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, 2012
¨ | 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 001-33337
COLEMAN CABLE, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware | 36-4410887 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
1530 Shields Drive, Waukegan, Illinois 60085
(Address of Principal Executive Offices)
(847) 672-2300
(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. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its Web Site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No
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. (Check one):
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | 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 x No
Common shares outstanding as of May 4, 2012: 17,554,235
2
ITEM 1. | Financial Statements |
COLEMAN CABLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Thousands, except per share data)
(unaudited)
Three Months Ended March 31, |
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2012 | 2011 | |||||||
NET SALES |
$ | 220,491 | $ | 205,802 | ||||
COST OF GOODS SOLD |
189,821 | 175,775 | ||||||
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GROSS PROFIT |
30,670 | 30,027 | ||||||
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
15,730 | 13,853 | ||||||
INTANGIBLE ASSET AMORTIZATION |
1,824 | 1,583 | ||||||
RESTRUCTURING CHARGES |
333 | — | ||||||
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OPERATING INCOME |
12,783 | 14,591 | ||||||
INTEREST EXPENSE |
7,022 | 6,971 | ||||||
OTHER (INCOME) LOSS, NET |
74 | (132 | ) | |||||
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INCOME BEFORE INCOME TAXES |
5,687 | 7,752 | ||||||
INCOME TAX EXPENSE |
1,960 | 2,526 | ||||||
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NET INCOME |
$ | 3,727 | $ | 5,226 | ||||
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EARNINGS PER COMMON SHARE DATA |
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NET INCOME PER SHARE: |
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Basic |
$ | 0.22 | $ | 0.30 | ||||
Diluted |
0.21 | 0.30 | ||||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING |
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Basic |
17,072 | 17,079 | ||||||
Diluted |
17,320 | 17,205 |
See notes to condensed consolidated financial statements.
3
COLEMAN CABLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Thousands)
(unaudited)
Three Months Ended March 31, |
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2012 | 2011 | |||||||
NET INCOME |
$ | 3,727 | $ | 5,226 | ||||
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OTHER COMPREHENSIVE INCOME |
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Foreign currency translation adjustments, net of tax benefit of $67 and $82, respectively |
187 | 244 | ||||||
Unrealized investment gain, net of tax of $416 |
— | 653 | ||||||
Pension adjustments, net of tax of $21 |
— | 33 | ||||||
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OTHER COMPREHENSIVE INCOME |
187 | 930 | ||||||
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COMPREHENSIVE INCOME |
$ | 3,914 | $ | 6,156 | ||||
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See notes to condensed consolidated financial statements.
4
COLEMAN CABLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands, except per share data)
(unaudited)
March 31, 2012 |
December 31, 2011 |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
$ | 6,080 | $ | 9,746 | ||||
Accounts receivable, net of allowances of $2,951 and $2,811, respectively |
126,610 | 120,567 | ||||||
Inventories |
122,151 | 108,689 | ||||||
Deferred income taxes |
3,364 | 3,355 | ||||||
Assets held for sale |
546 | 546 | ||||||
Prepaid expenses and other current assets |
10,993 | 10,288 | ||||||
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Total current assets |
269,744 | 253,191 | ||||||
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PROPERTY, PLANT AND EQUIPMENT, NET |
69,437 | 58,957 | ||||||
GOODWILL |
55,925 | 56,724 | ||||||
INTANGIBLE ASSETS, NET |
26,518 | 28,340 | ||||||
DEFERRED INCOME TAXES |
224 | 376 | ||||||
OTHER ASSETS |
7,664 | 8,148 | ||||||
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TOTAL ASSETS |
$ | 429,512 | $ | 405,736 | ||||
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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CURRENT LIABILITIES: |
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Current portion of long-term debt |
$ | 167 | $ | 166 | ||||
Accounts payable |
28,613 | 29,081 | ||||||
Accrued liabilities |
23,062 | 35,762 | ||||||
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Total current liabilities |
51,842 | 65,009 | ||||||
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LONG-TERM DEBT |
334,842 | 302,935 | ||||||
OTHER LONG-TERM LIABILITIES |
2,960 | 3,194 | ||||||
DEFERRED INCOME TAXES |
6,977 | 6,503 | ||||||
COMMITMENTS AND CONTINGENCIES |
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SHAREHOLDERS’ EQUITY: |
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Common stock, par value $0.001; 75,000 authorized; 17,110 and 16,939 issued and outstanding on March 31, 2012 and December 31, 2011, respectively |
17 | 17 | ||||||
Treasury stock, at cost: 329 and 320 shares, respectively |
(2,887 | ) | (2,789 | ) | ||||
Additional paid-in capital |
93,851 | 92,871 | ||||||
Accumulated deficit |
(58,092 | ) | (61,819 | ) | ||||
Accumulated other comprehensive income (loss) |
2 | (185 | ) | |||||
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Total shareholders’ equity |
32,891 | 28,095 | ||||||
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TOTAL LIABILITIES AND EQUITY |
$ | 429,512 | $ | 405,736 | ||||
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See notes to condensed consolidated financial statements.
5
COLEMAN CABLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(unaudited)
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
CASH FLOW FROM OPERATING ACTIVITIES: |
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Net income |
$ | 3,727 | $ | 5,226 | ||||
Adjustments to reconcile net income to net cash flow from operating activities: |
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Depreciation and amortization |
5,742 | 4,844 | ||||||
Stock-based compensation |
598 | 1,177 | ||||||
Foreign currency transaction loss (gain) |
74 | (132 | ) | |||||
Deferred taxes |
554 | (1,454 | ) | |||||
Excess tax benefits from stock-based compensation |
(651 | ) | — | |||||
Gain on disposal of fixed assets |
(28 | ) | (1 | ) | ||||
Changes in operating assets and liabilities: |
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Accounts receivable |
(6,266 | ) | (12,447 | ) | ||||
Inventories |
(13,462 | ) | (11,557 | ) | ||||
Prepaid expenses and other assets |
216 | 822 | ||||||
Accounts payable |
1,019 | 3,129 | ||||||
Accrued liabilities |
(12,529 | ) | (7,204 | ) | ||||
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Net cash flow from operating activities |
(21,006 | ) | (17,597 | ) | ||||
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CASH FLOW FROM INVESTING ACTIVITIES: |
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Capital expenditures |
(15,242 | ) | (2,135 | ) | ||||
Proceeds from sale of fixed assets |
20 | 4 | ||||||
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Net cash flow from investing activities |
(15,222 | ) | (2,131 | ) | ||||
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CASH FLOW FROM FINANCING ACTIVITIES: |
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Borrowing under revolving loan facility |
130,612 | — | ||||||
Repayments under revolving loan facility |
(98,775 | ) | — | |||||
Treasury stock purchases |
(98 | ) | — | |||||
Excess tax benefits from stock-based compensation |
651 | — | ||||||
Repayment of long-term debt |
(41 | ) | (3 | ) | ||||
Common stock option exercises |
— | 9 | ||||||
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Net cash flow from financing activities |
32,349 | 6 | ||||||
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Effect of exchange rate changes on cash and cash equivalents |
213 | 472 | ||||||
DECREASE IN CASH AND CASH EQUIVALENTS |
(3,666 | ) | (19,250 | ) | ||||
CASH AND CASH EQUIVALENTS — Beginning of period |
9,746 | 33,454 | ||||||
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CASH AND CASH EQUIVALENTS — End of period |
$ | 6,080 | $ | 14,204 | ||||
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NONCASH ACTIVITY |
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Unpaid capital expenditures |
230 | 363 | ||||||
SUPPLEMENTAL CASH FLOW INFORMATION |
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Income taxes paid, net |
12 | 156 | ||||||
Cash interest paid |
12,766 | 12,908 |
See notes to condensed consolidated financial statements.
6
COLEMAN CABLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Thousands)
(unaudited)
Common Stock Outstanding |
Common Stock |
Treasury Stock |
Additional Paid-in Capital |
Retained Earnings (Accumulated Deficit) |
Accumulated Other Comprehensive Income (Loss) |
Total | ||||||||||||||||||||||
BALANCE — January 1, 2011 |
16,939 | $ | 17 | $ | — | $ | 90,483 | $ | (79,260 | ) | $ | (18 | ) | $ | 11,222 | |||||||||||||
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Stock awards |
184 | — | — | — | — | — | — | |||||||||||||||||||||
Stock options exercised |
2 | — | — | — | — | — | — | |||||||||||||||||||||
Comprehensive income |
— | — | — | — | 5,226 | 930 | 6,156 | |||||||||||||||||||||
Stock-based compensation |
— | — | — | 520 | — | — | 520 | |||||||||||||||||||||
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BALANCE — March 31, 2011 |
17,125 | $ | 17 | $ | — | $ | 91,003 | $ | (74,034 | ) | $ | 912 | $ | 17,898 | ||||||||||||||
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BALANCE — January 1, 2012 |
16,939 | $ | 17 | $ | (2,789 | ) | $ | 92,871 | $ | (61,819 | ) | $ | (185 | ) | $ | 28,095 | ||||||||||||
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Stock awards |
179 | — | — | — | — | — | — | |||||||||||||||||||||
Stock options exercised |
— | — | — | — | — | — | — | |||||||||||||||||||||
Treasury shares repurchased |
(9 | ) | — | (98 | ) | — | — | — | (98 | ) | ||||||||||||||||||
Comprehensive income |
— | — | — | — | 3,727 | 187 | 3,914 | |||||||||||||||||||||
Stock-based compensation |
— | — | — | 980 | — | — | 980 | |||||||||||||||||||||
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BALANCE — March 31, 2012 |
17,109 | $ | 17 | $ | (2,887 | ) | $ | 93,851 | $ | (58,092 | ) | $ | 2 | $ | 32,891 | |||||||||||||
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See notes to condensed consolidated financial statements.
7
COLEMAN CABLE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Thousands, except per share data)
(unaudited)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include Coleman Cable, Inc. and all of its subsidiaries (the “Company,” “Coleman,” “we,” “us,” or “our”). The condensed consolidated financial statements included herein are unaudited. The preparation of the condensed consolidated financial statements is in conformity with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) for interim financial information. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules or regulations. The condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation in conformity with U.S. GAAP. All amounts are in thousands, unless otherwise indicated. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended December 31, 2011. The results of operations for the interim periods should not be considered indicative of results to be expected for the full year.
2. NEW ACCOUNTING PRONOUNCEMENTS
Accounting Standards Update No. 2011-04 – “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU No. 2011-04)
ASU No. 2011-04 generally provides a uniform framework for fair value measurements and related disclosures between GAAP and IFRS. Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity’s use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 was effective for interim and annual periods beginning on or after December 15, 2011. This update, which was effective for the first quarter of 2012, did not have a significant impact on the Company’s results of operations, financial position and cash flows.
Accounting Standards Update No. 2011-05 – “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (“ASU No. 2011-05”)
ASU No. 2011-05 amends existing guidance by allowing only two options for presenting the components of net income and other comprehensive income: (1) in a single continuous financial statement, statement of comprehensive income or (2) in two separate but consecutive financial statements, consisting of an income statement followed by a separate statement of other comprehensive income. Also, items that are reclassified from other comprehensive income to net income must be presented on the face of the financial statements. ASU No. 2011-05 requires retrospective application, and was effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The Company adopted this standard during the first quarter of 2012. The Company has presented comprehensive income using two separate financial statements.
Accounting Standards Update No. 2011-08 – “Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment (“ASU No. 2011-08”)
ASU No. 2011-08 amends existing guidance by permitting an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in ASC 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. ASU No. 2011-08 was effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. This update, which was effective for the first quarter of 2012, did not have a significant impact on the Company’s results of operations, financial position, and cash flows. The Company performs its annual goodwill impairment test as of December 31st of each year at which point it will assess whether or not to first perform the above-described qualitative tests.
Accounting Standards Update No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (“ASU No. 2011-11”)
ASU No. 2011-11 amends existing guidance by enhancing disclosures required by U.S. GAAP by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with either Section 210-20-45 or Section 815-10-45. This information will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. ASU No. 2011-11 requires retrospective application, and it is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. The Company is currently evaluating the impact ASU No. 2011-11 will have on its financial statements but does not expect it to have a material impact on the Company’s results of operations, financial position and cash flows.
Accounting Standards Update No. 2011-12 – “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” (“ASU No. 2011-12”)
8
ASU No. 2011-12 defers the changes in ASU No. 2011-05 that relate to the presentation of items reclassified from other comprehensive income to net income. The Financial Accounting Standards Board is still considering the operation concerns about the presentation requirements for these reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments. During this time, entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU No. 2011-05. All other requirements from ASU No. 2011-05 remain the same, which the Company has adopted during this reporting period.
3. ACQUISITIONS
During the second quarter of 2011, we utilized cash on hand, as well as borrowings under our existing credit facility to complete three business combinations (collectively, the “2011 Acquisitions”), as set forth below. Each of these 2011 Acquisitions was structured as a cash transaction, with aggregate consideration totaling $68,900. As discussed below, $2,331 of the TRC (as defined below) consideration consisted of our previously existing ownership interest.
The 2011 Acquisitions are included in our condensed consolidated financial statements, including our results of operations, beginning from each respective acquisition date. Accordingly, the condensed consolidated statement of income for the three months ended March 31, 2012 includes operations for the assets acquired in connection with the 2011 Acquisitions. The condensed consolidated statement of income for the three months ended March 31, 2011 does not include the impact of the 2011 Acquisitions.
