1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 27, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 333-21819
LDM TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MICHIGAN 38-2690171
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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 of common stock outstanding as of February 5, 1999: 600
Total pages: 21
Listing of exhibits: 20
2
LDM TECHNOLOGIES, INC.
INDEX
Page No.
--------
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets, December 27, 1998 and
September 27, 1998 3
Condensed Consolidated Statements of Income, three months ended
December 27, 1998 and December 28, 1997 4
Condensed Consolidated Statements of Cash Flows, three months ended
December 27, 1998 and December 28, 1997 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS
OF OPERATIONS 14
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
Item 6 Exhibits and Reports on Form 8-K (a) Exhibit 27
Financial Data
Schedule
Signature Page
3
LDM TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets
(dollars in thousands)
DECEMBER 27, 1998 SEPTEMBER 27, 1998
(UNAUDITED) (NOTE)
--------------------- -----------------------
ASSETS
Current assets:
Cash $ 3,595 $ 3,317
Accounts Receivable 85,572 81,781
Raw materials 15,819 14,791
Work in process 1,990 2,715
Finished goods 6,407 6,563
Mold costs 20,471 22,510
Refundable income taxes 49 1,251
Deferred income taxes 3,136 3,148
Other current assets 2,537 2,030
--------------------- -----------------------
Total current assets 139,576 138,106
Net property, plant and equipment 118,216 118,201
Goodwill, net 62,860 64,047
Debt issue costs, net 6,145 6,303
Investment in joint venture 1,116 1,098
Other assets 624 641
--------------------- -----------------------
Totals $ 328,537 $ 328,396
===================== =======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit and revolving loans $ 40,086 $ 39,139
Accounts payable 55,412 54,363
Accrued liabilities 12,753 18,441
Accrued interest 6,969 4,035
Accrued compensation 7,380 10,097
Advance mold payments from customers 5,544 1,036
Income taxes payable 845 850
Current maturities of long-term debt 10,333 13,631
--------------------- -----------------------
Total current liabilities 139,322 141,592
Long-term debt due after one year 171,976 171,674
Deferred income taxes 2,043 1,684
Note payable to affiliates 88 88
STOCKHOLDERS' EQUITY
Common Stock (par value $.10, issued
and outstanding 600 shares; authorized
100,000 shares)
Additional paid-in capital 94 94
Retained earnings 14,988 13,286
Other comprehensive income 26 (22)
--------------------- -----------------------
Total stockholders' equity 15,108 13,358
--------------------- -----------------------
Totals $ 328,537 $ 328,396
===================== =======================
Note: The balance sheet at September 27, 1998 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
4
LDM TECHNOLOGIES, INC.
Condensed Consolidated Statements of Income
(dollars in thousands)
(Unaudited)
Three Months Ended
--------------------------------------------------
December 27, 1998 December 28, 1997
--------------------- -------------------
Revenues
Net product sales $ 132,438 $ 93,707
Net mold sales 5,658 6,589
--------------------- -------------------
138,096 100,296
Cost of Sales
Cost of product sales 106,760 76,536
Cost of mold sales 6,300 5,838
--------------------- -------------------
113,060 82,374
--------------------- -------------------
Gross Margin 25,036 17,922
Selling, general and administrative expenses 15,620 11,097
--------------------- -------------------
Operating profit 9,416 6,825
Interest expense (5,396) (3,933)
Other income, net (68) (122)
--------------------- -------------------
Income before income taxes and minority
interest 3,952 2,770
Provision for income taxes 2,250 1,308
--------------------- -------------------
Income before minority interest 1,702 1,462
Minority interest 48
--------------------- -------------------
Net income $ 1,702 $ 1,510
===================== ===================
See notes to condensed consolidated financial statements.
Total comprehensive income is not materially different from net income.
