-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QDcydIfQVJxLT9xQ2OaAK5XIu8RU9nChd9d8qG4GW+C6zFEIGjCKKxwy5dhJWG+h 1WW/q8Y+4Lz4FG2xEur0JQ== 0000950152-99-003124.txt : 19990412 0000950152-99-003124.hdr.sgml : 19990412 ACCESSION NUMBER: 0000950152-99-003124 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990409 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMCAST INDUSTRIAL CORP CENTRAL INDEX KEY: 0000027425 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED METAL PRODUCTS [3490] IRS NUMBER: 310258080 STATE OF INCORPORATION: OH FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09967 FILM NUMBER: 99590162 BUSINESS ADDRESS: STREET 1: 7887 WASHINGTON VILLAGE DR CITY: DAYTON STATE: OH ZIP: 45459 BUSINESS PHONE: 5132987000 MAIL ADDRESS: STREET 1: 7887 WASHINGTON VILLAGE DRIVE CITY: DAYTON STATE: OH ZIP: 45459 FORMER COMPANY: FORMER CONFORMED NAME: DAYTON MALLEABLE INC DATE OF NAME CHANGE: 19831219 FORMER COMPANY: FORMER CONFORMED NAME: DAYTON MALLEABLE IRON CO DATE OF NAME CHANGE: 19741216 10-Q 1 AMCAST INDUSTRIAL CORPORATION 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 February 28, 1999 Commission File Number 1-9967 ------- 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 ------------------------------------------------------------- (Exact name of registrant as specified in its charter) Ohio 31-0258080 - ------------------------------- ---------------- (State of Incorporation) (I.R.S. Employer Identification No.) 7887 Washington Village Drive, Dayton, Ohio 45459 - ------------------------------------------------ ---------- (Address of principal executive offices) (Zip Code) (937) 291-7000 ---------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (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 February 28, 1999 - 9,204,920 shares. 2 AMCAST INDUSTRIAL CORPORATION REPORT ON FORM 10-Q FOR THE QUARTER ENDED FEBRUARY 28, 1999 I N D E X ---------
PART I - FINANCIAL INFORMATION PAGE ---- Item 1 - Financial Statements: Consolidated Condensed Statements of Financial 3 Condition - February 28, 1999 and August 31, 1998 Consolidated Condensed Statements of Income - 4 for the Quarter and Six Months Ended February 28, 1999 and March 1, 1998 Consolidated Condensed Statements of Retained Earnings - 4 for the Quarter and Six Months Ended February 28, 1999 and March 1, 1998 Consolidated Condensed Statements of Cash Flows - 5 for the Six Months Ended February 28, 1999 and March 1, 1998 Notes to Consolidated Condensed Financial Statements 6-10 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 11-17 Item 3 - Quantitative and Qualitative Disclosures about Market Risk 18 PART II - OTHER INFORMATION Item 5 - Submission of Matters to a Vote of Security Holders 18 Item 6 - Exhibits and Reports on Form 8-K 18 SIGNATURES 19
2 3 PART I - FINANCIAL INFORMATION
AMCAST INDUSTRIAL CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION ($ in thousands) (unaudited) February 28 August 31 1999 1998 ------------------ ----------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 5,093 $ 7,022 Accounts receivable 125,111 111,066 Inventories 81,354 84,255 Other current assets 23,162 20,308 ------------------ ----------------- Total Current Assets 234,720 222,651 PROPERTY, PLANT, AND EQUIPMENT 391,395 398,878 Less accumulated depreciation (133,874) (138,761) ------------------ ----------------- 257,521 260,117 Goodwill 62,074 62,555 Other Assets 12,622 18,127 ------------------ ----------------- $ 566,937 $ 563,450 ================== ================= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term debt $ 18,592 $ 16,878 Current portion of long-term debt 6,016 6,370 Accounts payable 73,627 72,887 Accrued expenses 43,752 39,587 ------------------ ----------------- Total Current Liabilities 141,987 135,722 Long-Term Debt - less current portion 201,208 217,199 Deferred Income Taxes 22,695 25,164 Deferred Liabilities 25,695 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 income (losses) 1,644 (945) Retained earnings 85,541 73,588 Cost of 3,609 common shares in treasury (62) - ------------------ ----------------- 175,352 160,814 ------------------ ----------------- $ 566,937 $ 563,450 ================== =================
See notes to consolidated condensed financial statements 3 4
