<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 January 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 February 29, 2000:
8,562,807 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
January 31, 2000 and April 30, 1999
ASSETS
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
2000 1999
------------- ----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash............................................... $ 3,546,409 $ 2,009,208
Accounts receivable................................ 27,140,461 22,209,363
Less allowance for doubtful accounts.............. 550,980 535,824
------------ -------------
Net accounts receivable.......................... 26,589,481 21,673,539
Inventories:
Raw materials and parts............................ 16,407,880 10,694,453
Work-in-process.................................... 987,156 1,208,423
Finished goods..................................... 12,806,125 10,804,309
------------- -------------
Total inventories................................. 30,201,161 22,707,185
Deferred tax assets................................. 3,547,110 3,474,387
Other current assets................................ 2,046,184 2,255,227
------------- -------------
Total current assets............................. 65,930,345 52,119,546
Equipment and leasehold improvements:
Dies, molds and patterns........................... 6,012,162 5,746,955
Machinery and equipment............................ 8,172,807 7,293,593
Office furnishings and equipment................... 7,037,528 6,110,079
Automobiles and trucks............................. 516,299 500,057
Leasehold improvements............................. 3,285,924 2,965,366
------------- -------------
25,024,720 22,616,050
Less accumulated depreciation and amortization...... 14,873,927 12,730,976
------------- -------------
Net equipment and leasehold improvements.......... 10,150,793 9,885,074
Intangibles arising from acquisitions............... 15,748,111 15,593,672
Less accumulated amortization...................... 5,134,637 4,576,369
------------- -------------
Net intangibles arising from acquisitions.......... 10,613,474 11,017,303
Other assets........................................ 576,643 540,239
------------- -------------
$ 87,271,255 $ 73,562,162
============= =============
</TABLE>
See accompanying notes.
2
<PAGE>
IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
January 31, 2000 and April 30, 1999
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
2000 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
Current liabilities:
Accounts payable............................. 9,383,519 8,294,977
Accrued payroll obligations.................. 2,263,589 2,493,402
Income taxes payable......................... 1,705,037 1,261,009
Other accrued expenses....................... 1,684,495 1,356,803
Current maturities of long-term debt......... 3,216,534 3,485,376
----------- -----------
Total current liabilities................... 18,253,174 16,891,567
Lines of credit............................... 15,834,045 5,551,300
Term loans.................................... 3,581,169 5,411,326
Capital leases................................ 1,669,126 2,102,173
Deferred tax liability........................ 566,206 828,852
Minority interest............................. 1,704,316 1,327,825
Stockholders' equity:
Common stock, $.001 par value, authorized
25,000,000 shares; 8,562,207 issued and
outstanding at January 31, 2000 (8,408,481
at April 30, 1999) .......................... 8,562 8,408
Additional paid-in capital.................... 46,294,497 45,375,995
Shares held in trust.......................... (100,526) (68,946)
Retained earnings/accumulated deficit......... 1,450,757 (2,397,813)
Accumulated other comprehensive income(Note 4) (1,990,071) (1,468,525)
----------- ------------
Total stockholders' equity.................. 45,663,219 41,449,119
----------- -----------
$87,271,255 $73,562,162
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three and nine months ended January 31, 2000 and 1999
--------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
JANUARY 31, JANUARY 31,
----------------------- -----------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Product sales $24,832,050 $16,043,513 $76,759,293 $50,132,257
Contract revenue 3,103,743 3,824,974 6,953,371 9,930,840
----------- ----------- ----------- -----------
Net revenue 27,935,793 19,868,487 83,712,664 60,063,097
Costs and expenses:
Cost of sales 17,089,826 10,933,381 50,750,187 33,775,854
Research and
development expense 3,909,239 2,777,033 10,541,744 8,559,538
Selling, general and
administrative expense 5,488,635 3,726,372 15,573,212 11,195,594
----------- ----------- ----------- -----------
Total costs and expenses 26,487,700 17,436,786 76,865,143 53,530,986
----------- ----------- ----------- -----------
Operating income 1,448,093 2,431,701 6,847,521 6,532,111
Interest expense 560,528 377,705 1,138,239 904,568
