<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 September 30, 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 October 15,
2000 was 13,327 shares of Class A common stock, 20,660 shares of Class B common
stock, 5,165 shares of Class C common stock, 7,054 shares of Class D-1 common
stock, 7,314 shares of Class D-2 common stock and 3,592 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 September 30, 2000 and 1999
Condensed Consolidated Statements of Operations (unaudited) for the 4
Nine Months Ended September 30, 2000 and 1999
Condensed Consolidated Balance Sheets at September 30, 2000 (unaudited) 5
and December 31, 1999
Condensed Consolidated Statements of Cash Flows (unaudited) for the 6
Nine Months Ended September 30, 2000 and 1999
Notes to Condensed Consolidated Financial Statements (unaudited) 7
Management's Discussion and Analysis of Financial Condition and Results 17
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 September 30,
-------------------------------------
2000 1999
---------------- ---------------
<S> <C> <C>
Sales $ 125,011 $ 75,251
Cost of sales 109,905 58,279
---------------- ---------------
Gross profit 15,106 16,972
Selling, general and administrative expenses 6,799 5,256
Recapitalization expenses -- 799
Amortization expense 2,677 2,848
---------------- ---------------
Operating income 5,630 8,069
Interest expense and other, net 15,475 10,956
---------------- ---------------
Loss before benefit for income taxes (9,845) (2,887)
Benefit for income taxes (3,332) (1,154)
---------------- ---------------
Net loss $ (6,513) $ (1,733)
================ ===============
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated statements.
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<PAGE> 4
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS - UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------------
2000 1999
---------------- ---------------
<S> <C> <C>
Sales $ 422,120 $ 228,719
Cost of sales 350,589 169,464
---------------- ---------------
Gross profit 71,531 59,255
Selling, general and administrative expenses 19,518 15,484
Recapitalization expenses -- 21,950
Amortization expense 7,977 8,353
---------------- ---------------
Operating income 44,036 13,468
Interest expense and other, net 45,715 24,779
---------------- ---------------
Loss before provision (benefit)
for income taxes and extraordinary loss (1,679) (11,311)
Provision (benefit) for income taxes 78 (4,523)
---------------- ---------------
Loss before extraordinary item (1,757) (6,788)
Extraordinary loss on early extinguishment of
debt, net of income taxes -- 8,112
---------------- ---------------
Net loss $ (1,757) $ (14,900)
================ ===============
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated statements.
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<PAGE> 5
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
Assets 2000 1999
------------------------------------------------------------------ ---------------- ----------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,067 $ 4,900
Accounts receivable, net 80,718 82,449
Inventories 38,057 36,979
Customer tooling-in-process 4,780 10,299
Other current assets 12,481 9,034
---------------- ----------------
Total current assets 139,103 143,661
Property, plant and equipment, net 256,076 221,167
Intangible and other assets, net 362,738 330,406
---------------- ----------------
$ 757,917 $ 695,234
================ ================
Liabilities and Stockholders' Investment (Deficit)
------------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt $ 383,152 $ 28,400
Accounts payable 77,823 56,461
Accrued liabilities 53,925 43,434
---------------- ----------------
Total current liabilities 514,900 128,295
Long-term debt, net of current maturities 21,694 373,044
Senior subordinated notes 175,000 175,000
Convertible subordinated notes 30,000 30,000
Other noncurrent liabilities 45,868 30,488
---------------- ----------------
Total liabilities 787,462 736,827
Stockholders' investment (deficit):
Common stock -- --
Additional paid-in capital 60,689 42,589
Retained earnings (deficit) (84,586) (82,824)
Accumulated other comprehensive income -
foreign currency translation adjustment (5,648) (1,358)
---------------- ----------------
Total stockholders' investment (deficit) (29,545) (41,593)
---------------- ----------------
$ 757,917 $ 695,234
================ ================
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated balance sheets.
