LMI AEROSPACE INC - FORM 10-Q - May 9, 2016

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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 March 31, 2016.
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 May 2, 2016, there were 13,476,865 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 MARCH 31, 2016

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)
 
March 31,
2016
 
December 31,
2015
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,439


$
10,504

Accounts receivable, net
54,953


48,491

Inventories
119,359


114,775

Prepaid expenses and other current assets
4,665


4,147

Total current assets
180,416


177,917







Property, plant and equipment, net
98,281


100,969

Goodwill
86,784


86,784

Intangible assets, net
45,546


46,582

Other assets
3,484


3,728

Total assets
$
414,511


$
415,980







Liabilities and shareholders’ equity



Current liabilities:



Accounts payable
$
19,855


$
13,156

Accrued expenses
21,842


30,015

Current installments of long-term debt and capital lease obligations
2,352


2,362

Total current liabilities
44,049


45,533







Long-term liabilities:





Long-term debt and capital lease obligations, less current installments
248,561


247,633

Other long-term liabilities
3,575


4,322

Deferred income taxes
516


536

Total long-term liabilities
252,652


252,491







Shareholders’ equity:



Common stock, $0.02 par value per share; authorized 28,000,000 shares; issued 13,471,377 and 13,287,688 shares at March 31, 2016 and December 31, 2015, respectively
269


266

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


—

Additional paid-in capital
98,827


97,617

Accumulated other comprehensive loss
(225
)

(211
)
Treasury stock, at cost, 419 and 39,419 shares at March 31, 2016 and December 31, 2015, respectively
(4
)

(418
)
Retained earnings
18,943


20,702

Total shareholders’ equity
117,810


117,956

Total liabilities and shareholders’ equity
$
414,511


$
415,980


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 
 March 31,
 
2016
 
2015
Sales and service revenue
 
 
 
Product sales
$
75,862

 
$
78,457

Service revenue
11,469

 
14,018

Net sales
87,331

 
92,475

Cost of sales and service revenue

 

Cost of product sales
60,336

 
62,551

Cost of service revenue
10,765

 
12,727

Cost of sales
71,101

 
75,278

Gross profit
16,230

 
17,197




 


Selling, general and administrative expenses
11,853

 
12,609

Restructuring expense
947

 
275

Income from operations
3,430

 
4,313



 

Other (expense) income:

 

Interest expense
(5,263
)
 
(5,591
)
Other, net
(90
)
 
122

Total other expense
(5,353
)
 
(5,469
)



 


Loss before income taxes
(1,923
)
 
(1,156
)
(Benefit) provision for income taxes
(164
)
 
309




 


Net loss
(1,759
)
 
(1,465
)
Other comprehensive income (expense):

 

Change in foreign currency translation adjustment
(13
)
 
(79
)
Total comprehensive loss
$
(1,772
)
 
$
(1,544
)



 


Amounts per common share:

 

Net loss per common share
$
(0.14
)
 
$
(0.11
)



 


Net loss per common share assuming dilution
$
(0.14
)
 
$
(0.11
)



 


Weighted average common shares outstanding
12,975,485

 
12,794,766




 


Weighted average dilutive common shares outstanding
12,975,485

 
12,794,766


See accompanying notes to condensed consolidated financial statements.

4

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

 
Three Months Ended 
 March 31,
 
2016
 
2015
Operating activities:
 
 
 
Net loss
$
(1,759
)

$
(1,465
)
Adjustments to reconcile net loss to net cash used by operating activities:



Depreciation and amortization
4,900


4,913

Amortization of debt issuance cost
478

 
489

Stock based compensation
345


586

Deferred taxes
—

 
87

Other non-cash items
(65
)

(42
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(6,475
)

(2,736
)
Inventories
(4,740
)

(7,576
)
Prepaid expenses and other assets
(387
)

(540
)
Current income taxes
(38
)

208

Accounts payable
7,388


1,786

Accrued expenses
(6,891
)

(4,986
)
Net cash used by operating activities
(7,244
)

(9,276
)
Investing activities:



Additions to property, plant and equipment
(2,418
)

(6,879
)
Proceeds from sale of property, plant and equipment
6


—

Net cash used by investing activities
(2,412
)

(6,879
)
Financing activities:



Proceeds from issuance of debt
1,465

 
—

Principal payments on long-term debt and notes payable
(874
)

(614
)
Advances on revolving line of credit
2,000


36,000

Payments on revolving line of credit
(2,000
)

(24,500
)
Payments for debt issuance cost
—

 
(94
)
Net cash provided by financing activities
591


10,792

Net decrease in cash and cash equivalents
(9,065
)

(5,363
)
Cash and cash equivalents, beginning of period
10,504


7,927

Cash and cash equivalents, end of period
$
1,439


$
2,564

Supplemental disclosure of noncash transactions:



Defined contribution plan funding in Company stock
$
1,472


$
710


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)
March 31, 2016




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 recurring adjustments considered necessary for a fair statement have been included.  Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.  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, as amended, of LMI Aerospace, Inc. (the "Company”) for the year ended December 31, 2015, as filed with the Securities and Exchange Commission on March 17, 2016.

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 February 2016, the FASB issued ASU 2016-02, "Leases." The standard requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The update also expands the required quantitative and qualitative disclosures surrounding leases. The provisions of this new guidance are effective as of the beginning of the Company’s first quarter of 2019. This update will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is currently evaluating the effect of this update on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends Accounting Standards Codification (“ASC”) Topic 718, Compensation – Stock Compensation. The standard simplifies the accounting for stock-based compensation, including amendments on how both taxes related to stock-based compensation and cash payments made to taxing authorities are recorded. These amendments are expected to impact net income, earnings per share and the consolidated statement of cash flows. The new guidance is effective for financial statements issued for annual reporting periods beginning after December 15, 2016, and early application is permitted, during fiscal 2016, with any adjustments reflected as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of this standard on its consolidated financial statements.

6
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2016



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:
 
March 31, 2016
 
December 31, 2015
Trade receivables
$
48,675

 
$
42,307

Unbilled revenue
4,879

 
4,869

Other receivables
1,640

 
1,561

 
55,194

 
48,737

Less: Allowance for doubtful accounts
(241
)
 
(246
)
Accounts receivable, net
$
54,953

 
$
48,491


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 March 31, 2016 and December 31, 2015 are $859 and $858, 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 March 31,
 
 
2016
2015
Favorable adjustments
 
$
83

$
412

Unfavorable adjustments
 
(168
)
(36
)
Net (unfavorable) favorable operating income adjustments
 
$
(85
)
$
376


At both March 31, 2016 and December 31, 2015, the Company had recognized a loss reserve of $1,992 on the Mitsubishi Regional Jet design build program. The adjustment in 2015 related to this program was recorded as a reduction to revenue in the Consolidated Statements of Comprehensive Income (Loss).

