UNITED STATES 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 quarterly period ended February 29, 2004
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number: 1-9967
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AMCAST INDUSTRIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Ohio 31-0258080
------------------------------- -----------------------------------
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7887 Washington Village Drive, Dayton, Ohio 45459
- ------------------------------------------- ----------
(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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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
---- ----
As of February 29, 2004, the number of Common Shares, no par value, outstanding
was 9,295,859 shares.
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AMCAST INDUSTRIAL CORPORATION
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED FEBRUARY 29, 2004
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
Item 1 - Financial Statements:
Consolidated Condensed Statements of Financial Condition - 3
February 29, 2004 and August 31, 2003
Consolidated Condensed Statements of Operations - 4
for the Quarter and Six Months Ended February 29, 2004
and March 2, 2003
Consolidated Condensed Statements of Retained Earnings - 4
for the Quarter and Six Months Ended February 29, 2004
and March 2, 2003
Consolidated Condensed Statements of Cash Flows - 5
for the Six Months Ended February 29, 2004
and March 2, 2003
Notes to Consolidated Condensed Financial Statements 6-15
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 16-25
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 26
Item 4 - Controls and Procedures 26
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 27
Item 4 - Submission of Matters to a Vote of Security Holders 28
Item 6 - Exhibits and Reports on Form 8-K 28
SIGNATURES 29
2
AMCAST INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
($ in thousands)
(Unaudited)
February 29 August 31
2004 2003
----------- -----------
ASSETS
Current Assets
Cash and cash equivalents $ 7,039 $ 5,697
Accounts receivable 39,364 39,979
Inventories 19,163 19,004
Other current assets 4,069 5,338
----------- -----------
Total Current Assets 69,635 70,018
Property, Plant, and Equipment 358,990 356,408
Less accumulated depreciation (228,322) (217,011)
----------- -----------
Net Property, Plant, and Equipment 130,668 139,397
Restricted Cash 6,000 7,078
Deferred Taxes 4,204 4,204
Other Assets 8,484 9,627
----------- -----------
Total Assets $218,991 $ 230,324
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Current portion of long-term debt $ 5,900 $ 2,456
Accounts payable 27,820 31,419
Accrued expenses 19,967 21,011
----------- -----------
Total Current Liabilities 53,687 54,886
Long-Term Debt (less current portion) 166,690 175,184
Deferred Liabilities 40,619 42,189
Shareholders' Equity (Deficit)
Preferred shares, without par value
Authorized - 1,000,000 shares; Issued - None - -
Common shares, at stated value
Authorized - 15,000,000 shares
Issued - 9,678,350 and 9,623,634 shares,
respectively 9,678 9,624
Capital in excess of stated value 72,882 72,822
Accumulated other comprehensive losses (34,171) (34,189)
(Accumulated deficit) retained earnings (85,907) (85,705)
Cost of 382,491 common shares in treasury (4,487) (4,487)
----------- -----------
Total Shareholders' Equity (Deficit) (42,005) (41,935)
----------- -----------
Total Liabilities and Shareholders' Equity (Deficit) $218,991 $ 230,324
=========== ===========
See notes to consolidated condensed financial statements.
3
AMCAST INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
($ in thousands except per share amounts)
(unaudited)
Three Months Ended Six Months Ended
------------------------ ------------------------
February 29 March 2 February 29 March 2
2004 2003 2004 2003
----------- ----------- ----------- -----------
Consolidated Condensed Statements of Operations
Net Sales $ 94,444 $ 99,145 $ 207,380 $ 211,367
Cost of sales 83,503 88,143 183,251 189,236
----------- ----------- ----------- -----------
Gross Profit 10,941 11,002 24,129 22,131
Selling, general and, administrative expenses 8,575 9,194 16,802 19,363
----------- ----------- ----------- -----------
Operating Income (Loss) 2,366 1,808 7,327 2,768
Other (income) expense (15) 9 (18) (23)
Interest expense 3,694 3,888 7,551 7,859
----------- ----------- ----------- -----------
Income (Loss) before Income Taxes, Discontinued Operations,
and Cumulative Effect of Accounting Change (1,313) (2,089) (206) (5,068)
Income tax expense (benefit) (65) (752) (4) (1,891)
----------- ----------- ----------- -----------
Income (Loss) from Continuing Operations (1,248) (1,337) (202) (3,177)
Loss from operations of discontinued operations, net of tax - (4,766) - (10,118)
Loss from sale of discontinued operations, net of tax of $7,589 (49,822) - (49,822)
----------- ----------- ----------- -----------
Income (Loss) before Cumulative Effect of Accounting Change (1,248) (55,925) (202) (63,117)
Cumulative effect of accounting change, net of tax of $464 - - - (46,536)
----------- ----------- ----------- -----------
Net Income (Loss) $ (1,248) $ (55,925) $ (202) $ (109,653)
=========== =========== =========== ===========
Consolidated Condensed Statements of Retained Earnings (Deficit)
Beginning Retained Earnings (Deficit) $ (84,659) $ (28,855) $ (85,705) $ 25,530
Net (loss) income (1,248) (55,925) (202) (109,653)
Common and treasury shares issued - (743) - (1,400)
----------- ----------- ----------- -----------
Ending Retained Earnings (Deficit) $ (85,907) $ (85,523) $ (85,907) $ (85,523)
=========== =========== =========== ===========
Basic and Diluted Income (Loss) Per Share
Continuing operations $ (0.13) $ (0.15) $ (0.02) $ (0.36)
Discontinued operations - (6.17) - (6.82)
----------- ----------- ----------- -----------
Before cumulative effect of accounting change (0.13) (6.32) (0.02) (7.18)
Cumulative effect of accounting change - - - (5.30)
----------- ----------- ----------- -----------
Net Income (Loss) $ (0.13) $ (6.32) $ (0.02) $ (12.48)
=========== =========== =========== ===========
Dividends declared and paid per share $ - $ - $ - $ -
=========== =========== =========== ===========
See notes to consolidated condensed financial statements.
