Form 10-Q SHILOH INDUSTRIES INC For: Jul 31

September 7, 2018 11:50 AM

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 July 31, 2018



¨	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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer	¨	Accelerated filer	x	Non-accelerated filer	¨	Smaller Reporting Company	¨	Emerging Growth Company	¨

If an emerging growth company, indicate by check mark if the registrant has elected no to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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 September 4, 2018 was 23,398,565.

Table of Contents

INDEX



			Page
PART I. FINANCIAL INFORMATION
	Item 1. Condensed Consolidated Financial Statements (Unaudited)
		Condensed Consolidated Balance Sheets	3
		Condensed Consolidated Statements of Operations	4
		Condensed Consolidated Statements of Comprehensive Income	5
		Condensed Consolidated Statements of Cash Flows	6
		Notes to Condensed Consolidated Financial Statements	7
	Forward-Looking Statements		26
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
	Item 3. Qualitative and Quantitative Disclosures About Market Risk		37
	Item 4. Controls and Procedures		38
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings		39
	Item 1A. Risk Factors		39
	Item 6. Exhibits		40

Table of Contents

PART I— FINANCIAL INFORMATION


Item 1.	Condensed Consolidated Financial Statements

SHILOH INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands)



	July 31, 2018			October 31, 2017
	July 31, 2018			October 31, 2017
	(Unaudited)
ASSETS
Cash and cash equivalents	$	17,276		$	8,736
Accounts receivable, net	193,135			188,664
Related-party accounts receivable	395			759
Prepaid income taxes	9,905			338
Inventories, net	75,115			61,812
Prepaid expenses and other assets	45,615			34,212
Total current assets	341,441			294,521
Property, plant and equipment, net	313,806			266,891
Goodwill	28,175			27,859
Intangible assets, net	15,480			15,025
Deferred income taxes	5,749			6,338
Other assets	10,572			7,949
Total assets	$	715,223		$	618,583
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current debt	$	818		$	2,027
Accounts payable	173,162			166,059
Other accrued expenses	64,686			46,171
Accrued income taxes	952			1,628
Total current liabilities	239,618			215,885
Long-term debt	237,331			181,065
Long-term benefit liabilities	20,674			21,106
Deferred income taxes	6,000			9,166
Other liabilities	2,518			3,040
Total liabilities	506,141			430,262
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 per share; 5,000,000 shares authorized; no shares issued and outstanding at July 31, 2018 and October 31, 2017, respectively	—			—
Common stock, par value $.01 per share; 50,000,000 shares authorized; 23,404,906 and 23,121,957 shares issued and outstanding at July 31, 2018 and October 31, 2017, respectively	234			231
Paid-in capital	113,946			112,351
Retained earnings	144,269			117,976
Accumulated other comprehensive loss, net	(49,367		)	(42,237		)
Total stockholders’ equity	209,082			188,321
Total liabilities and stockholders’ equity	$	715,223		$	618,583

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

Table of Contents

SHILOH INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

(Unaudited)



	Three Months Ended July 31,						Nine Months Ended July 31,
	2018			2017			2018			2017
Net revenues	$	294,883		$	256,847		$	839,889		$	777,816
Cost of sales	262,003			227,683			747,616			691,044
Gross profit	32,880			29,164			92,273			86,772
Selling, general & administrative expenses	22,773			21,233			66,159			63,080
Amortization of intangible assets	607			565			1,767			1,694
Asset impairment, net	—			—			—			41
Restructuring	1,965			—			4,962			—
Operating income	7,535			7,366			19,385			21,957
Interest expense	3,209			3,785			8,194			12,797
Interest income	(1		)	(1		)	(9		)	(3		)
Other expense, net	289			1,125			1,119			2,248
Income before income taxes	4,038			2,457			10,081			6,915
Provision (benefit) for income taxes	(7,014		)	4,439			(9,854		)	6,686
Net income (loss)	$	11,052		$	(1,982	)	$	19,935		$	229
Income (loss) per share:
Basic earnings (loss) per share	$	0.47		$	(0.11	)	$	0.86		$	0.01
Basic weighted average number of common shares	23,278			18,559			23,202			18,048
Diluted earnings (loss) per share	$	0.47		$	(0.11	)	$	0.85		$	0.01
Diluted weighted average number of common shares	23,453			18,559			23,341			18,073

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

Table of Contents

SHILOH INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollar amounts in thousands)

(Unaudited)



				Three Months Ended July 31,						Nine Months Ended July 31,
				2018			2017			2018			2017
Net income (loss)				$	11,052		$	(1,982	)	$	19,935		$	229
Other comprehensive income (loss)
	Defined benefit pension plans & other post-retirement benefits
			Amortization of net actuarial loss	328			380			984			1,080
			Cumulative effect of adoption of ASU 2018-02 reclassified to retained earnings	(6,138		)	—			(6,138		)	—
			Income tax provision	(76		)	(140		)	(258		)	(420		)
		Total defined benefit pension plans & other post-retirement benefits, net of tax		(5,886		)	240			(5,412		)	660
	Marketable securities
			Unrealized gain (loss) on marketable securities	(22		)	(20		)	(151		)	28
			Cumulative effect of adoption of ASU 2018-02 reclassified to retained earnings	(7		)	—			(7		)	—
			Income tax benefit (provision)	4			7			38			(10		)
			Reclassification of other-than-temporary impairment losses on marketable securities included in net income (loss)	122			435			122			435
		Total marketable securities, net of tax		97			422			2			453
	Derivatives and hedging
			Unrealized gain (loss) on interest rate swap agreements	171			(218		)	1,331			1,217
			Cumulative effect of adoption of ASU 2018-02 reclassified to retained earnings	(213		)	—			(213		)	—
			Income tax provision	(76		)	(42		)	(533		)	(919		)
			Reclassification adjustments for settlement of derivatives included in net income	153			329			648			1,115
		Change in fair value of derivative instruments, net of tax		35			69			1,233			1,413
	Foreign currency translation adjustments
			Unrealized gain (loss) on foreign currency translation	(2,834		)	6,815			(2,953		)	8,740
Comprehensive income, net				$	2,464		$	5,564		$	12,805		$	11,495

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

Table of Contents

SHILOH INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in thousands)

(Unaudited)



	Nine Months Ended July 31,
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	19,935		$	229
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	33,775			30,946
Asset impairment, net	—			41
Restructuring	672			—
Amortization of deferred financing costs	935			2,495
Deferred income taxes	(2,251		)	7,202
Stock-based compensation expense	1,557			1,372
Loss on sale of assets	2,300			474
Other than temporary impairment on marketable securities	154			695
Changes in operating assets and liabilities:
Accounts receivable	18,599			30,260
Inventories	(2,656		)	(698		)
Prepaids and other assets	(4,884		)	6,191
Payables and other liabilities	(6,989		)	(6,810		)
Accrued income taxes	(10,266		)	(2,879		)
Net cash provided by operating activities	50,881			69,518
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(38,668		)	(32,564		)
Sale of joint venture	—			1,170
Acquisitions, net of cash acquired	(62,481		)	—
Proceeds from sale of assets	2,696			7,515
Net cash used in investing activities	(98,453		)	(23,879		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capital leases	(667		)	(646		)
Proceeds from long-term borrowings	218,300			117,700
Repayments of long-term borrowings	(161,793		)	(196,984		)
Payment of deferred financing costs	(105		)	(221		)
Proceeds from exercise of stock options	41			78
Proceeds from the issuance of common stock	—			40,236
Net cash provided by (used in) financing activities	55,776			(39,837		)
Effect of foreign currency exchange rate fluctuations on cash	336			(227		)
Net increase in cash and cash equivalents	8,540			5,575
Cash and cash equivalents at beginning of period	8,736			8,696
Cash and cash equivalents at end of period	$	17,276		$	14,271

Supplemental Cash Flow Information:
Cash paid for interest	$	7,661		$	10,305
Cash paid for income taxes	$	2,779		$	1,538

Non-cash Activities:
Capital equipment included in accounts payable	$	2,201		$	3,554

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

SHILOH INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts and number of shares 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 (collectively referred to as the "Company," "Shiloh Industries," "us," "our" or "we"), without audit, and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). 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 ("GAAP") have been condensed or omitted pursuant to the rules and regulations of the SEC. Although we believe 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 our Annual Report on Form 10-K for the fiscal year ended October 31, 2017.

Revenues and operating results for the three and nine months ended July 31, 2018 are not necessarily indicative of the results to be expected for the full year.

Prior Year Reclassification

In the first quarter of fiscal 2018, we early adopted the provisions of Accounting Standards Update ("ASU") 2017-07 "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost". The reclassification of certain prior year amounts as a result of early adopting ASU 2017-07 is detailed in Note 2 - Recent Accounting Standards of the Notes to the Condensed Consolidated Financial Statements.

Prior year interest rate swap agreement amount of $2,088 as reported on the Consolidated Balance Sheet at October 31, 2017 is now presented with Other liabilities as we entered into other derivatives and hedging instruments as discussed in Note 12 - Derivatives and Financial Instruments of the Notes to the Condensed Consolidated Financial Statements.

In the third quarter of fiscal 2018, we combined our investments in marketable securities with prepaid expenses and other assets as the amounts are immaterial. Prior year investments in marketable securities amount of $194 as reported on the Consolidated Balance Sheet at October 31, 2017 is now presented with prepaid expenses and other assets.

Note 2—Recent Accounting Standards

Recently Issued Accounting Standards:



Standard	Description	Effective Date	Effect on our financial statements and other significant matters
ASU 2018-09 Codification Improvements	These amendments provide clarifications and corrections to certain ASC subtopics including the following: Income Statement - Reporting Comprehensive Income – Overall (Topic 220-10), Debt - Modifications and Extinguishments (Topic 470-50), Distinguishing Liabilities from Equity – Overall (Topic 480-10), Compensation - Stock Compensation - Income Taxes (Topic 718-740), Business Combinations - Income Taxes (Topic 805-740), Derivatives and Hedging – Overall (Topic 815-10), and Fair Value Measurement – Overall (Topic 820-10).	The majority of the amendments will be effective November 1, 2019	We are currently evaluating and assessing the impact this guidance will have on the Company's condensed consolidated statements or financial statement disclosures.

SHILOH INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)



ASU 2017-09 Compensation - Stock Compensation (Topic 718)	This amendment clarifies when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. The amendment should be adopted on a prospective basis.	November 1, 2018 with early adoption permitted.	We do not expect the adoption of these provisions to have a significant impact on the Company's condensed consolidated financial statements as it is not our practice to change either the terms or conditions of share-based payment awards once they are granted.
ASU 2014-09 Revenue from Contracts with Customers	The amendments require companies to recognize revenue when there is a transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. The amendments should be applied on either a full or modified retrospective basis, which clarifies existing accounting literature relating to how and when a company recognizes revenue. The Financial Accounting Standards Board ("FASB"), through the issuance of Accounting Standards Updated ("ASU") No. 2015-14, "Revenue from Contracts with Customers," approved a one year delay of the effective date and permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application of the new standard with disclosure of results under old standards. During fiscal 2016, the FASB issued ASUs 2016-10, 2016-11 and 2016-12. Finally, ASU 2016-20 makes minor corrections or minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities.	November 1, 2018.	We will be adopting the new revenue standards in the first quarter of 2019 utilizing the modified retrospective transition method. To assess the impact of the new standard, the Company is analyzing the standard's impact on customer contracts, comparing its historical accounting policies and practices to the requirements of the new standard, and identifying potential differences from application of the new standard's requirements. While the Company has not yet completed its evaluation of the effects of adoption, the Company does not expect the adoption of the new revenue standards to have a material impact on its consolidated financial statements.

SHILOH INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)



ASU 2016-02 Leases	This amendment requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet and aligns many of the underlying principles of the new lessor model with those in Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers. The standard requires a modified retrospective transition for capital and operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements, but it does not require transition accounting for leases that expire prior to the date of initial adoption. In January 2018, the FASB issued an amendment to ASC Topic 842 which permits companies to elect an optional transition practical expedient to not evaluate existing land easements under the new standard if the land easements were not previously accounted for under existing lease guidance. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842 which clarifies certain areas within ASU 2016-02. ASU 2018-11 Targeted Improvements to Topic 842, Leases. This amendment provides entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.	November 1, 2019 with early adoption permitted.	We are in the process of evaluating the impact of adoption of this standard on our financial statements and disclosures. We are in the beginning stages of developing a project plan with key stakeholders throughout the organization and gathering and analyzing detailed information on existing lease arrangements. This includes evaluating the available practical expedients, calculating the lease asset and liability balances associated with individual contractual arrangements and assessing the disclosure requirements. In addition, we continue to monitor FASB amendments to ASC Topic 842.

SHILOH INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)



ASU 2016-01 Recognition and Measurement of Financial Assets and Financial Liabilities	In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"), which was further amended in February and in March 2018 by ASU 2018-03, Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities and ASU 2018-04, Investments - Debt Securities (Topic 320) and Regulated Operations (Topic 980):Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 117 and SEC Release No. 33-9273 to clarify certain aspects of ASU 2016-01 and to update SEC interpretive guidance in connection with the provisions of ASU 2016-01. These ASUs provide guidance for the recognition, measurement, presentation and disclosure of financial instruments. Most prominent among the amendments is the requirement for changes in the fair value of the Company's equity investments, with certain exceptions, to be recognized through net income rather than OCI. The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet in year of adoption.	November 1, 2018 with early adoption permitted.	We do not expect the adoption of these provisions to have a significant impact on the Company's condensed consolidated statement of financial position or financial statement disclosures.

Recently Adopted Accounting Standards:



Standard	Description	Adoption Date	Effect on our financial statements and other significant matters
ASU 2018-02 Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income	This amendment allows a reclassification from accumulated other comprehensive income ("AOCI") to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the "TCJA"). The amendments eliminate the stranded tax effects resulting from the TCJA and will improve the usefulness of information reported to financial statement users.	May 1, 2018.	Please refer to Note 11 of the condensed consolidated financial statements for additional detail on this adoption.
ASU 2017-12 Derivatives and Hedging (Topic 815)	This amendment changes how an entity assesses effectiveness of derivative instruments, potentially resulting in less ineffectiveness and more derivatives qualifying for hedge accounting. Entities may early adopt the standard in any interim period, with the effect of adoption being applied to existing hedging relationships as of the beginning of the fiscal year of adoption.	November 1, 2017.	The early adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements. Please refer to Note 12 of the condensed consolidated financial statements for additional detail on this adoption.

