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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999 COMMISSION FILE NO. 0-21964
SHILOH INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 51-0347683
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
Suite 202, 103 Foulk Road, Wilmington, Delaware 19803
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(Address of principal executive offices - zip code)
(302) 998-0592
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(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, Par Value $0.01 Per Share
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
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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 Annual Report on Form 10-K or any
amendment to this Form 10-K.
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Aggregate market value of Common Stock held by non-affiliates of the registrant
as of January 26, 2000 at a closing price of $10.50 per share as reported by the
Nasdaq National Market was approximately $49,284,070. Shares of Common Stock
beneficially held by each officer and director and their respective spouses have
been excluded since such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
Number of shares of Common Stock outstanding as of January 26, 2000 was
14,509,134.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference to Part III of
this Annual Report on Form 10-K: the Proxy Statement for the Registrant's 2000
Annual Meeting of Stockholders (the "Proxy Statement").
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SHILOH INDUSTRIES, INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
Table of Contents
PART I:
Page
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Item 1. Business 3
Item 2. Properties 9
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 4A. Executive Officers of the Company 10
PART II:
Item 5. Market for the Company's Common Equity and Related
Stockholder Matters 13
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 22
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 45
PART III:
Item 10. Directors and Executive Officers of the Company 45
Item 11. Executive Compensation 45
Item 12. Security Ownership of Certain Beneficial Owners
and Management 45
Item 13. Certain Relationships and Related Transactions 45
PART IV:
Item 14. Exhibits, Financial Statement Schedules and Reports 46
on Form 8-K
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PART I
ITEM 1. BUSINESS
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GENERAL
Shiloh is a full service manufacturer of blanks and stamped components
for the automotive and light truck, heavy truck and other industrial markets.
The Company's blanks are principally sold to automotive and truck original
equipment manufacturers ("OEMs") and are used for exterior steel components,
such as fenders, hoods and doors, for which quality of fit and finish is
critical. These blanks include first operation unexposed blanks and more
advanced tailor-welded blanks, which are manufactured from two or more blanks of
different steel or gauges that are welded together utilizing both mash seam
resistance and laser welders. Tailor-welded blanks allow OEMs to achieve a
reduction in vehicle weight, while maintaining body strength for safety and
improving performance of the vehicle. The Company's stampings and assemblies are
principally used as components in mufflers, seat frames, structural rails,
window lifts, vehicle brakes and other structural body components. The Company
also designs, engineers and manufactures precision tools and dies for use in its
blanking and stamping operations, as well as for sale to OEMs, other Tier I
automotive suppliers and other industrial customers. Furthermore, the Company
provides a variety of intermediate steel processing services, such as pickling
and oiling, cutting-to-length, slitting and edge trimming of hot-and cold-rolled
steel coils for automotive and steel industry customers. The Company currently
has 12 subsidiaries at locations in Ohio, Michigan, Georgia and
Mexico.
HISTORY
In April 1993, the Company was organized as a Delaware corporation to
serve as a holding company for seven operating subsidiaries. In June 1993, the
Company effected a reorganization whereby these seven operating subsidiaries
became direct or indirect subsidiaries of the Company. In July 1993, the Company
completed an initial public offering of 3,782,500 shares of its Common Stock.
In January 1996, the Company and Rouge Steel Company formed a limited
liability company, Shiloh of Michigan, L.L.C. ("Shiloh of Michigan"), to create
a joint venture to produce engineered steel blanks, with the Company as an
eighty percent (80%) equity owner. As of the end of fiscal 1999, the Company's
investment in this joint venture totaled approximately $28.0 million.
In November 1996, the Company acquired substantially all of the assets
of Greenfield Die & Manufacturing Corp. ("Greenfield"), which is headquartered
in Canton, Michigan, a suburb of Detroit, and serves the automotive industry by
providing a variety of value added processes, including tool and die design and
build, stamping, assembly, welding, prototyping operations and mold design and
build. In August 1997, the Company acquired C&H Design Company, d.b.a. C&H Die
Technology ("C&H"), which is headquartered in Utica, Michigan, and primarily
serves the automotive industry by providing tool and die design and build. The
Company also commenced operation of Jefferson Blanking, Inc. ("Jefferson
Blanking"), a blanking and stamping facility in Pendergrass, Georgia in July
1998. In addition, the Company commenced construction of Shiloh de Mexico, a
laser welded blanking facility in Saltillo, Mexico in August 1999. This facility
is anticipated to be completed in the second half of fiscal 2000.
The Company's principal executive offices are located at Suite 202, 103
Foulk Road, Wilmington, Delaware 19803 and its telephone number is (302)
998-0592. Unless otherwise indicated, all references to the "Company" refer to
Shiloh Industries, Inc. and its direct and indirect subsidiaries.
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INDUSTRY
ENGINEERED PRODUCTS
In the engineered products business, OEMs and Tier I automotive
suppliers purchase steel components from suppliers such as the Company. The
Company manufactures these components and also engineers and builds the tools
and dies used in its blanking and stamping operations. In addition, the Company
produces tools and dies for its customers. OEMs typically find it more cost
effective and time efficient to focus their core operations on vehicle
assembly, marketing and distribution. As a result, OEMs increasingly outsource
the blanked and stamped steel components used in their vehicles. OEMs
increasingly look to suppliers such as the Company to assume blanking and
stamping, as well as tool and die operations that were previously done
internally at OEMs.
The automotive and light truck and heavy truck industries have been
and continue to be significantly influenced by several trends, which include:
- Reduction in vehicle weight and cost;
- Increased outsourcing;
- Supplier consolidation; and
- Globalization.
The Company believes that these trends afford the Company the
opportunity to enhance its growth prospects for the following reasons:
Reduction in vehicle weight and cost. OEMs are working to reduce the
weight of vehicles and increase fuel efficiency in order to satisfy
government-mandated fuel-economy standards while simultaneously working to
reduce vehicle costs to meet competitive pressures. For example, tailor-welded
banks allow OEMs to reduce vehicle weight, while maintaining body strength for
safety and improving performance of the vehicle. Furthermore, by reducing the
number of parts and supplemental operations required, tailor-welded blanks
offer significant cost savings to OEMs. The Company believes that the Big Three
automotive OEMs currently have limited tailor-welded blanking capability.
Increased outsourcing. In order to respond to competitive pressures to
improve product quality, and to reduce capital expenditures, production costs
and inventory levels, OEMs are focusing on their core operations of vehicle
assembly, marketing and distribution. Consequently, OEMs are increasingly
outsourcing the manufacture of components. This outsourcing trend is evident as
OEMs increasingly continue to outsource stampings and blankings to Tier I and
Tier II suppliers, such as the Company.
Supplier consolidation. OEMs have continued to reduce their supplier
base in several product segments by awarding sole source contracts to full
service suppliers. As a result, OEMs increasingly work with a smaller number of
full service suppliers, each of which supplies a greater proportion of the
total vehicle. Suppliers with sufficient size, geographic scope, and financial
resources are best positioned to be these full-service suppliers. For suppliers
such as the Company, this environment provides an opportunity to grow by
obtaining business previously provided by other full service suppliers and by
acquiring suppliers that further enhance product, manufacturing and service
capabilities. OEMs rigorously evaluate suppliers on the basis of product
quality, cost control, reliability of delivery, product design capability,
financial strength, new technology implementation, quality and condition of
facilities and overall management. Suppliers that obtain superior ratings are
considered for sourcing new business. Although these factors have already
resulted in consolidation of component suppliers in some segments, the Company
believes that the stamping industry is in the early stages of consolidation and
will provide opportunities to it for further consolidation.
Globalization. Full service suppliers are inceasingly following their
OEM customers as they expand their operations into global markets. Shipping
costs, import duties and local content laws make it advantageous for OEMs to
purchase from Tier I suppliers with a local presence.
INTERMEDIATE STEEL PROCESSING
Primary steel producers typically find it more cost effective to
focus on the sale of standard size and tolerance steel to large volume
purchasers and view the intermediate steel processor as part of their customer
base. End-product manufacturers seek to purchase steel free from oxidation and
scale, with closer tolerances, on shorter lead times and with more reliable and
more frequent delivery than the primary steel producers can provide
efficiently. By outsourcing these processing services, many end-product
manufacturers are able to significantly enhance their productivity. These
factors, together with the lower cost structure typically found in the outside
supplier, have caused many end-product manufacturers to find it more
beneficial, from a cost, quality and manufacturing flexibility standpoint, to
outsource much of the intermediate steel processing, which is required for the
production of their end-products.
PRODUCTS AND MANUFACTURING PROCESSES
ENGINEERED PRODUCTS
The Company produces precision stamped steel components through its
blanking and stamping operations. Blanking is a process in which flat rolled
steel is cut into precise two dimensional shapes by passing steel through a
press, employing a blanking die. The Company's blanking presses range in size
from 600 tons to 3,000 tons, giving the flexibility to produce blanks from flat
rolled steel ranging in thickness from 0.02 inches to 0.654 inches. These blanks
are used principally by manufacturers in the automobile, heavy truck, heating,
ventilation and air conditioning ("HVAC") and lawn and garden industries. These
blanks are used by the Company's automotive and heavy truck customers for
automobile exterior parts, including fenders, hoods, doors and side panels, and
heavy truck wheel rims and brake components. The Company's HVAC and lawn and
garden customers use blanks primarily for compressor housings and lawn mower
decks.
The Company produces tailor-welded blanks utilizing both the mash seam
resistance and laser weld processes. The tailor-welded blanks that are produced
generally consist of two or more sheets of steel or aluminum of the same or
different material grade, thickness or coating welded together into a single
flat panel. The primary distinctions between mash seam resistance and laser
welding are weld bead appearance and cost. Mash seam resistance welds typically
are 5%-20% thicker than the parent material gauge, while laser welds generally
do not exceed the thickness of the parent metal unless filler metal is added.
Tailor-welded blanks allow OEMs to reduce vehicle weight, while maintaining body
strength for safety and improving performance of the vehicle. Furthermore, by
reducing the number of parts and supplemental operations required, tailor-welded
blanks offer significant cost savings to OEMs.
Stamping is a process in which steel is passed through dies in a
stamping press in order to form the steel into three dimensional parts. The
Company's stamping presses range in size from 150 tons to 1,500 tons, giving the
flexibility to stamp flat rolled steel and steel blanks ranging in thickness
from 0.01 inches to 0.375 inches. In addition, some of the Company's stamping
presses can accommodate dies up to 240 inches in length and consequently can
perform a large number of stamping functions on a single press. The Company also
produces stamped parts using precision single stage, progressive and transfer
dies, which in most cases, the Company designs and manufactures. In addition,
stamping and blanking operations provide value-added processes, such as welding
and some assembly. The Company also manufactures deep draw stampings, such as
mufflers. The Company's stampings and assemblies are principally used as
components for seat frames, structural rails, window lifts, vehicle brakes and
other structural body components for automobiles and light trucks.
The Company also designs, engineers and produces precision tools and
dies to support the manufacturing process, by supplying substantially all of the
tools and dies used in the blanking and stamping operations. The Company also
produces tools and dies for sale to OEMs, Tier I suppliers and other industrial
customers. Advanced technology is maintained to conduct activities and improve
tool and die production capabilities. The Company has computerized most of the
design and engineering portions of the tool and die production process to reduce
production time and cost. All of the tool and die manufacturing facilities are
electronically connected to major customers, which enables the Company to be
more responsive in the design and build of tools and dies.
INTERMEDIATE STEEL PROCESSING
The Company processes flat rolled steel for internal blanking and
stamping operations. The Company also processes flat rolled steel principally
for primary steel producers and manufacturers that require processed steel for
end-product manufacturing purposes. The Company either purchases hot-rolled
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and cold-rolled steel from primary steel producers located throughout the
Midwest or receives the steel on a toll-processing basis and does not acquire
ownership of it. This steel typically requires additional processing to meet the
requirements of the end-product manufacturers. The Company's intermediate
processing operations include slitting, cutting-to-length, pickling and oiling,
edge trimming, roller leveling and quality inspecting of flat rolled steel.
The first processing operation for hot-rolled steel typically involves
pickling, a chemical process in which an acidic solution is applied to the steel
to remove the surface oxidation and scale which develops on the steel shortly
after it is hot-rolled. During the pickling process, the steel is either coated
with oil to prevent oxidation or with a borax-based solution to prevent
oxidation and facilitate the stamping process. In 1996, the Company added an
additional pickling line, allowing the Company to nearly double capacity for
cleaning, finishing and coating steel. After pickling, the steel is ready for
either additional processing or delivery to the customer.
Pickled steel and cold-rolled steel often go through additional
processing operations to meet the requirements of end-product manufacturers.
Slitting is the cutting of coiled steel to precise widths. Cutting to length
produces steel cut to specified lengths ranging from 12 inches to 168 inches.
Edge trimming removes a specified portion of the outside edges of the coiled
steel to produce a uniform width. Roller leveling flattens the steel by applying
pressure across the width of the steel to make the steel suitable for blanking
and stamping. To achieve high quality and increased volume levels and to be
responsive to customers' just-in-time supply requirements, most of the Company's
steel processing operations are computerized and have combined several
complementary processing lines, such as pickling, slitting and cutting to length
at single facilities. In addition to cleaning, leveling and cutting steel, the
Company inspects steel to detect production flaws and utilize computers to
provide both visual displays and documented records of the thickness maintained
throughout the entire coil of steel. The Company also performs inventory control
services for some customers.
CUSTOMERS
The Company produces blanked and stamped parts and processed
flat-rolled steel for a variety of industrial customers. The Company supplies
steel blanks primarily to the Big Three automotive manufacturers and stampings
to Tier I automotive suppliers. The Company also supplies blanks and stampings
to manufacturers in the lawn and garden, HVAC, home appliance and construction
industries. Finally, the Company processes flat-rolled steel for a number of
primary steel producers.
