10-Q 1 d10q.txt FORM 10-Q DATED OCTOBER 31, 2001 UNITED STATES 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 quarterly period ended October 31, 2001, or [_] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File No. 001-15143 IMPCO Technologies, Inc. (Exact name of registrant as specified in its charter) Delaware 91-1039211 -------- ---------- (State of Incorporation) (IRS Employer I.D. No.) 16804 Gridley Place, Cerritos, CA 90703 ----------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (562) 860-6666 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Number of shares outstanding of each of the issuer's classes of common stock, as of December 11, 2001: 10,517,444 shares of Common Stock, $.001 par value per share. 1 INDEX IMPCO TECHNOLOGIES, INC. Part I. Financial Information Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets - April 30, 2001 and October 31, 2001 Condensed consolidated statements of operations - Three and six months ended October 31, 2000 and October 31, 2001 Condensed consolidated statements of cash flows - Six months ended October 31, 2000 and October 31, 2001 Notes to condensed consolidated financial statements - October 31, 2001 Pro Forma condensed consolidated balance sheet - October 31, 2001 Pro Forma condensed consolidated statements of operations - October 31, 2001 Pro Forma condensed consolidated statements of operations - April 30, 2001 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosure of Market Risk Part II. Other Information Item 1. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders Item 6. Exhibits and Reports on Form 8-K Signatures 2 PART I--FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS IMPCO TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS April 30, 2001 and October 31, 2001
April 30, October 31, 2001 2001 ---- ---- (Unaudited) ---------- ASSETS Current assets: Cash and cash equivalents............................................ $ 16,591,415 $ 3,193,908 Accounts receivable, less allowance for doubtful accounts............ 24,464,971 21,184,944 Inventories: Raw materials and parts............................................ 20,675,003 18,440,747 Work-in-process.................................................... 740,972 388,771 Finished goods..................................................... 9,935,020 16,292,726 ------------ ------------- Total inventories.............................................. 31,350,995 35,122,244 Deferred tax assets.................................................. 2,168,679 2,902,861 Other current assets................................................. 5,060,028 4,832,240 ------------ ------------- Total current assets................................................ 79,636,088 67,236,197 Equipment and leasehold improvements: Dies, molds and patterns............................................. 7,140,156 7,750,529 Machinery and equipment.............................................. 12,388,246 14,370,464 Office furnishings and equipment..................................... 14,207,561 15,980,820 Automobiles and trucks............................................... 528,917 605,568 Leasehold improvements............................................... 4,478,685 4,679,468 ------------ ------------- 38,743,565 43,386,849 Less accumulated depreciation and amortization....................... 18,690,053 20,971,603 ------------ ------------ Net equipment and leasehold improvements............................ 20,053,512 22,415,246 Intangibles arising from acquisitions, net.............................. 9,534,994 9,270,307 Deferred tax assets..................................................... 10,601,227 21,022,416 Other assets............................................................ 936,843 951,206 ------------ ------------ $120,762,664 $120,895,372 ============ ============
See accompanying notes to condensed consolidated financial statements. 3 IMPCO TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS April 30, 2001 and October 31, 2001 (Continued)
April 30, October 31, 2001 2001 ---- ---- (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................................... $ 11,713,680 $ 13,733,291 Accrued payroll obligations............................................... 3,881,500 4,422,191 Other accrued expenses.................................................... 2,735,528 1,845,523 Current lines of credit................................................... 6,078,205 12,796,425 Current maturities of long-term debt and capital leases................... 3,680,158 10,927,068 ------------ ------------ Total current liabilities............................................. 28,089,071 43,724,498 Term loans................................................................... 6,870,693 392,064 Capital leases............................................................... 1,127,583 914,910 Minority interest............................................................ 2,044,122 2,363,512 Stockholders' equity: Preferred stock, $.001 par value, authorized 500,000 shares; none issued and outstanding at April 30, 2001 and October 31, 2001....................... -- -- Common stock, $.001 par value, authorized 100,000,000 shares; 10,516,338 issued and outstanding at October 31, 2001 (10,294,377 at April 30, 2001).... 10,294 10,516 Additional paid-in capital................................................... 102,831,566 104,651,957 Shares held in trust......................................................... (142,710) (292,884) Notes receivable from officers............................................... (3,913,854) -- Accumulated deficit.......................................................... (12,434,966) (26,763,393) Accumulated other comprehensive loss......................................... (3,719,135) (4,105,808) ------------ ------------ Total stockholders' equity............................................ 82,631,195 73,500,388 ------------ ------------ $120,762,664 $120,895,372 ============ ============
See accompanying notes to condensed consolidated financial statements. 4 IMPCO TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Unaudited Three and Six Months ended October 31, 2000 and 2001
Three Months Ended Six Months Ended October 31, October 31, 2000 2001 2000 2001 ------------ ------------ ------------ ------------ Revenue: Product sales ....................................... $ 22,656,054 $ 22,815,546 $ 49,255,413 $ 46,327,978 Contract revenue .................................... 2,695,484 1,247,077 5,364,142 3,584,900 ------------ ------------ ------------ ------------ Net revenue ....................................... 25,351,538 24,062,623 54,619,555 49,912,878 Costs and expenses: Cost of product sales ............................... 15,866,251 19,730,726 33,860,199 37,442,753 Research and development expense .................... 7,243,079 10,731,324 13,240,641 21,960,127 Selling, general and administrative expense ......... 4,985,003 7,531,568 10,609,510 13,285,202 ------------ ------------ ------------ ------------ Total costs and expenses ............................... 28,094,333 37,993,618 57,710,350 72,688,082 Operating loss ......................................... (2,742,795) (13,930,995) (3,090,795) (22,775,204) Interest expense (income), net ......................... (293,979) 404,630 247,449 554,469 ------------ ------------ ------------ ------------ Loss before income taxes, minority interest in income of consolidated subsidiaries ........................... (2,448,816) (14,335,625) (3,338,244) (23,329,673) Income tax benefit ..................................... (1,102,446) (5,723,017) (1,502,209) (9,320,636) Minority interest in income of consolidated subsidiaries 35,461 119,723 153,750 319,390 ------------ ------------ ------------ ------------ Net loss applicable to common stock .................... $ (1,381,831) $ (8,732,331) $ (1,989,785) $(14,328,427) ============ ============ ============ ============ Net loss per share: Basic ............................................... $ (0.13) $ (0.83) $ (0.21) $ (1.37) ============ ============ ============ ============ Diluted ............................................. $ (0.13) $ (0.83) $ (0.21) $ (1.37) ============ ============ ============ ============ Number of shares used in per share calculation: Basic ............................................... 10,271,056 10,512,524 9,595,984 10,426,608 ============ ============ ============ ============ Diluted ............................................. 10,271,056 10,512,524 9,595,984 10,426,608 ============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements. 5 IMPCO TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited Six Months Ended October 31, 2000 and 2001
