Back to GetFilings.com
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED SEPTEMBER 29, 2002
COMMISSION FILE NUMBER 1-12068
METALDYNE CORPORATION
(EXACT NAME OF REGISTANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 38-2513957
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
47659 HALYARD DRIVE, PLYMOUTH, MICHIGAN 48170-2429
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(734) 207-6200
--------------
(Telephone Number)
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, and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICAL DATE.
SHARES OUTSTANDING AT
CLASS OCTOBER 31, 2002
----- ----------------
Common stock, par value $1 per share.......... 44,643,637
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
METALDYNE CORPORATION
INDEX
PAGE NO.
---------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -- September 30, 2002
and December 31, 2001 .............................................. 1
Consolidated Condensed Statements of Operations for the Three and
Nine Months Ended September 30, 2002 and 2001 ...................... 2
Consolidated Condensed Statements of Cash Flows for the
Nine Months Ended September 30, 2002 and 2001 ...................... 3
Notes to Consolidated Condensed Financial Statements ............... 4-20
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................ 21-36
Item 3. Quantitative and Qualitative Disclosure about Market Risk .......... 36
Item 4. Controls and Procedures ............................................ 36
Part II. Other Information, Signature and Certifications .................. 37-40
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
METALDYNE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED) DECEMBER 31,
SEPTEMBER 30, 2002 2001
-------------------- -------------
ASSETS
Current assets:
Cash and cash investments ............................................... $ 7,440 $ --
Receivables, net ........................................................ 211,620 104,160
Inventories ............................................................. 66,110 162,660
Deferred and refundable income taxes .................................... 2,920 13,630
Prepaid expenses and other assets ....................................... 34,120 29,330
---------- ----------
Total current assets .................................................. $ 322,210 $ 309,780
Equity and other investments in affiliates ............................... 141,980 17,130
Property and equipment, net .............................................. 662,680 921,440
Excess of cost over net assets of acquired companies ..................... 547,520 1,038,810
Intangibles and other assets ............................................. 288,010 666,530
---------- ----------
Total assets ......................................................... $1,962,400 $2,953,690
========== ==========
LIABILITIES
Current liabilities:
Accounts payable ........................................................ $ 130,200 $ 169,160
Accrued liabilities ..................................................... 95,680 188,840
Current maturities, long-term debt ...................................... 4,320 42,700
---------- ----------
Total current liabilities ............................................. $ 230,200 $ 400,700
Long-term debt ........................................................... 758,040 1,358,920
Deferred income taxes .................................................... 166,220 337,760
Other long-term liabilities .............................................. 101,040 146,420
---------- ----------
Total liabilities .................................................... $1,255,500 $2,243,800
---------- ----------
Redeemable preferred stock, 545,154 shares outstanding ................... 62,300 55,160
Redeemable restricted common stock, 1.7 million and 2.6 million shares
outstanding respectively ................................................ 33,240 32,760
Less: Restricted unamortized stock awards ................................ (3,900) (12,060)
---------- ----------
Total redeemable stock ............................................... $ 91,640 $ 75,860
---------- ----------
SHAREHOLDERS' EQUITY
Preferred stock (non-redeemable), $1 par:
Authorized 25 million; Outstanding: None ................................ -- --
Common stock, $1 par:
Authorized: 250 million; Outstanding: 42.6 million ...................... 42,650 42,570
Paid-in capital .......................................................... 680,590 679,670
Accumulated deficit ...................................................... (136,680) (76,440)
Accumulated other comprehensive income (loss) ............................ 28,700 (11,770)
---------- ----------
Total shareholders' equity ........................................... 615,260 634,030
---------- ----------
Total liabilities, redeemable stock and shareholders' equity ......... $1,962,400 $2,953,690
========== ==========
The accompanying notes are an integral part of the consolidated condensed
financial statements.
1
METALDYNE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
----------------------------- ---------------------------------
(UNAUDITED) (UNAUDITED)
2002 2001 2002 2001
------------- ------------- --------------- ---------------
Net sales ............................................... $ 352,150 $ 514,290 $ 1,442,480 $ 1,643,200
Cost of sales ........................................... (295,660) (411,340) (1,168,190) (1,315,360)
---------- ---------- ------------ ------------
Gross profit ......................................... 56,490 102,950 274,290 327,840
Selling, general and administrative expenses ............ (38,530) (69,930) (164,200) (208,800)
Restructuring charges ................................... (1,120) -- (1,120) --
Legacy restricted stock award expense ................... (1,050) (3,970) (4,210) (7,500)
---------- ---------- ------------ ------------
Operating profit ..................................... 15,790 29,050 104,760 111,540
Other expense, net:
Interest expense ....................................... (17,780) (32,660) (74,400) (112,800)
Loss on interest rate arrangements upon early
retirement of term loans ............................. -- -- (7,550) --
Equity gain (loss) from affiliates, net ................ (2,240) (690) 90 (1,710)
Other, net ............................................. (3,320) (2,750) (15,620) (17,980)
---------- ---------- ------------ ------------
Other expense, net ................................... (23,340) (36,100) (97,480) (132,490)
---------- ---------- ------------ ------------
Income (loss) before income taxes, cumulative
effect of change in accounting principle and
extraordinary item ..................................... (7,550) (7,050) 7,280 (20,950)
Income taxes (credit) ................................... (1,570) -- (15,780) (620)
---------- ---------- ------------ ------------
Income (loss) before cumulative effect of change
in accounting principle and extraordinary item ......... (5,980) (7,050) 23,060 (20,330)
Cumulative effect of change in recognition and
measurement of goodwill impairment ..................... -- -- (36,630) --
Extraordinary loss on repurchase of debentures
and early retirement of term loans, net of taxes
of $1,440 and $23,320, respectively .................... (5,410) -- (39,700) --
---------- ---------- ------------ ------------
Net loss ................................................ (11,390) (7,050) (53,270) (20,330)
Preferred stock dividends ............................... 3,570 1,800 6,970 4,140
---------- ---------- ------------ ------------
Loss attributable to common stock ...................... $ (14,960) $ (8,850) $ (60,240) $ (24,470)
========== ========== ============ ============
Basic earnings (loss) per share:
Before cumulative effect of change in accounting
principle and extraordinary loss less preferred
stock dividends ...................................... $ (0.22) $ (0.21) $ 0.38 $ (0.57)
Cumulative effect of change in recognition and
measurement of goodwill impairment ................... -- -- (0.86) --
Extraordinary loss ..................................... (0.13) -- (0.93) --
---------- ---------- ------------ ------------
Net loss attributable to common stock .................. $ (0.35) $ (0.21) $ (1.41) $ (0.57)
========== ========== ============ ============
Diluted earnings (loss) per share:
Before cumulative effect of change in accounting
principle and extraordinary loss less preferred
stock dividends ...................................... $ (0.22) $ (0.21) $ 0.36 $ (0.57)
Cumulative effect of change in recognition and
measurement of goodwill impairment ................... -- -- (0.83) --
Extraordinary loss ..................................... (0.13) -- (0.89) --
---------- ---------- ------------ ------------
Net loss attributable to common stock .................. $ (0.35) $ (0.21) $ (1.36) $ (0.57)
========== ========== ============ ============
The accompanying notes are an integral part of the consolidated condensed
financial statements.
2
METALDYNE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30
--------------------------------
(UNAUDITED)
2002 2001
--------------- --------------
OPERATING ACTIVITIES:
Income before cumulative effect of change in accounting principle and
extraordinary item ..................................................... $ 23,060 $ (20,330)
Adjustments to reconcile net cash provided by (used for) operating
activities:
Depreciation and amortization in operating profit ...................... 81,460 113,070
Legacy stock award expense ............................................. 4,210 7,500
Debt fee amortization .................................................. 4,040 9,140
Amortization in other income/expense ................................... 7,120 --
Deferred income taxes .................................................. 2,060 (2,290)
Non-cash interest expense (interest accretion) ......................... 11,320 12,530
Loss on interest rate arrangements upon early retirement of debt ....... 7,550 --
Tax refund receivable .................................................. (20,000) --
Other, net ............................................................. 1,840 5,370
Changes in assets and liabilities, net of acquisition/disposition of
business:
Accounts receivable ................................................... (60,260) (25,600)
Net proceeds from and repayments of accounts receivable sale .......... (138,360) 27,610
Inventory ............................................................. 4,370 30,630
Prepaid expenses and other assets ..................................... (5,510) 38,080
Accounts payable and accrued expenses ................................. (16,820) (75,250)
------------ ----------
Total change in assets and liabilities .............................. (216,580) (4,530)
------------ ----------
Net cash provided by (used for) operating activities ..................... (93,920) 120,460
------------ ----------
INVESTING ACTIVITIES:
Capital expenditures ..................................................... (78,970) (82,330)
Acquisition of business, net of cash received ............................ -- (83,320)
Disposition of business .................................................. 840,000 --
Proceeds from sale/leaseback of fixed assets ............................. 33,370 42,110
Other, net ............................................................... (3,810) (1,880)
------------ ----------
Net cash provided by (used for) investing activities ..................... 790,590 (125,420)
------------ ----------
FINANCING ACTIVITIES:
Proceeds from borrowings ................................................. 970,920 38,800
Principal payments on borrowings ......................................... (1,642,080) (36,710)
Capitalization of debt refinancing fees .................................. (11,590) --
Prepayment costs of early extinguishment of debt ......................... (6,480) --
Other, net ............................................................... -- (2,310)
------------ ----------
Net cash used for financing activities ................................... (689,230) (220)
------------ ----------
Net increase (decrease) in cash ........................................... 7,440 (5,180)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ............................ -- 26,320
------------ ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD .................................. $ 7,440 $ 21,140
============ ==========
Supplementary cash flow information:
Cash refunded for income taxes, net ...................................... (5,160) (9,500)
Cash paid for interest ................................................... 78,190 95,170
The accompanying notes are an integral part of the consolidated condensed
financial statements.
3
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND OTHER INFORMATION
We ("Metaldyne" or the "Company") are a leading global manufacturer of
highly engineered metal components for the global light vehicle market. Our
products include metal-formed and precision-engineered components and
modular systems used in vehicle transmission, engine and chassis
applications.
In the opinion of Company management, the unaudited financial statements
contain all adjustments, including adjustments of a normal recurring
nature, necessary to present fairly the financial position, results of
operations and cash flows for the periods presented. These statements
should be read in conjunction with the Company's financial statements
included in the Annual Report on Form 10-K for the fiscal year ended
December 31, 2001 (the "2001 Form 10K"). The results of operations for the
nine-month period ended September 30, 2002 are not necessarily indicative
of the results for the full year.
The Company's fiscal year ends on the Sunday nearest December 31. The
Company's fiscal quarters end on the Sundays nearest March 31, June 30, and
September 30. All year and quarter references relate to the Company's
fiscal year and fiscal quarters unless otherwise stated.
As described in Note 1 to our financial statements included in our 2001
Form 10K, we had a change in accounting basis relating to our November 2000
Recapitalization. The three months and nine months ended September 30, 2001
financial information included herein reflect the retroactively adopted
effect of this change in accounting basis.
Certain prior period amounts have been reclassified to conform with current
period presentation.
2. DISPOSITION OF BUSINESS
On June 6, 2002, the Company sold TriMas Corporation ("TriMas") common
stock to Heartland Industrial Partners, L.P. ("Heartland") and other
investors amounting to approximately 66% of the fully diluted common equity
of TriMas. The Company retained approximately 34% of the fully diluted
common equity of TriMas in the form of common stock and a presently
exercisable warrant to purchase shares of TriMas common stock at a nominal
exercise price. Pursuant to the terms of a stock purchase agreement,
Heartland and the other investors invested approximately $265 million in
cash in TriMas to acquire the 66% interest. In connection with the
investment, TriMas entered into a senior credit facility and a receivables
facility and issued senior subordinated notes due 2012. TriMas used
borrowings under the senior credit facility and proceeds from the issuance
of the notes to repay borrowings made by its subsidiaries under the
Company's credit agreement, to repay certain debt that was owed to the
Company and to repurchase TriMas originated receivables balances under the
Company's receivables facility. In addition, prior to the closing, TriMas
declared and paid a cash dividend to the Company equal to the difference
between $840 million and the aggregate amount of such debt repayment and
receivables repurchase. Consequently, as a result of the investment and the
other transactions, the Company (1) received $840 million in the form of
cash, debt reduction and reduced receivables facility balances and (2)
received or retained common stock and a warrant in TriMas representing the
Company's 34% retained interest.
As Heartland is the Company's controlling shareholder, this transaction was
accounted for as a reorganization of entities under common control and
accordingly no gain or loss has been recognized. The equity investment in
TriMas recorded at June 30, 2002 has been adjusted at September 30, 2002
to reflect the finalization of certain amounts that were estimated on the
date of closing.
4
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The assets and liabilities of TriMas at June 6, 2002 consisted of the
following (of which the Company retained a 34% interest) (in thousands):
Current assets ........................ $ 249,970
Property and equipment, net ........... 240,480
Goodwill .............................. 491,190
Intangibles and other assets .......... 320,300
----------
Total assets ........................ $1,301,940
Current liabilities ................... $ 148,330
Non-current liabilities ............... 611,100
----------
Total liabilities ................... $ 759,430
Net assets .......................... $ 542,510
==========
TriMas is included in the Company's financial results through the date of
this transaction. Going forward, the Company will account for its 34%
retained interest in TriMas under the equity method of accounting.
The purpose of the TriMas divestiture was to allow the Company to repay
some of its debt maturing in 2003, defer some of its credit facility
amortization by repaying term debt with the proceeds in forward order of
maturity, enhance its liquidity and allow it to focus on its core
automotive businesses while retaining an interest in TriMas. As a result of
the transaction, after payment of expenses, the Company or TriMas repaid
approximately $496 million of term debt under Metaldyne's senior credit
facility, repurchased approximately $206 million aggregate principal amount
of its 4.5% convertible subordinated debentures due 2003 ($78 million of
this repurchase was completed in the third quarter; see Note 3), and
reduced outstanding balances under the Company's receivables facility by
approximately $136 million (of which approximately $86 million relates to
the elimination of the TriMas receivables base).
