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 March 31, 2004.
|_| 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: 000-24293
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 63302-0900
(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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes ___ No X
---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Number of shares outstanding
Title of class of common stock as of May 14, 2004.
------------------------------ ----------------------------
Common Stock, par value $.02 per share 8,181,786
LMI AEROSPACE, INC.
-------------------
QUARTERLY REPORT ON FORM 10-Q
FOR THE FISCAL QUARTER ENDING MARCH 31, 2004
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited).
Condensed Consolidated Balance Sheets as of March 31, 2004 and December 31,
2003.
Condensed Consolidated Statements of Operations for the three months ended
March 31, 2004 and 2003.
Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 2004 and 2003.
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 1. Legal Proceedings.
Item 6. Exhibits and Reports on Form 8-K.
SIGNATURE PAGE
EXHIBIT INDEX
LMI Aerospace, Inc.
Consolidated Balance Sheets
(Amounts in thousands, except share and per share data)
(Unaudited)
March 31, December 31,
2004 2003
-----------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 298 $ 441
Trade accounts receivable, net of allowance 9,640 9,158
of $250 in March 2004 and $245 in December 2003
Inventories 24,136 24,159
Prepaid expenses 812 787
Deferred income taxes 2,206 2,206
Income taxes receivable 1,922 1,933
-----------------------------------------
Total current assets 39,014 38,684
Property, plant and equipment, net 21,476 22,248
Goodwill 5,653 5,653
Customer intangible assets, net 3,696 3,792
Other assets 252 142
-----------------------------------------
Total Assets $ 70,091 $ 70,519
=========================================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 5,444 $ 4,570
Accrued expenses 2,073 2,126
Current installments of long-term debt and capital lease
obligations 20,463 6,069
-----------------------------------------
Total current liabilities 27,980 12,765
Long-term debt and capital lease obligations, less current
installments 7,635 21,756
Deferred income taxes 2,206 2,206
-----------------------------------------
Total long-term liabilities 9,841 23,962
Stockholders' equity:
Common stock of $.02 par value per share; authorized
28,000,000 shares; issued 8,736,427 shares in both
periods 175 175
Preferred stock; authorized 2,000,000 shares; none issued in
both periods - -
Additional paid-in capital 26,171 26,171
Treasury stock, at cost, 554,641 shares in both periods (2,632) (2,632)
Accumulated other comprehensive income (loss) 17 20
Retained earnings 8,539 10,058
-----------------------------------------
Total stockholders' equity 32,270 33,792
-----------------------------------------
Total liabilities and stockholders' equity $ 70,091 $ 70,519
=========================================
See accompanying notes.
LMI Aerospace, Inc.
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Unaudited)
For the Three Months Ended
March 31,
2004 2003
-----------------------------
Net sales $ 18,540 $ 20,842
Cost of sales 15,869 18,623
------------------------------
Gross profit 2,671 2,219
Selling, general and administrative expenses 3,216 3,310
Restructuring charges 529 -
-----------------------------
Loss from operations (1,074) (1,091)
Other income (expense):
Interest expense (445) (440)
Other, net - -
-----------------------------
Loss before income taxes (1,519) (1,531)
Provision for (benefit of) income taxes - (574)
-----------------------------
Net loss $ (1,519) $ (957)
=============================
Amounts per common share basic and dilutive:
Net loss per common share $ (0.19) $ (0.12)
=============================
Weighted average common shares outstanding 8,181,786 8,181,786
=============================
See accompanying notes.
LMI Aerospace, Inc.
Consolidated Statements of Cash Flow
(Amounts in thousands, except per share data)
(Unaudited)
For the Three Months Ended March 31,
2004 2003
-------------------------------------------------
Operating activities:
Net loss $ (1,519) $ (957)
Adjustments to reconcile net loss to
net cash provided by (used by) operating activities:
Depreciation and amortization 1,163 1,219
Changes in operating assets and liabilities:
Trade accounts receivable (482) (210)
Inventories 23 (1,016)
Prepaid expenses and other assets (140) (326)
Income taxes 7 (611)
Accounts payable 874 60
Accrued expenses (49) 125
-------------------------------------------------
Net cash provided by (used by) operating activities (123) (1,716)
Investing activities:
Additions to property, plant and equipment (290) (416)
Proceeds from sale of equipment - 301
------------------------------------------------
Net cash provided by (used by) investing activities (290) (115)
Financing activities:
Net borrowings on revolving line of credit 1,357 2,583
Principal payments on long-term debt (1,084) (1,338)
------------------------------------------------
Net cash provided by (used by) financing activities 273 1,245
Effect of exchange rate changes on cash (3) -
-------------------------------------------------
Net decrease in cash and cash equivalents (143) (586)
Cash and cash equivalents, beginning of year 441 1,182
-------------------------------------------------
Cash and cash equivalents, end of quarter $ 298 $ 596
=================================================
Supplemental disclosures of cash flow information
Interest paid $ 447 $ 416
Income taxes paid (refunded), net $ (11) $ 5
See accompanying notes.
LMI Aerospace, Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2004
1. Accounting Policies
Description of Business
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; Auburn, Washington; Tulsa, Oklahoma; Wichita, Kansas; Irving,
Texas; Sun Valley and Oceanside, California; Pooler, Georgia; and Langley,
British Columbia.
Basis of Presentation
The accompanying unaudited 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 three months ended March 31, 2004 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2004. 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, 2003, as filed with the
Securities and Exchange Commission.
The Company's losses from operations in recent years together with its inability
to meet certain covenants under its loan agreement have raised substantial doubt
about the Company's ability to continue as a going concern. The Company's
ability to continue as a going concern is ultimately dependent on its ability to
improve operating performance such that it can operate profitably, sustain
positive operating cash flows and support its required financial covenants with
its primary lender. Management is currently seeking alternative financing
arrangements and pursuing the sale of certain assets to replace its current
lender and secure additional funds. However, there is no assurance that the
Company will be successful in improving its operating results, obtaining
alternative financing or consummating the sale of assets. The financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the possible inability of the
Company to continue as a going concern.
