Attached files
file | filename |
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EX-31.2 - EX-31.2 - Ames True Temper, Inc. | y03787exv31w2.htm |
EX-10.1 - EX-10.1 - Ames True Temper, Inc. | y03787exv10w1.htm |
EX-32.2 - EX-32.2 - Ames True Temper, Inc. | y03787exv32w2.htm |
EX-32.1 - EX-32.1 - Ames True Temper, Inc. | y03787exv32w1.htm |
EX-31.1 - EX-31.1 - Ames True Temper, Inc. | y03787exv31w1.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 July 3, 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 (State or other jurisdiction of incorporation or organization) |
22-2335400 (I.R.S. Employer Identification No.) |
465 Railroad Avenue, Camp Hill, Pennsylvania (Address of principal executive offices) |
17011 (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 (Do not check if a smaller reporting company) |
Smaller reporting company o |
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 August 5, 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)
July 3, | October 3, | |||||||
2010 | 2009 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 30,435 | $ | 33,609 | ||||
Trade receivables, net |
58,544 | 42,449 | ||||||
Inventories |
103,085 | 90,305 | ||||||
Prepaid expenses and other current assets |
7,429 | 6,315 | ||||||
Total current assets |
199,493 | 172,678 | ||||||
Property, plant and equipment, net |
39,250 | 44,239 | ||||||
Intangibles, net |
52,620 | 53,681 | ||||||
Goodwill |
57,835 | 57,494 | ||||||
Other noncurrent assets |
5,731 | 6,531 | ||||||
Total assets |
$ | 354,929 | $ | 334,623 | ||||
Liabilities and stockholders deficit |
||||||||
Current liabilities: |
||||||||
Trade payables |
$ | 29,227 | $ | 18,214 | ||||
Accrued interest payable |
8,864 | 5,392 | ||||||
Accrued expenses and other current liabilities |
28,960 | 26,642 | ||||||
Revolving loan |
| 17,500 | ||||||
Current portion of long-term debt and capital lease obligations |
103 | 489 | ||||||
Total current liabilities |
67,154 | 68,237 | ||||||
Deferred income taxes |
17,490 | 13,672 | ||||||
Long-term debt |
299,931 | 299,791 | ||||||
Accrued retirement benefits |
51,837 | 51,836 | ||||||
Other liabilities |
11,963 | 12,661 | ||||||
Total liabilities |
448,375 | 446,197 | ||||||
Commitments and contingencies |
||||||||
Stockholders deficit: |
||||||||
Preferred stock Series A, $.0001 per share par value;
100,000 shares authorized; 62,495 shares issued and
outstanding as of July 3, 2010 and October 3, 2009
(Liquidation preference of $62,495 at July 3, 2010) |
| | ||||||
Common stock Class A, $.0001 per share par value; 1,600,000
shares authorized; 726,556 shares issued and outstanding as of
July 3, 2010 and October 3, 2009 |
| | ||||||
Common stock Class B, $.0001 per share par value; 300,000
shares authorized; 267,448 shares issued and outstanding as of
July 3, 2010 and October 3, 2009 |
| | ||||||
Additional paid-in capital |
111,174 | 111,168 | ||||||
Predecessor basis adjustment |
(13,539 | ) | (13,539 | ) | ||||
Accumulated deficit |
(149,614 | ) | (167,272 | ) | ||||
Accumulated other comprehensive loss |
(41,467 | ) | (41,931 | ) | ||||
Total stockholders deficit |
(93,446 | ) | (111,574 | ) | ||||
Total liabilities and stockholders deficit |
$ | 354,929 | $ | 334,623 | ||||
See accompanying notes.
1
Table of Contents
ATT Holding Co.
Condensed Consolidated Statements of Operations
(Dollars In Thousands)
Condensed Consolidated Statements of Operations
(Dollars In Thousands)
(Unaudited)
Thirteen Week Period Ended | ||||||||
July 3, | June 27, | |||||||
2010 | 2009 | |||||||
Net sales |
$ | 123,360 | $ | 130,036 | ||||
Cost of goods sold |
80,813 | 96,362 | ||||||
Gross profit |
42,547 | 33,674 | ||||||
Selling, general and administrative expenses |
24,803 | 21,843 | ||||||
Loss on disposal of fixed assets |
128 | 599 | ||||||
Amortization of intangible assets |
300 | 302 | ||||||
Impairment charges |
300 | 451 | ||||||
Operating income |
17,016 | 10,479 | ||||||
Interest expense |
6,630 | 7,085 | ||||||
Other income |
(790 | ) | (6,793 | ) | ||||
Income before income taxes |
11,176 | 10,187 | ||||||
Income tax expense |
2,925 | 941 | ||||||
Net income |
$ | 8,251 | $ | 9,246 | ||||
See accompanying notes.
2
Table of Contents
ATT Holding Co.
Condensed Consolidated Statements of Operations
(Dollars In Thousands)
Condensed Consolidated Statements of Operations
(Dollars In Thousands)
(Unaudited)
Thirty-Nine Week Period Ended | ||||||||
July 3, | June 27, | |||||||
2010 | 2009 | |||||||
Net sales |
$ | 349,138 | $ | 364,663 | ||||
Cost of goods sold |
237,619 | 268,301 | ||||||
Gross profit |
111,519 | 96,362 | ||||||
Selling, general and administrative expenses |
64,474 | 62,143 | ||||||
(Gain) loss on disposal of fixed assets |
(29 | ) | 901 | |||||
Amortization of intangible assets |
909 | 911 | ||||||
Impairment charges |
300 | 927 | ||||||
Operating income |
45,865 | 31,480 | ||||||
Interest expense |
20,112 | 22,420 | ||||||
Other expense |
1,102 | 5,643 | ||||||
Income before income taxes |
24,651 | 3,417 | ||||||
Income tax expense |
6,993 | 2,242 | ||||||
Net income |
$ | 17,658 | $ | 1,175 | ||||
See accompanying notes.
3
Table of Contents
ATT Holding Co.
Condensed Consolidated Statements of Cash Flows
(Dollars In Thousands)
Condensed Consolidated Statements of Cash Flows
(Dollars In Thousands)
(Unaudited)
Thirty-Nine Week Period Ended | ||||||||
July 3, | June 27, | |||||||
2010 | 2009 | |||||||
Operating activities |
||||||||
Net income |
$ | 17,658 | $ | 1,175 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation expense |
9,788 | 11,825 | ||||||
Amortization of intangible assets |
909 | 911 | ||||||
Amortization of loan fees included in interest expense |
1,634 | 1,665 | ||||||
Provision for deferred taxes |
2,270 | 1,106 | ||||||
(Benefit from) provision for bad debts |
(29 | ) | 46 | |||||
Amortization of bond discount |
80 | 80 | ||||||
(Gain) loss on disposal of fixed assets |
(29 | ) | 901 | |||||
Unrealized losses |
1,282 | 7,047 | ||||||
Impairment charges |
300 | 927 | ||||||
Changes in assets and liabilities: |
||||||||
Trade receivables |
(16,014 | ) | (884 | ) | ||||
Inventories |
(12,738 | ) | 12,262 | |||||
Prepaid expenses and other assets |
(804 | ) | 2,261 | |||||
Trade payables |
10,906 | (12,593 | ) | |||||
Accrued expenses and other liabilities |
4,608 | (4,166 | ) | |||||
Net cash provided by operating activities |
19,821 | 22,563 | ||||||
Investing activities |
||||||||
Cash paid for property, plant and equipment |
(5,016 | ) | (5,016 | ) | ||||
Proceeds from sale of property, plant and equipment |
333 | 49 | ||||||
Restricted cash placed in escrow |
(1,186 | ) | | |||||
Net cash used in investing activities |
(5,869 | ) | (4,967 | ) | ||||
Financing activities |
||||||||
Repayments of long-term debt |
(426 | ) | (414 | ) | ||||
Borrowings on revolver |
93,377 | 120,422 | ||||||
Repayments on revolver |
(110,877 | ) | (128,417 | ) | ||||
Principal payments under capital lease obligations |
(31 | ) | (3 | ) | ||||
Net cash used in financing activities |
(17,957 | ) | (8,412 | ) | ||||
Effect of exchange rate changes on cash |
831 | (708 | ) | |||||
(Decrease) increase in cash and cash equivalents |
(3,174 | ) | 8,476 | |||||
Cash and cash equivalents at beginning of period |
33,609 | 17,159 | ||||||
Cash and cash equivalents at end of period |
$ | 30,435 | $ | 25,635 | ||||
Supplemental Cash Flow Information |
||||||||
Cash paid for interest |
$ | 15,046 | $ | 18,128 | ||||
Cash paid for income taxes |
$ | 1,887 | $ | 274 | ||||
Property, plant and equipment in trade accounts payable at end of period |
$ | 378 | $ | 216 | ||||
Equipment acquired under capital lease obligations |
$ | 131 | $ | | ||||
See accompanying notes.
4
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 and thirty-nine
week periods ended July 3, 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. 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. See Note 14 for further information.
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.
5
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)
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 fair
value hierarchy and clarify disclosures related to level of disaggregation, inputs and valuation
techniques. The Company adopted the amendment in the thirteen week period ended April 3, 2010. See
Note 14 for further information.
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 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 a
reporting entity to present separately information about purchases, sales, issuances and
settlements in the reconciliation required for activity in Level 3 fair value measurements. 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 guidance on
employers disclosures about postretirement benefit plan assets in the fourth quarter of fiscal
2010 and the requirement for the reconciliation for activity in Level 3 fair value measurements 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.
In July 2010, the FASB issued new accounting guidance to require a reporting entity to provide
disclosures that facilitate financial statement users evaluation of the nature of credit risk
inherent in the entitys portfolio of financing receivables, how that risk is analyzed and assessed
in arriving at the allowance for credit losses and the changes and reasons for those changes in the
allowance for credit losses. The Company is required to adopt the new guidance for disclosures as
of the end of a reporting period during the first quarter of fiscal 2011. The Company is required
to adopt the new guidance for disclosures about activity that occurs during a reporting period
during the second quarter of fiscal 2011. The Company has not yet assessed the impact of adoption,
if any, on its condensed consolidated financial statements.
3. Inventories
Inventories are as follows:
July 3, | October 3, | |||||||
2010 | 2009 | |||||||
Finished goods |
$ | 67,521 | $ | 51,161 | ||||
Work in process |
11,737 | 14,595 | ||||||
Raw materials |
23,827 | 24,549 | ||||||
$ | 103,085 | $ | 90,305 | |||||
4. Goodwill and Other Intangibles
The changes in carrying amount of goodwill are as follows:
United States | Canada | Total | ||||||||||
Goodwill at October 3, 2009 |
$ | 43,605 | $ | 13,889 | $ | 57,494 | ||||||
Currency translation adjustments |
| 341 | 341 | |||||||||
Goodwill at July 3, 2010 |
$ | 43,605 | $ | 14,230 | $ | 57,835 | ||||||
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)
During the thirteen week period ended July 3, 2010, the Company reduced its forecast for
Dynamic Design branded sales due to a shift in branding strategies by certain customers whereby the
mix of sales was less heavily weighted with Dynamic Design branded product. This led the Company to
conclude an interim impairment assessment should be performed. The Company concluded the reduction
in forecasted branded sales led to a reduction in Dynamic Designs trade name fair value. As a
result, the Company recorded an impairment charge in the amount of $300 within the U.S. segment.
