SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
---
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 2, 2002 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
- --------------------------------- -----------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
7887 Washington Village Drive, Dayton, Ohio 45459
- ---------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(937) 291-7000
---------------------------------------------------------------
(Registrant's telephone number, including area code)
- ---------------------------------------------------------------------------
(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
----- ----
Number of Common Shares outstanding, no par value, as of June 2, 2002 -
8,619,460 shares.
AMCAST INDUSTRIAL CORPORATION
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 2, 2002
I N D E X
PART I - FINANCIAL INFORMATION PAGE
-----
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheets - June 2, 2002 3
and August 31, 2001
Consolidated Condensed Statements of Operations - 4
for the Quarter and Nine Months Ended June 2, 2002
and June 3, 2001
Consolidated Condensed Statements of Retained Earnings - 4
for the Quarter and Nine Months Ended June 2, 2002
and June 3, 2001
Consolidated Condensed Statements of Cash Flows - 5
for the Nine Months Ended June 2, 2002
and June 3, 2001
Notes to Consolidated Condensed Financial Statements 6-12
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-20
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 21
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 22
Item 5 - Other Information 22
Item 6 - Exhibits and Reports on Form 8-K 22-23
SIGNATURES 24
2
PART I - FINANCIAL INFORMATION
AMCAST INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
($ in thousands)
(Unaudited)
June 2 August 31
2002 2001
--------- ---------
ASSETS
Current Assets
Cash and cash equivalents $ 4,455 $ 14,981
Accounts receivable 77,040 64,408
Inventories 47,483 58,193
Other current assets 9,603 13,846
--------- ---------
Total Current Assets 138,581 151,428
Property, Plant, and Equipment 455,951 445,440
Less accumulated depreciation (221,386) (203,148)
--------- ---------
Net Property, Plant, and Equipment 234,565 242,292
Goodwill 47,341 48,353
Other Assets 20,956 16,617
--------- ---------
Total Assets $ 441,443 $ 458,690
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 7,998 $ 7,311
Current portion of long-term debt 17,365 21,383
Accounts payable 72,842 66,032
Accrued expenses 41,720 38,014
--------- ---------
Total Current Liabilities 139,925 132,740
Long-Term Debt (less current portion) 160,372 170,296
Deferred Income Taxes 14,747 15,272
Deferred Liabilities 22,906 24,870
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 72,419 72,419
Accumulated other comprehensive losses (6,174) (5,903)
Retained earnings 35,154 47,403
Cost of 608,140 and 650,860 common shares in treasury (7,134) (7,635)
--------- ---------
Total Shareholders' Equity 103,493 115,512
--------- ---------
Total Liabilities and Shareholders' Equity $ 441,443 $ 458,690
========= =========
See notes to consolidated financial statements
3
AMCAST INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
($ in thousands except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
June 2 June 3 June 2 June 3
2002 2001 2002 2001
--------- --------- --------- ---------
Consolidated Condensed Statements of Operations
Net Sales $151,423 $136,158 $423,592 $397,068
Cost of sales 135,127 130,074 385,724 364,728
--------- --------- --------- ---------
Gross Profit 16,296 6,084 37,868 32,340
Selling, general and administrative expenses 13,436 24,374 40,805 52,419
--------- --------- --------- ---------
Operating Income (Loss) 2,860 (18,290) (2,937) (20,079)
Other (income) expense 166 972 (825) 2,582
Interest expense 4,227 4,601 13,212 11,121
--------- --------- --------- ---------
Loss Before Income Taxes (1,533) (23,863) (15,324) (33,782)
Income tax expense (benefit) 37 (4,620) (3,349) (7,884)
--------- --------- --------- ---------
Net Loss $ (1,570) $(19,243) $(11,975) $(25,898)
========= ========= ========= =========
Consolidated Condensed Statements of Retained Earnings
Beginning Retained Earnings $ 36,903 $ 78,258 $ 47,403 $ 87,287
Net loss (1,570) (19,243) (11,975) (25,898)
Dividends - - - (2,355)
Treasury shares issued
401(k) matching contributions (179) - (179) -
Stock awards - (388) (95) (407)
-------- -------- -------- --------
Ending Retained Earnings $ 35,154 $ 58,627 $ 35,154 $ 58,627
========= ========= ========= =========
Basic Loss Per Share $ (0.18) $ (2.25) $ (1.39) $ (3.06)
========= ========= ========= =========
Diluted Loss Per Share $ (0.18) $ (2.25) $ (1.39) $ (3.06)
========= ========= ========= =========
Dividends Declared Per Share $ - $ - $ - $ 0.28
========= ========= ========= =========
Dividends Paid Per Share $ - $ - $ - $ 0.28
========= ========= ========= =========
See notes to consolidated financial statements
4
AMCAST INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
Nine Months Ended
-------------------------
June 2 June 3
2002 2001
--------- ---------
Operating Activities
Net loss $(11,975) $(25,898)
Depreciation and amortization 25,745 24,833
