SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended June 30, 2002.
|_| 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 (I.R.S. Employer
Incorporation or Organization) Identification No.)
3600 Mueller Road
St. Charles, Missouri 63301
(Address of Principal Executive Offices) (ZIP Code)
(636) 946-6525
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Title of class of Number of Shares outstanding
Common Stock as of June 30, 2002
Common Stock, par value $.02 per share 8,053,396
LMI AEROSPACE, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE FISCAL QUARTER ENDING June 30, 2002
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets as of December 31, 2001
and June 30, 2002
Condensed Consolidated Statements of Operations for the three months
and the six months ending June 30, 2001 and 2002
Condensed Consolidated Statements of Cash Flows for the
six months ending June 30, 2001 and 2002
Notes to Unaudited Condensed Consolidated Financial Statements
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Item 5. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURE PAGE
EXHIBIT INDEX
LMI Aerospace, Inc.
Condensed Consolidated Balance Sheets
(Amounts in thousands, except share and per share data)
December 31, June 30,
2001 2002
(unaudited)
-----------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 4,645 $ 1,427
Investments 643 624
Trade accounts receivable 6,285 11,210
Inventories 23,045 25,354
Prepaid expenses 787 722
Deferred income taxes 886 913
-----------------------------------------
Total current assets 36,291 40,250
Property, plant, and equipment, net 24,014 26,380
Goodwill net 7,420 16,424
Other assets 277 784
-----------------------------------------
$ 68,002 $ 83,838
=========================================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 3,547 $ 5,364
Accrued expenses 2,659 3,717
Current installments of long-term debt 2,334 3,731
-----------------------------------------
Total current liabilities 8,540 12,812
Long-term debt, less current installments 12,621 22,433
Deferred income taxes 1,192 1,928
-----------------------------------------
Total noncurrent liabilities 13,813 24,361
Stockholders' equity:
Common stock of $.02 par value; authorized 28,000,000
shares; issued 8,736,427 at December 31, 2001
and at June 30, 2002 175 175
Additional paid-in capital 26,171 26,171
Treasury Stock, at cost, 716,676 and 683,031 shares at
December 31, 2001 and June 30, 2002, respectively (3,402) (3,241)
Accumulated other comprehensive income - 15
Retained earnings 22,705 23,545
-----------------------------------------
Total stockholders' equity 45,649 46,665
-----------------------------------------
$ 68,002 $ 83,838
=========================================
<FN>
See accompanying notes.
</FN>
LMI Aerospace, Inc.
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Unaudited)
For the Three Months Ended June 30 For the Six Months Ended June 30
2001 2002 2001 2002
------------------------------------------------------------------------------------------
Net sales $ 19,105 $ 20,355 $ 35,154 $ 38,263
Cost of sales 14,929 16,258 27,274 30,360
------------------------------------------------------------------------------------------
Gross profit 4,176 4,097 7,880 7,903
Selling, general, and administrative
expenses 2,464 3,048 4,807 5,840
------------------------------------------------------------------------------------------
Income from operations 1,712 1,049 3,073 2,063
Interest income (expense)/other (261) (310) (265) (581)
------------------------------------------------------------------------------------------
Income before income taxes 1,451 739 2,808 1,482
Provision for income taxes 508 277 983 556
------------------------------------------------------------------------------------------
Net Income 943 462 1,825 926
==========================================================================================
Net income per common share $ .12 $ .06 $ .23 $ .12
==========================================================================================
Net income per common share -
assuming dilution $ .12 $ .06 $ .22 $ .11
==========================================================================================
Weighted average common shares
outstanding 8,070,200 8,040,529 8,075,555 8,032,275
==========================================================================================
Weighted average dilutive stock
options outstanding 120,534 160,535 57,362 141,794
==========================================================================================
<FN>
See accompanying notes.
