UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 1, 2003
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number: 1-9967
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AMCAST INDUSTRIAL CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 31-0258080
- ------------------------------- ------------------------------------
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7887 Washington Village Drive, Dayton, Ohio 45459
- ------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(937) 291-7000
----------------------------------------------------
(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
As of June 1, 2003, the number of Common Shares, no par value, outstanding was
9,107,727 shares.
- -------------------------------------------------------------------------------
Website Access to Reports
Amcast Industrial Corporation's internet website is www.amcast.com. Our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and amendments to those reports filed or furnished pursuant to Section 13(a)
or 15(d) of the Exchange Act are available free of charge through our website
(under "News/Stock Information") as soon as reasonably practicable after they
are electronically filed with, or furnished to, the Securities and Exchange
Commission.
AMCAST INDUSTRIAL CORPORATION
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 1, 2003
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
Item 1 - Financial Statements:
Consolidated Condensed Statements of Financial Condition - 3
June 1, 2003 and August 31, 2002
Consolidated Condensed Statements of Operations - 4
for the Quarter and Nine Months Ended June 1, 2003
and June 2, 2002
Consolidated Condensed Statements of Retained Earnings - 4
for the Quarter and Nine Months Ended June 1, 2003
and June 2, 2002
Consolidated Condensed Statements of Cash Flows - 5
for the Nine Months Ended June 1, 2003 and June 2, 2002
Notes to Consolidated Condensed Financial Statements 6-19
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 20-29
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 30
Item 4 - Controls and Procedures 30
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 31
Item 6 - Exhibits and Reports on Form 8-K 31
SIGNATURES 32
CERTIFICATIONS 32-33
2
PART I - FINANCIAL INFORMATION
AMCAST INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
($ in thousands)
(Unaudited)
June 1 August 31
2003 2002
--------- ---------
ASSETS
Current Assets
Cash and cash equivalents $ 4,897 $ 16,810
Restricted cash 7,076 1,067
Accounts receivable 39,825 43,028
Inventories 18,369 27,796
Other current assets 5,684 3,941
--------- ---------
Total current assets of continuing operations 75,851 92,642
Assets of discontinued operations - 185,721
--------- ---------
Total Current Assets 75,851 278,363
Property, Plant, and Equipment 354,872 350,418
Less accumulated depreciation (212,623) (195,655)
--------- ---------
Net Property, Plant, and Equipment 142,249 154,763
Goodwill - 8,019
Deferred Taxes 5,694 -
Other Assets 9,226 9,066
--------- ---------
Total Assets $ 233,020 $ 450,211
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 179,849 $ 11,062
Accounts payable 30,722 41,169
Accrued expenses 23,769 22,682
--------- ---------
Total current liabilities of continuing operations 234,340 74,913
Liabilities of discontinued operations - 86,547
--------- ---------
Total Current Liabilities 234,340 161,460
Long-Term Debt (less current portion) - 177,248
Deferred Income Taxes - 1,863
Deferred Liabilities 15,602 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 - 9,490,218 and 9,227,600 shares 9,490 9,228
Capital in excess of stated value 72,823 72,756
Accumulated other comprehensive losses (7,256) (9,775)
Retained earnings (87,492) 25,530
Cost of 382,491 and 545,089 common shares in treasury (4,487) (6,394)
--------- ---------
Total Shareholders' Equity (16,922) 91,345
--------- ---------
Total Liabilities and Shareholders' Equity $ 233,020 $ 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 Nine Months Ended
--------------------------- ----------------------------
June 1 June 2 June 1 June 2
2003 2002 2003 2002
---------- ---------- ----------- ----------
Consolidated Condensed Statements of Income
Net Sales $ 111,829 $ 115,637 $ 323,196 $ 309,353
Cost of sales 98,227 99,973 287,463 274,689
---------- ---------- ----------- ----------
Gross Profit 13,602 15,664 35,733 34,664
Selling, general and administrative expenses 9,123 9,187 28,486 29,190
---------- ---------- ----------- ----------
Operating Income (Loss) 4,479 6,477 7,247 5,474
Other (income) expense (665) (44) (688) (572)
Interest expense 4,061 3,925 11,920 12,284
---------- ---------- ----------- ----------
Income (Loss) Before Income Taxes, Discontinued Operations,
and Cumulative Effect of Accounting Change 1,083 2,596 (3,985) (6,238)
Income tax expense / (benefit) 391 742 (1,500) (2,642)
---------- ---------- ----------- ----------
Income (Loss) from Continuing Operations 692 1,854 (2,485) (3,596)
Discontinued operations, net of tax
Loss from operations of assets held for sale, net of tax (1,906) (3,424) (12,024) (8,379)
Loss on sale of assets held for sale, net of tax (601) - (50,423) -
