UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
Form---------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 20052006
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From _________________________ to _________________________
COMMISSION FILE NUMBER 333-119215
AUTOCAM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Michigan 38-2790152
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4436 Broadmoor Avenue Southeast
Kentwood, Michigan 49512
(Address of Principal Executive Offices) (Zip Code)(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (616) 698-0707
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 whether the registrant is a large accelerated filer, an
accelerated filer, (as
definedor a non-accelerated filer. See definition of "accelerated
filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act).
YESAct. (Check
one)
Large accelerated filer [ ] NO [X]Accelerated filer [ ] Non-accelerated filer [x]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
YES [ ] NO [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 8, 2005
- ---------------------------- -------------------------------
Class Outstanding at November 10, 2006
COMMON STOCK, $.01 PAR VALUE 100 SHARES
INDEX
PAGE NO.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 2004 and
September 30, 2005 2
Condensed Consolidated Statements of Operations and
Comprehensive Income (Loss) for the Three and Nine Months Ended
September 30, 2004 and 2005Loss 3
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2004 and 2005 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 1719
Item 3. Quantitative and Qualitative Disclosures about Market Risk 2428
Item 4. Controls and Procedures 2529
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 29
Item 1A. Risk Factors 29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 29
Item 3. Defaults Upon Senior Securities 29
Item 4. Submission of Matters to a Vote of Security Holders 29
Item 5. Other Information 29
Item 6. Exhibits 2630
Signatures 2731
Exhibit 31.1 - CEO Certification
Exhibit 31.2 - CFO Certification
Exhibit 32.1 - CEO and CFO Certification
Forward-Looking Statements
This report includes "forward-looking statements," within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange
Act of 1934, as amended (the "Exchange Act"), with respect to our financial
condition, results of operations and business and our expectations or beliefs
concerning future events. Statements that are predictive in nature that depend
upon or refer to future events or conditions or that include words such as
"believes," "expects," "anticipates," "estimates," "intends," "plans,"
"targets," "likely," "will," "would," "could" and similar expressions are
forward-looking statements.
All forward-looking statements involve risks and uncertainties. Many risks and
uncertainties are inherent in our industry and markets. Others are more specific
to our operations. The occurrence of the events described and the achievement of
the expected results depend on many events, some or all of which are not
predictable or within our control. Actual results may differ materially from the
forward-looking statements contained in this report.
Factors that could cause actual results to differ materially from those
expressed or implied by the forward-looking statements include:
- - risks associated with our substantial indebtedness, leverage and debt
service;
- - our ability to negotiate with our creditors should we not be able to make
payments due to them;
- - the cyclical nature of the automotive industry;
- - performance of our business and future operating results;
- - general business and economic conditions, particularly an economic
downturn; and
- - the factors discussed in our Form 10-K for the fiscal year ended December
31, 20042005 in the section titled "Risk Factors."
All future written and verbal forward-looking statements attributable to us or
any person acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section. We undertake no
obligation, and specifically decline any obligation, to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this report might not occur.
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TITAN HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
DECEMBER 31, SEPTEMBER 30,
2004 2005
------------ -------------
Amounts in thousands, except share information (successor)2005 2006
- ---------------------------------------------- ------------ -------------
Assets
Current assets:
Cash and equivalents $ 2,11714,733 $ 1,2811,820
Accounts receivable, net of allowances of $618$627
and $818,$731, respectively 58,360 53,19346,989 56,504
Inventories 36,947 39,49240,927 47,175
Prepaid expenses and other current assets 3,485 4,2405,249 6,114
-------- -----------------
Total current assets 100,909 98,206107,898 111,613
Property, plant and equipment, net 177,285 166,224163,059 179,662
Goodwill 268,039 225,885224,024 134,693
Deferred taxes 17,431 17,575
Other long-term assets 23,199 24,92019,351 27,543
-------- -----------------
Total Assets $569,432 $515,235$531,763 $ 471,086
======== =================
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term obligations $ 12,9428,582 $ 9,83710,690
Accounts payable 46,688 39,09746,014 49,252
Accrued liabilities 20,561 20,073liabilities:
Compensation 15,325 18,548
Other 1,989 8,316
-------- -----------------
Total current liabilities 80,191 69,00771,910 86,806
-------- -----------------
Long-term obligations, net of current maturities 275,839 271,337282,659 309,143
Deferred taxes and other 48,042 46,51642,696 42,123
Other long-term liabilities 7,893 6,917
Shareholders' equity:
Common stock - $.01 par value; 100 shares
authorized, issued and outstanding as of
December 31, 20042005 and September 30, 20052006
Additional paid-in capital 145,112 155,140162,140 162,610
Accumulated other comprehensive income 19,694 7,554
Retained earnings (accumulated deficit) 554 (34,319)4,098 13,754
Accumulated deficit (39,633) (150,267)
-------- -----------------
Total shareholders' equity 165,360 128,375126,605 26,097
-------- -----------------
Total Liabilities and Shareholders' Equity $569,432 $515,235$531,763 $ 471,086
======== =================
See notes to condensed consolidated financial statements.
2
TITAN HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(unaudited)LOSS
(UNAUDITED)
THREE MONTHS ENDED SIXNINE MONTHS ENDED
SEPTEMBER 30, NINE MONTHS ENDED
JUNE 30, --------------------- SEPTEMBER 30,
2004 2004 2005 2005
---------------- ------- ----------- ------------------------------------- ----------------------
Amounts in thousands (predecessor) (successor)
-----------------------------------------2005 2006 2005 2006
- -------------------- --------- -------- --------- ----------
Sales $184,489 $80,249 $ 85,416 $261,757$ 88,360 $ 261,757 $ 282,902
Cost of sales 153,426 68,348 76,631 227,74376,965 80,451 228,190 253,899
Goodwill impairment 33,000 33,000 96,801
--------- -------- ------- -------- ----------------- ----------
Gross profit (loss) 31,063 11,901 (24,215) 1,014(24,549) 7,909 567 (67,798)
Selling, general and administrative expenses 17,337 5,244 4,768 6,021 15,591 19,788
--------- -------- ------- -------- ----------------- ----------
Income (loss) from operations 13,726 6,657 (28,983) (14,577)(29,317) 1,888 (15,024) (87,586)
Interest expense, net 4,666 5,705 6,329 8,778 18,524 24,394
Other expenses, net 3,672 681 1,134 2,418800 803 1,971 2,782
--------- -------- ------- -------- --------
Income (loss)--------- ----------
Loss before tax provision 5,388 271 (36,446) (7,693) (35,519) (114,762)
Tax provision 3,211 411 (832) (2,256) (646) (4,369)
Equity in loss of joint venture 117 241
--------- -------- ------- -------- ----------------- ----------
Net Income (Loss) $ 2,177 ($140)Loss ($35,614) ($5,554) ($34,873) ($110,634)
========= ======== ======= ======== ================= ==========
Statements of Comprehensive Income (Loss):Loss:
Net income (loss) $ 2,177 ($140)loss ($35,614) ($5,554) ($34,873) ($110,634)
Other comprehensive income (loss)(losses):
Foreign currency translation adjustments (1,138) 5,046 1,276 362 (12,140) Amortization of9,853
Net interest rate agreements 135agreement losses, net of tax (696) (197)
--------- -------- ------- -------- ----------------- ----------
Comprehensive Income (Loss) $ 1,174 $ 4,906Loss ($34,338) ($5,888) ($47,013) ($100,978)
========= ======== ======= ======== ================= ==========
See notes to condensed consolidated financial statements.
3
TITAN HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS THREE MONTHS NINE MONTHS ENDED
ENDED ENDED
JUNE 30, SEPTEMBER 30,
SEPTEMBER 30,
2004 2004 2005
------------- ------------- --------------------------------
Amounts in thousands (predecessor) (successor) (successor)2005 2006
- -------------------- -------- --------
Net cash provided by (used in) operating activities $ 10,69412,223 ($409) $ 12,2231,672)
Cash flows from investing activities:
Expenditures for property, plant and equipment (10,676) (5,487) (13,450) Equipment deposits paid (to be refunded),(24,177)
Acquisitions, net 808 333 (1,556)
Acquisition costsof cash (9,919) (8,794)
Other (339) 307 43
--------- -------(1,513) 280
-------- --------
Net cash used in investing activities (10,207) (4,847) (24,882) --------- -------(32,691)
-------- --------
Cash flows from financing activities:
Borrowings (repayments) on lines of credit, net (3,531) 2,000 7,430 Proceeds from issuance of long-term obligations 247,248 270 80224,438
Shareholder contributions 10,028
Principal payments of long-term obligations (109,940) (1,529) (5,119) Payments to shareholders and option holders (232,663)
Shareholder contributions 115,400 10,028
Debt issue costs and other (10,855) (675) (1,381)
--------- -------(2,800)
Other (579) (160)
-------- --------
Net cash provided by financing activities 5,659 66 11,760 --------- -------21,478
-------- --------
Effect of exchange rate changes on cash and equivalents (18) 62 63 --------- -------(28)
-------- Increase (decrease)--------
Decreases in cash and equivalents 6,128 (5,128) (836) (12,913)
Cash and equivalents at beginning of period 1,075 7,203 2,117 --------- -------14,733
-------- --------
Cash and Equivalents at End of Period $ 7,2031,281 $ 2,075 $ 1,281
========= =======1,820
======== ========
See notes to condensed consolidated financial statements.
4
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 20052006
(UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim condensed consolidated financial statements
(the "Financial Statements") include the accounts of Titan Holdings, Inc.
("Titan") and its subsidiaries (together, the "Company"), which includes Autocam
Corporation ("Autocam"), a wholly-owned subsidiary. On June 21, 2004, Micron
Merger Corporation, a newly formed entity and wholly-owned subsidiary of Micron
Holdings, Inc. ("Micron"), merged with and into Titan with Titan continuing as
the surviving corporation (the "Merger"). As a result, Titan became a
wholly-owned subsidiary of Micron. The Financial Statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America ("GAAP") for interim financial information. Accordingly, they do not
include all the information and footnotes normally included in the annual
consolidated financial statements prepared in accordance with GAAP. All
significant intercompany accounts and transactions have been eliminated in
consolidation. All currency amounts within these footnotes are expressed in
thousands of U.S. dollars unless otherwise noted. References throughout this
document to "we," "our" or "us" refer to the Company.
In the opinion of our management, the Financial Statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly such information in accordance with GAAP.
On June 21, 2004, Micron Merger Corporation, a newly formed entityAssets Held For Sale -- Included within Prepaid Expenses and wholly-owned subsidiaryOther Current
Assets as of Micron Holdings, Inc. ("Micron"), merged with and
into Titan with Titan continuing as the surviving corporation (the "Merger"). As
a result, Titan became a wholly-owned subsidiarySeptember 30, 2006 is $1,153 of Micron. The total amount of
consideration paidreal property located in the Merger, including amounts related to the repayment of
indebtedness, the redemption of the outstanding preferred stock of Titan,
payments to common shareholders of Titan and the payment of transaction costs
incurred by Titan, was $395,000. The Merger was financed with the net proceeds
from the issuance of $140,000 of senior subordinated notes of the Company, which
are guaranteed by Titan (the "Notes"), borrowings under the Company's senior
credit facilities of $114,000 and combined common equity contributions of
$143,400 by GS Capital Partners 2000, L.P. ("GSCP 2000"), other private equity
funds affiliated with GSCP 2000, Transportation Resource Partners LP ("TRP"),
other investment vehicles affiliated with TRP, and certain of the Company's
management.
Successor periods - Represents the consolidated financial position and
consolidated results of operations and cash flows of the Company reflecting the
basis of accounting after application of purchase accountingFrance
that is being held for the Merger.
Predecessor periods - Represents the consolidated financial position and results
of operations and cash flows of the Company reflecting the historical basis of
accounting without any application of purchase accounting for the Merger.sale.
Goodwill --- In accordance with Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets," the Company evaluateswe evaluate for
indicators of impairment the carrying value of itsour goodwill at least on an
annual basis and on an interim basis if indicators of potential impairment arise
between annual evaluations. The Company'sOur European segment continues to
experienceexperienced unfavorable
operating results during the first half of 2006, primarily as a result of cost
overruns on three product launches, lower production volumes on key profitable
programs, excessive labor costs and increased customer pricing pressure and higher raw material costs. As a result,pressure. Based
on these interim indicators, we completed an interim assessment of the Company
concluded thatcarrying
amount of goodwill in our European reporting unit in accordance with SFAS No.