Deferred liabilities (2,922) (2,335)
Changes in assets and liabilities
Accounts receivable (12,652) 5,675
Inventories 11,537 11,864
Other current assets 4,940 (7,403)
Accounts payable 5,583 (24,889)
Accrued liabilities 3,378 2,475
Other (2,103) 6,024
--------- ---------
Net Cash Provided (Used) by Operations 21,531 (9,654)
Investing Activities
Additions of property, plant, and equipment (16,253) (17,309)
Other (25) (2,273)
--------- ---------
Net Cash Used by Investing Activities (16,278) (19,582)
Financing Activities
Additions to long-term debt 3,254 108,570
Reduction in long-term debt (18,305) (75,437)
Short-term borrowings 408 6,431
Dividends - (2,355)
Sale (Purchase) of treasury shares - 1,500
Other - (70)
--------- ---------
Net Cash (Used) Provided by Financing Activities (14,643) 38,639
Effect of exchange rate changes on cash (1,136) (867)
--------- ---------
Net change in cash and cash equivalents (10,526) 8,536
Cash and cash equivalents at beginning of period 14,981 3,062
--------- ---------
Cash and Cash Equivalents at End of Period $ 4,455 $ 11,598
========= =========
See notes to consolidated financial statements
5
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Nature of Operations
Amcast Industrial Corporation is a leading manufacturer of technology-intensive
metal products. Its two business segments are Flow Control Products, a leading
supplier of copper and brass fittings for the industrial, commercial, and
residential construction markets, and Engineered Components, a leading supplier
of aluminum wheels and aluminum components for automotive original equipment
manufacturers in North America as well as a leading supplier of light-alloy
wheels for automotive original equipment manufacturers and aftermarket
applications in Europe.
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. For the first nine months of fiscal 2001, the Company's investment
in Casting Technology Company (CTC), a joint venture, was included in the
accompanying consolidated financial statements by the equity method of
accounting. On June 5, 2001, the Company acquired its minority partner's 40%
share of CTC, bringing the Company's ownership in CTC to 100%. Accordingly,
CTC's financial results are consolidated within the Company's statements of
operations, balance sheets, and statements of cash flows for periods subsequent
to June 5, 2001. Prior periods were not restated.
Summarized financial information as of June 3, 2001 and for the quarter and nine
months ended June 3, 2001 for CTC, which was accounted for as an investment on
Amcast's books, is as follows:
June 3, 2001
June 3 -------------------------
2001 Three Months Nine Months
-------- Ended Ended
Current assets $ 9,034 ------------ ----------
Noncurrent assets 36,781 Net sales $ 8,298 $ 26,370
Current liabilities 24,640 Gross profit (loss) (152) (622)
Noncurrent liabilities 11,070 Net profit (loss) (2,599) (5,198)
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, 2001 included in the Company's Annual
Report on Form 10-K. In the opinion of management, all adjustments, including
normally recurring accruals, necessary for a fair presentation have been
included, however interim financial reporting requires management to make
estimates and assumptions that affect amounts reported. Actual results could
differ from those estimates.
6
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Comprehensive Income (Loss)
Comprehensive income (loss) includes all changes in shareholders' equity during
a period except those resulting from investments by and distributions to
shareholders. The components of comprehensive income (loss) are:
Three Months Ended Nine Months Ended
------------------ ------------------
June 2 June 3 June 2 June 3
2002 2001 2002 2001
--------- --------- --------- ---------
Net income (loss) $(1,570) $(19,243) $(11,975) $(25,898)
Foreign currency translation
adjustments 165 3,868 (271) 1,758
--------- --------- --------- ---------
Total comprehensive income (loss) $(1,405) $(15,375) $(12,246) $(24,140)
========= ========= ========= =========
Inventories
The major components of inventories are:
June 2 August 31
2002 2001
--------- ---------
Finished products $ 22,130 $ 30,470
Work in process 12,481 13,952
Raw materials and supplies 16,569 17,468
--------- ---------
Total inventory before LIFO adjustment 51,180 61,890
Less amount to reduce certain
inventories to LIFO value (3,697) (3,697)
--------- ---------
Total inventory $ 47,483 $ 58,193
========= =========
7
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Property, Plant, and Equipment
The major components of property, plant, and equipment are as follows:
June 2 August 31
2002 2001
----------- -----------
Land and buildings $ 79,225 $ 76,718
Machinery and equipment 364,645 342,918
Construction in progress 12,081 25,804
----------- -----------
455,951 445,440
Accumulated depreciation (221,386) (203,148)
----------- -----------
Net property, plant, and equipment $ 234,565 $ 242,292
=========== ===========
Depreciation expense was $8,122 and $7,781 for the three month periods ended
June 2, 2002 and June 3, 2001, respectively, and $24,420 and $23,338 for the
nine month periods ended June 2, 2002 and June 3, 2001, respectively.