3. DEBT REFINANCING
On August 27, 2002, the Company repurchased an additional $78.2 million
aggregate principal amount of its 4.5% convertible subordinated debentures
due 2003. This repurchase of the convertible subordinated debentures was
facilitated using the remaining proceeds from the TriMas disposition
transaction, $77 million of which was included as "Restricted cash" in the
Company's consolidated balance sheet as of June 30, 2002. As a result of
this offer to purchase, the Company incurred an additional $6.8 million
extraordinary loss on the extinguishment of this debt, primarily related to
the write-off of the proportional amount of the unamortized discount. This
loss, net of the associated tax benefit of $1.4 million, is included in
"Extraordinary loss on repurchase of debentures and early retirement of
term loans" in the Company's consolidated statement of operations. As of
September 30, 2002, the remaining outstanding aggregate principal amount of
the 4.5% convertible subordinated debentures is $98.5 million. The carrying
amount of the 4.5% convertible subordinated debentures is $89.7 million and
is reported in the Company's consolidated balance sheet as of September 30,
2002. As a result of our November 2000 Recapitalization, the 4.5%
convertible subordinated debentures are no longer convertible.
On June 20, 2002, the Company entered into two arrangements to refinance
its long-term debt. In the first arrangement, the Company issued $250
million of 11% senior subordinated notes due 2012 in a private placement
under Rule 144A of the Securities Act of 1933, as amended. On October 15,
2002, the Company filed a registration statement with the Securities and
Exchange Commission for an exchange offer of a new issue of 11% senior
subordinated notes due 2012 in exchange for the outstanding 11% senior
subordinated notes due 2012. The exchange offer will raise no new proceeds
for the Company and is being made in accordance with contractual
commitments arising from the
5
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 20, 2002 issuance. The exchange offer will allow the 11% senior
subordinated notes to be transferred without restriction. The exchange
offer will close on November 20, 2002, unless otherwise extended by the
Company.
In connection with the June 20, 2002 11% senior subordinated notes offering
described above, the Company also amended and restated its credit facility
to replace its original tranche A, B and C term loans with a new $400
million tranche D term loan payable in semi-annual installments of $0.5
million with the remaining outstanding balance due December 31, 2009. In
addition to the term loan, the credit facility also includes a revolving
credit facility with a total principal amount commitment of $250 million.
Both the senior revolving credit facility and the senior term loan facility
mature December 31, 2009. The obligations under the credit facility are
collateralized by substantially all of the Company's assets and are
guaranteed by substantially all of the Company's domestic subsidiaries.
In conjunction with the above senior subordinated debt offering and the
amended credit agreement, the Company repaid the outstanding balance on its
tranche A, B and C term loan facilities. The Company's long-term debt is
summarized below.
(In millions)
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- ------------
Senior credit facilities:
Tranche A term loan facility .................... $ -- $ 449
Tranche B term loan facility .................... -- 478
Tranche C term loan facility .................... -- 185
Tranche D term loan facility .................... 400 --
Revolving credit facility ....................... -- --
--- ------
Total senior credit facility ..................... $400 $1,112
11% senior subordinated notes, due 2012 ......... 250 --
4.5% convertible subordinated debentures, due
2003 (face value $98.5 million) ............... 90 263
Other debt ...................................... 22 27
--- ------
Total debt ....................................... 762 1,402
Less current maturities .......................... (4) (43)
--- ------
Long-term debt ................................... 758 $1,359
Cash and cash equivalents ........................ 7 --
--- ------
Net long-term debt ............................... $751 $1,359
=== ======
As a result of the refinancing described above, the Company cancelled its
$100 million subordinated loan commitment from Masco Corporation. This
commitment had been established for use in the event that funds were not
otherwise available to satisfy principal obligations under the 4.5%
convertible subordinated debentures at maturity. As a result of the large
prepayment of this obligation, the commitment from Masco Corporation was
deemed unnecessary.
Borrowings under the credit facility will bear interest, at our option, at
either:
o A base rate used by JPMorgan Chase Bank, plus an applicable margin;
or
o A eurocurrency rate on deposits for one, two, three or six month
periods (or nine or twelve month periods if, at the time of the
borrowing, all lenders agree to make such a duration available), plus
the applicable margin.
The applicable margin on revolving currency loans is subject to change
depending on the Company's leverage ratio and is presently 2.75% on base
rate loans and 3.75% on eurocurrency loans. The applicable margin on the
term loan is not dependent on the Company's leverage ratio and is currently
1.75% on base rate loans and 2.75% on eurocurrency loans.
6
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The credit facility contains negative and affirmative covenants and
requirements affecting the Company and its subsidiaries, including, among
other things, restrictions on incurring new debt, capital expenditures,
investments and asset sales, and maintenance of certain financial ratios.
The Company was in compliance with these covenants at September 30, 2002.
In connection with the Company's early retirement and refinancing of its
prior credit facility, it incurred one-time charges totaling $70.5 million,
including prepayment penalties, write-offs of capitalized debt issuance
costs, a write-off of the unamortized discount on the 4.5% subordinated
debenture and losses realized on interest rate arrangements associated with
the term loans. A loss of $7.5 million is reflected as a "Loss on interest
rate arrangements upon early retirement of term loans" in the Company's
consolidated statement of operations for the nine months ended September
30, 2002 (see Note 4). The remaining $63.0 million of costs are reflected,
net of the associated tax benefit of $23.3 million, as an "Extraordinary
loss on repurchase of debentures and early retirement of term loans" in the
Company's consolidated statement of operations.
The Company capitalized $9.4 million and $2.5 million of debt issuance
costs associated with the 11% senior subordinated notes due 2012 and the
amended and restated credit facility, respectively. These debt issuance
costs consist primarily of fees paid to representatives of the initial
purchasers, legal fees and facility fees paid to the lenders. The $9.4
million and $2.5 million of costs are being amortized based on the
effective interest method over the 10-year term of the 11% senior
subordinated notes due 2012 and the 7 1/2-year term of the term loan
agreement, respectively. The unamortized balances of $9.1 million related
to the senior subordinated notes and $2.4 million related to the amended
and restated credit facility are included in "Other assets" in the
Company's consolidated balance sheet as of September 30, 2002.
4. DERIVATIVE FINANCIAL INSTRUMENTS
The Company manages its exposure to changes in interest rates through the
use of interest rate protection agreements. These interest rate derivatives
are designated as cash flow hedges. The effective portion of each
derivative's gain or loss is initially reported as a component of other
comprehensive income (loss) and subsequently reclassified into earnings
when the forecasted transaction affects earnings. The Company does not use
derivatives for speculative purposes.
In February 2001, the Company entered into interest rate protection
agreements with various financial institutions to hedge a portion of its
interest rate risk related to the term loan borrowings under its credit
facility. These agreements include two interest rate collars with a term of
three years, a total notional amount of $200 million, and a three month
LIBOR interest rate cap and floor of 7% and approximately 4.5%,
respectively. The agreements also include four interest rate caps at a
three month LIBOR interest rate of 7% with a total notional amount of $348
million. As a result of the Company's early retirement of its term loans in
June 2002 (see Note 3), a cumulative non-cash loss of $7.5 million was
recorded in the second quarter and is reflected as a "Loss on interest rate
arrangements upon early retirement of term loans" in the Company's
consolidated statement of operations for the nine months ended September
30, 2002. The two interest rate collars and two of the interest rate caps
totaling $200 million were immediately redesignated to the Company's new
tranche D term note in June 2002, resulting in a cumulative unrealized loss
of $0.1 million as of September 30, 2002, which is included in "accumulated
other comprehensive income (loss)" in the Company's consolidated balance
sheet. The remaining two interest rate caps totaling $148 million no longer
qualify for hedge accounting. Therefore, any unrealized gain or loss is
recorded as other income or expense in the consolidated statement of
operations beginning June 20, 2002. As of September 30, 2002, a loss of
$0.03 million has been recorded as other expense in the consolidated
statement of operations.
5. ACCOUNTS RECEIVABLE SECURITIZATION
The Company has entered into an arrangement to sell, on an ongoing basis,
the trade accounts receivable of substantially all domestic business
operations to MTSPC, Inc. ("MTSPC"), a wholly
7
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
owned subsidiary of the Company. MTSPC from time to time may sell an
undivided fractional ownership interest in the pool of receivables up to
approximately $225 million to a third party multi-seller receivables
funding company. The net proceeds of sale are less than the face amount of
accounts receivable sold by an amount that approximates the purchaser's
financing costs, which amounted to a total of $3.4 million for the nine
months ended September 30, 2002, and is included in other expense in the
Company's consolidated statement of operations. At September 30, 2002, the
Company's funding under the facility was $29 million with an additional $47
million available but not utilized. At December 31, 2001, the Company
funded approximately $167 million under the facility. The discount rate at
September 16, 2002 was 2.81% compared to 3.02% at December 31, 2001. The
usage fee under the facility is 1.5%. In addition, the Company is required
to pay a fee of 0.5% on the unused portion of the facility.
6. GOODWILL AND OTHER INTANGIBLE ASSETS
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets"
and ceased amortizing goodwill. At September 30, 2002, the goodwill balance
was approximately $547 million. The Company completed its Step 1 impairment
test, as required by SFAS No. 142, for both the Automotive Group and its
former TriMas Group. For purposes of this test, fair values were determined
based upon the discounted cash flows of the reporting units. The assessment
for the Automotive Group indicated that the fair value of these units
exceeds their corresponding carrying value. The assessment for its former
TriMas Group indicated the carrying value of these units exceeds their fair
value. The Company completed its transitional impairment test needed to
measure the amount of any goodwill impairment for its former TriMas
subsidiary. A non-cash, after tax charge of $36.6 million was taken as of
January 1, 2002, related to the industrial fasteners business of the former
TriMas subsidiary. Sales, operating profits and cash flows for this TriMas
owned business were lower than expected beginning in the first quarter of
2001, due to the overall economic downturn and cyclical declines in certain
markets for industrial fastener products. Based on that trend, the earnings
and cash flow forecasts for the next five years indicated the goodwill
impairment loss. Consistent with the requirements of SFAS No. 142, the
Company recognized this impairment charge as the cumulative effect of
change in accounting principle as of January 1, 2002.
This effect of adoption of SFAS No. 142 on the Company's condensed results
of operations for the three and nine months ended September 30, 2001 is as
follows. The three and nine months ended September 30, 2002 are included
for comparison purposes.
(In thousands)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
--------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ -------------
Income (loss) before cumulative effect of change in
accounting principle and extraordinary item ................ $ (5,980) $ (7,050) $ 23,060 $ (20,330)
Cumulative effect of change in accounting principle ......... -- -- (36,630) --
Loss on early extinguishment of debt, net of taxes .......... (5,410) -- (39,700) --
--------- -------- --------- ---------
Net loss .................................................... (11,390) (7,050) (53,270) (20,330)
--------- -------- --------- ---------
Add back: goodwill amortization, net of taxes ............... -- 3,300 -- 23,100
--------- -------- --------- ---------
Net loss, as adjusted ....................................... (11,390) (3,750) (53,270) 2,770
Less: Preferred stock dividends ............................. 3,570 1,800 6,970 4,140
--------- -------- --------- ---------
Net loss attributable to common stock, as adjusted .......... $ (14,960) $ (5,550) $ (60,240) $ (1,370)
========= ======== ========= =========
Basic loss per share, as adjusted ........................... $ (0.35) $ (0.13) $ (1.41) $ (0.03)
========= ======== ========= =========
Diluted loss per share, as adjusted ......................... $ (0.35) $ (0.13) $ (1.36) $ (0.03)
========= ======== ========= =========
8
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ACQUIRED INTANGIBLE ASSETS
The change in the gross carrying amount of acquired intangible assets is
primarily attributable to the disposition of the Company's TriMas Group on
June 6, 2002.
AS OF SEPTEMBER 30, 2002 AS OF DECEMBER 31, 2001
GROSS CARRYING ACCUMULATED GROSS CARRYING ACCUMULATED
AMOUNT AMORTIZATION AMOUNT AMORTIZATION
---------------- -------------- ---------------- -------------
Amortized Intangible Assets:
Customer Contracts .................... $ 91,000 $ (18,410) $291,500 $ (19,680)
Technology and Other .................. 159,150 (20,940) 277,690 (18,960)
-------- --------- -------- ---------
Total ............................... $250,150 $ (39,350) $569,190 $ (38,640)
======== ========= ======== =========
Aggregate Amortization Expense
(Included in "Other expense, net"):
For the nine months ended
September 30, 2002 .................. $ 22,300
Estimated Amortization Expense:
For the year ended December 31, 2002 .. $ 27,670
For the year ended December 31, 2003 .. 21,460
For the year ended December 31, 2004 .. 21,460
For the year ended December 31, 2005 .. 21,060
For the year ended December 31, 2006 .. 21,060
GOODWILL
The changes in the carrying amount of goodwill for the nine months ended
September 30, 2002 are as follows:
CHASSIS DRIVELINE ENGINE TRIMAS TOTAL
--------- ----------- ----------- ------------- -------------
Balance as of January 1, 2002 .................. $71,600 $291,650 $147,740 $ 527,820 $1,038,810
Exchange impact from foreign currency .......... 500 19,260 3,860 -- 23,620
Other, primarily reclassifications ............. 3,500 5,200 4,210 -- 12,910
FAS 142 impairment ............................. -- -- -- (36,630) (36,630)
TriMas disposition ............................. -- -- -- (491,190) (491,190)
------- -------- -------- ---------- ----------
Balance as of September 30, 2002 ............... $75,600 $316,110 $155,810 $ -- $ 547,520
======= ======== ======== ========== ==========
9
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. EARNINGS PER SHARE
The following are reconciliations of the numerators and denominators used
in the computations of basic and diluted earnings per common share:
(In thousands except per share amounts)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
--------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ -------------
Weighted average number of shares outstanding ........... 42,650 42,550 42,650 42,560
====== ====== ====== ======
Income (loss) before cumulative effect of change
in accounting principle and extraordinary item ......... $ (5,980) $ (7,050) $ 23,060 $ (20,330)
Cumulative effect of change in recognition and
measurement of goodwill impairment ..................... -- -- (36,630) --
Loss on early extinguishment of debt, net of
income taxes ........................................... (5,410) -- (39,700) --
--------- -------- --------- ---------
Net loss ................................................ (11,390) (7,050) (53,270) (20,330)
Less: Preferred stock dividends ......................... 3,570 1,800 6,970 4,140
--------- -------- --------- ---------
Loss used for basic and diluted earnings per share
computation ............................................ $ (14,960) $ (8,850) $ (60,240) $ (24,470)
========= ======== ========= =========
Basic earnings (loss) per share:
Before cumulative effect of change in accounting
principle and extraordinary loss less preferred
stock ................................................ $ (0.22) $ (0.21) $ 0.38 $ (0.57)
Cumulative effect of change in recognition and
measurement of goodwill impairment ................... -- -- (0.86) --
Extraordinary loss ..................................... (0.13) -- (0.93) --
--------- -------- --------- ---------
Net loss attributable to common stock .................. $ (0.35) $ (0.21) $ (1.41) $ (0.57)
========= ======== ========= =========
Total shares used for basic earnings per share
computation ............................................ 42,650 42,550 42,650 42,560
Contingently issuable shares ............................ -- -- 1,730 --
--------- -------- --------- ---------
Total shares used for diluted earnings per share
computation ............................................ 42,650 42,550 44,380 42,560
========= ======== ========= =========
Diluted earnings (loss) per share:
Before cumulative effect of change in accounting
principle and extraordinary loss less preferred
stock ................................................ $ (0.22) $ (0.21) $ 0.36 $ (0.57)
Cumulative effect of change in accounting for
goodwill impairment .................................. -- -- (0.83) --
Extraordinary loss ..................................... (0.13) -- (0.89) --
--------- -------- --------- ---------
Net loss attributable to common stock .................. $ (0.35) $ (0.21) $ (1.36) $ (0.57)
========= ======== ========= =========
Diluted earnings per share reflect the potential dilution that would occur
if securities or other contracts to issue common stock were exercised or
converted into common stock. Excluded from the calculation of diluted
earnings per share are stock options representing 2,490,000 of common
shares as they had no dilutive effect at September 30, 2002 and 2001.
