<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, 1999, 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
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(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, 1999:
8,468,881 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, 1999 and April 30, 1999
<TABLE>
<CAPTION>
ASSETS
JULY 31, APRIL 30,
1999 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash............................................... $ 3,012,860 $ 2,009,208
Accounts receivable................................ 23,944,564 22,209,363
Less allowance for doubtful accounts.............. 535,509 535,824
------------- -------------
Net accounts receivable.......................... 23,409,055 21,673,539
Inventories:
Raw materials and parts............................ 10,477,200 10,694,453
Work-in-process.................................... 969,430 1,208,423
Finished goods..................................... 15,296,486 10,804,309
------------- -------------
Total inventories................................. 26,743,116 22,707,185
Deferred tax assets................................. 2,577,027 3,474,387
Other current assets................................ 2,491,225 2,255,227
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Total current assets............................. 58,233,283 52,119,546
Equipment and leasehold improvements:
Dies, molds and patterns........................... 5,804,414 5,746,955
Machinery and equipment............................ 7,916,908 7,793,650
Office furnishings and equipment................... 6,522,464 6,110,079
Leasehold improvements............................. 3,090,337 2,965,366
------------- -------------
23,334,123 22,616,050
Less accumulated depreciation and amortization...... 13,506,837 12,730,976
------------- -------------
Net equipment and leasehold improvements.......... 9,827,286 9,885,074
Intangibles arising from acquisitions............... 15,618,997 15,593,672
Less accumulated amortization...................... 4,750,322 4,576,369
------------- -------------
Net intangibles arising from acquisitions.......... 10,868,675 11,017,303
Other assets........................................ 554,382 540,239
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$ 79,483,626 $ 73,562,162
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------------- -------------
</TABLE>
See accompanying notes.
<PAGE>
IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, 1999 and April 30, 1999
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JULY 31, APRIL 30,
1999 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
Current liabilities:
Accounts payable............................. 8,671,405 8,294,977
Accrued payroll obligations.................. 2,294,817 2,493,402
Income taxes payable......................... 998,400 1,261,009
Other accrued expenses....................... 2,083,001 1,356,803
Current maturities of long-term debt......... 3,449,015 3,485,376
----------- -----------
Total current liabilities................... 17,496,638 16,891,567
Lines of credit............................... 9,568,847 5,551,300
Term loans--Bank of America NT&SA............. 4,737,127 5,411,326
Capital Leases................................ 2,047,617 2,102,173
Deferred tax liability........................ 963,910 828,852
Minority interest............................. 1,419,256 1,327,825
Stockholders' equity:
Common stock, $.001 par value, authorized
25,000,000 shares; 8,453,881 issued and
outstanding at July 31, 1999 (8,408,481
at April 30, 1999) .......................... 8,454 8,408
Additional paid-in capital.................... 45,705,120 45,375,995
Shares held in trust.......................... (73,830) (68,946)
Accumulated deficit........................... (844,097) (2,397,813)
Foreign currency translation adjustment....... (1,545,416) (1,468,525)
----------- ------------
Total stockholders' equity.................. 43,250,231 41,449,119
----------- -----------
$79,483,626 $73,562,162
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
<PAGE>
IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended July 31, 1999 and 1998
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1999 1998
------------ ------------
<S> <C> <C>
Revenue:
Product sales...................................... $27,057,494 $17,187,147
Contract revenue................................... 1,362,460 2,686,213
----------- -----------
Net revenue....................................... 28,419,954 19,873,360
Costs and expenses:
Cost of sales...................................... 17,814,509 10,915,134
Research and development expense................... 3,014,773 2,700,184
Selling, general and administrative expense........ 4,939,711 3,671,119
----------- -----------
Total costs and expenses............................ 25,768,993 17,286,437
