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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 March 30, 2003
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
LDM Technologies, Inc.
(Exact name of registrant as specified in its charter)
Michigan 333-21819 38-2690171
-------- --------- ----------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
2500 Executive Hills Drive, Auburn Hills, Michigan 48326
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (248) 858-2800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) Yes [ ] No [X]
Number of shares common stock outstanding as of April 25, 2003: 600
Total pages: 26
Listing of exhibits: Page 21
LDM TECHNOLOGIES, INC.
INDEX
Page No.
--------
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets, March 30, 2003 and
September 29, 2002 3
Condensed Consolidated Statements of Operations, three months ended
March 30, 2003 and March 31, 2002 4
Condensed Consolidated Statements of Operations, six months ended
March 30, 2003 and March 31, 2002 5
Condensed Consolidated Statements of Cash Flows, six months ended 6
March 30, 2003 and March 31, 2002
Notes to Condensed Consolidated Financial Statements 7
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF 17
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK 20
ITEM 4 DISCLOSURE CONTROLS AND PROCEDURES 20
PART II OTHER INFORMATION
Item 1 Legal Proceedings Not applicable
Item 2 Changes in Securities Not applicable
Item 3 Defaults upon Senior Securities Not applicable
Item 4 Submission of Matters to a Vote of Security Not applicable
Holders
Item 5 Other information Not applicable
Signature page 20
Item 6 Exhibits and Reports on Form 8-K 21
Certifications 22
2
LDM TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets
(dollars in thousands)
March 30,2003 SEPTEMBER 29, 2002
(UNAUDITED) (NOTE)
--------------- ------------------
ASSETS
Current assets:
Cash $716 $932
Accounts receivable 62,197 77,151
Raw materials 7,835 8,424
Work in process 1,429 1,664
Finished goods 5,762 5,878
Mold costs 4,254 5,138
Prepaid expenses 1,968 2,101
Deferred income taxes 3,679 3,433
--------------- ------------------
Total current assets 87,840 104,721
Net property, plant and equipment 84,446 91,497
Goodwill 50,152 50,152
Debt issue costs, net 3,087 3,389
Equity investments in affiliate 7,400 7,300
Other assets 365 428
--------------- ------------------
Totals $233,290 $257,487
=============== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $48,672 $54,714
Accrued liabilities 19,100 17,223
Accrued interest 2,640 2,638
Accrued compensation 5,005 5,542
Income taxes payable 1,114 78
Current maturities of long-term debt 11,305 11,305
--------------- ------------------
Total current liabilities 87,836 91,500
Lines of credit and revolving debt - 20,079
Long-term debt due after one year 132,048 138,887
Deferred income taxes 2,570 2,424
STOCKHOLDERS' EQUITY
Common stock (par value; $.10, issued
and outstanding 600 shares, authorized
100,000 shares)
Additional paid-in capital 94 94
Retained earnings 10,742 4,503
-------------- ------------------
Total stockholders' equity 10,836 4,597
-------------- ------------------
Totals $233,290 $257,487
============== ==================
Note: The balance sheet at September 29, 2002 has been derived from the audited
consolidated financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
See notes to condensed consolidated financial statements.
3
LDM TECHNOLOGIES, INC.
Condensed Consolidated Statements of Operations
(dollars in thousands)
(Unaudited)
Three Months Ended
-----------------------------------------------------
March 30, 2003 March 31, 2002
---------------------- --------------------
Net sales $109,184 $90,288
Cost of sales 89,337 78,335
---------------------- --------------------
Gross margin 19,847 11,953
Selling, general and administrative 9,755 8,922
expenses ---------------------- --------------------
Operating profit 10,092 3,031
Interest expense (3,976) (4,269)
Loss on disposal of property, plant and
equipment (776) (8)
Equity in income of affiliates, net 250
International currency exchange gains
(losses) 147 (105)
Other income (expense), net (484) 238
---------------------- --------------------
Income (loss) before income taxes 5,003 (863)
Provision (credit) for income taxes 2,076 (334)
---------------------- --------------------
Net income (loss) $2,927 $(529)
====================== ====================
See notes to condensed consolidated financial statements.
4
LDM TECHNOLOGIES, INC.
