<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 July 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission file number 0-21964
----------------
SHILOH INDUSTRIES, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 51-0347683
--------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Suite 202, 103 Foulk Road, Wilmington, Delaware 19803
--------------------------------------------------------------------------------
(Address of principal executive offices - zip code)
(302)998-0592
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
--------------------------------------------------------------------------------
(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 September 13, 2000 was
14,509,134 shares.
1
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SHILOH INDUSTRIES, INC.
-----------------------
INDEX
-----
Page
----
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
2
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PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SHILOH INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
July 31, October 31,
2000 1999
------------ ------------
ASSETS
------
<S> <C> <C>
Cash and cash equivalents $ 710,102 $ 1,575,804
Accounts receivable, net 97,071,415 79,670,183
Inventories, net 79,761,081 47,118,809
Deferred income taxes -- 1,580,889
Prepaid expenses 7,794,577 5,758,354
------------ ------------
Total current assets 185,337,175 135,704,039
------------ ------------
Property, plant and equipment, net 304,930,424 269,626,549
Goodwill, net 12,016,825 11,647,496
Other assets 8,429,820 8,741,554
------------ ------------
Total assets $510,714,244 $425,719,638
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Accounts payable $ 75,574,021 $ 38,677,150
Accrued income taxes 4,803,499 1,293,522
Deferred income taxes 4,766,449 --
Advanced billings 909,549 225,289
Other accrued expenses 13,298,787 10,195,880
------------ ------------
Total current liabilities 99,352,305 50,391,841
------------ ------------
Long-term debt 190,400,000 171,450,000
Deferred income taxes 15,961,329 22,308,668
Long-term benefit liabilities 3,692,709 2,991,120
Other liabilities 396,425 449,676
------------ ------------
Total liabilities 309,802,768 247,591,305
------------ ------------
Stockholders' equity
Common stock 145,094 130,805
Paid-in capital 49,033,729 39,399,805
Retained earnings 151,732,653 138,597,723
------------ ------------
Total stockholders' equity 200,911,476 178,128,333
------------ ------------
Total liabilities and stockholders' equity $510,714,244 $425,719,638
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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<TABLE>
<CAPTION>
SHILOH INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended July 31, Nine Months Ended July 31,
------------------------------- ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $154,100,344 $ 83,869,151 $460,593,851 $255,035,030
Cost of sales 132,495,270 68,721,222 393,196,245 211,209,259
------------ ------------ ------------ ------------
Gross profit 21,605,074 15,147,929 67,397,606 43,825,771
Selling, general and administrative expenses 12,340,860 6,719,541 37,555,686 22,522,103
------------ ------------ ------------ ------------
Operating income 9,264,214 8,428,388 29,841,920 21,303,668
Interest expense 4,048,697 2,062,727 10,747,526 5,550,534
Interest income 13,564 10,272 64,507 91,341
Minority interest -- 85,799 -- 420,822
Other income (expense), net 154,762 125,602 1,690,222 149,964
------------ ------------ ------------ ------------
Income before taxes 5,383,843 6,587,334 20,849,123 16,415,261
Provision for income taxes 1,930,177 2,454,048 7,714,193 6,237,800
------------ ------------ ------------ ------------
Net income $ 3,453,666 $ 4,133,286 $ 13,134,930 $ 10,177,461
============ ============ ============ ============
Basic earnings per share:
Net income $ .25 $ .32 $ .94 $ .78
============ ============ ============ ============
Weighted average number of common shares: 13,973,420 13,080,563 13,973,420 13,080,563
============ ============ ============ ============
Diluted earnings per share:
Net income $ .25 $ .32 $ .94 $ .78
============ ============ ============ ============
Weighted average number of common shares: 13,973,420 13,086,310 13,976,859 13,086,857
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
<TABLE>
<CAPTION>
SHILOH INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended July 31,
--------------------------------------
2000 1999
------------- -------------
Cash Flows From Operating Activities:
<S> <C> <C>
Net income $ 13,134,930 $ 10,177,461