3.
Inventories

Inventories consist of the following:
 
March 31, 2016
 
December 31, 2015
Raw materials
$
14,044

 
$
12,513

Work in progress
24,699

 
22,681

Manufactured and purchased components
19,615

 
19,224

Finished goods
28,359

 
28,169

Product inventory
86,717

 
82,587

Capitalized contract costs
32,642

 
32,188

Total inventories
$
119,359

 
$
114,775


7
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2016





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. In accordance with ASC 605-35-45-1&2, the provisions for anticipated losses on contracts are accounted for as additional contract cost and recognized as part of cost of sales. Provisions for losses are recorded as a reduction of related contract costs recorded in inventory. At March 31, 2016 and December 31, 2015, the Company had no contracts with loss reserves accounted for as a reduction of inventory.

Capitalized contract costs at March 31, 2016 and December 31, 2015 include $5,821 and $5,970 respectively, related to an agreement the Company signed with Spirit Aerosystems ("Spirit") to form a strategically aligned partnership. This agreement extended the performance period of the statements of work for certain contracts with Spirit and gave the Company preferred supplier status on certain future contracts. This consideration is being amortized as a reduction to revenue over the life of the related contracts. The remaining capitalized contract costs relate primarily to four early-stage long-term contracts. The Company expects these costs will not be realized within one year but believes these amounts will be fully recovered over the life of the related contracts.

The following table illustrates the market to which capitalized contract cost at March 31, 2016 and December 31, 2015 related:
 
March 31, 2016
 
December 31, 2015
Large commercial aircraft
$
10,933

 
$
11,528

Corporate and regional aircraft
17,786

 
16,721

Military
3,923

 
3,939

Total capitalized contract cost
$
32,642

 
$
32,188



4.
Goodwill and Intangible Assets

Goodwill

The following table summarizes the net carrying amount of goodwill by segment at March 31, 2016 and December 31, 2015, respectively:
 
 
 
 
 
Engineering
 
 
 
 
 
Aerostructures
 
Services
 
Total
 
March 31,
 
December 31,
 
March 31,
 
December 31,
 
March 31,
 
December 31,
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
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

 
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 months ended March 31, 2016, a triggering event did not occur 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:

8
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2016



 
March 31, 2016
 
December 31, 2015
Trademarks
$
778

 
$
778

Customer intangible assets
68,991

 
68,991

Other
1,274

 
1,274

Accumulated amortization
(25,497
)
 
(24,461
)
Intangible assets, net
$
45,546

 
$
46,582


Intangibles amortization expense was $1,036 and $1,089 for the three months ended March 31, 2016 and 2015, respectively. The accumulated amortization balances at March 31, 2016 and December 31, 2015, respectively, were $778 and $778 for trademarks, $23,813 and $22,816 for customer intangible assets, and $906 and $867 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.
Long-term Debt and Capital Lease Obligations

Long-term debt and capital lease obligations consist of the following:
 
March 31, 2016
 
December 31, 2015
 
 
 
 
Second priority senior secured notes at a fixed rate of 7.375% at March 31, 2016
$
234,175

 
$
234,175

Missouri IRBs at fixed rate of 2.80% at March 31, 2016 and December 31, 2015
6,791

 
6,901

Capital leases, at fixed rates ranging from 3.00% to 4.50% and 3.00% to 7.73% at March 31, 2016 and December 31, 2015
12,521

 
11,708

Notes payable, principal and interest payable monthly, at fixed rates up to 2.56% at March 31, 2016 and December 31, 2015
1,639

 
1,750

Debt issuance cost
(4,213
)
 
(4,539
)
Total debt
$
250,913

 
$
249,995

Less current installments
2,352

 
2,362

Total long-term debt and capital lease obligations
$
248,561

 
$
247,633


At March 31, 2016, the Company had $234,175 in outstanding second-priority senior secured notes maturing on July 15, 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.

During the quarter ended March 31, 2016, the Company acquired equipment under capital lease of $1,465.

The Company's revolving credit agreement provides for a revolving credit facility of up to $90,000.  At both March 31, 2016 and December 31, 2015, the Company had no outstanding borrowings under the facility. Under the agreement, the co-collateral agents may establish a reserve against the facility. At March 31, 2016, the reserve established was $15,000, which reduced the maximum availability to $75,000. Based on the amount of eligible assets at March 31, 2016 and outstanding letters of credit of $1,388, available borrowings were further reduced to $51,863. 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:

9
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2016




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

For the three months ended March 31, 2016, the actual interest rate incurred for the revolving credit facility was 6.0%.

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 March 31, 2016, the commitment fee required was 0.5%.

The revolving credit loan facility matures on the earlier of the fifth year anniversary date of July 15, 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.

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 March 31, 2016, 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.


10
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2016



6.
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
 
 
March 31,
 
 
2016
 
2015
Numerators
 
 
 
 
Net loss
 
$
(1,759
)
 
$
(1,465
)
Denominators
 
 

 
 

Weighted average common shares - basic
 
12,975,485

 
12,794,766

 
 
 
 
 
Dilutive effect of restricted stock
 
—

 
—

 
 
 
 
 
Weighted average common shares - diluted
 
12,975,485

 
12,794,766

 
 
 
 
 
Basic loss per share
 
$
(0.14
)
 
$
(0.11
)
 
 
 
 
 
Diluted loss per share
 
$
(0.14
)
 
$
(0.11
)
    

For the three months ended March 31, 2016 and March 31, 2015, 83,603 and 146,934 restricted 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.

11
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2016



7.
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 under the 2005 Plan 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, 2016
 
253,434

 
$
14.54

Granted
 
—

 
—

Vested
 
(52,615
)
 
18.03

Forfeited
 
(7,516
)
 
14.16

Outstanding at March 31, 2016
 
193,303

 
$
13.61


Common stock compensation expense related to restricted stock awards granted under the 2005 Plan was $161 and $492 for the three months ended March 31, 2016 and 2015, respectively.

Total unrecognized compensation costs related to non-vested, share-based awards granted or awarded under the 2005 Plan were $1,202 and $1,762 at March 31, 2016 and December 31, 2015, respectively.  These costs are expected to be recognized over a weighted average period of 1.6 years and 1.6 years, at March 31, 2016 and December 31, 2015, 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 under the 2015 Plan 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, 2016
 
61,801

 
$
9.79

Granted
 
85,648

 
9.40

Vested
 
—

 
—

Forfeited
 
—

 
—

Outstanding at March 31, 2016
 
147,449

 
$
9.56


Common stock compensation expense related to restricted stock awards granted under the 2015 Plan was $174 and $0 for the three months ended March 31, 2016 and 2015, respectively.

Total unrecognized compensation costs related to non-vested, share-based awards granted or awarded under the 2015 Plan were $934 and $303 at March 31, 2016 and December 31, 2015, respectively.  These costs are expected to be recognized over a weighted average period of 1.8 years and 0.5 years at March 31, 2016 and December 31, 2015, respectively.

