**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**WASHINGTON,D.C. 20549

**FORM 10-Q**

**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OFTHE SECURITIES EXCHANGE ACT OF 1934**

**FORQUARTERLY PERIOD ENDED OCTOBER 2, 2005**

**COMMISSIONFILE NUMBER 1-12068**

**METALDYNE CORPORATION**(Exact name of registrant as specified in its charter)

| **Delaware**                                                     | **38-2513957**                        |
|------------------------------------------------------------------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) | (I.R.S. Employer  Identification No.) |
| **47659 Halyard Drive, Plymouth, Michigan**                      | **48170-2429**                        |
| (Address of  principal executive offices)                        | (Zip Code)                            |

 

**(734)207-6200**(Registrant’s telephone number)

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. YES x  NO o

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act). YES o  NO x

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). YES o  NO x

There is currently nopublic market for the registrant’s common stock.

Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practical date.

|                                        | ** ** | **Shares outstanding at** | ** ** |
|----------------------------------------|------------|-------------------------------------|------------|
| Class                                  | ** ** | ** **                          | ** ** | **     November 1, 2005    ** | ** ** |
| Common stock, par  value $1 per share. |       |                                | 42,844,760 |   |   |
|                                        |            |                                     |            |  |  |  |  |

 

 

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**METALDYNE CORPORATION**

**INDEX**

|               | ** ** | ** **                                                                                                                | ** ** | **Page No.** |
|---------------|------------|---------------------------------------------------------------------------------------------------------------------------|------------|-------------------|
| Part I.  |       | Financial  Information                                                                                                    |       |              |   |
| Item 1.       |       | Financial  Statements                                                                                                     |       |              |   |
|          |       | Consolidated  Balance Sheets—October 2, 2005 and January 2, 2005                                           |       | 2                 |   |
|          |       | Consolidated  Statements of Operations for the Three and Nine Months Ended  October 2, 2005 and October 3, 2004 |       | 3                 |   |
|          |       | Consolidated  Statements of Cash Flows for the Nine Months Ended October 2, 2005 and  October 3, 2004           |       | 4                 |   |
|          |       | Notes  to Consolidated Financial Statements                                                                               |       | 5-26              |   |
| Item 2.       |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                          |       | 27-52             |   |
| Item 3.       |       | Quantitative  and Qualitative Disclosure about Market Risk                                                                |       | 52-53             |   |
| Item 4.       |       | Controls  and Procedures                                                                                                  |       | 53-54             |   |
| Part II. |       | Other  Information and Signature                                                                                          |       | 55                |   |

 

1

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**PART I.   FINANCIAL INFORMATION**

**ITEM 1.**                FINANCIALSTATEMENTS

**METALDYNE CORPORATIONCONSOLIDATED BALANCE SHEETOctober 2, 2005 and January 2, 2005(Dollars in thousands except per share amounts)**

| ** **                                                                                                                                                                                                          | ** ** | **October 2,** | ** ** | **January 2,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|---------------------|------------|
| ** **                                                                                                                                                                                                          | ** ** | **2005**            | ** ** | **2005**            | ** ** |
| ** **                                                                                                                                                                                                          | ** ** | **(Unaudited)**     | ** ** |
| **ASSETS**                                                                                                                                                                                                          | ** ** | ** **          | ** ** | ** **          | ** ** |
| Current assets:                                                                                                                                                                                                     | ** ** | ** **          | ** ** | ** **          | ** ** |
| Cash and cash  equivalents                                                                                                                                                                                          |       | $                   | 6,300      | ** **          | $          | — | ** ** |
| Receivables, net:                                                                                                                                                                                                   | ** ** | ** **          | ** ** | ** **          | ** ** |
| Trade (net of allowance  for doubtful accounts of $4,380 and $2,740 at October 2, 2005 and  January 2, 2005, respectively)                                                                                |       | 140,070             | ** ** | 165,850             | ** ** |
| TriMas                                                                                                                                                                                                              |       | 3,530               | ** ** | 2,830               | ** ** |
| Other                                                                                                                                                                                                               |       | 11,350              | ** ** | 12,930              | ** ** |
| Total receivables, net                                                                                                                                                                                              |       | 154,950             | ** ** | 181,610             | ** ** |
| Inventories                                                                                                                                                                                                         |       | 118,900             | ** ** | 127,020             | ** ** |
| Deferred and refundable  income taxes                                                                                                                                                                               |       | 16,660              | ** ** | 18,470              | ** ** |
| Prepaid expenses and  other assets                                                                                                                                                                                  |       | 35,680              | ** ** | 36,650              | ** ** |
| Total current assets                                                                                                                                                                                                |       | 332,490             | ** ** | 363,750             | ** ** |
| Equity investments in and  receivables from affiliates                                                                                                                                                              |       | 102,750             | ** ** | 107,040             | ** ** |
| Property and equipment  (net of accumulated depreciation of $335,440 and $294,940 at October 2,  2005 and January 2, 2005, respectively)                                                                  |       | 812,840             | ** ** | 856,250             | ** ** |
| Excess of cost over net  assets of acquired companies                                                                                                                                                               |       | 601,950             | ** ** | 626,240             | ** ** |
| Intangible and other  assets                                                                                                                                                                                        |       | 221,140             | ** ** | 241,470             | ** ** |
| Total assets                                                                                                                                                                                                        |       | $                   | 2,071,170  | ** **          | $          | 2,194,750 | ** ** |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                                                                                                      |       | ** **          | ** ** | ** **          | ** ** |
| Current liabilities:                                                                                                                                                                                                |       | ** **          | ** ** | ** **          | ** ** |
| Accounts payable                                                                                                                                                                                                    |       | $                   | 262,540    | ** **          | $          | 286,590 | ** ** |
| Accrued liabilities                                                                                                                                                                                                 |       | 132,370             | ** ** | 117,050             | ** ** |
| Current maturities,  long-term debt                                                                                                                                                                                 |       | 8,000               | ** ** | 12,250              | ** ** |
| Total current  liabilities                                                                                                                                                                                          |       | 402,910             | ** ** | 415,890             | ** ** |
| Long-term debt                                                                                                                                                                                                      |       | 839,450             | ** ** | 855,450             | ** ** |
| Deferred income taxes                                                                                                                                                                                               |       | 61,950              | ** ** | 88,910              | ** ** |
| Minority interest                                                                                                                                                                                                   |       | 660                 | ** ** | 650                 | ** ** |
| Other long-term  liabilities                                                                                                                                                                                        |       | 114,780             | ** ** | 142,700             | ** ** |
| Redeemable preferred  stock, (aggregate liquidation value $175,240 and $159,250 at October 2,  2005 and January 2, 2005, respectively). Authorized: 1,198,693  shares; Outstanding: 1,189,694 shares |       | 165,990             | ** ** | 149,190             | ** ** |
| Total liabilities                                                                                                                                                                                                   |       | 1,585,740           | ** ** | 1,652,790           | ** ** |
| Preferred stock  (non-redeemable), $1 par, Authorized: 25 million; Outstanding: None                                                                                                                                |       | —              | ** ** | —              | ** ** |
| Common stock, $1 par,  Authorized: 250 million; Outstanding: 42.8 million shares                                                                                                                                    |       | 42,840              | ** ** | 42,830              | ** ** |
| Paid-in capital                                                                                                                                                                                                     |       | 698,870             | ** ** | 698,870             | ** ** |
| Accumulated deficit                                                                                                                                                                                                 |       | (281,410            | **)**      | (262,740            | **)**      |
| Accumulated other  comprehensive income                                                                                                                                                                             |       | 25,130              | ** ** | 63,000              | ** ** |
| Total shareholders’  equity                                                                                                                                                                                    |       | 485,430             | ** ** | 541,960             | ** ** |
| Total liabilities and shareholders’ equity                                                                                                                                                                     |       | $                   | 2,071,170  | ** **          | $          | 2,194,750 | ** ** |

 

See accompanying notes to the consolidated financial statements.

2

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**METALDYNE CORPORATIONCONSOLIDATED STATEMENTOF OPERATIONS(Dollars in thousands except per share amounts)**

| ** **                                                                          | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                          | ** ** | **October 2,**              | ** ** | **October 3,**             | ** ** | **October 2,** | ** ** | **October 3,** | ** ** |
| ** **                                                                          | ** ** | **2005**                         | ** ** | **2004**                        | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                          | ** ** | **(Unaudited)**                  | ** ** | **(Unaudited)**                 | ** ** |
| Net sales                                                                           |       | $                                | 512,670    |                            | $          | 501,680 |   | $ | 1,680,540 |   | $ | 1,504,710 |   |
| Cost of sales                                                                       |       | (473,220                         | )          | (467,500                        | )          | (1,525,300 | ) | (1,365,930 | ) |
| Gross profit                                                                        |       | 39,450                           |       | 34,180                          |       | 155,240 |   | 138,780 |   |
| Selling, general and administrative expenses                                        |       | (32,520                          | )          | (35,880                         | )          | (92,300 | ) | (98,350 | ) |
| Restructuring  charges                                                              |       | (200                             | )          | (220                            | )          | (1,880 | ) | (1,930 | ) |
| Loss on  disposition of manufacturing facilities                                    |       | —                           |       | —                          |       | — |   | (7,600 | ) |
| Operating profit (loss)                                                             |       | 6,730                            |       | (1,920                          | )          | 61,060 |   | 30,900 |   |
| Other expense,  net:                                                                |       |                             |       |                            |       |   |   |   |   |
| Interest:                                                                           |       |                             |       |                            |       |   |   |   |   |
| Interest expense                                                                    |       | (22,550                          | )          | (21,740                         | )          | (66,930 | ) | (61,490 | ) |
| Preferred stock dividends and accretion                                             |       | (5,770                           | )          | (4,860                          | )          | (16,800 | ) | (13,830 | ) |
| Non-cash gain on maturity of interest rate  arrangements                            |       | —                           |       | —                          |       | — |   | 6,590 |   |
| Equity income from affiliates, net                                                  |       | 60                               |       | 760                             |       | 1,640 |   | 5,200 |   |
| Other, net                                                                          |       | (3,510                           | )          | (1,470                          | )          | (7,900 | ) | (4,890 | ) |
| Other expense, net                                                                  |       | (31,770                          | )          | (27,310                         | )          | (89,990 | ) | (68,420 | ) |
| Loss before income taxes                                                            |       | (25,040                          | )          | (29,230                         | )          | (28,930 | ) | (37,520 | ) |
| Income tax  benefit                                                                 |       | (9,810                           | )          | (11,860                         | )          | (10,260 | ) | (11,730 | ) |
| Net loss                                                                            |       | $                                | (15,230    | )                               | $          | (17,370 | ) | $ | (18,670 | ) | $ | (25,790 | ) |
| Basic and diluted loss per share                                                    |       | $                                | (0.36      | )                               | $          | (0.41 | ) | $ | (0.44 | ) | $ | (0.60 | ) |
| Weighted average  number of shares outstanding for basic and diluted loss per share |       | 42,840                           |       | 42,820                          |       | 42,840 |   | 42,800 |   |

 

See accompanying notes to the consolidated financial statements.

