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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended April 30, 2001 or
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No.: 0-16115
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IMPCO TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 91-1039211
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
16804 Gridley Place Cerritos, California 90703
(Address of principal executive offices, including zip code)
(562) 860-6666
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
None
(Title of each class) (Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value per share
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Indicate by check mark whether the Registrant (1) has filed all reports
required 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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the Common Stock held by non-affiliates of
the Registrant as of June 15, 2001 was approximately $306,850,909 based upon
the closing sale price of the Registrant's Common Stock on such date, as
reported on the Nasdaq National Market. Shares of Common Stock held by each
executive officer and director and each person owning more than 5% of the
outstanding Common Stock of the Registrant have been excluded in that such
persons may be deemed to be affiliates of the Registrant. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
As of July 26, 2001, the Registrant had 10,442,347 shares of Common Stock,
$.001 par value per share, outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its 2001 Annual
Meeting of Stockholders are incorporated by reference into Part III of this
Form 10-K.
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements that
involve risks and uncertainties. These forward-looking statements are not
historical facts but rather are based on current expectations, estimates and
projections about our industry, our beliefs and assumptions. We use words such
as "anticipate," "expect," "intend," "plan," "believe," "seek," "estimate" and
variations of these words and similar expressions to identify forward-looking
statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and other factors, some of which are
beyond our control, are difficult to predict and could cause actual results to
differ materially from those expressed or forecasted in the forward-looking
statements. These risks and uncertainties include those described in "Risk
Factors" and elsewhere in this Annual Report. You should not place undue
reliance on these forward-looking statements, which reflect our view only as of
the date of this Annual Report.
PART I
Item 1. Business.
Overview
We are a leading designer, manufacturer and supplier of advanced systems
that store gaseous fuels and monitor and control the pressure and flow of those
fuels for use in fuel cells and internal combustion engines. Our components and
systems enable fuel cells and internal combustion engines to operate using
clean alternative fuels, such as hydrogen, natural gas, and propane. We have
designed these systems to improve efficiency, enhance power output, and reduce
emissions by electronically sensing and regulating the proper proportion of
fuel and air required by the fuel cell or internal combustion engine. Based on
over 42 years of technology development and expertise in producing cost-
effective, safe and durable fuel technology systems for engines, we believe
that we are positioned to provide enabling products and technologies in the
rapidly expanding alternative fuel and emerging fuel cell industries.
A number of automotive, industrial and power generation manufacturers are
developing alternative clean power systems using fuel cells or clean burning
gaseous fuels, which decrease fuel costs, lessen dependence on crude oil and
reduce harmful emissions. We offer the following to facilitate the development
and commercialization of these systems:
. fuel storage--advanced, lightweight tanks that store large quantities of
hydrogen or natural gas on a cost-effective basis;
. fuel delivery--regulators, injectors, valves, and other components
designed to control the pressure and flow of gaseous fuels;
. electronic controls--solid-state components and proprietary software
that monitor and optimize fuel pressure and flow to meet manufacturers'
fuel cell or engine requirements; and
. systems integration--services to integrate gaseous fuel storage,
delivery and electronic control components to meet OEM and aftermarket
requirements.
We have been producing and selling gaseous fuel systems and components for
over 40 years. We sell these systems and components directly to end users and
OEMs and through more than 400 distributors and dealers worldwide.
We have operated under a Teaming Agreement with General Motors for
approximately four years. Under this agreement, we have specifically designed
fuel conversion products as a cost-effective solution to address General
Motors' demand for alternative fuel vehicles. We are also developing and
adapting our technologies for fuel cell powered, zero emission vehicles for
General Motors and other OEMs.
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Recently, we expanded the staff and facilities of our Quantum division to
concentrate on fuel cell technologies, systems integration, product development
and joint application development programs in our target fuel cell markets,
which include fuel cell vehicles and stationary and portable power generation.
Since July 2000, our Quantum division has added over 100 additional technical
personnel and has opened facilities in the Detroit area and in Southern
California for research and development, product evaluation and validation and
product manufacturing.
Our Advanced Technology Center in Irvine, California is a research and
development facility with more than 200 scientists, engineers, professionals
and support staff. The Advanced Technology Center focuses entirely on the
development of advanced fuel storage, fuel delivery and electronic control
systems, particularly those related to emerging fuel cell technologies. Since
1994, we have invested approximately $100 million on research and development
of gaseous fuel enabling technology for use with fuel cells and internal
combustion engines. As a result, we believe that we have gained technological
leadership in these enabling products, which we have designed to convert
internal combustion engines to alternative clean fuels and to participate fully
in the fuel cell market.
On June 12, 2001, we announced a strategic alliance between our Quantum
subsidiary and General Motors in which General Motors would acquire an equity
position in our Quantum subsidiary. We believe that the strategic alliance with
General Motors will advance and commercialize, on a global basis, the
integration of our gaseous storage and handling systems into fuel cell systems
used in the transportation markets. Under the alliance, General Motors will
promote Quantum as a recommended provider of hydrogen storage, hydrogen
handling and associated electronic controls that meet OEM requirements.
Additionally, General Motors and Quantum will co-develop technologies that will
aid in more rapid commercialization of fuel cell applications. Upon
effectiveness of the strategic alliance, General Motors will acquire Quantum
Series A common stock representing 20% of Quantum's equity immediately after
Quantum's first public equity financing, in consideration of a nominal cash
contribution and access to certain General Motors proprietary information.
Quantum has committed to provide minimum amounts of annual funding to projects
approved under the alliance. Each party will retain the ownership of its
existing technology and will jointly own technology that is jointly created
under the alliance. Quantum will be free to use jointly created technologies in
certain aspects of its business but will be required to share revenues with
General Motors on fuel cell system-related products that are sold to General
Motors or third parties. The strategic alliance with General Motors is subject
to several conditions, including a tax-free spin-off of Quantum. In the event
the spin-off of Quantum is not consummated, both Quantum and General Motors
intend to establish an alliance in another arrangement.
On June 14, 2001, we announced a plan to spin off Quantum. We intend to
accomplish the proposed spin-off by means of a tax-free distribution of Quantum
common stock to our stockholders by the end of the 2001 calendar year. Several
business purposes underlie the spin-off of Quantum. In particular, Quantum
desires to enhance access to the capital markets by, among other things,
allowing the financial community to focus separately on Quantum. We believe the
proposed separation of our businesses and the establishment of Quantum as an
independent company will facilitate opportunities for Quantum to seek capital
in the future. We believe that the spin-off will enable each entity to best
realize its growth strategies as a separate, stand-alone entity, based on its
prospective capitalization and financing requirements, acquisition strategies,
working capital requirements, projected cash flows from operations and desired
credit ratings. The spin-off is subject to various risks described in Item 7
Management's Discussion and Analysis of Financial Condition and Results of
Operation--Risk Factors.
Fuel Cell Industry
Overview. The emerging fuel cell industry represents an advancement in fuel
technologies to address worldwide energy costs, long-term availability of
inexpensive liquid fuel reserves, and environmental concerns. Fuel cells have
emerged as a potential alternative to existing power sources because of higher
efficiency, reduced noise and lower emissions. Fuel cell industry participants
are currently targeting the mobile vehicle,
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stationary power and portable power markets. We believe that our fuel cell
enabling products of gaseous fuel storage, fuel delivery and electronic control
systems along with our fuel cell system integration skills can be applied in
all three of these markets.
A fuel cell is an electrochemical device that produces electricity by
combining a hydrogen fuel with oxygen from the air. This electrochemical
reaction occurs silently and without combustion with usable heat and water as
the only byproducts. Pure hydrogen can be the initial fuel for this system or
can be obtained from hydrocarbon fuels, such as methanol, natural gas or
petroleum, using a device called a reformer. A reformer breaks down hydrocarbon
fuels using heat and a catalytic process. Methanol and natural gas are the
easiest fuels to reform and require less complex systems. Methanol is not
widely available in the current fuel distribution infrastructure and is
corrosive. Natural gas is widely available in the current fuel distribution
infrastructure for use in power generation, but it is not readily available for
mobile vehicles. Gasoline is widely available for mobile vehicles and other
uses and is easy to store, but it is difficult to reform and requires very
complex systems that reduce efficiencies and increase the pollutants produced
by the fuel processor. Hydrogen can also be obtained by the electrolysis of
water to provide hydrogen and oxygen. Electrolysis requires substantial amounts
of electrical power and the efficient, economical use of electrolysis remains a
technical challenge. Regardless of the fuel used to provide hydrogen, the fuel
cell system will require on-board hydrogen storage, fuel delivery and
electronic controls. Furthermore, a key to optimizing the performance of a fuel
cell is proper metering and delivery of hydrogen fuel and air to its fuel
stacks and efficient storage of the fuel to maximize its total operation time.
Markets. Over the next decade and beyond, a significant market is expected
to develop for fuel cell powered products. These products will be designed to
provide clean, quiet, vibration-free electric power on demand for a variety of
applications in the mobile vehicle, stationary power and portable power
markets. According to Frost & Sullivan, the world fuel cell market is projected
to grow to over $32 billion by 2010.
In the automotive market, DaimlerChrysler, Ford, General Motors, Honda,
Nissan and Toyota have each announced its intention to introduce fuel cells in
its motor vehicle products sometime between 2003 and 2005, with mass production
of fuel cell vehicles anticipated to begin in the latter part of the decade.
According to Frost & Sullivan, the world automotive fuel cell market is
projected to grow to approximately $13.8 billion by 2010. In the stationary
power market, increased demand for distributed power generation for home and
business use is expected to be driven initially by the need for uninterruptible
power. According to Allied Business Intelligence, stationary fuel cell
cumulative electrical generating capacity will grow from 75 megawatts in 2001
to approximately 16,000 megawatts by 2011. Additional markets are expected to
develop in a number of other areas, including boats, forklifts, golf carts,
recreational vehicles, auxiliary power units, and generators for densely
populated areas and other locations where unreliable power, noise and pollution
are concerns.
Alternative Fuel Industry
Overview. Three independent market factors--economics, energy independence
and environmental concerns--are driving the development of alternative fuel
industry technology and markets. We believe the price differential between
propane or natural gas and gasoline drives the economics of the alternative
fuel market. The price of traditional liquid fuels such as gasoline is
typically two to three times that of natural gas or propane. As an example of
this price differential, in Argentina, natural gas is currently sold for
between 30 and 35 cents per liter, while gasoline is sold for approximately
$1.10 per liter. By converting an internal combustion engine to run on propane
or natural gas through the installation of alternative fuel enabling products,
customers can capitalize on the price differential and reduce harmful vehicle
emissions.
End users are typically able to recoup the cost of the conversion in six to
eighteen months, depending on the fuel cost spread in favor of alternative fuel
versus gasoline. Transportation companies in various countries, including
Australia, Mexico, India and Poland, are also taking advantage of these
economics. Among the most
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active are taxi companies, transit and shuttle bus companies, and delivery
fleets, such as Coca Cola, Frito-Lay, Pepsi Cola and United Parcel Service.
Small and large industrial engine users in the power generation market wish to
capitalize on the cost benefits of using alternative fuels and their low-
pollutant capabilities. For example, forklift users often operate equipment
indoors where toxic emissions are a concern. In all these situations, it is
relatively easy to establish centralized fueling stations. Because of the
global price differential in favor of gaseous fuels compared to gasoline, their
availability in third-world markets and their lower pollutants, the alternative
fuel industry market potential is growing rapidly.
In addition to economics, energy independence is a significant driver for
the alternative fuel market. Many countries have significant natural gas
reserves and seek to use alternative fuels to reduce their dependence on
imported oil and reduce their unfavorable balance of payments. Natural gas is
generally consumed domestically since it is difficult to transport
internationally in a gaseous state and liquefying natural gas tends to be
costly. Converting domestic transportation markets to natural gas or propane,
which is a derivative of natural gas, can lessen the demand for gasoline, which
is a derivative of oil. Countries that particularly focus on using their
domestic sources of natural gas to reduce amounts of imported oil include
China, Egypt, India, Malaysia, Pakistan and Russia.
Increasing governmental emission regulations, which support the use of clean
burning alternative fuels, are also expanding industry growth. The negative
environmental impact associated with liquid fuels further increases the demand
for systems that use clean burning fuels. Internal combustion engines are a
major source of air pollution, which has led to increased government regulation
and oversight on vehicle and industrial engine emissions. The U.S. Department
of Energy estimates that vehicles fueled with natural gas emit 80% less carbon
monoxide and nitrogen oxide than vehicles fueled by reformulated gasoline. Most
major international cities are experiencing significant pollution from gasoline
and diesel emissions. These cities also have the largest concentrations of
fleet operators, and many of these cities are taking steps to reduce emissions,
typically by converting vehicles from liquid fuel to natural gas or propane.
For example, in Mexico City, one of the largest cities in the world, the
government has taken steps such as prohibiting the use of certain vehicles on
designated days of the week. However, vehicles running on propane or natural
gas may apply for an exemption allowing them to be operated every day, creating
a significant advantage for corporate and industrial users, such as major
distributors of products within the city limits.
In the United States, legislation such as the Comprehensive National Energy
Strategy, the Clean Air Act Amendments of 1990 and the Energy Policy Act of
1992 provide goals for energy and efficiency and strict emission standards and
promote the development and implementation of alternative fuels and related
technologies. Several states, including California, Massachusetts, New York and
Vermont, have also adopted legislation targeted at reducing harmful vehicle
emissions. In addition, several countries, including Argentina, Canada,
Colombia, Egypt, France, Germany, Greece, India, Italy, Mexico, Russia and the
United Kingdom, have enacted air pollution regulations or programs favoring the
use of alternative fuels.
Markets. The transportation, material handling, stationary and portable
power generation and general industrial markets are large and growing rapidly.
According to the World LP Gas Association and the European Natural Gas
Association, there are over 5.6 million gaseous fuel vehicles worldwide,
consisting of approximately 4.1 million propane vehicles and approximately 1.5
million natural gas vehicles. Frost & Sullivan estimates that the number of
propane vehicles in the United States will continue to grow at the historical
rate of 1.7% to 1.9% per year and that the number of natural gas vehicles in
the United States will grow at a compounded annual growth rate of 14.6% per
year. According to the Material Handling Industry of America, applications for
forklift and other material handling equipment using alternative fuels grew
over 350% from 1991 to 1998, with product shipments increasing from $196
million to $698 million during this period. California has announced its
enforcement of new emission regulations for all off-road vehicles starting in
2001. The Environmental Protection Agency has announced plans to implement
similar regulations starting in 2002. As a result, we expect growth in
industrial applications as alternative fuels replace diesel and gasoline.
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Competitive Advantages
We believe that our competitive strengths and advantages include the
following:
Industry Leader. We have derived a technology and product leadership
position from the broad application and integration of our technologies and
enabling systems into the emerging fuel cell and expanding alternative fuel
industries. Our significant investment of approximately $100 million in
research and development in these technologies over the past eight years,
coupled with our history and experience in these industries, has provided us
with a strong technology base for new product innovation. We have received
patents or have applications for patents pending on some of our more important
new proprietary technologies. This could make it more difficult for new
entrants in the industry to develop directly competing products based on the
same or similar technologies.
Advanced Enabling Technology and Systems for Fuel Cells. Our efforts in
developing advanced fuel system technologies are critical to more rapid
commercialization of fuel cells and have resulted in technology solutions that
may be applied to a broad range of enabling products. These key enabling
technologies include advanced composite, lightweight storage tanks, fuel
delivery technologies (such as injectors and regulators), and electronic
control systems. We have also focused on extensive testing and validation of
our new advanced fuel technologies that address safety and durability. We
entered into the fuel cell market in early 2000 with proprietary and patented
products for fuel cells and other applications in our target markets. We
believe that our TriShield hydrogen storage cylinder is an enabling technology
for the fuel cell industry due to its all-composite design, corrosion resistant
properties, light weight, low cost, high capacity, and inherent safety
features. In 2001, Quantum, in conjunction with Lawrence Livermore National
Laboratory and Thiokol Propulsion, achieved an 11.3% hydrogen storage by
weight, nearly double that of competing metal and metal-lined composite storage
tank technologies. The TriShield tank, used in conjunction with our patented
In-Tank Regulator, is particularly cost-effective when compared with the total
cost of an individual tank, valve and regulator components, and labor and
installation. Our new gaseous fuel injectors are equally important to OEMs of
automobiles and fuel cells. Our patented technology incorporates only nine
parts, compared to 29 parts in competing technologies, and offers advantages in
terms of manufacturability, low cost, durability, performance, controllability
and noise reduction. We believe our new gaseous fuel injectors will have broad
application in fuel cell and alternative fuel systems, with market potential in
the traditional liquid fuel market.
Proven Manufacturing Methods. We have more than four decades of experience
in the manufacture, development and integration of alternative fuel
technologies and products. We currently maintain manufacturing and production
facilities in the United States, Europe, Mexico and Australia, which produce a
broad range of products and services, including components, systems and
specialty vehicle assembly. Our U.S., Australian and European facilities have
achieved ISO-9000 or QS-9000 certification. QS-9000 is the common supplier
quality standard for Chrysler Corporation, Ford Motor Company and General
Motors. QS-9000 applies to suppliers of production materials, production and
service parts, heat treating, painting and plating and other finishing
services. ISO-9000 is a set of three individual, but related, international
standards on quality management and quality assurance. These standards were
developed to effectively document the quality system elements to be implemented
in order to maintain efficient quality systems.
Strong OEM Customer Relationships. Through a strategic alliance with General
Motors, Quantum will be a recommended provider of OEM alternative fuel systems
and components, including systems for hydrogen, natural gas and propane. We
currently sell products to General Motors in international alternative fuel
markets. To date, we have sold over 20,000 fuel systems globally to General
Motors. Our other customers include many domestic and international OEMs in the
mobile and stationary power fuel cell markets. During the fiscal years ended
April 30, 2000 and 2001, sales to General Motors represented 16% and 20% of our
revenues. We believe that the successful historic use of our products and our
reputation as a leader in our industry provides a strong competitive position.
Established Systems Integration Expertise. As more OEMs seek to reduce costs
by outsourcing key tasks and reducing the number of suppliers, we have
increasingly focused on capturing additional revenue
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opportunities by expanding our systems integration capabilities. In 1996, we
created our Automotive OEM division, now known as our Quantum division, to
serve this value-added opportunity. In 1998, we established our Industrial
Engine Systems business in Sterling Heights, Michigan, which provides systems
integration of our low-emission products for engines that are subsequently sold
to industrial OEMs. In 2000, our Quantum division opened facilities in Lake
Forest, California and Sterling Heights, Michigan, to expand our capabilities
in integration for our OEM customers that manufacture alternative propulsion
and energy systems. We believe that our systems integration expertise, together
with our proprietary and patented technologies, give us a significant advantage
in the fuel cell and alternative fuel markets.
Positioned for Global Growth. With ten foreign facilities and over 400
distributors and dealers in more than 30 countries outside the United States,
we believe that we are positioned to capitalize on global growth opportunities.
We believe that the alternative fuel markets will grow dramatically
internationally, particularly in China, India, Japan, Mexico and Southeast
Asia, because of the existing urban pollution problems and economics that favor
alternative fuels versus gasoline.
Business Strategy
Our objective is to be the leading developer and supplier of components and
systems that store gaseous fuels and monitor and control the pressure and flow
of those fuels for fuel cells and internal combustion engines. Our strategy for
achieving this objective includes the following elements:
Capitalize on our Strong Technology Leadership Position. We intend to
capitalize on our strong technology leadership position in developing and
commercializing fuel storage, fuel delivery and electronic control systems for
the fuel cell and alternative fuel industries. We are committed to significant
and continued research and development efforts in these industries. We also
plan to develop new technologies and expand our product and system integration
capabilities to an increasingly larger and more diversified customer base.
Focus on Fuel Cell Enabling Technologies and Products. We intend to focus on
fuel cell enabling technologies and products. We plan to continue to expand our
research and product development in fuel storage, fuel delivery and electronic
control systems for fuel cells. We also plan to develop and expand our products
and sales of fuel cell related products by focusing business development
efforts on the mobile vehicle, stationary power and portable power generation
industries. We will actively seek to establish joint development programs and
strategic alliances with the major fuel cell developers and industry leaders in
these markets.
Develop and Expand Key Industry Relationships. We plan to utilize the
successful technical and business relationships and reputation we have
established worldwide with major industry leaders using alternative fuel
products to enable us to establish and maintain strategic alliances, joint
product development programs and joint ventures with these companies in our
target markets. In addition, building upon the working relationship and
experience with General Motors, we plan to develop business relationships with
other industry leaders in the automotive and stationary power fuel cell
markets. We plan to concentrate our efforts on broadening our OEM relationships
in an effort to establish strong top-tier supplier positions based on our
belief that OEMs will drive industry growth in both the fuel cell and
alternative fuel industries.
Leverage Technology to Capture New Markets. We intend to leverage our
existing technology, product lines and customer relationships to develop new
applications across a broad spectrum of customers requiring similar products.
We plan to apply our technologies, capabilities and products to multiple market
applications within the fuel cell and alternative fuel industries.
Expand and Broaden Systems Integration Expertise. We plan to continue to
increase our existing capabilities to provide the integration, testing,
validation and manufacturing of our products and systems into the
transportation, material handling, stationary and portable power generation and
general industrial markets. As more OEMs seek to reduce costs and shorten time
to market by outsourcing key tasks and reducing numbers of suppliers, we are
increasingly focused on capturing additional revenue opportunities by expanding
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into value-added services, such as systems integration. For example, we have
established an industrial systems unit in Michigan to provide systems
integration for our products in engines that will be sold to industrial OEMs
that then install these engines into end products.
Increase Bases of Business Operations and Distributor Network in High-Growth
Global Regions. We plan to expand our operating network in high-growth regions,
such as Asia, Europe and Latin America, to take advantage of significant growth
opportunities that we believe exist in those areas. We intend to capitalize on
these growth opportunities through acquisitions and joint ventures,
strengthening of our distributor network and developing key local business and
governmental support and recognition. In particular, we are developing working
relationships with several foreign governments. We believe that working with
local governments and establishing joint ventures with local business leaders
is essential to expanding into international markets. For example, our
discussions with government officials has led to our involvement in developing
regulations in Mexico.
Expand our Global Manufacturing Operations. We plan to expand our current
QS-9000 manufacturing operations in the United States and Mexico by
establishing manufacturing sites in low-cost locations with a continued focus
on quality, timely delivery and operating efficiency.
Customers and Strategic Relationships
Our customers include some of the world's largest OEMs in our target
transportation, material handling, stationary and portable power generation and
general industrial markets. OEM customers of our Gaseous Fuel Products division
that purchased goods and services from the division in excess of $100,000
during the 2001 fiscal year include the following:
BMW Kohler
Caterpillar Linde
Clark Material Handling Lowry Industrial Lift-Trucks
Clark Samsung of Korea Mazda
Climaveneta Mitsubishi
Combi-Lift NACCO Material Handling
Cummins Nissan
Daewoo Orchard-Rite
Detroit Diesel Power Systems India
Ford Motor Company of Australia Scania
Generac Power Systems Tecogen
General Motors Toyota
JCB Excavators Waukesha Engine
We are working with a number of these customers to address their future
product needs in the expanding alternative fuel industry. Additionally, we
continually survey and evaluate the benefits of joint ventures, acquisitions
and strategic alliances with our customers and other participants in the
alternative fuel industry to strengthen our global business position.
We generate revenue through development contracts with OEMs and government
agencies for our enabling products and technologies for fuel cell applications,
and through the sale of our alternative fuel products for use in vehicles
manufactured by General Motors and other OEMs. Through its strategic alliance
with General Motors, Quantum will be a recommended provider of hydrogen
storage, hydrogen handling and associated electronic controls that meet OEM
requirements. We believe that this is a significant endorsement of our Quantum
division's core competencies and technologies as a potential contributor and
enabler of successful commercialization of General Motors' future alternative
propulsion and energy systems. We rely on our sales force to sell our products,
develop new customers and consummate joint application development programs
with leading OEMs in our target fuel cell markets of mobile vehicles,
stationary power and portable power.
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Product sales to and development fees from General Motors constituted 20% of
our consolidated revenues for the fiscal year ended April 30, 2001.