The Company's largest customer is the Parma, Ohio stamping facility of
the metal fabricating division of General Motors. The Company has been working
with General Motors for more than 20 years. Since 1986, the Company believes
they have been the exclusive supplier of first operation blanks to the General
Motors' facility in Parma, Ohio, which produces stamped exterior body parts for
use in many of its automobiles. The Company is linked to this facility through
an electronic data interchange and the Company supplies blanks on a just-in-time
basis. During fiscal 1999, General Motors accounted for approximately 10.8% of
the Company's revenues.
SALES AND MARKETING
The Company recently reorganized its sales and marketing efforts and
hired a new Vice President of Sales and Marketing to oversee these efforts. The
current sales force consists of approximately 18 individuals. Over the next few
months, the Company expects to expand the total sales force, including sales
personnel dedicated to the operations of the recently acquired automotive
division of MTD Products Inc. These individuals will directly market steel
processing services, engineered steel products and tool and dies. The
reorganization of sales efforts was designed to enable the Company to target
sales and marketing efforts at three distinct types of customers.
. OEM customers;
. Tier I suppliers; and
. Tool and die customers.
To supplement the sales and marketing efforts, the Company is in the
process of establishing an engineering and technical center in Michigan in close
proximity to its automotive customers. The Company's engineering staff at this
center will provide technical assistance and support to customers by offering
the customer, in many cases, technical assistance during the product development
stage. The location of the engineering and technical center allows for greater,
more frequent access to some of the Company's key customers. This reorganized
sales and marketing force is incentivized though a salary that is supplemented
by a bonus based on performance.
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OPERATIONS AND ENGINEERING
The Company operates its steel processing facilities on an integrated
basis. A significant portion of the flat-rolled steel used by the Company in its
blanking and stamping operations is supplied through its other steel processing
operations. With four tool and die facilities, the Company typically designs,
engineers and manufacturers substantially all of the tools and dies used in its
blanking and stamping operations.
Eleven of the Company's facilities were constructed by the Company and
were located and designed to facilitate the integrated flow of the Company's
processing operations. In addition, the Company has developed a just-in-time
delivery system that enables the Company to meet its customers' requirements for
deliveries on shorter lead times thereby minimizing their need to carry
significant inventory levels.
In October 1999, the Company implemented a performance measurement
system called the Shiloh Operating System ("SOS"). The objective of this system
is to support the Company's manufacturing strategy by motivating activities that
lead to continuous improvement in customer satisfaction, quality, cost and
delivery. These measures are primarily non-financial and are designed to provide
operational managers feedback on areas of improvement that require immediate
action. This information is reviewed by the executive management team on a
monthly basis for progress on improvement initiatives.
RAW MATERIALS
The basic materials required for the Company's operations are hot- and
cold-rolled steel. The Company obtains steel from a number of primary steel
producers, including Rouge Steel Company, Wheeling-Pittsburgh Steel, LTV Steel
Company, Warren Consolidated Steel, North Star BHP Steel LTD, Gallatin Steel and
Nucor Steel. A significant portion of the steel processing products and services
are provided to customers on a toll processing basis. Under these arrangements,
the Company charges a specified fee for operations performed without acquiring
ownership of the steel and being burdened with the attendant costs of ownership
and risk of loss. Through centralized purchasing, the Company attempts to
purchase raw materials at the lowest competitive prices for the quantity
purchased. The amount of steel available for processing is a function of the
production levels of primary steel producers.
COMPETITION
Competition for sales of steel blanks and stampings is intense, coming
from numerous companies, including independent domestic and international
suppliers, and from internal divisions of General Motors, Ford and
DaimlerChrysler, as well as independent domestic and international Tier I
suppliers, which have blanking facilities and greater financial and other
resources than the Company. The market for the Company's steel processing
operations is also highly competitive. The Company competes with a number of
steel processors in its region, such as Worthington Industries and Samuel Steel
Pickling Company, and primary steel producers, many of which also have
comparable facilities and greater financial and other resources than the
Company. The primary characteristics of competition encountered in each of these
markets are product quality, service and price and technological innovation.
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EMPLOYEES
As of December 31, 1999, the Company had approximately 3,220 employees.
The employees at five of the subsidiaries, an aggregate of approximately 1,530
employees, are covered by six collective bargaining agreements that are due to
expire in May 2000, June 2001, August 2001, May 2002, June 2002 and January
2005.
BACKLOG
Because the Company conducts its steel processing operations generally
on the basis of short-term orders, backlog is not a meaningful indicator of
future performance.
SEASONALITY
The Company typically, experiences decreased revenue and operating
income during its first fiscal quarter of each year, usually resulting from
generally slower overall automobile production during the winter months. The
Company's revenues and operating income in its third fiscal quarter can also be
affected by the typically lower automobile production activities in July due to
manufacturers' changeover in production lines.
ENVIRONMENTAL MATTERS
The Company is subject to environmental laws and regulations
concerning:
- emissions to the air;
- discharges to waterways; and
- generation, handling, storage, transportation, treatment and
disposal of waste and hazardous materials.
The Company is also subject to laws and regulations that can require
the remediation of contamination that exists at current or former facilities. In
addition, the Company is subject to other federal and state laws and regulations
regarding health and safety matters. Each of the production facilities has
permits and licenses allowing and regulating air emissions and water discharges.
While the Company believes that at the present time they are in substantial
compliance with environmental laws and regulations, these laws and regulations
are constantly evolving and it is impossible to predict whether compliance with
all liability under these laws and regulations may have a material adverse
effect on the Company in the future.
RECENT DEVELOPMENTS
On November 1, 1999 Shiloh acquired the automotive division ("MTD
Automotive") from MTD Products Inc for an aggregate purchase price of
approximately $31.1 million. Pursuant to the Purchase Agreement, the
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aggregate consideration consisted of $20 million in cash and a number of shares
equal to $20 million divided by the greater of (1) $14.00 or (2) to the extent
the average closing price of the Common Stock exceeded $14.50 per share, the
average closing price. Because the average closing price did not exceed $14.50
per share, the Company issued 1,428,571 shares of Common Stock to MTD Products
Inc. The closing price of the Common Stock of the Company as reported on the
Nasdaq Stock Market on November 1, 1999 was $9.50 per share.
The purchase price is subject to adjustment based upon the closing net
working capital. In addition, the aggregate consideration will be increased or
decreased based upon the performance of MTD Automotive during the first twelve
months subsequent to closing. The maximum amount of additional consideration to
be paid under the performance clause is $28.0 million. The maximum amount of
consideration to be refunded under the performance clause is $15.0 million. Such
purchase price adjustments will be paid half in cash and half in Common Stock.
MTD Automotive is primarily a Tier I supplier of highly engineered
metal stampings and modular assemblies to the North American automotive and
light truck industry. MTD Automotive manufactures modules used in the structural
and powertrain systems of a vehicle. MTD Automotive's structural modules consist
of bumper beams, door impact beams, steering column supports, chassis components
and structural underbody modules, and its powertrain products consist of deep
draw components, such as oil pans, transmission pans and valve covers. In
addition, MTD Automotive manufactures thermal heat-shielding components and
non-automotive products, including a variety of heat-treated lawn mower blades.
MTD Automotive also designs, engineers and produces precision tools and dies for
use in its own stamping operations as well as for sale to other customers, and a
portion of the welding and secondary assembly equipment that is used to
manufacture its modular systems. In addition, MTD Automotive has assembly and
welding capabilities, in-house tooling and special equipment design, development
and manufacturing, painting capabilities and heat treatment equipment.
MTD Automotive's operations are conducted at two manufacturing
facilities in Ohio, which utilize presses ranging in size from 100 tons to 2,500
tons. MTD Automotive provides product development, prototyping and project
management services that are accompanied by dedicated engineering support and
has sales and engineering support offices located near Detroit, Michigan.
MTD Automotive, at its facilities in Cleveland and Valley City, Ohio
has engaged in industrial manufacturing operations since 1936 and 1968, during
which time various hazardous substances have been handled at each facility. As a
consequence of these historic operations, the potential for contamination of
soil and groundwater may exist at the Cleveland facility, which the Company will
lease from MTD Products Inc and the Valley City facility, which the Company
owns. Although the Company could be liable for cleanup costs at these
facilities, MTD Products Inc is contractually obligated to indemnify the Company
against any such costs arising as a result of operations prior to the
acquisition of MTD Automotive on November 1, 1999.
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ITEM 2. PROPERTIES
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The Company is a Delaware holding corporation that conducts its
operations through twelve subsidiaries, seven located in north central Ohio,
three located in Michigan, one located in Georgia and one located in Mexico. The
Company believes substantially all of its property and equipment is in good
condition and that it has sufficient capacity to meet its current operational
needs. The Company considers full capacity of its steel processing facilities to
be three eight hour shifts for 5.5 days per week. At October 31, 1999, the
Company's steel processing operations were operating at near full capacity. The
Company's facilities, at 13 locations, all of which are owned (except for its
Utica and some of its Canton, Michigan and Cleveland, Ohio facilities), are as
follows:
Location Square Footage Date of Operation Description of Use
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Mansfield, Ohio 295,240 1955 Blanking/Tool and Die Production
Valley City, Ohio 489,481 (1) 1986 Blanking
Wellington,Ohio 85,667 1998 Tool and Die Production
Wellington, Ohio 226,316 1987 Stamping
Valley City, Ohio 260,000 1977 Other Steel Processing
Valley City, Ohio 244,000 1990 Other Steel Processing
Romulus, Michigan 170,600 (2) 1996 Blanking
Canton, Michigan 280,370 1996 Stamping/Tool and Die Production
Utica, Michigan 62,500 (3) 1997 Tool and Die Production
Pendergrass, Georgia 171,000 1998 Blanking
Saltillo, Mexico 140,825 (4) 2000 Blanking
Valley City, Ohio 250,000 (5) 1999 Stamping
Cleveland, Ohio 395,000 (5) 1999 Stamping/Tool and Die Production
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(1) Includes a 117,481 square foot addition to this facility, which is
expected to be completed in July 2000.
(2) This facility is owned by Shiloh of Michigan, the Company's joint
venture with Rouge Steel. The Company is an 80% equity owner of Shiloh
of Michigan.
(3) The Company leases these facilities.
(4) The Company began construction of this facility in August 1999, and the
Company anticipates the facility will be completed in the second half
of fiscal 2000.
(5) The Company acquired these facilities on November 1, 1999 in
connection with the acquisition of MTD Automotive. The Valley City
facility is owned and the Cleveland facility is leased.
The facilities in Valley City, Ohio are in close proximity to each
other facilitating greater integration of operations and management. In
addition, the Company's operating facilities at Canton, Michigan consist of five
separate facilities (three of which are leased) located within a five mile
radius of each other.
ITEM 3. LEGAL PROCEEDINGS
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The Company is involved in various law suits arising in the ordinary
course of business. In management's opinion, the outcome of these matters will
not have a material adverse effect on the Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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On August 31, 1999 the stockholders of Shiloh Industries, Inc., at a
special meeting, approved the acquisition by the Company of MTD Automotive from
MTD Products Inc. On July 22, 1999, the record date for such special meeting,
there were 13,080,563 shares of common stock outstanding and entitled to vote.
There were 12,038,688 shares of common stock represented in person or by proxy
at the special meeting. The final results of the votes cast were as follows:
Against
Or Broker
For Withheld Abstain Non-votes
------------ --------- ---------- ---------
12,026,443 9,000 3,245 0
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
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The information under this Item 4A is furnished pursuant to Instruction
3 to Item 401(b) of Regulation S-K.
CURTIS E. MOLL, CHAIRMAN OF THE BOARD. Mr. Moll became Chairman of the
Board of the Company in April 1999, and he has served as a Director of the
Company since its formation in April 1993. Since 1980, Mr. Moll has served as
the Chairman of the Board and Chief Executive Officer of MTD Products Inc. Mr.
Moll also serves as a director of Sherwin Williams Company. Mr. C. Moll is 60
years old.
JOHN F. FALCON, PRESIDENT AND CHIEF EXECUTIVE OFFICER. Mr. Falcon has
been the President and Chief Executive Officer of the Company since April
1999. From 1995 to April 1999, Mr. Falcon held several positions at Lear
Corporation, including Director of Interiors for its General Motors division.
Prior to that time, he had over twenty years of experience at General Motors
where he held several positions, including, among others, Worldwide Operations
Manager for ignition and filtration products. Mr. J. Falcon is 51 years old.
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DOMINICK C. FANELLO, VICE CHAIRMAN OF THE BOARD. Mr. Fanello has been
Vice Chairman of the Board since October 1996 and a Director of the Company
since its formation in April 1993. Mr. Fanello served as Chairman of the Board
of the Company from April 1993 to October 1996. Mr. Fanello served as the Chief
Executive Officer of the Company from April 1993 to October 1996. Mr. Fanello
served as Chairman and Chief Executive Officer of Shiloh Corporation since 1954,
and was one of the founders of Shiloh Corporation and its predecessor. Mr.
Fanello also serves as a director of Park National Bank (Newark, Ohio), Richland
Trust Company and Rouge Industries, Inc. Mr. D. Fanello is 78 years old.
JAMES C. FANELLO, EXECUTIVE VICE PRESIDENT. Mr. Fanello has been the
executive Vice President and a Director of the Company since its formation in
April 1993. Mr. Fanello served as the President of Stamping and Blanking
operations from April 1993 to October 1996. Mr. Fanello has been employed by
Shiloh Corporation and its predecessor since 1951 during which time he has held
various positions, including President and Executive Vice President. Mr. J.
Fanello is 70 years old.
