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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 MARCH 31, 2005
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From__________ to__________
- --------------------------------------------------------------------------------
COMMISSION FILE NUMBER 333-119215
AUTOCAM CORPORATION
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Michigan 38-2790152
- ----------------------------------- ------------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
4436 Broadmoor Avenue Southeast
Kentwood, Michigan 49512
--------------------------------------- --------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (616) 698-0707
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [ ] 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 shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 12, 2005
-------------------------------- --------------------------------
COMMON STOCK, $.01 PAR VALUE 100 SHARES
INDEX
PAGE NO.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 2004 and March 31, 2005 1
Consolidated Statements of Operations and Comprehensive Income (Loss)
for the Three Months Ended March 31, 2004 and 2005 2
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2004 and 2005 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
Item 4. Disclosure Controls and Procedures 20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits 21
Signatures 22
Exhibit 31.1 - CEO Certification
Exhibit 31.2 - CFO Certification
Exhibit 32.1 - CEO Certification
Exhibit 32.2 - CFO Certification
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TITAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
DECEMBER 31, MARCH 31,
2004 2005
------------ ------------
(successor)
Amounts in thousands, except share information --------------------------------
Assets
Current assets:
Cash and equivalents $ 2,117 $ 770
Accounts receivable, net of allowances of $618 and $808, respectively 58,360 62,642
Inventories 36,947 37,780
Prepaid expenses and other current assets 3,485 3,244
------------ ------------
Total current assets 100,909 104,436
Property, plant and equipment, net 177,285 170,804
Goodwill 268,039 261,133
Other long-term assets 23,199 23,734
------------ ------------
Total Assets $ 569,432 $ 560,107
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term obligations $ 12,942 $ 11,449
Accounts payable 46,688 39,207
Accrued liabilities 20,561 22,931
------------ ------------
Total current liabilities 80,191 73,587
------------ ------------
Long-term obligations, net of current maturities 275,839 281,481
Deferred taxes and other 48,042 46,695
Shareholders' equity:
Common stock - $.01 par value; 100 shares authorized, issued and outstanding
as of December 31, 2004 and March 31, 2005
Additional paid-in capital 145,112 145,112
Accumulated other comprehensive income 19,694 12,357
Retained earnings 554 875
------------ ------------
Total shareholders' equity 165,360 158,344
------------ ------------
Total Liabilities and Shareholders' Equity $ 569,432 $ 560,107
============ ============
See notes to consolidated financial statements.
1
TITAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
---------------------------------
2004 2005
------------- -----------
Amounts in thousands (predecessor) (successor)
Sales $ 92,856 $ 88,787
Cost of sales 76,615 76,493
------------- -----------
Gross profit 16,241 12,294
Selling, general and administrative expenses 5,078 5,450
------------- -----------
Income from operations 11,163 6,844
Interest expense, net 1,989 6,015
Other expenses, net 927 756
------------- -----------
Income before tax provision 8,247 73
Tax provision 3,382 (249)
------------- -----------
Net Income $ 4,865 $ 322
============= ===========
Statements of Comprehensive Income (Loss):
Net income $ 4,865 $ 322
Other comprehensive income (loss):
Foreign currency translation adjustments (687) (7,337)
Amortization of interest rate agreements 68
------------- -----------
Comprehensive Income (Loss) $ 4,246 ($ 7,015)
============= ===========
See notes to consolidated financial statements.
2
TITAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
---------------------------------
2004 2005
------------- -----------
Amounts in thousands (predecessor) (successor)
Net cash provided by (used in) operating activities $ 8,006 ($ 3,554)
Cash flows from investing activities:
Expenditures for property, plant and equipment (5,861) (4,853)
Equipment deposits to be refunded (2,806) (1,537)
Other (15) 28
------------- -----------
Net cash used in investing activities (8,682) (6,362)
------------- -----------
Cash flows from financing activities:
Borrowings on lines of credit, net 19,405 10,651
Principal payments of long-term obligations (19,580) (2,059)
Other 1,068 (106)
------------- -----------
Net cash provided by financing activities 893 8,486
------------- -----------
Effect of exchange rate changes on cash and equivalents 21 83
------------- -----------
Increase (decrease) in cash and equivalents 238 (1,347)
Cash and equivalents at beginning of period 1,075 2,117
------------- -----------
Cash and Equivalents at End of Period $ 1,313 $ 770
============= ===========
See notes to consolidated financial statements.
3
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
(UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial statements (the
"Financial Statements") include the accounts of Titan Holdings, Inc. ("Titan")
and its subsidiaries (together, the "Company"), which includes Autocam
Corporation ("Autocam"), a wholly-owned subsidiary. The Financial Statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America ("GAAP") for interim financial information.
Accordingly, they do not include all the information and footnotes normally
included in the annual consolidated financial statements prepared in accordance
with GAAP. All significant intercompany accounts and transactions have been
eliminated in consolidation. All currency amounts within these footnotes are
expressed in thousands of U.S. dollars unless otherwise noted.
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 GAAP.