</FN>
LMI Aerospace, Inc.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
For the Six Months Ended June 30
2001 2002
-----------------------------------------
Operating activities
Net income $ 1,825 $ 926
Other comprehensive income:
Foreign currency gain - 34
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,959 2,044
Changes in operating assets and liabilities:
Trade accounts receivable 33 (2,586)
Inventories (563) (1,081)
Prepaid expenses and other assets (444) 57
Income taxes payable (3) (73)
Accounts payable 565 216
Accrued expenses 412 (39)
-----------------------------------------
Net cash from (used for) operating activities 3,784 (502)
Investing activities
Additions to property, plant, and equipment, net (1,803) (1,165)
Proceeds from sale of property, plant and equipment 65 -
Acquisition of Versaform, net of cash acquired - (10,285)
Acquisition of Stretch Forming assets - (860)
Acquisition of Tempco, net of cash acquired (14,926) (300)
-----------------------------------------
Net cash used for investing activities (16,664) (12,610)
Financing activities
Proceeds from issuance of long-term debt 14,250 11,000
Principal payments on long-term debt (72) (1,181)
Treasury stock transactions, net (46) (8)
Proceeds from exercise of stock options - 83
-----------------------------------------
Net cash from financing activities 14,132 9,894
Activities
Net change in cash and cash equivalents 1,252 (3,218)
Cash and cash equivalents, beginning of period 1,676 4,645
-----------------------------------------
Cash and cash equivalents, end of period $ 2,928 $ 1,427
=========================================
Supplemental schedule of non cash investing and financing activities:
For the Six Months Ended June 30
2001 2002
-------------------- ------------------
Note Payable - Versaform Acquisition - $1,300
Note Payable - Stretch Forming Acquisition - 90
-------------------- ------------------
- $1,390
==================== ==================
<FN>
See accompanying notes.
</FN>
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
1. Accounting Policies
Basis of Presentation
LMI Aerospace, Inc. (the "Company") fabricates, machines, and integrates formed,
close tolerance aluminum and specialty alloy components for use by the aerospace
and laser equipment industries. 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;
Irving, Texas; Sun Valley and Oceanside, California; and Langley, British
Columbia.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair representation have been included. Operating
results for the six months ended June 30, 2002 are not necessarily indicative of
the results that may be expected for the year ended December 31, 2002. These
financial statements should be read in conjunction with the consolidated
financial statements and accompanying footnotes included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2001 as filed with the SEC.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
2. Acquisitions
On June 12, 2002, the Company acquired certain assets of Stretch Forming
Corporation, a privately held company based in Southern California. The assets
consisted of inventory, accounts receivable, machinery & equipment, and
intangibles pertaining to the aerospace market. The Company purchased the assets
for $950 which included a note payable for $90.
On May 16, 2002, the Company acquired all of the outstanding stock of Versaform
Corporation and BC 541775, Ltd., a holding company that owns 100% of the common
stock of Versaform Canada Corporation (collectively, "Versaform") for
approximately $11,600. The Company may pay additional contingent consideration
if net sales proceeds collected by Versaform for sales to a specific customer
exceed $3,000 during the twelve calendar month ending on each of the first,
second, and third anniversaries of the closing date of the transaction. The
additional contingent consideration would be equivalent to 5% of the amount in
excess of $3,000 in each of the years as defined above. This acquisition has
been accounted for under the purchase method, and accordingly, the results of
operations were included in the Company's financial statements after May 16,
2002. The cost to acquire Versaform has been preliminarily allocated to the
assets acquired and liabilities assumed according to their estimated fair values
at the time of the acquisition and are subject to adjustment when additional
information concerning asset and liability valuations are finalized. The
preliminary allocation has resulted in acquired goodwill of approximately
$9,003. Versaform forms large sheet metal and extrusion components predominantly
for the corporate, regional, and military aerospace markets from two facilities
in Oceanside, California and one facility in Langley, British Columbia, Canada.
Versaform's sales were approximately $12,000 in 2001.
On April 2, 2001, the Company acquired certain assets of Tempco Engineering,
Inc. and Hyco Precision, Inc. ("Tempco"), two privately held related metal
machining companies based in Southern California. The purchase was funded by a
secured note with the Company's lender. Tempco produces components for
photolithography equipment used in the manufacture of semiconductors, as well as
components for the defense and commercial aerospace industries. Tempco's sales
were approximately $16,000 in 2000. The purchase price for the net assets
acquired, net of acquired cash, was approximately $15,200. The Company may pay
additional contingent consideration of up to $1,250 if Tempco's EBITDA, as
defined, exceeds certain limits for the two years ended March 31, 2003. The
excess of the purchase price over the fair market value of net assets acquired,
totaling $5,943, was allocated to goodwill. This acquisition has been accounted
for under the purchase method, and accordingly, the results of operations were
included in the Company's financial statements from the date of acquisition.