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 17,225,306 13,565,777
Minority interest -- (420,822)
(Gain) on sale of assets (1,591,395) (535,072)
Changes in operating assets and liabilities, net
of working capital changes resulting from
acquisitions:
Accounts receivable 1,964,909 (14,473,655)
Inventories (8,394,588) (3,372,092)
Prepaids and other assets (1,893,872) (1,681,050)
Payables and other liabilites 28,165,985 10,300,693
Accrued income taxes 3,509,977 5,465,397
------------- -------------
Net cash provided by operating activities 52,121,252 19,026,637
------------- -------------
Cash Flows From Investing Activities:
Capital expenditures (52,233,086) (44,616,016)
Proceeds from sale of assets 1,782,950 11,408,711
Acquisition, net of cash (21,486,818) --
------------- -------------
Net cash used in investing activities (71,936,954) (33,207,305)
------------- -------------
Cash Flows From Financing Activities:
Proceeds from short-term borrowings -- 38,929,000
Repayments of short-term borrowings -- (19,545,000)
Proceeds from long-term borrowings 201,850,000 4,110,000
Repayments of long-term borrowings (182,900,000) (4,000,000)
------------- -------------
Net cash provided by financing activities 18,950,000 19,494,000
------------- -------------
Net increase (decrease) in cash and cash equivalents (865,702) 5,313,332
Cash and cash equivalents at beginning of period 1,575,804 642,723
------------- -------------
Cash and cash equivalents at end of period $ 710,102 $ 5,956,055
============= =============
</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 nine months ended July 31, 2000 are not
necessarily indicative of the results to be expected for the full year.
NOTE 2 - Inventories:
---------------------
Inventories consist of the following:
<TABLE>
<CAPTION>
July 31, October 31,
2000 1999
------------- -------------
<S> <C> <C>
Raw materials $ 41,554,303 $ 22,565,387
Work-in-process 19,980,308 12,629,005
Finished goods 17,796,644 11,449,478
------------- -------------
Total at average cost 79,331,255 46,643,870
LIFO reserve 429,826 474,939
------------- -------------
Total $ 79,761,081 $ 47,118,809
============= =============
</TABLE>
NOTE 3 - Property, Plant and Equipment:
---------------------------------------
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
July 31, October 31,
2000 1999
------------- -------------
<S> <C> <C>
Land $ 9,814,107 $ 9,436,412
Buildings and improvements 104,190,480 103,971,677
Machinery and equipment 211,728,826 193,122,689
Furniture and fixtures 27,393,240 11,477,394
Construction in progress 57,750,893 43,041,471
------------- -------------
Total, at cost 410,877,546 361,049,643
Less: Accumulated depreciation (105,947,122) (91,423,094)
------------- -------------
Net property, plant and equipment $ 304,930,424 $ 269,626,549
============= =============
</TABLE>
6
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NOTE 4 - Financing Arrangements:
--------------------------------
<TABLE>
<CAPTION>
July 31, October 31,
2000 1999
------------ ------------
<S> <C> <C>
Long-term debt consists of the following:
Revolving credit loan - interest at 8.13% at July 31, 2000 $185,000,000 $166,050,000
Variable rate industrial development bond, collateralized by letter of credit,
weighted average interest rate at 4.65% payable on February 1, 2010 5,400,000 5,400,000
------------ ------------
Total $190,400,000 $171,450,000
============ ============
</TABLE>
7
<PAGE> 8
In September 1999, the Company entered into an agreement ("the Agreement") with
KeyBank, National Association, as agent for a group of lenders. The Agreement
provided for loans and letters of credit up to $210.0 million. The term of this
facility would have matured in September 2004. Under the Agreement, 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 (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 July 31, 2000, the factor as determined by the pricing
matrix was 1.50 %. The terms of the Agreement also required 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 provided 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 would have been incurred under each of these sources of
funds was $15.0 million.
The Agreement was 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 were fully and unconditionally guaranteed
by substantially all of the existing and future domestic subsidiaries.
The Agreement required the Company to meet certain financial covenants and
ratios including minimum interest coverage, minimum net worth, and maximum
leverage. The Agreement also contained non-financial covenants that restricted
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.
