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 September 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 October 31, 2002
Common Stock, par value $.02 per share 8,181,786
LMI AEROSPACE, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE FISCAL QUARTER ENDING SEPTEMBER 30, 2002
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets as of December 31, 2001
and September 30, 2002
Condensed Consolidated Statements of Operations for the three months
and the nine months ending September 30, 2001 and 2002
Condensed Consolidated Statements of Cash Flows for the
nine months ending September 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
Item 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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, September 30,
2001 2002
(unaudited)
-----------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 4,645 $ 1,010
Investments 643 369
Trade accounts receivable, net 6,285 11,134
Inventories 23,045 27,285
Prepaid expenses 787 892
Deferred income taxes 886 913
-----------------------------------------
Total current assets 36,291 41,603
Property, plant, and equipment, net 24,014 26,671
Goodwill, net 7,420 16,389
Other assets 277 776
-----------------------------------------
$ 68,002 $ 85,439
=========================================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 3,547 $ 5,504
Accrued expenses 2,659 3,239
Current installments of long-term debt 2,334 4,383
Revolving line of credit - 2,535
----------------------------------------
Total current liabilities 8,540 15,661
Long-term debt, less current installments 12,621 21,306
Deferred income taxes 1,192 1,922
-----------------------------------------
Total noncurrent liabilities 13,813 23,228
Stockholders' equity:
Common stock of $.02 par value; authorized 28,000,000
shares; issued 8,736,427 at December 31, 2001
and at September 30, 2002 175 175
Additional paid-in capital 26,171 26,171
Treasury Stock, at cost, 716,676 and 554,641 shares at
December 31, 2001 and September 30, 2002, respectively (3,402) (2,631)
Accumulated other comprehensive income (loss) - (14)
Retained earnings 22,705 22,849
-----------------------------------------
Total stockholders' equity 45,649 46,550
----------------------------------------
$ 68,002 $ 85,439
=========================================
<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 September 30, For the Nine Months Ended September 30,
2001 2002 2001 2002
-----------------------------------------------------------------------------------------
Net sales $ 19,558 $ 21,258 $ 54,712 $ 59,522
Cost of sales 14,936 17,726 42,210 48,087
-----------------------------------------------------------------------------------------
Gross profit 4,622 3,532 12,502 11,435
Selling, general, and administrative
expenses 2,800 3,402 7,607 9,242
-----------------------------------------------------------------------------------------
Income from operations 1,822 130 4,895 2,193
Other income (expense):
Interest expense (262) (426) (559) (1,018)
Other, net 25 (211) 56 (200)
-----------------------------------------------------------------------------------------
Income (loss) before income taxes 1,585 (507) 4,392 975
Provision Benefit for income taxes 555 (87) 1,537 468
-----------------------------------------------------------------------------------------
Net Income (loss) $ 1,030 $ (420) $ 2,855 $ 507
=========================================================================================
Net income (loss) per common share $ 0.13 $ (0.05) $ 0.35 $ 0.06
=========================================================================================
Net income (loss) per common share -
assuming dilution $ 0.13 $ (0.05) $ 0.35 $ 0.06
=========================================================================================
Weighted average common shares
outstanding 8,063,505 8,061,368 8,071,494 8,042,079
=========================================================================================
Weighted average dilutive stock
options outstanding 142,156 72,590 88,714 118,726
=========================================================================================
<FN>
See accompanying notes.
