1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549
---------------
FORM 10-Q
Quarterly Report Under Section[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) of the
Securities Exchange Act ofOF THE SECURITIES
EXCHANGE ACT OF 1934
For The Quarter Ended December 31, 1998
---------------------------------------
Commission File Number 0-19544
------------------------------the Transition Period From ________ to_________
- --------------------------------------------------------------------------------
COMMISSION FILE NUMBER 333-119215
AUTOCAM CORPORATION
A- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Michigan Corporation
I.R.S. Employer Identification No. 38-2790152
- ------------------------------------------------ -----------------------
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER
ORGANIZATION) IDENTIFICATION NO.)
4070 East Paris Avenue Southeast
Kentwood, Michigan 49512
Telephone:- ---------------------------------------------- -----------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (616) 698-0707
Indicate by check mark whether the Registrantregistrant: (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] NoYES [ ] TheNO [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES [ ] NO [X]
Indicate the number of Common Sharesshares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at February 8, 1999 was 6,306,624.
1 of 21November 12, 2004
------------------------------ ------------------------------------
COMMON STOCK, $10 PAR VALUE 14,340,000 SHARES
2
INDEX
PAGE NO.
--------
PART I - FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 2003 and JuneSeptember 30, 1998 42004 1
Consolidated Statements of Operations and Comprehensive Income (Loss)
for the Three and SixNine Months Ended December 31,
1998September 30, 2003 and 1997 52004 2
Consolidated Statements of Cash Flows for the SixNine Months Ended
December 31, 1998September 30, 2003 and 1997 62004 3
Notes to Consolidated Financial Statements 7 - 124
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13 - 2017
Item 3. Quantitative and Qualitative Disclosures about Market Risk 24
Item 4. Disclosure Controls and Procedures 25
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None.25
Item 2. Changes in Securities, - None.Use of Proceeds and Issuer Purchases of
Equity Securities 25
Item 3. DefaultDefaults Upon Senior Securities - None.25
Item 4. Submission of Matters to a Vote of SecuritySecurities Holders - None.25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K - None.Certifications 26
Signatures 27
2Exhibit 31.1 - CEO Certification
Exhibit 31.2 - CFO Certification
Exhibit 32.1 - CEO Certification
Exhibit 32.2 - CFO Certification
3
INDEXPART I - CONCLUDEDFINANCIAL INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
Exhibit 10.1 - Second Amended and Restated Revolving Credit and
Term Note Agreement, dated November 12, 1998, between Comerica
Bank, as agent, and the Registrant.
Exhibit 27 - Financial Data Schedule
Report on Form 8-K - The Company filed a Report on Form 8-K, dated
October 2, 1998 and amended on December 16, 1998, to report the
acquisition of the rights to all the outstanding common shares of
Compagnie Financiere du Leman SA ("CFL"), a French holding
corporation, which owns all of the equity interest of Frank &
Pignard SA, a French corporation, as required under Item 2 of Form
8-K. The following financial statement information was filed in
connection therewith:
Consolidated Balance Sheets of CFL as of September 30, 1998
(unaudited) and December 31, 1997, 1996 and 1995
Consolidated Statements of Operations of CFL for the Nine Months
Ended September 30, 1998 (unaudited) and the Years Ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows of CFL for the Nine Months
Ended September 30, 1998 (unaudited) and the Years Ended
December 31, 1997, 1996 and 1995
Notes to the Consolidated1. Financial Statements
of CFL
Pro Forma Combining Financial Information:
Description of Pro Forma Combining Financial Information
Pro Forma Combining Balance Sheet as of September 30, 1998
Pro Forma Combining Statements of Operations for the three
months ended September 30, 1998 and for the year ended
June 30, 1998.
Notes to Pro Forma Combining Financial Information
3
4
AUTOCAM CORPORATIONTITAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
DECEMBER 31, 1998
InSEPTEMBER 30,
2003 2004
---- ----
(predecessor) (successor)
Amounts in thousands, except share data (UNAUDITED) JUNE 30, 1998
----------------- -------------
information
Assets
Current assets:
Cash and equivalents $ 3,2441,075 $ 1,6442,075
Accounts receivable, 48,869 11,680net of allowances of $484 and $420, respectively 55,484 60,013
Inventories 17,351 6,38925,802 31,190
Prepaid expenses and other current assets 2,314 1,088
------------ ------------3,090 3,583
-------- --------
Total current assets 71,778 20,80185,451 96,861
Property, plant and equipment, net 136,644 64,421
Restricted cash and equivalents 4,278 5,008173,580 155,679
Goodwill and other intangible assets, net 29,346 14,366139,446 253,557
Other long-term assets 11,982 8,853
------------ ------------10,598 16,668
-------- --------
Total assets $ 254,028 $ 113,449
============ ============Assets $409,075 $522,765
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term obligations $ 1,65929,748 $ 6,5547,117
Accounts payable 30,033 7,83147,246 41,493
Accrued liabilities:
Compensation, related benefits and withholdings 10,073 1,956
Other 2,826 1,334
------------ ------------liabilities 15,017 22,410
-------- --------
Total current liabilities 44,591 17,67592,011 71,020
-------- --------
Long-term obligations, net of current maturities 127,820 37,851104,140 260,758
Deferred taxes 27,392 10,051
Deferred credits and other 6,171 561
Minority interest 2,605 2,25050,596 42,681
Shareholders' equity:
PreferredSeries A preferred stock - 200,000$.01 par value; 600,000 shares authorized; no shares
issued or outstanding
Common stock - 10,000,000 shares authorized; 6,305,062 and 6,102,568579,112 shares
issued and outstanding as of December 31, 2003 6
Series B preferred stock - $.01 par value; 400,000 shares authorized; 110,364 shares
issued and Juneoutstanding as of December 31, 2003 1
Common stock - $.01 par value; 8,000,000 shares authorized; 6,480,895 shares issued
and outstanding as of December 31, 2003 65
Common stock - $10 par value; 20,000,000 shares authorized; 14,340,000
shares issued and outstanding as of September 30, 1998, respectively
34,539 31,840
Deferred compensation (413) (491)2004 143,400
Additional paid-in capital 137,824
Accumulated other comprehensive income including related tax
benefits (407) (34)2,178 5,046
Retained earnings 11,730 13,746
------------ ------------(accumulated deficit) 22,254 (140)
-------- --------
Total shareholders' equity 45,449 45,061
------------ ------------162,328 148,306
-------- --------
Total liabilitiesLiabilities and shareholders' equity $ 254,028 $ 113,449
============ ============Shareholders' Equity $409,075 $522,765
======== ========
See notes to consolidated financial statements.
41
5
AUTOCAM CORPORATIONTITAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (unaudited)(LOSS)
(UNAUDITED)
FOR THE
THREE MONTHS ENDED FOR THENINE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31,
------------------------------ -----------------------------
In thousands, except per share data 1998 1997 1998 1997
------------ ------------ ------------ ------------THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
2003 2003 2004 2004
---- ---- ---- ----
(predecessor) (successor)
----------------------------------------------------------
Amounts in thousands
Sales $73,154 $239,983 $ 54,405 $ 21,795 $ 78,424 $ 39,224184,489 $80,249
Cost of sales 45,727 16,480 66,306 30,500
------------ ------------ ------------ ------------64,216 207,086 153,426 68,348
-------- -------- --------- --------
Gross profit 8,678 5,315 12,118 8,7248,938 32,897 31,063 11,901
Selling, general and administrative 2,678 1,376 4,472 2,424
------------ ------------ ------------ ------------expenses 4,356 13,079 17,337 5,244
-------- -------- --------- --------
Income from operations 6,000 3,939 7,646 6,3004,582 19,818 13,726 6,657
Interest and other expense, net 2,304 647 3,094 1,255
Minority interest in2,234 7,161 4,666 5,705
Other expenses, net income 185 338
------------ ------------ ------------ ------------2,298 4,095 3,672 681
-------- -------- --------- --------
Income before tax provision 3,511 3,292 4,214 5,04550 8,562 5,388 271
Tax provision 1,412 1,188 1,938 1,806
------------ ------------ ------------ ------------
NET INCOME166 3,672 3,211 411
-------- -------- --------- --------
Net Income (Loss) ($ 116) $ 2,0994,890 $ 2,104 $ 2,276 $ 3,239
============ ============ ============ ============
BASIC NET INCOME PER SHARE $ .33 $ .33 $ .36 $ .51
============ ============ ============ ============
DILUTED NET INCOME PER SHARE $ .32 $ .32 $ .35 $ .50
============ ============ ============ ============
Basic weighted average shares outstanding 6,352 6,325 6,383 6,315
Diluted weighted average shares outstanding 6,553 6,517 6,585 6,490
Dividends declared per share $ .04 $ .02 $ .06 $ .042,177 ($ 140)
======== ======== ========= ========
Statements of Comprehensive Income:Income (Loss):
Net income (loss) ($ 116) $ 2,0994,890 $ 2,104 $ 2,276 $ 3,2392,177 ($ 140)
Other comprehensive income:income (loss):
Foreign currency translation adjustments (113) (373)
Tax benefit 40 131
------------ ------------24 3,496 (1,138) 5,046
Amortization of interest rate agreements 67 202 135
-------- -------- --------- --------
Comprehensive Income (Loss) ($ 25) $ 8,588 $ 1,174 $ 4,906
======== ======== ========= ========
See notes to consolidated financial statements.
2
TITAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SIX MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
2003 2004 2004
---- ---- ----
(predecessor) (successor)
----------------------------------------
Amounts in thousands
Net cash provided by (used in) operating activities $ 28,009 $ 10,694 ($ 409)
Cash flows from investing activities:
Expenditures for property, plant and equipment (16,634) (10,676) (5,487)
Proceeds from sale of property, plant and equipment 6,018 808 333
Other comprehensive income, net (73) (242)(1,434) (339) 307
------------ ------------ ------------
Net cash used in investing activities (12,050) (10,207) (4,847)
------------ Comprehensive income------------ ------------
Cash flows from financing activities:
Borrowings (repayments) on lines of credit, net (1,146) (3,531) 2,000
Proceeds from issuance of long-term obligations 549 247,248 270
Principal payments of long-term obligations (19,712) (109,940) (1,529)
Payments to shareholders and option holders (232,663)
Shareholder contributions 115,400
Debt issue costs (10,855) (675)
------------ ------------ ------------
Net cash provided by (used in) financing activities (20,309) 5,659 66
------------ ------------ ------------
Effect of exchange rate changes on cash and equivalents (22) (18) 62
------------ ------------ ------------
Increase (decrease) in cash and equivalents (4,372) 6,128 (5,128)
Cash and equivalents at beginning of period 4,996 1,075 7,203
------------ ------------ ------------
Cash and Equivalents at End of Period $ 2,026624 $ 2,1047,203 $ 2,034 $ 3,239
============2,075
============ ============ ============
See notes to consolidated financial statements.
