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EX-14 - EXHIBIT 14 - LMI AEROSPACE INCex14.htm
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EX-32.1 - EXHIBIT 32.1 - LMI AEROSPACE INCex32_1.htm
EX-32.2 - EXHIBIT 32.2 - LMI AEROSPACE INCex32_2.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2015.
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: 000-24293

LMI AEROSPACE, INC.
(Exact name of registrant as specified in its charter)
Missouri
 
43-1309065
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
411 Fountain Lakes Blvd.
 
 
St. Charles, Missouri
 
63301
(Address of principal executive offices)
 
(Zip Code)
(636) 946-6525
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x                  No 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 x                  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.
Large accelerated filer
o
 
Accelerated filer
x
Non-accelerated filer
o
 
Smaller reporting company
o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o                    No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

On November 2, 2015, there were 13,256,922 shares of our common stock, par value $0.02 per share, outstanding.
 



LMI AEROSPACE, INC.

QUARTERLY REPORT ON FORM 10-Q
FOR THE FISCAL QUARTER ENDING SEPTEMBER 30, 2015

PART I.  FINANCIAL INFORMATION
 
Page
No.
 
 
 
Item 1.
Financial Statements (Unaudited).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
PART II.  OTHER INFORMATION
 
 
 
 
Item 1.
 
 
 
Item1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 
 



2


 PART I
FINANCIAL INFORMATION
Item 1.
Financial Statements.
LMI Aerospace, Inc.
Condensed Consolidated Balance Sheets
(Amounts in thousands, except share and per share data)
(Unaudited)
 
September 30,
2015
 
December 31,
2014
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
476


$
7,927

Accounts receivable, net
61,389


58,234

Inventories
118,877


114,279

Prepaid expenses and other current assets
10,830


10,255

Deferred income taxes
3,775


3,913

Total current assets
195,347


194,608







Property, plant and equipment, net
101,102


99,482

Goodwill
86,784


86,784

Intangible assets, net
47,671


50,940

Other assets
8,971


10,622

Total assets
$
439,875


$
442,436







Liabilities and shareholders’ equity



Current liabilities:



Accounts payable
$
17,961


$
21,755

Accrued expenses
24,634


26,072

Current installments of long-term debt and capital lease obligations
3,557


3,424

Total current liabilities
46,152


51,251







Long-term liabilities:





Long-term debt and capital lease obligations, less current installments
267,607


265,554

Other long-term liabilities
3,101


3,289

Deferred income taxes
4,155


4,207

Total long-term liabilities
274,863


273,050







Shareholders’ equity:



Common stock, $0.02 par value per share; authorized 28,000,000 shares; issued 13,287,688 and 13,089,003 shares at September 30, 2015 and December 31, 2014, respectively
266


262

Preferred stock, $0.02 par value per share; authorized 2,000,000 shares; none issued at either date



Additional paid-in capital
97,239


95,460

Accumulated other comprehensive loss
(201
)

(170
)
Treasury stock, at cost, 30,767 and 28,396 shares at September 30, 2015 and December 31, 2014, respectively
(333
)

(359
)
Retained earnings
21,889


22,942

Total shareholders’ equity
118,860


118,135

Total liabilities and shareholders’ equity
$
439,875


$
442,436


See accompanying notes to condensed consolidated financial statements.

3


LMI Aerospace, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Amounts in thousands, except share and per share data)
(Unaudited)

 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2015
 
2014
 
2015
 
2014
Sales and service revenue
 
 
 
 
 
 
 
Product sales
$
84,114

 
$
81,693

 
$
246,730

 
$
245,349

Service revenue
11,519

 
15,642

 
38,928

 
53,674

Net sales
95,633

 
97,335

 
285,658

 
299,023

Cost of sales and service revenue

 

 
 
 
 
Cost of product sales
67,514

 
61,535

 
197,211

 
195,170

Cost of service revenue
11,493

 
13,757

 
35,853

 
45,215

Cost of sales
79,007

 
75,292

 
233,064

 
240,385

Gross profit
16,626

 
22,043

 
52,594

 
58,638




 


 
 
 
 
Selling, general and administrative expenses
8,979

 
14,615

 
33,980

 
41,770

Restructuring expense
1,575

 
765

 
2,368

 
2,288

Income from operations
6,072

 
6,663

 
16,246

 
14,580



 

 
 
 
 
Other (expense) income:

 

 
 
 
 
Interest expense
(5,653
)
 
(5,946
)
 
(16,802
)
 
(23,800
)
Other, net
(136
)
 
(75
)
 
(89
)
 
205

Total other expense
(5,789
)
 
(6,021
)
 
(16,891
)
 
(23,595
)



 


 
 
 
 
Income (loss) before income taxes
283

 
642

 
(645
)
 
(9,015
)
Provision (benefit) for income taxes
249

 
(754
)
 
408

 
(2,557
)



 


 
 
 
 
Net income (loss)
34

 
1,396

 
(1,053
)
 
(6,458
)
Other comprehensive income (loss):

 

 
 
 
 
Change in foreign currency translation adjustment
(32
)
 
(112
)
 
(31
)
 
(18
)
Reclassification adjustment for losses on interest rate hedges included in net earnings, net of tax of $0, $0, $0 and $157

 

 

 
278

Total comprehensive income (loss)
$
2

 
$
1,284

 
$
(1,084
)
 
$
(6,198
)



 


 
 
 
 
Amounts per common share:

 

 
 
 
 
Net income (loss) per common share
$
0.00

 
$
0.11

 
$
(0.08
)
 
$
(0.51
)



 


 
 
 
 
Net income (loss) per common share assuming dilution
$
0.00

 
$
0.11

 
$
(0.08
)
 
$
(0.51
)



 


 
 
 
 
Weighted average common shares outstanding
12,907,938

 
12,740,034

 
12,851,456

 
12,704,568




 


 
 
 
 
Weighted average dilutive common shares outstanding
13,050,238

 
12,887,363

 
12,851,456

 
12,704,568


See accompanying notes to condensed consolidated financial statements.

