Back to GetFilings.com

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

For the quarterly period ended January 31, 2004

OR

For the transition period from              to             

Commission file number 0-21964

SHILOH INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Suite 202, 103 Foulk Road, Wilmington, Delaware 19803

(Address of principal executive offices—zip code)

(302) 656-1950

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

Number of shares of Common Stock outstanding as of February 24, 2004 was 15,587,572 shares.

Table of Contents

SHILOH INDUSTRIES, INC.

INDEX

2

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

SHILOH INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

(Unaudited)

The accompanying notes are an integral part of these financial statements.

3

Table of Contents

SHILOH INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

(Unaudited)

The accompanying notes are an integral part of these financial statements.

4

Table of Contents

SHILOH INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

The accompanying notes are an integral part of these financial statements.

5

Table of Contents

SHILOH INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share data)

Note 1—Basis of Presentation and Business

The condensed consolidated financial statements have been prepared by Shiloh Industries, Inc. and its subsidiaries (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished in the condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of such financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. Although the Company believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these condensed consolidated financial statements be read in conjunction with the audited financial statements and the notes thereto included in the Company’s 2003 Annual Report on Form 10-K for the fiscal year ended October 31, 2003.

Revenues and operating results for the three months ended January 31, 2004 are not necessarily indicative of the results to be expected for the full year.

The Company has collective bargaining agreements covering employees at four of its subsidiaries and these agreements are due to expire in May 2004, May 2005, August 2005 and June 2006. The Company began early negotiations with the group of employees whose agreement was due to expire in May 2004. On February 22, 2004, the union membership voted to ratify a new agreement that will expire in May 2007.

Note 2—New Accounting Standards

In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN No. 46”). FIN No. 46 addresses consolidation by business enterprises of variable interest entities that possess certain characteristics. The interpretation requires that if a business enterprise has a controlling financial interest in a variable interest entity, the assets, liabilities and results of operations of the variable interest entity must be included in the consolidated financial statements with those of the business enterprise. This interpretation applies immediately to variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date. In December 2003, the FASB issued FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities – an interpretation of ARB 51 (revised December 2003)” (“FIN No. 46R”), which includes significant amendments to previously issued FIN No. 46. Among other provisions, FIN No. 46R includes revised transition dates for public entities. The Company is now required to adopt the provisions of FIN No. 46R no later than the end of the first reporting period that ends after March 15, 2004. The adoption of this interpretation is not expected to have a material effect on the Company’s financial statements or results of operations.

In December 2003, the FASB issued SFAS No.132-Revised 2003, “Employers’ Disclosures about Pensions and Other Postretirement Benefits” (“SFAS No. 132R”). The revised statement increases the existing generally accepted accounting disclosure requirements by requiring more details about pension plans assets, benefit obligations, cash flows, benefit costs and related information. Companies will be required to segregate plan assets by category, such as debt, equity and real estate, and to provide certain expected rates of return and other informational disclosures. SFAS 132R also requires companies to disclose various elements of pension and postretirement benefit costs in interim-period financial statements for quarters beginning after December 15, 2003. Because SFAS 132R only revises disclosure requirements, it will not have an impact on the Company’s financial position or results of operations.

In December 2003, President Bush signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”). The Act expanded Medicare to include, for the first time, coverage for prescription drugs. The Company sponsors retiree medical programs at certain of its locations. At present, no analysis of the potential reduction in the Company’s costs or obligations has been performed. Also, the Company has not yet determined whether some or all of its current retiree medical plans would require modification in order to qualify for beneficial treatment under the Act. A definitive assessment cannot be made until future regulatory and accounting guidance is issued. Because of various uncertainties related to the Company’s response to this legislation and the appropriate methodology for this event, the Company has elected to defer financial

6

Table of Contents

recognition of this legislation until the FASB issues final accounting guidance. When issued, the final guidance could require the Company to change previously reported information and at this time the Company cannot predict whether these changes will be material or not.

Note 3—Change in Accounting

Effective November 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”) which required that the Company prospectively cease amortization of goodwill and conduct periodic impairment tests of goodwill. As a result of the impairment tests, the Company recorded a charge of $1,963, net of a $1,058 income tax benefit, to write-off the goodwill balance as a cumulative effect of a change in accounting principle. The Company does not have any other intangible assets impacted by SFAS No. 142.