4
5
LDM TECHNOLOGIES, INC.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited)
Three Months Ended
-----------------------------------
December 27, December 28,
1998 1997
------------ --------------
Net cash provided by operating activities $ 6,439 $ 7,855
Cash flows from investing activities
Additions to property, plant and equipment (4,044) (958)
Proceeds from disposal of property, plant and equipment 166
Good faith deposit for purchase of Huron Plastics Group,
Inc. (1,000)
Purchase of LDM Germany (9,706)
Purchase of Kenco Plastics net of $500 cash acquired (27,000)
------------ --------------
Net cash used for investing activities (4,044) (38,498)
Cash flows from financing activities
Costs associated with debt acquisition (68) (167)
Proceeds from long-term debt issuance 876
Payments on long-term debt (2,996) (845)
Net borrowings on line of credit 947 34,511
------------ --------------
Net cash provided by financing activities (2,117) 34,375
------------ --------------
Net cash change 278 3,732
Cash at beginning of period 3,317 4,633
------------ --------------
Cash at end of period $ 3,595 $ 8,365
============ ==============
Supplemental information
Depreciation and amortization $ 5,129 $ 3,955
============ ==============
See notes to condensed consolidated financial statements.
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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 month periods ending December 27,
1998 and December 28, 1997 are not necessarily indicative of the results that
may be expected for the year ending September 26, 1999. 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 27, 1998.
2. Purchases of Kenco Plastics, Aeroquip Beienheim - Germany Facility and
Huron Plastics Group
On September 30, 1997, the Company acquired all outstanding capital stock of
Kenco Plastics, Inc. (Michigan) and Kenco Plastics, Inc. (Kentucky) and the
business and substantially all operating assets of Narens Design and
Engineering Co. for approximately $27.1 million in cash. The acquisition was
financed with additional borrowings under the existing Senior Credit Facility.
On November 25, 1997, the Company acquired the business and certain assets and
assumed certain liabilities comprising the `Beienheim' plant of Aeroquip-Vickers
International GmbH for approximately $9.7 million in cash. The acquisition was
financed with additional borrowings under the existing Senior Credit Facility.
On February 6, 1998, the Company acquired the stock of Huron Plastics Group,
Inc. and substantially all of the operating assets of Tadim, Inc. (collectively
known as "HPG") for $69.0 million in cash and the assumption of certain
liabilities. The acquisition was funded with proceeds from a $66.0 million term
loan issued by the Company's senior lender and additional borrowings under the
existing Senior Credit Facility.
The pro forma unaudited results of operations for the three months ended
December 28, 1997, assuming consummation of the purchases and issuance of the
debt as described above had occurred on September 29, 1997, are as follows:
For three months ended
December 28, 1997
(dollars in thousands)
Net sales $ 134,094
Net income $ 1,055
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7
LDM TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
3. Transactions Subsequent to First Quarter 1999
On February 10, 1999, the Company entered into a joint venture that is 49% owned
by the Company and 51% owned by an independent third party. The transaction was
effective as of December 31, 1998. The Company sold the Kenco business and most
of its current net assets to the joint venture at an amount equal to the net
book value of the net current assets. Sales price of the net current assets
approximated $8.4 million.
The Company will be leasing all machinery and equipment of the Kenco business to
the joint venture, and will sublease to the joint venture all real properties
used in the Kenco operations.
Under the terms of the agreement, the Company provided a subordinated $1.8
million loan to the joint venture, and will guarantee $1.0 million of the joint
venture line of credit borrowings. As a result of those terms, and the
relatively small amount of equity contributed to the joint venture by the
independent third party, the Company will retain substantially all of the risks
of ownership and, accordingly, the transaction will not be treated as a sale
for accounting purposes until the risks have been transferred.
4. Commitments and Contingencies
There have been no significant changes in commitments and contingencies
from the matters described in footnote 13 of the Company's consolidated
financial statements as of and for the fiscal year ended September 27, 1998.
5. 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 and the $4.4 million Variable Rate Demand
Limited Obligation Revenue Bonds and the Senior Term and Capital Expenditures
Line of Credit 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. The non-guarantor subsidiaries are Como,
LDM Germany, LDM Mexico, and LDM Holding Mexico, Inc.
LDM Mexico is currently inactive.
Supplemental consolidating financial information of LDM Technologies, Inc., LDM
Canada (including the related holding company guarantors) and combined Como, LDM
Mexico, and LDM Germany (the "non-guarantor subsidiaries") is presented below
(in thousands). 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.
