SHLO 01.31.2012 10-Q
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
______________________________________________________ 
FORM 10-Q
______________________________________________________  
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2012
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 0-21964
______________________________________________________ 
SHILOH INDUSTRIES, INC.
(Exact name of registrant as specified in its charter) 
______________________________________________________ 
Delaware
51-0347683
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
880 Steel Drive, Valley City, Ohio 44280
(Address of principal executive offices—zip code)
(330) 558-2600
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
______________________________________________________ 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
Accelerated filer
¨
Non-accelerated filer
¨
Smaller Reporting Company
x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Number of shares of Common Stock outstanding as of February 22, 2012 was 16,844,665.


Table of Contents

INDEX
 
 
 
Page
 
Item 1.
 
 
 
 
 
Item 2.
Item 4.
 
Item 6.


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Table of Contents

PART I— FINANCIAL INFORMATION

Item 1.
Condensed Consolidated Financial Statements

SHILOH INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
 
January 31,
2012
 
October 31,
2011
 
(Unaudited)
 
ASSETS
 
 
 
Cash and cash equivalents
$
222

 
$
20

Accounts receivable, net of allowance for doubtful accounts of $504 and $568 at January 31, 2012 and October 31, 2011, respectively
78,134

 
76,632

Related-party accounts receivable
1,989

 
434

Income tax receivable
589

 
1,688

Inventories, net
36,781

 
33,976

Deferred income taxes
2,228

 
2,228

Prepaid expenses
1,552

 
1,725

Total current assets
121,495

 
116,703

Property, plant and equipment, net
118,652

 
121,467

Deferred income taxes
932

 
918

Other assets
1,407

 
1,586

Total assets
$
242,486

 
$
240,674

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current debt
$
215

 
$
428

Accounts payable
57,700

 
57,214

Other accrued expenses
21,546

 
23,733

Total current liabilities
79,461

 
81,375

Long-term debt
28,000

 
25,700

Long-term benefit liabilities
23,553

 
24,019

Other liabilities
2,016

 
1,928

Total liabilities
133,030

 
133,022

Commitments and contingencies

 

Stockholders’ equity:

 

Preferred stock, $.01 per share; 5,000,000 shares authorized; no shares issued and outstanding at January 31, 2012 and October 31, 2011, respectively

 

Common stock, par value $.01 per share; 25,000,000 shares authorized; 16,769,392 and 16,762,428 shares issued and outstanding at January 31, 2012 and October 31, 2011, respectively
168

 
168

Paid-in capital
64,175

 
63,950

Retained earnings
69,900

 
68,321

Accumulated other comprehensive loss: Pension related liability, net
(24,787
)
 
(24,787
)
Total stockholders’ equity
109,456

 
107,652

Total liabilities and stockholders’ equity
$
242,486

 
$
240,674


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


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SHILOH INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
 
 
Three Months Ended
January 31,
 
 
2012
 
2011
 
Revenues
$
132,371

 
$
108,790

 
Cost of sales
122,709

 
102,445

 
Gross profit
9,662

 
6,345

 
Selling, general and administrative expenses
6,648

 
5,086

 
Asset recovery
(65
)
 
(9
)
 
Operating income
3,079

 
1,268

 
Interest expense
285

 
506

 
Other income (expense), net
47

 
(2
)
 
Income before income taxes
2,841

 
760

 
Provision for income taxes
1,262

 
253

 
Net income
$
1,579

 
$
507

 
Earnings per share:
 
 
 
 
Basic earnings per share
$
0.09

 
$
0.03

 
Basic weighted average number of common shares
16,765

 
16,634

 
Diluted earnings per share
$
0.09

 
$
0.03

 
Diluted weighted average number of common shares
16,856

 
16,847

 

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


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SHILOH INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)
 
 
Three Months Ended
January 31,
 
2012
 
2011
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
1,579

 
$
507

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
5,054

 
5,914

Recovery of impairment
(65
)
 
(9
)
Amortization of deferred financing costs
87

 
197

Deferred income taxes
(14
)
 
33

Stock-based compensation expense
209

 
158

Loss (gain) on sale of assets
18

 
(10
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(3,057
)
 
10,468

Inventories
(2,805
)
 
(1,531
)
Prepaids and other assets
305

 
472

Payables and other liabilities
(962
)
 
(6,297
)
Accrued income taxes
1,100

 
(220
)
Net cash provided by operating activities
1,449

 
9,682

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(1,983
)
 
(4,883
)
Proceeds from sale of assets
137

 
9

Net cash used in investing activities
(1,846
)
 
(4,874
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Repayments of short-term borrowings

 
(89
)
Payment of dividends

 
(2,004
)
Increase in overdraft balances
(1,678
)
 
(1,047
)
Proceeds from long-term borrowings
4,900

 
1,700

Repayments of long-term borrowings
(2,600
)
 
(3,700
)
Payment of deferred financing costs
(40
)
 

Proceeds from exercise of stock options
17

 
377

Net cash provided by (used) in financing activities
599

 
(4,763
)
Net increase in cash and cash equivalents
202

 
45

Cash and cash equivalents at beginning of period
20

 
34

Cash and cash equivalents at end of period
$
222

 
$
79

Supplemental Cash Flow Information:
 
 
 
Cash paid for interest
$
289

 
$
292

Cash paid for income taxes
$
89

 
$
463


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


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

Note 1—Basis of Presentation
The condensed consolidated financial statements have been prepared by Shiloh Industries, Inc. and its subsidiaries (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished in the condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of such financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Although the Company believes that the disclosures are adequate to make the information presented not misleading, these condensed consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2011.
Revenues and operating results for the three months ended January 31, 2012 are not necessarily indicative of the results to be expected for the full year.

Prior Year Reclassification
Certain prior year amounts have been reclassified to conform with current year presentation.

Note 2—New Accounting Standards
The new accounting standard, "Comprehensive Income", becomes effective for fiscal years beginning after December 15, 2011 which for the Company would be the first quarter ended January 31, 2013. This standard requires that other comprehensive income be presented as either a separate statement, or as an addition to the statement of income and prohibits the presentation of other comprehensive income in the statement of shareholders' equity. As the Company has historically presented other comprehensive income as part of the statement of shareholders' equity, the Company will have to retroactively restate its financial statements for this change upon adoption of this accounting standard.