142 during the quarter ended June 30, 2006. The assessment of the carrying
amount of our European reporting unit's goodwill has been impairedindicated that impairment had
occurred, and hasas a result we recorded against its thirdour second quarter 20052006 results a
goodwill impairment loss of $33,000.$96,801. The fair value of thatthe reporting unit was
estimated using the present
value of expected futurea discounted cash flows.flow valuation model. This charge does not
result in current or future cash expenditures. There was no goodwill impairment
recorded during our third quarter of 2006. We will perform an assessment of the
carrying amount of goodwill in our other reporting units in conjunction with our
annual assessment in accordance with SFAS No. 142.
Set forth below is a summary of the changes in our goodwill balances by segment
in 2006:
NORTH SOUTH
AMERICA EUROPE AMERICA TOTAL
-------- ------- ------- --------
Balance at January 1, 2006 $121,814 $90,273 $11,937 $224,024
Acquisition activity 57 57
Impairment charge (96,801) (96,801)
Translation and other 6,528 885 7,413
-------- ------- --------
Balance at September 30, 2006 $121,871 $12,822 $134,693
======== ======= ========
5
Stock-based compensation -- The Company appliesOn January 1, 2006, we applied Statement of
Financial Accounting Standard ("SFAS") No. 123(R), "Share-Based Payment," which
requires compensation costs related to share-based payment transactions to be
recognized in the financial statements. Compensation cost subsequent to January
1, 2006 was measured based on the grant date fair value of the equity or
liability instruments issued and is recognized over the period that an employee
provides services in exchange for the award. SFAS No. 123(R) replaces SFAS No.
123, "Accounting for Stock-Based Compensation," and supercedes Accounting
Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations,interpretations. We recognized stock based compensation expense of $156
for the three months ended September 30, 2006 and $470 in accounting for its stock-based compensation plans.
Accordingly, no stock-based employee compensation cost is reflected in net
income (loss) as all options granted under those plans had an exercise price
equal to the estimated market value of the underlying common stock on the date
of the grant.nine months ended
September 30, 2006. Had stock-based employee compensation cost of the Company'sour stock
option plans been determined based upon the fair value at the grant dates for
awards under those planstreated consistent with the methodprovisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standard ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," as amended by SFAS No. 148,
"Accounting for Stock-Based Compensation -- Transition and Disclosure," the
Company's123(R)
prior to January 1, 2006, our net income (loss) would have changed to the pro forma
amounts indicatedset forth below:
THREE MONTHS SIX MONTHS ENDED NINE MONTHS
ENDED ENDED
SEPTEMBER 30, ENDED
JUNE 30, ---------------- SEPTEMBER 30,
2004 2004
2005 2005
------------- ----- -------- -------------
(predecessor) (successor)
--------------------------------
As reported $2,177 ($140) ($35,614) ($34,873)
Compensation expense, net of related tax effects (280) (100) (100) (300)
------ -----
-------- --------
Pro forma $1,897 ($240) ($35,714) ($35,173)
====== =====
======== ========
The fair value approach was used to value all option grants, with the following
weighted-average assumptions: risk-free interest rate, 4%-4.57%-4.51%; volatility
rates, 10.98%-12.01%; and expected life of options, 10 years.
Pension Plans -- The Company sponsorsWe sponsor defined benefit pension plans for substantially all
employees of itsour French subsidiaries. Set forth below are the components of net
periodic benefit cost for the plans of the Company'sour French subsidiaries, Frank & Pignard,
SA, ("F&P") and Bouverat Industries, SA ("Bouverat"):
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 2004 SEPTEMBER 30, 2004
------------------------ ------------------------
F&P PLAN BOUVERAT PLAN F&P PLAN BOUVERAT PLAN
-------- ------------- -------- -------------
Service and interest costs $74 $58 $37 $29
Expected return on plan assets (16) (8)
--- --- --- ---
Net periodic benefit cost $74 $42 $37 $21
=== === === ===
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------
2005 SEPTEMBER 30, 20052006
------------------------ ------------------------
F&P PLAN BOUVERAT PLAN F&P PLAN BOUVERAT PLAN
-------- ------------- -------- -------------
Service and interest costs $37 $29 $111 $87$79 $5
Expected return on plan assets (8) (24)(6)
--- --- ------- ---
Net periodic benefit cost $37 $21 $111 $63$79 ($1)
=== === ======= ===
2. BUSINESS COMBINATION
The Merger was accounted for as a purchase, and accordingly, the purchase price
was allocated to assets acquired and liabilities assumed based upon their
relative fair market values. Cost in excess of the fair value of the net assets
acquired (goodwill) was $249,371, allocated among the Company's operating
segments as follows: North America - $116,227, Europe - $124,486 and South
America - $8,658. The results of operations and cash flows of Titan (as
predecessor company) have been reported during the six months ended June 30,
2004.
6
Set forth below is unaudited pro forma statement of operations information for
the six months ended June 30, 2004, which is based upon the historical
Consolidated Statements of Operations of the Company after giving effect to the
Merger as if such transaction had occurred at the beginning of such period.
These pro forma results are based upon assumptions considered appropriate by
Company management and include adjustments as considered necessary in the
circumstances. Such adjustments include interest expense that would have been
incurred to finance the purchase, depreciation expense based on the fair market
value of the property and equipment acquired and the corresponding tax effects
of each. These pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of results which would have actually
been reported had the Merger taken place at the beginning of such period or
which may be reported in the future.
SIXNINE MONTHS ENDED JUNESEPTEMBER 30,
2004---------------------------------------------------
2005 2006
------------------------ ------------------------
F&P PLAN BOUVERAT PLAN F&P PLAN BOUVERAT PLAN
-------- ------------- -------- -------------
Sales $184,489
Service and interest costs $111 $ 87 $237 $ 14
Expected return on plan assets (24) (18)
---- ---- ---- ----
Net income 6,649periodic benefit cost $111 $ 63 $237 ($4)
==== ==== ==== ====
Effective6
Accounting Pronouncements - In June 2006, the Financial Accounting Standards
Board ("FASB") issued FASB Interpretation ("FIN") No. 48, "Accounting for
Uncertainty in Income Taxes," which clarifies the accounting for uncertainty in
income taxes recognized in an enterprise's financial statements in accordance
with SFAS No. 109, "Accounting for Income Taxes." This interpretation prescribes
a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. This interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. FIN No. 48 is effective for fiscal years beginning
after December 15, 2006. We are currently evaluating the impact of adopting this
interpretation.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements,"
which provides a definition of fair value, establishes a framework for measuring
fair value and requires expanded disclosures about fair value measurements. SFAS
No. 157 is effective for financial statements issued for fiscal years beginning
after November 1, 2004, F&P acquired15, 2007 and interim periods within those fiscal years. The
provisions of SFAS No. 157 should be applied prospectively. We are assessing the
stockpotential impact on our consolidated financial statements of ATI, S.A.S.,adopting this
standard.
In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
$1,681Defined Benefit Pension and Other Postretirement Plans," which amends SFAS No.
87, "Employers' Accounting for Pensions," SFAS No. 88, "Employers' Accounting
for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" and SFAS No. 132R "Employers' Disclosures about
Pensions and Other Postretirement Benefits (revised 2003)." SFAS No. 158
requires companies to recognize an asset or liability for the overfunded or
underfunded status of their benefit plans in cashtheir financial statements. SFAS
No. 158 also requires the measurement date for plan assets and liabilities to
coincide with the sponsor's year end. The standard provides two transition
alternatives related to the change in measurement date provisions. The
recognition of an asset and liability related to the funded status provision is
effective for fiscal years ending after December 15, 2006 and the assumption of $6,065change in
debt, primarily consisting of capital lease
obligations.measurement date provisions is effective for fiscal years ending after December
15, 2008. The acquisition was accounted for as a purchase, and accordingly,
the purchase price was allocated to assets acquired and liabilities assumed
based upon their relative fair market values. Cost in excessactual impact of the fair valuerecognition provisions of the net assets acquired (goodwill) was $1,086.
On June 15, 2005, Autocam Greenville, Inc., a wholly-owned subsidiary of
Autocam, acquired the stock of Sager Precision Technologies, Inc. for $9,902 in
cashSFAS No. 158 will
not be known until year-end valuations are available and the assumptiondeferred tax assets
are assessed for realizability, but we do not expect the implementation of $240this
standard to have a material impact on our financial results.
In September 2006, the United States Securities and Exchange Commission issued
Staff Accounting Bulletin ("SAB") No. 108, "Quantifying Financial
Misstatements," which expresses views regarding the process of quantifying
financial statement misstatements and will require us to quantify the impact of
correcting all misstatements, including both the carryover and reversing effects
of prior year misstatements, on the current year financial statements. The
techniques most commonly used in capital lease obligations. In accordance withpractice to accumulate and quantify
misstatements are generally referred to as the purchase agreement, the Company has recognized"rollover" (current year income
statement perspective) and "iron curtain" (year-end balance sheet perspective)
approaches. The financial statements would require adjustment when either
approach results in quantifying a receivable from the seller
of $314 representing a shortfall in working capital on June 15, 2005. Additional
consideration will be paid to the seller if earnings before interest, taxes,
depreciationmisstatement that is material, after
considering all relevant quantitative and amortization exceed certain levelsqualitative factors. SAB No. 108 is
effective for financial statements for the first fiscal year ending June 30,after
November 15, 2006. The purchase price was primarily financed indirectly through $10,028 in
equity contributions from the shareholdersWe do not expect this guidance to have a material effect on
our financial condition and results of Micron. The acquisition was
accounted for as a purchase, and accordingly, the purchase price was allocated
to assets acquired and liabilities assumed based upon their relative fair market
values. Cost in excess of the fair value of the net assets acquired (goodwill)
was $5,053.
3.operations.
7
2. INVENTORIES
Set forth below are the components of Inventories:
DECEMBER 31, SEPTEMBER 30,
2004 2005 2006
------------ -------------
Raw materials $11,030 $12,037$12,657 $13,136
Production supplies 7,188 7,3577,512 10,327
Work in-process 12,979 13,86914,916 17,790
Finished goods 5,750 6,2295,842 5,922
------- -------
Total Inventories $36,947 $39,492$40,927 $47,175
======= =======
7
4.3. PROPERTY, PLANT AND EQUIPMENT, NET
Set forth below are the components of Property, Plant and Equipment, Net:
DECEMBER 31, SEPTEMBER 30,
2004 2005 2006
------------ -------------
Buildings and land $ 10,83810,156 $ 11,05211,065
Machinery and equipment 161,407 160,630160,631 189,190
Furniture and fixtures 11,041 11,23611,402 12,598
-------- --------
Total 183,286 182,918182,189 212,853
Accumulated depreciation (6,001) (16,694)(19,130) (33,191)
-------- --------
Total Property, Plant and Equipment, Net $177,285 $166,224$163,059 $179,662
======== ========
5.8
4. LONG-TERM OBLIGATIONS
Set forth below are the components of Long-Term Obligations (percentages
represent interest rates as of September 30, 2005)2006):
DECEMBER 31, SEPTEMBER 30,
2004 2005 2006
------------ -------------
Senior Credit Facilities:
USDcredit facility:
U.S. dollar term note, 7.313-7.688%8.875-9.125% $ 32,83519,988 $ 32,58819,988
Eurocurrency term note, 5.896% 83,269 70,7847.376% 42,532 45,644
Multi-currency revolving line of credit, 7.313% 18,000 26,000
-------- --------
Total senior8.87-10.75% 14,260
Eurocurrency revolving line of credit, facilities 134,104 129,3726.742-6.876% 8,862
Second lien term note:
U.S. dollar-denominated portion, 13.875% 60,023 60,708
Euro-denominated portion, 12.938% 14,951 16,225
Senior subordinated notes, 10.875%, net of original issue discount 137,043 137,277
Capital leases, from 2.14% to 19.62% 12,659 9,330 137,355 137,588
Other 4,975 5,19516,392 16,558
-------- --------
Total long-term obligations 288,781 281,174291,241 319,833
Current portion (12,942) (9,837)(8,582) (10,690)
-------- --------
Long-term portion $275,839 $271,337$282,659 $309,143
======== ========
Effective March 31, 2005, Autocam and its wholly owned subsidiary, Autocam
France, SARL, entered into an amendment to its senior credit facilities
agreement (the "Amendment"). Pursuant to the Amendment, among other things, the
financial covenants related to interest coverage and leverage ratios (each as
defined in the senior credit facilities agreement) were amended to make them
less restrictive, a new senior leverage ratio (as defined in the Amendment) was
established, the principal amortization on the Eurocurrency term note provided
under the senior credit facilities agreement was restructured and the interest
rate margins applicable to the loans provided under the senior credit facilities
agreement were increased.
In connection with the Merger, Titan and certain, but not all, of the
subsidiaries of Autocam fully and unconditionally guaranteed the Notes.senior
subordinated notes.
