proceedings, other than routine claims
and lawsuits arising in the ordinary course of its business. The Company does
not believe that such claims and lawsuits, individually or in the aggregate,
will have a material adverse effect on the Company's business.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 4(a). Executive Officers of the Registrant.(1)
The following is a list of the current executive officers of the Company, their
ages, their positions with the Company, and their principal occupations for at
least the past five years.
Name Age Position
- ---- --- --------
Ronald S. Saks 56 Chief Executive Officer, President and
Director
Lawrence J. LeGrand 49 Executive Vice President, Finance and
Acquisitions
Tom D. Baker 54 Chief Operating Officer
Duane E. Hahn 47 Vice President of Operations
Lawrence E. Dickinson 40 Chief Financial Officer and Secretary
Michael J. Biffignani 44 Chief Information Officer
Phillip Lajeunesse 46 General Manager, Wichita Plant
Robert Grah 45 General Manager, Tulsa Plant
Bradley Nelson 40 General Manager, Auburn Plant
Charles Somerville 47 General Manager, Precise Machine
Ronald Thompson 57 General Manager, St. Charles Plant
- ---------------
(1) This information is included in Part I as a separate item in accordance
with Instruction 3 to Item 401(b) of Regulation S-K and General Instruction
G to Form 10-K.
Set forth below are biographies of each executive officer of the Company.
Ronald S. Saks has served as President and as a director of the Company since
1984. Prior to his employment with the Company, Mr. Saks was an Executive Vice
President with Associated Transports, Inc. for eight years and was a Tax Manager
with Peat Marwick Mitchell & Co., now known as KPMG Peat Marwick LLP, for the
eight years prior thereto. Mr. Saks obtained his Bachelor's degree in Business
Administration from Washington University in 1966. He also studied engineering
at the Massachusetts Institute of Technology, and completed an Executive
Education program at Stanford University. Mr. Saks is a Certified Public
Accountant.
Lawrence J. LeGrand became Chief Operating Officer and a director of the Company
in April 1998. In 1999, he was promoted to Executive Vice President, Finance and
Acquisitions. His previous 24 years were spent with KPMG Peat Marwick, LLP,
where he became a partner in 1980. Mr. LeGrand is a Certified Public Accountant
and has extensive experience in mergers and acquisitions where he has
represented both publicly held and privately owned buyers and sellers. Mr.
LeGrand graduated with a Bachelor's degree in Commerce and Finance from St.
Louis University in 1973 and presently serves as the Vice Chairman of the Board
of Trustees of St. Louis University. During 1998, Mr. LeGrand was appointed to
the Board of Directors of LaBarge, Inc.
Tom Baker joined the Company in 2000 as the Chief Operating Officer. From 1986
to 1994, he was employed by the Allied Automotive Group and served as the
Executive Vice President of North American Operations from 1994 to 1999. Prior
employment included serving as the Vice President of Operations for Auto Convoy
during 1984 and 1985; Terminal Manager for Associated Transports 1975 to 1983;
Safety and Training Supervisor for Jack Cooper Transport Company from 1973 to
1975; and as a State Trooper for the Missouri State Highway Patrol from 1966 to
1973. Mr. Baker's advanced education includes study at the University of
Missouri Warrensburg, executive education programs at the University of Georgia,
and advanced management studies with Aubrey Daniels and Associates.
Duane E. Hahn joined the Company in 1984 and served as the Assistant General
Manager until 1988, at which time he moved to Auburn, Washington to set up and
manage the Auburn facility as Vice President and General Manager. In 1996, Mr.
Hahn became the Vice President of Manufacturing and Regional Manager of the
Company. Prior to joining the Company, Mr. Hahn served as a supervisor for
Associated Transport, Inc. Mr. Hahn received his Associate's Degree from
Nebraska Technical College in 1971. Mr. Hahn has extensive continuing education
experience in lean manufacturing, just-in-time, and other world class
manufacturing techniques. Mr. Hahn became a director of the Company in October
1990.
Lawrence E. Dickinson has been the Chief Financial Officer of the Company since
1993. He served as a Financial Analyst and Controller for LaBarge, Inc. from
1984 to 1993 and as a Cost Accountant with Monsanto from 1981-1984. Mr.
Dickinson received his Bachelor's degree in Accounting from the University of
Alabama and received his Master's degree in Business Administration from
Washington University in 1994.
Michael Biffignani joined the Company in 1999 as the Chief Information Officer.
Prior to joining LMI, he was with the Boeing Company for two years and McDonnell
Douglas for fourteen years serving as a Director of Information Technology and
as a Business Operations Manager. Mr. Biffignani completed the McDonnell Douglas
Executive Development Program in 1996. Prior to joining McDonnell Douglas, he
was a Materials Manager and Electrical Engineer for the Sony Corporation. He
received his Bachelor's degree in Electrical Engineering from the University of
Missouri, Rolla in 1979.
Robert T. Grah joined the Company in 1984 as Production Control Manager. Mr.
Grah has held various management positions with the Company including Purchasing
and Contracts Manager, Maintenance Manager, Facilities Manager, and was promoted
to his current position as General Manager of LMI Finishing, Inc. in 1996. Prior
to joining the Company, Mr. Grah was a supervisor for Associated Transport,
Inc., and a manager for Beneficial Finance. Mr. Grah's education has included
Florissant Valley Community College, and numerous continuing education courses
in management, Total Preventative Maintenance, and various environmental and
technical subjects.
Phillip A. Lajeunesse joined the Company in 1988 as the Corporate Quality
Assurance Manager. In 1990, he became the Plant Manager of the Company's St.
Charles facility, and in 1996, he became the General Manager of the Wichita
facility. Prior to joining the Company, Mr. Lajeunesse was a supervisor for
Kaman Aerospace for nine years, and for six years was a supervisor for United
Nuclear Corporation. Mr. Lajeunesse obtained an Associate's degree in Chemical
Engineering from Thames Valley State Technical College in 1973, an Associate's
degree in Business Administration from Bryant College in 1984, and a Master's of
Business Administration from Washington University in 1994.
Bradley L. Nelson joined the Company as a Production Supervisor in the Auburn
facility in 1990. In 1994, he was promoted to Manufacturing Manager, and in 1996
he assumed his current position as General Manager of the Auburn facility.
Previously, Mr. Nelson was Production Manager for Fabrication Technologies from
1989 to 1990, the owner of Totem Lake Service Center from 1984 to 1989, and
Plant Manager for Tonoro Growers from 1981 to 1984. Mr. Nelson's continuing
education courses include general management and manufacturing management and
methods.
Charles Somerville joined LMI Aerospace in 1999 as the General Manager of
Precise Machine Company in Irving, Texas. Prior to Mr. Somerville's employment
by the Company, he served as Director of Fabrication for Fairchild-Dornier in
San Antonio from 1998-1999. Mr. Somerville spent 9 years (1989-1998) at Mooney
Aircraft in various roles of increasing responsibility, culminating in the role
of Vice President Production. He graduated from Southwest Texas State University
with a Bachelor of Business Administration in 1983.
Ronald Thompson joined the Company in 1999 as the General Manager of the St.