3

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**METALDYNE CORPORATIONCONSOLIDATED STATEMENT OFCASH FLOWS(Dollars in thousands)**

| ** **                                                                                  | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                  | ** ** | **October 2,**             | ** ** | **October 3,** | ** ** |
| ** **                                                                                  | ** ** | **2005**                        | ** ** | **2004** | ** ** |
| ** **                                                                                  | ** ** | **(Unaudited)**                 | ** ** |
| Operating activities:                                                                       |       |                            |       |   |   |
| Net loss                                                                                    |       | $                               | (18,670    | ) | $ | (25,790 | ) |
| Adjustments to  reconcile net loss to net cash provided by (used for) operating activities: |       |                            |       |   |   |
| Depreciation and  amortization                                                              |       | 101,500                         |       | 95,360 |   |
| Stock award expense                                                                         |       | —                          |       | 600 |   |
| Debt fee amortization                                                                       |       | 2,610                           |       | 2,010 |   |
| Losses on fixed asset  dispositions                                                         |       | 2,850                           |       | 1,540 |   |
| Loss on disposition of  manufacturing facilities                                            |       | —                          |       | 7,600 |   |
| Deferred income taxes                                                                       |       | (25,470                         | )          | (9,050 | ) |
| Preferred stock dividends  and accretion                                                    |       | 16,800                          |       | 13,960 |   |
| Gain on maturity of  interest rate arrangements                                             |       | —                          |       | (6,590 | ) |
| Equity income from  affiliates, net                                                         |       | (1,640                          | )          | (5,200 | ) |
| Curtailment gain and gain  on elimination of certain benefits                               |       | (9,530                          | )          | — |   |
| Changes in assets  and liabilities, net of acquisition/disposition of business:             |       |                            |       |   |   |
| Receivables, net                                                                            |       | (34,870                         | )          | (56,250 | ) |
| Net proceeds of accounts  receivable facility                                               |       | 63,390                          |       | 87,290 |   |
| Inventories                                                                                 |       | 8,450                           |       | (23,420 | ) |
| Prepaid expenses and  other assets                                                          |       | 1,050                           |       | (12,640 | ) |
| Accounts payable and  accrued liabilities                                                   |       | (8,370                          | )          | 33,670 |   |
| Change in other long-term  assets                                                           |       | (1,540                          | )          | (240 | ) |
| Change in other long-term  liabilities                                                      |       | (14,700                         | )          | (10,660 | ) |
| Other, net                                                                                  |       | 530                             |       | 740 |   |
| Net cash provided by  operating activities                                                  |       | 82,390                          |       | 92,930 |   |
| Investing  activities:                                                                      |       |                            |       |   |   |
| Capital expenditures                                                                        |       | (85,030                         | )          | (105,250 | ) |
| Proceeds from  sale/leaseback of fixed assets                                               |       | 21,590                          |       | 72,530 |   |
| Disposition of  manufacturing facilities                                                    |       | —                          |       | (500 | ) |
| (Payments for)  reimbursement from acquisition of business, net of cash received            |       | 7,960                           |       | (203,870 | ) |
| Net cash used for  investing activities                                                     |       | (55,480                         | )          | (237,090 | ) |
| Financing  activities:                                                                      |       |                            |       |   |   |
| Principal payments of  term loan facilities                                                 |       | (440                            | )          | (880 | ) |
| Proceeds of revolving  credit facility                                                      |       | 265,000                         |       | 181,960 |   |
| Principal payments of  revolving credit facility                                            |       | (278,540                        | )          | (125,910 | ) |
| Proceeds of senior  subordinated notes, due 2014 (face value $31.7 million)                 |       | —                          |       | 26,920 |   |
| Proceeds of other debt                                                                      |       | 4,840                           |       | 1,220 |   |
| Principal payments of  other debt                                                           |       | (10,970                         | )          | (7,400 | ) |
| Issuance of Series A-1  preferred stock (face value $65.4 million)                          |       | —                          |       | 55,340 |   |
| Net cash provided by  (used for) financing activities                                       |       | (20,110                         | )          | 131,250 |   |
| Effect of exchange  on cash                                                                 |       | (500                            | )          | 280 |   |
| Net increase  (decrease) in cash                                                            |       | 6,300                           |       | (12,630 | ) |
| Cash and cash  equivalents, beginning of period                                             |       | —                          |       | 13,820 |   |
| Cash and cash  equivalents, end of period                                                   |       | $                               | 6,300      |   | $ | 1,190 |   |
| Supplementary cash  flow information:                                                       |       |                            |       |   |   |
| Cash paid (refunded) for  income taxes, net                                                 |       | $                               | 8,560      |   | $ | (15,050 | ) |
| Cash paid for interest                                                                      |       | $                               | 55,000     |   | $ | 48,690 |   |
| Noncash transactions—capital leases                                                    |       | $                               | 460        |   | $ | 5,980 |   |

 

See accompanying notes to the consolidated financial statements.

4

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**METALDYNE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**1.   Business and Other Information**

Metaldyne Corporation (“Metaldyne” or “the Company”)is a leading global manufacturer of highly engineered metal components for theglobal light vehicle market. The Company operates two segments. The Chassis andPowertrain segments manufacture, design, engineer and assemble metal-formed andprecision-engineered components and modular systems used in the transmissions,engines and chassis of vehicles.

The Company maintains a fifty-two/fifty-three weekfiscal year ending on the Sunday nearest to December 31. Fiscal year 2005is comprised of fifty-two weeks and fiscal year 2004 is comprised offifty-three weeks and end on January 1, 2006 and January 2, 2005,respectively. All year and quarter references relate to the Company’s fiscalyear and fiscal quarters unless otherwise stated. The nine-month statementsrepresent the 39-week and 40-week periods from the end of the Company’s fiscalyear and ended on October 2, 2005 and October 3, 2004, respectively. Thus, theresults of the three-month statements ended October 3, 2004 contain oneadditional week compared to the three-month statements ended October 2, 2005.

In the opinion of Company management, the unauditedfinancial statements contain all adjustments, including adjustments of a normalrecurring nature, necessary to present fairly the financial position, resultsof operations and cash flows for the periods presented. These statements shouldbe read in conjunction with the Company’s financial statements included in theAnnual Report on Form 10-K for the fiscal year ended January 2,2005 (the “2004 Form 10-K”). The results of operations for theperiod ended October 2, 2005 are not necessarily indicative of the resultsfor the full year.

Certain prior year amountshave been reclassified to reflect current year classifications.

**2.   Stock Options and Awards**

The Company has a stock-based employee compensationplan and has issued equity-based incentives in various forms. The Company continuesto account for stock-based employee compensation using the intrinsic valuemethod under Accounting Principles Board (“APB”) No. 25 “Accounting forStock Issued to Employees” and related interpretations. No stock-based employeecompensation cost is reflected in net income (loss), as all options grantedunder this plan had an exercise price equal to the market value of theunderlying common stock on the date of grant.

5

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**METALDYNE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Thefollowing table illustrates the effect on net loss and loss per share if theCompany had applied the fair value recognition provisions of SFAS No. 123,“Accounting for Stock-Based Compensation,” to stock-based employeecompensation.

| ** **                                                                                                                                    | ** ** | **Three Months Ended**                                     | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                                    | ** ** | **October 2, 2005**                                        | ** ** | **October 3, 2004**   | ** ** | **October 2, 2005** | ** ** | **October 3, 2004** | ** ** |
| ** **                                                                                                                                    | ** ** | **(In thousands except per share amounts)** | ** ** |
| Net loss, as  reported                                                                                                                        |       |                                                                 | $          | (15,230                         | )          |   |   | $ | (17,370 | ) |   |   | $ | (18,670 | ) |   |   | $ | (25,790 | ) |   |
| Deduct: Total  stock-based employee compensation expense determined under fair value based  method for all awards, net of related tax effects |       |                                                                 | —     |                            |       |   | (40 | ) |   |   | — |   |   |   | (210 | ) |   |
| Pro forma net  loss                                                                                                                           |       |                                                                 | $          | (15,230                         | )          |   |   | $ | (17,410 | ) |   |   | $ | (18,670 | ) |   |   | $ | (26,000 | ) |   |
| Loss per share:                                                                                                                               |       |                                                                 |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic and diluted—as reported                                                                                                            |       |                                                                 | $          | (0.36                           | )          |   |   | $ | (0.41 | ) |   |   | $ | (0.44 | ) |   |   | $ | (0.60 | ) |   |
| Basic and diluted—pro  forma for stock-based compensation                                                                                |       |                                                                 | $          | (0.36                           | )          |   |   | $ | (0.41 | ) |   |   | $ | (0.44 | ) |   |   | $ | (0.61 | ) |   |

 

In January 2004, theCompany offered eligible employees the opportunity to participate in aVoluntary Stock Option Exchange Program (the “Program”), to exchange all oftheir outstanding options to purchase shares of the Company’s common stockgranted under the Long Term Equity Incentive Plan (the “Plan”) for new stockoptions and restricted stock units to be granted under the Plan. Participationin the Program was voluntary. Elections were required to be received by January 14,2004, with new stock options granted on or after July 15, 2004 andrestricted stock units granted on January 15, 2004. Non-eligibleparticipants in the existing Plan and those eligible employees not electing toparticipate in the new Program continue to be eligible to participate in theexisting Plan. There was no stock compensation expense for the nine monthsended October 2, 2005.

**3.   AccountsReceivable Securitization and Factoring Agreements**

On July 8, 2005, the Company and its wholly ownedspecial purpose subsidiary, MRFC, Inc. (“MRFC”), amended and restated itsexisting accounts receivable financing facility with General Electric CapitalCorporation (“GECC”). The terms of the facility that were amended and restatedinclude (a) extending the maturity date to July 8, 2010, (b) favorableadjustments to certain default triggers, (c) increased programavailability and (d) an increase to the applicable margin on LIBOR baseddrawings from 1.75% to 2.25%. The amendment and restatement also addressedvarious technical matters. The amended and restated facility represents thecompletion of the final step of the multi-step receivables facilitymodifications initiated on April 29, 2005. Refer also to the Company’s Form 10-Qfor the period ended July 3, 2005.