CRAIG A. STACY, CHIEF FINANCIAL OFFICER AND TREASURER. Mr. Stacy has
served as Chief Financial Officer and Treasurer since October 1996. Mr. Stacy
had been the Corporate Controller of the Company since 1994. Prior to joining
the Company, Mr. Stacy was employed by Price Waterhouse LLP (currently
PricewaterhouseCoopers LLP) and Ernst & Young LLP. Mr. Stacy is a Certified
Public Accountant. Mr. Stacy is 33 years old.
DAVID K. FRINK, EXECUTIVE VICE PRESIDENT OF STEEL PROCESSING. Mr. Frink
was named Executive Vice President of Steel Processing in July 1997 and Director
of Corporate Purchasing in May 1996. Mr. Frink was President of Steel Processing
from August 1996 to July 1997. Prior to August 1996, Mr. Frink had been the
plant general manager at Liverpool Coil Processing since June 1991. Mr. Frink is
52 years old.
NICKOLAS L. BLAUWIEKEL, CORPORATE VICE-PRESIDENT OF HUMAN RESOURCES.
Mr. Blauwiekel was named Corporate Vice President of Human Resources in November
of 1998. Prior to November 1998, Mr. Blauwiekel had been the Vice President,
Human Resources for Cooper Automotive, a manufacturer and supplier of automotive
components and a Division of Federal Mogul Corporation. Mr. Blauwiekel is 44
years old.
RONALD P. TURNER, VICE PRESIDENT OF SALES AND MARKETING. Mr. Turner was
named Vice President of Sales and Marketing in August 1999. Prior to his tenure
with the Company, Mr. Turner had been Vice President of Sales, Marketing and
Program Management of Worldwide Safety Systems, a division of TRW Inc. from
August 1996 to April 1999 and Vice President of Sales and Marketing of Seatbelt
Systems, a division of TRW Inc. from August 1994 to August 1996. Mr. R. Turner
is 52 years old.
LARRY D. PAQUIN, VICE PRESIDENT OF QUALITY AND CONTINUOUS IMPROVEMENT.
Mr. Paquin has served as Vice President of Quality and Continuous Improvement
since August 1999. Prior to his tenure with the Company, Mr. Paquin had been
Vice President and General Manager of Thomas Madison Incorporated from April
1996 to July 1999. Prior to that time, Mr. Paquin served as President of the
Crescive Die and Tool Company. Mr. L. Paquin is 56 years old.
MARK D. THEISEN, VICE PRESIDENT OF STRATEGIC PLANNING. Mr. Theisen was
named Vice President of Strategic Planning of MTD Automotive in August 1998
and served as general manager of MTD Automotive from June 1997 to August 1998.
Prior to that time Mr. Theisen had been Marketing Manager of MTD Automotive from
April 1995 to June 1997 and Sales Account Manager of MTD Automotive prior to
that time. Mr. M. Theisen is 37 years old.
PATRICK C. BOYER, VICE PRESIDENT OF TOOLING & DESIGN. Mr. Boyer was
named
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Vice President of Tooling and Design in June 1999. Prior to June 1999, Mr. Boyer
was Vice President of Marketing from November 1998 to May 1999. Prior to that
time, Mr. Boyer served as Plant General Manager of Sectional Stamping Inc. for a
six-year period. Mr. P. Boyer is 44 years old.
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PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ---------------------------------------------------------------------------
As of the close of business on January 26, 2000, there were 162
stockholders of record for the Company's Common Stock. The Company believes that
the actual number of stockholders of the Company's Common Stock exceeds 300. The
Company has not declared or paid any cash dividends on shares of its equity
securities, including Common Stock, since its incorporation in April 1993. The
Company currently intends to retain earnings to supports its growth strategy and
does not anticipate paying dividends in the foreseeable future. The Common Stock
is traded on the Nasdaq National Market under the symbol "SHLO". On January 26,
2000, the closing price for the Company's Common Stock was $10.50 per share.
The Company's Common Stock commenced trading on June 29, 1993. The
table below sets forth the high and low bid prices for the Company's Common
Stock for its four quarters in each of 1998 and 1999.
High Low
- --------------------------------------------------------------------------------
1st Quarter
January 31, 1998 $19.50 $18.00
2nd Quarter
April 30, 1998 $23.375 $18.625
3rd Quarter
July 31, 1998 $22.125 $17.25
4th Quarter
October 31, 1998 $19.375 $14.25
1st Quarter
January 31, 1999 $16.375 $12.25
2nd Quarter
April 30, 1999 $14.625 $9.125
3rd Quarter
July 31, 1999 $15.00 $9.875
4th Quarter
October 31, 1999 $13.50 $8.125
On November 1, 1999, the Company issued 1,428,571 shares of its Common
Stock to MTD Products Inc as a portion of the consideration for the acquisition
by the Company of MTD Automotive. This issuance of shares of Common Stock was
exempt from the registration requirements of the Securities Act of 1933 based on
Section 4(2) of such Act.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data of
the Company. The data for each of the five years in the period ended October 31,
1999, are derived from the consolidated financial statements of the Company,
which have been audited by PricewaterhouseCoopers LLP, independent accountants.
The data presented below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and the notes thereto included elsewhere in this Annual
Report.
(amounts in thousands, except per share data) Year Ended October 31,
---------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
INCOME STATEMENT DATA:
Revenues $354,220 $ 299,350 $ 273,161 $ 219,466 $ 212,348
Cost of sales 291,265 242,499 214,343 173,836 173,734
-------- ---------- ----------- ----------- -----------
Gross profit 62,955 56,851 58,818 45,630 38,614
Selling, general and administrative expenses 31,441 26,832 25,557 17,086 14,341
-------- ---------- ----------- ----------- -----------
Operating income 31,514 30,019 33,261 28,544 24,273
Interest expense, net 7,380 5,130 2,161 111 402
Minority interest 474 342 394 123 ---
Other income (expense), net 66 (16) 274 (81) 64
-------- ---------- ----------- ----------- -----------
Income from continuing operations before taxes and
effect of change in accounting principle 24,674 25,215 31,768 28,475 23,935
Provision for income taxes 9,363 9,673 11,675 10,952 9,471
-------- ---------- ----------- ----------- -----------
Income from continuing operations before effect of
change in accounting principle 15,311 15,542 20,093 17,523 14,464
Loss from discontinued operations, net of income taxes --- --- --- (256) (289)
Loss on sale of discontinued operations, net of income
taxes(1) --- --- --- (9,589) ---
-------- ---------- ----------- ----------- -----------
Net Income $ 15,311 $ 15,542 $ 20,093 $ 7,678 $ 14,175
======== ========== =========== =========== ===========
EARNINGS PER SHARE:
Basic and diluted earnings per share:
Income from continuing operations before effect of
change in accounting principle per share $ 1.17 $ 1.19 $ 1.54 $ 1.35 $ 1.11
Loss from discontinued operations, net of income
taxes per share --- --- --- (0.02) (0.02)
Loss on sale of discontinued operations, net of income
taxes per share --- --- --- (0.74) ---
-------- ---------- ----------- ----------- -----------
Net income per share $ 1.17 $ 1.19 $ 1.54 $ 0.59 $ 1.09
======== ========== =========== =========== ===========
Basic weighted average number of common shares 13,081 13,061 13,032 13,012 13,003
Diluted weighted average number of common shares 13,085 13,103 13,066 13,032 13,003
OTHER DATA:
(Excludes Shafer Valve and acquisitions of businesses)
Capital expenditures $ 58,417 $ 67,968 $ 63,164 $ 37,482 $ 25,519
Depreciation and amortization 18,304 15,270 11,012 7,166 6,467
BALANCE SHEET DATA:
Working capital $ 85,312 $ 56,643 $ 45,483 $ 34,813 $ 36,405
Total assets 425,720 353,949 289,626 207,009 173,264
Total debt 171,450 135,865 96,400 52,933 23,306
Stockholders' equity 178,128 162,818 146,619 126,157 118,479
(1) On July 9, 1996, the Company completed the sale of substantially all of the
issued and outstanding common stock of Shafer Value for approximately $13.2
million in cash. This disposition resulted in a $9.589 million loss after
tax and has been accounted for as a discounted operation.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS
- -------------
GENERAL
The Company is a manufacturer of engineered products, which include
blanks, stamped components and value-added assemblies. The Company also designs,
engineers and manufactures precision tools and dies for the automotive and other
industries. In addition, the Company provides steel processing services, which
include pickling hot-rolled steel, slitting, edge trimming, roller leveling and
cutting-to-length of both hot- and cold-rolled steel. In fiscal 1999,
approximately 81.0% of the Company's revenues were generated by sales to the
automotive and light truck and heavy truck industries.
The Company's origins date back to 1950 when its predecessor, Shiloh
Tool & Die Mfg. Company, began to design and manufacture precision tools and
dies. As an outgrowth of its precision tool and die expertise, Shiloh Tool & Die
Mfg. Company expanded into blanking and stamping operations in the early 1960's.
In April 1993, Shiloh Industries, Inc. was organized as a Delaware corporation
to serve as a holding company for its seven operating subsidiaries, and in July
1993 completed an initial public offering of Common Stock.
In January 1996, the Company entered into a joint venture with Rouge
Steel Company and formed a limited liability company, Shiloh of Michigan,
L.L.C., to produce engineered steel blanks. The Company is an 80% equity owner
in this joint venture. On November 1, 1996, the Company acquired substantially
all of the assets of Greenfield Die & Manufacturing Corp., headquartered in
Canton, Michigan. Greenfield Die & Manufacturing Corp. provides a variety of
value-added processes, including tool and die design and build, stamping,
assembly, welding, prototyping operations and mold design and manufacture.
In August 1997, the Company acquired C&H Design Company, d/b/a C&H Die
Technology, headquartered in Utica, Michigan. C&H primarily serves the
automotive industry by providing tool and die design and manufacture. In
addition, in October 1997, the Company incorporated Jefferson Blanking, Inc. and
commenced operations in July 1998.
On November 1, 1999, the Company acquired MTD Automotive, the
automotive division of MTD Products Inc, headquartered in Cleveland, Ohio. MTD
Automotive is primarily a Tier I supplier and primarily serves the automotive
industry by providing metal stampings and modular assemblies.
The Company conducts its operations through the following subsidiaries:
Subsidiary Description of Principal Operations
---------- -----------------------------------
Shiloh Corporation Blanking/Tool and Die Production
Sectional Stamping, Inc. Stamping
Valley City Steel Company Steel Processing
Greenfield Die & Manufacturing Corp. Stamping/Tool and Die Production
Medina Blanking, Inc. Blanking/Tailor-Welded Blanking
Liverpool Coil Processing, Inc Steel Processing
C&H Design Company Tool and Die Production
Shiloh of Michigan, L.L.C. Blanking
Sectional Die Company Tool and Die Production
Jefferson Blanking, Inc. Blanking/Tailor-Welded Blanking
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Shiloh Automotive, Inc., dba MTD Stamping/Tool and Die Production
Automotive (1)
Shiloh de Mexico (2) Blanking/Tailor-Welded Blanking
(1) The acquisition of Shiloh Automotive, Inc. was completed on November 1,
1999.
(2) Shiloh de Mexico is a facility that is under construction in Saltillo,
Mexico and it is anticipated that construction will be completed during
the second half of fiscal 2000.
In analyzing the financial aspects of the Company's operations, you
should consider the following factors.
Plant utilization levels are very important to profitability because of
the capital intensive nature of these operations. Because the Company performs a
number of different operations, it is not meaningful to analyze simply the total
tons of steel processed. For example, blanking and stamping involve more
operational processes, from the design and manufacture of tools and dies to the
production and packaging of the final product, than the Company's other services
and therefore generally have higher margins.
A significant portion of the Company's steel processing and blanking
products and services is provided to customers on a toll processing basis. Under
these arrangements, the Company charges a tolling fee for the operations that it
performs without acquiring ownership of the steel and being burdened with the
attendant costs of ownership and risk of loss. Although the proportion of tons
of steel which the Company uses or process that is directly owned as compared to
toll processed may fluctuate from quarter to quarter depending on customers
needs, the Company estimates that of total tons used or processed in its
operations, approximately 85.6% in 1999, 87.4% in 1998 and 87.2% in 1997, were
used or processed on a toll processing basis. Revenues from toll processing as a
percent of total revenues were approximately 27.6% in 1999, 29.7% in 1998 and
28.3% in 1997. Revenues from operations involving directly owned steel include a
component of raw material cost whereas toll processing revenues do not.
Consequently, toll processing generally results in lower revenue, but higher
gross margin, than directly owned steel processing. Therefore, an increase in
the proportion of total revenues attributable to directly owned steel processing
may result in higher revenues but lower gross margins. The Company's stamping
operations use more directly owned steel than its other operations.
Changes in the price of scrap steel can have a significant effect on
the Company's results of operations because substantially all of its operations
generate engineered scrap steel. Engineered scrap steel is a planned by-product
of our processing operations. In addition, because only five of the Company's
facilities utilize directly owned steel, the Company is more susceptible to
changes in the price of scrap steel than changes in the price of raw material
steel.
Changes in the price of steel, however, also can impact the Company's
results of operations because raw material costs are by far the largest
component of cost of sales in processing directly owned steel. The Company
actively manages its exposure to changes in the price of steel, and, in most
instances, passes along the rising price of steel to its customers. At times,
however, the Company has been unable to do so.
The Company's results of operations have been adversely affected by a
large number of facility expansions and start-up operations in recent periods.
Operations at expanded and new facilities are typically less efficient than
established operations due to the implementation of new production processes. In
addition, the Company depends on customers to implement their purchase programs
in a timely manner, which affects the Company's ability to achieve satisfactory
plant utilization rates. When the customers fail to do so, results are
negatively impacted. In the Company's experience, operations at expanded or new
facilities may be adversely impacted by the above factors for several periods.