----------- -----------
Operating income.................................... 2,650,961 2,586,923
Interest expense.................................... 231,710 252,500
Income before income taxes, minority interest in
income of consolidated subsidiaries and dividends. 2,419,251 2,334,423
Provision for income taxes.......................... 774,160 700,327
Minority interest in income of consolidated
subsidiaries...................................... 91,375 1,154
---------- -----------
Net income before dividends......................... 1,553,716 1,632,942
Dividends on preferred stock........................ - 148,750
----------- -----------
Net income applicable to common stock............... $ 1,553,716 $ 1,484,192
----------- -----------
----------- -----------
Net income per share
Basic............................................. $0.18 $0.21
Diluted........................................... $0.18 $0.18
----------- -----------
----------- -----------
Number of shares used in per share calculation:
Basic............................................. 8,429,992 7,141,248
Diluted........................................... 8,781,530 9,067,626
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
<PAGE>
IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended July 31, 1999 and 1998
<TABLE>
<CAPTION>
July 31, July 31,
1999 1998
----------- -----------
<S> <C> <C>
Net cash used in operating activities.............. $(1,902,746) $(1,225,829)
Cash flows from investing activities:
Investment in IMPCO BV ............................ - (692,521)
Purchase of equipment and leasehold improvements... (735,289) (1,095,671)
Proceeds from sale of equipment.................... 3,686 64,659
----------- -----------
Net cash used in investing activities.............. (731,603) (1,723,533)
Cash flows from financing activities:
Net borrowings under lines of credit............... 3,929,567 2,609,912
Proceeds from issuance of bank term loan........... - 2,098,000
Proceeds from issuance of common stock............. 329,171 905,382
Payments to acquire shares held in trust........... (4,884) (11,516)
Payments on term loans............................. (700,259) (2,519,623)
Payments of capital lease obligations.............. 116,584 (178,192)
Dividends on preferred stock....................... - (148,750)
------------ -----------
Net cash provided by financing activities......... 3,670,179 2,755,213
------------ -----------
Translation adjustment............................. (32,178) (97,873)
------------ -----------
Net increase (decrease) in cash..................... 1,003,652 (292,022)
Cash at beginning of year........................... 2,009,208 2,617,869
------------ -----------
Cash at end of quarter.............................. $ 3,012,860 $ 2,325,847
------------ -----------
------------ -----------
</TABLE>
See accompanying notes.
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1999 and 1998
----------------------
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, 1999. Certain reclassifications have
been made to the fiscal year 1999 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, 1999 includes the
accounts of the Company and its majority owned subsidiary IMPCO-BERU
Technologies B.V. (IMPCO BV), its majority owned subsidiary Grupo I.M.P.C.O.
Mexicano, S. de R.L. de C.V. (IMPCO Mexicano), and its wholly owned
subsidiaries IMPCO Technologies, Pty. Limited (IMPCO Pty) and IMPCO Tech
Japan K.K. (IMPCO Japan). The results of operations for the three months
ended July 31, 1999 are not necessarily indicative of the results that may be
expected for the entire year ending April 30, 2000.
2) DEBT PAYABLE
a) AMENDED BANK OF AMERICA NT&SA AGREEMENT
On September 13, 1999 IMPCO amended its credit facility with Bank of
America NT&SA by increasing the revolving line of credit to $20 million and
extending the term for a twelve month period ending August 31, 2001. The
amended credit facility also added a $6,000,000 non-revolving line of credit
for possible future acquisitions, a $3,000,000 non-revolving line of credit
for future capital expenditures and a Mexican peso line of credit equivalent
to $3,000,000 for IMPCO Mexicano.
Including the revolving line of credit, the capital lease facility, the
standby letter of credit and the acquisition facilities, the total Bank of
America NT&SA credit facility was approximately $26,587,000 at July 31, 1999.
LINES OF CREDIT - At July 31, 1999, the outstanding line of credit
balance was $8,800,000 of which $2,800,000 was subject to the bank's
reference rate less .25 percent (which was 7.50 percent on July 31, 1999),
$6,000,000 was subject to an alternative interest rate established by the
Bank (Offshore rate). The Offshore rate was 6.48 percent on July 31, 1999.
