<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
UNITED STATES
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 April 30, 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 incorporation (I.R.S. Employer
or organization) Identification No.)
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 June 12, 2000 was 14,509,134
shares.
1
<PAGE> 2
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 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SHILOH INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
April 30, October 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 339,607 $ 1,575,804
Accounts receivable, net 110,868,403 79,670,183
Inventories, net 84,611,564 47,118,809
Deferred income taxes --- 1,580,889
Prepaid expenses 6,161,112 5,758,354
------------ ------------
Total current assets 201,980,686 135,704,039
------------ ------------
Property, plant and equipment, net 292,161,824 269,626,549
Goodwill, net 11,808,590 11,647,496
Other assets 8,311,604 8,741,554
------------ ------------
Total assets $514,262,704 $425,719,638
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Accounts payable $ 84,733,015 $ 38,677,150
Accrued income taxes 5,730,519 1,293,522
Deferred income taxes 4,766,449 ---
Advanced billings 1,040,645 225,289
Other accrued expenses 17,388,000 10,195,880
------------ ------------
Total current liabilities 113,658,628 50,391,841
------------ ------------
Long-term debt 183,400,000 171,450,000
Deferred income taxes 15,961,329 22,308,668
Long-term benefit liabilities 3,370,762 2,991,120
Other liabilities 414,173 449,676
------------ ------------
Total liabilities 316,804,892 247,591,305
------------ ------------
Stockholders' equity 145,094 130,805
Common stock 49,033,729 39,399,805
Paid-in capital 148,278,989 138,597,723
Retained earnings ------------ ------------
197,457,812 178,128,333
Total stockholders' equity ------------ ------------
Total liabilities and stockholders' equity $514,262,704 $425,719,638
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
SHILOH INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended April 30, Six months ended April 30,
----------------------------------- --------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 165,666,124 $ 89,564,775 $306,493,506 $171,165,878
Cost of sales 140,093,765 73,283,884 260,700,974 142,488,037
------------- ------------- ------------ ------------
Gross profit 25,572,359 16,280,891 45,792,532 28,677,841
Selling, general and administrative expenses 13,641,898 8,088,631 25,214,827 15,802,562
------------- ------------- ------------ ------------
Operating income 11,930,461 8,192,260 20,577,705 12,875,279
Interest expense 3,220,545 1,790,382 6,698,828 3,487,806
Interest income 12,740 25,203 50,943 81,069
Minority interest --- 112,743 --- 335,023
Other income (expense), net 65,012 (13,671) 1,535,462 24,362
------------- ------------- ------------ ------------
Income before taxes 8,787,668 6,526,153 15,465,282 9,827,927
Provision for income taxes 3,246,522 2,512,566 5,784,016 3,783,752
------------- ------------- ------------ ------------
Net income $ 5,541,146 $ 4,013,587 $ 9,681,266 $ 6,044,175
============= ============= ============ ============
Basic earnings per share:
Net income $.40 $31 $.69 $.46
============= ============= ============ ============
Weighted average number of common
shares: 13,973,420 13,080,563 13,973,420 13,080,563
============= ============= ============ ============
Diluted earnings per share:
Net income $.40 $.31 $.69 $.46
============= ============= ============ ============
Weighted average number of common
shares: 13,992,593 13,085,317 13,982,239 13,086,868
============= ============= ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
SHILOH INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months ended April 30,
--------------------------
2000 1999
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 9,681,266 $ 6,044,175
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,236,100 8,921,005
Minority interest - (335,023)
(Gain) on sale of assets (1,529,348) (472,016)
Changes in operating assets and liabilities, net
of working capital changes resulting from
acquisitions:
Accounts receivable (11,832,080) (18,363,009)
Inventories (13,020,568) 3,573,832
Prepaids and other assets 111,497 (231,841)
Payables and other liabilites 41,241,090 5,905,018
Accrued income taxes 4,436,997 2,847,741
------------- -------------
Net cash provided by operating activities 40,324,954 7,889,882
------------- -------------
Cash Flows From Investing Activities:
Capital expenditures (33,741,533) (30,564,038)
Proceeds from sale of assets 1,717,200 11,258,711
Acquisition, net of cash (21,486,818) -
------------- -------------
Net cash used in investing activities (53,511,151) (19,305,327)
------------- -------------
Cash Flows From Financing Activities:
Proceeds from short-term borrowings - 30,040,000
Repayments of short-term borrowings - (13,810,000)
Proceeds from long-term borrowings 123,350,000 4,110,000
Repayments of long-term borrowings (111,400,000) (4,000,000)
------------- -------------
Net cash provided by financing activities 11,950,000 16,340,000
------------- -------------
Net increase (decrease) in cash and cash equivalents (1,236,197) 4,924,555
Cash and cash equivalents at beginning of period 1,575,804 642,723
------------- -------------
Cash and cash equivalents at end of period $ 339,607 $ 5,567,278
============= =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
5
<PAGE> 6
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 six months ended April 30, 2000 are not
necessarily indicative of the results to be expected for the full year.
