1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549
---------------
FORM 10-Q
Quarterly Report Under Section[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) of the
Securities Exchange Act ofOF THE SECURITIES
EXCHANGE ACT OF 1934
For The Quarter Ended September 30, 1999
Commission File Number 0-19544the Transition Period From ________ to_________
- --------------------------------------------------------------------------------
COMMISSION FILE NUMBER 333-119215
AUTOCAM CORPORATION
A- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Michigan Corporation
I.R.S. Employer Identification No. 38-2790152
- ------------------------------------------------ -----------------------
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER
ORGANIZATION) IDENTIFICATION NO.)
4070 East Paris Avenue Southeast
Kentwood, Michigan 49512
Telephone:- ---------------------------------------------- -----------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (616) 698-0707
Indicate by check mark whether the Registrantregistrant: (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
----- -----
TheYES [ ] NO [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES [ ] NO [X]
Indicate the number of Common Sharesshares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 3, 1999 was 6,312,508.
1 of 1812, 2004
------------------------------ ------------------------------------
COMMON STOCK, $10 PAR VALUE 14,340,000 SHARES
2
INDEX
PAGE NO.
--------
PART I - FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 2003 and September 30, and
June 30, 1999 32004 1
Consolidated Statements of Operations and Comprehensive Income (Loss)
for the Three and Nine Months Ended September 30, 19992003 and 1998 42004 2
Consolidated Statements of Cash Flows for the ThreeNine Months Ended
September 30, 19992003 and 1998 52004 3
Notes to Consolidated Financial Statements 6 - 104
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11 - 17
Item 3. Quantitative and Qualitative Disclosures about Market Risk 24
Item 4. Disclosure Controls and Procedures 25
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None.25
Item 2. Changes in Securities, - None.Use of Proceeds and Issuer Purchases of
Equity Securities 25
Item 3. DefaultDefaults Upon Senior Securities - None.25
Item 4. Submission of Matters to a Vote of SecuritySecurities Holders - None.25
Item 5. Other Information - None.25
Item 6. Exhibits and Reports on Form 8-K:
Exhibit 278-K - Financial Data Schedule E-1Certifications 26
Signatures 27
2Exhibit 31.1 - CEO Certification
Exhibit 31.2 - CFO Certification
Exhibit 32.1 - CEO Certification
Exhibit 32.2 - CFO Certification
3
AUTOCAM CORPORATIONPART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TITAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
DECEMBER 31, SEPTEMBER 30,
1999
In2003 2004
---- ----
(predecessor) (successor)
Amounts in thousands, except share data (unaudited) June 30, 1999
----------- -------------
ASSETS
information
Assets
Current assets:
Cash and equivalents $ 4,0071,075 $ 3,6542,075
Accounts receivable, 39,038 40,781net of allowances of $484 and $420, respectively 55,484 60,013
Inventories 14,570 15,23725,802 31,190
Prepaid expenses and other current assets 2,437 2,103
--------- ---------
TOTAL CURRENT ASSETS 60,052 61,775
PROPERTY, PLANT AND EQUIPMENT, NET 131,000 129,744
ASSETS HELD FOR SALE 534 534
GOODWILL AND OTHER INTANGIBLE ASSETS, NET 28,294 28,376
EQUIPMENT DEPOSITS AND OTHER LONG-TERM ASSETS 8,406 9,062
--------- ---------
TOTAL ASSETS $ 228,286 $ 229,491
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY3,090 3,583
-------- --------
Total current assets 85,451 96,861
Property, plant and equipment, net 173,580 155,679
Goodwill 139,446 253,557
Other long-term assets 10,598 16,668
-------- --------
Total Assets $409,075 $522,765
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term obligations $ 6,95929,748 $ 4,4787,117
Accounts payable 19,999 22,13047,246 41,493
Accrued liabilities:
Compensationliabilities 15,017 22,410
-------- --------
Total current liabilities 92,011 71,020
-------- --------
Long-term obligations, net of current maturities 104,140 260,758
Deferred taxes and related withholdings 9,161 9,683
Other 4,483 3,380
--------- ---------
TOTAL CURRENT LIABILITIES 40,602 39,671
LONG-TERM OBLIGATIONS, NET OF CURRENT MATURITIES 105,851 109,560
DEFERRED TAXES 26,369 25,628
DEFERRED CREDITS AND OTHER 5,504 5,417
MINORITY INTEREST 2,701 2,813
SHAREHOLDERS' EQUITY:
Preferredother 50,596 42,681
Shareholders' equity:
Series A preferred stock - 200,000$.01 par value; 600,000 shares authorized; no579,112 shares
issued orand outstanding as of December 31, 2003 6
Series B preferred stock - $.01 par value; 400,000 shares authorized; 110,364 shares
issued and outstanding as of December 31, 2003 1
Common stock - 10,000,000$.01 par value; 8,000,000 shares authorized; 6,311,6416,480,895 shares issued
and 6,306,993outstanding as of December 31, 2003 65
Common stock - $10 par value; 20,000,000 shares authorized; 14,340,000
shares issued and outstanding as of September 30, and June 30, 1999,
respectively 34,607 34,572
Deferred compensation (297) (336)2004 143,400
Additional paid-in capital 137,824
Accumulated other comprehensive losses (3,916) (3,306)income 2,178 5,046
Retained earnings 16,865 15,472(accumulated deficit) 22,254 (140)
-------- --------
Total shareholders' equity 162,328 148,306
-------- --------
Total Liabilities and Shareholders' Equity $409,075 $522,765
======== ========
See notes to consolidated financial statements.
1
TITAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SIX MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
2003 2003 2004 2004
---- ---- ---- ----
(predecessor) (successor)
----------------------------------------------------------
Amounts in thousands
Sales $73,154 $239,983 $ 184,489 $80,249
Cost of sales 64,216 207,086 153,426 68,348
-------- -------- --------- --------
Gross profit 8,938 32,897 31,063 11,901
Selling, general and administrative expenses 4,356 13,079 17,337 5,244
-------- -------- --------- TOTAL SHAREHOLDERS' EQUITY 47,259 46,402--------
Income from operations 4,582 19,818 13,726 6,657
Interest expense, net 2,234 7,161 4,666 5,705
Other expenses, net 2,298 4,095 3,672 681
-------- -------- --------- --------
Income before tax provision 50 8,562 5,388 271
Tax provision 166 3,672 3,211 411
-------- -------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY--------
Net Income (Loss) ($ 116) $ 228,2864,890 $ 229,4912,177 ($ 140)
======== ======== ========= ========
Statements of Comprehensive Income (Loss):
Net income (loss) ($ 116) $ 4,890 $ 2,177 ($ 140)
Other comprehensive income (loss):
Foreign currency translation adjustments 24 3,496 (1,138) 5,046
Amortization of interest rate agreements 67 202 135
-------- -------- --------- --------
Comprehensive Income (Loss) ($ 25) $ 8,588 $ 1,174 $ 4,906
======== ======== ========= ========
See notes to consolidated financial statements.
2
TITAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SIX MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
2003 2004 2004
---- ---- ----
(predecessor) (successor)
----------------------------------------
Amounts in thousands
Net cash provided by (used in) operating activities $ 28,009 $ 10,694 ($ 409)
Cash flows from investing activities:
Expenditures for property, plant and equipment (16,634) (10,676) (5,487)
Proceeds from sale of property, plant and equipment 6,018 808 333
Other (1,434) (339) 307
------------ ------------ ------------
Net cash used in investing activities (12,050) (10,207) (4,847)
------------ ------------ ------------
Cash flows from financing activities:
Borrowings (repayments) on lines of credit, net (1,146) (3,531) 2,000
Proceeds from issuance of long-term obligations 549 247,248 270
Principal payments of long-term obligations (19,712) (109,940) (1,529)
Payments to shareholders and option holders (232,663)
Shareholder contributions 115,400
Debt issue costs (10,855) (675)
------------ ------------ ------------
Net cash provided by (used in) financing activities (20,309) 5,659 66
------------ ------------ ------------
Effect of exchange rate changes on cash and equivalents (22) (18) 62
------------ ------------ ------------
Increase (decrease) in cash and equivalents (4,372) 6,128 (5,128)
Cash and equivalents at beginning of period 4,996 1,075 7,203
------------ ------------ ------------
Cash and Equivalents at End of Period $ 624 $ 7,203 $ 2,075
============ ============ ============
See notes to consolidated financial statements.
