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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED MARCH 30, 2003
COMMISSION FILE NUMBER 1-12068
METALDYNE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 38-2513957
------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
47659 HALYARD DRIVE, PLYMOUTH, MICHIGAN 48170-2429
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(734) 207-6200
--------------
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]
There is currently no public market for the registrant's common stock.
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICAL DATE.
SHARES OUTSTANDING AT
CLASS APRIL 30, 2003
----- --------------
Common stock, par value $1 per share ........... 44,643,637
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METALDYNE CORPORATION
INDEX
PAGE NO.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet -- March 30, 2003 and December 29, 2002 ........... 2
Consolidated Statement of Operations for the Three Months Ended
March 30, 2003 and March 31, 2002 ............................................ 3
Consolidated Statement of Cash Flows for the Three Months Ended
March 30, 2003 and March 31, 2002 ............................................ 4
Notes to Consolidated Financial Statements ................................... 5-18
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations ................................................................... 19
Item 3. Quantitative and Qualitative Disclosure About Market Risk .................... 31
Item 4. Controls and Procedures ...................................................... 31
Part II. Other Information, Signature and Certifications ................................ 32
1
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
METALDYNE CORPORATION
CONSOLIDATED BALANCE SHEET
MARCH 30, 2003 AND DECEMBER 29, 2002
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
MARCH 30, 2003 DECEMBER 29, 2002
-------------- -----------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash investments ........................................... $ -- $ 19,130
Receivables, net:
Trade, net of allowance for doubtful accounts ..................... 149,050 147,670
Affiliates ........................................................ 22,710 27,820
Other ............................................................. 10,020 11,380
---------- ----------
Total receivables, net ........................................... 181,780 186,870
Inventories ......................................................... 79,970 76,820
Deferred and refundable income taxes ................................ 5,640 23,550
Prepaid expenses and other assets ................................... 34,740 29,140
---------- ----------
Total current assets ............................................. 302,130 335,510
Equity and other investments in affiliates ........................... 168,670 147,710
Property and equipment, net .......................................... 695,740 697,510
Excess of cost over net assets of acquired companies ................. 550,160 552,100
Intangible and other assets .......................................... 281,270 286,220
---------- ----------
Total assets ..................................................... $1,997,970 $2,019,050
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................... $ 185,990 $ 186,440
Accrued liabilities ................................................. 97,390 108,330
Current maturities, long-term debt .................................. 100,710 99,900
---------- ----------
Total current liabilities ........................................ 384,090 394,670
Long-term debt ....................................................... 669,120 668,960
Deferred income taxes ................................................ 149,690 146,510
Other long-term liabilities .......................................... 139,240 143,300
---------- ----------
Total liabilities ................................................ 1,342,140 1,353,440
---------- ----------
Redeemable preferred stock, 545,154 shares outstanding ............... 66,780 64,510
Redeemable restricted common stock, 0.8 million and 1.7 million
shares outstanding respectively ..................................... 16,950 23,790
Less: Restricted unamortized stock awards ............................ (2,060) (3,120)
---------- ----------
Total redeemable stock ........................................... 81,670 85,180
---------- ----------
Preferred stock (non-redeemable), $1 par, Authorized: 25 million;
Outstanding: None ................................................... -- --
Common stock, $1 par, Authorized: 250 million;
Outstanding: 42.7 million and 42.6 million shares, respectively ..... 42,730 42,650
Paid-in capital ...................................................... 686,130 684,870
Accumulated deficit .................................................. (158,690) (147,100)
Accumulated other comprehensive income ............................... 3,990 10
---------- ----------
Total shareholders' equity ....................................... 574,160 580,430
---------- ----------
Total liabilities, redeemable stock and shareholders' equity ..... $1,997,970 $2,019,050
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED
FINANCIAL STATEMENTS.
2
METALDYNE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
---------------------------------
(UNAUDITED)
MARCH 30, 2003 MARCH 31, 2002
-------------- --------------
Net sales ................................................. $ 381,320 $ 559,870
Cost of sales ............................................. (339,800) (457,050)
---------- ----------
Gross profit ............................................. 41,520 102,820
Selling, general and administrative expenses .............. (28,740) (60,080)
Restructuring charges ..................................... (1,530) --
Legacy restricted stock award expense ..................... (900) (2,080)
---------- ----------
Operating profit ......................................... 10,350 40,660
Other expense, net:
Interest expense ......................................... (17,880) (28,120)
Equity loss from affiliates, net ......................... (2,630) (450)
Other, net ............................................... (1,460) (2,720)
---------- ----------
Other expense, net ..................................... (21,970) (31,290)
Income (loss) before income taxes and cumulative effect of
change in accounting principle ........................... (11,620) 9,370
Income taxes (credit) ..................................... (2,250) 3,510
---------- ----------
Income (loss) before cumulative effect of change in
accounting principle ..................................... (9,370) 5,860
Cumulative effect of change in recognition and measurement
of goodwill impairment ................................... -- (36,630)
---------- ----------
Net loss .................................................. (9,370) (30,770)
Preferred stock dividends ................................. 2,220 1,710
---------- ----------
Loss attributable to common stock ........................ $ (11,590) $ (32,480)
========== ==========
Basic earnings (loss) per share:
Before cumulative effect of change in accounting principle
less preferred stock dividends ......................... $ (0.27) $ 0.10
Cumulative effect of change in recognition and measurement
of goodwill impairment ................................. -- ( 0.86)
---------- ----------
Net loss attributable to common stock .................... $ (0.27) $ (0.76)
========== ==========
Diluted earnings (loss) per share:
Before cumulative effect of change in accounting principle
less preferred stock dividends ......................... $ (0.27) $ 0.09
Cumulative effect of change in recognition and measurement
of goodwill impairment ................................. -- ( 0.82)
---------- ----------
Net loss attributable to common stock .................... $ (0.27) $ (0.73)
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED
FINANCIAL STATEMENTS.
3
METALDYNE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
3 MONTHS ENDED
------------------------
MARCH 30, MARCH 31,
2003 2002
--------- ---------
OPERATING ACTIVITIES:
Income (loss) before cumulative effect of change in accounting
principle .......................................................... $ (9,370) $ 5,860
Adjustments to reconcile net cash provided by (used for) operating
activities:
Depreciation and amortization in operating profit ................ 25,090 33,380
Legacy stock award expense ....................................... 900 2,080
Debt fee amortization ............................................ 580 2,100
Deferred income taxes ............................................ 2,130 7,390
Non-cash interest expense (interest accretion) ................... 1,720 4,720
Equity losses, net of dividends .................................. 2,630 450
Other, net ....................................................... 540 (6,120)
Changes in assets and liabilities, net of acquisition/disposition
of business:
Accounts receivable .............................................. (22,510) (49,650)
Net proceeds from and repayments of accounts receivable sale ..... 29,000 23,430
Inventory ........................................................ (2,660) 2,090
Deferred and refundable income taxes ............................. 16,300 --
Prepaid expenses and other assets ................................ (5,500) (4,350)
Accounts payable and accrued expenses ............................ (22,410) 10,450
--------- ---------
Total change in assets and liabilities .......................... (7,780) (18,030)
--------- ---------
Net cash provided by operating activities ........................ 16,440 31,830
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures ............................................... (23,260) (27,280)
Proceeds from sale/leaseback of fixed assets ....................... 8,460 33,370
Investment in joint venture ........................................ (20,000) --
Other, net ......................................................... -- (2,390)
--------- ---------
Net cash provided by (used for) investing activities ............... (34,800) 3,700
--------- ---------
FINANCING ACTIVITIES:
Principal payments on borrowings of term loan facilities ........... (500) (33,370)
Proceeds from borrowings of revolving credit facility .............. 145,000 158,400
Principal payments on borrowings of revolving credit facility ...... (145,000) (158,400)
Proceeds from borrowing of other debt .............................. 2,020 --
Principal payments on borrowing of other debt ...................... (2,290) (1,040)
Other, net ......................................................... -- 350
--------- ---------
Net cash used for financing activities ............................. (770) (34,060)
--------- ---------
Net increase (decrease) in cash ..................................... (19,130) 1,470
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ...................... 19,130 --
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................ $ -- $ 1,470
========= =========
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid (refunded) for income taxes, net ......................... $ (14,750) $ 1,020
Cash paid for interest ............................................. $ 8,130 $ 17,130
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED
FINANCIAL STATEMENTS.
