1
Exhibit 13.1
The following table sets forth selected consolidated financial data of the
Company. The data for each of the five years in the period ended October 31,
1996, are derived from the consolidated financial statements of the Company,
which have been audited by Price Waterhouse LLP, independent accountants. The
data presented below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Financial
Statements and the notes thereto included elsewhere in this annual report.
(amounts in thousands, except per share data) Years Ended October 31,
-----------------------------------------------------
INCOME STATEMENT DATA: 1996 1995 1994 1993 1992
-----------------------------------------------------
Revenues $ 219,466 $ 212,348 $ 194,766 $ 162,526 $132,661
Cost of sales 173,836 173,734 164,013 134,607 106,726
-----------------------------------------------------
Gross profit 45,630 38,614 30,753 27,919 25,935
Selling, general and administrative expenses 17,086 14,341 13,962 12,324 13,314
-----------------------------------------------------
Operating income 28,544 24,273 16,791 15,595 12,621
Interest expense, net 111 402 836 1,377 1,820
Minority interest 123 -- -- (6) (57)
Other income (expense), net (81) 64 (82) 182 133
-----------------------------------------------------
Income from continuing operates before taxes and effect of
change in accounting principle 28,475 23,935 15,873 14,394 10,877
Provision for income taxes 10,952 9,471 6,491 5,958 4,523
-----------------------------------------------------
Income from continuing operations before effect of
change in accounting principle 17,523 14,464 9,382 8,436 6,354
Loss from discontinued operations, net of income taxes (256) (289) (613) 427 636
Loss of sale of discontinued operations, net of income taxes (9,589) -- -- -- --
Effect of change in accounting principle -- -- (281) -- --
-----------------------------------------------------
Net income $ 7,678 $ 14,175 $ 8,488 $ 8,863 $ 6,990
=====================================================
ACTUAL
Income from continuing operations before effect of
change in accounting principle per share $ 1.35 $ 1.11 $ 0.72
Loss from discontinued operations, net of income taxes per share (0.02) (0.02) (0.05)
Loss on sale of discontinued operations, net of income taxes per share (0.74) -- --
Effect of change in accounting principle per share -- -- (0.02)
-------------------------------
Net income per share $ 0.59 $ 1.09 $ 0.65
===============================
Weighted average number of common shares 13,011 13,003 12,968
PRO FORMA: (1)
Income from continuing operations before effect of
change in accounting principle per share (1) $ 0.82 $ 0.69
Income from discontinued operations, net of income taxes per share (1) 0.04 0.07
-------------------
Net income per share (1) $ 0.86 $ 0.76
===================
Weighted average number of common shares: 10,351 9,167
OTHER DATA:
(excludes Shafer Valve)
Capital expenditures $ 37,482 $ 25,519 $ 12,815 $ 12,803 $ 15,504
Depreciation and amortization 7,166 6,467 6,063 5,125 4,440
BALANCE SHEET DATA:
Working capital $ 34,813 $ 36,405
Total assets 207,009 173,264
Total debt 52,933 23,306
Stockholders' equity 126,157 118,479
<FN>
(1) Periods prior to the reorganization are computed based upon the number of
shares outstanding immediately subsequent to the Company's initial public
offering in July 1993.
18
2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SHILOH INDUSTRIES, INC.
GENERAL
In 1995, the Company prepared a long-term, business plan which included a
strategic decision to concentrate on the core steel processing segment. As a
result, the Company sought inquiries from prospective bidders for the sale of
its subsidiary, Shafer Valve Company ("Shafer Valve"). Effective April 30, 1996,
the Company accounted for Shafer Valve as a discontinued operation. In May 1996,
the Company entered into an agreement to sell the stock of Shafer Valve to
Bettis Corporation. The sale was completed on July 9, 1996.
Subsequent to the November 1, 1996 purchase of Greenfield Die &
Manufacturing Company ("GDM"), the Company operates through eight subsidiaries,
Shiloh Corporation, Valley City Steel Company, The Sectional Die Company, Medina
Blanking, Inc., Sectional Stamping, Inc., Liverpool Coil Processing, Inc.,
Shiloh of Michigan, L.L.C., the Company's joint venture with Rouge Steel
("Shiloh of Michigan"), and GDM.
The Company typically experiences decreased revenue and operating income
during the first fiscal quarter of each year, usually resulting from generally
slower overall automobile production during the winter months. The revenues and
operating income in the third fiscal quarter can also be affected by the
typically lower automobile production activities in July due to manufacturers'
changeover in production lines.
The Company provides a full range of intermediate steel processing services
through two product lines: blanking and stamping; and other steel processing
services, which include pickling hot rolled steel and slitting, edge trimming,
roller leveling and cutting to length hot and cold rolled steel. The following
table sets forth, for the periods indicated, revenues by product line. Revenues
from intercompany sales have been allocated to the product line providing the
product or service.
Years Ended October 31
--------------------------------------------------------------------------
(dollars in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
AMOUNT % Amount % Amount %
--------------------------------------------------------------------------
Blanking and Stamping $153,270 69.8 % $151,282 71.2 % $133,373 68.5 %
Other Steel Processing 66,196 30.2 % 61,066 28.8 % 61,393 31.5 %
--------------------------------------------------------------------------
Total $219,466 100.0 % $212,348 100.0 % $194,766 100.0 %
==========================================================================
In analyzing the financial aspects of the Company's steel processing
operations, a number of factors must be considered. First, plant utilization
levels are very important to profitability because of the capital intensive
nature of these operations. Because the Company performs a number of different
processing operations, however, it is not meaningful to analyze simply the total
tons of steel processed. For example, blanking and stamping involve more
operational processes, from the design and manufacture of tools and dies to the
production and packaging of the final product, than the Company's other steel
processing services and therefore generally have higher margins. Second, a
significant portion of the Company's steel processing products and services is
provided to customers on a toll processing basis. Under these arrangements, the
Company charges a specified toll processing fee for the processing operations
performed without acquiring ownership of the steel and being burdened with the
attendant costs of ownership and risk of loss. The Company estimates that during
the past three years approximately 86% of total tons processed was done on a
toll processing basis. Revenues from operations involving directly owned steel
include a component of raw material cost whereas toll processing revenues do
not. As a result, the proportion of toll processing revenues to total steel
processing revenues decreases as total revenues increase, provided the mix
between toll processing and directly owned steel processing remains relatively
constant. By product line, the Company's blanking and stamping operations use
more directly owned steel than do its other steel processing operations. In
addition, changes in the price of steel can impact the Company's results of
operations because raw material costs are by far the largest component of cost
of sales in processing directly owned steel.