NOTE 2 - Inventories:
---------------------
Inventories consist of the following:
April 30, October 31,
2000 1999
----------- -----------
Raw materials $35,437,074 $22,565,387
Work-in-process 29,714,805 12,629,005
Finished goods 19,019,859 11,449,478
----------- -----------
Total at average cost 84,171,738 46,643,870
LIFO reserve 439,826 474,939
----------- -----------
Total $84,611,564 $47,118,809
=========== ===========
NOTE 3 - Property, Plant and Equipment:
---------------------------------------
Property, plant and equipment consist of the following:
April 30, October 31,
2000 1999
----------- -----------
Land $ 9,467,225 $ 9,436,412
Buildings and improvements 104,973,382 103,971,677
Machinery and equipment 218,610,394 193,122,689
Furniture and fixtures 27,052,525 11,477,394
Construction in progress 32,381,950 43,041,471
------------- ------------
Total, at cost 392,485,476 361,049,643
Less: Accumulated depreciation (100,323,652) (91,423,094)
------------- ------------
Net property, plant and equipment $ 292,161,824 $269,626,549
============= ============
6
<PAGE> 7
NOTE 4 - Financing Arrangements:
--------------------------------
<TABLE>
<CAPTION>
April 30, October 31,
2000 1999
------------- -------------
<S> <C> <C>
Long-term debt consists of the following:
Revolving credit loan - interest at 7.66% at April 30, 2000 $ 178,000,000 $ 166,050,000
Variable rate industrial development bond, collateralized by letter
of credit, weighted average interest rate at 4.08% payable on
February 1, 2010 5,400,000 5,400,000
------------- -------------
Total $ 183,400,000 $ 171,450,000
============= =============
</TABLE>
7
<PAGE> 8
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
April 30, 2000, the factor as determined by the pricing matrix was 1.50 %. 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.
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, $30.6 million was unused at
April 30, 2000.
8
<PAGE> 9
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 April 30, 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 six months
ended April 30, 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
Six Months Ended
April 30, 1999
(in thousands)
Total revenue $ 269,523
Net income $ 8,170
9
<PAGE> 10
NOTE 6 - Other Information:
---------------------------
During the six months ended April 30, 2000 and 1999, cash payments for interest
amounted to $7.8 million and $3.9 million respectively, while cash payments, net
of refunds, for income taxes amounted to $1.0 million and $.7 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 $5.8 million for the first six months of fiscal
2000 compared with $3.8 million for the comparable period in fiscal 1999,
representing effective tax rates of 37.4% and 38.5%, respectively.
The Company's non-qualified stock option plan, adopted in May 1993, provides for
granting officers and employees of the Company options to acquire an aggregate
of 1,200,000 shares at an exercise price equal to 100% of market price on the
date of grant. During the first six months ended April 30, 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 Six Months
Ended April 30 Ended April 30,
-------------- ---------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 5,541,146 $ 4,013,587 $ 9,681,266 $ 6,044,175
=========== =========== =========== ===========
Basic weighted average shares (1) 13,973,420 13,080,563 13,973,420 13,080,563
Effect of dilutive securities:
Stock options 19,173 4,754 8,819 6,305
Diluted weighted average shares 13,992,593 13,085,317 13,982,239 13,086,868
=========== =========== =========== ===========
Basic earnings per share $ .40 $ .31 $ .69 $ .46
=========== =========== =========== ===========
Diluted earnings per share $ .40 $ .31 $ .69 $ .46
=========== =========== =========== ===========
</TABLE>
----------
(1) Excludes 535,714 contingent shares for 2000. See Note 5.