We manage interest rate risk on a portion of our variable interest rate
indebtedness through the use of an interest rate swap, which fixed the interest
rate on $50,000 of such indebtedness at London Interbank Offered Rate (LIBOR) of
5.14% for five years. Based on the fair market value of the interest rate swap
as of September 30, 2006, we recorded a loss of $696 (net of related income tax
of $359) for the three months ended September 30, 2006 and a loss of $197 (net
of related income tax of $101) for the nine months ended September 30, 2006 in
Accumulated Other Comprehensive Income on our Condensed Consolidated Balance
Sheets and recognized a derivative instrument liability of $298, which is
reflected in Other Long-Term Liabilities on our Condensed Consolidated Balance
Sheet as of September 30, 2006.
As of September 30 2006, we borrowed $23,122 under our revolving credit
facilities to fund our liquidity needs as cash generated from operations was
insufficient to meet our requirements. We had $17,261 of remaining availability
under our revolving credit facilities at September 30, 2006, and our senior
credit facilities permit us to factor without recourse an additional $9,507 of
trade receivables. Subsequent to September 30, 2006, we borrowed $15,784 of
funds available under our revolving credit facilities, and as of November 13,
2006, we had cash holdings of $13,113. As there is $1,244 of remaining borrowing
availability under our revolving credit facilities as of November 13, 2006, our
short-term liquidity needs must be met primarily from cash on hand and cash
generated from operations, and these sources could be insufficient to meet our
debt service and day-to-day operating expenses during the fourth quarter. There
are interest payments due on our senior subordinated notes on December 15, 2006
and on the senior credit facilities and second lien credit facility on December
29, 2006. Failure to make these payments within the applicable 30-day grace
period in the case of the senior subordinated notes and the applicable 5-day
grace period under the senior credit facilities and second lien credit facility
would constitute events of default under these notes and credit facilities.
9
Our senior credit facilities and second lien credit facility contain financial
covenants that are tested at each calendar quarter-end. We were in compliance
with all of the financial covenants in our senior credit facilities and second
lien credit facility as of September 30, 2006. However, based on current
projections, we believe it is unlikely we will be in compliance with the
financial covenants in our senior credit facilities and second lien credit
facility as of December 31, 2006.
We are exploring a variety of options to improve our near-term liquidity,
including, but not limited to, reducing our investment in working capital,
selling idle equipment and potentially securing other sources of capital for our
operations. We intend to engage in discussions with our senior and second lien
lenders to seek to further amend our senior credit facilities and our second
lien credit facility to provide for covenant relief. We also intend to engage in
restructuring discussions with holders of our senior subordinated notes. We
cannot assure you that we will be successful in reaching agreements with our
lenders or in accomplishing the initiatives described above. If we are not
successful, upon an event of default, the senior and second lien lenders will
have the ability to exercise all of their rights, including requiring the
amounts outstanding under the senior credit facilities and the second lien
credit facility to become due and payable. In that event, all of our
indebtedness under our credit facilities would be required to be reclassified as
current liabilities on our balance sheet. In sum, we continue to evaluate our
options, including the possibility of implementing a restructuring or
reorganizing pursuant to applicable law.
5. FINANCIAL INFORMATION FOR GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
The following table sets forth the guarantor and non-guarantor subsidiaries of
Autocam with respect to the Notes as of September 30, 2005:
8
senior subordinated notes:
GUARANTOR SUBSIDIARIES NON-GUARANTOR SUBSIDIARIES
- ---------------------- --------------------------
Autocam-Pax, Inc. Autocam-Har, Inc.
Autocam Acquisition, Inc. Autocam France, SARL
Autocam Laser Technologies, Inc. Frank & Pignard, SA
Autocam International Ltd. Bouverat Industries, SA
Autocam Europe, B.V. Autocam do Brasil Usinagem Ltda.
Autocam International Sales Corporation Autocam Foreign Sales Corporation
Autocam Greenville, Inc. Wuxi Kent Precision Automotive Components Co., Ltd.Autocam Poland Sp. z o.o.
Autocam South Carolina, Inc. Wuxi Kent Precision Automotive Components Co., Ltd.
Subsequent to the issuance of the consolidated financial statements for the
three and nine months ended September 30, 2005, we determined that the
previously presented condensed combining financial data for the three and nine
months ended September 30, 2005 did not reflect the investment in subsidiaries
of Titan and Autocam under the equity method for purposes of the supplemental
combining presentation. The current presentation has been restated to reflect
all investments in subsidiaries under the equity method. Net income (losses) of
the subsidiaries accounted for under the equity method are therefore reflected
in their parents' investment accounts. The principle elimination entries
eliminate investments in subsidiaries and intercompany balances and
transactions. The changes in presentation did not effect our consolidated
financial position or consolidated results of operations, nor did the changes
adversely impact our compliance with debt covenants or ratios.
10
Set forth below are schedules that reconcile the amounts as previously reported
in our condensed combining statements of operations for the three and nine
months ended September 30, 2005 to the corresponding restated amounts.
TITAN (PARENT SUBSIDIARIES
COMPANY ------------------------
ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
------------- -------- --------- ------------- ------------ ---------
THREE MONTHS ENDED SEPTEMBER 30, 2005:
Net income (loss) as previously reported ($1,351) $ 892 ($35,155) ($35,614)
Net income (loss) as restated ($35,614) (35,614) 892 (35,155) $69,877 (35,614)
NINE MONTHS ENDED SEPTEMBER 30, 2005:
Net income (loss) as previously reported ($10) ($3,539) $2,465 ($33,789) ($34,873)
Net income (loss) as restated (34,873) (34,863) 2,465 (33,789) $66,187 (34,873)
Information regarding the guarantors and non-guarantors are as follows:
TITAN
CONSOLIDATINGCOMBINING STATEMENT OF OPERATIONSTITAN (PARENT SUBSIDIARIES
SIX MONTHS ENDED JUNE 30, 2004OPERATIONS (RESTATED) COMPANY -------------------------
(predecessor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATED
- ------------------------------------- -------- ------- --------- ------------- ------------ ------------
Sales $64,212 $11,061 $112,477 ($3,261) $184,489
Cost of sales 55,053 7,848 93,786 (3,261) 153,426
------- ------- -------- --------
Gross profit 9,159 3,213 18,691 31,063
Selling, general and administrative expenses $ 6,438 5,214 591 5,094 17,337
-------- ------- ------- -------- --------
Income (loss) from operations (6,438) 3,945 2,622 13,597 13,726
Interest expense, net 1,472 291 2,903 4,666
Other expense, net 19 2,358 21 1,274 3,672
-------- ------- ------- -------- --------
Income (loss) before tax provision (6,457) 115 2,310 9,420 5,388
Tax provision (2,195) 38 801 4,567 3,211
-------- ------- ------- -------- --------
Net Income (Loss) ($4,262) $ 77 $ 1,509 $ 4,853 $ 2,177
======== ======= ======= ======== ========
TITAN
CONSOLIDATING STATEMENT OF OPERATIONS (PARENT SUBSIDIARIES
THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPANY -------------------------
(successor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATED
- ------------------------------------- ------- -------- --------- ------------- ------------ ------------
Sales $ 28,807 $4,342 $48,936 ($1,836) $80,249
Cost of sales 25,322 3,393 41,469 (1,836) 68,348
-------- ------ ------- -------
Gross profit 3,485 949 7,467 11,901
Selling, general and administrative expenses 2,453 293 2,498 5,244
-------- ------ ------- -------
Income from operations 1,032 656 4,969 6,657
Interest expense, net 4,096 150 1,459 5,705
Other expense, net $ 9 358 314 681
----- -------- ------ ------- -------
Income (loss) before tax provision (9) (3,422) 506 3,196 271
Tax provision (3) (1,166) 177 1,403 411
----- -------- ------ ------- -------
Net Income (Loss) ($6) ($2,256) $ 329 $ 1,793 ($140)
===== ======== ====== ======= =======
9
TITAN
CONSOLIDATING STATEMENT OF OPERATIONS (PARENT SUBSIDIARIES------------------------
THREE MONTHS ENDED SEPTEMBER 30, 2005 COMPANY -------------------------
(successor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATEDCOMBINED
- ------------------------------------- ------- --------------------- --------- --------- ------------- ------------ ---------------------
Sales $ 34,058 $8,559 $ 45,094 ($2,295) $ 85,416
Cost of sales 29,44129,431 6,328 43,15743,501 (2,295) 76,63176,965
Goodwill impairment 33,000 33,000
--------- ------ -------- ------ ----------------- ---------
Gross profit (loss) 4,6174,627 2,231 (31,063) (24,215)(31,407) (24,549)
Selling, general and administrative
expenses 1,774 510 2,484 4,768
----------------- ------ ----------------- ---------
Income (loss) from operations 2,8432,853 1,721 (33,547) (28,983)(33,891) (29,317)
Interest expense, net 4,163 380 1,786 6,329
Other expense, net 384 750 1,134394 406 800
--------- ------ -------- ------ --------- ---------
Income (loss) before tax provision (1,704) 1,341 (36,083) (36,446)
Tax provision (353) 449 (928) (832)
Equity in net loss of subsidiaries $35,614 34,263 (69,877)
-------- --------- ------ ----------------- -------- ---------
Net Income (Loss) ($1,351)35,614) ($35,614) $ 892 ($35,155) $ 69,877 ($35,614)
======== ========= ====== ======== ======== =========
11
TITAN (PARENT SUBSIDIARIES
COMBINING STATEMENT OF OPERATIONS COMPANY ------------------------
THREE MONTHS ENDED SEPTEMBER 30, 2006 ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- ------------------------------------- ------------- -------- --------- ------------- ------------ ---------
Sales $ 31,490 $12,613 $ 48,071 ($3,814) $ 88,360
Cost of sales 26,290 10,351 47,624 (3,814) 80,451
-------- ------- -------- ------- --------
Gross profit 5,200 2,262 447 7,909
Selling, general and administrative
expenses 1,528 763 3,730 6,021
-------- ------- -------- --------
Income (loss) from operations 3,672 1,499 (3,283) 1,888
Interest expense, net 5,102 505 3,171 8,778
Other expense, net 381 422 803
-------- ------- -------- --------
Income (loss) before tax provision (1,811) 994 (6,876) (7,693)
Tax provision (352) 298 (2,202) (2,256)
Equity in loss of joint venture 117 117
Equity in net loss of subsidiaries $ 5,554 3,978 (9,532)
-------- -------- ------- --------- ------- --------
Net Income (Loss) ($5,554) ($5,554) $ 696 ($4,674) $ 9,532 ($5,554)
======== ======== ======= ========= ================ ========
COMBINING TITAN CONSOLIDATING(PARENT SUBSIDIARIES
STATEMENT OF OPERATIONS (PARENT SUBSIDIARIES(RESTATED) COMPANY ------------------------
NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPANY -------------------------
(successor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATEDCOMBINED
- ------------------------------------- ------- --------------------- --------- --------- ------------- ------------ ---------------------
Sales $ 99,387 $19,853 $ 150,223 ($7,706) $ 261,757
Cost of sales 85,491 14,126 135,83285,520 14,111 136,265 (7,706) 227,743228,190
Goodwill impairment 33,000 33,000
----------------- ------- --------- --------- ---------
Gross profit (loss) 13,896 5,727 (18,609) 1,01413,867 5,742 (19,042) 567
Selling, general and administrative
expenses 5,450 1,245 8,896 15,591
----------------- ------- --------- ---------
Income (loss) from operations 8,446 4,482 (27,505) (14,577)8,417 4,497 (27,938) (15,024)
Interest expense, net 12,405 757 5,362 18,524
Other expense, (income), net $ 15 1,109 (15) 1,309 2,418
----- --------1,080 876 1,971
--------- --------- ------- --------- ---------
