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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 December 21, 2003
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 333-21819
LDM TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MICHIGAN 38-2690171
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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 [ ] No [X]
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 of common stock outstanding as of January 23, 2004: 600
Total pages: 25
Listing of exhibits: 20
1
LDM TECHNOLOGIES, INC.
INDEX
Page No.
------------
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets, December 21, 2003 and
September 28, 2003 3
Condensed Consolidated Statements of Operations, three months
ended December 21, 2003 and December 22, 2002 4
Condensed Consolidated Statements of Cash Flows, three months ended
December 21, 2003 and December 22, 2002 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 15
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK 18
ITEM 4 DISCLOSURE CONTROLS AND PROCEDURES 18
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 Holders Not applicable
Item 5 Other Information 19
Signature Page 19
Item 6 Exhibits and Reports on Form 8-K 20
Certifications 22
2
LDM TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets
(dollars in thousands)
DECEMBER 21, 2003 SEPTEMBER 28, 2003
(UNAUDITED) (NOTE)
------------------ ------------------
ASSETS
Current assets:
Cash $ 281 $ 578
Accounts receivable 67,612 71,580
Raw materials 7,794 8,158
Work in process 1,545 1,513
Finished goods 7,613 7,445
Available for sale securities 11,800 12,900
Mold costs 3,437 3,679
Prepaid expenses 2,449 2,417
Income taxes refundable 1,006
Deferred income taxes 2,146 1,916
------------ ------------
Total current assets 104,677 111,192
Net property, plant and equipment 73,766 78,039
Goodwill 50,152 50,152
Debt issue costs, net 2,235 2,533
Other assets 274 305
------------ ------------
Totals $ 231,104 $ 242,221
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 41,438 $ 46,857
Accrued liabilities 9,436 10,069
Accrued mold costs 4,510 5,963
Accrued interest 5,148 2,555
Accrued compensation 4,946 6,761
Income taxes payable 1,224
Current maturities of long-term debt 10,325 10,325
------------ ------------
Total current liabilities 77,027 82,530
Lines of credit and revolving debt 5,478 11,194
Long-term debt due after one year 126,090 128,196
Deferred income taxes 4,439 4,482
STOCKHOLDERS' EQUITY
Common stock (par value; $.10, issued
and outstanding 600 shares, authorized
100,000 shares)
Additional paid-in capital 94 94
Retained earnings 15,226 12,315
Accumulated other comprehensive income 2,750 3,410
------------ ------------
Total stockholders' equity 18,070 15,819
------------ ------------
Totals $ 231,104 $ 242,221
============ ============
Note: The balance sheet at September 28, 2003 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
------------------------------------------
December 21, 2003 December 22, 2002
--------------------- -------------------
Net sales $ 105,729 $ 108,285
Cost of sales 86,651 89,848
------------ ------------
Gross margin 19,078 18,437
Selling, general and administrative expenses 10,259 9,704
------------ ------------
Operating profit 8,819 8,733
Interest expense (3,390) (3,533)
Equity in income of affiliates, net 100
Gain (loss) on disposal of property, plant
and equipment (226) 9
International currency exchange losses (222) (106)
Other income 32 461
------------ ------------
Income before income taxes 5,013 5,664
Provision for income taxes 2,102 2,352
------------ ------------
Net income $ 2,911 $ 3,312
============ ============
See notes to condensed consolidated financial statements.
4
LDM TECHNOLOGIES, INC.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited)
Three Months Ended
-------------------------------------
December 21, December 22,
2003 2002
-------------- --------------
Net cash provided by operating activities $ 8,366 $ 20,025
Cash flows from investing activities
Additions to property, plant and equipment (1,011) (1,984)
Proceeds from disposal of property, plant and equipment 170 17
------------ ------------
Net cash used for investing activities (841) (1,967)
Cash flows from financing activities
Payments on long-term debt (2,106) (2,107)
Net repayments on line of credit and revolving debt (5,716) (16,207)
Costs associated with debt acquisition (73)
------------ ------------
Net cash used for financing activities (7,822) (18,387)
------------ ------------
Net cash change (297) (329)
Cash at beginning of period 578 932
------------ ------------
Cash at end of period $ 281 $ 603
============ ============
Supplemental information
Total depreciation and amortization $ 4,888 $ 5,225
============ ============
See notes to condensed consolidated financial statements.
