SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 29, 2001, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
-------- -------
COMMISSION FILE NO. 333-56461
TALON AUTOMOTIVE GROUP, INC.
(Exact name of registrant as specified in its charter)
MICHIGAN 38-3382174
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
900 WILSHIRE DRIVE, SUITE 203, TROY, MICHIGAN 48084
(Address of principal executive offices) (Zip Code)
(248) 362-7600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
---------- ----------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents required
to be filed by section 12, 13 or 15(d) of the Securities and Exchange Act of
1934 subsequent to the distribution of the securities under a plan confirmed by
a court.
Yes No
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APPLICABLE ONLY TO CORPORATE USERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares Outstanding
Class at November 13, 2001
------------------------------- -----------------------
Class A Voting Common Stock 4,074
Class B Non-Voting Common Stock 158,853
Page 1
TALON AUTOMOTIVE GROUP, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Statements of Operations (unaudited) for
the Three and Nine Month Periods Ended September 29,
2001 and September 30, 2000
Consolidated Balance Sheets at September 29, 2001 (unaudited)
and December 31, 2000
Consolidated Statements of Cash Flows (unaudited) for the
Three and Nine Month Periods Ended September 29, 2001 and
September 30, 2000
Notes to Consolidated Financial Statements (unaudited)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II OTHER INFORMATION
Page 2
TALON AUTOMOTIVE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS - UNAUDITED)
THREE MONTHS ENDED: NINE MONTHS ENDED:
-------------------------------- -------------------------------
SEPTEMBER 29, SEPTEMBER 30, SEPTEMBER 29, SEPTEMBER 30,
2001 2000 2001 2000
---- ---- ---- ----
(Debtor-in- (Debtor-in-
possession) possession)
Net sales $ 59,272 $ 56,746 $ 195,859 $ 225,060
Cost of sales 51,756 55,176 175,513 203,001
--------- --------- --------- ---------
Gross profit 7,516 1,570 20,346 22,059
Operating expenses:
SG&A 4,189 5,846 14,223 18,477
Advanced program expenses 593 768 1,754 2,198
Re-organization costs 1,909 0 3,694 0
Amortization 662 406 1,721 1,219
--------- --------- --------- ---------
Income (Loss) from operations 163 (5,450) (1,046) 165
Other (income) expenses:
Interest 1,973 4,950 11,219 14,427
Foreign currency 137 (94) (139) (294)
--------- --------- --------- ---------
Loss before income taxes (1,947) (10,306) (12,126) (13,968)
Provision for income taxes 636 (270) 1,359 1,193
--------- --------- --------- ---------
Net loss $ (2,583) $ (10,036) $ (13,485) $ (15,161)
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
Page 3
TALON AUTOMOTIVE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS - UNAUDITED)
ASSETS SEPTEMBER 29, 2001 DECEMBER 31, 2000
------ ------------------ -----------------
(Debtor-in-
possession)
Current assets:
Cash $ 8,051 $ 1,564
Accounts receivable 26,420 40,164
Inventory 16,487 17,930
Reimbursable tooling 11,950 9,932
Prepaid expenses 4,306 2,267
---------- -----------
Total current assets 67,214 71,857
Property, plant and equipment, net 84,674 88,090
Goodwill and other assets, net 61,366 64,819
---------- -----------
$ 213,254 $ 224,766
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Senior credit facility $ 64,338 $ 63,831
Senior subordinated notes 120,000 120,000
Accounts payable - Pre-petition 15,487 0
Accounts payable 30,130 39,283
Accrued liabilities 35,964 39,501
Deferred tooling revenue 8,109 6,378
Current portion of debt and capital leases 311 1,303
---------- -----------
Total current liabilities 274,339 270,296
Capital leases 1,004 1,149
Deferred income taxes 2,994 3,155
---------- -----------
Total non-current liabilities 3,998 4,304
Shareholders' equity:
Common stock 1,250 1,250
Paid in capital 1,413 1,413
Retained earnings (deficit) (64,542) (51,057)
Accumulated other comprehensive income (loss) (3,204) (1,440)
---------- -----------
Total shareholders' equity (65,083) (49,834)
---------- -----------
$ 213,254 $ 224,766
========== ===========
See accompanying notes to consolidated financial statements.