4


 LMI Aerospace, Inc.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)

 
Nine Months Ended 
 September 30,
 
2015
 
2014
Operating activities:
 
 
 
Net loss
$
(1,053
)

$
(6,458
)
Adjustments to reconcile net loss to net cash provided by operating activities:



Depreciation and amortization
15,018


17,002

Stock based compensation
1,424


1,442

Debt issuance cost write-off

 
8,464

Payments to settle interest rate derivatives

 
(793
)
Deferred taxes
(78
)
 
147

Other non-cash items
(94
)

(87
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(3,238
)

8,187

Inventories
(4,993
)

2,079

Prepaid expenses and other assets
1,914


2,003

Current income taxes
(75
)

(2,899
)
Accounts payable
(1,754
)

785

Accrued expenses
(1,354
)

6,144

Net cash provided by operating activities
5,717


36,016

Investing activities:



Additions to property, plant and equipment
(15,305
)

(10,302
)
Proceeds from sale of property, plant and equipment
260


981

Net cash used by investing activities
(15,045
)

(9,321
)
Financing activities:



Proceeds from issuance of debt

 
250,000

Principal payments on long-term debt and notes payable
(1,814
)

(231,898
)
Advances on revolving line of credit
93,500


60,000

Payments on revolving line of credit
(89,500
)

(96,000
)
Payments for debt issuance cost
(309
)
 
(7,881
)
Other, net


(28
)
Net cash provided (used) by financing activities
1,877


(25,807
)
Net (decrease) increase in cash and cash equivalents
(7,451
)

888

Cash and cash equivalents, beginning of period
7,927


1,572

Cash and cash equivalents, end of period
$
476


$
2,460

Supplemental disclosure of noncash transactions:



Defined contribution plan funding in Company stock
$
710


$
848


See accompanying notes to condensed consolidated financial statements.

5

LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
September 30, 2015




1.
Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.  In the opinion of management, all adjustments considered necessary for a fair representation have been included.  Operating results for the nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.  These financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes included in the  Annual Report on Form 10-K of LMI Aerospace, Inc. (the "Company”) for the year ended December 31, 2014, as filed with the Securities and Exchange Commission on March 16, 2015.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts in the financial statements and accompanying notes.  Actual results could differ from these estimates.

Recent Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). On July 9, 2015 the FASB voted to approve a one year delay of the effective date and to permit companies to voluntarily adopt the new standard as of the original effective date. The new standard is effective for reporting periods beginning after December 15, 2017. The standard will supersede existing revenue recognition guidance, including industry-specific guidance, and will provide companies with a single revenue recognition model for recognizing revenue from contracts with customers. The standard requires revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. Adoption of the new rules could affect the timing of revenue recognition for certain transactions. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. The provisions of this new guidance are effective as of the beginning of the Company’s first quarter of 2018. The Company is currently evaluating the transition method to be used and the impact of adoption of this standard on its consolidated financial statements.

In April 2014, the FASB issued ASU 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." The amendments in this update change the requirements for reporting discontinued operations. A discontinued operation may include a component of an entity or a group of components of an entity, or a business or nonprofit activity. A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results and when the component or group of components meets the criteria to be classified as held for sale, is disposed by sale or is disposed of by other than by sale (for example, by abandonment or in a distribution to owners in a spinoff). ASU 2014-8 is effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2014.  The Company has no present activity that would be impacted by this new standard.

In April 2015, the FASB issued ASU 2015-03, "Interest-Imputation of Interest", which requires that debt issuance costs related to a debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The recognition and measurement guidance of debt issuance costs are not affected by the amendments in this update. FASB ASU 2015-03 is effective for annual and interim periods beginning after December 15, 2015 and requires the Company to apply the new guidance on a retrospective basis upon adoption. The adoption of FASB ASU 2015-03 is not expected to have a material impact on the Company’s consolidated financial statements.

6

LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
September 30, 2015




All other issued but not yet effective accounting pronouncements are not expected to have a material impact on our Condensed Consolidated Financial Statements.

2.
Accounts Receivable, Net

Accounts receivable, net consists of the following:
 
September 30, 2015
 
December 31, 2014
Trade receivables
$
49,741

 
$
53,081

Unbilled revenue
6,004

 
4,036

Other receivables (1)
5,870

 
1,581

 
61,615

 
58,698

Less: Allowance for doubtful accounts
(226
)
 
(464
)
Accounts receivable, net
$
61,389

 
$
58,234

(1) At September 30, 2015, includes $4,266 related to the settlement of a lawsuit in the third quarter of 2015. See Note 14, "Legal Contingencies," in the Notes to the Condensed Consolidated Financial Statements.

Under contract accounting, unbilled revenues arise when the sales or revenues based on performance attainment, though appropriately recognized, cannot be billed yet under terms of the contract as of the balance sheet date. Included in unbilled revenue at September 30, 2015 and December 31, 2014 are $195 and $549, respectively, related to unpriced change orders or claims that are subject to negotiation. The final resolution of these unpriced items could result in either a favorable or unfavorable change in the revenue recognized to date on the associated contracts.

Accounts receivable expected to be collected after one year is not material.

The Company records changes in contract estimates using the cumulative catch-up method in accordance with the Revenue Recognition topic of the FASB Accounting Standards Codification.  Cumulative catch-up adjustments had the following impacts to operating income for the periods presented:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
2014
 
2015
2014
Favorable adjustments
 
$
96

$
4,898

 
$
554

$
5,620

Unfavorable adjustments
 
(2,183
)
(545
)
 
(2,214
)
(727
)
Net favorable (unfavorable) operating income adjustments
 
$
(2,087
)
$
4,353

 
$
(1,660
)
$
4,893


The unfavorable cumulative catch-up adjustments recorded in the third quarter of 2015 primarily related to higher projected engineering costs, identified in the third quarter of 2015, which are required to meet customer specifications on the Mitsubishi Regional Jet design-build program. The adjustment related to this program was $1,738 and was recorded as a reduction of revenue in the Consolidated Statements of Comprehensive Income (Loss).

The favorable cumulative adjustments recorded in the third quarter of 2014 related to the reversal of a loss reserve. This adjustment was recognized after the Company settlement of an unpriced change order and secured more favorable future material pricing with respect to this contract. The impact of reversing the loss reserve was $4,602 and $5,267 for the three and nine months ended September 30, 2014 and was recorded in the cost of goods sold section of the Consolidated Statements of Comprehensive Income (Loss).


3.
Inventories


7

LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
September 30, 2015



Inventories consist of the following:
 
September 30, 2015
 
December 31, 2014
Raw materials
$
14,606

 
$
16,712

Work in progress
23,915

 
22,960

Manufactured and purchased components
20,016

 
21,296

Finished goods
29,253

 
32,403

Product inventory
87,790

 
93,371

Capitalized contract costs
31,087

 
20,908

Total inventories
$
118,877

 
$
114,279



Inventories include capitalized contract costs relating to programs and contracts with long-term production cycles.  The Company believes these amounts will be fully recovered over the life of the contracts. Anticipated losses on contracts are recognized, when required, and reported as a reduction of related contract costs recorded in inventory or accounts receivable and as additional cost of sales or as a reduction to revenue. The company is engaged in a contract accounted for using the cost to cost method where estimated costs exceed the total contract revenue. A provision for the remaining estimated loss on this contract of $121 and $0 was reported as a reduction of accounts receivable in the Condensed Consolidated Balance Sheet at September 30, 2015 and December 31, 2014, respectively.

