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 29, 2003
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 1, 2003: 600
Total pages: 28
Listing of exhibits: 23
LDM TECHNOLOGIES, INC.
INDEX
Page No.
--------
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets, June 29, 2003 and
September 29, 2002 3
Condensed Consolidated Statements of Income, three months ended
June 29, 2003 and June 30, 2002 4
Condensed Consolidated Statements of Income, nine months ended
June 29, 2003 and June 30, 2002 5
Condensed Consolidated Statements of Cash Flows, nine months ended
June 29, 2003 and June 30, 2002 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 18
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 21
ITEM 4 DISCLOSURE CONTROLS AND PROCEDURES 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 Holders Not applicable
Item 5 Other Information Not applicable
Signature page 22
Item 6 Exhibits and Reports on Form 8-K 23
Certifications 25
2
LDM TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets
(dollars in thousands, unless otherwise noted)
June 29, 2003 SEPTEMBER 29, 2002
(UNAUDITED) (NOTE)
------------ ------------
ASSETS
Current assets:
Cash $110 $932
Accounts receivable 76,767 77,151
Raw materials 7,821 8,424
Work in process 1,477 1,664
Finished goods 6,735 5,878
Mold costs 7,138 5,138
Prepaid expenses 1,471 2,101
Deferred income taxes 4,204 3,433
------------ ------------
Total current assets 105,723 104,721
Net property, plant and equipment 80,158 91,497
Goodwill 50,152 50,152
Debt issue costs, net 2,835 3,389
Equity investment in affiliate 7,600 7,300
Other assets 335 428
------------ ------------
Totals $246,803 $257,487
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $50,994 $54,714
Accrued liabilities 23,283 17,223
Accrued interest 5,472 2,638
Accrued compensation 5,065 5,542
Income taxes payable 1,556 78
Current maturities of long-term debt 11,325 11,305
------------ ------------
Total current liabilities 97,695 91,500
Lines of credit and revolving debt 4,433 20,079
Long-term debt due after one year 129,142 138,887
Deferred income taxes 2,614 2,424
STOCKHOLDERS' EQUITY
Common stock (par value, $.10; issued
and outstanding 600 shares, authorized
100,000 shares)
Additional paid-in capital 94 94
Retained earnings 12,825 4,503
------------ ------------
Total stockholders' equity 12,919 4,597
------------ ------------
Totals $246,803 $257,487
============ ============
Note: The balance sheet at September 29, 2002 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 Operations
(dollars in thousands, unless otherwise noted)
(Unaudited)
Three Months Ended
------------------------------------
June 29, 2003 June 30, 2002
--------------- ---------------
Net sales $ 110,624 $ 107,195
Cost of sales 92,298 89,383
--------------- ---------------
Gross margin 18,326 17,812
Selling, general and administrative expenses 10,348 10,798
--------------- ---------------
Operating profit 7,978 7,014
Interest expense (3,636) (3,878)
Other expense, net (see note 4) (1,313) (43)
Equity in net income of affiliates, net 200 250
International currency exchange gains 395 94
Gain (loss) on disposal of property, plant and
equipment (34) 2
--------------- ---------------
Income before income taxes 3,590 3,439
Provision for income taxes 1,507 1,454
--------------- ---------------
Net income $ 2,083 $ 1,985
=============== ===============
See notes to condensed consolidated financial statements.
4
LDM TECHNOLOGIES, INC.
Condensed Consolidated Statements of Operations
(dollars in thousands, unless otherwise noted)
UNAUDITED
NINE MONTHS ENDED
JUNE 29, 2003 JUNE 30, 2002
------------- -------------
Net sales $ 328,094 $ 292,913
Cost of sales 271,485 250,675
------------- -------------
Gross margin 56,609 42,238
Selling, general and administrative expenses 29,807 27,899
------------- -------------
Operating profit 26,802 14,339
Interest expense (11,144) (11,905)
Other expense, net (see note 4) (1,338) (241)
Loss on disposal of property, plant and
equipment (801) (1)
Equity in net income of affiliates, net 300 800
International currency exchange gains (losses) 436 (319)
------------- -------------
Income before income taxes 14,255 2,673
Provision for income taxes 5,933 1,137
------------- -------------
Net income $ 8,322 $ 1,536
============= =============
See notes to condensed consolidated financial statements.
