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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 November 30, 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
- -------------------------------------------------------------------------------
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)
- -------------------------------------------------------------------------------
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 November 30, 2003, the number of Common Shares, no par value, outstanding
was 9,281,091 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 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 NOVEMBER 30, 2003
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
Item 1 - Financial Statements:
Consolidated Condensed Statements of Financial Condition - 3
November 30, 2003 and August 31, 2003
Consolidated Condensed Statements of Operations - 4
for the Three Months Ended November 30, 2003
and December 1, 2002
Consolidated Condensed Statements of Retained Earnings - 4
for the Three Months Ended November 30, 2003
and December 1, 2002
Consolidated Condensed Statements of Cash Flows - 5
for the Three Months Ended November 30, 2003
and December 1, 2002
Notes to Consolidated Condensed Financial Statements 6-15
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 16-24
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 25
Item 4 - Controls and Procedures 25
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 26
Item 6 - Exhibits and Reports on Form 8-K 26
SIGNATURES 27
2
PART I - FINANCIAL INFORMATION
AMCAST INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
($ in thousands)
(Unaudited)
November 30 August 31
2003 2003
----------- -----------
ASSETS
Current Assets
Cash and cash equivalents $ 10,128 $ 5,697
Accounts receivable 42,249 39,979
Inventories 19,459 19,004
Other current assets 5,490 5,338
----------- -----------
Total Current Assets 77,326 70,018
Property, Plant, and Equipment 357,250 356,408
Less accumulated depreciation (222,888) (217,011)
----------- -----------
Net Property, Plant, and Equipment 134,362 139,397
Restricted Cash 6,000 7,078
Deferred Taxes 4,204 4,204
Other Assets 9,345 9,627
----------- -----------
Total Assets $231,237 $ 230,324
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Current portion of long-term debt $ 7,020 $ 2,456
Accounts payable 33,482 31,419
Accrued expenses 20,984 21,011
----------- -----------
Total Current Liabilities 61,486 54,886
Long-Term Debt (less current portion) 168,541 175,184
Deferred Liabilities 41,959 42,189
Shareholders' Equity (Deficit)
Preferred shares, without par value
Authorized - 1,000,000 shares; Issued - None - -
Common shares, at stated value
Authorized - 15,000,000 shares
Issued - 9,663,582 and 9,623,634 shares,
respectively 9,664 9,624
Capital in excess of stated value 72,852 72,822
Accumulated other comprehensive losses (34,119) (34,189)
(Accumulated deficit) retained earnings (84,659) (85,705)
Cost of 382,491 common shares in treasury (4,487) (4,487)
----------- -----------
Total Shareholders' Equity (Deficit) (40,749) (41,935)
----------- -----------
Total Liabilities and Shareholders' Equity (Deficit) $231,237 $ 230,324
=========== ===========
See notes to consolidated condensed financial statements
3
AMCAST INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
($ in thousands except per share amounts)
(unaudited)
Three Months Ended
-----------------------
November 30 December 1
2003 2002
----------- ----------
Consolidated Condensed Statements of Operations
Net Sales $ 112,936 $ 112,222
Cost of sales 99,748 101,093
----------- ----------
Gross Profit 13,188 11,129
Selling, general and, administrative expenses 8,227 10,169
----------- ----------
Operating Income (Loss) 4,961 960
Other (income) expense (3) (32)
Interest expense 3,857 3,971
----------- ----------
Income (Loss) before Income Taxes, Discontinued
Operations, and Cumulative Effect of
Accounting Change 1,107 (2,979)
Income tax expense (benefit) 61 (1,139)
----------- ----------
Income (Loss) from Continuing Operations 1,046 (1,840)
Loss from operations of discontinued operations,
net of tax of $397 - (5,352)
----------- ----------
Income (Loss) before Cumulative Effect of
Accounting Change 1,046 (7,192)
Cumulative effect of accounting change,
net of tax of $464 - (46,536)
----------- ----------
Net Income (Loss) $ 1,046 $ (53,728)
=========== ==========
