FastenTech, Inc. Reports Fiscal 2005 Fourth Quarter and Full Year Results
MINNEAPOLIS--Nov. 2, 20058, 2005--FastenTech, Inc. today reported its results for the fiscal 2005 fourth quarter and the full year ended September 30, 2005. The Company also announced it suspended plans to divest the remaining business unit in its application-specific components segment. Therefore, the Company has included this business unit's results in its consolidated results from continuing operations.Full Year Results
Net sales from continuing operations for fiscal 2005 increased 35%, or $85.1 million, to $327.5 million, compared to $242.4 million recorded in fiscal 2004. Current full year net sales results included $59.5 million from businesses acquired after September 30, 2004. Excluding sales from the acquired businesses, organic sales grew 11%. This reflects a 21% increase in specialized component sales driven by solid demand from industrial, construction and medium and heavy truck customers. Increased demand from the recreational and military tracked vehicle markets was offset by lower end market demand for certain large gas turbine components, which drove aerospace-grade segment sales down 2%. Lower demand from light vehicle OEMs pushed sales of application-specific components down 3%.
Operating income from continuing operations was $34.8 million in fiscal 2005 compared to $17.2 million in fiscal 2004. The increase reflects the incremental operating income from acquired businesses, which contributed approximately $5.6 million to the increase in operating income. The current year results include a $1.6 million non-cash charge for asset dispositions associated with a warehouse consolidation project within the specialized components segment. The year ago fourth quarter results included a non-cash goodwill impairment charge of $14.0 million in the application-specific components segment and a $1.0 million non-cash impairment charge in the specialized components segment. In addition, fiscal 2005 results included a $0.2 million restructuring charge for workforce reductions in the aerospace-grade segment.
The Company reported net income from continuing operations of $6.4 million for fiscal 2005 compared to a net loss from continuing operations of $2.3 million for fiscal 2004. Fiscal 2005 results included a $6.3 million increase in interest expense. The adoption of Statement of Financial Accounting Standards No. 150 accounted for approximately $3.5 million of the increase in interest expense. Higher outstanding debt and higher interest rates accounted for the balance of the increase. Fiscal 2005 results also included a $4.0 million gain on the Company's preferred stock repurchase.
Fourth Quarter Results
Net sales from continuing operations in the current quarter increased 31%, or $21.5 million, to $91.6 million from $70.1 million recorded in the same period last year. Current quarter net sales included $20.1 million from businesses acquired after September 30, 2004. Excluding sales from acquired businesses, organic sales grew 1%. Sales of specialized components increased 13% due to higher demand from industrial and construction customers. Sales of application-specific components increased 16% due to higher demand from light vehicle original equipment manufacturers. A 16% decline in sales of aerospace-grade components partially offset these gains. The sales decline in aerospace-grade components included a 25% decline in sales of gas turbine components due to lower end market demand for certain large gas turbines and a 10% decline in military track vehicle components due to lower aftermarket demand.
Operating income from continuing operations in the current quarter was $9.3 million compared to an operating loss from continuing operations of $5.8 million in the prior year quarter. Excluding the impact of the non-cash charges recorded in the 2005 and 2004 fourth quarters and discussed above in the full year results, operating income would have been $10.9 million in the current quarter and $9.2 million in the prior year quarter.
The Company reported net income from continuing operations of $4.7 million in the current quarter compared to a net loss from continuing operations of $5.8 million a year ago. The current quarter results reflect the $4 million gain on the repurchase of redeemable preferred stock and a $1.8 million increase in interest expense. Approximately $1.0 million of the increase in interest expense was due to the Company's adoption of Statement Financial Accounting Standards No. 150 on January 1, 2005. SFAS 150 requires the Company to record non-cash dividends on redeemable preferred stock as interest expense.
"As expected, lower end market demand for new gas turbine units, particularly in North America, continued to moderate our organic top line growth in the quarter. However, we remain optimistic about the recovery and future growth prospects for this market as we continue to see improving OEM demand on the MRO side of this business," said Ron Kalich, President and Chief Executive Officer. "We also continued our solid performance trend in the fourth quarter, with strong demand from our industrial and construction markets while our operating team continued to do an excellent job implementing cost savings and productivity initiatives."