We incurred acquisition-related costs, including outside legal, consulting and other fees, of $0 and $902 for the three months ended March 31, 2012 and 2011, respectively. These costs have been recorded as a component of selling, general and administrative expenses in our condensed consolidated statement of income.
Acquisition of the Assets of The Designers Edge (“DE”)
On April 1, 2011, we acquired certain assets of DE, a leading designer and distributor of specialty lighting products in the U.S. and Canada. The total purchase price for the assets acquired, primarily trade receivables and merchandise inventories, was $10,092. The acquisition of DE’s assets significantly expanded our product portfolio across a wide range of lighting product categories, including industrial, work and utility, as well as products for security and landscape applications. We fully integrated the acquired assets of DE into our existing operations during the second quarter of 2011.
Acquisition of the Assets of First Capitol Wire and Cable (“FCWC”) and Continental Wire and Cable (“CWC”)
On April 29, 2011, we acquired the assets of FCWC and CWC, both of which were privately-held entities based in York, Pennsylvania, with CWC being a 100%-owned subsidiary of FCWC. These two entities are leading manufacturers of industrial wire and cable products used across a number of commercial, utility and industrial end-markets. The total purchase price for the assets acquired, primarily merchandise inventories and production equipment, was $7,298, inclusive of working capital adjustments of $834. The acquisition of the assets of FCWC and CWC allowed us to expand our capabilities, product offerings and capacity for producing a wide assortment of high-quality industrial cables. We fully integrated the assets of FCWC and CWC into our operations during the second quarter of 2011.
Acquisition of Technology Research Corporation (“TRC”)
On May 16, 2011, we completed the acquisition of 100% of the outstanding stock of TRC, pursuant to a merger agreement under which each outstanding share of TRC common stock was converted into the right to receive $7.20 per share payable in cash. TRC is a recognized leader in providing cost effective engineered solutions for applications involving power management and control, intelligent battery systems technology and electrical safety products based on proven ground fault sensing and Fire Shield® technology. These products are designed, manufactured and distributed to the consumer, commercial and industrial markets worldwide. TRC also supplies power monitors and control equipment to the United States military and its prime contractors. We believe the TRC acquisition both strengthens and diversifies our overall portfolio. The total purchase price consideration for TRC was $51,510, including the acquisition-date fair value of an approximate 4.8% interest in TRC’s common stock acquired by Coleman prior to submitting its acquisition proposal for TRC.
We integrated a portion of TRC’s legacy business into our Distribution segment during 2011. The remainder of TRC’s legacy business, its military and specialty vehicle business, comprises the Other segment reported herein.
9
Purchase Price Allocations
The 2011 Acquisitions were accounted for under the purchase method of accounting. Accordingly, we have allocated the purchase price for each acquisition to the net assets acquired based on the related estimated fair values at each respective acquisition date. The expected long-term growth, increased market position and expected synergies to be generated from the 2011 Acquisitions are the primary factors which gave rise to acquisition prices for each of the 2011 Acquisitions which resulted in the recognition of goodwill.
The purchase price allocations have been finalized. At the end of the first quarter, we finalized our purchase accounting for DE as certain purchase price and other matters relative to this acquisition were resolved. As a result, the total purchase price was lowered by $833, with a corresponding reduction in the goodwill recorded in connection with this acquisition.
The table below summarizes the final allocations of purchase price related to the 2011 Acquisitions as of their respective acquisition dates.
DE | FCWC and CWC | TRC | ||||||||||
Cash and cash equivalents |
$ | — | $ | — | $ | 8,180 | ||||||
Accounts receivable |
2,123 | — | 4,073 | |||||||||
Income tax receivable |
— | — | 1,077 | |||||||||
Inventories |
3,129 | 1,631 | 8,794 | |||||||||
Prepaid expenses and other current assets |
— | 44 | 314 | |||||||||
Property, plant and equipment |
157 | 3,687 | 4,668 | |||||||||
Other assets |
— | — | 33 | |||||||||
Deferred income tax asset |
18 | 288 | 309 | |||||||||
Intangible assets |
2,115 | 1,200 | 8,287 | |||||||||
Goodwill |
2,550 | 696 | 23,541 | |||||||||
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Total assets acquired |
10,092 | 7,546 | 59,276 | |||||||||
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Current liabilities |
— | — | (4,515 | ) | ||||||||
Deferred income tax liability |
— | (248 | ) | (3,251 | ) | |||||||
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Total liabilities assumed |
— | (248 | ) | (7,766 | ) | |||||||
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Net assets acquired |
$ | 10,092 | $ | 7,298 | $ | 51,510 | ||||||
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A total of approximately $5,533 of goodwill is deductible for income tax purposes. All of the goodwill of DE, FCWC, and CWC has been assigned to our Distribution segment. TRC goodwill has been allocated between our Distribution and Other segments.
The purchase price allocation to identifiable intangible assets, which are all amortizable, along with their respective weighted-average amortization periods at the acquisition date are as follows:
Weighted-Average Amortization Period |
DE | FCWC and CWC | TRC | |||||||||||||
Customer relationships |
6 | $ | 900 | $ | 600 | $ | 1,460 | |||||||||
Trademarks and trade names |
6 | 610 | 600 | 1,450 | ||||||||||||
Developed technology |
3 | 560 | — | 2,000 | ||||||||||||
Contractual agreements |
3 | — | — | 2,900 | ||||||||||||
Non-competition agreements |
2 | 45 | — | 80 | ||||||||||||
Backlog |
1 | — | — | 340 | ||||||||||||
Other |
6 | — | — | 57 | ||||||||||||
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Total intangible assets |
$ | 2,115 | $ | 1,200 | $ | 8,287 | ||||||||||
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Unaudited Selected Pro Forma Financial Information
The following unaudited pro forma financial information summarizes our estimated combined results of operations assuming that our only material business combination consummated during the second quarter of 2011, TRC, had taken place on January 1, 2010. The unaudited pro forma combined results of operations were prepared using historical financial information of TRC, and we make no representation with respect to the accuracy of such information. The pro forma combined results of operations reflect adjustments for interest expense, depreciation adjustments based on the fair value of acquired property, plant and equipment, amortization of acquired identifiable intangible assets, income tax expense, and excludes acquisition costs. The unaudited pro forma information is presented for informational purposes only and does not include any anticipated cost savings or other effects of integration, nor do they purport to be indicative of the results of operations that actually would have resulted had the acquisition of TRC occurred on the date indicated or may result in the future.
10
Three Months Ended March 31, |
||||
2011 | ||||
Net sales |
$ | 214,939 | ||
Net income |
7,424 |
4. RESTRUCTURING ACTIVITIES
We incurred restructuring costs of $333 and $0 during the first quarter of 2012 and 2011, respectively. The majority of these charges related to costs incurred at facilities closed in prior years, currently consisting of two leased and one owned facility for which we continue to pay holding costs.
Our restructuring reserve was $1,863 as of March 31, 2012, recorded within accrued liabilities and other long-term liabilities, comprised of $138 in a severance and other closing costs accrual, with the balance in the reserve representing our estimate of the remaining liability existing relative to two closed properties under lease and which is equal to our remaining obligation under such lease reduced by estimated sublease rental income reasonably expected for the property. Accordingly, the liability may be increased or decreased in future periods as facts and circumstances change, including possible negotiation of a lease termination, sublease agreement, or changes in the related market in which the property is located. Restructuring expense is not segregated by reportable segment as our operating segments share common production processes and manufacturing facilities, as discussed in Note 17 below.
Lease Termination Costs |
Severance & Other Closing Costs |
Total | ||||||||||
BALANCE — December 31, 2011 |
$ | 2,324 | $ | 815 | $ | 3,139 | ||||||
Provision |
(1 | ) | 334 | 333 | ||||||||
Cash payments |
(598 | ) | (1,011 | ) | (1,609 | ) | ||||||
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BALANCE — March 31, 2012 |
$ | 1,725 | $ | 138 | $ | 1,863 | ||||||
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In May 2012, we announced plans to close our manufacturing and distribution facility in Texarkana, Arkansas. We anticipate the facility will cease production early in the third quarter of 2012 and will result in our recognition of approximately $800 to $1,000 in closing-related costs primarily consisting of severance and equipment-moving costs. The operations of this facility will be moved to other existing manufacturing facilities, supplemented by foreign-sourcing of certain products.
5. INVENTORIES
Inventories consisted of the following:
March 31, 2012 |
December 31, 2011 |
|||||||
FIFO cost: |
||||||||
Raw materials |
$ | 47,596 | $ | 39,209 | ||||
Work in progress |
4,332 | 3,853 | ||||||
Finished products |
70,223 | 65,627 | ||||||
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Total |
$ | 122,151 | $ | 108,689 | ||||
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6. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
March 31, 2012 |
December 31, 2011 |
|||||||
Salaries, wages and employee benefits |
$ | 6,790 | $ | 8,825 | ||||
Sales incentives |
5,955 | 10,460 | ||||||
Interest |
3,237 | 9,382 | ||||||
Other |
7,080 | 7,095 | ||||||
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Total |
$ | 23,062 | $ | 35,762 | ||||
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7. DEBT
March 31, 2012 |
December 31, 2011 |
|||||||
Revolving Credit Facility expiring October 2016 |
$ | 61,837 | $ | 30,000 | ||||
9% Senior Notes due February 2018, including unamortized discount of $2,623 and $2,735, respectively |
272,377 | 272,265 | ||||||
Capital lease obligations |
795 | 836 | ||||||
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335,009 | 303,101 | |||||||
Less current portion |
(167 | ) | (166 | ) | ||||
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Long-term debt |
$ | 334,842 | $ | 302,935 | ||||
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11
Senior Secured Revolving Credit Facility
On August 4, 2011, we entered into a new $250,000, five-year revolving credit facility agreement, with an accordion feature that allows us to increase our borrowings by an additional $50,000 (the “Revolving Credit Facility”). The Revolving Credit Facility replaced a $200,000 revolving credit facility which was scheduled to expire in April 2012. The Revolving Credit Facility, which expires on October 1, 2016, is an asset-based loan facility, with a $20,000 Canadian facility sublimit, and which is secured by substantially all of our assets, as further detailed below. We incurred $1,500 in fees and direct costs related to negotiating the Revolving Credit Facility. These respective fees and costs are being amortized over the life of the revolver. At March 31, 2012, we had $61,837 in borrowings under the facility, with $104,709 in remaining excess availability. At December 31, 2011, we had $30,000 in borrowings under the credit facility, with $120,288 in remaining excess availability. The $61,837 in borrowings under the facility approximate the fair value of such debt at March 31, 2012 (Level 2).
The interest rate charged on borrowings under the Revolving Credit Facility is based on our election of either the base rate (greater of the federal funds rate plus 0.50% and the lender’s prime rate) plus a range of 0.25% to 0.75% or the Eurodollar rate plus a range of 1.50% to 2.00%, in each case based on quarterly average excess availability under the Revolving Credit Facility. In addition, we pay an unused line fee of between 0.25% and 0.50% based on quarterly average excess availability pursuant to the terms of the Revolving Credit Facility.
Pursuant to the terms of the Revolving Credit Facility, we are required to maintain a fixed charge covenant ratio of not less than 1.0 to 1.0 for any month during which our excess availability under the Revolving Credit Facility falls below $30,000. Borrowing availability under the Revolving Credit Facility is limited to the lesser of (1) $250,000 or (2) the sum of 85% of eligible accounts receivable, 70% of eligible inventory, with a maximum amount of borrowing-base availability which may be generated from inventory of $150,000 for the U.S. portion and $12,000 Canadian for the Canadian portion, and an advance rate to be 75% of certain appraised real estate and 85% of certain appraised equipment and capped at $62,500, with a $15,000 sublimit for letters of credit. Our current availability does not include additional availability that may be generated by adding real estate and certain equipment to the borrowing base.
The Revolving Credit Facility is guaranteed by CCI International Inc. (“CCI International”), TRC (excluding TRC’s 100%-owned foreign subsidiary, TRC Honduras, S.A. de C.V.) and Patco Electronics (“Patco”), each of which are 100%-owned domestic subsidiaries, and is secured by substantially all of our assets and the assets of each of CCI International, TRC and Patco, including accounts receivable, inventory and any other tangible and intangible assets (including real estate, machinery and equipment and intellectual property) as well as by a pledge of all the capital stock of CCI International, TRC and Patco and 65% of the capital stock of our Canadian foreign subsidiary, but not our Chinese 100%-owned entity.
As of March 31, 2012, we were in compliance with all of the covenants of our Revolving Credit Facility.
9% Senior Notes due 2018 (the “Senior Notes”)
The Indenture relating to our Senior Notes contains customary covenants that limit us and our restricted subsidiaries with respect to, among other things, incurring additional indebtedness, making restricted payments, creating liens, paying dividends, consolidating, merging or selling substantially all of their assets, entering into sale and leaseback transactions, and entering into transactions with affiliates. Additionally, all our domestic restricted subsidiaries that guarantee the Revolving Credit Facility are required under the Indenture to guarantee our obligations under the Senior Notes. Following our entry into the new Revolving Credit Facility, TRC and Patco became subsidiary guarantors of the Senior Notes.
Our Senior Notes were issued at a discount in 2010, resulting in proceeds of less than par value. This discount is being amortized to par value over the remaining term of the Senior Notes. As of March 31, 2012, we were in compliance with all of the covenants of our Senior Notes.