Consolidated Condensed Statements of
Retained Earnings (Deficit)
Beginning Retained Earnings (Deficit) $ (85,705) $ 25,530
Net (loss) income 1,046 (53,728)
Treasury shares issued - (657)
----------- ----------
Ending Retained Earnings (Deficit) $ (84,659) $ (28,855)
=========== ==========
Basic and Diluted Income (Loss) Per Share
Continuing operations $ 0.11 $ (0.21)
Discontinued operations - (0.61)
----------- ----------
Before cumulative effect of accounting change 0.11 (0.82)
Cumulative effect of accounting change - (5.34)
----------- ----------
Net Income (Loss) $ 0.11 $ (6.16)
=========== ==========
Dividends declared per share $ - $ -
=========== ==========
Dividends paid per share $ - $ -
=========== ==========
See notes to consolidated condensed financial statements
4
AMCAST INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
Three Months Ended
---------------------------
November 30 December 1
2003 2002
------------ ------------
Operating Activities
Net income (loss) $ 1,046 $ (53,728)
Loss from discontinued operations - 5,352
Depreciation and amortization 5,974 6,290
Cumulative effect of accounting change - 46,536
Deferred liabilities 1,074 (1,581)
Other 332 203
Changes in assets and liabilities
Restricted cash 1,078 (6,000)
Accounts receivable (2,270) 5,444
Inventories (455) 3,015
Other current assets (152) 476
Accounts payable 2,063 731
Accrued liabilities (27) (815)
------------ ------------
Net Cash Provided by Operations 8,663 5,923
Investing Activities
Additions of property, plant, and equipment (1,183) (2,170)
Other 253 47
------------ ------------
Net Cash Used by Investing Activities (930) (2,123)
Financing Activities
Additions to long-term debt 2,544 400
Reduction in long-term debt (4,623) (4,291)
Other (1,300) -
------------ ------------
Net Cash Used by Financing Activities (3,379) (3,891)
Effect of exchange rate changes on cash 77 (11)
Cash flow related to discontinued operations - (1,634)
------------ ------------
Net change in cash and cash equivalents 4,431 (1,736)
Cash and cash equivalents at beginning of period 5,697 16,810
------------ ------------
Cash and Cash Equivalents at End of Period $ 10,128 $ 15,074
============ ============
See notes to consolidated condensed financial statements
5
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NATURE OF OPERATIONS
Amcast Industrial Corporation ("Amcast" or the "Company") is a leading
manufacturer of technology-intensive metal products. The Company serves three
major sectors of the economy: automotive, construction, and industrial. 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. Amcast's
corporate offices are located in Dayton, Ohio. Manufacturing facilities are
located in the United States of America, primarily in the Midwest.
BASIS OF PREPARATION
The accompanying consolidated condensed financial statements include the
accounts of Amcast and its subsidiaries. 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 under the Securities Exchange Act of 1934, as amended.
Accordingly, they do not include all of the information and notes required for
complete annual financial statements and should be read in conjunction with the
Company's audited consolidated financial statements and notes for the year ended
August 31, 2003, included in the Company's Annual Report on Form 10-K. In the
opinion of management, all adjustments necessary for a fair presentation of the
information have been included. Results of operations for the periods presented
are not necessarily indicative of the results for the full fiscal year. To
prepare the accompanying interim consolidated condensed financial statements,
the Company is required to make estimates and assumptions that affect the
reported amounts and disclosures. Actual results could differ from those
estimates.
CHANGE IN METHOD OF ACCOUNTING IN FISCAL 2003
In the first quarter of fiscal 2003, the Company was required to adopt Statement
of Financial Accounting Standards (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".
6
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, the Company's European operation ("Speedline"),
was impaired. This impairment was reflected in the Company's declining stock
price and the weak financial performance of the reporting units related to the
impaired goodwill. As such, in the fiscal 2003 first quarter, 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 condensed
financial statements.