Page 4
TALON AUTOMOTIVE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS - UNAUDITED)
THREE MONTHS ENDED: NINE MONTHS ENDED:
SEPTEMBER 29, SEPTEMBER 30, SEPTEMBER 29, SEPTEMBER 30,
2001 2000 2001 2000
---- ---- ---- ----
(Debtor-in- (Debtor-in-
possession) possession)
Net loss $ (2,583) $(10,036) $(13,485) $(15,161)
Depreciation and amortization 3,226 2,652 9,271 7,956
Other non-cash expenses 136 172 496 521
Change in operating assets and liabilities:
Accounts receivable (1,333) 10,175 13,452 5,477
Inventories (1,001) 1,206 1,440 1,749
Reimbursable tooling, net (4,525) 3,899 (345) (4,236)
Prepaids (754) 401 (2,032) 733
Accounts payable 16,384 (6,603) 6,555 (8,542)
Accrued liabilities (20) 1,200 (3,398) 1,728
Other operating items 200 (1,296) 1,602 (2,179)
-------- -------- -------- --------
Cash provided by (used in) operating activities 9,730 1,770 13,556 (11,954)
Investing Activities:
Additions to property and equipment (263) (3,710) (4,688) (4,545)
Financing Activities:
Proceeds (Payments) on long-term borrowings (2,990) 2,030 507 17,508
Payments on long-term debt (381) (376) (1,124) (1,240)
-------- -------- -------- --------
Cash provided by (used in) financing activities (3,371) 1,654 (617) 16,268
Effects of exchange rates (1,098) (162) (1,764) (53)
-------- -------- -------- --------
Net change in cash 4,998 (448) 6,487 (284)
Beginning cash 3,053 872 1,564 708
-------- -------- -------- --------
Ending cash $ 8,051 $ 424 $ 8,051 $ 424
======== ======== ======== ========
Page 5
See accompanying notes to consolidated financial statements.
TALON AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
by Talon Automotive Group, Inc. (the "Company"), pursuant to the rules and
regulations of the Securities and Exchange Commission. The information furnished
in the consolidated financial statements includes normal recurring adjustments
and reflects all adjustments which are, in the opinion of management, necessary
for a fair presentation of such financial statements. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. Financial results for the
interim period are not necessarily indicative of results that may be expected
for any other interim period or the fiscal year. The unaudited consolidated
financial statements should be read in conjunction with the Company's audited
consolidated financial statements and notes thereto for the year ended December
31, 2000.
For the nine month period ending September 29, 2001, the consolidated financial
statements and the notes thereto included in the Company's Form 10-Q have not
been reviewed by its independent accountants because the independent accountants
had not obtained bankruptcy court approval for their retention during the
bankruptcy proceedings as of the date of the filing. It is anticipated that the
review of the financial statements will be completed by the Company's
independent accountants when their retention is approved by the court.
The Company reports quarterly financial information in thirteen-week increments
and ends each respective quarter on the Saturday following the thirteenth week
with the fiscal year ending December 31.
2. EFFECT OF ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivatives Instruments
and Hedging Activities--Deferral of the Effective Date of FASB Statement No.
133--an Amendment of FASB Statement No. 133." Statement No. 137 defers the
effective date of Statement No. 133 by one year to fiscal years beginning after
June 15, 2000. Accordingly, the Company adopted Statement No. 133 beginning in
2001. Implementation of this statement did not have a material impact on the
Company's results of operations.
3. DEBT
As of June 29, 2001, pursuant to the Second Amended and Restated Credit
Agreement, the Company entered into a $100 million debtor-in-possession
financing agreement (the "DIP Financing Agreement") with a syndicate of banks,
the purpose of which is to provide super-priority secured credit to the Company
so that it might continue to operate its business during the course of the
Chapter 11 reorganization proceeding. Borrowings under the DIP Financing
Agreement are limited to the availability under a borrowing base which includes
eligible receivables, inventory, tooling, and fixed assets, and are adjusted
daily based upon cash availability and availability under the borrowing base.
The interest rates are based upon the prime rate plus an applicable margin as
defined in the DIP Financing Agreement. The Company had borrowings outstanding
under the DIP Financing Agreement of $64.3 million on September 29, 2001, with
availability including cash on hand on that date of approximately $18.5 million.
The DIP Financing Agreement requires the Company to maintain certain financial
covenants. The Company was in compliance with all financial covenants on
September 29, 2001.
4. COMMITMENTS AND CONTINGENCIES
As of September 29, 2001, there were no significant changes to the status of
commitments and contingencies presented in the footnotes to the financial
statements for the fiscal year ended December 31, 2000.
Page 6
5. INVENTORIES
Inventory consisted of the following:
SEPTEMBER 29, 2001 DECEMBER 31, 2000
------------------ -----------------
UNAUDITED
Raw material $ 5,476 $ 6,562
Work in process 6,185 6,008
Finished goods 4,826 5,360
----------- -----------
Total Inventory $16,487 $17,930
6. COMPREHENSIVE LOSS
The Company's comprehensive loss includes the reported net loss and the change
in accumulated foreign currency translation adjustment. For the three months and
nine months ended September 29, 2001, the comprehensive loss was $3.7 million
and $15.2 million, respectively, as compared to $10.2 million and $15.2 million
for the three months and nine months ended September 30, 2000.
7. SUPPLEMENTAL GUARANTOR INFORMATION
Veltri Metal Products Co. and Veltri Holdings, Inc. (collectively, the "Veltri
Group") are wholly-owned subsidiaries of the Company and constitute all of the
direct and indirect subsidiaries of the Company. The Veltri Group has fully and
unconditionally guaranteed, on a joint and several basis, the obligation to pay
principal, premium, if any, and interest with respect to the Company's senior
subordinated notes.
