<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, 2000, 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, 2000:
10,268,805 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
April 30, 2000 and July 31, 2000
<TABLE>
<CAPTION>
April 30, July 31,
2000 2000
---- ----
(Unaudited)
-----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................................. $ 3,012,236 $ 35,722,125
Accounts receivable.................................................................... 30,837,388 30,364,254
Less allowance for doubtful accounts................................................. 565,597 806,796
----------- ------------
Net accounts receivable............................................................. 30,271,791 29,557,458
Inventories:
Raw materials and parts............................................................. 18,506,961 15,916,914
Work-in-process..................................................................... 836,308 642,803
Finished goods...................................................................... 13,628,649 11,840,316
----------- ------------
Total inventories................................................................. 32,971,918 28,400,033
Deferred tax assets.................................................................... 4,237,571 4,831,307
Income taxes receivable................................................................ 134,983 710,213
Other current assets................................................................... 2,756,473 2,978,143
----------- ------------
Total current assets................................................................. 73,384,972 102,199,279
Equipment and leasehold improvements:
Dies, molds and patterns............................................................... 6,537,110 6,577,061
Machinery and equipment................................................................ 8,340,978 9,417,200
Office furnishings and equipment....................................................... 7,191,795 8,404,326
Automobiles and trucks................................................................. 542,157 535,842
Leasehold improvements................................................................. 3,461,098 3,687,823
----------- ------------
26,073,138 28,622,252
Less accumulated depreciation and amortization......................................... 15,507,208 16,073,089
----------- ------------
Net equipment and leasehold improvements............................................ 10,565,930 12,549,163
Intangibles arising from acquisitions.................................................... 15,758,461 15,750,777
Less accumulated amortization.......................................................... 5,271,918 5,443,972
----------- ------------
Net intangibles arising from acquisitions.............................................. 10,486,543 10,306,805
Other assets............................................................................. 578,568 633,359
------------ -------------
$ 95,016,013 $ 125,688,606
============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, 2000 and July 31, 2000
(Continued)
<TABLE>
<CAPTION>
April 30, July 31,
2000 2000
---- ----
(Unaudited)
----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $13,652,011 $ 7,863,739
Accrued payroll obligations................................................... 3,942,028 2,990,692
Other accrued expenses........................................................ 2,341,567 2,848,165
Current maturities of long-term debt and capital leases....................... 3,820,697 3,653,296
----------- ------------
Total current liabilities................................................... 23,756,303 17,355,892
Lines of credit................................................................. 18,808,699 3,129,749
Term loans...................................................................... 3,014,257 2,655,543
Capital leases.................................................................. 1,521,199 1,345,011
Deferred tax liabilities........................................................ 745,154 742,621
Minority interest............................................................... 1,791,058 1,909,501
Commitments and contingencies................................................... -- --
Stockholders' equity:
Common stock, $.001 par value, authorized 25,000,000
shares; 10,268,805 issued and outstanding at July 31, 2000
(8,571,807 at April 30, 2000)
8,572 10,269
Additional paid-in capital.................................................... 47,539,037 101,338,996
Shares held in trust.......................................................... (110,320) (138,332)
Retained earnings............................................................. 667,683 59,729
Accumulated other comprehensive income........................................ (2,725,629) (2,720,373)
----------- ------------
Total stockholders' equity.................................................. 45,379,343 98,550,289
----------- ------------
$95,016,013 $125,688,606
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited
Three months ended July 31, 1999 and 2000
<TABLE>
<CAPTION>
July 31, July 31,
1999 2000
---- ----
<S> <C> <C>
Revenue:
Product sales............................................... $27,057,494 $26,599,359
Contract revenue............................................ 1,362,460 2,668,658
----------- -----------
Net revenue............................................... 28,419,954 29,268,017
Costs and expenses:
Cost of product sales....................................... 17,814,509 17,993,948
Research and development
expense................................................... 3,014,773 5,997,562
Selling, general and
administrative expense.................................... 4,939,711 5,624,507
----------- -----------
Total costs and expenses.................................. 25,768,993 29,616,017
