-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CqwDBrMu700CpBGiQ/wZ1amfh6zuxL0RkxBal7V0MsZQChN7BGjcJF7LfFpAV7nx 60GeTG7/crNpediw8gzwtQ== 0000950124-99-000518.txt : 19990129 0000950124-99-000518.hdr.sgml : 19990129 ACCESSION NUMBER: 0000950124-99-000518 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19990128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUTOCAM CORP/MI CENTRAL INDEX KEY: 0000879235 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 382790152 STATE OF INCORPORATION: MI FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-19544 FILM NUMBER: 99514833 BUSINESS ADDRESS: STREET 1: 4070 EAST PARIS AVE CITY: KENTWOOD STATE: MI ZIP: 49512 BUSINESS PHONE: 6166980707 MAIL ADDRESS: STREET 1: 4070 EAST PARIS AVENUE SE CITY: KENTWOOD STATE: MI ZIP: 49512 10-Q/A 1 AMENDMENT NO.1 TO QUATERLY REPORT DATED 9/30/98 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A AMENDMENT NO. 1 Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For The Quarter Ended September 30, 1998 Commission File Number 0-19544 AUTOCAM CORPORATION A Michigan Corporation I.R.S. Employer Identification No. 38-2790152 4070 East Paris Avenue, Kentwood, Michigan 49512 Telephone: (616) 698-0707 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of Common Shares outstanding at November 6, 1998 was 6,107,763. 1 of 9 2 INDEX
PART I - FINANCIAL INFORMATION PAGE NO. --------------------- -------- Item 1. Financial Statements - None. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Amended to include discussion updating the impact of the Year 2000 issue on the Company in accordance with SEC Interpretation Release No. 33-7558, "Statement of the Commission regarding disclosure of Year 2000 issues and consequences by public companies, investment advisers, investment companies, and municipal securities issuers." 3-8 PART II - OTHER INFORMATION ----------------- Item 1. Legal Proceedings - None. Item 2. Changes in Securities - None. Item 3. Default Upon Senior Securities - None. Item 4. Submission of Matters to a Vote of Security Holders - None. Item 5. Other Information - None. Item 6. Exhibits and Reports on Form 8-K - None.
2 3 PART I ITEM 2. AUTOCAM CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SEPTEMBER 30, 1998 This Quarterly Report on Form 10-Q contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements should be read with the cautionary statements and important factors included herein. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements, which are other than statements of historical facts. Such forward-looking statements may be identified, without limitation, by the use of the words "anticipates," "estimates," "expects," "intends," "plans," "predicts," "projects," and other similar expressions. The Company's expectations, beliefs and projections are expressed in good faith and are believed by the Company to have a reasonable basis, including without limitation, management's examination of historical operating trends, data contained in the Company's records and other data available from third parties, but there can be no assurance that management's expectations, beliefs or projections will result or be achieved or accomplished. RESULTS OF OPERATIONS The following table presents, for the periods indicated, the components of the Company's Consolidated Statements of Operations as a percentage of sales:
THREE MONTHS ENDED SEPTEMBER 30, ---------------------------------- 1998 1997 ---- ---- Sales 100.0% 100.0% Cost of sales 85.7% 80.5% ------ ------ Gross profit 14.3% 19.5% Selling, general and administrative 7.3% 5.7% Other operating expenses .2% .3% ------ ------ Income from operations 6.8% 13.5% Interest and other expense, net 3.3% 3.5% Minority interest in net income .6% ------ ------ Income before tax provision 2.9% 10.0% Tax provision 2.2% 3.5% ------ ------ NET INCOME .7% 6.5% ====== ======
3 4 AUTOCAM CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED SEPTEMBER 30, 1998 SALES The following table indicates the Company's sales (in thousands) and percentage of total sales by product application for the three-month periods ended September 30, 1998 and 1997:
FOR THE THREE MONTHS ENDED SEPTEMBER 30, ----------------------------------------------------------- 1998 1997 ---- ---- Transportation: Fuel systems $15,817 65.8% $10,172 58.4% Braking systems 4,037 16.8 4,043 23.2 Other 1,146 4.8 427 2.4 --------- ----- --------- ----- Total transportation 21,000 87.4 14,642 84.0 Medical devices 2,468 10.3 1,870 10.7 Computer electronics 10 670 3.9 Other 542 2.3 247 1.4
Sales of components for fuel system applications were $15,817,000 for the three months ended September 30, 1998, an increase of 55% from sales of the same period in the prior year. The Company gained market share through the sale of $3,090,000 of diesel fuel injection components by acquiring a controlling interest in Qualipart Industria E Comercio, Ltda. ("Qualipart"), subsequently renamed, Autocam do Brasil Usinagem, Ltda. ("Autocam do Brasil") in January 1998. Additionally, one of the Company's largest fuel systems customers embarked on a new fuel injector program subsequent to the first quarter of fiscal 1998 and two others increased demand for components for their new injector programs during the first quarter of fiscal 1999 relative to the same period in fiscal 1998. Together, these positive factors added $2,408,000 in sales, which more than offset the negative sales impact associated with the loss of sales of mature product caused by the July and August 1998 strikes at General Motors Corporation. Sales of components for other transportation applications for the three months ended September 30, 1998 were $1,146,000, an increase of $719,000 from the first quarter of fiscal 1998. This increase can be attributed entirely to the acquisition of Autocam do Brasil, which supplies components to several customers for use in electronic transmissions and motors for automobile applications. Sales of medical device components were $2,468,000 for the three months ended September 30, 1998, an increase of 32% as compared to the same period in the prior year. Sales of coronary stents increased $505,000 when comparing the first quarter of fiscal 1999 to the same period in fiscal 1998. The Company expanded its customer base and now supplies coronary stents to three customers, one of which is now subject to a three-year supply agreement. 