12
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2016





8.
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 March 31,
 
2016
 
2015
Net sales:
 
 
 
Aerostructures
$
76,954

 
$
79,245

Engineering Services
11,059

 
13,504

Eliminations
(682
)
 
(274
)
 
$
87,331

 
$
92,475

 
 
 
 
Income from operations:
 

 
 

Aerostructures
$
3,465

 
$
5,055

Engineering Services
191

 
(764
)
Eliminations
(226
)
 
22

 
$
3,430

 
$
4,313

9.
Customer Concentration

Direct sales, through both of the Company’s business segments, to our largest customer, Spirit Aerosystems (“Spirit”), accounted for 36.6% and 35.0% of the Company’s total revenues for the three months ended March 31, 2016 and 2015, respectively. Accounts receivable balances related to Spirit were 34.4% and 28.6% of the Company’s total accounts receivable balance at March 31, 2016 and December 31, 2015, 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 11.5% and 14.0% of the Company’s total revenues for the three months ended March 31, 2016 and 2015, respectively.  Accounts receivable balances related to Gulfstream were 12.6% and 15.5% of the Company’s total accounts receivable balance at March 31, 2016 and December 31, 2015, respectively.

Direct sales, through both of the Company’s business segments, to our third largest customer, The Boeing Company, (“Boeing”), accounted for 10.9% and 9.5% of the Company’s total revenues for the three months ended March 31, 2016 and 2015, respectively. Accounts receivable balances resulting from direct sales to Boeing were 8.0% and 10.2% of the Company’s total accounts receivable balance at March 31, 2016 and December 31, 2015, respectively.


13
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2016



10.
Income Taxes

The Company records income tax expense or benefit each quarter based on its estimated full-year effective tax rate. An income tax benefit of $164 and income tax expense of $309 were recognized in the three months ended March 31, 2016 and March 31, 2015, respectively. The Company continues to carry a full valuation allowance on its net deferred tax assets, which totaled $14,641 at both March 31, 2016 and December 31, 2015.

11.
Restructuring

The Company committed to and implemented various restructuring plans in 2015 and 2016. Included in those plans were the relocation of the machining operations in St. Charles, Missouri to other facilities within the Company and the implementation of other employment separation activities as part of the Company's overall reorganization and cost reduction initiatives. 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
 
March 31,
 
2016
 
2015
 
 
St. Charles machine parts operations relocation
$
—

 
$
171

Other employment separation activities
947

 
104

  Total
$
947

 
$
275

 
 
 
 
Expense incurred by segment:
 
 
 
Aerostructures
$
947

 
$
260

Engineering Services
—

 
15

Total
$
947

 
$
275


The restructuring activities with respect to the St. Charles plan were completed in the second quarter of 2015.

Cash payments were made associated with restructuring plans of $235 and $328 in the three months ended March 31, 2016 and March 31, 2015.

The following table summarizes the Company's restructuring activities during the three months ended March 31, 2016:

 
 
Employee
 
 
 
 
 
 
Severance
 
Other
 
Total
 
 
 
 
 
 
 
Accrued restructuring balance as of December 31, 2015
 
$
162

 
$
93

 
$
255

  Accrual additions
 
947

 
—

 
947

  Cash payments
 
(204
)
 
(31
)
 
(235
)
Accrued restructuring balance as of March 31, 2016
 
$
905

 
$
62

 
$
967


Accrued restructuring of $967 at March 31, 2016 is expected to be paid over the next four quarters.



14
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2016



12.
Legal Contingencies

The Company has not been named as a defendant in a lawsuit that is outside the normal course of business.  In accordance with generally accepted accounting principles, management discloses the amount or range of reasonably possible losses in a lawsuit in which the Company is a named defendant.  In the opinion of management, after consulting with legal counsel, any losses resulting from lawsuits in the normal course of business should not have a material effect on the Company’s financial position, cash flows or results of operations.
13.
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 July 15, 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.

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”) rules governing reporting on guarantor 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.


15
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2016




CONDENSED CONSOLIDATING BALANCE SHEET
as of March 31, 2016
 
LMIA(Guarantor Parent)
 
Guarantor Subsidiaries
 
Consolidating/Eliminating Entries
 
Consolidated
Assets
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,112

 
$
327

 
$
—

 
$
1,439

Trade accounts receivable, net
1,314

 
53,639

 
—

 
54,953

Intercompany receivables
228,134

 
221,138

 
(449,272
)
 
—

Inventories
—

 
119,359

 
—

 
119,359

Prepaid expenses and other current assets
2,598

 
2,067

 
—

 
4,665

Total current assets
233,158

 
396,530

 
(449,272
)
 
180,416

 
 
 
 
 
 
 
 
Property, plant and equipment, net
5,646

 
92,635

 
—

 
98,281

Investments in subsidiaries
391,482

 
—

 
(391,482
)
 
—

Goodwill
—

 
86,784

 
—

 
86,784

Intangible assets, net
—

 
45,546

 
—

 
45,546

Other assets
1,954

 
1,530

 
—

 
3,484

Total assets
$
632,240

 
$
623,025

 
$
(840,754
)
 
$
414,511

 
 
 
 
 
 
 
 
Liabilities and shareholders’ equity
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Accounts payable
$
226

 
$
19,629

 
$
—

 
$
19,855

Accrued expenses
8,908

 
12,934

 
—

 
21,842

Intercompany Payables
273,962

 
175,310

 
(449,272
)
 
—

Current installments of long-term debt and capital lease obligations
86

 
2,266

 
—

 
2,352

Total current liabilities
283,182

 
210,139

 
(449,272
)
 
44,049

 
 
 
 
 
 
 
 
Long-term debt and capital lease obligations, less current installments
230,055

 
18,506

 
—

 
248,561

Other long-term liabilities
1,193

 
2,382

 
—

 
3,575

Deferred income taxes
—

 
516

 
—

 
516

Total long-term liabilities
231,248

 
21,404

 
—

 
252,652

 
 
 
 
 
 
 
 
Total shareholders’ equity
117,810

 
391,482

 
(391,482
)
 
117,810

Total liabilities and shareholders’ equity
$
632,240

 
$
623,025

 
$
(840,754
)
 
$
414,511


16
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2016




CONDENSED CONSOLIDATING BALANCE SHEET
as of December 31, 2015
 
LMIA(Guarantor Parent)
 
Guarantor Subsidiaries
 
Consolidating/Eliminating Entries
 
Consolidated
Assets
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
10,251

 
$
253

 
$
—

 
$
10,504

Trade accounts receivable, net
1,220

 
47,271

 
—

 
48,491

Intercompany receivables
196,496

 
203,128

 
(399,624
)
 
$
—

Inventories
—

 
114,775

 
—

 
114,775

Prepaid expenses and other current assets
2,224

 
1,923

 
—

 
4,147

Total current assets
210,191

 
367,350

 
(399,624
)
 
177,917

 
 
 
 
 
 
 
 
Property, plant and equipment, net
5,430

 
95,539

 
—

 
100,969

Investments in subsidiaries
387,868

 
—

 
(387,868
)
 