5
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 month periods ending December 21,
2003 and December 22, 2002 are not necessarily indicative of the results that
may be expected for the year ending September 26, 2004. 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 28, 2003.
The Company closed its quarters ended December 21, 2003 and December 22, 2002
one week early to allow for the Christmas holiday and automotive shutdown. Both
quarters contain 12 weeks.
During fiscal year 2003, the Financial Accounting Standards Board ("FASB")
issued FASB Statement 150, Accounting for Certain instruments with
Characteristics of Both Liabilities and Equity, and FASB Interpretation 46
(Revised December 2003), Consolidation of Variable Interest Entities.
FASB Statement 150 requires that financial instruments, including common stock,
that are issued in the form of shares that are mandatorily redeemable on a fixed
or determinable date or upon an event certain to occur be classified as
liabilities. FASB Statement 150 is required to be adopted in the second quarter
of fiscal 2004 by the Company. As described in Note 11 to the Company's
consolidated financial statements in its Form 10-k for fiscal year ended
September 28, 2003, upon the death of either of the Company's shareholders, the
Company is required to purchase the stock of such shareholder. Under the current
capital structure, upon adoption of FASB Statement 150, the Company's
stockholders' equity would be reclassified within the liability section of the
balance sheet as "shares subject to mandatory redemption."
FASB Interpretation 46 requires the consolidation of entities in which an
enterprise absorbs a majority of the entity's expected losses, receives a
majority of the entity's expected residual returns, or both, as a result of
ownership or contractual or other financial interests in the entity. Currently,
entities are generally consolidated by enterprise when the enterprise has a
significant controlling financial interest through ownership of a majority
voting interest in the entity.
For transactions in place prior to January 1, 2004, FASB Interpretation 46 is
required to be adopted by the Company no later than the beginning of the first
annual period beginning after December 15, 2004 (beginning of the Company's
fiscal 2006 year). The Company is in the process of evaluating the effects of
FASB Interpretation 46. Based upon the in process review, the Company believes
that its existing lease with a related party for the McAllen facility (see Note
8 to the Company's consolidated financial statements in its Form 10-K for its
fiscal year ended September 28, 2003) and its 49% equity interest in, as well as
a subordinated note from, DBM Technologies, LLC (see Note 12 of the Company's
10-K for fiscal year ended September 28, 2003) are within the scope of FASB
Interpretation 46. As currently structured, such entities would likely require
consolidation by the Company upon adoption of FASB Interpretation 46. As of
December 31, 2003, DBM Technologies, LLC had third party assets and liabilities
of approximately $23.4 million and $23.9 million, respectively. As of December
21, 2003, the Company's non-cancellable lease payments for the McAllen facility
approximated $2.0 million.
For transactions subsequent to December 31, 2003 the effects of FASB
Interpretation 46 apply immediately.
6
LDM TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
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 28, 2003.
3. Derivative Financial Instruments
The Company's fair values of the swap and the collar (see Note 1 to the
Company's consolidated financial statements in its Form 10-K for the fiscal year
ended September 28, 2003) 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 reflected the
fair value of these derivatives as a liability of $3.6 million, which is
included as a component of accrued liabilities. The change in fair value for the
three months ended December 21, 2003, and three months ended December 22, 2002
resulted in income of $74 thousand and $449 thousand, respectively, which has
been included as a component of other income (expense), net.
4. Income Taxes
The effective tax rate for the first quarter of 2004 was 41.9% compared to 41.5%
for the first quarter 2003. 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.
5. Accumulated Comprehensive Income
The Company's investment in Sunningdale Precision Industries Ltd.
("Sunningdale") is treated as an available for sale security, with unrealized
gains or losses in market value recorded as other comprehensive income (loss) in
LDM's stockholders' equity. As of December 21, 2003, the unrealized pretax gain
on the available for sale security was $4,200 ($2,750 net of tax). Other
comprehensive loss for the quarter ended December 21, 2003 was $1,100 million
($660 net of tax).
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 one of the Company's shareholders. The leased
facility is approximately 73,000 square feet in size 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. For the first quarter in
fiscal years 2004 and 2003, the Company paid rentals for the same facility of
approximately $75 thousand.
7
LDM TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
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 the 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
Mr. Nash and $25.0 million on the life of Mr. Balous, the Company's two
shareholders. The annual premiums for such policies of insurance are
approximately $1.3 million. The Company is prohibited from assigning, pledging
or borrowing against these life insurance policies without the consent of the
insured shareholder.