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<PAGE> 6
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS - UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------
2000 1999
-------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,757) $ (14,900)
Adjustments to reconcile net loss to net cash provided by
operating activities -
Loss on early retirement of debt -- 8,112
Depreciation and amortization 34,397 25,153
Other non-cash items -- 4,216
Changes in other operating items 8,765 (17,737)
--------------- -----------------
Net cash provided by operating activities 41,405 4,844
-------------- -----------------
INVESTING ACTIVITIES:
Acquisitions, net (5,614) (14,864)
Capital expenditures, net (67,103) (20,829)
-------------- -----------------
Net cash used for investing activities (72,717) (35,693)
-------------- -----------------
FINANCING ACTIVITIES:
Revolving credit facility borrowings 127,155 21,407
Repayment of revolving credit facility borrowings (108,790) (14,472)
Long-term borrowings 14,434 606,761
Repayment of long-term borrowings (20,516) (357,288)
Recapitalization -- (359,993)
Capital investment 17,735 162,185
Other, net -- (15,930)
-------------- -----------------
Net cash provided by financing activities 30,018 42,670
-------------- -----------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (539) 2,213
-------------- -----------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (1,833) 14,034
CASH AND CASH EQUIVALENTS:
Beginning of period 4,900 4,128
-------------- -----------------
End of period $ 3,067 $ 18,162
============== =================
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated statements.
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<PAGE> 7
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 and nine months ended September
30, 2000 are not necessarily indicative of the results to be expected for
the full year.
2. The following presents comprehensive income (loss), defined as changes in
the stockholders' deficit of the Company, for the three and nine month
periods ended September 30, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------ --------------------------------
2000 1999 2000 1999
---------------- --------------- ---------------- -------------
<S> <C> <C> <C> <C>
Net loss $ (6,513) $ (1,733) $ (1,757) $ (14,900)
Change in cumulative
translation adjustment (1,666) 1,864 (4,290) (870)
---------------- --------------- ---------------- -------------
Comprehensive income (loss) $ (8,179) $ 131 $ (6,047) $ (15,770)
================ =============== ================ =============
</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 outstanding 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
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<PAGE> 8
vote. An additional payment of $5.0 million was made to those persons who
were 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.
On May 24, 2000, certain stockholders acquired 3,078 shares of Class A
common stock, 463 shares of Class D-1 common stock, 497 shares of Class D-2
common stock and 240 shares of Class E stock. Total consideration to the
Company was approximately $17.9 million.
4. Inventories consisted of the following (in thousands):
September 30, December 31,
2000 1999
----------------- ----------------
Raw materials $ 14,974 $ 14,172
Work in process 14,426 14,558
Finished goods 8,657 8,249
----------------- ----------------
$ 38,057 $ 36,979
================= ================
5. Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------------- -----------------
<S> <C> <C>
Senior Credit Facility:
Revolving credit facility $ 39,906 $ 23,183
Tranche A term loan 167,050 187,943
Tranche B term loan 150,904 152,105
----------------- -----------------
Total senior credit facility 357,860 363,231
Other debt 46,986 38,213
----------------- -----------------
404,846 401,444
Less-current maturities (383,152) (28,400)
----------------- -----------------
Total long-term debt $ 21,694 $ 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).
-8-
<PAGE> 9
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.
As of September 30, 2000, rates on borrowings under the senior credit
facility varied from 8.6% to 9.5%. 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 not in compliance with certain covenants including debt to cash
flow and interest coverage covenants, as of September 30, 2000. The Company
has obtained a waiver from its lenders with respect to compliance with
these covenants through November 27, 2000. The Company and its senior
lenders are currently negotiating an amendment to the senior credit
agreement to amend certain financial covenants for future periods. While
the Company expects it will successfully negotiate an amendment to the
credit agreement, there can be no assurances that an amendment can be
negotiated on terms satisfactory to the Company. If the Company is not
successful in negotiating an amendment to the credit agreement, its senior
lenders could declare outstanding borrowings immediately due and payable.