The accompanying unaudited consolidated financial statements have been prepared
on the going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business, although the
report of our independent accountant as of and for the year ended December 31,
2003 expresses substantial doubt as to the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Operating Results and Management's Plan
In response to the substantial doubt about the Company's ability to continue as
a going concern, management has reduced the Company's cost structure, improved
the Company's processes and systems and implemented strict controls over capital
spending. Management believes these activities will continue to improve the
Company's result of operations, cash flow from operations and its future
prospects. As a result of all the factors cited, management of the Company
believes that the Company should be able to sustain its operations and continue
as a going concern. However, the ultimate outcome of this uncertainty cannot be
presently determined. Accordingly, there remains doubt as to whether the Company
will be able to continue as a going concern.
As discussed in the Company's Annual Report on Form 10-K, the Company has
undertaken a plan to reduce operating expenses, increase efficiencies and align
its cost structure with current levels of demand for its products. On July 23,
2003, as outlined in Note 7 of the Consolidated Financial Statements included as
part of this Quarterly Report on Form 10-Q, the Company announced the details of
a restructuring plan for its St. Charles operations which includes the
rationalization of the work force and the closure of two of the four St. Charles
facilities. In addition, in December 2003, the Company announced an additional
restructuring program at its Wichita facility which included the reduction of
workforce and the sale of an LMI owned building and excess equipment.
On March 30, 2004, the Company and Union Planters Bank N.A. ("Union Planters")
entered into a Thirteenth Amendment to Loan Agreement ("Thirteenth Amendment"),
amending the Loan Agreement dated as of August 15, 1996 (the "Loan Agreement")
between Leonard's Metal, Inc., the predecessor in interest to the Company, and
Magna Bank, National Association, the predecessor in interest to Union Planters.
The primary purposes of the Thirteenth Amendment were to (a) extend the maturity
of the Company's Revolving Line of Credit provided under the Loan Agreement
("Revolving Credit Loan") from March 31, 2004 to March 31, 2005, and (b) waive a
default arising under the Loan Agreement providing for the maintenance of a
minimum consolidated EBITDA amount (the "EBITDA Covenant") for the period ended
December 31, 2003. The Thirteenth Amendment contemplates the full repayment of
all indebtedness under the Loan Agreement by March 31, 2005 through the sale of
one or more businesses of the Company and/or the procurement of alternative
financing.
Please see Note 4 of the Consolidated Financial Statements included as part of
this Quarterly Report on Form 10-Q for more detailed information relating to the
Company's debt and the Thirteenth Amendment.
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.
Stock-Based Compensation
The Company accounts for its stock-based compensation in accordance with
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations and provides the pro forma disclosures
required by Statements of Financial Accounting Standards No. ("SFAS") 123,
Accounting for Stock-Based Compensation, and SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure. No stock-based employee
compensation expense is recognized in the statement of operations, as all
options granted had an exercise price equal to the fair value of the underlying
common stock on the date of grant. Had the Company determined compensation cost
based on the fair value of the underlying common stock at the grant date under
SFAS No. 123, net income and earnings per share amounts would have been as
follows:
Three Months Ended
March 31,
2004 2003
---------------------------
Net loss $ (1,519) $ (957)
Total stock-based employee compensation
expense determined under fair value based
method, net of tax effect (25) (28)
---------------------------
Pro forma net loss $ (1,544) $ (985)
===========================
Net loss per common share - basic and assuming
dilution
As reported $ (0.19) $ (0.12)
Pro forma $ (0.19) $ (0.12)
2. Inventories
Inventories consist of the following:
March 31, December 31,
2004 2003
-------------- ---------------
Gross inventory
Raw materials $ 3,789 $ 3,877
Work in progress 6,851 6,238
Finished goods 16,285 16,864
-------------- ---------------
Total gross inventory 26,925 26,979
Reserves
Lower cost or market (562) (647)
Obsolescence & slow moving (2,227) (2,173)
------------- ---------------
Total reserves (2,789) (2,820)
------------- ---------------
Net inventory $ 24,136 $ 24,159
============= ===============
The Company performed an in-depth analysis of inventory obsolescence and slow
moving products at the end of the fourth quarter of 2003. This analysis was
based on the current markets for the Company's products and the change in the
buying patterns of the Company's major customers. The result of this analysis
was the recording in the fourth quarter of 2003 of an additional obsolescence
reserve of $1,421. The Company's reserve for obsolescence and slow moving
products totaled $2,227 at March 31, 2004 and $2,173 at December 31, 2003.
In the fourth quarter of 2002, the Company established a lower of cost or market
(LOCOM) reserve to accrue losses on components which had inadequate pricing,
high levels of scrap and high amounts of inefficient labor; on March 31, 2004
and December 31, 2003, this reserve was at $562 and $647, respectively.
The total for both the reserve for obsolescence and slow moving products and the
reserve for LOCOM was $2,789 and $2,820 for March 31, 2004 and December 31,
2003, respectively.
3. Goodwill and Intangibles
As required by SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS 142"),
the Company performs an annual goodwill impairment test on a reporting segment
basis. A fair value approach is utilized by management regarding projected cash
flows and other factors to determine the fair value of the respective assets. If
required, an impairment charge is recognized for the amount by which the
carrying amount of goodwill exceeds its fair value.
In the fourth quarter of 2003, the Company performed the required annual
impairment test under SFAS No. 142 and concluded that the remaining goodwill
balance, which relates to the Machining and Technology segment only, was not
further impaired. The remaining goodwill was $5,653 at March 31, 2004 and
December 31, 2003.
Customer Related Intangibles
The carrying amount of customer related intangibles at March 31, 2004 and
December 31, 2003 were as follows:
Gross Accumulated Useful
Amount Amortization Life
--------------- ------------------- -----------------
Versaform $3,975 $398 15 years
Stretch Forming Corp. 329 210 3.5 years
--------------- -------------------
March 31, 2004 $4,304 $608
=============== ===================
Versaform $3,975 $332
Stretch Forming Corp. 329 180
--------------- -------------------
December 31, 2003 $4,304 $512
=============== ===================
Customer related intangibles amortization expense was $96 for both quarters
ended March 31, 2004 and March 31, 2003.
