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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
|X| Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the fiscal year ended December 31, 2001
|_| 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
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LMI AEROSPACE, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Missouri 43-1309065
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
3600 Mueller Road,
St. Charles, Missouri 63302-0900
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(Address of Principal
Executive Officer) (ZIP Code)
(636) 946-6525
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(Registrant's Telephone Number, Including Area code)
Securities to be registered pursuant to Section 12(b) of the Act: None
---------
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.02 par value
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(Title of Class)
Indicate by check mark whether registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was $12,266,903 (computed by reference to the closing price of such
voting stock on the NASDAQ National Market on March 26, 2002 of $4.25).
There were 8,026,886 total shares of common stock outstanding as of March 26,
2002.
Documents Incorporated by Reference
1) The following document is incorporated into this Report by reference:
Part III: Portions of the definitive proxy statement of the Registrant (to
be filed pursuant to Regulation 14A for Registrant's 2001 Annual Meeting of
Shareholders, which involves the election of directors), are incorporated
by reference into Items 10, 11, 12 and 13 to the extent stated in such
items.
Forward-Looking Statements
Any forward-looking statements set forth in this report are necessarily subject
to uncertainties and risks. When used in this report, the words "believes,"
"anticipates," "intends," "plans," "projects," "estimate," "expects" and similar
expressions are intended to identify forward-looking statements. Actual results
could be materially different from those reflected in such forward-looking
statements as a result of various factors. Readers are cautioned not to place
undue reliance on forward-looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the results of
any revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
TABLE OF CONTENTS
Item No. Page
- -------- ----
PART I
1 Business 1
2 Properties 10
3 Legal Proceedings 11
4 Submission of Matters to a Vote of Security
Holders 11
4(a) Executive Officers of the Registrant 11
PART II
5 Market for Registrant's Common Equity and Related
Stockholder Matters 14
6 Selected Financial Data 15
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
7A Quantitative and Qualitative Disclosures about
Market Risk 20
8 Financial Statements and Supplementary Data 20
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 36
PART III
10 Directors and Executive Officers of Registrant 37
11 Executive Compensation 37
12 Security Ownership of Certain Beneficial Owners
and Management 37
13 Certain Relationships and Related Transactions 37
PART IV
14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K 37
PART I
Item 1. Business.
General Overview
LMI Aerospace, Inc. (the "Company") is a leader in fabricating, machining,
finishing and integrating formed, close tolerance aluminum and specialty alloy
components for use by the aerospace, semiconductor and medical products
industries. For over 50 years, the Company has been engaged in manufacturing
components for a wide variety of aerospace applications. Components manufactured
by the Company include leading edge wing slats, flaps and lens assemblies;
cockpit window frame assemblies; fuselage skins and supports; and passenger and
cargo door frames and supports. The Company maintains multi-year contracts with
leading original equipment manufacturers ("OEMs") and primary subcontractors
("Primes") of commercial, corporate, regional and military aircraft. Such
contracts, which govern the majority of the Company's sales, designate the
Company as the sole supplier of the aerospace components sold under the
contracts. Customers include Boeing, Lockheed Martin, Northrop Grumman,
Gulfstream, Learjet, Canadair, DeHavilland, PPG, Vought, Barry Controls, Cymer,
and IntraLase. The Company manufactures more than 15,000 parts for integration
into such models as Boeing's 737, 747, 757, 767 and 777 commercial aircraft;
Gulfstream's G-IV and G-V corporate aircraft; Canadair's RJ regional aircraft
and Global Express and Challenger corporate aircraft; and Lockheed Martin's
F-16, F-22 and C-130 and Boeing's F-15, F/A-18, C-17, and AH-64 Apache military
aircraft. The Company produces components and assemblies for Cymer, a
manufacturer of various laser equipment used by semiconductor manufacturers.
Additionally, the Company produces components and assemblies for IntraLase
Corp., a manufacturer of laser equipment used by refractive eye surgeons.
In addition to supplying quality components, the Company provides its customers
with value-added services, including engineered tool design, production and
repair; heat treating; chemical milling; assembly; prototyping; and metal
finishing processes, such as polishing and painting. The Company believes that
such value-added services provide significant benefits to its customers
including: (i) reduced administrative costs resulting from the Company's ability
to serve as a single point of purchase for a wide array of required products and
services, (ii) faster, more efficient production rates, and (iii) greater
consistency in meeting scheduled delivery dates. As a result, the Company
believes that its value-added services are an increasingly important factor in
the selection of the Company to provide aerospace components.
The Company's business was founded in Missouri in 1948. The Company's
headquarters are located at 3600 Mueller Road, St. Charles, Missouri. The
Company maintains facilities in St. Charles, Missouri; Auburn, Washington;
Tulsa, Oklahoma; Wichita, Kansas; Irving, Texas; and Sun Valley, California.
Customer Concentration
The Company manufactures and supplies over 15,000 parts to leading OEMs and
Primes of commercial, corporate, regional and military aircraft, primarily under
multi-year contracts. Such contracts designate the Company as the sole supplier
of the aerospace components sold under the contracts. Customers include the
following leading OEMs and Primes:
Commercial Platforms
- ---------- ---------
Boeing 737 Classic, 737 Next Generation
("737NG"), 707, 727,
747, 757, 767 and 777
Vought 747, 757 and 767
PPG 737NG, 747, 767, 777 and MD-80
National Machine 737NG
Canadair 767
Hexcel 737NG
Corporate and Regional Platforms
- ---------------------- ---------
Gulfstream G-IV and G-V
Canadair Regional Jet, Global Express and
Challenger 604
Short Brothers Regional Jet
Learjet Models 31, 45 and 60
DeHavilland CL415 and Dash-8
Boeing 737 Business Jet
Nordam Citation V, VII, VIII, Ultra, Bravo
and Excel, Lear 60,
and Beech 400A
PPG Citation III, VII, X and Excel
Vought G-IV and G-V
Military Platforms
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Lockheed Martin F-16 and C-130
Boeing AWACS, F-15, F/A-18, C-17, and Apache
AH-64
Semiconductor Equipment Platforms
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Cymer ELS 7000, ELS 6010
Medical Products Platforms
- ---------------- ---------
IntraLase IntraLase FS Laser
The Company has a long-standing relationship with several Boeing business units,
including Boeing Commercial Airplane Group, Boeing North American, Boeing
Military and Boeing Helicopter. During 1999, 2000 and 2001, direct sales to
Boeing business units accounted for a total of approximately 54%, 48% and 40% of
the Company's sales, respectively. According to industry sources, Boeing holds
approximately a 50% share of the worldwide commercial aircraft market. The
Company conducts its Boeing commercial business under a single contract. In
general, this agreement provides for: (i) payment on a net 30 day basis; (ii)
termination for convenience upon 30 days notice; (iii) reasonable manufacturing
lead time for delivery of components; (iv) limitations on and specifications for
the scope of work to be performed; and (v) pricing of components by quotes. In
addition, these contracts are typically "requirements" contracts under which the
purchaser commits to purchase all of its requirements of a particular component
from the Company. Specific orders are placed with the Company on a periodic
basis. The Company believes that its relationship with Boeing extends beyond the
expressed language of the multi-year contracts. Such belief is based on, among
other things, discussions with Boeing personnel, the longevity and growth of the
relationship, and the Company's experience with Boeing during occasional periods
without an effective contract.
Products
The Company fabricates machines and integrates formed, close tolerance aluminum
and specialty alloy components for use by the aerospace, semiconductor, and
medical products industries. For over 50 years the Company has been engaged in
manufacturing components for a wide variety of aerospace applications. All
components are fabricated from designs prepared and furnished by its customers.
The following table describes some of the Company's principal products
(consisting of manufactured components and assemblies) and the models into which
they are integrated:
Product Models
- ------- ------
Wing leading edge skins, 737 NG
flapskins, winglets
Detail interior components Boeing 737 Classic, 737 NG, 707,
727, 747, 757, 767, 777 and C-130
Wing panels and floorbeams 747
Door assembly structural details 737 Classic, 737 NG, 747 and 757,
Challenger 604, Regional Jet, F-16
and C-130
Thrust reversers and engine G-IV, CL415, 737 Classic and 777
nacelles/cowlings
Cockpit window frames and landing 737NG, 747, 767, 777, Citation III,
light lens assembly VII and Excel, DC-8 and 9, MD-80,
KC-10 and F-16
Fuselage and wing skin Models 45 and 60, Dash-8, 737
Classic, 737 NG, 747, 757, 767,
777, C-130 and F-16
Housings and assemblies for gun turret AH-64 Apache Helicopter
Structural sheet metal & extruded Various models
components
Fans, heat exchangers, and various ELS 7000, ELS 6010
assemblies and components
Various components and assemblies IntraLase FS Laser
Once a customer submits specifications for a product, the Company utilizes its
engineering and planning group to evaluate and develop the tooling requirements,
design the manufacturing process and prepare a product flow plan. The Company
utilizes an advanced computer assisted design system to translate customer
provided specifications into computer numerical control ("CNC") instructions for
use with many of the Company's forming and milling equipment.
Backlog
The Company's backlog is displayed in the following table:
As of December 31,
(in millions)
1999 2000 2001
---- ---- ----
Total $45.5 $43.0 $58.7
Portion deliverable within 12 months 37.2 35.6 42.3
Historically, cancellations of such orders have been infrequent and immaterial,
however OEMs often modify purchase orders to accelerate or delay delivery dates.
The level of unfilled orders at any given time during the year will be
materially affected by the timing of the Company's receipt of orders and the
speed with which those orders are filled. Moreover, sales during any period may
include sales which are not part of the backlog at the end of the prior period.
Manufacturing Processes
The manufacturing facilities are organized on a work center basis focusing on a
particular manufacturing process. Each work center is staffed by a team of
operators who are supported by a supervisor, lead operators and quality
inspectors. Throughout each stage of the manufacturing and finishing processes,
the Company collects, maintains and evaluates data, including customer design
inputs, process scheduling, material inventory, labor, inspection results and
completion and delivery dates. The Company's information systems employ this
data to provide accurate pricing and scheduling information to its customers as
well as to establish production standards used to measure internal performance.
Consistent with the Company's strategy of continually emphasizing quality, all
employees participate in an on-going training program which combines classroom,
hands-on and on-the-job instruction. New employees attend an extensive
orientation seminar to acquaint them with the aerospace components industry and
the Company's quality expectations, history, mission, safety procedures and
other rules. To motivate employees to meet and exceed the Company's production
efficiency objectives, management has implemented a bonus program under which
the bonus amount payable by the Company is based on the amount of sales per paid
man hour and the value of product produced.
Furthermore, through the use of lean manufacturing techniques, the Company seeks
to eliminate waste generated in the movement of people, in the use of materials
and products, in lengthy set-ups, in production breaks and by misused space. The
Company's lean manufacturing methods include: (i) one piece work flow as opposed
to batch processing, (ii) pull versus push production control and scheduling
systems, and (iii) disciplined housekeeping and organization techniques. The
Company believes its training and motivation programs, combined with extensive
use of lean manufacturing techniques, have greatly increased the Company's
efficiency, manufacturing capacity and profitability.