Operating income (loss)....................................... 2,650,961 (348,000)
Interest expense.............................................. 231,710 541,428
----------- -----------
Income (loss) before income taxes, minority
interest in income of consolidated
subsidiaries and dividends................................... 2,419,251 (889,428)
Income tax expense (benefit).................................. 774,160 (399,763)
Minority interest in income of
consolidated subsidiaries.................................... 91,375 118,289
----------- -----------
Net income (loss) applicable to common
stock........................................................ $ 1,553,716 $ (607,954)
=========== ===========
Net income (loss) per share:
Basic....................................................... $ 0.18 $ (0.07)
=========== ===========
Diluted..................................................... $ 0.18 $ (0.07)
=========== ===========
Number of shares used in per share
calculation:
Basic....................................................... 8,429,992 8,920,914
=========== ===========
Diluted..................................................... 8,781,530 8,920,914
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Three months ended July 31, 1999 and 2000
<TABLE>
<CAPTION>
July 31, July 31,
1999 2000
---- ----
<S> <C> <C>
Net cash used in operating activities........................................ $ (1,902,746) $ (1,277,666)
Cash flows from investing activities:
Purchases of equipment and leasehold
improvements............................................................... (735,289) (2,852,463)
Proceeds from sales of equipment............................................ 3,686 45,766
------------ ------------
Net cash used in investing activities........................................ (731,603) (2,806,697)
Cash flows from financing activities:
Increase (decrease) in borrowings under lines of
credit..................................................................... 3,929,567 (15,550,000)
Payments to acquire shares held in trust.................................... (4,884) (28,012)
Payments on term loans...................................................... (700,259) (624,115)
Proceeds/payments from capital lease obligations............................ 116,584 (168,624)
Proceeds from issuance of common stock...................................... 329,171 53,093,546
------------ ------------
Net cash provided by financing activities.................................... 3,670,179 36,722,795
Translation adjustment....................................................... (32,178) 71,457
------------ ------------
Net increase in cash and cash equivalents.................................... 1,003,652 32,709,889
Cash and cash equivalents at beginning of period............................. 2,009,208 3,012,236
------------ ------------
Cash and cash equivalents at end of period................................... $ 3,012,860 $ 35,722,125
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1999 and 2000
----------------------
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 our Annual Report on Form 10-K for the fiscal year
ended April 30, 2000. The condensed consolidated balance sheet of IMPCO
Technologies, Inc. (IMPCO or the Company) as of July 31, 2000 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, 2000 are
not necessarily indicative of the results that may be expected for the entire
year ending April 30, 2001.
2) EQUITY OFFERING
On April 7, 2000, the Company filed a Registration Statement on Form S-3
for an equity offering of 2.5 million shares of common stock. Of that amount,
1,625,000 shares were offered by the Company and 875,000 shares were offered by
a selling shareholder. On July 14, 2000 this registration statement was declared
effective by the Securities and Exchange Commission and the Company received
proceeds of approximately $53.5 million. A portion of these proceeds,
approximately $19 million, was used to pay down the outstanding Bank of America
working capital line of credit. The remaining portion of the proceeds is
expected to be used for the continuing expansion of the Company's development
engineering capabilities and general corporate purposes including research and
development in fuel cell technologies and working capital.
3) DEBT PAYABLE
Our debt payable is summarized as follows:
<TABLE>
<CAPTION>
April 30, July 31,
2000 2000
<S> ------------ ------------
Bank of America NT&SA <C> <C>
Revolving line of credit.................................................. $ 15,550,000 $ 0
Mexican peso line of credit............................................... 851,000 856,000
Term loans for acquisitions............................................... 3,028,000 2,566,000
Capital lease and expenditure facilities.................................. 4,843,000 4,652,000
IMPCO BV term loan........................................................ 1,043,000 972,000
Credit facility--Mees Pierson............................................... -- --
The Hong Kong and Shanghai Banking Corporation Ltd..........................
Term loan for acquisition................................................. 1,183,000 1,097,000
Line of credit............................................................ 555,000 549,000
Other............................................................................. 112,000 92,000
----------- -----------
27,165,000 10,784,000
Less current portion.............................................................. 3,821,000 3,653,000
------------ -----------
$ 23,344,000 $ 7,131,000
============ ===========
</TABLE>
<PAGE>
The Company is currently negotiating with Bank of America to reduce the
revolving working capital line of credit limit, expand the capital expenditure
facility, and consolidate numerous acquisition loans and the non-revolving
capital expenditure line of credit into one fully amortizing term loan.