There are no restrictions on the ability of the Veltri Group to transfer funds
to the Company in the form of cash dividends, loans or advances, except as
follows: (i) pursuant to the senior credit agreement the Veltri Group agreed not
to (a) declare or make any dividend or other distribution with respect to any
shares of capital stock; or (b) make loans, advances or extensions of credit to
any person (except for credit sales in the ordinary course of business and loans
to affiliates in an aggregate amount not to exceed $15 million at any time
outstanding); and (ii)pursuant to the indenture agreement for the Company's
senior subordinated notes, the Veltri Group is prohibited from making loans or
advances to the Company if a default or event of default shall have occurred
under the indenture.
Management does not believe that separate financial statements for the Veltri
Group are material to investors. Therefore, separate financial statements and
other disclosures concerning the Veltri Group have been omitted, and in lieu
thereof, summarized financial information relating to the Veltri Group is shown
as follows:
SEPTEMBER 29, 2001 DECEMBER 31, 2000
------------------ -----------------
UNAUDITED
Current assets $35,869 $30,651
Non-current assets 56,294 55,527
Current liabilities 38,081 36,890
Non-current liabilities 33,912 33,330
NINE MONTHS ENDED:
SEPTEMBER 29, 2001 SEPTEMBER 30, 2000
------------------ ------------------
UNAUDITED UNAUDITED
Net sales $96,869 $86,834
Gross profit 17,963 16,385
Net income 1,916 1,754
Page 7
8. RESTRUCTURING CHARGE
During the quarter ended December 31, 2000, the Company initiated a plan to
integrate what was formerly known as the PSI division into other existing
Company operations. This plan included the closure of four existing PSI
facilities in 2000 and 2001 and the movement of existing sales volume and
corresponding equipment into existing operations in New Baltimore, Michigan,
Royal Oak, Michigan and Windsor, Ontario, Canada. As of June 30, 2001 the
integration had been completed and approximately 170 employees were eliminated
with estimated savings totaling $9.6 million per year. In addition, four
facilities with related infrastructure costs were eliminated with estimated
savings of $2.8 million per year. Cost savings from the integration began to be
realized by the Company during the third quarter.
As a result of this restructuring plan, the Company recorded a $10.2 million
restructuring charge in 2000. This reserve includes severance benefits for
terminated employees, the write-off of certain leasehold improvements, future
lease obligations for buildings that have been or will be vacated and other
facility closure costs. During the nine months ended September 29, 2001, the
Company incurred $2.5 million of severance and facility shutdown costs which
were charged against this reserve, leaving a balance of $7.7 million as of
September 29, 2001.
9. SUBSEQUENT EVENT
On November 2, 2001, the plan of reorganization (the "Canadian Plan") filed by
Veltri Metal Products Co. ("Veltri"), the Company's Canadian subsidiary, was
confirmed by the judge in the Ontario Superior Court of Justice. Upon the
Canadian Plan's effective date, Veltri will no longer be a guarantor of the
Company's 9.625% $120 million Senior Subordinated Notes due May 1, 2008 (the
"Notes").
On November 14, 2001, plans of reorganization (collectively, the "Chapter 11
Plan") filed by the Company and its subsidiary, VS Holdings, Inc. ("VS
Holdings") were confirmed by the judge in the United States Bankruptcy Court,
Eastern District of Michigan, Southern Division. Upon the Chapter 11 Plan's
effective date, the Notes will be exchanged for 97% of the outstanding
common stock in a reorganized VS Holdings. The exchange will eliminate $120
million of debt of VS Holdings and approximately $11.5 million of interest
expense per year. The Company anticipates its Chapter 11 and Canadian
proceedings to be completed and effective by December 31, 2001.
The Canadian Plan and the Chapter 11 Plan will become effective at the same
time, following the expiration of certain statutory periods and the repayment
of the Company's DIP facility. Following the effective date, the Company intends
to utilize "fresh starting" accounting as prescribed in Statement of Position
90-7 "Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code".
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 29, 2001, AS COMPARED TO THE THREE
AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000
Net Sales
Net sales for the three month period ended September 29, 2001 ("third quarter
2001") were $59.2 million compared to $56.7 million for the three month period
ended September 30, 2000 ("third quarter 2000"). This represents an increase of
$2.5 million or 4.5% as compared to the prior year. The increase was primarily
due to new product launches.
For the nine month period ended September 29, 2001 (the "year-to-date period"),
net sales were $195.9 million compared to $225.1 million for the same period in
the prior year. This represents a decrease of $29.2 million or 13.0% compared to
the same period in 2000.
Page 8
This decrease was primarily due to lower DaimlerChrysler LH/LHS/300M volumes, a
decrease in production by the OEM's to decrease the inventory held by their
dealers, resulting in lower sales to the OEM's, and DaimlerChrysler's
phasing-out of various parts supplied by the Company.
Management does not believe the Company will lose any of its current contracts
or forecasted business as a result of the Company's bankruptcy proceedings
described in Part II, Item 1 of this report. However, management does believe,
based on current and forecasted economic conditions and the anticipated
reluctance of major customers to award new business to the Company in view of
the Company's bankruptcy proceedings, that net sales for the current year will
be significantly less than net sales in 2000.