Substantially all of the revenues for our Quantum division for the fiscal year
ended April 30, 2001 related to product sales to and development fees from
General Motors. Quantum also has development programs with the following
entities:
Adam Opel AG Plug Power
DaimlerChrysler Sandia National Laboratories
DCH Technology South Coast Air Quality
Ford Motor Company Management District
General Motors SunLine Transit Agency
Hyundai Motor Company Toyota
ISE Research U.S. Department of Energy
Lawrence Livermore National Laboratory Yamaha Motor Company
We have a Teaming Agreement with General Motors encompassing the design,
development, manufacture and vehicle integration of our natural gas and propane
fuel systems into their vehicles. In connection with this relationship, we
provide complete fuel system integration services and validation, including
crash, hot and cold weather and high altitude, emission certification, service
plans and procedures and manufacturing. Our Teaming Agreement with General
Motors includes sharing of non-proprietary technology, corroboration of
technical staffs to leverage areas of technical expertise for mutual benefit,
sharing of laboratory and testing facilities, and use of General Motors
procurement network. General Motors has agreed to purchase gaseous fuel
propulsion systems or related components developed under this agreement from us
if:
. General Motors does not produce the components;
. we can supply such components; and
. we are competitive in terms of price, quality and service.
The Teaming Agreement also provides for a mutual right of first refusal if
we jointly develop new products under this agreement. As part of this right of
first refusal, we may not solicit sales to any third parties of any gaseous
fuel propulsion system or related components developed under the Teaming
Agreement for a period of two years from the date of General Motors' commercial
introduction. To date, the Teaming Agreement has been applied exclusively to
installation of alternative fuel systems and does not cover any joint
development efforts other than those that had been specific to General Motors
application requirements. We intend to establish similar relationships with
other leading industry OEMs by using our systems integration capabilities and
our leading technology position in fuel storage, fuel delivery and electronic
controls.
In May 2000, we formed a strategic alliance with NASA Space Shuttle rocket
booster manufacturer, ATK Thiokol Propulsion. ATK Thiokol's core competencies
include extensive material science knowledge, advanced analytical capabilities
and test facilities. This alliance provides us access to ATK Thiokol
scientists, engineers and support personnel experienced in the handling and
management of hydrogen fuel. We have exclusive rights to several of ATK
Thiokol's technologies for commercialization purposes, including its
conformable tank technology for the emerging automotive fuel cell markets and
nondestructive evaluation technology for testing.
Business Operations
We conduct business through two operating divisions: our Quantum division
and our Gaseous Fuel Products division (which includes our International
Operations segment). Our Quantum division focuses on motor vehicle OEMs in the
fuel cell and alternative fuel industries and on the stationary power and
portable power generation markets in the fuel cell industry. Our Gaseous Fuel
Products division targets the automotive aftermarket and the stationary and
portable power generation, industrial and material handling for OEMs and the
aftermarket.
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Quantum Division
Overview. Our Quantum division develops and manufactures cost-effective and
efficient gaseous fuel storage, fuel delivery and electronic control systems
for OEM passenger and fleet vehicles. Our Quantum division also targets the
emerging fuel cell industry, which includes the mobile vehicle and stationary
and portable power generation markets. The division's capabilities include the
following:
. research and development;
. application engineering and validation;
. fuel cell power system controls and validation;
. hydrogen and compressed natural gas fuel storage and testing;
. testing procedures to meet different global regulations and emission
control standards;
. fuel control devices and technology for gaseous fuels and other gases
for use in internal combustion engines, fuel cells and other
applications requiring metering of gases; and
. manufacturing.
Products. Our Quantum division's core products include gaseous fuel storage,
fuel delivery and electronic controls for fuel cell systems used in mobile
vehicle, stationary power generation and portable power markets. This division
continues to improve its products and develop new systems to meet increasingly
stringent vehicle operational and durability requirements in automotive OEM
fuel cell powered vehicles. The division also is developing improved system
technologies using injectors, high- and low-pressure regulators, on-board
diagnostics, high-performance fuel system control modules, fuel lock-offs and
related components for application in the stationary and portable power
generation fuel cell markets. Our Quantum division designs and manufactures
computerized controls, regulators and automatic shut-off equipment, and
lightweight, high-pressure hydrogen and natural gas storage tanks using its
TriShield technology.
Our fuel storage products include cylindrical and conformable tanks. We
provide lightweight, all-composite storage tank technologies for compressed
hydrogen. The lightweight nature of the tank, coupled with high hydrogen mass
by volume, improves the range of hydrogen-powered fuel cell vehicles. Our
conformable tank maximizes hydrogen storage in a given space, optimizing the
volume of hydrogen stored on board. The following table describes the features
of our storage products:
Products Features
-------- --------
TriShield All-Composite . Designed for safety, lightweight and cost-
Storage Tanks effectiveness
. Exceeds current regulatory qualification
requirements and also meets OEMs' more
stringent requirements for use in natural gas
fueled vehicles
. Provides 30% more fuel capacity than comparably
sized aluminum tanks, and lower cost than steel
tanks
. The all-composite liner technology acts as a
permeation barrier for stored fuel and reduces
the possibility of hydrogen embrittlement often
present with aluminum or steel liners in the
presence of hydrogen
. Designed for safety, lightweight and storage
Conformable Storage Tanks efficiency
. Optimal packaging solution
Our fuel delivery products consist of regulators, injectors and valves. We
have designed our patented in-tank regulator for use with hydrogen for fuel
cell applications. Our design provides greater safety by eliminating the need
for high-pressure fuel lines outside of the fuel storage tank. The unit is also
more cost-effective because it incorporates the features of many independent
components, thereby eliminating the need to
10
install several separate and more costly components. We have designed our
patented fuel injector for use with dry gasses such as hydrogen. Our fuel
injector is capable of handling the high flow rates needed in automotive
applications, while offering superior durability, longer life, less noise and
lower cost. This component also allows for very precise metering of fuel, which
is critical to optimize a fuel cell system. The following table describes the
features of our fuel delivery products:
Products Features
-------- --------
In-Tank Regulators . Reduces the pressure of the fuel stored in
the tank at the tank outlet, eliminating the
need for high-pressure fuel lines running
throughout the system
. Increased safety
. Significant cost reductions versus
competitive products
Gaseous Fuel Disc Injectors . Designed specifically for precise gaseous
fuel metering to provide superior flow rate
and increased durability over existing
plunger technologies
. Generally translates into lower costs than
competing technologies
Injector Pressure Regulators . Provides precise control of fuel required
for injection systems in fuel cell
applications
Gas Mass Sensors/Mixture . Measures and controls gaseous fuel and air
Control Valves flow, a critical step in the optimization of
fuel cell systems
Fuel Shut-off Products . Mechanically or electronically shuts off
fuel flow to the system when fuel leakage
occurs or when the system is turned off
Our electronic control products use microprocessors with varying capacities.
These units precisely control the flow and pressure of gaseous fuels, such as
hydrogen, and other gasses, such as air. We currently use these electronic
controls, coupled with our proprietary software, to optimize fuel pressure and
flow management for fuel cell applications. We believe, however, that there are
numerous other potential applications for these controls. The following table
describes the features of our electronic controls and software products:
Products Features
-------- --------
Electronic Controls . Manages flow of fuel and air in fuel cell
and Proprietary Software systems to improve optimization of overall
system
. Provides emissions monitoring system
control, proprietary designs, software and
calibration tools to develop, calibrate and
optimize fuel cell control systems
. Sensors, actuators and controllers specific
to our customers' needs and specifications
Services. We provide services in the areas of design, development,
validation, certification, manufacture and aftersales service support. We
provide our customers with the following services to support their programs for
transportation, and stationary and portable power generation applications:
. Systems Integration. We integrate our gaseous fuel storage, fuel
delivery and electronic control components and systems into fuel cell
engine applications in the mobile vehicle, stationary power and portable
power industries. We also provide rapid prototyping techniques, which
accelerate the iterative design process and result in a more accurate
design.
. Testing and Validation. To increase the likelihood of high success rates
at the system level, we perform component, subsystem and system testing
and validation. These procedures must satisfy our own internal
requirements, customer-specific requirements and industry standards. If
no suitable procedures exist, we generate requirements for the customer.
11
. Certification and Compliance. Our regulatory and certification engineers
implement the latest emissions and safety regulations to ensure the
proper certification and ongoing compliance of our products and our
business.
. System Level Assembly. We develop and manage the assembly process for
integration of our systems into end products at our facility or at our
customers' facilities.
. Training. We develop comprehensive technical training for our customers
that sell and service our products as well as for our customers that use
our products.
. Service and Warranty. We have extensive capabilities in developing
service procedures and programs for OEMs. We also provide technical
support over the telephone or at customer sites to resolve technical
issues.
Sales and Distribution. Our Quantum division derives revenue from fuel cell
development contracts with OEMs, government contracts focused on fuel cell and
alternative fuel research and the sale of our alternative fuel products for use
in alternative fuel vehicles manufactured by General Motors and other OEMs.
Through our Teaming Agreement with General Motors, Quantum sells our jointly
developed alternative fuel systems and components to General Motors. Through
our strategic alliance with General Motors announced on June 12, 2001, Quantum
will be a recommended provider to General Motors of hydrogen storage, hydrogen
handling and associated electronic controls for fuel cell system applications.
This division relies on its sales force to sell its products, develop new
customers and consummate joint application development programs with leading
OEMs in the target fuel cell markets of stationary power generation, mobile
vehicles and portable power.
Manufacturing. Our Quantum division's manufacturing activities currently
include assembly, system installation and tank manufacturing. We assemble the
majority of our components at our facility in Guaymas, Mexico, but outsource
the assembly of complex electronic components and select key suppliers for
certain components of developed fuel systems. Quantum's raw material supply
base is highly diversified. None of Quantum's suppliers represents more than 7%
of its raw material purchases. Complete systems are installed on vehicles at
the OEM manufacturing facility or at third-party equipping sites. The criteria
for the establishment of a site is proximity to vehicle manufacturing and
delivery points.
Our Quantum division operations are QS-9000 certified, with the exception of
our Sterling Heights, Michigan facilities. Our Sterling Heights facilities are
scheduled to be audited for QS-9000 certification before the end of the 2001
calendar year.
Gaseous Fuel Products Division
Overview. Our Gaseous Fuel Products division is a leading supplier of
components and systems that allow internal combustion engines to operate on
clean burning gaseous fuels, primarily propane and natural gas, and complete
engine packages operating on these fuels. Our Gaseous Fuel Products division
designs, manufactures and markets components and systems for engines from one
to 4,000 horsepower and provides full engine packages from 27 to 270
horsepower. Approximately 70% of this division's revenue is generated from the
sale of 100 of this division's products. This division supplies products for
the transportation, material handling, stationary and portable power generation
and general industrial markets. These markets are expanding, and the Gaseous
Fuel Products division is developing new value-added sales through the
introduction of new products and services. We believe that customers in our
target markets will increasingly purchase engine packages equipped with gaseous
fuel systems rather than purchasing separate components from multiple vendors.
We currently provide these complete engine packages to customers in our markets
and are well positioned to meet the increased demand for these packaged
systems.
We direct our Gaseous Fuel Products division distribution network from our
headquarters in Cerritos, California. This division conducts its sales,
application development and technical support to the OEMs and the aftermarket
through our domestic offices, a domestic distributor network, our international
offices and our worldwide distributor network.
12
Products. Our Gaseous Fuel Products division's core products include gaseous
fuel regulators, fuel shut-off valves, fuel delivery systems, complete engine
systems, and electronic controls for use in internal combustion engines for the
transportation, material handling, stationary and portable power generator and
general industrial markets. In addition to these core products, which we
manufacture, we also design, assemble and market ancillary components required
for complete systems operation on alternative fuels.
All of our products are designed, tested and validated in accordance with
our own internal requirements, as well as tested and certified with major
regulatory and safety agencies throughout the world, including Underwriters
Laboratories (UL) in North America and TUV in Europe. The following table
describes the features of our products:
Products Features
-------- --------
Fuel Metering . Designed to operate on propane, natural gas or digester
gas fuels
. Electronic control overlays allow integration with modern
emissions monitoring systems for full emissions
compliance capability
. Designed for high resistance to poor fuel quality
Fuel Regulation . Reduces pressure of gaseous and liquid fuels
. Vaporizes liquid fuels
. Handles a wide range of inlet pressures
Fuel Shut-Off . Mechanical or electronically shuts off fuel supply to the
regulator and engine
. Available for low-pressure vapor natural gas and high-
pressure liquid propane
. Designs also incorporate standard fuel filtration to
ensure system reliability
Electronics & Controls . Provides closed loop fuel control, allowing integration
with existing sensors to ensure low emissions
. Integrates gaseous fuel systems with existing engine
management functions
Engine Systems . Turnkey kits for a variety of engine sizes and
applications
. Customized applications interface per customer
requirements
Full Systems . Complete vehicle and equipment systems for aftermarket
conversion
. Complete engine and vehicle management systems for heavy-
duty engine on-highway truck and bus operation on natural
gas
. Complete engine and vehicle management systems for off-
highway and industrial engines used for material
handling, pumping and industrial applications
Services. We provide a broad range of services to both our product customer
base and the broader service marketplace. These services fall into the
following key areas:
Services Capabilities
-------- ------------
Design and Systems Integration . Strong team of applications engineers for component,
system and engine level exercises providing support to
customers in the application of our gaseous fuel products
. Applications engineering services for whole
vehicle/machine integration outside of our products
. Full three dimensional design modeling and component
rapid prototyping services
13
Certification . Certification of component products and services in line
with the requirements of California Air Resources Board
for off-highway engines
. Provide customers with the required tools to manage in-
field traceability and other requirements beyond initial
emission compliance
Testing and Validation . Component endurance testing
. Component thermal and flow performance cycling
. Engine and vehicle testing and evaluation for performance
and emissions
Sub-System Assembly . Pre-assembled modules for direct delivery to customers'
production lines
. Sourcing and integrating second and third tier supplier
components
Training and Technical Service . Complete technical service support, including technical
literature, web-based information, direct telephone
interface (in all major countries) and on-site support
. Training services through sponsored programs at approved
colleges, at our facilities worldwide and on-site at
customer facilities
Service Parts . Access to service parts network, along with direct
and Warranty Support support in development of customers' own internal service
parts programs and procedures
. Warranty and replacement services for our customers
worldwide
Sales and Distribution. Our Gaseous Fuel Products division sells its
products through a worldwide network encompassing more than 400 distributors
and dealers in over 30 countries and through a sales force that develops sales
with OEMs and large end-users. This division focuses on three markets: material
handling OEMs and aftermarket, stationary and portable power generation OEMs
and aftermarket, and the mobile vehicle aftermarket. Of these markets, we
believe that the automotive vehicle aftermarket, primarily outside of North
America, has the greatest potential for immediate growth and that the power
generation markets have potential for growth over the next one to five years.
For fiscal year 2001, sales to distributors (including company-owned
distributors) accounted for 58.0% of this division's net revenue and sales to
OEM customers accounted for approximately 42.0% of this division's net revenue.
This is consistent with the 1999 and 2000 fiscal years. Distributors primarily
service the aftermarket conversion business and small-volume OEMs, and are
generally specialized and privately owned enterprises. Many domestic
distributors have been our customers for more than 30 years, and many of our
export distributors have been our customers for more than 20 years.
Manufacturing. We manufacture and assemble all products for our Gaseous Fuel
Products division at our facilities in Cerritos, California, Sterling Heights,
Michigan and Guaymas, Mexico. Current manufacturing operations consist
primarily of mechanical assembly and light machining. We rely on outside
suppliers for parts and components and obtain components for products from a
variety of domestic and foreign automotive and electronics suppliers, die
casters, stamping operations, specialized diaphragm manufacturers and machine
shops. For fiscal year 2001, ten suppliers accounted for approximately 42.0% of
this division's raw material purchases.
Material costs, die cast aluminum parts and diaphragms in particular,
represent the major components of cost of sales. Coordination with suppliers
for quality control and timely shipments is a high priority to maximize
inventory management. We use a computerized material requirement planning
system to schedule material flow and balance the competing demands of timely
shipments, productivity and inventory management. All the Gaseous Fuel Products
division's manufacturing facilities are ISO-9001 or QS-9001 certified.
14
International Operations. Our International Operations segment consists of
our subsidiaries located in Australia, Europe, Japan and Mexico, which are
responsible for sales, application and market development, technical service,
customer shipment and inventory. These subsidiaries market and sell our Gaseous
Fuel Products division's products and services, along with complementary local
sourced products and services, and also provide sales, application and
technical support to both OEM and aftermarket customers.
Research and Development
Over the past eight years, we have invested approximately $100 million in
research and development for the advancement of our gaseous fuels and fuel cell
technology. We operate research and development facilities in California,
Michigan, Utah and Washington. Our Advanced Technology Center is dedicated to
the research and development of systems and products that support the use of
gaseous fuels in internal combustion engines and fuel cells. The center is the
hub of the activities of over 220 employees and has sophisticated state-of-the-
art research laboratories, advanced fuel system assembly, and analytical and
testing facilities. This center supports each of our operating segments by
conducting research and development of advanced fuel storage, fuel delivery and
electronic control systems and products for motor vehicles, engines, forklifts,
stationary engines and small industrial engines. Each operating segment funds
its own application development engineering for new products to address its
specific customer and target markets. The center offers the following technical
capabilities:
. Fuel Storage. Composite pressure vessel design and analysis, carbon and
epoxy filament winding and hydraulic, pneumatic, burst and fatigue
testing. Evaluation and development test capabilities for advanced
hydrogen storage materials, including hydride, alanates, carbon
adsorption and other emerging materials.
. Electronic Control Systems. Specialization in hardware design and
selection, engine modeling, calibration and software design for engine
and emission controls.
. Mechanical Design and Development. Specialization in pneumatics,
kinematics, hydraulic components and systems and advanced materials,
structural, flow and thermal analysis.
. Advanced Catalysts. Catalyst synthesis and processing, catalyst and
emission testing and fabrication of corona and conventional prototype
converters.
. Advanced Products. Injectors, compressors and micro machining, including
pressure sensors and bi-directional mass flow sensors, fuel management,
fuel storage and fuel supplies for fuel cell power systems, mass flow
sensors for natural gas measurement and "smart" sensors using micro-
controllers.
. Component and Subsystem Test Facilities. Extended vibrations, shock
loads and accelerations, extreme temperature exposure from -85(degrees)F
to 392(degrees)F and thermal shock, cyclic corrosion, extended salt,
fog, humidity and dryness cycling, severe acid and alkali corrosion,
flow simulations and pneumatic leak checks.
Together with Thiokol, we have established a hydrogen storage cycling
testing facility in Utah. We use the facility to perform hydrogen cycling
testing through repeated fast-fills on compressed gas storage tanks and
subsystems. The fully instrumented fast-filling tests will determine
temperature rise and confirm the gas thermodynamics experienced during filling.
We need this critical data for the design, manufacture, testing and validation
of compressed hydrogen storage tanks. While the initial focus of the testing
will be on hydrogen storage and handling for vehicle applications, the
facility's testing capabilities apply directly to storage systems for hydrogen
refueling stations.
We believe these capabilities are a critical component of our ability to
maintain our technology leadership position in fuel cell and alternative fuel
enabling systems. We intend to develop and adapt our current technologies and
products for use in connection with fuel cells, including the following
advanced products:
. Micro-Machined Mass Flow Sensors. We have successfully designed,
fabricated and tested a micro-machined single and bi-directional mass
flow sensor for air and natural gas mass flow measurement
15
and a micro-machined bi-directional mass flow and concentration sensor.
These micro-machined devices may have several applications for fuel cell
systems.
. Continuous Flow Control. We are working on a variety of fuel metering
devices for gaseous fuels that feature continuous flow outputs for use
in fuel cell applications.
. Water Management. We have internal expertise or have aligned ourselves
with strategic partners to provide water vaporization and humidification
of gas streams, direct water vapor transfer from humid to dry streams,
de-ionized water compatibility, water contamination removal, water pumps
and the storage and metering of water for fuel cells.
. Heat Exchanger and Thermal Management Systems. We have internal
expertise or have aligned ourselves with strategic partners to provide
heat transfer components and fluids, HVAC system and materials science.
We conduct fuel cell application development of mobile vehicles and
stationary power engines at our facilities located in Lake Forest, California
and Sterling Heights, Michigan. We opened these facilities during the 2000
fiscal year. The Advanced Vehicle Concept Center in Lake Forest, California
employs over 45 engineers and other professionals focused on systems
integration, validation and certification for concept, prototype and production
vehicles. Our Detroit headquarters and Platform Development Center in Sterling
Heights, Michigan also employ over 50 engineers and other professionals. Our
Sterling Heights facilities assist our OEM customers in the Detroit area,
acting as a liaison between us and our customers, performing the following
primary functions: program management, vehicle commercialization, production,
service, validation and specialty vehicle assembly management.
We conduct alternative fuel application development at the following
facilities:
. Cerritos, California for the power generation market;
. Seattle, Washington for the transportation market; and
. Sterling Heights, Michigan for the industrial market.
These facilities encompass approximately 26,000 square feet of laboratory
space, and we have over 40 employees at these facilities. Our employees'
expertise includes software and electronic control, sub-system and system
integration and the end use product environmental testing, sub-system, system
and product validation, and engine testing for sizes ranging from two
horsepower to over 500 horsepower.
Competition
We are a leading provider of fuel storage, fuel delivery and electronic
control systems for the fuel cell and alternative fuel markets. We provide
products and integrated services for all gaseous fuels in our target markets
for use in all end user applications in both the fuel cell and alternative fuel
industry.
In the alternative fuel industry, our key competitors in gaseous fuel
delivery products, accessory components and engine conversions markets include
Aisan, GFI, Koltec, Landi, Lovato, OMVL, Tartarini and Vialle, which together
with us account for a majority of the world market for alternative fuel
products and services. In the future, we may face competition from traditional
automotive component suppliers, such as Bosch, Delphi, Siemens and Visteon, and
from motor vehicle OEMs that develop fuel systems internally.
In the fuel cell industry, our area of expertise is in fuel storage, fuel
delivery and electronic controls. Our principal competition in the fuel cell
markets consists of very small independent companies or universities supported
by government grants. In the fuel cell industry, we do not compete with fuel
cell stack manufacturers, such as Ballard Power Systems, General Electric, Plug
Power, or United Technologies, whose technical focus is on fuel cell stack and
fuel reformer technology. Instead, we provide ancillary systems and enabling
technologies that complement the fuel cell stack.
16
Product Certification
We must obtain emission compliance certification from the Environmental
Protection Agency to sell certain of our products in the United States and from
the California Air Resources Board to sell certain products in California. Each
car, truck or van sold in the U.S. market must be certified by the
Environmental Protection Agency before it can be introduced into commerce and
its products must meet component, subsystem and system level durability,
emission, refueling and various idle tests. We have also obtained international
emissions compliance certification in Argentina, Australia, Brazil, Canada,
Chile, Europe and Mexico.
We strive to meet stringent industry standards set by various regulatory
bodies, including the Federal Motor Vehicle Safety Standards of the United
States, the National Highway and Transportation Safety Administration, the
National Fire Protection Association, Underwriters Laboratories. and American
Gas. Approvals enhance the acceptability of our products in the domestic
marketplace. Many foreign countries also accept these agency approvals as
satisfying the "approval for sale" requirements in their markets.
Backlog
As of May 31, 2001, our backlog for our products was $27 million. We measure
backlog for our product sales from the time orders become irrevocable, which
generally occurs 90 days prior to the date of delivery.
Employees
As of May 31, 2001, we employed approximately 726 persons. Of these
employees, approximately 327 were employed by our Quantum division, 399 were
employed by our Gaseous Fuel Products division, including 113 employees
internationally. None of our employees are represented in a collective
bargaining agreement. We consider our relations with our employees to be good.
Intellectual Property
We currently rely primarily on patent and trade secret laws to protect our
intellectual property. We currently have 14 U.S. patents issued and eight
foreign patents issued. The U.S. patents expire between October 2004 and March
2017. The foreign patents expire between November 2001 and October 2018. We
also have U.S. and foreign patent applications pending. Our pending patent
applications may not be allowed. Even if they are allowed, these patents may
not provide us a competitive advantage. Competitors may successfully challenge
the validity and scope of our patents and trademarks.
We also rely on a combination of trademark, trade secret and other
intellectual property laws and various contract rights to protect our
proprietary rights. However, we do not believe our intellectual property
provides significant protection from competition. We believe that patent,
copyright, trademark and trade secret protection are less significant and that
our growth and future success will be more dependent on factors such as the
knowledge, ability and experience of our personnel, new product introductions
and continued emphasis on research and development. We believe that
establishing and maintaining strong strategic relationships with valued
customers and OEMs are the most significant factors protecting us from new
competitors.