53
6
AUTOCAM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED
DECEMBER 31,
----------------------------
In thousands 1998 1997
----------- -----------
Cash Flows from Operating Activities:
Cash received from customers $ 71,145 $ 37,289
Cash paid to suppliers and employees (60,060) (26,873)
Income taxes paid (264) (130)
Interest paid (3,271) (1,352)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,550 8,934
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures and deposits on equipment (13,688) (6,797)
Proceeds from sale of equipment 172 227
Acquisitions, net of cash received (53,907) (1,222)
Payment of life insurance premiums and other (272) (274)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (67,695) (8,066)
----------- -----------
Cash Flows from Financing Activities:
Borrowings under (repayments on) lines of credit, net 14,508 (634)
Proceeds from issuance of long-term obligations 73,466 9,625
Principal payments of long-term obligations (24,048) (2,972)
Decrease (increase) in restricted cash and equivalents 730 (8,921)
Debt issue costs (1,460) (181)
Cash dividends paid (246) (231)
Repurchase of common shares (1,438)
Capital contribution from minority shareholder 147
Proceeds from exercise of employee stock options and other 91 202
----------- -----------
Net cash provided by (used in) financing activities 61,750 (3,112)
----------- -----------
Effect of exchange rate changes on cash and equivalents (5)
----------- -----------
Net increase (decrease) in cash and equivalents 1,600 (2,244)
Cash and equivalents at beginning of period 1,644 2,510
----------- -----------
Cash and equivalents at end of period $ 3,244 $ 266
=========== ===========
See notes to consolidated financial statements.
6
7
AUTOCAM CORPORATIONTITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998SEPTEMBER 30, 2004
(UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial statements (the
"Financial Statements") include the accounts of Autocam CorporationTitan Holdings, Inc. ("Titan")
and its subsidiaries (together, the "Company"), which includes Autocam
Corporation ("Autocam"), a wholly-owned subisidary. The Financial Statements
have been prepared pursuant toin accordance with accounting principles generally accepted
in the rules and regulationsUnited States of the
Securities and Exchange Commission.America ("GAAP") for interim financial information.
Accordingly, the Financial Statementsthey do not include all the information and footnotes normally
included in the annual consolidated financial statements prepared in accordance
with generally accepted
accounting principles.GAAP. All significant intercompany accounts and transactions have been
eliminated in consolidation. All currency amounts within these footnotes are
expressed in thousands of U.S. dollars unless otherwise noted.
In the opinion of management, the Financial Statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
such information in accordance with generally accepted accounting principles.
These Financial Statements should be readOn June 21, 2004, Micron Merger Corporation, a newly formed entity and
wholly-owned subsidiary of Micron Holdings, Inc. ("Micron"), merged with and
into Titan with Titan continuing as the surviving corporation (the
"Acquisition"). As a result, Titan became a wholly-owned subsidiary of Micron.
The total amount of consideration paid in conjunctionthe Acquisition, including amounts
related to the repayment of indebtedness, the redemption of the outstanding
preferred stock of Titan, payments to common shareholders of Titan and the
payment of transaction costs incurred by Titan, was $395,000. The Acquisition
was financed with the net proceeds from the issuance of $140,000 of senior
subordinated notes of the Company, which are guaranteed by Titan (the "Notes"),
borrowings under the Company's new senior credit facilities of $114,000 and
combined common equity contributions of $143,400 by GS Capital Partners 2000,
L.P. ("GSCP 2000"), other private equity funds affiliated with GSCP 2000,
Transportation Resource Partners LP ("TRP"), other investment vehicles
affiliated with TRP, and certain of the Company's management.
Successor periods - Represents the consolidated financial statementsposition and
footnotes thereto includedconsolidated results of operations and cash flows of the Company reflecting the
basis of accounting after purchasing accounting for the Acquisition.
Predecessor periods - Represents the consolidated financial position and results
of operations and cash flows of the Company reflecting the historical basis of
accounting without any application of purchase accounting for the Acquisition.
Stock-based compensation -- The Company applies Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations, in accounting for its stock-based compensation plan. This plan
was terminated in connection with the Acquisition. Under APB No. 25, no
stock-based employee compensation cost is reflected in the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1998.
Weighted average shares outstanding and earnings per share for the three and six
months ended December 31, 1997 have been restated to give effect to a 5% share
dividend declared on October 28, 1998 and paid on November 16, 1998 to
shareholdersresults of record on November 2, 1998.
Reclassifications - Certain reclassifications have been madeoperations
as all options granted under this plan had an exercise price equal to the
Balance
Sheet as of June 30, 1998 and to the Statements of Operations and Comprehensive
Income for the three and six months ended December 31, 1997 in order to conform
to fiscal 1999 presentations.
2. BUSINESS COMBINATION
Effective October 1, 1998, the Company, through its wholly-owned subsidiary,
Autocam France SARL ("AF"), a French limited liability company, acquired the
rights to all the outstanding common shares of Compagnie Financiere du Leman SA
("CFL"), a French holding corporation, which owns allestimated market value of the equity interestunderlying common stock on the date of Frank & Pignard SA, a French corporation ("F&P") for 300 million French Francs
("FF"). The Company has agreed to pay a maximum additional amountthe grant.
Had stock-based employee compensation cost of FF60
millionthe Company's stock option plan
been determined based upon the ability of F&P to meet certain predetermined operating
performance goals in 1999.
F&P, located in Cluses, France, is a leading manufacturer of precision-machined
metal components consisting primarily of power steering, diesel fuel injection
and braking system components to leading global automotive manufacturers and
their tier-one suppliers. Throughfair value at the stock purchase, which was accountedgrant dates for awards under
this plan consistent with the purchase method of accounting, AF acquired allStatement of Financial Accounting
Standard ("SFAS") No. 123, Accounting for Stock-Based Compensation, as amended
by SFAS No. 148, Accounting for Stock-Based Compensation -- Transition and
Disclosure, the operating assets of
F&P, which includes its machinery and equipment and leases ofCompany's net income (loss) would have changed to the manufacturing
facilities, and assumed all its liabilities, including $20 million in bank debt.
7pro forma
amounts indicated below:
4
8
AUTOCAM CORPORATIONTITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBERSEPTEMBER 30, 2004
(UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES - CONCLUDED
THREE MONTHS NINE MONTHS SIX MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
2003 2003 2004
---- ---- ----
(predecessor)
----------------------------------------------------------------
As reported ($ 116) $ 4,890 $ 2,177
Compensation expense, net of related tax effects (140) (420) (280)
-------- --------- --------
Pro forma ($ 256) $ 4,470 $ 1,897
======== ========= ========
The fair value value approach was used to value all option grants, with the
following weighted-average assumptions: risk-free interest rate, 4%-4.88%; and
expected life of options, 10 years.
Guarantees -- The Company guarantees the performance under certain equipment
leases of an unrelated vendor that provides services to the Company within one
of the Company's European production facilities. The cost associated with those
services is reflected in Cost of Sales. The obligations under these leases end
at various times between May 2004 and February 2009. At December 31, 19982003 and
September 30, 2004, the Company's maximum liability under these guarantees was
$6,494 and $5,252, respectively, which were not recorded in the Financial
Statements. In the event of default by the vendor, the Company would become
primarily responsible for the lease obligations and assume control of the
equipment subject to the lease which has a fair market value in excess of the
present value of the future minimum lease payments.
2. BUSINESS COMBINATION
- CONCLUDED
The Acquisition described in Note 1 was accounted for as a purchase, and
accordingly, the purchase price was financed through a $140 million credit facility withallocated to assets acquired and liabilities
assumed based upon their preliminary relative fair market values. Cost in excess
of the fair value of the net assets acquired (goodwill) was $249,371, allocated
among the Company's primary lending institution,operating segments as agent (the "Agreement"), which
includes a $70 million five-year revolving credit facility, a FF281 million ($50
million) five-year acquisition term note used directly to fund the purchasefollows: North America - $116,227,
Europe - $124,486 and South America - $8,658. Goodwill deductible for tax
purposes will be approximately $4,200. The results of F&P,operations and a FF112 million ($20 million) six-year term note used to refinance
existing F&P debt.
The followingcash flows
of Titan (as Predecessor company) have been reported through June 30, 2004.
Set forth below are unaudited pro forma combining condensed statements of operations information for
the nine months ended September 30, 2003 and the six months ended December 31, 1998 and 1997June 30, 2004,
which are based upon the historical consolidated statementsConsolidated Statements of operationsOperations of the
Company and the
consolidated statements of operations of CFL for those periods presented, after giving effect to the acquisitionAcquisition as if such
transaction had occurred on July 1,
1997.at the beginning of each period presented. These pro
forma results are based upon assumptions considered appropriate by Company
management and include adjustments as considered necessary in the circumstances.
Such adjustments include interest expense that would have been incurred to
finance the purchase, less depreciation expense based on the fair market value of the
property and equipment acquired the amortization of
goodwill arising from the transaction ($18.2 million), and the corresponding tax effects of the pro forma adjustments.each. These
pro forma results have been prepared for comparative purposes only and do not
purport to be indicative of results which would have actually been reported had
the acquisitionsAcquisition taken place on July
1, 1997at the beginning of each period presented or which
may be reported in the future.
FOR THE SIX MONTHS ENDED
DECEMBER 31,
In thousands, except per share data (UNAUDITED)
--------------------------
1998 1997
---------- ----------
Sales $ 98,115 $ 77,546
Net income 2,419 4,266
Diluted net income per share $ .37 $ .66
3. INVENTORIES
Inventories consist of the following:
DECEMBER 31, 1998
In thousands (unaudited) JUNE 30, 1998
----------------- ------------
Raw materials $ 3,256 $ 1,510
Production supplies 2,871 1,249
Work in-process 7,721 2,501
Finished goods 3,503 1,129
------------ ------------
Total inventories $ 17,351 $ 6,389
============ ============
85
9
AUTOCAM CORPORATIONTITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998SEPTEMBER 30, 2004
(UNAUDITED)
2. BUSINESS COMBINATION - CONCLUDED
NINE MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, JUNE 30,
2003 2004
---- ----
Sales $239,983 $184,489
Net income 309 6,649
3. INVENTORIES
Set forth below are the components of Inventories:
DECEMBER 31, SEPTEMBER 30,
2003 2004
---- ----
(predecessor) (successor)
Raw materials $ 7,664 $ 9,358
Production supplies 4,836 5,987
Work in-process 9,336 11,631
Finished goods 3,966 4,214
---------- ----------
Total Inventories $ 25,802 $ 31,190
========== ==========
4. PROPERTY, PLANT AND EQUIPMENT, NET
Set forth below are the components of Property, plantPlant and equipment consists of the following:Equipment, Net:
DECEMBER 31, 1998
In thousands (UNAUDITED) JUNESEPTEMBER 30,
1998
----------------- ------------2003 2004
---- ----
(predecessor) (successor)
Land and improvements $ 1,904 $ 1,769
Buildings and improvements 9,770 6,815
Leasehold improvements 478 418land $ 14,222 $ 9,771
Machinery and equipment 148,268 73,222210,273 139,990
Furniture and fixtures 4,776 3,932
Construction in progress 43 2,450
------------ ------------8,444 9,134
---------- ----------
Total 165,239 88,606232,939 158,895
Accumulated depreciation (59,359) (3,216)
---------- ----------
Total Property, Plant and amortization (28,595) (24,185)Equipment, Net $ 173,580 $ 155,679
========== ==========
6
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2004
(UNAUDITED)
4. PROPERTY, PLANT AND EQUIPMENT, NET - CONCLUDED
In connection with the Acquisition, the Company restated the historical cost of
its property, plant and equipment to fair market appraised values and eliminated
all historical accumulated depreciation.
