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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 29, 2002
COMMISSION FILE NUMBER 1-12068
METALDYNE CORPORATION
(FORMERLY KNOWN AS MASCOTECH, INC.)
(Exact name of registrant as specified in its charter)
DELAWARE 38-2513957
(State of Incorporation) (I.R.S. Employer Identification No.)
47659 HALYARD DRIVE, PLYMOUTH, MICHIGAN 48170-2429
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 734-207-6200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS
Common Stock, $1.00 par Value
NAME OF EACH EXCHANGE ON WHICH REGISTERED
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the Registrant is an accelerated
filer. Yes [ ] No [X]
There is currently no public market for the Registrant's Common Stock.
Number of shares outstanding of the Registrant's Common Stock at March 15,
2003: 44,643,637 shares of Common Stock, par value $1.00 per share.
Portions of the Registrant's definitive Proxy Statement to be filed for
its 2003 Annual Meeting of Stockholders are incorporated by reference into Part
III of this Form 10-K.
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TABLE OF CONTENTS
PAGE
ITEM -----
PART I
1. Business .................................................................. 3
2. Properties ................................................................ 9
3. Legal Proceedings ......................................................... 10
4. Submission of matters to a Vote of Security Holders ....................... 11
4A. Supplementary Item, Executive Officers of Registrant ...................... 11
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters ..... 12
6. Selected Financial Data ................................................... 13
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations ............................................................. 14
7A. Quantitative and Qualitative Disclosures about Market Risk ................ 34
8. Financial Statements and Supplementary Data ............................... 34
9. Changes in and Disagreements with Accountants and Financial Disclosure .... 80
PART III
10. Directors and Executive Officers of the Registrant ........................ 80
11. Executive Compensation .................................................... 80
Security Ownership of Certain Beneficial Owners and Management and
12. Related Stockholder Matters ............................................... 80
13. Certain Relationships and Related Transactions ............................ 80
14. Controls and Procedures ................................................... 80
PART IV
15. Exhibits, Financial Statement Schedule, and Reports on Form 8-K ........... 81
Signatures ......................................................................... 85
FINANCIAL STATEMENT SCHEDULE
Metaldyne Corporation Financial Statement Schedule ........................ 86
2
PART I
ITEM 1. BUSINESS.
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. We serve
approximately 200 automotive and industrial customers, and our top ten
customers represent approximately 57% of total 2002 sales.
We operate three segments through the Automotive Group. Our Driveline,
Engine and Chassis segments manufacture, design, engineer and assemble
metal-formed and precision-engineered products used in the transmissions,
engines and chassis of vehicles.
On June 6, 2002, we sold TriMas common stock to Heartland and other
investors amounting to approximately 66% of the fully diluted common equity of
TriMas. We 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 stock at a nominal exercise price. As a result of the
TriMas disposition, we received $840 million in the form of cash, debt
reduction and reduced receivables facility balances, and received or retained
common stock and a warrant in TriMas representing our 34% retained interest.
TriMas is included in our financial results through the date of this
transaction. Effective June 6, 2002, we account for our 34% retained interest
in TriMas under the equity method of accounting.
OUR BUSINESS
We are a leading supplier of highly engineered metal components for the
global light vehicle market. Through a combination of capabilities in design,
engineering, fabrication, machining and assembly, we supply components and
modular systems used in vehicle transmission, engine and chassis applications.
Our products are sold primarily to both North American and international light
vehicle original equipment manufacturers, or OEMs, and Tier I component
assemblers and provide content for approximately 95% of the top 40 NAFTA light
vehicles produced in 2002. Tier I component assemblers are direct suppliers to
OEMs of integrated modules, such as a complete engine assembly or drivetrain
assembly. Our metal forming processes include cold, warm and hot forging,
forged and conventional powder metal, tubular fabrications and
precision-aluminum die castings. In addition, we perform design, engineering,
machining, finishing and assembly functions. We have approximately 7,100
employees and more than 40 owned or leased manufacturing facilities worldwide.
In North America, we have leading market shares in several of our
products. We are the largest independent forming company, the second largest
independent "machining and assembly" supplier, and one of the largest powder
metal manufacturers for light vehicle applications. We believe our scale and
combined capabilities represent a significant competitive advantage over our
competitors, many of which are smaller and do not have the ability to combine
metal forming with machining and sub-assembly capabilities. We serve
approximately 200 customers, including BMW, Dana, DaimlerChrylser, Ford,
General Motors, Delphi, Honda, New Venture Gear, Nissan, Renault, Toyota, TRW
and Visteon.
We have organized our continuing businesses into three principal product
segments: Driveline, Engine and Chassis segments.
o DRIVELINE SEGMENT. We are a leading independent manufacturer of
components, modules and systems, including precision shafts, hydraulic
controls, not and cold forgings and integrated program management used in
a broad range of transmission applications. We believe that we have
leading market shares in several product areas, including the number one
position in transmission and transfer case shafts, transmission valve
bodies, cold extrusion and Hatebur hot forgings.
o ENGINE SEGMENT. We are a leading supplier of a broad range of engine
components, modules and systems. The group manufactures sintered metal,
powder metal, forged and tubular fabricated products used for a variety
of applications, including balance shaft modules and front cover
assemblies. We have leading market shares in powder metal connecting rods
and several categories of forgings.
3
o CHASSIS SEGMENT. We are a leading supplier of components, modules and
systems used in a variety of engineered chassis applications, including
fittings, wheel-ends, axle shafts, knuckles and mini-corner assemblies.
This group utilized a variety of processes including hot, warm and cold
forging, powder metal forging and machinery and assembly. We apply
full-service integrated machining and assembly capabilities to an array
of chassis components.
MARKET OPPORTUNITIES AND GROWTH STRATEGIES
In order to reduce costs and consolidate volume with full scale suppliers,
we believe OEMs and Tier I suppliers will increasingly seek to outsource the
design, manufacture and assembly of fully integrated, modular assemblies of
metal parts in engine, transmission and chassis. We believe that the following
favorable market factors will drive the domestic OEM's desire to continue
outsourcing:
o emissions, fuel economy and customer preferences are driving the design
of a new generations of components for engine, transmission and chassis
applications to increase efficiency and performance and reduce weight;
o OEMs are consolidating their supply base among global, full service
suppliers capable of meeting their needs uniformly across their
geographic production base; and
o in many cases, full-scale suppliers have lower production costs than
OEMs and are able to provide significant cost reduction opportunities.
Our strategy is to become one of the leading suppliers of high-quality,
low-cost metal formed components, assemblies and modules to the global light
vehicle industry. Key elements of our strategy include the following:
o FOCUS ON FULL-SERVICE, INTEGRATED SUPPLY OPPORTUNITIES. By offering a
full complement of metal solutions, we believe we provide OEMs with
"one-stop" shopping to optimize weight, cost, stress, durability, fatigue
resistance and other metal component attributes of products. Our
capabilities in engineering, design, machining and assembly position us
to capture a greater share of the "value chain" and deliver to customers
finished assemblies and modules rather than independent parts. Currently,
OEMs satisfy a significant portion of their metal forming and assembly
requirements with in-house production and assembly of purchased
components. We believe that, as OEMs seek to outsource the design and
manufacture of parts, they will choose suppliers with expertise in
multiple metal-forming technologies and the ability to design, engineer
and assemble components rather than supply independent parts. We intend
to enhance our strengths in forged steel, powder metal and
precision-aluminum die cast components by adding metal and process
capabilities in aluminum foundry and magnesium die casting.
o INCREASE CONTENT PER VEHICLE. We are aggressively pursuing new business
opportunities to supply a large portion of value-added content utilizing
our integrated capabilities. These opportunities can result in
significant increases in content per vehicle on related programs. For
example, we were recently awarded a contract by a leading North American
OEM to manufacture clutch modules that incorporates our metal-forming,
aluminum die casting, product development and machining and assembly
capabilities. We have received various new business awards from our
domestic and transplant customers across many of our product categories.
We have been awarded net new business that is projected, based on our
customers' production forecasts, to generate additional annual sales of
approximately $900 million to $1 billion through 2007. In 2002, our
content per vehicle in North America was approximately $70 and we expect
to materially increase our content per vehicle as a result of new
business awards that we are pursing.
o LEVERAGE OUR ENGINEERING, DESIGN AND INFORMATION TECHNOLOGY
CAPABILITIES. We believe that in order to effectively develop total metal
component and assembly solutions it is necessary to integrate research,
development and design elements with product fabrication, machining,
finishing and assembly. We believe that our larger scale and broader
product line relative to most of our competitors will enable us to more
efficiently invest in engineering, design and information technology and
develop a significant competitive advantage. For example, we recently
designed
4
and developed a front engine module that integrates multiple components
into one fully tested end item which increased the products' performance
and durability while reducing noise/ vibration effects and overall
system costs.
o CONTINUE TO PURSUE COST SAVINGS OPPORTUNITIES AND OPERATING
SYNERGIES. We have pursued, and will continue to pursue, cost savings
that enhance our competitive position in serving OEMs and Tier I
suppliers. In 2001, we successfully completed cost savings programs
involving a consolidation of headquarter functions and the elimination of
an outsourcing agreement with our former controlling shareholder, the
closure and consolidation of manufacturing and distribution facilities
and an aggressive cash management program. In addition, we have invested
in and are implementing a comprehensive shared services platform for a
range of overhead functions including finance, information technology,
procurement and human resources. We believe the shared services program
will improve management information and result in further cost savings in
the future. We believe we have additional opportunities to improve our
margins as we achieve operating synergies with increased volumes and
continue to vertically integrate our machining and assembly capacity with
our metal forming abilities. We intend to pursue opportunities to improve
our sourcing costs for key commodity inputs, such as primary and
secondary scrap, hot bar and rod and other key raw material components.
o PURSUE STRATEGIC COMBINATIONS AND GLOBAL EXPANSION OPPORTUNITIES. We
plan to continue to pursue acquisitions that strategically expand our
metal and process capabilities in aluminum foundry and magnesium die
casting and contribute to our geographic diversity and market share.
Global expansion is an important component of our growth strategy since a
significant portion of the global market for engineered metal parts is
outside of North America. Furthermore, as OEMs continue to consolidate
their supply base, they are seeking global suppliers that can provide
seamless product delivery across geographic production regions. We
believe our size, strong market shares in North America and customer
relationships strongly position us to capitalize on this trend.
RECENT DEVELOPMENTS
NC-M CHASSIS SYSTEMS, LLC JOINT VENTURE. On January 2, 2003, we closed a
Joint Venture Formation Agreement with DaimlerChrysler Corporation ("Chrysler")
to operate Chrysler's New Castle (Indiana) machining and forge facility known
as NC-M Chassis Systems, LLC. In connection with the closing, Chrysler
contributed substantially all of the assets of the business conducted at this
facility in exchange for 100% of the common and preferred interests in the
joint venture. In addition, the joint venture assumed certain liabilities of
the business from Chrysler. Immediately following the contribution, we
purchased 40% of the common interests in the joint venture from Chrysler for
$20 million in cash. This transaction was accounted for under the equity method
of accounting, due to our investment representing greater than 20% but less
than 50% of the interest in the joint venture.
Under the terms of the Agreement, we will have an option to purchase
Chrysler's common and preferred interests in the joint venture for $118.8
million in cash, approximately $31.7 million in principal amount of a new issue
of 10-year 10% senior subordinated notes of Metaldyne and approximately $64.5
million in liquidation preference of a new series of preferred stock of
Metaldyne. Our call option is available to be exercised assuming the
satisfactory completion of collective bargaining agreement negotiations in mid
to late 2003. If Chrysler does not perform its obligations under Metaldyne's
call option, including obtaining satisfactory collective bargaining agreement
negotiations, Metaldyne has an option to put its initial investment of $20
million, back to Chrysler. If Metaldyne does not exercise its call option
within 90 days of Chrysler obtaining satisfactory collective bargaining
agreement negotiations, Chrysler has a call option to purchase Metaldyne's
initial investment for $1.
VCST INDUSTRIAL PRODUCTS. On March 4, 2003, we announced that we withdrew
our September 25, 2002 non-binding letter of intent for Metaldyne to acquire
100% of the shares of VCST.
NEW BUSINESS AWARDS
Since 2001, we have received over 160 new business awards that support
future product programs beginning from 2001 through 2007. The awards extend for
up to 10 years, and include metal-formed components, assemblies and modules for
OEMs and Tier I customers' chassis, driveline and engine applications.
5
OPERATING SEGMENTS
The following table sets forth for the three years ended December 29,
2002, December 31, 2001 and December 31, 2000, the net sales, operating profit
and Adjusted EBITDA for our operating segments. (Table includes Simpson
Industries and GMTI in the Automotive Group from their date of acquisition
forward. As noted above, GMTI results have been included since January 4, 2001,
and TriMas results are included up to its divestiture on June 6, 2002.) See
Note 21 "Segment Information" to our financial statements in Item 8 of this
report for information pertaining to the net assets of each segment.
NET SALES
(IN THOUSANDS)
----------------------------------------------
2002 2001 2000(1)
-------------- ------------- -------------
Automotive Group
Chassis .................... $ 164,840 $ 154,900 $ 22,970
Driveline .................. 806,860 791,070 603,770
Engine ..................... 493,070 455,260 241,260
----------- ---------- ----------
Automotive Group ......... 1,464,770 1,401,230 868,000
TriMas Group (3) ............ 328,580 726,600 782,160
----------- ---------- ----------
Total Sales ................. $ 1,793,350 $2,127,830 $1,650,160
=========== ========== ==========
OPERATING PROFIT
(IN THOUSANDS)
-------------------------------------------
2002 2001 2000(1)
------------- ------------ ------------
Automotive Group
Chassis ................................................ $ 10,670
Driveline .............................................. 54,240
Engine ................................................. 33,680
---------
Automotive Operating ................................. $ 98,590 $ 83,000 $ 74,770
Automotive/centralized resources ("Corporate") ......... (30,640) (25,440) (12,590)
--------- --------- ---------
Automotive Group ..................................... 67,950 57,560 62,180
TriMas Group (3) ........................................ 46,140 69,490 97,090
--------- --------- ---------
Total operating profit .................................. $ 114,090 $ 127,050 $ 159,270
========= ========= =========
ADJUSTED EBITDA(2)
(IN THOUSANDS)
----------------------------------------
2002 2001 2000(1)
------------ ----------- -----------
Automotive Group
Chassis ................................................ $ 17,860
Driveline .............................................. 101,020
Engine ................................................. 65,220
---------
Automotive Operating Adjusted EBITDA.................. $ 184,100 $ 181,530 $ 114,260
Automotive/centralized resources ("Corporate") ......... (18,750) (13,600) (11,610)
--------- --------- ---------
Automotive Group ..................................... $ 165,350 $ 167,930 $ 102,650
TriMas Group (3) ........................................ 62,410 126,470 146,690
--------- --------- ---------
Total Adjusted EBITDA ................................... $ 227,760 $ 294,400 $ 249,340
========= ========= =========
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(1) Amounts are based on original Form 10-K filing for December 31, 2000.
(2) See Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for a complete reconciliation of Adjusted EBITDA
to operating profit. Adjusted EBITDA is defined as operating profit before
depreciation, amortization and legacy restricted stock award expense.
Adjusted EBITDA-related information is presented in the manner as defined
herein because we believe it is a widely accepted financial indicator of a
company's ability to service and/or incur indebtedness. Adjusted EBITDA is
the financial performance measure used by the Chief Executive Officer,
Chief Financial Officer and management to evaluate the Company's operating
performance. Operating profit is the most closely applicable financial
measure calculated based on generally accepted accounting principles.
However, Adjusted EBITDA-related information should not be considered as an
alternative to net income as a measure of operating results or to cash
flows as a measure of liquidity in accordance with generally accepted
accounting principles. Because Adjusted EBITDA-related information is not
calculated identically by all companies, the presentation in this report is
not likely to be comparable to those disclosed by other companies. Adjusted
EBITDA for periods prior to 2002 does not reflect the new segment structure
that was adopted in the second quarter of 2002.
6
(3) TriMas Group is included in our financial results through June 6, 2002,
the date of our divestiture. Subsequent to June 6, 2002, our equity share
in TriMas' earnings (loss) is included in "Automotive/centralized
resources ("Corporate")."
CUSTOMERS
In 2002, approximately 42% of our sales were direct to OEMs. Sales to
various divisions and subsidiaries of Ford Motor Company, General Motor
Corporation and DaimlerChrysler Corporation accounted for approximately 14%,
10% and 10% of our total net sales, respectively. Except for these sales, no
material portion of our business is dependent upon any one customer, although
we are subject to those risks inherent in having a focus on automotive products
generally.
MATERIALS AND SUPPLY ARRANGEMENTS
Raw materials and other supplies used in our operations are normally
available from a variety of competing suppliers. The primary goods and
materials that we procure are various forms of steel and steel processing (e.g.
bar, stainless, flat roll, heat-treating), powder metal, secondary and
processed aluminum, castings, forgings and energy.
We are sensitive to price movements in our raw material supply base but we
have secured one-year or more supply contracts on most of our major purchases
to protect against inflation and reduce our material cost structure. Based on
the recent steel tariffs imposed by the government in March 2002, we expect the
effect of the steel price increases to have an approximate $5 million negative
impact on our 2003 profitability. We will continue efforts to mitigate the
effects of these price increases throughout 2003.
Where feasible, we negotiate long-term contracts (two to five years) in
return for price reductions. In addition, we work jointly with our supply base
and manufacturing facilities on value analysis/value
7
engineering (VA/VE) ideas and Six Sigma in an effort to eliminate waste in the
supply chain, thereby reducing cost. We have entered into fixed price
arrangements, generally less than one year in duration based on seasonal
requirements, for approximately 30% of our natural gas requirements. Our
electricity requirements are managed on a regional basis utilizing competition
where deregulation is prevalent.
In order to take advantage of the Internet technology in the marketplace,
in 2002 we implemented electronic processes for procurement of indirect
materials and vendor managed inventory (VMI). Additionally, we are integrating
electronic-request for quotes (e-RFQ) and a supplier portal, all of which are
expected to become our standard operating procedures in 2003. These processes,
coupled with our global supply strategies and VA/VE practices, provide us with
various tools to effectively manage the supply chain and manage our working
capital.
COMPETITION
The major domestic and foreign markets for our products are highly
competitive. Although a number of companies of varying size compete with us, no
single competitor is in substantial competition with respect to more than a few
of our product lines and services. We compete primarily on the basis of product
engineering, performance, technology, price and quality of service. Our major
U.S. competitors in North America among the Engine segment's products include
Hillsdale Tool, Freudenberg-NOK, GKN, Hayes Lemmerz and internal
"metal-forming" operations at General Motors, Ford, DaimlerChrysler and Toyota.
Among the Driveline segment's products and Chassis segment's products, we
compete with a variety of independent suppliers including Linamar and Tesma,
and internal "metal-forming" operations at General Motors, Ford and
DaimlerChrysler. We may also compete with some of our Tier I customers on
occasion in seeking to supply the OEMs. In addition, there are several foreign
companies, including Palsis, Mitec, Magna, Steyr and Borg Warner that have
niche businesses supplying foreign OEMs. We believe that OEMs are likely to
continue to reduce their number of suppliers and develop long term, closer
relationships with their suppliers.
EMPLOYEES AND LABOR RELATIONS
As of December 29, 2002, we employed approximately 7,100 people, of which
approximately 46% were unionized. At such date, approximately 27% of our
employees were located outside the U.S. Employee relations have generally been
satisfactory.
SEASONALITY; BACKLOG
Sales are mildly seasonal reflecting the OEM industry standard two-week
production shutdown in July and one-week production shutdown in December. In
addition, our OEM customers tend to incur lower production rates in the third
quarter as model changes enter production. As a result, our third and fourth
quarter results reflect these shutdowns and lower production rates.
Our products are typically sourced exclusively by us and future production
schedules largely depend on the underlying vehicle builds. However, as our
production schedule is dictated by weekly production release schedules from our
customers, backlog orders are generally immaterial.
ENVIRONMENTAL MATTERS
Our operations are subject to federal, state, local and foreign laws and
regulations pertaining to pollution and protection of the environment, health
and safety, governing among other things, emissions to air, discharge to waters
and the generation, handling, storage, treatment and disposal of waste and
other materials, and remediation of contaminated sites.
We believe that our business, operations and facilities are being operated
in compliance in all material respects with applicable environmental and health
and safety laws and regulations, many of which provide for substantial fines
and criminal sanctions for violations.
PATENTS AND TRADEMARKS
We hold a number of U.S. and foreign patents, patent applications,
licenses and trademarks. We have, and will continue to dedicate, technical
resources toward the further development of our products and
8
processes in order to maintain our competitive position in the transportation,
industrial and commercial markets that we serve. We continue to invest in the
design, development and testing of proprietary technologies that we believe
will set our products apart from those of our competitors. Many of our patents
cover products that relate to noise reduction (NVH), improved efficiency
(increased fuel economy) and lower warranty costs for our customers driven
primarily by machining technology that provides leading edge tolerance and thus
decreases product defects caused by off-spec parts. We consider our patents,
patent applications, licenses, trademarks and trade names to be valuable, but
do not believe that there is any reasonable likelihood of a loss of such rights
that would have a material adverse effect on our operating segments or on us.
INTERNATIONAL OPERATIONS
In addition to the United States, we have a global presence with
operations in Brazil, Canada, the Czech Republic, France, Germany, Italy,
Mexico, Spain and the United Kingdom. An important element of our strategy is
to be able to provide our customers with global capabilities and solutions that
can be utilized across their entire geographic production base. Products
manufactured outside of the United States include cold and warm forged parts,
constant-velocity joints, powder metal products and engine parts. In addition,
machining and assembly operations, including isolating pulleys, viscous
dampeners and wheel-ends, occur at various global locations.
The following table presents our revenues for each of the years ended
December 29, 2002 and December 31, 2001 and 2002 and net assets (defined as
total assets less current liabilities) at each year ended December 29, 2002 and
December 31, 2001 and 2000 by geographic area, attributed to each subsidiary's
continent of domicile. Revenue and net assets from no single foreign country
were material to the consolidated revenues and net assets of the Company.
2002 2001 2000
--------------------------- --------------------------- ---------------------------
NET NET NET
SALES ASSETS SALES ASSETS SALES ASSETS
------------- ------------- ------------- ------------- ------------- -------------
Europe ................................. $ 247,400 $ 284,050 $ 250,850 $ 290,000 $ 164,000 $ 193,880
Australia .............................. 10,850 -- 22,030 11,000 23,000 15,000
Other (non-U.S.) North America ......... 62,310 48,550 71,670 57,000 24,000 56,200
---------- ---------- ---------- ---------- ---------- ----------
Total foreign .......................... $ 320,560 $ 332,600 $ 344,550 $ 358,000 $ 211,000 $ 265,080
========== ========== ========== ========== ========== ==========
United States .......................... $1,472,790 $1,291,780 $1,783,280 $2,204,730 $1,439,160 $2,328,040
========== ========== ========== ========== ========== ==========
As part of our business strategy, we intend to expand our international
operations through internal growth and acquisitions. Sales outside the United
States, particularly sales to emerging markets, are subject to various risks
including governmental embargoes or foreign trade restrictions such as
antidumping duties, changes in U.S. and foreign governmental regulations, the
difficulty of enforcing agreements and collecting receivables through certain
foreign local systems, foreign customers may have longer payment cycles than
customers in the U.S., more expansive legal rights of foreign unions, tariffs
and other trade barriers, the potential for nationalization of enterprises,
foreign exchange risk and other political, economic and social instability.
ACCESS TO COMPANY INFORMATION
We make available, free of charge, our annual report on Form 10K,
quarterly reports on Form 10Q, current reports on 8K and all amendments to
those reports through our website, www.metaldyne.com. This information is
available as soon as reasonably practicable after such material is
electronically filed with the U.S. Securities and Exchange Commission.
ITEM 2. PROPERTIES.
Our principal manufacturing facilities range in size from approximately
10,000 square feet to 420,000 square feet, approximately half of which are
owned by us. The leases for our manufacturing facilities have initial terms
that expire from 2003 through 2021 and are all renewable, at our option, for
various terms,
9
provided that we are not in default hereunder. Substantially all of our owned
U.S. real properties are subject to liens under our credit facility or
industrial revenue bonds. Our executive offices are located in Plymouth,
Michigan and are leased under a term that expires in August 2021. Our
buildings, machinery and equipment have been generally well maintained, are in
good operating condition and are adequate for current production requirements.
We have entered into a number of sale-leaseback transactions with respect
to 17 real properties in the United States. Pursuant to the terms of each
sale-leaseback transaction, we transferred title of the real property locations
to a purchaser and, in turn, entered into separate leases with the purchasers
having various lease terms. Rental payments are due monthly. All of the
foregoing leases are accounted for as operating leases.
The following list sets forth the location of our principal owned and
leased manufacturing facilities (except where noted as otherwise) and
identifies the principal operating segment utilizing such facilities. We have
identified the operating segments for which we conduct business at these
facilities as follows: (1) Chassis, (2) Driveline and (3) Engine.
North America
- -------------
Illinois Niles* (2)
Indiana Bluffton* (2), Fort Wayne (2), Freemont* (3) and North Vernon* (3)
Georgia Rome* (2)
Michigan Detroit (2), Farmington Hills (2), Fraser* (2), Green Oak
Township* (3), Hamburg (3), Litchfield* (3), Livonia* (1),
Middleville* (3), Royal Oak (2), Troy (2) and Warren* (2)
North Carolina Greenville (1)
Ohio Bedford Heights (2), Canal Fulton* (2), Edon* (1), Minerva* (2),
Port Clinton (Facility Closed), Solon* (2) and Twinsburg* (2)
Pennsylvania Ridgeway (3) and St. Mary's (3)
Tennessee Memphis (Facility Closed)*
Foreign
- -------
Brazil Indaiatuba* (3)
Canada Thamesville (3)
Czech Republic Oslavany (2)
United Kingdom Halifax (3) and Wolverhampton (2)
France Lyon (3)
Germany Nuremberg (2), Wiesbaden-Erbenheim (1, 3) and Zell am
Harmersbach (2)
Italy Poggio Rusco (2)
Japan Yokohama (Sales Location)* (3)
Mexico Iztapalapa (3), and Ramos Arizpe (3)
Spain Barcelona (1, 3) and Valencia (3)
- ----------
*Denotes a leased facility.
ITEM 3. LEGAL PROCEEDINGS.
The commitments and contingencies specifically disclosed in our 2001 Form
10K relate to potential obligations of our former TriMas subsidiary. As a
result of our June 2002 disposition of this business, these potential
obligations are the responsibility of TriMas and are no longer commitments and
contingencies of Metaldyne.
We are subject to other claims and litigation in the ordinary course of
our business, but do not believe that any such claim or litigation will have a
material adverse effect on our financial position or results of operations.
10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
EXECUTIVE OFFICERS OF REGISTRANT (PURSUANT TO INSTRUCTION 3 TO ITEM 401(b) OF
REGULATION S-K).
The following table sets forth certain information regarding our executive
officers.