On June 21, 2004, Micron Merger Corporation, a newly formed entity and
wholly-owned subsidiary of Micron Holdings, Inc. ("Micron"), merged with and
into Titan with Titan continuing as the surviving corporation (the "Merger"). As
a result, Titan became a wholly-owned subsidiary of Micron. The total amount of
consideration paid in the Merger, including amounts related to the repayment of
indebtedness, the redemption of the outstanding preferred stock of Titan,
payments to common shareholders of Titan and the payment of transaction costs
incurred by Titan, was $395,000. The Merger was financed with the net proceeds
from the issuance of $140,000 of senior subordinated notes of the Company, which
are guaranteed by Titan (the "Notes"), borrowings under the Company's senior
credit facilities of $114,000 and combined common equity contributions of
$143,400 by GS Capital Partners 2000, L.P. ("GSCP 2000"), other private equity
funds affiliated with GSCP 2000, Transportation Resource Partners LP ("TRP"),
other investment vehicles affiliated with TRP, and certain of the Company's
management.
Successor periods - Represents the consolidated financial position and
consolidated results of operations and cash flows of the Company reflecting the
basis of accounting after application of purchase accounting for the Merger.
Predecessor periods - Represents the consolidated financial position and results
of operations and cash flows of the Company reflecting the historical basis of
accounting without any application of purchase accounting for the Merger.
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 plans.
Accordingly, no stock-based employee compensation cost is reflected in net
income as all options granted under those plans had an exercise price equal to
the estimated market value of the underlying common stock on the date of the
grant. Had stock-based employee compensation cost of the Company's stock option
plans been determined based upon the fair value at the grant dates for awards
under those plans consistent with the method of the Financial Accounting
Standards Board's Statement of Financial Accounting Standard ("SFAS") No. 123,
Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting
for Stock-Based Compensation -- Transition and Disclosure, the Company's net
income would have changed to the pro forma amounts indicated below:
4
THREE MONTHS ENDED MARCH 31,
---------------------------------
2004 2005
------------- -----------
(predecessor) (successor)
As reported $ 4,865 $ 322
Compensation expense, net of related tax effects (140) (154)
------------- -----------
Pro forma $ 4,725 $ 168
============= ===========
The fair value approach was used to value all option grants, with the following
weighted-average assumptions: risk-free interest rate, 4%-4.51%; and expected
life of options, 10 years.
Pension Plans -- The Company sponsors defined benefit pension plans for
substantially all employees of its French subsidiaries. Set forth below are the
components of net periodic benefit cost for the plans of the Company's French
subsidiaries, Frank & Pignard, SA, ("F&P") and Bouverat Industries, SA
("Bouverat"):
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------
2004 2005
--------------------------- ----------------------------
F&P PLAN BOUVERAT PLAN F&P PLAN BOUVERAT PLAN
-------- ------------- -------- -------------
Service and interest costs $ 37 $ 29 $ 38 $ 30
Expected return on plan assets (8) (8)
-------- -------- -------- --------
Net periodic benefit cost $ 37 $ 21 $ 38 $ 22
======== ======== ======== ========
2. BUSINESS COMBINATION
The Merger was accounted for as a purchase, and accordingly, the purchase price
was allocated to assets acquired and liabilities assumed based upon their
relative fair market values. Cost in excess of the fair value of the net assets
acquired (goodwill) was $249,371, allocated among the Company's operating
segments as follows: North America - $116,227, Europe - $124,486 and South
America - $8,658. The results of operations and cash flows of Titan (as
predecessor company) have been reported during the three months ended March 31,
2004.
Set forth below is unaudited pro forma statement of operations information for
the three months ended March 31, 2004, which is based upon the historical
Consolidated Statements of Operations of the Company after giving effect to the
Merger as if such transaction had occurred at the beginning of such period.
These pro forma results are based upon assumptions considered appropriate by
Company management and include adjustments as considered necessary in the
circumstances. Such adjustments include interest expense that would have been
incurred to finance the purchase, depreciation expense based on the fair market
value of the property and equipment acquired and the corresponding tax effects
of each. These pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of results which would have actually
been reported had the Merger taken place at the beginning of such period or
which may be reported in the future.
Sales $ 92,856
Net income 3,299
Effective November 1, 2004, F&P acquired the stock of ATI, S.A.S., for $1,681 in
cash and the assumption of $6,065 in debt, primarily consisting of capital lease
obligations. The acquisition was accounted for as a purchase, and accordingly,
the purchase price was allocated to assets acquired and liabilities assumed
based upon their relative fair market values. Cost in excess of the fair value
of the net assets acquired (goodwill) was $1,086.