5. LONG-TERM OBLIGATIONS
Set forth below are the components of Long-Term Obligations (percentages
represent interest rates as of September 30, 2004):
DECEMBER 31, SEPTEMBER 30,
2003 2004
---- ----
(predecessor) (successor)
New Senior Credit Facility:
USD term note, 5.0% $ 32,918
Euro term note, 5.12% 76,832
Multi-currency revolving line of credit, 5.0% 13,000
Old senior credit facility retired in connection with the Acquisition $ 124,082
---------- ----------
Total senior credit facility 124,082 122,750
Senior subordinated notes, 10.875%, net of original issue discount 136,954
Capital leases, from 2.14% to 8.13% 6,793 5,523
Other 3,013 2,648
---------- ----------
Total long-term obligations 133,888 267,875
Current portion (29,748) (7,117)
---------- ----------
Long-term portion $ 104,140 $ 260,758
========== ==========
At the time of the Acquisition, Autocam refinanced its former senior credit
facility with proceeds from the financings from the Acquisition. In connection
therewith, Titan and certain, but not all, of the subsidiaries of Autocam fully
and unconditionally guaranteed the Notes.
The following table sets forth the guarantor and non-guarantor subsidiaries of
Autocam with respect to the Notes:
GUARANTOR SUBSIDIARIES NON-GUARANTOR SUBSIDIARIES
---------------------- --------------------------
Autocam-Pax, Inc. Autocam-Har, Inc.
Autocam Acquisition, Inc. Autocam France, SARL
Autocam Laser Technologies, Inc. Frank & Pignard, SA
Autocam International Ltd. Bouverat Industries, SA
Autocam Europe, B.V. Autocam do Brasil Usinagem Ltda.
Autocam International Sales Corporation Autocam Foreign Sales Corporation
Autocam Greenville, Inc.
Autocam South Carolina, Inc.
7
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2004
(UNAUDITED)
5. LONG-TERM OBLIGATIONS - CONTINUED
Information regarding the guarantors and non-guarantors are as follows:
TITAN
COMBINING STATEMENT OF OPERATIONS (PARENT SUBSIDIARIES
THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPANY ---------------------------
(predecessor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- ------------------------------------- ----- -------- --------- ------------- ------------ --------
Sales $27,636 $ 4,521 $42,247 ($ 1,250) $73,154
Cost of sales 24,662 3,676 37,128 (1,250) 64,216
-------- -------- ------- --------
Gross profit 2,974 845 5,119 8,938
Selling, general and administrative expenses 1,634 303 2,419 4,356
-------- -------- ------- --------
Income from operations 1,340 542 2,700 4,582
Interest expense, net 592 151 1,491 2,234
Other expense (income), net $ 9 1,894 (1) 396 2,298
------- -------- -------- ------- --------
Income (loss) before tax provision (9) (1,146) 392 813 50
Tax provision (3) (389) 133 425 166
------- -------- -------- ------- --------
Net Income (Loss) ($ 6) ($ 757) $ 259 $ 388 ($ 116)
======= ======== ======== ======= ========
TITAN
COMBINING STATEMENT OF OPERATIONS (PARENT SUBSIDIARIES
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPANY ---------------------------
(predecessor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- ------------------------------------ ----- ------- --------- ------------- ------------ --------
Sales $88,961 $ 12,666 $142,023 ($ 3,667) $239,983
Cost of sales 76,859 10,263 123,631 (3,667) 207,086
------- -------- -------- --------
Gross profit 12,102 2,403 18,392 32,897
Selling, general and administrative expenses 4,470 950 7,659 13,079
------- -------- -------- --------
Income from operations 7,632 1,453 10,733 19,818
Interest expense, net 1,705 442 5,014 7,161
Other expense (income), net $ 28 2,530 (2) 1,539 4,095
------- ------- -------- -------- --------
Income (loss) before tax provision (28) 3,397 1,013 4,180 8,562
Tax provision (10) 1,182 345 2,155 3,672
------- ------- -------- -------- --------
Net Income (Loss) ($ 18) $ 2,215 $ 668 $ 2,025 $ 4,890
======= ======= ======== ======== ========
8
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2004
(UNAUDITED)
5. LONG-TERM OBLIGATIONS - CONTINUED
TITAN
COMBINING STATEMENT OF OPERATIONS (PARENT SUBSIDIARIES
SIX MONTHS ENDED JUNE 30, 2004 COMPANY ---------------------------
(predecessor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- --------------------------------- ----- ------- --------- ------------- ------------ --------
Sales $64,212 $ 11,061 $112,477 ($ 3,261) $184,489
Cost of sales 55,053 7,848 93,786 (3,261) 153,426
------- -------- -------- --------
Gross profit 9,159 3,213 18,691 31,063
Selling, general and administrative expenses $ 6,438 5,214 591 5,094 17,337
-------- ------- -------- -------- --------
Income (loss) from operations (6,438) 3,945 2,622 13,597 13,726
Interest expense, net 1,472 291 2,903 4,666
Other expense, net 19 2,358 21 1,274 3,672
-------- ------- -------- -------- --------
Income (loss) before tax provision (6,457) 115 2,310 9,420 5,388
Tax provision (2,195) 38 801 4,567 3,211
-------- ------- -------- -------- --------
Net Income (Loss) ($ 4,262) $ 77 $ 1,509 $ 4,853 $ 2,177
======== ======= ======== ======== ========
TITAN
COMBINING STATEMENT OF OPERATIONS (PARENT SUBSIDIARIES
THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPANY ---------------------------
(successor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- ------------------------------------- ----- -------- --------- ------------- ------------ --------
Sales $28,807 $4,342 $48,936 ($ 1,836) $ 80,249
Cost of sales 25,322 3,393 41,469 (1,836) 68,348
-------- ------ ------- ---------
Gross profit 3,485 949 7,467 11,901
Selling, general and administrative expenses 2,453 293 2,498 5,244
-------- ------ ------- ---------
Income from operations 1,032 656 4,969 6,657
Interest expense, net 4,096 150 1,459 5,705
Other expense, net $ 9 358 314 681
---- -------- ------ ------- ---------
Income (loss) before tax provision (9) (3,422) 506 3,196 271
Tax provision (3) (1,166) 177 1,403 411
---- -------- ------ ------- ---------
Net Income (Loss) ($ 6) ($ 2,256) $ 329 $ 1,793 ($ 140)
==== ======== ====== ======= =========
9
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2004
(UNAUDITED)
5. LONG-TERM OBLIGATIONS - CONTINUED
CONDENSED COMBINING STATEMENT TITAN
OF CASH FLOWS (PARENT SUBSIDIARIES
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPANY ---------------------------
(predecessor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR COMBINED
- ------------------------------------ ----- ------- --------- ------------- --------
Net cash provided by (used in) operating activities ($10) $ 6,510 $1,382 $20,127 $ 28,009
Expenditures for property, plant and equipment (6,897) (1,356) (8,381) (16,634)
Proceeds from sale of property, plant and equipment 5,897 1 120 6,018
Borrowings (repayments) on lines of credit, net 5,000 (6,146) (1,146)
Principal payments of long-term obligations (8,493) (11,219) (19,712)
Other (2,304) (27) 1,424 (907)
----- ------- ------ ------- --------
Net increase (decrease) in cash and equivalents (10) (287) (4,075) (4,372)
Cash and equivalents at beginning of period 10 376 2 4,608 4,996
----- ------- ------ ------- --------
Cash and Equivalents at End of Period $ 89 $ 2 $ 533 $ 624
===== ======= ====== ======= ========
CONDENSED COMBINING STATEMENT TITAN
OF CASH FLOWS (PARENT SUBSIDIARIES
SIX MONTHS ENDED JUNE 30, 2004 COMPANY ---------------------------
(predecessor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR COMBINED
- ------------------------------ ----- ------- --------- ------------- --------
Net cash provided by (used in) operating activities ($ 6,457) $ 2,206 $ 207 $ 14,738 $ 10,694
Expenditures for property, plant and equipment (3,880) (205) (6,591) (10,676)
Borrowings (repayments) on lines of credit, net (1,280) 21,829 (24,080) (3,531)
Proceeds from issuance of long-term obligations 169,888 77,360 247,248
Principal payments of long-term obligations (51,268) (58,672) (109,940)
Payments to shareholders and option holders (232,663) (232,663)
Shareholder contributions 115,400 115,400
Dividends received (paid) 125,000 (125,000)
Debt issue costs (10,855) (10,855)
Other (145) 596 451
--------- -------- ----- -------- ----------
Net increase in cash and equivalents 2,775 2 3,351 6,128
Cash and equivalents at beginning of period 750 2 323 1,075
--------- -------- ----- -------- ----------
Cash and Equivalents at End of Period $ 3,525 $ 4 $ 3,674 $ 7,203
========= ======== ===== ======== ==========
10
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2004
(UNAUDITED)
5. LONG - TERM OBLIGATIONS - CONTINUED
CONDENSED COMBINING STATEMENT TITAN
OF CASH FLOWS (PARENT SUBSIDIARIES
THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPANY ----------------------------
(successor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR COMBINED
- ------------------------------------- ----- ------- --------- ------------- --------
Net cash provided by (used in) operating activities ($ 4,574) $ 782 $ 3,383 ($ 409)
Expenditures for property, plant and equipment (815) (783) (3,889) (5,487)
Borrowings on lines of credit, net 2,000 2,000
Proceeds from issuance of long-term obligations 270 270
Principal payments of long-term obligations (82) (1,447) (1,529)
Debt issue costs (675) (675)
Other 737 (35) 702
-------- ----- --------- --------
Net decrease in cash and equivalents (3,409) (1) (1,718) (5,128)
Cash and equivalents at beginning of period 3,525 4 3,674 7,203
-------- ----- --------- --------
Cash and Equivalents at End of Period $116 $ 3 $ 1,956 $ 2,075
======== ===== ========= ========
11
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2004
(UNAUDITED)
TITAN
CONDENSED COMBINING BALANCE SHEET (PARENT SUBSIDIARIES
DECEMBER 31, 2003 COMPANY ---------------------------
(predecessor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- --------------------------------- ----- ------- --------- ------------- ------------ --------
Assets
Current assets:
Cash and equivalents $ 750 $ 2 $ 323 $ 1,075
Accounts receivable, net 13,524 1,757 40,203 55,484
Inventories 8,052 1,060 16,690 25,802
Prepaid expenses and other current assets 1,616 52 1,422 3,090
-------- -------- -------- --------
Total current assets 23,942 2,871 58,638 85,451
Property, plant and equipment, net 40,899 8,945 123,602 $ 136,644134 173,580
Goodwill $122,521 2,688 14,237 139,446
Intercompany receivables (payables) 40,513 (5,863) (33,437) (1,213)
Investment in subsidiaries 9,136 (15,014) (1,806) 9,831 (2,147)
Other long-term assets 7,106 106 3,386 10,598
--------- -------- -------- -------- -------- --------
Total Assets $131,657 $100,134 $ 64,421
============ ============
5. LONG-TERM OBLIGATIONS
Long-term4,253 $176,257 ($ 3,226) $409,075
========= ======== ======== ======== ======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term obligations consist of the following (interest rates are as of
December 31, 1998):
DECEMBER 31, 1998
In thousands (UNAUDITED) JUNE 30, 1998
----------------- -------------
Revolving credit loan with banks, 5.32-7.625% $ 47,1624,656 $ 7,001
Acquisition term note with banks, 7.07% 50,263
Term note with banks, 3.82% 20,007 22,051
Industrial Revenue Bonds, 4.2% 8,615 9,000
Note25,092 $ 29,748
Accounts payable to Propart Corporation, 12% 1,551 4,320
Lines8,255 $ 290 38,906 ($ 205) 47,246
Accrued liabilities ($ 5) 3,062 238 11,722 15,017
--------- -------- -------- -------- -------- --------
Total current liabilities (5) 15,973 528 75,720 (205) 92,011
--------- -------- -------- -------- -------- --------
Long-term obligations, net of creditcurrent maturities 50,612 54,555 (1,027) 104,140
Deferred taxes and other 1,881 2,033
------------ ------------15,304 35,292 50,596
Shareholders' equity:
Capital stock 137,896 1,994 (1,994) 137,896
Accumulated other comprehensive income (loss) 6,812 (4,634) 2,178
Retained earnings (accumulated deficit) (6,234) 11,433 3,725 13,330 22,254
--------- -------- -------- -------- -------- --------
Total 129,479 44,405
Current maturities (1,659) (6,554)
------------ ------------
Long-termshareholders' equity 131,662 18,245 3,725 10,690 (1,994) 162,328
--------- -------- -------- -------- -------- --------
Total Liabilities and Shareholders' Equity $131,657 $100,134 $ 127,820 $ 37,851
============ ============4,253 $176,257 ($ 3,226) $409,075
========= ======== ======== ======== ======== ========
In connection with the Agreement, all of the Company's existing debt due its
primary lending institution was refinanced using a $70 million revolving credit
facility. There are no principal obligations due under the Agreement for more
than one year. Interest is due monthly on all facilities under the Agreement at
variable interest rates. The Agreement includes certain covenants requiring the
Company to maintain minimum levels of tangible net worth and prohibits the
Company from exceeding certain leverage ratios.
