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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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-21964
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SHILOH INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 51-0347683
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(State or other jurisdiction (I.R.S. Employer
of incorporation 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
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(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
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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 14, 2000 was 14,509,134
shares.
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SHILOH INDUSTRIES, INC.
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INDEX
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<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Income
Condensed Consolidated Statements of Cash Flows
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
SHILOH INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
January 31, October 31,
2000 1999
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ASSETS
- ------
<S> <C> <C>
Cash and cash equivalents $ 218,599 $ 1,575,804
Accounts receivable, net 99,612,692 79,670,183
Inventories, net 84,966,510 47,118,809
Deferred income taxes --- 1,580,889
Prepaid expenses 6,615,199 5,758,354
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Total current assets 191,413,000 135,704,039
-------------- -----------
Property, plant and equipment, net 282,567,584 269,626,549
Goodwill, net 10,939,038 11,647,496
Other assets 7,557,806 8,741,554
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Total assets $ 492,477,428 $425,719,638
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Accounts payable $ 81,500,346 $ 38,677,150
Accrued income taxes 3,848,252 1,293,522
Deferred income taxes 4,766,449 ---
Advanced billings 1,710,403 225,289
Other accrued expenses 13,782,482 10,195,880
-------------- ------------
Total current liabilities 105,607,932 50,391,841
-------------- ------------
Long-term debt 175,400,000 171,450,000
Deferred income taxes 15,961,329 22,308,668
Long-term benefit liabilities 3,159,577 2,991,120
Other liabilities 431,925 449,676
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Total liabilities 300,560,763 247,591,305
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Stockholders' equity
Common stock 145,094 130,805
Paid-in capital 49,033,728 39,399,805
Retained earnings 142,737,843 138,597,723
Total stockholders' equity -------------- ------------
191,916,665 178,128,333
-------------- ------------
Total liabilities and stockholders' equity $ 492,477,428 $425,719,638
============== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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SHILOH INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended January 31,
--------------------------------------
2000 1999
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<S> <C> <C>
Revenues $ 140,827,382 $ 81,601,103
Cost of sales 120,607,211 69,204,147
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Gross profit 20,220,171 12,396,956
Selling, general and administrative expenses 11,572,928 7,713,930
-------------- ------------
Operating income 8,647,243 4,683,026
Interest expense 3,478,283 1,697,424
Interest income 38,204 55,866
Minority interest --- 222,280
Other income (expense), net 1,470,450 38,033
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Income before taxes 6,677,614 3,301,781
Provision for income taxes 2,537,494 1,271,186
-------------- ------------
Net income $ 4,140,120 $ 2,030,595
============== ============
Basic earnings per share:
Net income $ .30 $ .16
============== ============
Weighted average number of common shares 13,973,420 13,080,563
============== ============
Diluted earnings per share:
Net income $ .30 $ .16
============== ============
Weighted average number of common shares 13,975,619 13,093,071
============== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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SHILOH INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended January 31,
------------------------------------
2000 1999
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 4,140,120 $ 2,030,595
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,360,947 4,514,672
Minority interest --- (222,280)
(Gain) on sale of assets (1,526,258) (2,163)
Changes in operating assets and liabilities, net
of working capital changes resulting from
acquisitions:
Accounts receivable (576,368) (11,977,812)
Inventories (12,861,258) 708,377
Prepaids and other assets 381,102 (1,066,535)
Payables and other liabilities 35,336,659 6,552,853
Accrued income taxes 2,554,730 1,366,033
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Net cash provided by operating activities 32,809,674 1,903,740
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Cash Flows From Investing Activities:
Capital expenditures (18,347,069) (18,049,048)
Proceeds from sale of assets 1,714,000 6,300
Acquisition, net of cash (21,483,810) ---
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Net cash used in investing activities (38,116,879) (18,042,748)
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Cash Flows From Financing Activities:
Proceeds from short-term borrowings --- 16,625,000
Proceeds from long-term borrowings 42,500,000 4,110,000
Repayments of long-term borrowings (38,550,000) (2,000,000)
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Net cash provided by financing activities 3,950,000 18,735,000
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Net increase (decrease) in cash and cash equivalents (1,357,205) 2,595,992
Cash and cash equivalents at beginning of period 1,575,804 642,723
------------- -------------
Cash and cash equivalents at end of period $ 218,599 $ 3,238,715
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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SHILOH INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - Basis of Presentation and Business
- -------------------------------------------
The condensed consolidated financial statements have been prepared by Shiloh
Industries, Inc. and its subsidiaries (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
