SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 4, 2001 Commission File Number 1-9967
A M C A S T I N D U S T R I A L C O R P O R A T I O N
(Exact name of registrant as specified in its charter)
Ohio 31-0258080
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(State of Incorporation) (I.R.S. Employer
Identification No.)
7887 Washington Village Drive, Dayton, Ohio 45459
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(Address of principal executive offices) (Zip Code)
(937) 291-7000
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(Registrant's telephone number, including area code)
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(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 and 15(d) of the Securities Exchange Act of 1934
during the preceding twelve months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Number of Common Shares outstanding, no par value, as of March 4, 2001 -
8,416,484 shares.
AMCAST INDUSTRIAL CORPORATION
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 4, 2001
I N D E X
PART I - FINANCIAL INFORMATION PAGE
Item 1 - Financial Statements:
Consolidated Condensed Statements of Financial
Condition - March 4, 2001 and August 31, 2000 3
Consolidated Condensed Statements of Income -
for the Quarter and Six Months Ended March 4, 2001
and February 27, 2000. 4
Consolidated Condensed Statements of Retained Earnings -
for the Quarter and Six Months Ended March 4, 2001
and February 27, 2000. 4
Consolidated Condensed Statements of Cash Flows -
for the Six Months Ended March 4, 2001
and February 27, 2000. 5
Notes to Consolidated Condensed Financial Statements 6-13
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-19
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 20
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 20
Item 5 - Other Information 21
Item 6 - Exhibits and Reports on Form 8-K 21
SIGNATURES 22
PART I - FINANCIAL INFORMATION
AMCAST INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
($ in thousands)
(unaudited)
March 4 August 31
2001 2000
----------- ---------
ASSETS
Current Assets
Cash and cash equivalents $ 7,955 $ 3,062
Accounts receivable 79,280 85,041
Inventories 90,626 77,512
Other current assets 20,243 16,304
----------- ---------
Total Current Assets 198,104 181,919
Property, Plant, and Equipment 411,779 396,040
Less accumulated depreciation (183,522) (169,183)
----------- ---------
228,257 226,857
Goodwill 49,032 49,707
Other Assets 22,866 21,903
----------- ---------
$ 498,259 $ 480,386
=========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 12,586 $ 1,584
Current portion of long-term debt 174,106 3,044
Accounts payable 76,595 84,285
Accrued expenses 35,415 38,013
----------- ---------
Total Current Liabilities 298,702 126,926
Long-Term Debt - less current portion 2,457 147,273
Deferred Income Taxes 31,428 31,275
Deferred Liabilities 20,724 18,958
Shareholders' Equity
Preferred shares, without par value:
Authorized - 1,000,000 shares; Issued - None - -
Common shares, at stated value
Authorized - 15,000,000 shares
Issued - 9,227,600 shares 9,228 9,228
Capital in excess of stated value 70,981 70,981
Accumulated other comprehensive income (losses) (4,004) (1,900)
Retained earnings 78,258 87,287
Cost of 811,116 and 821,996
common shares in treasury (9,515) (9,642)
----------- ---------
144,948 155,954
----------- ---------
$ 498,259 $ 480,386
=========== =========
See notes to consolidated financial statements
AMCAST INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
AND RETAINED EARNINGS
($ in thousands except per share amounts)
(unaudited)
Three Months Ended Six Months Ended
-------------------------- -------------------------
March 4 February 27 March 4 February 27
2001 2000 2001 2000
----------- ----------- ----------- -----------
Consolidated Condensed Statements of Income
Net sales $ 122,966 $ 150,009 $ 260,910 $ 296,088
Cost of sales 112,998 131,378 234,654 259,146
----------- ----------- ----------- -----------
Gross Profit 9,968 18,631 26,256 36,942
Selling, general and administrative expenses 15,848 15,006 28,045 28,609
----------- ----------- ----------- -----------
Operating Income (Loss) (5,880) 3,625 (1,789) 8,333
Equity in (income) loss of joint venture
and other (income) and expense 855 (389) 1,610 (637)
Interest expense 3,321 3,547 6,520 6,370
----------- ----------- ----------- -----------
Income (Loss) before Income Taxes and
Cumulative Effect of Accounting Change (10,056) 467 (9,919) 2,600
Income taxes (3,319) 183 (3,264) 1,021
----------- ----------- ----------- -----------
Income (Loss) before Cumulative Effect
of Accounting Change (6,737) 284 (6,655) 1,579
Cumulative effect of accounting change, net of tax - - - 983
----------- ----------- ----------- -----------
Net Income (Loss) $ (6,737) $ 284 $ (6,655) $ 2,562
=========== =========== =========== ===========
Consolidated Condensed Statements of Retained Earnings
Beginning retained earnings $ 86,192 $ 88,815 $ 87,287 $ 87,796
Net income (loss) (6,737) 284 (6,655) 2,562
Dividends (1,178) (1,244) (2,355) (2,498)
Stock awards (19) - (19) (5)
----------- ----------- ----------- -----------
Ending Retained Earnings $ 78,258 $ 87,855 $ 78,258 $ 87,855
=========== =========== =========== ===========
Basic earnings per share
Income before cumulative effect of
accounting adjustment $ (0.80) $ 0.03 $ (0.79) $ 0.18
Cumulative effect of accounting adjustment - - - 0.10
----------- ----------- ----------- -----------
Net income (loss) $ (0.80) $ 0.03 $ (0.79) $ 0.28
=========== =========== =========== ===========
Diluted earnings per share
Income before cumulative effect of
accounting adjustment $ (0.80) $ 0.03 $ (0.79) $ 0.18
Cumulative effect of accounting adjustment - - - 0.10
----------- ----------- ----------- -----------
Net income (loss) $ (0.80) $ 0.03 $ (0.79) $ 0.28
=========== =========== =========== ===========
Dividends declared per share $ 0.14 $ 0.14 $ 0.14 $ 0.28
=========== =========== =========== ===========
Dividends paid per share $ 0.14 $ 0.14 $ 0.14 $ 0.28
=========== =========== =========== ===========
See notes to consolidated financial statements.