Gain on sale of minority
interest in Subsidiary - 2,169,405 - 2,169,405
----------- ----------- ----------- -----------
Income before income taxes,
minority interest in
income of consolidated
subsidiaries and dividends 887,565 4,223,401 5,709,282 7,796,948
Provision for income taxes (58,536) 1,004,841 1,484,413 1,898,228
Minority interest in income
of consolidated
subsidiaries 153,925 614 376,299 7,529
----------- ----------- ----------- -----------
Net income before dividends 792,176 3,217,946 3,848,570 5,891,191
Dividends on preferred stock - 142,550 - 438,812
----------- ----------- ----------- -----------
Net income applicable
to common stock $ 792,176 $ 3,075,396 $ 3,848,570 $ 5,452,379
=========== =========== =========== ===========
Net income per share
Basic $0.09 $0.43 $0.45 $0.76
Diluted $0.09 $0.36 $0.43 $0.65
=========== =========== =========== ===========
Number of shares used in
per share calculation
Basic 8,464,312 7,200,577 8,462,958 7,178,115
Diluted 9,098,931 8,993,805 8,947,709 9,008,848
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
4
<PAGE>
IMPCO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended January 31, 2000 and 1999
--------------------------
<TABLE>
<CAPTION>
Nine Months Ended
JANUARY 31,
------------ ------------
2000 1999
------------ ------------
<S> <C> <C>
Net cash (used in) provided by operating activities $(4,753,412) $3,223,014
Cash flows from investing activities:
Purchase of equipment and leasehold
improvements (2,412,520) (2,150,774)
Purchase of intangible assets (45,752) -
Purchase of businesses - (4,097,903)
Proceeds from sale of equipment 46,546 475,626
------------ ------------
Net cash used in investing activities (2,411,726) (5,773,051)
Cash flows from financing activities:
Increase (decrease) in borrowings under
lines of credit 10,379,330 (443,805)
Proceeds from issuance of bank term loans - 5,288,000
Proceeds from issuance of common stock 887,076 1,005,532
Payments on term loans (1,877,126) (3,216,827)
Payments of capital lease obligation (518,137) (654,729)
Dividends on preferred stock - (438,812)
------------ ------------
Net cash provided by financing activities 8,871,143 1,539,359
------------ ------------
Translation Adjustment (168,804) (61,390)
Net increase (decrease) in cash 1,537,201 (1,072,068)
Cash at beginning of period 2,009,208 2,617,869
------------ ------------
Cash at end of period $ 3,546,409 $ 1,545,801
============ ============
</TABLE>
See accompanying notes.
5
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000 and 1999
----------------------
1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements are unaudited
and reflect all adjustments (consisting only of normal recurring adjustments)
which are, in the opinion of management, necessary for the fair presentation of
the financial position and operating results for the interim periods. The
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto, together with
management's discussion and analysis of financial condition and the results of
operations, contained in the Company's Annual Report on Form 10-K for the fiscal
year ended April 30, 1999. Certain reclassifications have been made to the
fiscal year 1999 financial statements to conform to the current year
presentation. The condensed consolidated balance sheet of IMPCO Technologies,
Inc. (IMPCO or the Company) as of January 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 nine months ended January 31, 2000 are not
necessarily indicative of the results that may be expected for the entire year
ending April 30, 2000.
2) ACQUISITIONS
CRUSADER ENGINE DIVISION. On December 4, 1998, the Company acquired
certain 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.
MIKUNI CORPORATION. In March 1999, the Company purchased a dormant
company in Japan for $126,000 in order to establish IMPCO Tech Japan K.K.
(IMPCO Japan). On March 31, 1999, the Company's wholly-owned subsidiary IMPCO
Japan purchased certain manufacturing equipment and inventory of the Fukuoka
Division of Mikuni Corporation for $1,325,000.
The unaudited pro forma financial information reflects the
consolidated results of operation of the Company as if the aforementioned
fiscal 1999 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>
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, 1999 JANUARY 31, 1999
------------------ -----------------
<S> <C> <C>
Revenue $20,875 $66,467
Net earnings 3,084 5,581
Earnings per share - Basic .43 .78
Earnings per share - Diluted .36 .66
</TABLE>
3) DEBT PAYABLE
a) BANK OF AMERICA NT&SA
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
approximately $39,091,000 at January 31, 2000.
LINES OF CREDIT - At January 31, 2000, the outstanding balance was
$13,000,000 of which $1,000,000 was subject to the bank's reference rate less
.50 percent (which was 8.00 percent on January 31, 2000) and $12,000,000 was
subject to an alternative interest rate established by the Bank (Offshore rate).
