<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 1, 1998 Commission File Number 1-9967
------
AMCAST INDUSTRIAL CORPORATION
-----------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-0258080
------------------------ ----------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
7887 Washington Village Drive, Dayton, Ohio 45459
- ---------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(Area Code 937) 291-7000
----------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 and 15(d) of the Securities Exchange Act of 1934
during the preceding twelve months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- ----
Number of Common Shares outstanding, no par value, as of March 1, 1998 -
9,205,779 shares.
<PAGE> 2
AMCAST INDUSTRIAL CORPORATION
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 1, 1998
INDEX
-----
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1 - Financial Statements:
Consolidated Condensed Statements of Financial 3
Condition - March 1, 1998 and August 31, 1997
Consolidated Condensed Statements of Income - 4
for the Quarter and Six Months Ended March 1, 1998
and March 2, 1997
Consolidated Condensed Statements of Retained Earnings - 4
for the Quarter and Six Months Ended March 1, 1998
and March 2, 1997
Consolidated Condensed Statements of Cash Flows - 5
for the Six Months Ended March 1, 1998 and
March 2, 1997
Notes to Consolidated Condensed Financial Statements 6-10
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-16
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 17
Item 4 - Submission of Matters to a Vote of Security Holders 17
Item 6 - Exhibits and Reports on Form 8-K 18
SIGNATURES 19
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
AMCAST INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
($ in thousands)
(unaudited)
<TABLE>
<CAPTION>
March 1 August 31
ASSETS 1998 1997
--------- ---------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 8,960 $ 9,608
Accounts receivable 111,054 100,589
Inventories 80,621 71,960
Other current assets 21,631 21,068
--------- ---------
Total current assets 222,266 203,225
Property, Plant, and Equipment 383,000 357,062
Less accumulated depreciation (133,555) (121,818)
--------- ---------
249,445 235,244
Goodwill 59,246 36,784
Other Assets 33,387 33,665
--------- ---------
$ 564,344 $ 508,918
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 9,268 $ 54,038
Current portion of long-term debt 7,090 7,087
Accounts payable 76,443 79,732
Accrued expenses 48,756 36,108
--------- ---------
Total current liabilities 141,557 176,965
Long-Term Debt--less current portion 213,338 145,304
Deferred Income Taxes 29,688 8,400
Deferred Liabilities 15,477 20,023
Shareholders' Equity Preferred shares, without par value:
Authorized--1,000,000 shares
Issued--None
Common shares, at stated value:
Authorized--15,000,000 shares
Issued_- 9,205,779 and 9,177,455
shares, respectively 9,206 9,177
Capital in excess of stated value 78,952 78,484
Foreign currency translation adjustment (1,214)
Retained earnings 77,340 70,565
--------- ---------
164,284 158,226
--------- ---------
$ 564,344 $ 508,918
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE> 4
AMCAST INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
AND RETAINED EARNINGS
($ in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------- --------------------------
March 1 March 2 March 1 March 2
1998 1997 1998 1997
--------- --------- --------- ---------
CONSOLIDATED CONDENSED STATEMENTS
OF INCOME
<S> <C> <C> <C> <C>
Net sales $ 136,975 $ 91,334 $ 277,954 $ 182,123
Cost of sales 115,177 75,810 233,184 147,494
--------- --------- --------- ---------
Gross profit 21,798 15,524 44,770 34,629
Selling, general and administrative
expenses 13,418 10,330 26,685 20,620
--------- --------- --------- ---------
Operating income 8,380 5,194 18,085 14,009
Equity in income (loss) of joint
venture and other income (expense) 143 (840) 495 (2,117)
Interest expense 3,982 1,127 7,450 2,250
--------- --------- --------- ---------
Income before income taxes 4,541 3,227 11,130 9,642
Income tax (benefit) expense (738) 1,146 1,779 3,423
--------- --------- --------- ---------
Net Income $ 5,279 $ 2,081 $ 9,351 $ 6,219
========= ========= ========= =========
CONSOLIDATED CONDENSED STATEMENTS
OF RETAINED EARNINGS
Beginning retained earnings $ 73,350 $ 65,502 $ 70,565 $ 62,543
Net income 5,279 2,081 9,351 6,219
Dividends (1,289) (1,213) (2,576) (2,421)
Other (32) (3)
--------- --------- --------- ---------
Ending Retained Earnings $ 77,340 $ 66,338 $ 77,340 $ 66,338
========= ========= ========= =========