NAME AGE POSITIONS
- ---- --- ---------
Timothy D. Leuliette 53 Chairman, President and Chief Executive Officer
William M. Lowe, Jr. 49 Executive Vice President and Chief Financial Officer
Joseph Nowak 52 Group President of Chassis Group
Karen Radtke 49 Vice President and Treasurer
George Thanopoulos 39 Group President of Engine Group
George Thomas 53 Group President of Driveline and Transmission Group
Timothy D. Leuliette. Mr. Leuliette was elected as one of our directors in
connection with the recapitalization and currently serves as our Chairman,
President and Chief Executive Officer. He is the former Vice Chairman of
Detroit Diesel Corporation and has spent 27 years in management of
manufacturing and services businesses and in the investment of private capital.
Mr. Leuliette joined the Penske Corporation as President and Chief Operating
Officer in 1996 to address operational and strategic issues. From 1991 to 1996,
Mr. Leuliette served as President & Chief Executive Officer of ITT Automotive.
He also serves on a number of corporate and charitable boards, including
serving as a Chairman of The Federal Reserve of Chicago, Detroit Branch. Mr.
Leuliette is a Senior Managing Director and one of the co-founders of Heartland
Industrial Partners. Mr. Leuliette is a director of Collins & Aikman
Corporation and TriMas Corporation.
William M. Lowe, Jr. Mr. Lowe has served as our Executive Vice President
and Chief Financial Officer since June 2001. Prior to that, he was Vice
President and Corporate Controller of Arvin Meritor Automotive, Inc., since its
merger with Arvin, Inc. in July 2000. He joined Arvin in 1991 as chief tax
officer and served as Arvin's Vice President, Corporate Controller and Chief
Accounting Officer.
Joseph Nowak. Mr. Nowak has served as our Group President of the Chassis
Group since November 2001. After joining MascoTech in 1991, he served as
MascoTech's Vice President of Operations, President of Industrial Components,
and President and General Manager Tubular Products. Mr. Nowak has over 20 years
of manufacturing experience in automotive and industrial markets, including
Kelsey-Hayes/Varity and Ford Motor Company.
Karen Radtke. Ms. Radtke has served as our Vice President and Treasurer
since August 2001. She previously served as Treasurer and Corporate Secretary
for ASC Exterior Technologies from 1997 to 2001. Prior to that she was
Treasurer of Gelman Sciences, Inc. and Hayes Lemmerz International.
George Thanopoulos. Mr. Thanopoulos has served as the Company's Group
President of our Engine Group since November 2001. He joined MascoTech in 1985
and has served the Company in various engineering and operational positions.
George Thomas. Mr. Thomas has served as our Driveline and Transmission
Group President since December 2001. Prior to that, Mr. Thomas also served as
our Group President, Machining and Assembly since December 2000. Mr. Thomas
joined Simpson in 1999 where he served as President and Chief Operating
Officer. Before joining Simpson, he was Vice President and General Manager of
Passenger Car Steering and Vice President and General Manager of Commercial Car
Steering at TRW Automotive.
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
No trading market for the Company's common stock exists. We did not pay
dividends in 2002 or 2001 on our common stock and it is current policy to
retain earnings to repay debt and finance our operations and acquisition
strategies. In addition, our credit facility restricts the payment of dividends
on common stock. See the discussion under "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources" included in Item 7 of this report and Note 14 to the Company's
consolidated financial statements captioned "Long-Term Debt," included in Item
8 of this report.
On March 11, 2003, there were approximately 600 holders of record of our
common stock.
The table below sets forth information as of December 29, 2002 with
respect to compensation plans under which Metaldyne Corporation equity
securities are authorized for issuance:
NUMBER OF SECURITIES TO BE NUMBER OF SECURITIES REMAINING AVAILABLE
ISSUED UPON EXERCISE OF WEIGHTED-AVERAGE EXERCISE PRICE FOR FUTURE ISSUANCE UNDER EQUITY
OUTSTANDING OPTIONS, WARRANTS OF OUTSTANDING OPTIONS, COMPENSATION PLANS (EXCLUDING SECURITIES
AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (A)
PLAN CATEGORY (A) (B) (C)
- ---------------------- ------------------------------- --------------------------------- -----------------------------------------
Equity compensation
plans approved by
security holders 2,538,680 $ 16.90 2,421,320
Equity compensation
plans not approved
by security holders -- -- --
--------- ------- ---------
Total 2,538,680 $ 16.90 2,421,320
========= ======= =========
NONE OF OUR SECURITIES WHICH WERE NOT REGISTERED UNDER THE ACT HAVE BEEN ISSUED
OR SOLD BY US WITHIN THE PAST THREE YEARS EXCEPT AS FOLLOWS:
1. On November 28, 2000, we issued a total of 25,752,376 shares of common
stock to Heartland Industrial Partners, L.P., its affiliates and other equity
co-investors, at a price per share of $16.90 for a total value of approximately
$435 million, pursuant to the recapitalization agreement.
2. On December 15, 2000, we issued 7,455,619 shares of common stock to
Heartland Industrial Partners, L.P., its affiliates and other co-investors, at
a price per share of $16.90 in connection with the Simpson acquisition.
3. On June 22, 2001, we issued 3,898,409 shares of common stock to
Heartland Industrial Partners L.P., its affiliates and certain other parties,
at a per share price of $16.90 in connection with the GMTI acquisition.
The issuance of the securities described above were exempt from
registration under the Securities Act in reliance on Section 4(2) of such
Securities Act as transactions by an issuer not involving any public offering.
The recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates issued in such transactions. All
recipients had adequate access to information about us at the time of their
investment decision.
12
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth summary consolidated financial information
of the Company, for the years and dates indicated:
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
------------------------------------------------------------------------------------------
11/28/00 - 01/01/00 -
2002 2001 12/31/00 11/27/00 1999 1998
------------- ------------- -------------- --------------- --------------- ---------------
Net sales ...................... $1,793,350 $2,127,830 $ 104,770 $ 1,545,390 $ 1,679,690 $ 1,635,500
Net income (loss) .............. $ (61,540) $ (43,330) $ (26,870) $ 58,970 $ 92,430 $ 97,470
Earnings (loss) per share
before extraordinary
charge and cumulative
effect of change in
accounting principle .......... $ (0.22) $ (1.16) $ (0.79) $ 2.33 $ 2.25 $ 2.23
Earnings (loss) per share ...... $ (1.66) $ (1.16) $ (0.79) $ 1.44 $ 2.25 $ 2.23
Dividends declared per
common share .................. -- -- -- $ 0.24 $ 0.30 $ 0.20
At December 29, 2002 and
December 31, 2001, 2000,
1999 and 1998: ................
Total assets ................... $2,019,050 $2,946,160 $2,991,830 N/A $ 2,101,270 $ 2,090,540
Long-term debt (a) ............. $ 668,960 $1,358,920 $1,426,300 N/A $ 1,372,890 $ 1,388,240
Redeemable preferred stock ..... $ 64,510 $ 55,160 $ 33,370 N/A -- --
- ----------
(a) See Note 14 - Long-Term Debt
As more fully described in Note 6, we sold TriMas Corporation common stock
to Heartland on June 6, 2002. TriMas is included in our financial results
through the date of this transaction. Effective June 6, 2002, we account for
our 34% investment in Trimas under the equity method of accounting.
Results in 2001 and for the one-month period ended December 31, 2000
include the retroactive adoption of purchase accounting for our acquisition by
Heartland. The predecessor company information for the periods prior to
November 28, 2000 are reflected on the historical basis of accounting and all
periods subsequent to November 28, 2000 are reflected on a purchase accounting
basis. Thus, our financial statements for periods prior to November 28, 2000
are not comparable to financial statements presented on or subsequent to
November 28, 2000.
Results in the eleven-month period 2000 include a pre-tax gain of
approximately $13 million related to interest rate swap agreements that were
terminated in June 2000 in conjunction with the payment of the related debt.
Results in 1999 include the completion of the sale of the Company's
aftermarket-related and vacuum metalizing businesses, which resulted in a
pre-tax gain of approximately $26 million.
Results in 1999 include a non-cash pre-tax charge of approximately $17.5
million related to impairment of certain long-lived assets, which included
hydroforming equipment and related intellectual property.
Results in 1999 include pre-tax charges aggregating approximately $18
million, principally related to the closure of a plant, the sale of a business
and the decline in value of equity affiliates.
Results in 1998 and subsequent periods include sales and operating profits
from TriMas Corporation, which was purchased in January 1998.
Results for 1998 include a pre-tax charge related to the disposition of
certain businesses aggregating approximately $41 million. In addition, the
Company recorded a pre-tax gain of approximately $25 million related to the
receipt of additional consideration based on the operating performance of the
Company's stamping businesses sold in 1996. Also, the Company recognized a
pre-tax gain (deferred at time of sale pending receipt of cash) of $7 million
related to the disposition of the Company's Technical Services Group in 1997.
13
Income (loss) from continuing operations before extraordinary charge and
cumulative effect of change in accounting principle attributable to common
stock was $9.4 million, $(49.2) million, $(27.3) million, $95.3 million, $92.4
million and $97.5 million in 2002, 2001, 2000 (one month period), period ended
November 27, 2000, 1999, and 1998, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
COMPANY OVERVIEW
We are a leading global manufacturer of highly engineered metal components
for the global light vehicle market with 2002 sales of approximately $1.8
billion. We operate three segments through the Automotive Group. The Chassis,
Driveline and Engine segments manufacture, design, engineer and assemble
metal-formed and precision-engineered components and modular systems used in
the transmissions, engines and chassis of vehicles. We serve approximately 200
automotive and industrial customers and our top ten customers represent
approximately 57% of total 2002 sales.
In November 2000, a group of investors led by Heartland and CSFB Private
Equity acquired control of Metaldyne in a recapitalization transaction. The
purpose of the recapitalization was to allow us to actively pursue
opportunities for internal growth and strategic acquisitions that were
unavailable to us when the majority of our shares were publicly traded. Since
the recapitalization, we have effected two acquisitions -- Simpson in December
2000 and GMTI effective January 2001. Each of these acquisitions has added to
the full service, integrated metal supply capabilities of our Automotive Group.
Simpson is a designer and manufacturer of precision-engineered automotive
components and modular systems for passenger and sport utility vehicles, light
and heavy-duty trucks and diesel engines. GMTI is a fully integrated technology
leader in aluminum die casting with leading market positions in transmission,
engine, chassis and steering components.
As a result of the disposition of our former TriMas subsidiary on June 6,
2002, we have substantially decreased our leverage and debt service
requirements. Future potential acquisitions and the NC-M Chassis Systems, LLC
joint venture, as well as the continuing implementation of our business
strategies, mean that our historical results of operations may not be
indicative of our future results. In addition, the current recession and
declining consumer confidence, as well as the risk of war, have created
substantial uncertainty in the U.S. economy generally, and particularly within
the automotive industry.
DISPOSITION OF BUSINESSES
On June 6, 2002, we sold TriMas common stock to Heartland and other
investors amounting to approximately 66% of the fully diluted common equity of
TriMas. As a result of the TriMas disposition, we received $840 million in the
form of cash, debt reduction and reduced receivables facility balances and
received or retained common stock and a warrant in TriMas representing our 34%
retained interest. TriMas is included in our financial results through the date
of this transaction. Effective June 6, 2002, we account for our 34% investment
in TriMas under the equity method of accounting.
NON-GAAP FINANCIAL MEASURES
In addition to net income and other financial measures, the Company uses
Adjusted Earnings Before Interest Taxes Depreciation and Amortization ("Adjusted
EBITDA") in 2002 as an indicator of our operating performance and as a measure
of our cash generating capabilities. Adjusted EBITDA is the financial
performance measure used by the Chief Executive Officer, Chief Financial Officer
and management to evaluate the Company's operating performance. The Company
defines Adjusted EBITDA as operating profit plus depreciation and amortization
plus legacy stock award expense (representing contractual obligations from the
November 2000 acquisition, which will runoff completely in 2003). Adjusted
EBITDA for the year 2002 was $228 million. After excluding the results of our
former subsidiary TriMas, total Company Adjusted EBITDA was $165 million.
Adjusted 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, Adjusted EBITDA, as we calculate it, may not be comparable
to calculations of similarly titled measures by other companies.
14
CHANGE IN ACCOUNTING BASIS
At the time of the recapitalization and in compliance with the provisions
of Staff Accounting Bulletin 54 (Topic 5-J), we elected to account for the
November 28, 2000 recapitalization on a carry-over basis, rather than as a
purchase that would have required that we establish a new basis in our assets
and our liabilities, due to the continuing interest of certain of our former
security holders and the continued listing of our subordinated debentures on
the New York Stock Exchange which were registered under the Securities Exchange
Act of 1934. In December 2001, our debentures were de-listed with the NYSE and
de-registered under the Exchange Act. We have determined that the effect of
these actions is to require that we retroactively adopt purchase accounting for
the November 2000 recapitalization transaction. The predecessor company
information for the periods prior to November 28, 2000 are reflected on the
historical basis of accounting and all periods subsequent to November 28, 2000
will be reflected on a purchase accounting basis. Thus, our financial
statements for periods prior to November 28, 2000 are not comparable to
financial statements presented on or subsequent to November 28, 2000.
15
RESULTS OF OPERATIONS
2002 VERSUS 2001
(IN THOUSANDS)
-----------------------------
SALES 2002 2001
- ----- ------------- -------------
Automotive Group
Chassis ............................................................................ $ 164,840 $ 154,900
Driveline .......................................................................... 806,860 791,070
Engine ............................................................................. 493,070 455,260
---------- ----------
Automotive Group ................................................................. 1,464,770 1,401,230
TriMas Group (1) .................................................................... 328,580 726,600
---------- ----------
Total Company .................................................................... $1,793,350 $2,127,830
========== ==========
ADJUSTED EBITDA AND OPERATING PROFIT (2)
- ----------------------------------------
Automotive Group
Chassis ............................................................................ $ 17,860
Driveline .......................................................................... 101,020
Engine ............................................................................. 65,220
----------
Automotive Operating Adjusted EBITDA.............................................. $ 184,100 $ 181,530
Automotive/centralized resources ("Corporate") ...................................... (18,750) (13,600)
---------- ----------
Automotive Group Adjusted EBITDA ................................................. 165,350 167,930
Automotive Group depreciation and amortization ...................................... (92,780) (105,640)
Automotive Group legacy stock award expense ......................................... (4,620) (4,730)
---------- ----------
Automotive Group operating profit ................................................ 67,950 57,560
TriMas Group Adjusted EBITDA (1) .................................................... 62,410 126,470
TriMas Group depreciation and amortization (1) ...................................... (16,010) (53,780)
TriMas Group legacy stock award expense (1) ......................................... (260) (3,200)
---------- ----------
Total Company operating profit ................................................... $ 114,090 $ 127,050
========== ==========
Total Company Adjusted EBITDA .................................................... $ 227,760 $ 294,400
========== ==========
OTHER INCOME AND EXPENSE AND NET LOSS
- -------------------------------------
Other expense, net:
Interest expense ................................................................. $ (91,060) $ (148,160)
Loss on interest rate arrangements upon early retirement of term loans ........... (7,550) --
Equity loss from affiliates, net ................................................. (1,410) (8,930)
Other, net ....................................................................... (9,100) (17,890)
---------- ----------
Other expense, net .............................................................. (109,120) (174,980)
---------- ----------
Income (loss) before income taxes, extraordinary charge and cumulative effect of
change in accounting principle ..................................................... 4,970 (47,930)
Income taxes (credit) ............................................................... (13,500) (4,600)
---------- ----------
Income (loss) before extraordinary charge and cumulative effect of change in
accounting principle ............................................................... 18,470 (43,330)
Extraordinary loss on repurchase of debentures and early retirement of term loan, net
of taxes of $25,480 ................................................................ (43,380) --
Cumulative effect of change in recognition and measurement of goodwill impairment ... (36,630) --
---------- ----------
Net loss ............................................................................ $ (61,540) $ (43,330)
========== ==========
- ----------
(1) TriMas Group is included in our financial results through June 6, 2002,
the date of our divestiture. Subsequent to June 6, 2002, our equity share
in TriMas' earnings (loss) is included in "Automotive/central resources
("Corporate")."
(2) Adjusted EBITDA is defined as operating profit before depreciation,
amortization and legacy restricted stock award expense. Adjusted
EBITDA-related information is presented in the manner as defined herein
because we believe it is a widely accepted financial indicator of a
company's ability to service and/or incur indebtedness. Adjusted EBITDA is
the financial performance measure used by the Chief Executive Officer,
Chief Financial Officer and management to evaluate the Company's operating
performance. Operating profit is the most closely applicable financial
measure calculated based on generally accepted accounting principles.
However, Adjusted EBITDA-related
16
information should not be considered as an alternative to net income as a
measure of operating results or to cash flows as a measure of liquidity in
accordance with generally accepted accounting principles. Because Adjusted
EBITDA-related information is not calculated identically by all companies,
the presentation in this report is not likely to be comparable to those
disclosed by other companies. Adjusted EBITDA for periods prior to 2002
does not reflect the new segment structure that was adopted in the second
quarter of 2002.
RECONCILIATION OF OPERATING PROFIT TO ADJUSTED EBITDA FOR 2002
--------------------------------------------------------------
Automotive Group
Chassis operating profit ......................................................... $ 10,670
Chassis depreciation and amortization ............................................ 7,190
----------
Chassis Adjusted EBITDA .......................................................... 17,860
Driveline operating profit ....................................................... 54,240
Driveline depreciation and amortization .......................................... 46,780
----------
Driveline Adjusted EBITDA ........................................................ 101,020
Engine operating profit .......................................................... 33,680
Engine depreciation and amortization ............................................. 31,540
----------
Engine Adjusted EBITDA ........................................................... 65,220
Automotive operating profit ..................................................... $ 98,590
Automotive Operating depreciation and amortization .............................. 85,510
----------
Automotive Operating Adjusted EBITDA ............................................ $ 184,100
Automotive/centralized resources ("Corporate") operating profit .................. $ (30,640)
Auotmotive/centralized resources ("Corporate") depreciation and amortization ..... 7,270
Automotive/centralized resources ("Corporate") legacy stock award expense ........ 4,620
----------
Automotive/centralized resources ("Corporate") Adjusted EBITDA ................... $ (18,750)
Total Automotive Group operating profit .......................................... $ 67,950
Total Automotive Group depreciation and amortization ............................ 92,780
Total Automotive Group legacy stock award expense ............................... 4,620
----------
Total Automotive Group Adjusted EBITDA .......................................... $ 165,350
TriMas Group
TriMas Group operating profit .................................................... $ 46,140
TriMas Group depreciation and amortization ....................................... 16,010
TriMas Group legacy stock award expense .......................................... 260
----------
TriMas Group Adjusted EBITDA ..................................................... $ 62,410
Total Company
Operating profit ................................................................. $ 114,090
Depreciation and amortization .................................................... 108,790
Legacy stock award expense ....................................................... 4,880
----------
Adjusted EBITDA .................................................................. $ 227,760
==========
In the second quarter of 2002, we modified our organizational structure.
As a result, we are now comprised of three reportable segments: Chassis,
Driveline and Engine. Accordingly, we have restated sales for all prior periods
to reflect this change. However, it was not practicable to restate Adjusted
EBITDA for prior periods to reflect the new segment structure, and therefore
Adjusted EBITDA is presented in total for the entire Company for periods prior
to 2002. Adjusted EBITDA is presented using the Company's modified segment
structure beginning in 2002.
Due to the divestiture of our TriMas subsidiary in June 2002, the 2001 and
2002 consolidated results are not comparable. Thus, for purposes of our
discussion, we will exclude TriMas results, where applicable and quantifiable,
and discuss the performance of our Automotive Group operations.
Our Automotive Group sales for 2002 were $1.5 billion, an increase of
approximately $64 million or 4.5% as compared with 2001. This increase was
primarily due to a 5.9% increase in North American vehicle production and an
$18 million increase related to the relative strength of the euro versus the
dollar in 2002 compared to 2001. Offsetting these increases were an
approximately $7 million decrease relating to the closure of a manufacturing
facility in the Chassis segment and the loss of some customer contracts in our
Driveline segment.
Gross profit was $299 million in 2002 versus $392 million in 2001.
Excluding TriMas from these numbers, gross profit was $200 million or 13.7% of
net sales in 2002 versus $197 million or 14.1% of net sales for 2001. The $3
million increase is principally due to the profit associated with the increase
in sales in 2002 and an increased focus on operational cost reduction, but is
offset by several factors. Negatively
17
impacting 2002 gross profit was an additional $11 million of operating lease
payments related to sale-leasebacks completed in 2001 and early 2002. The
sale-leasebacks primarily relate to several leases completed in June 2001
related to the acquisition of GMTI and subsequent transactions completed in the
beginning of 2002 used to decrease our outstanding bank debt. However, the net
effect of currency exchange fluctuations discussed above served to increase
gross profit in 2002 by an approximate $4 million. The remaining increase in
gross profit is principally explained by the increase in sales.
Selling, general and administrative expenses were $177 million for 2002
compared with $257 million in 2001. Excluding TriMas, selling, general and
administrative charges approximated $122 million in 2002, or 8.3% of Automotive
Group sales, versus an approximate $130 million in 2001, or 9.3% of Automotive
Group sales. The net decrease in selling, general and administrative expenses
is primarily related to a change in accounting rules relative to the recording
of goodwill amortization expense. In 2002, no goodwill was amortized whereas in
2001, there was $14 million of goodwill amortization recorded. Offsetting this
decrease was an approximate $10 million increase in our cost base in 2002 to
support the large volume of future programs awarded to the Company and a $3.5
million restructuring charge related to our Engine segment's European and North
American operations. The remaining decrease is primarily attributable to net
cost saving initiatives surrounding the elimination of duplicative
administrative expenses.
Operating profit for the Automotive Group increased to $68 million, or
4.6% of sales, in 2002 versus $58 million, or 4.1% of sales, in 2001. The
primary explanation for the increase is the $14 million difference in goodwill
amortization in 2002 versus 2001, offset by $11 million in incremental lease
expense and an approximate $10 million increase in our cost base to support
future program awards in 2002. The remaining increase is primarily attributable
to the profit on incremental revenues and improved operating margins in 2002
versus 2001.
Adjusted EBITDA for the Automotive Group decreased from $168 million in
2001 to $165 million in 2002. Offsetting the increased sales for the period
were $11 million in additional operating lease expense and an approximate $10
million build up in resources to support the large volume of new business
awards. Additionally, negatively impacting Adjusted EBITDA for 2002 was a $3.5
million restructuring charge related to the reorganization of our Engine
segment's European and North American operations, but this was offset by an
approximate $4 million favorable fluctuation in exchange rates. The remaining
increase is primarily attributable to increase sales and slightly improved
operating margins in 2002 versus 2001.
Interest expense was approximately $91 million for 2002 versus $148
million for 2001. This decrease is primarily due to a reduction in interest
resulting from a lower average debt balance in 2002, an approximate 2%
reduction in average LIBOR for the comparable periods in 2002 and 2001, and a
smaller applicable spread over LIBOR (from 4.5% to 2.75%) on our senior bank
credit facility versus the prior year. See "Liquidity and Capital Resources"
section below 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.
Other, net was approximately $9 million in 2002 versus $18 million in
2001. This is the result of a decrease in debt fee amortization of $7 million
due to our debt refinancing in 2002 and a decrease in accounts receivable
securitization financing fees of $5 million due to decreased usage of our
securitization facility in 2002.
The provision for income taxes for 2002 was a benefit of $13 million as
compared with a benefit of $5 million for 2001. 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 capital tax 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
18
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.
Net income before extraordinary charge and cumulative effect of change in
accounting principle was approximately $18 million for 2002 compared with a
loss of approximately $43 million for 2001, or a $61 million increase. This
increase is primarily due to the factors discussed above.
As of September 30, 2002, we completed our transitional impairment test
needed to measure the amount of any goodwill impairment of 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 $68.9 million (or $43.4 million,
net of tax) extraordinary loss on the extinguishment of this debt. We
recognized a net loss attributable to common stock of approximately $71 million
for 2002 versus a loss of $49 million in 2001, or a $22 million increase.
SEGMENT INFORMATION
Sales for our Chassis segment increased 6.4% in 2002 versus 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 $7 million decrease in sales year over
year, or 4% of the Chassis segment's sales for 2001. Excluding the effect of
this closed facility, the Chassis segment's revenue increased approximately
12%.
Our Engine segment revenue increased approximately 8.3% over the prior
year, due principally to the increased North American vehicle production and
new product launches. Adjusting for the impact of currency movements, the
Engine segment's revenues increased by approximately 6.4% over the prior year.
Our Driveline segment increased 2.0% versus 2001, or approximately 1%
after adjusting for currency fluctuations. Offsetting the increase in North
American vehicle build 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.
Automotive/centralized resources ("Corporate") expenses were $19 million
for 2002, an increase of $5 million over 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.). The majority of
shared services initiatives were completed in the fourth quarter of 2002, and
as a result, we anticipate a decrease in operational costs in the Automotive
segments 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. Additionally, the increase is
partially explained by a one-time $2.4 million expense reimbursement received
in 2001.
2001 VERSUS 2000
As discussed earlier, subsequent to our original 2000 Form 10-K filing, we
were required to adjust the accounting basis that we applied in accounting for
our November 2000 recapitalization. In these unique circumstances and to aid in
analyses of our 2001 to 2000 financial operating results we have provided the
supplemental financial analyses information that follows to show what our net
sales and Adjusted EBITDA would have been had the change in accounting basis
occurred at the beginning of 2000. As reflected in our segment disclosures to
our financial statements, we use our definition of Adjusted EBITDA as our
primary method of evaluating operating performance of business units at
Metaldyne. The column labeled "Combined Full Year 2000" is what we have used as
a basis against which to evaluate our 2001 operating performance.
In the second quarter of 2002, we modified our organizational structure.
As a result, we are now comprised of three reportable segments: Chassis,
Driveline and Engine. Accordingly, we have restated
19
sales for all prior periods to reflect this change. However, it was not
practicable to restate Adjusted EBITDA for prior periods to reflect the new
segment structure, and therefore Adjusted EBITDA is presented in total for the
entire Company for periods prior to 2002. Adjusted EBITDA is presented using
the Company's modified segment structure beginning in 2002.
(IN THOUSANDS)
SALES 2001 2000
- ----- -------------- -------------
Automotive Group
Chassis .................................................................... $ 154,900 $ 22,970
Driveline .................................................................. 791,070 603,770
Engine ..................................................................... 455,260 241,260
---------- ----------
Automotive Group ......................................................... 1,401,230 868,000
TriMas Group ................................................................ 726,600 782,160
---------- ----------
Total Company ............................................................ $2,127,830 $1,650,160
========== ==========
ADJUSTED EBITDA AND OPERATING PROFIT
- ------------------------------------
Automotive Operating Adjusted EBITDA......................................... $ 181,530 $ 114,260
Automotive/centralized resources ("Corporate") .............................. (13,600) (11,610)
---------- ----------
Automotive Group Adjusted EBITDA ............................................ $ 167,930 $ 102,650
TriMas Group Adjusted EBITDA ................................................ 126,470 146,690
---------- ----------
Total Company Adjusted EBITDA ............................................ $ 294,400 $ 249,340
Depreciation and amortization ............................................... (159,420) (83,520)
Legacy stock award expense .................................................. (7,930) (6,550)
---------- ----------
Total Company operating profit ........................................... $ 127,050 $ 159,270
========== ==========
OTHER INCOME AND EXPENSE AND NET INCOME (LOSS)
- ----------------------------------------------
Other expense, net: .........................................................
