Quarterly Report (10-q)

Date : 06/10/2019 @ 2:45PM
Source : Edgar (US Regulatory)
Stock : Shiloh Industries Inc (SHLO)
Quote : 4.1  0.0 (0.00%) @ 9:00AM

Quarterly Report (10-q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
______________________________________________________ 
FORM 10-Q
______________________________________________________  
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2019
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 0-21964
______________________________________________________ 
SHILOH INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)  
______________________________________________________ 
Delaware
51-0347683
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
880 Steel Drive, Valley City, Ohio 44280
(Address of principal executive offices—zip code)
(330) 558-2600
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report )
______________________________________________________ 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes    x      No    ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).      Yes    x      No    ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large  Accelerated Filer
 ¨
Accelerated Filer
x
Non-accelerated Filer
¨
Smaller Reporting Company
x
Emerging Growth Company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes    ¨      No    x
Securities registered pursuant to Section 12(b) of the Act:
Type
Trading symbol
Name of exchange on which registered
Common Stock
SHLO
The Nasdaq Stock Market
Number of shares of Common Stock outstanding as of June 7, 2019 was 23,761,465 .



INDEX
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 6. Exhibits


2


PART I— FINANCIAL INFORMATION

Item 1.
Condensed Consolidated Financial Statements

SHILOH INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
 
April 30,
2019

October 31,
2018
 

 
(Unaudited)
 
 
ASSETS
 
 
 
Cash and cash equivalents
$
17,660

 
$
16,843

Accounts receivable, net
192,125

 
209,733

Related party accounts receivable
2,306

 
996

Prepaid income taxes
1,898

 
1,391

Inventories, net
67,323

 
71,412

Prepaid expenses
10,083

 
10,478

Other current assets
8,838

 
22,124

Total current assets
300,233

 
332,977

Property, plant and equipment, net
329,359

 
316,176

Goodwill
27,421

 
27,376

Intangible assets, net
13,973

 
14,939

Deferred income taxes
5,734

 
5,665

Other assets
6,470

 
12,542

Total assets
$
683,190

 
$
709,675

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current debt
$
484

 
$
1,327

Accounts payable
180,793

 
177,400

Other accrued expenses
39,405

 
63,031

Accrued income taxes
90

 
1,874

Total current liabilities
220,772

 
243,632

Long-term debt
247,597

 
245,351

Long-term benefit liabilities
15,677

 
15,553

Deferred income taxes
801

 
2,894

Other liabilities
3,190

 
2,723

Total liabilities
488,037

 
510,153

Commitments and contingencies

 

Stockholders’ equity:
 
 
 
Preferred stock, $0.01 per share; 5,000,000 shares authorized; no shares issued and outstanding at April 30, 2019 and October 31, 2018, respectively

 

Common stock, par value $0.01 per share; 75,000,000 and 50,000,000 shares authorized at April 30, 2019 and October 31, 2018, respectively; 23,762,075 and 23,417,107 shares issued and outstanding at April 30, 2019 and October 31, 2018, respectively
238

 
234

Paid-in capital
115,391

 
114,405

Retained earnings
132,227

 
135,813

Accumulated other comprehensive loss, net
(52,703
)
 
(50,930
)
Total stockholders’ equity
195,153

 
199,522

Total liabilities and stockholders’ equity
$
683,190

 
$
709,675




The accompanying notes are an integral part of these condensed consolidated financial statements.

3


SHILOH INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)
 
 
Three Months Ended April 30,
 
Six Months Ended April 30,
 
2019
 
2018
 
2019
 
2018
Net revenues
$
273,370

 
$
297,340

 
$
532,303

 
$
545,006

Cost of sales
244,691

 
265,837

 
489,933

 
485,613

Gross profit
28,679

 
31,503

 
42,370

 
59,393

Selling, general & administrative expenses
16,879

 
22,146

 
32,964

 
43,386

Amortization of intangible assets
519

 
595

 
1,040

 
1,160

Restructuring
4,460


1,483

 
7,466

 
2,997

Operating income
6,821

 
7,279

 
900

 
11,850

Interest expense
3,848

 
2,645

 
7,203

 
4,985

Interest income
(1
)
 
(3
)
 
(6
)
 
(8
)
Other (income) expense, net
414

 
394

 
(1,072
)
 
830

Income (loss) before income taxes
2,560

 
4,243

 
(5,225
)
 
6,043

Provision (benefit) for income taxes
1,448

 
218

 
(1,639
)
 
(2,840
)
Net income (loss)
$
1,112

 
$
4,025

 
$
(3,586
)
 
$
8,883

Income (loss) per share:
 
 
 
 
 
 
 
Basic earnings (loss) per share
$
0.05

 
$
0.17

 
$
(0.15
)
 
$
0.38

Basic weighted average number of common shares
23,516

 
23,222

 
23,450

 
23,164

Diluted earnings (loss) per share
$
0.05

 
$
0.17

 
$
(0.15
)
 
$
0.38

Diluted weighted average number of common shares
23,559

 
23,357

 
23,450

 
23,311



The accompanying notes are an integral part of these condensed consolidated financial statements.

4


SHILOH INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollar amounts in thousands)
(Unaudited)

 
 
 
 
Three Months Ended April 30,
 
Six Months Ended April 30,
 
 
 
 
2019
 
2018
 
2019
 
2018
Net income (loss)
$
1,112

 
$
4,025

 
$
(3,586
)
 
$
8,883

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
Defined benefit pension plans & other post-retirement benefits
 
 
 
 
 
 
 
 
 
 
Amortization of net actuarial loss
288

 
328

 
576

 
656

 
 
 
Income tax provision
(66
)
 
(75
)
 
(132
)
 
(182
)
 
 
Total defined benefit pension plans & other post retirement benefits, net of tax
222

 
253

 
444

 
474

 
Marketable securities
 
 
 
 
 
 
 
 
 
 
Unrealized loss on marketable securities

 
15

 

 
(129
)
 
 
 
Income tax benefit (provision)

 
(3
)
 

 
34

 
 
 
Realized income

 

 
18

 

 
 
Total marketable securities, net of tax

 
12

 
18

 
(95
)
 
Derivatives and hedging
 
 
 
 
 
 
 
 
Unrealized (loss) gain on interest rate swap agreements
(158
)
 
294

 
(729
)
 
1,160

 
 
 
Income tax benefit (provision)
26

 
(116
)
 
137

 
(457
)
 
 
 
Reclassification adjustments for settlement of derivatives included in net income
44

 
215

 
130

 
495

 
 
Change in fair value of derivative instruments, net of tax
(88
)
 
393

 
(462
)
 
1,198

 
Foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
Foreign currency translation gain (loss)
(4,478
)
 
(7,902
)
 
(1,773
)
 
(119
)
 
 
Unrealized gain (loss) on foreign currency translation
(4,478
)
 
(7,902
)
 
(1,773
)
 
(119
)
Comprehensive income (loss), net
$
(3,232
)
 
$
(3,219
)
 
$
(5,359
)
 
$
10,341




The accompanying notes are an integral part of these condensed consolidated financial statements.