PER SHARE INFORMATION
Basic earnings per share $ .58 $ .24 $ 1.02 $ .72
========= ========= ========= =========
Diluted earnings per share $ .57 $ .24 $ 1.01 $ .71
========= ========= ========= =========
Dividends declared per share $ .14 $ .14 $ .28 $ .28
========= ========= ========= =========
Dividends paid per share $ .14 $ .14 $ .28 $ .28
========= ========= ========= =========
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE> 5
AMCAST INDUSTRIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------
March 1 March 2
1998 1997
---------- ---------
<S> <C> <C>
Operating Activities:
Net income $ 9,351 $ 6,219
Depreciation and amortization 16,696 9,657
Deferred liabilities (1,750) (467)
Changes in assets and liabilities:
Accounts receivable (7,725) (4,625)
Inventories (2,542) (3,871)
Accounts payable (4,755) 183
Other (6,111) (1,527)
-------- --------
Net Cash Provided By Operating Activities 3,164 5,569
Investing Activities:
Additions to property, plant, and equipment (19,137) (18,007)
Contributions to joint venture (3,226)
Other (1,632) 506
-------- --------
Net Cash Used By Investing Activities (20,769) (20,727)
Financing Activities:
Additions to long-term debt 68,861
Reduction in long-term debt (3,610) (1,108)
Net short-term (repayments) borrowings (46,011) 13,103
Dividends (2,576) (2,421)
Other 497 768
-------- --------
Net Cash Provided By Financing Activities 17,161 10,342
Effect of exchange rate changes on cash (204)
-------- --------
Net change in cash and cash equivalents (648) (4,816)
Cash and cash equivalents at beginning of period 9,608 5,413
-------- --------
Cash and Cash Equivalents at End of Period $ 8,960 $ 597
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE> 6
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts )
(unaudited)
PREPARATION OF FINANCIAL STATEMENTS
The accompanying consolidated condensed financial statements include the
accounts of Amcast Industrial Corporation and its domestic and foreign
subsidiaries (the Company). Intercompany accounts and transactions have been
eliminated. The consolidated condensed financial statements are unaudited and
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required for complete annual financial statements and
should be read in conjunction with the Company's audited consolidated financial
statements and footnotes thereto for the year ended August 31, 1997 included in
the Company's Annual Report on Form 10-K. In the opinion of management, all
adjustments, consisting of only normally recurring accruals, necessary for a
fair presentation have been included. Certain prior year amounts have been
reclassified to conform to the current year presentation.
On August 19, 1997, the Company acquired all of the outstanding stock of
Speedline S.p.A. (Speedline), a major European manufacturer of light-alloy
wheels serving the automotive original equipment market. Accordingly, the
acquisition was reflected in the August 31, 1997 fiscal year-end balance sheet,
but had no material effect on fiscal 1997 operating results. Operations of
Speedline are included in the consolidated financial statements for periods
ending one month prior to the Company's fiscal quarter end in order to ensure
timely preparation of the consolidated financial statements. Thus, the
consolidated financial statements for the six months ended March 1, 1998 include
financial results for Speedline for the five-month period of September 1997
through January 1998.
INVENTORIES
The major components of inventories are:
<TABLE>
<CAPTION>
March 1 August 31
1998 1997
---------- --------
<S> <C> <C>
Finished products $ 35,874 $ 35,375
Work in process 25,478 22,968
Raw materials and supplies 26,158 20,506
---------- --------
87,510 78,849
Less amount to reduce certain
inventories to LIFO value 6,889 6,889
----- -----
$ 80,621 $ 71,960
========== =========
</TABLE>
6
<PAGE> 7
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
EARNINGS PER SHARE
In the second quarter of fiscal 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share," which establishes new
standards for computing and presenting earnings per share. SFAS No. 128 requires
the Company to report both basic earnings per share, which is based on the
weighted-average number of common shares outstanding, and diluted earnings per
share, which is based on the weighted-average number of common shares
outstanding plus all potential dilutive common shares outstanding. Earnings per
share amounts for all periods are presented, and where necessary, restated to
give effect to the adoption of SFAS No. 128.