3
4
AUTOCAM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONSTITAN HOLDINGS, INC. AND COMPREHENSIVE INCOME
(unaudited)
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
In thousands, except per share data 1999 1998
---- ----
Sales $ 46,622 $ 24,020
Cost of sales 39,505 20,579
-------- --------
Gross profit 7,117 3,441
Selling, general and administrative 2,777 1,794
-------- --------
Income from operations 4,340 1,647
Interest expense, net 1,939 758
Minority interest in net income (loss) and other (345) 185
-------- --------
Income before tax provision 2,746 704
Tax provision 1,227 526
-------- --------
NET INCOME $ 1,519 $ 178
======== ========
BASIC NET INCOME PER SHARE $ .24 $ .03
======== ========
DILUTED NET INCOME PER SHARE $ .23 $ .03
======== ========
Basic weighted average shares outstanding 6,310 6,410
Diluted weighted average shares outstanding 6,512 6,611
Dividends declared per share $ .02 $ .02
STATEMENTS OF COMPREHENSIVE INCOME:
Net income $ 1,519 $ 178
Other comprehensive losses - Foreign currency translation
adjustments (610) (260)
-------- --------
COMPREHENSIVE INCOME (LOSS) $ 909 $ (82)
======== ========
See notes to consolidated financial statements.
4
5
AUTOCAM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
In thousands 1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 48,959 $ 22,808
Cash paid to suppliers and employees (40,741) (20,164)
Income taxes received (paid) (462) 165
Interest paid (1,995) (883)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,761 1,926
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,546) (5,633)
Proceeds from sale of property, plant and equipment 140 16
Acquisitions, net of cash received (344)
Decrease in restricted cash and equivalents 767
Payment of life insurance premiums and other (191) (193)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (2,597) (5,387)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on (repayments of) line of credit borrowings, net (2,628) 4,968
Proceeds from issuance of long-term obligations 25
Principal payments of long-term obligations (28) (1,751)
Cash dividends paid (126) (122)
Proceeds from exercise of employee stock options and other 35 35
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (2,747) 3,155
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS (64) (3)
-------- --------
Net increase (decrease) in cash and equivalents 353 (309)
Cash and equivalents at beginning of period 3,654 1,643
-------- --------
Cash and equivalents at end of period $ 4,007 $ 1,334
======== ========
See notes to consolidated financial statements.
5
6
AUTOCAM CORPORATIONSUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 19992004
(UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial statements (the
"Financial Statements") include the accounts of Autocam CorporationTitan Holdings, Inc. ("Titan")
and its subsidiaries (together, the "Company"), which includes Autocam
Corporation ("Autocam"), a wholly-owned subisidary. The Financial Statements
have been prepared pursuant toin accordance with accounting principles generally accepted
in the rules and regulationsUnited States of the
Securities and Exchange Commission.America ("GAAP") for interim financial information.
Accordingly, the Financial Statementsthey do not include all the information and footnotes normally
included in the annual consolidated financial statements prepared in accordance
with generally accepted
accounting principles.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.
In the opinion of management, the Financial Statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
such information in accordance with generally accepted accounting principles.
These Financial Statements should be readOn 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
"Acquisition"). As a result, Titan became a wholly-owned subsidiary of Micron.
The total amount of consideration paid in conjunctionthe Acquisition, 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 Acquisition
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 new 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 statementsposition and
footnotes thereto includedconsolidated results of operations and cash flows of the Company reflecting the
basis of accounting after purchasing accounting for the Acquisition.
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 Acquisition.
Stock-based compensation -- The Company applies Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations, in accounting for its stock-based compensation plan. This plan
was terminated in connection with the Acquisition. Under APB No. 25, no
stock-based employee compensation cost is reflected in the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1999.
Weighted average shares outstanding and earnings per share for the three months
ended September 30, 1998 have been restated to give effect to a 5% share
dividend declared on October 28, 1998 and paid on November 16, 1998 to
shareholdersresults of record on November 2, 1998.
Reclassifications - Certain reclassifications have been madeoperations
as all options granted under this plan had an exercise price equal to the
Statements
of Operations and of Cash Flows for the three months ended September 30, 1998 in
order to conform to fiscal 2000 presentation.
2. INVENTORIES
Inventories consistestimated market value of the following:
SEPTEMBER 30, 1999
In thousands (UNAUDITED) JUNE 30, 1999
----------- -------------
Raw materials $ 3,017 $ 3,179
Production supplies 3,166 3,010
Work in-process 6,767 7,091
Finished goods 1,620 1,957
------- -------
TOTAL INVENTORIES $14,570 $15,237
======= =======
6underlying common stock on the date of the grant.
Had stock-based employee compensation cost of the Company's stock option plan
been determined based upon the fair value at the grant dates for awards under
this plan consistent with the method of Statement of Financial Accounting
Standard ("SFAS") No. 123, Accounting for Stock-Based Compensation, as amended
by SFAS No. 148, Accounting for Stock-Based Compensation -- Transition and
Disclosure, the Company's net income (loss) would have changed to the pro forma
amounts indicated below:
4
7
AUTOCAM CORPORATIONTITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999
3. PROPERTY, PLANT2004
(UNAUDITED)
1. BASIS OF PRESENTATION AND EQUIPMENT, NET
Property, plant and equipment consists of the following:SIGNIFICANT ACCOUNTING POLICIES - CONCLUDED
THREE MONTHS NINE MONTHS SIX MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, 1999
In thousands (UNAUDITED)SEPTEMBER 30, JUNE 30,
1999
----------- -------------2003 2003 2004
---- ---- ----
(predecessor)
----------------------------------------------------------------
Land and improvements
As reported ($ 116) $ 1,7964,890 $ 1,796
Buildings and improvements 9,211 8,953
Leasehold improvements 495 501
Machinery and equipment 151,708 146,867
Furniture and fixtures 6,026 5,466
Construction in progress 1,0402,177
Compensation expense, net of related tax effects (140) (420) (280)
-------- --------- ---------
TOTAL 169,236 164,623
Accumulated depreciation and amortization (38,236) (34,879)
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET--------
Pro forma ($ 256) $ 131,0004,470 $ 129,7441,897
======== ========= =================
4. LONG-TERM OBLIGATIONS
Long-term obligations consistThe fair value value approach was used to value all option grants, with the
following weighted-average assumptions: risk-free interest rate, 4%-4.88%; and
expected life of options, 10 years.
Guarantees -- The Company guarantees the performance under certain equipment
leases of an unrelated vendor that provides services to the Company within one
of the following (percentages represent interest
rates asCompany's European production facilities. The cost associated with those
services is reflected in Cost of Sales. The obligations under these leases end
at various times between May 2004 and February 2009. At December 31, 2003 and
September 30, 1999):
SEPTEMBER 30, 1999
In thousands (UNAUDITED) JUNE 30, 1999
----------- -------------
Revolving credit loans with banks, 4.8% - 8.25% $ 48,833 $ 51,296
Acquisition term note with banks, 6.55% 45,709 44,362
Term note with banks, 3.15% 18,194 17,658
Note payable to Propart Corporation, 12% 16 631
Lines of credit and other 58 91
--------- ---------
TOTAL 112,810 114,038
Less current maturities (6,959) (4,478)
--------- ---------
LONG-TERM $ 105,851 $ 109,560
========= =========
72004, the Company's maximum liability under these guarantees was
$6,494 and $5,252, respectively, which were not recorded in the Financial
Statements. In the event of default by the vendor, the Company would become
primarily responsible for the lease obligations and assume control of the
equipment subject to the lease which has a fair market value in excess of the
present value of the future minimum lease payments.
2. BUSINESS COMBINATION
The Acquisition described in Note 1 was accounted for as a purchase, and
accordingly, the purchase price was allocated to assets acquired and liabilities
assumed based upon their preliminary 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. Goodwill deductible for tax
purposes will be approximately $4,200. The results of operations and cash flows
of Titan (as Predecessor company) have been reported through June 30, 2004.
Set forth below are unaudited pro forma statements of operations information for
the nine months ended September 30, 2003 and the six months ended June 30, 2004,
which are based upon the historical Consolidated Statements of Operations of the
Company for those periods after giving effect to the Acquisition as if such
transaction had occurred at the beginning of each period presented. 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 Acquisition taken place at the beginning of each period presented or which
may be reported in the future.
5
8
AUTOCAM CORPORATIONTITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999
5. INCOME TAXES
Income taxes as a percentage of income before tax provision and minority
interest were 41.8% and 61.4% for the three months ended September 30, 1999 and
1998, respectively. The effective tax rate for the quarter ended September 30,
1999 exceeded the United States statutory rate of 34% due primarily to the fact
that the income tax rates in France and Brazil exceed the United States
statutory rate. The effective rate also includes provisions for state and local
income taxes.
The effective tax rate for the quarter ended September 30, 1998 exceeded the
United States statutory rate due primarily to the recognition of $265,000 in
Federal income tax expense caused by the dissolution of the Company's
interest-charge Domestic International Sales Corporation.
