<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/ x / Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended January 31, 1998, or
/ / Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File No. 0-16115
IMPCO TECHNOLOGIES, INC.
----------------
(Exact name of registrant as specified in its charter)
Delaware 91-1039211
- ------------------------ --------------------
(State of Incorporation) IRS Employer I.D. No.
16804 Gridley Place, Cerritos, CA 90703
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 860-6666
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
------ ------
Number of shares outstanding of each of the issuer's classes of common
stock, as of February 28, 1998:
7,040,438 shares of Common Stock, $.001 par value per share
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
January 31, 1998 and April 30, 1997
-----------
ASSETS
------
<TABLE>
<CAPTION>
January 31, April 30,
1998 1997
----------- -----------
(unaudited)
<S> <C> <C>
Current assets:
Cash $ 964,120 $ 1,975,903
Accounts receivable 10,846,053 11,456,539
Less allowance for doubtful accounts 265,602 288,111
----------- -----------
Net accounts receivable 10,580,451 11,168,428
Inventories:
Raw materials and parts 8,761,215 7,717,710
Work-in-process 862,049 754,576
Finished goods 8,040,940 5,711,966
----------- -----------
Total inventories 17,664,204 14,184,252
Other current assets 2,141,420 2,575,055
----------- -----------
Total current assets 31,350,195 29,903,638
Equipment and leasehold improvements:
Dies, molds and patterns 4,925,165 4,272,220
Machinery and equipment 6,847,045 4,846,940
Office furnishings and equipment 4,677,757 4,130,351
Leasehold improvements 2,592,097 1,997,174
----------- -----------
19,042,064 15,246,685
Less accumulated depreciation and amortization 10,122,070 8,026,594
----------- -----------
Net equipment and leasehold improvements 8,919,994 7,220,091
Intangibles arising from acquisitions 13,299,908 11,351,802
Less accumulated amortization 3,398,378 2,950,805
----------- -----------
Net intangibles arising from acquisitions 9,901,530 8,400,997
Other assets 1,097,143 1,588,364
----------- -----------
$51,268,862 $47,113,090
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
2
<PAGE>
IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
January 31, 1998 and April 30, 1997
(Continued)
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
January 31, April 30,
1998 1997
----------- -----------
(unaudited)
<S> <C> <C>
Current liabilities:
Notes payable $ 0 $ 328,839
Accounts payable 4,656,840 4,538,243
Accrued payroll obligations 1,469,380 1,564,028
Accrued warranty obligations 281,373 275,760
Income taxes payable 862,148 563,947
Other accrued expenses 2,036,086 2,869,218
Current portion of long-term loans 1,861,015 1,515,585
----------- -----------
Total current liabilities 11,166,842 11,655,620
Line of credit 0 5,450,000
Term loans - Bank of America NT&SA 2,938,339 3,592,013
Term loan - DEPA Holding B.V. 1,901,887 2,154,399
Other long term liabilities 1,459,315 1,524,906
Minority Interest 946,572 673,044
Stockholders' equity:
1993 Series 1 Preferred Stock, $0.01 par value,
5,950 shares authorized, issued and
outstanding $5,950,000 liquidation value 5,650,000 5,650,000
Common stock, $.001 par value, authorized
25,000,000 shares; 7,036,305 issued and
outstanding at January 31, 1998
(5,814,587 at April 30, 1997) 7,036 5,815
Additional paid-in capital relating to
common stock 37,813,581 29,342,121
Shares held in trust (27,148) (8,814)
Accumulated deficit (9,588,462) (12,467,953)
Foreign currency translation adjustment (999,100) (458,061)
----------- -----------
Total stockholders' equity 32,855,907 22,063,108
----------- -----------
$51,268,862 $47,113,090
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
3
<PAGE>
IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three and nine months ended January 31, 1998 and 1997
---------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
----------------------- -----------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Product sales $14,835,303 $14,764,418 $44,716,184 $42,957,912
Contract revenue 2,157,932 294,336 6,728,637 1,896,243
----------- ----------- ----------- -----------
Net revenue 16,993,235 15,058,754 51,444,821 44,854,155
Costs and expenses:
Cost of sales 8,657,506 9,182,704 27,232,314 26,927,385
Research and
development expense 3,627,760 1,783,788 9,971,106 6,154,229
Selling, general and
administrative expense 2,712,120 2,885,901 9,197,024 8,402,247
----------- ----------- ----------- -----------
Total costs and expenses 14,997,386 13,852,393 46,400,444 41,483,861
----------- ----------- ----------- -----------
Operating income 1,995,849 1,206,361 5,044,377 3,370,294
Financing charges 184,131 293,074 686,056 820,059
----------- ----------- ----------- -----------
Income before income taxes
and minority interest in
income of consolidated