</FN>
LMI Aerospace, Inc.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
For the Nine Months Ended
September 30,
2001 2002
-------------------------------------
Operating activities
Net income $ 2,855 $ 507
Adjustments to reconcile net income to
net cash provided by operating activities:
net cash provided by operating activities:
Depreciation and amortization 3,085 3,122
Unrealized investment loss - 274
Changes in operating assets and liabilities: (1,462) (5,505)
-------------------------------------
Net cash from (used for) operating activities 4,478 (1,602)
Investing activities
Additions to property, plant, and equipment, net (2,423) (1,932)
Proceeds from sale of property, plant and equipment 90
Acquisition of Versaform, net of cash acquired - (10,285)
Acquisition of Stretch Forming - (860)
Acquisition of Tempco, net of cash acquired (14,926) (300)
Acquisition of Southern Stretch Forming & Fabrication - (215)
-------------------------------------
Net cash used for investing activities (17,259) (13,592)
Financing activities
Proceeds from issuance of long-term debt 14,250 13,535
Principal payments on long-term debt (129) (2050)
Treasury stock transactions, net (354) (8)
Proceeds from exercise of stock options - 96
-------------------------------------
Net cash from financing activities $ 13,767 $ 11,573
Effect of exchange rate changes on cash - (14)
Net change in cash and cash equivalents 986 (3,635)
Cash and cash equivalents, beginning of period 1,676 4,645
-------------------------------------
Cash and cash equivalents, end of period $ 2,662 $ 1,010
=====================================
Supplemental schedule of non cash investing and financing activities:
For the Nine Months Ended
September 30,
2001 2002
------------------ ------------------
Issuance of note payable in connection with acquisitions - $1,674
Assumption of capital lease obligation - 109
------------------ ------------------
- $1,783
================== ==================
<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 nine months ended September 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 September 30, 2002, the Company acquired certain assets of Southern Stretch
Forming and Fabrication, Inc. ("SSFF"). The assets consisted of inventory,
machinery and equipment, backlog and intangibles pertaining to the aerospace
market. The Company purchased the assets for $215 cash, the assumption of $393
of equipment debt and 90,000 shares of LMI common stock, valued at $2.32 per
share. The cash purchase price will be adjusted up or down on a dollar for
dollar basis by the difference between the estimated value of inventory (at
closing) and the actual value of the inventory (physical inventory). This
acquisition was consummated in a two step process with a director of the
Company. The director was a 50% shareholder in SSFF. In conjunction with the
Company's purchase, the director first purchased the net assets from SSFF then
sold the net assets to the Company. The Company's acquisition of SSFF was
reviewed by the Company's Audit Committee and approved by the disinterested
directors of the Company's Board of Directors. Net sales for SSFF for 2001 were
approximately $3,820, of which approximately $1,739 were to the Company.
On June 12, 2002, the Company acquired certain assets of Stretch Forming
Corporation (SFC), a privately held company based in Southern California. The
assets consisted of inventory, accounts receivable, machinery and equipment,
backlog, 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 months 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 quarter of the year.
Actual results of operations for the nine months ended September 30, 2002 and
pro forma results of operations for the nine months ended September 30, 2001 had
the non-amortization provisions of SFAS 142 been applied in that period follows:
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
---------------------------------------------------------------------------
2001 2002 2001 2002
---------------------------------------------------------------------------
Reported net income $ 1,030 $ (420) $ 2,855 $ 507
Add: Goodwill amortization, net of tax 88 - 193 -
---------------------------------------------------------------------------
Adjusted net income $ 1,118 $ (420) $ 3,048 $ 507
===========================================================================
Basic earnings per share
Reported net income $ .13 $ (.05) $ .35 $ .06
Goodwill amortization .01 - .02 -
---------------------------------------------------------------------------
Adjusted net income $ .14 $ (.05) $ .37 $ .06
===========================================================================
Diluted earnings per share
Reported net income $ .13 $ (.05) $ .35 $ .06
Goodwill amortization .01 - .02 -
---------------------------------------------------------------------------
Adjusted net income $ .14 $ (.05) $ .37 $ .06
===========================================================================
4. Inventories
Inventories consist of the following:
December 31, September 30,
2001 2002
-------------------------------------------
Raw materials $ 3,742 $ 4,334
Work in process 6,127 7,593
Finished goods 13,176 15,358
-------------------------------------------
$ 23,045 $ 27,285
===========================================
5. Long-Term Debt
Long-term debt consists of the following:
December 31, September 30,
2001 2002
----------------------------------------
Term loans $ 13,741 $ 23,214
Notes payable, principal and interest payable monthly, at fixed
rates, ranging from 4.98% to 10.0% 1,100 2,289
Capital lease obligations 114 186
----------------------------------------
14,955 25,689
Less current installments 2,334 4,383
----------------------------------------
$12,621 $21,306
========================================
Revolving line of credit - $ 2,535
========================================
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 drawn
$2,535 upon this line at September 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 September
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 4.7% at September 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% - 10.0% 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
ranging from 4.98% - 9.15% through August, 2005.