912
10
AUTOCAM CORPORATIONTITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998SEPTEMBER 30, 2004
(UNAUDITED)
5. LONG - TERM OBLIGATIONS - CONCLUDED
TITAN
CONDENSED COMBINING BALANCE SHEET (PARENT SUBSIDIARIES
SEPTEMBER 30, 2004 COMPANY --------------------------
(successor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- --------------------------------- ----- ------- --------- ------------- ------------ --------
Assets
Current assets:
Cash and equivalents $ 117 $ 2 $ 1,956 $ 2,075
Accounts receivable, net 20,813 2,199 37,001 60,013
Inventories 9,279 1,351 20,560 31,190
Prepaid expenses and other current assets 1,987 132 1,464 3,583
-------- -------- -------- --------
Total current assets 32,196 3,684 60,981 96,861
Property, plant and equipment, net 28,462 5,595 121,203 $ 419 155,679
Goodwill $116,299 137,258 253,557
Intercompany receivables (payables) 29,896 (4,978) (24,602) (316)
Investment in subsidiaries 27,063 100,631 (3,458) (123,815) (421)
Other long-term assets 1 11,192 99 5,376 16,668
-------- -------- -------- -------- -------- --------
Total Assets $143,363 $202,377 $ 942 $176,401 ($ 318) $522,765
======== ======== ======== ======== ======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term obligations $ 330 $ 6,787 $ 7,117
Accounts payable 7,982 $ 305 33,521 ($ 315) 41,493
Accrued liabilities $ (28) 5,257 308 16,876 (3) 22,410
-------- -------- -------- -------- -------- --------
Total current liabilities (28) 13,569 613 57,184 (318) 71,020
-------- -------- -------- -------- -------- --------
Long-term obligations, net of current maturities 182,570 78,188 260,758
Deferred taxes and other 7,972 34,709 42,681
Shareholders' equity:
Capital stock 143,400 143,400
Accumulated other comprehensive income 519 4,525 5,046
Retained earnings (accumulated deficit) (9) (2,253) 329 1,795 (140)
-------- -------- -------- -------- -------- --------
Total shareholders' equity 143,391 (1,734) 329 6,320 148,306
-------- -------- -------- -------- -------- --------
Total Liabilities and Shareholders' Equity $143,363 $202,377 $ 942 $176,401 ($ 318) $522,765
======== ======== ======== ======== ======== ========
13
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2004
(UNAUDITED)
6. INCOME TAXES
Income taxes asBUSINESS SEGMENT INFORMATION
The Company has three operating segments: North America, Europe and South
America. The North American segment provides precision-machined components
primarily to the transportation and medical devices industries, while the
European and South American segments provide precision-machined components
primarily to the transportation industry. The Company has a percentagesmall operation in
China that is grouped with its European operations for business segmentation
purposes. The Company has assigned specific business units to a segment based
principally on their geographical location. Each of the Company's segments is
individually managed and have separate financial results reviewed by the
Company's chief executive and operating decision-makers. These results are used
by those individuals both in evaluating the performance of, and in allocating
current and future resources to, each of the segments. The Company evaluates
segment performance primarily based on income before tax provisionfrom operations and minority
interest were 38.2%the efficient
use of assets. Set forth below is business segment information for the three and
36.1% fornine months ended September 30, 2003, the six months ended June 30, 2004 and the
three months ended September 30, 2004 and as of December 31, 19982003 and 1997, respectively, and 42.6% and 35.8% for the six months ended December 31,
1998 and 1997, respectively. The effective tax rates for the fiscal 1999 periods
presented exceeded the U.S. Federal statutory rate due in part France's higher
Federal statutory rate of 41.67%. Additionally, the effective tax rate for the
six months ended December 31, 1998 was higher than the statutory rate due to the
recognition of $265,000 in Federal income tax expense caused by the dissolution
of the Company's interest-charge Domestic International Sales Corporation.September
30, 2004:
THREE MONTHS NINE MONTHS SIX MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
2003 2003 2004 2004
---- ---- ---- ----
(predecessor) (successor)
-----------------------------------------
Sales to Unaffiliated Customers from Company Facilities Located in:
North America $32,125 $105,429 $ 75,031 $32,987
Europe 37,889 124,942 100,429 40,641
South America 3,140 9,612 9,029 6,621
-------- -------- --------- --------
Total $73,154 $239,983 $184,489 $80,249
======== ======== ========= ========
Net Income (Loss) of Company Facilities Located in:
North America ($ 504) $ 1,262 ($ 2,678) ($ 1,933)
Europe 210 2,971 3,732 747
South America 178 657 1,123 1,046
-------- -------- --------- --------
Total ($ 116) $ 4,890 $ 2,177 ($ 140)
======== ======== ========= ========
Depreciation and Amortization on Assets Located in:
North America $ 2,143 $ 6,102 $ 6,232 $ 948
Europe 2,826 8,174 6,190 2,491
South America 213 638 532 199
-------- -------- --------- --------
Total $ 5,182 $ 14,914 $ 12,954 $ 3,638
======== ======== ========= ========
Net Interest Expense of Company Facilities Located in:
North America $ 743 $ 2,297 $ 1,763 $ 4,246
Europe 1,434 4,700 2,699 1,356
South America 57 164 204 103
-------- -------- --------- --------
Total $ 2,234 $ 7,161 $ 4,666 $ 5,705
======== ======== ========= ========
14
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2004
(UNAUDITED)
6. BUSINESS SEGMENT INFORMATION - CONCLUDED
THREE MONTHS NINE MONTHS SIX MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
2003 2003 2004 2004
---- ---- ---- ----
(predecessor) (successor)
-----------------------------------------
Tax Provision of Company Facilities Located in:
North America ($ 259) $ 691 ($ 1,356) ($ 992)
Europe 338 2,703 4,068 899
South America 87 278 499 504
--------- -------- --------- ---------
Total $ 166 $ 3,672 $ 3,211 $ 411
========= ======== ========= =========
Expenditures for Property, Plant and Equipment of Facilities Located in:
North America $ 1,875 $ 8,253 $ 4,085 $ 1,598
Europe 2,473 6,663 5,434 2,926
South America 1,142 1,718 1,157 963
--------- -------- --------- ---------
Total $ 5,490 $ 16,634 $ 10,676 $ 5,487
========= ======== ========= =========
DECEMBER 31, SEPTEMBER 30,
2003 2004
---- ----
(predecessor) (successor)
Total Assets of Company Facilities Located in:
North America $ 209,080 $ 197,949
Europe 183,193 296,805
South America 16,802 28,011
------------ ------------
Total $ 409,075 $ 522,765
============ ============
15
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
SEPTEMBER 30, 2004
(UNAUDITED)
7. SUBSEQUENT EVENT
In January 1999, the Brazilian government permitted its currency to trade freely
against the U.S. Dollar, resulting inSUPPLEMENTAL CASH FLOW INFORMATION
Set forth below is a significant devaluation of the Real
versus the U.S. Dollar. Between November 30, 1998 (Autocam do Brasil's fiscal
quarter end) and February 8, 1999, the total devaluation was 59%. Since the
Brazilian economy is not considered to be hyperinflationary (as defined by U.S.
generally accepted accounting principles), the Company expects no materially
negative impact on its future earnings; however, the devaluation will impair the
book valuereconciliation of net assets employedincome (loss) to net cash provided by
Autocam do Brasil and it will negatively
impact comprehensive income. If the Brazilian economy were to lapse into a
hyperinflationary cycle, a material weakening(used in) operating activities:
NINE MONTHS SIX MONTHS THREE MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
2003 2004 2004
---- ---- ----
(predecessor) (successor)
-------------------------
Net income (loss) $ 4,890 $ 2,177 ($ 140)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 14,914 12,954 3,638
Deferred taxes 2,026 395 311
Realized gains and losses and other, net 2,407 2,627 (287)
Changes in assets and liabilities that provided (used) cash:
Accounts receivable 4,719 (9,243) 4,563
Inventories 1,555 (2,899) (2,566)
Prepaid expenses and other current assets (303) (44) (442)
Other long-term assets (72) (1,192) 461
Accounts payable (3,854) 1,687 (6,986)
Accrued liabilities 1,606 6,962 1,305
Deferred taxes and other 121 (2,730) (266)
-------- -------- --------
Net Cash Provided by (Used in) Operating Activities $ 28,009 $ 10,694 ($ 409)
======== ======== ========
8. STOCK OPTION PLAN
Micron's Board of the Real versus the U.S. Dollar
could have an impact on the earnings of the Company.