AMCAST INDUSTRIAL CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS ($ in thousands except per share amounts) (unaudited) Three Months Ended Six Months Ended ------------------------- ----------------------- February 28 March 1, February 28 March 1, 1999 1998 1999 1998 ---- ---- ---- ---- CONSOLIDATED CONDENSED STATEMENTS OF INCOME Net sales $ 141,734 $ 136,975 $ 287,758 $ 277,954 Cost of sales 116,619 114,797 237,796 232,180 --------- --------- --------- --------- GROSS PROFIT 25,115 22,178 49,962 45,774 Selling, general and administrative expenses 14,096 13,418 27,773 26,685 (Gain) on sale of business -- -- (9,023) -- --------- --------- --------- --------- OPERATING INCOME 11,019 8,760 31,212 19,089 Equity in loss of joint venture and other (income) and expense 275 (314) 326 (832) Interest expense 3,483 3,982 7,068 7,450 --------- --------- --------- --------- INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 7,261 5,092 23,818 12,471 Income taxes 2,759 (517) 9,287 2,302 --------- --------- --------- --------- INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 4,502 5,609 14,531 10,169 Cumulative effect of accounting change, net of tax -- -- -- (8,588) --------- --------- --------- --------- NET INCOME $ 4,502 $ 5,609 $ 14,531 $ 1,581 ========= ========= ========= ========= CONSOLIDATED CONDENSED STATEMENTS OF RETAINED EARNINGS Beginning retained earnings $ 82,328 $ 65,250 $ 73,588 $ 70,565 Net income 4,502 5,609 14,531 1,581 Dividends (1,289) (1,289) (2,578) (2,576) --------- --------- --------- --------- ENDING RETAINED EARNINGS $ 85,541 $ 69,570 $ 85,541 $ 69,570 ========= ========= ========= ========= BASIC EARNINGS PER SHARE Income before cumulative effect of accounting change $ 0.49 $ 0.61 $ 1.58 $ 1.11 Cumulative effect of accounting change -- -- -- (0.93) --------- --------- --------- --------- Net income $ 0.49 $ 0.61 $ 1.58 $ 0.17 ========= ========= ========= ========= DILUTED EARNINGS PER SHARE Income before cumulative effect of accounting change $ 0.49 $ 0.61 $ 1.58 $ 1.10 Cumulative effect of accounting change -- -- -- (0.93) --------- --------- --------- --------- Net income $ 0.49 $ 0.61 $ 1.58 $ 0.17 ========= ========= ========= ========= Dividends declared per share $ 0.14 $ 0.14 $ 0.28 $ 0.28 ========= ========= ========= ========= Dividends paid per share $ 0.14 $ 0.14 $ 0.28 $ 0.28 ========= ========= ========= =========
See notes to consolidated condensed financial statements. 4 5
AMCAST INDUSTRIAL CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS ($ in thousands) (unaudited) Six Months Ended ---------------------------------- FEBRUARY 28 March 1 1999 1998 --------------- ---------------- OPERATING ACTIVITIES Net income $ 14,531 $ 1,581 Depreciation and amortization 15,489 15,692 Gain on sale of business (9,023) -- Cumulative effect of accounting change -- 8,588 Deferred liabilities (1,499) (1,750) Changes in assets and liabilities: Accounts receivable (16,968) (7,725) Inventories (8,176) (2,542) Accounts payable 3,318 (4,755) Other 2,391 (5,925) -------- -------- NET CASH PROVIDED BY OPERATIONS 63 3,164 INVESTING ACTIVITIES Additions to property, plant, and equipment (19,440) (19,137) Proceeds from sale of business 35,604 -- Other (619) (1,632) -------- -------- NET CASH PROVIDED BY (USED BY) INVESTING ACTIVITIES 15,545 (20,769) FINANCING ACTIVITIES Additions to long-term debt 20,000 68,861 Reduction in long-term debt (53,659) (3,610) Short-term borrowings 18,669 (46,011) Dividends (2,578) (2,576) Other (4) 497 -------- -------- NET CASH (USED BY) PROVIDED BY FINANCING ACTIVITIES (17,572) 17,161 Effect of exchange rate changes on cash 35 (204) -------- -------- Net change in cash and cash equivalents (1,929) (648) Cash and cash equivalents at beginning of period 7,022 9,608 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,093 $ 8,960 ======== ========
See notes to consolidated condensed financial statements 5 6 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 $3,207 and $17,120 for the three-and six month periods ended February 28, 1999 and $4,452 and $367 for the three-and six month periods ended March 1, 1998. SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information", which establishes guidelines for determining operating segments and extensive disclosure requirements of those segments, is effective for the Company's fiscal 1999 annual financial statements, and for interim reporting beginning in fiscal 2000. The Company has not yet determined the impact the new Statement will have on the reported segments of the Company. The adoption of this Statement will have no effect on the Company's consolidated results of operations, financial position or cash flows. 