1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended September 26, 1999.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______ to ______
COMMISSION FILE NUMBER 333-21819
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LDM TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Character)
MICHIGAN 38-2690171
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) 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
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
None None
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes [X] No [ ]
As of December 17, 1999, 600 shares of Common Stock of the Registrant were
outstanding. There is no public trading market for the Common Stock.
2
PART I
Item 1. Business
GENERAL
LDM Technologies, Inc. (the "Company" or "LDM") is a leading Tier 1 designer
and manufacturer of highly engineered plastic instrument panel and interior trim
components, exterior trim components and under the hood components supplied
primarily to North American automotive original equipment manufacturers (OEMs).
Suppliers that sell directly to OEMs are referred to herein as "Tier 1"
suppliers. The Company is a full service supplier with advanced computer design
and engineering capabilities that have enabled it to penetrate OEM new product
programs during the concept stage of the product life cycle and promote
long-term customer relationships. The Company operates a Design Center in Auburn
Hills, Michigan to enhance its conceptual design and development capabilities.
The Company, a privately held Michigan corporation, was incorporated in 1985
to pursue acquisitions in the automotive industry. In 1986, the Company began to
focus on the market for highly engineered plastic components when it acquired
Arrow Molded Plastics, Inc. In 1993, the Company strengthened its presence in
this market with the acquisition of Knapp Plastics Ltd., a manufacturer of
exterior trim components and in 1994, purchased selected assets of Windsor
Plastic Products Ltd., a manufacturer of instrument panel components.
In fiscal year 1997 the Company completed its acquisition of substantially
all the assets of Molmec, Inc., a manufacturer of under the hood products (the
"Molmec" Acquisition). The Company also completed its acquisition of Aeroquip's
Kendallville, Indiana facility in fiscal year 1997 (the "Kendallville"
Acquisition).
On September 30, 1997, the Company purchased the entire voting stock of
Kenco Plastics, Inc., a manufacturer of blowmolded under the hood products (the
"Kenco" Acquisition). On November 25, 1997, the Company acquired the business
and certain net assets of Aeroquip-Vickers International GmbH (the "Beienheim"
Acquisition). The business is located in Beienheim, Germany and manufactures
interior and under the hood products, primarily for European OEM's. On February
6, 1998, the Company acquired the stock of Huron Plastics Group, Inc. and
substantially all of the assets of Tadim, Inc. (collectively the "HPG"
Acquisition). HPG is a manufacturer of under the hood and functional products
for sale to OEM's and Tier I automotive suppliers.
Effective as of December 31, 1998, the Company entered into a joint venture
(the DBM joint venture) that is 49% owned by the Company, and 51% owned by an
independent third party. The Company sold the Kenco business and most of its net
current assets to the joint venture and leased all machinery and equipment of
the Kenco business to the joint venture. Subsequent to September 26, 1999, the
Company sold the machinery and equipment of the Kenco business to the joint
venture.
On April 15, 1999, the Company sold a majority of its ownership stake in
Como Products to an independent third party. Como is a producer of injection
molded plastic consumer products. The sale was made to allow management to
narrow its focus on the Company's core automotive business.
Through a combination of the acquisitions and divestitures described above
and internal growth, the Company's net sales and EBITDA have increased from
approximately $221.0 million and $21.3 million, in fiscal year 1995 to
approximately $507.1 million and $42.6 million, respectively, on a proforma
basis in fiscal year 1999, which represents compound annual growth rates of 23%
and 19%, respectively.
3
INDUSTRY OVERVIEW
The North American automotive industry is currently experiencing a number of
trends which are significant to the Company's business.
Increasing Utilization of Plastic. In recent years, OEMs have focused
their efforts on developing and employing lower cost and lighter materials,
such as plastic, in the design of components. Plastic provides OEMs with a
number of design advantages over metal including increased design
flexibility and aesthetic appeal, resistance to corrosion and improved
fuel-efficiency performance due to lighter weight materials. Substituting
plastic for metal can also reduce manufacturing costs by eliminating
machining costs, reducing painting costs, facilitating assembly, minimizing
tooling costs and consolidating the number of parts used in a vehicle. The
Company believes that while the majority of the opportunities for converting
metal into plastic have already occurred in exterior and interior trim
applications, there are significant growth opportunities in the use of
plastic in under-the-hood components. Suppliers of under-the-hood
components, such as the Company, are increasingly being asked to develop
complex under-the-hood systems, including plastic transmission covers that
consolidate engine mounts and drive shaft seals and battery trays that
integrate fluid reservoirs.
Expansion of OEM Supplier Responsibilities. Since the 1980s, OEMs such as
Ford, General Motors and Chrysler have been actively reducing their supplier
base to include only those suppliers which accept significant responsibility
for product management and meet increasingly strict standards for product
quality, on time delivery and manufacturing costs. These suppliers are
expected to control many aspects of the production of system components,
including design, development, component sourcing, manufacturing, quality
assurance, testing and delivery to the customer's assembly plant.
Globalization of the OEM Supplier Base. Several OEMs have announced
certain models designed for the world automobile market ("World Car"). This
departure from the historical practice of designing separate models for each
regional market will generally require suppliers to establish international
design and manufacturing capabilities through internal development, joint
ventures or acquisitions. As a result, certain domestic and European OEMs
have encouraged their existing suppliers to establish foreign production
support for World Car programs.
Market-based Pricing. In an effort to reduce costs and to ensure the
affordability and competitiveness of their products, OEMs are sourcing
automotive components using a market-based pricing approach. In using such a
market-based approach, OEMs establish a target price, or the price the
market is willing to pay for a vehicle, and systematically divide this price
into system and component target prices. In addition, under market-based
pricing, the OEMs often require annual price reductions for the vehicle's
systems and components. As a result, the market-based approach to pricing
has generally required automotive suppliers to focus on continually reducing
product costs while improving quality standards.
AUTOMOTIVE PRODUCTS
The Company designs and manufactures highly-engineered plastic instrument
panel and interior trim components, exterior trim components and
under-the-hood components. In recent years, the Company has significantly
expanded its design and engineering capabilities which provide the Company
with a competitive advantage in obtaining new business. The Company's three
automotive lines of business are as follows:
Instrument Panel Components and Interior Trim Components. The Company
focuses on the production of complex products such as instrument panel
subassemblies which require the integration of multiple components.
Instrument panel components manufactured by the Company include cluster
finish panels, center trim panels, air vents, coin and cup holders,
ashtrays, gloveboxes, telephone holders and consoles. Certain products in
this line of business demand functional aesthetics appeal and typically
require the Company to provide innovative and design intensive solutions for
application requirements stipulated by OEMS. Historically, the Company's
largest customer for its instrument panel components has been Ford.
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Exterior Trim Components. Exterior trim systems manufactured by the
Company include front and rear bumper fascias, end caps, body side claddings
and moldings, rocker panels and grills. The Company's broad range of
exterior trim class A painting capabilities provides it with a competitive
advantage in supplying exterior trim to domestic and foreign OEMs. The
Company is able to provide both high-bake high solids painting, which is
traditionally preferred by domestic OEMs, and low-bake, two component
painting, which is preferred by foreign OEMs. Historically, LDM's largest
customer for its exterior trim components has been General Motors.
Under-the-Hood/Functional Components. The Company is a designer and
manufacturer of fluid and air management components for under-the-hood
applications such as cowl vent assemblies, fluid reservoirs including degas
bottles, battery trays and covers, air deflectors and sight shields. The
Company believes that it supplies the majority of Ford's cowl vent
assemblies for North American car and truck platforms. OEMs are increasingly
substituting plastic for metal in under-the-hood components and systems in
an effort to reduce cost, noise and weight, to enhance design flexibility,
to improve airflow and to increase aesthetic appeal. Historically, the
largest customer for its under-the-hood components has been Ford.
CONSUMER PRODUCTS
G.L. Industries of Indiana, Inc. (d/b/a Como Products ("Como")), a
manufacturer of consumer and office products, was acquired by the Company in
1993. Como is a manufacturer of plastic injection molded products for the
electronics, computer, television, office furniture, appliance, transportation
and business machine markets. Como's extensive finishing capabilities include
painting, EMI/RFI shielding, hot stamping, induction bonding, pad printing and
machining of molded parts. With injection molding machines ranging from 230 tons
to 3,000 tons, Como has the ability to produce a broad range of molded parts,
including injection molded, structural foam and counter pressure structural foam
parts. Como sales represented approximately 4.2% of the Company's fiscal year
1998 net product sales.
On April 15, 1999, the Company sold a majority of its ownership stake in
Como Products to an independent third party. The sale was made to allow
management to concentrate its focus on the Company's core automotive business.
CUSTOMERS
The Company's principal customers are Ford, General Motors and
DaimlerChrysler for which it supplies components and subassemblies for a variety
of light duty trucks, minivans and passenger cars. While the Company's products
are generally used on a diverse group of over 60 models, the Company's sales and
marketing efforts have been directed toward those sectors of the automotive
market which have experienced strong consumer demand and growth in sales. The
Company supplies components and subassemblies for a variety of light duty
trucks, sport utility vehicles, minivans and passenger cars.
The approximate percentage of net production sales to the principal
customers of the Company for the twelve-month period ended September 26, 1999
are shown below:
Year Ended
September 26, 1999
------------------
Ford .................................................................... 35.5%
General Motors .......................................................... 32.6%
DaimlerChrysler.......................................................... 4.9%
Other Automotive......................................................... 25.1%
Other Non-Automotive..................................................... 1.9%
------
Total.......................................................... 100.0%
======
The Company's customers typically award purchase orders on a limited source
basis that normally cover components to be supplied for a particular car model.
Such purchase orders generally provide for supplying the customer's requirements
for a model year, although, in practice, such purchase orders are typically
renewed until the component is redesigned or eliminated in a model change.
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Products under development are assigned a selling price which is reevaluated
from time to time during the product development cycle. Prior to production, the
Company and the customer generally agree on a final price, which, in some
instances, may be subject to negotiated price reductions or increases over the
term of the project. Consequently, the Company's ability to improve operating
performance is generally dependent primarily on its ability to reduce costs and
operate more efficiently.
The Company has been chosen as a supplier for a variety of light trucks
(including pick-up trucks, minivans, full size vans and sport utility vehicles)
and passenger car models. The following table presents an overview of the major
models, for which the Company currently produces components for its OEM
customers:
Customer Model
- ----------------------------------------------------------------------------
General Motors-truck.......................................... Astro/Safari
Blazer/Bravada/Jimmy
Sonoma Pick-up/S10 Pick-up
GMC Sierra/Silverado
Venture/Silhouette/Trans Sport
Yukon
Suburban
Tahoe
Escalade
Denali
General Motors-car............................................ Grand Am
Alero
Aurora/Riviera
Cavalier/Sunbird/Sunfire
Corvette
Firebird/Camaro
Grand Prix/Cutlass
Impact
Intrigue
Lumina
Malibu
Monte Carlo
Park Avenue
Saturn/Z
Seville
Astra (Opel)
Vectra (Opel)
Park Avenue
Bonneville
Regal
Impala
Envoy
Zaphira (Opel minivan)
Ford-truck.................................................... Econoline
Expedition
Explorer
F-Series Truck (PN96/PN102/PN131)
Ranger
Villager/Quest
Windstar
Navigator
Excursion
Ford-car...................................................... Continental
Contour/Mystique/Mondeo
Crown Victoria/Grand Marquis
Escort (US and Europe)
Mark VIII
Mustang
Cougar /Lincoln LS
Taurus/Sable
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Town Car
Focus/Entry
Jaguar X200
Daimler/Chrysler-truck........................................ Caravan/Voyager/Town & Country
Dakota
Grand Cherokee
Ram Pick-up/Van
Durango
Wrangler
Daimler/Chrysler-car.......................................... Avenger/Sebring
Breeze/Cirrus/Stratus
Concord/Intrepid
LHS 1300
Neon
Viper
Mercedes ML55/270/320
Volkswagen.................................................... A3 (Audi)
A4 (Audi)
A6 (Audi)
DESIGN AND PRODUCT ENGINEERING
The Company is a full service Tier I supplier with advanced engineering
capabilities which enable it to design innovative, high-quality products that
provide value to its customers. The Company has a Design Center in Auburn Hills,
Michigan to provide an environment for trend-setting conceptual design and
product development. The Company has made other significant investments in
conceptual design capabilities that allow it to participate in the earliest
stages of programs. For instance, the Company has embraced computer-aided
simulation directly linked to customer computer networks as a means to reduce
the cost and time required to develop new products. The industrial design
activity has augmented the Company's traditional modeling methods with
computer-aided technology which reduces staff requirements as well as
simplifying the integration of design and engineering functions. The Company has
transitioned from computer-aided design shell to solid modeling which provides a
direct link to rapid prototyping. The Company's design staff employs
state-of-the-art ALIAS and CATIA computer software and hardware to provide
three-dimensional virtual modeling and product animation. Analytical tools
employed include finite element analysis for structural analysis, kinematics for
mechanisms, computational fluid dynamics for airflow studies and moldfilling
analysis for injection molding optimization and warp prediction.
MANUFACTURING
The Company's OEM customers are focusing on suppliers capable of delivering
quality products, controlling manufacturing costs and integrating, through
design capabilities, multiple components into larger systems. The Company has
responded to this challenge by implementing a lean manufacturing program and
adopting advanced processing technology.
