J.L. French Automotive Castings Announces Q3 Results
21 November 2000
J.L. French Automotive Castings Announces Third-Quarter Results and Waiver With Respect to Senior Loan Covenants
MINNEAPOLIS, Nov. 20 J.L. French Automotive Castings,
Inc., today announced its third-quarter and nine-month results for the period
ended September 30, 2000. In addition, the company's senior lenders have
granted a waiver related to required debt to EBITDA (earnings before interest,
taxes, depreciation and amortization) and interest coverage ratios through
November 27, 2000. The company intends to negotiate an amendment to its
senior credit facility with its senior lenders prior to the expiration of the
waiver. In connection with this amendment, the company's stockholders are
expected to invest additional equity into the company. Since the waiver
extends only through November 27, 2000, borrowings outstanding under the
company's senior credit facility are classified as current liabilities in the
company's September 30, 2000 balance sheet.
J.L. French completed a recapitalization transaction on April 21, 1999,
whereby new investors acquired 87% of the company's outstanding common stock.
As a result of the recapitalization accounting treatment, the statement of
operations are not directly comparable between years below the operating
income line. In addition, the company has a deficit in stockholders'
investment as a result of the recapitalization and the redemption of the
previously outstanding shares. Results of operations for the first half of
1999 have been restated to reflect the company's change in recording
reimbursable customer tooling costs. The restatement had no effect on
previously reported gross profit or net income.
For the third quarter of 2000, sales were $125.0 million compared with
$75.3 million in the 1999 period. Operating income was $5.6 million compared
to $8.9 million (before recapitalization expenses) reported last year. EBITDA
was $17.0 million compared to $16.6 million in the third quarter of 1999.
For the nine months ended September 30, 2000, sales were $422.1 million
compared to $228.7 million in the previous period. Operating income rose to
$44.0 million from $35.4 million (before recapitalization expenses) in the
comparable 1999 period. EBITDA was $78.4 million for the first nine months of
2000 compared to $60.6 million in the 1999 period.
The third quarter and year-to-date financial results have been adversely
impacted by operations at the company's Grandville, Mich. and Glasgow, Ken.
facilities which were acquired in October 1999. Operating results at these
acquired facilities were impacted during the first two quarters by additional
labor and overtime costs to meet customer requirements. During the third
quarter, the company attempted to implement measures consistent with its
previously disclosed savings plan to improve throughput and reduce labor
costs. However, because of an inadequate infrastructure and inferior
equipment and dies, the results were excessive scrap, increased labor costs
and expedited freight costs rather than anticipated benefits. While the
company met all customer requirements for the third quarter, the excess costs
resulted in negative operating income for the quarter at these facilities. In
addition, the third quarter was impacted by new program delays and launch
costs in the company's European operations. The balance of the company's core
operations performed near planned levels during the quarter.
As third quarter performance became apparent, company management initiated
a comprehensive planning process and implementation of detailed corrective
action plans for the Glasgow and Grandville facilities. The corrective action
plans for the Grandville and Glasgow facilities include: (1) new operating
management from outside the organization supplemented by experienced personnel
from other North American facilities; (2) detail process teams focused on the
corrective measures to attach each major issue; (3) establishment of a formal
preventative maintenance and die improvement program; (4) implementation of
key manufacturing and financial metrics to measure improvement daily; and (5)
working with customers to mitigate pricing inequities on two significant
programs. Since September 30, 2000, plant operations have been stabilized,
headcount has been reduced, overtime has significantly declined and premium
freight costs dramatically reduced. Both facilities are currently taking
delivery of new J.L. French designed dies, which are expected to enable
further improvement in operating efficiencies beginning in December.
Charlie Waldon, chief executive officer of J.L. French, said, "The poor
performance in the third quarter is substantially isolated to the Grandville
and Glasgow operations. The underlying issues associated with these
facilities were far greater than initially expected. We have reacted very
quickly with a corrective action plan to turn around the operating results of
these facilities over the near term. The results since September 30th have
been consistent with this plan. New dies for major programs at these
facilities were ordered in the first and second quarter based on J.L. French
designs. The arrival of these new, more robust dies in December will allow us
to implement measures to significantly enhance quality and productivity. We
are very confident in the ability to turn these operations around."
Waldon continued, "As part of our comprehensive planning process, we have
had detailed discussions with our major customers and shareholders who remain
very committed to J.L. French over the long term. The foundation of the
company is sound. Tooling and equipment in our core facilities are world
class and we are taking the necessary steps to ensure the Grandville and
Glasgow operations will meet this standard. We remain one of the few
suppliers in our segment with full service and global capabilities.
Accordingly, we are highly regarded by our customers and an important element
of their future sourcing plans. As a result, our comprehensive plan
encompasses continuing to build the company for the long-term benefit of all
of our stakeholders."
J.L. French also announced that it has added Mark Burgess as its chief
financial officer. Mr. Waldon commented, "Mr. Burgess has extensive
experience in both financial and operations management. We believe he will be
able to provide the leadership to substantially upgrade our financial systems
and controls."
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Amounts in Thousands - Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Sales $ 125,011 $ 75,251 $ 422,120 $ 228,719
Cost of sales 109,905 58,279 350,589 169,464
Gross profit 15,106 16,972 71,531 59,255
Selling, general and
administrative expenses 6,799 5,256 19,518 15,484
Recapitalization expenses -- 799 -- 21,950
Amortization expense 2,677 2,848 7,977 8,353
Operating income 5,630 8,069 44,036 13,468
Interest expense and
other, net 15,475 10,956 45,715 24,779
Loss before provision
(benefit) for income
taxes and extraordinary
loss (9,845) (2,887) (1,679) (11,311)
Provision (benefit) for
income taxes (3,332) (1,154) 78 (4,523)
Loss before
extraordinary income (6,513) (1,733) (1,757) (6,788)
Extraordinary loss on
early extinguishment
of debt, net of income
taxes -- -- -- 8,112
Net loss $(6,513) $(1,733) $(1,757) $(14,900)
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
Sept. 30, December 31,
Assets 2000 1999
(unaudited)
Current assets:
Cash and cash equivalents $3,067 $4,900
Accounts receivable, net 80,718 82,449
Inventories 38,057 36,979
Customer tooling-in-process 4,780 10,299
Other current assets 12,481 9,034
Total current assets 139,103 143,661
Property, plant and equipment, net 256,076 221,167
Intangible and other assets, net 362,738 330,406
$757,917 $695,234
Liabilities and Stockholders' Investment (Deficit)
Current liabilities:
Current maturities of long-term debt $383,152 $28,400
Accounts payable 77,823 56,461
Accrued liabilities 53,925 43,434
Total current liabilities 514,900 128,295
Long-term debt, net of current maturities 21,694 373,044
Senior subordinated notes 175,000 175,000
Convertible subordinated notes 30,000 30,000
Other noncurrent liabilities 45,868 30,488
Total liabilities 787,462 736,827
Stockholders' investment (deficit):
Common stock -- --
Additional paid-in capital 60,689 42,589
Retained earnings (deficit) (84,586) (82,824)
Accumulated other comprehensive income --
foreign currency translation adjustment (5,648) (1,358)
Total stockholders' investment (deficit) (29,545) (41,593)
$757,917 $695,234