At January 31, 2000, $7,000,000 and $5,000,000 were subject to the Offshore rate
of 7.43 percent and 7.11 percent, respectively.
CAPITAL EXPENDITURE LINE OF CREDIT - At January 31, 2000 the total
outstanding balance of $1,725,000 was subject to an interest rate of 7.37
percent.
At January 31, 2000, IMPCO Mexicano's outstanding line of credit of
approximately $643,000 was subject to the Bank of America Mexico (BAMSA) cost of
funds plus 1.50 percent (22.00 percent at January 31, 2000).
TERM LOAN FOR THE ACQUISITION OF CRUSADER -At January 31, 2000, the total
outstanding balance was approximately $752,000 which was subject to a fixed
interest rate of 7.61 percent.
TERM LOAN FOR THE ACQUISITION OF MEDIA - At January 31, 2000, the total
outstanding balance was approximately $307,500 which was subject to a fixed
interest rate of 7.90 percent.
TERM LOAN FOR THE ACQUISITION OF ALGAS - At January 31, 2000, the total
outstanding balance was $1,980,000 which was subject to a fixed interest rate of
7.74 percent.
6
<PAGE>
TERM LOAN FOR ACQUISITION OF IMPCO BV - At January 31, 2000, the total
outstanding balance was approximately $485,000 which was subject to a fixed
interest rate of 7.80 percent.
IMPCO BV TERM LOAN - At January 31, 2000, the total outstanding balance
was approximately $1,202,000 which was subject to a variable interest rate of
5.00 percent.
CAPITAL LEASE FACILITY - At January 31, 2000, approximately $2,365,000
was outstanding, of which approximately $480,000 was fixed at 8.50 percent and
approximately $862,000 was fixed at 8.20 percent. The remaining balance of
approximately $1,023,000 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
(8.08 percent as of January 31, 2000).
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 January 31, 2000, the Company was in compliance with all covenants.
b) MEES PIERSON
At January 31, 2000 there was no outstanding balance.
c) THE HONGKONG AND SHANGHAI BANKING CORPORATION LTD.
TERM LOAN FOR THE ACQUISITION OF MIKUNI - On March 29, 1999, IMPCO Japan
secured a (Y)160,000,000 (U.S.$1,490,000) term loan facility from the Hongkong
and Shanghai Banking Corporation Ltd., Osaka Branch. This term loan bears
interest at the Euroyen London Interbank Offer Rate plus 1.60 percent. At
January 31, 2000 the outstanding loan balance of (Y)136,000,000 (approximately
U.S.$1,267,000) was subject to an interest rate of 1.905 percent.
LINE OF CREDIT - On March 29, 1999, IMPCO Japan secured a (Y)60,000,000
(U.S.$559,000) revolving term loan facility from the Hongkong and Shanghai
Banking Corporation Ltd., Osaka Branch. This term loan bears interest at the
Euroyen London Interbank Offer Rate plus 1.60 percent. At January 31, 2000 the
outstanding loan balance of (Y)50,000,000 (approximately U.S.$466,000) was
subject to an interest rate of 1.902 percent.
7
<PAGE>
4) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
----------------------- ---------------------
2000 1999 2000 1999
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Numerator:
Net income before dividends $792,176 $3,217,946 $3,848,570 $5,891,191
Dividends on preferred stock - (142,550) - (438,812)
---------- ---------- ---------- ----------
Numerator for basic earnings per
share - income available to
common stockholders to common stock 792,176 3,075,396 3,848,570 5,452,379
Effect of dilutive securities:
Preferred stock dividends - 142,550 - 438,812
---------- ---------- ---------- ----------
Numerator for diluted earnings per
share - income available to
common stockholders after
assumed conversions $792,176 $3,217,946 $3,848,570 $5,891,191
Denominator:
Denominator for basic earnings per
share -- weighted-average shares 8,464,312 7,200,577 8,462,958 7,178,115
Effect of dilutive securities:
Employee stock options 634,619 662,901 484,751 699,807
Warrants - 5,563 - 6,162
Convertible preferred stock - 1,124,764 - 1,124,764
---------- ---------- ---------- ----------
Dilutive potential common shares 634,619 1,793,228 484,751 1,830,733
Denominator for diluted earnings per
share -- adjusted weighted-average
shares and assumed conversions 9,098,931 8,993,805 8,947,709 9,008,848
--------- --------- --------- ---------
Basic earnings per share $0.09 $0.43 $0.45 $0.76
--------- --------- --------- ---------
Diluted earnings per share $0.09 $0.36 $0.43 $0.65
--------- --------- --------- ---------
</TABLE>
8
<PAGE>
5) COMPREHENSIVE INCOME
As of May 1, 1998, the Company adopted SFAS 130, "Reporting Comprehensive
Income." SFAS 130 established new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this Statement
had no impact on the Company's net income or stockholders' equity. SFAS 130
requires foreign currency translation adjustments, which prior to adoption were
reported separately in stockholders' equity, to be included in other
comprehensive income.
