<PAGE>
As filed with the Securities and Exchange Commission on July 13, 2000
Registration No. 333-34366
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------------------
IMPCO TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<CAPTION>
Delaware 3714 91-1039211
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------
16804 Gridley Place
Cerritos, California 90703
(562) 860-6666
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------
Robert M. Stemmler
President and Chief Executive Officer
16804 Gridley Place
Cerritos, California 90703
(562) 860-6666
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------
Copies of all communications to be sent to:
<TABLE>
<S> <C>
Michael J. Connell, Esq. Ellen S. Bancroft, Esq.
Jonathan F. Atzen, Esq. Sandy A. Milligan, Esq.
Maile Y.C. Yang, Esq. James D. Miller, Esq.
MORRISON & FOERSTER LLP BROBECK, PHLEGER & HARRISON LLP
555 West Fifth Street 38 Technology Drive
Los Angeles, California 90013-1024 Irvine, California 92618-5312
(213) 892-5200 (949) 790-6300
</TABLE>
------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 13, 2000
[LOGO OF IMPCO]
2,500,000 Shares
Common Stock
IMPCO Technologies, Inc. is offering 1,625,000 shares of its common stock and
the selling stockholders are selling an additional 875,000 shares of our common
stock. Our common stock is traded on the Nasdaq National Market under the
symbol "IMCO." The last reported sale price of the common stock on the Nasdaq
National Market on June 12, 2000 was $29.125 per share.
--------------
Investing in the common stock involves risks.
See "Risk Factors" beginning on page 7.
--------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price........................................... $ $
Underwriting Discounts and Commissions.......................... $ $
Proceeds to IMPCO............................................... $ $
Proceeds to the Selling Stockholders............................ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
We have granted the underwriters a 30-day option to purchase up to an
additional 375,000 shares of common stock to cover over-allotments.
--------------
Robertson Stephens
CIBC World Markets
FAC/Equities
The date of this Prospectus is , 2000
<PAGE>
[DESCRIPTION OF ARTWORK]
INSIDE FRONT COVER
A. The inside front cover is a picture of an automobile depicting where
IMPCO's Fuel Storage System and Fuel Delivery System products are implemented
in an automobile. Across the top of the page are the words "FUEL TECHNOLOGY FOR
THE FUTURE System Integration for Fuel Cell Technology."
B. Annotations for graphics:
1. "IMPCO Fuel Storage System"
2. "Fuel Safety Lock-off"
3. "In-Tank Regulator"
4. "Fuel Storage"
5. "IMPCO Electronic Control System"
6. "FUEL CELL STACK"
7. "IMPCO Fuel Lines & Wiring Harness"
8. "Fuel Injectors"
9. "Injector Regulator"
10. "Mass Flow Metering Valve"
11. "IMPCO Fuel Delivery System"
<PAGE>
INSIDE GATEFOLD (two pages)
A. The first page is a picture of a flow chart depicting IMPCO's System
Capabilities in the fuel cell industry. Across the top of the page are the
words "Fuel Cell Industry."
B. Annotations for graphics:
1. "IMPCO System Capabilities"
2. "Air & Vapor Metering"
3. "Transportation"
4. "Fuel Cell Stack"
5. "Hydrogen Storage"
6. "Electronic Controls & Software"
7. "Hydrogen Metering 5000 psi"
8. "Electrons (DC Power)"
9. "Systems Integration"
10. "Material Handling"
11. "Gaseous Fuel Storage (Natural Gas) 3600 psi"
12. "Electronic Controls & Software"
13. "Gaseous Fuel Metering"
14. "Fuel Reformer"
15. "Industrial Engines & Power Generation"
16. "Liquid Fuel Storage Gasoline, Diesel, Ethanol, Methanol"
17. "Electronic Controls & Software"
18. "Liquid Fuel Metering"
<PAGE>
C. The second page is a picture of a flow chart depicting IMPCO's System
Capabilities in the alternative fuel industry. Across the top of the page are
the words "Alternative Fuel Industry."
D. Annotations for graphics:
1. "IMPCO System Capabilities"
2. "Hydrogen Storage 5000 psi "
3. "Electronic Controls & Software"
4. "Hydrogen Metering"
5. "Transportation"
6. "Gaseous fuel storage (Natural Gas) 3600 psi"
7. "Electronic Controls & Software"
8. "Gaseous Fuel Metering"
9. "Internal Combustion Engine"
10. "Systems Integration"
11. "Material Handling"
12. "Liquid Fuel Storage Gasoline, Diesel, Ethanol, Methanol"
13. "Electronic Controls & Software"
14. "Liquid Fuel Metering"
15. "Industrial Engines & Power Generation"
<PAGE>
You should rely on the information contained in this prospectus. We have not
authorized anyone to provide you with information different from that contained
in this prospectus. We are offering to sell, and seeking offers to buy, shares
of common stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this prospectus or of
any sale of our common stock. Unless otherwise indicated, the references in
this prospectus to the "Company," "IMPCO," "we," "us," and "our" refer to IMPCO
Technologies, Inc., a Delaware corporation, its predecessors and subsidiaries.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 7
Forward-Looking Statements............................................... 14
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Price Range of Common Stock.............................................. 16
Capitalization........................................................... 17
Selected Consolidated Financial Information.............................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 30
Management............................................................... 46
Principal and Selling Stockholders....................................... 51
Underwriting............................................................. 53
Legal Matters............................................................ 56
Experts.................................................................. 56
Where You Can Find More Information...................................... 56
Incorporation of Certain Documents by Reference.......................... 56
Index to Consolidated Financial Statements .............................. F-1
</TABLE>
---------------------
IMPCO, BEAM and GARRETSON are trademarks of IMPCO Technologies, Inc. This
prospectus contains trademarks and trade names of other companies.
3
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information in this prospectus, including risk factors, regarding our company
and the common stock being sold in this offering.
The Company
We are a leading designer, manufacturer and supplier of fuel storage, fuel
delivery and electronic control systems that allow internal combustion engines
and fuel cells to operate using clean fuels such as hydrogen, propane, natural
gas and methanol. We have designed these systems to optimize efficiency and
performance by electronically sensing and regulating the proper proportion of
fuel and air used by internal combustion engines and fuel cell systems.
According to the World LP Gas Association, in 1997, there were approximately
400,000 vehicles in the United States and approximately 4.1 million vehicles
worldwide that operate on propane gas. In addition, the International
Association for Natural Gas Vehicles estimates that approximately 87,000
vehicles in the United States and approximately 1.0 million vehicles worldwide
had been converted to operate on natural gas. We believe the alternative fuel
market has grown rapidly in response to environmental concerns over the
pollution caused by internal combustion engines, as well as an economic
incentive to use these fuels due to the price differential between gasoline and
alternative fuels such as natural gas and propane. As gasoline prices rise, it
generally becomes more economical to convert an internal combustion engine to
run on propane or natural gas and benefit from lower fuel costs. In Mexico, for
example, the price of gasoline was approximately two times the price of propane
in May 2000. Many countries are also beginning to adopt alternative fuel
technologies in order to lessen their dependence on imported oil. Based on over
40 years of technology development and expertise in producing cost-effective,
safe and durable alternative fuel systems for internal combustion engines, we
believe that we will be positioned to provide enabling products and
technologies for the rapidly emerging fuel cell industry.
Fuel cells are devices that produce electricity through an electrochemical
reaction that requires hydrogen as a primary fuel. The newly emerging fuel cell
industry represents an advancement in technologies to address worldwide
concerns over the environment and long-term supply of liquid fuels. The
National Fuel Cell Research Center based at the University of California,
Irvine estimates the market for fuel cell products will exceed $10 billion by
2010. We believe that we can adapt our fuel storage, fuel delivery and
electronic control systems to address the emerging fuel cell market. We also
believe that our technology and equipment that enable fuel cells to run on
hydrogen represent a natural extension of our current product line.
Our goal is to be the leading provider of on board fuel storage, fuel
delivery and electronic control systems for fuel cells. We believe that these
functions will represent a critical factor in the commercial viability and
market acceptance of fuel cells. Our enabling technology is targeted to support
the commercialization of fuel cells being developed by others in the industry.
Regardless of the fuel used in a fuel cell system, we believe a fuel cell
system will require on board storage. We believe our low cost TriShield(TM)
storage tank and advanced fuel delivery and electronic control products are of
special interest to the fuel cell industry because they provide increased fuel
storage at less weight and improved operation through precise and timely fuel
metering.
We anticipate initially targeting the transportation market, by leveraging
off of our existing technologies for alternative fuel systems as well as our
relationships with OEMs such as General Motors. We also plan to target the fuel
storage, fuel delivery and electronic control system requirements of fuel cells
that are developed for other end markets such as the stationary and portable
power generator markets. We believe our continued success in the design,
manufacturing and commercialization of products for the alternative fuel and
fuel cell industries will depend on our substantial financial commitment to
advanced research and product development and our proven ability to develop and
commercialize products in these industries.
We were incorporated in Delaware in October 1985. Our principal executive
offices are located at 16804 Gridley Place, Cerritos, California 90703, and our
telephone number at that address is (562) 860-6666.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Common Stock offered by IMPCO...................... 1,625,000 shares
Common Stock offered by the Selling Stockholder.... 875,000 shares
Common Stock to be outstanding after the offering.. 10,204,807 shares
Use of proceeds.................................... We plan to use the net
proceeds of this offering
for the repayment of
indebtedness, the
expansion of our
development engineering
capabilities and general
corporate purposes
including research and
development in fuel cell
technologies and working
capital. See "Use of
Proceeds."
Nasdaq National Market symbol...................... IMCO
</TABLE>
--------------------
The number of shares of common stock outstanding after the offering is based
upon 8,579,807 shares of common stock outstanding as of May 31, 2000 and
assumes:
. no exercise of the underwriters over-allotment option; and
. no exercise of outstanding options to purchase an aggregate of 1,313,931
shares of our common stock at a weighted average exercise price per share
of $8.73.
Our fiscal year ends on April 30, and our fiscal quarters end on July 31,
October 31 and January 31.
5
<PAGE>
Summary Consolidated Financial Data
(dollars in thousands, except for per share data)
You should read this information together with the discussion in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements, including the notes
thereto. The as adjusted data summarized below reflects the application of the
net proceeds from the sale of 1,625,000 shares of common stock by IMPCO at an
assumed public offering price of $29.125 per share, after deducting the
estimated underwriting discounts and commissions and offering expenses. The
following table sets forth certain summary consolidated financial data of IMPCO
Technologies, Inc. We have prepared this information using our consolidated
financial statements for the five years ended April 30, 2000.
<TABLE>
<CAPTION>
Year Ended April 30,
----------------------------------------
1996 1997 1998 1999 2000
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue:
Product sales....................... $48,487 $58,437 $62,209 $75,821 $103,418
Contract revenue.................... 3,087 3,392 8,874 11,006 9,398
Net revenue.......................... 51,575 61,828 71,083 86,826 112,816
Cost and expenses:
Cost of sales....................... 32,011 37,342 38,174 52,179 69,799
Research and development expense.... 7,171 7,725 12,062 11,612 15,576
Selling, general and administrative
expense............................ 8,261 11,912 13,729 16,133 21,343
Operating income..................... 4,132 4,850 7,118 6,903 6,097
Interest expense..................... 504 1,100 935 1,170 1,442
Gain on sale of subsidiary........... -- -- -- 2,169 --
Net income(1)(2)..................... $ 4,671 $ 3,225 $ 4,865 $ 6,331 $ 3,065
Net income applicable to common
stock............................... $ 4,061 $ 2,644 $ 4,270 $ 5,800 $ 3,065
Net income per share(2)(3):
Basic............................... $ 0.72 $ 0.46 $ 0.67 $ 0.80 $ 0.36
Diluted............................. $ 0.64 $ 0.43 $ 0.60 $ 0.71 $ 0.33
Number of shares used in per share
computation(3):
Basic............................... 5,648 5,722 6,334 7,293 8,489
Diluted............................. 7,300 6,131 8,155 8,976 9,232
</TABLE>
<TABLE>
<CAPTION>
April 30, 2000
-------------------
Actual As Adjusted
------- -----------
<S> <C> <C>
Balance Sheet Data
Cash........................................................ $ 3,012 $19,535
Total working capital....................................... 49,629 69,151
Total assets................................................ 95,016 111,539
Long-term obligations, less current portion................. 23,344 --
Stockholders' equity........................................ 45,379 89,067
</TABLE>
--------
(1) Fiscal year 1996 includes an income tax benefit of $1.7 million, due to
the reduction in the valuation allowance for deferred tax assets
(equivalent to $0.30 per basic share and $0.23 per diluted share) and
$318,000 net income from our European subsidiary that was acquired in
October 1995.
(2) Includes gain on sale of 49% interest in IMPCO BV to BERU
Aktiengesellschaft during fiscal year 1999. We recorded a pre-tax gain of
$2.2 million and an after-tax gain of $1.8 million or $0.20 per diluted
share.
(3) During fiscal years 1996 and 1998, shares assumed to be issued upon
conversion of our preferred stock were included in the calculation since
it resulted in a reportable dilution. During fiscal year 1999, all of our
preferred stock was converted to common stock and the diluted earnings per
share was calculated as though the conversion occurred at the beginning of
fiscal year 1999.
6
<PAGE>
RISK FACTORS
Any investment in shares of our common stock involves a high degree of risk.
You should consider carefully the following information about these risks,
together with the other information contained in this prospectus, before you
decide to buy our common stock. If any of the following risks actually occur,
our business, results of operations and financial condition would likely
suffer. In these circumstances, the market price of our common stock could
decline, and you may lose all or part of your investment.
We may never complete the research and development of commercially viable fuel
storage, fuel delivery or electronic control products for fuel cell systems.
We do not know when or whether we will successfully complete the research
and development of commercially viable fuel storage, fuel delivery or
electronic control products for the fuel cell market. We have produced and are
currently demonstrating a number of test and evaluation systems and are
continuing our efforts to decrease the costs of our systems' components and
subsystems, improve their overall reliability and efficiency, and ensure their
safety. However, we must complete substantial additional research and
development on our systems before we will have a commercially viable fuel
delivery system for fuel cells. Even if we are able to do so, our efforts will
still depend upon the success of other companies producing commercially viable
fuel cells. In addition, we are not currently manufacturing fuel cell enabling
products on a large scale basis and will need to upgrade existing facilities to
do so. In particular, the manufacturing of our TriShield composite tank may not
be successful and could have an adverse impact on our growth in fuel cell
enabling technologies.
A mass market for fuel storage, fuel delivery and electronic control systems
for fuel cells may never develop or may take longer to develop than we
anticipate.
Fuel cell systems represent an emerging technology, and we do not know
whether OEMs will incorporate these technologies into their products or pursue
these technologies on a large scale basis. In particular, if a mass market
fails to develop or develops more slowly than we anticipate for fuel cell
powered automobiles and equipment, we may be unable to recover the expenditures
we will have incurred to develop our fuel systems for fuel cells and may be
unable to achieve profitability in that portion of our business and could
negatively impact our overall profitability. Many factors which are out of our
control may have a negative effect on the development of a mass market for our
fuel cell products and systems. These factors include:
. the cost competitiveness and size of fuel cell systems;
. the availability, future costs and safety of hydrogen, natural gas or
other potential fuel cell fuels;
. consumer reluctance to adopt alternative fuel products;
. OEM reluctance to replace current technology;
. consumer perceptions of fuel cell systems;
. regulatory requirements; and
. the emergence of newer, breakthrough technologies and products by our
competitors in the fuel cell industry.
Our Automotive OEM Division's revenues are heavily dependent on our
relationship with General Motors and General Motors' commitment to develop the
alternative fuel market.
Nearly all of our revenues for the fiscal year ended April 30, 2000 for our
Automotive OEM division and 16.0% of our total revenues for the same period
related to sales of our products to and contracts with General Motors. Our
Teaming Agreement with General Motors terminates on July 30, 2002 and may be
earlier terminated unilaterally by either us or General Motors upon 30 days
written notice upon certain events including:
. lack of a meeting of the management committee created under the terms of
the Teaming Agreement for 18 consecutive months; or
7
<PAGE>
. a material breach of the Teaming Agreement which remains uncorrected for
20 days following notice.
Additionally, General Motors may terminate the Teaming Agreement in the
event we change our management or ownership control. Our business and results
of operations would be adversely affected in the event General Motors
terminates its relationship with us or ceases to pursue the alternative fuel
market.
Our ability to sell our products to the automotive market is heavily
dependent upon General Motors' worldwide sales and distribution network and
service capabilities. Any change in our relationship with General Motors could
harm our potential earnings by reducing or eliminating a substantial portion of
our sales, whether as a result of market, economic or competitive pressures,
including any decision by General Motors:
. to alter its commitment to our fuel metering, fuel storage and control
technology in favor of other competing technologies;
. to develop alternative fuel systems targeted at different markets than
ours; or
. to focus on different energy product solutions.
Additionally, our contract provides for a non-exclusive right of first
refusal to General Motors on jointly developed products. We have submitted
products for testing and have responded to requests for proposals from a number
of other potential customers. To date, none of these proposals have resulted in
any long-term commitments.
We intend to make significant investments in fuel cell enabling technologies,
which may not result in any corresponding increase in net revenues, and may
contribute to continuing operating losses.
We anticipate that our investment in research and development will
significantly increase as we focus our efforts in developing fuel cell enabling
technologies. As we pursue this business strategy, we expect to incur operating
losses driven by research and development expenditures for at least the next 12
months. In particular, we plan to use a substantial portion of the net proceeds
from this offering to fund this effort. We may not recover this investment.
We may be unable to raise additional capital to complete our product
development and commercialization plans.
We currently anticipate that we will need to raise additional funds to
complete the development and commercialization of our fuel cell enabling
technologies. These funds may not be available on acceptable terms, if at all.
Our product development and commercialization schedule could be delayed if we
are unable to fund our research and development activities or the development
of our manufacturing infrastructure for new products. We expect that the net
proceeds of this offering and all other existing sources of capital will be
sufficient to fund our activities through the end of calendar year 2001. We are
receiving limited proceeds from this offering and will need to raise additional
funds to achieve full commercialization of our fuel storage and delivery
systems for fuel cells. We do not know whether we will be able to secure
additional funding or funding on terms acceptable to us and, if so, we may not
be able to pursue our commercialization plans through the mass market stage.
Our business depends on the growth of the alternative fuel market.
The alternative fuel market has not yet gained broad acceptance and our
future success depends on the expansion of this market. Substantially all of
our revenue for the fiscal year ended April 30, 2000 was derived from sales of
products and enabling technologies for use in the alternative fuel market. In
the United States and certain of our other target markets, alternative fuel
such as natural gas cannot be readily obtained by consumers for motor vehicle
use and only a small percentage of motor vehicles manufactured in 1999 were
equipped to use alternative fuels. We cannot assure you that the market for
gaseous alternative fuel engines will gain broad
8
<PAGE>
acceptance or, if this growth does occur, that it will result in increased
sales of our advanced fuel system products. In addition, we have designed many
of our products for alternative fueled vehicles powered by internal combustion
engines or fuel cells, but not currently for alternative power sources such as
electricity or alternate forms of existing fuels. If the major growth in the
alternative fuel market is solely for existing fuels, our revenues may not
increase or may decline.
Users of gaseous alternative fueled or fuel cell powered vehicles may not be
able to obtain fuel conveniently and affordably, which may adversely affect the
demand for our products.
Vehicles and equipment powered by gaseous alternative fuels run primarily on
natural gas or propane. Fuel cells run on hydrogen or reformed fuels containing
hydrogen. Gasoline, the only fuel that is currently readily available in most
of the world, requires the development of additional technologies for its use
with fuel cells. The construction of a system to deliver natural gas, propane
or hydrogen, or a suitable fuel containing hydrogen, requires significant
investment by third parties. We cannot guarantee you that an adequate fuel
distribution infrastructure will be built for mass adoption. We are relying on
third parties, most of whom are heavily committed to the existing gasoline
infrastructure, to build this infrastructure. If these parties build a fuel
distribution infrastructure, the fuel delivered through it, both due to the
cost of the delivery system and the cost of the fuel itself, may have a higher
price than users are willing to pay. If users cannot obtain fuel conveniently
or affordably, a mass market for vehicles and equipment powered by gaseous
alternative fuels or fuel cells is unlikely to develop.
Our ability to successfully attract customers and sell products is also
dependent on the current price disparity between liquid fuels such as petroleum
and gasoline, and gaseous fuels such as propane and natural gases. There can be
no assurance that this price disparity will continue. Should this disparity
narrow or disappear, it could adversely affect the demand of our products.
We currently face and will continue to face significant competition, which
could result in a decrease in our revenues.
We currently compete with companies who manufacture products for current
power technologies to convert engines operating on liquid fuels to gaseous
fuels and for new alternative power technologies, including types of fuel cells
that may not require metering, storage or control products of the type we
design and produce.
As the market for alternative fueled vehicles increases, OEMs may find it
advantageous to develop and produce their own fuel conversion or fuel
management equipment rather than purchasing the equipment from suppliers such
as ourselves. In addition, as the fuel cell market gains greater acceptance, it
is likely that there will be new competitors in our current markets. Should
either of these events occur, the total potential demand for our products could
be adversely affected and cause us to lose existing business.
We face risks associated with our plans to market, distribute and service our
products internationally.
We currently operate in Europe, Australia, Mexico and Japan, and market our
products and technologies in other international markets, including both
industrialized and developing countries. Our international operations are
subject to various risks common to international activities, such as:
. exposure to currency fluctuations;
. the inherent difficulty of staffing and managing potential difficulties
in enforcing contractual obligations and intellectual property rights;
and
. the burden of complying with a wide variety of laws and regulations
including product certification, environmental and import and export
laws.
Any significant increase in the value of the dollar against foreign
currencies where we do business may impact negatively our competitiveness in
international markets.
9
<PAGE>
We also intend to manufacture, market, distribute and service our fuel
delivery systems for fuel cell powered equipment and vehicles internationally.
We have limited experience developing, and no experience manufacturing these
products to comply with the commercial and legal requirements of international
markets. Our success in these markets will depend, in part, on our ability to
secure relationships with foreign OEMs and our ability to manufacture products
that meet foreign regulatory and commercial requirements.
Our business may be subject to product liability claims, which could be
expensive and could result in a diversion of management's attention.
The automotive industry in the past has experienced significant product
liability claims. As a supplier, we face an inherent business risk of exposure
to product liability claims in the event that our products or the equipment
into which our products are incorporated malfunction resulting in personal
liability or death. We may be named in these actions even if there is no
evidence that our systems or components caused the accident. Product liability
claims could result in significant losses as a result of expenses incurred in
defending claims and as a result of damage awards. The sale of systems and
components for the transportation industry entails a high risk of such claims.
In addition, if any of our systems prove to be defective, we may be required to
participate in a recall involving such systems, or due to various industry or
business practices or the need to maintain good customer relationships, we may
voluntarily initiate a recall or make payments related to such claims. We
cannot assure you that our current product liability insurance will be
sufficient to cover all product liability claims, that such claims will not
exceed our insurance coverage limits or that such insurance will continue to be
available on commercially reasonable terms, if at all. Any product liability
claim brought against us could have a material adverse effect on our reputation
and business.
Our business may become subject to future product certification regulations
which may impact our ability to market our products.
We must obtain product certification from governmental agencies such as the
Environmental Protection Agency and the California Air Resources Board to sell
certain of our products in the United States. A primary portion of our future
sales will depend upon sales of fuel management products that are certified to
meet existing and future air quality and energy standards. We cannot assure
that our products will continue to meet these standards. The failure to comply
with these certification requirements could result in the recall of our
products, civil penalties or criminal penalties.
We anticipate that regulatory bodies will establish certification procedures
and will impose regulations on our fuel cell enabling technologies, which may
impact our ability to distribute, install and service these systems. Any new
government regulation of our advanced fuel technologies, whether at the United
States or foreign federal, state or local level, including any regulations
relating to installation and servicing of these systems, may increase our costs
and the price of our systems. As such, these regulations may have a negative
impact on our revenue and profitability, and accordingly, harm our business,
prospects, results of operations or financial condition.
New technologies could render our existing products obsolete.
New developments in technology may negatively affect the development or sale
of some or all of our products or make our products obsolete. We believe that
our future success depends upon our ability to design, develop and market new
or modified fuel delivery, fuel storage and electronic control products for
internal combustion engines and fuel cell systems. Our ability to enhance
existing products in a timely manner and to develop and introduce new products
that incorporate new technologies, conform to increasingly stringent emission
standards and performance requirements, and achieve market acceptance in a
timely manner could negatively impact our competitive position. New product
development or modification is costly, involves significant research,
development, time and expense and may not necessarily result in the successful
commercialization of any new products.
10
<PAGE>
We depend on our intellectual property and our failure to protect that
intellectual property could adversely affect our future growth and success.
We rely on patent, trademark and copyright law, trade secret protection,
confidentiality agreements and, if applicable, inventors rights agreements with
our employees, customers, partners and others to protect our intellectual
property for our alternative fuel and fuel cell enabling technologies. However,
some of our intellectual property is not covered by any patent or patent
application and, despite our precautions, it may be possible for third parties
to obtain and use our intellectual property without authorization.
We currently have over 30 domestic and foreign patents outstanding which
will expire between November 2001 and October 2018. We also have one patent
application outstanding in our fuel cell enabling technology. We do not know
whether our pending patent applications will issue or, in the case of patents
already issued or to be issued, that the claims allowed will be sufficiently
broad to protect our technology or processes. Even if all our patent
applications are issued and are sufficiently broad, they may be challenged or
invalidated. We could incur substantial costs in prosecuting or defending
patent infringement suits.
Furthermore, the laws of some foreign countries may not protect intellectual
property rights to the same extent as do the laws of the United States. It may
be difficult for us to enforce certain of our intellectual property rights
against third parties who may have acquired intellectual property rights by
filing unauthorized applications in foreign countries to register the marks
that we use because of their familiarity with our worldwide operations.
We cannot assure you that we have been or will be completely successful in
protecting our proprietary rights. Any infringement on any of our intellectual
rights, especially in our developing fuel cell enabling technologies, could
have an adverse effect on our ability to successfully develop and sell
commercially competitive systems and components.
We are dependent on third party suppliers for the supply of key materials and
components for our products.
We have established relationships with third party suppliers, upon whom we
rely to provide materials and components for our products, particularly the
high strength fiber used in our light weight fuel storage tanks. A supplier's
failure to supply materials or components in a timely manner, or to supply
materials and components that meet our quality, quantity or cost requirements,
or our inability to obtain substitute sources for these materials and
components in a timely manner or on terms acceptable to us, could harm our
ability to manufacture our products or could significantly raise our cost of
producing our products. In particular, a delay in the delivery of high strength
fiber from our current sole suppliers could result in a delay of the production
of our products for up to three months, which could negatively impact our
results of operations and business.
We may have difficulty managing the expansion of our product line to fuel cell
enabling technologies.
We currently anticipate a rapid expansion with respect to the development of
our fuel cell enabling technologies. This expansion will require us to hire
additional employees, increase the size of our current facilities and expand
the scope of our operations, and is likely to place a significant strain on our
management team and other resources. Difficulties in effectively managing the
budgeting, forecasting and other processing control issues presented by this
rapid expansion could harm our business, prospects, results of operations or
financial condition.