subsidiaries 1,811,718 913,287 4,358,321 2,550,235
Provision for income taxes 348,248 74,024 740,915 255,024
Minority interest in income
of consolidated
subsidiaries 117,704 71,381 291,667 174,741
----------- ----------- ----------- -----------
Net income before dividends 1,345,766 767,882 3,325,739 2,120,470
Dividends on preferred stock 148,749 145,033 446,248 435,094
----------- ----------- ----------- -----------
Net income $ 1,197,017 $ 622,849 $ 2,879,491 $ 1,685,376
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per common share
Basic $0.18 $0.11 $0.47 $0.30
Diluted $0.16 $0.10 $0.42 $0.28
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Number of shares used in
per share calculation
Basic 6,625,179 5,733,541 6,087,671 5,700,150
Diluted 8,392,559 6,112,124 7,897,790 6,095,440
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
4
<PAGE>
IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended January 31, 1998 and 1997
---------------
<TABLE>
<CAPTION>
Nine Months Ended
January 31,
------------ ------------
1998 1997
------------ ------------
<S> <C> <C>
Net cash provided by operating activities $ 1,304,879 $ 72,594
Cash flows from investing activities:
Purchase of equipment and leasehold
improvements (3,406,257) (988,373)
Investment in Subsidiaries (961,000) (4,654,794)
Other, net 327,827 92,936
------------ ------------
Net cash used in investing activities (4,039,430) (5,550,231)
Cash flows from financing activities:
Net (repayments) borrowings on line of credit (5,450,000) 4,000,000
Payments on notes payable (328,839) (575,000)
Proceeds from issuance of notes payable - 113,600
Proceeds from issuance of bank term loans 3,300,000 3,989,668
Proceeds from issuance of common stock 8,454,347 340,294
Payments on term loan (3,761,111) (751,769)
Change in other long-term liabilities 55,568 (472,890)
Dividends on preferred stock (446,248) (435,094)
------------ ------------
Net cash provided by
financing activities 1,823,717 6,208,809
------------ ------------
Translation Adjustment (100,949) 234,354
Net (decrease) increase in cash (1,011,783) 965,526
Cash beginning of year 1,975,903 811,148
------------ ------------
Cash, end of quarter $ 964,120 $ 1,776,674
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
5
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998 and 1997
--------------
1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements are unaudited
and reflect all adjustments (consisting only of normal recurring adjustments)
which are, in the opinion of management, necessary for the fair presentation of
the financial position and operating results for the interim periods. The
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto, together with
management's discussion and analysis of financial condition and the results of
operations, contained in the Company's Annual Report on Form 10-K for the fiscal
year ended April 30, 1997. The condensed consolidated balance sheets of IMPCO
Technologies, Inc. [effective September 15, 1997, AirSensors, Inc. changed its
name to IMPCO Technologies, Inc.] as of January 31, 1998 include the accounts of
the Company, its wholly-owned subsidiary IMPCO Technologies, Pty. Ltd., its
majority-owned subsidiary IMPCO Technologies B.V. [Effective January 1, 1998,
IMPCO Media Europe B.V. changed its name to IMPCO Technologies B.V.], and its
majority-owned subsidiary Grupo I.M.P.C.O. Mexicano, S. de R.L. de C.V.
[Effective January 20, 1998 Industrias Mexicanas de Productos de Combustibles,
S. de R.L. de C.V. changed its name to Grupo I.M.P.C.O. Mexicano, S. de R.L. de
C.V.]. The results of operations for the nine months ended January 31, 1998 are
not necessarily indicative of the results that may be expected for the entire
year ending April 30, 1998.
2) ACQUISITIONS
(a) ALGAS CARBURETION. On December 5, 1997, the Company purchased
certain manufacturing equipment and inventory of the Algas Carburetion
Division of PGI International. The purchase price of US$2,400,000 was paid
in cash. On the same day, the Company acquired a 90% interest in Industrias
Mexicanas de Productos de Combustibles, S. de R.L. de C.V.("Grupo I.M.P.C.O.
Mexicano"). The purchase price of US$961,000 was paid in cash. Immediately
prior to the Company's acquisition of a 90% ownership interest in Grupo
I.M.P.C.O. Mexicano, Grupo I.M.P.C.O. Mexicano acquired certain assets of the
carburetion division of Algas Mexicana, de R.L. de C.V. These acquisitions
were financed by term loans of approximately $3.3 million provided by Bank of
America.
(b) EDO CANADA, LTD. On December 12, 1997, the Company purchased from
the bankruptcy trustee of EDO Canada, Ltd. certain development, testing,
quality control and manufacturing equipment used for the manufacture of
storage tanks for compressed natural gas. The purchase price of US$790,000
was paid in cash and was primarily financed through Bank of America's BA
Capital Leasing.