Long-Term Debt
The following table summarizes the Company's long-term borrowings:
June 2 August 31
2002 2001
--------- ---------
Senior notes $ 46,762 $ 50,000
Revolving credit notes 107,869 114,978
Lines of credit 13,149 14,200
Other debt 9,762 11,492
Capital leases 195 1,009
--------- ---------
Total long-term debt 177,737 191,679
Current portion of long-term debt (17,365) (21,383)
--------- ---------
Total long-term debt less current portion $160,372 $170,296
========= =========
8
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Postretirement Benefits
Effective June 1, 2002, the Company amended its postretirement benefit plans and
terminated postretirement life insurance for all retirees except for those under
contractual agreements. This amendment decreased the Company's postretirement
obligation by $919.
Earnings (Loss) Per Share
The following table reflects the calculations for basic and diluted earnings per
share for the three-month and nine-month periods ended June 2, 2002 and June 3,
2001, respectively:
Three Months Ended Nine Months Ended
---------------------- ----------------------
June 2 June 3 June 2 June 3
2002 2001 2002 2001
--------- --------- --------- ---------
Net income (loss) $ (1,570) $(19,243) $(11,975) $(25,898)
========= ========= ========= =========
Basic Earnings per Share:
Basic shares 8,601 8,536 8,588 8,451
========= ========= ========= =========
Net income (loss) $ (0.18) $ (2.25) $ (1.39) $ (3.06)
========= ========= ========= =========
Diluted Earnings per Share:
Basic shares 8,601 8,536 8,588 8,451
Stock options - - - -
Stock warrants - - - -
--------- --------- --------- ---------
Diluted shares 8,601 8,536 8,588 8,451
========= ========= ========= =========
Net income (loss) $ (0.18) $ (2.25) $ (1.39) $ (3.06)
========= ========= ========= =========
For each of the periods presented, there were outstanding stock options and
stock warrants excluded from the computation of diluted earnings per share
because these items were antidilutive.
9
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, and in accordance with SFAS No. 131. The Company
has 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. During the 2001 fiscal fourth quarter, the Company
revaluated the composition of the reportable segments and reclassified one
business unit from Engineered Components to Flow Control Products. The
presentation of fiscal 2001 segment information, including the three and nine
month periods ended June 3, 2001, was restated to conform with this change. At
June 2, 2002 there were no significant changes in identifiable assets of
reportable segments from those amounts disclosed at August 31, 2001, 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 For the Three
Months Ended Months Ended
------------------- -----------------------
June 2 June 3 June 2 June 3
2002 2001 2002 2001
--------- --------- --------- ---------
Flow Control Products $ 37,373 $ 39,294 $ 2,542 $ (3,309)
Engineered Components 114,050 96,864 1,264 (8,490)
Corporate - - (946) (6,491)
--------- --------- --------- ---------
151,423 136,158 2,860 (18,290)
Other (income) expense - - 166 972
Interest expense - - 4,227 4,601
--------- --------- --------- ---------
Total net sales and income (loss)
before taxes $151,423 $136,158 $ (1,533) $(23,863)
========= ========= ========= =========
Net Sales Operating Income (Loss)
------------------- -----------------------
For the Three For the Three
Months Ended Months Ended
------------------- -----------------------
June 2 June 3 June 2 June 3
2002 2001 2002 2001
--------- --------- --------- ---------
Flow Control Products $103,343 $114,398 $ 5,143 $ 4,066
Engineered Components 320,249 282,670 (2,958) (11,227)
Corporate - - (5,122) (12,918)
--------- --------- --------- ---------
423,592 397,068 (2,937) (20,079)
Other (income) expense - - (825) 2,582
Interest expense - - 13,212 11,121
--------- --------- --------- ---------
Total net sales and income (loss)
before taxes $423,592 $397,068 $(15,324) $(33,782)
========= ========= ========= =========
10
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Commitments and Contingencies
At June 2, 2002, the Company had committed to capital expenditures of $5,975,
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 three Company-owned properties where
state-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. The Company does not expect any cost reimbursement
from 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 June 2, 2002, the Company's accrued undiscounted
reserve for such contingencies was $2,385.
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 $1,115 related to anticipated recoveries from third parties.
11
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
Allied-Signal Inc. (now Honeywell International) 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 is included in
the environmental reserve above.
Impact of Recently Issued Accounting Standards
In June, 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations" (SFAS No. 141),
and No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142).