5


SHILOH INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)
 
 
Six Months Ended April 30,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income (loss)
$
(3,586
)
 
$
8,883

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
23,358

 
21,414

Restructuring
1,272

 
581

Amortization of deferred financing costs
596

 
621

Deferred income taxes
(2,739
)
 
(2,949
)
Stock-based compensation expense
990

 
1,042

(Gain) loss on sale of assets
(4,156
)
 
60

Loss on marketable securities
25

 

Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
25,456

 
2,294

Inventories, net
7,196

 
1,287

Prepaids and other assets
2,432

 
(4,445
)
Payables and other liabilities
(33,669
)
 
(7,286
)
Prepaid and accrued income taxes
(4,419
)
 
(1,442
)
Net cash provided by operating activities
12,756

 
20,060

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(33,248
)
 
(23,772
)
Acquisitions, net of cash required

 
(62,481
)
Derivative settlements
5,855

 

Proceeds from sale of assets
12,339

 
70

Net cash used in investing activities
(15,054
)
 
(86,183
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Payment of capital leases
(370
)
 
(448
)
Proceeds from long-term borrowings
140,700

 
174,900

Repayments of long-term borrowings
(138,200
)
 
(100,161
)
Payment of deferred financing costs

 
(103
)
Proceeds from exercise of stock options

 
33

Net cash provided by financing activities
2,130

 
74,221

Effect of foreign currency exchange rate fluctuations on cash
985

 
779

Net increase in cash and cash equivalents
817

 
8,877

Cash and cash equivalents at beginning of period
16,843

 
8,736

Cash and cash equivalents at end of period
$
17,660

 
$
17,613




The accompanying notes are an integral part of these condensed consolidated financial statements.

6


SHILOH INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollar amounts in thousands)
(Unaudited)
 
Common Stock (.01 Par Value)
 
Paid-in-Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Total Stockholders' Equity
January 31, 2018
$
233

 
$
112,865

 
$
122,834

 
$
(33,535
)
 
$
202,397

Net income

 

 
4,025

 

 
4,025

Other comprehensive income (loss), net of tax

 

 

 
(7,244
)
 
(7,244
)
Restricted stock and exercise of stock options
1

 
33

 

 

 
34

Stock-based compensation cost

 
526

 

 

 
526

April 30, 2018
$
234

 
$
113,424

 
$
126,859

 
$
(40,779
)
 
$
199,738

 
 
 
 
 
 
 
 
 
 
January 31, 2019
$
237

 
$
114,947

 
$
131,115

 
$
(48,359
)
 
$
197,940

Net income

 

 
1,112

 

 
1,112

Other comprehensive income (loss), net of tax

 

 

 
(4,344
)
 
(4,344
)
Restricted stock and exercise of stock options
1

 
(1
)
 

 

 

Stock-based compensation cost

 
445

 

 

 
445

April 30, 2019
$
238

 
$
115,391

 
$
132,227

 
$
(52,703
)
 
$
195,153


 
Common Stock (.01 Par Value)
 
Paid-in-Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Total Stockholders' Equity
October 31, 2017
$
231

 
$
112,351

 
$
117,976

 
$
(42,237
)
 
$
188,321

Net income

 

 
8,883

 

 
8,883

Other comprehensive income, net of tax

 

 

 
1,458

 
1,458

Restricted stock and exercise of stock options
3

 
31

 

 

 
34

Stock-based compensation cost

 
1,042

 

 

 
1,042

April 30, 2018
$
234

 
$
113,424

 
$
126,859

 
$
(40,779
)
 
$
199,738

 
 
 
 
 
 
 
 
 
 
October 31, 2018
$
234

 
$
114,405

 
$
135,813

 
$
(50,930
)
 
$
199,522

Net income (loss)

 

 
(3,586
)
 

 
(3,586
)
Other comprehensive income (loss), net of tax

 

 

 
(1,773
)
 
(1,773
)
Restricted stock and exercise of stock options
4

 
(4
)
 

 

 

Stock-based compensation cost

 
990

 

 

 
990

April 30, 2019
$
238

 
$
115,391

 
$
132,227

 
$
(52,703
)
 
$
195,153



The accompanying notes are an integral part of these condensed consolidated financial statements.


7


SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and number of shares in thousands except per share data)





Note 1—Basis of Presentation

The condensed consolidated financial statements have been prepared for Shiloh Industries, Inc. and its subsidiaries (collectively referred to as the "Company," "Shiloh Industries," "us," "our" or "we"), without audit, and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). The information furnished in the condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of such financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP") have been condensed or omitted pursuant to the rules and regulations of the SEC. Although we believe that the disclosures are adequate to make the information presented not misleading, these condensed consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2018 .

Revenues and operating results for the three and six months ended April 30, 2019 are not necessarily indicative of the results to be expected for the full year.

8


SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


Note 2—Recent Accounting Standards

Recently Issued Accounting Standards:
Standard
Description
Effective Date
Effect on our financial statements and other significant matters
ASU 2016-13 Measurement of Credit Losses on Financial Instruments
The amendments change the impairment model for financial assets measured at amortized cost and available for sale equity securities. This new model will apply to instruments such as loans, held-to-maturity debt securities, loan commitments (including lines of credit), financial guarantees accounted for under ASC 460, net investments in leases, reinsurance and trade receivables. This model will result in an earlier recognition of allowances for losses through the establishment of an allowance account. The estimate of expected credit losses should consider historical and current information, and the reasonable and supportable forecasts of future events and circumstances, as well as estimates of prepayments.

November 1, 2020 with early adoption permitted.
We are in the process of evaluating the impact of adoption of this standard on our financial statements and disclosures.

ASU 2018-15 Goodwill and Other-Internal-Use Software
The amendments apply to the accounting for implementation, setup and other upfront costs (collectively referred to as implementation costs) for entities that are a customer in a hosting arrangement and align the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The amendments also require customers to expense capitalized implementation costs over the term of the hosting arrangement and in the same line on the income statement as the fees associated with the hosting service and payments for the capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting service.
November 1, 2020 with early adoption permitted.

We are in the process of evaluating the impact of adoption of this standard on our financial statements and disclosures.

9


SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Standard
Description
Effective Date
Effect on our financial statements and other significant matters
ASU 2016-02 Leases
This amendment requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet and aligns many of the underlying principles of the new lessor model with those in Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers. The standard requires a modified retrospective transition for capital and operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements, but it does not require transition accounting for leases that expire prior to the date of initial adoption. In January 2018, the FASB issued an amendment to ASC Topic 842 which permits companies to elect an optional transition practical expedient to not evaluate existing land easements under the new standard if the land easements were not previously accounted for under existing lease guidance. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842 which clarifies certain areas within ASU 2016-02. ASU 2018-11 Targeted Improvements to Topic 842, Leases. This amendment provides entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.


November 1, 2019 with early adoption permitted.
We are in the process of evaluating the impact of adoption of this standard on our financial statements and disclosures. We are in the beginning stages of developing a project plan with key stakeholders throughout the organization and gathering and analyzing detailed information on existing lease arrangements. This includes evaluating the available practical expedients, calculating the lease asset and liability balances associated with individual contractual arrangements and assessing the disclosure requirements. In addition, we continue to monitor FASB amendments to ASC Topic 842.

Recently Adopted Accounting Standards:
Standard
Description
Adoption Date
Effect on our financial statements and other significant matters
ASU 2017-09 Compensation - Stock Compensation (Topic 718)
This amendment clarifies when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. The amendment should be adopted on a prospective basis.

November 1, 2018
The adoption of this framework did not have a material impact on Shiloh's financial position, results of operations or financial statement disclosures. Shiloh's awards are rarely modified after grant.