3. Adoption of FASB Statement No. 142
Effective January 1, 2002, the Company adopted SFAS No.142, "Goodwill and Other
Intangible Assets," which establishes new accounting and reporting requirements
for goodwill and other intangible assets. Under SFAS No. 142, goodwill and
indefinite lived intangible assets are no longer amortized but are reviewed at
least annually for impairment. Separate intangible assets that have finite
useful lives will continue to be amortized over their useful lives.
SFAS No. 142 requires that goodwill be tested annually for impairment using a
two-step process. The first step is to identify a potential impairment and, in
transition, this step must be measured as of the beginning of the year of
adoption. The Company completed the first step during the second quarter of
2002, which resulted in the identification of potential goodwill impairments as
of the beginning of the fiscal year 2002. The second step of the goodwill
impairment test, which measures the amount of the impairment loss (measured as
of the beginning of the year of adoption), has not been completed. As a result
of the second step of the goodwill impairment test, an impairment charge may be
recorded in the last half of the year.
Actual results of operations for the six months ended June 30, 2002 and pro
forma results of operations for the six months ended June 30, 2001 had the
non-amortization provisions of SFAS 142 been applied in that period follows:
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------------------------------------------------
2001 2002 2001 2002
---------------------------------------------------------------------------
Reported net income $ 943 $ 462 $1,825 $926
Add: Goodwill amortization, net of tax 85 - 105 -
---------------------------------------------------------------------------
Adjusted net income $ 1,028 $ 462 $1,930 $926
===========================================================================
Basic earnings per share
Reported net income $.12 $.06 $.23 $.12
Goodwill amortization .01 - .01 -
---------------------------------------------------------------------------
Adjusted net income $.13 $.06 $.24 $.12
===========================================================================
Diluted earnings per share
Reported net income $.12 $.06 $.22 $.11
Goodwill amortization .01 - .01 -
---------------------------------------------------------------------------
Adjusted net income $.13 $.06 $.23 $.11
===========================================================================
4. Inventories
Inventories consist of the following:
December 31, June 30,
2001 2002
------------------------------------------
Raw materials $ 3,742 $ 4,174
Work in process 6,127 6,582
Finished goods 13,176 14,598
-------------------------------------------
$ 23,045 $ 25,354
===========================================
5. Long-Term Debt
Long-term debt consists of the following:
December 31, June 30,
2001 2002
----------------------------------------
Term loans $13,741 $23,723
Notes payable, principal and interest payable
monthly at fixed rates, ranging from 4.98% to 9.00% 1,100 2,352
Capital lease obligations 114 89
----------------------------------------
14,955 26,164
Less current installments 2,334 3,731
----------------------------------------
$12,621 $22,433
========================================
The Company has a loan agreement ("Loan Agreement") with Union Planters Bank,
NA. The Loan Agreement consists of a revolving line of credit ("Revolver"), a
term loan to finance the purchase of Tempco ("Tempco Term Loan"), and a term
loan to finance the purchase of Versaform ("Versaform Term Loan"). The Company's
Loan Agreement is secured by all the non-Canadian assets of the Company and
requires compliance with certain non-financial and financial covenants including
minimum levels of cash flow coverage, EBITDA, and tangible net worth.
The Company's Revolver allows for a $7,000 line of credit 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 May 31, 2003.
The credit facility prohibits the payment of cash dividends on common stock
without the prior written consent of Union Planters. The Company has not drawn
upon this line at June 30, 2002.
The Tempco Term Loan was issued for $15,500 on April 2, 2001. The Tempco Term
Loan requires monthly principal and interest payments over three years using a
seven year amortization and bears interest at ninety day LIBOR plus 3%, subject
to a cap of 8.5% and a floor of 7.0%. The interest rate was 7.0% at June 30,
2002. The Company drew $14,250 on this Term Loan on April 2, 2001. Under the
Loan Agreement, the Company has $1,250 available to fund any additional
contingent consideration which may be required under the terms of the Tempco
acquisition (see note 2).
The Versaform Term Loan was issued for $11,000 on May 15, 2002. The Versaform
Term Loan requires monthly principal and interest payments over three years
using a seven year amortization and bears interest at ninety day LIBOR plus 3%.
