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UNITED STATES
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 SEPTEMBER 30, 2004
or
[ ] 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 333-119215
AUTOCAM CORPORATION
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Michigan 38-2790152
- ------------------------------------------------ -----------------------
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER
ORGANIZATION) IDENTIFICATION NO.)
4070 East Paris Avenue Southeast
Kentwood, Michigan 49512
- ---------------------------------------------- -----------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (616) 698-0707
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 [ ] 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]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 12, 2004
------------------------------ ------------------------------------
COMMON STOCK, $10 PAR VALUE 14,340,000 SHARES
INDEX
PAGE NO.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 2003 and September 30, 2004 1
Consolidated Statements of Operations and Comprehensive Income (Loss)
for the Three and Nine Months Ended September 30, 2003 and 2004 2
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2003 and 2004 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures about Market Risk 24
Item 4. Disclosure Controls and Procedures 25
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities 25
Item 3. Defaults Upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Securities Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K - Certifications 26
Signatures 27
Exhibit 31.1 - CEO Certification
Exhibit 31.2 - CFO Certification
Exhibit 32.1 - CEO Certification
Exhibit 32.2 - CFO Certification
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TITAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
DECEMBER 31, SEPTEMBER 30,
2003 2004
---- ----
(predecessor) (successor)
Amounts in thousands, except share information
Assets
Current assets:
Cash and equivalents $ 1,075 $ 2,075
Accounts receivable, net of allowances of $484 and $420, respectively 55,484 60,013
Inventories 25,802 31,190
Prepaid expenses and other current assets 3,090 3,583
-------- --------
Total current assets 85,451 96,861
Property, plant and equipment, net 173,580 155,679
Goodwill 139,446 253,557
Other long-term assets 10,598 16,668
-------- --------
Total Assets $409,075 $522,765
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term obligations $ 29,748 $ 7,117
Accounts payable 47,246 41,493
Accrued liabilities 15,017 22,410
-------- --------
Total current liabilities 92,011 71,020
-------- --------
Long-term obligations, net of current maturities 104,140 260,758
Deferred taxes and other 50,596 42,681
Shareholders' equity:
Series A preferred stock - $.01 par value; 600,000 shares authorized; 579,112 shares
issued and outstanding as of December 31, 2003 6
Series B preferred stock - $.01 par value; 400,000 shares authorized; 110,364 shares
issued and outstanding as of December 31, 2003 1
Common stock - $.01 par value; 8,000,000 shares authorized; 6,480,895 shares issued
and outstanding as of December 31, 2003 65
Common stock - $10 par value; 20,000,000 shares authorized; 14,340,000
shares issued and outstanding as of September 30, 2004 143,400
Additional paid-in capital 137,824
Accumulated other comprehensive income 2,178 5,046
Retained earnings (accumulated deficit) 22,254 (140)
-------- --------
Total shareholders' equity 162,328 148,306
-------- --------
Total Liabilities and Shareholders' Equity $409,075 $522,765
======== ========
See notes to consolidated financial statements.
1
TITAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SIX MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
2003 2003 2004 2004
---- ---- ---- ----
(predecessor) (successor)
----------------------------------------------------------
Amounts in thousands
Sales $73,154 $239,983 $ 184,489 $80,249
Cost of sales 64,216 207,086 153,426 68,348
-------- -------- --------- --------
Gross profit 8,938 32,897 31,063 11,901
Selling, general and administrative expenses 4,356 13,079 17,337 5,244
-------- -------- --------- --------
Income from operations 4,582 19,818 13,726 6,657
Interest expense, net 2,234 7,161 4,666 5,705
Other expenses, net 2,298 4,095 3,672 681
-------- -------- --------- --------
Income before tax provision 50 8,562 5,388 271
Tax provision 166 3,672 3,211 411
-------- -------- --------- --------
Net Income (Loss) ($ 116) $ 4,890 $ 2,177 ($ 140)
======== ======== ========= ========
Statements of Comprehensive Income (Loss):
Net income (loss) ($ 116) $ 4,890 $ 2,177 ($ 140)
Other comprehensive income (loss):
Foreign currency translation adjustments 24 3,496 (1,138) 5,046
Amortization of interest rate agreements 67 202 135
-------- -------- --------- --------
Comprehensive Income (Loss) ($ 25) $ 8,588 $ 1,174 $ 4,906
======== ======== ========= ========
See notes to consolidated financial statements.
2
TITAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SIX MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
2003 2004 2004
---- ---- ----
(predecessor) (successor)
----------------------------------------
Amounts in thousands
Net cash provided by (used in) operating activities $ 28,009 $ 10,694 ($ 409)
Cash flows from investing activities:
Expenditures for property, plant and equipment (16,634) (10,676) (5,487)
Proceeds from sale of property, plant and equipment 6,018 808 333
Other (1,434) (339) 307
------------ ------------ ------------
Net cash used in investing activities (12,050) (10,207) (4,847)
------------ ------------ ------------
Cash flows from financing activities:
Borrowings (repayments) on lines of credit, net (1,146) (3,531) 2,000
Proceeds from issuance of long-term obligations 549 247,248 270
Principal payments of long-term obligations (19,712) (109,940) (1,529)
Payments to shareholders and option holders (232,663)
Shareholder contributions 115,400
Debt issue costs (10,855) (675)
------------ ------------ ------------
Net cash provided by (used in) financing activities (20,309) 5,659 66
------------ ------------ ------------
Effect of exchange rate changes on cash and equivalents (22) (18) 62
------------ ------------ ------------
Increase (decrease) in cash and equivalents (4,372) 6,128 (5,128)
Cash and equivalents at beginning of period 4,996 1,075 7,203
------------ ------------ ------------
Cash and Equivalents at End of Period $ 624 $ 7,203 $ 2,075
============ ============ ============
See notes to consolidated financial statements.
3
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial statements (the
"Financial Statements") include the accounts of Titan Holdings, Inc. ("Titan")
and its subsidiaries (together, the "Company"), which includes Autocam
Corporation ("Autocam"), a wholly-owned subisidary. The Financial Statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America ("GAAP") for interim financial information.
Accordingly, they do not include all the information and footnotes normally
included in the annual consolidated financial statements prepared in accordance
with GAAP. All significant intercompany accounts and transactions have been
eliminated in consolidation. All currency amounts within these footnotes are
expressed in thousands of U.S. dollars unless otherwise noted.
In the opinion of management, the Financial Statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
such information in accordance with generally accepted accounting principles.
On June 21, 2004, Micron Merger Corporation, a newly formed entity and
wholly-owned subsidiary of Micron Holdings, Inc. ("Micron"), merged with and
into Titan with Titan continuing as the surviving corporation (the
"Acquisition"). As a result, Titan became a wholly-owned subsidiary of Micron.