10


SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Standard
Description
Adoption Date
Effect on our financial statements and other significant matters
ASU 2014-09 Revenue from Contracts with Customers

The amendments require companies to recognize revenue when there is a transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. The amendments should be applied on either a full or modified retrospective basis, which clarifies existing accounting literature relating to how and when a company recognizes revenue. The Financial Accounting Standards Board ("FASB"), through the issuance of Accounting Standards Updated ("ASU") No. 2015-14, "Revenue from Contracts with Customers," approved a one year delay of the effective date and permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application of the new standard with disclosure of results under old standards. During fiscal 2016, the FASB issued ASUs 2016-10, 2016-11 and 2016-12. Finally, ASU 2016-20 makes minor corrections or minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities.

November 1, 2018
Refer to Note 3.
ASU 2016-01 Recognition and Measurement of Financial Assets and Financial Liabilities
This amendment addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. Most prominent among the amendments is the requirement for changes in the fair value of the Company's equity investments, with certain exceptions, to be recognized through net income rather than other comprehensive income ("OCI"). The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet in year of adoption.
November 1, 2018
The adoption of this framework did not have a material impact on Shiloh's financial position, results of operations or financial statement disclosures.


11


SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Standard
Description
Adoption Date
Effect on our financial statements and other significant matters
ASU 2018-09 Codification Improvements
These amendments provide clarifications and corrections to certain ASC subtopics including the following: Income Statement - Reporting Comprehensive Income – Overall (Topic 220-10), Debt - Modifications and Extinguishments (Topic 470-50), Distinguishing Liabilities from Equity – Overall (Topic 480-10), Compensation - Stock Compensation - Income Taxes (Topic 718-740), Business Combinations - Income Taxes (Topic 805-740), Derivatives and Hedging – Overall (Topic 815-10) and Fair Value Measurement – Overall (Topic 820-10).
The majority of the amendments will be effective November 1, 2019 while others were effective upon the issuance of the ASU.
Adoption of the clarifications and corrections in this ASU did not have a material impact on Shiloh's financial position, results of operations or financial statement disclosures.


Note 3 Revenue

On November 1, 2018, we adopted ASU 2014-09, ASC Topic 606, " Revenue from Contracts with Customers " using the modified retrospective transition method with no impact to previously reported periods and no adjustment to retained earnings as of November 1, 2018 as there was no impact to previously reported revenue or expenses associated with the adoption of ASC 606. The new guidance requires new disclosures regarding the nature, timing and uncertainty of revenue and cash flows arising from contracts with customers.

The new standard recognizes revenue when a customer obtains control rather than when substantially all the risks and rewards of a good or service are transferred. The new guidance supersedes most existing revenue recognition guidance, including industry-specific guidance.

We manufacture and sell products, primarily to original equipment manufacturers ("OEMs") and to OEMs through Tier 1 suppliers. We enter into contracts with customers that create enforceable rights and obligations for the sale of those products. While certain production is provided under awarded multi-year programs, these programs do not contain any commitment to volume by the customer. Individual customer volume releases, blanket purchase orders, supply agreements, terms and conditions represent the contract with the customer. Volume releases are limited to near-term customer requirements generally with delivery periods within a few weeks. We do not have contract assets or liabilities as defined under ASC 606.

Each unit produced represents a separate performance obligation. Customer contracts do not provide an enforceable right to payment for performance completed throughout the production process. As such, product revenue is recognized at the point in time when shipment occurs and control has been transferred to the customer.

We participate in certain customers’ materials repurchase programs, under which we purchase materials directly from a customer’s designated supplier, for use in manufacturing products for that customer. We take delivery and title to such materials and bear the risk of loss and obsolescence. We invoice customers based upon negotiated selling prices, which inherently include a component for materials under such repurchase programs. We have risks and rewards of a principal, and as such, for transactions in which we participate in customers' materials resale programs, revenue is recognized on a gross basis for the entire amount, including the component for purchases under that customers' material resale programs.
    
We provide customers with standard warranties customary in the industry that products will operate as intended or designed, which are not separate performance obligations under ASC 606. We do not provide customers with the right to a refund, but provide for product replacement. Returns or refunds for nonconforming products are not separate performance obligations applicable to Shiloh's contract arrangements with customers.


12


SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

We continue to include shipping and handling fees billed to customers in revenue, while including costs of shipping and handling in costs of sales as a fulfillment cost.

Taxes collected from customers are excluded from revenues and credited directly to obligations to the appropriate government agencies.

Payment terms with customers are established based on industry and regional practices and do not exceed 180 days.

Disaggregation of Net Revenues

 
 
Net Revenues
 
 
Three Months Ended April 30,
 
The Six Months Ended April 30,
Region:
 
2019
 
2018
 
2019
 
2018
North America
 
$
207,807

 
$
224,933

 
$
402,952

 
$
425,631

Europe & Asia
 
71,867

 
76,946

 
140,546

 
128,670

Eliminations
 
(6,304
)
 
(4,539
)
 
(11,195
)
 
(9,295
)
Total Company
 
$
273,370

 
$
297,340

 
$
532,303

 
$
545,006


Note 4—Acquisitions

On March 1, 2018 , a subsidiary of the Company acquired all of the issued and outstanding capital of Brabant Alucast Italy Site Verres S.r.l., a limited liability company organized under the laws of Italy, and Brabant Alucast The Netherlands Site Oss B.V., a limited liability company organized under the laws of the Netherlands (collectively "Brabant"). The acquisitions were accounted for as business combinations under the acquisition method in accordance with the FASB ASC Topic 805, Business Combinations . The acquisitions complement Shiloh’s global footprint with the expansion of aluminum and magnesium casting capabilities, while providing capacity for growth.
The aggregate fair value of consideration transferred was $65,273 ( $62,514 net of cash acquired), on the date of the acquisitions. Assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date. The fair values of identifiable intangible assets were based on valuations using the income approach and estimates.

Note 5—Accounts Receivable, Net
Accounts receivable, net is expected to be collected within one year and is net of an allowance for doubtful accounts in the amount of $866 and $676 at April 30, 2019 and October 31, 2018 , respectively. We recognized bad debt expense (benefit) of $(3) and $326 for the three and six months ended April 30, 2019 , and recognized bad debt expense of $166 and $46 during the three and six months ended April 30, 2018 , in the condensed consolidated statement of operations.
We continually monitor our exposure with our customers and additional consideration is given to individual accounts in light of the market conditions in the automotive and commercial vehicle markets.

As a part of our working capital management, we have entered into factoring agreements with third party financial institutions ("institutions") for the sale of certain accounts receivable with recourse. The activity under these agreements is accounted for as sales of accounts receivable under ASC Topic 860 " Transfers and Servicing ." These agreements relate exclusively to the accounts receivable of certain Italian and Swedish customers. The amounts sold vary each month based on the amount of underlying receivables and cash flow requirements. In addition, the agreements address events and conditions which may obligate us to immediately repay the institutions the outstanding purchase price of the receivables sold.

The total amount of accounts receivable factored was $11,883 and $13,545 as of April 30, 2019 and October 31, 2018 , respectively. As these sales of accounts receivable are with recourse, $11,031 and $11,742 were recorded in accounts payable as of April 30, 2019 and October 31, 2018 , respectively. The cost of selling these receivables is dependent upon the number of days between the sale date of the receivables, the date the customer’s invoice is due and the interest rate. The expense associated with

13


SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

the sale of these receivables is recorded as a component of selling, general and administrative expense in the accompanying condensed consolidated statements of operations.