The interest rate was 4.9% at June 30, 2002.
The Company entered into a note payable for $1,300 with the prior owner of
Versaform in connection with the purchase of said company. The prior owner has
since become a member of the board of directors of the Company. This note is
payable monthly over three years and bears interest at 7.0%. This note is
secured by 65% of the stock of the Company's Canadian subsidiary.
The Company entered into various notes payable for the purchase of certain
equipment. The notes are payable in monthly installments including interest
ranging from 6.99% - 9.0% through November, 2006. The notes payable are secured
by equipment.
The Company entered into capital lease agreements for the purchase of certain
equipment. The leases are payable in monthly installments including interest at
4.98% through February, 2004.
6. Comprehensive Income
The Company's total comprehensive income, which adjusts net income by the
increase or decrease in the fair value of available-for-sale securities deemed
not to be other than temporary and the change in foreign currency translations,
is as follows:
-------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
2001 2002 2001 2002
-------------------------------------------------------------------------
Net Income 943 462 1,825 926
Other comprehensive income (loss):
Unrealized gain (loss) on investments 133 96 162 (19)
Foreign currency translation adjustments - 34 - 34
-------------------------------------------------------------------------
Total comprehensive income $1,076 $592 $1,987 $941
=========================================================================
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Statement
This Management's Discussion and Analysis of Financial Conditions and Results of
Operations contains various forward-looking statements within the meaning of the
United States Private Securities Litigation Reform Act of 1995 and which may be
based on or include assumptions, concerning LMI's operations, future results and
prospects. 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. Such factors include, but are not limited to, the
following: (1) changes in the current and future business environment, and in
particular, the aerospace industry; (2) changes in the business outlook of LMI's
customers; (3) the impact of competitive products and pricing; (4) the
availability of raw materials; (5) changes in governmental regulation; (6)
fluctuations in operating results; (7) LMI's ability to consummate suitable
acquisitions; and (8) the risks detailed from time to time in LMI's filings with
the Securities and Exchange Commission. In addition, such statements could be
affected by general industry and market conditions and growth rates; general
domestic and international market conditions; increased competition from
domestic and foreign competitors, including new entities; and other factors
which could impact LMI's outlook in the future. As it is impossible to foresee
and identify all factors that could have a material and negative impact on LMI's
future performance, this discussion of uncertainties is by no means exhaustive,
but is designed to highlight important factors that may impact LMI's outlook.
Readers are cautioned not to place undue reliance on forward-looking statements,
which speak only as of the date hereof. LMI 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.
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States, which require the Company to
make estimates and assumptions (see Note 1 to the consolidated financial
statements). The Company believes that certain significant accounting policies
have the potential to have a more significant impact on the financial statements
either because of the significance of the financial statement to which they
relate because they involve a higher degree of judgment and complexity. A
summary of such critical accounting policies can be found in the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operation" contained in the Company's 2001 Annual Report on Form
10-K.
Overview
LMI Aerospace, Inc. is a leader in fabricating, machining and integrating of
formed close tolerance aluminum and specialty alloy components for use by the
aerospace and laser cutting industries. The Company has been engaged in
manufacturing components for a wide variety of applications. Aerospace
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. Non aerospace
components are critical components in the chamber section of lasers used in the
production of semiconductors and cutting equipment used in preparation for Lasic
surgery. The Company maintains multi-year contracts with leading original
equipment manufacturers and primary subcontractors of commercial, corporate,
regional and military aircraft. Such contracts, which govern the majority of the
Company's sales, designate the Company as the sole supplier of the aerospace
components sold under the contracts. Customers include Boeing, Lockheed Martin,
Vought, Gulfstream, Learjet, Canadair, DeHavilland, PPG, Litton, Cymer, and
IntraLase. The Company manufactures more than 15,000 parts for integration into
Boeing's 737, 747, 757, 767 and 777 commercial aircraft and F-15, F/A-18, C-17
military aircraft, Canadair's RJ regional aircraft, Gulfstream's G-IV and G-V
corporate aircraft, Lockheed Martin's F-16 and C-130 military aircraft, Litton
Industries guidance control systems, Cymer lasers for cutting silicon wafers,
and IntraLase lasers used in Lasic surgery.
