1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
------- SECURITIES EXCHANGE ACT OF 1934
For the quarter ended May 31, 1998 Commission File Number 1-9967
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A M C A S T I N D U S T R I A L C O R P O R A T I O N
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(Exact name of registrant as specified in its charter)
Ohio 31-0258080
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(State of Incorporation) (I.R.S. Employer
Identification No.)
7887 Washington Village Drive, Dayton, Ohio 45459
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(Address of principal executive offices) (Zip Code)
(937) 291-7000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 and 15(d) of the Securities Exchange Act of 1934
during the preceding twelve months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Number of Common Shares outstanding, no par value, as of May 31, 1998 -
9,206,529 shares.
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AMCAST INDUSTRIAL CORPORATION
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MAY 31, 1998
I N D E X
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PART I - FINANCIAL INFORMATION PAGE
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Item 1 - Financial Statements:
Consolidated Condensed Statements of Financial 3
Condition - May 31, 1998 and August 31, 1997
Consolidated Condensed Statements of Income - 4
for the Quarter and Nine Months Ended May 31, 1998
and June 1, 1997
Consolidated Condensed Statements of Retained Earnings - 4
for the Quarter and Nine Months Ended May 31, 1998
and June 1, 1997
Consolidated Condensed Statements of Cash Flows - 5
for the Nine Months Ended May 31, 1998 and
June 1, 1997
Notes to Consolidated Condensed Financial Statements 6-11
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-18
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 19
Item 4 - Submission of Matters to a Vote of Security Holders 19
Item 6 - Exhibits and Reports on Form 8-K 19
SIGNATURES 20
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PART I - FINANCIAL INFORMATION
AMCAST INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
($ in thousands)
(unaudited)
May 31 August 31
ASSETS 1998 1997
--------- ---------
Current Assets
Cash and cash equivalents $ 4,921 $ 9,608
Accounts receivable 107,090 100,589
Inventories 78,672 71,960
Other current assets 21,096 21,068
--------- ---------
Total current assets 211,779 203,225
Property, Plant, and Equipment 386,284 357,062
Less accumulated depreciation (133,078) (121,818)
--------- ---------
253,206 235,244
Goodwill 58,973 36,784
Other Assets 29,790 33,665
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$ 553,748 $ 508,918
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 16,007 $ 54,038
Current portion of long-term debt 7,965 7,087
Accounts payable 71,177 79,732
Accrued expenses 39,979 36,108
--------- ---------
Total current liabilities 135,128 176,965
Long-Term Debt--less current portion 193,174 145,304
Deferred Income Taxes 31,149 8,400
Deferred Liabilities 24,962 20,023
Shareholders' Equity
Preferred shares, without par value:
Authorized--1,000,000 shares
Issued--None - -
Common shares, at stated value:
Authorized--15,000,000 shares
Issued - 9,206,529 and 9,177,455
shares, respectively 9,207 9,177
Capital in excess of stated value 78,964 78,484
Foreign currency translation adjustment (251) -
Retained earnings 81,415 70,565
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169,335 158,226
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$ 553,748 $ 508,918
========= =========
See notes to consolidated condensed financial statements.
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AMCAST INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
AND RETAINED EARNINGS
($ in thousands except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
----------------------- -----------------------
May 31 June 1 May 31 June 1
1998 1997 1998 1997
--------- --------- --------- ---------
CONSOLIDATED CONDENSED STATEMENTS
OF INCOME
Net sales $ 159,267 $ 106,223 $ 437,221 $ 288,346
Cost of sales 133,481 88,109 366,665 235,603
--------- --------- --------- ---------
Gross profit 25,786 18,114 70,556 52,743
Selling, general and administrative
expenses 15,426 10,008 42,111 30,628
Restructuring charges 9,800 - 9,800 -
Gain on sale of aerospace business (12,048) - (12,048) -
--------- --------- --------- ---------
Operating income 12,608 8,106 30,693 22,115
Equity in income (loss) of joint
venture and other income (expense) 142 (239) 637 (2,356)
Interest expense 3,659 1,311 11,109 3,561
--------- --------- --------- ---------
Income before income taxes 9,091 6,556 20,221 16,198
Income tax expense 3,727 2,262 5,506 5,685
--------- --------- --------- ---------
Net Income $ 5,364 $ 4,294 $ 14,715 $ 10,513
========= ========= ========= =========
CONSOLIDATED CONDENSED STATEMENTS
OF RETAINED EARNINGS
Beginning retained earnings $ 77,340 $ 66,338 $ 70,565 $ 62,543
Net income 5,364 4,294 14,715 10,513
Dividends (1,289) (1,216) (3,865) (3,637)
Other - (18) - (21)
--------- --------- --------- ---------
Ending Retained Earnings $ 81,415 $ 69,398 $ 81,415 $ 69,398
========= ========= ========= =========
PER SHARE INFORMATION
Basic earnings per share $ .58 $ .50 $ 1.60 $ 1.22
========= ========= ========= =========
Diluted earnings per share $ .58 $ .49 $ 1.59 $ 1.21
========= ========= ========= =========
Dividends declared per share $ .14 $ .14 $ .42 $ .42
========= ========= ========= =========
Dividends paid per share $ .14 $ .14 $ .42 $ .42
========= ========= ========= =========
See notes to consolidated condensed financial statements.