The following table reflects the calculations for basic and diluted earnings per
share for the three-and six-month periods ended March 1, 1998 and March 2, 1997,
respectively.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 1, 1998 March 2, 1997
-------------------------------------- --------------------------------------
Net Net
Income Shares EPS Income Shares EPS
<S> <C> <C> <C> <C> <C> <C>
Earnings per share - Basic $ 5,279 9,202 $ 0.58 $ 2,081 8,650 $ 0.24
Dilutive stock options - 60 (0.01) - 93 -
------- ----- ------ ------- ----- ------
Earnings per share - Diluted $ 5,279 9,262 $ 0.57 $ 2,081 8,743 $ 0.24
======= ===== ====== ======= ===== ======
Six Months Ended Six Months Ended
March 1, 1998 March 2, 1997
-------------------------------------- --------------------------------------
Net Net
Income Shares EPS Income Shares EPS
Earnings per share - Basic $ 9,351 9,193 $ 1.02 $ 6,219 8,637 $ 0.72
Dilutive stock options - 71 (0.01) - 69 (0.01)
------- ----- ------ ------- ----- ------
Earnings per share - Diluted $ 9,351 9,264 $ 1.01 $ 6,219 8,706 $ 0.71
======= ===== ====== ======= ===== ======
</TABLE>
For each of the periods in fiscal 1998 and 1997, there were outstanding stock
options excluded from the computation of diluted earnings per share because the
options were antidilutive. Diluted earnings per share are based on the weighted
average number of shares outstanding for each period; therefore the sum of the
quarterly earnings per share amounts do not necessarily equal the year-to-date
earnings per share amount.
7
<PAGE> 8
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
LONG-TERM DEBT
The following table summarizes the Company's long-term borrowings:
<TABLE>
<CAPTION>
March 1 August 31
1998 1997
-------- --------
<S> <C> <C>
Senior notes $ 51,750 $ 52,625
Revolving credit notes 136,267 70,000
Lines of credit 5,400
Industrial revenue bonds 6,100 6,158
Other debt 10,238 11,710
Capital leases 10,673 11,898
-------- --------
220,428 152,391
Less current portion 7,090 7,087
-------- --------
$213,338 $145,304
======== ========
</TABLE>
In December 1997, $58,461 of short-term borrowings of Speedline was replaced
with long-term borrowings under the Company's credit agreement.
INCOME TAXES
Deferred income taxes are provided for temporary differences between financial
and tax reporting in accordance with the liability method under the provisions
of Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for
Income Taxes" Under the provisions of SFAS 109, the effect of a change in tax
laws or rates is included in income in the period the change is enacted and
includes a recalculation of deferred tax balances based on the new laws or rates
in effect. Such a change occurred in December 1997 when the Italian government
enacted the 1998 Finance Act that resulted in a reduction in the income tax rate
from 53 percent to 37 percent and introduced a new tax on productive activities
called IRAP with a rate of 4.25 percent. The deferred tax balances of Speedline
were adjusted to reflect these revised rates which decreased the deferred tax
provision in the second quarter by $2,562.
COMMITMENTS AND CONTINGENCIES
At March 1, 1998, the Company has committed to capital expenditures of $9,691,
primarily for the Engineered Components segment.
The Company, as is normal for the industry in which it operates, is involved in
certain legal proceedings and subject to certain claims and site investigations
which arise under the environmental laws and which have not been finally
adjudicated.
The Company has been identified as a potentially responsible party by various
state agencies and by the United States Environmental Protection Agency (U.S.
EPA) under the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended, for costs associated with U.S. EPA led multi-party
sites and state environmental agency-led remediation
8
<PAGE> 9
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
sites. The majority of these claims involve third-party owned disposal sites for
which compensation is sought from the Company as an alleged waste generator for
recovery of past governmental costs or for future investigation or remedial
actions at the multi-party sites. There are two Company owned properties where
state supervised cleanups are expected. None of these is expected to involve
material future expense. The Company believes that none of these will have a
material adverse effect on its financial position or results of operations. The
designation as a potentially responsible party and the assertion of such claims
against the Company are made without taking into consideration the extent of the
Company's involvement with the particular site. In each instance, claims have
been asserted against a number of other entities for the same recovery or other
relief as was asserted against the Company. These claims are in various stages
of administrative or judicial proceeding. The Company has no reason to believe
that it will have to pay a significantly disproportionate share of clean-up
costs associated with any site. To the extent possible, with the information
available at the time, the Company has evaluated its responsibility for costs
and related liability with respect to the above sites. In making such
evaluation, the Company did not take into consideration any possible cost
reimbursement claims against its insurance carriers. The Company is of the
opinion that its liability with respect to those sites should not have a
material adverse effect on its financial position or results of operations. In
arriving at this conclusion, the principal factors considered by the Company
were ongoing settlement discussions with respect to certain of the sites, the
volume and relative toxicity of waste alleged to have been disposed of by the
Company at certain sites, which factors are often used to allocate investigative
and remedial costs among potentially responsible parties, the probable costs to
be paid by other potentially responsible parties, total projected remedial costs
for a site, if known, and the Company's existing reserve to cover costs
associated with unresolved environmental proceedings. At March 1, 1998, the
Company's accrued undiscounted reserve for such contingencies was $1,700.