5
3. INVENTORIES
Set forth below are the components of Inventories:
DECEMBER 31, MARCH 31,
2004 2005
------------ ---------
Raw materials $ 11,030 $ 11,884
Production supplies 7,188 6,728
Work in-process 12,979 12,732
Finished goods 5,750 6,436
------------ ---------
Total Inventories $ 36,947 $ 37,780
============ =========
4. PROPERTY, PLANT AND EQUIPMENT, NET
Set forth below are the components of Property, Plant and Equipment, Net:
DECEMBER 31, MARCH 31,
2004 2005
------------ ---------
Buildings and land $ 10,838 $ 10,844
Machinery and equipment 161,407 158,636
Furniture and fixtures 11,041 10,940
------------ ---------
Total 183,286 180,420
Accumulated depreciation (6,001) (9,616)
------------ ---------
Total Property, Plant and Equipment, Net $ 177,285 $ 170,804
============ =========
6
5. LONG-TERM OBLIGATIONS
Set forth below are the components of Long-Term Obligations (percentages
represent interest rates as of March 31, 2005):
DECEMBER 31, MARCH 31,
2004 2005
------------ ---------
Senior Credit Facilities:
USD term note, 6.125% $ 32,835 $ 32,753
Eurocurrency term note, 5.144% 83,269 78,236
Multi-currency revolving line of credit, 6.125%-7.75% 18,000 21,000
Eurocurrency revolving line of credit, 5.105% 6,482
------------ ---------
Total senior credit facilities 134,104 138,471
Senior subordinated notes, 10.875%, net of original issue discount 137,043 137,121
Capital leases, from 2.14% to 19.62% 12,659 11,283
Other 4,975 6,055
------------ ---------
Total long-term obligations 288,781 292,930
Current portion (12,942) (11,449)
------------ ---------
Long-term portion $ 275,839 $ 281,481
============ =========
On April 25, 2005, effective March 31, 2005, the Company and its wholly owned
subsidiary Autocam France, SARL entered into an amendment to its senior credit
facilities agreement (the "Amendment"). Pursuant to the Amendment, among other
things, the financial covenants related to interest coverage and leverage ratios
(each as defined in the senior credit facilities agreement) were amended to make
them less restrictive, a new senior leverage ratio (as defined in the Amendment)
was established, the principal amortization on the Eurocurrency term note
provided under the senior credit facilities agreement was restructured and the
interest rate margins applicable to the loans provided under the senior credit
facilities agreement were increased.
In connection with the Merger, Titan and certain, but not all, of the
subsidiaries of Autocam fully and unconditionally guaranteed the Notes. 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
Information regarding the guarantors and non-guarantors are as follows:
TITAN
COMBINING STATEMENT OF OPERATIONS (PARENT SUBSIDIARIES
THREE MONTHS ENDED MARCH 31, 2004 COMPANY --------------------------
(predecessor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- -------------------------------------------- ------- ------- --------- ------------- ------------ --------
Sales $32,444 $ 5,489 $ 56,626 ($ 1,703) $ 92,856
Cost of sales 27,427 3,824 47,067 (1,703) 76,615
------- --------- ------------- --------
Gross profit 5,017 1,665 9,559 16,241
Selling, general and administrative expenses 1,895 295 2,888 5,078
------- --------- ------------- --------
Income from operations 3,122 1,370 6,671 11,163
Interest expense, net 389 145 1,455 1,989
Other expense, net $ 9 375 543 927
------- ------- --------- ------------- --------
Income (loss) before tax provision (9) 2,358 1,225 4,673 8,247
Tax provision (3) 801 418 2,166 3,382
------- ------- --------- ------------- --------
Net Income (Loss) ($ 6) $ 1,557 $ 807 $ 2,507 $ 4,865
======= ======= ========= ============= ========
TITAN
COMBINING STATEMENT OF OPERATIONS (PARENT SUBSIDIARIES
THREE MONTHS ENDED MARCH 31, 2005 COMPANY ---------------------------
(successor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- -------------------------------------------- ------- ------- --------- ------------- ------------ --------
Sales $ 32,559 $ 5,322 $ 53,658 ($ 2,752) $ 88,787
Cost of sales 27,796 3,704 47,745 (2,752) 76,493
-------- --------- ------------- --------
Gross profit 4,763 1,618 5,913 12,294
Selling, general and administrative expenses 1,870 343 3,237 5,450
-------- --------- ------------- --------
Income from operations 2,893 1,275 2,676 6,844
Interest expense, net 4,064 180 1,771 6,015
Other expense, net $ 59 375 322 756
------- -------- --------- ------------- --------
Income (loss) before tax provision (59) (1,546) 1,095 583 73
Tax provision (547) 376 (78) (249)
------- -------- --------- ------------- --------
Net Income (Loss) ($ 59) ($ 999) $ 719 $ 661 $ 322
======= ======== ========= ============= ========
8
CONDENSED COMBINING STATEMENT TITAN
OF CASH FLOWS (PARENT SUBSIDIARIES
THREE MONTHS ENDED MARCH 31, 2004 COMPANY -------------------------
(predecessor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR COMBINED
- --------------------------------------------------- ------- ------- --------- ------------- --------
Net cash provided by (used in) operating activities ($6) $ 843 $ 196 $ 6,973 $ 8,006
Expenditures for property, plant and equipment (1,805) (193) (3,863) (5,861)
Equipment deposits to be refunded (1,733) (1,073) (2,806)
Borrowings on lines of credit, net 4,000 15,405 19,405