October 31, October 31, 2000 2001 ------------ ------------ Net cash used in operating activities................................ $ (3,776,405) $(20,929,940) Cash flows from investing activities: Purchases of equipment and leasehold improvements............... (5,828,255) (4,817,988) Purchase of intangible assets................................... (127,089) (82,577) Proceeds from sales of equipment................................ 7,086 - ------------ ------------ Net cash used in investing activities................................ (5,948,258) (4,900,565) Cash flows from financing activities: Increase (decrease) in borrowings under lines of credit......... (13,629,671) 6,542,966 Proceeds (payments) on term loans............................... (1,157,738) 490,651 Payments to acquire shares held in trust........................ (40,986) (150,175) Payments on capital lease obligations........................... (334,023) (187,423) Proceeds from issuance of common stock.......................... 53,130,296 1,808,917 Receipt of notes receivable from officers....................... - 3,913,854 ------------ ------------ Net cash provided by financing activities............................ 37,967,878 12,418,790 Translation adjustment............................................... (197,117) 14,208 ------------ ------------ Net (decrease) increase in cash and cash equivalents................. 28,046,098 (13,397,507) Cash and cash equivalents at beginning of period..................... 3,012,236 16,591,415 ------------ ------------ Cash and cash equivalents at end of period........................... $ 31,058,334 $ 3,193,908 ============ ============
See accompanying notes to condensed consolidated financial statements. 6 IMPCO TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS October 31, 2000 and 2001 ---------------- 1) BASIS OF PRESENTATION The accompanying condensed consolidated financial statements are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for the fair presentation of the financial position and operating results for the interim periods. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management's discussion and analysis of financial condition and the results of operations, contained in our Annual Report on Form 10-K for the fiscal year ended April 30, 2001. The consolidated financial statements of IMPCO Technologies, Inc. ("IMPCO" or the "Company") as of October 31, 2001 include the accounts of the Company and its majority owned subsidiary IMPCO-BERU Technologies B.V. ("IMPCO BV"), its majority owned subsidiary Grupo I.M.P.C.O. Mexicano, S. de R.L. de C.V. ("IMPCO Mexicano"), and its wholly owned subsidiaries IMPCO Technologies, Pty. Limited ("IMPCO Pty"), IMPCO Tech Japan K.K. ("IMPCO Japan") and Quantum Fuel Systems Technologies Worldwide, Inc. ("Quantum"), previously Quantum Technologies Worldwide, Inc. The results of operations for the three and six months ended October 31, 2001 are not necessarily indicative of the results that may be expected for the entire year ending April 30, 2002. The balance sheet at April 30, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Registrant Company and Subsidiaries' annual report on Form 10-K for the year ended April 30, 2001. 2) CASH AND CASH EQUIVALENTS The cash and cash equivalents on the balance sheet at October 31, 2001 include restricted cash of approximately $235,000 or (NLG $572,349) held at our IMPCO-BERU subsidiary. 3) DEBT PAYABLE Our debt payable is summarized as follows:
April 30, Oct 31, 2001 2001 ---------- ----------- Bank of America NT&SA Revolving line of credit................................... $3,914,000 $10,000,000 Mexican peso line of credit................................ 541,000 997,000 Term loans for acquisitions and capital expenditures....... 8,894,000 9,374,000 Capital lease and expenditure facilities................... 1,436,000 1,109,000 Credit facility - Fortis Bank (formerly Mees Pierson)............... 1,461,000 1,636,000 The Hong Kong and Shanghai Banking Corporation Ltd. Term loan for acquisition.................................. 776,000 653,000 Line of credit............................................. 162,000 163,000 Other capital leases................................................ 572,000 776,000 Derivative instruments.............................................. -- 322,000 ---------- ----------- 17,756,000 25,030,000 Less current portion....................................... 9,758,000 23,723,000 ---------- ----------- $7,998,000 $ 1,307,000 ========== ===========
Loan Covenants and Collateral. The Bank of America credit facility contains certain restrictions and covenants, as well as limitations on other indebtedness, and is secured by substantially all of the Company's assets. In September 2001, the credit facility with Bank of America was amended to allow Quantum to increase its portion of the line of credit from $5.0 million to $15.0 million. In October and November the credit facility with Bank of America was amended to extend the maturity date of the line of credit. In December 2001, the credit facility with Bank of America was amended to extend the maturity date of the line of credit and shorten the maturity date of the Company's term loans to January 2002, provide for an interim increase in the availability of funds under the line of credit and eliminate both of the previously required financial covenants. The Company is in compliance with its restrictions and covenants. 7 In June 1998, the Financial Accounting Standards Board issued Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities," (SFAS 133, as amended by SFAS 138), which is required to be adopted in years beginning after June 15, 2000. The Company has adopted the new Statement effective May 1, 2001. The Statement requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value and reflected as income or expense. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against commitments through earnings or recognized in other comprehensive income until the hedge item is recognized in earnings. The ineffective portion of a derivative's change in fair value is immediately recognized in earnings. There were no derivative financial instruments outstanding on May 1, 2001. It is the Company's policy to enter into interest rate swap contracts only to the extent necessary to reduce exposure to fluctuations in interest rates. The Company does not enter into interest rate swap contracts for speculative purposes. In the unlikely event that a counter party to a swap agreement fails to meet the terms of an interest rate swap contract, the Company's exposure is limited to the interest rate differential on the notional amount. The Company does not anticipate non-performance by the counter party. The Company has entered into one interest rate swap contract, which matures on September 30, 2004. At October 31, 2001, the notional amount of the swap was approximately $7.6 million with a fixed payment rate of 5.6% and a fluctuating receiving rate based upon LIBOR. The Company's weighted-average cost of funds was 5.7%, absent this swap agreement the weighted-average cost of funds would have been 4.8%. At October 31, 2001 the carrying value of the interest rate swap was $322,000 and is recorded as a liability. During the six months ended October 31, 2001, the Company recorded a loss of $193,000 net of an applicable income tax benefit of $129,000 in comprehensive income in order to account for the change in fair value. There is no impact to current earnings due to hedge ineffectiveness. 4) NOTES RECEIVABLE FROM OFFICERS On March 2, 2001, the Board of Directors authorized loans to three officers of the Company for the exercise of options to purchase Company stock from former stockholders. Each of these loans was repaid in full in July 2001. 5) EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended Six Months Ended October 31, October 31, 2000 2001 2000 2001 ----------- ----------- ----------- ------------- Numerator: Net loss.............................................. $(1,381,831) $(8,732,331) $(1,989,785) $(14,328,427) Numerator for basic earnings per share - loss to common stockholders........................ (1,381,831) (8,732,331) (1,989,785) (14,328,427) Numerator for diluted earnings per share - loss to common stockholders........................ (1,381,831) (8,732,331) (1,989,785) (14,328,427) Denominator: Denominator for basic earnings per share - weighted-average shares............................ 10,271,056 10,512,524 9,595,984 10,426,608 Denominator for diluted earnings per share - adjusted weighted-average shares................... 10,271,056 10,512,524 9,595,984 10,426,608 ----------- ----------- ----------- ------------ Basic earnings per share................................... $ (0.13) $ (0.83) $ (0.21) $ (1.37) =========== =========== =========== ============ Diluted earnings per share................................. $ (0.13) $ (0.83) $ (0.21) $ (1.37) =========== =========== =========== ============