4
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND OTHER INFORMATION
We ("Metaldyne" or the "Company") are a leading global manufacturer of
highly engineered metal components for the global light vehicle market.
Our products include metal-formed and precision-engineered components and
modular systems used in vehicle transmission, engine and chassis
applications.
In the opinion of Company management, the unaudited financial statements
contain all adjustments, including adjustments of a normal recurring
nature, necessary to present fairly the financial position, results of
operations and cash flows for the periods presented. These statements
should be read in conjunction with the Company's financial statements
included in the Annual Report on Form 10-K for the fiscal year ended
December 29, 2002 (the "2002 Form 10-K"). The results of operations for
the three-month period ended March 30, 2003 are not necessarily indicative
of the results for the full year.
The Company's fiscal year ends on the Sunday nearest December 31. The
Company's fiscal quarters end on the Sundays nearest March 31, June 30,
and September 30. All year and quarter references relate to the Company's
fiscal year and fiscal quarters unless otherwise stated.
2. STOCK OPTIONS AND AWARDS
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 148, "Accounting for Stock-Based Compensation--Transition and
Disclosure--an amendment of FASB Statement No. 123" effective for the
fiscal year ended December 29, 2002. The following disclosure for the
financial statements for the period ended March 30, 2003 assumes that the
Company continues to account for stock-based employee compensation using
the intrinsic value method under Accounting Principles Board ("APB") No.
25.
The Company has one stock-based employee compensation plan, which is
accounted for 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.
5
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
MARCH 30, 2003 MARCH 31, 2002
-------------- --------------
Net loss attributable to common stock, as reported ........... $ (11,590) $ (32,480)
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net
of related tax effects ..................................... (470) (540)
--------- ---------
Pro forma net loss attributable to common stock .............. $ (12,060) $ (33,020)
========= =========
Loss per share:
Basic--as reported ......................................... $ (0.27) $ (0.76)
========= =========
Basic--pro forma for stock-based compensation .............. $ (0.28) $ (0.77)
========= =========
Diluted--as reported ....................................... $ (0.27) $ (0.73)
========= =========
Diluted--pro forma for stock-based compensation ............ $ (0.28) $ (0.74)
========= =========
6
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)
THREE MONTHS ENDED
------------------------
MARCH 30, MARCH 31,
2003 2002
--------- ---------
Weighted average number of shares outstanding ......... 42,720 42,650
========= =========
Income (loss) before cumulative effect of change
in accounting principle ............................. $ (9,370) $ 5,860
Cumulative effect of change in recognition and
measurement of goodwill impairment .................. -- (36,630)
--------- ---------
Net loss .............................................. (9,370) (30,770)
Less: Preferred stock dividends ....................... 2,220 1,710
--------- ---------
Loss used for basic and diluted earnings per share
computation ......................................... $ (11,590) $ (32,480)
========= =========
Basic earnings (loss) per share:
Before cumulative effect of change in accounting
principle and less preferred stock ................ $ (0.27) $ 0.10
Cumulative effect of change in recognition and
measurement of goodwill impairment ................ -- (0.86)
--------- ---------
Net loss attributable to common stock ............... $ (0.27) $ (0.76)
========= =========
Total shares used for basic earnings per share
computation ......................................... 42,720 42,650
Contingently issuable shares .......................... -- 1,830
--------- ---------
Total shares used for diluted earnings per share
computation ......................................... 42,720 44,480
========= =========
Diluted earnings (loss) per share:
Before cumulative effect of change in accounting
principle less preferred stock .................... $ (0.27) $ 0.09
Cumulative effect of change in accounting for
goodwill impairment ............................... -- (0.82)
--------- ---------
Net loss attributable to common stock ............... $ (0.27) $ (0.73)
========= =========
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 2,520,000 and 2,720,000
of common shares as they had no dilutive effect at March 30, 2003 and
March 31, 2002, respectively.
Contingently issuable shares, representing approximately 990,000
restricted common shares, have an anti-dilutive effect on earnings per
share for the three months ended March 30, 2003.
4. 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
7
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
joint venture, known as NC-M Chassis Systems, LLC. In connection with the
closing, DaimlerChrysler 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 DaimlerChrysler.
Immediately following the contribution, the Company purchased 40% of the
common interests in the joint venture from DaimlerChrysler for $20 million
in cash. This transaction was 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. However, the Company
does not recognize losses in the joint venture to the extent that
DaimlerChrysler provides funding for the joint venture's operations and
capital expenditures.
Under the terms of the Agreement, the Company will have an option to
purchase DaimlerChrysler'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 a satisfactory collective bargaining agreement is
ratified. If Metaldyne does not exercise its call option within 20 business
days of DaimlerChrysler's ratificaton of a satisfactory collective
bargaining agreement or we fail to close within 120 days of the exercise
because we cannot finance the acquisition, DaimlerChrysler has a call option
to purchase our initial investment for $1.00. If a new collective bargaining
agreement is not ratified by January 31, 2004, we have a put option on our
equity in the joint venture at $20 million and DaimlerChrysler has a call
option on our equity in the joint venture at $20 million.
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 March 30, 2003, the goodwill
balance was approximately $550 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 initial 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.
8
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ACQUIRED INTANGIBLE ASSETS
The change in the gross carrying amount of acquired intangible assets is
primarily attributable to the exchange impact from foreign currency.