The Company performed the interim impairment test using the relief-from-royalty method. The
impairment is included in impairment charges in the accompanying condensed consolidated statement
of operations. See Note 14 for further information.
The following table reflects the components of intangible assets:
July 3, 2010 | October 3, 2009 | |||||||||||||||
Gross Carrying | Accumulated | Gross Carrying | Accumulated | |||||||||||||
Amount | Amortization | Amount | Amortization | |||||||||||||
Indefinite lived intangible assets: |
||||||||||||||||
Trade names |
$ | 47,710 | $ | | $ | 47,879 | $ | | ||||||||
Finite lived intangible assets: |
||||||||||||||||
Technology (patents) |
1,356 | 1,177 | 1,356 | 1,142 | ||||||||||||
Non-compete agreements |
| | 976 | 965 | ||||||||||||
Customer relationships |
11,665 | 6,934 | 11,617 | 6,040 | ||||||||||||
13,021 | 8,111 | 13,949 | 8,147 | |||||||||||||
$ | 60,731 | $ | 8,111 | $ | 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:
July 2010 September 2010 |
$ | 299 | ||
Fiscal 2011 |
1,196 | |||
Fiscal 2012 |
1,176 | |||
Fiscal 2013 |
1,161 | |||
Fiscal 2014 |
879 | |||
Thereafter |
199 | |||
$ | 4,910 | |||
5. Other Noncurrent Assets
Other noncurrent assets as of July 3, 2010 include restricted cash of $1,186 ($1,405
Australian dollars) placed in escrow as part of the agreement to purchase certain assets from West
Barrows Mix Pty Ltd. (Westmix). See Note 19 for further information.
6. Income Taxes
The Company determines its income tax provision under the effective rate method. 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.
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)
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 and thirty-nine week periods ended July 3, 2010 was
primarily comprised of income tax expense for foreign subsidiaries and withholding tax and U.S.
income tax related to foreign unremitted earnings. The accrual for U.S. income tax related to
foreign unremitted earnings reduced the valuation allowance required due to expected net operating
loss usage.
Income tax expense for the thirteen and thirty-nine week periods ended June 27, 2009 was
primarily comprised of additional valuation allowances related to intangible assets and U.S. income
tax related to foreign unremitted earnings.
7. Debt Arrangements
Total indebtedness is as follows:
July 3, | October 3, | |||||||
2010 | 2009 | |||||||
Revolving Loan (a) |
$ | | $ | 17,500 | ||||
Senior Floating Rate Notes, net of unamortized
discount of $161 and $241,
respectively |
149,839 | 149,759 | ||||||
Senior Subordinated Notes |
150,000 | 150,000 | ||||||
Term Note |
53 | 479 | ||||||
Capital lease obligations |
142 | 42 | ||||||
Total debt |
300,034 | 317,780 | ||||||
Less: |
||||||||
Short-term Revolving Loan |
| (17,500 | ) | |||||
Current portion of capital lease obligations |
(50 | ) | (10 | ) | ||||
Current portion of long-term debt |
(53 | ) | (479 | ) | ||||
Long-term debt |
$ | 299,931 | $ | 299,791 | ||||
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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 | ||||||||||||||||||||
Borrowing | Credit | (b) | Interest | |||||||||||||||||
Maximum | Base as | Outstanding | Availability | Rate as of | ||||||||||||||||
Borrowing | of July 3, | as of July 3, | as of July 3, | July 3, | Expiration | |||||||||||||||
Amount | 2010 | 2010 | 2010 | 2010 | Date | |||||||||||||||
Revolving Loan (a)
|
$ | 130,000 | $ | 90,248 | $ | 3,268 | $ | 86,980 | (c) | Apr 7, 2011 |
(e) | (f) | |||||||||||||
Original | (d) | 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) | See Note 19 for further information regarding the expiration of the Revolving Loan. | |
(b) | Total amount available is limited by the amount of eligible accounts receivable, inventory, machinery and equipment, and real estate less letters of credit outstanding. | |
(c) | 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. As of July 3, 2010, there were no amounts outstanding under the Revolving Loan. | |
(d) | LIBOR represents the three month London Interbank Offered Rate which resets quarterly. LIBOR was .3% as of April 13, 2010. April 13, 2010 is the reset date for the July 15, 2010 interest payment. | |
(e) | Interest payments are in cash and paid in arrears. | |
(f) | The Senior Floating Rate Notes do not have a redemption premium. The Senior Subordinated Notes have a redemption price of 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 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. |
9
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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)
8. Pension and Other Post-retirement Benefits
Pension Benefits | Other Benefits | |||||||||||||||
Thirteen Week Period Ended | Thirteen Week Period Ended | |||||||||||||||
July 3, | June 27, | July 3, | June 27, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Service Cost |
$ | 22 | $ | 110 | $ | 1 | $ | | ||||||||
Interest Cost |
2,058 | 2,151 | 21 | 23 | ||||||||||||
Expected return on plan assets |
(2,393 | ) | (2,588 | ) | | | ||||||||||
Amortization of prior service cost |
| 6 | | | ||||||||||||
Amortization of unrecognized net
loss (gain) |
722 | 99 | (29 | ) | (30 | ) | ||||||||||
Net periodic benefit cost (credit) |
$ | 409 | $ | (222 | ) | $ | (7 | ) | $ | (7 | ) | |||||
Employer contributions |
$ | 461 | $ | 1,352 | $ | 19 | $ | | ||||||||
Pension Benefits | Other Benefits | |||||||||||||||
Thirty-nine Week Period Ended | Thirty-nine Week Period Ended | |||||||||||||||
June 3, | June 27, | July 3, | June 27, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Service Cost |
$ | 93 | $ | 328 | $ | 3 | $ | 1 | ||||||||
Interest Cost |
6,259 | 6,449 | 62 | 67 | ||||||||||||
Expected return on plan assets |
(7,260 | ) | (7,758 | ) | | | ||||||||||
Amortization of prior service cost |
| 18 | | | ||||||||||||
Amortization of unrecognized net
loss (gain) |
2,175 | 295 | (86 | ) | (89 | ) | ||||||||||
Net periodic benefit cost (credit) |
$ | 1,267 | $ | (668 | ) | $ | (21 | ) | $ | (21 | ) | |||||
Employer contributions |
$ | 1,032 | $ | 3,581 | $ | 46 | $ | | ||||||||
9. Other Comprehensive Income
Thirteen Week Period Ended | ||||||||
July 3, | June 27, | |||||||
2010 | 2009 | |||||||
Net income |
$ | 8,251 | $ | 9,246 | ||||
Other comprehensive income: |
||||||||
Currency translation adjustment |
(3,795 | ) | (3,015 | ) | ||||
Fair value adjustments of swaps, net of tax |
(288 | ) | 611 | |||||
Comprehensive income |
$ | 4,168 | $ | 6,842 | ||||
Thirty-nine Week Period Ended | ||||||||
July 3, | June 27, | |||||||
2010 | 2009 | |||||||
Net income |
$ | 17,658 | $ | 1,175 | ||||
Other comprehensive income: |
||||||||
Currency translation adjustment |
948 | 2,663 | ||||||
Fair value adjustments of swaps, net of tax |
(484 | ) | (838 | ) | ||||
Effect of pension measurement date provision, net of tax |
| 95 | ||||||
Comprehensive income |
$ | 18,122 | $ | 3,095 | ||||
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)
10. 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 and thirty-nine week periods ended June 27, 2009 as a result of the reorganization.
Segment information representing the reportable segments currently utilized by chief operating
decision makers was as follows:
Thirteen Week Period Ended | ||||||||||||||||||||
July 3, 2010 | ||||||||||||||||||||
United States | Canada | Other | Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | 102,565 | $ | 19,479 | $ | 1,316 | $ | | $ | 123,360 | ||||||||||
Intersegment sales |
3,361 | 1,441 | | (4,802 | ) | | ||||||||||||||
Operating income (loss) |
13,692 | 3,520 | (196 | ) | | 17,016 | ||||||||||||||
Interest expense |
6,630 | |||||||||||||||||||
Other income |
(790 | ) | ||||||||||||||||||
Income before income taxes |
$ | 11,176 | ||||||||||||||||||
Thirteen Week Period Ended | ||||||||||||||||||||
June 27, 2009 | ||||||||||||||||||||
United States | Canada | Other | Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | 109,695 | $ | 19,124 | $ | 1,217 | $ | | $ | 130,036 | ||||||||||
Intersegment sales |
3,979 | 527 | 483 | (4,989 | ) | | ||||||||||||||
Operating income (loss) |
11,030 | 648 | (1,199 | ) | | 10,479 | ||||||||||||||
Interest expense |
7,085 | |||||||||||||||||||
Other income |
(6,793 | ) | ||||||||||||||||||
Income before income taxes |
$ | 10,187 | ||||||||||||||||||
Thirty-nine Week Period Ended | ||||||||||||||||||||
July 3, 2010 | ||||||||||||||||||||
United States | Canada | Other | Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | 284,351 | $ | 60,998 | $ | 3,789 | $ | | $ | 349,138 | ||||||||||
Intersegment sales |
7,997 | 7,041 | | (15,038 | ) | | ||||||||||||||
Operating income (loss) |
34,172 | 12,461 | (768 | ) | | 45,865 | ||||||||||||||
Interest expense |
20,112 | |||||||||||||||||||
Other expense |
1,102 | |||||||||||||||||||
Income before income taxes |
$ | 24,651 | ||||||||||||||||||
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)
Thirty-nine Week Period Ended | ||||||||||||||||||||
June 27, 2009 | ||||||||||||||||||||
United States | Canada | Other | Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | 293,302 | $ | 67,475 | $ | 3,886 | $ | | $ | 364,663 | ||||||||||
Intersegment sales |
11,118 | 1,985 | 1,652 | (14,755 | ) | | ||||||||||||||
Operating income (loss) |
23,446 | 9,980 | (1,946 | ) | | 31,480 | ||||||||||||||
Interest expense |
22,420 | |||||||||||||||||||
Other expense |
5,643 | |||||||||||||||||||
Income before income taxes |
$ | 3,417 | ||||||||||||||||||
Segment assets are as follows:
July 3, | October 3, | |||||||
2010 | 2009 | |||||||
United States |
$ | 277,776 | $ | 242,774 | ||||
Canada |
71,723 | 84,987 | ||||||
Other |
5,430 | 6,862 | ||||||
Total |
$ | 354,929 | $ | 334,623 | ||||
11. Other (Income) Expense
Other (income) expense consists of the following:
Thirteen Week Period Ended | ||||||||
July 3, | June 27, | |||||||
2010 | 2009 | |||||||
Unrealized gain |
$ | (320 | ) | $ | (6,530 | ) | ||
Realized gain |
(470 | ) | (263 | ) | ||||
Total |
$ | (790 | ) | $ | (6,793 | ) | ||
Thirty-nine Week Period Ended | ||||||||
July 3, | June 27, | |||||||
2010 | 2009 | |||||||
Unrealized loss |
$ | 1,282 | $ | 7,047 | ||||
Realized gain |
(180 | ) | (1,404 | ) | ||||
Total |
$ | 1,102 | $ | 5,643 | ||||
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. During the thirty-nine week period ended July
3, 2010, the remaining balance under the intercompany note was paid in full. The intercompany note
was not long-term in nature. As a result, the impact of exchange rate changes on the note was
recorded as an unrealized gain or loss in the condensed consolidated statements of operations.