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Results of Operations
- ---------------------
The following table sets forth income statement data of the Company expressed as
a percentage of revenues for the periods indicated:
Years Ended October 31,
-------------------------------------
1999 1998 1997
------ ------ ------
Revenues 100.0% 100.0% 100.0%
Cost of sales 82.2 81.0 78.5
----- ----- -----
Gross profit 17.8 19.0 21.5
Selling, general and administrative
expense 8.9 9.0 9.4
----- ----- -----
Operating income 8.9 10.0 12.1
Interest expense 2.1 1.8 .8
Interest income * .1 .1
Minority interest .1 .1 .2
Other income (expense), net * * .1
----- ----- -----
Income before taxes 7.0 8.4 11.7
Provision for income taxes 2.6 3.2 4.3
----- ----- -----
Net income 4.3% 5.2% 7.4%
===== ===== =====
* indicates that amounts are greater than 0.0 percent but less than 0.1 percent.
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YEAR ENDED OCTOBER 31, 1999 COMPARED TO YEAR ENDED OCTOBER 31, 1998
REVENUES. Revenues increased by $54.9 million, or 18.3%, to $354.2
million for the year ended October 31, 1999 from $299.4 million for the
comparable period in 1998. The increase in revenues is primarily due to
increased volumes in our stamping operations, increased tailor-welded blanking
revenue, increased tool and die sales and the inclusion of a full year of
revenue at Jefferson Blanking. This increase was partially offset by a $4.0
million decrease in revenue from sales of scrap steel due to a decline in the
price of scrap steel per gross ton from an average of $94.0 per gross ton during
fiscal 1999 compared to an average of $137.0 per gross ton for fiscal 1998.
Revenues from the blanking and stamping operations for fiscal 1999 increased
approximately 24.3% from the comparable period in fiscal 1998, while revenue
from the other steel processing operations for fiscal 1999 decreased
approximately 1.3% from the comparable period in fiscal 1998. The percentage of
revenues from directly owned steel processed was 72.4% for fiscal 1999 compared
to 70.3% for fiscal 1998. Revenues from the toll processed steel were 27.6% for
fiscal 1999 and 29.7% for the comparable period in fiscal 1998. The increase in
the percentage of revenue from directly owned steel processed of approximately
2.1% was primarily due to the increase in directly owned steel processing
revenue and tonnage at certain facilities during the fiscal year due to a shift
in customer requirements.
GROSS PROFIT. Gross profit increased by $6.1 million, or 10.7%, to $63.0
million for fiscal 1999 from $56.9 million for the comparable period in 1998.
Gross margin decreased to 17.8% in fiscal 1999 from 19.0% for the comparable
period in 1998. Gross margin was negatively affected by the 31.4% decrease in
the average price of scrap steel per ton during fiscal 1999. In addition, gross
margin was negatively affected by difficulties that the Company experienced in
the implementation of one very significant tool and die program which caused
significant difficulties at one of our tool and die facilities which resulted in
production disruptions. Finally, gross margin was negatively impacted by
increased depreciation resulting from increased capital expenditures.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $4.6 million, or 17.2%, to $31.4 million in
fiscal 1999 from $26.8 million for the comparable period in fiscal 1998. As a
percentage of revenues, these expenses decreased slightly to 8.9% for fiscal
1999 from 9.0% for the comparable period in fiscal 1998. The largest component
of the increase, in dollars, arose principally from the addition of corporate
personnel and related benefit costs. In addition, we incurred increased
professional fees associated with personnel recruitment fees and legal fees
associated with the negotiation of union contracts.
OTHER. Interest expense increased to $7.5 million in fiscal 1999 from
$5.3 million for the comparable period in fiscal 1998 due primarily to increased
average borrowings during fiscal 1999 that were primarily incurred in connection
with significant capital expenditures made during fiscal 1998 and fiscal 1999.
Interest expense of approximately $2.5 million relating to expansion of several
facilities was capitalized in fiscal 1999. The provision for income taxes was
$9.4 million in fiscal 1999 compared with $9.7 million in fiscal 1998,
representing effective tax rates of 37.9% and 38.4%, respectively.
NET INCOME. Income from continuing operations for fiscal 1999 decreased
by $0.2 million, or 1.5%, to $15.3 million from $15.5 million for the comparable
period in fiscal 1998. This decrease was substantially the result of a decline
in scrap prices per gross ton, lower margins on specific tool and die projects,
increased depreciation resulting from increased capital expenditures and
increased interest expense
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resulting from increased borrowing for significant capital expenditures made
during fiscal 1998 and fiscal 1999.
YEAR ENDED OCTOBER 31, 1998 COMPARED TO YEAR ENDED OCTOBER 31, 1997
REVENUES. Revenues increased by $26.2 million, or 9.6%, to $299.4
million for the year ended October 31, 1998 from $273.2 million for the
comparable period in 1997. The increase in revenues is primarily due to the
inclusion in fiscal 1998 of $18.6 million in revenues from C&H and increased
revenues resulting from new programs and increased processing capacity at
Sectional Stamping. In addition revenues increased at Shiloh of Michigan and
Liverpool Coil Processing. Revenues from the blanking and stamping operations
for fiscal 1998 increased approximately 12.7% from the comparable period due
primarily to the inclusion of C&H and increased revenue at Shiloh of Michigan
and Sectional Stamping, while revenue from the other steel processing operations
for fiscal 1998 increased approximately 0.5% from the comparable period in
fiscal 1997 due primarily to increased revenue at Liverpool Coil Processing. The
percentage of revenues from directly owned steel processed was 70.3% for fiscal
1998 compared to 71.7% for fiscal 1997. Revenues from the toll processed steel
were 29.7% for fiscal 1998 and 28.3% for the comparable period in fiscal 1997
GROSS PROFIT. Gross profit decreased by $2.0 million, or 3.3%, to $56.9
million for fiscal 1998 from $58.8 million for the comparable period in 1997.
Gross margin decreased to 19.0% in fiscal 1998 from 21.5% for the comparable
period in 1997. The decrease in gross margin is primarily attributable to lower
margins in the tool and die business, a decrease in outsourcing by major steel
producing customers that impacted one of our steel processing operations, the
residual effects from the GM strike and Greenfield Die & Manufacturing Corp's
continued challenges associated with the integration of its operations as a
result of the acquisition and subsequent expansion of its facility.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $1.3 million, or 5.0%, to $26.8 million in
fiscal 1998 from $25.6 million for the comparable period in fiscal 1997. As a
percentage of revenues, these expenses decreased to 9.0% for fiscal 1998 from
9.4% for the comparable period in fiscal 1997. The largest component of the
increase, in dollars, arose principally from the inclusion of C&H. In addition,
the increase in dollars was attributable to pre-operating costs of Jefferson
Blanking.
OTHER. Interest expense increased to $5.3 million in fiscal 1998 from
$2.2 million for the comparable period in fiscal 1997 due primarily to increased
average borrowings during fiscal 1998 that were primarily incurred in connection
with the acquisition of C&H and other capital expenditures. Interest expense of
approximately $2.2 million relating to expansion of several facilities was
capitalized in fiscal 1998. The provision for income taxes was $9.7 million in
fiscal 1998 compared with $11.7 million in fiscal 1997, representing effective
tax rates of 38.4% and 36.8%. The increase in the effective tax rate is
primarily due to a return to a more sustainable level of state incentives for
capital investments.
NET INCOME. Income from continuing operations for fiscal 1998 decreased
by $4.6 million, or 22.7%, to $15.5 million from $20.1 million for the
comparable period in fiscal 1997. This decrease was substantially the result of
lower margins in the tool and die business, lower price for scrap steel that is
sold to the secondary steel industry and residual effects from the GM strike.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1999, the Company had $85.3 million of working capital,
representing a current ratio of 2.7 to 1 and debt to total capitalization of
49.0%. As a result of this strong financial condition, the Company will be able
to continue its planned investment in new equipment and facilities through the
next fiscal year.
Net cash provided by operating activities is primarily generated from
net income of the Company
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plus non-cash charges for depreciation and amortization, which because of the
capital intensive nature of the Company's business, are substantial. Net cash
provided by operating activities for 1999 was $13.4 million as compared to $28.2
million for the comparable period in fiscal 1998. Fluctuations in working
capital were the primary factors causing the decrease in net cash provided by
operations from fiscal 1998 to fiscal 1999. Net cash provided by operating
activities has historically been used by the Company to fund a portion of its
capital expenditures.
Capital expenditures, excluding acquisitions, were $58.4 million during
the year ended October 31, 1999 and $68.0 million during fiscal 1998. The
capital expenditures made during 1999 were primarily for expansions of existing
facilities of approximately $41.1 million, $10.9 million in new construction for
the blanking facility in Saltillo, Mexico, as well as, an information system and
sustaining capital expenditures of $6.4 million.
The Company's total capital budget for fiscal 2000 amounts to
approximately $55.8 million. The capital expenditures in fiscal 2000 are
anticipated to be primarily for facility expansions and additions, which are
being made to support expected increases in existing business, anticipated new
business and to enhance productivity. In addition to using cash generated by
operating activities to fund such capital expenditures, the Company anticipates
funding such activities through additional financing.
In September 1999, the Company entered into a new agreement ("the
Agreement") with KeyBank, National Association, as agent for a group of lenders.
The Agreement provides for loans and letters of credit up to $210.0 million. The
term of this facility matures in September 2004. The Company has the option to
select the applicable interest rate at KeyBank's prime rate or the LIBOR rate
plus a factor determined by a pricing matrix (ranging from 0.5% to 1.75% for the
prime rate and ranging from 1.0% to 2.75% for the LIBOR rate) based on funded
debt to earnings before interest, taxes, depreciation and amortization. As of
October 31, 1999, the factor as determined by the pricing matrix was 1.75%. The
terms of the new facility also require an annual commitment fee based on the
amount of unused commitments under the facility and a factor determined by a
pricing matrix (ranging from 0.25% to 0.5%) based on funded debt to earnings
before interest, taxes, depreciation and amortization. The Agreement also
provides for the incurrence of debt under standby letters of credit and for the
advancement of funds under a discretionary line of credit. The maximum amount of
debt that may be incurred under each of these sources of funds is $15.0 million.
As of October 31, 1999, $166.1 million was outstanding under the Agreement.
The Agreement is collateralized by a first priority security interest
in all of the Company's and subsidiaries' existing and after-acquired accounts
receivable, inventory and machinery and equipment. All of the obligations under
the Agreement are fully and unconditionally guaranteed by all of the existing
and future domestic subsidiaries.
The Agreement requires the Company to meet certain financial covenants
and ratios including minimum interest coverage, minimum net worth, and maximum
leverage. The Agreement also contains non-financial covenants that restrict
actions of the Company with respect to incurrence of additional debt, dividends,
transactions with affiliates, asset sales, acquisitions, mergers, prepayments of
other debt, liens and encumbrances.
The Company executed a demand promissory note as of December 6, 1996 in
favor of The Richland
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21
Bank in the aggregate principal amount of $4.0 million. Interest accrues on the
outstanding principal balance under that facility at LIBOR plus 0.75%
In March 1995, Medina County, Ohio issued on the Company's behalf an
aggregate of $5.4 million in principal amount of variable rate industrial
revenue bonds due 2010, all of which was outstanding as of October 31, 1999.
These bonds are secured by a letter of credit. The funds from these bonds were
used to finance a portion of the expansion at the steel pickling operations in
Valley City, Ohio.
YEAR 2000
The Company did not experience any significant malfunctions or errors
in its operating or business systems when the date changed from 1999 to 2000.
Based on operations since January 1, 2000, the Company does not expect any
significant impact to its on-going business as a result of the "Year 2000
issue." However, it is possible that the full impact of the date change, which
was of concern due to computer programs that use two digits instead of four
digits to define years, has not been fully recognized. For example, it is
possible that Year 2000 or similar issues such as leap year-related problems may
occur with billing, payroll, or financial closings at month, quarterly or year
end. The Company believes that any such problems are likely to be minor and
correctable. In addition, the Company could still be negatively impacted if its
customers or suppliers are adversely affected by the Year 2000 or similar
issues. The Company currently is not aware of any significant Year 2000 or
similar problems that have arisen for its customers and suppliers.
As of October 31, 1999, the Company spent approximately $11.7 million
on a new business system; however, the Company cannot quantify the amount
directly related to year 2000 compliance.
EFFECT OF INFLATION
Inflation generally affects the Company by increasing the interest
expense of floating rate indebtedness and by increasing the cost of labor,
equipment and raw materials. The general level of inflation has not had a
material effect on the Company's financial results.
OUTLOOK
The statements contained in this Annual Report of Form 10-K that are
not historical facts are forward-looking statements. These forward-looking
statements are subject to certain risks and uncertainties with respect to the
Company's operations in fiscal 1999 as well as over the long term such as,
without limitations, (i) the Company's dependence on the automotive and light
truck and heavy truck industries, which are highly cyclical, the dependence of
the automotive and light truck industry on consumer spending which is subject to
the impact of domestic and international economic conditions and regulations and
policies regarding international trade, (ii) the ability of the Company to
accomplish its strategic objectives with respect to external expansion through
selective acquisitions and internal expansion, (iii) increases in the price of,
or limitations on the availability of steel, the Company's primary raw material
or decreases in the price of scrap steel (iv) risks associated with integrating
operations of acquired companies, including the recent acquisition of the
automotive division of MTD Products Inc., (v) potential disruptions or
inefficiencies in operations due to or during facility expansions or start-up
facilities, (vi) risks related to labor relations, labor expenses or work
stoppages involving the Company, its customers or suppliers. Any or all of these
risks and uncertainties could cause actual results to differ materially from
those reflected in the forward-looking statements. These forward-looking
statements reflect management's analysis only as of the date of the filing of
this Annual Report on Form 10-K. The Company undertakes no obligation to
publicly revise these forward-looking statements to reflect events or
circumstances that arise after the date hereof. In addition to
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the disclosure contained herein, readers should carefully review risks and
uncertainties contained in other documents the Company files from time to time
with the Securities and Exchange Commission.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------
The Company's major market risk exposure is primarily due to possible
fluctuations in interest rates as they relate to its variable rate debt. The
Company does not enter into derivative financial investments for trading or
speculation purposes. As a result, the Company believes that its market risk
exposure is not material to the Company's financial position, liquidity or
results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
Index to Financial Statements
Report of Independent Accountants
Consolidated Balance Sheets at October 31, 1999 and 1998
Consolidated Statements of Income for three years ended October 31, 1999
Consolidated Statements of Cash Flows for the three years ended October 31, 1999
Consolidated Statements of Stockholders' Equity for the three years ended
October 31, 1999
Notes to Consolidated Financial Statements
Financial Statement Schedule for the three years ended October 31, 1999 is
included in Item 14 of this Annual Report of Form 10-K.
