<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For The Quarter Ended September 30, 1999
Commission File Number 0-19544
AUTOCAM CORPORATION
A Michigan Corporation
I.R.S. Employer Identification No. 38-2790152
4070 East Paris Avenue, Kentwood, Michigan 49512
Telephone: (616) 698-0707
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
----- -----
The number of Common Shares outstanding at November 3, 1999 was 6,312,508.
1 of 18
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
--------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30 and
June 30, 1999 3
Consolidated Statements of Operations and Comprehensive
Income for the Three Months Ended September 30, 1999
and 1998 4
Consolidated Statements of Cash Flows for the Three Months
Ended September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None.
Item 2. Changes in Securities - None.
Item 3. Default Upon Senior Securities - None.
Item 4. Submission of Matters to a Vote of Security Holders - None.
Item 5. Other Information - None.
Item 6. Exhibits and Reports on Form 8-K:
Exhibit 27 - Financial Data Schedule E-1
</TABLE>
2
<PAGE> 3
AUTOCAM CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
In thousands, except share data (unaudited) June 30, 1999
----------- -------------
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents $ 4,007 $ 3,654
Accounts receivable 39,038 40,781
Inventories 14,570 15,237
Prepaid expenses and other current assets 2,437 2,103
--------- ---------
TOTAL CURRENT ASSETS 60,052 61,775
PROPERTY, PLANT AND EQUIPMENT, NET 131,000 129,744
ASSETS HELD FOR SALE 534 534
GOODWILL AND OTHER INTANGIBLE ASSETS, NET 28,294 28,376
EQUIPMENT DEPOSITS AND OTHER LONG-TERM ASSETS 8,406 9,062
--------- ---------
TOTAL ASSETS $ 228,286 $ 229,491
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations $ 6,959 $ 4,478
Accounts payable 19,999 22,130
Accrued liabilities:
Compensation and related withholdings 9,161 9,683
Other 4,483 3,380
--------- ---------
TOTAL CURRENT LIABILITIES 40,602 39,671
LONG-TERM OBLIGATIONS, NET OF CURRENT MATURITIES 105,851 109,560
DEFERRED TAXES 26,369 25,628
DEFERRED CREDITS AND OTHER 5,504 5,417
MINORITY INTEREST 2,701 2,813
SHAREHOLDERS' EQUITY:
Preferred stock - 200,000 shares authorized; no shares
issued or outstanding
Common stock - 10,000,000 shares authorized;
6,311,641 and 6,306,993 shares issued and
outstanding as of September 30 and June 30, 1999,
respectively 34,607 34,572
Deferred compensation (297) (336)
Accumulated other comprehensive losses (3,916) (3,306)
Retained earnings 16,865 15,472
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 47,259 46,402
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 228,286 $ 229,491
========= =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
AUTOCAM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
(unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
In thousands, except per share data 1999 1998
---- ----
<S> <C> <C>
Sales $ 46,622 $ 24,020
Cost of sales 39,505 20,579
-------- --------
Gross profit 7,117 3,441
Selling, general and administrative 2,777 1,794
-------- --------
Income from operations 4,340 1,647
Interest expense, net 1,939 758
Minority interest in net income (loss) and other (345) 185
-------- --------
Income before tax provision 2,746 704
Tax provision 1,227 526
-------- --------
NET INCOME $ 1,519 $ 178
======== ========
BASIC NET INCOME PER SHARE $ .24 $ .03
======== ========
DILUTED NET INCOME PER SHARE $ .23 $ .03
======== ========
Basic weighted average shares outstanding 6,310 6,410
Diluted weighted average shares outstanding 6,512 6,611
Dividends declared per share $ .02 $ .02
STATEMENTS OF COMPREHENSIVE INCOME:
Net income $ 1,519 $ 178
Other comprehensive losses - Foreign currency translation
adjustments (610) (260)
-------- --------
COMPREHENSIVE INCOME (LOSS) $ 909 $ (82)
======== ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
AUTOCAM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
In thousands 1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 48,959 $ 22,808
Cash paid to suppliers and employees (40,741) (20,164)
Income taxes received (paid) (462) 165
Interest paid (1,995) (883)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,761 1,926
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,546) (5,633)
Proceeds from sale of property, plant and equipment 140 16
Acquisitions, net of cash received (344)
Decrease in restricted cash and equivalents 767
Payment of life insurance premiums and other (191) (193)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (2,597) (5,387)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on (repayments of) line of credit borrowings, net (2,628) 4,968
Proceeds from issuance of long-term obligations 25
Principal payments of long-term obligations (28) (1,751)
Cash dividends paid (126) (122)
Proceeds from exercise of employee stock options and other 35 35
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (2,747) 3,155
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS (64) (3)
-------- --------
Net increase (decrease) in cash and equivalents 353 (309)
Cash and equivalents at beginning of period 3,654 1,643
-------- --------
Cash and equivalents at end of period $ 4,007 $ 1,334
======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
AUTOCAM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements (the
"Financial Statements") of Autocam Corporation and its subsidiaries (together,
the "Company") have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, the Financial Statements do not
include all the information and footnotes normally included in the annual
consolidated financial statements prepared in accordance with generally accepted
accounting principles. All significant intercompany accounts and transactions
have been eliminated in consolidation.
