<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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 number 333-84903-1
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3983670
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4508 IDS CENTER
MINNEAPOLIS, MINNESOTA 55402
(Address of principal executive offices) (Zip Code)
(612) 332-2335
(Registrant's telephone number, including area code)
NOT APPLICABLE
(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 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 [ ]
The number of shares outstanding of the Registrant's common stock at April 15,
2000 was 10,335 shares of Class A common stock, 20,660 shares of Class B common
stock, 5,165 shares of Class C common stock, 6,590 shares of Class D-1 common
stock, 6,817 shares of Class D-2 common stock and 3,352 shares of Class E common
stock.
<PAGE> 2
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
QUARTERLY FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Consolidated Statements of Operations (unaudited) for the 3
Three Months Ended March 31, 2000 and 1999
Condensed Consolidated Balance Sheets at March 31, 2000 (unaudited) 4
and December 31, 1999
Condensed Consolidated Statements of Cash Flows (unaudited) for the 5
Three Months Ended March 31, 2000 and 1999
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Management's Discussion and Analysis of Financial Condition and Results 15
of Operations
</TABLE>
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<PAGE> 3
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS - UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------
2000 1999
---------------- ---------------
<S> <C> <C>
Sales $ 152,078 $ 75,304
Cost of sales 122,580 54,665
---------------- ---------------
Gross profit 29,498 20,639
Selling, general and administrative expenses 6,303 5,026
Amortization expense 2,473 2,688
---------------- ---------------
Operating income 20,722 12,925
Interest expense and other, net 15,080 4,750
---------------- ---------------
Income before provision for income taxes 5,642 8,175
Provision for income taxes 2,260 3,447
---------------- ---------------
Net income $ 3,382 $ 4,728
================ ===============
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated statements.
-3-
<PAGE> 4
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, December 31,
Assets 2000 1999
- ------------------------------------------------------------------ --------------- ----------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,012 $ 4,900
Accounts receivable, net 98,593 82,449
Inventories 34,542 36,979
Customer tooling-in-progress 7,076 10,299
Other current assets 8,994 9,034
--------------- ----------------
Total current assets 158,217 143,661
Property, plant and equipment, net 231,178 221,167
Intangible and other assets, net 335,126 330,406
--------------- ----------------
$ 724,521 $ 695,234
=============== ================
Liabilities and Stockholders' Deficit
- ------------------------------------------------------------------
Current liabilities:
Accounts payable $ 63,145 $ 56,461
Accrued liabilities 40,148 43,434
Current maturities of long-term debt 23,504 28,400
--------------- ----------------
Total current liabilities 126,797 128,295
Long-term debt, net of current maturities 404,597 373,044
Subordinated notes 175,000 175,000
Convertible subordinated notes 30,000 30,000
Other noncurrent liabilities 26,049 30,488
--------------- ----------------
Total liabilities 762,443 736,827
--------------- ----------------
Stockholders' deficit:
Common stock -- --
Additional paid-in capital 42,949 42,589
Accumulated deficit (79,442) (82,824)
Accumulated other comprehensive loss -
foreign currency translation adjustment (1,429) (1,358)
--------------- ----------------
Total stockholders' deficit (37,922) (41,593)
--------------- ----------------
$ 724,521 $ 695,234
=============== ================
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated balance sheets.
-4-
<PAGE> 5
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS - UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
2000 1999
-------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,382 $ 4,728
Adjustments to reconcile net income to net cash provided by
(used for) operating activities -
Depreciation and amortization 11,354 8,237
Other non-cash items (62) 138
Changes in other operating items (14,768) (9,784)
--------------- ---------------
Net cash provided by (used for) operating activities (94) 3,319
-------------- ---------------
INVESTING ACTIVITIES:
Acquisitions, net (5,614) --
Capital expenditures, net (18,129) (6,793)
-------------- ---------------
Net cash used for investing activities (23,743) (6,793)
-------------- ---------------
FINANCING ACTIVITIES:
Revolving credit facility borrowings 89,106 6,289
Repayments on revolving credit facility borrowings (53,680) (2,000)
Long-term borrowings 2,303 951
Repayment of other borrowings (9,713) (2,615)
-------------- ---------------
Net cash provided by financing activities 28,016 2,625
-------------- ---------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (67) 504
-------------- ---------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 4,112 (345)
CASH AND CASH EQUIVALENTS:
Beginning of period 4,900 4,128
-------------- ---------------
End of period $ 9,012 $ 3,783
============== ===============
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated statements.
-5-
<PAGE> 6
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying condensed consolidated financial statements have been
prepared by J.L. French Automotive Castings, Inc. ("French" or the
"Company") without audit. The information furnished in the condensed
consolidated financial statements includes normal recurring adjustments and
reflects all adjustments which are, in the opinion of management, necessary
for a fair presentation of such financial statements. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. Although the
Company believes that the disclosures are adequate to make the information
presented not misleading, it is suggested that these condensed consolidated
financial statements be read in conjunction with the audited financial
statements and the notes thereto included in the Company's Form 10-K for
the year ended December 31, 1999.