II - Valuation and Qualifying Accounts and Reserves
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
22
23
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Shiloh Industries, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Shiloh Industries, Inc. and its subsidiaries at October 31, 1999 and
1998 and the results of their operations and their cash flows for each of the
three years in the period ended October 31, 1999 in conformity with accounting
principles generally accepted in the United States. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Cleveland, Ohio
December 9, 1999
23
24
SHILOH INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
October 31, October 31,
1999 1998
---------------- ----------------
ASSETS
- ------
Cash and cash equivalents $ 1,575,804 $ 642,723
Accounts receivable, net 79,670,183 46,802,379
Inventories 47,118,809 44,783,947
Deferred income taxes 1,580,889 1,290,357
Prepaid expenses 5,758,354 2,134,108
-------------- ---------------
Total current assets 135,704,039 95,653,514
-------------- ---------------
Property, plant and equipment, net 269,626,549 240,440,580
Goodwill, net 11,647,496 12,056,054
Other assets 8,741,554 5,798,894
-------------- ---------------
Total assets $ 425,719,638 $ 353,949,042
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Accounts payable $ 38,677,150 $ 23,863,107
Accrued income taxes 1,293,522 1,020,204
Advanced billings 225,289 2,836,203
Other accrued expenses 10,195,880 11,290,543
-------------- --------------
Total current liabilities 50,391,841 39,010,057
-------------- --------------
Long-term debt 171,450,000 135,865,000
Deferred income taxes 22,308,668 14,562,840
Long-term benefit liabilities 2,991,120 1,693,349
Other liabilities 449,676 ---
-------------- --------------
Total liabilities 247,591,305 191,131,246
-------------- --------------
Stockholders' equity:
Preferred stock, $.01 per share; 5,000,000 shares
authorized and unissued --- ---
Common stock, par value $.01 per share; 25,000,000
shares authorized; 13,080,563 shares issued and
outstanding at October 31, 1999 and 1998 130,805 130,805
Paid-in capital 39,399,805 39,399,805
Retained earnings 138,597,723 123,287,186
-------------- --------------
Total stockholders' equity 178,128,333 162,817,796
-------------- --------------
Total liabilities and stockholders' equity $ 425,719,638 $ 353,949,042
============== ==============
The accompanying notes are an integral part of these financial statements.
24
25
SHILOH INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended October 31,
----------------------------------------------------------
1999 1998 1997
---- ---- ----
Revenues $ 354,219,562 $ 299,350,361 $ 273,161,251
Cost of sales 291,264,912 242,499,691 214,343,391
------------- ------------- -------------
Gross profit 62,954,650 56,850,670 58,817,860
Selling, general and administrative expenses 31,441,216 26,832,133 25,556,837
------------- ------------- -------------
Operating income 31,513,434 30,018,537 33,261,023
Interest expense 7,488,570 5,303,218 2,219,003
Interest income 109,331 173,898 57,832
Minority interest 473,975 341,638 394,207
Other income (expense), net 65,682 (16,086) 274,081
------------- ------------- -------------
Income before taxes 24,673,852 25,214,769 31,768,140
Provision for income taxes 9,363,315 9,672,938 11,674,793
------------- ------------- -------------
Net income $ 15,310,537 $ 15,541,831 $20,093,347
============= ============= =============
Basic earnings per share:
Net income $ 1.17 $ 1.19 $ 1.54
============= ============= =============
Weighted average number of common shares 13,080,563 13,060,794 13,032,229
============= ============= =============
Diluted earnings per share:
Net income $ 1.17 $ 1.19 $ 1.54
============= ============= =============
Weighted average number of common shares 13,085,283 13,103,144 13,065,950
============= ============= =============
The accompanying notes are an integral part of these financial statements.
25
26
SHILOH INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended October 31,
--------------------------------------------------------
1999 1998 1997
---- ---- ----
Cash Flows From Operating Activities:
Net income $ 15,310,537 $ 15,541,831 $ 20,093,347
Adjustment to reconcile net income from continuing
operations to net cash provided by operating activities:
Depreciation and amortization 18,303,985 15,270,408 11,012,383
Minority interest (473,975) (341,638) (394,207)
Deferred income taxes 7,455,296 4,335,709 2,809,839
(Gain) on sale of assets (60,059) (46,074) (53,065)
Changes in operating assets and liabilities, net of
working capital changes resulting from acquisitions:
Accounts receivable (32,867,804) 3,348,720 (8,846,145)
Inventories (2,334,862) (13,635,587) (2,539,552)
Prepaids and other assets (5,097,082) 350,877 (335,682)
Payables and other liabilities 12,855,914 4,299,695 9,086,189
Accrued income taxes 273,318 (896,129) 503,834
------------- ------------- ------------
Net cash provided by operating activities 13,365,268 28,227,812 31,336,941
------------- ------------- ------------
Cash Flows From Investing Activities:
Capital expenditures (58,416,797) (67,967,994) (63,164,276)
Proceeds from sale of assets 11,452,211 69,400 157,134
Acquisitions, net of cash --- --- (13,694,436)
------------- ------------- ------------
Net cash used in investing activities (46,964,586) (67,898,594) (76,701,578)
------------- ------------- ------------
Cash Flows From Financing Activities:
Proceeds from short-term borrowings 63,808,000 (3,000,000) 29,700,000
Repayments of short-term borrowings (37,713,000) 42,465,000 (29,200,000)
Proceeds from long-term borrowings 30,458,000 --- 44,250,000
Repayments of long-term borrowings (20,968,000) --- (1,283,352)
Payment of debt financing costs (1,052,601) --- ---
Issuance of common stock --- 656,817 368,525
------------- ------------- ------------
Net cash provided by financing activities 34,532,399 40,121,817 43,835,173
------------- ------------- ------------
Net increase (decrease) in cash and cash equivalents 933,081 451,035 (1,529,464)
Cash and cash equivalents at beginning of year 642,723 191,688 1,721,152
------------- ------------- ------------
Cash and cash equivalents at end of year $ 1,575,804 $ 642,723 $ 191,688
============= ============= ============
The accompanying notes are an integral part of these financial statements.
26
27
SHILOH INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON
COMMON STOCK ADDITIONAL
STOCK ($.01 PAR PAID-IN RETAINED
SHARES VALUE) CAPITAL EARNINGS TOTAL
------------ ---------- ---------- ------------ ------------
October 31, 1996 13,011,663 $ 130,116 $38,375,152 $ 87,652,008 $126,157,276
Issuance of common shares 27,100 271 368,254 --- 368,525
Net income --- --- --- 20,093,347 20,093,347
------------- ---------- ----------- ------------ ------------
October 31, 1997 13,038,763 130,387 38,743,406 107,745,355 146,619,148
Issuance of common shares 41,800 418 656,399 --- 656,817
Net income --- --- --- 15,541,831 15,541,831
------------- ---------- ----------- ------------ ------------
October 31, 1998 13,080,563 130,805 39,399,805 123,287,186 162,817,796
Net income --- --- --- 15,310,537 15,310,537
------------- ---------- ----------- ------------ ------------
October 31, 1999 13,080,563 $ 130,805 $ 39,399,805 $138,597,723 $178,128,333
============= ========== =========== ============ ============
The accompanying notes are an integral part of these financial statements.
27
28
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Business:
- ------------------
Shiloh Industries, Inc. (the "Company") is a full service manufacturer
of blanks and stamped components for the automotive and light truck, heavy truck
and other industrial markets.
NOTE 2 - Summary of Significant Accounting Policies:
- ----------------------------------------------------
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and all wholly-owned and majority-owned subsidiaries. All significant
intercompany transactions have been eliminated.
REVENUE RECOGNITION
The Company recognizes revenue upon product shipment. Revenues include
both direct sales as well as toll processing revenue. Toll processing revenue is
generated as a result of the Company performing steel processing operations
without acquiring ownership of the material. Revenues include $97,937,323,
$88,792,119 and $77,383,879 of toll processing revenue for 1999, 1998 and 1997,
respectively.
EMPLOYEE BENEFIT PLANS
The Company accrues the cost of defined benefit pension plans which
cover a majority of the Company's employees in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 87. The plans are funded based on
the requirements and limitations of the Employee Retirement Income Security Act
of 1974. The majority of employees of the Company participate in discretionary
profit sharing plans administered by the Company. The Company also provides
postretirement benefits to certain employees (Note 10).
GOODWILL
Goodwill represents the excess of cost over the fair value of net
assets of acquired entities and is amortized on a straight-line basis over its
expected benefit period of 30 years. During 1999, 1998 and 1997, goodwill
amortization amounted to $408,558, $408,558 and $297,544, respectively.
Accumulated amortization was $1,192,661 and $784,103 at October 31, 1999 and
1998, respectively.
The Company uses an undiscounted cash flow method to review the
recoverability of the carrying value of goodwill and other long-lived assets.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include checking accounts and all highly
liquid investments with an original maturity of three months or less. Cash
equivalents are stated at cost, which approximates market value.
INVENTORIES
Inventories are valued at the lower of cost or market, cost being
determined primarily by the last-in, first-out ("LIFO") method and the balance
determined by the first-in, first-out ("FIFO") method, which approximates
average cost.
28
29
NOTE 2 - Summary of Significant Accounting Policies - (continued):
- ------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Expenditures for
maintenance, repairs and renewals are charged to expense as incurred, whereas
major improvements are capitalized. The cost of these improvements is
depreciated over their estimated useful lives. Useful lives range from five to
twelve years for furniture and fixtures and machinery and equipment, fifteen to
twenty years for land improvements and thirty to forty years for buildings and
their related improvements. Depreciation is computed using principally the
straight-line method for financial reporting purposes and accelerated methods
for income tax purposes.
INCOME TAXES
The Company utilizes the asset and liability method in accounting for
income taxes which requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of temporary differences between
the carrying amount and tax basis of assets and liabilities.
CONCENTRATION OF CREDIT RISK
The Company sells products to customers primarily in the automotive,
light truck and heavy truck industries. The Company performs on-going credit
evaluations of its customers and generally does not require collateral when
extending credit. The Company maintains a reserve for potential credit losses.
Such losses have historically been within management's expectations. Currently,
the Company does not have financial instruments with off-balance sheet risk. The
Company's sales to one customer represented 10.8% of consolidated revenues in
1999.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and investments, trade receivables and
payables approximates fair value because of the short maturity of those
instruments. The carrying value of the Company's long-term debt is considered to
approximate the fair value of these instruments based on the borrowing rates
currently available to the Company for loans with similar terms and maturities.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at 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.
STOCK-BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25 in
accounting for stock-based employee compensation; however, the impact of the
fair value based method described in SFAS No. 123, "Accounting for Stock-Based
Compensation" is presented in the notes to the financial statements (Note 11).
RECLASSIFICATIONS
Certain amounts in the 1998 financial statements have been reclassified
to conform to the current year's presentation.
29
30
NOTE 2 - Summary of Significant Accounting Policies - (continued):
- ------------------------------------------------------------------
EARNINGS PER SHARE
Basic earnings per share are computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share reflects the potential dilutive effect of the Company's stock
option plan by adjusting the denominator using the treasury stock method.
The outstanding stock options under the Company's Key Employee Stock
Incentive Plan (Note 11) are included in the diluted earnings per share
calculation to the extent they are dilutive. The only reconciling item between
the average outstanding shares in each calculation is the stock options
outstanding. The following is a reconciliation of the numerator and denominator
of the basic and diluted earnings per share computation for net income.
1999 1998 1997
---- ---- ----
Net income $ 15,310,537 $ 15,541,831 $ 20,093,347
============== ============== ==============
Basic weighted average shares 13,080,563 13,060,794 13,032,229
Effect of dilutive securities:
Stock options 4,720 42,350 33,721
-------------- -------------- --------------
Diluted weighted average shares 13,085,283 13,103,144 13,065,950
============== ============== ==============
Basic earnings per share $1.17 $1.19 $1.54
============== ============== ==============
Diluted earnings per share $1.17 $1.19 $1.54
============== ============== ==============
30
31
NOTE 2 - Summary of Significant Accounting Policies - (continued):
- ------------------------------------------------------------------
NEW ACCOUNTING STANDARDS:
In June 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 130, "Reporting Comprehensive Income" effective for fiscal years
beginning after December 15, 1997. This Statement establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. The Company has no material items of
other comprehensive income.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" effective for fiscal years
beginning after December 15, 1997. This Statement requires that public business
enterprises report certain information about operating segments in annual and
interim financial statements. It also requires that public business enterprises
report certain information about their products and services, the geographic
areas in which they operate, and their major customers. The Company has only one
operating segment; accordingly adoption of this statement did not have a
material impact on the Company's financial disclosures.
In February 1998, SFAS No. 132, "Employer's Disclosures about Pensions
and Other Post retirement Benefits" ("SFAS No. 132") was issued. This Statement
establishes standards for disclosing information about an entity's pensions and
other post retirement benefits. In fiscal year 1999, the Company adopted the
disclosure provisions of SFAS No. 132 (Note 10).