At July 31, 1999, IMPCO Mexicano outstanding line of credit of
approximately $106,000 was subject to the Bank of America Mexico (BAMSA) cost
of funds plus 1.50 percent (24.55 percent at July 31, 1999). 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 or more than one year.
<PAGE>
TERM LOAN FOR FUTURE ACQUISITION(S) - On December 4, 1998 the Company
utilized $3,190,000 of the $6,000,000 term loan for the acquisition of
Crusader Engines. On February 12, 1999 the Company made a partial prepayment
on this loan in the amount of $1,800,000. At July 31, 1999, the outstanding
balance of $1,071,000 was subject to a fixed interest rate of 6.56 percent.
TERM LOAN FOR THE ACQUISITION OF MEDIA - At July 31, 1999, the total
outstanding balance was approximately $513,000 which was subject to a fixed
interest rate of 7.90 percent.
TERM LOAN FOR THE ACQUISITION OF ALGAS - At July 31, 1999, the total
outstanding balance was $2,310,000 which was subject to a fixed interest rate
of 7.74 percent.
TERM LOAN FOR ACQUISITION OF IMPCO BV - At July 31, 1999, the total
outstanding balance was approximately $519,000 which was subject to a fixed
interest rate of 7.80 percent.
IMPCO BV TERM LOAN - At July 31, 1999, the total outstanding balance was
approximately $1,531,000 which was subject to a variable interest rate of
4.10 percent.
CAPITAL LEASE FACILITY - At July 31, 1999, approximately $2,831,000 was
outstanding and approximately $1,159,000 was available under the capital
lease facility. Of the amount outstanding, approximately $724,000 was fixed
at 8.50 percent, approximately $978,000 was fixed at 8.20 percent, and
approximately $21,000 was fixed at 8.05%. The remaining balance of
approximately $1,108,000 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, 1999, the Company was in compliance with all covenants.
b) MEES PIERSON
In February of 1996, IMPCO BV secured a fl. 3,000,000(U.S.$1,458,000)
revocable credit facility with Mees Pierson, a financial institution in the
Netherlands. The interest rate is determined weekly based on a weighted
average of several money market indices. IMPCO BV's borrowings under this
facility may not exceed the combined total of a specified amount of its
accounts receivable (70 percent of book value) and inventory (50 percent of
book value). At July 31, 1999, the outstanding loan balance of approximately
fl. 824,000(U.S.$401,000) bore an interest rate of 7.56%.
c) THE HONGKONG AND SHANGHAI BANKING CORPORATION LTD.
TERM LOAN FOR THE ACQUISITION OF MIKUNI - On March 29, 1999, IMPCO Japan
secured a Y160,000,000 (U.S.$1,341,000) term loan facility from the Hongkong
and Shanghai Banking Corporation Ltd., Osaka Branch. This term loan bears
interest at the Euroyen London Interbank Offer Rate plus 1.60%. At July 31,
1999 the outstanding loan balance of Y152,000,000 (U.S.$1,328,000) bore an
interest rate of 1.702%.
LINE OF CREDIT - On March 29, 1999, IMPCO Japan secured a Y60,000,000
(U.S.$524,000) revolving term loan facility from the Hongkong and Shanghai
Banking Corporation Ltd., Osaka Branch. This term loan bears interest at the
Euroyen London Interbank Offer Rate plus 1.60%. At July 31, 1999 the
outstanding loan balance of Y30,000,000 (U.S.$262,000) of which Y10,000,000
bore an interest rate of 1.702% and Y20,000,000 bore an interest rate of
1.703%.
