1
EXHIBIT 13.1
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
($ in thousands except per share amounts)
RESULTS OF CONTINUING OPERATIONS
- - --------------------------------
Net sales were $271,856, $222,643, and $236,805 in 1994, 1993, and 1992,
respectively. In 1994, sales increased 22.1% due to a strong plumbing market
and increased demand for aluminum wheels and automotive components. Sales
decreased 6.0% in 1993, primarily due to lower unit demand for aluminum wheels
in the Engineered Components segment.
The gross profit percent was 21.8%, 22.6%, and 22.1% in 1994, 1993, and
1992, respectively. Gross profit decreased as a percent of sales in 1994,
primarily due to the underutilization of two recently completed automotive
parts plants. The higher gross profit percent in 1993, resulted from improved
pricing for copper plumbing products and lower costs for copper used in many of
the company's flow control products. These improvements were partially offset
by reduced unit volumes for copper plumbing products and lower demand for
aluminum wheels.
Selling, general and administrative expenses, as a percent of sales, were
13.3% in 1994, 14.2% in 1993, and 13.1% in 1992. Expenses decreased as a
percent of sales in 1994 as sales increased 22.1% while expenses increased
14.4% resulting from higher sales and marketing costs and, expenditures to
support business expansion activities. The primary reason for the increase, as
a percent of sales, in 1993 was due to lower sales volumes compared to 1992 as
sales decreased 6.0%.
Interest expense was $1,594, $1,266, and $2,923 in 1994, 1993, and 1992,
respectively. Average borrowings were down in 1994, however, interest expense
was higher compared to 1993 when interest was capitalized during the
construction period of two new manufacturing facilities. Interest rates were
slightly higher in 1994. In 1993, interest expense declined as a result of
lower average borrowings during the year.
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2
Other income was $441, $1,187, and $388 in 1994, 1993, and 1992,
respectively. Other income was higher in 1993 compared to 1994 and 1992,
primarily due to the gain realized in the fourth quarter on disposal of a
facility.
The effective tax rates for 1994, 1993, and 1992 were 34.5%, 36.0%, and
36.0%, respectively. The effective tax rate decreased in 1994 compared to 1993
primarily due to the tax benefit derived from the conversion of Castings
Technology Corporation, a 60% owned joint venture, to a partnership.
During the fourth quarter of 1993, the company elected early adoption,
effective September 1, 1992, of the Statement of Financial Accounting Standards
(SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions". This statement requires companies to record a liability for
employees' accumulated postretirement benefit costs and to recognize on-going
expenses on an accrual basis. The company recognized the $6,159 pre-tax
cumulative effect of the change in accounting principle, which represents the
accumulated postretirement benefit obligation as of September 1, 1992. The
effect on net income and shareholders' equity was $3,942, or $.47 per share.
The impact on 1993 operating results, due to the adoption of SFAS 106, was not
material.
Effective August 31, 1992, the company's Board of Directors approved a plan
to divest Stanley G. Flagg & Co. (Flagg), a manufacturer of iron and brass pipe
fittings, previously reported as part of the Flow Control Products segment.
This action was prompted by unprofitable operations that were plagued by
industry over capacity and weak demand in the iron pipe fittings product line.
The company made a pretax provision of $22 million based upon the expected
proceeds of this divestiture. A significant portion of the Flagg assets,
relating to the iron and pole line hardware businesses, have been sold and,
although operating losses until disposition are greater than originally
estimated, the loss on the sale of assets and estimated liabilities are
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3
Exhibit 13.1
expected to be less than the amounts initially provided. Annual sales and
results of the remaining brass business are not material to the company. At
August 31, 1994, the company believes that it has provided adequately for the
effect of the disposal of the remaining assets of Flagg and the operating
losses through the date of disposal. See discontinued operation footnote on
page 24.
FLOW CONTROL PRODUCTS
- - ---------------------
Flow Control Products sales were $124,090, $110,096, and $108,306 in 1994,
1993, and 1992, respectively. Operating profits were $19,849, $15,703, and
$10,765 in 1994, 1993, and 1992, respectively. In 1994, sales increased 12.7%
while operating profits rose 26.4% due to improved margins resulting from cost
reductions and increase sales volume. In 1993, sales increased 1.7% and
operating profits rose 45.9% due to improved margins for copper plumbing
products which was partially offset by a decrease in the unit volume.
ENGINEERED COMPONENTS
- - ---------------------
Engineered Components sales were $147,766, $112,547, and $128,499 in 1994,
1993, and 1992, respectively. Operating profits were $10,034, $8,228, and
$14,780 in 1994, 1993, and 1992, respectively. In 1994, sales increased 31.3%
while operating profits increased 21.9%. The increase in sales was primarily
due to the strong customer demand for aluminum wheels and other aluminum
automotive components. Higher operating profits, primarily from wheel sales,
were partially offset by the underutilization of two new automotive parts
plants. In 1993, sales declined 12.4%, primarily due to lower demand for
aluminum wheels and deferred production schedules requested by aerospace
customers. These reductions were partially offset by increased sales of
aluminum brake and suspension system components. Operating profit declined
44.3% in 1993, primarily due to the lower sales volumes and one-time expenses
associated with consolidation of the company's California operations.
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4
LIQUIDITY
- - ---------
Net cash provided by operations was $28,564, $17,778, and $13,283 for the
years 1994, 1993, and 1992, respectively. In each of the three years, cash was
primarily provided by income from operations, and depreciation and
amortization.