SHILOH INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)



ASU 2017-07 Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost	This amendment requires the presentation of the service cost component of net benefit cost to be in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. All other components of net benefit cost should be presented separately from the service cost component and outside of a subtotal of earnings from operations, or separately disclosed. The amendments should be adopted on a retrospective basis.	November 1, 2017.	Prior to the adoption of ASU 2017-07, pension costs were reported as cost of sales and selling, general and administrative expenses on the Company's condensed consolidated statements of operations. As a result of the early adoption of ASU 2017-07, we reclassified $327 and $955 from cost of sales and selling, general and administrative expenses to other expense, net on the condensed consolidated statements of operations for the three and nine months ended July 31, 2017, respectively.
ASU 2017-01 Business Combinations (Topic 805): Clarifying the Definition of a Business	The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill impairment and consolidation. When substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets), the asset acquired would not represent a business. To be considered a business, an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to create outputs. The new guidance provides a framework to evaluate when an input and a substantive process are present.	November 1, 2017.	The adoption of this framework did not have a significant impact on the Company's condensed consolidated statement of financial position or financial statement disclosures.
ASU 2015-11 Inventory	This amendment simplifies the measurement of inventory by requiring inventory to be measured at the lower of cost and net realizable value. The amendment should be applied on a prospective basis.	November 1, 2017.	The adoption of these provisions did not have a significant impact on the Company's condensed consolidated statement of financial position or financial statement disclosures.

Note 3—Acquisitions

On March 1, 2018, a subsidiary of the Company acquired all of the issued and outstanding capital of each of Brabant Alucast Italy Site Verres S.r.l., a limited liability company organized under the laws of Italy and Brabant Alucast The Netherlands Site Oss B.V., a limited liability company organized under the laws of the Netherlands (collectively "Brabant"). The acquisition was accounted for as a business combination under the acquisition method in accordance with the FASB ASC Topic 805, Business Combinations. The acquisition complements Shiloh’s global footprint with the addition of aluminum casting and the expansion of magnesium casting capabilities in Europe, while providing necessary capacity for growth.

SHILOH INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

The aggregate fair value of consideration transferred was $65,273 ($62,481 net of cash acquired), on the date of the acquisition. The acquisition of Brabant has been accounted for using the acquisition method in accordance with FASB ASC Topic 805, Business Combinations. Assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date. The fair values of identifiable intangible assets were based on valuations using the income approach and estimates provided by management. The excess of the preliminary purchase price over the estimated fair values of the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. The allocation of the preliminary purchase price is based upon a valuation of certain assets acquired and liabilities assumed. The preliminary purchase price allocation was as follows:



Cash and cash equivalents	$	2,792
Accounts receivable	22,719
Inventory	10,603
Other assets, net	2,026
Property, plant and equipment	54,034
Goodwill	408
Intangible assets	2,328
Accounts payable and accrued expenses	(29,637		)
Net assets acquired	$	65,273

The purchase price allocation is provisional, pending completion of the valuation of acquired intangible assets, property, plant and equipment, and inventories. The Company is utilizing a third party to assist in the fair value determination of certain components of the purchase price allocation, namely inventory, property, plant and equipment and intangible assets. The final valuation may change the allocation of the purchase price, which could affect the fair values assigned to the assets.

The Company believes the amount of goodwill resulting from the purchase price allocation is attributable to the workforce of the acquired business (which is not eligible for separate recognition as an identifiable intangible asset) and the synergies expected after the Company's acquisition of Brabant. We do not expect that the preliminary goodwill amount of $408 will be deductible for tax purposes under current Italian or Netherland tax law.

The $2,328 of acquired intangible assets was assigned to developed technology that have a useful life of 13 years. The fair value assigned to identifiable intangible assets acquired have been determined primarily by using the income approach, which discounts expected future cash flows to present value using estimates and assumptions determined by management. The Company is utilizing a third party to assist in assigning a fair value to acquired intangible assets. The Company does not expect that the total amount of identifiable intangible assets will be deductible for tax purposes under current Italian or Netherland tax law.

Supplemental pro forma disclosures are not included as the amounts are deemed immaterial.

Note 4—Accounts Receivable

Accounts receivable are expected to be collected within one year and are net of an allowance for doubtful accounts in the amount of $1,041 and $1,271 at July 31, 2018 and October 31, 2017, respectively. We recognized a benefit of $32 from recoveries of receivables previously expensed and bad debt expense of $14, net of recoveries during the three and nine months ended July 31, 2018, and recognized a benefit of $257 and $291 from recoveries of receivables previously expensed during the three and nine months ended July 31, 2017, respectively, in the condensed consolidated statements of operations.

We continually monitor our exposure with our customers and additional consideration is given to individual accounts in light of the market conditions in the automotive, commercial vehicle and industrial markets.

As a part of our working capital management, the Company has entered into factoring agreements with third party financial institutions ("institutions") for the sale of certain accounts receivable with recourse. The activity under these agreements is accounted for as sales of accounts receivable under ASC Topic 860 "Transfers and Servicing." These agreements relate exclusively to the accounts receivable of certain Italian and Swedish customers. The amounts sold vary each month based on the amount of underlying receivables and cash flow requirements of the Company. In addition, the agreement addresses events and conditions which may obligate us to immediately repay the institutions the outstanding purchase price of the receivables sold.

SHILOH INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

The total amount of accounts receivable factored was $15,496 and $7,567 as of July 31, 2018 and October 31, 2017, respectively. As these sales of accounts receivable are with recourse, $12,412 and $8,072 were recorded in accounts payable as of July 31, 2018 and October 31, 2017, respectively. The cost of selling these receivables is dependent upon the number of days between the sale date of the receivables and the date the customer’s invoice is due and the interest rate. The expense associated with the sale of these receivables is recorded as a component of selling, general and administrative expense and interest expense in the accompanying condensed consolidated statements of operation.

Note 5—Related Party Receivables

Sales to MTD Products Inc. and its affiliates were $1,114 and $1,151 for the three months ended July 31, 2018 and 2017, respectively, and $4,380 and $4,369 for the nine months ended July 31, 2018 and 2017, respectively. At July 31, 2018 and October 31, 2017, we had related party receivable balances of $395 and $759, respectively, due from MTD Products Inc. and its affiliates.

Note 6—Inventories

Inventories consist of the following:



	July 31, 2018		October 31, 2017
Raw materials	$	29,074	$	23,389
Work-in-process	22,823		18,653
Finished goods	23,218		19,770
Total inventory	$	75,115	$	61,812

Total cost of inventory is net of reserves to reduce certain inventory from cost to net realizable value by an allowance for excess and obsolete inventories based on management’s review of on-hand inventories compared to historical and estimated future sales and usage. Such reserves aggregated $5,079 and $5,535 at July 31, 2018 and October 31, 2017, respectively.

Note 7—Property, Plant and Equipment

Property, plant and equipment consist of the following:



	July 31, 2018		October 31, 2017
Land and improvements	$	10,955	$	11,416
Buildings and improvements	126,501		124,406
Machinery and equipment	558,745		504,785
Furniture and fixtures	23,570		22,209
Construction in progress	35,901		40,356
Total, at cost	755,672		703,172
Less: Accumulated depreciation	441,866		436,281
Property, plant and equipment, net	$	313,806	$	266,891

Depreciation expense was $11,754 and $10,281 for the three months ended July 31, 2018 and 2017, respectively, and $32,008 and $29,252 for the nine months ended July 31, 2018 and 2017, respectively.

SHILOH INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Capital Leases:



	July 31, 2018		October 31, 2017
Leased Property:
Machinery and equipment	$	6,877	$	7,099
Less: Accumulated depreciation	2,901		2,420
Leased property, net	$	3,976	$	4,679

Total obligations under capital leases and future minimum rental payments to be made under capital leases at July 31, 2018 are as follows:



Twelve Months Ended July 31,
2019	$	730
2020	383
2021	1,848
	2,961
Plus amount representing interest ranging from 3.05% to 3.77%	258
Future minimum rental payments	$	3,219

Note 8—Goodwill and Intangible Assets

Goodwill:

The changes in the carrying amount of goodwill for the nine months ended July 31, 2018 are as follows:



Balance October 31, 2017		$	27,859
	Acquisitions	408
	Foreign currency translation	(92		)
Balance July 31, 2018		$	28,175

Intangible Assets

The changes in the carrying amount of finite-lived intangible assets for the nine months ended July 31, 2018 are as follows:



		Customer Relationships			Developed Technology			Non-Compete			Trade Name			Trademark			Total
Balance October 31, 2017		$	11,648		$	1,997		$	31		$	1,254		$	95		$	15,025
	Acquisitions	—			2,328			—			—			—			2,328
	Amortization expense	(999		)	(651		)	(12		)	(93		)	(12		)	(1,767		)
	Foreign currency translation	(3		)	(103		)	—			—			—			(106		)
Balance July 31, 2018		$	10,646		$	3,571		$	19		$	1,161		$	83		$	15,480

SHILOH INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Intangible assets are amortized on the straight-line method over their legal or estimated useful lives. The following summarizes the gross carrying value and accumulated amortization for each major class of intangible assets at July 31, 2018:



	Weighted Average Useful Life (years)	Gross Carrying Value Net of Foreign Currency		Accumulated Amortization			Net
Customer relationships	13.2	$	17,566	$	(6,920	)	$	10,646
Developed technology	9.1	7,232		(3,661		)	3,571
Non-compete	2.3	824		(805		)	19
Trade Name	14.8	1,875		(714		)	1,161
Trademark	10.0	166		(83		)	83
		$	27,663	$	(12,183	)	$	15,480

Total amortization expense was $607 and $565 for the three months ended July 31, 2018 and 2017, respectively, and $1,767 and $1,694 for the nine months ended July 31, 2018 and 2017, respectively. Amortization expense related to intangible assets for the fiscal years ending is estimated to be as follows:



Twelve Months Ended July 31,
2019	$	1,883
2020	1,871
2021	1,868
2022	1,868
2023	1,861
Thereafter	6,129
	$	15,480

Note 9—Financing Arrangements

Debt consists of the following:



	July 31, 2018		October 31, 2017
Credit Agreement—interest rate of 3.98% at July 31, 2018 and 3.88% at October 31, 2017	$	235,100	$	178,200
Equipment security note	88		482
Capital lease obligations	2,961		3,760
Insurance broker financing agreement	—		650
Total debt	238,149		183,092
Less: Current debt	818		2,027
Total long-term debt	$	237,331	$	181,065

At July 31, 2018, we had total debt, excluding capital leases, of $235,189, consisting of a revolving line of credit under the Credit Agreement (as defined below) of floating rate debt of $235,100 and of fixed rate debt of $88. The weighted average interest rate of all debt was 3.82% and 4.65% for the nine months ended July 31, 2018 and July 31, 2017, respectively.

SHILOH INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Revolving Credit Facility:

The Company and its subsidiaries are party to a Credit Agreement, dated October 25, 2013, as amended (the "Credit Agreement") with Bank of America, N.A., as Administrative Agent, Swing Line Lender, Dutch Swing Line Lender and L/C Issuer, JPMorgan Chase Bank, N.A. as Syndication Agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities, LLC as Joint Lead Arrangers and Joint Book Managers, CIBC Bank USA, Compass Bank and The Huntington National Bank, N.A., as Co-Documentation Agents, and the other lender parties thereto.

On October 31, 2017, we executed the Eighth Amendment ("Eighth Amendment") to the Credit Agreement which among other things: provides for an aggregate availability of $350,000, $275,000 of which is available to the Company through the Tranche A Facility and $75,000 of which is available to the Dutch borrower through the Tranche B Facility, and eliminates the scheduled reductions in such availability; increases the aggregate amount of incremental commitment increases allowed under the Credit Agreement to up to $150,000 subject to our pro forma compliance with financial covenants, the Administrative Agent’s approval and the Company obtaining commitments for any such increase. The Eighth Amendment extended the commitment period to October 31, 2022.

On July 31, 2017, we executed the Seventh Amendment ("Seventh Amendment") which modifies investments in subsidiaries and various cumulative financial covenant thresholds, in each case, under the Credit Agreement. The Seventh Amendment also enhances our ability to take advantage of customer supply chain finance programs.

On October 28, 2016, we executed the Sixth Amendment which increases the permitted consolidated leverage ratio for periods beginning after July 31, 2016; increases the permitted consolidated fixed charge coverage ratio for periods beginning after April 30, 2017; modifies various baskets related to sale of accounts receivable, disposition of assets, sale-leaseback transactions, and makes other ministerial updates.

Borrowings under the Credit Agreement bear interest, at our option, at LIBOR or the base (or "prime") rate established from time to time by the administrative agent, in each case plus an applicable margin. The Eighth Amendment provides for an interest rate margin on LIBOR loans of 1.50% to 3.00% and of 0.50% to 2.00% on base rate loans depending on the Company's leverage ratio.

The Credit Agreement contains customary restrictive and financial covenants, including covenants regarding our outstanding indebtedness and maximum leverage and interest coverage ratios. The Credit Agreement also contains standard provisions relating to conditions of borrowing. In addition, the Credit Agreement contains customary events of default, including the non-payment of obligations by the Company and the bankruptcy of the Company. If an event of default occurs, all amounts outstanding under the Credit Agreement may be accelerated and become immediately due and payable. We were in compliance with the financial covenants under the Credit Agreement as of July 31, 2018 and October 31, 2017.

After considering letters of credit of $5,241 that we have issued, unused commitments under the Credit Agreement were $109,659 at July 31, 2018.

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

Other Debt:

On September 2, 2013, we entered into an equipment security note that bears interest at a fixed rate of 2.47% and requires monthly payments of $44 through September 2018. As of July 31, 2018, $88 remained outstanding under this agreement and was classified as current debt in our condensed consolidated balance sheets.

We maintain capital leases for equipment used in our manufacturing facilities with lease terms expiring between 2018 and 2021. As of July 31, 2018, the present value of minimum lease payments under our capital leases amounted to $2,961.