Principal payments of long-term obligations (1,045) (18,535) (19,580)
Other 6 (97) (1) 1,166 1,074
------- --------- ------------- --------
Net increase in cash and equivalents 163 2 73 238
Cash and equivalents at beginning of period 750 2 323 1,075
------- --------- ------------- --------
Cash and Equivalents at End of Period $ 913 $ 4 $ 396 $ 1,313
======= ========= ============= ========
CONDENSED COMBINING STATEMENT TITAN
OF CASH FLOWS (PARENT SUBSIDIARIES
THREE MONTHS ENDED MARCH 31, 2005 COMPANY -------------------------
(successor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR COMBINED
- --------------------------------------------------- ------- -------- --------- ------------- --------
Net cash provided by (used in) operating activities ($59) ($ 782) $ 75 ($ 2,788) ($ 3,554)
Expenditures for property, plant and equipment (1,349) (74) (3,430) (4,853)
Borrowings on lines of credit, net 3,000 7,651 10,651
Principal payments of long-term obligations (82) (1,977) (2,059)
Other 59 (1,126) (465) (1,532)
-------- ----- ------------- --------
Net increase (decrease) in cash and equivalents (339) 1 (1,009) (1,347)
Cash and equivalents at beginning of period 1,089 2 1,026 2,117
-------- ----- ------------- --------
Cash and Equivalents at End of Period $ 750 $ 3 $ 17 $ 770
======== ===== ============= ========
9
TITAN
CONDENSED COMBINING BALANCE SHEET (PARENT SUBSIDIARIES
DECEMBER 31, 2004 COMPANY -------------------------
(successor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- ---------------------------------------------------- --------- --------- --------- ------------- ------------ --------
Assets
Current assets:
Cash and equivalents $ 1,087 $ 2 $ 1,028 $ 2,117
Accounts receivable, net 20,329 1,700 37,202 ($ 871) 58,360
Inventories 10,314 1,501 25,132 36,947
Prepaid expenses and other current assets 1,148 78 2,259 3,485
--------- --------- --------- ------ --------
Total current assets 32,878 3,281 65,621 (871) 100,909
Property, plant and equipment, net 29,772 5,637 141,457 419 177,285
Goodwill $ 116,399 3 151,637 268,039
Intercompany receivables (payables) 31,102 (4,142) (26,847) (113)
Investment in subsidiaries 28,661 99,034 (3,458) (123,815) (422)
Other long-term assets 18,120 50 5,029 23,199
--------- --------- --------- --------- ------ --------
Total Assets $ 145,060 $ 210,909 $ 1,368 $ 213,082 ($ 987) $569,432
========= ========= ========= ========= ====== ========
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
Current maturities of long-term obligations $ 330 $ 12,612 $ 12,942
Accounts payable 9,232 $ 184 38,256 ($ 984) 46,688
Accrued liabilities ($34) 4,005 369 16,224 (3) 20,561
--------- --------- --------- --------- ------ --------
Total current liabilities (34) 13,567 553 67,092 (987) 80,191
--------- --------- --------- --------- ------ --------
Long-term obligations, net of current maturities 187,548 88,291 275,839
Deferred taxes and other 11,097 36,945 48,042
Shareholders' equity (deficit):
Capital stock 145,112 145,112
Accumulated other comprehensive income 2,483 17,211 19,694
Retained earnings (accumulated deficit) (18) (3,786) 815 3,543 554
--------- --------- --------- --------- --------
Total shareholders' equity (deficit) 145,094 (1,303) 815 20,754 165,360
--------- --------- --------- --------- ------ --------
Total Liabilities and Shareholders' Equity (Deficit) $ 145,060 $ 210,909 $ 1,368 $ 213,082 ($ 987) $569,432
========= ========= ========= ========= ====== ========
10
TITAN
CONDENSED COMBINING BALANCE SHEET (PARENT SUBSIDIARIES
MARCH 31, 2005 COMPANY -------------------------
(successor) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- ---------------------------------------------------- --------- --------- --------- ------------- ------------ --------
Assets
Current assets:
Cash and equivalents $ 747 $ 4 $ 19 $ 770
Accounts receivable, net 22,569 2,260 38,684 ($ 871) 62,642
Inventories 10,904 1,573 25,303 37,780
Prepaid expenses and other current assets 1,303 118 1,823 3,244
--------- ------- --------- -------- --------
Total current assets 35,523 3,955 65,829 (871) 104,436
Property, plant and equipment, net 30,201 5,608 134,195 800 170,804
Goodwill $ 116,400 20 144,713 261,133
Intercompany receivables (payables) 1,939 28,623 (4,000) (25,841) (721)
Investment in subsidiaries 26,720 100,975 (3,458) (123,815) (422)
Other long-term assets 19,097 40 4,597 23,734
--------- --------- ------- --------- -------- --------
Total Assets $ 145,059 $ 214,439 $ 2,145 $ 199,678 ($ 1,214) $560,107
========= ========= ======= ========= ======== ========
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
Current maturities of long-term obligations $ 330 $ 11,119 $ 11,449
Accounts payable 9,266 $ 262 30,893 ($ 1,214) 39,207
Accrued liabilities $ 25 6,649 349 15,908 22,931
--------- --------- ------- --------- -------- --------
Total current liabilities 25 16,245 611 57,920 (1,214) 73,587
--------- --------- ------- --------- -------- --------
Long-term obligations, net of current maturities 190,544 90,937 281,481
Deferred taxes and other 11,029 35,666 46,695
Shareholders' equity (deficit):
Capital stock 145,112 145,112
Accumulated other comprehensive income 1,408 10,949 12,357
Retained earnings (accumulated deficit) (78) (4,787) 1,534 4,206 875
--------- --------- ------- --------- --------
