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Item 7.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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(Dollars in thousands, except per share data)
General
Shiloh Industries, Inc. is a global innovative solutions provider to the automotive and commercial vehicle market with a strategic focus on designing, engineering and manufacturing lightweight technologies that improve performance and benefit the environment. We offer the broadest portfolio of lightweighting solutions in the industry through our BlankLight®, CastLight® and StampLight® brands and are uniquely qualified to supply product solutions utilizing multiple lightweighting solutions. This includes combining castings and stampings or innovative, multi-material products in aluminum, magnesium, steel and steel alloys. We design and manufacture components in body, chassis and powertrain systems with expertise in precision blanks, ShilohCore® acoustic laminates, aluminum and steel laser welded blanks, complex stampings, modular assemblies, aluminum and magnesium die casting, as well as precision machined components. We have over 3,600 dedicated employees with operations, sales and technical centers throughout Asia, Europe and North America.
Recent Trends and General Economic Conditions Affecting the Automotive Industry
Our business and operating results are directly affected by the relative strength of the North American, European and Asian automotive industries, which are driven by factors that continue to be critical to our success including winning new business awards, managing our overall global manufacturing footprint to ensure proper placement and workforce levels in line with business needs, maintaining competitive wages and benefits, maximizing efficiencies in manufacturing processes and reducing overall costs. In addition, our ability to adapt to key industry trends, such as shifts in consumer preferences to other vehicles in response to higher fuel costs and other economic and social factors, increasing technologically sophisticated content, increasing environmental standards and extended product life of automotive parts, also play a critical role in our success. Other factors that are critical to our success include changes in raw material costs, negotiation of price increases and cost reduction initiatives. In addition, recent trade actions initiated by the U.S. imposing tariffs on imports have been met with retaliatory tariffs by other countries, adding a level of tension and uncertainty to the global economic environment. These and other actions are likely to impact trade policies with other countries and the overall global economy. We are carefully monitoring capacity and availability of the alloys utilized in our production process. The automotive industry remains susceptible to these factors that impact consumer spending habits and could adversely impact consumer demand for vehicles.
Due to the diversification of our business, we are exposed to foreign currency fluctuations. Over the past 12 months, the U.S. dollar has continued to strengthen against foreign currencies and in doing so, has reduced the amount of income we would have recognized from our international operations. We cannot predict the effects of exchange rate fluctuations on our future operating results. We may use a combination of natural hedging techniques and financial derivatives to protect against certain foreign currency exchange rate risks.
We operate in an extremely competitive industry, driven by global vehicle production volumes. Business is typically awarded to the supplier offering the most favorable combination of cost, quality, technology and service. Customers continue to demand periodic cost reductions that require us to assess, redefine and improve operations, products, and manufacturing capabilities to maintain and improve profitability. Our management continues to develop and execute initiatives designed to meet challenges of the industry and to achieve our strategy for sustainable global profitable growth.
Capacity utilization levels are very important to profitability because of the capital-intensive nature of our operations. We continue to adapt our capacity to meet customer demand, both expanding capabilities in growth areas as well as reallocating capacity between manufacturing facilities as needs arise. We employ new technologies to differentiate our products from our competitors and to achieve higher quality and productivity. We believe that we have sufficient capacity to meet current and expected manufacturing needs.
For our aluminum and magnesium die casting operations, the cost of the materials is adjusted frequently to align with secured purchase commitments based on customer releases or based on referenced metal index plus additional material cost spreads agreed to by us and our customers.
Our products are included in many models of vehicles manufactured by nearly all OEMs that produce vehicles in Asia, Europe and North America. Our revenues are dependent upon the production of automobiles and light trucks in both Europe and North America. According to industry statistics, Asia, Europe and North America automotive production volumes for the fiscal years ended October 31, 2019, 2018 and 2017 were as follows (in thousands):
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Production Volumes
|
Year Ended October 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Asia
|
24,531
|
|
|
27,931
|
|
|
27,954
|
|
|
Europe
|
21,361
|
|
|
22,331
|
|
|
21,966
|
|
|
North America
|
16,391
|
|
|
16,971
|
|
|
17,248
|
|
|
Total
|
62,283
|
|
|
67,233
|
|
|
67,168
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|
|
|
|
|
|
|
|
|
Asia:
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|
|
|
|
|
|
Change from prior year
|
(3,400
|
)
|
|
(23
|
)
|
|
|
|
% Change from prior year
|
(12.2
|
)%
|
|
(0.1
|
)%
|
|
|
|
Europe:
|
|
|
|
|
|
|
Change from prior year
|
(970
|
)
|
|
365
|
|
|
|
|
% Change from prior year
|
(4.3
|
)%
|
|
1.7
|
%
|
|
|
|
North America
|
|
|
|
|
|
|
Change from prior year
|
(580
|
)
|
|
(277
|
)
|
|
|
|
% Change from prior year
|
(3.4
|
)%
|
|
(1.6
|
)%
|
|
|
|
Total
|
|
|
|
|
|
|
Change from prior year
|
(4,950
|
)
|
|
65
|
|
|
|
|
% Change from prior year
|
(7.4
|
)%
|
|
0.1
|
%
|
|
|
Asia:
Asia Pacific automotive production volumes declined in fiscal 2019. The decline in production volumes was due to uncertainty related to the trade dispute between China and the U.S., increasing emission standards and tightened credit for prospective buyers. The ongoing trade dispute between China and the U.S. has negatively impacted consumer confidence. New emission standards recently became effective, which require all new vehicles sold in China to meet higher standards. Consumers pulled forward purchases to buy cars under the old emission standards. Industry analysts anticipate a stabilization of production volumes through the remainder of 2019. In 2020, we expect China may show signs of modest recovery as the impact of the new emissions standards subside and the market returns to a more normalized basis supported by government stimulus measures and the potential resolution of the China and U.S. trade dispute.
Europe:
Signs of a weakening European economy have been evident with a reduction in light vehicle production levels in 2019 to levels below those of 2017. Uncertainty about the economic environment in Europe has continued to grow due to a number of factors. The United Kingdom's decision to withdraw from the European Union could have an effect on the economy of the remaining European Union countries, as no trade deal has been signed. This lack of a trade deal also increases industry concerns relating to the potential effect on production in the United Kingdom factories and resulting sales impacts.
The European economy is showing signs of a slowdown with manufacturing slumping, especially with the Quantitative Easing by the European Central Bank. This program was used to stimulate the economy and increase liquidity, primarily in Southern Europe. The European automotive market outlook has declined with this uncertainty along with further concerns stemming from the 2020/2021 carbon dioxide regulations which carry with them significant fines for noncompliance.
North America:
During the fourth quarter of fiscal 2019, the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America went on strike against General Motors. This strike affected the production level of all vehicles specific to General Motors in North America and was a key factor in the decline of light weight automotive vehicles during fiscal 2019. A resolution to the strike was reached on October 25, 2019.
The overall North American light vehicle market has shown modest signs of weakening demand levels since 2017 with the uncertainty surrounding the potential effects of trade policies, restrictions and practices being implemented or considered by the existing government leadership in the United States. Consumer confidence levels have also seen a decline in recent months. Economic conditions in North America that remain relatively favorable are the improving employment levels and comparatively low/stable fuel prices.
We expect modest declines in the North American economic climate to continue for the remainder of the year and into 2020. Fluctuating interest rates, high levels of consumer debt and declining used car prices are also developments that could constrict future demand for new vehicles.
Most of our steel is purchased through customers’ steel buying programs. Under these programs, the customer negotiates the price for steel with the steel suppliers. We pay for the steel based on these negotiated prices and pass on those costs to the customer. Although we take ownership of the steel, our customers are responsible for all steel price fluctuations under these programs. We also purchase steel directly from domestic primary steel producers and steel service centers. Current demand for construction and oil industry related steel products and stable automotive production have helped the market rebound from historic lows with steel pricing stabilizing. The impact is the combination of the change in steel prices that are reflected in the price of our products, the change in the cost to procure steel from the source and the change in our recovery of offal. Our strategy is to be economically neutral to steel pricing by having these factors offset each other. As the price of steel has risen, so have the scrap metal markets as they are highly correlated. We blank and process steel for some of our customers on a toll processing basis. Under these arrangements, we charge a tolling fee for the operations that we perform without acquiring ownership of the steel and being burdened with the attendant costs of ownership or risk of loss. Revenues from operations involving directly owned steel include a component of raw material cost whereas toll processing revenues do not.
Transformation
With the slowdown in the North American and European economies and the uncertainty with Brexit, we have continued to strategically transform our business through realignment of manufacturing processes, headcount reduction, consolidation of administrative functions and process improvements. The transformation efforts have resulted in some one-time restructuring costs in 2019. The transformation is anticipated to be completed at the end of 2020. We expect the strategic transformation to result in a more profitable operation poised to capitalize on future opportunities to gain market share.
Results of Operations
Year Ended October 31, 2019 Compared to Year Ended October 31, 2018
REVENUES. Revenues for fiscal 2019 were $1,054,707, a decrease of $85,237 from fiscal 2018 of $1,139,944, or 7.5%. The decrease in revenue was driven partially by the United Auto Workers' strike on General Motors that was effective for 40 days during the Company's fourth quarter in fiscal 2019, which reduced our production and distribution. The decrease in revenue was also impacted by negative currency effects of approximately $20 million, a nonrecurring $19.9 million favorable impact in fiscal 2018 relating to assisting a customer through a competing supplier's unplanned plant closure and the impact related to the exit of certain unprofitable products in the prior year of $24.1 million.
GROSS PROFIT. Gross profit for fiscal 2019 was $90,576 compared to gross profit of $116,095 in fiscal 2018, a decrease of $25,519, or (22.0)% . Gross profit as a percentage of sales was 8.6% for fiscal 2019 and 10.2% for fiscal 2018, a decline of 1.6%. The decline in gross profit as a percentage of sales was primarily due to inefficiencies related to product launches and a nonrecurring $14 million favorable impact in fiscal 2018 related to assisting a customer through a competing supplier's unplanned plant closure.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses support the growth in sales opportunities, new technologies, new product launches and acquisition activities. Selling, general and administrative expenses were $71,312 for fiscal 2019 and a decrease of $17,292 from fiscal 2018 of $88,604. As a percentage of
sales, these expenses were 6.8% of sales for fiscal 2019 and 7.8% for fiscal 2018. The decrease in selling, general and administrative expenses was driven by a decrease in compensation costs of approximately $11.5 million and other costs such as travel and entertainment, which is in line with the Company's restructuring initiatives.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets expense was $2,075 for fiscal 2019 and $2,372 for fiscal 2018.
RESTRUCTURING. Restructuring charges of $17,072 were recorded during fiscal 2019 and $6,613 in fiscal 2018 based upon strategic decisions to provide a more efficient and focused business footprint. These costs primarily included employee-related costs, professional and legal fees and other related costs.
ASSET IMPAIRMENT. During 2019, we continued to restructure and realign our European business to optimize future performance for recent industry declines in sales volume and forecasted declines. The annual assessment of goodwill considered changes in macroeconomic conditions, industry trends, Brexit, operating results and the timing of the transformation, which resulted in an impairment due to the reduction in calculated fair value. The total asset impairment for fiscal 2019 was $5,701 and no impairment was recognized in fiscal 2018.
INTEREST EXPENSE. Interest expense for fiscal 2019 was $16,258, compared to interest expense of $11,343 during fiscal 2018. The higher interest expense resulted from a higher weighted average interest rate on the floating rate debt.
OTHER EXPENSE, NET. Other income (expense), net was $1,272 for fiscal 2019 and $(913) for fiscal 2018, a positive change of $2,185. Other income (expense), net primarily reflects a favorable impact from the sale of the Company's Pendergrass Facility.
PROVISION / BENEFIT FOR INCOME TAXES. The provision for income taxes in fiscal 2019 was a benefit of $611 on a loss before taxes of $20,558 for an effective tax rate of 3.0%. In fiscal 2018, the provision for income taxes was a tax benefit of $5,219 on income before taxes of $6,260 for an effective tax rate of (83.4)%. The effective tax rate for the fiscal years ended October 31, 2019 and 2018 varies from the statutory rate due to income taxes on foreign earnings which are taxed at rates different from the U.S. statutory rate, certain foreign losses without tax benefits, change to valuation allowance against certain foreign deferred tax assets and tax return to provision adjustments.
NET INCOME (LOSS). The net loss for fiscal 2019 was ($19,947), or $0.85 per share, compared to net income in fiscal year 2018 of $11,479, or $0.49 per share.
Results of Operations
Year Ended October 31, 2018 Compared to Year Ended October 31, 2017
REVENUES. Revenues for fiscal 2018 were $1,139,944, an increase of $97,958 from fiscal 2017 of $1,041,986, or 9.4%. The Brabant acquisitions accounted for $82,578. New program launches with several customers such as FCA, General Motors, Honda and Tesla were also key drivers in the revenue growth.
GROSS PROFIT. Gross profit for fiscal 2018 was $116,095 compared to gross profit of $115,355 in fiscal 2017, an increase of $740, or 0.6%. Gross profit as a percentage of sales was 10.2% for fiscal 2018 and 11.1% for fiscal 2017, a decline of 900 basis points. The decline in gross profit as a percentage of sales was primarily due to program launch costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses support the growth in sales opportunities, new technologies, new product launches and acquisition activities. Selling, general and administrative expenses of $88,604 for fiscal 2018 and an increase of $5,534 from fiscal 2017 of $83,070. As a percentage of sales, these expenses were 7.8% of sales for fiscal 2018 and 8.0% for fiscal 2017. Acquisition related expenses were $3,743 in fiscal 2018.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets expense of $2,372 for fiscal 2018 was similar to amortization of intangible assets expense of $2,259 for the prior year.
RESTRUCTURING. Restructuring charges of $6,613 were recorded during fiscal 2018 and $4,777 in fiscal 2017 based upon strategic decisions to provide a more efficient and focused footprint allowing us to operate with lower fixed costs. These
costs primarily included employee-related costs, professional fees and other related costs. We expect to incur additional expense of $5,610 over the next fifteen months.
INTEREST EXPENSE. Interest expense for fiscal 2018 was $11,343, compared to interest expense of $15,088 during fiscal 2017. The decrease in interest expense was the result of lowering borrowing rates.
OTHER EXPENSE, NET. Other expense, net was $913 for fiscal 2018, compared to other expense, net of $3,501 for fiscal 2017, a decrease of $2,588. Other expense, net primarily reflects a favorable impact from foreign currency transaction gains of $1,527.
PROVISION / BENEFIT FOR INCOME TAXES. The provision for income taxes in fiscal 2018 was a tax benefit of $5,219 on income before taxes of $6,260 for an effective tax rate of (83.4%). In fiscal year 2017, the provision for income taxes was a tax expense of $7,120 on a loss before taxes of $6,423 for an effective tax rate of 110.9%. The effective tax rate for the fiscal years ended October 31, 2018 and 2017 varies from the statutory rate due to income taxes on foreign earnings which are taxed at rates different from the U.S. statutory rate, certain foreign losses without tax benefits, change to valuation allowance against certain foreign deferred tax assets and tax return to provision adjustments.
NET INCOME (LOSS). Net income for fiscal 2018 was $11,479, or $0.49 per share, compared to net loss in fiscal year 2017 of $(697), or $0.04 per share.
Liquidity and Capital Resources
General:
Our ability to obtain adequate cash to fund our needs depends generally on the results of our operations and the availability of financing. We believe that cash on hand, cash flow from operations and available borrowings under our Credit Agreement will be sufficient to fund capital expenditures and meet our operating obligations for the next twelve months. As of October 31, 2019, we had available borrowings of $97,051, which are subject to compliance with financial covenants, and cash of $14,320, with $13,101 in foreign subsidiaries. In the longer term, we believe that expected operations will provide adequate long-term cash flows. However, there can be no assurance that we will meet such expectations. For additional information, refer to the Company's Risk Factors described in Item 1A, included in Part 1 of this report.
Cash Flows and Working Capital:
At October 31, 2019, total debt was $250,670 and total equity was $167,514, resulting in a capitalization rate of 59.9% debt, 40.1% equity. Current assets were $275,999 and current liabilities were $208,138, resulting in positive working capital of $67,861.