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, to Crown Executive Aviation Limited, a private company
organized under the laws of the United Kingdom. Principal products manufactured
by Speedline, located in Italy, include aluminum wheels for passenger cars and
trucks, as well as aluminum and magnesium racing wheels, aftermarket wheels,
modular wheels, and hubcaps. Speedline is reported as a discontinued operation
for fiscal 2003. 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 $5,352 related to the fiscal 2003 first quarter, $44,470
related to the fiscal 2003 second quarter, and $601 related to the fiscal 2003
third quarter. Cumulative foreign currency translation losses of $1,303 were
included in the $50,423 after tax loss.
Speedline was previously included in the Engineered Components segment of the
Company. Operating results for Speedline included in discontinued operations
are:
Three Months Ended
December 1, 2002
--------------
Net Sales $ 43,534
Operating Loss (4,649)
Other income (expense) 24
Interest expense (330)
--------------
Loss Before Income Taxes (4,955)
Income tax expense 397
--------------
Loss From Discontinued Operations $ (5,352)
==============
7
RESTRICTED CASH
As of November 30, and August 31, 2003, the Company had $6,000 of cash that was
restricted, as required under the Company's debt agreements with its lender
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. As of August 31,
2003, an additional $1,078 of cash was restricted per CTC's loan agreement.
During the first quarter of fiscal 2004, the Company refinanced its CTC loan
agreement and a similar cash restriction was not required by the new lenders.
INVENTORY
Inventory is valued at the lower of cost or market. The value of U.S. inventory
is determined using the last-in, first-out method (LIFO). The value of foreign
inventory, at the Company's Canadian facility, is determined using the first-in,
first-out, method (FIFO). Supplies and maintenance related materials, which are
not a component of finished goods, but are utilized during manufacturing, are
categorized as raw materials. The major components of inventory are:
November 30 August 31
2003 2003
------------------ ------------------
Finished products $ 11,376 $ 10,833
Work in process 3,281 3,611
Raw materials and supplies 8,578 8,336
------------------ ------------------
23,235 22,780
Less amount to reduce certain
inventories to LIFO value (3,776) (3,776)
------------------ ------------------
Total Inventory $ 19,459 $ 19,004
================== ==================
8
PROPERTY, PLANT, AND EQUIPMENT
The major components of property, plant, and equipment are as follows:
November 30 August 31
2003 2003
--------------- ---------------
Land and buildings $ 56,666 $ 56,629
Machinery and equipment 290,972 291,006
Construction in progress 9,612 8,773
--------------- ---------------
357,250 356,408
Accumulated depreciation (222,888) (217,011)
--------------- ---------------
Net property, plant, and equipment $ 134,362 $ 139,397
=============== ===============
Depreciation expense was $5,969 and $6,277 for the three-month periods ended
November 30, 2003, and December 1, 2002, respectively.
LONG-TERM DEBT
The following table summarizes the Company's long-term borrowings:
November 30 August 31
2003 2003
------------- -------------
Lender Group and Senior Note Holder Debt:
LIFO credit facility $ 10,315 $ 11,395
Senior Notes 45,664 45,664
Revolving credit notes 100,826 100,826
Lines of credit 12,793 12,793
CTC Debt:
Term loan 3,000 2,856
Revolving credit note 2,843 3,400
Other debt 120 706
------------- -------------
Total Debt 175,561 177,640
Less current portion 7,020 2,456
------------- -------------
Long-Term Debt $ 168,541 $ 175,184
============= =============
9
EARNINGS (LOSS) PER SHARE
The following table reflects the calculations for basic and diluted earnings
(loss) per share for the three-month periods ended November 30, 2003 and
December 1, 2002, respectively:
Three Months Ended
--------------------
November 30 December 1
2003 2002
--------- ----------
Income (loss) from continuing operations $ 1,046 $ (1,840)
Loss from discontinued operations, net of tax - (5,352)
--------- ----------
Income (loss) before cumulative effect of accounting change 1,046 (7,192)
Cumulative effect of accounting change, net of tax - (46,536)
--------- ----------
Net income (loss) $ 1,046 $(53,728)
========= ==========
Basic Income (Loss) per Share:
Basic shares 9,270 8,717
========= ==========
Income (loss) from continuing operations $ 0.11 $ (0.21)
Discontinued operations - (0.61)
--------- ----------
Income (loss) before cumulative effect of accounting change 0.11 (0.82)
Cumulative effect of accounting change - (5.34)
--------- ----------
Net income (loss) $ 0.11 $ (6.16)
========= ==========
Diluted Income (Loss) per Share:
Diluted shares 9,271 8,717
========= ==========
Income (loss) from continuing operations $ 0.11 $ (0.21)
Discontinued operations - (0.61)
--------- ----------
Income (loss) before cumulative effect of accounting change 0.11 (0.82)
Cumulative effect of accounting change - (5.34)
--------- ----------
Net income (loss) $ 0.11 $ (6.16)
========= ==========
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.