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 September 30, Nine Months Ended September 30,
2001 2002 2001 2002
----------------------------------------------------------------------------------
Net Income $ 1,030 $ (420) $ 2,855 $ 507
Other comprehensive income (loss):
Unrealized gain (loss) on investments (208) (255) (47) (274)
Reclassification adjustment for losses
included in net income - 274 - 274
Foreign currency translation adjustments - (48) - (14)
----------------------------------------------------------------------------------
Total comprehensive income $ 822 $ (449) $ 2,808 $ 493
==================================================================================
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
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 that the Company manufactures are critical components in the chamber
section of lasers used in the production of semiconductors and cutting equipment
used in preparation for Lasik 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, Hamilton Sundstrand, Cessna, 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 G400 and
G500 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 Lasik surgery.
Results of Operations
Quarter Ended September 30, 2002 compared to September 30, 2001
Net Sales. Net sales for the Company were $21.3 million for the quarter ended
September 30, 2002 compared to $19.6 million for the quarter ended September 30,
2001, an increase of 8.7%. The Company's acquisition of Versaform and Stretch
Forming Corporation in the second quarter of 2002 added approximately $3.7
million of net sales to the third quarter. Excluding the benefit of the
acquisitions, net sales were $17.6 million in the third quarter of 2002,
representing a decrease of 10.2%.
Market 3rd Qtr 2001 3rd Qtr 2002
% of Total % of Total
------------------------------- ------------------ --------------------
Commercial Aircraft 46.3% 24.9%
Corporate/Regional 14.3% 31.9%
Military 17.4% 22.5%
Non Aerospace 22.0% 20.7%
------------------ --------------------
Total 100.0% 100.0%
================== ====================
Net sales for Boeing commercial aircraft were approximately $5.3 million (24.9%
of net sales) in the third quarter of 2002, down from $9.1 million (46.3% of net
sales) in the third quarter of 2001, consistent with the overall decline in the
commercial aircraft industry. The Company experienced declines in net sales on
each Boeing commercial model.
Net sales for use on corporate and regional aircraft were $6.8 million (31.9% of
net sales) in the third quarter of 2002, an increase from $2.8 million (14.3% of
net sales) in the third quarter of 2001. The increase in net sales was largely
attributable to increased deliveries for Gulfstream aircraft, which totaled $4.6
million (21.6% of net sales) in 2002, up from $2.0 million (10.2% of net sales)
in 2001. The acquisition of Versaform provided $1.3 million (6.1% of net sales)
of additional net sales for Gulfstream aircraft and $1.3 million (6.1% of net
sales) is attributable to an offload program the Company began in the second
quarter of 2002.
Military programs provided net sales of $4.8 million (22.5% of net sales) in the
third quarter of 2002, an increase from $3.4 million (17.4% of net sales) in the
third quarter of 2002. The acquisition of Versaform and SFC added approximately
$0.7 million (3.3% of net sales) of military program sales to the quarter.
Net sales for use in lasers for the technology and medical industries were $2.8
million (13.2% of net sales) in the third quarter of 2002, up from $2.2 million
(11.3% of net sales)in the third quarter of 2001.