6. STOCK-BASED COMPENSATION
The Company has reserved 1,126,875 common shares, in aggregate, for issuance to
employees under the 1991 Incentive Stock Option Plan and the 1998 Key Employee
Stock Option Plan (together, the "Plans"). Options are not exercisable prior to
twelve months from or ten years after the grant date. Options granted vest at a
rate of twenty percent annually over a five-year period. Had the Company
accounted for the Plans based on the fair value of awards at the grant dates as
prescribed by Statement of Financial Accounting Standard No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation," the Company's net income and net
income per share would have been decreased as indicated below.2004
(UNAUDITED)
2. BUSINESS COMBINATION - CONCLUDED
THREENINE MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, -----------------------------------------------
In thousands, except per share data 1999 1998JUNE 30,
2003 2004
---- ----
Sales $239,983 $184,489
Net income:
As reported $1,519 $178
Pro forma 1,405 123
Basic net income per share:
As reported $.24 $.03
Pro forma .22 .02
Diluted net income per share:
As reported $.23 $.03
Pro forma .22 .02309 6,649
The effects3. INVENTORIES
Set forth below are the components of applying SFAS 123 on a pro forma basis may not be representativeInventories:
DECEMBER 31, SEPTEMBER 30,
2003 2004
---- ----
(predecessor) (successor)
Raw materials $ 7,664 $ 9,358
Production supplies 4,836 5,987
Work in-process 9,336 11,631
Finished goods 3,966 4,214
---------- ----------
Total Inventories $ 25,802 $ 31,190
========== ==========
4. PROPERTY, PLANT AND EQUIPMENT, NET
Set forth below are the components of the effects on reported pro forma net income for future periods as the
estimated compensation costs reflect only options vesting after June 30, 1995.
Under the methodology of SFAS 123, the fair value of the Company's fixed stock
options was estimated at the date of grant using the Black-Scholes
option-pricing model. The multiple option approach was used, with the following
weighted-average assumptions for all periods presented: dividend yield, .59%;
expected volatility, 45.31%; risk-free interest rate, 4%;Property, Plant and expected life of
options, 10 years.
8Equipment, Net:
DECEMBER 31, SEPTEMBER 30,
2003 2004
---- ----
(predecessor) (successor)
Buildings and land $ 14,222 $ 9,771
Machinery and equipment 210,273 139,990
Furniture and fixtures 8,444 9,134
---------- ----------
Total 232,939 158,895
Accumulated depreciation (59,359) (3,216)
---------- ----------
Total Property, Plant and Equipment, Net $ 173,580 $ 155,679
========== ==========
6
9
AUTOCAM CORPORATIONTITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999
7.2004
(UNAUDITED)
4. PROPERTY, PLANT AND EQUIPMENT, NET - CONCLUDED
In connection with the Acquisition, the Company restated the historical cost of
its property, plant and equipment to fair market appraised values and eliminated
all historical accumulated depreciation.
5. LONG-TERM OBLIGATIONS
Set forth below are the components of Long-Term Obligations (percentages
represent interest rates as of September 30, 2004):
DECEMBER 31, SEPTEMBER 30,
2003 2004
---- ----
(predecessor) (successor)
New Senior Credit Facility:
USD term note, 5.0% $ 32,918
Euro term note, 5.12% 76,832
Multi-currency revolving line of credit, 5.0% 13,000
Old senior credit facility retired in connection with the Acquisition $ 124,082
---------- ----------
Total senior credit facility 124,082 122,750
Senior subordinated notes, 10.875%, net of original issue discount 136,954
Capital leases, from 2.14% to 8.13% 6,793 5,523
Other 3,013 2,648
---------- ----------
Total long-term obligations 133,888 267,875
Current portion (29,748) (7,117)
---------- ----------
Long-term portion $ 104,140 $ 260,758
========== ==========
At the time of the Acquisition, Autocam refinanced its former senior credit
facility with proceeds from the financings from the Acquisition. In connection
therewith, Titan and certain, but not all, of the subsidiaries of Autocam fully
and unconditionally guaranteed the Notes.
The following table sets forth the guarantor and non-guarantor subsidiaries of
Autocam with respect to the 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.
Autocam South Carolina, Inc.
7
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2004
(UNAUDITED)
5. LONG-TERM OBLIGATIONS - CONTINUED
Information regarding the guarantors and non-guarantors are as follows:
TITAN
COMBINING STATEMENT OF OPERATIONS (PARENT SUBSIDIARIES
THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPANY ---------------------------
(predecessor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- ------------------------------------- ----- -------- --------- ------------- ------------ --------
Sales $27,636 $ 4,521 $42,247 ($ 1,250) $73,154
Cost of sales 24,662 3,676 37,128 (1,250) 64,216
-------- -------- ------- --------
Gross profit 2,974 845 5,119 8,938
Selling, general and administrative expenses 1,634 303 2,419 4,356
-------- -------- ------- --------
Income from operations 1,340 542 2,700 4,582
Interest expense, net 592 151 1,491 2,234
Other expense (income), net $ 9 1,894 (1) 396 2,298
------- -------- -------- ------- --------
Income (loss) before tax provision (9) (1,146) 392 813 50
Tax provision (3) (389) 133 425 166
------- -------- -------- ------- --------
Net Income (Loss) ($ 6) ($ 757) $ 259 $ 388 ($ 116)
======= ======== ======== ======= ========
TITAN
COMBINING STATEMENT OF OPERATIONS (PARENT SUBSIDIARIES
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPANY ---------------------------
(predecessor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- ------------------------------------ ----- ------- --------- ------------- ------------ --------
Sales $88,961 $ 12,666 $142,023 ($ 3,667) $239,983
Cost of sales 76,859 10,263 123,631 (3,667) 207,086
------- -------- -------- --------
Gross profit 12,102 2,403 18,392 32,897
Selling, general and administrative expenses 4,470 950 7,659 13,079
------- -------- -------- --------
Income from operations 7,632 1,453 10,733 19,818
Interest expense, net 1,705 442 5,014 7,161
Other expense (income), net $ 28 2,530 (2) 1,539 4,095
------- ------- -------- -------- --------
Income (loss) before tax provision (28) 3,397 1,013 4,180 8,562
Tax provision (10) 1,182 345 2,155 3,672
------- ------- -------- -------- --------
Net Income (Loss) ($ 18) $ 2,215 $ 668 $ 2,025 $ 4,890
======= ======= ======== ======== ========
8
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2004
(UNAUDITED)
5. LONG-TERM OBLIGATIONS - CONTINUED
TITAN
COMBINING STATEMENT OF OPERATIONS (PARENT SUBSIDIARIES
SIX MONTHS ENDED JUNE 30, 2004 COMPANY ---------------------------
(predecessor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- --------------------------------- ----- ------- --------- ------------- ------------ --------
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
COMBINING STATEMENT OF OPERATIONS (PARENT SUBSIDIARIES
THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPANY ---------------------------
(successor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- ------------------------------------- ----- -------- --------- ------------- ------------ --------
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 HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2004
(UNAUDITED)
5. LONG-TERM OBLIGATIONS - CONTINUED
CONDENSED COMBINING STATEMENT TITAN
OF CASH FLOWS (PARENT SUBSIDIARIES
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPANY ---------------------------
(predecessor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR COMBINED
- ------------------------------------ ----- ------- --------- ------------- --------
Net cash provided by (used in) operating activities ($10) $ 6,510 $1,382 $20,127 $ 28,009
Expenditures for property, plant and equipment (6,897) (1,356) (8,381) (16,634)
Proceeds from sale of property, plant and equipment 5,897 1 120 6,018
Borrowings (repayments) on lines of credit, net 5,000 (6,146) (1,146)
Principal payments of long-term obligations (8,493) (11,219) (19,712)
Other (2,304) (27) 1,424 (907)
----- ------- ------ ------- --------
Net increase (decrease) in cash and equivalents (10) (287) (4,075) (4,372)
Cash and equivalents at beginning of period 10 376 2 4,608 4,996
----- ------- ------ ------- --------
Cash and Equivalents at End of Period $ 89 $ 2 $ 533 $ 624
===== ======= ====== ======= ========
CONDENSED COMBINING STATEMENT TITAN
OF CASH FLOWS (PARENT SUBSIDIARIES
SIX MONTHS ENDED JUNE 30, 2004 COMPANY ---------------------------
(predecessor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR COMBINED
- ------------------------------ ----- ------- --------- ------------- --------
Net cash provided by (used in) operating activities ($ 6,457) $ 2,206 $ 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 $ 7,203
========= ======== ===== ======== ==========
10
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2004
(UNAUDITED)
5. LONG - TERM OBLIGATIONS - CONTINUED
CONDENSED COMBINING STATEMENT TITAN
OF CASH FLOWS (PARENT SUBSIDIARIES
THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPANY ----------------------------
(successor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR COMBINED
