Attached files
file | filename |
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EX-32.1 - EX-32.1 - Ames True Temper, Inc. | y03014exv32w1.htm |
EX-31.1 - EX-31.1 - Ames True Temper, Inc. | y03014exv31w1.htm |
EX-31.2 - EX-31.2 - Ames True Temper, Inc. | y03014exv31w2.htm |
EX-32.2 - EX-32.2 - Ames True Temper, Inc. | y03014exv32w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark one)
þ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended January 2, 2010
OR
o | 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 333-118086
AMES TRUE TEMPER, INC.
(Exact name of registrant as specified in its charter)
Delaware | 22-2335400 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
465 Railroad Avenue, Camp Hill, Pennsylvania | 17011 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code:
(717) 737-1500
Former name, former address and former fiscal year, if changed since last report:
NOT APPLICABLE
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of large accelerated filer, accelerated filer and smaller reporting
company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ
As of February 12, 2010 the Registrant had 1,000 shares of its common stock, $1.00 par value,
outstanding.
ATT HOLDING CO.
TABLE OF CONTENTS
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ATT Holding Co.
Condensed Consolidated Balance Sheets
(Dollars In Thousands Except Per Share Amounts)
Condensed Consolidated Balance Sheets
(Dollars In Thousands Except Per Share Amounts)
(Unaudited)
January 2, | October 3, | |||||||
2010 | 2009 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 41,308 | $ | 33,609 | ||||
Trade receivables, net |
43,188 | 42,449 | ||||||
Inventories |
106,379 | 90,305 | ||||||
Prepaid expenses and other current assets |
6,042 | 6,315 | ||||||
Total current assets |
196,917 | 172,678 | ||||||
Property, plant and equipment, net |
42,063 | 44,239 | ||||||
Intangibles, net |
53,580 | 53,681 | ||||||
Goodwill |
57,971 | 57,494 | ||||||
Other noncurrent assets |
5,922 | 6,531 | ||||||
Total assets |
$ | 356,453 | $ | 334,623 | ||||
Liabilities and stockholders deficit |
||||||||
Current liabilities: |
||||||||
Trade accounts payable |
$ | 34,701 | $ | 18,214 | ||||
Accrued interest payable |
9,101 | 5,392 | ||||||
Accrued expenses and other current liabilities |
23,540 | 26,642 | ||||||
Revolving loan |
18,293 | 17,500 | ||||||
Current portion of long-term debt and capital lease obligations |
374 | 489 | ||||||
Total current liabilities |
86,009 | 68,237 | ||||||
Deferred income taxes |
14,034 | 13,672 | ||||||
Long-term debt |
299,886 | 299,791 | ||||||
Accrued retirement benefits |
51,907 | 51,836 | ||||||
Other liabilities |
12,156 | 12,661 | ||||||
Total liabilities |
463,992 | 446,197 | ||||||
Commitments and contingencies |
||||||||
Stockholders deficit: |
||||||||
Preferred stockSeries A, $.0001 per share par value; 100,000
shares authorized; 62,495 shares issued and outstanding as of
January 2, 2010 and October 3, 2009 (Liquidation preference of
$62,495 at January 2, 2010) |
| | ||||||
Common stockClass A, $.0001 per share par value; 1,600,000
shares authorized; 726,556 shares issued and outstanding as of
January 2, 2010 and October 3, 2009 |
| | ||||||
Common stockClass B, $.0001 per share par value; 300,000
shares authorized; 267,448 shares issued and outstanding as of
January 2, 2010 and October 3, 2009 |
| | ||||||
Additional paid-in capital |
111,170 | 111,168 | ||||||
Predecessor basis adjustment |
(13,539 | ) | (13,539 | ) | ||||
Accumulated deficit |
(165,913 | ) | (167,272 | ) | ||||
Accumulated other comprehensive loss |
(39,257 | ) | (41,931 | ) | ||||
Total stockholders deficit |
(107,539 | ) | (111,574 | ) | ||||
Total liabilities and stockholders deficit |
$ | 356,453 | $ | 334,623 | ||||
See accompanying notes.
1
Table of Contents
(Unaudited)
Thirteen Week Period Ended | ||||||||
January 2, | December 27, | |||||||
2010 | 2008 | |||||||
Net sales |
$ | 86,399 | $ | 92,334 | ||||
Cost of goods sold |
59,228 | 64,449 | ||||||
Gross profit |
27,171 | 27,885 | ||||||
Selling, general and administrative expenses |
15,897 | 17,798 | ||||||
(Gain) loss on disposal of property, plant and equipment |
(65 | ) | 32 | |||||
Amortization of intangible assets |
304 | 305 | ||||||
Impairment charges |
| 476 | ||||||
Operating income |
11,035 | 9,274 | ||||||
Interest expense |
6,821 | 7,971 | ||||||
Other expense |
1,200 | 11,363 | ||||||
Income (loss) before income taxes |
3,014 | (10,060 | ) | |||||
Income tax expense |
1,655 | 178 | ||||||
Net income (loss) |
$ | 1,359 | $ | (10,238 | ) | |||
See accompanying notes.
2
Table of Contents
(Unaudited)
Thirteen Week Period Ended | ||||||||
January 2, | December 27, | |||||||
2010 | 2008 | |||||||
Operating activities |
||||||||
Net income (loss) |
$ | 1,359 | $ | (10,238 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities: |
||||||||
Depreciation expense |
3,358 | 3,887 | ||||||
Amortization of intangible assets |
304 | 305 | ||||||
Amortization of loan fees |
555 | 555 | ||||||
Benefit from deferred taxes |
(2,409 | ) | (359 | ) | ||||
(Benefit from) provision for bad debts |
(58 | ) | 132 | |||||
Amortization of bond discount |
27 | 27 | ||||||
(Gain) loss on disposal of property, plant and equipment |
(65 | ) | 32 | |||||
Unrealized foreign currency losses |
1,007 | 11,842 | ||||||
Impairment charges |
| 476 | ||||||
Changes in assets and liabilities: |
||||||||
Trade receivables |
(480 | ) | 66 | |||||
Inventories |
(15,623 | ) | (32,519 | ) | ||||
Prepaid expenses and other assets |
76 | (416 | ) | |||||
Trade accounts payable |
16,326 | 7,646 | ||||||
Accrued expenses and other liabilities |
2,438 | 842 | ||||||
Net cash provided by (used in) operating activities |
6,815 | (17,722 | ) | |||||
Investing activities |
||||||||
Cash paid for property, plant and equipment |
(944 | ) | (2,418 | ) | ||||
Proceeds from sale of property, plant and equipment |
184 | 5 | ||||||
Net cash used in investing activities |
(760 | ) | (2,413 | ) | ||||
Financing activities |
||||||||
Repayments of long-term debt |
(143 | ) | (136 | ) | ||||
Borrowings on revolving loan |
14,923 | 43,488 | ||||||
Repayments on revolving loan |
(14,130 | ) | (18,900 | ) | ||||
Principal payments under capital lease obligations |
(2 | ) | | |||||
Net cash provided by financing activities |
648 | 24,452 | ||||||
Effect of exchange rate changes on cash and cash equivalents |
996 | (2,488 | ) | |||||
Increase in cash and cash equivalents |
7,699 | 1,829 | ||||||
Cash and cash equivalents at beginning of period |
33,609 | 17,159 | ||||||
Cash and cash equivalents at end of period |
$ | 41,308 | $ | 18,988 | ||||
Supplemental Cash Flow Information |
||||||||
Cash paid for interest |
$ | 2,570 | $ | 4,056 | ||||
Cash paid for income taxes |
$ | 1,123 | $ | 89 | ||||
Property, plant and equipment in trade accounts payable at end of period |
$ | 16 | $ | 1,054 | ||||
Property acquired under capital lease obligations |
$ | 98 | $ | | ||||
See accompanying notes.
3
Table of Contents
ATT HOLDING CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
1. Basis of Presentation
These interim financial statements and the related notes contain the accounts of ATT Holding
Co. and its wholly-owned subsidiaries (the Company) on a condensed consolidated basis and should
be read in conjunction with the consolidated financial statements and notes included in the
Companys Annual Report on Form 10-K for the fiscal year ended October 3, 2009. ATT Holding Co. is
a holding company which has no interest, operations or activities other than through its ownership
of 100% of Ames True Temper Inc., (ATT) and ATTs wholly-owned subsidiaries.
The accompanying condensed consolidated financial statements and notes are prepared in
accordance with accounting principles generally accepted in the
United States of America (US
GAAP) and the rules and regulations of the Securities and
Exchange Commission (SEC). Due to
the seasonal nature of our business, the results of operations for the thirteen week period ended
January 2, 2010 are not necessarily indicative of results to be expected for the entire fiscal year
ending October 2, 2010. Certain information and notes normally included in financial statements
prepared in accordance with US GAAP have been condensed or omitted pursuant to the rules and
regulations of the SEC. In the opinion of management, all adjustments necessary for a fair
presentation have been recorded. All adjustments were comprised of normal recurring adjustments,
except as discussed in the Notes to Condensed Consolidated Financial Statements. All intercompany
transactions have been eliminated in consolidation.
2. Recent Accounting Pronouncements
Adopted
In February 2008, the Financial Accounting Standards Board (FASB) issued new accounting
guidance that defers the effective date of applying fair value guidance for one year for certain
nonfinancial assets and nonfinancial liabilities. The Company adopted the new guidance during the
thirteen week period ended January 2, 2010. The new guidance had no material effect on the
Companys condensed consolidated financial statements.
In December 2007, the FASB issued new accounting guidance that establishes principles and
requirements for how an acquirer in a business combination:
| Recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree; | ||
| Recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and | ||
| Determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. |
The Company adopted the new guidance during the thirteen week period ended January 2, 2010.
The new guidance had no material effect on the Companys condensed consolidated financial
statements.
In December 2007, the FASB issued an amendment to existing accounting guidance to establish
accounting and reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It also amends certain consolidation procedures for consistency
with the requirements of the new accounting guidance. The Company adopted the amendment during the
thirteen week period ended January 2, 2010. The amendment had no material effect on the Companys
condensed consolidated financial statements.
To Be Adopted
In June 2009, the FASB issued an amendment to existing accounting guidance to require entities
to perform an analysis to determine whether its variable interests give it controlling interest in
a variable interest entity. In addition, enhanced disclosures are required for any enterprise that
holds a variable interest in a variable interest entity. The Company is required to adopt the
amendment in the first quarter of fiscal
4
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ATT HOLDING CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
2011. The Company has not yet assessed the impact of adoption, if any, on its condensed
consolidated financial statements.
In January 2010, the FASB issued an amendment to existing accounting guidance to require new
fair value measurement disclosures related to transfers in and out of Level 1 and 2 in the
hierarchy as well as new disclosures related to activity in Level 3 fair value measurements. The
amendment clarifies existing disclosures related to level of disaggregation, inputs and valuation
techniques. In addition, the amendment includes conforming amendments to the guidance on employers
disclosures about postretirement benefit plan assets. The Company is required to adopt the
amendment in the second quarter of fiscal 2010, except for the disclosures about purchases, sales,
issuances and settlements in the roll forward of activity in Level 3 fair value measurements. The
Company is acquired to adopt the exception in the first quarter of fiscal 2012. The Company has not
yet assessed the impact of adoption, if any, on its condensed consolidated financial statements.
