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Shiloh Industries Inc. Reports Operating Results (10-Q)

August 25, 2010 | About:
10qk

10qk

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Shiloh Industries Inc. (SHLO) filed Quarterly Report for the period ended 2010-07-31.

Shiloh Industries Inc. has a market cap of $137.7 million; its shares were traded at around $8.33 with and P/S ratio of 0.5. SHLO is in the portfolios of Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

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, dependant upon the location where the claim is incurred. At July 31, 2010 and October 31, 2009, the amount accrued for group insurance and workers compensation claims was $1,885 and $2,277, respectively. The Company does not self-insure for any other types of losses.

GROSS PROFIT. Gross profit for the third quarter of fiscal 2010 was $8,829 compared to a loss of $4,868 in the third quarter of fiscal 2009, an increase of $13,697. Gross profit as a percentage of sales was 7.7% in the third quarter of fiscal 2010 compared to a negative 11.3% for the same period a year ago. Gross profit in the third quarter of fiscal 2010 compared to the third quarter of fiscal 2009 was favorably affected by the increased volume of sales in the quarter by approximately $20,000. Gross profit was also favorably affected by material costs including improvements in revenue realized from the sale of engineered scrap during the third quarter of 2010 compared to third quarter of 2009. The net effect was reduced material costs of approximately $1,450. These favorable factors resulting in increased gross profit were offset by increasing manufacturing expenses of $7,750. Manufacturing expenses have increased in relation to the increased production volumes experienced in the third quarter of fiscal 2010 compared to the third quarter of fiscal 2009. Increased expenses were noted in personnel and personnel related expenses of $5,400 and repairs and maintenance and manufacturing supplies of $3,100. These increases were offset by reduced depreciation expense of $700. In the third quarter of fiscal 2009, the Company closely controlled these expenses through layoffs of personnel and through spending control measures in response to the downturn in sales experienced in that quarter.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses were $4,804 in the third quarter of fiscal 2010, an increase of $3,252 from $1,552 in the same period of the prior year. As a percentage of sales, these expenses were 4.2% of sales in the third quarter of fiscal 2010 and 3.6% of sales in the third quarter of fiscal 2009. The increase in selling, general, and administrative expenses reflects increased personnel and personnel-related expenses of approximately $1,300 due to increased market demand. The third quarter of fiscal 2009 represented the lowest point of the depressed 2009 period. The Company initiated salary reductions and layoffs of salaried personnel in reaction to the downturn. In addition, selling, general and administrative expenses in the third quarter of fiscal 2009 were favorably affected by the reversal of a reserve of $2,070 that was initially provided in the second quarter of fiscal 2007. At that time, the reserve represented managements estimate of the probable outcome of a legal decision related to a jury verdict adverse to the Company. The Company appealed the jury verdict to the Sixth Circuit Court of Appeals and in July 2009, the Court of Appeals overturned the jurys verdict. Based upon the outcome of this matter, the Company reversed the reserve as well as interest accrued since the reserve was established. The reversal was credited to selling, general and administrative expenses ($2,070) and interest expense ($266) in the accompanying condensed consolidated statement of operations for the three months ended July 31, 2009.

GROSS PROFIT. Gross profit for the first nine months of fiscal 2010 was $24,915 compared to a loss of $10,266 in the first nine months of fiscal 2009, an increase of $35,181. Gross profit as a percentage of sales was 7.5% in the first nine months of fiscal 2010 compared to a negative 6.1% for the same period a year ago. For the first nine months of fiscal 2010, gross profit increased as a result of the increased sales volume compared to the prior year first nine-month period. The effect of the increased sales volume on gross profit was approximately $44,300. Gross profit was also favorably affected by material costs including improvements in revenue realized from the sale of engineered scrap during the first nine months of 2010 compared to first nine months of 2009. The net effect was reduced material costs of approximately $6,300. Increased manufacturing expenses of approximately $15,400 offset the favorable effects of increasing sales volumes and reduced material costs. Manufacturing expenses increased in personnel and personnel related expenses by approximately $11,700 and in repairs and maintenance and manufacturing supplies by approximately $5,400. These increases were offset by reduced depreciation of approximately $1,900. The nine-month period of fiscal 2009, including the third quarter of fiscal 2009, the lowest point of the fiscal period, included the impact of Company initiatives in reaction to the depressed level of economic activity. These initiatives included layoffs of personnel and cost control of maintenance, repairs and manufacturing expenses.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses were $14,719, or 4.5% of sales in the first nine months of fiscal 2010, compared to $11,394, or 6.8% of sales in the same period of the prior year. The increase in selling, general, and administrative expenses reflects increasing personnel and personnel-related expenses of approximately $1,400. The third quarter of fiscal 2009 represented the lowest point of the depressed 2009 period. The Company initiated salary reductions and layoffs of salaried personnel in reaction to the downturn. In addition, selling, general and administrative expenses in the nine month period of fiscal 2009 were favorably affected by the reversal of a reserve of $2,070 that was initially provided in the second quarter of fiscal 2007. At that time, the reserve represented managements estimate of the probable outcome of a legal decision related to a jury verdict adverse to the Company. The Company appealed the jury verdict to the Sixth Circuit Court of Appeals and in July 2009, the Court of Appeals overturned the jurys verdict. Based upon the outcome of this matter, the Company reversed the reserve as well as interest accrued since the reserve was established. The reversal was credited to selling, general and administrative expenses ($2,070) and interest expense ($266) in the accompanying condensed consolidated statement of operations for the nine months ended July 31, 2009.

OTHER. For the first nine months of fiscal 2010, interest expense was $3,124, an increase of $996 from interest expense of $2,128 in the first nine months of fiscal 2009. The increase in interest expense compared to the prior year nine-month period resulted from the net effect of a lower level of average borrowed funds and an increase in the interest rate. The rate of interest increased as a result of the terms of the Fourth Amendment of the Companys Credit Agreement. Borrowed funds averaged $43,550 during the first nine months of fiscal 2010 and the weighted average interest rate was 6.95%. For the first nine months of fiscal 2009, borrowed funds averaged $60,872 while the weighted average interest rate was 3.82%.

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