Sales and operating results for the three months ended March 31, 2000 are
not necessarily indicative of the results to be expected for the full year.
2. The following presents comprehensive income, defined as changes in the
stockholders' deficit of the Company, for the three month period ended
March 31, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
Net income $ 3,382 $ 4,728
Change in cumulative
translation adjustment (71) (1,262)
---------------- ----------------
Comprehensive income $ 3,311 $ 3,466
================ ================
</TABLE>
3. On April 21, 1999, the Company completed a recapitalization transaction
(the "Recapitalization"). Pursuant to the Recapitalization Agreement and
immediately prior to the Recapitalization, each share of Class B, Class C
and Class D common stock was converted into one share of Class A common
stock. In addition, each share of Convertible Redeemable 7% Series A
preferred stock was converted into one share of Series B preferred stock
and 2.26372 shares of Class A common stock. The Company also restated its
Articles of Incorporation to authorize 20,000 shares of Class A common
stock, 30,000 shares of Class B common stock, 6,000 shares of Class C
common stock, 15,000 shares of Class D-1 common stock, 7,500 shares of
nonvoting Class D-2 common stock and 4,000 shares of Class E common stock.
Concurrently with the above transactions, new investors acquired 1,650.06
shares of Class A common stock, 17,099.89 shares of Class B common stock,
4,274.97 shares of Class C common stock, 5,509.97 shares of Class D-1
common stock, 5,699.96 shares of Class D-2 common stock and 2,802.48 shares
of Class E common stock for total consideration of $156.0 million. In
addition, the Company borrowed $295.0 million pursuant to a new senior
credit facility and $130.0 million pursuant to a subordinated financing
facility.
The proceeds from the equity investment, the senior credit facility and the
subordinated financing facility were used to retire $184.0 million of
outstanding indebtedness, to redeem the outstanding Series B preferred
stock for $12.3 million, to repurchase certain shares of Class A common
stock for $336.5 million, to redeem all outstanding options for $21.5
million and to pay fees associated with the transaction of approximately
$6.2 million. The redemption of stock options was recorded as compensation
expense at the date of the Recapitalization and reflected in the
consolidated statements of operations as recapitalization expense. As a
result of the Recapitalization, approximately 87% of all classes of the
combined capital stock of the Company were acquired which represented 85%
of the shares eligible to vote. An additional payment of $5.0 million was
made to those persons who were
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<PAGE> 7
stockholders prior to the Recapitalization based on a post-closing
determination of working capital as of the date of the Recapitalization.
In connection with the Recapitalization, the historical basis of all assets
and liabilities have been retained for financial reporting purposes, and
the repurchase of the existing common stock and issuance of new common
stock has been accounted for as an equity transaction. In addition, the
fees and expenses related to the Recapitalization of approximately $6.2
million have been recorded as a reduction in stockholders' investment.
In 1999, the Company sold 2,138.44 shares of Class A common stock to
certain employees for aggregate proceeds of approximately $9.0 million.
Approximately $1.4 million of this amount was financed through notes to the
Company which bear interest at 9% and are due in 2004. These notes are
reflected as a reduction of additional paid-in capital in the accompanying
condensed consolidated balance sheets.
4. Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, Dec. 31,
2000 1999
--------------- ---------------
<S> <C> <C>
Raw materials $ 11,546 $ 14,172
Work in process 15,063 14,558
Finished goods 7,933 8,249
--------------- ---------------
$ 34,542 $ 36,979
=============== ===============
</TABLE>
5. Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------------- -----------------
<S> <C> <C>
Senior Credit Facility:
Revolving credit facility $ 58,472 $ 23,183
Tranche A term loan 178,590 187,943
Tranche B term loan 151,304 152,105
----------------- -----------------
Total senior credit facility 388,366 363,231
Other, net 39,735 38,213
----------------- -----------------
428,101 401,444
Less-current maturities (23,504) (28,400)
----------------- -----------------
Total long-term debt $ 404,597 $ 373,044
================= =================
</TABLE>
In connection with the Recapitalization, French and certain of its direct
and indirect subsidiaries entered into a senior credit facility which
provided for total borrowings of up to $370.0 million, including (a) $105.0
million tranche A term loan consisting of a $70.0 million U.S.
dollar-denominated term loan and pound sterling denominated term loans in
an amount equal to the pound sterling equivalent of U.S. $35.0 million, (b)
a $190.0 million tranche B term loan, and (c) a $75.0 million revolving
credit facility. In May 1999, approximately $2.5 million of borrowings
under the tranche A term loan and $37.5 million of borrowings under the
tranche B term loan were repaid with proceeds from the offering of the
Subordinated Notes (Note 6).
On October 15, 1999 in connection with the acquisition of Nelson (Note 8),
the Company amended and restated its senior credit facility to provide for
$100.0 million of additional borrowings consisting of an increase of $85
million in the tranche A term loan and an increase of $15 million in the
revolving credit facility.