3. Inventories
Inventories are as follows:
January 2, | October 3, | |||||||
2010 | 2009 | |||||||
Finished goods |
$ | 68,082 | $ | 51,161 | ||||
Work in process |
13,649 | 14,595 | ||||||
Raw materials |
24,648 | 24,549 | ||||||
$ | 106,379 | $ | 90,305 | |||||
4. Goodwill and Other Intangibles
The change in carrying amount of goodwill for the thirteen week period ended January 2, 2010
is as follows:
United States | Canada | Total | ||||||||||
Goodwill at October 3, 2009 |
$ | 43,605 | $ | 13,889 | $ | 57,494 | ||||||
Currency translation adjustments |
| 477 | 477 | |||||||||
Goodwill at January 2, 2010 |
$ | 43,605 | $ | 14,366 | $ | 57,971 | ||||||
The following table reflects the components of intangible assets other than goodwill as of
January 2, 2010 and October 3, 2009:
January 2, 2010 | October 3, 2009 | |||||||||||||||
Gross Carrying | Accumulated | Gross Carrying | Accumulated | |||||||||||||
Amount | Amortization | Amount | Amortization | |||||||||||||
Indefinite lived intangible assets: |
||||||||||||||||
Trade names |
$ | 48,062 | $ | | $ | 47,879 | $ | | ||||||||
Finite lived intangible assets: |
||||||||||||||||
Technology (patents) |
1,356 | 1,154 | 1,356 | 1,142 | ||||||||||||
Non-compete agreements |
976 | 971 | 976 | 965 | ||||||||||||
Customer relationships |
11,638 | 6,327 | 11,617 | 6,040 | ||||||||||||
13,970 | 8,452 | 13,949 | 8,147 | |||||||||||||
$ | 62,032 | $ | 8,452 | $ | 61,828 | $ | 8,147 | |||||||||
The cost of other acquired intangible assets, including primarily customer relationships,
patents and covenants not to compete is amortized on a straight-line basis over the estimated lives
of 3 to 19 years. Amortization expense for the remainder of fiscal 2010 and thereafter is as
follows:
5
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ATT HOLDING CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
January 2010 September 2010 |
$ | 905 | ||
Fiscal 2011 |
1,200 | |||
Fiscal 2012 |
1,180 | |||
Fiscal 2013 |
1,166 | |||
Fiscal 2014 |
867 | |||
Thereafter |
200 | |||
$ | 5,518 | |||
5. Income Taxes
The Company determines its income tax provision for each jurisdiction in which it operates.
This determination includes making an estimate of the Companys current income tax payable, effects
of temporary differences, net operating loss and credit carryforwards and the need for valuation
allowances for deferred tax assets. In assessing whether or not deferred tax assets will be
realized, the Company considers whether it is more likely than not that some portion or all of
its deferred tax assets will not be realized. In making this assessment, historical operating
losses, scheduled reversal of deferred tax liabilities, projected future taxable income and tax
planning strategies are considered.
As a result of the history of losses that the Company has incurred in recent years in the
U.S., substantially all of the U.S. domestic deferred tax assets, including tax loss carryforwards,
net of certain deferred tax liabilities, have been offset with a valuation allowance. The Company
expects to maintain a valuation allowance on these deferred tax assets until it can sustain a
sufficient level of profits in the applicable tax jurisdictions that will demonstrate the ability
to realize these net deferred tax assets at a more likely than not level.
Income tax expense for the thirteen week period ended January 2, 2010 primarily represents
taxes in certain foreign jurisdictions of $1,094, additional valuation allowance of $331 and
accrual of tax, interest, and penalties on unrecognized tax benefits of $160.
Income tax expense for the thirteen week period ended December 27, 2008 mainly represents the
recognition of additional valuation allowance of $274 and an accrual of tax, interest and penalties
on unrecognized tax benefits of $80. This expense is partially offset by a reduction in current
tax liabilities as a result of a change in Canadian withholding tax rates of $362.
6. Debt Arrangements
Total indebtedness is as follows:
January 2, | October 3, | |||||||
2010 | 2009 | |||||||
Revolving Loan |
$ | 18,293 | $ | 17,500 | ||||
Senior Floating Rate Notes, net of unamortized
discount of $214 and $241, respectively |
149,785 | 149,759 | ||||||
Senior Subordinated Notes |
150,000 | 150,000 | ||||||
Term Note |
338 | 479 | ||||||
Capital lease obligations |
137 | 42 | ||||||
Total debt |
318,553 | 317,780 | ||||||
Less: |
||||||||
Short-term Revolving Loan |
(18,293 | ) | (17,500 | ) | ||||
Current portion of capital lease obligations |
(36 | ) | (10 | ) | ||||
Current portion of long-term debt |
(338 | ) | (479 | ) | ||||
Long-term debt |
$ | 299,886 | $ | 299,791 | ||||
6
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ATT HOLDING CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
Letters of | (a) | (b) | ||||||||||||||||||||||
Borrowing | Credit | Availability | Interest | |||||||||||||||||||||
Maximum | Base as of | Outstanding as | as of | Rate as of | ||||||||||||||||||||
Borrowing | January | of January | January | January | Expiration | |||||||||||||||||||
Amount | 2, 2010 | 2, 2010 | 2, 2010 | 2, 2010 | Date | |||||||||||||||||||
Revolving Loan |
$ | 130,000 | $ | 76,660 | $ | 3,268 | $ | 55,099 | 3.0 | % | Apr 7, 2011 |
(d) | (e) | |||||||||||||||||||
Original | (c) | Interest | Maturity | Call Option | ||||||||||||||||
Principal | Interest Rate | Payments | Date | Date | ||||||||||||||||
Jan 15, Apr 15, |
||||||||||||||||||||
Senior Floating Rate Notes |
$ | 150,000 | LIBOR + 4 | % | Jul 15, Oct 15 | Jan 15, 2012 | Jan 15, 2007 | |||||||||||||
Senior Subordinated Notes |
150,000 | 10 | % | Jan 15, Jul 15 | Jul 15, 2012 | Jul 15, 2008 | ||||||||||||||
Term Note |
2,700 | 2.5 | % | Monthly | Jul 19, 2010 | n/a |
(a) | Total amount available is limited by the amount of eligible accounts receivable, inventory, machinery and equipment, and real estate less letters of credit outstanding. | |
(b) | The interest rate applicable to the loans under the Revolving Loan is either 1) the Eurodollar Rate or London Interbank Offered Rate (LIBOR) plus a margin of 1.75% to 2.75%, or 2) the Base Rate plus a margin of 0.50% to 1.50%. The Base Rate is calculated at the higher of 1) the prevailing Federal Funds rate plus 50 basis points or 2) the administrative agents prime interest rate plus an applicable rate determined by the Companys consolidated leverage ratio as defined by the Amended and Restated Senior Secured Credit Agreement. | |
(c) | LIBOR represents the three month London Interbank Offered Rate which resets quarterly, LIBOR was .28% as of October 13, 2009. October 13, 2009 represents the reset date for the January 15, 2010 interest payment. | |
(d) | Interest payments are in cash and paid in arrears. | |
(e) | The Senior Floating Rate Notes do not have a redemption premium. The Senior Subordinated Notes have a redemption price of 102.5% of principal on or after July 15, 2009, and 100% of principal on or after July 15, 2010. |
Interest Rate Swaps
The Companys Senior Floating Rate Notes have an interest rate of 3-month LIBOR plus 4%. The
Company has entered into interest rate swaps that fix the variable rate portion of the interest
rate as follows:
(a) | ||||||||||||||||
Effective | ||||||||||||||||
Notional | Interest | |||||||||||||||
Receive | Pay | Amount | Rate | |||||||||||||
January 16, 2009 through January 15, 2010 |
3-month LIBOR | 4.31 | % | $ | 33,333 | 8.31 | % | |||||||||
January 16, 2009 through January 15, 2010 |
3-month LIBOR | 4.29 | % | 16,667 | 8.29 | % | ||||||||||
January 15, 2009 through January 15, 2010 |
3-month LIBOR | 1.40 | % | 100,000 | 5.40 | % | ||||||||||
January 15, 2010 through January 15, 2011 |
3-month LIBOR | 1.90 | % | 150,000 | 5.90 | % | ||||||||||
January 18, 2011 through January 15, 2012 |
3-month LIBOR | 2.50 | % | 150,000 | 6.50 | % |
(a) | Represents the effective interest rate on the respective portion of the Senior Floating Rate Notes including the contractual terms of the interest rate swap for the periods indicated. |
7
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ATT HOLDING CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
7. Pension and Other Post-retirement Benefits
Pension Benefits | Other Benefits | |||||||||||||||
Thirteen Week Period Ended | Thirteen Week Period Ended | |||||||||||||||
January 2, | December 27, | January 2, | December 27, | |||||||||||||
2010 | 2008 | 2010 | 2008 | |||||||||||||
Service cost |
$ | 37 | $ | 109 | $ | 1 | $ | 1 | ||||||||
Interest cost |
2,105 | 2,149 | 20 | 22 | ||||||||||||
Expected return on plan assets |
(2,438 | ) | (2,585 | ) | | | ||||||||||
Amortization of prior service cost |
| 6 | | | ||||||||||||
Amortization of unrecognized net loss |
727 | 98 | (28 | ) | (30 | ) | ||||||||||
Net periodic benefit (credit) cost |
$ | 431 | $ | (223 | ) | $ | (7 | ) | $ | (7 | ) | |||||
Employer contributions |
$ | 288 | $ | 2,169 | $ | 13 | $ | | ||||||||
8. Other Comprehensive Income (Loss)
Thirteen Week Period Ended | ||||||||
January 2, | December 27, | |||||||
2010 | 2008 | |||||||
Net income (loss) |
$ | 1,359 | $ | (10,238 | ) | |||
Other comprehensive income (loss): |
||||||||
Currency translation adjustment |
2,210 | 5,319 | ||||||
Fair value adjustments of swaps, net of tax |
464 | (600 | ) | |||||
Effect of pension measurement date provision, net of tax |
| 95 | ||||||
Comprehensive income (loss) |
$ | 4,033 | $ | (5,424 | ) | |||
9. Segment Information
The Company has three operating segments, comprised of the United States, Canada and Other.
All of the Companys revenues represent sales of similar products. All intercompany amounts are
eliminated in the eliminations column. During the fourteen week period ended October 3, 2009, the
Company consummated an internal reorganization. Pursuant to this reorganization, a Canadian
subsidiary of the Company transferred all of the outstanding shares of a U.S. subsidiary of the
Company to a separate U.S. subsidiary. The Company has recast its segment information for the
thirteen week period ended December 27, 2008 as a result of the reorganization. Segment information
for the thirteen week periods ended January 2, 2010 and December 27, 2008, representing the
reportable segments currently utilized by chief operating decision makers was as follows:
8
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ATT HOLDING CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
Thirteen Week Period Ended | ||||||||||||||||||||
January 2, 2010 | ||||||||||||||||||||
United States | Canada | Other | Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | 64,953 | $ | 20,571 | $ | 875 | $ | | $ | 86,399 | ||||||||||
Intersegment sales |
1,154 | 3,173 | | (4,327 | ) | | ||||||||||||||
Operating income (loss) |
6,314 | 5,170 | (449 | ) | | 11,035 | ||||||||||||||
Interest expense |
6,821 | |||||||||||||||||||
Other expense |
1,200 | |||||||||||||||||||
Income before income taxes |
$ | 3,014 | ||||||||||||||||||
Thirteen Week Period Ended | ||||||||||||||||||||
December 27, 2008 | ||||||||||||||||||||
United States | Canada | Other | Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | 66,500 | $ | 24,325 | $ | 1,509 | $ | | $ | 92,334 | ||||||||||
Intersegment sales |
1,800 | 911 | 582 | (3,293 | ) | | ||||||||||||||
Operating income (loss) |
3,561 | 5,886 | (173 | ) | | 9,274 | ||||||||||||||
Interest expense |
7,971 | |||||||||||||||||||
Other expense |
11,363 | |||||||||||||||||||
Loss before income taxes |
$ | (10,060 | ) | |||||||||||||||||
Segment assets as of January 2, 2010 and October 3, 2009 are as follows:
January 2, | October 3, | |||||||
2010 | 2009 | |||||||
United States |
$ | 259,753 | $ | 242,774 | ||||
Canada |
90,373 | 84,987 | ||||||
Other |
6,327 | 6,862 | ||||||
Total |
$ | 356,453 | $ | 334,623 | ||||
10. Other Expense
Other expense consists of the following:
Thirteen Week Period Ended | ||||||||
January 2, | December 27, | |||||||
2010 | 2008 | |||||||
Unrealized loss |
$ | 1,007 | $ | 11,842 | ||||
Realized loss (gain) |
193 | (479 | ) | |||||
Total |
$ | 1,200 | $ | 11,363 | ||||
On September 1, 2007, the Company entered into an intercompany financing arrangement whereby
one of the Companys Canadian subsidiaries issued a U. S. dollar denominated intercompany note as
part of an internal legal entity restructuring. During the fourth quarter of the fiscal year ended
October 3, 2009, the internal legal entity restructuring was reversed and a portion of the balance
outstanding under the intercompany note was repaid. The intercompany note is not long-term in
nature. As a result, the impact of exchange rate changes on the principal and interest of the note
is recorded as an unrealized gain or loss in the condensed consolidated statements of operations.
