<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/x/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended October 31, 2000, or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File No. 0-16115
IMPCO Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 91-1039211
_________________________________ ________________________________
(State of Incorporation) (IRS Employer I.D. No.)
16804 Gridley Place, Cerritos, CA 90703
___________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (562) 860-6666
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
---- ---
Number of shares outstanding of each of the issuer's classes of common stock,
as of November 30, 2000:
10,274,377 shares of Common Stock, $.001 par value per share.
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENT
IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, 2000 and October 31, 2000
<TABLE>
<CAPTION>
April 30, October 31,
2000 2000
--------- -----------
(Unaudited)
-----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,012,236 $ 31,058,334
Accounts receivable....................................... 30,837,388 31,856,330
Less allowance for doubtful accounts.................... 565,597 934,973
----------- ------------
Net accounts receivable................................ 30,271,791 30,921,357
Inventories:
Raw materials and parts................................ 18,506,961 19,110,965
Work-in-process........................................ 836,308 535,777
Finished goods......................................... 13,628,649 9,392,373
----------- ------------
Total inventories.................................... 32,971,918 29,039,115
Deferred tax assets....................................... 4,237,571 5,055,123
Income taxes receivable................................... 134,983 1,943,375
Other current assets...................................... 2,756,473 3,578,774
----------- ------------
Total current assets.................................... 73,384,972 101,596,078
Equipment and leasehold improvements:
Dies, molds and patterns.................................. 6,537,110 6,888,423
Machinery and equipment................................... 8,340,978 9,859,147
Office furnishings and equipment.......................... 7,191,795 10,472,432
Automobiles and trucks.................................... 542,157 497,712
Leasehold improvements.................................... 3,461,098 3,761,723
----------- ------------
26,073,138 31,479,437
Less accumulated depreciation and amortization............ 15,507,208 16,845,854
----------- ------------
Net equipment and leasehold improvements............... 10,565,930 14,633,583
Intangibles arising from acquisitions....................... 15,758,461 15,599,927
Less accumulated amortization............................. 5,271,918 5,567,545
----------- ------------
Net intangibles arising from acquisitions................. 10,486,543 10,032,382
Other assets................................................ 578,568 642,445
----------- ------------
$95,016,013 $126,904,488
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ApriL 30, 2000 AND October 31, 2000
(Continued)
<TABLE>
<CAPTION>
April 30, October 31,
2000 2000
---- ----
(Unaudited)
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable ............................................................ $ 13,652,011 $ 10,372,454
Accrued payroll obligations ................................................. 3,942,028 3,510,489
Other accrued expenses ...................................................... 2,341,567 2,264,540
Current maturities of long-term debt and capital leases ..................... 3,820,697 3,836,910
------------ ------------
Total current liabilities ................................................. 23,756,303 19,984,393
Lines of credit ............................................................... 18,808,699 4,522,499
Term loans .................................................................... 3,014,257 2,251,721
Capital leases ................................................................ 1,521,199 1,175,419
Deferred tax liabilities ...................................................... 745,154 742,621
Minority interest ............................................................. 1,791,058 1,944,808
Commitments and contingencies -- --
Stockholders' equity:
Common stock, $.001 par value, authorized 100,000,000
shares; 10,274,377 issued and outstanding at October 31, 2000
(8,571,807 at April 30, 2000) 8,572 10,274
Additional paid-in capital .................................................. 47,539,037 101,367,712
Shares held in trust ........................................................ (110,320) (151,306)
Retained earnings ........................................................... 667,683 (1,322,102)
Accumulated other comprehensive income ...................................... (2,725,629) (3,621,551)
------------ ------------
Total stockholders' equity ................................................ 45,379,343 96,283,027
------------ ------------
$ 95,016,013 $126,904,488
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited
Three and Six Months ended October 31, 1999 and 2000
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
1999 2000 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Product sales......................................... $24,869,749 $22,656,054 $51,927,243 $49,255,413
Contract revenue...................................... 2,487,168 2,695,484 3,849,628 5,364,142
----------- ----------- ----------- -----------
Net revenue......................................... 27,356,917 25,351,538 55,776,871 54,619,555
Costs and expenses:
Cost of product sales................................. 15,845,852 15,866,251 33,660,361 33,860,199
Research and development expense...................... 3,617,732 7,243,079 6,632,505 13,240,641
Selling, general and
administrative expense.............................. 5,144,866 4,985,003 10,084,577 10,609,510
----------- ----------- ----------- -----------
Total costs and expenses............................ 24,608,450 28,094,333 50,377,443 57,710,350
