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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 December 1, 2002 Commission File Number 1-9967
A M C A S T I N D U S T R I A L C O R P O R A T I O N
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-0258080
- --------------------------------- -----------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
7887 Washington Village Drive, Dayton, Ohio 45459
- ----------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(937) 291-7000
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(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 and 15(d) of the Securities Exchange Act of 1934
during the preceding twelve months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- ----
Number of Common Shares outstanding, no par value, as of December 1, 2002 -
8,755,885 shares.
AMCAST INDUSTRIAL CORPORATION
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 1, 2002
I N D E X
PART I - FINANCIAL INFORMATION PAGE
-----
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheets - 3
December 1, 2002 and August 31, 2002
Consolidated Condensed Statements of Operations - 4
for the Three Months Ended December 1, 2002
and December 2, 2001
Consolidated Condensed Statements of Retained Earnings - 4
for the Three Months Ended December 1, 2002
and December 2, 2001
Consolidated Condensed Statements of Cash Flows - 5
for the Three Months Ended December 1, 2002
and December 2, 2001
Notes to Consolidated Condensed Financial Statements 6-13
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-20
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 21
Item 4 - Controls and Procedures 21
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 22
Item 6 - Exhibits and Reports on Form 8-K 22
SIGNATURES 23
CERTIFICATIONS 24-25
PART I - FINANCIAL INFORMATION
AMCAST INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
($ in thousands)
(Unaudited)
December 1 August 31
2002 2002
--------- ---------
ASSETS
Current Assets
Cash and cash equivalents $ 12,566 $ 19,158
Accounts receivable 66,225 70,941
Inventories 48,671 51,983
Other current assets 10,826 4,834
--------- ---------
Total Current Assets 138,288 146,916
Property, Plant, and Equipment 477,230 473,324
Less accumulated depreciation (244,028) (235,368)
--------- ---------
Net Property, Plant, and Equipment 233,202 237,956
Goodwill - 47,000
Other Assets 17,094 18,338
--------- ---------
Total Assets $388,584 $ 450,210
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 6,047 $ 8,212
Current portion of long-term debt 183,965 11,846
Accounts payable 76,106 74,281
Accrued expenses 40,134 42,069
--------- ---------
Total Current Liabilities 306,252 136,408
Long-Term Debt (less current portion) 1,395 178,647
Deferred Income Taxes 12,766 12,658
Deferred Liabilities 30,480 31,152
Shareholders' Equity
Preferred shares, without par value
Authorized - 1,000,000 shares; Issued - None - -
Common shares, at stated value
Authorized - 15,000,000 shares
Issued - 9,227,600 shares 9,228 9,228
Capital in excess of stated value 72,756 72,756
Accumulated other comprehensive losses (9,904) (9,775)
(Accumulated deficit) retained earnings (28,855) 25,530
Cost of 471,715 and 545,089 common shares in treasury (5,534) (6,394)
--------- ---------
Total Shareholders' Equity 37,691 91,345
--------- ---------
Total Liabilities and Shareholders' Equity $388,584 $ 450,210
========= =========
See notes to consolidated condensed financial statements
3
AMCAST INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
($ in thousands except per share amounts)
(unaudited)
Three Months Ended
-------------------------
December 1 December 2
2002 2001
--------- ---------
Consolidated Condensed Statements of Operations
Net Sales $ 155,756 $ 135,180
Cost of sales 146,006 124,628
---------- ----------
Gross Profit 9,750 10,552
Selling, general and, administrative expenses 13,439 13,655
---------- ----------
Operating Income (Loss) (3,689) (3,103)
Other (income) expense (56) (499)
Interest expense 4,301 4,794
---------- ----------
Income (Loss) before Income Taxes and
Cumulative Effect of Accounting Change (7,934) (7,398)
Income tax benefit (742) (1,875)
---------- ----------
Income (Loss) before Cumulative Effect
of Accounting Change (7,192) (5,523)
Cumulative effect of accounting change
net of tax of $464 (46,536) -
---------- ----------
Net Income (Loss) $ (53,728) $ (5,523)
========== ==========
Consolidated Condensed Statements of Retained Earnings
Beginning Retained Earnings $ 25,530 $ 47,403
Net (loss) income (53,728) (5,523)
Treasury shares issued (657) -
---------- ----------
Ending Retained Earnings/(Deficit) $ (28,855) $ 41,880
========== ==========
Basic earnings (loss) per share before cumulative
effect of accounting change $ (0.83) $ (0.64)
========== ==========
Basic earnings (loss) per share $ (6.16) $ (0.64)
========== ==========
Diluted earnings (loss) per share before cumulative
effect of accounting change $ (0.83) $ (0.64)
========== ==========
Diluted earnings (loss) per share $ (6.16) $ (0.64)
========== ==========
Dividends declared per share $ - $ -
========== ==========
Dividends paid per share $ - $ -
========== ==========
See notes to consolidated condensed financial statements
4
AMCAST INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
Three Months Ended
December 1 December 2
2002 2001
--------- ---------
Operating Activities
Net loss $ (53,728) $ (5,523)
Depreciation and amortization 8,850 9,226
Cumulative effect of accounting change 46,536 -
Issuance of treasury shares 203 -