-7-
<PAGE> 8
As of March 31, 2000, rates on borrowings under the senior credit facility
varied from 8.0% to 9.0%. Borrowings under the tranche A term loan are due
and payable April 21, 2005 and borrowings under the tranche B term loan are
due and payable on October 21, 2006. The revolving credit facility is
available until April 21, 2005. The senior credit facility is secured by
all of the assets of and guaranteed by all of our material present and
future subsidiaries, in each case with exceptions for certain foreign
subsidiaries and to the extent permitted by applicable law ("Guarantors").
The senior credit facility contains certain restrictive covenants, and the
Company was in compliance with all such covenants at March 31, 2000.
6. In May 1999, the Company completed an offering of $175.0 million of 11 1/2%
Senior Subordinated Notes due 2009 ("Subordinated Notes"). Net proceeds of
the offering, approximately $169.6 million, combined with $0.4 million of
cash were used to retire all of the borrowings under the subordinated
financing facility, $2.5 million of borrowings under the tranche A term
loan and $37.5 million of borrowings under the tranche B term loan. The
Subordinated Notes contain certain restrictive covenants and the Company
was in compliance with all such covenants at March 31, 2000.
7. In connection with the acquisition of Nelson (Note 8), the Company borrowed
$30 million pursuant to a convertible subordinated note issued to Tower
Automotive, Inc. ("Convertible Note"). Borrowings under the Convertible
Note are subordinated to all other indebtedness of the Company. The
Convertible Note bears interest at 7.5% payable semi-annually, matures on
October 15, 2009 and is convertible anytime, at the option of the holder,
into 5,088 shares of Class A common stock.
8. In August 1999, the Company formed JLF Mexico to acquire Inyecta Alum, a
Mexican supplier of aluminum die castings, for an aggregate purchase price
of $14.9 million. This acquisition was financed with cash on hand and
available borrowings under the Company's revolving credit facility. The pro
forma effects of the acquisition of JLF Mexico are not material.
In October 1999, the Company acquired all of the outstanding stock of
Nelson for an aggregate purchase price of $179.8 million, including
transaction costs. Nelson is a full service supplier of medium and large
aluminum die castings for the automotive industry, with manufacturing
facilities in Grandville, Michigan and Glasgow, Kentucky. In connection
with the acquisition of Nelson, the Company (i) amended and restated its
senior credit facility to provide for additional borrowings of $100.0
million; (ii) borrowed $30.0 million from Tower Automotive, Inc. pursuant
to the Convertible Note; and (iii) issued 8,309.66 shares of its common
stock for total consideration of $35 million.
In March 2000, the Company acquired all of the outstanding common stock of
Shoreline Industries, Inc. and its affiliate, Generation Machine, LLC
(collectively, "Shoreline"). Shoreline manufactures high pressure aluminum
die cast components, principally for the automotive industry, from a
facility in Benton Harbor, MI. Total consideration was approximately $5.6
million. The pro forma effects of the acquisition of Shoreline are not
material.
The acquisitions noted above have been accounted for using the purchase
method of accounting and, accordingly, the assets acquired and liabilities
assumed have been recorded at their fair value as of the respective dates
of acquisition. The excess of the purchase price over the fair value of the
assets acquired and liabilities assumed has been recorded as goodwill.
The assets acquired and liabilities assumed for JLF Mexico, Nelson and
Shoreline have been recorded based upon preliminary estimates of fair value
as of the dates of acquisition. The Company does not believe the final
allocation of purchase price will be materially different from preliminary
acquisitions. Any changes to the preliminary estimates will be reflected as
adjustments to goodwill. Results of operations for these acquisitions have
been included in the accompanying consolidated financial statements since
the respective dates of the acquisitions.
-8-
<PAGE> 9
The following unaudited consolidated pro forma results of operations for
the three months ended March 31, 1999 give effect to (i) the acquisition of
Nelson, (ii) the Recapitalization, and (iii) the subordinated note offering
as if such transactions had occurred at the beginning of the period (in
thousands):
<TABLE>
<CAPTION>
Pro Forma
for the
Three Months
Ended
March 31,
1999
----------------
<S> <C>
Revenues $ 134,951
Operating income 15,691
Net loss before extraordinary item 1,457
</TABLE>
The unaudited pro forma consolidated financial information does not purport
to represent what the Company's financial position or results of operations
would actually have been if these transactions had occurred at such dates
or to project the Company's future results of operations.
9. SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," becomes effective for the years beginning after June 15, 2000.
SFAS No. 133 establishes accounting and reporting standards requiring that
every derivative instrument, including certain derivative instruments
embedded in other contracts, be recorded in the balance sheet as either an
asset or liability measured at its fair value. SFAS No. 133 requires that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge criteria are met. Special accounting for qualifying
hedges allow a derivative's gains or losses to offset related results on
the hedged item in the income statement and requires that a company must
formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. The Company has not yet quantified the
impact of adopting SFAS No. 133 and has not yet determined the timing of
adoption.