Accordingly, borrowings outstanding under the Senior Credit Facility of
$357.9 million and other debt of $23.2 million, secured by letters of
credit under the Senior Credit Facility, are classified as current
liabilities in the accompanying consolidated balance sheet as of September
30, 2000.
The Company has entered into an interest rate swap agreement with a bank
having a notional amount of $75 million to reduce the impact of changes in
interest rates on its floating rate long-term debt. This agreement
effectively changes the Company's interest rate exposure on $75 million of
floating rate debt from a LIBOR base rate to a fixed base rate of 7.1%. The
interest rate swap agreement matures December 31, 2001. The Company is
exposed to credit loss in the event of nonperformance by the other parties
to the interest rate swap agreement. However, the Company does not
anticipate nonperformance by the counterparties.
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 September 30, 2000. As
discussed in Note 5, if the Company is unable to negotiate an amendment to
its senior credit agreement its senior lenders can declare borrowings under
the Senior Credit Facility immediately due and payable. If the senior
lenders declare such borrowings due and payable, the Company would be in
default under the Subordinated Notes indenture. Accordingly, the holders of
the Subordinated Notes could declare the amounts outstanding immediately
due and payable. The Subordinated Notes are classified as long-term
liabilities in the accompanying balance sheet as of September 30, 2000 as
the Company is not presently in default of the terms of the Subordinated
Notes.
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.
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<PAGE> 10
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 formed JLF Benton Harbor to acquire all of the
outstanding common stock of Shoreline Industries, Inc. and its affiliate,
Generation Machine, LLC. JLF Benton Harbor 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 JLF Benton Harbor 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 JLF
Benton Harbor have been recorded based upon preliminary estimates of fair
value as of the dates of acquisition. The Company does not believe that the
final allocations for JLF Mexico and JLF Benton Harbor will be materially
different from the preliminary allocations. During the third quarter, the
Company continued to gather information necessary to allocate the Nelson
purchase price. In doing so, management determined that certain customer
contract commitments that were in existence at the acquisition date will
result in losses for a longer time frame than initially projected as
efforts to reduce or mitigate these losses have not been successful to
date. As a result, the initial estimate of the required reserve for loss
contracts was increased by $31.2 million in the third quarter. As shipments
of parts under these contracts are made, the loss contract reserve is
reduced based on the per part loss. The reserve was reduced by $16.9
million for the nine months ended September 30, 2000. Management will
continue to evaluate the Nelson purchase price allocation and will record
any final adjustments in the fourth quarter.
The following unaudited consolidated pro forma results of operations for
the nine months ended September 30, 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):
Pro Forma
for the
Nine Months
Ended
September 30,
1999
--------------
Revenues $401,989
Operating income 44,656
Net income before extraordinary item 8,189
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. In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities. In June 1999, the FASB
issued Statement No. 137, Accounting for Derivative Instruments and Hedging
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<PAGE> 11
Activities-Deferral of the Effective Date of FASB Statement No. 133. In
June 2000, the FASB issued Statement No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an amendment of FASB
133 requiring that every derivative instrument, including certain
derivative instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or a liability measured at its fair value.
In addition, a company must recognize changes in the derivative
instrument's fair value currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges
allows a derivative instrument's gains and losses to offset related results
on the hedged item in the income statement, to the extent effective, and
requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting.
Statement No. 133, as amended, is effective for the Company's fiscal 2001.
The Company has an interest swap which requires SFAS No. 133 application.
The Company is currently in the process of reviewing other financial
instrument and contracts so that it may identify any additional items
impacted by SFAS No. 133, as amended, and account for them accordingly
beginning on January 1, 2001. The adoption of SFAS No. 133 could increase
volatility in earnings and other comprehensive income.
10. Supplemental cash flow information (in thousands):
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
-------------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Cash paid for -
Interest $ 10,336 $ 6,091 $ 40,347 $ 24,259
Income taxes 575 187 1,639 1,849
</TABLE>
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<PAGE> 12
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.