The components of comprehensive income for the three month and nine month
periods ended January 31, 2000, and January 31, 1999, are as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED JANUARY 31, ENDED JANUARY 31,
----------------------- ---------------------
2000 1999 2000 1999
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net income...........................$ 792,176 $3,075,396 $3,848,570 $5,452,379
Foreign currency translation
adjustment...................... (262,659) (58,390) (521,546) (148,414)
---------- ---------- ---------- ---------
Comprehensive income.................$ 529,517 $3,017,006 $3,327,024 $5,303,965
=========== ========== ========== ==========
</TABLE>
6) BUSINESS SEGMENT INFORMATION
IMPCO classifies its business into three operating segments: Gaseous Fuel
Products Division (GFPD), Automotive OEM Division (AOD) and Non-U.S. Based
Subsidiary Operations. These operating segments are divisions within the Company
and each division has discrete financial information prepared for internal
reporting to management. Management considered the following factors to be
significant in identifying these operating segments: technology levels, end-use
applications of products, and customer characteristics. Advanced research and
product development is funded at the corporate level and provides new products
and technology to the operating segments for use in their markets. Each
operating segment conducts its own application engineering and technical support
for the sales and market development of the new products and technology. The
Company evaluates performance based on profit or loss from operations before
corporate expenses, interest and income taxes.
Revenues and operating income for IMPCO's business segments for the three
and nine months ended January 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
===============================================================================================================================
Revenues
- -------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) Three Months Ended Nine Months Ended
January 31, January 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gaseous Fuels Products Division $18,378 $11,466 $58,211 $36,292
Automotive OEM Division 6,203 5,665 15,429 16,857
Non-U.S. Based Subsidiaries 8,045 5,295 21,863 15,882
Intersegment Elimination (4,690) (2,558) (11,790) (8,968)
- -------------------------------------------------------------------------------------------------------------------------------
Total $27,936 $19,868 $83,713 $60,063
===============================================================================================================================
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================================
Operating Income (Loss)
- -------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) Three Months Ended January 31, Nine Months Ended January 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gaseous Fuels Products Division $4,193 $2,846 $15,676 $10,149
Automotive OEM Division (239) 1,444 (1,531) 1,667
Non-U.S. Based Subsidiaries 907 (390) 2,351 782
Corporate Expenses (1,531) (1,369) (5,099) (3,993)
Advanced Research & Product Develop. (1,662) (625) (4,266) (2,097)
Intersegment Elimination (220) 526 (283) 24
- -------------------------------------------------------------------------------------------------------------------------------
Total $1,448 $2,432 $6,848 $6,532
===============================================================================================================================
</TABLE>
7) INCOME TAXES
The current quarter tax expense includes the year to date positive
adjustment of the approved extension of the research and development credit
of approximately $289,000.
10
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The statements contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations that are not historical in nature
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those identified
in "Certain Factors" in the Company's April 30, 1999 Form 10-K filed July 29,
1999 and other factors identified from time to time in the Company's reports
filed with the Securities and Exchange Commission.
Overview
IMPCO Technologies, Inc. designs, manufactures and supplies fuel management and
fuel storage systems and components that allow internal combustion engines and
other propulsion systems to operate on alternative fuels such as propane,
natural gas, ethanol, methanol and hydrogen used in fuel cells. The Company's
products are sold for maintenance, aftermarket conversions and as original
equipment on motor vehicles, forklifts and small portable to large stationary
engines. IMPCO Technologies, Inc. classifies its business interests into three
operating segments: Gaseous Fuel Products Division (GFPD), Automotive OEM
Division (AOD), and Non-U.S. Based Subsidiary Operations. Advanced research and
product development is funded at the corporate level and provides new products
and technology to the operating segments.