<PAGE>
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,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
Numerator:
Net income before dividends $ 1,553,716 $ 1,632,942
Dividends on preferred stock -- (148,750)
----------- -----------
Numerator for basic earnings per
share - income available to
common stockholders 1,553,716 1,484,192
Effect of dilutive securities:
Preferred stock dividends -- 148,750
----------- -----------
Numerator for diluted earnings per
share - income available to
common stockholders after
assumed conversions $ 1,553,716 $ 1,632,942
Denominator:
Denominator for basic earnings per
share -- weighted-average shares 8,429,922 7,141,248
Effect of dilutive securities:
Employee stock options 351,608 793,099
Warrants -- 8,515
Convertible preferred stock -- 1,124,764
----------- -----------
Dilutive potential common shares 351,608 1,926,378
Denominator for diluted earnings per
share -- adjusted weighted-average
shares and assumed conversions 8,781,530 9,067,626
----------- -----------
Basic earnings per share $ 0.18 $ 0.21
----------- -----------
Diluted earnings per share $ 0.18 $ 0.18
----------- -----------
</TABLE>
<PAGE>
4) COMPREHENSIVE INCOME
As of May 1, 1998, the Company adopted SFAS 130, "Reporting Comprehensive
Income." SFAS 130 established 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, 1999, and July 31, 1998, are as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Net income............................................ $1,553,716 $1,484,192
Foreign currency translation adjustment............... (76,891) (375,526)
---------- ----------
Comprehensive income.................................. $1,476,825 $1,108,666
========== ==========
</TABLE>
5) BUSINESS SEGMENT INFORMATION
IMPCO classifies its business into three operating segments: Gaseous Fuel
Products Division (GFPD), Automotive OEM Division (AOD) and Non-U.S. Based
Subsidiary Operations. These operating segments are divisions within the
Company and each division has discrete financial information prepared for
internal reporting to management. Management considered the following factors
to be significant in identifying these operating segments: technology levels,
end-use applications of products, and customer characteristics. Advance
research and development is funded at the corporate level and provides new
products and technology to the operating segments for use in their markets.
Each operating segment conducts its own application engineering and technical
support for the sales and market development of the new products and
technology. The Company evaluates performance based on profit or loss from
operations before interest and income taxes.
Revenues and operating income for IMPCO's business segments for the
three months ended July 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Revenues Operating Income
- -------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1999 1998 1999 1998
---- ---- ---- ----
JULY 31, JULY 31, JULY 31, JULY 31,
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Gaseous Fuels Products Division $19,542 $12,521 $5,532 $ 4,134
Automotive OEM Division 5,284 4,971 (487) 69
Non-U.S. Based Subsidiaries 6,444 5,547 663 507
Corporate Expenses - - (1,800) (1,333)
Advanced Research & Product Develop. - - (1,333) (718)
Intersegment Elimination (2,850) (3,166) 76 (72)
- -------------------------------------------------------------------------------------------------------------------------------
Total $28,420 $19,873 $2,651 $ 2,587
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<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, 1999 Form
10-K filed July 29, 1999 and other factors identified from time to time in
the Company's reports filed with the Securities and Exchange Commission.
Overview
IMPCO Technologies, Inc. designs, manufactures and supplies fuel management
and fuel storage systems and components that allow internal combustion
engines and other propulsion systems to operate on alternative fuels such as
propane, natural gas, ethanol, methanol and hydrogen used in fuel cells. The
Company's products are sold for maintenance, aftermarket conversions and as
original equipment on motor vehicles, forklifts and small portable to large
stationary engines. IMPCO Technologies, Inc. classifies its business
interests into three operating segments: Gaseous Fuel Products Division
(GFPD), Automotive OEM Division (AOD), and Non-U.S. Based Subsidiary
Operations. Advanced research and product development is funded at the
corporate level and provides new products and technology to the operating
segments.