The Company's lean manufacturing program has focused on "kanban" production
scheduling and materials management techniques and labor productivity
improvements. Kanban management techniques are characterized by flexible
production scheduling as well as vendor scheduling, reduced work queues, more
frequent vendor deliveries and reduced inventory levels. Through kanban, the
Company has experienced increased inventory turnover and generally reduced
inventory levels.
The Company continually seeks to achieve labor productivity improvement and
has established a work environment which encourages employee involvement in
identifying and eliminating waste. A key factor in the Company's operations is
maintaining the flexibility to respond to the demands of different product runs
and changing product delivery requirements while continuously increasing
production efficiency.
The Company believes its broad base of class A paint application
capabilities positions it well for supplying the domestic and foreign exterior
trim market. The Company is able to provide both high-bake high solids painting,
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which is traditionally preferred by domestic OEMS, and low-bake, two component
painting, which is preferred by foreign OEMS. The Company has also recently
developed paint application technology utilizing innovative robotic applications
which has enabled the Company to reduce costs by improving paint transfer
efficiency.
The Company has been recognized as a quality supplier by its OEM customers
and has received Ford's Q1 Award and has been nominated for DaimlerChrysler's
Pentastar Award. The majority of the Company's facilities are QS 9000 certified
and the remaining facilities are in the process of being certified.
MARKETING
Sales of the Company's products to OEMs are made directly by the Company's
sales and engineering force, headquartered in Michigan. Through the sales and
engineering office, the Company services its OEM customers and manages its
continuing programs of product design improvement and development. The Company's
sales and engineering force currently consists of approximately 100 individuals,
including several who are located periodically at various OEMs' offices in order
to facilitate the development of new programs.
COMPETITION
The automotive supplier industry in which the Company competes is highly
competitive. A large number of actual or potential competitors exist including
the internal component supply operations of the OEMs as well as independent
suppliers, many of which are larger than the Company. The Company believes its
principal competitors in its three lines of business include: Progressive
Dynamics Inc., Summit Polymers Inc. and Manchester Plastics, a business unit of
Collins & Aikman Corporation, in instrument panel components; Magna
International Inc., and Venture Holdings Corporation, in exterior trim
components; and Key Plastics Inc. and Lacks Industries in under-the-hood
components.
The Company principally competes for new business both at the initial
development of new models and upon the redesign of existing models by its major
customers. New model development generally begins two to four years prior to the
marketing of such models to the public. Because of the large investment by OEMs
and Tier I suppliers in tooling and the long lead time required to commence
production, OEMs and Tier I suppliers generally do not change a supplier during
a model production run.
RAW MATERIALS
The principal raw materials used by the Company are engineered plastic
resins such as nylon, polypropylene, polycarbonate and
acrylonitrile-butadiene-styrene, paint, and steel for production molds, all of
which are available from many sources. The resins used in the Company's business
historically have been subject to price fluctuations. In the past, the Company
has been unable to pass price increases in resins through to its customers.
There can be no assurance that a material increase in the price of resin will
not adversely affect the Company's results of operations. The Company has not
experienced significant raw material shortages and does not anticipate
significant raw material shortages in the foreseeable future.
EMPLOYEES
As of September 26, 1999, the Company's workforce included 3,567 employees,
of which 626 were salaried workers, and 2,941 were hourly workers including
temporary and part-time employees. The Company has 375 hourly employees
represented by the Canadian Automobile Workers union at its Leamington, Canada
facility. The Company's three-year contract with the bargaining unit for the
Leamington facility expires January 15, 2001. None of the Company's other
employees are subject to collective bargaining agreements. The Company has not
experienced any work stoppages and considers relations with its employees to be
good.
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ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to a wide variety of
international, federal, state and local laws and regulations, including those
governing the use, storage, handling, generation, treatment, emission, release,
discharge and disposal of certain materials, substances and wastes, the
remediation of contaminated soil and groundwater, and the health and safety of
employees (collectively, "Environmental Laws"). As such, the nature of the
Company's operations exposes it to the risk of claims with respect to such
matters and there can be no assurance that material costs or liabilities will
not be incurred in connection with such claims.
The Company has taken steps, including the installation of an Environmental,
Health and Safety group to reduce the environmental risks associated with its
operations and believes that it is currently in substantial compliance with
applicable Environmental Laws. See Item 7 - "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Environmental."
Item 2. Properties
The Company conducts molding, painting and assembly operations in
approximately 1.9 million square feet of space in a total of 25 manufacturing
locations. The utilization and capacity of the Company's facilities fluctuates
based upon the mix of components the Company produces and the vehicle models for
which they are being produced. Detail of each manufacturing location is
scheduled below:
LOCATION OWNED/LEASED SQUARE FOOTAGE
- --------- ------------ --------------
Circleville, OH Owned 71,300
Napoleon, OH Leased 150,000
Franklin, TN Owned 122,000
Kendallville, IN Owned 60,000
Byesville, OH Owned 160,000
Leamington, Ontario, Canada Owned 200,000
New Hudson, MI Owned 57,900
Hartland, MI Owned 44,600
Fowlerville, MI Owned 65,000
Clarkston, MI Owned 21,600
Croswell, MI Leased 80,900
St. Clair, MI Leased 35,000
St. Clair, MI Leased 29,100
Harlingen, TX Leased 42,900
Port Huron, MI Leased 71,000
Port Huron, MI Leased 71,000
Beienheim, Germany Leased 140,000
The Company's principal executive offices and design and engineering staff
are located in a building owned by the Company in Auburn Hills, Michigan. The
Company believes that its facilities and equipment are in good condition and are
adequate for the Company's present and anticipated future operations.
Item 3. Legal Proceedings
There are no material legal proceedings pending against the Company or its
subsidiaries.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
9
PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters
There is no public trading market for the Company's Common Stock. As of
September 27, 1998, there were two holders of record of the Registrant's Common
Stock.
Item 6. Selected Financial Data
Summary Financial Data
(dollars in thousands)
The following table sets forth summary historical financial data of LDM
Technologies, Inc. for the fiscal years ended September 24, 1995, September 29,
1996, September 28, 1997, September 27, 1998, and September 26, 1999. The
following table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the historical
consolidated financial statements of LDM presented elsewhere in this document.
SEPT. 24 SEPT. 29 SEPT. 28 SEPT. 27 SEPT. 26
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
Statement of operations
data
Net sales $ 220,991 $ 217,759 $ 293,020 $ 483,224 $ 530,498
Cost of sales 182,408 182,896 240,929 404,001 441,514
Gross margin 38,583 34,863 52,091 79,223 88,984
Selling, general and
administrative
expenses 23,515 26,418 35,562 56,607 63,401
Interest expense 3,178 3,280 11,076 19,814 21,067
Impairment of
long-lived 10,523
assets
Income (loss) from
continuing
operations,
before extraordinary
item 6,248 1,173 3,063 (7,067) (761)
Other financial data
Cash flows from operating
activities $ 14,788 $ 12,912 $ 9,336 $ 19,547 $ 26,611
EBITDA (a) 21,261 16,473 28,182 42,598 45,136
Depreciation and
amortization 6,778 8,006 11,955 19,866 22,025
Capital expenditures 15,150 20,286 12,776 14,143 22,003
Ratio of earnings to
fixed charges(b) 3.9 1.9 1.4 .6 1.1
Ratio of EBITDA to
interest expense 6.7 5.0 2.5 2.2 2.1
Ratio of debt to EBITDA 2.1 3.1 4.5 5.3 4.7
Balance sheet data
Cash $ 1,138 $ 2,122 $ 4,632 $ 3,317 $ 4,317
Total assets 107,655 119,125 212,187 327,651 312,143
Total debt 44,936 51,786 126,770 224,444 213,102
Stockholder's equity 23,635 17,323 20,386 13,358 12,920
10
(a) EBITDA is defined as income (loss) from continuing operations
before the effect of extraordinary items plus the following: interest,
income taxes, depreciation and amortization. EBITDA is presented because
it is a widely accepted financial indicator of a company's ability to
incur and service debt. EBITDA is not, and should not be used as, an
indicator or alternative to operating income, net income (loss) or cash
flow as reflected in the Consolidated Financial Statements, is not
intended to represent funds available for debt service, dividends,
reinvestment or other discretionary uses, is not a measure of financial
performance under generally accepted accounting principles, should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles and
may not be comparable to other similarly-titled measures of other
companies. A reconciliation of net income to EBITDA is as follows:
AUDITED
---------------------------------------------------------------------
SEPT. 24 SEPT. 29 SEPT. 28 SEPT 27 SEPT. 26
1995 1996 1997 1998 1999
--------- -------- -------- -------- --------
Net Income (loss) $ 6,334 $ 1,869 $ 3,063 $(7,067) $ (761)
Add (deduct) the following:
Extraordinary Item - (754) - -
Discontinued operations (87) 58 - -
Adjustment for
impairment of - - - 10,523
long-lived assets
Provision (credit) for
income taxes 5,058 4,014 2,088 (538) 2,805
Interest expense 3,178 3,280 11,076 19,814 21,067
Depreciation and
amortization 6,778 8,006 11,955 19,866 22,025
------- ------- ------- ------- -------
EBITDA $21,261 $16,473 $28,182 $42,598 $45,136
======= ======= ======= ======= =======
(b) For purposes of the ratio of earnings to fixed charges, (i) earnings include
income from continuing operations before the following: income taxes,
extraordinary items, minority interests, and fixed charges and (ii) fixed
charges include interest on all indebtedness, amortization of deferred
financing costs and the portion of rental expense that the Company believes
to be representative of interest. For the year ended September 27, 1998,
earnings were inadequate to cover fixed charges by $7,966.
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Item 7. 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; (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.
GENERAL
LDM is a leading Tier I designer and manufacturer of highly engineered
plastic instrument panel and interior trim components, exterior trim components
and under-the-hood components supplied primarily to North American automotive
OEMs. LDM supplies components and subassemblies for a variety of light duty
trucks, sport utility vehicles, minivans and passenger cars. Automotive products
under development are assigned a selling price which is reevaluated from time to
time during the product development cycle. Prior to production, the Company and
the customer generally agree on a final price, which, in some instances, may be
subject to negotiated price reductions or increases over the term of the
project. Consequently, the Company's ability to improve operating performance is
generally dependent primarily on its ability to reduce costs and operate more
efficiently. Molds used in LDM's operations are requisitioned by LDM's customers
and are purchased from mold builders who design and construct the molds under
LDM supervision. Upon acceptance of the molds, title is passed to customers and
revenue is recognized. In addition to automotive products, LDM's net sales
include some consumer product sales and mold sales.
RESULTS OF CONTINUING OPERATIONS
YEAR ENDED SEPTEMBER 26, 1999 COMPARED TO YEAR ENDED SEPTEMBER 27, 1998
NET SALES: Net sales for fiscal year 1999 were $530.5 million, an increase of
$47.3 million, or 9.8%, from $483.2 million in fiscal year 1998. For fiscal year
1999, net sales were comprised of $460.1 million of automotive product sales,
$7.8 million of consumer and other product sales, and $62.6 million of mold
sales.
Automotive product sales in fiscal year 1999 were $460.1 million, an increase of
$39.2 million, or 9.3%, from $420.9 million in fiscal year 1998. This is the
result of recognizing a full year of HPG sales offset by the loss of nine months
of blowmolding sales due to the DBM joint venture. Consumer and other product
sales were $7.8 million in fiscal year 1999, compared to $18.1 million in fiscal
year 1998. This decrease of $10.3 million, or 56.9%, is the result of LDM's sale
of Como Products on April 15, 1999. Mold sales in fiscal year 1999 were $62.6
million, an increase of $18.3 million, or 41.3% from $44.3 million in fiscal
year 1998. The increase is due to certain programs that have launched during the
Company's fiscal fourth quarter. 1999 mold sales were comprised of $61.7 million
of automotive mold sales and $0.9 million of consumer and other mold sales.
GROSS MARGIN: Gross margin was $89.0 million, or 16.8% of net sales, for fiscal
year 1999 compared to $79.2 million, or 16.4% of net sales, for fiscal year
1998.
Gross margin related to automotive product sales was $86.9 million, or 18.9% of
net automotive product sales in fiscal year 1999 compared to $75.8 million or
18.0% of net automotive product sales in fiscal year 1998.
Gross margin related to consumer and other sales was $0.2 million, or 0.3% of
net consumer and other sales in fiscal year 1999 compared to $0.2 million or
0.2% of net consumer and other sales in fiscal year 1998.
12
Gross margin related to mold sales was $1.9 million or 3.0% of mold sales in
fiscal year 1999 compared to $3.2 million or 7.2% of mold sales in fiscal year
1998.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES: SG&A expenses for fiscal
1999 were $63.4 million, or 12.0% of net sales, compared to $56.6 million, or
11.7% of net sales, for fiscal year 1998.
INTEREST EXPENSE: Interest expense was $21.1 million for fiscal year 1999,
compared to $19.8 million for fiscal year 1998.
INCOME TAXES: The provision for income taxes for fiscal year 1999 was $2.8
million with an effective tax rate of 137.2%, as compared to a tax benefit of
$0.5 million with an effective tax benefit rate of 6.8% for fiscal year 1998.
The low effective benefit rate and high effective tax rate is the result of
certain non-deductible expenses and foreign tax in excess of foreign tax
credits.
DBM TECHNOLOGIES JOINT VENTURE: On December 31, 1998, the Company entered into a
joint venture (DBM joint venture) that is 49% owned by the Company, and 51%
owned by an independent third party. The Company sold the Kenco business and
most of its net current assets to the joint venture at an amount equal to the
net book value of the net current assets. The sales price of the net current
assets approximated $8.8 million.