—

Goodwill
—

 
86,784

 
—

 
86,784

Intangible assets, net
—

 
46,582

 
—

 
46,582

Other assets
2,135

 
1,593

 
—

 
3,728

Total assets
$
605,624

 
$
597,848

 
$
(787,492
)
 
$
415,980

 
 
 
 
 
 
 
 
Liabilities and shareholders’ equity
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Accounts payable
$
1,393

 
$
11,763

 
$
—

 
$
13,156

Accrued expenses
17,009

 
13,006

 
—

 
30,015

Intercompany Payables
237,548

 
162,076

 
(399,624
)
 
—

Current installments of long-term debt and capital lease obligations
85

 
2,277

 
—

 
2,362

Total current liabilities
256,035

 
189,122

 
(399,624
)
 
45,533

 
 
 
 
 
 
 
 
Long-term debt and capital lease obligations, less current installments
229,752

 
17,881

 
—

 
247,633

Other long-term liabilities
1,881

 
2,441

 
—

 
4,322

Deferred income taxes
—

 
536

 
—

 
536

Total long-term liabilities
231,633

 
20,858

 
—

 
252,491

 
 
 
 
 
 
 
 
Total shareholders’ equity
117,956

 
387,868

 
(387,868
)
 
117,956

Total liabilities and shareholders’ equity
$
605,624

 
$
597,848

 
$
(787,492
)
 
$
415,980


17
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2016




CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended March 31, 2016
 
LMIA(Guarantor Parent)
 
Guarantor Subsidiaries
 
Consolidating/Eliminating Entries
 
Consolidated
Sales and service revenue
 
 
 
 
 
 
 
Product sales
$
58

 
$
75,804

 
$
—

 
$
75,862

Service revenues
11,378

 
11,527

 
(11,436
)
 
11,469

Net sales
11,436

 
87,331

 
(11,436
)
 
87,331

Cost of sales and service revenue
 
 
 
 
 
 
 

Cost of product sales
59

 
60,277

 
—

 
60,336

Cost of service revenues
11,395

 
10,836

 
(11,466
)
 
10,765

Cost of sales
11,454

 
71,113

 
(11,466
)
 
71,101

Gross profit
(18
)
 
16,218

 
30

 
16,230

Selling, general and administrative expenses

 
11,853

 


 
11,853

Restructuring expense
451

 
496

 
—

 
947

(Loss) income from operations
(469
)
 
3,869

 
30

 
3,430

Other income (expense):
 
 
 
 
 
 
 

Interest expense
(5,030
)
 
(233
)
 
—

 
(5,263
)
Other, net
2

 
(92
)
 
—

 
(90
)
Income (loss) from equity investments in subsidiaries
3,695

 
—

 
(3,695
)
 
—

Total other expense
(1,333
)
 
(325
)
 
(3,695
)
 
(5,353
)
(Loss) income before income taxes
(1,802
)
 
3,544

 
(3,665
)
 
(1,923
)
(Benefit) provision for income taxes
—

 
(164
)
 
—

 
(164
)
Net (loss) income
(1,802
)
 
3,708

 
(3,665
)
 
(1,759
)
Other comprehensive income (Expense):
 
 
 
 
 
 
 
Change in foreign currency translation adjustment
—

 
(13
)
 
—

 
(13
)
Total comprehensive (loss) income
$
(1,802
)
 
$
3,695

 
$
(3,665
)
 
$
(1,772
)

18
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2016




CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended March 31, 2015
 
LMIA(Guarantor Parent)
 
Guarantor Subsidiaries
 
Consolidating/Eliminating Entries
 
Consolidated
Sales and service revenue
 
 
 
 
 
 
 
Product sales
$
18

 
$
78,457

 
$
(18
)
 
$
78,457

Service revenues
9,213

 
13,993

 
(9,188
)
 
14,018

Net sales
9,231

 
92,450

 
(9,206
)
 
92,475

Cost of sales and service revenue
 
 
 
 
 
 
 

Cost of product sales
16

 
62,553

 
(18
)
 
62,551

Cost of service revenues
9,232

 
12,683

 
(9,188
)
 
12,727

Cost of sales
9,248

 
75,236

 
(9,206
)
 
75,278

Gross profit
(17
)
 
17,214

 
—

 
17,197

Selling, general and administrative expenses
129

 
12,480

 
—

 
12,609

Restructuring expense
89

 
186

 
—

 
275

(Loss) income from operations
(235
)
 
4,548

 
—

 
4,313

Other income (expense):
 
 
 
 
 
 
 

Interest expense
(5,319
)
 
(272
)
 
—

 
(5,591
)
Other, net
2

 
120

 
—

 
122

Income (loss) from equity investments in subsidiaries
2,411

 
—

 
(2,411
)
 
—

Total other expense
(2,906
)
 
(152
)
 
(2,411
)
 
(5,469
)
(Loss) income before income taxes
(3,141
)
 
4,396

 
(2,411
)
 
(1,156
)
(Benefit) provision for income taxes
(1,676
)
 
1,985

 
—

 
309

Net (loss) income
(1,465
)
 
2,411

 
(2,411
)
 
(1,465
)
Other comprehensive income (Expense):
 
 
 
 
 
 
 
Change in foreign currency translation adjustment
—

 
(79
)
 
—

 
(79
)
Total comprehensive (loss) income
$
(1,465
)
 
$
2,332

 
$
(2,411
)
 
$
(1,544
)


19
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2016



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2016
 
LMIA(Guarantor Parent)
 
Guarantor Subsidiaries
 
Consolidating/Eliminating Entries
 
Consolidated
Operating activities:
 
 
 
 
 
 
 
Net (loss)/income
(1,802
)
 
$
3,708

 
$
(3,665
)
 
$
(1,759
)
Adjustments for non-cash items
(2,526
)
 
4,519

 
3,665

 
5,658

Net changes in operating assets and liabilities, net of acquired businesses
(8,787
)
 
(2,356
)
 
—

 
(11,143
)
Intercompany activity
4,776

 
(4,776
)
 
—

 
—

Net cash (used)/provided by operating activities
(8,339
)
 
1,095

 
—

 
(7,244
)
Investing activities:
 

 
 

 
 

 
 

Additions to property, plant and equipment
(778
)
 
(1,640
)
 
—

 
(2,418
)
Proceeds from sale of equipment
—

 
6

 
—

 
6

Net cash used by investing activities
(778
)
 
(1,634
)
 
—

 
(2,412
)
Financing activities:
 

 
 

 
 

 
 

Proceeds from issuance of debt
—

 
1,465

 
—

 
1,465

Principal payments on long-term debt and notes payable
(22
)
 
(852
)
 
—

 
(874
)
Advances on revolving line of credit
2,000

 
—

 
—

 
2,000

Payments on revolving line of credit
(2,000
)
 
—

 
—

 
(2,000
)
Net cash provided (used)/provided by financing activities
(22
)
 
