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

August 28, 2009 | About:
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Shiloh Industries Inc. (SHLO) filed Quarterly Report for the period ended 2009-07-31.

Shiloh Industries Inc. is a full service manufacturer of blanks and stamped components for the automotive and light truck heavy truck and other industrial markets. Their blanks are principally sold to automotive and truck original equipment manufacturers and are used for exterior steel components such as fenders hoods and doors for which quality of fit and finish is critical. Their stampings are principally used as components in mufflers seat frames structural rails window lifts heat shields vehicle brakes and other structural body components. Shiloh Industries Inc. has a market cap of $84.2 million; its shares were traded at around $5.15 with and P/S ratio of 0.1.

Highlight of Business Operations:

GROSS PROFIT. Gross profit for the third quarter of fiscal 2009 was a loss of $4,868 compared to gross profit of $12,780 in the third quarter of fiscal 2008, a decrease of $17,648. Gross profit as a percentage of sales was a negative 11.3% in the third quarter of fiscal 2009 compared to 10.3% for the same period a year ago. Gross profit in the third quarter of fiscal 2009 compared to the third quarter of fiscal 2008 was adversely affected by the lower volume of sales in the quarter and the absence of the related gross profit of approximately $17,200. Gross profit was favorably affected by lower material costs and favorable product mix of approximately $1,800, but was adversely affected by lower revenue realized from the sale of engineered scrap during the third quarter of fiscal 2009 compared to the third quarter of fiscal 2008 of approximately $14,900. The combined effect of material costs in the third quarter of fiscal 2009 was an unfavorable $13,100. These reductions of gross profit were offset by reduced manufacturing expenses that favorably affected gross profit by approximately $12,600. Manufacturing expenses declined as a result of the actions that the Company initiated in response to the reduction in production volumes of the Companys customers. These actions resulted in reduced personnel and personnel related expenses of approximately $7,400 and reduced expenditures for repairs, supplies and utilities of approximately $4,100. Depreciation and tax expense declined by $1,100.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses were $1,552 in the third quarter of fiscal 2009, a decrease of $5,336 from $6,888 in the same period of the prior year. As a percentage of sales, these expenses were 3.6% of sales in the third quarter of fiscal 2009 and 5.5% of sales in the third quarter of fiscal 2008. The decrease in selling, general, and administrative expenses reflect lower personnel and personnel-related expenses of approximately $2,600, and lower spending in controllable expense areas of approximately $700, also in response to the current automotive market conditions. The decrease also includes 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. The plaintiff has moved to seek a rehearing before the Court of Appeals and the final decision of the Court regarding a rehearing is expected within sixty days. Based upon managements estimate of the probable outcome of this matter, the Company has 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.

OTHER. Interest expense for the third quarter of fiscal 2009 was $741, compared to interest expense of $952 during the third quarter of fiscal 2008. Interest expense decreased from the prior year third quarter as a result of a lower level of average borrowed funds in the third quarter of fiscal 2009 compared to the prior year. Borrowed funds averaged $54,651 during the third quarter of fiscal 2009 and the weighted average interest rate was 4.46%. In the third quarter of fiscal 2008, borrowed funds averaged $75,189 while the weighted average interest rate was 4.06%. Interest expense for the third quarter of fiscal 2009 also includes a reduction of $266 related to interest that has been accrued on a legal reserve that was established in the second quarter of fiscal 2007 and reversed in the third quarter of fiscal 2009 as a result of a decision of the Sixth Circuit Court of Appeals favorable to the Company. Interest expense also includes accelerated amortization of deferred financing costs of $259 related to the Third Amendment Agreement of the Companys Credit Agreement and the reduction of the borrowing capacity from $120 million to $95 million.

GROSS PROFIT. Gross profit for the first nine months of fiscal 2009 was a loss of $10,266 compared to gross profit of $35,784 in the first nine months of fiscal 2008, a decrease of $46,050. Gross profit as a percentage of sales was a negative 6.1% in the first nine months of fiscal 2009 compared to 9.2% in the same period a year ago. For the first nine months of fiscal 2009 gross profit was reduced as a result of lower sales volume compared to the prior year first nine-month period. The effect of reduced sales on gross profit was approximately $54,500. Gross profit was also adversely affected by increased material costs driven primarily by lower revenue realized from the sale of engineered scrap during the first nine months of fiscal 2009 compared to the first nine months of fiscal 2008. The effect of increased material cost was approximately $30,300. These reductions of gross profit were offset by reduced manufacturing expenses that favorably affected gross profit by approximately $38,700. Manufacturing expenses declined as a result of the actions that the Company initiated in response to the reduction in production volumes of the Companys customers. These actions resulted in reduced personnel and personnel related expenses of approximately $24,100 and reduced expenditures for repairs, supplies and utilities of approximately $11,700. Depreciation and taxes declined by $2,900.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses were $11,394 or 6.8% of sales in the first nine months of fiscal 2009 compared to $20,426, or 5.2% of sales in the same period of the prior year. The decrease in selling, general, and administrative expenses reflects lower personnel and personnel-related expenses of approximately $4,594, and lower spending in controllable expense areas of approximately $2,366, also in response to the current automotive market conditions. The decrease also includes 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. The plaintiff has moved to seek a rehearing before the Court of Appeals and the final decision of the Court regarding a rehearing is expected within sixty days. Based upon managements estimate of the probable outcome of this matter, the Company has 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 2009, interest expense was $2,128, a decrease of $1,089 from interest expense of $3,217 in the first nine months of fiscal 2008. The decrease in interest expense compared to the prior year nine-month period resulted from a lower level of average borrowed funds and a decrease in the interest rate. Borrowed funds averaged $60,872 during the first nine months of fiscal 2009 and the weighted average interest rate was 3.82%. For the first nine months of fiscal 2008, borrowed funds averaged $74,056 while the weighted average interest rate was 4.95%. Interest expense for the nine month period ending July 31, 2009 also includes a reduction of $266 related to interest that had been accrued on a legal reserve that was established in the second quarter of fiscal 2007 and reversed in the third quarter of fiscal 2009 as a result of a decision of the Sixth Circuit Court of Appeals favorable to the Company. Interest expense also includes accelerated amortization of deferred financing costs of $259 related to the Third Amendment Agreement of the Companys Credit Agreement and the reduction of the borrowing capacity from $120 million to $95 million.

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