The total amount of consideration paid in the Acquisition, including amounts
related to the repayment of indebtedness, the redemption of the outstanding
preferred stock of Titan, payments to common shareholders of Titan and the
payment of transaction costs incurred by Titan, was $395,000. The Acquisition
was financed with the net proceeds from the issuance of $140,000 of senior
subordinated notes of the Company, which are guaranteed by Titan (the "Notes"),
borrowings under the Company's new senior credit facilities of $114,000 and
combined common equity contributions of $143,400 by GS Capital Partners 2000,
L.P. ("GSCP 2000"), other private equity funds affiliated with GSCP 2000,
Transportation Resource Partners LP ("TRP"), other investment vehicles
affiliated with TRP, and certain of the Company's management.
Successor periods - Represents the consolidated financial position and
consolidated results of operations and cash flows of the Company reflecting the
basis of accounting after purchasing accounting for the Acquisition.
Predecessor periods - Represents the consolidated financial position and results
of operations and cash flows of the Company reflecting the historical basis of
accounting without any application of purchase accounting for the Acquisition.
Stock-based compensation -- The Company applies Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations, in accounting for its stock-based compensation plan. This plan
was terminated in connection with the Acquisition. Under APB No. 25, no
stock-based employee compensation cost is reflected in the results of operations
as all options granted under this plan had an exercise price equal to the
estimated market value of the underlying common stock on the date of the grant.
Had stock-based employee compensation cost of the Company's stock option plan
been determined based upon the fair value at the grant dates for awards under
this plan consistent with the method of Statement of Financial Accounting
Standard ("SFAS") No. 123, Accounting for Stock-Based Compensation, as amended
by SFAS No. 148, Accounting for Stock-Based Compensation -- Transition and
Disclosure, the Company's net income (loss) would have changed to the pro forma
amounts indicated below:
4
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2004
(UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES - CONCLUDED
THREE MONTHS NINE MONTHS SIX MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
2003 2003 2004
---- ---- ----
(predecessor)
----------------------------------------------------------------
As reported ($ 116) $ 4,890 $ 2,177
Compensation expense, net of related tax effects (140) (420) (280)
-------- --------- --------
Pro forma ($ 256) $ 4,470 $ 1,897
======== ========= ========
The fair value value approach was used to value all option grants, with the
following weighted-average assumptions: risk-free interest rate, 4%-4.88%; and
expected life of options, 10 years.
Guarantees -- The Company guarantees the performance under certain equipment
leases of an unrelated vendor that provides services to the Company within one
of the Company's European production facilities. The cost associated with those
services is reflected in Cost of Sales. The obligations under these leases end
at various times between May 2004 and February 2009. At December 31, 2003 and
September 30, 2004, the Company's maximum liability under these guarantees was
$6,494 and $5,252, respectively, which were not recorded in the Financial
Statements. In the event of default by the vendor, the Company would become
primarily responsible for the lease obligations and assume control of the
equipment subject to the lease which has a fair market value in excess of the
present value of the future minimum lease payments.
2. BUSINESS COMBINATION
The Acquisition described in Note 1 was accounted for as a purchase, and
accordingly, the purchase price was allocated to assets acquired and liabilities
assumed based upon their preliminary relative fair market values. Cost in excess
of the fair value of the net assets acquired (goodwill) was $249,371, allocated
among the Company's operating segments as follows: North America - $116,227,
Europe - $124,486 and South America - $8,658. Goodwill deductible for tax
purposes will be approximately $4,200. The results of operations and cash flows
of Titan (as Predecessor company) have been reported through June 30, 2004.
Set forth below are unaudited pro forma statements of operations information for
the nine months ended September 30, 2003 and the six months ended June 30, 2004,
which are based upon the historical Consolidated Statements of Operations of the
Company for those periods after giving effect to the Acquisition as if such
transaction had occurred at the beginning of each period presented. These pro
forma results are based upon assumptions considered appropriate by Company
management and include adjustments as considered necessary in the circumstances.
Such adjustments include interest expense that would have been incurred to
finance the purchase, depreciation expense based on the fair market value of the
property and equipment acquired and the corresponding tax effects of each. These
pro forma results have been prepared for comparative purposes only and do not
purport to be indicative of results which would have actually been reported had
the Acquisition taken place at the beginning of each period presented or which
may be reported in the future.
5
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2004
(UNAUDITED)
2. BUSINESS COMBINATION - CONCLUDED
NINE MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, JUNE 30,
2003 2004
---- ----
Sales $239,983 $184,489
Net income 309 6,649
3. INVENTORIES
Set forth below are the components of Inventories:
DECEMBER 31, SEPTEMBER 30,
2003 2004
---- ----
(predecessor) (successor)
Raw materials $ 7,664 $ 9,358
Production supplies 4,836 5,987
Work in-process 9,336 11,631
Finished goods 3,966 4,214
---------- ----------
Total Inventories $ 25,802 $ 31,190
========== ==========
4. PROPERTY, PLANT AND EQUIPMENT, NET
Set forth below are the components of Property, Plant and Equipment, Net:
DECEMBER 31, SEPTEMBER 30,
2003 2004
---- ----
(predecessor) (successor)
Buildings and land $ 14,222 $ 9,771
Machinery and equipment 210,273 139,990
Furniture and fixtures 8,444 9,134
---------- ----------
Total 232,939 158,895
Accumulated depreciation (59,359) (3,216)
---------- ----------
Total Property, Plant and Equipment, Net $ 173,580 $ 155,679
========== ==========
6
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2004
(UNAUDITED)
4. PROPERTY, PLANT AND EQUIPMENT, NET - CONCLUDED
In connection with the Acquisition, the Company restated the historical cost of
its property, plant and equipment to fair market appraised values and eliminated
all historical accumulated depreciation.
5. LONG-TERM OBLIGATIONS
Set forth below are the components of Long-Term Obligations (percentages
represent interest rates as of September 30, 2004):
DECEMBER 31, SEPTEMBER 30,
2003 2004
---- ----
(predecessor) (successor)
New Senior Credit Facility:
USD term note, 5.0% $ 32,918
Euro term note, 5.12% 76,832
Multi-currency revolving line of credit, 5.0% 13,000
Old senior credit facility retired in connection with the Acquisition $ 124,082
---------- ----------
Total senior credit facility 124,082 122,750
Senior subordinated notes, 10.875%, net of original issue discount 136,954
Capital leases, from 2.14% to 8.13% 6,793 5,523
Other 3,013 2,648
---------- ----------
Total long-term obligations 133,888 267,875
Current portion (29,748) (7,117)
---------- ----------
Long-term portion $ 104,140 $ 260,758
========== ==========
At the time of the Acquisition, Autocam refinanced its former senior credit
facility with proceeds from the financings from the Acquisition. In connection
therewith, Titan and certain, but not all, of the subsidiaries of Autocam fully
and unconditionally guaranteed the Notes.