In manufacturing close tolerance components, the Company uses several forming
processes to shape or "form" a "work piece" (aluminum, stainless steel or
titanium sheet metal and extrusion) into components by applying pressure through
impact, stretching or pressing the raw material (sheet metal or extrusion) to
cause conformance to a die. The shapes may be simple with a single angle, bend
or curve, or may be complex with compound contours having multiple bends and
angles. Some processes incorporate heat to soften the metal prior to or during
forming. Forming processes include: drop hammer, bladder press, sheet metal and
extrusion stretch, skin stretch, stretch draw, hot joggle and brake forming.
The following are more detailed descriptions of several of the Company's
processes:
Drop Hammer Forming. The Company utilizes drop hammer forming to shape work
pieces by placing them between a mated die and a moving punch. The work piece is
placed on the working surface of the die and is formed into a component through
repeated impacts of the punch on the work piece. The impact causes the work
piece to take the shape of the punch and die. This process provides an
economical means of producing parts ranging in size from a few inches up to ten
feet in length with complex, compound contours. The Company has one of the
largest capacities for drop hammer forming in the aerospace components industry.
Bladder Forming. The bladder forming process (fluid cell press) utilizes a
bladder filled with hydraulic fluid which is placed under pressure to form the
component. The work piece is placed on top of a die which rests on a table. A
rubber blanket is then placed over the work piece and the table is moved into
the press. As the bladder is placed under pressure, it expands to cover the
rubber blanket and forces it and the work piece to conform to the shape of the
die. The Company employs bladder forming for components with formed simple
contours.
Stretch Forming. The stretch forming process involves the stretching and
wrapping of a work piece along the surface of a precisely shaped die. To obtain
the desired component shape, opposite ends of the material are held in the jaws
of the stretch form machine, then hydraulically stretched and wrapped to conform
to the working surface of the die. The Company utilizes several different types
of stretch form machines, each type designed to stretch form extrusion, sheet
metal or leading edge wing skins.
Hot Joggle. The Company uses the hot joggle process to create a clearance step
for intersecting parts. A work piece is placed between a mated die and punch and
is heated to a precise temperature to make it malleable enough to set a form,
but not hot enough to alter the temper of the metal. The joggle press then
creates the joggle by stepping down a surface from the original plane of the
work piece.
Cutting and Punching. Various cutting and punching processes, such as CNC turret
punch, CNC laser cutting, CNC and conventional milling, are used for cutting out
the shapes of flat pattern parts. Cutting, trimming and drilling functions such
as CNC and conventional milling, five axis CNC routing and other machine and
hand routing methods are used to complete formed components by trimming excess
material, cutting and drilling holes. CNC processes utilize computer programs
generated by Company employees from CAD models provided by the customer, which
direct the cutting, punching and/or drilling pattern of the machine. Other
trimming processes use dies, templates or fixtures as the guide for trimming
and/or drilling.
Most parts require heat treating after forming which helps to strengthen and,
then through controlled cooling, harden the material. This process along with
older dies and tools, can cause slight distortion which is then modified with
manual forming techniques also referred to as "line-up" or "check and
straighten." The Company's highly skilled craftsmen provide the customer with
great flexibility in utilizing customer's tools and small order quantities often
associated with spares production.
Value-Added Services
The Company offers its customers both cost and time savings by having the
process capabilities necessary for the production of most components from start
to finish.
Tooling. While most of the dies, tools and fixtures needed in the manufacturing
process are owned and supplied by customers, the Company offers its customers
the ability to produce fiberglass route and drill tools, chemical milling
templates, kirksite extrusion and sheet stretch blocks, and other original
tooling. It also has extensive capabilities in the repair and rework of tools
and dies originally supplied by its customers. The Company supports the tooling
operations with its own foundry which pours lead and kirksite tops for drop
hammer dies.
Heat Treat and Age. Most components require heat treating and/or aging as part
of the production process. The heat treating process is used to alter the temper
of the material for increased formability and retention of the formed shape. The
process involves heating work pieces to a prescribed temperature, usually in the
range of 850 degrees to 950 degrees Fahrenheit, for a prescribed period of time.
Multiple components can be heat treated at one time, so long as the prescribed
process time and temperature are the same. After heating, the components are
immediately submerged in a glycol solution or water to rapidly cool and suspend
the hardening of the metal. The components are then refrigerated at sub-zero
temperatures to retard work hardening until the forming process is completed. At
ambient temperatures the metal slowly hardens. After all forming, trimming and
drilling processes are complete, most components go through the age process,
which involves slow heating at lower temperatures (up to 400 degrees
Fahrenheit), to accelerate the hardening of the metal to its final temper.
CMM Inspection and Engineering. The computer controlled coordinate measuring
machine ("CMM") uses a computer driven touch probe to measure the accuracy of
angles, contours and other features on a tool or component relative to customer
defined models or coordinates permitting the Company to accurately inspect close
tolerance components. The CMM also is used to reverse engineer a CAD model from
an existing part.
Chemical Milling. Chemical milling is used to reduce the amount of material in
specific places on a component to reduce weight within the aircraft and to
facilitate the mating of components. The working piece is first coated (dipped
or sprayed) with a maskant, which dries to a rubber-like finish sealing the
component. The Company uses a water based maskant which is much safer for both
employees and the environment than the traditional solvent based maskant. After
masking, the portion of the part to be reduced is scribed out by tracing a
template. These areas are then de-masked, and the part is dipped into the
chemical milling tank, containing an alkaline solution, for a prescribed period
of time. The solution then removes the metal in the exposed areas.
Metal Finishing, Polishing and Painting. Through its Tulsa facility the Company
provides anodizing, alodining, polishing and non-destructive testing. Alodine
and chromic acid anodizing processes are performed prior to paint or polish to
help control rust, corrosion and part deterioration. Penetrant inspection is a
non-destructive inspection method during which components are dipped into a dye
solution which penetrates any small defects on the surface of the part and makes
them visible under ultra violet light.
Most components are painted or polished before final shipment. Paint is applied
according to customer specification; some components receive a simple primary
coat while others receive primary and finish coats. Skin quality components such
as those in the leading edge wing program are polished with electric polishers
and by hand to a mirror finish which is visible on the exterior of the aircraft
after final assembly.
Consistent with the Company's commitment to maintaining environmental and
employee safety, the Tulsa facility has a state-of-the-art air circulation and
filter system as well as its own waste water treatment equipment. Waste water
from both the anodizing, alodining and chemical milling processes pass through
the treatment equipment and all metals and toxic materials are removed, making
the water safe for disposal through the normal sewer system. The metals are
condensed into filter cakes which are then disposed of through certified
hazardous waste disposal vendors.
Assembly. The Company completes small and medium sized assemblies, incorporating
its manufactured parts and those produced by other vendors. In the assembly
process the Company uses riveting, bolting, resistance and fusion welding, and
bonding. Customer supplied and Company manufactured jigs and fixtures are used
to ensure the proper alignment of edges and holes. The Company's information
system and the expansion of its purchasing department further increase its
ability to acquire and track parts and hardware details from multiple vendors to
integrate with its own components into assemblies.
Prototyping. The Company's acquisition of Tempco Engineering added prototyping
capability to the value added services offered. Customers typically require
detail components and assemblies during the development phase of a program to
prove a concept. The Company meets with the customer to review a design. The
Company then will formulate a production process to create the component or
assembly, perform required analyses, and provide the prototype to the customer.
The Company believes this process provides a competitive advantage when
production commences and creates better customer relationships.
Supplies and Procurement Practices
Most of the Company's aerospace components are manufactured from aerospace
quality aluminum sheet metal and extrusion. From time to time the Company, and
the aerospace components industry as a whole, has experienced shortages in the
availability of aerospace quality aluminum sheet metal and extrusion. Such
shortages could inhibit the Company's ability to deliver products to its
customers on a timely basis.
A strategy adopted by the Boeing Commercial divisions, requires that Boeing
subcontractors purchase aluminum sheet, aluminum extrusion and titanium sheet
from TMX Aerospace (Boeing designated raw material service provider). This
supply chain approach is intended to control raw material pricing and assure
adequate levels of inventory for both Boeing and its supply base. Essentially,
Boeing and its suppliers work in tandem to establish projected material
requirements for given work statements. These material requirements are then
consolidated across the supplier base. TMX places orders with the mills
according to projected needs and performs inventory and administration functions
related to the control of this inventory on Boeing's behalf.
Additional designated material source strategies are used by several LMI
customers. Like the Boeing aarrangement, these customers provide the Company
with access to an assured supply of materials at competitive pricing.
The Company believes its sources of raw materials and its relationships with its
suppliers are satisfactory. While the loss of any one supplier could have a
material adverse effect on the Company until alternative suppliers are located
and have commenced providing products, alternative suppliers exist for
substantially all of the products and services purchased by the Company.
The Company has developed procurement practices to ensure all supplies received
conform to contract specifications. Through its computerized material resource
planning system, the Company is able to track inventories and product ordering
to optimize purchasing decisions. For cost, quality control and efficiency
reasons, the Company generally purchases supplies only from vendors approved by
the Company's customers and/or with whom the Company has on-going relationships.
The Company chooses its vendors primarily based on the quality of the products
and services supplied, record for on-time performance and the specification of
such vendors by the Company's customers as the preferred source of supply. The
Company regularly evaluates and audits its approved vendors based on their
performance.
Quality Assurance and Control
The Company continually seeks to maintain high quality standards in the
fabrication and processing of its products. Accordingly, the Company employs 70
full time quality control and assurance personnel. Each work order introduced to
the Company's manufacturing facilities contains an inspection plan specifying
required inspection points. Quality inspectors are assigned to each work center
and are trained in the testing required in connection with products passing
through the assigned work center. Although a large percentage of the Company's
products are 100% inspected immediately prior to shipment by a customer employee
or a customer designated Company employee, Boeing has approved a sampling
inspection program for certain components using statistical process control data
maintained by the Company.
In March 2002, the Company was certified as compliant with Boeing's new D6-82479
quality assurance standard. In addition, during 2001 the Company began pursuing
ISO 9002, NADCAP and AS9100 third party certification. Certain facilities have
received their certifications while others are still involved in the
certification process. During 2002 the Company will continue to review all
procedures to ensure they meet the latest revisions of the ISO and AS standards
as required for 2003 compliance. The Company will continue with its ongoing
employee training program and use of lean manufacturing techniques to assist
employees in becoming familiar with any changes in the Company's procedures. The
Company has continued to develop a robust internal auditing program for each of
the facilities to ensure that the training is effective and to ensure ongoing
compliance to customer required standards.
Sales and Marketing
The Company's sales and marketing organization consists of a director of
marketing, four program managers and two independent sales representatives. The
Company's sales personnel are devoted to maintaining and expanding customer
relationships through continual education of existing and potential customers
with respect to the Company's capabilities. Specifically, the Company is focused
on expanding its presence in production of components for use in new corporate,
regional and military aircraft and the fabrication of aftermarket spare parts.
As a result, sales personnel have focused their efforts on diversifying the
Company's product mix to include aerospace programs unrelated to new commercial
aircraft production.