Operating income (loss)................................. 2,748,467 (2,742,795) 5,399,428 (3,090,795)
Interest expense (income), net.......................... 346,001 (293,979) 577,711 247,449
----------- ----------- ----------- -----------
Income (loss) before income taxes, minority
interest in income of consolidated
subsidiaries and dividends............................. 2,402,466 (2,448,816) 4,821,717 (3,338,244)
Income tax expense (benefit)............................ 768,789 (1,102,446) 1,542,949 (1,502,209)
Minority interest in income of
consolidated subsidiaries.............................. 130,999 35,461 222,374 153,750
----------- ----------- ----------- -----------
Net income (loss) applicable to common stock............ $ 1,502,678 $(1,381,831) $ 3,056,394 $(1,989,785)
=========== =========== =========== ===========
Net income (loss) per share:
Basic................................................. $ 0.18 $ (0.13) $ 0.36 $ (0.21)
=========== =========== =========== ===========
Diluted............................................... $ 0.17 $ (0.13) $ 0.35 $ (0.21)
=========== =========== =========== ===========
Number of shares used in per share
calculation:
Basic................................................. 8,442,818 10,271,056 8,448,349 9,595,984
=========== =========== =========== ===========
Diluted............................................... 8,874,640 10,271,056 8,837,840 9,595,984
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Six Months Ended October 31, 1999 and 2000
<TABLE>
<CAPTION>
October 31, October 31,
1999 2000
---- ----
<S> <C> <C>
Net cash used in operating activities...................................... $ (3,008,758) $ (3,776,405)
Cash flows from investing activities:
Purchases of equipment and leasehold improvements....................... (1,200,323) (5,828,255)
Purchase of intangible assets........................................... (25,689) (127,089)
Proceeds from sales of equipment........................................ 15,082 7,086
----------- ------------
Net cash used in investing activities...................................... (1,210,930) (5,948,258)
Cash flows from financing activities:
Increase (decrease) in borrowings under lines of credit................. 6,461,408 (13,629,671)
Payments to acquire shares held in trust................................ (23,699) (40,986)
Payments on term loans.................................................. (1,373,075) (1,157,738)
Payments from capital lease obligations................................. (337,793) (334,023)
Proceeds from issuance of common stock.................................. 446,241 53,130,296
----------- ------------
Net cash provided by financing activities.................................. 5,173,082 37,967,878
Translation adjustment..................................................... (59,417) (197,117)
----------- ------------
Net increase in cash and cash equivalents.................................. 893,977 28,046,098
Cash and cash equivalents at beginning of period........................... 2,009,208 3,012,236
----------- ------------
Cash and cash equivalents at end of period................................. $ 2,903,185 $ 31,058,334
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1999 and 2000
-------------
1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements are unaudited
and reflect all adjustments (consisting only of normal recurring adjustments)
which are, in the opinion of management, necessary for the fair presentation of
the financial position and operating results for the interim periods. The
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto, together with
management's discussion and analysis of financial condition and the results of
operations, contained in our Annual Report on Form 10-K for the fiscal year
ended April 30, 2000. The condensed consolidated balance sheet of IMPCO
Technologies, Inc. (IMPCO or the Company) as of October 31, 2000 includes the
accounts of the Company and its majority owned subsidiary IMPCO-BERU
Technologies B.V. (IMPCO BV), its majority owned subsidiary Grupo I.M.P.C.O.
Mexicano, S. de R.L. de C.V. (IMPCO Mexicano), and its wholly owned subsidiaries
IMPCO Technologies, Pty. Limited (IMPCO Pty) and IMPCO Tech Japan K.K. (IMPCO
Japan). The results of operations for the three and six months ended October
31, 2000 are not necessarily indicative of the results that may be expected for
the entire year ending April 30, 2001.
2) EQUITY OFFERING
On April 7, 2000, the Company filed a Registration Statement on Form S-3 for
an equity offering of 2.5 million shares of common stock. Of that amount,
1,625,000 shares were offered by the Company and 875,000 shares were offered by
a selling shareholder. On July 14, 2000 this registration statement was
declared effective by the SEC and the Company received proceeds of approximately
$53.5 million. A portion of these proceeds, approximately $19 million, was used
to pay down the outstanding Bank of America working capital line of credit. The
remaining portion of the proceeds is expected to be used for the continuing
expansion of the Company's development engineering capabilities and general
corporate purposes including research and development in fuel cell technologies
and working capital.
3) DEBT PAYABLE
Our debt payable is summarized as follows:
<TABLE>
<CAPTION>
April 30, Oct 31,
2000 2000
----------- -----------
<S> <C> <C>
Bank of America NT&SA
Revolving line of credit.................................................. $15,550,000 $ 0
Mexican peso line of credit............................................... 851,000 523,000
Term loans for acquisitions............................................... 3,028,000 2,105,000
Capital lease and expenditure facilities.................................. 4,843,000 6,787,000
IMPCO BV term loan........................................................ 1,043,000 809,000
Credit facility--Mees Pierson............................................. -- --
The Hong Kong and Shanghai Banking Corporation Ltd.