Note 6—Related Party Receivables

MTD Products Inc. and MTD Holdings LLC are affiliates of Oak Tree Holdings LLC, which is a greater than 5% beneficial owner of the Company's shares of Common Stock.
 
Sales to MTD Products Inc. and its affiliates were $2,343 and $4,202 for the three and six months ended April 30, 2019 , respectively and $2,224 and $3,266 for the three and six months ended April 30, 2018 , respectively. At April 30, 2019 and October 31, 2018 , we had related party receivable balances of $2,306 and $996 , respectively, due from MTD Products Inc. and its affiliates.

Note 7—Inventories, Net
Inventories, net consists of the following:
 
April 30, 2019
 
October 31, 2018
Raw materials
$
28,963

 
$
28,457

Work in process
23,133

 
24,435

Finished goods
19,504

 
21,637

Reserves
$
(4,277
)
 
$
(3,117
)
Total inventories, net
$
67,323

 
$
71,412


Note 8 —Goodwill and Intangible Assets

Goodwill:

The changes in the carrying amount of goodwill for the six months ended April 30, 2019 are as follows:
Balance October 31, 2018
 
$
27,376

 
Foreign currency translation
 
45

Balance April 30, 2019
 
$
27,421


Intangible Assets
    
The changes in the carrying amount of finite-lived intangible assets for the six months ended April 30, 2019 are as follows:
 
 
Customer Relationships
 
Developed Technology
 
Non-Compete
 
Trade Name
 
Trademark
 
Total
Balance October 31, 2018
$
10,311

 
$
3,404

 
$
15

 
$
1,131

 
$
78

 
$
14,939

 
Amortization expense
(666
)
 
(198
)
 
(8
)
 
(62
)
 
(8
)
 
(942
)
 
Foreign currency translation
(2
)
 
(22
)
 

 

 

 
(24
)
Balance April 30, 2019
$
9,643

 
$
3,184

 
$
7

 
$
1,069

 
$
70

 
$
13,973


14


SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Intangible assets are amortized on the straight-line method over their legal or estimated useful lives. The following summarizes the gross carrying value and accumulated amortization for each major class of intangible assets:
 
 
April 30, 2019
 
 
Weighted Average Useful Life (years)
 
Gross Carrying Value Net of Foreign Currency
 
Accumulated Amortization
 
Net
 
Customer relationships
7.4
 
17,562

 
$
(7,919
)
 
$
9,643

 
Developed technology
9.3
 
7,143

 
(3,959
)
 
3,184

 
Non-compete
0.4
 
824

 
(817
)
 
7

 
Trade Name
8.7
 
1,875

 
(806
)
 
1,069

 
Trademark
4.3
 
166

 
(96
)
 
70

 
 
 
 
$
27,570

 
$
(13,597
)
 
$
13,973

Total amortization expense was $519 and $1,040 for the three and six months ended April 30, 2019 , respectively, and $595 and $1,160 for the three and six months ended April 30, 2018 , respectively. A favorable lease asset of $1,458 was acquired as part of the Brabant acquisitions in fiscal year 2018 with a 7 year useful life. Amortization expense for the three and six months ended April 30, 2019 was $48 and $98 , respectively. A net balance of $1,105 is included within other assets for the favorable lease asset. Amortization expense related to intangible assets and the favorable lease asset for the following fiscal years ending is estimated to be as follows:
    
Twelve Months Ended April 30,
 
 
2020
 
$
2,066

2021
 
2,060

2022
 
2,060

2023
 
2,061

2024
 
2,045

Thereafter
 
4,786

 
 
$
15,078


Note 9—Financing Arrangements
Debt consists of the following:    
 
April 30,
2019
 
October 31, 2018
Credit Agreement—interest rate of 5.44% at April 30, 2019 and 4.59% at October 31, 2018
$
245,800

 
$
243,300

Capital lease obligations
2,187

 
2,640

Insurance broker financing agreement
94

 
738

Total debt
248,081

 
246,678

Less: Current debt
484

 
1,327

Total long-term debt
$
247,597

 
$
245,351


At April 30, 2019 , we had total debt, excluding capital leases, of $245,894 , consisting of a revolving line of credit under the Credit Agreement of floating rate debt of $245,800 , and fixed rate debt of $94 . The weighted average interest rate of all debt was 5.42% and 4.03% for the six months ended April 30, 2019 and 2018 , respectively.


15


SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Revolving Credit Facility:

The Company and its subsidiaries are party to a Credit Agreement, dated October 25, 2013, as amended (the "Credit Agreement") with Bank of America, N.A., as Administrative Agent, Swing Line Lender, Dutch Swing Line Lender and L/C Issuer, JPMorgan Chase Bank, N.A. as Syndication Agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities, LLC as Joint Lead Arrangers and Joint Book Managers, The PrivateBank and Trust Company, Compass Bank and The Huntington National Bank, N.A., as Co-Documentation Agents and the other lender parties thereto.

On October 31, 2017 , we executed the Eighth Amendment to the Credit Agreement which, among other things, provides for an aggregate availability of $350,000 , $275,000 of which is available to the Company through the Tranche A Facility and $75,000 of which is available to the Dutch borrower through the Tranche B Facility, and eliminated the scheduled reductions in such availability; increases the aggregate amount of incremental commitment increased allowed under the Credit Agreement to up to $150,000 subject to our pro forma compliance with financial covenants, the Administrative Agent’s approval and the Company obtaining commitments for any such increase. The Amendment extended the commitment period to October 31, 2022.

On July 31, 2017, we executed the Seventh Amendment which modifies investments in subsidiaries and various cumulative financial covenant thresholds, in each case, under the Credit Agreement. The Amendment also enhances our ability to take advantage of customer supply chain finance programs.

On October 28, 2016, we executed the Sixth Amendment which increased the permitted consolidated leverage ratio for periods beginning after July 31, 2016; increases the permitted consolidated fixed charge coverage ratio for periods beginning after April 30, 2017, modifies various baskets related to sale of accounts receivable, disposition of assets, sale-leaseback transactions, and makes other ministerial updates.
    
On October 30, 2015, we executed the Fifth Amendment which increased the permitted leverage ratio with periodic reductions beginning after July 30, 2016. In addition, the Amendment permitted various investments as well as up to $40,000 aggregate outstanding principal amount of subordinated indebtedness, subject to certain conditions. Finally, the Amendment provided for a consolidated fixed charge coverage ratio, and provided for up to $50,000 of capital expenditures by the Company and our subsidiaries throughout the year ending October 31, 2016, subject to certain quarterly baskets.

On April 29, 2015, we executed the Fourth Amendment to the Credit Agreement that maintained the commitment period of September 29, 2019 and allowed for an incremental increase of $25,000 (or if certain ratios are met, $100,000 ) to the original revolving commitments of $360,000 , subject to our pro forma compliance with financial covenants, the administrative agent's approval, and the Company obtaining commitments for such increase.
    
The Fourth Amendment included scheduled commitment reductions beginning after January 30, 2016 totaling $30,000 , allocated proportionately between the Aggregate Revolving A and B commitments. On April 30, 2016, the first committed reduction of $5,000 decreased the existing revolving commitment to $355,000 , subject to our pro forma compliance with financial covenants.

Borrowings under the Credit Agreement bear interest, at our option, at LIBOR or the base (or "prime") rate established from time to time by the administrative agent, in each case plus an applicable margin. The Fifth Amendment provided for an interest rate margin on LIBOR loans of 1.5% to 3.0% and of 0.5% to 2.0% on base rate loans depending on the Company's leverage ratio.