In January 2015, the Company signed an agreement with a key customer to form a strategically aligned partnership. This agreement extended the performance period of the statements of work for certain contracts with the customer and gives the Company preferred supplier status on certain future contracts. In accordance with the contract terms, the Company made cash consideration payments of $4,800 in January 2015 and $1,700 in June 2015. The payments were recorded as an increase to capitalized contract costs and are being amortized as a reduction to revenue over the life of the associated contracts.

4.
Goodwill and Intangible Assets

Goodwill

The following table summarizes the net carrying amount of goodwill by segment at September 30, 2015 and December 31, 2014, respectively:
 
 
 
 
 
Engineering
 
 
 
 
 
Aerostructures
 
Services
 
Total
 
September 30,
 
December 31,
 
September 30,
 
December 31,
 
September 30,
 
December 31,
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Balance at:
 
 
 
 
 
 
 
 
 
 
 
Gross Goodwill
$
141,953

 
$
141,953

 
$
50,741

 
$
50,741

 
$
192,694

 
$
192,694

Accumulated impairment loss
(79,471
)
 
(79,471
)
 
(26,439
)
 
(26,439
)
 
(105,910
)
 
(105,910
)
Net Goodwill
$
62,482

 
$
62,482

 
$
24,302

 
$
24,302

 
$
86,784

 
$
86,784

 

8

LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
September 30, 2015



A goodwill impairment charge of $26,439 was recorded in the fourth quarter of 2014 related to the Engineering Services reporting unit. The impairment charge resulted from a persistent decline in revenues and profitability in 2014. In the first nine months of 2015, the reporting unit generated positive cash flow but did not meet overall expectations in terms of revenues, profits or cash flow. On August 7, 2015, the Company committed to a restructuring plan that will result in the closing of its Melbourne, Australia and Greenville, South Carolina engineering offices in addition to the elimination of additional management positions within the Engineering Services reporting unit. See Note 13, Restructuring, to the Condensed Consolidated Financial Statements under Part I, Item 8, "Financial Statements," for additional disclosure related to these items. If, despite these additional cost reduction efforts, the reporting unit's revenue and profitability were to continue to decline, it could lead to a triggering event and additional potential impairment for intangible assets and goodwill for the reporting unit in the future.

The carrying value of goodwill is assessed annually, during the fourth quarter, unless a triggering event occurs. Following an assessment an impairment charge is recorded if appropriate.  In the three and nine months ended September 30, 2015, no triggering event occurred that would cause the Company to assess the carrying value of goodwill.

Intangible Assets

Intangible assets primarily consist of trademarks and customer intangibles.  The carrying values were as follows:
 
September 30, 2015
 
December 31, 2014
Trademarks
$
778

 
$
778

Customer intangible assets
68,991

 
68,991

Other
1,274

 
1,274

Accumulated amortization
(23,372
)
 
(20,103
)
Intangible assets, net
$
47,671

 
$
50,940


Intangibles amortization expense was $1,089 and $1,131 for the three months ended September 30, 2015 and 2014, respectively and $3,269 and $3,393 for the nine months ended September 30, 2015 and 2014, respectively. The accumulated amortization balances at September 30, 2015 and December 31, 2014, respectively, were $753 and $679 for trademarks, $21,791 and $18,716 for customer intangible assets, and $828 and $708 for other intangible assets.

Intangible assets related to the acquisition of Valent are amortized on the straight-line method as this approximates the pattern of economic benefit of each intangible asset.  All other remaining intangible assets are not material.

5.
Other Assets

Other assets consist of the following:
 
September 30, 2015
 
December 31, 2014
Debt issuance cost, net
$
7,353

 
$
8,600

Other
1,618

 
2,022

  Total other assets
$
8,971

 
$
10,622


In connection with the financing of its long-term indebtedness, the Company incurred debt issuance costs of $10,001. These costs are being amortized on a straight-line basis, which approximates the effective interest method, over the term of the indebtedness.

9

LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
September 30, 2015



6.
Long-term Debt and Capital Lease Obligations

Long-term debt and capital lease obligations consist of the following:
 
September 30, 2015
 
December 31, 2014
 
 
 
 
Second priority senior secured notes at a fixed rate of 7.375% at September 30, 2015
$
245,000

 
$
245,000

Revolver under credit agreement, variable
4,000

 

Missouri IRBs at fixed rate of 2.80% at September 30, 2015 and December 31, 2014
7,011

 
7,334

Capital leases, at fixed rates ranging from 2.04% to 7.73% at September 30, 2015 and December 31, 2014
12,125

 
13,288

Notes payable, principal and interest payable monthly, at fixed rates up to 2.56% at September 30, 2015 and December 31, 2014, respectively
3,028

 
3,356

Total debt
$
271,164

 
$
268,978

Less current installments
3,557

 
3,424

Total long-term debt and capital lease obligations
$
267,607

 
$
265,554


At September 30, 2015, the Company had $245,000 in outstanding second-priority senior secured notes maturing on June 19, 2019. Obligations under these notes are secured by substantially all of the Company’s assets and bear interest at 7.375%, paid semi-annually in January and July.

The Company's revolving credit agreement provides for a revolving credit facility of up to $90,000.  Under the agreement, the co-collateral agents may establish a reserve against the facility. At September 30, 2015, the reserve established was $15,000, which reduced the maximum availability to $75,000. Based on the amount of eligible assets at September 30, 2015 and outstanding letters of credit of $1,138, available borrowings were further reduced to $54,781. The maximum amount, less reserves, available for borrowing at levels below $30,000 is based on a sum of 45% of eligible receivables, 30% of eligible inventories and an additional amount of eligible equipment up to 20% of total borrowings under the facility. The maximum amount, less reserves, available for borrowing at levels above $30,000 is based on a sum of 75% of eligible receivables, 45% of eligible inventories and an additional amount of eligible equipment up to 20% of total borrowings under the facility. Borrowings under the facility are secured by a first lien on substantially all of the Company’s assets and bear interest at either the LIBOR rate plus a margin of 3.00% to 3.50% or the alternate base rate, which is the highest of the following plus a margin of 2.00% to 2.50%, respectively, with the applicable margins for the revolving credit facility subject to a grid based on the average availability ratio of the Company for the most recently completed quarter:

Prime rate,
Federal funds rate plus 0.5%, or,
The adjusted Eurodollar rate for an interest period of one month plus 1.0%.