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, $23.6 million was unused at
July 31, 2000.
8
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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 producing 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 July 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 purchase price allocation
until the 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 total cost of net assets acquired was $31,132,000 and consisted
of assets of $44,300,000 less liabilities assumed of $13,168,000. Assets
acquired, (at fair value) consisted of accounts receivable of $19,363,000,
inventory of $24,472,000 and other assets of $465,000. Liabilities assumed (at
fair value) consisted of accounts payable of $10,010,000 and accrued liabilities
of $3,158,000.
The following are unaudited pro forma results of operations for the nine months
ended July 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
Nine Months Ended
July 31, 1999
(In Thousands)
---------------
Total revenue $398,582
Net income $ 12,061
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NOTE 6 - Other Information:
---------------------------
During the nine months ended July 31, 2000 and 1999, cash payments for interest
amounted to $12.0 million and $6.2 million respectively, while cash payments,
net of refunds, for income taxes amounted to $3.9 million and $0.9 million,
respectively. 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 $7.7 million for the first nine months of fiscal
2000 compared with $6.2 million for the comparable period in fiscal 1999,
representing effective tax rates of 37.0% and 38.0%, respectively.
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.
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 nine months ended July 31, 2000, 221,800 stock
options were granted but no options were exercised during the quarter.
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.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended July 31 Ended July 31,
------------- --------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 3,453,666 $ 4,133,286 $13,134,930 $10,177,461
=========== =========== =========== ===========
Basic weighted average shares (1) 13,973,420 13,080,563 13,973,420 13,080,563
Effect of dilutive securities:
Stock options 0 5,747 3,439 6,294
----------- ----------- ----------- -----------
Diluted weighted average shares 13,973,420 13,086,310 13,976,859 13,086,857
=========== =========== =========== ===========
Basic earnings per share $ .25 $ .32 $ .94 $ .78
=========== =========== =========== ===========
Diluted earnings per share $ .25 $ .32 $ .94 $ .78
=========== =========== =========== ===========
</TABLE>
(1) Excludes 535,714 contingent shares for 2000. See Note 5.
___________________
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NOTE 7 - Subsequent Events:
---------------------------
On August 11, 2000 the Company entered into a new credit agreement with The
Chase Manhattan Bank as administrative agent for a group of lenders, which
replaced the Agreement with KeyBank as agent for a group of lenders. The Company
now has a $300.0 million commitment under the credit agreement which expires in
August 2005. The credit agreement is secured by an interest in all of the
Company's and its wholly owned domestic subsidiaries' cash and cash accounts,
accounts receivable, inventory, mortgages on certain owned real property,
equipment excluding fixtures and general intangibles such as patents, trademarks
and copyrights. The credit agreement includes, without limitation, covenants
involving minimum interest coverage, minimum tangible net worth coverage and a
minimum leverage ratio. In addition, the new credit agreement limits the
incurrence of additional indebtedness, capital expenditures, investments,
dividends, transactions with affiliates, asset sales, leaseback transactions,
acquisitions, prepayments of other debt, hedging agreements and liens and
encumbrances and certain transactions resulting in a change of control. All
amounts outstanding under the KeyBank credit agreement were refinanced and all
existing obligations under the KeyBank credit agreement were terminated. As a
result of the refinancing, the Company intends to write-off unamortized deferred
financing costs of $0.9 million associated with the KeyBank agreement and the
Company intends to capitalize deferred financing costs of $1.4 million
associated with the new Chase Manhattan credit agreement.
Under the new credit agreement, the Company has the option to select the
applicable interest rate at the alternative base rate ("ABR"), as defined in the
new credit agreement to be the greater of the prime rate in effect on such day
and the federal funds effective rate in effect on such day plus half of 1%, or
the LIBOR rate plus a factor determined by a pricing matrix (ranging from 0.5%
to 1.5% for the ABR and ranging from 1.5% to 2.5% for the LIBOR rate) based on
funded debt to earnings before interest, taxes, depreciation and amortization.
