<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 July 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: (562) 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 August 31, 1998:
7,188,686 shares of Common Stock, $.001 par value per share
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENT
IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, 1998 and April 30, 1998
ASSETS
<TABLE>
<CAPTION>
JULY 31, APRIL 30,
1998 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash................................................................ $ 2,325,847 $ 2,617,869
Accounts receivable................................................. 16,554,515 14,528,000
Less allowance for doubtful accounts............................... 367,330 314,794
------------ -------------
Net accounts receivable........................................... 16,187,185 14,213,206
Inventories:
Raw materials and parts............................................. 11,143,708 9,565,310
Work-in-process..................................................... 969,430 1,055,411
Finished goods...................................................... 7,013,307 7,308,190
------------- -------------
Total inventories.................................................. 19,126,445 17,928,911
Other current assets................................................. 2,493,205 2,731,963
------------- -------------
Total current assets.............................................. 40,132,682 37,491,949
Equipment and leasehold improvements:
Dies, molds and patterns............................................ 5,186,694 5,039,892
Machinery and equipment............................................. 7,198,129 7,074,004
Office furnishings and equipment.................................... 5,248,327 4,968,605
Leasehold improvements.............................................. 2,946,542 2,288,022
Land and buildings ................................................. 267,000 267,000
------------- -------------
20,846,692 19,637,523
Less accumulated depreciation and amortization....................... 11,200,406 10,613,052
------------- -------------
Net equipment and leasehold improvements........................... 9,646,286 9,024,471
Intangibles arising from acquisitions................................ 13,356,419 13,024,441
Less accumulated amortization....................................... 3,613,918 3,265,341
------------- -------------
Net intangibles arising from acquisition............................ 9,742,501 9,759,100
Other assets......................................................... 1,041,210 1,109,888
------------- -------------
$ 60,562,679 $ 57,385,408
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
2
<PAGE>
IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, 1998 and April 30, 1998
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JULY 31, APRIL 30,
1998 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
Current liabilities:
Accounts payable................ ............ 6,481,794 5,606,922
Accrued payroll obligations.................. 1,665,144 1,848,425
Income taxes payable......................... 1,235,190 746,587
Other accrued expenses....................... 684,101 1,807,032
Current portion of term loans................ 1,488,504 1,408,225
----------- -----------
Total current liabilities................... 11,554,733 11,417,191
Lines of credit................................ 5,644,861 3,047,805
Term loans--Bank of America NT&SA.............. 5,054,497 3,799,395
Term loan--DEPA Holding BV.. ................. - 1,820,000
Other long term liabilities................... 1,959,086 1,927,166
Minority interest............................. 41,617 1,068,500
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; 7,187,436 issued and
outstanding at July 31, 1998 (7,091,601
at April 30, 1998) ........................... 7,187 7,092
Additional paid-in capital
relating to common stock.................... 39,291,646 38,386,357
Shares held in trust. ..................... (48,275) (36,759)
Accumulated deficit........................... (6,713,693) (8,197,885)
Foreign currency translation adjustment...... (1,878,980) (1,503,454)
----------- ------------
Total stockholders' equity.................. 36,307,885 34,305,351
----------- -----------
$60,562,679 $57,385,408
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
3
<PAGE>
IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended July 31, 1998 and 1997
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1998 1997
------------ ------------
<S> <C> <C>
Revenue:
Product sales....................................................... $17,187,147 $14,151,086
Contract revenue.................................................... 2,686,213 2,138,237
----------- -----------
Net revenue........................................................ 19,873,360 16,289,323
Costs and expenses:
Cost of sales....................................................... 10,915,134 8,819,156
Research and development expense.................................... 3,000,083 3,065,614
Selling, general and administrative expense......................... 3,371,220 3,089,849
----------- -----------
Total costs and expenses............................................. 17,286,437 14,974,619
----------- -----------
Operating income..................................................... 2,586,923 1,314,704
Financing charges.................................................... 252,500 279,648
Income before income taxes, minority interest in income of
Consolidated subsidiaries and dividends............................ 2,334,423 1,035,056
Provision for income taxes........................................... 700,327 139,430
Minority interest in income of consolidated subsidiaries............. 1,154 55,255
----------- -----------
Net income before dividends.......................................... 1,632,942 840,371
Dividends on preferred stock......................................... 148,750 148,750
----------- -----------
Net income applicable to common stock................................ $ 1,484,192 $ 691,621
----------- -----------
----------- -----------
Net income per share.................................................
