10-Q 1 k67402e10-q.txt QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON DC 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 23, 2001 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 333-21819 LDM TECHNOLOGIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MICHIGAN 38-2690171 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (248) 858-2800 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. YES X NO Number of shares of common stock outstanding as of February 1, 2002: 600 Total pages: 18 Listing of exhibits: 1 LDM TECHNOLOGIES, INC. INDEX

2 LDM TECHNOLOGIES, INC. Condensed Consolidated Balance Sheets (dollars in thousands)

Note: The balance sheet at September 30, 2001 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements. 3 LDM TECHNOLOGIES, INC. Condensed Consolidated Statements of Operations (dollars in thousands)

See notes to condensed consolidated financial statements. Total comprehensive income is not materially different from net income.

4 LDM TECHNOLOGIES, INC. Condensed Consolidated Statements of Cash Flows (dollars in thousands)

See notes to condensed consolidated financial statements. 5 LDM TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month periods ending December 23, 2001 and December 17, 2000 are not necessarily indicative of the results that may be expected for the year ending September 29, 2002. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended September 30, 2001. Effective October 1, 2001, the Company elected to early adopt Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. Under the new standard, goodwill is no longer amortized but is subject to annual impairment tests in accordance with the Statement. Application of the non-amortization provision of Statement No. 142 resulted in an increase to pretax income of $1.2 million for the three months ended December 23, 2001. The Company closed its quarters ended December 23, 2001 and December 17, 2000 one week early to allow for the Christmas holiday and automotive shutdown. Both quarters contain 12 weeks. 2. Revenue Recognition The Company and its consolidated subsidiaries recognize revenue when legal title transfers to the customer, generally when goods are shipped to the customer. Shipping and handling costs are included in cost of sales. As a result of the issuance of Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"), along with related interpretations and pronouncements by the SEC and other accounting standards setting bodies, the Company evaluated the effects on its revenue recognition policies, particularly those related to customer reimbursable tooling. As a result, customer reimbursements for tooling for all periods presented have been reclassified from net sales to a reduction of cost of sales. There was no impact to net earnings or equity resulting from this reclassification. 3. Commitments and Contingencies There have been no significant changes in commitments and contingencies from the matters described in footnote 11 of the Company's consolidated financial statements as of and for the fiscal year ended September 30, 2001. 6 LDM TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements 4. Derivative Financial Instruments The Company's fair values of the swap and the collar (refer to footnote 1 of the Company's consolidated financial statements as of and for the fiscal year ended September 30, 2001) are reported on the balance sheet with changes in fair value reported in the statement of operations in accordance with Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities," as amended ("FAS 133"). The Company has reflected the fair value of these derivatives as a liability of $1.9 million which is included as a component of accrued liabilities. The change in fair value for the three months ended December 23, 2001, and three months ended December 17, 2000 resulted in an expense of $438 thousand and $391 thousand, respectively, which has been included as a component of other income (expense), net. 5. Income Taxes The effective tax rate for the first quarter of 2002 was 17.7% compared to 24.8% for the first quarter 2001. The interim effective rates are estimated based upon fiscal year operating forecasts. The effective tax rates differ from statutory rates due to foreign taxes in excess of tax credits and certain nondeductible expenses. 6. Related Party Transactions The Company has a consulting arrangement with a company owned by one of its shareholders in which payments are made for consulting services rendered. Amounts paid for these services are included in selling, general and administrative expenses and were $1.6 million for the fiscal year ended September 30, 2001. To date in fiscal year 2002, no payments have been made to this consulting company. The Company and its two shareholders are party to a binding stock redemption agreement. Upon the death of either shareholder, the Company is required to purchase and the shareholder's estate is required to sell all of the shareholder's stock at a price equal to $17 million. This amount payable includes the proceeds of the life insurance policies owned by the Company on the shareholder's life. The Company is required to purchase and maintain life insurance policies of $17 million on the lives of each of the shareholders for as long as the Stock Redemption Agreement is in effect. The aggregate premium for these policies presently approximates $0.7 million per year. Further, the Company is prohibited from assigning, pledging or borrowing against these life insurance policies without the consent of the insured shareholder. The Agreement may be terminated by mutual agreement of all parties 7 LDM TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements 7. Supplemental Guarantor Information The $110 million 10 3/4% Senior Subordinated Notes due 2007, the Senior Credit Facility, the standby letters of credit with respect to the $8.8 million Multi-Option Adjustable Rate Notes, the $4.4 million Variable Rate Demand Limited Obligation Revenue Bonds and the Senior Term and Capital Expenditures Line of Credit are obligations of LDM Technologies, Inc. The obligations are guaranteed fully, unconditionally and jointly and severally by LDM Canada and certain holding companies. Upon the divestiture of LDM Germany effective September 30, 2001 there are no non-guarantor subsidiaries remaining. Supplemental consolidating financial information of LDM Technologies, Inc. and LDM Canada (including the related holding company guarantors) is presented below. Investments in subsidiaries are presented on the equity method of accounting. Separate financial statements of the guarantors are not provided because management has concluded that the summarized financial information below provides sufficient information to allow investors to separately determine the nature of the assets held by and the operations of LDM Technologies, Inc., and the guarantor and non-guarantor subsidiaries. 8 LDM TECHNOLOGIES, INC. Condensed Consolidating Balance Sheet as of December 23, 2001 (Unaudited) (dollars in thousands)