10
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. IMPACT OF NEW TAX REGULATION
During the quarter ended June 30, 2002, the Company completed its analysis
of the impact related to the U.S. Department of Treasury's recently issued
regulation replacing the loss disallowance rules applicable to the sale of
stock of a subsidiary member of a consolidated tax group. These regulations
permit the Company to utilize a previously disallowed tax capital loss that
primarily resulted from the sale of a subsidiary in 2000. Accordingly, a
tax benefit of $20 million was recorded in the three months ended June 30,
2002. The Company expects its effective tax rate for the remaining fiscal
2002 to be approximately 39% of earnings before income taxes and
extraordinary losses.
9. INVENTORIES
Inventories by component are as follows:
(In thousands)
SEPTEMBER 30, 2002 DECEMBER 31, 2001
-------------------- ------------------
Finished goods ........... $25,230 $ 81,540
Work in process .......... 25,160 41,060
Raw materials ............ 15,720 40,060
------- --------
Total................... $66,110 $162,660
======= ========
10. PROPERTY AND EQUIPMENT, NET
Property and equipment, net reflects accumulated depreciation of $114
million and $90 million as of September 30, 2002 and December 31, 2001,
respectively.
In December 2001 and January 2002, the Company entered into sale-leaseback
transactions with respect to equipment and approximately 20 parcels of
real property with total net proceeds of approximately $56 million.
Proceeds of approximately $23 million and $33 million were received in
December 2001 and January 2002, respectively.
11
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMPREHENSIVE INCOME
The Company's total comprehensive loss for the period was as follows:
(In thousands)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
--------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ -------------
Income (loss) before cumulative effect of
change in accounting principle and
extraordinary item .............................. $ (5,980) $ (7,050) $ 23,060 $ (20,330)
Cumulative effect of change in recognition and
measurement of goodwill impairment .............. -- -- (36,630) --
Loss on early extinguishment of debt, net of
income taxes .................................... (5,410) -- (39,700) --
--------- -------- --------- ---------
Net loss .......................................... (11,390) (7,050) (53,270) (20,330)
Other comprehensive income (loss):
Impact of TriMas disposition on foreign
currency translation ........................... -- -- (1,910) --
Foreign currency translation adjustment and
other miscellaneous ............................ (3,420) 10,320 36,620 (5,940)
Interest rate agreements ........................ (710) (5,710) 5,760 (6,710)
--------- -------- --------- ---------
Total other comprehensive income (loss) ......... (4,130) 4,610 40,470 (12,650)
--------- -------- --------- ---------
Total comprehensive loss .......................... $ (15,520) $ (2,440) $ (12,800) $ (32,980)
========= ======== ========= =========
12. COMMITMENTS AND CONTINGENCIES
The commitments and contingencies specifically disclosed in the Company's
2001 Form 10K relate to potential obligations of its former TriMas
subsidiary. As a result of the June 2002 disposition of this business,
these potential obligations are the responsibility of TriMas and are no
longer commitments and contingencies of Metaldyne.
The Company is subject to claims and litigation in the ordinary course of
our business, but does not believe that any such claim or litigation will
have a material adverse effect on its financial position or results of
operation.
13. ACQUISITION AND RESTRUCTURING RELATED INTEGRATION ACTIONS
In 2001, the Company began to implement plans to integrate the three
acquired legacy companies into the Company's new vision, align the
business units under our new operating structure and leadership team, and
reformulate our cost structure to be more competitive in the marketplace.
To facilitate these initiatives, the Company terminated hundreds of
employees and closed unprofitable businesses and plants. The majority of
these actions were completed in 2001, but some are ongoing as of September
30, 2002. At September 30, 2002, in addition to the amounts shown in the
table below, the Company had an approximate $9 million accrual related to
severance agreements with former Company management. The amounts reflected
represent total estimated cash payments. The following table summarizes
the recent activity for the purchase accounting adjustments established
relating to the three acquisitions.
As discussed in Note 2, the Company completed a divestiture of its former
TriMas subsidiary on June 6, 2002.
12
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands)
ACCRUAL AT CASH ADDITIONAL OBLIGATIONS ACCRUAL AT
12/31/01 UTILIZED OBLIGATIONS ASSUMED BY TRIMAS 9/30/02
------------ ------------ ------------- ------------------- -----------
Severance ................... $22,910 $ (4,170) $1,120 $ (11,790) $ 8,070
Other closure costs ......... 7,060 (750) -- (3,310) 3,000
------- -------- ------ --------- -------
Total ....................... $29,970 $ (4,920) $1,120 $ (15,100) $11,070
======= ======== ====== ========= =======
In June 2002, the Company announced the reorganization of its Engine
Group's European operations, to streamline the engineering, manufacturing
and reporting structure of our European operations. This restructuring
includes the closure of a manufacturing facility in Halifax, England. In
addition, the Company announced the closure of a small manufacturing
location in Memphis, Tennessee in the quarter ended September 30, 2002.
The result of these closures is a net charge of $1.1 million through
September 30, 2002.
14. ANTICIPATED ACQUISITION ACTIVITY
On July 18, 2002, the Company and DaimlerChrysler Corporation announced
their intention to form a joint venture to operate the New Castle
Machining Forge facility presently owned by DaimlerChrysler in New Castle,
Indiana. It is presently contemplated that formation of the joint venture
would involve an initial cash investment by the Company of approximately
$20-30 million for a minority investment and a contribution of assets by
DaimlerChrysler. The DaimlerChrysler New Castle Machining Forge operation
manufactures suspension components, as well as engine and transmission
components for Chrysler, Jeep and Dodge vehicles, and employs
approximately 1,350 salaried and hourly workers.
On September 25, 2002, the Company and the private equity partners of VCST
Industrial Products signed a non-binding letter of intent for Metaldyne to
acquire 100% of the shares of VCST. Headquartered in Belgium, VCST
designs, engineers, machines, and surface treats gears, gear sets and
shafts for automotive and truck transmissions and engines, and ABS valve
bodies for brake applications. VCST also machines and assembles suspension
components and modules for passenger vehicle applications. VCST employs
over 900 people at its five operating facilities in Belgium, Germany and
the United States. The acquisition of VCST is expected to be completed
during the fourth quarter of 2002.
15. SEGMENT INFORMATION
The Company has defined a segment as a component with business activity
resulting in revenue and expense that has separate financial information
evaluated regularly by the Company's chief operating decision maker in
determining resource allocation and assessing performance.
The Company has established Earnings Before Interest Taxes Depreciation
and Amortization ("EBITDA") as an indicator of our operating performance
and as a measure of our cash generating capabilities. The Company defines
EBITDA as operating profit plus depreciation and amortization plus legacy
stock award expense (contractual obligation from November 2000
acquisition, which will runoff completely by 2003).
In the second quarter of 2002, the Company modified its organizational
structure. As a result, the Company is now comprised of three reportable
segments: Chassis, Driveline and Engine. Accordingly, the Company has
restated sales for all prior periods to reflect this change. However, it
was not practicable to restate EBITDA for prior periods to reflect the new
segment structure, and therefore EBITDA is presented in total for the
entire Company for periods prior to 2002. EBITDA is presented using the
Company's modified segment structure beginning in 2002.
As discussed in Note 2, the Company completed a divestiture of a portion
of its TriMas Group on June 6, 2002. The TriMas Group is presented at the
group level, rather than by segment, for all periods presented.
13
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CHASSIS -- Manufactures components, modules and systems used in a variety
of engineered chassis applications, including fittings, wheel-ends, axle
shafts, knuckles and mini-corner assemblies. This segment utilizes a
variety of processes including hot, warm and cold forging, powder metal
forging and machinery and assembly.
DRIVELINE -- Manufactures components, modules and systems, including
precision shafts, hydraulic controls, hot and cold forgings and integrated
program management used in a broad range of transmission applications.
These applications include transmission and transfer case shafts,
transmission valve bodies, cold extrusion and Hatebur hot forgings.
ENGINE -- Manufactures a broad range of engine components, modules and
systems, including sintered metal, powder metal, forged and tubular
fabricated products used for a variety of applications. These applications
include balance shaft modules and front cover assemblies.
Segment activity for the three and nine months ended September 30, 2002
and 2001 is as follows:
(IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------------- -----------------------------
2002 2001 2002 2001
------------ ------------ ------------- -------------
SALES
-----
Automotive Group
Chassis ............................ $ 37,710 $ 36,730 $ 126,800 $ 118,530
Driveline .......................... 197,040 191,600 618,310 609,220
Engine ............................. 117,400 108,890 368,790 344,370
-------- -------- ---------- ----------
Automotive Group ................. 352,150 337,220 1,113,900 1,072,120
TriMas Group ........................ -- 177,070 328,580 571,080
-------- -------- ---------- ----------
Total Sales ........................ $352,150 $514,290 $1,442,480 $1,643,200
======== ======== ========== ==========
EBITDA
------
Automotive Group
Chassis ............................ $ 3,920 $ 13,630
Driveline .......................... 26,430 78,080
Engine ............................. 14,590 50,860
-------- ----------
Automotive Group ................. 44,940 $ 42,980 142,570 $ 140,500
TriMas Group ........................ -- 29,700 62,420 101,670
-------- -------- ---------- ----------
Corporate/unallocated/centralized
resources .......................... (5,570) (3,920) (14,560) (10,060)
-------- -------- ---------- ----------
Total EBITDA ........................ 39,370 68,760 190,430 232,110
Depreciation & amortization ......... 22,530 35,740 81,460 113,070
Legacy stock award expense .......... 1,050 3,970 4,210 7,500
-------- -------- ---------- ----------
Operating profit .................... $ 15,790 $ 29,050 $ 104,760 $ 111,540
======== ======== ========== ==========
16. OTHER ACCOUNTING PRONOUNCEMENTS
ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS
The Financial Accounting Standards Board approved the issuance of SFAS No.
143, "Accounting for Asset Retirement Obligations" in June 2001, which is
effective January 1, 2003. SFAS No. 143 requires that an existing legal
obligation associated with the retirement of a tangible long-lived asset
be recognized as a liability when incurred and the amount of the liability
be initially measured at fair value. The Company is currently reviewing
the provisions of SFAS No. 143 and assessing the impact of adoption.
14
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG LIVED ASSETS
On January 1, 2002, we adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long Lived Assets." Under SFAS No. 144, a single
accounting method was established for long-lived assets to be disposed.
SFAS No. 144 requires the Company to recognize an impairment loss only if
the carrying amount of a long-lived asset is not recoverable from its
undiscounted cash flows and the loss is the difference between the
carrying amount and fair value. The adoption of this Statement did not
have any impact on the financial position and results of operations of the
Company.
ACCOUNTING FOR EXTRAORDINARY ITEMS, INTANGIBLE ASSETS AND LEASES
In April 2002, the Financial Accounting Standards Board issued SFAS No.
145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections." With the rescission of SFAS
No. 4 and 64, only gains and losses from extinguishments of debt that meet
the criteria of APB Opinion No. 30 would be classified as extraordinary
items. This statement also rescinds SFAS No. 44, "Accounting for
Intangible Assets of Motor Carriers." This statement amends SFAS No. 13,
"Accounting for Leases," to eliminate the inconsistency between the
required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that
are similar to sale-leaseback transactions. SFAS No. 145 also amends other
existing authoritative pronouncements to make various technical
corrections, clarify meanings or describe their applicability under
changed conditions. SFAS No. 145 is effective for fiscal years beginning
after May 15, 2002. The Company is currently reviewing the provisions of
this Statement and will adopt it effective with the Company's 2003 fiscal
year end. Upon adoption, the $39.7 million (net of taxes of $23.3 million)
loss on the early extinguishment of debt recorded during the nine months
ended September 30, 2002, will no longer be classified as an extraordinary
item.
ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES
In July 2002, the Financial Accounting Standards Board issued SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities."
SFAS No. 146 requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the date of the
commitment to an exit or disposal plan. SFAS No. 146 is effective for all
exit or disposal activities initiated after December 31, 2002. The Company
is currently reviewing the provisions of this Statement and will adopt it
effective with the Company's 2003 fiscal year.