---------- ---------- ----------- ----------
Loss Before Cumulative Effect of Accounting Change (1,815) (1,570) (64,932) (11,975)
Cumulative Effect of Accounting Change, net of tax of $464 - - (46,536) -
---------- ---------- ----------- ----------
Net Loss $ (1,815) $ (1,570) $ (111,468) $ (11,975)
========== ========== =========== ==========
Consolidated Condensed Statements of Retained Earnings
Beginning Retained Earnings $ (85,523) $ 36,903 $ 25,530 $ 47,403
Net loss (1,815) (1,570) (111,468) (11,975)
Common and treasury shares issued
401(k) matching contributions (6) - (806) -
Officer compensation (148) - (244) -
Director awards and compensation - (180) (504) (275)
---------- ---------- ----------- ----------
Ending Retained Earnings $ (87,492) $ 35,153 $ (87,492) $ 35,153
========== ========== =========== ==========
Basic Loss Per Share
Continuing operations $ 0.08 $ 0.22 $ (0.28) $ (0.42)
Discontinued operations (0.28) (0.40) (7.05) (0.98)
---------- ---------- ----------- ----------
Before cumulative effect of accounting change (0.20) (0.18) (7.33) (1.40)
Cumulative effect of accounting change - - (5.25) -
---------- ---------- ----------- ----------
Net loss $ (0.20) $ (0.18) $ (12.58) $ (1.40)
========== ========== =========== ==========
Diluted Loss Per Share
Continuing operations $ 0.08 $ 0.22 $ (0.28) $ (0.42)
Discontinued operations (0.28) (0.40) (7.05) (0.98)
---------- ---------- ----------- ----------
Before cumulative effect of accounting change (0.20) (0.18) (7.33) (1.40)
Cumulative effect of accounting change - - (5.25) -
---------- ---------- ----------- ----------
Net loss $ (0.20) $ (0.18) $ (12.58) $ (1.40)
========== ========== =========== ==========
There were no dividends declared or paid during the first nine 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)
Nine Months Ended
June 1 June 2
2003 2002
----------- ----------
Operating Activities
Net loss $ (111,468) $ (11,975)
Loss from discontinued operations 12,024 8,379
Loss from sale of discontinued operations 50,423 -
Cumulative effect of accounting change 46,536 -
Depreciation and amortization 18,463 17,795
(Gain) loss on sale of assets 16 (22)
Issuance of warrants, common, and treasury sh 688 227
Deferred liabilities (4,917) (4,661)
Changes in assets and liabilities
Restricted cash (6,009) (1,061)
Accounts receivable 1,240 (12,771)
Inventories 9,427 7,529
Other current assets (1,989) 7,221
Accounts payable (10,447) 3,996
Accrued liabilities 180 2,425
Other 739 (1,897)
----------- ----------
Net Cash Provided (Used) by Operations 4,906 15,185
Investing Activities
Additions of property, plant, and equipment (6,912) (10,789)
Other 788 391
----------- ----------
Net Cash Provided (Used) by Investing Activities (6,124) (10,398)
Financing Activities
Additions to long-term debt 1,754 3,254
Reductions in long-term debt (9,601) (17,229)
----------- ----------
Net Cash Provided (Used) by Financing Activities (7,847) (13,975)
Effect of exchange rate changes on cash (2,848) (1,561)
----------- ----------
Net change in cash and cash equivalents (11,913) (10,749)
Cash and cash equivalents at beginning of period 16,810 13,015
----------- ----------
Cash and Cash Equivalents at End of Period $ 4,897 $ 2,266
=========== ==========
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 were no net
cash proceeds from the sale. The sale resulted in an after tax loss of $50,423,
of which $49,822 was recorded in the fiscal 2003 second quarter and $601 was
recorded in the fiscal 2003 third quarter. Cumulative foreign currency
translation losses of $1,303 were included in the $50,423 after tax loss.
6
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ 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 Nine Months Ended
--------------------- --------------------
June 1 June 2 June 1 June 2
2003 * 2002 2003 * 2002
--------- --------- --------- ---------
Net Sales $ 16,792 $ 35,786 $80,786 $114,239
Operating Loss (1,320) (3,617) (10,821) (8,411)
Other income (expense) (526) (210) 268 253
Interest expense (60) (302) (678) (928)
--------- --------- --------- ---------
Loss Before Income Taxes (1,906) (4,129) (11,231) (9,086)
Income tax (expense) benefit - 705 (793) 707
--------- --------- --------- ---------
Loss From Discontinued Operations $ (1,906) $ (3,424) $(12,024) $ (8,379)
========= ========= ========= =========
* Activity is through March 17, 2003, the date of the sale of Speedline
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 less applicable sales expenses.
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 of
$1,000. After deducting sale expenses and intercompany debt, the recovery value
was less than zero.
7
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
The major classes of assets and liabilities of the discontinued Speedline
operations in the Consolidated Balance Sheets as of March 2, 2003, the month-end
prior to the sale (at estimated fair value) and August 31, 2002 (at book value)
were 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
======== ========
As of June 1, 2003, there were no assets and liabilities related to Speedline on
the Company's books, as the sale occurred on March 17, 2003.