Depending on the outcome of these negotiations, the Company may decide to
further reduce its outstanding bank debt.
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, 2000, the Company was in compliance with all covenants.
4) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
THREE MONTHS ENDED JULY 31,
--------------------------
1999 2000
---- ----
Numerator:
Net income (loss) before dividends $ 1,553,716 $ (607,954)
Dividends on preferred stock - -
----------- ----------
Numerator for basic earnings (loss) per
share - income (loss) available to
common stockholders 1,553,716 (607,954)
Effect of dilutive securities:
Preferred stock dividends - -
----------- ----------
Numerator for diluted earnings (loss) per
share - income (loss) available to
common stockholders after
assumed conversions $ 1,553,716 $ (607,954)
Denominator:
Denominator for basic earnings (loss) per
share -- weighted-average shares 8,429,922 8,920,914
Effect of dilutive securities:
Employee stock options 351,608 -
Warrants - -
Convertible preferred stock - -
----------- ----------
Dilutive potential common shares 351,608 -
Denominator for diluted earnings (loss) per
share -- adjusted weighted-average
shares and assumed conversions 8,781,530 8,920,914
----------- ----------
Basic earnings (loss) per share $ 0.18 $ (0.07)
----------- ----------
Diluted earnings (loss) per share $ 0.18 $ (0.07)
----------- ----------
<PAGE>
5) 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 net income or stockholders' equity of the Company. 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, 2000, are as follows:
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Net income (loss)........................................... $1,553,716 $(607,954)
Foreign currency translation adjustment..................... (76,891) 5,256
---------- ---------
Comprehensive income (loss)................................. $1,476,825 $(602,698)
========== =========
</TABLE>
6) BUSINESS SEGMENT INFORMATION
The Company classifies its business into three operating segments:
Automotive OEM division, Gaseous Fuel Products division and International
Operations. The Automotive OEM division generates revenues through the sale of
fuel storage, fuel delivery, and electronic control systems to original
equipment manufacturers (OEMs) and the installation of products into OEM
vehicles. The division also generates contract revenue by providing engineering
design and support to the OEMs so that fuel systems will fit into a variety of
their vehicles as they upgrade their models each year. The Gaseous Fuel Products
division sells products including parts and conversion systems to OEMs and the
aftermarket. The International Operations in Australia, Europe, Japan and Mexico
provide distribution for the Company's products, predominantly from the Gaseous
Fuel Products division, as well as some product assembly.
Corporate expenses consist of general and administrative expenses at the
corporate level and include the amortization of goodwill and other intangible
assets. Intersegment eliminations are primarily the result of intercompany sales
from the Gaseous Fuel Products division to the International Operations.
All research and development is expensed as incurred. Research and
development expense includes both customer funded research and development and
company sponsored research and development. Each operating segment conducts its
own application engineering and technical support for the sales and market
development of the new products and technology. Customer funded research and
development consists primarily of expenses associated with contract revenue.
These expenses include applications development costs in the Automotive OEM
division funded under customer contracts.
The Company evaluates performance based on profit or loss from operations
before interest and income taxes.
Net revenues and operating income for the Company's business segments for
the three months ended July 31, 1999 and 2000 are as follows:
<TABLE>
<CAPTION>
======================================================================================================
Revenues Operating Income (Loss)
------------------------------------------------------------------------------------------------------
(in thousands) 1999 2000 1999 2000
---- ---- ---- ----
July 31, July 31, July 31, July 31,
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Automotive OEM Division $ 5,284 $ 6,992 $ (487) $(1,966)
Gaseous Fuels Products Division 19,542 19,781 5,532 4,028
International Operations 6,444 7,615 663 639
Corporate Expenses (1) - - (1,800) (1,774)
Corporate Research & Prod. Devel.(1) - - (1,333) (894)
Intersegment Elimination (2,850) (5,120) 76 (378)
------------------------------------------------------------------------------------------------------
Total $28,420 $29,268 $ 2,651 $ (348)
======================================================================================================
</TABLE>
(1) Represents corporate expenses and corporate research and development not
allocated to any of the operating segments. Other research and development
consists primarily of customer funded expenditures in the Automotive OEM
division.
