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 30, 1999 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
----- ----
Number of Common Shares outstanding, no par value, as of May 30, 1999 -
9,120,620 shares.
2
AMCAST INDUSTRIAL CORPORATION
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MAY 30, 1999
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 30, 1999 and August 31, 1998
Consolidated Condensed Statements of Income - 4
for the Quarter and Nine Months Ended May 30, 1999
and May 31, 1998
Consolidated Condensed Statements of Retained Earnings - 4
for the Quarter and Nine Months Ended May 30, 1999
and May 31, 1998
Consolidated Condensed Statements of Cash Flows - 5
for the Nine Months Ended May 30, 1999
and May 31, 1998
Notes to Consolidated Condensed Financial Statements 6-10
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-18
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 19
PART II - OTHER INFORMATION
Item 5 - 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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3
PART I - FINANCIAL INFORMATION
AMCAST INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
($ in thousands)
(unaudited)
MAY 30 August 31
1999 1998
------------------ -----------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,133 $ 7,022
Accounts receivable 102,478 111,066
Inventories 75,337 84,255
Other current assets 18,005 20,308
--------- ---------
TOTAL CURRENT ASSETS 199,953 222,651
PROPERTY, PLANT, AND EQUIPMENT 398,728 398,878
Less accumulated depreciation (140,985) (138,761)
--------- ---------
257,743 260,117
GOODWILL 61,670 62,555
OTHER ASSETS 12,948 18,127
--------- ---------
$ 532,314 $ 563,450
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 5,256 $ 16,878
Current portion of long-term debt 6,231 6,370
Accounts payable 70,364 72,887
Accrued expenses 46,365 39,587
--------- ---------
TOTAL CURRENT LIABILITIES 128,216 135,722
LONG-TERM DEBT - LESS CURRENT PORTION 184,678 217,199
DEFERRED INCOME TAXES 22,800 25,164
DEFERRED LIABILITIES 22,719 24,551
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 - 9,208,529 and 9,206,529 shares, respectively 9,209 9,207
Capital in excess of stated value 79,020 78,964
Accumulated other comprehensive losses (853) (945)
Retained earnings 88,003 73,588
Cost of 87,909 common shares in treasury (1,478) --
--------- ---------
173,901 160,814
--------- ---------
$ 532,314 $ 563,450
========= =========
See notes to consolidated condensed financial statements
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4
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 30 May 31 MAY 30 May 31
1999 1998 1999 1998
------------ ----------- ---------- -----------
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
Net sales $ 157,790 $ 159,267 $ 445,548 $ 437,221
Cost of sales 133,939 133,195 371,735 365,375
--------- --------- --------- ---------
GROSS PROFIT 23,851 26,072 73,813 71,846
Selling, general and administrative expenses 14,362 15,426 42,135 42,111
Restructuring charges -- 9,800 -- 9,800
(Gain) on sale of businesses -- (12,048) (9,023) (12,048)
--------- --------- --------- ---------
OPERATING INCOME 9,489 12,894 40,701 31,983
Equity in (income) loss of joint venture 382 (398) 708 (1,230)
and other (income) and expense
Interest expense 3,076 3,659 10,144 11,109
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 6,031 9,633 29,849 22,104
Income taxes 2,292 3,949 11,579 6,251
--------- --------- --------- ---------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 3,739 5,684 18,270 15,853
Cumulative effect of accounting change, net of tax -- -- -- (8,588)
--------- --------- --------- ---------
NET INCOME $ 3,739 $ 5,684 $ 18,270 $ 7,265
========= ========= ========= =========
CONSOLIDATED CONDENSED STATEMENTS OF RETAINED EARNINGS
Beginning retained earnings $ 85,541 $ 69,570 $ 73,588 $ 70,565
Net income 3,739 5,684 18,270 7,265
Dividends (1,277) (1,289) (3,855) (3,865)
--------- --------- --------- ---------
ENDING RETAINED EARNINGS $ 88,003 $ 73,965 $ 88,003 $ 73,965
========= ========= ========= =========
BASIC EARNINGS PER SHARE
Income before cumulative effect of accounting change $ 0.41 $ 0.62 $ 1.99 $ 1.72
Cumulative effect of accounting change -- -- -- (0.93)
--------- --------- --------- ---------
Net income $ 0.41 $ 0.62 $ 1.99 $ 0.79
========= ========= ========= =========
DILUTED EARNINGS PER SHARE
Income before cumulative effect of accounting change $ 0.41 $ 0.61 $ 1.98 $ 1.71
Cumulative effect of accounting change -- -- -- (0.93)
--------- --------- --------- ---------
Net income $ 0.41 $ 0.61 $ 1.98 $ 0.78
========= ========= ========= =========
Dividends declared per share $ 0.14 $ 0.14 $ 0.42 $ 0.42
========= ========= ========= =========
Dividends paid per share $ 0.14 $ 0.14 $ 0.42 $ 0.42
========= ========= ========= =========
See notes to consolidated condensed financial statements.