The following table sets forth the guarantor and non-guarantor subsidiaries of
Autocam with respect to the Notes:
GUARANTOR SUBSIDIARIES NON-GUARANTOR SUBSIDIARIES
---------------------- --------------------------
Autocam-Pax, Inc. Autocam-Har, Inc.
Autocam Acquisition, Inc. Autocam France, SARL
Autocam Laser Technologies, Inc. Frank & Pignard, SA
Autocam International Ltd. Bouverat Industries, SA
Autocam Europe, B.V. Autocam do Brasil Usinagem Ltda.
Autocam International Sales Corporation Autocam Foreign Sales Corporation
Autocam Greenville, Inc.
Autocam South Carolina, Inc.
7
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2004
(UNAUDITED)
5. LONG-TERM OBLIGATIONS - CONTINUED
Information regarding the guarantors and non-guarantors are as follows:
TITAN
COMBINING STATEMENT OF OPERATIONS (PARENT SUBSIDIARIES
THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPANY ---------------------------
(predecessor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- ------------------------------------- ----- -------- --------- ------------- ------------ --------
Sales $27,636 $ 4,521 $42,247 ($ 1,250) $73,154
Cost of sales 24,662 3,676 37,128 (1,250) 64,216
-------- -------- ------- --------
Gross profit 2,974 845 5,119 8,938
Selling, general and administrative expenses 1,634 303 2,419 4,356
-------- -------- ------- --------
Income from operations 1,340 542 2,700 4,582
Interest expense, net 592 151 1,491 2,234
Other expense (income), net $ 9 1,894 (1) 396 2,298
------- -------- -------- ------- --------
Income (loss) before tax provision (9) (1,146) 392 813 50
Tax provision (3) (389) 133 425 166
------- -------- -------- ------- --------
Net Income (Loss) ($ 6) ($ 757) $ 259 $ 388 ($ 116)
======= ======== ======== ======= ========
TITAN
COMBINING STATEMENT OF OPERATIONS (PARENT SUBSIDIARIES
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPANY ---------------------------
(predecessor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- ------------------------------------ ----- ------- --------- ------------- ------------ --------
Sales $88,961 $ 12,666 $142,023 ($ 3,667) $239,983
Cost of sales 76,859 10,263 123,631 (3,667) 207,086
------- -------- -------- --------
Gross profit 12,102 2,403 18,392 32,897
Selling, general and administrative expenses 4,470 950 7,659 13,079
------- -------- -------- --------
Income from operations 7,632 1,453 10,733 19,818
Interest expense, net 1,705 442 5,014 7,161
Other expense (income), net $ 28 2,530 (2) 1,539 4,095
------- ------- -------- -------- --------
Income (loss) before tax provision (28) 3,397 1,013 4,180 8,562
Tax provision (10) 1,182 345 2,155 3,672
------- ------- -------- -------- --------
Net Income (Loss) ($ 18) $ 2,215 $ 668 $ 2,025 $ 4,890
======= ======= ======== ======== ========
8
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2004
(UNAUDITED)
5. LONG-TERM OBLIGATIONS - CONTINUED
TITAN
COMBINING STATEMENT OF OPERATIONS (PARENT SUBSIDIARIES
SIX MONTHS ENDED JUNE 30, 2004 COMPANY ---------------------------
(predecessor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- --------------------------------- ----- ------- --------- ------------- ------------ --------
Sales $64,212 $ 11,061 $112,477 ($ 3,261) $184,489
Cost of sales 55,053 7,848 93,786 (3,261) 153,426
------- -------- -------- --------
Gross profit 9,159 3,213 18,691 31,063
Selling, general and administrative expenses $ 6,438 5,214 591 5,094 17,337
-------- ------- -------- -------- --------
Income (loss) from operations (6,438) 3,945 2,622 13,597 13,726
Interest expense, net 1,472 291 2,903 4,666
Other expense, net 19 2,358 21 1,274 3,672
-------- ------- -------- -------- --------
Income (loss) before tax provision (6,457) 115 2,310 9,420 5,388
Tax provision (2,195) 38 801 4,567 3,211
-------- ------- -------- -------- --------
Net Income (Loss) ($ 4,262) $ 77 $ 1,509 $ 4,853 $ 2,177
======== ======= ======== ======== ========
TITAN
COMBINING STATEMENT OF OPERATIONS (PARENT SUBSIDIARIES
THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPANY ---------------------------
(successor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- ------------------------------------- ----- -------- --------- ------------- ------------ --------
Sales $28,807 $4,342 $48,936 ($ 1,836) $ 80,249
Cost of sales 25,322 3,393 41,469 (1,836) 68,348
-------- ------ ------- ---------
Gross profit 3,485 949 7,467 11,901
Selling, general and administrative expenses 2,453 293 2,498 5,244
-------- ------ ------- ---------
Income from operations 1,032 656 4,969 6,657
Interest expense, net 4,096 150 1,459 5,705
Other expense, net $ 9 358 314 681
---- -------- ------ ------- ---------
Income (loss) before tax provision (9) (3,422) 506 3,196 271
Tax provision (3) (1,166) 177 1,403 411
---- -------- ------ ------- ---------
Net Income (Loss) ($ 6) ($ 2,256) $ 329 $ 1,793 ($ 140)
==== ======== ====== ======= =========
9
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2004
(UNAUDITED)
5. LONG-TERM OBLIGATIONS - CONTINUED
CONDENSED COMBINING STATEMENT TITAN
OF CASH FLOWS (PARENT SUBSIDIARIES
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPANY ---------------------------
(predecessor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR COMBINED
- ------------------------------------ ----- ------- --------- ------------- --------
Net cash provided by (used in) operating activities ($10) $ 6,510 $1,382 $20,127 $ 28,009
Expenditures for property, plant and equipment (6,897) (1,356) (8,381) (16,634)
Proceeds from sale of property, plant and equipment 5,897 1 120 6,018
Borrowings (repayments) on lines of credit, net 5,000 (6,146) (1,146)
Principal payments of long-term obligations (8,493) (11,219) (19,712)
Other (2,304) (27) 1,424 (907)
----- ------- ------ ------- --------
Net increase (decrease) in cash and equivalents (10) (287) (4,075) (4,372)
Cash and equivalents at beginning of period 10 376 2 4,608 4,996
----- ------- ------ ------- --------
Cash and Equivalents at End of Period $ 89 $ 2 $ 533 $ 624
===== ======= ====== ======= ========
CONDENSED COMBINING STATEMENT TITAN
OF CASH FLOWS (PARENT SUBSIDIARIES
SIX MONTHS ENDED JUNE 30, 2004 COMPANY ---------------------------
(predecessor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR COMBINED
- ------------------------------ ----- ------- --------- ------------- --------
Net cash provided by (used in) operating activities ($ 6,457) $ 2,206 $ 207 $ 14,738 $ 10,694
Expenditures for property, plant and equipment (3,880) (205) (6,591) (10,676)
Borrowings (repayments) on lines of credit, net (1,280) 21,829 (24,080) (3,531)
Proceeds from issuance of long-term obligations 169,888 77,360 247,248
Principal payments of long-term obligations (51,268) (58,672) (109,940)
Payments to shareholders and option holders (232,663) (232,663)
Shareholder contributions 115,400 115,400
Dividends received (paid) 125,000 (125,000)
