-----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, IlutPiLQWRfE7nVXaB6KKKRl76JPZSVPiWS9NdcLghx87/NH5Z6WWWxRAzwuomnX vv38dE1xWh0ICjCIt1lSfw== 0000950124-99-005942.txt : 19991115 0000950124-99-005942.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950124-99-005942 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: 99748446 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 September 30, 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 November 3, 1999 was 6,312,508. 1 of 18 2 INDEX
PART I - FINANCIAL INFORMATION PAGE NO. -------- Item 1. Financial Statements Consolidated Balance Sheets as of September 30 and June 30, 1999 3 Consolidated Statements of Operations and Comprehensive Income for the Three Months Ended September 30, 1999 and 1998 4 Consolidated Statements of Cash Flows for the Three Months Ended September 30, 1999 and 1998 5 Notes to Consolidated Financial Statements 6 - 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 - 17 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: Exhibit 27 - Financial Data Schedule E-1
2 3 AUTOCAM CORPORATION CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 In thousands, except share data (unaudited) June 30, 1999 ----------- ------------- ASSETS Current assets: Cash and equivalents $ 4,007 $ 3,654 Accounts receivable 39,038 40,781 Inventories 14,570 15,237 Prepaid expenses and other current assets 2,437 2,103 --------- --------- TOTAL CURRENT ASSETS 60,052 61,775 PROPERTY, PLANT AND EQUIPMENT, NET 131,000 129,744 ASSETS HELD FOR SALE 534 534 GOODWILL AND OTHER INTANGIBLE ASSETS, NET 28,294 28,376 EQUIPMENT DEPOSITS AND OTHER LONG-TERM ASSETS 8,406 9,062 --------- --------- TOTAL ASSETS $ 228,286 $ 229,491 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term obligations $ 6,959 $ 4,478 Accounts payable 19,999 22,130 Accrued liabilities: Compensation and related withholdings 9,161 9,683 Other 4,483 3,380 --------- --------- TOTAL CURRENT LIABILITIES 40,602 39,671 LONG-TERM OBLIGATIONS, NET OF CURRENT MATURITIES 105,851 109,560 DEFERRED TAXES 26,369 25,628 DEFERRED CREDITS AND OTHER 5,504 5,417 MINORITY INTEREST 2,701 2,813 SHAREHOLDERS' EQUITY: Preferred stock - 200,000 shares authorized; no shares issued or outstanding Common stock - 10,000,000 shares authorized; 6,311,641 and 6,306,993 shares issued and outstanding as of September 30 and June 30, 1999, respectively 34,607 34,572 Deferred compensation (297) (336) Accumulated other comprehensive losses (3,916) (3,306) Retained earnings 16,865 15,472 --------- --------- TOTAL SHAREHOLDERS' EQUITY 47,259 46,402 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 228,286 $ 229,491 ========= =========
See notes to consolidated financial statements. 3 4 AUTOCAM CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (unaudited)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, -------------------------- In thousands, except per share data 1999 1998 ---- ---- Sales $ 46,622 $ 24,020 Cost of sales 39,505 20,579 -------- -------- Gross profit 7,117 3,441 Selling, general and administrative 2,777 1,794 -------- -------- Income from operations 4,340 1,647 Interest expense, net 1,939 758 Minority interest in net income (loss) and other (345) 185 -------- -------- Income before tax provision 2,746 704 Tax provision 1,227 526 -------- -------- NET INCOME $ 1,519 $ 178 ======== ======== BASIC NET INCOME PER SHARE $ .24 $ .03 ======== ======== DILUTED NET INCOME PER SHARE $ .23 $ .03 ======== ======== Basic weighted average shares outstanding 6,310 6,410 Diluted weighted average shares outstanding 6,512 6,611 Dividends declared per share $ .02 $ .02 STATEMENTS OF COMPREHENSIVE INCOME: Net income $ 1,519 $ 178 Other comprehensive losses - Foreign currency translation adjustments (610) (260) -------- -------- COMPREHENSIVE INCOME (LOSS) $ 909 $ (82) ======== ========
See notes to consolidated financial statements. 4 5 AUTOCAM CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, -------------------------- In thousands 1999 1998 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers $ 48,959 $ 22,808 Cash paid to suppliers and employees (40,741) (20,164) Income taxes received (paid) (462) 165 Interest paid (1,995) (883) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 5,761 1,926 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (2,546) (5,633) Proceeds from sale of property, plant and equipment 140 16 Acquisitions, net of cash received (344) Decrease in restricted cash and equivalents 767 Payment of life insurance premiums and other (191) (193) -------- -------- NET CASH USED IN INVESTING ACTIVITIES (2,597) (5,387) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on (repayments of) line of credit borrowings, net (2,628) 4,968 Proceeds from issuance of long-term obligations 25 Principal payments of long-term obligations (28) (1,751) Cash dividends paid (126) (122) Proceeds from exercise of employee stock options and other 35 35 -------- -------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (2,747) 3,155 -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS (64) (3) -------- -------- Net increase (decrease) in cash and equivalents 353 (309) Cash and equivalents at beginning of period 3,654 1,643 -------- -------- Cash and equivalents at end of period $ 4,007 $ 1,334 ======== ========