Basic $0.21 $0.12
Diluted $0.18 $0.11
----------- -----------
----------- -----------
Number of shares used in per share calculation:......................
Basic 7,141,248 5,814,587
Diluted 9,067,626 6,263,230
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
4
<PAGE>
IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended July 31, 1998 and 1997
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1998 1997
----------- ------------
<S> <C> <C>
Net cash (used in) provided by operating activities...................... $(1,225,829) $1,768,292
Cash flows from investing activities:
Investment in IMPCO BV.................................................. (692,521) -
Purchase of equipment and leasehold improvements........................ (1,095,671) (847,879)
Proceeds from sale of equipment ........................................ 64,659 32,342
------------ -----------
Net cash used in investing activities.................................. (1,723,533) (815,537)
Cash flows from financing activities:
Net borrowings under lines of credit.................................... 2,609,912 800,000
Payments on notes payable .............................................. - (140,463)
Proceeds from issuance of bank term loan................................ 2,098,000 -
Proceeds from issuance of common stock.................................. 905,382 -
Payments to acquire shares held in trust................................ (11,516) (11,867)
Payments on term loans.................................................. (2,519,623) (327,553)
Payments of capital lease obligations................................... (178,192) (220,666)
Dividends on preferred stock............................................ (148,750) (148,750)
------------ -----------
Net cash provided by (used in) financing activities.................... 2,755,213 (49,299)
------------ -----------
Translation adjustment.................................................. (97,873) (28,048)
------------ -----------
Net (decrease) increase in cash.......................................... (292,022) 875,408
Cash beginning of year................................................... 2,617,869 1,975,903
------------ -----------
Cash, end of quarter..................................................... $ 2,325,847 $ 2,851,311
------------ -----------
------------ -----------
</TABLE>
See accompanying notes.
5
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 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, 1998. Certain reclassifications have been made to the
fiscal year 1998 financial statements to conform to the current year
presentation. The condensed consolidated balance sheet of IMPCO Technologies,
Inc. (IMPCO or the Company), as of July 31, 1998 includes the accounts of the
Company, its wholly owned subsidiaries, IMPCO Technologies B.V. (IMPCO BV) and
IMPCO Technologies, Pty. Limited (IMPCO Pty), and its majority owned subsidiary
Grupo I.M.P.C.O. Mexicano (IMPCO Mexicano). The results of operations for the
three months ended July 31, 1998 are not necessarily indicative of the results
that may be expected for the entire year ending April 30, 1999.
2) AMENDED BANK OF AMERICA AGREEMENT
On September 11, 1998 IMPCO amended its credit facility with Bank of
America NT&SA by extending the term of the $12 million revolving line of credit
for a twelve month period ending August 31, 2000. The amended credit
facility lowers the interest rate on the revolving line of credit by .25% to
the bank's reference rate less .50%. The amended credit facility also
added a $6,000,000 term loan facility for possible future acquisitions. On
September 9, 1998 the Company agreed to increase the capital lease facility with
BA Leasing Corporation by $1,000,000, reduce the rate of interest on new
borrowings by 15 basis points, and extend the expiration date to September 1,
2004. Including the revolving line of credit, the capital lease facility and
the acquisition facilities, the total Bank of America credit facility was
$22,741,000 at July 31, 1998.
LINES OF CREDIT - At July 31, 1998, the outstanding line of credit balance
was $4,979,000 of which $1,600,000 was subject to the bank's reference rate less
.25 percent (which was 8.25 percent on July 31, 1998), $3,000,000 was subject to
an alternative interest rate (offshore rate which was 7.13 percent at July 31,
1998), and $379,000 was borrowed by IMPCO Mexicano and subject to the Bank of
America Mexico (BAMSA) cost of funds plus 1.50 percent (24.87 percent at July
31, 1998). The Company may elect to have all or portions of the U.S. borrowings
bear interest at an alternative interest rate agreed upon by the Bank for
periods of not less than 30 days nor more than one year.
TERM LOAN FOR ACQUISITION OF 51% OF IMPCO BV - At July 31, 1998, the total
outstanding balance was $923,000 which was subject to a fixed interest rate of
7.90 percent.
TERM LOAN FOR THE ACQUISITION OF ALGAS - At July 31, 1998, the total
outstanding balance was $2,970,000 which was subject to a fixed interest rate of
7.74 percent.
TERM LOAN FOR ACQUISITION OF 49% OF IMPCO BV - At July 31, 1998, the total
outstanding balance was $658,000 which was subject to a fixed interest rate of
7.80 percent.