The Company leased all machinery and equipment of the Kenco business to the
joint venture, and is subleasing to the joint venture all real properties in the
Kenco operations.
Under terms of the agreement, the Company provided a subordinated $1.8 million
loan to the joint venture and guaranteed $1.0 million of the joint venture line
of credit borrowings. As a result of these terms, and the relatively small
amount of equity contributed to the joint venture by the independent third
party, the Company retained substantially all of the risks of ownership. The
investment is treated as an equity investment for accounting purposes, but the
Company has recorded 100% of the joint venture losses as equity losses.
Subsequent to September 26, 1999, the Company sold to the joint venture the
machinery and equipment previously leased to the joint venture. Proceeds from
the sale approximated $10.3 million, the equipment's net book value. Proceeds
included $8.3 million in cash and an additional $2.0 million subordinated note
payable to the Company from the joint venture. As part of this transaction, the
joint venture's line of credit borrowings were refinanced which released the
Company from the $1.0 million guarantee discussed above.
SALE OF COMO PRODUCTS: On April 15, 1999, all of the assets and liabilities of
GL Industries of Indiana, Inc. (d/b/a Como Products), a 75% owned subsidiary of
the Company, were sold to New GLI, Inc., an Indiana corporation, which is now
doing business as "Como Products." A new independent partner joined the business
(New GLI) and purchased all but 36.75% of the Company's stake in New GLI for a
minimal amount. Under terms of the purchase agreement, the Company accepted a
subordinated note from New GLI for approximately $0.5 million, which represents
previous loans, accrued interest, and working capital advances from the Company
to Como. The note has been fully reserved on the Company's books.
The Company's ownership percentage in New GLI has become less than 50%. As a
result, New GLI's results are reported as equity earnings. As part of this
transaction, the Company was released from all guarantees on Como's line of
credit borrowings.
13
YEAR ENDED SEPTEMBER 27, 1998 COMPARED TO YEAR ENDED SEPTEMBER 28, 1997
NET SALES: Net sales for fiscal year 1998 were $483.2 million, an increase of
$190.2 million, or 64.9% from $293.0 million in fiscal year 1997. For fiscal
year 1998, net sales, before intercompany elimination of $.1 million, were
comprised of $420.9 million of automotive product sales, $18.1 million of
consumer and other product sales, and $44.3 million of mold sales. A strike at
the General Motors Corporation during fiscal year 1998 resulted in estimated
lost automotive product sales of approximately $13.0 million.
Automotive product sales in fiscal year 1998 were $420.9 million, an increase of
$177.6 million, or 73.0%, from $243.3 million in fiscal year 1997. The strong
growth of automotive product sales was mainly attributable to increased
automotive product sales related to the Company's fiscal year 1998 acquisitions
(Kenco, $56.5 million; Beienheim, $20.6 million; and HPG, $66.6 million), a full
year of sales related to the 1997 acquisitions of Molmec and Kendallville and
the continued strength of the Company's other production parts programs.
Consumer and other product sales were $18.1 million in fiscal year 1998,
compared to $19.2 million in fiscal year 1997. This decrease of $1.1 million,
or 5.7%, is primarily the result of lower sales of television cabinets due to
the manufacturer's resourcing of these products to local suppliers.
Mold sales in fiscal year 1998 were $44.3 million, an increase of $12.4 million,
or 38.9% from $31.9 million in fiscal year 1997. 1998 mold sales were comprised
of $42.2 million automotive mold sales and $2.1 million of consumer and other
mold sales.
GROSS MARGIN: Gross margin was $79.2 million or 16.4% of net sales, for fiscal
year 1998 compared to $52.1 million or 17.8% of net sales, for fiscal year 1997.
Gross margin related to automotive product sales was $75.8 million, or 18.0% of
net automotive product sales in fiscal year 1998 compared to $50.2 million or
20.6% of net automotive product sales in fiscal year 1997. A strike at General
Motors Corporation during fiscal year 1998 resulted in estimated lost gross
margin of approximately $3.5 million. If the strike at General Motors had not
occurred, gross margin related to product sales would have approximated $79.3
million or 18.8% of net automotive product sales. The remaining decrease in
gross margin as a percentage of net product sales relates to gross margins at
Kenco and Beienheim being lower than achieved historically at the Company.
Gross margin related to consumer and other sales was $0.2 million or 0.2% of net
consumer and other sales in fiscal year 1998 compared to $.4 million or 2.0% of
net consumer and other sales in fiscal year 1997.
Gross margin related to mold sales was $3.2 million or 7.2% of mold sales in
fiscal year 1998 compared to $1.5 million or 4.7% of mold sales in fiscal year
1997.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES: SG&A expenses for fiscal
1998 were $56.6 million, or 11.7% of net sales, compared to $35.6 million, or
12.1% of net sales, for fiscal year 1997.
INTEREST EXPENSE: Interest expense was $19.8 million during fiscal year 1998,
compared to $11.1 million for fiscal year 1997. The increased interest expense
is the result of a full year's effect of the issuance of $110.0 million Senior
Subordinated Notes in January 1997, and additional indebtedness assumed in
fiscal year 1998 related to acquisitions. The Kenco Acquisition ($27.1 million)
and the Beienheim Acquisition ($9.7 million) were financed with the Company's
existing Senior Revolving Credit Facility. The HPG Acquisition ($69.0) million
was financed with the proceeds of a new $66.0 million Senior Term Credit
Facility and the existing Senior Revolving Credit Facility.
INCOME TAXES: The benefit for income taxes for fiscal year 1998 was $0.5 million
with an effective tax benefit rate of 6.8%, as compared to a provision of $2.1
million with an effective tax rate of 41.7% for fiscal year 1997. The lower
effective benefit rate is the result of certain non-deductible expenses, foreign
tax in excess of foreign tax credits, and establishment of valuation allowances
against deferred tax assets at Como and LDM Technologies GmbH. These are
partially offset by the settlement of a prior year income tax audit.
14
ACQUISITION OF KENCO: On September 30, 1997 the Company acquired the entire
outstanding voting stock of Kenco Plastics, Inc. of Michigan, Kenco Plastics,
Inc. of Kentucky and the business and net tangible assets of Narens Design and
Engineering, Inc. (collectively referred to herein as "Kenco") for approximately
$27.1 million in cash. The acquisition was financed with additional borrowings
under the Company's Senior Credit Facility. Kenco designs and manufactures a
full range of blow molded plastic parts including HVAC components, air induction
components, functional components and fluid reservoirs at six manufacturing
locations located in Michigan, Kentucky and Tennessee.
ACQUISITION OF BEIENHEIM: On November 25, 1997 the Company acquired
substantially all of the operating assets of Aeroquip-Vickers International
GmbH., including the manufacturing operation located in Beienheim Germany, for
approximately $9.7 million in cash, and the assumption of approximately $2.5
million of liabilities, subject to certain adjustments. The acquisition was made
through the Company's newly formed German subsidiary and was financed with
additional borrowings under the Company's Senior Credit Facility. The Beienheim
facility manufactures various interior trim components, exterior trim components
and under the hood components supplied primarily to European automotive OEMs.
Beienheim's customers include Ford, Opel and Audi.
ACQUISITION OF HURON PLASTICS: On February 6, 1998, the Company acquired the
stock of Huron Plastics Group, Inc. and substantially all of the assets of
Tadim, Inc. (collectively "HPG") for $69.0 million in cash and the assumption of
certain liabilities. The acquisition was financed with proceeds from a new $66
million Senior Term Credit Facility and additional borrowings under the
Company's existing Senior Revolving Credit Facility. HPG designs and
manufactures under the hood and functional injection molded plastic parts at six
manufacturing facilities located in Michigan and Texas.
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 September 26, 1999 the Company had $179.8 million of
long-term debt outstanding and $18.3 million of borrowing availability under its
revolving credit facility.
Cash provided by operating activities in fiscal year 1999 was $26.6 million
compared to $19.5 million of cash provided by operating activities in the same
period in 1998. The increase in cash provided by operating activities was
primarily the result of increased gross margins.
Capital expenditures for fiscal year 1999 were $22.0 million compared to $14.1
million for fiscal year 1998. Fiscal 1999 capital expenditures include several
injection molding machines and secondary equipment, as well as new hardware and
software related to a common mainframe computer system implemented throughout
the entire organization.
The Company believes its capital expenditures (exclusive of any potential
acquisitions) will be approximately $20.0 million in each of the fiscal years
ended September 2000, 2001, and 2002. However, the Company's capital
expenditures may be greater than currently anticipated as the result of new
business opportunities.
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.
15
ENVIRONMENTAL:
The Company was named as a Defendant in a lawsuit in connection with a failed
landfill in Byesville, Ohio. The lawsuit sought contribution from the Company as
a potentially responsible party for allegedly generating waste that was disposed
of at the landfill. During fiscal year 1999, the Company settled this matter for
a nominal amount. The Company also received a letter from a group of
corporations which have entered into an agreement with the USEPA to prepare a
remedial design for curing a failed landfill site in Circleville, Ohio. The
Company was identified as a potentially responsible party for alleged waste
disposal at the Circleville landfill. The Company believes that, based on the
available information, the ultimate liability with respect to these issues will
not materially exceed the $50,000 it has recorded.
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 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.
The Company determined that it was 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 believes that
modifications or replacements of existing software and certain hardware have
mitigated, the Year 2000 issue. However other matters related to 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. 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) were 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, the Company has completed all phases
and has fully implemented Year 2000 compliant hardware and software. The Company
has also completed all phases and has upgraded all operating equipment to be
Year 2000 compliant.
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 has worked with these customers to ensure that the
Company's systems that interface directly with third parties are Year 2000
compliant. We understand that these key customers are in the process of making
their accounts payable systems Year 2000 compliant. Each customer queried
believed that its payable system would be Year 2000 compliant by the end of
1999.
16
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 ready. 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 has utilized 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 approximated $7
million, and was funded through operating cash flows. The total expenditures
were comprised of $4 million of new hardware, software, and operating equipment
which was capitalized and the remaining $3 million relates to repairs and
implementation costs which were 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
completed all necessary phases of the Year 2000 program. 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 critical applications. These contingency
plans involve, among other actions, manual workarounds, increasing inventories,
and adjusting staffing strategies.
YEAR 2000 DISCLOSURE CHART
- ----------------------------- -------------------- ---------------------- --------------------- ----------------------
ASSESSMENT REMEDIATION TESTING IMPLEMENTATION
- ----------------------------- -------------------- ---------------------- --------------------- ----------------------
Information Technology 100% complete 100% complete 100% complete 100% complete
- ----------------------------- -------------------- ---------------------- --------------------- ----------------------
Operating Equipment with 100% complete 100% complete 100% complete 100% complete
Embedded Chips or Software
- ----------------------------- -------------------- ---------------------- --------------------- ----------------------
Products 100% complete 100% complete 100% complete 100% complete
- ----------------------------- -------------------- ---------------------- --------------------- ----------------------
Third Party 100% complete 100% complete 100% complete 100% complete
Implement
contingency plans or
other alternatives
as necessary,
December 1999
- ----------------------------- -------------------- ---------------------- --------------------- ----------------------
MARKET RISK
FOREIGN CURRENCY RISK
QUANTITATIVE AND QUALITATIVE ANALYSIS
A portion of the Company's operations consists of manufacturing and sales
activities in foreign jurisdictions. The Company manufactures its products in
the United States, Canada, and Germany and sells the products in those markets
as well. As a result, the Company's financial results could be significantly
affected by factors such as changes in foreign currency exchange rates or weak
economic conditions in the foreign markets in which the Company distributes its
products. The Company's operating results are exposed to changes in exchange
rates between the U.S. dollar and the Canadian dollar, and the U.S. dollar and
the German mark.
In Canada, the Company operates in both the U.S. and the Canadian dollar, and is
funded by a U.S. dollar loan from the parent Company. The functional currency is
the U.S. dollar. The Company is exposed to exchange gains or losses on current
assets and liabilities denominated in the Canadian dollar.
17
In Germany, the functional currency is the German mark, in which all operating
cash-flows are denominated. The German operation is also funded by a U.S. dollar
loan from the parent Company. The Company is exposed to exchange gains or losses
on current assets and liabilities denominated in the German mark.
As of September 26, 1999, the Company's net assets subject to foreign currency
translation risk is $4,801. The potential loss from a hypothetical 10% adverse
change in quoted foreign currency exchange rates would be approximately $480.
The model assumes a parallel shift in foreign currency exchange rates. Exchange
rates rarely move in the same direction. This assumption may overstate the
impact of changing exchange rates on individual assets and liabilities
denominated in a foreign currency.
INTEREST RATE RISK
QUALITATIVE AND QUANTITATIVE ANALYSIS
The Company's variable interest expense is sensitive to changes in the general
level of U.S. interest rates. Some of the Company's interest expense is fixed
through long-term borrowings to mitigate the impact of such potential exposure.