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8
LDM TECHNOLOGIES, INC.
Condensed Consolidating Balance Sheet as of December 27, 1998 (Unaudited)
(dollars in thousands)
LDM
Technologies, LDM Nonguarantor Consolidating
Inc. Canada Subsidiaries Entries Consolidated
------------- ---------- ------------ ------------- ------------
ASSETS
Current assets:
Cash $ 30 $ 1,525 $ 2,040 $ 3,595
Accounts receivable 66,629 10,586 8,357 85,572
Notes receivable due
from affiliates 21,929 $ (21,929)
Raw materials 11,391 1,114 3,314 15,819
Work in process 1,638 193 159 1,990
Finished goods 5,818 442 147 6,407
Mold costs 13,055 4,905 2,511 20,471
Refundable income taxes 49 49
Deferred income taxes 3,136 3,136
Other current assets 2,354 31 152 2,537
------------- ---------- ------------ ------------- ------------
Total current assets 125,980 18,796 16,729 (21,929) 139,576
Net property, plant and
equipment 97,073 14,147 6,996 118,216
Investment in subsidiaries 6,690 (6,690)
Goodwill, net 62,860 62,860
Debt issue costs, net 6,145 6,145
Investment in joint venture 1,116 1,116
Other assets 624 624
------------- ---------- ------------ ------------- ------------
Totals $ 300,488 $ 32,943 $ 23,725 $ (28,619) $ 328,537
============= ========== ============ ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit and
revolving loans $ 38,200 $ 1,886 $ 40,086
Accounts payable 39,208 $ 8,529 8,242 $ (567) 55,412
Accrued liabilities 10,446 78 2,229 12,573
Accrued interest 6,969 6,969
Accrued compensation 4,958 263 2,159 7,380
Advance mold payments
from customers 4,828 716 5,544
Income taxes payable 370 475 845
Current maturities of
long-term debt 10,333 10,333
------------- ---------- ------------ ------------- ------------
Total current
liabilities 110,484 14,173 15,232 (567) 139,322
Long-term debt due after one
year 171,976 171,976
Deferred income taxes 644 1,369 30 2,043
Note payable to affiliates 10,711 10,739 (21,362) 88
STOCKHOLDERS' EQUITY
Common stock 5,850 2,945 (8,795)
Additional paid-in capital 94 126 (126) 94
Retained earnings 17,312 840 (5,395) 2,231 14,988
Other comprehensive income (22) 48 26
------------- ---------- ------------ ------------- ------------
Total stockholders' equity 17,384 6,690 (2,276) (6,690) 15,108
------------- ---------- ------------ ------------- ------------
Totals $ 300,488 $ 32,943 $ 23,725 $ (28,619) $ 328,537
============= ========== ============ ============= ============
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LDM TECHNOLOGIES, INC.
Condensed Consolidating Balance Sheet as of September 27, 1998 (Unaudited)
(dollars in thousands)
LDM
Technologies, LDM Nonguarantor Consolidating
Inc. Canada Subsidiaries Entries Consolidated
------------- ----------- ------------ -------------- ------------
ASSETS
Current assets:
Cash $ 673 $ 1,317 $ 1,327 $ 3,317
Accounts receivable 63,856 10,849 7,076 81,781
Notes receivable due
from affiliates 21,487 ($21,487) -
Raw materials 11,611 1,095 2,085 14,791
Work in process 1,531 139 1,045 2,715
Finished goods 5,822 333 408 6,563
Mold costs 17,967 4,543 22,510
Refundable income taxes 1,204 47 1,251
Deferred income taxes 3,148 3,148
Other current assets 1,785 136 109 2,030
------------- ----------- ------------ -------------- ------------
Total current assets 129,084 13,869 16,640 ($21,487) 138,106
Net property, plant and