6
<PAGE>
(c) GAS PARTS (NSW) PTY. LTD. On January 31, 1998, the Company's
wholly-owned subsidiary IMPCO Technologies Pty. Ltd. acquired the remaining
50% ownership interest in Gas Parts (NSW) Pty. Ltd. for A$225,000
(US$148,500) in cash. The acquisition was accounted for using the purchase
method of accounting for step-acquisitions. Excess purchase price over fair
market value of the underlying assets was allocated to goodwill.
3) REDEMPTION OF COMMON STOCK PURCHASE WARRANTS
The Company called for redemption on December 13, 1997 its outstanding
common stock purchase warrants. This resulted in holders exercising
approximately 99 percent of the warrants, the issuance of approximately 1.2
million new shares of common stock, and the Company's receipt of gross
proceeds of approximately $8.5 million. Unexercised warrants were redeemed
for $0.10 each and became null and void.
4) AMENDED BANK OF AMERICA AGREEMENT
(a) BANK OF AMERICA NT&SA
On February 4, 1998 the Company amended its credit facility with Bank of
America NT&SA by extending the payment terms of the acquisition facility from
three years to five years. The amended credit facility also provides a
$1,000,000 revolving line of credit to the Company's Mexican subsidiary fully
reserved under the current revolving line of credit. Including the
$12,000,000 revolving line of credit, the $5,525,000 , capital lease
facility, the $4,000,000 acquisition facility, and the $1,127,500 outstanding
balance on the term loan for the acquisition of IMPCO Technologies B.V., the
total Bank of America credit facility was $22,652,500 at January 31, 1998.
(i) REVOLVING LINE OF CREDIT
The amended credit facility provides a Mexican peso line of credit
equivalent to US$1,000,000 for Grupo I.M.P.C.O. Mexicano and is included as
part of the existing US$12,000,000 revolving line of credit between the
Company and Bank of America NT&SA. For US borrowings, the revolving line of
credit carries interest, payable monthly, at a fluctuating per annum rate
equal to the Bank of America reference rate or the London Interbank Offering
Rate (LIBOR) plus 1.75% (7.375% at 1/31/98). For Mexican borrowings, the
revolving line of credit carries interest, payable monthly, at a fluctuating
per annum rate equal to the Bank of America Mexico (BAMSA) cost of funds plus
1.50% (21% at 1/31/98). The Company may prepay the facility, in full or in
part, upon two business days notice, subject to break funding costs, if any.
The minimum prepayment is US$250,000.
7
<PAGE>
(ii) TERM LOAN FOR ACQUISITION(S)
The amended credit facility provides for the acquisition facility for a
term of five years ending December, 2002. As of January 31, 1998, the total
outstanding balance was $3,300,000. On February 2, 1998, the Company entered
into a 58 month interest rate swap agreement with Bank of America ending
December 5, 2002 that fixes the interest rate on this facility at 7.99%.
(b) TERM LOAN - BANK OF AMERICA, AUSTRALIA
On January 31, 1998, the Company retired this facility early with a
balloon payment of A$1,000,000 (U.S. $660,000).
5) YEAR 2000
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the Year 2000
date are a known risk. The Company is addressing this risk to the
availability and integrity of financial systems and the reliability of
operational systems both internally and externally. In addition, the Company
has identified processes to communicate with customers, suppliers, financial
institutions and others with which it conducts business to identify and
address any potential Year 2000 issues. The total cost of compliance and its
effect on the company's future results of operations is not currently
estimated by management and is currently being determined as part of its
investigation.
8
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
FORWARD-LOOKING STATEMENTS
The statements contained in Management's Discussion and Analysis of
Financial Condition and Results of Operation that are not historical in
nature are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements are subject to
risks and uncertainties that could cause actual results to differ materially
from those indicated in the forward-looking statements. Factors that could
cause or contribute to such differences include, but are not limited to,
those identified in "Certain Factors" in the Form 10-K filed for the year
ended April 30, 1997 and other factors identified from time to time in the
Company's reports filed with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
- ---------------------
NET REVENUE
- -----------
Net revenue for the three months and nine months ended January 31, 1998,
increased by $1.9 million (13%) and $6.6 million (15%), respectively, as
compared to the same periods in the prior fiscal year. Contract revenues,
primarily from the General Motors program, represented $1.8 million of the
increase for the three month period and represented $4.8 million of the
increase for the nine month period ended January 31, 1998.