Condensed Consolidated Statements of Operations
(dollars in thousands)
(Unaudited)
Six Months Ended
-----------------------------------------------------
March 30, 2003 March 31, 2002
---------------------- --------------------
Net sales $217,469 $185,718
Cost of sales 179,185 161,290
---------------------- --------------------
Gross margin 38,284 24,428
Selling, general and administrative 19,459 17,101
expenses ---------------------- --------------------
Operating profit 18,825 7,327
Interest expense (7,508) (8,028)
Loss on disposal of property, plant and
equipment (767) (8)
Equity in income of affiliates, net 100 550
International currency exchange gains
(losses) 41 (412)
Other expense, net (25) (194)
---------------------- --------------------
Income (loss) before income taxes 10,666 (765)
Provision (credit) for income taxes 4,427 (318)
---------------------- --------------------
Net income (loss) $6,239 $(447)
====================== ====================
See notes to condensed consolidated financial statements.
5
LDM TECHNOLOGIES, INC.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(UNAUDITED)
SIX MONTHS ENDED
MARCH 30, 2003 MARCH 31, 2002
-------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 30,922 $ 15,539
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (4,136) (3,524)
Proceeds from disposal of property, plant and equipment 189
-------------- --------------
NET CASH USED FOR INVESTING ACTIVITIES (3,947) (3,524)
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments on line of credit (20,079) (6,213)
Payments on long-term debt (6,839) (6,098)
Debt modification costs (273) (110)
-------------- --------------
NET CASH USED BY FINANCING ACTIVITIES (27,191) (12,421)
-------------- --------------
Net cash change (216) (406)
Cash at beginning of period 932 2,320
-------------- --------------
Cash at end of period $ 716 $ 1,914
============== ==============
SUPPLEMENTAL INFORMATION:
Total depreciation and amortization $ 10,230 $ 9,641
============== ==============
See notes to condensed consolidated financial statements.
6
LDM TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six-month periods ended March
30, 2003 are not necessarily indicative of the results that may be expected for
the year ending September 28, 2003. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended September 29, 2002.
2. Commitments and Contingencies
There have been no significant changes in commitments and contingencies from the
matters described in footnote 11 of the Company's consolidated financial
statements as of and for the fiscal year ended September 29, 2002.
3. Reclassification
The Company incurs certain expenditures at its plant locations. In the past,
these expenditures have been classified as selling, general and administrative
expenses. The Company believes that these expenditures are more accurately
characterized as cost of sales expenses as they directly support manufacturing
activities within the manufacturing facilities. As a result, for the three and
six month periods ending March 31, 2002, these expenses have been reclassified
from selling, general and administrative expenses to cost of sales. There was no
impact to net earnings or equity resulting from this reclassification.
4. Derivative Financial Instruments
The Company's fair values of the swap and the collar (refer to footnote 1 of the
Company's consolidated financial statements as of and for the fiscal year ended
September 29, 2002) are reported on the balance sheet with changes in fair
value reported in the statement of operations in accordance with Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities," as amended ("FAS 133"). The Company has reported the
fair value of these derivatives as a liability of $3.6 million, which is
included as a component of accrued liabilities at March 30, 2003. The change in
fair value for the three and six-month periods ended March 30, 2003 resulted in
other expense of $503,000 and $54,000, respectively. The change in fair value
for the three and six-month periods ended March 31, 2002 resulted in other
income of $229,000 and other expense of $209,000, respectively.
5. Income Taxes
The effective tax rate for the first six months of fiscal 2003 was 41.5%
compared to 41.6% for the first six months of fiscal 2002. The interim effective
rates are estimated based upon fiscal year operating forecasts. The effective
tax rates differ from statutory rates due to certain nondeductible expenses.
7
LDM TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
6. Related Party Transactions
During fiscal year 2002, the Company acquired certain assets and the booked
business of Security Plastics West, Ltd., located in McAllen, Texas. As part of
the transaction the Company is leasing the building and real estate in McAllen
from a company majority owned by the Company's two shareholders. The leased
facility is approximately 73,000 square feet and annual rentals approximate $300
thousand. The lease has an initial term of 8 years with an option to renew at
the end of the initial lease term. In fiscal year 2002, the Company paid rentals
for the McAllen manufacturing facility of approximately $190 thousand. To date
in fiscal year 2003, the Company paid rentals for the same facility of
approximately $150 thousand. Terms of the lease are not the result of
arms-length bargaining, however, the Company believes that the lease is on terms
no less favorable to the Company than could have been obtained if such lease was
an arms-length transaction with nonaffiliated persons.
The Company and its two shareholders are parties to a binding stock redemption
agreement which may be terminated by mutual agreement of the parties. Upon the
death of either shareholder, the Company is required to purchase and the
shareholder's estate is required to sell all of the shareholder's stock at a
price equal to $25 million, subject to subsequent adjustment. This amount
payable includes the proceeds of the life insurance policies owned by the
Company on each shareholder's life. Any shortfall between the insurance proceeds
and the amount payable to the shareholder's estate will require funding by the
Company, subject to restrictions in the Company's loan agreements.