As of August 11, 2000 the factor as determined by the pricing matrix was 2.0%.
The terms of the new credit agreement also require an annual commitment fee
based on the amount of unused commitments under the new credit agreement 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 new credit 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.
On August 29, 2000 the Company completed the purchase of assets of A.G. Simpson
(Tennessee) Inc. (now Shiloh Industries, Inc. Dickson Manufacturing Division)
for approximately $47.9 million in cash. The assets include a manufacturing
plant in Dickson, Tennessee, which is near Nashville. Built in 1994 and
aggregating some 242,000 square feet, the plant is a stamping and assembly
facility with 11 presses ranging from 200 to 2,000 tons. The facility has
flexible robotic welding cells and assembly capabilities. The plant has
approximately 350 employees and produces stampings, sub-assemblies and
assemblies, principally for Nissan Motor Corporation, Johnson Controls, Inc.,
Visteon Corporation, Saturn Corporation, Contental Teves, Inc., Arvin Meritor
Automotive, Inc., and Ford Motor Company.
In August 2000, the Company postponed its plans for an offering of up to $150.0
million in high yield debt securities. This postponement was primarily due to
market conditions. The Company may from time to time issue debt or equity
securities based on, among other things, capital requirements and market
conditions. The Company cannot provide assurance that it will be able to
complete any such issuance of debt or equity securities on acceptable terms, or
at all.
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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 six operating subsidiaries, and in July 1993
completed an initial public offering of common stock. Since the initial public
offering the Company acquired four subsidiaries including Greenfield Die &
Manufacturing Corp., C&H Design Company, MTD Automotive and Shiloh Industries,
Inc. Dickson Manufacturing Division. In addition three subsidiaries were
developed from greenfield sites including Shiloh of Michigan, L.L.C., Jefferson
Blanking, Inc. and Shiloh de Mexico S.A. de C.V.
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
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.
On August 29, 2000 the Company completed the purchase of assets of A.G. Simpson
(Tennessee) Inc. (now, Shiloh Industries, Inc. Dickson Manufacturing Division)
for approximately $47.9 million in cash. The assets include a manufacturing
plant in Dickson, Tennessee, which is near Nashville. Built in 1994 and
aggregating some 242,000 square feet, the plant is a stamping and assembly
facility with 11 presses ranging from 200 to 2,000 tons. The facility has
flexible robotic welding cells and assembly capabilities. The plant has
approximately 350 employees and produces stampings, sub-assemblies and
assemblies, principally for Nissan Motor Corporation, Johnson Controls, Inc.,
Visteon Corporation, Saturn Corporation, Continental Teves, Inc., Arvin Meritor
Automotive, Inc., and Ford Motor Company.
12
<PAGE> 13
The Company is actively seeking strategic alternatives for two of its five tool
& die facilities, Canton Tool & Die and Utica Tool & Die, and Valley City Steel,
one of the Company's two steel processing facilities. The Company expects that
final decisions regarding the strategic direction for each of the facilities
will be determined by fiscal year-end 2000.
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
Shiloh Industries, Inc. Dickson Manufacturing Stamping
Division (3)
</TABLE>
(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.
(3) The acquisition of A.G. Simpson (Tennessee) Inc. (now Shiloh
Industries, Inc. Dickson Manufacturing Division) was completed on
August 29, 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.
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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.
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Results of Operations
---------------------
THREE MONTHS ENDED JULY 31, 2000
COMPARED TO THREE MONTHS ENDED JULY 31, 1999
REVENUES. Revenues increased by $70.2 million, or 83.7%, to $154.1 million for
the third quarter of fiscal 2000 from $83.9 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 $57.0 million, or 81.1% of the revenue increase. OWB,
dedicated to tailor-welded blanks for the automotive sector, became operational
on November 1, 1999 and accounted for $14.6 million or 20.1% of the revenue
increase. In addition, scrap revenue increased $1.1 million in the third quarter
of fiscal 2000 as a result of an increase in scrap volume, primarily as a result
of the inclusion of MTDA. Excluding MTDA, scrap sales increased $0.6 million.