10
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
--------------------------------
November 30 December 1
2003 2002
--------------- ---------------
Net income (loss) $ 1,046 $ (53,728)
Foreign currency translation adjustments 77 (11)
Loss on derivatives (7) -
--------------- ---------------
Total comprehensive income (loss) $ 1,116 $ (53,739)
=============== ===============
The components of accumulated other comprehensive loss are:
November 30 August 31
2003 2003
--------------- ---------------
Foreign currency translation adjustment $ (134) $ (211)
Minimum pension liability adjustment (33,978) (33,978)
Loss on derivatives (7) -
--------------- ---------------
Accumulated other comprehensive loss
continuing operations $ (34,119) $ (34,189)
=============== ===============
11
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.
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
----------------------------
November 30 December 1
2003 2002
------------- -------------
Net income (loss) as reported $ 1,046 $ (53,728)
Effect on reported net income (loss) of accounting
for stock options at fair value - (46)
------------- -------------
Pro forma net income (loss) $ 1,046 $ (53,774)
============= =============
Income (loss) per common share
Basic and diluted
As reported $ 0.11 $ (6.16)
============= =============
Pro forma $ 0.11 $ (6.17)
============= =============
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:
Options Granted During Fiscal Year
----------------------------------------
2004 2003 2002
---------- ----------- ------------
Assumptions:
Expected volatility (a) 48.2% 46.0%
Risk-free interest rate (a) 3.1% 3.3% - 4.9%
Dividend yield (a) 0.0% 0.0%
Expected life of option (a) 4.2 years 4.6 years
Weighted average fair value of grants
issued for each year (a) $0.73 $2.11
(a) No assumptions are given for 2004, as there were no options granted in the
first quarter of fiscal 2004.
12
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. Descriptions of the products of these
business segments are included in "Item 1- Business" in the Company's Form 10-K
for the year ended August 31, 2003. The Company evaluates segment performance
and allocates resources based on several factors, of which net sales and
operating income are the primary financial measures. Speedline is reported as a
discontinued operation; therefore, 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
-------------------------- --------------------------
November 30 December 1 November 30 December 1
2003 2002 2003 2002
----------- ----------- ----------- ----------
Flow Control Products $ 33,306 $ 30,301 $ 1,592 $ 606
Engineered Components 79,630 81,921 4,907 2,577
Corporate - - (1,538) (2,223)
----------- ----------- ----------- ----------
112,936 112,222 4,961 960
Other (income) expense - - (3) (32)
Interest expense - - 3,857 3,971
----------- ----------- ----------- ----------
Total net sales and income (loss)
from continuing operations
before taxes $ 112,936 $ 112,222 $ 1,107 $ (2,979)
=========== =========== =========== ==========
COMMITMENTS AND CONTINGENCIES
At November 30, 2003, the Company has committed to capital expenditures of
$1,075, 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.
13
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.
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.
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 November 30, 2003, the Company's accrued
undiscounted reserve for such contingencies was $3,752.
14
Based upon the contracts and agreements with regards to an environmental matter,
the Company believes it is entitled to indemnity for remediation costs at a
particular site and believes it is probable that the Company can recover a
substantial portion of the costs. Accordingly, the Company has recorded a
receivable of $765 related to anticipated recoveries from a third party.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
There were no recently issued accounting standards affecting the Company that
were not disclosed in the Company's Annual Report on Form 10-K for the year
ended August 31, 2003.