613

 
—

 
591

Net (decrease) increase in cash and cash equivalents
(9,139
)
 
74

 
—

 
(9,065
)
Cash and cash equivalents, beginning of period
10,251

 
253

 
—

 
10,504

Cash and cash equivalents, end of period
$
1,112

 
$
327

 
$
—

 
$
1,439



20
LMI Aerospace, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
March 31, 2016



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2015

 
LMIA(Guarantor Parent)
 
Guarantor Subsidiaries
 
Consolidating/Eliminating Entries
 
Consolidated
Operating activities:
 
 
 
 
 
 
 
Net (loss)/income
$
(1,465
)
 
$
2,411

 
$
(2,411
)
 
$
(1,465
)
Adjustments for non-cash items
(3,175
)
 
6,308

 
2,411

 
5,544

Net changes in operating assets and liabilities, net of acquired businesses
(3,583
)
 
(9,772
)
 
—

 
(13,355
)
Intercompany activity
(8,147
)
 
8,147

 
—

 
—

Net cash (used)/provided by operating activities
(16,370
)
 
7,094

 
—

 
(9,276
)
Investing activities:
 

 
 

 
 

 
 

Additions to property, plant and equipment
(25
)
 
(6,854
)
 
—

 
(6,879
)
Net cash used by investing activities
(25
)
 
(6,854
)
 
—

 
(6,879
)
Financing activities:
 

 
 

 
 

 
 

Principal payments on long-term debt and notes payable
(83
)
 
(531
)
 
—

 
(614
)
Advances on revolving line of credit
36,000

 
—

 
—

 
36,000

Payments on revolving line of credit
(24,500
)
 
—

 
—

 
(24,500
)
Payments for debt issuance cost
(94
)
 
—

 
—

 
(94
)
Net cash provided (used) by financing activities
11,323

 
(531
)
 
—

 
10,792

Net (decrease) increase in cash and cash equivalents
(5,072
)
 
(291
)
 
—

 
(5,363
)
Cash and cash equivalents, beginning of period
7,058

 
869

 
—

 
7,927

Cash and cash equivalents, end of period
$
1,986

 
$
578

 
$
—

 
$
2,564






Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. The Company makes forward-looking statements in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this Quarterly Report on Form 10-Q, which represent the Company’s expectations or beliefs about future events and financial performance.  When used in this report, the words “expect,” “believe,” “anticipate,” “goal,” “plan,” “intend,” “estimate,” “may,” “will” or similar words are intended to identify forward-looking statements.  These forward-looking statements are based on estimates, projections, beliefs and assumptions and are not guarantees of future events or results.  Such statements are subject to known and unknown risks, uncertainties and assumptions, including those referred to under “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 2015 (the “2015 Form 10-K”) and otherwise described in the Company’s periodic filings and current reports filed with the Securities and Exchange Commission (the “SEC”).


21

In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur.  In addition, actual results could differ materially from those suggested by the forward-looking statements.  Accordingly, investors are cautioned not to place undue reliance on the forward-looking statements.  Except as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  Investors should, however, review additional disclosures made by the Company from time to time in its periodic filings with the SEC.

This Quarterly Report on Form 10-Q should be read completely, in conjunction with our 2015 Form 10-K, as amended, and with the understanding that the Company’s actual future results may be materially different from what the Company expects.  All forward-looking statements made by the Company in this Quarterly Report on Form 10-Q and in the Company’s other filings with the SEC are qualified by these cautionary statements.

The condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require the Company to make estimates and assumptions.  (See Note 1 of the Condensed Consolidated Financial Statements included as part of this Quarterly Report on Form 10-Q.)

The Company believes that certain significant accounting estimates have the potential to have a more significant impact on the financial statements either because of the significance of the financial statements to which they relate or because they involve a higher degree of judgment and complexity.  A summary of such critical accounting estimates can be found in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in the 2015 Form 10-K.
Overview

We are a leading supplier of structural assemblies, kits and components and design engineering services to the aerospace and defense markets.  We primarily sell our products and services to the large commercial, corporate and regional, and military aircraft markets.    We believe that OEMs and Tier 1 aerospace companies will continue the trend of selecting their suppliers based upon the breadth of more complex and sophisticated design and manufacturing capabilities and value-added services and the ability of their suppliers to manage large production programs.

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.

Results of Operations

Three months ended March 31, 2016 compared to three months ended March 31, 2015

Consolidated Operations

Cost of goods sold for the Aerostructures segment consists primarily of direct labor, materials, subcontract costs and manufacturing overhead, including indirect labor costs, depreciation, rent, supplies and other indirect costs.  Cost of goods for the Engineering Services segment consists primarily of direct labor, subcontract costs and overhead, including rent, maintenance, and indirect costs. Selling, general, and administrative expenses for both segments consist primarily of labor, rent, depreciation and amortization, professional services and other administrative expenses.



22

The following table is a summary of the Company's operating results for the three months ended March 31, 2016 and 2015, respectively:
 
Three Months Ended 
 March 31, 2016
 
($ in millions)
 
Aerostructures
 
Engineering Services
 
Elimination
 
Total
Net sales
$
77.0

 
$
11.1

 
$
(0.8
)
 
$
87.3

Cost of sales
62.2

 
9.4

 
(0.5
)
 
71.1

Gross profit
14.8

 
1.7

 
(0.3
)
 
16.2

S, G, & A
11.3

 
1.5

 
—

 
12.8

Income from operations
$
3.5

 
$
0.2

 
$
(0.3
)
 
$
3.4

  
Three Months Ended 
 March 31, 2015
  
($ in millions)
  
Aerostructures
 
Engineering Services
 
Elimination
 
Total
Net sales
$
79.3

 
$
13.5

 
$
(0.3
)
 
$
92.5

Cost of sales
63.4

 
12.2

 
(0.3
)
 
75.3

Gross profit
15.9

 
1.3

 
—

 
17.2

S, G, & A
10.8

 
2.1

 
—

 
12.9

Income from operations
$
5.1

 
$
(0.8
)
 
$
—

 
$
4.3


Aerostructures Segment

Net Sales.  Net sales were $77.0 million for the first quarter of 2016, a 3.0% decrease from $79.3 million in the first quarter of 2015.  The following table specifies the amount of the Aerostructures segment’s net sales by category for the first quarter of 2016 and 2015 and the percentage of the segment’s total net sales for each period represented by each category:
 
 
Three Months Ended March 31,
Category
 
2016
 
% of Total
 
2015
 
% of Total
 
 
($ in millions)
Large commercial aircraft
 
$
44.8

 
58.2
%
 
$
42.2

 
53.2
%
Corporate and regional aircraft
 
17.3

 
22.5
%
 
20.5

 
25.9
%
Military
 
8.9

 
11.6
%
 
10.3

 
13.0
%
Other
 
6.0

 
7.7
%
 
6.3

 
7.9
%
Total
 
$
77.0

 
100.0
%
 
$
79.3

 
100.0
%

Net sales of large commercial aircraft products increased 6.2% in the first quarter of 2016 when compared to the first quarter of 2015. The most significant increase in revenue in the category was attributable to increased content and higher production rates on the Boeing 787 platform, which generated $8.0 million in the first quarter of 2016 compared to $6.5 million in the first quarter of 2015. We expect the Boeing 787 platform to generate similar levels of revenue throughout 2016. In addition, sales on the Bombardier C-Series platform contributed $1.3 million in additional sales volume when compared to the prior-year period.