7. Event Subsequent to September 28, 2003
On December 18, 2003, the shareholders of the Company entered into a definitive
agreement to sell all of their shares of the Company to Plastech Engineered
Products, Inc. The consummation of the transaction is subject to regulatory
approval and other customary closing conditions. The transaction is anticipated
to close in February 2004.
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 Notes 6 and 7 to the Company's
consolidated financial statements in its Form 10-K for fiscal year ended
September 28, 2003, are obligations of LDM Technologies, Inc. The obligations
are guaranteed fully, unconditionally and jointly and severally by LDM Canada, a
wholly owned subsidiary, and certain holding company subsidiaries.
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 December 21, 2003 (Unaudited)
(dollars in thousands)
LDM Consolidating
Technologies, Inc. LDM Canada Entries Consolidated
-------------------- -------------- ---------------- --------------
ASSETS
Current assets:
Cash $ 111 $ 170 $ 281
Accounts receivable 62,125 5,487 67,612
Raw materials 6,804 990 7,794
Work in process 1,390 155 1,545
Finished goods 7,508 105 7,613
Available for sale securities 11,800 11,800
Mold costs 3,411 26 3,437
Prepaid expenses 2,405 44 2,449
Deferred income taxes 2,146 2,146
------------ ------------ ------------ ------------
Total current assets 97,700 6,977 104,677
Net property, plant and equipment 66,184 7,582 73,766
Investment in subsidiaries and affiliates 681 $ (681)
Note receivable affiliates 10,072 583 (10,655)
Goodwill 50,152 50,152
Debt issue costs 2,235 2,235
Other 274 274
------------ ------------ ------------ ------------
$ 227,298 $ 15,142 $ (11,336) $ 231,104
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 38,519 $ 3,506 $ (587) $ 41,438
Accrued liabilities 9,248 188 9,436
Accrued mold costs 4,470 40 4,510
Accrued interest 5,148 5,148
Accrued compensation 4,542 404 4,946
Income taxes payable 969 255 1,224
Current maturities of long-term debt 10,325 10,325
------------ ------------ ------------ ------------
Total current liabilities 73,221 4,393 (587) 77,027
Lines of credit and revolving debt 5,478 5,478
Long-term debt due after one year 126,090 10,068 (10,068) 126,090
Deferred income taxes 4,439 4,439
Stockholders' equity:
Common stock
Additional paid-in capital 94 5,850 (5,850) 94
Retained earnings 15,226 (5,169) 5,169 15,226
Accumulated other comprehensive income 2,750 2,750
------------ ------------ ------------ ------------
Total stockholders' equity 18,070 681 (681) 18,070
------------ ------------ ------------ ------------
Total liabilities and stockholders' equity $ 227,298 $ 15,142 $ (11,336) $ 231,104
============ ============ ============ ============
9
LDM TECHNOLOGIES, INC.
Condensed Consolidating Balance Sheet as of September 28, 2003 (Unaudited)
(dollars in thousands)
LDM Consolidating
Technologies, Inc. LDM Canada Entries Consolidated
-------------------- -------------- ---------------- --------------
ASSETS
Current assets:
Cash $ 112 $ 466 $ 578
Accounts receivable 63,690 7,890 71,580
Raw materials 6,666 1,492 8,158
Work in process 1,282 231 1,513
Finished goods 7,357 88 7,445
Available for sale securities 12,900 12,900
Mold costs 3,653 26 3,679
Prepaid expenses 2,312 105 2,417
Income taxes refundable 1,006 1,006
Deferred income taxes 1,861 55 1,916
------------ ------------ ------------ ------------
Total current assets 100,839 10,353 111,192
Net property, plant and equipment 69,893 8,146 78,039
Investment in subsidiaries and affiliates 1,685 $ (1,685)
Note receivable affiliates 10,377 45 (10,422)
Goodwill 50,152 50,152
Debt issue costs 2,533 2,533
Other 305 305
------------ ------------ ------------ ------------
$ 235,784 $ 18,544 $ (12,107) $ 242,221
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 41,011 $ 6,200 $ (354) $ 46,857
Accrued liabilities 9,825 244 10,069
Accrued mold costs 5,923 40 5,963
Accrued interest 2,555 2,555
Accrued compensation 6,454 307 6,761
Current maturities of long-term debt 10,325 10,325
------------ ------------ ------------ ------------
Total current liabilities 76,093 6,791 (354) 82,530
Lines of credit and revolving debt 11,194 11,194
Long-term debt due after one year 128,196 10,068 (10,068) 128,196
Deferred income taxes 4,482 4,482
Stockholders' equity:
Common stock
Additional paid-in capital 94 5,850 (5,850) 94
Retained earnings 12,315 (4,165) 4,165 12,315
Accumulated other comprehensive income 3,410 3,410
------------ ------------ ------------ ------------
Total stockholders' equity 15,819 1,685 (1,685) 15,819
------------ ------------ ------------ ------------
Total liabilities and stockholders' equity $ 235,784 $ 18,544 $ (12,107) $ 242,221
============ ============ ============ ============
10
LDM TECHNOLOGIES, INC.