On June 4, 2003, the Company announced that it is engaged in discussions
relating to the possible sale of its Wapakoneta, Ohio; Richmond, Indiana; and
Cedarburg, Wisconsin plants, and its Southfield, Michigan office. These plants
are classified as continuing operations because, at this time, the certainty
criteria in SFAS No. 144 regarding the possible sale has not been satisfied.
8
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Restricted Cash
As of June 1, 2003, the Company had $7,076 of cash that was restricted and is
classified in current assets. Of this amount, $6,000 is required under the
Company's debt agreements signed October 31, 2002 with its bank group and senior
note holders, which excludes CTC. 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 $1,076 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.
Inventory
The major components of inventory are as follows:
June 1 August 31
2003 2002
-------- --------
Finished products $ 11,596 $ 19,429
Work in process 3,682 4,462
Raw materials and supplies 8,328 9,142
-------- --------
23,606 33,033
Less amount to reduce certain
inventories to LIFO value (5,237) (5,237)
-------- --------
Total Inventory $ 18,369 $ 27,796
======== ========
9
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Property, Plant, and Equipment
The major components of property, plant, and equipment are as follows:
June 1 August 31
2003 2002
---------- ----------
Land and buildings $ 56,579 $ 55,837
Machinery and equipment 290,343 284,544
Construction in progress 7,950 10,037
---------- ----------
354,872 350,418
Accumulated depreciation (212,623) (195,655)
---------- ----------
Net property, plant, and equipment $ 142,249 $ 154,763
========== ==========
Depreciation expense was $6,089 and $5,821 for the three-month periods ended
June 1, 2003 and June 2, 2002, respectively, and $18,361 and $17,575 for the
nine-month periods ended June 1, 2003 and June 2, 2002, respectively.
10
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Long-Term Debt
The following table summarizes the Company's long-term borrowings:
June 1 August 31
2003 2002
--------- ---------
Bank Group and Senior Note Holder Debt:
LIFO credit facility $ 13,735 $ 15,000
Senior Notes 45,664 46,763
Revolving credit notes 100,826 103,880
Lines of credit 12,793 13,149
CTC Debt:
Term loan 3,606 5,856
Revolving credit note 2,300 3,100
Other debt 925 562
--------- ---------
179,849 188,310
Less current portion 179,849 11,062
--------- ---------
Long-Term Debt $ - $ 177,248
========= =========
The bank group and CTC debt currently mature in September, 2003, and the senior
note holder debt matures in November, 2003. The Company is currently in
negotiations with the bank group and senior note holders to refinance the bank
group and senior note holder debt to September 2006 and November 2006,
respectively. The Company expects to have this refinancing complete during its
fiscal fourth quarter. The Company also expects to refinance the CTC debt during
its fiscal fourth quarter.
11
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 nine-month periods ended June 1, 2003 and June 2,
2002, respectively:
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
June 1 June 2 June 1 June 2
2003 2002 2003 2002
---------- ---------- ---------- ----------
Income (loss) from continuing operations $ 692 $ 1,854 $ (2,485) $ (3,596)
Discontinued operations, net of tax
Loss from discontinued operations (1,906) (3,424) (12,024) (8,379)
Loss from sale of discontinued operations (601) - (50,423) -
---------- ---------- ---------- ----------
Loss before cumulative effect of
accounting change (1,815) (1,570) (64,932) (11,975)
Cumulative effect of acct change, net of tax - - (46,536) -
---------- ---------- ---------- ----------
Net loss $ (1,815) $ (1,570) $(111,468) $(11,975)
========== ========== ========== ==========
Basic and Diluted Loss per Share:
Basic and diluted shares 9,016 8,601 8,861 8,588
========== ========== ========== ==========
Loss from continuing operations $ 0.08 $ 0.22 $ (0.28) $ (0.42)
Discontinued operations (0.28) (0.40) (7.05) (0.98)
---------- ---------- ---------- ----------
Loss before cumulative effect of acct chng (0.20) (0.18) (7.33) (1.40)
Cumulative effect of accounting change - - (5.25) -
---------- ---------- ---------- ----------
Net loss $ (0.20) $ (0.18) $ (12.58) $ (1.40)
========== ========== ========== ==========
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.
12
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 Nine Months Ended
-------------------------- ---------------------------
June 1 June 2 June 1 June 2
2003 2002 2003 2002
--------- --------- ---------- ----------
Net income (loss) $ (1,815) $ (1,570) $(111,468) $ (11,975)
Foreign currency translation adjustments 112 110 176 87
--------- --------- ---------- ----------
Total comprehensive income (loss) $ (1,703) $ (1,460) $(111,292) $ (11,888)
========= ========= ========== ==========
Stock-Based Compensation
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company accounts for its employee stock options in accordance with APB Opinion
No. 25, "Accounting for Stock Issued to Employees", and related interpretations.