15
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF GUARANTORS OF SENIOR
SUBORDINATED NOTES
GUARANTOR/NON-GUARANTOR
CONDENSED CONSOLIDATING BALANCE SHEETS SEPTEMBER 30, 2002
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATED
------------- -------------- --------------- ---------------- -------------
ASSETS
Current assets:
Cash and cash investments .......................... $ -- $ (2,000) $ 9,440 $ -- $ 7,440
Receivables, net ................................... -- 51,570 160,050 -- 211,620
Inventories ........................................ -- 47,260 18,850 -- 66,110
Deferred and refundable income taxes ............... -- 2,130 790 -- 2,920
Prepaid expenses and other current assets .......... -- 27,710 6,410 -- 34,120
---------- ---------- -------- ------------ ----------
Total current assets .............................. -- 126,670 195,540 -- 322,210
Equity and other investments in affiliates ......... -- -- 141,980 -- 141,980
Property and equipment, net ........................ -- 474,860 187,820 -- 662,680
Excess of cost over net assets of acquired
companies ......................................... -- 435,140 112,380 -- 547,520
Investment in subsidiaries ......................... 844,570 242,820 -- (1,087,390) --
Deferred financing costs and other assets .......... -- 271,640 16,370 -- 288,010
---------- ---------- -------- ------------ ----------
Total assets ...................................... $ 844,570 $1,551,130 $654,090 $ (1,087,390) $1,962,400
========== ========== ======== ============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................... $ -- $ 83,230 $ 46,970 $ -- $ 130,200
Accrued liabilities ................................ -- 67,510 28,170 -- 95,680
Current maturities, long-term debt ................. -- 2,280 2,040 -- 4,320
---------- ---------- -------- ------------ ----------
Total current liabilities ......................... $ -- $ 153,020 $ 77,180 $ -- $ 230,200
Other long-term debt ............................... -- 406,950 11,390 -- 418,340
Subordinated debentures ............................ 250,000 89,700 -- -- 339,700
Deferred income taxes .............................. -- 137,330 28,890 -- 166,220
Other long-term liabilities ........................ -- 91,530 9,510 -- 101,040
Intercompany accounts, net ......................... (112,330) (29,980) 142,310 -- --
---------- ---------- -------- ------------ ----------
Total liabilities ................................. $ 137,670 $ 848,550 $269,280 $ -- $1,255,500
========== ========== ======== ============ ==========
Redeemable preferred stock ......................... $ 62,300 $ -- $ -- $ -- $ 62,300
Redeemable restricted stock ........................ 33,240 -- -- -- 33,240
Less: restricted stock awards ...................... (3,900) -- -- -- (3,900)
---------- ---------- -------- ------------ ----------
Total redeemable stock ............................ $ 91,640 $ -- $ -- $ -- $ 91,640
========== ========== ======== ============ ==========
Shareholders' equity:
Preferred stock .................................... $ -- $ -- $ -- $ -- $ --
Common stock ....................................... 42,650 -- -- -- 42,650
Paid-in capital .................................... 680,590 -- -- -- 680,590
Accumulated deficit ................................ (136,680) -- -- -- (136,680)
Accumulated other comprehensive income
(loss) ............................................ 28,700 -- -- -- 28,700
Investment by Parent/Guarantor ..................... -- 702,580 384,810 (1,087,390) --
---------- ---------- -------- ------------ ----------
Total shareholders' equity ........................ $ 615,260 $ 702,580 $384,810 $ (1,087,390) $ 615,260
========== ========== ======== ============ ==========
Total liabilities, redeemable stock and
shareholders' equity ............................. $ 844,570 $1,551,130 $654,090 $ (1,087,390) $1,962,400
========== ========== ======== ============ ==========
16
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GUARANTOR/NON-GUARANTOR
CONDENSED CONSOLIDATING BALANCE SHEETS DECEMBER 31, 2001
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATED
------------ -------------- --------------- ---------------- -------------
ASSETS
Current assets:
Cash and cash investments .......................... $ -- $ (12,930) $ 12,930 $ -- $ --
Receivables, net ................................... -- 7,320 96,840 -- 104,160
Inventories ........................................ -- 44,850 117,810 -- 162,660
Deferred and refundable income taxes ............... -- 12,500 1,130 -- 13,630
Prepaid expenses and other current assets .......... -- 18,850 10,480 -- 29,330
--------- ---------- ---------- ------------ ----------
Total current assets .............................. -- 70,590 239,190 -- 309,780
Equity and other investments in affiliates ......... -- -- 17,130 -- 17,130
Property and equipment, net ........................ -- 494,530 426,910 -- 921,440
Excess of cost over net assets of acquired
companies ......................................... -- 503,970 534,840 -- 1,038,810
Investment in subsidiaries ......................... 712,350 423,060 -- (1,135,410) --
Deferred financing costs and other assets .......... -- 330,840 335,690 -- 666,530
--------- ---------- ---------- ------------ ----------
Total assets ...................................... $ 712,350 $1,822,990 $1,553,760 $ (1,135,410) $2,953,690
========= ========== ========== ============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................... $ -- $ 91,750 $ 77,410 $ -- $ 169,160
Accrued liabilities ................................ -- 132,240 56,600 -- 188,840
Current maturities, long-term debt ................. -- 9,340 33,360 -- 42,700
--------- ---------- ---------- ------------ ----------
Total current liabilities ......................... $ -- $ 233,330 $ 167,370 $ -- $ 400,700
Other long-term debt ............................... -- 672,770 423,290 -- 1,096,060
Subordinated debentures ............................ -- 262,860 -- -- 262,860
Deferred income taxes .............................. -- 148,270 189,490 -- 337,760
Other long-term liabilities ........................ -- 128,360 18,060 -- 146,420
Intercompany accounts, net ......................... 2,460 (317,810) 315,350 -- --
--------- ---------- ---------- ------------ ----------
Total liabilities ................................. $ 2,460 $1,127,780 $1,113,560 $ -- $2,243,800
========= ========== ========== ============ ==========
Redeemable preferred stock ......................... $ 55,160 $ -- $ -- $ -- $ 55,160
Redeemable restricted stock ........................ 32,760 -- -- -- 32,760
Less: restricted stock awards ...................... (12,060) -- -- -- (12,060)
--------- ---------- ---------- ------------ ----------
Total redeemable stock ............................ $ 75,860 $ -- $ -- $ -- $ 75,860
========= ========== ========== ============ ==========
Shareholders' equity:
Preferred stock .................................... $ -- $ -- $ -- $ -- $ --
Common stock ....................................... 42,570 -- -- -- 42,570
Paid-in capital .................................... 679,670 -- -- -- 679,670
Accumulated deficit ................................ (76,440) -- -- -- (76,440)
Accumulated other comprehensive income
(loss) ............................................ (11,770) -- -- -- (11,770)
Investment by Parent/Guarantor ..................... -- 695,210 440,200 (1,135,410) --
--------- ---------- ---------- ------------ ----------
Total shareholders' equity ........................ $ 634,030 $ 695,210 $ 440,200 $ (1,135,410) $ 634,030
========= ========== ========== ============ ==========
Total liabilities, redeemable stock and
shareholders' equity ............................. $ 712,350 $1,822,990 $1,553,760 $ (1,135,410) $2,953,690
========= ========== ========== ============ ==========
17
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GUARANTOR/NON-GUARANTOR
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2002
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATED
------------ ------------- --------------- -------------- -------------
Net sales ......................................... $ -- $ 276,260 $ 75,940 $ (50) $ 352,150
Cost of sales ..................................... -- (233,560) (62,150) 50 (295,660)
--------- ---------- --------- ------ ----------
Gross profit ...................................... -- 42,700 13,790 -- 56,490
Selling, general and administrative expenses ...... -- (33,170) (5,360) -- (38,530)
Restructuring charges ............................. -- -- (1,120) -- (1,120)
Legacy restricted stock award expense ............. -- (1,050) -- -- (1,050)
--------- ---------- --------- ------ ----------
Operating profit .................................. -- 8,480 7,310 -- 15,790
--------- ---------- --------- ------ ----------
Other income (expense), net:
Interest expense ................................. -- (17,610) (170) -- (17,780)
Equity and other income from affiliates .......... -- (780) (1,460) -- (2,240)
Other, net ....................................... -- (2,430) (890) -- (3,320)
--------- ---------- --------- ------ ----------
Other income (expense), net ....................... -- (20,820) (2,520) -- (23,340)
--------- ---------- --------- ------ ----------
Income (loss) before income taxes and
extraordinary charge ............................. -- (12,290) 4,740 -- (7,550)
Income taxes (credit) ............................. -- (4,180) 2,610 -- (1,570)
--------- ---------- --------- ------ ----------
Net income (loss) before extraordinary charge -- (8,110) 2,130 -- (5,980)
Extraordinary loss on repurchase of
debentures and early retirement of term
loans, net of tax of $23,320 ..................... -- (5,410) -- -- (5,410)
Equity in net income of subsidiaries .............. (11,390) 3,590 -- 7,800 --
--------- ---------- --------- ------ ----------
Net income (loss) ................................. $ (11,390) $ (9,930) $ 2,130 $7,800 $ (11,390)
Preferred stock dividends ......................... 3,570 -- -- -- 3,570
--------- ---------- --------- ------ ----------
Earnings (loss) attributable to common stock ...... $ (14,960) $ (9,930) $ 2,130 $7,800 $ (14,960)
========= ========== ========= ====== ==========
GUARANTOR/NON-GUARANTOR
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATED
----------- ------------- --------------- -------------- -------------
Net sales ......................................... $ -- $ 273,250 $ 241,290 $ (250) $ 514,290
Cost of sales ..................................... -- (228,480) (183,110) 250 (411,340)
-------- ---------- ---------- -------- ----------
Gross profit ...................................... -- 44,770 58,180 -- 102,950
Selling, general and administrative expenses ...... -- (31,190) (38,740) -- (69,930)
Legacy restricted stock award expense ............. -- (3,970) -- -- (3,970)
-------- ---------- ---------- -------- ----------
Operating profit .................................. -- 9,610 19,440 -- 29,050
Other income (expense), net:
Interest expense ................................. -- (32,880) 220 -- (32,660)
Equity and other income (loss) from
affiliates ...................................... -- -- (690) -- (690)
Intercompany income (expense), net ............... -- 2,110 (2,110) -- --
Other, net ....................................... -- (1,070) (1,680) -- (2,750)
-------- ---------- ---------- -------- ----------
Other expense, net ................................ -- (31,840) (4,260) -- (36,100)
-------- ---------- ---------- -------- ----------
Income (loss) before income taxes ................. -- (22,230) 15,180 -- (7,050)
Income taxes (credit) ............................. -- (4,170) 4,170 -- --
Equity in net income of subsidiaries .............. (7,050) 11,700 -- (4,650) --
-------- ---------- ---------- -------- ----------
Net income (loss) ................................. $ (7,050) $ (6,360) $ 11,010 $ (4,650) $ (7,050)
Preferred stock dividends ......................... 1,800 -- -- -- 1,800
-------- ---------- ---------- -------- ----------
Earnings (loss) attributable to common stock ...... $ (8,850) $ (6,360) $ 11,010 $ (4,650) $ (8,850)
======== ========== ========== ======== ==========
18
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GUARANTOR/NON-GUARANTOR
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2002
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATED
------------ ------------- --------------- -------------- ---------------
Net sales ........................................... $ -- $ 897,020 $ 545,890 $ (430) $ 1,442,480
Cost of sales ....................................... -- (763,730) (404,890) 430 (1,168,190)
--------- ---------- ---------- ------- ------------
Gross profit ........................................ -- 133,290 141,000 -- 274,290
Selling, general and administrative expenses ........ -- (94,590) (69,610) -- (164,200)
Restructuring charges ............................... -- -- (1,120) -- (1,120)
Legacy restricted stock award expense ............... -- (4,210) -- -- (4,210)
--------- ---------- ---------- ------- ------------
Operating profit .................................... -- 34,490 70,270 -- 104,760
Other income (expense), net:
Interest expense .................................... -- (73,570) (830) -- (74,400)
Loss on interest rate arrangements upon early
retirement of term loans ........................... -- (7,550) -- -- (7,550)
Equity and other income (loss) from affiliates ...... -- (780) 870 -- 90
Other, net .......................................... -- (13,700) (1,920) -- (15,620)
--------- ---------- ---------- ------- ------------
Other income (expense), net ......................... -- (95,600) (1,880) -- (97,480)
--------- ---------- ---------- ------- ------------
Income (loss) before income taxes, cumulative
effect of a change in accounting principle
and extraordinary charge ........................... -- (61,110) 68,390 -- 7,280
Income taxes (credit) ............................... -- (42,900) 27,120 -- (15,780)
--------- ---------- ---------- ------- ------------
Net income (loss) before extraordinary charge
and cumulative effect of a change in
accounting principle ............................... -- (18,210) 41,270 -- 23,060
Cumulative effect of a change in accounting
principle .......................................... -- (36,630) -- -- (36,630)
Extraordinary loss on repurchase of
debentures and early retirement of term
loans, net of tax of $23,320 ....................... -- (39,700) -- -- (39,700)
Equity in net income of subsidiaries ................ (53,270) 40,400 -- 12,870 --
--------- ---------- ---------- ------- ------------
Net income (loss) ................................... $ (53,270) $ (54,140) $ 41,270 $12,870 $ (53,270)
Preferred stock dividends ........................... 6,970 -- -- -- 6,970
--------- ---------- ---------- ------- ------------
Earnings (loss) attributable to common stock ........ $ (60,240) $ (54,140) $ 41,270 $12,870 $ (60,240)
========= ========== ========== ======= ============
GUARANTOR/NON-GUARANTOR
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2001
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATED
------------ ------------- --------------- -------------- ---------------
Net sales ......................................... $ -- $ 871,810 $ 772,510 $ (1,120) $ 1,643,200
Cost of sales ..................................... -- (750,140) (566,340) 1,120 (1,315,360)
--------- ---------- ---------- --------- ------------
Gross profit ...................................... -- 121,670 206,170 -- 327,840
Selling, general and administrative expenses ...... -- (88,530) (120,270) -- (208,800)
Legacy restricted stock award expense ............. -- (7,500) -- -- (7,500)
--------- ---------- ---------- --------- ------------
Operating profit .................................. -- 25,640 85,900 -- 111,540
--------- ---------- ---------- --------- ------------
Other income (expense), net:
Interest expense ................................. -- (111,760) (1,040) -- (112,800)
Equity and other income (loss) from