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS No. 133") was issued effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. This Statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. In June 1999, the FASB issued SFAS No. 137 "Accounting For
Derivative Instruments and Hedging Activities-Deferral of the Effective Date of
FASB Statement No. 133." This delays the effective date of SFAS No. 133 until
fiscal years beginning after June 15, 2000. The Company is currently evaluating
the impact, if any, of SFAS No. 133, but does not expect adoption to materially
affect its financial position, results of operations or financial statement
disclosures.
The Accounting Standards Executive Committee Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"), issued in March 1998 and effective for fiscal years
beginning after December 15, 1998 with earlier application permitted, provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. The Company adopted this statement for the year ended October
31, 1999 resulting in no significant effect in the Company's consolidated
financial statements. Unamortized computer software costs totaled $11,715,971
and $8,430,471 at October 31, 1999 and 1998, respectively.
The Accounting Standards Executive Committee Statement of Position 98-5,
"Accounting for the Costs of Start-up Activities" ("SOP 98-5"), issued in April
1998 and effective for fiscal years beginning after December 15, 1998 with
earlier application permitted, provides guidance on financial reporting of start
up costs and organization costs. The Company is currently evaluating the
provisions of this statement.
31
32
NOTE 3 - Acquisitions:
- ----------------------
During fiscal 1997, the Company acquired the entities described below,
which were accounted for by the purchase method of accounting:
On August 29, 1997, the Company acquired substantially all the assets
of C&H Design Company, d.b.a. C&H Die Technology ("C&H") for an aggregate cash
purchase of approximately $10.9 million, including acquisition costs. C&H,
headquartered in Utica, Michigan, provides tool design and build services for
the automotive industry.
On November 1, 1996, the Company acquired substantially all the assets
and assumed certain liabilities of Greenfield Die & Manufacturing Corporation
("Greenfield") for approximately $25.3 million, including acquisition costs,
comprised of approximately $17.3 million of cash and approximately $7.6 million
of assumed liabilities. Greenfield, headquartered in Canton, Michigan, provides
the automotive industry a variety of processes including tool and die design and
build, stamping, assembly, welding, prototyping operations and mold design and
build.
The purchase prices have been allocated to the assets purchased and the
liabilities assumed based upon the fair value on the dates of acquisitions, as
follows:
(In thousands) C&H Greenfield
--- ----------
Net working capital, other than cash $ 3,364 $ 8,018
Property, plant and equipment 2,764 9,801
Goodwill 4,805 7,519
-------- ---------
Purchase price $ 10,933 $ 25,338
======== =========
The operating results of these acquired businesses have been included
in the consolidated statement of income from the dates of acquisition.
On the basis of a pro forma consolidation of the results of operations
as if the C&H acquisition had taken place at the beginning of fiscal 1997,
consolidated net sales, net income and earnings per share would have been $288.7
million, $20.2 million and $1.55 per share, respectively, for fiscal 1997. Such
pro forma amounts are not necessarily indicative of what the actual results
would have been if the acquisitions had been effective at the beginning of the
1997 fiscal year and are unaudited.
NOTE 4 - Accounts Receivable:
- -----------------------------
Accounts receivable in the consolidated balance sheet are expected to
be collected within one year and are net of provisions for doubtful accounts, in
the amount of $1,080,641 and $919,704 at October 31, 1999 and 1998,
respectively.
32
33
NOTE 5 - Inventories:
- ---------------------
October 31, October 31,
1999 1998
------------ ------------
Inventories consist of the following:
Raw materials $ 22,565,387 $ 17,725,301
Work-in-process 12,629,005 21,012,774
Finished goods 11,449,478 7,253,874
------------ ------------
Total at average cost 46,643,870 45,991,949
LIFO reserve 474,939 (1,208,002)
------------ ------------
Total $ 47,118,809 $ 44,783,947
============ ============
Average cost inventory is net of reserves to reduce certain inventory
from cost to net realizable value. Such reserves aggregated $144,888 and
$664,140 at October 31, 1999 and 1998, respectively. Of the total inventory at
average cost at October 31, 1999 and 1998, $28,923,588 and $23,234,573,
respectively, were valued using the LIFO method.
NOTE 6 - Other Assets:
- ----------------------
Other assets consist of the following:
October 31, October 31,
1999 1998
------------ ------------
Cash surrender value of life insurance $ 3,462,978 $ 3,311,111
Long-term pension assets 2,699,581 1,409,608
Other 2,578,995 1,078,175
------------ ------------
Total $ 8,741,554 $ 5,798,894
============ ============
33
34
NOTE 7 - Property, Plant and Equipment:
- ---------------------------------------
Property, plant and equipment consist of the following:
October 31, October 31,
1999 1998
-------------- --------------
Land $ 9,436,412 $ 6,098,992
Buildings and improvements 103,971,677 87,837,749
Machinery and equipment 193,122,689 180,474,182
Furniture and fixtures 11,477,394 9,896,521
Construction in progress 43,041,471 31,768,168
-------------- --------------
Total, at cost 361,049,643 316,075,612
Less: Accumulated depreciation (91,423,094) (75,635,032)
-------------- --------------
Net property, plant and equipment $ 269,626,549 $ 240,440,580
============== ==============
Depreciation expense was $17,838,676, $14,861,850 and $10,698,783 for
1999, 1998 and 1997, respectively.
During the years ended October 31, 1999, 1998 and 1997, interest
expense incurred was $10,019,015, $7,535,211 and $4,105,467, respectively, of
which $2,530,445, $2,231,993 and $1,886,464 was capitalized as part of property,
plant and equipment, respectively.
The Company had commitments for capital expenditures of approximately
$10.6 million at October 31, 1999.
34
35
NOTE 8 - Financing Arrangements:
- --------------------------------
Long-term debt consists of the following:
October 31, October 31,
1999 1998
------------ ------------
Revolving credit loan - interest at 8.19% and 5.85% at
October 31, 1999 and 1998, respectively $166,050,000 $130,465,000
Variable rate industrial development bond, collateralized by
letter of credit, weighted average interest rate at 3.56% payable 5,400,000 5,400,000
------------ ------------
on February 1, 2010 $171,450,000 $135,865,000
============ ============
In September 1999, the Company entered into a new agreement ("the
Agreement") with KeyBank, National Association, as agent for a group of lenders.
The Agreement provides for loans and letters of credit up to $210.0 million. The
term of this facility matures in September 2004. The Company has the option to
select the applicable interest rate at KeyBank's prime rate or the LIBOR rate
plus a factor determined by a pricing matrix (ranging from 0.5% to 1.75% for the
prime rate and ranging from 1.0% to 2.75% for the LIBOR rate) based on funded
debt to earnings before interest, taxes, depreciation and amortization. As of
October 31, 1999, the factor as determined by the pricing matrix was 1.75 %. The
terms of the new Shiloh facility also require an annual commitment fee based on
the amount of unused commitments under the facility and a factor determined by a
pricing matrix (ranging from 0.25% to 0.5%) based on funded debt to earnings
before interest, taxes, depreciation and amortization. The Agreement also
provides for the incurrence of debt under standby letters of credit and for the
advancement of funds under a discretionary line of credit. The maximum amount of
debt that may be incurred under each of these sources of funds is $15.0 million.
The Agreement is collateralized by a first priority security interest
in all of the Company's and its subsidiaries' existing and after-acquired
accounts receivable, inventory and machinery and equipment. All of the
obligations under the Agreement are fully and unconditionally guaranteed by all
of the existing and future domestic subsidiaries.
The Agreement requires the Company to meet certain financial covenants
and ratios including minimum interest coverage, minimum net worth, and maximum
leverage. The Agreement also contains non-financial covenants that restrict
actions of the Company with respect to incurrence of additional debt, dividends,
transactions with affiliates, asset sales, acquisitions, mergers, prepayments of
other debt, liens and encumbrances.
Prior to January 22, 1998, the Company had a $70.0 million revolving
credit facility ("Shiloh Facility") with KeyBank National Association
("KeyBank") and Shiloh of Michigan had a $28.0 million credit facility (the
"Shiloh of Michigan Facility") with KeyBank. On January 22, 1998, the Company
increased the Shiloh Facility to $135.0 million. The Company had the option to
select the applicable interest rate at KeyBank's prime rate or the LIBOR rate
plus a factor. On January 22, 1998, the Company used $28.0 million of the Shiloh
Facility to retire the outstanding balance of the Shiloh of Michigan Facility.
The Company executed a demand promissory note as of December 6, 1996 in
favor of The Richland Bank in the aggregate principal amount of $4.0 million.
Interest accrues on the outstanding principal balance under that facility at
LIBOR plus 0.75%
In March, 1995, Medina County, Ohio issued on the Company's behalf an
aggregate of $5.4 million in principal amount of variable rate industrial
revenue bonds due 2010, all of which were drawn upon as of
35
36
October 31, 1996. These bonds are secured by a letter of credit. The funds from
these bonds were used to finance a portion of the expansion at the steel
pickling operations in Valley City, Ohio.
Interest paid amounted to $9,843,836, $7,322,471, and $4,006,614 during
1999, 1998 and 1997, respectively.
Total availability at October 31, 1999 under the Company's Credit
Agreement and Line of Credit was $214,000,000, of which $42,550,000 was unused.
At October 31, 1999 the scheduled maturities of all long-term debt
during the next five years is as follows:
2000 ---
2001 ---
2002 ---
2003 ---
2004 $171,450,000
36
37
NOTE 9 - Leases:
- ----------------
The Company leases certain equipment under operating leases. Rent
expense under operating leases for 1999, 1998 and 1997 was $1,869,524,
$1,154,806 and $474,482, respectively. Future minimum lease payments under
operating leases are as follows at October 31, 1999:
Operating
---------
2000 $2,627,601
2001 2,440,734
2002 2,321,715
2003 1,844,579
2004 1,824,316
----------
$11,058,945
===========
Note 10 - Employee Benefit Plans:
- ---------------------------------
The Company maintains pension plans covering most employees. The assets
of the plans consist primarily of insurance and annuity contracts. The Company
provides postretirement health care benefits to certain employees (and their
dependents) who retire early, but coverage generally continues only until age
65. Components of the plan obligations and assets, and the recorded liability at
October 31, 1999 and 1998 are as follows:
Pension Benefits Other Post Retirement Benefits
1999 1998 1999 1998
------------- ------------- ------------- -------------
Benefit obligation at beginning of year $(11,818,613) $(10,757,359) $ (2,476,343) $ (2,166,260)
Service cost (1,066,042) (1,120,899) (115,162) (121,174)
Interest cost (856,849) (806,801) (159,894) (168,186)
Actuarial (gain) loss 65,335 (104,315) 765,241 (110,630)
Amendments -- (241,912) (102,402) --
Benefits paid 1,620,771 1,212,673 130,000 89,907
------------ ------------ ------------ ------------
Benefit obligation at end of year (12,055,398) (11,818,613) (1,958,560)
(2,476,343)
Fair value of plan assets at beginning 10,306,864 10,191,992 -- --
Actual return on plan assets 515,727 521,265 -- --
Employer contribution 1,434,255 807,729 -- --
Benefits paid (1,620,771) (1,214,122) --
------------ ------------ ------------ ------------
Fair value of plan assets at end of year 10,636,075 10,306,864 -- --
Funded status (1,419,323) (1,511,749) (1,958,560) (2,476,343)
Unrecognized:
Transition obligation/(asset) 728,124 814,948 375,230 401,840
Prior service cost 869,982 924,932 102,402 --
Net loss/(gain) 744,006 502,157 129,808 923,684
Prepaid (accrued) benefit cost
before adjustment for minimum liability 922,789 730,288 (1,351,120) (1,150,819)
Adjustment to recognize minimum
liability (1,010,129) -- -- --
------------ ------------ ------------ ------------
Prepaid (accrued) benefit cost $ (87,340) $ 730,288 $ (1,351,120) $ (1,150,819)
============ ============ ============ ============
37
38
Note 10 - Employee Benefit Plans - (continued)
- ----------------------------------------------
The components of net periodic benefit cost for the years ended October 31 are
as follows:
Pension Benefits Other Postretirement Benefits
1999 1998 1999 1998
----------- ----------- ------------ -------------
Service cost $ 1,066,042 $ 1,120,899 $ 115,162 $ 121,174
Interest cost 856,849 806,801 159,894 168,186
Expected return on plan assets (824,549) (815,360) -- --
Net amortization and deferrals 143,412 126,921 55,245 60,905
----------- ------------ ------------ -------------
Net periodic benefit cost $ 1,241,754 $ 1,239,261 $ 330,301 $ 350,265
=========== ============ ============ =============
The projected benefit obligation, accumulated benefit obligation and
fair value of plan assets for the pension plan with accumulated benefit
obligations in excess of plan assets were $3,113,087, $3,113,087, and $2,617,138
respectively as of October 31, 1999 and $3,089,868, $3,089,868, and $2,210,068
respectively as of October 31, 1998.
Actuarial assumptions used in the calculation of the recorded liabilities are as
follows:
Weighted-average assumptions as 1999 1998 1999 1998
of December 31 ---- ---- ---- ----
Discount rate 7.75% 7.25% 7.75% 7.25%
Expected return on plan assets 8.00% 8.00% --- ---
Rate of compensation increase 4.50% 4.50% --- ---
Projected healthcare cost trend rate --- --- 7.00% 8.00%
Assumed healthcare cost trend rates have a significant effect on the
amounts reported for the healthcare plan. A one-percentage point charge in
assumed healthcare cost trend rates would have the following effects at October
31, 1999:
One-Percentage One-Percentage
Point Increase Point Decrease
-------------- --------------
Effect on total of service and interest $ 343,108 $ 223,755
cost components
Effect on post retirement obligation $ 2,284,258 $ 1,691,668
In addition to the defined benefit plans described above, the Company
recorded expense of $1,473,566, $1,440,520 and $1,292,320 during fiscal 1999,
1998 and 1997, respectively, for its defined contribution plans.