8 6) COMPREHENSIVE INCOME The components of comprehensive income for the three month and six month periods ended October 31, 2000, and October 31, 2001, are as follows:
Three Months Six Months Ended October 31, Ended October 31, ---------------------------- ---------------------------- 2000 2001 2000 2001 ------------ ------------ ------------ ------------ Net loss .................................. $ (1,381,831) $ (8,732,331) $ (1,989,785) $(14,328,427) Foreign currency translation adjustment.... (901,178) 81,100 (895,922) (193,227) Unrealized loss on derivative instrument... -- (86,129) -- (193,446) ------------ ------------ ------------ ------------ Comprehensive loss ....................... $ (2,283,009) $ (8,737,360) $ (2,885,707) $(14,715,100) ============ ============ ============ ============
7) BUSINESS SEGMENT INFORMATION The Company classifies its business into three operating segments: the Quantum division (formerly known as the Automotive OEM division), Gaseous Fuel Products division and International Operations. The Quantum division generates revenues through the sale of fuel storage, fuel delivery, and electronic control systems to OEMs, primarily General Motors, and the installation of its products into OEM vehicles. Quantum also generates contract revenue by providing engineering design and support to the OEMs so that its fuel storage, fuel delivery and electronic control systems integrate and operate with certain of their alternative fuel vehicles. The Gaseous Fuel Products division sells products, including parts and conversion systems, for applications in the transportation, material handling, stationary and portable power generator and general industrial markets. The International Operations in Asia, Australia, Europe, Japan and Mexico provide distribution for the Company's products, predominantly from the Gaseous Fuel Products division and some product assembly. The Company will continue to require significant research and development expenditures over the next several years in order to commercialize its products for fuel cell applications. The Company will also require significant capital expenditures to construct additional manufacturing and assembly capacity required to support the production of its products. The Company recognizes revenue for product sales when products are shipped and title is transferred. Contract revenues are recognized based on the percentage of completion method. Corporate expenses represent a sub-category of selling, general and administrative expense. Corporate expenses consist of general and administrative expense incurred at the corporate level and includes the amortization of goodwill and other intangible assets. Intersegment eliminations are primarily the result of intercompany sales from the Gaseous Fuel Products division to the International Operations. End markets for the Company's products include the transportation, material handling, and industrial and power generation industries. The Company expenses all research and development when incurred. Research and development expense includes both customer funded research and development and company sponsored research and development. Corporate research and development is a sub-category of research and development expense and represents company-sponsored research and development that is not allocated to any of its reporting segments. Customer funded research and development consists primarily of expenses associated with contract revenue. These expenses include applications development costs at Quantum funded under customer contracts. Net revenues and operating income for the Company's business segments for the three and six months ended October 31, 2000 and 2001 are as follows:
================================================================================ Revenues -------------------------------------------------------------------------------- (in thousands) Three Months Ended Six Months Ended October 31, October 31, 2000 2001 2000 2001 -------- -------- -------- -------- Quantum $ 4,866 $ 5,840 $ 11,858 $ 12,770 Gaseous Fuel Products 16,244 13,711 36,025 29,881 International Operations 8,182 8,537 15,796 17,657 Intersegment Elimination (3,940) (4,025) (9,059) (10,395) -------------------------------------------------------------------------------- Total $ 25,352 $ 24,063 $ 54,620 $ 49,913 ================================================================================
9
============================================================================================== Operating Income/(Loss) ---------------------------------------------------------------------------------------------- (in thousands) Three Months Ended Six Months Ended October 31, October 31, 2000 2001 2000 2001 --------- --------- --------- -------- Quantum $ (3,291) $ (9,784) $ (5,260) $(17,694) Gaseous Fuel Products 2,763 790 6,792 3,099 International Operations 229 437 868 1,515 Corporate Expenses (1) (1,387) (3,065) (3,161) (4,717) Corporate Research & Product Develop. (1) (1,229) (2,586) (2,124) (5,199) Intersegment Elimination 172 277 (206) 221 ---------------------------------------------------------------------------------------------- Total $ (2,743) $(13,931) $ (3,091) $(22,775) ==============================================================================================
(1) Represents corporate expenses and corporate research and development not allocated to any of the operating segments. 8) INCOME TAXES Income taxes for the three and six months ended October 31, 2001 were computed using the effective tax rate estimated to be applicable for the full fiscal year, which is subject to ongoing review and evaluation by management. Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes. The Company believes, based on its history of prior operating earnings, its intent to spin-off the Quantum division and its expectations of future earnings, that operating income of the Company will more likely than not be sufficient to recognize fully these net deferred tax assets. Should the spin-off of Quantum not occur, management will take appropriate action in an attempt to realize its deferred tax assets. 10 IMPCO TECHNOLOGIES, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS On June 12, 2001, we announced a strategic alliance between our Quantum subsidiary and General Motors in which General Motors would acquire an equity position in our Quantum subsidiary. The strategic alliance with General Motors is conditioned on our spin-off of Quantum, which we announced on June 14, 2001. We intend to accomplish the spin-off by means of a tax-free distribution of Quantum common stock to our stockholders in the first quarter of the 2002 calendar year. The spin-off is subject to a number of conditions, including the receipt of an opinion from our tax counsel or a private letter ruling from the Internal Revenue Service that the spin-off will be tax-free to our stockholders for federal income tax purposes. We cannot assure you that the spin-off will occur as planned, if at all. In the event the spin-off of Quantum is not consummated, both Quantum and General Motors intend to establish an alliance in another arrangement. The following unaudited pro forma condensed consolidated financial statements have been prepared to illustrate the effect of our intended spin-off of Quantum in accordance with Article 11 of Regulation S-X. The unaudited pro forma condensed consolidated balance sheet illustrates the post spin-off balance sheet of IMPCO Technologies, Inc. as of October 31, 2001. The unaudited pro forma condensed consolidated statement of income illustrates the post spin-off statement of income of IMPCO Technologies, Inc. for the six months ended October 31, 2001 as if the spin-off had occurred on May 1, 2001 and for the fiscal year ended April 30, 2001 as if the spin-off had occurred on May 1, 2000. The pro forma adjustments are based upon available information and upon certain assumptions that management believes are reasonable under the circumstances. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the historical financial statements of IMPCO Technologies, Inc., and the notes thereto. The unaudited pro forma condensed consolidated financial statements do not purport to represent what our actual results of operations or actual financial position would have been if the spin-off of Quantum in fact occurred on such dates or to project our results of operations or financial position for any such future period or date. 11 IMPCO TECHNOLOGIES, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS October 31, 2001
