<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 3, 1999, 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 NO. 333-56461
TALON AUTOMOTIVE GROUP, INC
(Exact name of registrant as specified in its charter)
MICHIGAN 38-3382174
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
900 WILSHIRE DRIVE, SUITE 203, TROY, MICHIGAN 48084
(Address of principal executive offices) (Zip Code)
(248) 362-7600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
---------- ----------
APPLICABLE ONLY TO CORPORATE USERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares Outstanding
Class at May 17, 1999
----------------------------- -------------------
Class A Voting Common Stock 4,074
Class B Non-Voting Common Stock 158,853
Exhibit Index located at page 10
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TALON AUTOMOTIVE GROUP, INC. FORM 10 Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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PART I FINANCIAL INFORMATION
<S> <C>
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Statements of Operations (unaudited) for the Three Months 3
Ended April 3, 1999 and April 4, 1998
Consolidated Balance Sheets at April 3, 1999 (unaudited) and 4
December 31, 1998
Consolidated Statements of Changes in Shareholders' Equity (unaudited) 5
for the Three Months Ended April 3, 1999 and April 4, 1998
Consolidated Statements of Cash Flows (unaudited) for the Three Months 6
Ended April 3, 1999 and April 4, 1998
Notes to Consolidated Financial Statements (unaudited) 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 10
OF OPERATIONS
</TABLE>
PART II OTHER INFORMATION
Item 1 Legal Proceedings Not Applicable
Item 2 Changes in Securities Not Applicable
Item 3 Defaults upon Senior Securities Not Applicable
Item 4 Submission of Matters to a Vote of Securities Holders Not Applicable
Item 5 Other Information Not Applicable
Item 6 Exhibits and Reports on Form 8-K (a)Exhibit 10
Exhibit 27
2
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TALON AUTOMOTIVE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS - UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED:
---------------------------------------
April 3, April 4,
1999 1998
<S> <C> <C>
Net sales $ 71,020 $ 71,071
Cost of sales 63,566 61,329
-------- --------
Gross profit 7,454 9,742
Operating expenses:
SG&A 5,539 4,784
Amortization 379 371
-------- --------
Income from operations 1,536 4,587
Other expenses:
Interest 4,014 2,390
Foreign currency 2 142
-------- --------
Income (loss) before income taxes (2,480) 2,055
Provision for income taxes 877 771
-------- --------
Net income (loss) $ (3,357) $ 1,284
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
TALON AUTOMOTIVE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS - UNAUDITED)
<TABLE>
<CAPTION>
April 3, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 12,266 $ 9,412
Accounts receivable 41,689 42,580
Inventory 15,097 16,003
Reimbursable tooling 5,942 6,618
Prepaid expenses 4,269 2,266
--------- ---------
Total current assets 79,263 76,879
Property, plant and equipment 112,250 104,036
Less accumulated depreciation 41,474 38,814
--------- ---------
Net property, plant and equipment 70,776 65,222
Goodwill, net 52,676 52,490
Deferred financing costs, net 5,299 5,209
Other assets 401 420
--------- ---------
$ 208,415 $ 200,220
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 36,866 $ 33,333
Accrued liabilities 29,963 24,527
Current portion of capital leases 872 869
Current portion of long term debt 1,012 994
--------- ---------
Total current liabilities 68,713 59,723
Long term debt 145,523 143,648
Capital leases 2,032 2,182
Deferred income taxes 1,756 1,712
SHAREHOLDERS' EQUITY
Common stock 1,250 1,250
Paid in capital 1,413 1,413
Retained earnings (10,372) (7,015)
Accumulated other comprehensive income
(foreign currency translation) (1,900) (2,693)
--------- ---------
Total Shareholders' equity (9,609) (7,045)
--------- ---------
$ 208,415 $ 200,220
========= =========
</TABLE>
See accompanying notes.
4
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TALON AUTOMOTIVE GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(AMOUNTS IN THOUSANDS - UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 4, 1998
-------------------------------------------------------------------------
ACCUMULATED
OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
STOCK CAPITAL EARNINGS INCOME TOTAL
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1998 ... $ 1,250 $ 1,412 $ 12,168 $ (230) $ 14,600
Net income ..................... 1,284 1,284
Foreign currency translation.. (163) (163)
---------------
Comprehensive income.......... 1,121
Distributions ......... (475) (475)
-------------------------------------------------------------------------
Balance at April 4, 1998 ... $ 1,250 $ 1,412 $ 12,977 $ (393) $ 15,246
=========================================================================
THREE MONTHS ENDED APRIL 3, 1999
-------------------------------------------------------------------------
ACCUMULATED
OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
STOCK CAPITAL EARNINGS INCOME TOTAL
-------------------------------------------------------------------------
Balance at January 1, 1999 ... $ 1,250 $ 1,413 $ (7,015) $ (2,693) $ (7,045)
Net loss ..................... (3,357) (3,357)
Foreign currency translation.. 793 793
---------------
Comprehensive income.......... (2,564)
-------------------------------------------------------------------------
Balance at April 3, 1999 ... $ 1,250 $ 1,413 $(10,372) $ (1,900) $ (9,609)
=========================================================================
</TABLE>
See accompanying notes.