Income (loss) before tax provision (15) (5,068) 3,740 (34,176) (35,519)
Tax provision (5) (1,529) 1,275 (387) (646)
----- --------Equity in net loss of subsidiaries 34,863 31,324 (66,187)
--------- --------- ------- --------- --------- ---------
Net Income (Loss) ($10)34,873) ($3,539)34,863) $ 2,465 ($33,789) $ 66,187 ($34,873)
===== ================= ========= ======= ========= ========= =========
1012
CONDENSED CONSOLIDATING STATEMENT TITAN
OF CASH FLOWS
(PARENT SUBSIDIARIES
SIXCOMBINING STATEMENT OF OPERATIONS COMPANY -------------------------
NINE MONTHS ENDED JUNESEPTEMBER 30, 2004 COMPANY -------------------------
(predecessor)2006 ONLY) AUTOCAM GUARANTOR NON-GUARANTOR CONSOLIDATEDELIMINATIONS COMBINED
- --------------------------------- -------- --------------------------------------------- ---------- ---------- --------- ------------- ------------ ----------
Sales $ 108,893 $33,894 $ 151,468 ($11,353) $ 282,902
Cost of sales 93,537 26,023 145,692 (11,353) 253,899
Goodwill impairment 96,801 96,801
---------- ------- ---------- --------- ----------
Gross profit (loss) 15,356 7,871 (91,025) (67,798)
Selling, general and administrative expenses 5,422 2,326 12,040 19,788
---------- ------- ---------- ----------
Income (loss) from operations 9,934 5,545 (103,065) (87,586)
Interest expense, net 14,942 1,324 8,128 24,394
Other expense, net 1,308 1,474 2,782
---------- ------- ---------- ----------
Income (loss) before tax provision (6,316) 4,221 (112,667) (114,762)
Tax provision (1,451) 1,400 (4,318) (4,369)
Equity in loss of joint venture 241 241
Equity in net loss of subsidiaries $ 110,634 105,528 (216,162)
---------- ---------- ------- ---------- --------- ----------
Net cash provided by (used in) operating activitiesIncome (Loss) ($6,457)110,634) ($110,634) $ 2,2062,821 ($108,349) $ 207 $ 14,738 $ 10,694
Expenditures for property, plant and equipment (3,880) (205) (6,591) (10,676)
Borrowings (repayments) on lines of credit, net (1,280) 21,829 (24,080) (3,531)
Proceeds from issuance of long-term obligations 169,888 77,360 247,248
Principal payments of long-term obligations (51,268) (58,672) (109,940)
Payments to shareholders and option holders (232,663) (232,663)
Shareholder contributions 115,400 115,400
Dividends received (paid) 125,000 (125,000)
Debt issue costs (10,855) (10,855)
Other (145) 596 451
--------- ----- -------- ---------
Net increase in cash and equivalents 2,775 2 3,351 6,128
Cash and equivalents at beginning of period 750 2 323 1,075
--------- ----- -------- ---------
Cash and Equivalents at End of Period $ 3,525 $ 4 $ 3,674 $ 7,203216,162 ($110,634)
========== ========== ======= ========== ========= ===== ======== ===================
TITAN
CONDENSED CONSOLIDATINGCOMBINING STATEMENT TITAN(PARENT SUBSIDIARIES
OF CASH FLOWS (PARENT SUBSIDIARIES
THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPANY -------------------------
(successor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR CONSOLIDATED
- ------------------------------------- -------- --------- --------- ------------- ------------
Net cash provided by (used in) operating activities ($4,574) $ 782 $ 3,383 ($ 409)
Expenditures for property, plant and equipment (815) (783) (3,889) (5,487)
Borrowings on lines of credit, net 2,000 2,000
Principal payments of long-term obligations (82) (1,447) (1,529)
Other 62 235 297
-------- ----- ------- --------
Net decrease in cash and equivalents (3,409) (1) (1,718) (5,128)
Cash and equivalents at beginning of period 3,525 4 3,674 7,203
-------- ----- ------- --------
Cash and Equivalents at End of Period $ 116 $ 3 $ 1,956 $ 2,075
======== ===== ======= ========
11
CONDENSED CONSOLIDATING STATEMENT TITAN
OF CASH FLOWS (PARENT SUBSIDIARIES
NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPANY -------------------------
(successor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR CONSOLIDATEDCOMBINED
- ------------------------------------ -------- ---------------- --------- --------- ------------- --------------------
Net cash provided by (used in) operating
activities ($15) ($860) ($440) $13,538 $ 12,223
Expenditures for property, plant and
equipment (4,570) (165) (8,715) (13,450)
Acquisition costsAcquisitions, net of cash (17) (9,902) (9,919)
Borrowings (repayments) on lines of credit,
net 8,000 (570) 7,430
Intercompany transactionsCash flows to (from) affiliates (10,013) (719) 10,732
Principal payments of long-term obligations (276) (4,843) (5,119)
Shareholder contributions 10,028 10,028
Other (1,789) (32) (208) (2,029)
------- ------- ------- --------
Net increase (decrease) in cash and
equivalents (231) 193 (798) (836)
Cash and equivalents at beginning of period 1,087 2 1,028 2,117
------- ------- ------- --------
Cash and Equivalents at End of Period $ 856 $ 195 $ 230 $ 1,281
======= ======= ======= ========
1213
TITAN
CONDENSED CONSOLIDATINGCOMBINING STATEMENT (PARENT SUBSIDIARIES
OF CASH FLOWS COMPANY -------------------------
NINE MONTHS ENDED SEPTEMBER 30, 2006 ONLY) AUTOCAM GUARANTOR NON-GUARANTOR COMBINED
- ------------------------------------ --------- --------- --------- ------------- --------
Net cash provided by (used in) operating
activities ($227) $ 1,828 ($3,273) ($1,672)
Expenditures for property, plant and equipment (7,003) (2,270) (14,904) (24,177)
Acquisitions, net of cash (8,653) (141) (8,794)
Borrowings on lines of credit, net 14,260 10,178 24,438
Cash flows from (to) affiliates (10,738) 455 10,362 79
Principal payments of long-term obligations (2,800) (2,800)
Other (469) (22) 504 13
-------- ------- -------- --------
Net decrease in cash and equivalents (12,830) (9) (74) (12,913)
Cash and equivalents at beginning of period 13,265 14 1,454 14,733
-------- ------- -------- --------
Cash and Equivalents at End of Period $ 435 $ 5 $ 1,380 $ 1,820
======== ======= ======== ========
14
SUBSIDIARIES
CONDENSED COMBINING BALANCE SHEET TITAN (PARENT SUBSIDIARIES-------------------------
DECEMBER 31, 20042005 COMPANY -------------------------
(successor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATEDCOMBINED
- ------------------------------------- ----------------------------------------- ------------- -------- --------- ------------- ------------ --------------------
Assets
Current assets:
Cash and equivalents $ 1,08713,264 $ 215 $ 1,0281,454 $ 2,11714,733
Accounts receivable, net 20,329 1,700 37,20218,693 2,426 28,896 ($871) 58,3603,026) 46,989
Inventories 10,314 1,501 25,132 36,94711,709 3,954 24,009 1,255 40,927
Prepaid expenses and other current assets 1,148 78 2,259 3,4851,428 393 3,428 5,249
-------- --------------- --------- ------------- --------
Total current assets 32,878 3,281 65,621 (871) 100,90945,094 6,788 57,787 (1,771) 107,898
Property, plant and equipment, net 29,772 5,637 141,457 419 177,28531,933 7,745 122,616 765 163,059
Goodwill $116,399 3 151,637 268,039
Due from (to) affiliates 31,102 (4,142) (26,847) (113)$116,507 135 5,242 102,210 (70) 224,024
Investments in affiliates 28,661 99,034 (3,458) (123,815) (422)5,969 121,200 (13,479) (181,817) 68,683 556
Deferred taxes 15,457 1,974 17,431
Other long-term assets 18,120 50 5,029 23,19912,659 254 5,010 872 18,795
-------- -------- --------------- --------- ------------- --------
Total Assets $145,060 $210,909assets $122,476 $226,478 $ 1,3686,550 $ 213,082 ($987) $569,432107,780 $ 68,479 $531,763
======== ======== =============== ========= ============= ========
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
Current maturities of long-term obligations $ 33044 $ 12,6128,538 $ 12,9428,582
Accounts payable 9,232 $ 184 38,25612,213 731 34,104 ($984) 46,6881,034) 46,014
Accrued liabilities ($34) 4,005 369 16,224 (3) 20,56119) 3,564 970 12,784 15 17,314
-------- -------- --------------- --------- ------------- --------
Total current liabilities (34) 13,567 553 67,092 (987) 80,191(19) 15,777 1,745 55,426 (1,019) 71,910
-------- -------- --------------- --------- ------------- --------
Long-term obligations, net of current maturities 187,548 88,291 275,839232,316 165 50,178 282,659
Deferred taxes and other 11,097 36,945 48,04218,546 668 31,375 50,589
Shareholders' equity (deficit):
Capital stock 145,112 145,112162,140 162,140
Accumulated other comprehensive income 2,483 17,211 19,694(564) 4,662 4,098
Retained earnings (accumulated deficit) (18) (3,786) 815 3,543 554(39,645) (39,597) 3,972 (33,861) 69,498 (39,633)
-------- -------- --------------- --------- -------- --------
Total shareholders' equity (deficit) 145,094 (1,303) 815 20,754 165,360122,495 (40,161) 3,972 (29,199) 69,498 126,605
-------- -------- --------------- --------- ------------- --------
Total Liabilitiesliabilities and Shareholders' Equity (Deficit) $145,060 $210,909shareholders' equity
(deficit) $122,476 $226,478 $ 1,3686,550 $ 213,082 ($987) $569,432107,780 $ 68,479 $531,763
======== ======== =============== ========= ============= ========
1315
TITANSUBSIDIARIES
CONDENSED CONSOLIDATINGCOMBINING BALANCE SHEET TITAN (PARENT SUBSIDIARIES-------------------------
SEPTEMBER 30, 20052006 COMPANY -------------------------
(successor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATEDCOMBINED
- ------------------------------------- -------- ----------------------------------------- ------------- --------- --------- ------------- ------------ ---------------------
Assets
Current assets:
Cash and equivalents $ 856435 $ 1955 $ 2301,380 $ 1,2811,820
Accounts receivable, net 26,958 2,929 24,96024,937 2,546 35,327 ($1,654) 53,1936,306) 56,504
Inventories 10,703 4,012 23,676 1,101 39,49212,318 5,827 27,430 1,600 47,175
Prepaid expenses and other current assets 1,737 574 1,929 4,240
--------1,830 281 4,003 6,114
--------- -------- --------- ------- -------- ---------
Total current assets 40,254 7,710 50,795 (553) 98,20639,520 8,659 68,140 (4,706) 111,613
Property, plant and equipment, net 31,392 7,902 126,124 806 166,22435,029 13,359 127,809 3,465 179,662
Goodwill $116,507 80 5,053 104,245 225,885
Due from (to) affiliates 11,967 26,271 (12,020) (25,112) (983) 123$ 116,437 5,434 12,822 134,693
Investments in affiliates 26,613 101,081 (3,458) (123,880) (356)(104,576) 38,302 (18,994) (194,774) 281,549 1,507
Deferred taxes 15,457 2,118 17,575
Other long-term assets 18,966 210 5,521 100 24,797
-------- --------12,930 758 12,348 26,036
--------- --------- -------- --------- ------- -------- ---------
Total Assets $155,087 $218,044assets $ 5,39711,861 $ 137,693 ($986) $515,235
======== ========141,238 $ 9,216 $ 28,463 $280,308 $ 471,086
========= ========= ======== ========= ======= ======== =========
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
Current maturities of long-term obligations $ 33055 $ 4810,635 $ 9,459 $ 9,83710,690
Accounts payable 11,685 718 27,548$ 15,448 1,552 37,604 ($854) 39,0975,352) 49,252
Accrued liabilities ($19) 6,989 500 12,603 20,073
-------- --------7,429 618 18,817 26,864
--------- -------- --------- ------- -------- ---------
Total current liabilities (19) 19,004 1,266 49,610 (854) 69,007
-------- --------22,877 2,225 67,056 (5,352) 86,806
--------- -------- --------- ------- -------- ---------
Long-term obligations, net of current maturities 195,535 164 75,638 271,337248,769 147 60,227 309,143
Deferred taxes and other 10,963 689 34,864 46,51618,321 51 30,668 49,040
Shareholders' equity (deficit):
Capital stock 155,140 132 (132) 155,140$ 162,140 470 162,610
Accumulated other comprehensive income (140) 7,694 7,5541,037 12,717 13,754
Retained earnings (accumulated deficit) (34) (7,318) 3,278 (30,245) (34,319)
-------- --------(150,279) (150,236) 6,793 (142,205) 285,660 (150,267)
--------- --------- -------- --------- ------- -------- ---------
Total shareholders' equity (deficit) 155,106 (7,458) 3,278 (22,419) (132) 128,375
-------- --------11,861 (148,729) 6,793 (129,488) 285,660 26,097
--------- --------- -------- --------- ------- -------- ---------
Total Liabilitiesliabilities and Shareholders' Equity (Deficit) $155,087 $218,044shareholders' equity
(deficit) $ 5,39711,861 $ 137,693 ($986) $515,235
======== ========141,238 $ 9,216 $ 28,463 $280,308 $ 471,086
========= ========= ======== ========= ======= ======== =========
14
6. BUSINESS SEGMENT INFORMATION
The Company has threeWe have four operating segments: North America, Europe, South America and South
America.Asia.
