FastenTech, Inc. Continues Positive Momentum; Reports Higher Fiscal 2005 First Quarter Results
MINNEAPOLIS--Jan. 2, 20057, 2005--FastenTech, Inc. today reported results for its fiscal 2005 first quarter ended December 31, 2004. Consolidated reported results exclude the Company's Application-specific segment, which is in the process of being divested and is reported as discontinued operations.Net sales from continuing operations in the current quarter were $65.8 million, an increase of $21.9 million or 50.0% higher than $43.9 million recorded in the same period last year. Current quarter net sales results included $10.2 million from businesses acquired after September 30, 2003. Excluding sales from acquired businesses, organic sales growth was 26.8%, reflecting broad based demand from industrial customers, especially heavy truck manufacturers, for specialized components, up 29.5%, and increased demand for aerospace-grade components, up 17.8%, primarily from military track vehicle manufacturers.
Operating income from continuing operations was $7.1 million in the current quarter compared to $4.6 million in the prior-year quarter, an increase of 53.9%, which was due in part to the positive impact of results from acquired businesses. Excluding the impact of acquired businesses, the current quarter performance benefited from increased sales volume and a favorable sales mix, combined with the positive impact of price increases implemented to cover higher raw materials costs.
The Company reported net income from continuing operations of $0.5 million for its current quarter compared to a net loss from continuing operations of ($0.6) million for the year ago first quarter.
Adjusted EBITDA from continuing operations increased 46.5%, or $3.0 million, in the current quarter to $9.5 million compared to $6.5 million recorded in the prior year quarter.
The Company believes operating income from continuing operations is the most directly comparable GAAP financial measure to the non-GAAP Adjusted EBITDA from continuing operations measure reported in its earnings releases. The calculation of Adjusted EBITDA from continuing operations is explained below in the section titled "Adjusted EBITDA Supplemental Information." For a reconciliation of GAAP financial information to the non-GAAP financial information appearing in this release, please refer to the "Sales, Adjusted EBITDA and Proforma Reconciliation" following the accompanying Condensed Consolidated Statements of Cash Flows.
Acquisition Update
The Company also reported that it completed three acquisitions in December 2004 for aggregate total consideration of $38.8 million: GCE Industries, a maker of engineered components, such as transition ducts, for the power generation and aerospace industry; Spun Metals, a manufacturer of precision metal spinnings and machined components used in the aerospace, power generation, and heating, ventilation, and air conditioning (HVAC) markets; and the assets of Special Processes of Arizona, a processor of thermal spray coatings used in high temperature turbine components for the aerospace industry. The Company said these businesses generated approximately $29.3 million in revenues over the last twelve months and expects these businesses to be immediately accretive to Adjusted EBITDA in fiscal year 2005. The acquisitions were financed with cash and borrowings under the Company's revolving credit facility.
The Company also entered into an asset purchase agreement with Triumph Engineered Solutions, Inc. to purchase certain assets of Triumph's Brookfield, Wisconsin facility that are used in the design and manufacture of land-based industrial gas turbine engine components. The transaction cost will be approximately $6.2 million and is expected to close in March 2005.
Quarterly Proforma Results from Continuing Operations
Due to their significant impact on results, the Company is presenting proforma results as if the following acquisitions, which were completed after the beginning of the first quarter of fiscal 2004, had occurred as of the beginning of the fiscal 2004 first quarter: Spiegelberg Manufacturing, Inc. (October 2003), Gear & Broach, Inc. (February 2004), MECO, Inc. (August 2004), Spun Metals, Inc., GCE Industries, Inc. and the assets of Special Processes of Arizona (December 2004). A complete reconciliation of proforma results to the comparable GAAP results is presented in the accompanying tables.
In the current first quarter, on a proforma basis, net sales increased 25.1% to $73.2 million and Adjusted EBITDA increased 24.5% to $11.2 million compared to a year ago in the first quarter.
Quarterly Conference Call
FastenTech will hold a conference call on Friday, January 28, 2005 at 10:30 a.m. ET to discuss its first quarter results. To access the call in a listen only mode, please dial (888) 855-5428 and provide the operator with confirmation code 4127235. A replay of the call will be available approximately two hours after the call has ended for a duration of five days. The replay may be accessed by dialing (888) 203-1112, using the same confirmation code.