17
Directors and Executive Officers
The following table sets forth certain information regarding our directors
and executive officers as of June 15, 2001:
Name Age Position
---- --- --------
Robert M. Stemmler.......... 65 Chairman of the Board of Directors,
President and Chief Executive Officer
Dale L. Rasmussen........... 51 Senior Vice President and Secretary
Syed Hussain................ 48 Vice President of Technology and Quantum
division
Dennis D. Hartman........... 58 Vice President of the Gaseous Fuel Products
division
Donald L. Dominic........... 59 Vice President and General Counsel
William B. Olson............ 38 Treasurer and Chief Financial Officer
Norman L. Bryan (1)......... 59 Director
Paul Mlotok (1)............. 56 Director
J. David Power III (2)(3)... 70 Director
Don J. Simplot (2)(3)....... 65 Director
Douglas W. Toms (1)(3)(4)... 70 Director
--------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating Committee
(4) Resigned effective as of June 28, 2001
Robert M. Stemmler has served as our President and Chief Executive Officer
since May 1993. He has also been a director since May 1993, and the Chairman of
our Board of Directors since June 1998. From December 1992 until July 1993, Mr.
Stemmler was a full time consultant to our company. He served as our General
Manager from 1982 to 1985 and has held various management and executive
positions throughout his career at Celanese Corp. (now Hoechst-Celanese), an
international chemical and fibers manufacturer; A.J. Industries, a holding
company for aircraft, trucking and heating equipment companies; and Sargent
Fletcher Company, a manufacturer of military aircraft fuel tanks and in-flight
refueling systems. Mr. Stemmler is a director of Pacific Aerospace &
Electronics, Inc., an international manufacturer of aerospace and electronic
components. He holds an M.B.A. degree from Seton Hall University and a B.S.
degree in mechanical engineering from Washington University.
Dale L. Rasmussen has served as our Senior Vice President and Secretary
since June 1989. He joined us in April 1984 as Vice President of Finance and
Administration and Corporate Secretary. Prior to joining us, Mr. Rasmussen was
a commercial banker for 12 years at banks that were acquired by Key Bank and
U.S. Bank. Mr. Rasmussen is a director of Pacific Aerospace & Electronics,
Inc., an international manufacturer of aerospace and electronic components. He
received his B.A. degree in Business Administration and Economics from Western
Washington University and is a graduate of the Pacific Coast Banking School.
Syed Hussain has served as our Vice President of Technology and our Quantum
division since November 1996. Prior to joining us in 1992, Mr. Hussain worked
for General Motors Saturn, Eaton and Bendix (Allied Signal). He has over 18
years of automotive experience in engines, emission controls, powertrain and
related electronic and electromechanical devices. Mr. Hussain holds an M.S.E.E.
degree from Illinois Institute of Technology in Chicago, Illinois and a
B.S.E.E. degree from the University of Engineering and Technology in Pakistan.
Dennis D. Hartman has served as our Vice President and General Manager in
charge of the Gaseous Fuel Products division since April 1997. From January
1996 until joining us in April 1997, Mr. Hartman was the Operating Manager and
a director of Columbia River Homes of Astoria, Oregon, a manufacturer of
modular homes. Prior to holding that position, Mr. Hartman was a Vice President
of Nacco Material Handling, Inc., a manufacturer of lift trucks and worked in
finance for the Ford Motor Company. Mr. Hartman is a graduate of the University
of California, Berkeley. He holds an M.B.A. degree in finance from that
institution.
18
Donald L. Dominic has served as our Vice President, General Counsel and
Director of Human Resources since June 1998 and is also our Assistant
Secretary. Prior to joining us in 1994, Mr. Dominic held various management and
technical positions with Honeywell, Hughes and Sargent-Fletcher Company.
Mr. Dominic holds a B.S.E.E. degree from the University of Illinois, an
M.S.E.E. from West Coast University, an M.B.A. degree from the University of
Southern California, and a J.D. from the University of La Verne.
William B. Olson has served as our Treasurer and Chief Financial Officer
since July 1999. He originally joined us in October 1994 and has held various
financial positions with us, including serving as Corporate Controller. Between
November 1996 and April 1997, Mr. Olson served as manager of financial planning
at Autobytel. Prior to joining us, Mr. Olson was with the public accounting
firm of Ernst & Young and its Kenneth Leventhal Group. Mr. Olson holds a B.S.
degree in business and operations management from Western Illinois University
and an M.B.A. degree in finance and economic policy from the University of
Southern California. Mr. Olson is a Certified Financial Manager and a Certified
Management Accountant.
Norman L. Bryan has served as a director since November 1993 and is Chair of
the Audit Committee. He has been a consultant since January 1995. Mr. Bryan has
been employed as the Senior Vice President of Sales and Marketing of EIT, Inc.,
an electric meter manufacturing company, since October 1998. Prior to retiring
in 1994 from Pacific Gas and Electric Company, he was Vice President, Marketing
from February 1993 until December 1994, and was Vice President, Clean Air
Vehicles from February 1991 to February 1993. Mr. Bryan holds an M.A. degree in
business from Stanford University and a B.S.M.E. degree in mechanical
engineering from California State University in San Jose.
Paul Mlotok has served as a director since April 1997 and is a member of the
Audit Committee. Since 1995, he has been a Senior Practitioner with the
consulting firm Global Business Network, which specializes in the areas of
energy, natural resources and finance. From 1989 to 1995, he was a Principal
and oil industry analyst at Morgan Stanley & Co. He has a B.A. degree in
economics from Cornell University and a Ph.D. in economics from Brown
University.
J. David Power III has served as a director since August 2000. He is the
founder of J.D. Power and Associates where he has served as Chairman since
1996. Mr. Power has previously worked with Ford Motor Company, General Motors
Corporation, and J.I. Case Company. Mr. Power was a recipient of the Automotive
Hall of Fame's Distinguished Service Citation. Mr. Power graduated from the
College of Holy Cross, has an M.B.A. from The Wharton School of Finance at the
University of Pennsylvania, and holds honorary doctorate degrees from College
of the Holy Cross, California Lutheran University, and California State
University, Northridge.
Don J. Simplot has served as a director since May 1978 and is Chair of the
Compensation Committee. He is the President of Simplot Industries, Inc., which
is engaged in agricultural enterprises, and a Director member of the office of
the chair of J.R. Simplot Company, which is also engaged in agricultural
enterprises. Mr. Simplot is a director of Micron Technology, Inc., a designer
and manufacturer of semiconductor memory components primarily used in various
computer applications.
Douglas W. Toms served as a director from October 1980 until July 2001. He
served as our President and Chief Executive Officer from October 1980 to April
1989. From April 1989 to March 1995, Mr. Toms was a consultant to American
Honda Motor Company, Inc. Since March 1995, Mr. Toms has been self-employed as
a contract engineer. Mr. Toms holds a B.S. degree from Central Michigan
University in accounting/economics and an M.S. degree in traffic engineering
from Michigan State University.
The Board of Directors is divided into three classes, each consisting of
three directors, with the three classes serving staggered three year terms.
Each director will hold office until the first meeting of stockholders
immediately following expiration of his three year term of office and until his
successor is qualified and elected.
19
Item 2. Properties.
Facilities
Our executive offices and our Gaseous Fuel Products division are located in
Cerritos, California. Our Quantum division is headquartered in Irvine,
California. We currently lease additional manufacturing, research and
development (including the Advanced Technology Center) and general office
facilities in the following locations set forth below:
Location Principal Uses Square Footage
-------- ----------------------------- --------------
Quantum
Irvine, California Corporate offices, R&D 79,000
Irvine, California R&D 14,400
Lake Forest, California Design, development and 65,000
testing
Sterling Heights, Michigan Design and development 16,000
Sterling Heights, Michigan Design, development and 43,000
testing
Guaymas, Mexico Manufacturing 32,000
Gaseous Fuel Products
Cerritos, California Corporate offices; 105,000
manufacturing; design,
development and testing
Sterling Heights, Michigan Sales, marketing and assembly 78,000
Seattle, Washington Research and development 10,000
Rijswijk, Holland Sales, marketing and assembly 16,000
Cheltenham, Australia Sales, marketing and assembly 15,000
Sydney, Australia Sales, marketing and assembly 7,500
Mexico City, Mexico Sales, marketing and assembly 12,000
Fukuoka, Japan Sales, marketing and assembly 4,000
We also lease nominal amounts of office space in France, Germany, the United
Kingdom and Queensland, Australia.
We believe our facilities are presently adequate for our current core
product manufacturing operations and OEM development programs and production.
We anticipate that we will require additional space as we expand our operations
in the fuel cell and alternative fuel industries. We believe that we will be
able to obtain suitable space as needed on commercially reasonable terms.
Item 3. Legal Proceedings.
Except as set forth below, we are not currently a party to any material
legal proceeding. In addition to the proceeding described below, we may from
time to time become involved in litigation relating to claims arising in the
ordinary course of business. These claims, even if not meritorious, could
result in the expenditure of significant financial and managerial resources.
In August 2000, we proceeded with legal action in federal court (Eastern
District of Michigan, case # 00-73633) against GFI Control Systems Inc. and
Dynetek Industries Ltd. for patent infringement (U.S. Patent No. 6,041,762),
which covers a compressed gas fuel system that includes a tank with an internal
pressure regulator. GFI Control Systems Inc. filed a counter-claim for patent
infringement. We intend to vigorously enforce our intellectual property rights.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended April 30, 2001.
20
PART II
Item 5. Market for Company's Common Equity and Related Stockholder Matters.
Our common stock is traded on the Nasdaq National Market under the symbol
"IMCO." The following table sets forth, for the periods indicated, the high and
low sale prices of our common stock as reported on the Nasdaq National Market.
High Low
------ ------
Fiscal Year Ended April 30, 2000:
First Quarter............................................... $12.75 $ 8.25
Second Quarter.............................................. 14.88 9.63
Third Quarter............................................... 34.00 11.88
Fourth Quarter.............................................. 52.88 19.00
Fiscal Year Ended April 30, 2001:
First Quarter............................................... $44.88 $20.13
Second Quarter.............................................. 33.97 15.50
Third Quarter............................................... 22.50 9.75
Fourth Quarter.............................................. 26.88 13.00
Fiscal Year Ending April 30, 2002:
First Quarter (through July 27, 2001)....................... $43.24 $23.50
On July 27, 2001, the last reported sale price for our common stock as
reported by the Nasdaq National Market was $26.09 per share. As of June 15,
2001, there were 483 stockholders of record of our common stock.
Dividend Policy
The Company has never paid dividends on its common stock. We previously paid
the holders of our 1993 Series 1 Preferred Stock cumulative cash dividends. On
March 31, 1999, each share of preferred stock was converted into shares of our
common stock. As a result, after March 31, 1999, we have no shares of preferred
stock outstanding and have no obligation to pay any further dividends on those
shares.
We currently intend to retain any earnings for use in developing and growing
our business and do not anticipate paying any cash dividends on our common
stock in the foreseeable future. Any determination to pay dividends in the
future will be at the discretion of our board of directors and will be
dependent on our results of operations, financial condition, contractual
restrictions, restrictions imposed by applicable law and other factors deemed
relevant by the board of directors.
21
Item 6. Selected Financial Data.
The following table sets forth our selected consolidated financial data for
the five years ended April 30, 2001. This data has been derived from our
audited consolidated financial statements and should be read in conjunction
with the consolidated financial statements, related notes and other financial
information included herein. The pro forma data has been prepared to illustrate
the effect of our intended spin-off of our Quantum subsidiary and should be
read in conjunction with the unaudited pro forma condensed consolidated
financial statements, related notes and other financial information herein.
Year Ended April 30,
----------------------------------------------------
Pro forma
1997 1998 1999 2000 2001 2001(4)
------- ------- ------- -------- -------- ---------
(in thousands, except for per share data)
Income Statement Data:
Net Revenue:
Product sales.......... $58,437 $62,209 $75,821 $103,418 $ 95,987 $80,539
Contract revenue....... 3,392 8,874 11,006 9,398 7,910 --
------- ------- ------- -------- -------- -------
Total revenue........ 61,828 71,083 86,826 112,816 103,897 80,539
Cost and expenses:
Cost of sales.......... 37,342 38,174 52,179 69,799 68,951 49,498
Research and
development expense... 7,725 12,062 11,612 15,576 32,556 5,870
Selling, general and
administrative
expense............... 11,912 13,729 16,133 21,343 24,061 18,561
Operating income (loss).. 4,850 7,118 6,903 6,097 (21,671) 6,610
Interest expense......... 1,100 938 1,213 1,524 1,417 1,088
Interest income.......... -- 3 43 82 1,309 1,309
Gain on sale of
subsidiary(1)........... -- -- 2,169 -- -- --
Net income (loss)........ 3,225 4,865 6,331 3,065 (13,103) 3,675
Dividends on preferred
stock................... 581 595 531 -- -- --
Net income applicable to
common stock............ $ 2,644 $ 4,270 $ 5,800 $ 3,065 $(13,103) $ 3,675
Net income (loss) per
share(1)(2):
Basic.................. $ 0.46 $ 0.67 $ 0.80 $ 0.36 $ (1.32) $ 0.34
Diluted................ $ 0.43 $ 0.60 $ 0.71 $ 0.33 $ (1.32) $ 0.32
Number of shares used in
per share
computation(2)(3):
Basic.................. 5,722 6,334 7,293 8,489 9,935 9,935
Diluted................ 6,131 8,155 8,976 9,232 9,935 10,767
Balance Sheet Data:
Total current assets..... $29,904 $38,817 $52,120 $ 73,385 $ 79,636 $59,522
Total assets............. 47,113 58,178 73,562 95,016 120,763 87,947
Total current
liabilities............. 11,656 11,417 16,892 23,756 28,089 17,696
Long-term obligations,
less current portion.... 12,721 11,387 13,894 23,344 7,998 2,568
Stockholders' equity..... 22,063 34,305 41,449 45,379 82,631 65,640
--------
(1) Represents gain on sale of 49% interest in IMPCO BV to BERU
Aktiengesellschaft during fiscal year 1999. We recorded a pre-tax gain of
$2.2 million and an after-tax gain of $1.8 million or $0.20 per diluted
share.
(2) During fiscal year 1998, shares assumed to be issued upon conversion of our
preferred stock were included in the calculation of shares outstanding
since the conversion resulted in reportable dilution. During fiscal year
1999, all of our preferred stock was converted to common stock and the
diluted earnings per share was calculated as though the conversion occurred
at the beginning of fiscal year 1999.
(3) See note 1 of the notes to consolidated financial statements included
elsewhere in this prospectus for an explanation of the method used to
determine the number of shares used to compute net income per share.
(4) The pro forma data has been prepared to illustrate the effect of our
intended spin-off of Quantum. The adjustments are based upon available
information and upon certain assumptions that management believes are
reasonable under the circumstances. Diluted pro forma net income per share
includes the effect of dilutive employee stock options.
22
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
You should read this discussion together with the financial statements and
other financial information included in this Annual Report on Form 10-K.
Overview
We design, manufacture and supply components and systems that store gaseous
fuels and monitor and control the pressure and flow of those fuels for use in
fuel cells and internal combustion engines. Historically, most of our revenues
have been derived from the sale of products that enable traditional internal
combustion engines to run on clean burning alternative fuels, such as propane
and natural gas, instead of gasoline. Our goal is to commercialize systems that
will provide fuel storage, fuel delivery and electronic controls for fuel cells
and internal combustion engines.
We classify our business operations into three reporting segments: our
Quantum division (formerly known as the Automotive OEM division), the Gaseous
Fuel Products division and International Operations. Our Quantum division
generates revenues through the sale of fuel storage, fuel delivery and
electronic control systems to OEMs, primarily to General Motors, and the
installation of our products into OEM vehicles. Quantum also generates contract
revenue by providing engineering design and support to OEMs so that our fuel
storage, fuel delivery and electronic control systems integrate and operate
with certain of their alternative fuel vehicles. Our Gaseous Fuel Products
division sells products, including parts and conversion systems, for
applications in the transportation, material handling, stationary and portable
power generator and general industrial markets. Our International Operations in
Australia, Europe, Japan and Mexico distribute our products, predominantly from
our Gaseous Fuel Products division, and provide some product assembly.
We will continue to require significant research and development
expenditures over the next several years in order to commercialize our products
for fuel cell applications. We will also require significant capital
expenditures to construct additional manufacturing and assembly capacity
required to support the production of our products.
We recognize revenue for product sales when products are shipped and title
is transferred. Contract revenues are recognized based on the percentage of
completion method. Corporate expenses represent a sub-category of selling,
general and administrative expense. Corporate expenses consist of general and
administrative expense incurred at the corporate level and include the
amortization of goodwill and other intangible assets. Intersegment eliminations
are primarily the result of intercompany sales from our Gaseous Fuel Products
division to our International Operations segment. End markets for our products
include the transportation, material handling, and industrial and power
generation industries.
We expense all research and development when incurred. Research and
development expense includes both customer-funded research and development and
company-sponsored research and development. Corporate research and development
is a sub-category of research and development expense and represents company-
sponsored research and development that is not allocated to any of our
reporting segments. Customer-funded research and development consists primarily
of expenses associated with contract revenue. These expenses include
applications development costs in Quantum funded under customer contracts.
A portion of our growth over the past three years, particularly with regard
to our International Operations, has resulted from acquisitions in Australia,
Canada, Europe, Japan, Mexico and the United States and from formation of a
European-based joint venture. We have accounted for each of these acquisitions
under the purchase method of accounting.
Recent Developments
On June 14, 2001, we announced a plan to spin off our Quantum subsidiary. We
cannot assure you that the spin-off will occur as planned, if at all. The
proposed spin-off will be subject to numerous conditions, including the receipt
of a financial opinion from an underwriter, the receipt of an opinion from our
tax counsel or a private
23
letter ruling from the Internal Revenue Service to the effect that the spin-off
will be tax-free to our stockholders for federal income tax purposes, and a
final assessment by us and our tax counsel that the proposed spin-off will be
tax free to us for federal tax income tax purposes. We believe that the
measurement date regarding the planned spin-off of Quantum has not been reached
due to the absence of a formal plan to dispose of Quantum and the uncertainty
of a tax-free spin-off. Our pro forma net revenues and operating income,
assuming the intended spin-off occurred at the beginning of fiscal 2001,
totaled $80.5 million and $6.6 million, respectively.
Results of Operations
Years Ended April 30, 2000 and 2001
Net revenues and operating income for our reporting segments for the fiscal
years ended April 30, 2000 and 2001 are as follows:
Operating Income
Revenues (Loss)
---------------------- ---------------------
Year Ended April 30, Year Ended April 30,
---------------------- ---------------------
2000 2001 2000 2001
---------- ---------- ---------- ----------
(in thousands)
Quantum..................... $ 22,341 $ 23,358 $ (1,460) $ (21,523)
Gaseous Fuel Products....... 76,831 66,925 19,451 11,138
International Operations.... 29,991 31,132 2,623 1,387
Corporate expenses (1)...... -- -- (7,042) (7,019)
Corporate research and
development (1)............ -- -- (7,050) (5,601)
Intersegment elimination.... (16,347) (17,518) (425) (53)
---------- ---------- --------- ----------
Total................... $ 112,816 $ 103,897 $ 6,097 $ (21,671)
========== ========== ========= ==========
--------
(1) Represents corporate expenses and company-sponsored research and
development not allocated to any of the reporting segments.
Net revenue decreased $8.9 million or 7.9% from $112.8 million in fiscal
year 2000 to $103.9 million in fiscal year 2001. This decrease was primarily
due to short-term declines in the automotive aftermarket end use due to less
favorable alternative fuel prices and the declines in small industrial engine
sales related to year 2000 preparedness. The following table sets forth our
product revenues by application across all reporting segments:
Year Ended April 30,
---------------------
2000 2001
---------- ----------
(in thousands)
Motor vehicle products................................. $ 48,626 $ 40,619
Forklifts and other material handling equipment........ 37,947 39,445
Small portable to large stationary engines............. 16,844 15,923
---------- ---------
Total product sales................................ $ 103,417 $ 95,987
========== =========
During fiscal years 2000 and 2001, our product revenue was generated in the
following geographic regions:
Year Ended
April 30,
------------
2000 2001
----- -----
United States and Canada....................................... 60.2% 62.2%
Pacific Rim.................................................... 9.3% 10.9%
Europe......................................................... 13.7% 17.0%
Latin America.................................................. 16.8% 9.9%
24
Quantum. Net revenues in this segment increased $1.0 million or 4.6% from
$22.3 million in fiscal year 2000 to $23.3 million in fiscal year 2001.
Product sales for this segment increased $2.3 million or 18.3% from $13.1
million in fiscal year 2000 to $15.4 million in fiscal year 2001. This increase
was primarily due to an increase in unit sales to General Motors. Product sales
consists of those associated with General Motors mid-size automobiles, pick-up
trucks, and van platforms equipped with Quantum's bi-fuel compressed natural
gas fuel system and General Motors medium-duty trucks equipped with dedicated
liquid propane gas kits. We expect product sales to be higher in the future
based on the historical expansion of demand for General Motors' and other
automotive OEMs' alternative fuel platforms.
Gross margins on product sales to General Motors were $2.0 million lower in
fiscal year 2001 as compared to fiscal year 2000, primarily due to a $1.3
million increase in manufacturing overhead mainly relating to pre-production
costs associated with our fuel storage tanks and $1.6 million in inventory
write-offs and scrap primarily related to model year 2000 excess inventory.
This was partially offset by $1.1 million in higher direct material margins on
the model year 2001 mid-size automobiles. Additionally, we anticipate higher
operating losses for Quantum in fiscal year 2002, primarily due to higher
research and development expenditures and other operating expenses to support
anticipated alternative fuel and fuel cell research and development programs.
Contract revenue for Quantum decreased $1.4 million or 14.8% from $9.3
million in fiscal year 2000 to $7.9 million in fiscal year 2001. This decrease
was primarily due to lower contract levels, which reflect efficiencies that
result from our ability to transfer knowledge between prior model year and
current model year contracts. Additionally, the contract revenues recognized on
pick-up truck platforms declined due to an expanded scope of the 2001 program
to include the 2002 model year, which includes higher engineering costs to
complete without a commensurate increase in the contract value.
Operating losses for Quantum increased $20.0 million or 1,374.4% from $1.5
million in fiscal year 2000 to $21.5 million in fiscal year 2001. This increase
was primarily attributable to a $14.3 million increase in research and
development expenses, a $2.1 million increase in administrative expenses, a
$2.0 million decrease in product gross margins and a $1.4 million decrease in
contract revenues. The increase in research and development primarily relates
to our $2.4 million increase in application development costs and a $9.9
million increase for fuel storage, fuel delivery systems, and vehicle
integration for fuel cell OEM programs with the remaining portion mainly
attributable to additional facilities and additional research and development
activities to support the fuel cell OEM programs. In order to satisfy the
anticipated increased OEM demand, we opened four additional facilities to
expand our testing capabilities and vehicle integration capacity. We anticipate
future increases in application development and other operating expenditures as
we continue the expansion of engineering facilities and staff to support
anticipated alternative fuel and fuel cell programs. Product application
development costs increased $2.4 million or 28.9% from $8.2 million in fiscal
year 2000 to $10.6 million in fiscal year 2001. Product application development
expense is primarily for system development and application engineering of our
products under the funded General Motors contract, other funded contract work
with state and federal agencies, and for internally funded fuel cell and
alternate fuel system and component application development work. Customer-
funded product application development costs decreased $1.3 million or 16% from
$8.0 million in fiscal year 2000 to $6.7 million in fiscal year 2001.
Gaseous Fuel Products. Net revenues in this segment decreased $9.9 million
or 12.9% from $76.8 million in fiscal year 2000 to $66.9 million in fiscal year
2001. Revenues were lower primarily due to a $8.1 million slowdown in sales to
distributors in Mexico for automotive aftermarket sales. These lower shipments
were caused primarily by reduced volumes in aftermarket public transportation
programs, a reduction in prices due to increased competition and a reduction in
demand in the Mexican market primarily due to higher propane prices.
Additionally, revenues were lower due to a $4.5 million decline in small engine
sales related to year 2000 preparedness. These decreases were partially offset
by $4.5 million in higher sales of material handling engine systems and for
large industrial engine end uses at our engine systems business. Assuming the
25
continued growth of our engine systems business, the expanding revenue base
from complete certified system sales, a rebound in Mexico motor vehicle sales,
and increased component sales in supporting our international motor vehicle
sales expansion in India and Latin America, we anticipate that overall revenues
in fiscal year 2002 will be higher than fiscal year 2001.
Gross profit in this segment decreased $4.2 million or 16.0% from $26.5
million in fiscal year 2000 to $22.3 million in fiscal year 2001. The decline
in revenues negatively impacted gross profit by $4.0 million. The higher
percentage of sales to our foreign subsidiaries, which involve lower margins,
adversely affected gross profit by approximately $1.1 million. Additionally,
discounts on sales in the Mexico marketplace negatively affected gross profits
by $0.2 million. These declines were partially offset by a $0.7 million
increase in gross profit for material handling and large industrial engines due
mainly to lower per unit overhead costs as a result of higher volumes.