For the thirteen week periods ended January 2, 2010
9
Table of Contents
ATT HOLDING CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
and December 27, 2008, the Company recorded unrealized losses related to the intercompany note
of $647 and $14,834, respectively. In the second quarter of fiscal 2010 the remaining outstanding
balance under the intercompany note was paid in full. The Company recorded an unrealized foreign
currency loss of $51 and an unrealized foreign currency gain of $1,934 related to a U.S. dollar
bank account held by a Canadian subsidiary during the thirteen week periods ended January 2, 2010
and December 27, 2008, respectively. In addition, for the thirteen week periods ended January 2,
2010 and December 27, 2008, the Company recorded an unrealized foreign currency loss of $278 and an
unrealized foreign currency gain of $1,139, respectively, related to foreign currency forward
contracts.
11. Condensed Guarantor Data
On December 17, 2007, as a result of certain corporate restructuring activities, ATT entered
into supplemental indenture agreements with respect to the Senior Subordinated Notes and Senior
Floating Rate Notes (collectively, the Notes) to include certain domestic subsidiaries as
guarantors. The Notes are fully and unconditionally and jointly and severally guaranteed by ATT
Holding Co. and certain of its directly or indirectly wholly-owned subsidiaries, namely, Ames True
Temper Properties, Inc., Ames Holdings, Inc. and Ames U.S. Holding Corp., (collectively the
Subsidiary Guarantors). ATT Holding Co. is a holding company which has no interest, operations
or activities other than through its ownership of 100% of ATT and ATTs wholly-owned subsidiaries.
The Notes are not guaranteed by any of ATT Holding Co.s other directly and indirectly wholly-owned
subsidiaries.
The following condensed consolidating information presents, in separate columns, the condensed
consolidating balance sheets as of January 2, 2010 and October 3, 2009 and the related condensed
consolidating statements of operations and condensed consolidating statements of cash flows for the
thirteen week periods ended January 2, 2010 and December 27, 2008 for (i) ATT Holding Co. on a
parent only basis, with its investment in subsidiary recorded under the equity method, (ii) the
issuer (ATT) as a wholly-owned subsidiary, on a parent only basis, with its investments in
subsidiaries recorded under the equity method, (iii) the subsidiary guarantors on a combined basis,
(iv) the subsidiary non-guarantors on a combined basis and (v) the Company on a consolidated basis.
During the fourth quarter of the period ended October 3, 2009, the Company consummated an
internal reorganization between the U.S. and Canada segments. Pursuant to this reorganization, a
Canadian subsidiary of the Company transferred all of the outstanding shares of a U.S. subsidiary
of the Company to a separate U.S. subsidiary. The Company has recast its condensed consolidating
statement of operations and condensed consolidating statement of cash flows for the thirteen week
period ended December 27, 2008 as a result of this reorganization.
10
Table of Contents
ATT HOLDING CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
ATT Holding Co.
Condensed Consolidating Balance Sheet
As of January 2, 2010
Condensed Consolidating Balance Sheet
As of January 2, 2010
Subsidiary | ||||||||||||||||||||||||
ATT | Ames True | Subsidiary | Non- | |||||||||||||||||||||
Holding Co. | Temper Inc. | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 31 | $ | 9 | $ | 41,268 | $ | | $ | 41,308 | ||||||||||||
Trade receivables, net |
| 38,346 | | 4,842 | | 43,188 | ||||||||||||||||||
Inventories |
| 87,822 | | 18,557 | | 106,379 | ||||||||||||||||||
Prepaid expenses and other current assets |
| 4,351 | 36 | 1,655 | | 6,042 | ||||||||||||||||||
Total current assets |
| 130,550 | 45 | 66,322 | | 196,917 | ||||||||||||||||||
Property, plant and equipment, net |
| 31,204 | | 10,859 | | 42,063 | ||||||||||||||||||
Intangibles, net |
| 4,831 | 41,900 | 6,849 | | 53,580 | ||||||||||||||||||
Goodwill |
| 43,605 | | 14,366 | | 57,971 | ||||||||||||||||||
Intercompany receivable |
| 30,792 | 173,536 | 3,474 | (207,802 | ) | | |||||||||||||||||
Investment in subsidiaries |
| 256,790 | 167,228 | | (424,018 | ) | | |||||||||||||||||
Other noncurrent assets |
| 5,922 | | | | 5,922 | ||||||||||||||||||
Total assets |
$ | | $ | 503,694 | $ | 382,709 | $ | 101,870 | $ | (631,820 | ) | $ | 356,453 | |||||||||||
Liabilities and stockholders deficit |
||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Trade accounts payable |
$ | | $ | 27,975 | $ | 20 | $ | 6,706 | $ | | $ | 34,701 | ||||||||||||
Accrued interest payable |
| 9,101 | | | | 9,101 | ||||||||||||||||||
Accrued expenses and other current
liabilities |
| 16,476 | | 7,064 | | 23,540 | ||||||||||||||||||
Revolving loan |
| 18,293 | | | | 18,293 | ||||||||||||||||||
Current portion of long-term debt and
capital lease obligations |
| 364 | | 10 | | 374 | ||||||||||||||||||
Total current liabilities |
| 72,209 | 20 | 13,780 | | 86,009 | ||||||||||||||||||
Deferred income taxes |
| 1,544 | 11,446 | 1,044 | | 14,034 | ||||||||||||||||||
Long-term debt |
| 299,856 | | 30 | | 299,886 | ||||||||||||||||||
Accrued retirement benefits |
| 50,997 | | 910 | | 51,907 | ||||||||||||||||||
Other liabilities |
| 10,704 | 1,310 | 142 | | 12,156 | ||||||||||||||||||
Intercompany payable |
| 175,731 | 311 | 31,760 | (207,802 | ) | | |||||||||||||||||
Cumulative losses in subsidiaries |
107,539 | 192 | 190 | | (107,921 | ) | | |||||||||||||||||
Total liabilities |
107,539 | 611,233 | 13,277 | 47,666 | (315,723 | ) | 463,992 | |||||||||||||||||
Commitments and contingencies |
||||||||||||||||||||||||
Stockholders (deficit) equity: |
||||||||||||||||||||||||
Preferred stock-Series A |
| | 118,249 | 49,622 | (167,871 | ) | | |||||||||||||||||
Common stock-Class A |
| | | | | | ||||||||||||||||||
Common stock-Class B |
| | | | | | ||||||||||||||||||
Additional paid-in capital |
111,170 | 111,170 | 154,502 | | (265,672 | ) | 111,170 | |||||||||||||||||
Predecessor basis adjustment |
(13,539 | ) | (13,539 | ) | | | 13,539 | (13,539 | ) | |||||||||||||||
(Accumulated deficit) retained earnings |
(165,913 | ) | (165,913 | ) | 83,669 | (7,339 | ) | 89,583 | (165,913 | ) | ||||||||||||||
Accumulated other comprehensive (loss)
income |
(39,257 | ) | (39,257 | ) | 13,012 | 11,921 | 14,324 | (39,257 | ) | |||||||||||||||
Total stockholders (deficit) equity |
(107,539 | ) | (107,539 | ) | 369,432 | 54,204 | (316,097 | ) | (107,539 | ) | ||||||||||||||
Total liabilities and stockholders deficit |
$ | | $ | 503,694 | $ | 382,709 | $ | 101,870 | $ | (631,820 | ) | $ | 356,453 | |||||||||||
11
Table of Contents
ATT HOLDING CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
ATT Holding Co.
Condensed Consolidating Balance Sheet
As of October 3, 2009
Condensed Consolidating Balance Sheet
As of October 3, 2009
Subsidiary | ||||||||||||||||||||||||
ATT | Ames True | Subsidiary | Non- | |||||||||||||||||||||
Holding Co. | Temper Inc. | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 454 | $ | 9 | $ | 33,146 | $ | | $ | 33,609 | ||||||||||||
Trade receivables, net |
| 34,431 | | 8,018 | | 42,449 | ||||||||||||||||||
Inventories |
| 71,933 | | 18,372 | | 90,305 | ||||||||||||||||||
Prepaid expenses and other current assets |
| 4,450 | | 1,865 | | 6,315 | ||||||||||||||||||
Total current assets |
| 111,268 | 9 | 61,401 | | 172,678 | ||||||||||||||||||
Property, plant and equipment, net |
| 33,246 | | 10,993 | | 44,239 | ||||||||||||||||||
Intangibles, net |
| 5,098 | 41,900 | 6,683 | | 53,681 | ||||||||||||||||||
Goodwill |
| 43,605 | | 13,889 | | 57,494 | ||||||||||||||||||
Intercompany receivable |
| 29,980 | 168,715 | 2,941 | (201,636 | ) | | |||||||||||||||||
Investment in subsidiaries |
| 248,762 | 163,010 | | (411,772 | ) | | |||||||||||||||||
Other noncurrent assets |
| 6,531 | | | | 6,531 | ||||||||||||||||||
Total assets |
$ | | $ | 478,490 | $ | 373,634 | $ | 95,907 | $ | (613,408 | ) | $ | 334,623 | |||||||||||
Liabilities and stockholders (deficit)
equity |
||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Trade accounts payable |
$ | | $ | 12,485 | $ | 31 | $ | 5,698 | $ | | $ | 18,214 | ||||||||||||
Accrued interest payable |
| 5,392 | | | | 5,392 | ||||||||||||||||||
Accrued expenses and other current
liabilities |
| 19,189 | 113 | 7,340 | | 26,642 | ||||||||||||||||||
Revolving loan |
| 17,500 | | | | 17,500 | ||||||||||||||||||
Current portion of long-term debt and
capital lease obligations |
| 479 | | 10 | | 489 | ||||||||||||||||||
Total current liabilities |
| 55,045 | 144 | 13,048 | | 68,237 | ||||||||||||||||||
Deferred income taxes |
| 1,544 | 11,115 | 1,013 | | 13,672 | ||||||||||||||||||
Long-term debt |
| 299,759 | | 32 | | 299,791 | ||||||||||||||||||
Accrued retirement benefits |
| 50,893 | | 943 | | 51,836 | ||||||||||||||||||
Other liabilities |
| 11,370 | 1,184 | 107 | | 12,661 | ||||||||||||||||||
Intercompany payable |
| 171,453 | | 30,183 | (201,636 | ) | | |||||||||||||||||
Cumulative losses in subsidiaries |
111,574 | | | | (111,574 | ) | | |||||||||||||||||
Total liabilities |
111,574 | 590,064 | 12,443 | 45,326 | (313,210 | ) | 446,197 | |||||||||||||||||
Commitments and contingencies |
||||||||||||||||||||||||
Stockholders (deficit) equity: |
||||||||||||||||||||||||
Preferred stock-Series A |
| | 118,249 | 49,622 | (167,871 | ) | | |||||||||||||||||
Common stock-Class A |
| | | | | | ||||||||||||||||||
Common stock-Class B |
| | | | | | ||||||||||||||||||
Additional paid-in capital |
111,168 | 111,168 | 154,502 | | (265,670 | ) | 111,168 | |||||||||||||||||
Predecessor basis adjustment |
(13,539 | ) | (13,539 | ) | | | 13,539 | (13,539 | ) | |||||||||||||||
(Accumulated deficit) retained earnings |
(167,272 | ) | (167,272 | ) | 77,681 | (8,711 | ) | 98,302 | (167,272 | ) | ||||||||||||||
Accumulated other comprehensive (loss)
income |
(41,931 | ) | (41,931 | ) | 10,759 | 9,670 | 21,502 | (41,931 | ) | |||||||||||||||
Total stockholders (deficit) equity |
(111,574 | ) | (111,574 | ) | 361,191 | 50,581 | (300,198 | ) | (111,574 | ) | ||||||||||||||
Total liabilities and stockholders
(deficit) equity |
$ | | $ | 478,490 | $ | 373,634 | $ | 95,907 | $ | (613,408 | ) | $ | 334,623 | |||||||||||
12
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ATT HOLDING CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
ATT Holding Co.