FastenTech, Inc., headquartered in Minneapolis, Minnesota, is a leading manufacturer and marketer of highly engineered specialty components that provide critical applications to a broad range of end-markets, including the power generation, construction, industrial, military, recreational vehicles, medium- and heavy-duty truck, light truck, automotive, and aerospace markets.
Adjusted EBITDA Supplemental Information
Adjusted EBITDA from continuing operations is a non-GAAP measure presented in this press release as a supplemental disclosure to operating income. The Company uses Adjusted EBITDA as a basis for presenting and using financial data to aid it in making internal operating decisions. It defines Adjusted EBITDA as earnings before interest, taxes, depreciation, amortization, and non-operating items. Adjusted EBITDA is not intended to represent and should not be considered more meaningful than, or an alternative to, operating income, cash flows from operating activities or other measures of performance in accordance with generally accepted accounting principles.
The Company includes Adjusted EBITDA data because it is how management measures operating segment performance. It also realizes that certain investors use such information as one measure of an issuer's historical ability to service debt and as a measure of operations. However, because of potential inconsistencies in the method of calculation, Adjusted EBITDA is not necessarily comparable to other similarly titled captions used by other companies or used in the Company's debentures, credit, or other similar agreements.
Forward Looking Statements
The matters discussed in this press release may constitute forward-looking statements that are subject to many uncertainties. Forward-looking statements are identified by such forward-looking terms as "may," "will," "could," "should," "seeks," "intends," "estimates," "guidance," "expects," "believes," "anticipates" or "plans" or the negative thereof or other comparable terms, or by discussions of strategy, plans or intentions. In particular, any statements, express or implied, concerning future operating results or ability to generate revenues, income or cash flow to service debt are forward looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected. These include risks associated with: our actual versus expected internal growth; our high degree of leverage; our ability to comply with certain financial and other covenants in our loan agreements and indentures; the success or failure of our growth strategies, including international expansion; our ability to attract and retain customers; our ability to accurately predict our production capacity requirements; our ability to attract and retain key personnel; our ability, and the ability of our customers, to maintain good labor relations with our and their respective employees and the union representing them; our ability to develop and market new products and to innovate existing product lines; our ability to protect our intellectual property; the cost and availability of raw materials, especially steel; trends and conditions in our business, including trends in the markets that we serve; our ability to identify and integrate acquisitions; our future capital needs; our ability to continue to control costs and maintain quality; our ability to comply with applicable governmental laws and regulations and the cost of such compliance; and competitive conditions in the markets in which we operate. In light of these and other uncertainties, the inclusion of forward-looking statements in this press release should not be regarded as a representation by FastenTech that FastenTech's plans and objectives will be achieved. The Company does not assume any obligation to update any forward-looking statements or other information contained in this press release.
FastenTech, Inc. and Subsidiaries
Condensed Consolidated Statement of Operations - Unaudited
(Amounts in Thousands)
(Unaudited)
Three months ended
December 31,
2004 2003
-------- --------
Net sales $65,854 $43,916
Cost of sales 48,584 30,853
-------- --------
Gross profit 17,270 13,063
Selling, general and administrative expenses 10,123 8,420
-------- --------
Operating income 7,147 4,643
Other income (expense):
Interest expense (6,139) (5,558)
Other, net (128) 150
-------- --------
(6,267) (5,408)
-------- --------
Income (loss) from continuing operations before
income tax expense (benefit) 880 (765)
Income tax expense (benefit) 355 (201)
-------- --------
Income (loss) from continuing operations 525 (564)
Income from discontinued operations 166 1,494
-------- --------
Net income $691 $930
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FastenTech, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Amounts in Thousands)
