-----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, IN+PnV4LCTcrAo4zpUGvhUrte4vZceGQ4toERl9LuVF5DUgVWfUUkOV34mCICMPb jir4gAxFEDnxQfgubD3r3A== 0000950124-99-003279.txt : 19990517 0000950124-99-003279.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950124-99-003279 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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 SEC ACT: SEC FILE NUMBER: 000-19544 FILM NUMBER: 99623437 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 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For The Quarter Ended March 31, 1999 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 May 7, 1999 was 6,306,624. 1 of 21 2 INDEX
PART I - FINANCIAL INFORMATION PAGE NO. -------- Item 1. Financial Statements Consolidated Balance Sheets as of March 31, 1999 and June 30, 1998 3 Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended March 31, 1999 and 1998 4 Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 1999 and 1998 5 Notes to Consolidated Financial Statements 6 - 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 - 20 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 AUTOCAM CORPORATION CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 In thousands, except share data (UNAUDITED) JUNE 30, 1998 ----------- ------------- ASSETS CURRENT ASSETS: Cash and equivalents $ 1,541 $ 1,644 Accounts receivable 42,408 11,680 Inventories 15,450 6,389 Prepaid expenses and other current assets 1,586 1,088 --------- --------- TOTAL CURRENT ASSETS 60,985 20,801 PROPERTY, PLANT AND EQUIPMENT, NET 132,460 64,421 RESTRICTED CASH AND EQUIVALENTS 1,936 5,008 GOODWILL AND OTHER INTANGIBLE ASSETS, NET 26,376 14,366 OTHER LONG-TERM ASSETS 10,941 8,853 --------- --------- TOTAL ASSETS $ 232,698 $ 113,449 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term obligations $ 2,437 $ 6,554 Accounts payable 22,548 7,831 Accrued liabilities: Compensation, related benefits and withholdings 8,370 1,956 Other 2,928 1,334 --------- --------- TOTAL CURRENT LIABILITIES 36,283 17,675 LONG-TERM OBLIGATIONS, NET OF CURRENT MATURITIES 118,496 37,851 DEFERRED TAXES 26,394 10,051 DEFERRED CREDITS AND OTHER 5,619 561 MINORITY INTEREST 2,382 2,250 SHAREHOLDERS' EQUITY: Preferred stock - 200,000 shares authorized; no shares issued or outstanding Common stock - 10,000,000 shares authorized; 6,306,624 and 6,102,568 shares issued and outstanding as of March 31, 1999 and June 30, 1998, respectively 34,542 31,840 Deferred compensation (375) (491) Accumulated comprehensive income, including related tax benefits (4,290) (34) Retained earnings 13,647 13,746 --------- --------- TOTAL SHAREHOLDERS' EQUITY 43,524 45,061 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 232,698 $ 113,449 ========= =========
See notes to consolidated financial statements. 3 4 AUTOCAM CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED MARCH 31, MARCH 31, ---------------------------------- ---------------------------------- In thousands, except per share data 1999 1998 1999 1998 ---- ---- ---- ---- Sales $ 51,181 $ 24,790 $ 129,605 $ 64,014 Cost of sales 43,149 18,286 109,454 48,786 -------- -------- --------- -------- Gross profit 8,032 6,504 20,151 15,228 Selling, general and administrative 2,727 1,721 7,199 4,145 -------- -------- --------- -------- Income from operations 5,305 4,783 12,952 11,083 Interest and other expense, net 1,995 801 5,090 2,056 Minority interest in net income 286 81 623 81 -------- -------- --------- -------- Income before tax provision 3,024 3,901 7,239 8,946 Tax provision 982 1,419 2,920 3,224 -------- -------- --------- -------- NET INCOME $ 2,042 $ 2,482 $ 4,319 $ 5,722 ======== ======== ========= ======== BASIC NET INCOME PER SHARE $.32 $.39 $.68 $.90 ======== ======== ========= ======== DILUTED NET INCOME PER SHARE $.32 $.38 $.66 $.88 ======== ======== ========= ======== Basic weighted average shares outstanding 6,307 6,350 6,362 6,326 Diluted weighted average shares outstanding 6,442 6,581 6,545 6,521 Dividends declared per share $.02 $.04 $.08 $.08 STATEMENTS OF COMPREHENSIVE INCOME (LOSS): Net income $ 2,042 $ 2,482 $ 4,319 $ 5,722 Other comprehensive income: Foreign currency translation adjustments (3,883) (11) (4,256) (11) Tax benefit 1,359 4 1,490 4 -------- -------- --------- -------- Other comprehensive income, net (2,524) (7) (2,766) (7) -------- -------- --------- -------- COMPREHENSIVE INCOME (LOSS) ($ 482) $ 2,475 $ 1,553 $ 5,715 ======== ======== ========= ========