Term loan for acquisition................................................. 1,183,000 1,027,000
Line of credit............................................................ 555,000 458,000
Other....................................................................... 112,000 78,000
----------- -----------
27,165,000 11,787,000
Less current portion........................................................ 3,821,000 3,837,000
----------- -----------
$23,344,000 $ 7,950,000
=========== ===========
</TABLE>
In December 2000, the Company renegotiated with Bank of America to reduce
the revolving working capital line of credit limit, expand the capital
expenditure facility, and consolidate its acquisition loans and the non-
revolving capital
<PAGE>
expenditure line of credit into one fully amortizing term loan. This new
agreement consists of three credit facilities. A reduced $10,000,000 revolving
line of credit, which currently has a zero balance, a new $5,000,000 non-
revolving capital expenditure line of credit with a term repayment option
available until August 31, 2001, which currently has a zero balance, and a new
$7,100,000 term loan, which matures September 30, 2005, that consolidates four
currently outstanding loans. As of October 31, 2000 our weighted average cost
of debt, including the effect of our interest rate swaps, was 7.72%
Loan Covenants and Collateral. The Bank of America credit facility contains
certain restrictions and financial covenants, including liquidity, tangible net
worth and cash flow coverage thresholds, as well as limitations on other
indebtedness, and is secured by substantially all of the Company's assets. At
October 31, 2000, the Company was in compliance with all covenants.
4) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
1999 2000 1999 2000
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) before dividends $1,502,678 $(1,381,831) $3,056,394 $(1,989,785)
Numerator for basic earnings (loss) per 1,502,678 (1,381,831) 3,056,394 (1,989,785)
share - income (loss) available to
common stockholders to common stock
Effect of dilutive securities:
Numerator for diluted earnings (loss) per $1,502,678 $(1,381,831) $3,056,394 $(1,989,785)
share - income (loss) available to common
stockholders after assumed conversion
Denominator:
Denominator for basic earnings (loss) per 8,442,818 10,271,056 8,448,349 9,595,984
share - weighted-average shares
Effect of dilutive securities:
Employee stock options 431,822 - 389,491 -
---------- ----------- ---------- -----------
Dilutive potential common shares 431,822 - 389,491 -
Denominator for diluted earnings (loss) per
share - adjusted weighted-average shares and
assumed conversion 8,874,640 10,271,056 8,837,840 9,595,984
---------- ----------- ---------- -----------
Basic earnings (loss) per share $ 0.18 $ (0.13) $ 0.36 $ (0.21)
========== =========== ========== ===========
Diluted earnings (loss) per share. $ 0.17 $ (0.13) $ 0.35 $ (0.21)
========== =========== ========== ===========
</TABLE>
5) COMPREHENSIVE INCOME
As of May 1, 1998, the Company adopted SFAS 130, "Reporting Comprehensive
Income." SFAS 130 established new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this Statement
had no impact on the net income or stockholders' equity of the Company. SFAS
130 requires foreign currency translation adjustments, which prior to adoption
were reported separately in stockholders' equity, to be included in other
comprehensive income.
The components of comprehensive income for the three month and six month
periods ended October 31, 1999, and October 31, 2000, are as follows:
<PAGE>
<TABLE>
<CAPTION>
Three Months Six Months
Ended October 31, Ended October 31,
------------------------- -------------------------
1999 2000 1999 2000
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net income (loss)......................................... $1,502,678 $(1,381,831) $3,056,394 $(1,989,785)
Foreign currency translation adjustment................... (181,996) (901,178) (258,887) (895,922)
---------- ----------- ---------- -----------
Comprehensive income (loss)................................. $1,320,682 $(2,283,009) $2,797,507 $(2,885,707)
========== =========== ========== ===========
</TABLE>
6) BUSINESS SEGMENT INFORMATION
The Company classifies its business into three operating segments:
Automotive OEM and Fuel Cell division (formerly known as Automotive OEM
division), Gaseous Fuel Products division and International Operations. The
Automotive OEM and Fuel Cell division generates revenues through the sale of
fuel storage, fuel delivery, and electronic control systems to original
equipment manufacturers (OEMs) and the installation of products into OEM
vehicles. The division also generates contract revenue by providing engineering
design and support to the OEMs so that fuel systems will fit into a variety of
their vehicles as they upgrade their models each year. All fuel cell application
development work is done in this division. The Gaseous Fuel Products division
sells products including parts and conversion systems to OEMs and the
aftermarket. The International Operations in Australia, Europe, Japan and Mexico
provide distribution for the Company's products, predominantly from the Gaseous
Fuel Products division, as well as some product assembly.
Corporate expenses consist of general and administrative expenses at the
corporate level and include the amortization of goodwill and other intangible
assets. Intersegment eliminations are primarily the result of intercompany sales
from the Gaseous Fuel Products division to the International Operations.
All research and development is expensed as incurred. Advanced research and
development expense includes both customer funded research and development and
company sponsored advanced research and development. Each operating segment
conducts its own application engineering and technical support for the sales and
market development of the new products and technology. Customer funded research
and development consists primarily of expenses associated with contract revenue.
These expenses include applications development costs in the Automotive OEM and
Fuel Cell Division funded under customer contracts.