The Company has entered into an arrangement to sell,on an ongoing basis, the trade accounts receivable of substantially alldomestic business operations to MRFC. MRFC from time to time may sell anundivided fractional ownership interest in the pool of receivables up toapproximately $175 million, availability subject to certain covenantrestrictions, to a third party multi-seller receivables funding company. Thenet proceeds of sale are less than the face amount of accounts receivable soldby an amount that approximates the purchaser’s financing costs, which amountedto a total of $4.3 million and $2.1 million for the nine months ended October 2,2005 and October 3, 2004, respectively, and is included in 

6

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**METALDYNE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

other expense, net in theCompany’s consolidated statement of operations. Prior to April 29, 2005,the Company’s trade accounts receivable of substantially all domestic businessoperations were sold in connection with JPMorgan Chase Bank, N.A. At October 2,2005, total usage and availability under the accounts receivable facility wasapproximately $126.6 million and $156.9 million, respectively, with $30.3million available but not utilized. At October 3, 2004,, total usage andavailability under the accounts receivable facility was approximately $87.3million with no additional amounts available. The interest rate was based onLIBOR plus 2.25% at October 3, 2005. In addition, the Company is requiredto pay a fee of 0.5% on the unused portion of the facility.

The Company has entered into agreements withinternational invoice factoring companies to sell customer accounts receivableof Metaldyne foreign locations in France, Germany, Spain, United Kingdom andMexico on a non-recourse basis. As of October 2, 2005, the Company hadapproximately $66 million available from these commitments, and approximately$47 million of receivables were sold under these programs. The Company pays acommission to the factoring company plus interest from the date the receivablesare sold until the date of customer payment. Commission expense of $1.5 millionrelated to these agreements for the nine months ended October 2, 2005 isrecorded in other expense, net on the Company’s consolidated statement ofoperations.

To facilitate thecollection of funds from operating activities, the Company has entered intoaccelerated payment collection programs with certain customers. Although themajority of the accelerated payment collection programs were discontinued as ofor prior to January 2, 2005, at October 2, 2005 collection ofapproximately $24.2 million of accounts receivable was accelerated under theremaining programs. In addition to the above programs, the Company continues tocollect approximately $22 million per month on an accelerated basis as a resultof favorable payment terms that it negotiated with one of its customers,through an agreement that expires December 31, 2006. These payments arereceived on average 20 days after shipment of product to the customer. Whilethe impact of the discontinuance of the accelerated collection programs may bepartially offset by a greater utilization of the Company’s accounts receivablesecuritization facility, the Company continues to examine other alternativeprograms in the marketplace, as well as enhanced payment terms directly fromits customers.

**4.   Inventories**

Inventories by componentare as follows:

| ** **      | ** ** | **October 2, 2005** | ** ** | **January 2, 2005** | ** ** |
|-----------------|------------|-------------------------------|------------|-------------------------------|------------|
| ** **      | ** ** | **(In thousands)**       | ** ** |
| Raw materials   |       |                          | $          | 47,680                        |       |   |   | $ | 48,270 |   |   |
| Work in process |       |                          | 36,350     |                          |       |   | 36,440 |   |   |
| Finished goods  |       |                          | 34,870     |                          |       |   | 42,310 |   |   |
|            |       |                          | $          | 118,900                       |       |   |   | $ | 127,020 |   |   |

 

**5.   Excess ofCost over Net Assets of Acquired Companies and Intangible Assets**

At October 2, 2005,the excess of cost over net assets of acquired companies (“goodwill”) balancewas approximately $602 million. For purposes of testing this goodwill for potentialimpairment, fair values were determined based upon the discounted cash flows ofthe reporting units using a 9.5% discount rate. This assessment was completedfor the year ended January 2, 2005. The assessment was performed again inthe first quarter of 2005 in connection with the formation of the new reportingunits pursuant to the change in 

7

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**METALDYNE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

operatingsegments describe below under “Goodwill.” The assessment for the quarter ended April 3,2005 indicated that the fair value of these units exceeded their carryingvalues.

**Acquired IntangibleAssets**

Thechange in the gross carrying amount of acquired intangible assets is primarilyattributable to the exchange impact from foreign currency.

| ** **                                                   | ** ** | **As of October 2, 2005**                             | ** ** | **As of January 2, 2005** | ** ** |
|--------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                   | ** ** | **Gross  Carrying  Amount**                                               | ** ** | **Accumulated  Amortization**                 | ** ** | **Weighted  Average  Life** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Weighted  Average  Life** | ** ** |
| ** **                                                   | ** ** | **(In thousands, except weighted average life)** | ** ** |
| Amortized  Intangible Assets:                                |       |                                                                      |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Customer Contracts                                           |       | $                                                                         | 123,880    |                                          |       | $ | (51,580 | ) |   | 10.0 years |   | $ | 127,600 |   |   | $ | (42,750 | ) |   | 10.0 years |   |
| Technology and Other                                         |       | 159,150                                                                   |       |                                          | (54,610    | ) |   | 13.9 years |   | 163,920 |   |   | (45,260 | ) |   | 13.9 years |   |
| Total                                                        |       | $                                                                         | 283,030    |                                          |       | $ | (106,190 | ) |   | 13.2 years |   | $ | 291,520 |   |   | $ | (88,010 | ) |   | 13.2 years |   |
| Aggregate  Amortization Expense (Included in Cost of Sales): |       |                                                                      |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| For the nine months ended October 2, 2005               |       |                                                                      |       |                                          | $          | 18,180 |   |   |   |   |   |   |   |   |   |   |   |   |
| October 3, 2004                                              |       |                                                                      |       |                                          | $          | 17,850 |   |   |   |   |   |   |   |   |   |   |   |   |
| Estimated Amortization Expense:                              |       |                                                                      |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| For the fiscal year ending 2005                              |       |                                                                      |       |                                          | 23,410     |   |   |   |   |   |   |   |   |   |   |   |   |
| For the fiscal year ending 2006                              |       |                                                                      |       |                                          | 23,410     |   |   |   |   |   |   |   |   |   |   |   |   |
| For the fiscal year ending 2007                              |       |                                                                      |       |                                          | 22,640     |   |   |   |   |   |   |   |   |   |   |   |   |
| For the fiscal year ending 2008                              |       |                                                                      |       |                                          | 21,890     |   |   |   |   |   |   |   |   |   |   |   |   |
| For the fiscal  year ending 2009                             |       |                                                                      |       |                                          | 21,890     |   |   |   |   |   |   |   |   |   |   |   |   |

 

**Goodwill**

Thechanges in the carrying amount of goodwill for the nine months ended October 2,2005 are as follows:

| ** **                             | ** ** | **Chassis**             | ** ** | **Powertrain** | ** ** | **Total** | ** ** |
|----------------------------------------|------------|-------------------------|------------|----------------|------------|-----------|------------|
| ** **                             | ** ** | **(In thousands)** | ** ** |
| Balance as of  January 2, 2005    |       | $                       | 348,410    |           |       | $         | 277,830    |   |   | $ | 626,240 |   |
| Exchange impact  from foreign currency |       | (13,280                 | )          |           | (3,990     | )         |       | (17,270 | ) |
| New Castle  adjustment (see Note 8)    |       | (7,960                  | )          |           | —     |      |       | (7,960 | ) |
| Other                                  |       | 1,670                   |       |           | (730       | )         |       | 940 |   |
| Balance as of  October 2, 2005    |       | $                       | 328,840    |           |       | $         | 273,110    |   |   | $ | 601,950 |   |

 

As a result of itsreorganization in January 2005, the Company consolidated its operationsinto two segments:  the Chassis segmentand the Powertrain segment. This resulted in a change in the underlyingreporting units and necessitated a reallocation of goodwill to the newreporting units based on relative fair values. The reallocation did notindicate an impairment of goodwill for the new reporting units based onexpected future cash flows discounted at a 9.5% rate. However, if the discountrate were to increase to 

8

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**METALDYNE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

approximately13%, or if expected future operating margins were to decrease by approximately12.5%, further goodwill impairment analysis would be necessary for one of theCompany’s reporting units.

**6.   DerivativeFinancial Instruments**

In the past, the Company has managed its exposure tochanges in interest rates through the use of interest rate protectionagreements. These interest rate derivatives are designated as cash flow hedges.The effective portion of each derivative’s gain or loss is initially reportedas a component of other comprehensive income (loss) and subsequentlyreclassified into earnings when the forecasted transaction affects earnings.The Company does not use derivatives for speculative purposes.

In February 2001, the Company entered intointerest rate protection agreements with various financial institutions tohedge a portion of its interest rate risk related to the term loan borrowingsunder its credit facility. These agreements include two interest rate collarswith a term of three years, a total notional amount of $200 million as of December 28,2003 and a three-month LIBOR interest rate cap and floor of 7% andapproximately 4.5%, respectively. The agreements also include four interestrate caps at a three-month LIBOR interest rate of 7% with a total notionalamount of $301 million as of December 28, 2003.

All of the Company’sinterest rate protection arrangements matured in February 2004 and, as aresult of their maturity, a cumulative non-cash pre-tax gain of $6.6 millionwas recorded and is reflected as a gain on maturity of interest ratearrangements in the Company’s consolidated statement of operations for the ninemonths ended October 3, 2004. Prior to the expiration of these agreements,the Company recognized additional interest expense of $1.1 million during thenine months ended October 3, 2004.

**7.   Segment Information**

The Company has defined a segment as a component withbusiness activity resulting in revenue and expense that has separate financialinformation evaluated regularly by the Company’s chief operating decision makerand its board of directors in determining resource allocation and assessingperformance.

The Company has established Adjusted Earnings BeforeInterest Taxes Depreciation and Amortization (“Adjusted EBITDA”) as a keyindicator of financial operating performance. The Company defines AdjustedEBITDA as net income (loss) before cumulative effect of accounting change andbefore interest, taxes, depreciation, amortization, asset impairment, non-cashlosses on sale-leaseback of property and equipment and non-cash restrictedstock award expense. Adjusted EBITDA is a non-GAAP measure and thereforecaution must be exercised in using Adjusted EBITDA as an analytical tool andshould not be used in isolation or as a substitute for analysis of our resultsas reported under GAAP. In evaluating Adjusted EBITDA, management deems itimportant to consider the quality of the Company’s underlying earnings byseparately identifying certain costs undertaken to improve the Company’sresults, such as costs related to consolidating facilities and businesses in aneffort to eliminate duplicative costs or achieve efficiencies, costs related tointegrating acquisitions and restructuring costs related to expense reductionefforts.

In January 2005, the Company reorganized andconsolidated its operations into two segments: the Chassis segment and thePowertrain segment. The Chassis segment consists of the former Chassisoperations plus a portion of the former Driveline operations, while thePowertrain segment consists of the former Engine operations combined with theremainder of the former Driveline operations. The prior year amounts have beenrestated to reflect these changes for comparison purposes.

