<TABLE>
<CAPTION>
2000 IN REVIEW
<S> <C> <C>
Year Ended August 31
2000 1999
FOR THE YEAR
Net sales $610,655 $588,933
Operating income 21,557 46,110
Operating income percent 3.5% 7.8%
Income before income taxes and cumulative
effect of accounting change 5,522 31,538
Income before cumulative
effect of accounting change 3,364 19,317
Cumulative effect of accounting change,
net of tax 983 -
Net income 4,347 19,317
Income per diluted share before cumulative
effect of accounting change $ .38 $ 2.11
Net income per diluted share $ .49 $ 2.11
Cash dividends declared per share $ .56 $ .56
YEAR-END POSITION
Working capital $ 54,993 $ 68,955
Total assets 480,386 533,486
Total debt 151,901 184,916
Shareholders' equity 155,954 170,766
Book value per share $ 18.55 $ 19.07
</TABLE>
<PAGE>
Management's Discussion of Financial Condition and Results of Operations
($ in thousands except per share amounts)
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 and actual results and events may
differ materially from those projected, forecasted, or estimated. Factors which
may cause actual results to differ materially from those contemplated by the
forward-looking statement, include, among others: general economic conditions
less favorable than expected, fluctuating demand in the automotive industry,
less favorable than expected growth in sales and profit margins in the Company's
product lines, increased competitive pressures in the Company's Engineered
Components and Flow Control Products segments, effectiveness of production
improvement plans, inherent uncertainties in connection with international
operations and foreign currency fluctuations and labor relations at the Company
and its customers. The following discussion and analysis provides information
which management believes is relevant to an understanding of the Company's
consolidated results of operations and financial condition. This discussion
should be read in conjunction with the accompanying consolidated financial
statements and notes thereto.
Business Segments
During 1999, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related
Information." This Statement requires the Company to report financial and
descriptive information about its operating segments on the same basis that is
used internally to assess operating performance and allocate resources to
segments. Operating segments are organized internally primarily by the type of
products produced and markets served, and in accordance with SFAS No. 131, the
Company has aggregated similar operating segments into two reportable segments:
Flow Control Products and Engineered Components. Adoption of the new standard
did not result in a change in the Company's reportable segments.
The Flow Control Products segment is a supplier of copper and brass plumbing
fittings for the industrial, commercial, and residential construction markets,
and in prior years, valves utilized in air conditioning and refrigeration
systems and industrial compressed gas applications. The Engineered Components
segment is a supplier of aluminum wheels and aluminum components for automotive
original equipment manufacturers and cast and fabricated metal products for sale
to original equipment manufacturers in the transportation, construction, air
conditioning, and refrigeration industries.
<PAGE>
Acquisitions, Divestitures, and Restructuring
During 1998, 1999, and 2000 the Company completed several transactions that
impact the Company's financial results for those years and affect the comparison
between 2000, 1999, and 1998. On October 16, 1998, the Company sold Superior
Valve Company (Superior Valve) for $35,604 in cash. The transaction resulted in
a pre-tax gain of $9,023. Results for 1999 and 1998 included sales for Superior
Valve of approximately $4,600 and $42,000, respectively, in the Company's Flow
Control segment.
Effective March 30, 1998, the Company sold its Rancho Cucamonga, California
investment casting operation, Amcast Precision (Precision), for $25,445 in cash.
The transaction resulted in a pre-tax gain of $12,048. Results for 1998 included
sales for Precision of approximately $13,100 in the Company's Engineered
Components segment.
On April 9, 1998, the Company acquired Lee Brass Company, a privately-owned
company located in Anniston, Alabama. Financial results for Lee Brass are
included in the Flow Control Products segment since the date of acquisition.
Following the acquisition of Lee Brass, the Company consolidated its two brass
foundry operations and ceased production at its Flagg Brass plant located in
Stowe, Pennsylvania. The consolidation plan included the transfer of certain
product lines to Lee Brass, the closure of the Flagg Brass facility, and the
termination of approximately 100 salaried and hourly personnel. In connection
with the consolidation plan, during 1998, the Company recorded a restructuring
charge of $5,800 for facility exit costs and a charge of $2,200, included in
cost of sales, primarily for a non-cash write-down of inventory to its net
realizable value. Key components of the $5,800 restructuring charge were $4,900
for a non-cash write-down of assets to their fair value, $500 for severance and
other termination benefits, and $400 for other facility closure costs. As of
August 31, 2000, all associates had been terminated and all of the severance and
most of the facility closure costs had been charged against the liability.
During 1999, the Company wrote off $4,504 of net assets related to the Flagg
Brass operation against the previously established long-term reserve. The
Company expects that the disposition of the remaining Flagg Brass assets will be
completed by the end of fiscal 2002. Results for 1998 include sales for Flagg
Brass of approximately $7,800 in the Flow Control segment.
The sale of Precision and Superior Valve and the closure of Flagg Brass are
collectively referred to as "divested operations" in this Management's
Discussion and Analysis.
During 1998, the Company also re-evaluated its reserves related to several iron
foundries previously closed in the 1980's and early 1990's. As a result, a
restructuring charge of $4,000 was recorded to cover higher than expected
medical benefits and workers compensation expenses related to these previously
closed facilities.
During 2000, the Company re-assessed its reserves related to the
aforementioned foundries and recorded a net restructuring charge of $721 to
increase the reserve for medical benefits and workers compensation related to
the closed facilities. A reduction in certain other reserves, primarily for
product liability and warranty claims for divested operations, is included in
the net charge for 2000.
<PAGE>
Results of Operations
Consolidated net sales in 2000 were $610,655, which represented a $21,722, or
3.7%, increase over 1999. Consolidated net sales in 1999 were $588,933, which
represented a $14,519, or 2.5%, increase over 1998. The following table shows
the components of the growth in the Company's consolidated net sales.
<TABLE>
<S> <C> <C>
2000 1999
-------- --------
Volume 1.9% 11.8%
Price and product mix 6.5% (3.6%)
Acquisitions and divestitures (0.8%) (6.0%)
Foreign currency exchange rates (3.9%) 0.3%
-------- --------
3.7% 2.5%
======== ========
</TABLE>
In 2000, consolidated net sales increased to $610,655. Volume growth in 2000
reflects increased sales of the Company's performance-critical aluminum
components and European wheels partly offset by a decline in North American
wheel sales and by lower volumes in the Flow Control Products segment. Favorable
pricing includes a better product mix, primarily at the Company's European
operations, and higher aluminum costs reflected in the sales price of automotive
products. These gains were partially offset by a reduction in sales from
divested operations and by a weaker Italian lira. By segment, Engineered
Components sales increased 6.4% primarily due to volume gains related to the
increased aluminum component sales while Flow Control Products sales decreased
4.0% primarily due to the loss of two significant customers and decreased sales
from divested operations.
In 1999, consolidated net sales increased to $588,933. Demand for the Company's
copper and brass plumbing fittings, aluminum automobile wheels, and
performance-critical aluminum automotive components was strong. Significant
volume gains and incremental growth from Lee Brass and Speedline more than
offset the decrease in sales volume from divested operations. The volume gains
in 1999 were partially the result of reduced volumes in the last quarter of
fiscal 1998 due to a General Motors work stoppage. Market pricing pressures in
the Flow Control Products segment and lower aluminum costs reflected in the
Engineered Components segment's pricing more than offset favorable product mix
gains, which when combined, decreased consolidated net sales. By segment,
Engineered Components sales increased 10.5% primarily due to volume gains
related to increased wheel sales. Flow Control Products net sales decreased
14.8% primarily due to divested operations.
<PAGE>
Gross profit was $78,694, $93,025, and $93,004 in 2000, 1999, and 1998,
respectively. As a percentage of sales, gross profit decreased to 12.9% in 2000
from 15.8% in 1999 and 16.2% in 1998.
A combination of internal and external factors affected gross profit in 2000. In
the Flow Control Products segment, large volume losses associated with two
customers at Lee Brass depressed gross profit. In addition, this segment
experienced sporadic, intense price competition that prevented the Company from
passing higher copper costs on to its customers. The flow control units did
respond positively to the corporate-wide cost- reduction program initiated
earlier in the year that partially offset the copper cost and competitive market
pricing issues. In the Engineered Components segment, reduced sales volumes for
certain aluminum wheel styles, coupled with high associate turnover at one wheel
plant during the first half of the year, had a negative impact on gross profit.
In North America, the Company tooled up and reserved capacity to produce wheels
for three vehicles that experienced less than anticipated sales volume. Also
negatively impacting gross profit in 2000 was the continuation of some of the
operating issues encountered during 1999 that are discussed below. In Europe, a
negative currency impact, the inability to pass through certain material costs,
and a factory expansion temporarily depressed gross profit. The cost of aluminum
is a significant component of the overall cost of a wheel. While the aluminum
content of selling prices is periodically adjusted for current market
conditions, the purchasing practices and pricing formulas of certain customers
of the Company's European operations prevented the Company from reacting quickly
enough to the sharp rise in aluminum prices early in the year. Additionally, the
Company expanded and rearranged one of its Italian plants to increase output and
better balance production flow. During this time period, this facility
experienced very high labor turnover which, coupled with the expansion process,
had a negative effect on production and gross profit. Several factors had a
positive impact on gross profit in 2000. Effective September 1, 1999, the
depreciable lives of certain assets of foreign subsidiaries were changed based
upon a study performed by an independent appraisal company. The effect of this
change was a reduction of depreciation expense of approximately $2,400. During
2000, the Company also changed its method for accounting for supplies and spare
parts inventories. The effect of this change, which is discussed more fully on
the following page, was to increase gross profit in 2000 by approximately $400.
In the last half of 1999, the Company experienced higher than expected costs and
lower product yields due to high turnover of skilled labor in two Indiana wheel
plants and to the launch of new suspension products at the Company's Wapakoneta,
Ohio plant. The aluminum suspension components were for popular car models. The
launch proved to be very difficult and was accompanied by high labor turnover,
high scrap, low productivity, and extraordinary costs to ensure an adequate
customer supply. These combined factors reduced gross profit in the second half
of 1999.