The Company evaluates performance based on profit or loss from operations
before interest and income taxes.
Net revenues and operating income for the Company's business segments for
the three and six months ended October 31, 1999 and 2000 are as follows:
<TABLE>
<CAPTION>
=================================================================================================
Revenues
-------------------------------------------------------------------------------------------------
(in thousands) Three Months Ended Six Months Ended
October 31, October 31,
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Automotive OEM and Fuel Cell Division $ 3,943 $ 4,866 $ 9,227 $11,858
Gaseous Fuels Products Division 20,291 16,244 39,832 36,025
International Operations 7,373 8,182 13,818 15,796
Intersegment Elimination (4,250) (3,940) (7,100) (9,059)
--------------------------------------------------------------------------------------------------
Total $27,357 $25,352 $55,777 $54,620
==================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================
Operating Income/(Loss)
-----------------------
--------------------------------------------------------------------------------------------------
(in thousands) Three Months Ended Six Months Ended
October 31, October 31,
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Automotive OEM and Fuel Cell Division $ (805) $(3,291) $(1,292) $(5,260)
Gaseous Fuels Products Division 5,951 2,763 11,483 6,792
International Operations 781 229 1,444 868
Corporate Expenses (1) (1,768) (1,387) (3,568) (3,161)
Advanced Research & Product Develop. (1) (1,270) (1,229) (2,603) (2,124)
Intersegment Elimination (141) 172 (65) (206)
--------------------------------------------------------------------------------------------------
Total $ 2,748 $(2,743) $ 5,399 $(3,091)
==================================================================================================
</TABLE>
(1) Represents corporate expenses and corporate research and development not
allocated to any of the operating segments.
7) INCOME TAXES
Income taxes for the three and six months ended October 31, 2000 were
computed using the effective tax rate estimated to be applicable for the full
fiscal year, which is subject to ongoing review and evaluation by management.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
--------------------------
The statements contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations that are not historical in nature
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those identified
in "Certain Factors" and other factors identified from time to time in our
reports filed with the Securities and Exchange Commission.
OVERVIEW
--------
We are a leading designer, manufacturer, and supplier of advanced fuel
storage, fuel delivery and electronic control systems and components that allow
internal combustion engines and fuel cell propulsion systems to operate in a
variety of transportation, material handling, and power generation applications
using clean fuels such as hydrogen, propane, natural gas, and methanol.
Historically, most of our revenues have been derived from the sale of the
products that enable traditional internal combustion engines to run on clean
burning alternative fuels such as propane and natural gas instead of gasoline.
Our future goal is to also commercialize systems that will provide delivery,
storage and electronic controls for fuel cell propulsion systems.
We classify our business interests into three operating segments:
Automotive OEM and Fuel Cell division (formerly known as the Automotive OEM
division), Gaseous Fuel Products division and International Operations. The
Automotive OEM and Fuel Cell division generates revenues through the sale of
fuel storage, fuel delivery and electronic control systems to OEMs, primarily to
General Motors, and the installation of our products into OEM vehicles. The
division also generates contract revenue by providing engineering design and
support to the OEMs so that our fuel storage and fuel delivery 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. Our International Operations in Australia,
Europe, Japan and Mexico provide distribution for our products, predominantly
from our Gaseous Fuel Products division and some product assembly.
RESULTS OF OPERATIONS
---------------------
Net revenues and operating income for our business for the three and six
months ended October 31, 1999 and 2000 are as follows:
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================
Revenues Operating Income/(Loss)
-----------------------
----------------------------------------------------------------------------------------------------------
(in thousands) 1999 2000 1999 2000
---- ---- ---- ----
For the three months ended: Oct. 31, Oct. 31, Oct. 31, Oct. 31,
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Automotive OEM and Fuel Cell Division $ 3,943 $ 4,866 $ (805) $(3,291)
Gaseous Fuels Products Division 20,291 16,244 5,951 2,763
International Operations 7,373 8,182 781 229
Corporate Expenses - - (1,768) (1,387)
Advanced Research & Product Develop. - - (1,270) (1,229)
Intersegment Elimination (4,250) (3,940) (141) 172
----------------------------------------------------------------------------------------------------------
Total $27,357 $25,352 $ 2,748 $(2,743)
==========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
==========================================================================================================
Revenues Operating Income/(Loss)
-----------------------
----------------------------------------------------------------------------------------------------------
(in thousands) 1999 2000 1999 2000
---- ---- ---- ----
For the six months ended: Oct. 31, Oct. 31, Oct. 31, Oct. 31,
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Automotive OEM and Fuel Cell Division $ 9,227 $11,858 $(1,292) $(5,260)
Gaseous Fuels Products Division 39,832 36,025 11,483 6,792
International Operations 13,818 15,796 1,444 868
Corporate Expenses (1) - - (3,568) (3,161)
Advanced Research & Product Develop. (1) - - (2,603) (2,124)
Intersegment Elimination (7,100) (9,059) (65) (206)
------------------------------------------------------------------------------------------------------------
Total $55,777 $54,620 $ 5,399 $(3,091)
============================================================================================================
</TABLE>
(1) Represents corporate expenses and corporate research and development not
allocated to any of the operating segments.