15
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ITEM 2 - 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, state 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; labor relations at the Company and its customers; the impact of homeland
security measures; and the ability of the Company to satisfy obligations under,
and to comply with the provisions of, its loan documents. 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
notes for the year ended August 31, 2003, included in the Company's Annual
Report on Form 10-K.
DISCONTINUED OPERATIONS
As discussed more fully in the notes to the audited consolidated financial
statements for the year ended August 31, 2003, included in the Company's Annual
Report on Form 10-K, the Company sold, in March 2003, Speedline, its Italian
manufacturing operation, which produced aluminum wheels for passenger cars and
trucks, as well as aluminum and magnesium racing wheels. The Company determined
that Speedline's unfavorable cost structure would not allow it to maintain
market position and generate adequate returns in a changing market environment
that included heightened competition. The Company decided it would be in the
shareholders' best interest to exit this business and focus its efforts and
resources on its North American manufacturing operations. Unless otherwise
indicated, all comparisons of results in this Management's Discussion and
Analysis exclude the results of Speedline and relate solely to the Company's
continuing operations.
16
RESULTS OF OPERATIONS
NET SALES
Three Months Ended
-------------------------------------
November 30 December 1
2003 2002
--------------- ----------------
Net Sales $ 112,936 $ 112,222
=============== ================
Percentage increase from prior year 0.6 % 16.1 %
=============== ================
Components of percentage increase
Volume (2.6)% 15.6 %
Price 0.5 % (2.1)%
Product Mix 2.7 % 2.6 %
--------------- ----------------
0.6 % 16.1 %
=============== ================
In the fiscal 2004 first quarter, consolidated net sales increased by $714
compared with the first quarter of fiscal 2003. This increase was primarily due
to product mix offset by a decline in sales volume. Sales volume increased in
the Flow Control Products segment and for global wheel sales in the Engineered
Component segment. These volume increases were more than offset by a volume
decrease in aluminum components sales primarily due to lost business which was
driven by market demand. Product mix improved in both business segments. Price
improved slightly from the Company's ability to pass through to certain
customers the increase in aluminum costs.
The lower percentage sales increase for the fiscal 2004 first quarter compared
with the fiscal 2003 first quarter was due to sales volume. In the fiscal 2003
first quarter, the Company experienced higher sales volume from new product
introductions, existing products, and conquest sales. In the fiscal 2004 first
quarter, the Company surpassed these sales volumes in its Flow Control Products
and in global wheel sales; however, as mentioned in the previous paragraph, the
Company experienced a significant drop in sales volume from its aluminum
component sales.
17
GROSS PROFIT
Three Months Ended
----------------------------------
November 30 December 1
2003 2002
---------------- ----------------
Gross Profit $ 13,188 $ 11,129
================ ================
Percent of Sales 11.7% 9.9%
For the fiscal 2004 first quarter, gross profit increased by $2,059, or 18.5%,
compared with the fiscal 2003 first quarter. This gross profit increase is
primarily due to operating improvements at the Company's Richmond, Indiana
facility, which experienced significant new product launch costs in the fiscal
2003 first quarter. Similar expenses were not incurred in the fiscal 2004 first
quarter, and the facility achieved major improvements in labor productivity,
scrap costs, and spending.
The Company experienced a slight increase in gross profit in its Flow Control
Products segment. The benefits of greater manufacturing efficiency and sales in
Flow Control Products were partly offset by some launch costs on higher
production levels at its Geneva, Indiana facility. The Company continues to see
substantial benefits of improved productivity and reduced manufacturing costs
from the Amcast Production System (APS), a more efficient manufacturing approach
being implemented at the Company's manufacturing facilities.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES (SG&A)
Three Months Ended
----------------------------------
November 30 December 1
2003 2002
---------------- ----------------
SG&A $ 8,227 $ 10,169
================ ================
Percent of Sales 7.3% 9.1%
For the fiscal 2004 first quarter, SG&A expenses decreased by $1,942, or 19.1%,
compared with the fiscal 2003 first quarter. More than half of this decrease was
a direct result of the Company's continued commitment and focus on cost
reduction. This SG&A decrease is also due to the net effect of $2,700 insurance
settlements offset by $1,774 additional legal and environmental reserves that
combined to lower SG&A by $926. Excluding these items, SG&A decreased by $1,016,
or 10.0%, compared with the fiscal 2003 first quarter.