4. Long-Term Debt and Revolving Line of Credit
Long-term debt and revolving line of credit consists of the following:
March 31, December 31
2004 2003
----------------------------------
Term Loans:
Tempco $ 9,161 $ 9,670
Versaform 8,774 9,167
Revolving line of credit 9,041 7,684
Note payable to Director, principal and interest payable
monthly at 7% 505 614
Notes payable, principal and interest payable monthly, at
fixed rates, ranging from 6.99% to 10.00% 617 679
Capital lease obligations 0 11
----------------------------------
28,098 27,825
Less current installments 20,463 6,069
----------------------------------
Total Debt $ 7,635 $ 21,756
==================================
The Loan Agreement with Union Planters consists of the Revolving Credit Loan, 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 Loan Agreement
is secured by all the domestic assets of the Company and requires compliance
with certain non-financial and financial covenants, including minimum levels of
tangible net worth and the EBITDA Covenant.
On January 5, 2004 the Company's extended its Loan Agreement to March 31, 2004,
received a waiver for certain non-financial covenants, and agreed to a fee of
$75. Subsequently, on March 30, 2004, the Company and Union Planters entered
into the Thirteenth Amendment. The primary purposes of the Thirteenth Amendment
were to (a) extend the maturity of the Company's Revolving Credit Loan from
March 31, 2004 to March 31, 2005 and (b) waive a default arising under the
EBITDA Covenant for the period ended December 31, 2003.
In addition, under the terms of the Thirteenth Amendment:
o The maximum principal amount of the Revolving Credit Loan was
increased from approximately $9,088 to $9,700 through September 30,
2004, subject to a borrowing base calculation and further subject to a
newly established inventory reserve requirement and a more restrictive
requirement for eligible receivables, which, notwithstanding the
increased borrowing maximum amount provided by the Thirteenth
Amendment, could reduce the amount of borrowing available under the
Revolving Credit Loan.
o The interest rate on the Revolving Credit Loan was changed from LIBOR
plus 2.5% to Union Planters' prime rate plus 1.0%. (The prime rate was
4.0% at March 31, 2004.) Moreover, if the Company has not executed and
delivered a letter of intent regarding (i) the sale of the stock or of
all or substantially all of the assets of certain of its subsidiaries,
and/or (ii) the procurement by the Company of debt financing providing
the Company with sufficient funds to repay in full the Company's
obligations to Union Planters ("Letter of Intent") on or before June
30, 2004, the interest rate on the Revolving Credit Loan will be
increased to prime plus 1.5% and further increased to prime plus 2.0%
if the Company has not paid all of its obligations to Union Planters
in full on or before September 30, 2004. The interest rate on the
Tempco Term Loan provided under the Loan Agreement, which, as of March
30, 2004, had a total outstanding principal balance of approximately
$9,161, was changed from LIBOR plus 3.0%, subject to a floor of 7.0%
and a ceiling of 8.5%, to Union Planters' prime rate plus 2.0%,
subject to a floor of 7.0%. The interest rate on the Versaform Term
Loan provided under the Loan Agreement, which, as of March 30, 2004,
had a total outstanding principal balance of approximately $8,774, was
changed from LIBOR plus 3.0% to Union Planters' prime rate plus 2.0%.
Moreover, if the Company has not executed and delivered a Letter of
Intent on or before June 30, 2004, the interest rate on Term Loans A
and B will be increased to Union Planters' prime plus 2.5% and further
increased to Union Planters' prime plus 3.0% if the Company has not
paid all of its obligations to the Buyer in full on or before
September 30, 2004.
o If, by June 30, 2004, the Company does not enter into one or more
Letters of Intent, a fee of $125 will be payable on the earliest of
March 31, 2005, the date the Company repays all of its obligations to
Union Planters or the date on which Union Planters accelerates all of
the Company's obligations.
o If the Company fails to pay all of its obligations in full to Union
Planters by September 30, 2004, a fee of $350 will be payable to Union
Planters ($100 on October 1, 2004 and $250 on the earliest of March
31, 2005, the date the Company repays all of its obligations to Union
Planters or the date on which Union Planters accelerates all of the
Company's obligations).
o If the Company fails to pay all of its obligations in full to Union
Planters by December 30, 2004, a fee of $200 will be payable to Union
Planters ($100 on December 31, 2004 and $100 on the earliest of March
31, 2005, the date the Company repays all of its obligations to Union
Planters or the date on which Union Planters accelerates all of the
Company's obligations).
Thus, increased interest rates and additional fees will apply during the
remaining term of the Loan Agreement (through March 31, 2005) if the
indebtedness under the Loan Agreement is not repaid in full through alternative
financing and/or sales of assets by certain prescribed dates. The Company has
engaged Lincoln Partners LLC, a Chicago, Illinois based investment banking firm,
to assist in these efforts.
At December 31, 2003, the Company's Revolving Credit Loan allowed for a $9,088
line of credit, subject to a borrowing base calculation, to fund various
corporate needs. Interest was payable monthly based on a ninety day LIBOR plus
2.25% and was 3.67% at December 31, 2003. The Company had $7,684 outstanding on
this line at December 31, 2003. This facility was amended in January 2004 to
extend maturities to March 31, 2004 and included an increase in interest to
LIBOR plus 2.5%. On March 30, 2004, the Company further amended the Loan
Agreement to extend the Revolving Credit Loan maturity to March 31, 2005 and
establish the Revolving Credit Loan line at $9,700 until September 30, 2004, and
$9,000 thereafter, each subject to a borrowing base. The Revolving Credit Loan
interest was amended to prime plus 1.0% with possible adjustments as described
above. This increase was due to the net loss in the first quarter of 2004. The
Company's revolving credit line at March 31, 2004 was at $9,041, with an
additional line capacity of $659. The credit facility prohibits the payment of
cash dividends on common stock without the prior written consent of Union
Planters.