(Gain) loss on asset disposition (5) 65
Deferred liabilities (188) (653)
Changes in assets and liabilities
Restricted cash (6,000) -
Accounts receivable 5,014 (642)
Inventories 3,536 8,149
Other current assets 1,080 2,166
Accounts payable 1,417 (3,449)
Accrued liabilities (2,080) (1,241)
Other 93 (820)
--------- ---------
Net Cash Provided by Operations 4,728 7,278
Investing Activities
Additions of property, plant, and equipment (3,786) (7,343)
Other 534 (805)
--------- ---------
Net Cash Used by Investing Activities (3,252) (8,148)
Financing Activities
Additions to long-term debt 400 1,400
Reduction in long-term debt (4,381) (7,656)
Short-term borrowings (2,203) 401
--------- ---------
Net Cash Used by Financing Activities (6,184) (5,855)
Effect of exchange rate changes on cash (1,884) 2
--------- ---------
Net change in cash and cash equivalents (6,592) (6,723)
Cash and cash equivalents at beginning of period 19,158 14,981
--------- ---------
Cash and Cash Equivalents at End of Period $ 12,566 $ 8,258
========= =========
See notes to consolidated condensed financial statements
5
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Nature of Operations
Amcast Industrial Corporation is a leading manufacturer of technology-intensive
metal products. Its two business segments are Flow Control Products, a leading
supplier of copper and brass fittings for the industrial, commercial, and
residential construction markets, and Engineered Components, a leading supplier
of aluminum wheels and aluminum components for automotive original equipment
manufacturers in North America as well as a leading supplier of light-alloy
wheels for automotive original equipment manufacturers and aftermarket
applications in Europe.
Preparation of Financial Statements
The accompanying consolidated condensed financial statements include the
accounts of Amcast Industrial Corporation and its domestic and foreign
subsidiaries (the Company). Intercompany accounts and transactions have been
eliminated. The consolidated condensed financial statements are unaudited and
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required for complete annual financial statements and
should be read in conjunction with the Company's audited consolidated financial
statements and footnotes for the year ended August 31, 2002 included in the
Company's Annual Report on Form 10-K. In the opinion of management, all
adjustments, including normally recurring accruals, necessary for a fair
presentation have been included, however interim financial reporting requires
management to make estimates and assumptions that affect amounts reported.
Actual results could differ from those estimates.
Restricted Cash
As of December 1, 2002, the Company had $7,067 of cash that was classified as
restricted cash. Of this amount, $6,000 is required under the Company's debt
agreements, excluding CTC, with its bank group and senior note holders. This
cash reserve is segregated to ensure the payment of principal and interest on
the Company's bank credit facilities, senior notes and LIFO credit agreement. An
additional $1,067 of cash has been restricted per CTC's loan agreement on its
revolver and term loans. This cash reserve has restrictions and purposes similar
to the other cash reserve. In the first quarter of fiscal 2003, all of the
restricted cash has been classified in the other current asset section of the
balance sheet. As of August 31, 2002, the Company had $1,067 in restricted cash
related to its CTC debt that was classified as a non-current asset.
6
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Inventory
The major components of inventory are as follows:
December 1 August 31
2002 2002
---------- ----------
Finished products $ 25,282 $ 28,461
Work in process 12,897 12,466
Raw materials and supplies 15,729 16,293
---------- ----------
53,908 57,220
Less amount to reduce certain
inventories to LIFO value (5,237) (5,237)
---------- ----------
Total Inventory $ 48,671 $ 51,983
========== ==========
Property, Plant, and Equipment
The major components of property, plant, and equipment are as follows:
December 1 August 31
2002 2002
---------- ----------
Land and buildings $82,360 $ 81,396
Machinery and equipment 382,810 380,979
Construction in progress 12,060 10,949
---------- ----------
477,230 473,324
Accumulated depreciation (244,028) (235,368)
---------- ----------
Net property, plant, and equipment $ 233,202 $ 237,956
========== ==========
Depreciation expense was $8,746 and $8,782 for the three month periods ended
December 1, 2002 and December 2, 2001, respectively.
7
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Long-Term Debt
The following table summarizes the Company's long-term borrowings:
December 1 August 31
2002 2002
---------- ----------
Bank Group and Senior Note Holder Debt:
LIFO credit facility $ 15,000 $ 15,000
Senior Notes 46,043 46,763
Revolving credit notes 101,105 103,880
Lines of credit 12,915 13,149
CTC Debt:
Term loan 5,106 5,856
Revolving credit note 2,900 3,100
Other debt 2,291 2,745
---------- ----------
185,360 190,493
Less current portion 183,965 11,846
---------- ----------
Long-Term Debt $ 1,395 $ 178,647
========== ==========
The bank group, senior note holder, and CTC debt are classified as current debt
because the bank group and CTC debt mature in September 2003 and the senior note
holder debt matures in November 2003. The bank group, senior note holder, and
CTC debt contains a provision that requires the Company to refinance the credit
facilities of the bank group and senior note holder debt by September 2003.
