Attached files
file | filename |
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EX-32.2 - Colfax CORP | v204786_ex32-2.htm |
EX-31.2 - Colfax CORP | v204786_ex31-2.htm |
EX-10.3 - Colfax CORP | v204786_ex10-3.htm |
EX-18.1 - Colfax CORP | v204786_ex18-1.htm |
EX-32.1 - Colfax CORP | v204786_ex32-1.htm |
EX-31.1 - Colfax CORP | v204786_ex31-1.htm |
EX-10.2 - Colfax CORP | v204786_ex10-2.htm |
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 Quarter ended October 1, 2010
OR
¨
|
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 - 001-34045
Colfax
Corporation
(Exact
name of registrant as specified in its charter)
Delaware
|
54-1887631
|
|
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer
Identification Number)
|
8730 Stony Point Parkway, Suite 150
Richmond, Virginia
|
23235
|
|
(Address of principal executive offices)
|
(Zip Code)
|
(804)
560-4070
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90
days. Yes þ No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes ¨ 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.
Large
accelerated filer ¨
|
Accelerated
filer þ
|
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 ¨ No þ
As of
November 26, 2010, there were 43,395,451 shares of the registrant’s common
stock, par value $.001 per share, outstanding.
COLFAX
CORPORATION
FORM
10-Q
INDEX
Page
|
||
PART
I – FINANCIAL INFORMATION
|
||
Item
1. Financial Statements
|
1
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
17
|
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
27
|
|
Item
4. Controls and Procedures
|
28
|
|
PART II – OTHER
INFORMATION
|
29
|
|
Item
1. Legal Proceedings
|
29
|
|
Item
1A. Risk Factors
|
29
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
29
|
|
Item
3. Defaults Upon Senior Securities
|
29
|
|
Item
4. (Removed and Reserved)
|
29
|
|
Item
5. Other Information
|
29
|
|
Item
6. Exhibits
|
30
|
|
SIGNATURES
|
31
|
-i-
PART I – FINANCIAL
INFORMATION
Item 1.
Financial Statements
COLFAX
CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
Dollars
in thousands, except per share amounts
(unaudited)
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
October 1,
|
October 2,
|
October 1,
|
October 2,
|
|||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net
sales
|
$ | 132,397 | $ | 128,545 | $ | 375,336 | $ | 394,053 | ||||||||
Cost
of sales
|
85,300 | 82,339 | 243,502 | 255,277 | ||||||||||||
Gross
profit
|
47,097 | 46,206 | 131,834 | 138,776 | ||||||||||||
Selling,
general and administrative expenses
|
29,927 | 27,878 | 87,829 | 85,475 | ||||||||||||
Research
and development expenses
|
1,583 | 1,523 | 4,731 | 4,610 | ||||||||||||
Restructuring
and other related charges
|
2,441 | 9,608 | 9,515 | 10,755 | ||||||||||||
Asbestos
liability and defense costs (income)
|
2,202 | (4,303 | ) | 4,179 | (1,176 | ) | ||||||||||
Asbestos
coverage litigation expenses
|
2,339 | 1,845 | 10,763 | 8,838 | ||||||||||||
Operating
income
|
8,605 | 9,655 | 14,817 | 30,274 | ||||||||||||
Interest
expense
|
1,544 | 1,834 | 5,075 | 5,466 | ||||||||||||
Income
before income taxes
|
7,061 | 7,821 | 9,742 | 24,808 | ||||||||||||
Provision
for income taxes
|
1,210 | 2,291 | 2,177 | 7,737 | ||||||||||||
Net
income
|
$ | 5,851 | $ | 5,530 | $ | 7,565 | $ | 17,071 | ||||||||
Net
income per share—basic and diluted
|
$ | 0.13 | $ | 0.13 | $ | 0.17 | $ | 0.39 |
See
accompanying notes to condensed consolidated financial
statements.
- 1
-
COLFAX
CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
Dollars
in thousands
October 1,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
CURRENT
ASSETS:
|
||||||||
Cash
and cash equivalents
|
$ | 42,778 | $ | 49,963 | ||||
Trade
receivables, less allowance for doubtful accounts of $2,993 and
$2,837
|
92,595 | 88,493 | ||||||
Inventories,
net
|
58,502 | 71,150 | ||||||
Deferred
income taxes, net
|
6,780 | 7,114 | ||||||
Asbestos
insurance asset
|
33,617 | 31,502 | ||||||
Asbestos
insurance receivable
|
35,227 | 28,991 | ||||||
Prepaid
and other current assets
|
15,394 | 13,535 | ||||||
Total
current assets
|
284,893 | 290,748 | ||||||
Deferred
income taxes, net
|
55,032 | 51,838 | ||||||
Property,
plant and equipment, net
|
91,010 | 92,090 | ||||||
Goodwill
|
173,112 | 163,418 | ||||||
Intangible
assets, net
|
30,098 | 11,952 | ||||||
Long-term
asbestos insurance asset
|
351,403 | 357,947 | ||||||
Long-term
asbestos insurance receivable
|
6,195 | 16,876 | ||||||
Deferred
loan costs, pension and other assets
|
12,462 | 14,532 | ||||||
Total
assets
|
$ | 1,004,205 | $ | 999,401 | ||||
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Current
portion of long-term debt and capital leases
|
$ | 10,000 | $ | 8,969 | ||||
Accounts
payable
|
42,266 | 36,579 | ||||||
Accrued
asbestos liability
|
37,123 | 34,866 | ||||||
Accrued
payroll
|
21,194 | 17,756 | ||||||
Accrued
taxes
|
3,533 | 2,154 | ||||||
Accrued
restructuring liability
|
3,782 | 9,473 | ||||||
Other
accrued liabilities
|
48,211 | 34,402 | ||||||
Total
current liabilities
|
166,109 | 144,199 | ||||||
Long-term
debt, less current portion
|
75,000 | 82,516 | ||||||
Long-term
asbestos liability
|
401,244 | 408,903 | ||||||
Pension
and accrued post-retirement benefits
|
91,861 | 105,230 | ||||||
Deferred
income tax liability
|
16,078 | 10,375 | ||||||
Other
liabilities
|
27,862 | 31,353 | ||||||
Total
liabilities
|
778,154 | 782,576 | ||||||
Shareholders’
equity:
|
||||||||
Common
stock: $0.001 par value; authorized 200,000,000; issued and outstanding
43,395,451 and 43,229,104
|
43 | 43 | ||||||
Additional
paid-in capital
|
405,528 | 402,852 | ||||||
Retained
deficit
|
(68,708 | ) | (76,273 | ) | ||||
Accumulated
other comprehensive loss
|
(110,812 | ) | (109,797 | ) | ||||
Total
shareholders’ equity
|
226,051 | 216,825 | ||||||
Total
liabilities and shareholders' equity
|
$ | 1,004,205 | $ | 999,401 |
See
accompanying notes to condensed consolidated financial
statements.
- 2
-
COLFAX
CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars
in thousands
(unaudited)
Nine Months Ended
|
||||||||
October 1,
|
October 2,
|
|||||||
2010
|
2009
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$ | 7,565 | $ | 17,071 | ||||
Adjustments
to reconcile net income to cash provided by operating
activities:
|
||||||||
Depreciation,
amortization and fixed asset impairment charges
|
11,242 | 11,240 | ||||||
Noncash
stock-based compensation
|
1,872 | 1,970 | ||||||
Amortization
of deferred loan costs
|
508 | 507 | ||||||
Loss
(gain) on sale of fixed assets
|
38 | (33 | ) | |||||
Deferred
income taxes
|
(4,377 | ) | 1,940 | |||||
Changes
in operating assets and liabilities, net of acquisitions:
|
||||||||
Trade
receivables
|
925 | 15,885 | ||||||
Inventories
|
12,327 | 5,777 | ||||||
Accounts
payable and accrued liabilities, excluding asbestos related accrued
expenses
|
6,044 | (14,726 | ) | |||||
Other
current assets
|
509 | 984 | ||||||
Change
in asbestos liability and asbestos-related accrued expenses, net of
asbestos insurance asset and receivable
|
7,386 | (5,384 | ) | |||||
Changes
in other operating assets and liabilities
|
(8,739 | ) | (1,229 | ) | ||||
Net
cash provided by operating activities
|
35,300 | 34,002 | ||||||
Cash
flows from investing activities:
|
||||||||
Purchases
of fixed assets
|
(9,365 | ) | (7,779 | ) | ||||
Acquisitions,
net of cash acquired
|
(27,011 | ) | (1,260 | ) | ||||
Proceeds
from sale of fixed assets
|
80 | 238 | ||||||
Net
cash used in investing activities
|
(36,296 | ) | (8,801 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Payments
under term credit facility
|
(6,250 | ) | (3,750 | ) | ||||
Payments
on capital leases
|
(203 | ) | (447 | ) | ||||
Repurchases
of common stock
|
(191 | ) | - | |||||
Proceeds
from issuance of common stock
|
995 | - | ||||||
Net
cash used in financing activities
|
(5,649 | ) | (4,197 | ) | ||||
Effect
of exchange rates on cash
|
(540 | ) | 1,067 | |||||
(Decrease)
increase in cash and cash equivalents
|
(7,185 | ) | 22,071 | |||||
Cash
and cash equivalents, beginning of period
|
49,963 | 28,762 | ||||||
Cash
and cash equivalents, end of period
|
$ | 42,778 | $ | 50,833 |
See
accompanying notes to condensed consolidated financial
statements.
- 3
-
COLFAX
CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dollars
in thousands, unless otherwise noted
1.
Organization and Nature of Operations
Colfax
Corporation (the “Company”, “Colfax”, “we” or “us”) is a global supplier of a
broad range of fluid handling products, including pumps, fluid handling systems
and controls, and specialty valves. We believe that we are a leading
manufacturer of rotary positive displacement pumps, which include screw pumps,
gear pumps and progressive cavity pumps. We have a global manufacturing
footprint, with production facilities in Europe, North America and Asia, as well
as worldwide sales and distribution channels. Our products serve a variety of
applications in five strategic markets: commercial marine, oil and gas, power
generation, defense and general industrial. We design and engineer our products
to high quality and reliability standards for use in critical fluid handling
applications where performance is paramount. We also offer customized fluid
handling solutions to meet individual customer needs based on our in-depth
technical knowledge of the applications in which our products are used. Our
products are marketed principally under the Allweiler, Baric, Fairmount,
Houttuin, Imo, LSC, Portland Valve, Tushaco, Warren, and Zenith brand names. We
believe that our brands are widely known and have a premium position in our
industry. Allweiler, Houttuin, Imo and Warren are among the oldest and most
recognized brands in the fluid handling industry, with Allweiler dating back to
1860.
2.
General
The
unaudited condensed consolidated financial statements included in this quarterly
report have been prepared by the Company according to the rules and regulations
of the Securities and Exchange Commission (“SEC”) and according to accounting
principles generally accepted in the United States of America (“GAAP”) for
interim financial statements.
The
accompanying balance sheet information as of December 31, 2009 is derived
from our audited financial statements. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with GAAP have been omitted in accordance with the SEC’s rules and
regulations for interim financial statements. The unaudited condensed
consolidated financial statements included herein should be read in conjunction
with the audited financial statements and related footnotes included in our
Annual Report on Form 10-K/A for the year ended December 31, 2009 filed with the
SEC on December 13, 2010.
The
financial statements reflect, in the opinion of management, all adjustments
which consist solely of normal recurring adjustments necessary to present fairly
the Company’s financial position and results of operations as of and for the
periods indicated. Significant intercompany transactions and accounts are
eliminated in consolidation.
We make
certain estimates and assumptions in preparing our condensed consolidated
financial statements in accordance with GAAP. These estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses for the periods
presented. Actual results may differ from those
estimates.