RESULTS OF OPERATIONS
- ---------------------
Revenues and operating income for IMPCO's business segments for the three
months ended July 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Revenues Operating Income
- -------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1999 1998 1999 1998
---- ---- ---- ----
JULY 31, JULY 31, JULY 31, JULY 31,
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Gaseous Fuels Products Division $19,542 $12,521 $ 5,532 $ 4,134
Automotive OEM Division 5,284 4,971 (487) 69
Non-U.S. Based Subsidiaries 6,444 5,547 663 507
Corporate Expenses - - (1,800) (1,333)
Advanced Research & Product Develop. - - (1,333) (718)
Intersegment Elimination (2,850) (3,166) 76 (72)
- -------------------------------------------------------------------------------------------------------------------------------
Total $28,420 $19,873 $ 2,651 $ 2,587
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Gaseous Fuels Products Division. For the three months ended July 31, 1999,
net revenues increased by approximately $7,021,000, or 56%, as compared to
the same period in the prior fiscal year. This increase was primarily a
result of the December 1998 acquisition of the Industrial Engine Systems
Sub-Division, an increase in product sales to Mexico and an increase in small
engine sales. Management anticipates that overall revenues generated by GFPD
in fiscal year 2000 will be higher than fiscal year 1999, primarily due to a
full year reporting of Industrial Engine Systems (IES) sales, higher motor
vehicle component sales to the Mexico market and increased small engine
sales. This is a forward-looking statement.
During the first quarter of fiscal year 2000, operating income increased
approximately $1,398,000, or 34%, as compared to the same period in the prior
fiscal year. This increase was primarily a result of higher revenues
partially offset by lower margins on the IES revenues and additional
administrative expenses resulting from the IES acquisition. Management
anticipates that divisional operating income will be higher in fiscal year
2000 as a result of higher revenues. This is a forward-looking statement.
<PAGE>
Automotive OEM Division. For the three months ended July 31, 1999, net
revenues increased by approximately $313,000 as compared to the same period
in the prior fiscal year. Product sales increased to $3.9 million, compared
to $2.3 million in the same quarter of fiscal year 1999. During the first
quarter of fiscal year 2000, the upfit revenue represented 985 units as
compared to 523 units during the same period of the prior year. Upfit revenue
consists of mid-size automobiles upfit with the division's bi-fuel compressed
natural gas fuel system, medium-duty dedicated Liquid Propane Gas (LPG) kits
under a cross license agreement with General Motors, and GM pick-ups upfit
with the division's bi-fuel compressed natural gas fuel system. Management
expects upfit revenues to be significantly higher during fiscal year 2000 as
compared to fiscal year 1999 due to higher customer orders for the Company's
systems on GM vehicles. This is a forward-looking statement.
During the first quarter of fiscal year 2000, contract revenues decreased
$1,316,000, or 47%, as compared to the same period in fiscal year 1999. This
decrease was primarily due to lower revenues recognized during the start up
period on the new GM model year platforms. Management anticipates, based on
new contracts negotiated with GM and expected levels of contract completion
in fiscal year 2000, that contract revenue in fiscal year 2000 will be lower
than levels experienced during fiscal year 1999. Additionally, profit levels
expected on the contracts during fiscal year 2000 will be substantially lower
than levels realized during fiscal year 1999 due to the new contracts. These
are forward-looking statements.
During the first quarter of fiscal year 2000, operating losses were
approximately $487,000 as compared to operating income of approximately
$69,000 in the first quarter of the prior fiscal year. This decrease was a
result of lower contract revenues, primarily from the GM program, and
associated higher product application development costs for new products
being commercialized. Product applications development expense is primarily
for system development and application engineering of the Company's products
under the funded General Motors contract, other funded contract work with
state and federal agencies, and for internally funded product and component
application development work. Expense directly related to externally funded
product application development work remained consistent with the same period
of the prior fiscal year. Management anticipates higher operating losses in
fiscal year 2000, primarily due to lower profits on GM contracts.
Gross margins on GM product sales were higher in the first quarter of fiscal
year 2000 as compared to the same period in fiscal year 1999, primarily due
to lower material costs and lower per unit overhead costs as a result of
higher volumes. Management anticipates higher gross margins on products in
fiscal year 2000, primarily due to the focus on cost reduction activities.
This is a forward-looking statement.
