Attached files
| file | filename |
|---|---|
| 8-K - 8-K - SHILOH INDUSTRIES INC | a8-ka.htm |
| EX-23.1 - EXHIBIT 23.1 - AUDITOR CONSENT - SHILOH INDUSTRIES INC | exhibit231-consent.htm |
| EX-99.2 - EXHIBIT 99.2 UNAUDITED PRO FORMA - SHILOH INDUSTRIES INC | exhibit992-unauditedprofor.htm |
Exhibit 99.1
ALBANY‑CHICAGO COMPANY LLC
Pleasant Prairie, Wisconsin
FINANCIAL STATEMENTS
Including Independent Auditors' Report
As of and for the Years Ended October 31, 2012 and 2011
ALBANY‑CHICAGO COMPANY LLC
TABLE OF CONTENTS
Independent Auditors' Report | 1 |
Financial Statements | |
Balance Sheets | 2 |
Statements of Operations | 3 |
Statements of Members' Equity | 4 |
Statements of Cash Flows | 5 |
Notes to Financial Statements | 6 - 15 |
INDEPENDENT AUDITORS' REPORT
Members
Albany‑Chicago Company LLC
Pleasant Prairie, Wisconsin
We have audited the accompanying balance sheets of Albany‑Chicago Company LLC (the "Company") as of October 31, 2012 and 2011 and the related statements of operations, members' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of October 31, 2012 and 2011, and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Baker Tilly Virchow Krause, LLP
Milwaukee, Wisconsin
December 12, 2012
Page 1
ALBANY‑CHICAGO COMPANY LLC
BALANCE SHEETS
As of October 31, 2012 and 2011
ASSETS
2012 | 2011 | ||||||
CURRENT ASSETS | |||||||
Cash | $ | 11,370 | $ | 134,949 | |||
Accounts receivable, net | 8,299,014 | 7,862,432 | |||||
Inventories, net | 2,231,307 | 2,553,836 | |||||
Prepaid expenses and other assets | 2,872,713 | 2,344,047 | |||||
Total Current Assets | 13,414,404 | 12,895,264 | |||||
PROPERTY AND EQUIPMENT, NET | 17,682,471 | 16,121,634 | |||||
OTHER ASSETS | |||||||
Intangible assets, net | 2,052,228 | 2,247,679 | |||||
Debt financing costs, net | 36,760 | 48,578 | |||||
Lease deposit | - | 500,000 | |||||
Tax deposit | 67,173 | - | |||||
Total Other Assets | 2,156,161 | 2,796,257 | |||||
TOTAL ASSETS | $ | 33,253,036 | $ | 31,813,155 | |||
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES | |||||||
Checks issued in excess of bank balance | $ | 182,564 | $ | 944,947 | |||
Current maturities of long‑term debt | 2,917,409 | 1,991,301 | |||||
Accounts payable | 4,122,586 | 5,770,605 | |||||
Accrued wages and benefits | 1,973,632 | 1,888,226 | |||||
Accrued interest payable | 329,975 | 182,468 | |||||
Other accrued liabilities | 1,342,127 | 1,085,776 | |||||
Future interest on subordinated debt ‑ current | 240,000 | 160,000 | |||||
Total Current Liabilities | 11,108,293 | 12,023,323 | |||||
LONG‑TERM LIABILITIES | |||||||
Line of credit | 1,376,474 | 4,607,531 | |||||
Long‑term debt, less current maturities | 13,097,474 | 11,014,883 | |||||
Future interest on subordinated debt ‑ long‑term | - | 240,000 | |||||
Deferred compensation | 184,621 | 178,661 | |||||
Deferred rent payable | 430,568 | 445,492 | |||||
Total Long‑term Liabilities | 15,089,137 | 16,486,567 | |||||
Total Liabilities | 26,197,430 | 28,509,890 | |||||
MEMBERS' EQUITY | 7,055,606 | 3,303,265 | |||||
TOTAL LIABILITIES AND MEMBERS' EQUITY | $ | 33,253,036 | $ | 31,813,155 | |||
See accompanying notes to financial statements.