8. STOCK-BASED COMPENSATION
The CompanyDirectors has reserved 826,8751,430,000 shares of common sharesstock for
issuance to employees under the 1991 Incentive2004 Stock Option Plan (the "Plan""Option Plan"). No
options were granted under the Option Plan as of September 30, 2004; however, on
October 12, 2004, options to purchase 929,500 shares were granted at $10 per
share. Options are not exercisable prior to twelve months from or ten years
after the grant date. OptionsCertain options granted vest at a rate of twentytwenty-five
percent annually over a five-year period. Hadfour-year period, while others vest based on Micron
shareholders' ability to meet certain levels of return on their investment in
Micron. The options granted on October 12, 2004 vest retroactive to June 21,
2004.
16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with and is
qualified in its entirety by reference to our consolidated financial statements
and accompanying notes. Except for historical information, the discussions in
this section contain forward-looking statements that involve risks and
uncertainties. Future results could differ materially from those discussed
below.
OVERVIEW
Titan Holdings, Inc. ("Titan") is a holding company headquartered in Kentwood,
Michigan and a wholly-owned subsidiary of Micron Holdings, Inc. ("Micron"). Its
sole and wholly-owned subsidiary, Autocam Corporation ("Autocam") and Autocam's
subsidiaries, are a leading independent manufacturer of extremely close
tolerance precision-machined, metal alloy components, sub-assemblies and
assemblies, primarily for performance and safety critical automotive
applications. Those applications in which we have significant market penetration
include fuel injection, power steering, braking, electric motors and airbag
systems. We provide these products from our facilities in North America, Europe,
South America and Asia to some of the world's largest Tier I suppliers to the
automotive industry. References throughout this document to "we," "our" or "us"
refer to Titan together with its consolidated subsidiaries.
Our business and results of operations during the third quarter and nine months
of 2004 were affected by the following significant events:
- - On June 21, 2004, Micron Merger Corporation ("Merger"), a newly formed
entity and wholly-owned subsidiary of Micron, merged with and into Titan
with Titan continuing as the surviving corporation (the "Acquisition"). As
a result, Titan became a wholly-owned subsidiary of Micron. The total
amount of consideration paid in the Acquisition, including amounts related
to the repayment of indebtedness, the redemption of the outstanding
preferred stock of Titan, payments to common shareholders of Titan and the
payment of transaction costs incurred by Titan, was $395.0 million. The
Acquisition was financed with the net proceeds from the issuance by
Autocam of $140.0 million of senior subordinated notes of the Company,
accountedwhich are guaranteed by Titan (the "Notes"), borrowings of $114 million
under the Company's new senior credit facilities and combined common
equity contributions of $143.4 million by GS Capital Partners 2000, L.P.
("GSCP 2000"), other private equity funds affiliated with GSCP 2000,
Transportation Resource Partners LP ("TRP"), other investment vehicles
affiliated with TRP, and our president.
- - A significant portion of our sales and profits resulted from transactions
denominated in euros. Those sales and profits have been translated into
U.S. Dollars ("USD") for financial reporting purposes. As a result, the
value of the USD compared to the euro in the three and nine months ended
September 30, 2004 relative to the same periods in the prior years
positively impacted our reported results. The following table sets forth,
for the Plan based onperiods indicated, the fair value of awards atperiod end and period average exchange
rates used in translating the grant
datesfinancial statements (expressed as prescribed by Statement of Financial Accounting Standard No. 123 ("SFAS
123"), "Accounting for Stock-Based Compensation," the Company's net income and
net incomeUSD per
share would have been decreased as indicated below.
10
11
AUTOCAM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998
8. STOCK-BASED COMPENSATION - CONCLUDEDone euro):
THREE MONTHS ENDED SIXNINE MONTHS ENDED
In thousands of U.S. dollars,SEPTEMBER 30, SEPTEMBER 30,
DECEMBER 31, DECEMBER 31,
except per share data ----------------------- -----------------------
1998 1997 1998 1997
--------- --------- --------- --------------------------- -----------------
2003 2003 2004 2003 2004
---- ---- ---- ---- ----
Net income:
As reported $ 2,099 $ 2,104 $ 2,276 $ 3,239
Pro forma 2,006 2,000 2,090 3,033
Basic net income per share:
As reported $ .33 $ .33 $ .36 $ .51
Pro forma .32 .32 .33 .48
Diluted net income per share:
As reported $ .32 $ .32 $ .35 $ .50
Pro forma .31 .31 .32 .47
Average(1) 1.1276 1.2239 1.1103 1.2263
End of Period 1.2552 1.2409 1.2409
- ------------------
(1) The effectsaverage rate represents the average of applying SFAS 123all monthly average exchange
rates within the respective periods weighted by reported sales denominated
in euros.
17
OVERVIEW - CONCLUDED
- - We are routinely exposed to pressure by our customers to offer unit price
reductions, which is typical of our industry. Through continuous
improvement and increased efficiencies in our manufacturing and
administrative processes we have achieved improvements in margins over
time in spite of these constant pressures.
- - In April 2003, we sold and leased back our Kentwood and Marshall, Michigan
facilities for $5.8 million, using the proceeds of that sale to prepay
some of our USD-denominated term indebtedness. Annual lease expense under
these agreements is $.6 million.
- - In June 2003, we closed our Chicago, Illinois production facility, moving
all existing production to our Michigan facilities. Through the
re-engineering of manufacturing processes and elimination of redundancies,
we were able to reduce headcount in North America by 6% when comparing the
nine-month period ended September 30, 2004 with the same period in 2003.
- - In 2003, we successfully consolidated power steering production lines
formerly contained within three of our French facilities into one
facility. Significant costs, including premium freight, outsourcing, labor
and machinery repairs, were incurred on a pro formaone-time basis may not be representative
of the effects on reported pro forma net income for future periods as the
estimated compensation costs reflect only options vesting after June 30, 1995.
Under the methodology of SFAS 123, the fair value of the Company's fixed stock
options was estimated at the date of grant using the Black-Scholes
option-pricing model. The multiple option approach was used, with the following
weighted-average assumptions for all periods presented: dividend yield, .48%;to affect this
reorganization. This reorganization has and is expected volatility, 45.28%; risk-free interest rate, 4%; and, expected life of
options, 10 years.
11
12
AUTOCAM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
DECEMBER 31, 1998
9. SUPPLEMENTAL CASH FLOW INFORMATION
The following is a reconciliation of net income to net cash provided by
operating activities and other supplemental cash flow information:
FOR THE SIX MONTHS ENDED
DECEMBER 31,
In thousands (UNAUDITED)
------------------------
1998 1997
--------- ---------
Net income $ 2,276 $ 3,239
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 6,088 3,539
Deferred taxes 1,480 589
Minority interest in net income and other, net 94
Changes in assets and liabilities that provided (used) cash:
Accounts receivable (6,962) (1,733)
Inventories (1,495) 445
Prepaid expenses and other current assets (226) (75)
Other long-term assets (88) 207
Accounts payable 4,202 1,243
Accrued liabilities 913 1,578
Deferred credits and other 1,268 (98)
--------- ---------
Net cash provided by operating activities $ 7,550 $ 8,934
========= =========
Details of F&P acquisition:
Fair value of assets acquired $ 125,647
Cash paid (52,102)
Professional fees paid (1,632)
---------
LIABILITIES ASSUMED $ 71,913
=========
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTION - Accordingcontinue to
terms of the
agreement to acquire a controlling interest in Autocam do Brasil, the final
purchase price could be reduced as a result of a deficiency in earnings before
interest and taxes from an agreed-upon level during the eighteen months ending
June 30, 1999. Based on actual results through November 30, 1998 and forecasted
results for the six months ending May 31, 1999, it was concluded that the
maximum purchase price adjustment will be realized, and therefore, Goodwill and
Long-Term Debt were reduced by $2.5 million during the quarter ended December
31, 1998.
12
13
AUTOCAM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DECEMBER 31, 1998
This Quarterly Report on Form 10-Q contains forward-looking statements as
defined by the Private Securities Litigation Reform Act of 1995. Forward-looking
statements should be read with the cautionary statements and important factors
included herein. Forward-looking statements include statements concerning plans,
objectives, goals, strategies, future events or performance and underlying
assumptions and other statements, which are other than statements of historical
facts. Such forward-looking statements may be identified, without limitation, by
the use of the words "anticipates," "estimates," "expects," "intends," "plans,"
"predicts," "projects," and other similar expressions. The Company's
expectations, beliefs and projections are expressed in good faith and are
believed by the Company to have a reasonable basis, including without
limitation, management's examination of historical operating trends, data
containedprovide benefits in the Company's recordsfuture, primarily in the area of lower labor costs
through headcount reductions and other data available from third parties,
but there can be no assurance that management's expectations, beliefs or
projections will result or be achieved or accomplished.
BUSINESS COMBINATION
Effective October 1, 1998, the Company, through its wholly-owned subsidiary,
Autocam France SARL ("AF"), a French limited liability company, acquired the
rights to all the outstanding common shares of Compagnie Financiere du Leman SA
("CFL"), a French holding corporation, which owns all of the equity interest of
Frank & Pignard SA, a French corporation ("F&P") for 300 million French Francs
("FF"). The Company has agreed to pay a maximum additional amount of FF60
million based upon the ability of F&P to meet certain predetermined operating
performance goals in 1999.
F&P, located in Cluses, France, is a leading manufacturer of precision-machined
metal components consisting primarily of power steering, diesel fuel injection
and braking system components to leading global automotive manufacturers and
their tier-one suppliers. Through the stock purchase, which was accounted for
under the purchase method of accounting, AF acquired all the operating assets of
F&P, which includes its machinery and equipment and leases of the manufacturing
facilities, and assumed all its liabilities, including $20 million in bank debt.
The purchase price was financed through a $140 million credit facility with the
Company's primary lending institution, as agent (the "Agreement"), which
includes a $70 million five-year revolving credit facility, a FF281 million ($50
million) five-year acquisition term note used directly to fund the purchase of
F&P, and a FF112 million ($20 million) six-year term note used to refinance
existing F&P debt.