Senior Notes | March 31, 2012 | |||
Face Value |
$ | 275,000 | ||
Fair Value (Level 1) |
$ | 289,438 | ||
Interest Rate |
9 | % | ||
Interest Payment |
|
Semi-Annually February 15th and August 15th |
| |
Maturity Date |
February 15, 2018 |
12
Guarantee | Jointly and severally guaranteed fully and unconditionally by our 100% owned subsidiaries, CCI International, Inc., Patco and TRC |
Optional redemption (1)(2)
Beginning Date | Percentage | |||||
February 15, 2014 | 104.50 | % | ||||
February 15, 2015 | 102.25 | % | ||||
February 15, 2016 | 100.00 | % |
(1) | The Company may, at its option, redeem the Senior Notes, in whole at any time or in part from time to time, on or after the above-noted dates and at the above-noted percentages of the principal amount thereof (plus interest due). |
(2) | In addition, the Company may, at its option, use the net cash proceeds from a public equity offering, to redeem up to 35% of the aggregate principal amount of the Senior Notes at a redemption price equal to 109.00% of the principal amount, plus accrued and unpaid interest if completed before February 15, 2013. |
8. EARNINGS PER SHARE
We compute earnings per share using the two-class method, which is an earnings allocation formula that determines earnings per share for common stock and participating securities. Our participating securities are our grants of restricted stock, as such awards contain non-forfeitable rights to dividends. Security holders are not obligated to fund the Company’s losses, and therefore, participating securities are not allocated a portion of these losses in periods where a net loss is recorded. As of March 31, 2012 and 2011, the impact of participating securities on net income allocated to common shareholders and the dilutive effect of share-based awards outstanding on weighted average shares outstanding was as follows:
Three Months
Ended March 31, |
||||||||
2012 | 2011 | |||||||
Components of Basic and Diluted Earnings per Share |
||||||||
Basic EPS Numerator: |
||||||||
Net income |
$ | 3,727 | $ | 5,226 | ||||
Less: Earnings allocated to participating securities |
(34 | ) | (93 | ) | ||||
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|
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Net income allocated to common shareholders |
$ | 3,693 | $ | 5,133 | ||||
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|
|||||
Basic EPS Denominator: |
||||||||
Weighted average shares outstanding |
17,072 | 17,079 | ||||||
Basic earnings per common share |
$ | 0.22 | $ | 0.30 | ||||
Diluted EPS Numerator: |
||||||||
Net income |
$ | 3,727 | $ | 5,226 | ||||
Less: Earnings allocated to participating securities |
(34 | ) | (92 | ) | ||||
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|
|||||
Net income allocated to common shareholders |
$ | 3,693 | $ | 5,134 | ||||
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Diluted EPS Denominator: |
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Weighted average shares outstanding |
17,072 | 17,079 | ||||||
Dilutive common shares issuable upon exercise of stock options |
248 | 126 | ||||||
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Diluted weighted average shares outstanding |
17,320 | 17,205 | ||||||
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Diluted earnings per common share |
$ | 0.21 | $ | 0.30 |
Options
Options with respect to 771 common shares were not included in the computation of diluted earnings per share for the three months ended March 31, 2012 and 2011, because they were antidilutive.
9. SHAREHOLDERS’ EQUITY
Stock-Based Compensation
The Company has a stock-based compensation plan for its directors, executives and certain key employees under which the grant of stock options and other share-based awards is authorized. We recorded $598 and $1,177 in stock compensation expense for the three months ended March 31, 2012 and 2011, respectively.
13
Stock Options
No stock options were issued during the first three months of 2012 and 2011.
Changes in stock options were as follows:
Shares | Weighted-Average Exercise Price |
Weighted-Average Remaining Contractual Terms |
Aggregate Intrinsic Value |
|||||||||||||
Outstanding January 1, 2012 |
1,391 | $ | 11.07 | 5.8 | $ | 2,012 | ||||||||||
Granted |
— | — | — | |||||||||||||
Exercised |
— | — | — | |||||||||||||
Forfeited or expired |
— | — | — | |||||||||||||
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|
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Outstanding March 31, 2012 |
1,391 | 11.07 | 5.6 | 2,644 | ||||||||||||
Vested or expected to vest |
1,374 | 11.15 | 5.5 | 2,556 | ||||||||||||
Exercisable |
520 | 5.65 | 6.6 | 2,056 |
Intrinsic value for stock options is defined as the difference between the current market value of the Company’s common stock and the exercise price of the stock option. When the current market value is less than the exercise price, there is no aggregate intrinsic value.
Stock Awards
In the first quarter of 2012, the Company awarded unvested common shares to non-management members of its Board of Directors. In total, 55 unvested shares were awarded with an approximate aggregate fair value of $500. One-third of the shares vest on the first, second and third anniversary of the grant date. These awarded shares are participating securities which provide the recipient with both voting rights and, to the extent dividends, if any, are paid by the Company, non-forfeitable dividend rights with respect to such shares.
Changes in nonvested shares for the first three months of 2012 were as follows:
Shares | Weighted-Average Grant-Date Fair Value |
|||||||
Nonvested at January 1, 2012 |
682 | $ | 4.28 | |||||
Granted |
55 | 9.06 | ||||||
Vested |
(179 | ) | 4.16 | |||||
Forfeited |
— | — | ||||||
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|
|
|
|||||
Nonvested at March 31, 2012 |
558 | $ | 4.79 |
In addition, in the first quarter of 2010, 258 performance shares were granted, which are settled in cash rather than stock. If, at any time up to ten years after the date of grant, the Company’s common stock attains three separate incrementally increasing stock price goals beginning with a price representing approximately 350% of the average stock price on the date of grant, a portion of the awards will vest. In July 2011, the first tranche of these shares reached their vesting price. Accordingly, the equivalent of 58 shares of common stock were paid in cash on the respective date. The cash-settled shares are re-measured each balance sheet date using a Monte Carlo model and recorded as a liability During the first quarter, these cash-settled shares were measured using an assumption of 89.5% volatility, and a risk-free rate of 1.80%, resulting in an estimated aggregate fair value of approximately $2,691, which is recorded to the stock compensation liability over the estimated derived service period (also estimated using a Monte Carlo model), which was approximately 0.8 years as of March 31, 2012.
Treasury Stock
On August 3, 2011, our Board of Directors authorized the purchase of up to 500 shares of the Company’s common stock in open market or privately-negotiated transactions. The repurchase plan expires in August 2013. To date, we have purchased 320 shares pursuant to this repurchase program. We did not repurchase any shares pursuant to this repurchase program during the first quarter of 2012. During the three months ended March 31, 2012 and 2011, we repurchased 9 shares and 2 shares of common stock at a total cost of $98 and $14, respectively, from employees of the Company that were withheld to satisfy the tax withholding obligation due upon vesting of a restricted stock award. There can be no assurance that any additional share purchases will be made. The number of shares actually purchased in future periods will depend on various factors, including limitations imposed by the Company’s debt instruments, the price of our common stock, overall market and business conditions, and management’s assessment of competing alternatives for capital deployment.
14
Subsequent Event
On May 1, 2012, our Board of Directors declared a quarterly dividend of $0.02 per common share, payable on May 30, 2012, to stockholders of record as of the close of business on May 15, 2012. Future declarations of quarterly dividends are subject to approval of the Board of Directors and may be adjusted as business needs or market conditions change.
10. RELATED PARTIES
We lease our corporate office facility from certain members of our Board of Directors and executive management, and we had rental expense of $103 and $134 for the first quarter of 2012 and 2011, respectively. In addition, we leased three manufacturing facilities from an entity in which one of our executive officers has a substantial minority interest, and we recorded expense of $261 in the first quarter of 2011. We purchased these three manufacturing facilities for $6,505 in the first quarter of 2012.
11. COMMITMENTS AND CONTINGENCIES
Operating Leases
We lease certain of our buildings, machinery and equipment under lease agreements that expire at various dates over the next ten years. Rental expense under operating leases was $1,330 and $1,481 for the first quarter of 2012 and 2011, respectively.
Legal Matters
We are party to one environmental claim. The Leonard Chemical Company Superfund site consists of approximately 7.1 acres of land in an industrial area located a half mile east of Catawba, York County, South Carolina. The Leonard Chemical Company operated this site until the early 1980s for recycling of waste solvents. These operations resulted in the contamination of soils and groundwater at the site with hazardous substances. In 1984, the U.S. Environmental Protection Agency (the “EPA”) listed this site on the National Priorities List. Riblet Products Corporation, with which the Company merged in 2000, was identified through documents as a company that sent solvents to the site for recycling and was one of the companies receiving a special notice letter from the EPA identifying it as a party potentially liable under the Comprehensive Environmental Response, Compensation, and Liability Act for cleanup of the site.
In 2004, along with other “potentially responsible parties” (“PRPs”), we entered into a Consent Decree with the EPA requiring the performance of a remedial design and remedial action (“RD/RA”) for this site. We have entered into a Site Participation Agreement with the other PRPs for fulfillment of the requirements of the Consent Decree. Under the Site Participation Agreement, we are responsible for 9.19% share of the costs for the RD/RA. As of March 31, 2012 and December 31, 2011 we had a $341 accrual recorded for this liability in accordance with ASC 450.
Though no assurances are possible, we believe that our accruals related to the environmental litigation and other claims are sufficient and that these items and our rights to available insurance and indemnity will be resolved without material effect on our financial position, results of operations or cash flows.
12. DERIVATIVES
We are exposed to certain commodity price risks including fluctuations in the price of copper. From time-to-time, we enter into copper futures contracts to mitigate the potential impact of fluctuations in the price of copper on our pricing terms with certain customers. We recognize all of our derivative instruments on our balance sheet at fair value, and record changes in the fair value of such contracts within cost of goods sold in the statement of operations as they occur unless specific hedge accounting criteria are met. We had no hedge positions at March 31, 2012 or 2011 to which hedge accounting was applied. Cash settlements related to derivatives are included in the operating section of the condensed consolidated statement of cash flows.
As our derivatives are part of a legally enforceable master netting agreement, for purposes of presentation within our condensed consolidated balance sheets, gross values are netted and classified within Prepaid expense and other current assets or Accrued liabilities depending upon our aggregate net position at the balance sheet date.
Contract Position (In Total Pounds) |
Cash Collateral Posted |
Fair Value | ||||||||||||||||||
Commodity Derivatives | Long | Short | Asset (2) | Liability (3) | ||||||||||||||||
Copper futures contracts outstanding as of (1): |
||||||||||||||||||||
Three months ended March 31, 2012 |
875 | 625 | $ | 121 | $ | 14 | $ | — | ||||||||||||
Three months ended March 31, 2011 |
— | 625 | $ | 22 | $ | 188 | $ | — |
(1) | All of our copper futures contracts mature in less than three months and are tied to the price of copper on the COMEX and, accordingly, the value of such futures contracts changes directly in relation thereto. |
(2) | Balance recorded in “Prepaid expenses and other current assets.” |
(3) | Balance recorded in “Accrued liabilities.” |
15
As of March 31, 2012 and 2011, no cumulative losses or gains existed in Other Comprehensive Income (“OCI”). As hedge accounting has not been applied to any of our open hedges at March 31, 2012, no associated losses or gains have been recorded within OCI.
Derivatives Not Accounted for as Hedges Under the Accounting Rules |
Gain (Loss) Recognized in Income |
Location of Gain (Loss) Recognized in Income | ||||
Copper commodity contracts: |
||||||
Three months ended March 31, 2012 |
$ | (47 | ) | Cost of goods sold | ||
Three months ended March 31, 2011 |
262 | Cost of goods sold |
13. INCOME TAXES
Three Months Ended March 31, |
||||||||
2012 | 2011 | |||||||
Effective Tax Rate |
34.5 | % | 32.6 | % |
We recorded income tax expense of $1,960 for the first quarter of 2012 compared to $2,526 for the first quarter of 2011. The increase in our effective tax rate for the first quarter of 2012, as compared to the first quarter of 2011, is primarily due to state tax benefits from previously paid state taxes in the first quarter of 2011 with no such benefits in the first quarter of 2012.
14. BENEFIT PLANS
Employee Savings Plan
We provide defined contribution savings plans for employees meeting certain age and service requirements. We currently make matching contributions for a portion of employee contributions to the plans. Including such matching contributions, we recorded expenses totaling $422 and $1,264 related to these savings plans during the first quarter of 2012 and 2011, respectively.
Riblet Pension Plan
As a result of its merger with Riblet Products Corporation (“Riblet”) in 2000, the Company is responsible for a defined-benefit pension plan of Riblet. The Riblet plan was frozen in 1990 and no additional benefits have been earned by plan participants since that time. A total of 81 former employees of Riblet currently receive or may be eligible to receive future benefits under the plan. The Company does not expect to make any plan contributions in 2012. The net period income for the three months ended March 31, 2012 and 2011 was $14 and $8, respectively.
15. FAIR VALUE DISCLOSURE
Accounting guidance for fair value measurements specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources or reflect our own assumptions of market participant valuation. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:
Level 1 Inputs – Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 Inputs – Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 Inputs – Level 3 inputs are unobservable inputs for the asset or liability.
As of the periods ending March 31, 2012 and March 31, 2011, we utilized Level 1 inputs to determine the fair value of cash and cash equivalents, derivatives, and equity securities.
We classify cash on hand and deposits in banks, including money market accounts, commercial paper, and other investments with an original maturity of three months or less, that we hold from time to time, as cash and cash equivalents. The primary objective of our investment activities is to preserve our capital for the purpose of funding operations.