6 7 AMCAST INDUSTRIAL CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS ($ 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 in fiscal 1998, the Company consolidated its two brass operations and ceased production at its Flagg Brass operation located in Stowe, Pennsylvania. During the second quarter of fiscal 1999, the Company wrote-off $4,504 of net assets related to the Flagg Brass operation against a previously established long-term reserve. The majority of the assets had been classified as assets held for sale and were included in Other Assets in the Company's Consolidated Statements of Financial Condition. 7 8 AMCAST INDUSTRIAL CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS ($ in thousands, except per share amounts) (unaudited) INVENTORIES The major components of inventories are:
February 28 August 31 1999 1998 ---------- ---------- Finished products $34,582 $37,561 Work in process 27,310 28,760 Raw materials and supplies 21,013 20,610 ------- ------- 82,905 86,931 Less amount to reduce certain inventories to LIFO value 1,551 2,676 ------- ------- $81,354 $84,255 ======= =======
LONG-TERM DEBT The following table summarizes the Company's long-term borrowings:
February 28 August 31 1999 1998 --------- ----------- Senior notes $ 50,875 $ 51,750 Revolving credit notes 110,480 141,092 Lines of credit 26,300 8,900 Industrial revenue bonds 5,750 5,925 Other debt 4,792 5,372 Capital leases 9,027 10,530 -------- -------- 207,224 223,569 Less current portion 6,016 6,370 -------- -------- $201,208 $217,199 ======== ========
8 9 AMCAST INDUSTRIAL CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS ($ 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 six month periods ended February 28, 1999 and March 1, 1998, respectively.
Three Months Ended Six Months Ended ------------------------------ -------------------------------- February 28 March 1 February 28 March 1 1999 1998 1999 1998 ----------- ------------ ------------ --------- Income before cumulative effect of accounting change $ 4,502 $ 5,609 $ 14,531 $10,169 ======= ======= ======== ======= Net income $ 4,502 $ 5,609 $ 14,531 $ 1,581 ======= ======= ======== ======= BASIC EARNINGS PER SHARE: Basic shares 9,200 9,202 9,196 9,193 ======= ======= ======== ======= Income before cumulative effect of accounting change $ 0.49 $ 0.61 $ 1.58 $ 1.11 ======= ======= ======== ======= Net income $ 0.49 $ 0.61 $ 1.58 $ 0.17 ======= ======= ======== ======= DILUTED EARNINGS PER SHARE: Basic shares 9,200 9,202 9,196 9,193 Stock options 27 60 19 71 ------- ------- -------- ------- Diluted shares 9,227 9,262 9,215 9,264 ======= ======= ======== ======= Income before cumulative effect of accounting change $ 0.49 $ 0.61 $ 1.58 $ 1.10 ======= ======= ======== ======= Net income $ 0.49 $ 0.61 $ 1.58 $ 0.17 ======= ======= ======== =======
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 February 28, 1999, the Company has committed to capital expenditures of $20,135, 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 February 28, 1999, the Company's accrued undiscounted reserve for such contingencies was $1,600. 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. 10 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, a producer of ferrous and nonferrous castings for the aerospace industry. 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. During the second quarter of fiscal 1999, the Company wrote-off $4,504 of net assets related to the Flagg Brass operation against a previously established long-term reserve. Sales of Flagg Brass for fiscal 1998 totaled $7.8 million and were included in the Flow Control segment. During the first quarter of fiscal 1999, the Company sold Superior Valve Company 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. 11 12 AMCAST INDUSTRIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Total net sales increased by 3.5% to $141.7 million for the second quarter of fiscal 1999, demonstrating strong demand for the Company's automotive products, both in North America and in Europe. Incremental sales from the Lee Brass acquisition partially offset sales from divested operations. The net reduction in volume from divested operations offset Flow Control volume growth; however, volume gains in the Engineered Components segment contributed to a 4.1% increase in sales due to volume. Product mix was favorable overall, but lower prices partly offset the volume and mix benefits. By segment, Engineered Components sales increased by 10.0% compared with the second quarter of fiscal 1998, while Flow Control