equipment 96,662 14,498 7,041 118,201
Investment in subsidiaries 6,491 (6,491) -
Goodwill, net 64,047 64,047
Debt issue costs, net 6,303 6,303
Investment in joint venture 1,098 1,098
Other assets 632 9 641
------------- ----------- ------------ -------------- ------------
Totals $ 304,317 $ 28,367 $ 23,690 ($27,978) $ 328,396
============= =========== ============ ============== ============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Lines of credit and
revolving loans $ 36,699 $ 2,440 $ 39,139
Accounts payable 39,923 $ 7,737 7,032 ($329) 54,363
Accrued liabilities 16,357 745 1,339 18,441
Accrued interest 4,035 4,035
Accrued compensation 7,629 247 2,221 10,097
Advance mold payments
from customers - 443 593 1,036
Income taxes payable - 850 850
Current maturities of
long-term debt 13,631 13,631
------------- ----------- ------------ -------------- ------------
Total current
liabilities 118,274 10,022 13,625 (329) 141,592
Long-term debt due after
one year 171,674 - - 171,674
Deferred income taxes 285 1,369 30 1,684
Note payable to affiliates - 10,709 10,537 (21,158) 88
STOCKHOLDERS' EQUITY
Common stock 5,850 2,945 (8,795)
Additional paid-in capital 94 126 (126) 94
Retained earnings 14,012 417 (3,575) 2,432 13,286
Other comprehensive income (22) 2 (2) (22)
------------- ----------- ------------ -------------- ------------
Total stockholders'
equity 14,084 6,267 (502) (6,491) 13,358
------------- ----------- ------------ -------------- ------------
Totals $ 304,317 $ 28,367 $ 23,690 ($27,978) $ 328,396
============= =========== ============ ============== ============
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10
LDM TECHNOLOGIES, INC.
Condensed Consolidating Statement of Operations for Three Months ended
December 27, 1998 (Unaudited)
(dollars in thousands)
LDM
Technologies, LDM Nonguarantor Consolidating
Inc. Canada Subsidiaries Entries Consolidated
--------------- -------------- ---------------- ---------------- ---------------
Revenues:
Net product sales $ 105,631 $ 15,544 $ 11,263 $ 132,438
Net mold sales 5,613 18 27 5,658
--------------- -------------- ---------------- ---------------- ---------------
111,244 15,562 11,290 138,096
Cost of Sales
Cost of product sales 80,593 14,302 11,865 106,760
Cost of mold sales 6,277 23 6,300
--------------- -------------- ---------------- ---------------- ---------------
86,870 14,302 11,888 113,060
--------------- -------------- ---------------- ---------------- ---------------
Gross Margin 24,374 1,260 (598) 25,036
Selling, general and
administrative expenses 14,366 283 971 15,620
--------------- -------------- ---------------- ---------------- ---------------
Operating profit (loss) 10,008 977 (1,569) 9,416
Interest expense (5,299) (304) (267) $ 474 (5,396)
Other income (expense), net 452 (83) 37 (474) (68)
Equity in net income of
subsidiaries 201 (201)
--------------- -------------- ---------------- ---------------- ---------------
Income (loss) before
income taxes 5,362 590 (1,799) (201) 3,952
Provision (credit) for
income taxes 2,803 167 (720) 2,250
--------------- -------------- ---------------- ---------------- ---------------
Net income (loss) $ 2,559 $ 423 $ (1,079) $ (201) $ 1,702
=============== ============== ================ ================ ===============
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LDM TECHNOLOGIES, INC.