16
Financial assets measured at fair value on a recurring basis are summarized below:
Fair Value Measurement | ||||||||||||||||||||||||||||||||
March 31, 2012 | March 31, 2011 | |||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Fair Value | Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||||||||||||||
Assets: |
||||||||||||||||||||||||||||||||
Cash and Cash Equivalents |
$ | 6,080 | $ | — | $ | — | $ | 6,080 | $ | 14,204 | $ | — | $ | — | $ | 14,204 | ||||||||||||||||
Derivative Assets, Inclusive of Collateral |
135 | — | — | 135 | 210 | — | — | 210 | ||||||||||||||||||||||||
Available for Sale Securities |
— | — | — | — | 2,312 | — | — | 2,312 | ||||||||||||||||||||||||
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Total |
$ | 6,215 | $ | — | $ | — | $ | 6,215 | $ | 16,726 | $ | — | $ | — | $ | 16,726 | ||||||||||||||||
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16. OTHER (INCOME) LOSS
We recorded other loss (income) of $74 and $(132) for the three months ended March 31, 2012 and 2011, respectively, primarily reflecting exchange rate impacts on our Canadian subsidiary.
17. BUSINESS SEGMENT INFORMATION
We have three reportable segments: (1) Distribution, (2) Original Equipment Manufacturers (“OEM”) and (3) Other. The Distribution segment serves our customers in distribution businesses, who are resellers of our products, while our OEM segment serves our OEM customers, who generally purchase more tailored products from us, which are used as inputs into subassemblies of manufactured finished goods. Our Other segment was created as the direct result of our 2011 acquisition of TRC which occurred in the second quarter of 2011. We integrated a portion of TRC’s legacy business into our Distribution segment. The remainder of TRC’s legacy business, its military and specialty vehicle business, comprises the Other segment reported herein.
17
Financial data for the Company’s reportable segments is as follows:
Three Months
Ended March 31, |
||||||||
2012 | 2011 | |||||||
Net Sales: |
||||||||
Distribution Segment |
$ | 155,060 | $ | 149,258 | ||||
OEM Segment |
57,915 | 56,544 | ||||||
Other Segment |
7,516 | — | ||||||
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|
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Total |
$ | 220,491 | $ | 205,802 | ||||
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|
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Operating Income: |
||||||||
Distribution Segment |
$ | 12,195 | $ | 15,154 | ||||
OEM Segment |
4,599 | 4,969 | ||||||
Other Segment |
716 | — | ||||||
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Total segments |
17,510 | 20,123 | ||||||
Corporate |
(4,727 | ) | (5,532 | ) | ||||
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Consolidated operating income |
$ | 12,783 | $ | 14,591 | ||||
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Our Distribution, OEM, and Other segments have common production processes and manufacturing facilities. Accordingly, we do not identify all of our net assets to those segments. Thus, we do not report capital expenditures at the segment level. Additionally, depreciation expense is not allocated to those segments, but is included in manufacturing overhead cost pools and is absorbed into product cost (and inventory) as each product passes through our manufacturing work centers. Accordingly, as products are sold across those segments, it is impracticable to determine the amount of depreciation expense included in the operating results of each segment.
Segment operating income represents income from continuing operations before interest income or expense, other income or expense, and income taxes. Corporate consists of items not charged or allocated to the segments, including costs for employee relocation, discretionary bonuses, professional fees, restructuring expenses, asset impairments, and intangible amortization.
18. SUPPLEMENTAL GUARANTOR INFORMATION
The Senior Notes and the Revolving Credit Facility are instruments of the parent, and are reflected in their respective balance sheets. As of March 31, 2012, our payment obligations under the Senior Notes and the Revolving Credit Facility (see Note 7) were guaranteed by our 100% owned subsidiaries, CCI International, Patco and TRC (the “Guarantor Subsidiaries”). Such guarantees are full, unconditional, and joint and several. The following unaudited supplemental financial information sets forth, on a combined basis, balance sheets, statements of income, statements of comprehensive income and statements of cash flows for Coleman Cable, Inc. (“Parent”) and the Guarantor Subsidiaries. The condensed consolidating financial statements have been prepared on the same basis as the condensed consolidated financial statements of Parent. The equity method of accounting is followed within this financial information.
18
COLEMAN CABLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR THE THREE MONTHS ENDED
MARCH 31, 2012
Parent | Guarantor Subsidiaries |
Non Guarantor Subsidiaries |
Eliminations | Total | ||||||||||||||||
NET SALES |
$ | 197,427 | $ | 7,709 | $ | 19,826 | $ | (4,471 | ) | $ | 220,491 | |||||||||
COST OF GOODS SOLD |
171,164 | 5,861 | 17,267 | (4,471 | ) | 189,821 | ||||||||||||||
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GROSS PROFIT |
26,263 | 1,848 | 2,559 | — | 30,670 | |||||||||||||||
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
12,959 | 1,693 | 1,078 | — | 15,730 | |||||||||||||||
INTANGIBLE ASSET AMORTIZATION |
1,430 | 392 | 2 | — | 1,824 | |||||||||||||||
RESTRUCTURING CHARGES |
(195 | ) | 223 | 305 | — | 333 | ||||||||||||||
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OPERATING INCOME (LOSS) |
12,069 | (460 | ) | 1,174 | — | 12,783 | ||||||||||||||
INTEREST EXPENSE |
7,007 | — | 15 | — | 7,022 | |||||||||||||||
OTHER (INCOME) LOSS, NET |
— | (2 | ) | 76 | — | 74 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
INCOME (LOSS) BEFORE INCOME TAXES |
5,062 | (458 | ) | 1,083 | — | 5,687 | ||||||||||||||
INCOME FROM SUBSIDIARIES |
614 | — | — | (614 | ) | — | ||||||||||||||
INCOME TAX EXPENSE (BENEFIT) |
1,949 | (163 | ) | 174 | — | 1,960 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
NET INCOME (LOSS) |
$ | 3,727 | $ | (295 | ) | $ | 909 | $ | (614 | ) | $ | 3,727 | ||||||||
|
|
|
|
|
|
|
|
|
|
COLEMAN CABLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR THE THREE MONTHS ENDED
MARCH 31, 2011
Parent | Guarantor Subsidiary |
Non Guarantor Subsidiary |
Eliminations | Total | ||||||||||||||||
NET SALES |
$ | 196,698 | $ | — | $ | 12,766 | $ | (3,662 | ) | $ | 205,802 | |||||||||
COST OF GOODS SOLD |
168,564 | — | 10,873 | (3,662 | ) | 175,775 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
GROSS PROFIT |
28,134 | — | 1,893 | — | 30,027 | |||||||||||||||
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
12,428 | — | 1,425 | — | 13,853 | |||||||||||||||
INTANGIBLE ASSET AMORTIZATION |
1,578 | — | 5 | — | 1,583 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
OPERATING INCOME |
14,128 | — | 463 | — | 14,591 | |||||||||||||||
INTEREST EXPENSE |
6,907 | — | 64 | — | 6,971 | |||||||||||||||
OTHER LOSS, NET |
— | — | (132 | ) | — | (132 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
INCOME BEFORE INCOME TAXES |
7,221 | — | 531 | — | 7,752 | |||||||||||||||
INCOME FROM SUBSIDIARIES |
343 | — | — | (343 | ) | — | ||||||||||||||
INCOME TAX EXPENSE |
2,338 | — | 188 | — | 2,526 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
NET INCOME |
$ | 5,226 | $ | — | $ | 343 | $ | (343 | ) | $ | 5,226 | |||||||||
|
|
|
|
|
|
|
|
|
|
19
COLEMAN CABLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED
MARCH 31, 2012
Parent | Guarantor Subsidiaries |
Non Guarantor Subsidiaries |
Eliminations | Total | ||||||||||||||||
NET INCOME (LOSS) |
$ | 3,727 | $ | (295 | ) | $ | 909 | $ | (614 | ) | $ | 3,727 | ||||||||
OTHER COMPREHENSIVE INCOME |
||||||||||||||||||||
Foreign currency translation adjustments, net of tax benefit of $67 |
— | — | 187 | — | 187 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
OTHER COMPREHENSIVE INCOME |
— | — | 187 | — | 187 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
COMPREHENSIVE INCOME (LOSS) |
$ | 3,727 | $ | (295 | ) | $ | 1,096 | $ | (614 | ) | $ | 3,914 | ||||||||
|
|
|
|
|
|
|
|
|
|
COLEMAN CABLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED
MARCH 31, 2011
Parent | Guarantor Subsidiaries |
Non Guarantor Subsidiary |
Eliminations | Total | ||||||||||||||||
NET INCOME |
$ | 5,226 | $ | — | $ | 343 | $ | (343 | ) | $ | 5,226 | |||||||||
OTHER COMPREHENSIVE INCOME |
||||||||||||||||||||
Foreign currency translation adjustments, net of tax benefit of $82 |
— | — | 244 | — | 244 | |||||||||||||||
|
|
|
|
|||||||||||||||||
Unrealized investment gain, net of tax of $416 |
653 | — | — | — | 653 | |||||||||||||||
Pension adjustments, net of tax of $21 |
33 | — | — | — | 33 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
OTHER COMPREHENSIVE INCOME |
686 | — | 244 | — | 930 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
COMPREHENSIVE INCOME |
$ | 5,912 | $ | — | $ | 587 | $ | (343 | ) | $ | 6,156 | |||||||||
|
|
|
|
|
|
|
|
|
|
20
COLEMAN CABLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET AS OF MARCH 31, 2012
Parent | Guarantor Subsidiaries |
Non Guarantor Subsidiaries |
Eliminations | Total | ||||||||||||||||
ASSETS |
||||||||||||||||||||
CURRENT ASSETS: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 1,888 | $ | 847 | $ | 3,345 | $ | — | $ | 6,080 | ||||||||||
Accounts receivable — net of allowances |
113,790 | 4,297 | 8,523 | — | 126,610 | |||||||||||||||
Intercompany receivable |
— | 9,733 | 4,517 | (14,250 | ) | — | ||||||||||||||
Inventories |
111,003 | 5,137 | 6,011 | — | 122,151 | |||||||||||||||
Deferred income taxes |
2,680 | 595 | 89 | — | 3,364 | |||||||||||||||
Assets held for sale |
546 | — | — | — | 546 | |||||||||||||||
Prepaid expenses and other current assets |
7,945 | 1,986 | 1,062 | — | 10,993 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
237,852 | 22,595 | 23,547 | (14,250 | ) | 269,744 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
PROPERTY, PLANT AND EQUIPMENT, NET |
63,612 | 4,017 | 1,808 | — | 69,437 | |||||||||||||||
GOODWILL |
30,842 | 23,541 | 1,542 | — | 55,925 | |||||||||||||||
INTANGIBLE ASSETS, NET |
19,923 | 6,508 | 87 | — | 26,518 | |||||||||||||||
DEFERRED INCOME TAXES |
— | — | 224 | — | 224 | |||||||||||||||
OTHER ASSETS |
7,535 | — | 129 | — | 7,664 | |||||||||||||||
INVESTMENT IN SUBSIDIARIES |
62,528 | — | — | (62,528 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
TOTAL ASSETS |
$ | 422,292 | $ | 56,661 | $ | 27,337 | $ | (76,778 | ) | $ | 429,512 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||||||||||||||
CURRENT LIABILITIES: |
||||||||||||||||||||
Current portion of long-term debt |
$ | 167 | $ | — | $ | — | $ | — | $ | 167 | ||||||||||
Accounts payable |
24,981 | 568 | 3,064 | — | 28,613 | |||||||||||||||
Intercompany payable |
3,474 | 4,516 | 6,260 | (14,250 | ) | — | ||||||||||||||
Accrued liabilities |
18,726 | 1,104 | 3,232 | — | 23,062 | |||||||||||||||
Other liabilities |
— | — | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
47,348 | 6,188 | 12,556 | (14,250 | ) | 51,842 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LONG-TERM DEBT |
334,842 | — | — | — | 334,842 | |||||||||||||||
OTHER LONG-TERM LIABILITIES |
2,873 | 34 | 53 | — | 2,960 | |||||||||||||||
DEFERRED INCOME TAXES |
4,338 | 2,639 | — | — | 6,977 | |||||||||||||||
SHAREHOLDERS’ EQUITY: |
||||||||||||||||||||
Common stock |
17 | — | 928 | (928 | ) | 17 | ||||||||||||||
Treasury Stock |
(2,887 | ) | — | — | — | (2,887 | ) | |||||||||||||
Additional paid-in capital |
93,851 | 50,110 | 1,472 | (51,582 | ) | 93,851 | ||||||||||||||
Retained earnings (accumulated deficit) |
(58,092 | ) | (2,310 | ) | 12,333 | (10,023 | ) | (58,092 | ) | |||||||||||
Accumulated other comprehensive loss |
2 | — | (5 | ) | 5 | 2 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total shareholders’ equity |
32,891 | 47,800 | 14,728 | (62,528 | ) | 32,891 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
TOTAL LIABILITIES AND EQUITY |
$ | 422,292 | $ | 56,661 | $ | 27,337 | $ | (76,778 | ) | $ | 429,512 | |||||||||
|
|
|
|
|
|
|
|
|
|
21
COLEMAN CABLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 2011
Parent | Guarantor Subsidiaries |
Non Guarantor Subsidiaries |
Eliminations | Total | ||||||||||||||||
ASSETS |
||||||||||||||||||||
CURRENT ASSETS: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 4,086 | $ | 724 | $ | 4,936 | $ | — | $ | 9,746 | ||||||||||
Accounts receivable — net of allowances |
105,900 | 3,404 | 11,263 | — | 120,567 | |||||||||||||||
Intercompany receivable |
— | 10,954 | 3,459 | (14,413 | ) | — | ||||||||||||||
Inventories |
98,596 | 4,662 | 5,431 | — | 108,689 | |||||||||||||||
Deferred income taxes |
2,674 | 595 | 86 | — | 3,355 | |||||||||||||||
Assets held for sale |
546 | — | — | — | 546 | |||||||||||||||
Prepaid expenses and other current assets |
7,039 | 2,075 | 1, 174 | — | 10,288 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
218,841 | 22,414 | 26,349 | (14,413 | ) | 253,191 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
PROPERTY, PLANT AND EQUIPMENT, NET |
54,404 | 2,766 | 1,787 | — | 58,957 | |||||||||||||||