Automotive OEM and Fuel Cell Division. For the three months and six months
ended October 31, 2000, net revenues increased by approximately $0.9 million, or
23.4%, and approximately $2.6 million, or 28.5%, respectively, as compared to
the same periods in the prior fiscal year. Product sales in the current quarter
increased to $2.2 million, compared to $1.5 million in the same quarter of
fiscal year 2000. For the six months ended October 31, product sales increased
approximately $1.1 million over the same period in the prior fiscal year.
Product sales consist of General Motors' mid-size automobiles and pick-up trucks
equipped with this division's bi-fuel compressed natural gas fuel system and
dedicated liquid propane gas kits under the Teaming Agreement with General
Motors for their medium duty trucks. During the current year quarter, as
compared to the second quarter of fiscal year 2000, we realized higher midsize
automobile revenues, partially offset by lower medium duty and pick-up truck
revenues. For the six months ended October 31, 2000, we realized higher midsize
automobile and pick-up truck revenues, partially offset by lower medium duty
truck revenues as compared to the same period in the prior fiscal year. We
expect product sales to be higher in the fiscal year 2001, as compared to the
prior fiscal year, as additional General Motors platforms and model years are
introduced. We anticipate higher sales in the second half of fiscal year 2001
as compared to the same period in fiscal 2000.
During the three months and six months ended October 31, 2000, contract
revenues increased $0.3 million, or 11.0%, and $1.6 million, or 41.5%,
respectively, as compared to the same periods in fiscal year 2000. This first
half increase was primarily due to lower revenues recognized during the first
quarter of fiscal year 2000 as a result of the start up period on new General
Motors model year programs. We anticipate, based on new contracts negotiated
with General Motors and expected levels of contract completion on these
contracts and government agency contracts with the Southern California Air
Quality Management District, that contract revenue, in the remaining half of
fiscal year 2001, will be lower than levels experienced during the same period
in fiscal year 2000.
During the three and six months ended October 31, 2000, the Automotive OEM
and Fuel Cell division operating loss was approximately $3,291,000 and
$5,260,000, respectively, as compared to an operating loss of approximately
$805,000 and $1,292,000 in the same periods of the prior fiscal year. This
increase in loss was primarily attributable to our increased efforts relating to
the application development and commercialization of fuel metering, fuel storage
and fuel systems for alternative fuel and fuel cell OEM programs. We have opened
additional facilities in Irvine, California, Lake Forest, California and
Sterling Heights, Michigan to expand our testing capabilities and vehicle
integration capacity to meet anticipated increasing OEM activity in developing
alternate fuel and fuel cell vehicles. We anticipate future increases in
application development and other operating expenditures as we continue the
expansion of engineering facilities and staff to support anticipated alternative
fuel and fuel cell programs.
Product application development costs during the quarter and six months
ended October 31, 2000 were $2,211,000 and $3,559,000, respectively, as compared
to $2,243,000 and $3,839,000 in the same periods in the prior fiscal year.
Product application development expense is primarily for system development and
application engineering of our products under the funded General Motors
contract, other funded contract work with state and federal agencies, and for
internally funded fuel cell and alternate fuel system and component application
development work. Customer funded development costs during the quarter and six
month to date were $2,644,000 and $4,166,000, respectively, as compared to
$2,289,000
<PAGE>
and $3,652,000 in the same periods in the prior fiscal year. We anticipate
product application development costs will be lower in the remaining half of
fiscal year 2001 as compared to the same period in the prior year.
Gross margin on General Motors' product sales was higher in the second
quarter but lower for the first half of fiscal year 2001 as compared to the same
period in fiscal year 2000. This was primarily a result of product mix. Higher
second quarter sales of the model year 2001 midsize automobile, which has higher
margins, was offset for the six month period by higher model year 2000 pick-up
truck sales, which has lower margins, in the first quarter. We anticipate higher
gross margins on model year 2001 platforms as compared to model year 2000
platforms, primarily due to additional engineering design efficiencies and
reduced per unit overhead costs.
Gaseous Fuels Products Division. For the three months and six months ended
October 31, 2000, net revenues decreased by approximately $4.0 million, or
19.9%, and approximately $3.8 million, or 9.6%, respectively, as compared to the
same periods in the prior fiscal year. For the quarter and six month period,
revenues were lower due to lower shipments of product to Mexico distributors for
subsequent automotive after market sales, caused primarily by delays in public
transportation programs. Additionally, revenues were lower due to declines in
small industrial engine end use, caused by an end in the short-term increase in
small engine sales related to year 2000 Y2K preparedness. These decreases were
partially offset by higher sales for large industrial engine end uses. Material
handling sales in the second quarter were comparable to the same period in the
prior fiscal year. We anticipate that overall revenues generated by Gaseous
Fuels Products division in fiscal year 2001 will be lower than fiscal year 2000
due to the declines in the small engine market and the slowdown in aftermarket
conversions in Mexico. These lower Mexico conversions are anticipated to be
partially offset by conversions at the OEM level starting at the end of this
fiscal year. Additionally, management anticipates a continuing trend of higher
industrial system sales.