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5
AMCAST INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ in thousands)
(unaudited)
Nine Months Ended
-----------------------------
MAY 30 May 31
1999 1998
------------ ----------
OPERATING ACTIVITIES
Net income $ 18,270 $ 7,265
Depreciation and amortization 24,105 24,016
Gain on sale of businesses (9,023) (12,048)
Restructuring and integration charges -- 12,000
Cumulative effect of accounting change -- 8,588
Deferred liabilities (2,853) 1,953
Changes in assets and liabilities:
Accounts receivable 2,664 (6,670)
Inventories (4,226) (3,692)
Accounts payable 2,671 (10,139)
Other 10,892 (7,970)
-------- --------
NET CASH PROVIDED BY OPERATIONS 42,500 13,303
INVESTING ACTIVITIES
Additions to property, plant, and equipment (34,122) (33,168)
Proceeds from sale of businesses 35,604 25,445
Acquisitions, net of cash received (1,200) (11,816)
Other 231 (53)
-------- --------
NET CASH PROVIDED BY (USED BY) INVESTING ACTIVITIES 513 (19,592)
FINANCING ACTIVITIES
Additions to long-term debt 36,154 60,641
Reduction in long-term debt (65,522) (16,121)
Short-term borrowings (10,419) (39,622)
Dividends (3,855) (3,865)
Other (1,795) 510
-------- --------
NET CASH (USED BY) PROVIDED BY FINANCING ACTIVITIES (45,437) 1,543
Effect of exchange rate changes on cash (465) 59
-------- --------
Net change in cash and cash equivalents (2,889) (4,687)
Cash and cash equivalents at beginning of period 7,022 9,608
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,133 $ 4,921
======== ========
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 Company's investment in Casting Technology Company (CTC), a
joint venture, is included in the accompanying financial statements using the
equity method of accounting. 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, 1998 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.
ACCOUNTING STANDARDS ADOPTED
Effective September 1, 1997, the Company adopted the provisions of the American
Institute of Certified Public Accountants' Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-Up Activities." SOP 98-5 provides guidance on
the financial reporting of start-up and organization costs and requires such
costs to be expensed as incurred. The total amount of deferred start-up costs
reported as a cumulative effect of a change in accounting principle was $8,588
($.93 per share), net of tax benefits of $5,044. The Company's share of CTC's
cumulative effect of a change in accounting principle was $3,529, net of tax.
Effective September 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." The
adoption of this Statement had no effect on the Company's net income or
shareholders' equity. Comprehensive income includes all changes in shareholders'
equity during a period except those resulting from investments by and
distributions to shareholders. SFAS No. 130 requires reporting certain
transactions that result in a change in shareholders equity, such as foreign
currency translation adjustments, to be included in other comprehensive income.
For the Company, total comprehensive income is the sum of net income and foreign
currency translation adjustments. Total comprehensive income was $1,242 and
$18,362 for the three-and nine-month periods ended May 30, 1999 and $6,647 and
$7,014 for the three- and nine-month periods ended May 31, 1998.
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information", which establishes guidelines for determining operating segments
and extensive disclosure requirements of those segments, is effective for the
Company's fiscal 1999 annual financial statements, and for interim reporting
beginning in fiscal 2000. The Company has not yet determined the impact the new
Statement will have on the reported segments of the Company. The adoption of
this Statement will have no effect on the Company's consolidated results of
operations, financial position or cash flows.
6
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AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
DIVESTITURES AND RESTRUCTURINGS
On October 16, 1998, the Company sold Superior Valve Company (Superior Valve)
for $35,604 in cash. The transaction resulted in a pre-tax gain of $9,023. The
facility, acquired by Amcast in 1986, produces specialty valves and related
products for the compressed gas and commercial refrigeration markets. Fiscal
1998 sales were approximately $42,000 and were included in the Company's Flow
Control segment.