GOODWILL |
31,675 | 23,541 | 1,508 | — | 56,724 | |||||||||||||||
INTANGIBLE ASSETS, NET |
21,353 | 6,901 | 86 | — | 28,340 | |||||||||||||||
DEFERRED INCOME TAXES |
58 | — | 318 | — | 376 | |||||||||||||||
OTHER ASSETS |
8,016 | — | 132 | — | 8,148 | |||||||||||||||
INVESTMENT IN SUBSIDIARIES |
61,724 | — | — | (61,724 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
TOTAL ASSETS |
$ | 396,071 | $ | 55,622 | $ | 30,180 | $ | (76,137 | ) | $ | 405,736 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||||||||||||||
CURRENT LIABILITIES: |
||||||||||||||||||||
Current portion of long-term debt |
$ | 166 | $ | — | $ | — | $ | — | $ | 166 | ||||||||||
Accounts payable |
25,154 | 473 | 3,454 | — | 29,081 | |||||||||||||||
Intercompany payable |
2,552 | 3,459 | 8,402 | (14,413 | ) | — | ||||||||||||||
Accrued liabilities |
30,154 | 927 | 4,681 | — | 35,762 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
58,026 | 4,859 | 16,537 | (14,413 | ) | 65,009 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LONG-TERM DEBT |
302,935 | — | — | — | 302,935 | |||||||||||||||
OTHER LONG-TERM LIABILITIES |
3,184 | — | 10 | — | 3,194 | |||||||||||||||
DEFERRED INCOME TAXES |
3,831 | 2,672 | — | — | 6,503 | |||||||||||||||
SHAREHOLDERS’ EQUITY: |
||||||||||||||||||||
Common stock |
17 | — | 928 | (928 | ) | 17 | ||||||||||||||
Treasury stock |
(2,789 | ) | — | — | — | (2,789 | ) | |||||||||||||
Additional paid-in capital |
92,871 | 50,104 | 1,475 | (51,579 | ) | 92,871 | ||||||||||||||
Retained earnings (accumulated deficit) |
(61,819 | ) | (2,013 | ) | 11,423 | (9,410 | ) | (61,819 | ) | |||||||||||
Accumulated other comprehensive loss |
(185 | ) | — | (193 | ) | 193 | (185 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total shareholders’ equity |
28,095 | 48,091 | 13,633 | (61,724 | ) | 28,095 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
TOTAL LIABILITIES AND EQUITY |
$ | 396,071 | $ | 55,622 | $ | 30,180 | $ | (76,137 | ) | $ | 405,736 | |||||||||
|
|
|
|
|
|
|
|
|
|
22
COLEMAN CABLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED
MARCH 31, 2012
Parent | Guarantor Subsidiaries |
Non Guarantor Subsidiaries |
Eliminations | Total | ||||||||||||||||
CASH FLOW FROM OPERATING ACTIVITIES: |
||||||||||||||||||||
Net income (loss) |
$ | 3,727 | $ | (295 | ) | $ | 909 | $ | (614 | ) | $ | 3,727 | ||||||||
Adjustments to reconcile net income (loss) to net cash flow from operating activities: |
||||||||||||||||||||
Depreciation and amortization |
5,005 | 656 | 81 | — | 5,742 | |||||||||||||||
Stock-based compensation |
598 | — | — | — | 598 | |||||||||||||||
Foreign currency transaction gain |
— | — | 74 | — | 74 | |||||||||||||||
Deferred taxes |
560 | (33 | ) | 27 | — | 554 | ||||||||||||||
Excess tax benefits from stock-based compensation |
(651 | ) | — | — | — | (651 | ) | |||||||||||||
Gain on disposal of fixed assets |
(28 | ) | — | — | — | (28 | ) | |||||||||||||
Equity in consolidated subsidiaries |
(614 | ) | — | — | 614 | — | ||||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||||||
Accounts receivable |
(7,894 | ) | (893 | ) | 2,521 | — | (6,266 | ) | ||||||||||||
Inventories |
(12,408 | ) | (473 | ) | (581 | ) | — | (13,462 | ) | |||||||||||
Prepaid expenses and other assets |
4 | 89 | 123 | — | 216 | |||||||||||||||
Accounts payable |
1,307 | 94 | (382 | ) | — | 1,019 | ||||||||||||||
Intercompany accounts |
921 | 2,279 | (3,200 | ) | — | — | ||||||||||||||
Accrued liabilities |
(11,345 | ) | 213 | (1,397 | ) | — | (12,529 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash flow from operating activities |
(20,818 | ) | 1,637 | (1,825 | ) | — | (21,006 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
CASH FLOW FROM INVESTING ACTIVITIES: |
||||||||||||||||||||
Capital expenditures |
(13,749 | ) | (1,514 | ) | 21 | — | (15,242 | ) | ||||||||||||
Proceeds from sale of fixed assets |
20 | — | — | — | 20 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash flow from investing activities |
(13,729 | ) | (1,514 | ) | 21 | — | (15,222 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
CASH FLOW FROM FINANCING ACTIVITIES: |
||||||||||||||||||||
Borrowings under revolving loan facilities |
130,612 | — | — | — | 130,612 | |||||||||||||||
Repayments under revolving loan facilities |
(98,775 | ) | — | — | — | (98,775 | ) | |||||||||||||
Purchase of Treasury Stock |
(98 | ) | — | — | — | (98 | ) | |||||||||||||
Repayment of long-term debt |
(41 | ) | — | — | — | (41 | ) | |||||||||||||
Excess tax benefits from stock-based compensation |
651 | — | — | — | 651 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash flow from financing activities |
32,349 | — | — | — | 32,349 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Effect of exchange rate on cash and cash equivalents |
— | — | 213 | — | 213 | |||||||||||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
(2,198 | ) | 123 | (1,591 | ) | — | (3,666 | ) | ||||||||||||
CASH AND CASH EQUIVALENTS — Beginning of period |
4,086 | 724 | 4,936 | — | 9,746 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
CASH AND CASH EQUIVALENTS — End of period |
$ | 1,888 | $ | 847 | $ | 3,345 | $ | — | $ | 6,080 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
NONCASH ACTIVITY |
||||||||||||||||||||
Unpaid capital expenditures |
230 | — | — | — | 230 | |||||||||||||||
SUPPLEMENTAL CASH FLOW INFORMATION |
||||||||||||||||||||
Income taxes paid, net |
(15 | ) | — | 27 | — | 12 | ||||||||||||||
Cash interest paid |
12,766 | — | — | — | 12,766 |
23
COLEMAN CABLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED
MARCH 31, 2011
Parent | Guarantor Subsidiary |
Non Guarantor Subsidiary |
Eliminations | Total | ||||||||||||||||
CASH FLOW FROM OPERATING ACTIVITIES: |
||||||||||||||||||||
Net income |
$ | 5,226 | $ | — | $ | 343 | $ | (343 | ) | $ | 5,226 | |||||||||
Adjustments to reconcile net income to net cash flow from operating activities: |
||||||||||||||||||||
Depreciation and amortization |
4,804 | — | 40 | — | 4,844 | |||||||||||||||
Stock-based compensation |
1,177 | — | — | — | 1,177 | |||||||||||||||
Foreign currency transaction gain |
— | — | (132 | ) | — | (132 | ) | |||||||||||||
Deferred taxes |
(1,338 | ) | — | (116 | ) | — | (1,454 | ) | ||||||||||||
Gain on disposal of fixed assets |
(1 | ) | — | — | — | (1 | ) | |||||||||||||
Equity in consolidated subsidiaries |
(343 | ) | — | — | 343 | — | ||||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||||||
Accounts receivable |
(14,426 | ) | — | 1,979 | — | (12,447 | ) | |||||||||||||
Inventories |
(11,477 | ) | — | (80 | ) | — | (11,557 | ) | ||||||||||||
Prepaid expenses and other assets |
632 | — | 190 | — | 822 | |||||||||||||||
Accounts payable |
3,057 | 1 | 71 | — | 3,129 | |||||||||||||||
Intercompany accounts |
2,415 | (33 | ) | (2,382 | ) | — | — | |||||||||||||
Accrued liabilities |
(7,155 | ) | 10 | (59 | ) | — | (7,204 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash flow from operating activities |
(17,429 | ) | (22 | ) | (146 | ) | — | (17,597 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
CASH FLOW FROM INVESTING ACTIVITIES: |
||||||||||||||||||||
Capital expenditures |
(2,135 | ) | — | — | — | (2,135 | ) | |||||||||||||
Proceeds from sale of fixed assets |
4 | — | — | — | 4 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash flow from investing activities |
(2,131 | ) | — | — | — | (2,131 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
CASH FLOW FROM FINANCING ACTIVITIES: |
||||||||||||||||||||
Repayments under revolving loan facilities |
(3 | ) | — | — | — | (3 | ) | |||||||||||||
Common stock option exercises |
9 | — | — | — | 9 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash flow from financing activities |
6 | — | — | — | 6 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Effect of exchange rate on cash and cash equivalents |
— | — | 472 | — | 472 | |||||||||||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
(19,554 | ) | (22 | ) | 326 | — | (19,250 | ) | ||||||||||||
CASH AND CASH EQUIVALENTS — Beginning of period |
30,493 | 77 | 2,884 | — | 33,454 | |||||||||||||||
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CASH AND CASH EQUIVALENTS — End of period |
$ | 10,939 | $ | 55 | $ | 3,210 | $ | — | $ | 14,204 | ||||||||||
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NONCASH ACTIVITY |
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Unpaid capital expenditures |
363 | — | — | — | 363 | |||||||||||||||
SUPPLEMENTAL CASH FLOW INFORMATION |
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Income taxes paid (refunded), net |
142 | — | 14 | — | 156 | |||||||||||||||
Cash interest paid |
12,908 | — | — | — | 12,908 |
24
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of risks and uncertainties, including those described in this report under “Cautionary Note Regarding Forward-Looking Statements” and under “Item 1A. Risk Factors” in our Annual Report on Form 10-K, for the fiscal year ended December 31, 2011. We assume no obligation to update any of these forward-looking statements. You should read the following discussion in conjunction with our condensed consolidated financial statements and the notes thereto included in this report.
Overview
Coleman Cable, Inc. (the “Company,” “Coleman,” “us,” “we,” or “our”) is a leading designer, developer, manufacturer and supplier of electrical wire and cable products for consumer, commercial and industrial applications, with operations primarily in the U.S. and, to a lesser degree, in Honduras and Canada.
Raw materials, primarily copper, comprise the primary component of our cost of goods sold. The price of copper is particularly volatile, and fluctuations in copper prices can significantly affect our sales and profitability. The average copper price on the COMEX was $3.79 for the first quarter of 2012, as compared to $4.38 per pound for the first quarter of 2011, which represented a decrease of 13.5%.
As the result of our acquisition of TRC (as defined below) in the second quarter of 2011, we now have three reportable segments, Distribution, OEM (“Original Equipment Manufacturers”), and Other.
2011 Acquisitions
During the second quarter of 2011, we utilized cash on hand, as well as borrowings under our existing credit facility to complete three business combination transactions (collectively, the “2011 Acquisitions”), as set forth below. Each of these 2011 Acquisitions was structured as a cash transaction, with aggregate consideration totaling $68.9 million. As further discussed below, we believe these acquisitions represent significant opportunities for us, including the strengthening and greater diversification of our overall portfolio.
Acquisition of the Assets of The Designers Edge (“DE”)
On April 1, 2011, we acquired certain assets of DE, a leading designer and distributor of specialty lighting products in the U.S. and Canada. The total purchase price for the assets acquired, primarily trade receivables and merchandise inventories, was $10.1 million. The acquisition of DE’s assets significantly expanded our product portfolio across a wide range of lighting product categories, including industrial, work and utility, as well as products for security and landscape applications. We fully integrated the acquired assets of DE into our existing operations during the second quarter of 2011.
Acquisition of the Assets of First Capitol Wire and Cable (“FCWC”) and Continental Wire and Cable (“CWC”)
On April 29, 2011, we acquired the assets of FCWC and CWC, both of which were privately-held entities based in York, Pennsylvania, with CWC being a 100%-owned subsidiary of FCWC, which are leading manufacturers of industrial wire and cable products used across a number of commercial, utility and industrial end-markets. The total purchase price for the assets acquired, primarily merchandise inventories and production equipment, was $7.3 million, inclusive of working capital adjustments of $0.8 million. The acquisition of the assets of FCWC and CWC has allowed us to expand our capabilities, product offerings and capacity for producing a wide assortment of high-quality industrial cables. We fully integrated the assets of FCWC and CWC into our operations during the second quarter of 2011.
Acquisition of Technology Research Corporation (“TRC”)
On May 16, 2011, we completed the acquisition of 100% of the outstanding stock of TRC. TRC is a recognized leader in providing cost effective engineered solutions for applications involving power management and control, intelligent battery systems technology and electrical safety products based on proven ground fault sensing and Fire Shield® technology. These products are designed, manufactured and distributed to the consumer, commercial and industrial markets worldwide. TRC also supplies power monitors and control equipment to the United States Military and its prime contractors. TRC was publicly traded on the NASDAQ prior to its acquisition by Coleman. We completed the TRC acquisition as the result of a successful public tender offer to acquire all outstanding shares of TRC. The total purchase price consideration for TRC was approximately $51.5 million, including the acquisition-date fair value of an approximate 4.8% interest in TRC acquired by Coleman prior to submitting its acquisition proposal for TRC.