SHILOH INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Scheduled repayments of debt for the next five years are listed below:



Twelve Months Ending July 31,	Credit Agreement		Equipment Security Note		Capital Lease Obligations		Total
2019	$	—	$	88	$	730	$	818
2020	—		—		383		383
2021	—		—		1,848		1,848
2022	—		—		—		—
2023	235,100		—		—		235,100
Total	$	235,100	$	88	$	2,961	$	238,149

Note 10—Pension and Other Post-Retirement Benefit Matters

U.S. Plans

The components of net periodic benefit cost for the three and nine months ended July 31, 2018 and 2017 are as follows:



	Pension Benefits						Other Post-Retirement Benefits
	Three Months Ended July 31,						Three Months Ended July 31,
	2018			2017			2018		2017
Interest cost	$	791		$	821		$	3	$	3
Expected return on plan assets	(839		)	(864		)	—		—
Amortization of net actuarial loss	328			377			1		2
Net periodic cost	$	280		$	334		$	4	$	5



	Pension Benefits						Other Post-Retirement Benefits
	Nine Months Ended July 31,						Nine Months Ended July 31,
	2018			2017			2018		2017
Interest cost	$	2,375		$	2,462		$	8	$	9
Expected return on plan assets	(2,519		)	(2,592		)	—		—
Amortization of net actuarial loss	984			1,131			5		8
Net periodic cost	$	840		$	1,001		$	13	$	17

We made a contribution of $445 to our U.S. pension plans during the three months ended July 31, 2018. No further contributions for the remainder of fiscal 2018 are required.

Non-U.S. Plans

For our Polish operations, at July 31, 2018 and October 31, 2017, we had a pension obligation liability of $1,211 and $1,008, respectively, based on actuarial reports. The Polish operations recognized $52 and $42 of expense for the three months ended July 31, 2018 and 2017, respectively, and $163 and $119 for the nine months ended July 31, 2018 and 2017, respectively. For our Asian, other European and Mexican operations, contributions are made to government sponsored programs or private pension funds. No unfunded liability exists for these operations.

SHILOH INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Early Adoption of ASU 2017-07 - Impact

In accordance with the Company's early adoption of ASU 2017-07, we report the service cost component of the net periodic pension and post-retirement costs in the same line item in the statements of income as other compensation costs arising from services rendered by the employees during the period for both our U.S. and Non-U.S. Plans. The other components of net periodic pension and post-retirement costs are presented in the statement of income separately from the service cost component and outside a subtotal of operating income. Therefore, $52 and $41 of service costs are included in cost of sales and $284 and $327 of net periodic pension and other post-retirement costs are included in other expense, net in the condensed consolidated statements of operations for the three months ended July 31, 2018 and 2017, respectively, and $163 and $154 of service costs are included in cost of sales and $853 and $955 of net periodic pension and other post-retirement costs are included in other expense, net in the condensed consolidated statements of operations for the nine months ended July 31, 2018 and 2017, respectively. Prior year amounts have been reclassified to conform to the current year presentation in our condensed consolidated financial statements.

Note 11—Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive loss in stockholders' equity by component for the three months ended July 31, 2018 is as follows:



		Pension and Post Retirement Plan Liability			Marketable Securities Adjustment (1)			Interest Rate Swap Adjustment (2)			Foreign Currency Translation Adjustment			Accumulated Other Comprehensive Loss
Balance at April 30, 2018		$	(27,373	)	$	(97	)	$	(121	)	$	(13,188	)	$	(40,779	)
	Other comprehensive income (loss), net of tax	—			(18		)	95			(2,834		)	(2,757		)
	Amounts reclassified from accumulated other comprehensive loss, net of tax	252			122			153			—			527
	Net current-period other comprehensive income (loss)	252			104			248			(2,834		)	(2,230		)
	Reclassification to retained earnings (3)	(6,138		)	(7		)	(213		)	—			(6,358		)
Balance at July 31, 2018		$	(33,259	)	$	—		$	(86	)	$	(16,022	)	$	(49,367	)

Changes in accumulated other comprehensive loss in stockholders' equity by component for the nine months ended July 31, 2018 is as follows:



		Pension and Post Retirement Plan Liability			Marketable Securities Adjustment (1)			Interest Rate Swap Adjustment (2)			Foreign Currency Translation Adjustment			Accumulated Other Comprehensive Loss
Balance at October 31, 2017		$	(27,847	)	$	(2	)	$	(1,319	)	$	(13,069	)	$	(42,237	)
	Other comprehensive income (loss), net of tax	—			(113		)	798			(2,953		)	(2,268		)
	Amounts reclassified from accumulated other comprehensive loss, net of tax	726			122			648			—			1,496
	Net current-period other comprehensive income (loss)	726			9			1,446			(2,953		)	(772		)
	Reclassification to retained earnings (3)	(6,138		)	(7		)	(213		)	—			(6,358		)
Balance at July 31, 2018		$	(33,259	)	$	—		$	(86	)	$	(16,022	)	$	(49,367	)

(1) Amounts reclassified from accumulated other comprehensive loss, net of tax are classified with other expense included in the statements of operations.

(2) Amounts reclassified from accumulated other comprehensive income loss, net of tax are classified with interest expense included on the condensed consolidated statements of operations.

(3) In the nine months ended July 31, 2018, the Company early adopted the ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." As a result, the stranded tax effects resulting from the TCJA enacted in December 2017 were reclassified from accumulated other comprehensive loss to retained earnings.

SHILOH INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Note 12—Derivatives and Financial Instruments

The Company is exposed to, among other risks, the impact of changes in commodity prices, foreign currency exchange rates, and interest rates in the normal course of business. The Company’s risk management program is designed to manage the exposure and volatility arising from these risks, and utilizes derivative financial instruments to offset a portion of these risks. The Company does not enter into derivative financial instruments for trading or speculative purposes. On an on-going basis, the Company monitors counterparty credit ratings. The Company considers credit non-performance risk to be low because the Company enters into agreements with commercial institutions that have investment grade credit rating.

During the first quarter of 2018, the Company early-adopted ASU 2017-02 "Derivatives and Hedging (Topic 815)" which was issued with the objective of improving the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements and to make certain targeted improvements to simplify the application of previously applicable hedge accounting guidance. This adoption did not have a material effect on our condensed consolidated financial statements, and did not result in any cumulative adjustment to equity as of the date of adoption.

Our derivatives consist of a cross-currency swap and an interest rate swap, all of which are over-the-counter and not traded through an exchange. The Company uses widely accepted valuation tools to determine fair value, such as discounting cash flows to calculate a present value for the derivatives. The models use Level 2 inputs, such as forward curves and other commonly quoted observable transactions and prices. The fair value of our derivatives and hedging instruments are all classified as Level 2 investments within the three-tier hierarchy.

On March 1, 2018, we entered into a cross-currency swap in which we settle interest on the notional amount in Euros and settle interest on the notional amount in dollars, both at a variable rate. The objective of the transaction is to protect the initial net investment in Brabant against adverse changes in the exchange rate between the US dollar and the Euro. Hedge effectiveness is assessed based upon changes in the spot foreign exchange rate. As such, the change in value of the cross-currency interest rate swap related to the change in spot rates is perfectly effective at offsetting changes in cumulative translation adjustment related to the portion of our net investment in Brabant up to the notional amount of the cross-currency interest rate swap.

Under the cross-currency interest rate swap, we received €53,000, on which we will settle interest at the 1-month Euribor rate, and we lent to the counterparty $64,930, on which we will settle interest at the 1-month LIBOR rate. Interest payments will be made at the end of every month. The notional amounts in the respective currencies exchanged at the beginning of the cross-currency interest rate swap period will be repaid at the end of the cross-currency interest rate swap period on October 31, 2022.

On February 25, 2014, we entered into an interest rate swap with an aggregate notional amount of $75,000 designated as a cash flow hedge to manage interest rate exposure on our floating rate LIBOR based debt under the Credit Agreement. The interest rate swap is an agreement to exchange payment streams based on the notional principal amount. This agreement fixes our future interest rate at 2.74% plus the applicable margin as provided in the Fifth Amendment discussed in Note 9 - Financing Arrangements, on an amount of our debt principal equal to the then-outstanding swap notional amount. The forward interest rate swap commenced on March 1, 2015 with an initial $25,000 base notional amount. The second notional amount of $25,000 commenced on September 1, 2015 and the final notional amount of $25,000 commenced on March 1, 2016. The base notional amount plus each incremental addition to the base notional amount has a five year maturity of February 29, 2020, August 31, 2020 and February 28, 2021, respectively. On the date the interest swap was entered into, we designated the interest rate swap as a hedge of the variability of cash flows to be paid relative to our variable rate monies borrowed. Any ineffectiveness in the hedging relationship is recognized immediately into earnings.

The following table discloses the fair value and balance sheet location of our derivative instruments:



		Asset (Liability) Derivatives
		Balance Sheet Location	July 31, 2018			October 31, 2017
Net Investment Hedging Instruments:
	Cross-currency interest rate swap contract	Other assets	$	2,441		$	—
Cash Flow Hedging Instruments:
	Interest rate swap contracts	Other liabilities	$	(109	)	$	(2,088	)

SHILOH INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

As a result of the hedging relationships being highly effective, the net interest payments accrued each period are reflected in net income (loss) as adjustments of interest expense, and the remaining change in the fair value of the derivatives is recognized in accumulated other comprehensive loss ("AOCI").

The following table presents the effect of our derivative instruments on the condensed consolidated statements of operations and the effects of hedging on those line items:



Location	Three Months Ended July 31, 2018			Nine Months Ended July 31, 2018
Interest expense	$	3,209		$	8,194
Effect of hedging on interest expense	$	(274	)	$	27



Location	Three Months Ended July 31, 2017		Nine Months Ended July 31, 2017
Interest expense	$	3,785	$	12,797
Effect of hedging on interest expense	$	329	$	1,115

Note 13—Stock Incentive Compensation

Stock Incentive Compensation falls under the scope of ASC Topic 718 "Compensation – Stock Compensation" and affects the stock awards that have been granted and requires us to expense share-based payment ("SBP") awards with compensation cost for SBP transactions measured at fair value. For restricted stock and restricted stock units, we are computing fair value based on a 20-day Exponential Moving Average ("EMA") as of the close of business the Friday preceding the award date. For stock options, we have elected to use the simplified method of calculating the expected term 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. In addition, we do not estimate a forfeiture rate at the time of grant, instead we elect to recognize share-based compensation expense when actual forfeitures occur.

2016 Equity and Incentive Compensation Plan

Long-Term / Annual Incentives

On March 9, 2016, stockholders approved and adopted the 2016 Equity and Incentive Compensation Plan ("2016 Plan") which replaced the Amended and Restated 1993 Key Employee Stock Incentive Program. The 2016 Plan authorizes the Compensation Committee of the Board of Directors of the Company to grant to officers and other key employees, including directors, of the Company and our subsidiaries (i) option rights, (ii) appreciation rights, (iii) restricted shares, (iv) restricted stock units, (v) cash incentive awards, performance shares and performance units and (vi) other awards. An aggregate of 1,500 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, was reserved for issuance pursuant to the Incentive Plan. An individual’s award of option and / or appreciation rights is limited to 500 shares during any calendar year. Also, an individual's award of restricted shares, restricted share units and performance based awards is limited to 350 shares during any calendar year.

SHILOH INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

The following table summarizes the Company’s Incentive Plan activity for the nine months ended July 31, 2018 and 2017:



	Stock Options				Restricted Stock				Restricted Stock Units
Outstanding at:	Options		Weighted Average Exercise Price	Weighted Average Remaining Contractual Life	Restricted Shares		20-day EMA	Weighted Average Remaining Contractual Life	Restricted Share Units		20-day EMA	Weighted Average Remaining Contractual Life



November 1, 2016	90		$9.67	3.04	376		$6.11	1.83	22		$4.17	1.78
Granted	—		—		246		7.93		29		8.62
Options exercised or restricted stock vested	(8	)	9.79		(159	)	5.71		(14	)	4.17
Forfeited or expired	(24	)	13.38		(5	)	9.20		—		—
July 31, 2017	58		$8.16	2.78	459		$7.19	1.78	37		$7.67	2.10

November 1, 2017	58		$8.16	2.53	441		$7.07	1.60	36		$7.69	1.82
Granted	—		—		296		8.12		18		7.90
Options exercised or restricted stock vested	(12	)	3.26		(200	)	7.51		(15	)	8.30
Forfeited or expired	(3	)	12.04		(41	)	7.08		(12	)	6.18
July 31, 2018	43		$9.33	1.83	496		$7.52	1.95	26		$8.17	1.72

We recorded stock compensation expense related to stock options, restricted stock and restricted stock units during the three and nine months ended July 31, 2018 and 2017 as follows:



	Three Months Ended July 31,				Nine Months Ended July 31,
	2018		2017		2018		2017
Restricted stock	$	488	$	505	$	1,465	$	1,286
Restricted stock units	27		33		92		86
Total	$	515	$	538	$	1,557	$	1,372

Stock Options - The exercise price of each stock option equals the market price of our common stock on the grant date. Compensation expense is recorded at the grant date fair value, adjusted for forfeitures as they occur, and is recognized over the applicable vesting periods. Our stock options generally vest over three years, with a maximum term of ten years. Incentive stock options were not granted during the three and nine months ended July 31, 2018 and 2017.

Cash received from the exercise of options for the nine months ended July 31, 2018 and 2017 was $41 and $78, respectively. Options that have an exercise price greater than the market price are excluded from the intrinsic value computation. At July 31, 2018 and October 31, 2017, the options outstanding and exercisable had an intrinsic value of $52 and $137, respectively.

Restricted Stock Awards - The grant date fair value of each restricted stock award equals the fair value of our common stock based on a 20-day EMA as of the close of business on the Friday preceding the award date. Compensation expense is recorded at the grant date fair value, adjusted for forfeitures as they occur, and is recognized over the applicable vesting periods. The vesting periods range between one to four years. As of July 31, 2018, there was approximately $2,630 of total unrecognized compensation expense related to non-vested restricted stock that is expected to be recognized over the applicable vesting periods.

SHILOH INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Restricted Stock Units - The grant date fair value of each restricted stock unit equals the fair value of our common stock based on a 20-day EMA as of the close of business on the Friday preceding the award date. Compensation expense is recorded at the grant date fair value, adjusted for forfeitures as they occur, and is recognized over the applicable vesting periods. The vesting periods range between one to three years. As of July 31, 2018, there was approximately $154 of total unrecognized compensation expense related to these restricted stock units that is expected to be recognized over the applicable vesting periods.

Cash Incentive Award Agreements - Under the provisions of the 2016 Plan, Cash Incentive Awards are granted annually to executives and director level employees. These awards were designed to provide the individuals with an incentive to participate in the long-term success and growth of the Company. The Cash Incentive Award amounts are based on 3-year return on capital employed and 3-year adjusted earnings before interest, taxes, depreciation and amortization goals, which could range from 0% to 200% based on the achievement of performance goals. The Cash Incentive Award Agreements cliff-vest after three years if the performance goals are achieved. These awards may be subject to payment upon a change in control or termination of employment, under certain circumstances, if certain performance goals are achieved. In addition, these awards represent unfunded, unsecured obligations of the Company.