Note 3—Asset Impairment and Restructuring Charges

Due to uncertain market conditions for industrial real estate, during the fourth quarter of fiscal 2011, the Company recorded an asset impairment charge of $324 to reduce the carrying value of real property at the Company's VCS Properties facility to a fair value of $1,900 based primarily on an independent assessment that considered recent sales of similar properties, as well as an income approach.

Impairment recoveries of $65 were recorded during the first quarter of fiscal 2012 and $9 were recorded during the first quarter of fiscal 2011 for cash received upon the sales of assets from the Company's Liverpool Stamping facility that was impaired in fiscal 2009.

During the third quarter of fiscal 2011, the Company recorded a restructuring charge of $352 based on a negotiated settlement with approximately 90 employees for severance and health insurance related to the previously announced planned closure of the Company's plant in Mansfield, Ohio.
      
An analysis of restructuring charges and related reserves of the Company for fiscal 2012 is as follows:

 
 
Restructuring Reserves at October 31, 2011
 
Restructuring Charges
 
Cash Payments
 
Restructuring Reserves at January 31, 2012
Restructuring - Severance and benefits
 
$
279

 
 
 
$
(181
)
 
$
98


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Note 4—Inventories
Inventories consist of the following:
 
January 31, 2012
 
October 31, 2011
Raw materials
$
11,963

 
$
14,433

Work-in-process
5,947

 
5,612

Finished goods
9,543

 
8,575

Total material
27,453

 
28,620

Tooling
9,328

 
5,356

Total inventory
$
36,781

 
$
33,976


Total cost of inventory is net of reserves to reduce certain inventory from cost to net realizable value. Such reserves aggregated $1,241 and $566 at January 31, 2012 and October 31, 2011, respectively.

The increase in tooling inventories of $3,972 is for customer reimbursed production tooling related to new program awards that go into production throughout the remainder of fiscal 2012.


Note 5—Property, Plant and Equipment
Property, plant and equipment consist of the following:
 
January 31,
2012
 
October 31,
2011
Land and improvements
$
9,681

 
$
9,671

Buildings and improvements
109,293

 
109,293

Machinery and equipment
342,509

 
342,557

Furniture and fixtures
10,982

 
11,450

Construction in progress
10,354

 
8,744

Total, at cost
482,819

 
481,715

Less: Accumulated depreciation
364,167

 
360,248

Property, plant and equipment, net
$
118,652

 
$
121,467



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Note 6—Financing Arrangements
Debt consists of the following:
 
January 31,
2012
 
October 31, 2011
Credit Agreement —interest at 2.77% and 2.79% at January 31, 2012 and October 31, 2011, respectively
$
28,000

 
$
25,700

Insurance broker financing agreement
215

 
428

Total debt
28,215

 
26,128

Less: Current debt
215

 
428

Total long-term debt
$
28,000

 
$
25,700


The weighted average interest rate of all debt was 2.79% and 3.39% for the three months ended January 31, 2012 and January 31, 2011, respectively.
On September 1, 2010, the Company entered into a Fifth Amendment Agreement (the “Fifth Amendment”) of the Credit Agreement with a syndicate of lenders with PNC Bank National Association, successor of National City Bank, as co-lead arranger, sole book runner and administrative agent and The Privatebank and Trust Company as co-lead arranger and syndication agent. The Fifth Amendment provided the Company with a revolving line of credit up to $80 million through July 31, 2012. The Company also had the opportunity to borrow up to an additional $80 million, at the current market rates. The Company was permitted to prepay the borrowings under the revolving credit facility without penalty. Under the Fifth Amendment, the Company had the option to select the applicable interest rate based upon two indices – a Base Rate, a daily rate based on the highest of the prime rate, the Federal Funds Open Rate plus one-half of one percent or the daily Libor Rate plus one percent, as defined in the Fifth Amendment, or the Eurodollar Rate, as defined in the Fifth Amendment. The selected index is combined with a designated margin from an agreed upon pricing matrix.
On April 19, 2011, the Company entered into an amended and restated Credit and Security Agreement (the “Agreement”) with a syndicate of lenders led by The Privatebank and Trust Company, as co-lead arranger, sole book runner and administrative agent and PNC Capital Markets, LLC as co-lead arranger and PNC Bank, National Association, as syndication agent. The Agreement amends and restates in its entirety the Company’s Credit Agreement, dated as of August 1, 2008.
The Agreement has a five-year term and provides for an $80 million secured revolving line of credit (which may be increased up to $120 million subject to the Company’s pro forma compliance with financial covenants, the administrative agent’s approval and the Company obtaining commitments for such increase). The Company is permitted to prepay the borrowings under the revolving credit facility without penalty.
Borrowings under the Agreement bear interest, at the Company’s option, at the London Interbank Offered Rate (“LIBOR”) or the base (or “prime”) rate established from time to time by the administrative agent, in each case plus an applicable margin set forth in a matrix based on the Company’s leverage ratio. In addition to interest charges, the Company will pay in arrears a quarterly commitment fee ranging from 0.375% - 0.750% based on the Company’s daily revolving exposure. At January 31, 2012, the interest rate for the credit facility was 2.77% for Eurodollar rate loans and 4.25% for base rate loans.
The Agreement contains customary restrictive and financial covenants, including covenants regarding the Company’s outstanding indebtedness and maximum leverage and fixed charge coverage ratios, The Agreement specifies that the leverage ratio as defined in the Agreement shall not exceed 2.25 to 1.00 to the conclusion of the Agreement. Also, the Agreement specifies that the fixed charge ratio as defined in the Agreement shall not be less than 2.50 to 1.00 to the conclusion of the Agreement. The Company was in compliance with the financial covenants as of January 31, 2012.
The Agreement specifies that upon the occurrence of an event or condition deemed to have a material adverse effect on the business or operations of the Company, as determined by the administrative agent of the lending syndicate or the required lenders, defined as 51% of the aggregate commitment under the Agreement, the outstanding borrowings become due and payable at the option of the required lenders. The Company does not anticipate at this time any change in business conditions or operations that could be deemed a material adverse effect by the lenders.
On January 31, 2012, the Company entered into a First Amendment Agreement (the “First Amendment”) to the Agreement.