Condensed Consolidating Statement of Operations
For the Thirteen Week Period Ended January 2, 2010
Condensed Consolidating Statement of Operations
For the Thirteen Week Period Ended January 2, 2010
Subsidiary | ||||||||||||||||||||||||
ATT | Ames True | Subsidiary | Non- | |||||||||||||||||||||
Holding Co. | Temper Inc. | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Net sales |
$ | | $ | 65,792 | $ | | $ | 24,806 | $ | (4,199 | ) | $ | 86,399 | |||||||||||
Cost of goods sold |
| 47,293 | | 16,134 | (4,199 | ) | 59,228 | |||||||||||||||||
Gross profit |
| 18,499 | | 8,672 | | 27,171 | ||||||||||||||||||
Selling, general and administrative expenses |
| 11,945 | 28 | 3,924 | | 15,897 | ||||||||||||||||||
Gain on disposal of property, plant and
equipment |
| (65 | ) | | | | (65 | ) | ||||||||||||||||
Amortization of intangible assets |
| 266 | | 38 | | 304 | ||||||||||||||||||
Operating income (loss) |
| 6,353 | (28 | ) | 4,710 | | 11,035 | |||||||||||||||||
Interest expense (income) |
| 9,384 | (3,046 | ) | 483 | | 6,821 | |||||||||||||||||
Other expense (income) |
| 1,131 | (1,655 | ) | 1,724 | | 1,200 | |||||||||||||||||
(Loss) income before income taxes |
| (4,162 | ) | 4,673 | 2,503 | | 3,014 | |||||||||||||||||
Income tax expense |
| 64 | 460 | 1,131 | | 1,655 | ||||||||||||||||||
Equity in earnings of subsidiaries |
1,359 | 5,585 | 1,886 | | (8,830 | ) | | |||||||||||||||||
Net income |
$ | 1,359 | $ | 1,359 | $ | 6,099 | $ | 1,372 | $ | (8,830 | ) | $ | 1,359 | |||||||||||
ATT Holding Co.
Condensed Consolidating Statement of Operations
For the Thirteen Week Period Ended December 27, 2008
Condensed Consolidating Statement of Operations
For the Thirteen Week Period Ended December 27, 2008
Subsidiary | ||||||||||||||||||||||||
ATT | Ames True | Subsidiary | Non- | |||||||||||||||||||||
Holding Co. | Temper Inc. | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Net sales |
$ | | $ | 68,196 | $ | | $ | 26,795 | $ | (2,657 | ) | $ | 92,334 | |||||||||||
Cost of goods sold |
| 50,105 | | 17,001 | (2,657 | ) | 64,449 | |||||||||||||||||
Gross profit |
| 18,091 | | 9,794 | | 27,885 | ||||||||||||||||||
Selling, general and administrative expenses |
| 13,657 | 43 | 4,098 | | 17,798 | ||||||||||||||||||
Loss on disposal of property, plant and
equipment |
| 32 | | | | 32 | ||||||||||||||||||
Amortization of intangible assets |
| 267 | | 38 | | 305 | ||||||||||||||||||
Impairment charges |
| 476 | | | | 476 | ||||||||||||||||||
Operating income (loss) |
| 3,659 | (43 | ) | 5,658 | | 9,274 | |||||||||||||||||
Interest expense (income) |
| 10,305 | (4,889 | ) | 2,555 | | 7,971 | |||||||||||||||||
Other expense (income) |
| 1,346 | (1,870 | ) | 11,887 | | 11,363 | |||||||||||||||||
(Loss) income before income taxes |
| (7,992 | ) | 6,716 | (8,784 | ) | | (10,060 | ) | |||||||||||||||
Income tax expense (benefit) |
| 56 | (9 | ) | 131 | | 178 | |||||||||||||||||
Loss in earnings of subsidiaries |
(10,238 | ) | (2,190 | ) | (8,752 | ) | | 21,180 | | |||||||||||||||
Net loss |
$ | (10,238 | ) | $ | (10,238 | ) | $ | (2,027 | ) | $ | (8,915 | ) | $ | 21,180 | $ | (10,238 | ) | |||||||
13
Table of Contents
ATT HOLDING CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
ATT Holding Co.
Condensed Consolidating Statement of Cash Flows
For the Thirteen Week Period Ended January 2, 2010
Condensed Consolidating Statement of Cash Flows
For the Thirteen Week Period Ended January 2, 2010
Subsidiary | ||||||||||||||||||||||||
ATT | Ames True | Subsidiary | Non- | |||||||||||||||||||||
Holding Co. | Temper Inc. | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Operating activities |
||||||||||||||||||||||||
Net income |
$ | 1,359 | $ | 1,359 | $ | 6,099 | $ | 1,372 | $ | (8,830 | ) | $ | 1,359 | |||||||||||
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities: |
||||||||||||||||||||||||
Depreciation expense |
| 2,845 | | 513 | | 3,358 | ||||||||||||||||||
Equity in losses of subsidiaries |
(1,359 | ) | (5,585 | ) | (1,886 | ) | | 8,830 | | |||||||||||||||
Provision for (benefit from)
deferred taxes |
| 5 | 331 | (2,745 | ) | | (2,409 | ) | ||||||||||||||||
Other, net |
| 767 | | (4 | ) | | 763 | |||||||||||||||||
Unrealized foreign currency losses |
| | | 1,007 | | 1,007 | ||||||||||||||||||
Related party non-cash transactions |
| (153 | ) | 153 | | | | |||||||||||||||||
Changes in assets and liabilities: |
||||||||||||||||||||||||
Trade receivables |
| (3,900 | ) | | 3,420 | | (480 | ) | ||||||||||||||||
Inventories |
| (15,889 | ) | | 266 | | (15,623 | ) | ||||||||||||||||
Prepaid expenses and other assets |
| 618 | (37 | ) | (505 | ) | | 76 | ||||||||||||||||
Trade accounts payable |
| 15,491 | (11 | ) | 846 | | 16,326 | |||||||||||||||||
Intercompany accounts |
| 3,578 | (4,662 | ) | 1,084 | | | |||||||||||||||||
Accrued expense and other liabilities |
| 412 | 13 | 2,013 | | 2,438 | ||||||||||||||||||
Net cash (used in) provided by
operating activities |
| (452 | ) | | 7,267 | | 6,815 | |||||||||||||||||
Investing activities |
||||||||||||||||||||||||
Cash paid for property, plant and
equipment |
| (806 | ) | | (138 | ) | | (944 | ) | |||||||||||||||
Proceeds from sale of property,
plant and equipment |
| 184 | | | | 184 | ||||||||||||||||||
Net cash used in investing activities |
| (622 | ) | | (138 | ) | | (760 | ) | |||||||||||||||
Financing activities |
||||||||||||||||||||||||
Repayments of long-term debt |
| (143 | ) | | | | (143 | ) | ||||||||||||||||
Borrowings on revolving loan |
| 14,923 | | | | 14,923 | ||||||||||||||||||
Repayments on revolving loan |
| (14,130 | ) | | | | (14,130 | ) | ||||||||||||||||
Principal payments under capital
lease obligations |
| | | (2 | ) | | (2 | ) | ||||||||||||||||
Net cash provided by (used in)
financing activities |
| 650 | | (2 | ) | | 648 | |||||||||||||||||
Effect of exchange rate changes on
cash and cash equivalents |
| 1 | | 995 | | 996 | ||||||||||||||||||
(Decrease) increase in cash and cash
equivalents |
| (423 | ) | | 8,122 | | 7,699 | |||||||||||||||||
Cash and cash equivalents at
beginning of period |
| 454 | 9 | 33,146 | | 33,609 | ||||||||||||||||||
Cash and cash equivalents at end of
period |
$ | | $ | 31 | $ | 9 | $ | 41,268 | $ | | $ | 41,308 | ||||||||||||
14
Table of Contents
ATT HOLDING CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
ATT Holding Co.
Condensed Consolidating Statement of Cash Flows
For the Thirteen Week Period Ended December 27, 2008
Condensed Consolidating Statement of Cash Flows
For the Thirteen Week Period Ended December 27, 2008
Subsidiary | ||||||||||||||||||||||||
ATT | Ames True | Subsidiary | Non- | |||||||||||||||||||||
Holding Co. | Temper Inc. | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Operating activities |
||||||||||||||||||||||||
Net loss |
$ | (10,238 | ) | $ | (10,238 | ) | $ | (2,027 | ) | $ | (8,915 | ) | $ | 21,180 | $ | (10,238 | ) | |||||||
Adjustments to reconcile net loss to
net cash (used in) provided by
operating activities: |
||||||||||||||||||||||||
Depreciation expense |
| 3,395 | | 492 | | 3,887 | ||||||||||||||||||
Equity in earnings of subsidiaries |
10,238 | 2,190 | 8,752 | | (21,180 | ) | | |||||||||||||||||
Provision for (benefit from)
deferred taxes |
| | 274 | (633 | ) | | (359 | ) | ||||||||||||||||
Other, net |
| 989 | | 62 | | 1,051 | ||||||||||||||||||
Related party non-cash transactions |
| (53 | ) | | 53 | | | |||||||||||||||||
Impairment charges |
| 476 | | | | 476 | ||||||||||||||||||
Unrealized foreign currency losses |
| 81 | | 11,761 | | 11,842 | ||||||||||||||||||
Changes in assets and liabilities: |
||||||||||||||||||||||||
Trade receivables |
| 3,874 | | (3,808 | ) | | 66 | |||||||||||||||||
Inventories |
| (30,002 | ) | | (2,517 | ) | | (32,519 | ) | |||||||||||||||
Prepaid expenses and other assets |
| 197 | | (613 | ) | | (416 | ) | ||||||||||||||||
Trade accounts payable |
| 4,921 | (5 | ) | 2,730 | | 7,646 | |||||||||||||||||
Intercompany accounts |
| 3,300 | (6,710 | ) | 3,410 | | | |||||||||||||||||
Accrued expense and other liabilities |
| (1,603 | ) | (283 | ) | 2,728 | | 842 | ||||||||||||||||
Net cash (used in) provided by
operating activities |
| (22,473 | ) | 1 | 4,750 | | (17,722 | ) | ||||||||||||||||
Investing activities |
||||||||||||||||||||||||
Cash paid for property, plant and
equipment |
| (2,223 | ) | | (195 | ) | | (2,418 | ) | |||||||||||||||
Proceeds from sale of property,
plant and equipment |
| 5 | | | | 5 | ||||||||||||||||||
Net cash used in investing activities |
| (2,218 | ) | | (195 | ) | | (2,413 | ) | |||||||||||||||
Financing activities |
||||||||||||||||||||||||
Repayments of long-term debt |
| (136 | ) | | | | (136 | ) | ||||||||||||||||
Borrowings on revolving loan |
| 43,488 | | | | 43,488 | ||||||||||||||||||
Repayments on revolving loan |
| (18,900 | ) | | | | (18,900 | ) | ||||||||||||||||
Net cash provided by financing
activities |
| 24,452 | | | | 24,452 | ||||||||||||||||||
Effect of exchange rate changes on
cash and cash equivalents |
| | | (2,488 | ) | | (2,488 | ) | ||||||||||||||||
(Decrease) increase in cash and cash
equivalents |
| (239 | ) | 1 | 2,067 | | 1,829 | |||||||||||||||||
Cash and cash equivalents at
beginning of period |
| 285 | 5 | 16,869 | | 17,159 | ||||||||||||||||||
Cash and cash equivalents at end of
period |
$ | | $ | 46 | $ | 6 | $ | 18,936 | $ | | $ | 18,988 | ||||||||||||
15
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ATT HOLDING CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
12. Related Party Transactions
On June 28, 2004, affiliates of Castle Harlan, Inc., a New York-based private-equity
investment firm, together with certain employees of the Company or its subsidiaries, completed the
acquisition of the Company (the Acquisition). In connection with the Acquisition, CHATT Holdings
LLC (CHATT LLC) was formed. CHATT LLC owns 100% of CHATT Holdings Inc. (CHATT Inc.); which
owns 100% of ATT Holding Co.; which owns 100% of the Company. CHATT LLC and CHATT Inc. are not
included in the consolidated financial statements of ATT Holding Co. Upon completion of the
Acquisition, affiliates of Castle Harlan, Inc. owned approximately 87% of the equity interests of
CHATT LLC and certain employees of the Company or its subsidiaries owned approximately 13% of the
equity interests of CHATT LLC. The equity interests of CHATT LLC as of the completion of the
Acquisition consisted of Class A Units and Class B Units, the terms of which are described below.