Net cash used by investing activities was $7,834, $10,941, and $23,551 for
the years 1994, 1993, and 1992, respectively. Investments were made primarily
in additions to property, plant, and equipment.
Net cash (used) provided by financing activities were $(7,567), $(7,726),
and $11,832 for the years 1994, 1993, and 1992, respectively. In 1994 and 1993,
financing activities used cash primarily to reduce long-term debt and pay cash
dividends. In 1992, cash was provided by the sale of common stock, and these
proceeds were used to reduce long-term debt and pay cash dividends.
CAPITAL RESOURCES
- - -----------------
Capital expenditures were $15,596, $13,990, and $21,831 in 1994, 1993, and
1992, respectively. In each year, the expenditures were funded by cash provided
by operations and, additionally in 1992, with proceeds from the sale of common
stock. At August 31, 1994, the company had $5,199 of commitments for capital
expenditures to be made in 1995, primarily for the Engineered Components
segment.
Book value per common share at August 31, 1994, was $13.02, compared to
$11.81 at August 31, 1993.
The ratio of long-term debt as a percent of capital was 11.2% at August 31,
1994, down from 15.3% at August 31, 1993.
The company has $136,726 of unused borrowing capacity under the most
restrictive debt covenant relating to a credit agreement which went into effect
September 30, 1992. One million preferred shares and 6.5 million common shares
are authorized and available for future issuance. Management believes the
company has adequate resources to meet its future needs.
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5
Contingency. The company is subject to a range of federal, state and local
laws and regulations governing the discharge of material into the environment
or otherwise relating to the protection of the environment. The company
periodically makes capital expenditures to meet the requirements of these laws
and regulations; however, the company believes that the anticipated
expenditures for such purposes in the foreseeable future will not be material
to its financial position or its competitive position.
The company, as is normal for the industry in which it operates, is subject
to periodic environmental site investigations and inquiries. 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 eight U.S. EPA led multi-party
"superfund" sites and three state environmental agency led remediation sites.
While the company could be found jointly and severally liable at a number of
these sites, the company, in each case, is contesting any responsibility or
believes that its liability will not be material because of the nature of the
waste involved or the limited amount of waste generated by the company which
was allegedly disposed of at these sites. With respect to one such site located
in Ironton, Ohio, another potentially responsible party has brought an action
seeking contribution from the company for a portion of the total response and
remediation costs, which the plaintiff has claimed may exceed $20 million. The
company believes that its ultimate equitable share, if any, of any liability
for cleanup costs at this site will not be material.
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6
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
Shareholders and Board of Directors
Amcast Industrial Corporation
Dayton, Ohio
We have audited the accompanying consolidated statements of financial condition
of Amcast Industrial Corporation and subsidiaries as of August 31, 1994 and
1993 and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended August
31, 1994. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Amcast
Industrial Corporation and subsidiaries at August 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended August 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in the Postretirement Health Care and Life Insurance Benefits
note to the consolidated financial statements, in 1993 the company adopted the
provisions of Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions."
Ernst & Young LLP
Dayton, Ohio
October 7, 1994
/s/Ernst & Young LLP
--------------------
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7
SELECTED DATA
($ in thousands except per common share and statistical data)
FINANCIAL DATA 1994 1993 1992 1991 1990
Net sales . . . . . . . . . . . . . . . . . $271,856 $222,643 $236,805 $220,643 $227,306
Gross profit . . . . . . . . . . . . . . . . 59,258 50,425 52,247 47,271 46,739
Gross profit percent . . . . . . . . . . . . 21.8% 22.6% 22.1% 21.4% 20.6%
Income (loss) from continuing operations
before taxes . . . . . . . . . . . . . . . 22,067 18,831 18,740 11,944 (8,697)*
Income (loss) from continuing operations . . 14,454 12,052 11,994 7,405 (6,472)
Working capital . . . . . . . . . . . . . . . 48,590 36,097 32,525 45,287 41,794
Total assets . . . . . . . . . . . . . . . . 194,161 176,537 173,774 175,211 184,922
Long-term debt . . . . . . . . . . . . . . . 13,910 17,929 22,276 40,424 41,198
PER COMMON SHARE DATA
Income (loss) from continuing operations . . $ 1.72 $ 1.44 $ 1.66 $ 1.14 $ (0.95)
Weighted average number of common
shares outstanding (in thousands) . . . . . 8,425 8,347 7,223 6,487 6,790
Dividends declared . . . . . . . . . . . . . $ .49 $ .48 $ .48 $ .48 $ .48
Book Value . . . . . . . . . . . . . . . . . 13.02 11.81 11.37 10.80 10.10
STATISTICAL DATA
Current ratio . . . . . . . . . . . . . . . . 2.0 1.9 1.8 2.0 1.8
Long-term debt as a percent of capital . . . 11.2% 15.3% 19.1% 36.9% 37.9%
Average number of employees . . . . . . . . . 2,100 1,900 1,900 1,900 2,100
<FN>
*Includes restructuring provision of $18,900.