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The First Amendment continues the Company's revolving line of credit up to $80,000,000 through April 2016 with a modification to the calculation of the fixed charge coverage ratio to allow for payment of a special dividend declared on February 1, 2012 and other modifications to allow the Company to participate in certain customer-sponsored financing arrangements allowing for early, discounted payment of Company invoices.
After considering letters of credit of $1,748 that the Company has issued, available funds under the Agreement were $50,252 at January 31, 2012.
Borrowings under the Agreement are collateralized by a first priority security interest in substantially all of the tangible and intangible property of the Company and its domestic subsidiaries and 65% of the stock of foreign subsidiaries.
In July 2011, the Company entered into a finance agreement with an insurance broker for various insurance policies that bears interest at a fixed rate of 2.67% and requires monthly payments of $65 through April 2012. As of January 31, 2012, $215 remained outstanding under this agreement and was classified as current debt in the Company’s condensed consolidated balance sheets.

Note 7—Pension and Other Post-Retirement Benefit Matters

The components of net periodic benefit cost for the three months ended January 31, 2012 and 2011 are as follows:

 
Pension Benefits
 
Other  Post-Retirement
Benefits
 
Three months ended January 31,
 
Three months ended January 31,
 
2012
 
2011
 
2012
 
2011
Service cost
$

 
$
35

 
$

 
$
2

Interest cost
921

 
955

 
11

 
7

Expected return on plan assets
(813
)
 
(705
)
 

 

Recognized net actuarial loss
260

 
311

 
14

 
15

Net periodic benefit cost
$
368

 
$
596

 
$
25

 
$
24

 
 
 
 
 
 
 
 

The Company made contributions of $794 to the defined benefit pension plans during the three months ended January 31, 2012. The Company expects contributions to be $5,117 for the remainder of fiscal 2012.


Note 8—Equity Matters
For the Company, FASB ASC Topic 718 “Compensation – Stock Compensation” affects the stock options that have been granted and requires the Company to expense share-based payment (“SBP”) awards with compensation cost for SBP transactions measured at fair value. The Company has elected to use the simplified method of calculating the expected term of the stock options 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. Forfeitures have been estimated based upon the Company’s historical experience.
1993 Key Employee Stock Incentive Plan
The Company maintains the Amended and Restated 1993 Key Employee Stock Incentive Program (as amended and restated December 12, 2002 and December 10, 2009) (the “Incentive Plan”), which authorizes grants to officers and other key employees of the Company and its subsidiaries of (i) stock options that are intended to qualify as incentive stock options, (ii) nonqualified stock options and (iii) restricted stock awards. An aggregate of 2,700,000 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, has been reserved for issuance pursuant to the Incentive Plan. An individual’s award is limited to 500,000 shares in a five-year period.

Non-qualified stock options and incentive stock options have been granted to date and all options have been granted at market price at the date of grant. Options expire over a period not to exceed ten years from the date of grant and vest ratably over a three year period. In December 2011, options to purchase 56,500 shares were awarded to several officers and employees at an exercise price of $8.10. These stock options are intended to qualify as incentive stock options. The fair values of these options were estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average

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assumptions used for grants awarded during fiscal year 2012:

 
2012
Risk-free interest
1.20
%
Dividend yield
0.00
%
Volatility factor—market
88.26
%
Expected life of options—years
6.00


Activity in the Company’s stock option plan for the three months ended January 31, 2012 and 2011 was as follows:

 
Fiscal 2012
 
Fiscal 2011
 
Number of
Shares
 
Weighted
Average
Exercise Price
Per Share
 
Weighted Average
Remaining
Contractual
Term (Years)
 
Aggregate
Intrinsic
Value
 
Number of
Shares
 
Weighted
Average
Exercise Price
Per Share
 
Weighted Average
Remaining
Contractual
Term (Years)
 
Aggregate
Intrinsic
Value
Options outstanding at November 1
520,185

 
$8.54
 
 
 
 
 
683,692

 
$6.13
 
 
 
 
Options:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Granted
56,500

 
$8.10
 
 
 
 
 
154,000

 
$12.10
 
 
 
 
Exercised
(6,964
)
 
$2.38
 
 
 
 
 
(157,110
)
 
$3.49
 
 
 
 
Canceled
(14,402
)
 
$6.04
 
 
 
 
 
(79,733
)
 
$7.47
 
 
 
 
Options outstanding at January 31
555,319

 
$8.63
 
6.71

 
$975
 
600,849

 
$8.22
 
7.56

 
$3,020
Exercisable at January 31
320,020

 
$8.72
 
5.57

 
$706
 
164,615

 
$11.08
 
5.19

 
$498

At January 31, 2012 and 2011, the exercise price of some of the Company’s stock option grants was higher than the market value of the Company’s stock. These grants are excluded from the computation of aggregate intrinsic value of the Company’s outstanding and exercisable stock options.

For the three months ended January 31, 2012 and 2011, the Company recorded compensation expense related to stock options currently vesting, effectively reducing income before taxes by $209 and $158, respectively. The impact on earnings per share was a reduction of $.01 per share basic and diluted in the first quarter of both fiscal 2012 and 2011. The total compensation cost related to unvested awards not yet recognized is expected to be a combined total of $1,179 over the next three fiscal years.

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Earnings per Share
Basic earnings per share is computed by dividing net income 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 stock options outstanding under the Incentive Plan are included in the diluted earnings per share calculation to the extent they are dilutive. For the three months ended January 31, 2012 and January 31, 2011, 233,411 and 68,018, respectively, stock options 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 per share: 
(Shares in thousands)
Three months ended
January 31,
 
 
2012
 
2011
 
Net income available to common stockholders
$
1,579

 
$
507

 
Basic weighted average shares
16,765

 
16,634

 
Effect of dilutive securities:
 
 
 
 
Stock options
91

 
213

 
Diluted weighted average shares
16,856

 
16,847

 
Basic income per share
$
0.09

 
$
0.03

 
Diluted income per share
$
0.09

 
$
0.03

 

Comprehensive Income
Comprehensive income for the three months ended January 31, 2012 and 2011 was $1,579 and $393 respectively. In addition to the reported amounts of net income for the three months ended January 31, 2012 and 2011, comprehensive income includes the effect of tax adjustments of $0 and $(114), respectively, to adjust the estimated deferred taxes associated with the pension adjustments included in accumulated other comprehensive income.
 