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 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>
Sales $ -- $353,901 $68,219 $ -- $422,120
Cost of sales -- 294,701 55,888 -- 350,589
------------ ---------- --------- ------------ ------------
Gross profit -- 59,200 12,331 -- 71,531
Selling, general and
administrative expenses 685 9,810 9,023 -- 19,518
Amortization expense 84 6,585 1,308 7,977
------------ ---------- --------- ------------ ------------
Operating income (loss) (769) 42,805 2,000 -- 44,036
Interest expense 24,393 16,465 4,857 -- 45,715
------------ ---------- --------- ------------ ------------
Income (loss) before
income taxes and equity in
earnings of subsidiaries (25,162) 26,340 (2,857) -- (1,679)
Provision (benefit) for income
taxes (9,562) 10,009 (369) -- 78
Equity in earnings of
subsidiaries 13,843 -- -- (13,843) --
------------ ---------- --------- ------------ ------------
Net income (loss) $ (1,757) $ 16,331 $(2,488) $ (13,843) $ (1,757)
============ ========== ========= ============ ============
</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 CASH FLOWS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 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) $ (1,757) $ 16,331 $ (2,488) $ (13,843) $ (1,757)
Adjustments to reconcile net
cash provided by (used for)
operating activities:
Depreciation and amortization 84 26,458 7,855 -- 34,397
Income from subsidiaries 13,843 -- -- (13,843) --
Changes in other assets and
liabilities (18,142) (4,841) 4,062 27,686 8,765
------------ --------- ---------- ------------ ------------
Net cash provided by (used
for) operating activities (5,972) 37,948 9,429 -- 41,405
------------ --------- ---------- ------------ ------------
INVESTING ACTIVITIES:
Acquisitions, net (5,623) (5,614) -- 5,623 (5,614)
Capital expenditures, net -- (40,216) (26,887) -- (67,103)
------------ --------- ---------- ------------ ------------
Net cash used for
investing activities (5,623) (45,830) (26,887) 5,623 (72,717)
------------ --------- ---------- ------------ ------------
FINANCING ACTIVITIES:
Borrowings on revolving
credit facilities 77,700 -- 49,455 -- 127,155
Repayment of borrowings on
revolving credit facilities (66,800) -- (41,990) -- (108,790)
Long-term borrowings -- 1,403 13,031 -- 14,434
Repayment of long-term
borrowings (17,357) (394) (2,765) -- (20,516)
Capital investment 17,735 5,623 -- (5,623) 17,735
------------ --------- ---------- ------------ ------------
Net cash provided by
financing activities 11,278 6,632 17,731 (5,623) 30,018
------------ --------- ---------- ------------ ------------
EFFECT OF EXCHANGE
RATES ON CASH AND -- -- (539) -- (539)
------------ --------- ---------- ------------ ------------
CASH EQUIVALENTS
NET CHANGE IN CASH
AND CASH EQUIVALENTS (317) (1,250) (266) -- (1,833)
CASH AND CASH
EQUIVALENTS:
Beginning of period 393 665 3,842 -- 4,900
------------ --------- ---------- ------------ ------------
End of period $ 76 $ (585) $ 3,576 $ -- $ 3,067
============ ========= ========== ============ ============
</TABLE>
-13-
<PAGE> 14
11. Condensed consolidating guarantor and non-guarantor financial information
(continued):
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS AS OF SEPTEMBER 30, 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>
Assets
-----------------------------------
Current assets:
Cash and cash equivalents $ 76 $ (585) $ 3,576 $ -- $ 3,067
Accounts receivable, net -- 60,153 20,565 -- 80,718
Inventories 26,624 11,433 -- 38,057
Customer tooling-in-progress 2,346 2,434 -- 4,780
Other current assets -- 10,911 1,570 -- 12,481
------------ --------- ---------- ------------ --------------
Total current assets 76 99,449 39,578 -- 139,103
Property, plant and equipment,
net -- 168,007 88,069 -- 256,076
Investment in subsidiaries 368,638 -- -- (368,638) --
Intangible and other assets, net 29,634 270,507 62,597 -- 362,738
------------ --------- ---------- ------------ --------------
$ 398,348 $ 537,963 $ 190,244 $ (368,638) $ 757,917
============ ========= ========== ============ ==============