The lower gross profit percentage for 2000 and 1999 compared with 1998 is
impacted, to a lessor degree, by a change in the Company's sales mix to a
slightly higher percentage of Engineered Component product sales, which
generally have lower gross margins than Flow Control Products. The gross profit
percentage for 1998 was hurt by a one-time charge ($2,200) related to closing
the Flagg Brass facility.
<PAGE>
Selling, general, and administrative (SG&A) expenses were $56,416, $55,938, and
$57,294 in 2000, 1999, and 1998, respectively. As a percentage of sales, SG&A
expenses decreased to 9.2% in 2000 from 9.5% in 1999 and 10.0% in 1998. SG&A
expense in 2000 includes a net pension expense benefit of $2,546 primarily as a
result of improvement in the defined benefit pension plan's funded status, a
one-half percentage point increase in the expected return on plan assets, and
the change to a defined benefit cash balance pension plan. Current year SG&A
expense also includes the benefit of the reversal of a $2,226 liability
resulting from the favorable settlement of a legal claim against the Company. In
prior years, the Company had recorded a liability for a legal claim asserted by
former employees at its Flagg Brass operations. Due to the terms of a settlement
reached during 2000 relative to this obligation, this liability was reversed
through a reduction in SG&A expense. SG&A expense was also favorably impacted by
the results of the Company's cost-reduction program initiated at the end of its
second quarter. In early March, the Company implemented an 8% salaried workforce
reduction across all its North American operations. At the same time, global
restrictions were placed on other controllable operating and administrative
costs. These reductions in SG&A expense were offset by higher commissions, legal
costs, and information system expenditures. The dollar amount of SG&A expenses
decreased in 1999 from 1998 primarily due to divested operations, a reduction in
pension cost, and lower incentive plan expense.
The Company's pre-tax share of losses from Casting Technology Company (CTC), a
joint venture with Izumi Industries, was $3,528, $1,452, and $1,000 in 2000,
1999, and 1998, respectively. CTC's results for 2000 were severely impacted by a
customer's extraordinarily high, temporary demand. In the second half of 2000,
particularly the fourth quarter, CTC was pushed beyond capacity and incurred
higher costs associated with operating in excess of capacity to meet the
customer's demand. In 1999, CTC's results were reduced by foreign exchange
losses resulting from the strengthening of the Japanese yen, operating
inefficiencies resulting from efforts to meet extremely high customer demand
early in the year, and difficulties hiring and retaining skilled labor which led
to manufacturing inefficiencies and higher scrap.
Interest expense was $12,929 in 2000, $13,182 in 1999, and $15,045 in 1998.
Lower interest expense in 2000 and 1999 compared with 1998 is primarily due to
the significant debt reductions in 2000 and 1999. To a lesser degree, higher
interest rates in 2000 versus 1999 and lower interest rates in 1999 versus 1998
effected interest expense for those years. Interest expense also was higher in
1998 as the result of the impact of the General Motors work stoppage on the
Company's operating income and working capital.
<PAGE>
The effective tax rate for 2000, 1999, and 1998 was 38.0%, 38.8%, and 27.0%,
respectively. Changes in the effective tax rates primarily reflect the level of
federal and state tax credits applicable to U.S. taxes. The higher effective tax
rate in 1999 relates primarily to a permanent tax basis difference associated
with the sale of Superior Valve. A one-time adjustment of $2,562 from a
reduction of Italian tax rates lowered the effective rate in 1998. Excluding
this adjustment, the effective tax rate for 1998 was 38.2%. As of August 31,
2000, the Company has booked a valuation allowance of $3,198 against a portion
of their foreign net operating losses and other tax attributes. For additional
information regarding the provision for income taxes as well as the difference
between effective and statutory tax rates, see the Notes to Consolidated
Financial Statements.
During 2000, the Company implemented portions of an enterprise resource planning
(ERP) system in its automotive businesses in North America. Among other
features, this system facilitates the tracking and control of supplies and spare
parts inventories. To take advantage of the enhanced tracking and control
features of the ERP system, the Company capitalized the supplies and spare parts
inventories at three locations, whereas previously the cost of these
manufacturing supplies was expensed when purchased. Management believes this
change is preferable in that it provides for a more appropriate matching of
revenues and expenses. The total amount of inventory capitalized and reported as
a cumulative effect of a change in accounting principle, retroactive to
September 1, 1999, is $983, net of income taxes of $602. The effect of the
change in 2000 was to increase income before cumulative effect of accounting
change by $248 ($.03 per share).
Effective September 1, 1997, the Company adopted the provisions of the American
Institute of Certified Public Accountants' Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-Up Activities." SOP 98-5 provides guidance on
the financial reporting of start-up and organization costs and requires such
costs to be expensed as incurred. The total amount of deferred start-up costs
reported as a cumulative effect of a change in accounting principle in 1998 was
$8,588, net of tax benefits of $5,044. The Company's share of CTC's cumulative
effect of a change in accounting principle was $3,529, net of tax.
Flow Control Products Net sales of the Flow Control Products segment were
$147,697 in 2000, compared with $153,903 in 1999 and $180,596 in 1998. The
decrease in 2000 is primarily due to lower sales volume of copper and brass
products associated with the loss of two customers at the Company's Lee Brass
unit and decreased sales from divested operations. Annual sales volume for the
two customers was approximately $7,900, and the Company was able to replace a
portion of those sales in 2000. The lower volumes decreased sales by 6.2%
compared with 1999. While this segment did face sporadic price competition, the
reduced volume was partially offset by overall favorable pricing that increased
sales by 2.2%. Operating income was $22,214 in 2000 compared with $26,919 in
1999. Lower volumes and higher material costs decreased operating income by 5.6%
and 11.1%, respectively. While price competition prevented the Company from
passing higher copper costs on to customers, current pricing and favorable
product mix combined to increase operating income by 17.8%. The cost reduction
program implemented in March, combined with continuous improvement activities in
the plants, helped to offset the material cost and pricing issues.
<PAGE>
Decreased sales from divested operations more than offset volume gains resulting
in a 9.3% net reduction in sales volume in 1999. Pricing pressures in the
Company's copper and brass fittings business, net of favorable mix benefits,
decreased segment sales by an additional 5.5%. Operating income was $26,919 in
1999 compared with $27,931 for 1998. Cost reduction efforts and lower material
costs partially offset the impact of pricing pressures in the Company's copper
and brass fittings business.
Engineered Components Net sales of the Engineered Components segment were
$462,958 in 2000, compared with $435,030 in 1999 and $393,818 in 1998. The
Company's Engineered Components product sales continued to grow in 2000, as the
global wheel business continues to expand, win new customers, and launch a
variety of new wheel styles. The aluminum components business also experienced
significant sales growth as their customers fully incorporated new products into
additional vehicle platforms. Sales volume increased 3.7% as sales of control
arms and European wheels were offset by a decline in North American wheels sales
as one customer experienced lower sales on three vehicles. Higher pricing, in
the form of aluminum cost pass-throughs reflected in the selling price of the
Company's products, and a favorable product mix increased sales by 2.8% and
5.2%, respectively. However, a weaker Italian lira in fiscal 2000 compared with
fiscal 1999 reduced sales by 5.3%. Operating income was $6,692 in 2000 compared
with $19,708 in 1999. The two accounting changes previously discussed increased
operating income; however, several factors negatively impacted operating income
during 2000. Increased costs associated with the over-capacity volume issues
previously discussed and higher manufacturing-related spending decreased
operating income by over 20%. Material costs that could not be passed along to
customers under existing price formulas, primarily at our European operations,
further reduced operating income by 23.4%. Pricing and an unfavorable product
mix reduced operating income by 19.8%. Also contributing to the decrease in
operating income in 2000 were costs associated with high levels of employee
turnover and the difficulty of obtaining qualified labor in a
near-full-employment economy.
Strong aluminum wheel sales in North America and Europe contributed to a 16.1%
increase in segment sales in 1999 due to volume, 12.8% net of divested
operations. However, sales decreased by 2.3 % in 1999 from a combination of a
favorable product mix and a stronger Italian lire in 1999 versus 1998, largely
offset by lower aluminum costs which are also reflected in most of the selling
price of the Company's products. Operating income was $19,708 in 1999 compared
with $19,609 in 1998. Operating income reflects the unfavorable impact of labor
turnover and new-product launch issues previously discussed.
<PAGE>
Liquidity and Capital Resources
Cash provided by operations in fiscal 2000 was $40,341, compared with $64,770 in
1999 and $9,580 in 1998. Net income plus non-cash items (principally
depreciation and amortization, changes in deferred liabilities, restructuring
charges, and the cumulative effect of an accounting change) totaled $30,357 in
2000. Changes in the components of working capital, excluding short-term and
current debt and divested operations, provided additional operating cash of
$9,984 in 2000. Cash provided by operations in 1998 was unusually low due to the
increase in working capital from the Lee Brass acquisition and the Precision
divestiture, coupled with the increased sales volume and inventory build during
the General Motors work stoppage.
Investing activities used net cash of $25,802 in 2000, compared with $12,656 in
1999 and $33,018 in 1998. Capital expenditures totaled $21,535 in 2000,
considerably less than the $47,360 and $46,763, expended in 1999, and 1998,
respectively. To support business expansion activities, in previous years
investments were made in property, plant, and equipment and in CTC. Capital
expenditures decreased significantly in 2000 from prior levels, as the Company
turned its focus from expansion to cost reduction and improving production
efficiencies. At August 31, 2000, the Company had $10,027 of commitments for
capital expenditures to be made in 2001, primarily for the Engineered Components
segment. During 2000, the Company increased its investment in CTC with an
additional noncash capital contribution of $8,400, accomplished through the
conversion of a $3,000 note receivable and $5,400 of accounts receivable. Also
during 2000, the Company resolved several matters with the former owners of
Speedline which, among other items, resulted in a purchase by the Company of
478,240 shares of the Company's common stock held by Speedline's former owners
and a net cash payment to the former owners of $2,500. Proceeds from the sale of
businesses provided $35,604 and $25,445, in 1999 and 1998, respectively. Cash
outlays for business acquisitions used $1,200 and $12,247 in 1999 and 1998,
primarily for the Lee Brass acquisition.