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AMCAST INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ in thousands)
(unaudited)
Nine Months Ended
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May 31 June 1
1998 1997
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Operating Activities:
Net income $ 14,715 $ 10,513
Depreciation and amortization 25,306 15,411
Deferred liabilities 1,953 (1,391)
Restructuring and integration charges 12,000 -
Gain on sale of aerospace business (12,048) -
Changes in assets and liabilities:
Accounts receivable (6,670) (7,542)
Inventories (3,692) (7,520)
Accounts payable (10,139) 8,122
Other (8,167) (1,986)
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Net Cash Provided By Operating Activities 13,258 15,607
Investing Activities:
Additions to property, plant, and equipment (33,168) (28,022)
Contributions to joint venture - (3,226)
Acquisitions, net of cash received (11,771) -
Proceeds from sale of aerospace business 25,445 -
Other (53) 806
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Net Cash Used By Investing Activities (19,547) (30,442)
Financing Activities:
Additions to long-term debt 60,641 5,000
Reduction in long-term debt (16,121) (1,108)
Net short-term (repayments) borrowings (39,622) 8,703
Dividends (3,865) (3,637)
Other 510 1,242
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Net Cash Provided By Financing Activities 1,543 10,200
-------- --------
Effect of exchange rate changes on cash 59 -
-------- --------
Net change in cash and cash equivalents (4,687) (4,635)
Cash and cash equivalents at beginning of period 9,608 5,413
-------- --------
Cash and Cash Equivalents at End of Period $ 4,921 $ 778
======== ========
See notes to consolidated condensed financial statements.
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AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts )
(unaudited)
PREPARATION OF FINANCIAL STATEMENTS
The accompanying consolidated condensed financial statements include the
accounts of Amcast Industrial Corporation and its domestic and foreign
subsidiaries (the Company). Intercompany accounts and transactions have been
eliminated. The consolidated condensed financial statements are unaudited and
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required for complete annual financial statements and
should be read in conjunction with the Company's audited consolidated financial
statements and footnotes for the year ended August 31, 1997 included in the
Company's Annual Report on Form 10-K. In the opinion of management, all
adjustments, consisting of only normally recurring accruals, necessary for a
fair presentation have been included. Certain prior year amounts have been
reclassified to conform to the current year presentation.
On August 19, 1997, the Company acquired all of the outstanding stock of
Speedline S.p.A. (Speedline), a major European manufacturer of light-alloy
wheels serving the automotive original equipment market. Accordingly, the
acquisition was reflected in the August 31, 1997 fiscal year-end balance sheet,
but had no material effect on fiscal 1997 operating results. Operations of
Speedline are included in the consolidated financial statements for periods
ending one month prior to the Company's fiscal quarter end in order to ensure
timely preparation of the consolidated financial statements. Thus, the
consolidated financial statements for the nine months ended May 31, 1998 include
financial results for Speedline for the eight-month period of September 1997
through April 1998.
INVENTORIES
The major components of inventories are:
May 31 August 31
1998 1997
------- -------
Finished products $39,760 $35,375
Work in process 22,764 22,968
Raw materials and supplies 23,037 20,506
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85,561 78,849
Less amount to reduce certain
inventories to LIFO value 6,889 6,889
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$78,672 $71,960
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AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
EARNINGS PER SHARE
In the second quarter of fiscal 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share," which establishes new
standards for computing and presenting earnings per share. SFAS No. 128 requires
the Company to report both basic earnings per share, which is based on the
weighted-average number of common shares outstanding, and diluted earnings per
share, which is based on the weighted-average number of common shares
outstanding plus all potential dilutive common shares outstanding. Earnings per
share amounts for all periods are presented, and where necessary, restated to
give effect to the adoption of SFAS No. 128.
The following table reflects the calculations for basic and diluted earnings per
share for the three-and nine-month periods ended May 31, 1998 and June 1, 1997,
respectively.