See notes to consolidated financial statements. 4 5 AUTOCAM CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED MARCH 31, --------------------------------------- In thousands 1999 1998 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers $123,570 $62,186 Cash paid to suppliers and employees (104,432) (46,169) Income taxes paid (744) (1,132) Interest paid (5,423) (1,774) --------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 12,971 13,111 --------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures and deposits on equipment (21,568) (11,950) Proceeds from sale of equipment 469 392 Acquisitions, net of cash received (54,112) (11,232) Other 30 (395) --------- ------- NET CASH USED IN INVESTING ACTIVITIES (75,181) (23,185) --------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under (repayments on) lines of credit, net 12,676 (798) Proceeds from issuance of long-term obligations 73,614 19,825 Principal payments of long-term obligations (24,122) (4,811) Decrease (increase) in restricted cash and equivalents 3,071 (5,561) Debt issue costs (1,632) (194) Cash dividends paid (372) (351) Repurchase of common shares (1,438) Capital contribution from minority shareholder 945 26 Other 102 442 --------- ------- NET CASH PROVIDED BY FINANCING ACTIVITIES 62,844 8,578 --------- ------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS (737) --------- ------- Net decrease in cash and equivalents (103) (1,496) Cash and equivalents at beginning of period 1,644 2,510 --------- ------- Cash and equivalents at end of period $ 1,541 $ 1,014 ========= ======= See notes to consolidated financial statements.
5 6 AUTOCAM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 1. BASIS OF PRESENTATION The accompanying unaudited interim consolidated financial statements (the "Financial Statements") of Autocam Corporation and its subsidiaries (together, the "Company") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, the Financial Statements do not include all the information and footnotes normally included in the annual consolidated financial statements prepared in accordance with generally accepted accounting principles. All significant intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the Financial Statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to present fairly such information in accordance with generally accepted accounting principles. These Financial Statements should be read in conjunction with the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998. Weighted average shares outstanding and earnings per share for the three and nine months ended March 31, 1998 have been restated to give effect to a 5% share dividend declared on October 28, 1998 and paid on November 16, 1998 to shareholders of record on November 2, 1998. RECLASSIFICATIONS - Certain reclassifications have been made to the Balance Sheet as of June 30, 1998, the Statements of Operations and Comprehensive Income for the three and nine months ended March 31, 1998 and the Statement of Cash Flows for the nine months ended March 31, 1998 in order to conform to fiscal 1999 presentations. 2. BUSINESS COMBINATION Effective October 1, 1998, the Company, through its wholly-owned subsidiary, Autocam France SARL ("AF"), a French limited liability company, acquired the rights to all the outstanding common shares of Compagnie Financiere du Leman SA ("CFL"), a French holding corporation, which owns all of the equity interest of Frank & Pignard SA, a French corporation ("F&P") for 300 million French Francs ("FF"). The Company has agreed to pay a maximum additional amount of FF60 million based upon the ability of F&P to meet certain predetermined operating performance goals in 1999. F&P, located in Cluses, France, is a leading manufacturer of precision-machined metal components consisting primarily of power steering, diesel fuel injection and braking system components to leading global automotive manufacturers and their tier-one suppliers. Through the stock purchase, which was accounted for under the purchase method of accounting, AF acquired all the operating assets of F&P, which includes its machinery and equipment and leases of the manufacturing facilities, and assumed all its liabilities, including $20 million in bank debt. 6 7 AUTOCAM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED MARCH 31, 1999 2. BUSINESS COMBINATION - CONCLUDED The purchase price was financed through a $140 million credit facility with the Company's primary lending institution, as agent (the "Agreement"), which includes a $70 million five-year revolving credit facility, a FF281 million ($50 million) five-year acquisition term note used directly to fund the purchase of F&P, and a FF112 