Fourth Quarter and Full Year Proforma Results from Continuing Operations
The Company acquired the following businesses after the beginning of the first quarter of fiscal 2004: Spiegelberg Manufacturing, Inc. (October 2003); Gear & Broach, Inc. (February 2004); MECO, Inc. (August 2004); Spun Metals, Inc.; GCE Industries, Inc., the assets of Special Processes of Arizona (December 2004); the assets of Triumph Engineered Solutions Wisconsin (March 2005); Acraline Products, Inc. (June 2005); and General Products, Aerospace & Defense LLC (f/k/a/ General Products Acquisition, LLC) (August 2005). Because of the significant impact these acquisitions had on the Company's results of operations, the Company is presenting the following proforma information as if these acquisitions occurred at the beginning of fiscal 2004. A schedule reconciling this proforma information to GAAP results is provided in the accompanying tables.
Compared to a year ago, current fourth quarter proforma net sales from continuing operations increased 3% to $92.6 million and proforma Adjusted EBITDA from continuing operations decreased 5% to $14.9 million. The decrease in proforma Adjusted EBITDA reflects a decline in proforma Adjusted EBITDA from the aerospace-grade and application-specific segments. Aerospace-grade proforma Adjusted EBITDA declined $0.9 million due to lower sales of certain gas turbine components, higher sales of lower margin gear components, and approximately $0.5 million in one-time proforma Adjusted EBITDA gains in fiscal 2004. Proforma Adjusted EBITDA in the application-specific segment declined $0.4 million due to the inability to pass on higher raw material costs to light vehicle OEMs. In addition, fiscal 2005 fourth quarter results included $0.2 million of one time start up costs in our specialized components segment. For fiscal 2005, proforma net sales from continuing operations increased 13% to $370.1 million and proforma Adjusted EBITDA from continuing operations increased 9% to $59.2 million, which included $1.6 million of one-time start up costs in 2005.
Acquisition Update
The Company also reported that in August 2005 it acquired Alabama-based General Products, a manufacturer of sheet metal assemblies and components serving the aerospace industry, including NASA. The Company funded the $7.0 million purchase with cash on hand and borrowings under the Company's senior credit agreement.
Quarterly Conference Call
FastenTech will hold a conference call on Tuesday, November 29, 2005 at 9:00 a.m. ET to discuss its fiscal 2005 fourth quarter and full year results. Please dial (800) 274-0251 and provide the operator with confirmation code 3247444 to participate in the call in listen only mode. A replay of the call will be available approximately two hours after the call until Monday, December 5, 2005. To replay the call dial (888) 203-1112 and use the same confirmation code. In addition, three business days after the conference call, a transcript of the call will be available on the Company's website (www.fastentech.com) under the Investor Relations tab.
Outlook
"Our outlook remains essentially unchanged from earlier in the year, with positive expectations for our long term growth. We remain cautious, however, in our near term outlook due to the impact on results from the expected year end holiday plant shut downs, as well as limited visibility in the timing of the eventual recovery of the end market for certain of our customers' large gas turbine machines and the expectation for continued lower demand for certain of our military track vehicle products," said Ron Kalich.
About the Company
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 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. Neither 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, neither Adjusted EBITDA nor proforma results are necessarily comparable to other similarly titled captions used by other companies or definitions 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. Further information concerning factors that could cause actual results to differ materially from those in the forward-looking statements are contained from time to time in the Company's SEC filings which can be viewed on the Company's website at www.fastentech.com or at www.sec.gov.