Results of Operations
Quarter Ended June 30, 2002 versus June 30, 2001
Net Sales. Net sales during the quarter were $20.4 million, including $2.4
million from the recent acquisition of Versaform, up 6.8% from $19.1 million in
the prior year. Excluding the acquisition of Versaform, net sales were $18.0
million, a decrease of 5.8% from the prior year. Net sales by market for the
second quarter of 2002 compared to the second quarter of 2001 were as follows:
Market 2nd Qtr 2001 % of Total 2nd Qtr 2002 % of Total
--------------------------------- --------------------- ---------------- ------------------- ----------------
Commercial Aircraft $ 9.9 51.8% $ 5.9 28.9%
Corporate/Regional 2.8 14.7% 4.6 22.5%
Military 3.1 16.2% 4.4 21.6%
Laser 1.6 8.4% 3.4 16.7%
Other 1.7 8.9% 2.1 10.3%
--------------------- ---------------- ------------------- ----------------
Total $19.1 100.0% $20.4 100.0%
===================== ================ =================== ================
The Company's net sales to the commercial aircraft market consist of components
that are ultimately used on Boeing commercial aircraft. Net sales to this market
continue to be adversely affected by the events of September 11, 2001 and the
impact it has had upon airlines. The largest declines in the Company's net sales
to this market have been the result of reduced production rates and inventory
levels at Boeing and its subcontractors on the 737 and 747 models. The Company's
net sales for the 737 were $2.8 million in the second quarter of 2002 (13.7% of
net sales) compared to $4.3 million (22.5% of net sales) in the second quarter
of 2001. The Company's net sales for the 747 were $1.2 million (5.9% of net
sales) in the second quarter of 2002 compared to $2.7 million (14.1% of net
sales) in the same quarter of 2001. The Company believes that these reduced
sales levels for this market will continue through 2002. Net sales for the
quarter to the corporate and regional markets were $4.6 million, an increase of
64.3% from the $2.8 million generated in 2001. The acquisition of Versaform
added $1.7 million of net sales to this market for the current quarter, largely
due to sales for Gulfstream aircraft.
Net sales for use in the military markets were $4.4 million in the second
quarter of 2002, an increase of 41.9% from the $3.1 million of net sales in the
same quarter of 2001. The increase in net sales to military markets was
primarily the result of shipments for recent awards of C-130 components from
Lockheed Martin.
Components for use in laser equipment contributed $3.4 million in the current
quarter, an increase of 112.5% from $1.6 million in 2001. This increase was
driven by greater sales to both Cymer and IntraLase.
Gross Profit. Gross profit was $4.1 million (20.1% of net sales) in the second
quarter of 2002, down from $4.2 million (21.9% of net sales) during the second
quarter of 2001. Gross profit was negatively impacted by start up costs expensed
as the Company began new programs with Gulfstream and Lockheed Martin, reduced
volume in the commercial markets, and increases in fringe benefit costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $3.0 million (15.0% of net sales) in the
second quarter of 2002 from $2.5 million (12.9% of net sales) in the second
quarter of 2001. This increase is primarily due to the acquisition of Versaform,
which added $0.3 million, and ongoing integration costs incurred for Tempco and
Versaform.
Interest Expense. Interest expense remained flat at $0.3 million in both
periods. However, the acquisition of Versaform was completed May 16, 2002, which
resulted in only 45 days of interest on the new debt instruments related to that
purchase in the second quarter of 2002.
Income Tax Expense. The effective tax rate used by the Company in the second
quarter of 2002 was 37.5%, an increase from 35.0% in 2001. This increase is due
to the Company's acquisitions in locations with higher income tax rates.
Six Months Ended June 30, 2002 versus June 30, 2001
Net Sales. Net sales for the six months ended June 30, 2002 were $38.3 million,
an increase of 8.8% from $35.2 million in the same period of the prior year. The
acquisition of Versaform added $2.4 million to the current year. Excluding the
impact of Versaform, net sales were $35.9 million, up 2.0% from the prior year.