million ($20 million) six-year term note used to refinance existing F&P debt. The following unaudited pro forma combining condensed statements of operations for the nine months ended March 31, 1999 and 1998 are based upon the historical consolidated statements of operations of the Company and the consolidated statements of operations of CFL for those periods presented, after giving effect to the acquisition as if such transaction had occurred on July 1, 1997. These pro forma results are based upon assumptions considered appropriate by management and include adjustments as considered necessary in the circumstances. Such adjustments include interest expense that would have been incurred to finance the purchase, less depreciation expense based on the fair market value of the property and equipment acquired, the amortization of goodwill arising from the transaction ($16.8 million), and the corresponding tax effects of the pro forma adjustments. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of results which would have actually been reported had the acquisitions taken place on July 1, 1997 or which may be reported in the future.
FOR THE NINE MONTHS ENDED MARCH 31, In thousands, except per share data (UNAUDITED) -------------------------------------------------- 1999 1998 ---- ---- Sales $149,296 $123,793 Net income 4,519 8,207 Diluted net income per share $ .69 $ 1.26
3. INVENTORIES Inventories consist of the following:
MARCH 31, 1999 In thousands (UNAUDITED) JUNE 30, 1998 ----------- ------------- Raw materials $ 2,909 $1,510 Production supplies 2,950 1,249 Work in-process 6,971 2,501 Finished goods 2,620 1,129 -------- ------ TOTAL INVENTORIES $ 15,450 $6,389 ======== ======
7 8 AUTOCAM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED MARCH 31, 1999 4. PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment consists of the following:
MARCH 31, 1999 In thousands (UNAUDITED) JUNE 30, 1998 ----------- ------------- Land and improvements $ 1,865 $ 1,769 Buildings and improvements 9,807 6,815 Leasehold improvements 485 418 Machinery and equipment 146,501 73,222 Furniture and fixtures 5,165 3,931 Construction in progress 86 2,451 ---------- --------- TOTAL 163,909 88,606 Accumulated depreciation and amortization (31,449) (24,185) ---------- --------- PROPERTY, PLANT AND EQUIPMENT, NET $ 132,460 $ 64,421 ========== =========
5. LONG-TERM OBLIGATIONS Long-term obligations consist of the following (interest rates are as of March 31, 1999):
MARCH 31, 1999 In thousands (UNAUDITED) JUNE 30, 1998 ----------- ------------- Revolving credit loan with banks, 5.16 - 7.09% $ 46,889 $ 7,001 Acquisition term note with banks, 6.91% 46,198 Term note with banks, 3.51% 18,389 22,051 Industrial Revenue Bonds, 3.2% 8,615 9,000 Note payable to Propart Corporation, 12% 707 4,320 Lines of credit and other 135 2,033 ---------- --------- TOTAL 120,933 44,405 Current maturities (2,437) (6,554) ---------- --------- LONG-TERM $ 118,496 $ 37,851 ========== =========
In April 1999, the Company initiated a process to redeem the Industrial Revenue bonds effective June 1, 1999. This debt will be refinanced using borrowings under the revolving credit loan with banks. 8 9 AUTOCAM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED MARCH 31, 1999 6. INCOME TAXES Income taxes as a percentage of income before tax provision and minority interest were 29.7% and 35.6% for the three months ended March 31, 1999 and 1998, respectively, and 37.1% and 35.7% for the nine months ended March 31, 1999 and 1998, respectively. The effective tax rate for the three months ended March 31, 1999 was less than the U.S. Federal statutory rate due primarily to the tax benefit recorded in connection with the reduction in France's Federal statutory rate from 41.67% to 40% on January 1, 1999. This rate reduction allowed the Company to reduce its liability for deferred taxes by $380,000. The effective tax rate for the nine months ended March 31, 1999 exceeded the U.S. Federal statutory rate due primarily to the following: - - The recognition of French income taxes, which carry a statutory rate higher than that of the United States, net of the benefit discussed in the previous paragraph. - - The recognition of state income taxes. - - The recognition of $265,000 in Federal income tax expense caused by the dissolution of the Company's interest-charge Domestic International Sales Corporation during the first quarter of fiscal 1999. 7. STOCK-BASED COMPENSATION The Company has reserved 1,126,875 common shares, in aggregate, for issuance to employees under the 1991 Incentive Stock Option Plan and the 1998 Key Employee Stock Option Plan (together, the "Plans"). Options are not exercisable prior to twelve months from or ten years after the grant date. Options granted vest at a rate of twenty percent annually over a five-year period. Had the Company accounted for the Plans based on the fair value of awards at the grant dates as prescribed by Statement of Financial Accounting Standard No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," the Company's net income and net income per share would have been decreased as indicated below.