For both the three and the nine months ended September 30, 2015, the actual interest rate incurred for the revolving credit facility was 4.6%.

The Company is required to pay a commitment fee of between 0.375% and 0.5% per annum on the unused portion of the revolving credit facility, depending on the average revolver usage during the period as compared to the total available borrowings under the facility. At September 30, 2015, the commitment fee required was 0.5%.

The revolving credit loan facility matures on the earlier of the fifth year anniversary date of June 19, 2019 or the date that is 91 days prior to the maturity date of the senior secured notes unless the notes are repaid, refinanced or otherwise satisfied in full. The maturity dates are subject to acceleration upon occurrence of an event of default. An event of default under the revolving credit agreement includes, among other things, failure to pay any material indebtedness, acceleration of payments by any lender prior to scheduled maturity, or judgments rendered against the Company requiring payments at or above certain levels.


10

LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
September 30, 2015



The credit agreement contains a covenant that requires us to comply with a maximum first priority debt to EBITDA ratio on a quarterly basis. In addition, the agreement also contains certain restrictive covenants that limit and in some circumstances prohibit our ability to, among other things, incur additional debt, sell, lease or transfer our assets, make investments, guarantee debt or obligations, create liens, and enter into certain merger, consolidation or other reorganization transactions.  These restrictive covenants prohibit the Company from paying dividends. These restrictions could limit our ability to obtain future financing, make acquisitions or needed capital expenditures, withstand any current or future downturns in our business or the economy in general, conduct operations or otherwise take advantage of business opportunities that may arise, any of which could place us at a competitive disadvantage relative to our competitors that have less debt and are not subject to such restrictions.

At September 30, 2015, the Company was in compliance with all of its covenants and expects to be in compliance with its covenants in future periods.  If the Company fails to meet any covenants in the credit agreement, the Company would not be in compliance with its credit agreement and the lenders would be entitled to exercise various rights, including causing the amounts outstanding under the revolving credit facility to become immediately due and payable.

7.
Derivative Financial Instruments

On June 19, 2014, the Company terminated and settled its interest rate derivatives in conjunction with the settlement of its then existing credit agreement, which had a variable interest rate. This settlement resulted in a charge of $793 to interest expense in the Condensed Consolidated Statements of Comprehensive Income (Loss) in the nine months ended September 30, 2014. Prior to this termination and in compliance with the credit agreement, the Company purchased option and swap derivative contracts to hedge against the potential impact on earnings from an increase in market interest rates associated with the interest payments on its variable rate term credit facility.  The objective of the hedge transactions was to reduce the variability of cash flows due to changes in the designated benchmark interest rate on the term debt.  As the derivatives were settled prior to December 31, 2014, no assets or liabilities were recognized in the Condensed Consolidated Balance Sheet at either date presented.

The Company designated and accounted for these swaps and purchased options as cash flow hedges of interest rate risk.  The Company reported the gain or loss, net of taxes, from the effective portion of the hedge as a component of Accumulated Other Comprehensive Income (“AOCI”) deferring it and reclassifying it into earnings in the same period or periods in which the hedged transaction affects earnings and in the same line item on the Condensed Consolidated Statements of Comprehensive Income (Loss) as the impact of the hedged transaction.  The cumulative amounts reported in AOCI related to these derivatives were reclassified from AOCI to interest expense on the Condensed Consolidated Statements of Comprehensive Income (Loss) in the nine months ended September 30, 2014. The Company did not use these derivative instruments for trading or speculative purposes.

The following amounts are included in OCI and earnings for the three and nine months ended September 30, 2015 and September 30, 2014:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Interest Rate Derivatives in Cash Flow Hedging Relationship
 
 
 
 
 
 
 
 
Amount of Gain (Loss) Recognized in AOCI, net of tax, on Derivative (Effective Portion)
 
$

 
$

 
$

 
$

 
 
 
 
 
 
 
 
 
Amount of (Gain) Loss Reclassified from AOCI into Income (Effective Portion)
 
$

 
$

 
$

 
$
793

 
 
 
 
 
 
 
 
 


11

LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
September 30, 2015



8.
Earnings Per Common Share

Basic net income per common share is based upon the weighted average number of common shares outstanding.  Diluted net income per common share is based upon the weighted average number of common shares outstanding, including the dilutive effect of restricted stock, using the if-converted methods.  The following table shows a reconciliation of the numerators and denominators used in calculating basic and diluted earnings per share.
        
 
 
Three months ended
 
Nine months ended
 
 
September 30,
 
September 30,
 
 
2015
 
2014
 
2015
 
2014
Numerators
 
 
 
 
 
 
 
 
Net income (loss)
 
$
34

 
$
1,396

 
$
(1,053
)
 
$
(6,458
)
Denominators
 
 

 
 

 
 
 
 
Weighted average common shares - basic
 
12,907,938

 
12,740,034

 
12,851,456

 
12,704,568

 
 
 
 
 
 
 
 
 
Dilutive effect of restricted stock
 
142,300

 
147,329

 

 

 
 
 
 
 
 
 
 
 
Weighted average common shares - diluted
 
13,050,238

 
12,887,363

 
12,851,456

 
12,704,568

 
 
 
 
 
 
 
 
 
Basic earnings (loss) per share
 
$
0.00

 
$
0.11

 
$
(0.08
)
 
$
(0.51
)
 
 
 
 
 
 
 
 
 
Diluted earnings (loss) per share
 
$
0.00

 
$
0.11

 
$
(0.08
)
 
$
(0.51
)
    

For the nine months ended September 30, 2015 and September 30, 2014, 216,872 and 145,710 shares, respectively, are not included in the calculation of diluted earnings per share, as their inclusion would have been anti-dilutive. These securities could be dilutive in future periods.

12

LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
September 30, 2015



9.
Stock-Based Compensation

On July 7, 2005, the Company’s shareholders approved the LMI Aerospace, Inc. 2005 Long-term Incentive Plan (the “ 2005 Plan”). The 2005 Plan provided for the grant of non-qualified stock options, incentive stock options, shares of restricted stock, restricted stock units, stock appreciation rights, performance awards and other share-based grants and cash bonus awards to employees and directors.  All share-based grants or awards were subject to a time-based vesting schedule.