Potential fluctuations in our financial results could cause our stock price to
decline.
Our revenues and operating results are subject to annual and quarterly
fluctuations as a result of a variety of factors, including, without
limitation:
. budget cycles and funding arrangements of governmental agencies;
. purchasing cycles of fleet operators;
11
<PAGE>
. the uncertainty of timing of deliveries of vehicles to be equipped;
. the timing of implementation of government regulations promoting
alternative fuel vehicles; and
. general economic factors.
It is possible that in one or more future quarters our operating results may
fall below the expectations of securities analysts and investors. If this
happens, the trading price of our common stock might be materially and
adversely affected.
We could lose or fail to attract the personnel necessary to run our business.
Our success depends in large part on our and our affiliates' ability to
attract and retain key management, engineering, scientific, manufacturing and
operating personnel, particularly Robert M. Stemmler, our President and Chief
Executive Officer, Dale L. Rasmussen, our Senior Vice President and Secretary,
and Syed Hussain, our Vice President of Technology and Automotive OEM division.
As we develop our fuel cell business, we will require more technically skilled
personnel. Recruiting personnel for the industries in which we are positioned
is highly competitive and the failure to attract or retain qualified personnel
could have a material adverse effect on our business.
Our failure to meet OEM specifications may hurt our business.
We offer complete, integrated alternative fuel systems, which include tanks,
brackets, electronics, software and all other engine components required to
convert a motor vehicle to alternative fuels. Customers for these systems
require that they meet OEM standards. These requirements have resulted in
increased development, manufacturing, warranty and administrative costs. If
these costs increase significantly, our profitability could be adversely
affected. Our inability to meet OEM specifications at all, or on a timely
basis, may hurt our relationships with OEMs.
We may be subject to increased warranty claims.
In response to consumer demand, vehicle manufacturers have been providing
and may continue to provide increasingly longer warranty periods for their
products. As a consequence, these manufacturers require their suppliers, such
as us, to provide correspondingly longer product warranties. As a result, we
could incur substantially greater warranty claims in the future.
We may experience unionized labor disputes at OEM facilities.
As we become more dependent on vehicle conversion programs with OEMs, we
become increasingly dependent on OEM production and the associated labor forces
at OEM sites. Labor unions represent most of the labor force at OEM facilities.
Labor disputes could occur at OEM facilities and could adversely impact our
direct OEM product sales. For example, in 1998, as a result of a strike at one
of our OEM's facilities, we experienced a decline in sales of our products used
in General Motors pick-up trucks.
Changes in environmental policies could hurt the market for our products.
The market for alternative fueled vehicles and equipment, and the demand for
our products are, to a significant degree, driven by local, state and federal
regulations in the United States related to air quality and requiring purchase
of motor vehicles and equipment to operate on alternative fuels. Our
international business is also affected by similar foreign governmental
regulations. These laws and regulations may change, which could result in
transportation or equipment manufacturers abandoning their interest in
alternative fueled and fuel cell powered vehicles. In addition, a failure by
authorities to enforce current domestic and foreign laws or to adopt further
environmental laws could limit demand for our products.
12
<PAGE>
Although many governments have identified the development of alternative
energy sources, and in particular fuel cells as a significant priority, we
cannot assure you that governments will not change their priorities or that any
change they make would not materially affect our revenues or the development of
our products.
We may be subject to litigation if our stock price is volatile.
The stock market has, from time to time, experienced price and volume
fluctuations. Many factors may cause the market price for our common stock to
decline, perhaps substantially, following this offering, including:
. failure to meet our product development and commercialization milestones;
. demand for our common stock;
. revenues and operating results failing to meet the expectations of
securities analysts or investors in any quarter;
. downward revisions in securities analysts' estimates or changes in
general market conditions;
. technological innovations by competitors or in competing technologies;
. investor perception of our industry or our prospects; or
. general technology or economic or regulatory trends.
In the past, companies that have experienced volatility in the market price
of their stock have been the subject of securities class action litigation. We
may be involved in a securities class action litigation in the future. This
litigation often results in substantial costs and a diversion of management's
attention and resources and could harm our business, prospects, results of
operations or financial condition.
Provisions of Delaware law and of our charter and by-laws may make a takeover
more difficult.
Provisions in our certificate of incorporation and by-laws and in the
Delaware corporate law may make it difficult and expensive for a third party to
pursue a tender offer, change in control or takeover attempt which our
management and Board of Directors oppose. Public stockholders who might desire
to participate in one of these transactions may not have an opportunity to do
so. We also have a staggered Board of Directors, which makes it difficult for
stockholders to change the composition of the Board of Directors in any one
year. These anti-takeover provisions could substantially impede the ability of
public stockholders to benefit from a change in control or to change our
management and Board of Directors.
In June 1999, we entered into a Stockholder Protection Rights Agreement
which provided for a dividend of one right for each outstanding share of our
common stock. Each right entitles the holder to purchase one share of our
common stock at an exercise price of $45.00 per share. Upon the occurrence of
some events, including a person or entity's acquisition of 15% or more of our
common stock, each right will entitle the holder to purchase, at the exercise
price, common stock with a value equal to twice the exercise price, which could
cause substantial dilution. The rights agreement may have the effect of
deterring, delaying or preventing a change in control that might otherwise be
in our best interests or the best interests of our stockholders.
Future sales of our common stock could adversely affect our stock price.
Substantial sales of our common stock, including shares issued upon exercise
of our outstanding options in the public market following this offering, or the
perception by the market that these sales could occur, could lower our stock
price or make it difficult for us to raise additional equity capital in the
future. After this offering, we will have 10,204,807 shares of common stock
outstanding. Of these shares, the 2,500,000 shares sold in this offering will
be freely tradeable. Of the remaining 7,704,807 shares, 4,831,080 shares which
are
13
<PAGE>
currently freely tradeable will remain freely tradeable and 2,946,291 shares
will be subject to 135 day lock-up agreements. In addition, up to 1,313,931
shares issuable upon the exercise of options outstanding as of May 31, 2000 may
become available for sale in the public markets. The holders of 1,115,326
shares subject to the 135 day lock-up agreement have the right to require us to
register some or all of those shares for sale after the expiration of the 135
day period. However, even if the holders do not require registration, the
holders may sell a portion of their shares under the exemption afforded by Rule
144 promulgated by the Securities and Exchange Commission following the
expiration of the 135 day period. The 135 day lock-up period may be shortened
upon agreement by the underwriters. We cannot predict if future sales of our
common stock, or the availability of our common stock for sale, will harm the
market price for our common stock or our ability to raise capital by offering
equity securities.
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference herein contain
forward-looking statements which involve risks and uncertainties. These
forward-looking statements are not historical facts but rather are based on
current expectations, estimates and projections about our industry, our beliefs
and assumptions. We use words such as anticipates, expects, intends, plans,
believes, seeks, estimates and variations of these words and similar
expressions to identify forward-looking statements. These statements are not
guarantees of future performance and are subject to certain risks,
uncertainties and other factors, some of which are beyond our control, are
difficult to predict and could cause actual results to differ materially from
those expressed or forecasted in the forward-looking statements. These risks
and uncertainties include those described in "Risk Factors" and elsewhere in
this prospectus and the documents incorporated by reference herein. You should
not place undue reliance on these forward-looking statements, which reflect our
management's view only as of the date of this prospectus.
14
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of the 1,625,000 shares of common stock
offered by us, after deducting estimated underwriting discounts and commissions
and estimated expenses payable by us, are estimated to be approximately $43.7
million ($54.0 million if the underwriters' over-allotment option is exercised
in full). We plan to use a portion of these net proceeds to repay indebtedness
under our outstanding revolving lines of credit, term loans, and capital
leases. At April 30, 2000, approximately $27 million was outstanding under
these obligations at weighted average interest rate of 7.5% per annum. We
anticipate the balance of these proceeds will be used for the expansion of our
development engineering capabilities and general corporate purposes including
research and development in fuel cell technologies and working capital. We
currently have no commitments or agreements with respect to any material
acquisitions. Pending use of the net proceeds, we plan to invest the net
proceeds of this offering in short-term investment grade securities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." We will have broad discretion as to the allocation and use of the
net proceeds that we will receive.
DIVIDEND POLICY
We previously paid the holders of our 1993 Series 1 Preferred Stock
cumulative cash dividends. On March 31, 1999, each share of preferred stock was
converted into shares of our common stock. As a result, after March 31, 1999,
we have no shares of preferred stock outstanding and have no obligation to pay
any further dividends on those shares.
We currently intend to retain any earnings for use in developing and growing
our business and do not anticipate paying any cash dividends on our common
stock in the foreseeable future. Any determination to pay dividends in the
future will be at the discretion of our board of directors and will be
dependent on our results of operations, financial condition, contractual
restrictions, restrictions imposed by applicable law and other factors deemed
relevant by the board of directors.
15
<PAGE>
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
"IMCO." The following table sets forth, for the periods indicated, the high and
low sale prices of our common stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
Price Range
of Common
Stock
-------------
High Low
------ ------
<S> <C> <C>
Year Ended April 30, 1999:
First Quarter................................................ $17.75 $12.38
Second Quarter............................................... 17.75 10.75
Third Quarter................................................ 17.69 12.25
Fourth Quarter............................................... 15.69 7.00
Year Ended April 30, 2000:
First Quarter................................................ $12.75 $ 8.25
Second Quarter............................................... 14.88 9.63
Third Quarter................................................ 34.00 11.88
Fourth Quarter............................................... 52.88 19.00
Year Ending April 30, 2001:
First Quarter (thru June 12, 2000)........................... $33.38 $20.13
</TABLE>
On June 12, 2000, the reported last sale price for the common stock as
reported by the Nasdaq National Market was $29.125 per share. As of June 12,
2000, there were 464 stockholders of record of the common stock.
16
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of April 30, 2000, (i)
on an actual basis and (ii) as adjusted to reflect our sale of 1,625,000 shares
of common stock offered hereby at an assumed public offering price of $29.125
per share and our application of the estimated net proceeds therefrom, after
deducting underwriting discounts and commissions and estimated offering
expenses. See "Use of Proceeds." The capitalization information set forth in
the table below is qualified by the more detailed Consolidated Financial
Statements and Notes thereto included elsewhere in this prospectus and should
be read in conjunction with such Consolidated Financial Statements and Notes.
<TABLE>
<CAPTION>
April 30, 2000
--------------------
Actual As Adjusted
------- -----------
(in thousands)
<S> <C> <C>
Long-term borrowings, less current portion............. $23,344 $ --
------- -------
Stockholders' equity:
Common stock, $.001 par value; 25,000,000 shares
authorized, 8,571,807 shares outstanding actual,
10,196,807 shares issued and outstanding, as
adjusted............................................ 9 10
Capital in excess of par value......................... 47,539 91,226
Shares held in trust................................... (110) (110)
Retained earnings...................................... 667 667
Accumulated other comprehensive income................. (2,726) (2,726)
------- -------
Total stockholders' equity........................... 45,379 89,067
------- -------
Total capitalization............................... $68,723 $89,067
======= =======
</TABLE>
This table excludes, as of April 30, 2000:
. 1,321,931 shares of our common stock issuable upon exercise of stock
options outstanding under our stock option plans at a weighted average
exercise price of $8.72 per share.
. 47,895 shares reserved for issuance under our stock option plans.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth the selected consolidated financial data of
IMPCO Technologies, Inc. for the five years ended April 30, 2000. This data has
been derived from our audited consolidated financial statements and should be
read in conjunction with the consolidated financial statements, related notes
and other financial information included herein.
<TABLE>
<CAPTION>
Year Ended April 30,
----------------------------------------
1996 1997 1998 1999 2000
------- ------- ------- ------- --------
(in thousands, except for
per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net revenue.......................... $51,575 $61,828 $71,083 $86,826 $112,816
Research and development expense..... 7,171 7,725 12,062 11,612 15,576
Operating income..................... 4,132 4,850 7,118 6,903 6,097
Interest expense..................... 504 1,100 935 1,170 1,442
Gain on sale of subsidiary........... -- -- -- 2,169 --
Net income(1)(2)..................... $ 4,671 $ 3,225 $ 4,865 $ 6,331 $ 3,065
Dividends on preferred stock......... 610 581 595 531 --
Net income applicable to common
stock............................... 4,061 2,644 4,270 5,800 3,065
Net income per share(2)(3):
Basic............................... $ 0.72 $ 0.46 $ 0.67 $ 0.80 $ 0.36
Diluted............................. $ 0.64 $ 0.43 $ 0.60 $ 0.71 $ 0.33
Number of shares used in per share
computation(3)(4):
Basic............................... 5,648 5,722 6,334 7,293 8,489
Diluted............................. 7,300 6,131 8,155 8,976 9,232
Balance Sheet Data:
Total current assets................. $24,578 $29,904 $38,817 $52,120 $ 73,385
Total assets......................... 37,728 47,113 58,178 73,562 95,016
Total current liabilities............ 9,266 11,656 11,417 16,892 23,756
Long-term obligations, less current
portion ............................ 8,823 12,721 11,387 13,894 23,344
Stockholders' equity................. 19,256 22,063 34,305 41,449 45,379
</TABLE>
--------
(1) Fiscal year 1996 includes an income tax benefit of $1.7 million, due to the
reduction in the valuation allowance for deferred tax assets (equivalent to
$0.30 per basic share and $0.23 per diluted share) and $318,000 net income
from our European subsidiary that was acquired in October 1995.
(2) Includes gain on sale of 49% interest in IMPCO BV to BERU
Aktiengesellschaft during fiscal year 1999. We recorded a pre-tax gain of
$2.2 million and an after-tax gain of $1.8 million or $0.20 per diluted
share.
(3) During fiscal years 1996 and 1998, shares assumed to be issued upon
conversion of our preferred stock were included in the calculation since it
resulted in a reportable dilution. During fiscal year 1999, all of our
preferred stock was converted to common stock and the diluted earnings per
share was calculated as though the conversion occurred at the beginning of
fiscal year 1999.
(4) See Note 1 of Notes to Consolidated Financial Statements included elsewhere
in this prospectus for an explanation of the method used to determine the
number of shares used to compute net income per share.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read this discussion together with the financial statements and
other financial information included in this prospectus.
Overview
We are a global supplier of fuel storage, fuel delivery and electronic
control systems for internal combustion engines and fuel cells. Historically,
most of our revenues have been derived from the sale of these 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 commercialize systems that will provide fuel storage, fuel
delivery and electronic controls for fuel cells.
We classify our business interests into three operating segments: Automotive
OEM division, Gaseous Fuel Products division and International Operations
segment. 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. This
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 segment includes sales by our
subsidiaries in Australia, Europe, Japan and Mexico which provides distribution
for our products, predominantly from our Gaseous Fuel Products division, as
well as, some product assembly.
We will require significant research and development expenditures over the
next several years in order to commercialize our products for fuel cell
applications. We will also require significant capital expenditures to
construct additional manufacturing and assembly capacity required to support
the production of our products.
We recognize revenue for product sales when products are shipped and title
is transferred. Contract revenues are recorded based on the percentage of
completion method. Corporate expenses represents a sub-category of selling,
general and administrative expense. Corporate expenses consist of general and
administrative expense incurred at the corporate level and includes the
amortization of goodwill and other intangible assets. Intersegment eliminations
are primarily the result of intercompany sales from our Gaseous Fuel Products
division to our International Operations segment. End markets for our products
include the transportation, material handling, and industrial and power
generation industries.
We expense all research and development when incurred. Research and
development expense includes both customer funded research and development and
company sponsored research and development. Corporate research and development
is a sub-category of research and development expense and represents company
sponsored research and development that is not allocated to any of our
operating segments. 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.
A portion of our growth over the past three years, particularly with regard
to our International Operations, has resulted from acquisitions in Australia,
Canada, Europe, Japan, Mexico and the United States and from formation of a
European based joint venture. We have accounted for each of these acquisitions
under the purchase method of accounting.
19
<PAGE>
Results of Operations
Years Ended April 30, 1999 and 2000
Net revenues and operating income for our business for the fiscal years
ended April 30, 1999 and 2000 are as follows:
<TABLE>
<CAPTION>
Operating
Revenues Income (Loss)
------------------ ----------------
Year Ended Year Ended
April 30, April 30,
------------------ ----------------
1999 2000 1999 2000
-------- -------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Automotive OEM division.............. $ 24,469 $ 22,341 $ (27) $(1,460)
Gaseous Fuel Products division....... 52,632 76,831 14,284 19,451
International Operations segment .... 21,188 29,991 1,504 2,623
Corporate expenses (1)............... -- -- (5,516) (7,042)
Corporate research and development
(1)................................. -- -- (3,053) (7,050)
Intersegment elimination............. (11,463) (16,347) (289) (425)
-------- -------- ------- -------
Total.............................. $ 86,826 $112,816 $ 6,903 $ 6,097
======== ======== ======= =======
</TABLE>
--------
(1) Represents corporate expenses and company sponsored 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.
Net revenue increased $26.0 million or 30% from $86.8 million in fiscal
year 1999 to $112.8 million in fiscal year 2000. This increase was primarily
due to strong aftermarket sales in all end user applications. The following
table sets forth our product revenues by application across all business
segments:
<TABLE>
<CAPTION>
Year Ended
April 30,
-----------------
1999 2000
------- --------
(in thousands)
<S> <C> <C>
Motor vehicle products.................................... $32,748 $ 48,626
Forklifts and other material handling equipment........... 31,822 37,947
Small portable to large stationary engines................ 11,251 16,844
------- --------
Total product sales..................................... $75,821 $103,417
======= ========
During fiscal year 1999 and 2000, our product revenue was generated in the
following geographic regions:
<CAPTION>
Year Ended
April 30,
-----------------
1999 2000
------- --------
<S> <C> <C>
United States and Canada.................................. 60.2% 60.2%
Pacific Rim............................................... 9.0% 9.3%
Europe.................................................... 17.1% 13.7%
Latin America............................................. 13.7% 16.8%
</TABLE>
Automotive OEM Division. Net revenues decreased $2.1 million or 8.6% from
$24.4 million in fiscal 1999 to $22.3 million in fiscal year 2000.
Product sales for this division decreased $400,000 or 3.0% from $13.5
million in fiscal year 1999 to $13.1 million in fiscal year 2000. This
decrease was primarily due to a decline in unit sales to General Motors.
Product sales consists of General Motors mid-size automobiles and pick-up
trucks equipped with this division's bi-fuel compressed natural gas fuel
system and General Motors medium duty trucks equipped with dedicated
20
<PAGE>
liquid propane gas kits provided under the Teaming Agreement with General
Motors. We expect product sales to be higher in the future as additional
General Motors platforms and model years are introduced and other automotive
OEM platforms are obtained.
Contract revenue for this division decreased $1.7 million or 15.7% from
$11.0 million in fiscal year 1999 to $9.3 million in fiscal year 2000. This
decrease was primarily due to lower contract levels which reflect efficiencies
that result from our ability to transfer knowledge between prior model year and
current model year contracts. We anticipate, based on new contracts negotiated
with General Motors and expected levels of contract completion on new
government agency contracts with the Southern California Air Quality Management
District, that contract revenue in fiscal year 2001 will be comparable to
levels experienced during fiscal year 2000.
Operating losses in the division increased $1.4 million from $27,000 in
fiscal year 1999 to $1.5 million in fiscal year 2000. This increase was a
result of lower contract revenues, primarily from the General Motors program,
and associated higher product application development costs for new products
being commercialized. Product application development expense for this division
is primarily for system development and application engineering of our products
under the Teaming Agreement, other funded contract work with state and federal
agencies, and for company funded product and component application development
work to develop business with other automotive OEMs. In fiscal year 2000,
expense directly related to customer funded product application development
work was approximately $8.0 million as compared to $6.1 million in fiscal year
1999. We anticipate product application development costs will be higher in
fiscal year 2001 as new products are being commercialized and integrated under
the new application development contracts.
Gross margins on General Motors product sales were higher in fiscal year
2000 as compared to fiscal year 1999, primarily due to lower material costs as
a result of engineering design efficiencies and reduced overhead costs. We
anticipate higher gross margins on products in fiscal year 2001, primarily due
to additional engineering design efficiencies and reduced overhead costs.
Additionally, we anticipate comparable operating losses in this division in
fiscal year 2001, primarily due to higher product sales and gross profits being
offset by higher customer and company funded application development work.
Gaseous Fuel Products Division. Net revenues in this division increased
$24.2 million or 46.0% from $52.6 million in fiscal year 1999 to $76.8 million
in fiscal year 2000. This increase was primarily a result of the December 1998
acquisition of the Industrial Engine Systems business, an increase in small
engine sales and an increase in product sales to Mexico. The price differential
between gasoline and propane as well as our strengthening relations with
Mexican governmental agencies have positively impacted the demand for the
aftermarket automotive conversions in Mexico. We anticipate that overall
revenues generated by the Gaseous Fuel Products division in fiscal year 2001
will be higher than fiscal year 2000, primarily due to the continued growth of
our Industrial Engine Systems business, the expanding revenue base from value
added system sales, increased motor vehicles sales in Mexico due to the
expected growth of aftermarket automotive conversions, increased small engine
sales and our marketing efforts to expand market share.
Operating income in this division increased approximately $5.2 million or
36.0% from $14.3 million in fiscal year 1999 to $19.5 million in fiscal year
2000. This increase was primarily attributable to higher revenues and gross
profit on the Gaseous Fuel Products division product sales due to increased
volumes. This increase was partially offset by additional administrative
expenses resulting from the Industrial Engine Systems business acquisition and
higher product development expenses related to developing next generation
fuel/engine management systems for the material handling market. We anticipate
that this division's operating income will be higher in fiscal year 2001 as a
result of higher revenues and gross profit associated with increased volumes
partially offset by increased product development expenses. Additionally, we
anticipate that operating margins will be affected by lower gross margins at
the Industrial Engine Systems business as these revenues become a larger
segment of the Gaseous Fuel Products division; however, as the Industrial
Engine Systems business increases, we expect overall gross profit will
increase.
21
<PAGE>
International Operations. Net revenues in this segment increased by
approximately $8.8 million or 10.8% from $21.2 million in fiscal year 1999 to
$30.0 million in fiscal year 2000. This increase was primarily a result of
increased revenues in Mexico from $2.7 million in fiscal year 1999 to $6.7
million in fiscal year 2000 and the March 1999 acquisition of IMPCO Japan,
which resulted in increased revenues of approximately $2.9 million in fiscal
year 2000. In fiscal year 2000, revenues for our International Operations
segment would have increased an additional $800,000, if not for the
strengthening of the U.S. Dollar. A strong U.S. Dollar has a negative effect on
the conversion of foreign currency denominated sales. We anticipate that
revenues for this segment during fiscal year 2001 will be higher than fiscal
year 2000 as a result of higher motor vehicle sales in Mexico and market growth
in each of the countries serviced by our International Operations segment. The
price differential between gasoline and propane, as well as our strengthening
relations with Mexican governmental agencies is expected to positively impact
the demand for the aftermarket automotive conversions in Mexico.
Operating income for this division increased $1.1 million or 74.4% from $1.5
million in fiscal year 1999 to $2.6 million in fiscal year 2000. This increase
was primarily due to the addition of our Japan operations and higher
profitability of our European operations. We believe that operating income
levels in our International Operations segment will be higher in fiscal year
2001 than in the current year due to anticipated higher revenues and gross
profits at each of our International Operations.
Corporate Expenses. Corporate expenses consists of general and
administrative expenses at the corporate level to support us and our divisions
in areas such as executive management, finance, human resources, management
information systems, legal services and investor relations. Additionally,
amortization of goodwill and other intangible assets is recorded as a corporate
expense. Corporate expenses increased $1.5 million or 27.7% from $5.5 million
in fiscal year 1999 to $7.0 million in fiscal year 2000. The increase in
corporate expenses was primarily due to the incremental costs associated with
the evaluation of the unsoliciated tender offer issued to us by BERU, AG, costs
incurred in the creation of our Stockholder Protection Rights Agreement, legal
expenses and amortization of goodwill related to the Japan and the Crusader
acquisitions. We anticipate that corporate expenses during fiscal year 2001
will be lower than levels experienced during fiscal year 2000.
Corporate Research and Development. Corporate research and development is a
component of our research and development expense and relates to engineering,
design and research and development support to us and our operating units and
develops all new products supporting the operating divisions' needs. Corporate
research and development increased $4.0 million or 129.0% from $3.1 million in
fiscal year 1999 to $7.1 million in fiscal year 2000. This increase is
primarily due to increased efforts relating to the development and
commercialization of fuel metering, storage and fuel systems for fuel cells. We
believe our future success depends on our ability to design, develop and market
new products that interface successfully with new engine electronic technology
and which meet mandated emission standards. We also believe that there is a
significant opportunity for us to participate in the emerging fuel cell market.
With the emergence of fuel cell technology and the interest being shown by the
automotive industry, we have decided to accelerate and expand both research and
development expenditures for fuel storage, fuel metering and electronic
controls for fuel cell applications. Consequently, we anticipate that corporate
research and development during fiscal year 2001 will be significantly higher
than in fiscal year 2000. The additional expenditures will be partially offset
by new government agency contracts such as the contract with the Department of
Energy. We anticipate that the higher level of corporate research and
development expenditures will have a significant negative effect on our
profitability in fiscal year 2001.
Interest Expense. Interest expense increased $272,000 or 23.3% from $1.2
million in fiscal year 1999 to $1.4 million in fiscal year 2000. This increase
was attributable to additional borrowings partially offset by lower interest
rates on our current credit facility with Bank of America.
Provision For Income Taxes. The estimated effective annual tax rate of 24.2%
for fiscal year 2000 is higher than the previous year due to the exhaustion of
federal net operating loss carryforwards during the previous fiscal year. The
effective tax rate represents the federal statutory income tax rate, state
income taxes
22
<PAGE>
and foreign income taxes reduced by research and development tax credits. At
April 30, 2000, net deferred tax assets were approximately $4.2 million while
the net deferred tax liabilities were $745,000. We have determined, based on
our history of prior operating earnings and our expectations for the future,
that our operating income 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.
Years Ended April 30, 1998 and 1999
Net revenues and operating income for our business segments for the fiscal
years ended April 30, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
Operating
Revenues Income (Loss)
----------------- ----------------
Year Ended Year Ended
April 30, April 30,
----------------- ----------------
1998 1999 1998 1999
------- -------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Automotive OEM division................... $12,328 $ 24,469 $(1,451) $ (27)
Gaseous Fuel Products division............ 48,277 52,632 14,749 14,284
International Operations segment.......... 19,304 21,188 1,772 1,504
Corporate expenses (1).................... -- -- (4,996) (5,516)
Corporate research and development (1).... -- -- (2,523) (3,053)
Intersegment elimination.................. (8,826) (11,463) (433) (289)
------- -------- ------- -------
Total................................... $71,083 $ 86,826 $ 7,118 $ 6,903
======= ======== ======= =======
</TABLE>
--------
(1) Represents corporate expenses and company sponsored 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.