The percentage of revenues derived from directly owned steel processing
increased to 83.9% for the third quarter of fiscal 2000 from 71.3% for the
comparable period in fiscal 1999. The percentage of revenues from toll processed
steel decreased to 16.1% for the third quarter of fiscal 2000 from 28.7% for the
comparable period in fiscal 1999. This shift in the mix of revenue from toll
processing to more directly owned steel resulted primarily from the addition of
MTDA and OWB which derived substantial revenue from directly owned steel. The
exclusion of MTDA and OWB would have resulted in a toll processing and directly
owned steel processing mix of 29.5% and 70.5%, respectively, for the quarter. In
addition, the increase in revenues was positively impacted by increases in
welded blanking and blanking and stamping revenues.
GROSS PROFIT. Gross profit increased by $6.5 million, or 42.6%, to $21.6 million
for the third quarter of fiscal 2000 from $15.1 million for the comparable
period in fiscal 1999. Gross margin decreased to 14.0% for the third quarter of
fiscal 2000 from 18.1% for the comparable period in fiscal 1999. The increase in
gross profit is primarily related to the acquisition of MTDA, which has
historically generated lower gross margins than the Company's existing
operations, and to a lesser extent increased blanking and stamping revenues.
The decline in gross margin is primarily a result of the addition of MTDA and
OWB which derive revenue from sales of directly owned steel which results in
higher revenues but lower gross margins. Excluding MTDA and OWB gross profit
increased $0.5 million and gross margin increased to 19.0% for the third
quarter of fiscal 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $5.6 million, or 83.7%, to $12.3 million
for the third quarter of fiscal 2000 from $6.7 million for the comparable period
in fiscal 1999. As a percentage of revenues, selling, general and administrative
expenses remained unchanged at 8.0% when compared to the same 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 $2.6 million and as a percentage of revenues increased to
11.5%. The increase, in dollars, is primarily the result of: the addition of
corporate personnel and related costs, increased depreciation on the new
business system software and selling and administrative expenses for the
start-up of the Saltillo, Mexico facility.
OTHER. The Company incurred interest expense of $4.0 million in the third
quarter of fiscal 2000 compared to $2.1 million of interest expense in the
comparable period of fiscal 1999. This increase is due primarily to increased
average borrowings. Interest expense of approximately $0.5 million relating to
the expansion of OWB and the new facility in Saltillo, Mexico were capitalized
during the third quarter of fiscal 2000. The provision for income taxes was $1.9
million in the third quarter of fiscal 2000 compared with $2.5 million for the
comparable period in fiscal 1999, representing effective tax rates of 35.9% and
37.3%, respectively.
NET INCOME. Net income for the third quarter of fiscal 2000 decreased by $0.7
million, or 16.4%, to $3.5 million from $4.1 million for the comparable period
in fiscal 1999. This decrease was primarily the result of the inclusion of MTDA
and OWB that have experienced lower margins and an increase in interest expense.
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<PAGE> 16
NINE MONTHS ENDED JULY 31, 2000
COMPARED TO NINE MONTHS ENDED JULY 31, 1999
REVENUES. Revenues increased by $205.6 million, or 80.6%, to $460.6 million for
the first nine months of fiscal 2000 from $255.0 million for the comparable
period in fiscal 1999. The increase in revenue is primarily due to the inclusion
of MTDA and OWB. MTDA accounted for $158.4 million, or 77.0% of the revenue
increase. OWB accounted for $42.3 million or 20.6% of the revenue increase.
In addition, scrap revenue increased $5.8 million for the first nine months of
fiscal 2000 as a result of (1) an increase in the average scrap price per gross
ton and (2) an increase in scrap volume, primarily as a result of the inclusion
of MTDA. Excluding MTDA, scrap sales increased $4.1 million. The percentage of
revenue derived from directly owned steel processing increased to 83.2% for the
first nine months of fiscal 2000 from 71.7% for the comparable period in fiscal
1999. The percentage of revenues from toll processed steel decreased to 16.8%
for the first nine months of fiscal 2000 from 28.3% for the comparable period
in fiscal 1999. This shift in the mix of revenue from toll processing to
directly owned steel resulted from the addition of MTDA and OWB which derived
substantial revenue from directly owned steel. In addition, the increase in
revenue was positively impacted by increases in welding blanking and blanking
and stamping revenue.
