SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION OR 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
LDM Technologies, Inc.
(Exact name of registrant as specified in its charter)
Michigan 333-21819 38-2690171
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
2500 Executive Hills Drive, Auburn Hills, Michigan 48326
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (248) 858-2800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by sections 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days.
YES X NO
Number of shares common stock outstanding as of August 9, 2002: 600
Total pages: 23
Listing of exhibits: 22
LDM TECHNOLOGIES, INC.
INDEX
Page No.
--------
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets, June 30, 2002 and
September 30, 2001 3
Condensed Consolidated Statements of Income, three months ended
June 30, 2002 and June 24, 2001 4
Condensed Consolidated Statements of Income, nine months ended
June 30, 2002 and June 24, 2001 5
Condensed Consolidated Statements of Cash Flows, nine months ended
June 30, 2002 and June 24, 2001 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF 18
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II OTHER INFORMATION
Item 1 Legal Proceedings 22
Item 2 Changes in Securities 22
Item 3 Defaults upon Senior Securities 22
Item 4 Submission of Matters to a Vote of Security Holders 22
Item 5 Other Information 22
Item 6 Exhibits and Reports on Form 8-K 22
Signature Page 23
2
LDM TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets
(dollars in thousands)
<Table>
<Caption>
June 30, 2002 SEPTEMBER 30, 2001
(UNAUDITED) (NOTE 1)
------------- ------------------
ASSETS
Current assets:
Cash $ 1,857 $ 2,320
Accounts receivable 61,426 48,819
Raw materials 8,447 9,163
Work in process 1,591 1,633
Finished goods 5,026 5,885
Mold costs 4,221 19,588
Refundable income taxes 1,683
Deferred income taxes 3,369 2,612
Other current assets 1,651 2,517
------------- ------------------
Total current assets 87,588 94,220
Net property, plant and equipment 95,080 104,526
Goodwill, net 50,152 50,152
Debt issue costs, net 3,877 4,258
Equity investment in affiliate 6,850 6,050
Deferred income taxes 1,715
Other assets 457 1,391
------------- ------------------
Totals $244,004 $262,312
============= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 51,411 $ 53,153
Accrued liabilities 19,111 19,032
Accrued interest 5,471 2,555
Accrued compensation 4,553 2,813
Accrued income taxes 921
Current maturities of long-term debt 8,305 8,735
------------- ------------------
Total current liabilities 89,772 86,288
Lines of credit and revolving debt 1,448 18,181
Long-term debt due after one year 147,433 155,047
Deferred income taxes 1,019
STOCKHOLDERS' EQUITY
Common stock (par value, $.10; issued
authorized and outstanding 600 shares,
100,000 shares)
Additional paid-in capital 94 94
Retained earnings 4,238 2,702
------------- ------------------
Total stockholders' equity 4,332 2,796
------------- ------------------
Totals $244,004 $262,312
============= ==================
Note 1: The balance sheet at September 30, 2001 has been derived from the
audited consolidated financial statements at that date but does not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to condensed consolidated financial statements.
3
LDM TECHNOLOGIES, INC.
Condensed Consolidated Statements of Income
(dollars in thousands, unless otherwise noted)
UNAUDITED
THREE MONTHS ENDED
JUNE 30, 2002 JUNE 24, 2001
------------- -------------
Net sales $ 107,195 $ 102,193
Cost of sales 87,161 85,711
--------- ---------
Gross margin 20,034 16,482
Selling, general and administrative expenses 13,020 12,932
--------- ---------
Operating profit 7,014 3,550
Interest expense (3,878) (4,221)
Equity in net income (loss) of affiliates, net 250 (49)
International currency exchange gains 94 160
Other income (expense), net (41) 218
--------- ---------
Income (loss) before income taxes 3,439 (342)
Provision (credit) for income taxes 1,454 (717)
--------- ---------
Net income $ 1,985 $ 375
========= =========
See notes to condensed consolidated financial statements.
Total comprehensive income is not materially different from net income for the
three months ended June 24, 2001.
Effect of Adopting Financial Accounting Standards No. 142
Three Months Ended
---------------------------------------------------------
June 30, 2002 June 24, 2001
------------------------ --------------------
Reported net income $1,985 $375
Add back: Goodwill amortization,
net of income taxes 697
------------------------ --------------------
Adjusted net income $1,985 $1,072
======================== ====================
4
LDM TECHNOLOGIES, INC.
Condensed Consolidated Statements of Income
(dollars in thousands, unless otherwise noted)
UNAUDITED
NINE MONTHS ENDED
JUNE 30, 2002 JUNE 24, 2001
------------- --------------
Net sales $ 292,913 $ 296,157
Cost of sales 242,175 245,505
--------- ---------
Gross margin 50,738 50,652
Selling, general and administrative expenses 36,399 42,445
--------- ---------
Operating profit 14,339 8,207
Interest expense (11,905) (13,165)
Equity in net income (loss) of affiliates, net 800 (563)
International currency exchange losses (319) (71)
Other income (expense), net (242) (1,045)
--------- ---------
Income (loss) before income taxes 2,673 (6,637)
Provision (credit) for income taxes 1,137 (2,501)
--------- ---------
Net income (loss) $ 1,536 $ (4,136)
========= =========
See notes to condensed consolidated financial statements.