The following table summarizes the Company's cash flows from operating, investing and financing activities:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
|
Years Ended October 31,
|
|
2019 vs. 2018
|
|
2018 vs. 2017
|
|
|
2019
|
|
2018
|
|
2017
|
|
change
|
|
change
|
|
Net cash provided by operating activities
|
$
|
31,246
|
|
|
$
|
53,226
|
|
|
$
|
76,315
|
|
|
$
|
(21,980
|
)
|
|
$
|
(23,089
|
)
|
|
Net cash used in investing activities
|
$
|
(36,977
|
)
|
|
$
|
(109,057
|
)
|
|
$
|
(39,620
|
)
|
|
$
|
72,080
|
|
|
$
|
(69,437
|
)
|
|
Net cash provided by (used in) financing activities
|
$
|
2,864
|
|
|
$
|
63,700
|
|
|
$
|
(37,523
|
)
|
|
$
|
(60,836
|
)
|
|
$
|
101,223
|
|
Net Cash Provided by Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Operational cash flow before changes in operating assets and liabilities
|
$
|
35,325
|
|
|
$
|
52,092
|
|
|
$
|
56,884
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable, net
|
34,114
|
|
|
(1,426
|
)
|
|
(2,919
|
)
|
|
Inventories, net
|
7,083
|
|
|
412
|
|
|
(888
|
)
|
|
Prepaids and other assets
|
(1,619
|
)
|
|
1,733
|
|
|
5,375
|
|
|
Payables and other liabilities
|
(41,644
|
)
|
|
(1,462
|
)
|
|
16,715
|
|
|
Prepaid and accrued income taxes
|
(2,013
|
)
|
|
1,877
|
|
|
1,148
|
|
|
Total change in operating assets and liabilities
|
$
|
(4,079
|
)
|
|
$
|
1,134
|
|
|
$
|
19,431
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
$
|
31,246
|
|
|
$
|
53,226
|
|
|
$
|
76,315
|
|
Cash inflow and outflow from changes in operating assets and liabilities:
|
|
|
|
•
|
Cash outflows from changes in operating assets and liabilities was $4,079 for the fiscal year ended October 31, 2019 and was negatively impacted by higher costs associated with new product launches. Cash inflows for the fiscal year ended October 31, 2018 was $1,134 and was positively impacted by increased sales associated with new product launches. Cash inflows from changes in operating assets and liabilities was $19,431 for the fiscal year ended October 31, 2017 and was positively impacted by the timing of collections and payments.
|
|
|
|
|
•
|
Cash inflows from changes in accounts receivable for the fiscal year ended October 31, 2019 was $34,114 as a result of accounts receivable factoring and increased collection activities. Cash outflows from changes in accounts receivable for the fiscal year ended October 31, 2018 was $1,426 as a result of sales increases. Cash outflows from changes in accounts receivable for the fiscal year ended October 31, 2017 was $2,919, primarily driven by sales decreases and timing of collections.
|
|
|
|
|
•
|
Cash inflows (outflows) from changes in inventory for the fiscal years ended October 31, 2019, 2018 and 2017 were $7,083, $412, and $(888), respectively. All three years of changes were driven by a change in customer mix and delivery timing.
|
|
|
|
|
•
|
Cash outflows from changes in prepaids and other assets for the fiscal year ended October 31, 2019 was $1,619 as a result of timing of tooling expenditures compared to cash receipts. Cash inflows from changes in prepaids and other assets for the fiscal year ended October 31, 2018 was $1,733 as a result of an improvement in the process of invoicing of customer reimbursed tooling. Cash inflows from changes in prepaids and other assets for the fiscal year ended October 31, 2017 was $5,375 also due to an improvement in the process of invoicing of customer reimbursed tooling.
|
|
|
|
|
•
|
Cash outflows from changes in payables and other liabilities for the fiscal year ended October 31, 2019 was $41,644 resulting from the timing of payments related to capital expenditures and customer funded tooling. Cash outflows from changes in payables and other liabilities for the fiscal year ended October 31, 2018 was $1,462 as a result of the timing of payments related to capital expenditures and customer funded tooling. Cash inflows from changes in payables and other liabilities for the fiscal year ended October 31, 2017 was $16,715, as a result of favorable raw material pricing.
|
|
|
|
|
•
|
Cash outflows from changes in prepaid and accrued income taxes for the fiscal year ended October 31, 2019 was $2,013 and was primarily driven by federal income tax payments. Cash inflows for the fiscal year ended October 31, 2018 was $1,877 and was primarily driven by federal income tax refunds. Cash inflows of $1,148 for the fiscal year ended October 31, 2017 was primarily due to tax refunds.
|
Net Cash Used For Investing Activities:
Net cash used for investing activities in fiscal years 2019, 2018 and 2017 was $36,977, $109,057 and $39,620, respectively, and consisted primarily of $62,514 for acquisitions in 2018 and cash used for capital expenditures during fiscal years 2019, 2018 and 2017 of $55,225, $50,135 and $48,395, respectively. The capital expenditures are attributed to projects for new business awards and product launches. For fiscal years 2019, 2018 and 2017, proceeds from the sales of assets generated $12,393, $3,592
and $7,605, respectively. The total proceeds from the sale of assets during fiscal 2019 relates to the sale of equipment and of a facility. The total proceeds from the sale of assets during fiscal 2018 relates to the sale of unique equipment related to lower margin parts we have sunset.
Net Cash Provided By Financing Activities:
Net cash provided by financing activities in fiscal year 2019 was $2,864 and was used primarily for capital expenditures. Net cash provided by financing activities in fiscal year 2018 was $63,700 and was used primarily for acquisitions. Net cash used in fiscal year 2017 was $37,523. For fiscal 2017, financing activities included $40,227 of net proceeds from the public offering in July 2017, offset by $77,750 for funding working capital and debt payments. As of October 31, 2019, the Company's long-term indebtedness was $248,695.
We continue to closely monitor the business conditions affecting the automotive industry and closely monitor our working capital position to ensure adequate funds for operations. In addition, we anticipate that funds from operations will be adequate to meet the obligations and covenants under the Credit Agreement, as well as scheduled payments for the equipment security note, capital leases and repayment of other debt totaling $1,975 over the next five years.
Revolving Credit Facility:
On June 6, 2019, we executed the Ninth Amendment to the Credit Agreement, which improved certain thresholds for the consolidated leverage ratio and various baskets related to the indebtedness of foreign subsidiaries, disposition of assets, capital expenditures and sale leaseback transactions. The Ninth Amendment also adjusted the interest rate margins based on the applicable pricing tiers, but did not modify the aggregate revolving commitments under the Credit Agreement.
On October 31, 2017, we executed the Eighth Amendment to our Credit Agreement (the "Amendment") 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 eliminates the scheduled reductions in such availability. The amendment increases the aggregate amount of incremental commitment increases 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 Seventh Amendment also enhances our ability to take advantage of customer supply chain finance programs.
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 provides for an interest rate margin on LIBOR loans of 1.5% to 3.0% and 0.5% to 2.0% on base rate loans, depending on our 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 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 as of October 31, 2019 and October 31, 2018.
After considering letters of credit of $4,254 that we have issued, unused commitments under the Credit Agreement were $97,051 at October 31, 2019.
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 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 2.05% and requires monthly payments of $94 through May 2019.
We maintain capital leases for equipment used in our manufacturing facilities with lease terms expiring during fiscal 2020. As of October 31, 2019, the present value of minimum lease payments under our capital leases was $1,975.
Our contractual obligations as of October 31, 2019 are summarized below:
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|
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|
|
|
|
|
|
|
|
|
|
Maturities of Debt Obligations:
|
|
Credit Agreement (1)
|
|
Capital Lease Obligations (2)
|
|
Operating Leases
|
|
Total
|
|
Less than 1 year
|
|
$12,882
|
|
$2,000
|
|
$12,040
|
|
$26,922
|
|
1-3 years
|
|
274,460
|
|
—
|
|
14,062
|
|
288,522
|
|
3-5 years
|
|
—
|
|
—
|
|
6,533
|
|
6,533
|
|
After 5 years
|
|
—
|
|
—
|
|
10,513
|
|
10,513
|
|
Total
|
|
$287,342
|
|
$2,000
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|
$43,148
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|
$332,490
|
(1) The credit agreement includes estimated interest payments; interest payments on the variable rate debt were calculated using the effective interest rate of 5.18% at October 31, 2019.
(2) The capital lease obligations include the remaining interest payments that are based on the Stockholm Interbank Offered Rate ("STIBOR") 90 of 2.25% at October 31, 2019.
Critical Accounting Estimates
Preparation of our financial statements are in conformity with accounting principles generally accepted in the United States and requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and in the accompanying notes. We believe our estimates and assumptions are reasonable; however, actual results and the timing of the recognition of such amounts could differ from those estimates. We have identified the following items as critical accounting policies and estimates utilized by management in the preparation of the Company’s accompanying financial statements. These estimates were selected because of inherent imprecision that may result from applying judgment to the estimation process. The expenses and accrued liabilities or allowances related to these policies are initially based on our best estimates at the time they are recorded. Adjustments are charged or credited to income and the related balance sheet account when actual experience differs from the expected experience underlying the estimates. We make frequent comparisons of actual experience and expected experience in order to mitigate the likelihood that material adjustments will be required.
Income Taxes. The Company accounts for income taxes in accordance with ASC Topic 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Management judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities and the valuation allowance recorded against the Company’s net deferred tax assets. In calculating the provision for income taxes on an interim basis, the Company uses an estimate of the annual effective tax rate based upon the facts and circumstances known at each interim period. In determining the need for a valuation allowance, the historical and projected financial performance of the operation recording the net deferred tax asset is considered along with any other pertinent information. Since future financial results may differ from previous estimates, periodic adjustments to the Company’s valuation allowance may be necessary.
The Company is subject to income taxes in the U.S. at the federal and state level and numerous non-U.S. jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes and recording the related assets and liabilities. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is less than certain. Accruals for income tax contingencies are provided for in accordance with the requirements of ASC Topic 740. The Company’s U.S. federal and certain state income tax returns and certain non-U.S. income tax returns are currently under various stages of audit by applicable tax authorities. Although the outcome of ongoing tax audits is always uncertain, management believes that it has appropriate support for the positions taken on its tax returns and that its annual tax provisions included amounts sufficient to pay assessments, if any, which may be proposed by the taxing authorities. At October 31, 2019, the Company has recorded a liability for its best estimate of the more-likely-than-not loss on certain of its tax positions, which is included in other non-current liabilities. Nonetheless, the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year.
The Tax Cuts and Jobs Act ("TCJA") that was signed into law in December 2017 constitutes a major change to the U.S. tax system. The estimated impact of the law is based on management’s current interpretations of the Act and related assumptions. Our final tax liability may be materially different from current estimates based on regulatory developments and our further analysis
of the impacts of the Act. In future periods, our effective tax rate could be subject to additional uncertainty as a result of regulatory developments related to Act.
Refer to Note 17, "Income Taxes," to the Consolidated Financial Statements in Item 8 of this report for more information regarding income taxes.
Intangible Assets. Intangible assets with finite lives are amortized over their estimated useful lives. We amortize our acquired intangible assets with finite lives on a straight-line basis over periods ranging from three months to 15 years. See Note 8 to the consolidated financial statements for a description of the current intangible assets and their estimated amortization expense.
Finite-lived intangible assets are evaluated for impairment whenever events or changes in circumstances indicate their related carrying value may not be fully recordable.
Goodwill. Goodwill is the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a business combination. Goodwill relates to and is assigned directly to specific reporting units. Goodwill is not amortized but is subject to impairment assessment. In accordance with ASC 350, "Intangibles-Goodwill and Other," we assess goodwill for impairment on an annual basis, or more frequently, if an event occurs or circumstances change that would more likely than not reduce the fair value below the carrying amount. Our annual impairment assessment is performed as of September 30. Such assessment can be done on a qualitative or quantitative basis. When conducting a qualitative assessment, we consider relevant events and circumstances that affect the fair value or carrying amount of the reporting unit. A quantitative test is required only if we conclude that it is more likely than not that a reporting unit’s fair value is less than its carrying amount, or we elect not to perform a qualitative assessment of a reporting unit. We consider the extent to which each of the events and circumstances identified affect the comparison of the reporting unit's fair value or the carrying amount. Such events and circumstances could include macroeconomic conditions, industry and market considerations, overall financial performance, entity and reporting unit specific events, product brand level specific events and cost factors. We place more weight on the events and circumstances that may affect our determination of whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. These factors are all considered by management in reaching its conclusion about whether to perform a quantitative goodwill impairment assessment.
We perform a quantitative goodwill impairment assessment by comparing the fair value of a reporting unit to its carrying amount, including goodwill. If the carrying amount exceeds the fair value, we recognize an impairment charge for the amount by which the carrying amount exceeds the fair value, not to exceed the total amount of goodwill in that reporting unit.
Share-based Payments. We record compensation expense for the fair value of nonvested stock option awards and restricted stock awards over the remaining vesting period. We use the simplified method to calculate the expected term of the stock options outstanding at five to six years and have utilized historical weighted average volatility. We determine the volatility and risk-free rate assumptions used in computing the fair value using the Black-Scholes option-pricing model. The expected term for the restricted stock award is between three months and four years. In addition, we do not estimate a forfeiture rate at the time of grant, instead, we elected to recognize share-based compensation expense when actual forfeitures occur.
The Black-Scholes option valuation model requires the input of highly subjective assumptions, including the expected life of the stock-based award and stock price volatility. The assumptions used are management’s best estimates, but the estimates involve inherent uncertainties and the application of management judgment. As a result, if other assumptions had been used, the recorded stock-based compensation expense could have been materially different from that depicted in the financial statements.
New restricted stock and restricted stock units grants are valued at the closing market price on the date of grant.
U.S. Pension and Other Post-retirement Costs and Liabilities. We have recorded pension and other post-retirement benefit liabilities that are developed from actuarial valuations for our U.S. operations. The pension plans were frozen in November of 2006 and therefore contributions by participants are not allowed. The determination of our pension liabilities requires key assumptions regarding discount rates used to determine the present value of future benefit payments and the expected return on plan assets. The discount rate is also significant to the development of other post-retirement liabilities. We determine these assumptions in consultation with, and after input from our actuaries.
The discount rate reflects the estimated rate at which the pension and other post-retirement liabilities could be settled at the end of the year. For our U.S. operations, we use the Principal Pension Discount Yield Curve ("Principal Curve") as the basis for determining the discount rate for reporting pension and retiree medical liabilities. At October 31, 2019, the resulting discount rate from the use of the Principal Curve was 3.05%, a decrease of 1.30% that contributed to an increase of the benefit obligation of $8,338. A decrease of 25 basis points in the discount rate at October 31, 2019 would decrease expense on an annual basis by
$260 or an increase of 25 basis points would increase expense on an annual basis by $19. At October 31, 2018, the resulting discount rate from the use of the Principal Curve was 4.35%, an increase of 0.70% that contributed to a decrease of the benefit obligation of $5,627. A change of 25 basis points in the discount rate at October 31, 2018 would increase expense on an annual basis by $6 or decrease expense on an annual basis by $9.
The assumed long-term rate of return on pension assets is applied to the market value of plan assets to derive a reduction to pension expense that approximates the expected average rate of asset investment return over ten or more years. A decrease in the expected long-term rate of return will increase pension expense whereas an increase in the expected long-term rate will reduce pension expense. Decreases in the level of plan assets will serve to increase the amount of pension expense whereas increases in the level of actual plan assets will serve to decrease the amount of pension expense. Any shortfall in the actual return on plan assets from the expected return will increase pension expense in future years due to the amortization of the shortfall, whereas any excess in the actual return on plan assets from the expected return will reduce pension expense in future periods due to the amortization of the excess. A change of 25 basis points in the assumed rate of return on pension assets would increase or decrease expense by $166.