Page 2
ALBANY‑CHICAGO COMPANY LLC
STATEMENTS OF OPERATIONS
For the Years Ended October 31, 2012 and 2011
2012 | 2011 | ||||||
NET SALES | $ | 72,439,020 | $ | 68,127,456 | |||
COST OF SALES | 64,742,055 | 62,543,989 | |||||
Gross Profit | 7,696,965 | 5,583,467 | |||||
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES | 3,438,775 | 2,934,919 | |||||
Operating Income | 4,258,190 | 2,648,548 | |||||
OTHER INCOME (EXPENSE) | |||||||
Interest expense | (547,545) | (1,395,424) | |||||
Interest income | 35,135 | 70,176 | |||||
Other income (expense), net | 6,561 | (47,101) | |||||
Net Other Expense | (505,849) | (1,372,349) | |||||
NET INCOME | $ | 3,752,341 | $ | 1,276,199 | |||
See accompanying notes to financial statements.
Page 3
ALBANY‑CHICAGO COMPANY LLC
STATEMENTS OF MEMBERS' EQUITY
For the Years Ended October 31, 2012 and 2011
(1)Common Capital Contributions | Preferred Capital Contributions | Retained Earnings (Deficit) | Accumulated Other Comprehensive Income (Loss) | Total Members' Equity | Comprehensive Income | ||||||||||||||||||
BALANCES, October 31, 2010 | $ | 3,500,000 | $ | 2,050,000 | $ | (3,522,934 | ) | $ | (720,044 | ) | $ | 1,307,022 | |||||||||||
Net income | — | — | 1,276,199 | - | 1,276,199 | $ | 1,276,199 | ||||||||||||||||
Amortization of loss on derivative termination | — | — | — | 720,044 | 720,044 | 720,044 | |||||||||||||||||
Total comprehensive income | — | — | — | — | — | $ | 1,996,243 | ||||||||||||||||
BALANCES, October 31, 2011 | 3,500,000 | 2,050,000 | (2,246,735) | — | 3,303,265 | ||||||||||||||||||
Net income and total comprehensive income | - | - | 3,752,341 | — | 3,752,341 | $ | 3,752,341 | ||||||||||||||||
BALANCES, October 31, 2012 | $ | 3,500,000 | $ | 2,050,000 | $ | 1,505,606 | $ | — | $ | 7,055,606 | |||||||||||||
(1) Represents 375 voting units and 32,921 non‑voting units outstanding as of October 31, 2012 and 2011.
See accompanying notes to financial statements.
Page 4
ALBANY‑CHICAGO COMPANY LLC
STATEMENTS OF CASH FLOWS
For the Years Ended October 31, 2012 and 2011
2012 | 2011 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||
Net income | $ | 3,752,341 | $ | 1,276,199 | |||
Adjustments to reconcile net income to net cash flows from operating activities | |||||||
Depreciation | 3,642,278 | 2,890,186 | |||||
Amortization of intangible assets and debt financing costs | 207,269 | 265,458 | |||||
Gain on disposal of property and equipment, net | 235,434 | 111,848 | |||||
Deferred rent | (14,924) | 158,232 | |||||
Amortization of loss on derivative termination | - | 720,044 | |||||
Deferred compensation expense | 5,960 | 5,752 | |||||
Changes in operating assets and liabilities | |||||||
Accounts receivable | (436,582) | (355,263) | |||||
Inventories | 322,529 | (643,080) | |||||
Prepaid expenses and other assets | (528,666) | (142,077) | |||||
Other long‑term assets | 432,827 | - | |||||
Accounts payable | (1,648,019) | 858,418 | |||||
Accrued wages and benefits | 85,406 | 766,161 | |||||
Accrued interest payable | 147,507 | 66,233 | |||||
Other accrued liabilities | 256,351 | (85,529) | |||||
Net Cash Flows from Operating Activities | 6,459,711 | 5,892,582 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||
Capital expenditures | (5,518,299) | (4,725,409) | |||||
Proceeds from sale of fixed assets | 79,750 | 63,750 | |||||
Net Cash Flows from Investing Activities | (5,438,549) | (4,661,659) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||
Net (decrease) increase in checks issued in excess of bank balance | (762,383) | 116,064 | |||||
Net payments on line of credit | (3,231,057) | (349,158) | |||||
Payments on long‑term debt | (1,991,301) | (8,412,261) | |||||
Proceeds from issuance of long‑term debt | 5,000,000 | 7,655,000 | |||||
Payment of interest on subordinated debt | (160,000) | (80,000) | |||||
Payment of debt financing costs | - | (28,702) | |||||
Net Cash Flows from Financing Activities | (1,144,741) | (1,099,057) | |||||
Net Change in Cash and Cash Equivalents | (123,579) | 131,866 | |||||
CASH ‑ Beginning of Year | 134,949 | 3,083 | |||||
CASH ‑ END OF YEAR | $ | 11,370 | $ | 134,949 | |||
Supplemental cash flow disclosures | |||||||
Cash paid for interest | $ | 560,038 | $ | 689,147 | |||
Noncash investing and financing activities | |||||||
Like‑kind exchange of assets | $ | — | $ | 9,500 | |||
See accompanying notes to financial statements.
