<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1999
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 number 0-21964
--------------------
SHILOH INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0347683
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
Suite 202, 103 Foulk Road, Wilmington, Delaware 19803
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(Address of principal executive offices - zip code)
(302) 998-0592
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year, if changed since last
report)
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
- -------------------------------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Number of shares of Common Stock outstanding as of March 12, 1999 was
13,080,563 shares.
<PAGE> 2
SHILOH INDUSTRIES, INC.
-----------------------
INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet 3
Consolidated Statement of Income 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
SHILOH INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(Unaudited)
January 31, October 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,238,715 $ 642,723
Accounts receivable 58,780,191 46,802,379
Inventories, net 44,075,570 44,783,947
Deferred income taxes 1,290,357 1,290,357
Prepaid expenses 4,606,835 3,543,716
------------ ------------
Total current assets 111,991,668 97,063,122
------------ ------------
Property, plant and equipment, net 254,072,959 240,440,580
Goodwill 11,953,914 12,056,054
Other assets 5,494,780 5,269,086
------------ ------------
Total assets $383,513,321 $354,828,842
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Accounts payable $ 31,428,416 $ 23,863,107
Short-term debt 16,625,000 --
Accrued income taxes 2,475,923 1,020,204
Advanced billings 2,083,320 2,836,203
Other accrued expenses 12,634,633 12,983,892
------------ ------------
Total current liabilities 65,247,292 40,703,406
------------ ------------
Long-term debt 137,975,000 135,865,000
Deferred income taxes 14,562,840 14,562,840
Long-term pension liability 879,800 879,800
------------ ------------
Total liabilities 218,664,932 192,011,046
------------ ------------
Stockholders' equity
Common stock 130,805 130,805
Paid-in capital 39,399,805 39,399,805
Retained earnings 125,317,779 123,287,186
------------ ------------
Total stockholders' equity 164,848,389 162,817,796
------------ ------------
Total liabilities and stockholders' equity $383,513,321 $354,828,842
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
SHILOH INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended January 31,
--------------------------------
1999 1998
---- ----
<S> <C> <C>
Revenues $81,601,103 $73,930,008
Cost of sales 69,204,147 58,902,298
----------- -----------
Gross Profit 12,396,956 15,027,710
Selling, general and administrative expenses 7,713,930 6,136,787
----------- -----------
Operating income 4,683,026 8,890,923
Interest expense 1,697,424 995,074
Interest income 55,866 4,261
Minority interest 222,280 82,586
Other income (expense), net 38,033 11,872
----------- -----------
Income before income taxes 3,301,781 7,994,568
Provision for income taxes 1,271,186 3,069,914
----------- -----------
Net income $ 2,030,595 $ 4,924,654
=========== ===========
Basic earnings per share:
Net income $ .16 $ .38
===== ======
Weighted average number of common shares: 13,080,563 13,038,763
Diluted earnings per share:
Net income $ .16 $ .38
===== ======
Weighted average number of common shares: 13,093,071 13,084,618
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
SHILOH INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended January 31,
------------------------------
1999 1998
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 2,030,595 $ 4,924,654
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,514,672 3,547,290
Minority interest (222,280) 82,586
Gain on sale of assets (943) (2,163)
Changes in operating assets and liabilities net
of effects of business acquired:
Accounts receivable (11,977,812) (3,409,193)
Inventories 708,377 430,806
Prepaids and other assets (1,066,535) (489,151)
Payables and accruals 6,552,853 (3,547,231)
Accrued income taxes 1,366,033 3,118,704
------------ ------------
Net cash provided by operating activities 1,903,740 4,657,522
------------ ------------
Cash Flows From Investing Activities:
Capital expenditures (18,049,048) (21,933,934)
Proceeds from sale of assets 6,300 --
------------ ------------
Net cash used in investing activities (18,042,748) (21,933,934
------------ ------------
Cash Flows From Financing Activities:
Proceeds from short-term borrowings 16,625,000 19,100,000
Repayments of short-term borrowings -- (4,000,000)
Proceeds from long-term borrowings 4,110,000 3,000,000
Repayments of long-term borrowings (2,000,000) --
------------ ------------
Net cash provided by financing activities 18,735,000 18,100,000
------------ ------------
Net increase (decrease) in cash and cash equivalents 2,595,992 823,588
Cash and cash equivalents at beginning of period 642,723 191,688
------------ ------------
Cash and cash equivalents at end of period $ 3,238,715 $ 1,015,276
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - Basis of Presentation and Business
- -------------------------------------------
The condensed consolidated financial statements have been prepared by Shiloh
Industries, Inc. (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. The information furnished
in the condensed consolidated financial statements includes normal recurring
adjustments and reflects all adjustments which are, in the opinion of
management, necessary for a fair presentation of such financial statements.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. Although
the Company believes that the disclosures are adequate to make the information
presented not misleading, it is suggested that these condensed consolidated
financial statements be read in conjunction with the audited financial
statements and the notes thereto included in the Company's 1998 Annual Report to
Stockholders.