The Credit Agreement contains customary restrictive and financial covenants, including covenants regarding our outstanding indebtedness and maximum leverage and interest coverage ratios. The Credit Agreement leverage ratio (inclusive of the Eighth Amendment) increases in restriction until maturity. At April 30, 2019 , the maximum ratio is 3.75 to 1.0 . The Credit Agreement also contains standard provisions relating to conditions of borrowing. In addition, the Credit Agreement contains customary events of default, including the non-payment of obligations by the Company and the bankruptcy of the Company. If an event of default occurs, all amounts outstanding under the Credit Agreement may be accelerated and become immediately due and payable. We were in compliance with the financial covenants under the Credit Agreement as of April 30, 2019 and October 31, 2018 .

After considering letters of credit of $6,206 that we have issued, unused commitments under the Credit Agreement were $97,994 as of April 30, 2019 . Actual borrowing capacity is subject to Credit Agreement covenants.

16


SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


Borrowings under the Credit Agreement are collateralized by a first priority security interest in substantially all of the tangible and intangible property of the Company and our domestic subsidiaries and 66% of the stock of our foreign subsidiaries.

Other Debt:

On August 1, 2018, we entered into a finance agreement with an insurance broker for various insurance policies that bears interest at a fixed rate of 2.55% and requires monthly payments of $94 through May 2019 . As of April 30, 2019 , $94 of principal remained outstanding under this agreement and was classified as current debt in our condensed consolidated balance sheets.

We maintain capital leases for equipment used in our manufacturing facilities with lease terms expiring between 2019 and 2020. As of April 30, 2019 , the present value of minimum lease payments under our capital leases amounted to $2,187 .
Scheduled repayments of debt for the next five years are listed below:      
Twelve Months Ending April 30,
 
Credit Agreement
 
Capital Lease Obligations
 
Other Debt
 
Total
2020
 
$

 
$
390

 
$
94

 
$
484

2021
 

 
1,797

 

 
1,797

2022
 

 

 

 

2023
 
245,800

 

 

 
245,800

2024
 

 

 

 

Total
 
$
245,800

 
$
2,187

 
$
94

 
$
248,081


Note 10—Pension and Other Post-Retirement Benefit Matters

U.S Plans

The components of net periodic benefit cost for the three and six months ended April 30, 2019 and 2018 are as follows:    
 
Pension Benefits
 
Other Post-Retirement
Benefits
 
Three Months Ended April 30,
 
Three Months Ended April 30,
 
2019
 
2018
 
2019
 
2018
Interest cost
$
841

 
$
792

 
$
3

 
$
2

Expected return on plan assets
(835
)
 
(840
)
 


 

Amortization of net actuarial loss
286

 
328

 
2

 
2

Net periodic cost
$
292

 
$
280

 
$
5

 
$
4


 
Pension Benefits
 
Other Post-Retirement
Benefits
 
Six Months Ended April 30,
 
Six Months Ended April 30,
 
2019
 
2018
 
2019
 
2018
Interest cost
$
1,682

 
$
1,584

 
$
6

 
$
5

Expected return on plan assets
(1,670
)
 
(1,680
)
 

 

Amortization of net actuarial loss
573

 
656

 
3

 
4

Net periodic cost
$
585

 
$
560

 
$
9

 
$
9

    

17


SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


We were not required to and therefore did not contribute to our U.S. pension plans during the three and six months ended April 30, 2019 and 2018 . We expect to contribute at least $1,620 to our U.S. pension plans in fiscal 2019.

We report the service cost component of the net periodic pension and post-retirement costs in the same caption as other compensation costs arising from services rendered. The other components of net period costs are presented outside of operating income in other (income) expense, net.
    
Non-U.S. Plans

For our Swedish operations, the majority of the pension obligations are covered by insurance policies with insurance companies. Pension commitments in our Polish operations were $1,182 at April 30, 2019 and $1,081 at October 31, 2018 . The liability represents the present value of future obligations and is calculated on an actuarial basis. The Polish operations recognized expense of $97 and $183 for the three and six months ended April 30, 2019 and $54 and $111 for the three and six months ended April 30, 2018 , respectively.

The insurance contracts guarantee a minimum rate of return. We have no input into the investment strategy of the assets underlying the contracts, but they are typically heavily invested in active bond markets and are highly regulated by local law.


Note 11—Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive loss in stockholders' equity by component for the three months ended April 30, 2019 is as follows:
 
 
 
Pension and Post Retirement Plan Liability (1)
 
Marketable Securities Adjustment
 
Interest Rate Swap Adjustment (2)
 
Foreign Currency Translation Adjustment (3)
 
Accumulated Other Comprehensive Loss
Balance at January 31, 2019
 
$
(28,915
)
 
$

 
$
(270
)
 
$
(19,174
)
 
$
(48,359
)
 
Other comprehensive income (loss), net of tax
 
222

 

 
(132
)
 
(4,478
)
 
(4,388
)
 
Amounts reclassified from accumulated other comprehensive loss
 

 

 
44

 

 
44

 
Net current-period other comprehensive income (loss)
 
222

 

 
(88
)
 
(4,478
)
 
(4,344
)
Balance at April 30, 2019
 
$
(28,693
)
 
$

 
$
(358
)
 
$
(23,652
)
 
$
(52,703
)
(1) Amounts reclassified from accumulated other comprehensive loss, net of tax are classified with other expense included on the statements of operations.
(2) Amounts reclassified from accumulated other comprehensive income loss, net of tax are classified with interest expense included on the statements of operations.
(3) The net investment derivative instrument is recognized in accumulated other comprehensive loss and reclassified to income in the same period when a gain or loss related to that net investment in foreign operation is included in income.


18


SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Changes in accumulated other comprehensive loss in stockholders' equity by component for the six months ended April 30, 2019 is as follows:
 
 
 
Pension and Post Retirement Plan Liability (1)
 
Marketable Securities Adjustment
 
Interest Rate Swap Adjustment (2)
 
Foreign Currency Translation Adjustment (3)
 
Accumulated Other Comprehensive Loss
Balance at October 31, 2018
 
$
(29,137
)
 
$
(18
)
 
$
104

 
$
(21,879
)
 
$
(50,930
)
 
Other comprehensive income (loss), net of tax
 
444

 
18

 
(592
)
 
(1,773
)
 
(1,903
)
 
Amounts reclassified from accumulated other comprehensive loss, net of tax
 

 

 
130

 

 
130

 
Net current-period other comprehensive income (loss)
 
444

 
18

 
(462
)
 
(1,773
)
 
(1,773
)
Balance at April 30, 2019
 
$
(28,693
)
 
$

 
$
(358
)
 
$
(23,652
)
 
$
(52,703
)
(1) Amounts reclassified from accumulated other comprehensive loss, net of tax are classified with other expense included on the statements of operations.
(2) Amounts reclassified from accumulated other comprehensive income loss, net of tax are classified with interest expense included on the statements of operations.
(3) The net investment derivative instrument is recognized in accumulated other comprehensive loss and reclassified to income in the same period when a gain or loss related to that net investment in foreign operation is included in income.