The North American segment provides precision-machined components
primarily to the
transportation and medical devices industries, while the European, and South
American and Asian segments provide precision-machined components primarily to
the transportation industry. The Company has a small operation in
China that is grouped with its European operations for business segmentation
purposes. The Company hasWe have assigned specific business units to a
segment based principally on their geographical location. Each of the Company'sour segments is
individually managed and hashave separate financial results reviewed by the
Company'sour chief
executive and operating decision-makers. These results are used by those
individuals both in evaluating the performance of, and in allocating current and
future resources to, each of the segments. The Company evaluatesWe evaluate segment performance
primarily based on income from operations and the efficient use of assets. SetThe
totals set forth below is business segment informationare inclusive of all adjustments needed to reconcile to
the data provided in the Consolidated Financial Statements and related notes for
the identified periods:three and nine months ended September 30, 2005 and 2006 and as of December
31, 2005 and September 30, 2006:
16
SIX
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, MONTHS ENDED
JUNE 30, ---------------------- SEPTEMBER 30,
2004 2004-------------------- ----------------------
2005 2006 2005 -------------2006
--------- -------- ----------- -------------
(predecessor) (successor)
----------------------------------------------- ----------
Sales to Unaffiliated Customers from Company
Facilities Located in:
North America $ 75,031 $ 32,987 $ 42,172 $ 43,227 $ 117,929 $ 141,130
Europe 100,429 40,641 35,615 34,756 120,802 115,529
South America 9,029 6,621 7,629 10,195 23,026 -------- --------25,996
Asia 182 247
--------- -------- --------- ----------
Total $184,489 $ 80,249 $ 85,416 $ 88,360 $ 261,757 ======== ========$ 282,902
========= ======== ========= ==========
Net Income (Loss) of Company Facilities Located in:
North America ($2,678) ($1,933) ($459) ($880) ($1,086) ($2,285)
Europe 3,732 747 (35,800) (5,180) (36,220) (108,971)
South America 1,123 1,046 645 561 2,433 -------- --------976
Asia (55) (354)
--------- -------- --------- ----------
Total $ 2,177 ($140) ($35,614) ($5,554) ($34,873) ======== ========($110,634)
========= ======== ========= ==========
Depreciation and Amortization on Assets Located in:
North America $ 6,232 $ 948 $ 1,411 $ 1,796 $ 3,870 $ 5,269
Europe 6,190 2,491 2,707 3,023 8,347 8,760
South America 532 199 327 438 889 -------- --------1,258
Asia 23 41
--------- -------- --------- ----------
Total $ 12,954 $ 3,638 $ 4,445 $ 5,280 $ 13,106 ======== ========$ 15,328
========= ======== ========= ==========
Net Interest Expense of Company Facilities Located in:
North America $ 1,763 $ 4,246 $ 4,543 $ 5,607 $ 13,162 $ 16,266
Europe 2,699 1,356 1,648 3,064 4,942 7,777
South America 204 103 138 109 420 -------- --------358
Asia (2) (7)
--------- -------- --------- ----------
Total $ 4,666 $ 5,705 $ 6,329 $ 8,778 $ 18,524 ======== ========$ 24,394
========= ======== ========= ==========
Tax Provision of Company Facilities Located in:
North America ($1,356) ($992) $ 96 ($54) ($259) ($51)
Europe 4,068 899 (1,255) (2,480) (1,610) (4,817)
South America 327 278 1,223 499
504 327 1,223
-------- ----------------- -------- --------- ----------
Total $ 3,211 $ 411 ($832) ($2,256) ($646) ======== ========($4,369)
========= ======== ========= ==========
Expenditures for Property, Plant and Equipment of
Facilities Located in:
North America $ 4,085 $ 1,598 $ 1,836 $ 3,008 $ 4,735 $ 9,273
Europe 5,434 2,926 1,743 5,871 5,777 11,057
South America 1,157 963 1,323 1,175 2,938 -------- --------3,503
Asia 51 344
--------- -------- --------- ----------
Total $ 10,676 $ 5,487 $ 4,902 $ 10,105 $ 13,450 ======== ========$ 24,177
========= ======== ========= ==========
DECEMBER 31, SEPTEMBER 30,
2004 2005 2006
------------ -------------
(successor)
Total Assets of Company Facilities Located in:
North America $205,690 $228,551$241,735 $246,938
Europe 332,279 246,211249,199 175,553
South America 31,463 40,47338,927 46,065
Asia 1,902 2,530
-------- --------
Total $569,432 $515,235$531,763 $471,086
======== ========
1517
7. SUPPLEMENTAL CASH FLOW INFORMATION
Set forth below is a reconciliation of net income (loss)loss to net cash provided by (used
in) operating activities for the identified periods:activities:
SIX MONTHS THREE MONTHS
NINE MONTHS ENDED
ENDED ENDED
JUNE 30, SEPTEMBER 30,
SEPTEMBER 30,
2004 2004---------------------
2005 ------------- ------------- -------------
(predecessor) (successor)
-----------------------------2006
--------- ---------
Net income (loss) $ 2,177loss ($140)34,873) ($34,873)110,634)
Adjustments to reconcile net income (loss)loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 12,954 3,638 13,106 15,328
Goodwill impairment 33,000 96,801
Deferred taxes 395 311 1,208 (2,854)
Stock-based compensation cost 470
Realized gains and losses and other, net 2,627 (287) 320 723
Changes in assets and liabilities that provided (used) cash:
Accounts receivable (9,243) 4,563 2,889 (1,836)
Inventories (2,899) (2,566) (2,284) (2,035)
Prepaid expenses and other current assets (44) (442) 289 (1,068)
Other long-term assets (1,192) 461 (1,027) 326
Accounts payable 1,687 (6,986) (2,534) (2,933)
Accrued liabilities 6,962 1,305 1,615 7,746
Deferred taxes and other (2,730) (266) 514 ------- -----(1,706)
--------- ---------
Net Cash Provided by (Used in) Operating Activities $10,694 ($409) $ 12,223 ======= =====($1,672)
========= =========
168. SUBSEQUENT EVENT
In October 2006, we completed negotiation on a formal social plan to effect
permanent reductions in our French workforce. If such plan is implemented as
approved, the payment of severance-related liabilities throughout 2007 is
estimated to total $9,000. We have no obligation to launch the social plan, and
continue to evaluate the timing of employee terminations.
18
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with and is
qualified in its entirety by reference to our condensed consolidated financial
statements and accompanying notes.notes included in this report. Except for historical
information, the discussions in this section contain forward-looking statements
that involve risks and uncertainties. You should read the explanation of the qualifications and
limitations on these forward-looking statements on page 1 of this report. Future results could differ materially
from those discussed below.
OVERVIEWAutocam Corporation is a Michigan corporation and is a wholly-owned subsidiary
of Titan Holdings, Inc. ("Titan"), a Delaware corporation, which in turn is a holding company headquartered in Kentwood,
Michigan and a wholly-owned
subsidiary of Micron Holdings, Inc. ("Micron"). Its
sole, a Delaware corporation.
In this Item 2 of this report, unless the context otherwise requires
- - "Parent" refers to Micron Holdings, Inc., or "Micron", the parent company
of Titan,
- - "Holdings" refers to Titan Holdings, Inc., or "Titan",
- - "we," "our" or "us" refer to Holdings together with its consolidated
subsidiaries, and
- - "Autocam" refers to Autocam Corporation, a wholly-owned subsidiary Autocam Corporation ("Autocam"), together with
Autocam's subsidiaries, isof
Holdings.
In this Item 2 and in Item 3 of this report, any references to 2006 refer to the
three or nine months ended September 30, 2006 and any references to 2005 refer
to the three or nine months ended September 30, 2005.
OVERVIEW
We are headquartered in Kentwood, Michigan, and are a leading independent
manufacturer of extremely close tolerance precision-machined, metal alloy
components, sub-assemblies and assemblies, primarily for performance and safety
critical automotive applications
and medical devices.applications. Those automotive applications in which we have
significant market penetration include steering, fuel injection, power steering, braking,delivery, electric motors,
braking, and airbagair bag systems. We provide these products from our facilities in
North America, Europe, South America and Asia to some of the world's largest
Tier I suppliers to the automotive industry. References throughout this documentThese Tier I suppliers include
Autoliv, Delphi Corporation, Robert Bosch GmbH, Siemens VDO, TRW Automotive,
Inc. and ZF Friedrichshafen AG. We believe our manufacturing space is sufficient
to "we," "our" or "us" refer to Titan togethermeet the needs of our customers' current programs.
We focus primarily on higher value-added categories of strategically targeted
markets. The products we manufacture demand expertise typically exceeding the
capabilities of many of our competitors. We produce complex products in high
volumes where required tolerances are in the single-digit micron range with
its consolidated
subsidiaries.
Our business andquality levels very often approaching zero defects.
A number of factors influenced our results of operations, including the
following:
- - In accordance with Statement of Financial Accounting Standards ("SFAS") No.
142, "Goodwill and Other Intangible Assets," we evaluate for indicators of
impairment the carrying value of our goodwill at least on an annual basis
and on an interim basis if indicators of potential impairment arise between
annual evaluations. Our European segment experienced unfavorable operating
results during the three and six months ended June 30, 2006, primarily as a
result of cost overruns on three product launches, lower production volumes
on key profitable programs, excessive labor costs and increased customer
pricing pressure. Based on these interim indicators, we completed an
interim assessment of the carrying amount of goodwill in our European
reporting unit in accordance with SFAS No. 142. The assessment of the
carrying amount of our European reporting unit's goodwill indicated that
impairment had occurred, and as a result we recorded against our second
quarter 2006 results a goodwill impairment loss of $96,801. The fair value
of the reporting unit was estimated using a discounted cash flow valuation
model. This charge does not result in current or future cash expenditures.
There was no goodwill impairment recorded during our third quarter of 2006.
We will perform an assessment of the carrying amount of goodwill in our
other reporting units in conjunction with our annual assessment in
accordance with SFAS No. 142.
19
- - Our business is directly impacted by light vehicle production levels,
primarily in North America and Western Europe. We are also impacted by the
relative North American market shares of the traditional Big Three
automakers, DaimlerChrysler Corporation, Ford Motor Company and General
Motors Corporation as the majority of the products we make are used on
light vehicles produced by those companies. Material changes in either of
these factors can have a material impact on our sales and profit levels.
Market shares of the traditional Big Three have declined significantly in
recent years.
- - A significant portion of our sales and net operating results are derived
from transactions denominated in foreign currencies (primarily the euro and
the Brazilian real). Those sales and profits have been translated into U.S.
dollars, or USD, for financial reporting purposes. As a result, the value
of the USD compared to those foreign currencies in the three and nine
months ended September 30, 2005 as compared2006 relative to the same period in the prior
year impacted our reported results. The following table sets forth, for the
periods indicated, the period end and period average exchange rates used in
2004 were affectedtranslating the financial statements (expressed as USD per one euro or
Brazilian real):
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
EURO BRAZILIAN REAL
----------- --------------
2005 2006 2005 2006
---- ---- ---- ----
Average (1) 1.22 1.27 0.43 0.46
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
EURO BRAZILIAN REAL
----------- --------------
2005 2006 2005 2006
---- ---- ---- ----
Average (1) 1.27 1.24 0.40 0.46
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
2005 2006 2005 2006
------------ ------------- ------------ -------------
EURO BRAZILIAN REAL
---------------------------- ----------------------------
End of period 1.18 1.27 0.43 0.46
----------
(1) The average rate represents the average of all monthly average
exchange rates within the respective periods weighted by the
following significant events:reported
sales denominated in euros or Brazilian reais.
- - On June 21, 2004, Micron Merger Corporation, a newly formed entity and
wholly-owned subsidiary of Micron, merged with and into Titan with Titan
continuing as the surviving corporation (the "Merger"). As a result, Titan
became a wholly-owned subsidiary of Micron. The total amount of
consideration paid in the Merger, including amounts relatedWe are routinely exposed to the
repayment of indebtedness, the redemption of the outstanding preferred
stock of Titan, paymentspressure by our customers to common shareholders of Titan and the payment of
transaction costs incurred by Titan, was $395.0 million. The Merger was
financed with the net proceeds from the issuance of $140.0 million of
senior subordinated notes issued by us and guaranteed by Titan (the
"Notes"), borrowings under senior credit facilities of $114.0 million and
combined common equity contributions of $143.4 million by GS Capital
Partners 2000, L.P. ("GSCP 2000"), other private equity funds affiliated
with GSCP 2000, Transportation Resource Partners LP ("TRP"), other
investment vehicles affiliated with TRP, and certain membersoffer unit price
reductions, which is typical of our management team.