Total shareholders' equity (deficit) 145,034 (3,379) 1,534 15,155 158,344
--------- --------- ------- --------- -------- --------
Total Liabilities and Shareholders' Equity (Deficit) $ 145,059 $ 214,439 $ 2,145 $ 199,678 ($ 1,214) $560,107
========= ========= ======= ========= ======== ========
11
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 have separate financial results reviewed by the
Company's chief executive and operating decision-makers. These results are used
by those individuals both in evaluating the performance of, and in allocating
current and future resources to, each of the segments. The Company evaluates
segment performance primarily based on income from operations and the efficient
use of assets. Set forth below is business segment information for the three
months ended March 31, 2004 and 2005 and as of December 31, 2004 and March 31,
2005:
THREE MONTHS ENDED
MARCH 31,
---------------------------
2004 2005
------------- -----------
(predecessor) (successor)
Sales to Unaffiliated Customers from Company Facilities Located in:
North America $ 37,830 $ 37,502
Europe 51,179 44,098
South America 3,847 7,187
--------- ---------
Total $ 92,856 $ 88,787
========= =========
Net Income (Loss) of Company Facilities Located in:
North America $ 2,358 ($ 339)
Europe 2,129 (158)
South America 378 819
--------- ---------
Total $ 4,865 $ 322
========= =========
Depreciation and Amortization on Assets Located in:
North America $ 2,211 $ 1,181
Europe 3,133 2,881
South America 265 266
--------- ---------
Total $ 5,609 $ 4,328
========= =========
Net Interest Expense of Company Facilities Located in:
North America $ 534 $ 4,244
Europe 1,345 1,628
South America 110 143
--------- ---------
Total $ 1,989 $ 6,015
========= =========
Tax Provision of Company Facilities Located in:
North America $ 1,216 ($ 171)
Europe 2,052 (505)
South America 114 427
--------- ----------
Total $ 3,382 ($ 249)
========= ==========
Expenditures for Property, Plant and Equipment of Facilities Located in:
North America $ 1,998 $ 1,423
Europe 2,988 2,468
South America 875 962
--------- ----------
Total $ 5,861 $ 4,853
========= ==========
DECEMBER 31, MARCH 31,
2004 2005
------------ ---------
(successor)
--------------------------
Total Assets of Company Facilities Located in:
North America $ 205,690 $ 210,775
Europe 332,279 316,812
South America 31,463 32,520
--------- ---------
Total $ 569,432 $ 560,107
========= =========
12
7. SUPPLEMENTAL CASH FLOW INFORMATION
Set forth below is a reconciliation of net income to net cash provided by (used
in) operating activities:
THREE MONTHS ENDED
MARCH 31,
---------------------------
2004 2005
------------- -----------
(predecessor) (successor)
Net income $ 4,865 $ 322
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 5,609 4,328
Deferred taxes 200 319
Realized gains and losses and other, net 334 185
Changes in assets and liabilities that provided (used) cash:
Accounts receivable (6,745) (6,499)
Inventories (1,002) (1,957)
Prepaid expenses and other current assets (511) 170
Other long-term assets 27 (62)
Accounts payable (4,455) (3,731)
Accrued liabilities 9,895 3,298
Deferred taxes and other (211) 73
-------- --------
Net Cash Provided by (Used in) Operating Activities $ 8,006 ($ 3,554)
======== ========
13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with and is
qualified in its entirety by reference to our 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 first quarter of 2005 as
compared to the same period in 2004 were affected by the following significant
events:
- - On June 21, 2004, Micron Merger Corporation, a newly formed entity and
wholly-owned subsidiary of Micron, merged with and into Titan with Titan
continuing as the surviving corporation (the "Merger"). As a result, Titan
became a wholly-owned subsidiary of Micron. The total amount of
consideration paid in the Merger, including amounts 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 Merger was
financed with the net proceeds from the issuance of $140.0 million of
senior subordinated notes issued by us and guaranteed by Titan (the
"Notes"), borrowings under senior credit facilities of $114.0 million and
combined common equity contributions of $143.4 million by GS Capital
Partners 2000, L.P. ("GSCP 2000"), other private equity funds affiliated
with GSCP 2000, Transportation Resource Partners LP ("TRP"), other
investment vehicles affiliated with TRP, and certain of our management.
- - Effective November 1, 2004, our wholly-owned subsidiary, Frank & Pignard,
SA, acquired the stock of ATI, S.A.S. ("ATI"), for $1,681 in cash and the
assumption of $6,065 in debt, primarily consisting of capital lease
obligations. The acquisition was completed primarily for the purpose of
eliminating costly outside processing of certain electric motor
components.
- - Our business is directly impacted by light vehicle production levels,
primarily in North America and Western Europe. We are also impacted by the
relative North American market shares of the traditional Big Three
automakers, DaimlerChrysler Corporation, Ford Motor Company and General
Motors Corporation. Material changes in either of these factors can have a
material impact on our sales and profit levels. Market shares of the
traditional Big Three have been declining over the past several years.