See notes to consolidated financial statements. 5 6 AUTOCAM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 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, 1999. Weighted average shares outstanding and earnings per share for the three months ended September 30, 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 Statements of Operations and of Cash Flows for the three months ended September 30, 1998 in order to conform to fiscal 2000 presentation. 2. INVENTORIES Inventories consist of the following:
SEPTEMBER 30, 1999 In thousands (UNAUDITED) JUNE 30, 1999 ----------- ------------- Raw materials $ 3,017 $ 3,179 Production supplies 3,166 3,010 Work in-process 6,767 7,091 Finished goods 1,620 1,957 ------- ------- TOTAL INVENTORIES $14,570 $15,237 ======= =======
6 7 AUTOCAM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED SEPTEMBER 30, 1999 3. PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment consists of the following:
SEPTEMBER 30, 1999 In thousands (UNAUDITED) JUNE 30, 1999 ----------- ------------- Land and improvements $ 1,796 $ 1,796 Buildings and improvements 9,211 8,953 Leasehold improvements 495 501 Machinery and equipment 151,708 146,867 Furniture and fixtures 6,026 5,466 Construction in progress 1,040 --------- --------- TOTAL 169,236 164,623 Accumulated depreciation and amortization (38,236) (34,879) --------- --------- PROPERTY, PLANT AND EQUIPMENT, NET $ 131,000 $ 129,744 ========= =========
4. LONG-TERM OBLIGATIONS Long-term obligations consist of the following (percentages represent interest rates as of September 30, 1999):
SEPTEMBER 30, 1999 In thousands (UNAUDITED) JUNE 30, 1999 ----------- ------------- Revolving credit loans with banks, 4.8% - 8.25% $ 48,833 $ 51,296 Acquisition term note with banks, 6.55% 45,709 44,362 Term note with banks, 3.15% 18,194 17,658 Note payable to Propart Corporation, 12% 16 631 Lines of credit and other 58 91 --------- --------- TOTAL 112,810 114,038 Less current maturities (6,959) (4,478) --------- --------- LONG-TERM $ 105,851 $ 109,560 ========= =========
7 8 AUTOCAM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED SEPTEMBER 30, 1999 5. INCOME TAXES Income taxes as a percentage of income before tax provision and minority interest were 41.8% and 61.4% for the three months ended September 30, 1999 and 1998, respectively. The effective tax rate for the quarter ended September 30, 1999 exceeded the United States statutory rate of 34% due primarily to the fact that the income tax rates in France and Brazil exceed the United States statutory rate. The effective rate also includes provisions for state and local income taxes. The effective tax rate for the quarter ended September 30, 1998 exceeded the United States 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. 6. 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 SEPTEMBER 30, ----------------------------------------------- In thousands, except per share data 1999 1998 ---- ---- Net income: As reported $1,519 $178 Pro forma 1,405 123 Basic net income per share: As reported $.24 $.03 Pro forma .22 .02 Diluted net income per share: As reported $.23 $.03 Pro forma .22 .02
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, .59%; expected volatility, 45.31%; risk-free interest rate, 4%; and, expected life of options, 10 years. 8 9 AUTOCAM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED SEPTEMBER 30, 1999 7. BUSINESS SEGMENT INFORMATION The Company has three operating segments: North America, Europe and South America. The North American segment provides precision-machined components to the transportation and medical devices industries, while the European and South American segments provide precision-machined components to the transportation industry. The Company has assigned specific business units to a segment based principally on their geographical location. Each of the Company's segments is individually managed and has separate financial results reviewed by the Company's chief executive and operating decision-makers. These results are used by the chief operating decision-makers both in evaluating the performance of, and in allocating current and future resources to, each of the segments. The Company evaluates segment performance primarily based on income from operations and the efficient use of total assets. The accounting policies of the segments are the same as those of the company as a whole. Totals presented below are inclusive of all adjustments needed to reconcile to the data provided in the Consolidated Financial Statements and related notes.