4
AMCAST INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
Six Months Ended
-------------------------
February 29 March 2
2004 2003
----------- -----------
Operating Activities
Net income (loss) $ (202) $ (109,653)
Loss from discontinued operations - 59,940
Depreciation and amortization 11,595 12,296
Cumulative effect of accounting change - 46,536
Deferred liabilities 203 (4,227)
Other 682 497
Changes in assets and liabilities
Restricted cash 1,078 (6,007)
Accounts receivable 615 (1,411)
Inventories (159) 7,718
Other current assets 1,066 (395)
Accounts payable (3,599) (4,787)
Accrued liabilities (783) (201)
----------- -----------
Net Cash Provided by Operations 10,496 306
Investing Activities
Additions of property, plant, and equipment (3,078) (4,312)
Other 237 714
----------- -----------
Net Cash Used by Investing Activities (2,841) (3,598)
Financing Activities
Additions to long-term debt 650 650
Reduction in long-term debt (5,700) (7,009)
Other (1,300) -
----------- -----------
Net Cash Used by Financing Activities (6,350) (6,359)
Effect of exchange rate changes on cash 37 64
Cash flow related to discontinued operations - (3,017)
----------- -----------
Net change in cash and cash equivalents 1,342 (12,604)
Cash and cash equivalents at beginning of period 5,697 16,810
----------- -----------
Cash and Cash Equivalents at End of Period $ 7,039 $ 4,206
=========== ===========
See notes to consolidated condensed 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 ("Amcast" or the "Company") is a leading
manufacturer of technology-intensive metal products. The Company serves three
major sectors of the economy: automotive, construction, and industrial. 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. Amcast's
corporate offices are located in Dayton, Ohio. Manufacturing facilities are
located in the United States of America, primarily in the Midwest.
BASIS OF PREPARATION
The accompanying consolidated condensed financial statements include the
accounts of Amcast and its subsidiaries. Intercompany accounts and transactions
have been eliminated. The consolidated condensed financial statements are
unaudited and have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information and
with the instructions to Form 10-Q under the Securities Exchange Act of 1934, as
amended. Accordingly, they do not include all of the information and notes
required for complete annual financial statements and should be read in
conjunction with the Company's audited consolidated financial statements and
notes for the year ended August 31, 2003, included in the Company's Annual
Report on Form 10-K. In the opinion of management, all adjustments necessary for
a fair presentation of the information have been included. Results of operations
for the periods presented are not necessarily indicative of the results for the
full fiscal year. To prepare the accompanying interim consolidated condensed
financial statements, the Company is required to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
Certain prior year amounts have been reclassified to conform to the current
period presentation.
CHANGE IN METHOD OF ACCOUNTING IN FISCAL 2003
In the first quarter of fiscal 2003, the Company was required to adopt Statement
of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets". Under the adoption of SFAS No. 142, goodwill and certain other
intangible assets are no longer amortized but will be reviewed annually for
impairment. If, based on these reviews, the related assets are found to be
impaired, their carrying value will 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. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets".
6
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands except per share amounts)
(Unaudited)
Upon adoption of SFAS No. 142 in the first quarter of fiscal 2003, the Company
completed its impairment review and determined that all of its goodwill,
relating primarily to Speedline, the Company's European operation ("Speedline"),
was impaired. This impairment was reflected in the Company's declining stock
price and the weak financial performance of the reporting units related to the
impaired goodwill. As such, in the fiscal 2003 first quarter, the Company
recorded a non-cash charge of $46,536, net of tax of $464, to reduce the
carrying value of its goodwill to zero. This charge is recorded as a cumulative
effect of an accounting change in the accompanying consolidated condensed
financial statements.
DISCONTINUED OPERATIONS
On March 17, 2003, the Company completed the sale of all the capital stock of
its wholly-owned subsidiary, ASW International II, B.V., which owned all of the
stock of Speedline, to Crown Executive Aviation Limited, a private company
organized under the laws of the United Kingdom. Principal products manufactured
by Speedline, located in Italy, include aluminum wheels for passenger cars and
trucks, as well as aluminum and magnesium racing wheels.
Speedline is reported as a discontinued operation for fiscal 2003. After
deducting costs related to the transaction, there were no net cash proceeds from
the sale. The sale resulted in an after tax loss of $50,423, of which $5,352
related to the fiscal 2003 first quarter, $44,470 related to the fiscal 2003
second quarter, and $601 related to the fiscal 2003 third quarter. Cumulative
foreign currency translation losses of $1,303 were included in the $50,423 after
tax loss.
Speedline was previously included in the Engineered Components segment of the
Company. Operating results for Speedline included in discontinued operations
are:
Three Months Ended Six Months Ended
March 2, 2003 March 2, 2003
---------------- ----------------
Net Sales $43,960 $93,474
Operating Loss (4,266) (8,915)
Other income (expense) 244 268
Interest expense (348) (678)
---------------- ----------------
Loss Before Income Taxes (4,370) (9,325)
Income tax expense 396 793
---------------- ----------------
Loss From Discontinued Operations $ (4,766) $ (10,118)
================ ================
7
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands except per share amounts)
(Unaudited)
RESTRICTED CASH
As of February 29, 2004, and August 31, 2003, the Company had $6,000 of cash
that was restricted, as required under the Company's debt agreements with its
lender group and senior note holders, which excludes Casting Technology Company
("CTC"). This cash reserve is segregated to ensure the payment of principal and
interest on the Company's bank credit facilities, senior notes and LIFO credit
agreement. As of August 31, 2003, an additional $1,078 of cash was restricted
per CTC's loan agreement. During the first quarter of fiscal 2004, the Company
refinanced its CTC loan agreement and a similar cash restriction was not
required by the new lenders.