SFAS No. 141 discontinues the use of the pooling of interest method and requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. The adoption of SFAS No. 141 should not have a
material effect on the Company's consolidated results of operations, financial
position, or cash flows.
Under the adoption of SFAS No. 142, goodwill and certain other intangible assets
will no longer be amortized but will be reviewed annually for impairment. If,
based on these reviews, the related assets were found to be impaired, their
carrying value would be adjusted through a charge to earnings. Intangible assets
that are not deemed to have an indefinite life will continue to be amortized
over their expected useful lives and be reviewed for impairment in accordance
with SFAS No. 121.
The Company will adopt the new accounting rules for goodwill and other
intangible assets beginning in the first quarter of fiscal 2003. Application of
the non-amortization provisions of the standard is expected to result in an
increase in annual pretax earnings of approximately $1.4 million, which would
increase earnings per share by $0.16. During fiscal 2003, the Company will also
perform the first of the required impairment reviews of goodwill and
indefinite-lived intangible assets as of September 1, 2002. The Company has not
fully determined the possible effect of these reviews on its financial position
and results of operations, but anticipates impairment may exist for all of the
Company's goodwill, which was $47,341 at June 2, 2002. Actual impairment of
goodwill will be calculated at the beginning of fiscal 2003. Any required
adjustments that are identified through these transitional impairment reviews
will be recorded as a cumulative effect of a change in accounting principle.
12
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cautionary Statements Under the Private Securities Reform Act of 1995
Certain statements in this report, in the Company's press releases and in oral
statements made by or with the approval of an authorized executive officer of
the Company constitute "forward-looking statements" as that term is defined
under the Private Securities Litigation Reform Act of 1995. These statements
may, for example, express projections, forecasts, or estimates about Company
performance and industry trends. The achievement of the projections, forecasts,
or estimates is subject to certain risks and uncertainties. Due to circumstances
beyond the Company's control, actual results and events may differ materially
from those projected, forecasted, or estimated. Factors which may cause actual
results to differ materially from those contemplated by the forward-looking
statement include, among others: general economic conditions less favorable than
expected, fluctuating demand in the automotive and construction industries, less
favorable than expected growth in sales and profit margins in the Company's
product lines, increased competitive pressures in the Company's Engineered
Components and Flow Control Products segments, effectiveness of production
improvement plans, cost of raw materials, inherent uncertainties in connection
with international operations and foreign currency fluctuations, and labor
relations at the Company and its customers. This list of factors is not meant to
be a complete list of items that may affect the accuracy of forward-looking
statements, and as such all forward-looking statements should be analyzed with
the understanding of their inherent uncertainty.
The following discussion and analysis provides information which management
believes is relevant to an understanding of the Company's consolidated results
of operations and financial condition. This discussion should be read in
conjunction with the accompanying consolidated condensed financial statements
and notes and with the Company's audited consolidated financial statements and
footnotes for the year ended August 31, 2001, included in the Company's Annual
Report on Form 10-K.
Results of Operations
Consolidated net sales of $151.4 million in the fiscal 2002 third quarter
increased by $15.2 million, or 11.2%, from $136.2 million in the fiscal 2001
third quarter. The following table shows the components of the change in
consolidated net sales for the fiscal 2002 third quarter:
Third Quarter
-------------
Volume 7.8%
Price and product mix -1.7%
Foreign currency exchange rates/other 0.7%
CTC sales (accounted for by the equity method
in the fiscal 2001 third quarter) 4.4%
-------------
Total Sales 11.2%
=============
13
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The volume increase was driven by the Company's Engineered Component segment.
Aluminum components and global wheels sales accounted for the increase related
to volume over the prior year-quarter. This volume increase offset the decline
in the Flow Control Products volume due to competitive market pressures.
Price and product mix negatively affected sales in the fiscal 2002 third quarter
compared with the third quarter of fiscal 2001. Flow Control Products continue
to experience a decline in price due to competitive market pressure and product
mix. For Engineered Components, there was a decrease in raw material costs which
was passed through by contract to the customer.
Consolidated sales also increased because Casting Technology Company (CTC) is
now reported in the Company's consolidated figures; whereas in the fiscal 2001
third quarter, CTC's activity was accounted for by the equity method. If CTC
were consolidated in the prior year, sales would have increased by 4.8%.
By segment, Engineered Components sales increased by 17.7% and Flow Control
sales decreased by 4.9% compared with the third quarter of fiscal 2001. If CTC
were consolidated in the third quarter of fiscal 2001, Engineered Components
sales would have increased by 8.5%.