- - A significant portion of our sales and profits resulted from transactions
denominated in euros. Those sales and profits have been translated into
U.S. dollars, or USD, for financial reporting purposes. As a result, the
value of the USD compared to the euro in the first quarter of 2005
relative to the same period in the prior year 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):
14
THREE MONTHS ENDED
MARCH 31,
DECEMBER 31, ------------------
2004 2004 2005
------------ ------ ------
Average (1) 1.2487 1.3114
End of Period 1.3621 1.2964
------------------
(1) The average rate represents the average of all monthly average
exchange rates within the respective periods weighted by reported
sales denominated in euros.
- - We are routinely exposed to pressure by our customers to offer unit price
reductions, which is typical of our industry. Through continuous
improvement and increased efficiencies in our manufacturing and
administrative processes we have maintained margins over time in spite of
these constant pressures.
RESULTS OF OPERATIONS
The following table sets forth our Consolidated Statements of Operations
expressed as a percentage of sales:
THREE MONTHS ENDED
MARCH 31,
------------------
2004 (1) 2005 (2)
-------- --------
Sales 100.0% 100.0%
Cost of sales 82.5% 86.2%
----- -----
Gross profit 17.5% 13.8%
Selling, general and administrative expenses 5.5% 6.1%
----- -----
Income from operations 12.0% 7.7%
Interest expense, net 2.1% 6.8%
Other expenses, net 1.0% 0.9%
----- -----
Income before tax provision 8.9% 0.0%
Tax provision 3.6% -0.3%
----- -----
Net Income 5.3% 0.3%
===== =====
- ------------------
(1) Represents the consolidated results of operations of the Company
reflecting the historical basis of accounting without any application of
purchase accounting for the Merger.
(2) Represents the consolidated results of operations of the Company
reflecting the basis of accounting after the application of purchase
accounting for the Merger.
15
THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO THREE MONTHS ENDED MARCH 31, 2005
Sales
Sales decreased $4.1 million, or 4.4%, to $88.8 million for the three months
ended March 31, 2005 ("the 2005 period") from $92.9 million for the three months
ended March 31, 2004 ("the 2004 period"). On a constant currency basis, sales
decreased $7.1 million principally attributable to the following factors:
- - Factors resulting in a decrease in Sales:
1. Our European operations were desourced on programs for power
steering, electric motor and fuel systems components resulting in a
reduction in sales to these customers of $6.0 million when comparing
the 2005 period to the 2004 period;
2. Lower sales to a North American fuel systems customer and a European
electric motor customer whose primary customers lost market share
and produced less vehicles in the 2005 period as compared to the
2004 period;
3. Lower sales to a North American fuel systems customer as the 2004
period reflected volumes higher than those reported in the 2005
period as we transitioned from prototype to production volumes on a
new product line during a period where premium pricing was charged
to the customer;
4. Lower sales to a European fuel systems customer as production on the
current injector program is replaced by production on a new injector
program for whom we do not produce components; and
5. We granted unit price reductions to our customers totaling $1.5
million in the 2005 period.
- - Factors partially offsetting the decrease in Sales:
1. Sales of components manufactured by our South American operations
have grown in the 2005 period relative to 2004 period as lower labor
costs in those facilities (relative to those in our European and
North American facilities and those of our competitors) have
afforded us additional demand for high value-added components from
our customers;
2. Our North American and European operations were awarded power
steering business by a new customer for whom we began production in
late 2004; and
3. The devaluation of the USD relative to the reporting currencies of
our foreign subsidiaries resulted in $3.0 million more in sales in
the 2005 period versus the 2004 period.
Gross Profit
Gross profit decreased $3.9 million to $12.3 million, or 13.8% of sales, for the
2005 period from $16.2 million, or 17.5% of sales, for the 2004 period. The
gross profit percentage decline can generally be attributed to the following
factors:
- - Factors resulting in a decrease in Gross Profit Margin:
1. Unit price reductions of $1.5 million granted to our customers
between the 2004 and 2005 periods;
2. Steel prices and surcharges not recovered from our customers
negatively impacted gross profit by $1.1 million; and
3. The loss of sales volume as described above resulted in decreasing
margins as existing equipment and facilities were underutilized.
- - Factors partially offsetting the decrease in Gross Profit Margin:
16
1. Depreciation expense was $1.3 million less in the 2005 period as
compared to the 2004 period as we adjusted the historical cost of
our property, plant and equipment to fair market appraised values in
connection with the Merger; and
2. Outsourcing costs were significantly reduced in the 2005 period
relative to the 2004 period as capacity constraints in our European
operations during the 2004 period resulted in the outsourcing of
certain operations thereby increasing costs in that period. Such
constraints were alleviated in the intervening period, thereby
allowing for the elimination of such costs in the 2005 period. In
addition, the acquisition of ATI as described above reduced
outsourcing costs on certain electric motor components.
