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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
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SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 2, 2003 Commission File Number 1-9967
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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
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(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)
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(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
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Number of Common Shares outstanding, no par value, as of March 2, 2003 -
8,919,874 shares.
AMCAST INDUSTRIAL CORPORATION
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 2, 2003
I N D E X
PART I - FINANCIAL INFORMATION PAGE
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Item 1 - Financial Statements:
Consolidated Condensed Statements of Financial Condition - 3
March 2, 2003 and August 31, 2002
Consolidated Condensed Statements of Operations - 4
for the Quarter and Six Months Ended March 2, 2003
and March 3, 2002
Consolidated Condensed Statements of Retained Earnings - 4
for the Quarter and Six Months Ended March 2, 2003
and March 3, 2002
Consolidated Condensed Statements of Cash Flows - 5
for the Six Months Ended March 2, 2003 and March 3, 2002
Notes to Consolidated Condensed Financial Statements 6-18
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 19-26
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 27
Item 4 - Controls and Procedures 27
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 28
Item 6 - Exhibits and Reports on Form 8-K 28
SIGNATURES 29
CERTIFICATIONS 30-31
2
PART I - FINANCIAL INFORMATION
AMCAST INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
($ in thousands)
(Unaudited)
March 2 August 31
2003 2002
---------- ----------
ASSETS
Current Assets
Cash and cash equivalents $ 4,206 $ 16,810
Restricted cash 7,074 1,067
Accounts receivable 42,476 43,028
Inventories 20,078 27,796
Other current assets 6,336 3,941
---------- ----------
Total current assets of continuing operations 80,170 92,642
Assets of discontinued operations 82,694 185,721
---------- ----------
Total Current Assets 162,864 278,363
Property, Plant, and Equipment 353,399 350,418
Less accumulated depreciation (207,305) (195,655)
---------- ----------
Net Property, Plant, and Equipment 146,094 154,763
Goodwill - 8,019
Other Assets 14,963 9,066
---------- ----------
Total Assets $323,921 $ 450,211
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $181,337 $ 11,062
Accounts payable 36,382 41,169
Accrued expenses 23,388 22,682
---------- ----------
Total current liabilities of continuing operations 241,107 74,913
Liabilities of discontinued operations 81,694 86,547
---------- ----------
Total Current Liabilities 322,801 161,460
Long-Term Debt (less current portion) - 177,248
Deferred Income Taxes - 1,863
Deferred Liabilities 16,518 18,295
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 9,317 9,228
Capital in excess of stated value 72,830 72,756
Accumulated other comprehensive losses (7,367) (9,775)
Retained earnings (85,523) 25,530
Cost of 635,225 and 650,860 common shares in treasury (4,655) (6,394)
---------- ----------
Total Shareholders' Equity (15,398) 91,345
---------- ----------
Total Liabilities and Shareholders' Equity $323,921 $ 450,211
========== ==========
See notes to consolidated financial statements
3
AMCAST INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
($ in thousands except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
------------------------- --------------------------
March 2 March 3 March 2 March 3
2003 2002 2003 2002
---------- ---------- ----------- ----------
Consolidated Condensed Statements of Income
Net Sales $ 99,145 $ 97,030 $ 211,367 $ 193,716
Cost of sales 88,143 87,020 189,236 174,716
---------- ---------- ----------- ----------
Gross Profit 11,002 10,010 22,131 19,000
Selling, general and administrative expenses 9,194 9,919 19,363 20,003
---------- ---------- ----------- ----------
Operating Income (Loss) 1,808 91 2,768 (1,003)
Other (income) expense 9 (365) (23) (528)
Interest expense 3,888 3,884 7,859 8,359
---------- ---------- ----------- ----------
Loss Before Income Taxes, Discontinued Operations,
and Cumulative Effect of Accounting Change (2,089) (3,428) (5,068) (8,834)
Income tax benefit (752) (1,607) (1,891) (3,384)
---------- ---------- ----------- ----------
Loss from Continuing Operations (1,337) (1,821) (3,177) (5,450)
Discontinued operations, net of tax
Loss from operations of assets held for sale, net of
tax expense (benefit) of $396, $96, $793, $(2) (4,766) (3,061) (10,118) (4,955)
Loss on anticipated sale of assets held for sale
net of tax of $7,589 (49,822) - (49,822) -