Charles plant. He previously was employed for Kaman Aerospace Corporation from
1978 to 1999. He started at Kaman as a supervisor and was promoted over the
years before assuming the position of Senior Industrial Engineer. He graduated
from Bryant College of Business in 1976 with a degree in Management/
Administrative training.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
The Common Stock is traded on the NASDAQ National Market under the symbol
"LMIA". The following table sets forth the range of high and low bid closing
prices for the Common Stock for the periods indicated beginning on June 30,
1998, the day on which trading commenced following the Company's initial public
offering:
High Low
---- ---
Fiscal 1998
3rd quarter $ 11.88 $ 7.00
4th quarter 8.00 4.00
Fiscal 1999
1st quarter 6.38 4.75
2nd quarter 6.25 4.13
3rd quarter 5.56 3.78
4th quarter 4.25 2.63
The foregoing quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
As of December 31, 1999, the reported closing price for the Common Stock was
$3.00. As of December 31, 1999, there were approximately 71 holders of record of
the Common Stock and the Company believes that its Common Stock was beneficially
owned by approximately 858 persons.
The Company has not declared or paid cash dividends on any class of its Common
Stock in the past two years and does not anticipate paying any cash dividends in
the foreseeable future. The credit facility between the Company and its
financial institution prohibits the Company from declaring a dividend with
respect to its capital stock without the financial institution's approval. The
Company currently intends to retain its earnings, if any, and reinvest them in
the development of its business.
On October 2, 1997, the Company issued 80,976 shares to the Guaranty Trust
Company of Missouri as trustee for the Profit Sharing Plan for $302,088 under
Rule 701 of the Securities Act. The Guaranty Trust Company has since been
replaced by Union Planters Trust and Investment Management as trustee of the
Profit Sharing Plan.
On December 31, 1997, the Company issued 3,290 shares to Ronald S. Saks as
Voting Trustee under Voting Trust No. I as a result of an exercise of part of an
option granted to a shareholder for an aggregate exercise price of $5,810, 1,392
shares to Ronald S. Saks as Voting Trustee under Voting Trust No. 1 for $21,228
and 324,420 shares in the aggregate to Sanford S. Neuman as Voting Trustee under
Voting Trust No. 2 for an aggregate purchase price of $1,503,772, under Section
4(2) of the Securities Act.
On April 27, 1998, the Company issued 32,900 shares to the Guaranty Trust
Company of Missouri as trustee for the Profit Sharing Plan for $325,710 (based
on 90% of an initial public offering price of $11.00 per share) under Rule 701
of the Securities Act and 32,900 shares as compensation to Ronald S. Saks as
Voting Trustee under Voting Trust No. I under Section 4(2) of the Securities Act
pursuant to a restricted stock agreement between the Company and Lawrence J.
LeGrand.
On June 1, 1998, as a result of an exercise of an option granted to a
shareholder, the Company issued 16,450 shares to Ronald S. Saks as Voting
Trustee under Voting Trust No. I for an aggregate exercise price $29,050 under
Section 4(2) of the Securities Act.
On September 12, 1998, as a result of an exercise of an option to purchase
shares in accordance with a certain Subscription Agreement, the Company issued
98,700 shares to the Lawrence J. LeGrand IRA Rollover Account, of which Mr.
LeGrand is the beneficial owner, for an aggregate exercise price of $600,000.00,
under Section 4(2) of the Securities Act.
Item 6. Selected Financial Data.
Year Ended December 31,
(in thousands, except Shares and per share data)
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
Statement of Operations Data:
Net sales $ 25,424 $ 35,016 $ 55,080 $ 59,234 $ 50,054
Cost of sales 20,366 26,725 38,932 41,152 41,586
------- -------- -------- -------- --------
Gross profit 5,058 8,291 16,148 18,082 8,468
Selling, general &
administrative expenses 3,883 5,256 6,549 7,591 8,517
-------- -------- -------- -------- ------
Income (loss) from operations 1,175 3,035 9,599 10,491 (49)
Interest expense (1,038) (1,123) (1,020) (642) (195)
Other (expense) income, net (48) 15 10 405 435
--------- ------- -------- -------- -----
Income before income taxes 89 1,927 8,589 10,254 191
Provision for (benefit of) income taxes 52 740 3,306 3,764 (40)
------- ------ --------- -------- -----
Net income $ 37 $ 1,187 $ 5,283 $ 6,490 $ 231
======= ======== ======== ======== =====
Net income per common share:
Basic $ 0.01 $0.21 $0.91 $0.89 $0.03
Diluted 0.01 0.20 0.89 0.88 $0.03
Weighted average shares
outstanding 5,529,483 5,779,833 5,836,700 7,252,148 8,201,805
Other Financial Data:
EBITDA(1) $ 3,091 $ 5,062 $ 11,788 $ 13,529 $ 3,766
Capital expenditures 1,736 1,316 3,856 5,488 4,622
Cash flow from operating activities (888) 2,684 5,775 6,893 112
Cash flows from investing activities (4,700) (1,304) (3,713) (9,529) (4,972)
Cash flows from financing activities 5,246 (1,356) (2,023) 14,337 (1,177)
Gross profit margin 19.9% 23.7% 29.3% 30.5% 16.9%
EBITDA margin 12.2% 14.5% 21.4% 22.8% 7.5%
December 31,
(in thousands)
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
Balance Sheet Data
Cash and equivalents $ 181 $ 205 $ 244 $11,945 $ 5,908
Working capital 8,919 8,626 11,256 27,971 21,417
Total assets 27,370 29,046 33,629 56,183 54,669
Total long-term debt
excluding current portion 12,674 10,735 9,274 2,732 134
Stockholders' equity 9,966 11,161 16,751 45,291 44,486
<FN>
(1) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. EBITDA is a widely accepted, supplemental financial measurement
used by many investors and analysts to analyze and compare companies'
performance. EBITDA as presented may not be comparable to similarly titled
indicators reported by other companies because not all companies necessarily
calculate EBITDA in an identical manner, and, therefore, it is not necessarily
an accurate means of comparison between companies. EBITDA should only be read in
conjunction with all of the Company's financial data summarized above and its
Consolidated Financial Statements prepared in accordance with generally accepted
accounting principles ("GAAP"), appearing elsewhere herein. EBITDA is not
intended to represent cash flows (as determined in accordance with GAAP) or
funds available for management's discretionary use for the periods listed, nor
has it been presented as an alternative to operating income (as determined in
accordance with GAAP) and should not be considered in isolation or as a
substitute for indicators of performance prepared in accordance with GAAP.
EBITDA is presented as additional information because management believes it to
be a useful indicator of the Company's ability to meet debt service and capital
expenditure requirements and because certain debt covenants of the Company
utilize EBITDA to measure compliance with such covenants.
</FN>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following presentation describes the Company's results of operations,
financial condition, capital resources and liquidity during the three year
period ended December 31, 1999. This discussion should be read in conjunction
with the Consolidated Financial Statements of the Company and the notes thereto
which are included elsewhere in this report.
Year Ended December 31, 1999 compared to Year Ended December 31, 1998
Net Sales. The Company experienced a drop in net sales of 15.5% in 1999, falling
to $50.1 million. The Company's participation on Boeing commercial aircraft fell
$14.3 million in 1999. This reduction is primarily attributable to decreases in
production rates and inventory adjustments at Boeing and its major prime
contractors. Net sales on the 747 were the hardest hit, dropping from $14.1
million in 1998 to $5.5 million in 1999. This decline of 61.0% was roughly
equivalent to the published production rates at Boeing falling from a high of
five 747s per month during 1998 to approximately two 747s per month at the end
of 1999, a drop of 60.0%. Additionally, Boeing and the Company are currently
re-negotiating their current contracts. This re-negotiation should be completed
in the second quarter of 2000 and the Company anticipates the re-negotiations
will include price reductions.