During 1997, the Company initiated a Supplemental Executive Retirement
Plan ("SERP") for key employees of the Company. The Company has agreed to pay
each covered employee a certain sum annually for ten (10) years upon retirement
or, in the event of death, to their designated beneficiary. A benefit is also
paid if the employee terminates employment (other than by discharge for cause).
Compensation expense relating to this plan was $285,593, $216,028 and
$1,359,000 in fiscal 1999, 1998 and 1997, respectively. The benefits accrued
under this plan were $1,289,435 at October 31, 1999.
38
39
NOTE 11 - Stock and Bonus Plans:
- --------------------------------
1993 KEY EMPLOYEE STOCK INCENTIVE PLAN
The Company maintains a Key Employee Stock Incentive Program (the
"Incentive Plan"), which authorizes grants to officers and other key employees
of the Company and its subsidiaries of (i) stock options that are intended to
qualify as "incentive stock options", (ii) nonqualified stock options and (iii)
restricted stock awards. An aggregate of 1,200,000 shares of common stock,
subject to adjustment upon occurrence of certain events to prevent dilution or
expansion of the rights of participants that might otherwise result from the
occurrence of such events, has been reserved for issuance upon the exercise of
stock options.
Only non-qualified stock options have been granted to date and all
options have been granted at market price at the date of grant. Options expire
over a period not to exceed ten years from the date of grant. Options granted in
1997, 1998 and 1999 are exercisable over five years. A summary of option
activity under the plan follows:
Number of Weighted
Shares Under Average Option
Option Price
--------------- ---------------
Outstanding at October 31, 1996 251,400 $ 14.50
Granted --- ---
Exercised (27,100) $ 11.00
Canceled (2,500) $ 16.50
---------------
Outstanding at October 31, 1997 221,800 $ 14.91
Granted 138,500 $ 18.625
Exercised (41,800) $ 12.72
Canceled (4,000) $ 18.625
---------------
Outstanding at October 31, 1998 314,500 $ 16.78
Granted 243,500 $ 13.327
Exercised --- $ ---
Canceled (29,400) $ 15.91
---------------
Outstanding at October 31, 1999 528,600 $ 15.305
===============
Exercise prices for options outstanding as of October 31, 1999 ranged
from $11.00 to $18.625, with 50% of options outstanding having exercise prices
in the range of $16.50 to $18.625 per share.
In accordance with the provisions of SFAS No. 123 "Accounting for
Stock-Based Compensation," ("SFAS 123") the Company has elected to continue
applying the intrinsic value approach under the Accounting Principles Board
Opinion No. 25 in accounting for its stock-based compensation plans.
Accordingly, the Company does not recognize compensation expense for stock
options when the stock price at the grant date is equal to or greater than the
fair market value of the stock at that date.
39
40
NOTE 11 - Stock and Bonus Plans: (continued)
- --------------------------------------------
SFAS 123 requires pro forma information on net income and earnings per share as
if the fair value method for valuing stocks options, as prescribed by SFAS 123,
had been applied. The Company's pro forma information follows:
1999 1998
---- ----
Net Income $14,384 $ 14,776
Earnings per share:
Basic 1.10 1.13
Diluted 1.10 1.13
The fair value of these options was estimated at the date of grant
using the Black-Sholes option-pricing model with the following weighted average
assumptions for 1999 and 1998:
1999 1998
---- ----
Risk-free interest 4.5% 6.10%
Dividend yield 0.00% 0.00%
Volatility factor - market 26.7% 26.00%
Expected life of options - years 4.0 4.0
EXECUTIVE INCENTIVE BONUS PLAN
In 1996, the Company replaced the Executive Bonus Plan with the
Short-Term Incentive Plan (the "Bonus Plan") which provides annual incentive
bonuses to its eligible employees. The Bonus Plan provides for an aggregate
annual bonus pool (the "Aggregate Amount") equal to 5% of the Company's
operating earnings. Incentives up to the Aggregate Amount may be paid to the
individual participants, in the case of the Chief Executive Officer, by the
Board of Directors upon recommendation by the Compensation Committee and the
Board of Directors. In determining the individual incentives, in the case of the
Chief Executive Officer, 75% of the incentive depends upon meeting the corporate
goal for return on equity and 25% of the incentive depends upon meeting
specific, project-oriented goals. These goals are established by the Board of
Directors. In the case of corporate executives eligible for the Bonus Plan, 65%
of the incentive depends upon meeting the goal for return on equity and 35% of
the incentive depends upon specific goals established by the Chief Executive
Officer. Finally, in the case of the remaining employees eligible for the Bonus
Plan, 50% of the incentive depends upon meeting the goal for operating return on
assets established by the Chief Executive Officer and 50% of the incentive
depends upon specific goals as established by the Chief Executive Officer.
During fiscal 1999, 1998 and 1997, amounts of $383,000, $1,089,000 and $750,038,
respectively, were paid under the existing bonus plan for that fiscal year.
40
41
NOTE 12 - Income Taxes:
- -----------------------
The components of the provision for income taxes on income from continuing
operations were as follows:
Year Ended October 31,
-------------------------------------------------------
1999 1998 1997
-------------- -------------- -----------------
Current:
Federal $ 1,522,303 $ 4,377,388 $ 7,276,000
State and local 385,716 959,841 1,588,954
-------------- -------------- --------------
1,908,019 5,337,229 8,864,954
Deferred
Total 7,455,296 4,335,709 2,809,839
-------------- -------------- --------------
$ 9,363,315 $ 9,672,938 $ 11,674,793
============== ============== ==============
Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities were comprised of the following:
October 31, October 31,
1999 1998
------------- ----------------
Deferred tax assets:
Bad debt reserves $ 398,355 $ 310,158
Inventory reserves 343,244 902,904
State income and franchise taxes 1,288,754 1,238,766
Accrued group insurance 262,142 313,902
AMT carryforwards 1,764,389 ---
Accrued vacation reserves 565,100 455,852
Capital loss carryforwards 4,912,050 4,912,050
Post retirement benefits 460,816 384,892
Pension obligations 157,797 321,194
Other reserves 293,001 318,132
------------- --------------
10,445,648 9,157,850
Less: Valuation allowance (4,912,050) (4,912,050)
------------- --------------
Total deferred tax assets 5,533,598 4,245,800
Deferred tax liabilities:
Fixed assets (23,196,560) (15,226,348)
Mark to market (408,275) (610,509)
Joint venture investment (2,161,246) (1,266,234)
Goodwill (495,296) (397,183)
Other --- (18,009)
------------- --------------
Net deferred tax liability $ (20,727,779) $ (13,272,483)
============= ===============
41
42
NOTE 12 - Income Taxes: (continued)
- -----------------------------------
The valuation allowance relates to capital loss carryforwards which are not
expected to be utilized.
A reconciliation of the statutory federal income tax rate to the effective
income tax rate is as follows:
Years Ended October 31,
---------------------------
1999 1998 1997
---- ---- -----
Federal income tax at statutory rate 34.0% 35.0% 35.0%
State and local income taxes 2.0 3.2 1.8
FAS 109 rate differential 0.8 --- ---
Other 1.1 0.2 ---
----- ----- -----
Effective income tax rate 37.9% 38.4% 36.8%
===== ===== =====
Income taxes paid, net of refunds, amounted to $1,606,386, $6,372,737
and $8,757,066 for the years 1999, 1998, and 1997, respectively.
At October 31, 1999, the Company had available a capital loss
carryforward of approximately, $12,791,797 expiring in 2001, if not utilized.
The capital loss was incurred on the sale of Shafer Valve and a full valuation
allowance has been provided.
NOTE 13- Related Party Transactions:
- ------------------------------------
The Company had sales to a significant shareholder of $10,943,440,
$6,564,094 and $7,042,217 for the years 1999, 1998 and 1997, respectively. At
October 31, 1999 and 1998, the Company had receivable balances of $1,982,032 and
$1,322,785 respectively, due from this shareholder.
42
43
NOTE 14 - Quarterly Results of Operations (Unaudited):
- ------------------------------------------------------
(In Thousands, except per share data)
---------------------------------------------------------
First Second Third Fourth
October 31, 1999 Quarter Quarter Quarter Quarter
- ---------------- ---------- ---------- ---------- ---------
Revenues $ 81,601 $ 89,565 $ 83,869 $ 99,185
Gross Profit 12,397 16,281 15,148 19,129
Operating Income 4,683 8,192 8,428 10,210
Net Income 2,031 4,014 4,133 5,133
Net Income per Share (Basic/Diluted) .16 .31 .32 .39
---------- ---------- ---------- ---------
Weighted Average Number of Shares
Basic 13,081 13,081 13,081 13,081
Diluted 13,093 13,085 13,086 13,085
In the fourth quarter, the Company recorded a favorable after tax LIFO
adjustment in the amount of $780,000.
October 31, 1998
- ----------------
Revenues $ 73,930 $ 82,038 $ 64,368 $ 79,015
Gross Profit 15,028 17,158 12,139 12,526
Operating Income 8,891 10,373 5,657 5,097
Net Income 4,925 5,838 2,984 1,794
Net Income per Share (Basic/Diluted) .38 .45 .23 .14
--------- --------- ---------- ---------
Weighted Average Number of Shares
Basic 13,039 13,045 13,078 13,081
Diluted 13,088 13,120 13,126 13,098
October 31, 1997
- ----------------
Revenues $ 64,568 $ 70,689 $ 65,460 $ 72,444
Gross Profit 12,577 15,102 14,276 16,863
Operating Income 7,252 8,986 7,556 9,467
Net Income 4,530 5,437 4,649 5,477
Net Income per Share (Basic/Diluted) .35 .42 .36 .42
--------- --------- ---------- ---------
Weighted Average Number of Shares
Basic 13,013 13,039 13,039 13,039
Diluted 13,040 13,058 13,087 13,082
43
44
NOTE 15 - Commitments and Contingent Liabilities:
- -------------------------------------------------
The Company is a party to several lawsuits and claims arising in the
normal course of its business. In the opinion of management, the Company's
liability or recovery, if any, under pending litigation and claims would not
materially affect its financial condition, results of operations or cash flows.
NOTE 16 - Subsequent Event:
- ---------------------------
Effective November 1, 1999, the Company acquired the automotive
division of MTD Products Inc, a significant shareholder of the Company. Pursuant
to the terms of the transaction, the Company acquired substantially all of the
assets of MTD Automotive ("MTDA"), a division of MTD Products Inc, for an
aggregate consideration of approximately $31.1 million consisting of $20.0
million in cash and $9.6 million in Company common stock and $1.5 million in
acquisition costs. The portion of cash was paid on the effective date of the
acquisition and was financed by the Company's revolving credit facility and the
related common stock was issued on the same date. The purchase price is subject
to adjustment based upon the closing net working capital. In addition, the
aggregate consideration will be increased or decreased based upon the
performance of MTDA during the first twelve months subsequent to closing. The
maximum amount of additional consideration to be paid under the performance
clause is $28.0 million. The maximum amount of consideration to be refunded
under the performance clause is $15.0 million. Such purchase price adjustments
will be paid half in cash and half in stock. Of the $20.0 million cash portion
of the purchase price, only $12.5 million will be used in the purchase price
allocation. The amount of $7.5 million is contingent consideration and will not
enter into the purchase price until the contingency is resolved. Of the
1,428,571 shares of common stock issued, 535,714 shares are considered
contingent consideration and will not enter into the purchase price allocation
until the reserve contingency is resolved.
An audited pro forma purchase price allocation based on the estimated fair value
of assets acquired and liabilities assumed on November 1, 1999 is as follows (in
millions):
Working Capital $29.9
Negative Goodwill ($6.9)
MTDA, a division of MTD Products Inc is a manufacturer of stamped parts
and components for the automotive industry. Their manufactured products are sold
primarily to original equipment manufacturers located in the United States. MTDA
net sales were $192.8 million in its fiscal year ended July 31, 1999.
The acquisition of MTDA will be accounted for utilizing the purchase
method, whereby the purchase price will be allocated to the underlying assets
and liabilities based upon their estimated fair values at the date of the
acquisition. The Company's Statement of Income will include the operations on
MTDA beginning on November 1, 1999.
44
45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
- ---------------------------------------------------------
Information with respect to Directors of the Company is set forth in
the Proxy Statement under the heading "Election of Directors," which information
is incorporated herein by reference. Information regarding the executive
officers of the Company is included as Item 4A of Part I of this Annual Report
on Form 10-K as permitted by the Instruction 3 item 405 of Regulation S-K.
Information required by Item 405 of Regulation S-K is set forth in the Proxy
Statement under the heading "Section 16(a) Beneficial Ownership Reporting
Compliance," which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
Information with respect to executive compensation is set forth in the
Proxy Statement under the heading "Compensation of Executive Officers" and under
the heading "Election of Directors - Compensation Committee Interlocks and
Insider Participation and Certain Relationships and Related Transactions," which
information is incorporated herein by reference (except for the Compensation
Committee Report on Executive Compensation and the Comparative Stock Performance
Graph).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
Information with respect to security ownership of certain beneficial
owners and management is set forth in the Proxy Statement under the heading
"Beneficial Ownership of Common Stock," which information is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Information with respect to certain relationships and related
transactions is set forth in the Proxy Statement under the heading "Election of
Directors - Compensation Committee Interlocks and Insider Participation and
Certain Relationships and Related Transactions," which information is
incorporated herein by reference.
45
46
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a) The following documents are filed as a part of this Annual Report
on Form 10-K on Item 8.
1. Financial Statements.
Report of Independent Accountants
Consolidated Balance Sheets at October 31, 1999
and 1998.
Consolidated Statement of Income for the three
years ended October 31, 1999.
Consolidated Statements of Cash Flows for the
three years ended October 31, 1999.
Consolidated Statement of Stockholders' Equity
for the three years ended October 31, 1999.