In the opinion of management, the Financial Statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
such information in accordance with generally accepted accounting principles.
These Financial Statements should be read in conjunction with the financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1999.
Weighted average shares outstanding and earnings per share for the three months
ended September 30, 1998 have been restated to give effect to a 5% share
dividend declared on October 28, 1998 and paid on November 16, 1998 to
shareholders of record on November 2, 1998.
Reclassifications - Certain reclassifications have been made to the Statements
of Operations and of Cash Flows for the three months ended September 30, 1998 in
order to conform to fiscal 2000 presentation.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
In thousands (UNAUDITED) JUNE 30, 1999
----------- -------------
<S> <C> <C>
Raw materials $ 3,017 $ 3,179
Production supplies 3,166 3,010
Work in-process 6,767 7,091
Finished goods 1,620 1,957
------- -------
TOTAL INVENTORIES $14,570 $15,237
======= =======
</TABLE>
6
<PAGE> 7
AUTOCAM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999
3. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
In thousands (UNAUDITED) JUNE 30, 1999
----------- -------------
<S> <C> <C>
Land and improvements $ 1,796 $ 1,796
Buildings and improvements 9,211 8,953
Leasehold improvements 495 501
Machinery and equipment 151,708 146,867
Furniture and fixtures 6,026 5,466
Construction in progress 1,040
--------- ---------
TOTAL 169,236 164,623
Accumulated depreciation and amortization (38,236) (34,879)
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET $ 131,000 $ 129,744
========= =========
</TABLE>
4. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following (percentages represent interest
rates as of September 30, 1999):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
In thousands (UNAUDITED) JUNE 30, 1999
----------- -------------
<S> <C> <C>
Revolving credit loans with banks, 4.8% - 8.25% $ 48,833 $ 51,296
Acquisition term note with banks, 6.55% 45,709 44,362
Term note with banks, 3.15% 18,194 17,658
Note payable to Propart Corporation, 12% 16 631
Lines of credit and other 58 91
--------- ---------
TOTAL 112,810 114,038
Less current maturities (6,959) (4,478)
--------- ---------
LONG-TERM $ 105,851 $ 109,560
========= =========
</TABLE>
7
<PAGE> 8
AUTOCAM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999
5. INCOME TAXES
Income taxes as a percentage of income before tax provision and minority
interest were 41.8% and 61.4% for the three months ended September 30, 1999 and
1998, respectively. The effective tax rate for the quarter ended September 30,
1999 exceeded the United States statutory rate of 34% due primarily to the fact
that the income tax rates in France and Brazil exceed the United States
statutory rate. The effective rate also includes provisions for state and local
income taxes.
The effective tax rate for the quarter ended September 30, 1998 exceeded the
United States statutory rate due primarily to the recognition of $265,000 in
Federal income tax expense caused by the dissolution of the Company's
interest-charge Domestic International Sales Corporation.