- - Effective November 1, 2004,industry. Through continuous
improvement and increased efficiencies in our wholly-owned subsidiary, Frank & Pignard,
SA, acquiredmanufacturing and
administrative processes, we are generally able to significantly offset the
stocknegative impact of ATI, S.A.S. ("ATI"), for $1.7 million in cash and
the assumption of $6.1 million in debt, primarily consisting of capital
lease obligations. The acquisition was completed primarily for the purpose
of eliminating costly outside processing of certain electric motor
components.these constant pressures.
- - Effective June 15, 2005, ourAutocam's wholly-owned subsidiary, Autocam
Greenville, Inc., acquired the stock of Sager Precision Technologies, Inc.
("Sager") for $9.9 million in cash and the assumption of $0.2 million in
capital lease obligations. The purchase price was primarily financed
indirectly through equity contributions from the shareholders of Micron in
the amount of $10.0 million. The acquisition was completed primarily for
the purpose of expanding our medical devices product offerings.
17
- - In accordance with StatementOn January 3, 2006, Autocam purchased certain assets and assumed certain
liabilities of Financial Accounting StandardsATS Automation Tooling Systems, Inc.'s Precision Metals
Division ("SFAS"ATS") No.
142, "Goodwill and Other Intangible Assets," we evaluate for indicatorspursuant to an asset purchase agreement, dated December
12, 2005. The purchase price of impairment$9.6 million was primarily financed
indirectly through equity contributions from the carrying valueshareholders of our goodwill at least on an annual basis
and on an interim basis if indicators of potential impairment arise between
annual evaluations. Our European segment continues to experience
unfavorable operating results,Micron.
The acquisition was completed primarily as a result of lower production
volumes on key programs, excessive labor costs, increased customer pricing
pressure and higher raw material costs. As a result, we concluded that our
European reporting unit's goodwill has been impaired and we recorded
against our third quarter 2005 results a goodwill impairment loss of $33.0
million. The fair value of that reporting unit was estimated using the
present value of expected future cash flows. This charge does not result in
current or future cash expenditures.
- - Our business is directly impacted by light vehicle production levels,
primarily in North America and Western Europe. We are also impacted by the
relative North American market shares of the traditional Big Three
automakers, DaimlerChrysler Corporation, Ford Motor Company and General
Motors Corporation. Material changes in either of these factors can have a
material impact on our sales and profit levels. Market shares of the
traditional Big Three have been declining over the past several years.
- - A significant portion of our sales and profits resulted from transactions
denominated in euros. Those sales and profits have been translated into
U.S. dollars, or USD, for financial reporting purposes. As a result, the
value of the USD compared to the euro during the three and nine months
ended September 30, 2005 relative to the same periods in 2004 positively
impacted our reported results. The following table sets forth, for the periods indicated, the period endpurpose of expanding our
electric motor product offerings and period average exchange rates used in
translating the financial statements (expressed as USD per one euro):
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
------------ ------------------ -----------------
2004 2004 2005 2004 2005
------ ------ ------ ------ ------
Average (1) 1.2239 1.2195 1.2263 1.2651
End of Period 1.3621 1.2042 1.2042
----------
(1) The average rate represents the average of all monthly average
exchange rates within the respective periods weighted by reported
sales denominated in euros.
- - We are routinely exposed to pressure by our customers to offer unit price
reductions, which is typical of our industry. Through continuous
improvement and increased efficiencies in our manufacturing and
administrative processes we have maintained margins over time in spite of
these constant pressures.
18customer base.
20
RESULTS OF OPERATIONS
The following table sets forth our Condensed Consolidated Statements of
Operations expressed as a percentage of sales:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
2004(2) 2005(2) 2004(1) 2005(2)
------- ------- ------- -------2005 2006 2005 2006
----- ---- ----- ------
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 85.2%90.1% 91.0% 87.2% 89.7% 83.8% 87.0%
Goodwill impairment 38.6% 12.6% ----34.2%
----- ----- ----- ------
Gross profit (loss) 14.8% -28.3% 16.2% 0.4%-28.7% 9.0% 0.2% -23.9%
Selling, general and administrative expenses 6.5% 5.6% 8.5%6.8% 6.0% ----7.0%
----- ----- ----- ------
Income (loss) from operations 8.3% -33.9% 7.7% -5.6%-34.3% 2.2% -5.8% -30.9%
Interest expense, net 7.4% 9.9% 7.1% 7.4% 3.9% 7.1%8.6%
Other expenses, net 0.9% 0.9% 0.8% 1.3% 1.6% 0.9%
----1.0%
----- ----- ----- Income (loss)------
Loss before tax provision 0.4% -42.6% 2.2% -13.6%-8.6% -13.7% -40.5%
Tax provision 0.5% -1.0% 1.4%-2.6% -0.2% -----1.5%
Equity in loss of joint venture 0.1% 0.1%
----- ----- ----- ------
Net Income (Loss) -0.1%Loss -41.6% 0.8% -13.4%
====-6.1% -13.5% -39.1%
===== ===== ===== ===========
- ----------
(1) Represents our consolidated results of operations reflecting the historical
basis of accounting without any application of purchase accounting for the
Merger for the six months ended June 30, 2004 combined with our
consolidated results of operations reflecting the basis of accounting after
the application of purchase accounting for the Merger for the three months
ended September 30, 2004.
(2) Represents our consolidated results of operations reflecting the basis of
accounting after the application of purchase accounting for the Merger.
THREE MONTHS ENDED SEPTEMBER 30, 20042006 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2005
Sales
Sales increased $5.2$2.9 million, or 6.5%3.4%, to $88.4 million in 2006 from $85.4
million in 2005. The fluctuation in the exchange rates between the USD and the
functional currencies of our foreign operations accounted for $1.9 million of
the three months
ended September 30,increase in sales when comparing 2005 ("the 2005 period") from $80.2 million for the three
months ended September 30, 2004 ("the 2004 period").to 2006. On a constant currency basis,
sales in 2006 increased $3.4$1.0 million which can befrom 2005 levels principally attributeddue to the
following factors:
- - Factors resulting incontributing to an increase in sales:Sales:
1. Sales of medical deviceelectric motor and braking components byresulting from the newly-acquired Sager
facilitiesATS
acquisition completed in January 2006 totaled $3.1$3.4 million in the 2005 period;2006;
2. Our North American operations were awarded power steeringnew medical devices
business by two new customers for whom we began productionan existing customer, which resulted in late 2004;$1.6 million in
sales in 2006; and
3. Our North AmericanEuropean operations benefitedwere awarded new fuel business from increasedan
existing customer, which resulted in $1.5 million in incremental sales
to two
fuel systems customers for a new generation fuel injector system while
continuing to produce components for the old generation program.in 2006.
- - Factors partially offsetting the increase in sales:Sales:
1. OurWeakness in demand from an original equipment manufacturer of one of
our major European operations were desourced by two customers on programs
for power steering and electric motor components resultingresulted in a reduction in sales to that
customer of $3.2$4.3 million when comparing the 2005 periodin 2006 as compared to the 2004 period;2005; and
2. We granted unit price reductions to our customers totaling $1.5$1.6
million in the 2005 period.
192006.
21
Gross Profit (Loss)
Gross profit decreased $36.1increased $32.5 million to $7.9 million, or 9.0% of sales, in 2006
from a loss of $24.2$24.5 million, or negative 28.3%28.7% of sales, for the 2005 period from $11.9 million, or 14.8% of sales, for
the 2004 period.in 2005. The
improvement in gross profit percentage decline can generally be attributed to the following factors:
- - Wefact that we
recorded a goodwill impairment loss of $33.0 million in the 2005, period.
Noand no such charge
was recorded during the three months ended September 30, 2006.
The following factors caused a decline in gross profit:
- - Our European operations experienced manufacturing inefficiencies associated
with the 2004 period;ramp up of production for three significant programs during 2006.
We experienced labor inefficiencies and higher scrap rates, and increased
outsource costs as additional capacity was required to meet customer needs;
- - Unit price reductions of $1.6 million granted to our customers between 2005
and 2006; and
- - Our South American operations experienced higher than normal material and
perishable tooling scrap rates during the ramp up of production of new
programs during 2006.
These negative factors were partially offset by the following:
- - The impact of successfully completing cost containment initiatives in our
North American operations, including reducing premium freight, indirect
labor, incentive bonuses and travel and entertainment costs; and
- - Our European operations incurred excessive labor costs during the 2005
period. Although productivity improvement initiatives focused on reducing
labor were largely successful during the 2005 period, lower production
volumes required a larger reduction in labor in order to maintain gross
margin percentages comparable to the 2004 period. Given the largely fixed
nature$1.1 million of direct labor in our European operations, we were unable to
quickly react to the drop in demand from our customers;
- - Our European operations experienced production difficulties in the 2005
period resulting in higher levels of production scrap than were experienced
in the 2004 period;
- - Unit price reductions of $1.5 million granted to our customers between the
2004severance and 2005 periods;
- - Severance and equipment moveother costs
associated with a plant closing a French
facility and moving production to other French facilities and to our new
Polish facilityin 2005. This plant closing also resulted
in 2005 periodlower indirect labor and fixed burden costs totaling $1.5 million. Such
costs were not incurred in the 2004 period; and
- - Depreciation expense was $0.7 million more in the 2005 period as compared
to the 2004 period reflecting an increased fixed asset base from the 2004
to the 2005 period, which outpaced sales growth when comparing the periods.
These unfavorable effects were partially offset by lower outsouring costs. The
acquisition of ATI as described above reduced outsourcing costs on certain
electric motor components.2006.
Selling, General and Administrative
Selling, general and administrative expenses decreased $0.4increased $1.3 million to $6.0
million, or 6.8% of sales, in 2006 from $4.8 million, or 5.6% of sales, forin 2005
due primarily to the 2005 period from $5.2 million, or 6.5% of
sales, for the 2004 period. The 2004 period includes $0.7following factors:
- - Our European operations incurred $0.5 million in expenses
associatedseverance costs and
outside consulting fees in connection with the foregivenessformal social plan discussed
in Liquidity and Capital Resources below;
- - The 2006 results include $0.3 million in incremental expenses for our new
facilities in Kitchener, Ontario (closed in July 2006), Kammiena Gora,
Poland and Wuxi, China; and
- - The 2006 results reflect $0.2 million in compensation costs related to
share-based payment transactions required by Financial Accounting Standards
Board's Statement of receivables formerly due from certain
members ofFinancial Accounting Standards No. 123(R),
"Share-Based Payment," recognized in our management under a split-dollar life insurance program.financial statements beginning
January 1, 2006.
Interest Expense, Net
Net interest expense increased $0.6$2.5 million to $8.8 million in 2006 from $6.3
million for the 2005 period
from $5.7 million for the 2004 period. Higherin 2005. Our 2006 interest expense in the 2005
period relative to the 2004 period was caused primarily byreflects increased debt levels and higherwhen
compared to 2005. In addition, interest rates incurred on borrowings under our
senior credit facilities.facilities and our second lien credit facility averaged 457 basis
points more in 2006 when compared to 2005.
Tax Provision
For theIn 2006, we recorded an income tax benefit of $2.3 million, and in 2005, period, we
recorded an income tax benefit of $0.8 million. This
amount isThese amounts are less than the
amountbenefits that would be calculated usinghave been recorded at the United States Federal statutory
rate of 34.0% because35% due to the following factors:
- - The goodwill impairment charge isreflected in 2005 was not deductible for
income tax purposes, and therefore no offsetting tax benefit has been
recorded.
20was recorded;
and
22
- - Our ability to record income tax benefits in both periods was limited by
our ability to realize these benefits through either a net operating loss
carryback or the elimination of tax liabilities that arise in the future
(offset to a deferred tax liability).
NINE MONTHS ENDED SEPTEMBER 30, 20042006 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2005
Sales
Sales decreased $2.9increased $21.1 million, or 1.1%8.1%, to $282.9 million in 2006 from $261.8
million forin 2005, none of which was attributable to fluctuation in the nine months
ended September 30, 2005 ("exchange
rates between the 2005 period") from $264.7 million forUSD and the nine
months ended September 30, 2004 ("the 2004 period"). On a constant currency
basis, sales decreased $11.3 million, which can be principally attributedfunctional currencies of our foreign operations.