Condensed Consolidating Statement of Operations for Three Months ended
December 21, 2003 (Unaudited)
(dollars in thousands)
LDM Consolidating
Technologies, Inc. LDM Canada Entries Consolidated
-------------------- -------------- ---------------- --------------
Net sales $ 97,636 $ 8,093 $ 105,729
Cost of Sales 78,110 8,541 86,651
------------ ------------ ------------ ------------
Gross Margin 19,526 (448) 19,078
Selling, general and administrative
expenses 10,184 75 10,259
------------ ------------ ------------ ------------
Operating profit 9,342 (523) 8,819
Interest expense (3,362) (263) $ 235 (3,390)
Other income (expense), net 263 4 (235) 32
Loss on disposal of property, plant
and equipment (226) (226)
International currency exchange losses (222) (222)
Equity in net loss of subsidiary (1,004) 1,004
------------ ------------ ------------ ------------
Income (loss) before income taxes 5,013 (1,004) 1,004 5,013
Provision for income taxes 2,102 2,102
------------ ------------ ------------ ------------
Net income (loss) $ 2,911 $ (1,004) $ 1,004 $ 2,911
============ ============ ============ ============
11
LDM TECHNOLOGIES, INC.
Condensed Consolidating Statement of Operations for Three Months ended
December 22, 2002 (Unaudited)
(dollars in thousands)
LDM Consolidating
Technologies, Inc. LDM Canada Entries Consolidated
-------------------- -------------- ---------------- --------------
Net sales $ 100,970 $ 7,315 $ 108,285
Cost of Sales 82,712 7,136 89,848
------------ ------------ ------------ ------------
Gross Margin 18,258 179 18,437
Selling, general and administrative
expenses 9,649 55 9,704
------------ ------------ ------------ ------------
Operating profit 8,609 124 8,733
Interest expense (3,507) (253) $ 227 (3,533)
Other income (expense), net 682 6 (227) 461
Gain on disposal of property, plant
and equipment 9 9
International currency exchange losses (106) (106)
Equity in net income (loss) of
subsidiaries and affiliates (129) 229 100
------------ ------------ ------------ ------------
Income (loss) before income taxes 5,664 (229) 229 5,664
Provision for income taxes 2,352 2,352
------------ ------------ ------------ ------------
Net income (loss) $ 3,312 $ (229) $ 229 $ 3,312
============ ============ ============ ============
12
LDM TECHNOLOGIES, INC.
Condensed Consolidating Statement of Cash Flows for Three Months Ended
December 21, 2003 (Unaudited)
(dollars in thousands)
LDM
Technologies, LDM
Inc. Canada Consolidated
------------- ---------- -------------
Net cash provided by operating activities $ 8,357 $ 9 $ 8,366
Cash flows from investing activities
Additions to property, plant and equipment (1,011) (1,011)
Proceeds from sale of property, plant and equipment 170 170
---------- ---------- ----------
Net cash used for investing activities (841) (841)
Cash flows from financing activities
Payments (to)/from affiliates 305 (305)
Payments on long-term debt (2,106) (2,106)
Net repayments on line of credit and revolving debt (5,716) (5,716)
---------- ---------- ----------
Net cash used for financing activities (7,517) (305) (7,822)
---------- ---------- ----------
Net cash change (1) (296) (297)
Cash at beginning of period 112 466 578
---------- ---------- ----------
Cash at end of period $ 111 $ 170 $ 281
========== ========== ==========
Supplemental information:
Depreciation and amortization $ 4,324 $ 564 $ 4,888
========== ========== ==========
13
LDM TECHNOLOGIES, INC.