Following the acquisition of Lee Brass, the Company consolidated its two brass
operations and ceased production at its Flagg Brass operation in Stowe,
Pennsylvania. In connection with the consolidation plan, during the third
quarter of fiscal 1998 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 assets to their net realizable value. Key
components of the $5,800 restructuring charge included a non-cash write-down of
assets to their net realizable value, severance and other termination benefits,
and other facility closure costs. As of August 31, 1998, substantially all of
the severance and facility closure costs had been charged against the reserve
and during the second quarter of fiscal 1999, the Company wrote-off $4,504 of
net assets related to the Flagg Brass operation against the previously
established long-term reserve. The majority of the assets had been classified as
assets held for sale and were included in Other Assets in the Company's
Consolidated Statements of Financial Condition. The Company expects that the
closure of Flagg Brass will be completed by December 31, 1999. Fiscal 1998 sales
were approximately $7,800 and were included in the Flow Control segment.
During the third quarter of fiscal 1998, the Company also re-evaluated its
reserves related to several iron foundries 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)
INVENTORIES
The major components of inventories are:
May 30 August 31
1999 1998
------------ ---------
Finished products $33,546 $37,561
Work in process 22,719 28,760
Raw materials and supplies 20,623 20,610
------- -------
76,888 86,931
Less amount to reduce certain
inventories to LIFO value 1,551 2,676
------- -------
$75,337 $84,255
======= =======
Long-Term Debt
The following table summarizes the Company's long-term borrowings:
May 30 August 31
1999 1998
----------- -----------
Senior notes $ 50,875 $ 51,750
Revolving credit notes 111,893 141,092
Lines of credit 10,200 8,900
Industrial revenue bonds 5,750 5,925
Other debt 4,626 5,372
Capital leases 7,565 10,530
-------- --------
190,909 223,569
Less current portion 6,231 6,370
-------- --------
$184,678 $217,199
======== ========
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AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
EARNINGS PER SHARE
In the second quarter of fiscal 1998, the Company adopted 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
stock options 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 30, 1999 and May 31, 1998,
respectively.
Three Months Ended Nine Months Ended
---------------------------- -------------------------------
May 30 May 31 May 30 May 31
1999 1998 1999 1998
------------ ---------- ----------- ----------
Income before cumulative effect
of accounting change $ 3,739 $ 5,684 $ 18,270 $15,853
======= ======= ======== =======
Net income $ 3,739 $ 5,684 $ 18,270 $ 7,265
======= ======= ======== =======
BASIC EARNINGS PER SHARE:
Basic shares 9,169 9,206 9,187 9,198
======= ======= ======== =======
Income before cumulative effect
of accounting change $ 0.41 $ 0.62 $ 1.99 $ 1.72
======= ======= ======== =======
Net income $ 0.41 $ 0.62 $ 1.99 $ 0.79
======= ======= ======== =======
DILUTED EARNINGS PER SHARE:
Basic shares 9,169 9,206 9,187 9,198
Stock options 19 42 19 61
------- ------- -------- -------
Diluted shares 9,188 9,248 9,206 9,259
======= ======= ======== =======
Income before cumulative effect
of accounting change $ 0.41 $ 0.61 $ 1.98 $ 1.71
======= ======= ======== =======
Net income $ 0.41 $ 0.61 $ 1.98 $ 0.78
======= ======= ======== =======
For each of the periods in fiscal 1999 and 1998, there were outstanding stock
options excluded from the computation of diluted earnings per share because the
options were antidilutive.
9
10
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
COMMITMENTS AND CONTINGENCIES
At May 30, 1999, the Company has committed to capital expenditures of $9,824,
primarily for the Engineered Components segment.
The Company, as is normal for the industry in which it operates, is involved in
certain legal proceedings and subject to certain claims and site investigations
which arise under the environmental laws and which have not been finally
adjudicated.
The Company has been identified as a potentially responsible party by various
state agencies and by the United States Environmental Protection Agency (U.S.