The Company believes TRC's sizable commercial and consumer products segment greatly broadens our current electrical products platform. In addition, TRC's battery, power storage, and power management systems, represent new product lines for Coleman.
TRC has maintained its current production facilities in Clearwater, FL, and Honduras. We integrated a portion of TRC’s legacy business into our Distribution segment during 2011. The remainder of TRC’s legacy business, its military and specialty vehicle business, comprises the Other segment reported herein.
25
Purchase Accounting Related to the 2011 Acquisitions
The 2011 Acquisitions were accounted for under the purchase method of accounting. Accordingly, we have allocated the purchase price for each acquisition to the net assets acquired based on the related estimated fair values at each respective acquisition date. The expected long-term growth, increased market position and expected synergies to be generated from the 2011 Acquisitions are the primary factors which gave rise to acquisition prices for each of the 2011 Acquisitions which resulted in the recognition of goodwill.
The purchase price allocations have been finalized. At the end of the first quarter, we finalized our purchase accounting for DE as certain purchase price and other matters relative to this acquisition were resolved. As a result, the total purchase price was lowered by $0.8 million, with a corresponding reduction in the goodwill recorded in connection with this acquisition.
Consolidated Results of Operations
The 2011 Acquisitions are included in our condensed consolidated results of operations beginning from each respective acquisition date. Accordingly, the consolidated statement of income for the three months ended March 31, 2012 includes operations related to the 2011 Acquisitions. The consolidated statement of income for the three months ended March 31, 2011 does not include the impact of the 2011 Acquisitions.
In addition to net income determined in accordance with GAAP, we use certain non-GAAP measures in assessing our operating performance. These non-GAAP measures used by management include: (1) EBITDA, which we define as net income before net interest, income taxes, depreciation and amortization expense (“EBITDA”), (2) Adjusted EBITDA, which is our measure of EBITDA adjusted to exclude the impact of certain specifically identified items (“Adjusted EBITDA”), and (3) Adjusted earnings per share, which we calculate as diluted earnings per share adjusted to exclude the estimated per share impact of the same specifically identified items used to calculate Adjusted EBITDA (“Adjusted EPS”). For the periods presented in this report, the specifically identified items include restructuring charges, share-based compensation expense, and acquisition-related costs.
We believe both EBITDA and Adjusted EBITDA serve as appropriate measures to be used in evaluating the performance of our business. We use these measures in the preparation of our annual operating budgets and in determining levels of operating and capital investments. We believe both EBITDA and Adjusted EBITDA allow us to readily view operating trends, perform analytical comparisons and identify strategies to improve operating performance. The usefulness of both EBITDA and Adjusted EBITDA as performance measures is limited by the fact that they both exclude the impact of interest expense, depreciation and amortization expense, and taxes. Due to these limitations, we do not, and you should not, use either EBITDA or Adjusted EBITDA as the only measures of our performance. We also use, and recommend that you consider, net income in accordance with GAAP as a measure of our performance. Finally, other companies may define EBITDA and Adjusted EBITDA differently and, as a result, our measure of EBITDA and Adjusted EBITDA may not be directly comparable to EBITDA and Adjusted EBITDA measures of other companies.
Similarly, we believe our use of Adjusted EPS and Adjusted EBITDA provides an appropriate measure to use in assessing our performance across periods given that this measure provides an adjustment for certain significant items, the magnitude of which may vary significantly from period to period. However, we do not, and do not recommend that you, solely use Adjusted EPS to assess our financial and earnings performance. We also use, and recommend that you use, diluted earnings per share in addition to Adjusted EPS in assessing our earnings performance. Finally, other companies may define Adjusted EPS differently and, as a result, our measure of Adjusted EPS may not be directly comparable to Adjusted EPS measures of other companies.
The following tables, which reconcile our measure of Adjusted EPS to diluted earnings per share, and Adjusted EBITDA to net income, respectively, should be used along with the below statements of income for the periods presented, and the accompanying results of operations review.
26
Diluted earnings per share, as determined in accordance with GAAP, to Adjusted EPS
Three Months Ended March 31, |
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2012 | 2011 | |||||||
Earnings per share |
$ | 0.21 | $ | 0.30 | ||||
Restructuring charges (1) |
0.01 | — | ||||||
Share-based compensation expense (2) |
0.02 | 0.04 | ||||||
Acquisition-related costs (3) |
— | 0.04 | ||||||
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Adjusted diluted earnings per share |
$ | 0.24 | $ | 0.38 | ||||
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Net income , as determined in accordance with GAAP, to EBITDA and Adjusted EBITDA
Three Months Ended March 31, |
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2012 | 2011 | |||||||
(Thousands) | ||||||||
Net income |
$ | 3,727 | $ | 5,226 | ||||
Interest expense |
7,022 | 6,971 | ||||||
Income tax expense |
1,960 | 2,526 | ||||||
Depreciation and amortization expense (a) |
5,330 | 4,305 | ||||||
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EBITDA |
$ | 18,039 | $ | 19,028 | ||||
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Restructuring charges (1) |
333 | — | ||||||
Share-based compensation expense (2) |
598 | 1,177 | ||||||
Acquisition-related costs (3) |
— | 902 | ||||||
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Adjusted EBITDA |
$ | 18,970 | $ | 21,107 | ||||
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(a) | Depreciation and amortization expense shown in the above schedule excludes amortization of debt issuance costs, which are included as a component of interest expense. |
The nature of each individual item listed in the table above, which has been excluded from EBITDA in order to arrive at our measure of Adjusted EBITDA for each of the periods presented, is detailed in the analysis of operating results that follows.
Earnings and Performance Summary
We recorded net income of $3.7 million (or $0.21 per diluted share) in the first quarter of 2012, as compared to net income of $5.2 million (or $0.30 per diluted share) for the first quarter of 2011. For the first quarter of 2012, we recorded EBITDA of $18.0 million, as compared to $19.0 million in EBITDA for the first quarter of 2011.
As set forth below, results for these periods were impacted by certain significant items, the magnitude of which may vary significantly from period to period and, thereby, have a disproportionate effect on the earnings reported for any given period. The income-statement review below contains further detail regarding these items.
(1) | Restructuring charges: We recorded restructuring charges of $0.3 million ($0.2 million after tax, or $0.01 per diluted share) during the first quarter of 2012. These expenses were primarily costs related to facilities closed in prior years, consisting of two leased and one owned facility for which we continue to pay holding costs. |
(2) | Share-based compensation expense: Our results for the first quarter of 2012 and 2011 included expense of $0.6 million ($0.4 million after tax, or $0.02 per diluted share) and $1.2 million ($0.7 million after tax, or $0.04 per diluted share), respectively. Share-based compensation expense is excluded from our measures of Adjusted EBITDA and Adjusted EPS in order for such measures to more closely reflect a measure of underlying operating results given periodic fluctuations in the estimated fair value of a significant portion of the underlying share-based instruments. |
(3) | Acquisition-related costs: Our results for the first quarter of 2011 included acquisition-related costs of $0.9 million ($0.6 million after tax or $0.04 per diluted share). Acquisition-related costs include outside legal, consulting and other fees, and direct expenses incurred in the first quarter of 2011 relative to acquisition-related activities. These costs are excluded from our measures of Adjusted EBITDA and Adjusted EPS so that such measures may more closely reflect underlying operational results. |
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The following sets forth, for the periods indicated, our consolidated results of operations and related data in thousands of dollars and as a percentage of net sales.
Three Months Ended March 31, 2012 Compared with Three Months Ended March 31, 2011
Three Months Ended March 31, | Period-over-Period Change | |||||||||||||||||||||||
2012 | 2011 | 2012 vs. 2011 | ||||||||||||||||||||||
Amount | % | Amount | % | $ Change | % Change | |||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
(Thousands, except per share data) | ||||||||||||||||||||||||
Distribution net sales |
$ | 155,060 | 70.3 | % | $ | 149,258 | 72.5 | % | $ | 5,802 | 3.9 | % | ||||||||||||
OEM net sales |
57,915 | 26.3 | 56,544 | 27.5 | 1,371 | 2.4 | ||||||||||||||||||
Other net sales |
7,516 | 3.4 | — | — | 7,516 | 100.0 | ||||||||||||||||||
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Consolidated net sales |
220,491 | 100.0 | 205,802 | 100.0 | 14,689 | 7.1 | ||||||||||||||||||
Gross profit |
30,670 | 13.9 | 30,027 | 14.6 | 643 | 2.1 | ||||||||||||||||||
Selling, general and administrative expenses |
15,730 | 7.1 | 13,853 | 6.7 | 1,877 | 13.5 | ||||||||||||||||||
Intangible amortization expense |
1,824 | 0.8 | 1,583 | 0.8 | 241 | 15.2 | ||||||||||||||||||
Restructuring charges |
333 | 0.2 | — | 0.0 | 333 | 100.0 | ||||||||||||||||||
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Operating income |
12,783 | 5.8 | 14,591 | 7.1 | (1,808 | ) | (12.4 | ) | ||||||||||||||||
Interest expense |
7,022 | 3.2 | 6,971 | 3.4 | 51 | 0.7 | ||||||||||||||||||
Other (income) loss, net |
74 | 0.0 | (132 | ) | (0.1 | ) | 206 | (156.1 | ) | |||||||||||||||
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Income before income taxes |
5,687 | 2.6 | 7,752 | 3.8 | (2,065 | ) | (26.6 | ) | ||||||||||||||||
Income tax expense |
1,960 | 0.9 | 2,526 | 1.2 | (566 | ) | (22.4 | ) | ||||||||||||||||
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Net income |
$ | 3,727 | 1.7 | $ | 5,226 | 2.6 | $ | (1,499 | ) | (28.7 | ) | |||||||||||||
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Diluted income per share |
$ | 0.21 | $ | 0.30 |
Segments
As a result of the TRC acquisition, we now have three reportable segments: (1) Distribution, (2) OEM and (3) Other. The Distribution segment serves our customers in distribution businesses, who are resellers of our products, while our OEM segment serves our OEM customers, who generally purchase more tailored products from us, which are used as inputs into subassemblies of manufactured finished goods. The Other segment includes TRC’s legacy business that was not integrated into the Distribution segment, primarily its military and specialty vehicle business.
Net sales
The increase in net sales for the first quarter of 2012 as compared to 2011 reflected the following factors:
• | Increased sales volumes (measured in total pounds shipped as set forth below), primarily due to overall market demand growth across a number of end markets which accounted for approximately $20.0 million in increased net sales; |
• | The increase in sales volume was offset by a decrease in selling prices, primarily due to a decrease in copper prices, accounting for approximately $12.8 million. In particular, average COMEX copper prices decreased by 13.5% in the first quarter of 2012 as compared to the first quarter of 2011; and, |
• | The $7.5 million increase in Other net sales was related to the TRC acquisition, consummated in the second quarter of 2011. This segment includes the portion of TRC’s legacy business not integrated into the Distribution segment, primarily its military and specialty vehicle business. Our first quarter 2011 results did not include TRC. |
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The following table sets forth our sales volume by segment, measured in thousands of total pounds shipped, as well as average COMEX copper prices for the periods presented:
Total Sales Volume in Pounds (1)
Three Months Ended March 31, | ||||||||||||
2012 | 2011 | % Change | ||||||||||
(Thousands) | ||||||||||||
Distribution |
41,980 | 37,955 | 10.6 | % | ||||||||
OEM |
22,562 | 20,573 | 9.7 | |||||||||
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Consolidated |
64,542 | 58,528 | 10.3 | |||||||||
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Average COMEX Copper (2) |
$ | 3.79 | $ | 4.38 | (13.5 | ) | ||||||
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(1) | Other segment does not currently track volume through total pounds shipped. |
(2) | Represents the average price for one pound of copper on the COMEX for the period indicated. |
We believe the total volume increases noted above are generally indicative of an overall improvement in market conditions, as we have experienced broad-based demand increases across most areas of our business. We would note, however, that the magnitude of year-over-year increases within OEM slowed slightly during the first quarter of 2012. During the first quarter of 2012 we experienced lower relative levels of demand within certain areas of our OEM business, but were able to offset the impact of this decline in legacy product areas with increased sales of new industrial product offerings.
Gross profit
The $0.6 million total increase in gross profit for the first quarter of 2012 was comprised of $2.4 million in gross profit earned within our Other segment, which arose from the TRC acquisition in the second quarter of 2011, offset by a $1.8 million aggregate decline in gross profit recorded within the Distribution and OEM segments. Our gross profit as a percentage of net sales (“gross profit rate”) declined to 13.9% in the first quarter 2012 as compared to 14.6% in the first quarter of 2011. The decrease in gross profit recorded in our Distribution and OEM segment and the decline in our gross profit rate were primarily reflective of a contraction in the spread between the cost of our products and the prices we were able to charge for them in the marketplace. We believe this contraction is reflective of two primary factors. First, we faced increased inflationary cost pressures in our non-copper material costs throughout the first quarter of 2012. A number of our significant suppliers, most notably those related to petroleum-based resins and freight, increased the cost of their products and services. In response, we announced a number of price increases, but the timing of such increases did not prevent an interim contraction in our gross profit and gross profit rate. Secondly, copper prices declined significantly at the end of 2011 and this decline resulted in our selling higher cost inventory into a lower cost market, particularly during the early part of the first quarter of 2012.