Accordingly, no compensation cost has been recognized related to the Company's
stock option plans.
To determine compensation cost based on the value of the options at the grant
date using the Black-Scholes option-pricing model, the following assumptions
were utilized:
2003 2002
------------ ------------
Assumptions:
Expected volatility 48.2% 46.0%
Risk-free interest rate 3.1% 3.3% - 4.9%
Dividend yield None None
Expected life of option 4.2 years 4.6 years
Weighted average fair value of grants
issued for each year $0.73 $2.11
13
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Had the Company determined compensation cost based upon the fair value of the
options at the grant date consistent with the provisions of SFAS No. 123, net
income and EPS would have been adjusted to the pro forma amounts indicated as
follows:
Three Months Ended Nine Months Ended
------------------------- ---------------------------
June 1 June 2 June 1 June 2
2003 2002 2003 2002
--------- --------- ----------- ----------
Income (loss) from continuing operations $ 692 $ 1,854 $ (2,485) $ (3,596)
Deduct:
Total employee stock option expense
determined under the fair value
method, net of related tax effects (47) (284) (140) (638)
--------- --------- ----------- ----------
Pro forma income (loss) from
continuing operations 645 1,570 (2,625) (4,234)
Loss from discontinued operations (2,507) (3,424) (62,447) (8,379)
--------- --------- ----------- ----------
Pro forma loss before cumulative
effect of accounting chage (1,862) (1,854) (65,072) (12,613)
Cumulative effect of accounting change - - (46,536) -
--------- --------- ----------- ----------
Pro forma net loss $ (1,862) $ (1,854) $ (111,608) $ (12,613)
========= ========= =========== ==========
Earnings (loss) per share
Basic and Diluted - as reported
Continuing operations $ 0.08 $ 0.22 $ (0.28) $ (0.42)
Discontinued operations (0.28) (0.40) (7.05) (0.98)
--------- --------- ----------- ----------
Before cumulative effect of
accounting change (0.20) (0.18) (7.33) (1.40)
Cumulative effect of accounting change - - (5.25) -
--------- --------- ----------- ----------
Net earnings (loss) $ (0.20) $ (0.18) $ (12.58) $ (1.40)
========= ========= =========== ==========
Basic and Diluted - pro forma
Continuing operations $ 0.07 $ 0.18 $ (0.30) $ (0.49)
Discontinued operations (0.28) (0.40) (7.05) (0.98)
--------- --------- ----------- ----------
Before cumulative effect of
accounting change (0.21) (0.22) (7.35) (1.47)
Cumulative effect of accounting change - - (5.25) -
--------- --------- ----------- ----------
Net earnings (loss) $ (0.21) $ (0.22) $ (12.60) $ (1.47)
========= ========= =========== ==========
14
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. The amounts disclosed in
the third quarter fiscal 2003 10-Q differ from the amounts disclosed at August
31, 2002 because Speedline is currently reported as a discontinued operation.
Thus, Speedline's historical financial results are no longer included in the
Engineering Components segment where it previously had been reported.
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
----------------------------- ---------------------------
June 1 June 2 June 1 June 2
2003 2002 2003 2002
--------- --------- --------- ---------
Flow Control Products $ 30,575 $ 37,373 $ 429 $ 2,542
Engineered Components 81,254 78,264 6,183 4,511
Corporate - - (2,133) (576)
--------- --------- --------- ---------
111,829 115,637 4,479 6,477
Other (income) expense - - (665) (44)
Interest expense - - 4,061 3,925
--------- --------- --------- ---------
Total net sales and loss
from continuing operations
before taxes $ 111,829 $ 115,637 $ 1,083 $ 2,596
========= ========= ========= =========
Net Sales Operating Income (Loss)
----------------------------- ---------------------------
For the Nine Months Ended For the Nine Months Ended
----------------------------- ---------------------------
June 1 June 2 June 1 June 2
2003 2002 2003 2002
--------- --------- --------- ---------
Flow Control Products $ 91,321 $ 103,342 $ 1,772 $ 5,143
Engineered Components 231,875 206,011 12,187 4,347
Corporate - - (6,712) (4,016)
--------- --------- --------- ---------
323,196 309,353 7,247 5,474
Other (income) expense - - (688) (572)
Interest expense - - 11,920 12,284
--------- --------- --------- ---------
Total net sales and loss
from continuing operations
before taxes $ 323,196 $ 309,353 $(3,985) $(6,238)
========= ========= ========= =========
15
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Commitments and Contingencies
At June 1, 2003, the Company has committed to capital expenditures of $2,010,
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. 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.
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.
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 June 1, 2003, the Company's accrued undiscounted
reserve for such contingencies was $1,961.
