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8-K - LMI AEROSPACE 8-K 8-8-2011 - LMI AEROSPACE INCform8k.htm

Exhibit 99.1
 
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Contact:
Ed Dickinson
Chief Financial Officer, 636.916.2150
 
LMI AEROSPACE, INC. ANNOUNCES SECOND QUARTER 2011 RESULTS

Company Modifies Guidance for 2011; Provides Revenue Guidance for 2012
 
ST. LOUIS, August 8, 2011 – LMI Aerospace, Inc. (NASDAQ: LMIA), a leading provider of design engineering services, structural assemblies, kits and components to the aerospace, defense and technology markets, today announced financial results for the second quarter of 2011.
 
Second Quarter 2011 Highlights
 
 
·
Sales of $23.1 million in the second quarter of 2011 for the Engineering Services segment compared to $18.0 million in the prior year quarter
 
 
·
Gross profit in the second quarter of 2011 of 27.5 percent for the Aerostructures segment compared to 26.7 percent in the second quarter of 2010
 
 
·
Earnings per diluted share of $0.34, including charges net of tax of $0.04 per diluted share for cost growth on the Mitsubishi Regional Jet program and $0.03 per diluted share for non-recurring financing related costs
 
Second Quarter Results
 
Net sales for the second quarter of 2011 were $63.3 million compared to $55.9 million in the second quarter of 2010, with net sales of Engineering Services increasing to $23.1 million in the second quarter of 2011, from $18.0 million in the second quarter of 2010.  Earnings per diluted share were $0.34 in the second quarter of 2011, up from $0.29 per diluted share in the second quarter of 2010.  Second quarter 2011 results include a pre-tax charge of $0.7 million for cost growth on the Mitsubishi Regional Jet program and $0.6 million of non-recurring costs related to potential financing alternatives the company decided not to pursue.  Excluding these charges, earnings per diluted share would have been $0.41.

“In the second quarter of 2011, we had a substantial increase in the number of engineers working on the Boeing Tanker program, and two relatively new projects for the Boeing 787 and Bombardier aircraft also ramped up,” said LMI Aerospace Chief Executive Officer Ronald Saks.  “Our Aerostructures segment has been working with several key customers on new programs scheduled to begin in early 2012 and on two customer offload programs, which commenced at a slow pace and recently have accelerated.  We have also continued our review of capacities at all of our plants and have committed to investments in capital equipment and facilities necessary to efficiently handle growing production rates of high volume aircraft models for which we produce components and subassemblies.  Major investments planned include the expansion of our chemical milling facility, larger equipment for our Seattle-based composite testing and manufacturing facility, large stretch and machining equipment in nearby leased space at our San Diego plant in order to handle a 2012 award of Boeing 737 product, and a start-up of a machining operation to service two key customers,” Saks added.

 
 

 
 
Net sales for the Aerostructures segment for the second quarter of 2011 and 2010, respectively, were as follows:
 
Category
    Q2 2011    
% of
Total
     
Q2 2010
   
% of
Total
 
   
($ in millions)
 
Large commercial aircraft
  $ 16.4       40.2 %   $ 15.2       39.8 %
Corporate and regional aircraft
    12.5       30.6 %     12.3       32.2 %
Military
    8.9       21.8 %     8.1       21.2 %
Other
    3.0       7.4 %     2.6       6.8 %
Total
  $ 40.8       100.0 %   $ 38.2       100.0 %
 
The growth in commercial aircraft net sales resulted from awards of new winglet products as well as an increase in orders for existing winglet products.  Corporate and regional aircraft sales benefited from an increase of $1.1 million in net sales of components for the Gulfstream G650 model but were offset in part by a decline in orders for Bombardier products.  Increased military net sales were largely from Blackhawk helicopter orders as well as various military guidance components.
 
Net sales for the Engineering Services segment for the second quarter of 2011 and 2010, respectively, were as follows:
 
Category
    Q2 2011    
% of
Total
      Q2 2010    
% of
Total
 
    ($ in millions)  
Large commercial aircraft
  $ 8.4       36.4 %   $ 7.7       42.8 %
Corporate and regional aircraft
    6.7       29.0 %     5.7       31.7 %
Military
    4.7       20.3 %     3.9       21.6 %
Other
    3.3       14.3 %     0.7       3.9 %
Total
  $ 23.1       100.0 %   $ 18.0       100.0 %
 
Net sales of large commercial aircraft were higher due to increased demand from an integrated testing program worked by D3 Engineering, using testing from our Intec subsidiary, as well as engineering work on the Airbus A350 model.  These sales increases were offset in part from declines in services for the Boeing model 747-8.  Growth in corporate and regional aircraft was driven by engineering support for Bombardier’s Learjet 85 and other private aircraft makers.  Services provided for the new 767 tanker provided growth in the military sector, offsetting declines from the completed CH-53 contract.  Sales on various tooling programs, including Boeing model 787 shipping fixture tools, increased other Engineering Services net sales.
 