Gross Profit. Gross profit was $3.5 million (16.4% of net sales) in the third
quarter of 2002, a decrease from $4.6 million (23.5% of net sales) in the third
quarter of 2001. The acquisition of Versaform added $1.1 million of gross profit
for the third quarter of 2002. However, this increase was more than offset by
the decline in net sales on commercial aircraft which reduced our ability to
cover the fixed costs of the facilities, start up expenses incurred on new
products for both Lockheed Martin and Gulfstream, and integration costs related
to the acquisitions of Versaform and Stretch Forming Corporation.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the third quarter of 2002 were $3.4 million (16.0%
of net sales), an increase from $2.8 million (14.3% of net sales) in the third
quarter of 2001. The acquisition of Versaform added $0.6 million of selling,
general and administrative expense in the current quarter.
Interest Expense. Interest expense increased in the third quarter of 2002 to
$0.4 million from $0.3 million in 2001. This increase was attributable to the
new term loans executed in connection with the acquisition of Versaform and the
Company's use of its revolving line of credit in 2002.
Other, net. During the third quarter of 2002, the Company recorded a charge of
$0.3 million for certain available-for-sale securities that suffered a decline
in value that was deemed to be other than temporary. The securities are still
held by the Company.
Income Taxes. The Company's income taxes are calculated at 37.5% in 2002. During
the third quarter, the Company established a tax reserve of $0.1 million related
to the write down of available-for-sale securities which may not be deductible
in the foreseeable future. The Company's income tax rate was 35% in 2001. The
increase in tax rates is the result of the acquisition of companies in states
with higher income tax rates.
Nine months ended September 30, 2002 compared to September 30, 2001
Net Sales. Net sales for the nine months ended September 30, 2002 were $59.5
million compared to $54.7 million for the nine months ended September 30 2001.
The acquisitions of Versaform and Stretch Form Corporation added approximately
$5.7 million (9.6% of net sales) in 2002. The acquisition of Tempco Engineering,
acquired April 2, 2001, provided $15.9 million (26.8% of net sales) in net sales
in 2002 compared to $7.8 million (14.3% of net sales) in 2001. Excluding the
impact of these acquisitions, net sales were $37.9 million for the nine months
ended September 30, 2002, down 19.2% from $46.9 million for the nine months
ended September 30, 2001.
Nine Months 2001 Nine Months 2002
Market % of Total % of Total
---------------------- ------------------- -------------------
Commercial Aircraft 52.5% 30.6%
Corporate/Regional 16.1% 24.4%
Military 16.5% 23.9%
Non Aerospace 14.9% 21.1%
-------------------- -------------------
Total 100.0% 100.0%
==================== ===================
Net sales for use on Boeing commercial aircraft was $18.2 million (30.6% of net
sales) for the nine months of 2002 compared to $28.7 million (52.5% of net
sales) for the nine months of 2001. Net sales declined on all Boeing commercial
aircraft during 2002, consistent with the overall decline in commercial aircraft
production at Boeing.
Net sales of components for corporate and regional aircraft were $14.5 million
(24.4% of net sales) in 2002, an increase from $8.8 million (16.1% of net sales)
in 2001. The acquisition of Versaform added $3.5 million (5.9% of net sales) of
net sales for corporate and regional aircraft. The Company generated increases
in net sales for Gulfstream aircraft with an offload program that began in the
second quarter of 2002, offsetting declines in net sales on Bombardier aircraft.
Military programs provided $14.2 million (23.9% of net sales) in the first nine
months of 2002, an increase from $9.0 million (16.5% of net sales) in the first
nine months of 2001. A significant portion of this increase resulted from the
acquisition of Versaform and Stretch Froming Corporation in 2002, which added
$1.3 million (2.2% of net sales) to net sales on military programs. The
acquisition of Tempco on April 2, 2001 provided $5.2 million (8.7% of net sales)
in the nine months of 2002 compared to $2.7 million (4.9% of net sales) for the
six months after the acquisition in 2001.
Net sales of products for use in laser equipment were $9.1 million (15.3% of net
sales) in 2002, up from $3.9 million in 2001. The increase in net sales to laser
equipment manufacturers was attributable to a full nine months of shipments in
2002 compared to only six months in 2001 and to increased production rate
demand.