---------- ---------- ----------- ----------
Loss Before Cumulative Effect of Accounting Change (55,925) (4,882) (63,117) (10,405)
Cumulative Effect of Accounting Change, net of tax of $464 - - (46,536) -
---------- ---------- ----------- ----------
Net Loss $ (55,925) $ (4,882) $(109,653) $ (10,405)
========== ========== =========== ==========
Consolidated Condensed Statements of Retained Earnings
Beginning Retained Earnings $ (28,855) $ 41,880 $ 25,530 $ 47,403
Net loss (55,925) (4,882) (109,653) (10,405)
Common and treasury shares issued
401(k) matching contributions (143) - (800) -
Officer compensation (96) - (96) -
Director awards and compensation (504) (95) (504) (95)
---------- ---------- ----------- ----------
Ending Retained Earnings $ (85,523) $ 36,903 $ (85,523) $ 36,903
========== ========== =========== ==========
Basic Loss Per Share
Continuing operations $ (0.15) $ (0.21) $ (0.36) $ (0.64)
Discontinued operations (6.17) (0.36) (6.82) (0.58)
---------- ---------- ----------- ----------
Before cumulative effect of accounting change (6.32) (0.57) (7.18) (1.22)
Cumulative effect of accounting change - - (5.30) -
---------- ---------- ----------- ----------
Net loss $ (6.32) $ (0.57) $ (12.48) $ (1.22)
========== ========== =========== ==========
Diluted Loss Per Share
Continuing operations $ (0.15) $ (0.21) $ (0.36) $ (0.64)
Discontinued operations (6.17) (0.36) (6.82) (0.58)
---------- ---------- ----------- ----------
Before cumulative effect of accounting change (6.32) (0.57) (7.18) (1.22)
Cumulative effect of accounting change - - (5.30) -
---------- ---------- ----------- ----------
Net loss $ (6.32) $ (0.57) $ (12.48) $ (1.22)
========== ========== =========== ==========
There were no dividends declared or paid during the first six months of
fiscal 2003 or 2002
See notes to consolidated financial statements
4
AMCAST INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
Six Months Ended
---------------------------
March 2 March 3
2003 2002
----------- -----------
Operating Activities
Net loss $ (109,653) $ (10,405)
Loss from discontinued operations 10,118 4,751
Loss from sale of discontinued operations 49,822 -
Cumulative effect of accounting change 46,536 -
Depreciation and amortization 12,296 11,900
(Gain) loss on sale of assets (5) 128
Issuance of warrants, common, and treasury share 502 88
Deferred liabilities (4,227) (1,874)
Changes in assets and liabilities
Restricted cash (6,007) -
Accounts receivable (1,411) (2,405)
Inventories 7,718 6,993
Other current assets (395) 4,086
Accounts payable (4,787) (4,234)
Accrued liabilities (201) 923
Other - (1,246)
----------- -----------
Net Cash Provided (Used) by Operations 306 8,705
Investing Activities
Additions of property, plant, and equipment (4,312) (7,456)
Other 714 (926)
----------- -----------
Net Cash Provided (Used) by Investing Activities (3,598) (8,382)
Financing Activities
Additions to long-term debt 650 4,645
Reductions in long-term debt (11,834) (9,831)
----------- -----------
Net Cash Provided (Used) by Financing Activities (11,184) (5,186)
Effect of exchange rate changes on cash 1,872 (2,886)
----------- -----------
Net change in cash and cash equivalents (12,604) (7,749)
Cash and cash equivalents at beginning of period 16,810 13,015
----------- -----------
Cash and Cash Equivalents at End of Period $ 4,206 $ 5,266
=========== ===========
See notes to consolidated 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.
Preparation of Financial Statements
The accompanying consolidated condensed financial statements include the
accounts of Amcast Industrial Corporation and its 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 but excluding matters discussed in the notes
captioned "Discontinued Operations," 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.
Discontinued Operations
On March 17, 2003, the Company completed the sale of all the capital stock of
its wholly-owned subsidiary, ASW International II, B.V., which owned all of the
stock of Speedline S.r.l. ("Speedline"), to Crown Executive Aviation Limited, a
private company organized under the laws of the United Kingdom. Principal
products manufactured by Speedline include aluminum wheels for passenger cars
and trucks, as well as aluminum and magnesium racing wheels, aftermarket wheels,
modular wheels, and hubcaps. Speedline, the Company's European operation, was
reported as a discontinued operation beginning with the fiscal 2003 second
quarter. After deducting costs related to the transaction, there will be no net
cash proceeds from the sale. The sale resulted in an after tax loss of $49,822,
which was recorded in the fiscal 2003 second quarter. Included in the net loss
amount is a loss of $796 resulting from the recognition of the related
cumulative foreign currency translation adjustments that have been recorded
since the acquisition of Speedline in 1997.