Revenues and operating results for the three months ended January 31, 1999 are
not necessarily indicative of the results to be expected for the full year.
NOTE 2 - Inventories:
- ---------------------
Inventories consist of the following:
<TABLE>
<CAPTION>
January 31, October 31,
1999 1998
------------ ------------
<S> <C> <C>
Raw materials $ 19,125,121 $ 17,725,301
Work-in-process 18,664,744 21,012,774
Finished goods 7,501,957 7,253,874
------------ ------------
Total at average cost 45,291,822 45,991,949
LIFO reserve (1,216,252) (1,208,002)
------------ ------------
Total $ 44,075,570 $ 44,783,947
============ ============
</TABLE>
NOTE 3 - Property, Plant and Equipment:
- ---------------------------------------
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
January 31, October 31,
1999 1998
------------ ------------
<S> <C> <C>
Land $ 6,546,906 $ 6,098,992
Buildings and improvements 87,973,122 87,837,749
Machinery and equipment 184,084,232 180,474,182
Furniture and fixtures 10,007,845 9,896,521
Construction in progress 45,383,967 31,768,168
------------ ------------
Total, at cost 333,996,072 316,075,612
Less: Accumulated depreciation (79,923,113) (75,635,032)
------------ ------------
Net property, plant and equipment $254,072,959 $240,440,580
============ ============
</TABLE>
6
<PAGE> 7
NOTE 4 - Financing Arrangements:
- --------------------------------
<TABLE>
<CAPTION>
January 31, October 31,
1999 1998
----------- -----------
<S> <C> <C>
Short-term debt consists of the following:
Revolving credit loan - interest at 6.2% at January 31, 1999 $ 16,625,000 ---
Long-term debt consists of the following:
Revolving credit loan - interest at 5.61% at January 31, 1999 $132,575,000 $130,465,000
Variable rate industrial development bond, secured by letter of
credit, weighted average interest rate at 3.44% payable on
February 1, 2010 5,400,000 5,400,000
----------- -----------
Total $154,600,000 $135,865,000
============ ============
</TABLE>
Prior to January 22, 1998, the Company had a $70.0 million unsecured revolving
credit facility ("Shiloh Facility") with KeyBank National Association
("KeyBank") and Shiloh of Michigan had a $28.0 million credit facility ("Shiloh
of Michigan Facility") with KeyBank. On January 22, 1998, the Company increased
the Shiloh Facility to $135.0 million. The term of the Shiloh Facility extends
to January 31, 2003. The Company has the option to select the applicable
interest rate at KeyBank's prime rate or the LIBOR rate plus a factor determined
by a pricing matrix based on the Company's ratio of Funded Debt to earnings
before interest, taxes, depreciation and amortization ("EBITDA"). As of January
31, 1999, the factor as determined by the pricing matrix was 0.4%. The terms of
the agreement also require an annual facility fee as determined by a pricing
matrix based on the Company's ratio of Funded Debt to EBITDA. This annual
facility fee is currently 0.225% of the outstanding loan balance. On January 22,
1998, the Company used $28 million of the Shiloh Facility to retire the
outstanding balance of the Shiloh of Michigan Facility. On December 28, 1998 the
Company extended the existing facility with KeyBank to include an additional
$35.0 million that will expire on April 30, 1999, at which time the Company will
renegotiate the Shiloh Facility.