affiliates ...................................... -- -- (1,710) -- (1,710)
Intercompany income (expense), net ............... -- 9,360 (9,360) -- --
Other, net ....................................... -- (15,510) (2,470) -- (17,980)
--------- ---------- ---------- --------- ------------
Other expense, net ................................ -- (117,910) (14,580) -- (132,490)
--------- ---------- ---------- --------- ------------
Income (loss) before income taxes ................. -- (92,270) 71,320 -- (20,950)
--------- ---------- ---------- --------- ------------
Income taxes (credit) ............................. -- (30,020) 29,400 -- (620)
Equity in net income of subsidiaries .............. (20,330) 43,630 -- (23,300) --
--------- ---------- ---------- --------- ------------
Net income (loss) ................................. $ (20,330) $ (18,620) $ 41,920 $ (23,300) $ (20,330)
Preferred stock dividends ......................... 4,140 -- -- -- 4,140
--------- ---------- ---------- --------- ------------
Earnings (loss) attributable to common stock ...... $ (24,470) $ (18,620) $ 41,920 $ (23,300) $ (24,470)
========= ========== ========== ========= ============
19
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
GUARANTOR/NON-GUARANTOR
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2002
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATED
-------------- --------------- --------------- -------------- ---------------
Cash flows from operating activities:
Net cash provided by (used for) operating
activities ......................................... $ (135,200) $ 241,940 $ (200,660) $ -- $ (93,920)
---------- ------------- ---------- ---------- -------------
Cash flows from investing activities:
Capital expenditures ................................ -- (53,240) (25,730) -- (78,970)
Disposition of business ............................. -- -- 840,000 -- 840,000
Proceeds from sale/leaseback of fixed assets ........ -- 33,370 -- -- 33,370
Other, net .......................................... -- (3,810) -- -- (3,810)
---------- ------------- ---------- ---------- -------------
Net cash provided by (used for) investing
activities ......................................... -- (23,680) 814,270 -- 790,590
---------- ------------- ---------- ---------- -------------
Cash flows from financing activities:
Proceeds from borrowings ............................ 250,000 720,630 290 -- 970,920
Principal payments on borrowings .................... -- (1,197,720) (444,360) -- (1,642,080)
Capitalization of debt financing fees ............... -- (11,590) -- -- (11,590)
Penalties on early extinguishment of debt ........... -- (6,480) -- -- (6,480)
Change in intercompany accounts ..................... (114,800) 287,830 (173,030) -- --
---------- ------------- ---------- ---------- -------------
Net cash provided by (used for) financing
activities ......................................... 135,200 (207,330) (617,100) -- (689,230)
---------- ------------- ---------- ---------- -------------
Net increase (decrease) in cash ..................... -- 10,930 (3,490) -- 7,440
Cash and cash equivalents, beginning of period -- (12,930) 12,930 -- --
---------- ------------- ---------- ---------- -------------
Cash and cash equivalents, end of period ............ $ -- $ (2,000) $ 9,440 $ -- $ 7,440
========== ============= ========== ========== =============
GUARANTOR/NON-GUARANTOR
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2001
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATED
---------- ------------- --------------- -------------- -------------
Cash flows from operating activities:
Net cash provided by (used for) operating
activities .......................................... $ (210) $ 172,920 $ (52,250) $ -- $ 120,460
------ ---------- --------- ---------- ----------
Cash flows from investing activities:
Capital expenditures ................................. -- (55,660) (26,670) -- (82,330)
Acquisitions, net of cash acquired ................... -- (83,320) -- -- (83,320)
Proceeds from sale/leaseback of fixed assets ......... -- 35,680 6,430 -- 42,110
Other, net ........................................... -- 520 (2,400) -- (1,880)
------ ---------- --------- ---------- ----------
Net cash used for investing activities ............... -- (102,780) (22,640) -- (125,420)
====== ========== ========= ========== ==========
Cash flows from financing activities:
Proceeds from borrowings ............................. -- 34,210 4,590 -- 38,800
Principal payments on borrowings ..................... -- (23,690) (13,020) -- (36,710)
Change in intercompany accounts ...................... (460) (83,650) 84,110 -- --
Other, net ........................................... 670 (2,980) -- -- (2,310)
------ ---------- --------- ---------- ----------
Net cash provided by (used for) financing
activities .......................................... 210 (76,110) 75,680 -- (220)
------ ---------- --------- ---------- ----------
Net increase (decrease) in cash ...................... -- (5,970) 790 -- (5,180)
Cash and cash equivalents, beginning of
period .............................................. -- (1,210) 27,530 -- 26,320
------ ---------- --------- ---------- ----------
Cash and cash equivalents, end of period ............. $ -- $ (7,180) $ 28,320 $ -- $ 21,140
====== ========== ========= ========== ==========
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Our financial quarter ended on September 29, 2002. For convenience to the
readers of our financial statements, we have referred to our quarter end as
September 30, 2002 for comparability purposes.
EBITDA (EARNINGS BEFORE INTEREST TAXES DEPRECIATION AND AMORTIZATION)
The Company has established Earnings Before Interest Taxes Depreciation and
Amortization ("EBITDA") as an indicator of our operating performance and as a
measure of our cash generating capabilities. The Company defines EBITDA as
operating profit plus depreciation and amortization plus legacy stock award
expense (contractual obligation from November 2000 acquisition, which will
runoff completely by 2003).
EBITDA does not represent and should not be considered as an alternative to net
income, operating income, net cash provided by operating activities or any
other measure for determining operating performance or liquidity that is
calculated in accordance with generally accepted accounting principles.
Further, EBITDA, as we calculate it, may not be comparable to calculations of
similarly titled measures by other companies.
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 2002 VERSUS SEPTEMBER 30, 2001
THREE MONTHS ENDED SEPTEMBER 30
-------------------------------
(IN THOUSANDS)
--------------
SALES 2002 2001
----- ------------ ------------
Automotive Group
Chassis ............................................ $ 37,710 $ 36,730
Driveline .......................................... 197,040 191,600
Engine ............................................. 117,400 108,890
-------- --------
Automotive Group ................................. 352,150 337,220
TriMas Group ........................................ -- 177,070
-------- --------
Total Sales ...................................... $352,150 $514,290
======== ========
EBITDA
------
Automotive Group
Chassis ............................................ $ 3,920
Driveline .......................................... 26,430
Engine ............................................. 14,590
--------
Automotive Group ................................. 44,940 $ 42,980
TriMas Group ........................................ -- 29,700
-------- --------
Corporate/unallocated/centralized resources ......... (5,570) (3,920)
-------- --------
Total EBITDA ........................................ 39,370 68,760
Depreciation & amortization ......................... 22,530 35,740
Legacy stock award expense .......................... 1,050 3,970
-------- --------
Operating profit .................................... $ 15,790 $ 29,050
======== ========
Excluding the results of TriMas, the non-automotive subsidiary that the Company
sold in June 2002, sales increased $15 million or 4.4% for the three months
ended September 30, 2002 in comparison with the comparable period in 2001. The
primary driver of this increase was a 10.6% increase in vehicle production by
our three largest customers, offset by the effects of the closure of a
manufacturing facility in our Chassis Group and the loss of certain customer
contracts in our Driveline segment.
Excluding the results of TriMas, EBITDA for the three months ended September
30, 2002 increased $0.3 million in comparison with the comparable period in
2001. EBITDA increased despite an additional $1.3 million in operating lease
payments incurred and a $1.1 million non-recurring charge taken related to the
reorganization of our Engine segment's European operations in the third quarter
of 2002.
21
Selling, general and administrative expenses were approximately $39 million or
11% of sales for the three months ended September 30, 2002 versus $70 million
or 14% of sales for the comparable period in 2001. Selling, general and
administrative expenses excluding TriMas for the three months ended September
30, 2002 and 2001 are summarized below:
(IN THOUSANDS)
3 MONTHS 3 MONTHS
ENDED 9/30/02 ENDED 9/30/01 $ CHANGE % CHANGE
--------------- --------------- ------------- -----------
Selling, general and administrative
expenses ............................ $ 38,530 $ 69,930 $ (31,400) (45%)
TriMas portion of selling, general and
administrative expenses and goodwill
amortization ........................ -- (34,020) 34,020 (100%)
Operating lease costs ................ (5,800) (4,550) (1,250) 27%
-------- --------- --------- ----
Adjusted selling, general and
administrative expenses ............. $ 32,730 $ 31,360 $ 1,370 4%
======== ========= ========= ====
The net $1.4 million, or 4%, increase in selling, general and administrative
expenses is primarily attributable to an increased cost base to support the
large amount of future programs awarded to Metaldyne.
Interest expense was approximately $18 million and $33 million for the three
months ended September 30, 2002 and September 30, 2001, respectively. This
decrease is primarily due to a reduction in interest expense resulting from a
lower average debt balance in 2002, an approximate 2% reduction in LIBOR for
the comparable periods in 2002 and 2001, and a smaller applicable spread over
LIBOR (from 4.5% to 2.75%) in our amended and restated credit facility versus
the prior year. See the Liquidity and Capital Resources section for additional
discussion of the reduction in debt levels for fiscal 2002.
The provision for income taxes for the three months ended September 30, 2002
was a benefit of $1.6 million as compared to $0 for the three months ended
September 30, 2001. The provision for income taxes for the third quarter of
both years was computed under the discrete method of accounting due to the
variance between the third quarter earnings and the projected earnings for the
year. The provision in both years reflects the impact of foreign income taxed
at rates greater than U.S. statutory rates, as well as state income tax
payable, even though the Company incurred a loss for U.S. tax purposes. In
addition to these two factors, the tax provision for 2001 reflects the impact
of non-deductible goodwill from acquisitions. The combination of these factors
served to reduce the amount of tax benefit recognized in the third quarter of
2001 to $0.
Net loss before the extraordinary item was approximately $6.0 million for the
three months ended September 30, 2002, versus a loss of approximately $7.0
million for the comparable period in 2001, or a $1.0 million increase. We
recognized a net loss attributable to common stock of approximately $15.0
million for the three months ended September 30, 2002, versus a loss of $8.9
million for the comparable period in 2001, or a $6.1 million decrease.
During the third quarter of 2002, we completed a tender offer to repurchase
approximately $78 million in aggregate principal amount of our 4.5% convertible
subordinated debentures due 2003 which resulted in a one-time (primarily
non-cash) pre-tax charge totaling $7 million. These additional costs are
reflected, net of the associated tax benefit of $1.4 million, as an
"Extraordinary loss on repurchase of debentures and early retirement of term
loans" in our consolidated statement of operations for the three months ended
September 30, 2002. We are currently reviewing the provisions of SFAS No. 145,
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections," and its impact upon its adoption in 2003 in
our disclosure of this extraordinary loss.
SEGMENT INFORMATION
Sales for the Automotive Group were approximately $15 million higher for the
three months ended September 30, 2002 than for the comparable period in 2001.
The primary driver of this increase was an approximate 10.6% increase in North
American vehicle production during the period. Offsetting this
22
increase was an unfavorable pricing environment, a decline in European vehicle
production, the effects of the closure of a manufacturing facility and the loss
of certain customer contracts.
Our Chassis segment's revenues increased by 3% for the three months ended
September 30, 2002 versus the comparable period in 2001, primarily driven by
the overall increase in North American vehicle production and new product
launches. However, the closure earlier in 2002 of one of their manufacturing
facilities resulted in a $4 million decrease in sales, or approximately 10% of
the Chassis segment's sales for the quarter. Excluding the effect of this
closed facility, the Chassis segment's revenue increased approximately 13%. Our
Engine segment revenue increased approximately 8% over the prior period
principally due to the increased North American vehicle production despite the
declining production levels in the European vehicle market and certain customer
price concessions. Adjusting for the European build decline and the pricing
concessions, the revenue for the Engine segment increased consistent with the
market. Our Driveline segment's revenue increased approximately 3% versus the
prior period, primarily as a result of an increase in vehicle production.
Offsetting this increase was the loss of certain customer contracts in late
2001, weakness in the overall hydraulic controls market and price concessions
taken in 2002. The Driveline segment is rapidly working to replace this
capacity, and has received contracts beginning in 2003 that are expected to
increase future sales above 2001 levels.
EBITDA for the Automotive Group improved by approximately $2 million for the
three months ended September 30, 2002 versus the comparable period in 2001. The
primary driver of this increase is the $15 million improvement in sales offset
by a $1.3 million increase in operating lease expense related to sale-leaseback
activities completed in the second half of 2001 and first quarter of 2002.
Additionally, negatively impacting EBITDA for the three months ended September
30, 2002, was a non-recurring charge taken related to the reorganization of our
Engine segment's European operations, the declining European vehicle market and
costs associated with the build-up of our design and engineering capabilities
to support future program awards.
CORPORATE & OTHER UNALLOCATED
Corporate and other unallocated expense increased slightly for the three months
ended September 30, 2002 versus the comparable period in 2001 due to our shared
services initiatives to centralize standard processes and reduce redundant
costs throughout the Company (e.g., capability in sales, procurement, IT
infrastructure, finance expertise, etc.). The majority of the shared services
initiatives are being implemented in the fourth quarter of 2002 and first half
of 2003, and as a result we anticipate a decrease in operational costs at the
Automotive Group units in 2003. However, the initial build-up of program and
management resources to implement the shared services program resulted in
unfavorable costs in the short-term.