Total comprehensive income is not materially different from net income for the
nine months ended June 24, 2001.
Effect of Adopting Financial Accounting
Standards No. 142
Nine Months Ended
--------------------------------------------------
June 30, 2002 June 24, 2001
------------------------ --------------------
Reported net income (loss) $1,536 $(4,136)
Add back: Goodwill amortization,
net of income taxes 2,091
------------------------ --------------------
Adjusted net income (loss) $1,536 $(2,045)
======================== ====================
5
LDM TECHNOLOGIES, INC.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands, unless otherwise noted)
UNAUDITED
NINE MONTHS ENDED
JUNE 30, 2002 JUNE 24, 2001
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 30,235 $ 25,367
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (5,552) (18,759)
Proceeds from disposal of property, plant and equipment 20 251
Reimbursement of deposits for assets to be leased 2,780
-------- --------
NET CASH USED FOR INVESTING ACTIVITIES (5,532) (15,728)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt issuance, net of issuance
costs of $389 in 2002, $929 in 2001 (389) 9,071
Payments on long-term debt (8,044) (6,221)
Net repayments on lines of credit (16,733) (17,104)
-------- --------
NET CASH USED FOR FINANCING ACTIVITIES (25,166) (14,254)
-------- --------
Net cash change (463) (4,615)
Cash at beginning of period 2,320 4,640
-------- --------
Cash at end of period $ 1,857 $ 25
======== ========
SUPPLEMENTAL INFORMATION:
Depreciation $ 14,979 $ 14,249
Goodwill amortization 3,486
-------- --------
$ 14,979 $ 17,735
======== ========
See notes to condensed consolidated financial statements.
6
LDM TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine-month periods ending
June 30, 2002 and June 24, 2001 are not necessarily indicative of the results
that may be expected for the year ending September 29, 2002. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year ended
September 30, 2001.
Effective October 1, 2001, the Company elected to early adopt Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.
Under the new standard, goodwill is no longer amortized but is subject to annual
impairment tests in accordance with the Statement. Application of the
non-amortization provision of Statement No. 142 resulted in an increase to
pretax income of $3.5 million for the nine months ended June 30, 2002 and $1.2
million for the three months ended June 30, 2002.
On February 11, 2002, the Company acquired certain assets and the booked
business of Security Plastics West, Ltd., located in McAllen, Texas, for
approximately $3.8 million. Assets purchased included accounts receivable of
approximately $1.9 million, inventory of approximately $1.0 million and
machinery and equipment of approximately $900 thousand. The acquisition was
funded through available borrowings on the Company's line of credit. Net sales
of approximately $5.3 million and gross margin of approximately $1.0 million,
related to the McAllen facility, since the acquisition date, have been included
in the Company's results.
2. Revenue Recognition
The Company and its consolidated subsidiaries recognize revenue when legal title
transfers to the customer, generally when goods are shipped to the customer.
Shipping and handling costs are included in cost of sales.
As a result of the issuance of Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101"), along with related
interpretations and pronouncements by the SEC and other accounting standards
setting bodies, the Company evaluated the effects on its revenue recognition
policies, particularly those related to customer reimbursable tooling. As a
result, customer reimbursements for tooling for all periods presented have been
reclassified from net sales to a reduction of cost of sales. There was no impact
to net earnings or stockholder's equity resulting from this reclassification.
3. Commitments and Contingencies
There have been no significant changes in commitments and contingencies from the
matters described in footnote 11 of the Company's consolidated financial
statements as of and for the fiscal year ended September 30, 2001.
7
LDM TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
4. Derivative Financial Instruments
The Company's fair values of the swap and the collar (refer to footnote 1 of the
Company's consolidated financial statements as of and for the fiscal year ended
September 30, 2001) are reported on the balance sheet with changes in fair value
reported in the statement of operations in accordance with Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities," as amended ("FAS 133"). The Company has reflected the
fair value of these derivatives as a liability of $1.4 million which is included
as a component of accrued liabilities at June 30, 2002. The change in fair value
for the three and nine-month periods ended June 30, 2002 resulted in expense of
$48 thousand and $257 thousand, respectively. The change in fair value for the
three and nine-month periods ended June 24, 2001 resulted in income of $180
thousand and expense of $1.2 million, respectively.
5. Income Taxes
The effective tax rate for the first nine months of fiscal 2002 was 42.5%
compared to 37.7% for the first nine months of fiscal 2001. The interim
effective rates are estimated based upon fiscal year operating forecasts. The
effective tax rates differ from statutory rates due to certain nondeductible
expenses in 2002 and foreign taxes in excess of tax credits and certain
nondeductible expenses in 2001.