5
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TALON AUTOMOTIVE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS - UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED:
--------------------------
April 3, April 4,
1999 1998
---- ----
<S> <C> <C>
Operating Activities:
Net Income $(3,357) $ 1,284
Depreciation and amortization 2,929 2,705
Other non-cash expenses 195 71
Change in operating assets and liabilities:
Accounts receivable 891 (538)
Inventory 906 (657)
Reimbursable tooling 676 (1,161)
Prepaid expenses (2,003) (1,887)
Accounts payable 3,533 6,598
Accrued liabilities 5,517 2,758
Other (482) 171
------- -------
Cash provided by operating activities 8,805 9,344
------- -------
Investing Activities:
Additions to property and equipment (8,446) (1,588)
Proceeds from sale of equipment - 315
------- -------
Cash used in investing activities (8,446) (1,273)
------- -------
Financing Activities:
Proceeds from long term borrowings 2,111 -
Payments on long-term debt (166) (1,620)
Deferred financing costs (243) -
Distributions - (475)
------- -------
Net cash provided by (used in)
financing activities 1,702 (2,095)
------- -------
Translation adjustment 793 (164)
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Net increase in cash 2,854 5,812
Beginning cash 9,412 1,234
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Ending cash $12,266 $ 7,046
======= =======
</TABLE>
See accompanying notes.
6
<PAGE> 7
TALON AUTOMOTIVE GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Talon Automotive
Group, Inc. and its wholly owned subsidiaries (the "Company"). All significant
intercompany transactions and account balances have been eliminated in
consolidation.
The Company reports quarterly financial information in thirteen-week increments
and ends each respective quarter on the Saturday following the thirteenth week
with the fiscal year ending December 31.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with 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 period ended April 3, 1999
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1999.
2. EFFECT OF ACCOUNTING PRONOUNCEMENTS
In 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted in years beginning after June 15, 1999. Management does not
anticipate that the adoption of the new statement will have a significant effect
on earnings or the financial position of the Company.
3. COMMITMENTS AND CONTINGENCIES
As of April 3, 1999, there were no significant changes to the status of
commitments and contingencies presented in the footnotes to the financial
statements for the fiscal year ended December 31, 1998.
7
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TALON AUTOMOTIVE GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
4. INVENTORIES
Inventory consisted of the following:
<TABLE>
<CAPTION>
APRIL 3, 1999 DECEMBER 31, 1998
------------- -----------------
UNAUDITED
<S> <C> <C>
Raw material $ 6,039 $ 4,935
Work in process 5,490 6,084
Finished goods 3,568 4,984
------- -------
Total Inventory $15,097 $16,003
======= =======
</TABLE>
5. REORGANIZATION
Prior to April 28, 1998 the Company had reported the combined financial
statements of Talon Automotive Group, LLC, Hawthorne Metal Products Company, J&R
Manufacturing, Inc., Veltri Metal Products Co., Veltri Holdings Inc., Veltri
Holdings No. 2 Inc., Veltri Holdings USA, Inc. and Production Stamping, Inc..
These companies were reorganized into Talon Automotive Group, Inc. on April 28,
1998 and the Company began reporting financial statements on a consolidated
basis. The reorganization had no material impact in the basis of the Company's
financial statement presentation.
6. RELATED PARTY TRANSACTIONS
The Company has a business services agreement with Talon L.L.C., an affiliated
company owned by the shareholders of the Company, under which the Company
receives services of risk management, benefits management, tax preparation and
other services from Talon L.L.C.. For the three month period ended April 3, 1999
and April 4, 1998, total fees incurred under this agreement amounted to $125 and
$287, respectively. Effective April 1, 1998, fees under this agreement were
reduced from $1,150 to $500 per year.
The Company provides certain consulting and administrative services to G&L
Industries, Inc. ("G&L"), an affiliate of the Company beneficially owned and
controlled by the shareholders of the Company. For the three month period ended
April 3, 1999 and April 4, 1998, total fees received under this agreement were
$0 and $125, respectively. The Company discontinued charging fees under this
agreement in July 1998.
8
<PAGE> 9
TALON AUTOMOTIVE GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
7. SUPPLEMENTAL GUARANTOR INFORMATION
Veltri Metal Products Co., Veltri Holdings, Inc. and Veltri Holdings USA, Inc.