For the first nine months of fiscal 2002, consolidated net sales increased by
6.7% to $423.6 million compared with $397.1 million in the first nine months of
fiscal 2001. The following table illustrates the components of the increase in
consolidated net sales:
Year-to-Date
------------
Volume 0.5%
Price and product mix 0.8%
Foreign currency exchange rates/other 1.7%
CTC sales (accounted for by the equity method
in the first nine months of fiscal 2001) 3.7%
------------
Total Sales 6.7%
============
For the first nine months of fiscal 2002, overall volume, price, and product mix
increased over the same period a year ago. This increase was reflective of
higher and more profitable sales in the Engineered Component segment. CTC is now
reported in the Company's consolidated figures; whereas in the first nine months
of fiscal 2001, CTC's activity was accounted for using the equity method.
14
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
By segment, Engineered Components sales increased by 13.3% compared with the
first nine months of fiscal 2001. If CTC were consolidated in the first nine
months of fiscal 2001, Engineered Components sales would have increased by 3.6%.
Flow Control Products sales decreased by 9.7%. Flow Control Products volume
declined due to increased market competition and weakness in commercial and
industrial construction markets. A decline in Flow Control Products sales due to
pricing, primarily due to lower copper prices and also to competitive market
pressures, was offset by improved volume and product mix in the Engineered
Components products.
Gross profit for the fiscal 2002 third quarter increased by 2.7 times to $16.3
million, or 10.8% of sales, compared with $6.1 million, or 4.5% of sales, for
the same period a year ago. For the first nine months of fiscal 2002, gross
profit increased by 17.1% to $37.9 million, or 8.9% of sales, compared with
$32.3 million, or 8.1% of sales, for the first nine months of fiscal 2001.
Excluding unusual items recorded in fiscal 2001, gross profit for the fiscal
2002 third quarter increased by 50.7%, or $5.5 million, and gross profit for the
first nine months of fiscal 2002 increased by 2.2%, or $0.8 million, compared
with the same periods a year ago. The gross profit increase is due to U.S.
automotive sales of new aluminum components and wheel products and improved
manufacturing efficiency in the U.S. automotive operations, partly offset by new
product launch costs at the Richmond facility. Wheel manufacturing, operating at
near capacity, benefited from higher sales volume with an improved price and
product mix. The Amcast Production System (APS), a streamlined, more efficient
manufacturing approach, increased gross profit by reducing manufacturing costs.
APS should continue to benefit gross profit as more of the Amcast workforce
becomes certified.
Selling, general and administrative (SG&A) expenses for the third quarter of
fiscal 2002 were $13.4 million, or 8.9% of sales, compared with $24.4 million,
or 17.9% of sales, in the third quarter of fiscal 2001. For the first nine
months of fiscal 2002, SG&A expenses were $40.8 million, or 9.6% of sales,
compared with $52.4 million, or 13.2% of sales, for the same period a year ago.
The decrease in SG&A is primarily due to expenses recorded of $10.8 million in
the third quarter and $13.8 million the first nine months of fiscal 2001 for
unusual items. These unusual items consisted of legal and other professional
fees for debt refinancing due to the Company's default on non-monetary debt
covenants and a strategic alternative review, various asset reserves and
write-downs, severance expenses for senior management changes, and increased
workers compensation and other reserves for previously-closed facilities.
Excluding unusual items, fiscal 2001 third quarter SG&A was 10.0% of sales and
fiscal 2001 nine month SG&A was 9.7% of sales. Increased SG&A in the fiscal 2002
third quarter for ERP implementation costs, a lower pension benefit, and $0.4
million by consolidating CTC, was partly offset by a continuing cost reduction
program. During the fiscal 2002 third quarter, the Company revaluated its
employee vacation practice and reduced its vacation liability by $1.6 million to
properly reflect the pay-as-you-go vacation policy. Also during the quarter, the
Company amended its postretirement benefits and terminated postretirement life
insurance for all retirees, except for those under contractual agreements. This
amendment decreased the Company's postretirement obligation by $0.9 million. The
benefits of these SG&A adjustments were largely offset by new product launch
costs at the Richmond plant; thus, the combined effect did not have a
significant impact on the Company's fiscal 2002 third quarter operating income.
15
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Effective June 5, 2001, the Company purchased the remaining 40% interest in CTC,
its joint venture with Izumi Industries, bringing total ownership to 100%. The
purchase price was approximately $4.0 million of which $1.6 million is payable
in annual installments over the next four years. The Company paid $0.4 million
in the fiscal 2002 third quarter. The acquisition was accounted for by the
purchase method; accordingly, the cost of the acquisition was allocated on the
basis of the estimated fair market value of the assets acquired and liabilities
assumed. No goodwill resulted from the transaction. The pro forma effect of the
acquisition on the results of operations is not material.
Summarized financial information of CTC as of June 3 , 2001 and for the three
and nine months ended June 3, 2001, which was accounted for as an investment on
Amcast's books, is shown in "Preparation of Financial Statements" in the Notes
to Consolidated Condensed Financial Statements.