The Company maintains life insurance policies of $17.0 million on the life of
one shareholder and $25.0 million on the life of the other shareholder. The
annual premiums for such policies of insurance are approximately $1.5 million.
The Company is prohibited from assigning, pledging or borrowing against these
life insurance policies without the consent of the insured shareholder.
7. Disposal of Property, Plant and Equipment and Restructuring
The three month period ended March 30, 2003 includes a $776 thousand loss
related to the disposal of certain property, plant and equipment.
Within the quarter ended March 30, 2003, the Company wrote off $600 thousand of
special purpose equipment due to the loss of future sales caused by the
elimination of certain parts it produced. The parts elimination was caused by a
design change initiated by a customer. Annual sales related to the product
eliminated approximated $5 million in previous fiscal years.
Due to recent production cuts announced by its customers and to eliminate future
storage costs, the Company also within the quarter ended March 30, 2003,
disposed of certain machinery and equipment stored in offsite facilities. The
equipment was sold for a minimal amount and resulted in a loss approximating
$175 thousand.
The three month period ended March 31, 2002 includes $1.3 million for expenses
associated with employee severance at the Company's Canadian subsidiary. Such
expense has been included as a component of cost of goods sold. The employee
severance relates to the downsizing of the subsidiary facility from three shifts
to one shift as certain unprofitable product lines were exited. The severance
costs accrued relate to approximately 345 employees.
8. Supplemental Guarantor Information
The 10 3/4% Senior Subordinated Notes due 2007, the Senior Credit Facility, the
standby letters of credit with respect to the Multi-Option Adjustable Rate
Notes, the Variable Rate Demand Limited Obligation Revenue Bonds and the Senior
Term Loan, as more fully described in footnotes 6 and 7 of the Company's 10-K
for its fiscal year ended September 29, 2002, filed December 6, 2002, are
obligations of LDM Technologies, Inc. The obligations are guaranteed fully,
unconditionally and jointly and severally by LDM Canada and certain holding
companies.
Supplemental consolidating financial information of LDM Technologies, Inc. and
LDM Canada (including the related holding company guarantors) is presented
below. Investments in subsidiaries are presented on the equity method of
accounting. Separate financial statements of the guarantors are not provided
because management has concluded that the summarized financial information below
provides sufficient information to allow investors to separately determine the
nature of the assets held by and the operations of LDM Technologies, Inc., and
the guarantor subsidiaries.
8
LDM TECHNOLOGIES, INC.
Condensed Consolidating Balance Sheet as of March 30, 2003
(unaudited)
(dollars in thousands)
LDM Consolidating
Technologies,Inc. LDM Canada Entries Consolidated
ASSETS
Current assets:
Cash $ 554 $ 162 $ 716
Accounts receivable 58,882 3,315 62,197
Raw materials 6,576 1,259 7,835
Work in process 1,183 246 1,429
Finished goods 5,659 103 5,762
Mold costs 4,229 25 4,254
Prepaid expenses 1,943 25 1,968
Deferred income taxes 3,629 50 3,679
---------------- --------------- --------------- --------------
Total current assets 82,655 5,185 87,840
Net property, plant and equipment 75,181 9,265 84,446
Investment in subsidiaries and 8,616 $ (1,216) 7,400
affiliates
Note receivable from affiliates 9,214 1,565 (10,779) -
Goodwill 50,152 50,152
Debt issue costs 3,087 3,087
Other 365 365
---------------- --------------- --------------- --------------
$ 229,270 $ 16,015 $ (11,995) $ 233,290
================ =============== =============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 45,183 $ 4,199 $ (710) $ 48,672
Accrued liabilities 18,973 127 19,100
Accrued interest 2,640 2,640
Accrued compensation 4,601 404 5,005
Income taxes payable 1,114 1,114
Current maturities of long-term debt 11,305 11,305
---------------- --------------- --------------- --------------
Total current liabilities 83,816 4,730 (710) 87,836
Lines of credit and revolving debt -
Long-term debt due after one year 132,048 10,068 (10,068) 132,048
Deferred income taxes 2,570 2,570
Stockholders' equity:
Common stock 5,850 (5,850)
Additional paid-in capital 94 94
Retained earnings 10,742 (4,633) 4,633 10,742
---------------- --------------- --------------- --------------
Total stockholders' equity 10,836 1,217 (1,217) 10,836
---------------- --------------- --------------- --------------
Total liabilities and stockholders'
equity $ 229,270 $ 16,015 $ (11,995) $ 233,290
================ =============== =============== ==============
9
LDM TECHNOLOGIES, INC.