6
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
The Company recorded a tax benefit of $7,589 related to the sale of Speedline.
The Company was limited in the amount of tax benefit it currently could record
according to SFAS No. 109, "Accounting for Income Taxes" and recorded a tax
valuation allowance of $30.6 million related to this transaction. The Company
believes it may be able to recognize, at some point in future fiscal years, a
substantial portion of the tax benefit currently limited by SFAS No. 109.
Speedline was previously included in the Engineered Components segment and is
currently reported as discontinued operations in the consolidated condensed
financial statements. The consolidated condensed financial statements for all
prior periods have been adjusted to reflect this presentation. Operating results
for Speedline included in discontinued operations are presented in the following
table.
Three Months Ended Six Months Ended
------------------ ------------------
March 2 March 3 March 2 March 3
2003 2002 2003 2002
--------- ---------- ---------- ---------
Net Sales $ 43,960 $ 44,880 $ 93,474 $ 88,425
Operating Loss (4,266) (2,785) (8,915) (4,794)
Other income (expense) 244 127 268 463
Interest expense (348) (307) (678) (626)
--------- ---------- ---------- ---------
Loss Before Income Taxes (4,370) (2,965) (9,325) (4,957)
Income tax (expense) benefit (396) (96) (793) 2
--------- ---------- ---------- ---------
Loss From Discontinued Operations $(4,766) $(3,061) $(10,118) $(4,955)
========= ========== ========== =========
SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets"
requires that assets held for sale (discontinued operations) be measured at the
lower of their carrying amount or fair value. Fair value is defined in SFAS No.
144 as the amount at which the asset (liability) could be bought or sold in a
current transaction between willing parties. Based on the guidelines of SFAS No.
144, the asset and liabilities of Speedline, as of March 2, 2003, were written
down to their estimated net fair value. After deducting sale expenses and
intercompany debt, the value is less than zero.
7
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
The major classes of assets and liabilities of discontinued operations in the
Consolidated Balance Sheets as of March 2, 2003 (at estimated fair value) and
August 31, 2002 (at book value) are as follows:
March 2 August 31
2003 2002
---------- ----------
Cash and cash equivalents $ 1,727 $ 2,348
Accounts receivable 27,250 27,913
Inventories 20,350 24,188
Other current assets - 893
Property, plant and equipment (net) 33,367 83,193
Other noncurrent assets - 47,186
---------- ----------
Total Assets 82,694 185,721
Current portion of long-term debt 10,560 8,996
Accounts payable 39,545 33,112
Accrued expenses 16,143 19,388
Long-term debt 1,220 1,399
Deferred liabilities 14,226 23,652
---------- ----------
Total Liabilities 81,694 86,547
---------- ----------
Net Assets $ 1,000 $ 99,174
========== ==========
Restricted Cash
As of March 2, 2003, the Company had $7,074 of cash that was classified as
restricted cash. Of this amount, $6,000 is required under the Company's debt
agreements signed October 31, 2002, 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 $1,074 of cash has been restricted per
CTC's loan agreement. This cash reserve is segregated to ensure the payment of
principal and interest on the Company's CTC revolver and term loans. As of
August 31, 2002, the Company had $1,067 in restricted cash related to its CTC
debt.
8
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Inventory
The major components of inventory are as follows:
March 2 August 31
2003 2002
-------- --------
Finished products $ 13,954 $ 19,429
Work in process 3,431 4,462
Raw materials and supplies 7,930 9,142
-------- --------
25,315 33,033
Less amount to reduce certain
inventories to LIFO value (5,237) (5,237)
-------- --------
Total Inventory $ 20,078 $ 27,796
======== ========
Property, Plant, and Equipment
The major components of property, plant, and equipment are as follows:
March 2 August 31
2003 2002
---------- ----------
Land and buildings $56,576 $ 55,837
Machinery and equipment 289,240 284,544
Construction in progress 7,583 10,037
---------- ----------
353,399 350,418
Accumulated depreciation (207,305) (195,655)
---------- ----------
Net property, plant, and equipment $ 146,094 $ 154,763
========== ==========
Depreciation expense was $5,995 and $5,748 for the three-month periods ended
March 2, 2003 and March 3, 2002, respectively, and $12,272 and $11,754 for the
six-month periods ended March 2, 2003 and March 3, 2002, respectively.