Note 9—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 the Company’s debt is considered to approximate the fair value of these instruments based on the borrowing rates currently available to the Company for loans with similar terms and maturities.

Note 10—Commitments and Contingencies
The Company is a party to certain lawsuits and claims arising in the normal course of its business. In the opinion of management, the Company’s liability or recovery, if any, under pending litigation and claims would not materially affect its financial condition, results of operations or cash flow.    

Note 11—Subsequent Events
The Company announced on February 1, 2012, that the Board of Directors declared a special dividend of $0.50 per share to be paid on February 21, 2012 to shareholders of record as of February 13, 2012.


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Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Dollars in thousands, except per share data)

General

Shiloh is a supplier of numerous parts to both automobile original equipment manufactures (“OEMs”) and, as a Tier II supplier, to Tier I automotive part manufacturers who in turn supply OEMs. The parts that the Company produces supply many models of vehicles manufactured by nearly all vehicle manufacturers that produce vehicles in North America. As a result, the Company’s revenues are heavily dependent upon the North American production of automobiles and light trucks, particularly production of traditional domestic manufacturers, such as General Motors, Chrysler and Ford. According to industry statistics, traditional domestic manufacturer production for the first three months of fiscal 2012 increased by 19.4% and total North American car and light truck production for the first three months of fiscal 2012 increased by 16.9%, in each case compared with production for the first three months of fiscal 2011. The continued viability of the traditional domestic manufacturers is critical to the profitability of the Company.

Another significant factor affecting the Company’s revenues is the Company’s ability to successfully bid on the production and supply of parts for models that will be newly introduced to the market by the OEMs. These new model introductions typically go through a start of production phase with build levels that are higher than normal because the consumer supply network is filled to ensure adequate supply to the market, resulting in an increase in the Company’s revenues for related parts at the beginning of the cycle.

Plant utilization levels are very important to profitability because of the capital-intensive nature of the Company’s operations. At January 31, 2012, the Company’s facilities were operating at approximately 53.1%, compared to 44.1% capacity at January 31, 2011. The Company defines capacity as 20 working hours per day and five days per week (i.e. 3-shift operation). Utilization of capacity is dependent upon the releases against customer purchase orders that are used to establish production schedules and manpower and equipment requirements for each month and quarterly period of the fiscal year.

A significant majority of the steel purchased by the Company’s stamping and engineered welded blank operations is purchased through the customers’ steel programs. Under these programs, the customer negotiates the price for steel with the steel suppliers. The Company pays for the steel based on these negotiated prices and passes on those costs to the customer. Although the Company takes ownership of the steel, the customers are responsible for all steel price fluctuations under these programs. The Company also purchases steel directly from domestic primary steel producers and steel service centers. Domestic steel pricing has generally been rising on increased demand. Finally, the Company blanks and processes steel for some of its customers on a toll processing basis. Under these arrangements, the Company charges a tolling fee for the operations that it performs without acquiring ownership of the steel and being burdened with the attendant costs of ownership and risk of loss. Toll processing operations result in lower revenues but higher gross margins than operations where the Company takes ownership of the steel. Revenues from operations involving directly owned steel include a component of raw material cost whereas toll processing revenues do not.

Engineered scrap steel is a planned by-product of the Company’s processing operations and part of our quoted cost to each customer. Net proceeds from the disposition of scrap steel contribute to gross margin by offsetting the increases in the cost of steel and the attendant costs of quality and availability. Changes in the price of steel impact the Company’s results of operations because raw material costs are by far the largest component of cost of sales in processing directly owned steel. The Company actively manages its exposure to changes in the price of steel, and, in most instances, passes along the rising price of steel to its customers.



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Company’s Response to Current Economic Conditions Affecting the Automotive Industry

The production of cars and light trucks for fiscal year 2012 in North America according to industry forecasts (published by IHS Automotive), is currently predicted to increase to approximately 13,980,000 units, which reflects an improvement of 9.2% over fiscal year 2011’s vehicle production of approximately 12,800,000 units. The increased production volume predicted for fiscal year 2012 is still 6.4% below the industry average production for the years 2005 to 2008 of 14,928,000 units. The improved vehicle production reflects an improvement in economic conditions and consumer demand. However, the automotive industry’s recovery over the past several quarters remains susceptible to the impacts that consumer income and confidence levels, housing sales, gasoline prices, automobile discount and incentive offers, and perceptions about global economic stability have on consumer spending.

The Company continues its approach of monitoring closely the customer release volumes as the overall outlook for the global economy continues to be an area of concern due to continued high levels of unemployment and geopolitical unrest. These uncertainties may impact the sustainability of improved forecasted production volumes.

The Company continues to follow its previously implemented action plans to respond to changes in customer production volumes. These include:
 
Challenging customer releases. The Company’s production scheduling is based on releases that are received weekly for thirteen week periods. The releases drive manning levels and inventory purchases. The Company’s operations personnel review the releases each week to ensure that the releases are not overly optimistic, a problem that seems to impact Tier I customers and not OEM manufacturing plants.

Inventory orders. The Company’s operations personnel monitor daily the ordering and receipt of production material to ensure that inventory will be readily consumed in the manufacturing process and that cash outlays for purchases coincide with receipts for sale of parts to the Company’s customers.

Manning levels. The Company’s operations personnel also monitor daily the level of personnel required to fulfill the production schedule by operating the equipment that produces the parts (direct personnel) and to support the direct personnel efforts (indirect, technical, and administrative staff). Manning is reviewed daily to react as necessary.

Discretionary spending in support of operations. The Company’s operating personnel also monitor the spending required for repair and maintenance, purchases of supplies consumed in operating production equipment and indirect support of operations, such as material handling equipment and utilities.