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8
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands except per share amounts)
Year Ended August 31
1994 1993 1992
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $271,856 $222,643 $236,805
Cost and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . 212,598 172,218 184,558
Selling, general and administrative expenses . . . . . . . . . 36,038 31,515 30,972
Interest expense . . . . . . . . . . . . . . . . . . . . . . . 1,594 1,266 2,923
Other income, net . . . . . . . . . . . . . . . . . . . . . . (441) (1,187) (388)
-------- -------- --------
249,789 203,812 218,065
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 22,067 18,831 18,740
Income taxes--continuing operations . . . . . . . . . . . . . . 7,613 6,779 6,746
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS 14,454 12,052 11,994
Discontinued operation, net of taxes:
Loss from operation . . . . . . . . . . . . . . . . . . . . . 3,307
Estimated loss on disposal . . . . . . . . . . . . . . . . . . 14,520
-------- -------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE 14,454 12,052 (5,833)
Cumulative effect of change in accounting for postretirement
benefits other than pensions, net of taxes . . . . . . . . . . (3,942)
-------- -------- --------
NET INCOME (LOSS) $ 14,454 $ 8,110 $ (5,833)
======== ======== ========
Income (loss) per share:
Continuing operations . . . . . . . . . . . . . . . . . . . . $ 1.72 $ 1.44 $ 1.66
Discontinued operation . . . . . . . . . . . . . . . . . . . . (2.47)
Cumulative effect of a change in accounting principle . . . . (.47)
-------- -------- --------
Net income (loss) per share . . . . . . . . . . . . . . . . . $ 1.72 $ .97 $ (.81)
======== ======== ========
<FN>
See notes to consolidated financial statements
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9
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
($ in thousands)
August 31
1994 1993
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,414 $ 2,251
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,400 33,764
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,469 34,572
Deferred tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,430 1,500
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,713 2,826
----------- ----------
TOTAL CURRENT ASSETS 97,426 74,913
PROPERTY, PLANT, AND EQUIPMENT
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,940 1,586
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,130 20,458
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,287 99,768
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,828 12,809
----------- ----------
149,185 134,621
Less allowances for depreciation . . . . . . . . . . . . . . . . . . . . . . . . 75,531 64,412
----------- ----------
73,654 70,209
NET ASSETS OF DISCONTINUED OPERATION . . . . . . . . . . . . . . . . . . . . . . . 12,389 19,980
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,692 11,435
----------- ----------
$ 194,161 $ 176,537
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,169 $ 18,050
Compensation and related items . . . . . . . . . . . . . . . . . . . . . . . . . 9,066 8,676
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,482 6,728
Current portion of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . 4,019 4,356
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,100 1,006
----------- ----------
TOTAL CURRENT LIABILITIES 48,836 38,816
LONG-TERM DEBT--less current portion . . . . . . . . . . . . . . . . . . . . . . . 13,910 17,929
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,024 1,897
DEFERRED LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,228 18,975
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--8,457,896 shares, 8,383,342 shares in 1993 . . . . . . . . . . . . . . 8,458 8,383
Capital in excess of stated value . . . . . . . . . . . . . . . . . . . . . . . 62,912 62,047
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,793 28,577
Cost of 3,863 common shares in treasury . . . . . . . . . . . . . . . . . . . . (87)
----------- ---------
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,163 98,920
---------- ----------
$ 194,161 $ 176,537
=========== ==========
<FN>
See notes to consolidated financial statements
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10
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
($ in thousands)
Capital in Common
Common Excess of Retained Shares in
Shares Stated Value Earnings Treasury Total
BALANCE AT SEPTEMBER 1, 1991 . . . . . . . . . . . . $7,470 $38,562 $34,096 $(10,871) $69,257
Net Loss . . . . . . . . . . . . . . . . . . . . (5,833) (5,833)
Cash dividends declared, $.48 per share . . . . (3,561) (3,561)
Stock options exercised . . . . . . . . . . . . (38) 1,804 1,766
Proceeds from sale of 1,700,000 shares to
public, net of offering costs . . . . . . 900 22,723 8,408 32,031
Tax benefit from stock options exercised . . . . 759 759
Other . . . . . . . . . . . . . . . . . . . . . (7) 8 1
------- ------- ------- -------- --------
BALANCE AT AUGUST 31, 1992 . . . . . . . . . . . . . 8,370 62,006 24,695 (651) 94,420
Net income . . . . . . . . . . . . . . . . . . . 8,110 8,110
Cash dividends declared, $.48 per share . . . . (4,014) (4,014)
Stock options exercised . . . . . . . . . . . . 13 61 564 638
Tax benefit from stock options exercised . . . . (10) (10)
Other . . . . . . . . . . . . . . . . . . . . . (10) (214) (224)
------- ------- ------- -------- --------
BALANCE AT AUGUST 31, 1993 . . . . . . . . . . . . . 8,383 62,047 28,577 (87) 98,920
Net income . . . . . . . . . . . . . . . . . . . 14,454 14,454
Cash dividends declared, $.49 per share . . . . (4,134) (4,134)
Stock options exercised . . . . . . . . . . . . 75 698 87 860
Tax benefit from stock options exercised . . . . 167 167
Other . . . . . . . . . . . . . . . . . . . . . (104) (104)
------- ------- ------- -------- --------
BALANCE AT AUGUST 31, 1994 . . . . . . . . . . . . . $8,458 $62,912 $38,793 $ $110,163
======= ======= ======= ======== ========
<FN>
See notes to consolidated financial statements
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11
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands )
Year Ended August 31
1994 1993 1992
OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . $14,454 $ 8,110 $(5,833)
Depreciation and amortization . . . . . . . . . . . . . . . . . 12,812 12,010 13,639
Provision for discontinued operation . . . . . . . . . . . . . . 22,000