5
LDM TECHNOLOGIES, INC.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands, unless otherwise noted)
Unaudited
Nine Months Ended
June 29, 2003 June 30, 2002
------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 29,201 $ 30,235
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (5,122) (5,552)
Proceeds from disposal of property, plant and equipment 793 20
------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (4,329) (5,532)
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments on lines of credit (15,646) (16,733)
Payments on long-term debt (9,725) (8,044)
Debt modification costs (323) (389)
------------------------------------
NET CASH USED FOR FINANCING ACTIVITIES (25,694) (25,166)
------------------------------------
Net cash change (822) (463)
Cash at beginning of period 932 2,320
------------------------------------
Cash at end of period $ 110 $ 1,857
====================================
SUPPLEMENTAL INFORMATION:
Total depreciation and amortization $ 14,867 $ 14,979
====================================
See notes to condensed consolidated financial statements.
6
LDM TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation and Pending Accounting Pronouncements
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 29, 2003 are not necessarily indicative of the results that may be expected
for the year ending September 28, 2003. For further information, refer to the
consolidated financial statements and notes thereto included in the Company's
annual report on Form 10-K for the year ended September 29, 2002.
During fiscal year 2003, the Financial Accounting Standards Board ("FASB")
issued FASB Statement 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity, and FASB Interpretation 46,
Consolidation of Variable Interest Entities.
FASB Statement 150 requires that financial instruments, including common stock,
that are issued in the form of shares that are mandatorily redeemable on a fixed
or determinable date or upon an event certain to occur be classified as
liabilities. FASB Statement 150 is required to be adopted in the second quarter
of fiscal 2004 by the Company. As described in Note 6, upon the death of either
of the Company's shareholders, the Company is required to purchase the stock of
such shareholder. Under the current capital structure, upon adoption of FASB
Statement 150, the Company's stockholders' equity would be reclassed within the
liability section of the balance sheet as "shares subject to mandatory
redemption."
FASB Interpretation 46 requires the consolidation of entities in which an
enterprise absorbs a majority of the entity's expected losses, receives a
majority of the entity's expected residual returns, or both, as a result of
ownership or contractual or other financial interests in the entity. Currently,
entities are generally consolidated by an enterprise when the enterprise has a
controlling financial interest through ownership of a majority voting interest
in the entity.
For transactions in place from January 31, 2003, FASB Interpretation 46 is
required to be adopted by the Company no later than the end of fiscal 2004. The
Company is in the process of evaluating the effects of FASB Interpretation 46.
Based upon the in process review, the Company believes that its existing lease
with a related party for the McAllen facility (see Note 6) and its 49% interest
in and subordinated note from DBM Technologies, LLC (see Note 2 of the Company's
10-K for its fiscal year ended September 29, 2002) are within the scope of FASB
Interpretation 46. As currently structured, such entities likely require
consolidation by the Company upon adoption of FASB Interpretation 46. As of June
29, 2003, DBM Technologies, LLC has third party assets and liabilities of
approximately $24 million and $25 million, respectively. As of June 29, 2003,
the Company's non-cancellable lease payments for the McAllen facility
approximate $2.2 million.
2. Commitments and Contingencies
There have been no significant changes in commitments and contingencies from the
matters described in Note 11 of the Company's consolidated financial statements
as of and for the fiscal year ended September 29, 2002.
3. Reclassification
The Company incurs certain expenditures at its plant locations. In the past,
these expenditures have been classified as selling, general and administrative
expenses. The Company believes that these expenditures are more accurately
characterized as cost of sales expenses as they directly support manufacturing
activities within the manufacturing facilities. As a result, for the three and
nine month periods ending June 30, 2002, these expenses have been reclassified
from selling, general and administrative expenses to cost of sales. There was no
impact to net earnings or equity resulting from this reclassification.