At June 30, 2002, the Company had net deferred tax assets of $2.4 million. The
Company evaluates the necessity for a valuation allowance on deferred tax assets
by taxing jurisdiction. Deferred tax assets in the United States and Canada
relate primarily to net operating loss carryforwards (NOL's) and Alternative
Minimum Tax (AMT) credits.
In Canada, the Company has recognized a valuation allowance of $844 thousand.
In the United States, the NOL expires in 2021. Realization of the deferred tax
assets in the United States is dependent in part upon a tax planning strategy
related to an affiliate of the Company and also on future taxable income. Both
of these are dependent upon a number of factors including, but not limited to,
sufficient levels of earnings before income taxes and the effective execution of
the tax planning strategy. Based on consideration of historical and future
earnings before income taxes, the Company believes it is more likely than not
that the deferred tax assets, beyond those specifically reserved, will be
realized.
The Company evaluates its deferred taxes and related valuation allowances
quarterly. If at any time the Company believes that current or future taxable
income will not support the basis for recognizing the benefit of the deferred
tax assets, valuation allowances are provided accordingly.
6. Related Party Transactions
The Company had a consulting arrangement with a company owned by one of its
shareholders under which payments previously were made for consulting services
rendered. Amounts paid for these services are included in selling, general and
administrative expenses and were $1.6 million for the fiscal year ended
September 30, 2001. To date in fiscal year 2002, no payments have been made to
this consulting company.
The Company and its two shareholders are party to a binding stock redemption
agreement (the "Stock Redemption Agreement"). Upon the death of either
shareholder, the Company is required to purchase and the shareholder's estate is
required to sell all of the shareholder's stock at a price equal to $25 million.
This amount payable includes the proceeds of the life insurance policies owned
by the Company on the shareholder's life.
The Company is required to purchase and maintain life insurance policies of $25
million on the lives of each of the shareholders for as long as the Stock
Redemption Agreement is in effect. The aggregate premium for these policies
presently approximates $0.7 million per year. Further, the Company is prohibited
from assigning, pledging or borrowing against these life insurance policies
without the consent of the insured shareholder.
The Stock Redemption Agreement may be terminated by mutual agreement of all
parties.
8
LDM TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
7. Restructuring
The nine month period ended June 30, 2002 includes $1.3 million for expenses
associated with employee severance at the Company's Canadian subsidiary. Such
expense has been included as a component of selling, general and administrative
expense. The employee severance relates to the downsizing of the subsidiary
facility from three shifts to one shift as certain unprofitable product lines
were exited. The severance costs accrued relate to approximately 345 employees.
Approximately $900 thousand has been paid to date. The remaining $400 thousand
has been included in accrued compensation and is expected to be paid within the
next six months.
8. Supplemental Guarantor Information
The $110 million 10 3/4% Senior Subordinated Notes due 2007, the Senior Credit
Facility, the standby letters of credit with respect to the $8.8 million
Multi-Option Adjustable Rate Notes, the $4.4 million Variable Rate Demand
Limited Obligation Revenue Bonds and the Senior Term Loan are obligations of LDM
Technologies, Inc. The obligations are guaranteed fully, unconditionally and
jointly and severally by LDM Technologies Company and LDM Holding Canada,
Inc.(collectively "LDM Canada"). Upon the divestiture of LDM Germany effective
September 30, 2001 there are no active non-guarantor subsidiaries remaining.
Accordingly, LDM Germany's results are included for each of the respective 2001
periods only.
Supplemental consolidating financial information of LDM Technologies, Inc. and
LDM Canada is presented below. Investments in subsidiaries are presented on the
equity method of accounting. Separate financial statements of the guarantors are
not provided because management has concluded that the summarized financial
information below provides sufficient information to allow investors to
separately determine the nature of the assets held by and the operations of LDM
Technologies, Inc., and the guarantor and non-guarantor subsidiaries.
9
LDM TECHNOLOGIES, INC.
Condensed Consolidating Balance Sheet as of
June 30, 2002 (Unaudited)
(dollars in thousands, unless otherwise noted)
LDM Consolidating
Technologies,Inc. LDM Canada Entries Consolidated
----------------- ---------- ------------- ------------
ASSETS
Current assets:
Cash $ 59 $ 1,798 $ 1,857
Accounts receivable 58,846 2,580 61,426
Raw materials 7,345 1,102 8,447
Work in process 1,332 259 1,591
Finished goods 4,808 218 5,026
Mold costs 4,148 73 4,221
Prepaid expenses 1,604 47 1,651
Deferred income taxes 3,321 48 3,369
----------------- ---------- ------------- ------------
Total current assets 81,463 6,125 87,588
Net property, plant and equipment 84,391 10,689 95,080
Investment in subsidiaries and affiliates 10,035 $ (3,185) 6,850
Note receivable, affiliates 8,438 (8,438)
Goodwill 50,152 50,152
Debt issue costs 3,877 3,877
Other 457 457
----------------- ---------- ------------- ------------
$ 238,813 $ 16,814 $ (11,623) $ 244,004
================= ========== ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 46,599 $ 4,681 $ 131 $ 51,411
Accrued liabilities 19,110 1 19,111
Accrued interest 5,471 5,471
Accrued compensation 4,175 378 4,553
Income taxes payable 921 921
Current maturities of long-term debt 8,305 8,305
----------------- ---------- ------------- ------------
Total current liabilities 84,581 5,060 131 89,772
Lines of credit and revolving debt 1,448 1,448
Long-term debt due after one year 147,433 8,568 (8,568) 147,433
Deferred income taxes 1,019 1,019
Stockholders' equity:
Common stock 5,850 (5,850)
Additional paid-in capital 94 94
Retained earnings 4,238 (2,664) 2,664 4,238
----------------- ---------- ------------- ------------
Total stockholders' equity 4,332 3,186 (3,186) 4,332
----------------- ---------- ------------- ------------
Total liabilities and stockholders' equity $ 238,813 $ 16,814 $ (11,623) $ 244,004
================= ========== ============= ============
10
LDM TECHNOLOGIES, INC.
