FastenTech, Inc. Posts Strong Results for Fiscal 2005 Second Quarter
MINNEAPOLIS--April 28, 2005--FastenTech, Inc. today reported results for its fiscal 2005 second quarter and six months ended March 31, 2005. Consolidated reported results exclude the Company's Application-specific segment, which is in the process of being divested and is reported as discontinued operations.Second Quarter Results
Net sales from continuing operations in the current quarter were $78.6 million, an increase of $25.0 million or 46.5% higher than $53.6 million recorded in the same period last year. Current quarter net sales results included $16.3 million from businesses acquired after December 31, 2003. Excluding sales from acquired businesses, organic sales growth was 16.1%, reflecting broad based demand from industrial customers, with specialized components up 21.5% due primarily to demand in the industrial and heavy truck markets, and aerospace-grade components up 10.1%, primarily due to increased demand from the military track vehicle and recreational markets.
Operating income from continuing operations increased 18.8% to $8.7 million in the current quarter compared to $7.3 million in the prior-year quarter, which was due primarily to the positive impact of results from acquired businesses.
The Company reported net income from continuing operations of $0.4 million for its current quarter compared to $0.9 million for the year ago second quarter. The decrease relates to $1.2 million of non-cash interest expense on the Company's redeemable preferred stock recorded in accordance with Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity", which the Company adopted effective January 1, 2005. This standard requires that dividends associated with redeemable preferred stock be included as interest expense in the income statement.
"We achieved solid performance results in the second quarter, reflecting continued growth momentum from the global industrial markets we serve," said Ron Kalich, President and Chief Executive Officer. "We benefited both from solid organic growth due to broad-based demand from our key industrial markets, as well as from the acquisitions we completed over the past 18 months. Moreover, we continued to build our core capabilities and global reach with the completion of the Triumph asset acquisition, the opening of a start up industrial manufacturing operation in Northern China and integration of the acquisitions we completed late last year."
Six-Month Results
Net sales from continuing operations for the current six-month period increased 48.1%, or $46.9 million, to $144.5 million, compared to $97.6 million recorded in the same period last year. Current year to date net sales results included $26.5 million from businesses acquired after September 30, 2003. Excluding sales from acquired businesses, organic sales growth was 20.9%, reflecting broad based demand from industrial customers, with specialized components up 26.5%, primarily in the industrial, construction and heavy truck markets, and aerospace-grade components up 13.4%, primarily due to increased demand from the military track vehicle and recreational markets.
Operating income from continuing operations increased 32.4% to $15.8 million in the current six-month period compared to $12.0 million in the prior-year six-month period, which was due in part to the positive impact of results from acquired businesses. Excluding the impact of acquired businesses, the current period performance benefited from increased sales volume and the ability to pass on price increases related to higher raw materials costs.
The Company reported net income from continuing operations of $0.9 million for the current six-month period compared to $0.4 million for the year ago six-month period.
Second Quarter and Six Months Proforma Results from Continuing Operations
Due to the 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 fiscal 2004: 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 second quarter, on a proforma basis, net sales from continuing operations increased 19.4% to $78.6 million and Adjusted EBITDA from continuing operations increased 7.9% to $11.9 million compared to a year ago in the second quarter. For the current six-month period, on a proforma basis, net sales from continuing operations increased 22.2% to $151.9 million and Adjusted EBITDA from continuing operations increased 15.3% to $23.1 million.
Acquisition Update
The Company also reported that on March 29, 2005 it completed the previously announced transaction 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 for approximately $6.0 million. This acquisition did not have a material impact on the results of operations for the three and six month periods ended March 31, 2005.
Completion of Exchange Offer
On April 14, 2005, $145.0 million in aggregate principal amount of the Company's outstanding Old Notes were tendered and exchanged for a like principal amount of its new 11 1/2% senior subordinated notes due 2011 ("New Notes"). The New Notes are substantially similar to the Old Notes, except that the issuance of the New Notes has been registered under the Securities Act of 1933, as amended, and therefore are freely tradable. Upon completion of the exchange offer, the Company's obligation to pay the 1% penalty interest rate on the Old Notes ceased.
Outlook
"We remain quite positive about our prospects for the balance of fiscal 2005, assuming we continue to see the strong demand from our key industrial markets that we've experienced thus far in fiscal 2005," said Ron Kalich.
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, industrial, military, construction, medium- heavy duty truck, recreational and automotive/ light truck markets. For more information about the Company, please visit: www.fastentech.com.