Selling, General and Administrative
Selling, general and administrative expenses increased $0.4 million to $5.5
million, or 6.1% of sales, for the 2005 period from $5.1 million, or 5.5% of
sales, for the 2004 period. The 2005 results include added professional fee
expenses associated with being a public registrant and added travel costs
associated with providing technical support to our European operations as it
works to implement cost improvement initiatives.
Interest Expense, Net
Net interest expense increased $4.0 million to $6.0 million for the 2005 period
from $2.0 million for the 2004 period. Higher interest expense in the 2005
period relative to the 2004 period was caused primarily by increased debt levels
incurred as a result of the Merger and higher interest rates under our senior
credit facilities.
Tax Provision
For the 2005 period, we recorded an income tax benefit of $0.2 million caused
primarily by the recording of a reduction in legal profit sharing contribution
expense due to the loss before tax provision reported by our European
operations. 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.
LIQUIDITY AND CAPITAL RESOURCES
Our short-term liquidity needs include required debt service and day-to-day
operating expenses including working capital requirements and the funding of
capital expenditures. Long-term liquidity requirements include capital
expenditures for new programs and maintenance of existing equipment and debt
service. Capital expenditures for 2005 are expected to be $24-25 million, of
which $4.9 million was spent in the three months ended March 31, 2005.
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.
The indenture governing the Notes and the agreement governing the senior credit
facilities contain a number 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.
17
We amended our senior credit facilities on April 25, 2005, effective March 31,
2005. Our amended senior credit facilities require us to meet a number of
financial ratio tests, including interest coverage and senior and total leverage
ratios. Our amended senior credit facilities also limit the amount of capital
expenditures we may make. As of March 31, 2005, we were in compliance with the
covenants contained in the indenture governing the Notes and our amended senior
credit facilities. The financial covenants in our amended senior credit
facilities are less restrictive than the original agreement and were structured
to provide us with flexibility sufficient for us to remain in compliance with
such covenants throughout 2005. However, OEM and Tier I manufacturers'
production schedules have been reduced over the past quarter, and continued
reductions in their production schedules could impact our ability to maintain
compliance with the covenants in our amended senior credit facilities as early
as in the second quarter. If we are unable to maintain compliance with these
covenants, we may have to seek to renegotiate these covenants with our senior
lenders. If it becomes necessary to seek to renegotiate the terms of our amended
senior credit facilities, there can be no assurances that we would reach an
agreement that contained terms acceptable to us. If we are ultimately
unsuccessful, the lenders would have the ability to exercise all of the remedies
provided for in the amended senior credit facilities upon an event of default.
Three Months Ended March 31, 2005
Cash used in operating activities of $3.6 million during the three months ended
March 31, 2005 reflects net income, excluding non-cash and other reconciling
items of $5.1 million, and an increase in net working capital of $8.7 million
due primarily to the net effects of the following factors:
- - Accounts receivable increased $6.5 million. Sales in all operating
segments were higher during the latter part of the first quarter of 2005
than the latter part of the fourth quarter of 2004. In addition, payment
terms from a number of European and North American customers lengthened
over the course of 2004 and early 2005. Finally, factored European
accounts receivable decreased $2.8 million from December 31, 2004 to March
31, 2005.
- - Inventories increased $2.0 million due primarily to the growth in our
business during the latter part of the first quarter of 2005 compared to
the latter part of the fourth quarter of 2004. 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 payable decreased $3.7 million. Production in our European
operations during first quarter of 2005 was less than the fourth quarter
of 2004.
These increases in working capital were partially offset by an increase in
Accrued Liabilities of $3.3 million. The increase in Accrued Liabilities was
caused primarily by a $3.7 million increase in interest due on the Notes
(payable in semi-annual installments on June 15 and December 15) offset by the
payment during the 2005 period of fiscal 2004 senior management bonuses.
Cash used in investing activities of $6.4 million during the three months ended
March 31, 2005 mainly consisted of capital expenditures primarily for production
equipment of $4.9 million and the payment of $1.5 million in production
equipment deposits that will be refunded once planned operating lease agreements
are signed.
Cash provided by financing activities of $8.5 million during the three months
ended March 31, 2005 mainly consisted of $10.7 million in net borrowings under
lines of credit with our banks offset by $2.1 million in scheduled payments on
our senior credit facilities and other indebtedness.
18
CONTRACTUAL OBLIGATIONS
Provision changes contained in our amended senior credit facilities included
extending the principal amortization of the Eurocurrency term note provided
under the senior credit facilities agreement. Principal obligations under the
senior credit facilities agreement were changed from those disclosed in our 2004
Annual Report on Form 10-K by the following (USD-equivalent amounts computed
using the USD vs. euro exchange rate in effect on March 31, 2005):
- - Principal obligations due from April 1, 2005 to March 31, 2006 - Decreased
by the USD-equivalent of $3.0 million;
- - Principal obligations due from April 1, 2006 to March 31, 2008 - Decreased
by the USD-equivalent of $8.7 million;
- - Principal obligations due from April 1, 2008 to March 31, 2010 - Increased
by the USD-equivalent of $1.5 million; and
- - Principal obligations due from April 1, 2010 to June 15, 2011 - Increased
by the USD-equivalent of $10.2 million.