Financing activities used $18,148 and $51,466 in cash in 2000 and 1999,
respectively, versus $21,033 of cash provided in 1998. During 1999, the Company
reduced total debt by $51,904 and further reduced total debt by $18,728 in 2000.
The debt reductions were financed in part with the proceeds from the Superior
Valve sale in 1999, the proceeds from sale-leaseback transactions in both 1999
and 2000, and participation in one of our customer's accelerated payment program
in 2000. Additional financing in 2000 includes $74,560 borrowed under the
Company's revolving credit agreement, which was partly used to pay down
short-term borrowings made in the first quarter of the fiscal year. During 2000,
the Company had $13,569 of net short-term borrowings and received $6,488 from
the sale-leaseback of equipment. Financing activities also included long-term
debt repayments of $106,857, dividend payments of $4,851 and $1,255 for
repurchases of the Company's common stock.
Cash used by financing activities in 1999 also included $4,594 for repurchases
of the Company's common stock and $5,109 for the payment of dividends. Net cash
provided by financing activities in 1998 was used to finance the Lee Brass
acquisition, business expansion, a working capital increase due to the General
Motors work stoppage, and to pay dividends.
<PAGE>
In August 1997, the Company replaced its prior credit facility with a new Credit
Agreement (the Agreement) that provided for up to $200,000 in borrowings through
2002. During 2000, the Company amended the Agreement and among other things,
these amendments changed certain financial covenants (including the interest
coverage and debt-to-earnings ratios) and added certain affirmative covenants.
Both amendments also included increases to the applicable LIBOR margin.
Effective June 2000, the Company reduced the amount of the Agreement to
$150,000. At August 31, 2000, the Company had unused borrowing capacity of
$45,300 under the most restrictive debt covenant of the Agreement. The Company
also has lines of credit totaling $27,000; at August 31, 2000, there was $16,200
outstanding under these lines of credit. In addition, Speedline has short-term
lines of credit totaling $26,300, of which $24,716 was available at July 31,
2000.
The ratio of long-term debt as a percent of capital decreased to 48.6% at August
31, 2000 from 50.5% at August 31, 1999, reflecting a net reduction in debt. Book
value per common share at August 31, 2000 was $18.55, down from $19.07 at August
31, 1999. One million preferred shares and approximately 5.8 million common
shares are authorized and available for future issuance. On December 17, 1998,
the Company announced a plan to repurchase up to 750,000 of its outstanding
common shares. As of August 31, 2000, 350,000 shares have been repurchased under
this plan at an average cost of $15.53 per share. The Company currently has
8,405,604 common shares outstanding. Management believes the Company has
adequate financial resources to meet its future needs.
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 financial
statements. At August 31, 2000, the Company had reserves of $1,575 accrued for
environmental liabilities. Allied-Signal Inc. (now Honeywell) brought an action
against the Company seeking a contribution from the Company equal to 50% of
Honeywell'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. The court has rendered its decision on this case; however, the exact
amount of the verdict has not yet been determined by the court. The amount will
be significantly less than the amount sought by the plaintiff and the Company
estimates its liability associated with the action to be between $500 and
$1,500. The Company believes its liability is at the low end of this range. 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, results of operations, or cash flows. The
Company is presently unaware of the existence of any potential material
environmental costs that are likely to occur in connection with disposition of
any of its property.
<PAGE>
Increasingly, major automotive industry companies are withholding partial
payment for goods received. Often, this is a negotiating tactic for costs
incurred by the customer in which the customer believes that the supplier should
participate. Generally, payment is received, however, only after several months
have passed. At August 31, 2000, the Company has $2,037 of accounts receivable
being withheld pending final resolution of various issues. It is anticipated
that this amount will ultimately be collected.
Impact of Recently Issued Accounting Standards
During 2000, the Company adopted Emerging Issues Task Force (EITF) 99-5,
"Accounting for Pre-Production Costs Related to Long-Term Supply Arrangements."
EITF 99-5 provides guidance for the capitalization, under certain circumstances,
of costs incurred to design and develop molds, dies, and other tools that will
be used to produce products that will be sold under a long-term supply
arrangement. EITF 99-5 is effective for design and development costs incurred
after December 31, 1999. The adoption of EITF 99-5 did not have a material
effect on the Company's consolidated results of operations, financial position,
or cash flows.
During 1999, the Company adopted SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," which requires that certain
costs related to developing or obtaining internal use software should be
capitalized. The adoption of this standard did not have a material effect on the
Company's consolidated results of operations, financial position, or cash flows.
New accounting standards issued include SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS Nos.137 and 138, which
establishes a comprehensive standard for the recognition and measurement of
derivatives and hedging activities. The new standard requires that all
derivatives be recognized as assets or liabilities in the statement of financial
position and measured at fair value. Gains or losses resulting from changes in
fair value are required to be recognized in current earnings unless specific
hedge criteria are met. SFAS No. 133 will become effective for the Company
beginning in the first quarter of fiscal year 2001. The Company has not
determined the effect of this new standard; however, due to the Company's
limited use of derivatives, the impact is not expected to be material.
Market Risks
The Company is exposed to market risk from changes in foreign currency exchange
rates and interest rates as part of its normal operations. To manage the
volatility relating to these exposures on a consolidated basis, the Company
takes advantage of natural offsets. The Company has estimated its market risk
exposures using sensitivity analyses assuming a 10% change in market rates.
<PAGE>
Foreign Currency Exchange Rate Risk Due to its foreign operations, the Company
has assets, liabilities, and cash flows in currencies other than the U.S.
dollar. The Company minimizes the impact of foreign currency exchange rate
fluctuations on its Italian net investment with debt borrowings denominated in
Italian lira. Fluctuations in foreign currency exchange rates also impact the
dollar value of non-U.S. cash flows. To illustrate the potential impact of
changes in foreign currency exchange rates on the dollar value of non-U.S. cash
flows, a hypothetical 10% change in the average exchange rates for 2000 and 1999
would change income before taxes by approximately $700 and $1,200, respectively.
The Company's Italian operations also attempt to balance asset and
liability positions that are denominated in non-functional currencies, primarily
the U.S. dollar, Japanese yen, and British pound sterling in 2000 and the U.S.
dollar, German marks, and French francs in 1999. During 2000 and 1999, the net
exposure averaged approximately $1,700 and $2,200, respectively. A hypothetical
10% change in the average exchange rates would change the exposure by $200 for
2000 and 1999, and that change would be reflected in the operating results of
the Company. The analysis assumes a parallel shift in currency exchange rates,
relative to the Italian lira. Exchange rates rarely move in the same direction,
and the assumption that the exchange rates change in parallel may overstate the
impact of the foreign currency exchange rate fluctuations. The decrease in net
exposure between years is primarily due to the introduction of the Euro and
favorable lire exchange rates.
Interest Rate Risk To manage its exposure to changes in interest rates, the
Company uses both fixed and variable rate debt. At August 31, 2000 and 1999, the
Company had approximately $98,600 and $127,200 of debt obligations outstanding
with variable interest rates with a weighted-average effective interest rate of
6.6% and 4.5%, respectively. A hypothetical 10% change in the effective interest
rate for these borrowings, using the outstanding debt levels at August 31, 2000
and 1999, would change interest expense by approximately $700 and $600
respectively. The decrease in interest rate exposure is primarily due to lower
effective interest rates.
Year 2000
The Company has not experienced any significant year 2000 related complications
regarding any of its critical vendors or major customers. Overall, any issues
experienced to date as a result of year 2000 issues have been insignificant and
have had no material impact on the Company's consolidated results of operations,
financial position or cash flows.
<PAGE>
Euro Conversion
On January 1, 1999, certain members of the European Union irrevocably fixed the
conversion rates between their national currencies and a common currency, the
"Euro", which became the legal currency on that date. The participating
countries' former national currencies continue to exist as denominations of the
Euro until January 1, 2002. The Company is in various stages of assessments and
implementation and, although difficult to predict, any competitive implications
and any impact on existing financial instruments resulting from the Euro
implementation are not expected to be material to the Company's financial
condition, liquidity, or results of operations.
<PAGE>
<TABLE>
<CAPTION>
SELECTED DATA
($ in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Financial Data 2000 1999 1998 1997 1996
Net sales $610,655 $ 588,933 $ 574,414 $ 387,051 $ 343,934
Operating income 21,557 46,110 37,958 27,242 27,328
Operating income percent 3.5% 7.8% 6.6% 7.0% 7.9%
Income before income taxes and
cumulative effect of accounting change 5,422 31,538 22,975 20,005 24,731
Income before cumulative effect
of accounting change 3,364 19,317 16,765 12,983 15,926
Net income 4,347 19,317 8,177 12,983 15,926
Working capital 54,993 68,955 86,929 26,260 57,774
Total assets 480,386 533,486 563,450 508,918 269,217
Long-term debt 147,273 174,061 217,199 145,304 58,783
Per Common Share Data
Income before cumulative effect
of accounting change - basic $ .38 $ 2.11 $ 1.82 $ 1.50 $ 1.85
Net income - basic $ .49 $ 2.11 $ 0.89 $ 1.50 $ 1.85
Weighted average number of common
shares outstanding - basic (in thousands) 8,788 9,144 9,200 8,674 8,606
Income before cumulative effect
of accounting change - diluted $ .38 $ 2.11 $ 1.81 $ 1.48 $ 1.84
Net income - diluted $ .49 $ 2.11 $ 0.88 $ 1.48 $ 1.84
Weighted average number of common
shares outstanding - diluted (in thousands) 8,792 9,162 9,250 8,754 8,628
Dividends declared $ .56 $ .56 $ .56 $ .56 $ .56
Book value $ 18.55 $ 19.07 $ 17.47 $ 17.24 $ 15.80
Statistical Data
Current ratio 1.4 1.5 1.6 1.1 2.1
Long-term debt as a percent of capital 48.6% 50.5% 57.5% 47.9% 30.2%
Number of associates 4,530 4,960 4,500 4,040 2,600
</TABLE>
<PAGE>
Report of Ernst & Young LLP
Independent Auditors
Shareholders and Board of Directors
Amcast Industrial Corporation
Dayton, Ohio
We have audited the accompanying consolidated statements of financial condition
of Amcast Industrial Corporation and subsidiaries as of August 31, 2000 and
1999, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended August 31, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Amcast Industrial
Corporation and subsidiaries at August 31, 2000 and 1999, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended August 31, 2000, in conformity with accounting principles
generally accepted in the United States. As discussed in the summary of
accounting policies, in fiscal 2000 the Company changed its method of accounting
for supplies and spare parts inventory.