Adjusted EBITDA and other Non-GAAP Supplemental Information
Adjusted EBITDA from continuing operations and proforma results from continuing operations are non-GAAP measures presented in this press release as supplemental disclosures to operating income and reported results. 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. Proforma results are presented to aid in the analyses of reported results because of the significant acquisition and divestiture activity the Company has engaged in over the past twenty four months. Proforma results are calculated as if the acquisitions that were completed after the beginning of a reported accounting period had occurred as of the beginning of the respective accounting period. Adjusted EBITDA, nor proforma results are 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 and proforma results 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 nor proforma results are 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, statements made in the "Outlook" paragraph above, or any other 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 Six Months ended
March 31, March 31,
2005 2004 2005 2004
------------------ ------------------
Net sales $78,596 $53,644 $144,450 $97,560
Cost of sales 58,777 37,275 107,361 68,128
------------------ ------------------
Gross profit 19,819 16,369 37,089 29,432
Selling, general and
administrative expenses 11,143 9,066 21,266 17,486
------------------ ------------------
Operating income 8,676 7,303 15,823 11,946
Other income (expense):
Interest expense - long term
debt (6,473) (5,646) (12,612) (11,204)
Interest expense - redeemable
preferred stock (1,175) - (1,175) -
Other, net 313 107 185 257
------------------ ------------------
(7,335) (5,539) (13,602) (10,947)
------------------ ------------------
Income from continuing
operations before
income tax expense 1,341 1,764 2,221 999
Income tax expense 987 823 1,342 622
------------------ ------------------
Income from continuing
operations 354 941 879 377
Income from discontinued
operations 90 1,709 256 3,203
------------------ ------------------
Net income $444 $2,650 $1,135 $3,580
Less preferred stock dividends - (1,151) (1,169) (2,287)
-------------------------------------
Net income (loss) applicable to
common stockholders $444 $1,499 $(34) $1,293
FastenTech, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Amounts in Thousands)
March 31, September 30,
2005 2004
--------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $11,470 $28,819
Accounts receivable, net 49,527 42,893
Inventory 65,757 52,433
Other current assets 3,566 3,733
Current assets of discontinued
operations 5,595 5,717
--------------------------
Total current assets 135,915 133,595
Goodwill and intangible assets, net 65,279 41,455
Property, plant and equipment, net 78,483 61,105
Other assets 8,405 9,001
Noncurrent assets of discontinued
operations 8,419 8,927
--------------------------
Total assets $296,501 $254,083
==========================
Liabilities and Stockholders' Equity
(Deficiency in Assets)
Current liabilities:
Accounts payable $29,070 $23,583
Other accrued liabilities 18,673 27,161
Current liabilities of discontinued
operations 2,844 3,796
--------------------------
Total current liabilities 50,587 54,540
Long-term debt 217,000 175,000
Redeemable preferred stock 23,422 -
Other long-term liabilities 41,211 37,703
--------------------------
Total liabilities 332,220 290,665
Redeemable preferred stock - 23,422
Stockholders' equity (deficiency in assets) (35,719) (36,582)
--------------------------
Total liabilities and stockholders' equity
(deficiency in assets) $296,501 $254,083
==========================
FastenTech, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows - Unaudited
(Amounts in Thousands)
(Unaudited)
Six months ended
March 31,
2005 2004
--------------------------
Cash flows from operating activities
Net income from continuing operations $879 $377
Adjustments to reconcile net income from
continuing operations to net cash used
in operating activities:
Depreciation 4,935 3,741
Amortization 609 53
Noncash interest expense - long term debt 703 559
Noncash interest expense - redeemable
preferred stock 1,175 -
Change in operating assets and
liabilities (15,335) 4,993
--------------------------
Net cash provided by (used in) operating
activities from continuing operations (7,034) 9,723
Cash flows from investing activities
Cash used for acquisitions, net of cash
acquired (45,101) (18,342)
Additions to property, plant and equipment (7,397) (3,501)
--------------------------
Net cash used in investing activities from
continuing operations (52,498) (21,843)
Cash flows from financing activities
Borrowings on revolving credit facility 42,000 8,000
Repurchase of redeemable and subsidiary
preferred stock - (1,050)
Other 27 -
--------------------------
Net cash provided by financing activities
from continuing operations 42,027 6,950
Effect of exchange rate fluctuations on cash 189 87
Net cash provided by (used in) discontinued
operations (33) 4,340
--------------------------
Net decrease in cash and cash equivalents (17,349) (743)
Cash and cash equivalents at beginning of
period 28,819 10,128
--------------------------
Cash and cash equivalents at end of period $11,470 $9,385
==========================
FastenTech, Inc. and Subsidiaries
Supplemental Information - Unaudited
Sales, Adjusted EBITDA, Proforma Reconciliation
(Amounts in Thousands)
(Unaudited)
Three months ended Six months ended
March 31, March 31,
Sales Reconciliation: 2005 2004 2005 2004
--------------------- ------------------ ------------------
Net Sales per income statement $78,596 $53,644 $144,450 $97,560
Pre-acquisition sales of
acquired companies - 12,160 7,460 26,786
------------------ ------------------
Pro Forma Sales (1) $78,596 $65,804 $151,910 $124,346
================== ==================
Three months ended Six Months ended
March 31, March 31,
EBITDA Reconciliation: 2005 2004 2005 2004
---------------------- ------------------ ------------------
Income from continuing
operations $354 $941 $879 $377
Add back:
Income tax expense 987 823 1,342 622
Depreciation and amortization 3,191 1,954 5,544 3,794
Interest expense - long term
debt 6,473 5,646 12,612 11,204
Interest expense - redeemable
preferred stock 1,175 - 1,175 -
------------------ ------------------
Reported EBITDA $12,180 $9,364 $21,552 $15,997
================== ==================
Less: Other income, net,
included above 313 107 185 257
Adjusted EBITDA $11,867 $9,257 $21,367 $15,740
Pre-acquisition operating income
of acquired companies - 1,088 1,262 2,936
Pre-acquisition depreciation and
amortization of acquired
companies - 651 442 1,331
------------------ ------------------
Pro Forma Adjusted EBITDA (1) $11,867 $10,996 $23,071 $20,007
================== ==================
(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 and six months
ended March 31, 2004. 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.