Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
CCIX > SEC Filings for CCIX > Form 10-Q on 5-Nov-2012All Recent SEC Filings

Show all filings for COLEMAN CABLE, INC.

Form 10-Q for COLEMAN CABLE, INC.


5-Nov-2012

Quarterly Report


ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of risks and uncertainties, including those described in this report under "Cautionary Note Regarding Forward-Looking Statements" and under "Item 1A. Risk Factors" in our Annual Report on Form 10-K, for the fiscal year ended December 31, 2011. We assume no obligation to update any of these forward-looking statements. You should read the following discussion in conjunction with our condensed consolidated financial statements and the notes thereto included in this report.

Overview

Coleman Cable, Inc. (the "Company," "Coleman," "us," "we," or "our") is a leading designer, developer, manufacturer and supplier of electrical wire and cable products for consumer, commercial and industrial applications, with production and distribution operations primarily in the U.S. and, to a lesser degree, in Honduras and Canada.

Raw materials, primarily copper, comprise the primary component of our cost of goods sold. The price of copper is particularly volatile, and fluctuations in copper prices can significantly affect our sales and profitability. The average copper price on the COMEX was $3.53 for the third quarter of 2012, as compared to $4.07 per pound for the third quarter of 2011, with the $0.54 decline representing a decrease of 13.3%.

2012 Acquisition - Watteredge ("WE")

On May 31, 2012, Coleman completed the acquisition of most of the operating assets (and assumed certain liabilities) of WE, an Ohio corporation that designs, manufactures and sells secondary power connectors, including electric arc furnace cables, resistance welding cables, industrial high-performance copper bus and accessories, and other high performance power conduction devices and accessories. WE serves the steel, chemical, chlorine, power generation, fiberglass and automotive industries and sells its products and services worldwide. We believe the acquisition of WE strengthens and provides for greater diversification of our overall portfolio.

The acquisition of the assets of WE, whose sales were nearly $25.0 million in 2011, was structured as an all-cash transaction valued at approximately $33.9 million (equal to a $35.0 million preliminary purchase price adjusted by a $1.1 million working capital adjustment). The transaction was funded with proceeds from Coleman's existing credit facility. Coleman retained WE's workforce and has continued all of WE's production at its current manufacturing plant in Avon Lake, Ohio. WE has been included as a component of our Engineered Solutions segment reported herein.

2011 Acquisitions

During the second quarter of 2011, we utilized cash on hand, as well as borrowings under our credit facility to complete three business acquisitions (collectively, the "2011 Acquisitions"), as set forth below. Each of these 2011 Acquisitions was structured as a cash transaction, with aggregate consideration totaling $68.9 million. As further discussed below, we believe these acquisitions represent significant opportunities for us, including the strengthening and greater diversification of our overall portfolio.

Acquisition of the Assets of The Designers Edge ("DE")

On April 1, 2011, we acquired certain assets of DE, a leading designer and distributor of specialty lighting products in the U.S. and Canada. The total purchase price for the assets acquired, primarily trade receivables and merchandise inventories, was $10.1 million. The acquisition of DE's assets significantly expanded our product portfolio across a wide range of lighting product categories, including industrial, work and utility, as well as products for security and landscape applications. We fully integrated the acquired assets of DE into our Distribution segment during the second quarter of 2011.

Acquisition of the Assets of First Capitol Wire and Cable ("FCWC") and Continental Wire and Cable ("CWC")

On April 29, 2011, we acquired the assets of FCWC and CWC, both of which were privately-held entities based in York, Pennsylvania, with CWC being a 100%-owned subsidiary of FCWC, which are leading manufacturers of industrial wire and cable products used across a number of commercial, utility and industrial end-markets. The total purchase price for the assets acquired, primarily merchandise inventories and production equipment, was $7.3 million. The acquisition of the assets of FCWC and CWC has allowed us to expand our capabilities, product offerings and capacity for producing a wide assortment of high-quality industrial cables. We fully integrated the assets of FCWC and CWC into our Distribution segment during the second quarter of 2011.