Debt issue costs (10,855) (10,855)
Other (145) 596 451
--------- -------- ----- -------- ----------
Net increase in cash and equivalents 2,775 2 3,351 6,128
Cash and equivalents at beginning of period 750 2 323 1,075
--------- -------- ----- -------- ----------
Cash and Equivalents at End of Period $ 3,525 $ 4 $ 3,674 $ 7,203
========= ======== ===== ======== ==========
10
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2004
(UNAUDITED)
5. LONG - TERM OBLIGATIONS - CONTINUED
CONDENSED COMBINING STATEMENT TITAN
OF CASH FLOWS (PARENT SUBSIDIARIES
THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPANY ----------------------------
(successor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR COMBINED
- ------------------------------------- ----- ------- --------- ------------- --------
Net cash provided by (used in) operating activities ($ 4,574) $ 782 $ 3,383 ($ 409)
Expenditures for property, plant and equipment (815) (783) (3,889) (5,487)
Borrowings on lines of credit, net 2,000 2,000
Proceeds from issuance of long-term obligations 270 270
Principal payments of long-term obligations (82) (1,447) (1,529)
Debt issue costs (675) (675)
Other 737 (35) 702
-------- ----- --------- --------
Net decrease in cash and equivalents (3,409) (1) (1,718) (5,128)
Cash and equivalents at beginning of period 3,525 4 3,674 7,203
-------- ----- --------- --------
Cash and Equivalents at End of Period $116 $ 3 $ 1,956 $ 2,075
======== ===== ========= ========
11
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2004
(UNAUDITED)
TITAN
CONDENSED COMBINING BALANCE SHEET (PARENT SUBSIDIARIES
DECEMBER 31, 2003 COMPANY ---------------------------
(predecessor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- --------------------------------- ----- ------- --------- ------------- ------------ --------
Assets
Current assets:
Cash and equivalents $ 750 $ 2 $ 323 $ 1,075
Accounts receivable, net 13,524 1,757 40,203 55,484
Inventories 8,052 1,060 16,690 25,802
Prepaid expenses and other current assets 1,616 52 1,422 3,090
-------- -------- -------- --------
Total current assets 23,942 2,871 58,638 85,451
Property, plant and equipment, net 40,899 8,945 123,602 $ 134 173,580
Goodwill $122,521 2,688 14,237 139,446
Intercompany receivables (payables) 40,513 (5,863) (33,437) (1,213)
Investment in subsidiaries 9,136 (15,014) (1,806) 9,831 (2,147)
Other long-term assets 7,106 106 3,386 10,598
--------- -------- -------- -------- -------- --------
Total Assets $131,657 $100,134 $ 4,253 $176,257 ($ 3,226) $409,075
========= ======== ======== ======== ======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term obligations $ 4,656 $ 25,092 $ 29,748
Accounts payable 8,255 $ 290 38,906 ($ 205) 47,246
Accrued liabilities ($ 5) 3,062 238 11,722 15,017
--------- -------- -------- -------- -------- --------
Total current liabilities (5) 15,973 528 75,720 (205) 92,011
--------- -------- -------- -------- -------- --------
Long-term obligations, net of current maturities 50,612 54,555 (1,027) 104,140
Deferred taxes and other 15,304 35,292 50,596
Shareholders' equity:
Capital stock 137,896 1,994 (1,994) 137,896
Accumulated other comprehensive income (loss) 6,812 (4,634) 2,178
Retained earnings (accumulated deficit) (6,234) 11,433 3,725 13,330 22,254
--------- -------- -------- -------- -------- --------
Total shareholders' equity 131,662 18,245 3,725 10,690 (1,994) 162,328
--------- -------- -------- -------- -------- --------
Total Liabilities and Shareholders' Equity $131,657 $100,134 $ 4,253 $176,257 ($ 3,226) $409,075
========= ======== ======== ======== ======== ========
12
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2004
(UNAUDITED)
5. LONG - TERM OBLIGATIONS - CONCLUDED
TITAN
CONDENSED COMBINING BALANCE SHEET (PARENT SUBSIDIARIES
SEPTEMBER 30, 2004 COMPANY --------------------------
(successor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- --------------------------------- ----- ------- --------- ------------- ------------ --------
Assets
Current assets:
Cash and equivalents $ 117 $ 2 $ 1,956 $ 2,075
Accounts receivable, net 20,813 2,199 37,001 60,013
Inventories 9,279 1,351 20,560 31,190
Prepaid expenses and other current assets 1,987 132 1,464 3,583
-------- -------- -------- --------
Total current assets 32,196 3,684 60,981 96,861
Property, plant and equipment, net 28,462 5,595 121,203 $ 419 155,679
Goodwill $116,299 137,258 253,557
Intercompany receivables (payables) 29,896 (4,978) (24,602) (316)
Investment in subsidiaries 27,063 100,631 (3,458) (123,815) (421)
Other long-term assets 1 11,192 99 5,376 16,668
-------- -------- -------- -------- -------- --------
Total Assets $143,363 $202,377 $ 942 $176,401 ($ 318) $522,765
======== ======== ======== ======== ======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term obligations $ 330 $ 6,787 $ 7,117
Accounts payable 7,982 $ 305 33,521 ($ 315) 41,493
Accrued liabilities $ (28) 5,257 308 16,876 (3) 22,410
-------- -------- -------- -------- -------- --------
Total current liabilities (28) 13,569 613 57,184 (318) 71,020
-------- -------- -------- -------- -------- --------
Long-term obligations, net of current maturities 182,570 78,188 260,758
Deferred taxes and other 7,972 34,709 42,681
Shareholders' equity:
Capital stock 143,400 143,400
Accumulated other comprehensive income 519 4,525 5,046
Retained earnings (accumulated deficit) (9) (2,253) 329 1,795 (140)
-------- -------- -------- -------- -------- --------
Total shareholders' equity 143,391 (1,734) 329 6,320 148,306
-------- -------- -------- -------- -------- --------
Total Liabilities and Shareholders' Equity $143,363 $202,377 $ 942 $176,401 ($ 318) $522,765
======== ======== ======== ======== ======== ========
13
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2004
(UNAUDITED)
6. BUSINESS SEGMENT INFORMATION
The Company has three operating segments: North America, Europe and South
America. The North American segment provides precision-machined components
primarily to the transportation and medical devices industries, while the
European and South American segments provide precision-machined components
primarily to the transportation industry. The Company has a small operation in
China that is grouped with its European operations for business segmentation
purposes. The Company has assigned specific business units to a segment based
principally on their geographical location. Each of the Company's segments is
individually managed and have separate financial results reviewed by the
Company's chief executive and operating decision-makers. These results are used
by those individuals both in evaluating the performance of, and in allocating
current and future resources to, each of the segments. The Company evaluates
segment performance primarily based on income from operations and the efficient