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
10
<PAGE> 11
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 three subsidiaries: Greenfield Die & Manufacturing
Corp., C&H Design Company and MTD Automotive. In addition three subsidiaries
were developed from Greenfield sites: 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.
The Company conducts its operations through the following subsidiaries:
SUBSIDIARY DESCRIPTION OF PRINCIPAL OPERATION
---------- ----------------------------------
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
11
<PAGE> 12
Automotive (1)
Shiloh de Mexico S.A. de C.V. (2) Blanking/Tailor-Welded Blanking
(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.
12
<PAGE> 13
Results of Operations
---------------------
THREE MONTHS ENDED APRIL 30, 2000
COMPARED TO THREE MONTHS ENDED APRIL 30, 1999
REVENUES. Revenues increased by $76.1 million, or 85.0%, to $165.7 million for
the second quarter of fiscal 2000 from $89.6 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 $52.5 million, or 69.0% of the revenue
increase. OWB, dedicated to tailor-welded blanks for the automotive sector,
became operational on November 1, 1999 and accounted for $18.3 million or 24.1%
of the revenue increase. Revenues were also impacted by blanking and stamping
revenues which more than doubled, an increase in other steel processing revenue
and a slight increase in tool and die revenue. In addition scrap revenue
increased $2.1 million in the second 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 primarily as a result of the inclusion of MTDA.
The percentage of revenue from directly owned steel processed increased to 83.6%
for the second quarter of fiscal 2000 from 70.6% for the comparable period in
fiscal 1999. The percentage of revenues from toll processed steel decreased
to 16.4% for the second quarter of fiscal 2000 from 29.4% for the comparable
period in fiscal 1999. This shift in the mix of revenue from toll processing to
more directly owned steel processing resulted from the addition of MTDA and OWB
which derived substantial revenue from directly owned steel processing. The
exclusion of MTDA and OWB, would have resulted in a toll processing and directly
owned steel processing mix of 28.6% and 71.4% respectively for the quarter.
GROSS PROFIT. Gross profit increased by $9.3 million, or 57.1%, to $25.6 million
for the second quarter of fiscal 2000 from $16.3 million for the comparable
period in fiscal 1999. Gross margin decreased to 15.4% for the second quarter of
fiscal 2000 from 18.2% 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 extent increased blanking and stamping revenues.
Excluding MTDA and OWB, gross profit increased $2.5 million and gross margin
increased to 19.8% for the second quarter of fiscal 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 68.7% to $13.7 million for the second quarter
of fiscal 2000 from $8.1 million for the comparable period in fiscal 1999. As a
percentage of revenues, selling, general and administrative expenses decreased
to 8.2% for the second quarter of fiscal 2000 from 9.0% 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 $2.9 million and as a percentage of revenues
increased to 11.6%. 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 $3.2 million in the second
quarter of fiscal 2000 compared to $1.8 million of interest expense in the
comparable period of fiscal 1999. This increase is due primarily to increased
average borrowings. Interest expense of approximately $.6 million relating to
the expansion of OWB and the new facility in Saltillo, Mexico were capitalized
during the second quarter of fiscal 2000. The provision for income taxes was
$3.2 million in the second quarter of fiscal 2000 compared with $2.5 million for
the comparable period in fiscal 1999, representing effective tax rates of 36.9%
and 38.5%, respectively.
NET INCOME. Net income for the second quarter of fiscal 2000 increased by $1.5
million, or 38.1%, to $5.5 million from $4.0 million for the comparable period
in fiscal 1999. This increase was primarily the result of the inclusion of MTDA,
OWB and an increase in the price and volume of scrap.
13
<PAGE> 14
SIX MONTHS ENDED APRIL 30, 2000
COMPARED TO SIX MONTHS ENDED APRIL 30, 1999
REVENUES. Revenues increased by $135.3 million, or 79.1%, to $306.5 million for
the first six months of fiscal 2000 from $171.2 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 $101.4 million, or 74.9% of the revenue
increase. OWB accounted for $27.7 million or 20.5% of the revenue increase.