Interest expense ......................................................... $ (148,160) $ (92,950)
Equity gain (loss) from affiliates, net .................................. (8,930) 9,820
Gain from disposition of, or changes in, investments in equity affiliates -- 27,520
Income related to the termination of interest rate swap agreements ....... -- 12,940
Other, net ............................................................... (17,890) (2,530)
---------- ----------
Other expense, net ...................................................... (174,980) (45,200)
---------- ----------
Income (loss) before income taxes and extraordinary charge .................. (47,930) 114,070
Income taxes (credit) ....................................................... (4,600) 45,640
---------- ----------
Income (loss) before extraordinary charge item .............................. (43,330) 68,430
Extraordinary charge, net of taxes $7,930 ................................... -- (36,330)
---------- ----------
Net income (loss) ........................................................... $ (43,330) $ 32,100
========== ==========
Sales for 2001 increased approximately 29% to $2.1 billion as compared
with $1.6 billion in 2000. This increase was due to our acquisition of Simpson
and GMTI, which accounted for approximately $634 million of sales. This
increase was partially offset by a sales decline of $99 million related to our
Automotive Group, which was principally the result of lower levels of domestic
vehicle production. Although we believe that there was no noticeable change in
the TriMas Group's market share, TriMas experienced a sales decline of
approximately $73 million in 2001 versus 2000. 2001 was a difficult year for
the industrial economy in general and for several of our core markets, such as
automotive in particular. However, in response to the challenges, we were able
to adjust our cost base to the volume reduction by an amount greater than our
contribution margin (note that due to the fixed cost nature of the industries
in which we operate, contribution margin tends to be significantly higher than
operating profit or Adjusted EBITDA margin). We accomplished this by increased
monitoring of our cost base and quickly adjusting our direct workforce to
volume changes while aggressively managing our fixed cost base.
Operating profit decreased to $127 million from $159 million in 2000
whereas Adjusted EBITDA increased to $294 million for 2001 as compared with
$249 million in 2000. The acquisitions of Simpson and
20
GMTI contributed approximately $33 million to operating profit and
approximately $72 million to Adjusted EBITDA. This increase was largely offset
by a decline in Adjusted EBITDA and operating profit related to softness in all
of our markets. The operating profit margin decreased to 5.9% in 2001 versus
9.6% in 2000 and the Adjusted EBITDA margin decreased to 13.8% in 2001 versus
15.1% in 2000. These decreases were partially caused by the inclusion of
Simpson and GMTI, which had lower margins as a percent of 2001 sales than the
margins of Metaldyne one year ago. In addition, the decrease in sales volume in
most of our businesses resulted in a larger percentage impact on margins due to
the relatively high fixed cost profile of the industries in which we operate.
Additionally, 2001 was negatively impacted by over $10 million of one-time,
non-recurring expenses related to the integration and strategic reorganization
of our three predecessor companies into Metaldyne. Thus, without these one-time
costs our Adjusted EBITDA would have approximated $304 million in 2001.
Selling, general and administrative costs as a percent of sales were 12.1%
for 2001 as compared with 13.8% for 2000. Selling, general and administrative
expenses were approximately $257 million in 2001 as compared to approximately
$228 million in 2000. The percentage decrease is principally the result of
reductions in our administrative costs due to economy of scale benefits and
aggressive fixed cost reductions in the Company, offset by significantly higher
depreciation and amortization expense arising from our purchase accounting
election and subsequent step-up in asset base.
Interest expense for 2001 was approximately $148 million as compared to
$93 million in 2000. The increase in interest expense is the result of debt
incurred to finance our recapitalization in November 2000 and the acquisitions
of Simpson and GMTI, and approximately $17.5 million of non-cash interest
expense related to the discount amortization on our subordinated debentures.
Equity affiliate loss increased significantly due to a large restructuring
charge at our 36% owned affiliate in 2001. This was a non-cash charge to
Metaldyne.
Other, net was approximately $18 million in 2001 versus $3 million in
2000. This increase of approximately $15 million is the result of an increase
in debt fee amortization of $7 million; an increase in accounts receivable
securitization financing fees of $4 million due to the financing facility not
being incepted until June 2000; and a decrease in other miscellaneous income of
$4 million.
The tax provision for 2001 is a benefit of $4.6 million as compared to
expense of $45.6 million for the period ended December 31, 2000. The tax
provision for the period January 1 through November 27, 2001 was $61.4 million.
The unusual relationship between income before taxes and income taxes results
mostly from the non-deductible amortization of goodwill and the taxation of
income in foreign jurisdictions at rates greater than the U.S. statutory rate.
Normally, nondeductible items serve to increase a company's effective tax rate;
however, since the Company incurred a pre-tax loss, the disallowance of
goodwill amortization results in a lesser U.S. tax benefit, which when compared
to the pre-tax loss, results in a lower effective tax rate. Excluding the
impact of these items, the Company's effective tax rate would have been
approximately 33%.
As reported in our consolidated statement of operations, net income (loss)
declined to a $43 million net loss in 2001 versus a $32 million net income in
2000 ($59 million net income from first eleven months less $27 million net loss
from last month of 2000). The $75 million reduction in net income between 2001
and full year 2000 is primarily explained by $117 million in incremental
non-cash expenses resulting from our purchase accounting election and $39
million of incremental cash interest expense relating to additional debt burden
undertaken to finance the three acquisitions that now make up Metaldyne (see
table below). This $156 million in expense is offset by a $36 million
extraordinary expense in 2000, and approximately $58 million in additional
income taxes in 2000 versus 2001. The remaining net income difference relates
to the full year effect of including GMTI and Simpson acquisitions in 2001 and
is offset by a generally depressed operating environment in 2001 versus 2000.
21
(IN MILLIONS)
2000
---------------------------------------
1/1/00 11/28/00 -- INCREMENTAL
2001 11/27/00 12/31/00 TOTAL 2001 EXPENSE
---------- ---------- ------------- ---------- -------------
NON-CASH EXPENSES
- -----------------
Depreciation .................................... $ 90.1 $ 52.8 $ 6.5 $ 59.3 $ 30.8
Intangible amortization ......................... 35.7 0.7 2.6 3.3 32.4
Deferred loss amortization ...................... 6.1 -- -- -- 6.1
Goodwill amortization ........................... 27.6 19.0 1.9 20.9 6.7
Debt fee amortization ........................... 11.6 4.5 0.5 5.0 6.6
Interest accretion on subordinated debt ......... 17.5 -- 1.4 1.4 16.1
Equity affiliate loss/(income) .................. 8.9 (12.0) 1.0 (11.0) 18.7
------- ------- ------ ------- -------
Subtotal incremental non-cash in 2001 ........... $ 117.4
-------
Cash interest expense ........................... $ 130.7 $ 78.5 $ 13.0 $ 91.5 $ 39.2
------- ------- ------ ------- -------
Total incremental other cash expenses ........... $ 156.6
=======
The one-month period ended December 31, 2000 ("new basis") reflects a $26
million operating loss. The primary reason for this loss relates to the
underlying economics of our business during a typical December and in
particular to the operating environment in December 2000. Generally, December
is a period where many of our automotive customers shut down their operations
for one to two weeks, and December also represents our slowest selling season
for a significant segment of TriMas. Additionally, in December 2000 we saw many
of our customers reduce their order volume greater than seasonal history would
suggest as our economy began to contract after several years of significant
growth. Further compounding the underlying operating environment, we had just
undergone an acquisition and subsequent management change, and we were thus
slow to react with the necessary workforce and related cost reductions. Further
impacting operating loss in this timeframe were various year-end adjustments
related to workers' compensation, bonus, withholding taxes, and pension
accruals.
SEGMENT INFORMATION
Operating profit for our Automotive Group decreased slightly to $58
million from $62 million in 2000. This decrease is largely driven by the
increase in lease costs incurred related to the sale-leaseback transactions
entered into in December 2000 and June 2001 for the Simpson and GMTI locations
and increased depreciation and amortization expenses associated with the
acquisitions offset by the contribution of approximately $33 million of
operating profit from Simpson and GMTI. Adjusted EBITDA was approximately
$167.9 million in 2001 as compared to approximately $102.7 million in 2000. The
change is comprised of an approximate $72 million increase in segment Adjusted
EBITDA from the Simpson and GMTI acquisitions and offset by the margin effect
of the $99 million sales decline noted above. The approximate 11% decline in
our underlying automotive sales (after excluding the effects of the GMTI and
Simpson acquisitions) is explained by a 12% reduction in the "Big 3" North
American production between 2000 and 2001. However, due to active cost
management and fixed cost reductions, our Adjusted EBITDA decreased by less
than the contribution margin effect.
Automotive/centralized resources ("Corporate") expenses increased by
approximately $2 million in 2001 relative to 2000. The additional cost is
attributable to the Simpson and GMTI acquisitions which were more centralized
in terms of shared services and centralized costs than our historical
operations. In addition, we initiated a process in 2001 of replacing
duplicative administrative costs within our business units in favor of adding
resources (on a less than one for one basis) at our corporate headquarters. We
have focused our efforts on activities such as finance, human resources,
procurement, information technology, and engineering, but have not made an
effort to allocate the complete cost of these services back to our divisions.
We are planning to complete this effort in 2002 and 2003, and expect to
generate continuing future cost savings as a result. Offsetting the increase
was a one-time expense reimbursement of $2.4 million received in 2001.
22
Operating profit for our TriMas Group decreased to $69 million from $97
million in 2000. Adjusted EBITDA was approximately $126.5 million in 2001 as
compared to approximately $146.7 million in 2000. The decrease is the result of
a $56 million sales decline driven by an underlying softness in the
recreational vehicle and marine equipment markets and the cold-headed specialty
fastener market. Factors affecting these markets were a nearly 40% decline in
NAFTA medium and heavy truck production, a decline in agriculture equipment
production, an inventory correction in the general industrial markets, a
decline in general industrial demand relating to the recession environment in
2001, and an unfavorable selling mix within the segments.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY. We had approximately $19 million of cash and cash equivalents
at December 29, 2002. Additionally, we had $117 million and $54 million of
undrawn commitments from our revolving credit facility and accounts receivable
securitization facility, respectively. Thus, total available liquidity exceeded
$190 million as of December 29, 2002. At December 29, 2002, the accounts
receivable securitization facility and revolving credit facility were
unutilized.
PRINCIPAL SOURCES OF LIQUIDITY. Our principal sources of liquidity are
cash flow from operations, our revolving credit facility and our accounts
receivable securitization 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 2003
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.
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 our
34% retained interest.
As a result of the transaction, after payment of expenses, Metaldyne 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 December 2003 and repayment of term debt, we incurred an
approximate $43.4 million, after tax, extraordinary loss on the early
extinguishment of debt. At December 29, 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 aggregate principal amount of 11% senior
subordinated notes due 2012 in a private sale under Rule 144A of the Securities
Act of 1933, as amended. Pursuant to a related registration rights agreement,
we subsequently completed an offer to exchange the privately sold notes for
registered notes that are identical except that the registered notes do not
have any transfer restrictions. The exchange offer raised no new proceeds.
In connection with the 11% senior subordinated notes offering described
above, we also amended and restated our credit facility to replace the 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 our assets and are guaranteed by substantially all of our domestic
subsidiaries.
23
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. Our debt is summarized
below.
(IN MILLIONS)
----------------------------------------
DECEMBER 29, 2002 DECEMBER 31, 2001
------------------- ------------------
Senior credit facilities:
Tranche A term loan facility ................................ $ -- $ 412
Tranche B term loan facility ................................ -- 478
Tranche C term loan facility ................................ -- 185
Tranche D term loan facility ................................ 399 --
Revolving credit facility ................................... -- --
---- ------
Total senior credit facility .............................. $399 $1,075
4.5% convertible subordinated debentures, due 2003 .......... -- 263
11% senior subordinated notes, due 2012 ..................... 250 --
Other debt .................................................. 20 21
---- ------
Total long-term debt ......................................... $669 $1,359
4.5% convertible subordinated debentures, due 2003 (face value
$98.5 million) .............................................. 91 --
Other current maturities ..................................... 9 43
---- ------
Total debt ................................................... $769 $1,402
==== ======
Our working capital revolver facility has a blocked availability amount
sufficient to meet our 2003 maturity of the $98.5 million face value 4.5%
convertible notes. Further, we expect to have available liquidity from our
revolver and accounts receivable securitization facility to repay our current
debt maturities. We will also monitor the corporate bond market for
opportunities to refinance all or a portion of our current debt maturities in
December 2003.
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 December 29,
2002.
At December 29, 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 and
amortization and liquidity enhancements as a direct result of these actions:
o Our senior indebtedness has been reduced 40% 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 us to invest in
the necessary capital to support our growth plan over the next several
years.
o Our outstanding receivables facility balance was zero at December 29,
2002, with $54.0 million available but not utilized, in addition to our
$117 million of undrawn revolving credit facility (net of $34.1 million
letters of credit usage and $98.5 million of blocked availability for
retirement of our 4.5% convertible subordinated debentures).
24
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 December 15, 2003. The remaining aggregate principal amount of these
4.5% convertible subordinated debentures is $98.5 million.
o We retained approximately $135 million of TriMas equity based on the
divestiture price. In 2003, we have reached a preliminary agreement with
TriMas whereby TriMas will repurchase approximately $20 million of this
position in the second quarter of 2003. We will actively seek to liquidate
our remaining position in TriMas to reduce our indebtedness and to invest
in future growth of the Company.
CASH FLOWS
Operating activities -- Operating activities used $61.5 million of cash
for 2002 as compared with a source of cash of $171.2 million in the comparable
period of 2001. Excluding the activities related to the net repayment of the
accounts receivable securitization facility and the funding of our former
subsidiary TriMas' accounts receivable buildup prior to its divestiture,
operating activities provided $144.9 million of cash for 2002 as compared to
$154.4 million for the comparable period of 2001.
Investing activities -- Investing activities resulted in a source of cash
of $765.5 million for 2002 as compared with a use of cash of $111.6 million for
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, January
2002 and December 2002, we entered into sale-leaseback transactions with
respect to equipment and approximately 20 real properties with total proceeds
of approximately $75 million. Proceeds of $23 million, $33 million and $19
million were received in December 2001, January 2002 and December 2002,
respectively. All of the sale-leaseback transactions are accounted for as
operating leases and the associated rent expense is included in our financial
results. Capital expenditures were $126.7 million for 2002 as compared with
$118.0 million for 2001. Capital expenditures related to our former subsidiary
TriMas approximated $10 million prior to its disposition on June 6, 2002.
Financing activities -- Financing activities were a use of cash of $684.9
million for 2002 as compared to an $85.9 million use of cash for 2001. This
decrease is primarily the result of principal repayments on both our term loan
debt and convertible subordinated notes offset by the related debt refinancing.
On June 20, 2002, we issued $250 million of senior subordinated notes with an
interest rate of 11% per annum and amended and restated our November 2000
credit facility to replace the original tranche A, B and C term loans with a
new $400 million tranche D term loan 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 both of which mature December 31, 2009. In
conjunction with the debt refinancing, we incurred approximately $18.6 million
in refinancing fees and prepayment penalties.
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 $333 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. The two
interest rate collars and two of the interest rate caps totaling $200 million
were immediately redesignated to our new term loan borrowings in June 2002,
resulting in a cumulative unrealized loss of $0.8 million as of December 29,
2002, which is included in accumulated other comprehensive income in our
consolidated balance sheet. The remaining two interest rate caps totaling $133
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 December 29, 2002, a loss of $0.04
million has been recorded as other expense in our consolidated statement of
operations relating to these two interest rate caps.
OFF-BALANCE SHEET ARRANGEMENTS
Our Receivables Facility. We have 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,
25
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 an
important source of liquidity to the Company. The receivables facility resulted
in net expense of $4 million in 2002.
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
December 29, 2002, no amount of our $225 million receivables facility was
utilized, with $54 million available. 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.
Sale-Leaseback Arrangements. 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
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. In December
2002, three additional sale-leaseback transactions were completed with respect
to equipment for net proceeds of approximately $19 million. All of these leases
are accounted for as operating leases and the associated rent expense is
included in our financial results on a straight-line basis. Of the $56 million
in proceeds resulting from the December 2001 and January 2002 sale-leaseback
transactions, approximately $21 million were from the sale of TriMas
properties.
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 in
January 2002 and we deferred and accrued approximately $8.3 million. The
deferred payment accrued interest at the rate of 12% and was paid in full in
July 2002. We are entitled to reimbursement of certain amounts from our former
subsidiary TriMas, representing approximately 50% of our obligations related to
these restricted stock awards and, accordingly, a receivable from TriMas is
included in our consolidated balance sheet at December 29, 2002. As a result of
the elections made for the January 14, 2003 payment, we have recorded $10.1
million in accrued liabilities as of December 29, 2002, representing the cash
portion of the January 14, 2003 vesting date. Assuming restricted stock award
holders elect to receive the maximum cash as of the January 14, 2004 vesting
date, we estimate that our additional cash obligations will aggregate
approximately $10 million.
We also have outstanding $64.5 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
26
redemption in December 2012 and June 2013, respectively. 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.
SATURN-RELATED OBLIGATIONS. In the November 2000 recapitalization of the
Company, 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 vehicle production in 2003 is currently anticipated to
approximate 2002 production levels in both North America and Europe, but there
are several factors that could materially alter this outlook, including the
potential for war in the Middle East.
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 and debt financing and refinancing that occurred in June
2002 provide us with adequate sources of liquidity for the foreseeable future.
Our largest raw material requirement is special bar quality steel. 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, the U.S. government in March 2002
imposed tariffs on imported steel. The effect of these tariffs was a dramatic
increase in steel prices. Under supply contracts for special bar quality steel,
we had established prices at which we purchased most of our steel requirements
through 2002. Metaldyne spent much of 2002 negotiating with steel vendors and
our customers, lobbying the government to repeal the steel tariffs, and
designing re-sourcing strategies to mitigate the effect of the steel price
increases. Based on these actions, we expect the effect of the steel price
increases to have an approximate $5 million negative impact on our 2003
profitability. Additionally, we will continue efforts to further mitigate the
effects of these price increases throughout 2003.
27
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 December 29, 2002.
(IN MILLIONS)
PAYMENTS DUE BY PERIODS
----------------------------------------------------------
LESS THAN ONE 1-3 3-5 AFTER
TOTAL YEAR YEARS YEARS 5 YEARS
--------- --------------- ------- ------- --------
Long-term debt .............................................. $ 400 $ 1 $ 2 $ 2 $395
11% Senior subordinated notes ............................... 250 -- -- -- 250
4.5% Convertible subordinated debentures .................... 98 98 -- -- --
Other debt .................................................. 17 2 8 7 --
Capital lease obligations ................................... 11 5 6 -- --
Operating lease obligations (1) ............................. 251 32 57 47 115
Redeemable preferred stock, including accrued
dividends .................................................. 65 -- -- -- 65
Redeemable restricted common stock (2) ...................... 34 17 17 -- --
Pension contributions (data available through 2004) ......... 36 15 21 -- --
Contractual severance ....................................... 11 9 2 -- --
------ ---- ----- --- ----
Total contractual obligations ............................... $1,173 $179 $ 113 $56 $825
====== ==== ===== === ====
- ----------
(1) Operating lease expense is deducted to arrive at Adjusted EBITDA.
(2) Redeemable restricted common stock includes TriMas' portion, consisting
of approximately 50% of total obligations, which will be reimbursed to
the Company.
At December 29, 2002, we were contingently liable for standby letters of
credit totaling $34 million issued on our behalf by financial institutions. We
are also contingently liable for future product warranty claims. We believe
that our product warranty exposure is immaterial; however, it is continuously
monitored for potential warranty implications of new and current business.
U.S. PENSION PLANS
We sponsor defined benefit pension plans covering certain hourly and
salaried employees in the United States. On December 31, 2001, the projected
benefit obligation (calculated using a 7.625% discount rate) exceeded the
market value of plan assets by $88.2 million. During 2002, we made
contributions of $23.6 million to the defined benefit plans; however, these
contributions have been offset by negative 2002 investment returns for
Metaldyne's pension asset portfolio. The under funded status at December 29,
2002 is $112.1 million (assuming a 6.75% discount rate). Under SFAS No. 87,
"Employers' Accounting for Pensions" rules, Metaldyne is required annually on
September 30th to re-measure the present value of projected pension obligations
as compared to plan assets at market value. Although this mark-to-market
adjustment is required, we maintain 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 under
funded status at December 29, 2002 would improve by $30.6 million to $37.8
million, respectively.
We have replaced our 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. Defined benefit plan benefits will no
longer accrue after 2002. This change affected approximately 1,200 employees.
The profit-sharing component of the new plan is calculated using allocation
rates that are integrated with Social Security and that increase with age. Our
2003 defined benefit pension expense will be approximately $5.1 million and our
defined contribution (profit-sharing and 401(k) matching contribution) expense
will be approximately $6.8 million. We anticipate a net benefit expense savings
of $0.9 million in 2003 as a result of these changes, which are effective
January 1, 2003. Additional reductions are attributable to the TriMas
disposition for both 2002 and 2003.
28
For our defined benefit plans, we have assumed a long-term rate of return
on pension assets of 9.0%. As stated above, under this assumption our 2003
pension expense would be approximately $4.0 million and our 2004 expense would
approximate $3.3 million. Assuming that the actual 2003 return on pension
assets resulted in a 10% loss, our 2003 pension expense would not change, and
our 2004 pension expense would increase by approximately $0.8 million. We
expect to make contributions of approximately $14.5 million to the defined
benefit pension plans for 2003, and approximately $21.2 million in 2004.
However, if the actual 2003 return on pension assets resulted in a 10% loss,
our 2003 contribution would not change, but our 2004 contribution would
increase by approximately $0.5 million.
CRITICAL ACCOUNTING POLICIES
The expenses and accrued liabilities or allowances related to certain
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.
GOODWILL. In June 2001, the Financial Accounting Standards Board ("FASB")
approved Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill
and Other Intangible Assets" which was effective for us on January 1, 2002.
Under SFAS No. 142, we ceased the amortization of goodwill. We completed our
initial assessment of impairment for the three automotive segments, which
indicated the fair value of these units exceeds their corresponding carrying
value. We completed this analysis again at year-end, which indicated that the
fair value of these units continues to exceed their carrying values. Fair value
was determined based upon the discounted cash flows of the reporting units
using a 9.5% discount. Assuming an increase in the discount rate to 12%, fair
value would continue to exceed the respective carrying value of each automotive
segment.
We also 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 recognized this impairment charge as the
cumulative effect of change in accounting principle as of January 1, 2002.
STOCK-BASED COMPENSATION. In December 2002, the FASB issued SFAS No. 148,
"Accounting for Stock-Based Compensation -- Transition and Disclosure -- an
amendment of FASB Statement No 123." SFAS No. 148 amends SFAS No. 123, to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. We adopted SFAS No. 148
effective for the fiscal year ended December 29, 2002.
At December 29, 2002, we have one stock-based employee compensation plan,
which provides for the issuance of equity-based incentives in various forms to
key employees of the Company. These options have a ten year option period and
vest ratably over a three year period from date of grant. However, the options'
exercisability is limited in the circumstances of a public offering whereby the
shares are required to be held and exercised after the elapse of certain time
periods. As of December 29, 2002, we had stock options outstanding for
2,539,000 shares at a price of $16.90 per share.
We account for this plan under the recognition and measurement principles
of Accounting Principles Board No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations and, accordingly, no stock option
compensation expense is included in the determination of net income in the
consolidated statement of operations. The weighted average fair value on the
date of grant of options granted in 2002 was zero. Had stock option compensation
expense been determined pursuant to the methodology of SFAS No. 123, "Accounting
for Stock-Based Compensation," the pro forma effects on our basic and diluted
earnings per share would have been a reduction of approximately $0.04 and $0.05
in 2002, respectively.
29
RECEIVABLES AND REVENUE RECOGNITION. 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. In
accordance with our accounts receivable securitization, trade accounts
receivable of substantially all domestic business operations are sold, on an
ongoing basis, to MTSPC, Inc., a wholly owned subsidiary.
In compliance with Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements," we do 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. We are in compliance with SAB No. 101 as of December 29,
2002.
FIXED ASSETS AND OTHER INTANGIBLES EXCLUDING GOODWILL. 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, 2.5% to 10%, and machinery and equipment, 6.7% to 33.3%.
Amortization expense of other intangibles is approximately $28 million in 2002.
The weighted average useful life of intangible assets ranges from 8.2 years to
14.9 years as of December 29, 2002. Potential impairment of these assets is
evaluated by examining current operating results, business prospects, market
trends, potential product obsolescence, competitive activities and other
economic factors.
FOREIGN CURRENCY TRANSLATION. The financial statements of subsidiaries
outside of the United States (U.S.) located in non-highly inflationary
economies are measured using the currency of the primary economic environment
in which they operate as the functional currency, which for the most part
represents the local currency. Transaction gains and losses are included in net
earnings. When translating into U.S. dollars, income and expense items are
translated at average monthly rates of exchange and assets and liabilities are
translated at the rates of exchange at the balance sheet date. Translation
adjustments resulting from translating the functional currency into U.S.
dollars are deferred as a component of accumulated other comprehensive income
(loss) in shareholders' equity. Other comprehensive income (loss), net includes
a translation gain of $39.2 million in 2002 and a translation loss of $8.7
million in 2001. For subsidiaries operating in highly inflationary economies,
non-monetary assets are translated into U.S. dollars at historical exchange
rates. Translation adjustments for these subsidiaries are included in net
earnings.
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.
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.
NEW ACCOUNTING PRONOUNCEMENTS. 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 companies to recognize an
30
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 our financial position or results of operations.
In April 2002, the FASB 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. Upon adoption on
January 1, 2003, any gain or loss from extinguishments of debt recorded in
prior periods will be reclassified to income from continuing operations. We are
currently reviewing the other provisions of this Statement and will adopt them
effective in 2003.
In July 2002, the FASB 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 29, 2002. We are currently reviewing the provisions of this Statement
and will adopt it effective with our 2003 fiscal year.