Note 12—Derivatives and Financial Instruments

Shiloh is exposed to, among other risks, the impact of changes in commodity prices, foreign currency exchange rates, and interest rates in the normal course of business. Shiloh’s financial risk management program is designed to manage the exposure and volatility arising from these risks and utilizes derivative financial instruments to offset a portion of these risks. We do not enter into derivative financial instruments for trading or speculative purposes. On an on-going basis, we monitor counterparty credit ratings. We consider credit non-performance risk to be low because we enter into agreements with commercial institutions that have investment grade credit rating.

On March 1, 2018, we entered into a cross-currency swap in which we would settle interest on the notional amount in Euros and settle interest on the notional amount in dollars, both at a variable rate. The objective of the transaction was to protect the initial net investment in Brabant against adverse changes in the exchange rate between the U.S. dollar and the Euro. Hedge effectiveness was assessed based upon changes in the spot foreign exchange rate. As such, the change in value of the cross-currency interest rate swap related to the change in spot rates was perfectly effective at offsetting changes in cumulative translation adjustment related to the portion of our net investment in Brabant up to the notional amount of the cross-currency interest rate swap.

Under the cross-currency interest rate swap, we received €53,000 on which we would settle interest at the 1-month Euribor rate, and we lent to the counterparty $64,930 on which we would settle interest at the 1-month LIBOR rate. Interest payments were made at the end of every month. The notional amounts in the respective currencies exchanged at the beginning of the cross-currency interest rate swap period were to be repaid at the end of the cross-currency interest rate swap period. The initial maturity of the cross-currency interest rate swap was October 31, 2022. In the second quarter of fiscal 2019, the cross-currency interest rate swap was discontinued and settled in cash for $5,110. The cash value at settlement was driven by changes in foreign currency exchange rates and debt markets from inception to settlement. There was no impact to net income upon settlement.

On February 25, 2014, we entered into an interest rate swap with an aggregate notional amount of $75,000 designated as a cash flow hedge to manage interest rate exposure on our floating rate LIBOR based debt under the Credit Agreement.  The interest rate swap is an agreement to exchange payment streams based on the notional principal amount. This agreement fixes our future interest rate at 2.74% plus the applicable margin as provided in the Fifth Amendment discussed in Note 9 - Financing Arrangements, on an amount of our debt principal equal to the then-outstanding swap notional amount. The forward interest rate swap commenced on March 1, 2015 with an initial $25,000 base notional amount. The second notional amount of $25,000 commenced on September 1, 2015 and the final notional amount of $25,000 commenced on March 1, 2016.  The base notional amount plus each incremental addition to the base notional amount has a five year maturity of February 29, 2020, August 31, 2020 and February 28, 2021, respectively. On the date the interest swap was entered into, we designated the interest rate swap as a hedge of the variability of cash flows to be paid relative to our variable rate monies borrowed. Any ineffectiveness in the hedging relationship is recognized immediately into earnings.

19


SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


Our derivatives at April 30, 2019 consist of interest rate swap contracts, all of which are over-the-counter and not traded through an exchange. The Company uses widely accepted valuation tools to determine fair value, such as discounting cash flows to calculate a present value for the derivatives. The models use Level 2 inputs, such as forward curves and other commonly quoted observable transactions and prices. The fair value of our derivatives and hedging instruments are all classified as Level 2 investments within the three-tier hierarchy.


The following table discloses the fair value and balance sheet location of our derivative instruments:
 
 
 Asset (Liability) Derivatives
 
 
Balance Sheet Location
April 30, 2019
October 31, 2018
Net Investment Hedging Instruments:
 
 
 
 
Cross-currency interest rate swap contract
Other assets
$

$
4,432

Cash Flow Hedging Instruments:
 
 
 
 
Interest rate swap contracts
(Other liabilities) Other assets
$
(465
)
$
135


As a result of the hedging relationships being highly effective, the net interest payments accrued each period are reflected in net income (loss) as adjustments of interest expense, and the remaining change in the fair value of the derivatives is recognized in accumulated other comprehensive loss ("AOCI").

Derivative activity is included in interest expense and cash paid for interest. The following table presents the effect of our derivative instruments on the condensed consolidated statements of operations and the effects of hedging on those line items:
Location
Three Months Ended April 30, 2019
Three Months Ended April 30, 2018
Interest expense
$
3,848

$
2,645

Effect of hedging on interest expense
$
(247
)
$
21

Location
Six Months Ended
April 30, 2019
Six Months Ended
April 30, 2018
Interest expense
$
7,203

$
4,985

Effect of hedging on interest expense
$
(615
)
$
301


Note 13—Stock Incentive Compensation
Stock Incentive Compensation requires us to expense share-based payment awards granted. Compensation cost for share-based payments transactions are measured at fair value. For stock options, we use the simplified method of calculating the expected term and historical volatility to compute fair value under the Black-Scholes option-pricing model. The risk-free rate for periods within the contractual life of the option is based on the U.S. zero coupon Treasury yield in effect at the time of grant. New restricted stock and restricted stock unit grants are valued at the closing market price of our common stock on the date of grant. We do not estimate a forfeiture rate at the time of grant. Instead, we recognize share-based compensation expense when actual forfeitures occur.

20


SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

2019 Equity and Incentive Compensation Plan
Long-Term / Annual Incentives
On February 26, 2019, stockholders approved and adopted the 2019 Equity and Incentive Compensation Plan ("2019 Plan" or "Incentive Plan") which replaced the 2016 Equity and Incentive Compensation Plan. The 2019 Plan authorizes the Compensation Committee of the Board of Directors of the Company to grant to officers and other key employees, including directors, of the Company and our subsidiaries (i) option rights, (ii) appreciation rights, (iii) restricted shares, (iv) restricted stock units, (v) cash incentive awards, performance shares and performance units and (vi) other awards. An aggregate of 1,500,000 shares of Common Stock, subject to adjustment upon occurrence of certain events to prevent dilution or expansion of the rights of participants that might otherwise result from the occurrence of such events, was reserved for issuance pursuant to the Incentive Plan. An individual’s award of options and / or appreciation rights is limited to 500,000 shares during any calendar year. Also, an individual's award of restricted shares, restricted share units and performance based awards is limited to 350,000 shares during any calendar year.

The following table summarizes the Company’s Incentive Plan activity for the six months ended April 30, 2019 and 2018 :    
 
 
 
Stock Options
 
Restricted Stock
 
Restricted Stock Units
 
Outstanding at:
 
Options
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Life
 
Restricted Shares
 
Grant Fair Value
 
Weighted Average Remaining Contractual Life
 
Restricted Share Units
 
Grant Fair Value
 
Weighted Average Remaining Contractual Life
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
November 1, 2017
 
58

 
$8.16
 
2.53
 
441

 
$7.07
 
1.60
 
36

 
$7.69
 
1.82
 
Granted
 

 

 
 
 
268

 
8.06

 
 
 
18

 
7.90

 
 
 
Options exercised or restricted stock vested
 
(11
)
 
2.98

 
 
 
(183
)
 
7.69

 
 
 
(15
)
 
8.30

 
 
 
Forfeited or expired
 

 

 
 
 
(8
)
 
7.89

 
 
 
(11
)
 
5.96

 
 
 
April 30, 2018
 
47

 
$9.37
 
2.32
 
518

 
$7.35
 
1.98
 
28

 
$8.14
 
1.93
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
November 1, 2018
 
33

 
$9.42
 
1.84
 
478

 
$7.45
 
1.87
 
27

 
$8.17
 
1.37
 
Granted
 

 

 
 
 
370

 
6.86

 
 
 
31

 
6.71

 
 