Net revenue increased $15.7 million or 22.1% from $71.1 million in fiscal
year 1998 to $86.8 million in fiscal year 1999. The Automotive OEM division
accounted for $12.1 million of this increase, of which $9.7 million resulted
from increased OEM motor vehicle product sales. Contract revenues, primarily
from the General Motors Teaming Agreement, increased $2.4 million. Product
sales from the Gaseous Fuel Products division increased by approximately $4.4
million or 9.0% compared to the prior fiscal year. The following table sets
forth our product revenues by application across all business segments:
<TABLE>
<CAPTION>
Year Ended
April 30,
---------------
1998 1999
------- -------
(in thousands)
<S> <C> <C>
Motor vehicle products...................................... $21,870 $32,748
Forklifts and other material handling equipment............. 29,493 31,822
Small portable to large stationary engines.................. 10,846 11,251
------- -------
Total product sales....................................... $62,209 $75,821
======= =======
</TABLE>
During fiscal year 1998 and 1999, our product revenue was generated in the
following geographic regions:
<TABLE>
<CAPTION>
Year Ended
April 30,
-----------
1998 1999
----- -----
<S> <C> <C>
United States and Canada......................................... 57.3% 60.2%
Pacific Rim...................................................... 13.0% 9.0%
Europe........................................................... 18.6% 17.1%
Latin America.................................................... 11.1% 13.7%
</TABLE>
23
<PAGE>
Automotive OEM Division. Net revenues in this division increased $12.2
million or 98.5% from $12.3 million in fiscal year 1998 to $24.5 million in
fiscal year 1999. This increase was primarily the result of higher motor
vehicle direct OEM product revenue, which increased to $13.5 million from $3.7
million in fiscal year 1998. This represents an approximate 264.9% increase in
General Motors product revenue. During fiscal year 1999, the General Motors
product revenue represented sales of biofuel compressed natural gas fuel
systems for mid-size automobiles and sales of pick-up trucks and dedicated
liquid propane gas kits under a Teaming Agreement with General Motors for their
medium duty trucks. During fiscal year 1998, the General Motors product revenue
represented sales of bi-fuel compressed natural gas fuel systems for General
Motors pick-up trucks and dedicated liquid propane gas kits under a Teaming
Agreement with General Motors for their medium duty trucks.
Contract revenues for this division increased $2.4 million or 27.9% from
$8.6 million in fiscal year 1998 to $11.0 million in fiscal year 1999. This
increase was primarily attributable to the addition of several vehicle
platforms and additional future model years for existing platforms under the
General Motors development contract and development contracts funded by the
Southern California Air Quality Management District. Contract revenue is
principally recognized by the percentage of completion method. Profits expected
to be realized on contracts are based on our estimates of total contract sales
value and costs at completion. These estimates are reviewed and revised
periodically throughout the lives of the contract.
Operating losses for this division decreased $1.4 million or 98.1% from $1.5
million for fiscal year 1998 to $27,000 in fiscal year 1999. This decrease was
primarily due to higher contract revenues, principally from the General Motors
program, and associated lower product application development costs for new
products being commercialized. Product application development expense is
primarily for system development and application engineering of our products
under the General Motors Teaming Agreement and other customer funded contract
research and development work with the Southern California Air Quality
Management District and other agencies, and for company funded product and
component application development work. Research and development expense
directly related to customer funded product application development work
decreased from $7.4 million in fiscal year 1998 to $6.1 million in fiscal year
1999. These decreases were primarily due to improved productivity resulting
from knowledge transfer over multiple platforms and application of knowledge to
non-General Motors funded contracts. Research and development expense directly
related to company funded product application development work decreased
approximately $200,000 as compared to fiscal year 1998. This decrease is a
result of efficiencies realized in developing new advanced technology and
products.
The decrease in operating losses as a result of higher contract revenues was
nearly offset by lower gross margins on the General Motors product sales,
compared to the prior fiscal year. During fiscal year 1999, this division
experienced negative material usage variances and increased fixed overhead
costs not covered by production volumes for several new start-up OEM programs.
Gaseous Fuel Products Division. Net revenues for this division increased
$4.3 million or 8.9% from $48.3 million in fiscal year 1998 to $52.6 million
for fiscal year 1999. This increase was primarily a result of addition of the
Industrial Engine Systems business in fiscal year 1999, higher revenues from
the small engine market and higher transfer sales to support the increased
sales levels of the subsidiaries. For fiscal year 1999, the increase in the
small engine market resulted from higher demand for small portable engines
generators as consumers and small business prepared for the Year 2000. These
increases were partially offset by lower revenues from the large stationary
engine market where net revenues decreased from $3.3 million in fiscal year
1998 to $2.3 million in fiscal year 1999. This decrease was primarily a result
of reduced demand for large power generation units used in power replacement
and recreational applications and other heavy duty applications, particularly
in Asia.
Operating income for this division decreased $465,000 or 3.2% from $14.7
million in fiscal year 1998 to $14.3 million in fiscal year 1999. This decrease
was primarily due to higher sales and administrative expenses, primarily from
additional marketing and technical support expenses to support the higher
sales. Additionally, this division's company funded product application
development costs increased from $1.3 million in fiscal
24
<PAGE>
year 1998 to $1.5 million in fiscal year 1999. These amounts were partially
offset by higher gross profits as a result of higher sales volumes, although
the percent margin decreased from 38.9% to 37.1% as a result of anticipated
lower margins realized on the system sales from IMPCO Europe. Additionally,
customer funded research and development expense decreased by $271,000 in
fiscal year 1999.
International Operations. Net revenues for this segment increased $1.9
million or 9.8% from $19.3 million in fiscal year 1998 to $21.2 million in
fiscal year 1999. International Operations revenues would have increased an
additional $1.1 million if not for the strengthening of the U.S. Dollar. A
strong U.S. Dollar negatively impacts the conversion of foreign currency
denominated sales. During fiscal year 1999, we realized increased revenues of
$1.4 million from our European operations, which primarily sells material
handling components. Additionally, our Mexican operations, acquired in December
1997, reported a full year of revenues of $2.7 million compared to $823,000 in
revenues for the five month period in fiscal year 1998. These increases were
partially offset by a $1.4 million decrease in revenues from our Australian
operations which primarily sells motor vehicle components. Without the
strengthening of the U.S. Dollar, revenues from Australian operations would
have decreased to less than half this amount in fiscal year 1999. We believe
the lower product sales from our Australian operations were a result of a
continued general economic slowdown in Asia, a decrease in component sales to
OEMs and unfavorable price differentials between propane and gasoline caused by
the major disruption of natural gas supply in Australia in 1999, which
increased demand for propane for household use and resulted in increased
propane prices.
Operating income for this segment decreased $268,000 or 15.1% from $1.8
million in fiscal year 1998 to $1.5 million in fiscal year 1999, primarily as a
result of lower product margins. Our gross margin on subsidiary based product
sales decreased from 33.6% in fiscal year 1998 to 31.7% during fiscal year
1999. During fiscal year 1999, our gross margin on subsidiary based product
sales decreased as a result of higher material costs at the Australian and
Mexico subsidiaries due to a strengthening U.S. Dollar against those country's
foreign currencies. This decrease also was due to higher material costs at our
European subsidiary as a result of higher transfer pricing between the United
States parent and the subsidiary.
Corporate Expenses. Corporate expenses increased approximately $520,000 or
10.4% from $5.0 million in fiscal 1998 to $5.5 million in fiscal year 1999,
primarily due to increases in administrative personnel and administrative
salaries and benefits to support our growth and international operations and
additional amortization of goodwill from acquisitions.
Corporate Research and Development. Corporate research and development
expense increased approximately $530,000 or 21.0% from $2.5 million in fiscal
year 1998 to $3.0 million in fiscal year 1999. This increase was primarily the
result of additional research and development efforts on the development of
fuel storage technology and other advanced technologies.
Interest Expense. Interest expense increased $235,000 or 25.1% from $935,000
in fiscal year 1998 to $1.2 million in fiscal year 1999 as compared to the
fiscal year 1998. This increase was primarily attributable to higher borrowings
on our lines of credit as compared to the prior year and as a result of higher
long-term borrowings to fund the Algas Carburetion acquisition in December
1997, the purchase of the remaining 49.0% interest of IMPCO BV in May 1998, the
purchase of our Industrial Engine Systems business in December 1998, and the
purchase of IMPCO Japan in March 1999. The higher interest expense was
partially offset by lower interest rates on our credit facility with Bank of
America and prepayments on certain long-term borrowings from funds received
from the exercise of our common stock purchase warrants during the third
quarter of fiscal year 1998.
Provision for Income Taxes. Our effective income tax rate was 14.7% for
fiscal year 1998 and 19.0% for fiscal year 1999. The provision for income taxes
consists primarily of federal, state and foreign taxes which are computed using
statutory rates. The effective tax rate represents the statutory income tax
rate reduced by the use of net operating loss carryforwards, research and
development tax credits and other items. During fiscal
25
<PAGE>
year 1999, our deferred tax assets increased by $1.0 million or 65.3% to $2.6
million at April 30, 1999 due to research and development credits. For federal
income tax purposes, we used all net operating loss carryforwards at the end of
fiscal year 1998.
Liquidity and Capital Resources
We use cash generated from our operations 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. While these sources of funds have
been sufficient in the past, we currently anticipate that we will require
additional sources of financing in order to capitalize on opportunities that we
believe to exist in the emerging fuel cell market. These additional sources of
financing will include the proceeds of this offering and may include bank
borrowings or public or private offerings of equity or debt securities. We
cannot assure you that such additional sources of financing will be available
on acceptable terms, if at all.
The ratio of current assets to current liabilities was 3.1:1 at April 30,
2000 and 3.1:1 at April 30, 1999. During fiscal year 2000, our total working
capital increased by approximately $14.4 million to $49.6 million at April 30,
2000. Net cash used in operating activities was $6.6 million in fiscal year
2000 as compared to net cash provided by operating activities of $440,000 for
fiscal year 1999. The increase in cash used in operating activities during the
current period resulted primarily from an increase in inventory and accounts
receivable. The increase in inventory was primarily to support increased sales
volume across our operating segments. The increase in accounts receivable is
primarily due to the increased international and OEM billings and an increase
of $2.8 million in earned, but not yet billed, contract revenues classified as
accounts receivable.
Net cash used in investing activities in fiscal year 2000 was approximately
$4.0 million, a decrease of approximately $551,000 from fiscal year 1999. This
decrease is primarily a result of the previous year's third quarter acquisition
of the Industrial Engine Systems business for approximately $3.9 million, the
previous year's first quarter purchase of the remaining 49.0% interest in IMPCO
Europe, which resulted in a net use of cash of approximately $692,000,
partially offset by the proceeds from the sale of 49.0% interest in subsidiary.
Investing activities for fiscal year 1999 primarily included capital
expenditures for dies, molds and patterns, machinery and equipment, and the
investment in IMPCO Fuel Systems.
Net cash provided by financing activities for fiscal year 2000 was
approximately $11.9 million. For the current fiscal year, we increased our
borrowing under our operating lines of credit by approximately $14.3 million,
primarily for working capital. During the same period, we paid approximately
$3.5 million on our term loans and capital leases.
We have a $22.0 million revolving line of credit, $3.0 million revolving
line of credit for IMPCO Mexicano, and $5.0 million non-revolving line of
credit for future capital expenditures with Bank of America. At April 30, 2000,
approximately $15.6 million, $851,000 and $2.7 million were outstanding under
the revolving line of credit, the revolving line of credit for IMPCO Mexicano
and the capital expenditures facility, respectively. Our revolving lines of
credit expire on August 31, 2001. While our capital lease facility expires on
August 31, 2000, we have the option to convert each of them into a term loan
payable in five years. In addition, our subsidiary in the Netherlands has a fl.
3,000,000 (US $1.2 million at April 30, 2000) credit facility with Mees
Pierson, a financial institution in the Netherlands. At April 30, 2000, there
was no outstanding balance under this credit facility. Our subsidiary in Japan
has a revolving term loan facility with the Hong Kong and Shanghai Banking
Corporation Ltd., Osaka Branch. At April 30, 2000, the fully dispersed loan
balance of (Yen)60,000,000 (US $555,000) was outstanding.
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.
26
<PAGE>
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 the costs incurred by our
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 April 30, 2000, we had no forward
currency contracts. We seek to manage 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.
Interest Rate Management. We use interest rate swap agreements with Bank of
America to manage our exposure to interest rate changes and to stabilize the
cost of borrowed funds. When this type of agreement is executed, the swap is
generally linked to a specific debt instrument. At April 30, 2000, we had
approximately $3.6 million in fixed interest rate agreements. Loans totaling
$2.4 million at April 30, 2000 had a weighted-average fixed interest rate of
7.76%. Absent these fixed rate agreements, the weighted-average variable rate
for this debt at April 30, 2000 would have been 8.02%. Capital leases totaling
$1.2 million had a weighted-average fixed interest rate of 8.30%. Absent these
fixed rate agreements, the weighted-average variable rate for these leases at
April 30, 2000 would have been 8.75%. At April 30, 2000, the fair value of
interest rate swap agreements was $45,000.
Debt Obligations. The following table summarizes our debt obligations at
April 30, 2000. The interest rates represent weighted average rates, with the
period end rate used for the variable rate debt obligations. The fair value of
the debt obligations approximated the recorded value as of April 30, 2000.
<TABLE>
<CAPTION>
Fair
Value
2001 2002 2003 2004 2005 Thereafter Total 4/30/00
----- ----- ----- ----- ----- ---------- ----- -------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long term debt
denominated in US
dollars:
Line of credit.......... $ -- $15.5 $ -- $ -- $ -- $ -- $15.5 $15.5
Capital expenditure line
of credit.............. $ .3 $ .5 $ .5 $ .5 $ .6 $ .3 $ 2.7 $ 2.7
Term loans, including
current portion:
Variable rate......... $ 1.6 $ .8 $ 0.6 -- -- -- $ 3.0 $ 3.0
Average interest
rate................. 7.9% 8.0% 8.0% -- -- -- -- --
Long term debt
denominated in foreign
currencies:
Dutch Guilders
Variable rate......... $ 0.4 $ 0.3 $ 0.3 $ -- $ -- $ -- $ 1.0 $ 1.0
Average interest
rate................. 5.6% 5.6% 5.6% -- -- -- -- --
Mexican Peso
Variable rate......... $ -- $ 0.9 $ -- $ -- $ -- $ -- $ 0.9 $ 0.9
Average interest
rate................. -- 18.5% -- -- -- -- -- --
Japanese Yen
Line of credit........ $ 0.6 $ -- $ -- $ -- $ -- $ -- $ 0.6 $ 0.6
Variable rate......... $ 0.3 $ 0.3 $ 0.3 $ 0.3 $ -- $ -- $ 1.2 $ 1.2
Average interest
rate................. 1.7% 1.7% 1.7% -- -- -- -- --
Interest rate derivative
financial instruments:
Pay fixed/receive
variable............. $ 1.5 $ 1.2 $ 0.9 $ 0.0 $ 0.0 $ 0.0 $ 3.6 $ 3.6
Average pay rate...... 6.0% 6.0% 6.0% -- -- -- -- --
Average receive
rate................. 6.4% 6.4% 6.4% -- -- -- -- --
</TABLE>
27
<PAGE>
Acquisitions
Australia. In July 1996, we acquired certain assets of Ateco Automotive Pty.
Limited, including a 50.0% ownership interest in Gas Parts (NSW) Pty., for a
purchase price of approximately $6.5 million. Ateco is an Australian based
company that provides conversion services to OEMs. Gas Parts is an Australian
based distributor of aftermarket gaseous fuels conversion equipment. In January
1998, we acquired the remaining
50.0% ownership interest in Gas Parts. In March 2000, one of our subsidiaries,
IMPCO Technologies, Pty Ltd and LPM Corporation Pty Ltd, a corporation
incorporated under the laws of the state of New South Wales, Australia,
established IMPCO Fuel Systems, a joint venure to service this geographical
market. IMPCO Technologies, Pty Ltd has a 51% ownership interest in IMPCO Fuel
Systems and paid $300,000 in the purchase of goodwill of LPM's gaseous fuel
equipment business and $110,000 in certain assets, inventory and equipment of
LPM. The consolidated revenues of our Australian subsidiary, our Australian
joint venture and IMPCO SA, which we collectively refer to as IMPCO Australia,
totaled approximately $6.9 million in fiscal year 1998, $5.4 million in fiscal
year 1999 and $6.3 million in fiscal year 2000.
Mexico. In December 1997, we purchased certain manufacturing equipment and
inventory of the Algas Carburetion division of PGI International at a purchase
price of approximately $2.4 million. Prior to its acquisition, the Algas
Carburetion division manufactured and sold carburetion equipment for gaseous
fuels. On the same day, we acquired a 90.0% interest in Industrias Mexicanas de
Productos de Combustibles, S. de R.L. de C.V., a Mexico City based distributor
of the Algas Carburetion division products. The purchase price was $961,000. We
combined these interests to form our Mexican subsidiary, Grupo I.M.P.C.O.
Mexicano, S. de R.L. de C.V., which we refer to as IMPCO Mexicano. Our Mexican
subsidiary had revenues of approximately $823,000 for five months of operations
in fiscal year 1998, $2.7 million in fiscal year 1999 and $6.7 million in
fiscal year 2000.
Canada. In December 1997, we purchased from the bankruptcy trustee of EDO
Canada, Ltd. certain development, testing, quality control and manufacturing
equipment used for the manufacture of storage tanks for compressed natural gas.
The purchase price was $790,000. Since the acquisition, we have relocated this
equipment to our Irvine, California facility.
Europe. In May 1998, we acquired the remaining 49.0% interest in IMPCO
Technologies, B.V, a European distributor of our products. The purchase price
was $692,000. In January 1999, we sold a 49.0% interest in IMPCO B.V. to BERU
Aktiengesellschaft, an international OEM and aftermarket supplier of diesel and
automotive engine components and systems, for $3.5 million in cash. We recorded
a pre-tax gain of $2.2 million and an after-tax gain of $1.8 million, or $0.20
per diluted share. We operate the new company as IMPCO-BERU Technologies, B.V.
("IMPCO Europe") Revenues of this majority owned subsidiary were approximately
$11.6 million in fiscal year 1998, $12.9 million in fiscal year 1999 and $13.9
million in fiscal year 2000.
United States. In December 1998, we acquired certain assets of the Crusader
Engine division of Thermo Power Corporation, a subsidiary of Thermo Power
Electron Corporation, for approximately $3.9 million. The Crusader Engine
division, which is now our Industrial Engine Systems business, provides engine
dressing and related devices for material handling, irrigation and other
industrial engines. Engine dressing involves the acquisition of basic engine
mechanical parts from an OEM and adding fuel handling and other parts to make
the engine fully functional. We are amortizing goodwill of approximately
$662,000 on the straight-line method over 20 years. Tangible net assets
acquired consisted of $2.5 million in inventory and $718,000 in fixed assets.
Our Industrial Engines Systems business had revenues of approximately $3.2
million for the five months of operations in fiscal year 1999 and $16.6 million
in fiscal year 2000.
Japan. In March 1999, we acquired certain assets of the alternative fuels
division of Mikuni Corporation for approximately (Yen)158,629,000 (US $1.3
million). The alternative fuels division, based in Fukuoka, Japan, is a
distributor of alternative fuels products and systems throughout Asia, with a
focus on the Japanese market.
28
<PAGE>
Mikuni had distributed our products in Japan since 1994. We are amortizing
goodwill of approximately (Yen)113,016,000 (US $944,000) on the straight-line
method over 20 years. The tangible net assets acquired consisted of $362,000 in
inventory and $19,000 in fixed and other assets. We operate the new company as
Impco Japan KK. Revenues for the one month of operation in fiscal year 1999
were approximately $178,000 and $3.1 million in fiscal year 2000.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued SFAS 133 "Accounting for
Derivative Instruments and for Hedging Activities," which is effective for
fiscal years beginning after June 15, 1999. SFAS 133 requires derivatives to be
recorded on the balance sheet at fair value and establishes special accounting
for the following three types of hedges: hedges of changes in the fair value of
assets, liabilities or firm commitments, referred to as fair value hedges,
hedges of the variable cash flows of forecasted transactions such as cash flow
hedges and hedges of foreign currency exposures of net investments in foreign
operations. The accounting treatment and criteria for each of the three types
of hedges is unique. Changes in fair value of derivatives that do not meet the
criteria of one of these three categories of hedges would be included in
income. SFAS 133 was amended by SFAS 137, which delayed its effective date. We
will determine what impact, if any, it will have on our financial position,
results of operations and cash flows. Currently, we do not anticipate adopting
this standard before May 1, 2001.
The Financial Accounting Standards Board has recently issued Interpretation
No. 44, "Accounting for Certain Transactions Involving Stock Compensation."
This Interpretation addresses implementation practice issues in accounting for
compensation costs under existing rules by prescribed Accounting Principle
Board No. 25. The new rules are applied prospectively to all new awards,
modifications to outstanding awards and changes in grantee status after July 1,
2000, with certain exceptions. We are considering the effects these changes
make and plan to implement any changes as we deem to be appropriate.
29
<PAGE>
BUSINESS
Overview
We are a leading designer, manufacturer and supplier of advanced fuel
delivery and storage technology systems and components that allow internal
combustion engines and fuel cell systems to operate in a variety of
transportation, material handling, and industrial and power generation
applications using clean fuels such as hydrogen, propane, natural gas and
methanol. We have designed these systems to maximize efficiency and performance
by electronically sensing and regulating the proper proportion of fuel and air
used by internal combustion engines and fuel cells. Based on over 40 years of
technology development and expertise in producing cost-effective, safe and
durable fuel technology systems for engines, we believe that we will be
positioned to provide enabling products and technologies in the rapidly
emerging fuel cell industry.
Current internal combustion engines have contributed to a worldwide
pollution problem. As a result, a number of automotive, industrial and power
generation manufacturers are developing alternative clean propulsion systems
such as fuel cells. We offer fuel delivery, fuel storage and electronic control
systems to those manufacturers to facilitate the development of these
propulsion systems. Many OEMs are also adapting their internal combustion
engines to use cleaner burning alternative fuels to reduce their harmful
emissions. We offer both conversion products and systems to these OEMs and for
aftermarket conversions.
Since 1986, we have produced more than 2.5 million gaseous fuel systems and
components. We sell these systems and components directly to the user and
through more than 400 distributors and dealers worldwide and through our OEM
customers.
We entered into a Teaming Agreement with General Motors in 1997. Under this
agreement, we have specifically designed fuel conversion products as a cost-
effective solution to address General Motors' demand for alternative fuel
vehicles. We are also developing and adapting our technologies for fuel cell
powered zero emission vehicles for General Motors and other OEMs.
Also in 1997, we opened our Advanced Technology Center in Irvine,
California, a research and development facility with more than 140 scientists,
engineers, professionals and support staff. The Advanced Technology Center
focuses entirely on the development of clean emission advanced fuel delivery,
storage and electronic control systems, particularly those related to emerging
fuel cell technologies. Since 1994, we have invested more than $65 million on
research and development of gaseous fuel enabling technology for use in fuel
cells and engines. As a result, we believe that we have gained technological
leadership in these enabling products which we have designed to convert
internal combustion engines to alternative cleaner fuels and to fully
participate in the fuel cell market with new state-of-the-art fuel and cost-
effective fuel delivery and fuel storage products.
Alternative Fuel Industry
Alternative fuel technology markets were developed from, and continue to be
propelled by, three independent drivers: economics, environmental concerns and
energy independence. We believe the price differential between propane or
natural gas and gasoline drives the economics of the alternative fuels market.
The price of traditional liquid fuels such as gasoline is typically twice that
of natural gas or propane. By converting an internal combustion engine to run
on propane or natural gas, through the installation of our products, customers
can capitalize on the price differential. Customers are typically able to
recoup the cost of the conversion in six to eighteen months, depending on the
fuel spread. Transportation companies such as taxi companies, transit and
shuttle bus companies, United States government fleets and parcel delivery
companies such as the United States Postal Service and United Parcel Service
are well positioned to take advantage of these economics. We sell our systems
to forklift users who often operate equipment indoors where toxic emissions are
of a concern. Small and large industrial engine users are also often motivated
to capitalize on cost benefits. In all these situations, it is relatively easy
to establish centralized fueling stations. Because the price differential
between these gaseous fuels and gasoline in the United States is less than that
in many foreign countries, the United States market is often more impacted by
environmental concerns.
30
<PAGE>
The negative environmental impact associated with liquid fuels further
increases the demand for systems that use clean-burning fuels. Internal
combustion engines are a major source of air pollution, which has led to
increased government regulation and oversight on vehicle and industrial engine
emissions. Most major international cities are experiencing significant
pollution arising from gasoline and diesel emissions. These cities also have
the largest concentrations of fleet operators and many are taking steps to
reduce emissions by typically converting vehicles from liquid fuel to natural
gas and propane. For example, in Mexico City, one of the largest cities in the
world, the government has taken steps such as prohibiting certain vehicles from
driving on designated days of the week. However, vehicles running on propane or
natural gas may apply for an exemption allowing them to be operated every day,
creating a significant advantage for corporate and industrial users, such as
major distributors of products within the city limits.
In the United States, such legislative acts as the Comprehensive National
Energy Strategy, the Clean Air Act Amendments of 1990 and the Energy Policy Act
of 1992 in the aggregate provide goals for energy and efficiency and strict
emission standards and promote the development and implementation of
alternative fuels and related technologies. Several states, including
California, Massachusetts, New York and Vermont have also adopted legislation
targeted at reducing harmful vehicle emissions. In addition, over 25 countries
worldwide have enacted air pollution regulations or programs favoring the use
of alternative fuels, including China, India, Mexico and the European Common
Market.
In addition to economics and environmental concerns, energy independence is
a significant driver for the alternative fuel market. Many countries have
significant natural gas reserves and are seeking to use alternative fuels to
reduce their dependence on imported oil. Natural gas is generally consumed
domestically since it is difficult to transport internationally in a gaseous
state and liquefying natural gas tends to be costly. By converting their
domestic transportation market to natural gas or propane, which is a derivative
of natural gas, countries are able to lessen their demand for gasoline which is
derived from oil.
Fuel Cell Industry
The newly emerging fuel cell industry represents an advancement in fuel
technologies to address the worldwide environmental concerns and long term
security of supply for inexpensive liquid fuels reserves. A fuel cell, by
nature of its operating principles, is efficient and extracts more energy from
a fuel than combustion based technologies. Fuel cells have emerged as a leading
power source for advanced fuel systems that propel motor vehicles and
industrial engines due primarily to the fundamental characteristics of the
electrochemical process: low emissions, reduced noise and high efficiency. The
fuel cell market is anticipated to be a large market characterized by high
levels of growth. Fuel cell manufacturers are targeting the transportation,
stationary and portable power generation markets. While we believe that our
gaseous fuel storage, fuel delivery and electronic control systems and products
will eventually be applicable to all three of these markets, we anticipate
initially focusing on the transportation market where we believe we will be
able to leverage off of our other alternative fuel technologies and our
relationships with automotive OEMs such as General Motors.