Product sales for the three months and nine months ended January 31,
1998, increased by .5% and 4%, respectively, as compared to the same periods
in the prior fiscal year. This increase was unfavorably reduced each period
by the negative effects of the strengthening of the U.S. dollar against
foreign currencies of approximately 4 percentage points. The following table
sets forth the Company's product sales by application (all dollars in
thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
January 31, January 31,
-------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Motor vehicle $ 5,164 $ 6,420 $ 15,943 $ 17,500
Forklifts and other material
handling equipment 7,394 5,338 20,825 17,109
Small portable to
large stationary 2,277 3,006 7,948 8,349
-------- -------- -------- --------
</TABLE>
9
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Total product sales $ 14,835 $ 14,764 $ 44,716 $ 42,958
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
During the three months and nine months ended January 31, 1998, net
revenue attributable to the Company's motor vehicle products decreased by 20%
and 9%, respectively, as compared to the same periods in the prior fiscal
year. The following table sets forth the Company's worldwide motor vehicle
product sales by component parts and upfitting, (all dollars in thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
January 31, January 31,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Component parts $ 4,388 $ 5,855 $ 13,925 $ 15,580
Upfitting systems 776 565 2,018 1,920
-------- -------- -------- --------
Total $ 5,164 $ 6,420 $ 15,943 $ 17,500
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
During the three months and nine months ended January 31, 1998, sales
for the Company's motor vehicle component parts decreased by 25% and 11%,
respectively, as compared to the same periods in the prior fiscal year. This
decrease primarily resulted from lower product sales in Australia as a result
of a general economic slowdown and unfavorable price differentials between
petroleum and alternative fuels which unfavorably impacted the Company's
component sales. The weakening Australian dollar explains 5 percentage
points of the 25% decrease for the three month period and 3 percentage points
of the 11% decrease for the nine month period. Management anticipates that
the unfavorable conditions in Australia will continue for the remainder of
the current fiscal year. Management further believes that revenues generated
from component parts in the final quarter of the current fiscal year will be
comparable to sales realized during the same period in the previous fiscal
year due to higher sales in North America and Latin America. These are
forward looking statements.
During the three months and nine months ended January 31, 1998, revenue
attributable to upfitting vehicles with the Company's systems increased by
$211,000 (37%) and 98,000 (5%), respectively, as compared to the same periods
in the prior fiscal year. During the current year, the upfitting revenue
represented sales of mid-year 1997 GM pick-ups upfit with the Company's
bi-fuel natural gas fuel system and 1998 medium-duty dedicated Liquid Propane
Gas (LPG) kits under a cross license agreement with General Motors. During
the previous year, revenue resulted from a program with Ford Motor Company
that materially ended in the first quarter of fiscal year 1997 and a program
with the United States Postal Service that began in the third quarter of
fiscal year 1997. Management anticipates higher upfitting revenues from the
General Motors program during the final quarter of the current fiscal year
with significant
10
<PAGE>
increases in volumes projected in the beginning of the next fiscal year. This
is a forward-looking statement.
During the three months and nine months ended January 31, 1998, sales of
the Company's products for forklifts and other material handling equipment
increased by approximately 39% and 22%, respectively, as compared to the same
periods in the prior fiscal year. During the three and nine months ended
January 31, 1998, the Company realized increased revenues of $.7 million and
$2.0 million, respectively, from its European operations which primarily
sells material handling equipment. Without the strengthening of the U.S.
dollar, revenues from European operations would have increased $1.1 million
and $3.0 million for the three and nine month periods, respectively. The
remaining increase in sales was derived from domestic operations. Both
European and domestic operations realized an increase in demand for new
forklifts in the material handling industry. Management anticipates that
this trend will continue and that worldwide revenues provided by forklift and
other material handling equipment will be slightly higher in the fourth
quarter of fiscal year 1998 compared to the fourth quarter of fiscal year
1997. This is a forward-looking statement.
During the three months and nine months ended January 31, 1998, sales
for the Company's small portable to large stationary engines decreased by
$729,000 (24%) and $401,000 (5%), respectively, as compared to the same
periods in the prior fiscal year. The decreases are related to new EPA
regulations affecting the small engine aftermarket. The significant decrease
for the three month period was an anomaly due to shipment patterns and is not
believed to be indicative of the overall small portable to large stationary
engine market. Management anticipates that revenue generated from the
Company's small portable to large stationary engines in the final quarter of
fiscal year 1998 will be lower than the same period in fiscal year 1997.
This is a forward-looking statement.
Contract revenue for the three and nine months ended January 31, 1998,
increased by $1.8 million and $4.8 million, respectively, as compared to the
same periods in the prior fiscal year. For the three-month period ended
January 31, 1998, contract revenue comprised 13% of total revenue compared to
2% for the same period in the previous year. For the nine month period ended
January 31, 1998, contract revenue comprised 13% of total revenue compared to
4% for the same period in the previous year. These increases were due to the
addition of several gaseous fueled vehicle platforms for development under
the contract with General Motors Corporation. Contract revenue is
principally recognized by the percentage of completion method. Profits
expected to be realized on contracts are based on the Company's estimates of
total contract sales value and costs at completion. These estimates are
reviewed and revised periodically throughout the lives of the contracts.
Based on the fore mentioned increases in vehicle platforms, management
anticipates that contract revenue during the remainder of the current fiscal
year will be substantially higher than levels experienced during
11
<PAGE>
the fourth quarter of the previous fiscal year. This is a forward-looking
statement.