(IN THOUSANDS, EXCEPT WEIGHTED AVERAGE LIFE)
AS OF MARCH 30, 2003 AS OF DECEMBER 29, 2002
-------------------------------------- -------------------------------------
GROSS WEIGHTED GROSS WEIGHTED
CARRYING ACCUMULATED AVERAGE CARRYING ACCUMULATED AVERAGE
AMOUNT AMORTIZATION LIFE AMOUNT AMORTIZATION LIFE
---------- ------------ ------------ ---------- ------------ -----------
Amortized Intangible Assets:
Customer Contracts ............. $ 92,600 $(23,450) 8.2 years $ 91,000 $(20,920) 8.2 years
Technology and Other ........... 164,390 (26,650) 14.9 years 160,820 (23,790) 14.9 years
-------- -------- -------- -------- ----------
Total ........................ $256,990 $(50,100) 13.6 years $251,820 $(44,710) 13.6 years
======== ======== ======== ======== ==========
Aggregate Amortization Expense
(Included in Cost of Sales):
For the three months ended
March 30, 2003 ............... $ 5,390
Estimated Amortization Expense:
For the year ending December 28,
2003 ......................... 21,460
For the year ending December 26,
2004 ......................... 21,460
For the year ending December 25,
2005 ......................... 21,060
For the year ending December 31,
2006 ......................... 21,060
GOODWILL
The changes in the carrying amount of goodwill for the three months ended
March 30, 2003 are as follows:
CHASSIS DRIVELINE ENGINE TOTAL
------- --------- -------- --------
Balance as of December 29, 2002 ................ $66,590 $361,470 $124,040 $552,100
Impact from foreign currency and other ......... 90 2,260 (4,290) (1,940)
------- -------- -------- --------
Balance as of March 30, 2003 ................... $66,680 $363,730 $119,750 $550,160
======= ======== ======== ========
6. DISPOSITION OF BUSINESS
On June 6, 2002, the Company sold TriMas Corporation ("TriMas") common
stock to Heartland Industrial Partners, L.P. ("Heartland") and other
investors amounting to approximately 66% of the fully diluted common
equity of TriMas. The Company retained approximately 34% of the fully
diluted common equity of TriMas in the form of common stock and a
presently exercisable warrant to purchase shares of TriMas common stock at
a nominal exercise price. Pursuant to the terms of a stock purchase
agreement, Heartland and the other investors invested approximately $265
million in cash in TriMas to acquire the 66% interest. In connection with
the investment, TriMas entered into a senior credit facility and a
receivables facility and issued senior subordinated notes due 2012. TriMas
used borrowings under the senior credit facility and proceeds from the
issuance of the notes to repay borrowings made by its subsidiaries under
the
9
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. Going forward, the
Company will account for its retained interest in TriMas under the equity
method of accounting.
As a result of acquisitions performed by TriMas in 2003, Metaldyne's
ownership interest in TriMas decreased from approximately 34% to
approximately 31% as of March 30, 2003.
7. RESTRUCTURING ACTIONS
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 the Company's new operating structure and leadership team, and
reformulate a 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 and 2002, but some are ongoing as of March 30,
2003. All employees have been terminated under this integration action.
The amounts reflected below represent total estimated cash payments, of
which $0.7 million and $1.9 million are recorded in "other long-term
liabilities" in the Company's consolidated balance sheet at March 30, 2003
and December 29, 2002, respectively. The majority of the restructuring
charges will be paid by the end of the 2003 fiscal year
The following table provides a rollforward of the restructuring accrual
related to the above restructuring actions as of March 30, 2003.
Adjustments to previously recognized acquisition related severance and
exit costs were reversed to goodwill.
(IN THOUSANDS)
ACQUISITION RELATED
2002 2003
------------ ------------
ADDITIONAL ADDITIONAL
EXIT AND SEVERANCE SEVERANCE
SEVERANCE INTEGRATION AND OTHER AND OTHER
COSTS COSTS EXIT COSTS EXIT COSTS TOTAL
----------- ------------- ------------ ------------ ----------
Balance at December 29, 2002 ......... $ 9,480 $ 530 $ 1,640 $ -- $ 11,650
Cash payments ........................ (5,170) (40) -- (540) (5,750)
Charges to expense ................... -- -- -- 1,530 1,530
-------- ----- ------- ------ --------
Balance at March 30, 2003 ............ $ 4,310 $ 490 $ 1,640 $ 990 $ 7,430
======== ===== ======= ====== ========
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
included the closure of a manufacturing facility in Halifax, England and
termination of approximately 25 employees. In addition, the Company closed
a small manufacturing location in Memphis, Tennessee and restructured
management within its North American engine operations, resulting in the
termination of 12 employees. In the first quarter of 2003, the Company
recorded additional restructuring charges, resulting in the termination of
an additional 8 employees and the completion of the European operations'
reorganization.
10
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 an amount that approximates the purchaser's financing costs, which
amounted to a total of $1.7 million for the three months ended March 30,
2003 and March 31, 2002, and is included in "other expense, net" in the
Company's consolidated statement of operations. At March 30, 2003, the
Company's funding under the facility was $29 million with an additional
$64 million available but not utilized. The discount rate at March 30,
2003 was 2.31% compared to 2.48% at December 29, 2002. 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
Inventories by component are as follows:
(IN THOUSANDS)
MARCH 30, 2003 DECEMBER 29, 2002
-------------- -----------------
Finished goods .......... $22,830 $25,720
Work in process ......... 30,610 26,230
Raw materials ........... 26,530 24,870
------- -------
$79,970 $76,820
======= =======
10. 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. The two interest rate collars and two of the interest rate caps
totaling $200 million were redesignated to the Company's new term note in
June 2002. 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.
Under these agreements, the Company recognized additional interest expense
of $1.5 million during the three months ended March 30, 2003. The Company
expects to reclassify a portion of the $0.5 million currently included in
other comprehensive income into earnings as quarterly interest payments
are made.
11
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMPREHENSIVE INCOME
The Company's total comprehensive loss for the period was as follows:
(IN THOUSANDS)
THREE MONTHS ENDED
-------------------------------
MARCH 30, 2003 MARCH 31, 2002
-------------- --------------
Income (loss) before cumulative effect of change in
accounting principle ............................. $ (9,370) $ 5,860
Cumulative effect of change in recognition and
measurement of goodwill impairment ............... -- (36,630)
-------- ---------
Net loss .......................................... (9,370) (30,770)
Other comprehensive income (loss):
Foreign currency translation adjustment and other
miscellaneous .................................. 3,690 (7,970)
Interest rate agreements ......................... 300 1,650
-------- ---------
Total other comprehensive income (loss) .......... 3,990 (6,320)
-------- ---------
Total comprehensive loss .......................... $ (5,380) $ (37,090)
======== =========
12. COMMITMENTS AND CONTINGENCIES
The Company is subject to claims and litigation in the ordinary course of
our business, but does not believe that any such claim or litigation will
have a material adverse effect on its financial position or results of
operation.
13. 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. Adjusted
EBITDA is presented using the Company's modified segment structure
beginning in 2002. In addition, in 2003 the Company moved one of its
European operations that had historically been part of the Chassis segment
to the Engine segment. Both periods have been adjusted to reflect this
change.
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.
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.
12
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DRIVELINE -- Manufactures components, modules and systems, including
precision shafts, hydraulic controls, hot and cold forgings and integrated
program management used in a broad range of transmission applications.
These applications include transmission and transfer case shafts,
transmission valve bodies, cold extrusion and Hatebur hot forgings.
ENGINE -- Manufactures a broad range of engine components, modules and
systems, including sintered metal, powder metal, forged and tubular
fabricated products used for a variety of applications. These applications
include balance shaft modules and front cover assemblies.
Segment activity for the three months ended March 30, 2003 and March 31,
2002 is as follows:
(IN THOUSANDS)
THREE MONTHS ENDED
---------------------------------
MARCH 30, 2003 MARCH 31, 2002
-------------- --------------
SALES
Automotive Group
Chassis .............................................. $ 32,500 $ 36,880
Driveline ............................................ 200,650 203,330
Engine ............................................... 148,170 128,720
--------- ---------
Automotive Group .................................... 381,320 368,930
TriMas Group ........................................... -- 190,940
--------- ---------
Total Sales ......................................... $ 381,320 $ 559,870
========= =========
ADJUSTED EBITDA
Automotive Group
Chassis .............................................. $ 1,760 $ 3,280
Driveline ............................................ 18,890 23,210
Engine ............................................... 20,840 18,330
--------- ---------
Automotive Operating ................................ 41,490 $ 44,820
Automotive/centralized resources ("Corporate") ......... (5,150) (4,880)
--------- ---------
Automotive Group .................................... 36,340 39,940
TriMas Group ........................................... -- 36,180
--------- ---------
Total Adjusted EBITDA .................................. 36,340 76,120
Depreciation & amortization ............................ (25,090) (33,380)
Legacy stock award expense ............................. (900) (2,080)
--------- ---------
Operating profit ....................................... $ 10,350 $ 40,660
========= =========
14. NEW ACCOUNTING PRONOUNCEMENTS
On December 30, 2002, the Company adopted 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 are 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.