Condensed Consolidating Balance Sheet as of September 29, 2002
(unaudited)
(dollars in thousands)
LDM Consolidating
Technologies, Inc. LDM Canada Entries Consolidated
ASSETS
Current assets:
Cash $ 683 $ 249 $ 932
Accounts receivable 72,343 4,808 77,151
Raw materials 7,042 1,382 8,424
Work in process 1,182 482 1,664
Finished goods 5,518 360 5,878
Mold costs 5,073 65 5,138
Prepaid expenses 2,087 14 2,101
Deferred income taxes 3,386 47 3,433
---------------- --------------- --------------- --------------
Total current assets 97,314 7,407 104,721
Net property, plant and equipment 81,313 10,184 91,497
Investment in subsidiaries and 9,887 $ (2,587) 7,300
affiliates
Note receivable from affiliates 9,242 (9,242)
Goodwill 50,152 50,152
Debt issue costs 3,389 3,389
Other 428 428
---------------- --------------- --------------- --------------
$ 251,725 $ 17,591 $ (11,829) $ 257,487
================ =============== =============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 49,204 $ 5,683 $ (173) $ 54,714
Accrued liabilities 17,223 17,223
Accrued interest 2,638 2,638
Accrued compensation 5,290 252 5,542
Income taxes payable 78 78
Current maturities of long-term debt 11,305 11,305
---------------- --------------- --------------- --------------
Total current liabilities 85,738 5,935 (173) 91,500
Lines of credit and revolving debt 20,079 20,079
Long-term debt due after one year 138,887 9,068 (9,068) 138,887
Deferred income taxes 2,424 2,424
Stockholders' equity:
Common stock 5,850 (5,850)
Additional paid-in capital 94 94
Retained earnings 4,503 (3,262) 3,262 4,503
---------------- --------------- --------------- --------------
Total stockholders' equity 4,597 2,588 (2,588) 4,597
---------------- --------------- --------------- --------------
Total liabilities and stockholders'
equity $ 251,725 $ 17,591 $ (11,829) $ 257,487
================ =============== =============== ==============
10
LDM TECHNOLOGIES, INC.
Condensed Consolidating Statement of Operations
for the Three-Months Ended March 30, 2003
(unaudited)
(dollars in thousands)
LDM
Technologies, LDM Consolidating
Inc. Canada Entries Consolidated
---------------- --------------- --------------- --------------
Net sales $102,752 $6,432 $109,184
Cost of Sales 82,000 7,337 89,337
---------------- --------------- --------------- --------------
Gross Margin 20,752 (905) 19,847
Selling, general and administrative
expenses 9,673 82 9,755
---------------- --------------- --------------- --------------
Operating profit (loss) 11,079 (987) 10,092
Interest expense (3,936) (314) $274 (3,976)
Other income (expense), net (222) 12 (274) (484)
Loss on disposal of property,
plant and equipment (776) (776)
International currency exchange gains 147 147
Equity in net income (loss) of
subsidiaries and affiliates (1,142) 1,142
---------------- --------------- --------------- --------------
Income (loss) before income taxes 5,003 (1,142) 1,142 5,003
Provision for income taxes 2,076 2,076
---------------- --------------- --------------- --------------
Net income (loss) $2,927 $(1,142) $1,142 $2,927
================ =============== =============== ==============
11
LDM TECHNOLOGIES, INC.
Condensed Consolidating Statement of Operations
for the Three-Months Ended March 31, 2002
(unaudited)
(dollars in thousands)
LDM
Technologies, LDM Consolidating
Inc. Canada Entries Consolidated
---------------- --------------- --------------- --------------
Net sales $85,757 $4,531 $90,288
Cost of Sales 73,125 5,210 78,335
---------------- --------------- --------------- --------------
Gross Margin 12,632 (679) 11,953
Selling, general and
administrative expenses 8,833 89 8,922
---------------- --------------- --------------- --------------
Operating profit (loss) 3,799 (768) 3,031
Interest expense (4,242) (288) $261 (4,269)
Other income (expense), net 499 (261) 238
Loss on disposal of property,
plant and equipment (8) (8)
International currency exchange losses (105) (105)
Equity in net income (loss) of
subsidiaries and affiliates (875) 1,125 250
---------------- --------------- --------------- --------------
Income (loss) before income taxes (827) (1,161) 1,125 (863)
Credit for income taxes (298) (36) (334)
---------------- --------------- --------------- --------------
Net income (loss) $(529) $(1,125) $1,125 $(529)
================ =============== =============== ==============
12
LDM TECHNOLOGIES, INC.