Non-U.S. Based Subsidiaries. For the three months ended July 31, 1999, net
revenues increased by approximately $897,000, or 16%, as compared to the same
period in the prior fiscal year. This increase was primarily a result of the
March 1999 addition of IMPCO Japan, which resulted in increased revenues of
approximately $715,000. During the first quarter of fiscal year 2000, the
Company also realized increased revenues of $393,000 from its Mexico
operation which was partially offset by decreased revenues of approximately
$209,000 from it European operations. Non-U.S. Based Subsidiary revenues
would have increased an additional $515,000 if not for the strengthening of
the U.S. Dollar. The weakening of foreign currencies versus the U.S. Dollar
negatively impacts the conversion of foreign currency denominated sales.
Management anticipates that revenues during fiscal year 2000 will be higher
than fiscal year 1999 as a result of the addition of IMPCO Japan and higher
motor vehicle sales in Mexico. This is a forward-looking statement.
During the first quarter of fiscal year 2000, operating income increased
approximately $156,000 as compared to the same quarter in the prior year,
primarily as a result of higher revenues from its Mexico operation.
Management anticipates that operating income
<PAGE>
levels at the Non-U.S. Based Subsidiaries could be higher in fiscal year 2000
than the prior year due to the addition of the Japan operations and higher
revenues from Mexico. This is a forward-looking statement.
Corporate Expenses. Corporate expenses for the three months ended July 31,
1999, increased $467,000, or 35%, as compared to the same period in the prior
fiscal year. The increase in corporate expenses was primarily due to the
incremental costs incurred in the creation of the Company's Stockholder
Protection Rights Agreement and increased legal expenses. Management
anticipates that corporate expenses for the remaining quarters of fiscal year
2000 will be comparable to levels in the same period of fiscal year 1999.
This is a forward-looking statement.
Advanced Research and Product Development. Advanced Research and Product
Development expense for the three months ended July 31, 1999, increased
approximately $615,000, or 86%, as compared to the same period in the prior
fiscal year. 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 and fuel storage technology. Management anticipates that
advanced research and product development expense during fiscal year 2000
will be higher than the levels experienced during fiscal year 1999. This is a
forward-looking statement.
Interest Expense. Interest expense for the three months ended July 31, 1999,
decreased $21,000, or 8%, as compared to the same period in the prior fiscal
year. This decrease is attributable to lower interest rates on the Company's
credit facility with Bank of America. Management anticipates that interest
expense for fiscal year 2000 will be comparable to the prior fiscal year.
This is a forward-looking statement.
Provision For Income Taxes. The estimated effective annual tax rate of 32%
for fiscal year 2000 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 tax provision includes presumed
utilization of estimated research and development credits of $1,155,000. At
July 31, 1999, net deferred tax asset was approximately $2,577,000 while the
net deferred tax liability was $964,000. 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 the 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, as well as,
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 3.33:1 and 3.09:1 at July 31, 1999 and
April 30, 1999, respectively. During the current quarter, the total amount of
working capital increased by approximately $5,509,000 to $40,736,000 at July
31, 1999. Net cash used in operating activities was $1,903,000 during the
current quarter, compared to net cash used in operating activities of
$1,226,000 for the same period in the previous year. The increase in cash
used in operating activities during the current period resulted primarily
from an increase in inventory and an increase in accounts receivable. The
increase in inventory was primarily due to inventory build in preparation of
future OEM direct upfit sales and the increase in accounts receivable is
primarily due to increased billings on the GM contracts and GM component
sales.
Net cash used in investing activities in the first quarter was
approximately $732,000, a decrease of approximately $992,000 from the same
period in the previous year. This decrease is primarily from the previous
years first quarter purchase of the remaining 49 percent interest in IMPCO
BV, which resulted in a net use of cash of
<PAGE>
approximately $693,000. Additionally, there was a decrease in capital
expenditures for dies, molds and patterns and machinery and equipment of
approximately $361,000. 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 1999. 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 $3,670,000. For the three-month period ending July 31, 1999,
the Company increased its borrowing under the operating lines of credit by
approximately $3,930,000 primarily for material purchases. Payments made on
term loans were approximately $700,000.