Condensed Consolidating Statement of Operations for Three Months Ended
December 28, 1997 (Unaudited)
(dollars in thousands)
LDM
Technologies, LDM Nonguarantor Consolidating
Inc. Canada Subsidiaries Entries Consolidated
--------------- -------------- ---------------- ------------- ---------------
Revenues:
Net product sales $ 77,082 $ 9,807 $ 7,046 ($228) $ 93,707
Net mold sales 6,541 43 5 6,589
--------------- -------------- ---------------- ------------- ---------------
83,623 9,850 7,051 (228) 100,296
Cost of Sales
Cost of product sales 60,600 9,238 6,926 (228) 76,536
Cost of mold sales 5,799 32 7 5,838
--------------- -------------- ---------------- ------------- ---------------
66,399 9,270 6,933 (228) 82,374
--------------- -------------- ---------------- ------------- ---------------
Gross Margin 17,224 580 118 17,922
Selling, general and
administrative expenses 10,197 364 536 11,097
--------------- -------------- ---------------- ------------- ---------------
Operating profit (loss) 7,027 216 (418) 6,825
Interest expense (3,885) (419) (62) 433 (3,933)
Other income (expense), net 591 (263) (17) (433) (122)
Equity in net loss of
subsidiaries (744) 744
--------------- -------------- ---------------- ------------- ---------------
Income (loss) before income
taxes and minority interest 2,989 (466) (497) 744 2,770
Provision (credit) for
income taxes 1,527 (38) (181) 1,308
--------------- -------------- ---------------- ------------- ---------------
Income (loss) before
minority interest 1,462 (428) (316) 744 1,462
Minority interest 48 48
--------------- -------------- ---------------- -------------- ---------------
Net income (loss) $ 1,510 ($428) ($316) $744 $ 1,510
=============== ============== ================ ============== ===============
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LDM TECHNOLOGIES, INC.
Condensed Consolidating Statement of Cash Flows for Three Months Ended
December 27, 1998 (Unaudited)
(dollars in thousands)
LDM
Technologies, LDM Nonguarantor Consolidating
Inc. Canada Subsidiaries Entries Consolidated
------------- ---------- -------------- ------------- ------------
Net cash provided (used) by operating
activities $ 4,663 $ 325 $ 1,451 $ 6,439
Cash flows from investing activities
Additions to property, plant and
equipment (3,539) (119) (386) (4,044)
Disbursements on notes receivable to
affiliates (204) $ 204
------------- ---------- -------------- ------------- ------------
Net cash used for investing
activities (3,743) (119) (386) 204 (4,044)
Cash flows from financing activities
Costs associated with debt acquisition (68) (68)
Proceeds from long-term debt 2 202 (204)
Payments on long-term debt (2,996) (2,996)
Net proceeds (repayment) from online of
credit borrowings 1,501 (554) 947
------------- ---------- -------------- ------------- ------------
Net cash provided by financing
activities (1,563) 2 (352) (204) (2,117)
------------- ---------- -------------- ------------- ------------
Net cash change (643) 208 713 278
Cash at beginning of period 673 1,317 1,327 3,317
------------- ---------- -------------- ------------- ------------
Cash at end of period $ 30 $ 1,525 $ 2,040 $ $ 3,595
============= ========== ============== ============= ============
Supplemental information:
Depreciation and amortization $ 4,228 $ 470 $ 431 $ $ 5,129
============= ========== ============== ============= ============
12
13
LDM TECHNOLOGIES, INC.
Condensed Consolidating Statement of Cash Flows for Three Months Ended
December 28, 1997 (Unaudited)
(dollars in thousands)
LDM
Technologies, LDM Nonguarantor Consolidating
Inc. Canada Subsidiaries Entries Consolidated
------------- ----------- ------------ ------------- ------------
Net cash provided (used) by operating
activities $ 6,782 $ 177 $ 898 $ (2) $ 7,855
Cash flows from investing activities
Additions to property, plant and
equipment (864) (58) (36) (958)
Proceeds from disposal of property,
plant and equipment 166 166
Good faith deposit for Huron Plastics,
Inc. (1,000) (1,000)
Purchase of LDM Germany (9,706) (9,706)
Purchase of Kenco, net of $500 cash
acquired (27,000) (27,000)
------------- ----------- ------------ ------------- ------------
Net cash used for investing
activities (38,404) (58) (36) (38,498)
Cash flows from financing activities
Borrowing (to)/from affiliates (2,054) 2,052 2
Costs associated with debt acquisition (167) (167)
Proceeds from long-term debt 876 876
Payments on long-term debt (601) (5) (239) (845)
Net proceeds from line of credit
borrowings 33,584 927 34,511
------------- ----------- ------------ ------------- ------------
Net cash provided by
financing activities 31,638 (5) 2,740 2 34,375
------------- ----------- ------------ ------------- ------------
Net cash change 16 114 3,602 3,732
Cash at beginning of period 12 4,598 23 4,633
------------- ----------- ------------ ------------- ------------
Cash at end of period $ 28 $ 4,712 $ 3,625 $ $ 8,365
============= =========== ============ ============= ============
Supplemental information:
Depreciation and amortization $ 3,165 $ 499 $ 291 $ $ 3,955
============= =========== ============ ============= ============
13
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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 section, 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; (ii)
fluctuations in worldwide or regional automobile and light and heavy truck
production, (iii) labor disputes involving the Company or its significant
customers; (iv) changes in practices and/or policies of the Company's
significant customers toward outsourcing automotive components and systems; (v)
foreign currency and exchange fluctuations; (vi) factors affecting the ability
of the Company or its key suppliers to resolve Year 2000 issues in a timely
manner; and (vii) 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.