Condensed Consolidating Balance Sheet as of September 30, 2001 (Unaudited)
(dollars in thousands, unless otherwise noted)
LDM Consolidating
Technologies, Inc. LDM Canada Entries Consolidated
------------------ ---------- -------------- ------------
ASSETS
Current assets:
Cash $ 23 $ 2,297 $ 2,320
Accounts receivable 41,426 7,393 48,819
Raw materials 7,159 2,004 9,163
Work in process 1,266 367 1,633
Finished goods 5,354 531 5,885
Mold costs 19,221 367 19,588
Prepaid expenses 2,462 55 2,517
Refundable income taxes 1,683 1,683
Deferred income taxes 2,565 47 2,612
--------------- ---------- -------------- ------------
Total current assets 81,159 13,061 94,220
Net property, plant and equipment 91,819 12,707 104,526
Investment in subsidiaries and affiliates 10,102 $ (4,052) 6,050
Note receivable, affiliates 10,685 (10,685)
Goodwill 50,152 50,152
Debt issue costs 4,258 4,258
Deferred income taxes 1,715 1,715
Other 1,391 1,391
--------------- ---------- -------------- ------------
$ 251,281 25,768 $ (14,737) $ 262,312
=============== ========== ============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 44,678 9,028 $ (553) $ 53,153
Accrued liabilities 17,713 1,319 19,032
Accrued interest 2,555 2,555
Accrued compensation 1,576 1,237 2,813
Current maturities of long-term debt 8,735 8,735
--------------- ---------- --------------- ------------
Total current liabilities 75,257 11,584 (553) 86,288
Lines of credit and revolving debt 18,181 18,181
Long-term debt due after one year 155,047 10,131 (10,131) 155,047
Stockholders' equity:
Common stock 5,850 (5,850)
Additional paid-in capital 94 94
Retained earnings 2,702 (1,797) 1,797 2,702
--------------- ---------- -------------- ------------
Total stockholders' equity 2,796 4,053 (4,053) 2,796
----------------- ---------- --------------- ------------
Total liabilities and stockholders' equity $ 251,281 $ 25,768 $ (14,737) $ 262,312
================= ========== =============== ============
11
LDM TECHNOLOGIES, INC.
Condensed Consolidating Statement of Operations for the
Three-Months Ended June 30, 2002 (Unaudited)
(dollars in thousands, unless otherwise noted)
LDM
Technologies, LDM Consolidating
Inc. Canada Entries Consolidated
------------- ------ ------------- ------------
Net sales $ 100,712 $6,483 $ 107,195
Cost of sales 81,328 5,833 87,161
------------- ------ ------------ ------------
Gross margin 19,384 650 20,034
Selling, general and administrative
expenses 12,800 220 13,020
------------- ------ ------------ ------------
Operating profit 6,584 430 7,014
Interest expense (3,842) (250) $ 214 (3,878)
Equity in net income of subsidiaries
and affiliates 524 (274) 250
International currency exchange
gains 94 94
Other income (expense), net 173 (214) (41)
------------- ------ ------------ ------------
Income before income taxes 3,439 274 (274) 3,439
Provision for income taxes 1,454 1,454
------------- ------ ------------ ------------
Net income $ 1,985 $ 274 $ (274) $ 1,985
============= ====== ============ ============
12
LDM TECHNOLOGIES, INC.
Condensed Consolidating Statement of Operations for the
Three-Months Ended June 24, 2001 (Unaudited)
(dollars in thousands, unless otherwise noted)
LDM
Technologies, LDM LDM Consolidating
Inc. Canada Germany Entries Consolidated
------------- ------ ------- ------------- ------------
Net sales $ 81,729 $ 15,651 $ 4,813 $ 102,193
Cost of sales 64,188 16,555 4,968 85,711
--------- -------- -------- -----------
Gross margin 17,541 (904) (155) 16,482
Selling, general and
administrative
expenses 12,190 290 452 12,932
--------- -------- -------- -----------
Operating profit (loss) 5,351 (1,194) (607) 3,550
Interest expense (4,186) (291) $ 256 (4,221)
Equity in net loss of
subsidiaries (1,460) 1,411 (49)
and affiliates
International currency 160 160
exchange gain
Other income, net 468 6 (256) 218
--------- -------- -------- ------- -----------
Income (loss) before income 173 (1,325) (601) 1,411 (342)
taxes
Credit for income taxes (202) (515) (717)
---------- -------- -------- ------- -----------
Net income (loss) $ 375 $ (810) $ (601) $ 1,411 $ 375
========= ======== ======== ======= ===========
13
LDM TECHNOLOGIES, INC.