THREE MONTHS ENDED SEPTEMBER 30, ------------------------------ In thousands 1999 1998 ---- ---- Sales to Unaffiliated Customers from Company Facilities Located in: North America $ 24,145 $ 20,065 Europe 19,734 South America 2,743 3,955 --------- --------- Total $ 46,622 $ 24,020 ========= ========= Income from Operations of Company Facilities Located in: North America $ 1,719 $ 1,139 Europe 3,130 South America 415 508 Corporate (924) --------- Total $ 4,340 $ 1,647 ========= ========= SEPTEMBER 30, JUNE 30, 1999 1999 ---- ---- Total Assets of Company Facilities Located in: North America $ 92,910 $ 94,162 Europe 117,695 117,447 South America 10,362 10,795 Corporate 7,319 7,087 --------- --------- Total $ 228,286 $ 229,491 ========= =========
The Corporate segment was disaggregated from the books and records of the Company's North American operations during the fourth quarter of fiscal 1999. It was impracticable to restate the prior period information concerning income from operations. 9 10 AUTOCAM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED SEPTEMBER 30, 1999 8. SUPPLEMENTAL CASH FLOW INFORMATION The following is a reconciliation of net income to net cash provided by operating activities:
FOR THE THREE MONTHS ENDED SEPTEMBER 30, IN THOUSANDS (UNAUDITED) ---------------------------------- 1999 1998 ---- ---- Net income $ 1,519 $ 178 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,753 2,078 Deferred taxes 387 748 Minority interest in net income (loss) and other (354) 142 Changes in assets and liabilities that provided (used) cash: Accounts receivable 2,313 (1,252) Inventories 849 (505) Prepaid expenses and other current assets (340) (449) Other long-term assets 74 (65) Accounts payable (2,520) 687 Accrued liabilities 183 301 Deferred credits and other (103) 63 ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 5,761 $ 1,926 ======= =======
10 11 AUTOCAM CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SEPTEMBER 30, 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. 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, ----------------------------------------- 1999 1998 ---- ---- Sales 100.0% 100.0% Cost of sales 84.7% 85.7% ----- ----- Gross profit 15.3% 14.3% Selling, general and administrative 6.0% 7.5% ----- ----- Income from operations 9.3% 6.8% Interest expense, net 4.2% 3.2% Minority interest in net income (loss) and other (.8)% .7% ----- ----- Income before tax provision 5.9% 2.9% Tax provision 2.6% 2.2% ----- ----- NET INCOME 3.3% .7% ===== =====
11 12 AUTOCAM CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED SEPTEMBER 30, 1999 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, 1999 and 1998:
FOR THE THREE MONTHS ENDED SEPTEMBER 30, ------------------------------------------------------------------- 1999 1998 ---- ---- Transportation: Fuel systems $21,921 47.0% $15,817 65.8% Power steering systems 11,223 24.1 Braking systems 7,477 16.0 4,037 16.8 Other 3,858 8.3 1,146 4.8 ------- ---- ------- ---- Total transportation 44,479 95.4 21,000 87.4 Medical devices 1,550 3.3 2,468 10.3 Other 593 1.3 552 2.3
Sales increased $22,602,000, or 94%, from the first quarter of fiscal 1999 to the same period in fiscal 2000. The Company gained market share through the acquisition of Frank & Pignard ("F&P") in October 1998. F&P generated incremental sales of precision-machined components, mainly to the transportation industry, of $19,734,000 during the fiscal 2000 period presented. The Company's growth in sales of fuel injection components of $6,104,000 when comparing the first quarter of fiscal 1999 to the same period in fiscal 2000 can be primarily attributable to demand from F&P customers, accounting for 57% of the increase. The remainder of the sales growth can be attributed to increases in demand from North American-based customers on several new programs awarded the Company during fiscal 1998 and 1999, partially offset by lower sales of fuel system components by the Company's Brazilian operations. Although local-currency (Brazilian Reais) sales were effectively the same in Brazil when comparing the fiscal 1999 and 2000 periods presented, reporting currency (U.S. Dollar) sales were 56% lower due to a significant devaluation in the Reais versus the Dollar in January 1999. Incremental growth in sales of braking system components of $3,440,000 during the three months ended September 30, 1999 versus the same period in fiscal 1999 can be primarily attributable to demand from F&P customers, accounting for $2,002,000 of the increase. The balance of the increase can be primarily attributed to an increase in sales to a North American-based customer as demand for its new braking system program grows. With the acquisition of F&P, the Company assumed several contracts for the production of power steering components and other transportation components for electromechanical motors and electronic transmissions. This new business accounts for essentially all of the increases in power steering system and other transportation component sales when comparing the fiscal 1999 and 2000 periods presented. 