In March 1995, Medina County, Ohio issued on the behalf of the Company an
aggregate of $5.4 million in principal amount of variable rate interest bonds
due 2010, which are secured by the Company with a letter of credit. The funds
from these bonds, in the amount of $5.4 million, were used to finance a portion
of the expansion at the Company's steel pickling operations in Valley City, Ohio
in 1996. The entire $5.4 million of such proceeds was outstanding as of January
31, 1999.
Certain of the debt agreements described above contain various restrictive
covenants which, among others things, require the Company's various operating
subsidiaries to maintain minimum net worth levels and financial ratios. The
agreements also place certain restrictions on additional indebtedness and
capital expenditures.
Under the Company's revolving credit facilities, $19.4 million was unused at
January 31, 1999.
7
<PAGE> 8
NOTE 5 - Other Information:
- ---------------------------
During the first quarter ended January 31, 1999 and 1998, cash payments for
interest amounted to $2.0 million and $1.2 million respectively, while no cash
payments for income taxes were made during the first quarter of 1999 cash
payments, net of refunds, of $2.0 million were made for income taxes during the
first quarter of fiscal 1998. The provision for income taxes was $1.3 million
for the first three months of fiscal 1999 compared with $3.1 million for the
comparable period in fiscal 1998, representing effective tax rates of 38.5% and
38.4%, respectively.
The Company's non-qualified stock option plan, adopted in May 1993, provides for
granting officers and employees of the Company options to acquire an aggregate
of 1,200,000 shares at an exercise price equal to 100% of market price on the
date of grant. During the first quarter of fiscal 1999, 198,500 stock options
were granted but no options were exercised during the quarter.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
- -------
The Company is a vertically integrated steel processor that supplies blanks,
stampings and processed steel as well as designs and builds tools and dies for
the automotive and other industries. The Company currently provides a broad
range of intermediate steel processing services, which include: (i) blanking and
stamping; and (ii) other steel processing services (which include pickling hot
rolled steel, slitting, edge trimming, roller leveling and cutting to length of
both hot and cold rolled steel). The Company operates through ten subsidiaries,
Shiloh Corporation, Valley City Steel Company, The Sectional Die Company, Medina
Blanking, Inc. ("Medina Blanking"), Sectional Stamping, Inc. ("Sectional
Stamping"), Liverpool Coil Processing, Inc., Shiloh of Michigan, L.L.C., the
Company's joint venture with Rouge Steel Company, Greenfield Die & Manufacturing
Company, C&H Design Company, d.b.a. C&H Die Technology and Jefferson Blanking,
Inc. ("Jefferson Blanking").
The Company typically experiences decreased revenue and operating income during
the first fiscal quarter of each year, usually resulting from generally slower
overall automobile production during the winter months. The revenues and
operating income in the third fiscal quarter can also be affected by the
typically lower automobile production activities in July due to manufacturers'
changeover in production lines.