Gross Profit
Gross profit for the third quarter 2001 was $7.5 million or 12.7% of net sales
compared to $1.6 million or 2.8% of net sales for the third quarter 2000. This
represents an increase of $5.9 million or 378.7%. The increase was primarily due
to new product launches and cost savings associated with integration of the
Company's PSI division into the Company's other operations (described in the
first paragraph of footnote 8 to the 2001 third quarter financial statements
contained in this report and incorporated herein by reference). For the
year-to-date period, gross profit was $20.3 million or 10.4% of net sales
compared to $22.1 million or 9.8% of net sales for the same period last year.
This represents a decrease of $1.7 million or 7.7%. The decrease was primarily
due to lower sales to DaimlerChrysler, costs associated with integration of the
Company's PSI division into the Company's other operations (described in the
first paragraph of footnote 8 to the 2001 third quarter consolidated financial
statements contained in this report and incorporated herein by reference), and
overhead costs incurred in preparation for the 2002 Jeep Liberty program launch.
Selling, General and Administrative Expenses ("SG&A")
SG&A expenses for the third quarter 2001 were $4.2 million or 7.1% of net sales
compared to $5.8 million or 10.3% of net sales for the third quarter 2000, a
decrease of $1.6 million or 28.3%. For the year-to-date period, SG&A expenses
were $14.2 million or 7.3% of net sales compared to $18.5 million or 8.2% of net
sales for the same period in the prior year. This represents a decrease of $4.3
million or 23.0%. The decrease was primarily due to corporate cost reductions
and integration of the PSI division (described in the first paragraph of
footnote 8 to the 2001 third quarter consolidated financial statements contained
in this report and incorporated herein by reference).
Advanced Program Expenses
Advanced program expenses are the investment costs incurred by the Company in
engineering and program management for future programs. Advanced program
expenses for the third quarter 2001 were $0.6 million, or 1.0% of net sales,
compared to $0.8 million or 1.4% of net sales for the third quarter 2000, a
decrease of $0.2 million or 22.8%. For the year-to-date period, advanced program
expenses were $1.8 million or 0.9% of net sales compared to $2.2 million or 1.0%
of net sales for the same period in the prior year, a decrease of $0.4 million
or 20.2%. The decrease was primarily due to corporate cost reductions.
Reorganization Costs
Reorganization costs are professional fees incurred in connection with the
Company's bankruptcy proceedings. Reorganization costs for the third quarter
2001 were $1.9 million, or 3.2% of net sales. For the year-to-date period,
reorganization costs were $3.7 million, or 1.9% of net sales. No reorganization
costs were incurred by the Company prior to fiscal year 2001.
Amortization Expense
Amortization expense for the third quarter 2001 was $0.6 million or 1.1% of net
sales compared to $0.4 million or 0.7% of net sales for the third quarter 2000,
an increase of $0.2 million or 63.1%. For the year-to-date period, amortization
expense was $1.7 million or 0.9% of net sales compared to $1.2 million or 0.5%
of net sales for the same period in the prior year, an increase of $0.5 million
or 41.2%. The increase was primarily due to amortization of costs associated
with the design and development of products for the Jeep Liberty program.
Page 9
Interest Expense
At the end of May 2001, it became apparent that the Company would file for
bankruptcy and the Company stopped accruing interest on the subordinated notes.
Interest expense, including interest payments and accrued interest, for the
third quarter 2001 was $2.0 million or 3.3% of net sales, as compared to $4.9
million or 8.7% of net sales for the third quarter 2000, a decrease of $2.9
million or 60.1%. The decrease was primarily due to the discontinued interest
accrual on the subordinated notes, offset by bank fees related to the DIP
Financing Agreement. There was no accrued interest on the subordinated notes in
the third quarter 2001 compared to $2.9 million for the third quarter 2000.
Interest payments and bank fees under the Company's senior credit facility
during the third quarter 2001 were approximately $2.0 million.
For the year-to-date period, interest expense was $11.2 million or 5.7% of net
sales compared to $14.4 million or 6.4% of net sales for the same period in the
prior year, a decrease of $3.2 million or 22.2%. The decrease was primarily due
to the discontinued interest accrual on the subordinated notes, offset by bank
fees related to the DIP Financing Agreement. Year-to-date accrued interest on
the subordinated notes was $4.6 million compared to $8.7 million in 2000, while
interest payments and bank fees under the Company's senior credit facility were
approximately $6.6 million.
Foreign Currency
Foreign currency gains and losses all relate to the Company's Canadian operation
and fluctuations in the exchange rate between the U.S. and Canadian dollar. The
foreign currency loss for the third quarter 2001 was $0.1 million, compared to a
foreign currency gain of $0.1 million in the third quarter of 2000. For the
year-to-date period, foreign currency was a gain of $0.1 million as compared to
a gain of $0.3 million for the same period in the prior year.