AMCAST INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ in thousands)
(unaudited)
Six Months Ended
---------------------------
March 4 February 27
2001 2000
----------- -----------
Operating Activities
Net income (loss) $ (6,655) $ 2,562
Depreciation and amortization 16,551 16,265
Non-cash charges 1,928
Cumulative effect of accounting change (983)
Deferred liabilities (1,481) (823)
Changes in assets and liabilities:
Accounts receivable 8,828 (24,056)
Inventories (12,479) (6,710)
Other current assets (6,826) 557
Accounts payable (8,150) (7,826)
Accrued liabilities (3,298) (1,720)
Other 1,873 (387)
----------- -----------
Net Cash Used by Operations (9,709) (23,121)
Investing Activities
Additions to property, plant, and equipment (12,863) (9,392)
Advance to joint venture (2,616)
Other 6 (130)
----------- -----------
Net Cash Used by Investing Activities (15,473) (9,522)
Financing Activities
Additions to long-term debt 107,752 33,885
Reduction in long-term debt (74,520) (8,548)
Short-term borrowings (630) 10,070
Proceeds from sale leaseback 2,877
Dividends (2,355) (2,498)
Purchase of treasury shares (1,255)
Other 198
----------- -----------
Net Cash Provided by Financing Ativities 30,247 34,729
Effect of exchange rate changes on cash (172) (174)
----------- -----------
Net change in cash and cash equivalents 4,893 1,912
Cash and cash equivalents at beginning of period 3,062 6,928
----------- -----------
Cash and Cash Equivalents at End of Period $ 7,955 $ 8,840
=========== ===========
See notes to consolidated financial statements
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Preparation of Financial Statements
The accompanying consolidated condensed financial statements include the
accounts of Amcast Industrial Corporation and its domestic and foreign
subsidiaries (the Company). Intercompany accounts and transactions have been
eliminated. The Company's investment in Casting Technology Company (CTC), a
joint venture, is included in the accompanying financial statements using the
equity method of accounting. The consolidated condensed financial statements are
unaudited and have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required for complete annual
financial statements and should be read in conjunction with the Company's
audited consolidated financial statements and footnotes for the year ended
August 31, 2000 included in the Company's Annual Report on Form 10-K. In the
opinion of management, all adjustments, consisting of only normally recurring
accruals, necessary for a fair presentation have been included.
Investment in Unconsolidated Affiliate
Summarized financial information for the Company's investment in CTC, accounted
for by the equity method, is as follows:
March 4 August 31
2001 2000
----------------- ---------------
Current assets $ 11,483 $ 11,651
Noncurrent assets 37,896 39,145
Current liabilities 36,673 28,626
Noncurrent liabilities - 10,060
Three Months Ended Six Months Ended
------------------------------------- ---------------------------------
March 4 February 27 March 4 February 27
2001 2000 2001 2000
----------------- --------------- --------------- --------------
Net sales $ 9,295 $ 12,269 $ 18,072 $25,647
Gross profit (loss) (249) 1,560 (470) 2,947
Net income (loss) (1,365) 137 (2,599) 684
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Accounting Change
During 2000, as a result of a new enterprise resource planning (ERP) system
implementation, the Company began capitalizing the cost of supplies and spare
parts inventories, whereas previously the cost of these manufacturing supplies
was expensed when purchased. Management believes this change is preferable in
that it provides for a more appropriate matching of revenues and expenses. The
total amount of inventory capitalized and reported as a cumulative effect of a
change in accounting principle, retroactive to September 1, 1999, was $983 net
of taxes of $602.
Accounting Standards Adopted
Effective September 1, 2000, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended by SFAS Nos. 137 and 138, which establishes a
comprehensive standard for the recognition and measurement of derivatives and
hedging activities. The new standard requires that all derivatives be recognized
as assets or liabilities in the statement of financial position and be measured
at fair value. Gains or losses resulting from changes in fair value are required
to be recognized in current earnings unless specific hedge criteria are met.