Note 4—Inventories

Inventories consist of the following:

Note 5—Property, Plant and Equipment

Property, plant and equipment consist of the following:

Note 6—Financing Arrangements

Debt consists of the following:

The weighted average interest rate for all debt excluding the capital lease debt for the three months ended January 31, 2004 and 2003 was 4.58% and 5.64%, respectively.

On January 15, 2004, the Company entered a Credit and Security Agreement (the “Credit Agreement”) with a syndicate of lenders led by LaSalle National Bank Association, as lead arranger and administrative agent, National City Bank, as co-lead arranger and syndication agent, and KeyBank National Association, as documentation agent. The Credit Agreement provides the Company with borrowing capacity of $185,000 in the form of a $60,000 three-year revolving credit facility maturing January 2007 and two five-year term loans of $75,000 and $50,000 maturing January 2009.

7

Table of Contents

Under the Credit Agreement, the Company has the option to select the applicable interest rate based upon two indices – a Base Rate, as defined in the Credit Agreement, or the Eurodollar rate, as adjusted by the Eurocurrency Reserve Percentage, if any (“LIBOR”). The selected index is combined with a designated margin from an agreed upon pricing matrix. The Base Rate is the greater of the LaSalle publicly announced prime rate or the Federal Funds effective rate plus 0.5% per annum. LIBOR is the published Bloomberg Financial Markets Information Service rate. At January 31, 2004, the interest rate for the revolving credit facility was LIBOR plus 3.50%. The interest rate of the $75,000 term loan was at LIBOR plus 3.75% at January 31, 2004. The margins for the revolving credit facility and $75,000 term loan improve if the Company achieves improved ratios of funded debt to EBITDA, as defined in the Credit Agreement. At January 31, 2004, the interest rate of the $50,000 term loan was at LIBOR plus 4.5%. The margin under the $50,000 term loan decreases by 0.5% if the Company’s senior debt ratings are equal to or greater than B1 from Moody’s and B+ from Standard and Poor’s.

Borrowings under the Credit Agreement are collateralized by a first priority security interest in substantially all of the tangible and intangible property of the Company and its domestic subsidiaries and 65% of the stock of foreign subsidiaries. Available borrowings under the revolving credit facility are based on a borrowing base formula of 85% of eligible accounts receivable and 55% of eligible inventory, as defined in the Credit Agreement.

The Credit Agreement requires the Company to observe several financial covenants. At January 31, 2004, the covenants required a minimum fixed coverage ratio of 1.25 to 1.0, a maximum leverage ratio of 3.75 to 1.0 and a minimum net worth of $95,000. During the term of the Credit Agreement, the covenant requirements become less restrictive as the Company achieves certain defined improvements. The Credit Agreement also establishes limits for additional borrowings, dividends, investments, acquisitions or mergers and sales of assets.

Borrowings under the revolving credit facility must be repaid in full in January 2007. Repayments of borrowings under the $50,000 term loan begin in June 2004 and are due quarterly thereafter at $250 per quarter. A final payment of $47,500 is required at maturity. The Company must repay borrowings under the $75,000 term loan beginning in March 2004 in quarterly installments of $3,625. Quarterly payments continue thereafter increasing annually until year five when the payments decline until maturity. The Company may prepay the borrowings under the revolving credit facility and the $75,000 term loan without penalty. A prepayment of the $50,000 term loan during the first twelve months subsequent to closing requires a premium of 1% of the prepayment. The Company is required to make mandatory prepayments under certain conditions equal to 50% of excess cash flow, as defined in the Credit Agreement.

The Credit Agreement specifies that upon the occurrence of an event or condition that the administrative agent of the lending syndicate or the required lenders, as defined, of 51% of the aggregate commitment under the Credit Agreement deem to have a material adverse effect on the business or operations of the Company, the borrowings outstanding at the time become due and payable. However, the Company does not anticipate at this time any change in business conditions or operations that could be deemed as a material adverse change by the lenders.

Proceeds of the Credit Agreement were used to repay borrowings outstanding under the Company’s amended and restated credit agreement, dated February 12, 2002. In addition, the proceeds were used to fund fees and related expenses of approximately $2,800, of which $2,605 were paid during the first quarter of fiscal 2004, and are being amortized over the term of the Credit Agreement.

In May 2002, the Company issued two 9.0% promissory notes to two directors of the Company, who are officers of MTD Products, due May 1, 2004 in the aggregate principal of $460.