12
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)
For the thirteen week period ended July 3, 2010 other income primarily includes an unrealized
gain of $585 related to a U.S. dollar bank account held by a Canadian subsidiary and an unrealized
loss of $204 related to an intercompany note with a subsidiary in the Other segment. Other income
for the thirteen week period ended July 3, 2010 also includes a realized gain of $739 related to
the Canadian intercompany note and a realized loss of $209 related to U.S. dollar denominated trade
receivables and payables held by a Canadian subsidiary. For the thirteen week period ended June 27,
2009 other income primarily includes an unrealized gain of $7,471 related to the Canadian
intercompany note and unrealized losses of $605 related to a U.S. dollar bank account held by a
Canadian subsidiary and $475 related to foreign currency forward contracts. Other income for the
thirteen week period ended June 27, 2009 also includes a realized gain of $254 related to foreign
currency forward contracts.
For the thirty-nine week period ended July 3, 2010 other expense primarily includes unrealized
losses of $895 related to a U.S. dollar bank account held by a Canadian subsidiary and $395 related
to an intercompany note with a subsidiary in the Other segment. Other expense for the thirty-nine
week period ended July 3, 2010 also includes a realized gain of $739 related to the Canadian
intercompany note and a realized loss of $561 related to foreign currency forward contracts. Other
expense for the thirty-nine week period ended June 27, 2009 primarily includes an unrealized loss
of $8,793 related to the Canadian intercompany note and an unrealized gain of $1,494 related to a
U.S. dollar bank account held by a Canadian subsidiary. Other expense for the thirty-nine week
period ended June 27, 2009 also includes a realized gain of $1,522 related to foreign currency
forward contracts.
12. Condensed Guarantor Data
On December 17, 2007, as a result of certain corporate restructuring activities, ATT entered
into supplemental indentures 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 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 indirectly wholly-owned subsidiaries.
The following condensed consolidating information presents, in separate columns, the condensed
consolidating balance sheets, the related condensed consolidating statements of operations and the
condensed consolidating statements of cash flows 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 fourteen week 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. As a result of this reorganization, the Company has recast
its condensed consolidating statements of operations for the thirteen and thirty-nine week periods
ended June 27, 2009 and its condensed consolidating statement of cash flows for the thirty-nine
week period ended June 27, 2009.
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 Balance Sheet
As of July 3, 2010
Condensed Consolidating Balance Sheet
As of July 3, 2010
Subsidiary | ||||||||||||||||||||||||
ATT | Ames True | Subsidiary | Non- | |||||||||||||||||||||
Holding Co. | Temper, Inc. | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 8,888 | $ | 9 | $ | 21,538 | $ | | $ | 30,435 | ||||||||||||
Trade receivables, net |
| 51,879 | | 6,665 | | 58,544 | ||||||||||||||||||
Inventories |
| 84,311 | | 18,774 | | 103,085 | ||||||||||||||||||
Prepaid expenses and other
current assets |
| 6,588 | 36 | 805 | | 7,429 | ||||||||||||||||||
Total current assets |
| 151,666 | 45 | 47,782 | | 199,493 | ||||||||||||||||||
Property, plant and equipment, net |
| 29,215 | | 10,035 | | 39,250 | ||||||||||||||||||
Intangibles, net |
| 4,304 | 41,600 | 6,716 | | 52,620 | ||||||||||||||||||
Goodwill |
| 43,605 | | 14,230 | | 57,835 | ||||||||||||||||||
Other noncurrent assets |
| 5,697 | | 34 | | 5,731 | ||||||||||||||||||
Intercompany receivable |
| 30,960 | 184,950 | 5,090 | (221,000 | ) | | |||||||||||||||||
Investment in subsidiaries |
| 267,827 | 171,693 | | (439,520 | ) | | |||||||||||||||||
Total assets |
$ | | $ | 533,274 | $ | 398,288 | $ | 83,887 | $ | (660,520 | ) | $ | 354,929 | |||||||||||
Liabilities and stockholders
(deficit) equity |
||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Trade payables |
$ | | $ | 24,811 | $ | 26 | $ | 4,390 | $ | | $ | 29,227 | ||||||||||||
Accrued interest payable |
| 8,864 | | | | 8,864 | ||||||||||||||||||
Accrued expenses and other
current liabilities |
| 20,432 | | 8,528 | | 28,960 | ||||||||||||||||||
Revolving loan |
| | | | | | ||||||||||||||||||
Current portion of long-term
debt and capital lease
obligations |
| 94 | | 9 | | 103 | ||||||||||||||||||
Total current liabilities |
| 54,201 | 26 | 12,927 | | 67,154 | ||||||||||||||||||
Deferred income taxes |
| 1,544 | 14,911 | 1,035 | | 17,490 | ||||||||||||||||||
Long-term debt |
| 299,910 | | 21 | | 299,931 | ||||||||||||||||||
Accrued retirement benefits |
| 51,014 | | 823 | | 51,837 | ||||||||||||||||||
Other liabilities |
| 10,457 | 1,390 | 116 | | 11,963 | ||||||||||||||||||
Intercompany payable |
| 209,594 | 311 | 11,095 | (221,000 | ) | | |||||||||||||||||
Cumulative losses in subsidiaries |
93,446 | | 336 | | (93,782 | ) | | |||||||||||||||||
Total liabilities |
93,446 | 626,720 | 16,974 | 26,017 | (314,782 | ) | 448,375 | |||||||||||||||||
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 |
111,174 | 111,174 | 154,502 | 150 | (265,826 | ) | 111,174 | |||||||||||||||||
Predecessor basis adjustment |
(13,539 | ) | (13,539 | ) | | | 13,539 | (13,539 | ) | |||||||||||||||
(Accumulated deficit) retained
earnings |
(149,614 | ) | (149,614 | ) | 96,780 | (2,583 | ) | 55,417 | (149,614 | ) | ||||||||||||||
Accumulated other comprehensive
(loss) income |
(41,467 | ) | (41,467 | ) | 11,783 | 10,681 | 19,003 | (41,467 | ) | |||||||||||||||
Total stockholders (deficit) equity |
(93,446 | ) | (93,446 | ) | 381,314 | 57,870 | (345,738 | ) | (93,446 | ) | ||||||||||||||
Total liabilities and stockholders
(deficit) equity |
$ | | $ | 533,274 | $ | 398,288 | $ | 83,887 | $ | (660,520 | ) | $ | 354,929 | |||||||||||
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 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 | ||||||||||||||||||
Other noncurrent assets |
| 6,531 | | | | 6,531 | ||||||||||||||||||
Intercompany receivable |
| 29,980 | 168,715 | 2,941 | (201,636 | ) | | |||||||||||||||||
Investment in subsidiaries |
| 248,762 | 163,010 | | (411,772 | ) | | |||||||||||||||||
Total assets |
$ | | $ | 478,490 | $ | 373,634 | $ | 95,907 | $ | (613,408 | ) | $ | 334,623 | |||||||||||
Liabilities and stockholders
(deficit) equity |
||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Trade payables |
$ | | $ | 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 | |||||||||||
15
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 Operations
For the Thirteen Week Period Ended July 3, 2010
Condensed Consolidating Statement of Operations
For the Thirteen Week Period Ended July 3, 2010
Subsidiary | ||||||||||||||||||||||||
ATT | Ames True | Subsidiary | Non- | |||||||||||||||||||||
Holding Co. | Temper, Inc. | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Net sales |
$ | | $ | 105,210 | $ | | $ | 22,909 | $ | (4,759 | ) | $ | 123,360 | |||||||||||
Cost of goods sold |
| 70,333 | | 15,239 | (4,759 | ) | 80,813 | |||||||||||||||||
Gross profit |
| 34,877 | | 7,670 | | 42,547 | ||||||||||||||||||
Selling, general and
administrative expenses |
| 20,447 | 43 | 4,313 | | 24,803 | ||||||||||||||||||
Loss on disposal of fixed assets |
| 128 | | | | 128 | ||||||||||||||||||
Amortization of intangible assets |
| 261 | | 39 | | 300 | ||||||||||||||||||
Impairment of fixed assets |
| | 300 | | | 300 | ||||||||||||||||||
Operating income (loss) |
| 14,041 | (343 | ) | 3,318 | | 17,016 | |||||||||||||||||
Interest expense (income) |
| 9,342 | (2,770 | ) | 58 | | 6,630 | |||||||||||||||||
Other expense (income) |
| 2,560 | (2,889 | ) | (461 | ) | | (790 | ) | |||||||||||||||
Income before income taxes |
| 2,139 | 5,316 | 3,721 | | 11,176 | ||||||||||||||||||
Income tax expense |
| 192 | 1,793 | 940 | | 2,925 | ||||||||||||||||||
Equity in earnings of subsidiaries |
8,251 | 6,304 | 3,219 | | (17,774 | ) | | |||||||||||||||||
Net income |
$ | 8,251 | $ | 8,251 | $ | 6,742 | $ | 2,781 | $ | (17,774 | ) | $ | 8,251 | |||||||||||
ATT Holding Co.