OVERVIEW
The Company's financial results for the quarter ended December 27, 1998 continue
to reflect the positive impact of its strategic initiatives, which include its
acquisitions over the last twelve months and efforts to control costs.
FISCAL YEAR 1998 ACQUISITIONS
Kenco - On September 30, 1997, the Company acquired all outstanding capital
stock of Kenco Plastics, Inc. (Michigan) and Kenco Plastics, Inc. (Kentucky) and
the business and substantially all operating assets of Narens Design and
Engineering Co. for approximately $27.1 million in cash. The acquisition was
financed with additional borrowings under the existing Senior Credit Facility.
Beienheim - On November 25, 1997, the Company acquired the business and certain
assets and assumed certain liabilities comprising the `Beienheim' plant of
Aeroquip-Vickers International GmbH for approximately $9.7 million in cash. The
acquisition was financed with additional borrowings under the existing Senior
Credit Facility.
HPG - On February 10, 1998, the Company acquired the stock of Huron Plastics
Group, Inc. and substantially all of the operating assets of Tadim, Inc.
(collectively known as "HPG") for $69.0 million in cash and the assumption of
certain liabilities. The acquisition was funded with proceeds from a $66.0
million term loan issued by the Company's senior lender and additional
borrowings under the existing Senior Credit Facility.
TRANSACTION SUBSEQUENT TO FIRST QUARTER 1999
On February 10, 1999, the Company entered into a joint venture that is 49% owned
by the Company and 51% owned by an independent third party. The transaction was
effective as of December 31, 1998. The Company sold the Kenco business and most
of its current net assets to the joint venture at an amount equal to the net
book value of the net current assets. Sales price of the net current assets
approximated $8.4 million.
The Company will be leasing all machinery and equipment of the Kenco business to
the joint venture, and will sublease to the joint venture all real properties
used in the Kenco operations.
Under the terms of the agreement, the Company provided a subordinated $1.8
million loan to the joint venture, and will guarantee $1.0 million of the joint
venture line of credit borrowings. As a result of those terms, and the
relatively small amount of equity contributed to the joint venture by the
independent third party, the Company will retain substantially all of the risks
of ownership and, accordingly, the transaction will not be treated as a sale
for accounting purposes until the risks have been transferred.
14
15
RESULTS OF OPERATIONS
QUARTER ENDED DECEMBER 27, 1998 COMPARED TO THE QUARTER ENDED
DECEMBER 28, 1997
Net sales for the quarter ended December 27, 1998 ("first quarter 1999") were
$138.1 million, an increase of $37.8 million or 37.7% from the quarter ended
December 28, 1997 ("first quarter 1998"). First quarter 1999 net sales were
comprised of approximately $128.3 million of automotive product sales, $4.2
million of consumer and other product sales and $5.6 million of tooling sales.
The growth in net sales is primarily the result of acquisitions described
previously herein.
Gross margin was $25.0 million or 18.1% of net sales for the first quarter 1999
compared with $17.9 million or 17.9% of net sales for the first quarter 1998.
First quarter 1999 gross margin related to automotive product sales was $25.3
million or 19.7% of net product sales compared to $17.2 million or 18.3% of net
product sales for the first quarter of 1998. The increase in gross margin
related to product sales is the result of the product sales gross margin
provided by the HPG acquisition and operating improvements at the Company's
other manufacturing facilities.
