Item 8.01 Other Events.
Reliance on SEC Relief from Filing Requirements
Shiloh Industries, Inc. (the "Company") is filing this Current Report on Form
8-K (this "Current Report") pursuant to the Order of the Securities and Exchange
Commission (the "SEC"), issued on March 4, 2020, as revised on March 25, 2020,
pursuant to Section 36 of the Securities Exchange Act of 1934 (the "Exchange
Act") (Release No. 34-88465) (the "Order"). The Order allows registrants such as
the Company to delay the filing of certain reports under the Exchange Act by up
to 45 days after the original due date if the registrant is unable to meet the
filing deadline due to circumstances related to the COVID-19 (defined below)
pandemic. In reliance on the Order, the Company currently expects to file its
Quarterly Report on Form 10-Q for the quarter ended April 30, 2020 ("Quarterly
Report"), originally due on June 9, 2020, on or before July 24, 2020
In December 2019, a novel strain of coronavirus ("COVID-19") was reported to
have surfaced in Wuhan, China, which has spread throughout the world, including
the United States. On January 30, 2020, the World Health Organization declared
the outbreak of COVID-19 a "Public Health Emergency of International Concern,"
and on March 11, 2020, it characterized the outbreak as a "pandemic".
The impact of COVID-19 developments and uncertainty with respect to the economic
effects of the pandemic has introduced significant volatility in the financial
markets and is having a widespread adverse effect on the automotive industry,
including reductions in consumer demand and OEM automotive production. The
Company's operations and business have also experienced disruptions due to the
unprecedented conditions surrounding the spread of COVID-19 throughout the
United States and globally. In response to the outbreak and business disruption,
we have instituted employee safety protocols to contain the spread, including
domestic and international travel restrictions, work-from-home practices,
extensive cleaning protocols, social distancing and various temporary closures
of our administrative offices and manufacturing facilities. The Company has
implemented a range of actions aimed at temporarily reducing costs and
preserving liquidity. These actions include temporary salary reductions ranging
between 20% to 25%, reduction in board fees, reduction of discretionary
spending, mandatory vacations, headcount reduction and furloughs. The office
closures, furloughs, four-day work week, and headcount reductions have impeded
the ability of key Company personnel to prepare and review the Quarterly Report.
The Company is working diligently to address these issues to enable filing of
the Quarterly Report on or before July 24, 2020. Due to these significant
disruptions, our profitability has been significantly impacted and the Company
may have a significant goodwill impairment. We are in the process of obtaining a
waiver from our lender group to waive compliance with our credit agreement
covenants as of April 30, 2020 due to the negative impact of COVID19.
Risk Factors related to COVID-19
Due to the further impact of COVID-19 pandemic, the Company is updating the risk
factor previously disclosed in its current report on Form 8-K filed with the SEC
on May 8, 2020 and in section "Risk Factors" in its quarterly report on Form
10-Q for the quarter ended January 30, 2020 with the following risk factor. The
impact of COVID-19 has exacerbated, may continue to exacerbate, other risks
discussed therein or in our Annual Report on Form 10-K for the fiscal year ended
October 31, 2019, any of which could have a material effect on the Company.
The COVID-19 pandemic has disrupted, and will likely continue to disrupt, our
business, which has adversely affected, and will likely continue to adversely
affect, our results of operations, financial position, and cash flow from
operations, and which has caused management to evaluate whether there is
substantial doubt about our ability to continue as a going concern.
In December 2019, COVID-19 was reported to have surfaced in Wuhan, China, which
has spread throughout the world, including the United States. On January 30,
2020, the World Health Organization declared the outbreak of COVID-19 a "Public
Health Emergency of International Concern," and on March 11, 2020, the World
Health Organization characterized the outbreak as a "pandemic".
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Pandemics or disease outbreaks, such as the recent COVID-19 pandemic, have
disrupted, and may continue to disrupt, automotive industry customer sales and
production volumes. While the full extent of the impact of COVID-19 is unknown
and the current situation is still evolving, our customers temporarily closed
their production facilities in North America, Europe and Asia during the quarter
ended April 30, 2020. Furthermore, we have also temporarily shut down our
manufacturing operations and have experienced, and will likely continue to
experience, reductions in orders from our customers globally. This reduction in
orders may be further exacerbated by a global economic downturn resulting from
the COVID-19 pandemic which could decrease consumer demand for vehicles or
result in the financial distress of one or more of our customers or suppliers.
As a result, our future sales volumes and revenue remain highly uncertain.
The extent to which the COVID-19 pandemic adversely affects our financial
performance will depend on future developments, which are highly uncertain and
cannot be predicted, including, but not limited to, the duration and spread of
the pandemic, its severity, the effectiveness of actions to contain the virus or
treat its impact, and how quickly and to what extent normal economic and
operating conditions can resume. Even after the COVID-19 pandemic has subsided,
we may continue to experience adverse impacts on our business and financial
performance as a result of its global economic impact, including a recession
that has occurred or may occur in the future. Our cash flow from operations,
liquidity and financial position could be adversely affected by COVID-19
depending upon the length and severity of the disruption and impact upon on our
customers, suppliers and our ability to effectively restart production.