Certain
prior period amounts have been reclassified to conform to current year
presentations.
The
results of operations for the three and nine months ended October 1, 2010 are
not necessarily indicative of the results of operations that may be achieved for
the full year. Quarterly results are affected by seasonal variations in our
fluid handling business. As our customers seek to fully utilize
capital spending budgets before the end of the year, historically our shipments
have peaked during the fourth quarter. Also, our European operations
typically experience a slowdown during the July and August holiday
season. General economic conditions as well as backlog levels may,
however, impact future seasonal variations.
- 4
-
3.
Recent Accounting Pronouncements
In
October 2009, the Financial Accounting Standards Board issued Accounting
Standards Update (ASU) No. 2009-13, Multiple-Deliverable Revenue
Arrangements—a consensus of the FASB Emerging Issues Task
Force. ASU No. 2009-13 addresses the unit of accounting for
arrangements involving multiple deliverables and how arrangement consideration
should be allocated to the separate units of accounting. The Company will be
required to adopt the provisions of ASU No. 2009-13 prospectively beginning
January 1, 2011. Earlier retrospective application is
permitted. The Company does not anticipate a material impact on its
results of operations from adopting the provisions of ASU No.
2009-13.
4.
Acquisition
On August
19, 2010, the Company completed the acquisition of Baric Group (“Baric”) for
$27.0 million, net of cash acquired and subject to final adjustments under the
purchase agreements. Baric is a supplier of highly engineered fluid-handling
systems primarily for lubrication applications, with its primary operations
based in Blyth, United Kingdom. The following table summarizes
intangible assets acquired:
Asset
|
Weighted
Average
Amortization
Period (years)
|
|||||||
Acquired
customer relationships
|
$ | 7,053 | 10.0 | |||||
Acquired
developed technology
|
6,492 | 9.6 | ||||||
Backlog
|
3,339 | 2.3 | ||||||
Other
|
395 | 8.6 | ||||||
Trade
names - indefinite life
|
2,770 | |||||||
Goodwill
|
12,490 | |||||||
Total
intangible assets acquired
|
$ | 32,539 |
The
weighted average amortization period for total acquired amortizing intangibles
is approximately 8.3 years. None of the goodwill acquired is expected
to be tax deductible.
5.
Goodwill and Intangible Assets
Changes
in the carrying amount of goodwill during the period ended October 1, 2010 are
as follows:
Goodwill
|
||||
Balance
December 31, 2009
|
$ | 163,418 | ||
Acquisition
|
12,490 | |||
Impact
of changes in foreign exchange rates
|
(2,796 | ) | ||
Balance
October 1, 2010
|
$ | 173,112 |
During
the period ended October 1, 2010, the Company changed the date of its annual
goodwill and indefinite-lived intangible assets impairment testing from the last
day of the fourth quarter to the first day of the fourth quarter. The
Company adopted this change in timing in order to provide additional time to
quantify the fair value of our reporting units and, if necessary, to determine
the implied fair value of goodwill. This change in timing will also
reduce the likelihood that the annual impairment analysis would not be completed
by the required filing date of the Company’s annual financial
statements. The revised date also better aligns with our strategic
planning and budgeting process, which is an integral component of the impairment
testing. In accordance with GAAP, the Company will also perform interim
impairment testing should circumstances requiring it arise. We
believe this accounting change is preferable and does not result in the delay,
acceleration, or avoidance of an impairment charge.
- 5
-
Other
intangible assets consisted of the following:
October 1, 2010
|
December 31, 2009
|
|||||||||||||||
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
|||||||||||||
Acquired
customer relationships
|
$ | 22,285 | $ | (10,110 | ) | $ | 15,512 | $ | (8,989 | ) | ||||||
Trade
names - indefinite life
|
4,886 | - | 2,062 | - | ||||||||||||
Acquired
developed technology
|
12,549 | (3,171 | ) | 5,811 | (2,444 | ) | ||||||||||
Backlog
|
3,383 | (121 | ) | - | - | |||||||||||
Other
intangibles
|
433 | (36 | ) | 146 | (146 | ) | ||||||||||
$ | 43,536 | $ | (13,438 | ) | $ | 23,531 | $ | (11,579 | ) |
Amortization
expense for the next five fiscal years is expected to be:
2010—$3.5 million, 2011—$5.4 million, 2012—$5.1 million, 2013—$2.4
million, and 2014—$2.1 million.
6.
Warranty Costs
Estimated
expenses related to product warranties are accrued at the time products are sold
to customers and recorded as part of cost of sales. Estimates are established
using historical information as to the nature, frequency, and average costs of
warranty claims.
Warranty
activity for the nine months ended October 1, 2010 and October 2, 2009 consisted
of the following:
Nine Months Ended
|
||||||||
October 1,
|
October 2,
|
|||||||
2010
|
2009
|
|||||||
Warranty
liability at beginning of the period
|
$ | 2,852 | $ | 3,108 | ||||
Accrued
warranty expense
|
1,266 | 1,374 | ||||||
Changes
in estimates related to pre-existing warranties
|
(553 | ) | (695 | ) | ||||
Cost
of warranty service work performed
|
(723 | ) | (493 | ) | ||||
Foreign
exchange translation effect
|
(67 | ) | 151 | |||||
Warranty
liability at end of the period
|
$ | 2,775 | $ | 3,445 |
7.
Income Taxes
For the
three and nine months ended October 1, 2010, the Company earned approximately
$7.1 million and $9.7 million, respectively, before income taxes and had $1.2
million and $2.2 million, respectively, of income tax expense. The
effective tax rates of 17.1% and 22.3%, respectively, represent the estimated
annual tax rate for the year applied to the current period income before tax
plus the tax effect of any significant unusual items, discrete items or changes
in tax law. The effective tax rate for the three and nine months
ended October 1, 2010 differs from the U.S. federal statutory tax rate primarily
due to international tax rates which are lower than the U.S. tax rate and a net
decrease to our unrecognized tax benefits. The net decrease to our
unrecognized tax benefits was primarily due to the successful resolution of 2003
tax audit issues.
For the
three and nine months ended October 2, 2009, the Company earned approximately
$7.8 million and $24.8 million, respectively, before income taxes and had $2.3
million and $7.7 million, respectively, of income tax expense. The
effective tax rates of 29.3% and 31.2%, respectively, for the three and nine
months ended October 2, 2009 differed from the U.S. statutory rate primarily due
to international tax rates which are lower than the U.S. tax rate, including the
impact of the reduction in 2009 of the Swedish tax rate from 28% to 26.3% that
is applied to our Swedish operations, offset in part by a net increase to our
valuation allowance and unrecognized tax benefits.
- 6
-
The
effective tax rates for the three and nine months ended October 1, 2010 are
lower than the corresponding prior periods generally due to the relative impact
of the net change in our unrecognized tax benefits on income before taxes of
$7.1 million and $9.7 million, respectively, in the current periods compared to
the impact of the net change in our unrecognized tax benefits and other discrete
items on income before taxes for the three and nine months ended October 2, 2009
of $7.8 million and $24.8 million, respectively.
The
Company is subject to income tax in U.S., state and international
jurisdictions. The Company’s significant operations outside the U.S.
are located in Germany and Sweden. In Sweden, tax years 2004 to 2009
and in Germany, tax years 2006 to 2009 remain subject to examination. In the
U.S., tax years 2005 and beyond generally remain open for examination by U.S.
and state tax authorities as well as tax years ending in 1997, 1998, 2000 and
2003 that have U.S. tax attributes available that have been carried forward to
open tax years or are available to be carried forward to future tax
years.
Due to
the difficulty in predicting with reasonable certainty when tax audits will be
fully resolved and closed, the range of reasonably possible significant
increases or decreases in the liability for unrecognized tax benefits that may
occur within the next 12 months is difficult to ascertain. Currently, we
estimate it is reasonably possible the expiration of various statutes of
limitations and resolution of tax audits may reduce our tax expense in the next
12 months ranging from zero to $5.2 million.
8. Restructuring
and Other Related Charges
The
Company initiated a series of restructuring actions beginning in 2009 in
response to then current and expected future economic conditions. As a result,
for the three and nine months ended October 1, 2010, the Company recorded
pre-tax restructuring and related costs of $2.4 million and $9.5 million,
respectively. For the three and nine months ended October 2, 2009,
the Company recorded pre-tax restructuring and related costs of $9.6 million and
$10.8 million, respectively. The costs incurred during the nine
months ended October 1, 2010 include $2.2 million of termination benefits,
including $0.6 million of non-cash stock-based compensation expense, related to
the departure of the Company’s former President and Chief Executive Officer
(CEO) in January 2010. Additionally, the costs incurred in the nine
months ended October 1, 2010 include $1.3 million of termination benefits
related to the October 2010 departures of the Company’s former Chief Financial
Officer (CFO) and General Counsel. The costs incurred during the nine
months ended October 2, 2009 include a $0.6 million non-cash asset impairment
charge related to closure of a repair facility.
As of
October 1, 2010, we have reduced our company-wide workforce by 370 associates
from December 31, 2009. Additionally, through the second quarter of
2010 we participated in a German government-sponsored furlough program in which
the government paid the wage-related costs for participating
associates. Payroll taxes and other employee benefits related to
employees’ furlough time are included in restructuring costs. Our agreement with
the German works council allowing participation in the furlough program ends
February 2011; however, based on forecasted production levels, we anticipate
limited further usage of the furlough program. We expect to incur
approximately $1.4 million of additional termination benefits and consulting
costs in the remainder of 2010 for actions implemented through the date these
financial statements are filed.
On
September 21, 2010, the Company announced that it will relocate its Richmond,
Virginia corporate headquarters to the Columbia, Maryland area effective January
1, 2011, in order to provide improved access to international travel and to its
key advisors. In connection with the move, the Company expects to
incur employee termination benefit costs, operating lease exit costs and other
relocation expenses of approximately $2.0 million in the next six
months.
We
recognize the cost of involuntary termination benefits at the communication date
or ratably over any remaining expected future service
period. Voluntary termination benefits are recognized as a liability
and a loss when employees accept the offer and the amount can be reasonably
estimated. We record asset impairment charges to reduce the carrying amount of
long-lived assets that will be sold or disposed of to their estimated fair
values. Fair values are estimated using observable inputs including third
party appraisals and quoted market prices.
- 7
-
A
summary of restructuring activity for the nine months ended October 1, 2010 is
shown below.
Nine Months Ended October 1, 2010
|
||||||||||||||||||||
Accrued
|
Accrued
|
|||||||||||||||||||
Restructuring
|
Foreign
|
Restructuring
|
||||||||||||||||||
Liability at
|
Currency
|
Liability at
|
||||||||||||||||||
Dec. 31, 2009
|
Provisions
|
Payments
|
Translation
|
Oct. 1, 2010
|
||||||||||||||||
Restructuring
and Other Related Charges:
|
||||||||||||||||||||
Termination
benefits (1)
|
$ | 9,473 | 6,923 | (11,936 | ) | (678 | ) | $ | 3,782 | |||||||||||
Furlough
charges (2)
|
- | 327 | (319 | ) | (8 | ) | - | |||||||||||||
Facility
closure charges (3)
|
- | 788 | (788 | ) | - | - | ||||||||||||||
Consulting
costs (4)
|
- | 903 | (903 | ) | - | - | ||||||||||||||
$ | 9,473 | 8,941 | $ | (13,946 | ) | $ | (686 | ) | $ | 3,782 | ||||||||||
Non-cash
termination benefits (5)
|
574 | |||||||||||||||||||
Total
|
$ | 9,515 |
(1) Includes
severance and other termination benefits such as outplacement
services.