Selling, General and Administrative (SG&A) expense for the first quarter 1999
was $15.6 million, or 11.3% of net sales compared to $11.1 million, or 11.1% of
net sales for the first quarter of 1998.
Interest expense for the first quarter 1999 was $5.4 million compared to $3.9
million for the first quarter 1998. The increase in interest expense is
primarily due to the additional outstanding debt related to the aforementioned
acquisitions.
The provision for income taxes for the first quarter 1999 was $2.3 million. The
effective tax rate for the first quarter of 1999 was 56.9% compared to 47.3% for
the first quarter 1998. The rate difference relates principally to certain
nondeductible expenses and the establishment of valuation allowances against
deferred tax assets at the Company's Beienheim facility.
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. Potential growth from acquisitions will be funded from a variety
of sources including cash flow from operations and permitted additional
indebtedness. As of December 27, 1998, the Company had $172.0 million of
long-term debt outstanding, $50.4 million of revolving loans and current
maturities of long-term debt outstanding, and $23.1 million of borrowing
availability under its revolving credit facility.
Cash provided by operating activities in first quarter 1999 was $6.4 million
compared to $7.9 million of cash provided by operating activities in the first
quarter 1998.
Capital expenditures for first quarter 1999 were $4.0 million compared to $1.0
million for first quarter 1998. The Company believes its capital expenditures
will be approximately $16.0 million in fiscal year 1999. The majority of the
Company's fiscal year 1999 capital expenditures will be used to facilitate new
programs launching in fiscal year 1999 and continued installation of an
enterprise-wide information system at all plant facilities. However, the
Company's capital expenditures may be greater than currently anticipated as the
result of new business opportunities.
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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. However, 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.
YEAR 2000 COMPLIANCE
GENERAL DESCRIPTION OF THE YEAR 2000 ISSUE AND THE NATURE AND EFFECTS OF THE
YEAR 2000 ON INFORMATION TECHNOLOGY (IT) AND NON-IT SYSTEMS
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. Any of the
Company's computer programs or hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
Based on recent assessments, the Company has determined that it will be required
to modify or replace significant portions of its software and certain hardware
so that those systems will properly utilize dates beyond December 31, 1999. The
Company presently believes that with modifications or replacements of existing
software and certain hardware, the Year 2000 Issue can be mitigated. However, if
such modifications and replacements are not made, or are not completed timely,
the Year 2000 Issue could have a material impact on the operations of the
Company.
The Company's plan to resolve the Year 2000 Issue involves the following four
phases: assessment, remediation, testing, and implementation. To date, the
Company has fully completed its assessment of all systems that could be
significantly affected by the Year 2000 Issue. The completed assessment
indicated that most of the Company's significant information technology systems
could be affected, particularly the general ledger, billing, and inventory
systems. That assessment also indicated that software and hardware (embedded
chips) used in production and manufacturing systems (hereafter also referred to
as operating equipment) is at risk. Affected systems include automated assembly
lines and related robotic technologies used in various aspects of the
manufacturing process. In addition, the Company has gathered information about
the Year 2000 compliance status of its significant suppliers and subcontractors
and continues to monitor their compliance.
STATUS OF PROGRESS IN BECOMING YEAR 2000 COMPLIANT, INCLUDING TIMETABLE FOR
COMPLETION OF EACH REMAINING PHASE
For its information technology exposures, to date the Company has completed its
remediation phase and expects to complete software replacement, including
testing and implementation, no later than June 30, 1999. Once software is
selected and tailored for the Company's use, the Company begins testing and
implementation. These phases run concurrently for different systems. To date,
the Company has completed 80% of its testing and has implemented 40% of its
remediated systems. Completion of the testing phase for all significant systems
is expected by March 31, 1999, with all remediated systems fully tested and
implemented by June 30, 1999.
The remediation of operating equipment is significantly more difficult than the
remediation of the information technology systems because some of the
manufacturers of that equipment are no longer in business. As such, the Company
is only 60% complete in the remediation phase of its operating equipment.