18
The Company's SG&A as a percentage of sales was 7.3% for the fiscal 2004 first
quarter, compared with 9.1% for the fiscal 2003 first quarter. The Company
realized this significant decrease in SG&A expenses during a period where sales
increased by 0.6%.
OPERATING INCOME was $4,961 in the fiscal 2004 first quarter, compared with $960
in the fiscal 2003 first quarter, an increase of $4,001. Operating income as a
percentage of sales was 4.4% for the fiscal 2004 first quarter as compared with
0.9% for the fiscal 2003 first quarter. An increase in sales and in gross
profit, as well as a reduction in SG&A expenses produced the increased operating
income.
INTEREST EXPENSE was $3,857 for the fiscal 2004 first quarter, compared with
$3,971 for the fiscal 2003 first quarter. Interest expense decreased slightly
due to a lower debt balance in the first quarter of fiscal 2004 compared with
the prior year.
EFFECTIVE TAX RATE was 5.5% and 38.2% for the first quarter of fiscal 2004 and
2003, respectively. The lower effective tax rate for the fiscal 2004 first
quarter resulted because the Company is currently recording no federal income
tax expense related to its domestic operations due to existing tax loss
carryforwards, per the provisions of SFAS No. 109, "Accounting for Income
Taxes". The Company is currently only recording income tax expense related to
its Canadian operations and domestic state taxes.
BUSINESS SEGMENTS
FLOW CONTROL PRODUCTS
Net sales for the Flow Control Products segment increased by 9.9% to $33,306 for
the fiscal 2004 first quarter, compared with $30,301 for the same period of
fiscal 2003. Sales volume increased sales by 5.9%, a favorable product mix
increased sales by 4.6%, and price decreased sales by 0.6%. Flow Control
Products experienced higher sales volume on its wholesale business and a large
increase in volume on a particular product line.
Operating income in the fiscal 2004 first quarter was $1,592, compared with $606
for the same period of fiscal 2003. Operating income was positively affected
from the higher sales volume, manufacturing efficiencies from the APS, and cost
reduction programs including a reduction in headcount. Partly offsetting these
benefits were launch costs incurred in relation to higher volume on one product
line at the Geneva, Indiana plant.
19
ENGINEERED COMPONENTS
Net sales for the Engineered Components segment decreased by 2.8% to $79,630 for
the fiscal 2004 first quarter, compared with $81,921 for the same period of
2003. Sales volume decreased sales by 5.7%, while a favorable price and product
mix combined to increase sales by 2.9%. The sales decrease was primarily due to
lower sales volume in aluminum component sales. Wheel sales experienced a 1.9%
increase in sales volume.
Operating income in the fiscal 2004 first quarter was $4,907, compared with
$2,577 for the same period of fiscal 2003. The increase in operating income was
primarily due to the Richmond, Indiana facility, which encountered significant
launch costs in the fiscal 2003 first quarter. Similar expenses were not
incurred in the fiscal 2004 first quarter. Operating income for wheels, which
experienced higher sales, remained relatively flat due to a greater mix of lower
margin products and customer price concessions. Manufacturing efficiencies from
the APS and cost reduction programs helped the Engineered Component segment
achieve higher operating income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance at November 30, 2003 was $10,128. An additional
$6,000 of restricted cash existed for payment of principal and interest on the
Company's debt that is required under its debt agreements. Under the Company's
cash management system, issued checks that have not cleared the bank resulting
in net overdraft bank balances for accounting purposes in the amounts of $4,003
at November 30, 2003, and $4,814 at December 1, 2002, are included in accounts
payable.