A majority of the Company's sales to existing customers are awarded after
receipt of a request for quotation ("RFQ"). On receipt, the RFQ is preliminarily
reviewed by a team consisting of members of the Company's senior management, a
program manager, an estimator and the plant manager. If the Company determines
the program is adequately compatible with the Company's capabilities and
objectives, a formal response is prepared by a member of the Company's estimator
group. Although a substantial percentage of programs are awarded on a
competitive bid basis, the Company has recognized a trend favoring reverse
auctions.
Competition
Components for new aircraft and replacement components for existing aircraft are
provided by a large fragmented group of companies, including certain business
units of or affiliates of the Company's customers. The Company believes
participants in the aerospace components industry compete primarily with respect
to reliability of delivery, price and quality. Certain of the Company's
competitors, including business units affiliated with the Company's customers,
have substantially greater financial, production and other resources than the
Company.
Governmental Regulations; Environmental Compliance
The Company's operations are subject to extensive and frequently changing
Federal, state and local laws and substantial regulation by government agencies,
including the United States Environmental Protection Agency ("EPA"), the United
States Occupational Safety and Health Administration ("OSHA") and the Federal
Aviation Administration ("FAA"). Among other matters, these agencies impose
requirements that regulate the handling, transportation and disposal of
hazardous materials generated or used by the Company during the normal course of
its operations, govern the health and safety of the Company's employees and
require the Company to meet certain standards and licensing requirements for
aerospace components. This extensive regulatory framework imposes significant
compliance burdens and risks on the Company and, as a result, may substantially
affect its operational costs.
In addition, the Company may become liable for the costs of removal or
remediation of certain hazardous substances released on or in its facilities
without regard to whether or not the Company knew of, or caused, the release of
such substances. The Company believes it currently is in material compliance
with applicable laws and regulations and is not aware of any material
environmental violations at any of its current or former facilities. There can
be no assurance, however, that its prior activities did not create a material
environmental situation for which the Company could be responsible for or that
future uses or conditions (including, without limitation, changes in applicable
environmental laws and regulation, or an increase in the amount of hazardous
substances generated or used by the Company's operations) will not result in any
material environmental liability to the Company or result in a material adverse
effect to the Company's financial condition or results of operations.
Employees
As of December 31, 2001, the Company had 748 permanent employees, of whom 15
were engaged in executive positions, 120 were engaged in administrative
positions and 613 were in manufacturing operations. None of the Company's
employees is subject to a collective bargaining agreement, and the Company has
not experienced any material business interruption as a result of labor disputes
since it was formed. A union representation election was held on September 13,
2001 relating to the possible union representation of employees at the Company's
manufacturing facilities located in St. Charles, Missouri. Employees voted 82 to
81 against union representation. The Company believes it has an excellent
relationship with its employees.
The Company strives to continuously train and educate its employees, thereby
enhancing the skill and flexibility of its work force. Through the use of
internally developed programs, which include formal classroom and on-the-job,
hands-on training, and independently developed programs, the Company seeks to
attract, develop and retain the personnel necessary to achieve the Company's
growth and profitability objectives.
Acquisition Strategy
The Company seeks to leverage its core capabilities in existing and new markets
by identifying and pursuing complementary acquisitions in the aerospace industry
that offer strategic value, such as cost savings, increased manufacturing
capacity, reduced dependency on production of commercial aircraft, increased
process capability and/or new customer relationships. The Company believes the
fragmented nature of the industry for aerospace components should provide the
Company with additional opportunities to exploit industry consolidation trends.
Item 2. Properties.
Facilities
The following table provides certain information with respect to the Company's
headquarters and manufacturing centers:
Location Principal Use Square Footage Interest
-------- ------------- -------------- --------
3600 Mueller Road Executive and Administrative 62,585 Owned
St. Charles, MO Offices and Manufacturing Center
3030-3050 N. Hwy 94 Manufacturing Center and Storage 92,736 Owned
St. Charles, MO
3000-3010 N. Hwy 94 Assembly and Storage 30,074 Leased(1)
St. Charles, MO
101 Western Ave. So. Manufacturing Center 79,120 Leased(2)
Auburn, WA
2629-2635 Esthner Ct. Manufacturing Center 31,000 Owned
Wichita, KS
2621 W. Esthner Ct. Administrative Offices and Storage 39,883 Leased(3)
Wichita, KS
2104 N. 170th St. E. Ave. Finishing Facility 75,000 Owned
Tulsa, OK
2205 and 2215 River Hill Machining Facility 8,400 Leased(4)
Road, Irving, TX
198 Hughes Industrial Lane Storage 14,600 Leased (5)
St. Charles, MO
8866 Laurel Canyon Blvd. Office and Manufacturing 26,200 Leased (6)
Sun Valley, CA
11011-11021 Olinda Street Office, Manufacturing and Storage 20,320 Leased (7)
Los Angeles, CA
(1) Subject to a yearly rental amount of $120,266 expiring on February 28,
2004.
(2) Subject to graduated yearly payments of $353,640 to $418,800 during the
life of the lease. The lease expires in 2005, but the Company retains the
option to extend the lease through June 30, 2008 at the monthly rate of
$39,090.
(3) Subject to graduated yearly payments of $134,196 to $148,620 during the
life of the lease. The lease expires in 2009, but the Company retains an
option to extend the lease term for an additional 5 years.
(4) Month to month lease of $3,750 subject to a six-month cancellation
notice.
(5) Subject to yearly payments of $80,300, the lease expires on May 31, 2003.
(6) Subject to yearly payments of $172,920, the lease expires March 31, 2006.
(7) Subject to yearly payments of $141,427, the lease expires March 31, 2006.
Item 3. Legal Proceedings.
The Company is not a party to any legal proceedings, other than routine claims
and lawsuits arising in the ordinary course of its business. The Company does
not believe such claims and lawsuits, individually or in the aggregate, will
have a material adverse effect on the Company's business.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 4(a). Executive Officers of the Registrant.(1)
The following is a list of the current executive officers of the Company, their
ages, their positions with the Company, and their principal occupations for at
least the past five years.
Name Age Position
- ---- --- --------
Ronald S. Saks 58 Chief Executive Officer, President
and Director
Tom D. Baker 56 Chief Operating Officer
Duane E. Hahn 49 Vice President of Operations
Lawrence E. Dickinson 42 Chief Financial Officer and Secretary
Michael J. Biffignani 46 Chief Information Officer
Robert Grah 47 General Manager, Tulsa Plant
Phillip Lajeunesse 48 General Manager, Wichita Plant
Bradley Nelson 42 General Manager, Auburn Plant
Ernest R. Star 47 General Manager, Tempco Engineering
- ---------------
(1) This information is included in Part I as a separate item in accordance
with Instruction 3 to Item 401(b) of Regulation S-K and General
Instruction G to Form 10-K.
Set forth below are biographies of each executive officer of the Company.
Ronald S. Saks has served as President and as a director of the Company since
1984. Prior to his employment with the Company, Mr. Saks was an Executive Vice
President with Associated Transports, Inc. for eight years and was a Tax Manager
with Peat Marwick Mitchell & Co., now known as KPMG Peat Marwick LLP, for the
eight years prior thereto. Mr. Saks obtained his Bachelor's degree in Business
Administration from Washington University in 1966. He also studied engineering
at the Massachusetts Institute of Technology, and completed an executive
education program at Stanford University. Mr. Saks is a Certified Public
Accountant.
Tom Baker joined the Company in 2000 as the Chief Operating Officer. From 1986
to 1994, he was employed by the Allied Automotive Group and served as the
Executive Vice President of North American Operations from 1994 to 1999. Prior
employment included serving as the Vice President of Operations for Auto Convoy
during 1984 and 1985; Terminal Manager for Associated Transport, Inc. 1975 to
1983; Safety and Training Supervisor for Jack Cooper Transport Company from 1973
to 1975; and as a State Trooper for the Missouri State Highway Patrol from 1966
to 1973. Mr. Baker's advanced education includes study at the University of
Missouri Warrensburg, executive education programs at the University of Georgia,
and advanced management studies with Aubrey Daniels and Associates.
Duane E. Hahn joined the Company in 1984 and served as the Assistant General
Manager until 1988, at which time he moved to Auburn, Washington to set up and
manage the Auburn facility as Vice President and General Manager. In 1996, Mr.
Hahn became the Vice President of Manufacturing and Regional Manager of the
Company. Prior to joining the Company, Mr. Hahn served as a supervisor for
Associated Transport, Inc. Mr. Hahn received his Associate's Degree from
Nebraska Technical College in 1971. Mr. Hahn has extensive continuing education
experience in lean manufacturing, just-in-time, and other world class
manufacturing techniques. Mr. Hahn became a director of the Company in October
1990.
Lawrence E. Dickinson has been the Chief Financial Officer of the Company since
1993. He served as a Financial Analyst and Controller for LaBarge, Inc. from
1984 to 1993 and as a Cost Accountant with Monsanto from 1981 to 1984. Mr.
Dickinson received his Bachelor's degree in Accounting from the University of
Alabama and received his Master's degree in Business Administration from
Washington University in 1994.
Michael Biffignani has served as the Chief Information Officer for LMI Aerospace
since August 1999. He is responsible for corporate wide Information Technology
strategy and implementation. Before joining LMI, Mike held several positions at
The Boeing company in Information Technology and Business Management. He
attended the McDonnell Douglas Executive Development Program from July 1995 to
August 1996 and completed the Boeing Executive Program in 1999. He also worked
for the Sony Corporation from 1979 to 1983 as an engineer and materials manager.
He received his bachelor degree in electrical engineering from the University of
Missouri - Rolla in 1979.
Robert T. Grah joined the Company in 1984 as Production Control Manager. Mr.
Grah has held various management positions with the Company including Purchasing
and Contracts Manager, Maintenance Manager, Facilities Manager, and was promoted
to his current position as General Manager of LMI Finishing, Inc. in 1996. Prior
to joining the Company, Mr. Grah was a supervisor for Associated Transport,
Inc., and a manager for Beneficial Finance. Mr. Grah's education has included
Florissant Valley Community College, and numerous continuing education courses
in management, Total Preventative Maintenance, and various environmental and
technical subjects.
Phillip A. Lajeunesse joined the Company in 1988 as the Corporate Quality
Assurance Manager. In 1990, he became the Plant Manager of the Company's St.
Charles facility, and in 1996, he became the General Manager of the Wichita
facility. Prior to joining the Company, Mr. Lajeunesse was a supervisor for
Kaman Aerospace for nine years, and for six years was a supervisor for United
Nuclear Corporation. Mr. Lajeunesse obtained an Associate's degree in Chemical
Engineering from Thames Valley State Technical College in 1973, an Associate's
degree in Business Administration from Bryant College in 1984, and a Master's of
Business Administration from Washington University in 1994.
Bradley L. Nelson joined the Company as a Production Supervisor in the Auburn
facility in 1990. In 1994, he was promoted to Manufacturing Manager, and in 1996
he assumed his current position as General Manager of the Auburn facility.
Previously, Mr. Nelson was Production Manager for Fabrication Technologies from
1989 to 1990, the owner of Totem Lake Service Center from 1984 to 1989, and
Plant Manager for Tonoro Growers from 1981 to 1984. Mr. Nelson's continuing
education courses include general management and manufacturing management and
methods.