Net sales by market served were as follows:
Market 1st Half 2001 % of Total 1st Half 2002 % of Total
--------------------------------- --------------------- ---------------- ------------------- ----------------
Commercial Aircraft $ 19.5 55.4% $12.6 32.9%
Corporate/Regional 5.9 16.8% 6.5 17.0%
Military 5.4 15.3% 9.0 23.5%
Laser 1.6 4.5% 6.3 16.4%
Other 2.8 8.0% 3.9 10.2%
--------------------- ---------------- ------------------- ----------------
Total $35.2 100.0% $38.3 100.0%
===================== ================ =================== ================
Net sales to the commercial aircraft market fell significantly as Boeing trimmed
inventories and reduced production rates. The Company's net sales for 737
components fell to $6.1 million (15.9% of net sales) in 2002 from $8.4 million
(23.9% of net sales) in 2001. The Company's net sales for 747 components were
$2.5 million (6.5% of net sales) in 2002, a reduction from $5.2 million (14.8%
of net sales) in 2001.
The Company's sales to the corporate and regional market were $6.5 million in
2002, an increase of 10.2% from $5.9 million in 2001. The acquisition of
Versaform added $1.7 million to net sales for the six months of 2002. Excluding
the acquisition of Versaform, net sales to the corporate and regional market
would have been $4.8 million, down $1.1 million from 2001. This reduction is
primarily attributable to reduced orders from Learjet, a division of Bombardier.
Net sales to the military markets were $9.0 million in 2002, up 66.7% from $5.4
million in 2001. This increase results from the inclusion of a full six months
of net sales of Tempco in 2002. Tempco added $3.9 million of net sales to
military markets in 2002 compared to $1.2 million in 2001. The Company acquired
Tempco on April 2, 2001, therefore, only three months of net sales from Tempco
were included in net sales for the period. Additionally, new contracts for
components used on the C-130 were sold to Lockheed Martin in 2002, increasing
sales for that model to $1.3 million in 2002, up from $0.5 million in 2001.
Net sales to laser equipment makers increased to $6.3 million in 2002, up from
$1.6 million. This market is served by Tempco, which the Company owned for only
three months in 2001. Increases in net sales from both Cymer and IntraLase were
responsible for this change.
Gross Profit. Gross profit in 2002 was $7.9 million in 2002, unchanged from
2001. However, as a percentage of net sales, gross profit declined to 20.6% in
2002 from 22.4% in 2001. This decline is attributable to decreased sales in the
commercial markets, start up expenses related to new work from Gulfstream and
Lockheed Martin, and insurance costs related to employee benefits.
Selling, General and Administrative Expenses. The costs of selling, general, and
administrative expenses rose to $5.8 million (15.1% of net sales) in 2002 from
$4.8 million (13.6% of net sales) in 2001. The acquisitions of Tempco and
Versaform added approximately $0.8 million to selling, general and
administrative expenses.
Interest Expense. The Company's interest expense increased to $0.6 million in
2002 from $0.3 million in 2001. This increase is primarily attributable to the
debt secured to finance the acquisition of Tempco and Versaform.
Income Taxes. The Company's effective tax rate is 37.5% in 2002, up from 35.0%
in 2001. The Company has experienced higher tax rates in the state of
California, the location of the Company's recent acquisitions, Versaform and
Tempco.
Liquidity and Capital Resources
The Company's operations used cash of $0.9 million in the first six months of
2002. The Company has experienced a general slow down in payment terms from its
customers in all markets resulting in an increase in accounts receivable of $2.6
million. The aerospace market was impacted significantly by the events of
September 11, 2001 and several customers have requested extensions of payment
terms. Additionally, as the commercial market reduced production rates and
inventories, the Company has chosen to invest in inventories instead of reducing
manufacturing lot sizes, which created an increase in inventories of $1.1
million.
Capital expenditures were $1.2 million in the first six months of 2002, down
from $1.8 million in 2001. The Company has chosen to use operating leases to
provide certain pieces of equipment which has lowered the need for capital
expenditures.
As previously noted, the Company acquired Versaform on May 16, 2002. The
purchase was financed with a term loan of $11.0 million from the Company's
principal lender and a term note from the prior owner of Versaform of $1.3
million. The Company maintains its revolving line of credit of $7.0 million,
which was unused at June 30, 2002. The Company believes that it will not
continue to have to invest significant amounts in inventory and accounts
receivable based on current operational needs; therefore, its ability to
generate cash from operations and availability of the revolving line of credit
should provide adequate flexibility to support its operations.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders was held on June 3, 2002
At the Meeting, the shareholders voted for the election of all persons nominated
by management to be Class I Directors. The votes for these nominated Directors
were as follows:
Name Votes For Votes Withheld
---- --------- --------------
Sanford S. Neuman 7,638,071 35,770
Duane E. Hahn 7,627,171 46,670
At the Meeting, the shareholders also voted for the ratification of the
selection of Ernst & Young LLP to serve as the Company's independent auditor.