Our investment policy for assets of the plans is to maintain an allocation generally of 30% to 70% in equity securities, 30% to 70% in debt securities and 0% to 10% in real estate. Equity security investments are structured to achieve an equal balance between growth and value stocks. We determine the annual rate of return on pension assets by first analyzing the composition of its asset portfolio. Historical rates of return are applied to the portfolio. Our investment advisors and actuaries review this computed rate of return. Industry comparables and other outside guidance are also considered in the annual selection of the expected rates of return on pension assets.
For the year ended October 31, 2019, the actual return on pension plans’ assets for all of our plans was 10.2%, which is higher than the expected rate of return on plan assets of 6.5% used to derive pension expense. The long-term expected rate of return takes into account years with exceptional gains and years with exceptional losses.
Actual results that differ from these estimates may result in more or less future Company funding into the pension plans than is planned by management. Based on plan performance and funding status, we had one contribution for fiscal 2018 required in the third quarter.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements with unconsolidated entities or other persons.
Recent Accounting Pronouncements
This information can be found in Note 1 "Summary of Significant Accounting Policies" in our notes to the consolidated financial statements of Shiloh Industries, Inc., included in Item 8 of this Report.
Effect of Inflation, Deflation
Inflation generally affects us by increasing the interest expense of floating rate indebtedness and by increasing the cost of labor, equipment and raw materials. The level of inflation has not had a material effect on our consolidated financial results for the past three years.
In periods of decreasing prices, deflation occurs and may also affect our results of operations. With respect to steel purchases, we purchase steel through customers' steel buying programs which protects recovery of the cost of steel through the selling price of our products. For non-steel buying programs, we align the cost of steel purchases with the related selling price of the product. For our aluminum and magnesium die casting business, the cost of the materials is adjusted frequently to align with secured purchase commitments based on customer releases or based on referenced metal index plus additional material cost spreads agreed to by us and our customers.
FORWARD-LOOKING STATEMENTS
Certain statements made by Shiloh set forth in this Annual Report on Form 10-K regarding our operating performance, events or developments that we believe will 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.
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•
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our ability to accomplish our strategic objectives
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•
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our ability to obtain future sales
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•
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changes in worldwide economic and political conditions, including adverse effects from terrorism or related hostilities
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•
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costs related to legal and administrative matters
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•
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our ability to realize cost savings expected to offset price concessions
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•
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our ability to successfully integrate acquired businesses, including businesses located outside of the United States
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•
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risks associated with doing business internationally, including economic, political and social instability, foreign currency exposure and the lack of acceptance of our products
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•
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inefficiencies related to production and product launches that are greater than anticipated
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•
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changes in technology and technological risks
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•
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work stoppages and strikes at our facilities and that of our customers or suppliers
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•
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our dependence on the automotive and heavy truck industries, which are highly cyclical
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•
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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
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•
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regulations and policies regarding international trade
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•
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financial and business downturns of our customers or vendors, including any production cutbacks or bankruptcies
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•
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increases in the price of, or limitations on the availability of aluminum, magnesium or steel, our primary raw materials, or decreases in the price of scrap steel
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•
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the successful launch and consumer acceptance of new vehicles for which we supply parts
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•
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the impact on financial statements of any known or unknown accounting errors or irregularities; and the magnitude of any adjustments in restated financial statements of our operating results
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•
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the occurrence of any event or condition that may be deemed a material adverse effect under our outstanding indebtedness or a decrease in customer demand which could cause a covenant default under our outstanding indebtedness
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•
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changes to tariffs or trade agreements, or the imposition of new tariffs or trade restrictions imposed on steel or aluminum materials which we use, including changes related to tariffs on automotive imports
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•
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pension plan funding requirements
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•
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other factors besides those listed here could also materially affect our business
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See "Item 1A. Risk Factors" in this Annual Report on Form 10-K for a more complete discussion of these risks and uncertainties. Any or all of these risks and uncertainties could cause actual results to differ materially from those reflected in the forward-looking statements. These forward-looking statements reflect management's analysis only as of the date of filing this Annual Report on Form 10-K.
We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date of filing this Annual Report on Form 10-K. In addition to the disclosures contained herein, readers should carefully review risks and uncertainties contained in other documents we file from time to time with the SEC.
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Item 8.
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Financial Statements and Supplementary Data.
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INDEX TO FINANCIAL STATEMENTS
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Shiloh Industries, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Shiloh Industries, Inc. (a Delaware corporation) and subsidiaries (the "Company") as of October 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders' equity, and cash flows for each of the three years in the period ended October 31, 2019, and the related notes and financial statement schedule included under Item 15(a) (2) (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting as of October 31, 2019, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"), and our report dated December 20, 2019 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ GRANT THORNTON LLP
We have served as the Company's auditor since 2007.
Southfield, Michigan
December 20, 2019
SHILOH INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
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October 31,
|
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|
|
2019
|
|
2018
|
|
ASSETS:
|
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|
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|
|
Cash and cash equivalents
|
|
$
|
14,320
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|
$
|
16,843
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Accounts receivable, net
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172,468
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|
|
209,733
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|
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Related party accounts receivable
|
|
1,477
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|
996
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|
|
Prepaid income taxes
|
|
1,853
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|
|
1,391
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|
Inventories, net
|
|
63,547
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|
|
71,412
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Prepaid expenses
|
|
8,980
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|
10,478
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Other current assets
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|
13,354
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|
|
22,124
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Total current assets
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275,999
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332,977
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Property, plant and equipment, net
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328,026
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316,176
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Goodwill
|
|
22,395
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27,376
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Intangible assets, net
|
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13,025
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|
|
14,939
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Deferred income taxes
|
|
5,169
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|
5,665
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Other assets
|
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7,077
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12,542
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Total assets
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$
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651,691
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$
|
709,675
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LIABILITIES AND STOCKHOLDERS’ EQUITY:
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Current debt
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$
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1,975
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$
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1,327
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Accounts payable
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155,754
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177,400
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Other accrued expenses
|
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50,093
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|
63,031
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Accrued income taxes
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316
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1,874
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Total current liabilities
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208,138
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243,632
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Long-term debt
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248,695
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245,351
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Long-term benefit liabilities
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24,147
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15,553
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Deferred income taxes
|
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798
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2,894
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Other liabilities
|
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2,399
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|
|
2,723
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Total liabilities
|
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484,177
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510,153
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Commitments and contingencies
|
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Stockholders’ equity:
|
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Preferred stock, $0.01 per share; 5,000,000 shares authorized; no shares issued and outstanding at October 31, 2019 and October 31, 2018, respectively
|
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—
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—
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Common stock, par value $0.01 per share; 75,000,000 and 50,000,000 shares authorized at October 31, 2019 and October 31, 2018, respectively; 23,790,258 and 23,417,107 shares issued and outstanding at October 31, 2019 and October 31, 2018, respectively
|
|
238
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|
|
234
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|
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Paid-in capital
|
|
116,436
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114,405
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Retained earnings
|
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115,866
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135,813
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Accumulated other comprehensive loss, net
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(65,026
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)
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|
(50,930
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)
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Total stockholders’ equity
|
|
167,514
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|
|
199,522
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Total liabilities and stockholders’ equity
|
|
$
|
651,691
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|
|
$
|
709,675
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The accompanying notes are an integral part of these consolidated financial statements.
SHILOH INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
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Years Ended October 31,
|
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2019
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2018
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2017
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Net revenues
|
|
$
|
1,054,707
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$
|
1,139,944
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$
|
1,041,986
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|
Cost of sales (1)
|
|
964,131
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|
|
1,023,849
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|
|
926,631
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|
Gross profit
|
|
90,576
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|
|
116,095
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|
|
115,355
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Selling, general & administrative expenses (1)
|
|
71,312
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|
88,604
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|
|
83,070
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Amortization of intangible assets
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|
2,075
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2,372
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|
|
2,259
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Asset impairment, net
|
|
5,701
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|
|
—
|
|
|
241
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|
|
Restructuring
|
|
17,072
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|
|
6,613
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|
|
4,777
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|
|
Operating income (loss)
|
|
(5,584
|
)
|
|
18,506
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|
|
25,008
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|
|
Interest expense
|
|
16,258
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|
|
11,343
|
|
|
15,088
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|
|
Interest income
|
|
(12
|
)
|
|
(10
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)
|
|
(4
|
)
|
|
Other (income) expense, net (1)
|
|
(1,272
|
)
|
|
913
|
|
|
3,501
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|
|
Income (loss) before income taxes
|
|
(20,558
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)
|
|
6,260
|
|
|
6,423
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|
|
Provision (benefit) for income taxes
|
|
(611
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)
|
|
(5,219
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)
|
|
7,120
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|
|
Net income (loss)
|
|
$
|
(19,947
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)
|
|
$
|
11,479
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|
|
$
|
(697
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)
|
|
Income (loss) per share:
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(0.85
|
)
|
|
$
|
0.49
|
|
|
$
|
(0.04
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)
|
|
Basic weighted average number of common shares
|
|
23,506
|
|
|
23,229
|
|
|
19,233
|
|
|
Diluted earnings (loss) per share
|
|
$
|
(0.85
|
)
|
|
$
|
0.49
|
|
|
$
|
(0.04
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)
|
|
Diluted weighted average number of common shares
|
|
23,506
|
|
|
23,369
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|
|
19,233
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|
(1) Fiscal year 2017 reflects the reclassification of non-service cost components of net benefit costs to outside of operating income as a result of ASU 2017-07 adoption, effective November 1, 2017.
The accompanying notes are an integral part of these consolidated financial statements.
SHILOH INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Net income (loss)
|
$
|
(19,947
|
)
|
|
$
|
11,479
|
|
|
$
|
(697
|
)
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
Defined benefit pension plans & other post-retirement benefits
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
|
1,156
|
|
|
1,318
|
|
|
1,480
|
|
|
|
|
|
Actuarial net gain (loss)
|
(13,016
|
)
|
|
7,861
|
|
|
604
|
|
|
|
|
|
Asset net gain (loss)
|
3,331
|
|
|
(2,889
|
)
|
|
5,729
|
|
|
|
|
|
Cumulative effect of adoption of ASU 2018-02 (1)
|
—
|
|
|
(6,138
|
)
|
|
—
|
|
|
|
|
|
Income tax (benefit)
|
(217
|
)
|
|
(1,442
|
)
|
|
(3,001
|
)
|
|
|
|
Total defined benefit pension plans & other post retirement benefits, net of tax
|
(8,746
|
)
|
|
(1,290
|
)
|
|
4,812
|
|
|
|
Marketable securities
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on marketable securities
|
—
|
|
|
(173
|
)
|
|
45
|
|
|
|
|
|
Cumulative effect of adoption of ASU 2018-02 (1)
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
|
|
|
Income tax benefit (expense)
|
—
|
|
|
10
|
|
|
(250
|
)
|
|
|
|
|
Reclassification of other-than-temporary impairment losses on marketable securities included in net income (loss)
|
—
|
|
|
154
|
|
|
669
|
|
|
|
|
|
Realized gain
|
18
|
|
|
—
|
|
|
—
|
|
|
|
|
Total marketable securities, net of tax
|
18
|
|
|
(16
|
)
|
|
464
|
|
|
|
Derivatives and hedging
|
|
|
|
|
|
|
|
|
|
Unrealized (loss) gain on interest rate swap agreements
|
(1,225
|
)
|
|
1,452
|
|
|
1,543
|
|
|
|
|
|
Cumulative effect of adoption of ASU 2018-02 (1)
|
—
|
|
|
(213
|
)
|
|
—
|
|
|
|
|
|
Income tax benefit (provision)
|
217
|
|
|
(588
|
)
|
|
(1,151
|
)
|
|
|
|
|
Reclassification adjustments for settlement of derivatives included in net income (loss)
|
276
|
|
|
772
|
|
|
1,401
|
|
|
|
|
Change in fair value of derivative instruments, net of tax
|
(732
|
)
|
|
1,423
|
|
|
1,793
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss)
|
(3,959
|
)
|
|
(7,879
|
)
|
|
7,156
|
|
|
|
|
|
Income tax provision
|
(677
|
)
|
|
(931
|
)
|
|
—
|
|
|
|
|
Unrealized gain (loss) on foreign currency translation
|
(4,636
|
)
|
|
(8,810
|
)
|
|
7,156
|
|
|
Comprehensive income (loss), net
|
$
|
(34,043
|
)
|
|
$
|
2,786
|
|
|
$
|
13,528
|
|
(1) The adoption of ASU 2018-02 required reclassification from accumulated other comprehensive loss to retained earnings for stranded tax effects in accumulated other comprehensive loss results from the Tax Cuts and Jobs Act of 2017.
The accompanying notes are an integral part of these consolidated financial statements.
SHILOH INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(19,947
|
)
|
|
$
|
11,479
|
|
|
$
|
(697
|
)
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
46,753
|
|
|
45,728
|
|
|
41,648
|
|
|
Amortization of deferred financing costs
|
1,541
|
|
|
1,244
|
|
|
3,115
|
|
|
Asset impairment
|
5,701
|
|
|
—
|
|
|
241
|
|
|
Restructuring
|
4,863
|
|
|
280
|
|
|
4,420
|
|
|
Deferred income taxes
|
(3,013
|
)
|
|
(9,770
|
)
|
|
4,174
|
|
|
Stock-based compensation expense
|
2,035
|
|
|
1,984
|
|
|
1,698
|
|
|
(Gain) loss on sale of assets
|
(2,637
|
)
|
|
993
|
|
|
1,590
|
|
|
Loss on marketable securities
|
29
|
|
|
154
|
|
|
695
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable, net
|
34,114
|
|
|
(1,426
|
)
|
|
(2,919
|
)
|
|
Inventories, net
|
7,083
|
|
|
412
|
|
|
(888
|
)
|
|
Prepaids and other assets
|
(1,619
|
)
|
|
1,733
|
|
|
5,375
|
|
|
Payables and other liabilities
|
(41,644
|
)
|
|
(1,462
|
)
|
|
16,715
|
|
|
Prepaid and accrued income taxes
|
(2,013
|
)
|
|
1,877
|
|
|
1,148
|
|
|
Net cash provided by operating activities
|
31,246
|
|
|
53,226
|
|
|
76,315
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
Capital expenditures
|
(55,225
|
)
|
|
(50,135
|
)
|
|
(48,395
|
)
|
|
Sale of joint venture
|
—
|
|
|
—
|
|
|
1,170
|
|
|
Acquisitions, net of cash required
|
—
|
|
|
(62,514
|
)
|
|
—
|
|
|
Derivative settlements
|
5,855
|
|
|
—
|
|
|
—
|
|
|
Proceeds from sale of assets
|
12,393
|
|
|
3,592
|
|
|
7,605
|
|
|
Net cash used in investing activities
|
(36,977
|
)
|
|
(109,057
|
)
|
|
(39,620
|
)
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
Payment of capital leases
|
(582
|
)
|
|
(886
|
)
|
|
(879
|
)
|
|
Proceeds from long-term borrowings
|
280,500
|
|
|
266,900
|
|
|
221,600
|
|
|
Repayments of long-term borrowings
|
(275,100
|
)
|
|
(202,282
|
)
|
|
(296,770
|
)
|
|
Payment of deferred financing costs
|
(1,954
|
)
|
|
(105
|
)
|
|
(1,779
|
)
|
|
Proceeds from exercise of stock options
|
—
|
|
|
73
|
|
|
78
|
|
|
Proceeds from the issuance of common stock
|
—
|
|
|
—
|
|
|
40,227
|
|
|
Net cash provided by (used in) financing activities
|
2,864
|
|
|
63,700
|
|
|
(37,523
|
)
|
|
Effect of foreign currency exchange rate fluctuations on cash
|
344
|
|
|
238
|
|
|
868
|
|
|
Net increase (decrease) in cash and cash equivalents
|
(2,523
|
)
|
|
8,107
|
|
|
40
|
|
|
Cash and cash equivalents at beginning of period
|
16,843
|
|
|
8,736
|
|
|
8,696
|
|
|
Cash and cash equivalents at end of period
|
$
|
14,320
|
|
|
$
|
16,843
|
|
|
$
|
8,736
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information:
|
|
|
|
|
|
|
Cash paid for interest
|
$
|
14,820
|
|
|
$
|
10,594
|
|
|
$
|
12,432
|
|
|
Cash paid for income taxes
|
$
|
3,951
|
|
|
$
|
3,423
|
|
|
$
|
1,780
|
|
|
|
|
|
|
|
|
|
Non-cash Activities:
|
|
|
|
|
|
|
Capital equipment included in accounts payable
|
$
|
8,262
|
|
|
$
|
4,049
|
|
|
$
|
4,239
|
|
The accompanying notes are an integral part of these consolidated financial statements.