The Class A Units and Class B Units were issued as strips of equal numbers of Class A Units and
Class B Units (Strips). In addition, certain employees of the Company or its subsidiaries were
issued Class B Units (sometimes referred to as Class B Incentive Units) that are subject to certain
vesting requirements which are discussed below.
From time to time since June 28, 2004, CHATT LLC has issued additional Strips and additional
Class B Units to employees of the Company or its subsidiaries that are subject to vesting
requirements.
All of the Class B Units that are subject to vesting requirements were issued pursuant to
employee subscription agreements entered into separately between CHATT LLC and each employee that
received such Class B Units (Employee Subscription Agreements). Pursuant to the Employee
Subscription Agreements, these Class B Units vest based on three criteria: (i) time vesting based
on a five-year term, (ii) performance vesting based on the operating results of CHATT LLC and (iii)
vesting based upon the achievement of a targeted rate of return upon a change of control of CHATT
LLC. In addition, the vesting of these Class B Units is subject to acceleration in the event of a
change of control of CHATT LLC. As of January 2, 2010 and October 3, 2009, there were 138,567
Class B Units subject to vesting issued to management and members of the CHATT Holdings LLC Board
of Directors who are not employees of ATT or Castle Harlan, Inc. These units may not be sold,
pledged, or otherwise transferred except in compliance with applicable securities laws. None of
the Class A Units or Class B Units that were issued as Strips are subject to any vesting
requirements.
Each Class A Unit and Class B Unit, whether issued as part of a Strip or pursuant to an
Employee Subscription Agreement, is governed by and subject to the terms of an operating agreement
among CHATT LLC and each of its equity holders (the Operating Agreement). Pursuant to the
Operating Agreement: to the extent any distribution of assets is made by CHATT LLC, the holders of
Class A Units are entitled to a preferred return prior to any distribution to holders of Class B
Units; after the preferred return has been paid to the holders of Class A Units, the holders of
Class B Units are entitled to receive any remaining amounts of any distribution on a pro rata
basis; holders of Class A Units do not have any voting rights; and each holder of any Class B Units
is entitled to one vote per Class B Unit on all matters to be voted on by the members of CHATT LLC.
The above-referenced rights of the Class B Units are applicable only to those Class B Units
that (i) were issued as part of a Strip and therefore are not subject to vesting requirements or
(ii) were issued pursuant to an Employee Subscription Agreement and have become vested. Unvested
Class B Units do not have any voting rights or rights to receive distributions.
Each Class A Unit and Class B Unit held by employees of the Company or its subsidiaries is
subject to repurchase by CHATT LLC or an affiliate of Castle Harlan, Inc. upon the termination of
such employees employment.
At certain times following the Acquisition, CHATT LLC issued strips of Class A-1 Units and
Class B Units to certain employees of the Company or its subsidiaries. Pursuant to the Operating
Agreement, the holders of Class A-1 Units were entitled to a preferred return prior to any
distribution of assets to holders of
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ATT HOLDING CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
Class A Units or Class B Units. The terms of the Class A-1 Units were otherwise identical to
the Class A Units. In January 2007, all of the Class A-1 Units were converted into Class A Units
pursuant to the terms of the Operating Agreement.
Following the conversion of the Class A-1 Units into Class A Units, CHATT LLC issued strips of
Class A-2 Units and Class B Units to certain employees of the Company or its subsidiaries.
Pursuant to the Operating Agreement, the holders of Class A-2 Units were entitled to a preferred
return prior to any distribution of assets to holders of Class A Units or Class B Units. The terms
of the Class A-2 Units were otherwise identical to the Class A Units. In January 2009, all of the
Class A-2 Units were converted into Class A Units pursuant to the terms of the Operating Agreement.
Following the conversion of the Class A-2 Units into Class A Units, CHATT LLC issued strips of
Class A-3 Units and Class B Units to certain employees of the Company or its subsidiaries.
Pursuant to the Operating Agreement, the holders of Class A-3 Units are entitled to a preferred
return prior to any distribution of assets to holders of Class A Units or Class B Units. The terms
of the Class A-3 Units are otherwise identical to the Class A Units.
The Company is party to a management agreement with Castle Harlan, Inc., an affiliate of the
shareholder, under which Castle Harlan, Inc. provides business and organizational strategy,
financial and investment management, advisory and merchant and investment banking services to the
Company. The Company recorded expenses of $845 and $806 for the thirteen week periods ending
January 2, 2010 and December 27, 2008, respectively, related to the annual management fee plus
expenses which are included in selling, general and administrative expenses. Management fees are
payable quarterly in advance in accordance with the management agreement. The Company had an amount
payable of $40 to Castle Harlan, Inc. as of January 2, 2010 which is included in trade accounts
payable. No amounts were outstanding as of October 3, 2009.
13. Fair Value Measurements
The Companys financial instruments include cash and cash equivalents, trade receivables,
trade accounts payable, derivatives and debt. Because of short term maturities, the carrying
amounts of cash and cash equivalents, trade receivables, trade accounts payable, the Revolving Loan
and Term Note approximate fair value. See below for further information related to the fair value
of the Companys derivatives and remaining long-term debt.
The Companys assets and liabilities that are measured at fair value, defined as the exit
price or the price that would be received to sell the asset or paid to transfer the liability at
the measurement date, on a recurring basis relate to the Companys derivative contracts which are
mainly comprised of interest rate swaps and foreign currency forward contracts. The Company
utilizes a present value technique to fair value each derivative contract. The Company calculates
the present value of future expected cash flows using a discount rate commensurate with the
underlying risk of the debtor. If the derivative represents a liability to the Company, the
Companys incremental borrowing rate was utilized as the discount rate in the present value
calculation. If the derivative represents an asset to the Company, the recorded value includes an
estimate of a credit risk adjustment for the counterparty.
A fair value hierarchy exists that prioritizes the inputs to valuation techniques used to
measure fair value into the following three categories (from highest to lowest priority):
| Level 1 Inputs that represent quoted prices for identical instruments in active markets. | ||
| Level 2 Inputs that represent quoted prices for similar instruments in active markets, or quoted prices for identical instruments in non-active markets. Also includes valuation techniques whose inputs are derived principally from observable market data other than quoted prices, such as interest rates or other market-corroborated means. | ||
| Level 3 Inputs that are largely unobservable, as little or no market data exists for the instrument being valued. |
17
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ATT HOLDING CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
The Company is required to categorize all financial assets and liabilities required to be
measured at fair value on a recurring basis into the above three levels as of January 2, 2010 and
October 3, 2009 as follows:
January 2, 2010 | ||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
Foreign currency forward contracts |
$ | | 336 | $ | | $ | 336 | |||||||||
Interest rate swaps |
| 2,261 | | 2,261 | ||||||||||||
Total liabilities |
$ | | $ | 2,597 | $ | | $ | 2,597 | ||||||||
October 3, 2009 | ||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
Foreign currency forward contracts |
$ | | $ | 113 | $ | | $ | 113 | ||||||||
Total assets |
$ | | $ | 113 | $ | | $ | 113 | ||||||||
Foreign currency forward contracts |
$ | | $ | 171 | $ | | $ | 171 | ||||||||
Interest rate swaps |
| 2,725 | | 2,725 | ||||||||||||
Total liabilities |
$ | | $ | 2,896 | $ | | $ | 2,896 | ||||||||
The fair value of the Companys long-term debt as of January 2, 2010 is as follows:
Balance Sheet | Carrying | Fair | ||||||||||
Classification | Value | Value | ||||||||||
Senior Floating Rate Notes |
Liability | $ | 149,785 | $ | 135,750 | |||||||
Senior Subordinated Notes |
Liability | 150,000 | 134,370 |
To determine the fair value of the Notes, the Company utilized quoted prices for the debt
instruments in the marketplace as well as market data for comparable securities, the credit rating
of the Notes and the credit rating of the Company.
14. Derivative Instruments and Hedging Activities
The Companys cash flows and earnings are subject to fluctuations resulting from changes in
interest rates and foreign currency exchange rates. The Company manages the exposure to these
market risks through internally established policies and procedures and, when deemed appropriate,
through the use of derivative financial instruments. The Companys policy does not allow
speculation in derivative instruments for profit or execution of derivative instrument contracts
for which there are no underlying exposures. Interest rate swaps are entered into to manage
interest rate risk associated with the Companys variable-rate borrowings. Foreign currency
forward contracts are entered into to manage exchange rate risk for portions of the Companys
forecasted U.S. dollar purchases by the Canada segment. Accounting guidance requires companies to
recognize all derivative instruments as either assets or liabilities at fair value in the balance
sheet.
Interest rate swaps were entered into to fix the variable interest rate portion of the Senior
Floating Rate Notes. The Company swaps 3-month LIBOR rates for fixed interest rates to limit the
exposure of changes in interest payments. The Company has structured all existing interest rate
swap agreements to be perfectly effective. The Company designates the interest rate swaps as cash
flow hedges. The change in fair values
18
Table of Contents
ATT HOLDING CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
of the interest rate swaps are recorded within accumulated other comprehensive income (loss),
net of deferred taxes. The remaining gain or loss, if any, is recognized currently in earnings.
Gains and losses on the interest rate swaps are reclassified from accumulated other comprehensive
income into earnings as interest expense on the Senior Floating Rate Notes is accrued. See Note 6
for further information regarding the notional amounts and duration of the interest rate swaps. See
Note 13 for further information regarding the fair value of the interest rate swaps.
Foreign currency forward contracts do not qualify for hedge accounting treatment. Therefore,
in accordance with US GAAP, the change in fair value is recognized as an unrealized gain or loss in
earnings in the period of change. See Note 13 for further information regarding the fair value of
the foreign currency forward contracts.
Other than standard cross default provisions if a default occurs across the organization, no
credit-risk related-contingent features exist for the Companys derivatives.
The fair value of derivative instruments as of January 2, 2010 is as follows:
Asset Derivatives | Liability Derivatives | |||||||||||||||||||||||||||
Qualifies | Balance | Pretax Gain | Balance | Pretax Loss | ||||||||||||||||||||||||
Description of | for Hedge | Fair | Sheet | Recognized | Sheet | Recognized | ||||||||||||||||||||||
Derivative | Designation | Value | Location | in AOCI | Fair Value | Location | in AOCI | |||||||||||||||||||||
Foreign
currency forward
contracts |
No | $ | | | $ | | $ | 336 | (a | ) | $ | | ||||||||||||||||
Interest rate swaps |
Yes | | | | 2,261 | (b | ) | 2,261 |
(a) | The balance sheet location for the foreign currency forward contracts is Accrued expenses and other current liabilities. | |
(b) | The balance sheet location for the interest rate swaps is Other liabilities. |
The effect of derivative instruments on the condensed consolidated statements of
operations for the thirteen weeks ended January 2, 2010 is as follows:
Location of pretax | Amount of pretax | |||||||||||||||||||
gain or (loss) | gain or (loss) | Location of pretax | Amount of | |||||||||||||||||
Qualifies | reclassed from | reclassed from | gain or (loss) | pretax gain or | ||||||||||||||||
Description | for Hedge | AOCI into | AOCI into | recognized in | (loss) recognized | |||||||||||||||
of Derivative | Designation | earnings | earnings | earnings | in earnings | |||||||||||||||
Foreign
currency forward
contracts |
No | | $ | | Other expense | $ | (196 | ) | ||||||||||||
Interest rate swaps |
Yes | Interest expense | (779 | ) | | |
The Company expects $1,978 of net pretax losses recognized in accumulated other comprehensive
income as of January 2, 2010 to be reclassified into earnings within the next twelve months.
As of January 2, 2010, sixteen foreign currency forward contracts remain outstanding with a
total notional amount of $12,483.