4 5 AUTOCAM CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED SEPTEMBER 30, 1998 SALES - CONCLUDED Sales of components for computer electronic applications declined $660,000 from the first quarter of fiscal 1998 to the first quarter of fiscal 1999. During the three months ended September 30, 1997, the Company produced and sold key components used in computer microprocessor subassemblies and specialty metal fasteners used in the manufacture of suspension assemblies for rigid disk drives. The Company had virtually no sales to this industry during the quarter ended September 30, 1998 as short product life cycles eliminated these components. Effective October 1, 1998, the Company, through its wholly-owned subsidiary, Autocam France SARL, acquired the rights to all the outstanding common shares of Compagnie Financiere du Leman SA, which owns all of the equity interest of Frank & Pignard SA ("F&P"). F&P is a leading supplier of precision-machined metal components primarily to customers located in France and engaged in the business of producing power steering, diesel fuel injection and braking systems for the transportation industry. F&P is expected to add $60 million in sales over the nine months ending June 30, 1999. Also, the Company expects to see continued expansion of fuel system component sales as new injector programs move toward full production during the next nine months, and it reports a full year of sales from its Brazilian operations. GROSS PROFIT Gross profit for the three months ended September 30, 1998 and 1997 represented 14.3% and 19.5% of sales, respectively. The Company was negatively impacted by labor work stoppages at the Company's largest fuel system customer's facilities. Direct and indirect sales to that customer were lower than expected, and the Company's ability to reduce costs, particularly labor, was largely dictated by the West Michigan market for skilled machinists. With an area unemployment rate of 2-3%, management concluded that laying off quality machinists in answer to a short-term demand decline would adversely affect the Company's ability to attain future growth objectives if it were unable to retain its skilled labor base. The Company also experienced manufacturing difficulties resulting from the transfer of production for a key customer of its Brazilian operation to one of its U.S. facilities. The customer expedited the timetable for this transfer of production, which caused the Company to incur significantly more start-up costs than originally anticipated. Management expects that gross profit, as a percentage of sales, for the remainder of the fiscal year should rise to levels slightly below those reported for fiscal 1998. This improvement over first quarter levels is expected to be generated by growth in demand for new fuel systems program components thereby allowing for improved labor and equipment utilization typically gained through continuous improvement activities. Also, management anticipates a modest increase in demand for coronary stents that carry gross profit margins generally higher than those typically experienced by the sale of components to the transportation industry. 5 6 AUTOCAM CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED SEPTEMBER 30, 1998 SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses, as a percentage of sales, were 7.3% and 5.7% during the three months ended September 30, 1998 and 1997, respectively. These expenses increased monetarily and as a percentage of sales due to the Autocam do Brasil acquisition. Such operations typically generate selling, general and administrative expenses in the range of 11.5%. Management expects that selling, general and administrative expenses, as a percentage of sales, will increase from current levels over the remainder of fiscal 1999 as F&P's historical expense levels, as a percentage of sales, of 10.5% are higher than those experienced by the Company. OTHER OPERATiNG EXPENSES Other operating expenses represent the straight-line amortization of employment and deferred compensation agreements between the Company and a key employee. INTEREST AND OTHER EXPENSE, NET Net interest and other expense for the three months ended September 30, 1998 increased $182,300 from the same period in the previous year. This increase is due primarily to an increase in average borrowings outstanding during the quarter ended September 30, 1998 caused by the acquisition of Autocam do Brasil. Management anticipates that interest expense, as a percentage of sales, over the next nine months will approximate $2.6 million each quarter. The increase in expense can be attributed to the increase in bank borrowings as a result of the F&P acquisition. MINORITY INTEREST IN NET INCOME The amount reported in this line represents the minority shareholder's interest in the net earnings of Autocam do Brasil. TAX PROVISION Income taxes as a percentage of income before tax provision and minority interest were 61.4% and 35.2% for the three months ended September 30, 1998 and 1997, respectively. The effective tax rate for the quarter ended September 30, 1998 exceeded the statutory rate due primarily to the recognition of $265,000 in Federal income tax expense caused by the dissolution of the Company's interest-charge Domestic International Sales Corporation to be replaced with a Foreign Sales Corporation. The September 30, 1998 amount includes provisions for Brazilian Federal and South Carolina State income taxes. Both amounts include provisions for California Unitary taxes. 