In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45,
"Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN No. 45 clarifies
disclosures that are required to be made for certain guarantees and establishes
a requirement to record a liability at fair value for certain guarantees at the
time of the guarantee's issuance. The disclosure requirements of FIN No. 45 are
effective for our 2002 financial statements. The requirement to record a
liability applies to guarantees issued or modified after December 31, 2002. We
do not believe the adoption of this portion of the Interpretation will have a
material effect on our financial condition or results of operations.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities, an Interpretation of ARB 51." FIN No. 46 requires that the
primary beneficiary in a variable interest entity consolidate the entity even
if the primary beneficiary does not have a majority voting interest. The
consolidation requirements of this Interpretation are required to be
implemented for any variable interest entity created on or after January 31,
2003. In addition, FIN No. 46 requires disclosure of information regarding
guarantees or exposures to loss relating to any variable interest entity
existing prior to January 31, 2003 in financial statements issued after January
31, 2003. We are currently reviewing certain potential variable interest
entities, which are lessors under some of our operating lease agreements, as
well as our accounts receivable securitization facility to determine the impact
of FIN No. 46. We have not yet determined the impact that this Interpretation
will have on our financial position or results of operations.
OTHER MATTERS
FISCAL YEAR
Effective for 2002, our fiscal year will end on the Sunday nearest to
December 31.
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:
31
o Dependence on Automotive Industry and Industry Cyclicality -- The
industries in which we operate depend upon general economic conditions and
are highly cyclical.
o 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.
o Challenges of Acquisition Strategy -- We intend to actively pursue
acquisitions and/or joint ventures but we may not be able to identify
attractive acquisition and/or joint venture candidates, successfully
integrate our acquired operations or realize the intended benefits of our
acquisitions and/or joint ventures.
o Liquidity and Capital Resources -- If we are unable to meet future
capital requirements, our business may be adversely affected.
o 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 negatively affect our financial health.
o Our Industries are Highly Competitive -- Recent trends among our
customers will increase competitive pressures in our businesses.
o Changing Technology -- Our products are subject to changing technology,
which could place us at a competitive disadvantage relative to alternative
products introduced by competitors.
o Dependence on Key Personnel and Relationships -- We depend on the
services of key individuals and relationships, the loss of which would
materially harm us.
o Labor Stoppages Affecting OEMs -- 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.
o Outsourcing Trend -- Our strategy may not succeed if anticipated
outsourcing fails to occur due to union considerations.
o 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 Environmental Matters -- Our business may be materially and adversely
affected by compliance obligations and liabilities under environmental
laws and regulations.
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.
o 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.
o Substantial Restrictions and Covenants -- Restrictions in our credit
facility and under the indenture governing the exchange notes limit our
ability to take certain actions.
All statements, other than statements of historical fact included in this
annual 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 annual 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 annual 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
32
in this annual 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 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 "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- General Financial Analysis"
for details about our primary market risks, and the objectives and strategies
used to manage these risks. Also see Note 14 "Long-Term Debt" in the notes to
the consolidated financial statements for additional information.
33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Metaldyne Corporation:
In our opinion, the consolidated balance sheets and the related statements of
operations, of shareholders' equity and of cash flows listed in the index
appearing under Item 15(a)(1) as `Post-acquisition Basis' present fairly, in
all material respects, the financial position of Metaldyne Corporation and
subsidiaries at December 29, 2002 and December 31, 2001, and the results of
their operations and their cash flows for the years ended December 29, 2002 and
December 31, 2001, and the period from November 28, 2002 to December 31, 2000,
in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 15(a)(2) as `Post-acquisition
Basis' present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements. These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated statements of operations, of shareholders'
equity and of cash flows listed in the index appearing under Item 15(a)(1) as
"Pre-acquisition Basis" present fairly, in all material respects, the results
of operations and cash flows of Metaldyne Corporation and subsidiaries for the
period from January 1, 2000 to November 27, 2000, in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the index appearing
under Item 15(a)(2) as "Pre-acquisition Basis" present fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audit. We conducted
our audit of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
As more fully described in Note 1 to the consolidated financial statements,
effective November 28, 2000 the Company reflected a new basis of accounting for
their assets and liabilities. As a result, the consolidated financial
statements for the periods subsequent to November 27, 2000 reflect the
post-acquisition basis of accounting and are not comparable to the consolidated
financial statements prepared on a pre-acquisition basis.
As discussed in Note 5 to the consolidated financial statements, the Company
changed its method of accounting for goodwill resulting from its adoption of
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets," effective January 1, 2002.
PricewaterhouseCoopers LLP
Detroit, Michigan
March 11, 2003
34
METALDYNE CORPORATION CONSOLIDATED BALANCE SHEET
DECEMBER 29, 2002 AND DECEMBER 31, 2001
(DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
2002 2001
------------- --------------
ASSETS
Current Assets:
Cash and cash investments .............................................. $ 19,130 $ --
Receivables, net:
Trade, net of allowance for doubtful accounts ......................... 147,670 92,380
Affiliates ............................................................ 27,820 --
Other ................................................................. 11,380 11,780
---------- ----------
Total receivables, net ............................................... 186,870 104,160
Inventories ............................................................ 76,820 162,660
Deferred and refundable income taxes ................................... 23,550 13,630
Prepaid expenses and other assets ...................................... 29,140 37,390
---------- ----------
Total current assets ................................................. 335,510 317,840
Equity and other investments in affiliates .............................. 147,710 17,130
Property and equipment, net ............................................. 697,510 898,020
Excess of cost over net assets of acquired companies .................... 552,100 1,056,920
Intangible and other assets ............................................. 286,220 656,250
---------- ----------
Total assets ......................................................... $2,019,050 $2,946,160
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ....................................................... $ 186,440 $ 168,150
Accrued liabilities .................................................... 108,330 172,580
Current maturities, long-term debt ..................................... 99,900 42,700
---------- ----------
Total current liabilities ............................................ 394,670 383,430
Long-term debt .......................................................... 668,960 1,358,920
Deferred income taxes ................................................... 146,510 329,810
Other long-term liabilities ............................................. 143,300 164,110
---------- ----------
Total liabilities .................................................... 1,353,440 2,236,270
---------- ----------
Redeemable preferred stock, 545,154 shares outstanding .................. 64,510 55,160
Redeemable restricted common stock, 1.7 million and 2.6 million
shares outstanding, respectively ....................................... 23,790 32,760
Less: Restricted unamortized stock awards ............................... (3,120) (12,060)
---------- ----------
Total redeemable stock ............................................... 85,180 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 ......................................................... 684,870 679,670
Accumulated deficit ..................................................... (147,100) (76,440)
Accumulated other comprehensive income (loss) ........................... 10 (11,770)
---------- ----------
Total shareholders' equity ........................................... 580,430 634,030
---------- ----------
Total liabilities, redeemable stock and shareholders' equity ......... $2,019,050 $2,946,160
========== ==========
The accompanying notes are an integral part of the consolidated financial statements.
35
METALDYNE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
PRE ACQUISITION
POST ACQUISITION BASIS BASIS
------------------------------------------------ ----------------
YEAR ENDED YEAR ENDED NOV 28, 2000 JAN 1, 2000 -
DEC 29, 2002 DEC 31, 2001 DEC 31, 2000 NOV 27, 2000
-------------- -------------- -------------- ----------------
Net sales ............................................... $ 1,793,350 $ 2,127,830 $ 104,770 $ 1,545,390
Cost of sales ........................................... (1,494,230) (1,735,660) (93,610) (1,163,550)
------------ ------------ --------- ------------
Gross profit ........................................... 299,120 392,170 11,160 381,840
Selling, general and administrative expenses ............ (176,680) (257,190) (35,970) (191,890)
Gain (charge) on disposition of businesses, net ......... -- -- -- 680
Legacy restricted stock award expense ................... (4,880) (7,930) (1,220) (5,330)
Restructuring charges ................................... (3,470) -- -- --
------------ ------------ --------- ------------
Operating profit (loss) ................................ 114,090 127,050 (26,030) 185,300
------------ ------------ --------- ------------
Other income (expense), net:
Interest expense ....................................... (91,060) (148,160) (14,440) (78,510)
Loss on interest rate arrangements upon early
retirement of term loans ............................. (7,550) -- -- --
Equity earnings (loss) from affiliates, net ............ (1,410) (8,930) (1,000) 10,820
Gain (charge) from disposition of, or changes in,
investments in equity affiliates ..................... -- -- -- 27,520
Income related to the termination of interest rate
swap agreements ...................................... -- -- -- 12,940
Other, net ............................................. (9,100) (17,890) (1,130) (1,400)
------------ ------------ --------- ------------
Other expense, net ................................... (109,120) (174,980) (16,570) (28,630)
------------ ------------ --------- ------------
Income (loss) before income taxes, extraordinary
charge and cumulative effect of change in
accounting principle ................................... 4,970 (47,930) (42,600) 156,670
Income taxes (credit) ................................... (13,500) (4,600) (15,730) 61,370
------------ ------------ --------- ------------
Income (loss) before extraordinary charge and
cumulative effect of change in accounting
principle .............................................. 18,470 (43,330) (26,870) 95,300
Extraordinary loss on repurchase of debentures and
early retirement of term loan, net of taxes of
$25,480 ................................................ (43,380) -- -- --
Extraordinary charge, net of taxes of $7,930 ............ -- -- -- (36,330)
Cumulative effect of change in recognition and
measurement of goodwill impairment ..................... (36,630) -- -- --
------------ ------------ --------- ------------
Net income (loss) ....................................... (61,540) (43,330) (26,870) 58,970
Preferred stock dividends ............................... 9,120 5,850 390 --
------------ ------------ --------- ------------
Earnings (loss) attributable to common stock ............ $ (70,660) $ (49,180) $ (27,260) $ 58,970
============ ============ ========= ============
YEAR ENDED YEAR ENDED NOV 28, 2000 TO JAN 1, 2000 TO
DEC 29, 2002 DEC 31, 2001 DEC 31, 2000 NOV 27, 2000
-------------- -------------- ----------------- ---------------
Basic earnings (loss) per share:
Before extraordinary loss and cumulative effect of
change in accounting principle less preferred
stock dividends ...................................... $ 0.22 $ (1.16) $ (0.79) $ 2.33
Extraordinary loss ..................................... (1.02) -- -- (0.89)
Cumulative effect of change in recognition and
measurement of goodwill impairment ................... (0.86) -- -- --
------- ------- ------- -------
Net income (loss) attributable to common stock ......... $ (1.66) $ (1.16) $ (0.79) $ 1.44
======= ======= ======= =======
Diluted earnings (loss) per share:
Before extraordinary loss and cumulative effect of
change in accounting principle less preferred
stock dividends ...................................... $ 0.21 $ (1.16) $ (0.79) $ 1.89
Extraordinary loss ..................................... (0.97) -- -- (0.66)
Cumulative effect of change in recognition and
measurement of goodwill impairment ................... (0.83) -- -- --
------- ------- ------- -------
Net income (loss) attributable to common stock ......... $ (1.59) $ (1.16) $ (0.79) $ 1.23
======= ======= ======= =======
The accompanying notes are an integral part of the consolidated financial statements.
36
METALDYNE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
PRE ACQUISITION
POST ACQUISITION BASIS BASIS
------------------------------------------------ ----------------
YEAR ENDED YEAR ENDED NOV 28, 2000 TO JAN 1, 2000 TO
DEC 29, 2002 DEC 31, 2001 DEC 31, 2000 NOV 27, 2000
(AMOUNTS IN THOUSANDS) --------------- -------------- ----------------- ----------------
Operating activities:
Income (loss) before extraordinary charge and cumulative effect
of change in accounting principle ............................... $ 18,470 $ (43,330) $ (26,870) $ 95,300
Adjustments to reconcile net cash provided by (used for)
operating activities:
Depreciation and amortization in operating profit ............... 108,790 159,420 10,990 72,530
Legacy stock award expense ...................................... 4,880 7,930 1,220 5,330
Debt fee amortization ........................................... 4,770 11,610 550 4,490
Deferred income taxes ........................................... (7,270) 13,210 6,380 18,650
Non-cash interest expense (interest accretion) .................. 12,990 17,500 1,360 --
Loss on interest rate arrangements .............................. 7,550 -- -- --
Tax refund receivable ........................................... (20,000) -- -- --
(Gain) charge from disposition or other changes in
investments in equity affiliates ............................... -- -- -- (27,520)
Equity (earnings) losses, net of dividends ...................... 1,410 8,930 1,010 (11,980)
Gain on interest swap settlement ................................ -- -- -- (15,820)
Other, net ...................................................... (310) (19,000) 23,570 (21,740)
Changes in assets and liabilities, net of acquisition/disposition
of business:
Accounts receivable ............................................. (10,770) 31,870 38,310 (11,980)
Net proceeds from and repayments of accounts receivable sale .... (167,360) 16,860 36,000 118,500
Inventory ....................................................... (5,390) 36,340 (2,020) 10,090
Prepaid expenses and other current assets ....................... (13,870) 6,670 (220) (9,510)
Accounts payable and accrued expenses ........................... 4,620 (76,780) (95,160) 71,590
------------- ---------- ---------- -----------
Total change in assets and liabilities ......................... (192,770) 14,960 (23,090) 178,690
------------- ---------- ---------- -----------
Net cash provided by (used for) operating activities ............ (61,490) 171,230 (4,880) 297,930
------------- ---------- ---------- -----------
Investing activities:
Capital expenditures ............................................ (126,670) (118,020) (9,160) (97,850)
Proceeds from disposition of business ........................... 840,000 -- -- 3,200
Acquisition of business, net of cash received ................... -- (83,320) (365,170) (21,330)
Proceeds from sale of equity investments ........................ -- -- -- 123,920
Proceeds from sale/leaseback of fixed assets .................... 52,180 84,660 43,590 7,500
Other, net ...................................................... -- 5,060 -- (14,980)
------------- ---------- ---------- -----------
Net cash provided by (used for) investing activities ............ 765,510 (111,620) (330,740) 460
Financing activities:
Proceeds from borrowings of term loan facilities ................ 400,000 44,250 200,000 1,000,000
Principal payments on borrowings of term loan facilities ........ (1,112,450) (81,990) (50,000) (470,000)
Proceeds from borrowings of revolving credit facility ........... 324,800 23,560 39,000 388,000
Principal payments on borrowings of revolving credit facility ... (324,800) (48,750) (30,000) (890,810)
Proceeds from borrowings of senior subordinated notes, due
2012 ........................................................... 250,000 -- -- --
Principal payments on borrowings of convertible subordinated
debentures, due 2003 (net of $1.2 million non-cash portion of
repurchase) .................................................... (205,290) -- -- --
Proceeds from borrowing of other debt ........................... 7,250 59,160 62,470 43,110
Principal payments on borrowing of other debt ................... (5,820) (84,760) (2,600) (128,160)
Capitalization of debt refinancing fees ......................... (12,100) -- -- --
Prepayment costs of early extinguishment of debt ................ (6,480) -- -- --
Debt issuance costs ............................................. -- -- -- (41,470)
Investment from Heartland Investment Group ...................... -- -- -- 435,220
Retirement of common stock ...................................... -- -- -- (584,830)
Proceeds from issuance of common stock .......................... -- -- 126,110 --
Dividends paid .................................................. -- -- (390) (10,740)
Purchase accounting transaction costs ........................... -- -- -- (39,580)
Proceeds from interest rate swap settlement ..................... -- -- -- 15,820
Other, net ...................................................... -- 2,600 3,320 (5,410)
------------- ---------- ---------- -----------
Net cash provided by (used for) financing activities ............ (684,890) (85,930) 347,910 (288,850)
------------- ---------- ---------- -----------
Net increase (decrease) in cash ................................... 19,130 (26,320) 12,290 9,540
Cash and cash equivalents, beginning of year ...................... -- 26,320 14,030 4,490
------------- ---------- ---------- -----------
Cash and cash equivalents, end of year ............................ $ 19,130 $ -- $ 26,320 $ 14,030
============= ========== ========== ===========
Supplementary cash flow information:
Cash paid (refunded) for income taxes, net ....................... $ (2,900) $ (15,380) $ 16,500 $ 1,500
Cash paid for interest ........................................... $ 104,830 $ 133,120 $ 17,250 $ 76,160
The accompanying notes are an integral part of the consolidated financial statements.
37
METALDYNE CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 29, 2002, DECEMBER 31, 2001, THE 34-DAY PERIOD
ENDED DECEMBER 31, 2000 AND THE 331 DAY PERIOD ENDED NOVEMBER 27, 2000
PREFERRED COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS
----------- ----------- ------------ --------------
Balances, January 1, 2000 .................................. -- $ 44,640 $ 324,290
Comprehensive income:
Net income ............................................... 58,970
Foreign currency translation .............................
Minimum pension liability (net of tax, $(2,800) ) ........
Total comprehensive income .............................
Common stock dividends ................................... (10,740)
Exercise of stock options ................................ 150 650
Retirement of shares, net ................................ (34,780) (650) (114,880)
---- --------- -------- ----------
Issuance of shares .......................................
Balances, November 27, 2000 ................................ $ -- $ 10,010 $ -- $ 257,640
==== ========= ======== ==========
New basis beginning equity, November 28, 2000 .............. -- $ 31,210 $496,210 --
Comprehensive income:
Net loss ................................................. $ (26,870)
Foreign currency translation .............................
Total comprehensive loss ...............................
Preferred stock dividends ................................ (390)
Issuance of shares ....................................... 7,460 121,570
---- --------- -------- ----------
Balances, December 31, 2000 ................................ -- 38,670 617,780 (27,260)
Comprehensive income:
Net loss ................................................. (43,330)
Foreign currency translation .............................
Interest rate arrangements ...............................
Minimum pension liability (net of tax, $(4,290)) .........
Total comprehensive loss ...............................
Preferred stock dividends ................................ (5,850)
Issuance of shares ....................................... 3,900 61,890
---- --------- -------- ----------
Balances, December 31, 2001 ................................ $ -- $ 42,570 $679,670 $ (76,440)
Comprehensive income:
Net loss ................................................. (61,540)
Foreign currency translation .............................
Interest rate arrangements (net of tax, $(380)) ..........
Minimum pension liability (net of tax, $(17,960)) ........
Impact of TriMas disposition .............................
Total comprehensive loss ...............................
Preferred stock dividends ................................ (9,120)
Exercise of restricted stock awards ...................... 4,270
Issuance of shares ....................................... 80 930
---- --------- -------- ----------
Balances, December 31, 2002 ................................ $ $ 42,650 $684,870 $ (147,100)
==== ========= ======== ==========
OTHER COMPREHENSIVE INCOME
-------------------------------------------
FOREIGN (IN THOUSANDS)
CURRENCY MINIMUM RESTRICTED TOTAL
TRANSLATION PENSION INTEREST RATE STOCK SHAREHOLDERS'
AND OTHER LIABILITY ARRANGEMENTS AWARDS EQUITY
------------- ------------- --------------- ------------ ---------------
Balances, January 1, 2000 ................................ $ (14,870) $ (10,000) $ (43,680) $ 300,380
Comprehensive income:
Net income ............................................. 58,970
Foreign currency translation ........................... (20,690) (20,690)
Minimum pension liability (net of tax, $(2,800) ) ...... (4,900) (4,900)
-----------
Total comprehensive income ........................... 33,380
Common stock dividends ................................. (10,740)
Exercise of stock options .............................. 800
Retirement of shares, net .............................. (150,310)
Issuance of shares ..................................... (180) (180)
--------- --------- -------- --------- -----------
Balances, November 27, 2000 .............................. $ (35,560) $ (14,900) $ -- $ (43,860) $ 173,330
========= ========= ======== ========= ===========
New basis beginning equity, November 28, 2000 ............ -- -- -- -- $ 527,420
Comprehensive income:
Net loss ............................................... (26,870)
Foreign currency translation ........................... $ 10,070 10,070
-----------
Total comprehensive loss ............................. (16,800)
Preferred stock dividends .............................. (390)
Issuance of shares ..................................... 129,030
--------- --------- -------- --------- -----------
Balances, December 31, 2000 .............................. 10,070 -- -- -- 639,260
Comprehensive income:
Net loss ............................................... (43,330)
Foreign currency translation ........................... (8,660) (8,660)
Interest rate arrangements ............................. (5,870) (5,870)
Minimum pension liability (net of tax, $(4,290)) ....... (7,310) (7,310)
-----------
Total comprehensive loss ............................. (65,170)
Preferred stock dividends .............................. (5,850)
--------- --------- -------- --------- 65,790
Issuance of shares ..................................... -----------
Balances, December 31, 2001 .............................. $ 1,410 $ (7,310) $ (5,870) $ -- $ 634,030
Comprehensive income:
Net loss ............................................... (61,540)
Foreign currency translation ........................... 39,160 39,160
Interest rate arrangements (net of tax, $(380)) ........ 5,100 5,100
Minimum pension liability (net of tax, $(17,960)) ...... (30,570) (30,570)
Impact of TriMas disposition ........................... (1,910) (1,910)
-----------
Total comprehensive loss ............................. (49,760)
Preferred stock dividends .............................. (9,120)
Exercise of restricted stock awards .................... 4,270
Issuance of shares ..................................... 1,010
--------- --------- -------- --------- -----------
Balances, December 31, 2002 .............................. $ 38,660 $ (37,880) $ (770) $ -- $ 580,430
========= ========= ======== ========= ===========
The accompanying notes are an integral part of the consolidated financial statements.
38
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. RECAPITALIZATION AND CHANGE IN ACCOUNTING BASIS
RECAPITALIZATION OF METALDYNE CORPORATION ("METALDYNE" OR THE "COMPANY")
On November 28, 2000, a recapitalization of the Company was consummated in
accordance with the terms of a recapitalization agreement as a result of which
each issued and outstanding share of the Company's publicly traded common stock
at the time of the recapitalization was converted into the right to receive
$16.90 in cash (approximately $585 million in the aggregate) plus additional
cash amounts, if any, based upon the net proceeds from any future disposition
of the stock of Saturn Electronics & Engineering, Inc. ("Saturn") owned by the
Company. In connection with the recapitalization, Masco Corporation, Richard A.
Manoogian and certain of the Company's other stockholders agreed to roll over a
portion of their investment in the Company and consequently remain as
stockholders. As a result of the recapitalization, the Company is controlled by
Heartland Industrial Partners L.P. ("Heartland") and its co-investors.
The recapitalization was completed by a merger of the Company with
Riverside Acquisition Corporation, with the Company being the surviving entity.
At the same time, substantially all of the assets of the Company were
contributed to a new wholly owned subsidiary entity, Metalync Company, LLC (now
known as Metaldyne Company, LLC) ("LLC"), including operating assets and stock
in subsidiaries. In addition, the LLC assumed the obligation to pay the
principal and interest on the 4.5% debentures due in 2003, although the Company
remains responsible.
In connection with the recapitalization, Heartland, Credit Suisse First
Boston Equity Partners, L.P., certain legacy stockholders, their various
affiliates and certain other stockholders of the Company, entered into a
Shareholders' Agreement regarding their ownership of the Company's common
stock. Owners of an aggregate of approximately 90% of the Company's outstanding
common stock are party to the Shareholders' Agreement, which imposes certain
restrictions on, and rights with respect to the transfer of, Company Common
Stock. The Agreement also entitles the shareholders to certain rights regarding
corporate governance of the Company.
Prior to the completion of and in connection with the recapitalization
transaction under which our common stock became privately held, the Company
agreed to pay approximately $44 million of transaction related costs. These
costs were recorded as an extraordinary loss of $36 million, net of $8 million
tax expense for the period ended November 28, 2000.
CHANGE IN ACCOUNTING BASIS
At the time of the recapitalization and in compliance with the provisions
of Staff Accounting Bulletin 54 (Topic 5-J), we elected to account for the
transaction on a carry-over basis, rather than as a purchase requiring that we
establish a new basis in our assets and our liabilities, due to the continuing
interest of certain of our former security holders and the continued listing of
our subordinated debentures on the New York Stock Exchange (NYSE) which were
registered under the Securities Exchange Act of 1934. In December 2001, our
debentures were de-listed with the NYSE and de-registered under the Exchange
Act. We have determined that the effect of these actions is to require that,
effective November 28, 2000, we retroactively adopt purchase accounting for the
recapitalization transaction during our fourth quarter 2001. The
pre-acquisition basis financial information for the periods prior to November
28, 2000 are reflected on the historical basis of accounting and all periods
subsequent to November 28, 2000 are reflected on a purchase accounting basis.
On November 28, 2000, the Company was acquired by Heartland and its
co-investors for approximately $435 million in cash and the assumption of
$1,300 million in debt. In order to effect the acquisition, new common and
preferred shares valued at $125 million were issued to certain legacy
stockholders and certain other continuing shareholders of the acquired company.
39
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial statements include
the accounts of the Company and all majority-owned subsidiaries. All
significant intercompany transactions have been eliminated. Corporations that
are 20 to 50 percent owned are accounted for by the equity method of
accounting; ownership less than 20% is accounted for on the cost basis unless
the Company exercises significant influence over the investee.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements. Such estimates and assumptions also affect the reported amounts of
revenues and expenses during the reporting periods. Actual results may differ
from such estimates and assumptions.
Cash and Cash Investments. The Company considers all highly liquid debt
instruments with an initial maturity of three months or less to be cash and
cash investments.
Derivative Financial Instruments. The Company has entered into interest
rate protection agreements to limit the effect of changes in the interest rates
on any floating rate debt. 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. 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. Under hedge accounting, changes are recorded
as a component of other comprehensive income to the extent the hedge is
considered effective.
Receivables. Receivables are presented net of allowances for doubtful
accounts of approximately $3.1 million and $5.4 million at December 29, 2002
and December 31, 2001, respectively. The Company conducts a significant amount
of business with a number of individual customers in the automotive industry.
The Company monitors its exposure for credit losses and maintains adequate
allowances for doubtful accounts; the Company does not believe that significant
credit risk exists. In accordance with the Company's accounts receivable
securitization (see Note 8), 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.
Inventories. Inventories are stated at the lower of cost or net realizable
value, with cost determined principally by use of the first-in, first-out
method.
Property and Equipment, Net. Property and equipment additions, including
significant betterments, are recorded at cost. Upon retirement or disposal of
property and equipment, the cost and accumulated depreciation are removed from
the accounts, and any gain or loss is included in income. Repair and
maintenance costs are charged to expense as incurred.
Depreciation, Amortization and Impairment of Long-Lived Assets.
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, 2.5% to 10%, and machinery and equipment, 6.7%
to 33.3%. Deferred financing costs are amortized over the lives of the related
debt securities. Deferred losses on sale-leasebacks are amortized over the life
of the respective lease, which range from 3.5 to 20 years. Amortization expense
of deferred losses on sale-leasebacks was $11.2 million and $6.1 million for the
years ended December 29, 2002 and December 31, 2001, respectively, and is
included in cost of sales. Unamortized deferred losses on sale-leasebacks are
$31 million and $40 million at December 29, 2002 and December 31, 2001,
respectively.
Customer contracts are amortized over a period from 6 years to 40 years
depending upon the nature of the underlying contract. Trademarks/trade names
are amortized over a 40-year period, while
40
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
technology and other intangibles are amortized over a period between 3 and 30
years. At December 29, 2002 and December 31, 2001, accumulated amortization of
intangible assets was approximately $45 million and $39 million, respectively.