SHILOH INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock ($.01 Par Value)
|
|
Paid-In Capital
|
|
Retained Earnings
|
|
Accumulated Other Comprehensive Loss
|
|
Total Stockholders' Equity
|
|
October 31, 2016
|
$
|
176
|
|
|
$
|
70,403
|
|
|
$
|
118,673
|
|
|
$
|
(56,462
|
)
|
|
$
|
132,790
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
(697
|
)
|
|
—
|
|
|
(697
|
)
|
|
Other comprehensive income, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
14,225
|
|
|
14,225
|
|
|
Restricted stock and exercise of stock options
|
3
|
|
|
75
|
|
|
—
|
|
|
—
|
|
|
78
|
|
|
Issuance of common stock
|
52
|
|
|
40,175
|
|
|
—
|
|
|
—
|
|
|
40,227
|
|
|
Stock-based compensation cost
|
—
|
|
|
1,698
|
|
|
—
|
|
|
—
|
|
|
1,698
|
|
|
October 31, 2017
|
$
|
231
|
|
|
$
|
112,351
|
|
|
$
|
117,976
|
|
|
$
|
(42,237
|
)
|
|
$
|
188,321
|
|
|
Net income
|
—
|
|
|
—
|
|
|
11,479
|
|
|
—
|
|
|
11,479
|
|
|
Other comprehensive loss, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,335
|
)
|
|
(2,335
|
)
|
|
Reclassification of stranded tax effects (1)
|
—
|
|
|
—
|
|
|
6,358
|
|
|
(6,358
|
)
|
|
—
|
|
|
Restricted stock and exercise of stock options
|
3
|
|
|
70
|
|
|
—
|
|
|
—
|
|
|
73
|
|
|
Stock-based compensation cost
|
—
|
|
|
1,984
|
|
|
—
|
|
|
—
|
|
|
1,984
|
|
|
October 31, 2018
|
$
|
234
|
|
|
$
|
114,405
|
|
|
$
|
135,813
|
|
|
$
|
(50,930
|
)
|
|
$
|
199,522
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
(19,947
|
)
|
|
—
|
|
|
(19,947
|
)
|
|
Other comprehensive loss, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(14,096
|
)
|
|
(14,096
|
)
|
|
Restricted stock and exercise of stock options
|
4
|
|
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Stock-based compensation cost
|
—
|
|
|
2,035
|
|
|
—
|
|
|
—
|
|
|
2,035
|
|
|
October 31, 2019
|
$
|
238
|
|
|
$
|
116,436
|
|
|
$
|
115,866
|
|
|
$
|
(65,026
|
)
|
|
$
|
167,514
|
|
(1) The adoption of ASU 2018-02 required reclassification from accumulated other comprehensive loss to retained earnings for stranded tax effects in accumulated other comprehensive loss results from the Tax Cuts and Jobs Act of 2017.
The accompanying notes are an integral part of these consolidated financial statements.
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and number of shares in thousands except per share data)
Note 1—Summary of Significant Accounting Policies
General: We are a global innovative solutions provider focusing on lightweighting technologies that provides environmental and safety benefits to the mobility market. Our multi-component, multi-material solutions are comprised of a variety of alloys in aluminum, magnesium and steel grades, along with its proprietary line of noise and vibration reducing ShilohCore® acoustic laminate products. The strategic BlankLight®, CastLight® and StampLight® brands combine to maximize lightweighting solutions without compromising safety or performance. Shiloh delivers these solutions in body structure, chassis and propulsion systems to original equipment manufacturers ("OEMs") and several "Tier 1" suppliers to the OEMs in the automotive and commercial vehicle markets.
The Company has thirty-five wholly-owned subsidiaries at locations in Asia, Europe and North America as of the fiscal year ended October 31, 2019.
Oak Tree Holdings (the parent of MTD Products Inc.) and affiliates owned 31% of the Company's outstanding shares of common stock as of October 31, 2019, making Oak Tree Holdings and MTD Products Inc. related parties of the Company.
Principles of Consolidation: The consolidated financial statements include the accounts of Shiloh Industries, Inc. and all wholly-owned subsidiaries. Intercompany transactions are eliminated in the consolidation process of the financial statements.
Revenue Recognition: We enter into contracts with our customers to provide production parts generally at the beginning of a vehicle’s life cycle. Typically, these contracts do not provide for a specified quantity of products, but once entered into, we are often expected to fulfill our customers’ purchasing requirements for the production life of the vehicle. Many of these contracts may be terminated by our customers at any time. Historically, terminations of these contracts have been minimal. We receive purchase orders from our customers, which provide the commercial terms for a particular production part, including price (but not quantities). Contracts may also provide for annual price reductions over the production life of the vehicle, and prices may be adjusted on an ongoing basis to reflect changes in product content/cost and other commercial factors.
Revenue is recognized at a point in time when control of the product is transferred to the customer under standard commercial terms, as we do not have an enforceable right to payment prior to such transfer. The amount of revenue recognized reflects the consideration that we expect to be entitled to in exchange for those products based on the annual purchase orders and annual price reductions. Our customers pay for products received in accordance with payment terms that are customary within the industry. Our contracts with our customers do not have significant financing components. Amounts billed to customers related to shipping and handling costs are included in net sales in the consolidated statements of operations. Shipping and handling costs are accounted for as fulfillment costs and are included in cost of sales in the consolidated statements of operations. Also see “Note 3 - Revenue” for further information.
Shipping and Handling Activities: Shipping and handling costs associated with outbound freight after parts have transferred to a customer, are accounted for as a fulfillment cost and are included in cost of sales.
Inventories: Inventories are valued at the lower of cost and net realizable value, using the first-in first-out ("FIFO") method.
Pre-production and Development Costs: We enter into contractual agreements with certain customers for tooling. All such tooling contracts relate to parts that we will supply to customers under supply agreements. Tooling costs are capitalized in other current assets as tooling contracts are separate from standard production contracts. At October 31, 2019 and 2018, tooling costs of $6,747 and $5,510, respectively, were included in other current assets.
Property, Plant and Equipment: Property, plant and equipment are stated at cost or at fair market value for plant, property and equipment acquired through acquisitions. Expenditures for maintenance, repairs and renewals are charged to expense as incurred, while major improvements are capitalized. The costs of these improvements are depreciated over their estimated useful lives. Useful lives range from three to ten years for furniture and fixtures and machinery and equipment, or if the assets are dedicated to a customer program, over the estimated life of that program, ten years for land improvements and twenty years for buildings and their related improvements. Depreciation is computed using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes. When assets are retired or otherwise disposed, the related cost and accumulated
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
depreciation are removed from the accounts, and any gain or loss on the disposition is included in the earnings for the current period.
Income Taxes: We utilize the asset and liability method in accounting for income taxes. Income tax expense includes U.S. and international income taxes minus tax credits and other incentives that will reduce tax expense in the year they are claimed. Deferred taxes are recognized at currently enacted tax rates for temporary differences between the financial accounting and income tax basis of assets and liabilities and operating losses and tax credit carry-forwards. Valuation allowances are recorded to reduce net deferred tax assets to the amount that is more likely than not to be realized. We assess both positive and negative evidence when measuring the need for a valuation allowance. Evidence typically assessed includes the operating results for the most recent three-year period and the expectations of future profitability, available tax planning strategies, the time period over which the temporary differences will reverse and taxable income in prior carry-back years if carry-back is permitted under the tax law. The calculation of our tax liabilities also involves dealing with uncertainties in the application of complex tax laws and regulations. We recognize liabilities for uncertain income tax positions based on the Company’s estimate of whether, and the extent to which, additional taxes will be required. We report interest and penalties related to uncertain income tax positions as income taxes. Tax provision or benefits from other comprehensive income activities reflect the statutory rate of such activities.
Business Combinations: We account for business combinations using the acquisition method, which requires the identification of the acquirer, the determination of the acquisition date and the allocation of the purchase price paid by the acquirer to the identifiable tangible and intangible assets acquired, the liabilities assumed, including any contingent consideration on the acquisition date at fair value. Goodwill represents the excess of the purchase price over the fair value of net assets acquired. Acquisition-related costs are expensed in the periods in which the costs are incurred. The results of operations of acquired businesses are included in our consolidated financial statements from the acquisition date.
Intangible Assets: Intangible assets with definitive lives are amortized over their estimated useful lives. We amortize our acquired intangible assets with definitive lives on a straight-line basis over periods ranging from three months to fifteen years. See note 8 - "Goodwill and Intangible Assets, Net" for a description of the current intangible assets and their estimated amortization expense.
An impairment analysis of definite-lived intangible assets is performed when indicators of potential impairment exists.
Goodwill: Goodwill is the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a business combination. Goodwill relates to and is assigned directly to specific reporting units. Goodwill is not amortized but is subject to impairment assessment. In accordance with ASC 350, "Intangibles-Goodwill and Other," we assess goodwill for impairment on an annual basis, or more frequently, if an event occurs or circumstances change that would more likely than not reduce the fair value below the carrying amount. Our annual impairment assessment is performed as of September 30. Such assessment can be done on a qualitative or quantitative basis. When conducting a qualitative assessment, we consider relevant events and circumstances that affect the fair value or carrying amount of the reporting unit. A quantitative assessment is required only if we conclude that it is more likely than not that a reporting unit’s fair value is less than its carrying amount, or we elect not to perform a qualitative assessment of a reporting unit. We consider the extent to which each of the events and circumstances identified affect the comparison of the reporting unit's fair value or the carrying amount. Such events and circumstances could include macroeconomic conditions, industry and market considerations, overall financial performance, entity and reporting unit specific events, product brand level specific events and cost factors. We place more weight on the events and circumstances that may affect the determination of whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. These factors are all considered by management in reaching its conclusion about whether to perform a quantitative goodwill impairment assessment.
We perform a quantitative annual goodwill impairment assessment by comparing the fair value of a reporting unit to its carrying amount, including goodwill. If the carrying amount exceeds the fair value, we recognize an impairment charge for the amount by which the carrying amount exceeds the fair value, not to exceed the total amount of goodwill in that reporting unit.
Share-based Payments: We record compensation expense for the fair value of nonvested stock option awards and restricted stock awards over the remaining vesting period. We have elected to use the simplified method and utilize the historical weighted average volatility to calculate the expected term of the stock options outstanding. Any outstanding option will not be exercisable more than ten years from the date of grant. We determine the volatility and risk-free rate assumptions used in computing the fair
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
value using the Black-Scholes option-pricing model, in consultation with an outside third party. The expected term for a restricted stock award is between one and three years.
The Black-Scholes option valuation model requires the input of highly subjective assumptions, including the expected life of the stock-based award and stock price volatility. The assumptions used are management’s best estimates, but the estimates involve inherent uncertainties and the application of management judgment. As a result, if other assumptions had been used, the recorded stock-based compensation expense could have been materially different from that depicted in the financial statements. In addition, we do not estimate a forfeiture rate at the time of grant instead we elected to recognize share-based compensation expense as forfeitures occur.
New restricted stock and restricted stock unit grants are valued at the closing market price on the date of grant. In addition, we do not estimate a forfeiture rate at the time of grant, instead, we elected to recognize share-based compensation expense as forfeitures occur.
Employee Benefit Plans: We accrue the cost of U.S. defined benefit pension plans, which are frozen, in accordance with Statement of FASB ASC Topic 715 "Compensation - Retirement Benefits." The plans are funded based on the requirements and limitations of the Employee Retirement Income Security Act of 1974. As of October 31, 2019, 98% of our U.S. employees participated in discretionary profit sharing plans administered by us. We also provide post-retirement medical benefits to 12 former employees.
Actual results that differ from these estimates may result in more or less future Company funding into the pension plans than is planned by management.
Cash and Cash Equivalents: Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less. Cash in foreign subsidiaries totaled $13,101 and $16,107 at October 31, 2019 and October 31, 2018, respectively.
Concentration of Risk: We sell products to customers primarily in the automotive and commercial vehicle markets. Financial instruments, which potentially subject us to concentration of credit risk, are primarily accounts receivable. We perform on-going credit evaluations of our customers' financial condition. The allowance for doubtful accounts is based on the expected collectability of all accounts receivable. Losses have historically been within management's expectations. We do not have financial instruments with off-balance sheet risk. See note 19- "Business Segment Information" for a breakdown of concentration of revenues.
We believe that the concentration of credit risk in our trade receivables is substantially mitigated by our ongoing credit evaluation process and relatively short collection terms. We do not generally require collateral from customers. We establish an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.
Fair Value of Financial Instruments: The carrying amounts of cash and cash equivalents, trade receivables and payables approximate fair value because of the short maturity of those instruments. The carrying value of our debt and derivative instruments are considered to approximate the fair value of these instruments based on the borrowing rates currently available to us for loans with similar terms and maturities.
Derivative Financial Instruments: We use interest rate swaps to manage volatility of underlying exposures. We recognize all of our derivative instruments as either assets or liabilities at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated, and is effective, as a hedge and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. Gains and losses related to a hedge are either recognized in income immediately to offset the gain or loss on the hedged item or are deferred and reported as a component of Comprehensive Income (Loss) and subsequently recognized in earnings when the hedged item affects earnings. The gain or loss related to financial instruments that are not designated as hedges are recognized immediately in earnings. Cash flows related to hedging activities are included in the operating section of the consolidated statements of cash flows. We do not hold or issue derivative financial instruments for trading or speculative purposes. Our objective for holding derivatives is to minimize risk using the most effective and cost-efficient methods available.
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Foreign Currency Translation: Our functional currency is the U.S. dollar as a substantial part of our operations are based in the U.S. The financial statements of all subsidiaries with a functional currency other than the U.S. Dollar have been translated into U.S. Dollars. The translation from the applicable foreign currencies to U.S. dollars is performed for balance sheet accounts using exchange rates in effect at the balance sheet date. Revenue and expense accounts are translated from the applicable foreign currency using a weighted average exchange rate for the period. The resulting translation adjustments are recorded as a component of Other Comprehensive Income (Loss) ("OCI"). We engage in foreign currency denominated transactions with customers and suppliers, as well as between subsidiaries with different functional currencies. Gains and losses resulting from foreign currency transactions are recognized in net income (loss) in the consolidated statements of operations. Non-functional currency denominated intercompany balances which are long-term in nature are recognized in accumulated other comprehensive loss.
Guarantees: We have certain indemnification clauses within our Credit Agreement (as defined above) and certain lease agreements that are considered to be guarantees within the scope of ASC 460, "Guarantees." We do not consider these guarantees to be probable, and we cannot estimate their maximum exposure. Additionally, our exposure to warranty-related obligations is not material.
Accounting Estimates: The preparation of the consolidated financial statements is in conformity with accounting principles generally accepted in the United States. These principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Also, the reported amounts of revenues and expenses are affected during the reporting period. On an ongoing basis, management reviews its estimates based upon current available information. Actual results could differ from those estimates.
Prior Year Reclassifications:
During the fourth quarter of fiscal 2019, the Company reclassified the category for payments in the liability rollforward table contained in Note 18 "Restructuring Charges" to the Consolidated Financial Statements, included in Item 8 of this report. There was no impact on our financial position or results of operations.