In analyzing the financial aspects of the Company's steel processing operations,
a number of factors must be considered. First, plant utilization levels are very
important to profitability because of the capital intensive nature of these
operations. Because the Company performs a number of different processing
operations, however, it is not meaningful to analyze simply the total tons of
steel processed. For example, blanking and stamping involve more operational
processes, from the design and manufacture of tools and dies to the production
and packaging of the final product, than the Company's other steel processing
services and therefore generally have higher margins. Second, a significant
portion of the Company's steel processing products and services is provided to
the customers on a toll processing basis. Under these arrangements, the Company
charges a specified toll processing fee for the processing operations performed
without acquiring ownership of the steel and being burdened with the attendant
costs of ownership and risk of loss. Although the proportion of tons processed
by the Company that are directly owned and toll processed may fluctuate from
quarter to quarter primarily based on the customers for which the Company is
providing services during the period, the Company estimates that during the past
three years approximately 87.4%, 87.2% and 85.9%, respectively, of total tons
processed were on a toll processing basis. Revenues from operations involving
directly owned steel include a component of raw material cost whereas toll
processing revenues do not, consequently, toll processing generally results in
lower gross profit, but higher gross margin, than directly owned steel
processing. Therefore, an increase in the proportion of total revenues
attributable to directly owned steel processing may result in higher revenues
and gross profits but lower gross margins. The Company's blanking and stamping
operations use more directly owned steel than do its other steel processing
operations. In addition, changes in the price of steel can impact the Company's
results of operations because raw material costs are by far the largest
component of cost of sales in processing directly owned steel.
9
<PAGE> 10
Results of Operations
- ---------------------
THREE MONTHS ENDED JANUARY 31, 1999
COMPARED TO THREE MONTHS ENDED JANUARY 31, 1998
REVENUES. Revenues increased by $7.7 million, or 10.4%, to $81.6 million for the
first quarter of fiscal 1999 from $73.9 million for the comparable period in
fiscal 1998. The increase in revenue is primarily due to Sectional Stamping's
increased volumes with three primary customers and increased tailor welded
blanking revenue at Medina Blanking. Revenues from blanking and stamping and
other steel processing operations increased 12.6% and 4.8%, respectively, for
the first quarter of fiscal 1999, from the comparable period in fiscal 1998. The
percentage of revenue from directly owned steel processed increased to 73.3% for
the first quarter of fiscal 1999 from 67.3% for the comparable period in fiscal
1998. The percentage of revenues from toll processed steel decreased to 26.7%
for the first quarter of fiscal 1999 from 32.7% for the comparable period in
fiscal 1998. This shift in the mix of revenue from toll processing and directly
owned steel processing resulted from a shift in customer orders for the quarter.
GROSS PROFIT. Gross profit decreased by $2.6 million, or 17.5%, to $12.4 million
for the first quarter of fiscal 1999 from $15.0 million for the comparable
period in fiscal 1998. Gross margin decreased to 15.2% for the first quarter of
fiscal 1999 from 20.3% for the comparable period in fiscal 1998. The decline in
gross margin is primarily attributed to three primary factors: an increase in
direct sales resulting in higher cost of goods sold, decreased scrap sales
resulting from a lower market price for scrap steel, and lower margin on certain
tool and die projects.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 25.7% to $7.7 million for the first quarter of
fiscal 1999 from $6.1 million for the comparable period in fiscal 1998. As a
percentage of revenues, selling, general and administrative expenses increased
to 9.5% for the first quarter of fiscal 1999 from 8.3% for the comparable period
in fiscal 1998. The increase, in dollars, was primarily the result of inclusion
of Jefferson Blanking which was not operational during the first quarter of
fiscal 1998, increased corporate staffing and professional fees associated with
the negotiation of two union contracts.
OTHER. The Company incurred interest expense of $1.6 million in the first
quarter of fiscal 1999 compared to $1.0 million of interest expense in the
comparable period of fiscal 1998. This increase is due primarily to increased
average borrowings. Interest expense of approximately $.4 million relating to
expansion of several facilities was capitalized during the first quarter of
fiscal 1999. The provision for income taxes was $1.3 million in the first
quarter of fiscal 1999 compared with $3.1 million for the comparable period in
fiscal 1998, representing effective tax rates of 38.5% and 38.4%, respectively.
NET INCOME. Net income from continuing operations for the first quarter of
fiscal 1999 decreased by $2.9 million, or 58.8%, to $2.0 million from $4.9
million for the comparable period in fiscal 1998. This decrease was the result
of an increase in revenue attributed to directly owned steel, thereby resulting
in an increase in cost of goods sold, decreased scrap sales as a result of a
lower market price for scrap steel, lower margins on certain tool and die
projects, higher interest expense resulting from a higher average level of debt
and increased depreciation resulting from increased capital expenditures.