Special accounting allows for gains or losses on qualifying derivatives to
offset gains or losses on the hedged item in the statement of income and
requires formal documentation of the effectiveness of transactions that receive
hedge accounting. The adoption of this standard did not have a material effect
on the Company's consolidated results of operations, financial position, or cash
flows.
Comprehensive Income
Comprehensive income (losses) includes all changes in shareholders' equity
during a period except those resulting from investments by and distributions to
shareholders. The components of comprehensive income (losses) are:
Three Months Ended Six Months Ended
------------------------ --------------------------
March 4 February 27 March 4 February 27
2001 2000 2001 2000
----------- ----------- ----------- -----------
Net income (loss) $ (6,737) $ 284 $ (6,655) $ 2,562
Foreign currency
translation
adjustments 1,065 (4,268) (2,110) (1,945)
---------- ----------- ----------- -----------
$ (5,672) $ (3,984) $ (8,765) $ 617
========== =========== =========== ===========
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Inventories
The major components of inventories are:
March 4 August 31
2001 2000
----------- ---------
Finished products $ 50,795 $ 40,013
Work in process 23,712 23,932
Raw materials and supplies 21,213 18,661
----------- ---------
95,720 82,606
Less amount to reduce certain
inventories to LIFO value 5,094 5,094
----------- ---------
$ 90,626 $ 77,512
=========== =========
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Long-Term Debt
The following table summarizes the Company's long-term borrowings:
March 4 August 31
2001 2000
----------- -----------
Senior notes $ 50,000 $ 50,000
Revolving credit notes 116,363 77,510
Lines of credit 5,100 16,200
Other debt 2,985 3,388
Capital leases 2,115 3,219
----------- -----------
176,563 150,317
Less current portion 174,106 3,044
----------- -----------
$ 2,457 $147,273
=========== ===========
The Company maintains a credit agreement (the Agreement) that provides for up to
$150,000 in borrowings through August 2002. Debt covenants under the Agreement
require the Company to maintain certain debt-to-earnings and interest coverage
ratios. Due to operating losses incurred during the second quarter, at March 4,
2001, the Company was not in compliance with the debt-to-earnings and interest
coverage ratios under the Agreement. This has resulted in a covenant violation
in the Company's Private Placement Agreement (the Senior Notes)and the Casting
Technology Credit Agreement (the CTC Agreement) of which the Company has
guaranteed $14,832. The Company can no longer borrow under the Agreement and the
lenders now have a security interest in the assets of the U.S. subsidiaries and
certain stock of the foreign subsidiaries. The Company has received a proposal
from its lenders to provide additional borrowings under a temporary financing
arrangement that will include a waiver of the covenant violations; however, a
waiver has not been obtained as of April 18, 2001. As a result, the total
outstanding debt due under the Agreement and the Senior Notes in the amount of
$171,463 has been classified as a current liability in the balance sheet.
The Company is presently negotiating the terms of an agreement to provide
temporary financing (the Facility) through April 15, 2002. Among other things,
the Facility will require the Company to grant a first priority security
interest in the Company's U.S. assets including, all real property, accounts
receivable, inventory, machinery and equipment. Interest rates for borrowings
under the Facility are anticipated to be prime plus 4% and interest rates for
borrowings under the Agreement and Senior Notes are expected to increase to
prime plus 2%. The Company estimates that the associated fees related to
obtaining the Facility will be between $2,000 and $3,000. The Company expects
that the Facility will contain an appropriate waiver of the covenant violations
in the Agreement which will result in a resolution of the covenant violations in
the Senior Notes and the CTC Agreement. Based on current negotiations,
management believes that it will be able to obtain the Facility and related
waiver.
The Company has retained an investment-banking firm to assist the Company in
obtaining alternative long-term financing. Although there can be no assurances
that the Company will be successful, based on the Company's future outlook, its
existing assets, and the Company's ability to obtain financing in the past,
management believes that alternative long-term financing is available and
intends to have an agreement in place prior to April 15, 2002. If such financing
is not available, the Company may need to reevaluate its operating plans. If the
Company had been successful in negotiating alternative long-term financing as of
March 4, 2001, the current portion of long-term debt would have been $2,643.
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Earnings Per Share
The following table reflects the calculations for basic and diluted earnings per
share for the three- and six-month periods ended March 4, 2001 and February 27,
2000, respectively.
Three Months Ended Six Months Ended
------------------------- ------------------------
March 4 February 27 March 4 February 27
2001 2000 2001 2000
----------- ----------- ----------- -----------
Income (loss) before
cumulative effect of
accounting change $ (6,737) $ 284 $ (6,655) $ 1,579
=========== =========== =========== ==========
Net income (loss) $ (6,737) $ 284 $ (6,655) $ 2,562
=========== =========== =========== ===========
Basic Earnings per Share:
Basic shares 8,413 8,949 8,409 8,952
=========== =========== =========== ===========
Income (loss) before
cumulative effect of
accounting change $ (0.80) $ 0.03 $ (0.79) $ 0.18
=========== =========== =========== ===========
Net income (loss) $ (0.80) $ 0.03 $ (0.79) $ 0.28
=========== =========== =========== ===========
Diluted Earnings per Share:
Basic shares 8,413 8,949 8,409 8,952
Stock options 4 7 5 7
----------- ----------- ----------- -----------
Diluted shares 8,417 8,956 8,414 8,959
=========== =========== =========== ===========
Income (loss) before
cumulative effect of
accounting change $ (0.80) $ 0.03 $ (0.79) $ 0.18
=========== =========== =========== ===========
Net income (loss) $ (0.80) $ 0.03 $ (0.79) $ 0.28
=========== =========== =========== ===========
For each of the periods presented, there were outstanding stock options excluded
from the computation of diluted earnings per share because the options were
antidilutive.