A fuel cell is an electrochemical device that produces electricity silently
and without combustion. Hydrogen fuel, which can be obtained from hydrocarbons
such as methanol, natural gas or petroleum is then combined with oxygen from
the air in a fuel cell to produce electricity, with useable heat and water as
the only by-products. This process is the reverse of electrolysis by which
water can be split into hydrogen and oxygen by passing an electric current
through water. A key to optimizing the performance of a fuel cell is the proper
metering and delivery of its hydrogen fuel and air to its fuel stacks and the
efficient storage of its fuel to maximize its time of usage. These fuel systems
must be cost-effective, light weight and safe.
To generate usable electric power, a complete fuel cell power system, like a
complete automobile engine or power generator, requires a fuel supply and fuel
metering system. If hydrogen is not the initial fuel for this system, hydrogen
can be obtained from hydrocarbon fuels such as methanol, natural gas or
petroleum using a device called a reformer. A reformer breaks down hydrocarbon
fuels using heat and a catalytic process. Each hydrocarbon based fuel faces
challenges to become a practical fuel for fuel cell powered vehicles. While
31
<PAGE>
methanol is the easiest fuel to reform and requires less complex systems, it is
not widely available in the current fuel distribution infrastructure and is
corrosive. Natural gas can also be reformed, yet it is not widely available in
the current fuel distribution infrastructure. Gasoline is widely available, and
easy to store, but it is difficult to reform and requires very complex systems
that reduce efficiencies and increase the pollutants produced by the fuel
processor. Our technology and products can function in connection with any of
these hydrogen fuel sources. Regardless of the fuel used, we believe that the
fuel cell system will require on board fuel storage, fuel delivery and
electronic controls.
Alternative Fuel and Fuel Cell Markets
The markets for transportation, material handling, industrial engine and
fuel cell applications, and power generation markets for fuel cell and
alternative fuel engine applications are large and growing rapidly. According
to Freedonia Group, an independent market research firm, global OEM alternative
vehicle sales are expected to grow to 170,000 units annually by the year 2002
from 31,900 units in 1997. Propelled by the commercialization of fuel cell
vehicles between the years 2003 and 2005, the National Fuel Cell Research
Center based at the University of California, Irvine, projects that the annual
revenues of the fuel cell industry will exceed $10 billion by 2010.
According to the Industrial Truck Association and the Material Handling
Institute of America, the world wide material handling new lift-truck market
was approximately 430,000 units in 1998 and the number of lift trucks in
service was at least 1.6 million by the end of 1999. We expect that additions
of new lift trucks to the market will continue at or above the current historic
annual rate of 4% to 5% for at least five years. Currently, the Industrial
Truck Association estimates that approximately 15% of all lift-trucks are using
alternative fuels, mostly in indoor applications such as warehousing and food
processing, where indoor air quality is required. California has announced it
will enforce emission regulations applying to forklifts in 2001. The
Environmental Protection Agency will also implement emission regulations
applying to forklifts in 2004.
Ford, DaimlerChrysler, General Motors, Honda, Hyundai, Mazda and Nissan have
each announced their intention to commercialize fuel cells in motor vehicle
applications sometime between the years 2003 and 2005. We intend to participate
in the growth of the fuel cell segment of this industry by focusing primarily
on the development and integration of fuel storage, fuel delivery and
electronic control systems in fuel cell and gaseous fuel applications. We have
no current plans to manufacture fuel cells or reformers.
Competitive Advantages
We believe our current and future technological leadership position in the
alternative fuel and fuel cell industries will result from our continued
success in the design, manufacturing and commercialization of advanced fuel
delivery systems and components, our relationships with leading companies in
our targeted transportation, material handling and industrial and power
generation markets, our substantial financial commitment to research and
development and our proven ability to develop and commercialize products in the
emerging fuel cell and alternative fuel industries. We believe our competitive
strengths include:
Industry Leader. We are a leader in the rapidly emerging alternative fuel
industry and a market share leader in the use of non-liquid fuels in internal
combustion engines. Our technology leadership position is derived from the
broad application and integration of our technology and enabling systems into
the expanding advanced fuel system technology industry. Our significant
investment of more than $65 million in research and development over the past
seven years, coupled with our history and experience in this industry has
provided us with a strong technology base for new product innovation. Our new
proprietary fuel cell enabling technologies are currently patented or patent
pending, which could make it more difficult for new entrants in the industry to
develop directly competing products based on the same or similar technologies.
Advanced Enabling Technologies and Systems for Fuel Cells. Our research in
fuel storage, fuel delivery and electronic system controls have delivered
advanced, low cost technologies, which we believe can be
32
<PAGE>
adapted to apply to a broad range of applications. We have also concentrated
efforts on extensive testing and validation of our new advanced fuel technology
products which focus upon safety and durability. In 1995, we began development
of products for fuel cell applications in our target markets. Our new TriShield
all-composite, light weight and low cost fuel storage tank is of special
interest to the fuel cell industry due to its ability to store hydrogen at high
pressures and at a very attractive weight-to-strength ratio. This tank, in
conjunction with our patented in-tank regulator, is particularly cost-effective
when compared to existing and other traditional tank and regulator
technologies. Sandia National Laboratories is currently evaluating our tanks
for potential hydrogen storage applications. Our new fuel metering disc
injector has also been well received among automotive and fuel cell
manufacturers. Our patent pending technology associated with the injector uses
low leakage and low friction discs to meter the fuel rather than the
conventional plunger technology now used. We believe our new injector, which
utilizes high volume gasoline injector parts, will have broad applications in
fuel cell and alternative fuel systems, with potential in the traditional
liquid fuel market.
Proven Manufacturing Methods. We have over four decades of experience in the
manufacture and development of alternative fuel technologies and products. We
currently maintain manufacturing and production facilities in the United
States, Europe, Mexico and Australia, which produce a broad range of products
and services including components, systems and specialty vehicle assembly. Our
United States, Australian and European facilities have achieved or are in the
process of implementing ISO-9000 or QS-9000 certification. We believe our
manufacturing expertise will enable us to successfully address the fuel cell
industry.
Strong OEM Relationships. We have a Teaming Agreement with General Motors to
supply alternative fuel systems and components for General Motor's vehicles. We
are currently their exclusive provider of natural gas and propane systems and
cooperate with them in sharing non-proprietary technology, test facilities and
procurement resources. We also sell conversion components to General Motors in
international markets. During the fiscal years ended April 30, 1999 and 2000,
sales to General Motors represented 27.8% and 16.0% of our revenues,
respectively. In addition, we have longstanding relationships with many
domestic and international OEMs, including BMW, Caterpillar, Clark, Cummins,
Daewoo, Detroit Diesel, Ford Australia, Hyster/Yale/Sumitomo, Isuzu, Komatsu,
Mazda, Mitsubishi, Nissan, ONAN, Perkins, Toyota and Volvo.
In-Depth System Integration Expertise. As more OEMs seek to reduce costs by
outsourcing key tasks and reducing numbers of suppliers, we have increasingly
focused on capturing additional revenue opportunities by expanding our current
systems integration capabilities. In 1996, we created our Automotive OEM
division to serve this customer value-added opportunity. In 1998, through the
Crusader acquisition, we established our Industrial Engine Systems business in
Sterling Heights, Michigan, which provides systems integration of our low-
emission products onto engines that are subsequently sold to industrial OEMs.
We believe that our systems integration expertise, together with our
proprietary and patented technologies, give us a significant advantage in the
emerging fuel cell markets.
Positioned for Global Growth. With eight international facilities and over
300 distributors and dealers outside the United States, we believe that we are
uniquely positioned to capitalize on regional growth opportunities. We believe
that the alternative fuel markets will grow dramatically internationally,
particularly in China, India, Japan, Mexico and Southeast Asia where urban
pollution problems will continue to predominate. We are currently working with
the Mexican government to develop advanced fuel solutions for public
transportation, government and taxi fleets. The government of Mexico State
recently selected us as the preferred vendor for the conversion of over 4,000
taxi and mass transit vehicles, which could reach 70,000 vehicles in the next
five years.
Business Strategy
We believe that the successful execution of the following strategic
objectives will enable us to maintain and expand our leadership position in the
advanced fuel technologies industry.
33
<PAGE>
Capitalize on Our Strong Technology Leadership Position. We are a leading
developer and manufacturer of fuel metering, fuel storage and electronic
control systems for the alternative fuel and fuel cell industries. We believe
that this position results from our current technology advantage and our
investment in research and development in this rapidly emerging industry. Our
investment has and is expected to continue to permit us to develop and supply
new technology and products to our target markets which are transitioning to
gaseous fueled internal combustion engines. We intend to expand the technology
gap between ourselves and our competitors to capture the leading position in
new fuel cell opportunities.
Focus on Fuel Cell Enabling Technologies and Products. Since 1995, we have
invested significantly in research and development of technology and products
that support the use of fuel cell systems. The commercialization of our
technology products has established us as a leader in fuel metering, fuel
storage and electronic controls for fuel cell systems. We plan to continue to
expand our research and product development in fuel metering, fuel delivery and
electronic control systems for fuel cell systems. We plan to develop and expand
sales of fuel cell related products by focusing business development efforts
initially on the transportation industry, and secondarily on the industrial
power generation and material handling markets. We will seek to establish joint
development programs and strategic alliances with the major fuel cell
developers and automobile industry leaders.
Develop and Expand Key Industry Relationships. We believe that OEMs will
drive industry growth. Building on our Teaming Agreement with General Motors
and Thiokol Propulsion, we plan to develop additional relationships with major
OEMs. We also plan to work with other manufacturers in the fuel cell industry
and are currently in discussions with Delphi, Ballard Power Systems, Inc. and
Xcellsis, formerly dbb Fuel Cell Engines, GmbH, a German company jointly owned
by DaimlerChrysler, Ford and Ballard.
Leverage Technology to Capture Future Fuel Cell Markets. Our technology and
product leadership in the alternative fuels industry in gaseous fuel systems,
fuel storage and electronic control is complementary to the technology required
for fuel cells. We believe our core technologies can be adapted to develop
products for the fuel cell industry.
Expand and Broaden Systems Integration Expertise. We are increasing our
existing capabilities to provide the integration, testing, validation and
manufacturing of our products and systems into the transportation, material
handling and industrial and power generation engine markets. As more OEMs seek
to reduce costs and shorten time to market by outsourcing key tasks and
reducing numbers of suppliers, we are increasingly focused on capturing
additional revenue opportunities by expanding into value-added services such as
systems integration. For example, in 1998, we established an industrial systems
unit in Michigan to provide systems integration for our products onto engines
subsequently to be sold to industrial OEMs which are then ready for
installation into end products.
Expand Bases of Operations in High Growth Global Regions. We believe that
significant growth opportunities for our current and future businesses exist
outside the United States and targeted high growth markets such as Latin
America, Asia and Europe. We will capitalize on these opportunities through
acquisitions and joint ventures, strengthening of our distributor network and
developing key local business and governmental support and recognition. In
particular, we are developing close relationships with the Mexican government.
We believe that working with local governments is essential to expanding into
international markets and that our discussions with government officials have
helped us to develop regulations in Mexico.
Customers and Strategic Relationships
We market our products and services to OEMs, distributors, sub-distributors
and dealers through an international network of over 400 distributors and
dealers into over 30 countries. Our customers include some of the world's
largest OEMs and engine manufacturers, including BMW, Caterpillar, Clark,
Cummins, Daewoo, Detroit Diesel, Ford Australia, Hyster/Yale/Sumitomo, Isuzu,
Komatsu, Mazda, Mitsubishi, Nissan, ONAN, Perkins, Toyota and Volvo. We are
working with a number of these customers to address their fuel storage, fuel
delivery and electronic control systems requirements as they integrate fuel
cells into their business strategies.
34
<PAGE>
We entered into a Teaming Agreement with General Motors in 1997, which
encompasses the design, development, manufacture and vehicle integration of our
natural gas and propane fuel systems into their vehicles. In connection with
this relationship, we provide complete fuel system integration services and
validation, including crash, hot and cold weather and high altitude, emission
certification, service plans and procedures and manufacturing. We intend to
establish similar relationships with other leading OEMs. Our Teaming Agreement
with General Motors includes sharing of non-proprietary technology,
corroboration of technical staffs to leverage areas of technical expertise for
mutual benefit, sharing of laboratory and testing facilities, and use of
General Motors procurement network. General Motors has agreed to purchase
gaseous fuel propulsion systems or related components developed under this
agreement from us if:
. General Motors does not produce the components;
. we can supply such components; and
. we are competitive in terms of price, quality and service.
The Teaming Agreement also provides for a mutual right of first refusal if
we jointly develop new products under this agreement. As part of this right of
first refusal, we may not solicit sales to any third parties of any gaseous
fuel propulsion system or related components developed under the Teaming
Agreement for a period of two years from the date of General Motors' commercial
introduction. To date, the Teaming Agreement has been applied exclusively to
the installation of alternative fuel systems and does not cover any joint
development efforts other than those that had been specific to General Motors
application requirements.
Products and Services
Many of our products are based on proprietary and patented technology
focused on fuel storage, fuel flow and fuel management and engine control
management for fuel cell applications and internal combustion engines. We have
designed our products to enable fuel cell and internal combustion propulsion
systems to optimize their operational performance and efficiency using the
alternative fuels.
35
<PAGE>
Products. The following chart sets forth the enabling products we currently
sell in connection with the conversion of internal combustion engines to
alternative fuels and for application in fuel cell powered vehicles. All of the
products set forth below have potential fuel cell applications except for our
carburetor products.
Fuel Storage
---------
<TABLE>
<CAPTION>
Products Description
-------- -----------
<C> <S>
TriShield All Composite . Designed for maximum safety, light weight
Storage Tanks and cost-effectiveness
. The TriShield tank exceeds the current
regulatory qualification requirements and
also meets OEM's more stringent
requirements for use in their natural gas
fueled vehicles
. Major competitive advantages include high
storage efficiency, typically 30% more
fuel capacity than comparably sized
aluminum tanks and at less cost than
steel tanks
. The permeability resistant liner
technology provides hydrogen storage for
fuel cell applications and reduces the
possibility of hydrogen embrittlement
In-Tank Regulators . Reduces storage tank outlet, eliminating
the need for high pressure fuel lines
running throughout the vehicle
. Increased safety at significant cost
reductions versus competitive products
</TABLE>
Fuel Delivery
----------
<TABLE>
<CAPTION>
Products Description
-------- -----------
<C> <S>
Gaseous Fuel Disc Injectors . Designed specifically for precise gaseous
fuel delivery to provide superior flow
rate and increased durability over
existing plunger technologies
. Our simple design generally translates
into lower costs than competing
technologies
. Enables superior engine performance at the
lowest emissions
Injector Pressure Regulators . Provides precise control of fuel required
for injection systems in gaseous fueled
internal combustion engines
Air/Fuel Metering Carburetors . Used in internal combustion engines to
meter fuel and air mixtures for control of
engine performance at the lowest emissions
Gas Mass Sensors/Mixture . Measures and controls gaseous fuel flow
Control Valves
Pressure Reduction and Heat . Controls fuel flow under widely varying
Exchange Products engine operating conditions
Fuel Shut-off Products . Mechanically or electronically shuts off
fuel flow to engine when fuel leakage
occurs or when engine is turned off
</TABLE>
36
<PAGE>
Electronic Controls and Software
-------------------------
<TABLE>
<CAPTION>
Product Description
------- -----------
<C> <S>
Electronic Controls and . Used in fuel management systems to permit
Proprietary Software efficient engine and fuel cell operation
</TABLE>
Services. We provide service capabilities in the areas of development,
validation, certification, manufacture and service support. Our customers use
these capabilities to support their programs in the transportation, material
handling and power generation applications. We are using these capabilities in
fuel cell applications.
. Systems Engineering and Powertrain Controls. We combine our proprietary
designs, software and calibration tools to develop, calibrate and
optimize powertrain control systems. We develop sensors, actuators and
controllers specific to our customers' needs and specifications.
. Design and Integration. We integrate fuel systems and subsystems into
program applications using three-dimensional computer aided design. We
use rapid prototyping techniques which accelerate the iterative design
process and result in a more accurate design.
. Validation. To increase the likelihood of high success rates at the
system level, we perform component, subsystem and system validation.
These procedures are held to our own internal requirements, customer-
specific requirements and industry standards. If no suitable procedures
exist, we generate requirements for the customer.
. Certification and Compliance. Our regulatory and certification engineers
are familiar with the latest emissions and safety regulations to ensure
the proper certification and ongoing compliance of our business and
customer products.
. Vehicle Assembly. We develop and manage the assembly process for the
integration of our systems at our facility or our customer facilities.
. Training. We develop comprehensive technical training for customers who
sell and service our products as well as for customers that use our
products.
. Service and Warranty. We have extensive capabilities in developing
service procedures and programs for OEMs. We also provide technical
support over the telephone or go to customer sites to resolve technical
issues.
Research and Development
In 1997, we opened our Advanced Technology Center in Irvine, California,
which is dedicated to the research and development of systems and products that
support the use of gaseous fuels in internal combustion engines and fuel cells.
This center currently employs over 140 employees and has sophisticated, state-
of-the-art research laboratories, emissions control equipment, storage tank
manufacturing and alternative fuel vehicle assembly and testing facilities.
This center supports each of our operating segments by conducting research and
development of advanced fuel storage, fuel delivery and electronic control
systems and products for motor vehicles, engines, forklifts, stationary engines
and small industrial engines. Each operating segment funds their application
development engineering for the new products to meet their specific customer
and target markets.
The center offers the following technical capabilities:
. Fuel Storage. Composite pressure vessel design and analysis, carbon and
epoxy filament winding and hydraulic, pneumatic, burst and fatigue
testing for internal combustion engines and fuel cell systems.
37
<PAGE>
. Electronic Control Systems. Specialization in hardware design and
selection, engine modeling, calibration and software design for engine
and emission controls.
. Mechanical Design and Development. Specialization in pneumatic,
kinematics, hydraulic components and systems and advanced materials,
structural, flow and thermal analysis.
. Advanced Catalysts. Catalyst synthesis and processing, catalyst and
emission testing and fabrication of corona and conventional prototype
converters.
. Advanced Products. Injectors, compressors and micro machining, including
pressure sensors and bi-directional mass flow sensors, fuel management,
fuel storage and fuel supplies for fuel cell propulsion systems, mass
flow sensors for natural gas measurement and "smart" sensors using 8-bit
micro-controllers.
. Component and Subsystem Test Facilities. Extended vibrations, shock loads
and accelerations, extreme temperature exposure from -85(degrees)F to
392(degrees)F and thermal shock, cyclic corrosion, extended salt, fog,
humidity and dryness cycling, severe acid and alkali corrosion, flow
simulations and pneumatic leak checks.
We believe this center is a critical component to our ability to maintain
our technological leadership position in alternative fuel enabling systems. We
intend to develop and adapt our current technologies and products for use in
connection with fuel cells including the following advanced products:
Micro-Machined Mass Flow Sensors. We have successfully designed, fabricated
and tested a micro-machined single and bi-directional mass flow sensor for air
and natural gas mass flow measurement and a micro-machined bi-directional mass
flow and concentration sensor. These micro-machined devices may have several
applications for fuel cell systems.
Continuous Flow Control. We are working on a variety of fuel metering
devices for gaseous fuels which feature continuous flow outputs for use in fuel
cell applications.
Water Management. We have internal expertise or are aligned with strategic
partners to provide water vaporization of humidification of gas streams, direct
water vapor transfer from humid to dry streams, de-ionized water compatibility,
water contamination removal, water pumps and the storage and metering of water.
Heat Exchange and Thermal System. We have internal expertise or are aligned
with strategic partners to provide heat transfer components and fluids, HVAC
system and materials science.
Operating Segments
We classify our business into three operating segments: Automotive OEM
division, Gaseous Fuel Products division and International Operations segment.
Each segment targets specific markets and specific customer bases for our
products and services. The Automotive OEM division targets automotive OEMs. The
Gaseous Fuel Products division and our International Operations segment target
the material handling, industrial and power generation OEMs and aftermarkets,
and the transportation aftermarkets.
Automotive OEM Division
The Automotive OEM division was organized in 1996 to develop and manufacture
fuel delivery, fuel storage and electronic control systems for automotive OEM
applications. This division is QS-9000 certified and focuses on developing
cost-effective and efficient gaseous fuel systems for OEM urban fleet vehicles
such as trucks, taxis and passenger vehicles. The Automotive OEM division's
capabilities include:
. full vehicle engineering and validation;
. powertrain controls and validation;
38
<PAGE>
. advanced manufacturing for engine controls;
. hydrogen and compressed natural gas fuel storage;
. testing procedures to meet different global emission control standards;
and
. fuel control devices and technology for gaseous fuels and other gases for
subsequent use in internal combustion engines, fuels cells and other
applications requiring metering of gases.
Products. The Automotive OEM division's core products include gaseous fuel
storage, fuel metering and electronic fuel and engine management systems for
use in internal combustion engines and fuel cell systems. The Automotive OEM
division continues to improve its current systems and is developing new systems
to meeting increasingly stringent vehicle operational and emission requirements
for subsequent use in natural gas, hydrogen and propane powered engine vehicles
and in fuel cell powered vehicles. The Automotive OEM division is also
developing improved system technologies using injectors, high and low pressure
regulators, on-board diagnostics, high-performance 32-bit and fuel system
engine control modules, fuel lock-offs and related components. The Automotive
OEM division also supplies specially designed, light-weight, high pressure
hydrogen and natural gas storage tanks that we construct using our patent
pending TriShield technology, computerized controls, regulators and automatic
shut-off equipment. The Automotive OEM division works closely with automotive
OEMs to develop alternative fuel systems for their vehicles.
This division provides a broad range of operations aimed at integrating
cost-effective and efficient alternative fuel delivery, fuel storage and
electronic control systems and components into the OEM's vehicles which the OEM
intends to sell primarily for fleet use. The Automotive OEM division seeks to
accomplish this vehicle integration of its products by providing complete
systems and installation services that include all of the following:
. vehicle systems and powertrain controls engineering;
. vehicle level integration and packaging;
. vehicle, subsystem and component testing and validation;
. vehicle certification to meet applicable requirements;
. service readiness and after sales support; and
. fuel storage manufacturing.
Strategy. The Automotive OEM division plans to continue to develop and
commercialize new products based upon our technical capabilities in the
integration of systems into motor vehicles for fuel storage, fuel delivery and
electronic control systems. We intend to become a leading global systems
supplier for cost-effective fuel system solutions. Through the Automotive OEM
division, we plan to use our recent technical developments and patents in the
fuel storage and delivery systems for both internal combustion engine and
fuel cell systems to expand our current OEM customer base to other significant
OEMs.
Sales. The worldwide demand for alternative fueled vehicles is making it
feasible for OEM production. The division has become a preferred OEM supplier
to General Motors for gaseous fueled engine vehicles. We principally rely on
the sales force of the OEMs to sell our fuel systems. Under certain
circumstances, we also sell our fuel systems directly to the end user. We
continue to fund business development activities to promote our fuel systems in
the United States, Mexico and China.
Assembly and System Installation. The Automotive OEM division's
manufacturing activities currently consist solely of assembly and system
installation. We assemble the majority of our components at our facility in
Guaymas, Mexico, but outsource the assembly of complex electronic components
and select key suppliers for certain components of developed fuel systems.
Approximately ten suppliers accounted for approximately 43% of raw material
purchases. A major supplier of components for our Automotive OEM division on
certain
39
<PAGE>
programs is our Gaseous Fuel Products division. Complete systems are installed
on vehicles at the OEM manufacturing facility or at third party equipping
sites. The criteria for the establishment of a site is proximity to vehicle
manufacturing and delivery points.
The Automotive OEM division follows quality processes in accordance with QS-
9000 and is QS-9000 certified. The Automotive OEM division has not experienced
and does not expect to experience any significant difficulty in complying with
environmental regulations applicable to its assembly processes and facilities.
The Automotive OEM division work force at the Irvine and Guaymas facilities are
non-union.
Gaseous Fuel Product Division
The Gaseous Fuel Product division is a leading supplier of engine components
and systems that allow internal combustion engines to operate on clean burning
gaseous fuels, primarily propane and natural gas. The Gaseous Fuel Product
division designs, develops, manufacturers and markets components and systems
for engines ranging from 1 to 4,000 horsepower. Approximately 100 products
account for approximately 70% of this division's revenue. This division
provides gaseous fuel systems and components for forklifts and small industrial
engines. This market is expanding and the Gaseous Fuel Product division is
developing new value-added sales. We believe that the trend will be towards
electronically controlled engine systems and fully dressed gaseous fueled
engines for direct OEM installation.
We direct the Gaseous Fuel Product division's distribution network from our
headquarters in Cerritos, California. This division conducts its sales,
application development and technical support to the aftermarket and OEMs in
motor vehicle, material handling, small utility engine and large industrial
engine end uses through our domestic offices and our worldwide distributor
network.
Products. We have designed the Gaseous Fuel Product division's broad product
lines to support internal combustion engine applications for automotive,
forklifts, small utility engines and large industrial engines using gaseous
fuels. This division sells more than 2,200 different components for
aftermarket, OEM and repair uses including carburetors, converters, engine
control devices and fuel lock-off systems. This division also performs
equipment integration and packaging on vehicles, applications engineering and
development, emissions and performance testing and validation, technical
support and training. The products are marketed worldwide through distributors
and to OEMs under the brand names IMPCO, BEAM and GARRETSON.
Strategy. The Gaseous Fuel Product division's principal strategic goals are
to expand its operations into value-added products and services, continue to
improve quality and manufacturing efficiencies, strengthen its distributor
network and broaden relationships with engine and equipment OEMs in the
material handling and the small and large engine markets. This division plans
to focus on expanding its presence in foreign markets both in the aftermarket
and industrial OEM segments.
Sales. The Gaseous Fuel Product division sells its products to the motor
vehicle aftermarket and the material handling, small utility engine and large
industrial engine OEMs and aftermarket through a worldwide network encompassing
over 400 distributors and dealers in over 30 countries. This division focuses
on our two largest markets, material handling OEMs and aftermarket, and the
motor vehicle aftermarket, which on a combined basis accounted for over 75% of
the division's consolidated net sales for fiscal year 2000. Of these two
markets, we believe that the foreign automotive vehicle aftermarket has the
greatest potential for significant growth.
Manufacturing. We manufacture or assemble all of our Gaseous Fuel Product
division products at our headquarter facilities in Cerritos, California and in
Sterling Heights, Michigan. Current manufacturing operations consist largely of
mechanical assembly with light machining. We rely on outside suppliers for
parts and components and obtain components for products from a variety of
domestic automotive and electronic part suppliers, local diecasters, stamping
operations and machine shops. For the fiscal year ended April 30, 2000, ten
suppliers accounted for approximately 69% of the Gaseous Fuel Product
division's raw material purchases.
40
<PAGE>
Material costs, die cast aluminum parts in particular, represent the major
component of cost of sales. Coordination with suppliers for quality control and
timely shipments is a high priority to maximize inventory management. We use a
computerized material requirement planning system to schedule material flow and
balance the competing demands of timely shipments, productivity and inventory
management. The Gaseous Fuel Product division is ISO 9001 certified. We have
not experienced and do not expect to experience any significant difficulty in
complying with environmental regulations applicable to our manufacturing
processes and facilities. The Gaseous Fuel Product division work force at
Cerritos and Sterling Heights is non-union.