19
3
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, income statement
data of the Company expressed as a percentage of revenues:
Years Ended October 31,
- --------------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------
Revenues 100.0% 100.0% 100.0%
Cost of sales 79.2 81.8 84.2
- --------------------------------------------------------------------------------------
Gross profit 20.8 18.2 15.8
Selling, general and administrative expenses 7.8 6.8 7.2
- --------------------------------------------------------------------------------------
Operating income from continuing operations 13.0 11.4 8.6
Interest expense, net -- .2 .4
Minority interest -- -- --
- --------------------------------------------------------------------------------------
Income from continuing operations
before taxes and effect of change in
accounting principle 13.0 11.2 8.2
Provision for income taxes 5.0 4.4 3.3
- --------------------------------------------------------------------------------------
Income from continuing operations
before effect of change in
accounting principle 8.0 6.8 4.9
Loss from discontinued operations, net
of income taxes .1 .1 .3
Loss on sale of discontinued
operations, net of tax 4.4 -- --
Effect of change in accounting principle -- -- (.2)
- --------------------------------------------------------------------------------------
Net income 3.5% 6.7% 4.4%
======================================================================================
YEAR ENDED
OCTOBER 31, 1996
COMPARED TO
YEAR ENDED
OCTOBER 31, 1995
REVENUES. Revenues increased by $7.1 million, or 3.4%, to $219.5 million
for the year ended October 31, 1996 from $212.4 million for the comparable
period in 1995. The increase in revenues primarily reflects improvements in the
Company's steel processing product line. The percentage of toll processing sales
as a percentage of total sales increased to 28.8% in 1996 from 26.3% in 1995.
Revenues from the blanking and stamping product line for 1996 increased
approximately 1.3% from the comparable period of 1995, while revenues from the
other steel processing product line increased approximately 8.4%.
GROSS PROFIT. Gross profit increased $7.0 million, or 18.2%, to $45.6
million for 1996 from $38.6 million for the comparable period in 1995. Gross
margin increased to 20.8% for 1996 from 18.2% for the comparable period in 1995.
The increase in gross margin is principally due to management's continued
efforts to contain costs and recover historical steel price increases through
higher sale prices to its customers. Continued improvements in gross margin will
be more difficult to achieve as the impact of these price increases lessens. In
addition, the increase in toll processing sales as a percentage of total sales
contributed to gross margin improvement.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $2.8 million, or 19.6%, to $17.1 million
for 1996 from $14.3 million for the comparable period in the prior year. As a
percentage of revenues, these expenses increased to 7.8% for 1996 from 6.8% for
the comparable period in 1995. The increase is primarily due to the expansion of
the corporate sales staff and to pre-operating costs with respect to Shiloh of
Michigan.
20
4
OTHER. Interest expense, net decreased to $110,540 in 1996 from $402,449 in
the prior year due primarily to capitalization of interest related to expansion
of several facilities. The provision for income taxes was $11.0 million in 1996
compared with $9.5 million in 1995, representing effective tax rates of 38.5%
and 39.6%. The reduction in the effective tax rate is primarily due to state tax
credits.
DISCONTINUED OPERATIONS. On July 9, 1996, the Company sold the stock of
Shafer Valve and accordingly has accounted for this operation as a discontinued
operation. Prior years' statements of income and cash flows have been restated
to reflect the discontinuation of the valve actuator segment.
YEAR ENDED OCTOBER 31, 1995 COMPARED TO YEAR ENDED OCTOBER 31, 1994
REVENUES. Revenues increased by $17.6 million, or 9.0%, to $212.4 million
for the year ended October 31, 1995 from $194.8 million for 1994. The increase
in revenues primarily reflects improvements in the Company's blanking and
stamping product line. Revenues from blanking and stamping increased 13.4% while
revenues from other steel processing decreased by 0.5% in 1995 compared with
1994. The percentage of total steel processing revenues from directly owned
steel processed decreased from 75.6% to 73.7%.
GROSS PROFIT. Gross profit increased $7.9 million, or 25.6%, to $38.6
million for 1995 from $30.8 million for the comparable period in 1994. Gross
margin increased to 18.2% in 1995 from 15.8% in 1994. The increase in gross
margin is primarily a result of management's continued efforts to contain costs
and recover historical steel price increases through higher sale prices to its
customers. In addition, the increase in toll processing sales as a percentage
of total sales contributed to gross margin improvement as did the shift in mix
to blanking and stamping from other steel processing. The percentage of total
steel processing revenues from toll processing increased to 26.3% in 1995 from
24.4% in 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased by $0.4 million, or 2.9% to $14.3 million in
1995 from $14.0 million in 1994. As a percentage of revenues, these expenses
declined to 6.8% in 1995 from 7.2% in 1994. The decrease is attributable to
successful cost containment measures implemented beginning the second quarter of
1994.
OTHER. Interest expense, net decreased to $402,449 in 1995 from $836,141 in
the prior year due primarily to capitalization of interest related to expansion
of several facilities. The provision for income taxes was $9.5 million in 1995
compared with $6.5 million in 1994, representing effective tax rates of 39.6%
and 40.9%, respectively.
LIQUIDITY
AND CAPITAL RESOURCES
At October 31, 1996, the Company had $34.8 million of working capital,
representing a current ratio of 2.5 to 1 and long-term debt of 40.0% of total
equity. As a result of this strong financial condition, the Company will be able
to continue its planned investment in new equipment and facilities through the
next fiscal year.
Net cash provided by operating activities is primarily generated from net
income of the Company plus non-cash charges for depreciation and amortization,
which because of the capital intensive nature of the Company's business, are
substantial. Net cash provided by operating activities for 1996 was $16.6
million as compared to $25.5 million for the comparable period in 1995.
Fluctuations in working capital, including the working capital of discontinued
operations, were the primary factors causing the decrease in net cash provided
by operations from 1995 to 1996. The provision for loss on sale of the
discontinued operations had no effect on cash flow during the period. Net cash
provided by operating activities has historically been used by the Company to
fund a portion of its capital expenditures.
Capital expenditures were $37.5 million during the year ended October 31,
1996 and $25.5 million for the comparable period in 1995. The capital
expenditures made during 1996 were primarily for the construction of a blanking
facility in Romulus, Michigan, a joint venture with Rouge Steel, as well as a
$15 million expansion of stamping operations at the Company's Sectional Stamping
facility in Wellington, Ohio. The Company's total capital budget for 1997
amounts to approximately $60 million. The increased level of capital
expenditures is due to the planned construction of an $8.0 million tool and die
facility in Wellington, Ohio, as well as $25.6 million in expansions of current
blanking and stamping facilities. These additions are being made to support
increased business and anticipated new business and to enhance productivity. The
Company anticipates financing these expansions through traditional bank
financing.