Recently Issued Accounting Standards:
|
|
|
|
|
|
|
|
Standard
|
Description
|
Effective Date
|
Effect on our financial statements and other significant matters
|
|
ASU 2018-14 Compensation-Retirements Benefits-Defined Benefit Plans
|
This Accounting Standards Update ("ASU") amendment adds the following to disclosure requirements: (1) The weighted-average interest crediting rates used in the entity’s cash balance pension plans and other similar plans; (2) A narrative description of the reasons for significant gains and losses affecting the benefit obligation for the period; (3) An explanation of any other significant changes in the benefit obligation or plan assets that are not otherwise apparent in the other disclosures required by Accounting Standards Codification ("ASC") Topic 715, Compensation-Retirement Benefits. Also, this amendment clarifies the guidance in ASC 715-20-50-3 on defined benefit plans to require disclosure of (1) the projected benefit obligation (PBO) and fair value of plan assets for pension plans with PBOs in excess of plan assets (the same disclosure with reference to the accumulated postretirement benefit obligation rather than the PBO is required for other postretirement benefit plans) and (2) the accumulated benefit obligation (ABO) and fair value of plan assets for pension plans with ABOs in excess of plan assets.
|
November 1, 2021
|
We are in the process of evaluating the impact of adoption of this standard on our financial statements.
|
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
|
|
|
|
|
|
|
|
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.
|
|
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). Also, the amendments 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.
|
|
ASU 2018-13 Fair Value Measurement
|
The amendments contained within this ASU eliminate the need to explain transfers between Level 1 and 2 within the fair value hierarchy. Additionally, the ASC expands on disclosure and accounting requirements for Level 3 within the fair value hierarchy.
|
November 1, 2019 with early adoption permitted.
|
We do not expect the adoption of these provisions to have a significant impact on the Company's consolidated financial statements, as the Company does not have any level 3 fair value measurements.
|
|
ASU 2018-16 Derivatives and Hedging
|
This new amendment adds the Overnight Index Swap rate (OIS) based on the Secured Overnight Financing Rate ("SOFR") as a U.S. benchmark interest rate to facilitate the LIBOR to SOFR transition and provide sufficient lead time for entities to prepare for changes to interest rate risk hedging strategies for both risk management and hedge accounting purposes.
|
November 1, 2019 with early adoption permitted.
|
We do not expect the adoption of these provisions to have a significant impact on the Company's consolidated financial statements.
|
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 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.
|
See below(1)
|
(1)We substantially completed our assessment of the impacts of the new lease standard during the fourth quarter. We have determined that the adoption of ASU 2016-02 will result in recognizing right of use assets and liabilities on the consolidated balance sheet for leases currently classified as operating leases. We expect to utilize the following practical expedients:
|
|
|
|
•
|
to retrospectively record the right of use assets and lease liabilities as of November 1, 2019 with any cumulative effect of the initial application recorded to retained earnings;
|
|
|
|
|
•
|
package of practical expedients to not reassess whether any expired or existing contracts are or contain leases, not reassess the lease classification for any expired or existing leases, and not reassess initial direct costs for any existing leases;
|
|
|
|
|
•
|
to use hindsight in determining the lease term (that is, when considering lessee options to extend or terminate the lease and to purchase the underlying asset) and in assessing impairment of the Company’s right-of-use assets;
|
|
|
|
|
•
|
to exclude short-term leases from the balance sheet; and
|
|
|
|
|
•
|
to not assess whether existing or expired land easements that were not previously accounted for as leases under Topic 840 are, or contain, a lease.
|
We expect that the disclosures in the notes to our consolidated financial statements related to leases will be expanded under the new standard, specifically:
|
|
|
|
•
|
general disclosures about the Company’s leases, the significant judgments made in applying the requirements in this standard to those leases, and the amounts recognized in the consolidated financial statements relating to those leases;
|
|
|
|
|
•
|
requiring a general description of the leases, the existence and terms and conditions of options to extend or terminate the lease including narrative disclosure about the options that are recognized as part of its right-of-
|
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
use assets and lease liabilities and those that are not, information about leases that have not yet commenced but that create significant rights and obligations for the Company, significant assumptions and judgments made in determining whether a contract contains a lease, the allocation of the consideration in a contract between lease and non-lease components and the determination of discount rates for leases;
|
|
|
|
•
|
requiring the disclosure for each period presented in the consolidated financial statements relating to the Company’s total lease cost, which includes both amounts recognized in profit or loss during the period and any amounts capitalized as part of the cost of another asset and the cash flows arising from lease transactions for finance leasing cost, segregated between the amortization of the right-of-use assets and interest on the lease liabilities; operating lease costs; and short-term lease costs; amounts segregated between those for finance and operating leases for cash paid for amounts included in the measurement of lease liabilities, segregated between operating and financing cash flows, supplemental non-cash information on lease liabilities arising from obtaining right-of-use assets, the weighted-average remaining lease term and the weighted-average discount rate;
|
|
|
|
|
•
|
requires a maturity analysis of the Company’s finance lease and operating lease liabilities, separately, showing the undiscounted cash flows on an annual basis for each of the first five years and a total amount for the remaining years; and
|
|
|
|
|
•
|
requires the Company to disclose the fact that it elected to exclude short term leases from the balance sheet and disclose the amount of short term lease commitments if the lease expense for the period does not reasonably reflect the entity’s short term lease commitments.
|
It is expected that certain other provisions of ASC 842 not mentioned above will not significantly impact the Company.
We will adopt ASU 2016-02 as of November 1, 2019 using the current-period adjustment approach. As a result, in the first quarter of 2020, we expect to record right of use assets and liabilities for operating leases ranging from $65,000 to $70,000 and for financing lease(s) of approximately $2,000.
We are unable to precisely quantify the impact to expenses for future periods since expenses recognized in those periods will depend on the actual leasing levels in those periods, but we do not expect those expenses from recognizing right of use assets and lease liabilities to change significantly.
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 the Company's financial position, results of operations or financial statement disclosures. The Company's awards are rarely modified after grant.
|
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 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 ASC 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 calculation 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 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 the Company's financial position, results of operations or financial statement disclosures.
|
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 Extinguishment (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)
|
November 1, 2018
|
Adoption of the clarifications and corrections in this ASU did not have a material impact on the Company's financial position, results of operations or financial statement disclosures.
|
|
ASU 2018-05 Income Taxes
|
In 2018, the Financial Accounting Standards Board issued Accounting Standards Update ASU 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (ASU 2018-05), which updates the income tax accounting in U.S. generally accepted accounting principles to reflect the SEC interpretive guidance released on December 22, 2017, when the 2017 Act was signed into law.
|
October 31, 2019
|
Adoption of the clarifications and technical improvements within this ASU did not have a material impact on the Company's financial position, results of operations or financial statement disclosures.
|
|
ASU 2018-03 Technical Corrections and improvements to Financial Instruments - Overall
|
The improvements within this ASU provide clarification regarding the following: (1) The ability to discontinue application of the measurement alternative for equity securities without a readily determinable fair value, (2) the measurement date for fair value adjustments to the carrying amount of equity securities without a readily determinable fair value for which the measurement alternative is elected, (3) the unit of account for fair value adjustments to forward contracts and purchased options on equity securities without a readily determinable fair value for which the measurement alternative is expected to be elected, (4) presentation requirements for certain hybrid financial liabilities for which the fair value option is elected, (5) measurement of financial liabilities denominated in a foreign currency for which the fair value option is elected and (6) transition guidance for equity securities without a readily determinable fair value.
|
October 31, 2019
|
Adoption of the clarifications and technical improvements within this ASU did not have a material impact on the Company's financial position, results of operations or financial statement disclosures.
|
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Note 2—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. The fair value of the final valuation was $39,824 for current assets, $53,200 for fixed assets, $2,328 for intangible assets and $30,079 for liabilities.
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.
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
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Region:
|
|
|
|
|
|
|
|
North America
|
|
$
|
812,492
|
|
|
$
|
887,481
|
|
|
$
|
884,650
|
|
|
Europe & Asia
|
|
276,115
|
|
|
281,692
|
|
|
178,895
|
|
|
Eliminations
|
|
(33,900
|
)
|
|
(29,229
|
)
|
|
(21,559
|
)
|
|
Total Company
|
|
$
|
1,054,707
|
|
|
$
|
1,139,944
|
|
|
$
|
1,041,986
|
|
Note 4 - 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 $884 and $676 at October 31, 2019 and 2018, respectively. We recognized bad debt expense of $416, $32 and $493 during fiscal 2019, 2018 and 2017, respectively, in the consolidated statements 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, the Company has entered into factoring agreements with third party financial institutions ("institutions") for the sale of certain accounts receivable, with and without recourse. The sale of the receivables is accounted for in accordance with Financial Accounting Standards Board ("FASB") ASC 860, Transfers and Servicing. Under that guidance, receivables are considered sold when they are transferred beyond the reach of the Company and its creditors, the purchaser has the right to pledge or exchange the receivables, and the Company has surrendered control over the transferred receivables. In addition, certain agreements address events and conditions which may obligate the Company to immediately repay to the institutions the outstanding purchase price of the receivables sold.
The total amount of receivables factored with recourse as of October 31, 2019 and 2018, was $8,779 and $13,545, respectively. As these sales are of trade accounts receivable with recourse, $9,188 and $11,742 were recorded in accounts payable as of October 31, 2019 and 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 the sale of these receivables is recorded as a component of selling, general and administrative expense in the accompanying consolidated statements of operations.
As of October 31, 2019 and 2018, $2,538 and $4,137 of trade accounts receivable were subject to factoring without recourse, respectively. The amounts subject to factoring without recourse for the year 2019 have been included in the proceeds for net cash provided by operating activities in the consolidated statements of cash flows. The expense associated with the sale of the receivables is recorded as a component of selling, general and administrative expense in the accompanying consolidated statements of operations.
Note 5 —Related Party Receivables
Sales to MTD Products Inc. and its affiliates were $6,996, $5,374 and $5,129 for fiscal years 2019, 2018 and 2017, respectively. At October 31, 2019 and 2018, we had receivable balances of $1,477 and $996, respectively, due from MTD Products Inc. and its affiliates.
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Note 6—Inventories, Net
Inventories, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
2019
|
|
2018
|
|
Raw materials
|
$
|
26,653
|
|
|
$
|
28,457
|
|
|
Work-in-process
|
21,369
|
|
|
24,435
|
|
|
Finished goods
|
19,470
|
|
|
21,637
|
|
|
Reserves
|
(3,945
|
)
|
|
(3,117
|
)
|
|
Total inventories, net
|
$
|
63,547
|
|
|
$
|
71,412
|
|
Note 7—Property, Plant and Equipment, Net
Property, plant and equipment, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
2019
|
|
2018
|
|
Land and improvements
|
$
|
13,930
|
|
|
$
|
13,954
|
|
|
Buildings and improvements
|
127,241
|
|
|
124,076
|
|
|
Machinery and equipment
|
523,272
|
|
|
493,522
|
|
|
Furniture and fixtures
|
24,653
|
|
|
22,556
|
|
|
Construction in progress
|
54,723
|
|
|
41,964
|
|
|
Total, at cost
|
743,819
|
|
|
696,072
|
|
|
Less: Accumulated depreciation
|
415,793
|
|
|
379,896
|
|
|
Property, plant and equipment, net
|
$
|
328,026
|
|
|
$
|
316,176
|
|
Depreciation expense was $44,678, $43,356 and $39,389 in fiscal 2019, 2018 and 2017, respectively.
During the years ended October 31, 2019, 2018 and 2017 interest capitalized as part of property, plant and equipment was $1,183, $648 and $704, respectively. We had unpaid capital expenditures included in accounts payable of $8,262, $4,049 and $4,239 at October 31, 2019, 2018 and 2017, respectively, and consequently such amounts are excluded from capital expenditures in the accompanying consolidated statements of cash flows for the fiscal years 2019 and 2018.
Capital Leases:
Leased property, net is calculated based on the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
2019
|
|
2018
|
|
Leased Property:
|
|
|
|
|
Machinery and equipment
|
$
|
4,071
|
|
|
$
|
6,701
|
|
|
Less: Accumulated depreciation
|
1,769
|
|
|
3,073
|
|
|
Leased property, net
|
$
|
2,302
|
|
|
$
|
3,628
|
|
The Company maintains a capital lease that bears interest at a variable rate based on the STIBOR 90 and requires monthly payments through October 31, 2020. As of October 31, 2019 and 2018, $2,000 and $2,543 remained outstanding under this agreement and was classified as debt in our consolidated balance sheet, respectively. At the end of the lease term, a lump sum payment of $1,617 is required.
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Future minimum rental payments to be made under capital leases at October 31, 2019 are as follows:
|
|
|
|
|
|
|
|
Twelve Months Ending October 31,
|
|
|
2020
|
$
|
1,975
|
|
|
2021
|
—
|
|
|
2022
|
—
|
|
|
2023
|
—
|
|
|
2024
|
—
|
|
|
|
1,975
|
|
|
Plus amount representing interest of 2.18% at October 31, 2019
|
25
|
|
|
Total obligations under capital leases
|
$
|
2,000
|
|
Note 8—Goodwill and Intangible Assets, Net
Goodwill:
In accordance with FASB ASC Topic 350, "Intangibles – Goodwill and Other", goodwill must be reviewed for impairment annually, or more frequently if events and circumstances arise that suggest the asset may be impaired. We conduct our review for goodwill impairment on September 30 of each year. Goodwill impairment testing is performed at the reporting unit level. The fair value is compared to the carrying value including goodwill. If the carrying value exceeds the fair value, then goodwill impairment exists. We performed a quantitative assessment at the reporting unit level in 2019 and determined that our Europe and Asia reporting unit carrying value exceeds the fair value. The annual assessment of goodwill for Europe and Asia considered changes in macroeconomic conditions and industry trends in the fourth quarter, historical and future operating results, timing of restructuring plans and timing of new business and resulted in the calculated fair value being below the carrying value. As a result of the interim goodwill impairment test performed as of September 30, 2019, a goodwill impairment charge of $4,901 was recognized. Our goodwill impairment test as of September 30, 2018 concluded there was no impairment of goodwill.