The Company borrowed $14,250 (Tempco Term Loan) on April 2, 2001 to finance the
Tempco acquisition. The Tempco Term Loan required monthly principal and interest
payments over three years using a seven year amortization and bearing interest
at ninety day LIBOR plus 3.0%, subject to a cap of 8.5% and a floor of 7.0%. On
March 30, 2004 the Company amended this note establishing a maturity of March
31, 2005 and interest at prime plus 2.0% with possible adjustments as described
above. The interest rate was 7.0% at March 31, 2004 and December 31, 2003.
The Versaform Term Loan was issued for $11,000 on May 15, 2002. The Versaform
Term Loan required monthly principal and interest payments over three years
using a seven year amortization and bears interest at the ninety day LIBOR plus
3.0%. The interest rate was 6.0% at March 31, 2004 and 4.2% at December 31,
2003. On March 30, 2004 the Company amended this note increasing interest to
prime plus 2.0% with possible adjustments as described above. The March 30, 2004
amendment did not change the original maturity of October 15, 2005 as stated in
the Versaform Term Loan agreement.
The Company entered into a note payable for $1,300 with the prior owner of
Versaform in connection with the acquisition. 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 other 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.
5. Business Segment Information
As set forth in the criteria of SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, the Company is organized into two reportable
segments: the Sheet Metal segment and the Machining and Technology segment. The
Sheet Metal segment fabricates, finishes and integrates close tolerance aluminum
and specialty alloy components primarily for the aerospace industry. The
Machining and Technology segment machines close tolerance aluminum and specialty
alloy components for the aerospace, semiconductor and medical products
industries.
The accounting policies of the segments are the same as those described in Note
1 of the Consolidated Financial Statements included as part of this Quarterly
Report on Form 10-Q. Sales between segments are insignificant. Corporate assets,
liabilities, and expenses related to the Company's corporate offices are
allocated to the segments, except for income taxes. The table below presents
information about reported segments on the basis used internally to evaluate
segment performance:
Three Months Ended
March 31,
2004 2003
----------------------------------
Net sales:
Sheet Metal $ 14,750 $ 17,164
Machining and Technology 3,790 3,678
----------------------------------
$ 18,540 $ 20,842
==================================
Income (loss) before interest and income taxes:
Sheet Metal $ (1,478) $ (1,273)
Machining and Technology 404 182
----------------------------------
$ (1,074) $ (1,091)
==================================
Interest expense:
Sheet Metal $ 112 $ 158
Machining and Technology 167 207
Corporate 166 75
---------------------------------
$ 445 $ 440
=================================
Depreciation and amortization:
Sheet Metal $ 884 $ 1,013
Machining and Technology 99 97
Corporate 180 109
---------------------------------
$ 1,163 $ 1,219
=================================
Capital expenditures:
Sheet Metal $ 267 $ 317
Machining and Technology 9 26
Corporate 14 73
---------------------------------
$ 290 $ 416
=================================
March 31, December 31,
2004 2003
----------------------------------
Goodwill:
Sheet Metal $ - $ -
Machining and Technology 5,653 5,653
Corporate - -
---------------------------------
$ 5,653 $ 5,653
=================================
Total Assets:
Sheet Metal $ 49,244 $ 49,896
Machining and Technology 15,444 15,016
Corporate 5,403 5,607
---------------------------------
$ 70,091 $ 70,519
6. Comprehensive Loss
Comprehensive loss includes adjustments to net loss for the change in foreign
currency translations as follows:
Three Months Ended
March 31,
2004 2003
----------------------------------
Net loss $ (1,519) $ (957)
Other comprehensive income (loss):
Foreign currency translation adjustments (3) 31
----------------------------------
Comprehensive loss $ (1,522) $ (926)
==================================
7. Restructuring Charges
The Company adopted SFAS No. 146, Accounting for Costs Associated with Exit and
Disposal Activities, in 2003. SFAS No. 146 requires companies to recognize costs
associated with exit and disposal activities when they are incurred rather than
at the date of commitment to an exit or disposal plan. Costs covered include
lease termination, costs to consolidate facilities and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing or other exit or disposal activity.
On July 23, 2003, the Company announced the details of a restructuring plan to
reduce operating expenses and increase efficiencies at its St. Charles, Missouri
location which included a reduction of work force of approximately 30 people,
the exit of two leased facilities and relocation of a significant amount of its
manufacturing equipment. In December 2003, the Company announced an additional
restructuring program at the Wichita, Kansas plant, including a staged reduction
in workforce of approximately 60 employees, and the sale of a Company-owned
building and excess equipment. The Wichita restructuring program is scheduled to
occur over a five month period during which the Company plans to transfer from
its Wichita facility all extrusion stretch work to its Auburn, Washington and
Vista, California locations and its milling work packages to its Tulsa, Oklahoma
and Auburn, Washington facilities and plans to transfer its high pressure
forming work currently produced in Auburn to the Wichita, Kansas plant. Employee
severance costs for the Wichita plant restructuring will be paid upon completion
of service term in 2004 and, therefore, were not accrued in 2003 per SFAS No.
146. The costs incurred for these restructuring plans as of March 31, 2004 were
$529, incurred as follows: $394 for moving and relocation and $135 for severance
costs. The Company expects to incur total restructuring costs for both of these
programs of $910 for the year ending December 31, 2004. All restructuring costs
are attributable to the Sheet Metal Segment and are classified as a separate
component of Selling, General and Administrative expenses.
8. Income Taxes
The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes." The objectives of accounting for income taxes are
to recognize the amount of taxes payable or refundable for the current year and
deferred tax liabilities and assets for the future tax consequences of events
that have been recognized in the Company's financial statements or tax returns.
SFAS No. 109 also requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion or all of the deferred
tax asset will not be realized.
The Company currently has significant deferred tax assets, which are subject to
periodic recoverability assessments. Pursuant to FASB 109, and due to the
uncertainty of future taxable income, the Company has recorded a deferred tax
asset and corresponding valuation reserve allowance relating to the Company's
loss in the first quarter of 2004.