9
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Long-Term Debt
The following table summarizes the Company's long-term borrowings:
March 3 August 31
2003 2002
---------- ----------
Bank Group and Senior Note Holder Debt:
LIFO credit facility $ 13,735 $ 15,000
Senior Notes 45,991 46,763
Revolving credit notes 101,504 103,880
Lines of credit 12,899 13,149
CTC Debt:
Term loan 4,356 5,856
Revolving credit note 2,850 3,100
Other debt 2 562
---------- ----------
181,337 188,310
Less current portion 181,337 11,062
---------- ----------
Long-Term Debt $ - $ 177,248
========== ==========
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
contain a provision requiring the Company to refinance its bank and CTC debt in
September, 2003.
10
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 and six-month periods ended March 2, 2003 and March 3,
2002, respectively:
Three Months Ended Six Months Ended
-------------------------- --------------------------
March 2 March 3 March 2 March 3
2003 2002 2003 2002
--------- --------- --------- ---------
Loss from continuing operations $ (1,337) $ (1,821) $ (3,177) $ (5,450)
Discontinued operations, net of tax
Loss from discontinued operations (4,766) (3,061) (10,118) (4,955)
Loss from sale of discontinued operations (49,822) - (49,822) -
--------- --------- --------- ---------
Loss before cumulative effect of
accounting change (55,925) (4,882) (63,117) (10,405)
Cumulative effect of acct change, net of tax - - (46,536) -
--------- --------- --------- ---------
Net loss $(55,925) $ (4,882) $(109,653) $(10,405)
========= ========= ========= =========
Basic and Diluted Loss per Share:
Basic and diluted shares 8,852 8,587 8,784 8,582
======== ======== ======== =========
Loss from continuing operations $ (0.15) $ (0.21) $ (0.36) $ (0.64)
Discontinued operations (6.17) (0.36) (6.82) (0.58)
--------- --------- --------- ---------
Loss before cumulative effect of acct chng (6.32) (0.57) (7.18) (1.22)
Cumulative effect of accounting change - - (5.30) -
--------- --------- --------- ---------
Net loss $ (6.32) $ (0.57) $ (12.48) $ (1.22)
========= ========= ========= =========
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 and warrants were antidilutive.
11
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 Six Months Ended
--------------------------- ----------------------------
March 2 March 3 March 2 March 3
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net income (loss) $ (55,925) $ (4,882) $(109,653) $ (10,405)
Foreign currency translation adjustments 2,537 (2,568) 2,404 (436)
---------- ---------- ---------- ----------
Total comprehensive income (loss) $ (53,388) $ (7,450) $(107,249) $ (10,841)
========== ========== ========== ==========
12
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Business Segments
Operating segments are organized internally primarily by the type of products
produced and markets served, and in accordance with SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information". 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 March 2, 2003, 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
--------------------------- ----------------------------
March 2 March 3 March 2 March 3
2003 2002 2003 2002
-------- --------- --------- ---------
Flow Control Products $ 30,445 $ 32,565 $ 737 $ 455
Engineered Components 68,700 64,465 3,427 1,212
Corporate - - (2,356) (1,576)
-------- --------- --------- ---------
99,145 97,030 1,808 91
Other (income) expense - - 9 (365)
Interest expense - - 3,888 3,884
-------- --------- --------- ---------
Total net sales and loss
from continuing operations
before taxes $ 99,145 $ 97,030 $ (2,089) $ (3,428)
======== ========= ========= =========
Net Sales Operating Income (Loss)
--------------------------- ----------------------------
For the Six Months Ended For the Six Months Ended
--------------------------- ----------------------------
March 2 March 3 March 2 March 3
2003 2002 2003 2002
-------- --------- --------- ---------
Flow Control Products $ 60,746 $ 65,970 $ 1,343 $ 2,601
Engineered Components 150,621 127,746 6,004 (164)
Corporate - - (4,579) (3,440)
-------- --------- --------- ---------
211,367 193,716 2,768 (1,003)
Other (income) expense - - (23) (528)
Interest expense - - 7,859 8,359
-------- --------- --------- ---------
Total net sales and loss
from continuing operations
before taxes $ 211,367 $ 193,716 $ (5,068) $ (8,834)
========= ========= ========= =========
13
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Commitments and Contingencies
At March 2, 2003, the Company has committed to capital expenditures of $2,294,
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 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. 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 March 2, 2003, the Company's accrued undiscounted
reserve for such contingencies was $2,044.