Three Months Ended Three Months Ended
May 31, 1998 June 1, 1997
----------------------------- -----------------------------
Net Net
Income Shares EPS Income Shares EPS
Earnings per share - Basic $ 5,364 9,206 $ 0.58 $ 4,294 8,666 $ 0.50
Dilutive stock options - 42 - - 83 (0.01)
------- ------- ------- ------- ------- -------
Earnings per share - Diluted $ 5,364 9,248 $ 0.58 $ 4,294 8,749 $ 0.49
======= ======= ======= ======= ======= =======
Nine Months Ended Nine Months Ended
May 31, 1998 June 1, 1997
----------------------------- -----------------------------
Net Net
Income Shares EPS Income Shares EPS
Earnings per share - Basic $14,715 9,198 $ 1.60 $10,513 8,647 $ 1.22
Dilutive stock options - 61 (0.01) - 73 (0.01)
------- ------- ------- ------- ------- -------
Earnings per share - Diluted $14,715 9,259 $ 1.59 $10,513 8,720 $ 1.21
======= ======= ======= ======= ======= =======
For each of the periods in fiscal 1998 and 1997, there were outstanding stock
options excluded from the computation of diluted earnings per share because the
options were antidilutive. Diluted earnings per share are based on the weighted
average number of shares outstanding for each period; therefore the sum of the
quarterly earnings per share amounts do not necessarily equal the year-to-date
earnings per share amount.
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AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
LONG-TERM DEBT
The following table summarizes the Company's long-term borrowings:
May 31 August 31
1998 1997
-------- --------
Senior notes $ 51,750 $ 52,625
Revolving credit notes 124,625 70,000
Lines of credit 500 -
Industrial revenue bonds 5,925 6,158
Other debt 8,038 11,710
Capital leases 10,301 11,898
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201,139 152,391
Less current portion 7,965 7,087
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$193,174 $145,304
======== ========
During fiscal 1998, $60,141 of short-term borrowings of Speedline was replaced
with long-term borrowings under the Company's credit agreement.
INCOME TAXES
Deferred income taxes are provided for temporary differences between financial
and tax reporting in accordance with the liability method under the provisions
of Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for
Income Taxes" Under the provisions of SFAS 109, the effect of a change in tax
laws or rates is included in income in the period the change is enacted and
includes a recalculation of deferred tax balances based on the new laws or rates
in effect. Such a change occurred in December 1997 when the Italian government
enacted the 1998 Finance Act that resulted in a reduction in the income tax rate
from 53 percent to 37 percent and introduced a new tax on productive activities
called IRAP with a rate of 4.25 percent. The deferred tax balances of Speedline
were adjusted to reflect these revised rates which decreased the deferred tax
provision in the second quarter by $2,562.
COMMITMENTS AND CONTINGENCIES
At May 31, 1998, the Company has committed to capital expenditures of $15,049,
primarily for the Engineered Components segment.
The Company, as is normal for the industry in which it operates, is involved in
certain legal proceedings and subject to certain claims and site investigations
which arise under the environmental laws and which have not been finally
adjudicated.
The Company has been identified as a potentially responsible party by various
state agencies and by the United States Environmental Protection Agency (U.S.
EPA) under the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended, for costs associated with U.S. EPA led multi-party
sites and state environmental agency-led remediation
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AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
sites. The majority of these claims involve third-party owned disposal sites for
which compensation is sought from the Company as an alleged waste generator for
recovery of past governmental costs or for future investigation or remedial
actions at the multi-party sites. There are two Company-owned properties where
state-supervised cleanups are expected. None of these is expected to involve
material future expense. The Company believes that none of these will have a
material adverse effect on its financial position or results of operations. The
designation as a potentially responsible party and the assertion of such claims
against the Company are made without taking into consideration the extent of the
Company's involvement with the particular site. In each instance, claims have
been asserted against a number of other entities for the same recovery or other
relief as was asserted against the Company. These claims are in various stages
of administrative or judicial proceeding. The Company has no reason to believe
that it will have to pay a significantly disproportionate share of clean-up
costs associated with any site. To the extent possible, with the information
available at the time, the Company has evaluated its responsibility for costs
and related liability with respect to the above sites. In making such
evaluation, the Company did not take into consideration any possible cost
reimbursement claims against its insurance carriers. The Company is of the
opinion that its liability with respect to those sites should not have a
material adverse effect on its financial position or results of operations. In
arriving at this conclusion, the principal factors considered by the Company
were ongoing settlement discussions with respect to certain of the sites, the
volume and relative toxicity of waste alleged to have been disposed of by the
Company at certain sites, which factors are often used to allocate investigative
and remedial costs among potentially responsible parties, the probable costs to
be paid by other potentially responsible parties, total projected remedial costs
for a site, if known, and the Company's existing reserve to cover costs
associated with unresolved environmental proceedings. At May 31, 1998, the
Company's accrued undiscounted reserve for such contingencies was $1,688.