FastenTech, Inc. and Subsidiaries
Condensed Consolidated Statement of Operations - Unaudited
(Amounts in Thousands)
Three months ended Twelve Months ended
September 30, September 30,
2005 2004 2005 2004
------- -------- -------- --------
Net sales $91,566 $ 70,113 $327,516 $242,414
Cost of sales 66,546 50,016 243,199 170,711
------- -------- -------- --------
Gross profit 25,020 20,097 84,317 71,703
Selling, general and
administrative expenses 14,154 10,814 47,661 39,455
Impairment of long lived
assets/restructuring 1,597 15,045 1,813 15,045
------- -------- -------- --------
Operating income 9,269 (5,762) 34,843 17,203
Other income (expense):
Interest expense - long term
debt (7,101) (6,238) (26,139) (23,318)
Interest expense - redeemable
preferred stock (989) - (3,454) -
Gain on repurchase of
redeemable preferred stock 4,035 - 4,035 -
Other, net (103) 33 363 346
------- -------- -------- --------
(4,158) (6,205) (25,195) (22,972)
------- -------- -------- --------
Income from continuing
operations before income tax
expense 5,111 (11,967) 9,648 (5,769)
Income tax expense 413 (6,194) 3,250 (3,499)
------- -------- -------- --------
Income from continuing
operations 4,698 (5,773) 6,398 (2,270)
Income from discontinued
operations - 8,207 - 11,731
------- -------- -------- --------
Net income $ 4,698 $ 2,434 $ 6,398 $ 9,461
Less preferred stock dividends - (1,059) (1,169) (3,399)
Premium on preferred stock
repurchase - - - (851)
------- -------- -------- --------
Net income applicable to common
stockholders $ 4,698 $ 1,375 $ 5,229 $ 5,211
======= ======== ======== ========
FastenTech, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Amounts in Thousands)
September 30, September 30,
2005 2004
------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 11,730 $ 29,222
Accounts receivable, net 57,427 45,551
Inventory 78,832 54,872
Other current assets 4,983 3,950
------------ ------------
Total current assets 152,972 133,595
Goodwill and intangible assets, net 103,294 41,455
Property, plant and equipment, net 90,532 66,892
Other assets 10,591 11,806
------------ ------------
Total assets $ 357,389 $ 253,748
============ ============
Liabilities and Stockholders' Equity
(Deficiency in Assets)
Current liabilities:
Accounts payable $ 29,272 $ 25,473
Accrued Interest 8,745 8,945
Other accrued liabilities 14,160 20,122
Current portion of long-term debt 5,000 -
------------ ------------
Total current liabilities 57,177 54,540
Long-term debt 277,000 175,000
Redeemable preferred stock 17,481 -
Other long-term liabilities 36,839 37,368
------------ ------------
Total liabilities 388,497 266,908
Redeemable preferred stock - 23,422
Stockholders' equity (deficiency in assets) (31,108) (36,582)
------------ ------------
Total liabilities and stockholders' equity
(deficiency in assets) $ 357,389 $ 253,748
============ ============
FastenTech, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(Amounts in Thousands)
(Unaudited)
Twelve months ended
September 30,
2005 2004
---------- ---------
Cash flows from operating activities
Net income from continuing operations $ 6,398 $ (2,270)
Adjustments to reconcile net income from
continuing
operations to net cash provided by (used in)
operating activities:
Depreciation 10,995 8,858
Amortization 2,340 383
Write-off of goodwill - 14,027
Noncash interest expense - long term debt 1,444 1,179
Noncash interest expense - redeemable
preferred stock (581) -
Loss on write-off of property, plant and
equipment 1,597 1,018
Deferred Income taxes (255) (2,444)
Changes in operating assets and liabilities:
Accounts receivable (2,755) (9,167)
Inventory (13,240) (9,157)
Income taxes (3,864) 3,290
Other current assets (80) (1,100)
Accounts payable (2,102) 10,086
Other current liabilities (6,884) 4,036
Other 371 (689)
--------- ---------
Net cash provided by (used in) operating
activities from continuing operations (6,616) 18,050
Cash flows from investing activities
Cash provided by divestures, net of expenses - 48,440
Cash used for acquisitions, net of cash acquired (85,595) (26,936)
Additions to property, plant and equipment (14,480) (10,228)
--------- ---------
Net cash provided by (used in) investing
activities from continuing operations (100,075) 11,276
Cash flows from financing activities
Borrowings on revolving credit facility 99,000 (8,000)
Debt issuance costs (1,363) (1,121)
Repurchase of common and preferred stock (8,485) (6,141)
Other 26 8
--------- ---------
Net cash provided by (used in) financing
activities from continuing operations 89,178 (15,254)
Effect of exchange rate fluctuations on cash 21 139
Net cash provided by discontinued operations - 4,652
--------- ---------
Net increase (decrease) in cash and cash