Operating income in this segment decreased $8.4 million or 42.7% from $19.5
million in fiscal year 2000 to $11.1 million in fiscal year 2001. This decrease
was primarily due to lower gross profits and higher application development
expenses of $4.0 million as compared to the prior fiscal year. The increase in
product application development expenses are primarily related to the
development of the next generation fuel/engine management systems for the
material handling and industrial engine market. Assuming growth in overall
revenues and gross profits and lower product development expenses, we
anticipate that operating income for this segment for fiscal year 2002 will be
higher than fiscal year 2001.
International Operations. Net revenues in this segment increased by $1.1
million or 3.8% from $30.0 million in fiscal year 2000 to $31.1 million in
fiscal year 2001. In fiscal year 2001, revenues for our International
Operations segment would have increased an additional $3.2 million, if not for
the strengthening of the U.S. Dollar. A strong U.S. Dollar has a negative
effect on the conversion of foreign currency denominated sales. Assuming the
fundamentals of our international markets remain strong in terms of government
regulations, pollution control, and economics, we anticipate continuing market
growth and increasing revenues for this segment next fiscal year.
Operating income for this segment decreased $1.2 million or 47.1% from $2.6
million in fiscal year 2000 to $1.4 million in fiscal year 2001 as all foreign
subsidiaries experienced lower operating income. This was primarily a result of
lower gross margins due to the higher cost of U.S. goods purchased with their
weakening local currencies. Additionally, we added marketing and technical
personnel to support these aspects of the business, which resulted in
increasing operating expenses compared to the prior fiscal year. Assuming
higher revenues and gross profits, we anticipate that operating income levels
in our International Operations segment will be higher in fiscal year 2002 than
in fiscal year 2001.
Corporate Expenses. Corporate expenses consists of general and
administrative expenses at the corporate level to support our operating
segments in areas such as executive management, finance, human resources,
management information systems, legal services and investor relations.
Additionally, amortization of goodwill and other intangible assets is recorded
as a corporate expense. Corporate expenses remained flat from fiscal year 2000
to fiscal year 2001. Higher legal expenses of $0.6 million relating to our
patent infringement lawsuit against GFI Control Systems, Inc., higher costs
pertaining to investor relations of $0.2 million and higher personnel costs of
$0.2 million relating to European business development activities were offset
by high one-time legal expenses incurred in the previous year.
Corporate Research and Development. Corporate research and development is a
component of our research and development expense and relates to engineering,
design and research and development which supports our operating units and the
development of all new products supporting the operating segments' needs.
Corporate research and development decreased $1.5 million or 20.6% from $7.1
million in fiscal year 2000 to $5.6 million in fiscal year 2001. The decrease
was due to the completion of several fuel delivery and fuel storage component
projects at the end of fiscal year 2000, which was partially offset by the
commencement of a new fuel storage component project in the second quarter. We
anticipate that corporate research and product development expense in fiscal
year 2002 will be higher than the levels experienced during fiscal year 2001
due to our anticipated increase in spending for various fuel delivery and fuel
storage projects.
26
Interest Expense. Interest expense decreased $0.1 million or 6.9% from $1.5
million in fiscal year 2000 to $1.4 million in fiscal year 2001. Interest
expense in fiscal year 2001 was offset by $1.3 million in interest income,
which was attributable to the proceeds from our July 2000 equity offering that
provided us with net proceeds equal to $53.5 million. We paid off the Bank of
America working capital line of credit at the end of the first quarter, and we
invested the remaining amount in short-term investments and money market
accounts.
Provision for Income Taxes. We have recorded an effective annual tax benefit
rate of 41% for fiscal year 2001. The effective tax benefit rate represents the
federal statutory income tax rate, state income taxes and foreign income taxes
increased by research and development credits. For fiscal year 2001, we have
incurred nearly $21.8 million of net operating loss, or NOL. We can carryback a
portion of this NOL to the prior two taxable years resulting in $1.5 million in
anticipated tax refunds. Research and development credits, freed up by the NOL
carryback, may be carried forward to future taxable years. At the end of fiscal
year 2001, federal and state research and development credit carryforwards were
$6.6 million. Federal research and development credits totaling $4.7 million
expire between 2009 and 2021. State research and development credits of
$1.9 million have no expiration.
At the end of fiscal year 2001, our net deferred tax assets were $12.8
million. We believe that, based on our history of prior operating earnings, our
announced plans to spin off Quantum and our expectations for the future, our
operating income will more likely than not be sufficient to recognize fully the
net deferred tax assets and that the estimated effective annual tax rate in the
future years will approximate the statutory rate.
Years Ended April 30, 1999 and 2000
Net revenues and operating income for our reporting segments for the fiscal
years ended April 30, 1999 and 2000 are as follows:
Operating Income
Revenues (Loss)
---------------------- ----------------------
Year Ended April 30, Year Ended April 30,
---------------------- ----------------------
1999 2000 1999 2000
---------- ---------- ---------- ----------
(in thousands)
Quantum.................... $ 24,469 $ 22,341 $ (27) $ (1,460)
Gaseous Fuel Products...... 52,632 76,831 14,284 19,451
International Operations... 21,188 29,991 1,504 2,623
Corporate expenses (1)..... -- -- (5,516) (7,042)
Corporate research and
development (1)........... -- -- (3,053) (7,050)
Intersegment elimination... (11,463) (16,347) (289) (425)
---------- ---------- ---------- ----------
Total.................. $ 86,826 $ 112,816 $ 6,903 $ 6,097
========== ========== ========== ==========
--------
(1) Represents corporate expenses and company-sponsored research and
development not allocated to any of the reporting segments.
Net revenue increased $26.0 million or 30% from $86.8 million in fiscal year
1999 to $112.8 million in fiscal year 2000. This increase was primarily due to
strong aftermarket sales in all end user applications. The following table sets
forth our product revenues by application across all business segments:
Year Ended April 30,
--------------------
1999 2000
--------------------
(in thousands)
Motor vehicle products................................. $ 32,748 $ 48,626
Forklifts and other material handling equipment........ 31,822 37,947
Small portable to large stationary engines............. 11,251 16,844
--------- ----------
Total product sales................................ $ 75,821 $ 103,417
========= ==========
27
During fiscal years 1999 and 2000, our product revenue was generated in the
following geographic regions:
Year
Ended
April 30,
----------
1999 2000
---- ----
United States and Canada......................................... 60.2% 60.2%
Pacific Rim...................................................... 9.0 9.3
Europe........................................................... 17.1 13.7
Latin America.................................................... 13.7 16.8
Quantum. Net revenues in this segment decreased $2.1 million or 8.6% from
$24.4 million in fiscal 1999 to $22.3 million in fiscal year 2000.
Product sales for this segment decreased $0.4 million or 3.0% from $13.5
million in fiscal year 1999 to $13.1 million in fiscal year 2000. This decrease
was primarily due to a decline in unit sales to General Motors. Product sales
consisted of General Motors mid-size automobiles and pick-up trucks equipped
with bi-fuel compressed natural gas fuel system and General Motors medium duty
trucks equipped with dedicated liquid propane gas kits provided under the
Teaming Agreement with General Motors.
Contract revenue for this segment decreased $1.7 million or 15.7% from $11.0
million in fiscal year 1999 to $9.3 million in fiscal year 2000. This decrease
was primarily due to lower contract levels, which reflect efficiencies that
result from our ability to transfer knowledge between prior model year and
current model year contracts.
Operating losses in this segment increased $1.4 million from $27,000 in
fiscal year 1999 to $1.5 million in fiscal year 2000. This increase was a
result of lower contract revenues, primarily from the General Motors program,
and associated higher product application development costs for new products
being commercialized. Product application development expense is primarily for
system development and application engineering of our products under the
General Motors Teaming Agreement, other funded contract work with state and
federal agencies, and for company funded product and component application
development work to develop business with other automotive OEMs. In fiscal year
2000, customer-funded product application development costs were $8.0 million
as compared to $6.1 million in fiscal year 1999.
Gross margins on General Motors product sales were higher in fiscal year
2000 as compared to fiscal year 1999, primarily due to lower material costs as
a result of engineering design efficiencies and reduced overhead costs.
Gaseous Fuel Products. Net revenues in this segment increased $24.2 million
or 46.0% from $52.6 million in fiscal year 1999 to $76.8 million in fiscal year
2000. This increase was primarily a result of the December 1998 acquisition of
the Engine Systems business which contributed $13.5 million, an increase in
small engine sales of $3.4 million and a $5.9 million increase in product sales
to Mexico. The price differential between gasoline and propane as well as our
strengthening relations with Mexican governmental agencies have positively
impacted the demand for the automotive aftermarket in Mexico.
Operating income increased $5.2 million or 36.0% from $14.3 million in
fiscal year 1999 to $19.5 million in fiscal year 2000. This increase was
primarily attributable to higher revenues and gross profit on the Gaseous Fuel
Products segment product sales due to increased sales volume. This increase was
partially offset by $1.5 million of additional administrative expenses
resulting from the Engine Systems business acquisition and $0.4 million of
higher product development expenses related to developing next generation
fuel/engine management systems for the material handling market.
International Operations. Net revenues in this segment increased by $8.8
million or 41.5% from $21.2 million in fiscal year 1999 to $30.0 million in
fiscal year 2000. This increase was primarily a result of increased revenues in
Mexico from $2.7 million in fiscal year 1999 to $6.7 million in fiscal year
2000 and the March 1999 acquisition of IMPCO Japan, which resulted in increased
revenues of $2.9 million in fiscal year 2000. In fiscal year 2000, revenues for
our International Operations segment would have increased an additional $0.8
million, if not for the strengthening of the U.S. Dollar. A strong U.S. Dollar
has a negative effect on the conversion of foreign currency denominated sales.
28
Operating income for this segment increased $1.1 million or 74.4% from $1.5
million in fiscal year 1999 to $2.6 million in fiscal year 2000. This increase
was primarily due to the addition of our Japan operations and higher
profitability of our European operations.
Corporate Expenses. Corporate expenses increased $1.5 million or 27.7% from
$5.5 million in fiscal year 1999 to $7.0 million in fiscal year 2000. The
increase in corporate expenses was primarily due to the incremental costs
associated with the evaluation of the unsolicited tender offer issued to us by
BERU AG, costs incurred in the creation of our Stockholder Protection Rights
Agreement, legal expenses and amortization of goodwill related to acquisitions.
Corporate Research and Development. Corporate research and development
increased $4.0 million or 129.0% from $3.1 million in fiscal year 1999 to $7.1
million in fiscal year 2000. This increase is primarily due to increased
efforts relating to the development and commercialization of fuel metering,
storage and fuel systems for fuel cells.
Interest Expense. Interest expense increased $0.3 million or 25.6% from $1.2
million in fiscal year 1999 to $1.5 million in fiscal year 2000. This increase
was attributable to additional borrowings partially offset by lower interest
rates on our credit facility with Bank of America.
Provision for Income Taxes. The estimated effective annual tax rate of 24.2%
for fiscal year 2000 is higher than the previous year due to the exhaustion of
federal net operating loss carryforwards during the previous fiscal year. The
effective tax rate represents the federal statutory income tax rate, state
income taxes and foreign income taxes reduced by research and development tax
credits. At the end of fiscal year 2000, net deferred tax assets were $4.2
million while the net deferred tax liabilities were $0.7 million.
Liquidity and Capital Resources
We use cash generated from our operations, equity capital, bank financings
and sales of our equity securities to fund capital expenditures and research
and development, as well as to invest in and operate our existing operations
and new businesses. In July 2000, we completed an equity offering in which we
received $53.5 million. We currently anticipate that we will require additional
sources of financing in order to capitalize on opportunities that we believe to
exist in the emerging fuel cell market. These additional sources of financing
may include bank borrowings or public or private offerings of equity or debt
securities. We cannot assure you that such additional sources of financing will
be available on acceptable terms, if at all.
The ratio of current assets to current liabilities was 2.8:1 at the end of
fiscal year 2001 and 3.1:1 at the end of fiscal year 2000. During fiscal year
2001, our total working capital increased by $1.9 million from $49.6 million at
the end of fiscal year 2000 to $51.5 million at the end of fiscal year 2001.
Net cash used in operating activities was $13.7 million in fiscal year 2001 as
compared to $6.6 million for fiscal year 2000. The increase in cash used in
operating activities during fiscal year 2001 resulted primarily from the net
operating loss for this year of $13.1 million as compared to the net income of
$3.1 million the previous year. Also contributing to the increase was the $8.5
million increase in the deferred tax asset. Partially offsetting these
increases was a $3.7 million decline in accounts receivable.
Net cash used in investing activities in fiscal year 2001 was $12.7 million,
an increase of $8.7 million from fiscal year 2000. This increase is primarily a
result of the purchase of equipment and leasehold improvements as we have
continued the expansion of engineering facilities to support anticipated
alternative fuel and fuel cell programs. Also, the purchase of available for-
sale securities was offset by the sale of available for-sale securities.
Net cash provided by financing activities for fiscal year 2001 was $39.7
million. This increase was mainly due to the proceeds from our follow-on equity
offering in July 2000, in which we received net proceeds of
29
$53.5 million. This increase was partially offset by the $13.5 million pay down
of our operating line of credit. We also increased our term debt by $7.5
million; however, this was partially offset by term loan principal payments of
$2.9 million. Additionally, cash provided by financing activities was reduced
$3.9 million by loans to officers for the purpose of exercising options to
purchase shares of our common stock from other stockholders.
In April 2001, we amended our loan facilities with Bank of America to expand
the U.S. revolving line of credit to allow for direct borrowing for Quantum, to
reduce the capital expenditure facility, and to consolidate our previous term
loan and non-revolving capital expenditure line of credit into one fully
amortizing term loan. This new loan facility also released $9.4 million, which
was previously held as collateral for the Bank of America term loan and capital
expenditure facility and had provided for a favorable financing rate. The
renegotiated facility provides for a $15.0 million revolving line of credit ($5
million for Quantum), a $3.0 million revolving line of credit for IMPCO
Mexicano, and a $1.8 million non-revolving line of credit for future capital
expenditures with Bank of America, and outstanding amounts under the facility
accrue interest at the lender's base rate plus up to 0.5%. At April 30, 2001,
$3.9 million and $0.5 million were outstanding under the revolving line of
credit and the revolving line of credit for IMPCO Mexicano, respectively. There
was no outstanding balance on the capital expenditures line. The Bank of
America facility contains covenants that require us to satisfy certain
financial tests, including a minimum EBITDA and a total debt leverage ratio,
beginning with the fiscal quarter ending October 31, 2001. Our revolving lines
of credit expire on September 30, 2001. While our capital expenditure line
expires on September 30, 2001, we have the option to convert it to a term loan
payable in four years. In addition, our subsidiary in the Netherlands has a fl
5 million (US$2.0 million at April 30, 2001) credit facility with Fortis Bank
(formerly Mees Pierson) in the Netherlands. At April 30, 2001, there was an
outstanding balance under this credit facility of US$1.5 million. Our
subsidiary in Japan has a (Yen)60 million (US$0.5 million at April 30, 2001)
revolving term loan facility with the Hong Kong and Shanghai Banking
Corporation Ltd., Osaka Branch. At April 30, 2001, a balance of US$0.2 million
was outstanding.
Derivative Financial Instruments
We have, from time to time, used derivative financial instruments for the
purpose of reducing our exposure to adverse fluctuations in interest and
foreign exchange rates. While these hedging instruments are subject to
fluctuations in value, such fluctuations are generally offset by the value of
the underlying exposures being hedged. We are not a party to leveraged
derivatives and do not hold or issue financial instruments for speculative
purposes.
Foreign Currency Management. The results and financial condition of our
international operations are affected by changes in exchange rates between
certain foreign currencies and the U.S. Dollar. Our exposure to fluctuations in
currency exchange rates has increased as a result of the growth of our
international subsidiaries. The functional currency for all of our
international subsidiaries is the local currency of the subsidiary. An increase
in the value of the U.S. Dollar increases the costs incurred by our
subsidiaries because most of our international subsidiaries' inventory
purchases are U.S. Dollar denominated. We monitor this risk and, if deemed
appropriate and under favorable terms, we attempt to minimize the exposure
through forward currency contracts and the management of cash disbursements in
local currencies. At April 30, 2001, we had no forward currency contracts. We
seek to manage our foreign currency economic risk by minimizing our U.S. Dollar
investment in foreign operations using foreign currency term-loans to finance
the operations of our foreign subsidiaries.
Interest Rate Management. We use interest rate swap agreements with Bank of
America to manage our exposure to interest rate changes and to stabilize the
cost of borrowed funds. When this type of agreement is executed, the swap is
generally linked to a specific debt instrument. At April 30, 2001, we had no
swap agreements in effect; however, on May 2, 2001 we entered into a swap
agreement with Bank of America, for a notional amount of $8.9 million, in which
we receive LIBOR and pay a fixed rate of 5.6%. This swap matures September 30,
2004 with notional payment dates and amortization identical to our $8.9 million
term loan.
30
Debt Obligations. The following table summarizes our debt obligations at
April 30, 2001. The interest rates represent weighted average rates, with the
period end rate used for the variable rate debt obligations. The fair value of
the debt obligations approximated the recorded value as of April 30, 2001.
Fair Value
2002 2003 2004 2005 Thereafter Total 4/30/01
---- ---- ---- ---- ---------- ----- ----------
(dollars in millions)
Debt denominated in US
dollars:
Line of credit............ $3.9 $ -- $ -- $ -- $ -- $3.9 $3.9
Term loans, including
current portion:
Variable rate........... $2.5 $2.5 $2.5 $1.4 $ -- $8.9 $8.9
Average interest rate... 6.5% 6.5% 6.5% 6.5% -- -- --
Debt denominated in
foreign currencies:
Dutch Guilders
Variable rate........... $1.5 $ -- $ -- $ -- $ -- $1.5 $1.5
Average interest rate... 6.4% -- -- -- -- -- --
Mexican Peso
Line of Credit.......... $0.5 $ -- $ -- $ -- $ -- $0.5 $0.5
Average interest rate... 20.3% -- -- -- -- -- --
Japanese Yen
Line of Credit.......... $0.2 $ -- $ -- $ -- $ -- $0.2 $0.2
Variable rate........... $0.3 $0.3 $0.2 $ -- $ -- $0.8 $0.8
Average interest rate... 1.7% 1.7% 1.7% -- -- -- --
Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended by
SFAS No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging
Activities-An Amendment of FASB Statement 133," which require us to recognize
all derivatives on the balance sheet at fair value. Derivatives that are not
designated as hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings
or recognized in other comprehensive income until the hedged item is recognized
in earnings. The ineffective portion of a derivative's change in fair value
will be immediately recognized in earnings.
Upon initial application of SFAS Nos. 133 and 138 on May 1, 2001, we did not
have any derivative instruments, as defined by these statements. However, we
will adjust our interest rate swap agreement entered into on May 2, 2001 to
fair value with an offsetting charge to comprehensive income, net of income
taxes, in future reporting periods.
The Financial Accounting Standards Board has issued Interpretation No. 44,
"Accounting for Certain Transactions Involving Stock Compensation," which
addresses implementation practice issues in accounting for compensation costs
under existing rules prescribed by Accounting Principles Board No. 25. The new
rules are applied prospectively to all new awards, modifications to outstanding
awards and changes in grantee status after July 1, 2000, with certain
exceptions. We consider the impact of the new rules when adopting new stock
option plans and when granting any options.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," or
SAB 101. SAB 101 summarizes certain of the SEC Staff's views in applying
generally accounting principles to revenue recognition in financial statements.
Under our normal business terms with customers, title passes to the seller at
the time of product shipment at which time we record the sale. Accordingly, the
requirements of SAB 101 had no effect on our revenue recognition policies.
31
Risk Factors
The preceding discussion contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. We face a number of
risks and uncertainties which could cause actual results or events to differ
materially from those contained in any forward-looking statement. Factors that
could cause or contribute to such differences include, but are not limited to,
the following:
We may never be able to introduce commercially viable fuel storage, fuel
delivery or electronic control products for fuel cell systems and we must
complete substantial additional research and development on our systems before
we can provide commercially viable products.
We do not know whether or when we will successfully introduce commercially
viable fuel storage, fuel delivery or electronic control products for the fuel
cell market. We have produced and are currently demonstrating a number of test
and evaluation systems and are continuing our efforts to decrease the costs of
our systems, improve their overall reliability and efficiency, and ensure their
safety. However, we must complete substantial additional research and
development on our systems before we can introduce commercially viable fuel
delivery systems for fuel cells. Even if we are able to do so, our efforts will
still depend upon the success of other companies in producing commercially
viable fuel cells. In addition, we are not currently manufacturing fuel cell
enabling products on a large scale and will need to expand our facilities to do
so. The manufacture and use of our TriShield composite tank may not be
successful, which could have an adverse impact on our growth in fuel cell
enabling technologies.
A mass market for fuel storage, fuel delivery and electronic control systems
for fuel cells may never develop or may take longer to develop than we
anticipate.
Fuel cell systems represent an emerging technology, and we do not know
whether OEMs will incorporate these technologies into their products or pursue
these technologies on a large scale. In particular, if a mass market fails to
develop or develops more slowly than we anticipate for fuel cell powered
transportation and power generation applications, we may be unable to recover
the expenditures incurred to develop our fuel systems for fuel cells and may be
unable to achieve profitability in that portion of our business, any of which
could negatively impact our business. Many factors, which are beyond our
control, may have a negative effect on the development of a mass market for
fuel cells and our fuel cell products and systems. These factors include the
following:
. the cost competitiveness and physical size of fuel cell systems;
. the availability, future costs and safety of hydrogen, natural gas or
other potential fuel cell fuels;
. consumer reluctance to adopt fuel cell or alternative fuel products;
. OEM reluctance to replace current technology;
. consumer perceptions of fuel cell systems;
. regulatory requirements; and
. the emergence of newer, breakthrough technologies and products by our
competitors in the fuel cell industry.
Our Quantum division's revenue depends to a great extent on our relationship
with General Motors and General Motors' commitment to develop the alternative
fuel market.
Substantially all of the revenues for the fiscal year ended April 30, 2001
for our Quantum division and 20% of our total revenues for the same period
related to sales of our products to and contracts with General Motors. Our
Teaming Agreement with General Motors expires on July 30, 2002 but may be
earlier terminated unilaterally by either us or General Motors upon 30 days'
written notice upon certain events, including the following:
. if the management committee governing the relationship has not met for
18 months; or
. a material breach of the Teaming Agreement, which remains uncorrected
for 20 days following notice.
32
General Motors may terminate the Teaming Agreement in the event of a change
in our management or ownership control. Our business and results of operations
would be adversely affected in the event General Motors terminates its
relationship with us or ceases to pursue the alternative fuel market. We hope
to renew our Teaming Agreement with General Motors before it expires, but if
that does not occur, we have no current plans to replace lost revenues from
that arrangement.
Our ability to sell our products to the automotive market depends to a
significant extent upon General Motors' worldwide sales and distribution
network and service capabilities. Any change in strategy by General Motors with
respect to alternative fuels could harm our business by reducing or eliminating
a substantial portion of our sales, whether as a result of market, economic or
competitive pressures, including any decision by General Motors:
. to alter its commitment to our fuel storage, fuel delivery and
electronic control technology in favor of other competing technologies;
. to develop fuel cells or alternative fuel systems targeted at different
application markets than ours; or
. to focus on different energy product solutions.
Additionally, our contract provides the grant of a non-exclusive right of
first refusal to General Motors on jointly developed products. We have
submitted products for testing and have responded to requests for proposals
from a number of other potential customers. To date, none of these proposals
has resulted in any long-term commitments.
We intend to make significant investments in the research and development of
fuel cell enabling technologies, which may not result in any corresponding
increase in net revenue, and may contribute to continuing operating losses.
We anticipate that our research and development expenses will increase
significantly as we continue our efforts in developing fuel cell enabling
technologies. We expect to continue to incur operating losses as a result of
these research and development expenditures for at least the next 12 months. We
may not recover this investment.
Our proposed spin-off of our Quantum subsidiary is subject to various risks,
including restrictions on our issuance of equity securities in order to
maintain the tax-free status of the spin-off.
Our proposed spin-off of Quantum is subject to a number of conditions,
including the receipt of an opinion of our tax counsel or a private letter
ruling from the Internal Revenue Service to the effect that the spin-off will
be tax-free to our stockholders for federal income tax purposes. We cannot
assure you that the spin-off will be tax-free to our stockholders or that the
spin-off will occur as planned, if at all. If the spin-off is completed, the
combined trading values of Quantum common stock and IMPCO common stock
following the spin-off may be less than the trading value of IMPCO common stock
prior to the spin-off.