EPA) under the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended, for costs associated with U.S. EPA led multi-party
sites and state environmental agency-led remediation sites. The majority of
these claims involve third-party owned disposal sites for which compensation is
sought from the Company as an alleged waste generator for recovery of past
governmental costs or for future investigation or remedial actions at the
multi-party sites. 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 30, 1999, the Company's accrued undiscounted reserve for such contingencies
was $1,500.
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, 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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11
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 Engineered
Components and Flow Control Products 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 thereto.
ACQUISITIONS AND DIVESTITURES
During the latter part of fiscal 1998 and early fiscal 1999, the Company
completed several transactions that have an impact on the comparison between
fiscal 1999 and fiscal 1998. During the third quarter of fiscal 1998, the
Company sold its Rancho Cucamonga, California investment casting operation,
Amcast Precision ("Precision"), a producer of ferrous and nonferrous castings
for the aerospace industry. The transaction resulted in a pre-tax gain of $12.0
million. Sales of approximately $13.1 million in fiscal 1998 were included in
the Engineered Components segment.
During the third quarter of fiscal 1998, the Company also acquired Lee Brass
Company, a major manufacturer of cast brass products located in Anniston,
Alabama. This acquisition was effective March 1, 1998. Following the acquisition
of Lee Brass, the Company consolidated its two brass operations and ceased
production at its Flagg Brass operation in Stowe, Pennsylvania. In connection
with the consolidation plan, during the third quarter of fiscal 1998 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 assets to their net realizable value. Key components of the $5.8
million restructuring charge included a non-cash write-down of assets to their
net realizable value, severance and other termination benefits, and other
facility closure costs. As of August 31, 1998, substantially all of the
severance and facility closure costs had been charged against the reserve and
during the second quarter of fiscal 1999, the Company wrote-off $4.5 million of
net assets related to the Flagg Brass operation against the previously
established long-term reserve. The Company expects that the closure of Flagg
Brass will be
11
12
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
completed by December 31, 1999. Sales of Flagg Brass for fiscal 1998 totaled
$7.8 million and were included in the Flow Control segment.
During the third quarter of fiscal 1998, the Company also re-evaluated its
reserves related to several iron foundries 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.
During the first quarter of fiscal 1999, the Company sold Superior Valve Company
("Superior Valve") for $35.6 million in cash. The transaction resulted in a
pre-tax gain of $9.0 million. The facility, acquired by Amcast in 1986, produces
specialty valves and related products for the compressed gas and commercial
refrigeration markets. Fiscal 1998 sales were approximately $42.0 million and
were included in the Company's Flow Control segment.
The sales of Precision and Superior Valve and the closure of Flagg Brass are
collectively referred to as "divested operations" in this Management's
Discussion and Analysis.
RESULTS OF OPERATIONS
Consolidated net sales decreased slightly to $157.8 million for the third
quarter of fiscal 1999 from $159.3 million in the same period of fiscal 1998.
Demand for the Company's products in both its Flow Control and Engineered
Components segments was strong in the third quarter as consolidated net sales
increased by 8.7% due to volume. This volume growth was more than offset by the
reduction in sales from divested operations. The fiscal 1998 third quarter
included $15.1 million of sales from divested operations. Product mix was
favorable, but lower prices offset the mix benefits. By segment, Engineered
Components sales increased by 9.4% compared with the third quarter of fiscal
1998, while Flow Control Products sales decreased by 21.8%.
For the first nine months of fiscal 1999, consolidated net sales increased by
1.9% to $445.5 million. Demand was strong for the Company's copper and brass
plumbing fittings, aluminum automobile wheels, and performance-critical aluminum
automotive components. Significant volume gains and incremental sales from the
Lee Brass acquisition resulted in a 15.5% increase in sales, more than
offsetting the 10.4% decrease in sales due to divested operations. As a result,
consolidated net sales increased by 5.1% due to volume. Market pricing pressures
in the Flow Control Products segment and lower aluminum costs reflected in
pricing in the Engineered Components segment more than offset favorable product
mix gains which combined to decrease sales by 3.2%. By segment, Engineered
Components sales increased by 7.3% compared with the first nine months of fiscal
1998, while Flow Control Products sales decreased by 10.9%.