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 Note 1 of the
Company's consolidated financial statements as of and for the fiscal year ended
September 29, 2002) 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 reported the
fair value of these derivatives as a liability of $4.0 million which is included
as a component of accrued liabilities at June 29, 2003. The change in fair value
for the three and nine month periods ended June 29, 2003 resulted in expense of
$1.3 million and $1.4 million, respectively. 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.
5. Income Taxes
The effective tax rate for the first nine months of fiscal 2003 was 41.6%
compared to 42.5% for the first nine months of fiscal 2002. 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.
6. Related Party Transactions
During fiscal year 2002, the Company acquired certain assets and the booked
business of Security Plastics West, Ltd., located in McAllen, Texas. As part of
the transaction the Company is leasing the building and real estate in McAllen
from a company majority owned by the Company's two shareholders. The leased
facility is approximately 73,000 square feet and annual rentals approximate $300
thousand. The lease has an initial term of 8 years with an option to renew at
the end of the initial lease term. In fiscal year 2002, the Company paid rentals
for the McAllen manufacturing facility of approximately $190 thousand. To date
in fiscal year 2003, the Company paid rentals for the same facility of
approximately $225 thousand. Terms of the lease are not the result of
arms-length bargaining; however, the Company believes that the lease is on terms
no less favorable to the Company than could have been obtained if such lease was
an arms-length transaction with nonaffiliated persons.
The Company and its two shareholders are parties to a binding stock redemption
agreement which may be terminated by mutual agreement of the parties. 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, subject to subsequent adjustment. This amount
payable includes the proceeds of the life insurance policies owned by the
Company on each shareholder's life. Any shortfall between the insurance proceeds
and the amount payable to the shareholder's estate will require funding by the
Company, subject to restrictions in the Company's loan agreements.
The Company maintains life insurance policies of $17.0 million on the life of
one shareholder and $25.0 million on the life of the other shareholder. The
annual premiums for such policies of insurance are approximately $1.3 million.
The Company is prohibited from assigning, pledging or borrowing against these
life insurance policies without the consent of the insured shareholder.
7. Disposal of Property, Plant and Equipment and Restructuring
Within the nine month period ended June 29, 2003, the Company wrote off
approximately $600 thousand of special purpose equipment due to the loss of
future sales caused by the elimination of certain parts it produced. The parts
elimination was caused by a design change initiated by a customer. Annual sales
related to the eliminated product approximated $5 million in fiscal 2002.
Due to recent production cuts announced by its customers and to eliminate future
storage costs, the Company also, within the nine month period ended June 29,
2003, disposed of certain machinery and equipment stored in offsite facilities.
The loss on disposal of this general purpose equipment approximated $200
thousand.
During the nine month period the Company received proceeds of approximately $180
thousand related to the disposition of special purpose and general purpose
equipment.
The Company also received cash proceeds in the three-month period ended June 29,
2003 of approximately $600 thousand related to the sale of its owned facility in
St. Clair, Michigan. Proceeds from the sale of the St. Clair facility
approximated net book value.
8
LDM TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
During the nine month period ended June 30, 2002 the Company incurred $1.3
million of expenses associated with employee severance at the Company's Canadian
subsidiary. Such expense has been included as a component of cost of goods sold.
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.
8. Supplemental Guarantor Information
The 10 3/4% Senior Subordinated Notes due 2007, the Senior Credit Facility, the
standby letters of credit with respect to the Multi-Option Adjustable Rate
Notes, the Variable Rate Demand Limited Obligation Revenue Bonds and the Senior
Term Loan, as more fully described in Notes 6 and 7 of the Company's 10-K for
its fiscal year ended September 29, 2002, filed December 6, 2002, are
obligations of LDM Technologies, Inc. The obligations are guaranteed fully,
unconditionally and jointly and severally by LDM Canada and certain holding
companies.