The following factors contributed to the
following factors:an increase in Sales:
- - Sales of electric motor and braking components resulting from the ATS
acquisition completed in January 2006 totaled $16.0 million in 2006;
- - Sales of medical device components increased due to incremental sales
resulting from the effect of the Sager acquisition over the entire period
($7.8 million) and incremental sales to an existing medical devices
customer ($2.6 million);
- - Our North American operations were awarded business for a new fuel program
from an existing customer. We benefited from incremental sales to this same
customer of new generation fuel program components while pricing on certain
mature products sold to this customer were increased, which, together,
accounted for a $2.8 million increase in sales when comparing 2006 to 2005;
and
- - Our European operations were awarded new fuel business from an existing
customer, which resulted in $2.7 million in incremental sales in 2006.
Factors resultingpartially offsetting the increase in Sales:
- - Weakness in demand from an original equipment manufacturer of one of our
major European customers resulted in a decreasereduction in Sales:
1.sales to that customer
of $7.9 million in 2006 as compared to 2005;
- - Our European operations were desourced in 2001 by two customers on programsa customer for power steering and electric motor
components resulting in a reduction in sales of $12.6 million when comparing 2006 to 2005 of
$5.9 million as the 2005 period to
the 2004 period;
2. Lower sales to a North American fuel systems customer whose primary
customers lost market share and produced less vehicles in the 2005
period as compared to the 2004 period;
3. Lower sales to a European fuel systems customer as production on the
current injector program is replaced by production on a new injectorlast program for which we do not produce components; and
4.this customer is now complete;
- - We granted unit price reductions to our customers totaling $4.5$4.8 million in
the 2005 period.2006; and
- - Factors partially offsettingThe relative strength of the decreaseBrazilian real against the USD and the euro
has resulted in Sales:
1. Our North American operations were awarded power steering business by
two newcertain customers for whom we began productionshifting their manufacturing capacity to
other locations (e.g., Europe) that utilize other local suppliers resulting
in late 2004;
2. Sales of components manufactureda comparative reduction in sales by our South American operations have
grown $7.4 million in the 2005 period relative to 2004 period as lower
labor costs in those facilities (relative to those in our European and
North American facilities and those of our competitors) have afforded
us additional demand for high value-added components from our
customers; and
3. Sales of medical device components by the newly-acquired Sager
facilities totaled $3.7 million in the 2005 period.Brazilian operations.
Gross Profit (Loss)
Gross profit decreased $42.0$68.4 million to $1.0a loss of $67.8 million, or 0.4%negative
23.9% of sales, for the
2005 periodin 2006 from $43.0$0.6 million, or 16.2%0.2% of sales, for the 2004 period.in 2005. The
decline in gross profit percentage decline can generally be attributed to the following
factors:
- - Factors resultingfact that we recorded
a goodwill impairment loss of $96.8 million in a decrease in gross profit percentage:
1. We recorded2006 as compared to a goodwill
impairment loss of $33.0 million in 2005.
The following factors caused a decline in gross profit:
- - Our European operations experienced manufacturing inefficiencies associated
with the 2005
period. No such chargeramp up of production for three significant programs during 2006.
We experienced labor inefficiencies and higher scrap rates, and increased
outsource costs as additional capacity was recorded in the 2004 period;
2. The loss of sales volume described above resulted in decreasing
margins as existing equipment and facilities were underutilized;
3.required to meet customer needs;
- - Unit price reductions of $4.5$4.8 million granted to our customers between 2005
and 2006; and
- - Our South American operations experienced higher than normal material and
perishable tooling scrap rates during the 2004ramp up of production of five new
programs during 2006.
23
These negative factors were partially offset by the following:
- - The beneficial impact of successfully completing cost improvement
initiatives in our North American operations; and
2005 periods;
4. Severance- - Our European operations incurred significant severance and equipment moveother costs
associated with a plant closing a French
facility and moving production to other French facilities and to our
new Polish facilityin 2005. This plant closing also resulted
in 2005 periodlower indirect labor and fixed burden costs totaling $2.3
million. Such costs were not incurred in the 2004 period; and
5. Steel price increases and surcharges, although substantially recovered
from our customers during the 2005 period, were incurred thereby
reducing our gross profit percentage.
- - Factors partially offsetting the decrease in gross profit percentage:
21
1. Depreciation expense was $2.1 million less in the 2005 period as
compared to the 2004 period as we adjusted the historical cost of our
property, plant and equipment to fair market appraised values in
connection with the Merger; and
2. Outsourcing costs were significantly reduced in the 2005 period
relative to the 2004 period. The acquisition of ATI as described above
reduced outsourcing costs on certain electric motor components.2006.
Selling, General and Administrative
Selling, general and administrative expenses decreased $7.0increased $4.2 million to $19.8
million, or 7.0% of sales, in 2006 from $15.6 million, or 6.0% of sales, forin 2005
due primarily to the 2005 period from $22.6 million, or 8.5% of
sales, for the 2004 period.following factors:
- - The 2004 period2006 results include $9.1$2.1 million in incremental expenses for our new
facilities in Boston, Massachusetts, Kitchener, Ontario, Kammiena Gora,
Poland and Wuxi, China;
- - Our European operations incurred $1.0 million in severance costs associatedand
outside consulting fees in connection with the Merger, consisting principally of investment banking
fees,formal social plan discussed
in Liquidity and Capital Resources below, and we increased executive and
human resources management bonuses, legalsupport and accounting feesincurred added travel-related
expenses for technical support from our North American operations; and
the foregiveness of
receivables formerly due from executive managers under a split-dollar life
insurance program. In addition, the 2004 period- - The 2006 results include the benefit of
reducing the obligation under one of our European pension plansreflect $0.5 million duein compensation costs related to
a changeshare-based payment transactions required by Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 123(R),
"Share-Based Payment," recognized in French law. The 2005 results include added professional fee
expenses associated with being a public registrant and added travel costs
associated with providing technical support to our European operations as we
work to implement cost improvement initiatives.financial statements beginning
January 1, 2006.
Interest Expense, Net
Net interest expense increased $8.1$5.9 million to $24.4 million in 2006 from $18.5
million for the 2005 period
from $10.4 million for the 2004 period. Higherin 2005. Our 2006 interest expense in the 2005
period relative to the 2004 period was caused primarily byreflects increased debt levels incurred as a result of the Merger and higherwhen
compared to 2005. In addition, interest rates incurred on borrowings under our
senior credit facilities.
Other Expenses, Net
Net other expenses decreased $2.0 millionfacilities and our second lien credit facility averaged 454 basis
points more in 2006 when compared to $2.4 million for the 2005 period
from2005.
Tax Provision
In 2006, we recorded an income tax benefit of $4.4 million, for the 2004 period. The 2004 period results include the
write-off of $1.9 millionand in unamortized debt issue costs associated with our
former bank agreement, which was refinanced in connection with the Merger.
Tax Provision
For the 2005, period, we
recorded an income tax benefit of $0.6 million. This
amount isThese amounts are less than the
amountbenefits that would be calculated usinghave been recorded at the United States Federal statutory
rate of 34.0% because35% due to the following factors:
- - The goodwill impairment charge ischarges reflected in 2005 and 2006 are not
deductible for income tax purposes, and therefore no offsetting tax
benefit has been
recorded.benefits were recorded; and
- - Our ability to record income tax benefits in both periods was limited by
our ability to realize these benefits through either a net operating loss
carryback or the elimination of tax liabilities that arise in the future
(offset to a deferred tax liability).
24
LIQUIDITY AND CAPITAL RESOURCES
Our short-term liquidity needs include required debt service and day-to-day
operating expenses includingsuch as working capital requirements and the funding of
capital expenditures. Long-term liquidity requirements include capital
expenditures for new programs and maintenance of existing equipment and debt
service. In addition, in order to improve long-term liquidity, we have
negotiated a formal social plan to effect permanent reductions in our French
workforce. If such plan is implemented as approved, the payment of
severance-related liabilities throughout 2007 is estimated to total $9.0
million. We have no obligation to launch the social plan, and continue to
evaluate the timing of employee terminations. Capital expenditures for 2005calendar
year 2006 are expected to be $18-20$28.1 million, of which $13.5$24.2 million was spent duringin
the nine months ended September 30, 2005.2006. Current expectations exceed those
previously reported as we no longer anticipate that we will be able to lease
certain equipment under operating lease arrangements.
Our principal sources of cash to fund short- and long-term liquidity needs
consist of cash generated by operations, and borrowingborrowings under our revolving credit
facilities.
The Sager acquisition wasfacilities and a receivables factoring program. Our European segment experienced
unfavorable operating results during the three and nine months ended September
30, 2006, primarily financed indirectly through equity
contributions fromas a result of cost overruns on three product launches,
lower production volumes on key profitable programs, excessive labor costs and
increased customer pricing pressure. Cost reduction initiatives such as
headcount reductions (including reductions in connection with the shareholdersimplementation
of Micronthe social plan referenced above), reductions in salaries of employees and
manufacturing efficiency initiatives are underway or planned to address these
negative developments. In addition, announced production cuts by North American
original equipment manufacturers are expected to adversely impact our results of
operations in the amountfourth quarter of $10.02006.
As of September 30, 2006, we borrowed $23.1 million under our revolving credit
facilities to fund our liquidity needs as cash generated from operations was
insufficient to meet our requirements. We had $17.3 million of remaining
availability under our revolving credit facilities at September 30, 2006, and
our senior credit facilities permit us to factor without recourse an additional
$9.5 million of trade receivables. Subsequent to September 30, 2006, we borrowed
$15.8 million of funds available under our revolving credit facilities, and as
of November 13, 2006, we had cash holdings of $13.1 million. The indenture governingAs there is
$1.2 million of remaining borrowing availability under our revolving credit
facilities as of November 13, 2006, our short-term liquidity needs must be met
primarily from cash on hand and cash generated from operations, and these
sources could be insufficient to meet our debt service and day-to-day operating
expenses during the Notesfourth quarter. There are interest payments due on our
senior subordinated notes on December 15, 2006 and the agreement governingon the senior credit
facilities and second lien credit facility on December 29, 2006. Failure to make
these payments within the applicable 30-day grace period in the case of the
senior subordinated notes and the applicable 5-day grace period under the senior
credit facilities and second lien credit facility would constitute events of
default under these notes and credit facilities.
Our senior credit facilities and second lien credit facility contain a numberfinancial
covenants that are tested at each calendar quarter-end. We were in compliance
with all of the financial covenants imposing significant restrictions on
our business. These restrictions may affect our ability to operate our business
and may limit our ability to take advantage of potential business opportunities
as they arise.
22
We amendedin our senior credit facilities effective March 31, 2005. Our amended
seniorand second
lien credit facilities require us to meet a number of financial ratio tests,
including interest coverage and senior and total leverage ratios. Our amended
senior credit facilities also limit the amount of capital expenditures we may
make. Asfacility as of September 30, 2005,2006. However, based on current
projections, we were in compliance with the covenants
contained in the indenture governing the Notes and our amended senior credit
facilities. The financial covenants in our amended senior credit facilities are
less restrictive than the original agreement and were structured to provide us
with flexibility sufficient for us to remain in compliance with such covenants
throughout 2005.
However, OEM and Tier I manufacturers' production schedules have been reduced
over the past six months and we currently believe it is unlikely that we will be able to maintainin compliance with the
financial covenants in our amended senior credit facilities and second lien credit
facility as of December 31, 2005. As2006.
25
We are exploring a result, we anticipate engagingvariety of options to improve our near-term liquidity,
including, but not limited to, reducing our investment in working capital,
selling idle equipment and potentially securing other sources of capital for our
operations. We intend to engage in discussions with our senior and second lien
lenders to seek to further amend our senior credit facilities and our second
lien credit facility to provide for covenant relief andrelief. We also intend to enter into alternative
financing to improveengage in
restructuring discussions with holders of our liquidity.senior subordinated notes. We
cannot assure you that we will be successful in reaching agreements with our
lenders or in accomplishing the initiatives discussed above. If we are unable to obtain alternative
financing, or if we are unable to negotiate with ournot
successful, upon an event of default, the senior and second lien lenders new
covenants acceptable to us, we will likely be unable to maintain compliance
with the financial covenants in our existing amended senior credit facilities
as of December 31, 2005 after which the lenders would
have the ability to exercise all of their remedies upon anrights, including requiring the
amounts outstanding under the senior credit facilities and the second lien
credit facility to become due and payable. In that event, of default.