(2)
|
Includes
payroll taxes and other employee benefits related to German employees’
furlough time.
|
(3)
|
Includes
the cost of relocating and training associates and relocating equipment in
connection with the closing of the Sanford, NC
facility.
|
(4)
|
Includes
outside consulting fees directly related to the Company’s restructuring
and performance improvement
initiatives.
|
(5)
|
Includes
stock-based compensation expense related to the accelerated vesting of
certain share-based payments in connection with the departure of the
Company’s former President and CEO in January
2010.
|
9.
Earnings per Share
The
following table presents the computation of basic and diluted earnings per
share:
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
October 1,
|
October 2,
|
October 1,
|
October 2,
|
|||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Numerator:
|
||||||||||||||||
Net
income available to common shareholders
|
$ | 5,851 | $ | 5,530 | $ | 7,565 | $ | 17,071 | ||||||||
Denominator:
|
||||||||||||||||
Weighted-average
shares of common stock outstanding - basic
|
43,390,849 | 43,229,104 | 43,328,091 | 43,220,492 | ||||||||||||
Net
income per share - basic
|
$ | 0.13 | $ | 0.13 | $ | 0.17 | $ | 0.39 | ||||||||
Weighted-average
shares of common stock outstanding - basic
|
43,390,849 | 43,229,104 | 43,328,091 | 43,220,492 | ||||||||||||
Net
effect of potentally dilutive securities
(1)
|
228,403 | 95,891 | 211,281 | 53,685 | ||||||||||||
Weighted-average
shares of common stock outstanding - diluted
|
43,619,252 | 43,324,995 | 43,539,372 | 43,274,177 | ||||||||||||
Net
income per share - diluted
|
$ | 0.13 | $ | 0.13 | $ | 0.17 | $ | 0.39 |
(1) Potentially
dilutive securities consist of options and restricted stock
units.
- 8
-
In the
three and nine months ended October 1, 2010, respectively, 1.3 million and 0.9
million potentially dilutive stock options, restricted stock units and deferred
stock units were excluded from the calculation of diluted earnings per share,
since their effect would have been anti-dilutive. In the three and
nine months ended October 2, 2009, respectively, 0.5 million and 0.6 million
potentially dilutive stock options and restricted stock units were excluded from
the calculation of diluted earnings per share, since their effect would have
been anti-dilutive.
10.
Comprehensive Income (Loss)
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
October
1,
|
October
2,
|
October
1,
|
October
2,
|
|||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net
income
|
$ | 5,851 | $ | 5,530 | $ | 7,565 | $ | 17,071 | ||||||||
Other
comprehensive income (loss):
|
||||||||||||||||
Foreign
currency translation, net of tax
|
16,057 | 6,472 | (4,152 | ) | 8,093 | |||||||||||
Unrealized
losses on hedging activities, net of tax
|
(292 | ) | (709 | ) | (1,151 | ) | (904 | ) | ||||||||
Amounts
reclassified to net income:
|
||||||||||||||||
Losses
on hedging activities, net of tax
|
490 | 738 | 1,951 | 2,134 | ||||||||||||
Net
pension and other postretirement benefit
|
||||||||||||||||
costs,
net of tax
|
777 | 594 | 2,337 | 1,836 | ||||||||||||
Other
comprehensive income (loss)
|
17,032 | 7,095 | (1,015 | ) | 11,159 | |||||||||||
Comprehensive
income
|
$ | 22,883 | $ | 12,625 | $ | 6,550 | $ | 28,230 |
11.
Inventories
Inventories
consisted of the following:
October 1,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
Raw
materials
|
$ | 24,918 | $ | 28,445 | ||||
Work
in process
|
34,806 | 32,888 | ||||||
Finished
goods
|
21,012 | 21,013 | ||||||
80,736 | 82,346 | |||||||
Less-Customer
progress billings
|
(14,639 | ) | (3,171 | ) | ||||
Less-Allowance
for excess, slow-moving and obsolete inventory
|
(7,595 | ) | (8,025 | ) | ||||
$ | 58,502 | $ | 71,150 |
- 9
-
12.
Net Periodic Benefit Cost – Defined Benefit Plans
The
following table sets forth the components of net periodic benefit cost of the
non-contributory defined benefit pension plans and the Company’s other
post-retirement employee benefit plans for periods presented:
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
October
1,
|
October
2,
|
October
1,
|
October
2,
|
|||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Pension
Benefits - U.S. Plans
|
||||||||||||||||
Service
cost
|
$ | - | $ | - | $ | - | $ | - | ||||||||
Interest
cost
|
3,174 | 3,192 | 9,283 | 9,577 | ||||||||||||
Expected
return on plan assets
|
(4,599 | ) | (4,566 | ) | (13,555 | ) | (13,698 | ) | ||||||||
Amortization
|
1,054 | 722 | 3,157 | 2,166 | ||||||||||||
Net
periodic benefit credit
|
$ | (371 | ) | $ | (652 | ) | $ | (1,115 | ) | $ | (1,955 | ) | ||||
Pension
Benefits - Non U.S. Plans
|
||||||||||||||||
Service
cost
|
$ | 293 | $ | 285 | $ | 897 | $ | 855 | ||||||||
Interest
cost
|
1,025 | 1,145 | 3,083 | 3,306 | ||||||||||||
Expected
return on plan assets
|
(321 | ) | (277 | ) | (913 | ) | (816 | ) | ||||||||
Amortization
|
87 | 187 | 259 | 537 | ||||||||||||
Net
periodic benefit cost
|
$ | 1,084 | $ | 1,340 | $ | 3,326 | $ | 3,882 | ||||||||
Other
Post-Retirement Benefits
|
||||||||||||||||
Service
cost
|
$ | - | $ | - | $ | - | $ | - | ||||||||
Interest
cost
|
168 | 132 | 502 | 394 | ||||||||||||
Amortization
|
121 | 88 | 361 | 264 | ||||||||||||
Net
periodic benefit cost
|
$ | 289 | $ | 220 | $ | 863 | $ | 658 |
Employer
contributions to the pension plans during the nine months ended October 1, 2010
were $9.6 million. Expected contributions to the pension plans for 2010 are
$10.5 million, inclusive of a $5.0 million prepayment made during the second
quarter of 2010 for contributions expected to be required in 2011.
13.
Share-Based Payments
The
Company measures and recognizes compensation expense relating to share-based
payments based on the fair value of the instruments issued. Generally, our
stock-based compensation expense is recognized as a component of “Selling,
general and administrative expenses”, as payroll costs of the employees
receiving the awards are recorded in the same line item. Stock-based
compensation expense related to the departure of the Company’s former President
and CEO in January 2010 was recognized as a component of “Restructuring and
other related charges”. For the three and nine months ended October
1, 2010, a total of $0.2 million and $1.9 million, respectively, of compensation
expense and $0.1 million and $0.7 million, respectively, of deferred tax
benefits were recognized. The nine months ended October 1, 2010 included $0.6
million of compensation expense related to the former President and CEO’s
departure. Compensation expense recognized for the former President
and CEO reflects the accelerated vesting of certain stock options and
performance-based restricted stock units on January 9, 2010. For the
three and nine months ended October 2, 2009, $0.7 million and $2.0 million,
respectively, of compensation cost and approximately $0.2 million and $0.6
million, respectively, of deferred tax benefits were recognized. At October 1,
2010, the Company had $5.9 million of unrecognized compensation expense related
to stock-based awards that will be recognized over a weighted-average period of
approximately 2.3 years. At October 1, 2010, the Company had issued stock-based
awards that are described below.
- 10
-
Stock
Options
Stock-based
compensation expense for stock option awards was based on the grant-date fair
value using the Black-Scholes option pricing model. We recognize
compensation expense for stock option awards on a ratable basis over the
requisite service period of the entire award. The following table shows the
weighted-average assumptions we used to calculate fair value of stock option
awards using the Black-Scholes option pricing model, as well as the
weighted-average fair value of options granted during the nine months ended
October 1, 2010.
Nine
Months Ended
|
||||
October 1, 2010
|
||||
Assumptions
used in Black-Scholes model:
|
||||
Expected
period that options will be outstanding (in
years)
|
4.50 | |||
Interest
rate (based on U.S.
Treasury yields at time of grant)
|
2.50 | % | ||
Volatility
|
52.20 | % | ||
Dividend
yield
|
- | |||
Fair
value of options granted
|
$ | 5.52 |
Expected
volatility is estimated based on the historical volatility of comparable public
companies. The Company uses historical data to estimate employee termination
within the valuation model. Separate groups of employees that have similar
historical exercise behavior are considered separately for valuation purposes.
Since the Company has limited option exercise history, it has elected to
estimate the expected life of an award based upon the SEC-approved “simplified
method” noted under the provisions of Staff Accounting Bulletin No. 107 with the
continued use of this method extended under the provisions of Staff Accounting
Bulletin No. 110.
Stock
option activity for the nine months ended October 1, 2010 is as
follows:
Shares under
option
|
Weighted-
average
exercise price
|
Remaining
contractual
term (years)
|
Aggregate
intrinsic value
($000)
|
|||||||||||||
Options
outstanding at December 31, 2009
|
1,267,633 | $ | 11.40 | |||||||||||||
Granted
|
696,758 | 12.20 | ||||||||||||||
Exercised
|
(133,597 | ) | 7.45 | |||||||||||||
Forfeited
|
(194,475 | ) | 8.80 | |||||||||||||
Options
outstanding at October 1, 2010
|
1,636,319 | $ | 12.10 | 5.66 | $ | 6,057 | ||||||||||
Vested
or expected to vest at October 1, 2010
|
1,105,862 | $ | 12.82 | 5.64 | $ | 3,473 | ||||||||||
Exercisable
at October 1, 2010
|
478,906 | $ | 14.09 | 4.92 | $ | 1,359 |
The
aggregate intrinsic value is based on the difference between the Company’s
closing stock price at the balance sheet date and the exercise price of the
stock option, multiplied by the number of in-the-money options. The
amount of intrinsic value will change based on the fair value of the Company’s
stock.
Restricted Stock
Units
Stock-based
compensation expense for restricted stock awards was based on the grant-date
fair value. The fair value of each restricted stock unit is equal to
the market value of a share of common stock on the date of grant. We
recognize compensation expense for restricted stock awards ratably over the
requisite service period for the award, when it is expected any performance
criterion will be achieved.
- 11
-
The
following table summarizes the Company’s performance-based restricted stock
units (PRSUs) and restricted stock units (RSUs) and activity for the nine months
ended October 1, 2010:
PRSUs
|
RSUs
|
|||||||||||||||
Nonvested shares
|
Shares
|
Weighted-
Average
Grant Date
Fair Value
|
Shares
|
Weighted-
Average
Grant Date
Fair Value
|
||||||||||||
Nonvested
at December 31, 2009
|
430,497 | $ | 10.22 | 92,928 | $ | 11.97 | ||||||||||
Granted
|
258,677 | 12.04 | 42,317 | 12.57 | ||||||||||||
Vested
|
(25,000 | ) | 18.00 | (51,452 | ) | 13.47 | ||||||||||
Cancelled
and forfeited (1)
|
(342,444 | ) | 8.00 | - | - | |||||||||||
Nonvested
at October 1, 2010
|
321,730 | $ | 13.45 | 83,793 | $ | 11.35 |
(1)
|
Includes
the cancellation of 315,870 performance-based restricted stock units
granted in March 2009, since the performance criterion was not
achieved.
|
14.
Financial Instruments
The
carrying values of financial instruments, including accounts receivable,
accounts payable and other accrued liabilities, approximate their fair values
due to their short-term maturities. The estimated fair value of the Company’s
long-term debt of $83.4 million and $88.6 million at October 1, 2010 and
December 31, 2009, respectively, was based on current interest rates for similar
types of borrowings. The estimated fair values may not represent actual values
of the financial instruments that could be realized as of the balance sheet date
or that will be realized in the future.