/S/ ERNST & YOUNG LLP
Dayton, Ohio
October 19, 2000
<PAGE>
Amcast Industrial Corporation
Statement of Internal Control
The management of Amcast Industrial Corporation has the responsibility for
preparing the accompanying financial statements and for their integrity and
objectivity. In fulfilling this responsibility, management maintains accounting
systems and related controls. These controls provide reasonable assurance, at
appropriate costs, that assets are safeguarded against losses and that financial
records are reliable for use in preparing financial statements. The systems are
enhanced by written policies, an organizational structure providing division of
responsibilities, careful selection and training of qualified people, and a
program of financial, operational, and systems review coordinated by the
internal auditors and by management.
Management recognizes its responsibility for conducting the Company's affairs
according to the highest standards of personal and corporate conduct. This
responsibility is characterized by and included in key policy statements.
Management maintains a systematic program to assess compliance with these
policies.
The Company's financial statements have been audited by Ernst & Young LLP,
independent auditors elected by the shareholders. Management has made available
to Ernst & Young LLP all the Company's financial records and related data, as
well as the minutes of shareholders' and directors' meetings. Furthermore,
management believes that all representations made to Ernst & Young LLP during
their audit were valid and appropriate.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets with the independent auditors, management, and internal
auditors periodically to review their work and ensure that they are properly
discharging their responsibilities. The independent auditors and the Company's
internal auditors have free access to this committee, without management
present, to discuss the results of their audit work and their opinion on the
adequacy of internal financial controls and the quality of financial reporting.
/S/ JOHN H. SHUEY
-----------------
John H. Shuey
Chairman, President and Chief Executive Officer
/S/ DOUGLAS D. WATTS
--------------------
Douglas D. Watts
Vice President, Finance (Chief Financial Officer)
/S/ MARK D. MISHLER
-------------------
Mark D. Mishler
Controller
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands except per share amounts)
<S> <C> <C> <C>
Year Ended August 31
2000 1999 1998
Net sales $610,655 $588,933 $574,414
Cost of sales 531,961 495,908 481,410
-------- -------- --------
Gross Profit 78,694 93,025 93,004
Selling, general and administrative expenses 56,416 55,938 57,294
Restructuring charges 721 - 9,800
Gain on sale of businesses - (9,023) (12,048)
-------- ------- --------
Operating Income 21,557 46,110 37,958
Equity in loss of joint venture
and other (income) and expense 3,206 1,390 (62)
Interest expense 12,929 13,182 15,045
-------- -------- --------
Income before Income Taxes and
Cumulative Effect of Accounting
Change 5,422 31,538 22,975
Income taxes 2,058 12,221 6,210
-------- -------- --------
Income before Cumulative Effect
of Accounting Change 3,364 19,317 16,765
Cumulative effect of accounting change,
net of tax 983 - (8,588)
-------- -------- --------
Net Income $ 4,347 $ 19,317 $ 8,177
======== ======== ========
Basic Earnings per Share
Income before cumulative effect of
accounting change $ 0.38 $ 2.11 $ 1.82
Cumulative effect of accounting change 0.11 - (0.93)
-------- -------- --------
Net income $ 0.49 $ 2.11 $ 0.89
======== ======== ========
Diluted Earnings per Share
Income before cumulative effect of
accounting change $ 0.38 $ 2.11 $ 1.81
Cumulative effect of accounting change 0.11 - (0.93)
-------- -------- --------
Net income $ 0.49 $ 2.11 $ 0.88
======== ======== ========
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
($ in thousands)
<S> <C> <C>
August 31
2000 1999
ASSETS
Current Assets
Cash and cash equivalents $ 3,062 $ 6,928
Accounts receivable 85,041 97,819
Inventories 77,512 77,166
Other current assets 16,304 21,144
--------- ---------
Total Current Assets 181,919 203,057
Property, Plant, and Equipment
Land 8,383 8,948
Buildings 60,140 59,143
Machinery and equipment 315,387 306,228
Construction in progress 12,130 26,693
--------- ---------
396,040 401,012
Less accumulated depreciation 169,183 144,254
--------- ---------
226,857 256,758
Goodwill 49,707 61,261
Other Assets 21,903 12,410
--------- ---------
$ 480,386 $ 533,486
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 1,584 $ 4,673
Current portion of long-term debt 3,044 6,182
Accounts payable 84,285 82,396
Compensation and related items 20,403 21,875
Accrued expenses 17,610 18,976
--------- ---------
Total Current Liabilities 126,926 134,102
Long-Term Debt - less current portion 147,273 174,061
Deferred Income Taxes 31,275 32,775
Deferred Liabilities 18,958 21,782
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 - 9,227,600 and 9,208,529 shares,
respectively 9,228 9,209
Capital in excess of stated value 70,981 79,020
Accumulated other comprehensive losses (1,900) (1,018)
Retained earnings 87,287 87,796
Cost of 821,996 and 253,609 common shares
in treasury, respectively (9,642) (4,241)
--------- ---------
155,954 170,766
--------- ---------
$ 480,386 $ 533,486
========= =========
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
($ in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Capital Accumulated
in Excess Other
Common of Stated Comprehensive Retained Treasury
Shares Value Losses Earnings Stock Total
Balance at August 31, 1997 $ 9,177 $ 78,484 $ - $ 70,565 $ - $158,226
Net income - - - 8,177 - 8,177
Foreign currency translation - - (945) - - (945)
--------
Total comprehensive income 7,232
Cash dividends declared,
$.56 per share - - - (5,154) - (5,154)
Stock options exercised 30 480 - - - 510
------- -------- -------- -------- -------- --------
Balance at August 31, 1998 9,207 78,964 (945) 73,588 - 160,814
Net income - - - 19,317 - 19,317
Foreign currency translation - - 169 - - 169
Minimum pension liability,
net of tax benefit of $148 - - (242) - - (242)
--------
Total comprehensive income 19,244
Cash dividends declared,
$.56 per share - - - (5,109) - (5,109)
Purchase treasury stock - - - - (4,594) (4,594)
Stock options exercised 2 34 - - - 36
Stock awards - 22 - - 353 375
------- -------- -------- -------- -------- --------
Balance at August 31, 1999 9,209 79,020 (1,018) 87,796 (4,241) 170,766
Net income - - - 4,347 - 4,347
Foreign currency translation - - (1,124) - - (1,124)
Minimum pension liability,
net of tax benefit of $148 - - 242 - - 242
--------
Total comprehensive income 3,465
Cash dividends declared,
$.56 per share - - - (4,851) - (4,851)
Price adjustment for stock
issued for acquisition - (8,196) - - - (8,196)
Purchase treasury stock - - - - (5,559) (5,559)
Stock options exercised 19 179 - - - 198
Issue treasury stock - Directors - - - - 131 131
Restricted stock awards - (22) - (5) 27 -
------- -------- -------- -------- -------- --------
Balance at August 31, 2000 $ 9,228 $ 70,981 $ (1,900) $ 87,287 $ (9,642) $155,954
======= ======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<S> <C> <C> <C>
Year Ended August 31
2000 1999 1998
Operating Activities
Net income $ 4,347 $ 19,317 $ 8,177
Depreciation and amortization 32,999 31,346 32,113
Non-cash restructuring and inventory write-down 721 - 12,000
Cumulative effect of accounting change (983) - 8,588
Gain on sale of businesses - (9,023) (12,048)
Deferred liabilities (6,727) 4,634 (1,497)
Changes in assets and liabilities,
net of acquisitions
Accounts receivable (1,470) 7,581 (9,667)
Inventories (3,137) (5,686) (9,122)
Other current assets 3,742 (1,421) 1,141
Accounts payable 7,381 14,445 (11,833)
Accrued liabilities (700) 2,156 (9,204)
Other 4,168 1,421 932
-------- --------- --------
Net Cash Provided by Operations 40,341 64,770 9,580
Investing Activities
Additions to property, plant, and equipment (21,535) (47,360) (46,763)
Settlement related to business acquisition (2,500) - -
Acquisitions, net of cash acquired - (1,200) (12,247)
Proceeds from sale of businesses - 35,604 25,445
Other (1,767) 300 547
-------- --------- --------
Net Cash Used by Investing Activities (25,802) (12,656) (33,018)
Financing Activities
Additions to long-term debt 74,560 36,154 85,871
Reduction in long-term debt (106,857) (66,993) (30,216)
Short-term borrowings 13,569 (21,065) (29,978)
Purchase of treasury stock (1,255) (4,594) -
Proceeds from sale leaseback 6,488 10,105 -
Dividends (4,851) (5,109) (5,154)
Other 198 36 510
-------- --------- --------
Net Cash (Used) Provided by Financing Activities (18,148) (51,466) 21,033
-------- --------- --------
Effect of exchange rate changes on cash (257) (742) (181)
-------- --------- --------
Net change in cash and cash equivalents (3,866) (94) (2,586)
Cash and cash equivalents at beginning of year 6,928 7,022 9,608
-------- --------- --------
Cash and Cash Equivalents at End of Year $ 3,062 $ 6,928 $ 7,022
======== ========= ========
Supplemental disclosure of non-cash investing and financing activities:
Purchase price settlement related to business acquisition:
Disposition of common stock price protection liability $ (8,196)
Acquisition of treasury shares (4,304)
Less reduction in original purchase price 10,000
--------
$ (2,500)
========
</TABLE>
See notes to consolidated financial statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands except per share amounts)
ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Amcast Industrial
Corporation and its domestic and foreign subsidiaries (the Company).