For the three and six months ended October 31, 2000, operating income
decreased by approximately $3.2 million, or 53.6%, and approximately $4.7
million, or 40.9%, respectively, as compared to the same periods in the prior
fiscal year. These decreases were mainly due to a lower gross profit of $2.0
million in the second quarter of fiscal year 2001 as compared to the same period
the prior year and higher application development expenses of approximately $1.2
million and $2.4 million, as compared to the same periods in the prior fiscal
year. The lower gross profit is directly related to the decline in revenues.
The increase in application development costs are primarily related to the
development of the next generation fuel/engine management systems for the
material handling and industrial engine market. We anticipate that operating
income for this division for the remaining fiscal year 2001 will be lower
compared to the same period in fiscal year 2000 primarily due to the lower sales
level and the investment in application development expenses.
International Operations. For the three months and six months ended October
31, 2000, net revenues increased by approximately $0.8 million, or 11.0%, and
approximately $2.0 million, or 14.3%, respectively, as compared to the same
periods in the prior fiscal year. For the quarter, our Australia and Mexico
subsidiaries together increased revenues by $1.0 million compared to the same
quarter in the prior fiscal year. For the six month period, our Australia and
Mexico subsidiaries accounted for $1.7 million of the increase. This segment's
revenues would have increased an additional $1.1 million and $1.7 million for
the quarter and first half of fiscal year 2001, respectively, if not for the
strengthening of the U.S. Dollar. The weakening of foreign currencies versus
the U.S. Dollar negatively impacts the conversion of foreign currency
denominated sales. We anticipate that this segment's revenues for the remainder
of fiscal year 2001 will be higher than comparable period in fiscal year 2000 as
international markets for our products continue to expand.
During the three and six months ended October 31, 2000, the International
Operations operating income was approximately $229,000 and $868,000,
respectively, as compared to operating income of approximately $782,000 and
$1,444,000 in the same periods of the prior fiscal year. The Mexico subsidiary
had higher operating expenses during the current six month period compared to
the same period in the prior year primarily as a result of the preparation of
anticipated future automotive conversion programs. The delay in these programs
has adversely affected the operating income of the Mexico subsidiary.
Additionally, European gross profits declined approximately $192,000 during the
current quarter compared to the prior year second quarter primarily due to
higher cost of goods from the strengthening U.S. Dollar. These decreases in
operating income during the three month and six month periods were partially
offset by higher operating income in Australia. The Australia operation had
higher operating income during the current quarter and six month period compared
to the same periods in the prior year primarily due to higher revenues and
higher gross margins. We anticipate that operating income for this segment for
the remaining half of fiscal year 2001 will be higher compared to the same
period last year due to anticipated higher revenues at all our International
Operations.
Corporate Expenses. Corporate expenses for the three months and six months
ended October 31, 2000 decreased by approximately $381,000, or 21.5%, and
approximately $406,000, or 11.4%, respectively, as compared to the same periods
in the prior fiscal year. The decrease in corporate expenses was primarily due
to higher executive compensation and higher
<PAGE>
legal expenses incurred during the first half of fiscal year 2000 as compared to
the current six month period. We anticipate that corporate expenses for the
remaining half of fiscal year 2001 will be comparable to levels experienced
during the same period of fiscal year 2000.
Corporate Research and Product Development. Corporate Research and Product
Development expense for the three and six months ended October 31, 2000
decreased by approximately $41,000, or 3.2%, and approximately $480,000, or
18.4%, respectively, as compared to the same periods in the prior fiscal year.
The decrease for the current half year is due to the completion of several fuel
metering and fuel storage component projects at the end of fiscal year 2000
which was offset by the startup of a new fuel storage component project in the
second quarter. We anticipate that corporate research and product development
expense during fiscal year 2001 will be lower than the levels experienced during
fiscal year 2000 due to the completion of the corporate projects and the
transfer of these projects for subsequent application development by each
operating segment, particularly the Automotive OEM and Fuel Cell Division.
Interest Expense (Income). Interest income for the three months ended
October 31, 2000, was approximately $294,000 compared to interest expense of
approximately $346,000 in the same period in the prior fiscal year. For the year
to date, interest expense was approximately $247,000 compared to approximately
$578,000 for the same period in the prior fiscal year. The interest income
during the quarter was attributable to proceeds from our July 2000 equity
offering that provided the Company with $53.5 million. The Bank of America
working capital line of credit was paid off at the end of the first quarter and
the remaining amount was invested in short-term investments and money market
accounts. We anticipate generating interest income for the remaining half of
fiscal year 2001.