Condensed Consolidating Statement of Cash Flows for Three Months Ended
December 22, 2002 (Unaudited)
(dollars in thousands)
LDM
Technologies, LDM
Inc. Canada Consolidated
------------- ---------- -------------
Net cash provided (used) by operating activities $ 20,325 $ (300) $ 20,025
Cash flows from investing activities
Additions to property, plant and equipment (1,942) (42) (1,984)
Proceeds from sale of property, plant and equipment 17 17
---------- ---------- ----------
Net cash used by investing activities (1,925) (42) (1,967)
Cash flows from financing activities
Borrowing (to)/from affiliates (94) 94
Costs associated with debt acquisition (73) (73)
Payments on long-term debt (2,107) (2,107)
Net repayments on line of credit borrowings (16,207) (16,207)
---------- ---------- ----------
Net cash provided (used) by financing activities (18,481) 94 (18,387)
---------- ---------- ----------
Net cash change (81) (248) (329)
Cash at beginning of period 683 249 932
---------- ---------- ----------
Cash at end of period $ 602 $ 1 $ 603
========== ========== ==========
Supplemental information:
Depreciation and amortization $ 4,627 $ 598 $ 5,225
========== ========== ==========
14
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.
DEFINITIVE SALE AGREEMENT WITH PLASTECH
On December 18, 2003, the shareholders of the Company entered into a definitive
agreement to sell all of their shares of the Company to Plastech Engineered
Products, Inc. The consummation of the transaction is subject to regulatory
approval and other customary closing conditions. The transaction is anticipated
to close in February 2004.
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 28, 2003. 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 December 21, 2003 and represented
approximately 21.7% 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 adopted Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets. Under the new 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 each of its reporting units with goodwill. 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
15
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 December 21, 2003, the Company had
net deferred tax liabilities, after valuation allowances, of $2.3 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 $2.1 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.
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 December 21, 2003 and September
28, 2003 was $0.5 million.
PENDING ACCOUNTING PRONOUNCEMENTS
During fiscal year 2003, the Financial Accounting Standards Board ("FASB")
issued FASB Statement 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity, and FASB Interpretation 46
(Revised December 2003), Consolidation of Variable Interest Entities.
FASB Statement 150 requires that financial instruments, including common stock,
that are issued in the form of shares that are mandatorily redeemable on a fixed
or determinable date or upon an event certain to occur be classified as
liabilities. FASB Statement 150 is required to be adopted in the second quarter
of fiscal 2004 by the Company. As described in Note 11 to the Company's
consolidated financial statements in its Form 10-K for fiscal year ended
September 28, 2003, upon the death of either of the Company's shareholders, the
Company is required to purchase the stock of such shareholder. Under the current
capital structure, upon adoption of FASB Statement 150, the Company's
stockholders' equity would be reclassified within the liability section of the
balance sheet as "shares subject to mandatory redemption."
FASB Interpretation 46 requires the consolidation of entities in which an
enterprise absorbs a majority of the entity's expected losses, receives a
majority of the entity's expected residual returns, or both, as a result of
ownership or contractual or other financial interests in the entity. Currently,
entities are generally consolidated by an enterprise when the enterprise has a
controlling financial interest through ownership of a majority voting interest
in the entity.
For transactions in place prior to January 1, 2004, FASB Interpretation 46 is
required to be adopted by the Company no later than the beginning of the first
annual period beginning after December 15, 2004 (beginning of the Company's
fiscal 2006 year). The Company is in the process of evaluating the effects of
FASB Interpretation 46. Based upon the in process review, the Company believes
that its existing lease with a related party for the McAllen facility (see Note
8 to the Company's consolidated financial statements in its Form 10-K for fiscal
year ended September 28, 2003) and its 49% equity interest in, as well as a
subordinated note from, DBM Technologies, LLC (see Note 12 to the Company's
consolidated financial statements in its Form 10-K for fiscal year ended
September 28, 2003) are within the scope of FASB Interpretation 46. As currently
structured, such entities likely require consolidation by the Company upon
adoption of FASB Interpretation 46. As of December 21, 2003, DBM Technologies,
LLC had third
16
party assets and liabilities of approximately $23.4 million and $23.9 million,
respectively. As of December 21, 2003, the Company's non-cancellable lease
payments for the McAllen facility approximated $2.0 million.