2000 2001 2002 2003 2004 Thereafter Total FMV
---- ---- ---- ---- ---- ---------- ----- ---
Fixed rate (maturity) - - - - - $110,000 $110,000 $103,400
Fixed rate % (average) 10.75% 10.75%
Variable rate (maturity) $44,840 $11,543 $38,129 $ 520 $ 540 $ 7,530 $103,102 $103,102
Variable rate % (future 7.62% 7.62% 7.62% 7.62% 7.62% 7.62% 7.62%
rates)
Item 8. Financial Statements and Supplementary Data
The response to this item is submitted as a separate section of this
Form 10-K. See Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable
PART III
Item 10. Directors and Executive Officers of the Registrant
The names and ages of all executive officers and directors of the Company
are as follows:
HAS SERVED
IN POSITION
NAME AGE POSITION SINCE
------------------------- --- -------- -----
Joe Balous............... 74 Chairman of the Board, Secretary and Director 1985
Richard J. Nash.......... 55 Chief Executive Officer and Director 1985
Robert C. Vamos.......... 53 President 1997
Gary E. Borushko......... 54 Chief Financial Officer 1987
Gordon F. Steil.......... 50 Vice President of Engineering 1991
William Kessler.......... 53 Vice President of Development 1993
Vincent P. Buscemi....... 51 Group Vice President - Sales 1991
Michael T. Heneka........ 52 Group Vice President - Sales 1991
Directors of the Company are elected each year at the Annual Meeting of
Stockholders to serve for the ensuing year or until their successors are elected
and qualified. The officers of the Company are elected each year at the Annual
Meeting of the Board of Directors to serve for the ensuing year or until their
successors are elected and qualified.
Each of the directors of the Company has had the same principal occupation
during the past five years.
18
All of the executive officers of the Company named above have held various
executive positions with the Company for more than five years except: Mr. Vamos
joined Molmec in 1992 as Vice President of Manufacturing and was named President
of Molmec in 1993. Prior to 1992, he held various manufacturing management
positions with the Budd Company. Upon LDM's acquisition of Molmec in January
1997 he was named Executive Vice President of Manufacturing of the Company and
on September 2, 1997 he was named to his current position. Mr. Kessler joined
the Company in 1993. Prior thereto he was Vice President of Sales at Velcro
Industries for 22 years.
Item 11. Executive Compensation
The following table sets forth the compensation paid to each of the
Company's five highest paid executive officers and significant employees for
fiscal year 1999.
SUMMARY COMPENSATION TABLE 1(1)
OTHER ANNUAL ALL OTHER
NAME YEAR SALARY BONUS COMPENSATION COMPENSATION
--------------------------------- ---- --------- ----------- --------------------- -----------------
Richard J. Nash 1999 $ 850,000 $ 1,000,000 -- $ 5,000(2)
Chief Executive Officer and Director 1998 550,000 1,000,000 -- 3,750(2)
1997 550,000 1,050,000 -- 3,562(2)
Joe Balous 1999 -- -- $1,595,000(3) --
Chairman of the Board and Secretary 1998 -- -- 1,340,000(3) --
1997 -- -- 1,420,000(3) --
--
Gary E. Borushko 1999 263,344 185,000
Chief Financial Officer 1998 230,015 361,700 -- --
1997 202,923 450,000 -- --
Robert C. Vamos 1999 298,077 135,000 5,000(2)
President 1998 289,075 100,000 -- $1,000(2)
1997 185,353 100,000 -- --
Vincent P. Buscemi 1999 190,550 35,640 96,000(4) --
Group Vice President - Sales 1998 190,531 45,000 96,000(4) --
1997 45,000 9,000 376,692(4) --
(1) This table does not include any value that might be attributable to certain
job related benefits, the amount of which for any executive officer does
not exceed the lesser of $50,000 or 5% of combined salary and bonus for
such executive officer.
(2) Represents contributions to the Company's 401 (k) plan.
(3) Consulting fees paid to a management company owned by Joe Balous.
(4) Represents sales commission paid to a company owned by such individual.
The Company does not pay director fees to its two directors. The Company
does not have a Compensation Committee and Messrs. Nash and Balous
participate in all deliberations concerning executive officer compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management
All of the outstanding capital stock of the Company is owned beneficially
and equally by Messrs. Richard J. Nash and Joe Balous.
Item 13. Certain Relationships and Related Transactions.
The Company and its two stockholders entered into a stock redemption agreement
which provides that upon the death of either stockholder, the Company is
required to purchase, and their respective estates are required to sell, all of
the capital stock of the Company owned by such stockholder, as the case may be,
at a price equal to $50.0 million, which amount would be payable upon receipt of
the proceeds of life insurance policies owned by the Company on each of the
lives of the stockholders. Pursuant to the terms of the stock redemption
agreement, the Company is required to maintain life insurance policies of $50.0
million on the lives of Mr. Nash and Mr. Balous. The annual premiums for such
policies of insurance are approximately $2,200,000.
19
During 1998, Como transferred equipment with a net book value of
approximately $609,000 to LDM. In exchange for the equipment, LDM relieved Como
of its liability for accrued corporate charges and other accounts payable of
approximately $604,000, which had been included in Como's accrued liabilities in
prior years.
During fiscal year 1999, the Company paid consulting fees of $1,595,000 to a
management company owned by Joe Balous. The nature of the services performed by
Mr. Balous are development of corporate policy and strategic planning,
integration of recent acquisitions, and overseeing facilities construction and
leasehold improvements.
In September 1996, the Company entered into a five-year lease for its Troy
offices with Messrs. Nash and Balous and a relative of one of them. Monthly rent
expense pursuant to this lease was $15,000 per month. In July of 1997 the
Company terminated the lease for the Troy offices and purchased Mr. Nash's
interest in the office for $714,000. In November 1998, Joe Balous acquired LDM's
50% interest in the Troy office for $625,000.
The terms of these leases are not the result of arms-length bargaining;
however, the Company believes that such leases and other transactions described
above are on terms no less favorable to the Company than could be obtained if
such leases, transactions or arrangements were arms-length transactions with
non-affiliated persons.
It is the Company's policy to continue future transactions with its
affiliates as long as the terms of such transactions are fair and reasonable and
no less favorable to the Company than could have been obtained through
arms-length negotiations with an independent third party.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as a part of this report:
1. Financial Statements
The following consolidated financial statements of LDM Technologies,
Inc. and subsidiaries filed herewith.
Consolidated Balance Sheets at September 26, 1999 and September 27,
1998.
Consolidated Statements of Income for each of the years in the
three-year period ended September 26, 1999.
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended September 26, 1999.
Notes to Consolidated Financial Statements.
All Schedules have been omitted because they are not applicable or
are not required or the information to be set forth therein is
included in the Consolidated Financial Statements or Notes thereto.
20
EXHIBITS
The Exhibits marked with one asterisk below were filed as
Exhibits to the Registration Statement of the Company on Form S-4
(No. 333-21819). The Exhibit marked with two asterisks below was
filed as an Exhibit to the Form 8-K of the Company dated
September 30, 1997. The Exhibit marked with three asterisks below
was filed as an Exhibit to the Form 10-K of the Company dated
December 28, 1998. These are incorporated herein by reference,
the Exhibit numbers in brackets being those in such Registration
Statement, Form 10-K or Form 8-K Report.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
3.1 Articles of Incorporation of LDM Technologies, Inc. (the
"Company"), as amended [3.1]*
3.2 By-laws of the Company [3.5]*
4.1 Indenture dated as of January 15, 1997 by and among the
Company, LDM Holdings, LDM Partnership, LDM Canada and IBJ
Schroder Bank & Trust Company, as Trustee [4.1]*
4.2 Form of 10 3/4% Senior Subordinated Note Due 2007, Series B
[4.2]* 4.3 Form of Guarantee [4.3]*
10.1(a) Loan and Security Agreement dated as of January 22, 1997
("Loan Agreement") by and between the Company, as Borrower,
and BankAmerica Business Credit, Inc. ("BankAmerica"), as
Agent for the Lenders [10.2]*
10.1(b) First Amendment to Loan Agreement dated May 1, 1997.
[10.1(b)]***
10.1(c) Amendment No. 2 and Affirmation of Guaranties to Loan
Agreement dated as of July 14, 1997. [10.1(c)]***
10.1(d) Amendment No. 3 and Affirmation of Guaranties to Loan
Agreement dated as of September 30, 1997. [10.1(d)]***
10.1(e) Amendment No. 4 and Affirmation of Guaranties to Loan
Agreement dated as of November 25, 1997. [10.1(e)]***
10.2 Intellectual Property Security Agreement dated as of January
22, 1997 made by the Company in favor of BankAmerica, as Agent
for Lenders [10.4]*
10.3 Stock Purchase Agreement among the Company and the various
stockholders of Kenco Plastics, Inc., a Michigan corporation,
and Kenco Plastics, Inc., a Kentucky corporation, and Narens
Design & Engineering Co., a Michigan corporation, dated
September 30, 1997 [1].**
10.4 Asset Purchase Agreement between LDM Technologies, Inc. (a
Michigan corporation) and DBM Technologies, LLC (a Michigan
limited liability company) dated December 31, 1998.
10.5 Asset Purchase Agreement between GL Industries, Inc. (an
Indiana corporation) and New GLI, Inc. (an Indiana
corporation) dated April 15, 1999.
11 Statement of Ratio of Earnings to Fixed Charges
21 Subsidiaries and Affiliates of the Company
27 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed by
the Registrant for the quarter ended September 29, 1997.
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the twenty-seventh
day of December, 1999.
LDM TECHNOLOGIES, INC.
By: /s/ Richard J. Nash
--------------------------
Richard J. Nash
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Gary E. Borushko
--------------------------
Gary E. Borushko
(Chief Financial Officer)
By: /s/ Brad N. Frederick
--------------------------
Brad N. Frederick
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on December 10, 1997.
Signature Title
- --------- -----
/s/ Joe Balous Director
- -----------------------------
Joe Balous
/s/ Richard J. Nash Director
- -----------------------------
Richard J. Nash
22
Report of Independent Auditors
Board of Directors of LDM Technologies, Inc.
We have audited the accompanying consolidated balance sheets of LDM
Technologies, Inc. as of September 26, 1999 and September 27, 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended September 26, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of LDM Technologies,
Inc. at September 26, 1999 and September 27, 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended September 26, 1999 in conformity with generally accepted accounting
principles.
Detroit, Michigan ERNST & YOUNG LLP
December 17, 1999
F-1
23
LDM Technologies, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)
SEPTEMBER 26, SEPTEMBER 27, 1998
1999
------------------ -------------------
ASSETS
Current assets:
Cash $ 4,317 $ 3,317
Accounts receivable 79,434 81,781
Inventories 20,783 24,069
Mold costs 12,706 22,510
Prepaid expenses 1,960 2,030
Refundable income tax 1,385 1,251
Deferred income taxes 1,947 2,403
----------------- ------------------
Total current assets 122,532 137,361
Net property, plant and equipment 121,116 118,201
Equity investments in affiliates 2,091 1,098
Note receivable from affiliate 895
Goodwill, net of accumulated amortization of
$10,358 in 1999 and $5,620 in 1998 59,688 64,047
Debt issue costs, net of accumulated
amortization of
$2,969 in 1999 and $1,521 in 1998 5,126 6,303
Other 695 641
------------------
=================
Total assets $ 312,143 $ 327,651
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit and revolving loan $ 33,276 $ 39,139
Accounts payable 55,120 54,451
Accrued liabilities 21,575 22,476
Accrued compensation 7,988 10,097
Advance mold payments from customers 1,036
Income taxes payable 850
Current maturities of long-term debt 11,564 13,631
----------------- ------------------
Total current liabilities 129,523 141,680
Long-term debt due after one year 168,262 171,674
Deferred income taxes 1,438 939
Stockholders' equity:
Common stock ($.10 par value; 100,000 shares
authorized, 600 shares issued and outstanding) - -
Additional paid in capital 94 94
Retained earnings 12,525 13,286
Accumulated other comprehensive income (loss) 301 (22)
----------------- ------------------
Total stockholders' equity 12,920 13,358
================= ==================
Total liabilities and stockholders' equity $ 312,143 $ 327,651
================= ==================
See accompanying notes.
F-2
24
LDM Technologies, Inc.
Consolidated Statements of Operations
(in thousands)
YEARS ENDED
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 28,
1999 1998 1997
----------------- ----------------- -----------------
Net sales:
Product sales $ 467,912 $ 438,960 $ 261,103
Mold sales 62,586 44,264 31,917
------------ ------------ ------------
530,498 483,224 293,020
Cost of sales:
Product cost of sales 380,856 362,983 210,532
Mold cost of sales 60,658 41,018 30,397
------------ ------------ ------------
441,514 404,001 240,929
------------ ------------ ------------
Gross margin 88,984 79,223 52,091
Selling, general and administrative
expenses 63,401 56,607 35,562
Interest 21,067 19,814 11,076
Equity in losses of affiliates, net 1,480 285 -
Adjustment for impairment of 10,523 -
goodwill
Other, net 992 (122) 445
------------ ------------ ------------
86,940 87,107 47,083
------------ ------------ ------------
Income (loss) before income taxes
and minority interest 2,044 (7,884) 5,008
Provision (credit) for income taxes 2,805 (538) 2,088
------------ ------------ ------------
Income (loss) before minority (761) (7,346) 2,920
interest
Minority interest 279 143
------------ ------------ ------------
Net income (loss) $ (761) $ (7,067) $ 3,063
============ ============ ============
See accompanying notes.
F-3
25
LDM Technologies, Inc.