 
Options exercised or restricted stock vested
 

 

 
 
 
(223
)
 
6.79

 
 
 
(14
)
 
7.98

 
 
 
Forfeited or expired
 

 

 
 
 
(39
)
 
7.27

 
 
 
(3
)
 
7.35

 
 
 
April 30, 2019
 
33

 
$9.42
 
1.34
 
586

 
$7.34
 
2.08
 
41

 
$7.15
 
1.89
We recorded stock compensation expense related to stock options, restricted stock and restricted stock units during the three and six months ended April 30, 2019 and 2018 as follows:
 
 
Three Months Ended April 30,
 
Six Months Ended April 30,
 
 
2019
 
2018
 
2019
 
2018
Restricted stock
 
$
408

 
$
497

 
$
917

 
$
977

Restricted stock units
 
37

 
29

 
73

 
65

Total
 
$
445

 
$
526

 
$
990

 
$
1,042

Stock Options - The exercise price of each stock option equals the market price of our common stock on the grant date. Compensation expense is recorded at the grant date fair value, adjusted for forfeitures as they occur, and is recognized over the applicable vesting periods. Our stock options generally vest over three years , with a maximum term of ten years . Incentive stock options were not granted during the six months ended April 30, 2019 and 2018 .

21


SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

During the six months ended April 30, 2019 and 2018 , stock options were not exercised. Options that have an exercise price greater than the market price are excluded from the intrinsic value computation. At April 30, 2019 and October 31, 2018 , the options outstanding and exercisable had an intrinsic value of $4 and $42 , respectively.
Restricted Stock Awards - New restricted stock grants are valued at the closing market price of our common stock on the grant date. Compensation expense is recorded at the grant date fair value, adjusted for forfeitures as they occur and is recognized over the applicable vesting periods. The vesting periods range between one to three years. As of April 30, 2019 , there was $3,370 of unrecognized compensation expense related to non-vested restricted stock that is expected to be recognized over the next three fiscal years.
Restricted Stock Units - New restricted stock unit grants are valued at the closing market price of our common stock on the grant date. Compensation expense is recorded at the grant date fair value, adjusted for forfeitures as they occur and is recognized over the applicable vesting periods. The vesting periods range between one to three years. As of April 30, 2019 , there was $246 of unrecognized compensation expense related to these restricted stock units that is expected to be recognized over the applicable vesting periods.

Note 14—Fair Value of Financial Instruments
The methods that we use may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
Assets and liabilities remeasured and disclosed at fair value on a recurring basis at April 30, 2019 and October 31, 2018 are set forth in the table below:
 
Asset (Liability)
Level 1
Level 2
Valuation Technique
October 31, 2018
 
 
 
 
      Cross-Currency Interest Rate Swap
$
4,432


$
4,432

Income Approach
      Interest Rate Swap Contracts
135


135

Income Approach
   Marketable Securities
21

21


Market Approach
 
 
 
 
 
April 30, 2019
 
 
 
 
      Interest Rate Swap Contracts
$
(465
)

$
(465
)
Income Approach
   Marketable Securities
18

18


Market Approach

We calculate the fair value of our cross-currency and interest rate swap contracts using quoted interest rate curves to calculate forward values and then discount the forward values.
The discount rates for all derivative contracts are based on quoted swap interest rates or bank deposit rates. For contracts which, when aggregated by counterparty, are in a liability position, the rates are adjusted by the credit spread that market participants would apply if buying these contracts from our counterparties.
We calculate the fair value of our marketable securities by using the closing stock price on the last business day of the quarter.

22


SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Note 15—Restructuring Charges

During the fourth quarter of fiscal 2017 , management initiated restructuring activities to reshape Shiloh's global footprint to be flexible to market conditions. Activities included actions such as consolidating manufacturing facilities, making geographical shifts to place production closer to customer facilities, centralizing departments, optimizing our product portfolio and capturing synergies. Management believes these strategic moves will result in a stronger and more agile organization.
    
During the three and six months ended April 30, 2019 , respectively, we incurred $4,460 and $7,466 related to employee, professional, legal and other restructuring related costs. We have incurred restructuring expenses of $18,856 since initiating the restructuring activities.

Global restructuring initiatives have continued to evolve and expand across the organization. We expect to incur additional restructuring costs over and beyond the next twelve months to execute planned restructuring initiatives. Costs of planned restructuring actions will primarily include employee costs and professional fees to execute initiatives. Future restructuring actions will depend upon market conditions, customer actions and other factors.

The following table presents information about restructuring costs recorded for the three and six months ended April 30, 2019 :
 
 
Three Months Ended April 30,
 
Six Months Ended April 30,
 
 
2019
 
2018
 
2019
 
2018
Employee costs
 
$
877

 
$
968

 
$
1,430

 
$
1,579

Professional and legal costs
 
2,919

 
281

 
4,161

 
1,112

Other
 
664

 
234

 
1,875

 
306

 
 
$
4,460

 
$
1,483

 
$
7,466

 
$
2,997


The following table presents a rollforward of the beginning and ending liability balances related to the restructuring costs which are included in the condensed consolidated balance sheets in other accrued expenses for the above-mentioned actions through April 30, 2019 :

 
Balance as of October 31, 2018
 
Restructuring Expense
 
Payments
 
Balance as of April 30, 2019
Employee costs
$
367

 
1,430

 
1,543

 
$
254

Professional and legal costs
248

 
4,161

 
$
2,776

 
1,633

Other

 
1,875

 
$
1,875

 

 
$
615

 
$
7,466

 
$
6,194

 
$
1,887



Note 16—Income Taxes

The provision for income taxes for the three months ended April 30, 2019 was an expense of $1,448 on income before taxes of $2,560 for a consolidated effective tax rate of 56.6% . The provision for income taxes for the six months ended April 30, 2019 was a benefit of $1,639 on loss before income taxes of $5,225 for a consolidated effective tax rate of 31.4% . The year-to-date benefit was calculated using the year-to-date loss, considering non-taxable and non-deductible items expected to be incurred for the full year multiplied by the statutory rate. This methodology is required by ASC 740, Income Taxes , as the use of an estimated annual effective rate would not be reliable.

The provision for income taxes for the three months ended April 30, 2018 was an expense of $218 on income before income taxes of $4,243 for a consolidated effective tax rate of 5.1% . The provision for income taxes for the six months ended April 30, 2018 was $2,840 on income before taxes of $6,043 for a consolidated effective tax rate of 47.0% .


23


SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

The U.S. Internal Revenue Service has proposed disallowances of the majority of fiscal year 2012 and fiscal year 2013 U.S. R&D credits claimed. We are disputing this tax credit matter and intend to vigorously defend our position. We believe the ultimate resolution of the matters will not materially impact our results of operations, financial position or cash flows. With any tax controversy and litigation, there is, however, a chance of unforeseen loss which due to the number of years involved could materially impact our results, financial position and cash flows. For open tax years through fiscal year 2019 , the total amounts related to the unreserved portion of the tax contingency, inclusive of any related interest, amounts to approximately $8,500 , of which the majority has been assessed by management as being remote as to the likelihood of ultimately resulting in a loss to the Company. We routinely assess tax matters as to the probability of incurring a loss and record our best estimate of the ultimate loss in situations where we assess the likelihood of an ultimate loss as probable.