13
14
AUTOCAM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
DECEMBER 31, 1998improved efficiency.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the components of the
Company'ssets forth our Consolidated Statements of Operations
expressed as a percentage of sales:
THREE MONTHS ENDED SIXNINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
1998 1997 1998 1997SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------------
2003(1) 2004(2) 2003(1) 2004(3)
------- ------- ------- -------
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 84.0% 75.6% 84.5% 77.8%
------- ------- ------- -------87.8% 85.2% 86.3% 83.8%
----- ----- ----- -----
Gross profit 16.0% 24.4% 15.5% 22.2%12.2% 14.8% 13.7% 16.2%
Selling, general and administrative 5.0% 6.3% 5.7% 6.1%
------- ------- ------- -------expenses 6.0% 6.5% 5.4% 8.5%
----- ----- ----- -----
Income from operations 11.0% 18.1% 9.8% 16.1%6.2% 8.3% 8.3% 7.7%
Interest and other expense, net 4.2%3.1% 7.1% 3.0% 4.0% 3.2%
Minority interest in3.9%
Other expenses, net income .3% .4%
------- ------- -------3.1% 0.8% 1.7% 1.6%
----- ----- ----- -----
Income before tax provision 6.5% 15.1% 5.4% 12.9%0.0% 0.4% 3.6% 2.2%
Tax provision 2.6% 5.5% 2.5% 4.6%
------- ------- ------- -------0.2% 0.5% 1.5% 1.4%
----- ----- ----- -----
Net income 3.9% 9.6% 2.9% 8.3%
======= ======= ======= =======Income (Loss) -0.2% -0.1% 2.1% 0.8%
===== ===== ===== =====
SALES
The following table indicates- ------------------------
(1) Represents the Company's sales (in thousands) and percentageconsolidated results of total sales by productoperations of the Company
reflecting the historical basis of accounting without any application of
purchase accounting for the three-Acquisition.
(2) Represents the consolidated results of operations of the Company
reflecting the basis of accounting after purchasing accounting for the
Acquisition.
(3) Represents the combined consolidated results of operations of the Company
reflecting the historical basis of accounting without any application of
purchase accounting for the Acquisition for the six months ended June 30,
2004 and six-month periodsreflecting the basis of accounting after purchasing accounting
for the Acquisition for the three months ended December 31, 1998September 30, 2004.
18
THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2004
Sales
Sales increased $7 million, or 9.7%, to $80.2 million for the three months ended
September 30, 2004 from $73.2 million for the three months ended September 30,
2003. Of this increase, $3.3 million was attributable to the devaluation of the
USD relative to the euro. Excluding the effect of foreign currency translation
and 1997:
FOR THE THREE MONTHS ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED DECEMBER 31,
-------------------------------------------- --------------------------------------------
1998 1997 1998 1997
------------------- ------------------- ------------------- -------------------
Transportation:
Fuel systems $24,266 44.6% $12,610 57.9% $40,083 51.1% $22,781 58.1%
Power steering
systems 16,899 31.1 16,899 21.6
Braking systems 5,719 10.5 4,035 18.5 9,756 12.4 8,078 20.6
Other 3,735 6.8 466 2.1 4,881 6.2 894 2.3
------- ------- ------- ------- ------- ------- ------- -------
Total transportation 50,619 93.0 17,111 78.5 71,619 91.3 31,753 81.0
Medical devices 2,929 5.4 2,453 11.3 5,397 6.9 4,323 11.0
Computer electronics 207 .4 1,950 8.9 217 .3 2,620 6.7
Other 650 1.2 281 1.3 1,191 1.5 528 1.3
14
15
AUTOCAM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONSunit price reductions mentioned below, sales for the quarter increased $4.9
million over the quarter ended September 30, 2003, principally attributable to
the following factors:
- CONTINUED
DECEMBER 31, 1998
SALES - CONCLUDEDIncreased shipments of electric power-assisted steering products to two
European customers during 2004.
- - Sales of components for fuel system applications were $24,266,000 and
$40,083,000 for the three and six months ended December 31, 1998, respectively,
representing increases of 92% and 76%, respectively, from sales of the same
periodsmanufactured by our South American operations have
grown in the prior year. The Company gained market share through the
acquisitions of F&P and a controlling interest in Qualipart Industria E
Comercio, Ltda. ("Qualipart"), subsequently renamed, Autocam do Brasil Usinagem,
Ltda. ("Autocam do Brasil") in January 1998. These subsidiaries generated sales
of diesel fuel injection components totaling $8,259,000 and $11,349,000 during
the three and six months ended December 31, 1998. Additionally, one of the
Company's largest fuel systems customers embarked on a new fuel injector program
subsequent to the firstthird quarter of fiscal 1998 and two others increased demand
for components for their new injector programs during the first quarter of
fiscal 19992004 relative to the same period in fiscal 1998. Together, these2003 as
lower labor costs in those facilities (relative to those in our European
and North American facilities and those of our competitors) have afforded
us additional demand for high value-added components from our customers.
These positive factors added $3,967,000 and $6,610,000 in sales for the three and six months
ended December 31, 1998, respectively, versus the same respective periods in
fiscal 1998, whichdevelopments more than offset the negative impact of unit price
reductions of $1.2 million during the third quarter of 2004 and decreasing sales
impact associated with
the lossto a European power steering systems customer that desourced us on some
products.
Gross Profit
Gross profit increased $3 million to $11.9 million, or 14.8% of sales, of mature product caused by the July 1998 strike at General
Motors Corporation.
The Company's acquisition of F&P added power steering system components to the
Company's product offerings, and the acquisitions of F&P and Autocam do Brasil
resulted in additional sales of braking and other transportation system
components. All sales of power steering components are to European-based
customers through F&P.
Sales of medical device components were $2,929,000 and $5,397,000 for the
three and six months ended December 31, 1998, respectively, representing increasesSeptember 30, 2004 from $8.9 million, or 12.2% of 19% and 25%, respectively, as compared to the same period in the prior year. The
three- and six-month sales, reported for fiscal 1999 include a cancellation
charge received from a significant coronary stent customer totaling $1,189,000.
This cancellation charge was negotiated with the intent to offset the cost of
underutilized labor and equipment left idle by the cessation of business with
this customer.
Sales of components for computer electronic applications declined $1,743,000 and
$2,403,000 when comparing the three- and six-month periods ended December 31,
1998 to the same periods in fiscal 1998. During the three and six months ended
December 31, 1997, the Company produced and sold key components used in computer
microprocessor subassemblies and specialty metal fasteners used in the
manufacture of suspension assemblies for rigid disk drives. The Company had
virtually no sales to this industry during the fiscal 1999 periods presented as
short product life cycles eliminated these components.
The Company expects significant sales growth over the balance of fiscal 1999 due
to incremental sales of $49 million from F&P, and the continued expansion of
fuel system component sales as new injector programs move toward full
production. These sales gains are expected to be partially offset by a decline
in sales of coronary stents of $1,200,000 over the remainder of fiscal 1999
caused by the cancellation of a contract by a stent customer.
15
16
AUTOCAM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
DECEMBER 31, 1998
GROSS PROFIT
Gross profit percentages fell 8.4% and 6.7% (as a percentage of sales) for
the three and six months ended December 31, 1998, respectively, versus the same
respective periods in fiscal 1998.September 30, 2003. The three- and six-month declinesgross profit percentage
improvement can generally be attributed to the following factors:
o F&P generated- - We have achieved headcount reductions in North America as a lowerresult of
various continuous process improvement initiatives and in Europe as a
result of the power steering production line reorganization described
above. Together, these initiatives resulted in an increase in gross profit
margin of 2.6 percentage than that historically
generated bypoints.
- - In connection with the CompanyAcquisition, we restated the historical cost of our
property, plant and equipment to fair market appraised values, which, reduced the gross margin percentages by 2.8%
and 1.3% (as a percentage of sales) when comparing the three and six month
periods of fiscal 1999 to those of fiscal 1998, respectively.
o There has been a fundamental shift in
the mix of sales byaggregate, was lower than the Company's
U.S. operations.net book value on the date prior to the
Acquisition. In certain instances, customers have phased out mature
products as they change from old to new generation fuel and braking
systems. The Company historically experiences lower margins on new program
start-ups until its continuous improvement efforts can improve
manufacturing efficiencies and reduce waste. The Companydoing so, depreciation expense was involved$1.6 million less in
five major program start-ups during the six months ended December 31, 1998.
o The Company expected to begin production on a new braking system program
for its largest customer in the summer of 1998. The program was delayed
until
the third quarter of fiscal 1999; however, the Company had the
necessary labor and equipment resources in place2004 as of July 1998. Such
resources were underutilized during the six-month period ended December 31,
1998.
o The Company experienced manufacturing difficulties resulting from the
transfer of production for a key customer of its Brazilian operation to one
of its U.S. facilities. The customer expedited the timetable for this
transfer of production, which caused the Company to incur significantly
more start-up costs than originally anticipated depressing the Company's
overall gross profit percentage by a minimum of 1% (as a percentage of
sales) for both fiscal 1999 periods presented when comparingcompared to the same
periods in fiscal 1998.
Gross profit for the six months ended December 31, 1998 was also negatively
impacted by labor work stoppages at the Company's largest fuel system customer's
facilities. Direct and indirect sales to that customerthird quarter of 2003.
These positive factors were lower than expected,
and the Company's ability to reduce costs, particularly labor, was largely
dictated by the West Michigan market for skilled machinists. With an area
unemployment rate of 2-3%, management concluded that laying off quality
machinists in answer to a short-term demand decline would adversely affect the
Company's ability to attain future growth objectives if it were unable to retain
its skilled labor base.
16
17
AUTOCAM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
DECEMBER 31, 1998
GROSS PROFIT - CONCLUDED
Management expects that gross profit, as a percentage of sales, for the
remainder of the fiscal year should approximate levels experienced during the
quarter ended December 31, 1998. Over the next six months, management expects
the growth in demand for new fuel systems program components should allow for
improved labor and equipment utilization typically gained through continuous
improvement activities, thereby improving gross profit. However, the benefit of
these improvement plans will bepartially offset by the loss in margin expected from a
reduction in coronary stent sales. Such products tend to generate margins higher
than those typically experienced by the sale of components to the transportation
industry.
In fiscal 2000, management expects continued improvement innegative impact on gross
profit throughof the implementation of its productionunit price reductions described above and inventory control systems at its
foreign operations, which it expects will significantly improve laborsteel price increases.
Selling, General and equipment productivity.
SELLING, GENERAL AND ADMINISTRATIVEAdministrative
Selling, general and administrative expenses as a percentage of sales, were 5%
and 5.7% for the three and six months ended December 31, 1998 versus 6.3% and
6.1%increased $.8 million to $5.2
million, or 6.5% of sales, for the respective periods in fiscal 1998. These expenses
decreased as a percentagethree months ended September 30, 2004 from
$4.4 million, or 6% of sales, due to the inclusion of F&P's operating
results in the Company's statements of operations. F&P's selling, general and
administrative expenses have historically approximated 4% of sales. Management
expects that selling, general and administrative expenses, as a percentage of
sales, will approximate fiscal 1999 second quarter levels during the remainder
of fiscal 1999.
INTEREST AND OTHER EXPENSE, NET
Net interest and other expense for the three and six months ended December 31,
1998 increased $1,657,000 and $1,839,000, respectively, from the same respective
periods in the previous year. This increase is due primarily to an increase in
average borrowings outstanding during the fiscal 1999 periods presented caused
by the acquisitions of Autocam do Brasil for $7.5 million and F&P for $73
million, including $20September 30, 2003. The
2004 results include $.7 million in bankexpenses associated with the foregiveness of
receivables formerly due from executive managers under a split-dollar life
insurance program.