All outstanding share-based grants are in the form of restricted stock. A summary of the activity for non-vested restricted stock awards under the 2005 Plan is presented below:
 
 
 
Restricted Stock Awards
 
Shares
 
Weighted
Average Grant Date Fair Value
Outstanding at January 1, 2015
 
296,782

 
$
16.58

Granted
 
131,703

 
13.22

Vested
 
(131,986
)
 
17.57

Forfeited
 
(34,411
)
 
15.35

Outstanding at September 30, 2015
 
262,088

 
$
14.56


Common stock compensation expense related to restricted stock awards granted under the 2005 Plan was $224 and $765 for the three months ended September 30, 2015 and 2014, respectively and $1,154 and $1,442 for the nine months ended September 30, 2015 and 2014, respectively.

Total unrecognized compensation costs related to non-vested, share-based awards granted or awarded under the 2005 Plan were $2,023 and $2,036 at September 30, 2015 and December 31, 2014, respectively.  These costs are expected to be recognized over a weighted average period of 1.8 years and 1.2 years, at September 30, 2015 and December 31, 2014, respectively.

As of July 7, 2015 the Company was no longer able to grant awards under the 2005 Plan.

On June 24, 2015, the Company's shareholders approved the LMI Aerospace, Inc. 2015 Incentive Compensation Plan (the “2015 Plan”), which became effective on July 1, 2015. Under the 2015 Plan, the Company, through the Compensation Committee of the Board of Directors, may, at its discretion, grant stock options, restricted shares of common stock, and other various stock-based awards to directors, officers, employees and consultants. A total of 750,000 shares of the Company’s common stock have been reserved for issuance under the 2015 Plan.

All outstanding share-based grants are in the form of restricted stock. A summary of the activity for non-vested restricted stock awards under the 2015 Plan is presented below:
 
 
 
Restricted Stock Awards
 
Shares
 
Weighted
Average Grant Date Fair Value
Outstanding at January 1, 2015
 

 
$

Granted
 
61,801

 
9.79

Vested
 

 

Forfeited
 

 

Outstanding at September 30, 2015
 
61,801

 
$
9.79



13

LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
September 30, 2015



Common stock compensation expense related to restricted stock awards granted under the 2015 Plan was $151 and $0 for the three months ended September 30, 2015 and 2014, respectively and $151 and $0 for the nine months ended September 30, 2015 and 2014, respectively.

Total unrecognized compensation costs related to non-vested, share-based awards granted or awarded under the 2015 Plan were $454 and $0 at September 30, 2015 and December 31, 2014, respectively.  These costs are expected to be recognized over a weighted average period of 0.8 years at September 30, 2015.


10.
Business Segment Information
The Company is organized into two reportable segments: the Aerostructures segment and the Engineering Services segment.  Through its Aerostructures segment, the Company primarily fabricates, machines, finishes, integrates, assembles and kits formed close tolerance aluminum, specialty alloy and composite components and higher level assemblies for use by the aerospace and defense industries. It manufactures more than 40,000 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, the Company provides a complete range of design, engineering and program management services, supporting aircraft product lifecycles from conceptual design, analysis and certification through production support, fleet support and service life extensions via a complete turnkey engineering solution.

Corporate assets, liabilities and expenses related to the Company's corporate offices, except for interest expense and income taxes, primarily support, and are recorded in, the Aerostructures segment. The table below presents information about reported segments on the same basis used internally to evaluate segment performance:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2015
 
2014
 
2015
 
2014
Net sales:
 
 
 
 
 
 
 
Aerostructures
$
85,119

 
$
82,914

 
$
249,661

 
$
249,101

Engineering Services
10,826

 
14,714

 
36,818

 
51,235

Eliminations
(312
)
 
(293
)
 
(821
)
 
(1,313
)
 
$
95,633

 
$
97,335

 
$
285,658

 
$
299,023

 
 
 
 
 
 
 
 
Income from operations:
 

 
 

 
 

 
 

Aerostructures
$
8,918

 
$
7,888

 
$
20,063

 
$
14,010

Engineering Services
(2,805
)
 
(1,216
)
 
(3,803
)
 
666

Eliminations
(41
)
 
(9
)
 
(14
)
 
(96
)
 
$
6,072

 
$
6,663

 
$
16,246

 
$
14,580

11.
Customer Concentration

Direct sales, through both of the Company’s business segments, to our largest customer, Spirit Aerosystems (“Spirit”), accounted for 34.4% and 34.4% of the Company’s total revenues for the three months ended September 30, 2015 and 2014, respectively. Direct sales to Spirit accounted for 34.8% and 33.7% of the Company's total revenues for the nine months ended September 30, 2015 and 2014, respectively. Accounts receivable balances related to Spirit were 26.9% and 33.3% of the Company’s total accounts receivable balance at September 30, 2015 and December 31, 2014, respectively.

Direct sales, through both of the Company’s business segments, to our second largest customer, Gulfstream Aerospace Corporation, a General Dynamics company (“Gulfstream”), accounted for 15.9% and 14.3% of the Company’s total revenues for the three months ended September 30, 2015 and 2014, respectively.  Direct sales to Gulfstream accounted for 14.3% and 15.3% of the Company's total revenues for the nine months ended September 30, 2015 and 2014, respectively. Accounts receivable balances related to Gulfstream were 15.7% and 13.1% of the Company’s total accounts receivable balance at September 30, 2015 and December 31, 2014, respectively.


14

LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
September 30, 2015



Direct sales, through both of the Company’s business segments, to our third largest customer, The Boeing Company, (“Boeing”), accounted for 12.6% and 10.0% of the Company’s total revenues for the three months ended September 30, 2015 and 2014, respectively. Direct sales to Boeing accounted for 11.4% and 10.9% of the Company's total revenues for the nine months ended September 30, 2015 and 2014, respectively. Accounts receivable balances resulting from direct sales to Boeing were 6.2% and 7.4% of the Company’s total accounts receivable balance at September 30, 2015 and December 31, 2014, respectively.

12.
Income Taxes

The Company records income tax expense or benefit each quarter based on its estimated full-year effective tax rate. Income tax expense of $249 and $408 were recognized in the three and nine months ended September 30, 2015, respectively. Income tax benefit of $754 and $2,557 were recognized in the three and nine months ended September 30, 2014, respectively. The Company's tax benefit in the three and nine months ended September 30, 2014 reflects a net tax benefit of $2,582 related to the decision to carry back the net operating loss recognized in 2013. The Company continues to carry a full valuation allowance on its net deferred tax assets, which totaled $13,588 and $12,676 at September 30, 2015 and December 31, 2014, respectively. At September 30, 2015, the Company has recorded a receivable of $7,069 primarily related to the filing of the 2014 federal tax return.