10. Supplemental cash flow information (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------
2000 1999
---------------- -----------------
<S> <C> <C>
Cash paid for -
Interest $ 12,720 $ 1,994
Income taxes 899 1,530
</TABLE>
11. The following consolidating financial information presents balance sheet,
statement of operations and cash flow information related to the Company's
businesses. Each Guarantor is a direct wholly owned domestic subsidiary of
the Company and has fully and unconditionally guaranteed the 11 1/2% senior
subordinated notes issued by J.L. French Automotive Castings, Inc., on a
joint and several basis. The Non-Guarantor Companies are the Company's
foreign subsidiaries, which include JLF UK, Ansola and JLF Mexico. Separate
financial statements and other disclosures concerning the Guarantors have
not been presented because management believes that such information is not
material to investors.
-9-
<PAGE> 10
11. Condensed consolidating guarantor and non-guarantor financial information
(continued):
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE
THREE MONTHS ENDED MARCH 31, 2000
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
J.L. FRENCH
AUTOMOTIVE NON-
CASTINGS, GUARANTOR GUARANTOR
INC. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
------------ ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues $ -- $ 125,906 $ 26,172 $ -- $ 152,078
Cost of sales -- 101,968 20,612 -- 122,580
------------ ---------- ---------- ------------- -------------
Gross profit -- 23,938 5,560 -- 29,498
Selling, general and
administrative expenses 146 3,061 3,096 -- 6,303
Amortization expense 26 2,013 434 -- 2,473
------------ ---------- ---------- ------------- -------------
Operating income (loss) (172) 18,864 2,030 -- 20,722
Interest expense 7,676 5,463 1,941 -- 15,080
------------ ---------- ---------- ------------- -------------
Income (loss) before
income taxes, equity in
earnings (losses) of (7,848) 13,401 89 -- 5,642
subsidiaries
Provision (benefit) for income
taxes (2,982) 5,093 149 -- 2,260
Equity in earnings (losses)
of subsidiaries 8,248 -- -- (8,248) --
------------ ---------- ---------- ------------- -------------
Net income (loss) $ 3,382 $ 8,308 $ (60) $ (8,248) $ 3,382
============ ========== ========== ============= =============
</TABLE>
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<PAGE> 11
11. Condensed consolidating guarantor and non-guarantor financial information
(continued):
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR
THE THREE MONTHS ENDED MARCH 31, 2000
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
J.L. FRENCH
AUTOMOTIVE NON-
CASTINGS, GUARANTOR GUARANTOR
INC. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- ---------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 3,382 $ 8,308 $ (60) $ (8,248) $ 3,382
Adjustments to reconcile net
cash provided by (used for)
operating activities:
Depreciation and amortization 26 8,526 2,802 -- 11,354
Other non-cash items -- (63) 1 -- (62)
(Income)/loss from invest-
ment in subsidiaries (8,248) -- -- 8,248 --
Changes in other operating
activities (10,215) (7,358) 2,805 -- (14,768)
----------- ---------- --------- ------------ -------------
Net cash provided by (used
for) operating activities (15,055) 9,413 5,548 -- (94)
----------- ---------- --------- ------------ -------------
INVESTING ACTIVITIES:
Acquisitions, net (5,623) (5,614) -- 5,623 (5,614)
Capital expenditures, net -- (8,163) (9,966) -- (18,129)
----------- ---------- --------- ------------ -------------
Net cash provided by (used
for) investing activities (5,623) (13,777) (9,966) 5,623 (23,743)
----------- ---------- --------- ------------ -------------
FINANCING ACTIVITIES:
Borrowings on revolving
credit facilities 63,800 -- 25,306 -- 89,106
Repayment of borrowings on
revolving credit facilities (34,400) -- (19,280) -- (53,680)
Long-term borrowings -- -- 2,303 -- 2,303
Repayment of long-term
borrowings (8,912) (34) (767) -- (9,713)
Capital investment -- 5,623 -- (5,623) --
----------- ---------- --------- ------------ -------------
Net cash provided by
(used for) financing
activities 20,488 5,589 7,562 (5,623) 28,016
----------- ---------- --------- ------------ -------------
EFFECT OF EXCHANGE
RATES ON CASH AND -- -- (67) -- (67)
----------- ---------- --------- ------------ -------------
CASH EQUIVALENTS
NET CHANGE IN CASH
AND CASH EQUIVALENTS (190) 1,225 3,077 -- 4,112
CASH AND CASH
EQUIVALENTS:
Beginning of period 392 665 3,843 -- 4,900
----------- ---------- --------- ------------ -------------
End of period $ 202 $ 1,890 $ 6,920 $ -- $ 9,012
=========== ========== ========= ============ =============
</TABLE>
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<PAGE> 12
11. Condensed consolidating guarantor and non-guarantor financial information
(continued):
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS FOR THE
THREE MONTHS ENDED MARCH 31, 2000
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
J.L. FRENCH
AUTOMOTIVE NON-
CASTINGS, GUARANTOR GUARANTOR
INC. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- ----------- ---------- ------------- -------------
Assets
- -----------------------------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 202 $ 1,890 $ 6,920 $ -- $ 9,012
Accounts receivable, net -- 74,811 23,782 -- 98,593
Inventories -- 24,459 10,083 -- 34,542
Other current assets (3,882) 13,424 6,528 -- 16,070
----------- ----------- ---------- ------------- -------------
Total current assets (3,680) 114,584 47,313 -- 158,217