Pro Forma IMPCO Historical Excluding IMPCO Quantum (1) Quantum ------------ ------------ ------------ ASSETS Current assets: Cash and cash equivalents .................................. $ 3,193,908 $ 288,718 $ 2,905,190 Accounts receivable, less allowance for doubtul accounts.... 21,184,944 7,351,076 13,833,868 Inventories ................................................ 35,122,244 12,962,117 22,160,127 Deferred tax assets ........................................ 2,902,861 -- 2,902,861 Other current assets ....................................... 4,832,240 2,811,538 2,020,702 ------------ ------------ ------------ Total current assets .................................... 67,236,197 23,413,449 43,822,748 Equipment and leasehold improvements: Dies, molds and patterns ................................... 7,750,529 2,117,263 5,633,266 Machinery and equipment .................................... 14,370,464 8,289,984 6,080,480 Office furnishings and equipment ........................... 15,980,820 8,013,447 7,967,373 Automobiles and trucks ..................................... 605,568 181,175 424,393 Leasehold improvements ..................................... 4,679,468 2,454,966 2,224,502 ------------ ------------ ------------ 43,386,849 21,056,835 22,330,014 Less accumulated depreciation and amortization ............. 20,971,603 6,655,011 14,316,592 ------------ ------------ ------------ Net equipment and leasehold improvements. ............. 22,415,246 14,401,824 8,013,422 Intangibles arising from acquisitions, net ...................... 9,270,307 -- 9,270,307 Deferred tax assets ............................................. 21,022,416 -- 21,022,416 Other assets .................................................... 951,206 -- 951,206 ------------ ------------ ------------ $120,895,372 $ 37,815,273 $ 83,080,099 ============ ============ ============
See accompanying notes to pro forma condensed consolidated financial statements. 12 IMPCO TECHNOLOGIES, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS October 31, 2001 (Continued)
Pro Forma IMPCO Historical Excluding IMPCO Quantum (1) Quantum ------------- ------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ....................... $ 13,733,291 $ 9,018,423 $ 4,714,868 Accrued payroll obligations ............ 4,422,191 1,571,287 2,850,904 Other accrued expenses ................. 1,845,523 233,346 1,612,177 Current lines of credit ................ 12,796,425 10,863,687 1,932,738 Current maturities of long-term debt and capital leases ...................... 10,927,068 188,832 10,738,236 ------------- ------------- ------------- Total current liabilities ........... 43,724,498 21,875,575 21,848,923 Term loans .................................. 392,064 -- 392,064 Capital leases .............................. 914,910 212,910 702,000 Minority interest............................ 2,363,512 -- 2,363,512 Stockholders' equity: Preferred stock ........................ -- -- -- Common stock ........................... 10,516 -- 10,516 Additional paid-in capital ............. 104,651,957 15,726,788 88,925,169 Shares held in trust ................... (292,884) -- (292,884) Notes receivable from officers ......... -- -- -- Accumulated deficit .................... (26,763,393) -- (26,763,393) Accumulated other comprehensive income . (4,105,808) -- (4,105,808) ------------- ------------- ------------- Total stockholders' equity .......... 73,500,388 15,726,788 57,773,600 ------------- ------------- ------------- $ 120,895,372 $ 37,815,273 $ 83,080,099 ============= ============= =============
See accompanying notes to pro forma condensed consolidated financial statements. 13 IMPCO TECHNOLOGIES, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Six months ended October 31, 2001
Pro Forma IMPCO Historical Pro Forma Excluding IMPCO Quantum (1) Adjustments Quantum ------------ ------------ ------------ ------------ Revenue: Product sales ................................ $ 46,327,978 $ 9,184,578 $ -- $ 37,143,400 Contract revenue ............................. 3,584,900 3,584,900 -- -- ------------ ------------ ------------ ------------ Net revenue ............................... 49,912,878 12,769,478 -- 37,143,400 Costs and expenses: Cost of product sales ........................ 37,442,753 14,138,536 -- 23,304,217 Research and development expense ............. 21,960,127 13,730,241 5,198,584 (2) 3,031,302 Selling, general and administrative expense .. 13,285,202 2,594,722 1,077,712 (3) 9,612,768 ------------ ------------ ------------ ------------ Total costs and expenses .................. 72,688,082 30,463,499 6,276,296 35,948,287 Operating income (loss) ........................... (22,775,204) (17,694,021) (6,276,296) 1,195,113 Interest expense .................................. 554,469 3,645 -- 550,824 ------------ ------------ ------------ ------------ Income (loss) before income taxes and minority interest in income of consolidated subsidiaries ..................... (23,329,673) (17,697,666) (6,276,296) 644,289 Income tax expense (benefit) ...................... (9,320,636) -- (9,578,352)(4) 257,716 Minority interest in income of consolidated subsidiaries ...................... 319,390 -- -- 319,390 ------------ ------------ ------------ ------------ Net income (loss) applicable to common stock .......................................... $(14,328,427) $(17,697,666) $ (3,302,056) $ 67,183 ============ ============ ============ ============ Net income (loss) per share: Basic ....................................... $ (1.37) $ 0.01 ============ ============ Diluted ..................................... $ (1.37) $ 0.01 ============ ============ Number of shares used in per share calculation: Basic ....................................... 10,426,608 10,426,608 ============ ============ Diluted ..................................... 10,426,608 11,279,045 ============ ============
14 IMPCO TECHNOLOGIES, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Fiscal Year ended April 30, 2001
Pro Forma IMPCO Historical Pro Forma Excluding IMPCO Quantum (1) Adjustments Quantum ------------- ------------- ------------- ------------- Revenue: Product sales .............................. $ 95,986,664 $ 15,447,389 $ -- $ 80,539,275 Contract revenue ........................... 7,910,540 7,910,540 -- -- ------------- ------------- ------------- ------------- Net revenue ........................... 103,897,204 23,357,929 -- 80,539,275 Costs and expenses: Cost of product sales ...................... 68,951,003 19,452,343 -- 49,498,660 Research and development expense ........... 32,556,371 21,086,103 5,600,588(2) 5,869,680 Selling, general and administrative expense ................... 24,060,425 4,342,106 1,157,016(3) 18,561,303 ------------- ------------- ------------- ------------- Total costs and expenses .............. 125,567,799 44,880,552 6,757,604 73,929,643 Operating income (loss) ....................... (21,670,595) (21,522,623) 6,757,604 6,609,632 Interest expense .............................. 1,417,281 (329,284) -- 1,087,997 Interest income ............................... (1,308,921) -- -- (1,308,921) ------------- ------------- ------------- ------------- Income (loss) before income taxes and minority interest in income of consolidated subsidiaries .................. (21,778,955) (21,851,907) 6,757,604 6,830,556 Income tax expense (benefit) .................. (8,929,370) -- (11,832,356)(4) 2,902,986 Minority interest in income of consolidated subsidiaries .................. 253,064 -- -- 253,064 ------------- ------------- ------------- ------------- Net income (loss) applicable to common stock ...................................... $ (13,102,649) $ (21,851,907) $ (5,074,752) $ 3,674,506 ============= ============= ============= ============= Net income (loss) per share: Basic ...................................... $ (1.32) $ 0.37 ============= ============= Diluted .................................... $ (1.32) $ 0.34 ============= ============= Number of shares used in per share calculation: Basic ...................................... 9,934,700 9,934,700 ============= ============= Diluted .................................... 9,934,700 10,767,369 ============= =============