During the three months and nine months ended January 31, 1998, the
Company's revenues were generated in the following geographic regions:
<TABLE>
<CAPTION>
Three months ended Nine months ended
January 31, January 31,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
United States and Canada 56% 52% 56% 54%
Pacific Rim 12% 23% 14% 22%
Europe 20% 15% 19% 15%
Latin America 13% 10% 12% 9%
</TABLE>
GROSS PROFIT MARGIN
- -------------------
The Company's gross profit margin on product sales for the three months
ended January 31, 1998, was $6.2 million (42%) as compared to $5.6 million
(38%) during the same quarter of the prior fiscal year. For the current
three month period, the Company's domestic operations contributed $.5 million
to this increase primarily through manufacturing efficiencies and higher
sales volumes. The newly acquired Mexican operation contributed $.1 million
to this increase. The European operations also contributed $.1 million to the
increase but realized lower gross profit margins in the current period
compared to the prior year due to higher imported material costs resulting
from a weaker Dutch guilder. The Company's Australian operation realized
lower gross profits ($.1 million) as a result of lower sales volume and a
weakening of the Australian dollar.
The Company's gross profit margin on product sales for the nine months
ended January 31, 1998, was $17.5 million (39%) as compared to $16.1 million
(37%) during the prior fiscal year. For the nine month period, the Company's
domestic operations contributed $.9 million to this increase through
manufacturing efficiencies and higher sales volumes. The European operations
contributed $.4 million to the increase but realized lower gross profit
margins in the current period compared to the prior year due to higher
imported material costs resulting from a weaker Dutch guilder. The newly
acquired Mexican operation contributed $.1 million to this increase.
Management anticipates that percent profit margins will continue to be
favorably impacted by higher production volumes, but will be offset by lower
upfitting margins as upfitter sales become a larger segment of the Company's
business. However, as the upfitter business increases, overall gross profits
are expected to increase. This is a forward-looking statement.
12
<PAGE>
RESEARCH AND DEVELOPMENT
- ------------------------
Research and development ("R&D") expense for the three months and nine
months ended January 31, 1998 was $3.6 million and $10.0 million,
respectively of which $1.2 million (33%) and $3.5 (35%), respectively, were
directly related to the General Motors' program. R&D expense for the three
months and nine months ended January 31, 1997 was $1.8 million and $6.1
million, respectively of which $.4 million (21%) and $2.1 million (34%) were
directly related to the General Motors program. The remaining increase in
R&D expense for the three month and nine month periods was primarily for
internally funded product and other contract R&D work. Management believes
the Company's future success depends on its ability to design, develop and
market new products that interface successfully with new engine electronic
technology, and which meet mandated emission standards. Management
anticipates that R&D expense during fiscal year 1998 will be continue to be
higher than the levels experienced during fiscal year 1997 due to internally
funded development work and new product development under the GM contract and
other contract development work. This is a forward-looking statement.
SELLING, GENERAL AND ADMINISTRATIVE
- -----------------------------------
Selling, general and administrative (SG&A) expense for the three months
and nine months ended January 31, 1998, decreased by approximately $.2
million (6%) and increased by approximately $.8 million (9%), respectively as
compared to the same periods in the prior fiscal year. For the three month
period, the decrease in SG&A expenses was primarily due to temporary
reductions in salary expense and associated benefits, and lower costs at the
foreign subsidiary level due to the strengthening dollar as compared to the
prior year. For the nine month period, the increase in SG&A expense was
primarily due to the inclusion of IMPCO Pty's SG&A expenses for nine months
in the current fiscal year versus only seven months during the same period in
the previous fiscal year. The remaining increase in SG&A expense for the
current nine month period resulted from additional administrative expenses
from the U.S. operations. These expenses included administrative salaries,
incentive compensation, and legal expenses. Management anticipates that SG&A
expense for fiscal year 1998 will be higher than fiscal year 1997 primarily
as a result of including a full year of the Company's Australian operation,
SG&A from the new Mexican operation, and additional expenses to support
anticipated growth in revenues. However, as a percentage of net revenues,
SG&A expense is expected to be lower for the current fiscal year as compared
to fiscal year 1997. This is a forward-looking statement.
FINANCING CHARGES
- -----------------
Financing charges for the three months and nine months ended January 31,
1998, decreased by $109,000 (37%) and $134,000 (16%) as
13
<PAGE>
compared to the same periods in the prior fiscal year. This decrease is a
result of lower borrowings on the Company's line of credit in the current
fiscal year as compared to the prior year and prepayments on long-term
borrowings primarily from funds received from the Company's redemption of its
common stock purchase warrants (see note 3). Management anticipates that
financing charges for the fourth quarter of fiscal year 1998 will be lower as
compared to the same period in fiscal year 1997. This is a forward-looking
statement.