Liabilities and Stockholders'
Investment (Deficit)
----------------------------------
Current liabilities:
Accounts payable $ -- $ 56,791 $ 21,032 $ -- $ 77,823
Accrued liabilities 13,901 31,901 8,123 -- 53,925
Current portion of long-
term debt 329,596 1,238 52,318 -- 383,152
------------ --------- ---------- ------------ --------------
Total current liabilities 343,497 89,930 81,473 -- 514,900
------------ --------- ---------- ------------ --------------
Long-term debt 204,998 1,001 20,695 -- 226,694
Other noncurrent liabilities 4,368 33,655 7,845 -- 45,868
Intercompany payables (129,226) 112,127 17,099 -- --
------------ --------- ---------- ------------ --------------
Total liabilities 423,637 236,713 127,112 -- 787,462
Stockholders' investment
(deficit):
Additional paid-in capital 60,689 259,808 71,446 (331,254) 60,689
Retained earnings (deficit) (84,586) 41,442 (4,058) (37,384) (84,586)
Currency translation
adjustment (1,392) -- (4,256) -- (5,648)
------------ --------- ---------- ------------ --------------
Total stockholders' investment
(deficit) (25,289) 301,250 63,132 (368,638) (29,545)
------------ --------- ---------- ------------ --------------
$ 398,348 $ 537,963 $ 190,244 $ (368,638) $ 757,917
============ ========= ========== ============ ==============
</TABLE>
-14-
<PAGE> 15
11. Condensed consolidating guarantor and non-guarantor financial information
(continued):
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 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 $ -- $161,402 $ 67,317 $ -- $ 228,719
Cost of sales -- 115,566 53,898 -- 169,464
------------ --------- ---------- ------------ ------------
Gross profit -- 45,836 13,419 -- 59,255
Selling, general and
administrative expenses 267 6,665 8,552 -- 15,484
Recapitalization expenses 5,501 16,449 -- -- 21,950
Amortization expense 4 7,075 1,274 -- 8,353
------------ --------- ---------- ------------ ------------
Operating income (loss) (5,772) 15,647 3,593 -- 13,468
Interest expense 8,901 12,023 3,855 -- 24,779
------------ --------- ---------- ------------ ------------
Income (loss) before
income taxes, equity in
earnings (losses) of sub-
sidiaries and extraordinary (14,673) 3,624 (262) -- (11,311)
loss
Provision (benefit) for income
taxes (5,869) 1,450 (104) -- (4,523)
Equity in earnings (losses)
of subsidiaries (2,010) -- -- 2,010 --
------------ --------- ---------- ------------ ------------
Income (loss) before
extraordinary loss (10,814) 2,174 (158) -- (6,788)
Extraordinary loss 4,086 4,026 -- -- 8,112
------------ --------- ---------- ------------ ------------
Net income (loss) $ (14,900) $ (1,852) $ (158) $ 2,010 $ (14,900)
============ ========= ========== ============ ============
</TABLE>
-15-
<PAGE> 16
11. Condensed consolidating guarantor and non-guarantor financial information
(continued):
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 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) $ (14,900) $ (1,852) $ (158) $ 2,010 $ (14,900)
Adjustments to reconcile net
income (loss) to net cash
provided by (used for)
operating activities -
Depreciation and amortization 4 17,788 7,361 -- 25,153
Other non-cash items 4,557 7,771 -- -- 12,328
Income (loss) in subsidiary 2,010 -- -- (2,010) --
Changes in other operating
activities (34,771) 4,258 12,115 661 (17,737)
------------ --------- ---------- ------------ ------------
Net cash provided by (used
for) operating activities (43,100) 27,965 19,318 661 4,844
------------ --------- ---------- ------------ ------------
INVESTING ACTIVITIES:
Acquisitions, net (14,958) -- (14,864) 14,958 (14,864)
Capital expenditures, net -- (13,198) (7,631) -- (20,829)
------------ --------- ---------- ------------ ------------
Net cash used for
investing activities (14,958) (13,198) (22,495) 14,958 (35,693)
------------ --------- ---------- ------------ ------------
FINANCING ACTIVITIES:
Revolving credit facilities
borrowings (repayments), net 29,840 (16,000) (6,905) -- 6,935
Long-term borrowings 587,566 -- 19,195 -- 606,761
Repayment of long-term
borrowings (291,164) (41,625) (24,499) -- (357,288)