Intercompany accounts and transactions have been eliminated. The Company's
investment in Casting Technology Company (CTC), a joint venture, is included in
the accompanying consolidated financial statements using the equity method of
accounting. The Company's investment in CTC was $7,266 and $2,394 at August 31,
2000 and 1999, respectively, and is included in Other Assets. Operations of the
Company's European subsidiaries are included in the consolidated financial
statements for periods ending one month prior to the Company's fiscal year end
in order to ensure timely preparation of the consolidated financial statements.
For foreign subsidiaries, the local foreign currency is the functional currency.
Assets and liabilities are translated into U.S. dollars at the rate of exchange
existing at year-end. Translation gains and losses are included as a component
of shareholders' equity and comprehensive income. Income statement amounts are
translated at the average monthly exchange rates. Transaction gains and losses
are included in the statement of income and were not material.
Revenue is recognized at the time products are shipped to customers.
Cash and cash equivalents include amounts on deposit with financial institutions
and investments with original maturities of 90 days or less.
Accounts receivable are stated net of allowances for doubtful accounts of $191
and $217 at August 31, 2000 and 1999, respectively. The Company held accounts
receivable of $2,938 and $6,498 from CTC at August 31, 2000 and 1999,
respectively and a note receivable of $3,000 at August 31, 1999. During 2000,
the Company increased its investment in CTC with an additional capital
contribution of $8,400 accomplished through conversion of the $3,000 note
receivable and $5,400 of the accounts receivable.
Inventories are valued at the lower of cost or market using the last-in,
first-out (LIFO) and the first-in, first-out (FIFO) methods. During 2000, as a
result of a new enterprise resource planning (ERP) system implementation, the
Company began capitalizing the cost of supplies and spare parts inventories,
whereas previously the cost of these manufacturing supplies was expensed when
purchased. Management believes this change is preferable in that it provides for
a more appropriate matching of revenues and expenses. The total amount of
inventory capitalized and reported as a cumulative effect of a change in
accounting principle, retroactive to September 1, 1999, was $983 net of taxes of
$602. The effect of the change in 2000 was to increase income before cumulative
effect of accounting change by $248 ($0.03 per diluted share). Additional
disclosures pursuant to Accounting Principles Board Opinion No. 20, "Accounting
Changes" are not provided since supplies inventory was not monitored for
financial reporting purposes prior to the implementation of the ERP system and,
consequently, the information is not available.
Property, plant, and equipment are stated at cost. Expenditures for significant
renewals and improvements are capitalized. Repairs and maintenance are charged
to expense as incurred. Depreciation is computed using the straight-line method
based upon the estimated useful lives of the assets as follows: buildings - 20
to 40 years; machinery and equipment - 3 to 20 years. Effective September 1,
1999, the depreciable lives of certain assets of foreign subsidiaries were
changed based upon a study performed by an independent appraisal company. The
effect of this change was a reduction of depreciation expense and a
corresponding increase in income before income taxes of approximately $2,400. As
<PAGE>
a result, net income increased by $1,488 ($0.17 per share). Tooling expenditures
reimbursable by the customer are capitalized and classified as a current asset.
Tooling expenditures not reimbursable by the customer are capitalized and
classified with property, plant, and equipment then charged to expense over the
estimated useful life.
Goodwill represents the excess of the cost of businesses acquired over the fair
market value of identifiable net assets at the dates of acquisition. Goodwill is
amortized on a straight-line basis over 40 years. Accumulated amortization of
goodwill was $5,048 and $3,494 at August 31, 2000 and 1999, respectively. The
carrying value of goodwill is evaluated periodically in relation to the
operating performance and future undiscounted cash flows of the underlying
businesses.
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."
Use of estimates and assumptions are made by management in the preparation of
the financial statements in conformity with generally accepted accounting
principles that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Earnings per common share are calculated under the provisions of SFAS No. 128,
"Earnings per Share." The calculation of basic earnings per share is based on
the weighted-average number of common shares outstanding. The calculation of
diluted earnings per share is based on the weighted-average number of common
shares outstanding plus all potential dilutive common shares outstanding.
Start-up and organization costs are accounted for under the provisions of the
American Institute of Certified Public Accountants' Statement of Position (SOP)
98-5, "Reporting on the Costs of Start-Up Activities." Adopted by the Company
effective September 1, 1997, SOP 98-5 provides guidance on the financial
reporting of start-up and organization costs and requires such costs to be
expensed as incurred. The total amount of deferred start-up costs reported as a
cumulative effect of a change in accounting principle was $8,588, net of tax
benefits of $5,044. The Company's share of CTC's cumulative effect of a change
in accounting principle was $3,529, net of tax.
Accounting standard adopted during 2000 includes Emerging Issues Task Force
(EITF) 99-5, "Accounting for Pre-Production Costs Related to Long-Term Supply
Arrangements." EITF 99-5 provides guidance for the capitalization, under certain
circumstances, of costs incurred to design and develop molds, dies, and other
tools that will be used to produce products that will be sold under a long-term
supply arrangement. EITF 99-5 is effective for design and development costs
incurred after December 31, 1999. The adoption of EITF 99-5 did not have a
material effect on the Company's consolidated results of operations, financial
position, or cash flows.
During 1999, the Company adopted SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," which requires that certain
costs related to developing or obtaining internal use software should be
capitalized. The adoption of this standard did not have a material effect on the
Company's consolidated results of operations, financial position, or cash flows.
New accounting standards issued include SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS Nos. 137 and 138, which
establishes a comprehensive standard for the recognition and measurement of
derivatives and hedging activities. The new standard requires that all
derivatives be recognized as assets or liabilities in the statement of financial
position and measured at fair value. Gains or losses resulting from changes in
<PAGE>
fair value are required to be recognized in current earnings unless specific
hedge criteria are met. SFAS No. 133 will become effective for the Company
beginning in the first quarter of fiscal year 2001. The Company has not
determined the effect of this new standard; however, due to the Company's
limited use of derivatives, the impact is not expected to be material.
ACQUISITIONS, DIVESTITURES, AND RESTRUCTURING
On October 16, 1998, the Company sold Superior Valve Company for $35,604 in
cash. The transaction resulted in a pre-tax gain of $9,023. The business,
acquired by Amcast in 1986, produces specialty valves and related products for
the compressed gas and commercial refrigeration markets. Results for fiscal 1999
and 1998 included sales of approximately $4,600 and $42,000, respectively, in
the Company's Flow Control segment.
Effective March 30, 1998, the Company sold its Rancho Cucamonga, California
investment casting operation, Amcast Precision, for $25,445 in cash. The
transaction resulted in a pre-tax gain of $12,048. The facility, acquired by
Amcast in 1987, produces ferrous and nonferrous castings for the aerospace
industry. Results for fiscal 1998 included sales of approximately $13,100 in the
Engineered Components segment. 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.
Following the acquisition of Lee Brass, the Company consolidated its two brass
foundry operations and ceased production at its Flagg Brass plant located in
Stowe, Pennsylvania. The consolidation plan included the transfer of certain
product lines to Lee Brass, the closure of the Flagg Brass facility, and the
termination of approximately 100 salaried and hourly personnel. In connection
with the consolidation plan, during 1998, the Company recorded a restructuring
charge of $5,800 for facility exit costs and a charge of $2,200, included in
cost of sales, primarily for a non-cash write-down of inventory to its net
realizable value. Key components of the $5,800 restructuring charge were $4,900
for a non-cash write-down of assets to their fair value, $500 for severance and
other termination benefits, and $400 for other facility closure costs. As of
August 31, 2000, all associates had been terminated and all of the severance and
most of the facility closure costs had been charged against the liability.
During 1999, the Company wrote off $4,504 of net assets related to the Flagg
Brass operation against the previously established long-term reserve. The
Company expects that the disposition of the remaining Flagg Brass assets will be
completed by the end of fiscal 2002. Results for 1998 included sales for Flagg
Brass of approximately $7,800 in the Flow Control segment.
During 1998, the Company also re-evaluated its reserves related to several
iron factories previously closed in the 1980's and early 1990's. As a result, a
restructuring charge of $4,000 was recorded to cover higher than expected
medical benefits and workers compensation related to these previously closed
facilities.
During 2000, The Company re-assessed its reserves related to the
aforementioned foundaries and recorded a net restructuring charge of $721 to
cover higher than expected medical benefits and workers compensation expenses
related to the closed facilities. A reduction in certain other restructuring
reserves, primarily for product liability and warranty claims for divested
operations, is included in the net charge for 2000.
At the end of 1997, the Company acquired all of the outstanding stock of
Speedline S.p.A. and its subsidiaries (Speedline). The purchase agreement
contained a provision to protect the seller from stock price fluctuations.
During 2000, the Company resolved several matters with the seller which, among
other items, resulted in the purchase by the Company of 478,240 shares of the
Company's common stock held by the seller, a reduction in the purchase price
(goodwill) of $10,000 and a net cash payment to the seller of $2,500.
<PAGE>
INVENTORIES
The major components of inventories as of August 31 are:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
Finished products $ 40,013 $ 36,979
Work in process 23,932 21,833
Raw materials and supplies 18,661 20,801
-------- --------
82,606 79,613
Less amount to reduce certain inventories to LIFO value 5,094 2,447
-------- --------
$ 77,512 $ 77,166
======== ========
</TABLE>
Inventories reported on the FIFO method, primarily in foreign locations, were
$30,343 and $30,802 at August 31, 2000 and 1999, respectively. The estimated
replacement cost of inventories is the amount reported before the LIFO reserve.