Allied-Signal Inc. has brought an action against the Company seeking a
contribution from the Company equal to 50% of Allied-Signal's estimated $30,000
remediation cost in connection with a site in southern Ohio. The Company
believes its responsibility with respect to this site is very limited due to the
nature of the foundry sand waste it disposed of at the site. A trial in this
case was completed in February of 1995, but no judgment has been rendered. The
Company believes that if it has any liability at all in regard to this matter,
that liability would not be material to its financial position or results of
operations.
PREFERRED SHARE PURCHASE RIGHTS
In the second quarter, the Company amended and restated its shareholders rights
plan, which was scheduled to expire on February 28, 1998. The expiration of the
rights plan has been extended to February 23, 2008. Under the amended plan, each
Amcast shareholder continues to have one right for each common share owned. The
rights are not presently exercisable and do not trade separately from Amcast's
common shares. Within 20 days after a person acquires 15 percent or more of
Amcast's common shares, the rights become exercisable unless the board acts to
extend the 20-day period or redeem the rights. If the rights become exercisable,
each right entitles the holder (other than a holder of 15 percent or more of
Amcast's shares) to purchase one common share of Amcast for $1 per share.
9
<PAGE> 10
AMCAST INDUSTRIAL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
($ in thousands, except per share amounts)
(unaudited)
SUBSEQUENT EVENTS
Effective March 30, 1998, the Company sold its west coast investment casting
operation, Amcast Precision, Rancho Cucamonga, California, for approximately
$25,000 in cash. The transaction resulted in a pre-tax gain of approximately
$12,000. The facility, acquired by Amcast in 1987, produces ferrous and
nonferrous castings for the aerospace industry. Fiscal year 1997 sales were
approximately $19,000. This was the only Amcast operation involved in the
aerospace industry.
On April 9, 1998, the Company acquired Lee Brass Company. A privately owned
company located in Anniston, Alabama, Lee Brass is a major manufacturer of cast
brass products for residential, commercial, and industrial plumbing systems. The
purchase price was approximately $15,300 consisting of cash payments of $11,100
and debt assumption of $4,200. The acquisition of Lee Brass has been accounted
for by the purchase method. Accordingly, the cost of the acquisition was
allocated on the basis of the estimated fair market value of the assets
acquired, principally inventory and property, plant, and equipment, and
liabilities assumed, resulting in goodwill of $5,200. The pro forma effect of
the acquisition on the results of operations is not presented as it is not
material.
On April 14, 1998, the Company announced that it would phase out brass
operations at Flagg Brass. Stowe, Pennsylvania and transfer the business to Lee
Brass. Fiscal year 1997 sales were approximately $9,000. The Company anticipates
recording a restructuring charge in the third quarter of fiscal 1998 for the
closing of Flagg Brass.
10
<PAGE> 11
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENTS UNDER THE PRIVATE SECURITIES REFORM ACT OF 1995
Certain statements in this Report, in the Company's press releases and in oral
statements made by or with the approval of an authorized executive officer of
the Company constitute "forward-looking statements" as that term is defined
under the Private Securities Litigation Reform Act of 1995. These may include
statements projecting, forecasting or estimating Company performance and
industry trends. The achievement of the projections, forecasts or estimates is
subject to certain risks and uncertainties. Actual results and events may differ
materially from those projected, forecasted or estimated. Factors which may
cause actual results to differ materially from those contemplated by the
forward-looking statement, include, among others: general economic conditions
less favorable than expected, fluctuating demand in the automotive industry,
less favorable than expected growth in sales and profit margins in the Company's
product lines, increased competitive pressures in the Company's automotive and
flow control segments, effectiveness of production improvement plans, inherent
uncertainties in connection with international operations and foreign currency
fluctuations and labor relations at the Company and its customers. The following
discussion and analysis provides information which management believes is
relevant to an understanding of the Company's consolidated results of operations
and financial condition. This discussion should be read in conjunction with the
accompanying consolidated condensed financial statements and notes thereto.