The changes in the carrying amount of goodwill are as follows:
|
|
|
|
|
|
|
|
|
|
Balance October 31, 2017
|
|
$
|
27,859
|
|
|
|
Foreign currency translation
|
|
(483
|
)
|
|
Balance October 31, 2018
|
|
27,376
|
|
|
|
Impairment
|
|
(4,901
|
)
|
|
|
Foreign currency translation
|
|
(80
|
)
|
|
Balance October 31, 2019
|
|
$
|
22,395
|
|
Intangible Assets:
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The changes in the carrying amount of finite-lived intangible assets for the years ended October 31, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer Relationships
|
Developed Technology
|
Non-Compete
|
Trade Name
|
Trademark
|
Total
|
|
Balance October 31, 2017
|
$
|
11,648
|
|
$
|
1,997
|
|
$
|
31
|
|
$
|
1,254
|
|
$
|
95
|
|
$
|
15,025
|
|
|
|
Acquisitions
|
—
|
|
2,328
|
|
—
|
|
—
|
|
—
|
|
2,328
|
|
|
|
Amortization expense
|
(1,332
|
)
|
(751
|
)
|
(16
|
)
|
(123
|
)
|
(17
|
)
|
(2,239
|
)
|
|
|
Foreign currency translation
|
(5
|
)
|
(170
|
)
|
—
|
|
—
|
|
—
|
|
(175
|
)
|
|
Balance October 31, 2018
|
10,311
|
|
3,404
|
|
15
|
|
1,131
|
|
78
|
|
14,939
|
|
|
|
Amortization expense
|
(1,331
|
)
|
(394
|
)
|
(15
|
)
|
(123
|
)
|
(17
|
)
|
(1,880
|
)
|
|
|
Foreign currency translation
|
(3
|
)
|
(31
|
)
|
—
|
|
—
|
|
—
|
|
(34
|
)
|
|
Balance October 31, 2019
|
$
|
8,977
|
|
$
|
2,979
|
|
$
|
—
|
|
$
|
1,008
|
|
$
|
61
|
|
$
|
13,025
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2019
|
|
|
|
Weighted Average Remaining Life (years)
|
|
Gross Carrying Value Net of Foreign Currency
|
|
Accumulated Amortization
|
|
Net
|
|
|
Customer relationships
|
6.70
|
|
$
|
17,561
|
|
|
$
|
(8,584
|
)
|
|
$
|
8,977
|
|
|
|
Developed technology
|
9.1
|
|
7,134
|
|
|
(4,155
|
)
|
|
2,979
|
|
|
|
Non-compete agreements
|
0
|
|
824
|
|
|
(824
|
)
|
|
—
|
|
|
|
Trade names
|
8.2
|
|
1,875
|
|
|
(867
|
)
|
|
1,008
|
|
|
|
Trademarks
|
3.8
|
|
166
|
|
|
(105
|
)
|
|
61
|
|
|
|
Total intangible assets
|
|
|
$
|
27,560
|
|
|
$
|
(14,535
|
)
|
|
$
|
13,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2018
|
|
|
|
|
Gross Carrying Value Net of Foreign Currency
|
|
Accumulated Amortization
|
|
Net
|
|
|
Customer relationships
|
|
$
|
17,564
|
|
|
$
|
(7,253
|
)
|
|
$
|
10,311
|
|
|
|
Developed technology
|
|
7,165
|
|
|
(3,761
|
)
|
|
3,404
|
|
|
|
Non-compete agreements
|
|
824
|
|
|
(809
|
)
|
|
15
|
|
|
|
Trade names
|
|
1,875
|
|
|
(744
|
)
|
|
1,131
|
|
|
|
Trademarks
|
|
166
|
|
|
(88
|
)
|
|
78
|
|
|
|
Total intangible assets
|
|
$
|
27,594
|
|
|
$
|
(12,655
|
)
|
|
$
|
14,939
|
|
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Total amortization expense for the years ended October 31, 2019, 2018 and 2017 was $2,075, $2,372 and $2,259, respectively. A favorable lease asset of $1,458 was acquired as part of the Brabant acquisitions in fiscal 2018 with a 7 year useful life. Amortization expense of $195 for this asset is included in amortization of intangible assets for fiscal 2019 and the balance of $1,004 is included within other assets. Amortization expense related to intangible assets and the favorable lease asset for the following fiscal years ending is estimated to be as follows:
|
|
|
|
|
|
|
|
|
2020
|
|
$
|
2,057
|
|
|
2021
|
|
2,058
|
|
|
2022
|
|
2,058
|
|
|
2023
|
|
2,054
|
|
|
2024
|
|
2,019
|
|
|
Thereafter
|
|
3,783
|
|
|
|
|
$
|
14,029
|
|
Note 9—Financing Arrangements
Debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
2019
|
|
2018
|
|
Credit Agreement —interest at 5.18% and 4.59% at October 31, 2019 and October 31, 2018, respectively
|
$
|
248,695
|
|
|
$
|
243,300
|
|
|
Capital lease obligations
|
1,975
|
|
|
2,640
|
|
|
Insurance broker financing agreement
|
—
|
|
|
738
|
|
|
Total debt
|
250,670
|
|
|
246,678
|
|
|
Less: Current debt
|
1,975
|
|
|
1,327
|
|
|
Total long-term debt
|
$
|
248,695
|
|
|
$
|
245,351
|
|
At October 31, 2019, the Company had floating rate debt on a revolving line of credit of $248,695, net of its capital lease obligations. The weighted average interest rate of all debt was 5.16% and 3.91% for fiscal years 2019 and 2018, respectively.
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 June 6, 2019, we executed the Ninth Amendment to the Credit Agreement, which improved certain thresholds for the consolidated leverage ratio and various baskets related to the indebtedness of foreign subsidiaries, disposition of assets, capital expenditures and sale leaseback transactions. The Ninth Amendment also adjusted the interest rate margins based on the applicable pricing tiers, but did not modify the aggregate revolving commitments under the Credit Agreement.
On October 31, 2017, we executed the Eighth Amendment, 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 eliminates the scheduled reductions in such availability. The amendment increases the aggregate amount of incremental commitment increases 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.
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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 Seventh Amendment also enhances our ability to take advantage of customer supply chain finance programs.
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 provides for an interest rate margin on LIBOR loans of 1.5% to 3.0% and of 0.50% to 2.0% on base rate loans depending on our 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 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 as of October 31, 2019 and October 31, 2018. In the next fiscal year the interest coverage ratio remains at 3.5 times and the leverage ratio decreases from 4.75 times in the first quarter to 3.25 times in the fourth quarter.
After considering letters of credit of $4,254 that we have issued, unused commitments under the Credit Agreement were $97,051 at October 31, 2019.
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 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 2.05% and requires monthly payments of $94 through May 2019.
We maintain capital leases for equipment used in our manufacturing facilities with lease terms expiring during fiscal 2020. As of October 31, 2019, the present value of minimum lease payments under our capital leases was $1,975.
Scheduled repayments of debt for the next five years are listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ending October 31,
|
|
Credit Agreement
|
|
Capital Lease Obligations
|
|
Total
|
|
|
|
|
|
|
|
|
|
2020
|
|
$
|
—
|
|
|
$
|
1,975
|
|
|
$
|
1,975
|
|
|
2021
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2022
|
|
248,695
|
|
|
—
|
|
|
248,695
|
|
|
2023
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2024
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
|
$
|
248,695
|
|
|
$
|
1,975
|
|
|
$
|
250,670
|
|
|
|
|
|
|
|
|
|
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Note 10—Operating Leases
We lease buildings, material handling, manufacturing and office equipment under operating leases with terms that range from one to fifteen years at inception. The leases do not include step rent provisions, escalation clauses, capital improvement funding or other lease concessions that qualify the leases as a contingent rental. Also, the leases do not include a variable related to a published index. Our operating leases are charged to expense over the lease term, on a straight-line basis.
The longest lease term of our current leases extends to May, 2033. Rent expense under operating leases for fiscal years 2019, 2018 and 2017 was $14,266, $14,243 and $11,147, respectively.
Future minimum lease payments under operating leases are as follows at October 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
2020
|
$
|
12,040
|
|
|
2021
|
8,960
|
|
2022
|
5,102
|
|
2023
|
3,816
|
|
2024
|
2,717
|
|
Thereafter
|
10,513
|
|
|
Total commitments under non-cancelable operating leases
|
$
|
43,148
|
|
Note 11—Employee Benefit Plans
We maintain pension plans, which are frozen, covering our eligible employees. We provide an unfunded postretirement health care benefit plan for 12 retirees and their dependents. The measurement date for our employee benefit plans coincides with our fiscal year end.
Obligations and Funded Status of U.S. Plans at October 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Post Retirement Benefits
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
(79,898
|
)
|
|
$
|
(89,063
|
)
|
|
$
|
(283
|
)
|
|
$
|
(313
|
)
|
|
Interest cost
|
(3,366
|
)
|
|
(3,166
|
)
|
|
(11
|
)
|
|
(11
|
)
|
|
Actuarial gain/(loss)
|
(12,995
|
)
|
|
7,849
|
|
|
(21
|
)
|
|
12
|
|
|
Benefits paid
|
5,062
|
|
|
4,482
|
|
|
32
|
|
|
29
|
|
|
Benefit obligation at end of year
|
(91,197
|
)
|
|
(79,898
|
)
|
|
(283
|
)
|
|
(283
|
)
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
65,646
|
|
|
69,215
|
|
|
—
|
|
|
—
|
|
|
Actual return on plan assets
|
6,672
|
|
|
468
|
|
|
—
|
|
|
—
|
|
|
Employer contributions
|
1,351
|
|
|
445
|
|
|
32
|
|
|
29
|
|
|
Benefits paid
|
(5,062
|
)
|
|
(4,482
|
)
|
|
(32
|
)
|
|
(29
|
)
|
|
Fair value of plan assets at end of year
|
68,607
|
|
|
65,646
|
|
|
—
|
|
|
—
|
|
|
Funded status, benefit obligations in excess of plan assets
|
$
|
(22,590
|
)
|
|
$
|
(14,252
|
)
|
|
$
|
(283
|
)
|
|
$
|
(283
|
)
|
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The following amounts are recorded in the liabilities section of the consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Post Retirement Benefits
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Other accrued expenses (1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(39
|
)
|
|
$
|
(39
|
)
|
|
Long-term benefit liabilities
|
(22,590
|
)
|
|
(14,252
|
)
|
|
(244
|
)
|
|
(244
|
)
|
|
Total
|
$
|
(22,590
|
)
|
|
$
|
(14,252
|
)
|
|
$
|
(283
|
)
|
|
$
|
(283
|
)
|
|
|
|
|
|
|
|
|
|
(1) As pension assets exceed expected benefit payments over the next year, liabilities for the pension plan are considered long-term.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of Net Periodic Benefit Cost U.S. Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Post Retirement Benefits
|
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
|
Interest cost
|
$
|
3,366
|
|
|
$
|
3,166
|
|
|
$
|
3,282
|
|
|
$
|
11
|
|
|
$
|
11
|
|
|
$
|
13
|
|
|
Expected return on plan assets
|
(3,341
|
)
|
|
(3,357
|
)
|
|
(3,455
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Amortization of net actuarial loss
|
1,150
|
|
|
1,311
|
|
|
1,508
|
|
|
6
|
|
|
7
|
|
|
10
|
|
|
Net periodic benefit cost
|
$
|
1,175
|
|
|
$
|
1,120
|
|
|
$
|
1,335
|
|
|
$
|
17
|
|
|
$
|
18
|
|
|
23
|
|
We expect to recognize in the consolidated statements of operations the following amounts that will be amortized from accumulated other comprehensive loss in fiscal 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Post Retirement Benefits
|
|
Amortization of net actuarial loss
|
$
|
1,497
|
|
|
$
|
8
|
|
|
|
|
|
|
We have recognized the following cumulative pre-tax actuarial losses, prior service costs and transition obligations in accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Post Retirement Benefits
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
$
|
46,224
|
|
|
$
|
37,710
|
|
|
$
|
80
|
|
|
$
|
64
|
|
|
|
|
|
|
|
|
|
|
|
Recognized in accumulated other comprehensive loss
|
$
|
46,224
|
|
|
$
|
37,710
|
|
|
$
|
80
|
|
|
$
|
64
|
|
|
|
|
|
|
|
|
|
|
Additional Information on U.S. Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Post Retirement Benefits
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Increase (decrease) in minimum liability included in other comprehensive income (loss)
|
$
|
8,514
|
|
|
$
|
(6,272
|
)
|
|
$
|
15
|
|
|
$
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Assumptions for U.S. Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used
to determine benefit obligations at October 31
|
|
Pension Benefits
|
|
Other Post Retirement Benefits
|
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
|
Discount rate
|
|
3.05
|
%
|
|
4.35
|
%
|
|
3.65
|
%
|
|
3.05
|
%
|
|
4.35
|
%
|
|
3.65
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Post Retirement Benefits
|
|
Weighted-average assumptions used to determine net
periodic benefit costs for years ended October 31
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
|
Discount rate
|
|
4.35
|
%
|
|
3.65
|
%
|
|
3.70
|
%
|
|
4.35
|
%
|
|
3.65
|
%
|
|
3.70
|
%
|
|
Expected long-term return on plan assets
|
|
6.50
|
%
|
|
6.50
|
%
|
|
6.50
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
These assumptions are used to develop the projected obligation at fiscal year end and to develop net periodic benefit cost for the subsequent fiscal year. Therefore, the assumptions used to determine the net periodic benefit costs in fiscal 2019 were established at October 31, 2018, while the assumptions used to determine the benefit obligations were established at October 31, 2019.
We use the Principal Pension Discount Yield Curve ("Principal Curve") for the U.S. Plans as the basis for determining the discount rate for reporting pension and retiree medical liabilities. The Principal Curve has several advantages to other methods, including: transparency of construction, lower statistical errors and continuous forward rates for all years.
We determine the annual rate of return for the U.S. pension plan assets by analyzing the composition of its asset portfolio and applying historical rates of return to the portfolio. Our outside investment advisors and actuaries review the computed rate of return. Industry comparables and other outside guidance are also considered in the annual selection of the expected rates of return on pension assets. The long-term expected rate of return on plan assets takes into account years with exceptional gains and years with exceptional losses.
|
|
|
|
|
|
|
|
|
October 31,
|
|
Assumed health care trend rates
|
2019
|
|
2018
|
|
Health care cost trend rate assumed for next year
|
6.8%
|
|
7.0%
|
|
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
|
4.5%
|
|
4.5%
|
|
Year that the rate reaches the ultimate trend rate
|
2030
|
|
2027
|
The aforementioned assumed health care cost trend rates will have a significant effect on the amounts reported for the health care plan. The Company's assumed health care trend rate was based on reduced health care claims experienced by a small and declining retiree population. A one-percentage point change in assumed health care cost trend rates would have the following effects at October 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
One-Percentage
Point Increase
|
|
One-Percentage
Point Decrease
|
|
Effect on total of service and interest cost components
|
$
|
3
|
|
|
$
|
(2
|
)
|
|
Effect on post retirement obligation
|
$
|
20
|
|
|
$
|
(18
|
)
|
Plan Assets - U.S. Plan Assets
The Company has established a targeted asset allocation percentage by asset category that re-balances the assets of each U.S. plan when pension contributions are funded. Our pension plan weighted-average asset allocations at October 31, 2019 and 2018, by asset category and comparison to the target allocation percentage are as follows:
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
|
|
|
|
|
|
|
|
|
|
Target
Allocation
Percentage
|
Plan Assets at October 31,
|
|
2019
|
|
2018
|
|
Asset Category
|
|
|
|
|
|
Equity securities
|
30-70%
|
62%
|
|
59%
|
|
Debt securities
|
30-70%
|
33%
|
|
35%
|
|
Real estate
|
0-10%
|
5%
|
|
6%
|
|
Total
|
|
100%
|
|
100%
|
|
|
|
|
|
|
The investment policy for assets of the U.S. plans is to obtain a reasonable long-term return consistent with the level of risk assumed. Also, we seek to control the cost of funding the plans within prudent levels of risk through the investment of plan assets. Lastly, in an effort to avoid the risk of large losses and maximize the return of the Company's plans with market and economic risk in mind, we seek to provide diversification of assets.
Fair Value
The plans' investments are reported at fair value. Purchases and sales of securities are recorded on a trade-date basis. Dividends are recorded on the ex-dividend date.
FASB ASC Topic 820, Fair Value Measurements and Disclosures ("FASB ASC 820"), clarifies fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based upon assumptions market participants would use in pricing an asset or liability. As a basis for considering such assumptions, FASB ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the plans have the ability to access as of the measurement date.
Level 2: Other significant observable inputs other than level 1 prices. These could be quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data.
Level 3: Unobservable significant inputs that reflect the plans' own assumptions about the assumptions market participants would use in pricing an asset or liability.
An asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Assets and liabilities measured at fair value are based on one or more of the following three valuation techniques noted in FASB ASC 820:
|
|
|
|
•
|
Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
|
|
|
|
|
•
|
Cost approach: Amount that would be required to replace the service capacity of an asset (replacement cost).
|
|
|
|
|
•
|
Income approach: Techniques to convert future amounts to a single present amount based upon market expectations (including present value techniques, option-pricing and excess earnings models).
|
The following descriptions of the valuation methods and assumptions used by the plans to estimate the fair values of investments apply to investments held directly by the plans.
Mutual funds: The fair values of mutual fund investments are determined by obtaining quoted prices on nationally recognized securities exchanges (level 1 inputs).
Pooled separate accounts: The fair values of participation units held in pooled separate accounts are based on their net asset values, as reported by the managers of the pooled separate accounts as supported by the unit prices of actual purchase and sale transactions occurring as of or close to the financial statement date (level 2 inputs). Each of the pooled separate accounts in
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
a fund sponsored by Principal Financial Group, investment and actuarial advisors of the Company, invests in multiple securities. Each pooled separate account provides for daily redemptions by the plans with no advance notice requirements, and has redemption prices that are determined by the fund's net asset value per unit.
The methods described above 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.