use of assets. Set forth below is business segment information for the three and
nine months ended September 30, 2003, the six months ended June 30, 2004 and the
three months ended September 30, 2004 and as of December 31, 2003 and September
30, 2004:
THREE MONTHS NINE MONTHS SIX MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
2003 2003 2004 2004
---- ---- ---- ----
(predecessor) (successor)
-----------------------------------------
Sales to Unaffiliated Customers from Company Facilities Located in:
North America $32,125 $105,429 $ 75,031 $32,987
Europe 37,889 124,942 100,429 40,641
South America 3,140 9,612 9,029 6,621
-------- -------- --------- --------
Total $73,154 $239,983 $184,489 $80,249
======== ======== ========= ========
Net Income (Loss) of Company Facilities Located in:
North America ($ 504) $ 1,262 ($ 2,678) ($ 1,933)
Europe 210 2,971 3,732 747
South America 178 657 1,123 1,046
-------- -------- --------- --------
Total ($ 116) $ 4,890 $ 2,177 ($ 140)
======== ======== ========= ========
Depreciation and Amortization on Assets Located in:
North America $ 2,143 $ 6,102 $ 6,232 $ 948
Europe 2,826 8,174 6,190 2,491
South America 213 638 532 199
-------- -------- --------- --------
Total $ 5,182 $ 14,914 $ 12,954 $ 3,638
======== ======== ========= ========
Net Interest Expense of Company Facilities Located in:
North America $ 743 $ 2,297 $ 1,763 $ 4,246
Europe 1,434 4,700 2,699 1,356
South America 57 164 204 103
-------- -------- --------- --------
Total $ 2,234 $ 7,161 $ 4,666 $ 5,705
======== ======== ========= ========
14
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2004
(UNAUDITED)
6. BUSINESS SEGMENT INFORMATION - CONCLUDED
THREE MONTHS NINE MONTHS SIX MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
2003 2003 2004 2004
---- ---- ---- ----
(predecessor) (successor)
-----------------------------------------
Tax Provision of Company Facilities Located in:
North America ($ 259) $ 691 ($ 1,356) ($ 992)
Europe 338 2,703 4,068 899
South America 87 278 499 504
--------- -------- --------- ---------
Total $ 166 $ 3,672 $ 3,211 $ 411
========= ======== ========= =========
Expenditures for Property, Plant and Equipment of Facilities Located in:
North America $ 1,875 $ 8,253 $ 4,085 $ 1,598
Europe 2,473 6,663 5,434 2,926
South America 1,142 1,718 1,157 963
--------- -------- --------- ---------
Total $ 5,490 $ 16,634 $ 10,676 $ 5,487
========= ======== ========= =========
DECEMBER 31, SEPTEMBER 30,
2003 2004
---- ----
(predecessor) (successor)
Total Assets of Company Facilities Located in:
North America $ 209,080 $ 197,949
Europe 183,193 296,805
South America 16,802 28,011
------------ ------------
Total $ 409,075 $ 522,765
============ ============
15
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
SEPTEMBER 30, 2004
(UNAUDITED)
7. SUPPLEMENTAL CASH FLOW INFORMATION
Set forth below is a reconciliation of net income (loss) to net cash provided by
(used in) operating activities:
NINE MONTHS SIX MONTHS THREE MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
2003 2004 2004
---- ---- ----
(predecessor) (successor)
-------------------------
Net income (loss) $ 4,890 $ 2,177 ($ 140)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 14,914 12,954 3,638
Deferred taxes 2,026 395 311
Realized gains and losses and other, net 2,407 2,627 (287)
Changes in assets and liabilities that provided (used) cash:
Accounts receivable 4,719 (9,243) 4,563
Inventories 1,555 (2,899) (2,566)
Prepaid expenses and other current assets (303) (44) (442)
Other long-term assets (72) (1,192) 461
Accounts payable (3,854) 1,687 (6,986)
Accrued liabilities 1,606 6,962 1,305
Deferred taxes and other 121 (2,730) (266)
-------- -------- --------
Net Cash Provided by (Used in) Operating Activities $ 28,009 $ 10,694 ($ 409)
======== ======== ========
8. STOCK OPTION PLAN
Micron's Board of Directors has reserved 1,430,000 shares of common stock for
issuance to employees under the 2004 Stock Option Plan (the "Option Plan"). No
options were granted under the Option Plan as of September 30, 2004; however, on
October 12, 2004, options to purchase 929,500 shares were granted at $10 per
share. Options are not exercisable prior to twelve months from or ten years
after the grant date. Certain options granted vest at a rate of twenty-five
percent annually over a four-year period, while others vest based on Micron
shareholders' ability to meet certain levels of return on their investment in
Micron. The options granted on October 12, 2004 vest retroactive to June 21,
2004.
16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with and is
qualified in its entirety by reference to our consolidated financial statements
and accompanying notes. Except for historical information, the discussions in
this section contain forward-looking statements that involve risks and
uncertainties. Future results could differ materially from those discussed
below.
OVERVIEW
Titan Holdings, Inc. ("Titan") is a holding company headquartered in Kentwood,
Michigan and a wholly-owned subsidiary of Micron Holdings, Inc. ("Micron"). Its
sole and wholly-owned subsidiary, Autocam Corporation ("Autocam") and Autocam's
subsidiaries, are a leading independent manufacturer of extremely close
tolerance precision-machined, metal alloy components, sub-assemblies and
assemblies, primarily for performance and safety critical automotive
applications. Those applications in which we have significant market penetration
include fuel injection, power steering, braking, electric motors and airbag
systems. We provide these products from our facilities in North America, Europe,
South America and Asia to some of the world's largest Tier I suppliers to the
automotive industry. References throughout this document to "we," "our" or "us"
refer to Titan together with its consolidated subsidiaries.
Our business and results of operations during the third quarter and nine months
of 2004 were affected by the following significant events:
- - On June 21, 2004, Micron Merger Corporation ("Merger"), a newly formed
entity and wholly-owned subsidiary of Micron, merged with and into Titan
with Titan continuing as the surviving corporation (the "Acquisition"). As
a result, Titan became a wholly-owned subsidiary of Micron. The total
amount of consideration paid in the Acquisition, including amounts related
to the repayment of indebtedness, the redemption of the outstanding
preferred stock of Titan, payments to common shareholders of Titan and the
payment of transaction costs incurred by Titan, was $395.0 million. The
Acquisition was financed with the net proceeds from the issuance by
Autocam of $140.0 million of senior subordinated notes of the Company,
which are guaranteed by Titan (the "Notes"), borrowings of $114 million
under the Company's new senior credit facilities and combined common
equity contributions of $143.4 million by GS Capital Partners 2000, L.P.