21
5
On November 1, 1996, the Company completed the acquisition of GDM for
approximately $22 million. This acquisition was financed with funds obtained
through Shiloh's credit facilities.
Prior to April 16, 1996, the Company had a $23 million unsecured revolving
credit facility with Society National Bank (now known as KeyBank National
Association)("KeyBank"). In conjunction with the negotiation of the new credit
facility described below, this line was terminated. On April 16, 1996, the
Company signed an agreement with KeyBank for a new revolving credit facility
("Shiloh Facility") not to exceed $30 million. The term of the Shiloh Facility
extends to February 28, 2000 with an option for successive one year term
extensions available at the Company's request and KeyBank's approval, upon
proper written notification. The Company has the option to select the applicable
interest rate at KeyBank's prime rate or the LIBOR rate plus 1/2% fixed in
increments of 30, 60 or 90 days. The terms of the agreement require an annual
commitment fee equal to 1/4% on the average unused amount of the Shiloh
Facility. In addition, the Company is acting as an 80% guarantor for a $23
million revolving credit facility entered into by Shiloh of Michigan ("SOM
Facility"). The Company is required to maintain certain customary operating and
financial covenants during the terms of the Shiloh Facility and the SOM
Facility. The Company is in compliance with all of its loan covenants, and none
of these covenants would preclude the Company from completing currently planned
capital expenditures.
The Company believes that it currently has sufficient liquidity and
available capital resources to meet its existing needs, and the financial
capability to increase its long-term borrowing level if that becomes appropriate
due to changes in its capital requirements. Aggregate total availability under
the Shiloh Facility and the SOM Facility is $56.0 million, $11.0 million of
which was unused at October 31, 1996. The $13.2 million proceeds from the sale
of Shafer Valve was used primarily to reduce debt.
In March 1995, Medina County, Ohio issued on behalf of the Company an
aggregate of $5.4 million in principal amount of variable rate industrial
revenue bonds due 2010, which are secured by the Company with a letter of
credit. The funds from these bonds were used to finance a portion of the
expansion at the Company's steel pickling operations in Valley City, Ohio. The
Company had withdrawn the entire $5.4 million as of October 31, 1996.
OUTLOOK
The statements contained in this Report that are not historical facts are
forward-looking statements. These forward-looking statements are subject to
certain risks and uncertainties with respect to the Company's operations in
fiscal 1997 as well as over the long term such as, without limitations, (i) a
downturn in the automotive industry, which is highly cyclical, dependent on
consumer spending and subject to the impact of domestic and international
economic conditions and regulations and policies regarding international trade,
(ii) the ability of the Company to accomplish its strategic objectives with
respect to external expansion through selective acquisitions and internal
expansion and (iii) increases in the price of, or limitations on the
availability of steel, the Company's primary raw material. Any or all of these
risks and uncertainties could cause actual results to differ materially from
those reflected in the forward-looking statements. These forward-looking
statements reflect management's analysis only as of the date of the filing of
this Report. The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise after
the date hereof. In addition to the disclosure contained herein, readers should
carefully review risks and uncertainties contained in other documents the
Company files from time to time with the Securities and Exchange Commission.
EFFECT OF
INFLATION
Inflation generally affects the Company by increasing the interest expense
of floating rate indebtedness and by increasing the cost of labor, equipment and
raw materials. Although the general level of inflation has not had a material
effect on the Company's financial results, the Company's difficulties in passing
through steel price increases adversely affected its operating results in fiscal
1994.
22
6
MARKET FOR
COMPANY'S
COMMON
EQUITY AND
RELATED
STOCKHOLDERS'
MATTERS
As of the close of business on January 17, 1997, there were 175
stockholders of record for the Company's Common Stock. The Company has not
declared or paid any cash dividends on shares of its equity securities,
including Common Stock, since its incorporation in April 1993. The Company
currently intends to retain earnings to support its growth strategy and does not
anticipate paying dividends in the foreseeable future. The Common Stock is
traded on the Nasdaq National Market under the symbol "SHLO."
STOCK HIGH LOW
The Company's Common Stock commenced trading on June 29, 1993. The table
below sets forth the high and low closing prices for the Company's Common Stock
for its four quarters in 1995 and 1996.
High Low
- -----------------------------------------------
1st Quarter
January 31, 1995 $ 9.25 $ 7.00
2nd Quarter
April 30, 1995 $ 9.88 $ 8.25
3rd Quarter
July 31, 1995 $11.13 $ 7.63
4th Quarter
October 31, 1995 $12.38 $10.25
1st Quarter
January 31, 1996 $13.00 $10.63
2nd Quarter
April 30, 1996 $14.38 $12.00
3rd Quarter
July 31, 1996 $17.75 $13.00
4th Quarter
October 31, 1996 $18.00 $12.75
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Shiloh Industries, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of cash flows and of stockholders' equity,
present fairly, in all material respects, the financial position of Shiloh
Industries, Inc. and its subsidiaries at October 31, 1996 and 1995 and the
results of their operations and their cash flows for each of the three years in
the period ended October 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
management of Shiloh Industries, Inc.; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Notes 10 and 12 to the consolidated financial statements,
the Company changed its method of accounting for postretirement benefits other
than pensions and for income taxes in 1994.
/s/ Price Waterhouse LLP
Cleveland, Ohio
December 10, 1996
23
7
CONSOLIDATED BALANCE SHEET
Shiloh Industries, Inc.
October 31,
- -------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 1,721,152 $ 2,391,645
Accounts receivable 33,115,765 31,908,590
Inventory 18,626,492 21,047,110
Deferred income taxes 1,034,092 2,860,311
Prepaid expenses 3,573,160 2,469,767
- -------------------------------------------------------------------------------
Total current assets 58,070,661 60,677,423
- -------------------------------------------------------------------------------
Property, plant and equipment, net 122,293,375 97,952,032
Goodwill 615,318 11,295,553
Other long-term assets 26,029,671 3,338,583
- -------------------------------------------------------------------------------
Total assets $207,009,025 $173,263,591
- -------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 9,719,528 $ 8,559,699
Current portion of long-term debt -- 2,350,000
Short-term note payable 2,500,000 --
Accrued income taxes 1,412,499 2,927,251
Other accrued expenses 9,625,343 10,435,319
- -------------------------------------------------------------------------------
Total current liabilities 23,257,370 24,272,269
- -------------------------------------------------------------------------------
Long-term debt 50,433,352 20,956,042
Deferred income taxes 7,161,027 9,494,277
Long-term person liability -- 61,827
- -------------------------------------------------------------------------------
Total liabilities 80,851,749 54,784,415
- -------------------------------------------------------------------------------
Stockholders' equity
Common stock, par value $.01 per share;
25,000,000 shares authorized;
13,011,663 shares issued and outstanding
at October 31, 1996 and 1995 130,116 130,116
Preferred stock, $.01 per share; 5,000,000
shares authorized and unissued -- --
Paid-in capital 38,375,152 38,375,152
Retained earnings 87,652,008 79,973,908
- -------------------------------------------------------------------------------
Total stockholders' equity 126,157,276 118,479,176
- -------------------------------------------------------------------------------
Commitments and contingent liabilities -- --
Total liabilities and stockholders'
equity $207,009,025 $173,263,591
===============================================================================
<FN>
The accompanying notes are an integral part of these financial statements.