Cumulative effect of change in accounting principle . . . . . . 6,159
Deferred liabilities . . . . . . . . . . . . . . . . . . . . . . 380 (1,183) (9,310)
Loss (gain) on property, plant and equipment disposals . . . . . 46 (850) 211
------- -------- -------
27,692 24,246 20,707
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . (4,636) 1,245 (1,251)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . (3,897) (1,757) (6,492)
Deferred tax benefit . . . . . . . . . . . . . . . . . . . . . 70 39 (724)
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . (887) (1,622) (86)
Prepaid pension costs . . . . . . . . . . . . . . . . . . . . 336 548 323
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . (471) (2,324) (516)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 9,119 (4,160) 2,018
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . 1,238 1,563 (696)
------- -------- -------
NET CASH PROVIDED BY OPERATIONS 28,564 17,778 13,283
INVESTING ACTIVITIES:
Proceeds from property, plant, and equipment disposals . . . . . 171 1,907 242
Additions to property, plant, and equipment . . . . . . . . . . (15,596) (13,990) (23,793)
Decrease in net assets of discontinued operations . . . . . . . 7,591 1,142
------- -------- -------
NET CASH USED BY INVESTING ACTIVITIES (7,834) (10,941) (23,551)
FINANCING ACTIVITIES:
Proceeds from sale of stock, net . . . . . . . . . . . . . . . . 32,031
Proceeds from exercise of stock options . . . . . . . . . . . . 1,027 628 2,525
Reduction in long-term debt . . . . . . . . . . . . . . . . . . (4,019) (4,347) (18,141)
Short-term borrowings and current portion of long-term debt . . (337) 231 (1,023)
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,134) (4,014) (3,561)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (104) (224) 1
------- -------- -------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (7,567) (7,726) 11,832
------- -------- -------
Net change in cash and cash equivalents . . . . . . . . . . . . . . 13,163 (889) 1,564
Cash and cash equivalents at beginning of period . . . . . . . . . 2,251 3,140 1,576
------- -------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $15,414 $ 2,251 $ 3,140
<FN> ======= ======== =======
See notes to consolidated financial statements
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12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands except per share data)
ACCOUNTING POLICIES
THE CONSOLIDATED FINANCIAL STATEMENTS include the accounts of the company and
its subsidiaries. Intercompany transactions have been eliminated.
CASH AND CASH EQUIVALENTS include amounts on deposit with financial
institutions and investments maturing within 90 days.
ACCOUNTS RECEIVABLE are stated net of allowances for doubtful accounts of $147
at August 31, 1994, and $172 at August 31, 1993.
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.
PROPERTY, PLANT, AND EQUIPMENT are carried at cost. Expenditures for
significant renewals and improvements are capitalized. Repairs and maintenance
are charged to expense as incurred.
DEPRECIATION is computed on the straight-line method. The amortization periods
represent the estimated useful lives of the assets.
DEFERRED INCOME TAXES are provided for temporary differences between financial
and tax reporting in accordance with the liability method under the provisions
of Financial Accounting Standard No. 109, "Accounting for Income Taxes".
NET INCOME PER SHARE is computed on the weighted average number of common
shares outstanding during each year. The exercise of outstanding options, which
are common stock equivalents, would cause no material dilution.
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13
DISCONTINUED OPERATION
Effective August 31, 1992, the company adopted a plan to sell Stanley G. Flagg
& Co. (Flagg), a part of the Flow Control segment. Accordingly, Flagg is
reported as a discontinued operation.
Net assets of the discontinued operation at August 31, 1994 and 1993 consist
of current assets and the estimated net realizable value of plant, property,
and equipment amounting to $13,656 and $24,024 respectively, less current
liabilities of $1,267 and $4,044 respectively. Annual sales of the remaining
brass business are less than 4% of consolidated sales and operating results are
nominal.
In 1992, the estimated loss on the disposal of Flagg was $14,520, net of
taxes of $7,480, consisting of an estimated loss on disposal of the business of
$12,342 and a provision of $2,178 for anticipated operating losses until
disposal. Summary operating results of the discontinued operation for the
fiscal year ended August 31, 1992 are as follows:
1992
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . $51,288
Intrasegment Sales . . . . . . . . . . . . . . . . . . . 3,672
Loss before Tax . . . . . . . . . . . . . . . . . . . . . 5,167
Tax Benefit . . . . . . . . . . . . . . . . . . . . . . . 1,860
Net Loss . . . . . . . . . . . . . . . . . . . . . . . . 3,307
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14
INVENTORIES
The major components of inventories as of August 31 are:
1994 1993
Finished products . . . . . . . . . . . . . . . . . . . . . . . $21,234 $19,162
Work in process . . . . . . . . . . . . . . . . . . . . . . . . 13,121 10,776
Raw materials and supplies . . . . . . . . . . . . . . . . . . 10,435 7,207
------- -------
44,790 37,145
Less amount to reduce certain inventories to LIFO value . . . . 6,321 2,573
------- -------
$38,469 $34,572
======= =======
Inventories reported on the FIFO method were $5,435 and $4,488 at August 31,
1994 and 1993, respectively. The estimated replacement cost of inventories is
the amount reported before the LIFO reserve.
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15
OTHER ASSETS
The major components of Other Assets as of August 31 are:
1994 1993
Properties held for resale . . . . . . . . . $ 553 $ 579
Technical and product programs . . . . . . . 1,419 2,200
Goodwill . . . . . . . . . . . . . . . . . . 2,774 2,860
Other assets . . . . . . . . . . . . . . . . 5,946 5,796
------- -------
$10,692 $11,435
======= =======
Properties held for resale reflect the estimated realizable values of the
fixed assets of closed facilities. The fair market value of technical and
product programs, as determined by an independent appraiser, were recognized at
the date of acquisition of certain businesses. The excess of cost over the
fair market value of the businesses acquired is reflected as goodwill. These
assets are being amortized on a straight-line basis over 10 and 40 years.