As of March 31, 2004, the Company had a deferred tax asset of $2,206 and an
offsetting deferred tax liability of $2,206.
Differences between the effective rate of taxes recorded and income taxes at the
statutory rates are due to anticipated utilization of available net operating
loss carryforwards.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. The Company makes forward-looking statements in
the "Management's Discussion and Analysis of Financial Condition and Results of
Operations" section of this Quarterly Report on Form 10-Q, which represent the
Company's expectations or beliefs about future events and financial performance.
When used in this report, the words "expect," "believe," "anticipate," "goal,"
"plan," "intend," "estimate," "may," "will" or similar words are intended to
identify forward-looking statements. These forward-looking statements are
subject to known and unknown risks, uncertainties and assumptions, including
those referred to in the "Risk Factors" section of the Company's Annual Report
on Form 10-K for the year ended December 31, 2003, as filed with the Securities
and Exchange Commission on April 15, 2004.
In light of these risks, uncertainties, and assumptions, the forward-looking
events discussed may not occur. In addition, actual results could differ
materially from those suggested by the forward-looking statements. Accordingly,
investors are cautioned not to place undue reliance on the forward-looking
statements. Except as required by law, the Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. Investors should, however, review
additional disclosures made by the Company from time to time in its periodic
filings with the Securities and Exchange Commission.
This Quarterly Report on Form 10-Q should be read completely and with the
understanding that the Company's actual future results may be materially
different from what the Company expects. All forward-looking statements made by
the Company in this Form 10-Q and in the Company's other filings with the
Securities and Exchange Commission are qualified by these cautionary statements.
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 of the Consolidated Financial
Statements included as part of this Quarterly Report on Form 10-Q). 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 statements to which they relate or 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 Annual Report on Form 10-K for the fiscal year ended
December 31, 2003.
OVERVIEW
The Company is a leader in fabricating, machining, finishing and integrating
formed, close tolerance aluminum and specialty alloy components and sheet metal
products for use by the aerospace, technology and commercial sheet metal
industries. 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.
The Company manufactures more than 20,000 aerospace components for integration
into a variety of civilian and military aircraft platforms manufactured by
leading original equipment manufacturers and prime subcontractors. In addition,
the Company produces components and assemblies for laser equipment used by
semiconductor and medical equipment manufacturers in the technology industry.
The Company also produces sheet metal products for various companies in the
commercial sheet metal industry. In addition to manufacturing quality
components, the Company provides its customers with value-added services related
to the design, production and finishing of its components.
Historically, the Company's business was primarily dependent on the commercial
aircraft market, with Boeing Company as the Company's principal customer. In
order to diversify its products and customer base, the Company implemented an
acquisition and marketing strategy in the late 1990's that has broadened the
number of industries to which the Company sells its components, and, within the
aerospace industry, diversified its customer base to reduce the Company's
dependence on Boeing Company. The following table specifies the Company's sales
by market as a percentage of total sales for the three months ended March 31,
2004 as compared to the three months ended March 31, 2003:
Market 1st Qtr 1st Qtr
2004 2003
% of Total % of Total
------------------------------------------------------------------------
Commercial aircraft 30.0 % 24.8 %
Corporate and regional aircraft 26.8 29.4
Military products 23.2 21.2
Technology products 12.0 12.0
Other (1) 8.0 12.6
----------------------------------
Total 100.0 % 100.0 %
==================================
(1) Includes commercial sheet metal and various aerospace products.
Beginning in 2001, the Company began an aggressive acquisition campaign that
resulted in the consummation of four transactions through 2002. In April 2001,
the Company acquired Tempco Engineering Inc. ("Tempco") and its affiliates,
which expanded the Company's aerospace product line and introduced the Company
to the technology industry. The Company acquired Versaform Corporation
("Versaform") and its affiliates on May 16, 2002, Stretch Forming Corporation
("SFC") on June 12, 2002 and Southern Stretch Forming and Fabrication, Inc.
("SSFF") on September 30, 2002. The Versaform acquisition significantly
increased the Company's presence in the corporate and regional aircraft market
while adding various military products to the Company's product line. The SFC
acquisition further supplemented the Company's military product line. Finally,
the Company's acquisition of SSFF increased the Company's business in the
corporate and regional aircraft market.
Unlike the other acquisitions, Tempco operates and is managed as an autonomous
unit. Accordingly, it is treated as a business segment separate from the
Company's other businesses. The Tempco business, which sells machined components
to both the aerospace and technology industries, is referred to in this
discussion as the Machining and Technology segment and the Company's other
businesses are referred to as the Sheet Metal segment.
The following table is a summary of the Company's operating results for the
three months ended March 31, 2004 and March 31, 2003:
($ in millions) March 31, 2004 March 31, 2003
---------------------------------------- ------------------------------------------
Sheet Machining & Sheet Machining & Total
Metal Technology Total Metal Technology
---------------------------------------- ------------------------------------------
Net sales $14.7 $3.8 $18.5 $17.1 $3.7 $20.8
Cost of Sales 12.9 2.9 15.8 15.5 3.1 18.6
---------------------------------------- ------------------------------------------
Gross profit 1.8 .9 2.7 1.6 .6 2.2
S, G & A 2.8 .5 3.3 2.9 .4 3.3
Restructuring expenses .5 0 .5 0 0 0
---------------------------------------- ------------------------------------------
Income (loss) from
operations $ (1.5) $ .4 $(1.1) $(1.3) $ .2 $(1.1)
======================================== ==========================================
RESULTS OF OPERATIONS
Three months ended March 31, 2004 compared to March 31, 2003
Sheet Metal Segment
- -------------------
Net Sales.