Condensed Consolidating Statement of Operations
For the Thirteen Week Period Ended June 27, 2009
Condensed Consolidating Statement of Operations
For the Thirteen Week Period Ended June 27, 2009
Subsidiary | ||||||||||||||||||||||||
ATT | Ames True | Subsidiary | Non- | |||||||||||||||||||||
Holding Co. | Temper, Inc. | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Net sales |
$ | | $ | 112,795 | $ | | $ | 21,703 | $ | (4,462 | ) | $ | 130,036 | |||||||||||
Cost of goods sold |
| 83,650 | | 17,174 | (4,462 | ) | 96,362 | |||||||||||||||||
Gross profit |
| 29,145 | | 4,529 | | 33,674 | ||||||||||||||||||
Selling, general and
administrative expenses |
| 17,228 | 66 | 4,549 | | 21,843 | ||||||||||||||||||
Loss on disposal of fixed assets |
| 599 | | | | 599 | ||||||||||||||||||
Amortization of intangible assets |
| 266 | | 36 | | 302 | ||||||||||||||||||
Impairment of fixed assets |
| | | 451 | | 451 | ||||||||||||||||||
Operating income (loss) |
| 11,052 | (66 | ) | (507 | ) | | 10,479 | ||||||||||||||||
Interest expense (income) |
| 9,515 | (4,993 | ) | 2,563 | | 7,085 | |||||||||||||||||
Other expense (income) |
| 2,292 | (2,629 | ) | (6,456 | ) | | (6,793 | ) | |||||||||||||||
(Loss) income before income taxes |
| (755 | ) | 7,556 | 3,386 | | 10,187 | |||||||||||||||||
Income tax expense (benefit) |
| 137 | 1,585 | (781 | ) | | 941 | |||||||||||||||||
Equity in earnings of subsidiaries |
9,246 | 10,138 | 5,323 | | (24,707 | ) | | |||||||||||||||||
Net income |
$ | 9,246 | $ | 9,246 | $ | 11,294 | $ | 4,167 | $ | (24,707 | ) | $ | 9,246 | |||||||||||
16
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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 Thirty-Nine Week Period Ended July 3, 2010
Condensed Consolidating Statement of Operations
For the Thirty-Nine Week Period Ended July 3, 2010
Subsidiary | ||||||||||||||||||||||||
ATT | Ames True | Subsidiary | Non- | |||||||||||||||||||||
Holding Co. | Temper, Inc. | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Net sales |
$ | | $ | 290,460 | $ | | $ | 73,348 | $ | (14,670 | ) | $ | 349,138 | |||||||||||
Cost of goods sold |
| 203,414 | | 48,875 | (14,670 | ) | 237,619 | |||||||||||||||||
Gross profit |
| 87,046 | | 24,473 | | 111,519 | ||||||||||||||||||
Selling, general and
administrative expenses |
| 51,626 | 137 | 12,711 | | 64,474 | ||||||||||||||||||
Gain on disposal of fixed assets |
| (21 | ) | | (8 | ) | | (29 | ) | |||||||||||||||
Amortization of intangible assets |
| 794 | | 115 | | 909 | ||||||||||||||||||
Impairment of fixed assets |
| | 300 | | | 300 | ||||||||||||||||||
Operating income (loss) |
| 34,647 | (437 | ) | 11,655 | | 45,865 | |||||||||||||||||
Interest expense (income) |
| 28,013 | (8,510 | ) | 609 | | 20,112 | |||||||||||||||||
Other expense (income) |
| 6,458 | (7,708 | ) | 2,352 | | 1,102 | |||||||||||||||||
Income before income taxes |
| 176 | 15,781 | 8,694 | | 24,651 | ||||||||||||||||||
Income tax expense |
| 453 | 3,975 | 2,565 | | 6,993 | ||||||||||||||||||
Equity in earnings of subsidiaries |
17,658 | 17,935 | 7,404 | | (42,997 | ) | | |||||||||||||||||
Net income |
$ | 17,658 | $ | 17,658 | $ | 19,210 | $ | 6,129 | $ | (42,997 | ) | $ | 17,658 | |||||||||||
ATT Holding Co.
Condensed Consolidating Statement of Operations
For the Thirty-Nine Week Period Ended June 27, 2009
Condensed Consolidating Statement of Operations
For the Thirty-Nine Week Period Ended June 27, 2009
Subsidiary | ||||||||||||||||||||||||
ATT | Ames True | Subsidiary | Non- | |||||||||||||||||||||
Holding Co. | Temper, Inc. | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Net sales |
$ | | $ | 302,734 | $ | | $ | 74,895 | $ | (12,966 | ) | $ | 364,663 | |||||||||||
Cost of goods sold |
| 227,828 | | 53,439 | (12,966 | ) | 268,301 | |||||||||||||||||
Gross profit |
| 74,906 | | 21,456 | | 96,362 | ||||||||||||||||||
Selling, general and
administrative expenses |
| 49,153 | 166 | 12,824 | | 62,143 | ||||||||||||||||||
Loss on disposal of fixed assets |
| 901 | | | | 901 | ||||||||||||||||||
Amortization of intangible assets |
| 799 | | 112 | | 911 | ||||||||||||||||||
Impairment of fixed assets |
| 476 | | 451 | | 927 | ||||||||||||||||||
Operating income (loss) |
| 23,577 | (166 | ) | 8,069 | | 31,480 | |||||||||||||||||
Interest expense (income) |
| 29,571 | (14,781 | ) | 7,630 | | 22,420 | |||||||||||||||||
Other expense (income) |
| 6,070 | (7,475 | ) | 7,048 | | 5,643 | |||||||||||||||||
(Loss) income before income taxes |
| (12,064 | ) | 22,090 | (6,609 | ) | | 3,417 | ||||||||||||||||
Income tax expense |
| 236 | 1,803 | 203 | | 2,242 | ||||||||||||||||||
Equity in earnings of subsidiaries |
1,175 | 13,475 | (4,875 | ) | | (9,775 | ) | | ||||||||||||||||
Net income (loss) |
$ | 1,175 | $ | 1,175 | $ | 15,412 | $ | (6,812 | ) | $ | (9,775 | ) | $ | 1,175 | ||||||||||
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)
ATT Holding Co.
Condensed Consolidating Statement of Cash Flows
For the Thirty-Nine Week Period Ended July 3, 2010
Condensed Consolidating Statement of Cash Flows
For the Thirty-Nine Week Period Ended July 3, 2010
Subsidiary | ||||||||||||||||||||||||
ATT | Ames True | Subsidiary | Non- | |||||||||||||||||||||
Holding Co. | Temper, Inc. | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Operating activities |
||||||||||||||||||||||||
Net income |
$ | 17,658 | $ | 17,658 | $ | 19,210 | $ | 6,129 | $ | (42,997 | ) | $ | 17,658 | |||||||||||
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities: |
||||||||||||||||||||||||
Depreciation expense |
| 8,265 | | 1,523 | | 9,788 | ||||||||||||||||||
Equity in earnings of subsidiaries |
(17,658 | ) | (17,935 | ) | (7,404 | ) | | 42,997 | | |||||||||||||||
Provision for (benefit from) deferred
taxes |
| | 3,766 | (1,496 | ) | | 2,270 | |||||||||||||||||
Other, net |
| 2,495 | | 70 | | 2,565 | ||||||||||||||||||
Unrealized loss |
| | | 1,282 | | 1,282 | ||||||||||||||||||
Impairment charge |
| | 300 | | | 300 | ||||||||||||||||||
Related party non-cash transactions |
| (153 | ) | 153 | | | | |||||||||||||||||
Changes in assets and liabilities: |
||||||||||||||||||||||||
Trade receivables |
| (17,457 | ) | | 1,443 | | (16,014 | ) | ||||||||||||||||
Inventories |
| (12,378 | ) | | (360 | ) | | (12,738 | ) | |||||||||||||||
Prepaid expenses and other current
assets |
| (1,752 | ) | (37 | ) | 985 | | (804 | ) | |||||||||||||||
Trade payables |
| 12,327 | (5 | ) | (1,416 | ) | | 10,906 | ||||||||||||||||
Accrued expenses and other
liabilities |
| 3,425 | 123 | 1,060 | | 4,608 | ||||||||||||||||||
Intercompany accounts |
| 37,285 | (16,106 | ) | (21,179 | ) | | | ||||||||||||||||
Net cash provided by (used in)
operating activities |
| 31,780 | | (11,959 | ) | | 19,821 | |||||||||||||||||
Investing activities |
||||||||||||||||||||||||
Cash paid for property, plant and
equipment |
| (4,392 | ) | | (624 | ) | | (5,016 | ) | |||||||||||||||
Proceeds from sale of property, plant
and equipment |
| 333 | | | | 333 | ||||||||||||||||||
Restricted
cash placed in escrow |
| (1,186 | ) | | | | (1,186 | ) | ||||||||||||||||
Investment in subsidiary |
| (150 | ) | | | 150 | | |||||||||||||||||
Net cash used in investing activities |
| (5,395 | ) | | (624 | ) | 150 | (5,869 | ) | |||||||||||||||
Financing activities |
||||||||||||||||||||||||
Repayments of long-term debt |
| (426 | ) | | | | (426 | ) | ||||||||||||||||
Borrowings on revolver |
| 93,377 | | | | 93,377 | ||||||||||||||||||
Repayments on revolver |
| (110,877 | ) | | | | (110,877 | ) | ||||||||||||||||
Principal payments under capital lease
obligations |
| (25 | ) | | (6 | ) | | (31 | ) | |||||||||||||||
Capital contribution |
| | | 150 | (150 | ) | | |||||||||||||||||
Net cash (used in) provided by
financing activities |
| (17,951 | ) | | 144 | (150 | ) | (17,957 | ) | |||||||||||||||
Effect of exchange rate changes on cash |
| | | 831 | | 831 | ||||||||||||||||||
Increase (decrease) in cash and cash
equivalents |
| 8,434 | | (11,608 | ) | | (3,174 | ) | ||||||||||||||||
Cash and cash equivalents at beginning
of period |
| 454 | 9 | 33,146 | | 33,609 | ||||||||||||||||||
Cash and cash equivalents at end of
period |
$ | | $ | 8,888 | $ | 9 | $ | 21,538 | $ | | $ | 30,435 | ||||||||||||
18
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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 Cash Flows
For the Thirty-Nine Week Period Ended June 27, 2009
Condensed Consolidating Statement of Cash Flows
For the Thirty-Nine Week Period Ended June 27, 2009
Subsidiary | ||||||||||||||||||||||||
ATT | Ames True | Subsidiary | Non- | |||||||||||||||||||||
Holding Co. | Temper, Inc. | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Operating activities |
||||||||||||||||||||||||
Net income (loss) |
$ | 1,175 | $ | 1,175 | $ | 15,412 | $ | (6,812 | ) | $ | (9,775 | ) | $ | 1,175 | ||||||||||
Adjustments to reconcile net income to
net cash provided by operating
activities: |
||||||||||||||||||||||||
Depreciation expense |
| 10,234 | | 1,591 | | 11,825 | ||||||||||||||||||
Equity in (earnings) losses of
subsidiaries |
(1,175 | ) | (13,475 | ) | 4,875 | | 9,775 | | ||||||||||||||||
Provision for (benefit from) deferred
taxes |
| 677 | 823 | (394 | ) | | 1,106 | |||||||||||||||||
Other, net |
| 3,485 | | 118 | | 3,603 | ||||||||||||||||||
Unrealized loss |
| | | 7,047 | | 7,047 | ||||||||||||||||||
Impairment charges |
| 476 | | 451 | | 927 | ||||||||||||||||||
Related party non-cash transactions |
| 4,674 | (5,677 | ) | 1,003 | | | |||||||||||||||||
Changes in assets and liabilities: |
||||||||||||||||||||||||
Trade receivables |
| (1,472 | ) | | 588 | | (884 | ) | ||||||||||||||||
Inventories |
| 15,625 | | (3,363 | ) | | 12,262 | |||||||||||||||||
Prepaid expenses and other current
assets |
| 2,537 | | (276 | ) | | 2,261 | |||||||||||||||||
Trade payables |
| (10,551 | ) | (6 | ) | (2,036 | ) | | (12,593 | ) | ||||||||||||||
Accrued expenses and other liabilities |
| (7,543 | ) | 3,057 | 320 | | (4,166 | ) | ||||||||||||||||
Intercompany accounts |
| 7,322 | (18,481 | ) | 11,159 | | | |||||||||||||||||
Net cash provided by operating activities |
| 13,164 | 3 | 9,396 | | 22,563 | ||||||||||||||||||
Investing activities |
||||||||||||||||||||||||
Cash paid for property, plant and
equipment |
| (4,581 | ) | | (435 | ) | | (5,016 | ) | |||||||||||||||
Proceeds from sale of property, plant
and equipment |
| 49 | | | | 49 | ||||||||||||||||||
Net cash used in investing activities |
| (4,532 | ) | | (435 | ) | | (4,967 | ) | |||||||||||||||
Financing activities |
||||||||||||||||||||||||
Repayments of long-term debt |
| (414 | ) | | | | (414 | ) | ||||||||||||||||
Borrowings on revolver |
| 120,422 | | | | 120,422 | ||||||||||||||||||
Repayments on revolver |
| (128,417 | ) | | | | (128,417 | ) | ||||||||||||||||
Principal payments under capital lease
obligation |
| | | (3 | ) | | (3 | ) | ||||||||||||||||
Net cash used in financing activities |
| (8,409 | ) | | (3 | ) | | (8,412 | ) | |||||||||||||||
Effect of exchange rate changes on cash |
| (1 | ) | | (707 | ) | | (708 | ) | |||||||||||||||
Increase in cash and cash equivalents |
| 222 | 3 | 8,251 | | 8,476 | ||||||||||||||||||
Cash and cash equivalents at beginning
of period |
| 285 | 5 | 16,869 | | 17,159 | ||||||||||||||||||
Cash and cash equivalents at end of
period |
$ | | $ | 507 | $ | 8 | $ | 25,120 | $ | | $ | 25,635 | ||||||||||||
19
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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)
13. 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 condensed 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 July 3, 2010 and October 3, 2009, there were 139,067 and
138,567 Class B Units, respectively, 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
20
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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)
holders of Class A-1 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-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. In April 2010, all of the
Class A-3 Units were converted into Class A Units pursuant to the terms of the Operating Agreement.