SPEEDLINE ACQUISITION
On August 19, 1997, the Company acquired all of the outstanding stock of
Speedline S.p.A. (Speedline), a major European manufacturer of light-alloy
wheels serving the automotive original equipment market. Accordingly, the
acquisition was reflected in the August 31, 1997 fiscal year-end balance sheet,
but had no material effect on fiscal 1997 operating results. Operations of
Speedline are included for periods ending one month prior to the Company's
fiscal quarter end in order to ensure timely preparation of the consolidated
financial statements. Thus, the consolidated financial statements for the six
months ended March 1, 1998 include financial results for Speedline for the
five-month period of September 1997 through January 1998.
RESULTS OF OPERATIONS
Net sales increased 50% to $137.0 million for the second quarter of fiscal 1998,
primarily due to the acquisition of Speedline. Incremental sales from Speedline
accounted for approximately 42% of the increase in net sales while increased
volumes contributed the remaining 8%. The Engineered Components segment (which
includes Speedline) led the sales increase as sales increased 88% compared to
the second quarter of fiscal 1997, while Flow Control Products sales were equal
to the prior year. For the first half of fiscal 1998, net sales increased 53% to
$278.0 million, primarily due to the acquisition of Speedline combined with
strong North American aluminum wheel demand in the first quarter. Incremental
sales from Speedline accounted for 41% of the sales increase, with increased
volume and higher pricing contributing 9% and 3%, respectively. While Flow
Control Products sales decreased slightly, Engineered Components' sales nearly
doubled due to the acquisition of Speedline.
11
<PAGE> 12
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Gross profit for the second quarter of fiscal 1998 rose 40% to $21.8 million
while gross profit for the first half of fiscal 1998 rose 29% to $44.8 million.
These increases are primarily due to the inclusion of Speedline. As a percentage
of sales, gross profit decreased to 15.9% for the second quarter and 16.1% for
the first half of fiscal 1998 compared with 17.0% and 19.0% for the respective
1997 periods. The decrease in gross profit percentage reflects a change in the
Company's sales mix to a higher percentage of Engineered Components product
sales, including Speedline, which generally have lower gross margins than Flow
Control Products and operating inefficiencies encountered at one of the
Company's automotive components plants. The gross profit percentage for fiscal
1997 was impacted by a one-time, cumulative, non-cash charge of $3.5 million for
overstated inventory at the Company's aerospace operation.
Selling, general and administrative (SG&A) expenses increased $3.1 million in
the second quarter of fiscal 1998 and $6.1 million for the first half of fiscal
1998. The majority of the increase in SG&A expenses resulted from the inclusion
of Speedline. As a percentage of sales, SG&A expense decreased to 9.8% in the
second quarter and 9.6% for the first half of fiscal 1998 compared with 11.3%
for both periods in 1997. These decreases are primarily due to higher sales
volumes in the Engineered Components segment, including Speedline, which
generally have lower SG&A expenses.
In the second quarter and first half of fiscal 1998, the Company's pre-tax share
of income from Casting Technology Company (CTC), the Company's joint venture
with Izumi Industries, was a small profit versus a loss of $.8 million and $2.1
million, respectively, in fiscal 1997. A near-vertical launch of several new
automotive products at CTC in fiscal 1997 resulted in significant inefficiencies
and high launch-related costs associated with meeting required volumes.
Interest expense increased $2.9 million in the second quarter and $5.2 million
in the first half of fiscal 1998 primarily due to increased debt levels from the
acquisition of Speedline. Higher debt levels in fiscal 1998 are principally the
result of Speedline debt assumed and increased borrowings by the Company to
finance the Speedline acquisition.
Deferred income taxes are provided for temporary differences between financial
and tax reporting in accordance with the liability method under the provisions
of Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for
Income Taxes" Under the provisions of SFAS 109, the effect of a change in tax
laws or rates is included in income in the period the change is enacted and
includes a recalculation of deferred tax balances based on the new laws or rates
in effect. Such a change occurred in December 1997 when the Italian government
enacted the 1998 Finance Act that resulted in a reduction in income tax rates
from 53% to 37% and introduced a new tax on productive activities called the
IRAP with a rate of 4.25%. The deferred tax balances of Speedline were adjusted
to reflect these revised rates which decreased the deferred tax provision in the
second quarter by $2.6 million. Excluding this adjustment, the effective tax
rate was 40.2% and 35.5% for the second quarters of fiscal 1998 and 1997,
respectively and 39.0% and 35.5% for the first six months of fiscal 1998 and
1997, respectively. The increase in the effective tax rate reflects the
additional foreign tax expense resulting from the Speedline acquisition.