Interest expense was $4.2 million and $13.2 million for the third quarter and
first nine months of fiscal 2002, compared with $4.6 million and $11.1 million,
respectively, for the same periods of fiscal 2001. The quarterly decrease in
interest expense is due to lower average interest rates and reduced debt levels.
The increase in interest expense for the first nine months of fiscal 2002 is
primarily due to higher debt levels, receivables financing, and including CTC's
interest expense in the Company's consolidated totals.
The Company's effective tax rate is impacted by operations in various domestic
and foreign tax jurisdictions. For fiscal 2002 and 2001, the income tax benefit
due to pre-tax losses was offset by additional tax expense at the Company's
Italian operation. Italian tax law requires the Company add back certain items
resulting in a tax profit even though the operation is in a loss position for
book purposes. The tax rate for the fiscal 2002 third quarter was 36.0% plus an
Italian tax expense of $0.6 million, compared with a tax rate of 37.0% plus an
Italian tax expense of $1.2 million in the fiscal 2001 third quarter. The tax
rate for the first nine months of fiscal 2002 was 36.0% plus an Italian tax
expense of $2.2 million, compared with a tax rate of 37.9% plus an Italian tax
expense of $1.9 million for the same period a year ago. The tax rate also
includes a valuation allowance that partially reserves against deferred tax
assets related to tax loss carryforwards of the Company's Italian operations.
16
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Flow Control Products - Net sales for the Flow Control Products segment
decreased by 4.9% to $37.4 million for the fiscal 2002 third quarter, compared
with $39.3 million for the same period of fiscal 2001. For the first nine months
of fiscal 2002, sales decreased by 9.7% to $103.3 million, compared with $114.4
million for the first nine months of fiscal 2001. Sales volume decreased by 2.8%
for the fiscal 2002 third quarter, and by 8.0% for the first nine months of
fiscal 2002. Price and mix together declined by 4.1% for the fiscal 2002 third
quarter, and by 3.7% for the first nine months of fiscal 2002.
Operating income in the fiscal 2002 third quarter was $2.5 million, compared
with a loss $3.3 million (income of $2.0 million excluding unusual items) for
the same period of fiscal 2001. For the first nine months of fiscal 2002,
operating income was $5.1 million, compared with $4.1 million ($9.6 million
excluding unusual items) for the same period of fiscal 2001. Excluding unusual
items in 2001, the operating income decrease was primarily due to lower sales
volume, competitive market pricing, and the cost to implement an ERP system. The
reduced vacation liability to properly reflect the pay-as-you-go vacation policy
contributed $0.6 million to fiscal 2002 third quarter segment income.
Engineered Components - Net sales for the Engineered Components segment
increased by 17.7% to $114.1 million for the fiscal 2002 third quarter, compared
with $96.9 million for the same period of fiscal 2001. For the first nine months
of fiscal 2002 sales increased by 13.3% to $320.2 million, compared with $282.7
million for the first nine months of fiscal 2001. Sales volume increased by
12.0% for the third quarter of fiscal 2002, and 3.9% for the first nine months
of fiscal 2002. Product mix decreased sales by 0.7% for the fiscal 2002 third
quarter and increased sales by 2.7% for the first nine months of fiscal 2002.
Consolidating CTC in the second quarter and first nine months of fiscal 2002
increased sales by 6.2% and 5.2% respectively.
Operating income in the fiscal 2002 third quarter was $1.3 million, compared
with a loss of $8.5 million ($2.5 million loss excluding unusual items) for the
same period of fiscal 2001. For the first nine months of fiscal 2002, the
operating loss was $3.0 million, compared with a loss of $11.2 million ($5.3
million loss excluding unusual items) for the same period of fiscal 2001.
Excluding unusual items in 2001, the increase in operating income was primarily
due to the Company's U.S. operations due to improved operating efficiencies,
higher sales volume, and a favorable price and product mix. The reduced vacation
liability to properly reflect the pay-as-you-go vacation policy contributed $1.0
million to fiscal 2002 third quarter segment income.
Liquidity and Capital Resources
For the first nine months of fiscal 2002, cash provided by operations was $21.5
million compared with cash used for operations of $9.7 million in the first nine
months of fiscal 2001. A $7.8 million decrease in working capital requirements
plus $25.7 million in non-cash benefits of depreciation and amortization, offset
the net loss of $12.0 million for the first nine months of fiscal 2002. The
working capital decrease continues to reflect the Company's commitment to
reducing inventory balances.
17
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Investing activities, primarily for capital spending, used net cash of $16.3
million for the first nine months of fiscal 2002, compared with cash used of
$19.6 million for the first nine months of fiscal 2001. Capital spending of
$16.3 million was lower than the $17.3 million spent in the prior year, due to
the Company's cash management strategy in fiscal 2002. At June 2, 2002, the
Company had $6.0 million of commitments for additional capital expenditures,
primarily for the Engineered Components segment.