(collectively, the "Veltri Group") are wholly owned subsidiaries of the Company
and constitute all of the direct and indirect subsidiaries of the Company. All
members of the Veltri Group have fully and unconditionally guaranteed, on a
joint and several basis, the obligation to pay principal, premium, if any, and
interest with respect to the Company's senior subordinated notes. In addition,
there are no restrictions on the ability of the Veltri Group to transfer funds
to the Company in the form of cash dividends, loans or advances, except as
follows: (i) pursuant to the Veltri Group purchase agreements among the Veltri
Group and its former owners, the Veltri Group agreed not to make any loans or
advances to any person (including the Company) until certain earn-out provisions
for the former owners have been satisfied; and (ii) pursuant to the senior
credit agreement the Veltri Group agreed not to (a) declare or pay any dividends
on, or make any other distribution with respect to any shares of capital stock;
or (b) make loans, advances or extensions of credit to any person (except for
credit sales in the ordinary course of business and loans to affiliates in an
aggregate amount not to exceed $15 million at any time outstanding); and (iii)
pursuant to the indenture agreement for the Company's senior subordinated notes,
the Veltri Group is prohibited from making loans or advances to the Company if a
default or event of default shall have occurred under the indenture.
Management does not believe that separate financial statements of each of these
members of the Veltri Group are material to investors. Therefore, separate
financial statements and other disclosures concerning members of the Veltri
Group have been omitted, and in lieu thereof, summarized financial information
relating to the Veltri Group is shown as follows:
<TABLE>
<CAPTION>
APRIL 3, 1999 DECEMBER 31, 1998
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UNAUDITED
<S> <C> <C>
Current assets $29,780 $33,990
Non-current assets 36,716 34,510
Current liabilities 20,843 17,290
Non-current liabilities 34,472 42,137
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED:
APRIL 3, 1999 APRIL 4, 1998
--------- ----------
UNAUDITED UNAUDITED
<S> <C> <C>
Net sales $28,939 $27,427
Gross profit 5,321 5,440
Net income 978 791
</TABLE>
9
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ITEM 2. 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
actual results may differ materially from those in the forward-looking
statements as a result of various factors including, but not limited to: (i)
general economic conditions in the markets in which the Company operates; (ii)
fluctuations in worldwide or regional automobile and light and heavy truck
production; (iii) labor disputes involving the Company or its significant
customers; (iv) changes in practices and/or policies of the Company's
significant customers toward outsourcing automotive components and systems; (v)
foreign currency and exchange fluctuations; (vi) factors affecting the ability
of the Company or its key suppliers to resolve Year 2000 issues in a timely
manner; and (vii) other risks detailed from time to time in the Company's
filings with the Securities and Exchange Commission. The Company does not intend
to update these forward-looking statements.
COMPARISON OF THE THREE MONTH PERIOD ENDED APRIL 3, 1999 TO THE THREE MONTH
PERIOD ENDED APRIL 4, 1998
Net Sales - Net sales for the three month period ended April 3, 1999 ("first
quarter 1999") were $71.0 million compared to $71.1 million for the three month
period ended April 4, 1998 ("first quarter 1998").
Gross Profit - Gross profit for the first quarter 1999 was $7.5 million or 10.5%
of net sales as compared to $9.7 million or 13.7% of net sales for the first
quarter 1998. This represents a decrease of $2.2 million as compared to the
prior year. The decrease was primarily due to a significant decline in the
market price for scrap steel (see "Decline in Scrap Steel Prices") and launch
costs associated with new business.
Selling, General and Administrative Expenses ("SG&A") - SG&A expenses for the
first quarter 1999 were $5.5 million or 7.8% of net sales, compared to $4.8
million or 6.7% of net sales for the first quarter 1998. This represents an
increase of $0.7 million or 16% as compared to the prior year. The increase was
primarily due to a non-recurring $0.2 million gain on an asset sale in the first
quarter 1998 and advance engineering and program management costs in the first
quarter 1999 related to new business awards.
Amortization Expense - Amortization expense was $0.4 million for the first
quarter 1999 compared to $0.4 million for the first quarter 1998. Amortization
expense relates to goodwill associated with the Company's acquisitions since
1996.
Interest Expense - Interest expense for the first quarter 1999 was $4.0 million
or 5.6% of net sales, compared to $2.4 million or 3.4% of net sales for the
first quarter 1998. The increase was attributable to additional borrowings
10
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and a higher weighted average interest rate in connection with the Company's
issuance of $120.0 million of senior subordinated notes on April 28, 1998.
Foreign Currency - The foreign currency loss for the first quarter 1999 was $0.0
million compared to a foreign currency loss of $0.1 million for the first
quarter 1998. Foreign currency gains and losses are all attributable to the
Company's Canadian operation.