15 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Pro Forma Balance Sheet 1) Assets and liabilities directly attributable to Quantum at October 31, 2001. Additional paid-in capital represents the net book value of Quantum. Pro Forma Statement of Income 1) Quantum historical operating results for the six months ended October 31, 2001 and for the fiscal year ended April 30, 2001. 2) Specifically identified portion of historical corporate research and development expense directly attributable to Quantum for the six months ended October 31, 2001 and for the fiscal year ended April 30, 2001. The adjusted amount does not include any portion of expected on-going expenses of IMPCO. 3) Specifically identified portion of corporate general and administrative expense directly attributable to Quantum for the six months ended October 31, 2001 and for the fiscal year ended April 30, 2001. The adjusted amount does not include any portion of expected on-going expenses of IMPCO. 4) The adjustment to income taxes represents the effect of Quantum research and development credits and operating losses. The effective income tax rate for IMPCO primarily represents the federal statutory rate plus state and foreign income taxes. 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS -------------------------- This Report, including the Management's Discussion and Analysis which follows, contains forward-looking statements that involve risks and uncertainties. These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections about our industry, our beliefs and assumptions. We use words such as "anticipate," "expect," "intend," "plan," "believe," "seek," "estimate," and variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. These risks and uncertainties include, but are not limited to, the following: we may be unable to raise additional capital necessary to fund our operations and capitalize on market opportunities; our business depends on the growth of the alternative fuel market; our Quantum division depends on its relationship with General Motors and the commitment of General Motors to the development of the alternative fuel market; we can not assure you that cost reduction measures at Quantum will reduce operating losses in that division; we face significant competition, which could decrease our revenue and market share; we face risks of operating internationally, including potential foreign currency exposure, difficulty and expense of complying with local laws and regulations, and political instability; new technologies could render our products obsolete; we may be unable to adequately protect our intellectual property rights; we depend on third-party suppliers to supply materials and components for our products; the market for our products could be adversely affected by changes in environmental and other policies and regulations; we may be subject to litigation if our stock price is volatile; and changes in general economic conditions could materially affect our results of operations. This list of factors is not intended to be exhaustive. Reference should also be made to the factors set forth from time to time in our SEC reports, including but not limited to those set forth in the section entitled "Risk Factors" in our Annual Report on Form 10-K for the year ended April 30, 2001. You should not place undue reliance on these forward-looking statements, which reflect our view only as of the date of this Report. OVERVIEW -------- We design, manufacture, and supply components that store gaseous fuels and monitor and control the pressure and flow of those fuels for use in fuel cells and internal combustion engines. Historically, most of our revenues have been derived from the sale of the products that enable traditional internal combustion engines to run on clean burning alternative fuels such as propane and natural gas instead of gasoline. Our future goal is to also commercialize systems that will provide fuel storage, fuel delivery, and electronic controls for fuel cells and internal combustion engines. We classify our business operations into three reporting segments: Our Quantum division (formerly known as the Automotive OEM division), the Gaseous Fuel Products division and International Operations. Our Quantum division generates revenues through the sale of fuel storage, fuel delivery and electronic control systems to OEMs, primarily General Motors, and the installation of our products into OEM vehicles. Quantum also generates contract revenue by providing engineering design and support to the OEMs so that our fuel storage, fuel delivery and electronic control systems integrate and operate with certain of their alternative fuel vehicles. The Gaseous Fuel Products division sells products, including parts and conversion systems, for applications in the transportation, material handling, stationary and portable power generator and general industrial markets. Our International Operations in Asia, Australia, Europe, Japan and Mexico provide distribution for our products, predominantly from our Gaseous Fuel Products division and some product assembly. We will continue to require significant research and development expenditures over the next several years in order to commercialize our products for fuel cell applications. We will also require significant capital expenditures to construct additional manufacturing and assembly capacity required to support the production of our products. We recognize revenue for product sales when products are shipped and title is transferred. Contract revenues are recognized based on the percentage of completion method. Corporate expenses represent a sub-category of selling, general and administrative expense. Corporate expenses consist of general and administrative expense incurred at the corporate level and includes the amortization of goodwill and other intangible assets. Intersegment eliminations are primarily the result of intercompany sales from the Gaseous Fuel Products division to the International Operations. End markets for our products include the transportation, material handling, and industrial and power generation industries. We expense all research and development when incurred. Research and development expense includes both customer-funded research and development and company-sponsored research and development. Corporate research and development is a sub-category of research and development expense and represents company-sponsored research and development that is not allocated to any of its reporting segments. Customer funded research and development consists primarily of expenses associated with contract revenue. These expenses include application development costs at Quantum funded under customer contracts. 17 On June 14, 2001, we announced our intent to spin off our Quantum subsidiary. We cannot assure you that the spin-off will occur as it will be subject to numerous conditions, including the receipt of a financial opinion from an underwriter, the receipt of an opinion from our tax counsel or a private letter ruling from the Internal Revenue Service to the effect that the spin-off will be tax-free to our stockholders for federal income tax purposes, and a final assessment by us and our tax counsel that the proposed spin-off will be tax free to us for federal income tax purposes. Our pro forma net revenues and operating income for the six months ended October 31, 2001, assuming the intended spin-off occurred at the beginning of fiscal 2002, totaled $37.1 million and $1.2 million, respectively. RESULTS OF OPERATIONS Net revenues and operating income for our business for the three and six months ended October 31, 2000 and 2001 are as follows: ================================================================================ Revenues -------- -------------------------------------------------------------------------------- (in thousands) Three Months Ended Six Months Ended October 31, October 31, 2000 2001 2000 2001 -------- --------- -------- -------- Quantum $ 4,866 $ 5,840 $ 11,858 $ 12,770 Gaseous Fuel Products 16,244 13,711 36,025 29,881 International Operations 8,182 8,537 15,796 17,657 Intersegment Elimination (3,940) (4,025) (9,059) (10,395) -------------------------------------------------------------------------------- Total $ 25,352 $ 24,063 $ 54,620 $ 49,913 ================================================================================ ================================================================================ Operating Income/(Loss) ----------------------- -------------------------------------------------------------------------------- (in thousands) Three Months Ended Six Months Ended October 31, October 31, 2000 2001 2000 2001 -------- -------- -------- -------- Quantum $ (3,291) $ (9,784) $ (5,260) $(17,694) Gaseous Fuel Products 2,763 790 6,792 3,099 International Operations 229 437 868 1,515 Corporate Expenses (1) (1,387) (3,065) (3,161) (4,717) Corporate Research & Product Develop. (1) (1,229) (2,586) (2,124) (5,199) Intersegment Elimination 172 277 (206) 221 -------------------------------------------------------------------------------- Total $ (2,743) $(13,931) $ (3,091) $(22,775) ================================================================================ (1) Represents corporate expenses and corporate research and development not allocated to any of the operating segments. Net revenue decreased $1.3 million, or 5.1%, from $25.4 million in the second quarter of fiscal year 2001 to $24.1 million in the second quarter of fiscal year 2002. Net revenue decreased $4.7 million, or 8.6%, from $54.6 million in the six months ended October 31, 2000 to $49.9 million in the six months ended October 31, 2001. These decreases were primarily due to declines in material handling sales of $2.2 million and $6.2 million in the three month and the six month periods ended October 31, 2001, respectively, as compared to the same periods in the prior fiscal year. We believe these decreases resulted from the recent economic slow down. The operating loss increased $11.2 million, or 407.9%, from $2.7 million in the second quarter of fiscal year 2001 to $13.9 million in the second quarter of fiscal year 2002. The operating loss increased $19.7 million, or 636.8%, from $3.1 million in the six months period ended October 31, 2000 to $22.8 million in the six-month period ended October 31, 2001. These increases in operating losses for both periods are primarily due to increases in research and development expenses, higher cost of product sales, and higher selling, general, and administrative expenses. Quantum. For the three months and six months ended October 31, 2001, net revenues increased by approximately $1.0 million, or 20.0%, and approximately $0.9 million, or 7.7%, respectively, as compared to the same periods in the prior fiscal year. Product sales in the second quarter of fiscal year 2002 increased $2.4 million, or 111.6%, to $4.6 million compared to $2.2 million in the same quarter of fiscal year 2001. For the six months ended October 31, product sales increased approximately $2.7 million, or 41.4% over the same period in the prior fiscal year. Product sales consist of those associated with General Motors' mid-size automobiles, pick-up trucks, and van platforms equipped with Quantum's bi-fuel and compressed natural gas fuel systems and General Motors' medium duty trucks equipped with dedicated liquid propane gas kits. The increase in product sales for the six months ended October 31, 2001 was generated mainly by higher sales of midsize automobiles, medium duty trucks, and van platforms, partially offset by lower sales of pick-up trucks, as compared to the same period in the prior fiscal year. We believe the increase in product sales was driven by growth in the U.S. markets for OEM alternative fuel vehicles. We anticipate product sales to be higher in the second half of fiscal year 2002, 18 as compared to the same period in fiscal year 2001, as we introduce our new model year 2002 pick-up truck platforms and meet the increasing demand of General Motors' and other automotive OEMs' alternative fuel platforms. For the three months and six months ended October 31, 2001, gross profits on product sales to General Motors declined $2.4 million, or 391.9%, and $4.0 million, or 426.8%, compared to the same periods in fiscal year 2001. The decrease in gross profits during the second quarter of fiscal 2002 was primarily due to $1.2 million in inventory impairment charges and other inventory adjustments, $0.7 million in increased manufacturing overhead, $0.3 million in increased freight charges, and $0.2 million in additional direct labor for assembled products. During the three months and six months ended October 31, 2001, contract revenues decreased $1.4 million, or 53.7%, and $1.8 million, or 33.1%, respectively, as compared to the same periods in fiscal year 2001. Contract revenues decreased during the six months of fiscal year 2002 primarily due to a $2.5 million decline in General Motors' alternative fuel model year program revenues, which were partially offset by $0.7 million of new fuel cell contracts. Product application development costs during the three and six months ended October 31, 2001 increased $1.3 million, or 50.9% to $4.0 million, and $4.1 million, or 98.3% to $8.2 million, respectively, compared to the same periods in the prior fiscal year. Contract revenue and product application development costs are primarily for system development and application engineering of our products under the funded General Motors contract, other funded contract work with state and federal agencies, and for internally funded fuel cell and alternate fuel system and component application development work. During the three and six months ended October 31, 2001, Quantum's operating loss was approximately $9.8 million and $17.7 million, respectively, as compared to an operating loss of approximately $3.3 million and $5.3 million in the same periods of the prior fiscal year. For the six month period, the increase in loss of $12.4 million was attributable to a $4.9 million increase in research and development expenses, a $4.0 million decrease in gross profits on product sales, $1.8 million in lower contract revenues, and a $1.7 million increase in general and administrative expenses. The increase in general and administrative expenses was mainly due to charges of $1.3 million for legal and consulting services, of which $0.6 million is related to the S-3 filing, which was withdrawn on September 20, 2001, and Quantum spin-off costs. We anticipate Quantum's operating losses for the remainder of fiscal year 2002 will be lower than the losses for the same period in fiscal year 2001, as a result of staff and cost reductions implemented during the second quarter of fiscal year 2002. Gaseous Fuels Products Division. For the three months and six months ended October 31, 2001, net revenues decreased by approximately $2.5 million, or 15.6%, and approximately $6.1 million, or 17.1%, respectively, as compared to the same periods in the prior fiscal year. For the second quarter of fiscal year 2002, sales decreased $1.9 million in the material handling market, $0.7 million in the motor vehicle market, and $0.3 million in the small industrial engine market, as compared to the same period in the prior year. These decreases were offset by a $0.4 million increase in sales to the large engine industrial market. For the six month period, sales decreased $5.2 million in the material handling market, $2.2 million in the motor vehicle market, and $1.1 million in the small industrial engine market, as compared to the same period in the prior year. These decreases were partially offset by a $2.4 million increase in sales to the large engine industrial market. Assuming the recent economic slow down continues over the next two quarters, we anticipate that overall revenues generated by the Gaseous Fuel Products Division in fiscal year 2002 will be lower than fiscal year 2001. Gross profit for the three and six months ended October 31, 2001 decreased $2.1 million, or 37.3%, and $4.0 million, or 31.4%, respectively, as compared to the same periods in fiscal year 2001. For the three month period, $1.2 million of the decline in gross profit was due to the decline in revenues and $0.9 million was due to product mix. For the six month period, $2.2 million of the decline in gross profit was due to the decline in revenues and $1.8 million was due to product mix. For the three and six months ended October 31, 2001, operating income decreased by approximately $2.0 million, or 71.4%, and approximately $3.7 million, or 54.4%, respectively, as compared to the same periods in the prior fiscal year. The decrease for the six month period was mainly due to the decline in gross profit of $ 4.0 million, which was partially offset by $0.3 million in lower operating expenses. The decline in revenues in this fiscal year has adversely affected gross profit and operating income and given the current economic condition, we expect that operating income will be lower for this division for the remainder of fiscal year 2002 compared to the same periods in fiscal year 2001. International Operations. For the three month and six month periods ended October 31, 2001, net revenues increased by approximately $0.4 million, or 4.3%, and approximately $1.9 million, or 11.8%, respectively, as compared to the same periods in the prior fiscal year. For the three and six months ended October 31, 2001, our European and Mexico subsidiaries together accounted for revenue increases of $1.6 million and $3.8 million, respectively, as compared to the same periods in the prior fiscal year. These increases are due primarily to the expanding alternative fuel markets in these geographic regions. In addition, sales to the Asia market contributed $0.5 million