9

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**METALDYNE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

CHASSIS—Manufactures components, modules and systemsused in a variety of engineered chassis applications, including fittings,wheel-ends, axle shaft, knuckles and mini-corner assemblies. This segmentutilizes a variety of processes including hot, warm and cold forging, powdermetal forging and machinery and assembly.

POWERTRAIN—Manufactures a broad range of engine components,modules and systems, including sintered metal, powder metal, hydrauliccontrols, precision shafts, forged and tubular fabricated products used for avariety of applications. These applications include balance shaft modules andfront cover assemblies. This segment also includes integrated programmanagement used in a broad range of transmission applications. Theseapplications include transmission and transfer case shafts and transmissionvalve bodies.

Intercompany sales for thethree and nine months ended October 2, 2005 were $9.4 million and $29.0million in the Chassis segment and $0.8 million and $2.8 million in thePowertrain segment, respectively. Intercompany sales for the three and ninemonths ended October 3, 2004 were $6.1 million and $21.6 million in theChassis segment and $0.7 and $2.1 million in the Powertrain segment,respectively. Intercompany sales are recognized in accordance with the Company’srevenue recognition policy and are eliminated in consolidation.

Segmentactivity for the three and nine months ended October 2, 2005 and October 3,2004 is as follows:

| ** **                                     | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                     | ** ** | **October 2, 2005**    | ** ** | **October 3, 2004**   | ** ** | **October 2, 2005** | ** ** | **October 3, 2004** | ** ** |
| ** **                                     | ** ** | **(In thousands)**          | ** ** |
| **SALES**                                      | ** ** |                             | ** ** | ** **                      |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Chassis                                        |       |                             | $          | 296,940                         | ** ** |   |   | $ | 290,370 | ** ** |   |   | $ | 984,830 | ** ** |   |   | $ | 859,450 | ** ** |   |
| Powertrain                                     |       |                             | 215,730    | ** **                      |       |   | 211,310 | ** ** |   |   | 695,710 | ** ** |   |   | 645,260 | ** ** |   |
| Total sales                                    |       |                             | $          | 512,670                         | ** ** |   |   | $ | 501,680 | ** ** |   |   | $ | 1,680,540 | ** ** |   |   | $ | 1,504,710 | ** ** |   |
| **Adjusted EBITDA**                            |       |                             |       | ** **                      |       |   |   | ** ** |   |   |   | ** ** |   |   |   | ** ** |   |
| Chassis                                        |       |                             | $          | 22,610                          | ** ** |   |   | $ | 19,810 | ** ** |   |   | $ | 81,480 | ** ** |   |   | $ | 80,750 | ** ** |   |
| Powertrain                                     |       |                             | 23,570     | ** **                      |       |   | 21,660 | ** ** |   |   | 91,390 | ** ** |   |   | 79,550 | ** ** |   |
| Centralized  resources (“Corporate”) |       |                             | (4,170     | )                               |       |   | (11,940 | ) |   |   | (8,470 | **)** |   |   | (25,480 | ) |   |
| Total Adjusted  EBITDA                         |       |                             | 42,010     |                            |       |   | 29,530 |   |   |   | 164,400 | ** ** |   |   | 134,820 |   |   |
| Depreciation &  amortization          |       |                             | (34,880    | )                               |       |   | (31,360 | ) |   |   | (101,500 | **)** |   |   | (95,360 | ) |   |
| Loss on sale of  manufacturing facilities      |       |                             | —     |                            |       |   | — |   |   |   | — | ** ** |   |   | (7,600 | ) |   |
| Non-cash stock  award expense                  |       |                             | —     |                            |       |   | (130 | ) |   |   | — | ** ** |   |   | (600 | ) |   |
| Other, net  included in Adjusted EBITDA        |       |                             | (400       | )                               |       |   | 40 |   |   |   | (1,840 | **)** |   |   | (360 | ) |   |
| Operating profit                               |       |                             | $          | 6,730                           |       |   |   | $ | (1,920 | ) |   |   | $ | 61,060 | ** ** |   |   | $ | 30,900 |   |   |

 

10

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**METALDYNE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

| ** **        | ** ** | **October 2, 2005** | ** ** | **January 2, 2005** | ** ** |
|-------------------|------------|-------------------------------|------------|-------------------------------|------------|
| ** **        | ** ** | **(In thousands)**       | ** ** |
| **Total  Assets** |       |                          |       |                          |       |   |   |   |   |
| Chassis           |       |                          | $          | 932,400                       |       |   |   | $ | 1,085,630 |   |   |
| Powertrain        |       |                          | 733,480    |                          |       |   | 752,930 |   |   |
| Corporate         |       |                          | 405,290    |                          |       |   | 356,190 |   |   |
| Total assets      |       |                          | $2,071,170 |                          |       |   | $ | 2,194,750 |   |   |
|                   |            |                               |            |                               |            |  |  |  |  |  |  |

 

| ** **                  | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------|------------|---------------------------------|------------|
| ** **                  | ** ** | **October 2, 2005**   | ** ** | **October 3, 2004** | ** ** |
| **Capital Expenditures**    |       |                            |       |   |   |   |   |   |   |
| Chassis                     |       |                            | $          | 39,680 |   |   |   | $ | 43,900 |   |   |
| Powertrain                  |       |                            | 45,240     |   |   |   | 59,900 |   |   |
| Corporate                   |       |                            | 110        |   |   |   | 1,450 |   |   |
| Total capital  expenditures |       |                            | $          | 85,030 |   |   |   | $ | 105,250 |   |   |

 

**8.   Acquisitions**

In the first quarter of 2004, effective December 31,2003, the Company completed a transaction with DaimlerChrysler Corporation (“DaimlerChrysler”)that transferred full ownership of the New Castle Machining and Forge (“NewCastle”) manufacturing operations to Metaldyne. From January 2003 untilthe transaction at December 31, 2003, New Castle was managed as a jointventure between Metaldyne and DaimlerChrysler; at December 28, 2003, theCompany’s investment in this joint venture was approximately $20 million(before fees and expenses of approximately $2 million). The New Castle facilitymanufactures suspension and chassis components for Chrysler, Jeep and Dodgevehicles; additionally, Metaldyne has launched initiatives to expand thecustomer base beyond DaimlerChrysler. The New Castle manufacturing operationsare part of the Company’s Chassis segment.

As part of the New Castle transaction, Metaldyneacquired Class A and Class B units representing DaimlerChrysler’sentire joint venture interest in New Castle. In exchange, Metaldyne deliveredto DaimlerChrysler $215 million (before fees and expenses of approximately $3million), comprised of $118.8 million in cash; $31.7 million in aggregateprincipal amount of a new issue of its 10% senior subordinated notes; and $64.5million (fair value of $55.3 million as of December 31, 2003) in aggregateliquidation preference of its Series A-1 preferred stock. Includedin the $5 million fees and expenses is a $2.4 million transaction fee paid toHeartland Industrial Partners (“Heartland”) pursuant to the monitoringagreement with Heartland in conjunction with the acquisition of New Castle. Thecash portion of the consideration was funded in part by the net cash proceedsof approximately $58 million from the sale-leaseback of certain machinery andequipment with a third-party lessor, with the remainder funded throughMetaldyne’s revolving credit facility.

The consolidated statement of cash flows for the ninemonths ended October 3, 2004 has been adjusted to reflect the finalpurchase price allocation of the New Castle acquisition.

In connection with the acquisition of New Castle, theCompany recorded $33.6 million of tax deductible goodwill that is amortizableover a 15 year period. The tax deductible goodwill in excess of goodwillrecorded in connection with the transaction for financial reporting purposes isattributable to the 

11

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**METALDYNE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

unamortized accretion, asof the issue date, of the 10% senior subordinated notes issued toDaimlerChrysler.

Also, in conjunction with the purchase agreement forthe acquisition of New Castle, DaimlerChrysler agreed to reimburse the Companyfor potential equipment purchases related to production capacity for a specificproduct line. The Company received reimbursement totaling $8.0 million as of October 2,2005. In the third quarter of 2005 the Company identified $1.7 million in assetsthat were included in the appraised value of assets reflected in the originalpurchase price allocation at a value in excess of fair value in considerationof the Company’s intended use of these assets. Consequently, an adjustment wasmade to increase goodwill and reduce fixed assets for this amount in thequarter. The net effect of the reimbursement and adjustment to the originalassets acquired has been recognized in the net reduction to the goodwillrecorded at the time of the acquisition.

**9.   AssetImpairments and Restructuring Related Integration Actions**

Restructuring costs incurred for the nine months endedOctober 2, 2005 were $1.9 million and primarily reflect headcountreductions related to the consolidation of the Company’s operations into twosegments. Costs incurred for the nine months ended October 3, 2004 were$1.9 million and primarily reflect headcount reductions in the Chassis Group’s NorthAmerican Forging Operations (the “Forging Operations”).

The Companyexpects to realize additional savings in 2005 from the 2004 restructuringactions as reductions in employee-related expenses recognized in both cost ofgoods sold and selling, general and administrative expense.

| ** **                         | ** ** | **Acquisition  Related  Severance  Costs** | ** ** | **2002  Additional  Severance  and Other  Exit Costs** | ** ** | **2003  Additional  Severance  and Other  Exit Costs** | ** ** | **2004  Additional  Severance  and Other  Exit Costs** | ** ** | **2005  Additional  Severance  and Other  Exit Costs** | ** ** | **Total** | ** ** |
|------------------------------------|------------|--------------------------------------------|------------|------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|-----------|------------|
| ** **                         | ** ** | **(In thousands)**                    | ** ** |
| Balance at  December 28, 2003 |       |                                       | $          | 1,340                                                            |       |                                                             |       | $                                                                | 360        |                                                             |       |      | $          | 7,350 |   |   |   | $ | — |   |   |   | $ | — |   |   | $ | 9,050 |   |
| Charges to expense                 |       |                                       | —     |                                                             |       |                                                             | —     |                                                             |       |                                                             | —     |      |       |   | 2,750 |   |   |   | — |   |   | 2,750 |   |
| Cash payments                      |       |                                       | (310       | )                                                                |       |                                                             | (360       | )                                                                |       |                                                             | (4,600     | )         |       |   | (2,240 | ) |   |   | — |   |   | (7,510 | ) |
| Reversal of  unutilized amounts    |       |                                       | (360       | )                                                                |       |                                                             | —     |                                                             |       |                                                             | —     |      |       |   | — |   |   |   | — |   |   | (360 | ) |
| Balance at  January 2, 2005   |       |                                       | $          | 670                                                              |       |                                                             |       | $                                                                | —     |                                                             |       |      | $          | 2,750 |   |   |   | $ | 510 |   |   |   | $ | — |   |   | $ | 3,930 |   |
| Charges to expense                 |       |                                       | —     |                                                             |       |                                                             | —     |                                                             |       |                                                             | (240       | )         |       |   | — |   |   |   | 2,120 |   |   | 1,880 |   |
| Cash payments                      |       |                                       | (10        | )                                                                |       |                                                             | —     |                                                             |       |                                                             | (2,030     | )         |       |   | (390 | ) |   |   | (1,910 | ) |   | (4,340 | ) |
| Balance at  October 2, 2005   |       |                                       | $          | 660                                                              |       |                                                             |       | $                                                                | —     |                                                             |       |      | $          | 480 |   |   |   | $ | 120 |   |   |   | $ | 210 |   |   | $ | 1,470 |   |

 

The above amountsrepresent total estimated cash payments, of which $1.1 million and $3.2 millionare recorded in accrued liabilities, with $0.4 million and $0.7 millionrecorded in other long-term liabilities in the Company’s consolidated balancesheet at October 2, 2005 and January 2, 2005, respectively.