Total amortization expense, including amortization of stock awards and deferred
losses related to sale-leaseback transactions, was approximately $44 million,
$89 million and $30 million in 2002, 2001 and eleven months of 2000,
respectively.
Management periodically reviews long-lived assets, including other
intangible assets, for potential impairment whenever events or changes in
circumstances indicate. Fair value of all other long-lived assets is determined
based on useful lives, cash flows and profitability projections. An impairment
loss would be recognized if the review indicates that the carrying value of the
asset exceeds the fair value.
Goodwill. Prior to 2002, the Company amortized goodwill over 40 years. As
of January 1, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" and ceased
amortizing goodwill. Beginning in 2002, the Company tests goodwill for
impairment on an annual basis, unless conditions exist which would require a
more frequent evaluation. In assessing the recoverability of goodwill,
projections regarding estimated future cash flows and other factors are made to
determine the fair value of the respective assets. The Company may be required
to record impairment charges for goodwill if these estimates or related
projections change in the future.
Foreign Currency Translation. The financial statements of subsidiaries
outside of the United States ("U.S.") located in non-highly inflationary
economies are measured using the currency of the primary economic environment
in which they operate as the functional currency, which for the most part
represents the local currency. Transaction gains and losses are included in net
earnings. When translating into U.S. dollars, income and expense items are
translated at average monthly rates of exchange and assets and liabilities are
translated at the rates of exchange at the balance sheet date. Translation
adjustments resulting from translating the functional currency into U.S.
dollars are deferred as a component of accumulated other comprehensive income
(loss) in shareholders' equity. For subsidiaries operating in highly
inflationary economies, non-monetary assets are translated into U.S. dollars at
historical exchange rates. Translation adjustments for these subsidiaries are
included in net earnings.
Pension Plans and Postretirement Benefits Other Than Pensions. Annual net
periodic pension expense and benefit liabilities under defined benefit pension
plans are determined on an actuarial basis. Assumptions used in the actuarial
calculations have a significant impact on plan obligations and expense. Each
September, the Company reviews 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 it is the Company's policy to pay
these benefits as they become due.
Shipping and Handling Fees and Costs. A portion of shipping and handling
fees is included in the selling, general and administrative expenses category
in the consolidated statement of income. Shipping and handling expenses
included in selling, general and administrative accounts were $17.6 million,
$23.8 million and $19.9 million in 2002, 2001, and eleven months of 2000,
respectively.
Reclassifications. Certain prior year amounts have been reclassified to
reflect current year classification. These reclasses include minor adjustments
between goodwill, fixed assets and deferred tax liabilities in the consolidated
balance sheet and other expense and operating income in the statement of
operations.
New Accounting Pronouncements. Effective January 1, 2002, the Company
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
41
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
In April 2002, the Financial Accounting Standards Board ("FASB") 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 $43.4 million (net of taxes of $25.5 million) loss on the
early extinguishment of debt recorded for the year ended December 29, 2002,
will no longer be classified as an extraordinary item.
In July 2002, the FASB 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 29, 2002. The Company is currently reviewing the provisions of this
Statement and will adopt it effective with the Company's 2003 fiscal year.
In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45,
"Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN No. 45 clarifies
disclosures that are required to be made for certain guarantees and establishes
a requirement to record a liability at fair value for certain guarantees at the
time of the guarantee's issuance. The disclosure requirements of FIN No. 45
have been applied in the Company's 2002 financial statements. The requirement
to record a liability applies to guarantees issued or modified after December
31, 2002. The Company does not believe the adoption of this portion of the
interpretation will have a material effect on its financial condition or
results of operations.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities, an Interpretation of ARB 51." FIN No. 46 requires that the
primary beneficiary in a variable interest entity consolidate the entity even
if the primary beneficiary does not have a majority voting interest. The
consolidation requirements of this Interpretation are required to be
implemented for any variable interest entity created on or after January 31,
2003. In addition, FIN No. 46 requires disclosure of information regarding
guarantees or exposures to loss relating to any variable interest entity
existing prior to January 31, 2003 in financial statements issued after January
31, 2003. The Company is currently reviewing certain potential variable
interest entities, which are lessors under some of the Company's operating
lease agreements as well as its accounts receivable securitization facility to
determine the impact of FIN 46. The Company has not yet determined the impact
FIN 46 will have on its financial position or results of operations.
Accounting for Stock-Based Compensation. In December 2002, the FASB issued
SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and
Disclosure -- an amendment of FASB Statement No. 123." SFAS No. 148 amends SFAS
No. 123, to provide alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
SFAS No. 123 to require
42
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
prominent disclosures in both annual and interim financial statement about the
method of accounting for stock-based employee compensation and the effect of
the method used on reported results. The Company adopted SFAS No. 148 effective
for the fiscal year ended December 29, 2002.
The following disclosure for the financial statements for the year ended
December 29, 2002 assumes that the Company continues to account for stock-based
employee compensation using the intrinsic value method under Accounting
Principles Board ("APB") No. 25.
At December 29, 2002, the Company has one stock-based employee
compensation plan, which is described more fully in Note 19. The Company
accounts for this plan under the recognition and measurement principles of APB
No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations. No stock-based employee compensation cost is reflected in net
income, as all options granted under this plan had an exercise price equal to
the market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net income and earnings per share if
the Company had applied the fair value recognition provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," to stock-based employee
compensation.
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 29, DECEMBER 31, NOVEMBER 28, 2000 -- JANUARY 1, 2000 --
2002 2001 DECEMBER 31, 2000 NOVEMBER 27, 2000
-------------- -------------- ---------------------- -------------------
Net income (loss) attributable to common
stock, as reported ....................... $ (70,660) $ (49,180) $ (27,260) $ 58,970
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects ............... (1,950) (1,710) -- --
--------- --------- ---------- --------
Pro forma net income (loss) attributable to
common stock ............................. $ (72,610) $ (50,890) $ (27,260) $ 58,970
========= ========= ========== ========
Earnings (loss) per share:
Basic -- as reported ..................... $ (1.66) $ (1.16) $ (0.79) $ 1.44
========= ========= ========== ========
Basic -- pro forma for stock-based
compensation ........................... $ (1.70) $ (1.20) $ (0.79) $ 1.44
========= ========= ========== ========
Diluted -- as reported ................... $ (1.59) $ (1.16) $ (0.79) $ 1.23
========= ========= ========== ========
Diluted -- pro forma for stock-based
compensation ........................... $ (1.64) $ (1.20) $ (0.79) $ 1.23
========= ========= ========== ========
43
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. EARNINGS PER SHARE
The following reconciles the numerators and denominators used in the
computations of basic and diluted earnings per common share:
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOVEMBER 28, 2000 -- JANUARY 1, 2000 --
2002 2001 DECEMBER 31, 2000 NOVEMBER 27, 2000
------------ ------------- ---------------------- -------------------
Weighted average number of shares
outstanding ..................................... 42,650 42,570 34,670 40,970
====== ====== ====== ======
Income (loss) before extraordinary charge
and cumulative effect of change in
accounting principle ............................ $ 18,470 $ (43,330) $ (26,870) $ 95,300
Loss on early extinguishment of debt, net of
income taxes .................................... (43,380) -- -- (36,330)
Cumulative effect of change in recognition
and measurement of goodwill impairment .......... (36,630) -- -- --
--------- --------- --------- ---------
Net income (loss) ................................ (61,540) (43,330) (26,870) $ 58,970
Less: Preferred stock dividends .................. 9,120 5,850 390 --
--------- --------- --------- ---------
Income (loss) used for basic and diluted
earnings per share computation .................. $ (70,660) $ (49,180) $ (27,260) $ 58,970
========= ========= ========= =========
Basic earnings (loss) per share:
Before extraordinary charge and
cumulative effect of change in accounting
principle less preferred stock ................ $ 0.22 $ (1.16) $ (0.79) $ 2.33
Extraordinary loss .............................. (1.02) -- -- (0.89)
Cumulative effect of change in recognition
and measurement of goodwill
impairment .................................... (0.86) -- -- --
--------- --------- --------- ---------
Net income (loss) attributable to common
stock ......................................... $ (1.66) $ (1.16) $ (0.79) $ 1.44
========= ========= ========= =========
Total shares used for basic earnings per share
computation ..................................... 42,650 42,570 34,670 40,970
Dilutive securities:
Stock options ................................... $ -- -- -- $ 380
Convertible debentures .......................... -- -- -- 9,840
Contingently issuable shares ..................... 1,710 -- -- 3,740
--------- --------- --------- ---------
Total shares used for diluted earnings per
share computation ............................... $ 44,360 42,570 34,670 54,930
========= ========= ========= =========
Earnings (loss) used for basic earnings per
share computation ............................... $ (70,660) $ (49,180) $ (27,260) $ 58,970
Add back of debenture interest ................... -- -- -- 8,510
--------- --------- --------- ---------
Earnings (loss) used for diluted earnings per
share computation ............................... $ (70,660) $ (49,180) $ (27,260) $ 67,480
========= ========= ========= =========
Diluted earnings (loss) per share:
Before extraordinary charge and
cumulative effect of change in accounting
principle less preferred stock ................ $ 0.21 $ (1.16) $ (0.79) $ 1.89
Extraordinary loss .............................. (0.97) -- -- (0.66)
Cumulative effect of change in recognition
and measurement of goodwill
impairment .................................... (0.83) -- -- --
--------- --------- --------- ---------
Net income (loss) attributable to common
stock ......................................... $ (1.59) $ (1.16) $ (0.79) $ 1.23
========= ========= ========= =========
44
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 2,540,000 and 2,850,000 of common
shares as they had no dilutive effect at December 29, 2002 and December 31,
2001, respectively.
Contingency issuable shares, representing approximately 2,610,000
restricted common shares, have an anti-dilutive effect on earnings per share
for the year ended December 31, 2001.
4. SUPPLEMENTARY CASH FLOW INFORMATION
Significant transactions not affecting cash were: in 2002, the cumulative
effective of change in recognition and measurement of goodwill impairment of
$36.6 million, and the loss on early extinguishment of debt, net of income
taxes, of $39.4 million ($43.4 million including cash portion); in 2001, the
issuance of approximately $65.4 million and $18.5 of Company common stock and
redeemable preferred stock, respectively, related to the acquisition of GMTI;
and in 2000, the issuance of approximately $8 million of Company common stock
as additional consideration related to a 1998 acquisition; the issuance of $125
million new common and redeemable preferred stock in exchange for Company
common stock; the issuance of approximately $9 million of Company common stock
through the conversion of restricted stock awards as part of the Heartland
acquisition; the acquisition of Simpson for cash and the assumption of
approximately $215 million of liabilities. Also refer to Note 6 for impact of
TriMas disposition on cash flows.
5. 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 December 29, 2002, the goodwill balance was
approximately $552 million. For purposes of testing this goodwill for potential
impairment, fair values were determined based upon the discounted cash flows of
the reporting units using a 9.5% discount. The initial assessment for the
Automotive Group indicated that the fair value of these units exceeded their
corresponding carrying value. This analysis was completed again for the year
ended December 29, 2002, which indicated that the fair value of these units
continued to exceed their carrying values.
The assessment for the Company's former TriMas Group indicated the
carrying value of these units exceeded their fair value. 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.
45
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The effect of adoption of SFAS No. 142 on the Company's results of
operations for the year ended December 31, 2001 is as follows. The year ended
December 29, 2002 is included for comparison purposes.
(IN THOUSANDS)
DECEMBER 29, DECEMBER 31,
2002 2001
-------------- -------------
Income (loss) before extraordinary charge and cumulative effect
of change in accounting principle ............................ $ 18,470 $ (43,330)
Loss on early extinguishment of debt, net of taxes ............ (43,380) --
Cumulative effect of change in accounting principle ........... (36,630) --
--------- ---------
Net loss ...................................................... (61,540) (43,330)
Add back: goodwill amortization, net of taxes ................. -- 26,580
--------- ---------
Net loss, as adjusted ......................................... (61,540) (16,750)
Less: Preferred stock dividends ............................... 9,120 5,850
--------- ---------
Net loss attributable to common stock, as adjusted ............ $ (70,660) $ (22,600)
========= =========
Basic loss per share, as adjusted ............................. $ (1.66) $ (0.53)
========= =========
Diluted loss per share, as adjusted ........................... $ (1.59) $ (0.53)
========= =========
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.
(IN THOUSANDS, EXPECT WEIGHTED
AVERAGE LIFE)
AS OF DECEMBER 29, 2002 AS OF DECEMBER 31, 2001
-------------------------------------- -------------------------------------
GROSS WEIGHTED GROSS WEIGHTED
CARRYING ACCUMULATED AVERAGE CARRYING ACCUMULATED AVERAGE
AMOUNT AMORTIZATION LIFE AMOUNT AMORTIZATION LIFE
---------- -------------- ------------ ---------- -------------- -----------
Amortized Intangible Assets:
Customer Contracts ............ $ 91,000 $ (20,920) 8.2 years $291,500 $(19,680) 25.7 years
Technology and Other .......... 160,820 (23,790) 14.9 years 277,690 (18,960) 14.1 years
-------- --------- ------------ -------- -------- -----------
Total ......................... $251,820 $ (44,710) 13.6 years $569,190 $(38,640) 18.8 years
======== ========= ============ ======== ======== ===========
Aggregate Amortization Expense
(Included in Cost of Sales):
For the year ended
December 29, 2002 .......... $ 27,670
Estimated Amortization Expense:
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
46
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GOODWILL
The changes in the carrying amount of goodwill for the year ended December
29, 2002 are as follows:
(IN THOUSANDS)
CHASSIS DRIVELINE ENGINE TRIMAS TOTAL
----------- ----------- ----------- ------------- -------------
Balance as of January 1, 2002 ................. $ 67,050 $345,100 $116,950 $ 527,820 $1,056,920
Exchange impact from foreign currency ......... -- 17,920 3,430 -- 21,350
Other ......................................... (460) (1,550) 3,660 -- 1,650
FAS 142 impairment ............................ -- -- -- (36,630) (36,630)
TriMas disposition ............................ -- -- -- (491,190) (491,190)
-------- -------- -------- ---------- ----------
Balance as of December 29, 2002 ............... $ 66,590 $361,470 $124,040 $ -- $ 552,100
======== ======== ======== ========== ==========
6. DISPOSITION OF BUSINESSES
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 December 29, 2002 to
reflect the finalization of certain amounts that were estimated on the date of
closing.
47
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The assets and liabilities of TriMas at June 6, 2002 consisted of the
following (in thousands):
Current assets (principally accounts receivable of $133,050, and
inventories of $93,520) ....................................... $ 240,830
Property and equipment, net .................................... 240,480
Goodwill ....................................................... 491,190
Intangibles and other assets ................................... 320,300
----------
Total assets ................................................ $1,292,800
Current liabilities (principally accounts payable of $49,890 and
accrued liabilities of $53,160) ............................... $ 120,880
Non-current liabilities (principally deferred income taxes of
$171,580) ..................................................... 211,660
----------
Total liabilities ........................................... $ 332,540
Net assets .................................................. $ 960,260
==========
TriMas is included in the Company's financial results through the date of
this transaction. Effective June 6, 2002, the Company accounts for its 34%
retained interest in TriMas under the equity method of accounting.
As a result of the transaction, 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 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).
In 1999, management adopted a plan to sell its specialty tubing business
which resulted in a pre-tax loss of approximately $7 million and an after-tax
gain of approximately $5.5 million, due to the tax basis in the net assets of
the businesses exceeding book carrying values. This business was sold in
January 2000 for proceeds of approximately $6 million consisting of cash and
notes.
7. ACQUISITIONS AND RESTRUCTURING RELATED INTEGRATION ACTIONS
On June 22, 2001, the Company purchased from its controlling shareholder,
Heartland Industrial Partners ("Heartland"), Global Metal Technologies, Inc.
("GMTI"). GMTI is a fully integrated technology leader in aluminum die-casting
with leading market positions in transmission, engine, chassis and steering
components. To effect the acquisition, the Company issued common and preferred
shares valued at approximately $83.9 million. In addition to securities issued,
Metaldyne paid approximately $83 million, net of cash acquired, for the
acquisition of GMTI. This acquisition was financed through a combination of
borrowings under the Company's tranche C facility, revolving credit facility
and proceeds from the sale of accounts receivable pursuant to the accounts
receivable facility.
GMTI was originally acquired by the Company's controlling shareholder,
Heartland, on January 4, 2001 for a cash purchase price of $25 million, plus
debt assumed. This transaction resulted in approximately $100 million of excess
of cost over net assets. Our June 22, 2001 acquisition of GMTI has been
accounted for in a manner similar to a pooling of interests since these
businesses were under common control. Our results of operations for 2001 have
been adjusted to include GMTI from January 4, 2001 forward.
On December 15, 2000, the Company acquired Simpson Industries, Inc. for
total consideration of $365 million, including fees and expenses and the
assumption of indebtedness. The results for 2000 include Simpson sales and
operating results since the date of acquisition.
Simpson is a designer and manufacturer of precision-engineered automotive
components and modular systems for passenger and sport utility vehicles, light
and heavy-duty trucks and diesel engines.
48
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended December 31, 2000, Simpson had approximate net sales of $515
million and operating profit of $35.7 million. The acquisition was accounted
for as a purchase with excess purchase price over the estimated fair value of
net assets acquired of approximately $85 million.
In 2001, the Company began to implement plans to integrate the three
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 292 employees and closed unprofitable
businesses and plants. The majority of these actions were completed in 2001,
but some are ongoing as of December 29, 2002. All employees have been
terminated under this integration action. The amounts reflected represent total
estimated cash payments, of which $1.9 million and $6.8 million are recorded in
"Other long-term liabilities" in the Company's consolidated balance sheet at
December 29, 2002 and December 31, 2001, respectively. The following table
summarizes the activity for the reserves established relating to the three
acquisitions, as well as additional restructuring activities in 2002.
Adjustments to previously recognized acquisition related severance and exit
costs were reversed to goodwill.
As discussed in Note 6, the Company completed a divestiture of its former
TriMas subsidiary on June 6, 2002.
The following table provides a rollforward of the restructuring accrual
related to the above restructuring actions as of December 29, 2002.
(IN THOUSANDS)
ACQUISITION RELATED
---------------------------
EXIT AND 2002 SEVERANCE
SEVERANCE INTEGRATION AND OTHER
COSTS COSTS EXIT COSTS TOTAL
----------- ------------- --------------- ------------
Balance at December 31, 2000 ........... $ 53,120 $ 12,000 $ -- $ 65,120
Cash payments .......................... (13,560) (1,880) -- (15,440)
Asset impairment ....................... -- (3,020) -- (3,020)
--------- -------- ------- ---------
Balance at December 31, 2001 ........... $ 39,560 $ 7,100 $ -- $ 46,660
Cash payments .......................... (16,380) (1,850) (420) (18,650)
Charges to expense ..................... -- -- 3,470 3,470
Amounts assumed by TriMas .............. (11,800) (3,520) -- (15,320)
Reversal of unutilized amounts ......... (3,310) (60) -- (3,370)
Asset impairment ....................... -- (1,140) -- (1,140)
--------- -------- ------- ---------
Balance at December 29, 2002 ........... $ 8,070 $ 530 $ 3,050 $ 11,650
========= ======== ======= =========
In June 2002, the Company announced the reorganization of its Engine
Group's European operations, to streamline the engineering, manufacturing and
reporting structure of its European operations. This restructuring includes the
closure of a manufacturing facility in Halifax, England and termination of
approximately 25 employees. In addition, the Company announced the closure of a
small manufacturing location in Memphis, Tennessee and management restructuring
within its North American engine operations, which has resulted in the
termination of 12 employees.
8. 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 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
49
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
an amount that approximates the purchaser's financing costs, which amounted to
a total of $3.6 million and $8.1 million in 2002 and 2001, respectively, and is
included in "other expense" in the Company's consolidated statement of
operations. At December 29, 2002, the Company's funding under the facility was
zero with $54.0 million available but not utilized. At December 31, 2001, the
Company funded approximately $167 million under the facility. The discount rate
at December 29, 2002 was 2.48% compared with 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. This facility expires
in November 2005.
9. INVENTORIES
(IN THOUSANDS)
DECEMBER 29, 2002 DECEMBER 31, 2001
------------------- ------------------
Finished goods ............ $25,720 $ 81,540
Work in process ........... 26,230 41,060
Raw material .............. 24,870 40,060
------- --------
Total inventories ......... $76,820 $162,660
======= ========
10. EQUITY AND OTHER INVESTMENTS IN AFFILIATES
On November 28, 2000 as part of the Heartland transaction, the Company
sold all of its equity investments, except its ownership in Saturn (Saturn
Electronics & Engineering, Inc.), for approximately $124 million.
The Company has a 36% common equity ownership in Saturn, a privately-held
manufacturer of electromechanical and electronic automotive components.
Although no disposition of the stock of Saturn was made prior to November 28,
2000, former holders of the Company's common stock on this date will be
entitled to amounts based on net proceeds, if any, from any subsequent
disposition of Saturn. The amount which will be paid to such former
stockholders will equal the proceeds in excess of $18.0 million and less than
or equal to $40.0 million, any proceeds in excess of $55.7 million and less
than or equal to $56.7 million as well as 60% of any proceeds in excess of
$56.7 million. Any other proceeds will be retained by the Company. As a result
of these agreements, Metaldyne has suspended recognition of equity income in
Saturn when these limitations apply.
On June 6, 2002, the Company sold TriMas common stock to 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.
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. Refer to Note 6 for
additional information regarding this transaction.
50
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The carrying amount of investments in affiliates at December 29, 2002 and
December 31, 2001 was $147.7 million and $17.1 million, respectively.
Approximate combined condensed financial data of the Company's equity
affiliates accounted for under the equity method are as follows:
(IN THOUSANDS)
DECEMBER 29, 2002 DECEMBER 31, 2001
------------------- ------------------
Current assets ................................................ $ 416,810 $ 87,820
---------- ---------
Long-term assets:
Property and equipment, net .................................. 275,270 48,420
Excess of cost over net assets of acquired companies ......... 538,180 26,510
Intangible and other assets .................................. 297,610 11,900
Other assets ................................................. 77,010 13,850
---------- ---------
Total assets .................................................. $1,604,880 $ 188,500
========== =========
Current liabilities ........................................... $ 207,810 $ 144,190
---------- ---------
Long-term liabilities:
Long-term debt ............................................... 756,190 --
Other long-term debt ......................................... 200,730 4,370
---------- ---------
Total liabilities ............................................ $1,164,730 $ 148,560
========== =========
(IN THOUSANDS)
FOR THE YEARS ENDED
--------------------------------------------------------------
DECEMBER 29, 2002 DECEMBER 31, 2001 DECEMBER 31, 2000
------------------- ------------------- ------------------
Net sales ................. $1,110,530 $ 347,450 $3,090,800
========== ========= ==========
Operating profit .......... $ 94,500 $ 9,170 $ 186,680
========== ========= ==========
Net income (loss) ......... $ (27,570) $ (24,050) $ 33,220
========== ========= ==========
Equity and other income from affiliates consists of the following:
(IN THOUSANDS)
FOR THE YEARS ENDED
--------------------------------------------------------------
DECEMBER 29, 2002 DECEMBER 31, 2001 DECEMBER 31, 2000 (A)
------------------- ------------------- ----------------------
Equity and other investments in affiliates;
earnings (loss) .............................. $ (1,410) $ (8,930) $5,790
Operating profit .............................. -- -- 4,020
-------- -------- ------
Equity in earnings (loss) from affiliates, net $ (1,410) $ (8,930) $9,810
======== ======== ======
- ----------
(a) For the period November 28-December 31, 2000, the Company recognized
a $(1.0) million loss on equity in affiliate earnings.
51
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. PROPERTY AND EQUIPMENT, NET
(IN THOUSANDS)
DECEMBER 29, 2002 DECEMBER 31, 2001
------------------- ------------------
Cost:
Land and land improvements ............. $ 18,190 $ 29,500
Buildings .............................. 204,690 282,590
Machinery and equipment ................ 619,020 675,900
-------- --------
841,900 987,990
Less: Accumulated depreciation ......... 144,390 89,970
-------- --------
Property and equipment, net ............ $697,510 $898,020
======== ========
Depreciation expense totaled approximately $68 million, $90 million and
$53 million in 2002, 2001 and eleven months of 2000, respectively.
12. INTANGIBLE AND OTHER ASSETS
(IN THOUSANDS)
DECEMBER 29, 2002 DECEMBER 31, 2001
------------------- ------------------
Customer contracts, net .............................. $ 70,080 $271,820
Technology and other intangibles, net ................ 137,030 258,730
Deferred loss on sale-leaseback transactions ......... 30,900 39,510
Deferred financing costs ............................. 11,780 43,170
Other ................................................ 36,430 43,020
--------- --------
Total ................................................ $ 286,220 $656,250
========= ========
The technology and other intangibles category primarily represents patents
and/or in-depth process knowledge embedded within the Company.
The above long-term assets are recorded as "Intangible and other assets"
in the Company's consolidated balance sheet as of December 29, 2002.
13. ACCRUED LIABILITIES
(IN THOUSANDS)
DECEMBER 29, 2002 DECEMBER 31, 2001
------------------- ------------------
Workers' compensation and self insurance ......... $ 17,340 $ 37,350
Reserve for plant closures ....................... 9,750 32,280
Salaries, wages and commissions .................. 3,630 8,630
Legacy restricted common stock ................... 10,080 14,520
Vacation, holiday and bonus ...................... 19,470 22,690
Interest ......................................... 3,800 17,570
Property, payroll and other taxes ................ 7,090 12,550
Pension .......................................... 15,970 13,090
Other ............................................ 21,200 13,900
-------- --------
Accrued liabilities .............................. $108,330 $172,580
======== ========
52
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. LONG-TERM DEBT
In 2002, as a result of the TriMas divestiture, the Company repurchased
$206 million aggregate principal amount of its 4.5% convertible subordinated
debentures due 2003. These repurchases of the convertible subordinated
debentures were facilitated using proceeds from the TriMas disposition
transaction. As of December 29, 2002, the remaining outstanding aggregate
principal amount of the 4.5% convertible subordinated debentures is $98.5
million. The carrying amount of these 4.5% convertible subordinated debentures
is $91.4 million and is reported in the Company's consolidated balance sheet as
of December 29, 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 raised no new proceeds for the Company and was
made in accordance with contractual commitments arising from the June 20, 2002
issuance. The exchange offer, which closed November 20, 2002, allows the 11%
senior subordinated notes to be transferred without restriction. Certain of the
Company's domestic wholly owned subsidiaries, as defined in the related bond
indenture, (the "Guarantors") irrevocably and unconditionally fully guarantee
the 11% notes. The condensed consolidating financial information included in
Note 29 presents the financial position, results of operations and cash flows
of the guarantors.
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. At December 29, 2002,
there was approximately $250 million unused and approximately $117 undrawn
under the revolving credit facility. 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.
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.
Until the remaining 4.5% convertible subordinated debentures are repaid,
availability up to $100 million on the Company's 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
December 29, 2002.
53
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 debt is summarized below.