Net sales of components for corporate and regional aircraft decreased 15.6% during the first quarter of 2016. The decrease in revenue was attributable to the Gulfstream G450/G550 program, which generated sales of $6.8 million in the first quarter of 2015 compared to $3.6 million in the first quarter of 2016.

Net sales of military products decreased 13.6% during the first quarter of 2016.  The decrease is primarily due to reductions in revenues on the Boeing F-18 and Lockheed Martin F-35 programs of $0.9 million and $0.7 million, respectively, from $1.3 million and $0.9 million, respectively, in the first quarter of 2015 to $0.4 million and $0.2 million, respectively in the first quarter of 2016.

Cost of Goods Sold.  Cost of goods sold for the first quarter of 2016 was $62.2 million compared to $63.4 million for the first quarter of 2015. Cost of goods sold in the first quarter of 2016 was favorably impacted by restructuring and other cost savings activities completed in 2015 and was partially offset by unfavorable product mix.


23



Gross Profit.  Gross profit for the first quarter of 2016 was $14.8 million (19.2% of net sales) compared to $15.9 million (20.1% of net sales) in the first quarter of 2015. Unfavorable product mix and the impact of lower volume contributed to the reduction in gross profit margin in the first quarter of 2016. This decline in gross profit margin was partially offset by benefits realized from restructuring activities completed during 2015.

Selling, General and Administrative Expenses.  Selling, general and administrative expenses were $11.3 million (14.7% of net sales) for the first quarter of 2016, compared to $10.8 million (13.6% of net sales) for the first quarter of 2015.  The increase was attributable to restructuring charges of $0.9 million recognized in the first quarter of 2016 compared to $0.3 million in the first quarter of 2015. Excluding the impact of these items, selling, general and administrative expenses were $10.4 million and $10.5 million in the first quarter of 2016 and 2015, respectively.

Engineering Services Segment

Net Sales.  The Engineering Services segment generates revenue primarily through the billing of employee time spent on customer projects.  Net sales for the Engineering Services segment were $11.1 million for the first quarter of 2016 as compared to $13.5 million for the first quarter of 2015, a decrease of 18.1%.  The following table specifies the amount of the Engineering Services segment’s net sales by category for the first quarter in each of 2016 and 2015 and the percentage of the segment’s total net sales represented by each category.
 
 
Three Months Ended March 31,
Category
 
2016
 
% of Total
 
2015
 
% of Total
 
 
($ in millions)
Large commercial aircraft
 
$
5.9

 
53.2
%
 
$
7.5

 
55.6
%
Corporate and regional aircraft
 
2.6

 
23.4
%
 
2.9

 
21.5
%
Military
 
2.2

 
19.8
%
 
2.5

 
18.5
%
Other
 
0.4

 
3.6
%
 
0.6

 
4.4
%
Total
 
$
11.1

 
100.0
%
 
$
13.5

 
100.0
%

Net sales of services for large commercial aircraft were $5.9 million in the first quarter of 2016, down 21.3% from $7.5 million in the first quarter of 2015. The decrease in this category was primarily attributable to a decline in sales on a Bombardier program, which contributed $2.0 million of revenue in the first quarter of 2015 compared to $1.3 million in revenue in the first quarter of 2016. In addition, sales related to maintenance and repair services declined to $3.3 million in the first quarter of 2016 compared to $3.8 million in the first quarter of 2015.

Net sales of services related to corporate and regional aircraft were $2.6 million in the first quarter of 2016 compared to $2.9 million for the first quarter of 2015, a decrease of 10.3%.  The decrease in revenue was primarily related to the Aerion AS2 program, which contributed $0.8 million of revenue in the first quarter of 2015 and $0.5 million in revenue in the first quarter of 2016.

Net sales of services for military programs were $2.2 million in the first quarter of 2016, down 12.0% from $2.5 million in the first quarter of 2015.  The decrease in this category was primarily attributable to a decline in sales on the Bell V-280 program, which contributed $0.5 million of revenue in the first quarter of 2015 and was completed in 2015.

Net sales related to design and delivery of tooling on various programs supporting commercial and military aircraft were $0.4 million for the first quarter of 2016 compared to $0.6 million in the first quarter of 2015. Tooling sales on various Boeing programs decreased $0.2 million in the first quarter of 2016 when compared to the first quarter of 2015.

Cost of Goods Sold. Cost of goods sold for the first quarter of 2016 was $9.4 million compared to $12.2 million for the first quarter of 2015.  The decrease in cost of goods sold was primarily due to reductions in direct labor, indirect labor and related fringe benefits resulting from lower demand for this segment and cost reduction activities completed in 2015.

Gross Profit.  Gross profit for the first quarter of 2016 was $1.7 million (15.1% of net sales) compared to $1.3 million (9.6% of net sales) in the first quarter of 2015.  The increase in gross profit was attributable to a decline in wages and related expenses resulting from cost reduction activities completed in 2015.



24

Selling, General and Administrative Expenses.  Selling, general and administrative expenses for the first quarter of 2016 were $1.5 million, or 13.4% of net sales, compared to $2.1 million, or 15.6% of net sales, for the first quarter of 2015. The decrease in selling, general and administrative expenses was primarily attributable to a decline in salary and related expenses of $0.5 million resulting from cost reduction activities completed in 2015.

Non-segment Expenses

Interest Expense.  Interest expense was $5.3 million for the first quarter of 2016 and $5.6 million for the first quarter of 2015.  

Income Tax Expense.  During the first quarter of 2016, the Company recorded an income tax benefit of $0.2 million compared to income expense of $0.3 million in the first quarter of 2015.  

The Company's tax expense in the three months ended March 31, 2015 reflects the recognition of a $0.4 million adjustment resulting from an audit of the Company's 2013 tax return by the Internal Revenue Service. This adjustment, which related to timing differences for certain deductions, is recoverable in future periods. However, due to the fact that the Company is in a full valuation allowance, the adjustment was reflected as an unfavorable charge to net income, as a valuation reserve is offsetting the deferred tax item. The recognition of this adjustment was offset by a current tax benefit of $0.1 million.

Non-GAAP Financial Measures

When viewed with the financial results prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and accompanying reconciliations, the Company believes earnings before interest, taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA provide additional useful information to clarify and enhance the understanding of the factors and trends affecting past performance and future prospects. The Company defines these measures, explains how they are calculated and provides reconciliations of these measures to the most comparable GAAP measure in the tables below. EBITDA and Adjusted EBITDA, as presented in this Form 10-Q, are supplemental measures of performance that are not required by, or presented in accordance with, GAAP.  They are not measurements of financial performance under GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with GAAP, or as alternatives to net cash provided by operating activities as measures of liquidity.  The presentation of these measures should not be interpreted to mean that future results will be unaffected by unusual or nonrecurring items.
 