10
<PAGE> 11
Liquidity and Capital Resources
- -------------------------------
At January 31, 1999, the Company had $46.7 million of working capital,
representing a current ratio of 1.72 to 1 and a debt-to-capitalization ratio of
48.4%. As a result of the financial condition of the Company, the Company
believes that it will be able to continue its planned investment in new
equipment and facilities through fiscal 1999.
Net cash provided by operating activities is primarily generated from net income
of the Company plus non-cash charges for depreciation and amortization, which,
because of the capital intensive nature of the Company's business, are
substantial. Net cash provided by operating activities during the first quarter
of fiscal 1999 was $1.9 million as compared to $4.7 million for the comparable
period of fiscal 1998, primarily as a result of the increase in accounts
receivable partially offset by the increase in accounts payable. Net cash
provided by operating activities has historically been used by the Company to
fund a portion of its capital expenditures.
Capital expenditures were $18.0 million during the first quarter of fiscal 1999
and $21.9 million for the comparable period in fiscal 1998. Approximately $16.0
million of the capital expenditures during the first quarter of fiscal 1999 were
for expansions of the Company's current blanking and stamping facilities as well
as new construction at Jefferson Blanking and Medina Blanking. These additions
are being constructed or obtained to support increased business and anticipated
new business. The Company's total capital budget for fiscal 1999, including
carryover from the previous year amounts to approximately $50.0 million.
Prior to January 22, 1998, the Company had a $70.0 million unsecured revolving
credit facility ("Shiloh Facility") with KeyBank National Association
("KeyBank") and Shiloh of Michigan had a $28.0 million credit facility (the
"Shiloh of Michigan Facility") with KeyBank. On January 22, 1998, the Company
increased the Shiloh Facility to $135.0 million. The term of the Shiloh Facility
extends to January 31, 2003. The Company has the option to select the applicable
interest rate at KeyBank's prime rate or the LIBOR rate plus a factor determined
by a pricing matrix based on the Company's ratio of Funded Debt to EBITDA. As of
January 31, 1999, the factor as determined by the pricing matrix was 0.4%. The
terms of the agreement require an annual facility fee as determined by a pricing
matrix based on the Company's ratio of Funded Debt to EBITDA. This annual
facility fee is currently 0.225% of the outstanding balance. On January 22,
1998, the Company used $28.0 million of the Shiloh Facility to retire the
outstanding balance of the Shiloh of Michigan facility. On December 28, 1998
the Company extended the credit facility with KeyBank to include an additional
$35.0 million that will expire on April 30, 1999 at which time the Company
will renegotiate the Shiloh Facility.
The Company executed a promissory note as of December 6, 1996 in favor of
Richland Bank in the aggregate principal amount of $4.0 million. Interest
accrues on the outstanding principal balance thereunder at LIBOR rate plus 3/4%.
In March 1995, Medina County, Ohio issued on the behalf of the Company an
aggregate of $5.4 million in principal amount of variable rate industrial
revenue bonds due 2010, which are secured by the Company with a letter of
credit. The funds from these bonds were used to finance a portion of the
expansion at the Company's steel pickling operations in Valley City, Ohio. The
$5.4 million of such proceeds was outstanding as of January 31, 1999.
The Company believes that it currently has sufficient liquidity and available
capital resources to meet its existing needs, and the financial capability to
increase its long-term borrowing level if that becomes appropriate due to
changes in its capital requirements. Total availability under the Company's
unsecured lines of credit and revolving credit facilities is $174.0 million,
$19.4 million of which was unused at January 31, 1999.
11
<PAGE> 12
Year 2000 Compliance
The "Year 2000" problem relates to the computer systems and software that may
have a problem distinguishing the dates 1900 and 2000 because the calendar year
date is abbreviated by only two digits. As a result of this design decision,
systems could fail to operate or produce the correct results if the "00" is
interpreted to mean 1900 rather than 2000. If this occurs in a system used by
the Company or a third party dealing with the Company, the results could
conceivably have an adverse material effect on the Company.