Provision For Income Taxes. Statement of Financial Accounting Standards No.
109 (FAS 109) "Accounting for Income Taxes" requires, among other things, the
separate recognition, measured at currently enacted tax rates, of deferred tax
assets and deferred tax liabilities for the tax effect of temporary differences
between the financial reporting and tax reporting bases of assets and
liabilities, and net operating loss and tax credit carryforwards for tax
purposes. Through October 31, 2000, we have incurred nearly a $5.9 million
federal net operating loss (NOL). We can carryback these NOLs to the prior two
taxable years resulting in tax refunds. Research and development credits, freed
up by the NOL carryback, may be carried forward to future taxable years. At
October 31, 2000 we have federal and state research and development credit
carryforwards aggregating approximately $4.8 million. Federal research and
development credits totaling $3.0 expire from 2009 to 2020. State research and
development credits of $1.8 million have no expiration.
FAS 109 requires that a valuation allowance must be established for
deferred tax assets if it is "more likely than not" that all or a portion will
not be realized. We have estimated the amount of the deferred tax assets that we
believe will be realized for deferred research and development credits. This
estimate is based on future income required to utilize the research and
development credits, based on currently enacted tax rates applied to the U.S.
deferred tax asset amount, our discretionary decision to invest in research and
development, our ability to curtail research and development, and our
expectations of future income based on the our technology position. Accordingly,
a valuation allowance of approximately $330,000 has been recorded with respect
to the deferred tax assets at October 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES.
-------------------------------
Our financial condition has strengthened following the completion of the
equity offering in which we received $53.5 million. At October 31, 2000, total
cash and short-term investments totaled $31.1 million, up from $3.0 million at
April 30, 2000. These funds had a weighted average yield to maturity of 6.31%
and a weighted average maturity of 102 days. We will use these funds and bank
financing to fund capital expenditures and research and development, as well as
to invest in and operate our existing operations and new businesses. We believe
we have the financial resources needed to meet business requirements in the
foreseeable future, including expanding engineering facilities and staff to
support current and anticipated alternative fuel and fuel cell OEM programs.
Net cash used in operating activities was $3.8 million for the six months
ended October 31, 2000, compared to net cash used in operating activities of
$3.0 million for the same period in the previous year. The increase in cash used
in operating activities during the current period resulted primarily from the
net loss of nearly $2.0 million this year as compared to net income of $3.0
million for the same period in
<PAGE>
the prior fiscal year. This net income difference was substantially offset by a
lower investment in inventory in the current six month period as compared to the
same period in the prior fiscal year. The lower investment in inventory was
primarily attributable to improved inventory management at our domestic
locations, to an unusually high level of inventory at fiscal year end 2000, and
the buildup of inventory in preparation for the move of our Automotive OEM and
Fuel Cell Division to new facilities last year. Also, accounts receivable
increased less in the first half of this year as compared the same period in the
prior fiscal year. The smaller increase in accounts receivable resulted from
improved collections from domestic customers, which was offset by a $2.2 million
increase in earned, but not yet billed, contract revenues classified as accounts
receivable and high international receivables, particularly in Mexico.
Net cash used in investing activities in the first half of fiscal year 2001
was approximately $5.9 million, an increase of approximately $4.7 million from
the $1.2 million reported in the same period in the previous year. This increase
was primarily due to the purchases of equipment and leasehold improvements as we
expanded our facilities dedicated to the research and development of systems and
products that support the use of alternative fuel and fuel cell programs. We
expect capital expenditures during the current year, primarily relating to
equipment enhancements and facilities for the development and production of new
products and application development programs, to continue to be significantly
higher than expenditures during fiscal year 2000.
Net cash provided by financing activities during the current half was
approximately $38.0 million compared to $5.2 million for the same period in the
previous year. This increase was due to the proceeds from our follow on equity
offering, which was partially offset by our subsequent pay down of the Bank of
America working capital line of credit. Payments made on term loans were
approximately $1.2 million. Our long term debt at October 31, 2000 decreased
$15.4 million compared to April 30, 2000.
In December 2000, we renegotiated our loan facilities with Bank of America
to reduce the U.S. revolving working capital line of credit, expand the capital
expenditure facility, and consolidate our acquisition loans and our previous
non-revolving capital expenditure line of credit into one fully amortizing term
loan. This new agreement reduced our revolving line of credit to $10 million and
provided a new $5 million non-revolving capital expenditure line of credit with
a term repayment option, available until August 31, 2001. Both of these lines of
credit have no outstanding balance. Additionally, the new facility consolidated
four currently outstanding loans into a new $7.1 million term loan, which
matures September 30, 2005. We also have a $3 million revolving line of credit
for IMPCO Mexicano of which approximately $523,000 was outstanding as of October
31, 2000. In addition, our subsidiary in the Netherlands has a fl. 3,000,000
(U.S.$1,262,000) credit facility with Mees Pierson, a financial institution in
the Netherlands. At October 31, 2000, there was no outstanding balance. Our
subsidiary in Japan has a (Yen)60,000,000 (U.S.$549,000) revolving term loan
facility with the Hongkong and Shanghai Banking Corporation Ltd., Osaka Branch.