Investments totaling $68,607 and $65,646 at October 31, 2019 and 2018 measured at fair value on a recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
Fair Value Measurements
|
|
|
|
|
|
October 31, 2019
|
|
October 31, 2018
|
|
|
|
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1) Market Valuation Technique
|
|
Plan Assets Measured at Net Asset Value
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1) Market Valuation Technique
|
|
Plan Assets Measured at Net Asset Value
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
|
|
|
Investments
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
Large U.S. Equity
|
|
$
|
15,382
|
|
|
$
|
5,545
|
|
|
$
|
14,269
|
|
|
$
|
5,131
|
|
|
|
|
Small/Mid U.S. Equity
|
|
8,371
|
|
|
665
|
|
|
7,540
|
|
601
|
|
|
|
International Equity
|
|
11,363
|
|
|
—
|
|
|
10,062
|
|
—
|
|
|
|
Fixed Income
|
|
|
|
|
|
|
|
|
|
|
|
Money Market
|
|
—
|
|
|
868
|
|
|
—
|
|
|
754
|
|
|
|
|
Corporate
|
|
18,544
|
|
|
3,782
|
|
|
18,963
|
|
4,144
|
|
|
Real Estate (Primarily Commercial)
|
|
—
|
|
|
4,087
|
|
|
—
|
|
|
4,182
|
|
|
Total Investments
|
|
$
|
53,660
|
|
|
$
|
14,947
|
|
|
$
|
50,834
|
|
|
$
|
14,812
|
|
Cash Flows
Contributions
We expect to contribute $1,290 to our U.S. pension plan in fiscal 2020. We contributed $1,351 to fund the plan in fiscal 2019.
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid by the plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2020
|
|
$
|
5,220
|
|
|
|
|
$
|
39
|
|
|
|
2021
|
|
4,210
|
|
|
|
|
29
|
|
|
|
2022
|
|
4,590
|
|
|
|
|
27
|
|
|
|
2023
|
|
5,010
|
|
|
|
|
24
|
|
|
|
2024
|
|
4,870
|
|
|
|
|
23
|
|
|
|
2025-2029
|
|
25,700
|
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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 $1,267 at the end of fiscal 2019 and $1,081 at the end of fiscal 2018. The liability represents the present value of future obligations and is calculated on an actuarial basis. The Polish operations recognized expense of $799, $215 and $148 for the fiscal years ended October 31, 2019, 2018 and 2017, 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.
Defined Contribution Plans
In addition to the defined benefit plans described above, we maintain a number of defined contribution plans for our U.S. locations. Under the terms of the plans, eligible employees may contribute a selected percentage of their base pay. We match a percentage of the employees' contributions up to a stated percentage, subject to statutory limitations. We recorded an expense related to the matching program for the fiscal years ended 2019, 2018 and 2017 of $5,731, $5,307 and $4,310, respectively.
Labor Agreements
As of October 31, 2019, we had approximately 3,600 employees. Organized labor unions represent 15% of the Company's U.S. hourly employees and 99% of the Company's non-U.S. employees.
Each of our unionized manufacturing facilities has its own labor agreement with its own expiration date. As a result, no contract expiration date affects more than one facility.
Note 12—Accumulated Other Comprehensive Loss
The following table provides additional details of the amounts recognized into net earnings from accumulated other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and Post Retirement Plan Liability (1)
|
|
Marketable Securities Adjustment (1)
|
|
Interest Rate Swap Adjustment (2)
|
|
Foreign Currency Translation Adjustment (3)
|
|
Accumulated Other Comprehensive Loss
|
|
Balance at October 31, 2017
|
|
$
|
(27,847
|
)
|
|
$
|
(2
|
)
|
|
$
|
(1,319
|
)
|
|
$
|
(13,069
|
)
|
|
$
|
(42,237
|
)
|
|
|
Other comprehensive income (loss), net of tax
|
(124
|
)
|
|
(131
|
)
|
|
864
|
|
|
(8,810
|
)
|
|
(8,201
|
)
|
|
|
Amounts reclassified from accumulated other comprehensive loss, net of tax
|
4,972
|
|
|
122
|
|
|
772
|
|
|
—
|
|
|
5,866
|
|
|
|
Net current-period other comprehensive income (loss)
|
4,848
|
|
|
(9
|
)
|
|
1,636
|
|
|
(8,810
|
)
|
|
(2,335
|
)
|
|
|
Reclassification to retained earnings (4)
|
(6,138
|
)
|
|
(7
|
)
|
|
(213
|
)
|
|
—
|
|
|
(6,358
|
)
|
|
Balance at October 31, 2018
|
|
$
|
(29,137
|
)
|
|
$
|
(18
|
)
|
|
$
|
104
|
|
|
$
|
(21,879
|
)
|
|
$
|
(50,930
|
)
|
|
|
Other comprehensive income (loss), net of tax
|
|
939
|
|
|
—
|
|
|
(949
|
)
|
|
(4,636
|
)
|
|
(4,646
|
)
|
|
|
Amounts reclassified from accumulated other comprehensive loss, net of tax
|
|
(9,685
|
)
|
|
18
|
|
|
217
|
|
|
—
|
|
|
(9,450
|
)
|
|
|
Net current-period other comprehensive income (loss)
|
|
(8,746
|
)
|
|
18
|
|
|
(732
|
)
|
|
(4,636
|
)
|
|
(14,096
|
)
|
|
Balance at October 31, 2019
|
|
$
|
(37,883
|
)
|
|
$
|
—
|
|
|
$
|
(628
|
)
|
|
$
|
(26,515
|
)
|
|
$
|
(65,026
|
)
|
(1) Amounts reclassified from accumulated other comprehensive loss, net of tax are classified with manufacturing expenses included in cost of goods sold 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.
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(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.
(4) In the three months ended July 31, 2018, Shiloh early adopted ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." As a result, the stranded tax effects resulting from the TCJA enacted in December 2017 were reclassified from accumulated other comprehensive loss to retaining earnings.
Note 13—Derivatives and Financial Instruments
The Company 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. The Company'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 ratings.
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 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 will settle interest at the 1-month Euribor rate, and we lent to the counterparty $64,930, on which we will 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 rate 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.
The following table discloses the fair value and balance sheet location of our derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset (Liability) Derivatives
|
|
|
|
Balance Sheet Location
|
October 31, 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 assets (Other liabilities)
|
$
|
(814
|
)
|
$
|
135
|
|
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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 consolidated statements of operations and the effects of hedging on those line items:
|
|
|
|
|
|
|
|
|
|
Location
|
Year Ended
October 31, 2019
|
|
|
Interest expense
|
$
|
16,258
|
|
|
|
Effect of hedging on interest expense
|
$
|
(469
|
)
|
|
|
|
|
|
|
|
|
|
|
Location
|
Year Ended
October 31, 2018
|
|
|
Interest expense
|
$
|
11,343
|
|
|
|
Effect of hedging on interest expense
|
$
|
(205
|
)
|
Note 14—Fair Value 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 October 31, 2019 and 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
|
|
October 31, 2019
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap Contracts
|
|
(814
|
)
|
|
—
|
|
|
(814
|
)
|
|
Income 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.
Note 15—Stock Incentive Compensation
Stock Incentive Compensation requires us to expense share-based payment awards granted. Compensation cost for share-based payment 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
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
stock and restricted stock unit grants are valued at the average market price of our common stock over a consistent predetermined number of days prior to the grant date. We do not estimate a forfeiture rate at the time of grant. Instead, we recognize share-based compensation expense when actual forfeitures occur.
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) stock options, (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 during the years ended October 31, 2019, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2016
|
|
90
|
|
|
$9.67
|
|
3.04
|
|
376
|
|
|
$6.11
|
|
1.83
|
|
22
|
|
|
$
|
4.17
|
|
1.46
|
|
|
Granted
|
|
—
|
|
|
—
|
|
|
|
|
247
|
|
|
7.94
|
|
|
|
|
29
|
|
|
8.62
|
|
|
|
|
Options exercised or restricted stock vested
|
|
(8
|
)
|
|
9.79
|
|
|
|
|
(174
|
)
|
|
6.11
|
|
|
|
|
(14
|
)
|
|
4.17
|
|
|
|
|
Forfeited or expired
|
|
(24
|
)
|
|
13.38
|
|
|
|
|
(8
|
)
|
|
9.57
|
|
|
|
|
(1
|
)
|
|
7.06
|
|
|
|
|
October 31, 2017
|
|
58
|
|
|
$8.16
|
|
2.53
|
|
441
|
|
|
$7.07
|
|
1.60
|
|
36
|
|
|
$
|
7.69
|
|
1.82
|
|
|
Granted
|
|
—
|
|
|
—
|
|
|
|
|
316
|
|
|
8.18
|
|
|
|
|
18
|
|
|
7.90
|
|
|
|
|
Options exercised or restricted stock vested
|
|
(17
|
)
|
|
4.09
|
|
|
|
|
(225
|
)
|
|
7.80
|
|
|
|
|
(15
|
)
|
|
8.30
|
|
|
|
|
Forfeited or expired
|
|
(8
|
)
|
|
12.04
|
|
|
|
|
(54
|
)
|
|
7.13
|
|
|
|
|
(12
|
)
|
|
6.18
|
|
|
|
|
October 31, 2018
|
|
33
|
|
|
$9.42
|
|
1.84
|
|
478
|
|
|
$7.45
|
|
1.87
|
|
27
|
|
|
$8.17
|
1.37
|
|
|
Granted
|
|
—
|
|
|
—
|
|
|
|
|
457
|
|
|
6.51
|
|
|
|
|
43
|
|
|
6.47
|
|
|
|
|
Options exercised or restricted stock vested
|
|
—
|
|
|
—
|
|
|
|
|
(234
|
)
|
|
6.87
|
|
|
|
|
(14
|
)
|
|
7.98
|
|
|
|
|
Forfeited or expired
|
|
(10
|
)
|
|
5.30
|
|
|
|
|
(98
|
)
|
|
7.21
|
|
|
|
|
(9
|
)
|
|
7.26
|
|
|
|
|
October 31, 2019
|
|
23
|
|
|
$11.25
|
|
1.31
|
|
603
|
|
|
$7.00
|
|
1.86
|
|
47
|
|
|
$6.81
|
1.88
|
We recorded stock compensation expense related to restricted stock and restricted stock units during the fiscal years ended October 31, 2019, 2018 and 2017 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Restricted stock
|
|
$
|
1,883
|
|
|
$
|
1,863
|
|
|
$
|
1,583
|
|
|
Restricted stock units
|
|
152
|
|
|
121
|
|
|
115
|
|
|
Total
|
|
$
|
2,035
|
|
|
$
|
1,984
|
|
|
$
|
1,698
|
|
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Stock Options
The exercise price of each stock option equals the market price of our common stock on its grant date. Compensation expense is recorded at the grant date fair value, adjusted for forfeitures as they occur and is recognized on a straight-line basis over the applicable vesting period. Our stock options generally vest over three years, with a maximum term of ten years. There was zero stock compensation expense related to stock options in fiscal 2019, 2018 or 2017. Stock options were not granted during fiscal years 2019, 2018 and 2017.
Cash received from the exercise of options for the fiscal years ended October 31, 2019, 2018, and 2017 was $0, $73, and $78, respectively. At October 31, 2019, the options outstanding and exercisable had an intrinsic value of $0. Options that have an exercise price greater than the market price on October 31, 2019 were excluded from the intrinsic value computation. The intrinsic value of options exercised during fiscal 2019 and 2018 was $0 and $94, respectively.
The following table provides additional information regarding options outstanding as of October 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise Prices
|
|
Options Outstanding
|
|
Exercise Price of Options Outstanding and Options Exercisable
|
|
Options Exercisable
|
|
Weighted Average Remaining Contractual Life
|
|
|
|
|
|
|
$8.10
|
|
4,500
|
|
|
$8.10
|
|
4,500
|
|
|
2.11
|
|
|
$12.04
|
|
18,000
|
|
|
$12.04
|
|
18,000
|
|
|
1.11
|
|
|
Totals
|
|
22,500
|
|
|
|
|
22,500
|
|
|
|
Restricted Stock Awards
New restricted stock grants are valued at the average market price of our common stock over a consistent predetermined amount of days prior to 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 October 31, 2019, there was $2,706 of total unrecognized compensation costs related to these restricted stock awards to be recognized over the next three fiscal years.
Restricted Stock Units
New restricted stock unit grants are valued at the average market price of our common stock over a consistent predetermined amount of days prior to 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 October 31, 2019, there was $193 of total unrecognized compensation expense related to these restricted stock units that is expected to be recognized over the next three fiscal years.
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Note 16—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 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 years ended October 31, 2019, 2018 and 2017, respectively, 169, 80 and 68 stock awards were excluded from the computation of diluted earnings per share because they were 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Net income (loss) available to common stockholders
|
$
|
(19,947
|
)
|
|
$
|
11,479
|
|
|
$
|
(697
|
)
|
|
Basic weighted average shares
|
23,506
|
|
|
23,229
|
|
|
19,233
|
|
|
Restricted stock units and stock options
|
—
|
|
|
140
|
|
|
—
|
|
|
Diluted weighted average shares
|
23,506
|
|
|
23,369
|
|
|
19,233
|
|
|
Basic earnings (loss) per share
|
$
|
(0.85
|
)
|
|
$
|
0.49
|
|
|
$
|
(0.04
|
)
|
|
Diluted earnings (loss) per share
|
$
|
(0.85
|
)
|
|
$
|
0.49
|
|
|
$
|
(0.04
|
)
|
Note 17—Income Taxes
Income (loss) before income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Domestic
|
|
$
|
(17,821
|
)
|
|
$
|
(3,635
|
)
|
|
$
|
4,251
|
|
|
Foreign
|
|
(2,737
|
)
|
|
9,895
|
|
|
2,172
|
|
|
Total
|
|
$
|
(20,558
|
)
|
|
$
|
6,260
|
|
|
$
|
6,423
|
|
The components of the provision (benefit) for income taxes from continuing operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
1,998
|
|
|
$
|
66
|
|
|
|
State and local
|
|
113
|
|
|
(157
|
)
|
|
386
|
|
|
|
Foreign
|
|
2,289
|
|
|
2,710
|
|
|
2,494
|
|
|
Total current
|
|
2,402
|
|
|
4,551
|
|
|
2,946
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
(3,265
|
)
|
|
(10,692
|
)
|
|
856
|
|
|
|
State and local
|
|
120
|
|
|
700
|
|
|
(329
|
)
|
|
|
Foreign
|
|
132
|
|
|
222
|
|
|
3,647
|
|
|
Total deferred
|
|
(3,013
|
)
|
|
(9,770
|
)
|
|
4,174
|
|
|
|
Provision (benefit)
|
|
$
|
(611
|
)
|
|
$
|
(5,219
|
)
|
|
$
|
7,120
|
|
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Net deferred income tax assets (liabilities) included in the consolidated balance sheet consist of the tax effects of temporary differences related to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
|
2019
|
|
2018
|
|
Deferred tax assets:
|
|
|
|
|
|
Accrued compensation and benefits
|
$
|
1,515
|
|
|
$
|
1,405
|
|
|
|
Inventory
|
329
|
|
|
424
|
|
|
|
State depreciation adjustments and loss carryforwards
|
4,722
|
|
|
5,309
|
|
|
|
Pension obligations and post retirement benefits
|
5,261
|
|
|
3,053
|
|
|
|
Net operating losses
|
29,230
|
|
|
26,695
|
|
|
|
Tax credit carryforwards
|
9,127
|
|
|
5,958
|
|
|
|
Other accruals and reserves
|
1,202
|
|
|
2,889
|
|
|
|
Goodwill and intangible amortization
|
2,455
|
|
|
3,331
|
|
|
|
Interest expense disallowance
|
3,056
|
|
|
—
|
|
|
|
Foreign currency translation
|
—
|
|
|
116
|
|
|
|
Interest rate swap
|
186
|
|
|
—
|
|
|
Total deferred tax assets
|
57,083
|
|
|
49,180
|
|
|
Less: Valuation allowance
|
(30,222
|
)
|
|
(24,051
|
)
|
|
Net deferred tax assets
|
$
|
26,861
|
|
|
$
|
25,129
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Fixed assets
|
$
|
(20,075
|
)
|
|
$
|
(20,631
|
)
|
|
|
Prepaid expenses and other
|
(920
|
)
|
|
(1,727
|
)
|
|
|
Uncertain tax positions
|
(1,405
|
)
|
|
—
|
|
|
|
Foreign currency translation
|
(90
|
)
|
|
—
|
|
|
Net deferred tax (liability) asset
|
$
|
4,371
|
|
|
$
|
2,771
|
|
|
|
|
|
|
|
|
Change in net deferred tax asset:
|
|
|
|
|
|
Benefit (provision) for deferred taxes
|
$
|
3,013
|
|
|
$
|
9,769
|
|
|
|
Acquisitions
|
—
|
|
|
(872
|
)
|
|
|
Uncertain tax positions
|
(810
|
)
|
|
—
|
|
|
|
Currency translation adjustment
|
74
|
|
|
(347
|
)
|
|
Components of other comprehensive income (loss):
|
|
|
|
|
|
Defined benefit pension plans & other post-retirement benefits
|
(217
|
)
|
|
(1,442
|
)
|
|
|
Marketable securities
|
—
|
|
|
10
|
|
|
|
Derivatives and hedging
|
217
|
|
|
(588
|
)
|
|
|
Other adjustments
|
(677
|
)
|
|
(931
|
)
|
|
|
Total change in net deferred tax asset
|
$
|
1,600
|
|
|
$
|
5,599
|
|
As required by FASB ASC Topic 740, we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Activities and balances of unrecognized tax benefits for 2019, 2018 and 2017 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Balance at beginning of year
|
$
|
2,186
|
|
|
$
|
540
|
|
|
$
|
561
|
|
|
Additions based on tax positions related to the current year
|
—
|
|
|
747
|
|
|
88
|
|
|
Additions for tax positions of prior years
|
537
|
|
|
1,079
|
|
|
9
|
|
|
Reductions for tax positions of prior years
|
(33
|
)
|
|
(68
|
)
|
|
—
|
|
|
Reductions as a result of lapse of applicable statute of limitations
|
—
|
|
|
(112
|
)
|
|
(118
|
)
|
|
Balance at end of year
|
$
|
2,690
|
|
|
$
|
2,186
|
|
|
$
|
540
|
|
The U.S. Internal Revenue Service ("IRS") has challenged the Company’s application of the U.S. R&D credit qualification rules and proposed disallowances of the majority of fiscal year 2012 and fiscal year 2013 credits claimed. This tax credit matter is principally related to what types of activities and related expenses qualify for the credit. We filed a petition in the U.S. Tax Court on October 22, 2018, disputing the R&D credit adjustments proposed by the IRS. Although the current reserves for the matter recognize the probability of a loss, we believe we will substantially prevail such that the ultimate resolution of the matter will not materially impact our financial position, results of operations or cash flows. With any tax controversy and litigation, however, there is a chance of unforeseen loss which, due to the number of years involved could materially impact our results, financial position and cash flows. As of October 31, 2019 the total amounts related to the unreserved portion of the tax contingency, inclusive of any related interest is $8,076. 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. We have assessed the likelihood that the majority of R&D credit unreserved portion ultimately resulting in a loss as remote.