**10.   Dispositions**

On February 1, 2004, the Company completed anasset sale pursuant to which substantially all of the business associated withtwo of the aluminum die casting facilities in its former Driveline segment wassold to Lester PDC, Ltd, a Kentucky-based aluminum die casting and machiningcompany. The Companyretained an interest in approximately $5.6 million in working capital(principally accounts receivable). Cash paid in the transaction to buy out theremaining portion of the equipment that had previously been sold 

12

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**METALDYNE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

under an operating lease arrangement by the Companywas approximately $6.1 million, net of proceeds from Lester PDC of $4.1million. The buyer also agreed to lease the Bedford Heights, Ohio and sub-leasethe Rome, Georgia facilities from the Company for approximately $0.2 millionand $0.4 million, respectively. In addition, Lester PDC and Metaldyneentered into a supply agreement. Inconnection with the disposition of these manufacturing facilities, the Companyrecognized a charge of $7.6 million on the Company’s consolidated statement ofoperations as of March 28, 2004. The charge represents the book value ofapproximately $12 million in fixed assets and deferred financing fees offset bythe $4.1 million in cash consideration paid by Lester PDC for the assets.

In November 2004, Lester PDC discontinuedoperations at the Bedford Heights facility and the supply agreement and leaseagreement between Lester PDC and Metaldyne were terminated. As a result,Metaldyne assumed production of some of the products at the Bedford Heightsfacility that were subject to the terminated supply agreement. One of theseproduct lines is currently being manufactured at the Bedford Heights facilityand the remaining products have been moved to other Metaldyne facilities.During the third quarter 2005, the Company recorded a pre-tax loss ofapproximately $0.6 million related to the Bedford Heights facility. Thisadjustment to fair value was based upon the current market value as determinedby an updated third party valuation.

**11.   RedeemablePreferred Stock**

The Company hasoutstanding 644,540 shares of $64.5 million in liquidation value ($56.8 millioncarrying value as of October 2, 2005) of Series A-1 preferredstock par value $1 and authorized 644,540 shares to DaimlerChrysler Corporation.The Company will accrete from the carrying value to the liquidation valueratably over the ten-year period. The preferred stock is mandatorily redeemableon December 31, 2013. Series A-1 preferred stockholders areentitled to receive, when, as and if declared by the Company’s board ofdirectors, cumulative quarterly cash dividends at a rate of 11% per annum plus2% per annum for any period for which there are any accrued and unpaiddividends.

The Company hasoutstanding 361,001 shares of $36.1 million in liquidation value ($34.5 millioncarrying value as of October 2, 2005) of Series A preferred stock parvalue $1 and authorized 370,000 shares to Masco Corporation. The Company willaccrete from the carrying value to the liquidation value ratably over thetwelve-year period. The preferred stock is mandatorily redeemable onDecember 31, 2012. Series A preferred stockholders are entitled toreceive, when, as and if declared by the Company’s board of directors,cumulative quarterly cash dividends at a rate of 13% per annum for periodsending on or prior to December 31, 2005 and 15% per annum for periodsafter December 31, 2005 plus 2% per annum for any period for which thereare any accrued and unpaid dividends.

The Company hasoutstanding 184,153 shares with a carrying value of $18.4 million of redeemableSeries B preferred stock to Heartland. The redeemable Series Bpreferred shares issued are mandatory redeemable on June 15, 2013. TheSeries B preferred stockholders are entitled to receive, when, as and ifdeclared by the Company’s Board of Directors, cumulative semi-annual cashdividends at a rate of 11.5% per annum.

Preferred stock dividends(including accretion of $0.8 million and $0.2 million in 2005 and 2004,respectively) were $16.8 million and $14.0 million, while dividend cashpayments were zero, for the nine months ended October 2, 2005 andOctober 3, 2004, respectively. Unpaid accrued dividends were $56.3 millionand $40.3 million at October 2, 2005 and January 2, 2005, respectively.Redeemable preferred stock, consisting of outstanding shares and unpaiddividends, was $166.0 million and $149.2 million in the Company’s consolidatedbalance sheet at October 2, 2005 and January 2, 2005, respectively.

13

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**METALDYNE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**12.   Loss Per Share**

The following reconcilesthe numerators and denominators used in the computations of basic and dilutedloss per common share:

| ** **                                                                | ** ** | **Three Months Ended**                                     | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                | ** ** | **October 2, 2005**                                        | ** ** | **October 3, 2004**   | ** ** | **October 2, 2005** | ** ** | **October 3, 2004** | ** ** |
| ** **                                                                | ** ** | **(In thousands except per share amounts)** | ** ** |
| Weighted average  number of shares outstanding for basic and diluted |       |                                                                 | 42,840     |                            |       |   | 42,820 |   |   |   | 42,840 |   |   |   | 42,800 |   |   |
| Loss used for  basic and diluted earnings per share computation           |       |                                                                 | $          | (15,230                         | )          |   |   | $ | (17,370 | ) |   |   | $ | (18,670 | ) |   |   | $ | (25,790 | ) |   |
| Basic and diluted loss  per share                                         |       |                                                                 | $          | (0.36                           | )          |   |   | $ | (0.41 | ) |   |   | $ | (0.44 | ) |   |   | $ | (0.60 | ) |   |

 

Diluted loss per share reflects the potential dilutionthat would occur if securities or other contracts to issue common stock wereexercised or converted into common stock. Excluded from the calculation ofdiluted earnings per share are stock options representing 3.0 million and 2.7million of common shares as they are anti-dilutive at October 2, 2005 and October 3,2004, respectively.

Contingently issuableshares, representing approximately 0.05 million restricted common shares, havean anti-dilutive effect on earnings per share for the three and nine monthsended October 2, 2005 and October 3, 2004.

**13.   ComprehensiveIncome (Loss)**

The Company’s totalcomprehensive income (loss) for the period was as follows:

| ** **                                                                       | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|----------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                       | ** ** | **October 2, 2005**    | ** ** | **October 3, 2004**   | ** ** | **October 2, 2005** | ** ** | **October 3, 2004** | ** ** |
| ** **                                                                       | ** ** | **(In thousands)**          | ** ** |
| Net loss                                                                         |       |                             | $          | (15,230                         | )          |   |   | $ | (17,370 | ) |   |   | $ | (18,670 | ) |   |   | $ | (25,790 | ) |   |
| Other  comprehensive income (loss):                                              |       |                             |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign currency translation adjustment                                          |       |                             | 6,750      |                            |       |   | 6,810 |   |   |   | (36,610 | ) |   |   | 1,920 |   |   |
| Change in the Company’s portion of TriMas’ other  comprehensive income |       |                             | 780        |                            |       |   | 1,480 |   |   |   | (1,260 | ) |   |   | (140 | ) |   |
| Interest rate agreements fair value adjustments  (realized in 2004)              |       |                             | —     |                            |       |   | — |   |   |   | — |   |   |   | (6,590 | ) |   |
| Total other comprehensive loss                                                   |       |                             | 7,530      |                            |       |   | 8,290 |   |   |   | (37,870 | ) |   |   | (4,810 | ) |   |
| Total comprehensive loss                                                         |       |                             | $          | (7,700                          | )          |   |   | $ | (9,080 | ) |   |   | $ | (56,540 | ) |   |   | $ | (30,600 | ) |   |

 

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**METALDYNE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**14.   EmployeeBenefit Plans**

**Pension Benefits:**

| ** **                                       | ** ** | **For the three months ended** | ** ** | **For the nine months ended** | ** ** |
|--------------------------------------------------|------------|----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                       | ** ** | **October 2, 2005**                      | ** ** | **October 3, 2004**                     | ** ** | **October 2, 2005** | ** ** | **October 3, 2004** | ** ** |
| ** **                                       | ** ** | **(In thousands)**                            | ** ** |
| **Components  of Net Periodic Benefit Cost:**    | ** ** |                                               | ** ** | ** **                                        |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Service cost                                     |       |                                               | $          | 640                                               | ** ** |   |   | $ | 760 | ** ** |   |   | $ | 2,170 | ** ** |   |   | $ | 2,320 | ** ** |   |
| Interest cost                                    |       |                                               | 4,440      | ** **                                        |       |   | 4,340 | ** ** |   |   | 13,410 | ** ** |   |   | 13,020 | ** ** |   |
| Expected return  on plan assets                  |       |                                               | (4,580     | )                                                 |       |   | (4,220 | ) |   |   | (13,780 | ) |   |   | (12,920 | ) |   |
| Amortization of  prior service cost              |       |                                               | 40         | ** **                                        |       |   | 30 | ** ** |   |   | 120 | ** ** |   |   | 110 | ** ** |   |
| Recognized gain  due to curtailments/settlements |       |                                               | —     | ** **                                        |       |   | — | ** ** |   |   | — | ** ** |   |   | (1,470 | ) |   |
| Amortization of  net loss                        |       |                                               | 810        | ** **                                        |       |   | 550 | ** ** |   |   | 2,610 | ** ** |   |   | 1,790 | ** ** |   |
| Net periodic benefit cost                        |       |                                               | $          | 1,350                                             | ** ** |   |   | $ | 1,460 | ** ** |   |   | $ | 4,530 | ** ** |   |   | $ | 2,850 | ** ** |   |

 

**Other Benefits:**

| ** **                                       | ** ** | **For the three months ended** | ** ** | **For the nine months ended** | ** ** |
|--------------------------------------------------|------------|----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                       | ** ** | **October 2, 2005**                      | ** ** | **October 3, 2004**                     | ** ** | **October 2, 2005** | ** ** | **October 3, 2004** | ** ** |
| ** **                                       | ** ** | **(In thousands)**                            | ** ** |
| **Components of Net Periodic  Benefit Cost:**    | ** ** |                                               | ** ** | ** **                                        |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Service cost                                     |       |                                               | $          | 230                                               | ** ** |   |   | $ | 410 | ** ** |   |   | $ | 1,250 | ** ** |   |   | $ | 1,010 | ** ** |   |
| Interest cost                                    |       |                                               | 330        | ** **                                        |       |   | 700 | ** ** |   |   | 1,680 | ** ** |   |   | 2,260 | ** ** |   |
| Expected return  on plan assets                  |       |                                               | —     | ** **                                        |       |   | — | ** ** |   |   | — | ** ** |   |   | — | ** ** |   |
| Amortization of  prior service cost              |       |                                               | (5,610     | )                                                 |       |   | (70 | ) |   |   | (11,330 | ) |   |   | (190 | ) |   |
| Recognized gain  due to curtailments/settlements |       |                                               | —     | ** **                                        |       |   | — | ** ** |   |   | (2,490 | ) |   |   | (480 | ) |   |
| Amortization of  net loss                        |       |                                               | 2,410      | ** **                                        |       |   | 100 | ** ** |   |   | 5,080 | ** ** |   |   | 380 | ** ** |   |
| Net periodic benefit  (gain) cost                |       |                                               | $          | (2,640                                            | )          |   |   | $ | 1,140 | ** ** |   |   | $ | (5,810 | ) |   |   | $ | 2,980 | ** ** |   |

 

**EmployerContributions**

Metaldyne expects to contribute $22.3 million to itsdefined benefit pension plans in 2005. As of October 2, 2005,approximately $17.6 million of these contributions have been made.