<PAGE>
7) INCOME TAXES
Income taxes for the three months ended July 31, 2000 were computed using
the effective tax rate estimated to be applicable for the full fiscal year,
which is subject to ongoing review and evaluation by management.
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" and other factors identified from time to time in our
reports filed with the Securities and Exchange Commission.
OVERVIEW
--------
We are a leading designer, manufacturer, and supplier of advanced fuel
delivery and fuel storage technology systems and components that allow internal
combustion engines and fuel cell systems to operate in a variety of
transportation, material handling, and power generation applications using clean
fuels such as hydrogen, propane, natural gas, and methanol. Historically, most
of our revenues have been derived from the sale of the products that enable
traditional internal combustion engines to run on clean burning alternative
fuels such as propane and natural gas instead of gasoline. Our future goal is to
also commercialize systems that will provide delivery, storage and electronic
controls for fuel cell systems.
We classify our business interests into three operating segments:
Automotive OEM division, Gaseous Fuel Products division and International
Operations. The Automotive OEM division generates revenues through the sale of
fuel storage, fuel delivery and electronic control systems to OEMs, primarily
General Motors and the installation of our products into OEM vehicles. The
division also generates contract revenue by providing engineering design and
support to the OEMs so that our fuel system will fit into a variety of their
vehicles as they upgrade their models each year. The Gaseous Fuel Products
division sells products including parts and conversion systems to OEMs and the
aftermarket. Our International Operations in Australia, Europe, Japan and Mexico
provide distribution for our products, predominantly from our Gaseous Fuel
Products division and some product assembly.
RESULTS OF OPERATIONS
---------------------
Net revenues and operating income for our business for the three months
ended July 31, 1999 and 2000 are as follows:
<TABLE>
<CAPTION>
======================================================================================================
Revenues Operating Income (Loss)
------------------------------------------------------------------------------------------------------
(in thousands) 1999 2000 1999 2000
---- ---- ---- ----
July 31, July 31, July 31, July 31,
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Automotive OEM Division $ 5,284 $ 6,992 $ (487) $(1,966)
Gaseous Fuels Products Division 19,542 19,781 5,532 4,028
International Operations 6,444 7,615 663 639
Corporate Expenses (1) - - (1,800) (1,774)
Corporate Research & Prod. Devel.(1) - - (1,333) (894)
Intersegment Elimination (2,850) (5,120) 76 (378)
------------------------------------------------------------------------------------------------------
Total $28,420 $29,268 $ 2,651 $ (348)
======================================================================================================
</TABLE>
(1) Represents corporate expenses and corporate research and development not
allocated to any of the operating segments. Other research and development
consists primarily of customer funded expenditures in the Automotive OEM
division.
<PAGE>
Automotive OEM Division. For the three months ended July 31, 2000, net
revenues increased by approximately $1.7 million, or 32.3%, as compared to the
same period in the prior fiscal year. Product sales increased to $4.3 million,
compared to $3.9 million in the same quarter of fiscal year 2000. Product sales
consist of General Motors' mid-size automobiles and pick-up trucks equipped with
this division's bi-fuel compressed natural gas fuel system and dedicated liquid
propane gas kits under the Teaming Agreement with General Motors for their
medium duty trucks. During the current year quarter, as compared to the first
quarter of fiscal 2000, we realized higher midsize automobile and pick-up truck
sales, partially offset by lower medium duty truck sales. We expect product
sales to be higher in the fiscal year 2001, as compared to the prior fiscal
year, as additional General Motors platforms and model years are introduced and
other automotive OEM platforms are obtained. We anticipate these higher sales
during the second half of this fiscal year.
During the first quarter of fiscal year 2001, contract revenues increased
$1.3 million, or 95.9%, as compared to the same period in fiscal year 2000. This
increase was primarily due to lower revenues recognized during the first quarter
of fiscal year 2000 as a result of the start up period on new General Motors
model year programs. We anticipate, based on new contracts negotiated with
General Motors and expected levels of contract completion on these contracts and
government agency contracts with the Southern California Air Quality Management
District, that contract revenue, in the remaining quarters of fiscal year 2001,
will be lower than levels experienced during the same periods in fiscal year
2000.