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, merchant and investment banking services to the
Company. The Company recorded expenses of $805 and $2,467 for the thirteen and thirty-nine weeks
ended July 3, 2010, respectively, related to the annual management fee plus expenses which are
included in selling, general and administrative expenses in the accompanying condensed consolidated
financial statements. The management fees plus expenses for the thirteen and thirty-nine weeks
ended June 27, 2009 were $841 and $2,479, respectively. The management fees are payable quarterly
in advance in accordance with the management agreement. The amount payable to Castle Harlan, Inc.
as of July 3, 2010 was $9 which is included in trade payables in the accompanying condensed
consolidated balance sheet. No amounts were outstanding as of October 3, 2009.
14. Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a
liability on the measurement date. 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. |
Financial Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
The Companys financial instruments include cash and cash equivalents, trade receivables,
restricted cash, trade payables, derivatives and debt. Because of short term maturities, the
carrying amounts of cash and cash equivalents, trade receivables, restricted cash, trade payables,
the Revolving Loan and Term Note approximate fair value. The Companys assets and liabilities that
are measured at fair value 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 the income approach as the present value
21
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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)
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.
As of July 3, 2010, the Companys interest rate swaps are in a liability position and no
foreign currency forward contracts are outstanding. The Company used the one year LIBOR rate of
1.17% plus a 6% credit risk spread to value the interest rate swaps. See Note 7 for further
information regarding the notional amount and duration of the interest rate swaps.
The fair value of the Companys derivative instruments is as follows:
July 3, 2010 | ||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
Interest rate swaps |
$ | | $ | 3,209 | $ | | $ | 3,209 | ||||||||
Total liabilities |
$ | | $ | 3,209 | $ | | $ | 3,209 | ||||||||
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 is as follows:
July 3, 2010 | October 3, 2009 | |||||||||||||||||||
Balance Sheet | Carrying | Fair | Carrying | Fair | ||||||||||||||||
Classification | Value | Value | Value | Value | ||||||||||||||||
Senior Floating Rate Notes |
Liability | $ | 149,839 | $ | 141,375 | $ | 149,759 | $ | 131,070 | |||||||||||
Senior Subordinated Notes |
Liability | 150,000 | 150,000 | 150,000 | 127,425 |
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.
Non-Financial Assets and Liabilities that are Measured at Fair Value on a Nonrecurring
Basis
Non-financial assets and liabilities primarily include goodwill, indefinite-lived intangible
assets and long-lived assets measured at fair value for impairment assessments and non-financial
assets and liabilities measured at fair value in business combinations.
During the thirteen week period ended July 3, 2010, the Company reduced its forecast for
Dynamic Design branded sales due to a shift in branding strategies by certain customers whereby the
mix of sales was less heavily weighted with Dynamic Design branded product. This led the Company to
conclude an interim impairment assessment should be performed. The Company concluded the reduction
in forecasted branded
22
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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)
sales led to a reduction in Dynamic Designs trade name fair value. As a result, the Company
recorded an impairment charge in the amount of $300 within the U.S. segment. The Company performed
the interim impairment test using the relief-from-royalty method, the present value of savings
resulting from owning the right to manufacture or sell products under a trade name without having
to pay a license fee for its use, utilizing a discount rate of 16%. The impairment is included in
impairment charges in the accompanying condensed consolidated statement of operations. The fair
value of the Dynamic Design trade name as of July 3, 2010 is as follows:
July 3, 2010 | ||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
Dynamic Design trade name |
$ | | $ | | $ | 2,700 | $ | 2,700 | ||||||||
Total liabilities |
$ | | $ | | $ | 2,700 | $ | 2,700 | ||||||||
15. Derivatives
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 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 (loss). 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 7 for further information regarding the notional
amounts and duration of the interest rate swaps. See Note 14 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 U.S. GAAP, the change in fair value is recognized as an unrealized gain or loss
in earnings in the period of change. As of July 3, 2010, the Company had no outstanding 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.
23
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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 fair value of derivative instruments as of July 3, 2010 and October 3, 2009 is as follows:
July 3, 2010 | ||||||||||||||||||||||||||||
Asset Derivatives | Liability Derivatives | |||||||||||||||||||||||||||
Qualifies | Balance | Pretax Gain | Balance | Pretax Loss | ||||||||||||||||||||||||
Description of | for Hedge | Fair | Sheet | Recognized | Fair | Sheet | Recognized | |||||||||||||||||||||
Derivative | Designation | Value | Location | in OCI | Value | Location | in OCI | |||||||||||||||||||||
Interest rate swaps |
Yes | | | | $ | 1,050 | (a | ) | $ | 1,050 | ||||||||||||||||||
Interest rate swaps |
Yes | | | | 2,159 | (b | ) | 2,159 |
(a) | The interest rate swap is included in Accrued expenses and other current liabilities. | |
(b) | The interest rate swaps are included in Other liabilities. |
October 3, 2009 | ||||||||||||||||||||||||||||
Asset Derivatives | Liability Derivatives | |||||||||||||||||||||||||||
Qualifies | Balance | Pretax Gain | Balance | Pretax Loss | ||||||||||||||||||||||||
Description of | for Hedge | Fair | Sheet | Recognized | Fair | Sheet | Recognized | |||||||||||||||||||||
Derivative | Designation | Value | Location | in OCI | Value | Location | in OCI | |||||||||||||||||||||
Foreign currency forward
contracts |
No | $ | 113 | (a | ) | $ | | $171 | (b | ) | $ | |||||||||||||||||
Interest rate swaps |
Yes | | | | 2,725 | (c | ) | 2,725 |
(a) | The foreign currency forward contracts are included in Prepaid expenses and other current assets. | |
(b) | The foreign currency forward contracts are included in Accrued expenses and other current liabilities. | |
(c) | The interest rate swaps are included in Other liabilities. |
The effect of derivative instruments on the condensed consolidated statements of
operations for the thirteen week periods ended July 3, 2010 and June 27, 2009 is as follows:
July 3, 2010 | ||||||||||||||||||||
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 of | for Hedge | AOCI into | AOCI into | recognized in | (loss) recognized | |||||||||||||||
Derivative | Designation | earnings | earnings | earnings | in earnings | |||||||||||||||
Foreign
currency forward
contracts |
No | | $ | Other expense | $ | (58 | ) | |||||||||||||
Interest rate swaps |
Yes | Interest expense | (601 | ) | | |
June 27, 2009 | ||||||||||||||||||||
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 of | for Hedge | AOCI into | AOCI into | recognized in | (loss) recognized | |||||||||||||||
Derivative | Designation | earnings | earnings | earnings | in earnings | |||||||||||||||
Foreign
currency forward
contracts |
No | | | Other expense | $ | (221 | ) | |||||||||||||
Other |
No | | | SG&A | (30 | ) | ||||||||||||||
Other |
No | | | Other expense | 45 | |||||||||||||||
Interest rate swaps |
Yes | Interest expense | $ | (583 | ) | | |
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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 effect of derivative instruments on the condensed consolidated statements of operations
for the thirty-nine week periods ended July 3, 2010 and June 27, 2009 is as follows:
July 3, 2010 | ||||||||||||||||||||
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 of | for Hedge | AOCI into | AOCI into | recognized in | (loss) recognized | |||||||||||||||
Derivative | Designation | earnings | earnings | earnings | in earnings | |||||||||||||||
Foreign
currency forward
contracts |
No | | $ | | Other expense | $ | (561 | ) | ||||||||||||
Interest rate swaps |
Yes | Interest expense | (2,036 | ) | | |
June 27, 2009 | ||||||||||||||||||||
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 of | for Hedge | AOCI into | AOCI into | recognized in | (loss) recognized | |||||||||||||||
Derivative | Designation | earnings | earnings | earnings | in earnings | |||||||||||||||
Foreign
currency forward
contracts |
No | | | Other expense | $ | 1,626 | ||||||||||||||
Other |
No | | | SG&A | (78 | ) | ||||||||||||||
Other |
No | | | Other expense | (12 | ) | ||||||||||||||
Interest rate swaps |
Yes | Interest expense | $ | (692 | ) | | |
The Company expects $2,145 of net pretax losses recognized in accumulated other comprehensive
loss as of July 3, 2010 to be reclassified into earnings within the next twelve months.
16. 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 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 define remediation
requirements. Due to changes in administrative
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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)
proceedings the date the Company believes remediation will be completed has changed to
December 2011 from December 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 |
1,914 | |||
Balance as of July 3, 2010 |
$ | 627 | ||
In April 2010, the Company was served with a complaint filed in the United States District
Court for the Eastern District of Texas by Patent Group, LLC (Patent Group) for falsely marketing
certain of products under 35 U.S.C. § 292. Patent Group claims the Company has marketed and sold
certain leaf rakes marked with patent references that have expired with the intent to deceive the
public and to gain a competitive advantage in the market. Patent Group is seeking monetary damages
and injunctive relief. The Company settled this claim for $60 in June 2010.
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.
17. 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.