The Company expects to contribute approximately $10.6million to its defined contribution (profit-sharing and 401(k) matchingcontribution) plans in 2005. The Company contributed approximately $7.6 millionto its defined contribution plans as of October 2, 2005.

In December 2004, the Company announced that itwill discontinue retiree medical and life insurance coverage to its salariedand nonunion retirees and their beneficiaries effective January 1, 2006.The Company recorded a curtailment gain of $2.5 million for the nine monthsended October 2, 2005 pursuant to this announcement, which is included inselling, general and administrative expenses in the Company’s consolidatedstatement of operations. Additionally, the Company recorded a reduction ofexpenses related to the retiree medical and life insurance plans of $7.1million for the nine months ended October 2, 2005. 

15

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**METALDYNE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

$0.8 million of thisamount is included in selling, general and administrative expenses and $6.3 millionis included in cost of sales in the Company’s consolidated statement ofoperations.

As a result of thediscontinuation of retiree medical and life insurance coverage discussed above,the Company expects to receive an estimated cash savings of $1.4 million in2006.

**15. Related Parties**

On June 6, 2002, the Company sold 66% of itsformer TriMas subsidiary to Heartland and other investors. The Company’scurrent ownership percentage in TriMas is approximately 24%. The Company hasrecorded $7.8 million due from TriMas, consisting of tax net operatinglosses created prior to the disposition of TriMas, pension obligations,reimbursement due for cash payments made related to post retirement obligationsand other expense reimbursements in the ordinary course of business, of which$3.5 million is recorded as receivables from TriMas and $4.3 millionis recorded as equity investments in and receivables from affiliates in theCompany’s consolidated balance sheet as of October 2, 2005.

During the third quarter2005, TriMas agreed to indemnify the Company for the cost of certainpost-retirement benefit plans for retired employees of former operationsattributed to TriMas. As a result, as of October 2, 2005, the Companyrecorded a $0.9 million receivable due from TriMas as reimbursement foramounts previously paid, a reduction of $4.0 million in its long-termliability for amounts expected to be paid in future periods, a$4.7 million reduction in equity investments in and receivables fromaffiliates and a reduction of cost of sales of $0.2 million.

**16.**   Commitmentsand Contingencies

The Company is subject toclaims and litigation in the ordinary course of its business but does notbelieve that any such claim or litigation will have a material adverse effecton its financial position or results of operations.

**17.   New Accounting Pronouncements**

In October 2004, the U.S. government enacted theAmerican Jobs Creation Act of 2004 (“Act”). This Act provides for a specialone-time tax deduction of 85% of certain foreign earnings that are repatriatedto the U.S. provided certain criteria are met. The Company is analyzing theprovisions of the Act and the feasibility of several alternative scenarios forthe potential repatriation of a portion of the earnings of its non-U.S.subsidiaries. In general, it is the practice and intention of the Company toreinvest the earnings of its non-U.S. subsidiaries in those operations andtherefore does not currently anticipate repatriation of earnings under the Act.

In November 2004, the FASB issued SFAS No. 151,“Inventory Costs, an amendment of ARB No. 43, Chapter 4,” to clarify thatabnormal amounts of idle facility expense, freight, handling costs and wastedmaterial (spoilage) should be recognized as current period charges, and thatallocation of fixed production overheads to the costs of conversion be based onnormal capacity of the production facilities. SFAS No. 151 is effectivefor inventory costs incurred during fiscal years beginning after June 15,2005. Accordingly, the Company will adopt SFAS No. 151 for the fiscal yearbeginning January 2, 2006. The Company has evaluated this pronouncementand does not believe it will have a significant impact on its results ofoperations or financial position.

16

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**METALDYNE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

In December 2004, theFASB issued SFAS No. 123 (revised 2004), “Share-Based Payment.” ThisStatement is a revision of SFAS No. 123, “Accounting for Stock-BasedCompensation” and supercedes APB No. 25, “Accounting for Stock Issued toEmployees.” SFAS No. 123 (revised 2004) requires that the compensationcost relating to stock options and other share-based compensation transactionsbe recognized at fair value in financial statements. Due to the Company being anonpublic entity as defined in SFAS No. 123 (revised 2004), this Statementis effective for the Company at the beginning of its fiscal year 2006. TheCompany will then be required to record any compensation expense using the fairvalue method in connection with option grants to employees after adoption. Managementis currently reviewing the provisions of this Statement and will adopt it nolater than the Company’s fiscal year beginning January 2, 2006.

In March 2005, the FASB issued FASBInterpretation No. (FIN) 47, “Accounting for Conditional Asset RetirementObligations” which clarifies the term “conditional asset retirement obligation”used in SFAS No. 143, “Accounting for Asset Retirement Obligations.” TheCompany must adopt the requirements of FIN 47 by December 31, 2005 and hasnot yet completed its evaluation of whether FIN 47 will result in therecognition of additional asset retirement obligations for the Company.

In May 2005, the FASBissued SFAS No. 154, “Accounting Changes and Error Corrections: areplacement of APB Opinion No. 20 and FASB Statement No. 3.” ThisStatement requires retrospective application for voluntary changes inaccounting principles and changes required by an accounting pronouncement thatdoes not include specific transition provisions, unless it is impracticable todo so. Retrospective application results in the restatement of prior periods’financial statements to reflect the change in accounting principle. APB OpinionNo. 20 previously required that the impact of most voluntary changes inaccounting principles be recognized in the period the change as a cumulativeeffect of a change in accounting principle. The provisions of this Statementare to be applied prospectively to accounting changes made in fiscal yearsbeginning after December 15, 2005. The Company will adopt the provisionsof this Statement prospectively to accounting changes made after January 1,2006.

**18.**   Subsequent Events

On October 28, 2005, the Company announced thatit is currently seeking to divest of the Forgings Operations. The Companyexpects to incur a loss on the potential sale of the Forging Operations. However,no impairment of the long-lived assets has been recognized as the ForgingOperations are currently in held and used status as prescribed under SFAS No. 144(“SFAS 144”) “Accounting for the Impairment or Disposal of Long-Lived Assets.”The Company has determined that the undiscounted cash flows of the ForgingOperations support the current carrying value. If these assets met the held forsale criteria under SFAS 144, they would be reduced to their fair value. The Forging Operations generate approximately$345 million revenue annually and include plants located in Royal Oak,Michigan; Fraser, Michigan; Troy, Michigan; Detroit, Michigan; Minerva, Ohio;Canal Fulton, Ohio and Ft. Wayne, Indiana.

On November 1, 2005,Moody’s lowered its credit rating of General Motors Corporation, one of the Company’slargest customers. This downgrade decreased the maximum allowable percentagethat General Motors receivables can represent of the Company’s total accountreceivable securitization facility. The immediate effect to Metaldyne’sborrowing ability under the accounts receivable securitization facility was todecrease its borrowing capacity under the facility by approximately $3.0million.

On November 10, 2005, theCompany commenced an exchange offer of a new issue of its 10% senior notes due2013 that will be freely tradeable in exchange for the outstanding 10% seniornotes due 2012. 

17

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**METALDYNE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Theexchange offer will raise no new proceeds for the Company and is being made inaccordance with contractual commitments arising from the October 2003 issuance.The exchange offer is expected to close on December 11, 2005.

**19.**   CondensedConsolidating Financial Statements of Guarantors of Senior Subordinated Notes

The followingcondensed consolidating financial information presents:

(1)         Condensed consolidatingfinancial statements as of October 2, 2005 and January 2, 2005, and forthe three and nine months ended October 2, 2005 and October 3, 2004of (a) Metaldyne Corporation, the parent and issuer, (b) theguarantor subsidiaries, (c) the non-guarantor subsidiaries and (d) theCompany on a consolidated basis, and

(2)         Elimination entriesnecessary to consolidate Metaldyne Corporation, the parent, with guarantor andnon-guarantor subsidiaries.

The condensed consolidating financial statements arepresented on the equity method. Under this method, the investments insubsidiaries are recorded at cost and adjusted for the Company’s share of thesubsidiaries’ cumulative results of operations, capital contributions,distributions and other equity changes. The principal elimination entrieseliminate investments in subsidiaries and intercompany balances andtransactions.

Investments in non-domestic subsidiaries are held atMetaldyne Company LLC, a wholly owned subsidiary of Metaldyne Corporation andthe guarantor subsidiaries. Equity in non-domestic subsidiary investees isincluded in the guarantor column of the accompanying consolidating financialinformation.