GROSS PROFIT. Gross profit increased by $23.6 million, or 53.8%, to $67.4
million for the first nine months of fiscal 2000 from $43.8 million for the
comparable period in fiscal 1999. Gross margin decreased to 14.6% for the first
nine months of fiscal 2000 from 17.2% for the comparable period in fiscal 1999.
The increase in gross profit is primarily related to the acquisition of MTDA,
which has historically generated lower gross margins than the Company's
existing operations and to a lesser increased blanking and stamping revenues.
The decline in gross margin is primarily a result of the addition of MTDA and
OWB which derive revenue from sales of directly owned steel which results in
higher revenues but lower gross margins. Excluding MTDA and OWB, gross profit
increased $6.1 million and gross margin increased to 19.2% for the first nine
months of fiscal 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $15.0 million, or 66.8% to $37.6 million
for the first nine months of fiscal 2000 from $22.5 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 nine months of fiscal
2000 from 8.8% 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 $7.2
million and as a percentage of revenues increased to 11.5%. These increases are
primarily the result of: the addition of corporate personnel and related costs,
a bad debt write-off relating to one customer, increased depreciation on the
new business system software and selling, general and administrative expenses
for the start-up of the Saltillo, Mexico facility.
OTHER. Interest expense increased to $10.7 million for the first nine months of
fiscal 2000 from $5.6 million for the comparable period in fiscal 1999 due to
higher average borrowings outstanding for the purchase of MTDA, capital
expansion in Mexico and other capital expenditures made during fiscal 1997, 1998
and 1999. Interest expense of approximately $1.8 million relating to expansion
of OWB and the new Saltillo, Mexico facility was capitalized during the first
nine months of fiscal 2000. The increase in other income of $1.5 million for the
first nine months of fiscal 2000 was primarily due to the gain on the sale of
the company jet. The provision for income taxes was $7.7 million for the first
nine months of fiscal 2000 compared with $6.2 million for the comparable period
in fiscal 1999 representing effective tax rates of 37.0% and 38.0%,
respectively.
NET INCOME. Net income for the first nine months of fiscal 2000 increased by
$3.0 million, or 29.1%, to $13.1 million from $10.2 million for the comparable
period in fiscal 1999. This increase was primarily the result of the inclusion
of MTDA and an increase in the price and volume of scrap.
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Liquidity and Capital Resources
-------------------------------
At July 31, 2000, the Company had $86.0 million of working capital, representing
a current ratio of 1.87 to 1 and a debt-to-total-capitalization ratio of 48.7%.
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 2001.
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 nine
months of fiscal 2000 was $52.1 million as compared to $19.0 million for the
comparable period of fiscal 1999, increasing primarily as a result of the
increase in accounts payable and a decrease in inventory. 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 $52.2 million during the
first nine months of fiscal 2000 and $44.6 million for the comparable period in
fiscal 1999. The largest portion of these expenditures was for machinery,
building and equipment at OWB and the new facility in Saltillo, Mexico. The
Company's total capital budget for fiscal 2000 amounts to approximately $55.8
million.
In September 1999, the Company entered into a credit agreement ("the Agreement")
with KeyBank, National Association, as agent for a group of lenders. The
Agreement provided for loans and letters of credit up to $210.0 million. The
term of this facility would have matured in September 2004. Under the Agreement,
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
(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 July 31, 2000, the factor as determined by
the pricing matrix was 1.50%. The terms of the Agreement also required 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 provided 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 would have been incurred under each of these
sources of funds was $15.0 million.
The Agreement was 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 were fully and unconditionally guaranteed
by substantially all of the existing and future domestic subsidiaries.
The Agreement required the Company to meet certain financial covenants and
ratios including minimum interest coverage, minimum net worth, and maximum
leverage. The Agreement also contained non-financial covenants that restricted
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.