Consolidated gross profit was $15.2 million, or 24.1 percent of net sales, in the second quarter of 2011 compared to $13.2 million, or 23.6 percent of net sales, in the second quarter of 2010.  The Aerostructures segment generated gross profit of $11.2 million, or 27.5 percent of net sales, in the second quarter of 2011 compared to $10.2 million, or 26.7 percent of net sales, in the second quarter of 2010.  The Engineering Services segment generated second quarter 2011 gross profit of $4.1 million, or 17.7 percent of net sales, versus $3.1 million, or 17.2 percent of net sales, for the second quarter of 2010.  Aerostructures gross profit was aided by growing sales and production levels.  Engineering Services also benefited from growing sales but absorbed $0.5 million of the $0.7 million charge for cost growth on the Mitsubishi Regional Jet due in large part to additional labor to complete drawing packages and to populate our customer’s engineering database.
 
Selling, general and administrative expenses (SG&A) were $8.5 million, or 13.5 percent of net sales, for the second quarter of 2011, up from $7.8 million, or 13.9 percent of net sales, for the second quarter of 2010.  The growth was primarily attributable to payroll expense, including severance cost.  SG&A for the Aerostructures segment for the second quarter of 2011 was $6.7 million, up from $5.9 million in the second quarter of 2010, and SG&A for the Engineering Services segment was $1.8 million in the second quarter of 2011, down from $1.9 million in the second quarter of 2010.
 
 
 

 
 
Other expense, net increased to $0.6 million in the second quarter of 2011 due to non-recurring costs incurred related to certain financing transactions the company has decided not to pursue.  The effective income tax rate was 34.1 percent in the second quarter of 2011 compared to 36.5 percent in the second quarter of 2010.
 
The company generated free cash flow of $3.5 million in the second quarter of 2011 compared to $7.8 million in the second quarter of 2010.  Inventories and accounts receivable grew during the second quarter of 2011 as revenue and production increased during each month of the quarter.
 
The company also announced that backlog at June 30, 2011, was $231.7 million, compared to $226.0 million at June 30, 2010.
 
The company has modified guidance for 2011.  On a consolidated basis, the company now expects revenue to range between $258.0 million and $268.0 million.  Gross profit is expected to be 24.0 percent to 24.8 percent, and SG&A is expected to be between $33.8 million and $35.2 million.  Net interest and other expense is expected to be between $1.4 million and $1.5 million for the year, and the effective tax rate is expected to be 32.5 percent.  Capital expenditures are planned to be $12.0 million to $14.0 million, and depreciation, amortization and non-cash stock compensation expense are expected to be between $9.6 million and $10.2 million.  The expectations for each segment are as follows:
 
Aerostructures
 
 
·
Net sales of between $172.0 million and $178.0 million
 
·
Gross profit of between 27.0 percent and 27.8 percent
 
·
SG&A of between $26.0 million and $27.0 million
 
Engineering Services
 
 
·
Net sales of between $86.0 million and $90.0 million
 
·
Gross profit of between 18.0 percent and 18.8 percent
 
·
SG&A of between $7.8 million and $8.2 million

The company also announced initial revenue guidance for 2012.  Overall, the company expects revenue of between $283.0 million and $303.0 million.  The Aerostructures segment expects to benefit from planned production rate increases on several programs, including all current Boeing models and the Gulfstream G650 model.  Based upon these developments, the company expects revenue for the Aerostructures segment to be between $195.0 million and $207.0 million.  Engineering Services is expected to improve to between $88.0 million and $96.0 million.

“During the balance of 2011, our priority is to define and carry out all expansion projects needed to protect customer production rates,” Saks said.  “Some projects may not be completed until the middle of 2012.  We are also working with our customers to provide added services in connection with supply chain management and design for manufacturing costs.  In addition, we have targeted our Mexicali division for revenue growth and are beginning to expand its leadership team so that we can provide assembly expertise to augment our component production.  We continue to view our segment of the aerospace industry constructively, despite what appears to be a slowdown in global economic growth.  We feel fortunate to be involved in new project development with some of our key customers and are optimistic that in the next few years we will experience considerable growth.  And, although design and build projects have not yet been awarded at the pace we expected, we are improving our infrastructure and project management expertise and are being considered for several new opportunities.  All in all, we expect a productive 2011.”
 