During the three and nine months ended July 31, 2018, we recorded expense related to these awards of $286 and $666, respectively, and $203 and $485 during the three and nine months ended July 31, 2017. At July 31, 2018 and October 31, 2017, we had a liability of $1,202 and $536, respectively, related to these awards are presented as other accrued expenses in the condensed consolidated balance sheets.

Note 14—Fair Value of Financial Instruments

FASB ASC Topic 820, Fair Value Measurements and Disclosures ("FASB ASC 820"), clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based upon assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, FASB ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the plans have the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect the plans' own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The methods that we use may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Assets and liabilities remeasured and disclosed at fair value on a recurring basis:

The Company has marketable securities that are recorded the Company’s condensed consolidated balance sheets included in prepaid expenses and other assets. During the three months ended July 31, 2018, we considered the decline in market value of our investment in our marketable securities to be other than temporary and recognized an other than temporary impairment loss of $154, which was recorded within other expense, net in our condensed consolidated statement of operations. The fair value is measured using the closing stock price on the last business day of the quarter - a Level 1 observable input (Market Approach). At July 31, 2018 and October 31, 2017, the marketable securities had an asset fair value of $43 and $194, respectively.

The Company has a cross-currency swap and interest rate swap instruments that are recorded in other assets or other liabilities in the Company’s condensed consolidated balance sheets and the fair value is measured using Level 2 observable inputs

SHILOH INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

such as foreign currency exchange rates, swap rates, cross currency basis swap spreads and quoted interest rate curves. The discount rates for all derivative contracts are based on quoted swap interest rates or bank deposit rates (Income Approach). For contracts which, when aggregated by counterparty, are in a liability position, the rates are adjusted by the credit spread that market participants would apply if buying these contracts from our counterparties. At July 31, 2018, the cross currency swap (net investment hedge of our European subsidiaries) had an asset fair value of $2,441 and the interest rate swap had a liability fair value of $109. At October 31, 2017, interest rate swap had a liability fair value of $2,088.

Note 15—Restructuring Charges

During the fourth quarter of fiscal 2017, management initiated restructuring activities such as consolidating manufacturing facilities, making geographical shifts to place production closer to customer facilities, provide a more global and scaleable organization, centralizing departments, optimizing our product plan, and capturing synergies. Management believes these strategic moves will result in a stronger and more agile Company. During the three and nine months ended July 31, 2018, respectively, we incurred $1,965 and $4,962 related to employee, professional, legal and other restructuring related costs. We have incurred to date restructuring expenses of $9,739. We expect to incur approximately an additional $7,300 over the next eighteen months. The benefits from this initiative are expected to provide savings with less than a three-year payback. Any future restructuring actions will depend upon market conditions, customer actions and other factors.

The following table presents information about restructuring costs recorded for the three and nine months ended July 31, 2018:



	Three Months Ended July 31, 2018		Nine Months Ended July 31, 2018
Professional and legal costs	$	58	$	1,170
Employee costs	1,352		2,931
Other	555		861
	$	1,965	$	4,962

The following table presents a rollforward of the beginning and ending liability balances related to the restructuring costs which are included in the condensed consolidated balance sheets in other accrued expenses for the above-mentioned actions through July 31, 2018:



	Balance as of October 31, 2017		Restructuring Expense		Payments		Balance as of July 31, 2018
Employee costs	$	65	$	2,931	$	1,990	$	1,006
Legal and professional costs	270		1,170		1,440		—
Other	—		861		861		—
	$	335	$	4,962	$	4,291	$	1,006

Note 16—Income Taxes

The provision for income taxes for the three months ended July 31, 2018 was a benefit of $7,014 on income before income taxes of $4,038 for a consolidated effective tax rate of (173.7)%. Income taxes included a $2,300 net benefit related to a return to provision due to a change in estimate and a $5,500 benefit based on adjusting the estimated annual tax rate used to calculate the quarterly provision related to 2018.

The U.S. Internal Revenue Service has proposed disallowances of the majority of fiscal year 2012 and fiscal year 2013 U.S. R&D credits claimed. We are disputing this tax credit matter and intend to vigorously defend our position. We believe the ultimate resolution of the matters will not materially impact our results of operations, financial position or cash flows. With any tax controversy and litigation, there is, however, a chance of unforeseen loss which due to the number of years involved could materially impact our results, financial position and cash flows. For open tax years through fiscal year 2017, the total amounts related to the unreserved portion of the tax contingency, inclusive of any related interest, amounts to approximately $4,700, of

SHILOH INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

which the majority has been assessed by management as being remote as to the likelihood of ultimately resulting in a loss to the Company. We routinely assess tax matters as to the probability of incurring a loss and record our best estimate of the ultimate loss in situations where we assess the likelihood of an ultimate loss as probable. The amount of unrecognized income tax benefits was increased year to date by $2,015.

The provision for income taxes for the nine months ended July 31, 2018 was a benefit of $9,854 on income before income taxes of $10,081 for a consolidated effective tax rate of (97.7)%. The consolidated effective tax rate for the year decreased primarily due to a $2,300 net tax benefit related to a return to provision due to a change in estimate, a $5,500 tax benefit based on adjusting the estimated annual tax rate and a tax benefit of $3,966 due to the enactment of the TCJA.

The provision for income taxes for the three months ended July 31, 2017 was an expense of $4,439 on income before income taxes of $2,457 for a consolidated effective tax rate of 180.7%. The consolidated effective tax rate was impacted by foreign losses without a tax benefit.

The provision for income taxes for the nine months ended July 31, 2017 was an expense of $6,686 on income before income taxes of $6,915 for a consolidated effective tax rate of 96.7%. The consolidated effective tax rate was impacted by foreign losses without a tax benefit.

Note 17—Earnings Per Share

Basic earnings per share is computed by dividing net income (loss) 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 restricted stock awards, restricted stock units and stock options outstanding under the 2016 Plan are included in the diluted earnings per share calculation to the extent they are dilutive. For the nine months ended July 31, 2018 and 2017, approximately 316 and 7 stock awards, respectively, were excluded from the computation of diluted earnings (loss) 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 (loss) per share:



	Three Months Ended July 31,					Nine Months Ended July 31,
	2018		2017			2018		2017
Net income (loss) available to common stockholders	$	11,052	$	(1,982	)	$	19,935	$	229
Basic weighted average shares	23,278		18,559			23,202		18,048
Effect of dilutive securities:
Restricted share units and stock options (1)	175		—			139		25
Diluted weighted average shares	23,453		18,559			23,341		18,073
Basic income (loss) per share	$	0.47	$	(0.11	)	$	0.86	$	0.01
Diluted income (loss) per share	$	0.47	$	(0.11	)	$	0.85	$	0.01

(1) Due to a loss for the for the three months ended July 31, 2017 no restricted share awards and units are included because the effect would be anti-dilutive.

Note 18—Business Segment Information

For the nine months ended July 31, 2018, we conducted our business and reported our information as one operating segment - Automotive and Commercial Vehicles. Our chief operating decision maker has been identified as the executive leadership team, which includes certain Vice Presidents, all Senior Vice Presidents plus the Chief Executive Officer of the Company. This team has the final authority over performance assessment and resource allocation decisions. In determining that one operating segment is appropriate, we considered the nature of the business activities, the existence of managers responsible for the operating activities. Customers and suppliers are substantially the same in the automotive and commercial vehicle industry.

SHILOH INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Revenues of foreign geographic regions are attributed to external customers based upon the location of the entity recording the sale. These foreign revenues represent 28.5% and 26.9% for the three and nine months ended July 31, 2018, respectively and 19.3% and 18.5% for the three and nine months ended July 31, 2017, respectively.



	Net Revenues				Net Revenues
	Three Months Ended July 31,				Nine Months Ended July 31,
Geographic Region:	2018		2017		2018		2017
United States	$	210,840	$	207,187	$	613,858	$	633,950
Europe	$	73,678	$	41,808	196,023		119,980
Rest of World	$	10,365	$	7,852	30,008		23,886
Total Company	$	294,883	$	256,847	$	839,889	$	777,816

The foreign currency gain (loss) is included as a component of other expense, net in the condensed consolidated statements of operations.



	Foreign Currency Gain (Loss)					Foreign Currency Gain (Loss)
	Three Months Ended July 31,					Nine Months Ended July 31,
Geographic Region:	2018		2017			2018			2017
Europe	$	99	$	(143	)	$	(219	)	$	(175	)
Rest of World	$	182	$	314		$	226		$	(90	)

Long-lived assets consist primarily of net property, plant and equipment, goodwill and intangibles.



	Long-Lived Assets
Geographic Region:	July 31, 2018		October 31, 2017
United States	$	228,066	$	235,663
Europe	102,430		53,569
Rest of World	26,965		20,543
Total Company	$	357,461	$	309,775

Note 19—Commitments and Contingencies

Litigation:

A securities class action lawsuit was filed on September 21, 2015 in the United States District Court for the Southern District of New York against the Company and certain of our officers (the President and Chief Executive Officer and Vice President of Finance and Treasurer). As amended, the lawsuit claims in part that we issued inaccurate information to investors about, among other things, our earnings and income and our internal controls over financial reporting for fiscal 2014 and the first and second fiscal quarters of 2015 in violation of the Securities Exchange Act of 1934. The amended complaint seeks an award of damages in an unspecified amount on behalf of a putative class consisting of persons who purchased our common stock between January 12, 2015 and September 14, 2015, inclusive. The Company and such officers filed a Motion to Dismiss this lawsuit with the United States District Court for the Southern District of New York on April 18, 2016. The District Court rendered an opinion and order granting our motion to dismiss the lawsuit on March 23, 2017. On April 6, 2017, the plaintiffs filed a motion for reconsideration of the dismissal order. We, in opposition to the plaintiff's motion, filed a motion for consideration of the dismissal on April 20, 2017 and the plaintiffs filed a reply motion in opposition for reconsideration on April 27, 2017. On July 7, 2017, the District Court denied the plaintiffs’ request to vacate the District Court’s March 23, 2017 order of dismissal and granted the plaintiff’s request to further amend their complaint. The plaintiffs filed their Second Amended Complaint on August 4, 2017. We filed our Motion to Dismiss the Second Amended Compliant on August 18, 2017. The plaintiffs’ filed their opposition brief on November 2, 2017 and we filed our reply in support of defendants’ motion to dismiss the second amended complaint on November 22, 2017. On

SHILOH INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

March 16, 2018, the plaintiffs' filed a Notice of Supplemental Authority and we filed our response to such notice on March 23, 2018. On July 18, 2018, we filed a Notice of Supplemental Authority.

A shareholder derivative lawsuit was filed on April 1, 2016 in the Court of Common Pleas, Medina County, Ohio against the Company's President and Chief Executive Officer and Vice President of Finance and Treasurer and members of our Board of Directors. The lawsuit claims in part that the defendants breached their fiduciary duties owed to the Company by failing to exercise appropriate oversight over our accounting controls, leading to the accounting issues and the restatement announced in September 2015. The complaint seeks a judgment against the individual defendants and in favor of the Company for money damages, plus miscellaneous non-monetary relief. On May 2, 2016, the Court entered a stipulated order staying this case pending the outcome of the Motion to Dismiss in the securities class action lawsuit described in the previous paragraph.

In addition, from time to time, we are involved in legal proceedings, claims or investigations that are incidental to the conduct of our business. We vigorously defend ourselves against such claims. In future periods, we could be subject to cash costs or non-cash charges to earnings if a matter is resolved on unfavorable terms. However, although the ultimate outcome of any legal matter cannot be predicted with certainty, based on current information, including our assessment of the merits of the particular claims, we do not expect that our legal proceedings or claims will have a material impact on our future consolidated financial condition, results of operations or cash flows.

FORWARD-LOOKING STATEMENTS

Certain statements made by Shiloh Industries set forth in this Quarterly Report on Form 10-Q regarding our operating performance, events or developments that we believe or expect to occur in the future, including those that discuss strategies, goals, outlook or other non-historical matters, or which relate to future sales, earnings expectations, cost savings, awarded sales, volume growth, earnings or general belief in our expectations of future operating results are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995.

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.

Listed below are some of the factors that could potentially cause actual results to differ materially from expected future results.


•	our ability to accomplish our strategic objectives;


•	our 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;


•	our ability to realize cost savings expected to offset price concessions;


•	our ability to successfully integrate acquired businesses, including businesses located outside of the United States;


•	risks associated with doing business internationally, including economic, political and social instability, foreign currency exposure and the lack of acceptance of our products;


•	inefficiencies related to production and product launches that are greater than anticipated;


•	changes in technology and technological risks;


•	work stoppages and strikes at our facilities and that of our customers or suppliers;


•	our 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 affecting car and light truck production;


•	regulations and policies regarding international trade;


•	financial and business downturns of our customers or vendors, including any production cutbacks or bankruptcies;

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•	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;


•	the successful launch and consumer acceptance of new vehicles for which we supply parts;


•	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;


•	the occurrence of any event or condition that may be deemed a material adverse effect under our outstanding indebtedness or a decrease in customer demand which could cause a covenant default under our outstanding indebtedness;


•	changes to tariffs or trade agreements, or the imposition of new tariffs or trade restrictions imposed on steel or aluminum materials which we use, including changes related to tariffs on automotive imports;


•	pension plan funding requirements; and


•	other factors besides those listed here could also materially affect our business.

See "Part I, Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended October 31, 2017 and "Part II, Item 1A. Risk Factors" in this Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q.

We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date of filing this Quarterly Report on Form 10-Q. 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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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Dollars in thousands, except per share data)

General

We are a global innovative solutions provider to the automotive, commercial vehicle and other industrial markets with a strategic focus on designing, engineering and manufacturing lightweight technologies that improve performance and benefit the environment. We offer the broadest portfolio of lightweighting solutions in the industry through our BlankLight®, CastLight® and StampLight® brands and are uniquely qualified to supply product solutions utilizing multiple lightweighting solutions. This includes combining castings and stampings or innovative, multi-material products in aluminum, magnesium, steel and steel alloys. We design and manufacture components in body, chassis and powertrain systems with expertise in precision blanks, ShilohCore™ acoustic laminates, aluminum and steel laser welded blanks, complex stampings, modular assemblies, aluminum and magnesium die casting, as well as precision machined components. Additionally, we provide a variety of intermediate steel processing services, such as oiling, leveling, cutting-to-length, multi-blanking, slitting, edge trimming of hot and cold-rolled steel coils and inventory control services for automotive and steel industry customers. We have over 4,200 dedicated employees with operations, sales and technical centers throughout Asia, Europe and North America.