For transactions subsequent to December 31, 2003 the effects of FASB
Interpretation 46 apply immediately.
RESULTS OF OPERATIONS
The Company closed its quarters ended December 21, 2003 and December 22, 2002
one week early to allow for the Christmas holiday and automotive shutdown. Both
quarters contain 12 weeks.
QUARTER ENDED DECEMBER 21, 2003 COMPARED TO THE QUARTER ENDED DECEMBER 22, 2002
Net sales for the quarter ended December 21, 2003 ("first quarter 2004") were
$105.7 million, a decrease of $2.6 million or 2.4% from the quarter ended
December 22, 2002 ("first quarter 2003"). The decrease in net sales is due to
reduced requirements from the Company's customers.
Gross margin was $19.1 million or 18.0% of net sales for the first quarter 2004
compared to $18.4 million or 17.0% of net sales for the first quarter 2003. The
gross margin improvement is due to continued process improvements and
elimination of unused capacity at the Company's manufacturing facilities.
Selling, General and Administrative (SG&A) expense for the first quarter 2004
was $10.3 million, or 9.7% of net sales compared to $9.7 million, or 9.0% of net
sales for the first quarter of 2003. Expense has increased due to continued
investment in advanced product design and engineering resources.
Interest expense for the first quarter 2004 was $3.4 million compared to $3.5
million for the first quarter 2003. The decrease in interest expense is due to
scheduled debt repayments and lower average borrowings outstanding on the
Company's line of credit.
Income taxes: The effective tax rate for the first quarter of 2004 was 41.9%
compared to 41.5% for the first quarter 2003. 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 December 21, 2003, the Company had $126.1 million of
long-term debt outstanding, $15.8 million of revolving loans and current
maturities of long-term debt outstanding, and $34.4 million of borrowing
availability under its revolving credit facility.
Cash provided by operating activities in first quarter 2004 was $8.4 million
compared to $20.0 million in first quarter 2003. The decrease is due to the
timing of accounts receivable reimbursement in first quarter 2003. Approximately
$15 million in customer payments, expected to be received in late September
2002, were received instead in early October 2002. The swing in cash payments
relates to one customer. Payment terms related to this customer were revised
from receiving funds on the 28th of each month to the 2nd of the subsequent
month.
Capital expenditures for first quarter 2004 were $1.0 million compared to $2.0
million for first quarter 2003. The Company believes its capital expenditures
will be approximately $12 million in fiscal year 2004. The majority of the
Company's fiscal year 2004 capital expenditures will be used to refresh current
equipment and facilitate new programs launching in fiscal year 2004.
17
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. This payment, paid in January 2004, was $1.8 million.
The following information summarizes the Company's significant contractual cash
obligations and other commercial commitments at December 21, 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 $136,415 $10,325 $13,360 $107,765 $4,965
Lines of Credit 5,478 5,478
Operating Leases 40,845 12,650 11,144 8,847 8,204
-------- ------- ------- -------- -------
Total Contractual Cash Obligations $182,738 $22,975 $29,982 $116,612 $13,169
======== ======= ======= ======== =======
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 $42,250 $42,250
Standby Letters of Credit 15,272 15,272
------- -------
Total Commercial Commitments $57,522 $57,522
======= =======
Refer also to the discussion regarding the pending effects of FASB Statement 150
and shares subject to mandatory redemption.
The Company's liquidity is affected by both the cyclical nature of its business
and the level 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. However, 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.
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 28, 2003.
Item 4: DISCLOSURE CONTROLS AND PROCEDURES
As of December 21, 2003, 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 reports 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.
18
Item 5: Other Information
On December 18, 2003, the shareholders of the Company entered into a definitive
agreement to sell all of their shares of the Company to Plastech Engineered
Products, Inc. The consummation of the transaction is subject to regulatory
approval and other customary closing conditions. The transaction is anticipated
to close in February 2004.
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: January 27, 2004
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Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. EXHIBIT DESCRIPTION
31.1 Certification of the Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
The registrant filed a report on Form 8-K dated December 22, 2003 related to a
definitive agreement entered into to purchase all of the Company's outstanding
stock with Plastech Engineered Products, Inc.
20
10-Q EXHIBIT INDEX
EXHIBIT NO: DESCRIPTION
EX-31.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
EX-31.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
EX-32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
21