PROVISION FOR INCOME TAXES
- --------------------------
The estimated effective annual tax rate of 17% for fiscal year 1998
includes presumed utilization of approximately $3,631,000 of federal net
operating loss carryforwards and estimated research and development credits
of $300,000. For federal income tax purposes, the Company projects that all
remaining net operating loss carryforwards will be used by the end of fiscal
year 1998. At January 31, 1998, the deferred tax asset account was
approximately $1,450,000. Management has determined, based on the Company's
history of prior operating earnings and its expectations for the future, that
operating income of the Company will more likely than not be sufficient to
recognize fully these net deferred tax assets and that the estimated
effective annual tax rate in the future years will approximate the statuatory
rate. This is a forward-looking statement.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company uses cash generated from its operations and external
financing to fund capital expenditures, pay dividends on the preferred stock
and invest in and operate its existing operations and new businesses. These
sources are sufficient to meet all current obligations on a timely basis.
Management believes that such sources of funds will be sufficient to meet the
needs of its business for the foreseeable future. This is a forward-looking
statement.
The Company's financial condition remains strong. The ratio of current
assets to current liabilities was 2.81 and 2.57 at January 31, 1998 and April
30, 1997, respectively. During the current year, the total amount of working
capital increased by $1.9 million to $20.2 at January 31, 1998. Net cash
provided by operating activities was $1,324,000 during the current nine month
period, compared to $73,000 for the same period in the previous year. The
increase in cash provided by operating activities during the current period
resulted from net income and a $706,000 decrease in accounts receivable. This
change was partially offset by a $3,388,000 increase in inventory due to the
Algas acquisition and a temporary buildup of inventory in anticipation of
future upfitter and core product sales.
Net cash used in investing activities in the first nine months of fiscal
year 1998 was approximately $4,058,000. Included in this
14
<PAGE>
amount is equipment purchased from EDO Canada Ltd., dies, tooling and
equipment purchased from the Algas Carburetion Division of PGI International,
the Company's normal capital expenditures for dies, molds and patterns and
machinery and equipment, and the investment in Grupo I.M.P.C.O. Mexicano.
Management projects that capital expenditures during the remaining quarter of
fiscal year 1998 will be higher than the same period in fiscal year 1997,
primarily relating to equipment enhancements and facilities for the
development and production of new products and the addition of testing
equipment and facilities. The Company expects to fund a major portion of
these expenditures from cash generated from operations and by use of its bank
credit facility. This is a forward-looking statement.
Net cash provided by financing activities during the current nine month
period was approximately $1,824,000. The Company received approximately
$8,454,000 from the issuance of common stock as a result of the exercise of
common stock purchase warrants. The Company also received approximately
$3,300,000 from the Bank of America credit facility to fund the Algas
Acquisitions. The Company decreased its borrowing under the operating line
of credit by $5,450,000 and made $4,089,000 in principal repayments on term
loan and notes. Approximately $2,335,000 of the loan and note payments
represented pre-payments.
The Company has a $12,000,000 revolving line of credit and a $5,525,000
capital lease facility with Bank of America. At January 31, 1998, there was a
zero balance on the revolving line of credit and approximately $2,061,000 was
outstanding under the capital lease facility. The revolving line of credit
expires on August 31, 1999, and the capital lease facility expires on
December 31, 2003. In addition, the Company's subsidiary in the Netherlands
has a 3,000,000 NLG (U.S. $1,526,000) credit facility with Mees Pierson, a
financial institution in the Netherlands. At January 31, 1998, there was no
outstanding balance on the Dutch credit facility.
FOREIGN CURRENCY RISK
- ---------------------
The results and financial condition of the Company's international
operations are affected by changes in exchange rates between certain foreign
currencies and the U.S. dollar. The Company's exposure to fluctuations in
currency exchange rates has increased as a result of the growth of its
international subsidiaries. The functional currency for all of the Company's
international subsidiaries is the local currency of the subsidiary. An
increase in the value of the U.S. dollar increases costs incurred by the
subsidiaries because most of its international subsidiaries' inventory
purchases are U.S. dollar denominated. The Company monitors this risk and
attempts to minimize the exposure through forward currency contracts and the
management of cash disbursements in local currencies. At January 31, 1998
the Company had forward-range currency contracts protecting $2,400,000 in
inventory purchases.
15
<PAGE>
The Company seeks to hedge its foreign currency economic risk by
minimizing its U.S. dollar investment in foreign operations using foreign
currency term-loans to finance the operations of its foreign subsidiaries.
The term loans are denominated in local currencies and are included in the
local balance sheets.
INTEREST RATE RISK
- ---------------------
The Company uses interest rate swap agreements with Bank of America to
manage its exposure to interest rate changes and stabilize the cost of
borrowed funds. When an agreement is executed, the swap is linked to a
specific debt instrument. At February 28, 1998, the Company had $4,325,000
secured under fixed interest rate agreements.