12 13 AUTOCAM CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED SEPTEMBER 30, 1999 SALES - CONCLUDED Sales of components for medical device applications were $1,550,000 during the three months ended September 30, 1999, a 37% decrease from the same period in fiscal 1999. The decline in sales can be primarily attributed to the cancellation of a contract with a significant cardiovascular stent customer in November 1998, which eliminated $737,000 in sales from the fiscal 2000 period presented, when comparing to the fiscal 1999 period presented. Management believes that sales growth for fiscal 2000 will range between 10-15% over fiscal 1999 levels as it reports a full year of sales from its French operations. Additional sales are also expected to be generated from continued expansion of fuel, power steering 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 $1.4 million over the remainder of fiscal 2000 caused by the stent contract cancellation referred to above. GROSS PROFIT Gross profit for the three months ended September 30, 1999 and 1998 represented 15.3% and 14.3% of sales, respectively. The gross margin improvement can be primarily attributed to the following: - - The financial performance of the Company's Kentwood and Marshall, Michigan facilities improved significantly when comparing the first quarter of fiscal 2000 to the first quarter of fiscal 1999. Continuous improvement efforts and volume increases, which allowed for better labor and equipment utilization, resulted in a 4 percentage point improvement in gross margin (as a percentage of sales) when comparing the two periods presented. In addition, the fiscal 1999 first quarter profitability of these operations was negatively impacted by the effects of the labor work stoppage at General Motors Corporation during July 1998. No work stoppages were experienced by significant customers during the first quarter of fiscal 2000. - - The addition of F&P's operations since the first quarter of fiscal 1999, which added nearly 3 percentage points to overall gross margin (as a percentage of sales) when comparing the two periods presented. These improvements were partially offset by the following negative factors: - - Continued manufacturing difficulties experienced by the Company's Dowagiac, Michigan facility during the ramp-up phase of a new braking system program, which reduced overall gross margin (as a percentage of sales) by 2 percentage points when comparing the three months ended September 30, 1998 to the same period in fiscal 2000. - - The loss of a significant cardiovascular stent contract (see Sales) reduced gross profit (as a percentage of sales) by 1 percentage point when comparing the fiscal 1999 period presented to the three months ended September 30, 1999. 13 14 AUTOCAM CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED SEPTEMBER 30, 1999 GROSS PROFIT - CONCLUDED Management expects continued year-over-year improvements in gross margin as a percentage of sales for the remainder of fiscal 2000. The Company is actively involved in several continuous improvement activities on newer programs in its North American operations that are expected to allow for improved labor and equipment utilization typically gained through these efforts. Management also anticipates additional benefits through cost savings derived from the implementation of production and inventory control systems at its foreign operations. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses, as a percentage of sales, were 6.0% and 7.5% during the three months ended September 30, 1999 and 1998, respectively. The Company normally incurs selling, general and administrative costs at a rate ranging from 5.5% to 6% of sales since the addition of the Company's French operations in October 1998. Prior thereto, selling general and administrative expenses tended to be higher, as a percentage of sales, than current levels due to the addition of the Company's Brazilian operations in January 1998 which tend to incur these types of expenses at a much higher rate than the Company's North American operations. Expenses reported for the first quarter of fiscal 2000 include $407,000 in legal and professional service fees associated with the contemplated sale of the Company. Management expects that selling, general and administrative expenses, as a percentage of sales, will approximate that which was reported during the first quarter of fiscal 2000 for the next nine months. INTEREST EXPENSE, NET Net interest expense for the three months ended September 30, 1999 increased $1,180,000 from the same period in the previous year, due primarily to an increase in average borrowings outstanding during the quarter ended September 30, 1999 caused by the F&P acquisition. Management anticipates that interest expense over the next nine months will approximate $1.9 million each quarter. MINORITY INTEREST IN NET INCOME (LOSS) AND OTHER The amount reported in this line primarily represents the minority shareholder's interest in the net earnings (loss) of Autocam do Brasil, and net earnings (losses) on products manufactured in North America on behalf of Autocam do Brasil customers. 14 15 AUTOCAM CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED SEPTEMBER 30, 1999 TAX PROVISION Income taxes as a percentage of income before tax provision and minority interest were 41.8% and 61.4% for the three months ended September 30, 1999 and 1998, respectively. The effective tax rate for the quarter ended September 30, 1999 exceeded the United States statutory rate of 34% due primarily to the fact that the income tax rates in France and Brazil exceed the United States statutory rate. The effective rate also includes provisions for state and local income taxes. The effective tax rate for the quarter ended September 30, 1998 exceeded the United States 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. Management expects the Company's effective tax rate to approximate 40% for the remainder of fiscal 2000. 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 Company's current banking agreement (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. 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 ---------------- ---------------- Prior to October 1, 2000 $ 6,856 Between September 30, 2000 and October 1, 2001 12,570 Between September 30, 2001 and October 1, 2002 13,713 Between September 30, 2002 and October 1, 2003 12,570 $ 1,137 Between September 30, 2003 and October 1, 2004 13,646 Thereafter 3,411 ------- ------- Total $45,709 $18,194 ======= =======