8
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Earnings (Loss) Per Share
The following table reflects the calculations for basic and diluted earnings per
share for the three-month periods ended December 1, 2002 and December 2, 2001,
respectively:
Three Months Ended
-----------------------------
December 1 December 2
2002 2001
---------- -----------
Net income (loss) before cumulative
effect of accounting change $ (7,192) $(5,523)
========= ========
Net income (loss) $(53,728) $(5,523)
========= ========
Basic Earnings per Share:
Basic shares 8,717 8,577
========= ========
Net income (loss) before cumulative
effect of accounting change $ (0.83) $ (0.64)
========= ========
Net income (loss) $ (6.16) $ (0.64)
========= ========
Diluted Earnings per Share:
Basic shares 8,717 8,577
Stock options and warrants - -
--------- --------
Diluted shares 8,717 8,577
========= ========
Net income (loss) before cumulative
effect of accounting change $ (0.83) $ (0.64)
========= ========
Net income (loss) $ (6.16) $ (0.64)
========= ========
For each of the periods presented, there were outstanding stock options and
warrants excluded from the computation of diluted earnings per share because the
options were antidilutive.
9
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Comprehensive Income (Loss)
Comprehensive income (loss) includes all changes in shareholders' equity during
a period except those resulting from investments by and distributions to
shareholders. The components of Comprehensive income (loss) are:
Three Months Ended
------------------------------
December 1 December 2
2002 2001
---------- ----------
Net income (loss) $(53,728) $ (5,523)
Foreign currency translation adjustments (133) 2,132
---------- ----------
Total comprehensive income (loss) $(53,861) $ (3,391)
========== ==========
Business Segments
Operating segments are organized internally primarily by the type of products
produced and markets served, and in accordance with SFAS No. 131. The Company
has aggregated similar operating segments into two reportable segments, Flow
Control Products and Engineered Components. The Company evaluates segment
performance and allocates resources based on several factors, of which net sales
and operating income are the primary financial measures. At December 1, 2002
there were no significant changes in identifiable assets of reportable segments
from those amounts disclosed at August 31, 2002, nor were there any changes in
the reportable segments, or in the measurement of segment operating results.
Operating information related to the Company's reportable segments is as
follows:
Net Sales Operating Income (Loss)
-------------------------- --------------------------
For the Three Months Ended For the Three Months Ended
-------------------------- --------------------------
December 1 December 2 December 1 December 2
2002 2001 2002 2001
---------- ---------- ---------- -----------
Flow Control Products $ 30,301 $ 33,405 $ 606 $ 2,146
Engineered Components 125,455 101,775 (1,981) (3,016)
Corporate - - (2,314) (2,233)
---------- ---------- ---------- -----------
155,756 135,180 (3,689) (3,103)
Other (income) expense (56) (499)
Interest expense 4,301 4,794
---------- ---------- ---------- -----------
Total net sales and income
(loss) before income taxes
and cumulative effect of
accounting change $ 155,756 $ 135,180 $ (7,934) $ (7,398)
========== ========== ========== ==========
10
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Commitments and Contingencies
At December 1, 2002, the Company has committed to capital expenditures of
$3,887, primarily for the Engineered Components segment.
The Company, as is normal for the industries in which it operates, is involved
in certain legal proceedings and is subject to certain claims and site
investigations which arise under the environmental laws and which have not been
finally adjudicated.
The Company has been identified as a potentially responsible party by various
state agencies and by the United States Environmental Protection Agency (U.S.
EPA) under the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended, for costs associated with U.S. EPA-led multi-party
sites and state environmental agency-led remediation sites. The majority of
these claims involve third-party owned disposal sites for which compensation is
sought from the Company as an alleged waste generator for recovery of past
governmental costs or for future investigation or remedial actions at the
multi-party sites.
There is one Company-owned property in Pennsylvania where state-supervised
cleanups are currently underway and two other Company-owned properties at which
the U.S. EPA is overseeing an investigation or where long-standing remediation
is underway. The designation as a potentially responsible party and the
assertion of such claims against the Company are made without taking into
consideration the nature or extent of the Company's involvement with the
particular site. In several instances, claims have been asserted against a
number of other entities for the same recovery or other relief as was asserted
against the Company. These claims are in various stages of administrative or
judicial proceeding. The Company has no reason to believe that it will have to
pay a significantly disproportionate share of clean-up costs associated with any
non-Company-owned site.