- ------------------------------------- ----- ------- --------- ------------- --------
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
Proceeds from issuance of long-term obligations 270 270
Principal payments of long-term obligations (82) (1,447) (1,529)
Debt issue costs (675) (675)
Other 737 (35) 702
-------- ----- --------- --------
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
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2004
(UNAUDITED)
TITAN
CONDENSED COMBINING BALANCE SHEET (PARENT SUBSIDIARIES
DECEMBER 31, 2003 COMPANY ---------------------------
(predecessor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- --------------------------------- ----- ------- --------- ------------- ------------ --------
Assets
Current assets:
Cash and equivalents $ 750 $ 2 $ 323 $ 1,075
Accounts receivable, net 13,524 1,757 40,203 55,484
Inventories 8,052 1,060 16,690 25,802
Prepaid expenses and other current assets 1,616 52 1,422 3,090
-------- -------- -------- --------
Total current assets 23,942 2,871 58,638 85,451
Property, plant and equipment, net 40,899 8,945 123,602 $ 134 173,580
Goodwill $122,521 2,688 14,237 139,446
Intercompany receivables (payables) 40,513 (5,863) (33,437) (1,213)
Investment in subsidiaries 9,136 (15,014) (1,806) 9,831 (2,147)
Other long-term assets 7,106 106 3,386 10,598
--------- -------- -------- -------- -------- --------
Total Assets $131,657 $100,134 $ 4,253 $176,257 ($ 3,226) $409,075
========= ======== ======== ======== ======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term obligations $ 4,656 $ 25,092 $ 29,748
Accounts payable 8,255 $ 290 38,906 ($ 205) 47,246
Accrued liabilities ($ 5) 3,062 238 11,722 15,017
--------- -------- -------- -------- -------- --------
Total current liabilities (5) 15,973 528 75,720 (205) 92,011
--------- -------- -------- -------- -------- --------
Long-term obligations, net of current maturities 50,612 54,555 (1,027) 104,140
Deferred taxes and other 15,304 35,292 50,596
Shareholders' equity:
Capital stock 137,896 1,994 (1,994) 137,896
Accumulated other comprehensive income (loss) 6,812 (4,634) 2,178
Retained earnings (accumulated deficit) (6,234) 11,433 3,725 13,330 22,254
--------- -------- -------- -------- -------- --------
Total shareholders' equity 131,662 18,245 3,725 10,690 (1,994) 162,328
--------- -------- -------- -------- -------- --------
Total Liabilities and Shareholders' Equity $131,657 $100,134 $ 4,253 $176,257 ($ 3,226) $409,075
========= ======== ======== ======== ======== ========
12
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2004
(UNAUDITED)
5. LONG - TERM OBLIGATIONS - CONCLUDED
TITAN
CONDENSED COMBINING BALANCE SHEET (PARENT SUBSIDIARIES
SEPTEMBER 30, 2004 COMPANY --------------------------
(successor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- --------------------------------- ----- ------- --------- ------------- ------------ --------
Assets
Current assets:
Cash and equivalents $ 117 $ 2 $ 1,956 $ 2,075
Accounts receivable, net 20,813 2,199 37,001 60,013
Inventories 9,279 1,351 20,560 31,190
Prepaid expenses and other current assets 1,987 132 1,464 3,583
-------- -------- -------- --------
Total current assets 32,196 3,684 60,981 96,861
Property, plant and equipment, net 28,462 5,595 121,203 $ 419 155,679
Goodwill $116,299 137,258 253,557
Intercompany receivables (payables) 29,896 (4,978) (24,602) (316)
Investment in subsidiaries 27,063 100,631 (3,458) (123,815) (421)
Other long-term assets 1 11,192 99 5,376 16,668
-------- -------- -------- -------- -------- --------
Total Assets $143,363 $202,377 $ 942 $176,401 ($ 318) $522,765
======== ======== ======== ======== ======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term obligations $ 330 $ 6,787 $ 7,117
Accounts payable 7,982 $ 305 33,521 ($ 315) 41,493
Accrued liabilities $ (28) 5,257 308 16,876 (3) 22,410
-------- -------- -------- -------- -------- --------
Total current liabilities (28) 13,569 613 57,184 (318) 71,020
-------- -------- -------- -------- -------- --------
Long-term obligations, net of current maturities 182,570 78,188 260,758
Deferred taxes and other 7,972 34,709 42,681
Shareholders' equity:
Capital stock 143,400 143,400
Accumulated other comprehensive income 519 4,525 5,046
Retained earnings (accumulated deficit) (9) (2,253) 329 1,795 (140)
-------- -------- -------- -------- -------- --------
Total shareholders' equity 143,391 (1,734) 329 6,320 148,306
-------- -------- -------- -------- -------- --------
Total Liabilities and Shareholders' Equity $143,363 $202,377 $ 942 $176,401 ($ 318) $522,765
======== ======== ======== ======== ======== ========
13
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2004
(UNAUDITED)
6. BUSINESS SEGMENT INFORMATION
The Company has three operating segments: North America, Europe and South
America. The North American segment provides precision-machined components
primarily to the transportation and medical devices industries, while the
European and South American 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 has assigned specific business units to a segment based
principally on their geographical location. Each of the Company's segments is
individually managed and hashave separate financial results reviewed by the
Company's chief executive and operating decision-makers. These results are used
by the chief operating decision-makersthose individuals both in evaluating the performance of, and in allocating
current and future resources to, each of the segments. The Company evaluates
segment performance primarily based on income from operations and the efficient
use of total assets. The accounting policiesSet forth below is business segment information for the three and
nine months ended September 30, 2003, the six months ended June 30, 2004 and the
three months ended September 30, 2004 and as of the segments
are the same as those of the company as a whole.
Totals presented below are inclusive of all adjustments needed to reconcile to
the data provided in the Consolidated Financial StatementsDecember 31, 2003 and related notes.September
30, 2004:
THREE MONTHS NINE MONTHS SIX MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, ------------------------------
In thousands 1999 1998SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
2003 2003 2004 2004
---- ---- ---- ----
(predecessor) (successor)
-----------------------------------------
Sales to Unaffiliated Customers from Company Facilities Located in:
North America $32,125 $105,429 $ 24,145 $ 20,06575,031 $32,987
Europe 19,73437,889 124,942 100,429 40,641
South America 2,743 3,9553,140 9,612 9,029 6,621
-------- -------- --------- --------
Total $73,154 $239,983 $184,489 $80,249
======== ======== ========= ========
Net Income (Loss) of Company Facilities Located in:
North America ($ 504) $ 1,262 ($ 2,678) ($ 1,933)
Europe 210 2,971 3,732 747
South America 178 657 1,123 1,046
-------- -------- --------- --------
Total ($ 116) $ 4,890 $ 2,177 ($ 140)
======== ======== ========= ========
Depreciation and Amortization on Assets Located in:
North America $ 2,143 $ 6,102 $ 6,232 $ 948
Europe 2,826 8,174 6,190 2,491
South America 213 638 532 199
-------- -------- --------- --------
Total $ 46,6225,182 $ 24,02014,914 $ 12,954 $ 3,638
======== ======== ========= =========
Income from Operations========
Net Interest Expense of Company Facilities Located in:
North America $ 1,719743 $ 1,1392,297 $ 1,763 $ 4,246
Europe 3,1301,434 4,700 2,699 1,356
South America 415 508
Corporate (924)57 164 204 103
-------- -------- --------- --------
Total $ 4,3402,234 $ 1,6477,161 $ 4,666 $ 5,705
======== ======== ========= =================
14
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2004
(UNAUDITED)
6. BUSINESS SEGMENT INFORMATION - CONCLUDED
THREE MONTHS NINE MONTHS SIX MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, JUNE 30, 1999 1999SEPTEMBER 30,
2003 2003 2004 2004
---- ---- ---- ----
(predecessor) (successor)
-----------------------------------------
Tax Provision of Company Facilities Located in:
North America ($ 259) $ 691 ($ 1,356) ($ 992)
Europe 338 2,703 4,068 899
South America 87 278 499 504
--------- -------- --------- ---------
Total $ 166 $ 3,672 $ 3,211 $ 411
========= ======== ========= =========
Expenditures for Property, Plant and Equipment of Facilities Located in:
North America $ 1,875 $ 8,253 $ 4,085 $ 1,598
Europe 2,473 6,663 5,434 2,926
South America 1,142 1,718 1,157 963
--------- -------- --------- ---------
Total $ 5,490 $ 16,634 $ 10,676 $ 5,487
========= ======== ========= =========
DECEMBER 31, SEPTEMBER 30,
2003 2004
---- ----
(predecessor) (successor)
Total Assets of Company Facilities Located in:
North America $ 92,910209,080 $ 94,162197,949
Europe 117,695 117,447183,193 296,805
South America 10,362 10,795
Corporate 7,319 7,087
--------- ---------16,802 28,011
------------ ------------
Total $ 228,286409,075 $ 229,491
========= =========522,765
============ ============
The Corporate segment was disaggregated from the books and records of the
Company's North American operations during the fourth quarter of fiscal 1999. It
was impracticable to restate the prior period information concerning income from
operations.