Page 5
ALBANY‑CHICAGO COMPANY LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended October 31, 2012 and 2011
NOTE 1 - Summary of Significant Accounting Policies
Nature of Operations
Albany‑Chicago Company LLC (the "Company") is engaged in producing highly‑engineered aluminum die casting and machined components. Customers are primarily U.S. original equipment manufacturers in industries such as diesel engines, axle systems, automotive structural components, construction equipment, agricultural equipment and others. The Company conducts all manufacturing operations from a single campus located in Pleasant Prairie, Wisconsin.
Cash and Cash Equivalents
The Company maintains cash in bank deposit accounts which, at times, exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk.
Accounts Receivable
The majority of the Company's accounts receivable are due from original equipment manufacturers and Tier 1 automotive suppliers. Credit is extended based on an evaluation of a customer's financial condition and credit history. Accounts receivable are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding significantly longer than the payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the Company's previous loss history, the length of time trade accounts receivables are past due, the customer's current ability to pay its obligation to the Company, and the condition of the general economy and industry as a whole. The allowance for doubtful accounts was $50,000 as of October 31, 2012 and 2011. The Company writes‑off accounts receivable when they are determined to be uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. The Company recorded no bad debt provision during the years ended October 31, 2012 and 2011, respectively.
Inventories
Inventories are carried at the lower of first‑in, first‑out ("FIFO") cost or market.
Fixed Assets
Fixed assets are carried at cost. Depreciation is computed using the straight‑line method based on the estimated useful life of the asset. Leasehold improvements are depreciated based on the lesser of the useful life of the respective assets or the lease term.
Depreciation expense was $3,642,278 and $2,890,186 for the years ended October 31, 2012 and 2011, respectively.
Repairs and maintenance costs are expensed as incurred unless it extends the useful life of the asset in which the costs are capitalized and expensed over the remaining useful life of the asset.
Page 6
ALBANY‑CHICAGO COMPANY LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended October 31, 2012 and 2011
NOTE 1 - Summary of Significant Accounting Policies (cont.)
Intangible Assets
Intangible assets generally result from business acquisitions. The Company has accounted for business acquisitions by assigning the purchase price to tangible and intangible assets and liabilities. Assets acquired and liabilities assumed were recorded at their fair values.
Intangible assets consist of trade names and customer relationships which are amortized on a straight line method over 15 years, which is the estimated useful lives of the related intangible assets.
Intangible assets are reviewed annually for impairment and any excess in carrying value over the estimated fair value is charged to operations. Amortization of trade names and customer relationships is included with selling, general, and administrative expenses in the accompanying statements of operations.
Impairment of Long‑Lived Assets
The Company annually considers whether indicators of impairment of long‑lived assets are present and determines that, if such indicators are present, whether the sum of the estimated undiscounted future cash flows attributable to such assets is less than their carrying amounts. No impairment charges were recorded during the years ended October 31, 2012 and 2011.
Derivatives
To manage interest rate exposure on its monies borrowed, the Company has used interest rate swaps. The interest rate swap is an agreement to exchange payment streams based on a notional principal amount. On the date the derivative is entered into, the Company designates the derivatives as a hedge of the variability of the cash flows to be paid relative to its variable rate monies borrowed.
The Company recognizes all derivative instruments as either assets or liabilities in the balance sheet at fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, whether the hedge is a cash flow hedge or a fair value hedge.