The total amount of unrecognized tax benefits that, if recognized, would affect the effective rate was $2,621 at October 31, 2019 and $2,110 at October 31, 2018. We recognize interest accrued and penalties related to unrecognized tax benefits as part of income tax expense. We recognized $107 of expense in 2019, $125 of expense in 2018 and $102 of benefit in 2017 for interest and penalties. We had accrued $643 at October 31, 2019 and $536 at October 31, 2018 for the payment of interest and penalties.
We are subject to income taxes in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, we are no longer subject to U.S. federal, state and local income tax examinations by tax authorities for the years ending prior to October 31, 2013 and no longer subject to non-U.S. income tax examinations for calendar years ending before December 31, 2011. It is possible that within the next 12 months, the total unrecognized tax benefits could be reduced significantly due to the settlement of examinations.
A valuation allowance of $30,222 is recorded as of October 31, 2019 for deferred tax assets whose realization remains uncertain. The comparable amount of the valuation allowance at October 31, 2018 was $24,051.
We assess both positive and negative evidence when measuring the need for a valuation allowance. A valuation allowance is established when there is uncertainty of realizing certain loss carry forwards, other deferred tax assets and foreign tax credits in the United States and various foreign jurisdictions. We believe the remaining deferred tax assets will be realizable based on projected book income, the reversals of existing taxable temporary differences and available tax planning strategies that would be implemented and generate ordinary income in the United States or foreign jurisdictions to realize the deferred tax assets. We intend to maintain a valuation allowance against certain deferred tax assets until such time that sufficient positive evidence exists to support realization of the deferred tax assets. In the event we would be able to realize these deferred tax assets in the future in excess of their net recorded amount, an adjustment to the deferred tax assets would increase income in the period the determination was made. Conversely, should we determine that we would not be able to realize all or part of the net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made.
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
A reconciliation of income tax expense / (benefit) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
Taxes at U.S. federal statutory rate
|
$
|
(4,182
|
)
|
|
$
|
1,461
|
|
|
$
|
2,248
|
|
|
State and local income taxes, net of federal benefit
|
(42
|
)
|
|
(321
|
)
|
|
(1,639
|
)
|
|
Valuation allowance change
|
3,995
|
|
|
674
|
|
|
5,749
|
|
|
Domestic tax credits
|
(3,100
|
)
|
|
(3,308
|
)
|
|
(803
|
)
|
|
Domestic production activities deduction
|
—
|
|
|
—
|
|
|
(455
|
)
|
|
Foreign operations
|
1,368
|
|
|
1,188
|
|
|
1,182
|
|
|
Adjustment of uncertain tax positions
|
595
|
|
|
1,886
|
|
|
(83
|
)
|
|
Provision to return adjustment
|
247
|
|
|
(3,355
|
)
|
|
285
|
|
|
Adjustment for tax law change
|
—
|
|
|
(3,966
|
)
|
|
—
|
|
|
Other
|
508
|
|
|
522
|
|
|
636
|
|
|
Total income tax expense (benefit)
|
$
|
(611
|
)
|
|
$
|
(5,219
|
)
|
|
$
|
7,120
|
|
At October 31, 2019, we had operating loss carry forwards of $201,227 in Sweden, Netherlands, Italy, China, Hong Kong, Mexico, the U.S. and certain U.S. states.
Domestically, we had federal and state net operating loss carry forward benefits. As of October 31, 2019 and 2018, we had a U.S. federal net operating loss carry forwards benefit of $5,568 and $4,878. The state and federal net operating loss carry forwards will expire between 2019 and 2038. The table below summarizes the various state and country operating losses, credit carry forwards and associated valuation allowances as of October 31, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2019
|
|
October 31, 2018
|
|
Jurisdiction
|
|
Gross NOL Carryforward
|
|
NOL Tax Effected
|
|
Valuation Allowance
|
|
Gross NOL Carryforward
|
|
NOL Tax Effected
|
|
Valuation Allowance
|
|
Netherlands
|
|
$
|
43,954
|
|
|
$
|
10,988
|
|
|
$
|
10,988
|
|
|
$
|
42,712
|
|
|
$
|
10,678
|
|
|
$
|
10,678
|
|
|
Italy
|
|
22,520
|
|
|
5,405
|
|
|
5,405
|
|
|
17,996
|
|
|
4,319
|
|
|
4,319
|
|
|
Sweden
|
|
23,350
|
|
|
5,081
|
|
|
40
|
|
|
24,404
|
|
|
5,165
|
|
|
39
|
|
|
China
|
|
6,261
|
|
|
1,565
|
|
|
1,565
|
|
|
4,442
|
|
|
1,111
|
|
|
1,111
|
|
|
Hong Kong
|
|
240
|
|
|
40
|
|
|
40
|
|
|
221
|
|
|
36
|
|
|
36
|
|
|
Mexico
|
|
1,942
|
|
|
583
|
|
|
583
|
|
|
1,693
|
|
|
508
|
|
|
508
|
|
|
U.S. (State)
|
|
76,447
|
|
|
4,745
|
|
|
4,745
|
|
|
76,073
|
|
|
4,666
|
|
|
4,666
|
|
|
U.S. Federal
|
|
26,513
|
|
|
5,568
|
|
|
—
|
|
|
23,228
|
|
|
4,878
|
|
|
—
|
|
|
Total
|
|
$
|
201,227
|
|
|
$
|
33,975
|
|
|
$
|
23,366
|
|
|
$
|
190,769
|
|
|
$
|
31,361
|
|
|
$
|
21,357
|
|
We paid income taxes, net of refunds, of $3,951 in 2019 and $3,423 in 2018. Foreign withholding taxes are not provided on undistributed earnings of foreign subsidiaries because such earnings are not planned to be distributed.
On December 22, 2017, the President signed U.S. tax reform legislation. The legislation had many provisions including a change in the U.S. corporate income tax rate from 35% to 21%. Accounting for the income tax effects of the U.S. tax reform legislation was complete at October 31, 2018.
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Note 18—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 years ended 2019 and 2018, respectively, we incurred $17,072 and $6,613 related to employee, professional, legal and other restructuring related costs. We have incurred restructuring expenses of $28,462 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 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 during the fiscal years ended October 31, 2019, 2018, and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2019
|
|
October 31, 2018
|
|
October 31, 2017
|
|
Employee costs
|
|
$
|
4,573
|
|
|
$
|
3,030
|
|
|
$
|
392
|
|
|
Impairment of fixed assets
|
|
—
|
|
|
—
|
|
|
4,085
|
|
|
Professional and legal costs
|
|
8,899
|
|
|
1,731
|
|
|
270
|
|
|
Other
|
|
3,600
|
|
|
1,852
|
|
|
30
|
|
|
|
|
$
|
17,072
|
|
|
$
|
6,613
|
|
|
$
|
4,777
|
|
The following tables are rollforwards of the beginning and ending liability balances related to restructuring activities which are included in the consolidated balance sheets in other accrued expenses for the fiscal years ending October 31, 2019 and October 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of October 31, 2018
|
|
Restructuring Expense
|
|
Payments
|
|
Balance as of October 31, 2019
|
|
Employee costs
|
$
|
367
|
|
|
$
|
4,573
|
|
|
$
|
2,301
|
|
|
$
|
2,639
|
|
|
Professional and legal costs
|
248
|
|
|
8,899
|
|
|
7,475
|
|
|
1,672
|
|
|
Other
|
—
|
|
|
3,600
|
|
|
2,433
|
|
|
1,167
|
|
|
|
$
|
615
|
|
|
$
|
17,072
|
|
|
$
|
12,209
|
|
|
$
|
5,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of October 31, 2017
|
|
Restructuring Expense
|
|
Payments
|
|
Balance as of October 31, 2018
|
|
Employee costs
|
$
|
65
|
|
|
$
|
3,030
|
|
|
$
|
2,728
|
|
|
$
|
367
|
|
|
Professional and legal costs
|
270
|
|
|
1,731
|
|
|
1,753
|
|
|
248
|
|
|
Other
|
—
|
|
|
1,852
|
|
|
1,852
|
|
|
—
|
|
|
|
$
|
335
|
|
|
$
|
6,613
|
|
|
$
|
6,333
|
|
|
$
|
615
|
|
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Note 19—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.
Revenues of foreign geographic regions in the table below are attributed to external customers based upon the location of the entity recording the sale. These foreign revenues represent 29.9%, 27.0% and 19.5% of total revenues for fiscal years 2019, 2018 and 2017, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues
|
|
Long-Lived Assets
|
|
|
2019
|
2018
|
2017
|
|
2019
|
2018
|
2017
|
|
United States
|
$
|
739,640
|
|
$
|
831,782
|
|
$
|
839,013
|
|
|
$
|
249,743
|
|
$
|
234,690
|
|
$
|
235,663
|
|
|
Europe
|
255,667
|
|
266,679
|
|
169,398
|
|
|
81,532
|
|
95,763
|
|
53,569
|
|
|
China
|
17,257
|
|
14,756
|
|
8,532
|
|
|
13,001
|
|
127
|
|
128
|
|
|
Rest of World
|
42,143
|
|
26,727
|
|
25,043
|
|
|
19,170
|
|
27,911
|
|
20,415
|
|
|
Total Company
|
$
|
1,054,707
|
|
$
|
1,139,944
|
|
$
|
1,041,986
|
|
|
$
|
363,446
|
|
$
|
358,491
|
|
$
|
309,775
|
|
The foreign currency gain (loss) in the table below is included as a component of other expense, net in the consolidated statements of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Gain (Loss)
|
|
|
2019
|
2018
|
2017
|
|
Europe
|
$
|
1,752
|
|
$
|
(82
|
)
|
$
|
(473
|
)
|
|
China
|
(252
|
)
|
16
|
|
(192
|
)
|
|
Rest of World
|
(410
|
)
|
498
|
|
(430
|
)
|
The table below details customers that accounted for more than 10% of our revenues in fiscal 2019, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues
|
|
Customer
|
2019
|
2018
|
2017
|
|
General Motors
|
17.4
|
%
|
18.8
|
%
|
17.9
|
%
|
|
FCA
|
17.0
|
%
|
15.8
|
%
|
15.0
|
%
|
SHILOH INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Note 20—Quarterly Results of Operations (Unaudited)
(amounts in thousands except per share data)
The following is a summary of our consolidated quarterly results for each of the fiscal years ended October 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31, 2019
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
Net revenues
|
|
$258,933
|
|
$273,370
|
|
$263,445
|
|
$258,959
|
|
Gross profit
|
|
13,691
|
|
|
28,679
|
|
|
23,588
|
|
|
24,618
|
|
|
Operating income (loss)
|
|
(5,921
|
)
|
|
6,821
|
|
|
1,060
|
|
|
(7,544
|
)
|
|
Provision (benefit) for income taxes
|
|
(3,087
|
)
|
|
1,448
|
|
|
(973
|
)
|
|
2,001
|
|
|
Net income (loss)
|
|
$(4,698)
|
|
$1,112
|
|
$(2,709)
|
|
$(13,652)
|
|
Net income (loss) per share basic
|
|
$(0.20)
|
|
$0.05
|
|
$(0.11)
|
|
$(0.59)
|
|
Net income (loss) per share diluted
|
|
$(0.20)
|
|
$0.05
|
|
$(0.11)
|
|
$(0.59)
|
|
Weighted average number of shares:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
23,385
|
|
|
23,516
|
|
|
23,557
|
|
|
23,566
|
|
|
Diluted
|
|
23,385
|
|
|
23,559
|
|
|
23,557
|
|
|
23,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31, 2018
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
Net revenues
|
|
$247,666
|
|
$297,340
|
|
$294,883
|
|
$300,055
|
|
Gross profit
|
|
27,890
|
|
31,503
|
|
32,880
|
|
23,822
|
|
|
Operating income (loss)
|
|
4,571
|
|
7,279
|
|
7,535
|
|
(879)
|
|
|
Provision (benefit) for income taxes
|
|
(3,058
|
)
|
|
218
|
|
|
(7,014
|
)
|
|
4,635
|
|
|
Net income (loss)
|
|
$4,858
|
|
$4,025
|
|
$11,052
|
|
$(8,456)
|
|
Net income (loss) per share basic
|
|
$0.21
|
|
$0.17
|
|
$0.47
|
|
$(0.36)
|
|
Net income (loss) per share diluted
|
|
$0.21
|
|
$0.17
|
|
$0.47
|
|
$(0.36)
|
|
Weighted average number of shares:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
23,107
|
|
23,222
|
|
23,278
|
|
23,309
|
|
|
Diluted
|
|
23,287
|
|
23,357
|
|
23,453
|
|
23,309
|
|
Note 21—Commitments and Contingencies
Litigation
A securities class action lawsuit was filed on September 21, 2015 in the United States District Court for the Southern District of New York against the Company and certain of our officers. The District Court rendered an opinion and order granting our motion to dismiss the lawsuit on September 19, 2018, and the time period for the appeal has expired. As amended, the lawsuit claimed in part that we issued inaccurate information about, among other things, our earnings and income and our internal controls over financial reporting for fiscal 2014 and the first and second fiscal quarters of 2015 in violation of the Exchange Act.
A shareholder derivative lawsuit was filed on April 1, 2016 in the Court of Common Pleas, Medina County, Ohio against the Company's President and Chief Executive Officer and Vice President of Finance and Treasurer and members of our Board of Directors. The lawsuit claimed in part that the defendants breached fiduciary duties owed to the Company by failing to exercise appropriate oversight over our accounting controls, leading to the accounting issues and the restatement announced in September 2015. Following the dismissal of the securities class action lawsuit described in the previous paragraph, a Joint Stipulation and Order of Dismissal was filed on November 14, 2018 dismissing the shareholder derivative lawsuit without prejudice.
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.