These daily activities are factored into forecasts for each plant for the balance of the fiscal year. The plant forecasts are consolidated to provide forecasts of operating results on a weekly and monthly basis, updated weekly to reflect the latest developments in terms of customer intelligence and new awards of business. This process is intended to address the cash needs of the Company considering capital asset and tooling needs related to new business as well as ongoing cash requirements for operations, payroll, pension contributions, debt repayment requirements, contingencies and other matters.

All of the above actions are intended to ensure that controllable variable spending is in line with the forecast of sales as indicated by the customer releases against open purchase orders. Actions are also initiated to monitor selling, general and administrative costs as well.

The Company also assesses the level of working capital risk with each customer by monitoring accounts receivable and payable levels to ensure that net balances are either equal or in favor of the Company. The Company also reviews compliance of the Company’s customers with terms and conditions of their purchase orders and gathers market intelligence on the customers to consider in assessing any risk in the collection process.

The Company has also evaluated plant operations in relation to our customers’ respective geographic footprints. During the fourth quarter of fiscal 2011, the Company recorded an asset impairment charge of $324 to reduce the real property at the Company's VCS Properties facility to a fair value of $1,900 based primarily on an independent assessment that considered recent sales of similar properties, and an income based valuation approach.

Impairment recoveries of $65 were recorded during the first quarter of fiscal 2012 and $9 were recorded during the first quarter of fiscal 2011 for cash received upon the sales of assets from the Company's Liverpool Stamping facility that was impaired in fiscal 2009.

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During the third quarter of fiscal 2011, the Company recorded a restructuring charge of $352 based on a negotiated settlement with approximately 90 employees for severance and health insurance related to the previously announced planned closure of the Company's plant in Mansfield, Ohio.

The steps described above demonstrate the Company’s intent to stay focused on efficient cost management, to generate cash with a focus on working capital management and capital investment efficiency and to maintain liquidity and covenant compliance with the First Amendment.


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Critical Accounting Policies
Preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The Company believes its estimates and assumptions are reasonable; however, actual results and the timing of the recognition of such amounts could differ from those estimates. The Company has identified the following items as critical accounting policies and estimates utilized by management in the preparation of the Company’s preceding 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 the Company’s 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. The Company makes frequent comparisons of actual experience and expected experience in order to mitigate the likelihood that material adjustments will be required.

Revenue Recognition. The Company recognizes revenue both for sales from toll processing and sales of products made with Company owned steel when there is evidence of a sales agreement, the delivery of goods has occurred, the sales price is fixed or determinable and collectability of revenue is reasonably assured. The Company records revenues upon shipment of product to customers and transfer of title under standard commercial terms. Price adjustments, including those arising from resolution of quality issues, price and quantity discrepancies, surcharges for fuel and/or steel and other commercial issues are recognized in the period when management believes that such amounts become probable, based on management’s estimates.

Allowance for Doubtful Accounts. The Company evaluates the collectability of accounts receivable based on several factors. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations, a specific allowance for doubtful accounts is recorded against amounts due to reduce the net recognized receivable to the amount the Company reasonably believes will be collected. Additionally, a general allowance for doubtful accounts is estimated based on historical experience of write-offs and the current financial condition of customers. The financial condition of the Company’s customers is dependent on, among other things, the general economic environment, which may substantially change, thereby affecting the recoverability of amounts due to the Company from its customers.

The Company carefully assesses its risk with each of its customers and considers compliance with terms and conditions, aging of the customer accounts, intelligence learned through contact with customer representatives and its net account receivable / account payable position with customers, if applicable, in establishing the allowance.

Inventory Reserves. Inventories are valued at the lower of cost or market. Cost is determined on the first-in, first-out basis. Where appropriate, standard cost systems are used to determine cost and the standards are adjusted as necessary to ensure they approximate actual costs. Estimates of lower of cost or market value of inventory are based upon current economic conditions, historical sales quantities and patterns, and in some cases, the specific risk of loss on specifically identified inventories.

The Company values inventories on a regular basis to identify inventories on hand that may be obsolete or in excess of current future projected market demand. For inventory deemed to be obsolete, the Company provides a reserve for the full value of the inventory, net of estimated realizable value. Inventory that is in excess of current and projected use is reduced by an allowance to a level that approximates future demand. Additional inventory reserves may be required if actual market conditions differ from management’s expectations.

The Company continues to monitor purchases of inventory to ensure that receipts coincide with shipments, thereby reducing the economic risk of holding excessive levels of inventory that could result in long holding periods or in unsalable inventory leading to losses in conversion.

Income Taxes. The Company utilizes 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 carryforwards. Valuation allowances are recorded to reduce net deferred tax assets to the amount that is more likely than not to be realized. The Company assesses 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, to a lesser extent because of inherent uncertainty, the expectations of future profitability, available tax planning strategies, the time period over which the temporary differences will reverse and taxable income in prior carryback years if carryback is permitted under the tax law. The calculation

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of the Company’s tax liabilities also involves dealing with uncertainties in the application of complex tax laws and regulations. The Company recognizes liabilities for uncertain income tax positions based on the Company’s estimate of whether, and the extent to which, additional taxes will be required. The Company reports interest and penalties related to uncertain income tax positions as income taxes.

Impairment of Long-lived Assets. The Company has historically performed an annual impairment analysis of long-lived assets, which only includes property, plant and equipment since the Company has no intangible assets. However, when significant events, which meet the definition of a “triggering event” in the context of assessing asset impairments, occur within the industry or within the Company’s primary customer base, an interim impairment analysis is performed. The analysis consists of reviewing the next five years outlook for sales, profitability, and cash flow for each of the Company’s manufacturing plants and for the overall Company. The five-year outlook considers known sales opportunities for which purchase orders exist, potential sale opportunities that are under development, third party forecasts of North American car builds (published by IHS Automotive), and the potential sales that could result from new manufacturing process additions and lastly, strategic geographic localities that are important to servicing the automotive industry. All of this data is collected as part of our annual planning process and is updated with more current Company specific and industry data when an interim period impairment analysis is deemed necessary. In concluding the impairment analysis, the Company incorporates a sensitivity analysis by probability weighting the achievement of the forecasted cash flows by plant and achievements of cash flows that are 20% greater and less than the forecasted amounts.