Testing of this equipment is also more difficult than the testing of information
technology systems; as a result, the Company is only 40% complete with the
testing of its remediated operating equipment. Once testing is complete, the
operating equipment will be ready for immediate use. The Company expects to
complete its remediation efforts by March 31, 1999. Testing and implementation
of affected equipment is expected to be complete by June 30, 1999.
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NATURE AND LEVEL OF IMPORTANCE OF THIRD PARTIES AND THEIR EXPOSURE TO THE YEAR
2000
The Company's accounts receivable system interfaces directly with significant
customers. The Company is in the process of working with these customers to
ensure that the Company's systems that interface directly with third parties are
Year 2000 compliant by June 30, 1999. The Company has completed its remediation
efforts on these systems and is 80% complete with the testing phase. Testing of
all significant systems is expected no later than March 31, 1999. Implementation
is 40% complete and is expected to be complete by June 30, 1999. The Company
understands that these key customers are in the process of making their accounts
payable systems Year 2000 compliant. Each customer queried believed that its
payables system would be Year 2000 compliant by the end of 1999.
The Company has queried its significant suppliers and subcontractors that do not
share information systems with the Company (external agents). To date, the
Company is not aware of any external agent with a Year 2000 issue that would
materially impact the Company's results of operations, liquidity, or capital
resources. However, the Company has no means of ensuring that external agents
will be Year 2000 compliant by the end of 1999. The inability of external agents
to complete their Year 2000 resolution process in a timely fashion could
materially impact the Company. The effect of non-compliance by external agents
is not determinable.
COST
The Company will utilize both internal and external resources to reprogram, or
replace, test, and implement the software and operating equipment for Year 2000
modifications. The total cost of the Year 2000 project is estimated at $7
million , and is being funded through operating cash flows. To date, the Company
has incurred approximately $3.5 million ($0.4 million expensed and $3.1 million
capitalized for new systems and equipment), related to all phases of the Year
2000 project. Of the total remaining project costs, approximately $1.0 million
is attributable to the purchase of new software and operating equipment, which
will be capitalized. The remaining $2.5 million relates to repair of hardware
and software, and implementation consulting fees which will be expensed as
incurred.
RISKS
Management of the Company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. As noted above, the Company has
not yet completed all necessary phases of the Year 2000 program. In the event
that the Company does not complete any additional phases, the Company would be
unable to take customer orders, manufacture and ship products, invoice
customers, or collect payments. In addition, disruptions in the economy
generally resulting from Year 2000 issues could also materially adversely affect
the Company. The amount of potential liability and lost revenue cannot be
reasonably estimated at this time.
CONTINGENCY PLAN
The Company has contingency plans for certain critical applications, and is
working on such plans for others. These contingency plans involve, among other
actions, manual workarounds, increasing inventories, and adjusting staffing
strategies.
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YEAR 2000 DISCLOSURE CHART
- ---------------------------------------------------------------------------------------------------------------------
ASSESSMENT REMEDIATION TESTING IMPLEMENTATION
- ---------------------------------------------------------------------------------------------------------------------
Information Technology 100% complete 100% complete 80% complete 40% complete
Expected completion Expected completion
date, March 1999 date, June 1999
- ---------------------------------------------------------------------------------------------------------------------
Operating Equipment with 100% complete 60% complete 40% complete 40% complete
Embedded Chips or Software
Expected completion Expected completion Expected completion
date, March 1999 date, June 1999 date, June 1999
- ---------------------------------------------------------------------------------------------------------------------
Products 100% complete 100% complete 100% complete 100% complete
- ---------------------------------------------------------------------------------------------------------------------
Third Party 100% complete for 100% complete for 80% complete for 40% complete for
system interface; system interface system interface system interface
80% complete for
all other material Develop contingency Expected completion Expected completion
exposures plans as date for system date for system
appropriate, March interface work, interface work, June
Expected 1999 March 1999 1999
completion date
for surveying all Implement
third parties, contingency plans or
February 1999 other alternatives
as necessary,
September 1999
- ---------------------------------------------------------------------------------------------------------------------
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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
Director of Finance
Chief Accounting Officer
Dated: February 10, 1999
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INDEX TO EXHIBITS
EXHIBIT NO DESCRIPTION
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27 Financial Data Schedule
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