Offsetting the decline in commercial aircraft sales was an increased penetration
into both the Corporate/Regional and Defense markets. The Company has targeted
these industries as a strategic step towards reducing its concentration in
commercial aircraft. A summary of sales by type follows:
------------------------------------------------------------------------
Market 1998 1999
------------------------------------------------------------------------
Commercial Aircraft 77.7% 55.4%
------------------------------------------------------------------------
Corporate/Regional 8.5% 17.7%
------------------------------------------------------------------------
Military 7.4% 15.4%
------------------------------------------------------------------------
Other 6.4% 11.5%
------------------------------------------------------------------------
Total 100.0% 100.0%
------------------------------------------------------------------------
Additional components produced for Gulfstream's G-IV and G-V added $2.7 million
in 1999. The Company also delivered $4.0 million in 1999 on Boeing's military
aircraft, up from $0.2 million in 1998. The Company continues to market heavily
in both of these markets.
Gross Profit. The Company's gross profit fell to $8.5 million (16.9% of net
sales) in 1999 from $18.1 million (30.5% of net sales) in 1998. The reduction in
gross profit is primarily due to decreases in production rates and inventory
levels at Boeing and its prime contractors, which resulted in production
inefficiencies caused by smaller production lot sizes which impaired the
Company's ability to cover set-ups when changing equipment from one component to
another. In addition, a change in the acceptance criteria on the Company's
contract to produce components on the wing of the 737 NG aircraft caused the
Company to lower its profit estimate for this contract, resulting in a $0.5
million erosion in gross profit. The Company also began work on several new
programs during 1999. The Company won orders for the production and assembly of
product used in the wing-box section of the fuselage of the 767 for Northrop
Grumman, production of steel components for Gulfstream's G-IV and G-V aircraft,
and production of winglet components used on the 737 Business Jet for Hexcel.
Pre-production, learning curve, and start up costs for these orders exceeded
$300,000 and were expensed during the year. The Company did reduce headcount
19.6% during 1999, however, the pace of the reduction in sales outpaced the
Company's ability to reduce costs.
Selling, General, and Administrative Expenses. During 1999, the Company's
selling, general, and administrative expenses grew to $8.5 million from $7.6
million. This increase was for costs related to unsuccessful business
combinations of $0.4 million and increased professional services resulting from
public ownership and employee searches of $0.4 million.
Income Taxes. The net benefit from income taxes was the result of a refund of
$.1 million for 1998 state income taxes due to a change in filing status. Refer
to footnote 11 to the financial statements for reconciliation to the statutory
rate.
Year Ended December 31, 1998 compared to Year Ended December 31, 1997
Net Sales. Net sales for 1998 increased 7.5% over 1997 levels, topping $59.2
million. This increase in net sales was primarily due to the Company's
participation on the Boeing 737 Next Generation ("737NG") aircraft which
contributed $12.0 million to net sales, an increase of $6.1 million over 1997.
The Company's net sales during 1998 were negatively impacted by Boeing's phase
out of the 737 Classic which contributed $5.5 million in 1998, down from $10.2
million in 1997. The Company's participation on the 747 contributed $14.1
million in 1998, down slightly from $14.6 million in 1997. Net sales for the
fourth quarter were down 13.6% to $12.1 million from $14.0 million in 1997. The
production rate declines and inventory adjustment from Boeing on the 747 reduced
net sales to $2.0 million in the fourth quarter from $3.7 million in 1997.
The acquisition of Precise Machine contributed $1.3 million to net sales in
1998.
Gross Profit. The Company's gross profit continued to climb in 1998, increasing
to $18.1 million (30.5% of net sales) from $16.1 million (29.3% of net sales) in
1997. This improvement was mainly attributable to the advances made by the
Company in utilizing lean manufacturing techniques to more efficiently produce
product and additional coverage of fixed costs provided by increased volume.
Selling, General and Administrative Expenses. Selling, General and
Administrative Expenses increased to $7.6 million (12.8% of net sales) in 1998
from $6.5 million (11.9% of net sales) in 1997.
Interest Expense. Certain of the proceeds of the public offering were used to
reduce the indebtedness of the Company, thereby reducing interest expense to
$0.6 million in 1998 from $1.0 million in 1997. The unused portion of the
proceeds of the public offering were invested by the Company and increased other
income to $0.4 million in 1998 from $0.0 in 1997.
Income Taxes. The effective tax rate for 1998 was 36.7%, down from 38.5% in
1997. This reduction is primarily the result of state and federal tax credits
available to the Company.
Net Income. The Company generated net income of $6.5 million in 1998, an
increase of 22.8% over 1997. Net income per fully diluted share was down $0.01
to $0.88 in 1998 due to the additional shares outstanding after the initial
public offering completed during 1998.
Liquidity and Capital Resources
During 1998, the Company completed its initial public offering, selling
2,645,000 shares at $10.00 per share ($23.5 million after fees and expenses of
$2.9 million). Immediately upon receipt of the cash from the public offering,
the Company retired certain term debt, including their revolving line of credit.
The Company maintains its ability to borrow up to $15 million under this
revolving line of credit.
The Company purchased 303,620 shares of its common stock during 1999 for $1.4
million. The Company had 521,175 shares of Treasury Stock in 1999 at a cost of
$3.0 million at December 31, 1999.
In December, 1999, the Company completed the acquisition of U.S. Hayakawa
Industries, Inc. ("USH") of Mulkiteo, Washington, for a price of approximately
$1.6 million in cash. As planned, the Company closed the USH facility in
February, 2000 and has absorbed the work into its Auburn, Washington and Dallas,
Texas facilities. Sales of unwanted equipment related to this purchase should
yield approximately $0.5 million in 2000.
The working capital needs of the Company are generally funded by cash flows from
operations. During 1999, operating activities generated $0.1 million. The
Company's inventory levels grew by $2.4 million. Finished goods growth accounted
for substantially all of the growth in inventories. The Company produced these
goods under firm purchase orders from its customers to allow its' employee base
to continue working as the Company manages through the impact of Boeing's
production rate decreases and the receipt of new Gulfstream, Lockheed Martin and
Boeing Military orders. The Company made estimated income tax payments in the
first quarter of 1999, prior to the decline in profitability. As such, the
Company expects a refund of approximately $0.8 million in 2000.
The Company invested over $4.6 million in property, plant and equipment during
1999. Over $2.6 million of the investment was related to an expansion of the
Company's two St. Charles facilities, which was completed in the fourth quarter
of 1999. The Company expanded its assembly capability in 1999 by investing $0.2
million in riveting and welding equipment. The Company also added to its
chemical milling capability, investing $0.1 million in a new dipping system. The
Company also invested $0.3 million in computer equipment and software. Capital
expenditures for 2000 are planned to be less than $2.0 million.
In November 2000, the Company will be required to repay its obligation of $2.5
million for industrial revenue bonds. The Company intends to use its cash
reserves to fund this payment.