13.
Restructuring

The Company committed to and implemented various restructuring plans in 2014 and 2015. Included in those plans were the closure of the Precise Machine facility in Fort Worth, Texas, and the relocation of the machining operations in both Savannah, Georgia and St. Charles, Missouri to other facilities within the Company. Other employment separation activities were also implemented as part of the Company's overall reorganization and cost reduction initiatives. In addition, in the third quarter of 2015, the Company committed to the closing of its Melbourne, Australia and Greenville, South Carolina engineering offices, the elimination of additional management positions within the Engineering Services segment and the closure of its Coweta, Oklahoma manufacturing facility. The expense associated with these plans was reflected in the selling, general, and administrative section on a separate line of the Condensed Consolidated Statements of Comprehensive Income (Loss). The following table summarizes the incurred charges associated with these restructuring activities:

 
Three months ended
 
Nine months ended
 
September 30, 2015
 
September 30, 2014
 
September 30, 2015
 
September 30, 2014
 
 
Precise Machine facility closure
$

 
$
(18
)
 
$

 
$
287

Savannah machining operations relocation

 

 

 
47

St. Charles machine parts operations relocation

 

 
378

 

Coweta machining facility closure
64

 

 
64

 

Greenville office closure
501

 

 
501

 

Australia office closure
34

 

 
34

 

Other employment separation activities
976

 
783

 
1,391

 
1,954

  Total
$
1,575

 
$
765

 
$
2,368

 
$
2,288


The Savannah, Georgia and Precise plans were completed in the second quarter of 2014. The St. Charles and Greenville plans were completed in the second and third quarter of 2015, respectively. The Company expects the Coweta and Australia plans to be completed in the fourth quarter of 2015.

Cash payments were made associated with these restructuring plans of $1,165 and $253 in the three months ended September 30, 2015 and September 30, 2014, respectively and $2,175 and $1,441 in the nine months ended September 30, 2015 and September 30, 2014, respectively.


15

LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
September 30, 2015



The following table summarizes the incurred and expected charges associated with these restructuring activities:

Expense

Remaining

Total Expense

Incurred through

Expense to be

Expected to be

September 30, 2015

Incurred

Incurred






Employee severance arrangement - Precise
$
615

 
$

 
$
615

Employee severance arrangement - Savannah
47

 

 
47

Employee severance arrangement - St. Charles
378

 

 
378

Employee severance arrangement - Coweta
64

 
28

 
92

Employee severance arrangement - Greenville
376

 

 
376

Employee severance arrangement - Australia
34

 

 
34

Other employee severance arrangements
3,529

 

 
3,529

Lease termination costs - Precise
124

 

 
124

Lease termination costs - Greenville
125

 

 
125

Other restructuring expenses
115

 

 
115

  Total
$
5,407


$
28


$
5,435



The following table summarizes the Company's restructuring activities during the nine months ended September 30, 2015:

 
Employee
 
Severance
 
 
Accrued restructuring balance as of December 31, 2014
$
739

  Accrual additions
2,368

  Cash payments
(2,175
)
Accrued restructuring balance as of September 30, 2015
$
932


Accrued restructuring of $932 at September 30, 2015 is expected to be paid over the next three quarters.

14.
Legal Contingencies

The Company has been named as a defendant in certain pending lawsuits in the normal course of business (collectively, the “Pending Lawsuits”).  It is the policy of management to disclose the amount or range of reasonably possible losses.  In the opinion of management, after consulting with legal counsel, any losses resulting from Pending Lawsuits should not have a material effect on the Company’s financial position, cash flows or results of operations. The Company is also the subject of other proceedings as further described below.

16

LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
September 30, 2015




Regulatory Actions
In August 2013, the Environmental Protection Agency (“EPA”) and the U.S. Dept. of Justice (“DoJ”) commenced an investigation into allegations of low pH wastewater releases claimed to have occurred between 2009 and 2013 at Ozark Mountain Technologies ("OMT"), a subsidiary of LMI (the “Waste Water Allegations”). On April 24, 2015, the Company settled the Waste Water Allegations pursuant to a settlement agreement with DoJ (“Plea Agreement”). Per the terms of the Plea Agreement, OMT plead guilty to one count of negligently violating the Federal Water Pollution Control Act and paid a fine of $694 in the quarter ended June 30, 2015. In connection with the Plea Agreement, DoJ agreed that no further federal criminal or civil prosecution will be brought against OMT relative to certain other possible instances of environmental non-compliance that the Company voluntarily reported to the EPA in December 2013 as part of the EPA’s Audit Policy.

In November, 2013, the Attorney General of the State of Missouri (the “Missouri AG”) contacted LMI regarding alleged violations of certain state environmental regulations involving the discharge of pollutants and water contaminants claimed to have occurred in 2011 by OMT (the “Missouri AG Matter”).  On February 25, 2015, the Missouri AG filed a Petition against OMT alleging pollution of state waters, violation of pretreatment regulations and violation of water quality standards.  In the quarter ended June 30, 2015, OMT settled the Missouri AG Matter and in July of 2015 paid civil penalties of $175.
The fine and civil penalties paid in connection with both settlements described above were consistent with the previously established, respective, loss contingencies as disclosed in the Company’s 2014 Form 10-K, Item 3 - Legal Proceedings.
Civil Action
In December 2012, OMT became an indirect subsidiary of LMI as a result of LMI’s acquisition of Valent Aerostructures, LLC (“Valent”) from the former equity owners of Valent, including Tech Investments, LLC and Tech Investments II, LLC (together, “Tech”). Also as a result of the transaction, Tech became the beneficial owners of approximately 5.5% of LMI’s common stock. Pursuant to the terms of the purchase agreement, as amended (the “Valent Purchase Agreement”), $5,000 of the purchase price remained subject to an indemnification escrow arrangement (the “Escrow Funds”) and 783,798 shares of LMI’s common stock issued as part of the purchase price were subject to indemnification lock-up agreements (the “Locked-Up Shares”). On September 22, 2015, LMI and the former equity owners of Valent (the “Parties”) submitted to mediation and executed an agreement setting forth terms of a settlement with respect to the resolution of certain indemnification claims and other disputes involving, among other things, the OMT matters discussed above, and on November 5, 2015, the Parties executed the definitive settlement documents (the agreement and documents collectively being referred to as the “Settlement Agreements”). The claims and disputes resolved by the settlement had become the subject of legal proceedings that commenced with the filing of a declaratory action by Tech in December 2014 (the “Tech Lawsuit”).  Pursuant to the terms of the Settlement Agreements, (a) the Tech Lawsuit will be dismissed with prejudice, (b) $3,109 of the Escrow Funds will be disbursed to the Company and the remaining amount of Escrow Funds will be retained by Tech, (c) Tech has assumed an approximate $1,167 payment obligation of the Company to a predecessor owner of OMT that remained under a purchase agreement the Company acquired as part of the Company’s acquisition of Valent; (d) the Locked-up Shares will be released to Tech, excluding any portion needed to secure Tech’s obligation described in subsection (c) above; and (e) all parties entered into a mutual release of claims and disputes other than those based on certain environmental representations of the former equity owners of Valent under the Valent Purchase Agreement. The settlement also resulted in the Company assuming other liabilities of $484, recording the write-off of a previously recorded receivable of $389 and recording other expenses of $68. The net impact of the settlement resulted in a gain of $3,325 which is recorded in selling, general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations.