1999 Annual Report to Stockholders.
Revenues and operating results for the three months ended January 31, 2000 are
not necessarily indicative of the results to be expected for the full year.
NOTE 2 - Inventories:
- ---------------------
Inventories consist of the following:
January 31, October 31,
2000 1999
-------------- ------------
Raw materials $ 42,778,490 $ 22,565,387
Work-in-process 15,447,798 12,629,005
Finished goods 26,248,193 11,449,478
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Total at average cost 84,474,481 46,643,870
LIFO reserve 492,029 474,939
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Total $ 84,966,510 $ 47,118,809
============== ============
NOTE 3 - Property, Plant and Equipment:
- ---------------------------------------
Property, plant and equipment consist of the following:
January 31, October 31,
1999 1999
-------------- ---------------
Land $ 9,441,411 $ 9,436,412
Buildings and improvements 104,088,278 103,971,677
Machinery and equipment 195,123,271 193,122,689
Furniture and fixtures 26,357,351 11,477,394
Construction in progress 42,215,996 43,041,471
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Total, at cost 377,226,307 361,049,643
Less: Accumulated depreciation (94,658,723) (91,423,094)
------------ --------------
Net property, plant and equipment $282,567,584 $ 269,626,549
============ ==============
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NOTE 4 - Financing Arrangements:
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<TABLE>
<CAPTION>
January 31, October 31,
2000 1999
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<S> <C> <C>
Long-term debt consists of the following:
Revolving credit loan - interest at 8.64% at January 31, 2000 $ 170,000,000 $ 166,050,000
Variable rate industrial development bond, collateralized by letter of
credit, weighted average interest rate at 3.95% payable on
February 1, 2010 5,400,000 5,400,000
-------------- --------------
Total $ 175,400,000 $ 171,450,000
============== ==============
</TABLE>
In September 1999, the Company entered into a new agreement ("the Agreement")
with KeyBank, National Association, as agent for a group of lenders. The
Agreement provides for loans and letters of credit up to $210.0 million. The
term of this facility matures in September 2004. 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 (ranging from 0.5% to 1.75% for the
prime rate and ranging from 1.0% to 2.75% for the LIBOR rate) based on funded
debt to earnings before interest, taxes, depreciation and amortization. As of
January 31, 2000, the factor as determined by the pricing matrix was 1.75%. The
terms of the Agreement also require an annual commitment fee based on
the amount of unused commitments under the facility and a factor determined by a
pricing matrix (ranging from 0.25% to 0.5%) based on funded debt to earnings
before interest, taxes, depreciation and amortization. The Agreement also
provides for the incurrence of debt under standby letters of credit and for the
advancement of funds under a discretionary line of credit. The maximum amount of
debt that may be incurred under each of these sources of funds is $15.0 million.
The Agreement is collateralized by a first priority security interest in
substantially all of the Company's and its subsidiaries' existing and
after-acquired accounts receivable, inventory and machinery and equipment. All
of the obligations under the Agreement are fully and unconditionally guaranteed
by substantially all of the existing and future domestic subsidiaries.
The Agreement requires the Company to meet certain financial covenants and
ratios including minimum interest coverage, minimum net worth, and maximum
leverage. The Agreement also contains non-financial covenants that restrict
actions of the Company with respect to incurrence of additional debt, dividends,
transactions with affiliates, asset sales, acquisitions, mergers, prepayments of
other debt, liens and encumbrances.
Prior to January 22, 1998, the Company had a $70.0 million 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 Company had 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. 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.