18. Contract Termination Costs
During the fourteen week period ended October 3, 2009, the Company ceased using the
Louisville, Kentucky distribution center and recorded contract termination costs of $1,236
associated with the building lease. Termination costs are included in selling, general and
administrative expenses in the accompanying condensed consolidated statement of operations within
the U.S. segment. During the thirteen week period ended July 3, 2010, the Company adjusted the
contract termination accrual due to changes in the fair value of estimated sublease rentals. The
change in the contract termination accrual is as follows:
Balance as of October 3, 2009 |
$ | 1,236 | ||
Costs paid |
(782 | ) | ||
Exit liability expense |
454 | |||
Accretion expense |
43 | |||
Fair value adjustment |
902 | |||
Balance as
of July 3, 2010 |
$ | 1,853 |
19. Subsequent Events
The Company has evaluated subsequent events and has determined that except as set forth below,
there are no subsequent events that require disclosure.
On June 29, 2010, Ames True Temper Australia Pty Ltd (ATT Australia), a wholly-owned
subsidiary of ATT, entered into a Call and Put Option to Purchase Business (the Option Agreement)
with Westmix and Michelangelo Cantone and Jewell Cantone (collectively, the Cantones) relating to
the
26
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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)
purchase of certain assets (the Assets) of Westmix, an Australia-based manufacturer. The
Assets consist principally of trade receivables, inventory, trade names and leases. Pursuant to the
Option Agreement, ATT Australia received a call option to purchase from Westmix (the Call
Option), and Westmix received a put option to sell to ATT Australia, the Assets for $14.05 million
Australian dollars (approximately $12.7 million) (the Purchase Price) in cash, subject to upward
or downward working capital adjustments of up to $175,000 Australian dollars (approximately
$159,000).
On July 5, 2010, ATT Australia exercised the Call Option and ATT Australia, Westmix and the
Cantones entered into a Business Sale Agreement (the Sale Agreement) pursuant to which ATT
Australia agreed to acquire the Assets and assume certain trade payables and customer rebates.
Simultaneously with the execution of the Sale Agreement, ATT Australia made an escrow payment of
10% of the purchase price, or $1.405 million Australian dollars (approximately $1.2 million). The
escrow payment will be refunded to ATT Australia in the event the sale of the Assets is not
consummated; provided that if the failure to consummate the sale of the Assets is due to a material
default by ATT Australia of its obligations under the Sale Agreement, the escrow payment will be
forfeited to Westmix.
The consummation of the sale of the Assets is subject to customary closing conditions,
including the receipt of all requisite third party consents, the acceptance of employment offers
with ATT Australia by certain Westmix employees, the absence of the loss of any key customer or key
supplier and the absence of any material adverse effect. The expected
closing date is August 2010.
On July 19, 2010, CHATT Holdings LLC, a Delaware limited liability company (the Seller),
CHATT Holdings Inc., a Delaware corporation and wholly owned subsidiary of the Seller (the
Parent), Griffon Corporation, a Delaware corporation (Griffon), and Clopay Acquisition Corp., a
Delaware corporation and an indirect wholly owned subsidiary of Griffon (the Buyer), entered into
a Stock Purchase Agreement (the Purchase Agreement) pursuant to which the Seller agreed to sell
100% of the issued and outstanding shares of common stock of the Parent, par value $0.01 per share,
to the Buyer for a purchase price of $542 million (subject to certain adjustments) (the Purchase
Price).
Consummation of the transactions contemplated by the Purchase Agreement (the Transaction) is
subject to customary conditions, including (i) expiration or termination of the waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (ii) the absence of
certain governmental restraints and (iii) the absence of a material adverse effect on the business
of the Parent and its subsidiaries.
The Buyer has obtained equity and debt financing commitments for the Transaction, the
aggregate proceeds of which will be sufficient to pay the Purchase Price and all related fees and
expenses. Griffon has committed to purchase equity interests in the Buyer on the terms and subject
to the conditions set forth in an equity commitment letter, dated July 19, 2010, between Griffon
and the Buyer (the Equity Commitment
Letter). Griffon has provided a limited guarantee in favor of the Seller, dated July 19, 2010
(the Limited Guarantee), guaranteeing the performance of certain obligations of the Buyer under
the Purchase Agreement subject to the terms and conditions of the Limited Guarantee.
Goldman Sachs Lending Partners LLC has committed to provide up to $650 million in senior
secured credit facilities (comprised of a term loan facility of up to $500 million and a revolving
credit facility of up to $150 million), on the terms and subject to the conditions set forth in a
commitment letter dated July 19, 2010 (the Debt Commitment Letter and, together with the Equity
Commitment Letter, the Financing Commitments).
The Purchase Agreement contains certain termination rights for the Seller and the Buyer. Upon
termination of the Purchase Agreement under specified circumstances by the Seller, the Buyer will
be required to pay the Seller a termination fee equal to $20 million. The Seller and the Parent
have the right to specifically enforce the terms and provisions of the Purchase Agreement in
specified circumstances and subject to certain limitations. If the Financing Commitments are
available to be drawn down by the Buyer and a court does not grant specific performance to the
Seller or the Parent, then, under certain
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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)
circumstances, the Seller or the Parent may institute proceedings for monetary damages, and in
the event that the Seller or the Parent establishes in such proceeding that the Buyer has committed
a willful breach of the Purchase Agreement, the parties have agreed that the Buyer will be required
to pay the Seller or the Parent damages of not less than $20 million and up to $40 million. No
adjustments to the accompanying condensed consolidated financial statements were recorded as a
result of the Purchase Agreement. The closing date is expected to be on or before September 30, 2010.
On
August 3, 2010, Buyer commenced cash tender offers for any and all Senior Floating Rate Notes and Senior Subordinated Notes of the Company.
On July 19, 2010, the Company paid off the remaining balance on the Term Note.
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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; | ||
| 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 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; and |
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Table of Contents
| we may be required to record impairment charges for goodwill, indefinite-lived intangible assets and other long-lived assets. |
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.
On July 5, 2010, the Company entered into a material definitive agreement to purchase certain
assets (the Assets) from Australian based manufacturer, Westbarrows Mix Pty Ltd. (Westmix). The
Assets consist principally of trade receivables, inventory, trade names and leases. The agreement
to purchase the Assets of Westmix was entered into during the thirteen week period ending October 2,
2010 (Q4 2010) and is not reflected in the accompanying condensed consolidated financial statements
or MD&A disclosures. See Note 19 in the accompanying condensed consolidated financial statements
for further information.
On July 19, 2010, CHATT Holdings LLC, a Delaware limited liability company (the Seller),
CHATT Holdings Inc., a Delaware corporation and wholly owned subsidiary of the Seller (the
Parent), Griffon Corporation, a Delaware corporation (Griffon), and Clopay Acquisition Corp., a
Delaware corporation and an indirect wholly owned subsidiary of Griffon (the Buyer), entered into
a stock purchase agreement pursuant to which the Seller agreed to sell 100% of the issued and
outstanding shares of common stock of the Parent, par value $0.01 per share, to the Buyer for a
purchase price of $542 million (subject to certain adjustments). ATT is an indirect wholly owned
subsidiary of each of the Seller and the Parent. The stock purchase agreement was entered into
during Q4 2010 and is not reflected in the accompanying condensed consolidated financial statements
or MD&A disclosures. See Note 19 in the accompanying condensed consolidated financial statements
for further information.
On August 3, 2010, Buyer commenced cash tender offers for any and all Senior Floating Rate Notes and Senior Subordinated Notes of the Company.
30
Table of Contents
Operations Review
Company-Wide
The table below and the following narrative compares our statements of operations for the
thirteen week period ended July 3, 2010 (Q3 2010) to the thirteen week period ended June 27, 2009
(Q3 2009).
(Dollars in Millions)
Q3 | Q3 | Increase/(Decrease) | ||||||||||||||
2010 | 2009 | $ | % | |||||||||||||
Net sales |
$ | 123.4 | $ | 130.0 | $ | (6.6 | ) | (5.1 | )% | |||||||
Cost of goods sold |
80.8 | 96.4 | (15.6 | ) | (16.2 | ) | ||||||||||
Gross profit |
42.5 | 33.7 | 8.8 | 26.1 | ||||||||||||
Gross profit percentage |
34.4 | % | 25.9 | % | ||||||||||||
Selling, general and
administrative
expenses |
24.8 | 21.8 | 3.0 | 13.8 | ||||||||||||
Loss on disposal of
fixed assets |
0.1 | 0.6 | (0.5 | ) | (83.3 | ) | ||||||||||
Amortization of
intangible assets |
0.3 | 0.3 | | | ||||||||||||
Impairment charges |
0.3 | 0.5 | (0.2 | ) | (40.0 | ) | ||||||||||
Operating income |
17.0 | 10.5 | 6.5 | 61.9 | ||||||||||||
Operating income
percentage |
13.8 | % | 8.1 | % | ||||||||||||
Interest expense |
6.6 | 7.1 | (0.5 | ) | (7.0 | ) | ||||||||||
Other income |
(0.8 | ) | (6.8 | ) | 6.0 | (88.2 | ) | |||||||||
Income before income taxes |
11.2 | 10.2 | 1.0 | 9.8 | ||||||||||||
Income tax expense |
2.9 | 0.9 | 2.0 | * | ||||||||||||
Net income |
$ | 8.3 | $ | 9.2 | $ | (0.9 | ) | (9.8 | )% | |||||||
* | Greater than 100%. |
Note: Totals may not sum due to rounding.
Q3 2010 compared to Q3 2009
Net Sales. Overall net sales decreased primarily due to selling price reductions of
approximately $4.9 million and a decrease in volume of approximately $4.7 million. Decreases were
partially offset by favorable Canadian currency translation of
$2.5 million and lower incentive for
growth program allowances of $1.4 million.
Gross Profit. Gross profit increased primarily due to favorable overhead absorption of $2.3
million, lower incentive for growth program allowances of
$1.4 million and lower labor and material usage costs of
$1.3 million.
Selling, General and Administrative (SG&A) Expenses. SG&A increased primarily due to
expenses associated with the acquisition of Westmix and the pending sale of ATT of $1.3 million,
higher employee incentive compensation costs of $1.0 million and an increase in contract
termination costs of $0.9 million due to changes in the fair value of estimated sublease rentals
associated with the closure of a distribution facility in fiscal 2009.
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Loss on Disposal of Fixed Assets. Loss on disposal of fixed assets includes miscellaneous
disposals of machinery and equipment.
Amortization of Intangible Assets. Amortization expense is consistent with the prior period.
Impairment Charges. During Q3 2010, the Company reduced its forecast for Dynamic Design
branded sales due to a shift in branding strategies by certain customers whereby the mix of sales
was less heavily weighted with Dynamic Design branded product. The reduction in forecasted branded
sales led to a reduction in Dynamic Designs trade name fair value. As a result, the Company
recorded an impairment charge in the amount of $0.3 million within the U.S. segment. The impairment
charges of $0.5 million in Q3 2009 relate to the impairment of a manufacturing facility and
equipment in our Other segment mainly due to the discontinuance of manufacturing certain products.