Revenues were also impacted by blanking and stamping revenues which more than
doubled, an increase in other steel processing revenue and a slight increase in
tool and die revenue. Scrap revenue increased $4.7 million for the first six
months 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 primarily as a result of the
inclusion of MTDA. Without MTDA scrap sales increased $3.5 million. The
percentage of revenue from directly owned steel processing increased to 82.7%
for the first six months of fiscal 2000 from 71.9% for the comparable period in
fiscal 1999. The percentage of revenues from toll processed steel decreased to
17.3% for the first six months of fiscal 2000 from 28.1% 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 and OWB which
predominantly used directly owned steel.
GROSS PROFIT. Gross profit increased by $17.1 million, or 59.7%, to $45.8
million for the first six months of fiscal 2000 from $28.7 million for the
comparable period in fiscal 1999. Gross margin decreased to 14.9% for the first
six months of fiscal 2000 from 16.8% 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.
Excluding MTDA and OWB gross profit increased $5.6 million and gross margin
increased to 19.3% for the first six months of fiscal 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $9.4 million, or 59.6% to $25.2 million for
the first six months of fiscal 2000 from $15.8 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 six months of fiscal 2000 from 9.2% 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 $4.6 million and as a percentage
of revenues increased to11 .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 $6.7 million for the first six months of
fiscal 2000 from $3.5 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 the fiscal 1997,
1998 and 1999. Interest expense of approximately $1.3 million relating to
expansion of OWB and the new Saltillo, Mexico facility was capitalized during
the first six months of fiscal 2000. The increase in other income of $1.5
million for the first six months of fiscal 2000 was primarily due to the gain on
the sale of the Company jet. The provision for income taxes was $5.8 million for
the first six months of fiscal 2000 compared with $3.8 million for the
comparable period in fiscal 1999 representing effective tax rates of 37.4% and
38.5%, respectively.
NET INCOME. Net income for the first six months of fiscal 2000 increased by $3.7
million, or 60.2%, to $9.7 million from $6.0 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.
14
<PAGE> 15
Liquidity and Capital Resources
-------------------------------
At April 30, 2000, the Company had $88.3 million of working capital,
representing a current ratio of 1.78 to 1 and a debt-to-total-capitalization
ratio of 48.2%. 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 six
months of fiscal 2000 was $40.3 million as compared to $7.9 million for the
comparable period of fiscal 1999, increasing 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 $33.7 million during the
first six months of fiscal 2000 and $30.6 million for the comparable period in
fiscal 1999. The largest portion of these expenditures were 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 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
April 30, 2000, the factor as determined by the pricing matrix was 1.50%. 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.
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.
15
<PAGE> 16
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,
$30.6 million of which was unused at April 30, 2000.
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
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'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.
16
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
On March 30, 2000, at the Annual Meeting of Stockholders of Shiloh Industries,
Inc., the stockholders took following actions:
(1) Elected as Class I Directors all nominees designated in the Proxy
Statement dated February 25, 2000; and
(2) Approved the appointment of the independent certified public
accountants of the Company for the current fiscal year.
The Directors were elected pursuant to the following vote:
BROKER
NOMINEE FOR WITHHELD NON-VOTE
------- --- -------- --------
Dominick C. Fanello 12,493,236 127,607 --
David J. Hessler 12,494,736 126,107 --
Maynard H. Murch IV 12,493,812 127,031 --
In addition, the following Directors' term of office continued after the
meeting: John F. Falcon, James C. Fanello, Ronald C. Houser, James A. Karman,
Curtis E. Moll and Theodore K. Zampetis.
The approval of appointment of PricewaterhouseCoopers as independent certified
public accountants to the Company for its current fiscal year was approved by
the following vote:
BROKER
FOR AGAINST ABSTAIN NON-VOTE
--- ------- ------- --------
12,616,545 1,982 2,316 --
17
<PAGE> 18
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 27 Financial Data Schedule.
b. Reports on Form 8-K: None.
18
<PAGE> 19
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: June 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
19
<PAGE> 20
EXHIBIT INDEX
Exhibit No. Description of Exhibit Page Number
----------- ---------------------- -----------
27 Financial Data Schedule