Gross profit for the third quarter of fiscal 1999 decreased by 8.5% to $23.9
million, while year-to-date gross profit for fiscal 1999 rose by 2.7% to $73.8
million. As a percentage of sales, gross profit fell to 15.1% for the third
quarter compared with 16.4% for the prior year. The decrease in gross profit
percentage for the quarter is primarily due to operating inefficiencies caused
by high
12
13
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
turnover of skilled labor in two Midwest plants, as well as the launch of new
suspension products at the Company's newest plant in Ohio. On a year-to-date
basis, the gross profit percentage improved to 16.6% for fiscal 1999 compared
with 16.4% for fiscal 1998. The Company experienced improved productivity at
most of its facilities and cost improvements at its automotive component plants
in the first half of fiscal 1999.
Selling, general and administrative (SG&A) expenses decreased $1.1 million in
the third quarter of fiscal 1999 compared with the same period of fiscal 1998.
On a year-to-date basis, SG&A expense was equivalent in both periods. As a
percentage of sales, SG&A expense was 9.1% in the third quarter and 9.5% for the
first nine months of fiscal 1999 compared with 9.7% and 9.6% for the same
periods 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 $0.2 million in the third
quarter of fiscal 1999, compared with a near break-even position in the
comparable period of fiscal 1998. The Company's pre-tax share of losses from CTC
was $0.9 million in the first nine months of fiscal 1999 compared with $0.4
million of income, excluding CTC's share of the cumulative effect adjustment
discussed below, in the same period of fiscal 1998. CTC's results for fiscal
1999 were negatively impacted by foreign exchange losses resulting from the
strengthening of the yen, operating inefficiencies resulting from efforts to
meet extremely high customer demand early in the year, and difficulties hiring
skilled labor.
Interest expense was $3.1 million and $3.7 million in the third quarters of
fiscal 1999 and 1998, respectively, and $10.1 million and $11.1 million in the
first nine months of fiscal 1999 and 1998, respectively.
The effective tax rate was 38.0% and 41.0% for the third quarters of fiscal 1999
and 1998, respectively, and 38.8% and 28.3% for the first nine months of fiscal
1999 and 1998, respectively. The effective rates for fiscal 1998 include a
one-time adjustment, recorded in the second quarter, of $2.6 million resulting
from a reduction of Italian tax rates. Excluding this adjustment, the effective
tax rates were 41.0% and 39.9% for the third quarter and first nine months of
fiscal 1998, respectively. The higher effective tax rate for the year-to-date
period in fiscal 1999, as compared with the third quarter of fiscal 1999,
results from a permanent tax basis difference associated with the sale of
Superior Valve in the first quarter.
13
14
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS BY BUSINESS SEGMENT (unaudited)
($ in thousands)
Three Months Ended Nine Months Ended
---------------------------------- --------------------------------
May 30 May 31 May 30 May 31
1999 1998 1999 1998
-------------- -------------- -------------- ------------
Net Sales
- ---------
Flow Control Products $ 41,208 $ 52,703 $ 115,914 $ 130,133
Engineered Components 116,582 106,564 329,634 307,088
--------- --------- --------- ---------
$ 157,790 $ 159,267 $ 445,548 $ 437,221
========= ========= ========= =========
Income before Income Taxes and
- ------------------------------
Cumulative Effect of Accounting Change
- --------------------------------------
Flow Control Products $ 7,035 $ 6,093 $ 18,549 $ 17,877
Engineered Components 5,132 7,517 21,036 18,678
Disposition of Businesses (a) -- 12,048 9,023 12,048
Restructuring (b) -- (9,800) -- (9,800)
Corporate (2,678) (2,964) (7,907) (6,820)
Equity in income (loss) of joint venture
and other income (expense) (382) 398 (708) 1,230
Interest expense (3,076) (3,659) (10,144) (11,109)
--------- --------- --------- ---------
$ 6,031 $ 9,633 $ 29,849 $ 22,104
========= ========= ========= =========
<FN>
(a) Disposition of Superior Valve in fiscal 1999 relates to the Flow Control
segment. Disposition of Precision in fiscal 1998 relates to the Engineered
Components segment.
(b) $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.
14
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AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Net sales for the Flow Control Products segment were $41.2 million for the third
quarter of fiscal 1999 compared with $52.7 million for the same period of fiscal
1998. Decreased sales from divested operations more than offset volume gains
resulting in a 20.3% decrease in sales volume. While demand remained strong,
lower pricing in the copper and brass fittings business, net of favorable mix
benefits, decreased sales by 1.5%. Operating income was $7.0 million as compared
with $8.3 million for the same period of fiscal 1998. Pricing pressures in the
Company's copper and brass fittings business contributed to the segment's
year-over-year decline in operating income; however, cost reduction efforts and
lower material costs continue to partially offset the impact of pricing
pressures.