Recapitalization (359,993) -- -- -- (359,993)
Capital investment 162,185 -- 14,958 (14,958) 162,185
Other, net (71,306) 57,625 (2,249) -- (15,930)
------------- ----------- ------------ -------------- --------------
Net cash provided by
(used for) financing
activities 57,128 -- 500 (14,958) 42,670
------------ --------- ---------- ------------ ------------
EFFECT OF EXCHANGE
RATES ON CASH AND
CASH EQUIVALENTS 1,094 -- 1,780 (661) 2,213
------------ --------- ---------- ------------ ------------
NET CHANGES IN CASH
AND CASH EQUIVALENTS 164 14,767 (897) -- 14,034
CASH AND CASH
EQUIVALENTS:
Beginning of period 22 260 3,846 -- 4,128
------------ --------- ---------- ----------- ------------
End of period $ 186 $ 15,027 $ 2,949 $ -- $ 18,162
============ ========= ========== =========== ============
</TABLE>
-16-
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2000 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1999
Sales -- Sales for the third quarter of 2000 increased by $49.7 million, or 66%,
to $125.0 million from $75.3 million for the prior period. Approximately $53.2
million of the increase was the result of the acquisitions. Sales increases from
new business were offset by lower aluminum prices which are passed through to
the Company's customers and lower foreign currency exchange rates.
Cost of Sales -- Cost of sales for the third quarter of 2000 increased by $51.6
million, or 89%, to $109.9 million from $58.3 million for the prior period. Cost
of sales as a percentage of sales was 87.9% for the third quarter of 2000
compared to 77.4% for the prior period. Gross margins decreased as a result of
lower margins from the acquired operations, principally at the Glasgow, KY
facility acquired as part of the acquisition of Nelson. During the third quarter
of 2000, the Glasgow facility experienced excess labor, scrap and freight costs.
S, G & A Expenses -- Selling, general and administrative expenses increased by
$1.5 million to $6.8 million for the third quarter of 2000 from $5.3 million for
the prior period. The increase was due primarily to expenses associated with the
acquisition of Nelson. As a percentage of sales, selling, general and
administrative expenses were 5.4% for the third quarter of 2000 compared to 7.0%
for the prior period.
Recapitalization Expenses -- The recapitalization expenses of $0.8 million
recorded during the third quarter of 1999 represent payments made to option
holders in connection with the 1999 recapitalization transaction. The options
were repurchased in connection with the recapitalization transaction (See
"Liquidity and Capital Resources").
Amortization Expense -- Amortization expense decreased to $2.7 million for the
third quarter of 1999 from $2.8 million for the third quarter of 1999. Lower
amortization of capitalized customer relationships offset increased goodwill
amortization associated with acquisitions.
Interest Expense -- Interest expense for the three months ended September 30,
2000 was $15.5 million compared to $11.0 million for the same period in 1999.
The increase was due principally to borrowings incurred in connection with the
recapitalization, the acquisitions of JLF Mexico, Nelson and JLF Benton Harbor.
Benefit for Income Taxes -- The income tax benefit was at an effective rate of
34.5% for the third quarter of 2000 compared to a benefit of 40.0% in the same
period of 1999. The decrease in the effective income tax rate related primarily
to higher state income taxes and the effect of non-deductible goodwill
amortization.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2000 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
Sales -- Sales for the nine month period of 2000 increased by $193.4 million, or
85%, to $422.1 million from $228.7 million for the prior period. Approximately
$185.0 million of the increase was the result of the acquisitions. The remaining
increase was the result of new business, offset by lower aluminum prices which
are passed through to the Company's customers and lower foreign currency
conversion values.