23
NINE MONTHS ENDED SEPTEMBER 30, 2002 VERSUS SEPTEMBER 30, 2001
(IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30
------------------------------
SALES 2002 2001
----- ------------- -------------
Automotive Group
Chassis ............................................ $ 126,800 $ 118,530
Driveline .......................................... 618,310 609,220
Engine ............................................. 368,790 344,370
---------- ----------
Automotive Group ................................. 1,113,900 1,072,120
TriMas Group ........................................ 328,580 571,080
---------- ----------
Total Sales ...................................... $1,442,480 $1,643,200
========== ==========
EBITDA
------
Automotive Group
Chassis ............................................ $ 13,630
Driveline .......................................... 78,080
Engine ............................................. 50,860
----------
Automotive Group ................................. 142,570 $ 140,500
TriMas Group ........................................ 62,420 101,670
---------- ----------
Corporate/unallocated/centralized resources ......... (14,560) (10,060)
---------- ----------
Total EBITDA ........................................ 190,430 232,110
Depreciation & amortization ......................... 81,460 113,070
Legacy stock award expense .......................... 4,210 7,500
---------- ----------
Operating profit .................................... $ 104,760 $ 111,540
========== ==========
Excluding the results of TriMas, the subsidiary that the Company sold in June
2002, sales increased $42 million or 3.9% for the nine months ended September
30, 2002 in comparison with the comparable period in 2001. The primary driver
of this increase was a 7.6% increase in vehicle production by our three largest
customers, offset by the effects of the closure of a manufacturing facility in
the Chassis Group and the loss of certain customer contracts in our Driveline
segment.
Excluding the results of TriMas, EBITDA for the nine months ended September 30,
2002 decreased $2.4 million or 1.9% compared with the comparable period in
2001. Offsetting the increased sales for the period were $9.9 million in
additional operating lease payments, a non-recurring charge taken related to
the reorganization of our Engine segment's European operations, costs
associated with the build-up of our design and engineering capabilities to
support future program awards and a one-time $2.4 million expense reimbursement
experienced in the second quarter of 2001.
Selling, general and administrative expenses were approximately $164 million or
11% of sales for the nine months ended September 30, 2002 versus $209 million
or 13% of sales for the comparable period in 2001. Selling, general and
administrative expenses excluding TriMas for the nine months ended September
30, 2002 and 2001 are summarized below:
24
(IN THOUSANDS)
9 MONTHS 9 MONTHS
ENDED 9/30/02 ENDED 9/30/01 $ CHANGE % CHANGE
--------------- --------------- ------------- ---------
Selling, general and administrative
expenses .............................. $ 164,200 $ 208,800 $ (44,600) (21%)
TriMas portion of selling, general and
administrative expenses and goodwill
amortization .......................... (52,080) (115,080) 63,000 (55%)
One-time expense reimbursement ......... -- 2,400 (2,400) 100%
Operating lease costs .................. (18,440) (8,530) (9,910) 116%
--------- ---------- --------- ---
Adjusted selling, general and
administrative expenses ............... $ 93,680 $ 87,590 $ 6,090 7%
========= ========== ========= ===
The net increase of $6.1 million, or 7%, in selling, general and administrative
expenses, identified above, is primarily related to an increased cost base to
support the large amount of future programs awarded to Metaldyne. Additionally,
2001 selling, general and administrative expenses included a one-time $2.4
million expense reimbursement.
Interest expense was approximately $74 million and $113 million for the nine
months ended September 30, 2002 and 2001, respectively. This decrease is
primarily due to a reduction in interest resulting from a lower average debt
balance in 2002, an approximate 3% reduction in LIBOR for the comparable
periods in 2002 and 2001, and a smaller applicable spread over LIBOR (from 4.5%
to 2.75%) in our amended and restated credit facility versus the prior year.
See Liquidity and Capital Resources section for additional discussion of the
reduction in debt levels for fiscal 2002. The Company also recorded a $7.5
million non-cash loss on interest rate arrangements in connection with the
early retirement of its term loans in the second quarter of 2002. This loss is
reflected as a "Loss on interest rate arrangements upon early retirement of
term loans" in our consolidated statement of operations for the three and nine
months ended September 30, 2002.
The provision for income taxes for the nine months ended September 30, 2002 was
a benefit of $15.8 million as compared to a benefit of $0.6 million for the
comparable period in 2001. The provision for both years was computed under the
discrete method of accounting due to the variance between the third quarter
earnings and the projected earnings for the year. During 2002, the U.S.
Department of Treasury issued new regulations that replace the loss
disallowance rules applicable to the sale of stock of a subsidiary member of a
consolidated tax group. These regulations permit the Company to utilize a
previously disallowed tax capital loss that primarily resulted from the sale of
a subsidiary in 2000. Accordingly, the Company recorded a tax benefit of $20
million in the quarter ended June 30, 2002. The provision for both years
reflects the impact of foreign income taxed at rates greater than U.S.
statutory rates, as well as state income taxes payable, even though the Company
incurred a loss for U.S. tax purposes. The tax provision for 2001 also reflects
the impact of non-deductible goodwill from acquisitions, with the impact of
this item more pronounced due to the low level of pre-tax income.
Net income before the cumulative effect of change in accounting principle and
extraordinary item was approximately $23.0 million for the nine months ended
September 30, 2002, versus a loss of approximately $20.3 million for the
comparable period in 2001, or a $43.3 million increase. As of September 30,
2002, we completed our transitional impairment test needed to measure the
amount of any goodwill impairment for our former TriMas subsidiary, as required
by SFAS No. 142, "Goodwill and Other Intangible Assets." A non-cash, after tax
charge of $36.6 million was taken as of January 1, 2002. Consistent with the
requirements of SFAS No. 142, we recognized this impairment charge as the
cumulative effect of change in accounting principle as of January 1, 2002. In
connection with our early retirement and refinancing of our prior credit
facility, we also incurred a $63.0 million (or $39.7 million, net of tax)
extraordinary loss on the extinguishment of this debt. We recognized a net loss
attributable to common stock of approximately $60.2 million for the nine months
ended September 30, 2002, versus a loss of $24.5 million for the comparable
period in 2001, or a $35.7 million decrease.
25
SEGMENT INFORMATION
Sales for the Automotive Group were approximately $42 million, or 3.9%, higher
for the nine months ended September 30, 2002 than for the comparable period in
2001. The primary driver of this increase was an approximate 7.6% increase in
North American vehicle production during the period. Offsetting this increase
was an unfavorable pricing environment, a decline in the European vehicle
production, the effects of the closure of a manufacturing facility and the loss
of certain customer contracts.
Sales for our Chassis segment increased approximately 7% for the nine months
ended September 30, 2002 versus the comparable period in 2001, primarily driven
by the overall increase in North American vehicle production and new product
launches. However, the closure earlier in 2002 of one of their manufacturing
facilities resulted in a $11 million decrease in sales year over year, or 9% of
the Chassis segment's sales for the comparable period of 2001. Excluding the
effect of this closed facility, the Chassis segment's revenue increased
approximately 16%. Our Engine segment revenue increased approximately 7% over
the prior period due principally to the increased North American vehicle
production despite the declining production levels in the European vehicle
market and price concessions. Our Driveline segment increased 1.5% versus the
prior period primarily the result of an increase in vehicle production.
Offsetting this increase was the loss of certain customer contracts in late
2001, weakness in the overall hydraulic controls market and price concessions
taken in 2002. The Driveline segment is rapidly working to replace these sales,
and has received contracts beginning in 2003 that are expected to increase
future sales above 2001 levels.
EBITDA for the Automotive Group improved by approximately $2 million versus the
comparable period in 2001. The primary driver of this increase is the $42
million increase in sales, which was offset by a $9.9 million increase in
operating lease expense related to sale-leaseback activities completed in the
second half of 2001 and first quarter of 2002. Additionally, negatively
impacting EBITDA for the nine months ended September 30, 2002 was a $1.1
million non-recurring charge taken in the third quarter related to the
reorganization of our Engine segment's European operations, the decline in the
European vehicle market, costs associated with the build-up of our design and
engineering capabilities to support future program awards and unfavorable price
increases in our aluminum purchases.
CORPORATE & OTHER UNALLOCATED
Corporate and other unallocated expense increased $4.5 million for the nine
months ended September 30, 2002 versus the nine months ended September 30,
2001. This increase is primarily attributed to our shared services initiatives
to centralize standard processes and reduce redundant costs throughout the
Company (e.g. capability in sales, procurement, IT infrastructure, finance
expertise, etc.) and a one-time $2.4 million expense reimbursement in 2001. The
majority of the shared services initiatives are being implemented in the fourth
quarter of 2002, and as a result we anticipate a decrease in operational costs
at the Automotive Group units in 2003. However, the initial build-up of program
and management resources to implement the shared services program has resulted
in unfavorable costs during the 2002 implementation process.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY. We had approximately $7.4 million of cash and cash equivalents at
September 30, 2002. Additionally, we had $117.5 million and $47 million of
additional liquidity available from our revolving credit facility and accounts
receivable securitization facility, respectively. Thus, total available
liquidity exceeded $170 million as of September 30, 2002. At September 30,
2002, $29 million of the accounts receivable securitization facility was
utilized. The revolving credit facility was unutilized.
OUR PRINCIPAL SOURCES OF LIQUIDITY. Our principal sources of liquidity are cash
flow from operations, our revolving credit facility and our accounts receivable
facility. We have significant unutilized capacity under our revolving credit
facility and accounts receivable facility that may be utilized for
acquisitions, investments or unanticipated capital expenditure needs. We
anticipate that our capital expenditure requirements for fiscal 2002 will be
approximately $110 million. We believe that our liquidity and capital resources
including anticipated cash flow from operations will be sufficient to meet debt
service, capital expenditure and other short-term and long-term obligations and
needs, but we are subject to unforeseeable events and the risk that we are not
successful in implementing our business strategies.
26
TRIMAS DISPOSITION. On June 6, 2002, we issued TriMas common stock to Heartland
and other investors amounting to approximately 66% of the fully diluted common
equity of TriMas. Consequently, we (1) received $840 million in the form of
cash, debt reduction and reduced receivables facility balances and (2) received
or retained common stock and a warrant in TriMas representing the Company's 34%
retained interest.
As a result of the transaction, after payment of expenses, the Company or
TriMas repaid approximately $496 million of term debt under our senior credit
facility, repurchased approximately $206 million aggregate principal amount of
its 4.5% convertible subordinated debentures due 2003 ($78 million of this
repurchase was completed in the third quarter), and reduced outstanding
balances under our receivables facility by approximately $136 million (of which
approximately $86 million relates to the elimination of the TriMas receivables
base). Upon completion of the repurchase of our 4.5% convertible subordinated
debentures due 2003 and repayment of term debt, we incurred an approximate
$39.7 million, after tax, extraordinary loss on the extinguishment of debt. At
September 30, 2002, the remaining aggregate principal amount of the 4.5%
convertible subordinated notes is $98.5 million.
DEBT, CAPITALIZATION AND AVAILABLE FINANCING SOURCES. On June 20, 2002, we
entered into two arrangements to refinance our long-term debt. In the first
arrangement, we issued $250 million of 11% senior subordinated notes due 2012
in a private sale under Rule 144A of the Securities Act of 1933, as amended. On
October 15, 2002, the Company filed a registration statement with the
Securities and Exchange Commission for an exchange offer of a new issue of 11%
senior subordinated notes due 2012 in exchange for the outstanding 11% senior
subordinated notes due 2012. The exchange offer will raise no new proceeds for
the Company and is being made in accordance with contractual commitments
arising from the June 20, 2002 issuance. The exchange offer will allow the 11%
senior subordinated notes to be transferred without restriction. The exchange
offer will close on November 20, 2002, unless otherwise extended by the
Company.
In connection with the 11% senior subordinated notes offering described above,
the Company also amended and restated its credit facility to replace its
original tranche A, B and C term loans with a new $400 million tranche D term
loan payable in semi-annual installments of $0.5 million with the remaining
outstanding balance due December 31, 2009. In addition to the term loan, the
credit facility also includes a revolving credit facility with a total
principal amount commitment of $250 million. Both the senior revolving credit
facility and the senior term loan facility mature December 31, 2009. The
obligations under the credit facility are collateralized by substantially all
of the Company's assets and are guaranteed by substantially all of the
Company's domestic subsidiaries.
In conjunction with the 11% senior subordinated notes offering and the amended
and restated credit agreement described above, we repaid the outstanding
balance on our tranche A, B and C term loan facilities. The Company's long-term
debt is summarized below.
27
(IN MILLIONS)
SEPTEMBER 30, DECEMBER 31,
2002 2001
--------------- -------------
Senior credit facilities:
Tranche A term loan facility .................... -- $ 449
Tranche B term loan facility .................... -- 478
Tranche C term loan facility .................... -- 185
Tranche D term loan facility .................... 400 --
Revolving credit facility ........................ -- --
---- ------
Total senior credit facility ..................... $400 $1,112
11% Senior subordinated notes, due 2012 ......... 250 --
4.5% Convertible subordinated debentures, due
2003 (face value $98.5 million) ............... 90 263
Other debt ...................................... 22 27
----- ------
Total debt ....................................... 762 1,402
Less current maturities .......................... (4) (43)
----- ------
Long-term debt ................................... 758 $1,359
Cash and cash equivalents ........................ 7 --
---- ------
Net long-term debt ............................... $751 $1,359
==== ======
As a result of the refinancing described above, we cancelled the $100 million
subordinated loan commitment from Masco Corporation. This commitment had been
established for use in the event that funds were not otherwise available to
satisfy principal obligations under the 4.5% convertible subordinated
debentures at maturity. As a result of the large prepayment of this obligation,
the commitment from Masco Corporation was deemed unnecessary. Until the
remaining 4.5% convertible subordinated debentures are repaid, availability up
to $100 million on our working capital revolver loan will be restricted. This
restriction, however, will be tied to the outstanding unpaid balance as future
repurchases are made, and is $98.5 million as of September 30, 2002.
At September 30, 2002, we were contingently liable for standby letters of
credit totaling $34 million issued on our behalf by financial institutions.
These letters of credit are used for a variety of purposes, including meeting
various states' requirements in order to self-insure workers' compensation
claims, including incurred but not reported claims.
EFFECTS OF TRIMAS DISPOSITION AND REFINANCING. As a result of the TriMas
disposition and subsequent debt refinancing, our capital structure has been
significantly modified. We experienced the following debt reduction,
amortization and liquidity enhancements as a direct result of these actions:
o Our senior indebtedness has been reduced 42% since December 31, 2001.
o The weighted average life of our outstanding debt has been extended from
approximately 4 years to 7 years. This will better enable the Company to
invest in the necessary capital to support our growth plan over the next
several years.
o Our outstanding receivables facility balance was $29 million at September
30, 2002, leaving us with $47 million available under our receivables
facility in addition to our $117.5 million of unutilized revolving credit
facility (net of $34 million letters of credit usage and $98.5 million of
blocked availability for retirement of our 4.5% subordinated debentures).
o As a result of the TriMas disposition, we repurchased $206.5 million in
aggregate principal amount of the 4.5% convertible subordinated debentures
due 2003. The remaining aggregate principal amount of these 4.5%
convertible subordinated debentures is $98.5 million.