THREE MONTHS ENDED NINE MONTHS ENDED In thousands, except per share data MARCH 31, MARCH 31, ----------------------------------- ----------------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Net income: As reported $2,042 $2,482 $4,319 $5,722 Pro forma 1,946 2,381 4,029 5,417 Basic net income per share: As reported $ .32 $ .39 $ .68 $ .90 Pro forma .31 .37 .63 .86 Diluted net income per share: As reported $ .32 $ .38 $ .66 $ .88 Pro forma .30 .36 .62 .83
9 10 AUTOCAM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED MARCH 31, 1999 7. STOCK-BASED COMPENSATION - CONCLUDED The effects of applying SFAS 123 on a pro forma basis may not be representative of the effects on reported pro forma net income for future periods as the estimated compensation costs reflect only options vesting after June 30, 1995. Under the methodology of SFAS 123, the fair value of the Company's fixed stock options was estimated at the date of grant using the Black-Scholes option-pricing model. The multiple option approach was used, with the following weighted-average assumptions for all periods presented: dividend yield, 1%; expected volatility, 45.33%; risk-free interest rate, 4%; and, expected life of options, 10 years. 8. SUPPLEMENTAL CASH FLOW INFORMATION The following is a reconciliation of net income to net cash provided by operating activities and other supplemental cash flow information:
FOR THE NINE MONTHS ENDED MARCH 31, In thousands (UNAUDITED) --------------------------------------- 1999 1998 ---- ---- Net income $ 4,319 $ 5,722 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 10,295 5,518 Deferred taxes 3,075 789 Minority interest in net income and other, net 293 100 Changes in assets and liabilities that provided (used) cash: Accounts receivable (4,487) (1,626) Inventories (801) (203) Prepaid expenses and other current assets 312 (261) Other long-term assets 1,014 (63) Accounts payable (1,192) 952 Accrued liabilities (1,271) 2,232 Deferred credits and other 1,414 (49) --------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 12,971 $13,111 ========= ======= DETAILS OF F&P ACQUISITION: Fair value of assets acquired $125,785 Cash paid (52,102) Professional fees paid (1,770) -------- LIABILITIES ASSUMED $ 71,913 ========
10 11 AUTOCAM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED MARCH 31, 1999 8. SUPPLEMENTAL CASH FLOW INFORMATION - CONCLUDED SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTION - According to terms of the agreement to acquire a controlling interest in Autocam do Brasil, the final purchase price could be reduced as a result of a deficiency in earnings before interest and taxes from an agreed-upon level during the eighteen months ending June 30, 1999. During the quarter ended December 31, 1998, it was concluded that the maximum purchase price adjustment will be realized, and therefore, Goodwill and Long-Term Debt were reduced by $2.5 million during that quarter. 11 12 AUTOCAM CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MARCH 31, 1999 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. BUSINESS COMBINATION Effective October 1, 1998, the Company, through its wholly-owned subsidiary, Autocam France SARL ("AF"), a French limited liability company, acquired the rights to all the outstanding common shares of Compagnie Financiere du Leman SA ("CFL"), a French holding corporation, which owns all of the equity interest of Frank & Pignard SA, a French corporation ("F&P") for 300 million French Francs ("FF"). The Company has agreed to pay a maximum additional amount of FF60 million based upon the ability of F&P to meet certain predetermined operating performance goals in 1999. F&P, located in Cluses, France, is a leading manufacturer of precision-machined metal components consisting primarily of power steering, diesel fuel injection and braking system components to leading global automotive manufacturers and their tier-one suppliers. Through the stock purchase, which was accounted for under the purchase method of accounting, AF acquired all the