IMPCO BV TERM LOAN - At July 31, 1998, the total outstanding balance was
$1,993,000 which was subject to a variable interest rate of 4.95 percent.
6
<PAGE>
CAPITAL LEASE FACILITY - At July 31, 1998, approximately $2,692,000 was
outstanding on the capital lease facility which is included in other
liabilities. At the date of this filing, approximately $2,506,000 remained
available on the capital lease facility. For the amount outstanding, $1,462,000
was fixed at 8.50 percent, $990,000 was fixed at 8.20 percent and the remaining
balance of $240,000 was subject to the variable rate of interest based on Bank
of America's London Branch 3-month LIBOR rate plus 2.15 percentage points.
LOAN COVENANTS AND COLLATERAL - The Bank of America credit facility
contains certain restrictions and financial covenants, including liquidity,
tangible net worth and cash flow coverage thresholds, as well as limitations on
other indebtedness, and is secured by substantially all of the Company's
assets. At July 31, 1998, the Company was in compliance with all covenants.
3) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31,
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
Numerator:
Net income before dividends $1,632,942 $ 840,371
Dividends on preferred stock (148,750) (148,750)
---------- ----------
Numerator for basic earnings per
share - income available to
common stockholders to common stock 1,484,192 691,621
Effect of dilutive securities:
Preferred stock dividends 148,750 -
---------- ----------
Numerator for diluted earnings per
share - income available to
common stockholders after
assumed conversions $1,632,942 $ 691,621
Denominator:
Denominator for basic earnings per
Share -- weighted-average shares 7,141,248 5,814,587
Effect of dilutive securities:
Employee stock options 793,099 228,737
Warrants 8,515 219,906
Convertible preferred stock 1,124,764 -
------------ -----------
Dilutive potential common shares 1,926,378 448,643
Denominator for diluted earnings per
share -- adjusted weighted-average
shares and assumed conversions 9,067,626 6,263,230
---------- -----------
Basic earnings per share $0.21 $0.12
----------- -----------
Diluted earnings per share $0.18 $0.11
----------- -----------
</TABLE>
7
<PAGE>
4) COMPREHENSIVE INCOME
As of May 1, 1998, the Company adopted SFAS 130, "Reporting Comprehensive
Income." SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this Statement
had no impact on the Company's net income or stockholders' equity. SFAS 130
requires foreign currency translation adjustments, which prior to adoption were
reported separately in stockholders' equity to be included in other
comprehensive income.
The components of comprehensive income for the three months ended July 31,
1998, and July 31, 1997, are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Net income............................................ $1,484,192 $ 691,621
Foreign currency translation adjustment............... (375,526) (231,729)
---------- ----------
Comprehensive income.................................. $1,108,666 $ 459,892
---------- ----------
---------- ----------
</TABLE>
8
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The statements contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations 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 Company's April 30, 1998 Form
10-K filed July 29, 1998 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
- -----------
The Company's net revenue for the first quarter of fiscal year 1999
increased approximately $3,584,000 or 22 percent over revenues for the first
quarter of fiscal year 1998. Contract revenues increased $548,000 or 26
percent. IMPCO's product sales increased $3,036,000 or 21 percent, for the
three month period ended July 31, 1998 compared to the same period in the
previous year. During the first quarter, the increase in product sales was
unfavorably reduced by $442,000 or 3 percent as a result of the negative
effects of a strengthening U.S. dollar against foreign currencies. The
following table sets forth the Company's product sales by application (all
dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31,
---------------------------
1998 1997
--------- ---------
<S> <C> <C>
Motor vehicle products...................................... $ 6,604 $ 5,219
Forklifts and other material handling equipment............. 7,943 6,012
Small portable to large stationary engines.................. 2,640 2,920
--------- ---------
Total product sales......................................... $ 17,187 $ 14,151
--------- ---------
--------- ---------
</TABLE>
MOTOR VEHICLE-During the three months ended July 31, 1998 net revenue
attributable to the Company's motor vehicle products increased approximately
$1,385,000 or 27 percent over revenues for the first quarter of fiscal year
1998.
During the three months ended July 31, 1998, sales for the Company's
motor vehicle component parts decreased by 14 percent as compared to the same
period in the prior fiscal year. Nearly half of this decrease was
attributable to the strengthening U.S. dollar negatively impacting the
conversion of foreign currency
9
<PAGE>
denominated sales. Additionally, the decrease resulted from lower product
sales for aftermarket conversions in the U.S. market due to regulatory
requirements shifting the automotive conversion market to direct OEM upfits.