Supplemental consolidating financial information of LDM Technologies, Inc. and
LDM Canada (including the related holding company guarantors) 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 subsidiaries.
9
LDM TECHNOLOGIES, INC.
Condensed Consolidating Balance Sheet as of June 29, 2002 (Unaudited)
(dollars in thousands, unless otherwise noted)
LDM Consolidating
Technologies, Inc. LDM Canada Entries Consolidated
---------------------- ------------- -------------- ---------------
ASSETS
Current assets:
Cash $ 90 $ 20 $ 110
Accounts receivable 68,725 8,042 76,767
Raw materials 6,376 1,445 7,821
Work in process 1,158 319 1,477
Finished goods 6,646 89 6,735
Mold costs 7,111 27 7,138
Prepaid expenses 1,432 39 1,471
Deferred income taxes 4,150 54 4,204
----------- ---------- ----------- -----------
Total current assets 95,688 10,035 105,723
Net property, plant and equipment 71,634 8,524 80,158
Investment in subsidiaries and affiliates 9,529 $ (1,929) 7,600
Note receivable, affiliates 10,447 555 (11,002)
Goodwill 50,152 50,152
Debt issue costs 2,835 2,835
Other 335 335
----------- ---------- ----------- -----------
Totals $ 240,620 $ 19,114 $ (12,931) $ 246,803
=========== ========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 45,610 $ 6,317 $ (933) $ 50,994
Accrued liabilities 23,034 249 23,283
Accrued interest 5,472 5,472
Accrued compensation 4,515 550 5,065
Income taxes payable 1,556 1,556
Current maturities of long-term debt 11,325 11,325
----------- ---------- ----------- -----------
Total current liabilities 91,512 7,116 (933) 97,695
Lines of credit and revolving debt 4,433 4,433
Long-term debt due after one year 129,142 10,068 (10,068) 129,142
Deferred income taxes 2,614 2,614
Stockholders' equity:
Common stock 5,850 (5,850)
Additional paid-in capital 94 94
Retained earnings 12,825 (3,920) 3,920 12,825
----------- ---------- ----------- -----------
Total stockholders' equity 12,919 1,930 (1,930) 12,919
----------- ---------- ----------- -----------
Totals $ 240,620 $ 19,114 $ (12,931) $ 246,803
=========== ========== =========== ===========
10
LDM TECHNOLOGIES, INC.
Condensed Consolidating Balance Sheet as of September 29, 2002 (Unaudited)
(dollars in thousands, unless otherwise noted)
LDM Consolidating
Technologies, Inc. LDM Canada Entries Consolidated
------------------ -------------- --------------- --------------
ASSETS
Current assets:
Cash $ 683 $ 249 $ 932
Accounts receivable 72,343 4,808 77,151
Raw materials 7,042 1,382 8,424
Work in process 1,182 482 1,664
Finished goods 5,518 360 5,878
Mold costs 5,073 65 5,138
Prepaid expenses 2,087 14 2,101
Deferred income taxes 3,386 47 3,433
------------------ -------------- --------------- --------------
Total current assets 97,314 7,407 104,721
Net property, plant and equipment 81,313 10,184 91,497
Investment in subsidiaries and affiliates 9,887 $ (2,587) 7,300
Note receivable, affiliates 9,242 (9,242)
Goodwill 50,152 50,152
Debt issue costs 3,389 3,389
Other 428 428
------------------ -------------- --------------- --------------
Totals $ 251,725 $ 17,591 $ (11,829) $ 257,487
================== ============== =============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 49,204 $ 5,683 $ (173) $ 54,714
Accrued liabilities 17,223 17,223
Accrued interest 2,638 2,638
Accrued compensation 5,290 252 5,542
Income taxes payable 78 78
Current maturities of long-term debt 11,305 11,305
------------------ -------------- --------------- --------------
Total current liabilities 85,738 5,935 (173) 91,500
Lines of credit and revolving debt 20,079 20,079
Long-term debt due after one year 138,887 9,068 (9,068) 138,887
Deferred income taxes 2,424 2,424
Stockholders' equity:
Common stock 5,850 (5,850)
Additional paid-in capital 94 94
Retained earnings 4,503 (3,262) 3,262 4,503
------------------ -------------- --------------- --------------
Total stockholders' equity 4,597 2,588 (2,588) 4,597
------------------ -------------- --------------- --------------
Totals $ 251,725 $ 17,591 $ (11,829) $ 257,487
================== ============== =============== ==============
11
LDM TECHNOLOGIES, INC.