915
10
AUTOCAM CORPORATIONTITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
SEPTEMBER 30, 1999
8.2004
(UNAUDITED)
7. SUPPLEMENTAL CASH FLOW INFORMATION
The followingSet forth below is a reconciliation of net income (loss) to net cash provided by
(used in) operating activities:
FOR THENINE MONTHS SIX MONTHS THREE MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, IN THOUSANDS (UNAUDITED)
----------------------------------
1999 1998JUNE 30, SEPTEMBER 30,
2003 2004 2004
---- ---- ----
(predecessor) (successor)
-------------------------
Net income (loss) $ 1,5194,890 $ 1782,177 ($ 140)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 3,753 2,07814,914 12,954 3,638
Deferred taxes 387 748
Minority interest in net income (loss)2,026 395 311
Realized gains and losses and other, (354) 142net 2,407 2,627 (287)
Changes in assets and liabilities that provided (used) cash:
Accounts receivable 2,313 (1,252)4,719 (9,243) 4,563
Inventories 849 (505)1,555 (2,899) (2,566)
Prepaid expenses and other current assets (340) (449)(303) (44) (442)
Other long-term assets 74 (65)(72) (1,192) 461
Accounts payable (2,520) 687(3,854) 1,687 (6,986)
Accrued liabilities 183 3011,606 6,962 1,305
Deferred creditstaxes and other (103) 63
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES121 (2,730) (266)
-------- -------- --------
Net Cash Provided by (Used in) Operating Activities $ 5,76128,009 $ 1,926
======= =======10,694 ($ 409)
======== ======== ========
108. STOCK OPTION PLAN
Micron's Board of Directors has reserved 1,430,000 shares of common stock for
issuance to employees under the 2004 Stock Option Plan (the "Option Plan"). No
options were granted under the Option Plan as of September 30, 2004; however, on
October 12, 2004, options to purchase 929,500 shares were granted at $10 per
share. Options are not exercisable prior to twelve months from or ten years
after the grant date. Certain options granted vest at a rate of twenty-five
percent annually over a four-year period, while others vest based on Micron
shareholders' ability to meet certain levels of return on their investment in
Micron. The options granted on October 12, 2004 vest retroactive to June 21,
2004.
16
11
AUTOCAM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1999
This Quarterly Report on Form 10-Q contains forward-looking statements as
defined by the Private Securities Litigation Reform ActItem 2. Management's Discussion and Analysis of 1995. Forward-looking
statementsFinancial 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 consolidated financial statements
and accompanying notes. Except for historical information, the discussions in
this section contain forward-looking statements that involve risks and
uncertainties. Future results could differ materially from those discussed
below.
OVERVIEW
Titan Holdings, Inc. ("Titan") is a holding company headquartered in Kentwood,
Michigan and a wholly-owned subsidiary of Micron Holdings, Inc. ("Micron"). Its
sole and wholly-owned subsidiary, Autocam Corporation ("Autocam") and Autocam's
subsidiaries, 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. Those applications in which we have significant market penetration
include fuel injection, power steering, braking, electric motors and airbag
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 document to "we," "our" or "us"
refer to Titan together with its consolidated subsidiaries.
Our business and results of operations during the third quarter and nine months
of 2004 were affected by the following significant events:
- - On June 21, 2004, Micron Merger Corporation ("Merger"), a newly formed
entity and wholly-owned subsidiary of Micron, merged with and into Titan
with Titan continuing as the surviving corporation (the "Acquisition"). As
a result, Titan became a wholly-owned subsidiary of Micron. The total
amount of consideration paid in the Acquisition, 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 $395.0 million. The
Acquisition was financed with the cautionary statements and important factors
included herein. Forward-looking statements include statements concerning plans,
objectives, goals, strategies, future events or performance and underlying
assumptions and other statements,net proceeds from the issuance by
Autocam of $140.0 million of senior subordinated notes of the Company,
which are guaranteed by Titan (the "Notes"), borrowings of $114 million
under the Company's new senior credit facilities and combined common
equity contributions of $143.4 million by GS Capital Partners 2000, L.P.
("GSCP 2000"), other than statementsprivate equity funds affiliated with GSCP 2000,
Transportation Resource Partners LP ("TRP"), other investment vehicles
affiliated with TRP, and our president.
- - A significant portion of historical
facts. Such forward-looking statements may be identified, without limitation, byour sales and profits resulted from transactions
denominated in euros. Those sales and profits have been translated into
U.S. Dollars ("USD") for financial reporting purposes. As a result, the
usevalue of the words "anticipates," "estimates," "expects," "intends," "plans,"
"predicts," "projects," and other similar expressions. The Company's
expectations, beliefs and projections are expressed in good faith and are
believed byUSD compared to the Company to have a reasonable basis, including without
limitation, management's examination of historical operating trends, data
containedeuro in the Company's recordsthree and other data available from third parties,
but there can be no assurancenine months ended
September 30, 2004 relative to the same periods in the prior years
positively impacted our reported results. The following table sets forth,
for the periods indicated, the period end and period average exchange
rates used in translating the financial statements (expressed as USD per
one euro):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
DECEMBER 31, ------------------ -----------------
2003 2003 2004 2003 2004
---- ---- ---- ---- ----
Average(1) 1.1276 1.2239 1.1103 1.2263
End of Period 1.2552 1.2409 1.2409
- ------------------
(1) The average rate represents the average of all monthly average exchange
rates within the respective periods weighted by reported sales denominated
in euros.
17
OVERVIEW - CONCLUDED
- - 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 achieved improvements in margins over
time in spite of these constant pressures.
- - In April 2003, we sold and leased back our Kentwood and Marshall, Michigan
facilities for $5.8 million, using the proceeds of that management's expectations, beliefs or
projections will result or be achieved or accomplished.sale to prepay
some of our USD-denominated term indebtedness. Annual lease expense under
these agreements is $.6 million.
- - In June 2003, we closed our Chicago, Illinois production facility, moving
all existing production to our Michigan facilities. Through the
re-engineering of manufacturing processes and elimination of redundancies,
we were able to reduce headcount in North America by 6% when comparing the
nine-month period ended September 30, 2004 with the same period in 2003.
- - In 2003, we successfully consolidated power steering production lines
formerly contained within three of our French facilities into one
facility. Significant costs, including premium freight, outsourcing, labor
and machinery repairs, were incurred on a one-time basis to affect this
reorganization. This reorganization has and is expected to continue to
provide benefits in the future, primarily in the area of lower labor costs
through headcount reductions and improved efficiency.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the components of the
Company'ssets forth our Consolidated Statements of Operations
expressed as a percentage of sales:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, -----------------------------------------
1999 1998
---- ----SEPTEMBER 30,
------------------- ------------------------
2003(1) 2004(2) 2003(1) 2004(3)
------- ------- ------- -------
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 84.7% 85.7%87.8% 85.2% 86.3% 83.8%
----- ----- ----- -----
Gross profit 15.3% 14.3%12.2% 14.8% 13.7% 16.2%
Selling, general and administrative expenses 6.0% 7.5%6.5% 5.4% 8.5%
----- ----- ----- -----
Income from operations 9.3% 6.8%6.2% 8.3% 8.3% 7.7%
Interest expense, net 4.2% 3.2%
Minority interest in3.1% 7.1% 3.0% 3.9%
Other expenses, net income (loss) and other (.8)% .7%3.1% 0.8% 1.7% 1.6%
----- ----- ----- -----
Income before tax provision 5.9% 2.9%0.0% 0.4% 3.6% 2.2%
Tax provision 2.6% 2.2%0.2% 0.5% 1.5% 1.4%
----- ----- NET INCOME 3.3% .7%----- -----
Net Income (Loss) -0.2% -0.1% 2.1% 0.8%
===== ===== ===== =====
11
12
AUTOCAM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
SEPTEMBER 30, 1999
SALES
The following table indicates------------------------
(1) Represents the Company's sales (in thousands) and percentageconsolidated results of total sales by productoperations of the Company
reflecting the historical basis of accounting without any application of
purchase accounting for the three-month periodsAcquisition.
(2) Represents the consolidated results of operations of the Company
reflecting the basis of accounting after purchasing accounting for the
Acquisition.
(3) Represents the combined consolidated results of operations of the Company
reflecting the historical basis of accounting without any application of
purchase accounting for the Acquisition for the six months ended June 30,
2004 and reflecting the basis of accounting after purchasing accounting
for the Acquisition for the three months ended September 30, 1999 and 1998:
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------
1999 1998
---- ----
Transportation:
Fuel systems $21,921 47.0% $15,817 65.8%
Power steering systems 11,223 24.1
Braking systems 7,477 16.0 4,037 16.8
Other 3,858 8.3 1,146 4.8
------- ---- ------- ----
Total transportation 44,479 95.4 21,000 87.4
Medical devices 1,550 3.3 2,468 10.3
Other 593 1.3 552 2.3
2004.
18
THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2004
Sales
Sales increased $22,602,000,$7 million, or 94%9.7%, to $80.2 million for the three months ended
September 30, 2004 from $73.2 million for the firstthree months ended September 30,
2003. Of this increase, $3.3 million was attributable to the devaluation of the
USD relative to the euro. Excluding the effect of foreign currency translation
and unit price reductions mentioned below, sales for the quarter increased $4.9
million over the quarter ended September 30, 2003, principally attributable to
the following factors:
- - Increased shipments of electric power-assisted steering products to two
European customers during 2004.