Income Taxes - The provision for income taxes for the first quarter 1999 was
$0.9 million or 1.2% of net sales compared to $0.8 million or 1.1% of net sales
for the first quarter 1998. The Company's income taxes relate solely to its
Canadian operations. The effective tax rate for the first quarter 1999 was
approximately 40.7%.
LIQUIDITY AND CAPITAL RESOURCES
In March 1999, the Company's senior credit facility agreement was amended to
revise certain definitions pertaining to financial covenants. The amendment
changed certain covenants relative to interest coverage and leverage, as
defined, to provide the Company the ability to make significant capital
investments required for new business awards, as well as sufficient liquidity to
execute its business plan.
Capital expenditures for the first quarter 1999 were $8.5 million compared to
$1.6 million for the first quarter 1998. Capital expenditures related to various
investments in machinery and equipment. Capital expenditures in the first
quarter 1999 included approximately $3.0 million for new business awards, $3.0
million to increase capacity and productivity and $2.5 million for normal
maintenance of operations.
For the first quarter 1999, net cash flow from operating activities totaled $8.8
million compared to $9.3 million for the first quarter 1998.
Net cash used in investing activities totaled $8.5 million for the first quarter
1999, as compared to $1.3 million for the first quarter 1998. Investing
activities for the first quarter of 1999 and 1998 related to capital
expenditures.
Net cash provided by financing activities totaled $1.7 million for the first
quarter 1999 compared to $2.1 million of cash used in financing activities for
the first quarter 1998. Financing activities primarily related to new borrowings
in the first quarter 1999 and payments on long-term debt in the first quarter
1998.
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For the first quarter 1999, EBITDA was $4.5 million as compared to $7.3 million
for first quarter 1998. This represents a decrease of $2.8 million compared to
the prior year. The decrease was due to lower gross profit and higher SG&A
expenses in the first quarter 1999. EBITDA is defined as income from continuing
operations before the effect of changes in accounting principles and
extraordinary expenses plus interest, income taxes, depreciation and
amortization. EBITDA is presented because it is a widely accepted non-GAAP
financial indicator of a company's ability to incur and service debt. However,
EBITDA should not be considered in isolation as a substitute for net income or
cash flow data prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or liquidity. EBITDA
measures presented may not be comparable to similarly-titled measures of other
companies.
The Company believes the borrowing availability under its senior credit
facility, together with funds generated by operations, should provide sufficient
liquidity and capital resources to meet its working capital requirements,
capital expenditures and other operating needs through 1999. At April 3, 1999,
outstanding borrowings under the senior credit facility totaled $24.0 million
and the Company had the ability to take on additional borrowings under the
senior credit facility of approximately $30.0 million.
DECLINE IN SCRAP STEEL PRICES
The Company has certain agreements to sell scrap steel resulting from its
manufacturing processes at prices based on the prevailing market rate and this
revenue is recorded as a reduction to the Company's cost of sales. Market prices
for scrap steel have declined significantly since September 1998 and this has
resulted in a significant decrease in the Company's revenue related to scrap
steel sales. In the first quarter 1999, the market price for scrap steel
declined over 50% compared to the first quarter 1998 and this reduced the
Company's gross profit approximately $1.3 million.
YEAR 2000 COMPLIANCE
GENERAL DESCRIPTION OF THE YEAR 2000 ISSUE AND THE NATURE AND EFFECTS OF THE
YEAR 2000 ON INFORMATION TECHNOLOGY (IT) AND NON-IT SYSTEMS. The Company is in
the process of modifying or replacing certain portions of its software and
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Company presently believes that with modifications or replacements of
existing software and certain hardware, the Year 2000 Issue can be mitigated.
However, if such modifications and replacements are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Company. The Company's plan to resolve the Year 2000 Issue
involves the following four phases: assessment, remediation, testing, and
implementation. To date, the Company has completed its assessment of all systems
that could be significantly affected by the Year 2000. The assessment indicated
that most of the Company's significant information technology systems could be
affected, particularly the general ledger, billing, and inventory systems. That
assessment also indicated that certain software and hardware used in production
and manufacturing systems (hereafter also referred to as operating equipment) is
at risk. Affected systems include automated assembly lines and related robotic
technologies used in various aspects of the manufacturing process. In addition,
the Company has gathered information about the Year 2000 compliance status of
its significant suppliers and subcontractors and continues to monitor their
12
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compliance.