(IN MILLIONS)
DECEMBER 29, DECEMBER 31,
2002 2001
-------------- -------------
Senior credit facilities:
Tranche A term loan facility ............................... $ -- $ 412
Tranche B term loan facility ............................... -- 478
Tranche C term loan facility ............................... -- 185
Tranche D term loan facility ............................... 399 --
Revolving credit facility .................................. -- --
---- ------
Total senior credit facility ............................... $399 $1,075
4.5% convertible subordinated debentures, due 2003 ......... -- 263
11% senior subordinated notes, due 2012 .................... 250 --
Other debt ................................................. 20 21
---- ------
Total long-term debt ....................................... $669 $1,359
4.5% convertible subordinated debentures, due 2003 (face
value $98.5 million) ...................................... 91 --
Other current maturities ................................... 9 43
---- ------
Total debt ................................................. $769 $1,402
==== ======
As of December 29, 2002, the amortization of our bank term indebtedness is
as follows (in millions):
2003 ......... $ 1.0
2004 ......... 1.0
2005 ......... 1.0
2006 ......... 1.0
2007 ......... 1.0
2008 ......... 1.0
2009 ......... 394.0
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 credit facility 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.
The senior credit facility contains negative and affirmative covenants and
requirements affecting us and our 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 December 29, 2002.
54
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In connection with the Company's early retirement and refinancing of its
prior credit facility, it incurred one-time charges totaling $76.4 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 year ended December 29, 2002 (see Note 15). The remaining
$68.9 million of costs are reflected, net of the associated tax benefit of
$25.5 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 $9.6 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 $9.6 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
71/2 year term of the term loan agreement, respectively. The unamortized
balances of $9.1 million related to the senior subordinated notes and $2.3
million related to the amended and restated credit facility are included in
"Other assets" in the Company's consolidated balance sheet as of December 29,
2002.
Interest at a rate of 4.5% is paid semi-annually on the convertible
subordinated debentures on June 15 and December 15 to record holders of the
convertible subordinated debentures on the preceding June 1 or December 1,
respectively. The convertible subordinated debentures mature on December 15,
2003.
Interest at a rate of 11% is paid semi-annually on the senior subordinated
notes on June 15 and December 15 to record holders of the senior subordinated
notes on the preceding June 1 or December 1, respectively. The senior
subordinated notes mature on June 15, 2012.
Other debt includes borrowings by the Company's subsidiaries denominated
in foreign currencies and capital lease obligations.
The maturities of our total debt at December 29, 2002 during the next five
years and beyond are as follows (in millions): 2003 -- $100; 2004 -- $8; 2005
- -- $5; 2006 -- $3; 2007 -- $1; 2008 and beyond -- $652.
15. 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 $333 million. As a result of the
Company's early retirement of its term loans in June 2002 (see Note 14), 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 year
ended December 29, 2002. The two interest rate collars and two of the interest
rate caps totaling $200 million were immediately redesignated to the Company's
new term loans in June 2002, resulting in a cumulative
55
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
unrealized loss of $0.8 million as of December 29, 2002, which is included in
"Accumulated other comprehensive income (loss)" in the Company's consolidated
balance sheet. The remaining two interest rate caps totaling $133 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 December 29, 2002, a loss of $0.04 million has
been recorded as "other expense" in the consolidated statement of operations.
Under these agreements, the Company recognized additional interest expense
of $5.2 million during the year ended December 29, 2002. The Company expects to
reclassify a portion of the $0.8 million currently included in other
comprehensive income into earnings as quarterly interest payments are made.
Assuming interest rates remain constant, the Company expects to recognize $5.4
million as additional expense in 2003.
16. LEASES
The Company leases certain property and equipment under operating and
capital lease arrangements that expire at various dates through 2021. Most of
the operating leases provide the Company with the option, after the initial
lease term, either to purchase the property or renew its lease at the then fair
value. Rent expense was $38.2, $27.1 and $8.0 million for the years ended
December 29, 2002, December 31, 2001 and eleven months of 2000, respectively.
The Company completed sale-leaseback financings in 2002, 2001 and 2000
relating to certain equipment and buildings, the proceeds of which were used to
pay down the revolving credit and term loan facilities. Due to the
sale-leaseback financings, the Company has significantly increased its
commitment to future lease payments.
In June 2001, a subsidiary of the Company sold and leased back equipment
under a synthetic sale-leaseback structure. At closing, the Company provided a
guarantee of all obligations of its subsidiary under the lease. At the end of
the lease (including the expiration of all renewal options) the Company has the
option of either purchasing all of the equipment for approximately $10 million
or returning the equipment to the lessor under the lease. In the event the
equipment is returned, the Company and lessor shall arrange for the disposition
of the equipment. At such time the Company is obligated to pay approximately
$10 million to the lessor and is entitled to receive from the lessor a residual
value equal to approximately $1.4 million plus proceeds from the disposition of
the equipment for the extent such proceeds exceed $1.4 million.
56
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future minimum lease payments under scheduled capital and operating leases
that have initial or remaining noncancelable terms in excess of one year as of
December 29, 2002 are as follows:
(IN THOUSANDS)
CAPITAL LEASES OPERATING LEASES
---------------- -----------------
2003 ............................................... $ 5,200 $ 32,200
2004 ............................................... 4,270 30,710
2005 ............................................... 1,740 25,730
2006 ............................................... 240 23,740
2007 ............................................... 10 23,110
Thereafter ......................................... -- 115,390
-------- ---------
Total minimum payments ............................. $ 11,460 $ 250,880
-------- ---------
Amount representing interest ....................... $ (1,110)
--------
Obligations under capital leases ................... 10,350
Obligations due within 1 year ...................... (4,470)
--------
Long-term obligations under capital leases ......... $ 5,880
========
17. REDEEMABLE PREFERRED STOCK
The Company has outstanding 361,001 shares of $36.1 million in liquidation
value ($33.9 million estimated carrying value for accounting purposes) of
Series A preferred stock par value $1 and authorized 370,000 shares to Masco
Corporation. The Company will accrete from the carrying value to the
liquidation value ratably over the twelve-year period. The preferred stock is
mandatorily redeemable on December 31, 2012. Series A preferred stockholders
are entitled to receive, when, as and if declared by the Company's board of
directors, cumulative quarterly cash dividends at a rate of 13% per annum for
periods ending on or prior to December 31, 2005 and 15% per annum for periods
after December 31, 2005 plus 2% per annum for any period for which there are
any accrued and unpaid dividends (see Note 1, "Recapitalization and Change in
Accounting Basis").
The Company has outstanding 184,153 shares valued at $18.5 million of
redeemable Series B preferred stock in exchange for interests in GMTI held by
its former shareholders. The redeemable Series B preferred shares issued are
mandatory redeemable on June 15, 2013. The Series B preferred stockholders are
entitled to receive, when, as and if declared by the Company's Board of
Directors, cumulative semi-annual cash dividends at a rate of 11.5% per annum.
Preferred stock dividends were $9.1 million and $5.8 million, while
dividend cash payments were zero and $2.8 million, for the years ended December
29, 2002 and December 31, 2001, respectively. Redeemable preferred stock,
consisting of outstanding shares and unpaid dividends, was $64.5 million and
$55.2 million in the Company's consolidated balance sheet at December 29, 2002
and December 31, 2001, respectively.
18. SHAREHOLDERS' EQUITY
In exchange for all of the shares held by Heartland in GMTI, the Company
issued common shares valued at approximately $45.4 million, which was equal to
Heartland's investment in GMTI on the date of transfer in June 2001. Also as
part of the transaction the Company issued common shares valued at $20 million
in exchange for interests in GMTI held by its former shareholders.
On the basis of amounts paid (declared), cash dividends per common share
were $0.24 ($0.24) in 2000 (eleven month period).
57
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. STOCK OPTIONS AND AWARDS
Prior to the recapitalization, the Company's Long Term Stock Incentive
Plan provided for the issuance of stock-based incentives. The Company granted
long-term stock awards, net, for 401,000 shares of Company common stock during
2000 (prior to the recapitalization) to key employees of the Company. The
weighted average fair value per share of long-term stock awards granted during
2000 on the date of grant was $13. Compensation expense for the vesting of
long-term stock awards was approximately $4.9 million, $7.9 million and $6.5
million in 2002, 2001 and eleven months of 2000, respectively. Prior to the
recapitalization merger, the unamortized value of unvested stock awards were
generally amortized over a ten-year vesting period and were recorded in the
financial statements as a deduction from shareholders' equity.
As part of the recapitalization, the Company cancelled outstanding stock
awards and made new restricted stock awards to certain employees of
approximately 3.7 million shares of Company common stock. Under the terms of
the recapitalization agreement, those shares become free of restriction, or
vest, as to one-quarter upon the closing of the recapitalization merger and
one-quarter in each of January 2002, 2003 and 2004. Holders of restricted stock
were entitled to elect cash in lieu of 40% of their respective stock, which
vested at the closing of the recapitalization merger. On each of the subsequent
vesting dates, holders of restricted stock may elect to receive all of the
installment in common shares, 40% in cash and 60% in common shares, or 100% of
the installment in cash. The number of shares to be received will increase by
6% per annum and any cash to be received will increase by 6% per annum from the
$16.90 per share recapitalization consideration.
As a result of the ability of the holder to elect a partial or full cash
option, the restricted shares have been classified as redeemable restricted
common stock on the Company's consolidated balance sheet. There were
approximately 1.7 million restricted shares outstanding at December 29, 2002.
At December 29, 2002, holders of unvested awards had elected the cash option
for approximately $10.1 million of the January 14, 2003 vesting. A portion of
this obligation belongs to our former TriMas subsidiary, but the Company must
continue to record TriMas' portion of the redeemable restricted common stock
recognized on its consolidated balance sheet. The redeemable stock is recorded
as "Redeemable restricted common stock" of $23.8 million and $32.8 million, net
of the unamortized portion recorded as "Restricted unamortized stock awards" of
$(3.1) million and $(12.1) million on the Company's consolidated balance sheet
as of December 29, 2002 and December 31, 2001, respectively. An additional
$10.1 million, representing the cash portion of the January 14, 2003 vesting,
is recorded as accrued liabilities on the Company's consolidated balance sheet.
TriMas' portion, consisting of approximately 50% of total obligations, is
included in the above restricted stock amounts as of December 29, 2002.
Holders of options with the exercise price below the merger consideration
and former holders of restricted stock will also be entitled to additional cash
amounts from the proceeds of the disposition of Saturn stock, if any, in
accordance with the recapitalization agreement. Options with an exercise price
exceeding the merger consideration were cancelled.
Subsequent to the recapitalization, a new Long Term Equity Incentive Plan
(the "Plan") was adopted in 2001, which provides for the issuance of
equity-based incentives in various forms. As of December 29, 2002, the Company
has stock options outstanding for 2,539,000 shares at a price of $16.90 per
share to key employees of the Company. These options have a ten-year option
period and vest ratably over a three year period from date of grant. However,
the options' exercisability is limited in the circumstances of a public
offering whereby the shares are required to be held and exercised after the
elapse of certain time periods.
The weighted average fair value of long-term stock awards is $16.90 per
share at December 29, 2002.
58
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the status of the Company's stock options granted under the
new Plan or prior plans for the three years ended 2002, 2001 and 2000 (eleven
month period) is as follows:
(SHARES IN THOUSANDS)
2002 2001 2000
----------- ----------- -----------
Option shares outstanding, January 1 ...................... 2,855 -- 3,880
Weighted average exercise price ........................... $ 16.90 -- $ 14
Option shares granted ..................................... 153 2,855 30
Weighted average exercise price ........................... $ 16.90 $ 16.90 $ 12
Option shares exercised ................................... -- -- (150)
Weighted average exercise price ........................... -- -- $ 5
Option shares cancelled due to forfeitures ................ (469) -- (10)
Weighted average exercise price ........................... $ 16.90 -- $ 11
Option shares cancelled due to recapitalization ........... -- -- (3,750)
Option shares outstanding, December 31 .................... 2,539 2,855 --
Weighted average exercise price ........................... $ 16.90 $ 16.90 --
Weighted average remaining option term (in years) ......... 8.5 9.5 --
Option shares exercisable, December 31 .................... -- -- --
Weighted average exercise price ........................... -- -- --
A combined total of approximately 4.9 million, 4.9 million and 7.2 million
shares of Company common stock were available for the granting of options and
incentive awards under the above plans in 2002, 2001 and 2000, respectively.
The Company has elected to continue to apply the provisions of Accounting
Principles Board Opinion No. 25 and, accordingly, no stock option compensation
expense is included in the determination of net income in the consolidated
statement of operations. The weighted average fair value on the date of grant
of options granted was zero, $3.80 and not applicable in 2002, 2001 and 2000,
respectively. Had stock option compensation expense been determined pursuant to
the methodology of SFAS No. 123, "Accounting for Stock-Based Compensation," the
pro forma effects on the Company's basic earnings per share would have been a
reduction of approximately $0.04 in 2002, $.04 in 2001 and no impact in 2000.
The fair value of the options was estimated at the date of grant using the
minimum value method for 2002 and 2001, with no assumed dividends or
volatility, a weighted average risk-free interest rate of 4.1% in 2002 and 4.4%
in 2001, and an expected option life of 5.5 years in both 2002 and 2001.
20. EMPLOYEE BENEFIT PLANS
Pension and Profit-Sharing Benefits. Substantially all employees
participate in noncontributory profit-sharing and/or contributory defined
contribution plans, to which payments are approved annually by the Board of
Directors. Aggregate charges to income under defined contribution plans were $4
million in 2002, $6 million in 2001 and $6 million in 2000 (eleven month
period).
59
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In addition, the Company sponsors defined benefit pension plans for most
of its employees. Net periodic pension cost for the Company's defined benefit
pension plans includes the following components for the years ended December
29, 2002, December 31, 2001 and eleven months of 2000:
(IN THOUSANDS)
2002 2001 2000
------------ ------------ -----------
Service cost ............................................ $ 6,410 $ 7,880 $ 6,460
Interest cost ........................................... 18,340 18,080 13,250
Expected return on assets ............................... (15,710) (15,170) (9,450)
Amortization of transition obligation ................... -- -- 110
Amortization of prior-service cost ...................... 40 10 680
Recognized loss due to curtailments/settlements ......... 1,280 -- --
Amortization of net loss ................................ 30 -- 780
--------- --------- --------
Net periodic pension cost ............................... $ 10,390 $ 10,800 $ 11,830
========= ========= ========
Major assumptions used in accounting for the Company's defined benefit
pension plans at September 30 are as follows:
(IN THOUSANDS)
2002 2001 2000
---------- ----------- ----------
Discount rate for obligations ............................ 6.75% 7.625% 7.75%
Rate of increase in compensation levels .................. 4.00% 4.00% 4.00%
Expected long-term rate of return on plan assets ......... 9.00% 9.00% 9.00%
60
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following provides a reconciliation of the changes in the
defined-benefit pension plans' projected benefit obligations and fair value of
assets for each of the two years ended December 29, 2002 and December 31, 2001,
and the funded status as of December 29, 2002 and December 31, 2001:
(IN THOUSANDS)
2002 2001
-------------- --------------
CHANGES IN PROJECTED BENEFIT OBLIGATIONS
Benefit obligations at January 1 ........................... $ (247,220) $ (226,840)
Acquisitions ............................................... -- (7,130)
Service cost ............................................... (6,410) (7,880)
Interest cost .............................................. (18,340) (18,080)
Employee contributions ..................................... (260) (310)
Plan amendments ............................................ (1,380) (480)
Actuarial loss ............................................. (34,820) 220
Curtailments/settlements ................................... 34,490 --
Benefit payments ........................................... 15,390 11,730
Change in foreign currency ................................. (2,200) 1,550
---------- ----------
Projected benefit obligations at December 29, 2002 and
December 31, 2001 .......................................... $ (260,750) $ (247,220)
========== ==========
CHANGES IN PLAN ASSETS
Fair value of plan assets at January 1 ...................... $ 159,060 $ 156,510
Acquisitions ............................................... -- 2,050
Divestitures ............................................... (9,650) --
Actual return on plan assets ............................... (9,120) (14,310)
Contributions .............................................. 26,010 27,650
Curtailments/settlements ................................... (3,450) --
Benefit payments ........................................... (15,390) (11,730)
Expenses/Other ............................................. 1,200 (1,110)
---------- ----------
Fair value of plan assets at December 29, 2002 and
December 31, 2001 .......................................... $ 148,660 $ 159,060
========== ==========
FUNDED STATUS
Plan assets less than projected benefits at December 29, 2002
and December 31, 2001 ...................................... $ (112,090) $ (88,160)
Unamortized prior-service cost ............................. 230 480
Unamortized net loss ....................................... 67,700 29,700
---------- ----------
Net liability recognized at December 29, 2002 and
December 31, 2001 .......................................... $ (44,160) $ (57,980)
========== ==========
61
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following provides the amounts related to the plans at December 29,
2002 and December 31, 2001:
(IN THOUSANDS)
2002 2001
------------- ------------
Prepaid benefit cost ................................................ $ 2,360 $ 4,550
Accrued benefit liability (current portion of $(15,970) and $(13,090)
included with accrued liabilities at December 29, 2002 and
December 31, 2001, respectively) ................................... (106,870) (74,530)
Intangible asset .................................................... 230 400
Accumulated other comprehensive income .............................. 60,120 11,600
---------- ---------
Net liability recognized ............................................ $ (44,160) $ (57,980)
========== =========
The increase in accumulated other comprehensive income to $60.1 million at
December 29, 2002 primarily reflects the excess of the accumulated benefit
obligation over the fair value of the plan assets.
As a result of the disposition of TriMas on June 6, 2002, the Company is
not responsible for TriMas' net periodic pension cost subsequent to this date.
However, the Company must continue to record TriMas' portion of the net
liability recognized on the Company's consolidated balance sheet.
Postretirement Benefits. The Company provides postretirement medical and
life insurance benefits, none of which are funded, for certain of its active
and retired employees. Net periodic postretirement benefit cost includes the
following components for the years ended December 29, 2002, December 31, 2001
and eleven months of 2000:
(IN THOUSANDS)
2002 2001 2000
--------- -------- ---------
Service cost ..................................... $1,040 $ 760 $ 300
Interest cost .................................... 3,010 3,080 $1,400
Net amortization ................................. (20) -- $ 500
------ ------ ------
Net periodic postretirement benefit cost ......... $4,030 $3,840 $2,200
====== ====== ======
62
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following provides a reconciliation of the changes in the
postretirement benefit plans' benefit obligations for each of the two years
ended December 29, 2002 and December 31, 2001, and the status as of December
29, 2002 and December 31, 2001:
(IN THOUSANDS)
2002 2001
------------- -------------
CHANGES IN BENEFIT OBLIGATIONS
Benefit obligations at January 1 ....................................... $ (42,710) $ (40,670)
Service cost ........................................................... (1,040) (760)
Interest cost .......................................................... (3,010) (3,080)
Actuarial gain (loss) .................................................. (7,920) (190)
Benefit payments ....................................................... 2,360 1,990
Change due to amendment/settlement/spin-off ............................ 7,180 --
Change due to curtailment/window ....................................... (270) --
--------- ---------
Benefit obligations at December 29, 2002 and December 31, 2001 ......... $ (45,410) $ (42,710)
========= =========
STATUS
Benefit obligations at December 29, 2002 and December 31, 2001 ......... $ (45,410) $ (42,710)
Unrecognized prior-service cost (credit) ............................... (1,490) --
Unrecognized net loss .................................................. 7,470 190
--------- ---------
Net liability at December 29, 2002 and December 31, 2001 ............... $ (39,430) $ (42,520)
========= =========
The discount rate used in determining the accumulated postretirement
benefit obligation was 6.75% and 7.625% in 2002 and 2001, respectively. The
assumed health care cost trend rate in 2002 was 10.5%, decreasing to an
ultimate rate of 5.0% over twelve years. If the assumed medical cost trend
rates were increased by one percent, the accumulated postretirement benefit
obligations would increase by $4.5 million and the aggregate of the service and
interest cost components of net periodic postretirement benefit obligations
cost would increase by $0.4 million. If the assumed medical cost trend rates
were decreased by one percent, the accumulated postretirement benefit
obligations would decrease by $3.8 million and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost would
decrease by $0.3 million.
As a result of the disposition of TriMas on June 6, 2002, the Company is
not responsible for TriMas' net periodic postretirement benefit cost, benefit
obligations and net liability subsequent to this date.
21. 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 and its
board of directors in determining resource allocation and assessing
performance.
The Company has established Adjusted Earnings Before Interest Taxes
Depreciation and Amortization ("Adjusted EBITDA") as an indicator of our
operating performance and as a measure of our cash generating capabilities. The
Company defines Adjusted 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 Adjusted EBITDA for prior periods to reflect the new
segment structure, and therefore Adjusted EBITDA is presented in total for the
entire Company for periods prior to 2002. Adjusted EBITDA is presented using
the Company's modified segment structure beginning in 2002.
63
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As discussed in Note 6, 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. Subsequent to June 6,
2002, the Company's equity investment in TriMas and equity share in TriMas'
earnings (loss) is included in "Automotive/centralized resources ("Corporate")."
CHASSIS -- Manufactures components, modules and systems used in a variety
of engineered chassis applications, including fittings, wheel-ends, axle shaft,
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.
The Company's export sales approximated $174 million, $137 million and
$131 million in 2002, 2001 and 2000, respectively.
The Company acquired Simpson Industries, Inc. on December 15, 2000.
December 31 income statement data includes Simpson activity for the period
December 15, 2000 through December 31, 2000.
64
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Segment activity for the twelve months ended December 29, 2002 and
December 31, 2001 and 2000 is as follows:
(IN THOUSANDS)
11 MONTHS ENDED
2002 2001 NOVEMBER 27, 2000
------------- ------------- ------------------
SALES
Automotive Group
Chassis ...................................... $ 164,840 $ 154,900 $ 19,280
Driveline .................................... 806,860 791,070 572,630
Engine ....................................... 493,070 455,260 221,270
---------- ---------- ----------
Automotive Group ........................... 1,464,770 1,401,230 813,180
TriMas Group .................................. 328,580 726,600 732,210
---------- ---------- ----------
Total Sales ................................ $1,793,350 $2,127,830 $1,545,390
========== ========== ==========
ADJUSTED EBITDA
Automotive Group
Chassis ...................................... $ 17,860
Driveline .................................... 101,020
Engine ....................................... 65,220
----------
Automotive Operating ....................... 184,100 $ 181,530 $ 131,450
Automotive/centralized resources ("Corporate") (18,750) (13,600) (5,670)
---------- ---------- ----------
Automotive Group ........................... 165,350 $ 167,930 $ 125,780
TriMas Group .................................. 62,410 126,470 137,380
---------- ---------- ----------
Total Adjusted EBITDA ......................... 227,760 294,400 263,160
Depreciation & amortization ................... (108,790) (159,420) (72,530)
Legacy stock award expense .................... (4,880) (7,930) (5,330)
---------- ---------- ----------
Operating profit .............................. $ 114,090 $ 127,050 $ 185,300
========== ========== ==========
Note: The one-month period ended December 31, 2000 had sales of $105
million, Adjusted EBITDA of $(14) million and operating loss of $26 million.
65
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company defines total net assets as total assets less current
liabilities.
FINANCIAL SUMMARY BY SEGMENT:
(IN THOUSANDS)
2002 2001 2000
------------- ------------- -------------
NET ASSETS:
Automotive Group
Chassis .................... $ 120,080
Driveline .................. 772,760
Engine ..................... 554,070
----------
Automotive Group ......... 1,446,910 $ 889,280 $ 844,530
TriMas Group ............... -- 1,303,370 1,482,950
Corporate ................... 177,470 370,080 265,640
---------- ---------- ----------
Total ...................... $1,624,380 $2,562,730 $2,593,120
========== ========== ==========
CAPITAL EXPENDITURES:
Automotive Group
Chassis .................... $ 18,620
Driveline .................. 38,250
Engine ..................... 49,210
----------
Automotive Group ......... 106,080 $ 96,730 $ 79,910
---------- ---------- ----------
TriMas Group ............... 9,960 18,690 22,800
Corporate ................... 10,630 2,600 4,300
---------- ---------- ----------
Total ...................... $ 126,670 $ 118,020 $ 107,010
========== ========== ==========
DEPRECIATION & AMORTIZATION:
JAN 1 -
NOV 27, 2000
-------------
Automotive Group
Chassis .................... $ 7,190
Driveline .................. 46,780
Engine ..................... 31,540
--------
Automotive Group ......... 85,510 $ 98,530 $34,730
TriMas Group ............... 16,270 56,980 38,940
Corporate ................... 11,890 11,840 8,670
-------- -------- -------
Total ...................... $113,670 $167,350 $82,340
======== ======== =======
66
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table presents the Company's revenues for each of the years
ended December 29, 2002 and December 31, 2001 and 2000 and net assets at each
year ended December 29, 2002 and December 31, 2001 and 2000 by geographic area,
attributed to each subsidiary's continent of domicile (in thousands). Revenue
and net assets (as defined for segment reporting purposes) from no single
foreign country were material to the consolidated revenues and net assets of
the Company.
2002 2001 2000
--------------------------- --------------------------- ---------------------------
NET NET NET
SALES ASSETS SALES ASSETS SALES ASSETS
------------- ------------- ------------- ------------- ------------- -------------
Europe ................................. $ 247,400 $ 284,050 $ 250,850 $ 290,000 $ 164,000 $ 193,880
Australia .............................. 10,850 -- 22,030 11,000 23,000 15,000
Other (non-U.S.) North America ......... 62,310 48,550 71,670 57,000 24,000 56,200
---------- ---------- ---------- ---------- ---------- ----------
Total foreign .......................... $ 320,560 $ 332,600 $ 344,550 $ 358,000 $ 211,000 $ 265,080
========== ========== ========== ========== ========== ==========
United States .......................... $1,472,790 $1,291,780 $1,783,280 $2,204,730 $1,439,160 $2,328,040
========== ========== ========== ========== ========== ==========
A significant percentage of the Automotive Group's revenues is from four
major customers. The following is a summary of the percentage of Automotive
Group revenue from these customers for the fiscal year ended:
DECEMBER 29, DECEMBER 31, DECEMBER 31,
2002 2001 2000
-------------- -------------- -------------
Ford Motor Company ................. 17.5% 16.6% 14.6%
General Motors Corporation ......... 12.0% 12.9% 3.2%
New Venture Gear ................... 11.5% 11.7% 20.7%
DaimlerChrysler .................... 12.0% 10.4% 9.8%
22. OTHER INCOME (EXPENSE), NET
(IN THOUSANDS)
NOV 28 - JAN 1 -
2002 2001 DEC 31, 2000 NOV 27, 2000
----------- ------------ -------------- -------------
Other, net:
Interest income ........................... $ 1,140 $ 1,110 $ 230 $ 1,310
Debt fee amortization ..................... (4,770) (11,620) (550) (4,490)
A/R securitization financing fees ......... (3,590) (8,140) (940) (3,270)
Other, net ................................ (1,880) 760 130 5,050
-------- --------- -------- --------
Total other, net ........................ $ (9,100) $ (17,890) $ (1,130) $ (1,400)
======== ========= ======== ========
67
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
23. INCOME TAXES
(IN THOUSANDS)
NOV 28 - JAN 1 -
2002 2001 DEC 31, 2000 NOV 27, 2000
------------- ------------- -------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES:
Domestic ........................ $ (30,710) $ (82,830) $ (41,710) $128,030
Foreign ......................... 35,680 34,900 (890) 28,640
--------- --------- --------- --------
$ 4,970 $ (47,930) $ (42,600) $156,670
========= ========= ========= ========
PROVISION FOR INCOME TAXES:
Currently payable:
Federal ......................... $ (26,920) $ (17,290) $ (18,580) $ 26,500
State and local ................. 490 2,020 (1,070) 4,770
Foreign ......................... 8,830 (2,540) (2,460) 11,450
Deferred: ........................