A summary
of the Company’s assets and liabilities that are measured at fair value on a
recurring basis for each fair value hierarchy level for the periods presented
follows:
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
As
of October 1, 2010
|
||||||||||||||||
Assets:
|
||||||||||||||||
Cash
equivalents
|
$ | 15,995 | $ | 15,995 | $ | - | $ | - | ||||||||
Liabilities:
|
||||||||||||||||
Interest
rate swap
|
$ | 2,235 | $ | - | $ | 2,235 | $ | - | ||||||||
Foreign
currency contracts
|
53 | - | 53 | - | ||||||||||||
$ | 2,288 | $ | - | $ | 2,288 | $ | - | |||||||||
As
of December 31, 2009
|
||||||||||||||||
Assets:
|
||||||||||||||||
Cash
equivalents
|
$ | 33,846 | $ | 33,846 | $ | - | $ | - | ||||||||
Liabilities:
|
||||||||||||||||
Interest
rate swap
|
$ | 3,035 | $ | - | $ | 3,035 | $ | - | ||||||||
Foreign
currency contracts
|
121 | - | 121 | - | ||||||||||||
$ | 3,156 | $ | - | $ | 3,156 | $ | - |
There
were no significant transfers between level 1 and level 2 during the period
ended October 1, 2010.
- 12
-
Cash
Equivalents
The
Company’s cash equivalents consist of investments in interest-bearing deposit
accounts and money market mutual funds which are valued based on quoted market
prices. The fair value of these investments approximate cost due to
their short-term maturities and the high credit quality of the issuers of the
underlying securities. Interest rate swaps are valued based on
forward curves observable in the market. Foreign currency contracts
are measured using broker quotations or observable market transactions in either
listed or over-the-counter markets. There were no changes during the periods
presented in the Company’s valuation techniques used to measure asset and
liability fair values on a recurring basis.
Derivatives
The
Company periodically enters into foreign currency, interest rate swap, and
commodity derivative contracts. The Company uses interest rate swaps to manage
exposure to interest rate fluctuations. Foreign currency contracts are used to
manage exchange rate fluctuations and generally hedge transactions between the
Euro and the U.S. dollar. Commodity futures contracts are used to manage
costs of raw materials used in the Company’s production processes.
The
Company enters into such contracts with financial institutions of good standing,
and the total credit exposure related to non-performance by those institutions
is not material to the operations of the Company. The Company does not enter
into contracts for trading purposes.
We
designate a portion of our derivative instruments as cash flow hedges for
accounting purposes. For all derivatives designated as hedges, we formally
document the relationship between the hedging instrument and the hedged item, as
well as the risk management objective and the strategy for using the hedging
instrument. We assess whether the hedging relationship between the
derivative and the hedged item is highly effective at offsetting changes in the
cash flows both at inception of the hedging relationship and on an ongoing
basis. Any change in the fair value of the derivative that is not effective at
offsetting changes in the cash flows or fair values of the hedged item is
recognized currently in earnings.
Interest
rate swaps and other derivative contracts are recognized on the balance sheet as
assets and liabilities, measured at fair value on a recurring basis using
significant observable inputs, which is Level 2 as defined in the fair value
hierarchy. For transactions in which we are hedging the variability of cash
flows, changes in the fair value of the derivative are reported in accumulated
other comprehensive income (loss) (AOCI), to the extent they are effective at
offsetting changes in the hedged item, until earnings are affected by the hedged
item. Changes in the fair value of derivatives not designated as hedges are
recognized currently in earnings.
On June
24, 2008, the Company entered into an interest rate swap with an aggregate
notional value of $75 million whereby it exchanged its LIBOR-based variable rate
interest for a fixed rate of 4.1375%. The notional value decreased to
$50 million on June 30, 2010 and will decrease to $25 million on June 30, 2011,
and expires on June 29, 2012. The fair values of the swap agreement were
liabilities of $2.2 million at October 1, 2010 and $3.0 million at December 31,
2009, and are recorded in “Other long-term liabilities” on the consolidated
balance sheets. The swap agreement has been designated as a cash flow
hedge, and therefore changes in its fair value are recorded as an adjustment to
other comprehensive income. The effective portion of net losses recognized in
AOCI during the three and nine months ended October 1, 2010 were $0.3 million
and $1.2 million, respectively. For the three and nine months ended
October 2, 2009, $0.7 million and $0.9 million, respectively, of net losses were
recognized in AOCI. There has been no ineffectiveness related to this
arrangement since its inception. For the three and nine months ended
October 1, 2010, $0.5 million and $2.0 million, respectively, of losses on the
interest rate swap were reclassified from AOCI to interest expense. For the
three and nine months ended October 2, 2009, $0.7 million and $2.1 million,
respectively, of losses on the interest rate swap were reclassified from AOCI to
interest expense. As of October 1, 2010, the Company expects to
reclassify $1.7 million of net losses on the interest rate swap from AOCI to
earnings during the next twelve months.
As of
October 1, 2010 and December 31, 2009, the Company had no open commodity futures
contracts, but in previous periods had copper and nickel futures contracts. The
Company did not elect hedge accounting for these contracts, and therefore
changes in the fair value were recognized in earnings. For the three
and nine months ended October 2, 2009, respectively, the consolidated statements
of operations include $0.3 million and $1.9 million of unrealized gains as a
result of changes in the fair value of these commodity
contracts. Realized losses on these commodity contracts of $0.2
million and $0.9 million were recognized in the three and nine months ended
October 2, 2009, respectively.
- 13
-
The
Company had foreign currency contracts with notional values of $4.5 million at
October 1, 2010 and $10.5 million at December 31, 2009. The fair values of the
contracts were liabilities of $0.1 million at October 1, 2010 and
December 31, 2009, and are recorded in “Other accrued liabilities” and
“Other liabilities” on the consolidated balance sheets. The Company has not
elected hedge accounting for these contracts, and therefore changes in the fair
value are recognized in earnings. For the three and nine months ended
October 1, 2010, respectively, the consolidated statements of operations include
$0.7 million and less than $0.1 million of unrealized gains as a result of
changes in the fair value of these contracts. For the three and nine
months ended October 2, 2009, respectively, the consolidated statements of
operations include less than $0.1 million of unrealized gains and $0.4 million
of unrealized losses as a result of changes in the fair value of these
contracts. Realized losses on these contracts of $0.1 million and
$0.8 million, were recognized in the three and nine months ended October 1,
2010, respectively, and realized gains of $0.4 million and $0.8 million were
recognized in the three and nine months ended October 2, 2009,
respectively.
15.
Commitments and Contingencies
Asbestos
Liabilities and Insurance Assets
Two of
our subsidiaries are each one of many defendants in a large number of lawsuits
that claim personal injury as a result of exposure to asbestos from products
manufactured with components that are alleged to have contained asbestos. Such
components were acquired from third-party suppliers, and were not manufactured
by any of our subsidiaries nor were the subsidiaries producers or direct
suppliers of asbestos. The manufactured products that are alleged to have
contained asbestos generally were provided to meet the specifications of the
subsidiaries’ customers, including the U.S. Navy.
In most
instances, the subsidiaries settle asbestos claims for amounts management
considers reasonable given the facts and circumstances of each claim. The annual
average settlement payment per asbestos claimant has fluctuated during the past
several years. Management expects such fluctuations to continue in the future
based upon, among other things, the number and type of claims settled in a
particular period and the jurisdictions in which such claims arise. To date, the
majority of settled claims have been dismissed for no payment.
Of the
24,799 pending claims, approximately 3,600 of such claims have been brought in
various federal and state courts in Mississippi; approximately 3,200 of such
claims have been brought in the Supreme Court of New York County, New York;
approximately 200 of such claims have been brought in the Superior Court,
Middlesex County, New Jersey; and approximately 1,000 claims have been filed in
state courts in Michigan and the U.S. District Court, Eastern and Western
Districts of Michigan. In Alabama, California, Connecticut, Delaware, Florida,
Georgia, Indiana, Kentucky, Louisiana, Massachusetts, Maryland, Maine,
Minnesota, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South
Carolina, Tennessee, Texas, Utah, Virginia, Wisconsin and West Virginia and in
the U.S. Virgin Islands there are pending claims in both state and federal
courts. In Arizona, Arkansas, Hawaii, Illinois, Missouri,
Nebraska, Nevada, New Mexico and Oregon there are pending claims in the state
courts.
Claims
activity related to asbestos is as follows (1):
Nine Months Ended
|
||||||||
October 1,
|
October 2,
|
|||||||
2010
|
2009
|
|||||||
Claims
unresolved at the beginning of the period
|
25,295 | 35,357 | ||||||
Claims
filed (2)
|
2,952 | 2,512 | ||||||
Claims
resolved (3)
|
(3,448 | ) | (11,478 | ) | ||||
Claims
unresolved at the end of the period
|
24,799 | 26,391 |
(1)
|
Excludes
claims filed by one legal firm that have been “administratively
dismissed.”
|
(2)
|
Claims
filed include all asbestos claims for which notification has been received
or a file has been opened.
|
(3)
|
Claims
resolved include asbestos claims that have been settled or dismissed or
that are in the process of being settled or dismissed based upon
agreements or understandings in place with counsel for the
claimants.
|
- 14
-
The
Company has projected each subsidiary’s future asbestos-related liability costs
with regard to pending and future unasserted claims based upon the Nicholson
methodology. The Nicholson methodology is a standard approach used by experts
and has been accepted by numerous courts.
It is the
Company’s policy to record a liability for asbestos-related liability costs for
the longest period of time that it can reasonably estimate. The Company
believes that it can reasonably estimate the asbestos-related liability for
pending and future claims that will be resolved in the next 15 years and has
recorded that liability as its best estimate. While it is reasonably possible
that the subsidiaries will incur costs after this period, the Company does not
believe the reasonably possible loss or range of reasonably possible loss is
estimable at the current time. Accordingly, no accrual has been recorded for any
costs which may be paid after the next 15 years. Defense costs, not expected to
be recovered from insurers, associated with asbestos-related liabilities as well
as costs incurred related to litigation against the subsidiaries’ insurers are
expensed as incurred.
Each
subsidiary has separate, substantial insurance coverage acquired prior to
Company ownership of each independent entity. In its evaluation of the insurance
asset, the Company used differing insurance allocation methodologies for each
subsidiary based upon the applicable law pertaining to the affected
subsidiary.
For one
of the subsidiaries, on October 14, 2009, the Delaware Court of Chancery ruled
that asbestos-related costs should be allocated among excess insurers using an
“all sums” allocation (which allows an insured to collect all sums paid in
connection with a claim from any insurer whose policy is triggered, up to the
policy’s applicable limits) and that the subsidiary has rights to excess
insurance policies purchased by a former owner of the business. Based
upon this ruling mandating an “all sums” allocation, as well as the language of
the underlying insurance policies and the assertion and belief that defense
costs are outside policy limits, the Company expects to be responsible for
approximately 10% of all future asbestos-related costs.
For this
subsidiary, during the third quarter of 2010, an insolvent carrier that had
written approximately $1.4 million in limits for which the subsidiary had
assumed no recovery made a cash settlement offer of approximately $0.7
million. As such, the subsidiary recorded a gain for this amount and
a receivable from the insurer.
The
subsidiary was notified during the third quarter of 2010 by the primary and
umbrella carrier who had been fully defending and indemnifying the subsidiary
for twenty years that the limits of liability of its primary and umbrella layer
policies had been exhausted. Since then, the subsidiary has sought
coverage from certain excess layer insurers whose terms and conditions follow
form to the umbrella carrier. Certain first-layer excess insurers
have defended and/or indemnified the subsidiary and/or agreed to defend and/or
indemnify the subsidiary, subject to their reservations of rights and their
applicable policy limits.