24
8
CONSOLIDATED STATEMENT OF INCOME
Shiloh Industries, Inc.
Year Ended October 31,
- ----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
Revenues $ 219,465,925 $ 212,347,916 $ 194,765,771
Cost of sales 173,835,459 173,734,108 164,012,691
- ----------------------------------------------------------------------------------------------------------------------------------
Gross Profit 45,630,466 38,613,808 30,753,080
Selling, general and administrative expenses 17,086,152 14,340,652 13,961,812
- ----------------------------------------------------------------------------------------------------------------------------------
Operating income 28,544,314 24,273,156 16,791,268
Interest expense, net 110,540 402,449 836,141
Minority interest 123,162 -- --
Other income (expense), net (81,215) 64,019 (82,254)
- ----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before taxes and effect of change in
accounting principle 28,475,721 23,934,726 15,872,873
Provision for income taxes 10,952,269 9,470,855 6,490,598
- ----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before effect of change in accounting principle 17,523,452 14,463,871 9,382,275
Loss from discontinued operations, net of income taxes (256,139) (288,469) (613,453)
Loss on sale of discontinued operations, net of income taxes (9,589,213) -- --
Effect of change in accounting principle -- -- (280,943)
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 7,678,100 $ 14,175,402 $ 8,487,879
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings per share:
Income from continuing operations before effect of change in
accounting principle $ 1.35 $ 1.11 $ .72
Loss from discontinued operations (.02) (.02) (.05)
Loss on sale of discontinued operations (.74) -- --
Effect of change in accounting principle -- -- (.02)
- ----------------------------------------------------------------------------------------------------------------------------------
Net income per share $ 0.59 $ 1.09 $ .65
==================================================================================================================================
Weighted average number of common shares 13,011,663 13,002,616 12,968,210
<FN>
The accompanying notes are an integral part of these financial statements.
25
9
CONSOLIDATED STATEMENT OF CASH FLOWS
Shiloh Industries, Inc.
Years Ended October 31,
- --------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net income $ 7,678,100 $ 14,175,402 $ 8,487,879
Adjustments to reconcile net income from continuing operations
to net cash provided by operating activities:
Depreciation and amortization 7,165,910 6,466,668 6,062,570
Discontinued operations 9,845,352 288,469 613,453
Minority interest (103,162) -- --
Deferred income taxes 1,290,012 683,979 215,691
Deferred pension -- 61,827 (746,750)
Loss (gain) on sale of assets -- 40,831 301,321
Effect of accounting change -- -- 280,943
Changes in operating assets and liabilities:
Accounts receivable (3,412,343) (1,757,362) 1,559,378
Inventories (2,527,297) 2,639,569 (5,994,768)
Prepaids and other assets (1,415,075) 1,690,578 (2,421,798)
Payables and accruals 3,492,744 1,060,896 2,373,245
Accrued income taxes (1,226,016) 1,270,429 2,781,325
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 20,788,225 26,621,286 13,512,489
Discontinued operations - non cash and working capital changes (4,225,697) (1,165,511) 1,418,686
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 16,562,528 25,455,775 14,931,175
- --------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Capital expenditures (37,482,394) (25,519,357) (12,814,959)
Proceeds from sale of assets 13,200,000 297,580 108,416
Deposit for acquisition of business (22,577,937) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (46,860,331) (25,221,777) (12,706,543)
- --------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Proceeds from short-term borrowings 16,500,000 11,800,000 7,800,000
Repayments of short-term borrowings (14,000,000) (11,800,000) (19,000,000)
Proceeds from long-term borrowings 65,102,310 5,331,042 12,500,000
Repayments of long-term borrowings (37,975,000) (4,892,836) (5,346,558)
Issuance of common stock -- 194,696 368,362
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities 29,627,310 632,902 (3,678,196)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (670,493) 866,900 (1,453,564)
Cash and cash equivalents at beginning of period 2,391,645 1,524,745 2,978,309
- --------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,721,152 $ 2,391,645 $ 1,524,745
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these financial statements.
26
10
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Shiloh Industries, Inc.
Common
Stock Additional
($.01 Par Paid-in Retained
Value) Capital Earnings Total
- --------------------------------------------------------------------------------------------------------------------------------
October 31, 1993 $129,492 $37,812,718 $57,310,627 $ 95,252,837
Issuance of 39,680 common shares 397 367,965 -- 368,362
Net Income -- -- 8,487,879 8,487,879
- ------------------------------------------------------------------------------------------------------------------------------------
October 31, 1994 129,889 38,180,683 65,798,506 104,109,078
Issuance of 22,813 common shares 227 194,469 -- 194,696
Net Income -- -- 14,175,402 14,175,402
- ------------------------------------------------------------------------------------------------------------------------------------
October 31, 1995 130,116 38,375,152 79,973,908 118,479,176
Net Income -- -- 7,678,100 7,678,100
- ------------------------------------------------------------------------------------------------------------------------------------
October 31, 1996 $130,116 $38,375,152 $87,652,008 $126,157,276
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
27
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shiloh Industries, Inc.
NOTE 1
BUSINESS
The Company is a vertically integrated steel
processor that supplies high quality blanks, stampings and processed
steel to the automotive and other industries.
NOTE 2
SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all wholly-owned and majority-owned subsidiaries. All significant
intercompany transactions have been eliminated.
REVENUE RECOGNITION
The Company recognizes revenue upon product shipment. Revenues include both
direct sales as well as toll processing revenue. Toll processing revenue is
generated when the Company processes customer owned material. Revenues include
$63,171,827, $55,848,345 and $47,439,862 of toll processing revenue for 1996,
1995 and 1994, respectively.
EMPLOYEE BENEFIT PLANS
The Company accrues the cost of defined benefit pension plans which cover a
majority of the Company's employees in accordance with Statement of Financial
Accounting Standards No. 87 ("SFAS 87"). The plans are funded based on the
requirements and limitations of the Employee Retirement Income Security Act of
1974. Substantially all employees of the Company participate in discretionary
profit sharing plans administered by the Company. The Company also provides
postretirement benefits to certain employees (Note 10).