RESULTS OF OPERATIONS
- ---------------------
Revenues and operating income for IMPCO's business segments for the three months
and nine months ended January 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
===============================================================================================================================
Revenues Operating Income (Loss)
- -------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 2000 1999 2000 1999
---- ---- ---- ----
For the three months ended: Jan. 31, Jan. 31, Jan. 31, Jan. 31,
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Gaseous Fuels Products Division $18,378 $11,466 $4,193 $2,846
Automotive OEM Division 6,203 5,665 (239) 1,444
Non-U.S. Based Subsidiaries 8,045 5,295 907 (390)
Corporate Expenses - - (1,531) (1,369)
Advanced Research & Product Develop. - - (1,662) (625)
Intersegment Elimination (4,690) (2,558) (220) 526
- -------------------------------------------------------------------------------------------------------------------------------
Total $27,936 $19,868 $1,448 $2,432
===============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
===============================================================================================================================
Revenues Operating Income (Loss)
- -------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 2000 1999 2000 1999
---- ---- ---- ----
For the nine months ended: Jan. 31, Jan. 31, Jan. 31, Jan. 31,
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Gaseous Fuels Products Division $58,211 $36,292 $15,676 $10,149
Automotive OEM Division 15,429 16,857 (1,531) 1,667
Non-U.S. Based Subsidiaries 21,863 15,882 2,351 782
Corporate Expenses - - (5,099) (3,993)
Advanced Research & Product Develop. - - (4,266) (2,097)
Intersegment Elimination (11,790) (8,968) (283) 24
- -------------------------------------------------------------------------------------------------------------------------------
Total $83,713 $60,063 $6,848 $6,532
===============================================================================================================================
</TABLE>
11
<PAGE>
GASEOUS FUELS PRODUCTS DIVISION. For the three months and nine months ended
January 31, 2000, net revenues increased by approximately $6,912,000 or 60
percent and $21,919,000 or 60 percent, respectively, as compared to the same
periods in the prior fiscal year. These increases were primarily a result of
the December 1998 acquisition of the Industrial Engine Systems Sub-Division
(IES), an increase in small engine sales and an increase in product sales to
Mexico. The price differential between gasoline and propane as well as the
Company's strengthening relations with Mexican governmental agencies have
positively impacted the demand for the aftermarket automotive conversions in
Mexico. Management anticipates that overall revenues generated by GFPD in
fiscal year 2000 will be higher than fiscal year 1999, primarily due to a
full year reporting of IES sales, the expanding revenue base due to value
added system sales, increased motor vehicles sales in Mexico due to the
expected growth of aftermarket automotive conversions, increased small engine
sales and the Company's aggressive marketing efforts to expand market share.
This is a forward-looking statement.
During the three months and nine months ended January 31, 2000, operating
income in this division increased approximately $1,347,000 or 47 percent and
$5,527,000 or 55 percent, respectively, as compared to the same periods in
the prior fiscal year. These increases were primarily attributable to higher
revenues and gross margin amounts on GFPD product sales due to increased
volumes. These increases were partially offset by additional administrative
expenses resulting from the IES acquisition. Management anticipates that
divisional operating income will be higher in fiscal year 2000 as a result of
higher revenues and gross margin amounts associated with increased volumes
partially offset by increased expenses relating to a full year reporting of
the IES sub-division and expenses relating to marketing efforts.
Additionally, operating margins will be effected by lower gross margin
percentages at the IES sub-division as these revenues become a larger segment
of the GFPD division. However, as the IES business increases, overall gross
profit amounts should increase. These are forward-looking statements.
AUTOMOTIVE OEM DIVISION. For the three months and nine months ended January 31,
2000, net revenues increased by approximately $538,000 and decreased by
$1,428,000, respectively, as compared to the same periods in the prior fiscal
year.
Product sales during the three months and nine months ended January 31, 2000
increased by approximately $1,259,000 and $1,601,000, respectively, as compared
to the same periods in the prior fiscal year. During the three months and nine
months ended January 31, 2000, product sales represented 674 units and 2,071
units, respectively, as compared to 564 units and 1,787 units, respectively,
during the same periods of the prior year. Product sales consists of mid-size
automobiles upfit with the division's bi-fuel compressed natural gas fuel
system, medium-duty dedicated Liquid Propane Gas (LPG) kits under a cross
license agreement with General Motors, and GM pick-ups upfit with the division's
bi-fuel compressed natural gas fuel system. Management expects product sales to
be higher in the future as additional GM platforms and model years are
introduced and other automotive OEM platforms are obtained.