Selling, general and administrative (“SG&A”) expense
The $1.9 million increase in SG&A expenses for the first quarter of 2012, as compared to 2011, was primarily related to the Other segment, which arose from the TRC acquisition, and which accounted for approximately $1.7 million of the total increase. Our SG&A expenses for the first quarter of 2011 included $0.9 million in acquisition-related costs related to our 2011 Acquisitions. Excluding the $1.7 million SG&A related to the Other segment and the $0.9 million in acquisition costs, our SG&A costs have increased $1.1 million reflecting increases across a number of expense areas, most notably payroll and related costs. Excluding these same two items, SG&A expenses were comparable at 6.6% of net sales for the first quarter of 2012 and 6.3% for the first quarter of 2011.
Intangible amortization expense
The increase in intangible amortization reflects the impact of amortization recorded in relation to the 2011 Acquisitions partially offset by lower amortization expense recorded in relation to acquisitions made in prior years. Amortization expense relative to intangible assets reflects the fact that such assets are generally amortized using an accelerated amortization method, which reflects our estimate of the pattern in which the economic benefit derived from such assets is to be consumed and, accordingly, results in lower amortization in periods further removed from the period of initial recognition.
29
Restructuring charges
We recorded $0.3 million in restructuring costs in the first quarter of 2012. The majority of these costs related to costs and equipment relocation costs at facilities closed in prior years, currently consisting of two leased and one owned facility for which we continue to pay holding costs.
In May 2012, we announced plans to close our manufacturing and distribution facility in Texarkana, Arkansas. We anticipate the facility will cease production early in the third quarter of 2012 and will result in our recognition of approximately $0.8 million to $1.0 million in closing-related costs primarily consisting of severance and equipment-moving costs. The operations of this facility will be moved to other existing manufacturing facilities, supplemented by foreign-sourcing of certain products, and we believe will generate approximately $1.0 million to $1.5 million in annual cost savings, most notably in the form of reduced overhead costs.
Operating income
The following table sets forth operating income by segment, in thousands of dollars and segment operating income as a percentage of segment net sales.
Three Months Ended March 31, | Year-over-Year Change | |||||||||||||||||||||||
2012 | 2011 | 2012 vs. 2011 | ||||||||||||||||||||||
Amount | % Net Sales |
Amount | % Net Sales |
$ Change | % Change | |||||||||||||||||||
(Thousands) | ||||||||||||||||||||||||
Operating Income: |
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Distribution |
$ | 12,195 | 7.9 | % | $ | 15,154 | 10.2 | % | $ | (2,959 | ) | (19.5 | %) | |||||||||||
OEM |
4,599 | 7.9 | 4,969 | 8.8 | (370 | ) | (7.4 | ) | ||||||||||||||||
Other |
716 | 9.5 | — | — | 716 | 100.0 | ||||||||||||||||||
Corporate |
(4,727 | ) | (5,532 | ) | ||||||||||||||||||||
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Consolidated operating income |
$ | 12,783 | 5.8 | % | $ | 14,591 | 7.1 | % | $ | (1,808 | ) | (12.4 | ) | |||||||||||
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Segment operating income represents income from continuing operations before interest income or expense, other income or expense, and income taxes. Corporate consists of items not charged or allocated to the segments, including costs for employee relocation, discretionary bonuses, professional fees, restructuring expenses, share-based compensation expense, and intangible amortization. Our Distribution, OEM, and Other segments have common production processes, and manufacturing and distribution capacity. Accordingly, we do not identify net assets to our segments. Depreciation expense is not allocated to segments, but is included in manufacturing overhead cost pools and is absorbed into product cost (and inventory) as each product passes through our numerous manufacturing work centers. Accordingly, as products are sold across our segments, it is impracticable to determine the amount of depreciation expense included in the operating results of each segment.
The Distribution operating income decline in the first quarter of 2012 primarily reflected the unfavorable gross profit impact of the above-noted decreased sales prices in 2012, offset by the increase in sales volume. As noted above, we experienced lower gross profits during the first quarter of 2012 with such decline primarily reflective of a contraction in the spread between the cost of our products and the prices we were able to charge in the marketplace primarily due to increased inflationary pressure in the cost of our non-copper material inputs.
The OEM operating income decline in the first quarter of 2012 primarily reflected the unfavorable gross profit impact of the above-noted decreased sales prices in 2012, offset by the increase in sales volume. As noted above, we experienced lower gross profits during the first quarter of 2012 with such decline primarily reflective of a contraction in the spread between the cost of our products and the prices we were able to charge in the marketplace primarily due to increased inflationary pressure in the cost of our non-copper material inputs.
The Other reporting segment contributed operating income of $0.7 million for the first quarter of 2012, which was a result of the 2011 Acquisition in the second quarter of 2011.
Interest expense
We incurred increased interest expense due to higher average outstanding borrowings for the first quarter of 2012 compared to 2011.
Other income (loss), net
We recorded other loss in the first quarter of 2012 and other income in the first quarter of 2011, both reflecting the impact of exchange rate changes on our Canadian subsidiary.
Income tax expense (benefit)
We recorded income tax expense of $2.0 million for the first quarter of 2012 compared to income tax expense of $2.5 million for the first quarter of 2011, with the decrease primarily reflecting decreased pre-tax income, partially offset by an increase in our effective tax rate, as our 2011 tax rate included a state tax benefit from previously paid state taxes.
30
The following is a reconciliation for the periods indicated of cash flow from operating activities, as determined in accordance with GAAP, to EBITDA.
Three Months
Ended March 31, |
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2012 | 2011 | |||||||
(Thousands) | ||||||||
Net cash flow from operating activities |
$ | (21,006 | ) | $ | (17,597 | ) | ||
Interest expense |
7,022 | 6,971 | ||||||
Income tax expense |
1,960 | 2,526 | ||||||
Excess tax benefits from stock-based compensation |
651 | — | ||||||
Deferred taxes |
(554 | ) | 1,454 | |||||
Gain on disposal of fixed assets |
28 | 1 | ||||||
Share-based compensation expense |
(598 | ) | (1,177 | ) | ||||
Foreign currency transaction gain (loss) |
(74 | ) | 132 | |||||
Amortization of debt issuance costs (a) |
(412 | ) | (539 | ) | ||||
Changes in operating assets and liabilities |
31,022 | 27,257 | ||||||
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EBITDA |
$ | 18,039 | $ | 19,028 | ||||
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(a) | Amortization of debt issuance costs are included within depreciation and amortization for cash flow presentation and are included as a component of interest expense for income statement presentation. |
Liquidity and Capital Resources
Debt
The following summarizes long-term debt (including current portion and capital lease obligations) outstanding in thousands of dollars:
As of March 31, 2012 |
As of December 31, 2011 |
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Revolving Credit Facility expiring October 2016 |
$ | 61,837 | $ | 30,000 | ||||
Senior notes due February 15, 2018 |
272,377 | 272,265 | ||||||
Capital lease obligations |
795 | 836 | ||||||
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Total long-term debt, including current portion |
$ | 335,009 | $ | 303,101 | ||||
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As of March 31, 2012, we had a total of $6.1 million in cash and cash equivalents and $61.8 million in outstanding borrowings under our Revolving Credit Facility.
Revolving Credit Facility
On August 4, 2011, we entered into a new $250.0 million, five-year revolving credit facility agreement with an accordion feature that allows us to increase our borrowings by an additional $50.0 million (the “Revolving Credit Facility”). The Revolving Credit Facility replaced a $200.0 million revolving credit facility which was scheduled to expire in April of 2012. The Revolving Credit Facility, which expires on October 1, 2016, is an asset-based loan facility, with a $20.0 million Canadian facility sublimit, and which is secured by substantially all of our assets, as further detailed below. We incurred $1.5 million in fees and direct costs related to negotiating the Revolving Credit Facility. These fees are being amortized over the life of the revolver.
The interest rate charged on borrowings under the Revolving Credit Facility is based on our election of either the base rate (greater of federal funds rate plus 0.50% and the lender’s prime rate) plus a range of 0.25% to 0.75% or the Eurodollar rate plus a range of 1.50% to 2.00%, in each case based on quarterly average excess availability under the Revolving Credit Facility. In addition, we pay an unused line fee of between 0.25% and 0.50% based on quarterly average excess availability pursuant to the terms of the Revolving Credit Facility.
Pursuant to the terms of the Revolving Credit Facility, we are required to maintain a fixed charge covenant ratio of not less than 1.0 to 1.0 for any month during which our excess availability under the Revolving Credit Facility falls below $30.0 million. Borrowing availability under the Revolving Credit Facility is limited to the lesser of (1) $250.0 million or (2) the sum of 85% of eligible accounts receivable, 70% of eligible inventory, with a maximum amount of borrowing-base availability which may be generated from
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inventory of $150.0 million for the U.S. portion and $12.0 million Canadian for the Canadian portion, and an advance rate to be 75% of certain appraised real estate and 85% of certain appraised equipment and capped at $62.5 million, with a $15.0 million sublimit for letters of credit. Our current availability does not include additional availability that may be generated by adding real estate and certain equipment to the borrowing base.
The Revolving Credit Facility is guaranteed by CCI International, Inc. (“CCI International”), TRC (excluding TRC’s 100%-owned foreign subsidiary, TRC Honduras, S.A. de C.V.) and Patco Electronics (“Patco”), each of which are 100%-owned domestic subsidiaries, and is secured by substantially all of our assets and the assets of each of CCI International, TRC and Patco, including accounts receivable, inventory and any other tangible and intangible assets (including real estate, machinery and equipment and intellectual property) as well as by a pledge of all the capital stock of CCI International, TRC and Patco and 65% of the capital stock of our Canadian foreign subsidiary, but not our Chinese 100%-owned entity.
The Revolving Credit Facility creates greater flexibility than our previous revolving credit facility in many respects, including, without limitation, as to the representations and warranties and event of default triggers contained therein, as well as the financial covenants and the covenants that restrict our ability to pay dividends or distributions, permit liens on property, make investments, provide guarantees, enter into merger, acquisitions or consolidations, conduct asset sales, enter into leases or sale and leaseback transactions and enter into transactions with affiliates. In addition, both the excess availability and fixed charge coverage tests that limit our ability to enter into acquisitions, make investments, repurchase the Senior Notes and pay dividends have been reduced under the Revolving Credit Facility from those set forth in the previous Revolving Credit Facility. We maintained greater than $40.0 million of monthly excess availability during the first quarter of 2012.
As of March 31, 2012, we were in compliance with all of the covenants of our Revolving Credit Facility.
9% Senior Notes due 2018 (“Senior Notes”)
Our Senior Notes mature on February 15, 2018 and have an aggregate principal amount of $275.0 million and a 9% coupon rate. Interest payments are due on February 15th and August 15th. As of March 31, 2012, we were in compliance with all of the covenants of our Senior Notes. Our Senior Notes were issued at a discount in 2010, resulting in proceeds of less than par value. This discount is being amortized to par value over the remaining life of the Senior Notes.
The Indenture relating to our Senior Notes contains customary covenants that limit us and our restricted subsidiaries from, among other things, incurring additional indebtedness, making restricted payments, creating liens, paying dividends, consolidating, merging or selling substantially all of their assets, entering into sale and leaseback transactions, and entering into transaction with affiliates. Additionally, all our domestic restricted subsidiaries that guarantee the Revolving Credit Facility are required under the Indenture to guarantee our obligations under the Senior Notes. Following our entry into the new Revolving Credit Facility, TRC and Patco became subsidiary guarantors of the Senior Notes.
Current and Future Liquidity
In general, we require cash for working capital, capital expenditures, debt repayment and interest. Our working capital requirements tend to increase when we experience significant increased demand for products or significant copper price increases. Accordingly, we may be required to borrow against our Revolving Credit Facility in the future upon the occurrence of various events, including increases in the price of copper, which increase our working capital requirements. Our management assesses the future cash needs of our business by considering a number of factors, including: (1) earnings and cash flow performance, (2) future working capital needs, (3) current and projected debt service expenses, and (4) planned capital expenditures.
As of March 31, 2012, we had $104.7 million in excess availability under the Revolving Credit Facility, and $6.1 million in cash and cash equivalents. We are permanently reinvested in our Honduran subsidiary and do not intend to repatriate funds. Cash held by our Honduran subsidiary of $1.0 million is not available to fund domestic operations unless these funds were repatriated. The company would need to accrue and pay taxes of approximately $0.4 million if the funds were repatriated. We believe that our operating cash flows and borrowing capacity under the Revolving Credit Facility will be sufficient to fund our operations, meet our debt service requirements and fund our planned capital expenditures and strategic acquisitions for the foreseeable future.
If we experience a deficiency in earnings compared to our fixed charges in the future, we would need to fund the fixed charges through additional borrowings under the Revolving Credit Facility. If cash flows generated from our operations, together with borrowings under our Revolving Credit Facility, are not sufficient to fund our operations, meet our debt service requirements and fund our planned capital expenditures, we would need to seek additional sources of capital. Limitations on our ability to incur debt contained in the Revolving Credit Facility and the Indenture relating to our 2018 Senior Notes could prevent us from securing additional capital through the issuance of debt. In that case, we would need to secure additional capital through other means, such as the issuance of equity. In addition, we may not be able to obtain additional debt or equity financing on terms acceptable to us, or at all. If we were not able to secure additional capital, we could be required to delay or forego capital spending or other corporate initiatives, such as the development of products, or acquisition opportunities.