14
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ 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.
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. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets".
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, net of tax of $464, to reduce the carrying value
of its goodwill to zero. This charge is reflected as a cumulative effect of an
accounting change in the accompanying consolidated financial statements.
If the Company records any goodwill related to future transactions, it will
follow the accounting rules of SFAS No. 141, "Business Combinations", and will
perform an impairment review annually at the beginning of the fourth fiscal
quarter.
In prior periods, goodwill and other long-lived assets were reviewed for
impairment under SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of", which required a review for
impairment whenever events or changes in circumstances indicated that the
carrying amount of an asset might not be recoverable. SFAS No. 121 required an
estimation of future undiscounted cash flows expected to result from the use of
the asset and its eventual disposition. SFAS No. 121 has since been superceded
by SFAS No. 144.
15
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
The impact of the non-amortization provisions of Statement No. 142 is as
follows:
Three Months Ended Six Months Ended
------------------------ -------------------------
March 2 March 3 March 2 March 3
2003 2002 2003 2002
--------- --------- --------- ---------
Results of operations
Reported loss from continuing operations $(1,337) $(1,821) $ (3,177) $(5,450)
Goodwill amortization - 55 - 110
--------- --------- --------- ---------
Adjusted loss from continuing operations $(1,337) $(1,766) $ (3,177) $(5,340)
========= ========= ========= =========
Reported loss from discontinued operations $(54,588) $(3,061) $(59,940) $(4,955)
Goodwill amortization - 277 - 555
--------- --------- --------- ---------
Adjusted loss from discontinued operations $(54,588) $(2,784) $(59,940) $(4,400)
========= ========= ========= =========
Cumulative effect of accounting change $ - $ - $(46,536) $ -
========= ========= ========= =========
Reported net loss $(55,925) $(4,882) $(109,653) $(10,405)
Goodwill amortization - 332 - 665
--------- --------- --------- ---------
Adjusted net loss $(55,925) $(4,550) $(109,653) $(9,740)
========= ========= ========= =========
Basic and diluted loss per share:
Reported loss from continuing operations $ (0.15) $ (0.21) $ (0.36) $ (0.64)
Goodwill amortization - 0.01 - 0.02
--------- --------- --------- ---------
Adjusted loss from continuing operations $ (0.15) $ (0.20) $ (0.36) $ (0.62)
========= ========= ========= =========
Reported loss from discontinued operations $ (6.17) $ (0.36) $ (6.82) $ (0.58)
Goodwill amortization - 0.03 - 0.06
--------- --------- --------- ---------
Adjusted loss from discontinued operations $ (6.17) $ (0.33) $ (6.82) $ (0.52)
========= ========= ========= =========
Cumulative effect of accounting change $ - $ - $ (5.30) $ -
========= ========= ========= =========
Reported net loss $ (6.32) $ (0.57) $ (12.48) $ (1.22)
Goodwill amortization - 0.04 - 0.08
--------- --------- --------- ---------
Adjusted net loss $ (6.32) $ (0.53) $ (12.48) $ (1.14)
========= ========= ========= =========
16
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
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", SFAS
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities",
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure", and FIN No. 45, "Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others".
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 new standards was not material
to the Company's second quarter and first six months of fiscal 2003 results of
operations or financial position.
SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation", to
provide alternative methods of transition for an entity that voluntarily changes
to the fair-value based method of accounting (i.e., expensing) for stock-based
employee compensation. It also amends the disclosure provisions of that
Statement to require prominent disclosure about the effects on reported net
income of an entity's accounting policy decisions with respect to stock-based
employee compensation. Finally, this Statement amends APB Opinion No. 28,
"Interim Financial Reporting", to require disclosure about the effects on
reported net income of an entity's accounting policy decisions with respect to
stock-based employee compensation in interim financial information. The
amendments to SFAS No. 123 become effective for the Company this fiscal year.
The amendment to APB No. 28 becomes effective for the Company for the third
quarter of fiscal 2003.