The gain or loss on the effective portion of interest rate swaps treated as cash flow hedges is initially included as a component of accumulated other comprehensive income (loss) and is subsequently reclassified into interest expense when interest on the related debt is paid. The Company documents its risk management strategy and hedge effectiveness at the inception of and during the term of each hedge. It is the policy of the Company to execute such contracts with creditworthy counterparties. The Company’s interest rate risk management strategy is to stabilize cash flow requirements by maintaining interest rate swap contracts to convert variable‑rate debt to a fixed rate. Changes in fair value of interest rate swap agreements that are not “effective” and interest rate swaps treated as fair value hedges are included directly in current operating results. There was no ineffectiveness during the year ended October 31, 2011, the latest year during which the Company was involved with an interest rate swap. The Company does not use derivatives for trading or speculative purposes.
Page 7
ALBANY‑CHICAGO COMPANY LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended October 31, 2012 and 2011
NOTE 1 - Summary of Significant Accounting Policies (cont.)
Revenue Recognition
The Company generally recognizes revenue when products are shipped. All revenues are recorded net of discounts, returns and allowances pursuant to the terms of its sales agreements.
Tooling revenues, depending on the terms of the sales agreement, are either recognized upon completion, or deferred and recognized over the term of the program. The Company enters into agreements to produce parts for its customers. In most cases, the agreements are in the form of purchase orders. Although such agreements do not provide for a specified quantity of parts, once the Company enters into such agreements, the Company is generally expected to fulfill its customer's purchasing requirements for the production life of the end products. These agreements generally may be terminated by the Company’s customers at any time.
The Company receives annual purchase orders from certain customers. Generally, each purchase order provides the annual terms, including pricing, related to a particular original equipment manufacturers end product. Purchase orders do not specify quantities. The Company recognizes revenue based on the terms included in the annual purchase orders as parts are shipped to its customers. Certain customers have negotiated annual price reductions. The Company recognizes these price reductions as parts are shipped to its customers. In addition, the Company has ongoing adjustments to its pricing arrangements with its customers based on the related content of the parts produced. Such pricing adjustments are recognized when parts are shipped to its customers.
Income Taxes
The Company and its members have elected for federal and state income tax purposes to be treated as a partnership under provisions of the Internal Revenue Code. Accordingly, the Company's taxable income is included in the individual tax returns of its members, and no provision for income taxes is included in the accompanying financial statements.
The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more‑likely‑than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than fifty‑percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company has determined there were no unrecognized tax benefits taken or expected to be taken that have been recorded in the Company's financial statements as of October 31, 2012 and 2011.
Uncertain tax positions are assessed for open tax years based on the likelihood of sustainability of the positions taken. Any exposure would be reflected and included in the amounts ultimately recognized on the members' tax filings. The Company files income tax returns in the United States federal jurisdiction and in a state jurisdiction. The Company's tax returns for the years beginning after May 1, 2008 are subject to examination by tax authorities. The Company's United States federal income tax return for the year ended October 31, 2009 was examined by the Internal Revenue Service. There were no findings as a result of this examination. There are currently no income tax examinations in process. The Company classified interest and penalties, if any, related to unrecognized tax benefits as a component of other expenses. No interest or penalties were incurred or recorded during the years ended October 31, 2012 and 2011.
Page 8
ALBANY‑CHICAGO COMPANY LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended October 31, 2012 and 2011
NOTE 1 - Summary of Significant Accounting Policies (cont.)
Shipping and Handling Costs
Delivery and handling costs charged to customers are included in revenue. Delivery and handling costs incurred by the Company are included in cost of sales.
Accumulated Other Comprehensive Income or Loss
Accumulated other comprehensive loss consists of unrealized losses on interest rate swaps.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Subsequent Events
The Company has evaluated subsequent events through December 12, 2012, the date that the financial statements were available to be issued, for events requiring recording or disclosure in the Company’s financial statements.
NOTE 2 - Inventories
As of October 31, inventories consisted of the following:
2012 | 2011 | ||||||
Raw materials | $ | 855,119 | $ | 750,802 | |||
Work in process | 651,867 | 1,073,096 | |||||
Finished goods | 764,321 | 739,938 | |||||
2,271,307 | 2,563,836 | ||||||
Less: Reserve for excess and obsolete inventories | (40,000) | (10,000) | |||||
Total Inventories | $ | 2,231,307 | $ | 2,553,836 | |||
NOTE 3 - Prepaid Expenses and Other Assets
Included in prepaid expenses and other assets as of October 31, 2012 and 2011 was $2,402,436 and $1,760,961, respectively, of contract tooling developed for the production of customer parts. Certain tooling development costs are expended by the Company and billed to the customer upon completion or on a per piece basis.