Note 17—Earnings Per Share
Basic earnings per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of shares of Common Stock outstanding during the period. In addition, the shares of Common Stock issuable pursuant to restricted stock awards, restricted stock units and stock options outstanding under the 2019 Plan are included in the diluted earnings per share calculation to the extent they are dilutive. For the six months ended April 30, 2019 and 2018 , 108 and 308 stock awards, respectively, were excluded from the computation of diluted earnings per share because their inclusion would be anti-dilutive. The following is a reconciliation of the numerator and denominator of the basic and diluted earnings per share computation for net income (loss) per share:
 
Three Months Ended April 30,
 
Six Months Ended April 30,
 
2019
 
2018
 
2019
 
2018
Net income (loss) available to common stockholders
$
1,112

 
$
4,025

 
$
(3,586
)
 
$
8,883

Basic weighted average shares
23,516

 
23,222

 
23,450

 
23,164

Effect of dilutive securities:
 
 
 
 
 
 
 
Restricted stock, units and stock options (1)
43

 
135

 

 
147

Diluted weighted average shares
23,559

 
23,357

 
23,450

 
23,311

Basic income (loss) per share
$
0.05

 
$
0.17

 
$
(0.15
)
 
$
0.38

Diluted income (loss) per share
$
0.05

 
$
0.17

 
$
(0.15
)
 
$
0.38

(1) Due to a loss for the six months ended April 30, 2019, no restricted stock, restricted stock units or stock options are included because the effect would be anti-dilutive.

Note 18—Business Segment Information
We conduct our business and report our information as one operating segment and, therefore, disclose one reportable segment - Automotive and Commercial Vehicles. Our chief operating decision maker is the executive leadership team, which includes certain Vice Presidents, all Senior Vice Presidents and the Chief Executive Officer. This team has the final authority over performance assessment and resource allocation decisions. In determining that one operating segment is appropriate, we considered the nature of the business activities and the existence of managers responsible for the operating activities. Customers and suppliers are substantially the same in the automotive and commercial vehicle industry.
Foreign net revenues (those outside the United States before eliminations) were $84,464 or 30.9% and $162,755 or 30.6% of net revenues for the three and six months ended April 30, 2019 , respectively, and $86,681 or 29.2% and $147,644 or 27.1% for the three and six months ended April 30, 2018 , respectively. Foreign net revenues, and geographic regions quantified in the table below, are based upon the location of the entity recording the sale.

24


SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

 
 
Net Revenues
 
Net Revenues
 
 
Three Months Ended April 30
 
Six Months Ended April 30
Geographic Region:
 
2019
 
2018
 
2019
 
2018
North America
 
$
207,807

 
$
224,933

 
$
402,952

 
$
425,631

Europe & Asia
 
71,867

 
76,946

 
140,546

 
128,670

Eliminations
 
(6,304
)
 
(4,539
)
 
(11,195
)
 
(9,295
)
Total Company
 
$
273,370

 
$
297,340

 
532,303

 
$
545,006

    
The foreign currency gain (loss) is included as a component of other expense, net in the condensed consolidated statements of operations.
 
 
Foreign Currency Gain (Loss)
 
Foreign Currency Gain (Loss)
 
 
Three Months Ended April 30,
 
Six months ended April 30,
Geographic Region:
 
2019
 
2018
 
2019
 
2018
North America
 
$
(27
)
 
$
(43
)
 
$
211

 
$
(31
)
Europe & Asia
 
$
(7
)
 
$
(115
)
 
$
(6
)
 
$
(243
)
Long-lived assets consist primarily of net property, plant and equipment, goodwill and intangibles.
 
Long-Lived Assets
Geographic Region:
April 30, 2019
 
October 31, 2018
North America
$
267,787

 
$
253,711

Europe & Asia
102,966

 
104,780

Total Company
$
370,753

 
$
358,491

        
Note 19—Commitments and Contingencies

From time to time, we are involved in legal proceedings, claims or investigations that are incidental to the conduct of our business. We vigorously defend ourselves against such claims. In future periods, we could be subject to cash costs or non-cash charges to earnings if a matter is resolved on unfavorable terms. However, although the ultimate outcome of any legal matter cannot be predicted with certainty, based on current information, including assessment of the merits of the particular claims, we do not expect that our legal proceedings or claims will have a material impact on our future consolidated financial position, results of operations or cash flows.

Note 20—Subsequent Events

Shiloh Industries, Inc. and Shiloh Holdings Netherlands B.V., a besloten vennootschap met beperkte aansprakelijkheid organized under the laws of the Netherlands (the "Dutch Borrower"), as the borrowers, and certain domestic subsidiaries of the Company, as the guarantors, entered into an amendment, dated June 6, 2019 (the "Amendment"), with respect to the Company's existing Credit Agreement (as so amended, the "Credit Agreement"), with the lenders part thereto and Bank of America, N.A. as administrative agent, swing line lender and an L/C issuer. The Amendment amends the Credit Agreement, which was originally entered into on October 25, 2013 and previously amended as of December 30, 2013, June 26, 2014, September 29, 2014, April 29, 2015, October 15, 2015, October 28, 2016, July 31, 2017 and October 31, 2017.

The Amendment, among other things, modifies certain of the thresholds for the consolidated leverage ratio, adjusts the interest rate margins based on the applicable pricing tiers, and modifies various baskets related to the indebtedness of foreign subsidiaries, disposition of assets, capital expenditures and certain sale leaseback transactions, in each case under the Credit Agreement. The Amendment does not modify the aggregate revolving commitments under the Credit Agreement.

25



Certain of the lenders under the Credit Agreement and their affiliates have provided from time to time, and may continue to provide, investment banking, commercial banking, financial and other services to us which we have paid and intend to pay customary fee and expense reimbursements.

The foregoing is a summary of the material terms and conditions of the Amendment and not a complete description of the Amendment. Accordingly, the foregoing is qualified in its entirety by reference to the Amendment, attached hereto as Exhibit 10.2, and incorporated herein by reference.

26


FORWARD-LOOKING STATEMENTS

Certain statements made by Shiloh Industries set forth in this Quarterly Report on Form 10-Q regarding our operating performance, events or developments that we believe or expect to occur in the future, including those that discuss strategies, goals, outlook or other non-historical matters, or which relate to future sales, earnings expectations, cost savings, awarded sales, volume growth, earnings or general belief in our expectations of future operating results are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995.

The forward-looking statements are made on the basis of management's assumptions and expectations. As a result, there can be no guarantee or assurance that these assumptions and expectations will in fact occur. The forward-looking statements are subject to risks and uncertainties that may cause actual results to materially differ from those contained in the statements.

Listed below are some of the factors that could potentially cause actual results to differ materially from expected future results.
our ability to accomplish our strategic objectives;
our ability to derive a substantial portion of our sales from large customers;
our ability to obtain future sales;
changes in worldwide economic and political conditions, including adverse effects from terrorism or related hostilities;
costs related to legal and administrative matters;
our ability to realize cost savings expected to offset price concessions;
our ability to successfully integrate acquired businesses, including businesses located outside of the United States;
risks associated with doing business internationally, including economic, political and social instability, foreign currency exposure and the lack of acceptance of our products;
inefficiencies related to production and product launches that are greater than anticipated;
changes in technology and technological risks;
work stoppages and strikes at our facilities and that of our customers or suppliers;
our dependence on the automotive and heavy truck industries, which are highly cyclical;
the dependence of the automotive industry on consumer spending, which is subject to the impact of domestic and international economic conditions affecting car and light truck production;
regulations and policies regarding international trade;