operating assets of F&P, which includes its machinery and equipment and leases of the manufacturing facilities, and assumed all its liabilities, including $20 million in bank debt. The purchase price was financed through a $140 million credit facility with the Company's primary lending institution, as agent (the "Agreement"), which includes a $70 million five-year revolving credit facility, a FF281 million ($50 million) five-year acquisition term note used directly to fund the purchase of F&P, and a FF112 million ($20 million) six-year term note used to refinance existing F&P debt. 12 13 AUTOCAM CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED MARCH 31, 1999 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 NINE MONTHS ENDED MARCH 31, MARCH 31, --------------------------------------- --------------------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Sales 100.0% 100.0% 100.0% 100.0% Cost of sales 84.3% 73.8% 84.5% 76.2% ----- ----- ----- ----- Gross profit 15.7% 26.2% 15.5% 23.8% Selling, general and administrative 5.3% 6.9% 5.5% 6.5% ----- ----- ----- ----- Income from operations 10.4% 19.3% 10.0% 17.3% Interest and other expense, net 3.9% 3.2% 3.9% 3.2% Minority interest in net income .6% .4% .5% .1% ----- ----- ----- ----- Income before tax provision 5.9% 15.7% 5.6% 14.0% Tax provision 1.9% 5.7% 2.3% 5.1% ----- ----- ----- ----- NET INCOME 4.0% 10.0% 3.3% 8.9% ===== ===== ===== =====
SALES The following table indicates the Company's sales (in thousands) and percentage of total sales by product application for the three- and nine-month periods ended March 31, 1999 and 1998:
FOR THE THREE MONTHS ENDED MARCH 31, FOR THE NINE MONTHS ENDED MARCH 31, --------------------------------------------- ---------------------------------------------- 1999 1998 1999 1998 --------------------- -------------------- ---------------------- -------------------- Transportation: Fuel systems $21,202 41.4% $13,427 54.2% $ 61,285 47.3% $36,208 56.6% Power steering systems 13,397 26.2 30,296 23.4 Braking systems 6,710 13.1 4,829 19.4 16,466 12.7 12,908 20.1 Other 7,249 14.2 708 2.9 12,130 9.3 1,601 2.5 ------- ----- ------- ----- -------- ---- ------- ----- Total transportation 48,558 94.9 18,964 76.5 120,177 92.7 50,717 79.2 Medical devices 1,351 2.6 2,462 9.9 6,747 5.2 6,785 10.6 Computer electronics 50 .1 2,728 11.0 268 .2 5,348 8.4 Other 1,222 2.4 636 2.6 2,413 1.9 1,164 1.8
13 14 AUTOCAM CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED MARCH 31, 1999 SALES - CONCLUDED Sales of components for fuel system applications were $21,202,000 and $61,285,000 for the three and nine months ended March 31, 1999, respectively, representing increases of 58% and 69%, respectively, from sales of the same respective periods in the prior year. The Company gained market share through the acquisitions of F&P and a controlling interest in Qualipart Industria E Comercio Ltda., subsequently renamed Autocam do Brasil Usinagem Ltda. ("Autocam do Brasil") in January 1998. These subsidiaries generated sales of diesel fuel injection components totaling $3,874,000 and $15,223,000 during the three and nine months ended March 31, 1999. Additionally, the Company increased sales to existing fuel systems customers, due primarily to component sales on new fuel injector programs, which added $3,762,000 and $8,897,000 in sales for the three and nine months ended March 31, 1999, respectively, versus the same respective periods in fiscal 1998. These increases more than offset the negative sales impact during the fiscal 1999 nine-month period presented associated with the loss of sales of mature product caused by the July 1998 strike at General Motors Corporation. The Company's acquisition of F&P added power steering system components to the Company's product offerings. All sales are to European-based customers. The acquisitions of F&P and Autocam do Brasil resulted in additional sales of braking and other transportation system components. In addition, the Company experienced growth in its U.S.