Interest Expense. Interest expense decreased due to lower average borrowings under our
Amended and Restated Senior Secured Credit Facility (Revolving Loan) and a lower effective
interest rate on our Senior Floating Rate Notes of 5.9% in Q3 2010 as compared to 6.4% in Q3 2009.
Other Income. Other income for Q3 2010 primarily includes an unrealized gain of $0.6 million
related to a U.S. dollar bank account held by a Canadian subsidiary and an unrealized loss of $0.2
million related to an intercompany note with a subsidiary in our Other segment. Other income for Q3
2010 also includes a realized gain of $0.7 related to a U.S. dollar denominated intercompany note
held by a Canadian subsidiary that is not long-term in nature and a realized loss of $0.2 related
to U.S. dollar denominated trade receivables and payables held by a Canadian subsidiary. Other
income for Q3 2009 primarily includes an unrealized gain of $7.5 million related to the Canadian
intercompany note and unrealized losses of $0.6 million related to a U.S. dollar bank account held
by a Canadian subsidiary and $0.5 million related to foreign currency forward contracts. Other
income for Q3 2009 also includes a realized gain related to foreign currency forward contracts of
$0.3 million.
Income Tax Expense. Income tax expense for Q3 2010 was primarily comprised of income tax
expense for foreign subsidiaries and withholding tax and US income tax related to foreign
unremitted earnings. Income tax expense for Q3 2009 was primarily comprised of additional valuation
allowances related to intangible assets and US income tax related to foreign unremitted earnings.
As of Q3 2010 and Q3 2009, a deferred tax asset valuation allowance was necessary for substantially
all of our U.S. 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 Q3 2009 segment information as a result of this reorganization. The following table
presents our net sales and operating income after intercompany eliminations by segment:
32
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(Dollars in Millions)
Q3 | Q3 | Increase/(Decrease) | ||||||||||||||
2010 | 2009 | $ | % | |||||||||||||
Net sales: |
||||||||||||||||
United States |
$ | 102.6 | $ | 109.7 | $ | (7.1 | ) | (6.5 | )% | |||||||
Canada |
19.5 | 19.1 | 0.4 | 2.1 | ||||||||||||
Other |
1.3 | 1.2 | 0.1 | 8.3 | ||||||||||||
Net sales |
$ | 123.4 | $ | 130.0 | $ | (6.6 | ) | (5.1 | )% | |||||||
Operating income (loss): |
||||||||||||||||
United States |
$ | 13.7 | $ | 11.0 | $ | 2.7 | 24.5 | % | ||||||||
Canada |
3.5 | 0.6 | 2.9 | * | ||||||||||||
Other |
(0.2 | ) | (1.2 | ) | 1.0 | 83.3 | ||||||||||
Operating income |
$ | 17.0 | $ | 10.5 | $ | 6.5 | 61.9 | % | ||||||||
* | Greater than 100%. |
Note: Totals may not sum due to rounding.
Q3 2010 compared to Q3 2009
United States
Net Sales. Overall net sales decreased primarily due to selling price reductions of
approximately $3.9 million and volume declines of approximately $3.7 million.
Operating income. Operating income increased primarily due to favorable overhead absorption
of $2.0 million.
Canada
Net Sales. Net sales increased primarily due to favorable currency translation of $2.5
million partially offset by volume declines of approximately $1.2 million and selling price
reductions of approximately $0.9 million.
Operating income. Operating income increased due to lower material costs and favorable
exchange rates on U.S. dollar material and inventory purchases.
Other
Changes in net sales and operating loss were not significant for the periods presented.
Company-Wide
The table below and the following narrative compares our statements of operations for the
thirty-nine week period ended July 3, 2010 (YTD 2010) to the thirty-nine week period ended June
27, 2009 (YTD 2009).
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(Dollars in Millions)
YTD | YTD | Increase/(Decrease) | ||||||||||||||
2010 | 2009 | $ | % | |||||||||||||
Net sales |
$ | 349.1 | $ | 364.7 | $ | (15.6 | ) | (4.3 | )% | |||||||
Cost of goods sold |
237.6 | 268.3 | (30.7 | ) | (11.4 | ) | ||||||||||
Gross profit |
111.5 | 96.4 | 15.1 | 15.7 | ||||||||||||
Gross profit percentage |
31.9 | % | 26.4 | % | ||||||||||||
Selling, general and
administrative
expenses |
64.5 | 62.1 | 2.4 | 3.9 | ||||||||||||
Loss on disposal of
fixed assets |
| 0.9 | (0.9 | ) | (100.0 | ) | ||||||||||
Amortization of
intangible assets |
0.9 | 0.9 | | | ||||||||||||
Impairment charges |
0.3 | 0.9 | (0.6 | ) | (66.7 | ) | ||||||||||
Operating income |
45.9 | 31.5 | 14.4 | 45.7 | ||||||||||||
Operating income
percentage |
13.1 | % | 8.6 | % | ||||||||||||
Interest expense |
20.1 | 22.4 | (2.3 | ) | (10.3 | ) | ||||||||||
Other expense |
1.1 | 5.6 | (4.5 | ) | (80.4 | ) | ||||||||||
Income before income taxes |
24.7 | 3.4 | 21.3 | * | ||||||||||||
Income tax expense |
7.0 | 2.2 | 4.8 | * | ||||||||||||
Net income |
$ | 17.7 | $ | 1.2 | $ | 16.5 | * | |||||||||
* | Greater than 100%. |
Note: Totals may not sum due to rounding.
YTD 2010 compared to YTD 2009
Net Sales. Overall net sales decreased primarily due to volume declines of approximately
$13.2 million and selling price reductions of approximately $11.1 million, partially offset by
favorable Canadian currency translation of $8.2 million and lower incentive for growth program
allowances of $2.3 million.
Gross Profit. Gross profit increased primarily due to favorable overhead absorption of $4.9
million, lower labor and material usage costs of $2.3 million and lower incentive for growth
program allowances of $2.3 million, partially offset by volume declines.
SG&A. SG&A increased primarily due to higher employee incentive compensation costs of $1.8
million, expenses associated with the acquisition of Westmix and the pending sale of ATT of $1.3
million and an increase in contract termination costs of $0.9 million due to changes in the fair
value of estimated sublease rentals associated with the closure of a distribution facility in
fiscal 2009. Increases were partially offset by lower distribution expenses of $0.8 million
attributed to a facility closure in fiscal 2009 and $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.
Loss on Disposal of Fixed Assets. Loss on disposal of fixed assets in YTD 2009 includes
miscellaneous disposals of machinery and equipment.
Amortization of Intangible Assets. Amortization expense is consistent with the prior period.
Impairment Charges. The impairment charge in YTD 2010 was the result of the Company reducing
its forecast for Dynamic Design branded sales due to a shift in branding strategies by certain
customers whereby the mix of sales was less heavily weighted with Dynamic Design branded product.
The reduction in forecasted branded sales led to a reduction in Dynamic Designs trade name fair
value. As a result, the
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Company recorded an impairment charge in the amount of $0.3 million within the U.S. segment.
Impairment charges in YTD 2009 include $0.5 million related to an asset previously held for sale
and $0.5 million related to the impairment of a manufacturing facility and equipment in our Other
segment mainly due to the discontinuance of manufacturing certain products.
Interest Expense. Interest expense decreased due to lower average borrowings under our
Revolving Loan and a lower effective interest rate on our Senior Floating Rate Notes of 6.1% in YTD
2010 as compared to 7.1% in YTD 2009.
Other Expense. Other expense for YTD 2010 primarily includes unrealized losses of $0.9
related to a U.S. dollar bank account held by a Canadian subsidiary and $0.4 related to an
intercompany note with a subsidiary in our Other segment. Other expense for YTD 2010 also includes
a realized gain of $0.7 related to a U.S. dollar denominated intercompany note held by a Canadian
subsidiary that is not long-term in nature and a realized loss of $0.6 related to foreign currency
forward contracts. Other expense for YTD 2009 primarily includes an unrealized loss of $8.8 million
related to the Canadian intercompany note and an unrealized gain of $1.5 million related to a U.S.
dollar bank account held by a Canadian subsidiary. Other expense for YTD 2009 also includes a
realized gain related to foreign currency forward contracts of $1.5 million.
Income Tax Expense. Income tax expense for YTD 2010 was primarily comprised of income tax
expense for foreign subsidiaries and withholding tax and US income tax related to foreign
unremitted earnings. Income tax expense for YTD 2009 was primarily comprised of additional
valuation allowances related to intangible assets, and US income tax related to foreign unremitted
earnings. For YTD 2010 and YTD 2009 a deferred tax asset valuation was necessary for substantially
all of our U.S. 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
As a result of the internal reorganization described above, we have recast our YTD 2009
segment information. The following table presents our net sales and operating income after
intercompany eliminations by segment for YTD 2010 and YTD 2009:
(Dollars in Millions)
YTD | YTD | Increase/(Decrease) | ||||||||||||||
2010 | 2009 | $ | % | |||||||||||||
Net sales: |
||||||||||||||||
United States |
$ | 284.4 | $ | 293.3 | $ | (8.9 | ) | (3.0 | )% | |||||||
Canada |
61.0 | 67.5 | (6.5 | ) | (9.6 | ) | ||||||||||
Other |
3.8 | 3.9 | (0.1 | ) | (2.6 | ) | ||||||||||
Net sales |
$ | 349.1 | $ | 364.7 | $ | (15.6 | ) | (4.3 | )% | |||||||
Operating income (loss): |
||||||||||||||||
United States |
$ | 34.2 | $ | 23.4 | $ | 10.8 | 46.2 | % | ||||||||
Canada |
12.5 | 10.0 | 2.5 | 25.0 | ||||||||||||
Other |
(0.8 | ) | (1.9 | ) | 1.1 | 57.9 | ||||||||||
Operating income |
$ | 45.9 | $ | 31.5 | $ | 14.4 | 45.7 | % | ||||||||
* | Greater than 100%. |
Note: Totals may not sum due to rounding.
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Table of Contents
United States
Net Sales. Overall net sales decreased primarily due to selling price reductions of
approximately $9.6 million and volume declines of approximately $6.6 million (excluding snow tool
sales). Volume declines were partially offset by an increase in snow tool volume of $6.7 million of
which $4.5 million was due to the transition of a customer to the U.S. segment from the Canada
segment in Q1 2010. Also during Q1 2010, the U.S. experienced heavy snowfall in certain densely
populated areas which attributed to the increase in snow tools.
Operating income. Operating income increased due to favorable overhead absorption of $5.7
million, lower depreciation expense of $2.0 million, lower distribution expenses of $0.8 million
related to a facility closure in fiscal 2009 and an increase of $0.3 million in Byrd Amendment
recoveries as discussed above.
Canada
Net Sales. Net sales decreased primarily due to volume declines of approximately $13.3
million and selling price reductions of approximately $1.4 million, partially offset by favorable
Canadian currency translation of $8.2 million. Volume declines of $4.5 million were due to the
transition of a customer from the Canada segment to the U.S. segment in Q1 2010 as discussed above.
Operating income. Operating income increased due to lower material costs and favorable
exchange rates on U.S. dollar material and inventory purchases.