Table of Contents

Acquisition of Technology Research Corporation ("TRC")

On May 16, 2011, we completed the acquisition of 100% of the outstanding stock of TRC. TRC is a recognized leader in providing cost effective engineered solutions for applications involving power management and control, intelligent battery systems technology and electrical safety products based on proven ground fault sensing and Fire Shield technology. These products are designed, manufactured and distributed to the consumer, commercial and industrial markets worldwide. TRC also supplies power monitors and control equipment to the United States Military and its prime contractors. TRC was publicly traded on the NASDAQ prior to its acquisition by Coleman. We completed the TRC acquisition as the result of a successful public tender offer to acquire all outstanding shares of TRC. The total purchase price consideration for TRC was approximately $51.5 million, including the acquisition-date fair value of an approximate 4.8% interest in TRC acquired by Coleman prior to submitting its acquisition proposal for TRC.

The Company believes TRC's sizable commercial and consumer products segment greatly broadens our current electrical products platform. In addition, TRC's battery, power storage, and power management systems, represent new product lines for Coleman.

TRC has maintained its current production facilities in Clearwater, FL, and Honduras. We integrated a portion of TRC's legacy business into our Distribution segment during 2011. The remainder of TRC's legacy business, TRC's military and specialty vehicle business, is a component of the Engineered Solutions segment reported herein.

Purchase Price Allocations

Each of the above acquisitions was accounted for under the purchase method of accounting. Accordingly, we have allocated the purchase price for each acquisition to the net assets acquired based on the related estimated fair values at each respective acquisition date. The expected long-term growth, increased market position and expected synergies to be generated from the acquisitions are the primary factors which gave rise to acquisition prices for each of the acquisitions which resulted in the recognition of goodwill.

The purchase price allocations for TRC, FCWC and CWC were finalized in 2011. At the end of the first quarter of 2012, we finalized our purchase accounting for DE as certain purchase price and other matters relative to this acquisition were resolved. As a result, the total purchase price for DE was lowered by $0.8 million, with a corresponding reduction in the goodwill recorded in respect to this acquisition. The purchase price allocation for the WE acquisition was finalized during the third quarter of 2012.

Consolidated Results of Operations

Each of the above acquisitions has been included in our condensed consolidated financial statements, including our results of operations, beginning from each respective acquisition date. Accordingly, the condensed consolidated statements of income for the three and nine months ended September 30, 2012 includes the full impact of operations for the assets acquired in connection with the 2011 Acquisitions, but only three and four months of results, respectively, for the assets acquired in connection with the WE acquisition. The condensed consolidated statements of income for the three and nine months ended September 30, 2011 includes three and six months of operations, respectively, for the assets acquired in connection with the DE acquisition, approximately three and five months of operations, respectively, for the assets acquired in connection with the FCWC and CWC acquisition, and approximately three and four and 1/2 months of operations, respectively, related to TRC. The condensed consolidated statement of income for the three and nine months ended September 30, 2011 does not include any operations for the assets acquired in connection with the WE acquisition.

In addition to net income determined in accordance with GAAP, we use certain non-GAAP measures in assessing our operating performance. These non-GAAP measures used by management include: (1) EBITDA, which we define as net income before net interest, income taxes, depreciation and amortization expense ("EBITDA"), (2) Adjusted EBITDA, which is our measure of EBITDA adjusted to exclude the impact of certain specifically identified items ("Adjusted EBITDA"), and (3) Adjusted earnings per share, which we calculate as diluted earnings per share adjusted to exclude the estimated per share impact of the same specifically identified items used to calculate Adjusted EBITDA ("Adjusted EPS"). For the periods presented in this report, the specifically identified items include restructuring charges, gain on available for sale securities, share-based compensation expense, and acquisition-related costs.

We believe both EBITDA and Adjusted EBITDA serve as appropriate measures to be used in evaluating the performance of our business. We use these measures in the preparation of our annual operating budgets and in determining levels of operating and capital investments. We believe both EBITDA and Adjusted EBITDA allow us to readily view operating trends, perform analytical comparisons and identify strategies to improve operating performance. The usefulness of both EBITDA and Adjusted EBITDA as performance measures is limited by the fact that they both exclude the impact of interest expense, depreciation and amortization expense, and taxes. Due to these limitations, we do not, and you should not, use either EBITDA or Adjusted EBITDA as the only measures of our performance. We also use, and recommend that you consider, net income in accordance with GAAP as a measure of our performance. Finally, other companies may define EBITDA and Adjusted EBITDA differently and, as a result, our measure of EBITDA and Adjusted EBITDA may not be directly comparable to EBITDA and Adjusted EBITDA measures of other companies.