Impact of Year 2000
The advent of the year 2000 posed certain technological challenges resulting
from concern that computer technologies that recognized and processed calendar
years by the last two digits rather than all four digits of each year (e.g.,
"98" for "1998") would not properly process the year 2000 and subsequent years.
The risks to the Company and the Company's Year 2000 Plan and related mitigation
efforts have been described in the Company's most recent quarterly report on
Form 10-Q for the quarter ended September 30, 1999.
In late 1999, the Company completed its Plan, including all remediation and
testing of systems. As a result of those planning and implementation efforts,
the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company
expensed less than $0.1 million during 1999 in connection with remediating its
systems. The Company is not aware of any material problems resulting from Year
2000 issues, either with its products, its internal systems or the products and
services of third parties. However, because the Company's continued compliance
in calendar 2000 is dependent on the continued compliance of third parties,
there can be no assurance that the Company's efforts alone have resolved all
Year 2000 issues or that key third parties will not experience Year 2000
compliance failures as calendar 2000 progresses. The Company will continue to
monitor its mission critical computer applications and those of its suppliers
and vendors throughout the year 2000 to ensure that any latent Year 2000 matters
that may arise are addressed promptly.
Item 7(a). Quantitative and Qualitative Disclosures About Market Risk.
The Company has determined that its market risk exposures, which arise primarily
from exposures to fluctuation in interest rates, are not material to its future
earnings, fair value, and cash flows.
Item 8. Financial Statements and Supplementary Data.
The following financial statements are included in Item 8 of this report:
Financial Statement Page
- ------------------- ----
Report of Ernst & Young LLP, Independent Auditors 19
Consolidated Balance Sheets as of December 31, 1998 and 1999 20
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1998 and 1999 21
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1997, 1998 and 1999 22
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999 23
Notes to Consolidated Financial Statements 24-32
Report of Independent Auditors
The Board of Directors and Stockholders
LMI Aerospace, Inc.
We have audited the accompanying consolidated balance sheets of LMI Aerospace,
Inc. (the "Company") as of December 31, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of LMI
Aerospace, Inc. at December 31, 1998 and 1999, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Ernst & Young LLP
St. Louis, Missouri
March 17, 2000
LMI Aerospace, Inc.
Consolidated Balance Sheets
(Amounts in thousands, except share and per share data)
December 31
1998 1999
----------------------------
Assets
Current assets:
Cash and cash equivalents $ 11,945 $ 5,908
Investments 1,250 -
Trade accounts receivable, net
of allowance of $50 7,535 6,941
Inventories 12,619 15,311
Prepaid expenses 279 226
Deferred income taxes 876 720
Income taxes receivable - 794
Other current assets 256 162
----------------------------
Total current assets 34,760 30,062
Property, plant, and equipment, net 19,489 22,345
Other assets 1,934 2,262
----------------------------
$ 56,183 $ 54,669
============================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 3,768 $ 4,020
Accrued expenses 2,437 2,028
Income taxes payable 442
Current installments of long-term debt 142 2,597
----------------------------
Total current liabilities 6,789 8,645
Long-term debt, less current installments 2,732 134
Deferred income taxes 1,371 1,404
----------------------------
Total noncurrent liabilities 4,103 1,538
Stockholders' equity:
Common stock of $.02 par value; authorized
28,000,000 shares; 8,734,422
shares issued in 1998 and 1999,
respectively 175 175
Preferred stock; authorized 2,000,000 shares;
none issued - -
Additional paid-in capital 26,164 26,164
Treasury stock, at cost, 384,000 and
521,175 shares in 1998 (2,628) (3,046)
and 1999, respectively
Retained earnings 21,580 21,193
----------------------------
Total stockholders' equity 45,291 44,486
----------------------------
$ 56,183 $ 54,669
============================
See accompanying notes.
LMI Aerospace, Inc.
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
Year ended December 31
1997 1998 1999
------------------------------------------
Net sales $55,080 $59,234 $ 50,054
Cost of sales 38,932 41,152 41,586
------------------------------------------
Gross profit 16,148 18,082 8,468
Selling, general, and
administrative expenses 6,549 7,591 8,517
------------------------------------------
Income (loss) from operations 9,599 10,491 (49)
Other income (expense):
Interest expense (1,020) (642) (195)
Other, net 10 405 435
------------------------------------------
(1,010) (237) 240
------------------------------------------
Income before income taxes 8,589 10,254 191
Provision for (benefit) of
income taxes 3,306 3,764 (40)
------------------------------------------
Net income $ 5,283 $ 6,490 $ 231
==========================================
Net income per common share $0.91 $0.89 $0.03
==========================================
Net income per common share -
assuming dilution $0.89 $0.88 $0.03
==========================================
Weighted average common shares
outstanding 5,836,700 7,252,148 8,201,805
==========================================
Weighted average dilutive stock
options outstanding 76,104 146,942 1,708
==========================================
See accompanying notes.
LMI Aerospace, Inc.
Consolidated Statements of Stockholders' Equity
(Amounts in thousands, except share and per share data)
Additional Total
Common Paid-In Retained Treasury Stockholders'
Stock Capital Earnings Stock Equity
----------------------------------------------------------------------------
Balance at December 31, 1996 $ 116 $ 1,241 $ 9,807 $ (3) $ 11,161
Sale of treasury stock -- 2 -- 3 5
Issuance of common stock 2 295 -- -- 297
Exercise of options to purchase of
stock -- 5 -- -- 5
Net income -- -- 5,283 -- 5,283
----------------------------------------------------------------------------
Balance at December 31, 1997 118 1,543 15,090 -- 16,751
Issuance of common stock
57 24,592 -- -- 24,649
Exercise of options to purchase
stock -- 29 -- -- 29
Purchase of outstanding stock for
treasury -- -- -- (2,628) (2,628)
Net income -- -- 6,490 -- 6,490
----------------------------------------------------------------------------
Balance at December 31, 1998 175 26,164 21,580 (2,628) 45,291
Exercise of options to purchase
stock -- -- (554) 806 252
Purchase of 303,620 shares of
outstanding stock for treasury -- -- -- (1,426) (1,426)
Issuance of 31,983 shares of
treasury stock to profit
sharing/401(k) plan -- -- (64) 202 138
Net income -- -- 231 -- 231
----------------------------------------------------------------------------
Balance at December 31, 1999 $ 175 $ 26,164 $ 21,193 $ (3,046) $ 44,486
============================================================================
See accompanying notes.
LMI Aerospace, Inc.
Consolidated Statements of Cash Flows
(Amounts in thousands)
Year ended December 31
1997 1998 1999
-------------------------------------------------------
Operating activities
Net income $ 5,283 $ 6,490 $ 231
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,179 2,633 3,380
Deferred income taxes 14 (102) 189
Changes in operating assets and liabilities:
Trade accounts receivable (1,472) 874 886
Inventories (1,506) (3,455) (2,392)
Prepaid expenses and other assets 63 (519) (311)
Income taxes (85) 12 (1,236)
Accounts payable 719 413 24
Accrued expenses 580 547 (659)
-------------------------------------------------------
Net cash from operating activities 5,775 6,893 112
Investing activities
Additions to property, plant, and equipment (3,713) (5,488) (4,622)
Purchases of investments - (3,138) (210)
Proceeds from sale of investments, net - 1,888 1,460
Acquisition of company, net of cash acquired - (2,791) (1,600)
-------------------------------------------------------
Net cash used by investing activities (3,713) (9,529) (4,972)
Financing activities
Proceeds from issuance of long-term debt 3,782 2,074 -
Principal payments on long-term debt (6,112) (9,291) (143)
Treasury stock transactions, net 5 (2,628) (1,286)
Proceeds from exercise of stock options 5 29 252
Proceeds from issuance of common stock, net 297 24,153 -
-------------------------------------------------------
Net cash from (used by) financing activities (2,023) 14,337 (1,177)
-------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 39 11,701 (6,037)
Cash and cash equivalents, beginning of year 205 244 11,945
-------------------------------------------------------
Cash and cash equivalents, end of year $ 244 $ 11,945 $ 5,908
=======================================================
Supplemental disclosures of cash flow information:
Interest paid $ 996 $ 601 $ 185
Income taxes paid 3,378 3,733 834
=======================================================
See accompanying notes.