($ in millions)
1st Qtr % of 1st Qtr % of
Category 2004 Total 2003 Total
--------------------------------------------------------------------------------
Commercial aircraft $ 5.6 37.8 % $ 5.2 30.4 %
Military Products 3.1 21.3 3.8 22.5
Corporate and regional 5.0 33.7 6.7 39.3
Other 1.0 7.2 1.4 7.8
---------------------------------------------------
Total $14.7 100.0 % $17.1 100.0 %
===================================================
Net sales for the Sheet Metal segment were $14.7 million for the three months
ended March 31, 2004, $2.4 million lower than net sales for the three months
ended March 31, 2003. Corporate and Regional sales of $5.0 million for the first
quarter of 2004 were $1.7 million lower than Corporate and Regional sales for
the comparable period of the prior year primarily because of high Gulfstream
shipments in 2003 generated by the customer's higher production rates. Military
sales in the first quarter of 2004 were at $3.1 million, $0.7 million lower than
military sales in the first quarter of 2003 due to reduced demand by Lockheed
Martin Corporation for the F-16 program. Partly offsetting, were increased
Commercial Aircraft sales of $5.6 million in the first quarter 2004, $0.4
million higher than Commercial Aircraft sales in the first quarter of the prior
year, primarily reflecting increased Boeing Company volume in the 737 program.
Gross Profit. Gross profit for the quarter ended March 31, 2004 was $1.8 million
(12.2% of net sales), an increase from $1.6 million (9.3% of net sales) for the
quarter ended March 31, 2003. Gross profit increased primarily due to cost
reduction and restructuring efforts during the second half of 2003 and the first
quarter of 2004, at the Company's St. Charles, MO and Wichita, KS facilities.
The Company continues to encounter production difficulties on certain products
for the C-130 for which it is preparing a claim to attempt to recover losses
incurred and to re-price product for future deliveries. No benefit from any
potential claim for the C-130 components has been accrued. The benefit of a
claim, if any, will not be recorded until such time as the customer and the
Company agree on a settlement. Additionally, scrap and other start-up costs are
hindering performance on the B-52 refurbishment program.
Selling, General and Administrative Expenses ("SGA"). SGA expenses excluding
restructuring charges, for the first quarter of 2004 were $2.8 million (19.0% of
net sales), down from $2.9 million (16.7% of net sales) for the first quarter of
2003 due to reduced salaries, supplies and other expenses.
Restructuring Charges. During the first quarter of 2004, the Company continued
its plans of reducing employment levels at its St. Charles and Wichita
operations. During the first quarter, the Company incurred total restructuring
charges of $0.5 million: severance costs of $0.1 million and moving and
relocation costs of $0.4 million. The Company expects to spend a total of $0.9
million in the year 2004 to complete this restructuring.
Interest Expense. Interest expense for the first quarter of 2004 was $0.1
million, slightly lower than the $0.2 reported in the first quarter of the prior
year.
Machining and Technology Segment
- --------------------------------
Net Sales.
($ in millions)
1st Qtr % of 1st Qtr % of
Category 2004 Total 2003 Total
------------------------------------------------------------------------
Technology products $2.2 57.9 % $2.5 67.6 %
Aerospace products 1.2 31.6 .7 18.9
Other .4 10.5 .5 13.5
------------------------------------------------
Total $3.8 100.0 % $3.7 100.0 %
================================================
Net sales for the Machining and Technology segment were $3.8 million in the
first quarter of 2004, up 2.7% from $3.7 million in the prior year's first
quarter. Net sales of technology products were $2.2 million in the first quarter
of 2004, down $0.3 million from the prior year's first quarter. This decline is
primarily attributable to the decline in the demand for equipment used in the
production of semiconductors. Favorably offsetting the lower technology products
were higher aerospace products sales of $1.2 million in the first quarter of
2004, up from $0.7 million in the first quarter of 2003, reflecting increased
defense spending.
Gross Profit. The gross profit for the segment was $0.9 million (23.7% of net
sales) in the first quarter of 2004, an increase from $0.6 million (16.2% of net
sales) in the first quarter of 2003. The increase in gross profit in the first
quarter of 2004 was due to higher volume, favorable leverage of fixed costs and
implemented cost containment programs.
Selling, General and Administrative Expenses. SGA expenses for the quarter ended
March 31, 2004 were $0.5 million, slightly higher than the $0.4 reported in the
first quarter of last year due to higher corporate expenses.
Interest Expense. Interest expense for the first quarter of 2004 was $0.2
million for the segment, unchanged from the prior year's first quarter.
Non-Segment Expenses
- --------------------
Interest Expense. Interest expense not assigned to a segment is primarily the
result of the Company's revolving credit agreement which is used to fund both
segments' cash needs. Interest expense not assigned to a segment was $0.2
million in the first quarter of 2004 compared to $0.1 million in the first
quarter of 2003.
Income Taxes. The Company did not record an income tax benefit in the first
quarter of 2004, compared to a benefit of $0.6 million in the first quarter of
2003. In 2003, the Company had net operating loss carrybacks available which
were fully utilized in 2003.
Liquidity and Capital Resources
During the three month period ended March 31, 2004, the Company incurred a net
loss of $1.5 million. Primarily as a result of our continuing losses, inability
to meet our covenants and lack of liquidity, our independent certified public
accountants modified their opinion on the Company's December 31, 2003
Consolidated Financial Statement to contain a paragraph wherein they expressed a
substantial doubt about our ability to continue as a going concern. The Company
has taken steps to improve our current liquidity and provide the capital
necessary to fund our plan for future growth. Our efforts to raise alternative
capital are discussed below, and additional information is included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2003.
The Company's balance of cash and equivalents was $298,000 as of March 31, 2004
compared to a balance of $441,000 as of December 31, 2003. Cash flow used by
operating activities for the first quarter of 2004 was $123,000, reflecting the
Company's $1.8 million net loss and higher accounts receivable, which was only
partly offset by non-cash depreciation and amortization and higher accounts
payable. Cash used by investing activities was $290,000 in first quarter of 2004
and reflected capital expenditures. The Company's financing activities in 2004
provided $273,000, reflecting additional borrowings on the Company's revolving
credit line, which were used to pay down long-term debt and notes payable and to
support operations.
The Company's ratio of total debt to capitalization (debt plus stockholders
equity) was 46.5% as of March 31, 2004 and 45.2% as of December 31, 2003. This
increase was primarily due to the net loss in the first quarter of 2004. The
Company's revolving credit line at March 31, 2004 was at $9,041,000, with an
additional line capacity of $659,000.