Cost of Sales -- Cost of sales for the nine month period of 2000 increased by
$181.1 million, or 107%, to $350.6 million from $169.5 million for the prior
period. Cost of sales as a percentage of sales was 83% for the nine month period
of 2000 and 74.1% for the prior period. The decrease in gross margins is the
result
-17-
<PAGE> 18
of lower margins from the acquired operations, principally the Nelson
acquisition. During 2000 the facilities acquired in connection with the Nelson
acquisition experienced excess labor, scrap and freight costs.
S, G & A Expenses -- Selling, general and administrative expenses increased by
$4.0 million to $19.5 million for the nine month period of 2000 from $15.5
million for the prior period. The increase was due primarily to incremental cost
associated with the acquisitions. As a percentage of sales S,G&A expenses
decreased to 4.6% in 2000 compared to 6.8% in 1999.
Recapitalization Expenses -- The recapitalization expenses of $22.0 million
recorded during 1999 represent payments made to option holders which were
repurchased in connection with the recapitalization.
Amortization Expense -- Amortization expense decreased to $8.0 million for the
nine month period of 1999 from $8.4 million for the nine month period of 1999,
as a result of lower amortization of customer relationships which offset
goodwill amortization associated with acquisitions.
Interest Expense -- Interest expense for the nine months ended September 30,
2000 was $45.7 million compared to $24.8 million for the same period in 1999.
The increase was due principally to borrowings incurred in connection with the
acquisitions of JLF Mexico, Nelson and JLF Benton Harbor.
Provision (Benefit) for Income Taxes -- For the nine months ended September 30,
2000 the Company recorded a tax provision of $78,000 on a pretax loss of $1.7
million. The effective income tax rate of 4.7% differs from the federal
statutory rate primarily as a result of state income taxes, the effect of non
deductible goodwill amortization, and foreign taxes.
Extraordinary Loss -- The Company recorded an extraordinary loss of $8.1 million
for the nine months ended September 30, 1999. This loss was the result of the
write-off of deferred financing fees associated with certain credit facilities
that were repaid during such periods.
LIQUIDITY AND CAPITAL RESOURCES
For the period ended September 30, 2000, the Company's operations provided cash
in the amount of $41.4 million, compared to $4.8 million for the nine months
ended September 30, 1999. Cash generated from operations before changes in
working capital items was $32.6 million for the 2000 period compared to $22.6
million in 1999. Decreases in working capital provided cash of $8.8 million
during the 2000 period compared to a use of cash of $17.8 million in 1999 as a
result of working capital increase. The changes in working capital are primarily
the result of timing of cash receipts and cash payments.
Net cash used in investing activities was $72.8 million during the first nine
months of 2000 compared to $35.7 million in the prior period. Capital
expenditures totaled $67.1 million in the first nine months of 2000 and $20.8
million in 1999 and were primarily for equipment purchases and building
additions related to new or replacement programs. Cash used for acquisitions was
$5.6 million in the 2000 period compared to $14.9 million in the 1999 period.
Net cash provided by financing activities totaled $30.0 million for the first
nine months of 2000, which included $17.7 million in proceeds from the sale of
stock, compared with $42.7 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.
-18-
<PAGE> 19
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 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 September 30, 2000, rates on borrowings under the senior credit facility
varied from 8.6% to 9.5%. 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. At September 30, 2000, French had unused borrowing capacity
under the senior credit facility of approximately $15 million under its most
restrictive debt covenant. 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 not in compliance with certain
covenants, including debt to cash flow and interest coverage covenants, as of
September 30, 2000. The Company has obtained a waiver from its lenders with
respect to compliance with these covenants through November 27, 2000. The
Company and its senior lenders are currently negotiating an amendment to the
Senior Credit Facility to amend certain financial covenants for future periods.