Table of Contents

Similarly, we believe our use of Adjusted EPS provides an appropriate measure to use in assessing our performance across periods given that this measure provides an adjustment for certain significant items, the magnitude of which may vary significantly from period to period. However, we do not, and do not recommend that you, solely use Adjusted EPS to assess our financial and earnings performance. We also use, and recommend that you use, diluted earnings per share in addition to Adjusted EPS in assessing our earnings performance. Finally, other companies may define Adjusted EPS differently and, as a result, our measure of Adjusted EPS may not be directly comparable to Adjusted EPS measures of other companies.

The following tables, which reconcile our measure of Adjusted EPS to diluted earnings per share, and Adjusted EBITDA to net income, respectively, should be used along with the below statements of income for the periods presented, and the accompanying results of operations review.

Diluted earnings per share, as determined in accordance with GAAP, to Adjusted

EPS



                                                    Three Months            Nine Months
                                                       Ended                   Ended
                                                   September 30,           September 30,
                                                  2012       2011         2012       2011
                                                                (unaudited)
 Earnings per share                              $ 0.31     $  0.37      $ 0.96     $  0.91
 Restructuring charges (1)                         0.04        0.04        0.05        0.04
 Gain on available for sale securities (2)           -           -           -        (0.04 )
 Share-based compensation expense (income) (3)     0.02       (0.03 )      0.04        0.10
 Acquisition-related costs (4)                       -         0.01        0.02        0.12

 Adjusted diluted earnings per share             $ 0.37     $  0.39      $ 1.07     $  1.13

Net income as determined in accordance with GAAP, to EBITDA and Adjusted EBITDA

                                                    Three Months Ended             Nine Months Ended
                                                      September 30,                  September 30,
                                                    2012           2011           2012           2011
                                                                      (Thousands)
                                                                      (unaudited)
Net income                                       $    5,454      $  6,480       $  16,810      $ 16,082
Interest expense                                      6,919         7,086          20,963        21,183
Income tax expense                                    2,725         2,637           8,579         7,023
Depreciation and amortization expense (a)             5,577         5,137          15,987        14,057

EBITDA                                           $   20,675      $ 21,340       $  62,339      $ 58,345

Restructuring charges (1)                               959         1,061           1,314         1,256
Gain on available for sale securities (2)                -             -               -           (753 )
Share-based compensation expense (income) (3)           457          (739 )         1,169         2,781
Acquisition-related costs (4)                            77           223             443         2,801

ADJUSTED EBITDA                                  $   22,168      $ 21,885       $  65,265      $ 64,430

(a) Depreciation and amortization expense shown in the above schedule excludes amortization of debt issuance costs, which are included as a component of interest expense.

The nature of each individual item listed in the table above, which has been excluded from EBITDA in order to arrive at our measure of Adjusted EBITDA for each of the periods presented, is detailed in the analysis of operating results that follows.

Earnings and Performance Summary

We recorded net income of $5.5 million (or $0.31 per diluted share) in the third quarter of 2012, as compared to net income of $6.5 million (or $0.37 per diluted share) for the third quarter of 2011. For the third quarter of 2012, we recorded EBITDA of $20.7 million, as compared to $21.3 million in EBITDA for the third quarter of 2011.

We recorded net income of $16.8 million (or $0.96 per diluted share) in the nine months ended September 30, 2012, as compared to net income of $16.1 million (or $0.91 per diluted share) for the first nine months of 2011. For the nine months ended September 30, 2012, we recorded EBITDA of $62.3 million, as compared to $58.3 million in EBITDA for the nine months ended September 30, 2011.

As set forth below, results for these periods were impacted by certain significant items, the magnitude of which may vary significantly from period to period and, thereby, have a disproportionate effect on the earnings reported for any given period. The income-statement review below contains further detail regarding these items.