16
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ 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 reflected in
the Company's declining stock price and the weak financial performance of the
reporting units related to the impaired goodwill. As such, the Company recorded
a non-cash charge of $46,536, net of tax of $464, to reduce the carrying value
of its goodwill to zero. This charge is recorded as a cumulative effect of an
accounting change in the accompanying consolidated financial statements.
If the Company records any goodwill related to future transactions, it will
follow the accounting rules of SFAS No. 141, "Business Combinations", and will
perform an impairment review annually at the beginning of the fourth fiscal
quarter.
In prior periods, goodwill and other long-lived assets were reviewed for
impairment under SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of", which required a review for
impairment whenever events or changes in circumstances indicated that the
carrying amount of an asset might not be recoverable. SFAS No. 121 required an
estimation of future undiscounted cash flows expected to result from the use of
the asset and its eventual disposition. SFAS No. 121 has since been superceded
by SFAS No. 144.
17
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
The impact of the non-amortization provisions of Statement No. 142 is as
follows:
Three Months Ended Nine Months Ended
----------------------- -------------------------
June 1 June 2 June 1 June 2
2003 2002 2003 2002
-------- -------- ---------- ---------
Results of operations
Reported income (loss) from continuing ops $ 692 $ 1,854 $ (2,485) $(3,596)
Goodwill amortization - 57 - 167
-------- -------- ---------- ---------
Adjusted loss from continuing operations $ 692 $ 1,911 $ (2,485) $(3,429)
======== ======== ========== =========
Reported loss from discontinued operations $(2,507) $(3,424) $(62,447) $(8,379)
Goodwill amortization - 276 - 831
-------- -------- ---------- ---------
Adjusted loss from discontinued operations $(2,507) $(3,148) $(62,447) $(7,548)
======== ======== ========== =========
Cumulative effect of accounting change $ - $ - $(46,536) $ -
======== ======== ========== =========
Reported net loss $(1,815) $(1,570) $(111,468) $(11,975)
Goodwill amortization - 333 - 998
-------- -------- ---------- ---------
Adjusted net loss $(1,815) $(1,237) $(111,468) $(10,977)
======== ======== ========== =========
Basic and diluted loss per share:
Reported loss from continuing operations $ 0.08 $ 0.22 $ (0.28) $ (0.42)
Goodwill amortization - 0.01 - 0.02
-------- -------- ---------- ---------
Adjusted loss from continuing operations $ 0.08 $ 0.23 $ (0.28) $ (0.40)
======== ======== ========== =========
Reported loss from discontinued operations $ (0.28) $ (0.40) $ (7.05) $ (0.98)
Goodwill amortization - 0.03 - 0.10
-------- -------- ---------- ---------
Adjusted loss from discontinued operations $ (0.28) $ (0.37) $ (7.05) $ (0.88)
======== ======== ========== =========
Cumulative effect of accounting change $ - $ - $ (5.25) $ -
======== ======== ========== =========
Reported net loss $ (0.20) $ (0.18) $ (12.58) $ (1.40)
Goodwill amortization - 0.04 - 0.12
-------- -------- ---------- ---------
Adjusted net loss $ (0.20) $ (0.14) $ (12.58) $ (1.28)
======== ======== ========== =========
18
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 third quarter and first nine 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 became effective for the Company in the third
quarter of fiscal 2003. See "Stock-Based Compensation" in the Notes to
Consolidated Condensed Financial Statements.
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 Company does not anticipate that
implementing this Interpretation will have a material impact on the Company.
19
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 and price 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, labor relations at the Company and its customers, and the
continued U.S. involvement in 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.
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 announced, on June 4, 2003, that it is engaged in exclusive
discussions with Citation Corporation relating to the possible sale of Amcast's
Wapakoneta, Ohio; Richmond, Indiana; and Cedarburg, Wisconsin plants and its
Southfield, Michigan office. These locations are involved primarily in the
design, production, and sale of aluminum brake and suspension components.
20
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.
Results of Operations
Net Sales
Three Months Ended Nine Months Ended
-------------------- -------------------
June 1 June 2 June 1 June 2
2003 2002 2003 2002
--------- --------- --------- ---------
Net Sales $ 111,829 $ 115,637 $ 323,196 $ 309,353
========= ========= ========= =========
Percentage increase from prior year
Volume (4.4)% 3.1 %
Price and Product Mix 1.1 % 1.4 %
--------- ---------
Total sales growth (3.3)% 4.5 %
========= =========
In the fiscal 2003 third quarter, consolidated net sales decreased by $3,808, or
3.3%, compared with the fiscal 2002 third quarter. This sales decrease was due
principally to lower unit volume experienced by the Flow Control Products
segment. The market continues to be highly competitive. Sales growth by
Engineered Components segment partly offset the Flow Control Products segment
sales decline. Overall, a favorable product mix was slightly offset by reduced
pricing.