As a key supplier to the automotive and other manufacturing industries, the
Company's major exposure for the Year 2000 problems is the effect of shutting
down production at one of its customer's facilities. While lost revenues from
such an event are a concern for the Company, the greater risks are the
consequential damages for which the Company could be liable if it in fact is
found responsible for the shutdown of a customer's facility. Such a finding
could have an adverse material impact on the Company's operating results.
The most likely way in which the Company would shut down production at a
customer's facility is by being unable to supply material or parts to that
customer. The material supplied by the Company, in many cases is an integral
component of the end products that the customer produces, and the inability to
provide them may make the customer unable to manufacture and sell its products.
Breakdowns in any number of the Company's computer systems and applications
could prevent the Company from being able to manufacture and ship its products.
Examples of such potential failures include, without limitation, failure in the
Company's manufacturing application software, bar-coding system, embedded
computer chips in shop-floor equipment, and lack of supply of material from its
suppliers, or lack of heat, power or water from utilities servicing the
Company's facilities. The Company's products do not contain computer devices
that require remediation to meet the Year 2000 requirements.
For its information technology, the Company currently utilizes an IBM RS6000
computing environment that is complemented by a series of local-area networks
("LANs") that are connected nationwide via a wide-area network ("WAN"). Most of
the operating systems related to the RS6000s, LANs and WAN have been or are in
the process of being updated to comply with the Year 2000 requirements.
Additionally, upgraded and modified versions of the Company's financial,
manufacturing (including bar coding), payroll, human resources and other
software applications which are Year 2000 ready are available and are now in the
process of being integrated into the Company's information systems. The Company
expects that this integration will be substantially complete by the end of the
third calendar quarter of 1999.
The Company utilizes non-mainframe computers and software in its various
production facilities throughout the country. An initial internal review of
these systems have identified that only a few revisions are necessary to these
systems to make them Year 2000 ready. The majority of the revisions that have
been identified relate to old personal computers or memory chips that must be
replaced. Although there can be no assurances that the Company will identify and
correct every Year 2000 problem in the computer applications used in its
business or production processes, the Company believes that it has in place a
comprehensive program to identify and correct any such problem. The plan calls
for substantial completion of the remediation of these systems by the end of the
third calendar quarter of 1999. At this time, the Company does not believe that
it requires a contingency plan with respect to the information technology,
business and production processes and has therefore not developed one.
12
<PAGE> 13
The Company is also reviewing its building and utility systems (heat,
electrical, water, phones, etc.) for the impact of Year 2000. Many of the
systems in this area are currently Year 2000 compliant. While the Company is
diligently working with the providers of these services and has no reason to
expect that they will not meet their requirements for Year 2000 compliance,
there can be no assurances that these suppliers will in fact meet the Company's
requirement. A failure by any of these suppliers to remediate their systems
could potentially cause a shutdown of one or more of the Company's facilities,
which could impact the Company's ability to meet its obligations to deliver
products to its customers. At this time, the Company has not developed a
contingency plan in the event of a failure caused by a supplier or third party,
but would do so if a specific problem is identified. In some cases, especially
with respect to utilities, there may not, however, be an alternative source
available.
The Company has also started a program to determine the Year 2000 compliance of
their significant equipment and material suppliers. The Company has sent out a
comprehensive questionnaire to all of its suppliers regarding their Year 2000
compliance and is attempting to identify any potential problem areas with
respect to them. This program will be ongoing and the Company's efforts with
respect to specific problems identified will depend, in part on its assessment
of the risk that any such problem may cause the shutdown of a customer's plant
or other problem which the Company believes would have a material effect on
operations. The Company cannot, however, fully control the conduct of its
suppliers and there can be no guarantee that Year 2000 problems originating from
a supplier will not occur. At this time, the Company has not developed a
contingency plan in the event of a failure caused by a supplier or third party,
but would do so if a specific problem is identified. In some cases there may not
be an alternative source available.