During the first quarter of fiscal year 2001, the Automotive OEM division
operating loss was approximately $1,966,000 as compared to an operating loss of
approximately $487,000 in the first quarter of the prior fiscal year. This
increase in loss was primarily attributable to our increased efforts relating to
the application development and commercialization of fuel metering, fuel storage
and fuel systems for alternative fuel and fuel cell OEM programs. We have
opened additional facilities in Lake Forest, California and Sterling Heights,
Michigan to expand our testing capabilities and vehicle integration capacity to
meet anticipated increasing OEM activity in developing alternate fuel and fuel
cell vehicles. We anticipate future increases in application development and
other operating expenditures as we continue the expansion of engineering
facilities and staff to support anticipated alternative fuel and fuel cell
programs.
Product application development costs during the quarter were $1,348,000 as
compared to $1,596,000 in the same period in the prior fiscal year. Product
applications development expense is primarily for system development and
application engineering of our 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. Customer
funded development costs during the quarter were $1,512,000 as compared to
$1,362,000 in the same period in the prior fiscal year. We anticipate product
application development costs will be lower in the remaining quarters of fiscal
year 2001 as compared to the same period in the prior year.
Gross margin on General Motors' product sales was lower in the first
quarter of fiscal year 2001 as compared to the same period in fiscal year 2000.
This was primarily a result of product mix and higher sales of the model year
2000 pick-up truck, which has lower margins. We anticipate higher gross margins
on model year 2001 platforms as compared to model year 2000 platforms, primarily
due to additional engineering design efficiencies and reduced per unit overhead
costs.
Gaseous Fuels Products Division. For the three months ended July 31, 2000,
net revenues increased by approximately $239,000, as compared to the same period
in the prior fiscal year. Higher sales for material handling and large
industrial engine end uses were primarily offset by declines in small industrial
engine end use, caused by an end in the short-term increase in small engine
sales related to year 2000 preparedness. Additionally, the shipment of product
for subsequent automotive after market sales in Mexico by distributors was lower
during the first quarter of fiscal 2001 compared to the same period in the prior
year primarily due to less favorable market conditions. We anticipate that
overall revenues generated by Gaseous Fuels Products division in fiscal year
2001 will be higher than fiscal year 2000 with the continued trend of higher
material handling and industrial system sales. Additionally, we anticipate
these increases will be offset, primarily during the second quarter, by lower
small engine sales and after market motor vehicle sales to the Mexico market.
During the first quarter of fiscal year 2001, operating income for this
division decreased approximately $1.5 million, or 27.2%, as compared to the same
period in the prior fiscal year. This decrease was mainly due to higher
application development expenses of approximately $1.1 million, primarily
related to the development of the next generation fuel/engine management systems
for the material handling and industrial engine market. We anticipate that
operating income for this division for the remaining fiscal year 2001 will be
comparable to the same period in fiscal year 2000.
<PAGE>
International Operations. For the three months ended July 31, 2000, net
revenues increased by approximately $1,171,000 or 18.2%, as compared to the same
period in the prior fiscal year. Each subsidiary contributed to this increase
with European and Australian revenues accounting for $718,000 of the increase.
This segment's revenues would have increased an additional $601,000 if not for
the strengthening of the U.S. Dollar as compared to the foreign currency
exchange rates in effect during the same period in the prior year. The weakening
of foreign currencies versus the U.S. Dollar negatively impacts the conversion
of foreign currency denominated sales. We anticipate that this segment's
revenues during fiscal year 2001 will be higher than fiscal year 2000 as
international markets for our products continue to expand.
During the first quarter of fiscal year 2001, operating income for this
segment was comparable to the same quarter in the prior year. Increased
operating income from European and Japan subsidiaries were offset by higher
operating expenses from the Mexico subsidiary in preparation of anticipated
future automotive conversion programs. We anticipate that operating income for
this segment for the remaining quarters of fiscal year 2001 will be higher
compared to the same period last year due to anticipated higher revenues.