In 2003,
the other subsidiary filed a lawsuit against a large number of its insurers and
its former parent to resolve a variety of disputes concerning insurance for
asbestos-related bodily injury claims asserted against it. Although
none of these insurance companies contested coverage, they disputed the timing,
reasonableness and allocation of payments. For this subsidiary, it
was determined by court ruling in the fourth quarter of 2007, that the
allocation methodology mandated by the New Jersey courts will apply. Further
court rulings in December of 2009, clarified the allocation
calculation related to amounts currently due from insurers as well as
amounts the Company expects to be reimbursed for asbestos-related costs incurred
in future periods. The subsidiary expects to be responsible for
approximately 14% of all future asbestos-related costs.
For this
subsidiary, on October 14, 2010, the Superior Court of New Jersey ruled that
certain primary policies were exhausted and ordered the court appointed Special
Allocation Master to complete a loss allocation model of historical payments of
asbestos-related costs and submit the model to the court no later than November
17, 2010. This loss allocation model will assign responsibility for
historical payments to insurance carriers as well as to the
subsidiary. The ruling resulted in a reduction to the current
asbestos receivable of approximately $2.3 million and an increase to the
long-term asbestos asset of approximately $0.4 million and a net charge to the
asbestos liability and defense costs of $1.9 million.
- 15
-
The
Company has established reserves of $438.4 million and $443.8 million as of
October 1, 2010 and December 31, 2009, respectively, for the probable and
reasonably estimable asbestos-related liability cost it believes the
subsidiaries will pay through the next 15 years. It has also
established recoverables of $385.0 million and $389.4 million as of
October 1, 2010 and December 31, 2009, respectively, for the insurance
recoveries that are deemed probable during the same time period. Net
of these recoverables, the expected cash outlay on a non-discounted basis for
asbestos-related bodily injury claims over the next 15 years was
$53.3 million and $54.3 million as of October 1, 2010 and
December 31, 2009, respectively. In addition, the Company has recorded a
receivable for liability and defense costs previously paid in the amount of
$41.4 million and $45.9 million as of October 1, 2010 and December 31,
2009, respectively, for which insurance recovery is deemed
probable. The Company has recorded the reserves for the asbestos
liabilities as “Accrued asbestos liability” and “Long-term asbestos liability”
and the related insurance recoveries as “Asbestos insurance asset” and
“Long-term asbestos insurance asset”. The receivable for previously
paid liability and defense costs is recorded in “Asbestos insurance receivable”
and “Long-term asbestos insurance receivable” in the accompanying consolidated
balance sheets.
The
expense related to these liabilities and legal defense, net of estimated
insurance recoveries, was $2.2 million and $4.2 million, respectively, for the
three and nine months ended October 1, 2010 compared to income of $4.3 million
and $1.2 million, respectively, for the three and nine months ended October 2,
2009. Legal costs related to the subsidiaries’ action against their
asbestos insurers were $2.3 million and $10.8 million for the three and nine
months ended October 1, 2010, respectively, compared to $1.8 million and $8.8
million for the three and nine months ended October 2, 2009,
respectively.
Management’s
analyses are based on currently known facts and a number of assumptions.
However, projecting future events, such as new claims to be filed each year, the
average cost of resolving each claim, coverage issues among layers of insurers,
the method in which losses will be allocated to the various insurance policies,
interpretation of the effect on coverage of various policy terms and limits and
their interrelationships, the continuing solvency of various insurance
companies, the amount of remaining insurance available, as well as the numerous
uncertainties inherent in asbestos litigation could cause the actual liabilities
and insurance recoveries to be higher or lower than those projected or recorded
which could materially affect our financial condition, results of operations or
cash flow.
Guarantees
At
October 1, 2010, there were $16.7 million of letters of credit
outstanding. Additionally, at October 1, 2010, we had issued $17.4
million of bank guarantees securing primarily customer prepayments, performance,
and product warranties in our European operations.
General
Litigation
On
June 3, 1997, one of our subsidiaries was served with a complaint in a case
brought by Litton Industries, Inc. (“Litton”) in the Superior Court of New
Jersey which alleges damages in excess of $10.0 million incurred as a result of
losses under a government contract bid transferred in connection with the sale
of its former Electro-Optical Systems business. In the third quarter of 2004,
this case was tried and the jury rendered a verdict of $2.1 million for the
plaintiffs. After appeals by both parties, the Supreme Court of New Jersey
upheld the plaintiffs’ right to a refund of their attorney’s fees and costs of
trial, but remanded the issue to the trial court to reconsider the amount of
fees using a proportionality analysis of the relationship between the fee
requested and the damages recovered. The date for the new trial on
additional claims allowed by the Appellate Division of the New Jersey Superior
Court and the recalculation of attorney’s fees has not been set. The
subsidiary intends to continue to defend this matter vigorously. At October 1,
2010, the Company’s consolidated balance sheet includes a liability, reflected
in “Other liabilities”, related to this matter of $9.5 million.
The
Company is also involved in various other pending legal proceedings arising out
of the ordinary course of the Company’s business. None of these legal
proceedings are expected to have a material adverse effect on the financial
condition, results of operations or cash flow of the Company. With respect
to these proceedings and the litigation and claims described in the
preceding paragraphs, management of the Company believes that it will
either prevail, has adequate insurance coverage or has established
appropriate reserves to cover potential liabilities. Any costs that management
estimates may be paid related to these proceedings or claims are accrued when
the liability is considered probable and the amount can be reasonably estimated.
There can be no assurance, however, as to the ultimate outcome of any of
these matters, and if all or substantially all of these legal proceedings were
to be determined adversely to the Company, there could be a material adverse
effect on the financial condition, results of operations or cash flow of the
Company.
- 16
-
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of our
financial condition and results of operations should be read in conjunction with
the financial statements and notes included in Part I, Item I “Financial
Statements” of this quarterly report and the audited financial statements and related
footnotes included in our Annual Report on Form 10-K/A for the year ended
December 31, 2009 filed with the SEC on December 13, 2010.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of
the statements contained in this Form 10-Q that are not historical facts are
forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934 (the “Exchange Act”). We intend such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in Section 21E of the Exchange Act.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date this Form 10-Q is filed with the
SEC. All statements other than statements of historical fact are
statements that could be deemed forward-looking statements, including statements
regarding: projections of revenue, profit margins, expenses, tax provisions and
tax rates, earnings or losses from operations, impact of foreign exchange rates,
cash flows, pension and benefit obligations and funding requirements, synergies
or other financial items; plans, strategies and objectives of management for
future operations including statements relating to potential acquisitions,
compensation plans or purchase commitments; developments, performance or
industry or market rankings relating to products or services; future economic
conditions or performance; the outcome of outstanding claims or legal
proceedings including asbestos-related liabilities and insurance coverage
litigation; potential gains and recoveries of costs; assumptions underlying any
of the foregoing; and any other statements that address activities, events or
developments that we intend, expect, project, believe or anticipate will or may
occur in the future. Forward-looking statements may be characterized by
terminology such as “believe,” “anticipate,” “should,” “would,” “intend,”
“plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy,” and
similar expressions. These statements are based on assumptions and assessments
made by our management in light of their experience and perception of historical
trends, current conditions, expected future developments and other factors we
believe to be appropriate. These forward-looking statements are subject to a
number of risks and uncertainties, including but not limited to the
following:
|
•
|
risks
associated with our international
operations;
|
|
•
|
significant
movements in foreign currency exchange
rates;
|
|
•
|
changes
in the general economy, as well as the cyclical nature of our
markets;
|
|
•
|
our
ability to accurately estimate the cost of or realize savings from our
restructuring programs;
|
|
•
|
availability
and cost of raw materials, parts and components used in our
products;
|
|
•
|
the
competitive environment in our
industry;
|
|
•
|
our
ability to identify, finance, acquire and successfully integrate
attractive acquisition targets;
|
|
•
|
the
amount of and our ability to estimate our asbestos-related
liabilities;
|
|
•
|
material
disruption at any of our significant manufacturing
facilities;
|
|
•
|
the
solvency of our insurers and the likelihood of their payment for
asbestos-related claims;
|
|
•
|
our
ability to manage and grow our business and execution of our business and
growth strategies;
|
|
•
|
loss
of key management;
|
- 17
-
|
•
|
our
ability and the ability of customers to access required capital at a
reasonable cost;
|
|
•
|
our
ability to expand our business in our targeted
markets;
|
|
•
|
our
ability to cross-sell our product portfolio to existing
customers;
|
|
•
|
the
level of capital investment and expenditures by our customers in our
strategic markets;
|
|
•
|
our
financial performance;
|
|
•
|
our
ability to identify, address and remediate any material weaknesses in our
internal control over financial reporting;
and
|
|
•
|
other
risks and factors, listed under the “Risk Factors” section of our Annual
Report on Form 10-K/A for the year ended December 31, 2009 filed with the
SEC on December 13, 2010 and as supplemented in this Quarterly Report on
Form 10-Q.
|
Any such
forward-looking statements are not guarantees of future performance and actual
results, developments and business decisions may differ materially from those
envisaged by such forward-looking statements. These forward-looking statements
speak only as of the date this Form 10-Q is filed with the SEC. We do not assume
any obligation and do not intend to update any forward-looking statement except
as required by law.
Overview
We are a
global supplier of a broad range of fluid handling products, including pumps,
fluid handling systems and controls, and specialty valves. We believe that we
are a leading manufacturer of rotary positive displacement pumps, which include
screw pumps, gear pumps and progressive cavity pumps. We have a global
manufacturing footprint, with production facilities in Europe, North America and
Asia, as well as worldwide sales and distribution channels. Our products serve a
variety of applications in five strategic markets: commercial marine, oil and
gas, power generation, defense and general industrial. We design and engineer
our products to high quality and reliability standards for use in critical fluid
handling applications where performance is paramount. We also offer customized
fluid handling solutions to meet individual customer needs based on our in-depth
technical knowledge of the applications in which our products are used. Our
products are marketed principally under the Allweiler, Baric, Fairmount,
Houttuin, Imo, LSC, Portland Valve, Tushaco, Warren and Zenith brand
names. We believe that our brands are widely known and have a premium
position in our industry. Allweiler, Houttuin, Imo and Warren are among the
oldest and most recognized brands in the markets in which we participate, with
Allweiler dating back to 1860.
We
believe that one of our most significant competitive advantages comes through a
comprehensive set of tools and processes we employ that we refer to as the
Colfax Business System (“CBS”). CBS is a disciplined strategic planning and
execution methodology designed to achieve excellence and world-class financial
performance in all aspects of our business by focusing on the Voice of the Customer and
continuously improving quality, delivery and cost.