Condensed Consolidating Statement of Operations
for the Six-Months Ended March 30, 2003
(unaudited)
(dollars in thousands)
LDM
Technologies, LDM Consolidating
Inc. Canada Entries Consolidated
---------------- --------------- --------------- --------------
Net sales $203,722 $13,747 $217,469
Cost of Sales 164,713 14,472 179,185
---------------- --------------- --------------- --------------
Gross Margin 39,009 (725) 38,284
Selling, general and
administrative expenses 19,323 136 19,459
---------------- --------------- --------------- --------------
Operating profit (loss) 19,686 (861) 18,825
Interest expense (7,443) (567) $502 (7,508)
Other income (expense), net 461 16 (502) (25)
Loss on disposal of property,
plant and equipment (767) (767)
International currency exchange gains 41 41
Equity in net income (loss) of
subsidiaries and affiliates (1,271) 1,371 100
---------------- --------------- --------------- --------------
Income (loss) before income taxes 10,666 (1,371) 1,371 10,666
Provision for income taxes 4,427 4,427
---------------- --------------- --------------- --------------
Net income (loss) $6,239 $(1,371) $1,371 $6,239
================ =============== =============== ==============
13
LDM TECHNOLOGIES, INC.
Condensed Consolidating Statement of Operations
for the Six-Months Ended March 31, 2002
(unaudited)
(dollars in thousands)
LDM
Technologies, LDM Consolidating
Inc. Canada Entries Consolidated
---------------- --------------- --------------- --------------
Net sales $166,378 $19,340 $185,718
Cost of Sales 141,958 19,332 161,290
---------------- --------------- --------------- --------------
Gross Margin 24,420 8 24,428
Selling, general and
administrative expenses 16,914 187 17,101
---------------- --------------- --------------- --------------
Operating profit (loss) 7,506 (179) 7,327
Interest expense (7,975) (552) $499 (8,028)
Other income (expense), net 305 (499) (194)
Loss on disposal of property,
plant and equipment (8) (8)
International currency exchange losses (412) (412)
Equity in net income (loss) of
subsidiaries and affiliates (590) 1,140 550
---------------- --------------- --------------- --------------
Income (loss) before income taxes (762) (1,143) 1,140 (765)
Credit for income taxes (315) (3) (318)
---------------- --------------- --------------- --------------
Net income (loss) $(447) $(1,140) $1,140 $(447)
================ =============== =============== ==============
14
LDM TECHNOLOGIES, INC.
Condensed Consolidating Statement of Cash Flows
for the Six-Months Ended March 30, 2003
(unaudited)
(dollars in thousands)
LDM
Technologies, LDM
Inc. Canada Consolidated
--------------- --------------- --------------
Net cash provided by operating activities $30,633 $289 $30,922
Cash flows from investing activities
Additions to property, plant and equipment (3,788) (348) (4,136)
Proceeds from disposal of property, plant and
equipment 189 189
--------------- --------------- --------------
Net cash used by investing activities (3,599) (348) (3,947)
Cash flows from financing activities
Borrowing (to)/from affiliates 28 (28)
Debt modification costs (273) (273)
Payments on long-term debt (6,839) (6,839)
Net repayments on line of credit (20,079) (20,079)
--------------- --------------- --------------
Net cash used by financing activities (27,163) (28) (27,191)
--------------- --------------- --------------
Net cash change (129) (87) (216)
Cash at beginning of period 683 249 932
--------------- --------------- --------------
Cash at end of period $554 $162 $716
=============== =============== ==============
Supplemental information:
Total depreciation and amortization $8,963 $1,267 $10,230
=============== =============== ==============
15
LDM TECHNOLOGIES, INC.