15. Commitments and Contingencies
During December 2004, a customer of the Company was named in litigation that involved
UnionTools products. The complaint asserted causes of action against the defendant for improper
advertisement to the end consumer. The allegation suggests that advertisements led the consumer to
believe that the hand tools
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ATT HOLDING CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
sold were manufactured within the boundaries of the United States. The allegation asserts
cause of action against the customer for common law fraud. In the event that an adverse judgment is
rendered against the customer, there is a possibility that the customer would seek legal recourse
against the Company for an unspecified amount in contributory damages. Presently, the Company
cannot estimate the amount of loss, if any, if the customer were to seek legal recourse against the
Company.
From approximately 1993 through 1999, the Company manufactured and sold 647,000 wheelbarrows
with poly wheel hubs. Various claims were submitted, and lawsuits filed, to recover for injuries
sustained while inflating tires on these wheelbarrows. In 2002, the Company participated in a
voluntary fast track recall of these wheelbarrows with the Consumer Product Safety Commission
(CPSC). The Company again voluntarily recalled these wheelbarrows in June 2004 in cooperation
with the CPSC. However, less than 1% of the total products sold were returned, leaving an unknown
number in service. To date, the Company has responded to 34 claims involving this product. All
known claims have been resolved. Although the Company believes it has sufficient insurance coverage
in place to cover these claims, a successful claim may exceed the limits of the Companys coverage.
During fiscal 2009, an underground fuel tank with surrounding soil contamination was
discovered at the Frankfort, NY site which is the result of historical facility operations prior to
the Companys ownership. The Company is actively working with the New York Department of
Environmental Conservation and the New York State Department of Health to comply with remediation
efforts. The Company believes remediation will be completed by the end of the fiscal year ending on
October 2, 2010. During the quarterly period ended October 3, 2009, the Company recorded a charge
to cost of goods sold for approximately $2,567 associated with the removal of the fuel oil tank and
soil contamination. The change in the environmental liability for the Frankfort, NY site is as
follows:
Balance as of October 3, 2009 |
$ | 2,541 | ||
Adjustments to estimates |
| |||
Payments |
538 | |||
Balance as of January 2, 2010 |
$ | 2,003 | ||
The Company is involved in lawsuits and claims, including certain environmental matters,
arising out of the normal course of its business. In the opinion of management, the ultimate amount
of liability, if any, under pending litigation will not have a material adverse effect on the
Companys financial position, results of operations or cash flows.
16. Other
The Company applied for relief under the U. S. Continued Dumping and Subsidy Offset Act of
2000, or Byrd Amendment, as a result of foreign manufacturers selling certain tools at unfair
prices within the U. S. market. During December 2009 and December 2008, the Company received a
distribution of tariffs collected in the amount of $3,259 and $2,983, respectively. These amounts
were recorded within selling, general and administrative expenses in the accompanying condensed
consolidated statements of operations.
17. Subsequent Events
The Company has evaluated subsequent events through February 12, 2010, which is the date the
condensed consolidated financial statements were issued, and have determined that except as set
forth below, there are no subsequent events that require disclosure. During the second quarter of
fiscal 2010, the outstanding balance of $21,299 under an intercompany note was paid in full. See
Note 10 for further information.
20
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis of our parents results of operations and financial
condition should be read in conjunction with and is qualified in its entirety by reference to the
unaudited condensed consolidated financial statements and notes of ATT Holding Co. (the
Company, we, us, or our) as it relates to the consolidated financial performance and
results of operations of our parent, ATT Holding Co. and Ames True Temper, Inc.s (ATT) and its
wholly-owned subsidiaries. A separate discussion for ATT is not presented since our parent has no
operations or assets separate from its investment in Ames True Temper, Inc. and the Senior
Subordinated Notes and the Senior Floating Rate Notes are guaranteed by our parent and all of our
domestic subsidiaries.
Forward Looking Statements
This Form 10-Q contains forward-looking statements. All statements other than statements of
historical fact are forward-looking statements for purposes of federal and state securities
laws. Forward-looking statements are identified by terms and phrases such as may, will,
plans, estimates, anticipates, believes, expects, intends and similar
expressions and are based on assumptions related to our future business, financial condition,
prospects, developments and business strategies.
Factors that could cause actual results to differ materially from those expressed or implied
in such forward-looking statements include, but are not limited to the following:
| we depend on a small number of customers for a significant portion of our business; | ||
| our results of operations may be adversely impacted by macroeconomic events; | ||
| reliance on third party suppliers and manufacturers may impair our ability to meet customer demands; | ||
| if we are unable to obtain raw materials for our products at favorable prices it could adversely impact our operating performance; | ||
| we are subject to risks associated with our foreign operations; | ||
| we are subject to risks associated with our operations in China; | ||
| unseasonable weather could have a negative impact on our business and financial results; | ||
| our lawn and garden sales are highly seasonal which could impact our cash flow and operating results; | ||
| our industry is highly competitive and we may not be able to compete successfully; | ||
| further consolidation in the retail industry may adversely affect our profitability; | ||
| a failure to successfully introduce new products could result in a reduction in sales and floor space at retailers that carry our products; | ||
| the products that we manufacture could expose us to product liability claims; | ||
| our ability to pay our debt or seek alternative financing may be adversely impacted; | ||
| environmental health and safety laws, ordinances, and regulations impose risks and costs on us; | ||
| we depend on the service of key individuals, the loss of any of which could materially harm our business; | ||
| unionized employees could strike or participate in a work stoppage; | ||
| we may be required to record impairment charges for goodwill, indefinite-lived intangible assets and other long-lived assets; and |
21
Table of Contents
| we may not be able to acquire complementary lawn and garden product manufacturers or brands; in addition, our acquisition strategy may negatively impact our operating results, divert managements attention from operating our core business, and expose us to other risks. |
Our actual results, performance or achievements could differ materially from those expressed
in, or implied by the forward-looking statements. We can give no assurances that any of the events
anticipated by or described in the forward-looking statements will occur or, if any of them do,
what impact they will have on our business, results of operations and financial condition. We do
not intend, and we undertake no obligation, to update any forward-looking statement included in
this report, whether as a result of new information, future events or otherwise, after the date of
this report. This report should be read in conjunction with the Companys most recent consolidated
financial statements, Risk Factors and the Management Discussion & Analysis (MD&A) included in the
Companys Form 10-K for the fiscal year ended October 3, 2009.
Overview
The following MD&A is intended to help the reader understand ATT, our operations and our
present business environment. MD&A is provided as a supplement to, and should be read in
conjunction with, the condensed consolidated financial statements and notes thereto of our parent,
ATT Holding Co., contained in Item 1 of this report. The following discussion includes
forward-looking statements that involve certain risks and uncertainties. See Forward-Looking
Statements above. The MD&A includes the following sections:
| Our Business a general description of our business. | ||
| Operations Review an analysis of our consolidated results of operations. | ||
| Liquidity and Capital Resources an analysis of cash flows, debt and other obligations, off-balance sheet arrangements and aggregate contractual obligations and an overview of financial position. |
Our Business
General
ATT is a leading global provider of non-powered landscaping products that make work easier for
homeowners and professionals. We sell our products primarily in the U.S. and Canada through (1)
retail centers, including home centers and mass merchandisers, (2) wholesale chains, including
hardware stores and garden centers and (3) industrial distributors. We offer the following 8
distinct product lines: long handle tools, wheelbarrows, planters, garden hoses and hose reels,
snow tools, striking tools, pruning tools, and Hound Dog specialty tools.
We believe that our global manufacturing strategy, based primarily upon a blend of domestic
manufacturing and sourced product, makes us cost-competitive while allowing us to provide a high
level of customer service.
Operations Review
Company-Wide
The table below and the following narrative compares our statements of operations for the
thirteen week period ended January 2, 2010 (Q1 2010) to the thirteen week period ended December
27, 2008 (Q1 2009).
22
Table of Contents
(Dollars in Millions)
Q1 | Q1 | Increase/(Decrease) | ||||||||||||||
2010 | 2009 | $ | % | |||||||||||||
Net sales |
$ | 86.4 | $ | 92.3 | $ | (5.9 | ) | (6.4 | )% | |||||||
Cost of goods sold |
59.2 | 64.4 | (5.2 | ) | (8.1 | ) | ||||||||||
Gross profit |
27.2 | 27.9 | (0.7 | ) | (2.5 | ) | ||||||||||
Gross profit percentage |
31.5 | % | 30.2 | % | ||||||||||||
Selling, general, and
administrative expenses |
15.9 | 17.8 | (1.9 | ) | (10.7 | ) | ||||||||||
Gain on disposal of fixed assets |
(0.1 | ) | | (0.1 | ) | | ||||||||||
Amortization of intangible assets |
0.3 | 0.3 | | | ||||||||||||
Impairment charges |
| 0.5 | (0.5 | ) | (100.0 | ) | ||||||||||
Operating income |
11.0 | 9.3 | 1.7 | 18.3 | ||||||||||||
Operating income percentage |
12.7 | % | 10.1 | % | ||||||||||||
Interest expense |
6.8 | 8.0 | (1.2 | ) | (15.0 | ) | ||||||||||
Other expense |
1.2 | 11.4 | (10.2 | ) | (89.5 | ) | ||||||||||
Income (loss) before taxes |
3.0 | (10.1 | ) | 13.1 | * | |||||||||||
Income tax expense |
1.7 | 0.2 | 1.5 | * | ||||||||||||
Net income (loss) |
$ | 1.4 | $ | (10.2 | ) | $ | 11.6 | * | ||||||||
* | Greater than 100%. | |
Note: Totals may not sum due to rounding. |
Net Sales. Overall net sales decreased primarily due to volume declines of $8.2
million (excluding snow tool sales) and selling price reductions of $0.9 million. Decreases were
partially offset by favorable Canadian currency translation of $2.2 million and an increase of $0.9
million in snow tool sales. Volume declines resulted primarily from lower demand in the Canada
segment and weak demand from U.S. Industrial customers mainly due to the global economic slowdown.
Gross Profit. Gross profit decreased primarily due to volume declines and price decreases
partially offset by lower raw material costs.
Selling, General, and Administrative (SG&A). SG&A decreased primarily due to lower
distribution expenses of $0.5 million attributed to a facility closure in fiscal 2009 and a $0.3
million increase in recoveries under the U.S. Continued Dumping and Subsidy Offset Act of 2000 or
Byrd Amendment. We recovered $3.3 million in Q1 2010 and $3.0 million in Q1 2009 under the Byrd
Amendment. Future recoveries under the Byrd Amendment are unknown and cannot be reasonably assured.
Amortization of Intangible Assets. Amortization expense is consistent with the prior period.
Impairment Charges. The Q1 2009 impairment charges represent a write-down of an available for
sale asset to fair value due to real estate market conditions. During the thirteen week period
ended June 27, 2009 (Q3 2009) the asset no longer met the available for sale criteria and was
reclassified as held for use.
Interest Expense. Interest expense decreased partially due to lower average borrowings under
our Amended and Restated Senior Secured Credit Facility (Revolving Loan). In addition, we entered
into an interest rate swap during the thirteen week period ended March 28, 2009 (Q2 2009) to
replace expiring swaps with a notional amount of $100 million related to our Senior Floating Rate
Notes. The new swap reduced the effective interest rate on our Senior Floating Rate Notes to 6.4%
in Q1 2010 from 8.1% in Q1 2009.
Other Expense. Other expense for Q1 2010 was primarily the result of unrealized foreign
currency losses related to a U.S. dollar denominated intercompany note issued by a Canadian
subsidiary that is not of a long term nature and foreign currency forward contracts of $0.6 million
and $0.3 million, respectively.
23
Table of Contents
During the thirteen week period ending April 3, 2010 (Q2 2010) the balance under the
intercompany note was paid in full. Other expense for Q1 2010 also includes a realized loss related
to the foreign currency forward contracts of $0.2 million. Other expense for Q1 2009 was primarily
the result of an unrealized foreign currency loss of $14.8 million related to the intercompany
note.