- - Sales of components manufactured by our South American operations have
grown in the third quarter of fiscal 19992004 relative to the same period in fiscal 2000. The Company gained market share through2003 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.
These positive developments more than offset the acquisitionnegative impact of Frank & Pignard ("F&P") in October 1998. F&P generated
incremental salesunit price
reductions of precision-machined components, mainly to the transportation
industry, of $19,734,000$1.2 million during the fiscal 2000 period presented.
The Company's growth in sales of fuel injection components of $6,104,000 when
comparing the firstthird quarter of fiscal 19992004 and decreasing sales
to a European power steering systems customer that desourced us on some
products.
Gross Profit
Gross profit increased $3 million to $11.9 million, or 14.8% of sales, for the
same period in fiscal 2000three months ended September 30, 2004 from $8.9 million, or 12.2% of sales, for
the three months ended September 30, 2003. The gross profit percentage
improvement can be primarily attributable to demand from F&P customers, accounting for 57% of
the increase. The remainder of the sales growth cangenerally be attributed to increasesthe following factors:
- - We have achieved headcount reductions in demand from North American-based customersAmerica as a result of
various continuous process improvement initiatives and in Europe as a
result of the power steering production line reorganization described
above. Together, these initiatives resulted in an increase in gross profit
margin of 2.6 percentage points.
- - In connection with the Acquisition, we restated the historical cost of our
property, plant and equipment to fair market appraised values, which, in
the aggregate, was lower than the net book value on several new programs awarded
the Company during fiscal 1998 and 1999,date prior to the
Acquisition. In doing so, depreciation expense was $1.6 million less in
the third quarter of 2004 as compared to the third quarter of 2003.
These positive factors were partially offset by the negative impact on gross
profit of the unit price reductions described above and steel price increases.
Selling, General and Administrative
Selling, general and administrative expenses increased $.8 million to $5.2
million, or 6.5% of sales, for the three months ended September 30, 2004 from
$4.4 million, or 6% of sales, for the three months ended September 30, 2003. The
2004 results include $.7 million in expenses associated with the foregiveness of
receivables formerly due from executive managers under a split-dollar life
insurance program.
19
Interest Expense, Net
Net interest expense increased $3.5 million to $5.7 million for the three months
ended September 30, 2004 from $2.2 million for the three months ended September
30, 2003. Interest expense on increased debt levels incurred as a result of the
Acquisition more than offset the favorable impact of principal reductions
through regularly scheduled payments and lower sales of fuel
system components byinterest rates under our new
senior credit facility, which averaged 60 to 80 basis points less during the
Company's Brazilian operations. Although local-currency
(Brazilian Reais) sales were effectively the same in Brazilquarter ended September 30, 2004 when comparing the
fiscal 1999 and 2000 periods presented, reporting currency (U.S. Dollar) sales
were 56% lower duecompared to a significant devaluation in the Reais versus the Dollar
in January 1999.
Incremental growth in sales of braking system components of $3,440,000interest rates under our
former senior credit facility during the three months ended September 30, 1999 versus the same period in fiscal 1999
can be primarily attributable2003.
Other Expense, Net
Net other expense decreased $1.6 million to demand from F&P customers, accounting for
$2,002,000 of the increase. The balance of the increase can be primarily
attributed to an increase in sales to a North American-based customer as demand
for its new braking system program grows.
With the acquisition of F&P, the Company assumed several contracts for the
production of power steering components and other transportation components for
electromechanical motors and electronic transmissions. This new business
accounts for essentially all of the increases in power steering system and other
transportation component sales when comparing the fiscal 1999 and 2000 periods
presented.
12
13
AUTOCAM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
SEPTEMBER 30, 1999
SALES - CONCLUDED
Sales of components for medical device applications were $1,550,000 during the
three months ended September 30, 1999, a 37% decrease from the same period in
fiscal 1999. The decline in sales can be primarily attributed to the
cancellation of a contract with a significant cardiovascular stent customer in
November 1998, which eliminated $737,000 in sales from the fiscal 2000 period
presented, when comparing to the fiscal 1999 period presented.
Management believes that sales growth for fiscal 2000 will range between 10-15%
over fiscal 1999 levels as it reports a full year of sales from its French
operations. Additional sales are also expected to be generated from continued
expansion of fuel, power steering and braking system component sales as new
programs move toward full production. These sales gains are expected to be
partially offset by a decline in sales of cardiovascular stents of $1.4$.7 million
over the remainder of fiscal 2000 caused by the stent contract cancellation
referred to above.
GROSS PROFIT
Gross profit for the three months
ended September 30, 1999 and 1998 represented
15.3% and 14.3% of sales, respectively. The gross margin improvement can be
primarily attributed to the following:
- - The financial performance of the Company's Kentwood and Marshall, Michigan
facilities improved significantly when comparing the first quarter of
fiscal 2000 to the first quarter of fiscal 1999. Continuous improvement
efforts and volume increases, which allowed for better labor and equipment
utilization, resulted in a 4 percentage point improvement in gross margin
(as a percentage of sales) when comparing the two periods presented. In
addition, the fiscal 1999 first quarter profitability of these operations
was negatively impacted by the effects of the labor work stoppage at
General Motors Corporation during July 1998. No work stoppages were
experienced by significant customers during the first quarter of fiscal
2000.
- - The addition of F&P's operations since the first quarter of fiscal 1999,
which added nearly 3 percentage points to overall gross margin (as a
percentage of sales) when comparing the two periods presented.
These improvements were partially offset by the following negative factors:
- - Continued manufacturing difficulties experienced by the Company's Dowagiac,
Michigan facility during the ramp-up phase of a new braking system program,
which reduced overall gross margin (as a percentage of sales) by 2
percentage points when comparing the three months ended September 30, 1998
to the same period in fiscal 2000.
- - The loss of a significant cardiovascular stent contract (see Sales) reduced
gross profit (as a percentage of sales) by 1 percentage point when
comparing the fiscal 1999 period presented to the three months ended
September 30, 1999.
13
14
AUTOCAM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
SEPTEMBER 30, 1999
GROSS PROFIT - CONCLUDED
Management expects continued year-over-year improvements in gross margin as a
percentage of sales for the remainder of fiscal 2000. The Company is actively
involved in several continuous improvement activities on newer programs in its
North American operations that are expected to allow for improved labor and
equipment utilization typically gained through these efforts. Management also
anticipates additional benefits through cost savings derived2004 from the
implementation of production and inventory control systems at its foreign
operations.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses, as a percentage of sales, were
6.0% and 7.5% during the three months ended September 30, 1999 and 1998,
respectively. The Company normally incurs selling, general and administrative
costs at a rate ranging from 5.5% to 6% of sales since the addition of the
Company's French operations in October 1998. Prior thereto, selling general and
administrative expenses tended to be higher, as a percentage of sales, than
current levels due to the addition of the Company's Brazilian operations in
January 1998 which tend to incur these types of expenses at a much higher rate
than the Company's North American operations. Expenses reported for the first
quarter of fiscal 2000 include $407,000 in legal and professional service fees
associated with the contemplated sale of the Company.
Management expects that selling, general and administrative expenses, as a
percentage of sales, will approximate that which was reported during the first
quarter of fiscal 2000 for the next nine months.
INTEREST EXPENSE, NET
Net interest expense$2.3 million for the three months ended September
30, 1999 increased
$1,180,000 from2003. The 2003 results include the same period$1.7 million anticipated loss on the sale
of excess equipment scheduled for liquidation in the previous year, due primarily to an
increase in average borrowings outstanding during the quarter ended September
30, 1999 caused by the F&P acquisition. Management anticipates that interest
expense over the next nine months will approximate $1.9 million each quarter.
MINORITY INTEREST IN NET INCOME (LOSS) AND OTHER
The amount reported in this line primarily represents the minority shareholder's
interest in the net earnings (loss) of Autocam do Brasil, and net earnings
(losses) on products manufactured in North America on behalf of Autocam do
Brasil customers.
14
15
AUTOCAM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
SEPTEMBER 30, 1999
TAX PROVISION
Income taxesconnection with our Chicago,
Illinois facility closure as a percentage of income before tax provision and minority
interest were 41.8% and 61.4% fordescribed above.
Tax Provision
For the three months ended September 30, 1999 and
1998, respectively. The2004, we recorded an income tax
provision of $.4 million, for an effective tax rate for the quarter ended September 30,
1999 exceededof 151.7%. Our effective tax
rate was more than the United States statutory rate of 34% due primarily to the
fact
that theFrench income tax provision, which includes legal profit sharing contribution
expense of $.4 million. Under French law the legal profit sharing contribution
is assessed on income before taxes, and therefore is treated by us as a
component of our tax provision.
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2004
Sales
Sales increased $24.7 million, or 10.3%, to $264.7 million for the nine months
ended September 30, 2004 from $240 million for the nine months ended September
30, 2003. Of this increase, $13.2 million was attributable to the devaluation of
the USD relative to the euro. Excluding the effect of foreign currency
translation and unit price reductions mentioned below, sales for the nine-month
period increased $15.1 million over the nine months ended September 30, 2003,
principally attributable to the following factors:
- - Increased shipments of electric power-assisted steering products to two
European customers during 2004.