Allied-Signal Inc. has brought an action against the Company seeking a
contribution from the Company equal to 50% of Allied-Signal's estimated $30,000
remediation cost in connection with a site in southern Ohio. The Company
believes its responsibility with respect to this site is very limited due to the
nature of the foundry sand waste it disposed of at the site. A trial in this
case was completed in February of 1995, but no judgment has been rendered. The
Company believes that if it has any liability at all in regard to this matter,
that liability would not be material to its financial position or results of
operations.
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AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
ACQUISITIONS AND DIVESTITURES
Effective March 30, 1998, the Company sold its Rancho Cucamonga, California
investment casting operation, Amcast Precision, for $25,445 in cash. The
transaction resulted in a pre-tax gain of $12,048. The facility, acquired by
Amcast in 1987, produces ferrous and nonferrous castings for the aerospace
industry. Fiscal year 1997 sales were approximately $19,000. This was the only
Amcast operation involved in the aerospace industry.
On April 9, 1998, the Company acquired Lee Brass Company, a privately-owned
company located in Anniston, Alabama. Lee Brass is a major manufacturer of cast
brass products for residential, commercial, and industrial plumbing systems. The
purchase price was approximately $15,300 consisting of cash payments of $11,100
and debt assumption of $4,200. The acquisition of Lee Brass has been accounted
for by the purchase method. Accordingly, the cost of the acquisition was
allocated on the basis of the estimated fair market value of the assets
acquired, principally inventory and property, plant, and equipment, and
liabilities assumed, resulting in goodwill of $5,200. The pro forma effect of
the acquisition on the results of operations is not presented as it is not
material.
RESTRUCTURING
Following the acquisition of Lee Brass, the Company announced a plan to
consolidate its two brass operations and subsequently ceased production at its
Flagg Brass operation located in Stowe, Pennsylvania. Expected to be completed
by December 31, 1998, the consolidation plan transfers certain product lines to
Lee Brass, sells or closes the Flagg Brass facility, and terminates
approximately 95 salaried and hourly personnel. In connection with the
consolidation plan, during the third quarter the Company recorded a
restructuring charge of $5,800 for facility exit costs and a charge of $2,200,
included in cost of sales, primarily for a non-cash write-down of inventory to
its net realizable value. Key components of the $5,800 restructuring charge are
$4,900 for a non-cash write-down of assets to their net realizable value, $500
for severance and other termination benefits, and $400 for other facility
closure costs. As of May 31, 1998, approximately 59 associates had been
terminated and $376 of the severance and facility closure costs had been charged
against the liability, with the majority of the remaining costs expected to be
spent by December 31, 1998. During the third quarter, the Company also
re-evaluated its reserves related to several iron factories previously closed in
the 1980's and early 1990's. As a result, a $4,000 restructuring charge was
recorded to cover higher than expected medical benefits, workers compensation
expenses, and legal costs for environmental and other matters related to these
previously closed facilities.
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AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
NEW ACCOUNTING STANDARD
In April 1998 , the American Institute of Certified Public Accountants issued
Statement of Position (SOP) No. 98-5, "Reporting on the Costs of Start-Up
Activities". SOP No. 98-5 provides guidance on the financial reporting of
start-up and organization costs and requires such costs to be expensed as
incurred, with the effect of initial adoption reported as a cumulative effect of
a change in accounting principle. This SOP will become effective for the Company
during fiscal year 2000; however earlier adoption is permitted. Had the Company
adopted this standard as of the beginning of this fiscal year (September 1,
1997), the effect on net income would have ranged between approximately $6.0
million and $10.0 million.
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AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENTS UNDER THE PRIVATE SECURITIES REFORM ACT OF 1995
Certain statements in this Report, in the Company's press releases and in oral
statements made by or with the approval of an authorized executive officer of
the Company constitute "forward-looking statements" as that term is defined
under the Private Securities Litigation Reform Act of 1995. These may include
statements projecting, forecasting or estimating Company performance and
industry trends. The achievement of the projections, forecasts or estimates is
subject to certain risks and uncertainties. Actual results and events may differ
materially from those projected, forecasted or estimated. Factors which may
cause actual results to differ materially from those contemplated by the
forward-looking statement, include, among others: general economic conditions
less favorable than expected, fluctuating demand in the automotive industry,
less favorable than expected growth in sales and profit margins in the Company's
product lines, increased competitive pressures in the Company's automotive and
flow control segments, effectiveness of production improvement plans, inherent
uncertainties in connection with international operations and foreign currency
fluctuations and labor relations at the Company and its customers. The following
discussion and analysis provides information which management believes is
relevant to an understanding of the Company's consolidated results of operations
and financial condition. This discussion should be read in conjunction with the
accompanying consolidated condensed financial statements and notes.