Ernest R. Star joined the company as General Manager of Tempco Engineering,
Inc., following the Company's acquisition of Tempco in 2001. His employment with
Tempco began in 1978, and prior to the acquisition, he served in various
positions at Tempco including Production Control Manager, Quality Control
Manager, and Executive Vice President. Mr. Star served as Tempco's President
from 1994 to 2001. Mr. Star received his Bachelor of Arts degree in Political
Science in 1976 from California State University, Northridge, and Juris Doctor
degree in 1979 from Loyola-Marymount University, Los Angeles. He has been a
member of the California Bar Association since 1980.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
The Common Stock is traded on the NASDAQ National Market under the symbol
"LMIA". The following table sets forth the range of high and low bid closing
prices for the Common Stock for the periods indicated during the Company's past
two fiscal years:
High Low
----- -----
Fiscal 2000
1st quarter 3.94 2.56
2nd quarter 3.19 2.44
3rd quarter 2.75 2.06
4th quarter 2.50 1.63
Fiscal 2001
1st quarter 2.56 1.63
2nd quarter 5.50 1.78
3rd quarter 5.65 2.45
4th quarter 5.25 3.00
The foregoing quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
As of March 15, 2002, the reported closing price for the Common Stock was $4.20.
As of March 15, 2002, there were approximately 61 holders of record of the
Common Stock.
The Company has not declared or paid cash dividends on any class of its Common
Stock in the past two years and does not anticipate paying any cash dividends in
the foreseeable future. The credit facility between the Company and its
financial institution prohibits the Company from declaring a dividend with
respect to its capital stock without the financial institution's approval. The
Company currently intends to retain its earnings, if any, and reinvest them in
the development of its business.
Item 6. Selected Financial Data.
Year Ended December 31,
(in thousands, except Shares and per share data)
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
Statement of Operations Data:
Net sales $ 55,080 $ 59,234 $ 50,054 $ 55,658 $ 70,823
Cost of sales 38,932 41,152 41,586 48,255 54,809
-------- -------- -------- -------- --------
Gross profit 16,148 18,082 8,468 7,403 16,014
Selling, general &
administrative expenses 6,549 7,591 8,517 9,135 10,194
-------- -------- -------- -------- --------
Income (loss) from operations 9,599 10,491 (49) (1,732) 5,820
Interest expense (1,020) (642) (195) (169) (843)
Other (expense) income, net 10 405 435 179 (247)
-------- -------- -------- -------- --------
Income (loss) before income 8,589 10,254 191 (1,722) 4,730
taxes
Provision for (benefit of) 3,306 3,764 (40) (603) 1,764
income taxes -------- -------- -------- -------- --------
Income (loss) before cumulative
change in accounting principle 5,283 6,490 231 (1,119) 2,966
Cumulative effect of change in
accounting principle - - - (164) -
-------- -------- ------- -------- --------
Net income (loss) $5,283 $6,490 $ 231 $ (1,283) $2,966
======== ======== ======= ======== =======
Amounts per common share:
Income (loss) before cumulative
effect of change in accounting
principle $0.91 $0.89 $0.03 $(0.14) $0.37
Cumulative effect of change in
accounting principle - - - (0.02) -
-------- -------- ------- -------- --------
Net income (loss) $0.91 $0.89 $0.03 $(0.16) $0.37
======== ======== ======= ======== =======
Net income (loss) -
assuming dilution $0.89 $0.88 $0.03 $(0.16) $0.36
======== ======== ======= ======== =======
Weighted average shares
outstanding 5,836,700 7,252,148 8,201,805 8,190,525 8,059,682
Other Financial Data:
EBITDA(1) $ 11,788 $ 13,529 $ 3,766 $ 2,098 $9,781
Capital expenditures 3,856 5,488 4,622 2,776 3,387
Cash flow from operating
activities 5,775 6,893 112 1,905 6,985
Cash flows from investing
activities (3,713) (9,529) (4,972) (3,249) (18,205)
Cash flows from financing
activities (2,023) 14,337 (1,177) (2,888) 14,189
Gross profit margin 29.3% 30.5% 16.9% 13.3% 22.6%
EBITDA margin 21.4% 22.8% 7.5% 3.8% 13.8%
December 31,
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
Balance Sheet Data
Cash and equivalents $ 244 $11,945 $ 5,908 $ 1,676 $4,645
Working capital 11,256 27,971 21,417 20,752 27,751
Total assets 33,629 56,183 54,669 49,680 68,002
Total long-term debt,
excluding current portion 9,274 2,732 134 121 12,621
Stockholders' equity 16,751 45,291 44,486 42,678 45,649
(1) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. EBITDA is a widely accepted, supplemental financial
measurement used by many investors and analysts to analyze and compare
companies' performance. EBITDA as presented may not be comparable to
similarly titled indicators reported by other companies because not all
companies necessarily calculate EBITDA in an identical manner, and,
therefore, it is not necessarily an accurate means of comparison between
companies. EBITDA should only be read in conjunction with all of the
Company's financial data summarized above and its Consolidated Financial
Statements prepared in accordance with generally accepted accounting
principles ("GAAP"), appearing elsewhere herein. EBITDA is not intended to
represent cash flows (as determined in accordance with GAAP) or funds
available for management's discretionary use for the periods listed, nor
has it been presented as an alternative to operating income (as determined
in accordance with GAAP) and should not be considered in isolation or as a
substitute for indicators of performance prepared in accordance with GAAP.
EBITDA is presented as additional information because management believes
it to be a useful indicator of the Company's ability to meet debt service
and capital expenditure requirements and because certain debt covenants of
the Company utilize EBITDA to measure compliance with such covenants.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Year Ended December 31, 2001 compared to Year Ended December 31, 2000
Net Sales. Net sales for 2001 were $70.8 million, an increase of 27.2% from the
$55.7 million in 2000. The Company benefited from the acquisition of Tempco
Engineering, Inc. and Hyco Precision, Inc. on April 2, 2001, which added $10.3
million in 2001. Excluding the acquisition, the Company's sales were $60.5
million, an increase of 8.6% from 2000.
The Company generated increases in sales on all Boeing models that it supports.
Net sales for the 737 were $16.6 million (23.4% of net sales) in 2001, up from
$14.9 million (26.8% of net sales) in 2000. Net sales for the 747 were $8.5
million (12.0% of net sales) in 2001, up from $7.0 million (12.6% of net sales)
in 2000. These increases were due to production rate increases and were not
affected by the acquisition of Tempco.
Net sales on military programs were $12.0 million (16.9% of net sales), up from
$6.1 million (10.9% of net sales) in 2001. Tempco's net sales to Boeing and
Northrop Grumman for use predominantly on the AH-64 Apache attack helicopter
added $3.5 million (4.9% of net sales). Additionally, new part awards and
increased production rates for existing components on the F-16 resulted in sales
of $4.6 million (6.4% of net sales) in 2001, an increase from $2.6 million (4.7%
of net sales) in 2000.
Net sales for corporate and regional aircraft were $10.9 million (15.4% of net
sales) in 2001, down from $11.9 million (21.4% of net sales) in 2000. The
Company's sales to this market reflected declines with Gulfstream and
Bombardier's Canadair and Learjet divisions. The Company's fourth quarter of
2001 saw declines in this market as companies delayed shipments as a result of
the events of September 11, 2001. The acquisition of Tempco had minimal impact
upon the Company's sales to this market.
The addition of Tempco resulted in the Company serving new customers that
produce laser equipment that is used in the production of semiconductors and
laser eye surgery. These customers generated $6.5 million (9.1% of net sales) in
net sales during 2001.
A recap of the Companies sales by market is displayed in the following chart:
Market 2000 2001
--------------------------------------------------------------------
Commercial Aircraft 58.1% 51.5%
--------------------------------------------------------------------
Corporate/Regional 21.4% 15.4%
--------------------------------------------------------------------
Military 10.9% 16.9%
--------------------------------------------------------------------
Other 9.6% 16.2%
--------------------------------------------------------------------
Total 100.0% 100.0%
--------------------------------------------------------------------
Gross Profit. The Company's gross profit was $16.0 million in 2001(22.6% of net
sales), up from $7.4 million in 2000 (13.3% of net sales). Excluding the
acquisition of Tempco, the Company's gross profit was $13.9 million (23.0% of
net sales) in 2001. Tempco generated gross profit of $2.1 million on sales of
$10.3 million, or 20.4% of its net sales. The Company increased gross profit by
improving efficiencies. Excluding the acquisition, LMI generated increased net
sales of $4.8 million, with manufacturing labor and fringe costs of $25.9
million in both 2001 and 2000. Additionally, the increased revenue provided
better coverage of fixed costs.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses were $10.2 million in 2001, up from $9.1 million in
2000. The acquisition of Tempco added $1.0 million, largely due to payroll
expenses, goodwill amortization, and consulting fees related to integration.
Interest Expense. The Company's interest expense increased to $0.8 million in
2001 from $0.2 million in 2000. This increase resulted from the issuance of new
debt related to the acquisition of Tempco.
Other, net. Included in other, net were expenses of $0.2 million during 2001, as
compared to other income of $0.2 million in 2000, a change of $0.4 million. This
increase in expense resulted primarily from a $0.3 million charge related to the
Company's assessment that certain investments treated as available for sale
securities had declined in value on a basis that was other than temporary. The
value of these securities decreased as the stock markets declined after the
attacks of September 11, 2001. The value of these securities did not recover in
the fourth quarter and management judged the decline in value to be other than
temporary. These securities are still held by the Company.
Income Taxes. Income taxes for the Company are calculated at 37.5% and 35% in
2001 and 2000, respectively. Refer to note 10 to the financial statements for
further information.
Year Ended December 31, 2000 compared to Year Ended December 31, 1999
Net Sales. Net sales increased 11.2%, reaching $55.7 million in 2000. The
Company experienced increased sales on most Boeing commercial aircraft despite
price reductions of approximately $0.6 million in conjunction with a new long
term contract issued in the first quarter of 2000. Specifically, sales for the
737 were up $1.2 million, reaching $14.9 million (26.8% of net sales) in 2000,
predominantly due to increased production rates at Boeing. Additionally, the
sales for Boeing's 747 totaled $7.0 million (12.6% of net sales), up $1.5
million, the result of Boeing's return to normal ordering patterns after
previous adjustments for production rate declines and inventory management.
The Company also experienced significant growth in sales of components used in
Gulfstream G-IV and G-V aircraft as sales rose to $7.5 million (13.5% of net
sales), up $1.6 million from 2000, due primarily to the Company's continued
participation in an offload program begun in 1999. Production rate increases and
new contract awards for Lockheed-Martin's F-16 doubled the Company's sales for
that model, resulting in sales of $2.6 million (4.7% of net sales), up $1.3
million in 2000.
A summary below of the net sales by type of aircraft served reflects the
Company's ongoing efforts to increase its participation on corporate and
regional aircraft. The Company continues to market heavily to this market.