CASH FLOWS.
Operating activities -- Operating activities used $93.9 million of cash for the
first nine months of 2002 compared with a source of cash of $120.5 million in
the comparable period of 2001. Excluding the
28
activities related to the sale of receivables, operating activities provided
$44.4 million of cash for the first nine months of 2002 as compared to $92.9
million for the comparable period of 2001. This change is due primarily to the
increased usage in working capital. For the first nine months of 2002, changes
in working capital were a use of cash of $216.6 million versus a use of cash of
$4.5 million for the first nine months of 2001. The table below depicts an
estimate of our operating cash flow adjusting for the TriMas disposition funded
with Metaldyne cash flow.
Estimated "Normalized" Operating Cash Flow for Metaldyne
Operating Cash Flow per Statement .................................. $ (93.9)
Adjustments to operating cash flow:
Net repayment of accounts receivable securitization (1) ......... 138.4
Accounts receivable build at TriMas prior to disposition (2) .... 39.0
-------
Adjusted operating cash flow ....................................... $ 83.5
=======
(1) Represents the net paydown of our accounts receivable securitization
program in 2002.
(2) Represents the increase in accounts receivable at TriMas from December
31, 2001 to June 6, 2002 funded with Metaldyne cash flow.
Investing activities -- Investing activities resulted in a source of cash of
$790.6 million for the first nine months of 2002 as compared with a use of cash
of $125.4 million for the same period of 2001. This increase is primarily the
result of proceeds from the disposition of TriMas. Investing activities were
also positively affected by the proceeds from the sale-leaseback transactions
occurring in 2002. In December 2001 and January 2002, the Company entered into
sale-leaseback transactions with respect to equipment and approximately 20 real
properties with total proceeds of approximately $56 million. Proceeds of $23
million and $33 million were received in December 2001 and January 2002,
respectively. Capital expenditures were $79 million for the first nine months
of 2002 as compared with $82 million in 2001.
Financing activities -- Financing activities were a use of cash of $689.2
million for the first nine months 2002 as compared to a $0.2 million use of
cash for the same period of 2001. This decrease is primarily the result of
principal repayments on both the Company's term loan debt and convertible
subordinated notes offset by the related debt refinancing. On June 20, 2002,
the Company issued $250 million of senior subordinated notes with an interest
rate of 11% per annum and amended and restated its November 2000 credit
facility. The amended credit facility consists of a senior revolving credit
facility of up to $250 million and a $400 million senior term loan facility. In
conjunction with the debt refinancing, the Company incurred approximately $11.6
million in refinancing fees. All of the Company's sale-leaseback transactions
are accounted for as operating leases and the associated rent expense is
included in our financial results on an as-incurred basis.
OUR RECEIVABLES FACILITY. In November 2000, we entered into an agreement to
sell, on an ongoing basis, the trade accounts receivable of certain business
operations to a bankruptcy-remote, special purposes subsidiary, or MTSPC,
wholly owned by us. MTSPC has sold and, subject to certain conditions, may from
time to time sell an undivided fractional ownership interest in the pool of
domestic receivables, up to approximately $225 million, to a third party
multi-seller receivables funding company, or conduit. Upon sale to the conduit,
MTSPC holds a subordinated retained interest in the receivables. Under the
terms of the agreement, new receivables are added to the pool as collections
reduce previously sold receivables. We service, administer and collect the
receivables on behalf of MTSPC and the conduit.
The facility is subject to customary termination events, including, but not
limited to, breach of representations or warranties, the existence of any event
that materially adversely affects the collectibility of receivables or
performance by a seller and certain events of bankruptcy or insolvency. At
September 30, 2002, approximately $29 million of our $225 million receivables
facility was utilized with an additional $47 million, available but not
utilized. The proceeds of sale are less than the face amount of accounts
receivable sold by an amount that approximates the purchaser's financing costs.
The agreement expires in November 2005. If we are unable to renew or replace
this facility, it could adversely affect our liquidity and capital resources.
29
INTEREST RATE HEDGING ARRANGEMENTS. In February 2001, we entered into interest
rate protection agreements with various financial institutions to hedge a
portion of our interest rate risk related to the term loan borrowings under our
credit facility. These agreements include two interest rate collars with a term
of three years, a total notional amount of $200 million and a three month LIBOR
interest rate cap and floor of 7% and 4.5%, respectively, and four interest
rate caps at a three month LIBOR interest rate of 7% with a total notional
amount of $348 million. As a result of our early retirement of our term loans
in June 2002, we recorded a cumulative non-cash loss of $7.5 million, which is
included in our consolidated statement of operations as of June 30, 2002. The
two interest rate collars and two of the interest rate caps totaling $200
million were immediately redesignated to our new tranche D term note in June
2002, resulting in a cumulative unrealized loss of $0.1 million as of September
30, 2002, which is included in other comprehensive income (loss) in the
Company's consolidated balance sheet. The remaining two interest rate caps
totaling $148 million no longer qualify for hedge accounting. Therefore, the
unrealized gain or loss is recorded as other income or expense in the
consolidated statement of operations beginning June 20, 2002. As of September
30, 2002, a loss of $0.03 million has been recorded as other expense in the
consolidated statement of operations.
CERTAIN OTHER COMMITMENTS. We have other cash commitments not relating to debt
as well, such as those in respect of leases, preferred stock and restricted
stock awards.
In November 2000, a group of investors led by Heartland and CSFB Private Equity
acquired control of Metaldyne. Immediately following the November 2000
acquisition, we made restricted stock awards to certain employees of shares of
our common stock. Under their terms, 25% of those shares became free of
restriction, or vested upon the closing of the November 2000 acquisition and
one quarter of the shares were due to vest on each January 14, 2002, 2003, and
2004. Holders of restricted stock are entitled to elect cash in lieu of 40% of
their restricted stock which vested at closing and 100% of their restricted
stock on each of the other dates with the shares valued at $16.90 per share,
together with cash accruing at approximately 6% per annum; to the extent that
cash is not elected, additional common stock valued at $16.90 per share is
issuable in lieu of the 6% accretion. As a result of the elections made for the
January 14, 2002 payment and restrictions under our credit facility, we paid
approximately $6 million in cash to vested holders of restricted stock and we
accrued and paid 12% on approximately $8.3 million in June 2002 as to which
cash elections were made but cash was not permitted to be paid under the terms
of our credit facility prior to its restatement. We are entitled to
reimbursement of certain amounts from TriMas, representing approximately 50% of
our obligations. Assuming restricted stock award holders elect to receive the
maximum cash in 2003 and 2004, we estimate that our additional cash obligations
will aggregate approximately $31.6 million (without giving effect to TriMas'
reimbursement obligation).
We also have outstanding $58.7 million in aggregate liquidation value of series
A and series B preferred stock in respect of which we have the option to pay
cash dividends, subject to the terms of our debt instruments, at rates of 13%
and 11.5% respectively per annum initially and to effect a mandatory redemption
in December 2012 and June 2013. For periods that we do not pay cash dividends
on the series A preferred stock, an additional 2% per annum of dividends is
accrued. In the event of a change in control or certain qualified equity
offerings, we may be required to make an offer to repurchase our outstanding
preferred stock. We may not be permitted to do so and may lack the financial
resources to satisfy these obligations. Consequently, upon these events, it may
become necessary to recapitalize our company or secure consents.
We have engaged in a number of sale-leaseback transactions. At the time of the
GMTI acquisition in June 2001, GMTI entered into sale-leasebacks with respect
to certain manufacturing equipment and three real properties for proceeds of
approximately $35 million and reduced the debt that we assumed as part of the
acquisition by that amount. In June 2001, we entered into an approximate $25
million sale-leaseback related to manufacturing assembly equipment. In December
2001 and January 2002, we entered into additional sale-leaseback transactions
with respect to equipment and approximately 20 real properties for net proceeds
of approximately $56 million and used the proceeds to repay a portion of our
term debt under our credit facility. All of these leases are accounted for as
operating leases and the associated rent expense is included in our financial
results on an as-incurred basis. Of the $56 million in proceeds, approximately
$21 million were from the sale of TriMas properties.
30
SATURN-RELATED OBLIGATIONS. In the November 2000 acquisition, our shares were
converted into the right to receive $16.90 in cash plus additional cash amounts
based upon the net proceeds of the disposition of the stock of Saturn
Electronics & Engineering Inc. held by Metaldyne. Although no disposition of
the stock of Saturn was made prior to the merger or has been made to date,
former holders of our common stock as of the merger will be entitled to amounts
based upon the net proceeds, if any, from any future disposition of that stock
if and when a disposition is completed. The amount which will be paid to such
former stockholders will equal the proceeds in excess of $18 million and less
than or equal to $40 million, any proceeds in excess of $55.7 million and less
than or equal to $56.7 million as well as 60% of any such proceeds in excess of
$56.7 million. All other amounts of the proceeds will be retained by us.
OUTLOOK
Automotive production was up 7.6% in the first nine months of 2002 versus the
comparable period in 2001. To further enhance North American automotive
revenues, the Original Equipment Manufacturer's (OEMs) are reintroducing zero
percent financing for the fourth quarter of 2002 that may help to keep
production schedules firm. The European market is estimated to decline compared
to prior year levels. However, we remain cautious that North American vehicle
production will continue to be stable for the remainder of 2002 as inventory
levels at the OEMs appear to be at higher levels than in the comparable prior
periods.
Our principal use of funds from operating activities and borrowings for the
next several years are expected to fund interest and principal payments on our
indebtedness, growth related capital expenditures and working capital
increases, strategic acquisitions and lease expense. Management believes cash
flow from operations, debt financings and refinancings that occurred in June
2002 provide adequate sources of liquidity for the Company.
Our largest raw material requirement is special bar quality steel. Under supply
contracts for special bar quality steel, we have established the prices at
which we will purchase much of our steel requirements through the remainder of
2002. We may not be able to renegotiate future prices under those contracts at
prices favorable to us, depending on industry conditions. The domestic steel
industry has experienced substantial financial instability due to numerous
factors, including energy costs and the effect of foreign competition. In
response to this instability, tariffs on imported steel were imposed by the
U.S. government in March 2002. As a result, steel prices have begun to rise and
we expect to experience increased steel prices in 2003 when our current
contracts expire. Metaldyne has been aggressively pursuing strategies to
mitigate the net effect of these tariffs on our profitability, but at this
date, any effect of these tariffs on our future profitability cannot be
quantified.
CONTRACTUAL CASH OBLIGATIONS
Under various agreements, we are obligated to make future cash payments in
fixed amounts. These include payments under our long-term debt agreements, rent
payments required under lease agreements and various severance obligations
related to our recent acquisitions. The following table summarizes our fixed
cash obligations over various future periods as of September 30, 2002.
31
(IN MILLIONS)
PAYMENTS DUE BY PERIODS
LESS THAN 1-3 3-5 AFTER
TOTAL ONE YEAR YEARS YEARS 5 YEARS
------- ----------- ------- ------- --------
Long-term debt ........................ $400 $ 1 $ 2 $ 2 $395
11% Senior subordinated notes ......... 250 -- -- -- 250
4.5% Convertible subordinated
debentures ........................... 90 -- 90 -- --
Other debt ............................ 16 2 6 8 --
Capital lease obligations ............. 6 4 2 -- --
Operating lease obligations ........... 218 31 57 42 88
Severance ............................. 18 11 7 -- --
---- --- ---- --- ----
Total contractual obligations ......... $998 $49 $164 $52 $733
==== === ==== === ====
Note: Operating lease expense is deducted to arrive at EBITDA.
U.S. PENSION PLANS
The Company sponsors defined benefit pension plans covering certain hourly and
salaried employees in the United States. On September 30, 2001, the projected
benefit obligation (calculated using a 7.625% discount rate) exceeded the
market value of plan assets by $79.9 million. During 2002, the Company made
contributions of $23.5 million to the defined benefit plans; however, these
contributions have been offset by negative 2002 investment returns for
Metaldyne's pension asset portfolio. The underfunded status at September 30,
2002 is approximately $93.2 million (assuming a 6.75% discount rate). Under
SFAS No. 87, "Employers' Accounting for Pensions" rules, Metaldyne is required
annually on September 30th to mark the gross pension liabilities and assets to
market value. Although this mark-to-market adjustment is required, the Company
maintains a long-term outlook for developing a pension-funding plan. In
addition, we are in a period of very low interest rates, which results in a
higher liability estimate. Assuming interest rates increase to a historical
25-year average range of 7.75% to 8.0%, the underfunded status at September 30,
2002 would decrease to $56.2 million.
The Company's 2003 defined benefit pension expense is projected to be $3.8
million. This is a reduction of $5.5 million compared to 2002. The reduction is
attributable, in large part, to the TriMas disposition and the benefit program
changes that Metaldyne has adopted, which will become effective on January 1,
2003. The Company has replaced its existing combination of defined benefit
plans and defined contribution plans for non-union employees with an
age-weighted profit sharing plan and a 401(k) plan. We expect to make
contributions of $15.8 million to the defined benefit pension plans for 2003.
CRITICAL ACCOUNTING POLICIES
The following discussion of accounting policies is intended to supplement the
accounting policies presented as Note 2 to our 2001 financial statements
included in the 2001 Form 10K. The expenses and accrued liabilities or
allowances related to certain of these policies are initially based on our best
estimates at the time of original entry in our accounting records. Adjustments
are recorded when our actual experience differs from the expected experience
underlying the estimates. We make frequent comparisons of actual versus
expected experience to mitigate the likelihood of material adjustments.
In compliance with Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements," the Company does not recognize revenue
until it is realized or realizable and earned. Revenue generally is realized or
realizable and earned when all of the following criteria are met: persuasive
evidence of an arrangement exists; delivery has occurred or services have been
rendered; the selling price to the buyer is fixed or determinable; and
collectibility is reasonably assured. The Company is in compliance with SAB No.