In June 2003, the Company entered into a finance agreement with an insurance broker for various insurance policies that bears interest at a fixed rate of 4.89% and requires monthly payments of $92 through April 2004. As of January 31, 2004 and October 31, 2003, $184 and $453, respectively, remained outstanding under this agreement and is classified as current debt in the Company’s consolidated financial statements.

Overdraft balances were $17,578 at January 31, 2004 and $29,850 at October 31, 2003 and are included in accounts payable.

8

Table of Contents

Note 7—Pension Matters

In accordance with SFAS No. 132R, the components of net periodic benefit cost (income) for the three months ended January 31 are as follows:

The total amount of Company contributions paid for the three months ended January 31, 2004 was $1,988. The Company expects estimated contributions to be $8,300 for the remainder of fiscal 2004.

Note 8—Equity Matters

Income (Loss) Per Share

Basic income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of shares of the Company’s common stock (“Common Stock”) outstanding during the period. The basic weighted average number of shares also includes the pro rata earned shares to be issued to the Company’s President and Chief Executive Officer in accordance with his employment agreement. In addition, the diluted income (loss) per share reflects the potential dilutive effect of the Company’s stock option plan and the unearned shares issuable to the Company’s President and Chief Executive Officer in accordance with his employment agreement.

The outstanding stock options under the Company’s Amended and Restated 1993 Key Employee Stock Incentive Plan and the shares issuable to the President and Chief Executive Officer are included in the diluted income (loss) per share calculation to the extent they are dilutive. The following is a reconciliation of the numerator and denominator of the basic and diluted income (loss) per share computation for net income (loss):

9

Table of Contents

Stock Options and Executive Compensation

In accordance with the provision of SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of SFAS No. 123,” the Company has elected to continue applying the intrinsic value approach under APB No. 25 in accounting for its stock-based compensation plans. Accordingly, the Company does not recognize compensation expense for stock options when the exercise price at the grant date is equal to or greater than the fair market value of the stock at that date.

The following table illustrates the effect on net income (loss) and net income (loss) per share as if the fair value based method had been applied to all outstanding and vested awards in each period:

The Company’s non-qualified stock option plan, adopted in May 1993, provides for granting officers and employees of the Company options to acquire an aggregate of 1,700,000 shares at an exercise price equal to 100% of market value on the date of grant.

Executive Compensation

Under the terms of the five-year employment agreement with the Company’s President and Chief Executive Officer, the executive will receive an annual base salary, in arrears, in unrestricted shares of Common Stock for the first three years of the agreement. The number of shares to be issued is 350,000 at the end of year one, 300,000 at the end of year two and 250,000 at the end of year three. The executive will draw a base salary paid in cash during years four and five. On January 31, 2003, in accordance with the agreement, the Company issued 350,000 shares of Common Stock for services rendered from the period February 1, 2002 through January 31, 2003, the first year of the agreement. On January 31, 2004, the Company issued 300,000 shares of Common Stock for services rendered from the period February 1, 2003 through January 31, 2004, the second year of the agreement. For the quarters ended January 31, 2004 and 2003, respectively, the Company recorded, as compensation expense, $128 and $149.

Comprehensive Income

Comprehensive income (loss) amounted to $1,128 and $(2,421), net of tax, for the three months ended January 31, 2004 and 2003, respectively. The difference between net income (loss) and comprehensive income (loss) for the three months ended January 31, 2004 and 2003 resulted from the changes in the unrealized holding gain (loss) on available for sale securities.

10

Table of Contents

Note 9—Other Information

During the three months ended January 31, 2004 and 2003, cash payments for interest amounted to $1,815 and $2,868, respectively. Tax payments, net of tax refunds of $47 were paid during the three months ended January 31, 2004 and tax refunds, net of tax payments of $6,779 were received during the three months ended January 31, 2003. The tax provision was $742 for the first quarter of fiscal 2004 compared with a tax benefit of $520 for the first quarter of fiscal 2003, representing effective tax rates of 40.0% and 53.0%, respectively.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Shiloh is a full service manufacturer of first operation blanks, engineered welded blanks, complex stampings and modular assemblies for the automotive, heavy truck and other industrial markets. In addition, Shiloh is a designer and engineer of precision tools and dies and welding and assembly equipment for use in its blanking and stamping operations and for sale to original equipment manufacturers (“OEMs”), Tier I automotive suppliers and other industrial customers. The Company’s blanks, which are engineered two dimensional shapes cut from flat-rolled steel, are principally sold to automotive and truck OEMs and are used for exterior steel components, such as fenders, hoods and doors. These blanks include first operation exposed and unexposed blanks and more advanced engineered 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 welding. The Company’s stampings are principally used as components in mufflers, seat frames, structural rails, window lifts, heat shields, vehicle brakes and other structural body components.