On August 11, 2000, the Company entered into a new credit agreement with The
Chase Manhattan Bank as administrative agent for a group of lenders, which
replaced the Agreement with KeyBank as agent for a group of lenders. The Company
now has a $300.0 million commitment under the new credit agreement, which
expires in August 2005. The new credit agreement is secured by an interest in
all of the Company's and its wholly owned domestic subsidiaries' cash and cash
accounts, accounts receivable, mortgages on certain owned real property,
inventory, equipment excluding fixtures and general intangibles such as patents,
trademarks and copyrights. The new credit agreement includes, without
limitation, covenants involving minimum interest coverage, minimum tangible net
worth coverage and a minimum leverage ratio. In addition, the new credit
agreement limits the incurrence of additional indebtedness, capital
expenditures, investments, dividends, transactions with affiliates, asset sales,
leaseback transactions,
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<PAGE> 18
acquisitions, prepayments of other debt, hedging agreements and liens and
encumbrances and certain transactions resulting in a change of control. All
amounts outstanding under the KeyBank credit agreement were refinanced and all
other obligations under the KeyBank credit agreement were terminated.
Under the new credit agreement, the Company has the option to select the
applicable interest rate at the alternative base rate ("ABR"), as defined in the
new credit agreement to be the greater of the prime rate in effect on such day
and the federal funds effective rate in effect on such day plus half of 1%, or
the LIBOR rate plus a factor determined by a pricing matrix (ranging from 0.5%
to 1.5% for the ABR and ranging from 1.5% to 2.5% for the LIBOR rate) based on
funded debt to earnings before interest, taxes, depreciation and amortization.
As of August 11, 2000 the factor as determined by the pricing matrix was 2.0%.
The terms of the new credit agreement also require an annual commitment fee
based on the amount of unused commitments under the new credit agreement 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 new credit 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 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 is actively seeking strategic alternatives for two of its five tool
& die facilities, Canton Tool & Die and Utica Tool & Die, and Valley City Steel,
one of the Company's two steel processing facilities. The Company expects that
final decisions regarding the strategic direction for each of the facilities
will be determined by fiscal year-end 2000.
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 at July 31, 2000 was
$214.0 million, $23.6 million of which was unused at such date.
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, (1) 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, (2) the ability of the Company to
accomplish its strategic objectives with respect to external expansion through
selective acquisitions and internal expansion, (3) 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 (4) risks associated with integrating
operations of acquired companies, including the acquisition of MTDA and the
recent acquisition of AG Simpson (Tennessee) Inc. (now Shiloh Industries, Inc.
Dickson Manufacturing Division), (5) potential disruptions or inefficiencies in
operations due to or during facility expansions or start-up facilities,
(6) 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 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.
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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's 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.
PART II. OTHER INFORMATION
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 2.1 Asset Purchase Agreement, Dated July 18,
2000, by and between Shiloh Industries,
Inc. Dickson Manufacturing Division and
A.G. Simpson (Tennessee) Inc.
Exhibit 10.1 Credit Agreement, dated as of August 11,
2000, by and among the Company, the Lenders
a party thereto, the Chase Manhattan Bank as
Administrative Agent and Collateral Agent,
KeyBank National Association, as Syndication
Agent and Bank One, Michigan, as
Documentation Agent.
Exhibit 27.1 Financial Data Schedule.
b. Reports on Form 8-K: The Company filed two current Reports on
Form 8-K on July 24, 2000.
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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: September 14, 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
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EXHIBIT INDEX
Number Description
------ -----------
2.1 Asset Purchase Agreement, dated July 18, 2000, by and between
Shiloh Industries, Inc. Dickson Manufacturing Division and A.G.
Simpson (Tennessee) Inc.
10.1 Credit Agreement, dated as of August 11, 2000, by and among the
Company, the Lenders a party thereto, The Chase Manhattan Bank as
Administrative Agent and Collateral Agent, KeyBank National
Association as Syndication Agent and Bank One, Michigan as
Documentation Agent.
27.1 Financial Data Schedule
21