Property, plant and equipment,
-- 149,315 81,863 -- 231,178
net
Investment in subsidiaries 350,555 -- -- (350,555) --
Intangible and other assets, net 30,971 237,986 66,169 -- 335,126
----------- ----------- ---------- ------------- -------------
$ 377,846 $ 501,885 $ 195,345 $ (350,555) $ 724,521
=========== =========== ========== ============= =============
Liabilities and Stockholders'
Investment (Deficit)
- -----------------------------------
Current liabilities:
Accounts payable $ -- $ 38,265 $ 27,175 $ (2,295) $ 63,145
Accrued liabilities 7,736 25,823 6,589 -- 40,148
Current maturities of long-
term debt 17,008 126 6,370 -- 23,508
----------- ----------- ---------- ------------- -------------
Total current liabilities 24,744 64,214 40,134 (2,295) 126,797
----------- ----------- ---------- ------------- -------------
Long-term debt 545,896 1,070 62,631 -- 609,597
Other noncurrent liabilities 4,366 14,769 6,914 -- 26,049
Intercompany (159,820) 122,655 34,870 2,295 --
----------- ----------- ---------- ------------- -------------
Total liabilities 415,186 202,708 144,549 -- 762,443
Stockholders' investment
(deficit):
Additional paid-in capital 42,949 265,791 52,975 (318,766) 42,949
Retained earnings (deficit) (79,442) 33,420 (1,631) (31,789) (79,442)
Accumulated other
comprehensive loss (847) (34) (548) -- (1,429)
----------- ----------- ---------- ------------- -------------
Total stockholders' investment
(deficit) (37,340) 299,177 50,796 (350,555) (37,922)
----------- ----------- ---------- ------------- -------------
$ 377,846 $ 501,885 $ 195,345 $ (350,555) $ 724,521
=========== =========== ========== ============= =============
</TABLE>
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<PAGE> 13
11. Condensed consolidating guarantor and non-guarantor financial information
(continued):
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE
THREE MONTHS ENDED MARCH 31, 1999
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
J.L. FRENCH
AUTOMOTIVE NON-
CASTINGS, GUARANTOR GUARANTOR
INC. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
------------ ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues $ -- $ 53,941 $ 21,363 $ -- $ 75,304
Cost of sales -- 37,716 16,949 -- 54,665
------------ ---------- --------- ------------- -------------
Gross profit -- 16,225 4,414 -- 20,639
Selling, general and
administrative expenses 116 2,074 2,836 -- 5,026
Amortization expense -- 2,464 224 -- 2,688
------------ ---------- --------- ------------- -------------
Operating income (loss) (116) 11,687 1,354 -- 12,925
Interest expense -- 3,200 1,550 -- 4,750
------------ ---------- --------- ------------- -------------
Income (loss) before
income taxes, equity in
earnings (losses) of (116) 8,487 (196) -- 8,175
subsidiaries
Provision (benefit) for income
taxes (49) 3,565 (69) -- 3,447
Equity in earnings (losses)
of subsidiaries 4,795 -- -- (4,795) --
------------ ---------- --------- ------------- -------------
Net income (loss) $ 4,728 $ 4,922 $ (127) $ (4,795) $ 4,728
============ ========== ========= ============= =============
</TABLE>
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<PAGE> 14
11. Condensed consolidating guarantor and non-guarantor financial information
(continued):
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE
THREE MONTHS ENDED MARCH 31, 1999
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
J.L. FRENCH
AUTOMOTIVE NON-
CASTINGS, GUARANTOR GUARANTOR
INC. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 4,728 $ 4,922 $ (127) $ (4,795) $ 4,728
Adjustments to reconcile net
income (loss) to net cash
provided by (used for)
operating activities -
Depreciation and amortization 2 5,530 2,705 -- 8,237
Other non-cash items -- 138 -- -- 138
Income (loss) in subsidiary (4,795) -- -- 4,795 --
Changes in other operating
activities 950 (5,988) (4,746) -- (9,784)
----------- ----------- ----------- -------------- --------------
Net cash provided by (used
for) operating activities 885 4,602 (2,168) -- 3,319
----------- ----------- ----------- -------------- --------------
INVESTING ACTIVITIES:
Acquisitions, net -- -- -- -- --
Capital expenditures, net -- (4,081) (2,712) -- (6,793)
----------- ----------- ----------- -------------- --------------
Net cash used for
investing activities -- (4,081) (2,712) -- (6,793)
----------- ----------- ----------- -------------- --------------
FINANCING ACTIVITIES:
Revolving credit facility
borrowings -- 3,000 3,289 -- 6,289
Long-term borrowings -- -- 951 -- 951
Repayments of revolving
credit facility borrowings -- (2,000) -- -- (2,000)
Repayment of other borrowings -- (1,125) (1,490) -- (2,615)
----------- ----------- ----------- -------------- --------------
Net cash provided by
(used for) financing
activities -- (125) 2,750 -- 2,625
----------- ----------- ----------- -------------- --------------
EFFECT OF EXCHANGE
RATES ON CASH AND
CASH EQUIVALENTS -- -- 504 -- 504
----------- ----------- ----------- -------------- --------------
NET CHANGES IN CASH
AND CASH EQUIVALENTS 885 396 (1,626) -- (345)
CASH AND CASH
EQUIVALENTS:
Beginning of period 22 260 3,846 -- 4,128
----------- ----------- ----------- -------------- --------------
End of period $ 907 $ 656 $ 2,220 $ -- $ 3,783
=========== =========== =========== ============== ==============
</TABLE>
-14-
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
French ordinarily begins working on products awarded for new or
redesigned platforms two to five years prior to initial vehicle production.