In 2003, the Company's failure to meet certain financial covenants with its
primary lender resulted in a renegotiation of its Loan Agreement on January 5,
2004 and again on March 30, 2004.
On March 30, 2004, the Company and Union Planters entered into the Thirteenth
Amendment, amending the Loan Agreement. The primary purposes of the Thirteenth
Amendment were to (a) extend the maturity of the Company's Revolving Credit Loan
provided under the Loan Agreement from March 31, 2004 to March 31, 2005 and (b)
waive a default arising under the Loan Agreement of the EBITDA Covenant for the
period ended December 31, 2003.
In addition, under the terms of the Thirteenth Amendment to Loan Agreement:
o The maximum principal amount of the Revolving Credit Loan was
increased from $9,088,323 to $9,700,000 through September 30, 2004,
subject to a borrowing base calculation and further subject to a newly
established inventory reserve requirement and a more restrictive
requirement for eligible receivables, which could reduce the amount of
borrowing availability under the Revolving Credit Loan.
o The interest rate on the Revolving Credit Loan was changed from LIBOR
plus 2.5% to Union Planters' prime rate plus 1.0%. Moreover, if the
Company has not executed and delivered a Letter of Intent on or before
June 30, 2004, the interest rate on the Revolving Credit Loan will be
increased to prime plus 1.5%, and further increased to prime plus 2.0%
if the Company has not paid all of its obligations to Union Planters
in full on or before September 30, 2004. The interest rate on the
Tempco Term Loan provided under the Loan Agreement, which, as of March
30, 2004, had a total outstanding principal balance of $9,160,714, was
changed from LIBOR plus 3.0%, subject to a floor of 7.0% and a ceiling
of 8.5%, to Union Planters' prime rate plus 2.0%, subject to a floor
of 7.0%. The interest rate on the Versaform Term Loan provided under
the Loan Agreement, which, as of March 30, 2004, had a total
outstanding principal balance of $8,773,816, was changed from LIBOR
plus 3.0% to Union Planters' prime rate plus 2.0%. Moreover, if the
Company has not executed and delivered a Letter of Intent on or before
June 30, 2004, the interest rate on Term Loans A and B will be
increased to Union Planters' prime plus 2.5% and further increased to
Union Planters' prime plus 3.0% if the Company has not paid all of its
obligations to the Buyer in full on or before September 30, 2004.
o If, by June 30, 2004, the Company does not enter into one or more
Letters of Intent, a fee of $125,000 will be payable on the earliest
of March 31, 2005, the date the Company repays all of its obligations
to Union Planters or the date on which Union Planters accelerates all
of the Company's obligations.
o If the Company fails to pay all of its obligations in full to Union
Planters by September 30, 2004, a fee of $350,000 will be payable to
Union Planters ($100,000 on October 1, 2004 and $250,000 on the
earliest of March 31, 2005, the date the Company repays all of its
obligations to Union Planters or the date on which Union Planters
accelerates all of the Company's obligations).
o If the Company fails to pay all of its obligations in full to Union
Planters by December 30, 2004, a fee of $200,000 will be payable to
Union Planters ($100,000 on December 31, 2004 and $100,000 on the
earliest of March 31, 2005, the date the Company repays all of its
obligations to Union Planters or the date on which Union Planters
accelerates all of the Company's obligations).
In addition, the Company has executed a $1,300,000 note in favor of a former
owner of Versaform, now a director of the Company, in connection with the
Company's purchase of Versaform. This note is secured by a pledge of 65% of the
Company's interest in its Canadian subsidiary, and as part of its obligations
under this note, the Company's Canadian subsidiary is subject to various
restrictive covenants relating to the its financial performance. This note is
payable monthly over three years and bears interest at 7.0%.
The Company has entered into other 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 also has 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.
Please see Note 4 of the Consolidated Financial Statements included as part of
this Quarterly Report on Form 10-Q for more detailed information relating to the
Company's debt and the Thirteenth Amendment.
As a result of the above-described debt, the Company is required to utilize a
significant portion of its cash generated from operations to meet its debt
service obligations. Furthermore, if the Company were to fail in the future to
comply with the restrictive covenants in the Loan Agreement or in the promissory
note, the Company's operations could be negatively impacted and the Company's
ability to take advantage of potential business opportunities as they arise
could be limited. Moreover, the Company's failure to comply with these
restrictive financial and other covenants could result in a default that, if not
cured or waived, could cause the Company to be required to repay its borrowings
before their due dates. If the Company were unable to make this repayment or
otherwise refinance these borrowings, the Company's creditors could foreclose on
the assets securing its borrowings. Although in the Thirteenth Amendment Union
Planters waived the default arising from a failure of the Company to meet the
EBITDA Covenant, such waiver was limited to and valid only for the specific
purposes given. Union Planters is not obligated solely by reason of such waiver
to agree to any additional waivers.
In addition to the cash requirements for debt service, the Company anticipates
that it will incur significant additional costs in 2004 to meet the increased
requirements of Section 404 of the Sarbanes-Oxley Act of 2002 regarding internal
controls and procedures. Please see Item 4 - Controls and Procedures of this
Quarterly Report on Form 10-Q for more detailed information relating to the
Company's internal controls and procedures.
Based upon forecasted operating results and cash flows, management believes the
current lending agreement is sufficient to meet its cash needs in 2004.
Management has also developed a plan that includes restructuring or possibly
disposing of segments of our business, increasing sales and raising alternative
capital. However, the Company's losses from operations in recent years, together
with its inability to meet the EBITDA Covenant and certain other covenants under
the Loan Agreement, have raised substantial doubt about the Company's ability to
continue as a going concern.
If the Company fails to meet its covenants, fails to comply with the refinancing
or sale of assets contemplated in the Loan Agreement, or is unable to fund its
operations within the limits of the Loan Agreement, no assurance can be given
that additional and/or replacement financing can be obtained on reasonable or
acceptable terms or that the Company will be able to continue as a going
concern.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern, although the report of our independent
accountant as of and for the year ended December 31, 2003 expresses substantial
doubt as to the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
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 fluctuations in interest
rates. The Company does not utilize any particular strategy or instruments to
manage its interest rate risk.