INVENTORY
Inventory is valued at the lower of cost or market. The value of U.S. inventory
is determined using the last-in, first-out method (LIFO). The value of foreign
inventory, at the Company's Canadian facility, is determined using the first-in,
first-out, method (FIFO). Supplies and maintenance related materials, which are
not a component of finished goods, but are utilized during manufacturing, are
categorized as raw materials. The major components of inventory are:
February 29 August 31
2004 2003
------------- -------------
Finished products $ 11,377 $ 10,833
Work in process 3,048 3,611
Raw materials and supplies 8,514 8,336
------------- -------------
22,939 22,780
Less amount to reduce certain
inventories to LIFO value (3,776) (3,776)
------------- -------------
Total Inventory $ 19,163 $ 19,004
============= =============
8
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:
February 29 August 31
2004 2003
------------- -------------
Land and buildings $ 56,710 $ 56,629
Machinery and equipment 294,237 291,006
Construction in progress 8,043 8,773
------------- -------------
358,990 356,408
Accumulated depreciation (228,322) (217,011)
------------- -------------
Net property, plant, and equipment $ 130,668 $ 139,397
============= =============
Depreciation expense was $5,617 and $5,995 for the three-month periods ended
February 29, 2004, and March 2, 2003, respectively, and $11,586 and $12,272 for
the six-month periods ended February 29, 2004, and March 2, 2003, respectively.
LONG-TERM DEBT
The following table summarizes the Company's long-term borrowings:
February 29 August 31
2004 2003
------------- -------------
Lender Group and Senior Note Holder Debt:
LIFO credit facility $ 9,315 $ 11,395
Senior Notes 45,664 45,664
Revolving credit notes 100,826 100,826
Lines of credit 12,793 12,793
CTC Debt:
Term loan 2,850 2,856
Revolving credit note 1,142 3,400
Other Debt - 706
------------- -------------
Total Debt 172,590 177,640
Less Current Portion 5,900 2,456
------------- -------------
Long-Term Debt $ 166,690 $ 175,184
============= =============
9
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands except per share amounts)
(Unaudited)
EARNINGS (LOSS) PER SHARE
The following table reflects the calculations for basic and diluted earnings
(loss) per share for the three-month and six-month periods ended February 29,
2004 and March 2, 2003:
Three Months Ended Six Months Ended
--------------------------- ---------------------------
February 29 March 3 February 29 March 3
2004 2003 2004 2003
------------- ------------- ------------- -------------
Income (loss) from continuing operations $ (1,248) $ (1,337) $ (202) $ (3,177)
Loss from discontinued operations, net of tax - (54,588) - (59,940)
------------- ------------- ------------- -------------
Income (loss) before cumulative effect of
accounting change (1,248) (55,925) (202) (63,117)
Cumulative effect of accounting change,
net of tax - - - (46,536)
------------- ------------- ------------- -------------
Net income (loss) $ (1,248) $ (55,925) $ (202) $(109,653)
============= ============= ============= =============
Basic and Diluted Earnings (Loss) per Share:
Basic and diluted shares 9,290 8,852 9,280 8,784
============= ============= ============= =============
Income (loss) from continuing operations $ (0.13) $ (0.15) $ (0.02) $ (0.36)
Discontinued operations - (6.17) - (6.82)
------------- ------------- ------------- -------------
Income (loss) before cumulative effect of (0.13) (6.32) (0.02) (7.18)
accounting change
Cumulative effect of accounting change - - - (5.30)
------------- ------------- ------------- -------------
Net income (loss) $ (0.13) $ (6.32) $ (0.02) $ (12.48)
============= ============= ============= =============
For each of the periods presented, there were outstanding stock options and
warrants excluded from the computation of diluted earnings per share because the
options and warrants were antidilutive.
10
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 Six Months Ended
----------------------- -----------------------
February 29 March 3 February 29 March 3
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net income (loss) $ (1,248) $(55,925) $ (202) $(109,653)
Foreign currency translation adjustments (40) 76 37 65
Loss on derivatives * (12) - (19) -
----------- ----------- ----------- -----------
Total comprehensive income (loss) $ (1,300) $(55,849) $ (184) $(109,588)
=========== =========== =========== ===========
The components of accumulated other comprehensive loss are:
February 29 August 31
2004 2003
------------- -------------
Foreign currency translation adjustment $ (174) $ (211)
Minimum pension liability adjustment (33,978) (33,978)
Loss on derivatives * (19) -
------------- -------------
Accumulated other comprehensive loss
continuing operations $ (34,171) $ (34,189)
============= =============
* The Company's CTC business has one interest rate swap that was
required as a part of the CTC loan agreement. This is discussed in
"Item 3 - Quantitative and Qualitative Disclosures About Market Risk".
11
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands except per share amounts)
(Unaudited)
STOCK-BASED COMPENSATION
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company accounts for its employee stock options in accordance with APB Opinion
No. 25, "Accounting for Stock Issued to Employees", and related interpretations.
Accordingly, no compensation cost has been recognized related to the Company's
stock option plans.