During such period, French incurs (1) costs related to the design and
engineering of such products, (2) costs related to production of the tools and
dies used to manufacture the products and (3) start-up costs associated with the
initial production of such product. In general, design and engineering costs are
expensed in the period in which they are incurred. Costs incurred in the
production of the tools and dies are generally capitalized and reimbursed by the
customer prior to production. Start-up costs, which are generally incurred 30 to
60 days immediately prior to and immediately after production, are expensed as
incurred.
The contracts the Company enters into typically: (1) range from one
year to the life of the platform, (2) are on a sole-source basis, (3) do not
require the purchase by the customer of any minimum number of units, (4) are at
fixed prices subject to annual price reductions or renegotiations and (5)
provide for price adjustments related to changes in the cost of aluminum.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 TO THREE MONTHS ENDED MARCH 31,
1999
Sales. Sales for the first quarter of 2000 increased by $76.8 million,
or 102%, to $152.1 million from $75.3 million for 1999. Approximately $62.3
million of the increase was the result of the acquisitions of JLF Mexico in
August 1999 and Nelson in October 1999. The remaining increase was due to higher
aluminum prices which are passed on to the customers and new business which
began production in 1999.
Cost of Sales. Cost of sales for the first quarter of 2000 increased by
$67.9 million to $122.6 million from $54.7 million for 1999. Cost of sales as a
percentage of sales was 80.6% for the first quarter of 2000 compared to 72.6%
for the prior period. Gross margins for the first quarter of 2000 were
negatively affected by (1) the historically lower margins at JLF Mexico and
Nelson and (2) a change in product mix to produce more parts with slightly lower
margins.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $1.3 million to $6.3 million for the first
quarter of 2000 from $5.0 million for 1999. The increase was due primarily to
selling, general and administrative expenses associated with the expanded scope
of operations, including expenses related to the acquisitions of JLF Mexico and
Nelson. As a percentage of sales, selling, general and administrative expenses
were 4.1% for the first quarter of 2000 compared to 6.7% for the prior period.
-15-
<PAGE> 16
Amortization of Intangible Assets. Amortization expense decreased from
$2.7 million for the first quarter of 1999 to $2.5 million for the first quarter
of 2000. Increased goodwill amortization from the acquisitions of JLF Mexico and
Nelson were offset by lower amortization of other intangible assets, including
customer relationships. Goodwill is being amortized on a straight-line basis
over 40 years.
Interest Expense. Interest expense for the first quarter of 2000 was
$15.1 million compared to $4.8 million for the prior period. The increase was
due principally to borrowings incurred in connection with the Recapitalization,
the acquisitions of Nelson and JLF Mexico and an increase in the weighted
average interest rates.
Provision for Income Taxes. The effective income tax rate was 40.0% for
the tax provision arising in the first quarter of 2000 compared to 42.2% for the
prior period. The change in the effective income tax rate related primarily to
lower state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
For the period ended March 31, 2000, the Company's operations used cash in the
amount of $0.1 million, compared to providing cash of $3.3 million for the three
months ended March 31, 1999. Cash generated from operations before changes in
working capital items was $14.7 million for the 2000 period compared to $13.1
million in 1999. Increases in working capital used cash of $14.8 million during
the first quarter of 2000 compared to $9.8 million in 1999. The increases in
working capital are primarily the result of timing of cash receipts and cash
payments.
Net cash used in investing activities was $23.7 million during the first quarter
of 2000 compared to $6.8 million in the prior period. Acquisitions totaled $5.6
million during the first quarter of 2000 related to the purchase of Shoreline.
Capital expenditures totaled $18.1 million in the first quarter of 2000 and $6.8
million in 1999 and were primarily for equipment purchases related to new or
replacement programs.
Net cash provided by financing activities totaled $28.0 million for the first
quarter of 2000 compared with $2.6 million in 1999.
On April 21, 1999, the Company completed a recapitalization in which a group of
equity investors, including affiliates of Onex and J2R Corporation, acquired
approximately 87% of the Company's common stock for $156.0 million in cash.