Accumulated amortization at August 31, 1994 and 1993 was $8,223 and $7,347,
respectively.
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16
LONG-TERM DEBT AND CREDIT ARRANGEMENTS
The following table summarizes the company's borrowings at August 31:
1994 1993
Senior notes . . . . . . . . . . . . $10,964 $14,696
Industrial revenue bonds . . . . . . 6,965 7,589
------- -------
17,929 22,285
Less current portion . . . . . . . . 4,019 4,356
------- -------
LONG-TERM DEBT $13,910 $17,929
======= =======
Senior notes consist of two agreements with interest rates of 9.32% and 9%.
The notes call for periodic principal payments and mature June 5, 1996, and
September 15, 1999, respectively.
Industrial revenue bonds consist of various issues at fixed and variable
interest rates, ranging from 2.5% to 5%. These bonds call for principal
payments at various dates through 2004.
The company has a $40,000 credit agreement extending through September 1,
1997. There were no outstanding borrowings under this credit agreement at
August 31, 1994. Interest on borrowings under this agreement is based, at the
company's option, on the prime rate, the CD rate plus a premium, or the
euro-dollar rate plus a premium. Premiums are subject to company performance
measured on a quarterly basis, and range from 1/2% to 7/8%. A commitment fee of
1/4% is payable on the unused portion of the credit line.
Debt covenants require the company to maintain certain working capital, debt
and equity ratios. Other provisions limit the aggregate amount of certain
defined payments including purchase of company stock and cash dividends. At
August 31, 1994, all retained earnings were available for the payment of
dividends.
The obligations in connection with industrial revenue bonds and certain
notes included in long-term debt are collateralized by property, plant, and
equipment with a net book value of $3,673 and $4,813 at August 31, 1994 and
1993, respectively.
The company has short-term lines of credit totaling $25,000. These lines
were unused at August 31, 1994 and require no material compensating balances or
commitment fees.
Long-term debt maturities for each of the next five years are $4,019 in
1995, $4,023 in 1996, $1,105 in 1997, $1,107 in 1998, and $1,050 in 1999.
No interest was capitalized in 1994. Capitalized interest was $878 and $354
in 1993 and 1992, respectively. Interest paid was $1,705, $2,230, and $3,488 in
1994, 1993, and 1992, respectively.
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17
DEFERRED LIABILITIES
Deferred liabilities include the noncurrent portion of retirement,
compensation, medical benefits, and estimated future payouts under the
company's self-insured workers' compensation program. These liabilities
primarily relate to the company's provisions for restructuring operations, the
discontinued operation, and postretirement benefits other than pensions.
Significant noncurrent restructuring liabilities for medical and workers'
compensation costs were $2,800 and $4,100 at August 31, 1994, and August 31,
1993, respectively; consolidation and disposition of operations were $2,100 and
$5,600, respectively at August 31, 1994 and August 31, 1993. Postretirement
benefits other than pensions were $5,564 and $6,159 at August 31, 1994 and
August 31, 1993, respectively. These accruals are not deductible for income tax
purposes until paid and are therefore, accounted for as temporary differences
in the company's tax provision.
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18
STOCK OPTIONS
The company has two active stock option plans.
The 1981 Stock Option Plan was approved by shareholders of the company on
December 16, 1981 and amended by the shareholders on December 18, 1985. The
plan provided for the granting of a maximum of 400,000 options to purchase
common shares to key employees of the company and its subsidiaries. The option
price per share may not be less than the fair market value of a share on the
date the option is granted, and the maximum term of an option may not exceed
ten years. Options granted under the plan may include related stock
appreciation rights. Granting of options under this plan expired on October
13, 1991.
The 1989 Stock Incentive Plan was approved by shareholders of the company on
December 14, 1988 and amended by the shareholders on December 9, 1992. The
plan provides for the granting of a maximum of 800,000 stock options, stock
appreciation rights, performance awards, and restricted stock awards to key
employees of the company and its subsidiaries. The option price per share may
not be less than the fair market value of a share on the date the option is
granted, and the maximum term of an option may not exceed ten years.
The 1989 Director Stock Option Plan was approved by the shareholders of the
company on December 14, 1988. The plan provides for the granting of a maximum
of 120,000 nonqualified stock options. The option price per share is equal to
the fair market value of a company share on the date of grant. The term of
each option is five years, and an option first becomes exercisable one year
after the date of grant. Under the plan, each person serving as a director of
the company on the first business day of January of each year, who is not
employed by the company, i.e., an "outside director," will automatically be
granted 1,500 options.
Information regarding the company's stock option plans is summarized below:
1981 1989 1989
Stock Stock Director Stock
Option Plan Incentive Plan Option Plan
Shares under option:
Outstanding at September 1, 1991 . . . . . 141,214 255,000 36,000
Granted . . . . . . . . . . . . . . . . 138,821 12,000
Exercised . . . . . . . . . . . . . . . (108,382) (107,550) (3,000)
Canceled . . . . . . . . . . . . . . . . (2,000) (23,187)
-------- -------- --------
Outstanding at August 31, 1992 . . . . . . 30,832 263,084 45,000
Granted . . . . . . . . . . . . . . . . 102,623 12,000
Exercised . . . . . . . . . . . . . . . (23,832) (46,174) (10,500)
Canceled . . . . . . . . . . . . . . . .