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The Company executed a demand promissory note as of December 6, 1996 in favor of
The Richland Bank in the aggregate principal amount of $4.0 million. Interest
accrues on the outstanding principal balance under that facility at LIBOR plus
0.75%.
In March 1995 Medina County, Ohio issued on the Company's behalf an aggregate of
$5.4 million in principal amount of variable rate industrial revenue bonds due
2010, all of which were drawn upon as of October 31, 1996. These bonds are
secured by a letter of credit. The funds from these bonds were used to finance a
portion of the expansion at the steel pickling operations in Valley City, Ohio.
Under the Company's revolving credit facilities, $38.6 million was unused at
January 31, 2000.
NOTE 5 - Acquisition:
- ---------------------
Effective November 1, 1999, the Company acquired MTD Automotive ("MTDA"), the
automotive division of MTD Products Inc, a significant stockholder of the
Company. MTDA is primarily a tier I supplier and primarily serves the automotive
industry by providing metal stampings and modular assemblies. MTDA net sales
were $192.8 million in its fiscal year ended July 31, 1999.
Pursuant to the terms of the purchase agreement, the Company acquired
substantially all of the assets of MTDA for aggregate consideration of
approximately $31.1 million consisting of $20.0 million in cash, $9.6 million in
Company common stock and $1.5 million in acquisition costs. The portion of cash
was paid on the effective date of the acquisition and was financed by the
Company's revolving credit facility and the related common stock was issued on
the same date. The purchase price is subject to adjustment based upon the
closing net working capital. The Company is in the process of finalizing the
purchase price allocation. The Company's Statement of Income for the quarter
ended January 31, 2000 includes the operations of MTDA since November 1, 1999.
In addition, the aggregate consideration will be increased or decreased based
upon the performance of MTDA during the first twelve months subsequent to
closing. The maximum amount of additional consideration to be paid under the
performance clause is $28.0 million. The maximum amount of consideration to be
refunded under the performance clause is $15.0 million. Such purchase price
adjustments will be paid half in cash and half in stock. Of the $20.0 million
cash portion of the purchase price, only $12.5 million was used in the initial
purchase price allocation. The amount of $7.5 million is contingent
consideration and will not enter into the purchase price until the contingency
is resolved. Of the 1,428,571 shares of common stock issued, 535,714 shares are
considered contingent consideration and will not enter into the initial purchase
price allocation until the reserve contingency is resolved.
The acquisition of MTDA was accounted for utilizing the purchase method, whereby
the initial purchase price was allocated to the underlying assets and
liabilities based upon their estimated fair values at the date of the
acquisition. The excess of the fair value of net assets acquired over the
acquisition cost ("negative goodwill") of ($629,000) is being amortized on a
straight line basis over five years. The total cost of net assets acquired was
$31,132,000 and consisted of assets of $43,841,000 less liabilities assumed of
$12,709,000. Assets acquired, other than negative goodwill (at fair value)
consisted of accounts receivable of $19,363,000, inventory of $24,986,000 and
other assets of $121,000. Liabilities assumed (at fair value) consisted of
accounts payable of $10,010,000 and accrued liabilities of $2,699,000.
8
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The following are unaudited pro forma results of operations for the three months
ended January 31, 1999 assuming the acquisition of MTDA had occurred November 1,
1998. The results are not necessarily indicative of future operations or what
would have occurred had the acquisition been consummated as of November 1, 1998.
Unaudited Pro Forma
Three Months Ended
January 31, 1999
------------------
Total revenue $ 127,484
Net income $ 2,989
NOTE 6 - Other Information:
- ---------------------------
During the first quarter ended January 31, 2000 and 1999, cash payments for
interest amounted to $4.1 million and $2.0 million respectively, while no cash
payments for income taxes were made during the first quarter of 2000. Cash
payments, net of refunds, of $2.0 million were made for income taxes during the
first quarter of fiscal 1999. The Company issued common stock in the amount of
$9.6 million in connection with the purchase business combination described in
Note 5. The provision for income taxes was $2.5 million for the first three
months of fiscal 2000 compared with $1.3 million for the comparable period in
fiscal 1999, representing effective tax rates of 38.0% and 38.5%, respectively.