in increased revenue during this fiscal year. These increases were partially offset by declines at our Australian subsidiary of $1.3 million and $2.0 million for the three and six month periods, respectively. The revenue decline at our Australian subsidiary was primarily due to the narrowing of the economic fuel price differential, which reduced the number of automobile conversions, as well as due to the slowing Australian economy. Assuming the fundamentals of our international markets 19 remain strong in terms of government regulations, pollution control and economics, we anticipate revenues for the remainder of fiscal year 2002 will be higher than the comparable period in fiscal year 2001. During the three and six months ended October 31, 2001, operating income increased by approximately $0.2 million, or 90.9%, and $0.6 million, or 74.5%, respectively, as compared to the same periods in the prior fiscal year. The increase in operating income is attributable to higher revenues at our European and Mexico subsidiaries and lower operating expenses at our Australian and Mexico subsidiaries. Assuming continued growth in revenues in our International Operations segment, we anticipate that operating income for the remaining half of fiscal year 2002 will be higher compared to the same period in the prior fiscal year. Corporate Expenses. Corporate expenses consists of general and administrative expenses at the corporate level to support our operating segments in areas such as executive management, finance, human resources, management information systems, legal services, and investor relations. Additionally, amortization of goodwill and other intangible assets is recorded as a corporate expense. Corporate expense for the three months and six months ended October 31, 2001 increased by approximately $1.7 million, or 121.0%, and $1.6 million, or 49.2%, respectively, as compared to the same periods in the prior fiscal year. The increase in corporate expenses was primarily due to charges of approximately $1.4 million, primarily for legal and consulting services related to the S-3 filing, which was withdrawn on September 20, 2001, and Quantum spin-off costs. We anticipate that corporate expenses for the remaining half of fiscal year 2002 will be lower than the same period of fiscal year 2001. Corporate Research and Product Development. Corporate research and product development is a component of our research and development expense and relates to engineering, design, and research and development which supports our operating units and the development of all new products supporting the operating segments' needs. Corporate research and product development expense for the three and six months ended October 31, 2001 increased approximately $1.4 million, or 110.4%, and approximately $3.1 million, or 144.8%, respectively, as compared to the same periods in the prior fiscal year. The increase during the first six months is due to the funding of fuel metering and fuel storage component projects. Interest Expense. Interest expense for the three months ended October 31, 2001 was $0.4 million compared to the interest income of approximately $0.3 million for the same period in the prior fiscal year. For the six-month period ended October 31, 2001, interest expense was $0.6 million compared to $0.2 million for the same period in the prior fiscal year. The increase in interest expense was primarily a result of a higher balance on term notes and a higher outstanding balance on our line of credit with Bank of America, as compared to the interest income generated from the proceeds from the July 2000 equity offering in the first quarter of the prior fiscal year. We anticipate that interest expense for fiscal year 2002 will be higher than that of fiscal year 2001. Provision For Income Taxes. The estimated effective annual tax benefit rate of 40% for fiscal year 2002 approximates the previous year's tax benefit rate of 41%. The effective tax benefit rate represents the federal statutory income tax rate, state income taxes and foreign income taxes increased by research and development credits. For the six months ended October 31, 2001 we have incurred a $22.8 million operating loss. Also, we have federal and state research and development credit carryforwards aggregating approximately $8.2 million. Federal research and development credits totaling $5.2 million expire from 2009 to 2021. State research and development credits of $3.0 million have no expiration. As of October 31, 2001, the net deferred tax asset was $23.9 million. We believe that, based on our history of prior operating earnings, our announced intent to spin off Quantum and our expectations for the future, our operating income will more likely than not be sufficient to recognize fully the deferred tax assets and that the estimated effective annual tax rate in the future years will approximate the statutory rate. LIQUIDITY AND CAPITAL RESOURCES. ------------------------------- We use cash generated from our operations, equity capital, bank financings and sales of our equity securities to fund capital expenditures and research and development, as well as to invest in and operate our existing operations and new businesses. We will require additional sources of financing in order to fully support our operations, fund the operations of Quantum and capitalize on opportunities that we believe to exist in the emerging fuel cell market. These additional sources of financing may include bank borrowings or public or private offerings of equity or debt securities. We cannot assure you that such additional sources of financing will be available on acceptable terms, if at all. If additional sources of financing are not available, we intend, within the next three months, to implement measures to conserve cash and reduce costs, which may include, among other things, making additional cost reductions at Quantum. The ratio of current assets to current liabilities was 1.5:1 on October 31, 2001 and 2.8:1 at the end of fiscal year 2001. During the fiscal year 2002, our working capital decreased by $28.0 million, from $51.5 million at the end of fiscal year 2001 to $23.5 million at the end of the second quarter of fiscal year 2002. The decreases in the ratio of current assets to current liabilities and working capital were due mainly to the decline in cash from the end of fiscal year 2001 to October 31, 2001 and to the classification of the previously 20 reported long term portion of term loans to current liabilities as of October 31, 2001. Net cash used in operating activities was $20.9 million for the six months ended October 31, 2001, compared to net cash used in operating activities of $3.7 million for the same period in the previous year. Cash used in operating activities during the current period resulted primarily from the net loss of nearly $14.3 million in the first six months of fiscal year 2002 compared to the net loss of $2.0 million for the same period in the prior fiscal year. In addition, in the first six months of fiscal year 2002, inventory and deferred tax assets increased $4.5 million and $9.7 million, respectively. Increases in cash resulted from a $3.6 million decrease in accounts receivable and $2.6 million in depreciation and amortization. Net cash used in investing activities in the first half of fiscal year 2002 was approximately $4.9 million compared to $5.9 million for the same period in the previous year. The cash used in investing activities for both periods was primarily due to the purchases of equipment and leasehold improvements to support our ongoing research and development of products and applications that support the use of alternative fuel and fuel cell programs and for software system improvements. Net cash provided by financing activities during the first half of fiscal year 2002 was approximately $12.4 million compared to $37.9 million for the same period in the previous year. The increase in cash provided by financing activities in the current half of fiscal year 2002 was due to increases on our lines of credit of $6.5 million, the repayment of officer loans of $3.9 million, and stock option exercises of $1.8 million. The increase in cash provided by financing activities in the same period of the prior year was due to the proceeds from our follow on equity offering, which was partially offset by our subsequent pay down of the Bank of America working capital line of credit. Our loan facilities with Bank of America, amended in December 2001, provides for a $15.0 million revolving line of credit and a $1.0 million revolving line of credit for IMPCO Mexicano. Outstanding amounts under the facility accrue interest at the lender's rate plus up to 0.5%. At October 