The property, plant and equipment included in the analysis for each plant represents factory facilities devoted to the Company’s manufacturing processes and the related equipment within each plant needed to perform and support those processes. The property, plant and equipment of each plant form each plant’s asset group and typically certain key assets in the group form the primary processes at that plant that generate revenue and cash flow for that facility. Certain key assets have a life of ten to twelve years and the remainder of the assets in the asset group are shorter-lived assets that support the key processes. When the analysis indicates that estimated future undiscounted cash flows of a plant are less than the net carrying value of the long-lived assets of such plant, to the extent that the assets cannot be redeployed to another plant to generate positive cash flow, the Company will record an impairment charge, reducing the net carrying value of the fixed assets (exclusive of land and buildings, the fair value of which would be assessed through appraisals) to zero. Alternative courses of action to recover the carrying amount of the long-lived asset group are typically not considered due to the limited-use nature of the equipment and the full utilization of their useful life. Therefore, the equipment is of limited value in a used-equipment market. The depreciable lives of the Company’s fixed assets are generally consistent between years unless the assets are devoted to the manufacture of a customized automotive part and the equipment has limited reapplication opportunities. If the production of that part concludes earlier than expected, the asset life is shortened to fully amortize its remaining value over the shortened production period.

The Company cannot predict the occurrence of future impairment-triggering events. Such events may include, but are not limited to, significant industry or economic trends and strategic decisions made in response to changes in the economic and competitive conditions impacting the Company’s business. Based on then current facts, the Company recorded an impairment charge of $324 in the fourth quarter of fiscal 2011 related to long-lived assets. See Note 3 to the condensed consolidated financial statements for a discussion of the impairment charge recorded in fiscal year 2011. The Company continues to assess impairment to long-lived assets based on expected orders from the Company’s customers and current business conditions.

The key assumptions related to the Company’s forecasted operating results could be adversely impacted by, among other things, decreases in estimated North American car builds during the forecast period, the inability of the Company or its major customers to maintain their respective forecasted market share positions, the inability of the Company to achieve the forecasted levels of operating margins on parts produced, and a deterioration in property values associated with manufacturing facilities.

Group Insurance and Workers’ Compensation Accruals. The Company is self-insured for group insurance and workers’ compensation claims and reviews these accruals on a monthly basis to adjust the balances as determined necessary. The Company reviews historical claims data and lag analysis as the primary indicators of the accruals.

Additionally, the Company reviews specific large insurance claims to determine whether there is a need for additional accrual on a case-by-case basis. Changes in the claim lag periods and the specific occurrences could materially impact the required accrual balance period-to-period. The Company carries excess insurance coverage for group insurance and workers’ compensation claims exceeding a range of $160-$170 and $100-$500 per plan year, respectively, dependent upon the location where the claim is incurred. At January 31, 2012 and 2011, the amount accrued for group insurance and workers’ compensation claims was $2,572 and $2,273, respectively. The insurance reserves' established accruals are a result of improved safety statistics, changes in employment levels, reduced number of open and active workers’ compensation cases, and group insurance

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plan design features. The Company does not self-insure for any other types of losses.

Share-Based Payments. The Company records compensation expense for the fair value of nonvested stock option awards over the remaining vesting period. The Company has elected to use the simplified method to calculate the expected term of the stock options outstanding at five to six years and has utilized historical weighted average volatility. The Company determines the volatility and risk-free rate assumptions used in computing the fair value using the Black-Scholes option-pricing model, in consultation with an outside third party.

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, the Company has estimated a 20% forfeiture rate. If actual forfeitures materially differ from the estimate, the share-based compensation expense could be materially different.

Pension and Other Post-retirement Costs and Liabilities. The Company has recorded significant pension and other post-retirement benefit liabilities that are developed from actuarial valuations. The determination of the Company’s 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. The Company determines these assumptions in consultation with, and after input from, its 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. Beginning in 2010, the Principal Pension Discount Yield Curve ("Principal Curve") has replaced the Citigroup Pension Discount Curve ("Citigroup Curve") as the basis for determining the discount rate for reporting pension and retiree medical liabilities. The Principal Curve has several advantages to the Citigroup Curve that was used in fiscal 2009, including: transparency of construction, lower statistical errors, and continuous forward rates for all years. At October 31, 2011, the resulting discount rate from the use of the Principal Curve was 5.00%, a decrease of .50% from a year earlier that resulted in an increase of the benefit obligation of approximately $4,297. A change of 25 basis points in the discount rate at October 31, 2011 would increase or decrease expense on an annual basis by approximately $18.

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 pension assets by approximately $119.

The Company’s investment policy for assets of the plans is to maintain an allocation generally of 0% to 70% in equity securities, 0% 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. The Company determines 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. The Company’s 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 twelve months ended October 31, 2011, the actual return on pension plans’ assets for all of the Company’s plans approximated 3.83% to 3.90%, which is below the expected rate of return on plan assets of 7.50% 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 current market investment performance, the Company anticipates that contributions to and pension expense for the Company’s defined benefit plans may increase or decrease in future years.


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Results of Operations
Three Months Ended January 31, 2012 Compared to Three Months Ended January 31, 2011

REVENUES. Sales for the first quarter of fiscal 2012 were $132,371, an increase of $23,581 from last year’s first quarter sales of $108,790, or 21.7%. During the first quarter of fiscal 2012, sales increased as a result of increased production volumes of the North American car and light truck manufacturers, especially the traditional domestic manufacturers, the Company’s major customers. According to industry statistics, North American car and light truck production in the first quarter of fiscal 2012 increased 16.9% from production levels of the first quarter of fiscal 2011. For traditional domestic manufacturers, the production increase in the first quarter of fiscal 2012 was 19.4% compared to the prior year first quarter period. Sales also increased due to improving demand of the heavy truck industry.