Market 1999 2000
------------------------------------------------------------------
Commercial Aircraft 55.4% 58.1%
------------------------------------------------------------------
Corporate/Regional 17.7% 21.4%
------------------------------------------------------------------
Military 15.4% 10.9%
------------------------------------------------------------------
Other 11.5% 9.6%
------------------------------------------------------------------
Total 100.0% 100.0%
------------------------------------------------------------------
Gross Profit. The Company's gross profit dropped to $7.4 million (13.3% of net
sales) during 2000, down $1.1 million, from $8.5 million (16.9% of net sales )
in 1999. Gross profit was negatively impacted by reduced production lot sizes
and increased outsourcing to improve on-time delivery. Also, price reductions
granted to Boeing reduced gross profit by $0.8 million. Additionally, the
Company's mix of sales caused material costs to increase to $6.9 million (12.4%
of net sales) from $5.2 million (10.4% of net sales), principally due to the
high material content on the 737 leading edge program for Boeing.
Selling, General and Administrative Expenses. Selling, General and
Administrative Expenses rose to $9.1 million (16.4% of net sales) in 2000, up
$0.6 million. This increase was predominantly due to the bankruptcy of a
customer in the first quarter of 2000, resulting in a charge of $0.4 million and
a $0.3 million increase in salaries and wages.
Income Taxes. The Company's income taxes were accrued using a 35% effective tax
rate in 2000. In 1999, the Company received a $0.1 million refund that impacted
the effective rate.
Cumulative Effect of Change in Accounting Principle. In 2000, the Company
changed its method of accounting for revenue recognition. Refer to note 1 to the
financial statements for further information on this change.
Liquidity and Capital Resources.
The Company's cash flow from operations was $7.0 million in 2001, an increase
from $1.9 million in 2000. This increase is primarily due to the net income
generated by the Company. The Company's cash balance increased to $4.6 million
during 2001. Additions to property, plant and equipment were $3.4 million for
2001.
During 2001, the Company acquired Tempco for $15.2 million. The majority of the
purchase price was funded by a term loan for $14.3 million issued by the
Company's primary lender. Monthly payments on this term loan began in October
2001, based upon a seven-year amortization. The note matures in 2004. The
Company has an additional term note available to cover any additional contingent
consideration, up to $1.3 million.
Additionally, the Company renegotiated its revolving line of credit with its
primary lender. The credit line of $7.0 million was extended until 2003. There
are no amounts outstanding under this revolving credit agreement. The Company
believes its cash flow from operations and its borrowing agreements are adequate
to support its cash requirements.
The Company purchased 119,000 shares of treasury stock for $0.4 million in 2001.
Critical Accounting Policies
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 the following 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 item to which they
relate or because they involve a higher degree of judgment and complexity.
Accounts Receivable Reserve
The Company evaluates the collectibility of its accounts receivable based on a
combination of factors, including historical trends and industry and general
economic conditions. In circumstances where the Company is aware of a specific
customer's inability to meet its financial obligations (e.g., bankruptcy
filings, substantial downgrading of credit scores), a specific reserve for bad
debts is recorded against amounts due to reduce the net recognized receivable to
the amount the Company reasonably believes will be collected. The Company's
evaluation also includes reserves for billing adjustments, pricing changes, and
disputes. If circumstances change (i.e., an unexpected material adverse change
in a major customer's ability to meet its financial obligations to the Company),
estimates of the recoverability of amounts due the Company could be reduced by a
material amount.
As discussed in Note 1 to the consolidated financial statements, the Company
generates a significant portion of its revenues and corresponding accounts
receivable from sales to a single customer in the aerospace industry. If this
customer experiences significant adverse conditions in its industry or
operations, including the continued impact of the current downturn in demand for
aerospace products, the customer may not be able to meet its ongoing financial
obligations to the Company for prior sales or purchase additional products under
the terms of existing contracts.
Inventory
The Company is required to state its inventories at the lower of cost or market.
In assessing the ultimate realization of inventories, the Company makes
judgments as to future demand requirements. In the aviation industry, these
future demand requirements depend on estimates of aircraft lives and the need
for spare parts over the course of the aircraft life. Additionally, the Company
has recorded charges in recent periods due to discontinuances of product lines
or losses of customer contracts. If actual future demand or market conditions
are less favorable than those projected by management, or if there are
significant changes in the Company's products or customers, additional inventory
write-downs may be required.
Goodwill
Goodwill associated with the excess purchase price over the fair value of assets
acquired is currently amortized on the straight-line method over its estimated
useful life, ranging from 10 to 15 years. Goodwill is currently reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. In assessing the recoverability of the
Company's goodwill, the Company must make assumptions regarding the estimated
future cash flows and other factors to determine the fair value of goodwill. If
these estimates or their related assumptions change in the future, the Company
may be required to record impairment charges of these assets not previously
recorded.
As discussed in Note 1 to the consolidated financial statements, the FASB issued
SFAS No. 142 in June 2001. SFAS No. 142 requires the use of a non-amortization
approach to account for purchased goodwill and a review, at least annually, for
impairment. The Company plans to adopt this pronouncement effective January 1,
2002. At such time, amortization associated with purchased goodwill will cease.
During 2001, goodwill amortization totaled approximately $0.5 million. The
Company has not finalized the first of the required impairment tests of goodwill
and as such, has not determined what the effect of these tests will be on its
earnings and financial position.
Item 7A. 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 fiscal year end
2001, a 1% change in interest rates would result in a change in annual interest
expense of approximately $0.2 million. Under the current Borrowing Agreement
related to the outstanding balance of long-term debt, the maximum interest rate
is capped at 8.5% for the term of the loan.
Item 8. Financial Statements and Supplementary Data.
The following financial statements are included in Item 8 of this report:
Financial Statement Page
------------------- ----
Report of Independent Auditors 21
Consolidated Balance Sheets as of December 31, 2000
and 2001 22
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 2000 and 2001 23
Consolidated Statements of Stockholders' Equity for the Years 24
Ended December 31, 1999, 2000 and 2001
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 2000 and 2001 25
Notes to Consolidated Financial Statements 26-36
Report of Independent Auditors
The Board of Directors and Stockholders
LMI Aerospace, Inc.
We have audited the accompanying consolidated balance sheets of LMI Aerospace,
Inc. (the "Company") as of December 31, 2000 and 2001, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of LMI Aerospace,
Inc. at December 31, 2000 and 2001, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.
As described in Note 1 to the financial statements, in 2000 the Company changed
its method of accounting for revenue recognition.
/s/ Ernst & Young LLP
St. Louis, Missouri
March 23, 2002
LMI Aerospace, Inc.
Consolidated Balance Sheets
(Amounts in thousands, except share and per share data)
December 31
2000 2001
------------------------------
Assets
Current assets:
Cash and cash equivalents $ 1,676 $ 4,645
Investments 536 643
Trade accounts receivable, net of
allowance of $50 in 2000
and $64 in 2001 6,627 6,285
Inventories 15,909 23,045
Prepaid expenses 361 787
Deferred income taxes 781 886
Income taxes receivable 498 -
------------------------------
Total current assets 26,388 36,291
Property, plant, and equipment, net 21,059 24,014
Goodwill, net 1,888 7,420
Other assets 345 277
------------------------------
$ 49,680 $ 68,002
==============================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 3,570 $ 3,547
Accrued expenses 1,962 2,659
Current installments of long-term debt
and capital lease obligations 104 2,334
------------------------------
Total current liabilities 5,636 8,540
Long-term debt and capital lease
obligations, less current
installments 121 12,621
Deferred income taxes 1,245 1,192
------------------------------
Total noncurrent liabilities 1,366 13,813
Stockholders' equity:
Common stock of $.02 par value;
authorized 28,000,000 shares; 8,734,422
and 8,736,427 shares issued in 2000
and 2001, respectively 175 175
Preferred stock; authorized 2,000,000 shares;
none issued - -
Additional paid-in capital 26,164 26,171
Treasury stock, at cost, 628,604 and
716,676 shares in 2000
and 2001, respectively (3,174) (3,402)
Accumulated other comprehensive loss (272) -
Retained earnings 19,785 22,705
------------------------------
Total stockholders' equity 42,678 45,649
------------------------------
$ 49,680 $ 68,002
==============================
See accompanying notes.
LMI Aerospace, Inc.
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
Year ended December 31
1999 2000 2001
--------------------------------------------
Net sales $ 50,054 $ 55,658 $ 70,823
Cost of sales 41,586 48,255 54,809
--------------------------------------------
Gross profit 8,468 7,403 16,014
Selling, general, and
administrative expenses 8,517 9,135 10,194
--------------------------------------------
Income (loss) from operations (49) (1,732) 5,820
Other income (expense):
Interest expense (195) (169) (843)
Other, net 435 179 (247)
--------------------------------------------
240 10 (1,090)
--------------------------------------------
Income (loss) before
income taxes 191 (1,722) 4,730
Provision for (benefit of)
income taxes (40) (603) 1,764
--------------------------------------------
Income (loss) before cumulative
effect of change in accounting
principle 231 (1,119) 2,966
Cumulative effect of change in
accounting principle, net of
income tax benefit of $88 - (164) -
--------------------------------------------
Net income (loss) $ 231 $ (1,283) $ 2,966
============================================
Amounts per common share:
Income (loss) before cumulative
effect of change in
accounting principle $ 0.03 $ (0.14) $ 0.37
Cumulative effect of change
in accounting principle - (0.02) -
--------------------------------------------
Net income (loss) per
common share $ 0.03 $ (0.16) $ 0.37
============================================
Net income (loss) per
common share -
assuming dilution $ 0.03 $ (0.16) $ 0.36
============================================
Weighted average common
shares outstanding 8,201,805 8,190,525 8,059,682
============================================
Weighted average dilutive
stock options
outstanding 1,708 - 98,444
============================================
See accompanying notes.
LMI Aerospace, Inc.
Consolidated Statements of Stockholders' Equity
(Amounts in thousands, except share and per share data)
Accumulated
Additional Other Total
Paid-In Retained Treasury Comprehensive Stockholders'
Common Stock Capital Earnings Stock Loss Equity
------------- ------------- ------------- ------------- ----------------- ---------------
Balance at December 31, 1998 $ 175 $26,164 $21,580 $(2,628) $ - $45,291
------------- ------------- ------------- ------------- ----------------- ----------------
Exercise of options to
purchase stock - - (554) 806 - 252
Purchase of 303,620 shares of
outstanding stock for
treasury - - - (1,426) - (1,426)
Issuance of 31,983 shares
of treasury stock to profit
sharing/401(k) plan - - (64) 202 - 138
Net income - - 231 - - 231
------------- ------------- ------------- ------------- ----------------- ----------------
Balance at December 31, 1999 175 26,164 21,193 (3,046) - 44,486
------------- ------------- ------------- ------------- ----------------- ----------------
Comprehensive loss:
Net loss - - (1,283) - - (1,283)
Unrealized loss on
available- for-sale
securities, net of
income tax benefit of
$146 - - - - (272) (272)
----------------
Comprehensive loss (1,555)
Purchase of 152,000 shares of
outstanding stock for
treasury - - - (382) - (382)
Issuance of 44,570 shares of
treasury stock to profit
sharing/401(k) plan - - (125) 254 - 129
------------- ------------- ------------- ------------- ----------------- ----------------
Balance at December 31, 2000
175 26,164 19,785 (3,174) (272) 42,678
------------- ------------- ------------- ------------- ----------------- ----------------
Comprehensive Income:
Net Income - - 2,966 - - 2,966
Unrealized gain on
available-for-sale
securities, net of
income tax of $40 - - - - (67) (67)
Reclassification
adjustment for losses
realized in net income,
net of income tax
benefit of $106 - - - - 205 205
----------------
Comprehensive Income 3,238
Exercise of options to - 7 - - - 7
purchase stock
Purchase of 119,000 shares of
outstanding stock for
treasury - - - (379) - (379)
Issuance of 30,928 shares of
treasury stock to profit
sharing/401(k) plan - - (46) 151 - 105
------------- ------------- ------------- ------------- ----------------- ----------------
Balance at December 31, 2001
$175 $ 26,171 $ 22,705 $ (3,402) $ - $ 45,649
============= ============= ============= ============= ================= ================
See accompanying notes.