6. STOCK-BASED COMPENSATION
The Company has reserved 1,126,875 common shares, in aggregate, for issuance to
employees under the 1991 Incentive Stock Option Plan and the 1998 Key Employee
Stock Option Plan (together, the "Plans"). Options are not exercisable prior to
twelve months from or ten years after the grant date. Options granted vest at a
rate of twenty percent annually over a five-year period. Had the Company
accounted for the Plans based on the fair value of awards at the grant dates as
prescribed by Statement of Financial Accounting Standard No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation," the Company's net income and net
income per share would have been decreased as indicated below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------------------
In thousands, except per share data 1999 1998
---- ----
<S> <C> <C>
Net income:
As reported $1,519 $178
Pro forma 1,405 123
Basic net income per share:
As reported $.24 $.03
Pro forma .22 .02
Diluted net income per share:
As reported $.23 $.03
Pro forma .22 .02
</TABLE>
The effects of applying SFAS 123 on a pro forma basis may not be representative
of the effects on reported pro forma net income for future periods as the
estimated compensation costs reflect only options vesting after June 30, 1995.
Under the methodology of SFAS 123, the fair value of the Company's fixed stock
options was estimated at the date of grant using the Black-Scholes
option-pricing model. The multiple option approach was used, with the following
weighted-average assumptions for all periods presented: dividend yield, .59%;
expected volatility, 45.31%; risk-free interest rate, 4%; and, expected life of
options, 10 years.
8
<PAGE> 9
AUTOCAM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999
7. BUSINESS SEGMENT INFORMATION
The Company has three operating segments: North America, Europe and South
America. The North American segment provides precision-machined components to
the transportation and medical devices industries, while the European and South
American segments provide precision-machined components to the transportation
industry. The Company has assigned specific business units to a segment based
principally on their geographical location. Each of the Company's segments is
individually managed and has separate financial results reviewed by the
Company's chief executive and operating decision-makers. These results are used
by the chief operating decision-makers both in evaluating the performance of,
and in allocating current and future resources to, each of the segments. The
Company evaluates segment performance primarily based on income from operations
and the efficient use of total assets. The accounting policies of the segments
are the same as those of the company as a whole.
Totals presented below are inclusive of all adjustments needed to reconcile to
the data provided in the Consolidated Financial Statements and related notes.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------------
In thousands 1999 1998
---- ----
<S> <C> <C>
Sales to Unaffiliated Customers from Company Facilities Located in:
North America $ 24,145 $ 20,065
Europe 19,734
South America 2,743 3,955
--------- ---------
Total $ 46,622 $ 24,020
========= =========
Income from Operations of Company Facilities Located in:
North America $ 1,719 $ 1,139
Europe 3,130
South America 415 508
Corporate (924)
---------
Total $ 4,340 $ 1,647
========= =========
<CAPTION>
SEPTEMBER 30, JUNE 30,
1999 1999
---- ----
<S> <C> <C>
Total Assets of Company Facilities Located in:
North America $ 92,910 $ 94,162
Europe 117,695 117,447
South America 10,362 10,795
Corporate 7,319 7,087
--------- ---------
Total $ 228,286 $ 229,491
========= =========
</TABLE>
The Corporate segment was disaggregated from the books and records of the
Company's North American operations during the fourth quarter of fiscal 1999. It
was impracticable to restate the prior period information concerning income from
operations.