(1) Restructuring charges: We recorded restructuring charges of $1.0 million ($0.6 million after tax, or $0.04 per diluted share) and $1.3 million ($0.9 million after tax, or $0.05 per diluted share) during the three and nine months ended September 30, 2012, respectively. These expenses were primarily comprised of costs related the closure of our Texarkana, Arkansas manufacturing


Table of Contents
facility, which we closed in July 2012. We recorded restructuring charges of $1.1 million ($0.6 million after tax, or $0.04 per diluted share) and $1.3 million ($0.8 million after tax, or $0.04 per diluted share) during the three and nine months ended September 30, 2011, respectively. These expenses were primarily comprised of severance costs related to an announced realignment of our Canadian operations, including the elimination of certain support positions in our Toronto distribution center and headquarters, which we completed during the fourth quarter of 2011.

(2) Gain on available for sale securities: We held a 4.8% interest in TRC at the time we acquired TRC. The fair value of our 4.8% pre-existing interest at the merger date was included in the total purchase price for TRC. As a result, we recorded a non-taxable gain of $0.8 million ($0.8 million after tax, or $0.04 per diluted share) in the second quarter of 2011 which represented the impact of re-measuring to fair value the 4.8% equity interest in TRC we held before the business combination.

(3) Share-based compensation expense (income): We recorded stock compensation expense of $0.5 million ($0.3 million after tax, or $0.02 per diluted share) in the three months ended September 30, 2012 and expense of $1.2 million ($0.8 million after tax, or $0.04 per diluted share) during the nine months ended September 30, 2012. We recorded stock compensation income of $0.7 million ($0.5 million after tax, or $0.03 per diluted share) in the three months ended September 30, 2011 and expense of $2.8 million ($1.7 million after tax, or $0.10 per diluted share) during the nine months ended September 30, 2011. We exclude stock-based compensation expense from our measures of Adjusted EBITDA and Adjusted EPS because such expenses fluctuate significantly from period-to-period given that the value of certain such underlying awards is tied to the market value of our common stock. Therefore, we believe the exclusion of this expense from our adjusted measures of our operating results provides a measure of our performance free from the impact of such periodic fluctuations in the value of the underlying instruments.

(4) Acquisition-related costs: Our results for 2012 included acquisition-related costs of $0.1 million ($0.0 million after tax or $0.00 per diluted share) in the three months ended September 30, 2012 and $0.4 million ($0.3 million after tax or $0.02 per diluted share) during the nine months ended September 30, 2012. Our results for 2011 included acquisition-related costs of $0.2 million ($0.1 million after tax or $0.01 per diluted share) in the three months ended September 30, 2011 and $2.8 million ($2.0 million after tax or $0.12 per diluted share) during the nine months ended September 30, 2011. Acquisition-related costs include outside legal, consulting and other fees, and direct expenses incurred relative to acquisition-related activities. These costs are excluded from our measures of Adjusted EBITDA and Adjusted EPS so that such measures may more closely reflect underlying operating results.

The following sets forth, for the periods indicated, our consolidated results of operations and related data in thousands of dollars and as a percentage of net sales.

Three Months Ended September 30, 2012 Compared with Three Months Ended
September 30, 2011



                                              Three Months Ended September 30,                 Period-over-Period Change
                                              2012                       2011                        2012 vs. 2011
                                       Amount          %          Amount          %            $ Change           % Change
                                                                           (unaudited)
                                                               (Thousands, except per share data)
Distribution net sales                $ 162,179        70.7 %    $ 172,321        73.4 %    $      (10,142 )           (5.9 )%
OEM net sales                            54,140        23.6         55,782        23.8              (1,642 )           (2.9 )
Engineered Solutions net sales           12,982         5.7          6,748         2.8               6,234             92.4

Consolidated net sales                  229,301       100.0        234,851       100.0              (5,550 )           (2.4 )
Gross profit                             34,353        15.0         34,618        14.7                (265 )           (0.8 )
Selling, general and administrative
expenses                                 15,880         6.9         14,986         6.4                 894              6.0
Intangible amortization expense           2,189         1.0          1,950         0.8                 239             12.3
Restructuring charges                       959         0.4          1,061         0.5                (102 )           (9.6 )

Operating income                         15,325         6.7         16,621         7.1              (1,296 )            7.8
Interest expense                          6,919         3.0          7,086         3.0                (167 )           (2.4 )
Other loss, net                             227         0.0            418         0.2                (191 )          (45.7 )

Income before income taxes                8,179         3.6          9,117         3.9                (938 )          (10.3 )
Income tax expense                        2,725         1.2          2,637         1.1                  88              3.3