These decreases were partially offset by approximately $413,000 in
incremental revenues generated by the newly acquired Mexico operation.
Management anticipates that revenues generated from component parts in the
current fiscal year will be higher than realized during fiscal year 1998
primarily as a result of a full year of operations for the Mexican subsidiary
and an increase in demand in Latin America. This is a forward-looking
statement.
Revenue attributable to direct OEM upfits with the Company's systems
increased by approximately $2,096,000. The revenue in the current fiscal year
represents sales of mid-1998 General Motors (GM) pick-up trucks and GM
mid-size automobiles upfit with the Company's bi-fuel natural gas fuel
system, and sales of medium-duty dedicated Liquid Propane Gas (LPG) kits
under a cross-license agreement with GM. The direct OEM upfit revenue in the
first quarter of fiscal year 1998 represented initial sales of mid-1997 GM
pick-ups upfit with the Company's bi-fuel natural gas fuel system. Management
anticipates that the commercialization by General Motors Corporation of model
year 1998 and 1999 Chevrolet and GMC pickup trucks and other vehicles with
the Company's systems will result in significantly higher OEM upfit revenue
during fiscal year 1999 compared to fiscal year 1998. Although recent labor
disputes at General Motors ended and did not impact the upfit programs that
are in process, the length of future labor disputes could impact future
delivery schedules and direct OEM upfit revenues. These are forward looking
statements.
FORKLIFTS AND OTHER MATERIAL HANDLING EQUIPMENT-During the three months
ended July 31, 1998, net revenue attributable to the Company's products for
forklifts and other material handling equipment increased by $1,931,000, or
32 percent, as compared to the same period in the prior fiscal year. This
increase in forklift related product sales was unfavorably impacted by the
negative effects of a strengthening U.S. dollar against foreign currencies of
approximately $105,000 or 2 percent. During the first quarter, the Company
realized increased revenues of $968,000 from its European operations which
primarily sells material handling equipment. The remaining increase in sales
was derived from domestic operations. Both the European and domestic
operations realized increases as a result of the general upswing in economic
conditions triggering increased demand for forklifts and related products.
Management anticipates that sales for forklifts and other material handling
equipment for the remainder of fiscal year 1999 will be comparable to the
same period during fiscal year 1998. Management projects continued revenue
growth in the European and domestic markets partly offset by a decline in the
Asian market. These are forward-looking statements.
SMALL PORTABLE TO LARGE STATIONARY ENGINES-During the three months ended
July 31, 1998, net revenue for the Company's small portable to large
stationary engines decreased approximately $280,000 as compared to the same
period in the prior fiscal year. This decrease is related to EPA regulations
affecting the small engine aftermarket. Although there was a decrease in the
quarterly results as compared to the same period in the previous fiscal year,
management anticipates that the impact of the regulations will begin to
decrease and net revenue for the Company's small portable to large stationary
engines in fiscal year 1999 will be higher compared to fiscal year 1998.
This is a forward-looking statement.
CONTRACT REVENUES-During the three months ended July 31, 1998, contract
revenues, primarily from the GM program, increased $548,000 or 26 percent as
compared to the same period in the prior fiscal year. This increase was due
to the addition of several vehicle platforms and new model years for existing
platforms under the GM development contract. For the period ended July 31,
1998, contract revenue comprised 14 percent of total revenue compared to 13
percent for the same period in the previous year. 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.
Management anticipates that contract revenue during the remainder of the
current fiscal year will be substantially higher than levels experienced
10
<PAGE>
during the same period of the previous fiscal year. This is a
forward-looking statement.
PRODUCT SALES BY GEOGRAPHIC REGION-During the three months ended July 31,
the Company's product sales were generated in the following geographic
regions:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31,
---------------------------
1998 1997
----- ----
<S> <C> <C>
United States and Canada.......................... 58% 70%
Pacific Rim....................................... 11% 10%
Europe............................................ 20% 11%
Latin America..................................... 11% 9%
</TABLE>
GROSS PROFIT MARGIN
- -------------------
The Company's gross profit margin on product sales during the current
quarter was $6,272,000 (36%) compared to $5,332,000 (38%) for the same period
in the prior fiscal year.
U.S. BASED PRODUCT SALES - During the three months ended July 31, 1998
the Company's U.S. based product sales contributed approximately $515,000 to
the increase in gross profit primarily as a result of higher sales volumes.