Page 9
ALBANY‑CHICAGO COMPANY LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended October 31, 2012 and 2011
NOTE 4 - Property and Equipment
The major categories of property and equipment at October 31 are summarized as follows:
Depreciable Lives | 2012 | 2011 | |||||||
Machinery and equipment | 3‑10 Years | $ | 24,864,542 | $ | 19,331,440 | ||||
Furniture and fixtures | 3‑10 Years | 817,159 | 674,878 | ||||||
Leasehold improvements | 15 Years | 1,328,143 | 1,073,838 | ||||||
Vehicles | 4 Years | 53,514 | 53,514 | ||||||
Assets under construction | N/A | 1,065,440 | 2,211,520 | ||||||
Total Property and Equipment ‑ At Cost | 28,128,798 | 23,345,190 | |||||||
Less: Accumulated depreciation and amortization | (10,446,327) | (7,223,556) | |||||||
Net Property and Equipment ‑ Net | $ | 17,682,471 | $ | 16,121,634 | |||||
NOTE 5 - Intangible Assets
Intangible assets consist of the following:
October 31, 2012 | Cost | Accumulated Amortization | Net | ||||||||
Trade Names | $ | 376,689 | $ | (113,007 | ) | $ | 263,682 | ||||
Customer Relationships | 2,555,066 | (766,520 | ) | 1,788,546 | |||||||
Total Other Intangible Assets | $ | 2,931,755 | $ | (879,527 | ) | $ | 2,052,228 | ||||
October 31, 2011 | Cost | Accumulated Amortization | Net | ||||||||
Trade Names | $ | 376,689 | $ | (87,894 | ) | $ | 288,795 | ||||
Customer Relationships | 2,555,066 | (596,182 | ) | 1,958,884 | |||||||
Total Other Intangible Assets | $ | 2,931,755 | $ | (684,076 | ) | $ | 2,247,679 | ||||
Total amortization expense for the years ended October 31, 2012 and 2011 was $195,451. Amortization expense related to intangible assets for the years ended after October 31, 2012 is estimated to be as follows:
Page 10
ALBANY‑CHICAGO COMPANY LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended October 31, 2012 and 2011
2013 | $ | 195,450 | |
2014 | 195,450 | ||
2015 | 195,450 | ||
2016 | 195,450 | ||
2017 | 195,450 | ||
Thereafter | 1,074,978 | ||
Total | $ | 2,052,228 | |
Page 10
ALBANY‑CHICAGO COMPANY LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended October 31, 2012 and 2011
NOTE 6 - Line of Credit
The Company entered into a revolving loan with a bank effective October 21, 2011 with a maturity date of October 21, 2014. This credit agreement provides for revolving loans of up to $9,000,000 with interest at the London Interbank Offered Rates ("LIBOR") plus 2.00% to 3.50%, depending on the Company's total funded debt to EBITDA ratio. The agreement also provides letters of credit up to an aggregate amount of $750,000. As of October 31, 2012 and 2011 there were no outstanding letters of credit issued. The revolving loans are secured by substantially all company assets.
The balance of the line of credit was $1,376,474 and $4,607,531 as of October 31, 2012 and 2011, respectively. The interest rates as of October 31, 2012 and 2011 were 2.19% and 2.75%, respectively.
This loan has various financial and non‑financial covenants. The Company was in compliance with such covenants as of October 31, 2012.
NOTE 7 - Long‑Term Debt
The Company has various long‑term debt arrangements which consist of the following as of October 31:
2012 | 2011 | ||||||
Term note (1) | $ | 6,792,500 | $ | 7,655,000 | |||
Equipment term note (2) | 5,000,000 | — | |||||
Subordinated note (3) | 1,000,000 | 2,000,000 | |||||
Revolving subordinated note (4) | 2,000,000 | 2,000,000 | |||||
Promissory notes (5) | 1,222,383 | 1,351,184 | |||||
Total | 16,014,883 | 13,006,184 | |||||
Less current maturities | (2,917,409) | (1,991,301) | |||||
Long‑term debt, less current maturities | $ | 13,097,474 | $ | 11,014,883 | |||
(1) | The Company entered into a term loan with a bank effective October 21, 2011 with a maturity date of October 21, 2014. The initial principal on this loan was $7,655,000, which bears interest at LIBOR plus 2.25% to 3.75%, depending on the Company's total funded debt to EBITDA ratio. The rate resets quarterly. Principal payments are due in 11 quarterly installments of $287,500 beginning February 1, 2012, with the remaining balance due October 21, 2014. Interest is payable monthly. |
The interest rates as of October 31, 2012 and 2011 were 2.44% and 3.00%, respectively. The loan is collateralized by substantially all assets of the Company. This loan has various financial and non‑financial covenants. The Company was in compliance with such covenants as of October 31, 2012.