Corporate Expenses. Corporate expenses for the three months ended July 31,
2000, decreased approximately $26,000 or less than 1.5%, as compared to the same
period in the prior fiscal year. The decrease in corporate expenses for the
three months ended July 31, 2000, was primarily due to the Company having
incurred incremental costs and high legal expenses in the creation of its
Stockholder Protection Rights Agreement during the first quarter of fiscal year
2000. We anticipate that corporate expenses for the remaining quarters of fiscal
year 2001 will be comparable to levels experienced during the same period of
fiscal year 2000.
Corporate Research and Product Development. Corporate Research and Product
Development expense for the three months ended July 31, 2000, decreased
approximately $439,000, or 32.9%, as compared to the same period in the prior
fiscal year. This decrease is due to the completion of several fuel metering and
fuel storage component projects at the end of fiscal year 2000. We anticipate
that corporate research and product development expense during fiscal year 2001
will be lower than the levels experienced during fiscal year 2000 due to the
completion of the corporate projects and the transfer of these projects for
subsequent application development by each operating segment, particularly the
Automotive OEM division.
Interest Expense. Interest expense for the three months ended July 31,
2000, increased $310,000, or 133.7%, as compared to the same period in the prior
fiscal year. This increase was attributable to higher balances and interest
rates on our credit facility with Bank of America. In July 2000, we completed a
an equity offering that provided the Company with $53.5 million. The Bank of
America working capital line of credit was paid off during the quarter and the
remaining amount is invested in short-term money market accounts. We anticipate
generating interest income for the remaining quarters of fiscal year 2001.
Provision For Income Taxes. The estimated effective annual tax benefit rate
of 44.9% for fiscal year 2001 differs from the previous year's tax expense rate
of 24.2% due to incurring an expected federal net operating loss in the current
fiscal year. The current quarter tax benefit includes presumed utilization of
estimated net research and development credits of $820,000. We have established
a $220,000 valuation allowance for this tax credit. As of July 31, 2000, the net
deferred tax asset was $4,831,000 and our net deferred tax liability was
$743,000. We anticipate, based on our history of prior operating earnings and
our expectation for future operating earnings, that operating income will more
likely than not be sufficient to realize the benefits of the deferred tax
assets, net of the valuation allowance, and that the estimated effective annual
tax rate in the future years will approximate the statutory rate.
LIQUIDITY AND CAPITAL RESOURCES.
-------------------------------
Our financial condition has strengthened following the completion of the
equity offering in which we received $53.5 million. At July 31, 2000, total cash
and short-term investments totaled $35.7 million, up from $3.0 million at April
30, 2000. We will use these funds and bank financing to fund capital
expenditures and research and development, as well as to invest in and operate
our existing operations and new businesses. We believe we have the financial
resources needed to meet business requirements in the foreseeable future,
including expanding engineering facilities and staff to support current and
anticipated alternative fuel and fuel cell OEM programs.
<PAGE>
Net cash used in operating activities was $1.3 million during the current
quarter, compared to net cash used in operating activities of $1.9 million for
the same period in the previous year. The decrease in cash used in operating
activities during the current period resulted primarily from decreases in
inventory and accounts receivable, partially offset by a current quarter
operating loss and a decrease in accounts payable. The decline in inventory, and
related reduction in accounts payable, was primarily attributable to improved
inventory management at our domestic locations and to an unusually high level of
inventory at fiscal year end 2000. The decline in accounts receivable resulted
from improved collections from domestic customers, which were partially offset
by a $1.6 million increase in earned, but not yet billed, contract revenues
classified as accounts receivable and high international receivables,
particularly in Mexico.
Net cash used in investing activities in the first quarter was
approximately $2.8 million, an increase of approximately $2.1 million from the
$.7 million reported in the same period in the previous year. This increase was
primarily due to the purchases of equipment and leasehold improvements as we
expanded our facilities dedicated to the research and development of systems and
products for alternative fuel and fuel cell programs. We expect capital
expenditures during the current year, primarily relating to equipment
enhancements and facilities for the development and production of new products
and application development programs, to be significantly higher than
expenditures during fiscal year 2000.