18

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**METALDYNE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Guarantor/Non-GuarantorCondensed ConsolidatingBalance SheetOctober 2, 2005(Unaudited)**

| ** **                                            | ** ** | ** **                                                          | ** ** | ** **    | ** **                                                                | **NON-**      | ** ** | ** **       | ** **               | ** **       | ** ** |
|-------------------------------------------------------|------------|---------------------------------------------------------------------|------------|---------------|---------------------------------------------------------------------------|---------------|------------|------------------|--------------------------|------------------|------------|
| ** **                                            | ** ** | **PARENT**                                                          | ** ** | **GUARANTOR** | ** **                                                                | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** **               | **CONSOLIDATED** | ** ** |
| ** **                                            | ** ** | **(In thousands)**                                             | ** ** |
| **Assets**                                            |       |                                                                |       |          |                                                                      |          |       |             |                     |             |       |   |   |   |   |   |   |   |   |
| Current assets:                                       |       |                                                                |       |          |                                                                      |          |       |             |                     |             |       |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                            |       | $          — |       |          | $           — |          |       |             | $   6,300 |             |       |   | $          — |   |   |   | $      6,300 |   |   |
| Total receivables,  net                               |       | —                                                              |       |          | 13,230                                                                    |          |       |             | 141,720                  |             |       |   | — |   |   |   | 154,950 |   |   |
| Inventories                                           |       | —                                                              |       |          | 82,560                                                                    |          |       |             | 36,340                   |             |       |   | — |   |   |   | 118,900 |   |   |
| Deferred and  refundable income taxes                 |       | —                                                              |       |          | 14,550                                                                    |          |       |             | 2,110                    |             |       |   | — |   |   |   | 16,660 |   |   |
| Prepaid expenses  and other assets                    |       | —                                                              |       |          | 29,780                                                                    |          |       |             | 5,900                    |             |       |   | — |   |   |   | 35,680 |   |   |
| Total current  assets                                 |       | —                                                              |       |          | 140,120                                                                   |          |       |             | 192,370                  |             |       |   | — |   |   |   | 332,490 |   |   |
| Equity investments  and receivables in affiliates     |       | 102,750                                                             |       |          | —                                                                    |          |       |             | —                   |             |       |   | — |   |   |   | 102,750 |   |   |
| Property and  equipment, net                          |       | —                                                              |       |          | 553,970                                                                   |          |       |             | 258,870                  |             |       |   | — |   |   |   | 812,840 |   |   |
| Excess of cost  over net assets of acquired companies |       | —                                                              |       |          | 450,510                                                                   |          |       |             | 151,440                  |             |       |   | — |   |   |   | 601,950 |   |   |
| Investment in  subsidiaries                           |       | 548,670                                                             |       |          | 224,460                                                                   |          |       |             | —                   |             |       |   | (773,130 | ) |   |   | — |   |   |
| Intangible and  other assets                          |       | —                                                              |       |          | 199,340                                                                   |          |       |             | 21,800                   |             |       |   | — |   |   |   | 221,140 |   |   |
| Total assets                                          |       | $ 651,420                                                      |       |          | $ 1,568,400                                                          |          |       |             | $ 624,480           |             |       |   | $ (773,130 | ) |   |   | $ 2,071,170 |   |   |
| **Liabilities And Shareholders’ Equity**         |       |                                                                |       |          |                                                                      |          |       |             |                     |             |       |   |   |   |   |   |   |   |   |
| Current liabilities:                                  |       |                                                                |       |          |                                                                      |          |       |             |                     |             |       |   |   |   |   |   |   |   |   |
| Accounts payable                                      |       | $          — |       |          | $  207,280                                                      |          |       |             | $ 55,260            |             |       |   | $          — |   |   |   | $  262,540 |   |   |
| Accrued  liabilities                                  |       | —                                                              |       |          | 104,590                                                                   |          |       |             | 27,780                   |             |       |   | — |   |   |   | 132,370 |   |   |
| Current  maturities, long-term debt                   |       | —                                                              |       |          | 2,950                                                                     |          |       |             | 5,050                    |             |       |   | — |   |   |   | 8,000 |   |   |
| Total current  liabilities                            |       | —                                                              |       |          | 314,820                                                                   |          |       |             | 88,090                   |             |       |   | — |   |   |   | 402,910 |   |   |
| Long-term debt                                        |       | 427,390                                                             |       |          | 411,240                                                                   |          |       |             | 820                      |             |       |   | — |   |   |   | 839,450 |   |   |
| Deferred income  taxes                                |       | —                                                              |       |          | 37,900                                                                    |          |       |             | 24,050                   |             |       |   | — |   |   |   | 61,950 |   |   |
| Minority interest                                     |       | —                                                              |       |          | —                                                                    |          |       |             | 660                      |             |       |   | — |   |   |   | 660 |   |   |
| Other long-term  liabilities                          |       | —                                                              |       |          | 106,980                                                                   |          |       |             | 7,800                    |             |       |   | — |   |   |   | 114,780 |   |   |
| Redeemable  preferred stock                           |       | 165,990                                                             |       |          | —                                                                    |          |       |             | —                   |             |       |   | — |   |   |   | 165,990 |   |   |
| Intercompany  accounts, net                           |       | (427,390                                                            | )          |          | 148,790                                                                   |          |       |             | 278,600                  |             |       |   | — |   |   |   | — |   |   |
| Total liabilities                                     |       | 165,990                                                             |       |          | 1,019,730                                                                 |          |       |             | 400,020                  |             |       |   | — |   |   |   | 1,585,740 |   |   |
| Shareholders’ equity:                            |       |                                                                |       |          |                                                                      |          |       |             |                     |             |       |   |   |   |   |   |   |   |   |
| Preferred stock                                       |       | —                                                              |       |          | —                                                                    |          |       |             | —                   |             |       |   | — |   |   |   | — |   |   |
| Common stock                                          |       | 42,840                                                              |       |          | —                                                                    |          |       |             | —                   |             |       |   | — |   |   |   | 42,840 |   |   |
| Paid-in capital                                       |       | 698,870                                                             |       |          | —                                                                    |          |       |             | —                   |             |       |   | — |   |   |   | 698,870 |   |   |
| Accumulated  deficit                                  |       | (281,410                                                            | )          |          | —                                                                    |          |       |             | —                   |             |       |   | — |   |   |   | (281,410 | ) |   |
| Accumulated other  comprehensive income               |       | 25,130                                                              |       |          | —                                                                    |          |       |             | —                   |             |       |   | — |   |   |   | 25,130 |   |   |
| Investment by  Parent/Guarantor                       |       | —                                                              |       |          | 548,670                                                                   |          |       |             | 224,460                  |             |       |   | (773,130 | ) |   |   | — |   |   |
| Total  shareholders’ equity                      |       | 485,430                                                             |       |          | 548,670                                                                   |          |       |             | 224,460                  |             |       |   | (773,130 | ) |   |   | 485,430 |   |   |
| Total liabilities and  shareholders’ equity      |       | $ 651,420                                                      |       |          | $ 1,568,400                                                          |          |       |             | $ 624,480           |             |       |   | $ (773,130 | ) |   |   | $ 2,071,170 |   |   |

 

19

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**METALDYNE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Guarantor/Non-GuarantorCondensed Consolidating Balance SheetJanuary 2, 2005**

| ** **                                             | ** ** | ** **                                                          | ** ** | ** **    | ** **                                                                | **NON-**      | ** ** | ** **       | ** **                                              | ** **       | ** ** |
|--------------------------------------------------------|------------|---------------------------------------------------------------------|------------|---------------|---------------------------------------------------------------------------|---------------|------------|------------------|---------------------------------------------------------|------------------|------------|
| ** **                                             | ** ** | **PARENT**                                                          | ** ** | **GUARANTOR** | ** **                                                                | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** **                                              | **CONSOLIDATED** | ** ** |
| ** **                                             | ** ** | **(In thousands)**                                             | ** ** |
| **Assets**                                             |       |                                                                |       |          |                                                                      |          |       |             |                                                    |             |       |   |   |   |   |   |   |   |   |
| Current assets:                                        |       |                                                                |       |          |                                                                      |          |       |             |                                                    |             |       |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                             |       | $          — |       |          | $           — |          |       |             | $        — |             |       |   | $          — |   |   |   | $           — |   |   |
| Total receivables,  net                                |       | —                                                              |       |          | 7,920                                                                     |          |       |             | 173,690                                                 |             |       |   | — |   |   |   | 181,610 |   |   |
| Inventories                                            |       | —                                                              |       |          | 84,570                                                                    |          |       |             | 42,450                                                  |             |       |   | — |   |   |   | 127,020 |   |   |
| Deferred and  refundable income taxes                  |       | —                                                              |       |          | 14,500                                                                    |          |       |             | 3,970                                                   |             |       |   | — |   |   |   | 18,470 |   |   |
| Prepaid expenses  and other assets                     |       | —                                                              |       |          | 28,830                                                                    |          |       |             | 7,820                                                   |             |       |   | — |   |   |   | 36,650 |   |   |
| Total current  assets                                  |       | —                                                              |       |          | 135,820                                                                   |          |       |             | 227,930                                                 |             |       |   | — |   |   |   | 363,750 |   |   |
| Equity investments and  receivables in affiliates |       | 107,040                                                             |       |          | —                                                                    |          |       |             | —                                                  |             |       |   | — |   |   |   | 107,040 |   |   |
| Property and equipment,  net                           |       | —                                                              |       |          | 580,780                                                                   |          |       |             | 275,470                                                 |             |       |   | — |   |   |   | 856,250 |   |   |
| Excess of cost over net  assets of acquired companies  |       | —                                                              |       |          | 472,050                                                                   |          |       |             | 154,190                                                 |             |       |   | — |   |   |   | 626,240 |   |   |
| Investment in subsidiaries                             |       | 584,110                                                             |       |          | 232,280                                                                   |          |       |             | —                                                  |             |       |   | (816,390 | ) |   |   | — |   |   |
| Intangible and other  assets                           |       | —                                                              |       |          | 222,380                                                                   |          |       |             | 19,090                                                  |             |       |   | — |   |   |   | 241,470 |   |   |
| Total assets                                           |       | $ 691,150                                                      |       |          | $ 1,643,310                                                          |          |       |             | $676,680                                                |             |       |   | $ (816,390 | ) |   |   | $ 2,194,750 |   |   |
| **Liabilities  And Shareholders’ Equity**         |       |                                                                |       |          |                                                                      |          |       |             |                                                    |             |       |   |   |   |   |   |   |   |   |
| Current liabilities:                                   |       |                                                                |       |          |                                                                      |          |       |             |                                                    |             |       |   |   |   |   |   |   |   |   |
| Accounts payable                                       |       | $          — |       |          | $  199,710                                                      |          |       |             | $ 86,880                                           |             |       |   | $          — |   |   |   | $  286,590 |   |   |
| Accrued  liabilities                                   |       | —                                                              |       |          | 92,000                                                                    |          |       |             | 25,050                                                  |             |       |   | — |   |   |   | 117,050 |   |   |
| Current  maturities, long-term debt               |       | —                                                              |       |          | 3,630                                                                     |          |       |             | 8,620                                                   |             |       |   | — |   |   |   | 12,250 |   |   |
| Total current  liabilities                             |       | —                                                              |       |          | 295,340                                                                   |          |       |             | 120,550                                                 |             |       |   | — |   |   |   | 415,890 |   |   |
| Long-term debt                                         |       | 427,180                                                             |       |          | 426,320                                                                   |          |       |             | 1,950                                                   |             |       |   | — |   |   |   | 855,450 |   |   |
| Deferred income taxes                                  |       | —                                                              |       |          | 61,940                                                                    |          |       |             | 26,970                                                  |             |       |   | — |   |   |   | 88,910 |   |   |
| Minority interest                                      |       | —                                                              |       |          | —                                                                    |          |       |             | 650                                                     |             |       |   | — |   |   |   | 650 |   |   |
| Other long-term  liabilities                           |       | —                                                              |       |          | 135,310                                                                   |          |       |             | 7,390                                                   |             |       |   | — |   |   |   | 142,700 |   |   |
| Redeemable preferred  stock                            |       | 149,190                                                             |       |          | —                                                                    |          |       |             | —                                                  |             |       |   | — |   |   |   | 149,190 |   |   |
| Intercompany accounts,  net                            |       | (427,180                                                            | )          |          | 136,030                                                                   |          |       |             | 291,150                                                 |             |       |   | — |   |   |   | — |   |   |
| Total liabilities                                      |       | 149,190                                                             |       |          | 1,054,940                                                                 |          |       |             | 448,660                                                 |             |       |   | — |   |   |   | 1,652,790 |   |   |
| Shareholders’ equity:                             |       |                                                                |       |          |                                                                      |          |       |             |                                                    |             |       |   |   |   |   |   |   |   |   |
| Preferred stock                                        |       | —                                                              |       |          | —                                                                    |          |       |             | —                                                  |             |       |   | — |   |   |   | — |   |   |
| Common stock                                           |       | 42,830                                                              |       |          | —                                                                    |          |       |             | —                                                  |             |       |   | — |   |   |   | 42,830 |   |   |
| Paid-in capital                                        |       | 698,870                                                             |       |          | —                                                                    |          |       |             | —                                                  |             |       |   | — |   |   |   | 698,870 |   |   |
| Accumulated deficit                                    |       | (262,740                                                            | )          |          | —                                                                    |          |       |             | —                                                  |             |       |   | — |   |   |   | (262,740 | ) |   |
| Accumulated other  comprehensive income                |       | 63,000                                                              |       |          | —                                                                    |          |       |             | —                                                  |             |       |   | — |   |   |   | 63,000 |   |   |
| Investment by  Parent/Guarantor                        |       | —                                                              |       |          | 588,370                                                                   |          |       |             | 228,020                                                 |             |       |   | (816,390 | ) |   |   | — |   |   |
| Total  shareholders’ equity                       |       | 541,960                                                             |       |          | 588,370                                                                   |          |       |             | 228,020                                                 |             |       |   | (816,390 | ) |   |   | 541,960 |   |   |
| Total liabilities and  shareholders’ equity       |       | $ 691,150                                                      |       |          | $ 1,643,310                                                          |          |       |             | $ 676,680                                          |             |       |   | $ (816,390 | ) |   |   | $ 2,194,750 |   |   |