-------- -------- --------
Outstanding At August 31, 1993 . . . . . . 7,000 319,533 46,500
Granted . . . . . . . . . . . . . . . . 97,932 10,500
Exercised . . . . . . . . . . . . . . . (7,000) (65,009) (15,000)
Canceled . . . . . . . . . . . . . . . . (11,129)
-------- -------- --------
Outstanding At August 31, 1994 . . . . . . 341,327 42,000
======== ======== ========
Options available to grant at August 31, 1994 239,940 49,500
======== ======== ========
Average option price per share:
At August 31, 1992 . . . . . . . . . . . . $ 11.73 $ 11.29 $ 13.21
AT August 31, 1993 . . . . . . . . . . . . 12.75 12.81 14.37
AT August 31, 1994 . . . . . . . . . . . . 14.95 16.69
Options exercisable:
At August 31, 1992 . . . . . . . . . . . . 30,832 141,450 33,000
At August 31, 1993 . . . . . . . . . . . . 7,000 216,910 34,500
At August 31, 1994 . . . . . . . . . . . . 243,395 31,500
Average price of options exercised:
Year Ended August 31, 1992 . . . . . . . . $ 11.40 $ 8.93 $ 12.66
Year Ended August 31, 1993 . . . . . . . . 11.43 9.44 11.04
Year Ended August 31, 1994 . . . . . . . . 12.75 11.78 12.66
-47-
19
LEASES
The company has a number of operating lease agreements primarily involving
machinery, physical distribution, and computer equipment. Certain of these
leases contain renewal or purchase options which vary by lease. These leases
are noncancelable and expire on dates through 1999.
Rent expense for continuing operations was $5,234, $2,404, and $2,317 for
the years ended August 31, 1994, 1993, and 1992, respectively.
The following is a schedule by year of future minimum rental payments
required under the operating leases that have initial or remaining
noncancelable lease terms in excess of one year as of August 31, 1994:
1995 . . . . . . . . . . . . . . . . . . . $ 4,395
1996 . . . . . . . . . . . . . . . . . . . 3,901
1997 . . . . . . . . . . . . . . . . . . . 3,394
1998 . . . . . . . . . . . . . . . . . . . 7,983
1999 . . . . . . . . . . . . . . . . . . . 93
-------
TOTAL MINIMUM LEASE PAYMENTS . . . . . . . $19,766
=======
-48-
20
PREFERRED SHARE PURCHASE RIGHTS
The company has a Shareholder Rights Plan pursuant to which holders of the
company's common shares receive a dividend of one preferred share purchase
right (collectively, the "Rights") for each common share held. The Rights
contain features which, under defined circumstances, allow holders to buy
shares at a bargain price. The Rights will expire on February 28, 1998. The
Rights are not presently exercisable and trade in tandem with the common
shares. The Rights become exercisable following the close of business on the
tenth day after a public announcement that a person or group has acquired 20%
or more of the common shares of the company or a public announcement or
commencement of a tender or exchange offer which would result in ownership of
30% or more of the common shares of Amcast. It is expected that the Rights will
begin to trade independently of the company's common shares at that time.
The company may redeem the Rights for 1 cent per Right any time prior to the
close of business on the tenth day following the day that a 20% position is
acquired and under certain circumstances thereafter, including certain
transactions not involving a 20% shareholder of the company.
-49-
21
COMMITMENTS AND CONTINGENCIES
At August 31, 1994, the company has committed to capital expenditures of $5,199
in 1995.
The company is involved in various legal proceedings normally encountered in
the ordinary course of business. The primary issues relate to environmental and
patent infringement matters. Management believes the company's liability for
these matters will not have a material adverse effect on the financial
condition of the company. A more detailed description of these matters may be
found in Management's Discussion of Financial Condition and Results of
Operations under Capital Resources.
-50-
22
PENSION PLANS
The company has a noncontributory defined benefit pension plan covering
substantially all employees. The plan covers salaried employees and provides
pension benefits that are based on years of credited service, employee
compensation during years preceding retirement, and the primary social security
benefit. The plan also covers hourly employees and provides pension benefits of
stated amounts for each year of credited service. The company's policy is to
fund the annual amount required by the Employee Retirement Income Security Act
of 1974. Plan assets consist of U.S. Treasury bonds and notes, U.S.
governmental agency issues, corporate bonds, and common stocks. The plan held
350,000 common shares of the company at August 31, 1994 (9.0% of plan assets)
and 1993 (7.2% of plan assets).
The company also sponsors a deferred compensation profit sharing plan for
the benefit of substantially all salaried employees. The company provides a 15%
match on employee contributions up to 6% of eligible compensation and a
supplemental saving match from 1% to 35% based on the company achieving a
minimum return on shareholders' equity and subject to IRS limitations.
The company participates in a multiemployer plan which provides defined
benefits to certain bargaining unit employees.