19
Interest Expense, Net
Net interest expense increased $3.5 million to $5.7 million for the three months
ended September 30, 2004 from $2.2 million for the three months ended September
30, 2003. Interest expense on increased debt assumed on the acquisition date.
Management anticipates that interest and other expense over the next six months
will approximate $2.8-$3.0 million each quarter. The increase in expense can be
attributed to the increase in bank borrowingslevels incurred as a result of the
Autocam do
BrasilAcquisition more than offset the favorable impact of principal reductions
through regularly scheduled payments and F&P acquisitions andlower interest rates under our new
senior credit facility, which averaged 60 to 80 basis points less during the
financing of planned capital expenditures.
17
18
AUTOCAM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
DECEMBER 31, 1998
TAX PROVISION
Income taxes as a percentage of income before tax provision and minorityquarter ended September 30, 2004 when compared to interest were 38.2% and 36.1%rates under our
former senior credit facility during the three months ended September 30, 2003.
Other Expense, Net
Net other expense decreased $1.6 million to $.7 million for the three months
ended December 31, 1998 and
1997, respectively, and 42.6% and 35.8%September 30, 2004 from $2.3 million for the sixthree months ended December 31,
1998 and 1997, respectively.September
30, 2003. The 2003 results include the $1.7 million anticipated loss on the sale
of excess equipment scheduled for liquidation in connection with our Chicago,
Illinois facility closure as described above.
Tax Provision
For the three months ended September 30, 2004, we recorded an income tax
provision of $.4 million, for an effective tax rates forrate of 151.7%. Our effective tax
rate was more than the fiscal 1999 periods
presented exceeded the statutory rate due in part to France's higher FederalUnited States statutory rate of 41.67%. Additionally,34% due primarily to the
French income tax provision, which includes legal profit sharing contribution
expense of $.4 million. Under French law the legal profit sharing contribution
is assessed on income before taxes, and therefore is treated by us as a
component of our tax provision.
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2004
Sales
Sales increased $24.7 million, or 10.3%, to $264.7 million for the nine months
ended September 30, 2004 from $240 million for the nine months ended September
30, 2003. Of this increase, $13.2 million was attributable to the devaluation of
the USD relative to the euro. Excluding the effect of foreign currency
translation and unit price reductions mentioned below, sales for the nine-month
period increased $15.1 million over the nine months ended September 30, 2003,
principally attributable to the following factors:
- - Increased shipments of electric power-assisted steering products to two
European customers during 2004.
- - During the latter part of 2003, we began shipping diesel injection
components to two North American customers seeking to increase their
penetration of the North American diesel injection market. The benefit
derived from this development was partially offset by premium pricing
earned in the second quarter of 2003 on one of the new product lines
during the transition from prototype to production volumes.
- - Sales of components manufactured by our South American operations have
grown in 2004 relative to 2003 as lower labor costs in those facilities
(relative to those in our European and North American facilities and those
of our competitors) have afforded us additional demand for high
value-added components from our customers.
These positive developments more than offset the negative impact of unit price
reductions of $3.6 million during the first nine months of 2004 and decreasing
sales to a European power steering systems customer and a European fuel systems
customer, both of which desourced us on some products.
20
Gross Profit
Gross profit increased $10.1 million to $43 million, or 16.2% of sales, for the
nine months ended September 30, 2004 from $32.9 million, or 13.7% of sales, for
the nine months ended September 30, 2003. The gross profit percentage
improvement can generally be attributed to the following factors:
- - We have achieved headcount reductions in North America as a result of the
Chicago, Illinois facility closure as described above and various other
continuous process improvement initiatives, and in Europe as a result of
the power steering production line reorganization described above.
Together, these initiatives resulted in an increase in gross profit margin
of 1.5 percentage points.
- - We incurred equipment move, severance and other costs during the nine
months ended September 30, 2003 in connection with the Chicago, Illinois
facility closure of $1.1 million. Such costs were not repeated in the
nine-month period ended September 30, 2004.
These positive factors were partially offset by the negative impact on gross
profit of the unit price reductions, steel price increases and additional
building lease expense derived from the sale and leaseback of the production
facilities as described above.
Selling, General and Administrative
Selling, general and administrative expenses increased $9.5 million to $22.6
million, or 8.5% of sales, for the nine months ended September 30, 2004 from
$13.1 million, or 5.4% of sales, for the nine months ended September 30, 2003.
The 2004 results include $8.2 million in costs associated with the Acquisition,
consisting principally of investment banking fees, management bonuses, and legal
and accounting fees, and $.7 million in executive manager receivables foregiven
under a split-dollar life insurance program.
Interest Expense, Net
Net interest expense increased $3.2 million to $10.4 million for the nine months
ended September 30, 2004 from $7.2 million for the nine months ended September
30, 2003. Interest expense on increased debt levels incurred as a result of the
Acquisition more than offset the favorable impact of principal reductions
through regularly scheduled payments and repayments from the proceeds of the
sale and leaseback of the production facilities as described above. In addition,
interest rates incurred on borrowings under our new senior credit facility
averaged 20 to 50 basis points less during the nine months ended September 30,
2004 when compared to interest rates incurred on borrowings under our former
senior credit facility during the nine months ended September 30, 2003.
Other Expense, Net
Net other expense increased $.3 million to $4.4 million for the nine months
ended September 30, 2004 from $4.1 million for the nine months ended September
30, 2003. The 2004 results include the accelerated write-off of $1.9 million in
unamortized debt issue costs associated with our former senior credit facility,
which was refinanced in connection with the Acquisition. This more than offsets
the $1.7 million negative impact on our 2003 results of the loss reserve
recorded on excess equipment from our Chicago, Illinois facility that was sold
as described above.
Tax Provision
For the nine months ended September 30, 2004, we recorded an income tax
provision of $3.6 million, for an effective tax rate for the six
months ended December 31, 1998of 64%. Our effective tax
rate was highermore than the U.S. FederalUnited States statutory rate of 34% due primarily to the
recognition of $265,000 in FederalFrench income tax provision, which includes legal profit sharing contribution
expense caused by the
dissolution of the Company's interest-charge Domestic International Sales
Corporation.
Effective January 1, 1999, the$1.6 million. In addition, French government lowered the French Federal statutory income tax rate to 40%. As a result, the Company expects to recognize
a tax benefit through the reductionis 35.4%
of F&P's deferred tax liability, thereby
lowering the Company's overall effective tax rate to approximately 32% over the
remainder of the current fiscal year.income before taxes.
21
LIQUIDITY AND CAPITAL RESOURCES
Management believes thatOur short-term liquidity needs include required debt service and day-to-day
operating expenses including working capital requirements and the Company has adequatefunding of
capital expenditures. Long-term liquidity requirements include capital
expenditures for new programs and maintenance of existing equipment and debt
service. Capital expenditures for 2004 are expected to be $20-22 million, of
which $16.2 million was spent in the nine months ended September 30, 2004.
Our principal sources of cash to fund short- and long-term liquidity needs
consist of cash generated by operations and borrowing under our revolving credit
facilities.
In connection with the Acquisition, we entered into a new senior credit
facilities and cash
availableagreement with a syndication of banks consisting of the following
components:
- - A $33 million term loan to meet its working capital and capital expenditure needs for the
foreseeable future. The Agreement includes a $70Autocam;
- - A (euro)62.7 million five-yearterm loan to Autocam's wholly-owned subsidiary,
Autocam France SARL (equivalent to $76.8 million as of September 30,
2004);
- - A multi-currency revolving credit facility a $50of $36.1 million five-year acquisition term note($23.1 million
in availability as of September 30, 2004) against which borrowings may be
made by Autocam in USD or euros; and
a $20 million
six-year term note. In connection therewith, all of the Company's existing bank
debt was refinanced using the $70 million- - A euro revolving credit facility.facility of (euro) 11.6 million available to
Autocam France SARL (fully available as of September 30, 2004).
The Company
has $14.2 million in borrowing availabilityindenture governing the Notes and the agreement governing the senior credit
facilities contain a number of covenants imposing significant restrictions on
our business. These restrictions may affect our ability to operate our business
and may limit our ability to take advantage of potential business opportunities
as they arise.
The senior credit facilities require us to meet a number of financial ratio
tests, including interest coverage and total leverage ratios. The senior credit
facilities also limit the amount of capital expenditures we may make. Our
management believes that cash from operations and, if required, borrowings under
the revolving credit facilityfacilities of the senior credit facilities will be
sufficient for cash requirements through at least September 2005.
Nine Months Ended September 30, 2004
Cash provided by operating activities of $10.3 million during the nine months
ended September 30, 2004 reflects net income, excluding non-cash and other
reconciling items of $21.7 million, and an increase in net working capital of
$11.4 million due primarily to the following factors:
- - Inventories increased $5.5 million due primarily to the growth in our
business as described above. In addition, the value of raw material
inventories has risen consistent with the rise in steel and perishable
tooling prices. Finally, machinery spare parts inventories have increased
consistent with the addition of new types of equipment.
- - Accounts receivable increased $4.7 million. A significant customer
discontinued an accelerated payment program in May 2004, which had the
effect of increasing accounts receivable by $3.2 million, and payment
terms from a number of other North American customers have lengthened over
the course of 2004. In addition, sales by our South American operations
were up significantly when comparing the latter part of 2003 to the latter
part of the nine-month period ended September 30, 2004. Finally, factored
European accounts receivable decreased $.8 million from December 31, 1998. Principal obligations due2003
to September 30, 2004. All of these factors more than offset the impact on
accounts receivable caused by lower summer European sales.
22
Cash used in investing activities of $15.1 million during the nine months ended
September 30, 2004 included capital expenditures primarily for production
equipment of $16.2 million, less $1.1 million in proceeds from the sale of
production equipment.
Cash provided by financing activities of $5.7 million during the nine months
ended September 30, 2004 included the following:
- - Proceeds from issuance of the Notes and term note borrowings at the
closing of the Acquisition under the revolvingour new senior credit facility are due at the expiration of the facility. Principal obligations under
the $50$246
million, and $20 million term notes are as follows:
In thousands $50 MILLION NOTE $20 MILLION NOTE
---------------- ----------------
Fiscal 2000 $ 5,000
Fiscal 2001 12,500
Fiscal 2002 15,000
Fiscal 2003 15,000
Fiscal 2004 2,763 $12,500
Thereafter 7,507
-------- -------
Total $ 50,263 $20,007
======== =======
Interest is due monthly on all facilities under the Agreement at variable
interest rates. The Agreement includes certain covenants requiring the Company
to maintain minimum levelsless debt issue costs paid of tangible net worth and prohibits the Company from
exceeding certain leverage ratios.
New equipment placed into service and deposits paid on future equipment
purchases during the six months ended December 31, 1998 totaling $13.7 million
were financed primarily through operating cash flows and borrowings under the
Company's revolving credit facility.
18
19
AUTOCAM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS$11.5 million;
- CONTINUED
DECEMBER 31, 1998
LIQUIDITY AND CAPITAL RESOURCES - CONCLUDED
In order to meet demand primarily from transportation customers, management will
purchase $15.6 million of equipment over the next six months (on which deposits
of $3.4 million had been placed as of December 31, 1998). Management expects to
finance these purchases with cash on hand, restricted cash and equivalents,
operating cash flows, operating leases and bank borrowings under its new credit
facility. Additionally, certain of the aforementioned capital expenditure
requirements will be required by the Company's Brazilian operations.