-based braking system business due primarily to component sales on new braking system programs. Sales on these programs increased 33% when comparing both the three- and nine-month periods of fiscal 1999 to the same respective periods in fiscal 1998. Sales of medical device components were $1,351,000 and $6,747,000 for the three and nine months ended March 31, 1999, respectively, representing decreases of 45% and 1%, respectively, as compared to the same respective periods in the prior year. The decline in sales when comparing the three-month periods presented can be primarily attributed to the cancellation of a contract with a significant cardiovascular stent customer in November 1998. Sales comparisons for the nine-month periods presented were less impacted by the loss of this business because the Company received a $1,189,000 cancellation charge in December 1998 negotiated with the intent to offset the cost of underutilized labor and equipment left idle by the cessation of business with this customer. Sales of components for computer electronic applications declined $2,678,000 and $5,080,000 when comparing the three- and nine-month periods ended March 31, 1999 to the same periods in fiscal 1998. During the three and nine months ended March 31, 1998, 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 fiscal 1999 periods presented as short product life cycles eliminated these components. The Company expects significant sales growth during the fourth quarter of fiscal 1999 (in comparison to the fourth quarter of fiscal 1998) due to incremental sales of $24 million from F&P and the continued expansion of fuel and braking system component sales as new programs move toward full production. These sales gains are expected to be partially offset by a decline in sales of cardiovascular stents of $1,200,000 during the fourth quarter of fiscal 1999 (versus the same period in fiscal 1998) caused by the stent contract cancellation referred to in the second preceding paragraph. 14 15 AUTOCAM CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED MARCH 31, 1999 GROSS PROFIT Gross profit (as a percentage of sales) fell by 10.5 and 8.3 percentage points for the three and nine months ended March 31, 1999, respectively, versus the same respective periods in fiscal 1998. The three- and nine-month declines can be attributed to the following factors: - - The loss of significant cardiovascular stent and computer electronics contracts (see Sales) had a detrimental impact on gross profit in both fiscal 1999 periods presented relative to those presented for fiscal 1998 as such contracts carried gross margins higher than those typically experienced in the transportation industry. - - There has been a fundamental shift in the mix of sales by the Company's U.S. operations. In certain instances, customers have phased out mature products as they change from old to new generation fuel and braking systems. The Company historically experiences lower margins on new program start-ups until its continuous improvement efforts can improve manufacturing efficiencies and reduce waste. The Company was involved in five major program start-ups during the nine months ended March 31, 1999. - - The Company expected to begin production on a new braking system program for its largest customer in the summer of 1998. The program was delayed until the third quarter of fiscal 1999; however, the Company had the necessary labor and equipment resources in place as of July 1998. Such resources were underutilized during the six-month period ended December 31, 1998. - - F&P generated a lower gross profit percentage than that historically generated by the Company during the nine months ended March 31, 1999 which reduced gross profit (as a percentage of sales) by nearly 1 percentage point when compared to the nine months ended March 31,1998. - - The Company 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 depressing the Company's overall gross profit (as a percentage of sales) by one-half of one percentage point for the fiscal 1999 nine-month period presented when comparing to the same period in fiscal 1998. Gross profit for the nine months ended March 31, 1999 was also negatively impacted by 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. 15 16 AUTOCAM CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED MARCH 31, 1999 GROSS PROFIT - CONCLUDED Management expects that gross profit (as a percentage of sales) for the fourth quarter of fiscal 1999 should improve by one percentage point over that reported in the quarter ended March 31, 1999. Over the next three months, management expects the growth in demand for new fuel systems program components should allow for improved labor and equipment utilization typically gained through continuous improvement activities, thereby improving gross profit. Management also anticipates early benefits through cost savings derived from the implementation of its production and inventory control systems at its foreign operations, and in the U.S. operations through various manufacturing cost improvements. In fiscal 2000, management expects further improvement in gross profit through the continued implementation of its production and inventory control systems at its foreign operations, which it expects will significantly improve labor and equipment productivity. Gross profit improvement is also expected as a result of the planned consolidation of its Gaffney, South Carolina and Dowagiac, Michigan facilities. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses (as a percentage of sales) were 5.3% and 5.5% for the three and nine months ended March 31, 1999 versus 6.9% and 6.5% of sales for the respective periods in fiscal 1998. These expenses decreased as a percentage of sales due to the inclusion of F&P's operating results in the Company's statements of operations. F&P's selling, general and administrative expenses have historically approximated 4% of sales. Management expects that selling, general and administrative expenses, as a percentage of sales, will approximate fiscal 1999 third quarter levels during the fourth quarter of fiscal 1999. INTEREST AND OTHER EXPENSE, NET Net interest and other expense for the three and nine months ended March 31, 1999 increased $1,194,000 and $3,034,000, respectively, from the same respective periods in the previous year. These increases are due primarily to an increase in average borrowings outstanding during the fiscal 1999 periods presented caused by the acquisitions of Autocam do Brasil and F&P, which increased debt outstanding by $80.5 million. Amounts reported for the three and nine months ended March 31, 1999 included net foreign currency transaction gains of $708,000 and $739,000, respectively. Management anticipates that interest and other expense over the next three months will approximate $2.4 million. 16 17 AUTOCAM CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED MARCH 31, 1999 TAX PROVISION Income taxes as a percentage of income before tax provision and minority interest were 29.7% and 35.6% for the three months ended March 31, 1999 and 1998, respectively, and 37.1% and 35.7% for the nine months ended March 31, 1999 and 1998, respectively. The effective tax rate for the three months ended March 31, 1999 was less than the U.S. Federal statutory rate due primarily to the tax benefit recorded in connection with the reduction in France's Federal statutory rate from 41.67% to 40% on January 1, 1999. This rate reduction allowed the Company to reduce its liability for deferred taxes by $380,000. The effective tax rate for the nine months ended March 31, 1999 exceeded the U.S. Federal statutory rate due primarily to the following: - - The recognition of French income taxes, which carry a statutory rate higher than that of the United States, net of the benefit discussed in the previous paragraph. - - The recognition of state income taxes. - - The recognition of $265,000 in Federal income tax expense caused by the dissolution of the Company's interest-charge Domestic International Sales Corporation during the first quarter of fiscal 1999. Management expects the Company's effective tax rate to approximate 40% during the fourth quarter of fiscal 1999. LIQUIDITY AND CAPITAL RESOURCES Management believes that the Company has adequate credit facilities and cash available to meet its working capital and capital expenditure needs for the foreseeable future. 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 during the second quarter of fiscal 1999 using the $70 million revolving credit facility. The Company has $14.5 million in borrowing availability under the revolving credit facility as of March 31, 1999. Principal obligations under the revolving credit facility are due at the expiration of the facility. Principal obligations under the $50 million and $20 million term notes are as follows:
In thousands $50 MILLION NOTE $20 MILLION NOTE ---------------- ---------------- Fiscal 2000 $ 4,620 Fiscal 2001 11,550 Fiscal 2002 13,860 Fiscal 2003 13,860 Fiscal 2004 2,308 $11,493 Thereafter 6,896 -------- ------- TOTAL $ 46,198 $18,389 ======== =======