<PAGE>
LONG-TERM DEBT AND CREDIT ARRANGEMENTS
<TABLE>
<CAPTION>
The following table summarizes the Company's long-term borrowings at August 31:
<S> <C> <C>
2000 1999
Senior notes $ 50,000 $ 50,875
Revolving credit notes 77,510 112,793
Lines of credit 16,200 -
Industrial revenue bonds - 5,750
Other debt 3,388 4,014
Capital leases 3,219 6,811
-------- --------
150,317 180,243
Less current portion 3,044 6,182
-------- --------
Long-Term Debt $147,273 $174,061
======== ========
</TABLE>
The senior notes bear interest at 7.09% and require periodic principal
payments beginning in November 2002 through November 2005.
In August 1997, the Company replaced its prior credit facility with a new
Credit Agreement (the Agreement) that provided for up to $200,000 in borrowings
through August 2002. During 2000, the Company amended the Agreement and among
other things, these amendments changed certain financial covenants (including
the interest coverage and debt-to-earnings ratios) and added certain affirmative
covenants. The amendments also included increases to the applicable LIBOR
margin. Effective June 2000, the Company reduced the amount of the Agreement to
$150,000. At August 31, 2000, $77,510 was outstanding under the Agreement with
an average interest rate of 6.37%. In addition, a commitment fee is payable on
the unused portion of the credit line (0.5% at August 31, 2000). The Company
also has lines of credit totaling $27,000 of which $16,200 was outstanding at
August 31, 2000 with an average interest rate of 8.32%.
Debt covenants require the Company to maintain certain debt-to-equity,
debt-to-earnings, and interest coverage ratios. Other provisions limit
subsidiary indebtedness. At August 31, 2000, $27,609 of retained earnings was
available for the payment of dividends.
Other debt consists of various mortgage loans with variable interest rates,
ranging from 3.0% to 12.58% that require periodic principal payments through
2006. These obligations are secured by property, plant, and equipment with a net
book value of $11,760 at August 31, 2000.
Capitalized lease obligations provide for aggregate payments, including
interest, of approximately $3,400 annually, payable through 2002. At August 31,
2000, future minimum payments for the leases were $3,629, including $410
representing interest.
The Company also has guaranteed debt totaling $14,508 at August 31, 2000,
for Casting Technology Company.
<PAGE>
The carrying amounts of the Company's debt instruments approximate fair
value as defined under SFAS No. 107. Fair value is estimated based on discounted
cash flows, as well as other valuation techniques. Long-term debt maturities for
each of the next five years are $3,044 in 2001, $95,440 in 2002, $13,236 in
2003, $12,999 in 2004, and $12,742 in 2005.
The Company's foreign operations have short-term lines of credit totaling
approximately $26,300 which are subject to annual review by the lending banks.
At August 31, 2000, the average interest rate for the short-term lines of credit
was 5.26%. Amounts outstanding under these lines of credit are payable on demand
and total $1,584 as of August 31, 2000.
Interest paid was $12,945, $13,044, and $14,823 in 2000, 1999, and 1998,
respectively.
LEASES
The Company has a number of operating lease agreements primarily involving
machinery, physical distribution, and computer equipment. Certain of these
leases contain renewal or purchase options that vary by lease. These leases are
noncancelable and expire on dates through 2009.
During 1999 and 2000, the Company entered into sale-leaseback transactions
whereby the Company sold new and existing manufacturing equipment and leased it
back for 7 years. The leasebacks are being accounted for as operating leases.
The gains of $2,044 have been deferred and are being amortized to income over
the lease term.
Rent expense was $5,277, $3,215, and $3,891 for the years ended August 31,
2000, 1999, and 1998, respectively.
The following is a schedule by year of future minimum rental payments
required under the operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of August 31, 2000:
<TABLE>
<S> <C>
2001 $ 4,205
2002 3,909
2003 3,495
2004 2,924
2005 984
2006 and thereafter 897
--------
Total Minimum Lease Payments $ 16,414
========
</TABLE>
<PAGE>
PENSION PLANS AND POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
Pension Plans: The Company has a noncontributory defined benefit
pension plan covering certain employees. The plan covers salaried employees and
provides pension benefits that are based on years of credited service, employee
compensation during years preceding retirement, and the primary social security
benefit. The plan also covers hourly employees and provides pension benefits of
stated amounts for each year of credited service. The Company's policy is to
fund the annual amount required by the Employee Retirement Income Security Act
of 1974. Plan assets consist of U.S. Treasury bonds and notes, U.S. governmental
agency issues, corporate bonds, and common stocks. The plan held 350,000 common
shares of the Company at August 31, 2000 (3.0% of plan assets) and 1999 (4.6% of
plan assets).
On July 1, 1999, the Company amended its defined benefit pension plan
with respect to certain salaried and hourly employees by establishing a defined
benefit cash balance pension plan (the Plan). The Plan provides pension benefits
that are based on years of credited service and employee compensation during
years preceding retirement. Employees who met certain age and service
requirements remained in the defined benefit pension plan. In August 2000, the
Company amended the Plan to provide additional benefits to certain former
employees. This amendment increased the Company's obligations under the Plan by
$3,945, which will be amortized against income over approximately 17 years.
The Company also has an unfunded nonqualified supplementary benefit
plan through which the Company provides supplemental pension payments in excess
of qualified plan payments including payments in excess of limits imposed by
federal tax law and other benefits. The plan covers certain officers and key
employees.
In addition, the Company participates in a multiemployer plan that
provides defined benefits to certain bargaining unit employees. The Company's
contributions to the multiemployer plan totaled $344, $293, and $241 for 2000,
1999 and 1998, respectively.
Postretirement Health and Life: The Company provides health care and
life insurance benefits to designated salaried and hourly employees who
participate in a defined benefit pension plan and who retired prior to January
1, 1992. The plan coordinates with Medicare and requires employee contributions.
The Company also provides similar benefits to certain employees, represented by
bargaining units, who retire before attaining age 65 and meet certain minimum
service requirements. Benefits for the bargaining unit employees terminate when
the retiree attains age 65. The Company funds the postretirement benefits on a
cash basis. On July 1, 1999, the Company discontinued the postretirement life
insurance benefits for all non-organized salaried and hourly employees who
became participants in the defined benefit cash balance pension plan.
In prior years, health care and life insurance benefits for retired
employees of closed facilities were provided for at the time the related
facility was closed. The accrued postretirement benefit obligation for these
retirees was $877 and $1,100 at August 31, 2000 and 1999, respectively.
Effective September 1, 1998, the Company adopted SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits." In
accordance with SFAS No. 132, the following tables provide a reconciliation of
the change in the benefit obligation, the change in plan assets, and a statement
of the funded status of the plans.
<PAGE>
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
---------------------- -----------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
--------- --------- ------- --------
Change in Benefit Obligation
Benefit obligation at beginning of year $ 98,582 $ 106,334 $ 3,260 $ 3,900
Service cost 1,555 2,117 22 50
Interest cost 6,925 7,104 226 262
Plan amendments 5,047 (1,367) - -
Actuarial (gain) loss (7,591) (6,244) (118) (98)
Plan curtailment - (1,804) - (559)
Benefits paid (7,799) (7,558) (532) (295)
--------- --------- ------- --------
Benefit obligation at end of year $ 96,719 $ 98,582 $ 2,858 $ 3,260
--------- --------- ------- --------
Change in Plan Assets
Fair value of plan assets at beginning of year $ 120,192 $ 114,681 - -
Actual return on plan assets 20,682 12,981 - -
Employer contribution 92 88 532 295
Benefits paid (7,799) (7,558) (532) (295)
--------- --------- ------- --------
Fair value of plan assets at end of year $ 133,167 $ 120,192 $ - $ -
--------- --------- ------- --------
Funded Status
Funded status $ 36,448 $ 21,610 $(2,858) $ (3,260)
Unrecognized net actuarial (gains) loss (38,483) (20,757) 1,266 1,443
Unrecognized prior service cost 6,038 1,070 - -
Unrecognized transition asset (837) (1,394) - -
--------- --------- ------- --------
Net asset (liability) $ 3,166 $ 529 $(1,592) $ (1,817)
--------- --------- ------- --------
Amounts recognized in Statements of Financial Condition
Prepaid (accrued) benefit cost $ 3,166 $ 529 $(1,592) $ (1,817)
Additional minimum liability (723) (401) - -
Intangible asset 723 11 - -
Accumulated other comprehensive losses - 390 - -
--------- --------- ------- --------
Net amount recognized $ 3,166 $ 529 $(1,592) $ (1,817)
========= ========= ======= ========
</TABLE>
<PAGE>
The assumptions used in the measurement of the Company's benefit
obligation and net periodic benefit cost were as follows:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
------------------- -----------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
----- ----- ------ -------
Weighted-average assumptions
Discount rate 8.3% 7.3% 8.3% 7.3%
Expected return on plan assets 10.5% 10.0% - -
Rate of compensation increase 4.7% 4.7% - -
</TABLE>
The assumed rates of future increases in per capita cost of health care
benefits (health care trend rates) are 5.5% in 2000 and thereafter. Increasing
the health care trend rate by one percentage point would increase the
accumulated postretirement benefit obligation by $184 and would increase the
2000 postretirement benefit cost by $17. Decreasing the health care trend rate
by one percentage point would decrease the accumulated postretirement benefit
obligation $162 and would decrease the 2000 postretirement benefit cost by $15.