Other
Net Sales. Changes in net sales were not significant for the period presented.
Operating loss. Operating loss decreased due to severance costs of $0.8 million and
long-lived asset impairments of $0.5 million recorded in YTD 2009.
Liquidity and Capital Resources
Our principal liquidity requirements are to service our debt and meet our working capital and
capital expenditure needs. In accordance with the purchase agreement between Buyer and certain parent companies of ATT as
discussed in Note 19 in the accompanying condensed consolidated financial statements, Buyer has commenced tender
offers for the entire principal amount of both the Senior Subordinated Notes and
Senior Floating Rate Notes. Buyer has also commenced concurrent consent solicitations for proposed amendments to the indentures under which the Senior Subordinated Notes and Senior Floating Rate Notes were issued. Also, the Revolving Loan is expected to be paid off and terminated at
closing. The expected funding related to the Purchase Agreement will provide new financing up to
$650 million in senior secured credit facilities (comprised of a term loan facility of up to $500
million and a revolving credit facility of up to $150 million).
During Q4 2010, we plan to use between $12 to $15 million in cash to complete the Westmix
acquisition and provide initial working capital. The financing will be provided through our
Revolving Loan.
(Dollars in Millions)
YTD | YTD | Increase/(Decrease) | ||||||||||||||
2010 | 2009 | $ | % | |||||||||||||
Net cash provided by operating activities |
$ | 19.8 | $ | 22.6 | $ | (2.8 | ) | (12.4 | )% | |||||||
Net cash used in investing activities |
(5.9 | ) | (5.0 | ) | 0.9 | 18.0 | ||||||||||
Net cash used in financing activities |
(18.0 | ) | (8.4 | ) | 9.6 | * |
* | Greater than 100%. |
Cash Flows from Operating Activities
The decrease in cash provided by operating activities was primarily the result of an increase
in trade receivables due to discontinuing a cash discount program with a significant customer and
an increase in inventory mostly offset by higher trade payables.
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Cash Flows from Investing Activities
Purchases of property, plant and equipment are generally the main investing activities of the
Company. We do not anticipate purchases of property, plant and equipment during fiscal 2010 to
deviate significantly from historical purchase levels. The increase in cash used in investing
activities is also due to the escrow payment made as part of the agreement to purchase certain
assets from Westmix.
Cash Flows from Financing Activities
The increase in cash used in financing activities was primarily related to an increase in
repayments on a lower Revolving Loan balance in YTD 2010 when compared to the same period in YTD
2009.
Debt and Other Obligations
Total indebtedness is as follows:
July 3, | October 3, | |||||||
2010 | 2009 | |||||||
Revolving Loan |
$ | | $ | 17,500 | ||||
Senior Floating Rate Notes, net of
unamortized discount of $161
and
$241, respectively |
149,839 | 149,759 | ||||||
Senior Subordinated Notes |
150,000 | 150,000 | ||||||
Term Note |
53 | 479 | ||||||
Capital lease obligations |
142 | 42 | ||||||
Total debt |
300,034 | 317,780 | ||||||
Less: |
||||||||
Short-term Revolving Loan |
| (17,500 | ) | |||||
Current portion of capital lease obligation |
(50 | ) | (10 | ) | ||||
Current portion of long-term debt |
(53 | ) | (479 | ) | ||||
Long-term debt |
$ | 299,931 | $ | 299,791 | ||||
Letters of | ||||||||||||||||||||
Borrowing | Credit | (a) | Interest | |||||||||||||||||
Maximum | Base as | Outstanding | Availability | Rate as of | ||||||||||||||||
Borrowing | of July 3, | as of July 3, | as of July 3, | July 3, | Expiration | |||||||||||||||
Amount | 2010 | 2010 | 2010 | 2010 | Date | |||||||||||||||
Revolving Loan
|
$ | 130,000 | $ | 90,248 | $ | 3,268 | $ | 86,980 | (b) | Apr 7, 2011 |
(d) | (e) | |||||||||||||
Original | (c) | Interest | Maturity | Call Option | ||||||||||
Principal | Interest Rate | Payments | Date | Date | ||||||||||
Senior Floating Rate Notes
|
$ | 150,000 | LIBOR + 4 | % | Jan 15, Apr 15, 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. As of July 3, 2010, there were no amounts outstanding under the Revolving Loan. | |
(c) | LIBOR represents the three month London Interbank Offered Rate which resets quarterly. LIBOR was .3% as of April 13, 2010. April 13, 2010 is the reset date for the July 15, 2010 interest payment. | |
(d) | Interest payments are in cash and paid in arrears. |
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(e) | The Senior Floating Rate Notes do not have a redemption premium. The Senior Subordinated Notes have a redemption price of 100% of principal on or after July 15, 2010. | |
(f) | As of July 3, 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 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.
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Table of Contents
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
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 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 July 3, 2010, the interest rate swaps were recorded as a liability of $3.2
million of which $1.1 million is classified as a current liability. The change in fair value for
the thirteen and thirty-nine week periods ended July 3, 2010 was
recognized as a reduction to other
comprehensive income of $0.3 million and $0.5 million, net of taxes, respectively.
Off-Balance Sheet Arrangements
As of July 3, 2010 and October 3, 2009, we had no off-balance sheet arrangements.
39
Table of Contents
Contractual Obligations and Commitments
The following table represents our contractual commitments associated with our debt and other
obligations as of July 3, 2010.
(Dollars in Thousands)
July | October | October | October | October | ||||||||||||||||||||||||
2010 to | 2010 to | 2011 to | 2012 to | 2013 to | ||||||||||||||||||||||||
September | September | September | September | September | ||||||||||||||||||||||||
Total | 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | ||||||||||||||||||||||
Contractual Obligations |
||||||||||||||||||||||||||||
Revolving Loan |
$ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||||
Senior Floating Rate Notes |
150,000 | | | 150,000 | | | | |||||||||||||||||||||
Senior Subordinated Notes |
150,000 | | | 150,000 | | | | |||||||||||||||||||||
Term Note |
53 | 53 | | | | | | |||||||||||||||||||||
Capital lease obligations |
142 | 14 | 44 | 35 | 30 | 15 | 4 | |||||||||||||||||||||
Interest on Notes |
48,919 | 9,713 | 24,487 | 14,719 | | | | |||||||||||||||||||||
Operating leases |
70,771 | 2,405 | 9,556 | 8,968 | 8,171 | 7,188 | 34,483 | |||||||||||||||||||||
Pension and postretirement
payments |
57,893 | 1,764 | 6,152 | 9,981 | 8,543 | 8,639 | 22,814 | |||||||||||||||||||||
Medical insurance |
6,954 | 1,773 | 5,091 | 90 | | | | |||||||||||||||||||||
Open purchase orders |
24,241 | 24,241 | | | | | | |||||||||||||||||||||
Westmix agreement |
11,865 | 11,865 | | | | | | |||||||||||||||||||||
Other commitments |
1,338 | 803 | 497 | 12 | 13 | 13 | | |||||||||||||||||||||
Total contractual obligations |
$ | 522,176 | $ | 52,631 | $ | 45,827 | $ | 333,805 | $ | 16,757 | $ | 15,855 | $ | 57,301 | ||||||||||||||
Commitments |
||||||||||||||||||||||||||||
Outstanding letters of credit |
$ | 3,268 | $ | 3,268 | $ | | $ | | $ | | $ | | $ | | ||||||||||||||
Total commitments |
$ | 3,268 | $ | 3,268 | $ | | $ | | $ | | $ | | $ | | ||||||||||||||
As of July 3, 2010, the total amount of gross unrecognized tax benefits for uncertain
tax positions was $1.5 million. We do not expect a significant tax payment related to these
obligations within the next year, however, 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 July 3, 2010 and October 3, 2009 was as follows:
(Dollars in Thousands)
July 3, | October 3, | Increase/(Decrease) | ||||||||||||||
2010 | 2009 | $ | % | |||||||||||||
Current assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 30,435 | $ | 33,609 | $ | (3,174 | ) | (9.4 | )% | |||||||
Trade receivables, net |
58,544 | 42,449 | 16,095 | 37.9 | ||||||||||||
Inventories |
103,085 | 90,305 | 12,780 | 14.2 | ||||||||||||
Prepaid expenses and
other current assets |
7,429 | 6,315 | 1,114 | 17.6 | ||||||||||||
Total current assets |
199,493 | 172,678 | 26,815 | 15.5 | ||||||||||||
Current liabilities: |
||||||||||||||||
Trade payables |
29,227 | 18,214 | 11,013 | 60.5 | ||||||||||||
Accrued interest payable |
8,864 | 5,392 | 3,472 | 64.4 | ||||||||||||
Accrued expenses and
other current
liabilities |
28,960 | 26,642 | 2,318 | 8.7 | ||||||||||||
Revolving loan |
| 17,500 | (17,500 | ) | 100.0 | |||||||||||
Current portion of
long-term debt and
capital lease
obligations |
103 | 489 | (386 | ) | (78.9 | ) | ||||||||||
Total current liabilities |
67,154 | 68,237 | (1,083 | ) | (1.6 | ) | ||||||||||
Working capital |
$ | 132,339 | $ | 104,441 | $ | 27,898 | 26.7 | % | ||||||||
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Our working capital as of July 3, 2010 increased compared to our working capital as of October
3, 2009 due to the zero balance outstanding under the Revolving Loan and higher trade receivables
mainly as a result of discontinuing a cash discount program with a significant customer. The
increases in inventory and trade payables largely offset each other.
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. 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 July 3, 2010 was 4.3%. As of July 3, 2010, we had two 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 Rate Notes and Interest Rate
Swaps. We estimate a 1% change in Revolving Loan interest rates would have impacted interest
expense by approximately $0.2 million. As of July 3, 2010, there is a zero balance outstanding
under the Revolving Loan.
Foreign Operations; Currency Risk
We conduct foreign operations primarily in Canada and Ireland and utilize international
suppliers and manufacturers. 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 July 3, 2010, a hypothetical 10% change in quoted foreign
currency exchange rates would increase or decrease income before income taxes by $0.1 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 July 3, 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.
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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. [Removed and Reserved]
Item 5. Other Information
None
Item 6. Exhibits
Exhibit 10.1
|
Business Sale Agreement, dated as of July 5, 2010, by and among Ames True Temper Australia Pty Ltd, West Barrows Mix Pty Ltd, Michelangelo Cantone and Jewell Cantone | |
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. |
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Table of Contents
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: August 5, 2010 | /s/ Duane R. Greenly | |||
Duane R. Greenly | ||||
President and Chief Executive Officer (Principal Executive Officer) |
||||
Date: August 5, 2010 | /s/ David M. Nuti | |||
David M. Nuti | ||||
Chief Financial Officer (Principal Financial Officer) |
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Table of Contents
AMES TRUE TEMPER, INC.
EXHIBIT INDEX
Exhibit | Description | |
10.1
|
Business Sale Agreement, dated as of July 5, 2010, by and among Ames True Temper Australia Pty Ltd, West Barrows Mix Pty Ltd, Michelangelo Cantone and Jewell Cantone | |
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. |
44