Consolidated Statements of Stockholders' Equity
(in thousands except common shares and common stock)
ACCUMULATED
OTHER
COMPREHENSIVE
ADDITIONAL INCOME (LOSS)
COMMON COMMON PAID-IN RETAINED - CURRENCY
SHARES STOCK CAPITAL EARNINGS TRANSLATION TOTAL
------ ----- ------- -------- ------------- -----
(IN DOLLARS)
Balance at September 29, 1996 600 $ 60 $ 94 $ 17,290 $ (61) $ 17,323
Net income (comprehensive
income) for 1997 3,063 3,063
--- ------ ----- -------- -------- ----------
Balance at September 28, 1997 600 60 94 20,353 (61) 20,386
Comprehensive Income:
Net loss for 1998 (7,067) (7,067)
Currency translation 39 39
adjustment ----------
Comprehensive loss (7,028)
--- ------ ----- -------- -------- ----------
Balance at September 27, 1998 600 60 94 13,286 (22) 13,358
Comprehensive Income:
Net loss for 1999 (761) (761)
Currency translation 323 323
adjustment -------- ----------
Comprehensive loss (438)
--- ------ ----- -------- -------- ----------
Balance at September 26, 1999 600 $ 60 $ 94 $ 12,525 $ 301 $ 12,920
=== ====== ===== ======== ======== ==========
F-4
26
LDM Technologies, Inc.
Consolidated Statements of Cash Flows
(in thousands)
YEARS ENDED
-----------------------------------------------------
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 28,
1999 1998 1997
-----------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $ (761) $ (7,067) $ 3,063
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 22,025 19,866 11,955
Adjustment for impairment of long-lived assets 10,523
Equity in losses of affiliates, net 1,480 285 -
(Gain) loss on sale of property and equipment (156) 97 (156)
Deferred income taxes 955 (2,033) (1,127)
Reserve for trade and notes receivable 2,767 - 453
Changes in assets and liabilities, net of the effect
of 1997 and 1998
acquisitions and 1999 divestitures:
Accounts and notes receivable (10,739) (4,960) (5,458)
Inventory and mold costs 8,052 (2,153) (4,954)
Prepaid expenses (508) 979 (1,494)
Other assets - 415
Accounts payable and accrued liabilities 4,494 5,790 7,357
Income taxes payable (998) (1,780) (718)
------------ ------------ ------------
Net cash provided by operating activities 26,611 19,547 9,336
INVESTING ACTIVITIES
Additions to property, plant and equipment (22,003) (14,143) (12,776)
Sale of Kenco business net of $98 equity contribution 6,935
Proceeds from disposal of property and equipment 1,010 814 1,777
Net advances to unconsolidated affiliate (1,465)
Business acquisitions, net of cash acquired (103,484) (60,357)
Other - 174
------------ ------------ ------------
Net cash used for investing activities (15,523) (116,813) (71,182)
FINANCING ACTIVITIES
Payments on notes payable and long-term debt (12,979) (4,809) (22,199)
Proceeds from issuance of long-term debt, (net of debt
issuance costs of $272 in 1999, $1,540 in 1998 and
$6,039 in 1997) 7,228 63,992 103,962
Net (repayments) proceeds from borrowings on line of credit (4,337) 36,767 (17,406)
------------ ------------ ------------
Net cash provided by financing activities (10,088) 95,950 64,357
------------ ------------ ------------
Net increase (decrease) in cash 1,000 (1,316) 2,511
Cash at beginning of year 3,317 4,633 2,122
------------ ------------ ------------
Cash at end of year $ 4,317 $ 3,317 $ 4,633
============ ============ ============
See accompanying notes.
F-5
27
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of LDM Technologies,
Inc. (the "Company") and its subsidiaries, LDM Holdings Canada, Inc., LDM
Technologies Company ("LDM Canada"), LDM Technologies, GmbH, ("LDM Germany"),
LDM Holdings Mexico, Inc., LDM Technologies, S.de R.L. ("LDM Mexico") and G.L.
Industries of Indiana, Inc. (d/b/a Como Products "Como"). All subsidiaries are
wholly owned with the exception of Como (75% owned in 1997 and 1998, 36.75%
owned effective April 15, 1999), and LDM Mexico (99% owned). As of September 26,
1999, the Company, LDM Mexico, LDM Canada and LDM Germany are the only
subsidiaries which are still consolidated. Como, Sunningdale Plastics Ltd, a
Singapore based injection molder of which the Company owns 30%, and DBM
Technologies, LLC, a minority blowmolding concern formed December 31, 1998, of
which the Company owns 49%, are accounted for under the equity method. All
intercompany accounts and transactions have been eliminated in consolidation.
DESCRIPTION OF BUSINESS
The Company's domestic automotive operations are conducted through divisions
and, in Canada and Germany, through LDM Canada and LDM Germany. Such operations
principally consist of manufacturing of molded and blow-molded plastic interior
and exterior trim, under the hood, and powertrain components for sale
principally to several North American automobile manufacturers and their
suppliers. Como is a manufacturer of molded plastic products for end-use
application primarily in the consumer appliance, office products, and commercial
furniture markets.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company operates with a 52/53 week fiscal year ending on the last Sunday in
September. The fiscal years ended September 26, 1999, September 27, 1998, and
September 28, 1997, all included 52 weeks.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Estimates also affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION
In January, 1997, LDM Canada was re-financed with inter company loans and
additional equity, which were funded with part of the proceeds of the Senior
Subordinated Notes, and existing loans were repaid. In prior years, the Canadian
dollar was considered to be the functional currency for the Canadian operations.
During the 1997 fiscal year, as a result of the U.S. dollar based re-financing
and the volume of U.S. dollar denominated sales and operating costs, the Company
determined that the functional currency of LDM Canada should be the U.S. dollar.
Accordingly long lived assets and inter company debt has been translated at the
historical rate and exchange differences arising on translation have been
included in 1999, 1998, and 1997 operations.
The functional currency for LDM Germany is the Deutsche Mark. Exchange losses
recognized for LDM germany related to U.S. Dollar denominated intercompany debt
amounted to $1,152 in 1999.
F-6
28
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The following is a roll-forward of the Company's allowance for doubtful
accounts for 1999:
Allowance for doubtful accounts at September 27, 1998 $ 772
Provision for bad debts 2,268
Uncollectible accounts written off (42)
------
Allowance for doubtful accounts at September 26, 1999 $2,998
======
Substantially all of the provision for bad debts was recorded in the fourth
quarter of 1999.
INVENTORIES
Inventories are stated at the lower of cost or market using the first-in,
first-out method. Inventories at September 26, 1999 and September 27, 1998
consist of the following:
1999 1998
----------- -----------
Raw materials and supplies $ 12,827 $ 14,791
Work-in-process 1,872 2,715
Finished goods 6,084 6,563
----------- -----------
Total $ 20,783 $ 24,069
=========== ===========
MOLDS
Molds used in Company operations are requisitioned by the Company's customers
and are purchased from mold builders who design and construct the molds under
Company supervision. Upon acceptance of the molds, title is passed to customers
and revenue is recognized.
DEPRECIATION AND AMORTIZATION
Depreciation of property, plant and equipment is determined principally using
the straight-line method based upon the following estimated useful lives:
ESTIMATED USEFUL
LIFE (YEARS)
---------------------------------------------------
Buildings and improvements 10 - 20
Machinery and equipment 3 - 12
Transportation equipment 3 - 10
Furniture and fixtures 3 - 12
Leasehold improvements are amortized using the straight-line method over the
useful life of the improvement or the term of the lease, whichever is less.
Goodwill is amortized over its estimated useful economic life of 15 years.
Debt issue costs are amortized over the term of the associated debt.
IMPAIRMENT OF LONG-LIVED ASSETS, INCLUDING GOODWILL
Impairment losses are recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the asset's carrying amount.
Impairment losses are determined based on the estimated shortfall of discounted
cash flows.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance sheet
for cash and cash equivalents approximates its fair value.
F-7
29
Short and long-term debt: The carrying amounts of the Company's borrowings
under its short-term revolving credit agreements approximate their fair
value. The Company's Senior Subordinated Notes carry fixed interest rates.
Smith Barney currently makes a market for the Notes. As of September 26,
1999, the average of the bid and asking price was 94.0 giving a fair market
value of $6.6 million below stated value ($110 million). The remainder of
the Company's long-term debt carries variable interest rates and,
accordingly, the carrying amount approximates fair value.
IMPACT OF ACCOUNTING STANDARDS TO BE ADOPTED SUBSEQUENT TO THE FISCAL YEAR
ENDING IN SEPTEMBER, 1999
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is required to be adopted in fiscal
years beginning after June 15, 2000, with earlier adoption encouraged. At this
time the Company has not adopted Statement 133 but has not entered into any
derivative or hedging activity and accordingly does not anticipate the
provisions of Statement 133 will affect future results of operations or
financial position.
PRODUCT SALES
Revenue is recognized on product sales when the goods are shipped.
2. ACQUISITIONS, JOINT VENTURE AND DIVESTITURE
On November 4, 1996, the Company signed a definitive agreement to acquire the
business and certain net assets of Molmec, Inc. for $55.9 million in cash. The
acquisition was consummated on January 17, 1997. The fair value of the net
tangible assets acquired was $19.1 million.
On May 1, 1997, the Company acquired the business and certain net assets
comprising the 'Kendallville' plant of Aeroquip Corporation for a purchase price
of $7.2 million in cash. The fair value of the net tangible assets acquired
was $5.5 million.
On September 30, 1997, the Company purchased the entire voting stock of Kenco
Plastics, Inc. (a Michigan Corporation) and Kenco Plastics, Inc. (a Kentucky
corporation) and the business and net tangible assets of Narens Design &
Engineering Company (collectively known as "Kenco Plastics") for a consideration
of $27.1 million in cash. The fair value of the net tangible assets acquired
amounted to $17.7 million.
On November 25, 1997, the Company acquired the business and certain net assets
of Aeroquip-Vickers International GmbH, through a newly created entity, LDM
Technologies, GmbH, for consideration of $9.7 million in cash and the assumption
of certain liabilities. The fair value of the net tangible assets acquired
amounted to $9.7 million. The new entity is referred to herein as LDM Germany.
On February 6, 1998, the Company acquired the stock of Huron Plastics Group,
Inc. and substantially all of the assets of Tadim, Inc. (collectively known as
"HPG") for $69.0 million in cash and the assumption of certain liabilities. The
fair value of the net tangible assets acquired was $37.7 million.
A summary of the allocation of purchase price of each of the acquisitions during
the year ended September 27, 1998 is given below:
KENCO LDM
PLASTICS GERMANY HPG
-------- ------- ---
Current assets $ 12,576 $ 6,143 $ 30,047
Net property, plant and equipment 11,638 6,132 21,703
Other assets 1,354
Other liabilities (6,510) (2,540) (15,356)
-------- -------- ---------
Net tangible assets 17,704 9,735 37,748
Goodwill 9,438 - 31,227
-------- -------- ---------
Cost $ 27,142 $ 9,735 $ 68,975
======== ======== =========
F-8
30
All of the above acquisitions have been accounted for using the purchase method.
Accordingly, the assets acquired and the liabilities assumed have been recorded
at fair values and the excess of the purchase price over the net tangible assets
acquired recorded as goodwill to be amortized over 15 years. The results of
operations of the above acquisitions have been included in the consolidated
financial statements from the date of acquisition.
Effective as of December 31, 1998, the Company entered into a joint venture (DBM
joint venture) that is 49% owned by the Company, and 51% owned by an independent
third party. The Company sold the Kenco business and most of its net current
assets to the joint venture at an amount equal to the net book value of the net
current assets. The sales price of the net current assets approximated $8.8
million.
The Company leased all machinery and equipment of the Kenco business to the
joint venture, and is subleasing to the joint venture all real properties in the
Kenco operations.
Under the terms of the agreement, the Company provided a subordinated $1.8
million loan to the joint venture and guaranteed $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 retained substantially all of the risks of
ownership. The investment is treated as an equity investment for accounting
purposes, but the Company has recorded 100% of the joint venture losses as
equity losses.
On December 8, 1999, the Company sold all of the machinery and equipment of the
Kenco business to the joint venture for $10.3 million, the approximate net book
value of the machinery and equipment. Proceeds from the sale were comprised of
$8.3 million in cash and an additional $2.0 million subordinated note payable to
the Company from the joint venture.
As part of the transaction, the joint venture refinanced its line of credit
which released the Company from the $1 million guarantee discussed above.
The joint venture's new senior lender required the Company to subordinate all
amounts due from the joint venture at the time of refinancing. As a result, the
previous subordinated note payable to the Company was canceled and replaced with
a new subordinated note payable approximating $5.6 million. This amount is
comprised of the $2.0 million related to the machinery and equipment purchase,
$1.9 million related to the original subordinated note payable plus accrued
interest, and $1.7 million related to unpaid machinery and equipment rentals and
miscellaneous other unpaid trade amounts. The new subordinated note payable
bears interest at 9.5% and is payable in equal quarterly installments beginning
June 1, 2000 and shall be fully paid on or before December 8, 2004.
On April 15, 1999, all of the assets and liabilities of GL Industries of
Indiana, Inc. (d/b/a Como Products), a 75% owned subsidiary of the Company, were
sold to New GLI, Inc. an Indiana corporation, which is now doing business as
"Como Products." A new independent partner joined the new business (New GLI) and
purchased all but 36.75% of the Company's stake in New GLI for a minimal amount.
Under terms of the purchase agreement, the Company accepted a subordinated note
from New GLI for approximately $0.5 million, which represents previous loans,
accrued interest and working capital advances from the Company to Como. The note
has been fully reserved on the Company's books.
The Company's ownership percentage in New GLI has become less than 50%. As a
result, New GLI's results are reported as equity earnings. Como's net sales and
net loss for the year ended September 27, 1998 were $18.1 million and $1.5
million, respectively. Como's net sales and net income for the six month period
ended March 28, 1999 were $8.6 million and $0.1 million, respectively. The
Company wrote its equity investment down to zero during fiscal year 1998, due to
Como's operating losses and capital deficiency.