Distribution. During the fiscal year ended April 30, 2000, sales to
distributors accounted for approximately 55.3% of net revenue and sales to OEM
customers accounted for approximately 44.7% of net revenue. This is consistent
with fiscal years ended April 30, 1999 and 1998. Distributors primarily service
the aftermarket conversion business and small volume OEMs, and are generally
specialized and privately owned enterprises. Many domestic distributors have
been our customers for more than 30 years, and many of our export distributors
have been customers for more than 20 years. OEM customers for vehicle and
forklift manufacturers include Clark Material Handling Co., Ford Motor Company,
Generac, Kohler Company, Mitsubishi Caterpillar Forklift America, Inc., NACCO
Material Handling Group, Onan Corporation and Toyota Industrial Equipment Mfg.
Inc. OEM customers for heavy duty industrial equipment manufacturers include
Caterpillar, Inc., Cummins Engine Company and Waukesha Engine.
International Operations
Our International Operations segment consists of our subsidiaries located in
Europe, Australia, Mexico and Japan, which are responsible for sales,
application and market development and technical service. The following
subsidiaries represent the Gaseous Fuel Products division and the Automotive
OEM division products and systems, and provide sales support, application
development and technical support to aftermarket and OEM customers.
Australia
IMPCO Technologies Pty. Ltd., our wholly-owned subsidiary, was founded in
1996 through an acquisition and is headquartered outside Melbourne with offices
in Sydney and Adelaide. This subsidiary serves and develops Australian
alternative fuel markets. IMPCO Australia's major functions are:
. factory distribution of our gaseous fuel components and complete systems;
. market development of OEMs and the aftermarket, with a concentration on
motor vehicle fleets and dealers;
. application and market development work focused on sales development in
for India, China and the Pacific Rim region; and
. technical training, support and development of authorized installation
networks.
Our Australian operations serve as our headquarters for the Pacific Rim
region. Through Australia, we seek to meet the supply, technical and customer
support needs of the aftermarket distributor network, OEMs, fleets, dealers and
general customers throughout this region with reliable, efficient, clean and
economical performing systems. IMPCO Australia performs modular conversion kit
assembly and fuel storage assembly. We believe we are one of the only company
currently supplying gaseous fuel engine management systems to receive QS-9000
and ISO-9002 accreditation in the industry.
Strategy. IMPCO Australia plans to establish a strong base of operations in
Australia with automotive OEMs, fleets, dealers and installers for component
and system sales through market and application development efforts.
Additionally, we plan to develop a strong distribution network in Australia,
the major hub for expansion into the Pacific Rim region, while capitalizing on
our strong market position within Australia.
41
<PAGE>
Europe
IMPCO-BERU Technologies B.V. was organized in 1995 and in 1998 became a
joint venture with BERU A.G., a major German automotive supplier. IMPCO Europe
is headquartered in the Netherlands with customer support offices in France,
Germany and the United Kingdom. IMPCO Europe focuses on the market and
application development and sale of our products to the industrial material
handling market, the automotive OEM market and to the aftermarket. IMPCO Europe
provides complete services in areas of systems and powertrain controls
engineering, vehicle packaging, emissions testing, validation and service
readiness.
Strategy. IMPCO Europe's strategy is to develop and expand the high growth
potential markets in Western, Central and Eastern Europe with the full range of
our current and future fuel cell enabling products and services. We believe our
joint venture with BERU A.G. will allow us to gain access to the leading
European OEMs in the automotive and industrial equipment sectors. We plan to
expand our European business by:
. offering more complete systems to our current customer base;
. maintaining our competitive position in the material handling market;
. developing the alternative fuel mass transit and heavy duty engine
markets; and
. expanding market and sales for catalysts.
Japan
IMPCO Technologies Japan, our wholly-owned subsidiary, was founded in March
1999 and is headquartered in Fukuoka, Japan. This subsidiary provides marketing
and customer support for Japanese OEMs and distributors. We strengthened IMPCO
Japan's ability to deliver this support through the acquisition of our Mikuni
distributor in 1999. Mikuni has distributed IMPCO products in Japan since 1994.
IMPCO Japan is closely involved in the development of the Japanese industrial
and motor vehicle alternative fuels market with a focus on lift truck engine
manufacturing OEMs, automotive OEMs, mass-transit and truck applications. Japan
has recently established emissions regulations and an alternative fuel mandate
that we anticipate will promote the use of alternative fuels in motor vehicles
over the next five years. Two major OEMs, Toyota and Honda, have introduced
1999 alternative fuel vehicles for sale. Japanese automotive OEMs are also
involved in the development of fuel cell vehicles.
Strategy. IMPCO Japan's strategy is to support the emerging motor vehicle
alternative fuels and fuel cell markets throughout Japan, Asia, China and the
Pacific Rim regions with component and application development, systems and
engineering services to OEMs, global customer support, a global distribution
network and emissions and testing support. In particular, we seek to increase
its presence in the lift trucks, industrial engines and OEM market segments,
including particularly the automotive aftermarket.
Mexico
Grupo IMPCO Mexicano, our majority owned subsidiary, provides technical and
customer support for the conversion of fleets and dealers in the rapidly
growing Mexican market for conversion to alternative fuels. As a result of the
Algas acquisition in 1997, IMPCO Mexicano links us to a growing marketplace for
our products. In Mexico, alternative fuels cost approximately 50% of the price
of gasoline in May 2000, and there is a desire to implement effective clean air
solutions, while preserving natural resource independence. This has resulted in
a strong and growing market for alternative fuel vehicles.
Strategy. IMPCO Mexicano is part of our strategy to strengthen our global
customer support in Mexico, Central and South America. IMPCO Mexicano is
uniquely positioned to grow within the Latin American market by drawing upon
the expertise of our other divisions, while implementing specific regional
activities. IMPCO Mexicano plans to focus on market, application and sales
development for the conversion of private and public fleets to alternative
fuels. Development of key business and governmental support is of primary
importance.
42
<PAGE>
Product Certification
We must obtain emission compliance certification from the Environmental
Protection Agency to sell certain of our products in the United States and from
the California Air Resources Board to sell certain products in California. Each
car, truck, van or engine sold in the United States market must be certified by
the Environmental Protection Agency before it can be introduced into commerce
and its products must meet component, subsystem and system level durability,
emission, refueling and various idle tests. We have also obtained international
emissions compliance certification in Argentina, Australia, Brazil, Canada,
Europe and Mexico.
We strive to meet stringent industry standards set by various regulatory
bodies including the Federal Motor Vehicle Safety Standards of the United
States, the National Highway and Transportation Safety Administration, the
National Fire Protection Association, Underwriters Laboratories, Inc. and the
American Gas Association. While approval is not always required or offered by
these agencies, we believe full compliance and approvals enhance the
acceptability of products in the domestic marketplace. Many foreign countries
also accept these agency approvals as satisfying their "approval for sale"
requirements in their markets.
Competition
We are a leading provider of fuel storage, fuel delivery and electronic
control systems for the alternative fuel and fuel cell markets. While we
recognize that there are several competitors of gaseous fuel delivery systems
worldwide, we believe we have no single global competitor present in any of the
regions and markets where we are active. We believe we are the only company
which provides products and integrated services for all gaseous alternative
fuels, in our target markets for use in all end user applications.
Our key competitors in the gaseous fuel delivery systems, accessory
components and engine conversions markets include Asian, GFI, Koltec, Landi,
Lovato, OMVL, Tartarini and Vialle, which together with us account for a
majority of the world market for alternative fuel products and services. Some
motor vehicle OEMs such as Ford, Honda, Toyota and Volvo have developed their
own systems which currently use our components or could in the future. In
addition, various motor vehicle OEMs, including Ford, Honda, Mazda, Nissan,
Toyota and Volvo have developed fuel systems for their own vehicles, some of
which use our components.
In fuel cell technology, our area of expertise is in fuel storage, fuel and
gas metering and the electronic control of fuel, including air to the fuel cell
or fuel to the fuel reformer. Our principal competition in the alternative fuel
and fuel cell markets consists of very small independent companies or
universities supported by government grants. In the fuel cell industry, we do
not compete with fuel cell manufacturers, such as Ballard Power Systems Inc.,
General Electric, Plug Power Inc. or United Technologies, whose technical focus
is on fuel cell and fuel reformer technology. Instead, we provide ancillary
systems and enabling technologies that complement the fuel cell stack.
Intellectual Property
We currently rely primarily on patent and trade secret laws to protect our
intellectual property. We currently have over 14 United States patents issued
and over 16 foreign patents issued. The United States patents expire between
October 2004 and March 2017. The foreign patents expire between November 2001
and October 2018. We also currently have one United States patent application
and one foreign patent application. Our pending patent applications may not be
allowed. Even if they are allowed, these patents may not provide us a
competitive advantage. Competitors may successfully challenge the validity and
scope of our patents and trademarks.
We also rely on a combination of trademark, trade secret and other
intellectual property laws and various contract rights to protect our
proprietary rights. However, we do not believe our intellectual property
provides significant protection from competition. We believe that patent,
copyright, trademark and trade secret protection are less significant and that
our growth and future success will be more dependent on factors such as the
43
<PAGE>
knowledge, ability and experience of our personnel, new product introductions
and continued emphasis on research and development. We believe that
establishing and maintaining strong strategic relationships with valued
customers and OEMs are the most significant factors protecting us from new
competitors.
IMPCO, BEAM and GARRETSON are trademarks of IMPCO Technologies, Inc. These
marks are also registered in other countries throughout the world.
Year 2000
Over the past several years, we have recognized the need to ensure that our
operations would not be adversely impacted by Year 2000 software failures. We
took various initiatives intended to ensure that our computer equipment and
software would function properly with respect to dates in the Year 2000 and
thereafter. We completed an assessment of the Year 2000 issue through
communication with our key customers, suppliers, financial institutions and
others with which we conduct business and a review of our current internal
computer systems to identify potential Year 2000 issues. Additionally, we
developed and implemented plans when required to address system modifications.
We also established a contingency plan to address Year 2000 risk factors
outside of our control. As of the date of this filing, we have not experienced
any material Year 2000 problems with our internal systems or products, nor have
we experienced any material problems with any of our key customers or
suppliers. We believe that the financial impact of updating our systems to
address the Year 2000 issue was not material to our consolidated financial
position, results of operations or cash flows.
Backlog
As of April 30, 2000, our backlog for our products was approximately $21.5
million. We measure backlog for our product sales from the time orders become
irrevocable, which generally occurs 90 days prior to the date of delivery.
Employees
As of March 31, 2000, we employed approximately 581 persons, including, in
the United States, approximately 104 in research and development, 285 in
manufacturing and assembly, 40 in sales and marketing, 47 in management and
finance and 109 internationally. We consider our relations with our employees
to be good.
Facilities
Our executive offices and our Gaseous Fuel Products division are located in
Cerritos, California. We currently lease additional manufacturing, research and
development (including the Advanced Technology Center) and general office
facilities in the following locations set forth below:
<TABLE>
<CAPTION>
Location Square Footage Lease Expiration
-------------------------- -------------- ----------------
<S> <C> <C>
Cerritos, California 105,000 May 2004
Irvine, California 79,000 August 2004
Sterling Heights, Michigan 78,000 November 2000
Lake Forest, California 65,000 May 31, 2008
Guaymas, Mexico 32,000 August 2000
Rijswijk, Holland 16,000 October 2000
Sterling Heights, Michigan 16,000 April 30, 2005
Cheltenham, Australia 15,000 May 2001
Mexico City, Mexico 12,000 April 2002
Seattle, Washington 10,000 December 2000
</TABLE>
44
<PAGE>
We also lease nominal amounts of office space in Japan, Germany, France and
Australia.
We believe our facilities are presently adequate for our current core
product manufacturing operations and OEM development programs and production.
We anticipate that we will require additional space as we expand into the
emerging fuel cell enabling technologies market, and believe that we will be
able to obtain suitable space as needed on commercially reasonable terms.
Legal Proceedings
We are a party to several legal actions, but we do not believe that any of
these actions will have a material adverse effect on our business, financial
condition or results of operations.
45
<PAGE>
MANAGEMENT
Directors and Executive Officers
The names, ages and positions of our directors and executive officers as of
July 13, 2000 are as follows(1):
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <S> <C>
Robert M. Stemmler............... 64 Chairman of the Board of Directors, President and
Chief Executive Officer
Dale L. Rasmussen................ 50 Senior Vice President and Secretary
Syed Hussain..................... 47 Vice President of Technology and Automotive OEM
Division
Dennis D. Hartman................ 57 Vice President of the Gaseous Fuel Division
Donald L. Dominic................ 58 Vice President and General Counsel
William B. Olson................. 36 Treasurer and Chief Financial Officer
Norman L. Bryan (2).............. 58 Director
Paul Mlotok (2).................. 55 Director
Ulrich Ruetz (3) ................ 60 Director
Don J. Simplot (3)............... 64 Director
Douglas W. Toms (2).............. 69 Director
</TABLE>
--------
(1) In accordance with prior discussions with us and an agreement with the
selling stockholders, former directors Christopher G. Mumford and Edward
L. Scarff, designees of the selling stockholders, resigned as directors
effective July 12, 2000.
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
Robert M. Stemmler has been our President and Chief Executive Officer since
May 1993. He has also been a director since May 1993, and the Chairman of our
Board of Directors since June 1998. From December 1992 until July 1993, Mr.
Stemmler was a full time consultant for IMPCO. He was also the General manager
of IMPCO Technologies, Inc. from 1982 to 1985 and has held various management
and executive positions throughout his career at Celanese Corp (now Hoechst-
Celanese), A.J. Industries and Sargent Fletcher Company. Mr. Stemmler is a
director of Pacific Aerospace & Electronics, Inc., an international
manufacturer of aerospace and electronic components. He holds an M.B.A. degree
from Seton Hall University and a B.S. degree in mechanical engineering from
Washington University.
Dale L. Rasmussen has been our Senior Vice President and Secretary since
June 1989. He joined IMPCO in April 1984 as Vice President of Finance and
Administration and Corporate Secretary. Prior to joining IMPCO, Mr. Rasmussen
was a commercial banker for 12 years at banks that were acquired by Key Bank
and U.S. Bank. Mr. Rasmussen is a director of Pacific Aerospace & Electronics,
Inc., an international manufacturer of aerospace and electronic components. He
received his B.A. degree in Business Administration and Economics from Western
Washington University and is a graduate of the Pacific Coast Banking School.
Syed Hussain has been our Vice President of Technology and Automotive OEM
division since November 1996. Prior to joining IMPCO in 1992, Mr. Hussain
worked for General Motors Saturn, Eaton and Bendix (Allied Signal). He has
over 18 years of automotive experience in engines, emission controls,
powertrain and related electronic and electromechanical devices. Mr. Hussain
holds an M.S.E.E. degree from Illinois Institute of Technology in Chicago,
Illinois and a B.S.E.E. degree from the University of Engineering and
Technology in Pakistan.
Dennis D. Hartman has been our Vice President and General Manager of IMPCO
Technologies in charge of the Gaseous Fuel Products division since February
1999. From January 1996 until joining IMPCO in April 1997, Mr. Hartman was the
Operating Manager and a director of Columbia River Homes of Astoria, Oregon, a
manufacturer of modular homes. Prior to holding this position, Mr. Hartman was
a Vice President of Nacco Material Handling, Inc., a manufacturer of lift
trucks and worked for the Ford Motor Company in Dearborn,
46
<PAGE>
Michigan in finance. Mr. Hartman is a graduate of the University of California,
Berkeley. He holds a M.B.A. degree in finance from that same institution.
Donald L. Dominic has been our Vice President, General Counsel and Director
of Human Resources since February 1999 and is also our Assistant Secretary.
Prior to joining our company in 1994, Mr. Dominic held various management and
technical positions with Honeywell, Hughes and Sargent-Fletcher. Mr. Dominic
holds a B.S.E.E. degree from the University of Illinois, a M.S.E.E. from West
Coast University, a M.B.A. degree from the University of Southern California,
and a J.D. degree from the University of La Verne.
William B. Olson has been our Treasurer and Chief Financial Officer since
July 1999. He originally joined IMPCO in 1994 and has held various financial
positions with us, including serving as Corporate Controller. Prior to joining
IMPCO, Mr. Olson was with the public accounting firm of Ernst and Young and its
Kenneth Leventhal Group. Mr. Olson holds a B.S. degree in business and
operations management from Western Illinois University and a M.B.A. degree in
finance and economic policy from the University of Southern California. Mr.
Olson is a Certified Financial Manager and a Certified Management Accountant.
Norman L. Bryan has been a director since November 1993 and is Chair of the
Audit Committee. He has been a consultant since 1995. Mr. Bryan has been
employed as the Senior Vice President of Sales and Marketing of EIT, Inc., an
electric meter manufacturing company, since 1998. Prior to retiring in 1994
from Pacific Gas and Electric Company, he was Vice President, Marketing from
February 1993 until December 1994, and was Vice President, Clean Air Vehicles
from February 1991 to February 1993. Mr. Bryan holds a M.A. degree in business
from Stanford University and B.S.M.E. degree in mechanical engineering from
California State University in San Jose.
Paul Mlotok has been a director since April 1997 and is a member of the
Audit Committee. He has been a Principal of Global Business Network, a
consulting firm specializing in strategy development particularly in the energy
and natural resources industries, since July 1990. From 1989 to 1995, he was a
Principal and analyst at Morgan Stanley & Co. Mr. Mlotok has a B.A. degree in
economics from Cornell University and a Ph.D. degree in economics from Brown
University.
Ulrich Ruetz has been a director since October 1998. He has been the
Chairman and Chief Executive Officer of BERU AG since 1997 and Managing
Director of BERU AG and its predecessors since 1983. BERU AG, headquartered in
Ludwigsburg, Germany, manufactures and markets worldwide cold-start systems for
diesel engines and ignition systems for gasoline engines used in automotive
vehicles and stationary engines. Mr. Ruetz holds a B.Sc. degree in mechanical
engineering from Polytechnikum Friedberg.
Don J. Simplot has been a director since May 1978 and is Chair of the
Compensation Committee. He is the President of Simplot Industries, Inc., which
is engaged in agricultural enterprises, and a Director member of the office of
the chair of J.R. Simplot Company, which is also engaged in agricultural
enterprises. Mr. Simplot is a director of Micron Technology, Inc., a designer
and manufacturer of semiconductor memory components primarily used in various
computer applications.
Douglas W. Toms has been a director since October 1980. He served as our
President and Chief Executive Officer from October 1980 to April 1989. From
April 1989 to March 1995, Mr. Toms was a consultant to American Honda Motor
Company, Inc. Since March 1995, Mr. Toms has been self-employed as a contract
engineer. Mr. Toms holds a B.S. degree from Central Michigan University in
accounting/economics and an M.S. degree in traffic engineering from Michigan
State University.
The Board of Directors is divided into three classes, each consisting of
three directors, with the three classes serving staggered three year terms. The
directors are elected for three-year terms. Each director will hold office
until the first meeting of stockholders immediately following expiration of his
term of office and until his successor is qualified and elected.
47
<PAGE>
Director Compensation
Each of our non-employee directors is paid an attendance fee of $1,000 for
each board or committee meeting attended, plus out-of-pocket expenses. In
addition, the chairman of our audit, compensation and nominating committees are
paid an annual fee of $3,000. As of May 31, 2000, a total of 190,000 options
were held by our current directors under the 1993 Stock Option Plan for
Nonemployee Directors, of which 140,000 are vested and are held by Messrs.
Bryan, Mlotok, Mumford, Ruetz, Scarff, Simplot and Toms. A total of
30,000 options were available for future grants as of May 31, 2000. Option
exercise prices are the higher of (i) the average market value of the stock for
the 15 trading days following the date of grant and (ii) the market value on
the fifteenth trading day following the date of grant. Options are not
assignable and vest cumulatively at the rate of 25.0% annually, beginning on
the first anniversary date of grant. However, if a director dies, becomes
disabled or retires at age 62 or later, then options vest at the rate of 25.0%
for each full calendar year in which the optionee served as one of our
directors. Options must be exercised while serving as a director or within
three months following termination as director, unless termination results from
death or disability, in which case options may be exercised during the one-year
period following termination. In no event may options be exercised more than
ten years after date of grant.
48
<PAGE>
Executive Compensation
The following table sets forth all compensation paid or accrued during
fiscal year 2000 to our President and Chief Executive Officer, and each of our
four other most highly compensated officers whose annual compensation exceeded
$100,000 for the period.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
-------------------------- ------------------
Securities All Other
Underlying Compensation
Name and Principal Position Year Salary($)(1) Bonus($) Options/SARs(2)(#) ($)
--------------------------- ---- ------------ -------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Robert M. Stemmler............. 2000 $308,233 $127,000 452 $39,164(3)
President and Chief 1999 239,255 120,000 476 33,439
Executive Officer 1998 229,673 96,000 200,129 25,631
Dale L. Rasmussen.............. 2000 $125,000 $33,000 452 $15,885(4)
Senior Vice President 1999 103,885 22,000 0 15,763
and Secretary 1998 93,164 28,000 60,000 14,118
Syed Hussain................... 2000 $203,846 $49,000 10,000 $12,198(5)
Vice President of Technology 1999 159,615 27,000 -- 12,261
and Automotive OEM Divisions 1998 134,321 30,500 100,000 13,052
Donald L. Dominic.............. 2000 $120,000 $38,000 452 $44,525(6)
Vice President 1999 108,885 33,000 476 10,452
and General Counsel 1998 127,507 32,000 40,545 11,347
Dennis D. Hartman.............. 2000 $170,000 $45,000 20,153 $19,131(7)
Vice President of Gaseous Fuel 1999 120,769 37,000 112 1,575
Product Division 1998 101,910 26,000 34,000 1,506
</TABLE>
--------
(1) Includes amounts deferred by executive officers pursuant to the Employee
Savings Plan and Deferred Compensation Plan.
(2) Includes options under Incentive Stock Option Plans.
(3) Includes a group term life insurance premium of $11,152, an automobile
allowance of $12,000, a matching contribution of $4,512 pursuant to the
Employee Savings Plan, and $11,500 of tax preparation and planning fees.
(4) Includes a group term life insurance premium of $1,170, a matching
contribution of $2,715 pursuant to the Employee Savings Plan and an
automobile allowance of $12,000.
(5) Includes a group term life insurance premium of $198 and an automobile
allowance of $12,000.
(6) Includes a group term life insurance premium of $545, a matching
contribution of $1,980 pursuant to the Employee Savings Plan, an automobile
allowance of 12,000, and payments to a related party of $30,000.
(7) Includes a group term life insurance premium of $545, a matching
contribution of $6,586 pursuant to the Employee Savings Plan and an
automobile allowance of $12,000.
49
<PAGE>
Option/Grants During Fiscal 2000
The following table describes the options to acquire shares of our common
stock that were granted to our executive officers in fiscal year 2000:
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Number of % of Total Price
Securities Options/SARs Exercise Appreciation for
Underlying Granted to or Base Option Term(2)
Options/SARs Employees in Price Expiration -----------------
Name Granted(1) Fiscal Year ($/Sh) Date 5%($) 10%($)
---- ------------ ------------ -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Stemmler...... 452 * $13.813 01/03/10 $ 3,926 $ 9,950
Dale L. Rasmussen....... 452 * 13.813 01/03/10 3,926 9,950
Syed Hussain............ 10,000 9.5% 10.375 07/19/09 65,248 165,351
Donald L. Dominic....... 452 * 13.813 01/03/10 3,926 9,950
Dennis D. Hartman....... 20,000(3) 19.0% 10.375 07/19/09 130,496 330,702
153(4) * 13.813 01/03/10 1,329 3,368
</TABLE>
--------
* Less than 1%
(1) Options granted to officers participating in the Deferred Compensation
Plan. We matched 50% of each participant's annual deferred compensation
contribution under the Deferred Compensation Plan and approximately 50% of
our matching contribution is in the form of options under the Incentive
Stock Option Plans. Options are granted at the fair market value of our
Common Stock on the date of grant and vest cumulatively at the rate of 40%
after the first two years following the date of the grant and 20% each year
thereafter so that the employee is 100% vested after five years. However,
if employment terminates due to death or disability, retirement at or after
age 62, or termination without cause, then options vest at the rate of 25%
for each full calendar year of employment. Options may be exercised only
while an optionee is employed by us, or within three months following
termination of employment. If termination results from death or disability,
options may be exercised within one year of the termination date. In no
event may options be exercised more than ten years after date of grant.
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
represent our estimate or projection of our future common stock prices.
(3) Represents options issued to Mr. Hartman under the 1997 Incentive Stock
Option Plan.
(4) Represents options issued to Mr. Hartman under the 1996 Incentive Stock
Option Plan.
Value of IMPCO Options at Year End
The following table sets forth information concerning exercises of stock
options during fiscal year 2000 and the value of unexercised options held by
each of the individuals named in the summary compensation table at April 30,
2000.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Shares Options Shares Underlying In-the-Money Options at
Acquired on Value at Fiscal Year-End (#) Fiscal Year-End(2)
Exercise Realized ------------------------- -------------------------
Name (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Stemmler...... 3,800 $26,600 251,495 144,307 $2,998,918 $1,829,071
Dale L. Rasmussen....... -- -- 32,200 40,252 412,970 507,740
Syed Hussain............ 23,400 86,775 20,600 77,400 259,522 955,512
Donald L. Dominic....... -- -- 27,942 29,874 366,742 377,345
Dennis D. Hartman....... -- -- 13,628 40,637 145,456 416,967
</TABLE>
--------
(1) Calculated by determining the difference between the fair market value of
our common stock underlying the options on the date each option was
exercised and the exercise price of the options.
(2) Calculated by determining the difference between the fair market value of
our common stock underlying the options on April 30, 2000 and the exercise
price of the options.
50
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our outstanding common stock as of May 31, 2000 and as adjusted to
reflect this offering by:
. each person who is the beneficial owner of more than 5% of our capital
stock;
. each of our directors;
. each of our named executive officers in the summary compensation table;
. the selling stockholders; and
. all of our named executive officers and directors as a group.
Except as otherwise indicated, all of the shares indicated in the table are
shares of common stock. This percentage ownership included in the following is
based on 8,579,807 shares of common stock outstanding as of May 31, 2000 and
10,204,807 shares of common stock outstanding after completion of the offering,
assuming no exercise of the over-allotment option. We have granted the
underwriters an option to purchase up to 375,000 shares of our common stock in
this offering to cover over-allotments, if any.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Offering Number of Owned After Offering
------------------------------- Shares Being -----------------------
Name of Beneficial Owner Number Percent Offered Number Percent
------------------------ -------------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Norman L. Bryan.......... 31,000(1) * -- 31,000 *
Donald L. Dominic........ 35,943(2) * -- 35,943 *
Dennis D. Hartman........ 21,028(3) * -- 21,028 *
Syed Hussain............. 40,600(4) * -- 40,600 *
Paul Mlotok.............. 15,000(5) * -- 15,000 *
Christopher G.