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Our Revolving Credit Facility permits us to redeem, retire or repurchase our Senior Notes subject to certain limitations. We may repurchase Senior Notes in the future, but whether we do so will depend on a number of factors and there can be no assurance that we will repurchase any Senior Notes.
On May 1, 2012, our Board of Directors declared a quarterly dividend of $0.02 per common share, payable on May 30, 2012, to stockholders of record as of the close of business on May 15, 2012. Future declarations of quarterly dividends are subject to approval of the Board of Directors and may be adjusted as business needs or market conditions change.
On August 3, 2011, our Board of Directors authorized the purchase of up to 0.5 million shares of the Company’s common stock in open market or privately negotiated transactions. The repurchase plan expires in August 2012. To date, we have repurchased 0.3 million shares pursuant to this repurchase program. We did not repurchase any shares pursuant to this repurchase program during the first quarter of 2012. There can be no assurance that any additional share purchases will be made. The number of shares actually purchased will depend on various factors, including limitations imposed by the Company’s debt instruments, the price of our common stock, overall market and business conditions and management’s assessment of competing alternatives for capital deployment.
Net cash used by operating activities for the first quarter of 2012 was $21.0 million as compared to $17.6 million for the first quarter of 2011. The $3.4 million increase in cash used in operating activities for 2012 as compared to 2011 was primarily a result of the impact of changes in working capital items. Our inventory balance increased 12.4% in the first quarter of 2012. There has been a build up of inventories in anticipation of demand based on volume increases. As a result, higher inventory balances resulted in the use of $13.5 million in 2012, compared to $11.6 million in 2011. Accrued liabilities decreased 35.5% in the first quarter of 2012, resulting in the use of $12.5 million. Accrued sales incentives decreased $4.5 million from December 2011 primarily due to the payment of annual rebates in the first quarter of 2012. There was also a decrease in accrued interest from December 2011 by $6.1 million due to the semi-annual interest payment made in the first quarter of 2012. The increased use of cash for inventory and accrued liabilities was offset by a decrease in the use of cash for accounts receivable. Our accounts receivable balance increased from levels at December 31, 2011, and resulted in the use of cash of $6.3 million in 2012, as compared to $12.5 million in 2011, an improvement of $6.2 million.
Net cash used in investing activities for the first quarter of 2012 and 2011 was $15.2 million and $2.1 million, respectively, primarily due to capital expenditures. The significant increase in capital spending reflects, in part, $6.5 million expended in January 2012 to acquire three of our previously leased manufacturing facilities. In addition, we have undertaken a number of individual projects across our major manufacturing plants designed to improve our manufacturing efficiencies, lower our costs and expand our manufacturing capacity and capabilities. We expect our 2012 capital expenditures to total between $25.0 million and $30.0 million, as compared to $15.0 million for 2011.
Net cash provided by financing activities for the first quarter of 2012 was $32.3 million as we increased borrowings from our Revolving Credit Facility to fund the above-noted first quarter capital expenditures and working capital needs.
Cautionary Note Regarding Forward-Looking Statements
Various statements contained in this report, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements. These statements may be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “should,” or the negative thereof or other variations thereon or comparable terminology. In particular, statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance contained in this report, including certain statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are forward-looking statements.
We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors, including those discussed under “Item 1A. Risk Factors,” and elsewhere in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (available at www.sec.gov), may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements.
Some of the key factors that could cause actual results to differ from our expectations include:
• | fluctuations in the supply or price of copper and other raw materials; |
• | increased competition from other wire and cable manufacturers, including foreign manufacturers; |
• | pricing pressures causing margins to decrease; |
• | our dependence on indebtedness and our ability to satisfy our debt obligations; |
• | failure to identify, finance or integrate acquisitions; |
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• | product liability claims and litigation resulting from the design or manufacture of our products; |
• | advancements in wireless technology; |
• | impairment charges related to our goodwill and long-lived assets; |
• | restructuring charges; |
• | changes in the cost of labor or raw materials, including copper, PVC and fuel; |
• | disruption in the importation of raw materials and products from foreign-based suppliers; |
• | our ability to maintain substantial levels of inventory; |
• | increase in exposure to political and economic development crises, instability, terrorism, civil strife, expropriation, and other risks of doing business in foreign markets; |
• | changes in tax legislation relating to our Honduras subsidiary; and |
• | other risks and uncertainties, including those described under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. |
In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change and, therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today.
ITEM 3. | Quantitative and Qualitative Disclosures about Market Risk |
Our principal market risks are exposure to changes in commodity prices, primarily copper prices, interest rates on borrowings, and exchange rate risk relative to our operations in Canada.
Commodity Risk. Certain raw materials used in our products are subject to price volatility, most notably copper, which is the primary raw material used in our products. The price of copper is particularly volatile and can affect our net sales and profitability. We purchase copper at prevailing market prices and, through multiple pricing strategies, generally attempt to pass along to our customers changes in the price of copper and other raw materials. From time-to-time, we enter into derivative contracts, including copper futures contracts, to mitigate the potential impact of fluctuations in the price of copper on our pricing terms with certain customers. We do not speculate on copper prices. All of our copper futures contracts are tied to the COMEX copper market index and the value of our futures contracts varies directly with underlying change sin the related COMEX copper futures prices. We record these derivative contracts at fair value on our consolidated balance sheet as either an asset or liability. At March 31, 2012, we had contracts with a net aggregate fair value of $0.1 million, consisting of contracts to sell 0.3 million pounds of copper in July 2012. A hypothetical adverse movement of 10% in the price of copper at March 31, 2012, with all other variables held constant, would have resulted in an aggregate loss in the fair value of our commodity futures contracts of approximately $0.1 million as of March 31, 2012.
Interest Rate Risk. We have exposure to changes in interest rates on a portion of our debt obligations. As of March 31, 2012, approximately 18% of our debt was variable rate, primarily our borrowings under our Revolving Credit Facility for which interest costs are based on either the lenders’ prime rate or a LIBOR-based rate. Based on the amount of our variable rate borrowings at March 31, 2012, which totaled approximately $61.8 million, an immediate one percentage point change in LIBOR would change our annual interest expense by approximately $0.6 million. This estimate assumes that the amount of variable rate borrowings remains constant for an annual period and that the interest rate change occurs at the beginning of the period.
Foreign Currency Exchange Rate Risk. We have exposure to changes in foreign currency exchange rates related to our Canadian operations. Currently, we do not manage our foreign currency exchange rate risk using any financial or derivative instruments, such as foreign currency forward contracts or hedging activities. In the first quarter of 2012, we recorded an aggregate pre-tax loss of approximately $0.1 million related to exchange rate fluctuations between the U.S. dollar and Canadian dollar.
ITEM 4. | Controls and Procedures |
Our management, including our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), as of March 31, 2012. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.
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There were no changes in our internal controls over financial reporting (as defined in Exchange Act Rule 13a-15(d) and 15d-15(f)) during the quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
ITEM 1. | Legal Proceedings |
We are involved in legal proceedings and litigation arising in the ordinary course of business. In those cases in which we are the defendant, plaintiffs may seek to recover large and sometimes unspecified amounts or other types of relief and some matters may remain unresolved for several years. We believe that none of the litigation that we now face, individually or in the aggregate, will have a material effect on our consolidated financial position, cash flow or results of operations. We maintain insurance coverage for litigation that arises in the ordinary course of our business and believe such coverage is adequate.
ITEM 1A. | Risk Factors |
In addition to the other information set forth in this Quarterly Report on Form 10-Q, the reader should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our annual Report on Form 10-K for the fiscal year ended December 31, 2011. There have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.
ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
Below are the repurchases of common stock by the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a) (3) under the Exchange Act) for the three months ended March 31, 2012:
Three Months Ended March 31, 2012 |
Total number of shares purchased (1) |
Average price paid per share |
Total number of shares purchased as part of publicly announced plans or programs |
Maximum number of shares that may yet be purchased under the plans or programs |
||||||||||||
January 1 – January 31 |
— | $ | — | — | ||||||||||||
February 1 – February 29 |
— | — | — | |||||||||||||
March 1 – March 31 |
9,092 | 10.81 | — | |||||||||||||
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|
|
|
|
|
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Total |
9,092 | $ | 10.81 | — | 188,329 |
(1) | The Company purchased all of the 9,092 shares between March 1, 2012 and March 31, 2012 from an employee of the Company that were withheld to satisfy the tax withholding obligation due upon vesting of a performance stock award. |
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ITEM 5. | Other Information |
In June 2011, the Financial Accounting Standards Board issued guidance on the presentation of comprehensive income in financial statements. Entities are required to present total comprehensive income either in a single, continuous statement of comprehensive income or in two separate, but consecutive, statements. We adopted this standard as of January 1, 2012, and will present net income and other comprehensive income in two separate statements in our annual and interim financial statements. The table below reflects the retrospective application of this guidance for each of the two years ended December 31st. The retrospective application did not have a material impact on our financial condition or results of operations.
COLEMAN CABLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Thousands)
(unaudited)
Year Ended December 31, |
||||||||
2011 | 2010 | |||||||
NET INCOME |
$ | 17,441 | $ | 3,727 | ||||
|
|
|
|
|||||
OTHER COMPREHENSIVE INCOME |
||||||||
Foreign currency translation adjustments, net of tax of $130 and $177, respectively |
(28 | ) | 293 | |||||
Unrealized investment loss, net of tax of $(136) for 2010 |
(89 | ) | (214 | ) | ||||
Pension adjustments, net of tax of $32 and $94, respectively |
(50 | ) | 148 | |||||
|
|
|
|
|||||
OTHER COMPREHENSIVE (LOSS) INCOME |
(167 | ) | 227 | |||||
|
|
|
|
|||||
COMPREHENSIVE INCOME |
$ | 17,274 | $ | 3,954 | ||||
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|
|
|
The following will be added to the Condensed Consolidated Statements of Income included in the financial statements of Supplemental Guarantor Information note to our annual financial statements:
COLEMAN CABLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS) FOR THE YEAR ENDED
DECEMBER 31, 2011
(Thousands)
(unaudited)
Parent | Guarantor Subsidiaries |
Non Guarantor Subsidiaries |
Eliminations | Total | ||||||||||||||||
NET INCOME (LOSS) |
$ | 17,441 | $ | (2,013 | ) | $ | 2,851 | $ | (838 | ) | $ | 17,441 | ||||||||
OTHER COMPREHENSIVE INCOME |
||||||||||||||||||||
Foreign currency translation adjustments, net of tax of $130 |
— | — | (28 | ) | — | (28 | ) | |||||||||||||
Unrealized investment loss |
(89 | ) | — | — | — | (89 | ) | |||||||||||||
Pension adjustments, net of tax of $32 |
(50 | ) | — | — | — | (50 | ) | |||||||||||||
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|
|
|
|
|
|
|
|
|
|||||||||||
OTHER COMPREHENSIVE LOSS |
(139 | ) | — | (28 | ) | — | (167 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
COMPREHENSIVE INCOME (LOSS) |
$ | 17,302 | $ | (2,013 | ) | $ | 2,823 | $ | (838 | ) | $ | 17,274 | ||||||||
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|
|
|
|
|
|
|
|
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COLEMAN CABLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED
DECEMBER 31, 2010
(Thousands)
(unaudited)
Parent | Guarantor Subsidiaries |
Non Guarantor Subsidiaries |
Eliminations | Total | ||||||||||||||||
NET INCOME |
$ | 3,727 | $ |
— |
|
$ | 2,646 | $ | (2,646 | ) | $ | 3,727 | ||||||||
OTHER COMPREHENSIVE INCOME |
||||||||||||||||||||
Foreign currency translation adjustments, net of tax of $177 |
— | — | 293 | — | 293 | |||||||||||||||
Unrealized investment gain, net of tax of ($136) |
(214 | ) | — | — | — | (214 | ) | |||||||||||||
Pension adjustments, net of tax of $94 |
148 | — | — | — | 148 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
OTHER COMPREHENSIVE (LOSS) INCOME |
(66 | ) | — | 293 | — | 227 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
COMPREHENSIVE INCOME |
$ | 3,661 | $ |
— |
|
$ | 2,939 | $ | (2,646 | ) | $ | 3,954 | ||||||||
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|
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ITEM 6. | Exhibits |
See Index to Exhibits.
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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.
COLEMAN CABLE, INC. | ||||
(Registrant) | ||||
Date: May 7, 2012 | By | /s/ G. Gary Yetman | ||
| ||||
Chief Executive Officer and President | ||||
Date: May 7, 2012 | By | /s/ Richard N. Burger | ||
| ||||
Chief Financial Officer, Executive | ||||
Vice President, Secretary and Treasurer |
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Item No. |
Description | |
3.1 — | Certificate of Incorporation of Coleman Cable, Inc., as filed with the Delaware Secretary of State on October 10, 2006, incorporated herein by reference to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2006. | |
3.2 — | Amended and Restated By-Laws of Coleman Cable, Inc., incorporated herein by reference to our Current Report on Form 8-K as filed on May 5, 2010. | |
31.1 — | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 — | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 — | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101 — | Financial statements from the quarterly report on Form 10-Q of the Company for the quarter ended March 31, 2012, filed on November 4, 2011, formatted in XBRL: (i) the Condensed Consolidated Statements of Income; (ii) the Condensed Consolidated Statements of Comprehensive Income; (iii) the Condensed Consolidated Balance Sheets; (iv) the Condensed Consolidated Statements of Cash Flows; and iv) the Notes to Condensed Consolidated Financial Statements furnished herewith. |
* | Denotes management contract or compensatory plan or arrangement. |
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