Income Taxes
The Company's shareholders have elected under the provisions of the Internal
Revenue Code to be treated as an S-Corporation with respect to the Company's
U.S. operations. As a result, income taxes relate solely to the Company's
Canadian operations. There was $0.6 million in the provision for Canadian income
taxes for the third quarter 2001 compared to ($0.3) million for the third
quarter 2000. For the year-to-date period, income taxes were $1.4 million as
compared to $1.2 million for the same period in the prior year. The increase in
taxes was due to the increase in sales and related profitability in Canada.
Upon confirmation of the Company's plan of reorganization under the bankruptcy
proceedings, the reorganized VS Holdings will convert from an S-Corporation to a
C-Corporation. Management does not anticipate that the Company will incur any
material additional tax liability this year as a result of this conversion.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are for working capital, servicing the
Company's indebtedness and capital expenditures.
The Company's liquidity is affected by both the cyclical nature of its business
and levels of net sales to its major customers. The Company's ability to meet
its working capital and capital expenditure requirements and debt obligations
will depend on its future operating performance, which will be affected by
prevailing economic conditions and financial, business and other factors,
certain of which are beyond its control. The Lockup Agreement entered into by
the Company and certain of the Company's noteholders as of May 30, 2001
(described in this report under the heading "Senior Subordinated Notes")
facilitates an exchange of outstanding notes for stock, which will result in a
significant reduction in the outstanding indebtedness and interest obligations
of the Company and will improve the Company's liquidity (described in footnote 9
to the 2001 third quarter financial statements contained in this report and
incorporated herein by reference).
Net cash flow provided by operating activities totaled $13.6 million for the
year-to-date period, as compared to $12.0 million of cash used during the same
period last year. The change compared to the prior year was due to favorable
customer receipts, reduced net loss and an increase in accounts payable.
Page 10
Net cash used in investing activities primarily relates to capital expenditures.
For the year-to-date period, capital expenditures totaled $4.7 million, compared
to $4.5 million for the same period last year. Capital expenditures were made
primarily for new machinery and equipment for the DaimlerChrysler 2003 CS hybrid
vehicle and the integration of the PSI division. Year-to-date capital
expenditures, as compared to the same period last year and excluding
sale-leaseback transactions of $10.4 million, decreased $10.3 million due to the
completion of the Company's preparation for the 2002 Jeep Liberty program.
Net cash provided by financing activities was ($0.6) million for the
year-to-date period, compared to $16.3 million for the same period last year.
For the 2000 year-to-date period, financing activities primarily related to
incremental borrowings on the Company's senior credit facility to finance the
Company's net loss, accounts payable and capital investments. The Company
believes that financing requirements for the remainder of fiscal year 2001 will
be provided by the Exit Facility (as described in Part I Item 2 and incorporated
herein by reference).
EBITDA
EBITDA after Reorganization Costs for the third quarter 2001 was $3.4 million as
compared to ($2.8) million for the third quarter 2000. This represents an
increase of $6.2 million or 221.4% as compared to the prior year period.
Year-to-date EBITDA after Reorganization Costs was $8.2 million, compared to
$8.1 million for the same period last year. EBITDA is defined as income from
operations plus depreciation and amortization and may not be comparable to
similarly-titled measures of other companies. EBITDA is presented because it is
a widely accepted non-GAAP financial indicator of a company's ability to incur
and service debt. However, EBITDA should not be considered in isolation as a
substitute for net income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity.
SENIOR CREDIT FACILITY
On June 29, 2001, the Company entered into the DIP Financing Agreement described
in Note 3 to the 2001 third quarter consolidated financial statements disclosed
in this report and incorporated herein by reference. On July 11, 2001, the DIP
Financing Agreement was approved by the judge in the Chapter 11 Proceeding (as
described in Part II, Item 1 and incorporated herein by reference).
In connection with the confirmation of the Chapter 11 Plan and the Canadian Plan
(as described in Note 9 to the 2001 third quarter consolidated financial
statements contained in this report and incorporated herein by reference), the
Company and its subsidiaries have entered into a commitment letter from the
Company's existing bank group for an $85 million credit facility which will be
in place on or about December 5, 2001 (the "Exit Facility"). Proceeds from the
Exit Facility will be used to pay off borrowings made by the Company under its
DIP Financing Agreement and for general corporate purposes following the
Company's emergence from bankruptcy. Borrowings under the Exit Facility will be
limited to the availability under a borrowing base which includes eligible
receivables, inventory and fixed assets, and will be adjusted daily based upon
cash availability and availability under the borrowing base. The interest rates
are based upon the prime rate plus an applicable margin between 1-1/2% to
3-1/2%. The Exit Facility will have a maturity of June 30, 2002. The Company
plans to repay borrowings made under its DIP Financing Agreement when the Exit
Facility is in place.