LMI Aerospace, Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
December 31, 1999
1. Accounting Policies
Description of Business
LMI Aerospace, Inc. (the "Company") is a fabricator, finisher, and integrator of
formed, close tolerance aluminum and specialty alloy components for use by the
aerospace industry. The Company is a Missouri corporation with headquarters in
St. Charles, Missouri. The Company maintains facilities in St. Charles,
Missouri; Seattle, Washington; Tulsa, Oklahoma; Wichita, Kansas; and Irving,
Texas.
The accompanying financial statements include the consolidated financial
position, results of operations, and cash flows of the Company and its
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
Customer and Supplier Concentration
Direct sales to the Company's largest customer accounted for 59 percent, 62
percent, and 54 percent of the Company's total revenues in 1997, 1998, and 1999,
respectively. Accounts receivable balances related to direct sales to this
customer were 62 percent in 1998 and 46 percent in 1999. Indirect sales to the
Company's largest customer accounted for 17 percent, 12 percent and 9 percent of
the Company's total sales in 1997, 1998, and 1999, respectively.
Direct sales to the Company's second largest customer accounted for 13 percent,
12 percent and 8 percent of the Company's total revenues in 1997, 1998 and 1999
and represented 9 percent and 5 percent of the accounts receivable balance at
December 31, 1998 and 1999, respectively.
The Company purchased approximately 58 percent and 52 percent of the materials
used in production from three suppliers in 1998 and 1999, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions. These estimates and assumptions affect the reported amounts in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, amounts due from banks, and all
highly liquid investment instruments with an initial maturity of three months or
less.
LMI Aerospace, Inc.
Notes to Consolidated Financial Statements - (Continued)
Investments
During 1998, the Company purchased, sold and repurchased common stock. This
investment is classified as a trading security in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. During 1999, the Company liquidated
its investment position for an overall immaterial gain.
Inventories
Inventories are stated at the lower of cost or market using actual cost for raw
materials and work-in-process and average cost for finished goods. Inventories
include $743 and $938 of deferred production costs related to long-term
production contracts in 1998 and 1999, respectively. These costs are included in
cost of sales over the life of the contract based on a percentage of completion
method (units-of-delivery basis).
Revenue Recognition
Revenues are recorded when services are performed or when products are shipped,
except for long-term contracts which are recorded on the percentage of
completion method (units-of-delivery basis). Sales from long-term contracts were
less than 10 percent of total sales in both 1997 and 1998, and approximately 17
percent of sales in 1999. Revenues which have been deferred under long-term
contracts are $321, $728 and $259 as of December 31, 1997, 1998 and 1999,
respectively and are included in accrued expenses.
Property and Equipment
Property and equipment are stated at cost. Equipment under capital leases is
stated at the present value of the minimum lease payments. Depreciation is
calculated using the straight-line method over the estimated useful lives of the
related assets. Equipment held under capital leases and leasehold improvements
are amortized using the straight-line method over the shorter of the lease term
or estimated useful life of the asset. Estimated useful lives for buildings and
machinery and equipment are 20 years and 4 to 10 years, respectively.
Income Taxes
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement and
income tax basis of the Company's assets and liabilities.
Stock-Based Compensation
The Company follows Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation. The Company has elected to continue to
LMI Aerospace, Inc.
Notes to Consolidated Financial Statements - (Continued)
measure its cost of stock-based compensation under the provisions of Accounting
Principles Board (APB) Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
Financial Instruments
Fair values of the Company's fixed rate long-term obligations approximate their
carrying value, as the rates approximate those which could be obtained by the
Company for similar issues with similar maturities. The Company's investments
are carried at market value. The Company's other financial instruments have fair
values which approximate their respective carrying values, due to their short
maturities or variable rate characteristics.
Earnings per Common Share
In 1997, the Company adopted SFAS No. 128, Earnings per Share, which replaced
the calculation of primary and fully diluted earnings per share with basic and
fully diluted earnings per share. All earnings per share amounts for all periods
have been presented or, where appropriate, restated to conform to SFAS No. 128.
Earnings per share are computed by dividing net income by the weighted average
number of common shares outstanding during the applicable periods.
Accounting Pronouncements
Effective January 1, 2000, the Company will adopt EITF 99-5, "Accounting for
Pre-Production Costs Related to Long-Term Supply Arrangements". The EITF will
require all design and development costs for products to be sold under long-term
supply arrangements to be expensed unless there is a contractual guarantee that
provides for specific required payments for design and development costs. The
Company will apply the provisions of the EITF prospectively for these costs
incurred after December 31, 1999.
2. Initial Public Offering
In April 1998, the Company's Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission relating to
an initial public offering of the Company's unissued common stock. In connection
with the initial public offering, the Company effected a 2.29-for-1 stock
dividend of the Company's common stock payable June 1, 1998 to shareholders of
record on May 1, 1998. All references in the accompanying financial statements
to the number of shares of common stock and per common share amounts have been
retroactively adjusted to reflect the stock dividend. In addition, the Company's
capital structure was changed to reflect 28,000,000 shares of common stock and
2,000,000 shares of preferred stock authorized. In June 1998, the Company
completed its initial public offering selling 2,645,000 shares (including the
underwriters 15 percent over allotment) at $10.00 per share ($23.5 million after
fees and expenses of $2.9 million).
3. Acquisitions
On December 27, 1999, the Company acquired certain assets and liabilities of
U.S. Hayakawa Industries, Inc. ("Hayakawa"), an aerospace sheet metal
manufacturing and machining firm based in Mukilteo, Washington. Hayakawa had
annual sales of approximately $3.5 million in 1999. The Company plans to move
Hayakawa's sheet metal production work and most of its machining work to the
Company's facility in Auburn, Washington, with the remainder of the machining
work going to the Company's facility in Irving, Texas. The purchase price was
approximately $1,600 in cash. The excess of the purchase price over the fair
market value of the net assets acquired, totaling $352, was allocated to
goodwill, and is being amortized over a 5-year period on a straight-line basis.
On August 25, 1998, the Company acquired the assets of Precise Machine Company
("Precise"), based in Irving, Texas. Precise manufactures precision machined
components used primarily by the defense, aerospace and financial services
industries and had sales of approximately $3 million for the year ended 1997.
The purchase price for the net assets acquired, net of cash acquired, was
approximately $2,791 in cash. The excess of the purchase price over the fair
market value of net assets acquired, totaling $1,557, was allocated to goodwill,
and is being amortized over a 25-year period on a straight-line basis.