During the quarter ended January 31, 2000 the Company recorded a gain on the
sale of the Company jet of $1.5 million.
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 2000, 221,800 stock options
were granted but no options were exercised during the quarter.
Earnings per Share
Basic earnings per share are computed by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted earnings
per share reflects the potential dilutive effect of the Company's stock option
plan by adjusting the denominator using the treasury stock method.
The outstanding stock options under the Company's Key Employee Stock Incentive
Plan are included in the diluted earnings per share calculation to the extent
they are dilutive. The only reconciling item between the average outstanding
shares in each calculation is the stock options outstanding. The following is a
reconciliation of the numerator and denominator of the basic and diluted
earnings per share computation for net income.
Three Months
Ended January 31,
-----------------
2000 1999
---- ----
Net income $ 4,140,120 $ 2,030,595
Basic weighted average shares(1) 13,973,420 13,080,563
Effect of dilutive securities:
Stock options 2,199 12,508
Diluted weighted average shares 13,975,619 13,093,071
Basic earnings per share $.30 $.16
Diluted earnings per share $.30 $.16
The Company is a party to several lawsuits and claims arising in the normal
course of its business. In the opinion of management, the Company's liability
or recovery, if any, under pending litigation and claims would not materially
affect its financial condition, results of operations or cash flows.
- ------------
(1) Excludes 535,714 contingent shares for 2000. See Note 5.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
- -------
The Company is a manufacturer of engineered products, which include blanks,
stamped components and value-added assemblies. The Company also designs,
engineers and manufactures precision tools and dies for the automotive and other
industries. In addition, the Company provides 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. In fiscal 1999,
approximately 81.0% of the Company's revenues were generated by sales to the
automotive and light truck and heavy truck industries.
The Company's origins date back to 1950 when its predecessor, Shiloh Tool & Die
Mfg. Company, began to design and manufacture precision tools and dies. As an
outgrowth of its precision tool and die expertise, Shiloh Tool & Die Mfg.
Company expanded into blanking and stamping operations in the early 1960's. In
April 1993, Shiloh Industries, Inc. was organized as a Delaware corporation to
serve as a holding company for its seven operating subsidiaries, and in July
1993 completed an initial public offering of Common Stock.
On November 1, 1999, the Company acquired MTDA, the automotive division of MTD
Products Inc, headquartered in Cleveland, Ohio for an aggregate purchase price
of approximately $31.1 million. MTDA is primarily a Tier I supplier and
primarily serves the automotive industry by providing metal stampings and
modular assemblies.
The aggregate consideration consisted of $20 million in cash and a number of
shares equal to $20 million divided by the greater of (1) $14.00 or (2) to the
extent the average closing price of the Common Stock exceeded $14.50 per share,
the average closing price. Because the average closing price did not exceed
$14.50 per share, the Company issued 1,428,571 shares of Common Stock to MTD
Products Inc.. The purchase price is subject to adjustment based upon the
closing net working capital. The Company is in the process of finalizing the
initial purchase price allocation. In addition, the aggregate consideration will
be increased or decreased based upon the performance of MTDA during the first
twelve months subsequent to closing. The maximum amount of additional
consideration to be paid under the performance clause is $28.0 million. The
maximum amount of consideration to be refunded under the performance clause is
$15.0 million. Such purchase price adjustments will be paid half in cash and
half in Common Stock.