SENIOR SUBORDINATED NOTES
The Company elected not to make the November 1, 2000, interest payment, when
due, on the $120 million principal amount of its 9.625% Senior Subordinated
Notes due May 1, 2008 (the "Notes"). The Notes were declared in default on
December 1, 2000 following the expiration of a 30-day grace period. On June 7,
2001, the Company and its subsidiaries, VS Holdings, Inc. ("VS Holdings") and
Veltri Metal Products Co. ("Veltri"), together with the holders (the "Consenting
Holders") of approximately 71.6% (excluding certain "insider holders") of the
Company's Notes, signed a Lockup Agreement dated as of May 30, 2001 (the "Lockup
Agreement").
Page 11
The Consenting Holders supported the plans of reorganization filed by the
Company and VS Holdings in the Chapter 11 Proceeding and by Veltri in the
Canadian Proceeding (both the Chapter 11 Proceeding and the Canadian Proceeding
are described in Part II, Item 1 of this report and incorporated herein by
reference). Pursuant to the Chapter 11 Plan and the Canadian Plan, each of which
has been confirmed as described in Part II, Item 1 of this report (incorporated
herein by reference), Veltri will cease to be a guarantor of the Notes, and the
Notes will be exchanged for 97% of the outstanding common stock in a reorganized
VS Holdings.
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The words "anticipate",
"believe", "estimate" and "expect" and similar expressions are generally
intended to identify forward-looking statements. Readers are cautioned that any
forward-looking statements, including statements regarding the intent, belief,
or current expectations of the Company or its management, are not guarantees of
future performance and involve risks and uncertainties, that may cause actual
results to differ materially from expected or projected results. As regards the
Company, these risks and uncertainties include, among others: (i) general
economic conditions in the markets in which the Company operates; (ii) the
degree to which the Company is leveraged; (iii) labor disputes involving the
Company or its significant customers; (iv) changes in practices and/or policies
of the Company's significant customers toward outsourcing automotive components
and systems; (v) the Company's reliance on major customers and selected models;
(vi) foreign currency and exchange fluctuations; (vii) changes in practices
and/or policies of the Company's significant customers toward outsourcing
automotive components and systems; and (viii) other risks detailed from time to
time in the Company's filings with the Securities and Exchange Commission. The
Company does not intend to update its forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the potential loss arising from adverse changes in market rates
and prices, including changes in foreign currency exchange rates, interest rates
and commodity prices. The Company believes there was no significant change in
its market risk factors since December 31, 2000.
Page 12
PART II. OTHER INFORMATION
TALON AUTOMOTIVE GROUP, INC.
Item 1. Legal Proceedings:
On June 29, 2001 (the "Petition Date"), the Company and VS Holdings
(collectively, the "Debtors") filed voluntary petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court, Eastern District of Michigan, Southern Division, as anticipated by the
Lockup Agreement described in Part 1, Item 2, "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Senior Subordinated
Notes". These cases (collectively, the "Chapter 11 Proceeding") were jointly
administered but not substantively consolidated. Following the Petition Date,
each of the Company and VS Holdings was a debtor in possession of its property
and continued to operate and manage its business.
Also on the Petition Date, and as anticipated by the Lockup Agreement, Veltri
filed a voluntary petition for relief under the Companies' Creditors Arrangement
Act in the Ontario Superior Court of Justice (the "Canadian Proceeding").
Veltri's plan of reorganization was confirmed on November 2, 2001.
On November 14, 2001, the judge in the Chapter 11 Proceeding entered an order
(the "Order") approving the Joint Combined Second Amended Plan of Reorganization
and Second Amended Disclosure Statement, dated August 15, 2001, proposed by the
Company and VS Holdings (the "Chapter 11 Plan"). The Chapter 11 Plan was
supported by the noteholder committee whose members are parties to the Lockup
Agreement (the "Noteholder Committee"). The following is a summary of the
material features of the Chapter 11 Plan, as modified by the Order, and is
qualified in its entirety by all of the provisions of the Chapter 11 Plan,
including all exhibits and documents which are part of the Chapter 11 Plan. The
Chapter 11 Plan and the Order are filed as Exhibits 2.1 and 2.2 to this report,
respectively, and are incorporated herein by reference.
The Chapter 11 Plan provides for the classification of the claims of creditors
against the Debtors into the following seven classes:
Class Type of Creditor
----- ----------------
Class 1 Other Priority Claims
Class 2 Secured Lenders Claim
Class 3 Other Secured Claims
Class 4 General Unsecured Claims
Class 5 Note Claims and other Impaired
Unsecured Claims
Class 6 VS Holdings Interests
Class 7 The Company's Interests
- - The creditors in Classes 1, 2, and 4 are to receive cash equal to the
unpaid portion of their claims.
- - The claims of the creditors in Class 3 are to be paid in full in the
ordinary course of business, in accordance with the agreements existing on
the Petition Date between them and the Debtors.
- - The interests of the creditors in Class 5, the holders of the Notes, are to
be converted into shares of common stock of the reorganized VS Holdings.
Each Noteholder is to receive a pro rata share of 97% of the common stock
of the reorganized VS Holdings, and the Notes and the Indenture dated as of
April 28, 1998, pursuant to which the Notes were issued, will be canceled.