Income Tax Expense. Income tax expense for Q1 2010 was mainly comprised of taxes in certain
foreign jurisdictions of $1.1 million, additional valuation allowance of $0.3 million and accrual
of tax, interest, and penalties on unrecognized tax benefits of $0.2 million. Income tax expense
for Q1 2009 was mainly comprised of recognition of additional valuation allowance of $0.3 million
and an accrual of tax, interest and penalties on unrecognized tax benefits of $0.1 million. This
expense is partially offset by a reduction in current tax liabilities as a result of a change in
Canadian withholding tax rates of $0.4 million. As of January 2, 2010 and December 27, 2008, a
deferred tax asset valuation allowance was necessary for substantially all of our U.S. domestic
deferred tax assets, net of certain deferred tax liabilities. We expect to maintain a valuation
allowance on these deferred tax assets until we can sustain a sufficient level of profits in the
applicable jurisdictions that will demonstrate the ability to realize these net deferred tax assets
Our Segments
During the fourth quarter of fiscal 2009, we consummated an internal reorganization between
our U.S. and Canada segments. Pursuant to this reorganization, our Canadian subsidiary transferred
all of the outstanding shares of a U.S. subsidiary of the Company to a separate U.S. subsidiary. We
have recast our Q1 2009 segment information as a result of this reorganization. The following table
presents our net sales and operating income (loss) after intercompany eliminations by segment for
Q1 2010 and Q1 2009:
(Dollars in Millions)
Q1 | Q1 | Increase/(Decrease) | ||||||||||||||
2010 | 2009 | $ | % | |||||||||||||
Net sales: |
||||||||||||||||
United States |
$ | 65.0 | $ | 66.5 | $ | (1.5 | ) | (2.3 | )% | |||||||
Canada |
20.6 | 24.3 | (3.7 | ) | (15.2 | ) | ||||||||||
Other |
0.9 | 1.5 | (0.6 | ) | (40.0 | ) | ||||||||||
Net sales |
$ | 86.4 | $ | 92.3 | $ | (5.9 | ) | (6.4 | )% | |||||||
Operating income (loss): |
||||||||||||||||
United States |
$ | 6.3 | $ | 3.6 | $ | 2.7 | 75.0 | % | ||||||||
Canada |
5.2 | 5.9 | (0.7 | ) | (11.9 | ) | ||||||||||
Other |
(0.4 | ) | (0.1 | ) | (0.2 | ) | 100.0 | |||||||||
Operating income |
$ | 11.0 | $ | 9.3 | $ | 1.7 | 18.3 | % | ||||||||
* | Greater than 100%. | |
* | Note: Totals may not sum due to rounding. |
United States
Net Sales. Overall net sales decreased primarily due to volume declines of $5.7 million
(excluding snow tool sales) and selling price reductions of $1.0 million. Decreases were partially
offset by an increase in snow tool sales of $5.1 million of which $2.5 million was due to the
transition of a customer to the U.S. segment from the Canada segment in Q1 2010. Also, the U.S.
experienced heavy snowfall in certain densely populated areas of the country which attributed to
the increase in volume.
Operating income. Operating income increased due to lower distribution expenses of $0.5
million related to a facility closure in fiscal 2009, lower depreciation expense of $0.5 million
and an increase of $0.3 million in Byrd Amendment recoveries as discussed above. Operating income
for Q1 2009 also
24
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includes impairment charges of $0.5 million related to the write-down of an available for sale
asset to fair value due to the real estate market conditions at that time.
Canada
Net Sales. Net sales decreased primarily due to volume declines of $3.4 million and $2.5
million in lower sales due to the transition of a customer from the Canada segment to the U.S
segment in Q1 2010 as discussed above. Decreases were partially offset by favorable foreign
currency translation of $2.2 million.
Operating income. Operating income decreased due to lower sales volume.
Other
Changes in net sales and operating loss for this segment were not significant for the periods
presented.
Liquidity and Capital Resources
Our principal liquidity requirements are to service our debt and meet our working capital and
capital expenditure needs. We expect to be able to meet our liquidity requirements for at least the
next twelve months through cash provided by operations and borrowings available under our Revolving
Loan. We intend to seek to extend the maturity of our lenders commitments under the Revolving Loan
or to refinance borrowings thereunder prior to the maturity of the Revolving Loan in April 2011. In
addition, we will need to refinance our Senior Subordinated Notes and Senior Floating Rate Notes on
or before maturity in 2012. We cannot assure you that we will be able to extend or refinance any of
our indebtedness on commercially reasonable terms or at all.
(Dollars in Millions)
Q1 | Q1 | Increase/(Decrease) | ||||||||||||||
2010 | 2009 | $ | % | |||||||||||||
Net cash provided by (used
in) operating activities |
$ | 6.8 | $ | (17.7 | ) | $ | 24.5 | * | ||||||||
Net cash used in investing activities |
(0.8 | ) | (2.4 | ) | (1.6 | ) | 66.7 | % | ||||||||
Net cash provided by financing
activities |
0.6 | 24.5 | (23.9 | ) | 97.6 |
* | Greater than 100%. |
Cash Flows from Operating Activities
The increase in cash provided by operating activities was primarily the result of lower
average inventory levels and higher trade accounts payable. Lower average inventory levels consumed
less cash in Q1 2010 as compared to Q1 2009 due to inventory management efficiencies.
Cash Flows from Investing Activities
Purchases of property, plant and equipment are generally the main investing activity of the
Company. We do not anticipate purchases of property, plant and equipment during fiscal 2010 to
deviate from historical purchase levels.
Cash Flows from Financing Activities
The decrease in cash provided by financing activities was primarily related to lower net
borrowings under our Revolving Loan.
During Q2 2010, an intercompany loan between our U.S. and Canadian subsidiaries was paid in
full. The cash received of $21.3 million was utilized to reduce borrowings under our Revolving
Loan.
Debt and Other Obligations
ATT has the following debt outstanding:
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(Dollars in Thousands)
January 2, | October 3, | |||||||
2010 | 2009 | |||||||
Revolving Loan |
$ | 18,293 | $ | 17,500 | ||||
Senior Floating Rate Notes, net of unamortized
discount of $214 and $241, respectively |
149,785 | 149,759 | ||||||
Senior Subordinated Notes |
150,000 | 150,000 | ||||||
Term Note |
338 | 479 | ||||||
Capital lease obligations |
137 | 42 | ||||||
Total debt |
318,553 | 317,780 | ||||||
Less: |
||||||||
Short-term Revolving Loan |
(18,293 | ) | (17,500 | ) | ||||
Current portion of capital lease obligations |
(36 | ) | (10 | ) | ||||
Current portion of long-term debt |
(338 | ) | (479 | ) | ||||
Long-term debt |
$ | 299,886 | $ | 299,791 | ||||
Letters of | (a) | (b) | ||||||||||||||||||||||
Borrowing | Credit | Availability | Interest | |||||||||||||||||||||
Maximum | Base as of | Outstanding as | as of | Rate as of | ||||||||||||||||||||
Borrowing | January | of January | January | January | Expiration | |||||||||||||||||||
Amount | 2, 2010 | 2, 2010 | 2, 2010 | 2, 2010 | Date | |||||||||||||||||||
Revolving Loan (f) |
$ | 130,000 | $ | 76,660 | $ | 3,268 | $ | 55,099 | 3.0 | % | Apr 7, 2011 |
(d) | (e) | |||||||||||||||||||
Original | (c) | Interest | Maturity | Call Option | ||||||||||||||||
Principal | Interest Rate | Payments | Date | Date | ||||||||||||||||
Senior Floating Rate Notes (f) |
$ | 150,000 | LIBOR + 4 | % | Jan 15, Apr 15, Jul 15, Oct 15 |
Jan 15, 2012 | Jan 15, 2007 | |||||||||||||
Senior Subordinated Notes (f) |
150,000 | 10 | % | Jan 15, Jul 15 | Jul 15, 2012 | Jul 15, 2008 | ||||||||||||||
Term Note (f) |
2,700 | 2.5 | % | Monthly | Jul 19, 2010 | n/a |
(a) | Total amount available is limited by the amount of eligible accounts receivable, inventory, machinery and equipment, and real estate less letters of credit outstanding. | |
(b) | The interest rate applicable to the loans under the Revolving Loan is either 1) the Eurodollar Rate or London Interbank Offered Rate (LIBOR) plus a margin of 1.75% to 2.75%, or 2) the Base Rate plus a margin of 0.50% to 1.50%. The Base Rate is calculated at the higher of 1) the prevailing Federal Funds rate plus 50 basis points or 2) the administrative agents prime interest rate plus an applicable rate determined by the Companys consolidated leverage ratio as defined by the Amended and Restated Senior Secured Credit Agreement. | |
(c) | LIBOR represents the three month London Interbank Offered Rate which resets quarterly, LIBOR was .28% as of October 13, 2009. October 13, 2009 represents the reset date for the January 15, 2010 interest payment. | |
(d) | Interest payments are in cash and paid in arrears. | |
(e) | The Senior Floating Rate Notes do not have a redemption premium. The Senior Subordinated Notes have a redemption price of 102.5% of principal on or after July 15, 2009, and 100% of principal on or after July 15, 2010. | |
(f) | As of January 2, 2010, the Company was in compliance with all financial covenants under its indebtedness agreements. |
Revolving Loan
On April 7, 2006, we entered into the Revolving Loan with Bank of America, N.A., as
administrative agent, swing line lender and letter of credit issuer. The Revolving Loan is a
five-year revolving credit facility of up to $130.0 million, including a sub-facility for letters
of credit in an amount not to exceed $15.0 million and a sub-facility for swing-line loans in an
amount not to exceed $15.0 million. Our obligations under the Revolving Loan are guaranteed by ATT
Holding Co. and collateralized by substantially all of the
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assets of Ames True Temper, Inc. and Ames True Temper Properties, Inc. Future domestic
subsidiaries will be required to guarantee the obligations and grant a lien on substantially all of
their assets.
The terms of the Revolving Loan include various covenants that restrict our ability to, among
other things, incur additional liens, incur additional indebtedness and make additional
investments. In addition, we are prohibited from incurring capital expenditures exceeding $15.0
million in any fiscal year (subject to the right to carry over the unused portion to the following
year). In addition, upon the occurrence of Cash Dominion Trigger, we will be required to have
Consolidated EBITDA, as defined by the Revolving Loan, of at least $41.0 million for each period of
four fiscal quarters. Under the Revolving Loan, a Cash Dominion Trigger shall have occurred if (1)
an event of default under the Revolving Loan shall have occurred or (2) availability under the
Revolving Loan falls below certain thresholds. The Revolving Loan also includes customary events
of default, including, without limitation, payment defaults, cross defaults to other indebtedness
and bankruptcy related defaults.
Senior Floating Rate Notes
The Senior Floating Rate Notes are fully and unconditionally guaranteed by our parent and all
domestic subsidiaries on a senior unsecured basis. The Senior Floating Rate Notes are unsecured,
unsubordinated obligations and are effectively subordinated to all of our existing and future
secured debt, to the extent of the assets securing such debt, including borrowings under the senior
secured credit facility, pari passu with all future senior unsecured indebtedness, senior in right
of payment to all existing and future senior subordinated debt, including our Senior Subordinated
Notes due 2012, and effectively behind all of the existing and future liabilities of our
subsidiaries, including trade payables.
The indenture governing the Senior Floating Rate Notes contains various affirmative and
negative covenants, subject to a number of important limitations and exceptions, including but not
limited to those limiting our ability and the ability of our restricted subsidiaries to borrow
money, guarantee debt or sell preferred stock, create liens, pay dividends on or redeem or
repurchase stock, make specified types of investments, sell stock in our restricted subsidiaries,
restrict dividends or other payments from restricted subsidiaries, enter into transactions with
affiliates and sell assets or merge with other companies. The indenture governing the Senior
Floating Rate Notes also contains various events of default, including but not limited to those
related to non-payment of principal, interest or fees; failure to perform or observe certain
covenants; inaccuracy of representations and warranties in any material respect, cross defaults
with certain other indebtedness, certain bankruptcy related events, monetary judgment defaults and
material non-monetary judgment defaults, ERISA (Employee Retirement Income Security Act) defaults
and change of control. In addition, we are required to redeem the Senior Floating Rate Notes under
certain circumstances involving changes of control.