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Business Segments
Operating segments are organized internally primarily by the type of products
produced and markets served. The Company has aggregated similar operating
segments into two reportable segments: Flow Control Products and Engineered
Components. The Company evaluates segment performance and allocates resources
based on several factors, of which net sales and operating income are the
primary financial measures. At March 4, 2001 there were no significant changes
in identifiable assets of reportable segments from the amounts disclosed at
August 31, 2000, nor were there any changes in the reportable segments, or in
the measurement of segment operating results.
Operating information related to the Company's reportable segments is as
follows:
Net Sales Operating Income (Loss)
-------------------------- --------------------------
For the Three Months Ended For the Three Months Ended
-------------------------- --------------------------
March 4 February 27 March 4 February 27
2001 2000 2001 2000
----------- ----------- ----------- -----------
Flow Control Products $ 33,178 $ 36,115 $ 2,897 $ 4,766
Engineered Components 89,788 113,894 (4,019) 1,548
Corporate - - (4,758) (2,689)
----------- ----------- ----------- -----------
122,966 150,009 (5,880) 3,625
Equity in joint venture
and other (income) expense - - 855 (389)
Interest expense - - 3,321 3,547
----------- ----------- ----------- -----------
Total net sales and income
(loss) before taxes $ 122,966 $ 150,009 $ (10,056) $ 467
=========== =========== =========== ===========
Net Sales Operating Income (Loss)
-------------------------- --------------------------
For the Six Months Ended For the Six Months Ended
-------------------------- --------------------------
March 4 February 27 March 4 February 27
2001 2000 2001 2000
----------- ----------- ----------- -----------
Flow Control Products $ 66,137 $ 71,484 $ 7,382 $ 10,780
Engineered Components 194,773 224,604 (2,755) 2,182
Corporate - - (6,416) (4,629)
----------- ----------- ----------- -----------
260,910 296,088 (1,789) 8,333
Equity in joint venture
and other (income) expense - - 1,610 (637)
Interest expense - - 6,520 6,370
----------- ----------- ----------- -----------
Total net sales and income
(loss) before taxes $ 260,910 $ 296,088 $ (9,919) $ 2,600
=========== =========== =========== ===========
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Commitments and Contingencies
At March 4, 2001, the Company has committed to capital expenditures of $12,713,
primarily for the Engineered Components segment.
The Company, as is normal for the industry in which it operates, is involved in
certain legal proceedings and subject to certain claims and site investigations
which arise under the environmental laws and which have not been finally
adjudicated.
The Company has been identified as a potentially responsible party by various
state agencies and by the United States Environmental Protection Agency (U.S.
EPA) under the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended, for costs associated with U.S. EPA led multi-party
sites and state environmental agency-led remediation sites. The majority of
these claims involve third-party owned disposal sites for which compensation is
sought from the Company as an alleged waste generator for recovery of past
governmental costs or for future investigation or remedial actions at the
multi-party sites. There are four Company-owned properties where state or
federal-supervised cleanups are expected. The designation as a potentially
responsible party and the assertion of such claims against the Company are made
without taking into consideration the extent of the Company's involvement with
the particular site. In each instance, claims have been asserted against a
number of other entities for the same recovery or other relief as was asserted
against the Company. These claims are in various stages of administrative or
judicial proceeding. The Company has no reason to believe that it will have to
pay a significantly disproportionate share of clean-up costs associated with any
site. To the extent possible, with the information available at the time, the
Company has evaluated its responsibility for costs and related liability with
respect to the above sites. In making such evaluation, the Company did not take
into consideration any possible cost reimbursement claims against its insurance
carriers. The Company is of the opinion that its liability with respect to those
sites should not have a material adverse effect on its financial position or
results of operations. In arriving at this conclusion, the principal factors
considered by the Company were ongoing settlement discussions with respect to
certain of the sites, the volume and relative toxicity of waste alleged to have
been disposed of by the Company at certain sites, which factors are often used
to allocate investigative and remedial costs among potentially responsible
parties, the probable costs to be paid by other potentially responsible parties,
total projected remedial costs for a site, if known, and the Company's existing
reserve to cover costs associated with unresolved environmental proceedings. At
March 4, 2001, the Company's accrued undiscounted reserve for such contingencies
was $2,170.