STATUS OF PROGRESS IN BECOMING YEAR 2000 COMPLIANT, INCLUDING TIMETABLE FOR
COMPLETION OF EACH REMAINING PHASE. For its information technology exposures,
the Company expects to fully complete software replacement, including testing
and implementation, no later than June 30, 1999. Once replacements or
modifications for certain affected software are selected and tailored for the
Company's use, the Company begins testing and implementation. These phases run
concurrently for different systems. To date, the Company has completed
approximately 80% of its remediation and testing and has implemented
approximately 75% of its remediated systems. Completion of the testing for all
significant systems is expected by June 30, 1999 and the company expects that
all remediated systems will be fully tested and implemented by September 30,
1999. The remediation of operating equipment is approximately 75% complete and
the Company expects to complete its remediation efforts for operating equipment
by June 30, 1999. The testing and implementation of operating equipment is
expected to be fully completed by September 30, 1999.
NATURE AND LEVEL OF IMPORTANCE OF THIRD PARTIES AND THEIR EXPOSURE TO THE YEAR
2000. The Company is in the process of working with its key customers and
suppliers to ensure that the Company's systems that interface directly with such
third parties are Year 2000 compliant by June 30, 1999. The Company has
completed approximately 80% of its remediation and testing efforts on these
systems and expects this to be completed by June 30, 1999. Implementation
efforts are approximately 70% complete and are expected to be fully completed by
September 30, 1999. The Company understands that key customers are in the
process of making their accounts payable systems Year 2000 compliant and that
this will be completed prior to December 31, 1999. The Company has queried its
significant suppliers and subcontractors that do not share information systems
with the Company (external agents). To date, the Company is not aware of any
external agent with a Year 2000 issue that would materially impact the Company's
results of operations, liquidity, or capital resources. However, the Company has
no means of ensuring that external agents will be Year 2000 ready. The inability
of external agents to complete their Year 2000 resolution process in a timely
fashion could materially impact the Company. The effect of non-compliance by
external agents is not determinable.
COSTS. The Company will utilize both internal and external resources to
reprogram, or replace, test, and implement the software and operating equipment
for Year 2000 modifications. The total cost of the Year 2000 project is
estimated at $1.9 million, and is being funded through operating cash flows. To
date, the Company has incurred approximately $1.6 million ($0.3 million expensed
and $1.3 million capitalized for new systems and equipment) related to both its
Year 2000 project and ordinary business expenditures that also addressed the
Year 2000 Issue. Of the total remaining costs, approximately $0.1 million is
attributable to the purchase of new software and operating equipment, which will
be capitalized. The remaining $0.2 million relates to repair of hardware and
software, and implementation consulting fees which will be expensed as incurred.
RISKS. The Company believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Company has not yet
completed all necessary phases of the Year 2000 program. In the event that the
Company does not complete any additional phases, the Company would be unable to
effectively manufacture and ship certain products. In addition, disruptions in
the economy generally resulting from Year 2000 issues could also materially
adversely affect the Company. The amount of potential liability and
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lost revenue cannot be reasonably estimated at this time.
CONTINGENCY PLAN. The Company has contingency plans for certain critical
applications, and is working on such plans for others. These contingency plans
involve, among other actions, manual workarounds, increasing inventories, and
adjusting staffing strategies. The Company expects to have these contingency
plans formally documented by September 30, 1999.
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PART II. OTHER INFORMATION
TALON AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings:
None
Item 2. Change in Securities:
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 and Reports on Form 8-K:
(a) Exhibit 10 - Second Amendment to Credit Agreement.
Exhibit 27 - Financial Data Schedule
(b) The Company filed no Reports on Form 8-K during the quarter ended
April 3, 1999.
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SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TALON AUTOMOTIVE GROUP, INC.
By: /s/ David J. Woodward
--------------------------------------
David J. Woodward
Vice President of Finance,
Chief Financial Officer and
Treasurer
Date: May 17, 1999
16
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Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10 Second Amendment to Talon
Automotive Group, Inc. Credit
Agreement
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10
SECOND AMENDMENT
TO CREDIT AGREEMENT
This Second Amendment to Credit Agreement dated as of March _____, 1999
by and between Talon Automotive Group, Inc., a Michigan corporation ("TAG"),
Veltri Metal Products Co., a Nova Scotia corporation ("Veltri") (Veltri, called
together with TAG, the "Borrowers"), the Banks party hereto, and Comerica Bank,
a Michigan banking corporation, as agent for the Banks (in such capacity,
"Agent").
WHEREAS, Borrowers, Agent and the Banks entered into a certain Credit
Agreement dated as of April 28, 1998 and a certain First Amendment to Credit
Agreement dated as of August 31, 1998 (as so amended, the "Agreement"), pursuant
to which Borrowers incurred certain indebtedness and obligations and granted the
Agent, on behalf of the Banks, certain security for such indebtedness and
obligations; and
WHEREAS, Borrowers, Agent and Banks desire to amend certain provisions
of the Agreement on the terms and conditions hereof;
NOW, THEREFORE, it is agreed:
1. DEFINITIONS
1.1 Capitalized terms used herein and not defined to the contrary have the
meanings given them in the Agreement.