The Company conducts its operations through the following subsidiaries:
<TABLE>
<CAPTION>
SUBSIDIARY DESCRIPTION OF PRINCIPAL OPERATION
- ---------- ----------------------------------
<S> <C>
Shiloh Corporation Blanking/Tool and Die Production
Sectional Stamping, Inc. Stamping
Valley City Steel Company Steel Processing
Greenfield Die & Manufacturing Corp. Stamping/Tool and Die Production
Medina Blanking, Inc. Blanking/Tailor-Welded Blanking
Liverpool Coil Processing, Inc Steel Processing
C&H Design Company Tool and Die Production
Shiloh of Michigan, L.L.C. Blanking
Sectional Die Company Tool and Die Production
Jefferson Blanking, Inc. Blanking/Tailor-Welded Blanking
Shiloh Automotive, Inc., dba MTD Stamping/Tool and Die Production
Automotive (1)
Shiloh de Mexico S.A. de C.V. (2) Blanking/Tailor-Welded Blanking
</TABLE>
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(1) The acquisition of Shiloh Automotive, Inc. was completed on November 1,
1999.
(2) Shiloh de Mexico is a facility that is under construction in Saltillo,
Mexico and it is anticipated that construction will be completed during
the second half of fiscal 2000.
In analyzing the financial aspects of the Company's operations, you should
consider the following factors.
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 operations, 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 services
and therefore generally have higher margins.
A significant portion of the Company's steel processing and blanking products
and services is provided to customers on a toll processing basis. Under these
arrangements, the Company charges a tolling fee for the operations that it
performs without acquiring ownership of the steel and being burdened with the
attendant costs of ownership and risk of loss. Although the proportion of tons
of steel which the Company uses or processes that is directly owned as compared
to toll processed may fluctuate from quarter to quarter depending on customers
needs, the Company estimates that of total tons used or processed in its
operations, approximately 85.6% in 1999, 87.4% in 1998 and 87.2% in 1997, were
used or processed on a toll processing basis. Revenues from toll processing as a
percent of total revenues were approximately 27.6% in 1999, 29.7% in 1998 and
28.3% in 1997. 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 revenue, 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 but lower gross margins. The Company's stamping
operations use more directly owned steel than its other operations.
Changes in the price of scrap steel can have a significant effect on the
Company's results of operations because substantially all of its operations
generate engineered scrap steel. Engineered scrap steel is a planned by-product
of our processing operations. In addition, because only five of the Company's
facilities utilize directly owned steel, the Company is more susceptible to
changes in the price of scrap steel than changes in the price of raw material
steel.
Changes in the price of steel, however, also 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. The Company actively manages its
exposure to changes in the price of steel, and, in most instances, passes along
the rising price of steel to its customers. At times, however, the Company has
been unable to do so.
The Company's results of operations have been adversely affected by a large
number of facility expansions and start-up operations in recent periods.
Operations at expanded and new facilities are typically less efficient than
established operations due to the implementation of new production processes. In
addition, the Company depends on customers to implement their purchase programs
in a timely manner, which affects the Company's ability to achieve satisfactory
plant utilization rates. When the customers fail to do so, results are
negatively impacted. In the Company's experience, operations at expanded or new
facilities may be adversely impacted by the above factors for several periods.
11
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Results of Operations
- ---------------------
THREE MONTHS ENDED JANUARY 31, 2000
COMPARED TO THREE MONTHS ENDED JANUARY 31, 1999
REVENUES. Revenues increased by $59.2 million, or 72.6%, to $140.8 million for
the first quarter of fiscal 2000 from $81.6 million for the comparable period in
fiscal 1999. The increase in revenue is primarily due to the inclusion of Shiloh
Automotive, Inc., dba MTD Automotive ("MTDA") and Ohio Welded Blank ("OWB") an
expansion facility of Medina Blanking, Inc.. MTDA was acquired on November 1,
1999 and accounted for $48.9 million, or 82.6% of the revenue increase. OWB,
dedicated to tailor-welded blanks for the automotive sector, became operational
on November 1, 1999 and accounted for $9.4 million or 15.9% of the revenue
increase. Blanking and stamping revenues increased 120.0% while revenue from
other steel processing and tool and die decreased 5.3% and 5.7%, respectively.
Scrap revenue increased $2.6 million, or 119% for the first quarter of fiscal
2000 as a result of (i) an increase in the average scrap price per gross ton
and (ii) an increase in scrap volume which includes MTDA. The percentage of
revenue from directly owned steel processing increased to 81.7% for the first
quarter of fiscal 2000 from 73.3% for the comparable period in fiscal 1999.