12
<PAGE> 13
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS BY BUSINESS SEGMENT (unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- -----------------------------
March 1 March 2 March 1 March 2
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales
- ---------
Flow Control Products $ 40,357 $ 39,864 $ 77,430 $ 78,696
Engineered Components 96,618 51,470 200,524 103,427
------------ ------------ ------------ ------------
$ 136,975 $ 91,334 $ 277,954 $ 182,123
============ ============ ============ ============
Income Before Income Taxes
- --------------------------
Flow Control Products $ 6,591 $ 6,520 $ 11,784 $ 13,452
Engineered Components 3,612 344 10,157 4,099
Corporate (1,823) (1,670) (3,856) (3,542)
Equity in income (loss) of joint venture
And other income and expense 143 (840) 495 (2,117)
Interest expense (3,982) (1,127) (7,450) (2,250)
------------ ------------ ------------ ------------
$ 4,541 $ 3,227 $ 11,130 $ 9,642
============ ============ ============ ============
</TABLE>
Flow Control Products segment sales were $40.4 million for the second quarter of
fiscal 1998 compared with $39.9 million for the comparable period of fiscal
1997. Sales of copper and brass fittings and valves continue at strong levels
due to the favorable economy throughout North America. Higher volumes increased
sales by 6% but were partially offset by lower selling prices, resulting from
competitive pricing pressures in copper plumbing fittings. A decline in copper
costs is serving to maintain margins in this segment. Operating income remained
strong at $6.6 million compared to $6.5 million in the second quarter last year.
Engineered Components segment sales for the second quarter of fiscal 1998
increased to $96.6 million from $51.4 million in the second quarter of fiscal
1997. The significant sales growth was primarily due to incremental sales
contributed by Speedline as well as an 8% increase in sales from increased
volumes at other facilities. The Company is benefiting from a strong European
automotive market as demand for light-alloy wheels grows. Operating income was
$3.6 million in the second quarter of fiscal 1998 compared with $.3 million in
fiscal 1997, which included a one-time, non-cash inventory writedown of $3.5
million. Results for the second quarter of fiscal 1998 were negatively affected
by a seasonal automotive slowdown, combined with sluggish demand for small cars.
Production bottlenecks and manpower shortages at Speedline and operating
inefficiencies at one of the Company's North American automotive components
plants were also factors that impacted the second quarter's operating results.
13
<PAGE> 14
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RECENT ACQUISITIONS AND DIVESTITURES
Effective March 30, 1998, the Company sold its west coast investment casting
operation, Amcast Precision, Rancho Cucamonga, California, for approximately
$25.0 million in cash. The transaction resulted in a pre-tax gain of
approximately $12.0 million. The facility, acquired by Amcast in 1987, produces
ferrous and nonferrous castings for the aerospace industry. Fiscal year 1997
sales were approximately $19.0 million. This was the only Amcast operation
involved in the aerospace industry.
On April 9, 1998, the Company acquired Lee Brass Company. A privately owned
company located in Anniston, Alabama, Lee Brass is a major manufacturer of cast
brass products for residential, commercial, and industrial plumbing systems. The
purchase price was approximately $15.3 million consisting of cash payments of
$11.1 million and debt assumption of $4.2 million. The acquisition resulted in
goodwill of $5.2 million. Sales in 1997 were approximately $39.0 million.
On April 14, 1998, the Company announced that it would phase out brass
operations at Flagg Brass, Stowe, Pennsylvania, and transfer the business to Lee
Brass. Fiscal year 1997 sales were approximately $9.0 million. The Company
anticipates recording a restructuring charge in the third quarter of fiscal 1998
for the closing of Flagg Brass.
LIQUIDITY AND CAPITAL RESOURCES
For the first half of fiscal 1998, net cash provided by operations was $3.2
million compared with $5.6 million for the first half of fiscal 1997. Cash
provided by net income and depreciation of $26.0 million and $15.9 million for
fiscal 1998 and 1997, was partially offset by an increase in working capital
requirements of $21.1 million and $9.8 million, respectively. Fiscal 1998's
working capital increase primarily reflects an increase in receivables from
increased sales and a reduction of liabilities for payment of Speedline
acquisition-related expenses.