Recent Trends and General Economic Conditions Affecting the Automotive Industry

Our business and operating results are directly affected by the relative strength of the North American and European automotive industries, which are driven by factors that continue to be critical to our success including winning new business awards, managing our overall global manufacturing footprint to ensure proper placement and workforce levels in line with business needs, maintaining competitive wages and benefits, maximizing efficiencies in manufacturing processes and reducing overall costs. In addition, our ability to adapt to key industry trends, such as a shift in consumer preferences to other vehicles in response to higher fuel costs and other economic and social factors, increasing technologically sophisticated content, increasing environmental standards and extended product life of automotive parts, also play a critical role in our success. Other factors that are critical to our success include adjusting to economic challenges such as increases in the cost of raw materials, our ability to successfully reduce the impact of any such cost increases through price concessions and cost reduction initiatives and other methods. In addition, recent trade actions initiated by the U.S. imposing tariffs on imports have been met with retaliatory tariffs by other countries, adding a level of tension and uncertainty to the global economic environment. These and other actions are likely to impact trade policies with other countries and the overall global economy. We are carefully monitoring capacity and availability of the alloys utilized in our production process. The automotive industry remains susceptible to these factors that impact consumer spending habits and could adversely impact consumer demand for vehicles.

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Our products are included in many models of vehicles manufactured by nearly all OEMs that produce vehicles in Europe and North America. Our revenues are dependent upon the production of automobiles and light trucks in both Europe and North America. According to industry statistics (published by IHS Automotive in August 2018), Europe and North America production volumes for the three and nine months ended July 31, 2018 and 2017 were as follows:



Production Volumes	Three Months Ended July 31,			Nine Months Ended July 31,
	2018		2017	2018		2017
	(Number of Vehicles in Thousands)			(Number of Vehicles in Thousands)
Europe	5,778		5,619	17,365		16,763
North America	4,146		4,171	12,554		12,816
Total	9,924		9,790	29,919		29,579

Europe:
Increase from prior year	159			602
% Increase from prior year	2.8	%		3.6	%
North America
Decrease from prior year	(25	)		(262	)
% Decrease from prior year	(0.6	)%		(2.0	)%
Total
Increase from prior year	134			340
% Increase from prior year	1.4	%		1.1	%

Europe:

Signs of an improved overall European economy have been evident, albeit mixed at times, during the past few years. Reflective of a modestly improved economy, light vehicle production levels have increased. Overall market stability continued in the first nine months of 2018 as automobiles and light truck production was modestly higher than the first nine months of 2017. The United Kingdom's decision to withdraw from the European Union along with political developments in other European countries has cast an element of uncertainty around continued economic improvement in the region.

North America:

Improving economic conditions during the past few years have contributed to strong light vehicle sales and production levels in North America. Overall economic conditions in North America have been relatively favorable with improving employment levels, strong consumer confidence levels and comparatively low/stable fuel prices. Strong sales levels the past few years have significantly reduced the built-up demand to replace older vehicles. As such, the overall North America light vehicle market began to show signs of weakening demand levels in 2017. Light vehicle volumes for the first nine months of 2018 were comparable with 2017. Helped by continued low fuel prices, light truck market demand has been relatively strong.

We expect the generally strong North America economic climate to continue for the remainder of 2018, albeit there is some uncertainty surrounding the potential effects of trade policies, restrictions and practices being implemented or considered by the existing government leadership in the United States. Increasing interest rates, high levels of consumer debt and declining used car prices are also developments that could constrict future demand for new vehicles.

We operate in an extremely competitive industry, driven by global vehicle production volumes. Business is typically awarded to the supplier offering the most favorable combination of cost, quality, technology and service. Customers continue to demand periodic cost reductions that require us to assess, redefine and improve operations, products, and manufacturing capabilities to maintain and improve profitability. Management continues to develop and execute initiatives designed to meet challenges of the industry and to achieve our strategy for sustainable global profitable growth.

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Capacity utilization levels are very important to profitability because of the capital-intensive nature of our operations. We continue to adapt our capacity to meet customer demand, both expanding capabilities in growth areas as well as reallocating capacity between manufacturing facilities as needs arise. We employ new technologies to differentiate our products from our competitors and to achieve higher quality and productivity. We believe that we have sufficient capacity to meet current and expected manufacturing needs.

Most of the steel is purchased through the customers’ steel buying programs. Under these programs, the customer negotiates the price for steel with the steel suppliers. We pay for the steel based on these negotiated prices and pass on those costs to the customer. Although we take ownership of the steel, our customers are responsible for all steel price fluctuations under these programs. We also purchase steel directly from domestic primary steel producers and steel service centers. Current demand for construction and oil industry related steel products and stable automotive production have helped the market rebound from historic lows with steel pricing stabilizing. We have seen recent gradual downward pricing pressure since the rise, but this is likely related to historic seasonal pricing weakness as domestic summer shutdown periods are approaching. We refer to the “net steel impact” as the combination of the change in steel prices that are reflected in the price of our products, the change in the cost to procure steel from the source, and the change in our recovery of offal. Our strategy is to be economically neutral to steel pricing by having these factors offset each other. As the price of steel has risen, so have the scrap metal markets as they are highly correlated. We blank and process steel for some of our customers on a toll processing basis. Under these arrangements, we charge a tolling fee for the operations that we perform without acquiring ownership of the steel and being burdened with the attendant costs of ownership and risk of loss. Revenues from operations involving directly owned steel include a component of raw material cost whereas toll processing revenues do not.

For our aluminum and magnesium die casting operations, the cost of the materials is adjusted frequently to align with secured purchase commitments based on customer releases or based on referenced metal index plus additional material cost spreads agreed to by us and our customers.

Critical Accounting Policies

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

Revenue Recognition. We recognize revenue from the sales of products 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. We record 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. We enter into contracts with customers in the development of molds, dies and tools (collectively, "tooling") to be sold to such customers. We primarily record tooling income and costs net in cost of sales at the time of completion and final billing to the customer. These billings are recorded as progress billings (a reduction of the associated tooling costs) until the appropriate revenue recognition criteria have been met. The tooling contracts are separate arrangements between us and our customers and are recorded on a gross or net basis in accordance with current applicable revenue recognition accounting literature.

Pre-production and development costs. We enter into contractual agreements with certain customers to develop tooling. All such tooling contracts relate to parts that we will supply to customers under supply agreements. Tooling costs are capitalized in prepaid expenses and other assets we determined by the fact that tooling contracts are separate from standard production contracts. At July 31, 2018 and October 31, 2017, tooling costs of $12,214 and $13,629, respectively, were included in prepaid expenses and other assets. The classification in prepaid or other assets for tooling costs is based upon the period of reimbursement from the customer as either current or non-current.

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Income Taxes. In accordance with ASC Topic 740, our income tax expense is calculated based on expected income and statutory tax rates in the various jurisdictions in which we operate and require the use of management's estimates and judgments.

Business Combinations. We account for business combinations using the acquisition method, which requires the identification of the acquirer, the determination of the acquisition date and the allocation of the purchase price paid by the acquirer to the identifiable tangible and intangible assets acquired, the liabilities assumed, including any contingent consideration the acquisition date fair values. Goodwill represents the excess of the purchase price over the fair value of net assets acquired, including the amount assigned to identifiable intangible assets. Identifiable intangible assets with finite-lives are amortized over their useful lives. Acquisition-related costs are expensed in the periods in which the costs are incurred. The results of operations of acquired businesses are included in our consolidated financial statements from the acquisition date.

Intangible Assets. Intangible assets with finite lives are amortized over their estimated useful lives. We amortize our acquired intangible assets with definitive lives on a straight-line basis over periods ranging from three months to 15 years. See Note 8 to the condensed consolidated financial statements for a description of the current intangible assets and their estimated amortization expense.

Finite-lived intangible assets are evaluated for impairment whenever events or changes in circumstances indicate their related carrying value may not be fully recordable.

Goodwill. Goodwill, which represents the excess cost over the fair value of the net assets of businesses acquired, was $28,175 as of July 31, 2018, or 3.9% of total assets, and $27,859 as of October 31, 2017, or 4.5% of total assets.

Goodwill is the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a business combination. Goodwill relates to and is assigned directly to specific reporting units. Goodwill is not amortized but is subject to impairment assessment. In accordance with ASC 350, "Intangibles-Goodwill and Other," we assess goodwill for impairment on an annual basis, or more frequently, if an event occurs or circumstances change that would more likely than not reduce the fair value below the carrying amount. Our annual impairment testing is performed as of September 30. Such assessment can be done on a qualitative or quantitative basis. When conducting a qualitative assessment, we consider relevant events and circumstances that affect the fair value or carrying amount of the reporting unit. A quantitative test is required only if we conclude that it is more likely than not that a reporting unit’s fair value is less than its carrying amount, or we elect not to perform a qualitative assessment of a reporting unit. We consider the extent to which each of the events and circumstances identified affect the comparison of the reporting unit's fair value or the carrying amount. Such events and circumstances could include macroeconomic conditions, industry and market considerations, overall financial performance, entity and reporting unit specific events, product brand level specific events and cost factors. We place more weight on the events and circumstances that may affect our determination of whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. These factors are all considered by management in reaching its conclusion about whether to perform a quantitative goodwill impairment test.

We perform a quantitative goodwill impairment test by comparing the fair value of a reporting unit to its carrying amount, including goodwill. If the carrying amount exceeds the fair value, we recognize an impairment charge for the amount by which the carrying amount exceeds the fair value, not to exceed the total amount of goodwill in that reporting unit.

Share-based Payments. We record compensation expense for the fair value of nonvested stock option awards and restricted stock awards over the remaining vesting period. We have elected to use the simplified method to calculate the expected term of the stock options outstanding at five to six years and have utilized historical weighted average volatility. We determine the volatility and risk-free rate assumptions used in computing the fair value using the Black-Scholes option-pricing model. The expected term for the restricted stock award is between three months and four years. In addition, we do not estimate a forfeiture rate at the time of grant instead we elected to recognize share-based compensation expense when actual forfeitures occur.

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.

The restricted stock and restricted stock units are valued based upon a 20-day EMA as of the Friday prior to the grant of an award.

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U.S. Pension and Other Post-retirement Costs and Liabilities. We have recorded pension and other post-retirement benefit liabilities that are developed from actuarial valuations for our U.S. operations. The pension plans were frozen in November of 2006 and therefore contributions by participants are not allowed. The determination of our 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. We determine these assumptions in consultation with, and after input from, our 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. For our U.S. operations, we use the Principal Pension Discount Yield Curve ("Principal Curve") as the basis for determining the discount rate for reporting pension and retiree medical liabilities. At October 31, 2017, the resulting discount rate from the use of the Principal Curve was 3.65%, a decrease of 0.05% from a year earlier that contributed to an increase of the benefit obligation of approximately $59. A change of 25 basis points in the discount rate at October 31, 2017 would increase expense on an annual basis by approximately $10 or decrease expense on an annual basis by approximately $14.

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 $168.

Our investment policy for assets of the plans is to maintain an allocation generally of 30% to 70% in equity securities, 30% 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. We determine 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. Our 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 year ended October 31, 2017, the actual return on pension plans’ assets for all of our plans approximated 16.33%, which is higher than 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 plan performance and funding status, we had one contribution for fiscal 2018 required in the third quarter.

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Results of Operations

Three Months Ended July 31, 2018 Compared to Three Months Ended July 31, 2017

REVENUES. Revenues for the third quarter of fiscal 2018 were $294,883 compared to revenues of $256,847 in the third quarter of fiscal 2017, an increase of $38,036, or 14.8%. Revenues from our recent acquisition contributed $30,392 towards this increase with the balance being a mix of organic growth offset with the year over year change from business that has been exited.

GROSS PROFIT. Gross profit for the third quarter of fiscal 2018 was $32,880 compared to gross profit of $29,164 in the third quarter of fiscal 2017, an increase of $3,716. Gross profit as a percentage of sales was 11.2% for the third quarter of 2018 and 11.4% for the third quarter of 2017. New program launches continued in the third quarter of fiscal 2018 as we prepare to introduce new lightweight products to the market. Additionally, we continued to integrate our recent acquisition and continued to invest in our new Asian and North American operations for production that will launch in the next several quarters.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses support the growth in sales opportunities, new technologies, new product launches and acquisition activities. Expenses were $22,773 and $21,233 in the third quarter of fiscal 2018 and 2017, respectively. As a percentage of sales, these expenses were 7.7% of sales for the third quarter of fiscal 2018 and 8.3% of sales for the third quarter of fiscal 2017, an improvement of 60 basis points.

AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets expense was $607 and $565, for the third fiscal quarter of 2018 and 2017, respectively.

RESTRUCTURING. Restructuring charges of $1,965 were recorded in the third quarter of fiscal 2018 based upon our strategic decision to consolidate manufacturing facilities, to make geographical shifts to place production closer to customer facilities and to provide a more global and scaleable organization, including department centralization and synergies, and optimizing our product plan. These costs primarily included employee, professional, legal and other costs.

INTEREST EXPENSE. Interest expense for the third quarter of fiscal 2018 was $3,209, compared to interest expense of $3,785 in the third quarter of fiscal 2017. The decrease in interest expense was primarily the result of lower borrowing rates as a result of the cross-currency swap. Borrowed funds, which included funds borrowed for the Brabant acquisition, averaged $247,435 during the third quarter of fiscal 2018, and the weighted average interest rate was 3.82%. In the third quarter of fiscal 2017, borrowed funds averaged $211,529 and the weighted average interest rate of debt was 4.22%.

OTHER EXPENSE. Other expense, net was $289 and $1,125 for the third quarter of fiscal 2018 and 2017, respectively, an improvement of $836. Other expense, net included an unfavorable impact from an other-than-temporary-impairment of marketable securities, other non-operating expenses, and impact from currency transaction realized by our Asian, European and Mexican subsidiaries.

PROVISION / BENEFIT FOR INCOME TAXES. The provision for income taxes in the third quarter of fiscal 2018 was a benefit of $7,014 on income before income taxes of $4,038 for a consolidated effective tax rate of (173.7)%. A tax benefit from the revision of available R&D tax credits of approximately $2,300 resulting in a decrease of the consolidated effective tax rate for the three months ended July 31, 2018. The provision for income taxes in the third quarter of fiscal 2017 was an expense of $4,439 on income before income taxes of $2,457 for a consolidated effective tax rate of 180.7%. The consolidated effective tax rate was impacted by foreign losses without a tax benefit.

NET INCOME (LOSS). Net income for the three months ended July 31, 2018 was $11,052 and net loss for the three months ended July 31, 2017 was $1,982, reflecting an increase of $13,034 driven by a tax benefit from available R&D tax credits, higher earnings and a decrease in interest expense. Net income per share, diluted, for the quarter was $0.47 compared to net loss per share, diluted, of $0.11, reflecting an increase of $0.58 per share, diluted.