Federal ......................... (3,080) (4,220) 4,740 19,220
Foreign ......................... 7,180 17,430 1,640 (570)
--------- --------- --------- --------
Income taxes ..................... $ (13,500) $ (4,600) $ (15,730) $ 61,370
========= ========= ========= ========
The components of deferred taxes at December 29, 2002 and December 31,
2001:
(IN THOUSANDS)
2002 2001
---------- -----------
DEFERRED TAX ASSETS:
Inventories .......................................................... $ 1,600 $ 4,720
Accrued liabilities and other long-term liabilities .................. 73,290 76,860
Expected capital loss benefit from disposition of businesses ......... -- 3,610
Net operating losses ................................................. 17,890 7,000
-------- --------
$ 92,780 $ 92,190
-------- --------
DEFERRED TAX LIABILIATES:
Property and equipment ............................................... 153,300 206,170
Intangible assets .................................................... 67,570 184,530
Debt ................................................................. 2,980 15,230
Other, principally investments ....................................... 11,390 10,390
-------- --------
$235,240 $416,320
-------- --------
Net deferred tax liability ............................................ $142,460 $324,130
======== ========
68
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following is a reconciliation of tax computed at the U.S. federal
statutory rate to the provision for income taxes allocated to income before
income taxes:
(IN THOUSANDS)
NOV 28 - JAN 1 -
2002 2001 DEC 31, 2000 NOV 27, 2000
------------ ------------- -------------- -------------
U.S. federal statutory rate ............................... 35% 35% 35% 35%
Tax at U.S. federal statutory rate ........................ $ 1,740 $ (16,780) $ (14,900) $ 54,830
State and local taxes, net of federal tax benefit ......... 320 1,310 (700) 3,100
Higher effective foreign tax rate ......................... 2,600 2,670 (500) 3,060
Change in German tax rate ................................. -- -- -- (2,200)
Disposition of businesses ................................. -- -- -- (960)
Foreign dividends ......................................... 1,070 -- -- --
Amortization in excess of tax, net ........................ -- 7,110 500 4,680
Redemption cost ........................................... -- -- -- --
Utilization of capital losses ............................. (20,000) -- -- --
Other, net ................................................ 770 1,090 (130) (1,140)
--------- --------- --------- --------
Income taxes .............................................. $ (13,500) $ (4,600) $ (15,730) $ 61,370
========= ========= ========= ========
As of December 29, 2002, the Company had unused U.S. net operating loss
("NOL") carryforwards of approximately $49 million. $32 million of these losses
will expire in 2021; $17 million will expire in 2022.
A provision has not been made at December 29, 2002 for U.S. or additional
foreign withholding taxes on approximately $247 million of undistributed
earnings of foreign subsidiaries, as the Company intends to permanently
reinvest these earnings. Generally, such earnings become subject to U.S.
taxation upon the remittance of dividends and under certain other
circumstances. It is not practicable to estimate the amount of deferred tax
liability on such undistributed earnings.
Tax expense for the year ended December 29, 2002 is shown before the
extraordinary charge of $43.4, net of $25.5 tax benefit, and cumulative effect
of change in recognition and measurement of goodwill impairment of $36.6, for
which no tax benefit is available.
In June 2002, the Company completed its analysis of the impact related to
the U.S. Department of Treasury's recently issued regulations that replaced 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 capital loss that primarily resulted from the sale of a
subsidiary in 2000. Accordingly, a tax benefit of $20 million was recorded for
the year ended December 29, 2002.
As a result of the June 6, 2002 sale of approximately 66% of TriMas to
Heartland Industrial Partners L.P., the Company no longer consolidates with
TriMas and U.S. subsidiaries of TriMas on its U.S. federal tax return after
such date. Under the terms of the TriMas stock purchase agreement, income of
approximately $9.5 million (inclusive of interest push-down) from TriMas
through June 6, 2002 will be absorbed by Metaldyne's consolidated loss and is
not required to be reimbursed to the Company. In addition, approximately $7
million of the Company's NOL is required to be allocated to TriMas and utilized
on its own separately filed federal tax returns. TriMas is required to
reimburse the Company for this utilization as it occurs.
24. FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments," the following methods
were used to estimate the fair value of each class of financial instruments:
69
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CASH AND CASH INVESTMENTS
The carrying amount reported in the balance sheet for cash and cash
investments approximates fair value.
LONG-TERM DEBT
The carrying amount of bank debt and certain other long-term debt
instruments approximates fair value as the floating rates applicable to this
debt reflect changes in overall market interest rates. The fair values of the
Company's subordinated debt instruments were based on quoted market prices
until December 2001 when the debt no longer traded on a public exchange.
DERIVATIVES
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 and
subsequently reclassified into earnings when the forecasted transaction affects
earnings. The Company does not use derivatives for speculative purposes.
The fair value of the Company's interest rate protection agreements that
qualify for hedge accounting approximated $(8.3) million at December 29, 2002.
The $(8.3) million has been recognized as a liability at December 29, 2002 and
the change in fair value is included in other comprehensive income. $(7.3)
million of the liability is classified as current based on the maturity dates
of the derivatives and is included in accrued liabilities. The remaining $(1.0)
million is considered long-term and is included in other long-term liabilities.
Interest rate swap agreements covering a notional amount of $400 million
of the Company's floating rate debt were entered into in 1998 at an aggregate
interest rate of approximately six percent before the addition of the borrowing
margin in the underlying bank agreement. The fair value of the swap agreements,
$13 million at December 31, 1999, was not recognized in the consolidated
financial statements since they are accounted for as hedges of the floating
rate exposure. These swap agreements expired or were terminated in June 2000 at
a gain, and the Company received proceeds of approximately $15.8 million. The
cash proceeds were used for the reduction of long-term debt. The Company
recognized a pre-tax gain of approximately $13 million in November 2000 related
to the interest rate swap agreements as a result of the repayment of the
related debt due to the recapitalization.
The carrying amounts and fair values of the Company's financial
instruments at December 29, 2002 and December 31, 2001 are as follows:
(IN THOUSANDS)
2002 2001
-------------------------- -----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------- ------------ -------------- --------------
Cash and cash investments ............................... $ 19,130 $ 19,130 -- --
Receivables ............................................. $ 187,690 $187,690 $ 105,900 $ 105,900
Interest rate arrangements .............................. $ (8,330) $ (8,330) $ (4,550) $ (4,550)
Long-term debt:
Bank debt .............................................. $ 399,000 $399,000 $1,075,010 $1,075,010
11% senior subordinated notes, due 2012 ................ $ 250,000 $205,000 -- --
4.5% convertible subordinated debentures, due 2003 ..... $ 91,360 $ 91,360 $ 262,860 $ 262,860
Other long-term debt ................................... $ 19,960 $ 19,960 $ 21,050 $ 21,030
70
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
25. COMMITMENTS AND CONTINGENCIES
The commitments and contingencies specifically disclosed in the Company's
2001 Form 10-K 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
its 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.
26. SUBSEQUENT EVENTS
NC-M Chassis Systems, LLC Joint Venture. On December 8, 2002, the Company
announced a Joint Venture Formation Agreement ("Agreement") with Daimler
Chrysler Corporation ("Chrysler") to operate Chrysler's New Castle (Indiana)
machining and forge facility. On January 2, 2003, the Company closed on this
joint venture transaction, known as NC-M Chassis Systems, LLC. In connection
with the closing, Chrysler contributed substantially all of the assets of the
business conducted at this facility in exchange for 100% of the common and
preferred interests in the joint venture. In addition, the joint venture
assumed certain liabilities of the business from Chrysler. Immediately
following the contribution, the Company purchased 40% of the common interests
in the joint venture from Chrysler for $20 million in cash. This transaction
will be accounted for under the equity method of accounting, due to the
Company's investment representing greater than 20% but less than 50% of the
interest in the joint venture.
Under the terms of the Agreement, the Company will have an option to
purchase Chrysler's common and preferred interests in the joint venture for
$118.8 million in cash, approximately $31.7 million in principal amount of a
new issue of 10-year 10% senior subordinated notes of Metaldyne and
approximately $64.5 million in liquidation preference of a new series of
preferred stock of Metaldyne. The Company's call option is available to be
exercised assuming satisfactory collective bargaining agreement negotiations.
If Chrysler does not perform its obligations under Metaldyne's call option,
including obtaining satisfactory collective bargaining agreement negotiations,
Metaldyne has an option to put its initial investment of $20 million, back to
Chrysler. If Metaldyne does not exercise its call option within 90 days of
Chrysler obtaining satisfactory collective bargaining agreement negotiations,
Chrysler has a call option to purchase Metaldyne's initial investment for $1.
71
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
27. INTERIM AND OTHER SUPPLEMENTAL FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
FOR THE QUARTERS ENDED
DECEMBER 29TH SEPTEMBER 29TH JUNE 30TH MARCH 31ST
------------- -------------- --------- ----------
2002:
Net sales ................. $350,870 $352,150 $530,460 $559,870
Gross profit .............. $ 50,120 $ 48,240 $ 97,940 $102,820
Net loss .................. $ (4,590) $(11,390) $(14,790) $(30,770)
Per common share: .........
Basic Basic ............... $ (0.16) $ (0.35) $ (0.39) $ (0.76)
Diluted ................... $ (0.16) $ (0.35) $ (0.37) $ (0.73)
DECEMBER 31ST SEPTEMBER 30TH JUNE 30TH MARCH 31ST
------------- -------------- --------- ----------
2001:
Net sales ................. $484,630 $514,290 $572,780 $556,130
Gross profit .............. $ 67,980 $100,640 $117,880 $105,670
Net loss .................. $(23,000) $ (7,050) $ (710) $(12,570)
Per common share: .........
Basic ..................... $ (0.58) $ (0.21) $ (0.04) $ (0.36)
Diluted ................... $ (0.58) $ (0.21) $ (0.04) $ (0.36)
The 2002 net loss and loss per common share amounts reflect the January 1,
2002 retroactive adoption of SFAS No. 142 and the cumulative effect of change
in recognition and measurement of goodwill impairment of $36.6 million for our
former TriMas subsidiary. The 2001 loss per common share amounts for the
quarters do not total to the full year amounts due to the purchase and
retirement of shares throughout the year.
During the Company's review of its financial information, $4 million of
deferred financing costs related to the early extinguishment of debt recorded
in the second quarter were identified. The June 30, 2002 amounts disclosed
above reflect the correction of this error (net of tax) as a prior period
adjustment. Amounts as originally reported for the quarter ended June 30, 2002
were gross profit of $106,350; net loss of $11,110; basic loss per share of
$0.30; and diluted loss per share of $0.29.
28. RELATED PARTY TRANSACTIONS
In November 2000, the Company was acquired by an investor group led by
Heartland Industrial Partners, L.P. ("Heartland") and Credit Suisse First
Boston ("CSFB") in a recapitalization transaction. Heartland is a private
equity fund established to "buy, build and grow" industrial companies in
sectors with attractive consolidation opportunities. In addition to TriMas (see
Note 6), Heartland has equity interests in other industrial companies. The
recapitalization and Heartland's investment will allow the Company to continue
to aggressively pursue internal growth opportunities and strategic
acquisitions, and to increase the scale and profitability of the Company.
The Company maintains a monitoring agreement with Heartland for an annual
fee of $4 million plus additional fees for financings and acquisitions under
certain circumstances. The Heartland monitoring agreement is based on a
percentage of assets calculation and Heartland has the option of taking the
greater of the calculated fee (which would have totaled $6.2 million for 2002)
or $4 million. Total monitoring fees paid to Heartland in 2002 were $4 million.
Additionally, the Company recorded $0.7 million in 2002 for expense
reimbursements to Heartland in the ordinary course of business, $0.3 million of
which is recorded as accounts payable in the Company's consolidated balance
sheet for the year ended December 29, 2002.
72
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Heartland is also entitled to a 1% transaction fee in exchange for
negotiating, contracting and executing certain transactions on behalf of
Metaldyne, including transactions for sale-leaseback arrangements and other
financings. As of December 29, 2002, these fees totaled approximately $1.9
million. None of these fees have been remitted to Heartland and are recorded as
accounts payable in the Company's consolidated balance sheet for the year ended
December 29, 2002.
Effective January 23, 2001, the Company changed its name to Metaldyne
Corporation from MascoTech, Inc. The Company had a corporate service agreement
through 2002 with Masco Corporation, which at December 29, 2002 owned
approximately 5% of the Company's common stock. Under the terms of the
agreement, the Company paid fees to Masco Corporation for various staff support
and administrative services, research and development and facilities. Such fees
aggregated $0.5 million in 2002, $0.4 million in 2001 and $2.9 million, net in
2000. The fees recorded in 2002 have not yet been remitted and are recorded as
accounts payable in the Company's consolidated balance sheet for the year ended
December 29, 2002.
On June 6, 2002, the Company sold 66% of its former TriMas subsidiary to
Heartland and other investors. 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. The Company has a corporate services agreement with
TriMas, which requires the Company to provide corporate staff support and
administrative services to TriMas subsequent to the divestiture of TriMas.
Under the terms of the agreement, the Company receives fees from TriMas, which
aggregated approximately $0.3 million in 2002.
29. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF GUARANTORS OF SENIOR
SUBORDINATED NOTES
The following condensed consolidating financial information presents:
(1) Condensed consolidating financial statements as of December 29, 2002
and December 31, 2001, and for the years ended December 29, 2002 and
December 31, 2001 of (a) Metaldyne Corporation, the parent and issuer,
(b) the guarantor subsidiaries, (c) the non-guarantor subsidiaries and
(d) the Company on a consolidated basis, and
(2) Elimination entries necessary to consolidate Metaldyne Corporation,
the parent, with guarantor and non-guarantor subsidiaries.
The condensed consolidating financial statements are presented on the
equity method. Under this method, the investments in subsidiaries are recorded
at cost and adjusted for the Company's share of the subsidiaries' cumulative
results of operations, capital contributions, distributions and other equity
changes. The principal elimination entries eliminate investments in
subsidiaries and intercompany balances and transactions.
73
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GUARANTOR/NON-GUARANTOR
CONDENSED CONSOLIDATING BALANCE SHEETS DECEMBER 29, 2002
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATED
------------- ------------- --------------- -------------- -------------
ASSETS
Current assets:
Cash and cash investments ...................... $ -- $ 14,610 $ 4,520 $ -- $ 19,130
Receivables, net: ..............................
Trade, net of allowance for doubtful
accounts .................................... -- -- 147,670 -- 147,670
Affiliates ................................... -- 27,820 -- -- 27,820
Other ........................................ -- 5,790 5,590 -- 11,380
---------- ---------- -------- ---------- ----------
Total receivables, net ...................... -- 33,610 153,260 -- 186,870
Inventories .................................... -- 55,700 21,120 -- 76,820
Deferred and refundable income taxes ........... -- 22,620 930 -- 23,550
Prepaid expenses and other assets .............. -- 23,620 5,520 -- 29,140
---------- ---------- -------- ---------- ----------
Total current assets ........................ -- 150,160 185,350 -- 335,510
Equity and other investments in affiliates ..... 147,710 -- -- -- 147,710
Property and equipment, net .................... -- 496,670 200,840 -- 697,510
Excess of cost over net assets of acquired
companies .................................... -- 355,560 196,540 -- 552,100
Investment in subsidiaries ..................... 517,900 234,980 -- (752,880) --
Intangible and other assets .................... -- 284,320 1,900 -- 286,220
---------- ---------- -------- ---------- ----------
Total assets ................................ $ 665,610 $1,521,690 $584,630 $ (752,880) $2,019,050
========== ========== ======== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................... $ -- $ 133,920 $ 52,520 $ -- $ 186,440
Accrued liabilities ............................ -- 78,980 29,350 -- 108,330
Current maturities, long-term debt ............. -- 95,030 4,870 -- 99,900
---------- ---------- -------- ---------- ----------
Total current liabilities ................... -- 307,930 86,740 -- 394,670
Long-term debt ................................. 250,000 409,190 9,770 -- 668,960
Deferred income taxes .......................... -- 126,520 19,990 -- 146,510
Long-term liabilities .......................... -- 137,810 5,490 -- 143,300
Intercompany accounts, net ..................... (250,000) 22,340 227,660 -- --
---------- ---------- -------- ---------- ----------
Total liabilities ........................... -- 1,003,790 349,650 -- 1,353,440
---------- ---------- -------- ---------- ----------
Redeemable preferred stock ..................... 64,510 -- -- -- 64,510
Redeemable restricted common stock ............. 23,790 -- -- -- 23,790
Less: Restricted stock awards .................. (3,120) -- -- -- (3,120)
---------- ---------- -------- ---------- ----------
Total redeemable stock ...................... 85,180 -- -- -- 85,180
---------- ---------- -------- ---------- ----------
Shareholders' equity:
Preferred stock ................................ -- -- -- -- --
Common stock ................................... 42,650 -- -- -- 42,650
Paid-in capital ................................ 684,870 -- -- -- 684,870
Accumulated deficit ............................ (147,100) -- -- -- (147,100)
Accumulated other comprehensive income
(loss) ....................................... 10 -- -- -- 10
Investment by Parent/Guarantor ................. -- 517,900 234,980 (752,880) --
---------- ---------- -------- ---------- ----------
Total shareholders' equity .................. 580,430 517,900 234,980 (752,880) 580,430
---------- ---------- -------- ---------- ----------
Total liabilities, redeemable stock and
shareholders' equity ....................... $ 665,610 $1,521,690 $584,630 $ (752,880) $2,019,050
========== ========== ======== ========== ==========
74
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 ...............................
Trade, net of allowance for doubtful
accounts .................................... -- 7,320 85,060 -- 92,380
Affiliates ................................... -- -- -- -- --
Other ........................................ -- -- 11,780 -- 11,780
--------- ---------- ---------- ------------ ----------
Total 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 assets .............. -- 26,910 10,480 -- 37,390
--------- ---------- ---------- ------------ ----------
Total current assets ........................ -- 78,650 239,190 -- 317,840
Equity and other investments in affiliates ..... 17,130 -- -- -- 17,130
Property and equipment, net .................... -- 471,110 426,910 -- 898,020
Excess of cost over net assets of acquired
companies .................................... -- 522,080 534,840 -- 1,056,920
Investment in subsidiaries ..................... 695,220 423,070 -- (1,118,290) --
Intangible and other assets .................... -- 320,560 335,690 -- 656,250
--------- ---------- ---------- ------------ ----------
Total assets ................................ $ 712,350 $1,815,470 $1,536,630 $ (1,118,290) $2,946,160
========= ========== ========== ============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................... $ -- $ 90,740 $ 77,410 $ -- $ 168,150
Accrued liabilities ............................ -- 115,980 56,600 -- 172,580
Current maturities, long-term debt ............. -- 9,340 33,360 -- 42,700
--------- ---------- ---------- ------------ ----------
Total current liabilities ................... -- 216,060 167,370 -- 383,430
Long-term debt ................................. -- 935,630 423,290 -- 1,358,920
Deferred income taxes .......................... -- 140,320 189,490 -- 329,810
Other long-term liabilities .................... -- 146,050 18,060 -- 164,110
Intercompany accounts, net ..................... 2,460 (317,810) 315,350 -- --
--------- ---------- ---------- ------------ ----------
Total liabilities ........................... 2,460 1,120,250 1,113,560 -- 2,236,270
--------- ---------- ---------- ------------ ----------
Redeemable preferred stock ..................... 55,160 -- -- -- 55,160
Redeemable restricted common 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 ................. -- 695,220 423,070 (1,118,290) --
--------- ---------- ---------- ------------ ----------
Total shareholders' equity .................. 634,030 695,220 423,070 (1,118,290) 634,030
--------- ---------- ---------- ------------ ----------
Total liabilities, redeemable stock and
shareholders' equity ....................... $ 712,350 $1,815,470 $1,536,630 $ (1,118,290) $2,946,160
========= ========== ========== ============ ==========
75
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GUARANTOR/NON-GUARANTOR
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 29, 2002
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATED
------------ --------------- --------------- -------------- ---------------
Net sales .......................................... $ -- $ 1,166,240 $ 627,110 $ -- $ 1,793,350
Cost of sales ...................................... -- (1,025,220) (469,010) -- (1,494,230)
--------- ------------ ---------- -------- ------------
Gross profit ....................................... -- 141,020 158,100 -- 299,120
Selling, general and administrative expenses ....... -- (102,070) (74,610) -- (176,680)
Legacy restricted stock award expense .............. -- (4,100) (780) -- (4,880)
Restructuring charges .............................. -- (3,470) -- -- (3,470)
--------- ------------ ---------- -------- ------------
Operating profit ................................... -- 31,380 82,710 -- 114,090
Other income (expense), net: .......................
Interest expense ................................... -- (87,280) (3,780) -- (91,060)
Loss on interest rate arrangements upon early
retirement of term loans .......................... -- (7,550) -- -- (7,550)
Equity and other income (loss) from affiliates ..... -- -- (1,410) -- (1,410)
Other, net ......................................... -- (10,790) 1,690 -- (9,100)
--------- ------------ ---------- -------- ------------
Other income (expense), net ........................ -- (105,620) (3,500) -- (109,120)
--------- ------------ ---------- -------- ------------
Income (loss) before income taxes,
extraordinary charge and cumulative effect of
a change in accounting principle .................. -- (74,240) 79,210 -- 4,970
Income taxes (credit) .............................. -- (29,510) 16,010 -- (13,500)
--------- ------------ ---------- -------- ------------
Income (loss) before extraordinary charge and
cumulative effect of a change in accounting
principle ......................................... -- (44,730) 63,200 -- 18,470
Extraordinary loss on repurchase of debentures
and early retirement of term loans, net of tax
of $25,480 ........................................ -- (43,380) -- -- (43,380)
Cumulative effect of a change in recognition
and measurement of goodwill impairment ............ -- (36,630) -- -- (36,630)
Equity in net income of subsidiaries ............... (61,540) 64,610 -- (3,070) --
--------- ------------ ---------- -------- ------------
Net income (loss) .................................. $ (61,540) $ (60,130) $ 63,200 $ (3,070) $ (61,540)
Preferred stock dividends .......................... 9,120 -- -- -- 9,120
--------- ------------ ---------- -------- ------------
Earnings (loss) attributable to common stock ....... $ (70,660) $ (60,130) $ 63,200 $ (3,070) $ (70,660)
========= ============ ========== ======== ============
76
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GUARANTOR/NON-GUARANTOR
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATED
------------ ------------- --------------- -------------- ---------------
Net sales ........................................ $ -- $1,137,190 $ 992,130 $ (1,490) $ 2,127,830
Cost of sales .................................... -- (995,110) (742,040) 1,490 (1,735,660)
--------- ---------- ---------- -------- ------------
Gross profit ..................................... -- 142,080 250,090 -- 392,170
Selling, general and administrative expenses ..... -- (109,400) (147,790) -- (257,190)
Legacy restricted stock award expense ............ -- (7,930) -- -- (7,930)
--------- ---------- ---------- -------- ------------
Operating profit ................................. -- 24,750 102,300 -- 127,050
--------- ---------- ---------- -------- ------------
Other income (expense), net:
Interest expense ................................ -- (76,980) (71,180) -- (148,160)
Equity and other income (loss)
from affiliates ............................... -- -- (8,930) -- (8,930)
Intercompany income (expense), net .............. -- 12,670 (12,670) -- --
Other, net ...................................... -- (15,160) (2,730) -- (17,890)
--------- ---------- ---------- -------- ------------
Other expense, net ............................... -- (79,470) (95,510) -- (174,980)
--------- ---------- ---------- -------- ------------
Income (loss) before income taxes ................ -- (54,720) 6,790 -- (47,930)
Income taxes (credit) ............................ -- (13,450) 8,850 -- (4,600)
Equity in net income of subsidiaries ............. (43,330) 6,870 -- 36,460 --
--------- ---------- ---------- -------- ------------
Net income (loss) ................................ $ (43,330) $ (34,400) $ (2,060) $ 36,460 $ (43,330)
Preferred stock dividends ........................ 5,850 -- -- -- 5,850
--------- ---------- ---------- -------- ------------
Earnings (loss) attributable to common stock ..... $ (49,180) $ (34,400) $ (2,060) $ 36,460 $ (49,180)
========= ========== ========== ======== ============
77
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GUARANTOR/NON-GUARANTOR
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 29, 2002
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATED
------------- ------------- --------------- -------------- ---------------
Cash flows from operating activities:
Net cash provided by (used for) operating
activities ...................................... $ -- $ (75,600) $ 14,110 $-- $ (61,490)
---------- ---------- ---------- --- ------------
Cash flows from investing activities: ............
Capital expenditures ............................. -- (91,280) (35,390) -- (126,670)
Proceeds from disposition of business ............ -- -- 840,000 -- 840,000
Proceeds from sale/leaseback of fixed assets ..... -- 52,180 -- -- 52,180
---------- ---------- ---------- --- ------------
Net cash provided by (used for) investing
activities ...................................... -- (39,100) 804,610 -- 765,510
---------- ---------- ---------- --- ------------
Cash flows from financing activities: ............
Proceeds from borrowings of term loan
facilities ...................................... -- 400,000 -- -- 400,000
Principal payments on borrowing of term loan
facilities ...................................... -- (671,850) (440,600) -- (1,112,450)
Proceeds from borrowings of revolving credit
facility ........................................ -- 324,800 -- -- 324,800
Principal payments on borrowings of revolving
credit facility ................................. -- (324,800) -- -- (324,800)
Proceeds from borrowings of senior
subordinated notes, due 2012 .................... 250,000 -- -- -- 250,000
Principal payments on borrowings of
convertible subordinated debentures, due
2003 (net of $1.2 million non-cash portion of
repurchase) ..................................... -- (205,290) -- -- (205,290)
Proceeds from borrowing of other debt ............ -- 4,340 2,910 -- 7,250
Principal payments on borrowing of
other debt ...................................... -- (1,860) (3,960) -- (5,820)
Capitalization of debt financing fees ............ -- (12,100) -- -- (12,100)
Prepayment costs on early extinguishment of
debt ............................................ -- (6,480) -- -- (6,480)
Change in intercompany accounts .................. (250,000) 622,550 (372,550) -- --
---------- ---------- ---------- --- ------------
Net cash provided by (used for) financing
activities ...................................... -- 129,310 (814,200) -- (684,890)
---------- ---------- ---------- --- ------------
Net increase (decrease) in cash .................. -- 14,610 4,520 -- 19,130
Cash and cash equivalents, beginning
of period ....................................... -- -- -- -- --
---------- ---------- ---------- --- ------------
Cash and cash equivalents, end of period ......... $ -- $ 14,610 $ 4,520 $-- $ 19,130
========== ========== ========== === ============
78
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
GUARANTOR/NON-GUARANTOR
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2001
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATED
------------ ------------- --------------- -------------- -------------
Cash flows from operating activities:
Net cash provided by (used for) operating
activities ...................................... $ 23,600 $ 287,890 $ (140,260) $ -- $ 171,230
--------- ---------- ---------- --------- ----------
Cash flows from investing activities: ............