Net sales for the Engineered Components segment were $116.6 million for the
third quarter of fiscal 1999 compared with $106.6 million in the third quarter
of fiscal 1998. Strong aluminum wheel sales in North America and Europe led the
8.9% increase in segment sales due to volume. The remaining sales increase
results from a combination of a favorable product mix and a stronger Italian
Lire in fiscal 1999 versus fiscal 1998, largely offset by lower aluminum costs
which are also reflected in the Company's pricing. Operating income was $5.1
million as compared with $7.5 million for the same period in fiscal 1998. The
decrease in operating income in the third quarter reflects the cost impact of
labor turnover and new-product launch issues discussed above.
LIQUIDITY AND CAPITAL RESOURCES
For the first nine months of fiscal 1999, operations provided net cash of $42.5
million compared with $13.3 million for the same period in fiscal 1998. Cash
provided by net income and depreciation totaled $33.4 million for fiscal 1999,
excluding the non-cash gain on the disposition of Superior Valve. A $12.0
million decrease in working capital requirements also contributed to the
positive cash flow. Fiscal 1999's working capital decrease primarily reflects
increased income tax accruals attributed to the gain on the disposition of
Superior Valve and increased compensation-related accruals.
Investing activities provided net cash of $0.5 million for the first nine months
of fiscal 1999 compared with $19.6 million used in fiscal 1998. Proceeds from
the sale of Superior Valve provided $35.6 million, which was primarily used to
reduce long-term debt. Capital spending totaled $34.1 million in the first nine
months of fiscal 1999, compared with $33.2 million in the first nine months of
fiscal 1998. At May 30, 1999, the Company had $9.8 million of commitments for
additional capital expenditures, primarily for the Engineered Components
segment.
Financing activities used $45.4 million in cash, primarily to reduce net debt,
in the first nine months of fiscal 1999 versus net cash provided of $1.5 million
for fiscal 1998. Additional borrowings in fiscal 1999 included $36.2 million
under the Company's revolving credit agreement. Long-term debt repayments were
$65.5 million, financed in part with the proceeds from the Superior Valve
disposition, and short-term borrowings declined by $10.4 million. Cash used by
financing activities also includes dividend payments of $3.9 million.
15
16
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Long-term debt was 53.0% of total capital at May 30, 1999 and 59.9% at August
31, 1998. The Company may borrow up to $200 million under a credit agreement
that expires August 14, 2002. At May 30, 1999, $111.9 million was outstanding
under the credit agreement, and the Company had unused borrowing capacity of
$20.7 million under its most restrictive debt covenant. The Company also
maintains domestic bank lines of credit under which it may borrow up to $27
million of which $10.2 million was outstanding at May 30, 1999. In addition,
Speedline has short-term lines of credit totaling $70.7 million , of which $60.8
million was available at April 30, 1999. The Company considers these external
sources of funds, together with funds generated from operations, to be adequate
to meet operating needs.
On December 17, 1998 the Company announced a plan to repurchase up to 750,000 of
its outstanding common shares. As of May 30, 1999, 84,300 shares have been
repurchased under this plan. The Company currently has 9,120,620 shares
outstanding.
ACCOUNTING STANDARDS ADOPTED
Effective September 1, 1997, the Company adopted the provisions of the American
Institute of Certified Public Accountants' Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-Up Activities." SOP 98-5 provides guidance on
the financial reporting of start-up and organization costs and requires such
costs to be expensed as incurred. The total amount of deferred start-up costs
reported as a cumulative effect of a change in accounting principle was $8.6
million ($.93 per share), net of tax benefits of $5.0 million. The Company's
share of CTC's cumulative effect of a change in accounting principle was $3.5
million, net of tax.
Effective September 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." The
adoption of this Statement had no impact on the Company's net income or
shareholders' equity. Comprehensive income includes all changes in shareholders'
equity during a period except those resulting from investments by and
distributions to shareholders. SFAS No. 130 requires reporting certain
transactions that result in a change in shareholders equity, such as foreign
currency translation adjustments, to be included in other comprehensive income.