Senior Subordinated Notes
The Senior Subordinated Notes are fully and unconditionally guaranteed by our parent, ATT
Holding Co. and all domestic subsidiaries, on a senior subordinated basis. The Senior Subordinated
Notes are unsecured senior subordinated obligations and rank behind all of our existing and future
senior debt, including borrowings under the Revolver Loan, equally with any of our future senior
subordinated debt, ahead of any of our future debt that expressly provides for subordination to the
Senior Subordinated Notes and effectively behind all of the existing and future liabilities of our
subsidiaries, including trade payables.
The indenture governing Senior Subordinated Notes contains various affirmative and negative
covenants, subject to a number of important limitations and exceptions, including but not limited
to those limiting our ability and the ability of our restricted subsidiaries to borrow money,
guarantee debt or sell preferred stock, create liens, pay dividends on or redeem or repurchase
stock, make certain investments, sell stock in our restricted subsidiaries, restrict dividends or
other payments from restricted subsidiaries, enter into transactions with affiliates and sell
assets or merge with other companies. The indenture governing the Senior Subordinated Notes also
contains various events of default, including but not limited to those related to non-payment of
principal, interest or fees; violations of certain covenants; certain bankruptcy-related events;
invalidity of liens; non-payment of certain legal judgments and cross defaults with certain other
27
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indebtedness. We are required to redeem the Senior Subordinated Notes under certain
circumstances involving changes of control.
Other Debt
The Term Note contains customary events of default (subject to customary exceptions,
thresholds and grace periods), including, without limitation, nonpayment of principal, interest,
fees and failure to perform or observe certain covenants.
Interest Rate Swaps
The Senior Floating Rate Notes have an interest rate of 3-month LIBOR plus 4%. We have entered
into interest rate swaps that fix the variable rate portion of the interest rate as follows:
(Dollars in Thousands)
(a) | ||||||||||||||||
Effective | ||||||||||||||||
Notional | Interest | |||||||||||||||
Receive | Pay | Amount | Rate | |||||||||||||
January 16, 2009 through January 15, 2010 |
3-month LIBOR | 4.31 | % | $ | 33,333 | 8.31 | % | |||||||||
January 16, 2009 through January 15, 2010 |
3-month LIBOR | 4.29 | % | 16,667 | 8.29 | % | ||||||||||
January 15, 2009 through January 15, 2010 |
3-month LIBOR | 1.40 | % | 100,000 | 5.40 | % | ||||||||||
January 15, 2010 through January 15, 2011 |
3-month LIBOR | 1.90 | % | 150,000 | 5.90 | % | ||||||||||
January 18, 2011 through January 15, 2012 |
3-month LIBOR | 2.50 | % | 150,000 | 6.50 | % |
(a) | Represents the effective interest rate on the respective portion of the Senior Floating Rate Notes including the contractual terms of the interest rate swap for the periods indicated. |
As of January 2, 2010, the interest rate swaps were recorded as a liability of $2.4
million. The change in fair value was recognized as an increase in other comprehensive income of
$0.5 million, net of taxes.
Off-Balance Sheet Arrangements
As of January 2, 2010, we had no off-balance sheet arrangements.
Contractual Obligations and Commitments
The following table represents our contractual commitments associated with our debt and other
obligations as of January 2, 2010.
(Dollars in Thousands)
January | October | October | October | October | ||||||||||||||||||||||||
2010 | 2010 | 2011 | 2012 | 2013 | ||||||||||||||||||||||||
through | through | through | through | through | ||||||||||||||||||||||||
September | September | September | September | September | ||||||||||||||||||||||||
Total | 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | ||||||||||||||||||||||
Contractual Obligations |
||||||||||||||||||||||||||||
Revolving Loan |
$ | 18,293 | $ | 18,293 | $ | | $ | | $ | | $ | | $ | | ||||||||||||||
Senior Floating Rate Notes |
150,000 | | | 150,000 | | | | |||||||||||||||||||||
Senior Subordinated Notes |
150,000 | | | 150,000 | | | | |||||||||||||||||||||
Term Note |
338 | 338 | | | | | | |||||||||||||||||||||
Capital lease obligations |
137 | 27 | 37 | 38 | 26 | 9 | | |||||||||||||||||||||
Interest on Notes |
57,124 | 17,917 | 24,488 | 14,719 | | | | |||||||||||||||||||||
Operating leases |
75,587 | 7,227 | 9,554 | 8,965 | 8,170 | 7,188 | 34,483 | |||||||||||||||||||||
Pension and postretirement
payments |
53,954 | 2,607 | 6,389 | 9,803 | 8,166 | 7,879 | 19,110 | |||||||||||||||||||||
Medical insurance |
7,547 | 5,342 | 2,099 | 106 | | | | |||||||||||||||||||||
Open purchase orders |
39,918 | 39,918 | | | | | | |||||||||||||||||||||
Other purchase obligations |
521 | 12 | 471 | 12 | 13 | 13 | | |||||||||||||||||||||
Forward purchase obligations |
12,483 | 12,483 | | | | | | |||||||||||||||||||||
Total contractual obligations |
$ | 565,902 | $ | 104,164 | $ | 43,038 | $ | 333,643 | $ | 16,375 | $ | 15,089 | $ | 53,593 | ||||||||||||||
Commitments |
||||||||||||||||||||||||||||
Outstanding letters of credit |
$ | 3,268 | $ | 3,268 | $ | | $ | | $ | | $ | | $ | | ||||||||||||||
Total commitments |
$ | 3,268 | $ | 3,268 | $ | | $ | | $ | | $ | | $ | | ||||||||||||||
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As of January 2, 2010, the total amount of gross unrecognized tax benefits for
uncertain tax positions, including positions impacting only the timing of tax benefits was $1.7
million. We expect a tax payment of less than $0.3 million related to these obligations within the
next year. Due to the uncertainty of the timing of these tax positions we have not included this
liability in the above table.
Financial Position
Working capital as of January 2, 2010 and October 3, 2009 was as follows:
(Dollars in Thousands)
January 2, | October 3, | Increase/(Decrease) | ||||||||||||||
2010 | 2009 | $ | % | |||||||||||||
Current assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 41,308 | $ | 33,609 | $ | 7,699 | 22.9 | % | ||||||||
Trade receivables, net |
43,188 | 42,449 | 739 | 1.7 | ||||||||||||
Inventories |
106,379 | 90,305 | 16,074 | 17.8 | ||||||||||||
Prepaid expenses and
other current assets |
6,042 | 6,315 | (273 | ) | (4.3 | ) | ||||||||||
Total current assets |
196,917 | 172,678 | 24,239 | 14.0 | ||||||||||||
Current liabilities: |
||||||||||||||||
Trade accounts payable |
34,701 | 18,214 | 16,487 | 90.5 | ||||||||||||
Accrued interest payable |
9,101 | 5,392 | 3,709 | 68.8 | ||||||||||||
Accrued expenses and
other current
liabilities |
23,540 | 26,642 | (3,102 | ) | (11.6 | ) | ||||||||||
Revolving loan |
18,293 | 17,500 | 793 | 4.5 | ||||||||||||
Current portion of
long-term debt and
capital lease
obligations |
374 | 489 | (115 | ) | (23.5 | ) | ||||||||||
Total current liabilities |
86,009 | 68,237 | 17,772 | 26.0 | ||||||||||||
Working capital |
$ | 110,908 | $ | 104,441 | $ | 6,467 | 6.2 | % | ||||||||
Our working capital as of January 2, 2010 compared to our working capital as of October 3,
2009 was similar. The offsetting increases in inventories and trade accounts payable are consistent
with the seasonal nature of our business in anticipation of the Spring selling season.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our cash flows, results of operations and financial position are subject to fluctuations
resulting from changes in interest rates, foreign currency exchange rates and raw material costs.
We manage our exposure to these market risks through internally established policies and
procedures and, when deemed appropriate, through the use of derivative financial instruments. Our
policy does not allow speculation in derivative instruments for profit or execution of derivative
instrument contracts for which there are no underlying exposures. Other than standard cross default
provisions if a default occurs across the organization, no credit-risk related-contingent features
exist for our derivatives. We do not use financial instruments for trading purposes and are not a
party to any leveraged derivatives. We monitor our underlying market risk exposures on an ongoing
basis and believe that we can modify or adapt our hedging strategies as needed.
Interest Rate Risk
Our primary market risk is interest rate exposure with respect to our floating rate debt,
which includes the Senior Floating Rate Notes and Revolving Loan. The interest rate on the Senior
Floating Rate Notes at January 2, 2010 was 4.3%. The interest rate on the Revolving Loan at January
2, 2010 was 3.0%. As of January 2, 2010, we had five outstanding interest rate swaps. These swaps
effectively fix the variable interest rate portion of the Senior
Floating Rate Notes. See Debt
and Other Obligations Senior Floating
29
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Rate
Notes and Interest Rate Swaps. We estimate a 1% change in Revolving Loan interest
rates would impact interest expense by approximately $0.5 million.
Foreign Operations; Currency Risk
We conduct foreign operations primarily in Canada and Ireland and utilize international
suppliers and manufacturers. For fiscal year 2010, we have hedged $12.5 million of our forecasted
Canadian subsidiary operations purchases that are denominated in U.S. dollars. Additionally, on
September 1, 2007 a Canadian subsidiary issued a U.S. dollar denominated intercompany note in the
principal amount of $105 million to a U.S. subsidiary as part of an internal legal entity
reorganization. During the fourth quarter of fiscal 2009, the internal legal entity reorganization
was reversed and a portion of the balance outstanding under the intercompany note was repaid. As of
January 2, 2010, approximately $21.3 million remains outstanding. The remaining outstanding balance
under the intercompany note was paid in full in Q2 2010. As a result, we are subject to risk from
changes in foreign exchange rates. These changes result in either cumulative translation
adjustments, which are included in accumulated other comprehensive income (loss), or realized and
unrealized gains and losses which are included in other expense. As of January 2, 2010, a
hypothetical 10% change in quoted foreign currency exchange rates would increase or decrease the
income before income taxes by $1.7 million.
Raw Material; Commodity Price Risk
We purchase certain raw materials such as resin, steel and wood that are subject to price
volatility caused by unpredictable factors. Where possible, we employ fixed rate raw material
purchase contracts and customer price adjustments to help us to manage this risk. We do not
currently manage our raw materials risk through the use of derivative instruments.
Item 4T. Controls and Procedures
Disclosure Controls and Procedures
Management, with the participation of our Chief Executive Officer and Chief Financial Officer,
has evaluated the effectiveness of disclosure controls and procedures as defined in Rules 13a-15(e)
of the Securities Exchange Act of 1934, as amended (the Exchange Act) as of the end of the
period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that, as of January 2, 2010, our disclosure controls and procedures
were effective.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term
is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal
quarter to which this report relates that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
30
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable |
Item 1A. Risk Factors
See Risk Factors disclosed in the Form 10-K for the fiscal year ended October 3, 2009. |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None |
Item 3. Defaults Upon Senior Securities
None |
Item 4. Submission of Matters to a Vote of Security Holders
None |
Item 5. Other Information
None |
Item 6. Exhibits
Exhibit 31.1
|
Certification of Chief Executive Officer Pursuant to Rules 13a-14 and 15d-14, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
Exhibit 31.2
|
Certification of Chief Financial Officer Pursuant to Rules 13a-14 and 15d-14, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
Exhibit 32.1
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002 | |
Exhibit 32.2
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002 |
31
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AMES TRUE TEMPER, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AMES TRUE TEMPER, INC. |
||||
Date: February 12, 2010 | /s/ Duane R. Greenly | |||
Duane R. Greenly | ||||
President and Chief Executive Officer (Principal Executive Officer) |
||||
Date: February 12, 2010 | /s/ David M. Nuti | |||
David M. Nuti | ||||
Chief Financial Officer (Principal Financial Officer) |
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AMES TRUE TEMPER, INC.
EXHIBIT INDEX
Exhibit | Description | |
31.1
|
Certification of Chief Executive Officer Pursuant to Rules 13a-14 and 15d-14, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2
|
Certification of Chief Financial Officer Pursuant to Rules 13a-14 and 15d-14, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
33