These acquisitions have been accounted for by the purchase method, and
accordingly, the results of operations were included in the Company's
Consolidated Statements of Operations from the date of acquisition. The purchase
price has been allocated to the assets acquired and liabilities assumed based on
their fair value at the date of the acquisition. Accumulated amortization of
goodwill through December 31, 1999 was approximately $82.
4. Treasury Stock Transactions
From time to time, as market conditions allow, the Company has Board of Director
authorization to repurchase shares of the Company's common stock and place these
shares in a Treasury Stock account for use at management's discretion. The
Company purchased 384,000 shares and 303,620 shares in 1998 and 1999,
respectively, in the open market at prices ranging from $2.938 to $7.125 per
share. In addition, the Company issued 166,445 shares in conjunction with the
exercise of certain employees options, as well as contributions to and purchases
by the Company's benefit plans. These transactions were recorded at cost in
stockholders' equity.
5. Inventories
Inventories consist of the following:
1998 1999
--------------------------------------
Raw materials $ 3,483 $ 4,140
Work in process 3,717 4,053
Finished goods 5,419 7,118
--------------------------------------
$ 12,619 $ 15,311
======================================
6. Property, Plant, and Equipment
Property, plant, and equipment consist of the following:
1998 1999
-------------------------------------
Land $ 690 $ 705
Buildings 8,714 11,873
Machinery and equipment 21,660 24,522
Leasehold improvements 950 770
Construction in progress 1,037 114
Other assets 875 1,096
-------------------------------------
33,926 39,080
Less accumulated depreciation 14,437 16,735
-------------------------------------
$ 19,489 $ 22,345
=====================================
Depreciation expense (including amortization expense on software) recorded by
the Company totaled $2,058, $ 2,550 and $ 2,898 for 1997, 1998, and 1999,
respectively.
7. Long-Term Debt
Long-term debt consists of the following:
1998 1999
----------------------------------
Industrial Development Revenue Bond,
interest payable monthly, at
a variable rate $ 2,500 $ 2,500
Notes payable, principal and interest
payable monthly, at fixed rates,
ranging from 8.78% to 9.56% 308 215
Capital lease obligations 66 16
----------------------------------
2,874 2,731
Less current installments 142 2,597
----------------------------------
$ 2,732 $ 134
==================================
On March 31, 1998, the Company obtained a $15,000 unsecured line of credit with
a financial institution to fund various corporate needs. Interest is payable
monthly based on a quarterly cash flow leverage calculation and the LIBOR rate.
This facility matures on October 31, 2000, and requires compliance with certain
non-financial and financial covenants including minimum tangible net worth and
EBITDA, as defined, requirements. The credit facility prohibits the payment of
cash dividends on common stock without the financial institution's prior written
consent. The Company drew upon the line in March, 1998 to retire certain
outstanding debt balances. On July 6, 1998, the Company received the proceeds
($21,390) from the initial public offering and retired certain outstanding debt
balances, and paid down the revolving line of credit.
The Industrial Development Revenue Bond ($2,500) bears interest at a variable
rate, which is based on the existing market rates for comparable outstanding
tax-exempt bonds (4.2 percent and 5.6 percent at December 31, 1998 and 1999,
respectively), not to exceed 12 percent. The IRB is secured by a letter of
credit from a financial institution which holds 100 percent participation in the
letter of credit and has a security interest in certain equipment. The bond
matures in November 2000.
The Company entered into various notes payable for the purchase of certain
equipment. The notes are payable in monthly installments including interest
(ranging from 8.78 percent to 9.56 percent through November, 2002). The notes
payable are secured by equipment.
The aggregate maturities of long-term debt as of December 31, 1999 are as
follows:
Year ending December 31:
2000 $ 2,597
2001 89
2002 45
------------------
$ 2,731
==================
8. Leases
The Company leases certain facilities and equipment under various noncancelable
operating lease agreements which expire at various dates throughout 2009. At
December 31, 1999, the future minimum lease payments under operating leases with
initial noncancelable terms in excess of one year are as follows:
Year ending December 31:
2000 $ 792
2001 720
2002 708
2003 690
2004 580
Thereafter 878
-------------------
$ 4,368
===================
Rent expense totaled $539, $836 and $849 in 1997, 1998, and 1999, respectively.
9. Defined Contribution Plans
The Company has a noncontributory profit sharing plan and a contributory 401(k)
plan which covers substantially all full-time employees. Employees are eligible
to participate in both plans after reaching 1,000 hours of accredited service.
Contributions to the profit sharing plan are at the discretion of management and
become fully vested to the employees after seven years. Contributions by the
Company to the profit sharing plan totaled $150, $256 and $122 for 1997, 1998,
and 1999, respectively. Contributions by the Company to the 401(k) plan, which
are fully vested to the employees immediately upon contribution, are based upon
a percentage of employee contributions, up to a maximum of $225 per employee.
The Company's contributions to the 401(k) plan totaled $78, $104 and $107 for
1997, 1998, and 1999, respectively. In addition, at December 31, 1999, the
Company had 600,000 common shares of its stock reserved for contributions to the
401(k) plan.
10. Stock Options
In December 1989, the Company adopted the Employee Incentive Stock Option Plan
(the "1989 Plan"), which provides options for up to 1,398,250 shares to be
granted to key employees at exercise prices greater than or equal to the fair
market value per share on the date the option is granted. All options vest
immediately upon grant. During 1998, the Company discontinued the 1989 Plan.
In 1998, the Company adopted the 1998 Employee Stock Option Plan (the "1998
Plan"), which provides options for up to 600,000 shares to be granted to key
employees at exercise prices greater than or equal to the fair market value per
share on the date the option is granted. Options issued under the 1998 Plan are
at the discretion of management and may be in the form of Incentive Stock
Options or Non-Qualified Stock Options. Vesting periods may apply.
At December 31, 1999, a total of 859,827 share of authorized and unissued common
stock were reserved for issuance of stock awards and options granted or
authorized to be granted.
During 1999, the Company granted 201,250 options to certain employees under the
terms and conditions of the 1998 Plan.
1997 1998 1999
----------------------------------------------------------------------------------
Number of Option Number of Option Number of Option
Shares Prices Shares Prices Shares Prices
----------------------------------------------------------------------------------
Options outstanding at
beginning of year 241,815 1.77 to 1.90 232,192 1.77 to 3.67 294,328 1.77 to 6.25
Granted 59,467 2.60 to 3.67 78,586 4.64 to 6.25 201,250 2.75 to 5.93
Exercised (3,290) 1.77 (16,450) $1.77 (131,730) 1.77 to 1.90
Canceled/expired (65,800) 1.90 - - (98,298) 1.77 to 4.64
------------- ------------- ------------
Options outstanding at end
of year 232,192 1.77 to 3.67 294,328 1.77 to $6.25 265,550 1.77 to 6.25
======================================================================================
Options exercisable at end
of year 232,192 - 263,278 - 92,073 -
======================================================================================
Options available for
grant at end of year 1,039,939 - 565,500 - 367,350
======================================================================================
The weighted average exercise price of outstanding options at December 31, 1997,
1998 and 1999 was $2.31, $3.21 and $4.29, respectively. The weighted average
fair value per stock option granted during 1997, 1998, and 1999 was $.67, $2.35
and $ 2.08 respectively, measured on the date of grant using the Black-Scholes
Option Pricing model with the following assumptions: volatility of 49.0 percent;
0 percent dividend yield; an expected life of 1.5 to 2.25 years, 1 to 4.75 years
and 1 to 4 years for 1997, 1998, and 1999, respectively; and a risk-free rate of
5.26 percent, 4.52 percent, and 5.63 percent for 1997, 1998, and 1999,
respectively. The Company applied APB Opinion No. 25 in accounting for its stock
option plans, and accordingly, no compensation cost has been recognized for
stock options granted at fair market value. Had the Company determined
compensation cost based on the fair value at the grant date under SFAS No. 123,
net income and earnings per share amounts would have been as follows:
1997 1998 1999
-----------------------------------------------
Net income:
As reported $ 5,283 $ 6,490 $ 231
Pro forma 5,256 6,408 148
Net income per common share
As reported .91 .89 .03
Pro forma .90 .88 .02
Net income per common share
Assuming dilution:
As reported .89 .88 .03
Pro forma .89 .87 .02
LMI Aerospace, Inc.