Had the Company determined compensation cost based upon the fair value of the
options at the grant date consistent with the provisions of SFAS No. 123, net
income and EPS would have been adjusted to the pro forma amounts indicated as
follows:
Three Months Ended Six Months Ended
------------------------ -------------------------
February 29 March 2 February 29 March 2
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net income (loss) as reported $ (1,248) $ (55,925) $ (202) $ (109,653)
Effect on reported net income (loss) of
accounting for stock options at fair value - (47) (1) (93)
----------- ----------- ----------- -----------
Pro forma net income (loss) $ (1,248) $ (55,972) $ (203) $ (109,746)
=========== =========== =========== ===========
Income (loss) per common share
Basic and diluted
As reported $ (0.13) $ (6.32) $ (0.02) $ (12.48)
=========== =========== =========== ===========
Pro forma $ (0.13) $ (6.32) $ (0.02) $ (12.49)
=========== =========== =========== ===========
12
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, "Disclosures
about Segments of an Enterprise and Related Information". The Company has
aggregated similar operating segments into two reportable segments, Flow Control
Products and Engineered Components. Descriptions of the products of these
business segments are included in "Item 1- Business" in the Company's Form 10-K
for the year ended August 31, 2003. The Company evaluates segment performance
and allocates resources based on several factors, of which net sales and
operating income are the primary financial measures.
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
-------------------------- --------------------------
February 29 March 2 February 29 March 2
2004 2003 2004 2003
----------- ----------- ----------- -----------
Flow Control Products $ 35,960 $ 30,445 $ 1,388 $ 737
Engineered Components 58,484 68,700 3,191 3,427
Corporate - - (2,213) (2,356)
----------- ----------- ----------- -----------
94,444 99,145 2,366 1,808
Other (income) expense - - (15) 9
Interest expense - - 3,694 3,888
----------- ----------- ----------- -----------
Total net sales and income (loss)
from continuing operations
before taxes $ 94,444 $ 99,145 $ (1,313) $ (2,089)
=========== =========== =========== ===========
Net Sales Operating Income (Loss)
-------------------------- --------------------------
For the Six Months Ended For the Six Months Ended
-------------------------- --------------------------
February 29 March 2 February 29 March 2
2004 2003 2004 2003
----------- ----------- ----------- -----------
Flow Control Products $ 69,266 $ 60,746 $ 2,980 $ 1,343
Engineered Components 138,114 150,621 8,098 6,004
Corporate - - (3,751) (4,579)
----------- ----------- ----------- -----------
207,380 211,367 7,327 2,768
Other (income) expense - - (18) (23)
Interest expense - - 7,551 7,859
----------- ----------- ----------- -----------
Total net sales and income (loss)
from continuing operations
before taxes $ 207,380 $ 211,367 $ (206) $ (5,068)
=========== =========== =========== ===========
13
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands except per share amounts)
(Unaudited)
COMMITMENTS AND CONTINGENCIES
At February 29, 2004, the Company has committed to capital expenditures of $497,
primarily for the Engineered Components segment.
The Company, as is normal for the industries in which it operates, is involved
in certain legal proceedings and is subject to certain claims and site
investigations which arise under 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. The designation as a potentially responsible party and the
assertion of such claims against the Company are made without taking into
consideration the nature or extent of the Company's involvement with the
particular site. In several instances, 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
non-Company-owned site.
There is one Company-owned property in Pennsylvania where state-supervised
cleanups are currently underway and two other Company-owned properties at which
the U.S. EPA is overseeing an investigation or where long-standing remediation
is underway. See "Part II - Other Information, Item 1 - Legal Proceedings" for a
description of two pending legal cases the Company is currently involved in.
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 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 February 29, 2004, the Company's accrued
undiscounted reserve for such contingencies was $3,588.
14
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands except per share amounts)
(Unaudited)
Based upon the contracts and agreements with regards to an environmental matter,
the Company believes it is entitled to indemnity for remediation costs at a
particular site and believes it is probable that the Company can recover a
substantial portion of the costs. Accordingly, the Company has recorded a
receivable of $765, recorded in other noncurrent assets, related to anticipated
recoveries from a third party.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In January 2004, the Financial Accounting Standards Board ("FASB") staff issued
FASB Staff Position SFAS 106-1, "Accounting and Disclosure Requirements Related
to the Medicare Prescription Drug, Improvement and Modernization Act of 2003".
This statement permits a sponsor of a postretirement health care plan that
provides a prescription drug benefit to make a one-time election to defer
recognizing the effects of the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 until authoritative guidance on accounting for the
federal subsidy is issued or until certain other events occur. The Company's
current postretirement benefit obligation relates solely to life insurance
benefits provided by contractual agreements for certain retirees. The Company
does not provide retiree medical benefits. Therefore, this new legislation
should not have a material impact on the Company's current or future results of
operations or financial position.
In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits". SFAS No. 132
increases the existing disclosure requirements by requiring companies to
disclose more details about pension plan assets, benefit obligations, cash
flows, benefit costs and related information. Companies will be required to
segregate plan assets by category, such as debt, equity and real estate, and to
provide certain expected rates of return and other informational disclosures.
SFAS No. 132 also requires companies to disclose various elements of pension and
postretirement benefit costs in interim-period financial statements for quarters
beginning after December 15, 2003. The provisions of this statement are
effective for the first interim period beginning after December 15, 2003.
Accordingly, the Company will follow these disclosure requirements for its third
quarter ended May 30, 2004.
15
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
($ in thousands except per share amounts)
ITEM 2 - 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, state 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; disposal of certain non-strategic
assets; labor relations at the Company and its customers; the impact of homeland
security measures; and the ability of the Company to satisfy obligations under,
and to comply with the provisions of, its loan documents. 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. The Company undertakes no obligation to
publicly update any forward-looking statements, whether as a result of new
information, future events or otherwise. 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
notes for the year ended August 31, 2003, included in the Company's Annual
Report on Form 10-K.