- - The reorganized Company, the Class 6 creditor, is to receive the remaining
3% of the common shares issued by the reorganized VS Holdings. The common
stock of VS Holdings issued and outstanding as of the Petition Date is to
be canceled.
- - The shareholders of the Company, the Class 7 creditors, are to be
unaffected under the Chapter 11 Plan.
- - Certain parties to nonresidential real property leases rejected by the
Company will receive cash in satisfaction of their claims, pursuant to a
separate order entered by the judge in the Chapter 11 Proceeding.
- - The Company will receive three series of warrants to purchase shares of
stock of VS Holdings equal in the aggregate to 20% of the equity of VS
Holdings. Under the Series A Warrants, the Company will receive Warrants to
purchase 256,410 shares of VS Holdings at a price of $8.66 per share. Under
the Series B Warrants, the Company will receive Warrants to purchase
262,985 shares at a price of $9.89 per share. Under the Series C Warrants,
the Company will receive Warrants to purchase 1,856,364 shares of VS
Holdings
Page 13
at a price of $11.51 per share. The Warrants will have a 5-year term and
will contain customary anti-dilution provisions and other customary
protections.
- - The Company will transfer and assign all of its assets subject to its
liabilities to VS Holdings. Following this transfer, the Company's only
remaining asset will be its 3% interest in VS Holdings. VS Holdings will
perform all obligations of the Company which have been assigned to it,
pursuant to the terms of the Chapter 11 Plan.
- - VS Holdings will enter into a Registration Rights Agreement with the
parties to the Lockup Agreement. The Registration Rights Agreement will
provide for the filing of shelf registration statement by VS Holdings and
certain other standard demand and piggy-back registration and
transferability rights.
- - The management employees of VS Holdings will be eligible to participate in
a Management Option Plan under which the employees will receive the right
to purchase common stock of the reorganized VS Holdings pursuant to the
provisions of the Chapter 11 Plan.
- - As required by and in furtherance of the Chapter 11 Plan, the Articles of
Incorporation of VS Holdings will be amended. The amended Articles of VS
Holdings will not provide for the issuance of non-voting stock.
- - The board of directors of the reorganized VS Holdings will consist of seven
directors, five of whom will be nominated by the Noteholder Committee and
one of whom will be nominated by old equity holders. The remaining director
will be the chief executive officer of VS Holdings.
The Chapter 11 Plan contemplates that, on its effective date, the Debtors will
release, waive and discharge all claims and causes of action (collectively,
"Claims") existing as of that date, and all Claims arising under Chapter 5 of
the Bankruptcy Reform Act of 1978 and created by the filing of the Chapter 11
Proceeding (and pertaining to Claims existing as of the Petition Date) against
(1) the pre-petition senior secured lenders to the Company and their agents,
attorneys, employees, officers and directors, and (2) the current and former
officers and directors of the Debtors, only with respect to those Claims based
upon acts and omissions of these persons in their capacity as officers and
directors of the Debtors (other than with respect to Claims for employment or
consulting contracts, the receipt of transfers from the Debtors in connection
with acquisitions of subsidiaries, enterprises or material assets, or acts or
omissions that constitute gross negligence, fraud or willful misconduct).
The Chapter 11 Plan and the Canadian Plan will become effective simultaneously
when certain statutory periods have expired and the Company's DIP facility has
been repaid. The Company anticipates the Chapter 11 Plan and the Canadian Plan
will be effective by December 31, 2001.
As of November 13, 2001, there were 4,074 shares of Class A voting common stock
of the Company issued and outstanding, and 158,853 shares of Class B non-voting
common stock of the Company issued and outstanding. These outstanding shares
will remain issued and outstanding following the effective date of the Chapter
11 Plan.
For financial information regarding the assets and liabilities of the Company,
refer to the unaudited financial statements as of September 29, 2001, contained
in this report and incorporated herein by reference. Upon emergence from the
Chapter 11 Proceeding, the Company will adopt "fresh start" accounting, under
which the Company will restate all assets and liabilities at their respective
fair values based upon the terms of the Chapter 11 Plan. The Company has not yet
determined the impact of fresh start accounting on the historical consolidated
financial statements.
All documents filed with or entered by the court are available for inspection at
the office of the Clerk of the Bankruptcy Court, Clerk of Court, Intake Section,
United States Bankruptcy Court, 211 W. Fort Street, 21st Floor, Detroit,
Michigan 48226.
Item 2. Change in Securities: None
Item 3. Defaults Upon Senior Securities:
The Company has defaulted on its Senior Subordinated Notes due May 1, 2008. See
Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and
Results of Operations - - Senior Subordinated Notes" incorporated herein by
reference.
Item 4. Submission of Matters to a Vote of Security Holders: None
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K:
(a) See Index to Exhibits provided elsewhere in this report.
(b) None.
Page 14
SIGNATURE
Pursuant to the requirements of the Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
TALON AUTOMOTIVE GROUP, INC.