GOODWILL
The total cost of the Shafer Valve acquisition in May 1992 was $26,489,971,
excluding acquired cash of $7,483,092, which exceeded the fair value of net
assets by $12,066,500. The excess was amortized on a straight-line basis over 30
years. Accumulated amortization was $1,407,029 at October 31, 1995.
During June 1993, the Company acquired the minority interest of the
Sectional Die Company for $1,939,856. Such amount exceeded the minority interest
in the underlying net assets by $847,752 and this excess was allocated to assets
and liabilities utilizing purchase accounting. Of this amount $693,320 was
allocated to goodwill which is being amortized on a straight line basis over 30
years. During 1996, 1995 and 1994, goodwill amortization amounted to $20,763,
$23,113 and $25,595, respectively. Accumulated amortization was $78,001 and
$57,238 at October 31, 1996 and 1995, respectively.
The Company uses an undiscounted cash flow method to periodically review
the net realizable value of goodwill and other long-term assets.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include checking accounts and all highly liquid
investments with an original maturity of three months or less.
INVENTORIES
Inventories are valued at the lower of cost or market, cost being
determined primarily by the last-in, first-out ("LIFO") method and the balance
determined by the first-in, first-out ("FIFO") method, which approximates
average cost.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Expenditures for
maintenance, repairs and renewals are charged to expense as incurred, whereas
major improvements are capitalized. The cost of these improvements is
depreciated over their estimated useful lives. Useful lives range from five to
twelve years for furniture and fixtures and machinery and equipment, fifteen to
twenty years for land improvements and thirty to forty years for buildings and
their related improvements. Depreciation is computed using principally the
straight-line method for financial reporting purposes and accelerated methods
for income tax purposes.
INCOME TAXES
The Company utilizes the asset and liability method in accounting for
income taxes which requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of temporary differences between
the carrying amount and tax basis of assets and liabilities.
28
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shiloh Industries, Inc.
NOTE 2
SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES --
CONTINUED
CONCENTRATION OF CREDIT RISK
The Company sells products to customers primarily in the automotive and
heavy truck industries. The Company performs on-going credit evaluations of its
customers and generally does not require security when extending credit. The
Company maintains a reserve for potential credit losses. Such losses have
historically been within management's expectations. Currently, the Company does
not have financial instruments with off-balance sheet risk.
FAIR VALUE OF
FINANCIAL INSTRUMENTS
The carrying amount of cash and investments, trade receivables and payables
approximates fair value because of the short maturity of those instruments. The
carrying value of the Company's long-term debt is considered to approximate the
fair value of these instruments based on the borrowing rates currently available
to the Company for loans with similar terms and maturities.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
EARNINGS PER SHARE
Earnings per share is computed by dividing the net income by the weighted
average number of common shares outstanding.
NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), was issued. The
Company will adopt SFAS No. 123 in the year ending October 31, 1997. The Company
will continue to apply APB Opinion 25 in accounting for stock-based employee
compensation; however, the impact of the fair value based method described in
SFAS No. 123 will be presented in the notes to the financial statements.
NOTE 3
DISCONTINUED
OPERATIONS
On July 9, 1996, the Company completed the sale of substantially all of the
issued and outstanding common stock of Shafer Valve for $13,200,000 in cash. The
disposition of this segment resulted in a $9,589,213 loss after tax and has been
accounted for as a discontinued operation. Accordingly, prior years' statements
of income and cash flows have been restated to reflect the discontinuation of
the valve actuator segment.
Summary operating data of the discontinued operation for the period ending
July 9, 1996, and fiscal years 1995 and 1994 were as follows:
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Sales $10,931,052 $16,461,916 $15,252,804
Gross profit 2,395,279 4,235,599 4,281,962
Loss before income
taxes (756,391) (309,034) (883,488)
Income tax benefit 244,238 20,565 270,035
- --------------------------------------------------------------------------------
Net loss from
discontinued
operations (512,153) (288,469) (613,453)
================================================================================
29
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shiloh Industries, Inc.
NOTE 4
ACCOUNTS
RECEIVABLE
Accounts receivable in the consolidated balance sheet are expected to be
collected within one year and are net of provisions for doubtful accounts, in
the amount of $913,070 and $1,105,068, at October 31, 1996 and 1995,
respectively.
NOTE 5
INVENTORIES
Inventories consist of the following:
October 31,
1996 1995
- ----------------------------------------------------------------------
Raw materials $11,557,662 $14,521,604
Work-in-process 2,797,698 3,400,070
Finished goods 5,475,054 4,760,141
- ----------------------------------------------------------------------
Total at average cost 19,830,414 22,681,815
LIFO reserve (1,203,922) (1,634,705)
- ----------------------------------------------------------------------
Total $18,626,492 $21,047,110
======================================================================
Average cost inventory is net of reserves to reduce certain inventory from
cost to net realizable value. Such reserves aggregated $82,181 and $482,368 at
October 31, 1996 and 1995, respectively. Of the total inventory at average cost
at October 31, 1996 and 1995, $17,741,751 and $15,472,642, respectively, were
valued using the LIFO method.
During 1995, the Company reduced certain inventory quantities which were
valued at lower LIFO costs prevailing in prior years. The effect of this
reduction was to decrease cost of goods sold by approximately $246,800 and to
increase net income by approximately $148,080 or $.01 per share.
NOTE 6
OTHER
ASSETS
Other assets consist of the following:
October 31,
- -------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------
Cash surrender value of life
insurance $ 2,990,140 $2,975,615
Long-term pension asset -- 61,827
Other 461,594 301,141
Deposit for acquisition (Note 16) 22,577,937 --
- -------------------------------------------------------------------
Total $26,029,671 $3,338,583
===================================================================
30
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shiloh Industries, Inc.
NOTE 7
PROPERTY,
PLANT AND
EQUIPMENT
Property, plant and equipment consist of the following:
- --------------------------------------------------------------------
October 31,
1996 1995
- --------------------------------------------------------------------
Land $ 3,584,572 $ 3,199,675
Buildings and improvements 48,916,332 40,172,317
Machinery and equipment 87,121,959 77,314,621
Furniture and fixtures 4,810,494 5,836,662
Construction in progress 30,787,858 24,048,847
- --------------------------------------------------------------------
Total, at cost 175,221,215 150,572,122
Less: Accumulated depreciation (52,927,840) (52,620,090)
- --------------------------------------------------------------------
Net property, plant and
equipment $122,293,375 $ 97,952,032
====================================================================
Depreciation expense was $7,145,146, $6,443,556 and $6,036,975 for 1996,
1995 and 1994, respectively.