For the Company, total comprehensive income is the sum of net income and foreign
currency translation adjustments. Total comprehensive income was $1.2 million
and $18.4 million for the three-and nine-month periods ended May 30, 1999 and
$6.6 million and $7.0 for the three- and nine-month periods ended May 31, 1998.
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information", which establishes guidelines for determining operating segments
and extensive disclosure requirements of those segments, is effective for the
Company's fiscal 1999 annual financial statements, and for interim reporting
beginning in fiscal 2000. The Company has not yet determined the impact the new
Statement will have on the reported segments of the Company. The adoption of
this Statement will have no effect on the Company's consolidated results of
operations, financial position or cash flows.
16
17
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
YEAR 2000
The Company has designated a Year 2000 Steering Committee and a task force in
each of its operations to ensure compliance of its computer systems including
computers utilized in production, production support equipment, and plant
infrastructure systems. The Company has been working with its vendors to assess
their readiness. For the most part, the Company uses third-party supplied
computer programs and packages for its information technology systems. Certain
of those systems are already year 2000 compliant as supplied by the vendor.
In the Flow Control Products segment, certain software packages had been
modified by the Company. These packages have been remediated and tested by
internal information technology professionals. The total cost of these
modifications is estimated to have cost the Company $0.4 million.
In the Engineered Components segment, some facilities are utilizing compliant
releases of software. The Automotive group is in the process of installing an
enterprise resource planning (ERP) system as an upgrade in functionality that
will improve business processes. At the same time and without incremental cost,
the new system will address the year 2000 issue. Should the ERP system not be
installed and operational in sufficient time, the Company believes that it can
install compliant versions of its current software promptly to resolve the issue
at a cost that will not materially impact its results of operations, liquidity,
or financial condition.
At the Company's Speedline unit, internal resources have evaluated, and modified
where necessary, the Company's business systems, manufacturing and engineering
equipment, and vendor readiness. Testing of such modifications is in process.
The Company's vendors are in various stages of compliance with year 2000. The
Company expects that critical vendors will be in compliance or have adequate
alternative solutions in place.
The Company believes its risk is low in the event of year 2000 issues. Its Flow
Control systems and many of its Engineered Components systems are compliant. Two
of the Company's automotive facilities in the U.S. and Italy have been
successfully audited for compliance by one of each of their major customers.
Additionally, the Company has engaged an independent third-party to evaluate the
Year 2000 remediation plans and preparedness during the fourth quarter of fiscal
1999. The Company's primary raw materials are basic commodities available from
multiple sources such as copper cathode, aluminum sows and ingots, and brass
from scrap radiators.
As a result, the Company does not expect and cannot at this time reasonably
estimate a material impact due to the uncertainty of year 2000 issues on its
results of operations, liquidity, and financial condition. Contingency plans if
deemed necessary will be developed to address the Company's specific risks
during 1999.
17
18
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 30, 1999, the Company had reserves of $1.5 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.
EURO-CURRENCY
The Single European Currency (Euro) was introduced on January 1, 1999 with
complete transition to this new currency required by January 2002. The Euro is a
common currency that has been adopted as the national currency by participating
member countries of the European Union. The Company's customers in Europe
presently can choose to be invoiced in Euro's and the Company is prepared to
respond to all such requests. The Company expects to continue to make changes in
its internal systems to accommodate doing business in the Euro. The Company is
currently evaluating the economic and operational impact of the Euro conversion
but does not expect it to have a material effect on its financial condition or
results of operations.
18
19
AMCAST INDUSTRIAL CORPORATION
Item 3 Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in foreign currency exchange
rates and interest rates as part of its normal operations. There have been no
material changes in the Company's exposure to these items since the Company's
disclosure in Item 7A, Part II of Form 10-K for the year ended August 31, 1998.
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
a) Exhibits
Exhibit 27.1 - Financial Data Schedule for the nine-month period ended May 30,
1999.*
* 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 30, 1999
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 9, 1999 By: /s/ J. H. Shuey
-------------- --------------------------------
John H. Shuey
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Date: July 9, 1999 By: /s/ D. D. Watts
-------------- --------------------------------
Douglas D. Watts
Vice President, Finance
(Principal Financial Officer)
Date: July 9, 1999 By: /s/ M. D. Mishler
-------------- --------------------------------
Mark D. Mishler
Corporate Controller
(Principal Accounting Officer)
20