Financing activities used $14.6 million of cash in the first nine months of
fiscal 2002, compared with cash provided of $38.6 million for the first nine
months of fiscal 2001. The Company increased debt by $1.0 million for financing
its insurance coverage, CTC borrowed $2.2 million, and Speedline had net
borrowing activity of $0.4 million. Debt repayments were $18.3 million; $11.5
million for the bank debt and senior notes, $1.1 million by Speedline, $5.4
million by CTC, and $0.3 million other. Total debt as a percent of total capital
was 64.2% at June 2, 2002 and 63.3% at August 31, 2001.
In July, the Company successfully negotiated a restructuring of its credit
facilities with its bank group and senior note holders (the "Restructuring
Agreements"). This restructuring included the LIFO credit agreement (the "Credit
Agreement"). As restructured, the bank credit facilities have been continued
through September 14, 2003, and a required $12.5 million prepayment under the
senior notes has been deferred until November, 2003, when the senior notes will
mature. The Company cannot borrow additional funds from its bank group or senior
note holders. These lenders have security interests in the assets of the Company
and the Company's U.S. subsidiaries.
The Credit Agreement provides for a maximum of $20.0 million based on the
Company meeting certain conditions. The interest rate is at prime plus 2%. As of
June 2, 2002, there were no borrowings outstanding under the Credit Agreement.
As of July 16, 2002 there was $20.0 million outstanding under the Credit
Agreement, of which $16.0 million was deposited in a cash collateral account.
The restructuring established new debt covenants for the fiscal 2002 fourth
quarter and for each quarter of fiscal 2003. As part of the restructuring, the
Company and its lenders will reset the debt covenants to reflect the Company's
2003 business plan when the plan is completed.
The revolving portion of the CTC credit agreement has a maturity date of
September 2002. It is anticipated that it will be restructured in the fiscal
2002 fourth quarter to continue the debt facility through September 14, 2003.
As of June 2, 2002, CTC had $2.9 million available under its $6.5 million
revolving credit facility. As of May 5, 2002, Speedline had lines of credit
totaling $10.6 million of which $7.3 was available.
18
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Critical Accounting Policies and Estimates
The Company describes its significant accounting policies in the notes to the
consolidated financial statements included in the Company's Annual Report on
Form 10-K. However, in response to the SEC's Release No. FR-60, "Cautionary
Advice Regarding Disclosure About Critical Accounting Policy," issued December
12, 2001, the Company has identified the policies it believes are most critical
to an understanding of the Corporation's financial statements. Since application
of these accounting policies involves the exercise of judgement and use of
estimates, actual results could differ from those estimates.
Revenue Recognition - Revenue is recognized at the time products are shipped to
unaffiliated customers, legal title has passed, and all significant contractual
obligations of the Company have been satisfied.
Inventory Valuation - Inventories are valued at the lower of cost or market
using the last-in, first out (LIFO) and the first-in, first-out (FIFO) methods.
Raw material inventories are primarily aluminum and copper, both of which have
market prices subject to volatility.
Environmental Reserves - The Company recognizes an environmental liability when
it is probable the liability exists and the amount can be reasonably estimated.
The Company adjusts the environmental reserve when it is determined that
circumstances warrant the change. Actual remediation obligations may differ from
those estimated.
Pension Benefits and Costs - The Company has pension benefits and expenses which
are developed from actuarial valuations. These valuations are based on
assumptions including, among other things, interest rate fluctuations, discount
rates, expected returns on plan assets, retirement ages, and years of service.
Future changes affecting the assumptions will change the related pension benefit
or expense.
Deferred Taxes - Deferred income taxes are provided for temporary differences
between financial and tax reporting in accordance with the liability method
under the provisions of Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes." The realization of deferred taxes is
contingent upon the occurrence of future events. Significant factors considered
by the Company in estimating the probability of the realization of deferred
taxes include expectations of future earnings and taxable income, as well as
application of tax laws in the jurisdictions in which the Company operates.
The Company does not have off-balance sheet arrangements, financings, or other
relationships with unconsolidated entities or other persons, also known as
"special purpose entities" (SPEs).
19
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Inflation
Inflation did not have a material impact on the Company's results of operations
or financial condition for the third quarter or the first nine months of fiscal
2002.
Contingencies
See "Commitments and Contingencies" in Notes to the Consolidated Condensed
Financial Statements.
Impact of Recently Issued Accounting Standards
See "Impact of Recently Issued Accounting Standards" in Notes to the
Consolidated Condensed Financial Statements.
20
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, 2001.