 
 

 
 
LMI Aerospace, Inc. is a leading provider of design engineering services, structural assemblies, kits and components to the aerospace, defense and technology markets.  Through its Aerostructures segment, the company primarily fabricates, machines, finishes, integrates, assembles and kits formed close-tolerance aluminum and specialty alloy and composite components and higher level assemblies for use by the aerospace, defense and technology industries.  It manufactures more than 30,000 products for integration into a variety of aircraft platforms manufactured by leading original equipment manufacturers and Tier 1 aerospace suppliers. Through its Engineering Services segment, operated by its D3 Technologies, Inc. subsidiary, the company provides a complete range of design, engineering and program management services, supporting aircraft lifecycles from conceptual design, analysis and certification through production support, fleet support and service life extensions via a complete turnkey engineering solution.
 
This news release includes forward-looking statements related to LMI Aerospace, Inc.’s outlook for 2011 and 2012 which are based on current management expectations.  Such forward-looking statements are subject to various risks and uncertainties, many of which are beyond the control of LMI Aerospace, Inc. Actual results could differ materially from the forward-looking statements as a result of, among other things, the factors detailed from time to time in LMI Aerospace, Inc.’s filings with the Securities and Exchange Commission. Please refer to the Risk Factors contained in the company’s Annual Report on Form 10-K for the year ended December 31, 2010, and any risk factors set forth in the company’s other subsequent filings with the Securities and Exchange Commission.
 
 
 

 
 
LMI Aerospace, Inc.
 
Condensed Consolidated Balance Sheets
 
(Amounts in thousands, except share and per share data)
 
(Unaudited)
 
   
June 30,
   
December 31,
 
 
2011
   
2010
 
Assets
           
Current assets:
           
Cash and cash equivalents
  $ 7,531     $ 1,947  
Trade accounts receivable, net of allowance of $280 at June 30, 2011 and $253 at December 31, 2010
    38,053       34,006  
Inventories
    48,604       45,148  
Prepaid expenses and other current assets
    2,113       2,729  
Deferred income taxes
    3,309       3,846  
Total current assets
    99,610       87,676  
                 
Property, plant and equipment, net
    23,372       21,346  
Goodwill
    49,102       49,102  
Intangible assets, net
    18,635       20,827  
Other assets
    558       898  
Total assets
  $ 191,277     $ 179,849  
                 
Liabilities and shareholders’ equity
               
Current liabilities:
               
Accounts payable
  $ 10,787     $ 7,898  
Accrued expenses
    10,701       11,246  
Short-term deferred gain on sale of real estate
    233       233  
Current installments of long-term debt and capital lease obligations
    93       181  
Total current liabilities
    21,814       19,558  
                 
Long-term deferred gain on sale of real estate
    2,957       3,073  
Long-term debt and capital lease obligations, less current installments
    -       28  
Deferred income taxes
    7,427       7,427  
Total long-term liabilities
    10,384       10,528  
                 
Shareholders’ equity:
               
Common stock, $0.02 par value per share; authorized 28,000,000 shares; issued 12,123,259 and 12,075,030 shares at June 30, 2011 and December 31, 2010, respectively
    242       242  
Preferred stock, $0.02 par value per share; authorized 2,000,000 shares; none issued at either date
    -       -  
Additional paid-in capital
    74,295       73,440  
Treasury stock, at cost, 254,142 shares at June 30, 2011 and 301,772 shares at December 31, 2010
    (1,206 )     (1,432 )
Retained earnings
    85,748       77,513  
Total shareholders’ equity
    159,079       149,763  
Total liabilities and shareholders’ equity
  $ 191,277     $ 179,849  
 
 
 

 
 
LMI Aerospace, Inc.
 
Condensed Consolidated Statements of Income
 
(Amounts in thousands, except share and per share data)
 
(Unaudited)
 
                         
   
Three Months Ended
   
Six Months Ended
 
 
June 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Sales and service revenue
                       
Product sales
  $ 39,044     $ 36,657     $ 76,398     $ 76,901  
Service revenue
    24,304       19,288       47,849       39,459  
Net sales
    63,348       55,945       124,247       116,360  
Cost of sales and service revenue
                               
Cost of product sales
    27,857       27,030       54,506       56,546  
Cost of service revenue
    20,246       15,690       39,938       32,183  
Cost of sales
    48,103       42,720       94,444       88,729  
Gross profit
    15,245       13,225       29,803       27,631  
                                 
Selling, general and administrative expenses
    8,523       7,763       17,174       15,803  
Income from operations
    6,722       5,462       12,629       11,828  
                                 