- - During the latter part of 2003, we began shipping diesel injection
components to two North American customers seeking to increase their
penetration of the North American diesel injection market. The benefit
derived from this development was partially offset by premium pricing
earned in the second quarter of 2003 on one of the new product lines
during the transition from prototype to production volumes.
- - Sales of components manufactured by our South American operations have
grown in 2004 relative to 2003 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.
These positive developments more than offset the negative impact of unit price
reductions of $3.6 million during the first nine months of 2004 and decreasing
sales to a European power steering systems customer and a European fuel systems
customer, both of which desourced us on some products.
20
Gross Profit
Gross profit increased $10.1 million to $43 million, or 16.2% of sales, for the
nine months ended September 30, 2004 from $32.9 million, or 13.7% of sales, for
the nine months ended September 30, 2003. The gross profit percentage
improvement can generally be attributed to the following factors:
- - We have achieved headcount reductions in North America as a result of the
Chicago, Illinois facility closure as described above and various other
continuous process improvement initiatives, and in Europe as a result of
the power steering production line reorganization described above.
Together, these initiatives resulted in an increase in gross profit margin
of 1.5 percentage points.
- - We incurred equipment move, severance and other costs during the nine
months ended September 30, 2003 in connection with the Chicago, Illinois
facility closure of $1.1 million. Such costs were not repeated in the
nine-month period ended September 30, 2004.
These positive factors were partially offset by the negative impact on gross
profit of the unit price reductions, steel price increases and additional
building lease expense derived from the sale and leaseback of the production
facilities as described above.
Selling, General and Administrative
Selling, general and administrative expenses increased $9.5 million to $22.6
million, or 8.5% of sales, for the nine months ended September 30, 2004 from
$13.1 million, or 5.4% of sales, for the nine months ended September 30, 2003.
The 2004 results include $8.2 million in costs associated with the Acquisition,
consisting principally of investment banking fees, management bonuses, and legal
and accounting fees, and $.7 million in executive manager receivables foregiven
under a split-dollar life insurance program.
Interest Expense, Net
Net interest expense increased $3.2 million to $10.4 million for the nine months
ended September 30, 2004 from $7.2 million for the nine months ended September
30, 2003. Interest expense on increased debt levels incurred as a result of the
Acquisition more than offset the favorable impact of principal reductions
through regularly scheduled payments and repayments from the proceeds of the
sale and leaseback of the production facilities as described above. In addition,
interest rates incurred on borrowings under our new senior credit facility
averaged 20 to 50 basis points less during the nine months ended September 30,
2004 when compared to interest rates incurred on borrowings under our former
senior credit facility during the nine months ended September 30, 2003.
Other Expense, Net
Net other expense increased $.3 million to $4.4 million for the nine months
ended September 30, 2004 from $4.1 million for the nine months ended September
30, 2003. The 2004 results include the accelerated write-off of $1.9 million in
France and Brazil exceedunamortized debt issue costs associated with our former senior credit facility,
which was refinanced in connection with the United States
statutory rate. The effective rate also includes provisionsAcquisition. This more than offsets
the $1.7 million negative impact on our 2003 results of the loss reserve
recorded on excess equipment from our Chicago, Illinois facility that was sold
as described above.
Tax Provision
For the nine months ended September 30, 2004, we recorded an income tax
provision of $3.6 million, for state and local
income taxes.
Thean effective tax rate for the quarter ended September 30, 1998 exceededof 64%. Our effective tax
rate was more than the United States statutory rate of 34% due primarily to the
recognition of $265,000 in
FederalFrench income tax provision, which includes legal profit sharing contribution
expense caused by the dissolution of the Company's
interest-charge Domestic International Sales Corporation.
Management expects the Company's effective$1.6 million. In addition, French statutory income tax rate to approximate 40% for the
remainderis 35.4%
of fiscal 2000.income before taxes.
21
LIQUIDITY AND CAPITAL RESOURCES
Management believes thatOur short-term liquidity needs include required debt service and day-to-day
operating expenses including working capital requirements and the Company has adequatefunding of
capital expenditures. Long-term liquidity requirements include capital
expenditures for new programs and maintenance of existing equipment and debt
service. Capital expenditures for 2004 are expected to be $20-22 million, of
which $16.2 million was spent in the nine months ended September 30, 2004.
Our principal sources of cash to fund short- and long-term liquidity needs
consist of cash generated by operations and borrowing under our revolving credit
facilities.
In connection with the Acquisition, we entered into a new senior credit
facilities and cash
availableagreement with a syndication of banks consisting of the following
components:
- - A $33 million term loan to meet its working capital and capital expenditure needs for the
foreseeable future. The Company's current banking agreement (the "Agreement")
includes a $70Autocam;
- - A (euro)62.7 million five-yearterm loan to Autocam's wholly-owned subsidiary,
Autocam France SARL (equivalent to $76.8 million as of September 30,
2004);
- - A multi-currency revolving credit facility of $36.1 million ($23.1 million
in availability as of September 30, 2004) against which borrowings may be
made by Autocam in USD or euros; and
- - A euro revolving credit facility of (euro) 11.6 million available to
Autocam France SARL (fully available as of September 30, 2004).
The indenture governing the Notes and the agreement governing the senior credit
facilities contain a $50 million
five-year acquisition term notenumber of 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.
The senior credit facilities require us to meet a $20 million six-year term note. Principal
obligationsnumber of financial ratio
tests, including interest coverage and total leverage ratios. The senior credit
facilities also limit the amount of capital expenditures we may make. Our
management believes that cash from operations and, if required, borrowings under
the revolving credit facility are due at the expirationfacilities of the facility. Principal obligations under the $50 million and $20 million term notes
are as follows:
In thousands $50 million note $20 million note
---------------- ----------------
Prior to October 1, 2000 $ 6,856
Between September 30, 2000 and October 1, 2001 12,570
Between September 30, 2001 and October 1, 2002 13,713
Between September 30, 2002 and October 1, 2003 12,570 $ 1,137
Between September 30, 2003 and October 1, 2004 13,646
Thereafter 3,411
------- -------
Total $45,709 $18,194
======= =======
Interest is due monthly on allsenior credit facilities under the Agreementwill be
sufficient for cash requirements through at variable
interest rates. The Agreement includes certain covenants requiring the Company
to maintain minimum levels of tangible net worth and prohibits the Company from
exceeding certain leverage ratios.
As ofleast September 2005.
Nine Months Ended September 30, 1999, the Company had $21.22004
Cash provided by operating activities of $10.3 million in availability under
its revolving credit facility. Management anticipates retiring current
maturities of long-term obligations with future operating cash flows. As of
September 30, 1999, $112.7 million of the Company's long-term debt was subject
to variable interest rates.
15
16
AUTOCAM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
SEPTEMBER 30, 1999
LIQUIDITY AND CAPITAL RESOURCES - CONCLUDED
New equipment placed into service and deposits paid on future equipment
purchases during the quarternine months
ended September 30, 1999 totaling $6.22004 reflects net income, excluding non-cash and other
reconciling items of $21.7 million, and an increase in net working capital of
$11.4 million due primarily to the following factors:
- - Inventories increased $5.5 million due primarily to the growth in our
business as described above. In addition, the value of raw material
inventories has risen consistent with the rise in steel and perishable
tooling prices. Finally, machinery spare parts inventories have increased
consistent with the addition of new types of equipment.
- - Accounts receivable increased $4.7 million. A significant customer
discontinued an accelerated payment program in May 2004, which had the
effect of increasing accounts receivable by $3.2 million, and payment
terms from a number of other North American customers have lengthened over
the course of 2004. In addition, sales by our South American operations
were financed through operating cash flows and bank borrowings ($4 million) and
operating lease agreements ($2.2 million). Duringup significantly when comparing the quarterlatter part of 2003 to the latter
part of the nine-month period ended September 30, 1999,2004. Finally, factored
European accounts receivable decreased $.8 million from December 31, 2003
to September 30, 2004. All of these factors more than offset the Company borrowed $370,000 to purchaseimpact on
accounts receivable caused by lower summer European sales.
22
Cash used in investing activities of $15.1 million during the nine months ended
September 30, 2004 included capital expenditures primarily for production
equipment formerly leasedof $16.2 million, less $1.1 million in proceeds from the sale of
production equipment.
Cash provided by financing activities of $5.7 million during the nine months
ended September 30, 2004 included the following:
- - Proceeds from issuance of the Notes and term note borrowings at the
closing of the Acquisition under operating lease agreements, resultingour new senior credit facility of $246
million, less debt issue costs paid of $11.5 million;
- - Shareholder contributions received in annual cash flow improvementsconnection with the Acquisition of
$124,000.