16
<PAGE>
Part II - OTHER INFORMATION
Items 1,2,3,5 Not applicable.
Item 4. Submission of matters to a vote of security holders
(a) The annual meeting of stockholders was held on November 13, 1997.
(b) The following were elected as directors for terms expiring in 1999:
Peter B. Bensinger
Rawley F. Taplett
Douglas W. Toms
The names of each of the other directors whose terms of office
continue are as follows:
Norman L. Bryan
V. Robert Colton
Paul Mlotok
Don J. Simplot
Robert M. Stemmler
(c) The stockholders voted upon the approval of the 1997 Incentive Stock
Option Plan as follows:
<TABLE>
<CAPTION>
Votes Votes Broker
For Against Abstention non-votes
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Common Stock 3,409,860 289,270 35,023 1,436,271
Preferred Stock 5,950 -0- -0- -0-
</TABLE>
(d) The stockholders voted upon the ratification of the appointment of
Ernst & Young LLP as independent auditors as follows:
<TABLE>
<CAPTION>
Votes Votes Broker
For Against Abstention non-votes
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Common Stock 5,157,011 8,488 4,925 -0-
Preferred Stock 5,950 -0- -0- -0-
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
--------
17
<PAGE>
Exhibit 10.1 - Amended Loan Agreement for IMPCO Technologies,
Inc. as borrower and Bank of America National Trust and
Savings Association, as lender, dated February 4, 1998.
Exhibit 11.1 - Computation of net income per share.
(b) Reports on Form 8-K
-------------------
There were no reports on Form 8-K filed during the quarter ended January
31, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMPCO Technologies, Inc.
(Registrant)
Date: March 17, 1998 By /s/ Thomas M. Costales
-----------------------
Thomas M. Costales
Chief Financial Officer
and Treasurer
[Authorized Signatory]
18
<PAGE>
AMENDMENT NO. ONE TO BUSINESS LOAN AGREEMENT
This Amendment No. One (the "Amendment") dated as of February 4,
1998 is between Bank of America National Trust and Savings Association (the
"Bank") and IMPCO Technologies, Inc. (the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of October 7, 1997 (the "Agreement").
B. The Bank and the Borrower desire to amend the Agreement.
AGREEMENT
1. DEFINITIONS. Capitalized terms used but not defined in this
Amendment shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
2.1 Subparagraphs (a) and (c) of Paragraph 1.1 are amended in
their entirety to read as follows:
"(a) During the availability period described below, the Bank
will provide a line of credit ("Facility No. 1") to the Borrower.
The amount of the line of credit (the "Facility No. 1
Commitment") is Twelve Million Dollars ($12,000,000) MINUS a One
Million U.S. Dollars (U.S. $1,000,000) line of credit provided
by Bank of America Mexico Sociedad Anonima to Grupo I.M.P.C.O.
Mexicano, S. de R.L. de C.V., a subsidiary of the Borrower (the
"Mexico Commitment").
"(c) The Borrower agrees not to permit the outstanding
principal balance of advances under the line of credit plus the
outstanding amounts of any letters of credit and not yet
reimbursed plus the Mexico Commitment to exceed the Facility
No. 1 Commitment."
2.2 Subparagraph (b) of Paragraph 4.4 is amended in its
entirety to read as follows:
"(b) The Borrower will repay principal in 20 successive equal
quarterly installments, starting on the last day of the third
month after funding. On maturity, the Borrower will repay the
remaining principal balance plus any interest then due."
2.3 Subparagraphs (d), (e) and (f) of Paragraph 11.2 are
deleted in their entirety and replaced by the following in each case:
"Intentionally omitted."
-1-
<PAGE>
2.4 In Paragraph 11.3, the ratio "0.70:1.0" is substituted for
the ratio "0.60:1.0" appearing therein.
2.5 In Paragraph 11.4, the amount "Eighteen Million Five
Hundred Thousand Dollars ($18,500,000)" is substituted for the amount "Eleven
Million Five Hundred Thousand Dollars ($11,500,000)."
2.6 Paragraph 11.5 is amended in its entirety to read as follows:
"11.5 TOTAL LIABILITY TO TANGIBLE NET WORTH. To maintain on a
consolidated basis a ratio of total liabilities to tangible net
worth not exceeding 1.40:1.0. "Total liabilities" means the sum
of current liabilities plus long term liabilities. This covenant
will be calculated on a quarterly basis."
2.7 The first paragraph of Paragraph 11.7 is amended in its
entirety to read as follows:
"11.7 OTHER DEBTS. Not to have outstanding or incur any direct
or contingent liabilities (other than those to the Bank and or
any other subsidiary or affiliate of BankAmerica Corporation),
become liable for the liabilities of others without the Bank's
written consent. This does not prohibit: ..."