The Company's outstanding credit facility carries an interest rate that varies
in accordance with the prime rate. The Company is subject to potential
fluctuations in its debt service as the prime rate changes. Based on the amount
of the Company's outstanding debt as of March 31, 2004, a hypothetical 1% change
in the interest rate of the Company's outstanding credit facility would result
in a change in annual interest expense of approximately $0.3 million.
Item 4. Controls and Procedures.
As of end of the fiscal quarter ended March 31, 2004, the Company's Chief
Executive Officer and Chief Financial Officer carried out an evaluation, with
the participation of other members of the Company's management as they deemed
appropriate, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934). Based on their
evaluation of these disclosure controls and procedures, the Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures were effective in all material respects in ensuring that
material information required to be disclosed in the periodic reports the
Company files with the Securities and Exchange Commission is recorded,
processed, summarized and reported in a timely manner.
This portion of our Quarterly Report on Form 10-Q is our disclosure of the
conclusions of our management, including our Chief Executive Officer and Chief
Financial Officer, regarding the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report, based on
management's evaluation of those disclosure controls and procedures. You should
read this disclosure in conjunction with the certifications attached as Exhibits
31.1 and 31.2 to this Quarterly Report on Form 10-Q for a more complete
understanding of the topics presented.
In connection with its 2003 year-end audit, our independent certified public
accountant identified a material weakness relating to our internal controls and
procedures. While we are in the process of implementing a more effective system
of controls and procedures, we have instituted certain interim controls,
procedures and other changes to ensure that information required to be disclosed
in this Quarterly Report on Form 10-Q has been recorded, processed, summarized
and reported accurately.
The interim steps that we have taken as a result of the aforementioned control
deficiencies to ensure that all material information about the Company is
accurately disclosed in this Quarterly Report on Form 10-Q included the
application of additional methods and techniques to evaluate the accuracy of
inventory costing and adequacy of inventory reserves.
Based in part on the steps listed above, our Chief Executive Officer and our
Chief Financial Officer have concluded that our disclosure controls and
procedures are effective to ensure that the information that we are required to
disclose in reports that we file or submit under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported accurately within the time
periods specified in Securities and Exchange Commission rules and forms.
In addition, in order to address further the deficiencies described above and to
improve our internal disclosure and control procedures for future periods, we
will:
1. Review, select and implement available improvements to information
systems for inventory accounting;
2. Perform a review of internal controls and procedures in connection
with Section 404 of Sarbanes Oxley legislative requirements;
3. Perform more detailed quarterly reconciliations and analyses of the
company's inventory accounts;
4. Continue to enhance staffing to provide sufficient resources to
accomplish the foregoing objectives.
These steps will constitute significant changes in internal controls. We will
continue to evaluate the effectiveness of our disclosure controls and internal
controls and procedures on an ongoing basis, and will take further action as
appropriate.
Other than as discussed above, no significant changes were made in the Company's
internal controls or in other factors that could significantly affect these
controls during the first quarter of 2004.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
On February 6, 2004, Versaform, a wholly-owned subsidiary of the Company
acquired on May 16, 2002, was served a subpoena by the federal government.
The subpoena relates to the time period January 1, 1999 through February 6, 2004
and was issued in connection with an investigation by certain government
agencies including the Department of Defense, Office of Inspector General,
Defense Criminal Investigative Service and the Federal Bureau of Investigation.
The subpoena refers to structural components Versaform manufactured for Nordam
Corporation for B-52 engine cowlings, components for auxiliary power units
Versaform manufactured for Hamilton Sundstrand, a United Technologies Company,
and certain tools Versaform manufactured for Lockheed Martin Corporation.
The Company has not been served with any notice of any pending legal action
filed by any government agency. Accordingly, the Company has no knowledge of any
specific allegations of wrongdoing against Versaform by any regulatory
authority.
The Company intends to cooperate fully with the federal government in connection
with any investigation of this matter and has currently provided all information
and support of related manufacturing and sales activity requested.
Other than as noted above, 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 such claims and lawsuits, individually or
in the aggregate, will have a material adverse effect on the Company's business.
Item 6. Exhibits and Report on Form 8-K.
(a) Exhibits:
See Exhibit Index.
(b) The Company filed the following reports on Form 8-K during the quarter
ended March 31, 2004:
(i) On January 6, 2004, the Company filed a Current Report on Form
8-K, announcing the Twelfth Amendment to the Loan Agreement.
(ii) On March 17, 2004, the Company filed a Current Report on Form
8-K, announcing the service of a subpoena duces tecum on
Versaform in connection with an investigation by certain federal
agencies.
(iii) On March 31, 2004, the Company filed a Current Report on Form
8-K, announcing the Thirteenth Amendment to the Loan Agreement
and its filing of a Form 12(b)-25 for a 15-day extension to file
its Annual Report on Form 10-K for the year 2003.
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, in the County of St. Charles and State
of Missouri on the 17th day of May, 2004.
LMI AEROSPACE, INC.
/s/ Ronald S. Saks
--------------------------------------
Ronald S. Saks,
President and Chief Executive Officer
/s/ Lawrence E. Dickinson
--------------------------------------
Lawrence E. Dickinson
Chief Financial Officer and Secretary
EXHIBIT INDEX
Exhibit No. Description
10.31 Twelfth Amendment to Loan Agreement dated January 5, 2004, filed as
Exhibit 10 to the Registrant's Form 8-K filed January 6, 2004 and
incorporated herein by reference.
10.32 Thirteenth Amendment to Loan Agreement dated March 30, 2004, filed as
Exhibit 10.1 to the Registrant's Form 8-K filed March 31, 2004 and
incorporated herein by reference.
31.1 Rule 13a-14(a) Certification of Ronald S. Saks, President and Chief
Executive Officer.
31.2 Rule 13a-14(a) Certification of Lawrence E. Dickinson, Secretary and
Chief Financial Officer.
32 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.