GROSS PROFIT. Gross profit for the first quarter of fiscal 2012 was $9,662 compared to gross profit of $6,345 in the first quarter of fiscal 2011, an increase of $3,317. Gross profit as a percentage of sales was 7.3% in the first quarter of fiscal 2012 and 5.8% in the first quarter of fiscal 2011. Gross profit in the first quarter of fiscal 2012 was favorably impacted by approximately $5,680 from the increased sales volume. Gross profit margin was unfavorably affected by a change in sales mix to increased sales with steel ownership and increasing material costs, net of revenue realized from the sales of engineered scrap during the first quarter of fiscal 2012 compared to the first quarter of 2011 resulting in a net material increase of approximately $1,550. In addition, manufacturing expenses increased by approximately $810 in the first quarter of fiscal 2012 compared to the first quarter of fiscal 2011. Personnel and personnel related expenses increased by approximately $680 as the Company's workforce was increased in anticipation of the improved production volumes, planning for future launches, and planning for further increases in North American vehicle production volumes. Expenses for repairs and maintenance and manufacturing supplies increased by approximately $960. These increases were offset by a reduction in depreciation and utilities of approximately $830.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses of $6,648 in the first quarter of fiscal 2012 were $1,562 more than selling, general and administrative expenses of $5,086 in the same period of the prior year. As a percentage of sales, these expenses were 5.0% of sales in the first quarter of fiscal 2012 and 4.7% in the first quarter of fiscal 2011. The increase in selling, general and administrative expenses reflects higher personnel and personnel related expenses of approximately $1,250 as result of an increase in the Company's workforce and the restoration of certain benefits.

ASSET IMPAIRMENT AND RESTRUCTURING CHARGES. Impairment recovery of $65 was recorded during the first quarter of fiscal 2012 compared to an impairment recovery of $9 that was recorded during the first quarter of fiscal 2011. The recoveries recorded in both years were for cash received upon the sale of assets from the Company's Liverpool Stamping facility that was impaired in fiscal 2009.

OTHER. Interest expense for the first quarter of fiscal 2012 was $285, compared to interest expense of $506 during the first quarter of fiscal 2011. Interest expense decreased from the prior year first quarter as a result of the impact of the amended and restated Credit and Security Agreement, which lowered the weighted average interest rate in the first quarter of fiscal 2012 compared to the prior year. Borrowed funds averaged $27,172 during the first quarter of fiscal 2012 and the weighted average interest rate was 2.79%. In the first quarter of fiscal 2011, borrowed funds averaged $26,449 while the weighted average interest rate was 3.39%.

Other income, net was $47 for the first quarter of fiscal 2012 compared to a net expense of $2 in the first quarter of fiscal 2011. Other (expense) in both fiscal 2012 and 2011 is the result of currency transaction gains (losses) realized by the Company's Mexican subsidiary. 

The provision for income taxes in the first quarter of fiscal 2012 was an expense of $1,262 on income before taxes of $2,841 for an effective tax rate of 44.4%. The provision for income taxes in the first quarter of fiscal 2011 was an expense of $253 on income before taxes of $760 for an effective tax rate of 33.3%. The estimated effective tax rate for the first quarter of fiscal 2012 has increased compared to the first quarter of fiscal 2011 primarily from a reduction in favorable prior period tax adjustments that occurred in the first quarter of fiscal 2011.

NET INCOME. The net income for the first quarter of fiscal 2012 was $1,579, or $0.09 per share, diluted. Net income for the first quarter of fiscal 2011was $507 or $0.03 per share, diluted.

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Liquidity and Capital Resources

On September 1, 2010, the Company entered into a Fifth Amendment Agreement (the “Fifth Amendment”) of the Credit Agreement with a syndicate of lenders with PNC Bank National Association, successor of National City Bank, as co-lead arranger, sole book runner and administrative agent and The Privatebank and Trust Company as co-lead arranger and syndication agent. The Fifth Amendment provided the Company with a revolving line of credit up to $80 million through July 31, 2012. The Company also had the opportunity to borrow up to an additional $80 million, at the current market rates. The Company was permitted to prepay the borrowings under the revolving credit facility without penalty. Under the Fifth Amendment, the Company had the option to select the applicable interest rate based upon two indices – a Base Rate, a daily rate based on the highest of the prime rate, the Federal Funds Open Rate plus one-half of one percent or the daily Libor Rate plus one percent, as defined in the Fifth Amendment, or the Eurodollar Rate, as defined in the Fifth Amendment. The selected index was combined with a designated margin from an agreed upon pricing matrix.

On April 19, 2011, the Company entered into an amended and restated Credit and Security Agreement (the “Agreement”) with a syndicate of lenders led by The Privatebank and Trust Company, as co-lead arranger, sole book runner and administrative agent and PNC Capital Markets, LLC as co-lead arranger and PNC Bank, National Association, as syndication agent. The Agreement amends and restates in its entirety the Company’s Credit Agreement, dated as of August 1, 2008.

The Agreement has a five-year term and provides for an $80 million secured revolving line of credit which may be increased up to $120 million subject to the Company’s pro forma compliance with financial covenants, the administrative agent’s approval and the Company obtaining commitments for such increase. The Company is permitted to prepay the borrowings under the revolving credit facility without penalty.

Borrowings under the Agreement bear interest, at the Company’s option, at the London Interbank Offered Rate (“LIBOR”) or the base (or “prime”) rate established from time to time by the administrative agent, in each case plus an applicable margin set forth in a matrix based on the Company’s leverage ratio. In addition to interest charges, the Company will pay in arrears a quarterly commitment fee ranging from 0.375% - 0.750% based on the Company’s daily revolving exposure. At January 31, 2012, the interest rate for the credit facility was 2.77% for Eurodollar rate loans and 4.25% for base rate loans.

The Agreement contains customary restrictive and financial covenants, including covenants regarding the Company’s outstanding indebtedness and maximum leverage and fixed charge coverage ratios. The Agreement specifies that the leverage ratio as defined in the Agreement shall not exceed 2.25 to 1.00 to the conclusion of the Agreement. Also, the Agreement specifies that the fixed charge ratio as defined in the Agreement shall not be less than 2.50 to 1.00 to the conclusion of the Agreement. The Company was in compliance with the financial covenants as January 31, 2012.

The Agreement specifies that upon the occurrence of an event or condition deemed to have a material adverse effect on the business or operations of the Company, as determined by the administrative agent of the lending syndicate or the required lenders, defined as 51% of the aggregate commitment under the Agreement, the outstanding borrowings become due and payable at the option of the required lenders. The Company does not anticipate at this time any change in business conditions or operations that could be deemed a material adverse effect by the lenders.