During the three years ended October 31, 1996, interest costs of $650,629,
$445,648, and $37,210 were capitalized as part of property, plant and equipment
respectively.
The Company had commitments for capital expenditures of approximately $19.2
million at October 31, 1996.
NOTE 8
FINANCING
ARRANGEMENTS
Short-term debt consists of the following:
- --------------------------------------------------------------------
October 31,
1996 1995
- --------------------------------------------------------------------
Revolving credit loan -- interest
at 5.90% at October 31, 1996 $2,500,000 $ --
- --------------------------------------------------------------------
Total $2,500,000 $ --
=====================================================================
31
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SHILOH INDUSTRIES, INC.
NOTE 8
FINANCING
ARRANGEMENTS
-- CONTINUED
Long-term debt consists of the following:
- -------------------------------------------------------------------------------
October 31,
1996 1995
- -------------------------------------------------------------------------------
Revolving credit loan -- interest at
6.03% at October 31, 1996 $26,500,000 $13,500,000
Revolving credit loan -- interest at
5.90% at October 31, 1996 18,500,000 --
Term loan -- due in twenty quarterly
installments of $300,000 plus
interest which is fixed at 8.78% -- 600,000
Term loan -- due in quarterly
installments of $437,500 plus
interest which is fixed at 7.10% -- 7,875,000
Variable rate industrial development
bond, secured by letter of credit,
weighted average interest rate at
3.80% payable on February 1, 2010 5,433,352 1,331,042
- -------------------------------------------------------------------------------
$50,433,352 $23,306,042
Less: current portion -- (2,350,000)
- -------------------------------------------------------------------------------
$50,433,352 $20,956,042
================================================================================
Prior to April 16, 1996, the Company had a $23 million unsecured revolving
credit facility with Society National Bank (now known as KeyBank National
Association) ("KeyBank"). In conjunction with the negotiation of the new credit
facility described below, this line was terminated. On April 16, 1996, the
Company signed an agreement with KeyBank for a revolving credit facility
("Shiloh Facility") not to exceed $30 million. The term of the Shiloh Facility
extends to February 28, 2000 with an option for successive one year term
extensions available at the Company's request and KeyBank's approval, upon
proper written notification. The Company has the option to select the applicable
interest rate at KeyBank's prime rate or the LIBOR rate plus 1/2% fixed in
increments of 30, 60 or 90 days. The terms of the agreement require an annual
commitment fee equal to 1/4% on the average unused amount of the Shiloh
Facility.
On April 16, 1996, Shiloh of Michigan signed an agreement with KeyBank for
a revolving credit facility ("SOM Facility") not to exceed $23 million. The term
of the SOM Facility extends to February 28, 1998 with an option for successive
one year term extensions available at Shiloh of Michigan's request and KeyBank's
approval, upon proper written notification. Shiloh of Michigan has the option to
select the applicable interest rate at KeyBank's prime rate or the LIBOR rate
plus 1/2% fixed in increments of 30, 60 or 90 days. The terms of the agreement
require an annual commitment fee equal to 1/4% on the average unused amount of
the SOM Facility. The Company is an 80% guarantor of the SOM Facility.
Under the Company's revolving credit facilities, including the SOM
Facility, $11 million was unused at October 31, 1996.
32
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SHILOH INDUSTRIES, INC.
NOTE 8
FINANCING
ARRANGEMENTS
-- CONTINUED
At October 31, 1996, the scheduled maturities of all long-term debt during
the next five years is as follows:
1997 --
1998 18,500,000
1999 --
2000 26,500,000
2001 --
2002 --
Thereafter 5,433,352
In March 1995, Medina County, Ohio issued on behalf of the Company an
aggregate of $5.4 million in principal amount of variable rate industrial bonds
due 2010, which are secured by the Company with a letter of credit. The funds
from these bonds were used to finance a portion of the expansion at the
Company's steel pickling operations in Valley City, Ohio. At October 31, 1996,
substantially all the proceeds had been utilized.
Certain of the debt agreements described above contain various restrictive
covenants which, among others, require the Company's various operating
subsidiaries to maintain minimum net worth levels and financial ratios. The
agreements also place certain restrictions on additional indebtedness, capital
expenditures and cash dividends. Interest paid amounted to $1,063,938,
$1,575,547 and $1,610,241 during 1996, 1995 and 1994, respectively.
NOTE 9
LEASES
The Company leases certain equipment under operating leases. Rent expense
under operating leases for 1996, 1995 and 1994 was $274,441, $252,791 and
$265,982, respectively. Future minimum lease payments under operating leases are
as follows at October 31, 1996:
---------------------------------
Operating
---------------------------------
1997 $189,826
1998 52,181
1999 22,221
2000 16,692
2001 --
---------------------------------
Total minimum lease
payments $280,920
=================================
NOTE 10
EMPLOYEE
BENEFIT
PLANS
The Company maintains pension plans covering most employees. The
assets of the plans consist primarily of insurance and annuity contracts. The
assumptions used to develop net periodic pension cost were as follows:
discount rate ranged from 7.25% to 8.25% for all plans for the three years
ended October 31, 1996; expected long-term rate of return on plan assets
ranged from 6.0% to 8.0% for all plans for the three years ended October 31,
1996; rates of increase in compensation levels of salaried plans ranged from
4.5% to 5.0% for all plans for the three years ended October 31, 1996. For the
valuation of pension obligations at the end of 1996, the discount rate for all
plans was increased to 8.00% from 7.50% at the end of 1995.
33
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SHILOH INDUSTRIES, INC.
NOTE 10
EMPLOYEE
BENEFIT
PLANS --
CONTINUED
The components of net periodic pension cost are as follows:
- -----------------------------------------------------------------------
October 31,
- -----------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------
Service cost for the current
period $ 863,168 $ 688,641 $ 769,444
Interest cost on projected
benefit obligation 651,116 623,452 600,745
Actual return on assets (603,488) (1,100,300) 238,737
Net amortization and
deferrals 90,722 574,211 (680,529)
- -----------------------------------------------------------------------
$1,001,518 $ 786,004 $ 928,397
=======================================================================
Employee pension funded status was as follows:
-------------------------------------------------------
OCTOBER 31, 1996 October 31, 1995
-------------------------------------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
- ------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested employees $(6,180,351) $ -- $(5,011,158) $(1,689,509)
Non-vested employees (180,578) -- (140,478) (46,401)
--------------------------------------------------------
Accumulated benefit obligation (6,360,929) -- (5,151,636) (1,735,910)
Additional benefits based on estimated
future salary levels (2,994,145) -- (3,877,655) --
--------------------------------------------------------
Projected benefit obligation (9,355,074) -- (9,029,291) (1,735,910)
Plan assets at fair value 9,728,033 -- 7,717,485 1,627,437
--------------------------------------------------------
Funded status 372,959 -- (1,311,806) (108,473)
Unamortized net liability existing at date
of adoption of SFAS 87 988,596 -- 840,505 234,915
Unrecognized net experience loss (gain) (366,087) -- 462,212 (547,710)
Minimum liability -- -- -- (61,827)
Unrecognized prior service cost 515,796 -- 51,075 374,622
--------------------------------------------------------
Pension related asset (liability) $ 1,511,264 $ -- $ 41,986 $ (108,473)
========================================================
In addition to the defined benefit plans described above, the Company
recorded expense of $1,118,322, $1,022,830 and $744,228 during 1996, 1995 and
1994, respectively, with respect to its defined contribution plans.