Stockholders prior to the recapitalization retained approximately 13% of the
Company's common stock and, together with holders of outstanding options,
received an aggregate of $370.3 million in cash in connection with the
redemption of the Company's other equity interest, plus an additional $5.0
million based upon a post-closing determination of the total working capital as
of the closing date of the recapitalization.
In connection with the recapitalization, French and certain of its direct and
indirect subsidiaries entered into the senior credit facility. On October 15,
1999, the Company amended and restated its senior credit facility in connection
with its acquisition of Nelson to provide for an additional $100.0 million of
available borrowings. Following the repayment of a portion of the indebtedness
under the senior credit facility with the proceeds of the offering of the
subordinated notes discussed below and following its amendment, the senior
credit facility now consists of (a) approximately $187.5 million of term loans,
consisting of (1) a $155.0 million U.S. dollar-denominated term loan to French,
(2) a pound sterling-denominated term loan to French in an
-16-
<PAGE> 17
amount equal to the pound sterling equivalent, determined as of the date such
loan was made, of U.S. $17.5 million and (3) a pound sterling-denominated term
loan to JLF UK in an amount equal to the pound sterling equivalent, determined
as of the date such loan was made, of U.S. $17.5 million (collectively, the
"tranche A term loan"); (b) a $190.0 million tranche B term loan; and (c) a
$90.0 million revolving credit facility. The amendment increased the
dollar-denominated portion of the tranche A term loan from $70.0 million to
$155.0 million and increased the revolving credit facility from $75.0 million to
$90.0 million. In connection with the recapitalization, the Company borrowed
$295.0 million under the senior credit facility. In connection with the
acquisition of Nelson, the Company borrowed $100.0 million under the senior
credit facility. As of March 31, 2000, the Company had available borrowings
under the senior credit facility of approximately $4.0 million. Combined with
cash balances of $9.0 million, the Company has cash availability of $13.0
million.
As of March 31, 2000, rates on borrowings under the senior credit facility
varied from 8.0% to 9.0%. Borrowings under the tranche A term loan are due and
payable April 21, 2005 and borrowings under the tranche B term loan are due and
payable on October 21, 2006. The revolving credit facility is available until
April 21, 2005. The senior credit facility is secured by all of the assets of
and guaranteed by all of our material present and future subsidiaries, in each
case with exceptions for certain foreign subsidiaries and to the extent
permitted by applicable law. The senior credit facility contains certain
restrictive covenants, and the Company was in compliance with all such covenants
at March 31, 2000.
In May 1999, the Company completed an offering of $175.0 million of 11 1/2%
Senior Subordinated Notes due 2009. Net proceeds of the offering, approximately
$169.6 million, combined with $0.4 million of cash were used to retire all of
the borrowings under the subordinated financing facility, $2.5 million of
borrowings under the tranche A term loan and $37.5 million of borrowings under
the tranche B term loan. The subordinated notes contain certain restrictive
covenants, and the Company was in compliance with all such covenants at March
31, 2000.
In addition, in connection with the acquisition of Nelson, the Company borrowed
$30.0 million from Tower Automotive, Inc. in exchange for issuance of a 7.5%
convertible subordinated promissory note due October 14, 2009. Interest on this
promissory note is payable quarterly unless (1) the payment of interest would
cause the Company to breach any covenants in any agreement under which a
financial institution or pension fund has made loans to the Company in excess of
$10.0 million or (2) in the good faith judgment of the board of directors, the
Company does not have funds available to pay interest on the promissory note, in
which case the unpaid interest will accrue until paid. The Company may prepay
this promissory note at any time, subject to Tower Automotive's right to convert
the promissory note into class A common stock.
The Company's ability to service its indebtedness will depend on its future
performance, which will be affected by prevailing economic conditions and
financial, business, regulatory and other factors. Some of these factors are
beyond the Company's control. The Company believes that, based upon current
levels of operations, it will be able to meet its debt service obligations when
due. However, because it is difficult to predict the Company's liquidity and
capital requirements in the future, it is not possible to predict whether it
will be able to meet its debt service obligations in the long term, i.e. beyond
the next twelve months. Even with respect to the short term, significant
assumptions underlie the Company's belief that it will be able to meet its debt
service obligations when due, including, among other things, that it will
continue to be successful in implementing its business strategy and that there
will be no material adverse developments in
-17-
<PAGE> 18
its business, liquidity or capital requirements. If the Company were to generate
insufficient cash flow from operations to service its indebtedness and to meet
its other obligations and commitments, the Company might be required to
refinance its debt or to dispose of assets to obtain funds for such purpose.
There is no assurance that refinancings or asset dispositions could be effected
on a timely basis or on satisfactory terms, if at all, or would be permitted by
the terms of the indenture or the senior credit facility.
SEASONALITY
French typically experiences decreased sales and operating income during the
third calendar quarter of each year due to production shutdowns at OEMs for
model changeovers and vacations.
EFFECTS OF INFLATION
Inflation potentially affects the Company in two principal ways. First, a
portion of the Company's debt is tied to prevailing short-term interest rates
which may change as a result of inflation rates, translating into changes in
interest expense. Second, general inflation can impact material purchases, labor
and other costs. While the contracts with the Company's customers allow it to
pass through increases in the price of aluminum, the Company does not have the
ability to pass through inflation-related cost increases for labor and other
costs. In the past few years, however, inflation has not been a significant
factor.