LMI Aerospace, Inc.
Consolidated Statements of Cash Flows
(Amounts in thousands)
Year ended December 31
1999 2000 2001
-------------------------------------------------
Operating activities
Net income (loss) $ 231 $ (1,283) $2,966
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 3,380 3,650 4,208
Non cash investment loss - - 311
Changes in operating assets and liabilities:
Trade accounts receivable 886 314 2,810
Inventories (2,392) (598) (2,828)
Prepaid expenses and other assets (311) (13) (432)
Income taxes (1,047) 222 349
Accounts payable 24 (450) (612)
Accrued expenses (659) 63 213
-------------------------------------------------
Net cash from operating activities 112 1,905 6,985
Investing activities
Additions to property, plant, and equipment (4,622) (2,776) (3,387)
Proceeds from sale of equipment - 481 90
Purchases of investments (210) (954) -
Proceeds from sale of investments 1,460 - -
Acquisition of company, net of cash acquired (1,600) - (14,908)
-------------------------------------------------
Net cash used by investing activities (4,972) (3,249) (18,205)
Financing activities
Proceeds from issuance of long-term debt - 92 14,250
Proceeds from equipment notes payable - - 1,027
Principal payments on long-term debt (143) (2,598) (715)
Treasury stock transactions, net (1,286) (382) (380)
Proceeds from exercise of stock options 252 - 7
-------------------------------------------------
Net cash from (used by) financing activities (1,177) (2,888) 14,189
Net increase (decrease) in cash and
cash equivalents (6,037) (4,232) 2,969
Cash and cash equivalents,
beginning of year 11,945 5,908 1,676
-------------------------------------------------
Cash and cash equivalents, end of year $ 5,908 $ 1,676 $ 4,645
=================================================
Supplemental disclosures of cash flow information:
Interest paid $ 185 $ 150 $ 798
Income taxes paid (received) 834 (912) 1,864
=================================================
See accompanying notes.
LMI Aerospace, Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
December 31, 2001
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, semiconductor and medical products 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; and Sun Valley, California.
The accompanying financial statements include the consolidated financial
position, results of operations, and cash flows of the Company and its
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
Customer and Supplier Concentration
Direct sales to the Company's largest customer accounted for 54 percent, 48
percent, and 40 percent of the Company's total revenues in 1999, 2000, and 2001,
respectively. Accounts receivable balances related to direct sales to this
customer were 34 percent in 2000 and 29 percent in 2001. Indirect sales to the
Company's largest customer accounted for 9 percent, 13 percent, and 11 percent
of the Company's total sales in 1999, 2000, and 2001, respectively.
Direct sales to the Company's second largest customer accounted for 9 percent, 9
percent and 8 percent of the Company's total revenues in 1999, 2000 and 2001 and
represented 5 percent and 6 percent of the accounts receivable balance at
December 31, 2000 and 2001, respectively.
The Company purchased approximately 70 percent and 63 percent of the materials
used in production from three suppliers in 2000 and 2001, respectively.
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.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, amounts due from banks, and all
highly liquid investment instruments with an initial maturity of three months or
less.
LMI Aerospace, Inc.
Notes to Consolidated Financial Statements -
(Continued) (Dollar amounts in thousands, except share
and per share data)
December 31, 2001
Inventories
Inventories are stated at the lower of cost or market using actual cost for raw
materials and work-in-process and average cost for finished goods. Inventories
include $372 and $184 of deferred production costs related to long-term
production contracts in 2000 and 2001, respectively. These costs are included in
cost of sales over the life of the contract based on a percentage-of-completion
method (units-of-delivery basis).
Revenue Recognition
Revenues are recorded when services are performed or when products are shipped,
except for long-term contracts which are recorded on the
percentage-of-completion method (units-of-delivery basis). Sales from long-term
contracts were approximately 17 percent of sales in 1999 and 2000 and less than
10% in 2001. Revenues which have been deferred under long-term contracts are
$259, $74 and $0 as of December 31, 1999, 2000 and 2001, respectively, and are
included in accrued expenses.
In the fourth quarter of 2000, the Company changed its method of accounting for
revenue recognition in accordance with Staff Accounting Bulletin (SAB) No. 101,
Revenue Recognition in Financial Statements. Previously, the Company recognized
revenue on certain product prior to customer acceptance. The Company had
performed testing to ensure the product met customer specifications and had
routinely obtained customer acceptance in the past, but customer acceptance was
required per the Company's contract with the customer. Under the new accounting
method adopted retroactive to January 1, 2000, the Company now recognizes
revenue upon customer acceptance. The cumulative effect of the change on prior
years resulted in a charge to income of $164, net of income tax benefit of $88,
which is included in income for the year ended December 31, 2000. The effect of
the change on the year ended December 31, 2000 was to increase income before the
cumulative effect of the accounting change by $89 ($.01 per share). Pro forma
results for prior years are not disclosed due to immateriality.
Property and Equipment
Property and equipment are stated at cost. Equipment under capital leases is
stated at the present value of the minimum lease payments. Depreciation is
calculated using the straight-line method over the estimated useful lives of the
related assets. Equipment held under capital leases and leasehold improvements
are amortized using the straight-line method over the shorter of the lease term
or estimated useful life of the asset. Estimated useful lives for buildings and
machinery and equipment are 20 years and 4 to 10 years, respectively.
Income Taxes
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement and
income tax basis of the Company's assets and liabilities.
LMI Aerospace, Inc.
Notes to Consolidated Financial Statements -
(Continued) (Dollar amounts in thousands, except share
and per share data)
December 31, 2001
Stock-Based Compensation
The Company accounts for its stock based compensation in accordance with
Accounting Principles Board (ABP) Opinion No. 25 and related interpretations and
provides the pro forma disclosure provisions of Statement of Financial
Accounting Standards (SFAS) No. 123.
Financial Instruments
Fair values of the Company's long-term obligations approximate their carrying
values, as the rates approximate those which could be obtained by the Company
for similar issues with similar maturities. The fair value of the Company's
variable-rate long-term debt is $14,063 compared to its $13,741 carrying value.
Available-for-sale securities are stated at fair value based on quoted market
prices, with the unrealized gains and losses, net of tax, reported in other
comprehensive income/loss. Realized gains and losses and declines in value
judged to be other-than-temporary on available-for-sale securities are included
in investment income. The cost of securities sold is based on the average cost
method. Interest and dividends on securities classified as available-for-sale
are included in other income.
The Company's other financial instruments have fair values which approximate
their respective carrying values due to their short maturities or variable rate
characteristics.
Earnings per Common Share
The Company follows SFAS No. 128, Earnings per Share, in calculating basic and
fully diluted earnings per share. Earnings per share are computed by dividing
net income by the weighted average number of common shares outstanding during
the applicable periods.
Pre-Production Costs
The Company accounts for pre-production costs in accordance with EITF 99-5,
"Accounting for Pre-Production Costs Related to Long-Term Supply Arrangements."
All design and development costs for products to be sold under long-term supply
arrangements are expensed unless there is a contractual guarantee that provides
for specific required payments for design and development costs.
Goodwill
Goodwill is amortized using the straight-line method over periods ranging from
10 to 15 years. The carrying value of goodwill is evaluated periodically in
relation to operating performance and expected future undiscounted cash flows of
the business.
LMI Aerospace, Inc.
Notes to Consolidated Financial Statements -
(Continued) (Dollar amounts in thousands, except share
and per share data)
December 31, 2001
Prospective Accounting Pronouncements
In June 2001, the FASB issued Statement of Financial Accounting Standard (SFAS)
No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years
beginning after December 15, 2001. Goodwill and intangible assets deemed to have
indefinite lives will no longer be amortized, but will be subject to an annual
impairment test. Other intangible assets will continue to be amortized over
their useful lives.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
non-amortization provision of the statement is expected to result in an increase
in net income of approximately $508 per year ($0.06 per share). During 2002, the
Company will perform the first of the required impairment tests of goodwill. The
Company has not yet determined what the effect of these tests will be on its
earnings and financial position.
2. Acquisitions
On April 2, 2001, the Company acquired the operating 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, including
the final purchase price adjustment of $300 which the Company expects to pay in
the second quarter of 2002. The Company may pay additional contingent
consideration of up to $1,250 if Tempco's EBITDA, as defined, exceeds certain
limits at the end of each quarter beginning June 30, 2001 and ending March 31,
2002 or for the two years ended March 31, 2003. No contingent consideration was
due for the period ending December 31, 2001. The excess of the purchase price
over the fair market value of net assets acquired, totaling $5,943, was
allocated to goodwill, and is being amortized over a 15-year period on a
straight-line basis.
On December 27, 1999, the Company acquired certain assets and liabilities of
U.S. Hayakawa Industries, Inc. ("Hayakawa"), an aerospace sheet metal
manufacturing and machining firm based in Mukilteo, Washington. Hayakawa had
annual sales of approximately $3.5 million in 1999. The company moved Hayakawa's
sheet metal production work and most of its machining work to the Company's
facility in Auburn, Washington, with the remainder of the machining work going
to the Company's facility in Irving, Texas. The purchase price was approximately
$1,600. The excess of the purchase price over the fair market value of the net
assets acquired, totaling $631, was allocated to goodwill, and is being
amortized over a 10-year period on a straight-line basis.
These acquisitions have been accounted for by the purchase method, and
accordingly, the results of operations were included in the Company's
Consolidated Statement of Operations from the date of acquisition. The purchase
price has been allocated to the assets acquired and liabilities assumed based on
their fair value at the date of the acquisition. Accumulated amortization of
goodwill at December 31, 2000 and 2001 was $203 and $615, respectively.
LMI Aerospace, Inc.
Notes to Consolidated Financial Statements -
(Continued) (Dollar amounts in thousands, except share
and per share data)
December 31, 2001
3. Treasury Stock Transactions
The Board of Directors authorized the Company to repurchase shares of its common
stock and place these shares in a Treasury Stock account for use at management's
discretion. The Company purchased 152,000 shares and 119,000 shares in 2000 and
2001, respectively, in the open market at prices ranging from $4.48 to $1.63 per
share. In addition, the Company issued 44,570 shares in 2000 and 30,928 shares
in 2001 in conjunction with the exercise of certain employees' options, as well
as contributions to and purchases by the Company's benefit plans. These
transactions were recorded at cost in stockholders' equity.