Condensed Consolidating Statement of Operations
for the Nine-Months Ended June 30, 2002 (Unaudited)
(dollars in thousands, unless otherwise noted)
LDM
Technologies, LDM Consolidating
Inc. Canada Entries Consolidated
------------- -------- ------------- ------------
Net sales $ 267,090 $ 25,823 $292,913
Cost of sales 219,054 23,121 242,175
------------- -------- ------------
Gross margin 48,036 2,702 50,738
Selling, general and administrative
expenses 33,948 2,451 36,399
------------- -------- ------------
Operating profit 14,088 251 14,339
Interest expense (11,817) (802) $ 714 (11,905)
Equity in net loss of subsidiaries
and affiliates (67) 867 800
International currency exchange
losses (319) (319)
Other income (expense), net 472 (714) (242)
------------- -------- ----------- ------------
Income (loss) before income
taxes 2,676 (870) 867 2,673
Provision (credit) for income
taxes 1,140 (3) 1,137
------------- -------- ----------- ------------
Net income (loss) $ 1,536 $ (867) $ 867 $ 1,536
============= ======== =========== ============
14
LDM TECHNOLOGIES, INC.
Condensed Consolidating Statement of Operations
for the Nine-Months Ended June 24, 2001 (Unaudited)
(dollars in thousands, unless otherwise noted)
LDM
Technologies, LDM LDM Consolidating
Inc. Canada Germany Entries Consolidated
------------- ------ ------- ------------- ------------
Net sales $238,873 $ 41,627 $ 15,657 $296,157
Cost of sales 186,483 43,284 15,738 245,505
-------- -------- -------- --------
Gross margin 52,390 (1,657) (81) 50,652
Selling, general and administrative
expenses 40,380 845 1,220 42,445
-------- -------- -------- --------
Operating profit (loss) 12,010 (2,502) (1,301) 8,207
Interest expense (13,076) (872) $ 783 (13,165)
Equity in net loss of subsidiaries
and affiliates (4,161) 3,598 (563)
International currency exchange
losses (71) (71)
Other income (expense), net (277) 15 (783) (1,045)
--------- -------- -------- ---------- --------
Loss before income taxes (5,504) (3,445) (1,286) 3,598 (6,637)
Credit for income taxes (1,368) (1,133) (2,501)
--------- -------- -------- ---------- --------
Net income (loss) $ (4,136) $ (2,312) $ (1,286) $ 3,598 $ (4,136)
========= ======== ======== ========== ========
15
LDM TECHNOLOGIES, INC.
Condensed Consolidating Statement of Cash Flows
for the Nine-Months Ended June 30, 2002 (Unaudited)
(dollars in thousands, unless otherwise noted)
LDM
Technologies, LDM
Inc. Canada Consolidated
-------------- ------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $28,432 $1,803 $30,235
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (5,497) (55) (5,552)
Proceeds from sale of property, plant and
equipment 20 20
------------- ------------- -------------
NET CASH USED FOR INVESTING ACTIVITIES (5,477) (55) (5,532)
CASH FLOW FROM FINANCING ACTIVITIES
Borrowing (to)/from affiliates 2,247 (2,247)
Costs associated with debt acquisition (389) (389)
Payments on long-term debt (8,044) (8,044)
Net repayments on line of credit borrowings (16,733) (16,733)
------------- ------------- -------------
NET CASH USED BY FINANCING ACTIVITIES (22,919) (2,247) (25,166)
------------- ------------- -------------
Net cash change 36 (499) (463)
Cash at beginning of period 23 2,297 2,320
------------- ------------- -------------
Cash at end of period $59 $1,798 $1,857
============= ============= =============
SUPPLEMENTAL INFORMATION:
Depreciation and amortization $12,906 $2,073 $14,979
============= ============= =============
16
LDM TECHNOLOGIES, INC.