During the current quarter, gross profit margin on U.S. based product sales
was 38% compared to 39% realized during the same period in the prior fiscal
year. The gross profit margin during the current quarter was lower due to
the significantly higher volume of direct OEM upfit sales and inherently
lower upfit margins on those sales. This decrease in profit margin was
partially offset by higher margins on component sales during the current
quarter as a result of higher sales volumes absorbing manufacturing overhead.
Management anticipates that percent profit margins will continue to be
favorably impacted by higher production volumes and manufacturing
efficiencies, but will be offset by lower upfit margins as direct OEM upfit
sales become a larger segment of the Company's business. However, as the
direct OEM upfit business increases, overall gross profit amounts should
increase. These are forward-looking statement.
FOREIGN-SUBSIDIARY BASED PRODUCT SALES - During the three months ended
July 31, 1998 the Company's subsidiary product sales contributed
approximately $425,000 to the increase in gross profit primarily as a result
of higher sales volumes. During the current quarter, gross profit margin on
foreign-subsidiary based product sales was 33% compared to 34% realized
during the same period in the prior fiscal year. During the current quarter,
the Company's gross profit margin on foreign-subsidiary product sales was
unfavorably impacted by higher material costs as a result of a strengthening
U.S. dollar. Management anticipates that gross profit percentages at the
foreign operations could continue to be lower in the future as a result of
the strengthening U.S. dollar versus foreign currencies. This is a
forward-looking statement.
RESEARCH AND DEVELOPMENT
- ------------------------
Research and development ("R&D") expense for the three months ended July
31, 1998, decreased approximately $66,000 (2%) as compared to the same period
in the prior fiscal year. R&D expense is primarily for system development
and application engineering of the Company's products under the funded
General Motors contract, other funded contract R&D work with VarietyPerkins
and the Southern California Air Quality Management District, and for
internally funded product and component development work. R&D expense
directly related to externally funded R&D work, primarily the GM program,
decreased from $1.6 million to $1.4 million due to improved productivities
resulting from knowledge transfer over multiple platforms. Management
believes the Company's future success depends on its ability to design,
develop and market new products that interface successfully with new engine
11
<PAGE>
electronic technology, and which meet mandated emission standards. Management
anticipates that R&D expense during fiscal year 1999 will be higher than the
levels experienced during fiscal year 1998 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
ended July 31, 1998, increased $281,000 (9%) as compared to the same period
in the prior fiscal year. The increase in SG&A expense was primarily due to
the inclusion of IMPCO Mexicano's SG&A expenses in the current fiscal year.
The remaining increase in SG&A expense for the current quarter resulted from
additional administrative expenses from the European operations. These
expenses included additional administrative salaries, employee-related costs,
and incentive compensation. Management anticipates that SG&A expense for
fiscal year 1999 will be higher than fiscal year 1998 primarily as a result
of including a full year of the Company's Mexico 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 1998. This is a forward-looking statement.
FINANCING CHARGES
- -----------------
Financing charges for the three months ended July 31, 1998, decreased
$27,000 or 10% as compared to the same period in the prior fiscal year. This
decrease is attributable to lower borrowings during the quarter on the
Company's line of credit as compared to the prior year, lower interest rates
on the Company's credit facility with Bank of America, and prepayments on
long-term borrowings primarily from funds received from the Company's
redemption of its common stock purchase warrants. Management anticipates
that financing charges for fiscal year 1999 will be lower as compared to
fiscal year 1998. This is a forward-looking statement.
PROVISION FOR INCOME TAXES
- --------------------------
The estimated effective annual tax rate of 30% for fiscal year 1999 is
significantly higher than the previous year due to the exhaustion of federal
net operating loss carryforwards during the previous fiscal year. The
current year provision includes presumed utilization of estimated research
and development credits of $300,000. At July 31, 1998, net deferred tax
assets, included in other current and other assets, was approximately
$1,200,000. 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 statutory 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 3.47:1 and 3.28:1 at July 31, 1998 and
April 30, 1998, respectively. During the current quarter, the total amount of
working capital
12
<PAGE>
increased by approximately $2,503,000 to $28,578,000 at July 31, 1998. Net
cash used in operating activities was $1,226,000 during the current quarter,
compared to net cash provided by operations of $1,768,000 for the same period
in the previous year. The net cash used in operating activities during the
current period resulted from a $2,125,000 increase in accounts receivable and
a $1,777,000 increase in inventory. The increase in accounts receivable was
primarily due to July billings on the GM contract and shipments of the OEM
upfit vehicles. The increase in inventory was in preparation of future OEM
direct upfit sales.