As a result of the Company's adoption of SFAS No. 145, the $43.4 million
(net of taxes of $25.5 million) extraordinary loss on early extinguishment
of debt recorded for the year ended December 29, 2002 will be reclassified
to income from continuing operations.
13
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On December 30, 2002, the Company adopted 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. Accordingly, all costs associated with exit or disposal
activities will be recognized when they are incurred effective with the
Company's 2003 fiscal year. This Statement did not have a material effect on
the Company's financial condition or results of operations.
On December 30, 2002, the Company also adopted Financial Accounting
Standards Board ("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. FIN No. 45 did not have any impact on the
Company's financial condition, results of operations or required
disclosures.
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 the Company's accounts receivable
securitization facility to determine the impact of FIN No. 46. The Company
has not yet determined the impact that this Interpretation will have on the
Company's financial position or results of operations. It is possible this
pronouncement could require us to consolidate any variable interest entities
for which we are the primary beneficiary.
15. SUBSEQUENT EVENTS
On April 2, 2003, TriMas exercised its right to repurchase 1 million shares
of its common stock from the Company at $20 per share, the same price as it
was valued on June 6, 2002. This sale decreased Metaldyne's ownership
percentage in TriMas from approximately 31% to approximately 27%.
16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF GUARANTORS OF
SENIOR SUBORDINATED NOTES
The following condensed consolidating financial information presents:
Condensed consolidating financial statements as of March 30, 2003 and
December 29, 2002, and for the three months ended March 30, 2003 and March
31, 2002 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
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.
14
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GUARANTOR/NON-GUARANTOR
CONDENSED CONSOLIDATING BALANCE SHEETS MARCH 30, 2003
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATED
------------ ------------- --------------- -------------- ------------
ASSETS
Current assets:
Cash and cash investments ......................... $ -- $ -- $ -- $ -- $ --
Receivables, net:
Trade, net of allowance for doubtful
accounts ......................................... -- -- 149,050 -- 149,050
Affiliates ....................................... -- 22,710 -- -- 22,710
Other ............................................ -- 4,660 5,360 -- 10,020
---------- ---------- -------- ---------- ----------
Total receivables, net .......................... -- 27,370 154,410 -- 181,780
Inventories ....................................... -- 59,110 20,860 -- 79,970
Deferred and refundable income taxes .............. -- 4,740 900 -- 5,640
Prepaid expenses and other assets ................. -- 28,710 6,030 -- 34,740
---------- ---------- -------- ---------- ----------
Total current assets ............................. -- 119,930 182,200 -- 302,130
Equity and other investments in affiliates ........ 168,670 -- -- -- 168,670
Property and equipment, net ....................... -- 490,140 205,600 -- 695,740
Excess of cost over net assets of acquired
companies ........................................ -- 428,820 121,340 -- 550,160
Investment in subsidiaries ........................ 487,160 234,040 -- (721,200) --
Intangible and other assets ....................... -- 261,220 20,050 -- 281,270
---------- ---------- -------- ---------- ----------
Total assets .................................... $ 655,830 $1,534,150 $529,190 $ (721,200) $1,997,970
========== ========== ======== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................. $ -- $ 149,180 $ 36,810 $ -- $ 185,990
Accrued liabilities ............................... -- 70,330 27,060 -- 97,390
Current maturities, long-term debt ................ -- 97,320 3,390 -- 100,710
---------- ---------- -------- ---------- ----------
Total current liabilities ........................ -- 316,830 67,260 -- 384,090
Long-term debt .................................... 250,000 408,170 10,950 -- 669,120
Deferred income taxes ............................. -- 128,730 20,960 -- 149,690
Long-term liabilities ............................. -- 132,990 6,250 -- 139,240
Intercompany accounts, net ........................ (250,000) 60,270 189,730 -- --
---------- ---------- -------- ---------- ----------
Total liabilities ................................ -- 1,046,990 295,150 -- 1,342,140
========== ========== ======== ========== ==========
Redeemable preferred stock ........................ 66,780 -- -- -- 66,780
Redeemable restricted common stock ................ 16,950 -- -- -- 16,950
Less: Restricted stock awards ..................... (2,060) -- -- -- (2,060)
---------- ---------- -------- ---------- ----------
Total redeemable stock ........................... 81,670 -- -- -- 81,670
========== ========== ======== ========== ==========
Shareholders' equity:
Preferred stock ................................... -- -- -- -- --
Common stock ...................................... 42,730 -- -- -- 42,730
Paid-in capital ................................... 686,130 -- -- -- 686,130
Accumulated deficit ............................... (158,690) -- -- -- (158,690)
Accumulated other comprehensive income (loss) ..... 3,990 -- -- -- 3,990
Investment by Parent/Guarantor .................... -- 487,160 234,040 (721,200) --
---------- ---------- -------- ---------- ----------
Total shareholders' equity ....................... 574,160 487,160 234,040 (721,200) 574,160
========== ========== ======== ========== ==========
Total liabilities, redeemable stock and
shareholders' equity ............................ $ 655,830 $1,534,150 $529,190 $ (721,200) $1,997,970
========== ========== ======== ========== ==========
15
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
========== ========== ======== ========== ==========
16
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GUARANTOR/NON-GUARANTOR
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 30, 2003
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATED
------------ ------------- -------------- -------------- ------------
Net sales .......................................... $ -- $ 295,710 $ 85,610 $ -- $ 381,320
Cost of sales ...................................... -- (271,790) (68,010) -- (339,800)
--------- ---------- --------- ------ ----------
Gross profit ....................................... -- 23,920 17,600 -- 41,520
Selling, general and administrative expenses ....... -- (25,100) (3,640) -- (28,740)
Restructuring charges .............................. -- -- (1,530) -- (1,530)
Legacy restricted stock award expense .............. -- (720) (180) -- (900)
--------- ---------- --------- ------ ----------
Operating profit ................................... -- (1,900) 12,250 -- 10,350
Other income (expense), net:
Interest expense ................................... -- (17,430) (450) -- (17,880)
Equity and other income (loss) from affiliates ..... (2,630) -- -- -- (2,630)
Other, net ......................................... -- (860) (600) -- (1,460)
--------- ---------- --------- ------ ----------
Other income (expense), net ........................ (2,630) (18,290) (1,050) -- (21,970)
--------- ---------- --------- ------ ----------
Income (loss) before income taxes .................. (2,630) (20,190) 11,200 -- (11,620)
Income taxes (credit) .............................. -- (7,380) 5,130 -- (2,250)
Equity in net income of subsidiaries ............... (6,740) 6,910 -- (170) --
--------- ---------- --------- ------ ----------
Net income (loss) .................................. $ (9,370) $ (5,900) $ 6,070 $ (170) $ (9,370)
Preferred stock dividends .......................... 2,220 -- -- -- 2,220
--------- ---------- --------- ------ ----------
Earnings (loss) attributable to common stock ....... $ (11,590) $ (5,900) $ 6,070 $ (170) $ (11,590)
========= ========== ========= ====== ==========
GUARANTOR/NON-GUARANTOR
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATED
----------- ------------- -------------- -------------- ------------
Net sales ............................................... $ -- $ 302,270 $ 257,770 $ (170) $ 559,870
Cost of sales ........................................... -- (272,030) (185,190) 170 (457,050)
--------- ---------- ---------- ------ ----------
Gross profit ............................................ -- 30,240 72,580 -- 102,820
Selling, general and administrative expenses ............ -- (20,450) (39,630) -- (60,080)
Legacy restricted stock award expense ................... -- (2,080) -- -- (2,080)
--------- ---------- ---------- ------ ----------
Operating profit ........................................ -- 7,710 32,950 -- 40,660
Other income (expense), net:
Interest expense ........................................ -- (27,740) (380) -- (28,120)
Equity and other income (loss) from affiliates .......... (450) -- -- -- (450)
Other, net .............................................. -- (3,800) 1,080 -- (2,720)
--------- ---------- ---------- ------ ----------
Other income (expense), net ............................. (450) (31,540) 700 -- (31,290)
--------- ---------- ---------- ------ ----------
Income (loss) before income taxes and cumulative
effect of a change in accounting principle ............. (450) (23,830) 33,650 -- 9,370
Income taxes (credit) ................................... -- (9,360) 12,870 -- 3,510
--------- ---------- ---------- ------ ----------
Income (loss) before cumulative effect of a change in
accounting principle ................................... (450) (14,470) 20,780 -- 5,860
Cumulative effect of a change in recognition and
measurement of goodwill impairment ..................... -- (36,630) -- -- (36,630)
Equity in net income of subsidiaries .................... (30,320) 21,230 -- 9,090 --
--------- ---------- ---------- ------ ----------
Net income (loss) ....................................... $ (30,770) $ (29,870) $ 20,780 $9,090 $ (30,770)
Preferred stock dividends ............................... 1,710 -- -- -- 1,710
--------- ---------- ---------- ------ ----------
Earnings (loss) attributable to common stock ............ $ (32,480) $ (29,870) $ 20,780 $9,090 $ (32,480)
========= ========== ========== ====== ==========
17
METALDYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GUARANTOR/NON-GUARANTOR
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 30, 2003
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATED
-------- ------------- --------------- -------------- -------------
Cash flows from operating activities:
Net cash provided by (used for) operating activities ...... $ -- $ 48,650 $ (32,210) $-- $ 16,440
----- ---------- --------- --- ----------
Cash flows from investing activities:
Capital expenditures ...................................... -- (18,010) (5,250) -- (23,260)
Proceeds from sale/leaseback of fixed assets .............. -- 8,460 -- 8,460
Investment in joint venture ............................... -- (20,000) -- (20,000)
----- ---------- --------- --- ----------
Net cash provided by (used for) investing activities ...... -- (29,550) (5,250) -- (34,800)
----- ---------- --------- --- ----------
Cash flows from financing activities:
Principal payments on borrowing of term loan
facilities ............................................... -- (500) -- -- (500)
Proceeds from borrowings of revolving credit facility ..... -- 145,000 -- -- 145,000
Principal payments on borrowings of revolving credit
facility ................................................. -- (145,000) -- -- (145,000)
Proceeds from borrowing of other debt ..................... -- 930 1,090 -- 2,020
Principal payments on borrowing of other debt ............. -- (880) (1,410) -- (2,290)
Change in intercompany accounts ........................... -- (33,260) 33,260 -- --
----- ---------- --------- --- ----------
Net cash provided by (used for) financing activities ...... -- (33,710) 32,940 -- (770)
----- ---------- --------- --- ----------
Net increase (decrease) in cash ........................... -- (14,610) (4,520) -- (19,130)
Cash and cash equivalents, beginning of period ............ -- 14,610 4,520 -- 19,130
----- ---------- --------- --- ----------
Cash and cash equivalents, end of period .................. $ -- $ -- $ -- $-- $ --
===== ========== ========= === ==========
GUARANTOR/NON-GUARANTOR
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2002
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATED
-------- ------------- --------------- -------------- -------------
Cash flows from operating activities:
Net cash provided by (used for) operating activities .. $ -- $ 23,430 $ 8,400 $-- $ 31,830
----- ---------- --------- --- ----------
Cash flows from investing activities:
Capital expenditures .................................. -- (10,940) (16,340) -- (27,280)
Proceeds from sale/leaseback of fixed assets .......... -- 33,370 -- -- 33,370
Other, net ............................................ -- (940) (1,450) -- (2,390)
----- ---------- --------- --- ----------
Net cash provided by (used for) investing activities .. -- 21,490 (17,790) -- 3,700
----- ---------- --------- --- ----------
Cash flows from financing activities:
Principal payments on borrowing of term loan
facilities ........................................... -- (20,150) (13,220) -- (33,370)
Proceeds from borrowings of revolving credit facility . -- 158,400 -- -- 158,400
Principal payments on borrowings of revolving credit
facility ............................................. -- (158,400) -- -- (158,400)
Principal payments on borrowing of other debt ......... -- (260) (780) -- (1,040)
Change in intercompany accounts ....................... -- (20,390) 20,390 -- --
Other, net ............................................ -- 350 -- -- 350
----- ---------- --------- --- ----------
Net cash provided by (used for) financing activities .. -- (40,450) 6,390 -- (34,060)
----- ---------- --------- --- ----------
Net increase (decrease) in cash ....................... -- 4,470 (3,000) -- 1,470
Cash and cash equivalents, beginning of period ........ -- -- -- -- --
----- ---------- --------- --- ----------
Cash and cash equivalents, end of period .............. $ -- $ 4,470 $ (3,000) $-- $ 1,470
===== ========== ========= === ==========
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In addition to net income and other financial measures, the Company uses
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. 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 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.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 30, 2003 VERSUS MARCH 31, 2002
THREE MONTHS ENDED
---------------------------------
MARCH 30, 2003 MARCH 31, 2002
-------------- --------------
(IN THOUSANDS)
SALES
- -----
Automotive Group
Chassis ............................................... $ 32,500 $ 36,880
Driveline ............................................. 200,650 203,330
Engine ................................................ 148,170 128,720
--------- ---------
Automotive Group .................................... 381,320 368,930
TriMas Group (1) ....................................... -- 190,940
--------- ---------
Total Company ....................................... $ 381,320 $ 559,870
========= =========
ADJUSTED EBITDA AND OPERATING PROFIT (2)
- ----------------------------------------
Automotive Group
Chassis ............................................... $ 1,760 $ 3,280
Driveline ............................................. 18,890 23,210
Engine ................................................ 20,840 18,330
--------- ---------
Automotive Operating Adjusted EBITDA ................ 41,490 44,820
Automotive/centralized resources ("Corporate") ......... (5,150) (4,880)
--------- ---------
Automotive Group
Adjusted EBITDA ....................................... 36,340 39,940
Depreciation and amortization ......................... (25,090) (23,450)
Legacy stock award expense ............................ (900) (1,700)
--------- ---------
Automotive Group operating profit ................... 10,350 14,790
TriMas Group
Adjusted EBITDA (1) ................................... -- 36,180
Depreciation and amortization (1) ..................... -- (9,930)
Legacy stock award expense (1) ........................ -- (380)
--------- ---------
Total Company operating profit ...................... $ 10,350 $ 40,660
========= =========
Total Company Adjusted EBITDA ....................... $ 36,340 $ 76,120
========= =========
19
THREE MONTHS ENDED
----------------------------------
MARCH 30, 2003 MARCH 31, 2002
---------------- ---------------
(IN THOUSANDS)
OTHER INCOME AND EXPENSE AND NET LOSS
- -------------------------------------
Other expense, net:
Interest expense .......................................... $ (17,880) $ (28,120)
Equity loss from affiliates, net .......................... (2,630) (450)
Other, net ................................................ (1,460) (2,720)
--------- ---------
Other expense, net ....................................... (21,970) (31,290)
--------- ---------
Income (loss) before income taxes and cumulative effect of
change in accounting principle .............................. (11,620) 9,370
Income taxes (credit) ........................................ (2,250) 3,510
--------- ---------
Income (loss) before cumulative effect of change in accounting
principle ................................................... (9,370) 5,860
Cumulative effect of change in recognition and measurement of
goodwill impairment ......................................... -- (36,630)
--------- ---------
Net loss ..................................................... $ (9,370) $ (30,770)
========= =========
- ----------
(1) TriMas Group is included in our financial results through June 6, 2002,
the date of our divestiture of control.