Based upon the contracts and agreements with regards to two environmental
matters, the Company believes it is entitled to indemnity for remediation costs
at two sites and believes it is probable that the Company can recover a
substantial portion of the costs. Accordingly, the Company has recorded
receivables of $1,115 at March 4, 2001 related to anticipated recoveries from
third parties.
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Allied-Signal Inc. (now Honeywell) brought an action against the Company seeking
a contribution from the Company equal to 50% of Honeywell's estimated $30,000
remediation cost in connection with a site in southern Ohio. The Company
believes its responsibility with respect to this site is very limited due to the
nature of the foundry sand waste it disposed of at the site. The court has
rendered its decision on this case; however, the exact amount of the verdict has
not yet been determined by the court. The amount will be significantly less than
the amount sought by the plaintiff and the Company estimates its liability
associated with the action to be between $500 and $1,500. The Company believes
its liability is at the low end of this range.
Increasingly, major automotive industry companies are withholding partial
payment for goods received. Often, this is a negotiating tactic for costs
incurred by the customer in which the customer believes that the supplier should
participate. Generally, payment is received, however, only after a significant
time period has passed. At March 4, 2001, the Company has $2,037 and CTC has
$1,926 of accounts receivable being withheld pending final resolution of various
issues. The Company or CTC have not recorded a reserve against such receivables.
The amount of any needed reserve cannot be determined at this time.
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
($ in millions, except per share amounts)
Cautionary Statements Under the Private Securities Reform Act of 1995
Certain statements in this Report, in the Company's press releases and in oral
statements made by or with the approval of an authorized executive officer of
the Company constitute "forward-looking statements" as that term is defined
under the Private Securities Litigation Reform Act of 1995. These may include
statements projecting, forecasting or estimating Company performance and
industry trends. The achievement of the projections, forecasts or estimates is
subject to certain risks and uncertainties. Actual results and events may differ
materially from those projected, forecasted or estimated. Factors which may
cause actual results to differ materially from those contemplated by the
forward-looking statement, include, among others: general economic conditions
less favorable than expected, fluctuating demand in the automotive industry,
less favorable than expected growth in sales and profit margins in the Company's
product lines, increased competitive pressures in the Company's Engineered
Components and Flow Control Products segments, effectiveness of production
improvement plans, cost of raw materials, inherent uncertainties in connection
with international operations and foreign currency fluctuations and labor
relations at the Company and its customers. The following discussion and
analysis provides information which management believes is relevant to an
understanding of the Company's consolidated results of operations and financial
condition. This discussion should be read in conjunction with the accompanying
consolidated condensed financial statements and notes thereto.
Results of Operations
Consolidated net sales decreased by 18.0% to $123.0 million in the second
quarter of fiscal 2001 compared with $150.0 million in the second quarter of
fiscal 2000. The following table shows the components of the decrease in
consolidated net sales:
Volume (10.8%)
Price and product mix (3.5%)
Foreign currency exchange rates (3.7%)
------------
(18.0%)
============
Declining automotive production in North America, auto manufacturers' new model
launch delays in Europe, and competitive market pricing had a negative impact on
the Company's financial results. In the second quarter, the Company faced weak
market demand in the automotive industry and slowness in construction markets
that combined to depress sales volume. Unfavorable pricing and product mix
primarily reflects the continuation of competitive market pricing issues
encountered by the Flow Control business. A weaker Italian lira also caused a
decrease in sales. By segment, Engineered Components sales decreased by 21.2%
compared with the second quarter of fiscal 2000, while Flow Control Products
sales decreased by 8.0%.
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
($ in millions, except per share amounts)
For the first half of fiscal 2001, consolidated net sales decreased by 11.9% to
$260.9 million compared with $296.1 million in the first half of fiscal 2000.
The following table shows the components of the decrease in consolidated net
sales.
Volume (7.5%)
Price and product mix 0.1%
Foreign currency exchange rates (4.5%)
------------
(11.9%)
============
While demand for the Company's copper plumbing fittings and North American
automotive products remained near prior-year levels in the first quarter of
fiscal 2001, declining automotive production in North America, auto
manufacturer's new model launch delays in Europe, and competitive market pricing
in the second quarter had a negative impact on the Company's financial results
for the first half of fiscal 2001. In the second quarter, the Company faced weak
market demand in the automotive industry and slowness in construction markets
that combined to depress sales. The unfavorable pricing encountered in the
second quarter by the Flow Control Products segment negated the favorable impact
in the first quarter from a better product mix, primarily at the Company's
European operations, and higher aluminum costs reflected in the sales price of
automotive products. A weaker Italian lira also caused a decrease in
year-to-date sales. By segment, Engineered Components sales decreased by 13.3%
compared with the first half of fiscal 2000, while Flow Control Products sales
decreased by 7.5%.
Gross profit for the second quarter of fiscal 2001 decreased by 46.5% to $10.0
million, while gross profit for the first half of fiscal 2001 fell by 28.9% to
$26.3 million. As a percentage of sales, gross profit was 8.1% for the second
quarter and 10.1% for the first half of fiscal 2001 compared with 12.9% and
12.8% for the same periods of 2000. In the Flow Control Products segment,
pricing issues were the primary reason for the decrease in gross profit while
significantly lower sales volume and a weaker Italian lira led to the decrease
in gross profit in the Engineered Components segment. Gross profit of businesses
in both segments also suffered from increased energy surcharges.