Notes to Consolidated Financial Statements - (Continued)
11. Income Taxes
The temporary differences between the tax basis of assets and liabilities and
their financial reporting amounts that give rise to the deferred tax assets and
deferred tax liabilities are as follows:
1998 1999
-----------------------------------
Deferred tax asset:
Accrued vacation $ 179 $ 218
Inventory 296 394
Other 401 108
-----------------------------------
Total deferred tax assets 876 720
Deferred tax liabilities:
Depreciation (1,180) (1,292)
Software costs (191) (112)
-----------------------------------
Total deferred tax liabilities (1,371) (1,404)
-----------------------------------
Net deferred tax liability $ (495) $ (684)
===================================
The Company's income tax provision (benefit) consisted of the following for the
year ended December 31:
1997 1998 1999
-----------------------------------------------------
Federal:
Current $ 2,937 $ 3,579 $ (123)
Deferred (17) (90) 188
-----------------------------------------------------
2,920 3,489 65
State:
Current 355 287 (104)
Deferred 31 (12) (1)
-----------------------------------------------------
386 275 (105)
-----------------------------------------------------
$ 3,306 $3,764 $ (40)
=====================================================
The federal corporate statutory rate is reconciled to the Company's effective
income tax rate as follows:
1997 1998 1999
------------------------------------------------
Federal taxes $ 2,920 $ 3,489 $ 65
State and local taxes,
net of federal
benefit 258 305 6
State tax refund - - (115)
Other 128 (30) 4
------------------------------------------------
Provision for income taxes $ 3,306 $ 3,764 $ (40)
================================================
LMI Aerospace, Inc.
Notes to Consolidated Financial Statements - (Continued)
12. Commitments and Contingencies
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position.
13. Quarterly Financial Data (Unaudited)
First Second Third Fourth
---------------------------------------------------------------------
1998
Net sales $ 16,335 $ 15,657 $ 15,165 $ 12,077
Cost of sales 11,502 10,841 10,454 8,354
Net income 1,659 1,723 1,678 1,430
Net income per common share .28 .29 .19 .17
Net income per common share -
assuming dilution .28 .28 .19 .17
1999
Net sales $ 13,530 $ 12,449 $ 12,382 $ 11,693
Cost of sales 10,480 9,896 11,345 9,916
Net income (loss) 815 385 (611) (358)
Net income (loss) per common share
.10 .05 (.08) (.04)
Net income (loss) per common
share - assuming dilution .10 .05 (.08) (.04)
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers.
The information contained under the caption "Information About the Nominees and
Current Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance"
in the Company's definitive proxy statement to be filed pursuant to Regulation
14(a) for the Company's 2000 Annual Meeting of Shareholders, which involves the
election of directors, is incorporated herein by this reference. Also see item
4(a) of Part I hereof.
Item 11. Executive Compensation.
The information contained under the captions "Directors Compensation,"
"Executive Compensation," "Option/SAR Grants in Last Fiscal Year," "Aggregated
Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option SAR Values,"
and "Employment Arrangements with Named Officers" in the Company's definitive
proxy statement to be filed pursuant to Regulation 14(a) for the Company's 2000
Annual Meeting of Shareholders, which involves the election of directors, is
incorporated herein by this reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information contained under the caption "Voting Securities and Security
Ownership of Certain Beneficial Owners and Management" in the Company's
definitive proxy statement to be filed pursuant to Regulation 14(a) for the
Company's 2000 Annual Meeting of Shareholders, which involves the election of
directors, is incorporated herein by this reference.
Item 13. Certain Relationships and Related Transactions.
The information contained under the caption "Certain Transactions" in the
Company's definitive proxy statement to be filed pursuant to Regulation 14(a)
for the Company's Annual Meeting of Shareholders, which involves the election of
directors, is incorporated herein by this reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. For a list of the Consolidated Financial Statements of the
Company included as part of this report, see the index at Item
8.
2. All schedules have been omitted as the required information is
not present in sufficient amounts or the required information
is included elsewhere in the Consolidated Financial Statement
or notes thereto.
3. Exhibits:
See Exhibit Index
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the Company during
the fourth quarter of the Registrant's fiscal year ended
December 31, 1999.
(c) Exhibits:
See Exhibit Index
(d) All schedules have been omitted as the required information is
not present in sufficient amounts or the required information
is included elsewhere in the Consolidated Financial Statement
or notes thereto.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of St.
Charles and State of Missouri on the 30th day of March, 2000.
LMI AEROSPACE, INC.