The percentage of revenues from toll processed steel decreased to 18.3% for the
first quarter of fiscal 2000 from 26.7% for the comparable period in fiscal
1999. This shift in the mix of revenue from toll processing to directly owned
steel processing resulted from the addition of MTDA which predominantly used
directly owned steel.
GROSS PROFIT. Gross profit increased by $ 7.8 million, or 63.1%, to $20.2
million for the first quarter of fiscal 2000 from $12.4 million for the
comparable period in fiscal 1999. Gross margin decreased to 14.4% for the first
quarter of fiscal 2000 from 15.2% for the comparable period in fiscal 1999. The
increase in gross profit is primarily related to the acquisition of MTDA and
increased blanking and stamping revenues. The decrease in gross margin was
primarily due to the acquisition of MTDA, which has historically generated
lower gross margins than the Company's existing operations. Excluding MTDA gross
profit increased $3.5 million and gross margin increased to 17.3% for the first
quarter of fiscal 2000. This increase relates primarily to an increase in toll
processed steel and the increase in scrap revenue for the quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 50.0% to $11.6 million for the first quarter
of fiscal 2000 from $7.7 million for the comparable period in fiscal 1999. As a
percentage of revenues, selling, general and administrative expenses decreased
to 8.2% for the first quarter of fiscal 2000 from 9.5% for the comparable period
in fiscal 1999. The increase, in dollars, was primarily the result of the
inclusion of MTDA and OWB. Excluding MTDA and OWB selling, general and
administrative expenses increased $1.7 million and as a percentage of revenues
increased to 11.4%. These increases are primarily the result of: the addition of
corporate personnel and related costs, a bad debt write-off relating to one
customer and increased depreciation on the new business system software.
OTHER. The Company incurred interest expense of $3.5 million in the first
quarter of fiscal 2000 compared to $1.7 million of interest expense in the
comparable period of fiscal 1999. This increase is due primarily to increased
average borrowings. Interest expense of approximately $.7 million relating to
expansion of several facilities was capitalized during the first quarter of
fiscal 2000. In addition, a one time gain of $1.5 million resulted from the sale
of the Company jet. The provision for income taxes was $2.5 million in the first
quarter of fiscal 2000 compared with $1.3 million for the comparable period in
fiscal 1999, representing effective tax rates of 38.0% and 38.5%, respectively.
12
<PAGE> 13
NET INCOME. Net income from continuing operations for the first quarter of
fiscal 2000 increased by $2.1 million, or 104%, to $4.1 million from $2.0
million for the comparable period in fiscal 1999. This increase was primarily
the result of the inclusion of MTDA, an increase in the price and volume of
scrap and the one time gain on the sale of the Company jet, which was partially
offset by a bad debt write-off relating to one customer.
Liquidity and Capital Resources
- -------------------------------
At January 31, 2000, the Company had $85.8 million of working capital,
representing a current ratio of 1.81 to 1 and a debt-to-total capitalization
ratio of 47.8%. 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 2000.
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 2000 was $32.8 million as compared to $1.9 million for the comparable
period of fiscal 1999, primarily as a result of the increase in accounts payable
resulting from a change in payment terms from certain suppliers. Net cash
provided by operating activities has historically been used by the Company to
fund a portion of its capital expenditures.
Capital expenditures, excluding acquisitions, were $18.3 million during the
first quarter of fiscal 2000 and $18.0 million for the comparable period in
fiscal 1999. Approximately $15.2 million of the capital expenditures during the
first quarter of fiscal 2000 were used for facility and equipment in Saltillo,
Mexico. This facility is being constructed to support business relating to the
nearby General Motors plant that produces several popular SUV models. The
Company's total capital budget for fiscal 2000 amounts to approximately $55.8
million.