To the extent possible, with the information available at the time, the Company
has evaluated its responsibility for costs and related liability with respect to
the above sites. In making such evaluation, the Company did not take into
consideration any possible cost reimbursement claims against its insurance
carriers. The Company is of the opinion that its liability with respect to those
sites should not have a material adverse effect on its financial position or
results of operations. In arriving at this conclusion, the principal factors
considered by the Company were ongoing settlement discussions with respect to
certain of the sites, the volume and relative toxicity of waste alleged to have
been disposed of by the Company at certain sites, which factors are often used
to allocate investigative and remedial costs among potentially responsible
parties, the probable costs to be paid by other potentially responsible parties,
total projected remedial costs for a site, if known, and the Company's existing
reserve to cover costs associated with unresolved environmental proceedings. At
December 1, 2002, the Company's accrued undiscounted reserve for such
contingencies was $2,934.
11
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Based upon the contracts and agreements with regards to two environmental
matters, the Company believes it is entitled to indemnity for remediation costs
at two sites and believes it is probable that the Company can recover a
substantial portion of the costs. Accordingly, the Company has recorded
receivables of $1,115 related to anticipated recoveries from third parties.
Allied-Signal Inc. (now Honeywell International) brought an action against the
Company seeking contribution from the Company for a portion of its remediation
costs in connection with a site in southern Ohio. The court has rendered its
decision on this case and the parties have agreed that the Company is
responsible for reimbursing $1,100 in costs and interest already incurred by
Honeywell. The Company paid this sum in December 2002. The Company is in the
process of pursuing its insurer for reimbursement of this payment and certain
defense costs.
In addition, a group of nine plaintiffs brought a superfund private cost
recovery and contribution action against the Company and fifty-one other parties
in the United States District Court for the Southern District of Ohio, Western
Division, which is captioned, Cargill, Inc. et al. V. Abco construction, et al.
(Case No. C-3-98-3601). The action involves the Valleycrest disposal site in
Dayton, Ohio. The plaintiffs have taken the lead in investigating and
remediating the site. The Company believes its responsibility with respect to
this site is very limited due to the nature of the foundry sand waste it is
alleged to have disposed at the site. The Company is defending this matter
vigorously.
Adoption of Statements of Financial Accounting Standards (SFAS) No. 142
In the first quarter of fiscal 2003, the Company was required to adopt SFAS No.
142, "Goodwill and Other Intangible Assets". Under the adoption of SFAS No. 142,
goodwill and certain other intangible assets are no longer amortized but will be
reviewed annually for impairment. If, based on these reviews, the related assets
are found to be impaired, their carrying value will be adjusted through a charge
to earnings. Intangible assets that are not deemed to have an indefinite life
will continue to be amortized over their expected useful lives and be reviewed
for impairment in accordance with SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of".
Upon adoption of SFAS No. 142, in the first quarter of fiscal 2003 the Company
completed its impairment review and determined that all of its goodwill,
relating primarily to Speedline, was impaired. This impairment is reflective of
the Company's declining stock price and the weak financial performance of the
reporting units related to the recorded goodwill. As such, the Company recorded
a non-cash charge of $46,536 aftertax to reduce the carrying value of its
goodwill to zero. This charge is reflected as a cumulative effect of an
accounting change in the accompanying consolidated financial statements.
If the Company records any goodwill related to future transactions, it will
follow the accounting rules of SFAS No. 141, "Business Combinations", and will
perform an impairment review annually at the beginning of the fourth fiscal
quarter.
12
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
In prior periods, goodwill and other long-lived assets were reviewed for
impairment under SFAS No. 121, which required a review for impairment whenever
events or changes in circumstances indicated that the carrying amount of an
asset might not be recoverable. SFAS No. 121 required an estimation of future
undiscounted cash flows expected to result from the use of the asset and its
eventual disposition.
The impact of the non-amortization provisions of Statement No. 142 is as
follows:
Three Months Ended
December 1 December 2
2002 2001
----------- -----------
Reported net income (loss) $ (53,728) $ (5,523)
Goodwill amortization - 333
----------- -----------
Adjusted net income (loss) $ (53,728) $ (5,190)
=========== ===========
Basic earnings per share:
Reported net income (loss) $ (6.16) $ (0.64)
Goodwill amortization - 0.04
----------- -----------
Adjusted net income (loss) $ (6.16) $ (0.60)
=========== ===========
Diluted earnings per share:
Reported net income (loss) $ (6.16) $ (0.64)
Goodwill amortization - 0.04
----------- -----------
Adjusted net income (loss) $ (6.16) $ (0.60)
=========== ===========
Impact of Other Recently Issued Accounting Standards
Standards other than SFAS No. 142 which became effective for the Company in
fiscal 2003 include SFAS No. 143, "Accounting for Asset Retirement Obligations",
SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets", and
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities".
SFAS No. 143 addresses the financial accounting and reporting for certain
obligations associated with the retirement of tangible long-lived assets and the
related retirement costs. SFAS No. 144 addresses the financial accounting and
reporting for the impairment of long-lived assets and supercedes SFAS No. 121.