The Company's foreign subsidiaries generated net cash from operating
activities of approximately $367,000 during the current quarter compared to
$685,000 during the same period in the previous year. This decrease in net
cash provided by operating activities from foreign operations is primarily a
result of cash requirements to fund inventory and receivables at IMPCO
Mexicano in the current year. There are currently no restrictions on the
transfer of foreign subsidiary funds within the Company; however, the Company
generally re-invests these funds in the foreign subsidiaries as needed.
Net cash used in investing activities in the first quarter was
approximately $1,724,000, an increase of approximately $908,000 from the same
period in the previous year. This increase is primarily from the purchase of
the remaining 49 percent interest in the Company's European subsidiary during
the first quarter of the current year, which resulted in a net use of cash of
approximately $693,000. Capital expenditures for dies, molds and patterns and
machinery and equipment totaled $1,096,000 during the current period,
compared to $848,000 for the first quarter in the previous year. Management
projects capital expenditures during the current year, primarily relating to
equipment enhancements and facilities for the development and production of
new products, to be comparable to expenditures during fiscal year 1998. 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 quarter was
approximately $2,755,000. For the three month period ending July 31, 1998,
the Company increased its borrowing under the operating lines of credit by
approximately $2,610,000 primarily for material purchases and to fund
receivables. Payments made on term loans, including the retirement of the
DEPA Holding BV term loan, was approximately $2,520,000.
The Company has a $12,000,000 revolving line of credit and approximately
$2,506,000 available credit under a capital lease facility with Bank of
America. At July 31, 1998, approximately $4,979,000 and $2,692,000 was
outstanding under the revolving line of credit and the capital lease
facility, respectively. The revolving line of credit expires on August 31,
2000, and the capital lease facility expires on September 1, 2004. In
addition, the Company's subsidiary in the Netherlands has a 3,000,000 NLG
(U.S. $1,500,000) credit facility with Mees Pierson, a financial institution
in the Netherlands. At July 31, 1998, approximately 1,334,000 NLG (U.S.
$666,000) was outstanding under the Dutch credit facility.
DERIVATIVE FINANCIAL INSTRUMENTS
- --------------------------------
The Company uses derivative financial instruments for the purpose of
reducing its exposure to adverse fluctuations in interest and foreign
exchange rates. While these hedging instruments are subject to fluctuations
in value, such fluctuations are generally offset by the value of the
underlying exposures being hedged. The Company is not a party to leveraged
derivatives and does not hold or issue financial instruments for speculative
purposes.
FOREIGN CURRENCY MANAGEMENT - 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
13
<PAGE>
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 forward contracts
and the management of cash disbursements in local currencies. At July 31,
1998 the Company had currency forward contracts protecting U.S.$1,800,000 in
inventory purchases. At July 31, 1998 the fair value of foreign currency
forward contracts approximated contract values.
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 translated to U.S.
Dollars at period end exchange rates.
INTEREST RATE MANAGEMENT - 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 July 31,
1998, the Company had $7,002,000 secured under fixed interest rate agreements
at a weighted-average fixed interest rate of 7.99%. Absent these fixed rate
agreements, the weighted-average variable rate for this debt at July 31, 1998
would have been 7.60%. At July 31, 1998 the fair value of interest rate swap
agreements approximated carrying value.
14
<PAGE>
PART II--OTHER INFORMATION
Items 1-5 Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
N/A
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended July
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: September 14, 1998 By /s/Thomas M. Costales
-------------------------
Thomas M. Costales
Chief Financial Officer
and Treasurer
[Authorized Signatory]
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> JUL-31-1998
<CASH> 2,325,847
<SECURITIES> 0
<RECEIVABLES> 16,554,515
<ALLOWANCES> 367,330
<INVENTORY> 19,126,445
<CURRENT-ASSETS> 40,132,682
<PP&E> 20,846,692
<DEPRECIATION> 11,200,406
<TOTAL-ASSETS> 60,562,679
<CURRENT-LIABILITIES> 11,554,733
<BONDS> 0
0
5,650,000
<COMMON> 7,187
<OTHER-SE> 30,650,698
<TOTAL-LIABILITY-AND-EQUITY> 60,562,679
<SALES> 17,187,147
<TOTAL-REVENUES> 19,873,360
<CGS> 10,915,134
<TOTAL-COSTS> 17,286,437
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 252,500
<INCOME-PRETAX> 2,334,423
<INCOME-TAX> 700,327
<INCOME-CONTINUING> 1,632,942
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,484,192
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.18
</TABLE>