16
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
($ in thousands except per share amounts)
RESULTS OF OPERATIONS
NET SALES
Three Months Ended Six Months Ended
------------------------ ------------------------
February 29 March 2 February 29 March 2
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net Sales $ 94,444 $ 99,145 $ 207,380 $ 211,367
=========== =========== =========== ===========
Percentage increase (decrease)
from prior year (4.7)% 2.2 % (1.9)% 9.1 %
=========== =========== =========== ===========
Components of percentage increase
Volume (8.5)% (0.2)% (5.5)% 7.6 %
Price 3.6 % 0.5 % 2.0 % (0.8)%
Product Mix 0.2 % 1.9 % 1.6 % 2.3 %
----------- ----------- ----------- -----------
(4.7)% 2.2 % (1.9)% 9.1 %
=========== =========== =========== ===========
In the fiscal 2004 second quarter, consolidated net sales decreased by $4,701,
or 4.7%, compared with the fiscal 2003 second quarter. This sales decrease was
mainly the result of lower sales volume of the Company's aluminum components
products mostly in the gravity-cast operations, primarily due to lost business
from two major customers. The volume decrease was partly offset by strong growth
in the sales of the Company's plumbing products and of pistons for automotive
air conditioning compressors. Pricing was favorable due to increased selling
prices of plumbing products resulting from an increase in the market price of
copper.
For the first six months of fiscal 2004, consolidated net sales decreased by
$3,987, or 1.9%, compared with the first six months of fiscal 2003. This sales
decline was primarily the result of a lower sales volume of the Company's
aluminum components products due to lost business from two major customers. The
volume decrease was offset slightly by higher sales volume of plumbing products
and of pistons for automotive air conditioning compressors. Consolidated net
sales reflected improvements in the Company's pricing of copper plumbing
products and in product mix.
17
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
($ in thousands except per share amounts)
GROSS PROFIT
Three Months Ended Six Months Ended
------------------------ ------------------------
February 29 March 2 February 29 March 2
2004 2003 2004 2003
----------- ----------- ----------- -----------
Gross Profit $ 10,941 $ 11,002 $ 24,129 $ 22,131
=========== =========== =========== ===========
Percent of Sales 11.6% 11.1% 11.6% 10.5%
For the fiscal 2004 second quarter, gross profit decreased by $61, or 0.6%,
compared with the fiscal 2003 second quarter. This decrease is primarily the
result of a 4.7% drop in sales for the quarter. Even with the sales decline,
gross profit improved as a percentage of sales. This improvement was due to
improved productivity, controls on labor cost, and reduced manufacturing costs
from the Amcast Production System, a more efficient manufacturing approach being
implemented at the Company's manufacturing facilities.
For the first six months of fiscal 2004, gross profit increased by $1,998, or
9.0%, compared with the first six months of fiscal 2003. The increase in gross
profit was primarily the result of operating improvements at the Company's
Richmond, Indiana facility, which experienced significant new product launch
costs in the first six months of fiscal 2003. Similar expenses were not incurred
in the first six months of fiscal 2004. The Company realized improvement in
gross profit as a percentage of sales during a period when sales decreased.
Contributing to the gross profit improvements were the Amcast Production System,
increased overall productivity, reductions in scrap and containment costs, tight
spending controls, and controls on labor cost.
18
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
($ in thousands except per share amounts)
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Three Months Ended Six Months Ended
------------------------- ------------------------
February 29 March 2 February 29 March 2
2004 2003 2004 2003
----------- ----------- ----------- -----------
SG&A $ 8,575 $ 9,194 $ 16,802 $ 19,363
=========== =========== =========== ===========
Percent of Sales 9.1% 9.3% 8.1% 9.2%
Selling, general, and administrative (SG&A) expenses were $8,575, or 9.1% of
sales in the fiscal 2004 second quarter, compared with $9,194, or 9.3% of sales
in the fiscal 2003 second quarter. This decrease in SG&A was primarily the
result of the Company's continued commitment to and focus on cost reduction.
For the first six months of fiscal 2004, SG&A expenses were $16,802, or 8.1% of
sales, compared with $19,363, or 9.2% of sales, for the first six months of
fiscal 2003. More than half of the $2,561 decrease was due to the benefits
received as a direct result of the Company's cash management controls, tight
spending limits, controls on labor cost, and its commitment to cost reduction.
The decrease is also the result of the net effect of insurance and legal
settlements offset by additional legal and environmental reserves that combined
to lower SG&A by $1,227. Excluding these items, SG&A decreased by $1,334, or
6.9%, versus the prior year.
OPERATING INCOME was $2,366 (2.5% of sales) in the fiscal 2004 second quarter,
compared with $1,808 (1.8% of sales) in the fiscal 2003 second quarter. For the
first six months of fiscal 2004, operating income increased $4,559, or over 2
1/2 times, to $7,327 (3.5% of sales), compared with $2,768 (1.3% of sales) for
the first six months of fiscal 2003. The Company attained this operating income
growth from manufacturing efficiencies and reduced SG&A expenses during a period
that sales declined.
INTEREST EXPENSE was $3,694 for the fiscal 2004 second quarter, compared with
$3,888 for the fiscal 2003 second quarter, and $7,551 for the first six months
of fiscal 2004, compared with $7,859 for the first six months of fiscal 2003.
Interest expense decreased slightly due to lower debt balances in fiscal 2004
compared with the prior year.