The components of net periodic benefit cost included in results of
operations are as follows:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
2000 1999 1998 2000 1999 1998
-------- ------- ------- ------- ------ -----
Net Periodic Benefit Cost
Service cost $ 1,555 $ 2,117 $ 1,680 $ 22 $ 50 $ 41
Interest cost 6,925 7,104 7,083 226 262 285
Expected return on plan assets (10,594) (9,088) (8,369) - - -
Amortization of prior service cost 79 334 235 - - -
Recognized net actuarial loss 47 39 59 60 65 53
Amortization of transition asset (558) (558) (558) - - -
Adjustment for settlement - - - - - -
Dispositions - (305) - - (47) -
Curtailment gain - (1,089) - - (511) -
-------- -------- ------- ------- ------ -----
Net periodic benefit cost( benefit) $ (2,546) $ (1,446) $ 130 $ 308 $ (181) $ 379
======== ======== ======= ======= ====== =====
</TABLE>
<PAGE>
The Company also sponsors a deferred compensation profit sharing plan
for the benefit of substantially all domestic salaried employees. The Company
provides a 25% match on employee contributions up to 6% of eligible compensation
and a supplemental savings match from 1% to 35% based on the Company achieving a
minimum return on shareholders' equity and subject to IRS limitations. Matching
contributions made by the Company totaled $734, $369, and $333 for 2000, 1999,
and 1998, respectively.
Included in deferred liabilities at August 31, 2000 and 1999, is an accrual
totaling $10,439 and $11,063, respectively, for termination benefits for
Speedline employees. The liability is based on the employee's length of service,
position, and remuneration, and is payable upon separation. There is no vesting
period or funding requirement associated with the liability.
COMMITMENTS AND CONTINGENCIES
At August 31, 2000, the Company has committed to capital expenditures
of $10,027 in 2001, primarily for the Engineered Components segment.
The Company, as is normal for the industry in which it operates, is
involved in certain legal proceedings and subject to certain claims and site
investigations which arise under the environmental laws and which have not been
finally adjudicated.
The Company has been identified as a potentially responsible party by various
state agencies and by the United States Environmental Protection Agency (U.S.
EPA) under the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended, for costs associated with U.S. EPA-led multi-party
sites and state environmental agency-led remediation sites. The majority of
these claims involve third-party owned disposal sites for which compensation is
sought from the Company as an alleged waste generator for recovery of past
governmental costs or for future investigation or remedial actions at the
multi-party sites. There are two Company-owned properties where state-supervised
cleanups are expected. 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
August 31, 2000, the Company's accrued undiscounted reserve for such
contingencies was $1,575.
<PAGE>
Allied-Signal Inc. (now Honeywell) brought an action against the Company
seeking a contribution from the Company equal to 50% of Honeywell'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. The court has
rendered its decision on this case, however, the exact amount of the verdict has
not yet been determined by the court. The amount will be significantly less than
the amount sought by the plaintiff and the Company estimates its liability
associated with the action to be between $500 and $1,500. The Company believes
its liability is at the low end of this range.
In prior years, the Company had recorded a liability for a legal claim
asserted by former employees at its Flagg Brass operations. Due to the terms of
a settlement reached during 2000 relative to this obligation, a liability in the
amount of $2,226 was reversed through a reduction in SG&A expense.
Increasingly, major automotive industry companies are withholding partial
payment for goods received. Often, this is a negotiating tactic for costs
incurred by the customer in which the customer believes that the supplier should
participate. Generally, payment is received, however, only after several months
have passed. At August 31, 2000, the Company has $2,037 of accounts receivable
being withheld pending final resolution of various issues. It is anticipated
that this amount will ultimately be collected.
MAJOR CUSTOMERS AND CREDIT CONCENTRATION
The Company sells products to customers primarily in the United States and
Europe. The Company performs ongoing credit evaluations of customers, and
generally does not require collateral. Allowances are maintained for potential
credit losses and such losses have been within management's expectations. On
August 31, 2000, total trade receivables from the domestic and foreign
automotive industry were $57,928, and $ 19,945 was due from the construction
industry.
Sales to Engineered Components' largest customer, General Motors, were
$157,099, $136,469, and $105,720 for the years ended August 31, 2000, 1999, and
1998, respectively. Trade receivables from General Motors on August 31, 2000 and
1999, were $7,845 and $14,570, respectively, and were current. No other single
customer accounted for a material portion of trade receivables.
<PAGE>
INCOME TAXES
<TABLE>
<CAPTION>
For financial reporting purposes, income before income taxes includes the
following components:
<S> <C> <C> <C>
2000 1999 1998
United States $ 135 $ 23,005 $ 17,736
Foreign 5,287 8,533 5,239
------ -------- --------
$5,422 $ 31,538 $ 22,975
====== ======== ========
</TABLE>
<TABLE>
<CAPTION>
The provisions for income taxes on continuing operations are as follows:
<S> <C> <C> <C>
Currently payable
State and local $ 62 $ 1,002 $ 222
Foreign 3,142 3,450 2,232
Federal 61 5,499 5,360
------ -------- --------
3,265 9,951 7,814
Deferred
State and local 78 133 (4)
Foreign (1,053) (803) (2,091)
Federal (232) 2,940 491
------- -------- --------
(1,207) 2,270 (1,604)
------- -------- --------
$2,058 $ 12,221 $ 6,210
====== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of income taxes computed by applying the statutory federal income
tax rate to the provisions for Income taxes are as follows:
<S> <C> <C> <C>
Federal income tax at statutory rate $1,898 $ 11,038 $ 8,041
Federal tax credits (200) (108) (140)
State income taxes 117 784 144
Goodwill amortization 507 852 424
Higher effective income taxes of other countries 454 954 268
Foreign tax basis step-up - (1,590) -
Change in Italian tax rates - - (2,562)
Other (718) 291 35
------ -------- --------
$2,058 $ 12,221 $ 6,210
====== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Significant components of deferred tax assets and liabilities are as follows:
<S> <C> <C>
2000 1999
-------- --------
Deferred tax assets related to
Accrued compensation and related items $ 3,090 $ 2,272
Tax credit carryforwards 1,747 4,272
Net operating losses 9,179 7,115
Other 2,096 5,516
-------- --------
16,112 19,175
Valuation allowance (3,198) (4,667)
-------- --------
12,914 14,508
Deferred tax liabilities related to
Depreciation 31,954 32,874
Other 5,584 8,995
-------- --------
37,538 41,869
-------- --------
Net deferred tax liabilities $ 24,624 $ 27,361
======== ========
</TABLE>
The Company has foreign net operating loss carryforwards totaling $20,117, of
this total, $8,643 will expire in years 2001 through 2005 and $11,475 have an
unlimited carryforward. The Company also has a current year domestic net
operating loss of $1,736 that will expire in 2020. In addition, the Company has
income tax credits of $200 expiring in 2020 and an alternative minimum tax
credit of $1,547 which has an unlimited carryforward period. For financial
reporting purposes, a valuation allowance of $3,198 has been recognized to
offset the deferred tax assets related to those carryforwards.
Income taxes paid by the Company totaled $4,342, $7,000, and $5,701 in
2000, 1999, and 1998, respectively.
Undistributed earnings of the Company's foreign subsidiaries are considered
to be permanently reinvested and, accordingly, no provisions for U.S. income
taxes have been provided thereon. It is not practical to determine the deferred
tax liability for temporary differences related to these undistributed earnings.
<PAGE>
STOCK OPTIONS
The Company has two plans under which stock options for the purchase of
common shares can be granted. The 1999 Stock Incentive Plan provides for the
granting of options for the purchase of a maximum of 425,000 shares, stock
appreciation rights, performance awards, and restricted stock awards to key
employees of the Company. Options awarded under the plan may not be granted at
an option price less than the fair market value of a share on the date the
option is granted, and the maximum term of an option may not exceed ten years.
All options currently granted under the plan are exercisable one year after the
date of grant.
The 1999 Director Stock Option Plan provides for the granting of options
for the purchase of a maximum of 150,000 shares. Under the plan, each person
serving as a director of the Company on the first business day of January of
each year, who is not employed by the Company, is automatically granted options
for the purchase of 1,500 shares. All options were granted at an option price
equal to the fair market value of a share on the date of grant. Each option is
exercisable one year after the date of grant and the maximum term of an option
may not exceed ten years.
Certain options also remain outstanding and exercisable from prior stock
option plans. Information regarding the Company's stock option plans for the
years ended August 31, 2000, 1999, and 1998 is as follows: Information regarding
options outstanding at August 31, 2000, is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
----------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------- ---------- ---------- ----------- ---------- ----------
Outstanding at beginning of year 668,494 $19.21 571,337 $19.94 472,525 $18.96
Granted 161,346 $14.18 132,657 $16.46 149,601 $22.78
Exercised (19,071) $10.38 (2,000) $18.03 (30,539) $18.25
Cancelled (162,977) $18.63 (33,500) $20.86 (20,250) $20.78
--------- --------- ----------
Outstanding at end of year 647,792 $18.36 668,494 $19.21 571,337 $19.94
========= ========= ==========
Options exercisable at end of year 510,607 $19.51 535,837 $19.89 421,736 $18.93
========= ========= ==========
Weighted-average fair value of
options granted during the year $4.81 $3.36 $4.95
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Information regarding options outstanding at August 31, 2000, is as follows:
Options Outstanding Options Exercisable
-------------------------------------- ----------------------
<S> <C> <C> <C> <C> <C>
Weighted Weighted- Weighted-
Remaining Average Average
Contractual Exercise Exercise
Range of Exercise Prices Number Life Price Number Price
------------------------ ------ ----------- --------- -------- ---------
$8.50 - $14.50 86,968 6.8 years $11.63 29,468 $11.47
$15.53 - $19.81 360,784 6.9 years $17.13 281,099 $17.51
$20.44 - $25.91 200,040 5.5 years $23.50 200,040 $23.50
</TABLE>
<PAGE>
The Company has elected to adopt the disclosure-only provisions of SFAS No.
123, "Accounting for Stock-Based Compensation," and continue to apply Accounting
Principles Board Opinion No. 25 and related interpretations in accounting for
its stock option plans. Accordingly, no compensation cost has been recognized
related to the Company's stock option plans. Consistent with the provisions of
SFAS 123, had compensation cost been determined based on the fair value at the
grant date for awards in fiscal 2000, 1999, and 1998 the Company's net income
and net income per share would be reduced for such years as follows.