Mumford(6).............. 1,995,326 23.2% 875,000 1,120,326 11.0%
Dale L. Rasmussen........ 131,362(7) 1.5 -- 131,362 1.3
Ulrich Ruetz............. 1,235,614(8) 14.4 -- 1,235,614 11.9
Edward L. Scarff(9)...... 1,995,326 23.2 875,000 1,120,326 10.8
Don J. Simplot........... 295,933(10) 3.4 -- 295,933 2.9
Robert M. Stemmler....... 296,615(11) 3.3 -- 296,615 2.8
Douglas W. Toms.......... 288,637(12) 3.3 -- 288,637 2.8
Kern Capital Management,
LLC(13)................. 1,219,300 14.2 -- 1,219,300 12.0
Questor Partners Fund,
L.P..................... 1,990,326(14) 23.2 816,375 1,115,326 10.9
BERU
Aktiengesellschaft(15).. 1,230,614 14.3 -- 1,230,614 12.1%
All executive officers
and directors as a
group(13 persons)(16)... 4,404,057 48.1 875,000 3,529,057 34.4%
</TABLE>
--------
* Less than 1% of the outstanding common stock.
(1) Includes 30,000 shares issuable upon exercise of outstanding options that
are exercisable within 60 days after May 31, 2000.
(2) Includes 35,943 shares issuable upon exercise of outstanding options that
are exercisable within 60 days after May 31, 2000.
(3) Includes 18,028 shares issuable upon exercise of outstanding options that
are exercisable within 60 days after May 31, 2000.
(4) Includes 40,600 shares issuable upon exercise of outstanding options that
are exercisable within 60 days after May 31, 2000.
(5) Includes 15,000 shares issuable upon exercise of outstanding options that
are exercisable within 60 days after May 31, 2000.
(6) Represents shares beneficially owned by Questor Partners Fund, L.P. and
Questor Side-by- Side Partners, L.P. (of which Mr. Mumford disclaims
beneficial ownership). Includes 5,000 shares issuable upon exercise of
outstanding options that are exercisable within 60 days after May 31,
2000. In accordance with previous discussions with us and an agreement
with the selling stockholders, Mr. Mumford and Mr. Scarff have resigned as
directors effective July 12, 2000.
(7) Includes 44,700 shares subject to options issuable upon exercise of
outstanding options that are exercisable within 60 days after May 31,
2000.
(8) Shares voting and investment power with respect to 1,230,614 shares owned
by BERU AG. Includes 5,000 shares issuable upon exercise of outstanding
options that are exercisable within 60 days after May 31, 2000.
51
<PAGE>
(9) Represents shares beneficially owned by Questor Partners Fund, L.P. and
Questor Side-by-Side Partners, L.P. (of which Mr. Scarff disclaims
beneficial ownership), plus 5,000 shares issuable upon exercise of
outstanding options that are exercisable within 60 days after May 31,
2000. In accordance with previous discussions with us and an agreement
with the selling stockholders, Mr. Mumford and Mr. Scarff have resigned as
directors effective July 12, 2000.
(10) Includes 30,000 shares issuable upon exercise of outstanding options that
are exercisable within 60 days after May 31, 2000.
(11) Includes 291,496 shares issuable upon exercise of outstanding options that
are exercisable within 60 days after May 31, 2000.
(12) Includes 50,000 shares issuable upon exercise of outstanding options that
are exercisable within 60 days after May 31, 2000.
(13) The address of Kern Capital Management LLC is 114 West 47th Street, Suite
1926, New York, New York 10036.
(14) Represents, prior to the offering, 1,856,969 shares owned by Questor
Partners Fund, L.P. and 133,357 shares owned by Questor Side-by-Side
Partners, L.P. and, after the offering, 1,040,594 shares owned by Questor
Partners Fund, L.P. and 74,732 shares owned by Questor Side-by-Side
Partners, L.P. In March 2000, the two Questor partnerships entered into an
agreement that, without the consent of FleetBoston Robertson
Stephens,Inc., the partnerships will not sell any of their remaining
shares before the expiration of 135 days after the completion of this
offering. After the thirtieth day following the effective date of the
registration statement that contains this prospectus, the Questor
partnerships may require us to register some or all of their remaining
shares on a separate registration statement. Sales under this separate
registration statement could begin to occur after completion of the 135
day period or at a later time, if the Questor partnerships defer their
request to a later date. The address of Questor Partners Fund, L.P. and
Questor Side-by-Side Partners, L.P. is 103 Springer Building, 3411
Silverside Road, Wilmington, Delaware 19810.
(15) The address of BERU Aktiengesellschaft is Moerikestrasce 155, Ludwigsburg,
Germany.
(16) Includes 582,767 shares issuable upon exercise of outstanding options that
are exercisable within 60 days after May 31, 2000.
52
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., CIBC World Markets Corp. and FAC/Equities,
a division of First Albany Corporation, have severally agreed with us, subject
to the terms and conditions of the underwriting agreement, to purchase from us
the number of shares of common stock set forth below opposite their respective
names. The underwriters are committed to purchase and pay for all shares if any
are purchased.
<TABLE>
<CAPTION>
Number of
Shares
---------
Underwriter
-----------
<S> <C>
FleetBoston Robertson Stephens Inc. ...............................
CIBC World Markets Corp. ..........................................
FAC/Equities, a division of First Albany Corporation ..............
---------
Total ........................................................... 2,500,000
=========
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the public offering price set forth
on the cover page of this prospectus and to certain dealers at that price less
a concession of not in excess of $ per share, of which $ may be reallowed
to other dealers. After this offering, the public offering price, concession
and reallowance to dealers may be reduced by the representatives. No such
reduction shall change the amount of proceeds to be received by us as set forth
on the cover page of this prospectus. The common stock is offered by the
underwriters as stated herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 375,000 additional shares of common stock to cover over-
allotments, if any, at the public offering price less the underwriting discount
set forth on the cover page of this prospectus. If the underwriters exercise
their over-allotment option to purchase any of the additional 375,000 shares of
common stock, the underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof as the number
of shares to be purchased by each of them bears to the total number of shares
of common stock offered in this offering. If purchased, these additional shares
will be sold by the underwriters on the same terms as those on which the shares
offered hereby are being sold. We will be obligated, pursuant to the over-
allotment option, to sell shares to the underwriters to the extent the over-
allotment option is exercised. The underwriters may exercise the over-allotment
option only to cover over-allotments made in connection with the sale of the
shares of common stock offered in this offering.
53
<PAGE>
The following table summarizes the compensation to be paid to the
underwriters by IMPCO:
<TABLE>
<CAPTION>
Total
-------------------
Without With
Per Over- Over-
Share allotment allotment
----- --------- ---------
<S> <C> <C> <C>
Underwriting Discounts and Commissions
payable by IMPCO................................. $ $ $
Underwriting Discounts and Commissions
payable by the selling stockholders.............. $ $ $
</TABLE>
IMPCO estimates expenses payable by us in connection with this offering,
other than the underwriting discounts and commissions referred to above, will
be approximately $850,000.
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters, us and the selling stockholders against certain civil
liabilities, including liabilities under the Securities Act, and liabilities
arising from breaches of representations and warranties contained in the
underwriting agreement.
Lock-Up Agreements. Each of our executive officers and directors and certain
of our other stockholders have agreed, subject to specified exceptions, not to
offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or
grant any rights with respect to any shares of common stock or any options or
warrants to purchase any shares of common stock, or any securities convertible
into or exchangeable for shares of common stock owned as of the date of this
prospectus or thereafter acquired directly by those holders or with respect to
which they have the power of disposition, without the prior written consent of
FleetBoston Robertson Stephens Inc. This restriction terminates 135 days after
the effective date of this prospectus. However, FleetBoston Robertson Stephens
Inc. may, in its sole discretion and at any time or from time to time before
the termination of the 135-day period, without notice, release all or any
portion of the securities subject to lock-up agreements. There are no existing
agreements between the representatives and any of our stockholders who have
executed a lock-up agreement providing consent to the sale of shares prior to
the expiration of the lock-up period.
In addition, we have agreed that during the lock-up period we will not,
without the prior written consent of FleetBoston Robertson Stephens Inc.,
subject to certain exceptions, consent to the disposition of any shares held by
stockholders subject to lock-up agreements prior to the expiration of the lock-
up period, or issue, sell, contract to sell, or otherwise dispose of, any
shares of common stock, any options or warrants to purchase any shares of
common stock or any securities convertible into, exercisable for or
exchangeable for shares of common stock other than our sale of shares in this
offering, the issuance of our common stock upon the exercise of outstanding
options or warrants, and the issuance of options under existing stock option
and incentive plans provided that those options do not vest prior to the
expiration of the lock-up period.
Listing. The common stock is traded on the Nasdaq National Market under the
symbol "IMCO."
Stabilization. The representatives have advised us that, pursuant to
Regulation M under the Securities Act of 1933, some persons participating in
the offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the shares of common
stock at a level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of shares of common stock on
behalf of the underwriters for the purpose of fixing or maintaining the price
of the common stock. A "syndicate covering transaction" is the bid for or
purchase of common stock on behalf of the underwriters to reduce a short
position incurred by the underwriters in connection with the offering. A
"penalty bid" is an arrangement permitting the representatives to reclaim the
selling concession otherwise accruing to an underwriter or syndicate member in
connection with the offering if the common stock originally sold by such
underwriter or syndicate member purchased by the representatives in a syndicate
covering transaction and has
54
<PAGE>
therefore not been effectively placed by such underwriter or syndicate member.
The representatives have advised us that such transactions may be effected on
the Nasdaq National Market or otherwise and, if commenced, may be discontinued
at any time.
Passive Market Making. In connection with this offering and before the
commencement of offers or sales of the common stock, certain underwriters who
are qualified market makers on the Nasdaq National Market may engage in passive
market making transactions in the common stock on the Nasdaq National Market in
accordance with Rule 103 of Regulation M under the Exchange Act, during the
business day prior to the pricing of the offering. Passive market makers must
comply with applicable volume and price limitations and must be identified as
such. In general, a passive market maker must display its bid at a price not in
excess of the highest independent bid for such security; if all independent
bids are lowered below the passive market maker's bid, however, such bid must
then be lowered when certain purchase limits are exceeded.
55
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon by
Morrison & Foerster LLP, Los Angeles, California. Certain matters in connection
with this offering will be passed upon for the underwriters by Brobeck, Phleger
& Harrison LLP, Irvine, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at April 30, 1999 and 2000, and for each of
the three years in the period ended April 30, 2000, as set forth in their
reports. Such reports are included in this prospectus and in the related
registration statement. We have included our financial statements and our
financial statement schedule in the prospectus and in the registration
statement in reliance upon Ernst & Young LLP's reports given on their authority
as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-3 with the Securities and
Exchange Commission in connection with this offering. In addition, we file
annual, quarterly and current reports, proxy statements and other information
with the Securities and Exchange Commission. You may read and copy the
registration statement and any other documents filed by us with the SEC at the
SEC's Public Reference Room located at 450 Fifth Street N.W., Washington, D.C.,
20549. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the Public Reference Room. Our SEC filings are also
available to the public at the SEC's Internet site at http://www.sec.gov.
This prospectus is part of the registration statement and does not contain
all of the information included in the registration statement. Whenever a
reference is made in this prospectus to any contract or other document of
IMPCO, the reference may not be complete and you should refer to the exhibits
that are a part of the registration statement for a copy of the contract or
document.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference the information we file with
them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
part of this prospectus. Information we later file with the SEC will
automatically update and supersede this information.
We incorporate by reference the documents listed below and any future
filings made with the SEC under Sections 13(a), 13(c), 14 and 15(d) of the
Securities Exchange Act of 1934, as amended, until this offering is completed.
We incorporate by reference the documents listed below.
1. Annual Report on Form 10-K for the fiscal year ended April 30, 1999.
2. Quarterly Reports on Form 10-Q for the quarters ended July 31, 1999,
October 31, 1999 and January 31, 2000.
3. The description of our common stock contained in our Registration
Statement on Form 8-A filed under Section 12 of the Exchange Act with
the SEC.
4. The description of our Stockholder Protection Rights Agreement and our
related rights contained in our Registration Statement on Form 8-A filed
under Section 12 of the Exchange Act with the SEC on July 7, 1999.
56
<PAGE>
5. The Current Report on Form 8-K filed under Section 12 of the Exchange
Act with the SEC on July 1, 1999.
6. Definitive Revised Proxy Statement on Schedule 14-A filed with the SEC
on October 4, 1999 and Definitive Proxy Statement on Schedule 14-A filed
with the SEC on August 30, 1999.
You may request a copy of these filings, at no cost, by contacting us at
IMPCO Technologies, Inc., 16804 Gridley Place, Cerritos, California 90703,
(562) 860-6666. We will not, however, send exhibits to these documents, unless
the exhibits are specifically incorporated by reference in the documents.
57
<PAGE>
IMPCO TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors............................................. F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Income.......................................... F-5
Consolidated Statements of Stockholders' Equity............................ F-6
Consolidated Statements of Cash Flows...................................... F-7
Notes to Consolidated Financial Statements................................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
IMPCO Technologies, Inc.
We have audited the accompanying consolidated balance sheets of IMPCO
Technologies, Inc. as of April 30, 1999 and 2000, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended April 30, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of IMPCO Technologies, Inc. at April 30, 1999 and 2000, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended April 30, 2000, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Long Beach, California
May 31, 2000, except for the
first paragraph of Note 3 as
to which the date is June 13,
2000.
F-2
<PAGE>
IMPCO TECHNOLOGIES, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
April 30, April 30,
1999 2000
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash.................................................. $ 2,009,208 $ 3,012,236
Accounts receivable................................... 22,209,363 30,837,388
Less allowance for doubtful accounts................. 535,824 565,597
----------- -----------
Net accounts receivable............................. 21,673,539 30,271,791
Inventories:
Raw materials and parts............................. 10,694,453 18,506,961
Work-in-process..................................... 1,208,423 836,308
Finished goods...................................... 10,804,309 13,628,649
----------- -----------
Total inventories.................................. 22,707,185 32,971,918
Deferred tax assets................................... 3,474,387 4,237,571
Income taxes receivable............................... -- 134,983
Other current assets.................................. 2,255,227 2,756,473
----------- -----------
Total current assets................................. 52,119,546 73,384,972
Equipment and leasehold improvements:
Dies, molds and patterns.............................. 5,746,955 6,537,110
Machinery and equipment............................... 7,293,593 8,340,978
Office furnishings and equipment...................... 6,110,079 7,191,795
Automobiles and trucks................................ 500,057 542,157
Leasehold improvements................................ 2,965,366 3,461,098
----------- -----------
22,616,050 26,073,138
Less accumulated depreciation and amortization........ 12,730,976 15,507,208
----------- -----------
Net equipment and leasehold improvements............ 9,885,074 10,565,930
Intangibles arising from acquisitions................... 15,593,672 15,758,461
Less accumulated amortization......................... 4,576,369 5,271,918
----------- -----------
Net intangibles arising from acquisitions............. 11,017,303 10,486,543
Other assets............................................ 540,239 578,568
----------- -----------
$73,562,162 $95,016,013
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
IMPCO TECHNOLOGIES, INC.
Consolidated Balance Sheets
(Continued)
<TABLE>
<CAPTION>
April 30, April 30,
1999 2000
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 8,294,977 $13,652,011
Accrued payroll obligations........................ 2,493,402 3,942,028
Income taxes payable............................... 1,261,009 --
Other accrued expenses............................. 1,356,803 2,341,567
Current maturities of long-term debt and capital
leases............................................ 3,485,376 3,820,697
----------- -----------
Total current liabilities......................... 16,891,567 23,756,303
Lines of credit...................................... 5,551,300 18,808,699
Term loans........................................... 5,411,326 3,014,257
Capital leases....................................... 2,102,173 1,521,199
Deferred tax liabilities............................. 828,852 745,154
Minority interest.................................... 1,327,825 1,791,058
Commitments and Contingencies -- --
Stockholders' equity:
Common stock, $.001 par value, authorized
25,000,000 shares; 8,571,807 issued and
outstanding at April 30, 2000 (8,408,481 at April
30, 1999)......................................... 8,408 8,572
Additional paid-in capital......................... 45,375,995 47,539,037
Shares held in trust............................... (68,946) (110,320)
Retained earnings (accumulated deficit)............ (2,397,813) 667,683
Accumulated other comprehensive income............. (1,468,525) (2,725,629)
----------- -----------
Total stockholders' equity........................ 41,449,119 45,379,343
----------- -----------
$73,562,162 $95,016,013
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
IMPCO TECHNOLOGIES, INC.
Consolidated Statements of Income
<TABLE>
<CAPTION>
Fiscal Year Ended April 30
------------------------------------
1998 1999 2000
----------- ----------- ------------
<S> <C> <C> <C>
Revenue:
Product sales........................... $62,209,310 $75,820,926 $103,417,448
Contract revenue........................ 8,873,554 11,005,528 9,398,305
----------- ----------- ------------
Net revenue............................ 71,082,864 86,826,454 112,815,753
Costs and expenses:
Cost of product sales................... 38,173,943 52,178,542 69,798,833
Research and development expense........ 12,061,609 11,611,758 15,576,475
Selling, general and administrative
expense................................ 13,729,352 16,133,080 21,343,333
----------- ----------- ------------
Total costs and expenses............... 63,964,904 79,923,380 106,718,641
Operating income.......................... 7,117,960 6,903,074 6,097,112
Interest expense.......................... 934,825 1,169,830 1,442,144
Gain on sale of 49% interest in
subsidiary............................... -- 2,169,405 --
----------- ----------- ------------
Income before income taxes, minority
interest in income of consolidated
subsidiaries and dividends............... 6,183,135 7,902,649 4,654,968
Provision for income taxes................ 907,516 1,501,503 1,126,239
Minority interest in income of
consolidated subsidiaries................ 410,554 70,532 463,233
----------- ----------- ------------
Net income before dividends on preferred
stock.................................... 4,865,065 6,330,614 3,065,496
Dividends on preferred stock.............. 594,997 530,542 --
----------- ----------- ------------
Net income applicable to common stock..... $ 4,270,068 $ 5,800,072 $ 3,065,496
=========== =========== ============
Net income per share:
Basic................................... $ 0.67 $ 0.80 $ 0.36
=========== =========== ============
Diluted................................. $ 0.60 $ 0.71 $ 0.33
=========== =========== ============
Number of shares used in per share
calculation:
Basic................................... 6,333,769 7,293,160 8,489,229
=========== =========== ============
Diluted................................. 8,155,476 8,975,629 9,232,299
=========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
IMPCO TECHNOLOGIES, INC.
Consolidated Statements Of Stockholders' Equity
<TABLE>
<CAPTION>
Fiscal Year Ended April 30
--------------------------------------
1998 1999 2000
------------ ----------- -----------
<S> <C> <C> <C>
1993 Series 1 Preferred Stock (none
authorized at April 30, 1999):
Beginning balance.................... $ 5,650,000 $ 5,650,000 --
Preferred stock conversion........... -- (5,650,000) --
------------ ----------- -----------
Ending balance..................... 5,650,000 -- --
Common Stock:
Beginning balance.................... 5,815 7,092 $ 8,408
Issuance of common stock (57,795,
192,116 and 163,326 shares,
respectively) resulting from the
exercise of options pursuant to the
stock option plans.................. 58 192 164
Issuance of common stock (1,124,764
shares) under preferred stock
conversion.......................... -- 1,124 --
Issuance of common stock (1,219,218)
resulting from the exercise of
warrants............................ 1,219 -- --
------------ ----------- -----------
Ending balance..................... 7,092 8,408 8,572
Additional Paid-in Capital:
Beginning balance.................... 29,342,121 38,386,357 45,375,995
Issuance of common stock resulting
from the exercise of options
pursuant to the stock option plans.. 194,271 1,433,763 1,173,088
Issuance of common stock under
preferred stock conversion.......... -- 5,648,875 --
Issuance of common stock resulting
from the exercise of warrants....... 8,453,063 -- --
Reduction in current tax liability
related to stock options............ 303,902 -- 989,954
Other................................ 93,000 (93,000) --
------------ ----------- -----------
Ending balance..................... 38,386,357 45,375,995 47,539,037
Shares held in trust for deferred
compensation plan, at cost
(2,572, 2,395 and 2,878 shares,
respectively)......................... (36,759) (68,946) (110,320)
Retained earnings (accumulated deficit)
Beginning balance.................... (12,467,953) (8,197,885) (2,397,813)
Net income applicable to common
stock............................... 4,270,068 5,800,072 3,065,496
------------ ----------- -----------
Ending balance..................... (8,197,885) (2,397,813) 667,683
Accumulated Other Comprehensive Income:
Beginning balance.................... (458,061) (1,503,454) (1,468,525)
Foreign currency translation
adjustment.......................... (1,045,393) 34,929 (1,257,104)
------------ ----------- -----------
Ending balance..................... (1,503,454) (1,468,525) (2,725,629)
------------ ----------- -----------
Total stockholders' equity............. $ 34,305,351 $41,449,119 $45,379,343
============ =========== ===========
Comprehensive Income:
Net income........................... $ 4,270,068 $ 5,800,072 $ 3,065,496
Foreign currency translation
adjustment.......................... (1,045,393) 34,929 (1,257,104)
------------ ----------- -----------
Comprehensive Income................... $ 3,224,675 $ 5,835,001 $ 1,808,392
============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
IMPCO TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended April 30
-------------------------------------
1998 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................. $ 4,865,065 $ 6,330,614 $ 3,065,496
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Amortization of intangibles arising
from acquisitions.................... 455,645 691,419 736,937
Depreciation and other amortization... 2,457,679 2,749,704 3,047,342
(Gain) loss on disposal of assets..... 30,926 (106,515) (74,343)
Gain on sale of 49% interest in
subsidiary........................... -- (2,169,405) --
Deferred income taxes................. 372,856 1,045,535 (846,882)
Increase in accounts receivable....... (3,396,372) (7,636,517) (9,452,278)
Increase in inventories............... (3,665,033) (2,319,450) (11,195,075)
Increase in accounts payable.......... 1,178,829 2,941,749 5,862,387
Increase (decrease) in accrued
expenses............................. (806,387) (594,045) 2,377,404
Minority interests in income of
consolidated subsidiaries............ 410,554 70,532 463,233
Other, net............................ (396,229) (563,867) (624,158)
----------- ----------- -----------
Net cash provided by (used in) operating
activities............................. 1,507,533 439,754 (6,639,937)
Cash flows from investing activities:
Purchases of equipment and leasehold
improvements.......................... (3,219,766) (2,797,787) (3,682,595)
Purchases of businesses................ (2,813,197) (5,831,412) (410,927)
Proceeds from sale of 49% interest in
subsidiary............................ -- 3,500,000 --
Proceeds from sales of equipment....... 270,001 587,456 102,802
----------- ----------- -----------
Net cash used in investing activities... (5,762,962) (4,541,743) (3,990,720)
Cash flows from financing activities:
Increase (decrease) in borrowings under
lines of credit....................... (2,407,382) 2,454,928 14,264,949
Payments on notes payable.............. (328,839) -- --
Payments on term loans................. (4,074,197) (5,501,361) (2,733,967)
Proceeds from issuance of bank term
loans................................. 3,992,521 6,631,560 --
Payments of capital lease obligations.. (461,023) (934,182) (769,395)
Proceeds from issuance of common
stock................................. 8,924,568 1,400,297 1,131,878
Dividends on preferred stock........... (594,997) (530,542) --
----------- ----------- -----------
Net cash provided by financing
activities............................. 5,050,651 3,520,700 11,893,465
Translation adjustment.................. (153,256) (27,372) (259,780)
Net increase (decrease) in cash......... 641,966 (608,661) 1,003,028
Cash at beginning of period............. 1,975,903 2,617,869 2,009,208
----------- ----------- -----------
Cash at end of period................... $ 2,617,869 $ 2,009,208 $ 3,012,236
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
(a) Basis of presentation and description of the business--The consolidated
financial statements of IMPCO Technologies, Inc. ("IMPCO" or the "Company")
include 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"). All significant intercompany accounts and
transactions have been eliminated in consolidation.
The Company is a designer, manufacturer and supplier of fuel storage, fuel
delivery and electronic control systems that allow internal combustion engines
and fuel cells to operate using clean fuels such as hydrogen, propane, natural
gas and methanol.
(b) Inventories--Inventories are valued at the lower of cost or market. Cost
is determined by the first-in, first-out (FIFO) method while market is
determined by replacement cost for raw materials and parts and net realizable
value for work-in-process and finished goods.
(c) Property, plant and equipment--Property, plant and equipment are stated
on the basis of historical cost. Depreciation of equipment is provided using
the straight-line method over the assets' estimated useful lives, ranging from
three to seven years. Amortization of leasehold improvements, and equipment
financed by the Company's capital lease facility or capital expenditure
facility, is provided using the straight-line method over the shorter of the
assets' estimated useful lives or the lease terms.
(d) Intangibles arising from acquisitions--Intangibles arising from
acquisitions, primarily goodwill, are recorded based on the excess of the cost
of the acquisition over amounts assigned to tangible assets and liabilities.
Intangible assets arising from acquisitions are amortized using the straight-
line method over their estimated lives of twenty years.
(e) Warranty costs--Estimated future warranty obligations related to certain
products are provided by charges to operations in the period in which the
related revenue is recognized. Estimates are based, in part, on historical
experience.
(f) Research and development costs--Research and development costs are
charged to expense as incurred. Equipment used in research and development with
alternative future uses is capitalized.
(g) Revenue recognition--Revenue is recognized on product sales when goods
are shipped in accordance with the Company's shipping terms. Contract revenue
for customer funded research and development is principally recognized by the
percentage of completion method. Amounts expected to be realized on contracts
are based on the Company's estimates of total contract value and costs at
completion. These estimates are reviewed and revised periodically throughout
the lives of the contracts. In December 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements," or SAB 101. SAB 101 summarizes certain of the SEC
Staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. The Company evaluated the effect of SAB
101, which did not result in any material change to their revenue recognition
policies.
(h) Minority interests in subsidiaries--The balance sheet amounts in
minority interest at April 30, 2000 represent 49% of the equity held by the
single minority stockholder in IMPCO BV, 10% of the equity held by the single
minority stockholder in IMPCO Mexicano, 49% of the equity held by the single
minority stockholder in IMPCO SA, a subsidiary of IMPCO Pty, and 49% of the
equity held by the single minority stockholder in IMPCO Fuel Systems. Minority
interests represents the minority stockholder's proportionate share of equity
in those subsidiaries.
F-8
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(i) Net income per share--Basic income per share is computed by dividing net
income applicable to common stock by the weighted average shares of common
stock outstanding during the period. Diluted earnings per share is computed
based on the weighted average number of shares of common stock outstanding, all
common stock equivalents, and if dilutive, shares issued upon conversion of
preferred stock.