("GSCP 2000"), other private equity funds affiliated with GSCP 2000,
Transportation Resource Partners LP ("TRP"), other investment vehicles
affiliated with TRP, and our president.
- - A significant portion of our sales and profits resulted from transactions
denominated in euros. Those sales and profits have been translated into
U.S. Dollars ("USD") for financial reporting purposes. As a result, the
value of the USD compared to the euro in the three and nine months ended
September 30, 2004 relative to the same periods in the prior years
positively impacted our reported results. The following table sets forth,
for the periods indicated, the period end and period average exchange
rates used in translating the financial statements (expressed as USD per
one euro):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
DECEMBER 31, ------------------ -----------------
2003 2003 2004 2003 2004
---- ---- ---- ---- ----
Average(1) 1.1276 1.2239 1.1103 1.2263
End of Period 1.2552 1.2409 1.2409
- ------------------
(1) The average rate represents the average of all monthly average exchange
rates within the respective periods weighted by reported sales denominated
in euros.
17
OVERVIEW - CONCLUDED
- - We are routinely exposed to pressure by our customers to offer unit price
reductions, which is typical of our industry. Through continuous
improvement and increased efficiencies in our manufacturing and
administrative processes we have achieved improvements in margins over
time in spite of these constant pressures.
- - In April 2003, we sold and leased back our Kentwood and Marshall, Michigan
facilities for $5.8 million, using the proceeds of that sale to prepay
some of our USD-denominated term indebtedness. Annual lease expense under
these agreements is $.6 million.
- - In June 2003, we closed our Chicago, Illinois production facility, moving
all existing production to our Michigan facilities. Through the
re-engineering of manufacturing processes and elimination of redundancies,
we were able to reduce headcount in North America by 6% when comparing the
nine-month period ended September 30, 2004 with the same period in 2003.
- - In 2003, we successfully consolidated power steering production lines
formerly contained within three of our French facilities into one
facility. Significant costs, including premium freight, outsourcing, labor
and machinery repairs, were incurred on a one-time basis to affect this
reorganization. This reorganization has and is expected to continue to
provide benefits in the future, primarily in the area of lower labor costs
through headcount reductions and improved efficiency.
RESULTS OF OPERATIONS
The following table sets forth our Consolidated Statements of Operations
expressed as a percentage of sales:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------------
2003(1) 2004(2) 2003(1) 2004(3)
------- ------- ------- -------
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 87.8% 85.2% 86.3% 83.8%
----- ----- ----- -----
Gross profit 12.2% 14.8% 13.7% 16.2%
Selling, general and administrative expenses 6.0% 6.5% 5.4% 8.5%
----- ----- ----- -----
Income from operations 6.2% 8.3% 8.3% 7.7%
Interest expense, net 3.1% 7.1% 3.0% 3.9%
Other expenses, net 3.1% 0.8% 1.7% 1.6%
----- ----- ----- -----
Income before tax provision 0.0% 0.4% 3.6% 2.2%
Tax provision 0.2% 0.5% 1.5% 1.4%
----- ----- ----- -----
Net Income (Loss) -0.2% -0.1% 2.1% 0.8%
===== ===== ===== =====
- ------------------------
(1) Represents the consolidated results of operations of the Company
reflecting the historical basis of accounting without any application of
purchase accounting for the Acquisition.
(2) Represents the consolidated results of operations of the Company
reflecting the basis of accounting after purchasing accounting for the
Acquisition.
(3) Represents the combined consolidated results of operations of the Company
reflecting the historical basis of accounting without any application of
purchase accounting for the Acquisition for the six months ended June 30,
2004 and reflecting the basis of accounting after purchasing accounting
for the Acquisition for the three months ended September 30, 2004.
18
THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2004
Sales
Sales increased $7 million, or 9.7%, to $80.2 million for the three months ended
September 30, 2004 from $73.2 million for the three months ended September 30,
2003. Of this increase, $3.3 million was attributable to the devaluation of the
USD relative to the euro. Excluding the effect of foreign currency translation
and unit price reductions mentioned below, sales for the quarter increased $4.9
million over the quarter ended September 30, 2003, principally attributable to
the following factors:
- - Increased shipments of electric power-assisted steering products to two
European customers during 2004.
- - Sales of components manufactured by our South American operations have
grown in the third quarter of 2004 relative to the same period in 2003 as
lower labor costs in those facilities (relative to those in our European
and North American facilities and those of our competitors) have afforded
us additional demand for high value-added components from our customers.
These positive developments more than offset the negative impact of unit price
reductions of $1.2 million during the third quarter of 2004 and decreasing sales
to a European power steering systems customer that desourced us on some
products.
Gross Profit
Gross profit increased $3 million to $11.9 million, or 14.8% of sales, for the
three months ended September 30, 2004 from $8.9 million, or 12.2% of sales, for
the three months ended September 30, 2003. The gross profit percentage
improvement can generally be attributed to the following factors:
- - We have achieved headcount reductions in North America as a result of
various continuous process improvement initiatives and in Europe as a
result of the power steering production line reorganization described
above. Together, these initiatives resulted in an increase in gross profit
margin of 2.6 percentage points.
- - In connection with the Acquisition, we restated the historical cost of our
property, plant and equipment to fair market appraised values, which, in
the aggregate, was lower than the net book value on the date prior to the
Acquisition. In doing so, depreciation expense was $1.6 million less in
the third quarter of 2004 as compared to the third quarter of 2003.
These positive factors were partially offset by the negative impact on gross
profit of the unit price reductions described above and steel price increases.
Selling, General and Administrative
Selling, general and administrative expenses increased $.8 million to $5.2
million, or 6.5% of sales, for the three months ended September 30, 2004 from
$4.4 million, or 6% of sales, for the three months ended September 30, 2003. The
2004 results include $.7 million in expenses associated with the foregiveness of
receivables formerly due from executive managers under a split-dollar life
insurance program.
19
Interest Expense, Net
Net interest expense increased $3.5 million to $5.7 million for the three months
ended September 30, 2004 from $2.2 million for the three months ended September
30, 2003. Interest expense on increased debt levels incurred as a result of the
Acquisition more than offset the favorable impact of principal reductions
through regularly scheduled payments and lower interest rates under our new
senior credit facility, which averaged 60 to 80 basis points less during the
quarter ended September 30, 2004 when compared to interest rates under our
former senior credit facility during the three months ended September 30, 2003.
Other Expense, Net
Net other expense decreased $1.6 million to $.7 million for the three months
ended September 30, 2004 from $2.3 million for the three months ended September
30, 2003. The 2003 results include the $1.7 million anticipated loss on the sale
of excess equipment scheduled for liquidation in connection with our Chicago,
Illinois facility closure as described above.