Notes of Consolidated Financial Statements.
2. Financial Statement Schedule. The following
consolidated financial statement schedule of the
Company and its subsidiaries and the report of
the independent accountants thereon are filed as
part of this Annual Report on Form 10-K and
should be read in conjunction with the
consolidated financial statements of the Company
and its subsidiaries included in the Annual
Report on Form 10-K.
46
47
SCHEDULE II
SHILOH INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Additions
Balance at Charged to Balance at
Beginning Costs and End
Description of Period Expenses Deductions of Period
----------- --------- -------- ---------- ---------
Valuation account for accounts receivable
Year ended October 31, 1999 $ 919,704 $ 189,793 $ 28,856 $ 1,080,641
Year ended October 31, 1998 849,554 106,549 36,399 919,704
Year ended October 31, 1997 913,070 5,452 68,968 849,554
Reserve for excess, slow moving and
potentially obsolete material
Year ended October 31, 1999 $ 664,140 $ 94,888 $ 614,140 $ 144,888
Year ended October 31, 1998 137,938 589,140 62,938 664,140
Year ended October 31, 1997 82,181 137,938 82,181 137,938
Valuation allowance for deferred tax assets
(a)
Year ended October 31, 1999 $4,912,050 $ --- $ --- $ 4,912,050
Year ended October 31, 1998 4,912,050 --- --- 4,912,050
Year ended October 31, 1997 5,046,335 --- 134,285 4,912,050
Schedules not listed above have been omitted because they are not applicable or
are not required or the information required to be set forth therein is included
in the consolidated financial statements or notes thereto.
47
48
3. Exhibits
2.1 Asset Purchase Agreement, dated June 21, 1999, among
the Company, Shiloh Automotive, Inc. and MTD Products
Inc is incorporated by reference to Appendix A of
the Company's Proxy Statement on Schedule 14A as
filed with the Securities and Exchange Commission on
August 3, 1999.
2.2 First Amendment to Asset Purchase Agreement, dated
August 31, 1999, among the Company, Shiloh
Automotive, Inc. and MTD Products Inc.
2.3 Closing Agreement, dated as of October 31, 1999, by
and among the Company, Shiloh Automotive, Inc. and
MTD Products Inc is incorporated by reference to
Exhibit 2.1 of the Company's Current Report on Form
8-K as filed with the Securities and Exchange
Commission on November 15, 1999.
3.1 (i) Restated Certificate of Incorporation of the
Company is incorporated herein by reference to
Exhibit 3.1 (i) of the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1995
(Commission File No. 0-21964).
(ii) By-Laws of the Company are incorporated here in
reference to Exhibit 3.1 (ii) of the Company's Annual
Report on Form 10-K for the fiscal year ended October
31, 1995 (Commission File No. 0-21964).
4.1 Specimen certificate for the Common Stock, par value
$.01 per share, of the Company is incorporated herein
by reference to Exhibit 4.1 of the Company's Annual
Report on Form 10-K for the fiscal year ended October
31, 1995 (Commission File No. 0-21964).
4.2 Stockholders Agreement, dated June 22, 1993, by and
among the Company, MTD Products Inc and the
stockholders named therein is incorporated herein by
reference to Exhibit 4.3 of the Company's Annual
Report on Form 10-K for the fiscal year ended October
31, 1995 (Commission File No. 0-21964).
4.3 Registration Rights Agreement, dated June 22, 1993,
by and among the Company, MTD Products Inc and the
stockholders named therein is incorporated herein by
reference to Exhibit 4.3 of the Company's Annual
Report on Form 10-K for the fiscal year ended October
31, 1995 (Commission File No. 0-21964).
4.4 First Amendment to Stockholders Agreement, dated
March 11, 1994, by and among the Company, MTD
Products Inc and the stockholders named therein is
incorporated herein by reference to Exhibit 4.4 of
the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1995 (Commission File
No. 0-21964).
48
49
10.1 Loan Agreement, dated February 1, 1995, by and
between Medina County, Ohio and Valley City Steel
Company is incorporated herein by reference to
Exhibit 10.4 of the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended April 30, 1996
(Commission File No. 0-21964).
10.2 Operating Agreement for Shiloh of Michigan, L.L.C.,
dated January 2, 1996, by and among Shiloh of
Michigan, L.L.C., Rouge Steel Company and the Company
is incorporated herein by reference to Exhibit 10.5
of the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended April 30, 1996 (Commission
File No. 0-21964).
10.3 Master Unsecured Demand Promissory Note of Shiloh
Corporation to The Richland Trust Company of
Mansfield, dated April 2, 1991, is incorporated
herein by reference to Exhibit 10.7 of the Company's
Annual Report of Form 10-K for the fiscal year ended
October 31, 1995 (Commission File No. 0.21964).
*10.4 1993 Key Employee Stock Incentive Plan is
incorporated herein by reference to Exhibit A the
Company's Proxy Statement on Schedule 14A for the
fiscal year ended October 31, 1997 (Commission File
No. 0-21964).
*10.5 Executive Incentive Bonus Plan is incorporated herein
by reference to Exhibit 10.9 of the Company's Annual
Report on Form 10-K for the fiscal year ended October
31, 1995 (Commission File No. 0-21964).
*10.6 Indemnification Agreement, dated July 2, 1993, by and
between the Company and Robert L. Grissinger (with an
attached schedule identifying the directors and
officers of the Company that have entered into an
identical agreement) is incorporated herein by
reference to Exhibit 10.10 of the Company's Annual
Report on From 10-K for the fiscal year ended
December 31, 1995 (Commission File No. 0-21964).
*10.7 Option Agreement, dated May 28, 1993, by and between
the Company and Robert L. Grissinger (with an
attached schedule identifying the other optionees
that have entered into option agreements with the
Company) is incorporated herein by reference to
Exhibit 10.15 of the Company's Annual Report on From
10-K for the fiscal year ended December 31, 1995
(Commission File No. 0-21964).
10.8 Master Unsecured Demand Promissory Note of Shiloh
Corporation to The Richland Trust Company of
Mansfield, dated December 6, 1996 is incorporated
herein by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-Q/A for the fiscal
quarter ended January 1, 1997 (Commission File No.
0-21964).
49
50
*10.9 Supplemental Retirement Trust Agreement, dated June
1, 1997, by and among the Company, First Union
National Bank of North Carolina and Robert L.
Grissinger is incorporated herein by reference to
Exhibit 10.15 to the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1997
(Commission File No. 0-21964).
10.10 Credit Agreement, dated September 13, 1999 by and
among the Company, the banks listed on Annex A
thereto and KeyBank National Association, as
Administrative Agent.
10.11 Transitional Services Agreement, dated October 31,
1999, by and among the Company, Shiloh Automotive,
Inc. and MTD Products Inc.
21.1 Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP.
24.1 Powers of Attorney.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the quarter
ended October 31, 1999.
* Reflects management contract or other compensatory arrangement
required to be filed as an exhibit pursuant to Item 14 (c) of
this Report.
50
51
SIGNATURES
Pursuant to the requirements of Section 13 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.
SHILOH INDUSTRIES, INC.
Date: January 31, 2000 By: /s/John F. Falcon
--------------------------------
John F. Falcon,
President and Chief Executive Officer
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 the capabilities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Vice Chairman and Director January 31, 2000
- -----------------------------------
Dominick C. Fanello
/s/ Jack Falcon President and Chief Executive Officer and January 31, 2000
- ----------------------------------- Director (Principal Executive Officer)
Jack Falcon
* Treasurer and Chief Financial Officer (Principal January 31, 2000
- ----------------------------------- Accounting and Principal Financial Officer)
Craig A. Stacy
* Director January 31, 2000
- -----------------------------------
James C. Fanello
*
- ----------------------------------- Chairman and Director January 31, 2000
Curtis E. Moll
* Director January 31, 2000
- -----------------------------------
Ronald C. Hauser
* Director January 31, 2000
- -----------------------------------
David J. Hessler
* Director January 31, 2000
- -----------------------------------
Richard S. Gray
* Director January 31, 2000
- -----------------------------------
James A. Karman
* Director January 31, 2000
- -----------------------------------
Theodore K. Zampetis
*The undersigned, by signing his name hereto, does sign and execute this Annual
Report on Form 10-K pursuant to the Powers of Attorney executed by the
above-named officers and Directors of the Company and filed with the Securities
and Exchange Commission on behalf of such officers and Directors.
By: /s/ John F. Falcon
-----------------------------------
John F. Falcon, Attorney-In-Fact
51
52
EXHIBIT INDEX
Exhibit No. Exhibit Description
----------- -------------------
2.1 Asset Purchase Agreement, dated June 21, 1999, among
the Company, Shiloh Automotive, Inc. and MTD Products
Inc. is incorporated by reference to Appendix A of
the Company's Proxy Statement on Schedule 14A as
filed with the Securities and Exchange Commission on
August 3, 1999.
2.2 First Amendment to Asset Purchase Agreement, dated
August 31, 1999, among the Company, Shiloh
Automotive, Inc. and MTD Products Inc.
2.3 Closing Agreement, dated as of October 31, 1999, by
and among the Company, Shiloh Automotive, Inc. and
MTD Products Inc. is incorporated by reference to
Exhibit 2.1 of the Company's Current Report on Form
8-K as filed with the Securities and Exchange
Commission on November 15, 1999.
3.1(i) Restated Certificate of Incorporation of the
Company is incorporated herein by reference to
Exhibit 3.1 (i) of the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1995
(Commission File No. 0-21964).
(iii) By-Laws of the Company are incorporated here in
reference to Exhibit 3.1 (ii) of the Company's Annual
Report on Form 10-K for the fiscal year ended October
31, 1995 (Commission File No. 0-21964).
4.1 Specimen certificate for the Common Stock, par value
$.01 per share, of the Company is incorporated herein
by reference to Exhibit 4.1 of the Company's Annual
Report on Form 10-K for the fiscal year ended October
31, 1995 (Commission File No. 0-21964).
4.2 Stockholders Agreement, dated June 22, 1993, by and
among the Company, MTD Products Inc. and the
stockholders named therein is incorporated herein by
reference to Exhibit 4.3 of the Company's Annual
Report on Form 10-K for the fiscal year ended October
31, 1995 (Commission File No. 0-21964).
4.3 Registration Rights Agreement, dated June 22, 1993,
by and among the Company, MTD Products Inc. and the
stockholders named therein is incorporated herein by
reference to Exhibit 4.3 of the Company's Annual
Report on Form 10-K for the fiscal year ended October
31, 1995 (Commission File No. 0-21964).
4.4 First Amendment to Stockholders Agreement, dated
March 11, 1994, by and among the Company, MTD
Products Inc. and the stockholders named therein is
incorporated herein by reference to Exhibit 4.4 of
the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1995 (Commission File
No. 0-21964).
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10.1 Loan Agreement, dated February 1, 1995, by and
between Medina County, Ohio and Valley City Steel
Company is incorporated herein by reference to
Exhibit 10.4 of the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended April 30, 1996
(Commission File No. 0-21964).
10.2 Operating Agreement for Shiloh of Michigan, L.L.C.,
dated January 2, 1996, by and among Shiloh of
Michigan, L.L.C., Rouge Steel Company and the Company
is incorporated herein by reference to Exhibit 10.5
of the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended April 30, 1996 (Commission
File No. 0-21964).
10.3 Master Unsecured Demand Promissory Note of Shiloh
Corporation to The Richland Trust Company of
Mansfield, dated April 2, 1991, is incorporated
herein by reference to Exhibit 10.7 of the Company's
Annual Report of Form 10-K for the fiscal year ended
October 31, 1995 (Commission File No. 0.21964).
10.4 1993 Key Employee Stock Incentive Plan is
incorporated herein by reference to Exhibit A the
Company's Proxy Statement on Schedule 14A for the
fiscal year ended October 31, 1997 (Commission File
No. 0-21964).
10.5 Executive Incentive Bonus Plan is incorporated herein
by reference to Exhibit 10.9 of the Company's Annual
Report on Form 10-K for the fiscal year ended October
31, 1995 (Commission File No. 0-21964).
10.6 Indemnification Agreement, dated July 2, 1993, by and
between the Company and Robert L. Grissinger (with an
attached schedule identifying the directors and
officers of the Company that have entered into an
identical agreement) is incorporated herein by
reference to Exhibit 10.10 of the Company's Annual
Report on From 10-K for the fiscal year ended
December 31, 1995 (Commission File No. 0-21964).
10.7 Option Agreement, dated May 28, 1993, by and between
the Company and Robert L. Grissinger (with an
attached schedule identifying the other optionees
that have entered into option agreements with the
Company) is incorporated herein by reference to
Exhibit 10.15 of the Company's Annual Report on From
10-K for the fiscal year ended December 31, 1995
(Commission File No. 0-21964).
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10.8 Master Unsecured Demand Promissory Note of Shiloh
Corporation to The Richland Trust Company of
Mansfield, dated December 6, 1996 is incorporated
herein by reference to Exhibit 10.1 of the Company's
Quarterly Report on Form 10-Q/A for the fiscal
quarter ended January 1, 1997 (Commission File No.
0-21964).
10.9 Supplemental Retirement Trust Agreement, dated June
1, 1997, by and among the Company, First Union
National Bank of North Carolina and Robert L.
Grissinger is incorporated herein by reference to
Exhibit 10.15 to the Company's Annual Report or Form
10-K for the fiscal year ended October 31, 1997
(Commission File No. 0-21964).
10.10 Credit Agreement, dated September 13, 1999, by and
among the Company, the banks listed on Annex A
thereto and KeyBank National Association, as
Administrative Agent.
10.11 Transitional Services Agreement, dated October 31,
1999, by and among the Company, Shiloh Automotive,
Inc. and MTD Products Inc.
21.1 Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP.
24.1 Powers of Attorney.
27.1 Financial Data Schedule.
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