For the first nine months of fiscal 2003, consolidated net sales increased by
$13,843, or 4.5%, compared with the first nine months of fiscal 2002. This sales
increase was due to growth in aluminum components and wheel sales from new
product introductions, existing products, and conquest sales. A volume decline
in the Flow Control Products segment due to a continued competitive market
environment partly offset the sales growth in Engineered Components segment.
Overall, a positive product mix was slightly offset by lower pricing.
21
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Gross Profit
Three Months Ended Nine Months Ended
---------------------- -----------------------
June 1 June 2 June 1 June 2
2003 2002 2003 2002
-------- -------- -------- --------
Gross Profit $ 13,602 $ 15,664 $ 35,733 $ 34,664
======== ======== ======== ========
Percent of Sales 12.2% 13.5% 11.1% 11.2%
For the fiscal 2003 third quarter, gross profit decreased by $2,062, or 13.2%,
compared with the fiscal 2002 third quarter. This gross profit decrease was
primarily the result of lower sales volume in the Flow Control Products segment.
The decrease was partially offset by improved gross profit in the Engineered
Components segment due to volume growth and to manufacturing improvements in
aluminum components. In the fiscal 2002 third quarter, the Company reduced its
employee vacation liability by $1,601, of which $1,175 improved cost of goods
sold and $426 improved selling, general, and administrative expenses (SG&A).
Excluding this one-time impact in the prior year, gross profit would have
declined by $887, or 0.3 percentage points, to a gross profit as a percentage of
sales of 12.5%.
For the first nine months of fiscal 2003, gross profit increased by $1,069, or
3.1%, compared with the prior year. This gross profit increase was due to the
Engineered Components segment, which capitalized on higher sales volumes and
manufacturing improvements. The Engineered Components segment gross profit
improved in both wheels and aluminum components due to volume growth,
manufacturing productivity gains, and lower costs from a company-wide cost
reduction program. These gross profit improvements 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, has continued to have 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. Overall, the Company also benefited from tight cost
controls. Excluding the impact of the reduced vacation liability in the prior
year, discussed in the previous paragraph, gross profit would have improved by
$2,244.
The following table provides a reconciliation for fiscal 2002 gross profit and
SG&A excluding the fiscal 2002 one-time impact of reducing the Company's
vacation liability and terminating postretirement life insurance.
Fiscal Year 2002
----------------------------------------
Gross Profit SG&A
------------------ ------------------
3rd Qtr 9 Months 3rd Qtr 9 Months
-------- -------- ------- --------
As reported $ 15,664 $ 34,664 $ 9,187 $ 29,190
Adjusted for impact of:
Adjustment to employee vacation expense (1,175) (1,175) 426 426
Elimination of retiree life insurance - - 919 919
-------- -------- -------- --------
Pro forma amounts $ 14,489 $ 33,489 $ 10,532 $ 30,535
======== ======== ======== ========
Percent of Sales 12.5% 10.8% 9.1% 9.9%
22
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Selling, General, and Administrative Expenses (SG&A)
Three Months Ended Nine Months Ended
---------------------- -----------------------
June 1 June 2 June 1 June 2
2003 2002 2003 2002
------- ------- -------- --------
SG&A $ 9,123 $ 9,187 $ 28,486 $ 29,190
======= ======= ======== ========
Percent of Sales 8.2% 7.9% 8.8% 9.4%
Selling, general and administrative (SG&A) expenses were $9,123, or 8.2% of
sales, in the fiscal 2003 third quarter compared with $9,187, or 7.9% of sales,
in the prior year. In the fiscal 2002 third quarter, the Company terminated
postretirement life insurance for all retirees, except for certain bargaining
unit employees, which lowered the postretirement obligation by $919. Excluding
this amount and a reduction to the employee vacation liability of $426 discussed
previously, the fiscal 2002 third quarter SG&A expenses would have been $10,532
or 9.1% of sales.
For the first nine months of fiscal 2003, SG&A expenses were $28,486, or 8.8% of
sales, compared with $29,190, or 9.4% of sales, for the same period of 2002.
Excluding the post retirement life insurance and employee vacation accrual
adjustments, the prior year SG&A would have been $30,535 or 9.9% of sales. The
Company's continued focus on cost reduction programs helped to lower SG&A
expenses even while sales increased by 4.5% over the prior year. Also in fiscal
2002, the Flow Control Products segment incurred high information technology
costs related to installing a new ERP system, and these expenses were not
incurred in fiscal 2003. Eliminating goodwill amortization reduced SG&A by $167.
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 $7,247 for first nine
months of fiscal 2003. This is an increase of 32.4% compared with operating
income of $5,474 for the first nine months of fiscal 2002.
Interest expense was $4,061 for the fiscal 2003 third quarter, compared with
$3,925 for the fiscal 2002 third quarter. The increase in interest expense was
due to higher bank fees. For the first nine months of fiscal 2003, interest
expense was $11,920, compared with $12,284 for the first nine months of fiscal
2002. A decrease in interest rates, partly offset by higher bank fees, accounted
for the lower interest expense when comparing the first nine months of fiscal
2003 with the first nine months of fiscal 2002.