Net cash used by investing activities remained constant at $20.8 million for the
first half of fiscal 1998 and $20.7 used in fiscal 1997. Capital spending
increased slightly in fiscal 1998 to $19.1 million, compared with $18.0 million
in fiscal 1997. Significant investments totaling $3.2 million were also made in
CTC during fiscal 1997 to support business expansion activities. At March 1,
1998, the Company had $9.7 million of commitments for additional capital
expenditures, primarily for the Engineered Components segment.
Net cash provided by financing activities totaled $17.2 million for the first
half of fiscal 1998 compared with $10.3 million for fiscal 1997. In the second
quarter of fiscal 1998, approximately $58.5 million of short-term borrowings of
Speedline were replaced with long-term borrowings under the Company's credit
agreement. Additional borrowings in fiscal 1998 included $10.4 million under the
Company's credit agreement and lines of credit and $12.5 million in net
short-term borrowings by Speedline. Financing activities also included long-term
debt repayments of
14
<PAGE> 15
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
$3.6 million and dividend payments of $2.6 million. Long-term debt was 56.5% of
total capital at March 1, 1998 and 47.9% at August 31, 1997. The Company may
borrow up to $200 million under a credit agreement that expires August 14, 2002.
At March 1, 1998, the Company had unused borrowing capacity of $29.9 million,
under its most restrictive debt covenant. In addition, the Company maintains
bank lines of credit under which it may borrow up to $25 million. At March 1,
1998, $136.3 was outstanding under the credit agreement and $5.4 million was
outstanding under available bank lines of credit. The Company considers these
external sources of funds, together with funds generated from operations, to be
adequate to meet operating needs.
NEW ACCOUNTING STANDARD
In the second quarter of fiscal 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share," which establishes new
standards for computing and presenting earnings per share. SFAS No. 128 requires
the Company to report both basic earnings per share, which is based on the
weighted-average number of common shares outstanding, and diluted earnings per
share, which is based on the weighted-average number of common shares
outstanding plus all potential dilutive common shares outstanding. Adoption of
the statement had no effect on the Company's results of operations, financial
position or cash flows. However, as required, the Company restated earnings per
share for all prior periods to present diluted earnings per share. Basic
earnings per share are unchanged from previously reported earnings per share
amounts.
YEAR 2000
The Company recognizes the need to ensure that its computer operations and
operating systems will recognize and process the year 2000 and thereafter. The
Company is cognizant of the time sensitive nature of the issue and is actively
engaged in assessing and resolving the issues surrounding the year 2000. These
issues result from the use of two-digit year dates rather than four-digit dates
in computer code, which could negatively impact date-sensitive software that
does not recognize "00" as 2000. Although the assessment is not complete,
certain conversion efforts have been completed or are underway, and the Company
is reviewing remaining key financial, business, and operational systems to
develop a comprehensive plan to address year 2000 compliance. As part of its
review, the Company also plans to communicate with its major customers,
suppliers and financial institutions to ensure they will be year 2000 compliant,
where failure of their systems could adversely affect the Company's operations.
However, there can be no guarantee that the systems of other companies on which
the Company's systems or operations rely will be timely converted and would not
have a negative effect on the Company's operations. Based on information
gathered to date, the Company expects to utilize both internal staff and
external resources and will use a combination of software modifications,
upgrades and replacements. The Company is not yet able to estimate the total
cost for year 2000 compliance.
15
<PAGE> 16
AMCAST INDUSTRIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company presently believes that with modifications and upgrades to existing
software and conversions to new software, the year 2000 issue will not pose
significant operational problems to the Company. However, if such modifications
and conversions are not made, or are not completed timely, the year 2000 issue
could have a material impact on the operations of the Company. The Company
presently believes that these modifications and conversions will be completed in
a timely manner.
CONTINGENCIES
The Company, as is normal for the industry in which it operates, is involved in
certain legal proceedings and subject to certain claims and site investigations
that arise under the environmental laws and which have not been finally
adjudicated. To the extent possible, with the information available, the Company
regularly evaluates its responsibility with respect to environmental
proceedings. The factors considered in this evaluation are more fully described
in the Commitments and Contingencies note to the consolidated condensed
financial statements. At March 1, 1998, the Company had reserves of $1.7 million
for environmental liabilities. The Company is of the opinion that, in light of
its existing reserves, its liability in connection with environmental
proceedings should not have a material adverse effect on its financial condition
or results of operation. The Company is presently unaware of the existence of
any potential material environmental costs that are likely to occur in
connection with the disposition of any of its property.