Selling, general and administrative (SG&A) expense increased, both in total
dollars and as a percentage of sales, in the second quarter of fiscal 2001. As a
percentage of sales, SG&A expense was 12.9% and 10.0% in the second quarter of
fiscal 2001 and fiscal 2000, respectively. Unusually high expenditures for legal
and other professional fees were recorded in the second quarter in conjunction
with the Company's recently concluded review of strategic alternatives. In
addition, the Company recorded non-cash charges of $1.9 million for certain
expenses related to the recently announced management change, to increase the
reserve for medical benefits and workers compensation related to previously
closed facilities, and to increase environmental reserves. This increase in SG&A
expense was partly offset by reduced salary and benefit costs which was the
result of a salaried workforce reduction implemented in the second half of
fiscal 2000. There was also a favorable SG&A impact due to a net pension benefit
and lower goodwill amortization from the Speedline acquisition.
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
($ in millions, except per share amounts)
The Company's pretax share of losses from Casting Technology Company (CTC), the
Company's joint venture with Izumi Industries, was $0.7 million in the second
quarter of fiscal 2001, compared with income of $0.3 million in the second
quarter of fiscal 2000. The Company's pretax share of losses from CTC was $1.6
million in the first half of fiscal 2001, compared with income of $0.4 million
for the same period of fiscal 2000. CTC's results had been severely impacted by
a customer's extraordinarily high, temporary demand in the second half of fiscal
2000. CTC was pushed beyond capacity and incurred higher costs associated with
operating in excess of capacity to meet the customer's demand. After the demand
and capacity issues subsided, there were some carryover effects in the form of
higher costs and manufacturing inefficiencies in the first quarter of fiscal
2001. In the second quarter of fiscal 2001, manufacturing inefficiencies
produced operating losses.
Interest expense was $3.3 million and $6.5 million for the second quarter and
first half of fiscal 2001, compared with $3.5 million and $6.4 million for the
same periods of fiscal 2000.
The effective tax rate was 33.0% and 32.9% for the second quarter and first half
of fiscal 2001, respectively, compared with 39.3% for the same periods of fiscal
2000. The effective tax rates for 2001 reflect an increase to the provision for
Italian taxes.
During 2000, as a result of a new enterprise resource planning (ERP) system
implementation, the Company began capitalizing the cost of supplies and spare
parts inventories, whereas previously the cost of these manufacturing supplies
was expensed when purchased. Management believes this change is preferable in
that it provides for a more appropriate matching of revenues and expenses. The
total amount of inventory capitalized and reported as a cumulative effect of a
change in accounting principle, retroactive to September 1, 1999, was $1.0
million net of taxes of $0.6 million.
Consolidated financial results for the third quarter of fiscal 2001 also are
expected to show a loss, but one of lesser magnitude. The U.S. automotive
industry is experiencing a major downturn in production that shows few signs of
abating soon. The Company has reduced the automotive workforce by 25% and will
be aggressively reducing inventory levels over the next few months. These
actions will negatively impact operating performance in the second half of
fiscal 2001, but will strengthen the Company's balance sheet. A Company-wide
cost-reduction program aims to significantly lessen spending rates and variable
costs for the balance of fiscal 2001.
Flow Control Products Net sales for the Flow Control Products segment were $33.2
million for the second quarter of fiscal 2001, compared with $36.1 million for
the same period of fiscal 2000. Flow Control products, primarily copper and
brass plumbing items, which mainly service plumbing wholesalers and mass
merchandisers, experienced strong competitive market pricing. Combined with a
slightly unfavorable product mix, these two factors reduced sales by 12.4%. This
decrease was partly offset by a 4.4% increase in sales from higher volume.
Operating income in the second quarter of fiscal 2001 was $2.9 million, compared
with $4.8 million for the same period of fiscal 2000. The impact of the
competitive market pricing issues previously discussed significantly reduced
operating profit; however, the effect was partly offset by lower manufacturing
and administrative spending and improved plant efficiencies.
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
($ in millions, except per share amounts)
Engineered Components Net sales for the Engineered Components segment were $89.8
million for the second quarter of fiscal 2001 compared with $113.9 million for
the same period of fiscal 2000. Sales decreased by 15.6% due to a drop in
volume, particularly at the Company's North American operations where the
Company is coping with a major downturn in U.S. automotive production. Sales
declined slightly (0.7%) as a result of unfavorable pricing and product mix. A
weaker Italian lira in the second quarter of fiscal 2001 compared with the same
period in fiscal 2000 further reduced sales by 4.9%. The weak demand had a
severe impact on this segment as operating income decreased to a loss of $4.0
million compared with income of $1.5 million in the second quarter of 2000.