2. AMENDMENT
2.1 Section 1.12 of the Agreement is hereby amended and restated by replacing
the pricing grid set forth therein in its entirety with the following pricing
grid:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Prime-based Loans
Prime-based Loans denominated in Eurocurrency-based Loans
Denominated in U.S. Canadian Dollars and Letter of Credit Fees
Leverage Ratio Dollars Facility Fees
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Level I 1.00% 2.00% 2.5% .50%
- - 6.0
- --------------------------------------------------------------------------------------------------------------------
Level II 1.00% 2.00% 2.25% .50%
- - 5.5 but < 6.0
- --------------------------------------------------------------------------------------------------------------------
Level III 0.75% 1.75% 2.00% 0.50%
- - 5.0 but < 5.5
</TABLE>
<PAGE> 2
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Level IV 0.50% 1.50% 1.75% 0.50%
- - 4.5 but <5.0
- --------------------------------------------------------------------------------------------------------------------
Level V 0.25% 1.25% 1.55% 0.45%
- - 3.5 but <4.5
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
2.2 Section 1.29 of the Agreement is hereby amended and restated
in its entirety as follows:
"1.29 'EBITDA' shall mean, as of the last day of any fiscal
quarter, Net Income plus the aggregate amounts deducted in
determining Net Income for such period in respect of taxes
based on income, Michigan single business tax, interest
expense and depreciation and amortization, all determined in
accordance with GAAP determined in the following described
manner during the periods mentioned below:
(i) with respect to any calculation of EBITDA as of the
end of the fiscal quarter of Borrowers ending
December 31, 1998 by adding (x) the EBITDA for the
rolling four quarter period then ended and (y) in
each case, other than for the determination of the
Leverage Ratio for the purpose of establishing the
Applicable Margin, Four Million Eight Hundred
Thousand Dollars ($4,800,000);
(ii) with respect to any calculation of EBITDA as of the
end of the fiscal quarter of Borrowers ending April
3, 1999 by adding (x) EBITDA for the rolling four
quarter period then ended and (y) in each case, other
than for the determination of the Leverage Ratio for
the purpose of establishing the Applicable Margin,
Four Million Eight Hundred Thousand Dollars
($4,800,000);
(iii) with respect to any calculation of EBITDA as of the
end of the fiscal quarter of Borrowers ending July 3,
1999 by adding (x) EBITDA for the rolling four
quarter period then ended and (y) in each case, other
than for the determination of the Leverage Ratio for
the purpose of establishing the Applicable Margin,
Three Million Two Hundred Thousand Dollars
($3,200,000), and
(iv) with respect to any subsequent determination thereof,
on a rolling four quarter basis,
provided, however, solely for the purpose of calculating
Leverage Ratio during any four quarter
-2-
<PAGE> 3
period during which a Permitted Acquisition has occurred (x)
EBITDA determined for the entity or business acquired in
such Permitted Acquisition (without any annualization
pursuant to clauses (i) through (iii) above) shall be
included in the calculation hereof, as if such Permitted
Acquisition occurred on the first day of such four quarter
period, and (y) any Permitted Adjustments related to a
Permitted Acquisition shall be added back during the rolling
four quarter period which includes the date of the Permitted
Acquisition."
2.3 Section 1.31 of the Agreement is hereby amended and restated
as follows:
"1.31 'EDC Financing' shall mean loans and advances provided
to Veltri by the EDC, (i) for the purpose and on the terms
described in that certain loan agreement dated as of December
17, 1997, as amended, between the EDC and Veltri ('EDC Honda
Financing'), (ii) loans and advances that may hereafter be
extended by the EDC to Veltri for the purpose of financing the
manufacturer of tooling for the KJ Program ('EDC KJ Program
Financing') and (iii) loans and advances that may hereafter be
extended by the EDC to Veltri for the purpose of financing the
manufacture of tooling for the RS Program ('EDC RS Program
Financing')."
2.4 Section 1.32 of the Agreement is hereby amended and restated
in its entirety as follows:
"1.32 'EDC Financing Collateral' shall mean with respect to
any particular EDC Financing, the rights and interests of
Veltri in and to tangible and intangible personal property of
the types described on Exhibit J hereto, to the extent arising
out of tools, molds, fixtures and dies financed pursuant to
the relevant EDC Financing; it being understood that EDC
Collateral for each EDC Financing shall be separate, and no
EDC Financing shall be cross collateralized with any other EDC
Financing."