16
<PAGE> 17
AMCAST INDUSTRIAL CORPORATION
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
- --------------------------
Refer to Item 3, Part I of Form 10-K for the fiscal year ended August 31, 1997.
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
a) The annual meeting of shareholders of Amcast Industrial Corporation was held
on December 18, 1997.
b) At the annual meeting, shareholders voted on and approved two proposals.
Those proposals are stated below, together with information concerning the
votes cast.
1. Election of three directors to serve for a term of three years.
Directors elected were Peter H. Forster, Ivan W. Gorr, and Leo W.
Ladehoff.
<TABLE>
<CAPTION>
Peter H.. Ivan Leo W.
Forster W. Gorr Ladehoff
-------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Shares For 7,713,355 7,713,297 7,713,189
Shares Withheld 48,300 48,358 48,466
Total 7,761,655 7,761,655 7,761,655
</TABLE>
2. Ratification of the appointment of Ernst & Young LLP as independent
auditors of the Company for the fiscal year ending August 31, 1998.
<TABLE>
<S> <C>
Shares For 7,731,930
Shares Against 17,548
Shares Abstain 12,177
Total 7,761,655
</TABLE>
17
<PAGE> 18
AMCAST INDUSTRIAL CORPORATION
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
a) Exhibits
Exhibit 10.1- Amended and Restated Rights Agreement, dated as of February 24,
1998, between Amcast Industrial Corporation and First Chicago
Trust Company of New York , as Rights Agent, including as Exhibit
B thereto the form of Rights Certificate, incorporated by
reference from Form 8-A/A-1 filed February 25, 1998.
Exhibit 27.1 - Restated Financial Data Schedule for the six-month period ended
March 2, 1997.*
Exhibit 27.2 - Financial Data Schedule for the six-month period ended March 1,
1998.*
* Schedule submitted in electronic format only
b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the quarter ended
March 1, 1998.
18
<PAGE> 19
AMCAST INDUSTRIAL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMCAST INDUSTRIAL CORPORATION
--------------------------------------------
(Registrant Company)
Date: April 15, 1998 By: /s/J. H. Shuey
-------------- ----------------------------------------
John H. Shuey
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Date: April 15, 1998 By: /s/D. D. Watts
-------------- ----------------------------------------
Douglas D. Watts
Vice President, Finance
(Principal Financial and Accounting Officer)
19
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAR-02-1997
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<ALLOWANCES> 276
<INVENTORY> 48,892
<CURRENT-ASSETS> 113,751
<PP&E> 262,286
<DEPRECIATION> 114,894
<TOTAL-ASSETS> 282,575
<CURRENT-LIABILITIES> 61,814
<BONDS> 71,883
0
0
<COMMON> 8,657
<OTHER-SE> 132,073
<TOTAL-LIABILITY-AND-EQUITY> 282,575
<SALES> 182,123
<TOTAL-REVENUES> 182,123
<CGS> 147,494
<TOTAL-COSTS> 168,114
<OTHER-EXPENSES> 2,117
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,250
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<INCOME-TAX> 3,423
<INCOME-CONTINUING> 6,219
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,219
<EPS-PRIMARY> .72
<EPS-DILUTED> .71
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> MAR-01-1998
<CASH> 8,960
<SECURITIES> 0
<RECEIVABLES> 111,054
<ALLOWANCES> 0
<INVENTORY> 80,621
<CURRENT-ASSETS> 21,631
<PP&E> 383,000
<DEPRECIATION> 133,555
<TOTAL-ASSETS> 564,344
<CURRENT-LIABILITIES> 141,557
<BONDS> 229,696
0
0
<COMMON> 9,206
<OTHER-SE> 155,078
<TOTAL-LIABILITY-AND-EQUITY> 564,344
<SALES> 277,954
<TOTAL-REVENUES> 277,954
<CGS> 233,184
<TOTAL-COSTS> 233,184
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,450
<INCOME-PRETAX> 11,130
<INCOME-TAX> 1,779
<INCOME-CONTINUING> 9,351
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,351
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.01
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