On October 8, 2005 (the "Filing Date"), Delphi Corporation and its U.S.
affiliates ("Delphi") filed for bankruptcy protection under Chapter 11 of the
U.S. Bankruptcy Code. Delphi is a significant customer of ours, accounting for
12%all of our
gross sales in 2004 and 11% ofindebtedness under our gross sales in the nine months
ended September 30, 2005. We believe that we are a critical suppliercredit facilities would be required to Delphi's
continued operationsbe reclassified as
we are a sole source and just-in-time supplier for a
majority of components we ship to Delphi. Critical supplier status increases the
likelihood that invoices for product shipped by us to Delphi prior to the Filing
Date will be collected and retained. We have had discussions with Delphi since
the Filing Date and as yet have no final written agreements in place. Currently,
we believe that our short- and long-term cash flow and profitability will not be
impacted by the Delphi filing. Delphi's long-term survival and scope of
operations are not clear at this time. The loss of Delphi as a customer or a
significant reduction in Delphi's operations could have a material adverse
effectcurrent liabilities on our existing and future revenues and net income.balance sheet. In sum, we continue to evaluate our
options, including the possibility of implementing a restructuring or
reorganizing pursuant to applicable law.
Nine Months Ended September 30, 20052006
Cash provided byused in operating activities of $12.2$1.7 million during the nine months
ended September 30, 2005in 2006 reflects a net income,loss
excluding non-cash and other reconciling items of $12.8$0.2 million and an increase
in net working capital of $0.5 million. The following working capital components changed significantly
from December 31, 2004 to September 30, 2005:
- - Accounts payable decreased $2.5 million. Production in our European
operations during third quarter of 2005 was less than the fourth quarter of
2004;
- - Inventories increased $2.3 million due primarily to the increased value of
raw material inventories consistent with the rise in steel and perishable
tooling prices. Also, machinery spare parts inventories have increased
consistent with the addition of new types of equipment; and
- - Accounts receivable decreased $2.9 million. Factored European accounts
receivable increased $3.5$1.5 million from December 31, 20042005 to September 30,
2005. This was partially offset by2006. An increase in the negative impact on cash flowcommitment to working capital is typical of a
number of European and North American customers lengthening payment termsour
business during 2004 and 2005.the nine months ended September 30.
Cash used in investing activities of $24.9$32.7 million during the nine months ended
September 30, 2005 mainlyin 2006 principally consisted
of capital expenditures primarily$24.2 million for the purchase of production equipment and $8.8 million for
acquisitions of $13.5 millionthe Sager and the purchase price and professional
fees spent to acquire Sager of $9.9 million.
23
ATS businesses described above.
Cash provided by financing activities of $11.8$21.5 million during the nine months
ended September 30, 2005in 2006 mainly consisted
of $10.0 million in contributions
received from the shareholders of Micron to fund the purchase of Sager and $7.4$24.4 million in net borrowings under lines of credit with our bankspartially offset by
$5.1$2.8 million in scheduled principal payments on our senior credit facilities and other indebtedness.
FOREIGN OPERATIONS
During the three months ended September 30, 2005,2006, our North American operations located in the
United States exported $4.3$5.6 million of product to customers located in foreign
countries, and our foreign operations shipped $45.1$47.8 million of product to
customers from their facilities. During the nine months ended September 30,
2005,2006, our North American
operations located in the United States exported $13.1$14.0 million of
product to customers located in foreign countries, and our foreign operations
shipped $150.2$159.8 million of product to customers from their facilities. As a
result, we are subject to the risks of doing business abroad, including currency
exchange rate fluctuations, limits on repatriation of funds, compliance with
foreign laws and other economic and political uncertainties.
ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board issuedOn January 1, 2006, we applied SFAS No. 123(R), "Share-Based Payment," which will requirerequires compensation
costs related to share-based payment transactions to be recognized in the
financial statements. With limited exceptions, the amount of compensationCompensation cost will besubsequent to January 1, 2006 was
measured based on the grant date fair value of the equity or liability
instruments issued. In
addition, liability awards will be remeasured each reporting period.
Compensation cost will beissued and is recognized over the period that an employee provides
services in exchange for the award. SFAS No. 123(R) replaces SFAS No. 123,
"Accounting for Stock-Based Compensation," and supercedes Accounting PrincipalsPrinciples
Board Opinion No. 25, "Accounting for Stock Issued to Employees.Employees," SFAS 123(R)
becomes effective atand related
interpretations. We recognized stock based compensation expense of $0.2 million
in the beginning of our first quarterthree months ended September 30, 2006 and $0.5 million in the nine months
ended September 30, 2006.
We expect that26
In June 2006, the impact of adopting SFASFinancial Accounting Standards Board ("FASB") issued FASB
Interpretation ("FIN") No. 123(R) will be consistent with48, "Accounting for Uncertainty in Income Taxes,"
which clarifies the pro forma
expense that has been previously disclosed, adjustedaccounting for future grants,
cancellations and exercises of stock optionsuncertainty in income taxes recognized in an
enterprise's financial statements in accordance with SFAS No. 123(R)109, "Accounting
for Income Taxes." This interpretation prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. This
interpretation also provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods, disclosure, and transition. FIN
No. 48 is effective for fiscal years beginning after December 15, 2006. We are
currently evaluating the impact of adopting this interpretation.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements,"
which provides a definition of fair value, establishes a framework for measuring
fair value and requires expanded disclosures about fair value measurements. SFAS
No. 157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007 and interim periods within those fiscal years. The
provisions of SFAS No. 157 should be applied prospectively. We are assessing the
potential impact on our consolidated financial statements of adopting this
standard.
In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans," which amends SFAS No.
87, "Employers' Accounting for Pensions," SFAS No. 88, "Employers' Accounting
for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" and SFAS No. 132R "Employers' Disclosures about
Pensions and Other Postretirement Benefits (revised 2003)." SFAS No. 158
requires companies to recognize an asset or liability for the overfunded or
underfunded status of their benefit plans in their financial statements. SFAS
No. 158 also requires the measurement date for plan assets and liabilities to
coincide with the sponsor's year end. The standard provides two transition
alternatives related to the change in measurement date provisions. The
recognition of an asset and liability related to the funded status provision is
effective for fiscal years ending after December 15, 2006 and the change in
measurement date provisions is effective for fiscal years ending after December
15, 2008. The actual impact of the recognition provisions of SFAS No. 158 will
not be known until year-end valuations are available and the deferred tax assets
are assessed for realizability, but we do not expect the implementation of this
standard to have a material impact on our financial results.
In September 2006, the United States Securities and Exchange Commission issued
Staff Accounting Bulletin ("SAB") No. 108, "Quantifying Financial
Misstatements," which expresses views regarding the process of quantifying
financial statement misstatements and will require us to quantify the impact of
correcting all misstatements, including both the carryover and reversing effects
of prior year misstatements, on the current year financial statements. The
techniques most commonly used in practice to accumulate and quantify
misstatements are generally referred to as the "rollover" (current year income
statement perspective) and "iron curtain" (year-end balance sheet perspective)
approaches. The financial statements would require adjustment when either
approach results in quantifying a misstatement that is material, after
considering all relevant quantitative and qualitative factors. SAB No. 108 is
effective for financial statements for the first fiscal year ending after
November 15, 2006. We do not expect this guidance to have a material effect on
our financial condition and results of operations.
CRITICAL ACCOUNTING POLICIES
No material changes have been made to our critical accounting policies during
the first nine months of 2005.2006.
27
Item 3. Quantitative and Qualitative Disclosures about Market Risk
FOREIGN CURRENCY EXCHANGE RATES
We have managedin the past and may in the future manage certain foreign currency
exchange risk in relation to equipment purchases through the limited use of
foreign currency futures contracts to reduce the impact of changes in foreign
currency rates on firm commitments to purchase equipment. No such contracts
related to equipment purchases were outstanding at December 31, 20042005 or
September 30, 2005.2006.
We typically derive approximately 60%50-60% of our sales from foreign manufacturing operations.
The financial position and results of operations of our subsidiaries in France
are measured in euros and translated into USD. The effects of foreign currency
fluctuations in France are somewhat mitigated by the fact that sales and
expenses are generally incurred in euros, and the reported net income thereon will be
higher or lower depending on a weakening or strengthening of the USD as compared
to the euro.
24
The financial position and results of operations of our subsidiary in Brazil are
measured in Brazilian reais and translated into USD. With respect to
approximately 35%40% of this subsidiary's sales, expenses are generally incurred in
Brazilian reais, but sales are invoiced in USD or euro. As such, results of
operations with regard to these sales are directly influenced by fluctuations in
the exchange rates between the Brazilian real and the USD or euro. The effects
of foreign currency exchange rate fluctuations are somewhat mitigated on the
remainder of this subsidiary's sales by the fact that these sales and related
expenses are generally incurred in Brazilian reais and the reported income will
be higher or lower depending on fluctuations in the exchange rates between the
USD or euro and the Brazilian real.
The financial position and results of operations of our division in Canada are
measured in Canadian dollars and translated into USD. With respect to
approximately 80% of this division's sales, expenses are generally incurred in
Canadian dollars, but sales are invoiced in USD. As such, results of operations
with regard to these sales are directly influenced by a weakening or
strengthening offluctuations in the
Brazilian real as compared toexchange rates between the Canadian dollar and the USD. The effects of foreign
currency exchange rate fluctuations are somewhat mitigated on the remainder of
this subsidiary'sdivision's sales by the fact that these sales and related expenses associated
therewith are
generally incurred in Brazilian reaisCanadian dollars and the reported income
thereon will be higher or
lower depending on a weakening or strengthening offluctuations in the exchange rates between the USD as compared toand the
Brazilian real.Canadian dollar. These operations ceased production in July 2006.
Our consolidated net assets as of September 30, 20052006 include amounts based in
Europe and in South America,foreign countries and were translated into USD at the exchange rates in effect
at that date (1.2042 USD per euro and 2.2147 Brazilian reais per USD).date. Accordingly, our consolidated net assets will fluctuate depending
on the weakening or strengthening ofexchange rates between the USD as compared to theseand the functional currencies of our
foreign operations as a result of foreign currency translation adjustments.
INTEREST RATES
We are exposed to interest rate risk on a portion of our outstanding
indebtedness. Our senior credit facilities and our second lien credit facility
bear interest at variable rates. Effective April 1, 2006, through the purchase
of an interest rate swap contract, we fixed the interest rate on $50.0 million
of our variable-interest-rate indebtedness at London Interbank Offered Rate
(LIBOR) of 5.14% for five years. There is no swap contract relating to the
remaining $122.7 million of our variable interest rate indebtedness. Based on
the fair market value of the interest rate swap as of September 30, 2006, we
recorded a loss of $696 (net of related income tax of $359) for the three months
ended September 30, 2006 and a loss of $197 (net of related income tax of $101)
for the nine months ended September 30, 2006 in Accumulated Other Comprehensive
Income on our Condensed Consolidated Balance Sheets and recognized a derivative
instrument liability of $298, which is reflected in Other Long-Term Liabilities
on our Condensed Consolidated Balance Sheet as of September 30, 2006.
28
Item 4. Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required
to be disclosed in our reports filed pursuant to the Securities Exchange Act reportsof
1934 (the "Exchange Act") is recorded, processed, summarized and reported within
the time periods specified by the Securities and Exchange Commission and that
such information is accumulated and communicated to our management, including
our Chief Executive and Financial Officers, as appropriate, to allow timely
decisions regarding required disclosures.
As of the end of the period covered by this report, we performed an evaluation
of the effectiveness of the design and operation of our disclosure controls and
procedures as defined in Exchange Act Rule 13a-15(e) and 15d-15(e). The
evaluation was performed under the supervision and with the participation of our
management, including our Chief Executive and Financial Officers. Based upon the
evaluation, the Chief Executive and Financial Officers concluded that our
disclosure controls and procedures were effective in ensuring that material
information relating to us (including our consolidated subsidiaries) was made
known to them by others within our consolidated group during the period in which
this report was being prepared and that the information required to be included
in the report has been recorded, processed, summarized and reported on a timely
basis.
During our most recent fiscal quarter, there have been no significant changes in
our internal controls that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting.
25
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
No material changes.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
On November 11, 2006, we received the resignation of Mr. Richard J, Lacks, Jr.
as a director effective on that date. Mr. Lacks has served as a member of our
board of directors since October 2004.
29
Item 6. Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
31.1 Certification of Chief Executive Officer in the form prescribed by
Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.
31.2 Certification of Chief Financial Officer in the form prescribed by
Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.
32.1 Certification of Chief Executive Officer in the form prescribed by 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification ofand Chief Financial Officer
in the form prescribed by 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
2630
SIGNATURES
Autocam Corporation has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
AUTOCAM CORPORATION
Date: November 10, 200514, 2006 /s/ John C. Kennedy
Date
----------------------------------------
John C. Kennedy
President 27
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
31.1 Certification of Chief Executive Officer in the form prescribed by
Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.
31.2 Certification of Chief Financial Officer in the form prescribed by
Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.
32.1 Certification of Chief Executive Officer in the form prescribed by 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer in the form prescribed by 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
and Chief Executive Officer
(Principal Executive Officer)
31