101 as of September 30, 2002.
NEW ACCOUNTING PRONOUNCEMENTS. In June 2001, the Financial Accounting Standards
Board approved Statements of Financial Accounting Standards No. 141 "Business
Combinations" ("SFAS No. 141") and No. 142 "Goodwill and Other Intangible
Assets" ("SFAS No. 142") which are effective for us on July 1,
32
2001 and January 1, 2002, respectively. SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. Under SFAS No. 142, amortization of goodwill, including goodwill
recorded in past business combinations, will discontinue upon adoption of this
standard. In addition, goodwill recorded as a result of business combinations
completed during the six-month period ended December 31, 2001 will not be
amortized.
Under SFAS No. 142, the Company ceased the amortization of goodwill. Our Step 1
test as required by SFAS No. 142 indicated a carrying value in excess of fair
value relating to the TriMas reporting units at January 1, 2002. We completed
our assessment for the Automotive Group which indicated that the fair value of
these units exceeds their corresponding carrying value. Fair value was
determined based upon the discounted cash flows of the reporting units.
We completed our transitional impairment test needed to measure the amount of
any goodwill impairment for our former TriMas subsidiary. A non-cash, after tax
charge of $36.6 million was taken as of January 1, 2002, related to the
industrial fasteners business of our former TriMas subsidiary. Sales, operating
profits and cash flows for this TriMas owned business were lower than expected
beginning in the first quarter of 2001, due to the overall economic downturn
and cyclical declines in certain markets for industrial fastener products.
Based on that trend, the earnings and cash flow forecasts for the next five
years indicated the goodwill impairment loss. Consistent with the requirements
of SFAS No. 142, we will recognize this impairment charge as the cumulative
effect of change in accounting principle as of January 1, 2002.
The Financial Accounting Standards Board approved the issuance of SFAS No. 143,
"Accounting for Asset Retirement Obligations" in June 2001, which is effective
January 1, 2003. SFAS No. 143 requires that an existing legal obligation
associated with the retirement of a tangible long-lived asset be recognized as
a liability when incurred and the amount of the liability be initially measured
at fair value. The Company is currently reviewing the provisions of SFAS No.
143 and assessing the impact of adoption.
On January 1, 2002, we adopted SFAS No. 144, "Accounting for the Impairment or
Disposal of Long Lived Assets." Under SFAS No. 144, a single accounting method
was established for long-lived assets to be disposed. SFAS No. 144 requires the
Company to recognize an impairment loss only if the carrying amount of a
long-lived asset is not recoverable from its undiscounted cash flows and the
loss is the difference between the carrying amount and fair value. The adoption
of this Statement did not have any impact on the financial position or results
of operations of the Company.
In April 2002, the Financial Accounting Standards Board issued SFAS No. 145,
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections." With the rescission of SFAS No. 4 and 64,
only gains and losses from extinguishments of debt that meet the criteria of
APB Opinion No. 30 would be classified as extraordinary items. This statement
also rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor
Carriers." This statement amends SFAS No. 13, "Accounting for Leases," to
eliminate the inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. SFAS No.
145 also amends other existing authoritative pronouncements to make various
technical corrections, clarify meanings or describe their applicability under
changed conditions. SFAS No. 145 is effective for fiscal years beginning after
May 15, 2002. The Company is currently reviewing the provisions of this
Statement and will adopt it effective with the Company's 2003 fiscal year end.
In July 2002, the Financial Accounting Standards Board issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." SFAS No.
146 requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of the commitment to
an exit or disposal plan. SFAS No. 146 is effective for all exit or disposal
activities initiated after December 31, 2002. The Company is currently
reviewing the provisions of this Statement and will adopt it effective with the
Company's 2003 fiscal year.
In October 2002, the Financial Accounting Standards Board issued SFAS No. 147,
"Acquisitions of Certain Financial Institutions." SFAS No. 147 addresses the
financial accounting and reporting for the acquisition of all or part of a
financial institution, except for a transaction between two or more mutual
33
enterprises, and is an amendment of SFAS No. 72, SFAS No. 144 and FASB
Interpretation No. 9. The provisions of this Statement are effective on or
after October 1, 2002. It is believed that SFAS No. 147 will have no impact on
the Company.
DERIVATIVE FINANCIAL INSTRUMENTS. We have entered into interest rate protection
agreements to limit the effect of changes in the interest rates on any floating
rate debt. Instruments used as hedges must be effective at reducing the risks
associated with the underlying exposure and must be designated as a hedge at
the inception of the contract. Changes in the fair value of such instruments
are recognized in the balance sheet as a component of accumulated other
comprehensive income (loss) in shareholders' equity.
Effective January 1, 2001, the Company adopted the provisions of Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities." Pursuant to this statement, all derivative instruments
are recognized as assets or liabilities on the balance sheet and measured at
fair value. Changes in fair value are recognized currently in earnings unless
the instrument qualifies for hedge accounting. Under hedge accounting, changes
are recorded as a component of other comprehensive income (loss) to the extent
the hedge is considered effective.
RECEIVABLES. Receivables are presented net of allowances for doubtful accounts.
We conduct a significant amount of business with a number of individual
customers in the transportation industry. We monitor our exposure for credit
losses and maintain adequate allowances for doubtful accounts; we do not
believe that significant credit risk exists. Trade accounts receivable of
substantially all domestic business operations are sold, on an ongoing basis,
to MTSPC, Inc., a wholly owned subsidiary of the Company.
DEPRECIATION AND AMORTIZATION. Depreciation is computed principally using the
straight-line method over the estimated useful lives of the assets. Annual
depreciation rates are as follows: buildings and land improvements, 21/2 to
10%, and machinery and equipment, 62/3 to 331/3%. The excess of cost over net
assets of acquired companies (goodwill) is no longer amortized. Annually,
management assesses whether there has been an impairment of the excess of cost
over net assets of acquired companies by comparing anticipated undiscounted
future cash flows from operating activities with the carrying amount of the
excess of cost over net assets of acquired companies. The factors considered by
management in performing this assessment include current operating results,
business prospects, market trends, potential product obsolescence, competitive
activities and other economic factors.
PENSION AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. Annual net periodic
expense and benefit liabilities under our defined benefit plans are determined
on an actuarial basis. Assumptions used in the actuarial calculations have a
significant impact on plan obligations and expense. Each September, we review
the actual experience compared to the more significant assumptions used and
make adjustments to the assumptions, if warranted. The healthcare trend rates
are reviewed with the actuaries based upon the results of their review of
claims experience. Discount rates are based upon an expected benefit payments
duration analysis and the equivalent average yield rate for high-quality
fixed-income investments. Pension benefits are funded through deposits with
trustees and the expected long-term rate of return on fund assets is based upon
actual historical returns modified for known changes in the market and any
expected change in investment policy. Postretirement benefits are not funded
and our policy is to pay these benefits as they become due.
Certain accounting guidance, including the guidance applicable to pensions,
does not require immediate recognition of the effects of a deviation between
actual and assumed experience or the revision of an estimate. This approach
allows the favorable and unfavorable effects that fall within an acceptable
range to be netted. Although this netting occurs outside the basic financial
statements, disclosure of the net amount is disclosed as an unrecognized gain
or loss in the footnotes to our financial statements.
OTHER LOSS RESERVES. We have numerous other loss exposures, such as
environmental claims, product liability, litigation, recoverability of deferred
income tax benefits, and accounts receivable. Establishing loss reserves for
these matters requires the use of estimates and judgment in regards to risk
exposure and ultimate liability. We estimate losses under the programs using
consistent and appropriate methods; however, changes to our assumptions could
materially affect our recorded liabilities for loss. Where available we utilize
published credit ratings for our debtors to assist us in determining the amount
of required reserves.
34
MARKET TRENDS
Our sales for use in the OEM segments of the automotive industry accounted for
approximately 32% of our annual 2001 net sales. The automotive industry is
highly cyclical, is dependent on consumer spending, interest rates and consumer
confidence and is subject to, among other things, general economic conditions
and the impact of international trade. There are signs that the economy is
generally improving; however, there can be no assurance that sales of these
vehicles will not decline or that pricing pressure from customers or
competitors will not have an impact on future performance.
FORWARD-LOOKING STATEMENTS
This discussion and other sections of this report contain statements reflecting
the Company's views about its future performance and constitute
"forward-looking statements." These views involve risks and uncertainties that
are difficult to predict and may cause the Company's actual results to differ
significantly from the results discussed in such forward-looking statements.
Readers should consider that various factors may affect our ability to attain
the projected performance, including:
Leverage; Ability to Service Debt -- We may not be able to manage our business
as we might otherwise do so due to our high degree of leverage.
Challenges of Acquisition Strategy -- We intend to actively pursue
acquisitions, but we may not be able to identify attractive acquisition
candidates, successfully integrate our acquired operations or realize the
intended benefits of our acquisitions.
Substantial Capital Expenditure Requirements -- If we are unable to meet future
capital requirements, our business may be adversely affected.
Substantial Restrictions and Covenants -- Restrictions in our credit facility
and under the indenture governing the notes limit our ability to take certain
actions.
Dependence on Automotive Industry and Industry Cyclicality -- The industries in
which we operate depend upon general economic conditions and are highly
cyclical.
Dependence on Third-Party Suppliers and Manufacturers -- Increases in our raw
material or energy costs or the loss of a substantial number of our suppliers
could affect our financial health.
Changing Technology -- Our products are subject to changing technology, which
could place us at a competitive disadvantage relative to alternative products
introduced by competitors.
Customer Concentration -- Our base of customers is concentrated and the loss of
business from a major customer, the discontinuance of particular vehicle models
or a change in auto consumer preferences or regulations could materially
adversely affect us.
Our Industries are Highly Competitive -- Recent trends among our customers will
increase competitive pressures in our businesses.
Dependence on Key Personnel and Relationships -- We depend on the services of
key individuals and relationships, the loss of which would materially harm us.
Labor Relations -- A portion of our workforce is unionized.
Labor Stoppages -- We may be subject to work stoppages at our facilities or
those of our principal customers, which could seriously impact the
profitability of our business.
International Sales -- A growing portion of our revenue may be derived from
international sources, which exposes us to certain risks.
o Product Liability -- We may incur material losses and costs as a result
of product liability and warranty claims that may be brought against us.
o Outsourcing Trend -- Our strategy may not succeed if anticipated
outsourcing fails to occur due to union considerations.
o Environmental Matters -- Our business may be materially and adversely
affected by compliance obligations and liabilities under environmental
laws and regulations.
35
o Control by Principal Stockholder -- We are controlled by Heartland, whose
interests in our business may be different than yours.
o Terms of Shareholders Agreement -- Provisions of the shareholders
agreement impose significant operating and financial restrictions on our
business.
All statements, other than statements of historical fact included in this
quarterly report, regarding our strategy, future operations, financial
position, estimated revenues and losses, projected costs, prospects, plans and
objectives of management are forward-looking statements. When used in this
quarterly report, the words, "will," "believe," "anticipate," "intend,"
"estimate," "expect," "project" and similar expressions are intended to
identify forward-looking statements, although not all forward-looking
statements contain such identifying words. All forward-looking statements speak
only as of the date of this quarterly report. You should not place undue
reliance on these forward-looking statements. Although we believe that our
plans, intentions and expectations reflected in or suggested by the
forward-looking statements we make in this quarterly report are reasonable, we
can give no assurance that these plans, intentions or expectations will be
achieved. We undertake no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET ABOUT RISK
----------------------------------------------------------------
In the normal course of business, we are exposed to market risk associated with
fluctuations in foreign exchange rates. We are also subject to interest risk as
it relates to long-term debt. See footnote 6 for a discussion of interest rate
risk and the objectives and strategies used to manage these risks.
ITEM 4. CONTROLS AND PROCEDURES
-----------------------
Within the 90-day period prior to the date of this report, an evaluation was
carried out, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934.
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer implemented changes, primarily to formalize, document and enhance
existing procedures that are in place within the Company and concluded that our
disclosure controls and procedures are effective, in all material respects, with
respect to the recordings, processing, summarizing and reporting, within the
time periods specified in the SEC's rules and forms, of information required to
be disclosed by us in the reports that we file or submit under the Exchange Act.
There have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the
date of the evaluation described above.
36
PART II. OTHER INFORMATION
METALDYNE CORPORATION
Items 1, 2 and 5 are not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(A) EXHIBITS:
---------
Exhibit 12 Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends
Exhibit 99.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
Exhibit 99.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
(B) REPORTS ON FORM 8-K:
--------------------
A report Form 8-K dated July 18, 2002 reported under Item 5, "Other
Events," the announcing of a non-binding letter of intent to form a
joint venture to operate the New Castle Machining Forge facility
presently owned by DaimlerChrysler in New Castle, Indiana.
A report Form 8-K dated August 14, 2002 reported under Item 7,
"Financial Statements, Pro Forma Financial Information and
Exhibits," the filing of the Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
A report Form 8-K dated September 13, 2002 reported under Item 5,
"Other Events," the update of Metaldyne Corporation's financial
statements and related notes for the fiscal year ended December 31,
2001 and period ended June 30, 2002 to include supplemental
disclosure of 1) guarantor financial information for the
subsidiaries of Metaldyne Corporation and 2) transitional
disclosures with respect to statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets."
37
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
METALDYNE CORPORATION
---------------------
(REGISTRANT)
DATE: November 13, 2002 BY: /s/ William M. Lowe, Jr.
----------------- -------------------------
William M. Lowe, Jr.
Executive Vice President and Chief
Financial Officer, Chief Accounting
Officer and Authorized Signatory
38
CERTIFICATION
I, Timothy D. Leuliette, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Metaldyne
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: November 13, 2002 /s/Timothy D. Leuliette
-----------------------
Timothy D. Leuliette
Chief Executive Officer
39
CERTIFICATION
I, William M. Lowe, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Metaldyne
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: November 13, 2002 /s/William M. Lowe, Jr.
-----------------------
William M. Lowe, Jr.
Chief Financial Officer
40
METALDYNE CORPORATION
EXHIBIT INDEX
EXHIBIT
- -------
Exhibit 12 Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends
Exhibit 99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
41