As part of this transaction, the Company was released from a $1.0 million
guarantee on Como's line of credit borrowings.
F-9
31
3. SEGMENT AND GEOGRAPHICAL DATA
The Company currently operates in two industries; automotive components and
consumer products. The Company's automotive components operations include the
design and manufacture of plastic injection molded and blow molded products for
certain original equipment manufacturers of cars, minivans and sport utility
vehicles. The Company's automotive products include exterior and interior trim,
under the hood components, and powertrain components. The Company has one
consumer products plant which manufactures plastic molded products for the
consumer appliance, office products and commercial furniture markets. The
Company sold all but 36.75% of its stake in its consumer products plant
effective April 15, 1999. The Company also contributed substantially all of the
business and net current assets of its blow molded operations to a joint
venture, which is still 49% owned by the Company, effective December 31, 1998.
For the purpose of FAS 131, "Disclosures about Segments of an Enterprise and
Related Information," the Company is presented as one segment, being automotive
plastics components. The consumer products operations are considered
insignificant with sales of $20,201, and $19,207 and losses of $(1,484) and
$(723) during the years ended 1998 and 1997, respectively.
The following provides a summary of selected financial information by geographic
area:
SEPTEMBER 26, 1999
---------------------------------------------
Revenues (a) Long-Lived Net Income
Assets (loss)
---------------------------------------------
United States $ 432,857 $ 102,017 $ 3,489
LDM Canada 64,090 14,650 1,166
LDM Germany 33,551 4,449 (5,416)
---------------------------------------------
Consolidated total $ 530,498 $ 121,116 $ (761)
=============================================
SEPTEMBER 27, 1998
---------------------------------------------
Revenues (a) Long-Lived Net Income
Assets (loss)
---------------------------------------------
United States $ 394,882 $ 98,045 $ (7,638)
LDM Canada 65,399 14,498 3,293
LDM Germany 22,943 5,658 (2,722)
---------------------------------------------
Consolidated total $ 483,224 $ 118,201 $ (7,067)
=============================================
F-10
32
SEPTEMBER 28, 1997
---------------------------------------------
Revenues(a) Long-Lived Net Income
Assets
---------------------------------------------
United States $ 247,558 $ 66,020 $ 2,255
LDM Canada 45,462 16,239 808
LDM Germany - - -
---------------------------------------------
Consolidated total $ 293,020 $ 82,259 $ 3,063
=============================================
(a) Revenues are attributed to countries based on point of manufacturing.
During the years ended September 1999, 1998,and 1997, approximately 98%, 98%,
and 93% of consolidated sales were to customers in the automotive industry.
Following is a summary of customers that accounted for more than 10% of
consolidated net product sales as of each fiscal year end:
1999 1998 1997
------------------------------------------------
Ford Motor Company $ 161,429 $ 169,293 $ 114,446
General Motors Corporation 133,987 151,880 88,818
Volkswagen A.G 883 15,822 15,856
4. IMPAIRMENT OF LONG-LIVED ASSETS
Since its' acquisition on September 30, 1997, the Kenco business has performed
significantly below original expectations, causing management to undertake a
strategic review of the future viability of the business.
During the fourth quarter of 1998, the Company established a formal business
plan to enter into a joint venture.
See discussion in Footnote 2 regarding consummation of the joint venture on
December 31,1998.
See also discussion in Footnote 2, regarding the Company's sale of the property,
plant and equipment to the joint venture, and the Company release of the
$1,000,000 guarantee on the joint venture's line of credit.
The Company evaluated the on-going value of the long-lived assets (goodwill and
tangible fixed assets) associated with the Kenco business, as they were
held-for-use by LDM. Based upon this evaluation, the Company determined that
assets with carrying amounts of $19,528 were impaired and wrote them down by
$10,523 to their fair value. Fair value was based on projected future cash flows
to be generated by the Kenco business, under its new ownership, discounted at a
market rate of interest. In determining future cash flows the Company developed
its best estimate of operating cash flows over the life of the goodwill and
tangible fixed assets, which was fifteen years.
F-11
33
5. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
INTEREST PAID, INCOME TAXES PAID AND INTEREST CAPITALIZED
1999 1998 1997
------------ ------------ ------------
Interest paid $ 20,744 $ 17,643 $ 7,919
Income taxes paid $ 2,945 $ 2,176 $ 3,996
Interest capitalized $ 706 $ 185 $ 312
6. PROPERTY, PLANT AND EQUIPMENT
At September 26, 1999 and September 27, 1998, property, plant and equipment
consists of the following:
1999 1998
------------ ------------
Land, buildings and improvements $ 43,252 $ 43,827
Machinery and equipment 118,964 116,047
Transportation equipment 2,366 2,490
Furniture and fixtures 7,186 7,390
Construction in process 3,774 7,290
------------ ----------
Total, at cost 175,542 177,044
Less accumulated depreciation (63,318) (58,843)
------------ ----------
Net property, plant, and equipment
used in operations 112,224 118,201
Net property, plant, and equipment
leased to DBM Technologies 8,892
------------ -----------
Net property, plant and equipment $ 121,116 $ 118,201
============= ===========
F-12
34
7. LINES OF CREDIT AND REVOLVING DEBT
On January 22, 1997, the Company entered into a five-year Senior Credit
Facility. At September 26, 1999, the Senior Credit Facility is secured by
substantially all of the assets of the Company and its guarantors (LDM Holdings,
L.L.C., LDM Canada Limited Partnership and LDM Technologies Company). The Senior
Credit Facility provides for advances up to (i) 85% of eligible accounts
receivable, and (ii) the lesser of $12,000 or 60% of eligible inventory, up to a
maximum availability of $63,000. The Senior Credit Facility provides for the
issuance of commercial and stand-by letters of credit up to a portion of the
$63,000 Senior Credit Facility. The Senior Credit Facility bears interest at
rates based upon a prime or LIBOR rate, in each case plus an applicable basis
point spread; and provides that the Company will pay an issuance fee with
respect to letters of credit based on a percentage of the full amount of such
letters of credit, and an unused line fee equal to a percentage of the unused
portion of the Senior Credit Facility. The Senior Credit Facility contains
customary covenants, including financial covenants relating to, among other
things, fixed charge coverage ratios, capital expenditure limitations and
profitability.
The Company had borrowings outstanding under the Senior Credit Facility at
September 26, 1999 and September 27, 1998 of $33,276 and $36,699, respectively.
Borrowings available under the Senior Credit Facility were $18,300 and $19,000
at September 26, 1999 and September 27, 1998, respectively.
Summary of lines of credit and revolving debt outstanding:
SEPTEMBER 26, SEPTEMBER 27,
1999 1998
Borrowings under lines of credit:
LDM Technologies Inc. $ 33,276 $ 36,699
Como - 2,440
-------------- -------------
$ 33,276 $ 39,139
============== =============
The weighted average interest rate on all short-term borrowings as of September
26, 1999 and September 27, 1998 was 8.13% and 8.77%, respectively.
8. LONG-TERM DEBT
On January 22, 1997, the Company issued, in a private placement, 10 3/4% Senior
Subordinated Notes due 2007, Series A, with an aggregate principal amount of
$110,000. The net proceeds of the Offering, which amounted to $104,000 were used
to repay debt in default amounting to $27,300, to repay a $2,700 note payable to
a former shareholder, to fund the $55,900 acquisition of Molmec, to re-finance
LDM Canada and for general corporate purposes.
The Indenture under which the Notes were issued contains certain covenants,
including limitations on the following matters: (i) the incurrence of additional
indebtedness, (ii) the issuance of preferred stock by subsidiaries, (iii) the
creation of liens, (iv) restricted payments, (v) the sales of assets and
subsidiary stock, (vi) mergers and consolidations, (vii) payment restrictions
affecting subsidiaries and (viii) transactions with affiliates.
Interest on the Notes is payable semi-annually at 10 3/4%. The Notes are subject
to redemption on or after January 15, 2002, at the option of the Company, in
whole or in part, at redemption prices ranging from 105.375% to 100% of the
principal amount. Up to 25% of the Notes may be redeemed on or before January
15, 2000, at 110.75% of the principal amount in the event of a Public Equity
Offering. At September 26, 1999, the Notes are guaranteed by certain
subsidiaries of the Company namely LDM Holdings, L.L.C., LDM Canada Limited
Partnership and LDM Canada but not by Como, LDM Mexico, or LDM Germany.
Supplemental financial information for the guarantor and non-guarantor
subsidiaries is disclosed in Note 14.
The notes are subordinate in right of payment to all existing and future Senior
Debt.
The Company has a letter of credit that secures its $8,800 Multi-Option
Adjustable Rate Notes and on acquisition of Molmec assumed Molmec's Variable
Rate Demand Limited Obligation Revenue Bonds with an aggregate principal amount
of $4,400.
F-13
35
On February 6, 1998, the Company entered into an additional term and capital
expenditure line of credit. The term line of credit is not to exceed the lesser
of (i) $66,000 or (ii) the sum of (A) one hundred percent (100%) of the
appraised orderly liquidation value of Equipment of the Company's operations in
the United States and Canada; plus (B) eighty percent (80%) of the fair market
value of all owned Real Estate of the Company's operations in the United States
and Canada. The capital expenditure line of credit is not to exceed the lesser
of (i) $10,000 or (ii) eighty percent (80%) of actual invoiced cost of the
equipment. These obligations, totaling a maximum availability of $76,000 at
September 26, 1999, are subject to interest at a Base or LIBOR Rate plus a
variable margin as set forth in the loan agreement. These loans are also subject
to interest for any unused line of credit equal to .375% per annum on the
average daily unused facility for the immediate preceding month. The loans are
repayable in monthly installments of $887 in addition to an annual payment due
the first day of the fourth month after the end of each fiscal year of 50% of
any excess cash flow (as defined in the loan agreement) for such fiscal year.
The lines of credit contain customary covenants, including financial covenants
relating to, among other things, fixed charge coverage ratios, capital
expenditure limitations and profitability. The Company may terminate these
obligations upon written notice and full payment of principal and accrued
interest.
The Company had borrowings outstanding under the term and capital expenditure
line of credit at September 26, 1999 of $58,464. Borrowings available under the
term and capital expenditure line of credit were $1,500 and $9,000 at September
26, 1999, and September 27, 1998, respectively.
Long-term debt at September 26, 1999 and September 27, 1998 consists of the
following:
1999 1998
Senior Subordinated Notes due 2007. $ 110,000 $ 110,000
Term and capital expenditure line of credit,
principal payable in monthly installments of
$786, at Base or LIBOR plus margin
(7.82% at September 26, 1999). Balance 58,464 63,048
repayable February 2002.
Multi-Option Adjustable Rate Notes, principal
payable in various annual installments ranging
from $240 to $780 through April 1, 2015, plus
interest payable monthly at the higher of the
30 day commercial paper rate or 90 day
commercial paper rate (5.72% at September 26,
1999). Borrowings are collateralized by the
corporate headquarters facility which has a
carrying value of approximately $16,085 at
September 26, 1999 8,080 8,340
Variable Rate Demand Limited Obligation
Revenue Bonds, principal payable in various
annual installments through December 1, 2009,
ranging from $630 to $160, plus
variable interest (subject to a maximum of
12%), payable semi-annually (4.0% at
September 26, 1999), collateralized by a letter
of credit. 3,235 3,825
Other 47 92
------------ -------------
Total $ 179,826 $ 185,305
Current maturities of long-term debt (11,564) (13,631)
------------ -------------
Long-term debt due after one year $ 168,262 $ 171,674
============ =============
LDM Technologies, Inc. has the option to convert the interest rate on the
Multi-Option Adjustable Rate Notes to the Six Month, One Year, Three Year, Five
Year, Seven Year, or the Fixed Interest Rates Modes.
F-14
36
Annual maturities of long-term debt are as follows:
FISCAL YEAR
2000 $ 11,564
2001 11,543
2002 38,129
2003 520
2004 540
Thereafter 117,530
-------------
Total $ 179,826
=============
9. RELATED PARTY TRANSACTIONS
Como leases its general office and plant facilities, in addition to certain
computer and manufacturing equipment, from corporations whose directors and
stockholders include Como's minority stockholder. Lease rental payments made to
these corporations for 1998 and 1997 were $467 and $502, respectively. Como also
pays management fees to its minority stockholder based on a percentage of sales.
Selling, general and administrative expenses include $63 in 1997 for management
fees to the minority stockholder. The minority shareholder did not charge Como a
management fee during fiscal year 1998.
During 1998, Como transferred equipment with a net book value of approximately
$609 to LDM. In exchange for the equipment, LDM relieved Como of its liability
for accrued corporate charges and other accounts payable of approximately $604,
which had been included in accrued liabilities as of September 28, 1997.
Through July 15, 1997, the Company leased certain corporate administrative
facilities from its shareholders. Lease rental payments were $110 for the year
ended September 28, 1997. The Company also paid the repairs and maintenance,
insurance and property taxes on these facilities. During July, 1997, the Company
purchased a 50% interest in the administrative facilities it previously leased
from its shareholders. The purchase price totaled $714. In November 1998, the
Company sold its interest in this property to one of its shareholders at book
value.