During the three months and nine months ended January 31, 2000, contract
revenues for the AOD segment decreased $1,081,000 or 28 percent and $3,681,000
or 38 percent, respectively, as compared to the same periods in fiscal year
2000. These decreases were primarily a result of lower contract levels
attributable to the ability to transfer knowledge between prior model year and
current model year contracts and, accordingly, lower margins on the current year
contracts. Management anticipates, based on new contracts negotiated with GM and
expected levels of contract completion in fiscal year 2000, that contract
revenue in fiscal year 2000 will be lower than levels experienced during fiscal
year 1999. Additionally, profit levels expected on the contracts during fiscal
year 2000 will be substantially lower than levels realized during fiscal year
1999.
12
<PAGE>
During the three months and nine months ended January 31, 2000 operating
losses in this segment were approximately $239,000 and $1,531,000,
respectively, as compared to operating income of approximately $1,444,000 and
$1,667,000 in the same periods of the prior fiscal year. These decreases were
a result of lower contract revenues, primarily from the GM program, and
associated higher product application development costs for new products
being commercialized. Product applications development expense is primarily
for system development and application engineering of the Company's products
under the funded General Motors contract, other funded contract work with
state and federal agencies, and for internally funded product and component
application development work to develop business with other automotive OEMs.
For the nine month period ended January 31, 2000, expense directly related to
externally funded product application development work was approximately
$4,214,000 as compared to $4,887,000 in the same period of the prior fiscal
year. Management anticipates higher operating losses in this division in
fiscal year 2000, primarily due to lower contract levels and profits on GM
contracts and higher internally funded application development work.
Gross margins on GM product sales were higher in the first nine months of fiscal
year 2000 as compared to the same period in fiscal year 1999, primarily due to
lower material costs and lower per unit overhead costs. Management anticipates
higher gross margins on products in future model years, primarily due to
engineering design and lower per unit overhead costs.
NON-U.S. BASED SUBSIDIARIES. For the three months and nine months ended January
31, 2000, net revenues increased by approximately $2,750,000 or 52 percent and
$5,981,000 or 38 percent, respectively, as compared to the same periods in the
prior fiscal year. These increases were a result of the March 1999 acquisition
of IMPCO Japan, which resulted in increased revenues of approximately $2,303,000
in the nine months of fiscal year 2000. During the three months and nine months
ended January 31, 2000, this segment also realized increased revenues of
$1,551,000 and $2,568,000 from its Mexico operation. For the three month and
nine month period ending January 31, 2000, the Non-U.S. Based Subsidiary
revenues would have increased an additional $236,000 and $152,000, 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. Management anticipates that revenues for this
segment during fiscal year 2000 will be higher than fiscal year 1999 as a result
of the acquisition of IMPCO Japan and higher motor vehicle sales in Mexico. The
price differential between gasoline and propane as well as the Company's
strengthing relations with Mexican governmental agencies is expected to
positively impact the demand for the aftermarket automotive conversions in
Mexico.
During the three months and nine months ended January 31, 2000, operating income
for this segment increased approximately $1,297,000 and $1,569,000,
respectively, as compared to the same periods in the prior year, primarily as a
result of the addition of the Japan operations. Management anticipates that
operating income levels at the Non-U.S. Based Subsidiaries will be higher in
fiscal year 2000 than the prior year due to the addition of the Japan operations
and higher revenues from Mexico.
CORPORATE EXPENSES. Corporate expenses consist of general and administrative
expenses at the corporate level to support the divisions and the corporation 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 for the three months and nine months ended January
31, 2000, increased $162,000 or 12 percent and $1,106,000 or 28 percent, as
compared to the same periods in the prior fiscal year. The increase in corporate
expenses was primarily due to the incremental costs incurred in the creation of
the Company's Stockholder Protection Rights Agreement, legal expenses and
amortization relating to the Japan and IES acquisitions. Management anticipates
13
<PAGE>
that corporate expenses during fiscal year 2000 will be higher than levels
experienced during fiscal 1999.