Tax Provision
For the three months ended September 30, 2004, we recorded an income tax
provision of $.4 million, for an effective tax rate of 151.7%. Our effective tax
rate was more than the United States statutory rate of 34% due primarily to the
French income tax provision, which includes legal profit sharing contribution
expense of $.4 million. Under French law the legal profit sharing contribution
is assessed on income before taxes, and therefore is treated by us as a
component of our tax provision.
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2004
Sales
Sales increased $24.7 million, or 10.3%, to $264.7 million for the nine months
ended September 30, 2004 from $240 million for the nine months ended September
30, 2003. Of this increase, $13.2 million was attributable to the devaluation of
the USD relative to the euro. Excluding the effect of foreign currency
translation and unit price reductions mentioned below, sales for the nine-month
period increased $15.1 million over the nine months ended September 30, 2003,
principally attributable to the following factors:
- - Increased shipments of electric power-assisted steering products to two
European customers during 2004.
- - During the latter part of 2003, we began shipping diesel injection
components to two North American customers seeking to increase their
penetration of the North American diesel injection market. The benefit
derived from this development was partially offset by premium pricing
earned in the second quarter of 2003 on one of the new product lines
during the transition from prototype to production volumes.
- - Sales of components manufactured by our South American operations have
grown in 2004 relative to 2003 as lower labor costs in those facilities
(relative to those in our European and North American facilities and those
of our competitors) have afforded us additional demand for high
value-added components from our customers.
These positive developments more than offset the negative impact of unit price
reductions of $3.6 million during the first nine months of 2004 and decreasing
sales to a European power steering systems customer and a European fuel systems
customer, both of which desourced us on some products.
20
Gross Profit
Gross profit increased $10.1 million to $43 million, or 16.2% of sales, for the
nine months ended September 30, 2004 from $32.9 million, or 13.7% of sales, for
the nine months ended September 30, 2003. The gross profit percentage
improvement can generally be attributed to the following factors:
- - We have achieved headcount reductions in North America as a result of the
Chicago, Illinois facility closure as described above and various other
continuous process improvement initiatives, and in Europe as a result of
the power steering production line reorganization described above.
Together, these initiatives resulted in an increase in gross profit margin
of 1.5 percentage points.
- - We incurred equipment move, severance and other costs during the nine
months ended September 30, 2003 in connection with the Chicago, Illinois
facility closure of $1.1 million. Such costs were not repeated in the
nine-month period ended September 30, 2004.
These positive factors were partially offset by the negative impact on gross
profit of the unit price reductions, steel price increases and additional
building lease expense derived from the sale and leaseback of the production
facilities as described above.
Selling, General and Administrative
Selling, general and administrative expenses increased $9.5 million to $22.6
million, or 8.5% of sales, for the nine months ended September 30, 2004 from
$13.1 million, or 5.4% of sales, for the nine months ended September 30, 2003.
The 2004 results include $8.2 million in costs associated with the Acquisition,
consisting principally of investment banking fees, management bonuses, and legal
and accounting fees, and $.7 million in executive manager receivables foregiven
under a split-dollar life insurance program.
Interest Expense, Net
Net interest expense increased $3.2 million to $10.4 million for the nine months
ended September 30, 2004 from $7.2 million for the nine months ended September
30, 2003. Interest expense on increased debt levels incurred as a result of the
Acquisition more than offset the favorable impact of principal reductions
through regularly scheduled payments and repayments from the proceeds of the
sale and leaseback of the production facilities as described above. In addition,
interest rates incurred on borrowings under our new senior credit facility
averaged 20 to 50 basis points less during the nine months ended September 30,
2004 when compared to interest rates incurred on borrowings under our former
senior credit facility during the nine months ended September 30, 2003.
Other Expense, Net
Net other expense increased $.3 million to $4.4 million for the nine months
ended September 30, 2004 from $4.1 million for the nine months ended September
30, 2003. The 2004 results include the accelerated write-off of $1.9 million in
unamortized debt issue costs associated with our former senior credit facility,
which was refinanced in connection with the Acquisition. This more than offsets
the $1.7 million negative impact on our 2003 results of the loss reserve
recorded on excess equipment from our Chicago, Illinois facility that was sold
as described above.
Tax Provision
For the nine months ended September 30, 2004, we recorded an income tax
provision of $3.6 million, for an effective tax rate of 64%. Our effective tax
rate was more than the United States statutory rate of 34% due primarily to the
French income tax provision, which includes legal profit sharing contribution
expense of $1.6 million. In addition, French statutory income tax rate is 35.4%
of income before taxes.
21
LIQUIDITY AND CAPITAL RESOURCES
Our short-term liquidity needs include required debt service and day-to-day
operating expenses including working capital requirements and the funding of
capital expenditures. Long-term liquidity requirements include capital
expenditures for new programs and maintenance of existing equipment and debt
service. Capital expenditures for 2004 are expected to be $20-22 million, of
which $16.2 million was spent in the nine months ended September 30, 2004.
Our principal sources of cash to fund short- and long-term liquidity needs
consist of cash generated by operations and borrowing under our revolving credit
facilities.
In connection with the Acquisition, we entered into a new senior credit
facilities agreement with a syndication of banks consisting of the following
components:
- - A $33 million term loan to Autocam;
- - A (euro)62.7 million term loan to Autocam's wholly-owned subsidiary,
Autocam France SARL (equivalent to $76.8 million as of September 30,
2004);
- - A multi-currency revolving credit facility of $36.1 million ($23.1 million
in availability as of September 30, 2004) against which borrowings may be
made by Autocam in USD or euros; and
- - A euro revolving credit facility of (euro) 11.6 million available to
Autocam France SARL (fully available as of September 30, 2004).
The indenture governing the Notes and the agreement governing the senior credit
facilities contain a number of covenants imposing significant restrictions on
our business. These restrictions may affect our ability to operate our business
and may limit our ability to take advantage of potential business opportunities
as they arise.
The senior credit facilities require us to meet a number of financial ratio
tests, including interest coverage and total leverage ratios. The senior credit
facilities also limit the amount of capital expenditures we may make. Our
management believes that cash from operations and, if required, borrowings under
the revolving credit facilities of the senior credit facilities will be
sufficient for cash requirements through at least September 2005.
Nine Months Ended September 30, 2004
Cash provided by operating activities of $10.3 million during the nine months
ended September 30, 2004 reflects net income, excluding non-cash and other
reconciling items of $21.7 million, and an increase in net working capital of
$11.4 million due primarily to the following factors:
- - Inventories increased $5.5 million due primarily to the growth in our
business as described above. In addition, the value of raw material
inventories has risen consistent with the rise in steel and perishable
tooling prices. Finally, machinery spare parts inventories have increased
consistent with the addition of new types of equipment.