At October 31, 2000, there was no additional credit available under this
facility.
DERIVATIVE FINANCIAL INSTRUMENTS
--------------------------------
We use derivative financial instruments for the purpose of reducing our
exposure to adverse fluctuations in interest and foreign exchange rates. While
these hedging instruments are subject to fluctuations in value, such
fluctuations are generally offset by the value of the underlying exposures being
hedged. We are not a party to leveraged derivatives and do not hold or issue
financial instruments for speculative purposes.
Foreign Currency Management. The results and financial condition of our
international operations are affected by changes in exchange rates between
certain foreign currencies and the U.S. Dollar. Our exposure to fluctuations in
currency exchange rates has increased as a result of the growth of our
international subsidiaries. The functional currency for all of our
international subsidiaries is the local currency of the subsidiary. An increase
in the value of the U.S. Dollar increases costs incurred by the subsidiaries
because most of our international subsidiaries' inventory purchases are U.S.
Dollar denominated. We monitor this risk and attempt to minimize the exposure
through forward currency contracts and the management of cash disbursements in
local currencies. At October 31, 2000 we had no currency forward contracts
outstanding.
We seek to hedge our foreign currency economic risk by minimizing our U.S.
Dollar investment in foreign operations using foreign currency term loans to
finance the operations of our foreign subsidiaries. The term loans are
denominated in local currencies and translated to U.S. Dollars at period end
exchange rates.
Interest Rate Management. We use interest rate swap agreements with Bank of
America to manage our exposure to interest rate changes and stabilize the cost
of borrowed funds. When an agreement is executed, the swap is linked to a
specific debt instrument. At October 31, 2000, we had approximately $2,714,000
secured under fixed interest rate
<PAGE>
agreements at a weighted-average fixed interest rate of 7.93%. Absent these
fixed rate agreements, the weighted-average variable rate for this debt at
October 31, 2000 would have been 8.60%. At October 31, 2000, the fair value of
our interest rate swap agreements approximated carrying value.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information relating to Quantitative and Qualitative Disclosures About Market
Risk appear under the heading "Derivative Financial Instruments" which is
included in Item 2, Management's Discussion and Analysis of Financial Condition
and Results of Operations.
PART II--OTHER INFORMATION
Item 1. Legal Proceedings.
In August 2000, we proceeded with legal action in Federal court (Eastern
District of Michigan, case # 00-73633) against GFI Control Systems Inc. and
Dynetek Industries Ltd. for patent infringement (U.S. Patent No. 6,041,762)
which covers a compressed gas fuel system that includes a tank with an internal
pressure regulator. We have and will vigorously enforce our intellectual
rights. Our intellectual property is valuable since these rights protect our
research and development efforts in a new technology.
Items 2, 3, and 5.
Not applicable.
Item 4. Submission of matters to a vote of security holders
(a) The annual meeting of stockholders was held on October 19, 2000.
(b) The stockholders voted to elect the following nominees as directors for
a three year term:
<TABLE>
<CAPTION>
Nominee Votes For Percent of Voted Withheld
------- --------- ---------------- --------
<S> <C> <C> <C>
Douglas W. Toms 7,996,284 97.91 170,702
J. David Power 7,998,150 97.93 168,836
</TABLE>
(c) (i) The proposal to approve the 2000 Incentive Stock Option Plan:
Votes Percent of Voted
--------- ----------------
For 7,094,934 86.87
Against 1,033,611 12.66
Abstain 38,441 .47
Broker non-votes 196,981
(ii) The proposal to approve the amendment to the Certificate of
Incorporation of the Company increasing the authorized Common Stock of
the Company to 100,000,000 shares:
Votes Percent of Voted
--------- ----------------
For 7,245,958 88.72
Against 905,544 11.09
Abstain 15,484 .19
Broker non-votes 196,981
<PAGE>
(iii) The ratification of the appointment of Ernst & Young LLP. as
the Company's independent auditors received the following votes:
<TABLE>
<CAPTION>
Votes Percent of Voted
--------- ----------------
<S> <C> <C>
For 8,137,369 99.64
Against 23,975 .29
Abstain 5,642 .07
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10.21 - Amendment No. 4 to Business Loan Agreement by and
between Bank of America, N.A. and IMPCO Technologies, Inc. dated as of
September 12, 2000.
Exhibit 10.22 - Amendment No. 5 to Business Loan Agreement between
Bank of America, N.A. and IMPCO Technologies, Inc. dated as of
December 13, 2000.
Exhibit 27.1 - Financial Data Schedule.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended
October 31, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMPCO Technologies, Inc.
(Registrant)
Date: December 15, 2000 By /s/William B. Olson
-------------------------
William B. Olson
Chief Financial Officer
and Treasurer
[Authorized Signatory]