The Company also builds modular assemblies, which include components used in the structural and powertrain systems of a vehicle. Structural systems include bumper beams, door impact beams, steering column supports, chassis components and structural underbody modules. Powertrain systems consist of deep draw components, such as oil pans, transmission pans and valve covers. Additionally, the Company provides a variety of intermediate steel processing services, such as oiling, cutting-to-length, slitting and edge trimming of hot and cold-rolled steel coils for automotive and steel industry customers. The Company has sixteen wholly owned subsidiaries at locations in Ohio, Michigan, Georgia, Tennessee and Mexico.

In analyzing the financial aspects of the Company’s operations, the following factors should be considered.

The majority of the Company’s stamping and engineered welded blank operations purchase steel through the customers’ steel program. Under these programs, the Company pays the steel suppliers and passes on to the customers the steel price the customers negotiated with the steel suppliers. Although the Company takes ownership of the steel, the customers are responsible for all steel price fluctuations. The Company also purchases steel directly from domestic primary steel producers and steel service centers. Domestic steel pricing has generally been increasing recently for several reasons, including capacity restraints and the weakening of the U.S. dollar in relation to foreign currencies. Finally, the Company blanks and processes steel for some of its 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. Toll processing operations results in lower revenues but higher gross margins than operations where the Company takes ownership of the steel. Revenues from operations involving directly owned steel include a component of raw material cost whereas toll processing revenues do not.

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 the Company’s processing operations. Changes in the price of steel, however, can also 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 may experience a reduction in its revenues during fiscal 2004 as a result of the forecasted decreased volumes in the North American automotive market. The Company will take steps to minimize the impact on its operations of any reduction in revenues.

Critical Accounting Policies

Preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financials statements and accompanying notes. The Company believes its estimates and assumptions are reasonable;

11

Table of Contents

however, actual results and the timing of the recognition of such amounts could differ from those estimates. The Company has identified the items that follow as critical accounting policies and estimates utilized by management in the preparation of the Company’s financial statements.

Revenue Recognition. Except for tooling contracts, the Company recognizes revenue once it is realized and earned which occurs once product has been shipped in accordance with arrangements with the customer and billing is rendered at selling prices. The Company recognizes revenue on tooling contracts when the contract is complete. Losses are provided for when estimates of total contract revenue and contract costs indicate a loss.

Accounts Receivable. The Company reviews the valuation of accounts receivable on a monthly basis. The allowance for doubtful accounts is estimated based on historical experience of write-offs and the current financial condition of customers. If the financial condition of customers were to deteriorate, additional allowances may be required.

Inventory. The Company records inventory reserves for estimated obsolescence or lower of cost or market concerns based upon future demand and current selling prices of individual products. Additional inventory reserves may be required if actual market conditions differ from management’s expectations.

Long-lived Assets. The Company evaluates the recoverability of long-lived assets and the related estimated remaining lives whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Events or changes in circumstances which could cause an impairment review include significant underperformance relative to the expected historical or projected future operating results, significant changes in the manner of the use of the acquired assets or the strategy for the overall business or significant negative industry or economic trends. The Company records an impairment or change in useful life whenever events or changes in circumstances indicate that the carrying amount may not be recoverable or the useful life has changed in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

Pension and Other Post-retirement Costs and Liabilities. Pension and other post-retirement costs and liabilities are actuarially calculated. These calculations are based on assumptions related to the discount rate, projected salary increases and expected return on assets, all of which are evaluated monthly and adjusted at least annually. The discount rate assumption is related to long-term high quality bond rates. The projected salary increase assumption is based on recent trends in wages and salary increases. The assumption concerning the expected return on assets for the pension plans is based on the long-term expected returns for the investment mix of assets currently in the portfolio. The return on assets assumption is subject to change depending upon the future asset mix of the portfolio. The discount rates and expected return on plan assets used by the Company as of October 31, 2003 and January 31, 2004 were as follows:

Taxes. The Company is required to estimate income taxes in each of the jurisdictions in which it operates. The process involves estimating actual current tax expense along with assessing temporary differences resulting from different treatment of items for book and tax purposes. These timing differences result in deferred tax assets and liabilities, which are included in the Company’s consolidated financial statements. The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. Future taxable income and ongoing tax planning strategies are considered when assessing the need for the valuation allowance. Increases in the valuation allowance usually result in additional expense to be reflected within the tax provision in the consolidated financial statements.