Gross Profit. Gross profit for the nine months ended September 30, 2002 was
$11.4 million (19.2% of net sales) compared to $12.5 million (22.9% of net
sales) in the prior year. The acquisition of Versaform added $1.7 million of
gross profit in 2002. Excluding the acquisition, gross profit declined in
connection with the overall decline in net sales of commercial aerospace
production, start up expenses related to new Gulfstream and Lockheed Martin
programs, and increases in health insurance and workers' compensation insurance.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $9.2 million (15.5% of net sales) in 2002, an
increase from $7.6 million (13.9% of net sales) in 2001. The acquisition of
Versaform added $0.9 million to selling, general and administrative expenses.
The acquisition of Tempco in the second quarter of 2001 resulted in only six
months of expenses for the nine months ended September 30, 2001 totaling $0.6
million. The nine months ended September 30, 2002 includes nine months of
expenses that total $1.2 million, an increase of $0.6 million from 2001.
Interest Expense. Interest expense increased in 2002 to $1.0 million from $0.6
million in 2001. This increase was attributable to the new term loans executed
in connection with the acquisition of Versaform, an additional three months of
expense related to the term loans in connection with the acquisition of Tempco,
and the Company's use of its revolving line of credit in 2002.
Other, net. During 2002, the Company recorded a charge of $0.3 million for
certain available-for-sale securities that suffered a decline in value that was
deemed to be other than temporary
Income Taxes. The Company's effective income tax rate for 2002 was 37.5%
compared to 35% in 2001. During the third quarter of 2002, the Company
established a tax reserve of $0.1 million in relation to the write down of an
available-for-sale security that may not result in a tax deduction before the
tax loss expires. The increase in rate is the result of the Company's growth in
higher income tax states.
Liquidity and Capital Resources
During 2002, the Company has experienced an increase in working capital needs as
inventory climbed $2.8 million and accounts receivable rose $2.5 million.
Increases in inventory are predominantly related to the purchase of $1.0 million
of components for a new kitting contract the Company has begun and an investment
in finished goods resulting from customer's decisions to reduce production rates
and inventories. Accounts receivable has grown due to an administrative issue at
one customer related to the closing of a facility, none of which is deemed to be
uncollectible, and an increase in business with customers that do not pay within
discounting arrangements made available by the company.
Capital expenditures were $1.9 million for the nine months ended September 30,
2002, compared to $2.4 million in the same period of 2001.
Additionally, the company acquired Southern Stretch Forming and Fabrication in
September of 2002, for approximately $0.3 million in cash and 90,000 shares of
common stock.
The Company has a revolving line of credit available for up to $7.0 million, of
which it had drawn $2.5 million at September 30, 2002. The Company believes this
revolving credit agreement is sufficient to support its working capital and
general corporate needs.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market risk represents the risk of loss that may impact the consolidated
financial position, results of operations or cash flows of the Company. The
Company is exposed to market risk primarily due to fluctuation in interest
rates. Based on the outstanding balance of long-term debt at September 30, 2002,
a 1% change in interest rates would result in a change in annual interest
expense of approximately $0.2 million. Under the Company's current Loan
Agreement as discussed in Note 5 of the financial statements, the Tempco Term
Loan interest rate is capped at 8.5% for the term of the loan.
Item 4. Controls and Procedures.
Within the 90 days prior to the date of this report, the Company's Chief
Executive Officer and Chief Financial Officer carried out an evaluation, with
the participation of other members of management as they deemed appropriate, of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures as contemplated by Exchange Act Rule 13a-14. Based upon,
and as of the date of that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective, in all material respects, in timely alerting them to
material information relating to the Company (and its consolidated subsidiaries)
required to be included in the periodic reports the Company files with the
Securities and Exchange Commission. There have been no significant changes to
the Company's internal controls or in other factors that could significantly
affect these controls subsequent to the date of that evaluation, nor were any
corrective actions required with regard to significant deficiencies or material
weaknesses.