6 7 AUTOCAM CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED SEPTEMBER 30, 1998 TAX PROVISION - CONCLUDED Management expects the Company's effective tax rate to approximate 38% for the remainder of fiscal 1999. The increase over historical levels can be primarily attributed to the fact that F&P's incremental income tax rate is 41%. LIQUIDITY AND CAPITAL RESOURCES New equipment placed into service and deposits paid on future equipment purchases during the quarter ended September 30, 1998 totaling $5.6 million were financed primarily through operating cash flows and borrowings under its revolving line of credit. In order to meet demand primarily from transportation customers, management will purchase $22.7 million of equipment over the next nine months (on which deposits of $3.6 million had been placed as of September 30, 1998). Management expects to finance these purchases with cash on hand, restricted cash and equivalents, operating cash flows, operating leases and bank borrowings under its new credit facility. Additionally, certain of the aforementioned capital expediture requirements will be required by the Company's Brazilian operations. Approximately $4 million of this investment is expected to be financed through capital contributions by Autocam do Brasil's minority shareholder. Management believes that the Company has adequate credit facilities and cash available to meet its working capital needs through fiscal 1999. On October 1, 1998, the Company entered into an Amended and Restated Revolving Credit and Term Note Agreement (the "Agreement") with its primary lending institution, as agent. The Agreement includes a $70 million five-year revolving credit facility, a $50 million five-year acquisition term note and a $20 million six-year term note. In connection therewith, all of the Company's existing bank debt was refinanced using the $70 million revolving credit facility. The Company has $34.6 million in borrowing availability under the revolving credit facility as of October 2, 1998. There are no principal obligations due under the revolving credit facility for more than one year. Principal obligations under the acquisition term note are as follows: Year 1 - $0; Years 2 and 5 - $10 million; and, Years 3 and 4 - $15 million. Principal obligations under the term note are as follows: Years 1 to 4 - $0; Year 5 - $5 million; and, Year 6 - $10 million. Interest is due monthly on all facilities under the Agreement at variable interest rates. 7 8 AUTOCAM CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONCLUDED SEPTEMBER 30, 1998 IMPACT OF YEAR 2000 ISSUE The Company recognizes the importance of the Year 2000 issue and has been giving high priority to it. In July 1998, the Company created a Year 2000 project team to supervise a comprehensive risk-based assessment of the Company's Year 2000 readiness. The team's objective is to ensure an uninterrupted transition into the Year 2000. The scope of the Year 2000 readiness effort includes software, hardware, electronic data interchange, manufacturing and lab equipment, environmental and safety systems, facilities, utilities and supplier readiness. Since the Company makes predominate use of packaged computer applications in its business and believes such applications to be Year 2000 compliant, management considers the risk of a material adverse effect on the operations of the Company to be remote. As of September 30, 1998, the Company had spent $4,000 in connection with the planned assessment. The Company is utilizing both internal and external resources to remediate and test all applications and computer, manufacturing and facilities equipment that may be adversely impacted by Year 2000 issues. It is the objective of Company management to complete the most serious Year 2000 compliance issues for information systems resident in United States facilities by December 1998 and for foreign facilities by July 1999. Management expects to complete its assessment employing an outside consultant to assist therein during the second and third quarters of fiscal 1999 at an additional cost not expected to exceed $50,000. Costs to test and remediate its systems, if any, are not expected to exceed $200,000. In addition to internal Year 2000 software and equipment remediation activities, the Company has contacted its key suppliers and all its electronic commerce customers to assess their compliance. There can be no absolute assurances that there will not be a material adverse effect on the Company if third parties do not convert their systems in a timely manner and in a way that is compatible with the Company's systems. The Company believes that its diligent actions with suppliers and customers will minimize these risks. The Company's current estimates of the amount of time and costs necessary to remediate and test its computer systems are based on the facts and circumstances existing at this time. The estimates were derived utilizing multiple assumptions of future events including the continued availability of certain resources, third-party modification plans and implementation success, and other factors. New developments may occur that could affect the Company's estimates of the amount of time and costs necessary to modify and test its systems for Year 2000 compliance. These developments include, but are not limited to: (i) the availability and cost of personnel trained in this area; (ii) the ability to locate and correct all relevant computer code and equipment; and, (iii) the planning and modification success attained by the Company's suppliers and customers. 8 9 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: January 28, 1999 Autocam Corporation ---------------------- /s/ John C. Kennedy ---------------------- John C. Kennedy Principal Executive Officer /s/ Warren A. Veltman ---------------------- Warren A. Veltman Principal Financial and Accounting Officer 9 -----END PRIVACY-ENHANCED MESSAGE-----