The votes for such ratification were as follows:
Votes For Votes Against
--------- -------------
7,667,006 5,100
Item 5. Other Information.
Tom Baker resigned as the Company's Chief Operating Officer effective as of July
1, 2002 and as a member of the Board of Directors as of August 8, 2002. Mr.
Baker remains with the Company, assuming responsibilities relating to special
projects, merger, and acquisition activities.
On August 6, 2002, a lawsuit was filed in state District Court located in Denton
County, Texas against LMI Aerospace, Inc. and Brian Geary, a director of LMI, by
David Arthur, individually and as a representative for Southern Stretch Forming
& Fabrication, Inc., a Texas corporation ("Southern") (Mr. Arthur and Southern
are sometimes referred to together herein as the "Plaintiffs"). Mr. Arthur and
Mr. Geary are each 50% owners of the outstanding common stock of Southern. Mr.
Geary was the sole shareholder of Versaform Corporation, a California
corporation ("Versaform"), all of the outstanding stock of which LMI recently
acquired.
Plaintiffs allege that Mr. Geary, in violation of his fiduciary duties and
obligations to Mr. Arthur and to Southern diverted business from Southern to
Versaform in order to increase the value of Versaform prior to its acquisition
by LMI. Plaintiffs further allege that the actions of Mr. Geary were done in
concert with LMI and that Mr. Geary and Versaform were acting as agents of LMI
with respect to the wrongful acts complained of. Plaintiffs also allege that LMI
induced Mr. Geary to breach his duties owed to Southern and to Mr. Arthur and
aided and abetted Mr. Geary's wrongful acts. The petition also alleges that LMI
is liable for tortiously interfering with the business relationships between Mr.
Geary and Southern and that LMI tortiously interfered with the business and/or
contractual relationship between Southern and Versaform. Plaintiffs seek the
recovery of actual and exemplary damages in an unspecified amount.
Although LMI has not yet been able to undertake a detailed investigation of
Plaintiff's claims, upon a preliminary review LMI believes that the claims made
against LMI by Plaintiffs are without merit. LMI intends to vigorously defend
the allegations set forth in Plaintiff's claim
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit Number Description
10.1 Ninth Amendment to Loan Agreement
99.1 Certification Pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. Statement of the Chief Executive Officer.
99.2 Certification Pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. Statement of the Chief Financial Officer.
(b) The Company filed the following reports on Form 8-K during the quarter
ended June 30, 2002:
(i) On April 1, 2002, the Company filed a Report on Form 8-K
reporting the issuance of a press release relating to its
financial performance during the fourth quarter of 2001;
(ii) On April 2, 2002, the Company filed a Report on Form 8-K
reporting the issuance of a press release relating to its
financial outlook for 2002;
(iii) On May 16, 2002, the Company filed a Report on Form 8-K
reporting the issuance of a press release relating to the
financial performance during the first quarter of 2002;
(iv) On May 16, 2002, the Company filed a Report on Form 8-K
reporting the issuance of a press release relating to its
acquisition of Versaform Corporation;
(v) On May 30, 2002, the Company filed a Report on Form 8-K
disclosing certain information regarding the acquisition of
Versaform Corporation;
(vi) On June 13, 2002, the Company filed a Report on Form 8-K
reporting the issuance of a press release relating to LMI's
acquisition of Stretch Form Corporation, and to announce the
appointment of Brian D. Geary to the Company's Board of
Director.
SIGNATURES
Pursuant to the requirements 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.
LMI AEROSPACE, INC.
Date: August 14, 2002 By: /s/ Lawrence E. Dickinson
------------------------------
Lawrence E. Dickinson
Chief Financial Officer and Secretary
EXHIBIT INDEX
Exhibit Number Description
10.1 Ninth Amendment to Loan Agreement
99.1 Certification Pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. Statement of the
Chief Executive Officer.
99.2 Certification Pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. Statement of the
Chief Financial Officer.