(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 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.
20
THREE MONTHS ENDED
---------------------------------
MARCH 30, 2003 MARCH 31, 2002
-------------- --------------
(IN THOUSANDS)
RECONCILIATION OF OPERATING PROFIT TO ADJUSTED EBITDA
-----------------------------------------------------
AUTOMOTIVE GROUP
CHASSIS
Operating profit ..................................... $ 310 $ 1,370
Depreciation and amortization ........................ 1,450 1,910
-------- --------
Adjusted EBITDA ...................................... 1,760 3,280
DRIVELINE
Operating profit ..................................... 6,300 12,670
Depreciation and amortization ........................ 12,590 10,540
-------- --------
Adjusted EBITDA ...................................... 18,890 23,210
ENGINE
Operating profit ..................................... 11,700 8,850
Depreciation and amortization ........................ 9,140 9,480
-------- --------
Adjusted EBITDA ...................................... 20,840 18,330
AUTOMOTIVE
Operating profit ..................................... 18,310 22,890
Depreciation and amortization ........................ 23,180 21,930
-------- --------
Adjusted EBITDA ...................................... 41,490 44,820
AUTOMOTIVE/CENTRALIZED RESOURCES ("CORPORATE")
Operating loss ....................................... (7,960) (8,100)
Depreciation and amortization ........................ 1,910 1,520
Legacy stock award expense ........................... 900 1,700
-------- --------
Adjusted EBITDA ...................................... (5,150) (4,880)
TOTAL AUTOMOTIVE GROUP
Operating profit ..................................... 10,350 14,790
Depreciation and amortization ........................ 25,090 23,450
Legacy stock award expense ........................... 900 1,700
-------- --------
Adjusted EBITDA ...................................... 36,340 39,940
TRIMAS GROUP
Operating profit ..................................... -- 25,870
Depreciation and amortization ........................ -- 9,930
Legacy stock award expense ........................... -- 380
-------- --------
Adjusted EBITDA ...................................... -- 36,180
TOTAL COMPANY
Operating profit ..................................... 10,350 40,660
Depreciation and amortization ........................ 25,090 33,380
Legacy stock award expense ........................... 900 2,080
-------- --------
Adjusted EBITDA ...................................... $ 36,340 $ 76,120
======== ========
Due to the divestiture of our TriMas subsidiary in June 2002, the consolidated
results for the first three months of 2003 and 2002 are not comparable. For
purposes of the following discussion, TriMas results are
21
excluded, where applicable and quantifiable, and discuss the performance of our
Automotive Group operations on a comparable basis between periods.
Our Automotive Group sales for the first quarter of 2003 were $381.3 million,
an increase of approximately $12.4 million or 3.4% versus the comparable period
of 2002. The primary drivers of this increase were new business launches in the
Engine segment and an $11.0 million increase related to the relative strength
of the euro versus the dollar in the first quarter of 2003 compared to the
first quarter of 2002. Offsetting this increase was an approximate 1.0% and
5.6% decline in North American production of our two largest customers,
combined with a 2.2% decline in our customers' European vehicle production.
Additionally, 2003 sales were negatively impacted by obsolescence of a specific
product and the related closure of a manufacturing facility in the Chassis
segment, customer pricing concessions and the loss of certain customer
contracts in our Driveline segment.
Gross profit was $41.5 million in the first quarter of 2003 versus $102.8
million in the comparable period in 2002. Excluding our former TriMas
subsidiary, gross profit was $41.5 million or 10.9% of net sales in the first
quarter of 2003 versus an approximate $45.8 million or 12.4% of net sales for
the first quarter of 2002. The $4.3 million decrease is the net combination of
several offsetting factors, but primarily represents price increases for our
steel and aluminum purchases offset by currency exchange gains and slightly
higher production volumes. Also impacting gross profit during the quarter was
an incremental $1.5 million in depreciation expense, $1.0 million in expense
related to leases completed in the last year to finance capital expenditures
supporting the Company's large volume of future business, and approximately
$2.0 million of operational issues in our Driveline segment related to a launch
of a new product and unexpected maintenance on certain high volume production
machines.
Selling, general and administrative expenses were $28.7 million for the first
quarter of 2003 versus $60.1 million in the comparable period in 2002.
Excluding TriMas from the first quarter 2002 numbers, selling, general and
administrative charges approximated $28.7 million in the first quarter of 2003,
or 7.5% of Automotive Group sales, versus an approximate $29.3 million in the
first quarter of 2002, or 8.0% of Automotive Group sales. The net decrease in
selling, general and administrative expenses is primarily related to net cost
saving initiatives such as the Engine segment restructuring and the movement
towards shared/centralized services.
Operating profit for the Automotive Group decreased to $10.4 million, or 2.7%
of sales, in the first quarter of 2003 versus $14.8 million, or 4.0% of sales,
in the first quarter of 2002. In addition to the above discussion, the Engine
segment's restructuring expense of $1.5 million negatively impacted 2003
results.
Adjusted EBITDA for the Automotive Group decreased from $39.9 million in the
first quarter of 2002 to $36.3 million in the first quarter of 2003. The Engine
segment's restructuring of $1.5 million, incremental lease expense of $1.0
million, and the approximate $2.0 million in operational issues in our
Driveline segment explained above were the primary contributors to the decline.
Other factors such as cost increases for steel and aluminum and price
concessions to customers were mostly offset by currency exchange gains,
slightly higher production, and reductions in our selling, general and
administrative expenses.
Interest expense was approximately $17.9 million for the first quarter of 2003
versus $28.1 million for the comparable period in 2002. This decrease is
primarily due to a reduction in interest resulting from a lower average debt
balance for the comparable quarters in 2003 and 2002, an approximate 1%
reduction in average LIBOR for the comparable periods in 2003 and 2002, 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 from
fiscal 2002.
Equity loss from affiliates was approximately $2.6 million for the first
quarter of 2003 versus $0.5 million for the comparable period in 2002. This
decrease reflects a loss of approximately $2.6 million recorded for our former
TriMas subsidiary for the quarter ended March 30, 2003.
Other, net was approximately $1.5 million in the first quarter of 2003 versus
$2.7 million in the comparable period of 2002. This is the result of a decrease
in debt fee amortization due to our debt refinancing in 2002 and a decrease in
accounts receivable securitization financing fees due to decreased usage of our
securitization facility in the first quarter of 2003 compared with the same
period of 2002.
22
The provision for income taxes for the first quarter of 2003 was a benefit of
$2.3 million as compared with an expense of $3.5 million for the same period of
2002. The provision for both years reflects the impact of foreign income taxed
at rates greater than U.S. statutory rates, as well as state income taxes
payable, even though the Company incurred a loss for U.S. tax purposes.