Even if the spin-off of Quantum is tax-free to our stockholders, the spin-
off will be taxable to IMPCO if Section 355(e) of the Internal Revenue Code
applies to the spin-off. Section 355(e) of the Internal Revenue Code will apply
if 50% or more of IMPCO stock or Quantum stock, by vote or value, is acquired
by one or more individuals or entities, other than our historic stockholders
that receive Quantum common stock in the spin-off, acting pursuant to a plan or
series of related transactions that includes the spin-off. This limitation may
restrict IMPCO's and Quantum's ability to issue equity securities for any
purpose and may make Quantum and IMPCO less attractive acquisition or merger
candidates for at least two years following the spin-off.
Planning and implementing the spin-off of Quantum has required and will
continue to require the dedication of management resources, and we expect to
incur certain incremental expenses in future periods related to the spin-off.
These efforts may disrupt our ongoing business activities. These factors could
have an adverse affect on our results of operations or financial condition. In
addition, a significant portion of our
33
operational and administrative infrastructure represents costs that are fixed.
Accordingly, these costs may represent a greater percentage of sales after the
separation and thus could adversely affect our results of operations.
We may be unable to raise additional capital to complete our product
development and commercialization plans.
We anticipate that we will need to raise funds to complete the development
and commercialization of our fuel cell enabling technologies. These funds may
not be available on acceptable terms, if at all. Our product development and
commercialization schedule could be delayed if we are unable to fund our
research and development activities or the development of our manufacturing
infrastructure for new products. We do not know whether we will be able to
secure additional funding on terms acceptable to us. If we are unable to do so,
we may not be able to pursue our commercialization plans through the mass-
market stage.
Our business depends on the growth of the alternative fuel market.
Our future success depends on the continued expansion of the alternative
fuel industry, which has not yet gained broad acceptance. In the United States
and certain of our other target markets, alternative fuel such as natural gas
currently cannot be readily obtained by consumers for motor vehicle use and
only a small percentage of motor vehicles manufactured in 2000 was equipped to
use alternative fuels. We cannot assure you that the market for gaseous
alternative fuel engines will gain broad acceptance or, if it does, that it
will result in increased sales of our advanced fuel system products. In
addition, we have designed many of our products for alternative fuel vehicles
powered by both fuel cells and internal combustion engines, but not currently
for alternative power sources, such as electricity or alternate forms of
existing fuels. If the major growth in the alternative fuel market relates
solely to existing fuels, our revenues may not increase and may decline.
Users of gaseous alternative fueled or fuel cell powered vehicles may not be
able to obtain fuel conveniently and affordably, which may adversely affect the
demand for our products.
Vehicles and equipment powered by gaseous alternative fuels run primarily on
natural gas or propane. Fuel cells run on hydrogen or distilled fuels
containing hydrogen. Gasoline requires the development of additional
technologies for its use with fuel cells. The construction of a distribution
system to deliver natural gas, propane or hydrogen, or a suitable fuel
containing hydrogen, will require significant investment by third parties. An
adequate fuel distribution infrastructure may not be adopted. We are relying on
third parties, most of which are committed to the existing gasoline
infrastructure, to build this infrastructure. If these parties build a fuel
distribution infrastructure, the fuel delivered through it, both due to the
cost of the delivery system and the cost of the fuel itself, may have a higher
price than users are willing to pay. If users cannot obtain fuel conveniently
or affordably, a mass market for vehicles and equipment powered by gaseous
alternative fuels or fuel cells is unlikely to develop.
Our ability to attract customers and sell products successfully in the
alternative fuel industry also depends on a price differential between liquid
fuels, such as petroleum and gasoline, and gaseous fuels, such as propane and
natural gas. This price differential may not continue. Should this differential
narrow or disappear, it could adversely affect the demand of our products.
We currently face and will continue to face significant competition, which
could result in a decrease in our revenue.
We currently compete with companies that manufacture products to convert
internal combustion engines operating on liquid fuels to gaseous fuels and
companies that are developing fuel cells that may not require fuel storage,
fuel delivery or electronic control products of the type we design and produce.
Increases in the market for alternative fueled vehicles may cause OEMs to
find it advantageous to develop and produce their own fuel conversion or fuel
management equipment rather than purchasing the equipment from suppliers such
as us. In addition, greater acceptance of alternative fuel engines or fuel
cells may result in new competitors. Should any of these events occur, the
total potential demand for our products could be adversely affected and cause
us to lose existing business.
34
We face risks associated with marketing, distributing and servicing our
products internationally.
We currently operate in Australia, Europe, India, Japan and Mexico and
market our products and technologies in other international markets, including
both industrialized and developing countries. Our international operations are
subject to various risks common to international activities, such as the
following:
. exposure to currency fluctuations;
. managing potential difficulties in enforcing contractual obligations and
intellectual property rights;
. the burden of complying with a wide variety of laws and regulations,
including product certification, environmental and import and export
laws;
. political instability; and
. difficulties collecting international accounts receivable.
Any significant increase in the value of the dollar against currencies in
foreign markets in which we do business may impact negatively our
competitiveness in international markets.
We also intend to manufacture, market, distribute and service
internationally our fuel delivery systems for fuel cell powered equipment and
vehicles. We have limited experience developing, and no experience in
manufacturing, these fuel cell products to comply with the commercial and legal
requirements inherent in international markets. Our success in these fuel cell
markets will depend, in part, on our ability to secure relationships with
foreign OEMs and our ability to manufacture products that meet foreign
regulatory and commercial requirements.
Our business may be subject to product liability claims, which could be
expensive and could result in a diversion of management's attention.
The automotive industry experiences significant product liability claims. As
a supplier, we face an inherent business risk of exposure to product liability
claims in the event that our products or the equipment into which our products
are incorporated malfunction, resulting in personal injury or death. We may be
named in product liability claims even if there is no evidence that our systems
or components caused the accident. Product liability claims could result in
significant losses as a result of expenses incurred in defending claims or the
award of damages. The sale of systems and components for the transportation
industry entails a high risk of these claims. In addition, we may be required
to participate in a recall involving these systems if any of our systems prove
to be defective, or we may voluntarily initiate a recall or make payments
related to such claims as a result of various industry or business practices or
the need to maintain good customer relationships. We cannot assure you that our
product liability insurance will be sufficient to cover all product liability
claims, that such claims will not exceed our insurance coverage limits or that
such insurance will continue to be available on commercially reasonable terms,
if at all. Any product liability claim brought against us could have a material
adverse effect on our reputation and business.
Our business may become subject to future product certification regulations
which may impair our ability to market our products.
We must obtain product certification from governmental agencies, such as the
Environmental Protection Agency and the California Air Resources Board, to sell
certain of our products in the United States. A significant portion of our
future sales will depend upon sales of fuel management products that are
certified to meet existing and future air quality and energy standards. We
cannot assure you that our products will continue to meet these standards. The
failure to comply with these certification requirements could result in the
recall of our products, civil penalties or criminal penalties.
We anticipate that regulatory bodies will establish certification procedures
and impose regulations on fuel cell enabling technologies, which may impair our
ability to distribute, install and service these systems. Any
35
new government regulation that affects our advanced fuel technologies, whether
at the foreign, federal, state or local level, including any regulations
relating to installation and servicing of these systems, may increase our costs
and the price of our systems. As a result, these regulations may have a
negative impact on our revenues and profitability and thereby harm our
business, prospects, results of operations or financial condition.
New technologies could render our existing products obsolete.
New developments in technology may negatively affect the development or sale
of some or all of our products or make our products obsolete. Our success
depends upon our ability to design, develop and market new or modified fuel
storage, fuel delivery and electronic control products for fuel cells and
internal combustion engines. Our inability to enhance existing products in a
timely manner or to develop and introduce new products that incorporate new
technologies, conform to increasingly stringent emission standards and
performance requirements, and achieve market acceptance in a timely manner
could negatively impact our competitive position. New product development or
modification is costly; involves significant research, development, time and
expense; and may not necessarily result in the successful commercialization of
any new products.
We depend on our intellectual property, and our failure to protect that
intellectual property could adversely affect our future growth and success.
We rely on patent, trademark and copyright law, trade secret protection, and
confidentiality and other agreements with our employees, customers, partners
and others to protect our intellectual property for our fuel cell enabling and
alternative fuel technologies. However, some of our intellectual property is
not covered by any patent or patent application and, despite our precautions,
it may be possible for third parties to obtain and use our intellectual
property without authorization.
We currently have 22 domestic and foreign patents outstanding, which will
expire between November 2001 and October 2018. We also have patent applications
outstanding for our fuel cell enabling technology. We do not know whether any
patents will be issued or whether issued patents will be sufficiently broad to
protect our technology or processes. Patent applications and issued patents may
be challenged or invalidated. We could incur substantial costs in prosecuting
or defending patent infringement suits.
Furthermore, the laws of some foreign countries may not protect intellectual
property rights to the same extent as do the laws of the United States. It may
be difficult for us to enforce certain of our intellectual property rights
against third parties that may have acquired intellectual property rights by
filing unauthorized applications in foreign countries to register the marks
that we use because of their familiarity with our worldwide operations.
We cannot assure you that we will be successful in protecting our
proprietary rights. Any infringement on any of our intellectual rights,
especially in our developing fuel cell enabling technologies, could have an
adverse effect on our ability to develop and sell successfully commercially
competitive systems and components.
We depend on third-party suppliers for the supply of key materials and
components for our products.
We have established relationships with third-party suppliers, which provide
materials and components for our products, particularly the high-strength fiber
used in our lightweight fuel storage tanks. A supplier's failure to supply
materials or components in a timely manner or to supply materials and
components that meet our quality, quantity or cost requirements, combined with
our inability to obtain substitute sources for these materials and components
in a timely manner or on terms acceptable to us, would harm our ability to
manufacture our products or would significantly increase our production costs.
In particular, a delay in the delivery of high-strength fiber from our current
suppliers would result in a delay of the production of our products, which
could negatively impact our results of operations and business.
36
We may have difficulty managing the expansion of our product line to fuel cell
enabling technologies.
We anticipate a rapid expansion with respect to the development of our fuel
cell enabling technologies. This expansion will require us to hire additional
employees, increase the size of our current facilities and expand the scope of
our operations, all of which likely will place a significant strain on our
management team and other resources. Difficulties in effectively managing the
budgeting, forecasting and other processing control issues presented by this
rapid expansion could harm our business, prospects, results of operations and
financial condition.
Potential fluctuations in our financial results could cause our stock price to
decline.
Our revenue and operating results are subject to annual and quarterly
fluctuations as a result of a variety of factors, including the following:
. budget cycles and funding arrangements of governmental agencies;
. purchasing cycles of fleet operators and other customers;
. the uncertainty of timing of deliveries of vehicles and other equipment
on which our products are installed;
. the timing of implementation of government regulations promoting the use
of our products; and
. general economic factors.
It is possible that our operating results in one or more future quarters may
fall below the expectations of securities analysts and investors. If this
occurs, the trading price of our common stock might be materially and adversely
affected.
We could lose or fail to attract the personnel necessary to run our business.
Our success depends in large part on our ability to attract and retain key
management, engineering, scientific, manufacturing and operating personnel. As
we develop our fuel cell business, we will require additional technically
skilled personnel. Recruiting personnel for the industries in which we engage
is highly competitive, and the failure to attract or retain qualified personnel
could have a material adverse effect on our business.
Our failure to meet OEM specifications may hurt our business.
We offer integrated alternative fuel systems, which include tanks, brackets,
electronics, software and other components required to allow these products to
operate in fuel cells or other alternative fuel applications. Customers for
these systems require that these products meet strict OEM standards. Our
compliance with these requirements has resulted in increased development,
manufacturing, warranty and administrative costs. A significant increase in
these costs could adversely affect our profitability. Our inability to meet OEM
specifications on a timely basis may hurt our relationships with OEMs.
We may be subject to increased warranty claims.
In response to consumer demand, vehicle manufacturers have been providing,
and may continue to provide, increasingly longer warranty periods for their
products. As a consequence, these manufacturers require their suppliers, such
as us, to provide correspondingly longer product warranties. As a result, we
could incur substantially greater warranty claims in the future.
We may experience unionized labor disputes at OEM facilities.
As we become more dependent on vehicle conversion programs with OEMs, we
will become increasingly dependent on OEM production and the associated labor
forces at OEM sites. Labor unions represent most of the labor forces at OEM
facilities. Labor disputes could occur at OEM facilities, which could adversely
impact our direct OEM product sales. For example, in 1998, as a result of a
strike at one of our OEM's facilities, we experienced a decline in sales of our
products used in General Motors pick-up trucks.
37
Changes in environmental policies could hurt the market for our products.
The market for alternative fueled and fuel cell vehicles and equipment, and
the demand for our products are driven, to a significant degree, by local,
state and federal regulations in the United States that relate to air quality
and require the purchase of motor vehicles and equipment operating on
alternative fuels. Similarly, foreign governmental regulations also affect our
international business. These laws and regulations may change, which could
result in transportation or equipment manufacturers abandoning their interest
in alternative fueled and fuel cell powered vehicles. In addition, a failure by
authorities to enforce current domestic and foreign laws or to adopt additional
environmental laws could limit the demand for our products.
Although many governments have identified as a significant priority the
development of alternative energy sources, and fuel cells in particular, we
cannot assure you that governments will not change their priorities or that any
change they make would not materially affect our revenue or the development of
our products.
We may be subject to litigation if our stock price is volatile.
Our common stock has experienced in the past, and may experience in the
future, price and volume fluctuations. Many factors may cause the market price
for our common stock to decline, perhaps substantially, including the
following:
. failure to meet our product development and commercialization
milestones;
. demand for our common stock;
. failure of our revenue and operating results to meet the expectations of
securities analysts or investors in any quarter;
. downward revisions in securities analysts' estimates or changes in
general market conditions;
. technological innovations by competitors or in competing technologies;
. investor perception of our industry or our prospects; or
. general technology or economic or regulatory trends.
In the past, companies that have experienced declines in the market price of
their stock have been the subject of securities class action litigation. We may
become involved in a securities class action litigation in the future.
Litigation of this type often results in substantial costs and a diversion of
management's attention and resources, which could harm our business, prospects,
results of operations or financial condition.
Provisions of Delaware law and of our charter and bylaws may make a takeover
more difficult.
Provisions in our certificate of incorporation and bylaws and in the
Delaware corporate law may make it difficult and expensive for a third party to
pursue a tender offer, change in control or takeover attempt that our
management and Board of Directors oppose. Public stockholders that might desire
to participate in one of these transactions may not have an opportunity to do
so. We also have a staggered Board of Directors, which makes it difficult for
stockholders to change the composition of the Board of Directors in any one
year. These anti-takeover provisions could substantially impede the ability of
public stockholders to benefit from a change in control or to change our
management and Board of Directors.
We have a Stockholder Protection Rights Agreement that provides for a
dividend of one right for each outstanding share of our common stock. Upon the
occurrence of some events, including a person or entity's acquisition of 15% or
more of our common stock, each right will entitle the holder to purchase, at an
exercise price of $45 per share, common stock with a value equal to twice the
exercise price, which could cause substantial dilution. The rights agreement
may have the effect of deterring, delaying or preventing a change in control
that might otherwise be in the best interests of our stockholders.
38
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Information relating to Quantitative and Qualitative Disclosures About
Market Risk appear under the heading "Derivative Financial Instruments" which
is included in Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operation.
Item 8. Financial Statements and Supplementary Data.
See pages F-1 through F-27 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
39
PART III
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this Annual Report. We incorporate by reference in
Items 10 to 13 below certain sections of our definitive proxy statement, to be
filed pursuant to Regulation 14A with the SEC within 120 days after April 30,
2001.
Item 10. Directors and Executive Officers
Information required by this Item 10 is incorporated by reference in this
Annual Report from our definitive proxy statement to be filed pursuant to
Regulation 14A with the SEC within 120 days after April 30, 2001.
Item 11. Executive Compensation.
Information required by this Item 11 is incorporated by reference in this
Annual Report from our definitive proxy statement to be filed pursuant to
Regulation 14A with the SEC within 120 days after April 30, 2001.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information required by this Item 12 is incorporated by reference in this
Annual Report from our definitive proxy statement to be filed pursuant to
Regulation 14A with the SEC within 120 days after April 30, 2001.
Item 13. Certain Relationships and Related Transactions.
Information required by this Item 13 is incorporated by reference in this
Annual Report from our definitive proxy statement to be filed pursuant to
Regulation 14A with the SEC within 120 days after April 30, 2001.
40
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Documents filed as part of this report:
(1) Consolidated Financial Statements:
Report of independent auditors.
Consolidated balance sheets as of April 30, 2000 and 2001.
Consolidated statements of operations for the years ended April 30,
1999, 2000, and 2001.
Consolidated statements of stockholders' equity for the years ended
April 30, 1999, 2000 and 2001.
Consolidated statements of cash flows for the years ended April 30,
1999, 2000 and 2001.
Notes to consolidated financial statements.
(2) Supplemental Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts
All other schedules are omitted because the information is not
applicable or is not material, or because the information is included
in the consolidated financial statements or the notes thereto.
(3) Exhibits:
Exhibit No. Description Note No.
----------- ----------- --------
2.1 Deed of Sale of Business by and among IMPCO (7)
Technologies Pty. Limited, as buyer, and Ateco
Automotive Pty Limited, as seller, dated as of July
1, 1996.
2.2 Deed of Release by and among IMPCO Technologies, Inc. (7)
and Ateco Automotive Pty Limited dated as of July 1,
1996.
2.3 Shareholders Agreement for Gas Parts (NSW) Pty Limited (7)
by and among IMPCO Technologies Pty. Limited, Gas
Parts Pty Limited and Gas Parts (NSW) Pty. Limited,
dated as of July 4, 1996.
3.1 Certificate of Incorporation, as currently in effect. (1)
3.2 Bylaws adopted July 22, 1998. (13)
4.1 Stockholders' Protection Rights Agreement dated as of (12)
June 30, 1999 between IMPCO Technologies, Inc. and
ChaseMellon Stockholder Services, L.L.C., as Rights
Agent.
10.1 Lease between L-W Income Properties and IMPCO (2)
Technologies, Inc. dated May 10, 1989.
10.2+ 1989 Incentive Stock Option Plan. (3)
10.3+ 1991 Executive Stock Option Plan dated November 5, (4)
1991, among AirSensors, Inc., as the Company, and
Bertram R. Martin, James J. Mantras and Dale L.
Rasmussen, as Optionees.
10.4 First Amendment to Lease dated April 19, 1993, between (5)
L-W Income Properties and IMPCO Technologies, Inc.
10.5+ 1993 Stock Option Plan for Non-employee Directors. (6)
10.6+ Amendment to 1989 Incentive Stock Option Plan. (6)
41
Exhibit No. Description Note No.
----------- ----------- --------
10.7+ 1996 Incentive Stock Option Plan (8)
10.8+ 1997 Incentive Stock Option Plan (9)
10.9 Lease between Klein Investments, Family Limited (10)
Partnership, as lessor, and IMPCO Technologies, Inc.,
as lessee, dated August 18, 1997.
10.10 Amendment dated March 18, 1998 to Loan agreement dated (10)
October 7, 1998 between Bank of America National Trust
and Savings, as lender, and IMPCO Technologies, Inc.,
as the borrower.
10.11 Amendment dated April 29, 1998 to Loan agreement dated (10)
October 7, 1998 between Bank of America National Trust
and Savings, as lender, and IMPCO Technologies, Inc.,
as the borrower.
10.12 Loan Agreement for IMPCO Technologies, B.V. as (10)
borrower, and Bank of America National Trust and
Savings Association, acting through its Amsterdam
branch, as lender, dated as of April 27, 1998.
10.13 Loan Agreement dated September 11, 1998 between Bank of (11)
America National Trust and Savings Association, as
lender, and IMPCO Technologies, Inc., as the borrower.
10.14 Amendment to lease between Klein Investments, Family (13)
Limited Partnership, as lessor, and IMPCO
Technologies, Inc., as lessee, dated March 9, 1999.
10.15 Loan Agreement between IMPCO Tech Japan KK, as (13)
borrower, and, Hongkong and Shanghai Banking
Corporation Ltd., Osaka Branch., as lender, dated as
of March 29, 1999.
10.16+ Employment Agreement dated April 1, 1999, between IMPCO (13)
Technologies, Inc., as the Company, and Robert M.
Stemmler, as the Employee.
10.17 Amended Loan Agreement between IMPCO Technologies, (14)
Inc., as borrower and Bank of America N.A. as lender,
dated September 13, 1999.
10.18 Intentionally Omitted
10.19 Amendment No. 3 to Business Loan Agreement by and (15)
between Bank of America, N.A. and IMPCO Technologies,
Inc. dated as of June 13, 2000.
10.20 Lease dated as of March 31, 2000, by and between Braden (16)
Court Associates and IMPCO Technologies, Inc.
10.21 Amendment No. 4 to Business Loan Agreement by and (18)
between Bank of America, N.A. and IMPCO Technologies,
Inc. dated as of September 12, 2000.
10.22 Amendment No. 5 to Business Loan Agreement between Bank (18)
of America, N.A. and IMPCO Technologies, Inc. dated as
of December 13, 2000.
10.23 Amendment No. 6 to Business Loan Agreement between Bank (19)
of America, N.A. and IMPCO Technologies, Inc. dated as
of March 12, 2001.
10.24 Promissory Note Issued by Robert Stemmler to Registrant (17)
dated March 15, 2001.
10.25 Promissory Note Issued by Dale Rasmussen to Registrant (17)
dated March 15, 2001.
10.26 Promissory Note Issued by Syed Hussain to Registrant (17)
dated March 15, 2001.
10.27 Security Agreement and Agreement Not to Exercise (17)
Options entered into between Robert Stemmler and
Registrant dated March 15, 2001.
10.28 Security Agreement and Agreement Not to Exercise (17)
Options entered into between Dale Rasmussen and
Registrant dated March 15, 2001.
10.29 Security Agreement and Agreement Not to Exercise (17)
Options entered into between Syed Hussain and
Registrant dated March 15, 2001.
42
Exhibit No. Description Note No.
----------- ----------- --------
10.30 Deed of Trust Executed by Dale Rasmussen regarding (17)
personal residence.
10.31+ Corporate Alliance Agreement dated June 12, 2001 (21)
between Quantum Technologies Worldwide, Inc. and
General Motors Corporation.
10.32 Master Technical Agreement dated June 12, 2001 between (21)
Quantum Technologies Worldwide, Inc. and General
Motors Corporation.
10.33 Stock Transfer Agreement dated June 12, 2001 between (21)
Quantum Technologies Worldwide, Inc. and General
Motors Corporation.
10.34 Registration Rights Agreement dated June 12, 2001 (21)
between Quantum Technologies Worldwide, Inc. and
General Motors Corporation.
10.35 Amended and Restated Business Loan Agreement dated as (1)
of April 30, 2001 among IMPCO Technologies, Inc.,
Quantum Technologies, Inc. and Bank of America, N.A.
10.36+ 2000 Incentive Stock Option Plan (20)
10.37 IMPCO and GM Teaming Agreement dated July 30, 1997 by (22)
the Company and General Motors Corporation.
21.1 Subsidiaries of the Company. (1)
23.1 Consent of Ernst & Young LLP. (1)
--------
(1) Filed herewith.
(2) Incorporated by reference from Form 10-K for fiscal year 1989.
(3) Incorporated by reference from Form 10-K for fiscal year 1990.
(4) Incorporated by reference from Form 10-K for fiscal year 1992.
(5) Incorporated by reference from Form 10-K for fiscal year 1993.
(6) Incorporated by reference from Form 10-K for fiscal year 1994.
(7) Incorporated by reference from 8-K/A dated July 1, 1996.
(8) Incorporated by reference from Form 10-K for fiscal year 1997.
(9) Incorporated by reference from Proxy Statement for fiscal year 1997.
(10) Incorporated by reference from Form 10-K for fiscal year 1998.
(11) Incorporated by reference from Form 10-Q for period ended October 31,
1998.
(12) Incorporated by reference from Form 8-K dated June 30, 1999.
(13) Incorporated by reference from Form 10-K for fiscal year 1999.
(14) Incorporated by reference from Form 10-Q for the period ended December 7,
1999.
(15) Incorporated by reference from Form S-3/A (File No. 333-34366), filed with
the Commission on June 14, 2000.
(16) Incorporated by reference from Form 10-K for fiscal year 2000.
(17) Incorporated by reference from Form 8-K dated March 26, 2001.
(18) Incorporated by reference from Form 10-Q for the period ended October 31,
2000.
(19) Incorporated by reference from Form 10-Q for the period ended January 31,
2001.
(20) Incorporated by reference from Proxy Statement for fiscal year 2000.
(21) Incorporated by reference from Form S-3/A (File No. 333-63726), filed with
the Commission on July 9, 2001.