Outlook
We
believe that we are well positioned to grow our business organically over the
long term by enhancing our product offerings and expanding our customer base in
our strategic markets. The economic downturn, which began in 2008, had a
significant impact on our orders, sales and operating profit in
2009. We have seen recent improvement in all of our end
markets. However, we have had project delivery push-outs as well as
order cancellations, primarily in our commercial marine business, which may
continue for the remainder of 2010 and into 2011. We expect the following market
conditions:
|
•
|
In
the commercial marine industry, we expect international trade and demand
for crude oil and other commodities as well as the age of the global
merchant fleet to continue to create demand for new ship construction over
the long term. We also believe the increase in the size of the
global fleet will create an opportunity to supply aftermarket parts and
service. In addition, we believe pending and future
environmental regulations will enhance the demand for our
products. For 2010, we expect sales to be at similar levels to
2009, while we expect orders to increase
significantly. However, we are also likely to have additional
order cancellations as well as delivery date extensions in the near
term. We expect sales to remain at similar levels in 2011
compared to 2010.
|
- 18
-
|
•
|
In
the crude oil industry, we expect long term activity to remain favorable
as capacity constraints and global demand drive further development of
heavy oil fields. In pipeline applications, we expect demand for our
highly efficient products to remain strong as our customers continue to
focus on total cost of ownership. In refinery applications, a
reduction in capital investment by our customers due to weak economic
conditions has been negatively impacting sales and orders but we are
beginning to see improvements. Many projects that were delayed in
2009 are being restarted and we expect sales to be down and orders to be
up significantly in 2010. Sales and orders should continue to grow
in 2011.
|
|
•
|
In
the power generation industry, over the long term we expect activity in
Asia and the Middle East to remain solid as economic growth and
fundamental undersupply of power generation capacity continue to drive
investment in energy infrastructure projects. In the world’s
developed economies, we expect efficiency improvements will continue to
drive demand. In 2010, we expect sales to be at similar levels and
orders to be at similar levels to modestly down versus 2009. For
2011, we expect sales to decline in part due to a policy decision to exit
certain business in the Middle East earlier this
year.
|
|
•
|
In
the U.S. defense industry, we expect Congress to continue to appropriate
funds for new ship construction as older naval vessels are
decommissioned. We also expect increased demand for integrated fluid
handling systems for both new ship platforms and existing ship classes
that reduce operating costs and improve efficiency as the U.S. Navy seeks
to man vessels with fewer personnel. Outside of the U.S., we expect other
sovereign nations will continue to expand their fleets as they address
national security concerns. We expect growth in sales for 2010 and
expect orders to decline as a result of the robust growth in orders in
2009 and the timing of projects. We also expect sales to be up in
2011 while orders will continue to be down due to the timing of ship
building programs which can be highly
variable.
|
|
•
|
In
the general industrial market, we expect long-term demand to be driven by
capital investment. While this market is very diverse, orders in
2009 declined compared to 2008 in all submarkets and most significantly in
the chemical, distribution, machinery support and building products
markets and in portions of the general industrial market, primarily in
Europe and North America. We expect significant growth in orders in
2010 and we expect sales to be at similar levels to modestly up compared
to 2009. Assuming general economic conditions continue to improve,
we would expect sales and orders to be up in 2011 over
2010.
|
Our
global manufacturing sales and distribution network, enhanced by our acquisition
of Baric, allows us to target fast growing regions throughout the world. We have
production and distribution facilities in India and China and opened a Middle
East sales and engineering office in Bahrain in 2009. We intend to leverage
these investments to grow our market share in these emerging markets and plan to
continue to invest in sales and marketing resources to increase our overall
coverage.
We will
also continue to target aftermarket opportunities in our strategic markets as we
generally are able to generate higher margins on aftermarket parts and service
than on foremarket opportunities. For the three and nine months ended October 1,
2010, aftermarket sales and services represented approximately 23% and 25%,
respectively, of our revenues.
We also
expect to continue to grow as a result of strategic acquisitions. We believe
that our extensive experience in acquiring and effectively integrating
acquisition targets should enable us to capitalize on opportunities in the
future.
Based on
declining orders and our culture of continuous improvement, we initiated a
series of restructuring actions beginning in 2009 to better position our cost
structure for future periods. We continue to monitor order rates and will
adjust our manufacturing capacity and cost structure as demand
warrants.
- 19
-
Key
Performance Measures
The
discussion of our results of operations that follows focuses on some of the key
financial measures that we use to evaluate our business. We evaluate our
business using several measures, including net sales, orders and order backlog.
Our sales, orders and backlog are affected by many factors, particularly the
impact of acquisitions, the impact of fluctuating foreign exchange rates and
change from our existing businesses which may be driven by market conditions and
other factors. To facilitate the comparison between reporting periods, we
describe the impact of each of these three factors, to the extent they impact
the periods presented, on our sales, orders and backlog in tabular format under
the heading “Sales and Orders.”
Orders
and order backlog are highly indicative of our future revenue and thus are key
measures of anticipated performance. Orders consist of contracts for products or
services from our customers, net of cancellations. Order backlog consists of
unfilled orders.
Seasonality
We
experience seasonality in our fluid handling business. As our customers seek to
fully utilize capital spending budgets before the end of the year, our shipments
generally peak during the fourth quarter. Also, our European operations
typically experience a slowdown during the July and August holiday season.
General economic conditions as well as backlog levels may, however, impact
future seasonal variations.
Results
of Operations
Items
Affecting Comparability of Reported Results
The
comparability of our operating results for the three and nine months ended
October 1, 2010 and October 2, 2009 is affected by the following
items:
Acquisitions
Acquisitions
affect our reported results and can make period to period comparisons of results
difficult. As a result, we disclose our sales growth between periods both
from existing and acquired businesses.
On August
19, 2010, we completed the acquisition of Baric for $27.0 million, net of cash
acquired and subject to final adjustments under the purchase agreements.
Baric is a supplier of highly engineered fluid handling systems primarily for
lubrication applications, with its primary operations based in Blyth, United
Kingdom. Intangible assets acquired were approximately $32.5 million,
including approximately $12.5 million of goodwill.
On August
31, 2009, we completed the acquisition of PD-Technik Ingenieurbüro GmbH
(“PD-Technik”), a provider of marine aftermarket related products and services
located in Hamburg, Germany, for $1.3 million, net of cash acquired in the
transaction.
Foreign Currency
Fluctuations
A
significant portion of our sales, approximately 67% for both the three and nine
months ended October 1, 2010, are derived from operations outside the U.S., with
the majority of those sales denominated in currencies other than the U.S.
dollar, most notably the Euro and the Swedish Krona. Because much of our
manufacturing and employee costs are outside the U.S., a significant portion of
our costs are also denominated in currencies other than the U.S. dollar. Changes
in foreign exchange rates can impact our results and are quantified, when
significant, in our discussion of the results of our
operations.
- 20
-
Restructuring and Other
Related Charges
To better
position the Company’s cost structure for future periods, our results for the
three and nine months ended October 1, 2010 include $2.4 million and $9.5
million, respectively, of restructuring and other related charges. Our
results for the three and nine months ended October 2, 2009 include $9.6 million
and $10.8 million, respectively, of restructuring and other related
charges. The costs incurred in the nine months ended October 1, 2010
include $2.2 million of termination benefits, including $0.6 million of non-cash
stock-based compensation expense, related to the departure of the Company’s
former President and CEO in January 2010. Additionally, the costs incurred
in the nine months ended October 1, 2010 include $1.3 million of termination
benefits related to the October 2010 departures of the Company’s former CFO and
General Counsel.
Asbestos Liability and
Defense Costs (Income)
Asbestos
liability and defense costs (income) is comprised of projected indemnity cost,
changes in the projected asbestos liability, changes in the probable insurance
recovery of the projected asbestos-related liability, changes in the probable
recovery of asbestos liability and defense costs paid in prior periods, and
actual defense costs expensed in the period.
The table
below presents asbestos liability and defense costs (income) for the periods
indicated:
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
October
1,
|
October
2,
|
October
1,
|
October
2,
|
|||||||||||||
(Amounts
in millions)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Asbestos
liability and defense costs (income)
|
$ | 2.2 | $ | (4.3 | ) | $ | 4.2 | $ | (1.2 | ) |
Asbestos
liability and defense costs were $2.2 million and $4.2 million for the three and
nine months ended October 1, 2010, respectively, compared to income of $4.3
million and $1.2 million for the three and nine months ended October 2, 2009,
respectively. The increase in asbestos liability and defense costs for the three
and nine months ended October 1, 2010 was primarily attributable to a net pretax
gain of $5.7 million recorded in the third quarter of 2009, comprised of a $17.3
million increase in the insurance asset as a result of a favorable court ruling
and a determination that defense costs do not erode insurance limits, offset by
an $11.6 million increase to the asbestos liability arising from a revision to
our 15 year estimate of asbestos-related liabilities.
Asbestos Coverage Litigation
Expense
Asbestos
coverage litigation expenses include legal costs related to the actions against
two of our subsidiaries’ respective insurers and a former parent company of one
of the subsidiaries.
The table
below presents coverage litigation expenses for the periods
indicated:
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
October
1,
|
October
2,
|
October
1,
|
October
2,
|
|||||||||||||
(Amounts
in millions)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Asbestos
coverage litigation expenses
|
$ | 2.3 | $ | 1.8 | $ | 10.8 | $ | 8.8 |
Legal
costs related to the subsidiaries’ action against their asbestos insurers were
$2.3 million and $10.8 million for the three and nine months ended October 1,
2010, respectively, compared to $1.8 million and $8.8 million for the three and
nine months ended October 2, 2009, respectively. The increase in the three
and nine months ended October 1, 2010 is primarily due to costs incurred by one
of our subsidiaries related to the trial of its litigation against a number of
its insurers and its former parent that began in January 2010.
Sales
and Orders
Our
sales, orders and backlog are affected by many factors including but not limited
to acquisitions, fluctuating foreign exchange rates, and growth (decline) in our
existing businesses which may be driven by market conditions and other factors.
To facilitate the comparison between reporting periods, we disclose the impact
of each of these three factors to the extent they impact the periods presented.
The impact of foreign currency translation is the difference between sales from
existing businesses valued at current year foreign exchange rates and the same
sales valued at prior year foreign exchange rates. Growth due to acquisitions
includes incremental sales due to an acquisition during the period or
incremental sales due to reporting a full year’s sales for an acquisition that
occurred in the prior year. Sales growth (decline) from existing businesses
excludes both the impact of foreign exchange rate fluctuations and acquisitions,
thus providing a measure of growth (decline) due to factors such as price, mix
and volume.
- 21
-
Orders
and order backlog are highly indicative of our future revenue and thus key
measures of anticipated performance. Orders consist of contracts for products or
services from our customers, net of cancellations, during a period. Order
backlog consists of unfilled orders at the end of a period. The components of
order and backlog growth (decline) are presented on the same basis as sales
growth (decline).
The
following tables present components of our sales and order growth (decline), as
well as, sales by fluid handling product for the periods indicated:
(Amounts
in millions)
|
Sales
|
Orders
|
||||||||||||||||||||||
Three
Months Ended October 2, 2009
|
$ | 128.5 | $ | 117.2 | ||||||||||||||||||||
Components
of Change:
|
||||||||||||||||||||||||
Existing
businesses
|
7.6 | 5.9 | % | 9.4 | 8.1 | % | ||||||||||||||||||
Acquisitions
|
3.0 | 2.3 | % | 3.0 | 2.5 | % | ||||||||||||||||||
Foreign
currency translation
|
(6.7 | ) | (5.2 | )% | (5.5 | ) | (4.7 | )% | ||||||||||||||||
Total
|
3.9 | 3.0 | % | 6.9 | 5.9 | % | ||||||||||||||||||
Three
Months Ended October 1, 2010
|
$ | 132.4 | $ | 124.1 | ||||||||||||||||||||
Backlog
at
|
||||||||||||||||||||||||
(Amounts
in millions)
|
Sales
|
Orders
|
Period End
|
|||||||||||||||||||||
Nine
Months Ended October 2, 2009
|
$ | 394.1 | $ | 360.8 | $ | 325.3 | ||||||||||||||||||
Components
of Change:
|
||||||||||||||||||||||||
Existing
businesses
|
(20.0 | ) | (5.0 | )% | 36.2 | 10.1 | % | (7.2 | ) | (2.2 | )% | |||||||||||||
Acquisitions
|
4.6 | 1.2 | % | 4.7 | 1.3 | % | 42.3 | 13.0 | % | |||||||||||||||
Foreign
currency translation
|
(3.4 | ) | (0.9 | )% | (2.5 | ) | (0.7 | )% | (9.2 | ) | (2.8 | )% | ||||||||||||
Total
|
(18.8 | ) | (4.7 | )% | 38.4 | 10.7 | % | 25.9 | 8.0 | % | ||||||||||||||
Nine
Months Ended October 1, 2010
|
$ | 375.3 | $ | 399.2 | $ | 351.2 |
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
October
1,
|
October
2,
|
October
1,
|
October
2,
|
|||||||||||||
(Amounts
in millions)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Net
Sales by Product:
|
||||||||||||||||
Pumps,
including aftermarket parts and service
|
$ | 106.6 | $ | 107.2 | $ | 313.4 | $ | 336.7 | ||||||||
Systems,
including installation service
|
21.5 | 17.7 | 48.8 | 49.1 | ||||||||||||
Valves
|
3.4 | 3.1 | 10.3 | 6.4 | ||||||||||||
Other
|
0.9 | 0.5 | 2.8 | 1.9 | ||||||||||||
Total
net sales
|
$ | 132.4 | $ | 128.5 | $ | 375.3 | $ | 394.1 |
As
detailed above, for the three months ended October 1, 2010, sales from existing
businesses increased by 5.9% over the three months ended October 2, 2009, driven
by higher demand in the general industrial, power generation and commercial
marine end markets, partially offset by decreased demand in the oil and gas and
defense end markets. Foreign currency translation negatively impacted
sales by 5.2%, primarily due to a stronger average U.S. dollar against the Euro
exchange rate in the third quarter of 2010 compared to the same period in 2009.