ADVANCED RESEARCH AND PRODUCT DEVELOPMENT. Advanced Research and Product
Development provides engineering, design and research and development support to
the Company and its operating units and develops all new products supporting the
operating divisions' needs. Advanced Research and Product Development expense
for the three months and nine months ended January 31, 2000, increased
approximately $1,038,000 and $2,169,000, respectively, as compared to the same
periods in the prior fiscal year. These increases are primarily due to increased
efforts relating to the commercialization of fuel metering, fuel storage and
fuel cell products. Management believes the Company's future success depends on
its ability to design, develop and market new products that interface
successfully with new engine electronic technology, and which meet mandated
emission standards. It also believes that there is a significant opportunity for
the Company to participate in the emerging fuel cell market. With the emergence
of fuel cell technology and the interest being shown by the automotive industry
in alternative fuel technology, the Company has decided to accelerate and expand
both research and application development expenditures for metering, controls
and fuel storage products for fuel cell applications. Consequently, management
anticipates that research and development expenses during fiscal year 2000 will
be significantly higher than in fiscal 1999.
INTEREST EXPENSE. Interest expense for the three months and nine months ended
January 31, 2000, increased $183,000 or 48 percent and $234,000 or 26 percent,
as compared to the same periods in the prior fiscal year. These increases are
attributable to additional borrowings partially offset by lower interest rates
on the Company's credit facility with Bank of America. Management anticipates
that interest expense for fiscal year 2000 will be higher than levels
experienced during fiscal year 1999.
PROVISION FOR INCOME TAXES. The estimated effective annual tax rate of 26
percent 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 current year tax provision includes presumed utilization of
estimated research and development credits of $859,000. At January 31, 2000, net
deferred tax asset was approximately $3,547,000 while the net deferred tax
liability was $566,000. Management has determined, based on the Company's
history of prior operating earnings and its expectations for the future, that
operating income of the Company will more likely than not be sufficient to
recognize fully the net deferred tax assets and that the estimated effective
annual tax rate in the future years will approximate the statutory rate.
LIQUIDITY AND CAPITAL RESOURCES. The Company uses cash generated from its
operations and bank financing to fund capital expenditures, as well as
invest in and operate its existing operations and new businesses. While such
sources of funds have been sufficient in the past, the Company may seek
additional sources of financing in order to capitalize on opportunities that
are believed to exist in the emerging fuel cell market. Such additional
sources of financing may include bank borrowings or public or private
offerings of equity or debt securities.
The Company's financial condition remains strong. The ratio of current
assets to current liabilities was 3.6:1 and 3.1:1 at January 31, 2000 and April
30, 1999, respectively. During the current year, the total amount of working
capital increased by approximately $12,449,000 to $47,677,000 at January 31,
2000. Net cash used in operating activities was $4,753,000 for the current nine
month period, compared to net cash provided by operating activities of
$3,223,000 for the same period in the previous year. The increase in cash used
in operating activities during the current period resulted primarily from an
increase in inventory and an increase in accounts receivable. The increase in
inventory was primarily due to inventory build to support the AOD production
transition to Mexico and increased sales volume across all operating segments.
The increase in accounts receivable is primarily due to the increased
14
<PAGE>
billings associated with higher sales levels. At January 31, 2000, accounts
receivable as a percent of sales was comparable to the same period in prior
fiscal year.
Net cash used in investing activities for the current nine month period
was approximately $2,412,000, a decrease of approximately $3,361,000 from the
same period in the previous year. This decrease is primarily a result of the
previous years third quarter acquisition of the Industrial Engine Systems
Sub-Division (IES) for approximately $3,900,000 and the previous years' first
quarter purchase of the remaining 49 percent interest in IMPCO BV, which
resulted in a net use of cash of approximately $693,000.
Net cash provided by financing activities for the current nine month
period was approximately $8,871,000. For the nine month period ended January
31, 2000, the Company increased its borrowing under the operating lines of
credit by approximately $10,379,000 primarily for working capital. Payments
made on term loans were approximately $1,887,000.