9
<PAGE> 10
AUTOCAM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
SEPTEMBER 30, 1999
8. SUPPLEMENTAL CASH FLOW INFORMATION
The following is a reconciliation of net income to net cash provided by
operating activities:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
IN THOUSANDS (UNAUDITED)
----------------------------------
1999 1998
---- ----
<S> <C> <C>
Net income $ 1,519 $ 178
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,753 2,078
Deferred taxes 387 748
Minority interest in net income (loss) and other (354) 142
Changes in assets and liabilities that provided (used) cash:
Accounts receivable 2,313 (1,252)
Inventories 849 (505)
Prepaid expenses and other current assets (340) (449)
Other long-term assets 74 (65)
Accounts payable (2,520) 687
Accrued liabilities 183 301
Deferred credits and other (103) 63
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 5,761 $ 1,926
======= =======
</TABLE>
10
<PAGE> 11
AUTOCAM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1999
This Quarterly Report on Form 10-Q contains forward-looking statements as
defined by the Private Securities Litigation Reform Act of 1995. Forward-looking
statements should be read with the cautionary statements and important factors
included herein. Forward-looking statements include statements concerning plans,
objectives, goals, strategies, future events or performance and underlying
assumptions and other statements, which are other than statements of historical
facts. Such forward-looking statements may be identified, without limitation, by
the use of the words "anticipates," "estimates," "expects," "intends," "plans,"
"predicts," "projects," and other similar expressions. The Company's
expectations, beliefs and projections are expressed in good faith and are
believed by the Company to have a reasonable basis, including without
limitation, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectations, beliefs or
projections will result or be achieved or accomplished.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the components of the
Company's Consolidated Statements of Operations as a percentage of sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------------
1999 1998
---- ----
<S> <C> <C>
Sales 100.0% 100.0%
Cost of sales 84.7% 85.7%
----- -----
Gross profit 15.3% 14.3%
Selling, general and administrative 6.0% 7.5%
----- -----
Income from operations 9.3% 6.8%
Interest expense, net 4.2% 3.2%
Minority interest in net income (loss) and other (.8)% .7%
----- -----
Income before tax provision 5.9% 2.9%
Tax provision 2.6% 2.2%
----- -----
NET INCOME 3.3% .7%
===== =====
</TABLE>
11
<PAGE> 12
AUTOCAM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
SEPTEMBER 30, 1999
SALES
The following table indicates the Company's sales (in thousands) and percentage
of total sales by product application for the three-month periods ended
September 30, 1999 and 1998:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------
1999 1998
---- ----
<S> <C> <C> <C> <C>
Transportation:
Fuel systems $21,921 47.0% $15,817 65.8%
Power steering systems 11,223 24.1
Braking systems 7,477 16.0 4,037 16.8
Other 3,858 8.3 1,146 4.8
------- ---- ------- ----
Total transportation 44,479 95.4 21,000 87.4
Medical devices 1,550 3.3 2,468 10.3
Other 593 1.3 552 2.3
</TABLE>
Sales increased $22,602,000, or 94%, from the first quarter of fiscal 1999 to
the same period in fiscal 2000. The Company gained market share through the
acquisition of Frank & Pignard ("F&P") in October 1998. F&P generated
incremental sales of precision-machined components, mainly to the transportation
industry, of $19,734,000 during the fiscal 2000 period presented.
The Company's growth in sales of fuel injection components of $6,104,000 when
comparing the first quarter of fiscal 1999 to the same period in fiscal 2000 can
be primarily attributable to demand from F&P customers, accounting for 57% of
the increase. The remainder of the sales growth can be attributed to increases
in demand from North American-based customers on several new programs awarded
the Company during fiscal 1998 and 1999, partially offset by lower sales of fuel
system components by the Company's Brazilian operations. Although local-currency
(Brazilian Reais) sales were effectively the same in Brazil when comparing the
fiscal 1999 and 2000 periods presented, reporting currency (U.S. Dollar) sales
were 56% lower due to a significant devaluation in the Reais versus the Dollar
in January 1999.
Incremental growth in sales of braking system components of $3,440,000 during
the three months ended September 30, 1999 versus the same period in fiscal 1999
can be primarily attributable to demand from F&P customers, accounting for
$2,002,000 of the increase. The balance of the increase can be primarily
attributed to an increase in sales to a North American-based customer as demand
for its new braking system program grows.
With the acquisition of F&P, the Company assumed several contracts for the
production of power steering components and other transportation components for
electromechanical motors and electronic transmissions. This new business
accounts for essentially all of the increases in power steering system and other
transportation component sales when comparing the fiscal 1999 and 2000 periods
presented.
12
<PAGE> 13
AUTOCAM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
SEPTEMBER 30, 1999
SALES - CONCLUDED
Sales of components for medical device applications were $1,550,000 during the
three months ended September 30, 1999, a 37% decrease from the same period in
fiscal 1999. The decline in sales can be primarily attributed to the
cancellation of a contract with a significant cardiovascular stent customer in
November 1998, which eliminated $737,000 in sales from the fiscal 2000 period
presented, when comparing to the fiscal 1999 period presented.