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. As of September 30, 1999, the Company had $21.2 million in availability under its revolving credit facility. Management anticipates retiring current maturities of long-term obligations with future operating cash flows. As of September 30, 1999, $112.7 million of the Company's long-term debt was subject to variable interest rates. 15 16 AUTOCAM CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED SEPTEMBER 30, 1999 LIQUIDITY AND CAPITAL RESOURCES - CONCLUDED New equipment placed into service and deposits paid on future equipment purchases during the quarter ended September 30, 1999 totaling $6.2 million were financed through operating cash flows and bank borrowings ($4 million) and operating lease agreements ($2.2 million). During the quarter ended September 30, 1999, the Company borrowed $370,000 to purchase equipment formerly leased under operating lease agreements, resulting in annual cash flow improvements of $124,000. In order to meet increased demand primarily from transportation customers, management will purchase $12-14 million of equipment over the next three fiscal quarters (upon which deposits of $2.2 million had been placed as of September 30, 1999). Management expects to finance these purchases with cash on hand, operating cash flows, operating leases, and/or bank borrowings. 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 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 materially adverse effect on the operations of the Company to be remote. As of September 30, 1999, the Company had spent $16,000 in connection with the assessment phase of the project, which is now complete. 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. The Company has completed the testing of all Year 2000 compliance issues for all information systems. Total costs to remediate its systems, if any, are not expected to exceed $150,000. 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 materially 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. 16 17 AUTOCAM CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONCLUDED SEPTEMBER 30, 1999 IMPACT OF YEAR 2000 ISSUE - CONCLUDED 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 The Company derived 48% and 15% of its sales during the first quarters of fiscal 2000 and 1999, respectively, from foreign manufacturing operations. The financial position and results of operations of the Company's subsidiary in France are measured in French Francs and translated into U.S. Dollars. The effects of foreign currency fluctuations in France is somewhat mitigated by the fact that sales and expenses are generally incurred in French Francs, and the reported net income thereon will be higher or lower, depending on a weakening or strengthening of the U.S. Dollar. The financial position and results of operations of the Company's subsidiary in Brazil are measured in Brazilian Reais and translated into U.S. Dollars. With respect to 37% and 64% of this subsidiary's sales for the first quarter of fiscal 2000 and 1999, respectively, expenses associated therewith are generally incurred in Brazilian Reais, but sales are generated in U.S. Dollars. As such, results of operations with regard to these sales are directly influenced by a weakening or strengthening of the Brazilian Real versus the U.S. Dollar. The effects of foreign currency fluctuations are somewhat mitigated on the remainder of this subsidiary's sales by the fact that such sales and expenses associated therewith are generally incurred in Brazilian Reais and the reported income thereon will be higher or lower depending on a weakening or strengthening of the U.S. Dollar. Seven and eleven percent of the Company's net assets as of September 30, 1999 are based in France and Brazil, respectively, and were translated into U.S. Dollars at the exchange rates in effect as of that date (1.918 Brazilian Reais per U.S. Dollar, and 6.156 French Francs per U.S. Dollar, respectively). Accordingly, the Company's consolidated shareholders' equity will fluctuate depending upon the weakening or strengthening of the U.S. Dollar. 17 18 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: November 12, 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 18 19 Exhibit Index ------------- Exhibit Index Description - ------------- ----------- 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 0000879235 AUTOCAM CORPORATION 1,000 3-MOS JUN-30-2000 JUL-01-1999 SEP-30-1999 4,007 0 39,038 0 14,570 60,052 169,236 38,236 228,286 40,602 105,851 0 0 34,607 12,652 228,286 46,622 46,622 39,505 39,505 0 0 1,939 2,746 1,227 1,519 0 0 0 1,519 .24 .23
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