Net loss before cumulative effect of change in accounting principle was
approximately $9.4 million for the first quarter of 2003 compared with a net
income of approximately $5.9 million for the same period of 2002, or a $15.3
million decrease. This decrease is primarily due to the factors discussed
above.
A non-cash, after-tax charge of $36.6 million was taken as of January 1, 2002
resulting from our transitional impairment test required to measure the amount
of any goodwill impairment of our former TriMas subsidiary, as required by SFAS
No. 142, "Goodwill and Other Intangible Assets." 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.
SEGMENT INFORMATION
Sales for our Chassis segment decreased 11.9% in the first quarter of 2003
versus the comparable period of 2002, primarily driven by the closure in June
2002 of one of its manufacturing facilities which resulted in a $4 million
decrease in sales quarter over quarter. Excluding the effect of this closed
facility, the Chassis segment's revenue remained consistent quarter over
quarter. Operating profit for the Chassis segment declined from $1.4 million in
the first quarter of 2002 to $0.3 million for the same period in 2003, while
Adjusted EBITDA declined from $3.3 million to $1.8 million for the same period.
The vast majority of the decrease related to the closure of the manufacturing
facility. Additionally, incremental lease expense of $0.2 million negatively
impacted performance in 2003 relative to 2002.
Our Engine segment revenue increased approximately 15.1% over the prior year
due principally to new product launches. Adjusting for the impact of currency
fluctuations, the Engine segment's revenues increased by approximately 11.9%
over the same period in 2002. Operating profit for the segment increased from
$8.9 million in the first quarter of 2002 to $11.7 million for the same period
in 2003, while Adjusted EBITDA increased from $18.3 million to $20.8 million
for the same period. The increase is primarily attributable to the increase in
sales but is offset by the $1.5 million charge related to the completion of its
restructuring actions initiated in mid-2002 and approximately $0.4 million of
incremental leasing expense.
Our Driveline segment revenue decreased 1.3% versus the comparable period of
2002, or approximately 4.8% after adjusting for currency fluctuations. In
addition to the decrease in North American vehicle build for our largest two
customers, the loss of certain customer contracts and continued pricing
pressure from our core North American customer base contributed to the decline.
The Driveline segment is rapidly working to replace these sales and has
received contracts beginning in 2003 that are expected to help mitigate the
effect of the lost business. Operating profit for the segment decreased from
$12.7 million in the first quarter of 2002 to $6.3 million in the first quarter
of 2003, while Adjusted EBITDA decreased from $23.2 million to $18.9 million in
the first quarter of 2002 and 2003, respectively. In addition to volume
declines, the primary drivers of this decrease relate to material price
increases for steel and aluminum combined with price concessions to customers
outweighing the manufacturing cost reductions and efficiencies we were able to
achieve during the quarter. Historically, price concessions to customers have
been offset by advancements in engineering or manufacturing processes that
allow us to take costs out of the system and pass them along to customers.
However, in 2003 the impact of the Section 201 steel tariffs and increases in
our cost to procure aluminum negatively impacted this historical relationship
and negatively impacted our 2003 performance. Further impacting our Driveline
segment were several operational issues experienced during the quarter ended
March 30, 2003, including difficulty in launching two new products, unexpected
maintenance issues in one of its high volume manufacturing facilities and the
consolidation of two of its manufacturing facilities. These issues were mostly
resolved by the quarter ended March 30, 2003, but negatively affected the
quarterly results by approximately $2 million.
Automotive/centralized resources ("Corporate") operating loss was $8.0 million
in the first quarter of 2003 versus $8.1 million for the comparable period in
2002, while Adjusted EBITDA was $(5.2) million and $(4.9) million for the first
quarter of 2003 and 2002, respectively. The decrease in Adjusted EBITDA
23
is primarily attributed to the write-off of $0.4 million of costs associated
with the termination of the VCST acquisition occurring in the first quarter of
2003. We are beginning to realize the benefits of our shared services
initiatives to centralize standard processes and reduce redundant costs
throughout our 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
have started to see a decrease in selling, general and administrative costs in
the Automotive segments in 2003.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. We had $93 million and $64 million of undrawn commitments under our
revolving credit facility and accounts receivable securitization facility,
respectively. Thus, total available liquidity exceeded $157 million as of March
30, 2003. The undrawn commitment level on the working capital revolver was
reduced to $50.0 million on March 31, 2003 due to increased restriction under
our credit facility. At March 30, 2003, our funding under the accounts
receivable securitization facility and revolving credit facility was $29
million.
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
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.
Debt, Capitalization and Available Financing Sources. In 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 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
principal commitment of $250 million. Both the revolving credit facility and
the term loan facility mature on 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.
Our debt as of March 30, 2003 and December 29, 2002 is summarized below.
(IN MILLIONS)
MARCH 30, DECEMBER 29,
2003 2002
--------- ------------
Senior credit facilities:
Tranche D term loan facility ......................................... $399 $399
Revolving credit facility ............................................ -- --
---- ----
Total senior credit facility .......................................... $399 $399
11% senior subordinated notes, due 2012 ............................... 250 250
Other debt ............................................................ 20 20
---- ----
Total long-term debt .................................................. 669 669
4.5% subordinated debentures, due 2003 (face value $98.5 million) ..... 93 91
Other current maturities .............................................. 8 9
---- ----
Total debt ............................................................ $770 $769
==== ====
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%
subordinated debentures, which will be retired utilizing the proceeds of this
offering, thereby freeing up the blocked availability. Further, we expect to
have available liquidity from our revolver and accounts receivable
securitization facility to repay our current debt maturities.
24
At March 30, 2003, we were contingently liable for standby letters of credit
totaling $35 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.
CASH FLOWS
Operating activities -- Operating activities provided $16.4 million of cash for
the first three months of 2003 as compared with $31.8 million in the comparable
period of 2002. This decrease is primarily due to the $15.2 million decrease in
net income and $11.0 million decrease in depreciation and amortization, offset
by a $10.3 million improvement in working capital.
Investing activities -- Investing activities resulted in a use of cash of $34.8
million for the first three months of 2003 as compared with a source of cash of
$3.7 million for the comparable period of 2002. This decrease is primarily the
result of our investment of $20 million in NC-M Chassis Systems, LLC joint
venture and a reduction in sale-leaseback transactions in the first three
months of 2003 as compared with 2002. Proceeds from sale-leaseback transactions
were $8.5 million for the first three months of 2003 as compared with $33.4
million for the comparable period in 2002. Capital expenditures were $23.3
million for the first three months of 2003 as compared with $27.3 million for
the comparable period of 2002, or a decrease of $4 million.
Financing activities -- Financing activities were a use of cash of $0.7 million
for the first three months of 2003 as compared to $34.1 million in the
comparable period of 2002. The decreased use of cash is primarily the result of
principal repayments on our term loan debt of $33.4 million for the first three
months of 2002, compared with $0.5 million for the comparable period in 2003.
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. The two
interest rate collars and two of the interest rate caps totaling $200 million
were redesignated to our new term loan borrowings in June 2002. 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.
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, or MTSPC, wholly owned by us.
MTSPC has sold and, subject to certain conditions, may from time to time sell
an undivided fractional ownership interest in the pool of domestic receivables,
up to approximately $225 million, to a third party multi-seller receivables
funding company, or conduit. Upon sale to the conduit, MTSPC holds a
subordinated retained interest in the receivables. Under the terms of the
agreement, new receivables are added to the pool as collections reduce
previously sold receivables. We service, administer and collect the receivables
on behalf of MTSPC and the conduit. The facility is an important source of
liquidity to the Company. The receivables facility resulted in net expense of
$1.7 million for the first three months of 2003.