equivalents (17,492) 18,863
Cash and cash equivalents at beginning of period 29,222 10,359
Cash and cash equivalents at end of period $ 11,730 $ 29,222
========= =========
FastenTech, Inc. and Subsidiaries
Supplemental Information - Unaudited
Sales, Adjusted EBITDA, Proforma (1) Reconciliation
(Amounts in Thousands)
Three months ended Twelve Months ended
September 30, September 30,
Sales Reconciliation: 2005 2004 2005 2004
------------------------------ -------- ------- -------- --------
Net Sales per income statement $ 91,566 $70,113 $327,516 $242,414
Pre-acquisition sales of
acquired companies 996 20,121 42,608 84,219
-------- ------- -------- --------
Pro Forma Sales $ 92,562 $90,234 $370,124 $326,633
======== ======= ======== ========
EBITDA Reconciliation:
------------------------------
Income from continuing
operations $ 4,698 $(5,773) $ 6,398 $ (2,270)
Add back:
Income tax expense 413 (6,194) 3,250 (3,499)
Depreciation and amortization 3,829 2,449 13,335 9,241
Interest expense - long term
debt 7,101 6,238 26,139 23,318
Interest expense - redeemable
preferred stock 989 - 3,454 -
Gain on repurchase of
redeemable preferred stock (4,035) - (4,035) -
-------- -------- --------- ---------
Reported EBITDA $ 12,995 $(3,280) $ 48,541 $ 26,790
======== ======= ======== ========
Memo: Other income, net,
included above 103 (33) (363) (346)
Memo: Impairment of long-lived
assets/restructuring charges
included above 1,597 15,045 1,813 15,045
-------- ------- -------- --------
Adjusted EBITDA $ 14,695 $11,732 $ 49,991 $ 41,489
Pre-acquisition operating
income of acquired companies 147 2,652 6,981 6,942
Pre-acquisition depreciation
and amortization of acquired
companies 32 1,331 2,256 5,699
-------- ------- -------- --------
Pro Forma Adjusted EBITDA $ 14,874 $15,715 $ 59,228 $ 54,130
======== ======= ======== ========
(1) The unaudited Proforma information assumes that the acquisitions
of Spiegelberg Manufacturing, Inc. Gear & Broach, Inc., MECO,
Inc., Spun Metals, Inc., GCE Industries, Inc., the assets of
Special Processes of Arizona, the assets of Triumph Engineered
Solutions Wisconsin facility, Acraline Products, Inc., and General
Products had occurred at the beginning of the quarter and
full year ended September 30, 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.
FastenTech, Inc. and Subsidiaries
Supplemental Information - Unaudited
Segment Analyses - Reported and Proforma (1)
(Amounts in Thousands)
Three Months Twelve Months
Ended Ended
September 30, September 30,
Reported Segment Results 2005 2004 2005 2004
--------------------------------- ----------------- -----------------
Net sales
Specialized Components $ 41,656 36,746 161,115 133,480
Aerospace-grade Components 45,592 29,642 149,910 92,085
Application-specific Components 4,358 3,765 16,639 17,065
Eliminations (40) (40) (148) (216)
-------- -------- -------- --------
Total Reported net sales $ 91,566 70,113 327,516 242,414
======== ======== ======== ========
Adjusted EBITDA
Specialized Components $ 6,263 6,109 24,627 20,608
Aerospace-grade Components 9,888 6,991 31,102 24,484
Application-specific Components 263 644 1,584 3,360
Unallocated corporate operating
expenses (1,719) (2,012) (7,322) (6,963)
-------- -------- -------- --------
Adjusted EBITDA $ 14,695 11,732 49,991 41,489
======== ======== ======== ========
Three Months Twelve Months
Ended Ended
September 30, September 30,
Proforma Segment Results (1) 2005 2004 2005 2004
--------------------------------- ----------------- -----------------
Net sales
Specialized Components $ 41,656 36,746 161,115 133,630
Aerospace-grade Components 46,588 49,763 192,518 176,154
Application-specific Components 4,358 3,765 16,639 17,065
Eliminations (40) (40) (148) (216)
-------- -------- -------- --------
Total Proforma net sales $ 92,562 90,234 370,124 326,633
======== ======== ======== ========
Adjusted EBITDA
Specialized Components $ 6,263 6,109 24,630 20,502
Aerospace-grade Components 10,067 10,974 40,336 37,231
Application-specific Components 263 644 1,584 3,360
Unallocated corporate operating
expenses (1,719) (2,012) (7,322) (6,963)
-------- -------- -------- --------
Proforma Adjusted EBITDA (1) $ 14,874 15,715 59,228 54,130
======== ======== ======== ========
(1) The unaudited Proforma information assumes that the acquisitions
of Spiegelberg Manufacturing, Inc. Gear & Broach, Inc., MECO,
Inc., Spun Metals, Inc., GCE Industries, Inc., the assets of
Special Processes of Arizona, the assets of Triumph Engineered
Solutions Wisconsin facility, Acraline Products, Inc., and General
Products had occurred at the beginning of the quarter and
full year ended September 30, 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.