While the Company expects it will successfully negotiate an amendment to the
credit agreement, there can be no assurances that an amendment can be negotiated
on terms satisfactory to the Company. If the Company is not successful in
negotiating an amendment to the credit agreement, its senior lenders could
declare outstanding borrowings immediately due and payable. Accordingly,
borrowings outstanding under the Senior Credit Facility of $357.9 million and
other debt of $23.2 million, secured by letters of credit under the Senior
Credit Facility, are classified as current liabilities in the accompanying
consolidated balance sheet as of September 30, 2000. The Company has been
advised by its independent public accountants that, if this contingency has not
been resolved prior to the completion of their audit of the Company's financial
statements for the year ending December 31, 2000, their auditors' report on
those financial statements will be qualified as being subject to the ultimate
outcome of that contingency.
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
September 30, 2000. As discussed above, if the Company is unable to negotiate an
amendment to its senior credit agreement its senior lenders can declare
borrowings under the senior credit agreement immediately due and payable. If the
senior lenders declare such borrowings due and payable, the Company would be in
default under the Subordinated Notes indenture. Accordingly, the holders of the
Subordinated Notes could declare the amounts outstanding immediately due and
payable. The Subordinated Notes are classified as long-term liabilities in the
accompanying balance sheet as of September 30, 2000 as the Company is not
presently in default of the Subordinated Notes.
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
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<PAGE> 20
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.
On May 24, 2000, certain stockholders acquired 3,078 shares of Class A common
stock, 463 shares of Class D-1 common stock, 497 shares of Class D-2 common
stock and 240 shares of Class E stock. Total consideration to the Company was
approximately $17.9 million.
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 September 30, 2000, all of the
Company's debt other than the outstanding notes was variable rate debt. The
Company has entered into an interest rate swap agreement with a bank having a
notional amount of $75 million to reduce the impact of changes in interest rates
on its floating rate long-term debt. This agreement effectively changes the
Company's interest rate exposure on $75 million of floating rate debt from a
LIBOR base rate to a fixed base rate of 7.1%. The interest rate swap agreement
matures December 31, 2001.
A portion of the Company's sales is derived from manufacturing operations in the
U.K., Spain and Mexico. 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.
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
-20-
<PAGE> 21
stockholders' investment will fluctuate depending upon the weakening or
strengthening of the U.S. dollar against the respective foreign currency.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. In June 1999, the FASB issued Statement No. 137,
Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133. In June 2000, the FASB issued
Statement No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an amendment of FASB 133. FASB 133 and its amendments
require that every derivative instrument, including certain derivative
instruments embedded in other contracts, be recorded in the balance sheet as
either an asset or a liability measured at its fair value. In addition, a
company must recognize changes in the derivative instrument's fair value
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative instrument's gains and
losses to offset related results on the hedged item in the income statement, to
the extent effective, and requires that a company must formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting.
Statement No. 133, as amended, is effective for the Company's fiscal 2001. The
Company has an interest swap which requires SFAS No. 133 application. The
Company is currently in the process of reviewing other financial instrument and
contracts so that it may identify any additional items impacted by SFAS No. 133,
as amended, and account for them accordingly beginning on January 1, 2001. The
adoption of SFAS No. 133 could increase volatility in earnings and other
comprehensive income.
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; (iv) expected synergies, economies of scale
and cost savings from the Company's acquisitions not being realized or realized
within the expected time frames; and (v) costs or operational difficulties
related to integrating the operations of the acquired entities with those of the
Company being greater than expected. 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.
-21-
<PAGE> 22
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:
On November 15, 2000, Mr. Mark S. Burgess was appointed Vice President
and Chief Financial Officer of the Company. Effective as of the same
date, Mr. Thomas C. Dinolfo was appointed Treasurer.
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.
-22-
<PAGE> 23
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: November 20, 2000 By /s/ Mark S. Burgess
-------------------------------------
Mark S. Burgess
Vice President, Chief Financial Officer
(principal accounting and financial
officer)
-23-