SFAS No. 146 requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the date of commitment
to an exit or disposal plan. The effect of these other new standards was not
material to the Company's first quarter fiscal 2003 results of operations or
financial position.
13
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cautionary Statements Under the Private Securities Reform Act of 1995
Certain statements in this report, in the Company's press releases and in oral
statements made by or with the approval of an authorized executive officer of
the Company constitute "forward-looking statements" as that term is defined
under the Private Securities Litigation Reform Act of 1995. These statements
may, for example, express projections, forecasts, or estimates about Company
performance and industry trends. The achievement of the projections, forecasts,
or estimates is subject to certain risks and uncertainties. Due to circumstances
beyond the Company's control, actual results and events may differ materially
from those projected, forecasted, or estimated. Factors which may cause actual
results to differ materially from those contemplated by the forward-looking
statement include, among others: general economic conditions less favorable than
expected, fluctuating demand in the automotive and construction industries, less
favorable than expected growth in sales and profit margins in the Company's
product lines, increased competitive pressures in the Company's Engineered
Components and Flow Control Products segments, effectiveness of production
improvement plans, cost of raw materials, disposal of certain non-strategic
assets, inherent uncertainties in connection with international operations and
foreign currency fluctuations, and labor relations at the Company and its
customers. This list of factors is not meant to be a complete list of items that
may affect the accuracy of forward-looking statements, and as such all
forward-looking statements should be analyzed with the understanding of their
inherent uncertainty.
The following discussion and analysis provides information which management
believes is relevant to an understanding of the Company's consolidated results
of operations and financial condition. This discussion should be read in
conjunction with the accompanying consolidated condensed financial statements
and notes and with the Company's audited consolidated financial statements and
footnotes for the year ended August 31, 2002, included in the Company's Annual
Report on Form 10-K.
14
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net Sales
Three Months Ended
December 1 December 2
2002 2001
- -------------------------------------------------------------------------------
Net sales $ 155,756 $ 135,180
Percentage change from prior year 15.2% (2.0)%
- -------------------------------------------------------------------------------
Components of percentage change from prior year
Volume 13.7% (6.9)%
Price and product mix (1.2)% 0.6%
Acquisitions and divestitures 0.0% 3.3%
Foreign currency exchange rates and other 2.7% 1.0%
- -------------------------------------------------------------------------------
Total sales growth (decrease) 15.2% (2.0)%
- -------------------------------------------------------------------------------
In the first quarter of fiscal 2003, consolidated net sales increased $20,576,
or 15.2%, compared with the first quarter of fiscal 2002. This increase was due
to growth in aluminum components and global wheel sales. Sales volume increased
from new product introductions, existing products, and conquest sales. A
stronger euro also increased sales at Speedline, the Company's Italian
operation. A decline in the volume of Flow Control Products partly offset sales
growth in Engineered Components. The Company's pricing partially reduced sales
for the quarter as unfavorable pricing continued in the Flow Control Products
segment due to competitive market conditions, and lower aluminum costs were
passed-through to global wheel and aluminum components customers. There was a
positive product mix experienced by the Company's U.S. operations.
Gross Profit
Three Months Ended
December 1 December 2
2002 2001
- -------------------------------------------------------------------------------
Gross profit $ 9,750 $ 10,552
Percent of sales 6.3% 7.8%
- -------------------------------------------------------------------------------
For the first quarter of fiscal 2003, the $802 decrease in gross profit compared
with the first quarter of fiscal 2002 was caused by a decline in the gross
profit of Flow Control Products and Speedline. This decrease more than offset
the increased gross profit experienced by U.S. wheel and aluminum components due
to higher production volumes and manufacturing improvements. The Amcast
Production System (APS), a more efficient manufacturing approach being
implemented at the Company's U.S. manufacturing facilities, had a positive
impact on gross profit by improving productivity and reducing manufacturing
costs. APS should continue to be a positive factor on gross profit as more of
the Company's workforce becomes certified. In the
15
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Flow Control Product segment, reduced volume and lower pricing in a highly
competitive market were the primary reasons for the decrease in gross profit.
Speedline continues to experience operating difficulties which are negatively
affecting gross profit.
Selling, General, and Administrative Expenses
Three Months Ended
December 1 December 2
2002 2001
- -------------------------------------------------------------------------------
Selling, general, and administrative expenses $ 13,439 $ 13,655
Percent of sales 8.6% 10.1%
- ------------------------------------------------------------------------------
Selling, general and administrative (SG&A) expenses of $13,439, or 8.6% of
sales, for the first quarter of fiscal 2003 decreased slightly from $13,655, or
10.1% of sales, with the first quarter of fiscal 2002. As a percentage of sales,
SG&A improved more significantly. The Company's cost reduction programs helped
to keep SG&A at a dollar level comparable to last year even while sales
increased by 15.2%. Versus the prior year, eliminating goodwill amortization
reduced SG&A by $338, but a lower pension benefit of $400 had the opposite
impact.