Cash provided by operations was $8,663 for the first three months of fiscal 2004
compared with cash provided by operations of $5,923 in the first three months of
fiscal 2003. Operating cash flow increased during the first three months of
fiscal 2004:
Three Months Ended
--------------------------------
-------------- ---------------
2004 2003
-------------- ---------------
Income statement impact $ 7,020 $ 4,450
Balance sheet impact 1,643 1,473
-------------- ---------------
Net cash provided by operations $ 8,663 $ 5,923
============== ===============
20
The main reasons for the balance sheet impact on cash, which resulted in an
increase of $1,643, were a reduction in restricted cash, an increase in accounts
payable, and an increase in deferred liabilities, offset by an increase in
accounts receivable mostly related to an insurance settlement the Company
received in December 2003.
Investing activities, primarily capital spending, used net cash of $930 in the
first three months of fiscal 2004 compared with $2,123 used in the first three
months of fiscal 2003. This decrease reflects management controls placed on
capital expenditures to conserve cash by limiting expansion spending. Capital
expenditures were primarily for equipment to expand plant capacity for volume
growth and new product orders. At November 30, 2003, the Company had $1,075 of
commitments for additional capital expenditures, primarily for the Engineered
Components segment.
Financing activities used $3,379 of cash in the first three months of fiscal
2004, compared with $3,891 of cash used in the first three months of fiscal
2003.
During the first three months of fiscal 2003, the Company reduced its overall
outstanding debt balance by $2,079, as debt declined from $177,640 at August 31,
2003, to $175,561 at November 30, 2003. The Company made principal cash debt
payments of $1,080 for the bank debt and senior notes and net payments of $413
for its CTC debt. The Company also had $586 in payments related to the Company's
insurance-premium financing.
The revolving credit notes, the lines of credit, the senior notes, and the LIFO
credit agreement (the "Lender Group and Senior Note Holder Debt") mature on
September 14, 2006. The Company cannot borrow additional funds under these
borrowings. The lenders of these borrowings have security interests in the
assets of the Company. Interest rates are prime plus 2% for the revolver
borrowings, lines of credit, and the LIFO credit agreement, and 10.09% (9.09%
plus 1% payment in kind) for the senior notes.
Principal payments due under the Lender Group and Senior Note Holder debt are
$1,000 in February 2004, $2,800 in May 2004, and $2,500 in August 2004. These
payments will be applied against the LIFO credit facility.
The Lender Group and Senior Note Holder debt includes financial covenants
regarding a fixed charge coverage ratio, quarterly earnings before interest,
taxes, depreciation, and amortization (EBITDA), and capital expenditures. As of
November 30, 2003 the Company was in compliance with all of its 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.
21
The debt agreements also contain a provision that requires the Company to use
its good faith best efforts to refinance the Lender Group and Senior Note Holder
debt on or before September 1, 2004, or sell substantially all of its assets
before September 1, 2004. The Agreements contain eight milestones that specify
that certain events be met by certain dates. Two milestones were completed on
time by the end of November 2003. By December 9, 2003, the third milestone was
completed on time. A $200 fee must be paid for each missed milestone.
The CTC Credit Agreement provides for borrowings under a revolving credit
facility and a term loan. The revolving line of credit facility provides for up
to $5,000 in borrowings ($2,157 was available as of November 30, 2003) and
matures in September 2006. The term loan matures in September 2008 with a
current year debt payment of $600 payable in installments of $150 due in
December 2003, March 2004, June 2004, and September 2004. Interest on the
revolving credit facility and the term loan is based on CTC's debt to EBITDA
ratio, which ranges between prime plus 0.25% to prime plus 1.25%, or LIBOR plus
2.25% to LIBOR plus 3.25%.
The Company's debt obligations for the remainder of fiscal 2004 and beyond are
shown in the following table. At November 30, 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, 2003.
Debt Obligation 2004 2005 2006 2007 2008 Thereafter
- ---------------------------- ------------ -------------- ------------ --------------- ------------ --------------
Debt
Long-Term Debt
Corporate $6,300 $ - $ - $ 163,298 $ - $ -
CTC 450 600 600 3,443 600 150
Insurance financing 120 - - - - -
------------ -------------- ------------ --------------- ------------ --------------
Total Debt $6,870 $ 600 $ 600 $ 166,741 $ 600 $ 150
============ ============== ============ =============== ============ ==============
Operating leases $2,492 $ 2,694 $2,095 $ 509 $ 108 $ -
============ ============== ============ =============== ============ ==============
22
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. 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 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.