(j) Stock based compensation--In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123 "Accounting of Stock Based Compensation,"
which established accounting and reporting standards for stock based employee
compensation plans effective after fiscal year 1996. SFAS 123 encourages
entities to adopt the fair value based method of accounting; however it also
allows an entity to continue to measure compensation cost using the intrinsic
value based method prescribed by Accounting Principles Board No. 25. Such
entities who elect to remain on the "intrinsic value based" method must make
certain pro forma disclosures as if the new fair value method had been applied.
At this time, the Company has not adopted the recognition provision of SFAS
123, but has provided pro forma disclosures (see note 7).
(k) Impairment of long-lived assets and long-lived assets to be disposed
of--Impairment losses are recorded on long-lived assets used in operations when
an indicator of impairment (significant decrease in market value of an asset,
significant change in extent or manner in which the asset is used or
significant physical change to the asset) is present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. The Company has not experienced any significant changes in the
business climate or in the use of assets that would require the Company to
write down the value of the assets recorded in the balance sheet.
(l) Use of estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires that management make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(m) Reclassifications--Certain prior year amounts have been reclassified to
conform to current presentations.
(n) Foreign currency translation--Assets and liabilities of the Company's
foreign subsidiaries are generally translated at current exchange rates, and
related revenues and expenses are translated at average exchange rates in
effect during the period. Resulting translation adjustments are recorded as a
foreign currency component of other comprehensive income in stockholders'
equity.
Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the functional currency,
except those transactions that operate as a hedge of an identifiable foreign
currency commitment, are included in the results of operations and cash flows
as incurred.
(o) Financial instruments--The Company's financial instruments recorded on
the balance sheet include short-term bank debt and long-term bank debt. At
April 30, 2000 off balance sheet derivative financial instruments included
interest rate swap agreements (see note 4).
The Company enters into foreign currency forward contracts to hedge
indentifiable foreign currency commitments. Foreign currency contracts reduce
the Company's exposure to unfavorable fluctuations in foreign currencies versus
the U.S. dollar. Realized gains and losses on these contracts are included in
the measurement of the related foreign currency transaction. No such contracts
were outstanding at April 30, 2000.
Interest rate swap agreements are used by the Company to manage interest
rate risk on its floating rate debt portfolio. Each interest rate swap is
matched as a hedge against a specific debt instrument and has the same notional
amount and tenor as the related debt instrument principal.
F-9
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Accounting Pronouncements
The Financial Accounting Standards Board has issued certain Statements of
Financial Accounting Standards (SFAS) that are applicable to the Company. SFAS
133, "Accounting for Derivative Instruments and for Hedging Activities," which
is effective for fiscal years beginning after June 15, 1999. SFAS 133 requires
derivatives to be recorded on the balance sheet at fair value and establishes
special accounting for the following three types of hedges: hedges of changes
in the fair value of assets, liabilities or firm commitments (referred to as
fair value hedges); hedges of the variable cash flows of forecasted
transactions (cash flow hedges); and hedges of foreign currency exposures of
net investments in foreign operations. The accounting treatment and criteria
for each of the three types of hedges is unique. Changes in fair value of
derivatives that do not meet the criteria of one of these three categories of
hedges would be included in income. SFAS 133 was amended by SFAS 137, which
delayed its effective date. The Company has not determined what impact, if any,
it will have on its financial position, results of operations and cash flows.
Currently, the Company does not anticipate adopting this standard before May 1,
2001.
The Financial Accounting Standards Board has also recently issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation." The Interpretation addresses implementation practice issues in
accounting for compensation costs under existing rules prescribed by Accounting
Principles Board No. 25. The new rules are applied prospectively to all new
awards, modifications to outstanding awards and changes in grantee status after
July 1, 2000, with certain exceptions. The Company is considering the effects
these changes make and will implement any changes to its plans as deemed
appropriate.
2. Acquisitions
Ateco Automotive Pty. Ltd. On July 1, 1996, the Company acquired certain
operating assets of Ateco Automotive Pty. Ltd. ("Ateco") for approximately
US$6,500,000. Ateco, an Australian private company, has distributed IMPCO's
gaseous fuel carburetion systems and related devices for use with internal
combustion engines since 1969 through its Gas Division near Melbourne,
Australia.
In order to effectuate the transaction, IMPCO established a wholly-owned
subsidiary in Australia, IMPCO Pty. The acquisition of Ateco was accounted for
under the purchase method of accounting and the acquired operations have been
included in the consolidated financial statements since the date of
acquisition. The assets acquired by IMPCO Pty primarily consist of accounts
receivable, inventories, equipment, a note, business goodwill, distribution
rights in Australia, and a 50% interest in Ateco's sub-distributor, Gas Parts,
NSW. The Company recognized approximately $3,601,000 of intangible assets
arising from the acquisition.
IMPCO Technologies B.V. On October 31, 1995, the Company acquired 51% of the
outstanding stock of Media, a private company in the Netherlands, from
Centradas B.V., a private company in the Netherlands, for cash in the amount of
fl.3,187,500 (US$2,023,000). IMPCO BV services the European marketplace from
its headquarters in the Netherlands and through its subsidiaries in Germany,
France and the United Kingdom.
The acquisition of IMPCO BV has been accounted for under the purchase method
of accounting and has been included in the consolidated financial statements
since the date of acquisition. The Company recognized $2,100,000 of intangible
assets arising from the acquisition. On May 1, 1998 the Company purchased the
remaining 49% of IMPCO BV from Depa Holding B.V. for fl.1,400,000 (US$692,521).
On January 28, 1999, the Company sold this 49% interest in IMPCO BV to BERU
Aktiengesellschaft, an international OEM and aftermarket supplier of diesel and
automotive engine components and systems, for $3,500,000 in cash. The Company
recorded a pre-tax gain of $2,169,000 and an after-tax gain of $1,757,000, or
$0.20 per share on a diluted basis.
F-10
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Algas Carburetion. On December 5, 1997, the Company purchased certain
manufacturing equipment and inventory of the Algas Carburetion Division of PGI
International. The purchase price of US$2,400,000 was paid in cash. On the same
day, the Company acquired a 90% interest in Industrias Mexicanas de Productos
de Combustibles, S. de R.L. de C.V. The purchase price of $961,000 was paid in
cash. Immediately prior to the Company's acquisition of a 90% ownership
interest in IMPCO Mexicano. IMPCO Mexicano acquired certain operating assets of
the carburetion division of Algas Mexicana, de R.L. de C.V.
Edo Canada, Ltd. On December 12, 1997, the Company purchased from the
bankruptcy trustee of EDO Canada, Ltd. certain development, testing, quality
control and manufacturing equipment used for the manufacture of storage tanks
for compressed natural gas. The purchase price was US$790,000.
Gas Parts (NSW) Pty. Ltd. On January 31, 1998, the Company's wholly-owned
subsidiary, IMPCO Pty, acquired the remaining 50% ownership interest in Gas
Parts for A$225,000 (US$148,500) in cash. This acquisition was accounted for
using the purchase method of accounting for step-acquisitions. Excess purchase
price over fair market value of the underlying assets was allocated to
goodwill.
Crusader Engine Division. On December 4, 1998, the Company acquired certain
operating assets of the Crusader Engine division of Thermo Power Corporation, a
subsidiary of Thermo Power Electron Corporation, for approximately $3,880,000.
The Crusader Engine division provides engine dressing and related devices for
material handling engines. These assets currently comprise the Company's
Industrial Engine Systems business. This acquisition was accounted for under
the purchase method of accounting and has been included in the consolidated
financial statements since the date of acquisition. Goodwill of approximately
$662,000 was recognized with tangible net assets acquired consisting of
$2,500,000 in inventory and $718,000 in fixed assets.
Mikuni Corporation. In March 1999, the Company purchased a dormant company
in Japan for US$126,000 in order to establish IMPCO Japan. On March 31, 1999,
IMPCO Japan, purchased certain manufacturing equipment and inventory of the
Fukuoka Division of Mikuni Corporation. The purchase price of US$1,325,000 was
paid in cash. This acquisition was accounted for under the purchase method of
accounting and has been included in the consolidated financial statements since
the date of acquisition. Goodwill of approximately $944,000 was recognized with
tangible net assets acquired consisting of $362,000 in inventory and $19,000 in
fixed and other assets.
IMPCO Fuel Systems. In March 2000, the Company's subsidiary, IMPCO
Technologies, Pty Ltd, and LPM Corporation Pty Ltd, a corporation incorporated
under the laws of the state of New South Wales, Australia, established IMPCO
Fuel Systems, a corporation incorporated under the laws of the state of New
South Wales, Australia. IMPCO Technologies, Pty Ltd has a 51% ownership
interest in IMPCO Fuel Systems and paid $300,000 in the purchase of goodwill of
LPM's gaseous fuel equipment business and $110,000 in certain assets, inventory
and equipment of LPM. This acquisition was accounted for under the purchase
method of accounting and has been included in the consolidated financial
statements since the date of acquisition.
F-11
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The unaudited pro forma financial information reflects the consolidated
results of operations of the Company as if the aforementioned fiscal year 1999
and 2000 acquisitions had taken place at the beginning of the respective
periods. The pro forma information includes adjustments for the interest
expense that would have been incurred to finance the acquisitions, additional
depreciation based on the fair value of the property, plant and equipment
acquired and the amortization of intangibles arising from the transactions. The
pro forma information is not necessarily indicative of the results of
operations as they would have been had the transactions been effected on the
assumed dates.
<TABLE>
<CAPTION>
Fiscal Years
Ended April 30
----------------
1999 2000
------- --------
(unaudited)
<S> <C> <C>
Revenue....................................................... $95,596 $114,818
Net earnings.................................................. 5,873 3,095
Earnings per share--Basic..................................... $ 0.81 $ 0.36
Earnings per share--Diluted................................... $ 0.72 $ 0.34
</TABLE>
3. Debt Payable
The Company's debt payable is summarized as follows:
<TABLE>
<CAPTION>
Fiscal years ended
April 30
-----------------------
1999 2000
----------- -----------
<S> <C> <C>
(a) Bank of America NT&SA
Revolving line of credit.......................... $ 5,360,000 $15,550,000
Mexican peso line of credit....................... 107,000 851,000
Term loans for acquisitions....................... 4,875,000 3,028,000
Capital lease and expenditure facilities.......... 2,928,000 4,843,000
IMPCO BV term loan................................ 1,714,000 1,043,000
(b) Credit facility--Mees Pierson..................... -- --
(c) The Hong Kong and Shanghai Banking Corporation
Ltd.
Term loan for acquisition of Mikuni............... 1,341,000 1,183,000
Line of credit.................................... 84,000 555,000
Other................................................. 141,000 112,000
----------- -----------
16,550,000 27,165,000
Less current portion.................................. 3,485,000 3,821,000
----------- -----------
$13,065,000 $23,344,000
=========== ===========
</TABLE>
(a) Bank of America NT&SA
At April 30, 2000 the Company has a credit facility with Bank of America
NT&SA, as amended on June 13, 2000. This facility includes a $22 million
revolving line of credit (due August 31, 2001), a $5,000,000 non-revolving line
of credit for future capital expenditures (due August 31, 2000) and a Mexican
peso line of credit equivalent to $3,000,000 (due August 31, 2001) for IMPCO
Mexicano. Those portions of the credit facility that are due August 31, 2000
have an option to convert each of them to a term loan payable in five years.
The Company intends to exercise this option. Additionally, it is management's
intent to renew the amount of its present long-term obligation under the
revolving line of credit for an uninterrupted period extending beyond one year
from the balance sheet date.
Including the revolving line of credit, the capital expenditures facilities,
the capital lease facility, the standby letter of credit and the acquisition
facilities, the total Bank of America NT&SA credit facility was
F-12
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
approximately $38,239,000 at April 30, 2000. Details about each of the
components of the Company's credit facility at April 30, 2000 follows.
Revolving Line of Credit. The $22 million revolving line of credit bears
interest, payable monthly, at a fluctuating rate per annum equal to the Bank's
reference rate minus one-half to one-quarter of one percentage point, depending
on certain financial ratios, as defined. Alternatively, the Company may elect
to have all or portions of the line based on an offshore rate, which may also
vary depending on certain financial ratios, as defined. At April 30, 2000, the
outstanding line of credit balance was $15,550,000, which was subject to the
offshore rate at a weighted average of 7.51%.
The line of credit may be used for financing commercial letters of credit
with a maximum maturity of 180 days and standby letters of credit with a
maximum maturity of five years not to extend beyond August 30, 2002. The amount
of letters of credit outstanding at any one time may not exceed $1,000,000 for
commercial letters of credit and $750,000 for standby letters of credit. The
maximum amount available at any one time on the revolving line of credit and
the commercial letters of credit is $22,000,000. At April 30, 2000, a standby
letter of credit totaling $375,000 was outstanding.
Mexican peso line of credit. The Mexican peso line of credit at April 30,
2000 totaled $851,000 and was subject to a rate based on the Bank of America
Mexico (BAMSA) cost of funds plus 1.50% or 18.50%.
Term Loans for Acquisitions. All term loans bear interest, payable on a
monthly basis, at the Bank's reference rate and mature through fiscal 2003. The
Company may elect to have all or portions of the term loan bear interest at an
alternative interest rate agreed upon by the Bank and IMPCO for periods of not
less than 30 days nor more than one year. The alternative interest rate is
based on the offshore rate plus 1.50% or 1.75%. Each alternative rate portion
must be for an amount not less than $500,000 and may not include any portion of
principal that is scheduled to be repaid before the last day of the applicable
interest period. The Company has entered into two interest rate swap agreements
with Bank of America NT&SA to fix the interest rate on certain facilities. At
April 30, 2000, the total outstanding balance was approximately $3,028,000,
which bore a weighted average interest rate of 7.73%.
Capital Lease and Expenditure Facilities. The company has a capital lease
facility and a capital expenditure line of credit. At April 30, 2000 no further
borrowings were available under the capital lease. At April 30, 2000, all draws
under the capital lease facility were subject to the variable rate of interest
based upon the three month LIBOR plus a spread. The Company entered into a 59-
month interest rate swap agreement with Bank of America NT&SA ending April 15,
2003 that fixes the interest rate for the various fundings. At April 30, 2000,
approximately $2,168,000 was outstanding under this facility, of which
approximately $398,000 was fixed at 8.50% and approximately $802,000 was fixed
at 8.20%. The remaining balance of approximately $968,000 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 (8.5% as of April 30, 2000). If the
Company exercises an early termination option before the scheduled expiration
date of a capital lease, a termination charge will be assessed based on a
sliding percentage (not to exceed 3%) of the balance on the lease at time of
termination.
The Company has a $5,000,000 non-revolving capital expenditure line of
credit. This line of credit bears interest at the Bank's reference rate or an
optional offshore rate. The line matures on August 31, 2000 at which time the
Company will repay principal in 20 successive quarterly installments, starting
on the last day of the third month after funding. The line may be prepaid, in
whole or in part, at any time. At April 30, 2000, the total outstanding balance
was approximately $2,675,000, bearing interest at 7.8%.
Standby Letter of Credit. In order to secure yen denominated credit
facilities for IMPCO Japan, the Company was required to post a standby letter
of credit for the total available credit facility granted by the
F-13
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Hong Kong and Shanghai Banking Corporation Ltd., Osaka Branch. The original
amount of the facility is (Yen)220,000,000 (US$1,833,000) and will decrease
quarterly as payments are made on the underlying outstanding debt. The cost of
the facility is 1.00% per annum of the amount outstanding. On April 30, 2000,
the amount outstanding under the standby letter of credit was $1,737,000.
IMPCO BV Term Loan. The Company has a credit facility with Bank of America
NT&SA through its Amsterdam branch. which bears interest, payable on a monthly
basis, at the Euro Interbank Offered Rate for the corresponding period of the
advance, plus 1.50%. The term loan may be prepaid, with payments applied in
inverse order of maturity, in whole or in part, at any time. At April 30, 2000,
the outstanding balance of fl.2,520,000 (US$1,043,000) bore an interest rate of
5.60%.
Loan Covenants And Collateral. The Bank's 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
April 30, 2000, the Company was in compliance with all covenants.
(b) Credit Facility--Mees Pierson
In February 1996, IMPCO BV secured a fl.3,000,000 (US$1,440,300) 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% of
book value) and inventory (50% of book value). At April 30, 2000, the interest
rate was 5.25% and there was no outstanding balance.
(c) The Hong Kong and Shanghai Banking Corporation Ltd.
Term Loan for the Acquisition of Mikuni. On March 29, 1999, IMPCO Japan
secured a (Yen)160,000,000 (US$1,490,000) term loan facility with the Hong Kong
and Shanghai Banking Corporation Ltd., Osaka Branch. This term loan bears
interest, payable on a quarterly basis, at the Euroyen London Interbank Offer
Rate plus 1.60% and matures in fiscal year 2004. The Company may elect to lock
the interest rate on the loan for periods of not less than 30 days nor more
than 6 months. At April 30, 2000, the outstanding loan balance of
(Yen)128,000,000 (US$1,183,000) bore an interest rate of 1.737%.
Line of Credit. On March 29, 1999, IMPCO Japan secured a (Yen)60,000,000
(US$559,000) revolving line of credit facility with the Hong Kong and Shanghai
Banking Corporation Ltd., Osaka Branch. This facility bears interest, payable
on a quarterly basis, at the Euroyen London Interbank Offer Rate plus 1.60% and
matures in fiscal year 2001. The Company may elect to lock the interest rate on
the loan for periods of not less than 30 days nor more than 6 months. At April
30, 2000, the outstanding loan balance of (Yen)60,000,000 (US$555,000) bore a
weighted average interest rate of 1.726%. It is management's intent to renew
the line of credit for an uninterrupted period extending beyond one year from
the balance sheet date.
Annual maturities of long-term debt, excluding capital leases (see Note 6)
for the five years subsequent to May 1, 2000 are as follows: 2001--$3,061,000;
2002--$18,378,000; 2003--$1,812,000; 2004--$831,000; 2005--$535,000; and
thereafter--$268,000.
4. Derivative Financial Instruments and Fair Value of 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.
F-14
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. The Company uses
forward currency contracts, which typically expire within one year, to hedge
payments of identifiable foreign currency commitments by its international
subsidiaries. Realized gains and losses on these contracts are included in the
measurement of the related foreign currency. At April 30, 2000, the Company had
no forward currency contracts outstanding.
The Company seeks to manage its foreign currency economic risk by minimizing
its U.S. Dollar investment in foreign operations using foreign currency term
loans and lines of credit to finance the operations of its foreign
subsidiaries.
Interest Rate Management. The Company uses interest rate swap agreements
with Bank of America NT&SA to manage its exposure to interest rate changes and
stabilize the cost of borrowed funds. When an agreement is executed, the
interest rate swap is matched as a hedge to a specific debt instrument and has
the same notional amount and tenor as the related debt instrument principal.
Since the interest rate instruments effectively hedge the underlying interest
rate exposure, the net cash amounts paid or received on the agreements are
accrued and recognized as an adjustment to interest expense. At April 30, 2000,
the Company had approximately $3.6 million in fixed interest rate agreements
and loans and leases secured under these fixed interest rate agreements had a
weighted-average fixed interest rate of 7.94%. Absent these fixed rate
agreements, the weighted-average variable rate for this debt would have been
8.26%. The fair value of these instruments is based on estimated current
settlement cost. At April 30, 2000, the fair value of interest rate swap
agreements was approximately $45,000.
Fair Value of Financial Instruments. Because of the short maturity, short-
term bank debt approximates fair value. The fair value of the Company's long-
term debt is estimated using discounted cash flows based on the Company's
incremental borrowing rates for similar types of borrowings. At April 30, 2000,
the fair value of the Company's long-term debt approximated carrying value.
5. Income Taxes
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Fiscal years ended April 30
-------------------------------
1998 1999 2000
-------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal...................................... $ 90,759 $1,949,698 $ 715,274
State........................................ 36,314 106,665 258,787
Foreign...................................... 208,556 412,399 999,060
-------- ---------- ----------
335,629 2,468,762 1,973,121
Deferred:
Federal & State.............................. 571,887 (967,259) (846,882)
-------- ---------- ----------
Total provision for income taxes............... $907,516 $1,501,503 $1,126,239
======== ========== ==========
</TABLE>
F-15
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income before income taxes and minority interest of consolidated
subsidiaries and dividends for U.S. and foreign-based operations is shown
below:
<TABLE>
<CAPTION>
Fiscal years ended April 30
--------------------------------
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
U.S............................................ $4,574,310 $6,724,365 $2,581,780
Foreign........................................ 1,608,825 1,178,284 2,073,188
---------- ---------- ----------
$6,183,135 $7,902,649 $4,654,968
========== ========== ==========
</TABLE>
The current federal provision for income taxes for fiscal years 1999 and
2000 was reduced by using research and development credits of approximately
$502,000 and $292,000, respectively. The current state provision for income
taxes for fiscal years 1999 and 2000 was reduced by using research and
development and investment credits of approximately $516,000 and $191,000,
respectively.
Management has determined, based on the Company's history of prior operating
earnings and its expectations of future earnings, 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 rate in the future
years will approximate the statutory rates.
A reconciliation of income taxes computed at the federal statutory income
tax rate to income taxes reported in the consolidated statements of income is
as follows:
<TABLE>
<CAPTION>
Fiscal years ended
April 30
------------------------
1998 1999 2000
------ ------ ------
<S> <C> <C> <C>
Federal statutory income tax rate.................... 34.0 % 34.0 % 34.0 %
Permanent differences................................ 3.0 2.0 1.8
Benefit of net operating loss carryforwards.......... (13.8) (.7) --
Foreign tax credit from sale of IMPCO BV............. -- (7.6) --
State tax, net....................................... .4 3.5 4.9
Foreign tax, net..................................... .1 .2 6.3
R & D credit......................................... (9.0) (12.4) (22.8)
------ ------ ------
Effective tax rate................................... 14.7 % 19.0 % 24.2 %
====== ====== ======
</TABLE>
The components of the Company's deferred tax liabilities and assets is as
follows:
<TABLE>
<CAPTION>
Fiscal years ended
April 30
------------------------
1999 2000
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation......................... $(1,076,502) $(1,087,747)
Other.............................................. (107,079) (905,414)
----------- -----------
(1,183,581) (1,993,161)
=========== ===========
Deferred tax assets:
Tax credit carryforwards........................... 2,602,593 3,545,423
Inventory reserves................................. 452,780 647,511
Other provisions for estimated expenses............ 773,743 1,292,644
----------- -----------
$ 3,829,116 $ 5,485,578
=========== ===========
</TABLE>
F-16
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the fiscal year ended April 30, 2000, the Company has a general business
tax credit carryforward available for federal income tax purposes of
approximately $2,180,000 which, if not used, will expire by fiscal year 2014.
Additionally, the Company has an alternative minimum tax credit carryforward
available for federal income tax purposes of approximately $355,000 which
expire for tax reporting purposes. The Company also has research and
development credit carryforwards for state income tax purposes of approximately
$1,011,000 which do not expire for tax reporting purposes.
6. Commitments and Contingencies
(a) Leases
The Company has certain non-cancelable operating leases for facilities and
equipment, and non-cancelable capital leases for machinery, equipment and motor
vehicles. Future minimum lease commitments under non-cancelable leases at April
30, 2000 are as follows:
<TABLE>
<CAPTION>
Lease Obligations
----------------------
Fiscal years ending April 30, Capital Operating
----------------------------- ---------- -----------
<S> <C> <C>
2001.................................................... $ 914,076 $ 2,344,273
2002.................................................... 744,316 2,375,257
2003.................................................... 646,316 2,280,425
2004.................................................... 546,488 1,878,671
2005.................................................... 7,166 917,061
Thereafter.............................................. -- 1,891,926
---------- -----------
Total minimum lease payments............................ 2,858,362 $11,687,613
===========
Less imputed interest................................... 577,742
----------
Present value of future minimum lease payments.......... 2,280,620
Less current portion.................................... 759,421
----------
Long-term capital lease obligation...................... $1,521,199
==========
</TABLE>
Total rental expense under the operating leases for fiscal years ended April
30, 1998, 1999, and 2000 was approximately $1,127,000, $1,281,000, and
$1,846,000, respectively. These leases are non-cancelable and certain leases
have renewal options.
The Company used a $3,000,000 capital lease facility to finance acquisitions
of equipment such as machinery, dies, molds and patterns, office furniture and
fixtures and motor vehicles. At April 30, 1998, 1999, and 2000, approximately
$2,625,000, $2,946,000 and $2,168,000 was outstanding under the capital lease
facility, respectively. At April 30, 1999, the gross and net assets acquired
under the capital lease facility were approximately $5,224,000 and $2,565,000,
respectively. At April 30, 2000, the gross and net assets acquired under the
capital lease facility were approximately $4,581,000 and $2,091,000,
respectively.
(b) Contingencies
The Company is currently subject to certain legal proceedings and claims
arising in the ordinary course of business. Based on discussions with legal
counsel, management does not believe that the outcome of any of these matters
will have a materially adverse effect on the Company's consolidated financial
statements.
(c) Investment and Tax Savings Plan
The Company's Investment and Tax Savings Plan (the "Plan") is a defined
contribution plan, which is qualified under Internal Revenue Service Code
Section 401(k). The Plan is subject to the provisions of the
F-17
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Employee Retirement Income Security Act of 1974. All employees who are at least
age twenty-one or older are eligible to participate in the Plan on the first
day of employment with the Company. Employees of the Company who elect to
participate in the Plan may contribute into the Plan not less than 1% nor more
than 15% of compensation. The Company's matching contributions are
discretionary and match elective salary deferrals up to 3.0% of compensation.
Approximately 66% of eligible employees were enrolled in the 401(k) plan at
April 30, 2000. Employer contributions approximated $98,000, $122,000, and
$482,000 for fiscal years ended 1998, 1999, and 2000, respectively.
7. Stockholders' Equity
(a) 1993 Series 1 Preferred Stock
The holders of the Company's 1993 Series 1 Preferred Stock ("Preferred
Stock") were entitled to receive annual cumulative dividends of up to $105 per
share and not less than $80 per share ($100 per share at April 30, 1999). The
dividend rate, which was adjusted on the first day of each calendar quarter,
was based on the Seafirst Bank prime rate of interest plus 1.5% (assuming a
deemed principal value of $1,000 per share).
Commencing March 31, 1999, the Company had the right to convert the
Preferred Stock into common stock if the average market price for the common
stock for the immediately preceding 30 trading days equals or exceeds the
conversion price then in effect and the Company pays all accrued dividends. On
March 31, 1999, in accordance with its conversion right, the Company converted
5,950 shares of Preferred Stock into 1,124,764 shares of common stock and paid
all accrued dividends. The Preferred Stock was convertible into common stock by
dividing the conversion price at March 31, 1999 into its liquidation value of
$1,000 for each share being converted, which resulted in a conversion price of
$5.29 per share.
(b) Stockholder Protection Rights Agreement
On June 30, 1999, 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. Each right entitles the holder to
purchase one share of common stock. The dividend was paid on July 26, 1999 to
stockholders of record on July 12, 1999.
F-18
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(c) Stock options
The Company has five stock option plans that provide for the issuance of
options to key employees and directors of the Company at the fair market value
at the time of grant. Options under the plans generally vest in 4 or 5 years
and are generally exercisable while the individual is an employee or a
director, or ordinarily within one month following termination of employment.