- - Accounts receivable increased $4.7 million. A significant customer
discontinued an accelerated payment program in May 2004, which had the
effect of increasing accounts receivable by $3.2 million, and payment
terms from a number of other North American customers have lengthened over
the course of 2004. In addition, sales by our South American operations
were up significantly when comparing the latter part of 2003 to the latter
part of the nine-month period ended September 30, 2004. Finally, factored
European accounts receivable decreased $.8 million from December 31, 2003
to September 30, 2004. All of these factors more than offset the impact on
accounts receivable caused by lower summer European sales.
22
Cash used in investing activities of $15.1 million during the nine months ended
September 30, 2004 included capital expenditures primarily for production
equipment of $16.2 million, less $1.1 million in proceeds from the sale of
production equipment.
Cash provided by financing activities of $5.7 million during the nine months
ended September 30, 2004 included the following:
- - Proceeds from issuance of the Notes and term note borrowings at the
closing of the Acquisition under our new senior credit facility of $246
million, less debt issue costs paid of $11.5 million;
- - Shareholder contributions received in connection with the Acquisition of
$115.4 million;
- - Proceeds from the issuance of equipment notes payable of $1.4 million;
- - Payments made to former shareholders and option holders of Titan of $232.7
million;
- - Payments made to retire the term notes of our old senior credit facility
in existence at the closing of the Acquisition of $89.9 million;
- - Scheduled term note principal payments of our old senior credit facility,
capital lease obligations and equipment notes payable of $20 million;
- - Scheduled term note principal payments of our new senior credit facility,
capital lease obligations and equipment notes payable of $1.5 million;
- - Net repayments under the old and new revolving credit facilities of $1.5
million.
Nine Months Ended September 30, 2003
Cash provided by operating activities of $28 million during the nine months
ended September 30, 2003 reflects net income, excluding non-cash and other
reconciling items of $24.2 million, and a decrease in net working capital of
$3.8 million due primarly to the impact on accounts receivable caused by lower
summer European sales..
Cash used in investing activities of $12.1 million during the nine months ended
September 30, 2003 included capital expenditures primarily for production
equipment of $16.6 million and proceeds from the sale of production equipment
and the facilities described above of $6 million.
Cash used in financing activities of $20.3 million during the nine months ended
September 30, 2003 included the following:
- - Principal payments on borrowings under our former senior credit facility
of $19.7 million, including the unscheduled payment of $5.8 million in
April from funds received in the sale and leaseback transaction described
above; and
- - Net repayments under the former revolving credit facilities of $1.1
million.
Contingent Liabilities and Other Commitments
We have guaranteed the performance of some equipment leases of an unrelated
vendor that provides services to us within one of our European production
facilities. Our maximum liability under these leases was $5.3 million as of
September 30, 2004.
23
FOREIGN OPERATIONS
During the three months ended September 30, 2004, our North American operations
exported $4.2 million of product to customers located in foreign countries, and
our foreign operations shipped $48.9 million of product to customers from their
facilities. During the nine months ended September 30, 2004, our North American
operations exported $16.6 million of product to customers located in foreign
countries, and our foreign operations shipped $161.4 million of product to
customers from their facilities. As a result, we are subject to the risks of
doing business abroad, including currency exchange rate fluctuations, limits on
repatriation of funds, compliance with foreign laws and other economic and
political uncertainties.
ACCOUNTING PRONOUNCEMENTS
SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement
Benefits, was revised in December 2003. It requires additional disclosures about
assets, obligations, cash flows and net periodic benefit cost of defined benefit
pension plans and enhanced disclosures of management's assumptions related to
discount rates, investment returns and salary assumptions. This statement is
effective for us for the year ending December 31, 2004.
CRITICAL ACCOUNTING POLICIES
No material changes have been made to our critical accounting policies during
2004.
Item 3 . Quantitative and Qualitative Disclosures about Market Risk
We manage certain foreign currency exchange risk in relation to equipment
purchases through the limited use of foreign currency futures contracts to
reduce the impact of changes in foreign currency rates on firm commitments to
purchase equipment. No such contracts related to equipment purchases were
outstanding at September 30, 2004 or December 31, 2003.
We typically derive 50-60% of our sales from foreign manufacturing operations.
The financial position and results of operations of our subsidiaries in France
are measured in euros based on functional currency and translated into USD. The
effects of foreign currency fluctuations in France are somewhat mitigated by the
fact that sales and expenses are generally incurred in euros, and the reported
net income thereon will be higher or lower depending on a weakening or
strengthening of the USD as compared to the euro.
The financial position and results of operations of our subsidiary in Brazil are
measured in Brazilian reais and translated into USD. With respect to
approximately 40% of this subsidiary's sales, expenses are generally incurred in
Brazilian reais, but sales are invoiced in USD. As such, results of operations
with regard to these sales are directly influenced by a weakening or
strengthening of the Brazilian real as compared to the USD. The effects of
foreign currency fluctuations are somewhat mitigated on the remainder of this
subsidiary's sales by the fact that the sales and related expenses are generally
incurred in Brazilian reais and reported income will be higher or lower
depending on a weakening or strengthening of the USD as compared to the
Brazilian real.
24
Item 4. Disclosure Controls and Procedures
Our management carried out an evaluation with the participation of our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures as defined under rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as of the end of the last
fiscal quarter. Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures
are effective to ensure that information required to be disclosed in the
Securities and Exchange Commission's rules and forms is recorded, processed,
summarized and reported, within the time periods specified in the rules and
forms. In connection with the rules, we currently are in process of further
reviewing and documenting our disclosure controls and procedures, including our
internal controls and procedures for financial reporting, and may from time to
time make changes aimed at enhancing their effectiveness and to ensure that our
systems evolve with our business.
There were no changes in our internal control over financial reporting
identified in connection with our evaluation of our disclosure controls and
procedures that occurred during our last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Securities Holders
None.
Item 5. Other Information
None.
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Item 6. Exhibits and Reports on Form 8-K
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
31.1 Certification of Chief Executive Officer in the form prescribed by Rule 13a-14(a) or 15d-14(a) under the
Securities Exchange Act of 1934.
31.2 Certification of Chief Financial Officer in the form prescribed by Rule 13a-14(a) or 15d-14(a) under the
Securities Exchange Act of 1934.
32.1 Certification of Chief Executive Officer in the form prescribed by 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer in the form prescribed by 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
26
SIGNATURES
Autocam Corporation has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
AUTOCAM CORPORATION
November 12, 2004 /s/ John C. Kennedy
- ------------------------------------ ------------------------------
Date John C. Kennedy
President
27
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------
31.1 Certification of Chief Executive Officer in the form prescribed by Rule
13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.
31.2 Certification of Chief Financial Officer in the form prescribed by Rule
13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.
32.1 Certification of Chief Executive Officer in the form prescribed by 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer in the form prescribed by 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
28