EFFECTIVE TAX RATE was 5.0% and 36.0% for the second quarter of fiscal 2004 and
2003, respectively, and 1.9% and 37.3% for the first six months of fiscal 2004
and 2003, respectively. The lower effective tax rate for fiscal 2004 resulted
because, per the provisions of SFAS No. 109, "Accounting for Income Taxes", the
Company is currently recording no federal income tax benefit for losses in its
domestic operations due to existing tax loss carryforwards. The Company is
currently only recording income tax expense or benefit related to its Canadian
operations and domestic state taxes.
19
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
($ in thousands except per share amounts)
BUSINESS SEGMENTS
Three Months Ended Six Months Ended
------------------------ -------------------------
February 29 March 2 February 29 March 2
2004 2003 2004 2003
----------- ----------- ----------- -----------
Sales
Flow Control $ 35,960 $ 30,445 $ 69,266 $ 60,746
Engineered Components 58,484 68,700 138,114 150,621
----------- ----------- ----------- -----------
Total $ 94,444 $ 99,145 $ 207,380 $ 211,367
=========== =========== =========== ===========
Operating Income (Loss)
Flow Control $ 1,388 $ 737 $ 2,980 $ 1,343
Engineered Components 3,191 3,427 8,098 6,004
Corporate (2,213) (2,356) (3,751) (4,579)
----------- ----------- ----------- -----------
Total $ 2,366 $ 1,808 $ 7,327 $ 2,768
=========== =========== =========== ===========
FLOW CONTROL PRODUCTS
Net sales for the Flow Control Products segment increased by 18.1% to $35,960
for the fiscal 2004 second quarter, compared with $30,445 for the same period of
fiscal 2003. For the first six months of fiscal 2004, sales increased by 14.0%
to $69,266, compared with $60,746 for the first six months of fiscal 2003. For
the fiscal 2004 second quarter, volume grew by 3.3%, a favorable product mix
contributed 6.6%, and price increased by 8.2%. For the first six months of
fiscal 2004, volume increased by 4.6%, a favorable product mix contributed 5.5%,
and price increased by 3.9%. Flow Control Products experienced higher sales by
strong growth in plumbing products, a large volume increase on pistons for
automotive air conditioning compressors, and increased prices to help offset
market prices for copper.
Flow Control Products operating income in the fiscal 2004 second quarter was
$1,388, compared with $737 for the same period of fiscal 2003. For the first six
months of fiscal 2004, operating income was $2,980, compared with $1,343 for the
first six months of fiscal 2003. In fiscal 2004, operating income was positively
affected by higher sales volume, manufacturing efficiencies from the Amcast
Production System, cost reduction programs, and controls on labor cost.
20
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
($ in thousands except per share amounts)
ENGINEERED COMPONENTS
Net sales for the Engineered Components segment decreased by 14.9% to $58,484
for the fiscal 2004 second quarter, compared with $68,700 for the same period of
fiscal 2003. For the first six months of fiscal 2004, sales decreased by 8.3% to
$138,114, compared with $150,621 for the first six months of fiscal 2003. For
the fiscal 2004 second quarter, volume decreased by 13.9%, product mix decreased
by 2.6%, and price from aluminum cost pass through increased by 1.6%. For the
first six months of fiscal 2004, volume decreased by 9.4%, product mix decreased
by 0.2%, and price from aluminum cost pass through increased by 1.3%. Engineered
Components experienced lower sales volume due primarily to lost business from
two large aluminum components customers and to a lesser extent an overall
automotive market decline. In addition, product mix negatively affected
Engineered Components segment sales with greater sales of lower margin products.
Operating income in the fiscal 2004 second quarter was $3,191, compared with
$3,427 for the same period of fiscal 2003. This decrease is primarily due to
lower volume and an unfavorable product mix, partly offset by manufacturing
efficiencies and cost controls. For the first six months of fiscal 2004,
operating income was $8,098, compared with $6,004 for the first six months of
fiscal 2003. This increase is primarily due to the Richmond, Indiana, facility
that incurred significant product launch costs in fiscal 2003. Similar product
launch costs were not encountered in fiscal 2004.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance at February 29, 2004 was $7,039. An additional $6,000
of restricted cash existed for payment of principal and interest on the
Company's debt that is required under its debt agreements. Under the Company's
cash management system, issued checks that have not cleared the bank resulting
in net overdraft bank balances for accounting purposes in the amounts of $1,616
at February 29, 2004, and $5,271 at August 31, 2003, are included in accounts
payable.
21
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
($ in thousands except per share amounts)
Cash provided by operations was $10,496 for the first six months of fiscal 2004
compared with $306 in the first six months of fiscal 2003. The income statement
and balance sheet contributors to this operating cash flow are shown in the
following table:
Six Months Ended
---------------------------
2004 2003
------------ ------------
Income statement related impact $ 11,393 $ 9,119
Balance sheet related impact (897) (8,813)
------------ ------------
Net cash provided by operations $ 10,496 $ 306
============ ============
The $11,393 increase in operating cash flow from the income statement was the
result of the non-cash expense of depreciation and amortization in the amount of
$11,595, offset by the year to date net loss of $202.
The main reasons for the cash decrease of $897 from the balance sheet was a
reduction in accounts payable partly offset by decreases in restricted cash,
prepaid insurance, and other noncurrent assets. The improvement in the balance
sheet impact on operating cash flow for the first six months of 2004, compared
with the first six months of 2003, reflects the Company's continued commitment
and focus on its working capital and cash management controls.
Investing activities, primarily capital spending, used net cash of $2,841 in the
first six months of fiscal 2004 compared with $3,598 used in the first six
months of fiscal 2003. This decrease reflects management controls placed on
capital expenditures to conserve cash. Capital expenditures were primarily for
equipment to expand plant capacity for volume growth and for new product orders.