3. REPRESENTATIONS AND WARRANTIES. When the Borrower signs this
Amendment, the Borrower represents and warrants to the Bank that: (a) there is
no event which is, or with notice or lapse of time or both would be, a
default under the Agreement, (b) the representations and warranties in the
Agreement are true as of the date of this Amendment as if made on the date of
this Amendment, (c) this Amendment is within the Borrower's powers, has been
duly authorized, and does not conflict with any of the Borrower's
organizational papers, and (d) this Amendment does not conflict with any law,
agreement, or obligation by which the Borrower is bound.
4. CONDITIONS. This Amendment will be effective when the Bank
receives the following items, in form and content acceptable to the Bank:
4.1 This Amendment duly executed by the Borrower and the Bank.
4.2 A Continuing Guaranty (Multicurrency) executed by the Borrower in
the amount of One Million U.S. Dollars (U.S. $1,000,000) guarantying
the obligations of Grupo I.M.P.C.O. Mexicano, S. de R.L. de C.V.
arising in connection with the Mexico Commitment together with
Corporate Resolutions Authorizing Execution of Guaranty
(Multicurrency).
5. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of
the terms and conditions of the Agreement shall remain in full force and
effect.
-2-
<PAGE>
This Amendment is executed as of the date stated at the beginning of
this Amendment.
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By /s/ Jeff Thom
--------------------------------
Title Vice President
-----------------------------
IMPCO Technologies, Inc.
By /s/ Thomas M. Costales
--------------------------------
Title Chief Financial Officer
-----------------------------
-3-
<PAGE>
IMPCO Technologies, INC.
COMPUTATION OF NET INCOME PER SHARE
Nine months ended January 31, 1998 and 1997
---------------
<TABLE>
<CAPTION>
Three months ended Nine months ended
January 31, January 31,
------------------------ ------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BASIC CALCULATION:
Net income
before dividends $ 1,345,766 $ 767,882 $3,325,739 $2,120,470
Dividends on
preferred stock (148,749) (145,033) (446,248) (435,094)
----------- ----------- ----------- -----------
Net income 1,197,017 622,849 2,879,491 1,685,376
----------- ----------- ----------- -----------
Weighted average number
of common shares
outstanding 6,625,179 5,733,541 6,087,671 5,700,150
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per share $0.18 $0.11 $0.47 $0.30
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
1
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
DILUTED CALCULATION:
Net income $ 1,197,017 $ 622,849 $2,879,491 $1,685,376
Add: Dilutive effect on
Preferred Stock Dividends 148,748 - 446,248 -
----------- ----------- ----------- -----------
Net income applicable to
common stock for
calculation of net
income per share $ 1,345,765 $ 622,849 $3,325,739 $1,685,376
Weighted average number
of common shares
outstanding 6,625,179 5,733,541 6,087,671 5,700,150
Dilutive effect of
outstanding stock
options and warrants 643,891 378,583 686,630 395,290
Additional common shares
assuming conversion of
preferred stock 1,123,489 - 1,123,489 -
----------- ----------- ----------- -----------
Weighted average number
of common shares, as
adjusted for calculation
of net income per share 8,392,559 6,112,124 7,897,790 6,095,440
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per share
Basic $0.18 $0.11 $0.47 $0.30
Diluted $0.16 $0.10 $0.42 $0.28
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
(1) The conversion of preferred stock was not assumed for the three-month and
nine-month period ending January 31, 1997 since its effect would be
antidilutive.
(2) For additional disclosure regarding common stock and warrants, see Note 3.
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> APR-30-1998 APR-30-1997
<PERIOD-END> JAN-31-1998 JAN-31-1997
<CASH> 964,120 1,776,674
<SECURITIES> 0 0
<RECEIVABLES> 10,846,053 11,502,089
<ALLOWANCES> 265,602 284,423
<INVENTORY> 17,664,204 14,839,773
<CURRENT-ASSETS> 31,350,195 30,468,622
<PP&E> 19,042,064 14,638,138
<DEPRECIATION> 10,122,070 7,600,527
<TOTAL-ASSETS> 51,268,862 47,029,747
<CURRENT-LIABILITIES> 11,166,842 10,271,445
<BONDS> 0 0
0 0
5,650,000 5,650,000
<COMMON> 7,036 5,771
<OTHER-SE> 27,198,871 15,450,777
<TOTAL-LIABILITY-AND-EQUITY> 51,268,862 47,029,747
<SALES> 44,716,184 42,957,912
<TOTAL-REVENUES> 51,444,821 44,854,155
<CGS> 27,232,314 26,927,385
<TOTAL-COSTS> 46,400,444 41,483,861
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 666,056 820,059
<INCOME-PRETAX> 4,358,321 2,550,235
<INCOME-TAX> 740,915 255,024
<INCOME-CONTINUING> 3,325,739 2,120,470
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,879,491 1,885,376
<EPS-PRIMARY> 0.47 0.30
<EPS-DILUTED> 0.42 0.28
</TABLE>