ACQUISITIONS AND DIVESTITURES
At the end of fiscal year 1997, the Company completed a significant acquisition
that impacts the comparison of financial results between fiscal-year 1997 and
fiscal-year 1998. On August 19, 1997, the Company acquired all of the
outstanding stock of Speedline S.p.A. (Speedline), a major European manufacturer
of light-alloy wheels serving the automotive original equipment market.
Accordingly, the acquisition was reflected in the August 31, 1997 fiscal
year-end balance sheet, but had no material effect on fiscal 1997 operating
results. Operations of Speedline are included for periods ending one month prior
to the Company's fiscal quarter end in order to ensure timely preparation of the
consolidated financial statements. Thus, the consolidated financial statements
for the nine months ended May 31, 1998 include financial results for Speedline
for the eight-month period of September 1997 through April 1998. Primarily as a
result of the acquisition of Speedline, the percentage of the Company's sales
derived from the Engineered Components segment increased to approximately 70% in
fiscal 1998.
During the third quarter of fiscal 1998, the Company completed several
transactions that had an impact on the Company's financial results as well as on
the comparison between the third quarter of fiscal 1998 and the third quarter of
fiscal 1997. Effective March 30, 1998, the Company sold its Rancho Cucamonga,
California investment casting operation, Amcast Precision, for $25.4 million in
cash. The transaction resulted in a pre-tax gain of $12.0 million. The facility,
acquired by Amcast in 1987, produces ferrous and nonferrous castings for the
aerospace industry. Fiscal 1997 sales of approximately $19.0 million were
included in the Engineered Components segment. This was the only Amcast
operation involved in the aerospace industry.
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AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
On April 9, 1998, the Company acquired Lee Brass Company, a privately owned
company located in Anniston, Alabama. Lee Brass is a major manufacturer of cast
brass products for residential, commercial, and industrial plumbing systems. The
purchase price was approximately $15.3 million consisting of cash payments of
$11.1 million and debt assumption of $4.2 million. The acquisition resulted in
goodwill of $5.2 million. Sales of Lee Brass for the twelve months ended
December 31, 1997 were approximately $39.0 million. Financial results for Lee
Brass are included in the Flow Control Products segment.
Following the acquisition of Lee Brass, the Company announced a plan to
consolidate its two brass operations and subsequently ceased production at its
Flagg Brass operation located in Stowe, Pennsylvania. Expected to be completed
by December 31, 1998, the consolidation plan transfers of certain product lines
to Lee Brass, sells or closes the Flagg Brass facility, and terminates
approximately 95 salaried and hourly personnel. In connection with the
consolidation plan, during the third quarter the Company recorded a
restructuring charge of $5.8 million for facility exit costs and a charge of
$2.2 million, included in cost of sales, primarily for a non-cash write-down of
inventory to its net realizable value. Key components of the $5.8 million
restructuring charge are $4.9 million for a non-cash write-down of assets to
their net realizable value, $.5 million for severance and other termination
benefits, and $.4 million for other facility closure costs. As of May 31, 1998,
approximately 59 associates had been terminated and approximately $.4 million of
the severance and facility closure costs had been charged against the liability,
with the majority of the remaining costs expected to be spent by December 31,
1998. Sales of Flagg Brass for fiscal-year 1997 were approximately $9.0 million
and were included in the Flow Control Products segment. The Company's
consolidated financial results are not expected to be significantly affected by
the closure of Flagg Brass and the transfer of certain product lines to Lee
Brass.
During the third quarter, the Company also re-evaluated its reserves related to
several iron factories previously closed in the 1980's and early 1990's. As a
result, a $4.0 million restructuring charge was recorded to cover higher than
expected medical benefits, workers compensation expenses, and legal costs for
environmental and other matters related to these previously closed facilities.
RESULTS OF OPERATIONS
Net sales increased 50% to $159.3 million for the third quarter of fiscal 1998
driven by recent acquisitions. Sales from Speedline and Lee Brass increased
total Company sales approximately 53%. Engineered Components segment sales
increased by 65% compared with the third quarter of fiscal 1997, while Flow
Control Products sales increased by 27%. For the first nine months of fiscal
1998, net sales increased 52% to $437.2 million, primarily due to recent
acquisitions combined with strong North American aluminum wheel demand,
particularly in the first quarter. Incremental sales from Speedline and Lee
Brass accounted for 45% of the sales increase with the remainder primarily from
increased volume. Flow Control Products sales increased 8% due to the
acquisition of Lee Brass and Engineered Components' sales increased 83%
primarily due to the acquisition of Speedline.