Condensed Consolidating Statement of Cash Flows
for the Nine-Months Ended June 24, 2001 (Unaudited)
(dollars in thousands, unless otherwise noted)
LDM
Technologies, LDM LDM
Inc. Canada Germany Consolidated
------------- ------ ------- ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ 26,675 $ 257 $ (1,565) $ 25,367
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (16,638) (1,608) (513) (18,759)
Proceeds from disposal of property, plant, and
equipment 251 251
Refund of deposits for assets to be leased 2,780 2,780
-------- -------- -------- --------
NET CASH USED FOR INVESTING ACTIVITIES (13,607) (1,608) (513) (15,728)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from long-term debt issuance 10,000 10,000
Borrowing (to)/from affiliates 1,182 (1,271) 89
Costs associated with debt acquisition (929) (929)
Payments on long-term debt (6,221) (6,221)
Net repayments on line of credit borrowings (17,104) (17,104)
-------- -------- -------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (13,072) (1,271) 89 (14,254)
-------- -------- -------- --------
Net cash change (4) (2,622) (1,989) (4,615)
Cash at beginning of period 29 2,622 1,989 4,640
-------- -------- -------- --------
Cash at end of period $ 25 $ $ $ 25
======== ======== ======== ========
SUPPLEMENTAL INFORMATION:
Depreciation and amortization $ 15,354 $ 1,752 $ 629 $ 17,735
======== ======== ======== ========
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. When used in this report, 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, and that
the actual results may differ materially from those in the forward-looking
statements as a result of various factors including, but not limited to: (i)
general economic conditions in the markets in which the Company operates or will
operate; (ii) fluctuations in worldwide or regional automobile and light and
heavy truck production; (iii) labor disputes involving the Company or its
significant customers or suppliers; (iv) changes in practices and/or policies of
the Company's significant customers toward outsourcing automotive components and
systems; (v) foreign currency and exchange fluctuations; and (vi) 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 these forward-looking
statements.
CRITICAL ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-Q and
Article 10 of Regulation S-X. The Company's significant accounting policies are
more fully described in Note 1 of the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended September 30, 2001. Certain of the accounting policies require the
application of significant judgment by management in selecting appropriate
assumptions for calculating financial estimates. By their nature, these
judgments are subject to an inherent degree of uncertainty.
GOODWILL
Goodwill totaled $50.2 million at June 30, 2002 and represented approximately
20.6% of total assets. The majority of the goodwill resulted from the
acquisitions of Molmec, Inc. and Huron Plastics Group, Inc. which were completed
in fiscal year 1997 and fiscal year 1998, respectively. Effective October 1,
2001, the Company elected to early adopt Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets. Under the new standard,
goodwill is no longer amortized but is subject to annual impairment tests in
accordance with the Statement. Application of the non-amortization provision of
Statement No. 142 resulted in an increase of $3.5 million to pretax income for
the nine months ended June 30, 2002 and $1.2 million for the three months ended
June 30, 2002. Under Statement No. 142 the Company estimates the fair value of
each of its reporting units with goodwill. Estimated fair value was based upon
discounted cash flows. The Company completed the initial impairment test for
goodwill required by Statement No. 142. The results indicated that no reduction
in goodwill was required to be recorded under the provisions of Statement No.
142. Prospectively, Statement No. 142 requires the Company to perform impairment
tests of goodwill on an annual basis (or more frequently if impairment
indicators exist).
INCOME TAXES
The Company provides an estimate of actual current tax due (refundable) together
with an assessment of temporary differences resulting from the treatment of
items for tax and accounting purposes. These differences result in deferred tax
assets and liabilities, which are included within the balance sheets. Based on
known and projected earnings information and any tax planning strategies, the
Company then assesses the likelihood that the deferred tax assets will be
recovered. To the extent that the Company believes recovery is not likely, a
valuation allowance is established.
Significant management judgment is required in determining the provision for
income taxes, deferred tax assets and liabilities and any valuation allowance
recorded against net deferred tax assets. At June 30, 2002, the Company had net
deferred tax assets of $2.4 million. The Company evaluates the necessity for a
valuation allowance on deferred tax assets by taxing jurisdiction. Deferred tax
assets in the United States and Canada relate primarily to net operating loss
carryforwards (NOL's) and Alternative Minimum Tax (AMT) credits.
In Canada, the Company has recognized a valuation allowance of $844 thousand.
18
In the United States, the NOL expires in 2021. Realization of the deferred tax
assets in the United States is dependent in part upon a tax planning strategy
related to an affiliate of the Company and also on future taxable income. Both
of these are dependent upon a number of factors including, but not limited to,
sufficient levels of earnings before income taxes and the effective execution of
the tax planning strategy. Based on consideration of historical and future
earnings before income taxes, the Company believes it is more likely than not
that the deferred tax assets, beyond those specifically reserved, will be
realized.
The Company evaluates its deferred taxes and related valuation allowances
quarterly. If at any time the Company believes that current or future taxable
income will not support the basis for recognizing the benefit of the deferred
tax assets, valuation allowances are provided accordingly.
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS RECEIVABLE
Accounts receivable have been reduced by an allowance for amounts that may
become uncollectible in the future. This estimated allowance is based primarily
on management's evaluation of customer productivity reimbursement programs and
historical experience.