In addition, the financial covenants in the senior credit facilities agreement
were amended to make them less restrictive, a new Senior Leverage Ratio (as
defined in the amended senior credit facilities agreement) was established and
interest rate margins applicable to all loans under the senior credit facilities
agreement were increased.
FOREIGN OPERATIONS
During the three months ended March 31, 2005, our North American operations
exported $4.6 million of product to customers located in foreign countries, and
our foreign operations shipped $53.7 million of product to customers from their
facilities. As a result, we are subject to the risks of doing business abroad,
including currency exchange rate fluctuations, limits on repatriation of funds,
compliance with foreign laws and other economic and political uncertainties.
ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board issued SFAS No.
123(R), Share-Based Payment, which will require compensation costs related to
share-based payment transactions to be recognized in the financial statements.
With limited exceptions, the amount of compensation cost will be measured based
on the grant date fair value of the equity or liability instruments issued. In
addition, liability awards will be remeasured each reporting period.
Compensation cost will be recognized over the period that an employee provides
services in exchange for the award. SFAS No. 123(R) replaces SFAS No. 123,
Accounting for Stock-Based Compensation, and supercedes Accounting Principals
Board Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123(R)
becomes effective at the beginning of our first quarter in 2006. We expect that
the impact of adopting SFAS No. 123(R) will be consistent with the pro forma
expense that has been previously disclosed, adjusted for future grants,
cancellations and exercises of stock options in accordance with SFAS No. 123(R).
CRITICAL ACCOUNTING POLICIES
No material changes have been made to our critical accounting policies during
the first quarter of 2005.
19
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We manage certain foreign currency exchange risk in relation to equipment
purchases through the limited use of foreign currency futures contracts to
reduce the impact of changes in foreign currency rates on firm commitments to
purchase equipment. No such contracts related to equipment purchases were
outstanding at December 31, 2004 or March 31, 2005.
We typically derive approximately 60% of our sales from foreign manufacturing
operations. The financial position and results of operations of our subsidiaries
in France are measured in euros and translated into USD. The effects of foreign
currency fluctuations in France are somewhat mitigated by the fact that sales
and expenses are generally incurred in euros, and the reported net income
thereon will be higher or lower depending on a weakening or strengthening of the
USD as compared to the euro.
The financial position and results of operations of our subsidiary in Brazil are
measured in Brazilian reais and translated into USD. With respect to
approximately 25% of this subsidiary's sales, expenses are generally incurred in
Brazilian reais, but sales are invoiced in USD. As such, results of operations
with regard to these sales are directly influenced by a weakening or
strengthening of the Brazilian real as compared to the USD. The effects of
foreign currency fluctuations are somewhat mitigated on the remainder of this
subsidiary's sales by the fact that these sales and related expenses associated
therewith are generally incurred in Brazilian reais and the reported income
thereon will be higher or lower depending on a weakening or strengthening of the
USD as compared to the Brazilian real. Our consolidated net assets as of March
31, 2005 include 6.0% based in France and 3.5% based in Brazil, and were
translated into USD at the exchange rates in effect at that date (2.68 Brazilian
reais per USD, and 1.2964 USD per euro). Accordingly, our consolidated net
assets will fluctuate depending on the weakening or strengthening of the USD as
compared to these currencies as a result of foreign currency translation
adjustments.
Item 4. Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified by the
Securities and Exchange Commission and that such information is accumulated and
communicated to our management, including our Chief Executive and Financial
Officers, as appropriate, to allow timely decisions regarding required
disclosures.
As of the end of the period covered by this report, we performed an evaluation
of the effectiveness of the design and operation of our disclosure controls and
procedures as defined in Exchange Act Rule 13a-15(e) and 15d-15(e). The
evaluation was performed under the supervision and with the participation of our
management, including our Chief Executive and Financial Officers. Based upon the
evaluation, the Chief Executive and Financial Officers concluded that our
disclosure controls and procedures were effective in ensuring that material
information relating to us (including our consolidated subsidiaries) was made
known to them by others within our consolidated group during the period in which
this report was being prepared and that the information required to be included
in the report has been recorded, processed, summarized and reported on a timely
basis.
During our most recent fiscal quarter, there have been no significant changes in
our internal controls that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting.
20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
31.1 Certification of Chief Executive Officer in the form prescribed by Rule 13a-14(a) or 15d-14(a) under
the Securities Exchange Act of 1934.
31.2 Certification of Chief Financial Officer in the form prescribed by Rule 13a-14(a) or 15d-14(a) under
the Securities Exchange Act of 1934.
32.1 Certification of Chief Executive Officer in the form prescribed by 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification 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.
21
SIGNATURES
Autocam Corporation has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
AUTOCAM CORPORATION
May 12, 2005 /s/ John C. Kennedy
- -------------------------------- -------------------------
Date John C. Kennedy
President
22
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
31.1 Certification of Chief Executive Officer in the form prescribed by Rule 13a-14(a) or 15d-14(a) under
the Securities Exchange Act of 1934.
31.2 Certification of Chief Financial Officer in the form prescribed by Rule 13a-14(a) or 15d-14(a) under
the Securities Exchange Act of 1934.
32.1 Certification of Chief Executive Officer in the form prescribed by 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer in the form prescribed by 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
23