The Company's effective tax expense rate was 36.1% and 28.6% for the third
quarter of fiscal 2003 and 2002, respectively, and the effective tax benefit
rate was 37.6% and 42.4% for the first nine months of fiscal 2003 and 2002,
respectively. The higher effective tax benefit rate for the first nine months of
fiscal 2002 is due to state tax benefits the Company was able to recognize.
23
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
As was discussed in the Notes to Consolidated Condensed Financial Statements,
the guidelines of SFAS No. 109, "Accounting for Income Taxes", limited the
amount of tax benefit the Company currently could record from the loss on the
sale of Speedline, and the Company 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.
Business Segments
Flow Control Products
Net sales for the Flow Control Products segment decreased by 18.2% to $30,575
for the fiscal 2003 third quarter, compared with $37,373 for the same period of
fiscal 2002. For the first nine months of fiscal 2003, sales decreased by 11.6%
to $91,321, compared with $103,342 for the first nine months of fiscal 2002.
Sales volume decreased by 19.0% for the fiscal 2003 third quarter, and by 12.4%
for the first nine months of fiscal 2003. A favorable product mix was mostly
offset by lower prices for the fiscal 2003 third quarter and for the first nine
months of fiscal 2003. Flow Control Products is experiencing lower sales volumes
due to a decline in demand. Residential construction has faired slightly better
than anticipated, however the more profitable commercial and industrial markets
remain weak. Pricing continues to be an issue in a highly competitive market
place.
Operating income in the fiscal 2003 third quarter was $429, compared with $2,542
for the same period of fiscal 2002. For the first nine months of fiscal 2003,
operating income was $1,772, compared with $5,143 for the same period of fiscal
2002. The decrease in operating income was primarily due to lower sales volume,
which was partly offset by productivity gains and cost reduction programs.
Engineered Components
Net sales for the Engineered Components segment increased by 3.8% to $81,254 for
the fiscal 2003 third quarter, compared with $78,264 for the same period of
fiscal 2002. For the first nine months of fiscal 2003, sales increased by 12.6%
to $231,875, compared with $206,011 for the first nine months of fiscal 2002.
Sales volume was up by 2.6% for the fiscal 2003 third quarter, and 10.8% for the
first nine months of fiscal 2003. An improved product mix increased sales by
1.2% for the fiscal 2003 third quarter and by 1.7% for the first nine months of
fiscal 2003, with a small benefit in pricing from aluminum cost pass through.
Wheel and aluminum components sales continue to grow from new customers and new
product launches as well additional volume on existing products.
Operating income in the fiscal 2003 third quarter was $6,183 compared with
$4,511 for the same period of fiscal 2002. This improvement was due to increased
sales of aluminum components products and resolved new product launch problems
at the Company's Richmond, Indiana plant. For the first nine months of fiscal
2003, operating income was $12,187 compared with $4,347 for the same period of
fiscal 2002 due to greater sales volume, increased productivity from the Amcast
Production System, and cost reduction programs.
24
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Corporate expenses for the quarter and year to date increased over the prior
year primarily due to the one-time benefit from ending post retirement life
insurance recorded in the prior-year third quarter and due to reduced pension
income this fiscal year.
Liquidity and Capital Resources
The Company's cash balance at June 1, 2003 was $4,897. An additional $7,076 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 $4,906 for the first nine months of fiscal 2003
compared with cash provided by operations of $15,185 in the first nine months of
fiscal 2002. Operating cash flow from the income statement increased in fiscal
2003; however, this increased performance was more than offset by unfavorable
balance sheet changes.
Nine Months Ended
--------------------------
2003 2002
-------- --------
Income statement impact $ 15,994 $ 14,199
Balance sheet impact (11,088) 986
-------- --------
Net cash provided by operations $ 4,906 $ 15,185
======== ========
The balance sheet impact on cash resulted in a decrease of $11.1 million since
last fiscal year-end. The two main reasons for this decrease were the increase
in restricted cash, mentioned above, and the decline in accounts payable caused
by the reduction in inventory and selected reductions in vendors' terms. With
the new debt agreement expected to be completed in the fiscal fourth quarter,
the Company anticipates the selected vendor payment terms returning to normal
which, in turn, should return accounts payable to more normal levels. The debt
extension is also discussed in the Notes to Consolidated Condensed Financial
Statements and later in this section.
These balance sheet items were partly offset by cash generated from lower
inventory due to the Amcast Production System and from lower accounts receivable
due to a focus on collecting past due accounts. The inventory and receivables
reduction occurred during a period of increased sales. Reported income after
adding back non-cash transactions of depreciation, amortization, the cumulative
effect of the accounting change, and the loss on discontinued operations, show
an increase in cash flow from the income statement.