<TABLE>
<S> <C> <C> <C>
2000 1999 1998
------ ------ ------
Proforma effect on net income $ 430 $ 290 $ 523
Proforma effect on net income per share:
Basic $ 0.05 $ 0.03 $ 0.06
Diluted $ 0.05 $ 0.03 $ 0.06
</TABLE>
The fair value of each option grant was estimated as of the grant date
using the Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<S> <C> <C> <C>
2000 1999 1998
------------ ------------ ------------
Expected volatility 46.0% 23.0% 23.0%
Dividend yield 4.42% 3.31% 2.26%
Expected life of option in years 5.0 5.0 3.5
Risk-free interest rates 5.7% - 6.8% 4.4% - 5.6% 5.8% - 6.6%
</TABLE>
<PAGE>
EARNINGS PER SHARE
<TABLE>
<CAPTION>
The following table reflects the calculations for basic and diluted earnings per
share for the three years ended August 31:
<S> <C> <C> <C>
2000 1999 1998
-------- ------- -------
Income before cumulative effect
of accounting change $ 3,364 $19,317 $16,765
======== ======== =======
Net income $ 4,347 $19,317 $ 8,177
======== ======== =======
Basic Earnings per Share:
Basic shares 8,788 9,144 9,200
======== ======== =======
Income before cumulative
effect of accounting change $ 0.38 $ 2.11 $ 1.82
======== ======== =======
Net income $ 0.49 $ 2.11 $ 0.89
======== ======== =======
Diluted Earnings per Share
Basic shares 8,788 9,144 9,200
Stock options 4 18 50
-------- ------- -------
Diluted shares 8,792 9,162 9,250
======== ======== =======
Income before cumulative
effect of accounting change $ 0.38 $ 2.11 $ 1.81
======== ======== =======
Net income $ 0.49 $ 2.11 $ 0.88
======== ======== =======
</TABLE>
For each of the three years, there were outstanding stock options excluded from
the computation of diluted earnings per share because the options were
antidilutive.
<PAGE>
PREFERRED SHARE PURCHASE RIGHTS
Under the Company's Shareholder Rights Plan, as amended on February 24,
1998, holders of common shares have one preferred share purchase right
(collectively, the Rights) for each common share held. The Rights contain
features which, under defined circumstances, allow holders to buy common shares
at a bargain price. The Rights are not presently exercisable and trade in tandem
with the common shares. The Rights become exercisable following the close of
business on the earlier of (i) the 20th day after a public announcement that a
person or group has acquired 15% or more of the common shares of the Company or
(ii) the date designated by the Company's board of directors. It is expected
that the Rights will begin to trade independently of the Company's common shares
at that time. Unless renewed, the Rights expire on February 23, 2008.
BUSINESS SEGMENTS
During 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This Statement requires the Company to
report financial and descriptive information about its operating segments on the
same basis that is used internally to assess operating performance and allocate
resources to segments. Operating segments are organized internally primarily by
the type of products produced and markets served, and in accordance with SFAS
No. 131, the Company has aggregated similar operating segments into two
reportable segments: Flow Control Products and Engineered Components. Adoption
of the new standard did not result in a change in the Company's reportable
segments.
The Flow Control Products segment is a supplier of copper and brass
plumbing fittings for the industrial, commercial and residential construction
markets, and in prior years, valves utilized in air conditioning and
refrigeration systems and industrial compressed gas applications. The Engineered
Components segment is a supplier of aluminum wheels and aluminum automotive
components for automotive original equipment manufacturers and cast and
fabricated metal products for sale to original equipment manufacturers in the
transportation, construction, air conditioning and refrigeration industries.
The Company evaluates segment performance and allocates resources based
on several factors, of which net sales and operating income are the primary
financial measures. The accounting policies of the reportable segments are the
same as those described in the footnote entitled "Accounting Policies" of the
Notes to the Consolidated Financial Statements. There are no intersegment sales.
<PAGE>
<TABLE>
<CAPTION>
Net Sales Operating Income
<S> <C> <C> <C> <C> <C> <C>
2000 1999 1998 2000 * 1999 1998 *
Flow Control Products $147,697 $153,903 $180,596 $22,214 $26,919 $27,931
Engineered Components 462,958 435,030 393,818 6,692 19,708 19,609
Corporate - - - (6,628) (9,540) (9,630)
-------- -------- -------- ------- ------- -------
610,655 588,933 574,414 22,278 37,087 37,910
Restructuring and
Integration charges - - - (721) - (12,000)
Disposition of businesses - - - - 9,023 12,048
Equity in loss of joint
venture and other
income (expense) - - - (3,206) (1,390) 62
Interest expense - - - (12,929) (13,182) (15,045)
-------- -------- -------- ------- ------- -------
Total net sales and
income before taxes $610,655 $588,933 $574,414 $ 5,422 $31,538 $22,975
======== ======== ======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Capital Expenditures Depreciation and Amortization
<S> <C> <C> <C> <C> <C> <C>
2000 1999 1998 2000 1999 1998
Flow Control Products $ 4,435 $ 6,266 $ 9,085 $ 5,497 $ 5,322 $ 6,114
Engineered Components 17,018 40,799 37,535 26,445 25,018 24,545
Corporate 82 295 143 1,057 1,006 1,454
-------- -------- -------- -------- ------- -------
$ 21,535 $ 47,360 $ 46,763 $ 32,999 $31,346 $32,113
======== ======== ======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Total Assets
<S> <C> <C> <C>
2000 1999 1998
Flow Control Products $ 82,070 $ 81,673 $112,874
Engineered Components: 317,526 361,753 362,742
Corporate 80,790 90,060 87,834
---------- -------- --------
$480,386 $533,486 $563,450
========= ======== ========
</TABLE>
* Income before cumulative effect of a change in accounting principle in 2000
and 1998.
<PAGE>
The Company's manufacturing operations are conducted in the United States and
Europe. Information about the Company's operations in different geographic areas
for the years ended August 31, 2000, 1999, and 1998 is shown below. Net sales
are based on the location of the customer.
<TABLE>
<S> <C> <C> <C>
2000 1999 1998
-------- -------- --------
Net Sales
United States $422,403 $392,960 $377,770
Other Europe 92,319 107,602 101,125
Germany 76,780 70,143 65,229
Other 19,153 18,228 30,290
-------- -------- --------
$610,655 $588,933 $574,414
======== ======== ========
Long-Lived Assets
United States $146,908 $158,997 $175,229
Europe 79,949 97,761 84,888
-------- -------- --------
$226,857 $256,758 $260,117
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
The Company's sales by product category are as follows:
<S> <C> <C> <C> <C> <C> <C>
2000 1999 1998
-------- -------- --------
Aluminum wheels $289,210 $301,490 $266,395
Brass and copper fittings 166,203 167,931 159,603
Aluminum automotive components 155,242 115,297 97,110
Valves - 4,215 38,172
Other - - 13,134
-------- -------- --------
$610,655 $588,933 $574,414
======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA (UNAUDITED)
($ in thousands except per share data)
For the
Fiscal Quarter Year
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000 1st 2nd 3rd 4th
Net sales $ 146,079 $ 150,009 $ 163,162 $ 151,405 $ 610,655
Gross profit 18,311 18,631 21,387 20,365 78,694
Income before cumulative effect
of accounting change 1,295 284 1,485 300 3,364
Income per share before cumulative
effect of accounting change - basic $ 0.14 $ 0.03 $ 0.17 $ 0.04 $ 0.38
Income per share before cumulative
effect of accounting change - diluted $ 0.14 $ 0.03 $ 0.17 $ 0.04 $ 0.38
Net income 2,278 284 1,485 300 4,347
Net income per share - basic $ 0.25 $ 0.03 $ 0.17 $ 0.04 $ 0.49
Net income per share - diluted $ 0.25 $ 0.03 $ 0.17 $ 0.04 $ 0.49
Average number of shares
outstanding - basic 8,956 8,949 8,863 8,406 8,788
Average number of shares
outstanding - diluted 8,962 8,956 8,863 8,407 8,792
</TABLE>
<TABLE>
<CAPTION>
For the
Fiscal Quarter Year
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 1st 2nd 3rd 4th
Net sales $ 146,024 $ 141,734 $ 157,790 $ 143,385 $ 588,933
Gross profit 24,847 25,115 23,851 19,212 93,025
Net income 10,029 4,502 3,739 1,047 19,317
Net income per share - basic $ 1.09 $ 0.49 $ 0.41 $ 0.12 $ 2.11
Net income per share - diluted $ 1.09 $ 0.49 $ 0.41 $ 0.12 $ 2.11
Average number of shares
outstanding - basic 9,192 9,200 9,169 9,019 9,144
Average number of shares
outstanding - diluted 9,202 9,227 9,188 9,034 9,162
</TABLE>
Gross profit and net income for the first three quarters of fiscal 2000 have
been restated from the amounts previously reported in the Company's Form 10-Q's.
The restated amounts reflect the accounting change for supplies and spare parts
inventories that was made retroactive to September 1, 1999. The effect of the
restatements was to recognize the cumulative effect of this change in the first
quarter, which decreased gross profit by $315 and increased net income by
$792. Gross profit and net income decreased in the second quarter by $719
and $436, respectively, and in the third quarter by $551 and $356, respectively.
<PAGE>
COMMON STOCK PRICE AND DIVIDENDS DECLARED
<TABLE>
<CAPTION>
Fiscal 2000 Fiscal 1999
------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common Stock Common Stock
Price Range Dividends Price Range Dividends
Quarter High Low Declared High Low Declared
------- -------- -------- --------- -------- -------- ---------
First $16 $12 3/8 14 cents $18 15/16 $13 7/8 14 cents
Second $17 $11 3/4 14 cents $22 $15 5/16 14 cents
Third $12 1/8 $8 14 cents $19 $15 1/4 14 cents
Fourth $12 1/8 $8 3/16 14 cents $18 7/16 $14 1/2 14 cents
</TABLE>