Net cash provided by financing activities during the current quarter was
approximately $36.7 million compared to $3.7 million for the same period in the
previous year. This increase was due to the proceeds from our follow on equity
offering, which was partially offset by our subsequent pay down of the Bank of
America working capital line of credit. Payments made on term loans were
approximately $624,000.
We have a $22 million revolving line of credit, a $3 million revolving line
of credit for IMPCO Mexicano, and approximately $3 million of available credit
on the capital expenditures facility with Bank of America. At July 31, 2000,
approximately $856,000 and $2.7 million were outstanding under the revolving
line of credit for IMPCO Mexicano and the capital lease facility, respectively.
The revolving line of credit expires on August 31, 2001. The capital lease
facility expires on September 30, 2000, and will subsequently amortize over a 5
year period. In addition, our subsidiary in the Netherlands has a fl. 3,000,000
(U.S.$1,262,000) credit facility with Mees Pierson, a financial institution in
the Netherlands. At July 31, 2000, there was no outstanding balance. Our
subsidiary in Japan has a (Yen)60,000,000 (U.S.$549,000) revolving term loan
facility with the Hongkong and Shanghai Banking Corporation Ltd., Osaka Branch.
At July 31, 2000, there was no additional credit available under this facility.
DERIVATIVE FINANCIAL INSTRUMENTS
--------------------------------
We use derivative financial instruments for the purpose of reducing our
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. We are not a party to leveraged derivatives and do not hold or issue
financial instruments for speculative purposes.
Foreign Currency Management. The results and financial condition of our
international operations are affected by changes in exchange rates between
certain foreign currencies and the U.S. Dollar. Our exposure to fluctuations in
currency exchange rates has increased as a result of the growth of our
international subsidiaries. The functional currency for all of our
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 our international subsidiaries' inventory purchases are U.S.
Dollar denominated. We monitor this risk and attempt to minimize the exposure
through forward currency contracts and the management of cash disbursements in
local currencies. At July 31, 2000 we had no currency forward contracts
outstanding.
We seek to hedge our foreign currency economic risk by minimizing our U.S.
Dollar investment in foreign operations using foreign currency term loans to
finance the operations of our foreign subsidiaries. The term loans are
denominated in local currencies and translated to U.S. Dollars at period end
exchange rates.
Interest Rate Management. We use interest rate swap agreements with Bank of
America to manage our exposure to interest rate changes and stabilize the cost
of borrowed funds. When an agreement is executed, the swap is linked to a
<PAGE>
specific debt instrument. At July 31, 2000, we had approximately $3,197,000
secured under fixed interest rate agreements at a weighted-average fixed
interest rate of 7.9%. Absent these fixed rate agreements, the weighted-
average variable rate for this debt at July 31, 2000 would have been 8.6%. At
July 31, 2000, the fair value of our interest rate swap agreements approximated
$34,000.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information relating to Quantitative and Qualitative Disclosures About
Market Risk appear under the heading "Derivative Financial Instruments" which is
included in Item 2, Management's Discussion and Analysis of Financial Condition
and Results of Operations.
PART II--OTHER INFORMATION
Item 1. Legal Proceedings.
On August 11, 2000, the Company filed a claim for patent infringement in
the United States District Court in the Eastern District of Michigan against GFI
Control Systems Inc. On August 18, 2000, the Company filed an amended complaint
in this action to include Dynetek Industries Ltd. as a defendant. The amended
complaint alleged that GFI Control Systems Inc. and Dynetek Industries Ltd.
infringed, and continue to infringe, a patent owned by the Company (U.S. Patent
No. 6,041,762) relating to a control module for alternative fuel vehicles. The
amended complaint seeks relief from the defendants to cease their infringement
activities and requests damages be awarded to the Company resulting from the
infringement activities. The relief also asks for reimbursement of attorney's
fees and certain other relief the Court deems proper. The Company has
vigorously pursued its rights pursuant to its intellectual property and will
continue such efforts. The Company does not anticipate that the outcome of this
infringement proceeding will have a material impact upon the Company's financial
position or results of operation.
Items 2, 3, 4, and 5.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended July
31, 2000.
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, 2000 By /s/William B. Olson
-------------------------
William B. Olson
Chief Financial Officer
and Treasurer
[Authorized Signatory]