(2) | The Company entered into a credit agreement with a bank effective October 21, 2011. As part of the credit agreement, the Company was able to take an equipment advance amount equal to $5,000,000 prior to the loan term‑out date of October 21, 2012. The initial principal on this loan was $5,000,000, which bears interest at LIBOR plus 2.25% to 3.75%, depending on the Company's total funded debt to EBITDA ratio. The rate resets quarterly. Payments are due in 80 monthly installments of $62,500, which include principal and interest, beginning November 1, 2012, with the remaining balance due October 21, 2014. |
Page 11
ALBANY‑CHICAGO COMPANY LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended October 31, 2012 and 2011
NOTE 7 - Long‑Term Debt (cont.)
The interest rates as of October 31, 2012 and 2011 were 2.50% and 3.00%, respectively. The loan is collateralized by substantially all assets of the Company. This loan has various financial and non‑financial covenants. The Company was in compliance with such covenants as of October 31, 2012.
(3) | The Company entered into a subordinated note agreement effective May 1, 2008 with a maturity date of October 31, 2014 and an initial principal value of $4,200,000. Principal payments were due in three installments of $1,000,000 and one final installment of $1,200,000. Payments were due each fiscal year commencing on October 31, 2011. The note was originally stated to bear interest at 8% through fiscal 2010, at 9% for fiscal 2011, at 10% for fiscal 2012, at 12% for fiscal 2013 and at 14% for fiscal 2014. Interest was to be accrued on the outstanding principal balance and be payable on the first day of each quarter, commencing on February 1, 2010 for the quarter beginning November 1, 2009. |
On December 28, 2009, this note was restructured to reduce the principal balance from $4,200,000 to $3,000,000. This restructuring included the forgiveness of all accrued and unpaid interest of $576,499 and reduced the interest rate to 8% for the remainder of the loan. The principal is now payable on the note in three installments of $1,000,000. The first installment of $1,000,000 in principal and $80,000 in accrued interest was due and paid on October 31, 2011, the second installment of $1,000,000 in principal and $160,000 in accrued interest was due and paid on October 31, 2012, and the third and final installment of $1,000,000 in principal and $240,000 in accrued interest is due October 31, 2013.
The Company has the option to prepay this note without penalty. The loan is collateralized by substantially all assets of the Company. This loan has various non‑financial covenants. The Company was in compliance with the covenants as of October 31, 2012.
(4) | On June 30, 2010, the Company and a member entered into an unsecured revolving loan agreement with a maturity date of June 30, 2013. The agreement allows for loans up to $3,000,000 and bears interest at 5%. On October 31, 2012, the agreement was amended to extend the maturity date to October 31, 2014. |
(5) | The Company entered into two separate promissory notes with the Kenosha Area Business Alliance on August 13, 2010 with maturity dates of August 1, 2020 and initial principal values of $750,000 each. Each loan bears interest at a fixed rate of 4.25% for the first 60 months and is fixed at the prime rate for the balance of the loan, with a floor of 4.25%. Principal and interest payments are due in 120 monthly installments of $7,656 for each loan. The loans are secured by certain equipment. |
Annual principal payments required under terms of the long‑term debt agreements, for fiscal years ending after October 31, 2012 are as follows:
2013 | $ | 2,917,409 | |
2014 | 8,429,497 | ||
2015 | 3,866,466 | ||
2016 | 152,623 | ||
2017 | 159,237 | ||
Thereafter | 489,651 | ||
Total | $ | 16,014,883 | |
Page 12
ALBANY‑CHICAGO COMPANY LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended October 31, 2012 and 2011
NOTE 8 - Deferred Compensation Plans
The Company has a deferred compensation arrangement with an employee with accrued liabilities of $184,621 and $178,661 as of October 31, 2012 and 2011, respectively. These amounts are recorded as long‑term liabilities on the accompanying balance sheets. Payments from this account will commence in the event of the participant's death while in the employ of the Company, termination of employment due to disability, or retirement on or after his early retirement date of age 60. Payments are to be made in annual installments.