In order to meet increased demand primarily$115.4 million;
- - Proceeds from transportation customers,
management will purchase $12-14 millionthe issuance of equipment overnotes payable of $1.4 million;
- - Payments made to former shareholders and option holders of Titan of $232.7
million;
- - Payments made to retire the next three fiscal
quarters (upon which depositsterm notes of $2.2our old senior credit facility
in existence at the closing of the Acquisition of $89.9 million;
- - Scheduled term note principal payments of our old senior credit facility,
capital lease obligations and equipment notes payable of $20 million;
- - Scheduled term note principal payments of our new senior credit facility,
capital lease obligations and equipment notes payable of $1.5 million;
- - Net repayments under the old and new revolving credit facilities of $1.5
million.
Nine Months Ended September 30, 2003
Cash provided by operating activities of $28 million had been placedduring the nine months
ended September 30, 2003 reflects net income, excluding non-cash and other
reconciling items of $24.2 million, and a decrease in net working capital of
$3.8 million due primarly to the impact on accounts receivable caused by lower
summer European sales..
Cash used in investing activities of $12.1 million during the nine months ended
September 30, 2003 included capital expenditures primarily for production
equipment of $16.6 million and proceeds from the sale of production equipment
and the facilities described above of $6 million.
Cash used in financing activities of $20.3 million during the nine months ended
September 30, 2003 included the following:
- - Principal payments on borrowings under our former senior credit facility
of $19.7 million, including the unscheduled payment of $5.8 million in
April from funds received in the sale and leaseback transaction described
above; and
- - Net repayments under the former revolving credit facilities of $1.1
million.
Contingent Liabilities and Other Commitments
We have guaranteed the performance of some equipment leases of an unrelated
vendor that provides services to us within one of our European production
facilities. Our maximum liability under these leases was $5.3 million as of
September 30, 1999). Management expects2004.
23
FOREIGN OPERATIONS
During the three months ended September 30, 2004, our North American operations
exported $4.2 million of product to finance these purchasescustomers located in foreign countries, and
our foreign operations shipped $48.9 million of product to customers from their
facilities. During the nine months ended September 30, 2004, our North American
operations exported $16.6 million of product to customers located in foreign
countries, and our foreign operations shipped $161.4 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 cash on hand,
operatingforeign laws and other economic and
political uncertainties.
ACCOUNTING PRONOUNCEMENTS
SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement
Benefits, was revised in December 2003. It requires additional disclosures about
assets, obligations, cash flows operating leases, and/or bank borrowings.
IMPACT OF YEAR 2000 ISSUE
The Company recognizesand net periodic benefit cost of defined benefit
pension plans and enhanced disclosures of management's assumptions related to
discount rates, investment returns and salary assumptions. This statement is
effective for us for the importance ofyear ending December 31, 2004.
CRITICAL ACCOUNTING POLICIES
No material changes have been made to our critical accounting policies during
2004.
Item 3 . Quantitative and Qualitative Disclosures about Market Risk
We manage certain foreign currency exchange risk in relation to equipment
purchases through the Year 2000 issue and has been giving
high priority to it. In July 1998, the Company created a Year 2000 project team
to supervise a comprehensive risk-based assessment of the Company's Year 2000
readiness. The team's objective is to ensure an uninterrupted transition into
the Year 2000. The scope of the Year 2000 readiness effort includes software,
hardware, electronic data interchange, manufacturing and lab equipment,
environmental and safety systems, facilities, utilities and supplier readiness.
Since the Company makes predominatelimited use of recent operating versionsforeign currency futures contracts to
reduce the impact of packaged
computer applicationschanges in its business and believesforeign currency rates on firm commitments to
purchase equipment. No such applicationscontracts related to be Year
2000 compliant, management considers the risk of a materially adverse effect on
the operations of the Company to be remote. As ofequipment purchases were
outstanding at September 30, 1999, the
Company had spent $16,000 in connection with the assessment phase2004 or December 31, 2003.
We typically derive 50-60% of the
project, which is now complete.
The Company is utilizing both internal and external resources to remediate and
test all applications and computer, manufacturing and facilities equipment that
may be adversely impacted by Year 2000 issues. The Company has completed the
testing of all Year 2000 compliance issues for all information systems. Total
costs to remediate its systems, if any, are not expected to exceed $150,000.
In addition to internal Year 2000 software and equipment remediation activities,
the Company has contacted its key suppliers and all its electronic commerce
customers to assess their compliance. There can be no absolute assurances that
there will not be a materially adverse effect on the Company if third parties do
not convert their systems in a timely manner and in a way that is compatible
with the Company's systems. The Company believes that its diligent actions with
suppliers and customers will minimize these risks. In any event, the Company
believes that it has adequate back-up manual and contingency systems in place
that will allow it to ship its primary products and invoice its customers in the
unlikely event that its assessment, testing and remediation efforts do not
detect a materially adverse Year 2000 compliance problem in its software or
equipment or with its suppliers or customers.
16
17
AUTOCAM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONCLUDED
SEPTEMBER 30, 1999
IMPACT OF YEAR 2000 ISSUE - CONCLUDED
The Company's current estimates of the amount of time and costs necessary to
remediate and test its computer systems are based on the facts and circumstances
existing at this time. The estimates were derived utilizing multiple assumptions
of future events including the continued availability of certain resources,
third-party modification plans and implementation success, and other factors.
New developments may occur that could affect the Company's estimates of the
amount of time and costs necessary to modify and test its systems for Year 2000
compliance. These developments include, but are not limited to, (i) the
availability and cost of personnel trained in this area, (ii) the ability to
locate and correct all relevant computer code and equipment, and (iii) the
planning and modification success attained by the Company's suppliers and
customers.
FOREIGN CURRENCY TRANSACTIONS
The Company derived 48% and 15% of itsour sales during the first quarters of fiscal
2000 and 1999, respectively, from foreign manufacturing operations.
The financial position and results of operations of the Company's subsidiaryour subsidiaries in France
are measured in French Francseuros based on functional currency and translated into U.S. Dollars.USD. The
effects of foreign currency fluctuations in France isare somewhat mitigated by the
fact that sales and expenses are generally incurred in French Francs,euros, and the reported
net income thereon will be higher or lower depending on a weakening or
strengthening of the U.S. Dollar.USD as compared to the euro.
The financial position and results of operations of the Company'sour subsidiary in Brazil are
measured in Brazilian Reaisreais and translated into U.S. Dollars.USD. With respect to
37% and 64%approximately 40% of this subsidiary's sales, for the first quarter of
fiscal 2000 and 1999, respectively, expenses associated therewith are generally incurred in
Brazilian Reais,reais, but sales are generatedinvoiced in U.S. Dollars.USD. As such, results of operations
with regard to these sales are directly influenced by a weakening or
strengthening of the Brazilian Real versusreal as compared to the U.S. Dollar.USD. The effects of
foreign currency fluctuations are somewhat mitigated on the remainder of this
subsidiary's sales by the fact that suchthe sales and related expenses associated
therewith are generally
incurred in Brazilian Reaisreais and the reported income
thereon will be higher or lower
depending on a weakening or strengthening of the U.S. Dollar.
SevenUSD as compared to the
Brazilian real.
24
Item 4. Disclosure Controls and eleven percentProcedures
Our management carried out an evaluation with the participation of our Chief
Executive Officer and Chief Financial Officer, of the Company's net assetseffectiveness of our
disclosure controls and procedures as defined under rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as of September 30, 1999
are based in France and Brazil, respectively, and were translated into U.S.
Dollars at the exchange rates in effect as of that date (1.918 Brazilian Reais
per U.S. Dollar, and 6.156 French Francs per U.S. Dollar, respectively).
Accordingly, the Company's consolidated shareholders' equity will fluctuate
depending upon the weakening or strengtheningend of the U.S. Dollar.
17
18
SIGNATURES
Pursuantlast
fiscal quarter. Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures
are effective to the requirements ofensure that information required to be disclosed in the
Securities and Exchange ActCommission's rules and forms is recorded, processed,
summarized and reported, within the time periods specified in the rules and
forms. In connection with the rules, we currently are in process of 1934, the
Registrantfurther
reviewing and documenting our disclosure controls and procedures, including our
internal controls and procedures for financial reporting, and may from time to
time make changes aimed at enhancing their effectiveness and to ensure that our
systems evolve with our business.
There were no changes in our internal control over financial reporting
identified in connection with our evaluation of our disclosure controls and
procedures that occurred during our last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Securities Holders
None.
Item 5. Other Information
None.
25
Item 6. Exhibits and Reports on Form 8-K
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.
26
SIGNATURES
Autocam Corporation has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date:AUTOCAM CORPORATION
November 12, 1999
Autocam Corporation2004 /s/ John C. Kennedy
-------------------------------- ------------------------------------ ------------------------------
Date John C. Kennedy
Principal Executive Officer
/s/ Warren A. Veltman
-------------------------------
Warren A. Veltman
Principal Financial and
Accounting Officer
18President
27
19
Exhibit Index
-------------
Exhibit Index Description
- ------------- -----------
27 Financial Data ScheduleEXHIBIT 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.
28