The following table sets forth the funded status and the amounts recognized
in the consolidated statements of financial condition for the company's defined
benefit plan at August 31:
1994 1993
Actuarial present value of benefit obligation:
Vested benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (78,127) $(80,582)
========= ========
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (78,901) $(82,035)
========= ========
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (82,654) $(86,199)
Plan assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,986 88,889
--------- --------
Overfunded projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . 332 2,690
Unrecognized net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,847 147
Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,020 2,503
Unrecognized transition (asset)
being recognized over a minimum of 15 years . . . . . . . . . . . . . . . . . . . . . . (4,183) (4,741)
--------- --------
Assets in excess of accumulated
benefits recognized in Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16 $ 599
========= ========
A summary of the components of net periodic pension cost for the defined
plan in 1994, 1993, and 1992, and the total amounts charged to expense for the
defined contribution and multiemployer plans follows:
1994 1993 1992
Defined benefit plan:
Service cost of current period . . . . . . . . . . . . . . . . . . . . . . $ 1,315 $ 1,278 $ 1,257
Interest cost on projected benefit obligation . . . . . . . . . . . . . . 6,289 6,466 6,736
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . (1,798) (10,159) (10,051)
Net amortization and deferral . . . . . . . . . . . . . . . . . . . . . . (5,320) 2,963 2,380
--------- --------- ---------
Net pension cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 486 548 322
Defined contribution plan . . . . . . . . . . . . . . . . . . . . . . . . . . 410 301 348
Multiemployer pension plan . . . . . . . . . . . . . . . . . . . . . . . . . 197 180 184
--------- --------- ---------
TOTAL COST $ 1,093 $ 1,029 $ 854
========= ========= =========
Assumed rates of return:
Weighted average discount rate . . . . . . . . . . . . . . . . . . . . . . 8.0% 7.5% 8.5%
Rate of future compensation increase . . . . . . . . . . . . . . . . . . . 4.7% 4.7% 5.2%
Long-term return on assets:
Dedicated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5% 8.5% 9.5%
Nondedicated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.0% 10.0% 10.5%
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23
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The company provides health care and life insurance benefits to designated
salary and hourly employees who participate in a defined benefit pension plan
and who retired prior to January 1, 1992. The plan coordinates with Medicare
and requires employee contributions. The company also provides similar benefits
to certain employees, represented by bargaining units, who retire before
attaining age 65 and meet certain minimum service requirements. Benefits for
the bargaining unit employees terminate when the retiree attains age 65. The
company funds the postretirement benefits on a cash basis.
In the fourth quarter of 1993, the company elected to adopt Statement of
Financial Accounting Standards (SFAS) No.106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", effective September 1, 1992. The
statement requires the cost of these benefits to be recognized during the
employee's active working career rather than expensed when paid as had been the
prior practice.
The cumulative effect of adopting SFAS 106 using the immediate recognition
method as of September 1, 1992, was a charge to earnings of $3,942, net of
$2,217 deferred income tax benefit. The adoption of SFAS 106 had no material
effect on 1993 operating results.
Accumulated postretirement benefit obligation recognized in 1994 and 1993:
1994 1993
Retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,497 $ 3,122
Fully eligible active plan participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,718 2,609
Other active employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292 428
--------- --------
5,507 6,159
Deferred gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358
--------- --------
$ 5,865 $ 6,159
========= ========
In prior years, health care and life insurance benefits for retired
employees of closed facilities were provided for at the time the related
facility was closed. The accrued postretirement benefit obligation for these
retirees at August 31, 1994 was $2,800.
Net periodic postretirement benefit expense for 1994 and 1993 includes the following:
1994 1993
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28 $ 40
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 460 447
--------- --------
$ 488 $ 487
========= ========
The actuarial assumptions used to determine 1994 and 1993 costs and benefit
obligation includes a discount rate of 8.0% and 7.5%, respectively. An assumed
rate of future increase in per capita cost of health care benefits (health care
trend rates) was 11% in 1994 and 12% in 1993, decreasing gradually to 5% by the
year 2000. Increasing the health care trend rate by one percentage point would
increase the accumulated postretirement benefit obligation $489 and would
increase the 1994 postretirement benefit cost $24.
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24
INCOME TAXES FROM CONTINUING OPERATIONS
The provisions for income taxes are as follows:
1994 1993 1992
Currently payable
State and local . . . . . . . . . . . . . . . . . . $ 466 $ 14 $ 312
Federal . . . . . . . . . . . . . . . . . . . . . . 3,962 2,269 4,794
Deferred
State and local . . . . . . . . . . . . . . . . . . (100) 100
Federal . . . . . . . . . . . . . . . . . . . . . . 3,285 4,396 1,640
------ ------ ------
$7,613 $6,779 $6,746
====== ====== ======
Reconciliations of income taxes computed by applying the statutory federal income tax rate to the provisions for
income taxes are as follows:
Federal income tax at statutory rate . . . . . . . . $7,723 $6,528 $6,372
State income taxes . . . . . . . . . . . . . . . . . 238 74 206
Other. . . . . . . . . . . . . . . . . . . . . . . . (348) 177 168
------ ------ ------
$7,613 $6,779 $6,746
====== ====== ======
The deferred tax effect of temporary differences between financial and tax reporting is as follows:
Depreciation . . . . . . . . . . . . . . . . . . . . $ 628 $ 672 $ (409)
Restructuring . . . . . . . . . . . . . . . . . . . . 518 646 1,192
Discontinued operation . . . . . . . . . . . . . . . 2,493 1,882
Start-up costs . . . . . . . . . . . . . . . . . . . (137) 1,323
Other . . . . . . . . . . . . . . . . . . . . . . . . (317) (27) 857
------ ------ ------
$3,185 $4,496 $1,640
====== ====== ======
The company has an alternative minimum tax credit of $975 available to offset
future tax payments. Income taxes paid totaled $3,347, $2,474, and $4,174 in
1994, 1993, and 1992, respectively.