31, 2001, approximately $10.0 million and $1.0 million were outstanding under the revolving line of credit and the revolving line of credit for IMPCO Mexicano, respectively. The Bank of America credit facility contains certain restrictions and covenants, as well as limitations on other indebtedness, and is secured by substantially all of the Company's assets. In September 2001, the credit facility with Bank of America was amended to allow Quantum to increase its portion of the line of credit from $5.0 million to $15.0 million. In October and November the credit facility with Bank of America was amended to extend the maturity date of the line of credit. In December 2001, the credit facility with Bank of America was amended to extend the maturity date of the line of credit and shorten the maturity of our term loans to January 2002, provide for an interim increase in the availability of funds under the line of credit and eliminate both of the previously required financial covenants. We are in compliance with our restrictions and covenants. In addition to our loan facilities with Bank of America, our subsidiary in the Netherlands has a fl 5 million (approximately US $2.1 million at October 31, 2001) credit facility with Fortis Bank (formerly Mees Pierson) in the Netherlands. At October 31, 2001, there was an outstanding balance under this credit facility of approximately $1.6 million. Our subsidiary in Japan has a (Y) 60 million (approximately US $0.5 million at October 31, 2001) revolving term loan facility with the Hong Kong and Shanghai Banking Corporation Ltd., Osaka Branch. At October 31, 2001, a balance of approximately $0.2 million was outstanding. DERIVATIVE FINANCIAL INSTRUMENTS -------------------------------- We use derivative financial instruments for the purpose of reducing our exposure to adverse fluctuations in interest and foreign exchange rates. While these hedging instruments are subject to fluctuations in value, such fluctuations are generally offset by the value of the underlying exposures being hedged. We are not a party to leveraged derivatives and do not hold or issue financial instruments for speculative purposes. Foreign Currency Management. The results and financial condition of our international operations are affected by changes in exchange rates between certain foreign currencies and the U.S. Dollar. Our exposure to fluctuations in currency exchange rates has increased as a result of the growth of our international subsidiaries. The functional currency for all of our international subsidiaries is the local currency of the subsidiary. An increase in the value of the U.S. Dollar increases costs incurred by the subsidiaries because most of our international subsidiaries' inventory purchases are U.S. Dollar denominated. We monitor this risk and attempt to minimize the exposure through forward currency contracts and the management of cash disbursements in local currencies. At October 31, 2001 we had no currency forward contracts outstanding. We seek to hedge our foreign currency economic risk by minimizing our U.S. Dollar investment in foreign operations using foreign currency term loans to finance the operations of our foreign subsidiaries. The term loans are denominated in local currencies and translated to U.S. Dollars at period end exchange rates. Interest Rate Management. We use interest rate swap agreements with Bank of America to manage our exposure to interest rate changes and stabilize the cost of borrowed funds. When an agreement is executed, the swap is linked to a specific debt instrument. At October 31, 2001, we had approximately $7.6 million secured under a fixed interest rate agreement at a fixed interest rate of 7.59%. Absent this fixed rate agreements, the variable rate for this debt at October 31, 2001 would have been 4.34%. At October 31, 2001, the 21 fair value of our interest rate swap agreements approximated $(0.3) million. RECENT ACCOUNTING PRONOUNCEMENTS In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (FAS 144), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations for a disposal of a segment of a business. FAS 144 is effective for fiscal years beginning after December 15, 2001, with earlier application encouraged. We expect to adopt FAS 144 as of May 1, 2002 and do not expect that the adoption of the Statement will have a significant impact on our financial position and results of operations. In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, "Business Combinations," and No. 142, "Goodwill and Other Intangible Assets," effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. We will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of fiscal year 2003. Application of the nonamortization provisions of the Statement is expected to result in an increase in net income of approximately $0.5 million ($.04 per share) per year. During 2002, we will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of May 1, 2002 and have not yet determined what the effect of these tests will be on our earnings and financial position. ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information relating to Quantitative and Qualitative Disclosures About Market Risk appear under the heading "Derivative Financial Instruments" which is included in Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations. PART II--OTHER INFORMATION Item 1. Legal Proceedings. In August 2000, we proceeded with legal action in Federal court (Eastern District of Michigan, case # 00-73633) against GFI Control Systems Inc. and Dynetek Industries Ltd. for patent infringement (U.S. Patent No. 6,041,762) which covers a compressed gas fuel system that includes a tank with an internal pressure regulator. GFI Control Systems Inc. filed a counter-claim for patent infringement. We intend to vigorously enforce our intellectual rights. Item 4. Submission of matters to a vote of security holders (a) The annual meeting of stockholders was held on November 8, 2001. (b) The stockholders voted to elect the following nominees as directors for a three-year term: Nominee Votes For Withheld ------- --------- -------- Paul Mlotok 8,174,957 (99.7%) 22,848 Robert M. Stemmler 8,178,444 (99.8%) 19,361 (c) The ratification of the appointment of Ernst & Young LLP as the Company's independent auditors for the current fiscal year received the following votes: Votes ----- For 8,139,438 (99.3%) Against 49,180 (0.6%) Abstain 9,187 (0.1%) 22 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit Number Exhibit Description -------------- -------------------- 10.38 Amendment No. 1 to Amended and Restated Business Loan Agreement, dated as of September 5, 2001, among Bank of America, N.A., the Registrant and Quantum Technologies, Inc. (1) 10.39 Amendment No. 2 to Amended and Restated Business Loan Agreement, dated as of October 8, 2001, among Bank of America, N.A., the Registrant and Quantum Technologies, Inc. 10.40 Amendment No. 3 to Amended and Restated Business Loan Agreement, dated as of November 9, 2001, among Bank of America, N.A., the Registrant and Quantum Technologies, Inc. 10.41 Amendment No. 4 to Amended and Restated Business Loan Agreement, dated as of December 12, 2001, among Bank of America, N.A., the Registrant and Quantum Technologies, Inc. ------------------ (1) Incorporated by reference to the registrant's Form 10-Q for the quarter ended July 31, 2001, filed by the Registrant on September 14, 2001. (b) Reports on Form 8-K: There were no reports on Form 8-K filed during the quarter ended October 31, 2001. SIGNATURES 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. IMPCO Technologies, Inc. (Registrant) Date: December 14, 2001 By /s/William B. Olson --------------------------------- William B. Olson Chief Financial Officer and Treasurer [Authorized Signatory] 23 EXHIBIT INDEX Exhibit Number Exhibit Description -------------- ------------------- 10.38 Amendment No. 1 to Amended and Restated Business Loan Agreement, dated as of September 5, 2001, among Bank of America, N.A., the Registrant and Quantum Technologies, Inc. (1) 10.39 Amendment No. 2 to Amended and Restated Business Loan Agreement, dated as of October 8, 2001, among Bank of America, N.A., the Registrant and Quantum Technologies, Inc. 10.40 Amendment No. 3 to Amended and Restated Business Loan Agreement, dated as of November 9, 2001, among Bank of America, N.A., the Registrant and Quantum Technologies, Inc. 10.41 Amendment No. 4 to Amended and Restated Business Loan Agreement, dated as of December 12, 2001, among Bank of America, N.A., the Registrant and Quantum Technologies, Inc. ------------------- (1) Incorporated by reference to the registrant's Form 10-Q for the quarter ended July 31, 2001 filed by the Registrant on September 14, 2001. 24