Borrowings under the Agreement are collateralized by a first priority security interest in substantially all of the tangible and intangible property of the Company and its domestic subsidiaries and 65% of the stock of foreign subsidiaries.

On January 31, 2012, the Company entered into a First Amendment Agreement (the “First Amendment”) to the Agreement.

The First Amendment continues the Company's revolving line of credit up to $80,000,000 through April 2016 with a modification to the calculation of the fixed charge coverage ratio to allow for payment of a special dividend declared on February 1, 2012 and other modifications to allow the Company to participate in certain customer-sponsored financing arrangements allowing for early, discounted payment of Company invoices.

After considering letters of credit of $1,748 that the Company has issued, available funds under the Agreement were $50,252 at January 31, 2012.

In July 2011, the Company entered into a finance agreement with an insurance broker for various insurance policies

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that bears interest at a fixed rate of 2.67% and requires monthly payments of $65 through April 2012. As of January 31, 2012, $215 remained outstanding under this agreement and were classified as current debt in the Company’s condensed consolidated balance sheets.

Scheduled repayments under the terms of the Agreement plus repayments of other debt for the next five years are listed below:

Twelve Months ended July 31,
Credit Agreement
 
Other Debt

 
Total
2013
$

 
$
215

 
$
215

2014

 

 

2015

 

 

2016

 

 

2017
28,000

 

 
28,000

Total
$
28,000

 
$
215

 
$
28,215


At January 31, 2012, total debt was $28,215 and total equity was $109,456, resulting in a capitalization rate of 20.5% debt, 79.5% equity. Current assets were $121,495 and current liabilities were $79,461 resulting in positive working capital of $42,034.
For the three months ended January 31, 2012, operations generated $1,449 of cash flow compared to $9,682 in the first quarter of 2011.
Working capital changes since October 31, 2011 were a use of funds of $5,419. During the first three months of fiscal 2012, accounts receivable and inventory have increased by $3,057 and $2,805, respectively.

The increase in tooling inventories of $3,972 is for customer reimbursed production tooling related to new program awards that go into production throughout the remainder of fiscal 2012.

Cash capital expenditures in the first three months of fiscal 2012 were $1,983. The Company had unpaid capital expenditures of approximately $347 and such amounts are included in accounts payable and excluded from capital expenditures in the accompanying condensed consolidated statement of cash flows. Total estimated capital expenditures for the remainder of fiscal 2012 are $10,000, subject to change based on business conditions.

The Company continues to closely monitor business conditions that are currently affecting the automotive industry and therefore, to closely monitor the Company's working capital position to insure adequate funds for operations. The Company anticipates that funds from operations will be adequate to meet the obligations under the Agreement through maturity of the Agreement in April 2016, as well as pension contributions totaling $5,910 during fiscal 2012, capital expenditures for fiscal 2012 and repayment of the other debt of $215.

Effect of Inflation, Deflation
Inflation generally affects the Company by increasing the interest expense of floating rate indebtedness and by increasing the cost of labor, equipment and raw materials. Inflation has not generally had a material effect on the Company’s financial results.
In periods of decreasing prices, deflation occurs and may also affect the Company’s results of operations. With respect to steel purchases, the Company’s purchases of steel through customers’ resale steel programs protects recovery of the cost of steel through the selling price of the Company’s products. For non-resale steel purchases, the Company coordinates the cost of steel purchases with the related selling price of the product.


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FORWARD-LOOKING STATEMENTS
Certain statements made by the Company in this Quarterly Report on Form 10-Q regarding earnings or general belief in the Company’s expectations of future operating results are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, forward-looking statements are statements that relate to the Company’s operating performance, events or developments that the Company believes or expects to occur in the future, including those that discuss strategies, goals, outlook, or other non-historical matters, or that relate to future sales, earnings expectations, cost savings, awarded sales, volume growth, earnings or general belief in the Company’s expectations of future operating results. 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. Some, but not all of the risks, include the ability of the Company to accomplish its strategic objectives with respect to implementing its sustainable business model; the ability to obtain future sales; changes in worldwide economic and political conditions, including adverse effects from terrorism or related hostilities; costs related to legal and administrative matters; the Company’s ability to realize cost savings expected to offset price concessions; inefficiencies related to production and product launches that are greater than anticipated; changes in technology and technological risks; increased fuel and utility costs; work stoppages and strikes at the Company’s facilities and that of the Company’s customers or suppliers; the Company’s dependence on the automotive and heavy truck industries, which are highly cyclical; the dependence of the automotive industry on consumer spending, which is subject to the impact of domestic and international economic conditions, including increased energy costs affecting car and light truck production, and regulations and policies regarding international trade; financial and business downturns of the Company’s customers or vendors, including any production cutbacks or bankruptcies; increases in the price of, or limitations on the availability of, steel, the Company’s primary raw material, or decreases in the price of scrap steel; the successful launch and consumer acceptance of new vehicles for which the Company supplies parts; the occurrence of any event or condition that may be deemed a material adverse effect under the Agreement; pension plan funding requirements; and other factors, uncertainties, challenges and risks detailed in the Company’s other public filings with the Securities and Exchange Commission. 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 the filing of this Quarterly Report on Form 10-Q. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. In addition to the disclosures contained herein, readers should carefully review risks and uncertainties contained in other documents the Company files from time to time with the Securities and Exchange Commission.


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Item 4.
Controls and Procedures

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. As of January 31, 2012, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended. The Company’s PEO and PFO concluded that the Company’s disclosure controls and procedures were effective as of January 31, 2012.

There were no changes in the Company’s internal control over financial reporting during the first quarter of fiscal 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


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Part II. OTHER INFORMATION
 
Item 6.
Exhibits


31.1
Principal Executive Officer’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
31.2
Principal Financial Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
32.1
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
 


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
SHILOH INDUSTRIES, INC.
 
 
 
 
By:
/s/ Theodore K. Zampetis
 
 
Theodore K. Zampetis
 
 
President and Chief Executive Officer
 
 
 
 
By:
/s/ Thomas M. Dugan
 
 
Thomas M. Dugan
 
 
Vice President of Finance and Treasurer
Date: February 22, 2012

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EXHIBIT INDEX

31.1

Principal Executive Officer’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
31.2

Principal Financial Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
32.1

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
 

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