Interest expense was $4.3 million for the first quarter of fiscal 2003, compared
with $4.8 million for the first quarter of fiscal 2002. The decrease in interest
expense is primarily due to lower interest rates and lower debt levels in the
first quarter of fiscal 2003 compared with fiscal 2002.
The Company's effective tax rate was impacted by operations in various domestic
and foreign tax jurisdictions. The effective tax rate was 9.4% and 25.3% for the
first quarters of fiscal 2003 and 2002, respectively. These tax rates represent
an income tax benefit. The decrease in the effective tax rate in the first
quarter of fiscal 2003 was primarily due to establishing a valuation allowance
of $1,515 against deferred tax assets related to tax loss carryforwards of the
Company's Italian operation pursuant to SFAS No. 109.
Business Segments
Flow Control Products
Net sales for the Flow Control Products segment decreased by 9.3% to $30,301 for
the first quarter of fiscal 2003, compared with $33,405 for the same period of
fiscal 2002. Sales volume decreased by 7.8%, and pricing declined by 1.5%. These
declines were partially offset by a 1.0% percent increase from product mix.
Operating income in the first quarter of fiscal 2003 was $606, compared with
$2,146 for the same period of fiscal 2002. The decrease in operating income was
primarily due to lower overall demand in the commercial and industrial
construction markets, growing market competition, and weak raw material costs
that resulted in lower pricing.
16
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Engineered Components
Net sales for the Engineered Components segment were $125,455 for the first
quarter of fiscal 2003 compared with $101,775 for the same period of fiscal
2002, a 23.3% increase. Sales increased by 20.7% due to volume and 3.6% due to
foreign exchange and other. Price due to lower metal costs passed through to
customers decreased sales by 1.0%. Product mix was essentially even with last
year. For the first quarter of fiscal 2003, the Engineered Component segment
experienced an operating loss of $1,981, compared with an operating loss of
$3,016 during the first quarter of fiscal 2002. The decrease in the operating
loss was due to the impact in the U.S. of increased sales volume, implementing
the Amcast Production System, and product quality improvements.
Potential Divestiture of Businesses
The Company is in the initial stages of marketing a major portion of its U.S.
automotive aluminum production. It has engaged Lincoln Partners LLC to market
the Company's plants in Wapakoneta, Ohio; Richmond, Indiana; and Cedarburg,
Wisconsin. These locations primarily produce aluminum brake and suspension
components. In addition, the Company engaged Robert W. Baird to market
Speedline, the Company's European wheel business located in Italy.
Liquidity and Capital Resources
The Company's cash balance at December 1, 2002 was $12,566; plus an additional
$7,067 of restricted cash existed for payment of principal and interest on the
Company's debt that is required under its debt agreements. See "Restricted Cash"
in the Notes to the Consolidated Condensed Financial Statements.
Cash provided by operations was $4,728 in the first quarter of fiscal 2003
compared with cash provided by operations of $7,278 in the first quarter of
fiscal 2002. Excluding the impact of restricted cash, cash flow from operations
was $10,728 for an increase of $3,450 over the first quarter of fiscal 2002. The
non-cash benefits of depreciation, amortization, the cumulative effect of the
accounting change, and other non-cash charges were offset by the net loss
recorded in the first quarter of fiscal 2003. A decrease in working capital
demonstrated the Company's continuing focus on working capital management.
Investing activities, primarily capital spending, used net cash of $3,252 in the
first quarter of fiscal 2003 compared with $8,148 used in the first quarter of
the prior year. This decrease reflects management controls placed on capital
spending as the Company focuses on cost reduction and improving production
efficiencies. In the first quarter, capital spending as a percent of
depreciation was 43.3% in fiscal 2003 versus 83.6% in fiscal 2002. At December
1, 2002, the Company had $3,887 of commitments for additional capital
expenditures, primarily for the Engineered Components segment.
17
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financing activities used $6,184 of cash in the first quarter of fiscal 2003,
compared with $5,855 of cash used in the first quarter of fiscal 2002. During
the quarter, the Company made debt payments of $2,558 for the bank debt and
senior notes and $383 in payments related to the Company's insurance premium
financing. The bank debt and senior notes payment was three months ahead of the
debt covenant requirements. CTC made net debt payments of $950, and Speedline
made net debt payments of $2,293. Total debt was 83.6% of total capital at
December 1, 2002 and 68.5% at August 31, 2002.
The bank group and senior note holder debt are classified as current debt
because the bank credit facilities mature in September 2003, and the senior
notes mature in November 2003. The Company cannot borrow additional funds from
its bank credit facilities or the senior note holders. These lenders have
security interests in the assets of the Company and its U.S. subsidiaries.
The Company's LIFO credit agreement provides for a maximum of $15,000 based on
the Company meeting certain conditions. The Company has borrowed the entire
$15,000 in compliance with its lending agreement, of which $1,442 is due in
February 2003, $3,500 is due in August 2003, and the remaining balance is due in
September 2003.