As a supplier to the automotive industry, the Company takes an active role in
many industry-sponsored organizations, including the American Iron and Steel
Institute ("AISI") and the Automotive Industry Action Group ("AIAG"). The AIAG
has been proactive in working with OEMs and Tier 1,2 and 3 suppliers to ensure
that the industry as a whole addresses the Year 2000 problem. The AIAG provides
tools to assist in achieving compliance including questionnaires, regular
meetings of members, follow-up by AIAG personnel regarding the answers to the
questionnaires, etc. The Company will continue to work with such organizations
in order to have access to the tools available to address the Year 2000 problem.
To date, the Company has not spent a material amount on specific Year 2000
issues. As of January 31, 1999, the Company spent approximately $9.8 million on
a new business system; however, the Company cannot quantify the amount directly
related to Year 2000 compliance. Similarly, the Company, at this time, cannot
quantify the amount to be spent on Year 2000 issues and compliance matters
related thereto.
The information presented above sets forth the key steps taken by the Company to
address the Year 2000 problem. There can be no assurance that third parties will
convert their systems in a timely manner and in a way that is compatible with
the Company's systems. The Company believes that its actions with suppliers will
minimize these risks and that the costs of Year 2000 compliance for its
information and production systems will not be material in its consolidated and
financial and operational results.
13
<PAGE> 14
FORWARD-LOOKING STATEMENTS
The statements contained in this Report that are not historical facts are
forward-looking statements. These forward-looking statements are subject to
certain risks and uncertainties with respect to the Company's operations in
fiscal 1999 as well as over the long term such as, without limitation, (i) a
downturn in the automotive industry, which is highly cyclical, dependent on
consumer spending and subject to the impact of domestic and international
economic conditions and regulations and policies regarding international trade,
(ii) the ability of the Company to accomplish its strategic objectives with
respect to external expansion through selective acquisitions and internal
expansion, (iii) increases in the price of, or limitations on the availability
of steel, the Company's primary raw material. (iv) risks associated with
integrating operations of acquired companies, (v) potential disruptions in
operations due to or during facility expansions, (vi) a labor dispute involving
the Company, its customers or suppliers, and (vii) the potential inability to
adequately address issues relating to the Year 2000 problems. Any or all of
these risks and uncertainties could cause actual results to differ materially
from those reflected in the forward-looking statements. These forward-looking
statements reflect management's analysis only as of the date of the filing of
this report. The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise after
the date hereof. In addition to the disclosure contained herein, readers should
carefully review risks and uncertainties contained in other documents the
Company files from time to time with the Securities and Exchange Commission.
Effect of Inflation
Inflation generally affects the Company by increasing the interest expense of
floating rate indebtedness and by increasing the cost of labor, equipment and
raw material. The general level of inflation has not had a material effect on
the Company's financial results.
Euro Conversion
On January 1, 1999, eleven of the fifteen countries (the "Participating
Countries") that are members of the European Union established a new uniform
currency known as the "Euro". The currency existing prior to such date in the
Participating Countries will be phased out during the transition period
commencing January 1, 1999 and ending January 1, 2002. During such transition
period both the Euro and the existing currency will be available in the
Participating Countries. Because the Company has no foreign operations and no
material foreign sales, the Company does not anticipate that the introduction
and use of the Euro will materially affect the Company" business, prospects,
results of operations or financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's major market risk exposure is primarily due to possible
fluctuations in interest rates as they relate to its variable rate debt. The
Company does not enter into derivative financial investments for trading or
speculative purposes. As a result, the Company believes that its market risk
exposure is not material to the Company's financial position, liquidity or
results of operations.
14
<PAGE> 15
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 27 Financial Data Schedule.
b. Reports on Form 8-K: None.
15
<PAGE> 16
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.
Date: March 15, 1999 SHILOH INDUSTRIES, INC.
By: /s/ Robert L. Grissinger
-------------------------------
Robert L. Grissinger,
Chairman, President
and Chief Executive Officer
By: /s/ Craig A. Stacy
-------------------------------
Craig A. Stacy,
Chief Financial Officer
and Treasurer
16
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