Management believes that sales growth for fiscal 2000 will range between 10-15%
over fiscal 1999 levels as it reports a full year of sales from its French
operations. Additional sales are also expected to be generated from continued
expansion of fuel, power steering and braking system component sales as new
programs move toward full production. These sales gains are expected to be
partially offset by a decline in sales of cardiovascular stents of $1.4 million
over the remainder of fiscal 2000 caused by the stent contract cancellation
referred to above.
GROSS PROFIT
Gross profit for the three months ended September 30, 1999 and 1998 represented
15.3% and 14.3% of sales, respectively. The gross margin improvement can be
primarily attributed to the following:
- - The financial performance of the Company's Kentwood and Marshall, Michigan
facilities improved significantly when comparing the first quarter of
fiscal 2000 to the first quarter of fiscal 1999. Continuous improvement
efforts and volume increases, which allowed for better labor and equipment
utilization, resulted in a 4 percentage point improvement in gross margin
(as a percentage of sales) when comparing the two periods presented. In
addition, the fiscal 1999 first quarter profitability of these operations
was negatively impacted by the effects of the labor work stoppage at
General Motors Corporation during July 1998. No work stoppages were
experienced by significant customers during the first quarter of fiscal
2000.
- - The addition of F&P's operations since the first quarter of fiscal 1999,
which added nearly 3 percentage points to overall gross margin (as a
percentage of sales) when comparing the two periods presented.
These improvements were partially offset by the following negative factors:
- - Continued manufacturing difficulties experienced by the Company's Dowagiac,
Michigan facility during the ramp-up phase of a new braking system program,
which reduced overall gross margin (as a percentage of sales) by 2
percentage points when comparing the three months ended September 30, 1998
to the same period in fiscal 2000.
- - The loss of a significant cardiovascular stent contract (see Sales) reduced
gross profit (as a percentage of sales) by 1 percentage point when
comparing the fiscal 1999 period presented to the three months ended
September 30, 1999.
13
<PAGE> 14
AUTOCAM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
SEPTEMBER 30, 1999
GROSS PROFIT - CONCLUDED
Management expects continued year-over-year improvements in gross margin as a
percentage of sales for the remainder of fiscal 2000. The Company is actively
involved in several continuous improvement activities on newer programs in its
North American operations that are expected to allow for improved labor and
equipment utilization typically gained through these efforts. Management also
anticipates additional benefits through cost savings derived from the
implementation of production and inventory control systems at its foreign
operations.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses, as a percentage of sales, were
6.0% and 7.5% during the three months ended September 30, 1999 and 1998,
respectively. The Company normally incurs selling, general and administrative
costs at a rate ranging from 5.5% to 6% of sales since the addition of the
Company's French operations in October 1998. Prior thereto, selling general and
administrative expenses tended to be higher, as a percentage of sales, than
current levels due to the addition of the Company's Brazilian operations in
January 1998 which tend to incur these types of expenses at a much higher rate
than the Company's North American operations. Expenses reported for the first
quarter of fiscal 2000 include $407,000 in legal and professional service fees
associated with the contemplated sale of the Company.
Management expects that selling, general and administrative expenses, as a
percentage of sales, will approximate that which was reported during the first
quarter of fiscal 2000 for the next nine months.
INTEREST EXPENSE, NET
Net interest expense for the three months ended September 30, 1999 increased
$1,180,000 from the same period in the previous year, due primarily to an
increase in average borrowings outstanding during the quarter ended September
30, 1999 caused by the F&P acquisition. Management anticipates that interest
expense over the next nine months will approximate $1.9 million each quarter.
MINORITY INTEREST IN NET INCOME (LOSS) AND OTHER
The amount reported in this line primarily represents the minority shareholder's
interest in the net earnings (loss) of Autocam do Brasil, and net earnings
(losses) on products manufactured in North America on behalf of Autocam do
Brasil customers.
14
<PAGE> 15
AUTOCAM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
SEPTEMBER 30, 1999
TAX PROVISION
Income taxes as a percentage of income before tax provision and minority
interest were 41.8% and 61.4% for the three months ended September 30, 1999 and
1998, respectively. The effective tax rate for the quarter ended September 30,
1999 exceeded the United States statutory rate of 34% due primarily to the fact
that the income tax rates in France and Brazil exceed the United States
statutory rate. The effective rate also includes provisions for state and local
income taxes.