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
On September 30, 2002, LMI delivered 90,000 shares of its $0.02 par value Common
Stock to Brian D. Geary, a director of the Company, in partial consideration for
Mr. Geary's sale to LMI of the operations and certain of the assets of the
aerospace division of Southern Stretch Forming and Fabrication, Inc., a Texas
corporation ("SSFF"). Immediately prior to LMI's acquisition of the operations
and assets of SSFF, Mr. Geary, through a wholly-owned limited partnership,
acquired such operations and assets directly from SSFF. LMI delivered these
shares in a private placement transaction pursuant to Rule 506 of Regulation D
under the Securities Act of 1933, as amended.
Item 5. Other Information.
On September 30, 2002, LMI Aerospace, Inc. and its wholly-owned subsidiary,
Versaform Corporation, entered into a Settlement Agreement with David Arthur,
individually and as representative for SSFF, and Brian D. Geary, a director of
LMI. The Settlement Agreement provided for the dismissal, with prejudice, of the
lawsuit filed by Mr. Arthur and SSFF against LMI, Versaform and Mr. Geary. Mr.
Arthur and SSFF filed the lawsuit against LMI and Versaform while on-going
negotiations were taking place between Mr. Arthur, Mr. Geary and LMI regarding
LMI's acquisition of the operations and assets of SSFF. LMI believes that the
claims made against LMI by Mr. Arthur and SSFF were without merit.
Dismissal of the lawsuit pursuant to the terms of the Settlement Agreement was
conditioned upon Mr. Geary's acquisition of the operations and certain of the
assets of the aerospace division of SSFF, and LMI's execution and delivery of an
Asset Purchase Agreement and Transition Services Agreement, both relating to
LMI's acquisition of the operations and certain of the assets of the aerospace
division of SSFF from Mr. Geary. Pursuant to the specific terms of the
Settlement Agreement, LMI had no obligation to consummate its acquisition of the
operations and assets of SSFF from Mr. Geary as part of the Settlement
Agreement.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit Number Description
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 September 30, 2002:
(i) On October 3, 2002, the Company filed a Report on Form 8-K
reporting the issuance of a press release relating to its
acquisition of the operations and certain of the assets of the
aerospace division of Southern Stretch Forming and
Fabrication, Inc., and to announce the appointment of Ed
Campbell to the position of Director of Marketing; and
(ii) On August 15, 2002, the Company filed a Report on Form 8-K
reporting the issuance of a press release relating to its
financial performance during the second quarter of 2002.
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: November 14, 2002 By: /s/ Lawrence E. Dickinson
----------------------------------------
Lawrence E. Dickinson
Chief Financial Officer and Secretary
CERTIFICATIONS
I, Ronald S. Saks, certify that:
1. I have reviewed this quarterly report on Form 10-Q of LMI
Aerospace, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
correctiveactions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ Ronald S. Saks
------------------------------------
Ronald S. Saks
Chief Executive Officer and President
CERTIFICATIONS
I, Lawrence E. Dickinson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of LMI
Aerospace, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Lawrence E. Dickinson
-------------------------------------
Lawrence E. Dickinson
Chief Financial Officer and Secretary
EXHIBIT INDEX
Exhibit Number Description
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.
Exhibit 99.1
LMI AEROSPACE, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of LMI Aerospace, Inc. (the "Company")
on Form 10-Q for the period ending September 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Ronald
S. Saks, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ Ronald S. Saks
- --------------------------------------
Ronald S. Saks
Chief Executive Officer and President
November 14, 2002
This certification is made solely for purposes of 18 U.S.C. Section 1350,
and not for any other purpose.
Exhibit 99.2
LMI AEROSPACE, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of LMI Aerospace, Inc. (the "Company")
on Form 10-Q for the period ending September 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
Lawrence E. Dickinson, Chief Financial Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ Lawrence E. Dickinson
- -----------------------------------------
Lawrence E. Dickinson
Chief Financial Officer and Secretary
November 14, 2002
This certification is made solely for purposes of 18 U.S.C. Section 1350,
and not for any other purpose.