For the nine months ended October 1, 2010, sales from existing businesses
decreased by 5.0% over the nine months ended October 2, 2009.
Additionally, foreign currency translation negatively impacted sales by 0.9%,
primarily due to a stronger average U.S. dollar against the Euro exchange rate
in the nine months of 2010 compared to the same period in 2009. The decrease in
sales from existing businesses was primarily attributable to lower demand in the
oil and gas and commercial marine end markets, partially offset by higher demand
in the defense and general industrial end markets.
- 22
-
Orders,
net of cancellations, from existing businesses increased 8.1% for the three
months ended October 1, 2010 over the three months ended October 2, 2009, which
was partially offset by a negative currency translation effect of 4.7%. The
increase in orders from existing businesses was primarily attributable to
increased demand in the general industrial and oil and gas end markets.
Orders, net of cancellations, from existing businesses increased 10.1% for the
nine months ended October 1, 2010 over the nine months ended October 2, 2009,
partially offset by a negative currency translation effect of 0.7%. The increase
in orders from existing businesses was primarily due to increased demand in the
commercial marine, general industrial and oil and gas end markets, partially
offset by lower demand in the defense end market. We experienced
commercial marine order cancellations of approximately $3.9 million and $10.1
million for the three and nine months ended October 1, 2010, respectively,
compared to $0.7 million and $18.6 million for the three and nine months ended
October 2, 2009, respectively. Backlog as of October 1, 2010 of $351.2
million decreased $7.2 million, or 2.2%, excluding the impact of foreign
currency translation and acquisitions, as compared to $325.3 million at October
2, 2009. Since July 2, 2010, backlog decreased $9.7 million, or 3.2%, excluding
the impact of foreign currency translation and acquisitions. The Baric
acquisition added $42.3 million to backlog in the quarter ending October 1,
2010.
Gross
Profit
The
following table presents our gross profit figures for the periods
indicated:
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
October
1,
|
October
2,
|
October
1,
|
October
2,
|
|||||||||||||
(Amounts
in millions)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Gross
profit
|
$ | 47.1 | $ | 46.2 | $ | 131.8 | $ | 138.8 | ||||||||
Gross
profit margin
|
35.6 | % | 35.9 | % | 35.1 | % | 35.2 | % |
Gross
profit of $47.1 million for the three months ended October 1, 2010 increased
from $46.2 million for the three months ended October 2, 2009. Gross profit from
existing businesses increased $2.4 million, with an additional increase of $0.7
million due to the Baric and PD-Technik acquisitions, partially offset by a $2.2
million negative impact of foreign exchange rates. Gross profit margin
decreased to 35.6% for the three months ended October 1, 2010 from 35.9% for the
three months ended October 2, 2009. The margin decrease was driven by lower
pricing and an unfavorable product mix shift, partially offset by higher
productivity.
Gross
profit of $131.8 million for the nine months ended October 1, 2010 decreased
from $138.8 million for the nine months ended October 2, 2009. Gross profit from
existing businesses decreased $7.5 million, with an additional $0.8 million
negative impact of foreign exchange rates, partially offset by an increase of
$1.3 million due to the acquisitions of Baric and PD-Technik. Gross profit
margin for the nine months ended October 1, 2010 was flat compared to the nine
months ended October 2, 2009, as margin declines driven by lower pricing and an
unfavorable product mix shift were partially offset by restructuring program
cost savings and higher productivity.
Selling,
General and Administrative Expenses (“SG&A”)
The
following table presents our selling, general and administrative expenses for
the periods indicated:
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
October
1,
|
October
2,
|
October
1,
|
October
2,
|
|||||||||||||
(Amounts
in millions)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
SG&A
expenses
|
$ | 29.9 | $ | 27.9 | $ | 87.8 | $ | 85.5 | ||||||||
SG&A
expenses as a percentage of sales
|
22.6 | % | 21.7 | % | 23.4 | % | 21.7 | % |
Selling,
general and administrative expenses of $29.9 million for the three months ended
October 1, 2010 increased from $27.9 million in the three months ended October
2, 2009. Excluding a $0.2 million net unfavorable impact of foreign exchange
rates and acquisitions, SG&A increased $1.9 million, driven by higher
volume-related commission expenses and increased incentive compensation
expense.
- 23
-
Selling,
general and administrative expenses of $87.8 million for the nine months ended
October 1, 2010 increased from $85.5 million in the nine months ended October 2,
2009. Excluding a $1.5 million net unfavorable impact of foreign exchange rates
and acquisitions, SG&A increased $0.9 million, due to unfavorable changes in
the fair value of commodity and foreign currency derivatives, which were
partially offset by restructuring program cost savings.
Operating
Income
The table
below presents operating income data for the periods indicated:
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
October
1,
|
October
2,
|
October
1,
|
October
2,
|
|||||||||||||
(Amounts
in millions)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Operating
income
|
$ | 8.6 | $ | 9.7 | $ | 14.8 | $ | 30.3 | ||||||||
Operating
margin
|
6.5 | % | 7.5 | % | 3.9 | % | 7.7 | % |
Operating
income for the three months ended October 1, 2010 decreased $1.1 million to
$8.6 million from $9.7 million for the three months ended October 2, 2009.
Excluding a $1.5 million net unfavorable impact of foreign currency exchange
rates and acquisitions, operating income increased $0.5 million, primarily due
to higher sales volumes and cost productivity, partially offset by lower pricing
and an unfavorable product mix shift.
Operating
income for the nine months ended October 1, 2010 decreased $15.5 million to
$14.8 million from $30.3 million for the nine months ended October 2, 2009.
Excluding a $0.9 million net unfavorable impact of foreign currency exchange
rates and acquisitions, the decline in operating income was primarily due to
lower pricing, an unfavorable product mix shift and lower sales volumes,
partially offset by cost savings, including restructuring program cost
savings.
Interest
Expense
For a
description of our outstanding indebtedness, please refer to “—Liquidity and
Capital Resources” below.
Interest
expense was $1.5 million and $1.8 million for the three months ended October 1,
2010 and October 2, 2009, respectively. A decrease in the notional value
of our interest rate swap from $75 million to $50 million on June 30, 2010
caused our overall weighted-average effective interest rate to decline from 5.6%
for the three months ended October 2, 2009 to 4.9% for the three months ended
October 1, 2010.
Interest
expense was $5.1 million and $5.5 million for the nine months ended October 1,
2010 and October 2, 2009, respectively. A decrease in the notional value
of our interest rate swap from $75 million to $50 million on June 30, 2010
caused our overall weighted-average effective interest rate to decline from 5.6%
for the nine months ended October 2, 2009 to 5.4% for the nine months ended
October 1, 2010.
Provision
for Income Taxes
The
effective income tax rates for the three and nine months ended October 1, 2010
were 17.1% and 22.3%, respectively. The effective tax rate for the three
and nine months ended October 1, 2010 differs from the U.S. federal statutory
tax rate primarily due to international tax rates which are lower than the U.S.
tax rate and a net decrease to our unrecognized tax benefits. The net
decrease to our unrecognized tax benefits was primarily due to the successful
resolution of 2003 tax audit issues.
For the
three and nine months ended October 2, 2009, the effective tax rates,
respectively of 29.3% and 31.2% were lower than the U.S. statutory rate,
including the impact of the reduction of the Swedish tax rate from 28% to 26.3%
that is applied to our Swedish operations, offset in part by a net increase to
our valuation allowance and unrecognized tax benefits.
- 24
-
The
effective tax rates for the three and nine months ended October 1, 2010 are
lower than the corresponding prior periods generally due to the relative impact
of the net change in our unrecognized tax benefits on income before taxes of
$7.1 million and $9.7 million, respectively, in the current periods compared to
the impact of the net change in our unrecognized tax benefits and other discrete
items on income before taxes for the three and nine months ended October 2, 2009
of $7.8 million and $24.8 million, respectively.
Liquidity
and Capital Resources
Overview
Historically,
we have financed our capital and working capital requirements through a
combination of cash flows from operating activities and borrowings under our
credit facility. We expect that our primary ongoing requirements for cash will
be for working capital, funding for potential acquisitions, capital
expenditures, asbestos-related outflows and pension plan funding. If additional
funds are needed for strategic acquisitions or other corporate purposes, we
believe we could raise additional funds in the form of debt or equity. As
of October 1, 2010, we had approximately $133.3 million available on our
revolver loan and we had $42.8 million of cash.
Borrowings
During
the nine months ended October 1, 2010, we repaid $6.3 million of the outstanding
balance of our Term A Note, leaving $85.0 million outstanding at the end of the
period. At October 1, 2010, the interest rate on the Term A Note was 2.8%,
inclusive of 2.5% margin, and the annual commitment fee on our $150.0 million
revolver was 0.5%. At October 1, 2010, there was $16.7 million outstanding on
the letter of credit sub-facility, leaving approximately $133.3 million
available under the revolver loan. Of the total $133.3 million available,
it is unlikely that we would be able to draw on Lehman Brothers’ $6.0 million
commitment due to their bankruptcy and resulting default under the terms of the
revolver.
Substantially
all assets and stock of the Company’s domestic subsidiaries and 65% of the
shares of certain European subsidiaries are pledged as collateral against
borrowings under our credit agreement. Certain European assets are pledged
against borrowings directly made to our European subsidiary. Our credit
agreement contains customary covenants limiting the Company’s ability to, among
other things, pay cash dividends, incur debt or liens, redeem or repurchase
Company stock, enter into transactions with affiliates, make investments, merge
or consolidate with others or dispose of assets. In addition, our credit
agreement contains financial covenants requiring the Company to maintain a total
leverage ratio of not more than 3.25 to 1.0 and a fixed charge coverage ratio of
not less than 1.5 to 1.0, measured at the end of each quarter for the previous
twelve months. If the Company does not comply with the various covenants under
our credit agreement and related agreements, the lenders may, subject to various
customary cure rights, require the immediate payment of all amounts outstanding
under the Term A Note and revolver and foreclose on the collateral. The Company
believes it is in compliance with all such covenants as of October 1, 2010 and
expects to be in compliance for the next 12 months.