(22) Incorporated by reference from Form S-3 (File No. 333-34366), filed with
the Commission on April 7, 2000.
+ Management contract or compensatory plan or arrangement.
+ Certain information in this exhibit has been omitted and filed separately
with The Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
43
(b) Reports on Form 8-K:
The Company filed a report on Form 8-K on March 26, 2001 during the fourth
quarter ended April 30, 2001. Information regarding the items reported on is as
follows:
Item Reported on
----------------
. Promissory Note Issued by Robert Stemmler to Registrant dated March 15,
2001.
. Promissory Note Issued by Dale Rasmussen to Registrant dated March 15, 2001.
. Promissory Note Issued by Syed Hussain to Registrant dated March 15, 2001.
. Security Agreement and Agreement Not to Exercise Options entered into
between Robert Stemmler and Registrant dated March 15, 2001.
. Security Agreement and Agreement Not to Exercise Options entered into
between Dale Rasmussen and Registrant dated March 15, 2001.
. Security Agreement and Agreement Not to Exercise Options entered into
between Syed Hussain and Registrant dated March 15, 2001.
. Deed of Trust Executed by Dale Rasmussen regarding personal residence.
44
IMPCO TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets............................................... F-3
Consolidated Statements of Operations..................................... F-4
Consolidated Statements of Stockholders' Equity........................... F-5
Consolidated Statements of Cash Flows..................................... F-6
Notes to Consolidated Financial Statements................................ F-7
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Pro Forma Condensed Consolidated Financial Statements........... F-24
Unaudited Pro Forma Condensed Consolidated Balance Sheet.................. F-25
Unaudited Pro Forma Condensed Consolidated Statement of Income............ F-26
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.. F-27
F-1
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
IMPCO Technologies, Inc.
We have audited the accompanying consolidated balance sheets of IMPCO
Technologies, Inc. and subsidiaries as of April 30, 2000 and 2001, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended April 30, 2001. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of IMPCO
Technologies, Inc. and subsidiaries at April 30, 2000 and 2001, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended April 30, 2001, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth herein.
/s/ Ernst & Young LLP
Long Beach, California
May 31, 2001, except for Note 13
as to which the date is June 14, 2001
F-2
IMPCO TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
April 30, April 30,
2000 2001
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents......................... $ 3,012,236 $ 16,591,415
Accounts receivable............................... 29,638,094 25,486,324
Less allowance for doubtful accounts............. 565,597 1,021,353
------------ ------------
Net accounts receivable......................... 29,072,497 24,464,971
Inventories:
Raw materials and parts......................... 18,506,961 20,675,003
Work-in-process................................. 836,308 740,972
Finished goods.................................. 13,628,649 9,935,020
------------ ------------
Total inventories.............................. 32,971,918 31,350,995
Deferred tax assets............................... 4,237,571 2,168,679
Other current assets.............................. 4,090,750 5,060,028
------------ ------------
Total current assets........................... 73,384,972 79,636,088
Equipment and leasehold improvements:
Dies, molds and patterns.......................... 6,537,110 7,140,156
Machinery and equipment........................... 8,340,978 12,388,246
Office furnishings and equipment.................. 7,191,795 14,207,561
Automobiles and trucks............................ 542,157 528,917
Leasehold improvements............................ 3,461,098 4,478,685
------------ ------------
26,073,138 38,743,565
Less accumulated depreciation and amortization.... 15,507,208 18,690,053
------------ ------------
Net equipment and leasehold improvements........ 10,565,930 20,053,512
Intangibles arising from acquisitions.............. 15,758,461 15,413,476
Less accumulated amortization..................... 5,271,918 5,878,482
------------ ------------
Net intangibles arising from acquisitions......... 10,486,543 9,534,994
Deferred tax assets................................ -- 10,601,227
Other assets....................................... 578,568 936,843
------------ ------------
$ 95,016,013 $120,762,664
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 13,652,011 $ 11,713,680
Accrued payroll obligations....................... 3,942,028 3,881,500
Other accrued expenses............................ 2,341,567 2,735,528
Current lines of credit........................... 822,020 6,078,205
Current maturities of long-term debt and capital
leases........................................... 2,998,677 3,680,158
------------ ------------
Total current liabilities...................... 23,756,303 28,089,071
Lines of credit.................................... 18,808,699 --
Term loans......................................... 3,014,257 6,870,693
Capital leases..................................... 1,521,199 1,127,583
Deferred tax liabilities........................... 745,154 --
Minority interest.................................. 1,791,058 2,044,122
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, authorized
500,000 shares; none issued and outstanding at
April 30, 2001 and 2000 ......................... -- --
Common stock, $.001 par value, authorized
100,000,000 shares; 10,294,377 issued and
outstanding at April 30, 2001, 8,571,805 issued
and outstanding at April 30, 2000 ............... 8,572 10,294
Additional paid-in capital relating to common
stock............................................ 47,539,037 102,831,566
Shares held in trust.............................. (110,320) (142,710)
Notes receivable from officers.................... -- (3,913,854)
Retained earnings (accumulated deficit)........... 667,683 (12,434,966)
Accumulated other comprehensive income............ (2,725,629) (3,719,135)
------------ ------------
Total stockholders' equity..................... 45,379,343 82,631,195
------------ ------------
$ 95,016,013 $120,762,664
============ ============
See accompanying notes to consolidated financial statements.
F-3
IMPCO TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Year Ended April 30
---------------------------------------
1999 2000 2001
----------- ------------ ------------
Revenue:
Product sales....................... $75,820,926 $103,417,448 $ 95,986,664
Contract revenue.................... 11,005,528 9,398,305 7,910,540
----------- ------------ ------------
Net revenue....................... 86,826,454 112,815,753 103,897,204
Costs and expenses:
Cost of product sales............... 52,178,542 69,798,833 68,951,003
Research and development expense.... 11,611,758 15,576,475 32,556,371
Selling, general and administrative
expense............................ 16,133,080 21,343,333 24,060,425
----------- ------------ ------------
Total costs and expenses.......... 79,923,380 106,718,641 125,567,799
Operating income (loss)............... 6,903,074 6,097,112 (21,670,595)
Interest expense...................... 1,212,916 1,523,648 1,417,281
Interest income....................... (43,086) (81,504) (1,308,921)
Gain on sale of 49% interest in
subsidiary........................... 2,169,405 -- --
----------- ------------ ------------
Income (loss) before income taxes,
minority interest in income of
consolidated subsidiaries and
dividends............................ 7,902,649 4,654,968 (21,778,955)
Income tax expense (benefit).......... 1,501,503 1,126,239 (8,929,370)
Minority interest in income of
consolidated subsidiaries............ 70,532 463,233 253,064
----------- ------------ ------------
Net income (loss) before dividends on
preferred stock...................... 6,330,614 3,065,496 (13,102,649)
Dividends on preferred stock.......... 530,542 -- --
----------- ------------ ------------
Net income (loss) applicable to common
stock................................ $ 5,800,072 $ 3,065,496 $(13,102,649)
=========== ============ ============
Net income (loss) per share:
Basic............................... $ 0.80 $ 0.36 $ (1.32)
=========== ============ ============
Diluted............................. $ 0.71 $ 0.33 $ (1.32)
=========== ============ ============
Number of shares used in per share
calculation:
Basic............................... 7,293,160 8,489,229 9,934,700
=========== ============ ============
Diluted............................. 8,975,629 9,232,299 9,934,700
=========== ============ ============
See accompanying notes to consolidated financial statements.
F-4
IMPCO TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Fiscal Year Ended April 30
--------------------------------------
1999 2000 2001
----------- ----------- ------------
1993 Series 1 Preferred Stock:
Beginning balance.................... $ 5,650,000 -- --
Preferred stock conversion........... (5,650,000) -- --
----------- ----------- ------------
Ending balance..................... -- -- --
Common Stock:
Beginning balance.................... 7,092 8,408 8,572
Issuance of common stock (192,116,
163,326 and 97,572 shares,
respectively) resulting from the
exercise of stock options........... 192 164 97
Issuance of common stock (1,124,764
shares) resulting from preferred
stock conversion.................... 1,124 -- --
Issuance of common stock (0, 0 and
1,625,000 shares, respectively)
resulting from equity offering...... -- -- 1,625
----------- ----------- ------------
Ending balance..................... 8,408 8,572 10,294
Additional paid-in capital relating to
common stock:
Beginning balance.................... 38,386,357 45,375,995 47,539,037
Issuance of common stock resulting
from the exercise of stock options.. 1,433,763 1,173,088 880,933
Issuance of common stock resulting
from preferred stock conversion..... 5,648,875 -- --
Issuance of common stock resulting
from equity offering................ -- -- 52,344,370
Reduction in current tax liability
related to stock options............ -- 989,954 2,067,226
Other................................ (93,000) -- --
----------- ----------- ------------
Ending balance..................... 45,375,995 47,539,037 102,831,566
Shares held in trust for deferred
compensation plan, at cost
(2,395, 2,878, and 4,137 shares,
respectively)......................... (68,946) (110,320) (142,710)
Notes receivable from officers......... -- -- (3,913,854)
Retained earnings (accumulated deficit)
Beginning balance.................... (8,197,885) (2,397,813) 667,683
Net income applicable to common
stock............................... 5,800,072 3,065,496 (13,102,649)
----------- ----------- ------------
Ending balance..................... (2,397,813) 667,683 (12,434,966)
Accumulated other comprehensive income:
Beginning balance.................... (1,503,454) (1,468,525) (2,725,629)
Foreign currency translation
adjustment.......................... 34,929 (1,257,104) (993,506)
----------- ----------- ------------
Ending balance..................... (1,468,525) (2,725,629) (3,719,135)
----------- ----------- ------------
Total stockholders' equity............. $41,449,119 $45,379,343 $ 82,631,195
=========== =========== ============
Comprehensive Income:
Net income (loss).................... $ 5,800,072 $ 3,065,496 $(13,102,649)
Foreign currency translation
adjustment.......................... 34,929 (1,257,104) (993,506)
----------- ----------- ------------
Comprehensive income (loss)............ $ 5,835,001 $ 1,808,392 $(14,096,155)
=========== =========== ============
See accompanying notes to consolidated financial statements.
F-5
IMPCO TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended April 30
---------------------------------------
1999 2000 2001
----------- ------------ ------------
Cash flows from operating activities:
Net income (loss)................... $ 6,330,614 $ 3,065,496 $(13,102,649)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Amortization of intangibles
arising from acquisition......... 691,419 736,937 738,066
Depreciation and other
amortization..................... 2,749,704 3,047,342 3,539,737
Gain on disposal of assets........ (106,515) (74,343) (3,461)
Gain from sale of available-for-
sale securities.................. -- -- (16,400)
Gain on sale of 49% interest in
subsidiary....................... (2,169,405) -- --
Deferred income taxes............. 1,045,535 (846,882) (9,277,489)
(Increase) decrease in accounts
receivable....................... (7,636,517) (9,452,278) 3,710,274
(Increase) decrease in
inventories...................... (2,319,450) (11,195,075) 1,209,793
Decrease (increase) in accounts
payable.......................... 2,941,749 5,862,387 (1,251,121)
Increase (decrease) in accrued
expenses......................... (594,045) 2,377,404 1,342,433
Minority interests in income of
consolidated subsidiaries 70,532 463,233 253,064
Other, net........................ (563,867) (624,158) (846,120)
----------- ------------ ------------
Net cash provided by (used in)
operating activities................. 439,754 (6,639,937) (13,703,873)
Cash flows from investing activities:
Purchases of equipment and leasehold
improvements....................... (2,797,787) (3,682,595) (12,635,075)
Purchases of businesses............. (5,831,412) (410,927) (127,900)
Proceeds from sale of 49% interest
in subsidiary...................... 3,500,000 -- --
Proceeds from sales of equipment.... 587,456 102,802 59,077
Purchase of available-for-sale
securities......................... -- -- (15,735,926)
Sale of available-for-sale
securities......................... -- -- 15,784,662
----------- ------------ ------------
Net cash used in investing
activities........................... (4,541,743) (3,990,720) (12,655,162)
Cash flows from financing activities:
Increase (decrease) in borrowings
under lines of credit.............. 2,454,928 14,264,949 (13,512,639)
Payments on term loans.............. (5,501,361) (2,733,967) (2,945,325)
Proceeds from issuance of bank term
loans.............................. 6,631,560 -- 7,500,000
Payments of capital lease
obligation......................... (934,182) (769,395) (664,188)
Proceeds from issuance of common
stock.............................. 1,400,297 1,131,878 53,194,635
Notes receivable from officers...... -- -- (3,913,854)
Dividends on preferred stock........ (530,542) -- --
----------- ------------ ------------
Net cash provided by financing
activities........................... 3,520,700 11,893,465 39,658,629
Translation adjustment................ (27,372) (259,780) 279,585
Net increase (decrease) in cash and
cash equivalents..................... (608,661) 1,003,028 13,579,179
Cash and cash equivalents at beginning
of period............................ 2,617,869 2,009,208 3,012,236
----------- ------------ ------------
Cash and cash equivalents at end of
period............................... $ 2,009,208 $ 3,012,236 $ 16,591,415
=========== ============ ============
See accompanying notes to consolidated financial statements.
F-6
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
(a) Basis of presentation and description of the business--The consolidated
financial statements of IMPCO Technologies, Inc. ("IMPCO" or the "Company")
include the accounts of the Company and its majority owned subsidiary IMPCO-
BERU Technologies B.V. ("IMPCO BV"), its majority owned subsidiary Grupo
I.M.P.C.O. Mexicano, S. de R.L. de C.V. ("IMPCO Mexicano") and its wholly owned
subsidiaries IMPCO Technologies, Pty. Limited ("IMPCO Pty"), IMPCO Tech Japan
K.K. ("IMPCO Japan") and Quantum Technologies Worldwide, Inc. ("Quantum"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
The Company is a designer, manufacturer and supplier of components and
systems that store gaseous fuels and monitor and control the pressure and flow
of those fuels for use in fuel cells and internal combustion engines.
(b) Cash and Cash Equivalents--The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents.
(c) Inventories--Inventories are valued at the lower of cost or market. Cost
is determined by the first-in, first-out (FIFO) method while market is
determined by replacement cost for raw materials and parts and net realizable
value for work-in-process and finished goods.
(d) Equipment and leasehold improvements--Equipment and leasehold
improvements are stated on the basis of historical cost. Depreciation of
equipment is provided using the straight-line method over the assets' estimated
useful lives, ranging from three to seven years. Amortization of leasehold
improvements and equipment under capital leases is provided using the straight-
line method over the shorter of the assets' estimated useful lives or the lease
terms.
(e) Intangibles arising from acquisitions--Intangibles arising from
acquisitions, primarily goodwill, are recorded based on the excess of the cost
of the acquisition over amounts assigned to tangible assets and liabilities.
Intangible assets arising from acquisitions are amortized using the straight-
line method over their estimated lives of twenty years.
(f) Warranty costs--Estimated future warranty obligations related to certain
products are provided by charges to operations in the period in which the
related revenue is recognized. Estimates are based, in part, on historical
experience.
(g) Research and development costs--Research and development costs are
charged to expense as incurred. Equipment used in research and development with
alternative future uses is capitalized.
(h) Revenue recognition--Revenue is recognized on product sales when goods
are shipped in accordance with the Company's shipping terms. Contract revenue
for customer-funded research and development is principally recognized by the
percentage of completion method. Amounts expected to be realized on contracts
are based on the Company's estimates of total contract value and costs at
completion. These estimates are reviewed and revised periodically throughout
the lives of the contracts. Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements," or SAB 101 summarizes certain of the
Security and Exchange Commission Staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. The
Company evaluated the effect of SAB 101, which did not result in any material
change to its revenue recognition policies. Also, in accordance with Emerging
Issues Task Force No. 00-10, the Company includes the costs of shipping and
handling, when incurred, in cost of goods sold. The adoption of this EITF has
no effect on the Company's results of operations.
F-7
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(i) Minority interests in subsidiaries--The balance sheet amounts in
minority interest at April 30, 2001 represent 49% of the equity held by the
single minority stockholder in IMPCO BV, 10% of the equity held by the single
minority stockholder in IMPCO Mexicano and 49% of the equity held by a single
minority stockholder in IMPCO Fuel Systems, a subsidiary of IMPCO Pty. Minority
interest represents the minority stockholder's proportionate share of equity in
those subsidiaries.
(j) Net income per share--Basic income per share is computed by dividing net
income applicable to common stock by the weighted average shares of common
stock outstanding during the period. Diluted earnings per share is computed
based on the weighted average number of shares of common stock outstanding, and
if dilutive, all common stock equivalents.
(k) Stock based compensation--In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123 "Accounting of Stock Based Compensation,"
which established accounting and reporting standards for stock based employee
compensation plans effective after fiscal year 1996. SFAS 123 encourages
entities to adopt the fair value based method of accounting; however, it also
allows an entity to continue to measure compensation cost using the intrinsic
value based method prescribed by Accounting Principles Board No. 25. Entities
electing to remain on the "intrinsic value based" method must make certain pro
forma disclosures as if the new fair value method had been applied. At this
time, the Company has not adopted the recognition provision of SFAS 123, but
has provided pro forma disclosures (see note 6).
The Financial Accounting Standards Board has also issued Interpretation No.
44, "Accounting for Certain Transactions Involving Stock Compensation." The
Interpretation addresses implementation practice issues in accounting for
compensation costs under existing rules prescribed by Accounting Principles
Board No. 25. The new rules are applied prospectively to all new awards,
modifications to outstanding awards and changes in grantee status after July 1,
2000, with certain exceptions. The Company considers the impact of these rules
when adopting new stock option plans and when granting any options.
(l) Impairment of long-lived assets and long-lived assets to be disposed
of--Impairment losses are recorded on long-lived assets used in operations when
an indicator of impairment (significant decrease in market value of an asset,
significant change in extent or manner in which the asset is used or
significant physical change to the asset) is present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. The Company has not experienced any significant changes in the
business climate or in the use of assets that would require the Company to
write down the value of the assets recorded in the balance sheet.
(m) Use of estimates--The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
that management make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
as of the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
(n) Reclassifications--Certain prior year amounts have been reclassified to
conform to current presentations.
(o) Foreign currency translation--Assets and liabilities of the Company's
foreign subsidiaries are generally translated at current exchange rates, and
related revenues and expenses are translated at average exchange rates in
effect during the period. Resulting translation adjustments are recorded as a
foreign currency component of other comprehensive income in stockholders'
equity. The results and financial condition of the Company's international
operations are affected by changes in exchange rates between certain foreign
currencies and the U.S. Dollar. The functional currency for all of the
Company's international subsidiaries is
F-8
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the local currency of the subsidiary. An increase in the value of the U.S.
Dollar increases costs incurred by the subsidiaries because most of its
international subsidiaries' inventory purchases are U.S. Dollar denominated.
The Company seeks to manage its foreign currency economic risk by minimizing
its U.S. Dollar investment in foreign operations using foreign currency term
loans and lines of credit to finance the operations of its foreign
subsidiaries.
Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the functional currency,
except those transactions that operate as a hedge of an identifiable foreign
currency commitment, are included in the results of operations as incurred.
(p) Financial instruments--At April 30, 2001, the Company's financial
instruments recorded on the balance sheet include cash equivalents, capital
lease obligations, short-term bank debt and long-term bank debt. Because of the
short maturity, short-term bank debt approximates fair value. The fair value of
the Company's long-term debt and capital lease obligations is estimated using
discounted cash flows based on the Company's incremental borrowing rates for
similar types of borrowings. At April 30, 2001, the fair value of the Company's
long-term debt and capital lease obligations approximated carrying value.
Although the Company periodically enters into foreign currency forward
contracts and interest rate swap agreements, no such derivative contracts or
agreements existed at April 30, 2001.
When the Company enters into foreign currency forward contracts, it does so
to hedge identifiable foreign currency commitments. Foreign currency contracts
reduce the Company's exposure to unfavorable fluctuations in foreign currencies
versus the U.S. dollar. Realized gains and losses on these contracts are
included in the measurement of the related foreign currency transaction. The
Company, from time to time, uses interest rate swap agreements to manage
interest rate risk on its floating rate debt portfolio. Each interest rate swap
is matched as a hedge against a specific debt instrument and has the same
notional amount and tenor as the related debt instrument principle.
The Financial Accounting Standards Board has issued SFAS 133, "Accounting
for Derivative Instruments and for Hedging Activities," as amended by SFAS No.
138 "Accounting for Certain Derivative Instruments and Certain Hedging
Activities-An Amendment of FASB 133," which require the Company to recognize
all derivatives on the balance sheet at fair market value. Derivatives that are
not designated as hedges must be adjusted to fair value though income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings
or recognized in other comprehensive income until the hedged item in recognized
in earnings. The ineffective portion of a derivative's change in fair value
will be immediately recognized in earnings. On May 2, 2001, the Company entered
into an interest rate swap agreement, which will be accounted for prospectively
as a cash flow hedge. See Note 3.
2. Acquisitions
IMPCO Technologies B.V. On October 31, 1995, the Company acquired 51% of the
outstanding stock of Media, a private company in the Netherlands, from
Centradas B.V., a private company in the Netherlands, for cash in the amount of
fl.3,187,500 (US$2,023,000). IMPCO BV services the European marketplace from
its headquarters in the Netherlands and through its subsidiaries in Germany,
France and the United Kingdom. On May 1, 1998, the Company purchased the
remaining 49% of IMPCO BV from Depa Holding B.V. for fl.1,400,000 (US$692,521).
On January 28, 1999, the Company sold this 49% interest in IMPCO BV to BERU
Aktiengesellschaft, an international OEM and aftermarket supplier of diesel and
automotive engine components and systems, for $3,500,000 in cash. The Company
recorded a pre-tax gain of $2,169,000 and an after-tax gain of $1,757,000, or
$0.20 per share on a diluted basis.
F-9
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Crusader Engine Division. On December 4, 1998, the Company acquired certain
operating assets of the Crusader Engine division of Thermo Power Corporation, a
subsidiary of Thermo Power Electron Corporation, for approximately $3,880,000.
The Crusader Engine division provides engine dressing and related devices for
material handling engines. These assets currently comprise the Company's Engine
Systems business. This acquisition was accounted for under the purchase method
of accounting and has been included in the consolidated financial statements
since the date of acquisition. Goodwill of approximately $662,000 was
recognized with tangible net assets acquired consisting of $2,500,000 in
inventory and $718,000 in fixed assets.
Mikuni Corporation. In March 1999, the Company purchased a dormant company
in Japan for $126,000 in order to establish IMPCO Tech Japan K.K. (IMPCO
Japan). On March 31, 1999, IMPCO Japan, purchased certain manufacturing
equipment and inventory of the Fukuoka Division of Mikuni Corporation. The
purchase price of $1,325,000 was paid in cash. The acquisition was financed
through a yen-denominated term loan provided by the Hong Kong and Shanghai
Banking Corporation, Osaka Branch, which is being repaid over a five-year
period with interest at market rates (See Note 3). This acquisition was
accounted for under the purchase method of accounting and has been included in
the consolidated financial statements since the date of acquisition. Goodwill
of approximately $944,000 was recognized with tangible net assets acquired
consisting of $362,000 in inventory and $19,000 in fixed and other assets.
IMPCO Fuel Systems. In March 2000, the Company's subsidiary, IMPCO
Technologies, Pty Ltd, and LPM Corporation Pty Ltd, a corporation incorporated
under the laws of the state of New South Wales, Australia, established IMPCO
Fuel Systems, a corporation incorporated under the laws of the state of New
South Wales, Australia. IMPCO Technologies, Pty Ltd has a 51% ownership
interest in IMPCO Fuel Systems and paid $300,000 in the purchase of goodwill of
LPM's gaseous fuel equipment business and $110,000 in certain assets, inventory
and equipment of LPM. This acquisition was accounted for under the purchase
method of accounting and has been included in the consolidated financial
statements since the date of acquisition.
3. Debt Payable
The Company's debt payable is summarized as follows:
April 30 April 30
2000 2001
----------- ----------
(a) Bank of America NT&SA
Revolving line of credit.............. $15,550,000 $3,914,000
Mexican peso line of credit........... 851,000 541,000
Term loans for acquisitions and
capital expenditures.................. 3,028,000 8,894,000
Capital lease and expenditure
facilities............................ 4,843,000 1,436,000
IMPCO BV term loan.................... 1,043,000 --
(b) Credit facility--Fortis Bank (formerly
Mees Pierson) -- 1,461,000
(c) The Hong Kong and Shanghai Banking
Corporation Ltd.