25
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Investing activities, primarily capital spending, used net cash of $6,124 in the
first nine months of fiscal 2003 compared with $10,398 used in the first nine
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 nine months, capital spending as a
percent of depreciation was 37.4% in fiscal 2003 versus 57.1% in fiscal 2002. At
June 1, 2003, the Company had $2,010 of commitments for additional capital
expenditures, primarily for the Engineered Components segment.
Financing activities used $7,847 of cash in the first nine months of fiscal
2003, compared with $13,975 of cash used in the first nine months of fiscal
2002. During the first nine months of fiscal 2003, the Company reduced its
overall outstanding debt balance by $8,461, as the debt went from $188,310 at
August 31, 2002, to $179,849 as of June 1, 2003.
The Company made principal cash debt payments of $5,160 for the bank debt and
senior notes. In April 2003, the Company converted all euro-denominated debt
into US dollar-denominated debt.
The Company also had $1,104 in additions and $741 in payments related to the
Company's insurance-premium financing. CTC made debt principal payments of
$3,700 and borrowed $650.
The Company's debt changes for the first nine months of fiscal 2003 are
summarized in the following table:
Nine Months Ended
June, 1 2003
---------------------
Increase (Decrease)
Impact on
Debt Cash
-------- ---------
Bank and Senior Note Holder Debt
Payment of principal $ (5,160) $ (5,160)
SFAS No. 52 translation impact of
foreign currency exchange (614) -
--------- ---------
(5,774) (5,160)
Insurance financing, net borrowing 363 363
CTC, net borrowing (3,050) (3,050)
--------- ---------
$ (8,461) $ (7,847)
========= =========
The bank group and senior note holder debt mature in September 2003 and November
2003, respectively. 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.
26
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company has borrowed the maximum amount permissible under its LIFO credit
agreement which matures 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 June 1, 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.
As of June 1, 2003, CTC had a term loan of $3,606 and a revolving line of credit
that provides for up to $5,750, of which $3,450 was available, both of which
mature September 2003 and are classified as current debt.
The Company is in negotiations with the bank group and senior note holders to
extend the debt maturity to September 2006 and November 2006, respectively. The
Company expects to complete this debt maturity extension during its fiscal
fourth quarter. The Company is also planning to refinance the CTC debt during
its fourth fiscal quarter, extending the maturity date of the CTC debt to
September 2006.
The Company's debt obligations for the remainder of fiscal 2003 and beyond are
shown in the following table. At June 1, 2003, obligations under operating
leases are not significantly different from the amounts reported in the
Company's Annual Report on Form 10-K for the year ended August 31, 2002.
Debt Obligation 2003 2004 2005 2006 2007 Thereafter
- ------------------------- ------- ---------- ------- ------- ------- ------
Debt
Long-Term Debt
Corporate $ - $ 173,018 $ - $ - $ - $ -
CTC - 5,906 - - - -
Insurance financing 232 693 - - - -
------- ---------- ------- ------- ------- ------
Total Debt $ 232 $ 179,617 $ - $ - $ - $ -
======= ========== ======= ======= ======= ======
Operating leases $1,171 $ 3,390 $2,746 $2,310 $ 739 $ 47
======= ========== ======= ======= ======= ======
27
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. Based on stock market and interest rate changes during the previous
four fiscal quarters, the Company may need to record an additional pension
liability of approximately $30 million in its fiscal 2003 fourth quarter. This
will not have an impact on the income statement.
Deferred Taxes and Valuation Allowances - 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.
28
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 third quarter or first nine 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.
29
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 nine months of fiscal 2003, there was a material change 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. This change is described in the
next paragraph below.
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 June 1, 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
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.
30
AMCAST INDUSTRIAL CORPORATION
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
A Current Report on Form 8-K with an event date of March 17,
2003 was filed by the Company on March 17, 2003 to report that
the Company issued a press release announcing the sale of
Speedline SRL, its Italian subsidiary, which is engaged in the
manufacture and sale of wheels.
A Current Report on Form 8-K with an event date of March 17,
2003 was filed by the Company on April 1, 2003 to report the
disposition of Speedline SRL, the Company's Italian
subsidiary, including pro forma financial statements.
31
AMCAST INDUSTRIAL CORPORATION
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: July 14, 2003 By: /s/ Byron O. Pond
----------------------------------------
Byron O. Pond
Chairman and
Chief Executive Officer
(Principal Executive Officer)
Date: July 14, 2003 By: /s/ Francis J. Drew
----------------------------------------
Francis J. Drew
Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
Date: July 14, 2003 By: /s/ Mark D. Mishler
----------------------------------------
Mark D. Mishler
Corporate Controller
(Principal Accounting Officer)
32
AMCAST INDUSTRIAL CORPORATION
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
July 14, 2003
33
AMCAST INDUSTRIAL CORPORATION
CERTIFICATIONS
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
July 14, 2003
34