At February 29, 2004, the Company had $497 of commitments for additional capital
expenditures, primarily for the Engineered Components segment.
Financing activities used $6,350 of cash in the first six months of fiscal 2004,
compared with $6,359 of cash used in the first six months of fiscal 2003.
During the first six months of fiscal 2004, the Company reduced its overall
outstanding debt balance by $5,050, as debt declined from $177,640 at August 31,
2003, to $172,590 at February 29, 2004. The Company made principal cash debt
payments of $2,080 for the bank debt and senior notes and net payments of $2,264
for its CTC debt. The Company also made $706 in payments related to the
Company's insurance-premium financing.
22
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
($ in thousands except per share amounts)
The revolving credit notes, the lines of credit, the senior notes, and the LIFO
credit agreement (the "Lender Group and Senior Note Holder Debt") mature on
September 14, 2006. The Company cannot borrow additional funds under these
borrowings. The lenders of these borrowings have security interests in the
assets of the Company. Interest rates are prime plus 2% for the revolver
borrowings, lines of credit, and the LIFO credit agreement, and 10.09% (9.09%
plus 1% payment in kind) for the senior notes.
Principal payments due under the Lender Group and Senior Note Holder Debt are
$2,800 in May 2004, and $2,500 in August 2004. These payments will be applied
against the LIFO credit facility.
The Lender Group and Senior Note Holder Debt includes financial covenants
regarding a fixed charge coverage ratio, quarterly earnings before interest,
taxes, depreciation, and amortization (EBITDA), and capital expenditures. As of
February 29, 2004 the Company was in compliance with all of its debt covenants.
At the end of any subsequent quarter, if the Company is not in compliance with
any of its debt covenants, any outstanding debt balances become payable on
demand by the Lender Group and Senior Note Holder Debt's lenders.
Under the restructuring agreements relating to the Company's debt agreements,
including the Amended and Restated Restructuring Agreement and LIFO
Restructuring Agreement (copies of which were filed as Exhibits 4.1 and 4.2,
respectively, to the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on September 3, 2003, herein the
"Restructuring Agreements"), the Company is required to use its good faith best
efforts to (i) refinance the Lender Group and Senior Note Holder Debt on or
before September 1, 2004 or (ii) sell substantially all of its assets on or
before September 1, 2004. Section 4.4 of each of the Restructuring Agreements
includes a timetable with eight milestones, and the Company is required to pay a
$200 fee each time a milestone is missed. The Company has met the first five of
the milestones. The fifth milestone, which relates to the Company obtaining a
letter or letters of intent relating to a possible sale or refinancing, is
required to be satisfied by April 30, 2004. The Company has met with a number of
parties that have expressed an interest in acquiring one or more units of the
Company. There is no assurance that such indications of interest will result in
any firm offers for one or more units of the Company or a refinancing of the
Company's indebtedness or that, if any such offers are received, they will be
acceptable to the Company or its lenders.
The CTC Credit Agreement provides for borrowings under a revolving credit
facility and a term loan. The revolving line of credit facility provides for up
to $5,000 in borrowings ($3,858 was available as of February 29, 2004) and
matures in September 2006. The term loan matures in September 2008 with a
current debt payment of $600 payable in installments of $150 due in March, June,
September, and December of 2004. Interest on the revolving credit facility and
the term loan is based on CTC's debt to EBITDA ratio, which ranges between prime
plus 0.25% to prime plus 1.25%, or LIBOR plus 2.25% to LIBOR plus 3.25%.
23
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
($ in thousands except per share amounts)
The Company's debt obligations for the remainder of fiscal 2004 and beyond are
shown in the following table. At February 29, 2004, obligations under operating
leases are not significantly different from the amounts reported in the
Company's Annual Report on Form 10-K for the year ended August 31, 2003.
Debt Obligation 2004 2005 2006 2007 2008 Thereafter
- --------------------- ----------- ----------- ----------- ----------- ----------- -----------
Debt
Long-Term Debt
Corporate $5,300 $ - $ - $ 163,298 $ - $ -
CTC 300 600 600 1,742 600 150
----------- ----------- ----------- ----------- ----------- -----------
Total Debt $5,600 $ 600 $ 600 $ 165,040 $ 600 $ 150
=========== =========== =========== =========== =========== ===========
Operating leases $1,661 $ 2,694 $2,095 $ 509 $ 108 $ -
=========== =========== =========== =========== =========== ===========
CRITICAL ACCOUNTING POLICIES
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. 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 Expenses - The Company has pension benefits and expenses
that 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
24
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
($ in thousands except per share amounts)
Deferred Taxes and Valuation Allowances - 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". 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.
At February 29, 2004, the Company had valuation allowances against a significant
portion of its deferred tax assets. Valuation allowances serve to reduce the
recorded deferred tax assets to amounts reasonably expected to be realized as
tax savings in the future. Establishing valuation allowances and their
subsequent adjustment requires a significant amount of judgement because
realizing deferred tax assets, particularly those assets related to net
operating loss carryforwards, is generally contingent on generating taxable
income, reversing deferred tax liabilities in the future, and the availability
of qualified tax planning strategies.
Debt Covenants - For a substantial portion of its debt, the Company has certain
financial covenants regarding a fixed charge coverage ratio, quarterly earnings
before interest, taxes, depreciation, and amortization (EBITDA), and capital
expenditures. If the requirements of the covenants are not achieved, the debt
becomes immediately callable, which would significantly impact the Company's
ability to maintain its current operations. As of February 29, 2004 the Company
was in compliance with all of its debt covenants.
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).
INFLATION
Inflation did not have a material impact on the Company's results of operations
or financial condition for the second quarter or first six months of fiscal
2004.