NOTE 9 - Members' Equity
The Company and its members are parties to an operating agreement. The agreement includes a restriction on the transfer of units, along with various other provisions. The Company's preferred units are non‑voting, and have a liquidation preference senior to all other member units up to the value of the initial capital contribution.
Profits and losses are also allocated to members based on the aforementioned liquidation preference. No distributions will be declared and paid unless the Company is in a positive net worth position. No distributions were paid during the year ended October 31, 2012 and 2011, respectively.
NOTE 10 - Derivatives
The Company entered into an interest swap transaction effective June 17, 2008, with an original termination date of June 1, 2013. The swap fixed $5,000,000 of variable rate borrowings at a rate of 4.74%. The Company entered into a second interest rate swap transaction effective August 13, 2008, with an original termination date of August 1, 2013. This swap fixed $5,000,000 of variable rate borrowings at a rate of 4.20%. Both interest rate swap agreements were settled with the bank on March 18, 2010. The settlement liability was paid in full by issuing an additional term loan with the bank in the amount of $894,600.
The termination of the interest rate swap with a value of $894,600 at March 18, 2010 was being amortized over the duration of the original term of the interest rate swap.
On October 21, 2011, the Company refinanced its outstanding debt with another bank. As a result, the Company expensed the remaining unamortized balance during the year ended October 31, 2011. This resulted in amortization expense of $720,044 during the year ended October 31, 2011, recorded as interest expense.
NOTE 11 - Leases
The Company leases manufacturing facilities and equipment under noncancelable operating leases. The facilities' leases require monthly rents escalating at various intervals through June 30, 2020. The equipment lease requires monthly rents until 2015. Rent expense totaled $1,154,229 and $1,151,719 for the years ended October 31, 2012 and 2011, respectively.
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ALBANY‑CHICAGO COMPANY LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended October 31, 2012 and 2011
NOTE 11 - Leases (cont.)
Future minimum rental payments required under the leases as of October 31, 2012 are as follows:
2013 | $ | 1,291,887 | |
2014 | 1,296,563 | ||
2015 | 1,292,982 | ||
2016 | 965,828 | ||
2017 | 985,563 | ||
Thereafter | 2,593,722 | ||
Total | $ | 8,426,545 | |
As of October 31, 2011, the Company had a $500,000 deposit on the leased equipment. This deposit was returned to the Company during October 2012.
NOTE 12 - Employee Benefit Plans
The Company has a calendar year‑end retirement savings plan covering all individuals employed as of the calendar year‑end. During 2012 and 2011, the Company made annual matching contributions of 50% of employee deferrals up to 5% of the employee's salary. During the year ended October 31, 2012, the Company made matching contributions of $218,849 related to the calendar plan year ending December 31, 2011. There were no matching contributions made related to the calendar year ending December 31, 2010. The Company may also make discretionary contributions to the plan. No additional discretionary matches were declared during the years ended October 31, 2012 and 2011. The Company accrued a $210,000 and $176,000 profit sharing contribution for the years ended October 31, 2012 and 2011, respectively.
NOTE 13 - Purchase Commitments
As of October 31, 2012, the Company had purchase commitments of approximately $2,799,600 for various equipment purchases.
NOTE 14 - Concentrations
The Company had three customers that collectively accounted for approximately 89% and 90% of total gross sales for the years ended October 31, 2012 and 2011. As of October 31, 2012 and 2011, accounts receivable from these customers collectively accounted for approximately 86% of the Company's trade accounts receivable.
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ALBANY‑CHICAGO COMPANY LLC
NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended October 31, 2012 and 2011
NOTE 15 - Related Party Transactions
The Company shares common ownership with two other entities. The Company provides certain administrative services to these related entities, including general accounting, information technology services and human resource services. These costs are billed at an hourly rate to these entities and the Company's expenses are reduced based on these billings. Total costs billed during the years ended October 31, 2012 and 2011 totaled approximately $135,200 and $101,600, respectively. Accounts receivable at October 31, 2012 and 2011 were approximately $12,400 and $11,000, respectively.
NOTE 16 - Subsequent Events
On December 12, 2012 the Company executed a Letter of Intent for the sale of 100% of its Membership Interests.
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