Net income                            $   5,454         2.4      $   6,480         2.8      $       (1,026 )          (15.8 )

Diluted income per share              $    0.31                  $    0.37


Table of Contents

Nine Months Ended September 30, 2012 Compared with Nine Months Ended
September 30, 2011



                                             Nine Months Ended September 30,                  Period-over-Period Change
                                            2012                        2011                        2012 vs. 2011
                                     Amount          %          Amount           %           $ Change            % Change
                                                                         (unaudited)
                                                              (Thousands, except per share data)
Distribution net sales              $ 481,548        70.7 %    $ 478,380         72.4 %    $       3,168               6.6 %
OEM net sales                         168,382        24.7        171,826         26.0             (3,444 )            (2.0 )
Engineered Solutions net sales         31,093         4.6         10,296          1.6             20,797             202.0

Consolidated net sales                681,023       100.0        660,502        100.0             20,521               3.1
Gross profit                          101,005        14.8         96,885         14.7              4,120               4.3
Selling, general and
administrative expenses                47,354         7.0         46,480          7.0                874               1.9
Intangible amortization expense         5,755         0.8          5,282          0.8                473               9.0
Restructuring charges                   1,314         0.2          1,256          0.2                 58               4.6

Operating income                       46,582         6.8         43,867          6.6              2,715               6.2
Interest expense                       20,963         3.1         21,183          3.2               (220 )            (1.0 )
Gain on available for sale
securities                                 -           -            (753 )       (0.1 )              753                -
Other (income) loss, net                  230          -             332          0.1               (102 )           (30.7 )

Income before income taxes             25,389         3.7         23,105          3.5              2,284               9.9
Income tax expense                      8,579         1.3          7,023          1.1              1,556              22.2

Net income                          $  16,810         2.4      $  16,082          2.4      $         728               4.5

Diluted income per share            $    0.96                  $    0.91

Segments

We have three reportable segments: (1) Distribution, (2) Original Equipment Manufacturers ("OEM") and (3) Engineered Solutions (formerly "Other"). The Distribution segment serves our customers in distribution businesses, who are resellers of our products, while our OEM segment serves our OEM customers, who generally purchase more tailored products from us, which are used as inputs into subassemblies of manufactured finished goods. The Engineered Solutions segment, which was formerly reported as "Other," contains that portion of TRC's legacy business that has not been integrated into our Distribution segment, primarily TRC's military and specialty vehicle business, as well as our WE business, which was acquired in May 2012. The Other segment was re-labeled as our Engineered Solutions segment as a result of our having acquired WE in May 2012 and management's concurrent decision to report internally the collective operations of WE and the non-integrated components of TRC, all of which produce highly engineered, often customized product lines. Therefore, the Engineered Solutions segment reflects the aggregation of immaterial other operating segments which produce highly engineered, customized product lines.

Net sales

The decrease in net sales for the three months ended September 30, 2012, as compared to the three months ended September 30, 2011, and the increase in net sales for the nine months ended September 30, 2012, as compared to the nine months ended September 30, 2011, reflected the following factors:

Increased sales volumes (measured in total pounds shipped as set forth below) accounted for approximately $0.0 million and $33.3 million in increased net sales for the third quarter and first nine months of 2012, as compared to the same periods in 2011, respectively;

Lower selling prices in our Distribution and OEM segments, primarily due to lower copper prices, accounted for a decrease in net sales of approximately $11.8 million and $33.6 million for the third quarter and first nine months of 2012, as compared to the same periods in 2011, respectively. In particular, average COMEX copper prices decreased by 13.3% and 13.8% in the third quarter and first nine months of 2012, as compared to the same periods in 2011, respectively;

Our Engineered Solutions segment accounted for $6.2 million and $20.8 million in increased net sales for the third quarter and first nine months of 2012, as compared to the same periods in 2011, respectively. Our Engineered Solutions segment includes the portion of TRC's legacy business not integrated into our Distribution segment, primarily its military and specialty vehicle business, as well as our WE business. TRC was acquired in May 2011 and WE was acquired in May 2012. Accordingly, our results for the third quarter and first nine months of 2012 included the full impact of the TRC business, and three and four months of results for WE, respectively. Our results for the third quarter and first nine months of . . .

  Add CCIX to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for CCIX - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.