Results of Operations

(Dollars in thousands, except per share data)

Three Months Ended January 31, 2004 Compared to Three Months Ended January 31, 2003

REVENUES. Sales for the first quarter of fiscal 2004 were $140,894, an increase of $4,322, or 3.2% over last year’s first quarter sales of $136,572. The increase in sales was led by the supply of parts for new models that began production in late fiscal year 2003. The build levels for these new models accelerated during the first quarter of fiscal year 2004. Parts for these new models, the Dodge Durango and Chevrolet Malibu, plus other production increases resulted in increased blanking sales of $15,000. Sales declines were experienced in engineered products and tooling amounting to approximately $10,700, which resulted from de-emphasis of tooling sales and the balance out of older programs.

12

Table of Contents

GROSS PROFIT. Gross profit for the first quarter of fiscal 2004 was $13,226 compared to gross profit of $11,860 in the first quarter of fiscal 2003, an increase of $1,366, or 11.5% between years. The gross profit percentage of sales was 9.4% in the first quarter of fiscal 2004 compared to 8.7% a year ago, an improvement of 0.7 percentage points. Gross profit improved because of increased sales of $693, increased scrap revenue of $2,700 and reduced manufacturing expenses of $1,037 due to improved productivity and personnel costs, which was partially offset by increased raw material costs of $3,100 that resulted from increased material content and increased raw material pricing.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses of $8,716 in the first quarter of fiscal 2004 declined by $862 from the prior year first quarter level of $9,578. As a percentage of sales, these expenses were 6.2% in the first quarter of fiscal 2004 compared to 7.0% of sales in the first quarter of fiscal 2003. Selling, general and administrative expenses declined because of a reduction in personnel costs, provision for doubtful accounts and professional fees. Personnel levels declined in the current quarter compared to prior year as a result of process optimization and salaries and wages, personnel benefit costs and other employee based expenses declined accordingly. The provision for doubtful accounts declined in the current quarter in line with the Company’s experience. In the first quarter of fiscal 2003, the Company incurred a higher level of outside professional services in connection with audit services for several transactions occurring at that time. The same level of services were not provided in fiscal year 2004.

OTHER. Interest expense for the first quarter of fiscal 2004 was $2,740, a decline of $740 from the first quarter of fiscal 2003. The decline resulted from a lower level of borrowed funds and a lower effective interest rate from the prior year first quarter. In the first quarter of fiscal 2004, interest expense included approximately $350 of accelerated amortization of deferred financing costs associated with the Company’s former credit agreement. In January 2004, the Company entered a new credit agreement with primarily new members of the syndicate of lenders. As a result, the balance of deferred financing costs related to the former agreement that was due to mature in April 2004 was charged to operations in the first quarter of fiscal 2004.

In the first quarter of fiscal 2003, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” As a result of the impairment of the Company’s goodwill, the Company recorded a charge of $1,963, net of income tax benefit of $1,058, representing the entire value of goodwill that had been recorded at the time of adoption. A similar charge was not recorded in the fiscal year 2004 first quarter.

The Company’s income before taxes and cumulative effect of accounting change for the first quarter of fiscal 2004 was $1,855 and the tax provision on income was $742 at an effective rate of 40.0%. In the prior year first quarter, the loss before taxes and cumulative effect of accounting change was $(981) and a tax benefit of $(520) was recorded at an effective rate of 53.0%. The absence of the effect of a dividend from the Company’s Mexican subsidiary in fiscal 2004 caused the effective rate to decrease to 40.0%.

NET INCOME (LOSS). Net income for the first quarter of fiscal 2004 was $1,113, or $0.07 per share, basic and diluted. A year ago, first quarter net loss before the cumulative effect of accounting change was $(461), or $(0.03) per share, basic and diluted. The cumulative effect of accounting change was $(1,963), or $(0.13) per share, basic and diluted, and the net loss was $(2,424), or $(0.16) per share, basic and diluted.