17
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
If the Company were required to disclose the effects on reported net income with
respect to stock-based compensation in the second quarter of fiscal 2003, the
financial information would be as follows:
Three Months Ended Six Months Ended
-------------------------- --------------------------
March 2 March 3 March 2 March 3
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net income (loss), as reported $ (55,925) $ (4,882) $ (109,653) $ (10,405)
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects (47) (180) (93) (354)
---------- ---------- ---------- ----------
Pro forma net income $ (55,972) $ (5,062) $ (109,746) $ (10,759)
========== ========== ========== ==========
Earnings (loss) per share
Basic - as reported $ (6.32) $ (0.57) $ (12.48) $ (1.22)
========== ========== ========== ==========
Basic - pro forma $ (6.52) $ (0.59) $ (12.49) $ (1.25)
========== ========== ========== ==========
Diluted - as reported $ (6.32) $ (0.57) $ (12.48) $ (1.22)
========== ========== ========== ==========
Diluted - pro forma $ (6.52) $ (0.59) $ (12.49) $ (1.25)
========== ========== ========== ==========
FASB Interpretation No. 45 elaborates on the disclosures to be made by a
guarantor in its interim and annual financial statements about its obligations
under certain guarantees that it has issued. The disclosure requirements in this
Interpretation are effective for financial statements of interim or annual
periods ending after December 15, 2002. The impact of implementing this
Interpretation is indeterminable at this time.
18
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, labor relations at the Company and its customers,
and the impact of war with Iraq and homeland security measures. 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.
Results of Operations
Discontinued Operations
As discussed more fully in the notes to the consolidated condensed financial
statements, the Company completed the sale of Speedline on March 17, 2003.
Speedline was previously included in the Engineered Components segment and is
currently reported as discontinued operations in the consolidated condensed
financial statements. All comparisons of results of operations in this
Management's Discussion and Analysis exclude the results of Speedline and relate
solely to the company's continuing operations unless otherwise indicated.
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.
19
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Transition From The New York Stock Exchange (NYSE) To The OTC Bulletin Board
The NYSE suspended trading of the Company's stock at the opening of trading on
April 1, 2003 because the Company no longer met the equity and market
capitalization standard that requires a listed company to have an average market
capitalization and net worth of not less than $50 million. The Company
determined that it would not be able to achieve the NYSE listing requirements
within the NYSE's prescribed timeframe, and, on April 1, 2003, the Company
transferred from the NYSE to the OTC Bulletin Board. The Company's new stock
symbol is AICO.OB.
Net Sales
Three Months Ended Six Months Ended
------------------------- ------------------------------
March 2 March 3 March 2 March 3
2003 2002 2003 2002
---------- --------- ---------- ----------
Net Sales $99,145 $97,030 $ 211,367 $ 193,716
========== ========== ========== ===========
Percentage increase from prior year
Volume (0.2)% 7.6 %
Price and Product Mix 2.4 % 1.5 %
---------- ----------
Total sales growth 2.2 % 9.1 %
========== ==========
In the fiscal 2003 second quarter, consolidated net sales increased by $2,115,
or 2.2%, compared with the fiscal 2002 second quarter. This increase in sales
was driven by the Engineered Components segment where aluminum components and
wheel sales experienced higher sales volume as well as an increase in pricing
and a positive product mix. Flow Control Products segment sales volume
decreased; however, net increases in pricing and a positive product mix helped
to increase total Company sales.
For the first six months of fiscal 2003, consolidated net sales increased by
$17,651, or 9.1%, compared with the first six months of fiscal 2002. This
increase in sales was due to growth in aluminum components and wheel sales.
Sales volume increased from new product introductions, existing products, and
conquest sales. Wheel sales continued to show sizable growth in volume with much
of the increase coming from new customers and new launches. A decline in the
volume of Flow Control Products partly offset the sales growth in Engineered
Components. Overall, there was a positive product mix experienced by the
Company's operations, slightly offset by pricing. The Company's pricing
partially reduced sales for the first six months of fiscal 2003 as unfavorable
pricing continued in the Flow Control Products segment due to competitive market
conditions, and lower aluminum costs were passed-through to wheel and aluminum
components customers.
20
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Gross Profit
Three Months Ended Six Months Ended
--------------------- -----------------------
March 2 March 3 March 2 March 3
2003 2002 2003 2002
-------- -------- -------- ---------
Gross Profit $ 11,002 $ 10,010 $ 22,131 $ 19,000
======== ======== ======== =========
Percent of Sales 11.1% 10.3% 10.5% 9.8%
For the fiscal 2003 second quarter, gross profit increased by $992, or 9.9%,
compared with the fiscal 2002 second quarter. For the first six months of fiscal
2003, gross profit increased by $3,131, or 16.5%, compared with the first six
months of fiscal 2002. The increase in gross profit was due to the Engineered
Components segment, which capitalized on higher production volumes and
manufacturing improvements. The Engineered Components segment increases more
than offset the declines in the Flow Control Product segment which experienced
reduced volume and lower pricing in a highly competitive market. The Amcast
Production System (APS), a more efficient manufacturing approach being
implemented at the Company'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.