17 18 AUTOCAM CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED MARCH 31, 1999 LIQUIDITY AND CAPITAL RESOURCES - CONCLUDED Interest is due monthly on all facilities under the Agreement at variable interest rates. The Agreement includes certain covenants requiring the Company to maintain minimum levels of tangible net worth and prohibits the Company from exceeding certain leverage ratios. New equipment placed into service and deposits paid on future equipment purchases during the nine months ended March 31, 1999 totaling $20.9 million were financed primarily through operating cash flows and borrowings under the Company's revolving credit facility. The Company also acquired certain assets previously subject to an operating lease agreement at a cost of $662,000. In order to meet demand primarily from transportation customers, management will purchase $9 million of equipment over the next quarter (on which deposits of $2.5 million had been placed as of March 31, 1999). 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 these planned capital expenditures will be required by the Company's Brazilian operations. Approximately $588,000 of this investment is expected to be financed through capital contributions by Autocam do Brasil's minority shareholder. 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 insure 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 recent operating versions 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 March 31, 1999, the Company had spent $16,000 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. Evaluation of the most serious Year 2000 compliance issues for information systems resident in United States facilities was completed in January 1999 and is expected to be completed for foreign facilities by July 1999. Management expects to complete its assessment, employing an outside consultant to assist therein, during the fourth quarter 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. 18 19 AUTOCAM CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED MARCH 31, 1999 IMPACT OF YEAR 2000 ISSUE - CONCLUDED 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. In any event, the Company believes that it has adequate back-up manual and contingency systems in place that will allow it to ship its primary products and invoice its customers in the unlikely event that its assessment, testing and remediation efforts do not detect a materially adverse Year 2000 compliance problem in its software or equipment or with its suppliers or customers. 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. FOREIGN CURRENCY TRANSACTIONS In January 1999, the Brazilian government permitted its currency to trade freely against the U.S. Dollar, resulting in a significant devaluation of the Real versus the U.S. Dollar. Between November 30, 1998 and February 28, 1999 (the beginning and end of Autocam do Brasil's third fiscal quarter), the total devaluation was 69%. Since the Brazilian economy is not considered to be hyperinflationary (as defined by U.S. generally accepted accounting principles), the Company expects no materially negative impact on its future earnings; however, the devaluation will impair the book value of net assets employed by Autocam do Brasil, and it will negatively impact comprehensive income. If the Brazilian economy were to lapse into a hyperinflationary cycle, a material weakening of the Real versus the U.S. Dollar could have an impact on the earnings of the Company. 19 20 AUTOCAM CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED MARCH 31, 1999 FOREIGN CURRENCY TRANSACTIONS - CONCLUDED On January 1, 1999, eleven of fifteen member countries of the European Union established fixed conversion rates between their existing currencies ("legacy currencies") and adopted the Euro as their new common currency. The Euro will trade on currency exchanges and the legacy currencies will remain legal tender in the participating countries for a transition period between January 1, 1999 and January 1, 2002. Beginning on January 1, 2002, Euro denominated bills and coins will be issued and legacy currencies will be withdrawn from circulation. The Company has established plans to assess and address the potential impact to its French operations that may result from the Euro conversion. These issues include, but are not limited to, (1) the technical challenges to adapt information systems to accommodate Euro transactions, (2) the impact on currency exchange rate risks, (3) the impact on existing contracts, and (4) tax and accounting implications. The Company expects that the Euro conversion will not have a material adverse impact on its financial condition or results of operations. 20 21 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: May 14, 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 21 22 Exhibit Index Exhibit No. Description - ----------- ----------- 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 0000879235 AUTOCAM CORPORATION 1,000 9-MOS JUN-30-1999 JUL-01-1998 MAR-31-1999 1,541 0 42,408 0 15,450 60,985 163,909 31,449 232,698 36,283 118,496 0 0 34,542 8,982 232,698 129,605 129,605 109,454 109,454 0 0 5,090 7,239 2,920 4,319 0 0 0 4,319 .68 .66
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