(Registrant)
By: /s/ Ronald S. Saks
-----------------------------------------
Ronald S. Saks
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ Ronald S. Saks Chief Executive Officer, March 30, 2000
- --------------------------- President, and Director
Ronald S. Saks
/s/ Joseph Burstein Chairman of the Board, March 30, 2000
- --------------------------- and Director
Joseph Burstein
/s/ Lawrence J. LeGrand Executive Vice President, March 30, 2000
- --------------------------- Finance and Acquisitions
Lawrence J. LeGrand and Director
/s/ Lawrence E. Dickinson Chief Financial Officer March 30, 2000
- --------------------------- and Secretary
Lawrence E. Dickinson
Vice President, Regional March ___, 2000
- --------------------------- Manager and Director
Duane Hahn
/s/ Sanford S. Neuman Assistant Secretary and March 30, 2000
- --------------------------- Director
Sanford S. Neuman
Director March ___, 2000
- ---------------------------
Thomas M. Gunn
Director March ___, 2000
- ---------------------------
Alfred H. Kerth
/s/ Thomas Unger Director March 30, 2000
- ---------------------------
Thomas Unger
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
3.1 Restated Articles of the Registrant previously filed on Form S-1 dated
as of June 29, 1998 and incorporated herein by reference
3.2 Amended and Restated By-Laws of the Registrant previously filed on
Form S-1 dated as of June 29, 1998 and incorporated herein by
reference
4.1 Form of the Registrant's Common Stock Certificate previously filed on
Form S-1 dated as of June 29, 1998 and incorporated herein by
reference
10.1+ 1989 Stock Option Plan, including all amendments previously filed on
Form S-1 dated as of June 29, 1998 and incorporated herein by
reference
10.2+ Employment Agreement, dated January 1, 1997, between the Registrant
and Ronald S. Saks, as previously filed on Form S-1 dated as of June
29, 1998 and incorporated herein by reference
10.3+ Employment Agreement, effective as of May 1, 1998, between the
Registrant and Lawrence J. LeGrand, as previously filed on Form S-1
dated as of June 29, 1998 and incorporated herein by reference
10.4+ Employment Agreement, dated January 1, 1998, between the Registrant
and Duane E. Hahn as previously filed on Form S-1 dated as of June 29,
1998 and incorporated herein by reference (replaced by Exhibit 30.34
filed herewith)
10.5+ Employment Agreement, dated January 1, 1998, between the Registrant
and Phillip A. Lajeunesse previously filed on Form S-1 dated as of
June 29, 1998 and incorporated herein by reference
10.6+ Employment Agreement, dated January 1, 1998, between the Registrant
and Robert T. Grah previously filed on Form S-1 dated as of June 29,
1998 and incorporated herein by reference (replaced by Exhibit 30.33
filed herewith)
10.7+ Employment Agreement, dated January 1, 1998, between the Registrant
and Bradley L. Nelson previously filed on Form S-1 dated as of June
29, 1998 and incorporated herein by reference (replaced by Exhibit
30.35 filed herewith)
10.8 Lease Agreement, dated November 25, 1991, between the Registrant and
Roy R. Thoele and Madonna J. Thoele, including all amendments (Leased
premises at 3000 Highway 94 North) previously filed on Form S-1 dated
as of June 29, 1998 and incorporated herein by reference
10.9 Lease Agreement, dated June 28, 1988, between the Registrant and J & R
Sales, including all amendments (Leased premises at 204 H Street)
previously filed on Form S-1 dated as of June 29, 1998 and
incorporated herein by reference
10.10 Lease Agreement, dated May 6, 1997, between the Registrant and Victor
Enterprises, LLC, including all amendments (Leased premises at 101
Western Avenue S) previously filed on Form S-1 dated as of June 29,
1998 and incorporated herein by reference
10.11 Lease Agreement, dated February 1, 1995, between the Registrant and
RFS Investments (Leased premises at 2621 West Esthner Court)
previously filed on Form S-1 dated as of June 29, 1998 and
incorporated herein by reference
10.12 Profit Sharing and Savings Plan and Trust, including all amendments
previously filed on Form S-1 dated as of June 29, 1998 and
incorporated herein by reference
10.13 Loan Agreement between the Registrant and Magna Bank, N.A. dated
August 15, 1996, including all amendments previously filed on Form S-1
dated as of June 29, 1998 and incorporated herein by reference
10.14 Indenture of Trust and Loan Agreement, both with the Industrial
Development Authority of St. Charles County, Missouri and dated as of
September 1, 1990 previously filed on Form S-1 dated as of June 29,
1998 and incorporated herein by reference
10.15 General Terms Agreement, Special Terms Agreement and Warranty
Agreements, between the Registrant and Boeing Seattle previously filed
on Form S-1 dated as of June 29, 1998 and incorporated herein by
reference
10.16 Form of Master Order Agreement covering Boeing 777 and 747 Programs
and Master Order Agreement covering Boeing 737 Leading Edge Program,
both between the Registrant and Boeing North American, previously
filed on Form S-1 dated as of June 29, 1998 and incorporated herein by
reference
10.17 Form of Contract between the Registrant and Boeing Wichita previously
filed on Form S-1 dated as of June 29, 1998 and incorporated herein by
reference
10.18 General Conditions (Fixed Price - Non-Governmental) for the G-14/F100
Program, General Conditions for the Wing Stub/Lower 45 Program Boeing
Model 767 Commercial Aircraft and Form of Master Agreement, all with
Northrop Grumman previously filed on Form S-1 dated as of June 29,
1998 and incorporated herein by reference
10.19+ 1998 Stock Option Plan, previously filed on Form S-1 dated as of June
29, 1998 and incorporated herein by reference
10.20+ Amendment No. 5 to 1989 Stock Option Plan, previously filed on Form
S-1 dated as of June 29, 1998 and incorporated herein by reference
10.21 Restricted Stock Agreement with Lawrence J. LeGrand, dated as of April
27, 1998 previously filed on Form S-1 dated June 29, 1998 and
incorporated herein by reference
10.22 Subscription Agreement with Lawrence J. LeGrand, dated as of April 27,
1998 previously filed on Form S-1 dated June 29, 1998 and incorporated
herein by reference
10.23 General Terms Agreement between Boeing Company and Leonard's Metal,
Inc. with Special Business Provision attached, previously filed on
Form 10-Q dated as of November 16, 1998 and incorporated herein by
reference
10.24 Lease Agreement between Mother Goose Corporation and Precise Machine
Partners L.L.P. (Leased premises at 2205 and 2215 River Hill Road,
Irving, Texas) dated August 25, 1998, previously filed on Form 10-K
dated as of March 30, 1999 and incorporated herein by reference
10.25+ Employment Agreement dated August 25, 1998, between Precise Machine
Partners, L.L.P. and John R. Krystinik, previously filed on Form 10-K
dated as of March 30, 1999 and incorporated herein by reference
10.26 First Amendment to Restricted Stock Agreement with Lawrence J.
LeGrand, dated as of April 27, 1998, previously filed on Form 10-K
dated as of March 30, 1999 and incorporated herein by reference
10.27 Second Amendment to Restricted Stock Agreement with Lawrence J.
LeGrand, dated March 26, 1999, previously filed on Form 10-K dated
as of March 30, 1999 and incorporated herein by reference
10.28 First Amendment to Subscription Agreement with Lawrence J. LeGrand,
dated April 27, 1998, previously filed on Form 10-K dated as of March
30, 1999 and incorporated herein by reference
10.29 Second Amendment to Subscription Agreement with Lawrence J. LeGrand,
dated March 26, 1999, previously filed on Form 10-K dated as of March
30, 1999 and incorporated herein by reference
10.30+ Employment Agreement effective as of January 24, 2000, between LMI
Aerospace, Inc. and Tom D. Baker (filed herewith)
10.31+ Employment Agreement effective as of January 1, 2000, between LMI
Aerospace, Inc. and Michael J. Biffignani (filed herewith)
10.32+ Employment Agreement effective as of January 1, 2000, between LMI
Aerospace, Inc. and Lawrence D. Dickinson (filed herewith)
10.33+ Employment Agreement effective as of January 1, 2000, between LMI
Aerospace, Inc. and Robert T. Grah (filed herewith)
10.34+ Employment Agreement effective as of January 1, 2000, between LMI
Aerospace, Inc. and Duane E. Hahn (filed herewith)
10.35+ Employment Agreement effective as of January 1, 2000, between LMI
Aerospace, Inc. and Bradley L. Nelson (filed herewith)
10.36+ Employment Agreement effective as of January 1, 2000, between LMI
Aerospace, Inc. and Charles H. Somerville (filed herewith)
16.1 Letter from KPMG Peat Marwick, LLP as to statements regarding change
in certified accountants previously filed on Form S-1 and incorporated
herein by reference
21.1 List of Subsidiaries of the Registrant, previously filed on Form 10-K
dated as of March 30, 1999 and incorporated herein by reference
23.1 Consent of Ernst & Young LLP (filed herewith)
27 Financial Data Schedule (filed herewith)
- ---------------
+ Management contract or compensatory plan or arrangement required to be
filed as exhibit to this report.