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.
25
AMCAST INDUSTRIAL CORPORATION
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
($ in thousands)
The Company is exposed to market risk from changing commodity prices and
interest rates as part of its normal operations, as well as general risks and
uncertainties which are inherent in any competitive industry.
COMMODITY PRICES
The Company is 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 February 29, 2004, the Company had no
forward fixed-price metal supply contracts.
INTEREST RATE RISK
The Company is exposed to variable interest rates on its revolver credit notes,
its lender group lines of credit, its LIFO credit facility, and its CTC debt.
The annual pretax earnings and cash flow impact of a one-percentage-point
increase in the variable interest rates on the Company's variable long-term debt
outstanding at February 29, 2004 would be approximately $1,269.
During the first fiscal quarter of 2004, the Company was required as a part of
its CTC loan agreement to enter into a two-year interest rate swap. This swap
converted half of the CTC variable rate debt into fixed rate debt, and was
designated as a hedge against changes in cash flows attributable to changes in
the variable interest rate. For the first six months of fiscal 2004, the loss on
the interest rate swap was $19, which was reported in other comprehensive loss
in shareholders' equity.
ITEM 4 - CONTROLS AND PROCEDURES
The Company's President and Chief Executive Officer and Vice President, Finance
and Chief Financial Officer, with the participation of the Company's management,
have evaluated the effectiveness of the operation of the Company's disclosure
controls and procedures, as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934 (the "Exchange Act"), as of the end of the period covered
by this Quarterly Report. Based upon that evaluation, the Company's President
and Chief Executive Officer and Vice President, Finance and Chief Financial
Officer have concluded that the Company's disclosure controls and procedures are
effective in timely alerting them to material information required to be
included in the Company's periodic Exchange Act filings.
There have been no significant changes to the Company's internal controls or
other factors that could significantly affect these controls subsequent to the
date of their evaluation.
26
AMCAST INDUSTRIAL CORPORATION
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
On January 29, 1998, Cargill, Inc. and eight other plaintiffs brought a
superfund private cost recovery and contribution action against the Company and
fifty other parties in the United States District Court for the Southern
District of Ohio, Western Division, which is captioned, Cargill, Inc. et al. v.
Abco Construction, et al. (Case No. C-3-98-3601). The action involves the
Valleycrest disposal site in the Dayton, Ohio area (the "Site"). The plaintiffs
have taken the lead in investigating and remediating the Site and are asking for
an aggregate judgment against the defendants for an amount which exceeds $31
million. Based on information to date, the Company believes it has valid
defenses against the plaintiffs' claims. The Company believes its responsibility
with respect to the Site is very limited due to the inert nature of the foundry
sand waste that the Company disposed of at the Site. While the outcome of this
matter cannot be predicted with any certainty, the Company does not believe that
this matter will have a material adverse effect on its results of operations or
financial position. The Company believes that its ultimate liability in this
matter will not exceed $400,000.
On June 5, 2003, Solutia, Inc. and Pharmacia Corporation brought a superfund
private cost recovery and contribution action against the Company and eighteen
other parties in the United States District Court for the Northern District of
Alabama, Eastern Division, which is captioned, Solutia, Inc and Pharmacia
Corporation v. McWane, Inc., et al. (Case No. CV-03-PWG-1345-E). The action
involves the Anniston PCB Site and the Anniston Lead Site in Calhoun County
Alabama and Tallegdega County Alabama ("the Sites"). The plaintiffs have taken
the lead in investigating and remediating the Sites and are asking for an
aggregate judgment against the defendants in the amount of $34.5 million. Based
on information to date, the Company believes it has valid defenses against the
plaintiffs' claims. The Company believes its responsibility with respect to the
Sites is very limited. While the outcome of this matter cannot be predicted with
any certainty, the Company does not believe that this matter will have a
material adverse effect on its results of operations or financial position.
27
PART II - OTHER INFORMATION (continued)
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 17, 2003.
b) At the annual meeting, shareholders voted on and approved one proposal.
This proposal is 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 Robert C. Ayotte, Leo W. Ladehoff, and Richard A.
Smith.
Robert C. Leo W. Richard A.
Ayotte Ladehoff Smith
----------- ----------- ------------
Shares For 7,134,994 6,627,992 7,104,849
Shares Withheld 1,263,513 1,770,515 1,293,658
----------- ----------- ------------
Total 8,398,507 8,398,507 8,398,507
============ ============ ============
Directors continuing in office until the 2004 annual meeting
include Walter E. Blankley, Byron O. Pond, and William G. Roth.
Directors continuing in office until the 2005 annual meeting include
Don R. Graber, Joseph R. Grewe, and R. William Van Sant.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
31.1 Certification of Joseph R. Grewe, President and Chief Executive
Officer, pursuant to Section 302 of the Sarbanes-Oxley Act
31.2 Certification of Francis J. Drew, Vice President, Finance and Chief
Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act
32.1 Certification of Joseph R. Grewe, President and Chief Executive
Officer, pursuant to Section 906 of the Sarbanes-Oxley Act
32.2 Certification of Francis J. Drew, Vice President, Finance and Chief
Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act
b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended February 29, 2004.
28
AMCAST INDUSTRIAL CORPORATION
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: March 30, 2004 By: /s/ Joseph R. Grewe
---------------------
Joseph R. Grewe
President and
Chief Executive Officer
(Principal Executive Officer)
Date: March 30, 2004 By: /s/ Francis J. Drew
---------------------
Francis J. Drew
Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
Date: March 30, 2004 By: /s/ Mark D. Mishler
---------------------
Mark D. Mishler
Corporate Controller
(Principal Accounting Officer)
29