Condensed Consolidating Statement of Operations for the
Three-Months Ended June 29, 2003 (Unaudited)
(dollars in thousands, unless otherwise noted)
LDM
Technologies, LDM Consolidating
Inc. Canada Entries Consolidated
------------ -------- ---------- --------------
Net sales $ 98,996 $ 11,628 $110,624
Cost of Sales 81,353 10,945 92,298
---------------------------------------------------------
Gross Margin 17,643 683 18,326
Selling, general and administrative
expenses 10,268 80 10,348
---------------------------------------------------------
Operating profit 7,375 603 7,978
Interest expense (3,599) (292) $ 255 (3,636)
Other income (expense), net (1,065) 7 (255) (1,313)
Loss on disposal of property, plant
and equipment (34) (34)
International currency exchange
gains 395 395
Equity in net income of
subsidiaries and affiliates 913 (713) 200
---------------------------------------------------------
Income before income taxes 3,590 713 (713) 3,590
Provision for income taxes 1,507 1,507
---------------------------------------------------------
Net income $ 2,083 $ 713 $ (713) $ 2,083
=========================================================
12
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 83,392 5,991 89,383
-------------------------------------------------------------------
Gross margin 17,320 492 17,812
Selling, general and administrative
expenses 10,736 62 10,798
-------------------------------------------------------------------
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
Gain on disposal of property, plant
and equipment 2 2
Other income (expense), net 171 (214) (43)
-------------------------------------------------------------------
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
===================================================================
13
LDM TECHNOLOGIES, INC.
Condensed Consolidating Statement of Operations
for the Nine-Months Ended June 29, 2003 (Unaudited)
(dollars in thousands, unless otherwise noted)
LDM
Technologies, LDM Consolidating
Inc. Canada Entries Consolidated
------------ -------- ---------- --------------
Net sales $ 302,719 $ 25,375 $328,094
Cost of Sales 246,067 25,418 271,485
-------------------------------------------------------------------
Gross Margin 56,652 (43) 56,609
Selling, general and administrative
expenses 29,591 216 29,807
-------------------------------------------------------------------
Operating profit (loss) 27,061 (259) 26,802
Interest expense (11,042) (859) $ 757 (11,144)
Other income (expense), net (605) 24 (757) (1,338)
Loss on disposal of property, plant
and equipment (801) (801)
International currency exchange gains 436 436
Equity in net income (loss) of
subsidiaries and affiliates (358) 658 300
-------------------------------------------------------------------
Income (loss) before income taxes 14,255 (658) 658 14,255
Provision for income taxes 5,933 5,933
-------------------------------------------------------------------
Net income (loss) $ 8,322 $ (658) $ 658 $ 8,322
===================================================================
14
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 225,352 25,323 250,675
-------------------------------------------------------------------
Gross margin 41,738 500 42,238
Selling, general and administrative
expenses 27,650 249 27,899
-------------------------------------------------------------------
Operating profit 14,088 251 14,339
Interest expense (11,817) (802) $ 714 (11,905)
Equity in net income (loss) of
subsidiaries and affiliates (67) 867 800
International currency exchange (319) (319)
losses
Loss on disposal of property, plant and
equipment (1) (1)
Other income (expense), net 473 (714) (241)
-------------------------------------------------------------------
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
===================================================================
15
LDM TECHNOLOGIES, INC.