By: /s/ David J. Woodward
----------------------------
David J. Woodward
Vice President of Finance, Chief Financial
Officer and Treasurer
Date: November 19, 2001
EXHIBIT INDEX
<Table>
<Caption>
Exhibit No. Description
- ----------- -----------
2.1 Debtor's Joint Combined Second Amended Plan of Reorganization and
Second Amended Disclosure Statement, Dated August 13, 2001
2.2 Order (I) granting final approval to Debtors' Joint Second Amended
Disclosure Statement; and (II) confirming Debtors' Joint Second
Amended Plan of Reorganization, dated August 15, 2001.
3.1 Articles of Incorporation of Talon Automotive Group, Inc., as amended,
including Certificate of Merger dated as of November 27, 1997,
Certificate of Assumed Name dated as of April 9, 1998, Certificate of
Merger/Consolidation dated as of April 28, 1998, and Certificates of
Share Exchange dated as of April 28, 1998 (incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-4 filed
on June 9, 1998 (Commission File No. 333-56461))
3.2 Articles of Incorporation of VS Holdings, Inc., as amended, including
Certificate of Merger/Consolidation dated as of April 28, 1998,
Certificate of Share Exchange dated as of April 28, 1998, and Articles
of Share Exchange dated as of April 28, 1998 (incorporated by reference
to Exhibit 3.2 to the Company's Registration Statement on Form S-4
filed on June 9, 1998 (Commission File No. 333-56461))
3.3 Articles of Incorporation of Veltri Holdings USA, Inc., including
Certificate of Share Exchange dated as of April 28, 1998 (incorporated
by reference to Exhibit 3.3 to the Company's Registration Statement on
Form S-4 filed on June 9, 1998 (Commission File No. 333-56461))
3.4 Certificate of Status and Order of Amalgamation of Veltri Metal
Products Co. (incorporated by reference to Exhibit 3.4 to the Company's
Registration Statement on Form S-4 filed on June 9, 1998 (Commission
File No. 333-56461))
3.5 By-laws of Talon Automotive Group, Inc. (incorporated by reference to
Exhibit 3.5 to the Company's Registration Statement on Form S-4 filed
on June 9, 1998 (Commission File No. 333-56461))
3.6 By-laws of VS Holdings, Inc. (incorporated by reference to Exhibit 3.6
to the Company's Registration Statement on Form S-4 filed on June 9,
1998 (Commission File No. 333-56461))
3.7 By-laws of Veltri Holdings USA, Inc. (incorporated by reference to
Exhibit 3.7 to the Company's Registration Statement on Form S-4 filed
on June 9, 1998 (Commission File No. 333-56461))
3.8 Articles of Association of Veltri Metal Products Co. (incorporated by
reference to Exhibit 3.8 to the Company's Registration Statement on
Form S-4 filed on June 9, 1998 (Commission File No. 333-56461))
3.9 Agreement and Plan of Merger dated as of April 28, 1998 by and between
VS Holdings, Inc. and VS Holdings No. 2, Inc. (incorporated by
reference to Exhibit 3.9 to the Company's Registration Statement on
Form S-4 filed on June 9, 1998 (Commission File No. 333-56461))
3.10 Agreement and Plan of Merger dated as of April 28, 1998 by and between
Production Stamping, Inc., Hawthorne Metal Products Company, and J&R
Manufacturing Inc. (incorporated by reference to Exhibit 3.10 to the
Company's Registration Statement on Form S-4 filed on June 9, 1998
(Commission File No. 333-56461))
3.11 Agreement and Plan of Merger dated as of April 28, 1998 by and between
the Company and TAG L.L.C. (incorporated by reference to Exhibit 3.11
to the Company's Registration Statement on Form S-4 filed on June 9,
1998 (Commission File No. 333-56461))
3.12 Agreement and Plan of Share Exchange dated as of April 28, 1998 by and
between the Company and VS Holdings, Inc. (incorporated by
</Table>
Page 15
reference to Exhibit 3.12 to the Company's Registration Statement on
Form S-4 filed on June 9, 1998 (Commission File No. 333-56461))
3.13 Agreement and Plan of Share Exchange dated as of April 28, 1998 by and
between the Company and Veltri Holdings USA, Inc. (incorporated by
reference to Exhibit 3.13 to the Company's Registration Statement on
Form S-4 filed on June 9, 1998 (Commission File No. 333-56461))
4 Indenture dated as of April 28, 1998 by and among the Company, as
Issuer, VS Holdings, Inc., Veltri Holdings USA, Inc. and Veltri Metal
Products Co., as Guarantors, and U.S. Bank Trust National Association,
as Trustee (incorporated by reference to Exhibit 4 to the Company's
Registration Statement on Form S-4 filed on June 9, 1998 (Commission
File No. 333-56461))
4.1 Form of 9 5/8% Senior Subordinated Note Due 2008, Series B
(incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-4 filed on June 9, 1998 (Commission File No.
333-56461))
4.2 Form of Guarantee (incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-4 filed on June 9, 1998
(Commission File No. 333-56461))
10.1 Commitment Letter and term sheet dated November 13, 2001, from Comerica
Bank, for post-reorganization financing (included in Exhibit 2.2 filed
herewith)
Page 16