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 2002 COMPARED TO QUARTER ENDED JUNE 24, 2001
NET SALES: Net sales for the three-month period ended June 30, 2002 (third
quarter 2002) were $107.2 million versus $102.2 million for the three-month
period ended June 24, 2001 (third quarter 2001). This is an increase of $5.0
million or 4.9%. The increase in net sales is due to the purchase of the
McAllen, Texas facility, launch of new business from the Company's facility in
Romulus, Michigan and increased volumes on programs serviced by LDM's domestic
operations, offset by the sale of LDM Germany (effective September 30, 2001) and
the exit of certain unprofitable product lines in LDM Canada.
GROSS MARGIN: Gross margin was $20.0 million or 18.7% of net sales for third
quarter 2002 versus $16.5 million or 16.1% for the third quarter 2001. The
increase in gross margin as a percentage of sales is the result of the Company's
sale of LDM Germany, the exit of certain unprofitable product lines in LDM
Canada, the launch of new business from the Company's facility in Romulus,
Michigan and operational improvements made in domestic operations.
SELLING, GENERAL, AND ADMINISTRATIVE (SG&A) EXPENSES: SG&A expenses for third
quarter 2002 were $13.0 million or 12.1% of net sales, compared to $12.9 million
or 12.6% of net sales for third quarter 2001. The decrease as a percentage of
sales in third quarter 2002 is the result of cost cutting efforts undertaken in
mid-year 2001 to mitigate the potential effects of an economic slowdown in the
U.S. coupled with the effect of adopting Statement of Financial Accounting
Standards No. 142 (FAS 142). The adoption of FAS 142 resulted in no amortization
of goodwill in the third quarter 2002. Goodwill amortized in third quarter 2001
was $1.2 million. The effect of these items was offset by the reinstatement of
certain employee benefits which had been frozen throughout fiscal year 2001.
INTEREST EXPENSE: Interest expense was $3.9 million for third quarter 2002
compared to $4.2 million for third quarter 2001. The decrease reflects the
effect of repayments on existing senior term and revolver debt as well as a
reduction in interest rates related to variable rate borrowings.
INCOME TAXES: The effective tax rate for the third quarter of 2002 was 42.3%
compared to 206.6% for the third quarter 2001. The interim effective rates are
estimated based upon fiscal year operating forecasts. The effective tax rates
differ from statutory rates due to certain nondeductible expenses in 2002 and
foreign taxes in excess of tax credits and certain nondeductible expenses in
2001.
19
NINE MONTHS ENDED JUNE 30, 2002 COMPARED TO NINE MONTHS ENDED JUNE 24, 2001
NET SALES: Net sales for the nine-month period ended June 30, 2002 (Year to date
June 2002) were $292.9 million, a decrease of $3.3 million, or 1.0%, from net
sales of $296.2 million for the nine-month period ended June 24, 2001 (Year to
date June 2001). The decline in net sales is due to the sale of LDM Germany,
effective September 30, 2001 and the exit of certain unprofitable product lines
in LDM Canada, offset by the purchase of the McAllen, Texas facility, launch of
new business from the Company's facility in Romulus, Michigan and increased
volumes on programs serviced by LDM's domestic operations.
GROSS MARGIN: Gross margin was $50.7 million or 17.3% of net sales for Year to
date June 2002, compared to $50.7 million or 17.1% of net sales for Year to date
June 2001. The increase in gross margin as a percentage of sales is the result
of the Company's sale of LDM Germany, the exit of certain unprofitable product
lines in LDM Canada, the launch of new business from the Company's facility in
Romulus, Michigan and operational improvements made in domestic operations.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES: SG&A expenses for Year to
date June 2002 were $36.4 million, or 12.4% of net sales, compared to $42.4
million, or 14.3% of net sales, for Year to date June 2001. The decrease in Year
to date June 2002 is the result of cost cutting efforts undertaken in mid-year
2001 to mitigate the potential effects of an economic slowdown in the U.S.
coupled with the effect of adopting Statement of Financial Accounting Standards
No. 142 (FAS 142). The adoption of FAS 142 resulted in no amortization of
goodwill Year to date June 2002. Goodwill amortized Year to date June 2001 was
$3.5 million. These decreases were partially offset by certain employee
severance costs incurred at the Company's Canadian facility during the quarter
ended March 31, 2002 and the reinstatement of certain employee benefits which
had been frozen throughout fiscal year 2001.
INTEREST EXPENSE: Interest expense was $11.9 million for Year to date June 2002
compared to $13.2 million for Year to date June 2001. The decrease reflects the
effect of repayments on existing senior term and revolver debt as well as a
reduction in interest rates related to variable rate borrowings.
INCOME TAXES: The provision for income taxes for Year to date June 2002 was $1.1
million with an effective tax rate of 42.5%, as compared to a credit of $2.5
million with an effective tax rate of 37.7% for Year to date June 2001. The
interim effective rates are estimated based upon fiscal year operating
forecasts. The effective tax rates differ from statutory rates due to certain
nondeductible expenses in 2002 and foreign taxes in excess of tax credits and
certain nondeductible expenses in 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are to fund working capital needs,
to meet required debt obligations, and to fund capital expenditures for facility
maintenance and expansion. The Company believes its future cash flow from
operations, combined with its revolving credit availability will be sufficient
to meet its planned debt service, capital requirements, and internal growth
opportunities. As of June 30, 2002, the Company had $147.4 million of long-term
debt outstanding, $9.8 million of revolving loans and current maturities of
long-term debt outstanding, and $36.4 million of borrowing availability under
its revolving credit facility.