The Company uses EBITDA and Adjusted EBITDA non-GAAP operating performance measures internally as complementary financial measures to evaluate the performance and trends of the business.  The Company presents EBITDA and Adjusted EBITDA because it believes that measures such as these provide useful information with respect to its ability to meet future debt service, capital expenditures, working capital requirements and overall operating performance.

EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of the Company’s results as reported under GAAP.  Some of these limitations are:
•
They do not reflect the Company’s cash expenditures, future expenditures for capital expenditures or contractual commitments;
•
They do not reflect changes in, or cash requirements for, working capital needs;
•
They do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on debt;
•
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
•
They are not adjusted for all non-cash income or expense items that are reflected in the statement of cash flows;
•
They do not reflect the impact on earnings of charges resulting from matters unrelated to ongoing operations; and
•
Other companies in the Company’s industry may calculate EBITDA and Adjusted EBITDA differently, limiting their usefulness as comparative measures.


25


Because of these limitations, EBITDA, Adjusted EBITDA and the related financial ratios should not be considered as measures of discretionary cash available to the Company to invest in the growth of the business or as a measure of cash that will be available to meet the Company’s obligations.  Furthermore, the definitions of EBITDA and adjusted EBITDA calculated here are different than those contained in the Company’s credit agreement.  You should compensate for these limitations by relying primarily on the GAAP results and using EBITDA and Adjusted EBITDA only supplementary.
 
However, in spite of the above stated limitations, the Company believes that EBITDA and Adjusted EBITDA are useful to an investor in evaluating the results of operations because these measures:
•
Are widely used by investors to measure a company’s operating performance without regard to items excluded from the calculation of such terms, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors;
•
Help investors to evaluate and compare the results of operations from period to period by removing the effect of the capital structure from operating performance; and
•
Are used by the management team for various other purposes in presentations to the Board of Directors as a basis for strategic planning and forecasting.
 
Adjusted EBITDA excludes acquisition and integration charges, as applicable, and provides meaningful information about the operating performance of the businesses apart from other non cash and non-recurring expenses, as well as interest and tax expense.
 
The following financial items have been added back to net income when calculating EBITDA:
•
Interest expense;
•
Income tax expense;
•
Depreciation; and
•
Amortization.
 
The following additional financial items have been added back to net income when calculating Adjusted EBITDA:
•
Stock-based compensation;
•
Integration–related expenses;
•
Restructuring expenses;
•
Other (net).

Reconciliations of net income to EBITDA and Adjusted EBITDA were as follows:
(In Thousands)
Three Months Ended March 31,
 
2016
 
2015
Net loss
$
(1,759
)

$
(1,465
)
Depreciation and amortization (1)
4,900


4,913

Interest expense
5,263


5,591

Income tax (benefit) expense
(164
)

309

EBITDA
8,240


9,348

Stock-based compensation (2)
752


907

Integration expenses
31


107

Restructuring expenses (3)
947


275

Other, net
170


(99
)
Adjusted EBITDA
$
10,140


$
10,538

(1)
Includes amortization of intangibles, amortization of long-term supply agreement consideration and depreciation expense.


26

(2)
Includes shared-based expense associated with the LMI Aerospace, Inc. 2005 Long-term Incentive Plan and the LMI Profit Sharing and Savings Plan. The quarter ended March 31, 2015 also includes share-based expense associated with the Valent Aerostructures, LLC 401(k) Plan and expenses associated with share-based payments to settle obligations under a consulting agreement.
(3)
Includes expenses related to general employment separation activities. The three months ended March 31, 2015 also include expenses related to the closure of the Company's St. Louis machining facility.
Liquidity and Capital Resources

At March 31, 2016, the Company's primary source of outstanding indebtedness was second priority senior secured notes that mature in July of 2019. These notes accrue interest at 7.375% and require semi-annual interest payments. The Company believes that cash generated from operations combined with the borrowings under these notes, in addition to available borrowings under its revolving credit facility, will provide the financial flexibility necessary to achieve its long-range strategic goals. For more information on the Company's debt structure, please see Note 5 - Long-term Debt and Capital Lease Obligations in the Notes to the Condensed Consolidated Financial Statements under Part 1, Item 1 of this Quarterly Report on Form 10-Q.

During the first three months of 2016 and 2015, the Company's operating activities used cash of $7.2 million and $9.3 million, respectively. Net cash provided by operating activities for the first three months of 2016 was unfavorably impacted by a $8.6 million interest payment associated with the outstanding notes. In addition, an increase of $6.5 million in accounts receivable related to the timing of customer payments also unfavorably impacted operating cash flow in the quarter. Inventory also increased in the quarter by $4.7 million, as the Company prepares for higher demand in subsequent quarters. Operating cash flow in the first quarter of 2016 was favorably impacted by an increase in accounts payable of $7.4 million, primarily due to the growth in inventory.

Net cash provided by operating activities for the first three months of 2015 was unfavorably impacted by a $4.8 million payment of cash consideration to a key customer pursuant to a strategic partnership agreement. In addition, in the first three months of 2015, the Company funded an interest payment of $10.3 million associated with its outstanding notes.

Net cash used for investing activities was $2.4 million for the first three months of 2016, compared to $6.9 million for the first three months of 2015. Capital spending in the first three months of 2016 primarily related to purchases of machinery to support our higher content on the Boeing 737 MAX platform at our Washington, MO manufacturing facility. In 2016, the Company expects to spend approximately $3.0 million to expand this facility. Capital spending in the first three months of 2015 primarily related to the purchase of machinery and equipment to support production contracts in addition to the purchase of equipment for environmental compliance at our Cuba, Missouri plant.

In the three months ended March 31, 2016, the Company used cash of $9.1 million to fund operating and investing activities, primarily the semi-annual interest on outstanding senior notes, made principle payments on other long-term debt of $0.9 million and borrowed $1.5 million to finance capital purchases. In the three months ended March 31, 2015, the Company used cash of $5.4 million and borrowed $11.5 million on its revolving credit facility to fund operating and investing activities, primarily the semi-annual interest on outstanding senior notes and capital purchases, and made principle payments on other long-term debt of $0.6 million.

The Company, in the ordinary course of business, evaluates strategies to enhance our results of operations, financial position, or liquidity. These strategies may include acquisitions, divestitures, opportunities to reduce costs or increase revenues, and other strategic initiatives to increase stockholder value. We are unable to predict which, if any, of these initiatives will be executed. The execution of these initiatives may have a material impact on our future results of operations, financial position, or liquidity.

Contractual Obligations and Commitments

For information concerning contractual obligations, see the caption “Contractual Obligations and Commitments” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results” in the Company’s 2015 Form 10-K, as amended.