MARKET RISK
The Company is exposed to various market risks arising from adverse changes in
market rates and prices, such as foreign currency exchange and interest rates.
The Company does not enter into derivatives or other financial instruments for
trading or speculative purposes. The Company's strategy for management of
currency risk relies primarily upon conducting its operations in such countries'
respective currency and it may, from time to time, engage in hedging programs
intended to reduce its exposure to currency fluctuations. The counterparties are
major financial institutions.
The Company manages its interest rate risk by balancing the amount of its fixed
and variable debt. For fixed rate debt, interest rate changes affect the fair
market value of such debt but do not impact earnings or cash flows. Conversely
for variable rate debt, interest rate changes generally do not affect the fair
market value of such debt, but do impact future earnings and cash flows,
assuming other factors are held constant. At March 31, 2000, all of the
Company's debt other than the outstanding notes was variable rate debt. Holding
other variables constant (such as foreign exchange rates and debt levels), a one
percentage point increase in interest rates would be expected to have an
estimated impact on pre-tax earnings and cash flows for the remainder of the
year of approximately $3.0 million.
A portion of the Company's sales is derived from manufacturing operations in the
U.K. and Spain. The results of operations and the financial position of the
Company's operations in these countries are principally measured in their
respective currency and translated into U.S. dollars. The effects of foreign
currency fluctuations in such countries are somewhat mitigated by the fact that
expenses are generally incurred in the same currencies in which sales are
generated. The reported income of these operations will be higher or lower
depending on a weakening or strengthening of the U.S. dollar against the
respective foreign currency.
-18-
<PAGE> 19
Some of the Company's assets are located in foreign countries and are translated
into U.S. dollars at currency exchange rates in effect as of the end of each
period, with the effect of such translation reflected as a separate component of
stockholders' investment. Accordingly, the Company's consolidated stockholders'
investment will fluctuate depending upon the weakening or strengthening of the
U.S. dollar against the respective foreign currency.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
becomes effective for years beginning after June 15, 2000. SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument, including certain derivative instruments embedded in other
contracts, be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge criteria are met. Special accounting for qualifying hedges allow a
derivative's gains or losses to offset related results on the hedged item in the
income statement and requires that a company must formally document, designate
and assess the effectiveness of transactions that receive hedge accounting. The
Company has not yet quantified the impact of adopting SFAS No. 133 and has not
yet determined the timing or method of adoption.
FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical fact, included in this Form
10-Q, including without limitation the statements under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" are, or may be
deemed to be, forward-looking statements within the meaning of Section 27A of
the Securities Act and Section 21E of the Securities Exchange Act of 1934, as
amended. When used in this Form 10-Q, the words "anticipate," "believe,"
"estimate," "expect," "intends," and similar expressions, as they relate to the
Company, are intended to identify forward-looking statements. Such
forward-looking statements are based on the beliefs of the Company's management
as well as on assumptions made by and information currently available to the
Company at the time such statements were made. Various economic and competitive
factors could cause actual results to differ materially from those discussed in
such forward-looking statements, including factors which are outside the control
of the Company, such as risks relating to: (i) the Company's ability to develop
or successfully introduce new products; (ii) general economic or business
conditions affecting the automotive industry; (iii) increased competition in the
automotive components supply market; and (iv) the Company's failure to complete
or successfully integrate additional strategic acquisitions. All subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on behalf of the Company are expressly qualified in their
entirety by such cautionary statements.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Market Risk" and "Foreign Currency Transactions" sections of Item 2:
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
-19-
<PAGE> 20
PART II. OTHER INFORMATION
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings:
None.
Item 2. Change in Securities:
None.
Item 3. Defaults Upon Senior Securities:
None.
Item 4. Submission of Matters to a Vote of Security Holders:
None.
Item 5. Other Information:
None.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
During the quarter for which this report is filed, the Company
filed the following Form 8-K Current Reports with the
Securities and Exchange Commission:
None.
-20-
<PAGE> 21
SIGNATURE
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.
J.L. FRENCH AUTOMOTIVE CASTINGS,
INC.
Date: May 12, 2000 By /s/ Thomas C. Dinolfo
---------------------------------------
Thomas C. Dinolfo
Vice President, Chief Financial Officer
(principal accounting and financial
officer)
-21-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001091601
<NAME> J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 9,012
<SECURITIES> 0
<RECEIVABLES> 98,593
<ALLOWANCES> 0
<INVENTORY> 34,542
<CURRENT-ASSETS> 158,217
<PP&E> 231,178
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<TOTAL-ASSETS> 724,521
<CURRENT-LIABILITIES> 126,797
<BONDS> 175,000
0
0
<COMMON> 0
<OTHER-SE> (37,922)
<TOTAL-LIABILITY-AND-EQUITY> 724,521
<SALES> 152,078
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<OTHER-EXPENSES> 8,776
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