Other expense:
                               
Interest expense, net
    (118 )     (167 )     (255 )     (394 )
Other, net
    (585 )     (41 )     (562 )     (45 )
Total other expense
    (703 )     (208 )     (817 )     (439 )
                                 
Income before income taxes
    6,019       5,254       11,812       11,389  
Provision for income taxes
    2,053       1,918       3,577       4,157  
                                 
Net income
  $ 3,966     $ 3,336     $ 8,235     $ 7,232  
                                 
Amounts per common share:
                               
Net income per common share
  $ 0.34     $ 0.29     $ 0.71     $ 0.63  
                                 
Net income per common share assuming dilution
  $ 0.34     $ 0.29     $ 0.70     $ 0.62  
                                 
Weighted average common shares outstanding
    11,548,139       11,416,021       11,528,776       11,393,022  
                                 
Weighted average dilutive common shares outstanding
    11,747,230       11,640,826       11,721,361       11,603,850  
 
 
 

 
 
LMI Aerospace, Inc.
 
Condensed Consolidated Statements of Cash Flows
 
(Amounts in thousands)
 
(Unaudited)
 
   
Six Months Ended
 
   
June 30,
 
   
2011
   
2010
 
Operating activities:
           
Net income
  $ 8,235     $ 7,232  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    3,570       3,715  
Intangible asset impairment
    1,163       -  
Contingent consideration write-off
    (1,235 )     -  
Charges for inventory obsolescence and valuation adjustments
    577       514  
Restricted stock compensation
    558       917  
Deferred taxes
    537       57  
Other noncash items
    287       (192 )
Changes in operating assets and liabilities:
               
Trade accounts receivable
    (4,077 )     1,228  
Inventories
    (4,033 )     885  
Prepaid expenses and other assets
    (17 )     121  
Current income taxes
    753       -  
Accounts payable
    1,889       540  
Accrued expenses
    1,155       2,182  
Net cash provided by operating activities
    9,362       17,199  
Investing activities:
               
Additions to property, plant and equipment
    (4,592 )     (4,465 )
Other, net
    8       11  
Net cash used by investing activities
    (4,584 )     (4,454 )
Financing activities:
               
Principal payments on long-term debt and notes payable
    (116 )     (193 )
Advances on revolving line of credit
    -       13,177  
Payments on revolving line of credit
    -       (25,963 )
Changes in outstanding checks in excess of bank deposits
    1,000       481  
Other, net
    (78 )     51  
Net cash (used) provided by financing activities
    806       (12,447 )
Net increase in cash and cash equivalents
    5,584       298  
Cash and cash equivalents, beginning of year
    1,947       31  
Cash and cash equivalents, end of quarter
  $ 7,531     $ 329  
 
 
 

 
 
LMI Aerospace, Inc.
Selected Non-GAAP Disclosures
(Amounts in thousands)
(Unaudited)
 
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Non-GAAP Financial Information
                       
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)(1):  
                         
Net Income
  $ 3,966     $ 3,336     $ 8,235     $ 7,232  
                                 
Income tax expense
    2,053       1,918       3,577       4,157  
Depreciation and amortization
    1,758       1,773       3,570       3,715  
Intangible asset impairment
    -       -       1,163       -  
Contingent consideration
    -       -       (1,235 )     -  
Stock based compensation
    183       450       558       917  
Interest expense, net
    118       167       255       394  
Other, net
    585       41       562       45  
                                 
Adjusted EBITDA
  $ 8,663     $ 7,685     $ 16,685     $ 16,460  
                                 
Free Cash Flow (2):
                               
                                 
Net cash provided by operating activities
  $ 6,523     $ 10,749     $ 9,362     $ 17,199  
Less:
                               
Capital expenditures
    (2,975 )     (2,914 )     (4,592 )     (4,465 )
                                 
Free cash flow
  $ 3,548     $ 7,835     $ 4,770     $ 12,734  
 
1. We believe Adjusted EBITDA is a measure important to many investors as an indication of operating performance by the business. We feel this measure provides additional transparency to investors that augments but does not replace the GAAP reporting of net income and provides a good comparative measure. Adjusted EBITDA is not a measure of performance defined by GAAP and should not be used in isolation or as a substitute for the related GAAP measure of net income.
 
2. We believe Free Cash Flow is a measure of the operating cash flow of the Company that is useful to investors. Free Cash Flow is a measure of cash generated by the Company for such purposes as repaying debt or funding acquisitions. Free Cash Flow is not a measure of performance defined by GAAP and should not be used in isolation or as a substitute for the related GAAP measure of cash provided by operating activities.