The Company has a $20,000,000 revolving line of credit, $3,000,000
revolving line of credit for IMPCO Mexicano, $6,000,000 of available credit
on the acquisition facility, and $3,000,000 of available credit on the
capital expenditures facility with Bank of America. At July 31, 1999,
approximately $8,906,000 and $2,831,000 were outstanding under the revolving
line of credit and the capital lease facility, respectively. The revolving
line of credit expires on August 31, 2001, the acquisition facility expires
on August 31, 2000, and the capital lease facility expires on August 31,
2000. In addition, the Company's subsidiary in the Netherlands has a fl.
3,000,000 (U.S.$1,458,000) credit facility with Mees Pierson, a financial
institution in the Netherlands. At July 31, 1999, there was an outstanding
balance of fl. 824,000 (U.S.$401,000). The Company's subsidiary in Japan has
a Y60,000,000 (U.S.$524,000) revolving term loan facility with the Hongkong
and Shanghai Banking Corporation Ltd., Osaka Branch. At July 31, 1999, there
was an outstanding loan balance of Y30,000,000 (U.S.$262,000).
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 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 July 31,
1999 the Company had currency forward contracts protecting U.S.$1,800,000 in
inventory purchases. At July 31, 1999 the fair value of foreign currency
forward contracts was ($36,000).
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, 1999, the Company had
approximately $5,065,000 secured under fixed interest rate agreements at a
weighted-average fixed interest rate of 7.96%.
<PAGE>
Absent these fixed rate agreements, the weighted-average variable rate for
this debt at July 31, 1999 would have been 7.15%. At July 31, 1999 the fair
value of interest rate swap agreements approximated carrying value.
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,
could result in miscalculations or a complete system failure causing
disruptions of operations, including, among other things, a temporary
inability to process financial transactions, update customer accounts, bill
customers, plan production, or engage in similar normal business activities.
The Company has undertaken various initiatives intended to ensure that its
computer equipment and software will function properly with respect to dates
in the year 2000 and thereafter. It has completed its assessment of the Year
2000 issue through communication with key customers, suppliers, financial
institutions and others with which it conducts business and review of its
current internal computer systems to identify potential Year 2000 issues.
Based on this assessment, the Company is not aware of any key customer,
supplier, or financial institution with inadequate solutions. Also, it has
upgraded all computer hardware to comply with Year 2000 dates and dates
thereafter. Finally, the Company has developed plans to address system
modifications required by December 31, 1999 and these plans basically require
the upgrade to new versions of packaged software. The Company has completed a
majority of these upgrades and plans to have all system software upgraded
prior to December 31, 1999.
Direct costs associated with addressing the Year 2000 issue have not been
significant and no information technology plans have been deferred due to
Year 2000 efforts. The financial impact of making the required systems
changes is not expected to be material to the Company's consolidated
financial position, results of operations or cash flows. This is a
forward-looking statement.
The Company is in the process of establishing a contingency plan to address
Year 2000 risk factors outside the Company's control and expects it to be
completed by September 30, 1999.
The Company's Year 2000 compliance initiatives are ongoing and its ultimate
scope, as well as the consideration of contingency plans, will continue to be
evaluated, as new information becomes available. In addition, it is important
to note that the description of the Company's efforts necessarily involves
estimates and projections with respect to activities required in the future.
These estimates and projections are subject to changes as work continues, and
such changes may be substantial.
<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:
On June 30, 1999, the Company filed a Form 8-K to report that the
Company's Board of Director's adopted a Stockholder Protection Rights
Agreement and declared a dividend of one Right on each outstanding share of
IMPCO common stock. The dividend was paid on July 26, 1999 to stockholders of
record on July 12, 1999.
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, 1999 By /s/ William B. Olson
-------------------------
William B. Olson
Chief Financial Officer
and Treasurer
[Authorized Signatory]
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