Term loan for acquisition of Mikuni... 1,183,000 776,000
Line of credit........................ 555,000 162,000
Other capital leases......................... 112,000 572,000
----------- ----------
27,165,000 17,756,000
Less current portion......................... 2,999,000 9,758,000
----------- ----------
$24,166,000 $7,998,000
=========== ==========
F-10
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(a) Bank of America NT&SA
At April 30, 2001, the Company, and Quantum as subsidiary borrower, amended
its credit facility with Bank of America NT&SA. The facility includes a $15
million revolving line of credit (due September 30, 2001), of which $5,000,000
is designated for Quantum, a $1,750,000 non-revolving line of credit for future
capital expenditures (due September 30, 2001) and a Mexican peso line of credit
equivalent to $3,000,000 (due August 31, 2001) for IMPCO Mexicano. The non-
revolving line of credit for future capital expenditures due September 30, 2001
has an option to convert to a term loan payable in four years. It is
management's intent to renew the amount of its present short-term obligations
under the revolving line of credit, classified as a current liability, for an
uninterrupted period extending beyond one year from the balance sheet date.
Including the revolving line of credit, the capital expenditures facilities,
the capital lease facility and the standby letter of credit facilities, the
total Bank of America NT&SA credit facility was approximately $31,000,000 at
April 30, 2001. Details about each of the components of the Company's credit
facility at April 30, 2001 follows.
Revolving Line of Credit. The $15 million revolving line of credit bears
interest, payable monthly, at a fluctuating rate per annum equal to the Bank's
reference rate plus up to one-half of one percentage point, depending on
certain financial ratios. Alternatively, the Company may elect to have all or
portions of the line based on an offshore rate, which may also vary depending
on certain financial ratios. At April 30, 2001, the outstanding line of credit
balance was $3,914,000, which was subject to an offshore rate of 7.05%.
The line of credit may be used for financing commercial letters of credit
with a maximum maturity of 180 days and standby letters of credit with a
maximum maturity of one year. The amount of letters of credit outstanding at
any one time may not exceed $1,000,000 for commercial letters of credit and
$750,000 for standby letters of credit. The maximum amount available at any one
time on the revolving line of credit and the commercial letters of credit is
$15,000,000. At April 30, 2001, a standby letter of credit of $15,000 was
outstanding.
Mexican peso line of credit. The Mexican peso line of credit at April 30,
2001 totaled $541,000 and was subject to a rate based on the Bank of America
Mexico BAMSA cost of funds plus 1.5% or 20.3%.
Term Loans for Acquisitions and Capital Expenditures. The term loan bears
interest, payable on a monthly basis, at the Bank's reference rate and matures
September 30, 2004. The Company may elect to have all or portions of the term
loan bear interest at an alternative interest rate agreed upon by the Bank and
IMPCO for periods of not less than 30 days nor more than one year. The
alternative interest rate is based on the offshore rate plus 1.50% to 2.25%,
which was 6.46% at April 30, 2001. Each alternative rate portion must be for an
amount not less than $500,000 and may not include any portion of principal that
is scheduled to be repaid before the last day of the applicable interest
period.
Capital Lease and Expenditure Facilities. The Company has a capital lease
facility and a capital expenditure line of credit. At April 30, 2001, no
further borrowings were available under the capital lease. At April 30, 2001,
all draws under the capital lease facility were subject to the variable rate of
interest based upon the three month LIBOR plus a spread. At April 30, 2001,
approximately $1,436,000 was outstanding under this facility, at a weighted
average interest rate of 6.41%. If the Company exercises an early termination
option before the scheduled expiration date of a capital lease, a termination
charge will be assessed based on a sliding percentage (not to exceed 3%) of the
balance on the lease at time of termination.
The Company has a $1,750,000 non-revolving capital expenditure line of
credit. This line of credit bears interest at the Bank's reference rate or an
optional offshore rate. The line matures on September 30, 2001, can
F-11
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
be converted to a term loan due in four years and may be prepaid, in whole or
in part, at any time. At April 30, 2001, no borrowings were outstanding under
this facility.
Standby Letter of Credit. In order to secure yen denominated credit
facilities for IMPCO Japan, the Company was required to post a standby letter
of credit for the total available credit facility granted by the Hong Kong and
Shanghai Banking Corporation Ltd., Osaka Branch. The original amount of the
facility is (Yen)220,000,000 (US$1,779,000) and will decrease quarterly as
payments are made on the underlying outstanding debt. The cost of the facility
is 1.00% per annum of the amount outstanding. On April 30, 2001, the amount
outstanding under the standby letter of credit was $1,262,000.
Interest Rate Management. The Company uses interest rate swap agreements
with Bank of America NT&SA to manage its exposure to interest rate changes and
stabilize the cost of borrowed funds. When an agreement is executed, the
interest rate swap is matched as a hedge to a specific debt instrument and has
the same notional amount and tenor as the related debt instrument principal. At
April 30, 2001, no swap agreements were in effect; however, on May 2, 2001 the
Company entered into a swap agreement with Bank of America for a notional
amount of $8.9 million, in which the Company receives the London Interbank
Offer Rate (LIBOR) and pays a fixed rate of 5.6%. This swap matures September
30, 2004 with payment dates and amortization identical to the $8.9 million term
loan.
Loan Covenants And Collateral. The Bank's credit facility contains certain
restrictions and financial covenants, as well as limitations on other
indebtedness, and is secured by substantially all of the Company's assets. The
financial covenants did not apply at April 30, 2001 and become effective
beginning in the fiscal quarter ending October 31, 2001.
(b) Credit Facility--Fortis Bank (formerly Mees Pierson)
IMPCO BV has secured a fl. 5,000,000 (US$2,000,000) revocable credit
facility with Fortis Bank in the Netherlands. The interest rate is determined
weekly based on a weighted average of several money market indices. IMPCO BV's
borrowings under this facility may not exceed the combined total of a specified
amount of its accounts receivable (70% of book value) and inventory (50% of
book value). At April 30, 2001, the interest rate was 6.375% and the
outstanding balance was $1,461,000.
(c) The Hong Kong and Shanghai Banking Corporation Ltd.
Term Loan for the Acquisition of Mikuni. On March 29, 1999, IMPCO Japan
secured a (Yen)160,000,000 (US$1,294,000) term loan facility with the Hong Kong
and Shanghai Banking Corporation Ltd., Osaka Branch. This term loan bears
interest, payable on a quarterly basis, at the Euroyen London Interbank Offer
Rate plus 160 basis points and matures in fiscal year 2004. The Company may
elect to lock the interest rate on the loan for periods of not less than 30
days nor more than six months. At April 30, 2001, the outstanding loan balance
of (Yen)96,000,000 (US$776,000) bore an interest rate of 1.739%.
Line of Credit. On March 29, 1999, IMPCO Japan secured a (Yen)60,000,000
(US$485,000) revolving line of credit facility with the Hong Kong and Shanghai
Banking Corporation Ltd., Osaka Branch. This facility bears interest, payable
on a quarterly basis, at the Euroyen London Interbank Offer Rate plus 160 basis
points and matures in fiscal year 2002. The Company may elect to lock the
interest rate on the loan for periods of not less than 30 days nor more than
six months. At April 30, 2001, the outstanding loan balance of (Yen)20,000,000
(US$162,000) bore an interest rate of 1.753%. It is management's intent to
renew the line of credit, classified as a current liability, for an
uninterrupted period extending beyond one year from the balance sheet date.
At April 30, 2001, the weighted average interest rate for all of the
Company's debt was 6.75%.
F-12
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Annual maturities of long-term debt, excluding capital leases (see Note 5)
for the five years subsequent to May 1, 2001 are as follows: 2002-$2,800,000;
2003-$2,800,000; 2004-$2,800,000; 2005-$1,270,000; thereafter-$0.
4. Income Taxes
The provision for (benefit from) income taxes consists of the following:
Fiscal years ended April 30
-----------------------------------
1999 2000 2001
---------- ---------- -----------
Current:
Federal............................. $1,949,698 $ 715,274 $ (529,476)
State............................... 106,665 258,787 103,536
Foreign............................. 412,399 999,060 774,059
---------- ---------- -----------
2,468,762 1,973,121 348,119
Deferred:
Federal & State..................... (967,259) (846,882) (9,277,489)
---------- ---------- -----------
Total provision (benefit) for income
taxes................................ $1,501,503 $1,126,239 $(8,929,370)
========== ========== ===========
Income (loss) before income taxes and minority interest of consolidated
subsidiaries and dividends for U.S. and foreign-based operations is shown
below:
Fiscal years ended April 30
----------------------------------
1999 2000 2001
---------- ---------- ------------
U.S...................................... $6,724,365 $2,581,780 $(23,041,543)
Foreign.................................. 1,178,284 2,073,188 1,262,589
---------- ---------- ------------
$7,902,649 $4,654,968 $(21,778,954)
========== ========== ============
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes. The Company believes, based on its history of prior operating
earnings, its plans to spin-off the Quantum division and its expectations of
future earnings, that operating income of the Company will more likely than not
be sufficient to recognize fully these net deferred tax assets. Should the
spin-off of Quantum not occur, management will take appropriate action in an
attempt to realize its deferred tax assets.
A reconciliation of income taxes computed at the federal statutory income
tax rate to income taxes reported in the consolidated statements of operations
is as follows:
Fiscal years
ended April 30
---------------------
1999 2000 2001
----- ----- -----
Federal statutory income tax rate................... 34.0 % 34.0 % (34.0)%
Permanent differences............................... 2.0 1.8 3.5
Benefit of net operating loss carryforwards......... (.7) -- --
Foreign tax credit from sale of IMPCO BV............ (7.6) -- --
State tax, net...................................... 3.5 4.9 (1.6)
Foreign tax, net.................................... .2 6.3 1.6
R & D credit........................................ (12.4) (22.8) (10.5)
----- ----- -----
Effective tax rate.................................. 19.0 % 24.2 % (41.0)%
===== ===== =====
F-13
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of the Company's deferred tax liabilities and assets is as
follows:
Fiscal years ended
April 30
------------------------
2000 2001
----------- -----------
Deferred tax liabilities:
Tax over book depreciation...................... $(1,087,747) $(1,203,278)
Other........................................... (905,414) (1,791,365)
----------- -----------
(1,993,161) (2,994,643)
=========== ===========
Deferred tax assets:
Tax credit carryforwards........................ 3,545,423 7,944,427
Net operating loss carryforwards................ -- 5,117,935
Inventory reserves.............................. 647,511 961,488
Other provisions for estimated expenses......... 1,292,644 1,740,699
----------- -----------
$ 5,485,578 $15,764,549
=========== ===========
For the fiscal year ended April 30, 2001, the Company has a general business
tax credit carryforward available for federal income tax purposes of
approximately $4,665,000 that, if not used, expires between 2009 to 2021.
Additionally, the Company has an alternative minimum tax credit carryforward
available for federal income tax purposes of approximately $355,000 and a
foreign tax credit of $546,000. The Company also has research and development
credit carryforwards for state income tax purposes of approximately $1,941,000,
which do not expire for tax reporting purposes. Net operating loss
carryforwards expire in 2021.
5. Commitments and Contingencies
(a) Leases
The Company has certain non-cancelable operating leases for facilities and
equipment, and non-cancelable capital leases for machinery, equipment and motor
vehicles. Future minimum lease commitments under non-cancelable leases at April
30, 2001 are as follows:
Lease Obligations
----------------------
Fiscal years ending April 30, Capital Operating
----------------------------- ---------- -----------
2002................................................. $1,003,159 $ 2,880,476
2003................................................. 806,243 2,376,792
2004................................................. 388,883 2,297,177
2005................................................. 6,931 1,470,461
2006................................................. -- 912,765
Thereafter........................................... -- 1,300,381
---------- -----------
Total minimum lease payments......................... 2,205,216 $11,238,052
===========
Less imputed interest................................ 197,515
----------
Present value of future minimum lease payments....... 2,007,701
Less current portion................................. 880,118
----------
Long-term capital lease obligation................... $1,127,583
==========
Total rental expense under the operating leases for fiscal years ended April
30, 1999, 2000, and 2001 was approximately $1,281,000, $1,846,000 and
$3,401,000, respectively. These leases are non-cancelable and certain leases
have renewal options and escalation clauses.
F-14
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At April 30, 1999, 2000, and 2001, approximately $2,946,000, $2,168,000 and
$1,436,000 was outstanding under the Company's capital lease facility,
respectively. At April 30, 2000, the gross and net assets acquired under the
capital lease facility was approximately $4,581,000 and $2,091,000,
respectively. At April 30, 2001, the gross and net assets acquired under the
capital lease facility was approximately $ 4,556,000 and $1,327,000,
respectively. Amortization of these assets is included in depreciation expense.
(b) Contingencies
The Company is currently subject to certain legal proceedings and claims
arising in the ordinary course of business. Based on discussions with legal
counsel, management does not believe that the outcome of any of these matters
will have a material adverse effect on the Company's consolidated financial
statements.
In August 2000, the Company initiated legal action in federal court (Eastern
District of Michigan) against GFI Control Systems Inc. and Dynetek Industries
Ltd. claiming that those entities infringed the Company's patent covering a
compressed gas fuel system that includes a tank with an internal pressure
regulator. GFI Control Systems Inc. and Dynetek Industries Ltd. filed a
counter-suit for patent infringement. The Company intends to enforce vigorously
the Company's intellectual property rights.
(c) Investment and Tax Savings Plan
The Company's Investment and Tax Savings Plan (the "Plan") is a defined
contribution plan, which is qualified under Internal Revenue Service Code
Section 401(k). The Plan is subject to the provisions of the Employee
Retirement Income Security Act of 1974. All employees who are at least age
twenty-one or older are eligible to participate in the Plan on the first day of
employment with the Company. Employees of the Company who elect to participate
in the Plan may contribute into the Plan not less than 1% nor more than 15% of
compensation. The Company's matching contributions are discretionary and match
elective salary deferrals up to 3.0% of compensation. Approximately 62% of
eligible employees were enrolled in the 401(k) plan at April 30, 2001. Employer
contributions approximated $122,000, $482,000 and $593,000 for fiscal years
ended 1999, 2000, and 2001 respectively.
6. Stockholders' Equity
(a) 1993 Series 1 Preferred Stock
The holders of the Company's 1993 Series 1 Preferred Stock ("Preferred
Stock") were entitled to receive annual cumulative dividends of up to $105 per
share and not less than $80 per share ($100 per share at April 30, 1999). The
dividend rate, which was adjusted on the first day of each calendar quarter,
was based on a bank's prime rate of interest plus 150 basis points (assuming a
deemed principal value of $1,000 per share). On March 31, 1999, in accordance
with its conversion right, the Company converted 5,950 shares of Preferred
Stock into 1,124,764 shares of common stock and paid all accrued dividends. The
Preferred Stock was convertible into common stock by dividing the conversion
price at March 31, 1999 into its liquidation value of $1,000 for each share
being converted, which resulted in a conversion price of $5.29 per share.
(b) Stockholder Protection Rights Agreement
On June 30, 1999, the Company's Board of Director's adopted a Stockholder
Protection Rights Agreement and declared a dividend of one right on each
outstanding share of IMPCO common stock. Each right entitles the holder, upon
certain events, to purchase, at an exercise price of $45 per share, shares of
common stock with a value equal to twice the exercise price. The dividend was
paid on July 26, 1999 to stockholders of record on July 12, 1999.
F-15
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(c) Stock options
The Company has six stock option plans that provide for the issuance of
options to key employees and directors of the Company at the fair market value
at the time of grant. Options under the plans generally vest in four or five
years and are generally exercisable while the individual is an employee or a
director, or ordinarily within one month following termination of employment.
In no event may options be exercised more than ten years after date of grant.
Number of Weighted Average
Shares Exercise Price
--------- ----------------
Outstanding at April 30, 1998.................... 1,308,086 $ 8.06
Options granted................................ 406,688 9.25
Options exercised.............................. (192,116) 7.46
Options forfeited.............................. (20,000) 12.27
--------- ------
Outstanding at April 30, 1999.................... 1,502,658 $ 8.40
Granted........................................ 104,974 10.46
Exercised...................................... (163,326) 7.18
Forfeited...................................... (122,375) 8.35
--------- ------
Options outstanding at April 30, 2000............ 1,321,931 $ 8.72
Granted........................................ 416,453 12.99
Exercised...................................... (97,572) 9.03
Forfeited...................................... (46,047) 15.69
--------- ------
Options outstanding at April 30, 2001............ 1,594,765 $ 9.62
========= ======
Shares exercisable at April 30, 1999............. 489,517 $ 8.85
========= ======
Shares exercisable at April 30, 2000............. 685,334 $ 8.68
========= ======
Shares exercisable at April 30, 2001............. 774,889 $ 8.33
========= ======
The following table sets forth summarized information with respect to stock
options outstanding and exercisable at April 30, 2001:
Outstanding Exercisable
------------------------- ---------------
Number
Number of Average Average of Average
Exercise Price Range Shares Life Price Shares Price
-------------------- --------- ------- ------- ------- -------
$0.00 to $2.45..................... 13,406 0.5 $ 0.06 13,406 $ 0.06
$2.45 to $4.90..................... 3,000 0.5 3.89 3,000 3.89
$4.90 to $7.35..................... 151,511 4.6 6.04 128,411 6.01
$7.35 to $9.80..................... 701,665 5.9 7.78 441,871 7.85
$9.80 to $12.25.................... 524,996 7.2 10.91 174,824 11.39
$12.25 to $14.70................... 138,187 9.7 13.80 3,377 13.03
$14.70 to $17.15................... 20,000 7.5 16.25 10,000 16.25
$22.05 to $24.50................... 42,000 9.3 23.36 -- --
--------- -------
1,594,765 774,889
========= =======
At April 30, 2001, there were 177,489 shares available for grant.
F-16
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has elected to account for its employee stock options under
Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees" (APB 25) and related interpretations in accounting for employee
stock options. No compensation expense is recorded under APB 25 because the
exercise price of the Company's employee common stock options equals the market
price of the underlying common stock on the grant date.
SFAS 123 requires "as adjusted" information regarding net income and net
income per share to be disclosed for new options granted after fiscal year
1996. The fair value of these options was determined at the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions:
Year Ended April 30
----------------------
1999 2000 2001
------ ------ ------
Expected dividend yield.............................. 0.0% 0.0% 0.0%
Calculated volatility................................ 0.584 0.729 0.683
Risk-free interest rate.............................. 3% 3% 5%
Expected life of the option in years................. 8.82 8.82 7.45
The estimated fair value of the options is amortized to expense over the
options' vesting period for "as adjusted" disclosures. The net income per share
"as adjusted" for the effects of SFAS 123 is not indicative of the effects on
reported net income/loss for future years. The Company's reported "as adjusted"
information at April 30 is as follows (in thousands, except per share amounts):
Year Ended April 30
----------------------
1999 2000 2001
------ ------ --------
Net income (loss)................................... $5,800 $3,065 $(13,103)
As adjusted......................................... $5,645 $2,893 $(13,406)
Net income (loss) per share as reported--basic...... $ 0.80 $ 0.36 $ (1.32)
Net income (loss) per share as adjusted--basic...... $ 0.77 $ 0.34 $ (1.35)
Net income (loss) per share as reported--dilutive... $ 0.71 $ 0.33 $ (1.32)
Net income (loss) per share as adjusted--dilutive... $ 0.69 $ 0.31 $ (1.35)
(d) Notes receivable from officers
On March 2, 2001, the Board of Directors authorized loans to three officers
of the Company for the exercise of options to purchase Company stock from
former stockholders. The loans bear interest at 9%, are due in full on March
15, 2002, and are fully collateralized by a security interest in and lien upon
shares of common stock of the Company and certain vested Company nonqualified
stock options issued to the officers. Additionally, the loans are secured by
the personal residence of one of the officers and are cross-collateralized.
F-17
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share:
Fiscal Year Ended April 30
------------------------------------
1999 2000 2001
---------- ---------- ------------
Numerator:
Net income (loss).................. $6,401,146 $3,528,729 $(12,849,585)
Preferred stock dividends.......... (530,542) -- --
Minority interest.................. (70,532) (463,233) (253,064)
---------- ---------- ------------
Numerator for basic earnings per
share--income (loss) available to
common stockholders............... 5,800,072 3,065,496 (13,102,649)
Effect of dilutive securities:
Preferred stock dividends........ 530,542 -- --
---------- ---------- ------------
Numerator for diluted earnings per
share--income (loss) available to
common stockholders after assumed
conversions....................... $6,330,614 $3,065,496 $(13,102,649)
Denominator:
Denominator for basic earnings per
share--weighted-average shares.... 7,293,160 8,489,229 9,934,700
Effect of dilutive securities:
Employee stock options............. 650,151 743,070 --
Convertible preferred stock(1)..... 1,032,318 -- --
---------- ---------- ------------
Dilutive potential common shares..... 1,682,469 743,070 --
Denominator for diluted earnings
per share--adjusted weighted-
average shares and assumed
conversions 8,975,629 9,232,299 9,934,700
---------- ---------- ------------
Basic earnings per share........... $ 0.80 $ 0.36 $ (1.32)
========== ========== ============
Diluted earnings per share......... $ 0.71 $ 0.33 $ (1.32)
========== ========== ============
--------
(1) On March 31, 1999, all outstanding preferred stock was converted to common
stock and the diluted Earnings Per Share is calculated as though the
conversion occurred at the beginning of the fiscal year. The basic earnings
per share is calculated with weighted average shares based on the
conversion at March 31, 1999. The number of convertible preferred shares is
equal to the full conversion (1,124,764 shares) less the weighted average
shares outstanding for the month of April 1999 (92,446 shares).
For additional disclosures regarding the employee stock options, see note 6.
Options to purchase 60,000 shares of common stock at $16.25 were outstanding
during fiscal year 1999 but were not included in the computation of diluted
earnings per share because the options' exercise price was greater than the
average market price of the common shares and, therefore, the effect is anti-
dilutive. No employee stock options were included in the computation at diluted
earnings per share during fiscal year 2001 because their inclusion is anti-
dilutive to the net loss.
F-18
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Revenues
During fiscal year 1999, the IMPCO BV, IMPCO Pty, Grupo IMPCO Mexicano and
IMPCO Japan subsidiaries accounted for approximately 15%, 6%, 3% and less than
1% of total consolidated revenues, respectively, and contract revenue accounted
for approximately 13% of consolidated revenues. During fiscal year 2000, the
IMPCO BV, IMPCO Pty, Grupo IMPCO Mexicano and IMPCO Japan subsidiaries
accounted for approximately 12%, 6%, 6% and less than 3% of total consolidated
revenues, respectively, and contract revenue accounted for approximately 8% of
consolidated revenues. During fiscal year 2001, the IMPCO BV, IMPCO Pty, Grupo
IMPCO Mexicano and IMPCO Japan subsidiaries accounted for approximately 14%,
6%, 7% and 3% of total consolidated revenues, respectively, and contract
revenue accounted for approximately 8% of consolidated revenues. During fiscal
year 1999, 2000 and 2001, General Motors Corporation, and customers associated
with the General Motors program, accounted for approximately 28%, 16% and 20%,
respectively, of consolidated revenues.
The Company routinely sells products to a broad base of domestic and
international customers, which includes distributors and original equipment
manufacturers. Based on the nature of these customers, credit is generally
granted without collateral being required. The Company does not anticipate that
a significant credit risk exists as a result of these customer relationships.
9. Business Segment And Geographic Information
Business Segments. The Company currently has three reporting segments: the
Quantum division, the Gaseous Fuel Products division and International
Operations. Quantum generates revenues through the sale of fuel storage, fuel
delivery and electronic control systems to original equipment manufacturers
(OEMs) and the installation of products into OEM vehicles. The division also
generates contract revenue by providing engineering design and support to the
OEMs so that fuel systems will fit into a variety of their vehicles as they
upgrade their models each year. The Gaseous Fuel Products division sells
products including parts and conversion systems to OEMs and the aftermarket.
The Company's International Operations in Australia, Europe, Japan and Mexico
provide distribution for the Company's products, predominantly from its Gaseous
Fuel Products division and some product assembly.
Corporate expenses consist of general and administrative expenses at the
corporate level and include the amortization of goodwill and other intangible
assets. Intersegment eliminations are primarily the result of intercompany
sales from our Gaseous Fuel Products division to our International Operations.
All research and development is expensed as incurred. Research and
development expense includes both customer-funded research and development and
Company sponsored research and development. Customer- funded research and
development consists primarily of expenses associated with contract revenue.
These expenses include applications development costs in the Quantum division
funded under customer contracts.
The Company evaluates performance based on profit or loss from operations
before interest and income taxes. The accounting policies of the reportable
segments are the same as those described in the Summary of Significant
Accounting Policies.