15.
Condensed Consolidating Financial Statements


LMI Aerospace, Inc. excluding its subsidiaries (“LMIA”) is the parent company, issuer and obligor of the second-priority senior notes due June 19, 2019 (the “Notes”). The payment obligations of LMIA under the Notes are guaranteed and secured by LMIA and all of its subsidiaries other than minor subsidiaries as further described below.


17

LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
September 30, 2015



These Notes are guaranteed on a second-priority senior secured basis, jointly and severally, by LMIA (“Guarantor Parent”) and all of its existing and future 100% owned subsidiaries (collectively, the “Guarantor Subsidiaries”) other than minor subsidiaries. Such guaranties are full and unconditional. LMIA conducts substantially all of its business through and derives virtually all of its income from its subsidiaries. Therefore, its ability to make required principal and interest payments with respect to its indebtedness depends on the earnings of subsidiaries and its ability to receive funds from its subsidiaries.

The Notes are secured on a second-priority basis by liens on substantially all of LMIA’s and the Guarantor Subsidiaries’ assets, subject to certain exceptions and permitted liens. The liens securing the notes are contractually subordinated to the liens that secure indebtedness under the revolving credit facility as a result of the lien subordination provisions of the intercreditor agreement to the extent of the value of the collateral securing such indebtedness as well as being subordinated by other existing indebtedness, including industrial revenue bonds, capital leases and other notes payable, to the extent of the value of the collateral that secures such existing indebtedness. As a consequence of this lien subordination and existing indebtedness the Notes and the guarantees are effectively subordinated to the extent of the value of the collateral that secures them. Decisions regarding the maintenance and release of the collateral secured by the collateral agreement are made by the lenders under the modified revolving credit facility, and neither the indenture trustee nor the holders of the Notes have control of decisions regarding the release of collateral.
We have not presented separate financial statements and separate disclosures have not been provided concerning the Guarantor Subsidiaries due to the presentation of condensed consolidating financial information set forth in this Note, consistent with the Securities and Exchange Commission (the “SEC”) interpretations governing reporting of subsidiary financial information.
Supplemental condensed consolidating financial information of the Company, including such information for the Guarantor Subsidiaries, is presented below. Investments in subsidiaries are presented using the equity method of accounting. The principal elimination entries eliminate investments in subsidiaries and inter-company balances and transactions.

18

LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
September 30, 2015




CONDENSED CONSOLIDATING BALANCE SHEET
as of September 30, 2015
 
LMIA(Guarantor Parent)
 
Guarantor Subsidiaries
 
Consolidating/Eliminating Entries
 
Consolidated
Assets
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
476

 
$

 
$
476

Trade accounts receivable, net
2,063

 
59,326

 

 
61,389

Intercompany receivables
178,197

 
156,183

 
(334,380
)
 

Inventories

 
118,877

 

 
118,877

Prepaid expenses and other current assets
8,342

 
2,488

 

 
10,830

Deferred income taxes

 
3,924

 
(149
)
 
3,775

Total current assets
188,602

 
341,274

 
(334,529
)
 
195,347

 
 
 
 
 
 
 
 
Property, plant and equipment, net
3,818

 
97,284

 

 
101,102

Investments in subsidiaries
378,500

 

 
(378,500
)
 

Goodwill

 
86,784

 

 
86,784

Intangible assets, net

 
47,671

 

 
47,671

Deferred income taxes
149

 

 
(149
)
 

Other assets
7,346

 
1,625

 

 
8,971

Total assets
$
578,415

 
$
574,638

 
$
(713,178
)
 
$
439,875

 
 
 
 
 
 
 
 
Liabilities and shareholders’ equity
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Accounts payable
$
465

 
$
17,496

 
$

 
$
17,961

Accrued expenses
11,626

 
13,008

 

 
24,634

Intercompany Payables
197,753

 
136,627

 
(334,380
)
 
$

  Deferred income taxes
149

 

 
(149
)
 

Current installments of long-term debt and capital lease obligations
148

 
3,409

 

 
3,557

Total current liabilities
210,141

 
170,540

 
(334,529
)
 
46,152

 
 
 
 
 
 
 
 
Long-term debt and capital lease obligations, less current installments
249,110

 
18,497

 

 
267,607

Other long-term liabilities
304

 
2,797

 

 
3,101

Deferred income taxes

 
4,304

 
(149
)
 
4,155

Total long-term liabilities
249,414

 
25,598

 
(149
)
 
274,863

 
 
 
 
 
 
 
 
Total shareholders’ equity
118,860

 
378,500

 
(378,500
)
 
118,860

Total liabilities and shareholders’ equity
$
578,415

 
$
574,638

 
$
(713,178
)
 
$
439,875


19

LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
September 30, 2015




CONDENSED CONSOLIDATING BALANCE SHEET
as of December 31, 2014
 
LMIA(Guarantor Parent)
 
Guarantor Subsidiaries
 
Consolidating/Eliminating Entries
 
Consolidated
Assets
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
7,058

 
$
869

 
$

 
$
7,927

Trade accounts receivable, net
1,310

 
56,924

 

 
58,234

Intercompany receivables
145,980

 
145,223

 
(291,203
)
 
$

Inventories

 
114,279

 

 
114,279

Prepaid expenses and other current assets
8,325

 
1,930

 

 
10,255

Deferred income taxes

 
4,031

 
(118
)
 
3,913

Total current assets
162,673

 
323,256

 
(291,321
)
 
194,608

 
 
 
 
 
 
 
 
Property, plant and equipment, net
3,148

 
96,334

 

 
99,482

Investments in subsidiaries
368,587

 

 
(368,587
)
 

Goodwill

 
86,784

 

 
86,784

Intangible assets, net

 
50,940

 

 
50,940

Deferred income taxes
118

 

 
(118
)
 

Other assets
8,743

 
1,879

 

 
10,622

Total assets
$
543,269

 
$
559,193

 
$
(660,026
)
 