Products sales decreased by 12.1%. For the first half of fiscal 1999, total net sales increased by 3.5% to $287.8 million. Demand was strong for the Company's copper and brass plumbing fittings, aluminum automobile wheels, and performance-critical aluminum automotive components. Incremental sales from the Lee Brass acquisition partially offset reduced sales from divested operations, and together with other volume gains, increased sales by approximately 8.4% due to volume. Market pricing pressures in the Flow Control Products segment and lower aluminum costs reflected in pricing in the Engineered Components segment partially offset the volume gains. By segment, Engineered Components sales increased by 6.2% compared with the first half of fiscal 1998, while Flow Control Products sales decreased by 3.5%. Gross profit for the second quarter of fiscal 1999 rose by 13.2% to $25.1 million, while gross profit for the first half of fiscal 1999 rose by 9.1% to $50.0 million. As a percentage of sales, gross profit improved to 17.7% for the second quarter and 17.4% for the first half of fiscal 1999 compared with 16.2% and 16.5% for the same periods of 1998. The increase in gross profit percentage reflects improved productivity at most of the Company's facilities and cost improvements at the Company's automotive component plants in the first half of fiscal 1999. Selling, general and administrative (SG&A) expenses increased slightly in dollar amount but remained fairly constant as a percentage of sales. As a percentage of sales, SG&A expense was 9.9% in the second quarter and 9.7% for the first half of fiscal 1999 compared with 9.8% 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 $0.3 million in the second quarter of fiscal 1999 compared with $0.2 million of income in the second quarter of fiscal 1998. The Company's pre-tax share of losses from CTC was $1.1 million in the first half of fiscal 1999 compared with $0.4 million of income, excluding CTC's share of the cumulative effect adjustment discussed below, in the first half of fiscal 1998. CTC's results for fiscal 1999 were impacted by foreign exchange losses resulting from the strengthening of the yen and operating inefficiencies resulting from efforts to meet extremely high customer demand. 12 13 AMCAST INDUSTRIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Interest expense was $3.5 million and $4.0 million in the second quarters of fiscal 1999 and 1998, respectively, and $7.1 million and $7.5 million in the first half of fiscal 1999 and 1998, respectively. The effective tax rate was 38.0% and a negative 10.2% for the second quarters of fiscal 1999 and 1998, respectively, and 39.0% and 18.5% for the first half of fiscal 1999 and 1998, respectively. The effective rates for fiscal 1998 include a one-time adjustment, recorded in the second quarter, of $2.6 million resulting from a reduction of Italian tax rates. Excluding this adjustment, the effective tax rates were 40.2% and 39.0% for the second quarter and first half of fiscal 1998, respectively. The higher effective tax rate for the first half of fiscal 1999, as compared with the second quarter of fiscal 1999, results from a permanent tax basis difference associated with the sale of Superior Valve in the first quarter that increased the effective tax rate for that period. RESULTS BY BUSINESS SEGMENT (unaudited) ($ in thousands)
Three Months Ended Six Months Ended ---------------------------------- -------------------------------- February 28 March 1 February 28 March 1 1999 1998 1999 1998 ---------------- ---------------- ---------------- -------------- Net Sales - --------- Flow Control Products $ 35,490 $ 40,357 $ 74,706 $ 77,430 Engineered Components 106,244 96,618 213,052 200,524 --------- --------- --------- --------- $ 141,734 $ 136,975 $ 287,758 $ 277,954 ========= ========= ========= ========= Income before Income Taxes and - ------------------------------ Cumulative Effect of Accounting Change - -------------------------------------- Flow Control Products $ 5,777 $ 6,591 $ 11,514 $ 11,784 Engineered Components 7,827 3,992 15,904 11,161 Disposition of Business (a) -- -- 9,023 -- Corporate (2,585) (1,823) (5,229) (3,856) Equity in income (loss) of joint venture and other income (expense) (275) 314 (326) 832 Interest expense (3,483) (3,982) (7,068) (7,450) --------- --------- --------- --------- $ 7,261 $ 5,092 $ 23,818 $ 12,471 ========= ========= ========= ========= (a) Disposition of business relates to the Flow Control segment.