9 LDM TECHNOLOGIES, INC. Condensed Consolidating Balance Sheet as of September 30, 2001 (Unaudited) (dollars in thousands)

10 LDM TECHNOLOGIES, INC. Condensed Consolidating Statement of Operations for Three Months ended December 23, 2001 (Unaudited) (dollars in thousands)

11 LDM TECHNOLOGIES, INC. Condensed Consolidating Statement of Operations for Three Months Ended December 17, 2000 (Unaudited) (dollars in thousands)

12 LDM TECHNOLOGIES, INC. Condensed Consolidating Statement of Cash Flows for Three Months Ended December 23, 2001 (Unaudited) (dollars in thousands)

13 LDM TECHNOLOGIES, INC. Condensed Consolidating Statement of Cash Flows for Three Months Ended December 17, 2000 (Unaudited) (dollars in thousands)

14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this section, the words "anticipate," "believe," "estimate" and "expect" and similar expressions are generally intended to identify forward-looking statements. Readers are cautioned that any forward-looking statements, including statements regarding the intent, belief or current expectations of the Company or its management, are not guarantees of future performance and involve risks and uncertainties, and that the actual results may differ materially from those in the forward-looking statements as a result of various factors including, but not limited to: (i) general economic conditions in the markets in which the Company operates; (ii) fluctuations in worldwide or regional automobile and light and heavy truck production, (iii) labor disputes involving the Company or its significant customers; (iv) changes in practices and/or policies of the Company's significant customers toward outsourcing automotive components and systems; (v) foreign currency and exchange fluctuations; and (vi) other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. The Company does not intend to update these forward-looking statements. OVERVIEW The Company closed its quarters ended December 23, 2001 and December 17, 2000 one week early to allow for the Christmas holiday and automotive shutdown. Both quarters contain 12 weeks. Effective October 1, 2001, the Company elected to early adopt Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. Under the new standard, goodwill is no longer amortized but is subject to annual impairment tests in accordance with the Statement. Application of the non-amortization provision of Statement No. 142 resulted in an increase to pretax income of $1.2 million for the three months ended December 23, 2001. RESULTS OF OPERATIONS QUARTER ENDED DECEMBER 23, 2001 COMPARED TO THE QUARTER ENDED DECEMBER 17, 2000 Net sales for the quarter ended December 23, 2001 ("first quarter 2002") were $95.4 million, a decrease of $4.4 million or 4.4% from the quarter ended December 17, 2000 ("first quarter 2001"). The decline in net sales is due to the sale of LDM Germany, effective September 30, 2001, offset by increased volumes on programs which LDM's North American operations service. Gross margin was $15.0 million or 15.7% of net sales for the first quarter 2002 compared with $20.7 million or 20.7% of net sales for the first quarter 2001. The decline in gross margin is due to the incurrence of fixed costs related to a new manufacturing facility in Romulus, Michigan. New product launches are scheduled in this facility in the second and third quarters of fiscal year 2002, which will assist in covering fixed costs that are currently being incurred. Selling, General and Administrative (SG&A) expense for the first quarter 2002 was $10.8 million, or 11.3% of net sales compared to $15.4 million, or 15.4% of net sales for the first quarter of 2001. The decrease in first quarter 2002 is the result of cost cutting efforts undertaken in mid-year 2001 to mitigate the potential effects of an economic slow down in the U.S. coupled with the effect of adopting Statement of Financial Accounting Standards No. 142 (FAS 142). The adoption of FAS 142 resulted in not amortizing goodwill in the first quarter 2002. Goodwill amortized in first quarter 2001 was $1.2 million. 