Liquidity and Capital Resources
For the first half of fiscal 2001, cash used for operations was $9.7 million
compared with $23.1 million used in the first half of fiscal 2000. The non-cash
benefit of depreciation, amortization, and other non-cash charges was more than
offset by the net loss in fiscal 2001 and a $20.1 million increase in working
capital requirements. The working capital increase primarily reflects the
combination of an increase in inventory levels and other current assets and a
reduction from the high level of open accounts payable at August 31, 2000,
partly offset by a decrease in accounts receivable. The $1.5 million decrease in
deferred liabilities primarily represents cash payments plus non-cash changes in
deferred taxes.
Investing activities used cash of $15.5 million in the first half of fiscal 2001
compared with $9.5 million used in the first half of fiscal 2000. Capital
spending of $12.9 million was higher than the $9.4 million spent in the prior
year, primarily reflecting spending to produce future new products that have
been awarded. At March 4, 2001, the Company had $12.7 million of commitments for
additional capital expenditures, primarily for the Engineered Components
segment. During the second quarter of fiscal 2001, the Company also advanced
$2.6 million to CTC.
Financing activities provided $30.2 million in cash in the first half of fiscal
2001, compared with $34.7 million in the first half of fiscal 2000. Additional
financing included a net increase of $33.2 million of long-term borrowings under
the Company's revolving credit agreement. Financing activities also included
dividend payments of $2.4 million. Due to financial losses, it is unlikely that
the Company will be in a position to declare any future cash dividends for at
least the remainder of fiscal 2001. Total debt was 56.6 % of total capital at
March 4, 2001, compared with 49.3% at August 31, 2000.
Speedline also has short-term lines of credit of approximately $25.9 million, of
which $13.3 million was available at January 31, 2001. The Company maintains a
credit agreement (the Agreement) that provides for up to $150 million in
borrowings through August 2002. Debt covenants under the Agreement require the
Company to maintain certain debt-to-earnings and interest coverage ratios. Due
to operating losses incurred during the second quarter, at March 4, 2001, the
Company was not in compliance with the debt-to-earnings and interest coverage
ratios under the
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
($ in millions, except per share amounts)
Agreement. This has resulted in a covenant violation in the Company's Private
Placement Agreement (the Senior Notes) and the Casting Technology Credit
Agreement (the CTC Agreement) of which the Company has guaranteed $14.8 million.
The Company can no longer borrow under the Agreement and the lenders now have a
security interest in the assets of the U.S. subsidiaries and certain stock of
the foreign subsidiaries. The Company has received a proposal from its lenders
to provide additional borrowings under a temporary financing arrangement that
will include a waiver of the covenant violations; however, a waiver has not been
obtained as of April 18, 2001. As a result, the total outstanding debt due under
the Agreement and the Senior Notes in the amount of $171.5 million has been
classified as a current liability in the balance sheet.
The Company is presently negotiating the terms of an agreement to provide
temporary financing (the Facility) through April 15, 2002. Among other things,
the Facility will require the Company to grant a first priority security
interest in the Company's U.S. assets, including, all real property, accounts
receivable, inventory, machinery and equipment. Interest rates for borrowings
under the Facility are anticipated to be prime plus 4% and interest rates for
borrowings under the Agreement and Senior Notes are expected to increase to
prime plus 2%. The Company estimates that the associated fees related to
obtaining the Facility will be between $2.0 and $3.0 million. The Company
expects that the Facility will contain an appropriate waiver of the covenant
violations in the Senior Notes and the CTC Agreement. Based on current
negotiations, management believes that it will be able to obtain the Facility
and related waiver.
The Company has retained an investment-banking firm to assist the Company in
obtaining alternative long-term financing. Although there can be no assurances
that the Company will be successful, based on the Company's future outlook, its
existing assets, and the Company's ability to obtain financing in the past,
management believes that alternative long-term financing is available and
intends to have an agreement in place prior to April 15, 2002. If such financing
is not available, the Company may need to reevaluate its operating plans. If the
Company had been successful in negotiating alternative long-term financing as of
March 4, 2001, the current portion of debt would have been $2.6 million.
The Company believes that with the effective management of its working capital
resources, with the funds expected to be generated from operations, and with the
ability to obtain temporary financing, the Company will meet its short-term
operating needs. However, the Company must obtain alternative long-term
financing to adequately fund its long-term capital needs and pursue attractive
growth prospects.
Contingencies
The Company, as is normal for the industry in which it operates, is involved in
certain legal proceedings and subject to certain claims and site investigations
that arise under the environmental laws and which have not been finally
adjudicated. To the extent possible, with the information available, the Company
regularly evaluates its responsibility with respect to environmental
proceedings. The factors considered in this evaluation are more fully described
in the Commitments and Contingencies note to the consolidated condensed
financial statements. At March 4, 2001, the Company's accrued undiscounted
reserve for environmental liabilities was $2.2 million.