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
25
of receivables or performance by a seller and certain events of bankruptcy or
insolvency. At March 30, 2003, $29 million of our $225 million receivables
facility was utilized, with an additional $64 million available based upon the
amount of our outstanding eligible receivables. 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 since 2001. In March 2003, we entered into a sale-leaseback
transaction with respect to certain manufacturing equipment for proceeds of
approximately $8.5 million. All of our sale-leasebacks are accounted for as
operating leases and the associated rent expense is included in our financial
results on a straight-line basis.
Certain Other Commitments. We have other cash commitments not relating to debt
as well, such as those in respect to 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, 2003 payment and restrictions under our credit facility, we paid
approximately $16.3 million in cash to vested holders of restricted stock in
January 2003. 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 March 30, 2003.
We also have outstanding $66.8 million in aggregate liquidation value of Series
A and Series B preferred stock in respect of which we have the option to pay
cash dividends, subject to the terms of our debt instruments, at rates of 13%
and 11.5%, respectively, per annum initially and to effect a mandatory
redemption in December 2012 and June 2013, 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.
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. We may seek
to monetize our share of this investment in the future.
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 March 30, 2003.
26
(IN MILLIONS)
PAYMENTS DUE BY PERIODS
LESS THAN 1-3 3-5 AFTER
TOTAL ONE YEAR YEARS YEAR 5 YEARS
------- --------- ------- ------ -------
Long-term debt .............................................. $ 399 $ 1 $ 2 $ 2 $394
11% Senior subordinated notes ............................... 250 -- -- -- 250
4.5% Convertible subordinated debentures .................... 98 98 -- -- --
Other debt .................................................. 17 2 8 7 --
Capital lease obligations ................................... 11 4 7 -- --
Operating lease obligations(1) .............................. 243 32 57 47 107
Redeemable preferred stock, including accrued dividends ..... 67 -- -- -- 67
Redeemable restricted common stock(2) ....................... 15 15 -- -- --
Pension contributions (data available through 2004) ......... 36 15 21 -- --
Contractual severance ....................................... 6 4 2 -- --
------ ---- --- --- ----
Total contractual obligations ............................... $1,142 $171 $97 $56 $818
- ----------
(1) Operating lease expense is deducted to arrive at operating profit.
(2) Redeemable restricted common stock includes TriMas' portion, consisting
of approximately 50% of total obligations, which will be reimbursed to
the Company.
At March 30, 2003, we were contingently liable for standby letters of credit
totaling $35 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 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 were effective
January 1, 2003. Additional reductions are attributable to the TriMas
disposition for both 2002 and 2003.
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 in 2002,
which indicated the fair value of these units exceeds their corresponding
carrying value. We completed this analysis again at December 29, 2002, 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,
27
operating profits and cash flows for this TriMas owned business were lower then
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 March 30, 2003, 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 March 30, 2003, we had stock options outstanding for 2,520,000
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. No additional stock options were granted for the three
months ended March 30, 2003. 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 $0.01 for the
three months ended March 30, 2003.
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 March 30, 2003.
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 $5 million for the
period ended March 30, 2003. The weighted average useful life of intangible
assets ranges from 8.2 years to 14.9 years as of March 30, 2003. 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 evironment in which they
operate as the functional currency, which for the most part represents
28
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 $3.7 million for the period ended March 30, 2003. 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 December 30, 2002, we adopted 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 are 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. As a result of our adoption of SFAS No. 145 an approximate $43.4
million, after tax, extraordinary loss on early extinguishment of debt recorded
in fiscal year ended December 29, 2002 will be reclassified to income from
continuing operations.
On December 30, 2002, we adopted 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. Accordingly,
all costs associated with exit or disposal activities will be recognized when
they are incurred effective with our 2003 fiscal year. This Statement did not
have a material effect on our financial condition or results of operations
On December 30, 2002, we also adopted Financial Accounting Standards Board
("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. FIN No.
45 did not have any impact on our financial condition, results of operations or
required disclosures.
29
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. It is possible
this pronouncement could require us to consolidate any variable interest
entities for which we are the primary beneficiary.
OUTLOOK
The recent war in the Middle East and the general economic uncertainty in the
marketplace have made it difficult to predict the economic outlook for the
remainder of the year. 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. 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.
Our largest raw material requirement is special bar quality steel. In response
to the imposed tariffs on imported steel and growing instability in the
domestic steel industry, Metaldyne has been negotiating with steel vendors and
customers, petitioning the government to repeal the steel tariffs and designing
re-sourcing strategies to mitigate the effect of the steel price increases.
OTHER MATTERS
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:
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.
30
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
quarterly report, regarding our strategy, future operations, financial
position, estimated revenues and losses, projected costs, prospects, plans and
objectives of management are forward-looking statements. When used in this
quarterly report, the words "will," "believe," "anticipate," "intend,"
"estimate," "expect," "project" and similar expressions are intended to
identify forward-looking statements, although not all forward-looking
statements contain such identifying words. All forward-looking statements speak
only as of the date of this quarterly report. You should not place undue
reliance on these forward-looking statements. Although we believe that our
plans, intentions and expectations reflected in or suggested by the
forward-looking statements we make in this quarterly report are reasonable, we
can give no assurance that these plans, intentions or expectations will be
achieved. We undertake no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 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" for details about our primary
market risks, and the objectives and strategies used to manage these risks.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90-day period prior to the date of this report, an evaluation was
carried out, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934.
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer implemented changes, primarily to formalize, document and enhance
existing procedures that are in place within the Company and concluded that our
disclosure controls and procedures are effective, in all material respects,
with respect to the recordings, processing, summarizing and reporting, within
the time periods specified in the SEC's rules and forms, of information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act.
There have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the
date of the evaluation described above.
31
PART II. OTHER INFORMATION
METALDYNE CORPORATION
ITEMS 1, 2, 3, 4 AND 5.
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(A) EXHIBITS:
---------
Exhibit 12 Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends.
Exhibit 99.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
Exhibit 99.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(B) REPORTS ON FORM 8-K:
--------------------
We filed a current report on Form 8-K on January 6, 2003, reporting
under Item 5, Other Events, that on January 2, 2003, Metaldyne
Corporation issued a press release announcing the closing of the
transactions contemplated by the Joint Venture Formation Agreement,
dated as of December 8, 2002, by and among NC-M Chassis Systems,
LLC, a newly formed Delaware limited liability company,
DaimlerChrysler Corporation and Metaldyne Corporation.
32
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
METALDYNE CORPORATION
---------------------
(REGISTRANT)
BY: /s/ William M. Lowe, Jr.
DATE: May 7, 2003 ---------------------------------
William M. Lowe, Jr.
Executive Vice President and
Chief Financial Officer
(Chief Accounting Officer and
Authorized Signatory)
33
CERTIFICATION
I, Timothy D. Leuliette, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Metaldyne
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: May 7, 2003 /s/ Timothy D. Leuliette
------------------------
Timothy D. Leuliette
Chief Executive Officer
34
CERTIFICATION
I, William M. Lowe, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Metaldyne
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
Consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: May 7, 2003 /s/ William M. Lowe, Jr.
------------------------
William M. Lowe, Jr.
Chief Financial Officer
35
METALDYNE CORPORATION
EXHIBIT INDEX
EXHIBIT
- -------
Exhibit 12 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.
Exhibit 99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Exhibit 99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
36