4. Inventories
Inventories consist of the following:
2000 2001
------------------------------------------
Raw materials $ 3,842 $ 3,742
Work in process 3,380 6,127
Finished goods 8,687 13,176
------------------------------------------
$ 15,909 $ 23,045
==========================================
5. Property, Plant, and Equipment
Property, plant, and equipment consist of the following:
2000 2001
-----------------------------------------
Land $ 705 $ 705
Buildings 12,218 12,395
Machinery and equipment 25,363 31,061
Leasehold improvements 797 808
Construction in progress 650 390
Other 1,035 1,496
-----------------------------------------
40,768 46,855
Less accumulated depreciation 19,709 22,841
-----------------------------------------
$ 21,059 $ 24,014
=========================================
Depreciation expense (including amortization expense on software) recorded by
the Company totaled $2,898, $3,216, and $3,730 for 1999, 2000, and 2001,
respectively.
LMI Aerospace, Inc.
Notes to Consolidated Financial Statements -
(Continued) (Dollar amounts in thousands, except share
and per share data)
December 31, 2001
6. Long-Term Debt
Long-term debt consists of the following:
2000 2001
--------------------------------------
Term Loan $ 13,741
$ -
Notes payable, principal and
interest payable monthly, at
fixed rates, ranging from
6.99% to 9.00% 225 1,100
Capital lease obligations - 114
--------------------------------------
225 14,955
Less current installments 104 2,334
--------------------------------------
$ 121 $ 12,621
======================================
On October 31, 2000, the Company obtained a $7,000 secured line of credit with
Union Planters Bank, NA ("Union Planters") a financial institution to fund
various corporate needs. Interest is payable monthly based on a quarterly cash
flow leverage calculation and the LIBOR rate. This facility matures on May 31,
2003, and requires compliance with certain non-financial and financial covenants
including minimum tangible net worth and EBITDA, as defined, requirements. The
line of credit is secured by the inventories and accounts receivable of the
Company. The credit facility prohibits the payment of cash dividends on common
stock without the financial institution's prior written consent. The Company has
not drawn upon this line at December 31, 2001.
In order to facilitate the acquisition of Tempco, the Company amended its
current loan agreement with Union Planters entering into a three-year Borrowing
Agreement ("Borrowing Agreement") on April 1, 2001. This Borrowing Agreement
provides financing up to $15,500 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
December 31, 2001. The Company drew $14,250 on this Borrowing Agreement on April
1, 2001. Interest payments are due monthly. Principal is due monthly beginning
in October, 2001, using a seven year amortization. The Borrowing Agreement is
secured by all assets of the Company, excluding real property, and contains
financial covenants requiring minimum levels of cash flow coverage, EBITDA, and
tangible net worth. Under the Borrowing 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 Company entered into various notes payable for the purchase of certain
equipment. The notes are payable in monthly installments including interest at
(ranging from 6.99% - 9.0%) through November, 2006. The notes payable are
secured by equipment.
The company entered into a capital lease agreement for the purchase of certain
equipment. The leases are payable in monthly installments including interest at
4.98% through February, 2004.
LMI Aerospace, Inc.
Notes to Consolidated Financial Statements -
(Continued) (Dollar amounts in thousands, except share
and per share data)
December 31, 2001
The aggregate maturities of long-term debt as of December 31, 2001 are as
follows:
Year ending December 31:
2002 $ 2,334
2003 2,301
2004 9,911
2005 249
2006 160
------------------
$ 14,955
==================
7. Leases
The Company leases certain facilities and equipment under various noncancelable
operating lease agreements which expire at various dates through 2009. At
December 31, 2001, the future minimum lease payments under operating leases with
initial noncancelable terms in excess of one year are as follows:
Year ending December 31:
2002 $ 1,428
2003 1,374
2004 1,206
2005 912
2006 421
Thereafter 372
--------------------
$ 5,713
====================
Rent expense totaled $849, $1,044, and $1,354 in 1999, 2000, and 2001
respectively.
8. Defined Contribution Plans
The Company has a noncontributory profit sharing plan and a contributory 401(k)
plan which covers substantially all full-time employees. Employees are eligible
to participate in both plans after reaching 1,000 hours of accredited service.
Contributions to the profit sharing plan are at the discretion of management and
become fully vested to the employees after seven years. Contributions by the
Company to the profit sharing plan totaled $122, $105 and $121 for 1999, 2000,
and 2001 respectively. Contributions by the Company to the 401(k) plan, which
are fully vested to the employees immediately upon contribution, are based upon
a percentage of employee contributions, up to a maximum of $225 per employee.
The Company's contributions to the 401(k) plan totaled $107, $88 and $86 for
1999, 2000, and 2001, respectively. In addition, at December 31, 2001, the
Company had 600,000 common shares of its stock reserved for contributions to the
401(k) plan.
LMI Aerospace, Inc.
Notes to Consolidated Financial Statements -
(Continued) (Dollar amounts in thousands, except share
and per share data)
December 31, 2001
9. Stock Options
The Company's 1998 Employee Stock Option Plan provides options for up to 900,000
shares to be granted to key employees at exercise prices greater than or equal
to the fair market value per share on the date the option is granted. Options
issued under the Plan are at the discretion of management and may be in the form
of Incentive Stock Options or Non-Qualified Stock Options. Vesting periods may
apply.
At December 31, 2001, a total of 1,157,822 shares of authorized and unissued
common stock were reserved for issuance of stock awards and options granted or
authorized to be granted.
1999 2000 2001
------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Number Exercise Number of Exercise Number of Exercise
of Shares Price Shares Price Shares Price
------------------------------------------------------------------------------
Options outstanding at
beginning of year 294,328 3.16 324,950 4.00 404,235 3.62
Granted 273,950 3.99 145,280 3.00 146,700 2.38
Exercised (131,730) 1.97 - - (2,005) 2.75
Canceled/expired (111,598) 4.77 (65,995) 4.15 (78,635) 4.38
------------- ----------- ------------
Options outstanding at end
of year 324,950 4.00 404,235 3.62 470,295 3.09
============= =========== ============= =============== ============ =========
The options exercisable and the related range of exercise prices at the end of
1999, 2000, and 2001 were 92,073 shares, with a range of exercise prices from
$1.77 to $6.25, 213,885 shares, with a range of exercise prices from $2.75 to
$6.25 and 276,170, with a range of exercise prices from $2.00 to $5.93,
respectively.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1999, 2000 and 2001, respectively: risk-free interest rates of
5.6%, 5.1% and 4.78%; dividend yields of 0%, 0% and 0%; volatility factors of
the expected market price of the Company's common stock of .49, .57 and 1.04;
and a weighted average expected life of the option of four years for 1999 and
2000 and six years for 2001. The weighted average fair value of options granted
during 1999, 2000 and 2001 was $2.08, $1.46 and $1.96, respectively. The Company
applied APB Opinion No. 25 in accounting for its stock option plans, and
accordingly, no compensation cost has been recognized for stock options granted
at fair market value. Had the Company determined compensation cost based on the
fair value at the grant date under SFAS No. 123, net income and earnings per
share amounts would have been as follows:
LMI Aerospace, Inc.
Notes to Consolidated Financial Statements -
(Continued) (Dollar amounts in thousands, except share
and per share data)
December 31, 2001
1999 2000 2001
------------------------------------------------
Net income (loss):
As reported $ 231 $ (1,283) $2,966
Pro forma 148 (1,488) 2,741
Net income per common share
As reported .03 (.16) .37
Pro forma .02 (.18) .34
Net income per common share
Assuming dilution:
As reported .03 (.16) .36
Pro forma .02 (.18) .34
10. Income Taxes
The temporary differences between the tax basis of assets and liabilities and
their financial reporting amounts that give rise to the deferred tax assets and
liabilities are as follows:
2000 2001
--------------------------------------
Deferred tax assets:
Accrued vacation $ 212 $ 247
Inventory 404 496
Available for-sale securities 146 -
State tax credits - 113
Other 19 30
--------------------------------------
Total deferred tax assets 781 886
Deferred tax liabilities:
Depreciation (1,199) (1,192)
Other (46) -
--------------------------------------
Total deferred tax liabilities (1,245) (1,192)
--------------------------------------
Net deferred tax liability $ (464) $ (306)
======================================
LMI Aerospace, Inc.
Notes to Consolidated Financial Statements -
(Continued) (Dollar amounts in thousands, except share
and per share data)
December 31, 2001
The Company's income tax provision (benefit) attributable to income before
income taxes and cumulative effect of change in accounting principle consisted
of the following for the year ended December 31:
1999 2000 2001
------------------------------------------------------
Federal:
Current $ (123) $ (554) $ 1,820
Deferred 188 (32) (188)
------------------------------------------------------
65 (586) 1,632
State:
Current (104) (14) 150
Deferred (1) (3) (18)
------------------------------------------------------
(105) (17) 132
------------------------------------------------------
$ (40) $ (603) $ 1,764
======================================================
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense attributable to income before cumulative effect of
change in accounting principle is as follows:
1999 2000 2001
-----------------------------------------------------
Federal taxes $ 65 $ (586) $ 1,608
State and local taxes,
net of federal benefit 6 (51) 140
State tax refund (115) - -
Other 4 34 16
-----------------------------------------------------
Provision (benefit)
for income taxes $ (40) $ (603) $ 1,764
=====================================================
11. Commitments and Contingencies
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position.
LMI Aerospace, Inc.
Notes to Consolidated Financial Statements -
(Continued) (Dollar amounts in thousands, except share
and per share data)
December 31, 2001
12. Quarterly Financial Data (Unaudited)
2000 First Second Third Fourth
------------------ ------------------- ----------------- -----------------
Net Sales $ 14,520 $ 13,774 $ 12,835 $ 14,528
Gross Profit 2,231 1,858 739 2,574
Income/(loss) before cumulative effect
of change in accounting principle (187) (214) (978) 260
Cumulative effect of change in
accounting principle (164) - - -
------------------ ------------------- ----------------- -----------------
Net income/(loss) $ (351) $ (214) $ (978) $ 260
================== =================== ================= =================
Amounts per common share:
Income/(loss) before cumulative effect
of change in accounting principle
$ (0.02) $ (0.03) $ (0.12) $ 0.03
Cumulative effect of change in
accounting principle (0.02) - - -
------------------ ------------------- ----------------- -----------------
Net income/(loss) $ (0.04) $ (0.03) $ (0.12) $ 0.03
================== =================== ================= =================
Net income/(loss) - assuming dilution
$ (0.04) $ (0.03) $ (0.12) $ 0.03
================== =================== ================= =================
2001 First Second Third Fourth
------------------ ------------------- ----------------- -----------------
Net sales $ 16,048 $ 19,105 $ 19,558 $ 16,112
Gross Profit 3,703 4,176 4,622 3,513
Net income 882 943 1,030 111
================== =================== ================= =================
Amounts per common share:
Net income $ 0.11 $ 0.12 $ 0.13 $ 0.01
================== =================== ================= =================
Net income - assuming dilution $ 0.11 $ 0.12 $ 0.13 $ 0.01
================== =================== ================= =================
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers.
The information contained under the caption "Information About the Nominees and
Current Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance"
in the Company's definitive proxy statement to be filed pursuant to Regulation
14A for the Company's 2002 Annual Meeting of Shareholders, which involves the
election of directors, is incorporated herein by this reference. Also see item
4(a) of Part I hereof.
Item 11. Executive Compensation.