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
($ in millions, except per share amounts)
Based upon the contracts and agreements with regards to two environmental
matters, the Company believes it is entitled to indemnity for remediation costs
at two sites and believes it is probable that the Company can recover a
substantial portion of the costs. Accordingly, the Company has recorded
receivables of $1.1 million at March 4, 2001 related to anticipated recoveries
from third parties. The Company is of the opinion that, in light of its existing
reserves, its liability in connection with environmental proceedings should not
have a material adverse effect on its financial condition or results of
operation. The Company is presently unaware of the existence of any potential
material environmental costs that are likely to occur in connection with the
disposition of any of its property.
Increasingly, major automotive industry companies are withholding partial
payment for goods received. Often, this is a negotiating tactic for costs
incurred by the customer in which the customer believes that the supplier should
participate. Generally, payment is received, however, only after a significant
time period has passed. At March 4, 2001, the Company has $ 2.0 million and CTC
has $1.9 million of accounts receivable being withheld pending final resolution
of various issues. The Company or CTC have not recorded a reserve against these
receivables. The amount of any needed reserve cannot be determined at this time.
Impact of Recently Issued Accounting Standards
Effective September 1, 2000, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended by SFAS Nos. 137 and 138, which establishes a
comprehensive standard for the recognition and measurement of derivatives and
hedging activities. The new standard requires that all derivatives be recognized
as assets or liabilities in the statement of financial position and be measured
at fair value. Gains or losses resulting from changes in fair value are required
to be recognized in current earnings unless specific hedge criteria are met.
Special accounting allows for gains or losses on qualifying derivatives to
offset gains or losses on the hedged item in the statement of income and
requires formal documentation of the effectiveness of transactions that receive
hedge accounting. The adoption of this standard did not have a material effect
on the Company's consolidated results of operations, financial position, or cash
flows.
AMCAST INDUSTRIAL CORPORATION
Item 3 Quantitative and Qualitative Disclosures About Market Risk
- -----------------------------------------------------------------
The Company is exposed to market risk from changes in foreign currency exchange
rates and interest rates as part of its normal operations. There have been no
material changes in the Company's exposure to these items since the Company's
disclosure in Item 7A, Part II of Form 10-K for the year ended August 31, 2000.
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
a) The annual meeting of shareholders of Amcast Industrial Corporation was held
on December 20, 2000.
b) At the annual meeting, shareholders voted on and approved two proposals and
defeated one proposal. Those proposals are stated below, together with
information concerning the votes cast.
1. Election of three directors to serve for a term of three years. Directors
elected were Peter H. Forster, Leo W. Ladehoff, and Bernard G. Rethore.
Peter H. Leo W. Bernard G.
Forster Ladehoff Rethore
--------- --------- ----------
Shares For 6,708,672 6,683,682 6,709,955
Shares Withheld 908,264 933,254 906,981
--------- --------- ----------
Total 7,616,936 7,616,936 7,616,936
Directors continuing in office until the 2001 annual meeting include Walter E.
Blankley, William G. Roth, and Byron O. Pond, Jr. Directors continuing in office
until the 2002 annual meeting include James K. Baker and R. William Van Sant.
2. Ratification of the appointment of Ernst & Young LLP as independent auditors
of the Company for the fiscal year ending August 31, 2001.
Shares For 7,500,157
Shares Against 69,408
Shares Abstain 47,371
---------
Total 7,616,936
3. Defeat of shareholder proposal to urge the Amcast Industrial Corporation
Board of Directors to arrange for the prompt sale of the Company to the highest
bidder.
Shares For 1,444,673
Shares Against 4,532,396
Shares Abstain 117,607
---------
Total 6,094,676
AMCAST INDUSTRIAL CORPORATION
Item 5 - Other Information
- --------------------------
On April 3, 2001, the Company accepted the resignation of Douglas D. Watts, Vice
President, Finance. Francis J. Drew was named Vice President, Finance and Chief
Financial Officer.
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
a) Exhibits
10.1 Executive Employment Agreement between Amcast Industrial Corporation and
Byron Pond, effective February 15, 2001.
10.2 Consulting Agreement between Amcast Industrial Corporation and Leo W.
Ladehoff, effective February 15, 2001.
b) Reports on Form 8-K:
A Current Report on Form 8-K with an event date of February 14, 2001 was filed
by the Company on February 15, 2001 to report the resignation of John H. Shuey,
the Company's Chairman, President, and Chief Executive Officer. Leo W. Ladehoff,
who served as Chairman, President, and CEO of the Company from 1978 to 1995 was
elected non-executive Chairman. Byron O. Pond, Jr., retired Chairman and CEO of
Arvin Industries, was named President and CEO of the Company.
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMCAST INDUSTRIAL CORPORATION
-----------------------------
(Registrant Company)
Date: April 18, 2001 By: /S/ Byron O. Pond Jr.
-------------- --------------------------------
Byron O. Pond Jr.
President and Chief Executive Officer
(Principal Executive Officer)
Date: April 18, 2001 By: /S/ Francis J. Drew
-------------- ---------------------------------
Francis J. Drew
Vice President, Finance and Chief Financial
Officer
(Principal Financial Officer)
Date: April 18, 2001 By: /S/ Mark D. Mishler
-------------- ---------------------------------
Mark D. Mishler
Corporate Controller
(Principal Accounting Officer)