Condensed Consolidating Statement of Cash Flows
for the Nine-Months Ended June 29, 2003 (Unaudited)
(dollars in thousands, unless otherwise noted)
LDM
Technologies, LDM
Inc. Canada Consolidated
-------------- ------------ --------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $29,469 $(268) $29,201
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (4,716) (406) (5,122)
Proceeds from sale of property, plant and equipment 793 793
------------ ------------ ------------
NET CASH USED FOR INVESTING ACTIVITIES (3,923) (406) (4,329)
CASH FLOW FROM FINANCING ACTIVITIES
Borrowing (to)/from affiliates (445) 445
Net repayments on line of credit borrowings (15,646) (15,646)
Payments on long-term debt (9,725) (9,725)
Debt modification costs (323) (323)
------------ ------------ ------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (26,139) 445 (25,694)
------------ ------------ ------------
Net cash change (593) (229) (822)
Cash at beginning of period 683 249 932
------------ ------------ ------------
Cash at end of period $90 $20 $110
------------ ------------ ------------
SUPPLEMENTAL INFORMATION:
Total depreciation and amortization $12,801 $2,066 $14,867
============ ============ ============
16
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)
Net repayments on line of credit borrowings (16,733) (16,733)
Payments on long-term debt (8,044) (8,044)
Debt modification costs (389) (389)
------------ ------------ ------------
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:
Total depreciation and amortization $12,906 $2,073 $14,979
============ ============ ============
17
Item 2: 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 29, 2002. 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 29, 2003 and represented approximately
20.3% 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. Under Statement No. 142 the Company estimates the
fair value of goodwill at each of its reporting units. Estimated fair value was
based upon discounted cash flows. The results of the Company's Statement No. 142
analysis indicate that no reduction in goodwill is required. 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 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 available 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 29, 2003, the Company had net
deferred tax assets, after valuation allowances, of $1.6 million.
Deferred tax assets in Canada relate primarily to net operating loss
carryforwards (NOL's) for which the Company has recognized a valuation allowance
of $1.3 million.
In the United States realization of the deferred tax assets is dependent upon
future taxable income. 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.
18
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. The allowance amount at June 29, 2003 and September 29,
2002 was $0.5 million.
PENDING ACCOUNTING PRONOUNCEMENTS
During fiscal year 2003, the Financial Accounting Standards Board ("FASB")
issued FASB Statement 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity, and FASB Interpretation 46,
Consolidation of Variable Interest Entities.
FASB Statement 150 requires that financial instruments, including common stock,
that are issued in the form of shares that are mandatorily redeemable on a fixed
or determinable date or upon an event certain to occur be classified as
liabilities. FASB Statement 150 is required to be adopted in the second quarter
of fiscal 2004 by the Company. As described in Note 6, upon the death of either
of the Company's shareholders, the Company is required to purchase the stock of
such shareholder. Under the current capital structure, upon adoption of FASB
Statement 150, the Company's stockholders' equity would be reclassed within the
liability section of the balance sheet as "shares subject to mandatory
redemption."
FASB Interpretation 46 requires the consolidation of entities in which an
enterprise absorbs a majority of the entity's expected losses, receives a
majority of the entity's expected residual returns, or both, as a result of
ownership or contractual or other financial interests in the entity. Currently,
entities are generally consolidated by an enterprise when the enterprise has a
controlling financial interest through ownership of a majority voting interest
in the entity.
For transactions in place from January 31, 2003, FASB Interpretation 46 is
required to be adopted by the Company no later than the end of fiscal 2004. The
Company is in the process of evaluating the effects of FASB Interpretation 46.