Item 3.
Quantitative and Qualitative Disclosures about Market Risk.

No material changes have taken place in the quantitative and qualitative information about market risk since the end of the most recent fiscal year.  For further information, see Part II, Item 7A of the Company’s 2015 Form 10-K, as amended.


27

Item 4.
Controls and Procedures.

Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined by Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of March 31, 2016. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act (a) is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms and (b) is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.
 
Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 


28

PART II

OTHER INFORMATION
Item 1.
Legal Proceedings.

We are involved in various legal proceedings that arise in the ordinary course of our business, as well as other matters that are or could become material under SEC regulations.  Information regarding these other matters are disclosed in Note 12 - Legal Contingencies - in the Notes to the Condensed Consolidated Financial Statements under Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.





29

Risk Factors.

This Form 10-Q should be read together with Part I, Item 1A “RISK FACTORS” in our 2015 Form 10-K, which describes various risks and uncertainties to which we are or may become subject. There have been no material changes to the risk factors as previously disclosed in our Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 2015 filed with the Securities and Exchange Commission on March 17, 2016.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.
Defaults upon Senior Securities.

None.
Item 4.
Mine Safety Disclosures.

Not Applicable.
Item 5.
Other Information.
None.

Item 6.
Exhibits.

See Exhibit Index.


30

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, in the County of St. Charles and State of Missouri on the 9th day of May, 2016.

 
LMI AEROSPACE, INC.
 
 
 
/s/ Daniel G. Korte
 
Daniel G. Korte
 
Chief Executive Officer
 
(Principal Executive Officer)
 
 
 
/s/ Clifford C. Stebe, Jr.
 
Clifford C. Stebe, Jr.
 
Chief Financial Officer and Secretary
 
(Principal Financial Officer and Principal Accounting Officer)


31

EXHIBIT INDEX

Exhibit
No.
 
Description
 
 
 
3.1
 
Restated Articles of Incorporation of the Company previously filed as Exhibit 3.1 to the Company’s Form S-1 (File No. 333-51357) filed on April 29, 1998 (the “Form S-1”) and incorporated herein by reference.
 
 
 
3.2
 
Amended and Restated By-Laws of the Company previously filed as Exhibit 3.2 to the Form S-1 and incorporated herein by reference.
 
 
 
3.3
 
Amendment to Restated Articles of Incorporation dated as of July 9, 2001 filed as Exhibit 3.3 to the Company’s Form 10-K for the fiscal year ended December 31, 2001 and filed April 1, 2002 and incorporated herein by reference.
 
 
 
3.4
 
Amendment to the Company’s Amended and Restated Bylaws filed as Exhibit 3.1 to the Company’s Form 8-K filed June 26, 2009 and incorporated herein by reference.
 
 
 
3.5
 
Amendment No. 2 to the Company’s Amended and Restated Bylaws filed as Exhibit 3.1 to the Company’s Form 8-K filed May 6, 2015 and incorporated herein by reference.
 
 
 
4.1
 
Indenture dated as of June 19, 2014, by and among the Company, the Guarantors named therein, and U.S. Bank National Association, as Indenture Trustee and as Collateral Agent (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8‑K filed on June 20, 2014).
 
 
 
4.2
 
Forms of 7.375% Senior Secured Notes due 2019 (included as exhibits to the Indenture identified in Exhibit 4.1 above) (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8‑K filed on June 20, 2014).
 
 
 
4.3
 
Notes Collateral Agreement dated as of June 19, 2014, by and among the Company, the domestic Guarantors, and U.S. Bank National Association, as Collateral Agent, incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8‑K filed on June 20, 2014.
 
 
 
4.4
 
Notes Intellectual Property Security Agreement dated as of June 19, 2014, by and among the Company, certain Guarantors named therein, and U.S. Bank National Association, as Collateral Agent, incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8‑K filed on June 20, 2014.
 
 
 
4.5
 
Registration Rights Agreement dated as of June 19, 2014, by and among the Company, the Guarantors named therein and RBC Capital Markets, LLC, on behalf of itself and as representative of the other initial purchasers named therein, incorporated by reference to Exhibit 4.5 to the Company’s Current Report on Form 8‑K filed on June 20, 2014.
 
 
 
4.6
 
Intercreditor Agreement dated as of June 19, 2014, by and between Royal Bank of Canada, as First-Lien Collateral Agent, and U.S. Bank National Association, as Second-Lien Collateral Agent, incorporated by reference to Exhibit 4.6 to the Company’s Current Report on Form 8‑K filed on June 20, 2014.
 
 
 
10.1
 
Amendment No. 2 to the Employment Agreement by and between Daniel G. Korte and Registrant, dated January 6, 2016 filed as Exhibit 10.56 to the Registrant’s Form 10-K for the fiscal year ended on December 31, 2015, and filed on March 11, 2016, as amended, and incorporated herein by reference.

 
 
 
10.2
 
Amendment No. 1 to the Employment Agreement by and between Clifford C. Stebe, Jr. and Registrant, dated January 6, 2016 filed as Exhibit 10.57 to the Registrant’s Form 10-K for the fiscal year ended on December 31, 2015, and filed on March 11, 2016, as amended, and incorporated herein by reference.

 
 
 


32

10.3
 
Amendment No. 1 to the Employment Agreement by and between Joseph DeMartino and Registrant, dated January 6, 2016 filed as Exhibit 10.58 to the Registrant’s Form 10-K for the fiscal year ended on December 31, 2015, and filed on March 11, 2016, as amended, and incorporated herein by reference.

 
 
 
10.4
 
Amendment No. 1 to the Employment Agreement by and between Jennifer Alfaro and Registrant, dated January 6, 2016 filed as Exhibit 10.59 to the Registrant’s Form 10-K for the fiscal year ended on December 31, 2015, and filed on March 11, 2016, as amended, and incorporated herein by reference.

 
 
 
10.5
 
Amendment No. 3 to the Employment Agreement by and between Brian P. Olsen and Registrant, dated January 6, 2016 filed as Exhibit 10.60 to the Registrant’s Form 10-K for the fiscal year ended on December 31, 2015, and filed on March 11, 2016, as amended, and incorporated herein by reference.

 
 
 
31.1
 
Rule 13a-14(a) Certification of Daniel G. Korte, Chief Executive Officer filed herewith.
 
 
 
31.2
 
Rule 13a-14(a) Certification of Clifford C. Stebe, Jr., Chief Financial Officer filed herewith.
 
 
 
32.1
 
Certification of Daniel G. Korte, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herewith.
 
 
 
32.2
 
Certification of Clifford C. Stebe, Jr., Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herewith.
 
 
 
101.ins
 
Instance Document
 
 
 
101.sch
 
XBRL Taxonomy Extension Schema Document
 
 
 
101.cal
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.def
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
101.lab
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.pre
 
XBRL Taxonomy Extension Presentation Linkbase Document





33

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