December 31, September 30,
2004 2004
----------- ---------
Assets (Unaudited)
Current assets:
Cash and cash equivalents $8,868 $28,819
Accounts receivable, net 43,835 42,893
Inventory 60,947 52,433
Other current assets 3,617 3,733
Current assets of discontinued operations 5,209 5,717
----------- ---------
Total current assets 122,476 133,595
Goodwill and intangible assets, net 63,929 41,455
Property, plant and equipment, net 74,181 61,105
Other assets 9,031 9,001
Noncurrent assets of discontinued operations 8,643 8,927
----------- ---------
Total assets $278,260 $254,083
=========== =========
Liabilities and Stockholders' Equity
(Deficiency in Assets)
Current liabilities:
Accounts payable $23,360 $23,583
Other accrued liabilities 14,915 27,161
Current liabilities of discontinued
operations 2,501 3,796
----------- ---------
Total current liabilities 40,776 54,540
Revolving credit facility 35,000 -
11.5% senior subordinated notes, due May
2011 175,000 175,000
Other long-term liabilities 39,276 37,703
----------- ---------
Total liabilities 290,052 267,243
Redeemable preferred stock 23,422 23,422
Stockholders' equity (deficiency in assets) (35,214) (36,582)
----------- ---------
Total liabilities and stockholders' equity
(deficiency in assets) $278,260 $254,083
=========== =========
FastenTech, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows - Unaudited
(Amounts in Thousands)
(Unaudited)
Quarter ended
December 31,
2004 2003
-------- -------
Cash flows from operating activities
Net income (loss) from continuing operations $525 $(564)
Adjustments to reconcile net income (loss) from
continuing operations to net cash used in
operating activities:
Depreciation 2,089 1,842
Amortization 263 -
Noncash interest expense 355 282
Change in operating assets and liabilities (16,305) (2,358)
-------- -------
Net cash used in operating activities from
continuing operations (13,073) (798)
Cash flows from investing activities
Cash used for acquisitions, net of cash acquired (38,759) (5,160)
Additions to property, plant and equipment (3,243) (1,019)
-------- -------
Net cash used in investing activities from
continuing operations (42,002) (6,179)
Cash flows from financing activities
Borrowings on revolving credit facility 35,000 2,000
Repurchase of redeemable and subsidiary preferred
stock - (1,050)
Other 27 -
-------- -------
Net cash provided by financing activities from
continuing operations 35,027 950
Effect of exchange rate fluctuations on cash 433 161
Net cash provided by (used in) discontinued
operations (336) 2,898
-------- -------
Net decrease in cash and cash equivalents (19,951) (2,968)
Cash and cash equivalents at beginning of period 28,819 10,128
-------- -------
Cash and cash equivalents at end of period $8,868 $7,160
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FastenTech, Inc. and Subsidiaries
Supplemental Information - Unaudited
Sales, Adjusted EBITDA, Proforma Reconciliation
(Amounts in Thousands)
(Unaudited)
Three months ended
December 31,
Sales Reconciliation: 2004 2003
--------------------------------------------------- -------- --------
Net Sales per income statement $65,854 $43,916
Pre-acquisition sales of acquired companies 7,389 14,636
-------- --------
Proforma Sales (1) $73,243 $58,552
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Three months ended
December 31,
EBITDA Reconciliation: 2004 2003
--------------------------------------------------- -------- --------
Income (loss) from continuing operations $525 $(564)
Add back:
Income tax expense (benefit) 355 (201)
Interest expense 6,139 5,558
Other, net, primarily gains / losses on sales of
fixed assets and realized gains / losses on
foreign currency transactions 128 (150)
-------- --------
Operating income 7,147 4,643
Depreciation and amortization 2,352 1,842
-------- --------
Adjusted EBITDA 9,499 6,485
Pre-acquisition operating income of acquired
companies 1,264 1,849
Pre-acquisition depreciation and amortization of
acquired companies 455 678
-------- --------
Proforma adjusted EBITDA (1) $11,218 $9,012
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(1) The unaudited Proforma information assumes that the acquisitions
of Spiegelberg Manufacturing, Inc. Gear & Broach, Inc., MECO,
Inc., Spun Metals, Inc., GCE Industries, Inc. and Special
Processes of Arizona had occurred at the beginning of the quarter
ended December 31, 2003. The pro forma results are not necessarily
indicative of what actually would have occurred if the transaction
had been in effect for the periods presented, are not intended to
be a projection of future results, and do not reflect any cost
savings that might be achieved from the combined operations. The
Condensed Consolidated Income Statements include the operating
results for the acquired companies from the date of acquisition.