The Company is also exposed to market risk from price changes in commodity
metals which are raw materials used in its normal operations. When market
conditions warrant, forward fixed-price commodity metal supply contracts may be
entered into with certain suppliers. These purchase contracts cover normal metal
usage in the ordinary course of business over a reasonable period of time.
Lower-of-cost-or-market valuation adjustments on these contracts is reflected in
earnings in the period incurred. At June 2, 2002, the Company had $3.0 million
in forward fixed-price metal supply contracts. To illustrate the potential
impact of changes in metal market pricing, a hypothetical 10% change in metal
market pricing could change pretax income by approximately $0.3 million.
The Company is also exposed to market risk from price changes in the Euro
currency because the Company has bank debt denominated in Euros. Because the
lending group has capped the Company's debt balance in U.S. dollars, changes in
the Euro/U.S. dollar exchange rate impact the amount of debt. At June 2, 2002
the Company had 54.1 million of Euro-denominated debt, or $50.5 million. To
illustrate the potential impact of changes in Euro/U.S. dollar exchange rates, a
hypothetical 10% change in currency exchange rates could change the debt level
by approximately $5.1 million.
21
AMCAST INDUSTRIAL CORPORATION
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None
Item 6 - Exhibits and Reports on Form 8-K
- ------------------------------------------
a) Exhibits
4.14.1 Restructuring Agreement dated as of July 15, 2002 among Amcast
Industrial Corporation, the Guarantors, Line of Credit
Lenders, the Existing Credit Agreement Agent (KeyBank National
Association), the Existing Credit Agreement Banks, the
Noteholders, and the Collateral Agent (KeyBank National
Association in its capacity as Collateral Agent under the
Restructuring Lender Collateral Documents).
4.15.1 LIFO Restructuring Agreement dated July 15, 2002 among Amcast
Industrial Corporation, the banking institutions (the "LIFO
banks"), and KeyBank National Association as Agent for the
LIFO banks.
4.17.1 Second Amendment dated as of June 1, 2001 to the $50,000,000
Note Agreements dated November 1, 1995 among Amcast Industrial
Corporation, Principal Life Insurance Company and The
Northwestern Mutual Life Insurance Company.
4.17.2 Third Amendment dated as of August 6, 2001 to the $50,000,000
Note Agreements dated November 1, 1995 among Amcast Industrial
Corporation, Principal Life Insurance Company and The
Northwestern Mutual Life Insurance Company.
10.4 Form of Indemnification Agreement for Directors and Officers
of Amcast Industrial Corporation.
10.12.1 Amendment to Consulting Agreement between Amcast Industrial
Corporation and Leo W. Ladehoff, effective April 8, 2002.
10.13 Non-Qualified Stock Option Agreement entered into as of
February 16, 2001 by and between Amcast Industrial Corporation
and Byron Pond granting inducement options.
10.14 Amended Agreement made as of August 17, 2001 by and between
Amcast Industrial Corporation and Byron O. Pond amending the
Non-Qualified Stock Option Agreement entered into as of
February 16, 2001.
10.15 Amended Director Stock Option Agreement granting inducement
options to Byron O. Pond pursuant to the Non-Qualified Stock
Option Agreement entered into as of February 16, 2001.
22
AMCAST INDUSTRIAL CORPORATION
Item 6(a) Exhibits (continued)
10.16 Executive Employment Agreement between Amcast Industrial
Corporation and Joseph R. Grewe, effective April 8, 2002.
10.17 Change of Control Agreement dated April 1, 2002 between Amcast
Industrial Corporation and Joseph R. Grewe.
10.18 Non-Qualified Stock Option Agreement and Grant of
Non-Qualified Stock Option entered into as of April 1, 2002
and effective April 8, 2002, by and between Amcast Industrial
Corporation and Joseph R. Grewe granting inducement options.
10.19 Stock Option Agreement granting inducement options to Francis
J. Drew dated April 6, 2001.
10.20 Stock Option Agreement granting inducement options to Samuel
T. Rees dated August 22, 2001.
b) Reports on Form 8-K
A Current Report on Form 8-K with an event date of June 6, 2002 was filed by the
Company on June 11, 2002 to report the amendment and extension of its LIFO
credit agreement with its bank lending group. The new working capital facility
allowed for the availability of $20 million of additional loans until September
14, 2002.
23
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: July 17, 2002 By: /s/ Byron O. Pond
--------------------------------
Byron O. Pond
Chairman and
Chief Executive Officer
(Principal Executive Officer)
Date: July 17, 2002 By: /s/ Francis J. Drew
--------------------------------
Francis J. Drew
Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
Date: July 17, 2002 By: /s/ Mark D. Mishler
--------------------------------
Mark D. Mishler
Corporate Controller
(Principal Accounting Officer)
24