The effective tax rate for the quarter ended September 30, 1998 exceeded the
United States statutory rate due primarily to the recognition of $265,000 in
Federal income tax expense caused by the dissolution of the Company's
interest-charge Domestic International Sales Corporation.
Management expects the Company's effective tax rate to approximate 40% for the
remainder of fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
Management believes that the Company has adequate credit facilities and cash
available to meet its working capital and capital expenditure needs for the
foreseeable future. The Company's current banking agreement (the "Agreement")
includes a $70 million five-year revolving credit facility, a $50 million
five-year acquisition term note and a $20 million six-year term note. Principal
obligations under the revolving credit facility are due at the expiration of the
facility. Principal obligations under the $50 million and $20 million term notes
are as follows:
<TABLE>
<CAPTION>
In thousands $50 million note $20 million note
---------------- ----------------
<S> <C> <C>
Prior to October 1, 2000 $ 6,856
Between September 30, 2000 and October 1, 2001 12,570
Between September 30, 2001 and October 1, 2002 13,713
Between September 30, 2002 and October 1, 2003 12,570 $ 1,137
Between September 30, 2003 and October 1, 2004 13,646
Thereafter 3,411
------- -------
Total $45,709 $18,194
======= =======
</TABLE>
Interest is due monthly on all facilities under the Agreement at variable
interest rates. The Agreement includes certain covenants requiring the Company
to maintain minimum levels of tangible net worth and prohibits the Company from
exceeding certain leverage ratios.
As of September 30, 1999, the Company had $21.2 million in availability under
its revolving credit facility. Management anticipates retiring current
maturities of long-term obligations with future operating cash flows. As of
September 30, 1999, $112.7 million of the Company's long-term debt was subject
to variable interest rates.
15
<PAGE> 16
AUTOCAM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
SEPTEMBER 30, 1999
LIQUIDITY AND CAPITAL RESOURCES - CONCLUDED
New equipment placed into service and deposits paid on future equipment
purchases during the quarter ended September 30, 1999 totaling $6.2 million were
financed through operating cash flows and bank borrowings ($4 million) and
operating lease agreements ($2.2 million). During the quarter ended September
30, 1999, the Company borrowed $370,000 to purchase equipment formerly leased
under operating lease agreements, resulting in annual cash flow improvements of
$124,000.
In order to meet increased demand primarily from transportation customers,
management will purchase $12-14 million of equipment over the next three fiscal
quarters (upon which deposits of $2.2 million had been placed as of September
30, 1999). Management expects to finance these purchases with cash on hand,
operating cash flows, operating leases, and/or bank borrowings.
IMPACT OF YEAR 2000 ISSUE
The Company recognizes the importance of the Year 2000 issue and has been giving
high priority to it. In July 1998, the Company created a Year 2000 project team
to supervise a comprehensive risk-based assessment of the Company's Year 2000
readiness. The team's objective is to ensure an uninterrupted transition into
the Year 2000. The scope of the Year 2000 readiness effort includes software,
hardware, electronic data interchange, manufacturing and lab equipment,
environmental and safety systems, facilities, utilities and supplier readiness.
Since the Company makes predominate use of recent operating versions of packaged
computer applications in its business and believes such applications to be Year
2000 compliant, management considers the risk of a materially adverse effect on
the operations of the Company to be remote. As of September 30, 1999, the
Company had spent $16,000 in connection with the assessment phase of the
project, which is now complete.
The Company is utilizing both internal and external resources to remediate and
test all applications and computer, manufacturing and facilities equipment that
may be adversely impacted by Year 2000 issues. The Company has completed the
testing of all Year 2000 compliance issues for all information systems. Total
costs to remediate its systems, if any, are not expected to exceed $150,000.