- 25
-
Comparative
Cash Flows
The table
below presents selected cash flow data for the periods indicated:
Nine Months Ended
|
||||||||
October
1,
|
October
2,
|
|||||||
(Amounts
in millions)
|
2010
|
2009
|
||||||
Net
cash provided by operating activities
|
$ | 35.3 | $ | 34.0 | ||||
Purchases
of fixed assets
|
(9.4 | ) | (7.8 | ) | ||||
Acquisitions,
net of cash acquired
|
(27.0 | ) | (1.3 | ) | ||||
Other
sources, net
|
0.1 | 0.3 | ||||||
Net
cash used in investing activities
|
$ | (36.3 | ) | $ | (8.8 | ) | ||
Repayment
of borrowings
|
(6.3 | ) | (3.8 | ) | ||||
Other
sources (uses), net
|
0.7 | (0.4 | ) | |||||
Net
cash used in financing activities
|
$ | (5.6 | ) | $ | (4.2 | ) |
Cash
flows from operating activities can fluctuate significantly from period to
period as working capital needs, the timing of payments for items such as
pension funding decisions and other items impact reported cash flows. Changes in
significant operating cash flow items are discussed below.
|
Ÿ
|
Cash
paid for asbestos-related costs net of insurance proceeds, including the
disposition of claims, defense costs and legal expenses related to
litigation against our insurers, created variability in our operating cash
flows. For the nine months ended October 1, 2010, net cash paid for
asbestos-related costs, net of insurance settlements received, was $7.6
million. For the nine months ended October 2, 2009, net cash paid
for asbestos-related costs, net of insurance settlements received, was
$13.0 million.
|
|
Ÿ
|
Funding
requirements of our defined benefit plans, including both pensions and
other post-retirement benefits, can vary significantly from period to
period due to changes in the fair value of plan assets and actuarial
assumptions. For the nine months ended October 1, 2010 and October 2,
2009, cash contributions for defined benefit plans were $10.7 million and
$4.3 million, respectively.
|
|
Ÿ
|
Changes
in working capital also affected the operating cash flows for the periods
presented. We define working capital as trade receivables plus inventories
less accounts payable.
|
|
Ÿ
|
Working
capital, excluding the effects of acquisitions and foreign currency
translation, declined $16.7 million from December 31, 2009 to October 1,
2010, primarily due to a decrease in inventory levels as a result of
inventory reduction programs and higher customer advance payments on work
in process, as well as due to an increase in accounts
payable.
|
|
Ÿ
|
Net
working capital as a percentage of sales is a key ratio that we use to
measure working capital efficiency. For the nine months ended October 1,
2010 and October 2, 2009, net working capital as a percentage of
annualized sales was 21.8% and 24.7%,
respectively.
|
Investing
activities consist primarily of purchases of fixed assets and cash paid for
acquisitions.
|
Ÿ
|
In
all periods presented, capital expenditures were invested in new and
replacement machinery, equipment and information technology. We generally
target capital expenditures at approximately 2.0% to 2.5% of annual
revenues.
|
|
Ÿ
|
On
August 19, 2010, we completed the acquisition of Baric, a supplier of
highly engineered fluid handling systems primarily for lubrication
applications, with its primary operations based in Blyth, United Kingdom,
for $27.0 million, net of cash acquired in the
transaction.
|
- 26
-
|
Ÿ
|
On
August 31, 2009, we completed the acquisition of PD-Technik, a provider of
marine aftermarket related products and services located in Hamburg,
Germany, for $1.3 million, net of cash acquired in the
transaction.
|
Financing
cash flows consist primarily of repayments of indebtedness.
|
Ÿ
|
During
the nine months ended October 1, 2010, we repaid $6.3 million of long-term
borrowings.
|
Critical
Accounting Estimates
The
methods, estimates and judgments we use in applying our critical accounting
policies have a significant impact on the results we report in our financial
statements. We evaluate our estimates and judgments on an ongoing basis. Our
estimates are based upon our historical experience, our evaluation of business
and macroeconomic trends, and information from other outside sources as
appropriate. Our experience and assumptions form the basis for our judgments
about the carrying value of assets and liabilities that are not readily apparent
from other sources. Actual results may vary from what our management anticipates
and different assumptions or estimates about the future could change our
reported results.
During
the period ended October 1, 2010, the Company changed the date of its annual
goodwill and indefinite-lived intangible assets impairment testing from the last
day of the fourth quarter to the first day of the fourth quarter. The
Company adopted this change in timing in order to provide additional time to
quantify the fair value of our reporting units and, if necessary, to determine
the implied fair value of goodwill. This change in timing will also reduce
the likelihood that the annual impairment analysis would not be completed by the
required filing date of the Company’s annual financial statements. The
revised date also better aligns with our strategic planning and budgeting
process, which is an integral component of the impairment testing. In accordance
with GAAP, the Company will also perform interim impairment testing should
circumstances requiring it arise. We believe this accounting change is
preferable and does not result in the delay, acceleration, or avoidance of an
impairment charge.
There
have been no other significant changes for the nine months ended October 1, 2010
to the items that we disclosed as our critical accounting policies and estimates
in Management’s Discussion and Analysis of Financial Condition and Results of
Operations in our Annual Report on Form 10-K/A for the year ended December 31,
2009 filed with the SEC on December 13, 2010.
Recent
Accounting Pronouncements
See Note 3 to our
Condensed Consolidated Financial Statements for a discussion of recently issued
accounting pronouncements.
Item
3. Quantitative and Qualitative Disclosures About Market Risk
We are
exposed to market risk from changes in interest rates, foreign currency exchange
rates and commodity prices that could impact our results of operations and
financial condition. We address our exposure to these risks through our normal
operating and financing activities.
Information
concerning market risk for the nine months ended October 1, 2010 is discussed
below.
Interest
Rate Risk
We are
subject to exposure from changes in interest rates based on our financing
activities. Under our credit facility, all of our borrowings at October 1, 2010
are variable rate facilities based on LIBOR or EURIBOR. In order to mitigate our
interest rate risk, we periodically enter into interest rate swap or collar
agreements. A hypothetical increase in the interest rate of 1.00% on the
portion of our variable rate debt that is not hedged during the nine months
ended October 1, 2010 would have increased our interest cost by approximately
$0.2 million.
On June
24, 2008, we entered into an interest rate swap with an aggregate notional value
of $75.0 million whereby we exchanged our LIBOR-based variable rate interest for
a fixed rate of 4.1375%. The notional value decreased to $50 million on
June 30, 2010 and will decrease to $25 million on June 30, 2011, and expires on
June 29, 2012. The fair value of the swap agreement, based on third-party
quotes, was a liability of $2.2 million at October 1, 2010. The swap
agreement has been designated as a cash flow hedge, and therefore changes in its
fair value are recorded as an adjustment to other comprehensive
income.
- 27
-
Exchange
Rate Risk
We have
manufacturing sites throughout the world and sell our products globally. As
a result, we are exposed to movements in the exchange rates of various
currencies against the U.S. dollar and against the currencies of other
countries in which we manufacture and sell products and services. During
the nine months ended October 1, 2010, approximately 67% of our sales were
derived from operations outside the U.S., with approximately 63% generated from
our European operations. In particular, we have more sales in European
currencies than we have expenses in those currencies. Therefore, when
European currencies strengthen or weaken against the U.S. dollar, operating
profits are increased or decreased, respectively. To assist with the matching of
revenues and expenses and assets and liabilities in foreign currencies, we may
periodically enter into derivative instruments such as cross currency swaps or
forward contracts. To illustrate the potential impact of changes in foreign
currency exchange rates, assuming a 10% increase in average foreign exchange
rates compared to the U.S. dollar, the income before income taxes for the nine
months ended October 1, 2010 would have decreased by $2.6 million.
Commodity
Price Risk
We are
exposed to changes in the prices of raw materials used in our production
processes. Commodity futures contracts are periodically used to manage such
exposure; however, as of October 1, 2010, we had no open copper or nickel
futures contracts.
Item
4. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, the Company has evaluated the
effectiveness of our disclosure controls and procedures as defined in Rule
13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), as of the end of the period covered by this report. Management, in
consultation with the Audit Committee has concluded that the restatement on Form
10-K/A for the period ended December 31, 2009 and on Form 10-Q/A for the periods
ended April 2, 2010 and July 2, 2010, constituted a material weakness in the
Company’s internal control over financial reporting. As a result of the
material weakness, management has concluded that the Company’s disclosure
controls and procedures at October 1, 2010 were not effective in providing
reasonable assurance that the information required to be disclosed in this
report has been recorded, processed, summarized and reported as of the end of
the period covered by this report.
Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by us in reports we
file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commissions rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.
The
financial statements for the period covered by this report were prepared with
particular attention to the material weakness. Accordingly, management believes
that the condensed consolidated financial statements included in this Quarterly
Report fairly present, in all material respects, our financial condition,
results of operations and cash flows as of and for the periods
presented.
The
Company continually reviews its disclosure controls and procedures and makes
changes, as necessary, to ensure the quality of its financial reporting. As
detailed below, the Company has implemented certain additional controls that it
believes will significantly reduce the potential for similar issues to arise in
the future.
- 28
-
Changes
in Internal Control over Financial Reporting
Management
and the Board of Directors are committed to the remediation of the material
weakness set forth above as well as the continued improvement of the Company’s
overall system of internal control over financial reporting. Subsequent to the
period covered by this report, management has implemented measures to remediate
the material weakness in internal control over financial reporting described
above. Specifically, we have implemented procedures to enhance the maintenance
and review of participant data for benefit plans. As part of the Company’s
fiscal 2010 assessment of internal control over financial reporting, management
will conduct sufficient testing and evaluation of the implemented controls to
ascertain whether they are designed and operating effectively. Management
believes the implemented controls will remediate the above identified material
weakness.
PART
II – OTHER INFORMATION
Item
1. Legal Proceedings
Discussion
of legal matters is incorporated by reference to Part I, Item 1, Note 15,
“Commitments and Contingencies,” in the Notes to the Condensed Consolidated
Financial Statements.
Item
1A. Risk Factors
An
investment in our common stock involves a high degree of risk. The
following risk factors are provided to supplement and update the Risk Factors
section of our Annual Report on Form 10-K/A for the year ended December 31, 2009
filed with the SEC on December 13, 2010 (the “Annual Report”). You should carefully
consider the risks set forth in the Risk Factors section of the Annual Report,
as supplemented and updated by the risk factors set forth below.
Efforts
to realign our operating platform could disrupt our business and affect our
results of operations.
In
recognition of our evolving global business, we are moving from a business-unit
structure to a global-function operating structure. We believe this
strategic realignment will better allow us to deliver customer-centric fluid
handling solutions. Inherent in any realignment of operations are risks
related to our ability to structure our business in a way that accomplishes our
goals and best responds to customer needs without causing disruption to our
ongoing business.
Item 2. Unregistered Sales of
Equity Securities and Use of Proceeds
None.
Item 3.
Defaults Upon Senior Securities
None.
Item 4.
(Removed and Reserved)
Item 5.
Other Information
None.
- 29
-
Item
6. Exhibits
Exhibit No.
|
Exhibit Description
|
|
10.1
|
Employment
Agreement between Colfax Corporation and C. Scott
Brannan*
|
|
10.2
|
Financial
Advisory Services Agreement between Colfax Corporation and G. Scott
Faison
|
|
10.3
|
Legal
Advisory Services Agreement between Colfax Corporation and Thomas M.
O’Brien
|
|
18.1
|
Preferability
Letter of Ernst & Young LLP, Independent Registered Public Accounting
Firm
|
|
31.01
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934 as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
|
31.02
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934 as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
|
32.01
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
32.02
|
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
*
|
Incorporated
by reference to Exhibit 10.1 to Colfax Corporation’s Form 8-K (File No.
001-34045) as filed with the Commission on September 22,
2010
|
- 30
-
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Registrant: Colfax
Corporation
By:
/s/ CLAY
H. KIEFABER
|
President
and Chief Executive Officer
|
December
13, 2010
|
||
Clay
H. Kiefaber
|
(Principal
Executive Officer)
|
|||
/s/ C.
SCOTT BRANNAN
|
|
Senior
Vice President, Finance and
|
|
December
13, 2010
|
C.
Scott Brannan
|
Chief Financial Officer | |||
(Principal
Financial and Accounting Officer)
|
- 31
-