At November 30, 2003, the Company had valuation allowances against a significant
portion of its deferred tax assets. Valuation allowances serve to reduce the
recorded deferred tax assets to amounts reasonably expected to be realized as
tax savings in the future. Establishing valuation allowances and their
subsequent adjustment requires a significant amount of judgement because
realizing deferred tax assets, particularly those assets related to net
operating loss carryforwards, is generally contingent on generating taxable
income, reversing deferred tax liabilities in the future, and the availability
of qualified tax planning strategies.
23
Debt Covenants - For a substantial portion of its debt, the Company has certain
financial covenants regarding a fixed charge coverage ratio, quarterly earnings
before interest, taxes, depreciation, and amortization (EBITDA), and capital
expenditures. If the requirements of the covenants are not achieved, the debt
becomes immediately callable, which would significantly impact the Company's
ability to maintain its current operations. As of November 30, 2003 the Company
was in compliance with all of its debt covenants.
The Company does not have off-balance sheet arrangements, financings, or other
relationships with unconsolidated entities or other persons, also known as
"special purpose entities" (SPEs).
INFLATION
Inflation did not have a material impact on the Company's results of operations
or financial condition for the first quarter of fiscal 2004.
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.
24
AMCAST INDUSTRIAL CORPORATION
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changing commodity prices and
interest rates as part of its normal operations, as well as general risks and
uncertainties which are inherent in any competitive industry.
COMMODITY PRICES
The Company is 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 November 30, 2003, the Company had no
forward fixed-price metal supply contracts.
INTEREST RATE RISK
The Company is exposed to variable interest rates on its revolver credit notes,
its lender group lines of credit, its LIFO credit facility, and its CTC debt.
The pretax earnings and cash flow impact of a one-percentage-point increase in
the variable interest rates on the Company's variable long-term debt outstanding
at November 30, 2003 would be approximately $324. During the first fiscal
quarter of 2004, the Company entered into a two-year interest rate swap that
converts half of the CTC variable rate debt into fixed rate debt.
ITEM 4 - CONTROLS AND PROCEDURES
The Company's President and Chief Executive Officer and Vice President, Finance
and Chief Financial Officer, with the participation of the Company's management,
have evaluated the effectiveness of the operation of the Company's disclosure
controls and procedures, as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934 (the "Exchange Act"), as of the end of the period covered
by this Quarterly Report. Based upon that evaluation, the Company's President
and Chief Executive Officer and Vice President, Finance and Chief Financial
Officer have concluded that the Company's disclosure controls and procedures are
effective in timely alerting them to material information required to be
included in the Company's periodic Exchange Act filings.
There have been no significant changes to the Company's internal controls or
other factors that could significantly affect these controls subsequent to the
date of their evaluation.
25
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
31.1 Certification of Joseph R. Grewe, President and Chief Executive Officer,
pursuant to Section 302 of the Sarbanes-Oxley Act
31.2 Certification of Francis J. Drew, Vice President, Finance and Chief
Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act
32.1 Certification of Joseph R. Grewe, President and Chief Executive Officer,
pursuant to Section 906 of the Sarbanes-Oxley Act
32.2 Certification of Francis J. Drew, Vice President, Finance and Chief
Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act
B) REPORTS ON FORM 8-K
None
26
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMCAST INDUSTRIAL CORPORATION
(Registrant Company)
Date: January 9, 2004 By: /s/ Joseph R. Grewe
-------------------
Joseph R. Grewe
President and
Chief Executive Officer
(Principal Executive Officer)
Date: January 9, 2004 By: /s/ Francis J. Drew
-------------------
Francis J. Drew
Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
Date: January 9, 2004 By: /s/ Mark D. Mishler
-------------------
Mark D. Mishler
Corporate Controller
(Principal Accounting Officer)
27