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AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Gross profit for the third quarter of fiscal 1998 rose 42% to $25.8 million and
gross profit for the first nine months of fiscal 1998 rose 34% to $70.6 million.
These increases are primarily due to the inclusion of Speedline and Lee Brass.
As a percentage of sales, gross profit was 16.2% for the third quarter and 16.1%
for the first nine months of fiscal 1998 compared with 17.1% and 18.3% for the
respective 1997 periods. The decrease in gross profit percentage reflects a
change in the Company's sales mix to a higher percentage of Engineered
Components product sales, which generally have lower gross margins than Flow
Control Products and, to a lesser degree, operating inefficiencies encountered
at one of the Company's automotive components plants in the first half of fiscal
1998. The gross profit percentage for fiscal 1998 was impacted by a one-time
charge ($2.2 million) previously discussed, related to closing the Flagg Brass
facility. The gross profit percentage for fiscal 1997 was impacted by a
one-time, cumulative, non-cash charge $3.5 million for overstated inventory at
the Company's recently sold aerospace operation.
Selling, general and administrative (SG&A) expenses increased by $5.4 million in
the third quarter of fiscal 1998 and by $11.5 million for the first nine months
of fiscal 1998. The majority of the increase in SG&A expenses resulted from the
inclusion of Speedline and Lee Brass. As a percentage of sales, SG&A expense was
9.7% in the third quarter compared with 9.4% for the third quarter of fiscal
1997. For the first nine months of fiscal 1998, SG&A expenses as a percentage of
sales decreased to 9.6% compared with 10.6% in fiscal 1997. This decrease is
primarily due to higher sales volumes in the Engineered Components segment,
which generally have lower SG&A expenses.
In the third quarter of fiscal 1998, the Company's pre-tax share of losses from
Casting Technology Company (CTC), the Company's joint venture with Izumi
Industries, was $.2 million compared to a $.3 million loss in the third quarter
of fiscal 1997. For the first nine months of fiscal 1998, the Company's pre-tax
share of losses from CTC was $.2 million versus a loss of $2.6 million for the
first nine months of fiscal 1997. A near-vertical launch of several new
automotive products at CTC in fiscal 1997 resulted in significant inefficiencies
and high launch-related costs associated with meeting required volumes.
Interest expense increased by $2.3 million in the third quarter and by $7.5
million in the first nine months of fiscal 1998 primarily due to increased debt
levels from the acquisition of Speedline. Higher debt levels in fiscal 1998 are
principally the result of Speedline debt assumed and increased borrowings by the
Company to finance the Speedline acquisition.
14
15
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Deferred income taxes are provided for temporary differences between financial
and tax reporting in accordance with the liability method under the provisions
of Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for
Income Taxes" Under the provisions of SFAS 109, the effect of a change in tax
laws or rates is included in income in the period the change is enacted and
includes a recalculation of deferred tax balances based on the new laws or rates
in effect. Such a change occurred in December 1997 when the Italian government
enacted the 1998 Finance Act that resulted in a reduction in income tax rates
from 53% to 37% and introduced a new tax on productive activities called the
IRAP with a rate of 4.25%. The deferred tax balances of Speedline were adjusted
to reflect these revised rates which decreased the deferred tax provision in the
second quarter by $2.6 million. Excluding this adjustment, the effective tax
rate was 41.0% and 34.5% for the third quarters of fiscal 1998 and 1997,
respectively, and 39.9% and 35.1% for the first nine months of fiscal 1998 and
1997, respectively. The increase in the effective tax rate reflects the
additional foreign tax expense related to the Speedline acquisition.
RESULTS BY BUSINESS SEGMENT (unaudited)
(dollars in thousands)
Three Months Ended Nine Months Ended
----------------------- ------------------------
May 31 June 1 May 31 June 1
1998 1997 1998 1997
--------- --------- --------- ---------
Net Sales
- ---------
Flow Control Products $ 52,703 $ 41,570 $ 130,133 $ 120,266
Engineered Components 106,564 64,653 307,088 168,080
--------- --------- --------- ---------
$ 159,267 $ 106,223 $ 437,221 $ 288,346
========= ========= ========= =========
Income Before Income Taxes
- --------------------------
Flow Control Products $ 8,293 $ 5,619 $ 20,077 $ 19,071
Engineered Components 7,231 3,917 17,388 8,016
Restructuring and Integration charges (a) (12,000) - (12,000) -
Disposition of Aerospace Business (b) 12,048 - 12,048 -
Corporate (2,964) (1,430) (6,820) (4,972)
Equity in income (loss) of joint venture
and other income (expense) 142 (239) 637 (2,356)
Interest expense (3,659) (1,311) (11,109) (3,561)
--------- --------- --------- ---------
$ 9,091 $ 6,556 $ 20,221 $ 16,198
========= ========= ========= =========
(a) $10,000 of restructuring and integration charges relates to the Flow
Control Products segment, of which $2,200 is recorded in cost of sales,
and $2,000 relates to prior shutdown locations.