In no event may options be exercised more than ten years after date of grant.
<TABLE>
<CAPTION>
Number Of Weighted Average
Shares Exercise Price
--------- ----------------
<S> <C> <C>
Outstanding at April 30, 1997....................... 922,810 $ 7.82
Options granted................................... 475,556 $ 7.86
Options exercised................................. (57,795) $ 3.36
Options forfeited................................. (32,485) $ 6.80
--------- ------
Outstanding at April 30, 1998....................... 1,308,086 $ 8.06
Options granted................................... 406,688 $ 9.25
Options exercised................................. (192,116) $ 7.46
Options forfeited................................. (20,000) $12.27
--------- ------
Outstanding at April 30, 1999....................... 1,502,658 $ 8.40
Granted........................................... 104,974 $10.46
Exercised......................................... (163,326) $ 7.18
Forfeited......................................... (122,375) $ 8.35
--------- ------
Options outstanding at April 30, 2000............... 1,321,931 $ 8.72
========= ======
Shares exercisable at April 30, 1998................ 544,232 $ 8.63
========= ======
Shares exercisable at April 30, 1999................ 489,517 $ 8.85
========= ======
Shares exercisable at April 30, 2000................ 685,334 $ 8.68
========= ======
</TABLE>
Summarized information about stock options outstanding and exercisable at
April 30, 2000 is as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------- ---------------
Number
Number Average Average of Average
Exercise Price Range of Shares Life Price Shares Price
-------------------- --------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$0.00 to $1.625....................... 17,406 1.5 $ 0.06 17,406 $ 0.06
$3.25 to $4.875....................... 3,000 1.5 $ 3.89 3,000 $ 3.89
$4.875 to $6.50....................... 154,083 5.6 $ 5.99 99,049 $ 5.85
$6.50 to $8.125....................... 630,500 7.0 $ 7.64 238,500 $ 7.63
$8.125 to $9.75....................... 122,165 6.0 $ 8.60 103,478 $ 8.60
$9.75 to $11.375...................... 183,543 6.9 $10.70 80,414 $11.11
$11.375 to $13.00..................... 147,000 4.4 $11.77 128,050 $11.73
$13.00 to $14.625..................... 4,234 9.3 $13.53 437 $13.13
$14.625 to $16.25..................... 60,000 8.5 $16.25 15,000 $16.25
--------- -------
1,321,931 685,334
========= =======
</TABLE>
At April 30, 2000, there were 47,895 shares available for future grant.
The Company has elected to account for its employee stock options under
Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees" (APB 25) and related Interpretations in accounting
F-19
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
for employee stock options. No compensation expense is recorded under APB 25
because the exercise price of the Company's employee common stock options
equals the market price of the underlying common stock on the grant date.
SFAS 123 requires "as adjusted" information regarding net income and net
income per share to be disclosed for new options granted after fiscal year
1996. The fair value of these options was determined at the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
Year Ended April 30
-------------------
1998 1999 2000
----- ----- -----
<S> <C> <C> <C>
Expected dividend yield................................. 0.0% 0.0% 0.0%
Calculated volatility................................... 0.534 0.584 0.729
Risk-free interest rate................................. 3% 3% 3%
Expected life of the option in years.................... 9.09 8.82 8.82
</TABLE>
The estimated fair value of the options is amortized to expense over the
options' vesting period for "as adjusted" disclosures. The net income per share
"as adjusted" for the effects of SFAS 123 is not indicative of the effects on
reported net income/loss for future years. The Company's reported "as adjusted"
information at April 30 is as follows: (in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended April 30
--------------------
1998 1999 2000
------ ------ ------
<S> <C> <C> <C>
Net income............................................. $4,270 $5,800 $3,065
As adjusted............................................ $3,628 $5,645 $2,893
Net income per share as reported--basic................ $ 0.67 $ 0.80 $ 0.36
Net income per share as adjusted--basic................ $ 0.57 $ 0.77 $ 0.34
Net income per share as reported--dilutive............. $ 0.60 $ 0.71 $ 0.33
Net income per share as adjusted--dilutive............. $ 0.52 $ 0.69 $ 0.31
</TABLE>
F-20
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Fiscal Year Ended April 30
----------------------------------
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Numerator:
Net income................................ $5,275,619 $6,401,146 $3,528,729
Preferred stock dividends................. (594,997) (530,542) --
Minority interest......................... (410,554) (70,532) (463,233)
---------- ---------- ----------
Numerator for basic earnings per
share--income available to common
stockholders............................. 4,270,068 5,800,072 3,065,496
Effect of dilutive securities:
Preferred stock dividends................ 594,997 530,542 --
---------- ---------- ----------
Numerator for diluted earnings per
share--income available to common
stockholders after assumed
conversions ............................. $4,865,065 $6,330,614 $3,065,496
Denominator:
Denominator for basic earnings per
share--weighted-average shares........... 6,333,769 7,293,160 8,489,229
Effect of dilutive securities:
Employee stock options.................... 450,315 650,151 743,070
Warrants.................................. 246,628 -- --
Convertible preferred stock(1)............ 1,124,764 1,032,318 --
---------- ---------- ----------
Dilutive potential common shares............ 1,821,707 1,682,469 743,070
Denominator for diluted earnings per
share--adjusted weighted-average
shares and assumed conversions........... 8,155,476 8,975,629 9,232,299
---------- ---------- ----------
Basic earnings per share.................. $ 0.67 $ 0.80 $ 0.36
---------- ---------- ----------
Diluted earnings per share................ $ 0.60 $ 0.71 $ 0.33
========== ========== ==========
</TABLE>
--------
(1) On March 31, 1999, all outstanding preferred stock was converted to common
stock and the diluted Earnings Per Share is calculated as though the
conversion occurred at the beginning of the fiscal year. The basic earnings
per share is calculated with weighted average shares based on the
conversion at March 31, 1999. The convertible preferred shares is equal to
the full conversion (1,124,764 shares) less the weighted average shares
outstanding for the month of April 1999 (92,446 shares).
For additional disclosures regarding the employee stock options, see Note 7.
Options to purchase 60,000 shares of common stock at $16.25 were outstanding
during fiscal year 1999 and options to purchase 260,000 shares of common stock
at prices ranging from $10.88 to $11.78 were outstanding during fiscal year
1998 but were not included in the computation of diluted earnings per share
because the options' exercise price was greater than the average market price
of the common shares and, therefore, the effect would be anti-dilutive.
F-21
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Revenues
During fiscal year 1998, the IMPCO BV, IMPCO Pty and IMPCO Mexicano
subsidiaries accounted for approximately 16%, 10% and 1% of total consolidated
revenues, respectively, and contract revenue accounted for approximately 12% of
consolidated revenues. During fiscal year 1999, the IMPCO BV, IMPCO Pty, Grupo
IMPCO Mexicano and IMPCO Japan subsidiaries accounted for approximately 15%,
6%, 3% and less than 1% of total consolidated revenues, respectively, and
contract revenue accounted for approximately 13% of consolidated revenues.
During fiscal year 2000, the IMPCO BV, IMPCO Pty, Grupo IMPCO Mexicano and
IMPCO Japan subsidiaries accounted for approximately 12%, 6%, 6% and less than
3% of total consolidated revenues, respectively, and contract revenue accounted
for approximately 8% of consolidated revenues. During fiscal year 1998, 1999,
and 2000, General Motors Corporation, and customers associated with the General
Motors program, accounted for approximately 15%, 28% and 16%, respectively, of
consolidated revenues.
The Company routinely sells products to a broad base of domestic and
international customers, which includes distributors and original equipment
manufacturers. Based on the nature of these customers, credit is generally
granted without collateral being required. Management does not anticipate that
a significant credit risk exists as a result of these customer relationships.
10. Business Segment And Geographic Information
Business Segments. The Company currently operates in three operating
segments: Automotive OEM division, Gaseous Fuel Products division and
International Operations. The Automotive OEM division generates revenues
through the sale of fuel metering, storage 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 Company's International Operations in Australia,
Europe, Japan and Mexico provide distribution for the Company's products,
predominantly from its Gaseous Fuel Products division, as well as some product
assembly.
Corporate expenses consist of general and administrative expenses at the
corporate level and includes the amortization of goodwill and other intangible
assets. Intersegment eliminations are primarily the result of intercompany
sales from our Gaseous Fuel Products division to our 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. 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. The accounting policies of the reportable
segments are the same as those described in the Summary of Significant
Accounting Policies.
F-22
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Financial Information by Business Segment. Financial information by business
segment for continuing operations follows:
<TABLE>
<CAPTION>
Fiscal Year Ended April
30
--------------------------
Revenues (in thousands) 1998 1999 2000
----------------------- ------- ------- --------
<S> <C> <C> <C>
Automotive OEM Division............................ $12,328 $24,469 $ 22,341
Gaseous Fuels Products Division.................... 48,277 52,632 76,831
International Operations........................... 19,304 21,188 29,991
Intersegment Elimination........................... (8,826) (11,463) (16,347)
------- ------- --------
Total............................................ $71,083 $86,826 $112,816
======= ======= ========
<CAPTION>
Fiscal Year Ended April 30
--------------------------
Operating Income (in thousands) 1998 1999 2000
------------------------------- ------- ------- --------
<S> <C> <C> <C>
Automotive OEM Division............................ $(1,451) $ (27) $ (1,460)
Gaseous Fuels Products Division.................... 14,749 14,284 19,451
International Operations........................... 1,772 1,504 2,623
Corporate Expenses................................. (4,996) (5,516) (7,042)
Corporate Research & Development................... (2,523) (3,053) (7,050)
Intersegment Elimination........................... (433) (289) (425)
------- ------- --------
Total............................................ $ 7,118 $ 6,903 $ 6,097
======= ======= ========
<CAPTION>
Fiscal Year Ended April 30
--------------------------
Identifiable Assets (in thousands) 1998 1999 2000
---------------------------------- ------- ------- --------
<S> <C> <C> <C>
Automotive OEM Division............................ $ 9,679 $18,024 $ 20,050
Gaseous Fuels Products Division.................... 18,681 27,663 37,169
International Operations........................... 16,214 18,296 24,904
Corporate.......................................... 13,604 9,579 12,893
------- ------- --------
Total............................................ $58,178 $73,562 $ 95,016
======= ======= ========
<CAPTION>
Fiscal Year Ended April 30
--------------------------
Capital Expenditures (in thousands) 1998 1999 2000
----------------------------------- ------- ------- --------
<S> <C> <C> <C>
Automotive OEM Division............................ $ 2,304 $ 1,163 $ 1,891
Gaseous Fuels Products Division.................... 528 1,067 1,076
International Operations........................... 134 228 600
Corporate.......................................... 254 340 115
------- ------- --------
Total............................................ $ 3,220 $ 2,798 $ 3,682
======= ======= ========
<CAPTION>
Fiscal Year Ended April 30
--------------------------
Depreciation and Amortization (in thousands) 1998 1999 2000
-------------------------------------------- ------- ------- --------
<S> <C> <C> <C>
Automotive OEM Division............................ $ 816 $ 890 $ 1,219
Gaseous Fuels Products Division.................... 1,155 1,261 1,258
International Operations........................... 395 659 602
Corporate.......................................... 547 631 705
------- ------- --------
Total............................................ $ 2,913 $ 3,441 $ 3,784
======= ======= ========
</TABLE>
F-23
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Product Revenues by Application. The Company's product revenues by
application across all business segments follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended April 30
------------------------
1998 1999 2000
------- ------- --------
<S> <C> <C> <C>
Motor vehicle products............................. $21,870 $32,748 $ 48,626
Forklifts and other material handling equipment.... 29,493 31,822 37,947
Small portable to large stationary engines......... 10,846 11,251 16,844
------- ------- --------
Total product sales.............................. $62,209 $75,821 $103,417
======= ======= ========
Geographic Information. The Company's geographic information for revenues to
unaffiliated customers and long-lived assets is shown below. The basis for
determining revenues is the geographic point of shipment. Long-lived assets
represent long-term tangible assets and are physically located in the region as
indicated.
<CAPTION>
Fiscal Year Ended April 30
------------------------
Revenues to Unaffiliated Customers (in thousands) 1998 1999 2000
------------------------------------------------- ------- ------- --------
<S> <C> <C> <C>
United States...................................... $51,779 $65,638 $ 82,824
Europe............................................. 11,588 12,941 13,938
Australia.......................................... 6,893 5,398 6,272
Mexico............................................. 823 2,671 6,678
Japan.............................................. -- 178 3,104
------- ------- --------
Total............................................ $71,083 $86,826 $112,816
======= ======= ========
<CAPTION>
Fiscal Year Ended April 30
------------------------
Long-Lived Assets (in thousands) 1998 1999 2000
-------------------------------- ------- ------- --------
<S> <C> <C> <C>
United States...................................... $ 8,355 $ 9,230 $ 9,580
Europe............................................. 394 309 323
Australia.......................................... 248 282 209
Mexico............................................. 27 47 441
Japan.............................................. -- 17 13
------- ------- --------
Total............................................ $ 9,024 $ 9,885 $ 10,566
======= ======= ========
</TABLE>
11. Contract Revenue
In August 1995, the Company extended its original 1993 two-year fixed-price
contract with General Motors Corporation ("GM") to develop, manufacture and
install compressed natural gas engine management systems ("CNG systems"). Under
the terms of the contract, the Company is engineering, testing and validating
CNG systems for certain 1998, 1999, 2000 and 2001 model year car and truck
platforms in compliance with GM's specifications.
Revenues for development efforts are principally recognized by the
percentage of completion method and principally related to contracts with GM.
During fiscal year 1998, 1999 and 2000, GM and other contract revenues
comprised 12%, 13% and 8% of the Company's total revenues, respectively.
F-24
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Purchases
During fiscal years 1998, 1999, and 2000, purchases from one vendor
constituted approximately 18%, 7% and 10% of consolidated net inventory
purchases, respectively. In fiscal year 1999 and 2000, 10 suppliers accounted
for approximately 32% and 38%, respectively, of consolidated net inventory
purchases.
13. Supplementary Cash Flow Information
For fiscal years 1998, 1999, and 2000, the Company incurred capital lease
obligations of approximately $1,296,000, $1,264,000 and $100,000,
respectively.
Interest and taxes paid for fiscal year 1998, 1999, and 2000 are as
follows:
<TABLE>
<CAPTION>
Fiscal year ended April 30
------------------------------
1998 1999 2000
-------- ---------- ----------
<S> <C> <C> <C>
Interest paid.................................... $940,000 $1,221,000 $1,452,000
Taxes paid....................................... 191,000 3,042,000 2,379,000
</TABLE>
14. Quarterly Results Of Operations (Unaudited)
A summary of the unaudited quarterly results of operations follows (in
thousands, except per share amounts):
Fiscal year 1999
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Product sales................................ $17,187 $16,902 $16,044 $25,688
Contract revenue............................. 2,686 3,420 3,824 1,075
Net revenue.................................. 19,873 20,322 19,868 26,763
Cost of product sales........................ 10,915 11,927 10,933 18,403
Gross profit on product sales................ 6,272 4,975 5,111 7,285
Research and development expense............. 2,700 3,082 2,777 3,052
Net income................................... 1,484 893 3,075 348
Net income per share:
Basic...................................... $ 0.21 $ 0.12 $ 0.43 $ 0.05
Diluted.................................... $ 0.18 $ 0.11 $ 0.36 $ 0.05
</TABLE>
Fiscal year 2000
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Product sales............................... $27,058 $24,870 $24,832 $26,658
Contract revenue............................ 1,362 2,487 3,104 2,445
Net revenue................................. 28,420 27,357 27,936 29,103
Cost of product sales....................... 17,815 15,846 17,090 19,049
Gross profit on product sales............... 9,243 9,024 7,742 7,609
Research and development expense............ 3,015 3,618 3,909 5,035
Net income.................................. 1,554 1,503 792 (783)
Net income per share:
Basic..................................... $ 0.18 $ 0.18 $ 0.09 $ (0.09)
Diluted................................... $ 0.18 $ 0.17 $ 0.09 $ (0.09)
</TABLE>
F-25
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. Other Matters
In April 1997, the Company sold air pollution control devices to its
subsidiary, IMPCO BV, a Netherlands corporation. This subsidiary then sold the
goods to Sagace Holland B.V., another Netherlands corporation, which reexported
the goods to Iran, contrary to U.S. licenses authorizing the initial export of
the goods from the United States. The sales involved approximately 150 units of
emission control equipment used on forklifts or similar vehicles that operate
on compressed natural gas with a value of approximately $350,000. These events
were voluntarily reported by the Company to the Office of Export Enforcement,
U.S. Department of Commerce, and the Office of Foreign Assets Control, U.S.
Department of the Treasury, in August 1997.
Subsequent to reporting the foregoing events, the Company learned that in
April 1997, the Company sold similar air pollution control devices with a value
of approximately $100,000 to a distributor. The distributor then reexported
these goods to Iran, again contrary to U.S. export licenses. These events were
also voluntarily disclosed by the Company to the same Federal agencies in 1998.
During the fiscal quarter ended January 31, 2000, the Company reached a
settlement agreement with the Office of Foreign Assets Control, Department of
Treasury, concerning the violation of certain U.S. Government export
regulations. Under the terms of the settlement agreement, the Company made a
cash payment of $11,000 as payment in full resolving all matters.
F-26
<PAGE>
[LOGO OF IMPCO]
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 12, 2000
[LOGO OF IMPCO]
2,500,000 Shares
Common Stock
IMPCO Technologies, Inc. is offering 1,625,000 shares of its common stock and
the selling stockholders are selling an additional 875,000 shares of our common
stock. Our common stock is traded on the Nasdaq National Market under the
symbol "IMCO." The last reported sale price of the common stock on the Nasdaq
National Market on June 12, 2000 was $29.125 per share.
--------------
Investing in the common stock involves risks.
See "Risk Factors" beginning on page 7.
--------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price........................................... $ $
Underwriting Discounts and Commissions.......................... $ $
Proceeds to IMPCO............................................... $ $
Proceeds to the Selling Stockholders............................ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
We have granted the underwriters a 30-day option to purchase up to an
additional 375,000 shares of common stock to cover over-allotments.
--------------
Robertson Stephens International
CIBC World Markets
FAC/Equities
The date of this Prospectus is , 2000
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., CIBC World Markets Corp. and FAC/Equities,
a division of First Albany Corporation, have severally agreed with us, subject
to the terms and conditions of the underwriting agreement, to purchase from us
the number of shares of common stock set forth below opposite their respective
names. The underwriters are committed to purchase and pay for all shares if any
are purchased.
<TABLE>
<CAPTION>
Number of
Shares
---------
Underwriter
-----------
<S> <C>
FleetBoston Robertson Stephens Inc. ...............................
CIBC World Markets Corp. ..........................................
FAC/Equities, a division of First Albany Corporation ..............
<CAPTION>
International Underwriter
-------------------------
<S> <C>
FleetBoston Robertson Stephens International Limited ..............
CIBC World Markets PLC ............................................
FAC/Equities, a division of First Albany Corporation ..............
---------
Total ........................................................... 2,500,000
=========
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the public offering price set forth
on the cover page of this prospectus and to certain dealers at that price less
a concession of not in excess of $ per share, of which $ may be reallowed
to other dealers. After this offering, the public offering price, concession
and reallowance to dealers may be reduced by the representatives. No such
reduction shall change the amount of proceeds to be received by us as set forth
on the cover page of this prospectus. The common stock is offered by the
underwriters as stated herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 375,000 additional shares of common stock to cover over-
allotments, if any, at the public offering price less the underwriting discount
set forth on the cover page of this prospectus. If the underwriters exercise
their over-allotment option to purchase any of the additional 375,000 shares of
common stock, the underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof as the number
of shares to be purchased by each of them bears to the total number of shares
of common stock offered in this offering. If purchased, these additional shares
will be sold by the underwriters on the same terms as those on which the shares
offered hereby are being sold. We will be obligated, pursuant to the over-
allotment option, to sell shares to the underwriters to the extent the over-
allotment option is exercised. The underwriters may exercise the over-allotment
option only to cover over-allotments made in connection with the sale of the
shares of common stock offered in this offering.
53
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following is an itemized list of the estimated expenses to be incurred
in connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions.
<TABLE>
<CAPTION>
Amount
to be
Paid
--------
<S> <C>
Registration fee................................................... $ 22,438
NASD filing fee.................................................... 9,000
Printing and Engraving expenses.................................... 175,000
Legal fees and expenses............................................ 300,000
Blue Sky qualification fees and expenses........................... 10,000
Accounting fees and expenses....................................... 150,000
Transfer Agent and registrar fees.................................. 15,000
Miscellaneous...................................................... 118,562
--------
Total............................................................ $800,000
========
</TABLE>
Item 15. Indemnification of Directors and Officers
Section 145 of the DGCL contains detailed provisions on indemnification of
directors and officers against expenses, judgments, fines and amounts paid in
settlement, actually and reasonably incurred in connection with legal
proceedings. Section 102(a)(7) of the DGCL permits a provision in the
certificate of incorporation of each corporation organized thereunder, such as
the Company, eliminating or limiting, with certain exceptions, the personal
liability of a director of the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. The Certificate of
Incorporation of the Company eliminates the liability of each of its directors
to its stockholders or the Company for monetary damages for breach of fiduciary
duty to the full extent provided by the Delaware General Corporation Law (the
"DGCL"), as such law exists or may hereafter be amended.
Indemnification applies to any threatened, pending or completed action, suit
or proceeding, whether, civil, criminal, administrative or investigative.
Indemnification may include all expenses (including attorneys' fees, judgments,
fines, ERISA excise taxes and amounts paid in settlement) reasonably incurred
by the indemnified person.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
See Exhibit Index.
(b) Financial Statement Schedules
Report of Independent Auditors on Financial Statement Schedule
Schedule II--Valuation And Qualifying Accounts
Other schedules are omitted because they are not applicable or because the
information is included in the financial statements or the related notes.
II-1
<PAGE>
Item 17. Undertakings
We hereby undertake that:
(1) For purposes of determining any liability under the Securities Act of
1933, as amended (the "Securities Act"), each filing of our annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that
is incorporated by reference to this Registration Statement shall be deemed to
be a new registration statement relating to the securities offered therein, and
the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(2) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons
pursuant to the Delaware General Corporation Code, our Certificate of
Incorporation or the Bylaws, indemnification agreements entered into between us
and our officers and directors, the Underwriting Agreement and all prior
underwriting agreements, or otherwise, we have been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by us of expenses incurred or paid by a
director, officer or controlling person in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered
hereunder, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by us is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue;
(3) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by us pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective; and
(4) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Cerritos, County of Los Angeles, State of California, on July 13, 2000.
IMPCO Technologies, Inc.
/s/ Robert M. Stemmler
By: _________________________________
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to the Registration Statement
on Form S-3 to be signed on its behalf by the undersigned, each thereunto duly
authorized, in the City of Cerritos, County of Los Angeles, State of
California, as of July 13, 2000.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Robert M. Stemmler Chief Executive Officer July 13, 2000
______________________________________ and Chairman of the
Robert M. Stemmler Board (Principal
Executive Officer)
/s/ William B. Olson Chief Financial Officer July 13, 2000
______________________________________ and Treasurer
William B. Olson (Principal
Financial Officer)
/s/ Timothy S. Stone Corporate Controller July 13, 2000
______________________________________
Timothy S. Stone
* Director July 13, 2000
______________________________________
Norman L. Bryan
* Director July 13, 2000
______________________________________
</TABLE> Paul Mlotok
II-3
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
* Director July 13, 2000
______________________________________
Ulrich Ruetz
* Director July 13, 2000
______________________________________
Don J. Simplot
* Director July 13, 2000
______________________________________
Douglas W. Toms
</TABLE>
/s/ William B. Olson
*By: __________________________
William B. Olson,
Attorney-in-Fact
II-4
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Stockholders
IMPCO Technologies, Inc.
We have audited the financial statements of IMPCO Technologies, Inc. as of
April 30, 1999 and 2000, and for each of the three years in the period ended
April 30, 2000, and have issued our report thereon dated May 31, 2000, except
for the first paragraph of Note 3, as to which the date is June 13, 2000
(included elsewhere in this Registration Statement). Our audits also included
the financial statement schedule listed in Item 16(b) of this Registration
Statement. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Long Beach, California
May 31, 2000 except for the first paragraph of Note 3
as to which the date is June 13, 2000
II-5
<PAGE>
SCHEDULE II--VALUATION ACCOUNTS
<TABLE>
<CAPTION>
Additions
charged
Balance at (credited) Write-offs Balance
beginning to costs and and other at end of
of period expenses adjustments period
---------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
for the period ended:
April 30, 2000................ $ 535,824 $561,679 $(531,905) $ 565,597
April 30, 1999................ 314,794 305,958 (84,928) 535,824
April 30, 1998................ 288,111 119,390 (92,707) 314,794
Inventory valuation reserve for
the period ended:
April 30, 2000................ 1,543,474 540,310 (140,464) 1,943,320
April 30, 1999................ 774,732 938,906 (170,164) 1,543,474
April 30, 1998 ............... 837,718 235,865 (298,851) 774,732
Warranty reserve for the period
ended:
April 30, 2000................ 488,811 693,281 (541,738) 640,354
April 30, 1999................ 301,190 224,968 (37,347) 488,811
April 30, 1998................ 275,760 219,813 (194,383) 301,190
Product liability reserve for
the period ended:
April 30, 2000................ 1,000 -- -- 1,000
April 30, 1999................ 48,991 -- (47,991) 1,000
April 30, 1998................ 91,935 -- (42,944) 48,991
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
1.1** Form of Underwriting Agreement.
4.1* Stockholders' Protection Rights Agreement dated as of June 30, 1999
between IMPCO Technologies, Inc. and ChaseMellon Stockholder
Services, L.L.C., as Rights Agent.
5.1** Opinion of Morrison & Foerster LLP.
10.1** IMPCO and GM Teaming Agreement, dated July 30, 1997 by IMPCO
Technologies, Inc. and General Motors Corporation
10.2** Agreement dated as of April 5, 2000 among Questor Partners Fund, L.P.,
Questor Side-by-Side Partners L.P. and IMPCO Technologies, Inc.
10.3** Employment Agreement dated August 2, 1999, between IMPCO Technologies,
Inc. as the Company, and William B. Olson as the Employee.
10.4 Amendment No. 3 to Business Loan Agreement by and between Bank of
America, N.A. and IMPCO Technologies, Inc. dated as of June 13, 2000.
10.5+ Lease dated as of March 31, 2000, by and between Braden Court
Associates and IMPCO Technologies, Inc.
23.1 Consent of Ernst & Young LLP.
23.2** Consent of Morrison & Foerster LLP (included as part of its opinion
filed as Exhibit 5.1).
24.1** Power of Attorney (see page II-4).
27.1+ Financial Data Schedule.
</TABLE>
--------
* Incorporated by reference from Form 8-K dated June 30, 1999 and filed as
Exhibit (4) thereunder.
** Previously filed.
*** To be filed by amendment
+ Incorporated by reference from Form 10-K dated April 30, 2000 and filed as
Exhibit 10.4 and 27.1 thereunder.
II-7