During our second fiscal quarter, profitability, cash flows and liquidity were
substantially and negatively impacted by COVID-19. The liquidity risks have
necessitated that management, in connection with finalizing the Quarterly
Report, evaluate whether these conditions and events raise substantial doubt
about our ability to continue as a going concern from April 30, 2020. We are in
the process of obtaining a waiver from our lender group to waive compliance with
our credit agreement covenants as of April 30, 2020 due to the negative impact
of COVID19.
We are currently unable to determine whether we will be compliant with our
credit agreement covenants in the future. There is no certainty that we will be
able to obtain relief from financial covenants or financing on desirable terms,
or at all, that resolves our going concern risks. If we and/or our independent
registered public accounting firm conclude it is necessary at the end of the
year to include comments in our annual financial statements or auditor's report
on financial statements, respectively, with respect to our ability to continue
as a going concern, we may be materially limited in our ability to seek
financing. Furthermore, if we do not continue as a going concern, investors
could lose their entire investment in the Company.
Due to the adverse impact of COVID-19 an interim test of goodwill and long-lived
assets was performed and could result in an impairment.
Due to the significant disruptions caused due to the impact of COVID-19, our
profitability has been significantly impacted and the Company may have to
write-down goodwill. Goodwill represents the excess cost of an acquisition over
the fair value of the net assets acquired. Generally accepted accounting
principles require that goodwill be periodically evaluated for impairment. In
accordance with generally accepted accounting principles, we periodically assess
these assets to determine if they are impaired. Significant negative industry or
economic trends, disruptions to our business, inability to effectively integrate
acquired businesses, unexpected significant changes or planned changes in use of
these assets, changes in the structure of our business, divestitures, market
capitalization declines, or increases in associated discount rates may impair
our long lived assets. Any charges relating to impairments of goodwill or long
lived assets may adversely affect our results of operations in the periods
recognized. Due to the adverse impact of COVID-19 on our profitability in the
second quarter of fiscal 2020 the goodwill and long lived assets were tested for
impairment as of April 30, 2020. Based on the preliminary results, we may
recognize a non-cash goodwill impairment charge, including for up to the full
amount of our remaining goodwill balance.
Forward-Looking Statements
The statements contained in this Current Report that are not historical facts
are "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
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
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statements are subject to risks and uncertainties that may cause actual results
to materially differ from those contained in the statements due to a variety of
factors, including (1) the duration and severity of the COVID-19 pandemic, any
preventive or protective actions taken by governmental authorities, the
effectiveness of actions taken globally to contain or mitigate its effects, and
any unfavorable effects of the COVID-19 pandemic on either our manufacturing
operations, or those of our customer's or suppliers; (2) reduction in demand for
our solutions, including any reduction in demand as a result of a COVID-19
triggered economic recession, including any determination that the value of our
assets is impaired or that we do not have the ability to continue as a going
concern; (3) our ability to accomplish our strategic objectives; (4) our ability
to obtain future sales; (5) changes in worldwide economic and political
conditions, including adverse effects from terrorism or related hostilities; (6)
costs related to legal and administrative matters; (7) our ability to realize
cost savings expected to offset price concessions; (8) our ability to
successfully integrate acquired businesses, including businesses located outside
of the United States; (9) risks associated with doing business internationally,
including economic, political and social instability, foreign currency exposure
and the lack of acceptance of our products; (10) inefficiencies related to
production and product launches that are greater than anticipated; (11) changes
in technology and technological risks; (12) work stoppages and strikes at our
facilities and that of our customers or suppliers; (13) our dependence on the
automotive and heavy truck industries, which are highly cyclical; (14) the
dependence of the automotive industry on consumer spending, which is subject to
the impact of domestic and international economic conditions affecting car and
light truck production; (15) regulations and policies regarding international
trade; (16) financial and business downturns of our customers or vendors,
including any production cutbacks or bankruptcies; (17) increases in the price
of, or limitations on the availability of aluminum, magnesium or steel, our
primary raw materials, or decreases in the price of scrap steel; (18) the
successful launch and consumer acceptance of new vehicles for which we supply
parts; (19) the impact on financial statements of any known or unknown
accounting errors or irregularities; and the magnitude of any adjustments in
restated financial statements of our operating results; (20) the occurrence of
any event or condition that may be deemed a material adverse effect under
agreements related to our outstanding indebtedness or a decrease in customer
demand which could cause a covenant default under agreements related to our
outstanding indebtedness; (21) increases in pension plan funding requirements;
(22) our ability to derive a substantial portion of our sales from large
customers; (23) a successful transition of the CEO position and our ability to
successfully identify a qualified and effective full-time CEO; and (24) other
factors besides those listed here could also materially affect our business. See
(a) "Part I, Item 1A. Risk Factors" in our Annual Report on Form 10-K for the
fiscal year ended October 31, 2019, (b) Part II, Item 1A. Risk Factors" in our
Quarterly Report on Form 10-Q for the fiscal quarter ended January 30, 2020 and
(c) our Current Report on Form 8-K filed with the SEC on May 8, 2020 for a more
complete discussion of these risks and uncertainties. Any or all of these risks
and uncertainties could cause actual results to differ materially from those
reflected in the forward-looking statements. These forward-looking statements
reflect management's analysis only as of the date of this Current Report. We
undertake no obligation to publicly revise these forward-looking statements to
reflect events or circumstances that arise after the date of filing this Current
Report. In addition to the disclosures contained herein, readers should
carefully review risks and uncertainties contained in other documents we file
from time to time with the SEC.
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