In addition to internal Year 2000 software and equipment remediation activities,
the Company has contacted its key suppliers and all its electronic commerce
customers to assess their compliance. There can be no absolute assurances that
there will not be a materially adverse effect on the Company if third parties do
not convert their systems in a timely manner and in a way that is compatible
with the Company's systems. The Company believes that its diligent actions with
suppliers and customers will minimize these risks. In any event, the Company
believes that it has adequate back-up manual and contingency systems in place
that will allow it to ship its primary products and invoice its customers in the
unlikely event that its assessment, testing and remediation efforts do not
detect a materially adverse Year 2000 compliance problem in its software or
equipment or with its suppliers or customers.
16
<PAGE> 17
AUTOCAM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONCLUDED
SEPTEMBER 30, 1999
IMPACT OF YEAR 2000 ISSUE - CONCLUDED
The Company's current estimates of the amount of time and costs necessary to
remediate and test its computer systems are based on the facts and circumstances
existing at this time. The estimates were derived utilizing multiple assumptions
of future events including the continued availability of certain resources,
third-party modification plans and implementation success, and other factors.
New developments may occur that could affect the Company's estimates of the
amount of time and costs necessary to modify and test its systems for Year 2000
compliance. These developments include, but are not limited to, (i) the
availability and cost of personnel trained in this area, (ii) the ability to
locate and correct all relevant computer code and equipment, and (iii) the
planning and modification success attained by the Company's suppliers and
customers.
FOREIGN CURRENCY TRANSACTIONS
The Company derived 48% and 15% of its sales during the first quarters of fiscal
2000 and 1999, respectively, from foreign manufacturing operations. The
financial position and results of operations of the Company's subsidiary in
France are measured in French Francs and translated into U.S. Dollars. The
effects of foreign currency fluctuations in France is somewhat mitigated by the
fact that sales and expenses are generally incurred in French Francs, and the
reported net income thereon will be higher or lower, depending on a weakening or
strengthening of the U.S. Dollar.
The financial position and results of operations of the Company's subsidiary in
Brazil are measured in Brazilian Reais and translated into U.S. Dollars. With
respect to 37% and 64% of this subsidiary's sales for the first quarter of
fiscal 2000 and 1999, respectively, expenses associated therewith are generally
incurred in Brazilian Reais, but sales are generated in U.S. Dollars. As such,
results of operations with regard to these sales are directly influenced by a
weakening or strengthening of the Brazilian Real versus the U.S. Dollar. The
effects of foreign currency fluctuations are somewhat mitigated on the remainder
of this subsidiary's sales by the fact that such sales and expenses associated
therewith are generally incurred in Brazilian Reais and the reported income
thereon will be higher or lower depending on a weakening or strengthening of the
U.S. Dollar.
Seven and eleven percent of the Company's net assets as of September 30, 1999
are based in France and Brazil, respectively, and were translated into U.S.
Dollars at the exchange rates in effect as of that date (1.918 Brazilian Reais
per U.S. Dollar, and 6.156 French Francs per U.S. Dollar, respectively).
Accordingly, the Company's consolidated shareholders' equity will fluctuate
depending upon the weakening or strengthening of the U.S. Dollar.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 12, 1999
Autocam Corporation
/s/ John C. Kennedy
-------------------------------
John C. Kennedy
Principal Executive Officer
/s/ Warren A. Veltman
-------------------------------
Warren A. Veltman
Principal Financial and
Accounting Officer
18
<PAGE> 19
Exhibit Index
-------------
Exhibit Index Description
- ------------- -----------
27 Financial Data Schedule
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<CIK> 0000879235
<NAME> AUTOCAM CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
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<SECURITIES> 0
<RECEIVABLES> 39,038
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<INVENTORY> 14,570
<CURRENT-ASSETS> 60,052
<PP&E> 169,236
<DEPRECIATION> 38,236
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<CURRENT-LIABILITIES> 40,602
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0
0
<COMMON> 34,607
<OTHER-SE> 12,652
<TOTAL-LIABILITY-AND-EQUITY> 228,286
<SALES> 46,622
<TOTAL-REVENUES> 46,622
<CGS> 39,505
<TOTAL-COSTS> 39,505
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<INTEREST-EXPENSE> 1,939
<INCOME-PRETAX> 2,746
<INCOME-TAX> 1,227
<INCOME-CONTINUING> 1,519
<DISCONTINUED> 0
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<NET-INCOME> 1,519
<EPS-BASIC> .24
<EPS-DILUTED> .23
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