Liquidity and Capital Resources

On January 15, 2004, the Company entered a new Credit and Security Agreement (the “Credit Agreement”) with a syndicate of lenders. The proceeds from the borrowings under the Credit Agreement were used to repay the borrowings of the former revolving credit facility and to fund the fees and related expenses of the new Credit Agreement.

The Credit Agreement provides the Company with borrowing capacity of $185,000 in the form of a $60,000 three-year revolving credit facility maturing January 2007 and two five-year term loans of $75,000 and $50,000 maturing January 2009. Borrowings at January 31, 2004 were $30,900 under the revolving credit facility and $125,000 under the term loans.

The Credit Agreement requires the Company to observe several financial covenants. At January 31, 2004, the covenants required a minimum fixed coverage ratio of 1.25 to 1.0, a maximum leverage ratio of 3.75 to 1.0 and a minimum net worth of $95,000. During the term of the Credit Agreement, the covenant requirements become less restrictive as the Company achieves certain defined improvements. The Credit Agreement also establishes limits for additional borrowings, dividends, investments, acquisitions or mergers and sales of assets. At January 31, 2004, the Company was in compliance with the covenants of the Credit Agreement.

Borrowings under the revolving credit facility must be repaid in full in January 2007. Borrowings under the $50,000 term loan must be repaid, beginning in June 2004, with semi-annual installments of $250, with a payment in full due in January 2009. Borrowings under the $75,000 term loan must be repaid in quarterly installments beginning March 2004 with payment in

13

Table of Contents

full due in January 2009. The Company may prepay the borrowings under the revolving credit facility and the $75,000 term loan without penalty. A prepayment of the $50,000 term loan during the first twelve months subsequent to closing requires a premium of 1% of the prepayment. The Company is required to make mandatory prepayments under certain conditions equal to 50% of excess cash flow, as defined in the Credit Agreement.

The Credit Agreement specifies that upon the occurrence of an event or condition that the administrative agent of the lending syndicate or the required lenders, as defined, of 51% of the aggregate commitment under the Credit Agreement deem to have a material adverse effect on the business or operations of the Company, the borrowings outstanding at the time become due and payable. However, the Company does not anticipate at this time any change in business conditions or operations that could be deemed as a material adverse change under the Credit Agreement.

Scheduled repayments under the terms of the Credit Agreement plus repayments of other debt for the next five years are listed below:

At January 31, 2004, total debt was $157,009 and total equity was $112,586, resulting in a capitalization rate of 58% debt, 42% equity. Current assets were $109,815 and current liabilities were $115,616 resulting in a working capital deficit of $5,801.

For first quarter of fiscal 2004, net cash provided by operating activities was $12,893 compared to $10,144 in the first quarter of fiscal 2003. Net income plus depreciation and amortization and non-cash items generated $10,026. The comparable prior year period amount was $6,485 with the largest variance due to fiscal year 2004 first quarter net income of $1,113 compared to the fiscal 2003 first quarter loss of $(2,424). In the first quarter of fiscal 2004, reduced accounts receivable generated $1,015, as a result of continued collection efforts, while inventory growth required $220, the net result of seasonal variations for certain customers. Prepaids and other assets increased $851 and accounts payable and other liabilities increased $1,221. Working capital changes provided net funds of $2,867 for the first quarter of fiscal 2004. In the first quarter of fiscal 2003, accounts receivable declined significantly from the comparable period in fiscal 2002 and increased working capital cash flow levels as a result of collections efforts. Inventory decreased $991 in the first quarter of fiscal 2003. Working capital was used to reduce accounts payable by $10,208 from the October 31, 2002 levels. Net working capital changes were $3,659 in the first quarter of fiscal 2003.

Capital expenditures in the first quarter of fiscal 2004 were $5,436 and were approximately even with the prior year.

Financing activity cash flow in the first quarter of fiscal 2004 included the borrowings under the new Credit Agreement and the use of proceeds of the borrowings to repay the former revolving credit agreement and to fund the financing costs associated with the new Credit Agreement.