2.5 Section 1.60 of the Agreement is hereby amended and restated
in its entirety as follows:
"1.60 'Interest Expense' shall mean, for any Person,
consolidated interest expense plus interest expense on capital
lease obligations, capitalized interest, non-cash interest
expense (except for capitalized loan financing costs and
non-cash interest expense on indebtedness with respect to
which no payment of principal is required to be made prior to
the Maturity Date in effect at the time of the relevant
calculation of Interest Expense), all Facility Fees or other
recurring fees associated with this
-3-
<PAGE> 4
Agreement, less interest expense (including capitalized
interest expense associated with equipping the KJ Program
and the RS Program) associated with Tooling Loans and EDC
Financing; provided however, that during the first four
quarters ending after the date of this Agreement interest
expense (except to the extent attributable to a Person
acquired pursuant to a Permitted Acquisition) shall be
annualized as if this Agreement and the Senior Subordinated
Notes were in effect at all times during the four quarter
period of calculation hereof, using actual interest rates
and Facility Fee rates in effect as of the Closing Date.
2.6 The following Section 1.63.1 is hereby added to the Agreement
immediately after Section 1.63 of the Agreement:
"1.63.1 'KJ Program' shall mean the production by Borrowers,
pursuant to a contract with Daimler-Chrysler Motor Company of
tooling for production platforms to be utilized in the
production of model year 2001.5 Jeep Cherokees."
2.7 Section 1.72 of the Agreement is hereby amended and restated
in its entirety as follows:
"1.72 'Leverage Ratio' shall mean, as of any date, the ratio
of:
(a) an amount equal to the difference between the Borrowers'
Indebtedness less a sum equal to (i) the amount of cash and
cash equivalents then on hand, plus (ii) the lesser of Fifteen
Million Dollars ($15,000,000) or an amount equal to fifty
percent (50%) of the then existing Eligible Tooling Invoices,
plus (iii) only for the purpose of calculating Borrowers'
compliance with subsection (b) of Section 10.4 hereof, the
amount of the EDC Financing then outstanding; to
(b) EBITDA."
2.8 The following Section 1.104.1 is hereby added to the Agreement
immediately after Section 1.05 of the agreement:
"1.104.1 'RS Program' shall mean the production by Borrowers,
pursuant to a contract with Daimler-Chrysler Motor Company, of
tooling for production platforms to be used in the production
of model year 2000 Chrysler Mini Vans."
2.9 Section 1.120 of the Agreement is hereby amended and restated
in its entirety as follows:
-4-
<PAGE> 5
"1.120 'Tooling Maximum' shall mean Thirty Eight
Million Dollars ($38,000,000)."
2.10 Clause (g) of Section 10.3 of the Agreement is hereby amended
and restated in its entirety as follows:
"(g) the EDC Financing and EDC Indemnifications to the extent
that the obligations thereunder (i) do not exceed Twenty Eight
Million Dollars ($28,000,000) and (ii) when added to the
Tooling Loans, do not exceed the Tooling Maximum;"
2.11 Section 10.4 of the Agreement is hereby amended and restated
in its entirety as follows:
"10.4 Financial Covenants. Permit:
(a) the Interest Coverage Ratio to be less than:
(i) from the date hereof to and including the
end of Borrower's third fiscal quarter for Borrowers' 1999
fiscal year: 1.6:1;
(ii) thereafter until and including the last day of
the second quarter of Borrowers' 2000 fiscal year: 1.75:1;
(iii) thereafter to and including the last day of the
first quarter of Borrowers' 2001 fiscal year: 1.6:1;
(iv) thereafter until the last day of the third
fiscal quarter of Borrowers' 2001 fiscal year: 1.75:1; and
(v) at all times thereafter 2.0:1.
(b) the Leverage Ratio to exceed:
(i) from the date hereof to and including
the last day of the third quarter for Borrowers' 1999 fiscal
year: 7.0:1;
(ii) thereafter until and including the last day of
the second fiscal quarter of Borrowers' 2001 fiscal year:
6.5:1;
(iii) thereafter until and including the last day of
Borrowers' 2001 fiscal year: 5.5:1; and
(iv) at all times thereafter, 5.0:1.
(c) the Net Worth to be less than the sum of (i) (x) at all
times to and including the last day of Borrower's 1999
fiscal year, negative Eight Million
-5-
<PAGE> 6
Dollars (-$8,000,000) , and (y) at all times thereafter,
negative Thirteen Million Dollars (-$13,000,000), plus (ii)
fifty percent (50%) of Net Income for each quarter of
Borrowers in which Net Income is a positive amount
commencing the quarter ended December 31, 1998, plus (iii)
one hundred percent (100%) of Net Proceeds of the Initial
Public Offering."
2.12 Exhibit "J" is hereby amended to the Agreement in the form
attached as Exhibit "J" hereto.
3. REPRESENTATIONS
Borrowers hereby represents and warrants that:
3.1 Execution, delivery and performance of this Amendment and any
other documents and instruments required under this Amendment or the Agreement
are within Borrowers' powers, have been duly authorized, are not in
contravention of law or the terms of Borrowers' Articles of Incorporation or
Bylaws, and do not require the consent or approval of any governmental body,
agency, or authority.
