-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LrhCiS0+adqbjJWPsw9csAOGwmqZBxF7INNSUYr1Rk7uJk5s6GZTaS5Fk7k9NmFz R9ddzEOKRwRWrDwyzMxgEA== 0000950136-03-001108.txt : 20030508 0000950136-03-001108.hdr.sgml : 20030508 20030508100908 ACCESSION NUMBER: 0000950136-03-001108 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030430 FILED AS OF DATE: 20030508 FILER: COMPANY DATA: COMPANY CONFORMED NAME: METALDYNE CORP CENTRAL INDEX KEY: 0000745448 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 382513957 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12068 FILM NUMBER: 03687326 BUSINESS ADDRESS: STREET 1: 47659 HALYARD DRIVE CITY: PLYMOUTH STATE: MI ZIP: 48170 BUSINESS PHONE: 734-207-6200 MAIL ADDRESS: STREET 1: 47659 HALYARD DRIVE CITY: PLYMOUTH STATE: MI ZIP: 48170 FORMER COMPANY: FORMER CONFORMED NAME: MASCOTECH INC DATE OF NAME CHANGE: 19930629 FORMER COMPANY: FORMER CONFORMED NAME: MASCO INDUSTRIES INC DATE OF NAME CHANGE: 19930629 10-Q 1 file001.txt QUARTERLY REPORT ================================================================================ 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 ================================================================================ 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 EX-12 3 file002.txt COMPUTATION OF RATIO TO EARNINGS EXHIBIT 12 METALDYNE CORPORATION COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (DOLLARS IN THOUSANDS)
3 MONTHS ENDED YEAR ENDED FOR THE YEARS ENDED DECEMBER 31 MARCH 30 DECEMBER 29, ------------------------------------------------------------- -------------- ------------ 11/28 -- 12/31 1/1/ -- 11/27 2003 2002 2001 2000 2000 1999 1998 -------------- ------------ ---------- -------------- -------------- -------- --------- EARNINGS (LOSS) BEFORE INCOME TAXES AND FIXED CHARGES: Income (loss) from continuing operations before income taxes and cumulative effect of accounting change, net ........................ $(11,620) $ 4,970 $(47,930) $(42,600) $156,670 $139,470 $144,520 (Deduct) add equity in undistributed earnings (loss) of less-than-fifty percent owned companies .............. 2,630 1,410 (8,930) 1,000 (14,210) (9,800) (8,530) Add interest on indebtedness, net ...... 17,880 91,060 148,560 14,470 78,880 83,470 83,620 Add amortization of debt expense ....... 580 4,770 11,620 550 4,490 2,740 3,250 Estimated interest factor for rentals .. 3,060 12,460 9,730 310 2,970 3,710 3,620 -------- -------- -------- -------- -------- -------- -------- Earnings before income taxes and fixed charges ........................ $ 12,530 $114,670 $113,050 $(26,270) $228,800 $219,590 $226,480 ======== ======== ======== ======== ======== ======== ======== FIXED CHARGES: Interest on indebtedness, net ........ $ 17,880 $ 91,060 $148,560 $ 14,460 $ 78,640 $ 83,760 $ 84,080 Amortization of debt expense ......... 580 4,770 11,620 550 4,490 2,740 3,250 Estimated interest factor for rentals (d) ........................ 3,060 12,460 9,730 310 2,970 3,710 3,620 -------- -------- -------- -------- -------- -------- -------- Total fixed charges .................. 21,520 108,290 169,910 15,320 86,100 90,210 90,950 Preferred stock dividends (a) ........ 2,750 29,630 9,750 650 -- -- -- -------- -------- -------- -------- -------- -------- -------- Combined fixed charges and preferred stock dividends .......... $ 24,270 $137,920 $179,660 $ 15,970 $ 86,100 $ 90,210 $ 90,950 ======== ======== ======== ======== ======== ======== ======== RATIO OF EARNINGS TO FIXED CHARGES ..... --(b) 1.1 --(b) --(b) 2.7 2.4 2.5 ======== ======== ======== ======== ======== ======== ======== RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS. --(c) --(c) --(c) --(c) 2.7 2.4 2.5 ======== ======== ======== ======== ======== ======== ========
- --------- (a) Based on the Company's effective tax rate, represents the amount of income before provision for income taxes required to meet the preferred stock dividend requirements of the Company and its 50% owned companies. (b) Results of operations for the three months ended March 30, 2003, year ended December 31, 2001 and the 34 days ended December 31, 2000 are inadequate to cover fixed charges by $8,990, $56,860 and $41,590, respectively (c) Results of operations for the three months ended March 30, 2003, years ended December 29, 2002 and December 31, 2001 and the 34 days ended December 31, 2000 are inadequate to cover fixed charges and preferred stock dividends by $11,740, $23,250, $66,610 and $42,240, respectively. (d) Deemed to represent one-third of rental expense on operating leases. EX-99.1 4 file003.txt CERTIFICATION EXHIBIT 99.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (CHAPTER 63, TITLE 18 U.S.C. Section 1350(A) AND (B)) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chapter 63, Title 18 U.S.C. Section 1350(a) and (b)), each of the undersigned hereby individually certifies in his capacity as an officer of Metaldyne Corporation (the "Company") that the Quarterly Report of the Company on Form 10-Q for the period ended March 30, 2003 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company at the end of and for the periods covered by such Report. Date: May 7, 2003 /s/ Timothy D. Leuliette ------------------------ Timothy D. Leuliette Chief Executive Officer The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chapter 63, Title 18 U.S.C. Section 1350(a) and (b)), is not a part of the Form 10-Q to which it refers and is, to the extent permitted by law, provided by each of the above signatories to the extent of his respective knowledge. EX-99.2 5 file004.txt CERTIFICATION EXHIBIT 99.2 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (CHAPTER 63, TITLE 18 U.S.C. Section 1350(A) AND (B)) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chapter 63, Title 18 U.S.C. Section 1350(a) and (b)), each of the undersigned hereby individually certifies in his capacity as an officer of Metaldyne Corporation (the "Company") that the Quarterly Report of the Company on Form 10-Q for the period ended March 30, 2003 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company at the end of and for the periods covered by such Report. Date: May 7, 2003 /s/ William M. Lowe, Jr. ------------------------ William M. Lowe, Jr. Chief Financial Officer The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chapter 63, Title 18 U.S.C. Section 1350(a) and (b)), is not a part of the Form 10-Q to which it refers and is, to the extent permitted by law, provided by each of the above signatories to the extent of his respective knowledge. -----END PRIVACY-ENHANCED MESSAGE-----