(b) Disposition of aerospace business relates to the Engineered Components
segment.
15
16
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Flow Control Products segment sales were $52.7 million for the third quarter of
fiscal 1998 compared with $41.6 million for the comparable period of fiscal
1997. The fitting and valve businesses benefited from a higher level of
commercial and residential construction activity during the quarter. During the
quarter, copper and brass fittings set a three-month record for pounds shipped,
and fitting and valve exports increased more than 20% compared with the prior
year. Incremental sales from Lee Brass and higher volumes increased sales by 24%
and 9%, respectively. Lower selling prices in copper plumbing fittings were
offset by decreased copper costs. Operating income of $8.3 million (before
restructuring, assets write-downs, and integration charges) increased
substantially over the prior-year operating income of $5.6 million, due in part
to the contribution from Lee Brass.
Engineered Components segment sales for the third quarter of fiscal 1998
increased to $106.6 million from $64.7 million in the third quarter of fiscal
1997. The significant sales growth was primarily due to incremental sales
contributed by Speedline. European demand for Amcast products was strong due to
improved levels of vehicle production and increased penetration of aluminum
wheels. In North America, demand for aluminum wheels and other automotive
components generally was stable during the quarter, with the exception of
differential carriers which were affected by a slowdown in sales of certain
four-wheel drive trucks. Operating income of $7.2 million (before restructuring,
asset write-downs, integration charges, and the gain on sale of the aerospace
business) increased by 85% over prior year's operating income of $3.9 million.
Approximately 27% of the Company's consolidated sales are from its largest
customer, General Motors Corporation. At the time of this filing, it is
uncertain when the strikes at two General Motors plants, virtually closing its
entire North American operations, will be settled. Accordingly, the Company
currently is unable to quantify the impact these strikes will have on the
financial results for the fourth quarter of fiscal 1998, However, the Company
expects the fourth quarter to be negatively impacted.
LIQUIDITY AND CAPITAL RESOURCES
For the first nine months of fiscal 1998, net cash provided by operations was
$13.3 million compared with $15.6 million for the first nine months of fiscal
1997. Cash provided by net income and depreciation of $40.0 million and $25.9
million for fiscal 1998 and 1997, was partially offset by an increase in working
capital requirements of $28.7 million and $8.9 million, respectively. Fiscal
1998's working capital increase primarily reflects higher receivables from
increased sales and a reduction in liabilities from payment of Speedline
acquisition-related expenses.
Net cash used by investing activities decreased to $19.5 million for the first
nine months of fiscal 1998 from $30.4 in fiscal 1997. Proceeds from the sale of
the aerospace business million provided $25.4 million for investing activities.
Capital spending totaled $33.2 million in fiscal 1998 with an additional $11.8
million spent for acquisitions, $10.5 million of
16
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AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
which was for Lee Brass. This compares with capital spending of $28.0 million in
fiscal 1997 and $3.2 million invested in CTC to support business expansion
activities. At May 31, 1998, the Company had $15.0 million of commitments for
additional capital expenditures, primarily for the Engineered Components
segment.
Net cash provided by financing activities totaled $1.5 million for the first
nine months of fiscal 1998 compared with $10.2 million for fiscal 1997. In the
first nine months of fiscal 1998, approximately $60.1 million of short-term
borrowings of Speedline were replaced with long-term borrowings under the
Company's credit agreement. Additional borrowings in fiscal 1998 included $.5
million under the Company's lines of credit and $20.5 million in net short-term
borrowings by Speedline. Financing activities also included long-term debt
repayments of $16.1 million and dividend payments of $3.9 million. Long-term
debt was 53.3% of total capital at May 31, 1998 and 47.9% at August 31, 1997.
The Company may borrow up to $200 million under a credit agreement that expires
August 14, 2002. At May 31, 1998, the Company had unused borrowing capacity of
$54.2 million, under its most restrictive debt covenant. In addition, the
Company maintains bank lines of credit under which it may borrow up to $25
million. At May 31, 1998, $124.6 was outstanding under the credit agreement and
$.5 million was outstanding under available bank lines of credit. The Company
considers these external sources of funds, together with funds generated from
operations, to be adequate to meet operating needs.