3.2 This Amendment, and the Agreement as amended by this
Amendment, and any other documents and instruments required under this Amendment
or the Agreement, when issued and delivered under this Amendment or the
Agreement, will be valid and binding in accordance with their terms.
3.3 The continuing representations and warranties of Borrowers
set forth in Sections 8.1 through 8.7 and 8.9 through 8.19 of the Agreement are
true and correct on and as of the date hereof with the same force and effect as
made on and as of the date hereof.
3.4 The continuing representations and warranties ofBorrowers
set forth in Section 8.8 of the Agreement are true and correct as of the date
hereof with respect to the most recent financial statements furnished to Bank by
Borrowers in accordance with Section 9.1 of the Agreement.
3.5 To the best of Borrowers' knowledge, no Event of Default, or
condition or event which, with the giving of notice or the running of time, or
both, would constitute an Event of Default under the Agreement, has occurred and
is continuing as of the date hereof.
4. WAIVER
4.1 This Amendment, when it becomes effective in accordance
with Section 5.1 hereof shall constitute the waiver by Agent and the Banks of
Borrowers failure to comply with Subsection (c) of Section 10.4 of the Agreement
as of the last day of Borrower's 1998 fiscal year.
5. MISCELLANEOUS
5.1 This Amendment may be executed in as many counterparts as
Agent, Banks and Borrowers deem convenient and shall be deemed to be effective
upon satisfaction of the following conditions: (a) delivery to Agent of
-6-
<PAGE> 7
counterparts hereof executed by each of the parties; (b) delivery by Borrowers
to Agent, in form and substance satisfactory to Agent and the Banks, of each of
the documents and instruments listed on the Checklist attached as Exhibit "A"
hereto; and (c) payment by Borrowers to the Agent, for distribution to each Bank
executing this Amendment, an amendment and waiver fee in the amount of 20 basis
points on each such executing Bank's share of the Revolving Loan Commitment.
5.2 Borrowers, Agent and the Banks acknowledge and agree that,
except as specifically amended and/or waived herein and hereby, all of the terms
and conditions of the Agreement and the Loan Documents, remain in full force and
effect in accordance with their original terms.
5.3 Borrowers shall pay all of Agent's legal costs and expenses
(including attorneys' fees and expenses) incurred in the negotiation,
preparation and closing hereof, including, without limitation, costs of all lien
searches and financing statement filings.
5.4 Except as specifically set forth herein, nothing set forth in
this Amendment shall constitute, or be interpreted or construed to constitute, a
waiver of any right or remedy of Agent or the Banks, or of any default or Event
of Default whether now existing or hereafter arising.
[SIGNATURE PAGE FOLLOWS]
-7-
<PAGE> 8
WITNESS the due execution hereof as of the day and year first above
written.
<TABLE>
<CAPTION>
<S> <C>
TALON AUTOMOTIVE GROUP, INC. VELTRI METAL PRODUCTS CO.
By: By:
-------------------------------- --------------------------------
Its: Its:
------------------------------- -------------------------------
COMERICA BANK, as Agent and Bank LASALLE NATIONAL BANK
By: By:
-------------------------------- --------------------------------
Its: Its:
------------------------------- -------------------------------
NATIONAL BANK OF CANADA, PARIBAS
NEW YORK BRANCH
By: By:
-------------------------------- --------------------------------
Its: Its:
------------------------------- -------------------------------
And
By:
--------------------------------
Its:
-------------------------------
MICHIGAN NATIONAL BANK BANK BOSTON, N.A.
By: By:
-------------------------------- --------------------------------
Its: Its:
------------------------------- -------------------------------
</TABLE>
DRESDNER BANK AG NEW YORK and
GRAND CAYMEN BRANCHES
By:
--------------------------------
Its:
-------------------------------
-8-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS AS OF APRIL 3, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> APR-03-1999
<CASH> 7,615
<SECURITIES> 4,651
<RECEIVABLES> 41,689
<ALLOWANCES> 207
<INVENTORY> 15,097
<CURRENT-ASSETS> 79,263
<PP&E> 112,250
<DEPRECIATION> 41,747
<TOTAL-ASSETS> 208,415
<CURRENT-LIABILITIES> 68,713
<BONDS> 120,000
0
0
<COMMON> 1,250
<OTHER-SE> (10,859)
<TOTAL-LIABILITY-AND-EQUITY> 208,415
<SALES> 71,020
<TOTAL-REVENUES> 71,020
<CGS> 63,566
<TOTAL-COSTS> 69,484
<OTHER-EXPENSES> 2
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,014
<INCOME-PRETAX> (2,480)
<INCOME-TAX> 877
<INCOME-CONTINUING> (3,357)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,357)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