Capital expenditures ............................. -- (77,840) (40,180) -- (118,020)
Acquisitions, net of cash acquired ............... -- (83,320) -- -- (83,320)
Proceeds from sale/leaseback of fixed assets ..... -- 73,590 11,070 -- 84,660
Other, net ....................................... -- 4,860 200 -- 5,060
--------- ---------- ---------- --------- ----------
Net cash used for investing activities ........... -- (82,710) (28,910) -- (111,620)
--------- ---------- ---------- --------- ----------
Cash flows from financing activities:
Proceeds from borrowings of term loan
facilities ...................................... -- 44,250 -- -- 44,250
Principal payments on borrowings of term loan
facilities ...................................... -- (81,990) -- -- (81,990)
Proceeds from borrowings of revolving credit
facility ........................................ -- 23,560 -- -- 23,560
Principal payments on borrowings of revolving
credit facility ................................. -- (48,750) -- -- (48,750)
Proceeds from borrowing of other debt ............ -- 48,080 11,080 -- 59,160
Principal payments on borrowing of
other debt ...................................... -- (48,580) (36,180) -- (84,760)
Change in intercompany accounts .................. (23,600) (156,070) 179,670 -- --
Other, net ....................................... -- 2,600 -- -- 2,600
--------- ---------- ---------- --------- ----------
Net cash provided by (used for) financing
activities ...................................... (23,600) (216,900) 154,570 -- (85,930)
--------- ---------- ---------- --------- ----------
Net increase (decrease) in cash .................. -- (11,720) (14,600) -- (26,320)
Cash and cash equivalents, beginning
of period ....................................... -- (1,210) 27,530 -- 26,320
--------- ---------- ---------- --------- ----------
Cash and cash equivalents, end of period ......... $ -- $ (12,930) $ 12,930 $ -- $ --
========= ========== ========== ========= ==========
79
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding executive officers required by this Item is set
forth as a Supplementary Item at the end of Part I hereof (pursuant to
Instruction 3 to Item 401(b) of Regulation S-K). Other information required by
this Item will be contained in the Company's definitive Proxy Statement for its
2003 Annual Meeting of Stockholders, to be filed on or before April 30, 2003,
and such information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information required by this Item will be contained in the Company's
definitive Proxy Statement for its 2003 Annual Meeting of Stockholders, to be
filed on or before April 30, 2003, and such information is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information required by this Item will be contained in the Company's
definitive Proxy Statement for its 2003 Annual Meeting of Stockholders, to be
filed on or before April 30, 2003, and such information is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required by this Item will be contained in the Company's
definitive Proxy Statement for its 2003 Annual Meeting of Stockholders, to be
filed on or before April 30, 2003, and such information is incorporated herein
by reference.
ITEM 14. 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 concluded that our disclosure controls and procedures are effective,
subject to the limitations below, to ensure that information required to be
disclosed by the Company in reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.
There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect internal controls,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
The Company, including its CEO and CFO, does not expect that the Company's
disclosure and internal controls and procedures will prevent or detect all
error and all fraud. A control system, no matter how well conceived or
operated, can provide only reasonably, not absolute, assurance that the
objectives of a control system are met.
80
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K.
(A) LISTING OF DOCUMENTS.
(1) FINANCIAL STATEMENTS. The Company's Consolidated Financial Statements
included in Item 8 hereof, as required at December 29, 2002 and December
31, 2001, and for the periods ended December 29, 2002, December 31, 2001,
December 31, 2000 and November 27, 2000, consist of the following:
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Cash Flows
Consolidated Statement of Shareholders' Equity
Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULE.
Financial Statement Schedule of the Company appended hereto, as required
for the periods ended December 29, 2002, December 31, 2001, December 31, 2000
and November 27, 2000, consist of the following:
Valuation and Qualifying Accounts
(3) EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
2.1 Recapitalization Agreement dated as of August 1, 2000 between MascoTech, Inc. (now
known as Metaldyne Corporation) and Riverside Company LLC, as amended.(7)
Amendment No. 1 to the Recapitalization Agreement, dated October 23, 2000(7) and
Amendment No. 2 to the Recapitalization Agreement, dated November 28, 2000.(7)
3.1 Restated Certificate of Incorporation of MascoTech, Inc.(8)
3.2 Bylaws of Metaldyne Corporation, as amended.(7)
3.3 Certificate of Designation of Series A-1 Preferred Stock and Series A-2 Preferred Stock(12)
4.1 Indenture dated as of November 1, 1986 between Masco Industries, Inc. (now known as
Metaldyne Corporation) and Morgan Guaranty Trust Company of New York, as Trustee;
Agreement of Appointment and Acceptance of Successor Trustee dated as of August 4,
1994 among MascoTech, Inc., (now known as Metaldyne Corporation) Morgan Guaranty
Trust Company of New York and the First National Bank of Chicago; Supplemental
Indenture dated as of August 5, 1994, between MascoTech, Inc. (now known as Metaldyne
Corporation) and the First National Bank of Chicago, as Trustee; Directors' resolutions
establishing the Company's 41/2% Convertible Subordinated Debentures Due 2003;(3) and
Form of Note.(4)
4.2 Supplemental Indenture No. 2 dated November 28, 2000 to the Indenture dated as of
November 1, 1986 between Masco Industries (now known as Metaldyne Corporation) and
Morgan Guaranty Trust Company of New York. (7)
4.3 Supplemental Indenture No. 3 dated November 28, 2000 to the Indenture dated as of
November 1, 1986 between Masco Industries (now known as Metaldyne Corporation) and
Morgan Guaranty Trust Company of New York. (7)
4.4 Shareholders Agreement by and among MascoTech, Inc. (now known as Metaldyne
Corporation), Masco Corporation, Richard Manoogian, certain of their respective affiliates
and other co-investors a party thereto, dated as of November 28, 2000. (7)
81
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ -----------------------
4.5 Indenture relating to the 11% Senior Subordinated Notes due 2012, dated as of June 20,
2002 by and among Metaldyne Corporation, each of the Guarantors named therein and
The Bank of New York as Trustee. (11)
4.6 Form of note (included in Exhibit 4.5). (11)
4.7 Registration Rights Agreement relating to the notes dated as of June 20, 2002 by and
among Metaldyne Corporation and the parties named therein. (11)
4.8 Form of Indenture relating to the 10% Senior Subordinated Notes due 201 , dated as of
, by and among Metaldyne Corporation, the Guarantors named therein and
[ ], as Trustee.(12)
4.9 Form of Registration Rights Agreement. (12)
10.1 Credit Agreement dated as of November 28, 2000 among MascoTech, Inc. (now known as
Metaldyne Corporation), Metalync Company LLC (now known as Metaldyne Company
LLC), the subsidiary term borrowers party thereto, the foreign subsidiary borrowers party
thereto, the lenders party thereto and Chase Manhattan Bank, as administrative agent. (7)
10.2 Assumption and Indemnification Agreement dated as of May 1, 1984 between Masco
Corporation and Masco Industries, Inc. (now known as Metaldyne Corporation). (8)
10.3 Receivables Purchase Agreement dated as of November 28, 2000 among MascoTech, Inc.
(now known as Metaldyne Corporation) the Sellers named therein and MTSPC, Inc. as
Purchaser. (7)
10.4 Receivables Transfer Agreement dated as of November 28, 2000 by and among MTSPC,
Inc., MascoTech, Inc. (now known as Metaldyne Corporation), The Chase Manhattan
Bank, and the other parties named therein. (7)
10.5 Amendment No. 1 to Receivables Transfer Agreement dated as of December 15, 2000 to
the Receivables Transfer Agreement. (8)
10.6 Master Lease Agreement dated as of December 21, 2000 between General Electric Capital
Corporation and Simpson Industries, Inc. (8)
10.8 Change of Control Agreement with William T. Anderson, dated September 21, 2000. (6)
10.9 Change of Control Agreement with David B. Liner, dated September 21, 2000. (6)
10.10 Change of Control Agreement with Leroy H. Runk, dated September 21, 2000. (6)
10.11 Change of Control Agreement with James F. Tompkins, dated September 21, 2000. (6)
10.12 Release and Consulting Agreement with Frank Hennessey dated November 22, 2000. (6)
10.13 Employment, Release and Consulting Agreement with Lee M. Gardner, dated November
22, 2000. (8)
10.14 Employment, Release and Consulting Agreement with Timothy Wadhams, dated November
22, 2000. (8)
10.15 MascoTech, Inc. (now known as Metaldyne Corporation) 1991 Long Term Stock Incentive
Plan (Restated July 15, 1998). (3)
10.16 MascoTech, Inc. (now known as Metaldyne Corporation) Supplemental Executive
Retirement and Disability Plan. (4)
10.17 Description of the MascoTech, Inc. (now known as Metaldyne Corporation) program for
Estate, Financial Planning and Tax Assistance. (2)
10.18 Corporate Services Agreement and Annex dated as of January 1, 1987 between Masco
Industries, Inc. (now known as Metaldyne Corporation) and Masco Corporation,
Amendment No. 1 dated as of October 31, 1996 and related letter agreements dated
January 22, 1998 and June 17, 1998. (4) Amendment No. 2 to the Corporate Services
Agreement dated November 28, 2000. (7)
10.19 Corporate Opportunities Agreement dated as of May 1, 1984 between Masco Corporation
and Masco Industries, Inc. (now known as Metaldyne Corporation) and Amendment No. 1
dated as of October 31, 1996.(1) Amendment No. 2 to the Corporate Opportunities
Agreement dated November 28, 2000. (7)
82
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.20 Metaldyne Corporation 2001 Long Term Incentive and Share Award Plan (10)
10.21 Amendment 2, 3 and 4 to the Receivables Transfer Agreement (9)
10.22 Amendment 3 to the Receivables Transfer Agreement (9)
10.23 Amendment 4 to the Receivables Transfer Agreement (9)
10.24 Amendment No. 1 to the November 28, 2000 Credit Agreement (9)
10.25 Amendment No. 2 to the November 29, 2000 Credit Agreement (9)
10.26 Amended and Restated November 28, 2000 Credit Agreement (12)
10.27 Employment Agreement between Metaldyne Corporation and William M. Lowe, Jr. dated
as of June 18, 2001 (11).
10.28 Joint Venture Formation Agreement by and among NC-M Chassis Systems, LLC,
DaimlerChrysler Corporation and Metaldyne Corporation, dated as of December 8,
2002. (12)
10.29 Form of Amended and Restated Operating Agreement of NC-M Chassis Systems, LLC
dated as of , 200 . (12)
10.30 Metaldyne Corporation Terms of Preferred Stock Investor Rights Agreement. (12)
10.31 Form of Investor Rights Agreement. (13)
12.1 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends.
21.1 Subsidiaries of Metaldyne Corporation. (8)
23.1 Consent of PricewaterhouseCoopers LLP.
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
- ------------
(1) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
(now known as Metaldyne Corporation) Current Report on Form 8-K filed
November 14, 1996.
(2) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
(now known as Metaldyne Corporation) Annual Report on Form 10-K for the
year ended December 31, 1997.
(3) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
(now known as Metaldyne Corporation) Annual Report on Form 10-K for the
year ended December 31, 1998.
(4) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
(now known as Metaldyne Corporation) Annual Report on Form 10-K for the
year ended December 31, 1999.
(5) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
(now known as Metaldyne Corporation) Current Report on Form 8-K filed
August 7, 2000.
(6) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
(now known as Metaldyne Corporation) Quarterly Report on Form 10-Q for
the period ended September 30, 2000.
(7) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
(now known as Metaldyne Corporation) Registration Statement on Form S-1
filed December 27, 2000.
(8) Incorporated by reference to the Exhibits filed with Metaldyne
Corporation's Annual Report on Form 10-K for the year ended December 31,
2000.
(9) Incorporated by reference to the Exhibits filed with Metaldyne
Corporation's Annual Report on Form 10-K for the year ended December 31,
2001.
(10) Incorporated by reference to the Exhibits filed with Metaldyne
Corporation's Registration Statement on Form S-8 filed April 15, 2002.
83
(11) Incorporated by reference to the Exhibits filed with Metaldyne
Corporation's Registration Statement on Form S-4 (No. 333-99569) filed on
September 10, 2002.
(12) Incorporated by reference to the Exhibits filed with Metaldyne
Corporation's Current Report on Form 8-K filed December 11, 2002.
(13) Incorporated by reference to the Exhibits filed with Metaldyne
Corporation's Current Report on Form 8-K filed January 6, 2003.
The Company will furnish any of its stockholders a copy of any of the
above exhibits not included herein upon the written request of such stockholder
and the payment to the Company of the reasonable expenses incurred by the
Company in furnishing such copy or copies.
(B) REPORTS ON FORM 8-K.
We filed a Current Report on Form 8-K on December 9, 2002, reporting under
Item 5, Other Events, that Metaldyne Corporation and DaimlerChrysler
Corporation issued a joint press release announcing that both entities have
signed an agreement to form a joint venture to operate DaimlerChrysler's New
Castle, Indiana machining and forge facility, and filing under Item 7,
Exhibits, the press release relating to this event.
We filed a Current Report on Form 8-K on December 11, 2002 reporting under
Item 5, Other Events, that on December 8, 2002, that Metaldyne Corporation,
Daimler Chrysler and NC-M Chassis Systems, LLC, a newly formed Delaware limited
liability company, entered into a Joint Venture Formation Agreement, and filing
the Joint Venture Formation Agreement and certain other exhibits relating to
this transaction.
84
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ William M. Lowe, Jr.
----------------------------------------
William M. Lowe, Jr.
Executive Vice President and Chief
Financial Officer
(Chief Accounting Officer and Authorized
Signatory)
March 14, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Timothy D. Leuliette Chairman of the Board of Directors, March 14, 2003
---------------------------- Chief Executive Officer and Director
Timothy D. Leuliette (Principal Executive Officer)
/s/ William M. Lowe Executive Vice President and Chief March 14, 2003
---------------------------- Financial Officer (Chief Accounting
William M. Lowe Officer)
/s/ J. Michael Losh Director March 14, 2003
----------------------------
J. Michael Losh
/s/ Gary M. Banks Director March 14, 2003
----------------------------
Gary M. Banks
/s/ Charles Becker Director March 14, 2003
----------------------------
Charles Becker
/s/ Marshall A. Cohen Director March 14, 2003
----------------------------
Marshall A. Cohen
/s/ Cynthia L. Hess Director March 14, 2003
----------------------------
Cynthis L. Hess
/s/ Richard A. Manoogian Director March 14, 2003
----------------------------
Richard A. Manoogian
/s/ David A. Stockman Director March 14, 2003
----------------------------
David A. Stockman
/s/ Daniel P. Tredwell Director March 14, 2003
----------------------------
Daniel P. Tredwell
/s/ Samuel Valenti, III Director March 14, 2003
----------------------------
Samuel Valenti, III
85
METALDYNE CORPORATION
FINANCIAL STATEMENT SCHEDULE
PURSUANT TO ITEM 14(A)(2) OF FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 29, 2002
Schedule, as required for the years ended December 29, 2002, December 31, 2001
and December 31, 2000.
PAGE
----
II. Valuation and Qualifying Accounts .......... 88
86
METALDYNE CORPORATION
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 29, 2002, DECEMBER 31, 2001
AND DECEMBER 31, 2000
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------- ------------ --------------------------------- ---------------- --------------
ADDITIONS
---------------------------------
CHARGED
BALANCE AT CHARGED (CREDITED)
BEGINNING TO COST TO OTHER BALANCE AT
DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
- ---------------------------------- ------------ -------------- ------------------ ---------------- --------------
(A) (B)
Allowance for doubtful accounts,
deducted from accounts receivable
in the balance sheet:
2002 ............................. $5,380,000 $2,970,000 $(2,400,000) $2,810,000 $3,140,000
========== ========== =========== ========== ==========
2001 ............................. $5,420,000 $2,320,000 $ 650,000 $3,010,000 $5,380,000
========== ========== =========== ========== ==========
2000 ............................. $4,290,000 $2,440,000 $ 10,000 $1,320,000 $5,420,000
========== ========== =========== ========== ==========
- ----------
Notes:
(A) Allowance of companies acquired, reduction of allowance for
companies divested, and other adjustments, net.
(B) Deductions, representing uncollectible accounts written off, less
recoveries of accounts written off in prior years.
87
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
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2.1 Recapitalization Agreement dated as of August 1, 2000 between MascoTech, Inc. (now
known as Metaldyne Corporation) and Riverside Company LLC, as amended. (7)
Amendment No. 1 to the Recapitalization Agreement, dated October 23, 2000(7) and
Amendment No. 2 to the Recapitalization Agreement, dated November 28, 2000. (7)
3.1 Restated Certificate of Incorporation of MascoTech, Inc. (8)
3.2 Bylaws of Metaldyne Corporation, as amended. (7)
4.1 Indenture dated as of November 1, 1986 between Masco Industries, Inc. (now known as
Metaldyne Corporation) and Morgan Guaranty Trust Company of New York, as Trustee;
Agreement of Appointment and Acceptance of Successor Trustee dated as of August 4,
1994 among MascoTech, Inc., (now known as Metaldyne Corporation) Morgan Guaranty
Trust Company of New York and the First National Bank of Chicago; Supplemental
Indenture dated as of August 5, 1994, between MascoTech, Inc. (now known as Metaldyne
Corporation) and the First National Bank of Chicago, as Trustee; Directors' resolutions
establishing the Company's 41/2% Convertible Subordinated Debentures Due 2003;(3) and
Form of Note. (4)
4.2 Supplemental Indenture No. 2 dated November 28, 2000 to the Indenture dated as of
November 1, 1986 between Masco Industries (now known as Metaldyne Corporation) and
Morgan Guaranty Trust Company of New York. (7)
4.3 Supplemental Indenture No. 3 dated November 28, 2000 to the Indenture dated as of
November 1, 1986 between Masco Industries (now known as Metaldyne Corporation) and
Morgan Guaranty Trust Company of New York. (7)
4.4 Shareholders Agreement by and among MascoTech, Inc. (now known as Metaldyne
Corporation), Masco Corporation, Richard Manoogian, certain of their respective affiliates
and other co-investors a party thereto, dated as of November 28, 2000. (7)
4.5 Indenture relating to the 11% Senior Subordinated Notes due 2012, dated as of June 20,
2002 by and among Metaldyne Corporation, each of the Guarantors named therein and
The Bank of New York as Trustee. (11)
4.6 Form of note (included in Exhibit 4.5). (11)
4.7 Registration Rights Agreement relating to the notes dated as of June 20, 2002 by and
among Metaldyne Corporation and the parties named therein. (11)
4.8 Form of Indenture relating to the 10% Senior Subordinated Notes due 201 , dated as of
, by and among Metaldyne Corporation, the Guarantors named therein and
[ ], as Trustee. (12)
4.9 Form of Registration Rights Agreement. (12)
10.1 Credit Agreement dated as of November 28, 2000 among MascoTech, Inc. (now known as
Metaldyne Corporation), Metalync Company LLC (now known as Metaldyne Company
LLC), the subsidiary term borrowers party thereto, the foreign subsidiary borrowers party
thereto, the lenders party thereto and Chase Manhattan Bank, as administrative agent. (7)
10.2 Assumption and Indemnification Agreement dated as of May 1, 1984 between Masco
Corporation and Masco Industries, Inc. (now known as Metaldyne Corporation). (8)
10.3 Receivables Purchase Agreement dated as of November 28, 2000 among MascoTech, Inc.
(now known as Metaldyne Corporation) the Sellers named therein and MTSPC, Inc. as
Purchaser. (7)
10.4 Receivables Transfer Agreement dated as of November 28, 2000 by and among MTSPC,
Inc., MascoTech, Inc. (now known as Metaldyne Corporation), The Chase Manhattan
Bank, and the other parties named therein. (7)
10.5 Amendment No. 1 to Receivables Transfer Agreement dated as of December 15, 2000 to
the Receivables Transfer Agreement. (8)
88
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
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10.6 Master Lease Agreement dated as of December 21, 2000 between General Electric Capital
Corporation and Simpson Industries, Inc. (8)
10.8 Change of Control Agreement with William T. Anderson, dated September 21, 2000.(6)
10.9 Change of Control Agreement with David B. Liner, dated September 21, 2000. (6)
10.10 Change of Control Agreement with Leroy H. Runk, dated September 21, 2000.(6)
10.11 Change of Control Agreement with James F. Tompkins, dated September 21, 2000. (6)
10.12 Release and Consulting Agreement with Frank Hennessey, dated November 22, 2000. (6)
10.13 Employment, Release and Consulting Agreement with Lee M. Gardner, dated November
22, 2000. (8)
10.14 Employment, Release and Consulting Agreement with Timothy Wadhams, dated November
22, 2000. (8)
10.15 MascoTech, Inc. (now known as Metaldyne Corporation) 1991 Long Term Stock Incentive
Plan (Restated July 15, 1998)(3)
10.16 MascoTech, Inc. (now known as Metaldyne Corporation) Supplemental Executive
Retirement and Disability Plan(4)
10.17 Description of the MascoTech, Inc. (now known as Metaldyne Corporation) program for
Estate, Financial Planning and Tax Assistance(2)
10.18 Corporate Services Agreement and Annex dated as of January 1, 1987 between Masco
Industries, Inc. (now known as Metaldyne Corporation) and Masco Corporation,
Amendment No. 1 dated as of October 31, 1996 and related letter agreements dated
January 22, 1998 and June 17, 1998.(4) amendment No. 2 to the Corporate Services
Agreement dated November 28, 2000.(7)
10.19 Corporate Opportunities Agreement dated as of May 1, 1984 between Masco Corporation
and Masco Industries, Inc. (now known as Metaldyne Corporation) and Amendment No. 1
dated as of October 31, 1996(1). Amendment No. 2 to the Corporate Opportunities
Agreement dated November 28, 2000.(7)
10.20 Metaldyne Corporation 2001 Long Term Incentive and Share Award Plan (10)
10.21 Amendment 2, 3 and 4 to the Receivables Transfer Agreement (9)
10.22 Amendment 3 to the Receivables Transfer Agreement (9)
10.23 Amendment 4 to the Receivables Transfer Agreement (9)
10.24 Amendment No. 1 to the November 28, 2000 Credit Agreement (9)
10.25 Amendment No. 2 to the November 29, 2000 Credit Agreement (9)
10.26 Amended and Restated November 28, 2000 Credit Agreement (12)
10.27 Employment Agreement between Metaldyne Corporation and William M. Lowe, Jr. dated
as of June 18, 2001 (11).
10.28 Joint Venture Formation Agreement by and among NC-M Chassis Systems, LLC,
DaimlerChrysler Corporation and Metaldyne Corporation, dated as of December 8, 2002.
(12)
10.29 Form of AMENDED AND RESTATED OPERATING AGREEMENT OF NC-M
CHASSIS SYSTEMS, LLC Dated as of [ ], 200[ ]. (12)
10.30 Metaldyne Corporation Terms of Preferred Stock Investor Rights Agreement. (12)
10.31 Form of Investor Rights Agreement. (13)
12.1 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends.
21.1 Subsidiaries of Metaldyne Corporation.(8)
23.1 Consent of PricewaterhouseCoopers LLP.
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
89
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(1) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
(now known as Metaldyne Corporation) Current Report on Form 8-K filed
November 14, 1996.
(2) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
(now known as Metaldyne Corporation) Annual Report on Form 10-K for the
year ended December 31, 1997.
(3) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
(now known as Metaldyne Corporation) Annual Report on Form 10-K for the
year ended December 31, 1998.
(4) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
(now known as Metaldyne Corporation) Annual Report on form 10-K for the
year ended December 31, 1999.
(5) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
(now known as Metaldyne Corporation) Current Report on Form 8-K filed
August 7, 2000.
(6) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
(now known as Metaldyne Corporation) Quarterly Report on Form 10-Q for the
period ended September 30, 2000.
(7) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
(now known as Metaldyne Corporation) Registration Statement on Form S-1
filed December 27, 2000.
(8) Incorporated by reference to the Exhibits filed with Metaldyne
Corporation's Annual Report on Form 10-K for the year ended December 31,
2000.
(9) Incorporated by reference to the Exhibits filed with Metaldyne
Corporation's Annual Report on Form 10-K for the year ended December 31,
2001.
(10) Incorporated by reference to the Exhibits filed with Metaldyne
Corporation's Registration Statement on Form S-8 filed April 15, 2002.
(11) Incorporated by reference to the Exhibits filed with Metaldyne
Corporation's Registration Statement on Form S-4 (No. 333-99569) filed on
September 10, 2002.
(12) Incorporated by reference to the Exhibits filed with Metaldyne
Corporation's Current Report on Form 8-K filed December 11, 2002.
(13) Incorporated by reference to the Exhibits filed with Metaldyne
Corporation's Current Report on Form 8-K filed January 6, 2003.
90
CERTIFICATION OF TIMOTHY D. LEULIETTE PURSUANT TO
RULE 13a-14 UNDER THE
SECURITIES EXCHANGE ACT OF 1934
FORM 10-K FOR THE YEAR ENDED
DECEMBER 29, 2002 OF
METALDYNE CORPORATION
I, Timothy D. Leuliette, certify that:
1. I have reviewed this annual report on Form 10-K of Metaldyne
Corporation;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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
annual 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
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
annual 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 annual report (the "Evaluation Date"); and
C. presented in this annual 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
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Timothy D. Leuliette
Date: March 14, 2003 -------------------------------------
Timothy D. Leuliette
Chief Executive Officer
91
CERTIFICATION OF WILLIAM M. LOWE, JR. PURSUANT TO
RULE 13a-14 UNDER THE
SECURITIES EXCHANGE ACT OF 1934
FORM 10-K FOR THE YEAR ENDED
DECEMBER 29, 2002 OF
METALDYNE CORPORATION
I, William M. Lowe, Jr. certify that:
1. I have reviewed this annual report on Form 10-K of Metaldyne
Corporation;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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
annual 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
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 annual 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 annual report (the "Evaluation Date"); and
C. presented in this annual 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
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ William M. Lowe, Jr.
Date: March 14, 2003 -------------------------------------
William M. Lowe, Jr.
Chief Financial Officer
92