Condensed Consolidating Statement of Cash Flows
for the Six-Months Ended March 31, 2002
(unaudited)
(dollars in thousands)
LDM
Technologies, LDM
Inc. Canada Consolidated
--------------- --------------- --------------
Net cash provided by operating activities $14,452 $1,087 $15,539
Cash flows from investing activities
Additions to property, plant and equipment (3,469) (55) (3,524)
--------------- --------------- --------------
Net cash used by investing activities (3,469) (55) (3,524)
Cash flows from financing activities
Borrowing (to)/from affiliates 2,428 (2,428)
Debt modifications costs (110) (110)
Payments on long-term debt (6,098) (6,098)
Net repayments on line of credit (6,213) (6,213)
--------------- --------------- --------------
Net cash used by financing activities (9,993) (2,428) (12,421)
--------------- --------------- --------------
Net cash change 990 (1,396) (406)
Cash at beginning of period 23 2,297 2,320
--------------- --------------- --------------
Cash at end of period $1,013 $901 $1,914
=============== =============== ==============
Supplemental information:
Total depreciation and amortization $8,332 $1,309 $9,641
=============== =============== ==============
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. When used in this report, the words
"anticipate," "believe," "estimate" and "expect" and similar expressions are
generally intended to identify forward-looking statements. Readers are cautioned
that any forward-looking statements, including statements regarding the intent,
belief or current expectations of the Company or its management, are not
guarantees of future performance and involve risks and uncertainties, and that
the actual results may differ materially from those in the forward-looking
statements as a result of various factors including, but not limited to: (i)
general economic conditions in the markets in which the Company operates or will
operate; (ii) fluctuations in worldwide or regional automobile and light and
heavy truck production; (iii) labor disputes involving the Company or its
significant customers or suppliers; (iv) changes in practices and/or policies of
the Company's significant customers toward outsourcing automotive components and
systems; (v) foreign currency and exchange fluctuations; and (vi) other risks
detailed from time to time in the Company's filings with the Securities and
Exchange Commission. The Company does not intend to update these forward-looking
statements.
CRITICAL ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-Q and
Article 10 of Regulation S-X. The Company's significant accounting policies are
more fully described in Note 1 of the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended September 29, 2002. Certain of the accounting policies require the
application of significant judgment by management in selecting appropriate
assumptions for calculating financial estimates. By their nature, these
judgments are subject to an inherent degree of uncertainty.
GOODWILL
Goodwill totaled $50.2 million at March 30, 2003, and represented approximately
21.9% of total assets. The majority of the goodwill resulted from the
acquisitions of Molmec, Inc. and Huron Plastics Group, Inc. which were completed
in fiscal year 1997 and fiscal year 1998, respectively. Effective October 1,
2001, the Company elected to early adopt Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets. Under this standard,
goodwill is no longer amortized but is subject to annual impairment tests in
accordance with the Statement. Under Statement No. 142 the Company estimates the
fair value of goodwill at each of its reporting units. Estimated fair value was
based upon discounted cash flows. The results of the Company's Statement No. 142
analysis indicate that no reduction in goodwill is required. Statement No. 142
requires the Company to perform impairment tests of goodwill on an annual basis
(or more frequently if impairment indicators exist).
INCOME TAXES
The Company provides an estimate of actual current tax due together with an
assessment of temporary differences resulting from the treatment of items for
tax and accounting purposes. These differences result in deferred tax assets and
liabilities, which are included within the balance sheets. Based on known and
projected earnings information and any available tax planning strategies, the
Company then assesses the likelihood that the deferred tax assets will be
recovered. To the extent that the Company believes recovery is not likely, a
valuation allowance is established.
Significant management judgment is required in determining the provision for
income taxes, deferred tax assets and liabilities and any valuation allowance
recorded against net deferred tax assets. At March 30, 2003, the Company had net
deferred tax assets, after valuation allowances, of $1.1 million.
Deferred tax assets in Canada relate primarily to net operating loss
carryforwards (NOL's) for which the Company has recognized a valuation allowance
of $1.6 million.
In the United States realization of the deferred tax assets is dependent upon
future taxable income. Based on consideration of historical and future earnings
before income taxes, the Company believes it is more likely than not that the
deferred tax assets, beyond those specifically reserved, will be realized.
The Company evaluates its deferred taxes and related valuation allowances
quarterly. If at any time the Company believes that current or future taxable
income will not support the basis for recognizing the benefit of the deferred
tax assets, valuation allowances are provided accordingly.
17
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS RECEIVABLE
Accounts receivable have been reduced by an allowance for amounts that may
become uncollectible in the future. This estimated allowance is based primarily
on management's evaluation of customer productivity reimbursement programs and
historical experience. The allowance amount at March 30, 2003 and September 29,
2002 was $0.5 million.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 30, 2003 COMPARED TO QUARTER ENDED MARCH 31, 2002
NET SALES: Net sales for the three-month period ended March 30, 2003 (second
quarter 2003) were $109.2 million versus $90.3 million for the three-month
period ended March 31, 2002 (second quarter 2002). This is an increase of $18.9
million or 20.9%. The increase in net sales is primarily due to the launch of
new products from the Company's facility in Romulus, Michigan in March and
August of 2002. The Romulus facility reported $23.3 million in net sales for the
second quarter of 2003 compared to $3.7 million for the second quarter of 2002.