Beginning in March 2004, the Company must repay borrowings under the $75,000 term loan in quarterly installments of $3,625. Quarterly payments continue thereafter increasing annually until year five when the payments decline until maturity. Repayments of the $50,000 term loan begin in June 2004 and are due quarterly thereafter at $250 per quarter. A final payment of $47,500 is required at maturity. In the near term, the Company must also fund pension plan contributions, with $2,300 payable in the second quarter and an aggregate of $6,000 payable during the third and fourth quarters of fiscal 2004. In the first quarter of fiscal 2004, the Company had capital expenditures of $5,436, and the Company believes that its remaining estimated capital budget of $14,564 is reasonable.

The Company believes that it has sufficient resources available under the Credit Agreement to meet its cash requirements through January 31, 2005, including capital expenditures, pension obligations and scheduled repayments of $11,125 in the aggregate under the Credit Agreement in accordance with the repayment terms. Furthermore, the Company does not anticipate at this time any change in business conditions or operations of the Company that could be deemed as a material adverse change by the agent bank or required lenders, as defined and thereby result in declaring borrowed amounts as immediately due and payable. The Company believes that continued emphasis on working capital management, including collection efforts applied to accounts receivable and achieving proper inventory levels will continue to contribute funds from operating activities.

14

Table of Contents

FORWARD-LOOKING STATEMENTS

The statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements. The forward-looking statements are made on the basis of management’s assumptions and estimations. As a result, there can be no guarantee or assurance that these assumptions and expectations will in fact occur. The forward-looking statements are subject to risks and uncertainties that may cause actual results to materially differ from those contained in the statements. Some, but not all of the risks, include the ability of the Company to accomplish its strategic objectives with respect to implementing its sustainable business model; the ability to obtain future sales; changes in worldwide economic and political conditions, including adverse effects from terrorism or related hostilities; costs related to legal and administrative matters; the Company’s ability to realize cost savings expected to offset price concessions; inefficiencies related to production and product launches that are greater than anticipated; changes in technology and technological risks; increased fuel costs; work stoppages and strikes at the Company’s facilities and that of the Company’s customers; the Company’s dependence on the automotive and heavy truck industries, which are highly cyclical; the dependence of the automotive industry on consumer spending, which is subject to the impact of domestic and international economic conditions and regulations and policies regarding international trade; financial and business downturns of the Company’s customers or vendors; 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; the occurrence of any event or condition that may be deemed a material adverse effect under the Credit Agreement; pension plan funding requirements; and other factors, uncertainties, challenges, and risks detailed in Shiloh’s other public filings with the Securities and Exchange Commission. 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 Quarterly Report on Form 10-Q. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.

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.

Item 3. 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.

Interest Rate Risk

The Company is exposed to market risk through variable rate debt instruments. As of January 31, 2004, the Company had $155.9 million outstanding under the Credit Agreement. Based on January 31, 2004 debt levels, a 0.5% annual change in interest rates would have impacted interest expense by approximately $0.2 million for the quarter ended January 31, 2004. The Company monitors its interest rate risk, but does not engage in any hedging activities using derivative financial instruments to mitigate such risk.

Foreign Currency Exchange Rate Risk

In order to reduce the impact of changes in foreign exchange rates on the consolidated results of operations, the Company enters into foreign currency contracts periodically. There were no foreign currency forward exchange contracts outstanding as of January 31, 2004. The intent of any contracts entered into by the Company is to reduce exposure to currency movements affecting foreign currency purchase commitments. Changes in the fair value of forward exchange contracts are recorded in the consolidated statements of operations. The Company’s risks related to commodity price and foreign currency exchange risks have historically not been material. The Company does not expect the effects of these risks to be material in the future based on current operating and economic conditions in the countries and markets in which it operates.

Item 4. Controls and Procedures

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. As of the

15

Table of Contents

end of the period covered by the Quarterly Report, an evaluation of the effectiveness of the Company’s disclosure controls and procedures was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective.

Subsequent to the date of their evaluation, there have been no significant changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

On January 7, 2004, the Company furnished a Current Report on Form 8-K under Item 12 regarding fourth quarter and fiscal year 2004 earnings release.

On January 30, 2004, the Company filed a Current Report on Form 8-K under Item 4 regarding a change in certifying accountant and dismissal of PricewaterhouseCoopers LLP.

On February 6, 2004, the Company filed a Current Report on Form 8-K under Item 4 regarding a change in certifying accountant and engagement of Deloitte & Touche LLP.

16

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: February 27, 2004

17

Table of Contents

EXHIBIT INDEX

18