10. INCOME TAXES
The Company's provision (credit) for income taxes for continuing operations for
the years ended September 26, 1999, September 27, 1998, and September 28, 1997
is comprised of the following:
1999 1998 1997
--------------------------------------
Domestic:
Federal:
Current $ 1,594 $ 121 $ 2,789
Deferred 325 (2,692) (262)
----------- ----------- -----------
1,919 (2,571) 2,527
State and local:
Current 213 (253) 405
Deferred 100 (29)
----------- ----------- -----------
313 (253) 376
Foreign:
Current 43 850 20
Deferred 530 1,436 (835)
----------- ----------- -----------
573 2,286 (815)
----------- ----------- -----------
Total income tax provision (credit) $ 2,805 $ (538) $ 2,088
=========== =========== ===========
F-15
37
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and tax basis of the Company's assets and liabilities.
At September 26, 1999 and September 27, 1998 deferred tax assets and liabilities
are comprised of the following:
1999 1998
------------------------
Deferred tax assets:
Goodwill $ 3,228 $ 3,904
Inventory 1,687 834
Accounts receivable 1,198 391
Employee benefits 1,158 930
Net operating loss carryovers 723 1,523
Investment in affiliates 238
Capital loss carryovers 198 194
Other accrued liabilities 88 820
---------- ---------
Total deferred tax assets 8,518 8,596
Less valuation allowances for loss carryovers (407) (686)
---------- ---------
Total net deferred tax asset 8,111 7,910
Deferred tax liabilities:
Property, plant and equipment 7,190 6,446
Other accrued liabilities 412
---------- ---------
Total deferred tax liability 7,602 6,446
---------- ---------
Net deferred tax asset (liability) $ 509 $ 1,464
========== =========
A reconciliation of the Company's income tax expense at the federal statutory
tax rate to the actual income tax expense follows:
YEAR ENDED
-----------------------------------------------------
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 28,
1999 1998 1997
---------------- ---------------- -----------------
Tax at federal statutory rate of $ 695 $ $ 1,703
34% (2,681)
State and local taxes, net of
federal tax effect 207 (299) 248
Settlement of prior years' income
tax liabilities (1,056)
Nondeductible expenses 1,242 838 742
Reversal of valuation allowance
for Canadian loss carryovers (728)
Foreign tax in excess of
foreign tax credits 821 1,781
Deferred tax valuation allowance 71 685
Other, net (231) 343 123
---------- ---------- ----------
Provision for income taxes $ 2,805 $ (538) $ 2,088
========== ========== ==========
For Canadian income tax purposes, approximately $2,010 of net operating losses
are available at September 26, 1999 for carryover against taxable income in
future years. These carryovers expire $690 in 2003 and $1,320 in 2004. The net
operating loss carry forwards include timing differences, principally tax
depreciation in excess of financial statement depreciation, of approximately
$4,809, for which a $1,731 deferred tax liability has been recorded.
11. RETIREMENT AND PROFIT SHARING PLANS
The Company provides defined contribution retirement plans to substantially all
employees of LDM Technologies, Inc. During 1998, the Company obtained two
additional defined contribution plans through the acquisitions disclosed in Note
2. In July 1998, two of the defined contribution plans were merged into one
plan. Contributions by the Company, which are different for each individual
plan, are based on matching 50% of employees contributions, up to a maximum
range of 3-4 % of earnings or five hundred to one thousand dollars. Costs under
the plans amounted to $912, $378, and $296 in 1999, 1998 and 1997, respectively.
F-16
38
12. COMMITMENTS AND CONTINGENCIES
LEASES AND PURCHASE COMMITMENTS
The Company leases certain of its facilities, furniture and fixtures, and
equipment. Rental expense, including short-term cancelable leases, approximated
$8,310, $6,367 and $2,227 for the years ended September 26, 1999, September 27,
1998 and September 28, 1997, respectively. Future commitments under
noncancelable operating leases are as follows:
FISCAL YEAR
--------------
2000 $ 5,105
2001 3,375
2002 2,345
2003 1,837
2004 1,149
Thereafter 823
-------
Total $14,634
=======
STOCK REDEMPTION AGREEMENT
The Company and its two shareholders are party to a binding stock redemption
agreement providing the following:
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 $50,000. This amount is payable upon receipt of the proceeds of
the life insurance policies owned by the Company on the 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 is required to purchase and maintain life insurance policies of
$50,000 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 $2.2 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 Agreement may be terminated by mutual agreement of all parties or by any
shareholder with respect to that shareholder's stock only.
CONTINGENCIES
Environmental Matters
The Company previously received letters from a corporation and a group of
corporations, which have entered into agreements with the United States
Environmental Protection Agency ("USEPA") to prepare remedial designs for curing
two separate failed landfill sites. In each letter, the Company was identified
as a potentially responsible party for its alleged waste disposal at such
landfills. In the first case, a lawsuit was brought against the Company for
which the USEPA subsequently agreed to provide contribution protection in
exchange for payment of a nominal fee. In the second case, the Company has no
reason to believe that any liability associated with the particular landfill
will materially exceed the recorded liability of $50; however the ultimate
outcome of such matters cannot be predicted with certainty.
F-17
39
LITIGATION
The Company accrues contingent liabilities when it is probable that future costs
will be incurred and such costs can be reasonably estimated. Such accruals are
based on developments to date, the Company's estimates of the outcomes of these
matters and its experience in contesting, litigating and settling other matters.
As the scope of the liabilities becomes better defined, there will be changes in
the estimates of future costs; however the Company does not believe any such
changes will have a material effect on the Company's future results of
operations and financial condition or liquidity.
13. UNCONSOLIDATED SUBSIDIARIES
The Company has a less than fifty percent equity interest in two subsidiaries,
DBM Technologies LLC, of which the Company owns 49%, and Sunningdale Plastic
Industries Pte. Ltd., of which the Company owns 30%. These investments are
accounted for under the equity method. Equity earnings are reported as equity
losses of affiliates, net on the income statement, and as equity investments
in affiliates on the balance sheet. Summarized financial information for these
unconsolidated subsidiaries is presented below.
Sunningdale Plastic
Industries Pte. Ltd. DBM Technologies, LLC
----------------------------------------------
Current assets $ 14,940 $ 13,649
Noncurrent assets 11,610 403
Current liabilities 16,630 14,508
Noncurrent liabilities 2,502 $ 1,757
Minority interest $ 343
Net sales $ 27,002 $ 41,669
Operating profit (loss) 5,135 (1,961)
Net income (loss) $ 3,308 $ (2,413)
14. 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 and Capital Expenditures
Line of Credit are obligations of LDM Technologies, Inc. The obligations are
guaranteed fully, unconditionally and jointly and severally by LDM Canada and
certain holding companies as described above. The non-guarantor subsidiaries are
Como and LDM Germany. Upon the divestiture of Como as discussed in Note 2,
effective April 15,1999, the only non-guarantor subsidiary remaining in the
consolidated financial statements is LDM Germany.
Supplemental consolidating financial information of LDM Technologies, Inc., LDM
Canada (including the related holding company guarantors) and combined Como and
LDM Germany (the "non-guarantor subsidiaries") 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.
F-18
40
14. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONSOLIDATING BALANCE SHEET AT SEPTEMBER 26, 1999
LDM Non-Guarantor Consolidating
Technologies, LDM Canada Subsidiaries Entries Consolidated
Inc.
ASSETS
Current assets:
Cash $ 2,184 $ - $ 2,133 $ $ 4,317
Accounts receivable 60,613 13,748 5,073 79,434
Inventories 15,769 2,873 2,141 20,783
Mold costs 10,193 2,379 134 12,706
Prepaid expenses 1,817 143 1,960
Refundable income taxes 1,312 73 1,385
Deferred income taxes 1,947 1,947
--------------- -------------- --------------- --------------- -----------
Total current assets 93,835 19,216 9,481 122,532
Net property, plant and equipment, at 102,017 14,650 4,449 121,116
cost
Investment in subsidiaries and affiliates 10,269 (8,178) 2,091
Note receivable affiliates 17,175 (16,280) 895
Goodwill 59,688 59,688
Debt issue costs 5,126 5,126
Other 695 695
--------------- -------------- --------------- --------------- -----------
$ 288,805 $ 33,866 $ 13,930 $ (24,458) $ 312,143
=============== ============== =============== =============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit and revolving loan $ 33,276 $ 33,276
Accounts payable 39,231 $ 11,300 $ 4,635 $ (46) 55,120
Accrued liabilities 17,603 2,420 1,552 21,575
Accrued compensation 5,988 282 1,718 7,988
Current maturities of long-term debt 11,564 11,564
--------------- -------------- --------------- --------------- -----------
Total current liabilities 107,662 14,002 7,905 (46) 129,523
Long-term debt due after one year 168,262 10,532 10,897 (21,429) 168,262
Deferred income taxes 284 1,154 1,438
Stockholders' equity:
Common stock 5,850 2,943 (8,793)
Additional paid-in capital 94 94
Retained earnings 12,525 2,328 (8,138) 5,810 12,525
Accumulated other comprehensive income
(loss) (22) 323 301
--------------- -------------- --------------- --------------- -----------
Total stockholders' equity 12,597 8,178 (4,872) (2,983) 12,920
--------------- -------------- --------------- --------------- -----------
Total liabilities and stockholders'
equity $ 288,805 $ 33,866 $ 13,930 $ (24,458) $ 312,143
=============== ============== =============== =============== ===========
F-19
41
14. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONSOLIDATING BALANCE SHEET AT SEPTEMBER 27, 1998
UNCONSOLIDATED
---------------------------------------------------
LDM
TECHNOLOGIES, LDM NON-GUARANTOR 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
Note receivable affiliates 21,487 - - $ (21,487) -
Inventories 18,964 1,567 3,538 24,069
Mold costs 17,967 - 4,543 22,510
Prepaid expenses 1,785 136 109 2,030
Refundable income taxes 1,204 - 47 1,251
Deferred income taxes 2,403 - - 2,403
------------ ------------ ------------ ------------ ------------
Total current assets 128,339 13,869 16,640 (21,487) 137,361
Net property, plant and equipment, at
cost 96,662 14,498 7,041 118,201
Investment in subsidiaries and affiliates 8,334 - - (7,236) 1,098
Goodwill 64,047 - - - 64,047
Debt issue costs 6,303 - - 6,303
Other 632 - 9 641
------------ ------------ ------------ ------------ ------------
$ 304,317 $ 28,367 $ 23,690 $ (28,723) $ 327,651
============ ============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit and revolving loan $ 36,699 - $ 2,440 $ 39,139
Accounts payable 39,923 $ 7,737 7,032 $ (329) 54,363
Demand note payable to shareholders - - 88 88
Accrued liabilities 20,392 745 1,339 22,476
Accrued compensation 7,629 247 2,221 10,097
Advance mold payments - 443 593 1,036
Income taxes payable - 850 850
Note payable to affiliates - - -
Current maturities of long-term debt 13,631 - 13,631
------------ ------------ ------------ ------------ ------------
Total current liabilities 118,274 10,022 13,713 (329) 141,680
Long-term debt due after one year 171,674 10,709 10,449 (21,158) 171,674
Deferred income taxes 285 624 30 939
Stockholders' equity:
Common stock - 5,850 2,945 (8,795) -
Additional paid-in capital 94 - 126 (126) 94
Retained earnings 14,012 1,162 (3,575) 1,687 13,286
Currency translation adjustments (22) - 2 (2) (22)
------------ ------------ ------------ ------------ ------------
Total stockholders' equity 14,084 7,012 (502) (7,236) 13,358
------------ ------------ ------------ ------------ ------------
Total liabilities and stockholders' equity $ 304,317 $ 28,367 $ 23,690 $ (28,723) $ 327,651
============ ============ ============ ============ ============
F-20
42
14. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 26, 1999
UNCONSOLIDATED
-----------------------------------------------------
LDM
TECHNOLOGIES, LDM NON-GUARANTOR CONSOLIDATING
INC. CANADA SUBSIDIARIES ENTRIES CONSOLIDATED
------------------ ---------- ---------------- ------------------ -----------------
Net sales:
Product sales $ 367,301 $ 59,677 40,934 $ $ 467,912
Mold sales 56,842 4,413 1,331 62,586
-------------- --------- ------------ ------------- ---------------
424,143 64,090 42,265 530,498
Cost of sales:
Product cost of sales 281,868 55,745 43,243 380,856
Mold cost of sales 55,461 4,331 866 60,658
-------------- --------- ------------ ------------- ---------------
337,329 60,076 44,109 441,514
-------------- --------- ------------ ------------- ---------------
Gross margin 86,814 4,014 (1,844) 88,984
Selling, general and
administrative expenses 60,862 1,042 1,497 63,401
Interest 20,952 1,225 853 (1,963) 21,067
Equity in losses of 4,946 (3,466) 1,480
Subsidiaries and affiliates, net
Other, net (1,379) 8 400 1,963 992
-------------- --------- ------------ ------------- ---------------
85,381 2,275 2,750 (3,466) 86,940
-------------- --------- ------------ ------------- ---------------
Income (loss)