Based upon the in process review, the Company believes that its existing lease
with a related party for the McAllen facility (see Note 6) and its 49% interest
in and subordinated note from DBM Technologies, LLC (see Note 2 of the Company's
10-K for its fiscal year ended September 29, 2002) are within the scope of FASB
Interpretation 46. As currently structured, such entities likely require
consolidation by the Company upon adoption of FASB Interpretation 46. As of June
29, 2003, DBM Technologies, LLC has third party assets and liabilities of
approximately $24 million and $25 million, respectively. As of June 29, 2003,
the Company's non-cancellable lease payments for the McAllen facility
approximate $2.2 million.
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 29, 2003 COMPARED TO QUARTER ENDED JUNE 30, 2002
NET SALES: Net sales for the three-month period ended June 29, 2003 (third
quarter 2003) were $110.6 million versus $107.2 million for the three-month
period ended June 30, 2002 (third quarter 2002). This is an increase of $3.4
million or 3.2%. The increase in net sales is primarily due to the launch of new
products from the Company's facility in Romulus, Michigan in March and August of
2002 offset by lower sales at other facilities due to reduced customer
requirements in the current fiscal year. The Romulus facility reported $22.3
million in net sales for the third quarter of 2003 compared to $9.1 million for
the third quarter of 2002.
GROSS MARGIN: Gross margin was $18.3 million or 16.5% of net sales for third
quarter 2003 versus $17.8 million or 16.6% for the third quarter 2002. Gross
margin remains unchanged as a percentage of sales. Improved results at Romulus
due to additional sales have been offset by weaker results at other facilities
as reduced sales (compared to the same period in the previous year) have
resulted in greater unabsorbed fixed costs.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES: SG&A expenses for third
quarter 2003 were $10.3 million or 9.3% of net sales, compared to $10.8 million
or 10.1% of net sales for third quarter 2002. These expenses have decreased due
to continued vigilance related to hiring and discretionary spending.
INTEREST EXPENSE: Interest expense was $3.6 million for third quarter 2003
compared to $3.9 million for third quarter 2002. The decrease in interest
expense is due to scheduled debt repayments, a decrease in variable interest
rates and lower average borrowings outstanding on the Company's line of credit.
19
INCOME TAXES: The effective tax rate for the third quarter of 2003 was 42.0%
compared to 42.3% for the third quarter 2002. 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.
NINE MONTHS ENDED JUNE 29, 2003 COMPARED TO NINE MONTHS ENDED JUNE 30, 2002
NET SALES: Net sales for the nine-month period ended June 29, 2003 (Year to date
June 2003) were $328.1 million versus $292.9 million for the nine-month period
ended June 30, 2002 (Year to date June 2002). This is an increase of $35.2
million or 12.0%. The increase in net sales is due to the launch of new products
from the Company's facility in Romulus, Michigan in March and August of 2002,
offset by lower sales at other facilities due to reduced customer requirements
in the current fiscal year. The Romulus facility reported $69.2 million in net
sales for Year to date June 2003 compared to $15.2 million for Year to date June
2002.
GROSS MARGIN: Gross margin was $56.6 million or 17.3% of net sales for Year to
date June 2003, compared to $42.2 million or 14.4% of net sales for Year to date
June 2002. Gross margin has increased in dollars and improved as a percentage of
sales. Improved results at Romulus, due to additional sales, have been offset by
weaker results at other facilities as reduced sales (compared to the same period
in the previous year) have resulted in greater unabsorbed fixed costs.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES: SG&A expenses for Year to
date 2003 were $29.8 million or 9.1% of net sales, compared to $27.9 million or
9.5% of net sales for Year to date 2002. These expenses have improved as a
percentage of sales due to continued vigilance related to hiring and
discretionary spending.
INTEREST EXPENSE: Interest expense was $11.1 million for Year to date June 2003
compared to $11.9 million for Year to date June 2002. The decrease reflects the
effects of scheduled repayments on existing senior debt, a decrease in variable
interest rates and lower average borrowings outstanding on the Company's line of
credit.
LOSS ON DISPOSAL OF PROPERTY, PLANT AND EQUIPMENT: The nine month period ended
June 29, 2003 includes $801 thousand for expense related to the disposal of
certain property, plant and equipment. This includes approximately $600 thousand
of special purpose equipment written off due to the elimination of certain parts
by a customer and approximately $200 thousand of unutilized general purpose
equipment disposed of to reduce warehousing costs.