In September 1999, the Company entered into a new agreement ("the Agreement")
with KeyBank, National Association, as agent for a group of lenders. The
Agreement provides for loans and letters of credit up to $210.0 million. The
term of this facility matures in September 2004. 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 (ranging from 0.5% to 1.75% for the
prime rate and ranging from 1.0% to 2.75% for the LIBOR rate) based on funded
debt to earnings before interest, taxes, depreciation and amortization. As of
January 31, 2000, the factor as determined by the pricing matrix was 1.75%. The
terms of the Agreement also require an annual commitment fee based on the amount
of unused commitments under the facility and a factor determined by a pricing
matrix (ranging from 0.25% to 0.5%) based on funded debt to earnings before
interest, taxes, depreciation and amortization. The Agreement also provides for
the incurrence of debt under standby letters of credit and for the advancement
of funds under a discretionary line of credit. The maximum amount of debt that
may be incurred under each of these sources of funds is $15.0 million.
The Agreement is collateralized by a first priority security interest in all of
the Company's and its subsidiaries' existing and after-acquired accounts
receivable, inventory and machinery and equipment. All of the obligations under
the Agreement are fully and unconditionally guaranteed by all of the existing
and future domestic subsidiaries.
The Agreement requires the Company to meet certain financial covenants and
ratios including minimum interest coverage, minimum net worth, and maximum
leverage. The Agreement also contains non-financial covenants that restrict
actions of the Company with respect to incurrence of additional debt, dividends,
transactions with affiliates, asset sales, acquisitions, mergers, prepayments of
other debt, liens and encumbrances.
13
<PAGE> 14
The Company executed a demand promissory note as of December 6, 1996 in favor of
The Richland Bank in the aggregate principal amount of $4.0 million. Interest
accrues on the outstanding principal balance under that facility at LIBOR plus
0.75%.
In March 1995 Medina County, Ohio issued on the Company's behalf an aggregate
of $5.4 million in principal amount of variable rate industrial revenue bonds
due 2010, all of which were drawn upon as of October 31, 1996. These bonds are
secured by a letter of credit. The funds from these bonds were used to finance a
portion of the expansion at the steel pickling operations in Valley City, Ohio.
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 $214.0 million,
$38.6 million of which was unused at January 31, 2000.
Year 2000
The Company did not experience any significant malfunctions or errors in its
operating or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, the Company does not expect any significant
impact to its on-going business as a result of the "Year 2000 issue." However,
it is possible that the full impact of the date change, which was of concern due
to computer programs that use two digits instead of four digits to define years,
has not been fully recognized. For example, it is possible that Year 2000 or
similar issues such as leap year-related problems may occur with billing,
payroll, or financial closings at month, quarterly or year end. The Company
believes that any such problems are likely to be minor and correctable. In
addition, the Company could still be negatively impacted if its customers or
suppliers are adversely affected by the Year 2000 or similar issues. The Company
currently is not aware of any significant Year 2000 or similar problems that
have arisen for its customers and suppliers.
FORWARD-LOOKING STATEMENTS
The statements contained in this Quarterly Report of Form 10-Q 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 2000 as well as over the long term such as,
without limitations, (i) the Company's dependence on the automotive and light
truck and heavy truck industries, which are highly cyclical, the dependence of
the automotive and light truck industry on consumer spending which is 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
or decreases in the price of scrap steel (iv) risks associated with integrating
operations of acquired companies, including the recent acquisition of MTDA, (v)
potential disruptions or inefficiencies in operations due to or during facility
expansions or start-up facilities, (vi) risks related to labor relations, labor
expenses or work stoppages involving the Company, its customers or suppliers.
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 Quarterly Report on Form 10-Q. 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
14
<PAGE> 15
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 materials. 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.
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 27 Financial Data Schedule.
b. Reports on Form 8-K:
The Company filed a Current Report on Form 8-K on November 15,
1999 and
The Company filed an Amendment to the Current Report on Form
8-K on January 14, 2000.
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 16, 2000 SHILOH INDUSTRIES, INC.
By: /s/ John F. Falcon
---------------------------------
John F. Falcon,
President
and Chief Executive Officer
By: /s/ Craig A. Stacy
---------------------------------
Craig A. Stacy,
Chief Financial Officer
and Treasurer
16
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