before income taxes 1,433 1,739 (4,594) 3,466 2,044
Provision (credit) for
income taxes 2,194 573 38 2,805
-------------- --------- ------------ ------------- ---------------
Net income (loss) $ (761) $ 1,166 $ (4,632) $ 3,466 $ (761)
============== ========= ============ ============= ===============
F-21
43
14. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 27, 1998
UNCONSOLIDATED
-------------------------------------------------------
LDM TECHNOLOGIES, LDM NON-GUARANTOR CONSOLIDATING
INC. CANADA SUBSIDIARIES ENTRIES CONSOLIDATED
-----------------------------------------------------------------------------------------------------------
Net sales:
Product sales $ 349,218 $ 51,228 $ 38,641 $ (127) $ 438,960
Mold sales 25,589 14,172 4,503 44,264
------------- ---------------- ------------------- ------------------ --------------
374,807 65,400 43,144 (127) 483,224
Cost of sales:
Product cost of sales 278,818 44,443 39,849 (127) 362,983
Mold cost of sales 24,643 12,154 4,221 41,018
------------- ---------------- ------------------- ------------------ --------------
303,461 56,597 44,070 (127) 404,001
------------- ---------------- ------------------- ------------------ --------------
Gross margin 71,346 8,803 (926) 79,223
Selling, general and
administrative expenses 52,664 1,195 2,748 56,607
Equity in net income of 187 - - (187) -
subsidiaries
Interest 19,703 1,633 860 (2,382) 19,814
Equity in loss of 285 - - - 285
affiliate
Adjustment for
impairment of
long-lived assets 10,523 - - - 10,523
Other, net (2,627) 396 (273) 2,382 (122)
------------- ---------------- ------------------- ------------------ --------------
80,735 3,224 3,335 (187) 87,107
------------- ---------------- ------------------- ------------------ --------------
Income (loss)
before income taxes
and minority interest (9,389) 5,579 (4,261) 187 (7,884)
Provision (credit) for
income taxes (2,769) 2,286 (55) (538)
------------- ---------------- ------------------- ------------------ --------------
Income (loss)
before minority (6,620) 3,293 (4,206) 187 (7,346)
interest
Minority interest loss 279 - - 279
------------- ---------------- ------------------- ------------------ --------------
Net income (loss) $ (6,341) $ 3,293 $ (4,206) $ 187 $ (7,067)
============= ================ =================== ================== ==============
F-22
44
14. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 28, 1997
UNCONSOLIDATED
-------------------------------------------------
LDM
TECHNOLOGIES, LDM NON-GUARANTOR CONSOLIDATING
INC. CANADA SUBSIDIARIES ENTRIES CONSOLIDATED
-----------------------------------------------------------------------------------------
Net sales:
Product sales $ 204,902 $ 38,427 $ 19,207 $ (1,433) $ 261,103
Mold sales 20,843 7,035 4,039 31,917
------------ ----------- ----------- ----------- ------------
225,745 45,462 23,246 (1,433) 293,020
Cost of sales:
Product cost of sales 156,477 36,651 18,837 (1,433) 210,532
Mold cost of sales 20,425 6,485 3,487 30,397
------------ ----------- ----------- ----------- ------------
176,902 43,136 22,324 (1,433) 240,929
------------ ----------- ----------- ----------- ------------
Gross margin 48,843 2,326 922 52,091
Selling, general and administrative 32,396 1,573 1,781 (188) 35,562
expenses
Equity in net loss of subsidiaries 722 (722) -
Interest 10,499 1,567 250 (1,240) 11,076
Other, net (914) (32) (38) 1,428 445
------------ ----------- ----------- ----------- ------------
42,703 3,108 1,993 (722) 47,083
------------ ----------- ----------- ----------- ------------
Income (loss) from continuing
operations
before income taxes and minority 6,140 (783) (1,071) 722 5,008
interest
Provision for income taxes 4,027 (1,591) (348) 2,088
------------ ----------- ----------- ----------- ------------
Income (loss) from continuing
operations
before minority interest 2,113 808 (723) 722 2,920
Minority interest loss 143 143
------------ ----------- ----------- ----------- ------------
Net income (loss) $ 2,256 $ 808 $ (723) $ 722 $ 3,063
============ =========== =========== =========== ============
F-23
45
14. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 26, 1999
UNCONSOLIDATED
--------------------------------
LDM
TECHNOLOGIES, LDM NON-GUARANTOR CONSOLIDATING
INC. CANADA SUBSIDIARIES ENTRIES CONSOLIDATED
------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $ (761) $ 1,166 $ (4,632) $ 3,466 $ (761)
Adjustments to reconcile net income
(loss) to net cash provided by
operating
activities:
Equity in subsidiaries losses 3,466 (3,466)
Equity in losses of affiliates, net 1,480 1,480
Reserve for trade and notes
receivable 2,767 2,767
Depreciation and amortization 18,702 1,977 1,346 22,025
(Gain) loss on sale of
property and equipment 380 190 (726) (156)
Deferred income taxes 455 530 (30) 955
Changes in assets and
liabilities, net of
the effect of the 1999 joint
venture and divestiture
Accounts and notes
receivable (7,957) (2,899) 117 (10,739)
Inventory and mold costs 7,460 (3,685) 4,277 8,052
Prepaid expenses (502) (7) 1 (508)
Accounts payable and
accrued liabilities (1,063) 4,830 669 58 4,494
Income taxes payable (108) (923) 33 (998)
------------------------------------------------------------------------------------------
Net cash provided by operating
activities 24,319 1,179 1,055 58 26,611
INVESTING ACTIVITIES
Additions to property, plant and
equipment (19,639) (2,319) (45) (22,003)
Proceeds from sale of Kenco business
and net current assets to DBM
joint venture (net of $98 equity
contribution) 6,935 6,935
Proceeds from disposal of property,
and
equipment 1,010 1,010
Disbursements to affiliates (3,989) 1,748 (2,241)
Payments from affiliates 2,049 (1,273) 776
------------------------------------------------------------------------------------------
Net cash (used for) provided by
investing
activities (13,634) (2,319) (45) 475 (15,523)
FINANCING ACTIVITIES
Proceeds from issuance of long term 7,228 749 (749) 7,228
debt
Payments on long-term debt (12,979) (177) (39) 216 (12,979)
Net proceeds from Line of
Credit/Revolver (3,423) (914) (4,337)
------------------------------------------------------------------------------------------
Net cash provided (used) by
financing
activities (9,174) (177) (204) (533) (10,088)
------------------------------------------------------------------------------------------
Net increase (decrease) in cash 1,511 (1,317) 806 1,000
Cash at beginning of year 673 1,317 1,327 3,317
==========================================================================================
Cash at end of year $ 2,184 - $ 2,133 $ $ 4,317
==========================================================================================
F-24
46
14. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 27,1998
UNCONSOLIDATED
------------------------------------------------
LDM TECHNOLOGIES, LDM NON-GUARANTOR CONSOLIDATING
INC. CANADA SUBSIDIARIES ENTRIES CONSOLIDATED
----------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $ (6,341) $ 3,293 $ (4,206) $ 187 $ (7,067)
Adjustments to reconcile net income
(loss) to net cash provided by
operating
activities:
Equity in subsidiaries losses 187 - (187) -
Equity in loss of affiliate 285 - - - 285
Depreciation and amortization 16,260 1,974 1,632 19,866
Adjustment for impairment of
long-lived assets 10,523 - - - 10,523
(Gain) loss on sale of
property and equipment 36 61 97
Deferred income taxes (3,370) 1,421 (84) (2,033)
Changes in assets and
liabilities, net of
the effect of the 1998
acquisitions
Accounts and notes
receivable (775) (4,905) (791) 1,511 (4,960)
Inventory and mold costs (6,584) 6,129 (1,698) (2,153)
Prepaid expenses 1,025 (32) (13) 979
Accounts payable and
accrued liabilities 9,947 (7,320) 3,163 5,790
Income taxes payable (2,982) 846 356 (1,780)
------------ ---------- ----------- ------------ ------------
Net cash provided by operating
activities 18,211 1,406 (1,580) 1,511 19,547
INVESTING ACTIVITIES
Purchase of Kenco (net of $500 cash
received in acquisition) (26,641) (26,641)
Additions to property, plant and
equipment (12,083) (370) (1,690) (14,143)
Purchase of Huron Plastics (net of
$1,835
cash received in acquisition) (67,140) (67,140)
Proceeds from disposal of property,
and equipment 622 192 814
Purchase of LDM Technologies, GmbH (9,703) (9,703)
Disbursements to affiliates (7,837) 7,837 -
Payments from affiliates 10,073 (10,073) -
------------ ---------- ------------ ------------ ------------
Net cash (used for) provided by
investing activities (112,709) (370) (1,498) (2,236) (116,813)
FINANCING ACTIVITIES
Proceeds from issuance of long term 63,992 3,869 (3,869) 63,992
debt
Payments on long-term debt (4,809) (4,317) (278) 4,595 (4,809)
Net proceeds from Line of 35,976 791 36,767
------------ ---------- ------------ ------------ ------------
Credit/Revolver
Net cash provided (used) by
financing
activities 95,159 (4,317) 4,382 726 95,950
------------ ---------- ------------ ------------ ------------
Net increase (decrease) in cash 661 (3,281) 1,304 - (1,316)
Cash at beginning of year 12 4,598 23 4,633
------------ ---------- ------------ ------------ ------------
Cash at end of year $ 673 $ 1,317 $ 1,327 $ - $ 3,317
============ ========== ============ ============ ============
F-25
47
14. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 28,1997
UNCONSOLIDATED
-----------------------------------------------
LDM TECHNOLOGIES, NON-GUARANTOR CONSOLIDATING
INC. LDM CANADA SUBSIDIARIES ENTRIES CONSOLIDATED
--------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $ 2,256 $ 808 $ (723) $ 722 $ 3,063
Adjustments to reconcile net income
(loss) to net cash provided by
operating
activities:
Equity in subsidiaries losses 722 (722)
Depreciation and amortization 9,054 2,141 760 11,955
(Gain) loss on sale of property and
equipment (151) (5) (156)
Deferred income taxes 480 (1,611) 4 (1,127)
Other 203 250 453
Changes in assets and liabilities,
net of the effect of the 1997
acquisitions
Accounts and notes receivable (8,222) 2,632 132 (5,458)
Inventory and mold costs 2,165 (7,028) (91) (4,954)
Prepaid expenses (1,573) 90 (11) (1,494)
Other assets 65 350 415
Accounts payable and accrued
liabilities 2,320 4,489 82 466 7,357
Income taxes payable (693) (25) (718)
------------ ---------- --------- ----------- ------------
Net cash provided by operating
activities 6,626 2,121 123 466 9,336
INVESTING ACTIVITIES
Purchase of Molmec (net of $2,704,958
cash
received in acquisition) (53,198) (53,198)
Additions to property, plant and (10,521) (2,174) (81) (12,776)
equipment
Purchase of Kendallville (7,159) (7,159)
Proceeds from disposal of property, and
equipment 1,769 8 1,777
Cash and cash equivalents restricted for
construction of new corporate facility 658 658
Disbursements to affiliates (12,587) 12,587
Payments from affiliates 1,553 (1,553)
Equity investment in affiliate (4,500) 4,500
Other (484) (484)
------------ ---------- --------- ----------- ------------
Net cash (used for) provided by investing
activities (84,469) 2,326 (73) 11,034 (71,182)
FINANCING ACTIVITIES
Proceeds from issuance of long term debt 103,962 11,500 (11,500) 103,962
Payments on long-term debt (12,316) (9,647) (236) (22,199)
Net proceeds from Line of Credit/Revolver (13,800) (3,634) 28 (17,406)
------------ ---------- --------- ----------- ------------
Net cash provided (used) by financing
activities 77,846 (1,781) (208) (11,500) 64,357
------------ ---------- --------- ----------- ------------
Net increase (decrease) in cash 3 2,666 (158) 2,511
Cash at beginning of year 9 1,933 180 2,122
------------ ---------- --------- ----------- ------------
Cash at end of year $ 12 $ 4,599 $ 22 $ 4,633
============ ========== ========= =========== ============
F-26
48
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Articles of Incorporation of LDM Technologies, Inc. (the "Company"), as amended [3.1]*
3.2 By-laws of the Company [3.5]*
4.1 Indenture dated as of January 15, 1997 by and among the Company, LDM Holdings, LDM
Partnership, LDM Canada and IBJ Schroder Bank & Trust Company, as Trustee [4.1]*
4.2 Form of 10 3/4% Senior Subordinated Note Due 2007, Series B [4.2]* 4.3 Form of Guarantee
[4.3]*
10.1(a) Loan and Security Agreement dated as of January 22, 1997 ("Loan Agreement") by and between
the Company, as Borrower, and BankAmerica Business Credit, Inc. ("BankAmerica"), as Agent
for the Lenders [10.2]*
10.1(b) First Amendment to Loan Agreement dated May 1, 1997. [10.1(b)]***
10.1(c) Amendment No. 2 and Affirmation of Guaranties to Loan Agreement dated as of July 14, 1997.
[10.1(c)]***
10.1(d) Amendment No. 3 and Affirmation of Guaranties to Loan Agreement dated as of September 30,
1997. [10.1(d)]***
10.1(e) Amendment No. 4 and Affirmation of Guaranties to Loan Agreement dated as of November 25,
1997. [10.1(e)]***
10.2 Intellectual Property Security Agreement dated as of January 22, 1997 made by the Company in
favor of BankAmerica, as Agent for Lenders [10.4]*
10.3 Stock Purchase Agreement among the Company and the various stockholders of Kenco Plastics,
Inc., a Michigan corporation, and Kenco Plastics, Inc., a Kentucky corporation, and Narens Design
& Engineering Co., a Michigan corporation, dated September 30, 1997 [1].**
10.4 Asset Purchase Agreement between LDM Technologies, Inc. (a Michigan corporation) and DBM
Technologies, LLC (a Michigan limited liability company) dated December 31, 1998.
10.5 Asset Purchase Agreement between GL Industries, Inc. (an Indiana corporation) and New GLI,
Inc. (an Indiana corporation) dated April 15, 1999.
11 Statement of Ratio of Earnings to Fixed Charges
21 Subsidiaries and Affiliates of the Company
27 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Registrant for the quarter
ended September 29, 1997.