GROSS MARGIN: Gross margin was $19.8 million or 18.1% of net sales for second
quarter 2003 versus $12.0 million or 13.3% of net sales for second quarter 2002.
The gross margin improvement is due to sales generated at the Romulus facility
offsetting fixed costs at the facility in 2003 but not in 2002.
SELLING, GENERAL, AND ADMINISTRATIVE (SG&A) EXPENSES: SG&A expenses for second
quarter 2003 were $9.8 million or 9.0% of net sales, compared to $8.9 million or
9.9% of net sales for second quarter 2002. Expense has increased in dollars due
to the reinstatement of certain employee benefits as the Company has returned to
profitability.
INTEREST EXPENSE: Interest expense was $4.0 million for second quarter 2003
compared to $4.3 million for second quarter 2002. The decrease in interest
expense is due to scheduled debt repayments, a decrease in variable interest
rates and lower average borrowings outstanding on the Company's line of credit.
LOSS ON DISPOSAL OF PROPERTY, PLANT AND EQUIPMENT: The three month period ended
March 30, 2003 includes $776 thousand for expense related to the disposal of
certain property, plant and equipment. This includes approximately $600 thousand
of special purpose equipment written off due to the elimination of certain parts
by a customer and approximately $175 thousand of unutilized general purpose
equipment written off.
INCOME TAXES: The effective tax rate for the second quarter of 2003 was 41.5%
compared to 38.7% for the second quarter 2002. The interim effective rates are
estimated based upon fiscal year operating forecasts. The effective tax rates
differ from statutory rates due to certain nondeductible expenses.
SIX MONTHS ENDED MARCH 30, 2003 COMPARED TO SIX MONTHS ENDED MARCH 31, 2002
NET SALES: Net sales for the six-month period ended March 30, 2003 (first half
2003) were $217.5 million versus $185.7 million for the six-month period ended
March 31, 2002 (first half 2002). This is an increase of $31.8 million or 17.1%.
The increase in net sales is due to the launch of new products from the
Company's facility in Romulus, Michigan in March and August of 2002, offset by
the exit of certain product lines at the Company's Canadian facility in December
of 2001. The Romulus facility reported $46.9 million in net sales for the first
half of 2003 compared to $6.2 million for the first half of 2002.
GROSS MARGIN: Gross margin was $38.3 million or 17.6% of net sales for first
half 2003 versus $24.4 million or 13.1% of net sales for first half 2002. The
gross margin improvement is due to sales generated at the Romulus facility
offsetting fixed costs at the facility in 2003 but not in 2002.
SELLING, GENERAL, AND ADMINISTRATIVE (SG&A) EXPENSES: SG&A expenses for first
half 2003 were $19.5 million or 9.0% of net sales, compared to $17.1 million or
9.2% of net sales for first half 2002. Expense has increased in dollars due to
the reinstatement of certain employee benefits as the Company has returned to
profitability.
INTEREST EXPENSE: Interest expense was $7.5 million for first half 2003 compared
to $8.0 million for first half 2002. The decrease reflects the effects of
scheduled repayments on existing senior debt, a decrease in variable interest
rates and lower average borrowings outstanding on the Company's line of credit.
18
LOSS ON DISPOSAL OF PROPERTY, PLANT AND EQUIPMENT: The six month period ended
March 30, 2003 includes $767 thousand for expense related to the disposal of
certain property, plant and equipment. This includes approximately $600 thousand
of special purpose equipment written off due to the elimination of certain parts
by a customer and approximately $175 thousand of unutilized general purpose
equipment written off.
INCOME TAXES: The effective tax rate for the first half of 2003 was 41.5%
compared to 41.6% for the first half of 2002. The interim effective rates are
estimated based upon fiscal year operating forecasts. The effective tax rates
differ from statutory rates due to certain nondeductible expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are to fund working capital needs,
to meet required debt obligations, and to fund capital expenditures for facility
maintenance and expansion. The Company believes its future cash flow from
operations, combined with its revolving credit availability will be sufficient
to meet its planned debt service, capital requirements, and internal growth
opportunities. As of March 30, 2003, the Company had $132.0 million of long-term
debt outstanding, $11.3 million of revolving loans and current maturities of
long-term debt outstanding, and $37.9 million of borrowing availability under
its revolving credit facility.
Cash provided by operating activities in the first half of 2003 was $30.9
million compared to $15.5 million in the first half of 2002. The increase is due
to improved operations at Romulus due to the launch of new product in March and
August of 2002.