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25
SUPPLEMENTARY EARNINGS PER SHARE
On April 7, 1992, the company completed the sale of 1,700,000 shares of its
common stock in a public offering. The proceeds of the sale were used to repay
borrowings under the company's revolving credit agreement, and short-term lines
of credit, and to fund construction and the purchase of equipment for two new
manufacturing facilities.
If the common stock offering had occurred on September 1, 1991, and excess
proceeds were invested, 1992 earnings (loss) per share, based on 8,280,000
average shares outstanding, would have been $1.53 on continuing operations and
$(2.15) on the discontinued operation.
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26
MAJOR CUSTOMERS AND CREDIT CONCENTRATION
The company sells products to customers primarily in the United States. The
company performs ongoing credit evaluations of customers, and generally does
not require collateral. Allowances are maintained for potential credit losses
and such losses have been within management's expectations.
On August 31, 1994, trade receivables from the domestic automotive industry
were $15,111 and $17,652 was due from the construction industry.
Sales to Engineered Components' largest customer, General Motors
Corporation, were $89,300, $60,000, and $80,400 for the years ended August 31,
1994, 1993, and 1992, respectively. Trade receivables from General Motors
Corporation on August 31, 1994, were $10,175 and were current. No other single
customer accounted for a material portion of trade receivables.
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27
BUSINESS SEGMENTS
The company has identified its business segments as Flow Control Products and
Engineered Components.
Through the Flow Control Products and Engineered Components segments, the
company serves the construction, automotive, industrial, and aviation/defense
sectors of the economy. See Corporate Profile on the inside front cover and
pages 4 through 15 for a review of the major products produced.
Flow Control Products' sales of pipe fittings amounted to $92,532, $80,156,
and $79,547 in 1994, 1993 and 1992, respectively. Sales of aluminum products
to the automotive industry by Engineered Components amounted to $111,104,
$76,873, and $89,335 in 1994, 1993, and 1992, respectively. Export sales and
sales by geographic area were not material.
INCOME FROM CONTINUING
NET SALES OPERATIONS BEFORE TAXES
1994 1993 1992 1994 1993 1992
Flow Control Products . . . . . . . . $ 124,090 $110,096 $108,306 $19,849 $15,703 $ 10,765
Engineered Components . . . . . . . . 147,766 112,547 128,499 10,034 8,228 14,780
Corporate . . . . . . . . . . . . . . (6,222) (3,834) (3,882)
Interest Expense . . . . . . . . . . (1,594) (1,266) (2,923)
--------- -------- -------- -------- -------- --------
$ 271,856 $222,643 $236,805 $22,067 $18,831 $ 18,740
========= ======== ======== ======== ======== ========
IDENTIFIABLE ASSETS DEPRECIATION AND AMORTIZATION
Flow Control Products . . . . . . . . $ 65,564 $ 61,753 $ 62,569 $ 3,913 $ 3,947 $ 3,824
Engineered Components . . . . . . . . 97,798 89,061 83,371 8,707 7,813 7,088
Corporate . . . . . . . . . . . . . . 18,410 5,743 6,712 192 250 290
--------- -------- --------
Continuing Operations . . . . . . . . 181,772 156,557 152,652
Discontinued Operation . . . . . . . 12,389 19,980 21,122
--------- -------- -------- -------- -------- --------
$ 194,161 $176,537 $173,774 $12,812 $12,010 $ 11,202
========= ======== ======== ======== ======== ========
CAPITAL EXPENDITURES
Flow Control Products . . . . . . . . $ 4,893 $ 2,345 $ 3,775
Engineered Components . . . . . . . . 10,592 11,522 17,945
Corporate . . . . . . . . . . . . . . 111 123 111
--------- -------- --------
$ 15,596 $ 13,990 $ 21,831
========= ======== ========
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28
QUARTERLY FINANCIAL DATA (UNAUDITED)
($ in thousands except per share data)
FISCAL QUARTER FOR THE YEAR
---------------------------------------------------------------------------------------
1994 1ST 2ND 3RD 4TH
Net sales . . . . . . . . . . . $ 60,328 $ 67,697 $ 70,902 $ 72,929 $ 271,856
Gross profit . . . . . . . . . 12,635 14,694 15,822 16,107 59,258
Net income . . . . . . . . . . 2,685 3,513 4,291 3,965 14,454
Net income per share . . . . . $ .32 $ .42 $ .51 $ .47 $ 1.72
Average number of . . . . . . .
shares outstanding . . . . . 8,390 8,409 8,444 8,455 8,425
Fiscal Quarter For the Year
---------------------------------------------------------------------------------------
1993 1st 2nd 3rd 4th
Net sales . . . . . . . . . . . $ 53,074 $ 56,405 $ 55,770 $ 57,394 $ 222,643
Gross profit . . . . . . . . . 11,666 13,012 12,879 12,868 50,425
Income (loss) from:
Continuing operations . . . 2,459 2,946 3,407 3,240 12,052
Cumulative effect of
accounting change . . . . (3,942) (3,942)
-------- -------- -------- -------- --------
Net income . . . . . . . . . (1,483) 2,946 3,407 3,240 8,110
Income (loss) per share:
Continuing operations . . . .30 .35 .41 .38 1.44
Cumulative effect of
accounting change . . . . (.47) (.47)
-------- -------- -------- -------- ---------
Net income . . . . . . . . . $ (.17) $ .35 $ .41 $ .38 $ .97
Average number of
shares outstanding . . . . . 8,311 8,335 8,360 8,379 8,347
<FN>
The impact of adopting SFAS 106 on 1993 operating results is not material; therefore, quarterly income from continuing
operations has not been restated.
-57-