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Results of Operations

Nine Months Ended July 31, 2018 Compared to the Nine Months Ended July 31, 2017

REVENUES. Revenues for the first nine months of fiscal 2018 were $839,889 compared to the first nine months of fiscal 2017 revenues of $777,816, an increase of $62,073. Revenues from our recent acquisition contributed $53,855 towards this increase with the balance being a mix of organic growth offset with the year over year change from business that has been exited.

GROSS PROFIT. Gross profit for the first nine months of fiscal 2018 was $92,273 compared to gross profit of $86,772 in the first nine months of fiscal 2017, an increase of $5,501. Gross profit as a percentage of sales was 11.0% in the first nine months of fiscal 2018 and 11.2% in the first nine months of fiscal 2017. New program launches continued for the first nine months of fiscal 2018 as we prepare to introduce new lightweight products to the market. Additionally, we continued to integrate our recent acquisition and continued to invest in our new Asian and North American operations for production that will launch in the next several quarters.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses support the growth in sales opportunities, new technologies, new product launches and acquisition activities. Expenses were $66,159 and $63,080 in the first nine months of fiscal 2018 and 2017, respectively. As a percentage of sales, these expenses were 7.9% and 8.1% for the first nine months of fiscal 2018 and 2017, respectively, an improvement of 20 basis points.

AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets expense for the first nine months of 2018 and 2017 was $1,767 and $1,694, respectively, an increase of $73 due to the recent acquisition.

RESTRUCTURING. Restructuring charges of $4,962 were recorded in the first nine months of fiscal 2018 based upon our strategic decision to consolidate manufacturing facilities, to make geographical shifts to place production closer to customer facilities and to provide a more global and scaleable organization, including department centralization and synergies, and optimizing our product plan. These costs primarily included employee, professional, legal and other costs.

INTEREST EXPENSE. Interest expense for the first nine months of fiscal 2018 was $8,194, compared to interest expense of $12,797 during the first nine months of fiscal 2017. The decrease in interest expense was the result of lower average borrowed funds and lower borrowing rates as a result of the cross-currency swap. Borrowed funds, which included funds borrowed for the Brabant acquisition, averaged $215,502 during the first nine months of fiscal 2018 and the weighted average interest rate was 3.82%. In the first nine months of fiscal 2017, borrowed funds averaged $230,106 and the weighted average interest rate of debt was 4.65%.

OTHER EXPENSE. Other expense, net was $1,119 and $2,248 for the first nine months of fiscal 2018 and 2017, respectively, an improvement of $1,129. Other expense, net included an unfavorable impact from an other-than-temporary-impairment of marketable securities, other non-operating expenses, and impact from currency transaction realized by our Asian, European and Mexican subsidiaries.

PROVISION / BENEFIT FOR INCOME TAXES. The provision for income taxes for the first nine months of fiscal 2018 was a benefit of $9,854 on income before income taxes of $10,081 for a consolidated effective tax rate of (97.7)%. The decrease of the consolidated effective tax rate was a result of a $2,300 increase in R&D tax credits and a $3,980 reduction in deferred tax liability due to the TCJA. The provision for income taxes for the first nine months of fiscal 2017 was an expense of $6,686 on income before income taxes of $6,915 for a consolidated effective tax rate of 96.7%. The consolidated effective tax rate was impacted by foreign losses without a tax benefit.

NET INCOME. Net income was $19,935 and $229 for the first nine months of fiscal 2018 and 2017, respectively, reflecting an increase of $19,706 driven by a tax benefit from available R&D tax credits, the reduction in deferred tax liability due to the TCJA, higher earnings offset by a decrease in interest expense. Net income per share, diluted, was $0.85 and $0.01 for the first nine months of fiscal 2018 and 2017, respectively, reflecting an increase of $0.84 per share, diluted.

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Liquidity and Capital Resources

Cash Flows and Working Capital:

At July 31, 2018, total debt was $238,149 and total equity was $209,082, resulting in a capitalization rate of 53.2% debt, 46.8% equity. Current assets were $341,441 and current liabilities were $239,618, resulting in positive working capital of $101,823.

The following table summarizes the Company's cash flows from operating, investing and financing activities:



	Nine Months Ended July 31,						2018 vs. 2017
	2018			2017			change
Net cash provided by operating activities	$	50,881		$	69,518		$	(19,309	)
Net cash used in investing activities	$	(98,453	)	$	(23,879	)	$	(74,574	)
Net cash provided by (used in) financing activities	$	55,776		$	(39,837	)	$	95,613

Net Cash Provided by Operating Activities:



	Nine Months Ended July 31,
	2018			2017
Operational cash flow before changes in operating assets and liabilities	$	57,077		$	43,454

Changes in operating assets and liabilities:
Accounts receivable	18,599			30,260
Inventories	(2,656		)	(698		)
Prepaids and other assets	(4,884		)	6,191
Payables and other liabilities	(6,989		)	(6,810		)
Accrued income taxes	(10,266		)	(2,879		)
Total change in operating assets and liabilities	$	(6,196	)	$	26,064

Net cash provided by operating activities	$	50,881		$	69,518

Cash flows from operations before changes in operating assets and liabilities was $13,623 higher for the nine months ended July 31, 2018 compared to the nine months ended July 31, 2017 which was mainly driven by higher net income and changes in deferred income taxes.

Cash inflow and outflow from changes in operating assets and liabilities:


•	Cash outflows from changes in operating assets and liabilities was $6,196 for the nine months ended July 31, 2018 and cash inflows was $26,064 for the nine months ended July 31, 2017 and was impacted by working capital initiatives and deferred tax changes related to the TCJA.


•	Cash inflows from changes in accounts receivable for the nine months ended July 31, 2018 and 2017, were $18,599 and $30,260, respectively. The cash inflows were due to continuing efforts in collecting receivables and sales volume changes.


•	Cash outflows from changes in inventory for the nine months ended July 31, 2018 and 2017 were $2,656 and $698, respectively. The increase was primarily driven by a change in customer mix and delivery.


•	Cash outflows from changes in prepaids and other assets for the nine months ended July 31, 2018 was $4,884 and cash inflows from changes in prepaids and other assets for the nine months ended July 31, 2017 was $6,191 resulting from investments and the timing of invoicing customer reimbursed tooling awards.

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•	Cash outflows from changes in payables and other liabilities for the nine months ended July 31, 2018 and 2017 was $6,989 and $6,810, respectively, resulting from the matching of terms with our customers and vendors, offset partially by the timing of payments related to capital expenditures and customer funded tooling.


•	Cash outflows from changes in accrued income taxes for the nine months ended July 31, 2018 was $10,266 and $2,879 from changes in accrued income taxes for the nine months ended July 31, 2017. The changes were primarily because of the changes in the tax provision (benefit) and the effect of the TCJA.

Net Cash Used For Investing Activities:

Net cash used in investing activities for the nine months ended July 31, 2018 and 2017 was $98,453 and $23,879, respectively. The increase is primarily due to net cash paid of $62,481 related to the acquisition of Brabant. Capital spending attributed to projects for new awards and product launches that will begin in the next several quarters was $38,668 in the first nine months of 2018, as compared to $32,564 in the first nine months of 2017.

Net Cash Provided By / Used For Financing Activities:

Net cash provided by financing activities for the nine months ended July 31, 2018 was $55,776 and net cash used in financing activities for the nine months ended July 31, 2017 was $39,837, and was the result of changes in cash flows from operating activities, capital expenditures, and the recent acquisition. As of July 31, 2018, the Company's long-term indebtedness was $237,331. Refer to "Item 1. – Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 9 – Financing Arrangements" of this Quarterly Report on Form 10-Q for more information.

Capitalization:

From time to time, in addition to cash provided by operating activities, we utilize uncommitted credit facilities to fund our capital expenditures and working capital requirements at certain of our foreign subsidiaries. As of October 31, 2017, outstanding commitments for capital expenditures was $48,375.

Long-term debt and short-term borrowings:

As of July 31, 2018, we were in compliance with our long-term financial debt covenants. Refer to "Item 1. – Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 9 – Financing Arrangements" of this Quarterly Report on Form 10-Q for more information.

We continue to closely monitor the business conditions affecting the automotive industry. In addition, we closely monitor our working capital needs and believe that the combination of cash from operations, cash balances and available credit facilities will be sufficient to satisfy our cash needs for our current level of operations and our planned operations for the foreseeable future.

Contractual Obligations

Our contractual obligations have not changed significantly from those disclosed in "Part I – Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual Obligations" of our Quarterly Report on Form 10-Q for the quarter ended April 30, 2018.

Effect of Inflation, Deflation

Inflation generally affects us by increasing the interest expense of floating rate indebtedness and by increasing the cost of labor, equipment and raw materials. The level of inflation has not had a material effect on our condensed consolidated financial results for the past three years.

In periods of decreasing prices, deflation occurs and may also affect our results of operations. With respect to steel purchases, we purchase steel through customers' steel buying programs which protects recovery of the cost of steel through the selling price of our products. For non-steel buying programs, we align the cost of steel purchases with the related selling price of the product. For our aluminum and magnesium die casting business, the cost of the materials is adjusted frequently to align with

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secured purchase commitments based on customer releases or based on referenced metal index plus additional material cost spreads agreed to by us and our customers.

Item 3. Qualitative and Quantitative Market Risk Discussion

Market risk is the potential loss arising from adverse changes in market rates and prices. We are exposed to market risk throughout the normal course of our business operations due to purchases of metals, sales of scrap steel, our ongoing investing and financing activities, and exposure to foreign currency exchange rates. As such, we have established policies and procedures to govern our management of market risks. There have been no material changes to market risk exposures related to changes in commodity pricing, interest rates or currency exchange rates from those discussed in Item 7A of our 2017 Form 10-K.

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Item 4.	Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information in the reports we file with the SEC under the Securities Exchange Act of 1934 (Exchange Act), as amended, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including the Principal Executive Officer ("PEO"), Principal Financial Officer ("PFO") and Principal Accounting Officer ("PAO"), as appropriate to allow for timely required disclosure.

An evaluation was performed with the participation of our management, including the PEO, PFO and PAO, of the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(b) or 15d-15(b), as amended, and it was concluded that disclosure controls and procedures were effective as of July 31, 2018.

Changes in Internal Control Over Financial Reporting

In March 2018, we completed the acquisition of two subsidiaries of Brabant, both operating under their own set of systems and internal controls. We will continue maintaining those systems and much of the internal control environment until such time that we are able to incorporate the acquired processes into our Shiloh control environment. Management expects to be substantially complete with the incorporation of the acquired operations (as they relate to systems and internal controls) into our control environment during fiscal 2019.

There were no changes in our internal control over financial reporting during the three months ended July 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II. OTHER INFORMATION

Item 1. Legal Proceedings

See Note 19, Commitments and Contingencies, in Part I of this report, which is incorporated hereto by reference.

Item 1A. Risk Factors

We are exposed to certain risks and uncertainties that could have a material adverse impact on our business, financial condition and operating results. Except for the addition of the following risk factors related to recent tax legislation and the addition of the new risk factor related to our effective tax rate, there have been no other material changes to the Risk Factors described in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended October 31, 2017 and Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended April 30, 2018.

New tariffs and other trade measures could adversely affect our consolidated results of operations, financial position and cash flows.

The current U.S. administration has expressed strong concerns about imports from countries that it perceives as engaging in unfair trade practices, and it is possible the administration could impose import duties or other restrictions on products, components or raw materials sourced from those countries, which may include countries from which we import components or raw materials. Any such import duties or restrictions could have a material adverse effect on our business, results of operations or financial condition. Moreover, these new tariffs, or other changes in U.S. trade policy, could trigger retaliatory actions by affected countries. Certain foreign governments have instituted or are considering imposing trade sanctions on certain U.S. goods. Other foreign governments are considering the imposition of sanctions that will deny U.S. companies access to critical raw materials. A “trade war” of this nature or other governmental action related to tariffs or international trade agreements or policies has the potential to adversely impact demand for our products, our costs, customers, suppliers and/or the economic environments in which we operate and, thus, to adversely impact our businesses.

In addition, the U.S. administration is currently in negotiations with representatives from Canada and Mexico to renew the North American Free Trade Agreement ("NAFTA"). Any changes to NAFTA could impact our Mexican operations, which could adversely affect our operating results and our business.

Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied. The U.S. recently enacted significant tax reform, and certain provisions of the new law may adversely affect us. In addition, governmental tax authorities are increasingly scrutinizing the tax positions of companies. Many countries in the European Union, as well as a number of other countries and organizations such as the Organization for Economic Cooperation and Development, are actively considering changes to existing tax laws that, if enacted, could increase our tax obligations in countries where we do business. If U.S. or other foreign tax authorities change applicable tax laws, our overall taxes could increase, and our business, financial condition and results of operations may be adversely impacted.

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Item 6.	Exhibits



		Incorporated By Reference
Exhibit #	Exhibit Description	Form	File Number	Date of First Filing	Exhibit Number	Filed Herewith
10.1	Employment Agreement by and between the Company and Lillian Etzkorn dated as of April 26, 2018.					X
31.1	Principal Executive Officer’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X

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

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

101.INS	XBRL Instance Document					X

101.SCH	XBRL Taxonomy Extension Schema Document					X

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document					X

101.LAB	XBRL Taxonomy Extension Label Linkbase Document					X

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document					X

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document					X

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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/ Lillian Etzkorn
		Lillian Etzkorn
		Senior Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)

Date: September 7, 2018

EXECUTIVE EMPLOYMENT AGREEMENT

This Executive Employment Agreement (“Agreement”) is made and entered into, by and between Shiloh Industries, Inc., a Delaware corporation(the “Company”), and Lillian Etzkorn (“Executive”) (collectively, the “Parties” and each, a “Party”) on the date executed by the Parties.

WHEREAS, the Company desires to employ Executive and Executive wishes to be employed by the Company on the terms and conditions set forth in this Agreement.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereby agree as follows:


1.	Effectiveness

1.1Effectiveness. This Agreement is effective as of the date executed by the Parties; provided, however, that this Agreement is contingent upon Executive: (a) signing acknowledgements to the Company’s standard form of Conflict of Interest Policy Statement and the Company’s Insider Trading Policy and Guidelines with Respect to Certain Transactions in Company Securities of Shiloh Industries, Inc.; (b) entering into the Company’s standard form of Intellectual Property Agreement, as amended (the “IP Agreement”); (c) completing, to the Company’s satisfaction, a baseline physical exam, including a drug screen and a background check of credentials and prior employment; (d) providing the Company with proper documentation to establish Executive’s identity and eligibility for employment as required under the U.S. Immigration and Naturalization Service, and (e) resigning from her current employment as soon as reasonably practical (collectively, the “New Hire Prerequisites”). If Executive does not complete any of the New Hire Prerequisites as soon as reasonably practical following the date of this Agreement and prior to beginning employment, this Agreement will not become effective and all of the terms and provisions of this Agreement shall be null and void.