13 14 AMCAST INDUSTRIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net sales for the Flow Control Products segment were $35.5 million for the second quarter of fiscal 1999 compared with $40.4 million for the same period of fiscal 1998. Decreased sales from divested operations offset incremental sales from the Lee Brass acquisition, resulting in a 5.4% decrease in sales volume. While demand remained very strong, lower pricing in the copper fittings business decreased sales by 6.7%. Operating income for Lee Brass in the second quarter of fiscal 1999 more than offset the reduction in operating income from divested operations. Pricing pressures in the Company's copper plumbing fittings business contributed to the segment's year-over-year decline in operating income; however, cost reduction efforts and lower material costs softened the impact of pricing pressures. Net sales for the Engineered Components segment were $106.2 million for the second quarter of fiscal 1999 compared with $96.9 million in the second quarter of fiscal 1998. Strong aluminum wheel sales in North America and Europe produced an 8.1% increase in segment sales due to volume. The remaining sales increase results from a combination of favorable pricing and product mix, partly offset by lower aluminum costs reflected in the Company's pricing and by a weaker Italian Lire. Operating income was $7.8 million, nearly double the prior year's operating income of $4.0 million. The primary contributors to the increased operating income were cost reduction and productivity improvements in the Company's aluminum automotive components plants and strong volume from the Company's European light-alloy wheel business, Speedline. LIQUIDITY AND CAPITAL RESOURCES For the first half of fiscal 1999, operations provided net cash of $0.1 million compared with $3.2 million for the first half of fiscal 1998. Cash provided by net income and depreciation was partly offset by an increase in working capital requirements. Fiscal 1999's working capital increase primarily reflects increases in accounts receivable due to the timing of cash receipts and in inventory to meet customer requirements. Investing activities provided net cash of $15.5 million for the first half of fiscal 1999 compared with $20.8 million used in fiscal 1998. Proceeds from the sale of Superior Valve provided $35.6 million, which primarily reduced long-term debt. Capital spending totaled $19.4 million in the first half of fiscal 1999, compared with $19.1 million in the first half of fiscal 1998. At February 28, 1999, the Company had $20.1 million of commitments for additional capital expenditures, primarily for the Engineered Components segment. Financing activities used $17.6 million in cash for the first half of fiscal 1999 compared with net cash provided of $17.2 million for fiscal 1998. Additional borrowings in fiscal 1999 included $20.0 million under the Company's revolving credit agreement and $18.7 million in net short-term borrowings. Financing activities also included long-term debt repayments of $53.7 million, financed in part with the proceeds from the Superior Valve disposition, and dividend payments of $2.6 million. 14 15 AMCAST INDUSTRIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Long-term debt was 56.3% of total capital at February 28, 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 February 28, 1999, $110.5 million was outstanding under the credit agreement, and the Company had unused borrowing capacity of $3.2 million under its most restrictive debt covenant. In addition, the Company maintains bank lines of credit under which it may borrow up to $27 million. At February 28, 1999, $26.3 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. On December 17, 1998 the Company announced a plan to repurchase up to 750,000 of its outstanding common shares. The Company currently has 9,204,920 common 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 $8,588 ($.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 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 $3,207 and $17,120 for the three-and six-month periods ended February 28, 1999 and $4,452 and $367 for the three- and six-month periods ended March 1, 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. 15 16 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. 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. 16 17 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 February 28, 1999, the Company had reserves of $1.6 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. 17 18 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 - ------------------------------------------------------------ a) The annual meeting of shareholders of Amcast Industrial Corporation was held on December 17, 1998. b) At the annual meeting, shareholders voted on and approved two proposals. Those proposals are stated below, together with information concerning the votes cast. 1. Election of three directors to serve for a term of three years. Directors elected were Walter E. Blankley, William G. Roth and John H. Shuey.
Walter E. William G. John H. Blankley Roth Shuey ------------- ------------- ------------- Shares For 7,193,537 7,192,782 7,188,084 Shares Withheld 73,187 73,942 78,640 Total 7,266,724 7,266,724 7,266,724
2. Ratification of the appointment of Ernst & Young LLP as independent auditors of the Company for the fiscal year ending August 31, 1999. Shares For 7,244,517 Shares Against 13,683 Shares Abstain 8,524 Total 7,266,724 Item 6 - Exhibits and Reports on Form 8-K - ----------------------------------------- a) Exhibits Exhibit 27.1 - Financial Data Schedule for the six-month period ended February 28, 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 February 28, 1999 18 19 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: April 9, 1999 By: /s/J. H. Shuey --------------- ------------------------------- John H. Shuey Chairman, President and Chief Executive Officer (Principal Executive Officer) Date: April 9, 1999 By: /s/D. D. Watts -------------- ------------------------------- Douglas D. Watts Vice President, Finance (Principal Financial Officer) Date: April 9, 1999 By: /s/M.D. Mishler -------------- ----------------------------------- Mark D. Mishler Corporate Controller (Principal Accounting Officer) 19 EX-27.1 2 EXHIBIT 27.1
5 1,000 6-MOS AUG-31-1999 SEP-01-1998 FEB-28-1999 5,093 0 125,111 0 81,354 234,720 391,395 (133,874) 566,937 141,987 201,208 0 0 9,209 166,143 566,937 287,758 287,758 237,796 237,796 0 0 7,068 23,818 9,287 14,531 0 0 0 14,531 1.58 1.58
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