Approximately $3.5 million of this investment is expected to be financed through
capitalShareholder contributions by Autocam do Brasil's minority shareholder.
IMPACT OF YEAR 2000 ISSUE
The Company recognizes the importance of the Year 2000 issue and has been giving
high priority to it. In July 1998, the Company created a Year 2000 project team
to supervise a comprehensive risk-based assessment of the Company's Year 2000
readiness. The team's objective is to insure an uninterrupted transition into
the Year 2000. The scope of the Year 2000 readiness effort includes software,
hardware, electronic data interchange, manufacturing and lab equipment,
environmental and safety systems, facilities, utilities and supplier readiness.
Since the Company makes predominate use of recent operating versions of packaged
computer applications in its business and believes such applications to be Year
2000 compliant, management considers the risk of a material adverse effect on
the operations of the Company to be remote. As of December 31, 1998, the Company
had spent $10,000received in connection with the planned assessment.
The Company is utilizing both internalAcquisition of
$115.4 million;
- - Proceeds from the issuance of equipment notes payable of $1.4 million;
- - Payments made to former shareholders and external resourcesoption holders of Titan of $232.7
million;
- - Payments made to remediate and
test all applications and computer, manufacturing and facilities equipment that
may be adversely impacted by Year 2000 issues. Evaluationretire the term notes of our old senior credit facility
in existence at the closing of the most serious
Year 2000 compliance issues for information systems resident in United StatesAcquisition of $89.9 million;
- - Scheduled term note principal payments of our old senior credit facility,
capital lease obligations and equipment notes payable of $20 million;
- - Scheduled term note principal payments of our new senior credit facility,
capital lease obligations and equipment notes payable of $1.5 million;
- - Net repayments under the old and new revolving credit facilities was completed in January 1999 and is expected to be completed for
foreign facilitiesof $1.5
million.
Nine Months Ended September 30, 2003
Cash provided by July 1999. Management expects to complete its assessment,
employing an outside consultant to assist therein,operating activities of $28 million during the third and fourth
quarters of fiscal 1999 at an additional cost not expected to exceed $50,000.
Costs to test and remediate its systems, if any, are not expected to exceed
$200,000.
In addition to internal Year 2000 software and equipment remediation activities,
the Company has contacted its key suppliers and all its electronic commerce
customers to assess their compliance. There can be no absolute assurances that
there will not be a material adverse effect on the Company if third parties do
not convert their systems in a timely manner and in a way that is compatible
with the Company's systems. The Company believes that its diligent actions with
suppliers and customers will minimize these risks. In any event, the Company
believes that it has adequate back-up manual and contingency systems in place
that will allow it to ship its primary products and invoice its customers in the
unlikely event that its assessment, testing and remediation efforts do not
detect a materially adverse Year 2000 compliance problem in its software or
equipment or with its suppliers or customers.
19
20
AUTOCAM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
DECEMBER 31, 1998
IMPACT OF YEAR 2000 ISSUE - CONCLUDED
The Company's current estimates of the amount of time and costs necessary to
remediate and test its computer systems are based on the facts and circumstances
existing at this time. The estimates were derived utilizing multiple assumptions
of future events including the continued availability of certain resources,
third-party modification plans and implementation success,nine months
ended September 30, 2003 reflects net income, excluding non-cash and other
factors.
New developments may occur that could affect the Company's estimatesreconciling items of the
amount$24.2 million, and a decrease in net working capital of
time and costs necessary$3.8 million due primarly to modify and test its systems for Year 2000
compliance. These developments include, but are not limited to, (i) the
availability and cost of personnel trained in this area, (ii) the ability to
locate and correct all relevant computer code and equipment, and (iii) the
planning and modification success attained by the Company's suppliers and
customers.
FOREIGN CURRENCY TRANSACTIONS
In January 1999, the Brazilian government permitted its currency to trade freely
against the U.S. Dollar, resulting in a significant devaluation of the Real
versus the U.S. Dollar. Between November 30, 1998 (Autocam do Brasil's fiscal
quarter end) and February 8, 1999, the total devaluation was 59%. Since the
Brazilian economy is not considered to be hyperinflationary (as defined by U.S.
generally accepted accounting principles), the Company expects no materially
negative impact on its future earnings; however, the devaluation will impair the
book value of net assets employed by Autocam do Brasil and it will negatively
impact comprehensive income. If the Brazilian economy were to lapse into a
hyperinflationary cycle, a material weakening of the Real versus the U.S. Dollar
could have an impact on the earnings of the Company.
On January 1, 1999, eleven of fifteen member countries of the European Union
established fixed conversion rates between their existing currencies ("legacy
currencies") and adopted the Euro as their new common currency. The Euro will
trade on currency exchanges and the legacy currencies will remain legal tender
in the participating countries for a transition period between January 1, 1999
and January 1, 2002. Beginning on January 1, 2002, Euro denominated bills and
coins will be issued and legacy currencies will be withdrawn from circulation.
The Company has established plans to assess and address the potential impact to
its French operations that may result from the Euro conversion. These issues
include, but are not limited to, (1) the technical challenges to adapt
information systems to accommodate Euro transactions, (2) the impact on accounts receivable caused by lower
summer European sales..
Cash used in investing activities of $12.1 million during the nine months ended
September 30, 2003 included capital expenditures primarily for production
equipment of $16.6 million and proceeds from the sale of production equipment
and the facilities described above of $6 million.
Cash used in financing activities of $20.3 million during the nine months ended
September 30, 2003 included the following:
- - Principal payments on borrowings under our former senior credit facility
of $19.7 million, including the unscheduled payment of $5.8 million in
April from funds received in the sale and leaseback transaction described
above; and
- - Net repayments under the former revolving credit facilities of $1.1
million.
Contingent Liabilities and Other Commitments
We have guaranteed the performance of some equipment leases of an unrelated
vendor that provides services to us within one of our European production
facilities. Our maximum liability under these leases was $5.3 million as of
September 30, 2004.
23
FOREIGN OPERATIONS
During the three months ended September 30, 2004, our North American operations
exported $4.2 million of product to customers located in foreign countries, and
our foreign operations shipped $48.9 million of product to customers from their
facilities. During the nine months ended September 30, 2004, our North American
operations exported $16.6 million of product to customers located in foreign
countries, and our foreign operations shipped $161.4 million of product to
customers from their facilities. As a result, we are subject to the risks of
doing business abroad, including currency exchange rate risks, (3)fluctuations, limits on
repatriation of funds, compliance with foreign laws and other economic and
political uncertainties.
ACCOUNTING PRONOUNCEMENTS
SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement
Benefits, was revised in December 2003. It requires additional disclosures about
assets, obligations, cash flows and net periodic benefit cost of defined benefit
pension plans and enhanced disclosures of management's assumptions related to
discount rates, investment returns and salary assumptions. This statement is
effective for us for the year ending December 31, 2004.
CRITICAL ACCOUNTING POLICIES
No material changes have been made to our critical accounting policies during
2004.
Item 3 . Quantitative and Qualitative Disclosures about Market Risk
We manage certain foreign currency exchange risk in relation to equipment
purchases through the limited use of foreign currency futures contracts to
reduce the impact of changes in foreign currency rates on existingfirm commitments to
purchase equipment. No such contracts related to equipment purchases were
outstanding at September 30, 2004 or December 31, 2003.
We typically derive 50-60% of our sales from foreign manufacturing operations.
The financial position and (4) taxresults of operations of our subsidiaries in France
are measured in euros based on functional currency and accounting implications.translated into USD. The
Company expectseffects of foreign currency fluctuations in France are somewhat mitigated by the
fact that sales and expenses are generally incurred in euros, and the reported
net income thereon will be higher or lower depending on a weakening or
strengthening of the USD as compared to the euro.
The financial position and results of operations of our subsidiary in Brazil are
measured in Brazilian reais and translated into USD. With respect to
approximately 40% of this subsidiary's sales, expenses are generally incurred in
Brazilian reais, but sales are invoiced in USD. As such, results of operations
with regard to these sales are directly influenced by a weakening or
strengthening of the Brazilian real as compared to the USD. The effects of
foreign currency fluctuations are somewhat mitigated on the remainder of this
subsidiary's sales by the fact that the Euro conversionsales and related expenses are generally
incurred in Brazilian reais and reported income will not
havebe higher or lower
depending on a material adverse impact on its financial conditionweakening or resultsstrengthening of operations.
20
21
SIGNATURES
Pursuantthe USD as compared to the
requirementsBrazilian real.
24
Item 4. Disclosure Controls and Procedures
Our management carried out an evaluation with the participation of our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures as defined under rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as of the end of the last
fiscal quarter. Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures
are effective to ensure that information required to be disclosed in the
Securities and Exchange ActCommission's rules and forms is recorded, processed,
summarized and reported, within the time periods specified in the rules and
forms. In connection with the rules, we currently are in process of 1934, the
Registrantfurther
reviewing and documenting our disclosure controls and procedures, including our
internal controls and procedures for financial reporting, and may from time to
time make changes aimed at enhancing their effectiveness and to ensure that our
systems evolve with our business.
There were no changes in our internal control over financial reporting
identified in connection with our evaluation of our disclosure controls and
procedures that occurred during our last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Securities Holders
None.
Item 5. Other Information
None.
25
Item 6. Exhibits and Reports on Form 8-K
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
31.1 Certification of Chief Executive Officer in the form prescribed by Rule 13a-14(a) or 15d-14(a) under the
Securities Exchange Act of 1934.
31.2 Certification of Chief Financial Officer in the form prescribed by Rule 13a-14(a) or 15d-14(a) under the
Securities Exchange Act of 1934.
32.1 Certification of Chief Executive Officer in the form prescribed by 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer in the form prescribed by 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
26
SIGNATURES
Autocam Corporation has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: FebruaryAUTOCAM CORPORATION
November 12, 1999
Autocam Corporation
-------------------2004 /s/ John C. Kennedy
------------------------------------ ------------------------------------ ------------------------------
Date John C. Kennedy
Principal Executive Officer
/s/ Warren A. Veltman
-----------------------------------
Warren A. Veltman
Principal Financial and
Accounting Officer
21President
27
22EXHIBIT INDEX TO EXHIBITS
EXHIBIT
NO.NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------------------
Exhibit 10.1 Second Amended and Restated Revolving Credit and Term Note
Agreement, dated November 12, 1998, between Comerica Bank,31.1 Certification of Chief Executive Officer in the form prescribed by Rule
13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.
31.2 Certification of Chief Financial Officer in the form prescribed by Rule
13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.
32.1 Certification of Chief Executive Officer in the form prescribed by 18
U.S.C. Section 1350, as agent, andadopted pursuant to Section 906 of the
Registrant.
Exhibit 27Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Data ScheduleOfficer in the form prescribed by 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
28