Capital expenditures for first half 2003 were $4.1 million compared to $3.5
million for first half 2002. The Company believes its capital expenditures will
be approximately $12 million in fiscal year 2003. The majority of the Company's
fiscal year 2003 capital expenditures will be used to refresh equipment and
facilitate new programs launching in fiscal year 2003.
Long-term debt has decreased due to scheduled principal repayments of senior
term debt, including an excess cash flow payment. This payment is due January
1st of every year if excess cash flow exists as defined by the senior term loan
agreement. As a result of excess cash flow generated in fiscal year 2002, the
Company made an additional senior term loan payment of $2.8 million in January
2003.
The following information summarizes the Company's significant contractual cash
obligations and other commercial commitments at March 30, 2003:
CONTRACTUAL OBLIGATIONS PAYMENTS DUE BY PERIOD (000'S)
LESS THAN 1
-----------
TOTAL YEAR 1-3 YEARS 4 - 5 YEARS AFTER 5 YEARS
------ ---- --------- ----------- -------------
Long Term Debt $143,353 $11,305 $18,703 $107,675 $5,670
Lines of Credit - -
Operating Leases 36,721 12,759 9,494 6,227 8,241
-------- ------- ------- -------- -------
Total Contractual Cash Obligations $180,074 $24,064 $28,197 $113,902 $13,911
======== ======= ======= ======== =======
OTHER COMMERCIAL AMOUNT OF COMMITMENT EXPIRATION PER PERIOD (000'S)
---------------- --------------------------------------------------
COMMITMENTS
-----------
TOTAL AMOUNTS LESS THAN 1
------------- -----------
COMMITTED YEAR 1-3 YEARS OVER 5 YEARS
--------- ---- --------- ------------
Unused Lines of Credit $47,806 $47,806
Standby Letters of Credit 15,194 15,194
------- --------
Total Commercial Commitments $63,000 $63,000
======= =======
The Company's liquidity is affected by both the cyclical nature of its business
and levels of net sales to its major customers. The Company's ability to meet
its working capital and capital expenditure requirements and debt obligations
will depend on its future operating performance, which will be affected by
prevailing economic conditions and financial, business and other factors,
certain of which are beyond its control. The Company believes that its existing
borrowing ability and cash flow from operations will be sufficient to meet its
liquidity requirements in the foreseeable future.
19
Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to the Company's exposure to market risk
since September 29, 2002.
Item 4: DISCLOSURE CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, an evaluation was performed
under the supervision and with the participation of the Company's management,
including the CEO and CFO, of the effectiveness of the design and operation of
the Company's disclosure controls and procedures. Based on that evaluation, the
Company's management, including the CEO and CFO, concluded that the Company's
disclosure controls and procedures are effective in causing the material
information required to be disclosed by the Company in the reports that it files
or submits under the Securities Act of 1934 to be recorded, processed,
summarized and reported, to the extent applicable, within the time periods
specified in the Securities and Exchange Commission's rules and forms. There
have been no significant changes in the Company's internal controls or in other
factors that could significantly affect internal controls subsequent to the date
the Company carried out its evaluation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
LDM TECHNOLOGIES, INC.
By: /s/ Gary E. Borushko
--------------------------
Gary E. Borushko
Chief Financial Officer
By: /s/ Bradley N. Frederick
--------------------------
Bradley N. Frederick
V.P. of Finance
Chief Accounting Officer
Dated: May 1, 2003
20
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. EXHIBIT DESCRIPTION
99.1 Certification of the Chief Executive Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
The registrant filed no reports on Form 8-K during the quarter for which this
Report is filed.
21
CERTIFICATION
I, Alan C. Johnson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of LDM Technologies,
Inc. ("the registrant");
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly 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 quarterly 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-14 and 15d-14) for the registrant and
we have:
a.) designed such disclosure controls and procedures 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 quarterly report is being prepared;
b.) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c.) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
registrant's board of directors:
a.) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weakness in internal controls; and
b.) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The Company's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
By: /s/ A.C. Johnson
------------------------------------
Alan C. Johnson
Chief Executive Officer
May 1, 2003
22
CERTIFICATION
I, Gary E. Borushko, certify that:
1. I have reviewed this quarterly report on Form 10-Q of LDM Technologies,
Inc. ("the registrant");
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly 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 quarterly 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-14 and 15d-14) for the registrant and
we have:
a. designed such disclosure controls and procedures 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 quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
registrant's board of directors:
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weakness in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The Company's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
By: /s/ G.E. Borushko
------------------------------------
Gary E. Borushko
Chief Financial Officer
May 1, 2003
23
10-Q EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
EX-99.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
EX-99.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
24