F-19
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Financial Information by Business Segment. Financial information by business
segment for continuing operations follows:
Fiscal Year Ended April 30
------------------------------
Revenues 1999 2000 2001
-------- -------- --------- ---------
(in thousands)
Quantum..................................... $ 24,469 $ 22,341 $ 23,358
Gaseous Fuels Products...................... 52,632 76,831 66,925
International Operations.................... 21,188 29,991 31,132
Intersegment Elimination.................... (11,463) (16,347) (17,518)
-------- --------- ---------
Total................................... $ 86,826 $ 112,816 $ 103,897
======== ========= =========
Fiscal Year Ended April 30
------------------------------
Operating Income (Loss) 1999 2000 2001
----------------------- -------- --------- ---------
(in thousands)
Quantum..................................... $ (27) $ (1,460) $ (21,523)
Gaseous Fuels Products...................... 14,284 19,451 11,138
International Operations.................... 1,504 2,623 1,387
Corporate Expenses.......................... (5,516) (7,042) (7,019)
Corporate Research & Development............ (3,053) (7,050) (5,601)
Intersegment Elimination.................... (289) (425) (53)
-------- --------- ---------
Total................................... $ 6,903 $ 6,097 $ (21,671)
======== ========= =========
Fiscal Year Ended April 30
------------------------------
Identifiable Assets 1999 2000 2001
------------------- -------- --------- ---------
(in thousands)
Quantum..................................... $ 18,024 $ 20,050 $ 32,816
Gaseous Fuels Products...................... 27,663 37,169 34,495
International Operations.................... 18,296 24,904 24,222
Corporate................................... 9,579 12,893 29,230
-------- --------- ---------
Total................................... $ 73,562 $ 95,016 $ 120,763
======== ========= =========
Fiscal Year Ended April 30
------------------------------
Capital Expenditures 1999 2000 2001
-------------------- -------- --------- ---------
(in thousands)
Quantum..................................... $ 1,163 $ 1,891 $ 9,343
Gaseous Fuels Products...................... 1,067 1,076 977
International Operations.................... 228 600 312
Corporate................................... 340 115 2,003
-------- --------- ---------
Total................................... $ 2,798 $ 3,682 $ 12,635
======== ========= =========
Fiscal Year Ended April 30
------------------------------
Depreciation and Amortization 1999 2000 2001
----------------------------- -------- --------- ---------
(in thousands)
Quantum..................................... $ 890 $ 1,219 $ 1,687
Gaseous Fuels Products...................... 1,261 1,258 1,291
International Operations.................... 659 602 609
Corporate................................... 631 705 691
-------- --------- ---------
Total................................... $ 3,441 $ 3,784 $ 4,278
======== ========= =========
F-20
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Product Revenues by Application. The Company's product revenues by
application across all business segments follows (in thousands):
Fiscal Year Ended April 30
---------------------------
1999 2000 2001
-------- --------- --------
(in thousands)
Motor vehicle products......................... $ 32,748 $ 48,626 $ 40,619
Forklifts and other material handling
equipment..................................... 31,822 37,947 39,445
Small portable to large stationary engines..... 11,251 16,844 15,923
-------- --------- --------
Total product sales........................ $ 75,821 $ 103,417 $ 95,987
======== ========= ========
Geographic Information. The Company's geographic information for revenues to
unaffiliated customers and long-lived assets is shown below. The basis for
determining revenues is the geographic point of shipment. Long-lived assets
represent long-term tangible assets and are physically located in the region as
indicated.
Fiscal Year Ended April 30
----------------------------
Revenues to Unaffiliated Customers 1999 2000 2001
---------------------------------- -------- --------- ---------
(in thousands)
United States.................................. $ 65,638 $ 82,824 $ 72,765
Europe......................................... 12,941 13,938 14,808
Australia...................................... 5,398 6,272 6,313
Mexico......................................... 2,671 6,678 6,922
Japan.......................................... 178 3,104 3,089
-------- --------- ---------
Total...................................... $ 86,826 $ 112,816 $ 103,897
======== ========= =========
Fiscal Year Ended April 30
----------------------------
Long-Lived Assets 1999 2000 2001
----------------- -------- --------- ---------
(in thousands)
United States.................................. $ 9,230 $ 9,580 $ 19,101
Europe......................................... 309 323 310
Australia...................................... 282 209 208
Mexico......................................... 47 441 419
Japan.......................................... 17 13 16
-------- --------- ---------
Total...................................... $ 9,885 $ 10,566 $ 20,054
======== ========= =========
10. Purchases
During fiscal years 1999, 2000, and 2001, purchases from one vendor
constituted approximately 7%, 10% and 5% of consolidated net inventory
purchases, respectively. In fiscal year 2000 and 2001, 10 suppliers accounted
for approximately 38% and 21%, respectively, of consolidated net inventory
purchases.
F-21
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Supplementary Cash Flow Information
For fiscal years 1999, 2000 and 2001, the Company incurred capital lease
obligations of approximately $1,264,000, $100,000 and $550,000, respectively.
Interest and taxes paid for fiscal year 1999, 2000, and 2001 are as follows:
Fiscal year ended April 30
--------------------------------
1999 2000 2001
---------- ---------- ----------
Interest paid............................... $1,221,000 $1,452,000 $1,363,000
Taxes paid.................................. 3,042,000 2,379,000 982,000
12. Quarterly Results Of Operations (Unaudited)
A summary of the unaudited quarterly results of operations follows (in
thousands, except per share amounts):
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Fiscal Year 2000
Product sales........................... $27,058 $24,870 $24,832 $26,658
Contract revenue........................ 1,362 2,487 3,104 2,445
Net revenue............................. 28,420 27,357 27,936 29,103
Cost of product sales................... 17,815 15,846 17,090 19,049
Gross profit on product sales........... 9,243 9,024 7,742 7,609
Research and development expense........ 3,015 3,618 3,909 5,035
Net income (loss)....................... 1,554 1,503 792 (783)
Net income (loss) per share: (1)
Basic................................. $ 0.18 $ 0.18 $ 0.09 $ (0.09)
Diluted............................... $ 0.18 $ 0.17 $ 0.09 $ (0.09)
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Fiscal Year 2001
Product sales........................... $26,599 $22,656 $20,928 $25,804
Contract revenue........................ 2,669 2,695 1,116 1,430
Net revenue............................. 29,268 25,351 22,044 27,234
Cost of product sales................... 17,995 15,866 14,918 20,172
Gross profit on product sales........... 8,604 6,790 6,010 5,632
Research and development expense........ 5,998 7,243 8,979 10,336
Net loss................................ (609) (1,382) (4,351) (6,761)
Net loss per share: (1)
Basic................................. $ (0.07) $ (0.13) $ (0.42) $ (0.66)
Diluted............................... $ (0.07) $ (0.13) $ (0.42) $ (0.66)
--------
(1) Per common share amounts for the quarters and full years have each been
calculated separately. Accordingly, quarterly amounts may not add to the
annual amounts because of differences in the average common shares
outstanding during each period and, with regard to diluted per common share
amounts only, because of the effect of potentially dilutive securities only
in the periods in which the effect would have been dilutive.
F-22
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Subsequent Events
On June 12, 2001, the Company announced a strategic alliance between its
Quantum subsidiary and General Motors in which General Motors would acquire an
equity position in the Quantum subsidiary. The strategic alliance with General
Motors is conditioned on a proposed spin-off of Quantum, which the Company
intends to accomplish by means of a tax-free distribution of Quantum common
stock to its stockholders by the end of the 2001 calendar year. The proposed
spin-off will be subject to numerous conditions, including the receipt of a
financial opinion from an underwriter, the receipt of an opinion from the
Company's tax counsel or a private letter ruling from the Internal Revenue
Service to the effect that the spin-off will be tax-free to the Company's
stockholders for federal income tax purposes, and a final assessment by the
Company and tax counsel that the proposed spin-off will be tax free to the
Company for federal income tax purposes.
The Company believes that the measurement date, as defined in Accounting
Principles Board Opinion No. 30, "Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," regarding the intended spin-off of Quantum has not
been reached due to the absence of a formal plan to dispose of Quantum and the
uncertainty of a tax-free spin-off. As a result, at April 30, 2001, an accrual
has not been made for the expected operating activities of Quantum between a
measurement date and a disposal date. For the fiscal year ended April 30, 2001,
the Quantum division had revenues of approximately $23.4 million and an
operating loss of approximately $21.5 million (see Note 9).
F-23
IMPCO TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On June 12, 2001, we announced a strategic alliance between our Quantum
subsidiary and General Motors in which General Motors would acquire an equity
position in our Quantum subsidiary. The strategic alliance with General Motors
is conditioned on our spin-off of Quantum, which we announced on June 14, 2001.
We intend to accomplish the spin-off by means of a tax-free distribution of
Quantum common stock to our stockholders by the end of the 2001 calendar year.
The spin-off is subject to a number of conditions, including the receipt of an
opinion from our tax counsel or a private letter ruling from the Internal
Revenue Service that the spin-off will be tax-free to our stockholders for
federal income tax purposes. We cannot assure you that the spin-off will occur
as planned, if at all. In the event the spin-off of Quantum is not consummated,
both Quantum and General Motors intend to establish an alliance in another
arrangement.
The following unaudited pro forma condensed consolidated financial
statements have been prepared to illustrate the effect of our intended spin-off
of Quantum in accordance with Article 11 of Regulation S-X. The unaudited pro
forma condensed consolidated balance sheet illustrates the post spin-off
balance sheet of IMPCO Technologies, Inc. as of April 30, 2001. The unaudited
pro forma condensed consolidated statement of income illustrates the post spin-
off statement of income of IMPCO Technologies, Inc. for the year ended April
30, 2001 as if the spin-off had occurred on May 1, 2000.
The pro forma adjustments are based upon available information and upon
certain assumptions that management believes are reasonable under the
circumstances. The unaudited pro forma condensed consolidated financial
statements should be read in conjunction with the historical financial
statements of IMPCO Technologies, Inc., and the notes thereto. The unaudited
pro forma condensed consolidated financial statements do not purport to
represent what our actual results of operations or actual financial position
would have been if the spin-off of Quantum in fact occurred on such dates or to
project our results of operations or financial position for any such future
period or date.
F-24
IMPCO TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
April 30, 2001
Pro forma
IMPCO
Historical excluding
IMPCO Quantum(1) Quantum
------------ ----------- ------------
ASSETS
------
Current Assets:
Cash.................................. $ 16,591,415 $ 4,300 $ 16,587,115
Accounts receivable, less allowance
for doubtful accounts................ 24,464,971 9,226,611 15,238,360
Inventories........................... 31,350,995 9,125,998 22,224,997
Deferred tax assets................... 2,168,679 2,168,679
Other current assets.................. 5,060,028 1,756,955 3,303,073
------------ ----------- ------------
Total current assets................ 79,636,088 20,113,864 59,522,224
Equipment & leasehold improvements:
Dies, molds and patterns.............. 7,140,156 1,845,936 5,294,220
Machinery and equipment............... 12,388,246 6,524,915 5,863,331
Office furnishings and equipment...... 14,207,561 7,328,737 6,878,824
Automobiles and trucks................ 528,917 181,035 347,882
Leasehold improvements................ 4,478,685 2,192,525 2,286,160
------------ ----------- ------------
38,743,565 18,073,148 20,670,417
Less accumulated depreciation and
amortization......................... 18,690,053 5,371,524 13,318,529
------------ ----------- ------------
Net equipment and leasehold
improvements....................... 20,053,512 12,701,624 7,351,888
Intangibles arising from acquisitions,
net................................... 9,534,994 -- 9,534,994
Deferred tax assets.................... 10,601,227 -- 10,601,227
Other assets........................... 936,843 -- 936,843
------------ ----------- ------------
$120,762,664 $32,815,488 $ 87,947,176
============ =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable...................... $ 11,713,680 $ 6,673,095 $ 5,040,585
Accrued payroll obligations........... 3,881,500 1,268,772 2,612,728
Other accrued expenses................ 2,735,528 603,891 2,131,637
Current lines of credit............... 6,078,205 -- 6,078,205
Current maturities of long-term debt
and capital leases................... 3,680,158 1,847,590 1,832,568
------------ ----------- ------------
Total current liabilities........... 28,089,071 10,393,348 17,695,723
Lines of credit........................ -- -- --
Term loans............................. 6,870,693 5,250,000 1,620,693
Capital leases......................... 1,127,583 180,533 947,050
Deferred tax liabilities............... -- -- --
Minority interest...................... 2,044,122 -- 2,044,122
Stockholders' equity:
Preferred stock....................... -- -- --
Common stock.......................... 10,294 -- 10,294
Additional paid-in capital relating
to common stock...................... 102,831,566 16,991,607 85,839,959
Shares held in trust.................. (142,710) -- (142,710)
Notes receivable from officers........ (3,913,854) -- (3,913,854)
Retained earnings (accumulated
deficit)............................. (12,434,966) -- (12,434,966)
Accumulated other comprehensive
income............................... (3,719,135) -- (3,719,135)
------------ ----------- ------------
Total stockholders' equity.......... 82,631,195 16,991,607 65,639,588
============ =========== ============
$120,762,664 $32,815,488 $ 87,947,176
============ =========== ============
F-25
IMPCO TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Fiscal Year Ended April 30, 2001
Pro Forma
IMPCO
Historical Pro Forma excluding
IMPCO Quantum (1) Adjustments Quantum
------------ ------------ ------------ -----------
Revenue:
Product sales......... $ 95,986,664 $ 15,447,389 $ -- $80,539,275
Contract revenue...... 7,910,540 7,910,540 -- --
------------ ------------ ------------ -----------
Net revenue......... 103,897,204 23,357,929 -- 80,539,275
------------ ------------ ------------ -----------
Costs and expenses:
Cost of product
sales................ 68,951,003 19,452,343 -- 49,498,660
Research and
development expense.. 32,556,371 21,086,103 5,600,588 (2) 5,869,680
Selling, general and
administrative
expense.............. 24,060,425 4,342,106 1,157,016 (3) 18,561,303
------------ ------------ ------------ -----------
Total costs and
expenses........... 125,567,799 44,880,552 6,757,604 73,929,643
------------ ------------ ------------ -----------
Operating income
(loss)................. (21,670,595) (21,522,623) 6,757,604 6,609,632
Interest expense........ 1,417,281 329,284 -- 1,087,997
Interest income......... (1,308,921) -- -- (1,308,921)
------------ ------------ ------------ -----------
Income (loss) before
income taxes, minority
interest in income of
consolidated
subsidiaries and
dividends.............. (21,778,955) (21,851,907) 6,757,604 6,830,556
Income tax expense
(benefit).............. (8,929,370) -- (11,832,356)(4) 2,902,986
Minority interest in
income of consolidated
subsidiaries........... 253,064 -- -- 253,064
------------ ------------ ------------ -----------
Net income (loss)
applicable to common
stock.................. $(13,102,649) $(21,851,907) $ (5,074,752) $ 3,674,506
============ ============ ============ ===========
Net income (loss) per
share:
Basic................. $ (1.32) $ 0.34
Diluted............... $ (1.32) $ 0.32
Number of shares used in
per share computation:
Basic................. 9,934,700 9,934,700
Diluted............... 9,934,700 10,767,369
F-26
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Balance Sheet
1) Assets and liabilities directly attributable to Quantum at April 30,
2001. Additional paid-in capital represents the net book value of
Quantum.
Pro Forma Statement of Income
1) Quantum historical operating results for the fiscal year ended April 30,
2001.
2) Specifically identified portion of historical corporate research and
development expense directly attributable to Quantum for the fiscal year
ended April 30, 2001. The adjusted amount does not include any portion
of expected on-going expenses of IMPCO.
3) Specifically identified portion of corporate general and administrative
expense directly attributable to Quantum for the fiscal year ended April
30, 2001. The adjusted amount does not include any portion of expected
on-going expenses of IMPCO.
4) The adjustment to income taxes represents the effect of Quantum research
and development credits and operating losses. The effective income tax
rate for IMPCO primarily represents the federal statutory rate plus
state and foreign income taxes.
F-27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on July 30, 2001.
IMPCO TECHNOLOGIES, INC.
/s/ Robert M. Stemmler
By: _________________________________
Name: Robert M. Stemmler
Title:Chief Executive Officer and
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert M. Stemmler Chief Executive Officer and July 30, 2001
_________________________________ Chairman of the Board
Robert M. Stemmler (Principal Executive
Officer)
/s/ William B. Olson Chief Financial Officer and July 30, 2001
_________________________________ Treasurer (Principal
William B. Olson Financial Officer)
/s/ Timothy S. Stone Corporate Controller July 30, 2001
_________________________________ (Principal Accounting
Timothy S. Stone Officer)
/s/ Norman L. Bryan Director July 30, 2001
_________________________________
Norman L. Bryan
/s/ Paul Mlotok Director July 30, 2001
_________________________________
Paul Mlotok
/s/ J. David Powers III Director July 30, 2001
_________________________________
J. David Powers III
/s/ Don J. Simplot Director July 30, 2001
_________________________________
Don J. Simplot
EXHIBITS
Exhibit No. Description Note No.
----------- ----------- --------
2.1 Deed of Sale of Business by and among IMPCO (7)
Technologies Pty. Limited, as buyer, and Ateco
Automotive Pty Limited, as seller, dated as of July 1,
1996.
2.2 Deed of Release by and among IMPCO Technologies, Inc. (7)
and Ateco Automotive Pty Limited dated as of July 1,
1996.
2.3 Shareholders Agreement for Gas Parts (NSW) Pty Limited (7)
by and among IMPCO Technologies Pty. Limited, Gas
Parts Pty Limited and Gas Parts (NSW) Pty. Limited,
dated as of July 4, 1996.
3.1 Certificate of Incorporation, as currently in effect. (1)
3.2 Bylaws adopted July 22, 1998. (13)
4.1 Stockholders' Protection Rights Agreement dated as of (12)
June 30, 1999 between IMPCO Technologies, Inc. and
ChaseMellon Stockholder Services, L.L.C., as Rights
Agent.
10.1 Lease between L-W Income Properties and IMPCO (2)
Technologies, Inc. dated May 10, 1989.
10.2+ 1989 Incentive Stock Option Plan. (3)
10.3+ 1991 Executive Stock Option Plan dated November 5, (4)
1991, among AirSensors, Inc., as the Company, and
Bertram R. Martin, James J. Mantras and Dale L.
Rasmussen, as Optionees.
10.4 First Amendment to Lease dated April 19, 1993, between (5)
L-W Income Properties and IMPCO Technologies, Inc.
10.5+ 1993 Stock Option Plan for Non-employee Directors. (6)
10.6+ Amendment to 1989 Incentive Stock Option Plan. (6)
10.7+ 1996 Incentive Stock Option Plan. (8)
10.8+ 1997 Incentive Stock Option Plan. (9)
10.9 Lease between Klein Investments, Family Limited (10)
Partnership, as lessor, and IMPCO Technologies, Inc.,
as lessee, dated August 18, 1997.
10.10 Amendment dated March 18, 1998 to Loan agreement dated (10)
October 7, 1998 between Bank of America National Trust
and Savings, as lender, and IMPCO Technologies, Inc.,
as the borrower.
10.11 Amendment dated April 29, 1998 to Loan agreement dated (10)
October 7, 1998 between Bank of America National Trust
and Savings, as lender, and IMPCO Technologies, Inc.,
as the borrower.
10.12 Loan Agreement for IMPCO Technologies, B.V. as (10)
borrower, and Bank of America National Trust and
Savings Association, acting through its Amsterdam
branch, as lender, dated as of April 27, 1998.
10.13 Loan Agreement dated September 11, 1998 between Bank of (11)
America National Trust and Savings Association, as
lender, and IMPCO Technologies, Inc., as the borrower.
Exhibit No. Description Note No.
----------- ----------- --------
10.14 Amendment to lease between Klein Investments, Family (13)
Limited Partnership, as lessor, and IMPCO
Technologies, Inc., as lessee, dated March 9, 1999.
10.15 Loan Agreement between IMPCO Tech Japan KK, as (13)
borrower, and, Hongkong and Shanghai Banking
Corporation Ltd., Osaka Branch., as lender, dated as
of March 29, 1999.
10.16+ Employment Agreement dated April 1, 1999, between IMPCO (13)
Technologies, Inc., as the Company, and Robert M.
Stemmler, as the Employee.
10.17 Amended Loan Agreement between IMPCO Technologies, (14)
Inc., as borrower and Bank of America N.A. as lender,
dated September 13, 1999.
10.18 Intentionally Omitted.
10.19 Amendment No. 3 to Business Loan Agreement by and (15)
between Bank of America, N.A. and IMPCO Technologies,
Inc. dated as of June 13, 2000.
10.20 Lease dated as of March 31, 2000, by and between Braden (16)
Court Associates and IMPCO Technologies, Inc.
10.21 Amendment No. 4 to Business Loan Agreement by and (18)
between Bank of America, N.A. and IMPCO Technologies,
Inc. dated as of September 12, 2000.
10.22 Amendment No. 5 to Business Loan Agreement between Bank (18)
of America, N.A. and IMPCO Technologies, Inc. dated as
of December 13, 2000.
10.23 Amendment No. 6 to Business Loan Agreement between Bank (19)
of America, N.A. and IMPCO Technologies, Inc. dated as
of March 12, 2001.
10.24 Promissory Note Issued by Robert Stemmler to Registrant (17)
dated March 15, 2001.
10.25 Promissory Note Issued by Dale Rasmussen to Registrant (17)
dated March 15, 2001.
10.26 Promissory Note Issued by Syed Hussain to Registrant (17)
dated March 15, 2001.
10.27 Security Agreement and Agreement Not to Exercise (17)
Options entered into between Robert Stemmler and
Registrant dated March 15, 2001.
10.28 Security Agreement and Agreement Not to Exercise (17)
Options entered into between Dale Rasmussen and
Registrant dated March 15, 2001.
10.29 Security Agreement and Agreement Not to Exercise (17)
Options entered into between Syed Hussain and
Registrant dated March 15, 2001.
10.30 Deed of Trust Executed by Dale Rasmussen regarding (17)
personal residence.
10.31+ Corporate Alliance Agreement dated June 12, 2001 (21)
between Quantum Technologies Worldwide, Inc. and
General Motors Corporation.
10.32 Master Technical Agreement dated June 12, 2001 between (21)
Quantum Technologies Worldwide, Inc. and General
Motors Corporation.
10.33 Stock Transfer Agreement dated June 12, 2001 between (21)
Quantum Technologies Worldwide, Inc. and General
Motors Corporation.
10.34 Registration Rights Agreement dated June 12, 2001 (21)
between Quantum Technologies Worldwide, Inc. and
General Motors Corporation.
10.35 Amended and Restated Business Loan Agreement dated as (1)
of April 30, 2001 among IMPCO Technologies, Inc.,
Quantum Technologies, Inc. and Bank of America, N.A.
10.36+ 2000 Incentive Stock Option Plan. (20)
10.37 IMPCO and GM Teaming Agreement, dated July 30, 1997 by (22)
the Company and General Motors Corporation.
21.1 Subsidiaries of the Company. (1)
23.1 Consent of Ernst & Young LLP. (1)
--------
(1) Filed herewith.
(2) Incorporated by reference from Form 10-K for fiscal year 1989.
(3) Incorporated by reference from Form 10-K for fiscal year 1990.
(4) Incorporated by reference from Form 10-K for fiscal year 1992.
(5) Incorporated by reference from Form 10-K for fiscal year 1993.
(6) Incorporated by reference from Form 10-K for fiscal year 1994.
(7) Incorporated by reference from 8-K/A dated July 1, 1996.
(8) Incorporated by reference from Form 10-K for fiscal year 1997.
(9) Incorporated by reference from Proxy Statement for fiscal year 1997.
(10) Incorporated by reference from Form 10-K for fiscal year 1998.
(11) Incorporated by reference from Form 10-Q for period ended October 31,
1998.
(12) Incorporated by reference from Form 8-K dated June 30, 1999.
(13) Incorporated by reference from Form 10-K for fiscal year 1999.
(14) Incorporated by reference from Form 10-Q for the period ended December 7,
1999.
(15) Incorporated by reference from Form S-3/A (file No. 333-34366), filed with
the Commission on June 14, 2000.
(16) Incorporated by reference from Form 10-K for fiscal year 2000.
(17) Incorporated by reference from Form 8-K dated March 26, 2001.
(18) Incorporated by reference from Form 10-Q for the period ended October 31,
2000.
(19) Incorporated by reference from Form 10-Q for the period ended January 31,
2001.
(20) Incorporated by reference from Proxy Statement for fiscal year 2000.
(21) Incorporated by reference from Form S-3/A (file No. 333-63726), filed with
the Commission on July 9, 2001.
(22) Incorporated by reference from Form S-3 (file No. 333-34364), filed with
the Commission on April 7, 2000.
+ Management contract or compensatory plan or arrangement.
+ Certain information in this exhibit has been omitted and filed separately
with The Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.