Selling, General, and Administrative Expenses (SG&A)
Three Months Ended Six Months Ended
------------------------ -------------------------
March 2 March 3 March 2 March 3
2003 2002 2003 2002
--------- --------- ---------- ----------
SG&A $ 9,194 $ 9,919 $ 19,363 $ 20,003
========= ========= ========== ==========
Percent of Sales 9.3% 10.2% 9.2% 10.3%
Selling, general and administrative (SG&A) expenses were $9,194, or 9.3% of
sales, in the fiscal 2003 second quarter compared with $9,919, or 10.2% of
sales, in the fiscal 2002 second quarter. For the first six months of fiscal
2003, SG&A expenses were $19,363, or 9.2% of sales, compared with $20,003, or
10.3% of sales, for the same period of 2002. Cost reduction programs have helped
to lower SG&A expenses even while sales increased by 9.1% over the prior year
for the first six months of fiscal 2003. A primary factor in the reduction of
SG&A expenses was that in fiscal 2002, Flow Control Products incurred high
information technology costs related to installing a new ERP system. Similar
expenses were not incurred in fiscal 2003. Also reducing SG&A expenses was the
elimination of goodwill amortization which reduced SG&A by $675.
21
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
An increase in sales and in gross profit, as well as a reduction in SG&A
expenses enabled the Company to report operating income of $1,808 for the fiscal
2003 second quarter and $2,768 for the first six months of fiscal 2003. This
compares to operating income of $91 for the fiscal 2002 second quarter and an
operating loss of $1,003 for the first six months of fiscal 2002.
Interest expense was $3,888 for the fiscal 2003 second quarter, compared with
$3,884 for the fiscal 2002 second quarter. For the first six months of fiscal
2003, interest expense was $7,859, compared with $8,359 for the first six months
of fiscal 2002. A decrease in interest rates accounted for the lower interest
expense when comparing the first six months of fiscal 2003 with the first six
months of fiscal 2002.
The Company's effective tax rate was 36.0% and 37.3% for the second quarter and
first six months of fiscal 2003, compared with 46.9% and 38.3%, respectively,
for the same periods of fiscal 2002. These tax rates represent an income tax
benefit. The higher effective tax rate in the fiscal 2002 second quarter is due
to state tax benefits the Company was able to recognize during that quarter.
Business Segments
Flow Control Products
Net sales for the Flow Control Products segment decreased by 6.5% to $30,445 for
the fiscal 2003 second quarter, compared with $32,565 for the same period of
fiscal 2002. For the first six months of fiscal 2003, sales decreased by 7.9% to
$60,746, compared with $65,970 for the first six months of fiscal 2002. Sales
volume decreased by 9.0% for the fiscal 2003 second quarter, and by 8.5% for the
first six months of fiscal 2003. Price and mix together increased sales by 2.5%
for the fiscal 2003 second quarter, and by 0.6% for the first six months of
fiscal 2003. Residential construction has faired slightly better than
anticipated, however the more profitable commercial and industrial markets
remain weak.
Operating income in the fiscal 2003 second quarter was $737, compared with $455
for the same period of fiscal 2002. For the first six months of fiscal 2003,
operating income was $1,343, compared with $2,601 for the same period of fiscal
2002. The increase in operating income for the second quarter of fiscal 2003 is
attributable to a favorable product mix, cost reduction programs, and greater
operating efficiencies. The decrease in operating income for the first six
months of fiscal 2003 compared to the first six months of fiscal 2002 was
primarily due to lower sales volume and competitive market pricing that occurred
in the first quarter of fiscal 2003, which more than offset the positive factors
experienced in the second quarter of fiscal 2003.
22
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Engineered Components
Net sales for the Engineered Components segment increased by 6.6% to $68,700 for
the fiscal 2003 second quarter, compared with $64,465 for the same period of
fiscal 2002. For the first six months of fiscal 2003 sales increased by 17.9% to
$150,621, compared with $127,747 for the first six months of fiscal 2002. Sales
volume was up by 4.4% for the fiscal 2003 second quarter, and 15.8% for the
first six months of fiscal 2003. Price and an improved product mix increased
sales by 2.2% for the fiscal 2003 second quarter and by 2.1% for the first six
months of fiscal 2003. Wheel sales continue to show strong signs of growth on
new customers and new launches as well additional volume on existing products.