The Company has a $20,000,000 revolving line of credit, $3,000,000 revolving
line of credit for IMPCO Mexicano, $6,000,000 non-revolving line of credit for
future acquisitions, and $3,000,000 non-revolving line of credit for future
capital expenditures with Bank of America. At January 31, 1999, approximately
$13,000,000, $643,000 and $1,725,000 were outstanding under the revolving line
of credit, the revolving line of credit for IMPCO Mexicano and the capital
expenditures facility, respectively. The revolving line of credit expires on
August 31, 2001, the acquisition facility expires on August 31, 2000, and the
capital lease facility expires on August 31, 2000. In addition, the Company's
subsidiary in the Netherlands has a fl. 3,000,000 (U.S.$1,321,000) credit
facility with Mees Pierson, a financial institution in the Netherlands. At
January 31, 2000, there was no outstanding balance. The Company's subsidiary in
Japan has a (Y)60,000,000 (U.S.$559,000) revolving term loan facility with the
Hongkong and Shanghai Banking Corporation Ltd., Osaka Branch. At January 31,
2000, there was an outstanding loan balance of (Y)50,000,000 (U.S.$466,000).
DERIVATIVE FINANCIAL INSTRUMENTS
- --------------------------------
The Company uses derivative financial instruments for the purpose of
reducing its exposure to adverse fluctuations in interest and foreign exchange
rates. While these hedging instruments are subject to fluctuations in value,
such fluctuations are generally offset by the value of the underlying exposures
being hedged. The Company is not a party to leveraged derivatives and does not
hold or issue financial instruments for speculative purposes.
FOREIGN CURRENCY MANAGEMENT - The results and financial condition of
the Company's international operations are affected by changes in exchange
rates between certain foreign currencies and the U.S. Dollar. The Company's
exposure to fluctuations in currency exchange rates has increased as a result
of the growth of its international subsidiaries. The functional currency for
all of the Company's international subsidiaries is the local currency of the
subsidiary. An increase in the value of the U.S. Dollar increases costs
incurred by the subsidiaries because most of its international subsidiaries'
inventory purchases are U.S. Dollar denominated. The Company monitors this
risk and attempts to minimize the exposure through forward currency contracts
and the management of cash disbursements in local currencies. At January 31,
2000 the Company had currency forward contracts protecting U.S.$382,000 in
inventory purchases. At January 31, 2000 the fair value of foreign currency
forward contracts was approximately $14,000.
The Company seeks to hedge its foreign currency economic risk by
minimizing its U.S. Dollar investment in foreign operations using foreign
currency term-loans to
15
<PAGE>
finance the operations of its foreign subsidiaries. The term loans are
denominated in local currencies and translated to U.S. Dollars at period end
exchange rates.
INTEREST RATE MANAGEMENT - The Company uses interest rate swap
agreements with Bank of America to manage its exposure to interest rate changes
and stabilize the cost of borrowed funds. When an agreement is executed, the
swap is linked to a specific debt instrument. At January 31, 2000, the Company
had approximately $4,114,000 secured under fixed interest rate agreements at a
weighted-average fixed interest rate of 7.94 percent. Absent these fixed rate
agreements, the weighted-average variable rate for this debt at January 31, 2000
would have been 7.85 percent. At January 31, 2000 the fair value of interest
rate swap agreements approximated carrying value.
YEAR 2000
- ---------
Over the past several years, the Company recognized the need to ensure its
operations would not be adversely impacted by Year 2000 software failures.
The Company took various initiatives intended to ensure that its computer
equipment and software would function properly with respect to dates in the
year 2000 and thereafter. The Company completed its assessment of the Year
2000 issue through communication with key customers, suppliers, financial
institutions and others with which it conducts business and review of its
current internal computer systems to identify potential Year 2000 issues.
Additionally, the Company developed plans and implemented when required to
address system modifications. The Company also established a contingency plan
to address Year 2000 risk factors outside the Company's control. As of the
date of this filing, the Company had not experienced any material Year 2000
problems with its internal systems or products, nor had the Company
experienced any material problems with any of its key customers or suppliers.
The financial impact of making the required systems changes were not material to
the Company's consolidated financial position, results of operations or cash
flows.
16
<PAGE>
Part II - OTHER INFORMATION
Items 1. Legal Proceedings
During the current fiscal quarter, the Company reached a settlement
agreement with the Office of Foreign Assets Control, Department of Treasury,
concerning a violation of certain U.S. Government export regulations. Under the
terms of the settlement agreement, the Company made cash payment of $11,000 as
payment in full resolving all matters.
Item 2,3,4,5 Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
--------
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
January 31, 2000.
17
<PAGE>
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: March 16, 2000 By /s/ William B. Olson
---------------------
William B. Olson
Chief Financial Officer
and Treasurer
[Authorized Signatory]
18
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