Cash provided by operating activities in the first nine months of fiscal 2002
was $30.2 million compared to $25.4 million in the first nine months of fiscal
2001. The increase in cash provided by operations is the result of cost cutting
initiatives completed in fiscal year 2001 and operational improvements made to
date in fiscal year 2002.
Capital expenditures for the first nine months 2002 were $5.6 million compared
to $18.8 million for the first nine months of fiscal 2001. The Company believes
its capital expenditures will be approximately $8.8 million in fiscal year 2002.
The majority of the Company's fiscal year 2002 capital expenditures will be used
to facilitate new programs launching in fiscal years 2002 and 2003.
On February 11, 2002, the Company acquired certain assets and the booked
business of Security Plastics West, Ltd., located in McAllen, Texas, for
approximately $3.8 million. Assets purchased included accounts receivable of
approximately $1.9 million, inventory of approximately $1.0 million and
machinery and equipment of approximately $900 thousand. The acquisition was
funded through available borrowings on the Company's line of credit. Net sales
of approximately $5.3 million and gross margin of approximately $1.0 million,
related to the McAllen facility since the acquisition date, have been included
in the Company's results.
20
The following information summarizes the Company's significant contractual cash
obligations and other commercial commitments at June 30, 2002:
CONTRACTUAL OBLIGATIONS PAYMENTS DUE BY PERIOD (000'S)
----------------------- ------------------------------
LESS THAN 1
TOTAL YEAR 1-3 YEARS 4-5 YEARS AFTER 5 YEARS
-------- ----------- --------- --------- -------------
Long Term Debt $155,737 $ 8,305 $ 30,487 $111,275 $ 5,670
Lines of Credit 1,448 1,448
Operating Leases 34,313 9,349 22,399 2,565 --
-------- -------- -------- -------- --------
Total Contractual Cash Obligations $191,498 $ 17,654 $ 54,334 $113,840 $ 5,670
======== ======== ======== ======== ========
OTHER COMMERCIAL COMMITMENTS AMOUNT OF COMMITMENT EXPIRATION PER PERIOD (000'S)
---------------------------- --------------------------------------------------
TOTAL AMOUNTS LESS THAN 1
COMMITTED YEAR 1-3 YEARS OVER 5 YEARS
--------- ---- --------- ------------
Unused Lines of Credit $45,288 $ 45,288
Standby Letters of Credit 16,264 6,857 7,328 $ 2,079
-------- -------- -------- -------
Total Commercial Commitments $61,552 $ 6,857 $ 52,616 $ 2,079
======== ======== ======== =======
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 Company believes that its existing
borrowing ability and cash flow from operations will be sufficient to meet its
liquidity requirements in the foreseeable future.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to the Company's exposure to market risk
since September 30, 2001, except that the fair value of the Company's fixed rate
debt has increased to approximately $77 million at June 30, 2002.
21
PART II - OTHER INFORMATION
Item 1 Legal Proceedings Not applicable
Item 2 Changes in Securities Not applicable
Item 3 Defaults upon Senior Securities Not applicable
Item 4 Submission of Matters to a Vote of Security Not applicable
Holders
Item 5 Other information Not applicable
Item 6 Exhibits and Reports on Form 8-K
The registrant filed a Current Report on Form 8-K dated May 6, 2002 as
to a Subordinated Bond Exchange Offer, Current Report on Form 8-K
dated June 12, 2002 as to Supplement No. 1 to the Subordinated Bond
Exchange Offer, Current Report on Form 8-K dated July 3, 2002 as to
Supplement No. 2 to the Subordinated Bond Exchange Offer, and Current
Report on Form 8-K date July 31, 2002 as to termination of the
Subordinated Bond Exchange Offer.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
LDM TECHNOLOGIES, INC.
By: /s/ G. E. Borushko
----------------------------
Gary E. Borushko
Chief Financial Officer
/s/ B. N. Frederick
-----------------------
Bradley N. Frederick
Chief Accounting Officer
Date: August 12, 2002
CERTIFICATION
The undersigned, Alan C. Johnson, Chief Executive Officer, and Gary E.
Borushko, Chief Financial Officer, of LDM Technologies, Inc., a Michigan
corporation (the "Company") do hereby certify that the periodic report on Form
10-Q of the Company for the quarterly period ended June 30, 2002 containing
financial statements of the Company fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or
78o(d)) and that information contained in the periodic report fairly presents,
in all material respects, the financial condition and results of operations of
the Company.
IN WITNESS WHEREOF, we have signed this Certification as of the 12th day of
August, 2002.
By: /s/ A.C. Johnson
---------------------
Alan C. Johnson
Chief Executive Officer
/s/ G.E. Borushko
---------------------
Gary E. Borushko
Chief Financial Officer
23