INCOME TAXES: The effective tax rate for Year to date June 2003 was 41.6%
compared to 42.5% for Year to date June 2002. 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.
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 29, 2003, the Company had $129.1 million of long-term
debt outstanding, $15.8 million of revolving loans and current maturities of
long-term debt outstanding, and $39.0 million of borrowing availability under
its revolving credit facility.
Cash proceeds from the sale of property, plant and equipment included
approximately $180 thousand related to the sale of special purpose and general
purpose machinery and equipment and approximately $600 thousand related to the
Company's sale of its owned facility in St. Clair, Michigan. Proceeds from the
sale of the St. Clair facility approximated net book value.
Cash provided by operating activities in the first nine months of fiscal 2003
was $29.2 million compared to $30.2 million in the first nine months of fiscal
2002.
Capital expenditures for the first nine months of fiscal 2003 were $5.1 million
compared to $5.6 million for the first nine months of fiscal 2002. The Company
believes its capital expenditures will be approximately $9.0 million in fiscal
year 2003. The majority of the Company's fiscal year 2003 capital expenditures
will be used to refresh equipment and facilitate new programs launching in
fiscal year 2003.
20
Long-term debt has decreased due to scheduled principal repayments of senior
term debt, including an excess cash flow payment. This payment is due January
1st of every year if excess cash flow exists as defined by the senior term loan
agreement. As a result of excess cash flow generated in fiscal year 2002, the
Company made an additional senior term loan payment of $2.8 million in January
2003.
The following information summarizes the Company's significant contractual cash
obligations and other commercial commitments at June 29, 2003:
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 $140,467 $11,325 $15,797 $107,675 $5,670
Lines of Credit 4,433 4,433
Operating Leases 34,168 13,715 7,660 7,176 5,617
------------------------------------------------------------------------------
Total Contractual Cash Obligations $179,068 $25,040 $27,890 $114,851 $11,287
==============================================================================
OTHER COMMERCIAL AMOUNT OF COMMITMENT EXPIRATION PER PERIOD (000'S)
---------------- --------------------------------------------------
COMMITMENTS
-----------
TOTAL AMOUNTS LESS THAN 1 YEAR
COMMITTED 1-3 YEARS OVER 5 YEARS
------------------------------------------------------------------------------
Unused Lines of Credit $43,295 $43,295
Standby Letters of Credit 15,272 15,272
------------------------------------------------------------------------------
Total Commercial Commitments $58,567 $58,567
==============================================================================
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.
Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to the Company's exposure to market risk
since September 29, 2002.
Item 4: DISCLOSURE CONTROLS AND PROCEDURES
As of June 29, 2003, an evaluation was performed under the supervision and with
the participation of the Company's management, including the CEO and CFO, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based on that evaluation, the Company's management, including
the CEO and CFO, concluded that the Company's disclosure controls and procedures
are effective in causing the material information required to be disclosed by
the Company in the reports that it files or submits under the Securities Act of
1934 to be recorded, processed, summarized and reported, to the extent
applicable, within the time periods specified in the Securities and Exchange
Commission's rules and forms. There have been no significant changes in the
Company's internal controls or in other factors that could significantly affect
internal controls subsequent to the date the Company carried out its evaluation.
21
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/ Gary E. Borushko
--------------------------
Gary E. Borushko
Chief Financial Officer
By: /s/ Bradley N. Frederick
--------------------------
Bradley N. Frederick
V.P. of Finance
Chief Accounting Officer
Dated: August 5, 2003
22
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. EXHIBIT DESCRIPTION
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
The registrant filed no reports on Form 8-K during the quarter for which this
Report is filed.
23
10-Q EXHIBIT INDEX
EXHIBIT NO: DESCRIPTION
EX-31.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
EX-31.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
EX-32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
24