The information contained under the captions "Directors Compensation,"
"Executive Compensation," "Option/SAR Grants in Last Fiscal Year," "Aggregated
Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option SAR Values,"
"Employment Arrangements with Named Officers", and "Compensation Committee
Report" in the Company's definitive proxy statement to be filed pursuant to
Regulation 14A for the Company's 2002 Annual Meeting of Shareholders, which
involves the election of directors, is incorporated herein by this reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information contained under the caption "Security Ownership of Certain
Beneficial Owners" and "Security Ownership of Management" in the Company's
definitive proxy statement to be filed pursuant to Regulation 14A for the
Company's 2002 Annual Meeting of Shareholders, which involves the election of
directors, is incorporated herein by this reference.
Item 13. Certain Relationships and Related Transactions.
The information contained under the caption "Certain Transactions" in the
Company's definitive proxy statement to be filed pursuant to Regulation 14A for
the Company's 2002 Annual Meeting of Shareholders, which involves the election
of directors, is incorporated herein by this reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. For a list of the Consolidated Financial Statements of the
Company included as part of this report, see the index at Item
8.
2. All schedules have been omitted as the required information is
not present in sufficient amounts or the required information
is included elsewhere in the Consolidated Financial Statement
or notes thereto.
3. Exhibits:
See Exhibit Index (each management contract or compensatory
plan or arrangement listed therein is identified).
(b) Reports on Form 8-K:
(i) On December 21, 2001, the Company filed a Report on
Form 8-K announcing the award of certain contracts and
announcing estimates of 2002 performance.
(ii) On November 16, 2002, the Company filed a Report on
Form 8-K providing an updated 2002 financial outlook.
(iii) On November 13, 2001, the Company filed a Report on
Form 8-K announcing third quarter results.
(iv) On October 17, 2001, the Company filed a Report on Form
8-K disclosing confirmation regarding the extension of
a contract.
(c) Exhibits:
See Exhibit Index
(d) All schedules have been omitted as the required information
is not present in sufficient amounts or the required
information is included elsewhere in the Consolidated
Financial Statement or notes thereto.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of St.
Charles and State of Missouri on the 29th day of March, 2002.
LMI AEROSPACE, INC.
(Registrant)
By: /s/ Ronald S. Saks
------------------------------------------
Ronald S. Saks
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Ronald S. Saks Chief Executive Officer, March 29, 2002
- ------------------------- President, and Director
Ronald S. Saks
/s/ Joseph Burstein Chairman of the Board, March 29, 2002
- ------------------------- and Director
Joseph Burstein
/s/ Tom Baker Chief Operating Officer March 29, 2002
- -------------------------
Tom Baker
/s/ Lawrence E. Dickinson Chief Financial Officer March 29, 2002
- ------------------------- and Secretary
Lawrence E. Dickinson
/s/ Duane Hahn Vice President, Regional March 29, 2002
- ------------------------- Manager and Director
Duane Hahn
/s/ Sanford S. Neuman Assistant Secretary March 29, 2002
- ------------------------- and Director
Sanford S. Neuman
/s/ Thomas M. Gunn Director March 29, 2002
- -------------------------
Thomas M. Gunn
/s/ Alfred H. Kerth Director March 29, 2002
- -------------------------
Alfred H. Kerth
Director March ___, 2002
- -------------------------
Thomas Unger
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
2.1 Asset Purchase Agreement by and among Tempco Engineering, Inc. and
Hyco Precision, Inc., the shareholders of Tempco Engineering, Inc.
and Hyco Precision, Inc. and Metal Corporation, dated as of March
28, 2001, filed as Exhibit 2.1 to the Registrant's Form 8K filed
April 17, 2001 and incorporated herein by reference.
3.1 Restated Articles of the Registrant previously filed as Exhibit 3.1
to the Registrant's Form S-1 (File No. 333-51357) dated as of June
29, 1998 (the "Form S-1") and incorporated herein by reference.
3.2 Amended and Restated By-Laws of the Registrant previously filed as
Exhibit 3.2 to the Form S-1 and incorporated herein by reference.
3.3 Amendment to Restated Articles of Incorporation dated as of July 9,
2001 (filed herewith).
4.1 Form of the Registrant's Common Stock Certificate previously filed
as Exhibit 4.1 to the Form S-1 and incorporated herein by reference.
10.1+ 1989 Employee Incentive Stock Option Plan, including amendments nos.
1 through 4, previously filed as Exhibit 10.1 to the Form S-1 and
incorporated herein by reference.
10.2+ Employment Agreement, dated January 1, 1997, between the Registrant
and Ronald S. Saks, as previously filed as Exhibit 10.2 to the Form
S-1 and incorporated herein by reference.
10.3 Lease Agreement, dated November 25, 1991, between the Registrant and
Roy R. Thoele and Madonna J. Thoele, including all amendments
(Leased premises at 3000 Highway 94 North), previously filed as
Exhibit 10.8 to the Form S-1 and incorporated herein by reference.
10.4 Lease Agreement, dated June 28, 1988, between the Registrant and J &
R Sales, including all amendments (Leased premises at 204 H Street),
previously filed as Exhibit 10.9 to the Form S-1 and incorporated
herein by reference.
10.5 Lease Agreement, dated May 6, 1997, between the Registrant and
Victor Enterprises, LLC, including all amendments (Leased premises
at 101 Western Avenue S), previously filed as Exhibit 10.10 to the
Form S-1 and incorporated herein by reference.
10.6 Lease Agreement, dated February 1, 1995, between the Registrant and
RFS Investments (Leased premises at 2621 West Esthner Court)
previously filed as Exhibit 10.11 to the Form S-1 and incorporated
herein by reference.
10.7+ Profit Sharing and Savings Plan and Trust, including amendments nos.
1 through 6, previously filed as Exhibit 10.12 to the Form S-1 and
incorporated herein by reference.
10.8 Loan Agreement between the Registrant and Magna Bank, N.A. dated
August 15, 1996, including amendments nos. 1 through 3, previously
filed as Exhibit 10.13 to the Form S-1 and incorporated herein by
reference.
10.9 Indenture of Trust and Loan Agreement, both with the Industrial
Development Authority of St. Charles County, Missouri and dated as
of September 1, 1990 previously filed as Exhibit 10.14 to the Form
S-1 and incorporated herein by reference.
10.10 General Terms Agreement, Special Terms Agreement and Warranty
Agreements, between the Registrant and Boeing Seattle previously
filed as Exhibit 10.15 to the Form S-1 and incorporated herein by
reference.
10.11 Form of Master Order Agreement covering Boeing 777 and 747 Programs
and Master Order Agreement covering Boeing 737 Leading Edge Program,
both between the Registrant and Boeing North American, previously
filed as Exhibit 10.16 to the Form S-1 and incorporated herein by
reference.
10.12 Form of Contract between the Registrant and Boeing Wichita
previously filed as Exhibit 10.17 to the Form S-1 and incorporated
herein by reference.
10.13 General Conditions (Fixed Price - Non-Governmental) for the
G-14/F100 Program, General Conditions for the Wing Stub/Lower 45
Program Boeing Model 767 Commercial Aircraft and Form of Master
Agreement, all with Vought previously filed as Exhibit 10.18 to the
Form S-1 and incorporated herein by reference.
10.14+ Amended and Restated 1998 Stock Option Plan, previously filed as
Exhibit 10.37 to the Registrant's Form S-8 (File No. 333-38090)
dated as of May 24, 2000 and incorporated herein by reference.
10.15+ Amendment No. 5 to 1989 Stock Option Plan, previously filed as
Exhibit 10.20 to the Form S-1 and incorporated herein by reference.
10.16 General Terms Agreement between Boeing Company and Leonard's Metal,
Inc. with Special Business Provision attached, previously filed as
Exhibit 10.15 to the Registrant's Form 10-Q dated as of November 16,
1998 and incorporated herein by reference.
10.17 Lease Agreement between Mother Goose Corporation and Precise Machine
Partners L.L.P. (Leased premises at 2205 and 2215 River Hill Road,
Irving, Texas) dated August 25, 1998, previously filed as Exhibit
10.24 to the Registrant's Form 10-K for the fiscal year ended
December 31, 1999 (the "1999 Form 10-K") and incorporated herein by
reference.
10.18+ Employment Agreement effective as of January 24, 2000, between LMI
Aerospace, Inc. and Tom D. Baker, previously filed as Exhibit 10.30
to the Registrant's Form 10-K for the fiscal year ended December 31,
2000 (the "2000 Form 10-K") and incorporated herein by reference.
10.19+ Employment Agreement effective as of January 1, 2000, between LMI
Aerospace, Inc. and Lawrence E. Dickinson, previously filed as
Exhibit 10.32 to the 2000 Form 10-K and incorporated herein by
reference.
10.20+ Employment Agreement effective as of January 1, 2002, between LMI
Aerospace, Inc. and Bradley L. Nelson, previously filed as Exhibit
10.35 to the 2000 Form 10-K and incorporated herein by reference.
10.21 Fourth Amendment to Loan Agreement dated as of October 30, 2000,
previously filed as Exhibit 10.37 to the Registrant's Form 8-K dated
December 26, 2000 and incorporated by reference.
10.22 Fifth Amendment to and Restatement of Loan Agreement dated as of
April 2, 2001, previously filed as Exhibit 10.1 to the Registrant's
Form 10-Q dated August 9, 2001, and incorporated herein by
reference.
10.23+ Employment Agreement between Tempco Engineering, Inc. and Ernest R.
Star dated April 2, 2001, filed as exhibit 10.2 to the Registrant's
From 10-Q dated August 9, 2001 and incorporated herein by reference.
10.24 Sixth Amendment to Loan Agreement dated as of October 30, 2001,
filed as Exhibit 10.2 to the Registrant's Form 10-Q dated November
14, 2001, and incorporated herein by reference.
10.25 Business Reformation Agreement between Leonard; Metal, Inc. and
Lockheed Martin Aeronautics Company dated September 21, 2001, filed
as Exhibit 10.1 to the Registrant's Form 10-Q dated November 14,
2001, and incorporated by reference.
10.26+ Employment Agreement effective as of January 1, 2002, between LMI
Aerospace, Inc. and Philip A. Lajeunesse (filed herewith).
10.27 Lease dated April 2, 2001 by and between Peter Holz and Anna L. Holz
Trustees of the Peter and Anna L. Holz Trust dated 2/8/89, as to an
undivided one-half interest, and Ernest R .Star and Linda Ann
Zoettl, Trustees under the Ernest L. Star and Elizabeth H. Star 1978
Trust dated August 25, 2978, as to an undivided one-half interest
and Metal Corporation (filed herewith).
10.28 Lease dated April 2, 2001, between Tempco Engineering, Inc. and
Metal Corporation (filed herewith).
10.29+ Employment Agreement Effective as of January 1, 2002 between LMI
Aerospace, Inc. and Robert T. Grah (filed herewith).
10.30+ Employment Agreement Effective as of January 1, 2002 between LMI
Aerospace, Inc. and Duane Hahn (filed herewith).
10.31+ Employment Agreement Effective as of January 1, 2002 between LMI
Aerospace, Inc. and Michael J. Biffignani (filed herewith).
21.1 List of Subsidiaries of the Registrant (filed herewith).
23.1 Consent of Independent Auditors (filed herewith).
- -----------------------------------------
+ Management contract or compensatory plan or arrangement required to
be filed as exhibit to this report.