Operating income in the fiscal 2003 second quarter was $3,427 compared with
$1,212 for the same period of fiscal 2002. For the first six months of fiscal
2003, operating income was $6,004 compared with a loss of $164 for the same
period of fiscal 2002. The operating income increase in fiscal 2003 compared
with fiscal 2002 is primarily the result of greater volume on sales and a
favorable product mix. Cost reduction programs also played a key role in the
increase in operating income. These positive factors more than offset operating
issues encountered primarily at the Company's Richmond plant.
Liquidity and Capital Resources
The Company's cash balance at March 2, 2003 was $4,206. An additional $7,074 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 $306 for the first six months of fiscal 2003
compared with cash provided by operations of $8,705 in the first six months of
fiscal 2002. Excluding the impact of restricted cash, cash flow from operations
was $6,313 for the first six months of fiscal 2003. The non-cash transactions of
depreciation, amortization, the cumulative effect of the accounting change, the
loss on discontinued operations, 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 $3,598 in the
first six months of fiscal 2003 compared with $8,382 used in the first six
months of the prior year. This decrease reflects management controls placed on
capital spending as the Company focuses on cost reduction and improving
production efficiencies. For the first six months, capital spending as a percent
of depreciation was 35.1% in fiscal 2003 versus 63.4% in fiscal 2002. At March
2, 2003, the Company had $2,294 of commitments for additional capital
expenditures, primarily for the Engineered Components segment.
23
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financing activities used $11,184 of cash in the first six months of fiscal
2003, compared with $5,186 of cash used in the first six months of fiscal 2002.
During the first six months of 2003, the Company made principal cash debt
payments of $2,287 for the bank debt and senior notes, made foreign-exchange
related debt payments of $6,587, and had $1,713 in debt principal reduction
transactions related to euro borrowings of bank debt. The Company also made $560
in payments related to the Company's insurance premium financing. CTC made debt
principal payments of $2,400 and borrowed $650. During the first six months of
fiscal 2003, the Company reduced its overall outstanding debt balance by $6,973,
as the debt went from $188,310 at August 31, 2002, to $181,337 as of March 2,
2003.
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 has borrowed the maximum amount permissible under its LIFO credit
agreement. Of this outstanding amount, a $3,500 payment is due in August, 2003
with the remaining balance 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. As of March 2, 2003, the Company was in compliance with these
debt covenants.
At the end of any subsequent quarter, if the Company is not in compliance with
any of its 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 a result of the sale of Speedline, the Company's debt covenants in relation
to its bank credit facilities, senior notes, and LIFO credit agreement are to be
renegotiated.
As of December 1, 2002, CTC had a term loan of $4,356 and a revolving line of
credit that provides for up to $5,750, of which $2,900 was available, both of
which mature September 2003 and are classified as current debt.
24
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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.
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.
25
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 second quarter or first six months 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.
26
AMCAST INDUSTRIAL CORPORATION
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
The Company has been exposed to market risk from changes in foreign currency
exchange rates and interest rates as part of its normal operations. For the
first six months of fiscal 2003, there were 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.
On March 17, 2003, the Company sold its European subsidiary Speedline. Speedline
represented all of the Company's foreign manufacturing. The only foreign
subsidiary remaining after the sale of Speedline is a sales office/warehouse
located in Canada. The Company had borrowed bank debt denominated in euros to
act as an economic hedge on the net investment in Speedline. After the Speedline
sale, the Company converted all of its euro-denominated debt to U.S. Dollars
which will greatly reduce the amount of foreign currency translation adjustments
the Company will record in its future operations.
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 March 2, 2003, the Company had no forward
fixed-price metal supply contracts.
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 that could significantly affect internal controls subsequent to
the date the Company carried out its evaluation.
27
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
None.
b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter
ended March 2, 2003.
28
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: April 14, 2003 By: /s/ Byron O. Pond
-----------------------------------
Byron O. Pond
Chairman and
Chief Executive Officer
(Principal Executive Officer)
Date: April 14, 2003 By: /s/ Francis J. Drew
-----------------------------------
Francis J. Drew
Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
Date: April 14, 2003 By: /s/ Mark D. Mishler
------------------------------------
Mark D. Mishler
Corporate Controller
(Principal Accounting Officer)
29
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
April 14, 2003
30
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
April 14, 2003
31