$
442,436

 
 
 
 
 
 
 
 
Liabilities and shareholders’ equity
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Accounts payable
$
1,339

 
$
20,416

 
$

 
$
21,755

Accrued expenses
13,679

 
12,393

 

 
26,072

Intercompany Payables
164,158

 
127,045

 
(291,203
)
 
$

  Deferred income taxes
118

 

 
(118
)
 

Current installments of long-term debt and capital lease obligations
335

 
3,089

 

 
3,424

Total current liabilities
179,629

 
162,943

 
(291,321
)
 
51,251

 
 
 
 
 
 
 
 
Long-term debt and capital lease obligations, less current installments
245,174

 
20,380

 

 
265,554

Other long-term liabilities
331

 
2,958

 

 
3,289

Deferred income taxes

 
4,325

 
(118
)
 
4,207

Total long-term liabilities
245,505

 
27,663

 
(118
)
 
273,050

 
 
 
 
 
 
 
 
Total shareholders’ equity
118,135

 
368,587

 
(368,587
)
 
118,135

Total liabilities and shareholders’ equity
$
543,269

 
$
559,193

 
$
(660,026
)
 
$
442,436


20

LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
September 30, 2015




CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended September 30, 2015
 
LMIA(Guarantor Parent)
 
Guarantor Subsidiaries
 
Consolidating/Eliminating Entries
 
Consolidated
Sales and service revenue
 
 
 
 
 
 
 
Product sales
$
4

 
$
84,099

 
$
11

 
$
84,114

Service revenues
7,640

 
11,545

 
(7,666
)
 
11,519

Net sales
7,644

 
95,644

 
(7,655
)
 
95,633

Cost of sales and service revenue
 
 
 
 
 
 
 

Cost of product sales
27

 
67,476

 
11

 
67,514

Cost of service revenues
7,991

 
11,166

 
(7,664
)
 
11,493

Cost of sales
8,018

 
78,642

 
(7,653
)
 
79,007

Gross profit
(374
)
 
17,002

 
(2
)
 
16,626

Selling, general and administrative expenses

 
8,979

 


 
8,979

Restructuring expense

 
1,575

 

 
1,575

(Loss) income from operations
(374
)
 
6,448

 
(2
)
 
6,072

Other income (expense):
 
 
 
 
 
 
 

Interest expense
(5,389
)
 
(264
)
 

 
(5,653
)
Other, net
(1
)
 
(135
)
 

 
(136
)
Income (loss) from equity investments in subsidiaries
3,541

 

 
(3,541
)
 

Total other expense
(1,849
)
 
(399
)
 
(3,541
)
 
(5,789
)
(Loss) income before income taxes
(2,223
)
 
6,049

 
(3,543
)
 
283

(Benefit) provision for income taxes
(2,227
)
 
2,476

 

 
249

Net (loss) income
4

 
3,573

 
(3,543
)
 
34

Other comprehensive income (loss):
 
 
 
 
 
 
 
Change in foreign currency translation adjustment

 
(32
)
 

 
(32
)
Total comprehensive (loss) income
$
4

 
$
3,541

 
$
(3,543
)
 
$
2


21

LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
September 30, 2015




CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended September 30, 2014
 
LMIA(Guarantor Parent)
 
Guarantor Subsidiaries
 
Consolidating/Eliminating Entries
 
Consolidated
Sales and service revenue
 
 
 
 
 
 
 
Product sales
$
(68
)
 
$
81,724

 
$
37

 
$
81,693

Service revenues
9,172

 
15,620

 
(9,150
)
 
15,642

Net sales
9,104

 
97,344

 
(9,113
)
 
97,335

Cost of sales and service revenue
 
 
 
 
 
 
 

Cost of product sales
40

 
61,458

 
37

 
61,535

Cost of service revenues
9,106

 
13,803

 
(9,152
)
 
13,757

Cost of sales
9,146

 
75,261

 
(9,115
)
 
75,292

Gross profit
(42
)
 
22,083

 
2

 
22,043

Selling, general and administrative expenses
421

 
14,194

 

 
14,615

Restructuring expense
533

 
232

 

 
765

(Loss) income from operations
(996
)
 
7,657

 
2

 
6,663

Other income (expense):
 
 
 
 
 
 
 

Interest expense
(5,662
)
 
(284
)
 

 
(5,946
)
Other, net
11

 
(86
)
 

 
(75
)
Income (loss) from equity investments in subsidiaries
4,874

 

 
(4,874
)
 

Total other expense
(777
)
 
(370
)
 
(4,874
)
 
(6,021
)
(Loss) income before income taxes
(1,773
)
 
7,287

 
(4,872
)
 
642

(Benefit) provision for income taxes
(3,054
)
 
2,300

 

 
(754
)
Net (loss) income
1,281

 
4,987

 
(4,872
)
 
1,396

Other comprehensive income (loss):
 
 
 
 
 
 
 
Change in foreign currency translation adjustment

 
(112
)
 

 
(112
)
Reclassification adjustment for losses on interest rate hedges included in net earnings

 

 

 

Total comprehensive (loss) income
$
1,281

 
$
4,875

 
$
(4,872
)
 
$
1,284


22

LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
September 30, 2015





CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Nine Months Ended September 30, 2015
 
LMIA(Guarantor Parent)
 
Guarantor Subsidiaries
 
Consolidating/Eliminating Entries
 
Consolidated
Sales and service revenue
 
 
 
 
 
 
 
Product sales
$
207

 
$
246,699

 
$
(176
)
 
$
246,730

Service revenues
26,729

 
38,942

 
(26,743
)
 
38,928

Net sales
26,936

 
285,641

 
(26,919
)
 
285,658

Cost of sales and service revenue
 
 
 
 
 
 
 

Cost of product sales
214

 
197,173

 
(176
)
 
197,211

Cost of service revenues
27,440

 
35,155

 
(26,742
)
 
35,853

Cost of sales
27,654

 
232,328

 
(26,918
)
 
233,064

Gross profit
(718
)
 
53,313

 
(1
)
 
52,594

Selling, general and administrative expenses

 
33,980

 

 
33,980

Restructuring expense
318

 
2,050

 

 
2,368

Acquisitions expense

 

 

 

(Loss) income from operations
(1,036
)
 
17,283

 
(1
)
 
16,246

Other income (expense):
 
 
 
 
 
 
 

Interest expense
(16,029
)
 
(773
)
 

 
(16,802
)
Other, net
(1
)
 
(88
)
 

 
(89
)
Income (loss) from equity investments in subsidiaries
9,914

 

 
(9,914
)
 

Total other expense
(6,116