2.	Employment

2.1Term. The Company hereby agrees to employ Executive as Senior Vice President and Chief Financial Officer of the Company, on the terms set forth herein, for the period commencing as soon as possible following the date of this Agreement and ending pursuant to Section 5 hereof. Executive is an at-will employee of the Company.

2.2Position and Duties. Upon the start of Executive’s employment, Executive shall serve in the capacity of Senior Vice President and Chief Financial Officer of the Company and shall report directly to the President and Chief Executive Officer of the Company (the “CEO”). During employment with the Company, Executive agrees to devote Executive’s full business time, ability, knowledge and attention solely to the business affairs and interests of the Company. Executive agrees to perform such services and assume such duties and responsibilities as are assigned to the best of Executive’s abilities, skills and efforts and will abide by applicable Company policies and directives as they exist from time to time to the extent not in conflict with applicable law.

2.3Work Location. During Executive’s employment, Executive’s principal place of employment shall be at the Company’s facility in Plymouth, Michigan; provided, however, Executive will be expected to spend significant time at the Company’s corporate headquarters in Valley City, Ohio and the Company may, in its discretion, change Executive’s principal place of employment within the Detroit, Michigan metropolitan area. The Company may direct Executive to engage in such other reasonable travel as the performance of Executive’s duties may require or the Company may reasonably request.


3.	Compensation

3.1Annual Base Salary. In consideration of Executive’s ongoing services to the Company, the Company will pay Executive a gross base salary at the rate of $410,000 per year (“Base Salary”), which Base Salary shall be reviewed for adjustment at such time or times as the Company determines in its sole discretion. Executive’s Base Salary will be paid in accordance with the Company’s standard payroll schedule.

3.2Annual Bonus Compensation. For each fiscal year of the Company or portion of a fiscal year during Executive’s employment, and prorated for the portion of any fiscal year during which Executive worked for the Company, Executive shall be eligible for an “Annual Bonus” pursuant to the terms of the Company’s Management Incentive Plan, as most recently approved by the Company’s stockholders on March 12, 2014, and as may be thereafter amended from time to time (the “MIP”), with a target Annual Bonus opportunity equal to 50% of Base Salary. Payment of the Annual Bonus, if any, will be based on the attainment of one or more pre-established Company and individual performance goals established by the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”) pursuant to the terms of the MIP.

3.3Annual Long-Term Incentive Compensation. Beginning with the Company’s fiscal year 2019, Executive shall be eligible to participate in the Company’s long-term incentive compensation programs (subject to the approval of such programs and participation by the Compensation Committee) (collectively, the “Equity Plan”). Executive’s annual target opportunity while eligible under the Equity Plan during Executive’s employment shall be not less than 50% of Base Salary, subject to the terms and conditions of the Equity Plan and any other terms set forth in the applicable award agreement(s). The conversion of such target opportunity into a number of equity awards shall be conducted in a manner consistent with the methodology approved by the Compensation Committee from time to time for use with other senior executive officers of the Company.

3.4Sign-On Equity Grant. Contingent upon Executive completing the New Hire Prerequisites and beginning employment with the Company and subject to approval by the Compensation Committee, Executive shall be granted an award with an aggregate value of $250,000 of restricted common stock of the Company (the “Sign-On Restricted Shares”) under the Shiloh Industries, Inc.’s 2016 Equity and Incentive Compensation Plan (the “2016 Equity Plan”) as soon as practicable after the Compensation Committee’s approval. The Sign-On Restricted Shares shall be subject to the terms and conditions of the 2016 Equity Plan and the equity award agreement evidencing the Sign-On Restricted Shares and shall vest in installments on each of the first three anniversaries of the date of grant (i.e., 20% on the first anniversary, 30% on the second anniversary and 50% on the third anniversary), generally subject to Executive’s continued employment with the Company through each such vesting date and the other terms set forth in the applicable equity award agreement and the 2016 Equity Plan.

3.5Sign-On Cash Bonus.

(a)Contingent upon Executive completing the New Hire Prerequisites and beginning employment with the Company, within 30 days of Executive’s first day of work with the Company, the Company shall pay Executive a sign-on cash bonus equal to $80,000 (“Sign-On Cash Bonus”).

(b)Notwithstanding the foregoing, if Executive’s employment with the Company ends prior to the third anniversary of her beginning employment with the Company other than as a result of Executive’s death (i) if Executive does not receive a Severance Payment (as defined below) as a result of such termination, Executive shall repay to the Company an amount equal to the Sign-On

Cash Bonus, and (ii) if Executive receives a Severance Payment as a result of such termination, Executive shall repay to the Company an amount equal to (A) the Sign-On Cash Bonus minus (B) the product of (x) the Sign-On Cash Bonus, multiplied by (y) a fraction, the numerator of which is the number of whole months of employment completed by Executive prior to the date of termination, and the denominator of which is 36 (the “Repayment Amount”). In the event Executive is eligible for the Severance Payment as a result of her termination of employment, then each installment of the Severance Payment shall be reduced (in an amount up to the full amount of such installment) until the aggregate amount of such reductions is equal to the Repayment Amount; provided, that, to the extent the Severance Payment is subject to Section 409A (as defined below), the Severance Payment will only be so reduced to the extent it would not result in non-compliance with Section 409A.


4.	Benefits and Reimbursements

4.1Standard Benefits Package. During Executive’s employment, Executive will be eligible to participate in all employee benefit plans which the Company makes available to senior executive officers (including the Company’s qualified retirement plan), in a manner no less favorable than other senior executive officers of the Company, according to the terms of the plans and policies as they exist from time to time.

4.2Vacation and Holidays. Beginning with the 2018 calendar year, Executive shall be entitled to twenty days of vacation per calendar year in accordance with the Company’s vacation policy and applicable Company paid holidays pursuant to the terms of the applicable Company policies. For the 2018 calendar year, Executive’s vacation will be prorated based on Executive’s date of hire.

4.3Automobile Allowance. During Executive’s employment, the Company will pay to Executive an automobile allowance equal to $700 per month.

4.4Cell Phone Reimbursement. During Executive’s employment, the Company will reimburse Executive up to $100 each month for expenses related to the use of a cellular phone, provided that such expenses are substantiated as described in Section 4.5. All such reimbursements will be made in compliance with Section 7.10 hereof.

4.5Expenses. The Company will reimburse Executive for all reasonable and necessary out-of-pocket business, entertainment, and travel expenses incurred by Executive in the performance of Executive’s duties hereunder, provided that Executive submits such documentation as may be reasonably necessary to substantiate that all such expenses were incurred in the performance of her duties and are consistent with and subject to the policies of the Company in effect from time to time as to the kind and amount of such expenses. All reimbursements will be made in compliance with Section 7.10 hereof.

4.6Indemnification and Insurance. Executive will be entitled to such indemnification, defense of claims and insurance against liability as are generally provided to similarly situated employees of the Company, consistent with Company bylaws, insurance policies and contracts, and applicable law.


5.	Termination

5.1Termination in General. Executive is an at-will employee of the Company. Executive’s employment hereunder may be terminated by either Party at any time and for any reason; provided that Executive will be required to give the Company at least 90 days’ advance written notice of any resignation of Executive’s employment without Good Reason (as defined below). If Executive’s employment is terminated for any reason, subject to Section 7.10, the Company will pay Executive:


(a)	the unpaid portion of Executive’s then-current Base Salary accrued through the date of termination of Executive’s employment, within 30 days of Executive’s termination of employment;


(b)	unpaid reimbursements of expenses that are reimbursable pursuant to Sections 4.4 and 4.5 but have not been reimbursed by the Company as of the termination of Executive’s employment, within 30 days of Executive’s termination of employment;


(c)	to the extent provided by the Company’s vacation policy or to the extent required by applicable law, payment for accrued but unused days of vacation, within 30 days of Executive’s termination of employment; and


(d)	such employee benefits, if any, as to which Executive may be entitled pursuant to the terms of the employee benefit and compensation plans of the Company (the payments described in clauses (a) through (d) hereof being referred to as the “Accrued Rights”).

5.2Termination By Company Without Cause or By Executive for Good Reason. If Executive’s employment is terminated by the Company without Cause or by Executive for Good Reason, subject to Sections 5.5 and 7.10, in addition to the Accrued Rights, the Company will pay Executive (i) a severance payment in an amount equal to one times Executive’s then-current Base Salary, payable in equal installments in accordance with the Company’s normal payroll practices during the 12 months immediately following the date of termination of Executive’s employment, and (ii) any earned but unpaid Annual Bonus for the fiscal year immediately preceding the fiscal year of the termination of Executive’s employment, subject to certification of the Company’s financial results by the Compensation Committee, payable when bonuses under the annual incentive plan for such fiscal year are paid to other executives of the Company but in all events, and to the extent it does not violate Section 409A of the Internal Revenue Code, no later than the 15th day of the third month following the end of the fiscal year in which such Annual Bonus was earned by Executive (collectively, the “Severance Payment”).

5.3Certain Definitions.

(a)

For purposes of this Agreement, “Cause” shall mean: (i) being charged with or indicted for, or a plea of guilty or nolo contendere to a felony or a crime involving dishonesty, fraud, or moral turpitude; (ii) conduct by Executive that brings the Company or any subsidiary or affiliate of the Company into public disgrace or disrepute, (iii) gross negligence or misconduct by Executive with respect to the Company or any subsidiary or affiliate of the Company, (iv) Executive’s insubordination or failure to follow the lawful directions of the CEO, which is not cured within three days after written notice thereof to Executive, (v) Executive’s violation of Section 6 of this Agreement or the provisions of the IP Agreement, (vi) Executive’s breach of a material employment policy of the Company, which is not cured within 10 days after written notice thereof to Executive, or (vii) any other breach by Executive of this Agreement or any other written agreement with the Company or any subsidiary or affiliate which is material and which is not cured within 30 days after written notice thereof to Executive. The existence of Cause shall be determined in good faith by the Company.

(b)

For purposes of this Agreement, “Good Reason” shall mean the occurrence of any of the following without Executive’s consent: (i) a material adverse change in Executive’s title, duties or responsibilities; (ii) a material reduction in Executive’s Base Salary other than an across-the-board reduction that affects other executives similarly situated to Executive; and (iii) any relocation of Executive’s principal office by more than 75 miles from the Company’s Plymouth, Michigan location (this does not apply to customary business travel throughout the U.S. and abroad associated with Executive’s

role). The Company and Executive agree that “Good Reason” shall not exist unless and until Executive provides the Company with written notice of the acts alleged to constitute Good Reason within 30 days of Executive’s knowledge of the occurrence of such event, and the Company fails to cure such acts within 30 days of receipt of such notice. Executive must terminate her employment within 30 days following the expiration of such cure period for the termination to be on account of “Good Reason.”

5.4Effect of Termination. Upon termination of Executive’s employment, all compensation, benefits and reimbursements described in Sections 3 and 4 above terminate upon the termination date, and no further compensation, benefits, reimbursements or other payments will be due to Executive, other than as provided in this Section 5 and subject to the terms and conditions of Section 5. In the event that the Company implements or maintains any other severance pay policy or practice, Executive shall not be entitled to pay under such policy or practice.

5.5Waiver and Release. Notwithstanding any provision herein to the contrary, the Company will have no obligation to make the Severance Payment, unless, (a) within 30 days following the date of termination of Executive’s employment, Executive executes and delivers to the Company a waiver and release of all current or future claims, known or unknown, arising on or before the date of the release against the Company, its subsidiaries, and the directors, officers, employees and affiliates of any of them, in a form approved by the Company (the “Release”) and (b) any applicable revocation period has expired during such 30-day period without Executive revoking such Release. Subject to Section 7.10, the Severance Payment shall not commence earlier than the first payroll date after the Release is executed and delivered to the Company, and all revocation periods have expired unexercised and the first payment on or after such date will include any portion of the Severance Payment not previously paid because Executive has not executed the Release; provided, that if such 30-day period begins in one taxable year and ends in a second taxable year, the portion of the Severance Payment that would have otherwise been paid or provided in the first taxable year shall be withheld and paid to Executive (without interest) on the Company’s first payroll date in the second taxable year, with the remaining portion of such payments to be provided to Executive according to the applicable schedule set forth herein, as if no such delay had occurred.

5.6Board/Committee Resignation. Upon termination of Executive’s employment for any reason, if applicable, Executive shall (if applicable) (a) automatically cease to serve on the Board of Directors of the Company (and any committees thereof) and the board of directors (and any committees thereof) of any subsidiary or controlled affiliate of the Company and (b) resign from all positions that Executive holds as an officer of the Company and its subsidiaries and controlled affiliates, and in each case does hereby resign from all such positions effective on such termination date. In addition, upon request of the Company, Executive will promptly take all other actions, and will sign such other documents, as may be necessary to effectuate the intent of this paragraph.

5.7 Cooperation. The Parties agree that certain matters in which the Executive will be involved during her employment may necessitate the Executive's cooperation in the future. Accordingly, following the termination of Executive's employment for any reason, to the extent reasonably requested by the Company’s Board of Directors and/or Chief Executive Officer, the Executive shall cooperate with the Company in connection with matters arising out of the Executive's service to the Company; provided that, the Company shall make reasonable efforts to minimize disruption of the Executive's other activities. The Company shall reimburse the Executive for reasonable expenses incurred in connection with such cooperation.


6.	Competitive Activity; Confidentiality; Non-Solicitation.

6.1Acknowledgements and Agreements. Executive hereby acknowledges and agrees that in the performance of Executive’s duties to the Company during her employment, Executive will be brought into frequent contact with existing and potential customers of the Company throughout the world. Executive also agrees that trade secrets and confidential information of the Company, more fully described in Section 6.5(a), gained by Executive during Executive’s association with the Company, have been developed by the Company through substantial expenditures of time, effort and money and constitute valuable and unique property of the Company. Executive further understands and agrees that the foregoing makes it necessary for the protection of the Company’s Business that Executive not compete with the Company during Executive’s employment with the Company and not compete with the Company for a reasonable period thereafter, as further provided in the following subparagraphs.

6.2Covenants.