The bank credit facilities, the senior notes, and the LIFO credit agreement
contain certain financial covenants regarding quarterly earnings before
interest, taxes, depreciation, and amortization (EBITDA), fixed cost coverage,
capital expenditures, and debt repayments that it must maintain as part of its
debt agreements. These debt covenants are as follows:
Consolidated EBITDA - The Company must maintain a consolidated EBITDA of
not less than $25,900 for the four fiscal quarter period ending December 1,
2002, $27,000 for the four fiscal quarter period ending March 2, 2003, $29,300
for the four fiscal quarter period ending June 1, 2003, and $36,100 for the four
fiscal quarter period ending August 31, 2003.
Domestic EBITDA - The Company must maintain a domestic EBITDA, defined as
EBITDA of all North American units excluding CTC, of not less than $28,200 for
the four fiscal quarter period ending December 1, 2002, $29,800 for the four
fiscal quarter period ending March 2, 2003, $30,200 for the four fiscal quarter
period ending June 1, 2003, and $34,400 for the four fiscal quarter period
ending August 31, 2003.
Fixed Cost Coverage - The Company must maintain a fixed charge coverage
ratio, defined as the ratio of Domestic EBITDA for such period to Domestic Fixed
Charges for such period, to be not less than 0.48 to 1.00 for the fiscal quarter
ended December 1, 2002, 0.55 to 1.00 for the fiscal quarter ended March 2, 2003,
0.76 to 1.00 for the fiscal quarter ended June 1, 2003, and 0.86 to 1.00 for the
fiscal quarter ended August 31, 2003.
18
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Capital Expenditures - The Company is not permitted to have capital
expenditures greater than $20,591 for the entire year of fiscal 2003.
Debt Repayments - The Company is required to make a debt payment of $4,000
in February 2003, of which $2,558 was paid three months early in the first
quarter of fiscal 2003, and a debt payment of $3,500 in August 2003.
As of December 1, 2002 the Company was in compliance with these debt covenants
with consolidated EBITDA of $29,500, Domestic EBITDA of $33,800, and fixed cost
coverage of 1.10 to 1.00. In addition, capital spending was at half of the debt
covenant run-rate and $2,558 was paid three months early on the $4,000 debt
payment due in February 2003. This early payment leaves a balance due of $1,442
in February 2003.
At the end of any subsequent quarter, if the Company is not in compliance with
any of the debt covenants, any outstanding debt balances become payable on
demand by the Company's lenders. In addition, there is a covenant that requires
the Company to work towards refinancing the credit facilities of the bank group
and senior note lenders by September 2003.
As of December 1, 2002, CTC had a term loan of $5,106 and a revolving line of
credit that provides for up to $5,750, of which $2,850 was available, both of
which mature September 2003 and are classified as current debt. As of November
3, 2003, Speedline had lines of credit totaling $7,930 of which $4,210 was
available.
Critical Accounting Policies
The Company describes its significant accounting policies in the notes to the
consolidated financial statements included in the Company's Annual Report on
Form 10-K. However, in response to the SEC's Release No. FR-60, "Cautionary
Advice Regarding Disclosure About Critical Accounting Policies", issued December
12, 2001, the Company has identified the policies it believes are most critical
to an understanding of the Corporation's financial statements. Since application
of these accounting policies involves the exercise of judgement and use of
estimates, actual results could differ from those estimates.
Revenue Recognition - Revenue is recognized at the time products are shipped to
unaffiliated customers, legal title has passed, and all significant contractual
obligations of the Company have been satisfied.
Inventory Valuation - Inventories are valued at the lower of cost or market
using the last-in, first out (LIFO) and the first-in, first-out (FIFO) methods.
Raw material inventories are primarily aluminum and copper, both of which have
market prices subject to volatility.
Environmental Reserves - The Company recognizes an environmental liability when
it is probable the liability exists and the amount can be reasonably estimated.
The Company adjusts the environmental reserve when it is determined that
circumstances warrant the change. Actual remediation obligations may differ from
those estimated.
19
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Pension Benefits and Expenses - The Company has pension benefits and expenses
that are developed from actuarial valuations. These valuations are based on
assumptions including, among other things, interest rate fluctuations, discount
rates, expected returns on plan assets, retirement ages, and years of service.
Future changes affecting the assumptions will change the related pension benefit
or expense.
Deferred Taxes - Deferred income taxes are provided for temporary differences
between financial and tax reporting in accordance with the liability method
under the provisions of Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes". Significant factors considered by the
Company in estimating the probability of the realization of deferred taxes
include expectations of future earnings and taxable income, as well as
application of tax laws in the jurisdictions in which the Company operates.
Debt Covenants - For a substantial portion of its debt, the Company has certain
financial covenants regarding quarterly EBITDA, fixed cost coverage, capital
expenditures, and debt repayments that it must maintain as part of its debt
agreements. If the requirements of the covenants are not achieved, debt becomes
immediately callable, which would significantly impact the Company's ability to
maintain its current operations. Management must consider compliance with the
debt covenants when making current and future operating decisions.