FastenTech, Inc. and Subsidiaries
Supplemental Information - Unaudited
Sales Analyses by Market - Reported and Proforma (1)
(Amounts in thousands) Three Months Ended % of
September 30, Y-O-Y 2005
2005 2004 % Chg. Sales
------------------- -------------
Reported Sales by Market
-------------------------------------
Power Generation/Aerospace $28,200 $12,419 127% 31%
Med/Heavy Duty Truck 12,278 11,713 5% 13%
Industrial 11,734 8,566 37% 13%
Military 12,112 12,158 0% 13%
Construction 10,757 9,500 13% 12%
Recreational 7,156 7,261 -1% 8%
Light Vehicle 9,369 8,536 10% 10%
Interco Eliminations (40) (40) 0% 0%
--------- --------- ------ ------
Total Reported Sales $91,566 $70,113 31% 100%
========= ========= ====== ======
Proforma Sales by Market
-------------------------------------
Power Generation/Aerospace 28,795 30,550 -6% 31%
Med/Heavy Duty Truck 12,278 11,713 5% 13%
Industrial 11,734 9,081 29% 13%
Military 12,513 13,633 -8% 14%
Construction 10,757 9,500 13% 12%
Recreational 7,156 7,261 -1% 8%
Light Vehicle 9,369 8,536 10% 10%
Interco Eliminations (40) (40) 0%
--------- --------- ------ ------
Total Proforma Sales $92,562 $90,234 3% 100%
========= ========= ====== ======
(Amounts in thousands) Twelve Months Ended % of
September 30, Y-O-Y 2005
2005 2004 % Chg. Sales
------------------- -------------
Reported Sales by Market
-------------------------------------
Power Generation/Aerospace $80,894 $43,254 87% 25%
Med/Heavy Duty Truck 48,623 37,479 30% 15%
Industrial 46,685 35,183 33% 14%
Military 46,586 39,994 16% 14%
Construction 39,193 34,250 14% 12%
Recreational 29,462 16,272 81% 9%
Light Vehicle 36,221 36,198 0% 11%
Interco Eliminations (148) (216) 0%
--------- --------- ------ ------
Total Reported Sales $327,516 $242,414 35% 100%
========= ========= ====== ======
Proforma Sales by Market
-------------------------------------
Power Generation/Aerospace $119,226 112,310 6% 32%
Med/Heavy Duty Truck 48,623 37,479 30% 13%
Industrial 47,071 37,008 27% 13%
Military 50,476 46,125 9% 14%
Construction 39,193 34,400 14% 11%
Recreational 29,462 23,329 26% 8%
Light Vehicle 36,221 36,198 0% 10%
Interco Eliminations (148) (216) 0%
--------- --------- ------ ------
Total Proforma Sales $370,124 $326,633 13% 100%
========= ========= ====== ======
(1) The unaudited Proforma information assumes that the acquisitions
of Spiegelberg Manufacturing, Inc. Gear & Broach, Inc., MECO,
Inc., Spun Metals, Inc., GCE Industries, Inc., the assets of
Special Processes of Arizona, the assets of Triumph Engineered
Solutions Wisconsin facility, Acraline Products, Inc., and General
Products had occurred at the beginning of the quarter and
full year ended September 30, 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.