Effective November 1, 1993, the Company adopted SFAS 106. This statement
requires the expected cost of postretirement benefits to be recognized during
the years that employees render service. The Company provides postretirement
health care benefits to certain employees (and their dependents) who retire
early, but coverage generally continues only until age 65. Prior to the adoption
of SFAS 106 these benefits were recorded on a cash basis and were insignificant
in 1993 and 1992. As permitted under SFAS 106, the Company elected to amortize
the transition liability of $586,000 over twenty years.
34
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SHILOH INDUSTRIES, INC.
NOTE 10
EMPLOYEE
BENEFIT
PLANS --
CONTINUED
The Company's accumulated postretirement benefit obligation (APBO) is
comprised of the following:
- ----------------------------------------------------------------------
October 31,
- ----------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------
Retirees
Fully eligible active plan $(396,018) $(929,323)
participants (274,507) (235,402)
Other active plan participants (1,263,562) (161,014)
- ----------------------------------------------------------------------
APBO (1,934,087) (1,325,739)
Unrecognized transition liability 455,060 527,334
Unrecognized prior service cost -- --
Unrecognized net loss (gain) 876,833 534,341
- ----------------------------------------------------------------------
Postretirement benefit related
liability $(602,194) $(264,064)
======================================================================
The net periodic postretirement benefit cost included the following:
- ----------------------------------------------------------------------
October 31,
1996 1995
- ----------------------------------------------------------------------
Service cost of benefits earned $137,813 $ 52,011
Interest cost on APBO 167,549 84,569
Amortization of transition
liability 28,401 42,281
Net amortization and deferrals 66,823 --
- ----------------------------------------------------------------------
Total $400,586 $178,861
======================================================================
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation at October 31, 1996 was 10.0%, gradually
declining to 4.5% in 2001 and remaining at that level thereafter. A
one-percentage point increase in the assumed health care cost trend rate for
each year would increase the accumulated postretirement benefit obligation by
approximately $636,313 at October 31, 1996 and the postretirement benefit cost
by approximately $159,638 for the year then ended. The actuarial present value
of accumulated postretirement benefit obligations was determined using a
weighted average discount rate of 8.0% at October 31, 1996. The 1996 and 1995
net periodic postretirement benefit cost was determined using a weighted average
discount rate of 7.5% and 8.25%, respectively.
SFAS 112, "Employers' Accounting for Postemployment Benefits", was issued
in November 1992 and was adopted by the Company during fiscal 1994.
Implementation of this pronouncement did not have a material impact on the
Company as the Company currently provides no significant benefits, as defined by
the statement, to former or inactive employees.
35
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SHILOH INDUSTRIES, INC.
NOTE 11
STOCK AND
BONUS PLANS
1993 KEY EMPLOYEE STOCK INCENTIVE PLAN
The Company's 1993 Key Employee Stock Incentive Plan (the "Incentive
Plan"), which was adopted by the Company in May 1993, authorizes grants to
officers and other key employees of the Company and its subsidiaries of (i)
stock options that are intended to qualify as "incentive stock options," (ii)
nonqualified stock options and (iii) restricted stock awards. The Incentive Plan
also authorizes grants of nonqualified stock options and restricted stock awards
to consultants to the Company and its subsidiaries. The Incentive Plan
authorizes the granting of stock options and restricted stock awards up to an
aggregate of 450,000 shares of Common Stock, subject to adjustment upon the
occurrence of certain events to prevent any dilution or expansion of the rights
of participants that might otherwise result from the occurrence of such events.
Incentive stock options are exercisable for up to 10 years at an option price of
not less than the fair market value of the Common Stock on the date on which the
option is granted or at an option price of not less than 110% of the fair market
value of the Common Stock in the case of an officer or other key employee who
owns at the time the option is granted more than 10% of the Common Stock.
Nonqualified stock options may be granted for up to 10 years at such exercise
price and upon such terms and conditions as the Board of Directors or the
Compensation Committee may determine. In May 1993, the Company granted
nonqualified stock options for 46,400 shares of Common Stock, with an exercise
price equal to $11.00 per share. Such options became exercisable over a period
of three years commencing on the first anniversary of the date of grant. On
October 17, 1995, the Company granted nonqualified stock options for 47,000
shares of Common Stock (no stock options were granted in 1994), at an exercise
price of $11.00 per share. Such options became exercisable as of the date of
grant and will remain so for a period of five years from the date of grant. On
October 23, 1996, the Company granted nonqualified stock options for 160,000
shares of Common Stock, at an exercise price of $16.50 per share. Such options
become exercisable as of the date of grant and will remain so for a period of 5
years commencing from the date of grant.
EXECUTIVE INCENTIVE BONUS PLAN
The Company maintains an Executive Incentive Bonus Plan (the "Bonus Plan")
which provides annual incentive bonuses to its executive officers. The Bonus
Plan provides for an aggregate annual bonus pool equal to an amount (the
"Aggregate Amount") which is the lesser of (i) 60% of the aggregate base
compensation of the participating executive officers or (ii) 15% of the
Company's net income before taxes and any incentive bonuses for the year on
which the bonuses are based. The Aggregate Amount is then adjusted as follows:
50% of the Aggregate Amount is available for bonus allocations regardless of the
Company's performance; 25% is available only if the Company satisfied its
operating profit goal for the year (as established by the Board of Directors);
and 25% is available only if the Company satisfied its return on equity goal for
the year (as established by the Board of Directors). Within these parameters,
the Chairman of the Board of Directors determines, with approval from the
Company's Compensation Committee, the amount to be paid to each officer,
considering such factors as the officer's performance during the year and the
Company's overall performance during the year. During fiscal 1996, 1995 and
1994, $516,600, $519,100 and $125,000, respectively was expensed under this
bonus plan.
36
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SHILOH INDUSTRIES, INC.