15 Interest expense for the first quarter 2002 was $3.8 million compared to $4.1 million for the first quarter 2001. The decrease in interest expense is due to scheduled debt repayments and a decrease in variable interest rates. The effective tax rate for the first quarter of 2002 was 17.7% compared to 24.8% for the first quarter 2001. The interim effective rates are estimated based upon fiscal year operating forecasts. The effective tax rates differ from statutory rates due to foreign taxes in excess of tax credits and certain nondeductible expenses. At December 23, 2001, the Company had deferred tax assets of $4.2 million. The Company evaluates the necessity for a valuation allowance on deferred tax assets by taxing jurisdiction. Deferred tax assets in the United States and Canada relate primarily to net operating loss carryforwards (NOL's). In Canada, the Company has recognized a valuation allowance of $634,000. In the United States, the NOL expires in 2021. Realization of the deferred tax assets in the United States is dependent in part upon a tax planning strategy related to an affiliate of the Company and also on future taxable income. Both of these are dependent upon a number of factors including, but not limited to, sufficient levels of earnings before income taxes and the effective execution of the tax planning strategy. Based on consideration of historical and future earnings before income taxes, the Company believes it is more likely than not that the deferred tax assets, beyond those specifically reserved, will be realized. The Company evaluates its deferred taxes and related valuation allowances quarterly. If at any time the Company believes that current or future taxable income will not support the basis for recognizing the benefit of the deferred tax assets, valuation allowances are provided accordingly. LIQUIDITY AND CAPITAL RESOURCES The Company's principal capital requirements are to fund working capital needs, to meet required debt obligations, and to fund capital expenditures for facility maintenance and expansion. The Company believes its future cash flow from operations, combined with its revolving credit availability will be sufficient to meet its planned debt service, capital requirements, and internal growth opportunities. As of December 23, 2001, the Company had $161.2 million of long-term debt outstanding, $16.3 million of revolving loans and current maturities of long-term debt outstanding, and $28.8 million of borrowing availability under its revolving credit facility. Cash provided by operating activities in first quarter 2002 was $4.9 million compared to $21.5 million in the first quarter 2001. The decrease is due to billings for customer owned tooling late in first quarter 2002, which caused an increase in accounts receivable. It is anticipated that all customer tool billings will be collected in the second quarter of fiscal year 2002. Capital expenditures for first quarter 2002 were $1.4 million compared to $6.1 million for first quarter 2001. The Company believes its capital expenditures will be approximately $7.5 million in fiscal year 2002. The majority of the Company's fiscal year 2002 capital expenditures will be used to facilitate new programs launching in fiscal years 2002 and 2003. The Company's liquidity is affected by both the cyclical nature of its business and the level of net sales to its major customers. The Company's ability to meet its working capital and capital expenditure requirements and debt obligations will depend on its future operating performance, which will be affected by prevailing economic conditions and financial, business and other factors, certain of which are beyond its control. However, the Company believes that its existing borrowing ability and cash flow from operations will be sufficient to meet its liquidity requirements in the foreseeable future. 16 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes to the Company's exposure to market risk since September 30, 2001. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LDM TECHNOLOGIES, INC. By: /s/ Gary E. Borushko -------------------------- Gary E. Borushko Chief Financial Officer By: /s/ Bradley N. Frederick -------------------------- Bradley N. Frederick Director of Finance Chief Accounting Officer Dated: February 8, 2002 18

LDM TECHNOLOGIES INC 10-Q