(a)	Covenants During Employment. While employed by the Company, Executive will not compete with the Company anywhere in the world. In accordance with this restriction, but without limiting its terms, while employed by the Company, Executive will not:

(i)enter into or engage in, or make preparations to enter into or engage in, any business which competes with the Company's Business;

(ii)solicit customers, business, patronage or orders for, or sell, any products or services in competition with, or for any business that competes with, the Company's Business;

(iii)divert, entice or otherwise take away any customers, business, patronage or orders of the Company or attempt to do so; or

(iv)promote or assist, financially or otherwise, any person, firm, association, partnership, corporation or other entity engaged in any business which competes with the Company's Business.


(b)	Covenants Following Termination. For a period of one year following the termination of Executive’s employment, Executive will not:

(i)enter into or engage in any business which competes with the Company's Business within the Restricted Territory;

(ii)solicit customers, business, patronage or orders for, or sell, any products and services in competition with, or for any business, wherever located, that competes with, the Company's Business within the Restricted Territory;

(iii)divert, entice or otherwise take away any customers, business, patronage or orders of the Company within the Restricted Territory, or attempt to do so; or

(iv)promote or assist, financially or otherwise, any person, firm, association, partnership, corporation or other entity engaged in any business which competes with the Company's Business within the Restricted Territory.

(c)

Indirect Competition. For the purposes of Sections 6.2(a) and 6.2(b) inclusive, but without limitation thereof, Executive will be in violation thereof if Executive engages in any or all of the activities set forth therein directly as an individual on Executive’s own account, or indirectly as a partner, joint venturer, employee, agent, salesperson, consultant, officer and/or director of any firm, association, partnership, corporation or other entity, or as a stockholder of any corporation in which Executive or Executive’s spouse, child or parent owns, directly or indirectly, individually or in the aggregate, more than 1% of the outstanding stock.


(d)	If it shall be judicially determined that Executive has violated this Section 6.2, then the period applicable to each obligation that Executive shall have been determined to have violated shall automatically be extended by a period of time equal in length to the period during which such violation(s) occurred.

6.3The Company. For purposes of this Section 6, the Company shall include any and all direct and indirect subsidiary, parent, affiliated, or related companies of the Company for which Executive worked or had responsibility at the termination of Executive’s employment and at any time during the two-year period prior to such termination.

6.4Non-Solicitation. For a period of two years following the date of termination of Executive’s employment, Executive will not directly or indirectly at any time during the period of Executive’s employment or thereafter hire or attempt to hire any of the Company’s employees or solicit any of them to resign from their employment by the Company, or disrupt the relationship between the Company and any of its consultants, agents or representatives. Executive acknowledges that this covenant is necessary to enable the Company to maintain a stable workforce and remain in business.

6.5Further Covenants.

(a)

Executive will keep in strict confidence, and will not, directly or indirectly, at any time, during or after Executive’s employment with the Company, disclose, furnish, disseminate, make available or, except in the course of performing Executive’s duties of employment, use any trade secrets or confidential business and technical information of the Company or its customers or vendors, without limitation as to when or how Executive may have acquired such information. Such confidential information shall include, without limitation, the Company’s unique selling, manufacturing and servicing methods and business techniques, training, service and business manuals, promotional materials, training courses and other training and instructional materials, vendor and product information, customer and prospective customer lists, other customer and prospective customer information and other business information. Executive specifically acknowledges that all such confidential information, whether reduced to writing, maintained on any form of electronic media, or maintained in the mind or memory of Executive and whether compiled by the Company, and/or Executive, derives independent economic value from not being readily known to or ascertainable by proper means by others who can obtain economic value from its disclosure or use, that reasonable efforts have been made by the Company to maintain the secrecy of such information, that such information is the sole property of the Company and that any retention and use of such information by Executive during Executive’s employment with the Company (except in the course of performing Executive’s duties and obligations to the Company) or after the termination of

Executive’s employment shall constitute a misappropriation of the Company’s trade secrets.

(b)

Executive agrees that upon termination of Executive’s employment with the Company, for any reason, Executive shall return to the Company, in good condition, all property of the Company, including without limitation, the originals and all copies of any materials which contain, reflect, summarize, describe, analyze or refer or relate to any items of information listed in Section 6.5(a) of this Agreement. In the event that such items are not so returned, the Company will have the right to charge Executive for all reasonable damages, costs, attorneys’ fees and other expenses incurred in searching for, taking, removing and/or recovering such property.

6.6Communication of Contents of Agreement. While employed by the Company and for one year thereafter, Executive will communicate the contents of Section 6 of this Agreement to any person, firm, association, partnership, corporation or other entity that Executive intends to be employed by, be associated with, or represent.

6.7Confidentiality Agreements. Executive agrees that Executive shall not disclose to the Company or induce the Company to use any secret or confidential information belonging to Executive's former employers. Executive hereby represents and warrants to the Company that the execution of this Agreement by Executive and Executive’s employment by the Company and the performance of Executive’s duties hereunder will not violate or be a breach of any agreement with or obligation to a former employer, client or any other person or entity, and Executive agrees to indemnify the Company for any costs and expenses arising out of a claim by any such third party has against the Company based upon or arising out of any non-competition agreement or other restrictive covenant, invention or confidentiality agreement between Executive and such third party which was in existence as of the date of this Agreement or thereafter and which Executive is alleged to be in violation of.

6.8Relief. Executive acknowledges and agrees that the remedy at law available to the Company for breach of any of Executive's obligations under this Agreement would be inadequate. Executive therefore agrees that, in addition to any other rights or remedies that the Company may have at law or in equity, temporary and permanent injunctive relief may be granted in any proceeding which may be brought to enforce any provision contained in Sections 6.2, 6.4, 6.5, 6.6, and 6.7 inclusive, of this Agreement, without the necessity of proof of actual damage.

6.9Reasonableness. Executive acknowledges that Executive's obligations under this Section 6 are reasonable in the context of the nature of the Company's Business and the competitive injuries likely to be sustained by the Company if Executive were to violate such obligations. Executive further acknowledges that this Agreement is made in consideration of, and is adequately supported by the agreement of the Company to perform its obligations under this Agreement and by other consideration, which Executive acknowledges constitutes good, valuable and sufficient consideration.

6.10Certain Definitions.

(a)

“Company’s Business” means the business of designing, engineering, manufacturing, marketing or selling lightweighting, noise and vibration solutions for automotive, commercial vehicle and other industrial markets or any other product, material or process sold or produced by the Company during the course of Executive’s employment with the Company, including any product, material or process which may

be under development by the Company during the course of Executive’s employment with the Company and of which Executive gains knowledge.

(b)

“Restricted Territory” means: (i) North America (including any territory of the United States); and (ii) all of the specific customer accounts, whether within or outside of the geographic area described in (i) above, with which Executive had any contact or for which Executive had any responsibility (either direct or supervisory) at the termination of Executive’s employment and at any time during the two-year period prior to such termination.

6.11Permitted Disclosures.

(a)

Notwithstanding the foregoing, nothing in this Agreement prevents the Executive from disclosing information as may be required by applicable law, or pursuant to the valid order of a court or an authorized government agency, provided that, where permitted by applicable law, Executive agrees to give the Company advance notice of any anticipated disclosure of confidential information and will cooperate with the Company in seeking confidentiality protections. Moreover, nothing in this Agreement prohibits Executive from reporting possible violations of federal law or regulation to any governmental agency or entity or making other disclosures that are protected under the whistleblower provisions of applicable law and Executive does not need the Company’s prior authorization to make any such reports or disclosures and is not required to notify the Company that Executive has made such reports or disclosures.

(b)

The Company also gives Executive notice that: (i) Executive will not be held criminally or civilly liable under any federal or state trade secret law for any disclosure of a trade secret that is made: (A) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney and solely for the purpose of reporting or investigating a suspected violation of law; or (B) in a complaint or other document that is filed under seal in a lawsuit or other proceeding; and (ii) if Executive files a lawsuit for retaliation by the Company for reporting a suspected violation of law, Executive may disclose the Company’s trade secrets to Executive’s attorney and use the trade secret information in the court proceeding if Executive (A) files any document containing the trade secret under seal; and (B) does not disclose the trade secret, except pursuant to court order.


7.	General Terms.

7.1Governing Law; Jurisdiction; Venue; Interpretation. This Agreement will be governed by the substantive laws of the State of Michigan, without regard to the principles of conflicts of laws. This Agreement will be construed as a whole, according to its fair meaning, and not in favor of or against any Party, regardless of which Party may have initially drafted certain provisions set forth herein.

7.2Assignment. This Agreement is personal to Executive and may not be assigned by Executive without prior written consent of the Company. The Company may, without Executive’s consent, assign the Agreement to any affiliate of the Company or to any successor entity but will notify Executive immediately upon such assignment.

7.3Notices. Any notice required or permitted hereunder will be in writing and will be deemed to have been duly given if delivered by hand, by express commercial delivery service, or if sent by certified

mail, postage and certification prepaid, to Executive at Executive’s residence (as noted in the Company’s records), or to the Company address, or to such other address or addresses as either Party may have furnished to the other in writing.

7.4Entire Agreement; Amendments. This Agreement, and any other exhibits and attachments to such agreement and the documents mentioned herein constitute the final and complete expression of all of the terms of the understanding and agreement between the Parties hereto and this Agreement replaces and supersedes any and all prior or other contemporaneous negotiations, communications, understandings, obligations, commitments, agreements or contracts, whether written or oral, between the Parties; and Executive hereby waives any and all claims based upon any and all prior or contemporaneous negotiations, communications, understandings, obligations, commitments, agreements or contracts, whether written or oral, between the Parties. This Agreement may not be modified, amended, altered or supplemented except by means of the execution and delivery of a written instrument mutually executed by both Parties. No action or omission by the Company shall be deemed to be a waiver of any of its rights under this Agreement unless such waiver is set forth in writing and identified as a waiver. Any waiver by the Company of any rights under this Agreement shall not be deemed to be a waiver of any other right. The covenants contained in Section 6 of this Agreement are essential terms hereof, and no breach or alleged breach by the Company of any term of this Agreement shall be deemed to release Executive from the obligations set forth in such Section.

7.5Compensation Recovery. Notwithstanding anything in this Agreement to the contrary, Executive acknowledges and agrees that this Agreement and any compensation described herein are subject to the terms and conditions of the Company’s clawback policy (if any) as may be in effect from time to time specifically to implement Section 10D of the Securities Exchange Act of 1934, as amended, and any applicable rules or regulations promulgated thereunder (including applicable rules and regulations of any national securities exchange on which the common stock of the Company may be traded) (the “Compensation Recovery Policy”), and that applicable sections of this Agreement and any related documents shall be deemed superseded by and subject to the terms and conditions of the Compensation Recovery Policy from and after the effective date thereof.

7.6Severability. If any provision of the Agreement is held to be invalid, illegal or unenforceable for any reason, the validity, legality and enforceability of the remaining provisions of this Agreement will not in any way be affected or impaired thereby.

7.7Survival. Subject to any limits on applicability contained therein, Sections 6 and 7 shall survive and continue in full force in accordance with their terms notwithstanding any termination of Executive’s employment.

7.8Counterparts. This Agreement may be executed in any number of counterparts and by the Parties hereto in separate counterparts, each of which when so executed shall be deemed an original and all of which together shall constitute but one and the same instrument.

7.9Withholding Taxes. The Company may withhold from any amounts payable under this Agreement such Federal, state, and local taxes as may be required to be withheld pursuant to any applicable law or regulation.

7.10Compliance with Section 409A.


(a)	The Parties intend that any amounts payable under this Agreement, and the Company’s and Executive’s exercise of authority or discretion hereunder either comply with or

are exempt from the provisions of Section 409A of the Internal Revenue Code (“Section 409A”) so as not to subject Executive to the payment of the additional tax, interest and any tax penalty which may be imposed under Section 409A. Notwithstanding the foregoing, no particular tax result for Executive with respect to any income recognized by Executive in connection with this Agreement is guaranteed.

(b)

Notwithstanding any provisions of this Agreement to the contrary, if Executive is a “specified employee” (within the meaning of Section 409A and determined pursuant to policies adopted by the Company) at the time of Executive’s separation from service and if any portion of the payments or benefits to be received by Executive upon separation from service would be considered deferred compensation under Section 409A, amounts that would otherwise be payable pursuant to this Agreement and benefits that would otherwise be provided pursuant to this Agreement, in each case, during the six-month period immediately following Executive’s separation from service will instead be paid or made available on the earlier of (i) the first day of the seventh month following the date of Executive’s separation from service and (ii) Executive’s death.

(c)

To the extent any reimbursement or in-kind benefit provided under this Agreement is nonqualified deferred compensation within the meaning of Section 409A (i) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year; (ii) the reimbursement of an eligible expense must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred; and (iii) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.


(d)	Each payment under this Agreement is intended to be a “separate payment” and not of a series of payments for purposes of Section 409A.

(e)

A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits subject to Section 409A upon or following a termination of employment unless such termination is also a “separation from service” (within the meaning of Section 409A), and notwithstanding anything contained herein the contrary, the date on which such separation from service takes place shall be the termination date.

The Company and Executive acknowledge that each had the opportunity to consult with legal and financial counsel concerning the rights and obligations arising under this Agreement, that each has read and understands this Agreement, and that each enters into it willingly.

This Agreement is duly executed and delivered as of the day and year stated above.

SHILOH INDUSTRIES, INC.

By: /s/ Ramzi Hermiz

Name: Ramzi Hermiz

Title: President & CEO

EXECUTIVE

/s/ Lillian Etzkorn

Lillian Etzkorn

April 26, 2018

EXHIBIT 31.1

PRINCIPAL EXECUTIVE OFFICER'S CERTIFICATION PURSUANT

TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ramzi Hermiz, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of Shiloh Industries, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statement for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ Ramzi Hermiz

Ramzi Hermiz

President and Chief Executive Officer

Date: September 7, 2018

EXHIBIT 31.2

PRINCIPAL FINANCIAL OFFICER'S CERTIFICATION PURSUANT

TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Lillian Etzkorn, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of Shiloh Industries, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statement for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ Lillian Etzkorn

Lillian Etzkorn

Senior Vice President and Chief Financial Officer

Date: September 7, 2018

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT

TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Shiloh Industries, Inc. (the "Company") on Form 10-Q for the three months ended July 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer's knowledge:


(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

Dated: September 7, 2018

/s/ Ramzi Hermiz

Ramzi Hermiz

President and Chief Executive Officer

/s/ Lillian Etzkorn

Lillian Etzkorn

Senior Vice President and Chief Financial Officer

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.

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Form 10-Q SHILOH INDUSTRIES INC For: Jul 31

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