NEW ACCOUNTING STANDARDS
In the second quarter of fiscal 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share," which establishes new
standards for computing and presenting earnings per share. SFAS No. 128 requires
the Company to report both basic earnings per share, which is based on the
weighted-average number of common shares outstanding, and diluted earnings per
share, which is based on the weighted-average number of common shares
outstanding plus all potential dilutive common shares outstanding. Adoption of
the statement had no effect on the Company's results of operations, financial
position or cash flows. However, as required, the Company restated earnings per
share for all prior periods to present diluted earnings per share. Basic
earnings per share are unchanged from previously reported earnings per share
amounts.
In April 1998 , the American Institute of Certified Public Accountants issued
Statement of Position (SOP) No. 98-5, "Reporting on the Costs of Start-Up
Activities". SOP No. 98-5 provides guidance on the financial reporting of
start-up and organization costs and requires such costs to be expensed as
incurred, with the effect of initial adoption reported as a cumulative effect of
a change in accounting principle. This SOP will become effective for the Company
during fiscal year 2000; however earlier adoption is permitted. Had the Company
adopted this standard as of the beginning of this fiscal year (September 1,
1997), the effect on net income would have ranged between approximately $6.0 and
$10.0 million.
17
18
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
YEAR 2000
The Company recognizes the need to ensure that its computer operations and
operating systems will recognize and process the year 2000 and thereafter. The
Company is cognizant of the time- sensitive nature of the issue and is actively
engaged in assessing and resolving the issues surrounding the year 2000. These
issues result from the use of two-digit year dates rather than four-digit dates
in computer code, which could negatively impact date-sensitive software that
does not recognize "00" as 2000. Although the assessment is not complete,
certain conversion efforts have been completed or are underway, and the Company
is reviewing remaining key financial, business, and operational systems to
develop a comprehensive plan to address year 2000 compliance.
As part of its review, the Company is communicating with its major customers,
suppliers, and financial institutions to ensure they will be year 2000
compliant, as failure of their systems could adversely affect the Company's
operations. However, there can be no guarantee that the systems of other
companies on which the Company's systems or operations rely will be timely
converted and would not have a negative effect on the Company's operations.
Based on information gathered to date, the Company expects to utilize both
internal staff and external resources and will use a combination of software
modifications, upgrades and replacements. The Company is not yet able to
estimate the total cost for year 2000 compliance.
The Company presently believes that with modifications and upgrades to existing
software and conversions to new software, the year 2000 issue will not pose
significant operational problems to the Company. However, if such modifications
and conversions are not made, or are not completed timely, the year 2000 issue
could have a material impact on the operations of the Company. The Company
presently believes that these modifications and conversions will be completed in
a timely manner.
CONTINGENCIES
The Company, as is normal for the industry in which it operates, is involved in
certain legal proceedings and subject to certain claims and site investigations
that arise under the environmental laws and which have not been finally
adjudicated. To the extent possible, with the information available, the Company
regularly evaluates its responsibility with respect to environmental
proceedings. The factors considered in this evaluation are more fully described
in the Commitments and Contingencies note to the consolidated condensed
financial statements. At May 31, 1998, the Company had reserves of $1.7 million
for environmental liabilities. The Company is of the opinion that, in light of
its existing reserves, its liability in connection with environmental
proceedings should not have a material adverse effect on its financial condition
or results of operation. The Company is presently unaware of the existence of
any potential material environmental costs that are likely to occur in
connection with the disposition of any of its property.
18
19
AMCAST INDUSTRIAL CORPORATION
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
- --------------------------
Refer to Item 3, Part I of Form 10-K for the fiscal year ended August 31, 1997.
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
a) Exhibits
Exhibit 27.1 - Restated Financial Data Schedule for the nine-month period ended
June 1, 1997.*
Exhibit 27.2 - Financial Data Schedule for the nine-month period ended May 31,
1998.*
* Schedule submitted in electronic format only
b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the quarter ended
May 31, 1998.
19
20
AMCAST INDUSTRIAL CORPORATION
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMCAST INDUSTRIAL CORPORATION
-----------------------------
(Registrant Company)
Date: July 15, 1998 By: /s/J. H. Shuey
------------- ---------------------------------
John H. Shuey
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Date: July 15, 1998 By: /s/D. D. Watts
------------- ---------------------------------
Douglas D. Watts
Vice President, Finance
(Principal Financial Officer)
Date: July 15, 1998 By: /s/ M.D. Mishler
------------- ---------------------------------
Mark D. Mishler
Corporate Controller
(Principal Accounting Officer)
20