The Company does not have off-balance sheet arrangements, financings, or other
relationships with unconsolidated entities or other persons, also known as
"special purpose entities" (SPEs).
Inflation
Inflation did not have a material impact on the Company's results of operations
or financial condition for the first quarter of fiscal 2003.
Contingencies
See "Commitments and Contingencies" in Notes to the Consolidated Condensed
Financial Statements.
Impact of Recently Issued Accounting Standards
See "Impact of Recently Issued Accounting Standards" in Notes to the
Consolidated Condensed Financial Statements.
20
AMCAST INDUSTRIAL CORPORATION
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in foreign currency exchange
rates and interest rates as part of its normal operations. There have been no
material changes in the Company's exposure to these items since the Company's
disclosure in Item 7A, Part II of Form 10-K for the year ended August 31, 2002.
The Company is also exposed to market risk from price changes in commodity
metals which are raw materials used in its normal operations. When market
conditions warrant, forward fixed-price commodity metal supply contracts may be
entered into with certain suppliers. These purchase contracts cover normal metal
usage in the ordinary course of business over a reasonable period of time.
Lower-of-cost-or-market valuation adjustments on these contracts is reflected in
earnings in the period incurred. At December 1, 2002, the Company had no forward
fixed-price metal supply contracts.
The Company is also exposed to market risk from price changes in the euro
currency because the Company has bank debt denominated in euros. Because the
lending group has capped the Company's debt balance in U.S. dollars, changes in
the euro/U.S. dollar exchange rate impact the amount of debt. At December 1,
2002 the Company had 43.5 million of euro-denominated debt, or $43.2 million. To
illustrate the potential impact of changes in the euro/U.S. dollar exchange
rates, a hypothetical 10% change in currency exchange rates could change the
debt level by approximately $4.3 million.
Item 4 - Controls and Procedures
Within the 90 days prior to the date of this Form 10-Q, the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chairman and Chief Executive Officer along
with the Company's Vice President, Finance and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation,
the Company's Chairman and Chief Executive Officer along with the Company's Vice
President, Finance and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company (including its consolidated
subsidiaries) required to be included in the Company's periodic SEC filings.
There have been no significant changes in the Company's internal controls or in
other factors which could significantly affect internal controls subsequent to
the date the Company carried out its evaluation.
21
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None
Item 6 - Exhibits and Reports on Form 8-K
- ------------------------------------------------------------
a) Exhibits
4.6.1 Amendment No. 1 to the Restructuring Agreement made as of
October 31, 2002, among Amcast Industrial Corporation, the
Guarantors, Line of Credit Lenders, the Existing Credit
Agreement Agent (KeyBank National Association), the Existing
Credit Agreement Banks, the Noteholders, and the Collateral
Agent (KeyBank National Association in its capacity as
Collateral Agent under the Restructuring Lender Collateral
Documents).
4.8.1 Amendment No. 1 to the LIFO Restructuring Agreement made as
of October 31, 2002, among Amcast Industrial Corporation,
the banking institutions (the "LIFO banks"), and KeyBank
National Association as Agent for the LIFO banks.
b) Reports on Form 8-K
A Current Report on Form 8-K with an event date of August 6,
2002 was filed by the Company on September 19, 2002 to report
the amendment and extension of its CTC revolving credit
facility and term loan with Bank One, NA. The working capital
facility allowed for the availability of up to $11,606 ($5,750
under the revolving credit facility and $5,856 under the term
loan) until September 14, 2003.
22
S I G N A T U R E S
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.
AMCAST INDUSTRIAL CORPORATION
-----------------------------
(Registrant Company)
Date: January 15, 2003 By: /s/ Byron O. Pond
--------------------------------------
Byron O. Pond
Chairman and
Chief Executive Officer
(Principal Executive Officer)
Date: January 15, 2003 By: /s/ Francis J. Drew
--------------------------------------
Francis J. Drew
Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
Date: January 15, 2003 By: /s/ Mark D. Mishler
--------------------------------------
Mark D. Mishler
Corporate Controller
(Principal Accounting Officer)
23
CERTIFICATIONS
Byron O. Pond, Chairman and Chief Executive Officer
I, Byron O. Pond, Chairman and Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Amcast Industrial
Corporation (the "Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
By: /s/ Byron O. Pond
-------------------------------------
Byron O. Pond
Chairman and Chief Executive Officer
January 15, 2003
24
Francis J. Drew, Vice President, Finance and Chief Financial Officer
I, Francis J. Drew, Vice President, Finance and Chief Financial Officer, certify
that:
1. I have reviewed this quarterly report on Form 10-Q of Amcast Industrial
Corporation (the "Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
By: /s/ Francis J. Drew
---------------------------------------------------
Francis J. Drew
Vice President, Finance and Chief Financial Officer
January 15, 2003