NOTE 12
INCOME TAXES
The components of the provision for income taxes on income from continuing
operations were as follows:
- ------------------------------------------------------------------------
Years Ended October 31,
- ------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------
Current:
Federal $8,570,579 $7,455,226 $5,006,859
State and local 1,091,678 1,331,650 1,268,048
- ------------------------------------------------------------------------
9,662,257 8,786,876 6,274,907
Deferred 1,290,012 683,979 215,691
- ------------------------------------------------------------------------
Total $10,952,269 $9,470,855 $6,490,598
========================================================================
Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities were comprised of the following:
- ---------------------------------------------------------------------
October 31,
- ---------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------
Deferred tax assets:
Bad debt reserves $ 365,228 $ 442,027
Inventory reserves 349,061 336,887
State income and franchise taxes 608,622 667,078
Accrued group insurance 366,800 411,260
Personal property tax reserves 394,999 400,266
Accrued vacation reserves 375,807 423,804
Net operating loss carryforwards 241,475 600,197
Capital loss carryforwards 5,046,335 92,941
Other reserves 647,304 369,351
- ---------------------------------------------------------------------
8,395,631 3,743,811
Less: Valuation allowance (5,046,335) (92,941)
- ---------------------------------------------------------------------
Total deferred tax assets 3,349,296 3,650,870
Deferred tax liabilities:
Fixed assets (8,712,337) (10,179,291)
Pension assets (763,894) (105,545)
- ---------------------------------------------------------------------
Net deferred tax liability $(6,126,935) $(6,633,966)
======================================================================
The valuation allowance relates to capital loss carryforwards which are not
expected to be utilized.
Effective November 1, 1993, the Company adopted SFAS 109. This statement
required the Company to adopt the asset and liability method of accounting for
income taxes. The effect of adopting SFAS 109 in 1994 amounted to a charge of
$280,943 to net income, or $.02 per share. This amount is reflected as the
effect of a change in accounting principle.
37
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SHILOH INDUSTRIES, INC.
NOTE 12
INCOME TAXES
- -- CONTINUED
A reconciliation of the statutory federal income tax rate to the effective
income tax rate is as follows:
- ---------------------------------------------------------------------------
Years Ended October 31,
- ---------------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------
Federal income tax at statutory rate 35.0% 35.0% 34.3%
State and local income taxes 3.0 3.6 5.0
Other 0.5 1.0 1.6
- ---------------------------------------------------------------------------
Effective income tax rate 38.5% 39.6% 40.9%
===========================================================================
Income taxes paid amounted to $10,942,558, $8,616,188 and $3,926,358 for
the years 1996, 1995 and 1994, respectively.
For federal income tax purposes at October 31, 1996, the Company had
available net operating loss carryforwards of approximately $689,928, expiring
in 2005, if not utilized. These net operating losses were incurred during
Liverpool Coil Processing, Inc.'s ("Liverpool") initial separate return year and
can only be utilized by Liverpool. In addition, at October 31, 1996, the Company
had available a capital loss carryforward of approximately $12,615,837, expiring
in 2001, if not utilized. The capital loss was incurred on the sale of Shafer
Valve and a full valuation allowance has been provided.
NOTE 13
RELATED
PARTY
TRANSACTIONS
The Company had sales to a significant shareholder of $5,360,341,
$5,899,935 and $7,109,446, for the years 1996, 1995 and 1994, respectively. The
Company believes these transactions were made on the same basis as would have
been made with independent third parties. At October 31, 1996 and 1995, the
Company had receivable balances of $845,482 and $786,329 respectively, due from
this shareholder.
NOTE 14
QUARTERLY
RESULTS OF
OPERATIONS
(UNAUDITED)
(Dollars in thousands, except per share data)
-----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------
OCTOBER 31, 1996
Revenues $51,539 $ 58,045 $53,503 $ 56,379
Gross Profit 10,006 11,270 10,959 13,395
Operating Income 6,190 7,399 6,688 8,267
Income from Continuing Operations 3,740 4,544 4,140 5,099
Loss from Discontinued Operations (376) (3) -- 123
Income (Loss) on Sale of Discontinued
Operations -- (10,198) -- 609
Net Income (Loss) 3,364 $ (5,657) $ 4,140 $ 5,831
-----------------------------------------------
Net Income from Continuing Operations per
Share $ .29 $ .35 $ .31 $ .39
Loss from Discontinued Operations per Share (.03) (.00) (.00) .01
Loss from Sale of Discontinued Operations
per Share (.00) (.78) (.00) .05
-----------------------------------------------
Net Income (Loss) per Share $ .26 $ (.43) $ .31 $ .45
===============================================
38
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SHILOH INDUSTRIES, INC.
NOTE 14
QUARTERLY
RESULTS OF
OPERATIONS
(UNAUDITED)
- -- CONTINUED
(Dollars in thousands, except per share data)
-----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------
OCTOBER 31, 1995
Revenues $52,132 $ 56,320 $47,888 $ 56,008
Gross Profit 8,840 10,124 8,692 10,958
Operating Income 4,986 6,686 4,801 7,800
Income from Continuing Operations 3,036 3,966 2,863 4,599
Income (Loss) on Discontinued Operations (548) (88) 165 182
Net Income (Loss) $2,488 $3,878 $3,028 $4,781
---------------------------------------------
Net Income from Continuing Operations per
Share $ .23 $ .31 $ .22 $ .35
Income (Loss) from Discontinued
Operations per Share (.04) (.01) .01 .02
-----------------------------------------------
Net Income per Share $ .19 .30 .23 .37
===============================================
NOTE 15
COMMITMENTS
AND
CONTINGENT
LIABILITIES
The Company is a party to several lawsuits and claims arising in the normal
course of its business. In the opinion of management, the Company's liability or
recovery, if any, under pending litigation and claims would not materially
affect its financial condition or results of operations.
NOTE 16
SUBSEQUENT
EVENT
On November 1, 1996, the Company completed the acquisition of GDM. The
acquisition of substantially all of the assets and assumption of certain
liabilities of GDM will be accounted for as a purchase and its results of
operations will be included in Shiloh's consolidated results from that date
forward. The purchase price (paid to the owners or creditors) included
approximately $15,000,000 in cash and approximately $7,600,000 in assumed debt
which was repaid immediately subsequent to closing. These cash amounts are
reflected as a deposit in the company's balance sheet at October 31, 1996, since
the cash was held in escrow at that date. In addition, costs associated with the
transaction have been accrued at October 31, 1996. On January 3, 1997, a
$2,299,002 additional payment was made as provided by the purchase agreement.
It is estimated that the purchase price will be allocated among the fair
value of assets acquired and liabilities assumed as follows:
Net working capital $8,717,433
Property, plant and equipment 9,578,000
Goodwill 7,000,000
This preliminary purchase price allocation is subject to final purchase
price adjustments.
39