 

20

----

**METALDYNE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Guarantor/Non-****GuarantorCondensed ConsolidatingStatement of OperationsThree Months Ended October 2, 2005(Unaudited)**

| ** **                                    | ** ** | ** **              | ** ** | ** **    | ** ** | **NON-**      | ** ** | ** **       | ** ** | ** **       | ** ** |
|-----------------------------------------------|------------|-------------------------|------------|---------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                    | ** ** | **PARENT**              | ** ** | **GUARANTOR** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
| ** **                                    | ** ** | **(In thousands)** | ** ** |
| Net sales                                     |       | $                       | —     |          |       | $             | 394,620    |             |       |             | $          | 118,050 |   |   |   | $ | — |   |   |   | $ | 512,670 |   |   |
| Cost of sales                                 |       | —                  |       |          | (376,340   | )             |       |             | (96,880    | )                |       |   | — |   |   |   | (473,220 | ) |   |
| Gross profit                                  |       | —                  |       |          | 18,280     |          |       |             | 21,170     |             |       |   | — |   |   |   | 39,450 |   |   |
| Selling, general  and administrative expenses |       | —                  |       |          | (25,370    | )             |       |             | (7,150     | )                |       |   | — |   |   |   | (32,520 | ) |   |
| Restructuring  charges                        |       | —                  |       |          | (170       | )             |       |             | (30        | )                |       |   | — |   |   |   | (200 | ) |   |
| Operating profit  (loss)                      |       | —                  |       |          | (7,260     | )             |       |             | 13,990     |             |       |   | — |   |   |   | 6,730 |   |   |
| Other expense, net:                           |       |                    |       |          |       |          |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Interest expense                              |       | —                  |       |          | (22,180    | )             |       |             | (370       | )                |       |   | — |   |   |   | (22,550 | ) |   |
| Preferred stock  dividends and accretion      |       | (5,770                  | )          |          | —     |          |       |             | —     |             |       |   | — |   |   |   | (5,770 | ) |   |
| Equity income  (loss) from affiliates, net    |       | 60                      |       |          | —     |          |       |             | —     |             |       |   | — |   |   |   | 60 |   |   |
| Other, net                                    |       | —                  |       |          | (2,780     | )             |       |             | (730       | )                |       |   | — |   |   |   | (3,510 | ) |   |
| Other expense,  net                           |       | (5,710                  | )          |          | (24,960    | )             |       |             | (1,100     | )                |       |   | — |   |   |   | (31,770 | ) |   |
| Income (loss)  before income taxes            |       | (5,710                  | )          |          | (32,220    | )             |       |             | 12,890     |             |       |   | — |   |   |   | (25,040 | ) |   |
| Income tax  expense (benefit)                 |       | —                  |       |          | (9,600     | )             |       |             | (210       | )                |       |   | — |   |   |   | (9,810 | ) |   |
| Equity in net  income of subsidiaries         |       | (9,520                  | )          |          | 13,100     |          |       |             | —     |             |       |   | (3,580 | ) |   |   | — |   |   |
| Net income (loss)                             |       | $                       | (15,230    | )             |       | $             | (9,520     | )                |       |             | $          | 13,100 |   |   |   | $ | (3,580 | ) |   |   | $ | (15,230 | ) |   |

 

21

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**METALDYNE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Guarantor/Non-GuarantorCondensed Consolidating Statement of OperationsThree Months Ended October 3, 2004(Unaudited)**

| ** **                                    | ** ** | ** **         | ** ** | ** **    | ** ** | **NON-**      | ** ** | ** **       | ** ** | ** **       | ** ** |
|-----------------------------------------------|------------|--------------------|------------|---------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                    | ** ** | **PARENT**         | ** ** | **GUARANTOR** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
| ** **                                    | ** ** | **(In thousands)** | ** ** |
| Net sales                                     |       | $                  | —     |          |       | $             | 396,040    |             |       |             | $          | 105,640 |   |   |   | $ | — |   |   |   | $ | 501,680 |   |   |
| Cost of sales                                 |       | —             |       |          | (383,440   | )             |       |             | (84,060    | )                |       |   | — |   |   |   | (467,500 | ) |   |
| Gross profit                                  |       | —             |       |          | 12,600     |          |       |             | 21,580     |             |       |   | — |   |   |   | 34,180 |   |   |
| Selling, general and  administrative expenses |       | —             |       |          | (30,030    | )             |       |             | (5,850     | )                |       |   | — |   |   |   | (35,880 | ) |   |
| Restructuring charges                         |       | —             |       |          | (210       | )             |       |             | (10        | )                |       |   | — |   |   |   | (220 | ) |   |
| Operating profit (loss)                       |       | —             |       |          | (17,640    | )             |       |             | 15,720     |             |       |   | — |   |   |   | (1,920 | ) |   |
| Other expense, net:                           |       |               |       |          |       |          |       |             |       |             |       |   |   |   |   |   |   |   |   |
| Interest expense                              |       | —             |       |          | (21,060    | )             |       |             | (680       | )                |       |   | — |   |   |   | (21,740 | ) |   |
| Preferred stock  dividends and accretion      |       | (4,860             | )          |          | —     |          |       |             | —     |             |       |   | — |   |   |   | (4,860 | ) |   |
| Equity income (loss)  from affiliates, net    |       | 760                |       |          | —     |          |       |             | —     |             |       |   | — |   |   |   | 760 |   |   |
| Other, net                                    |       | —             |       |          | (1,270     | )             |       |             | (200       | )                |       |   | — |   |   |   | (1,470 | ) |   |
| Other expense, net                            |       | (4,100             | )          |          | (22,330    | )             |       |             | (880       | )                |       |   | — |   |   |   | (27,310 | ) |   |
| Income (loss) before  income taxes            |       | (4,100             | )          |          | (39,970    | )             |       |             | 14,840     |             |       |   | — |   |   |   | (29,230 | ) |   |
| Income tax expense  (benefit)                 |       | —             |       |          | (19,180    | )             |       |             | 7,320      |             |       |   | — |   |   |   | (11,860 | ) |   |
| Equity in net income of  subsidiaries         |       | (13,270            | )          |          | 7,520      |          |       |             | —     |             |       |   | 5,750 |   |   |   | — |   |   |
| Net income (loss)                             |       | $                  | (17,370    | )             |       | $             | (13,270    | )                |       |             | $          | 7,520 |   |   |   | $ | 5,750 |   |   |   | $ | (17,370 | ) |   |

 

22

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**METALDYNE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Guarantor/Non-GuarantorCondensed Consolidating Statement of OperationsNine Months Ended October 2, 2005(Unaudited)**

| ** **                                    | ** ** | ** **              | ** ** | ** **    | ** ** | **NON-**      | ** ** | ** **       | ** ** | ** **       | ** ** |
|-----------------------------------------------|------------|-------------------------|------------|---------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                    | ** ** | **PARENT**              | ** ** | **GUARANTOR** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
| ** **                                    | ** ** | **(In thousands)** | ** ** |
| Net sales                                     |       | $                       | —     |          |       | $             | 1,299,650  |             |       |             | $          | 380,890 |   |   |   | $ | — |   |   |   | $ | 1,680,540 |   |   |   |
| Cost of sales                                 |       | —                  |       |          | (1,216,450 | )             |       |             | (308,850   | )                |       |   | — |   |   |   | (1,525,300 | ) |   |   |
| Gross profit                                  |       | —                  |       |          | 83,200     |          |       |             | 72,040     |             |       |   | — |   |   |   | 155,240 |   |   |   |
| Selling, general and  administrative expenses |       | —                  |       |          | (72,190    | )             |       |             | (20,110    | )                |       |   | — |   |   |   | (92,300 | ) |   |   |
| Restructuring charges                         |       | —                  |       |          | (1,620     | )             |       |             | (260       | )                |       |   | — |   |   |   | (1,880 | ) |   |   |
| Operating profit (loss)                       |       | —                  |       |          | 9,390      |          |       |             | 51,670     |             |       |   | — |   |   |   | 61,060 |   |   |   |
| Other expense, net:                           |       |                    |       |          |       |          |       |             |       |             |       |   |   |   |   |   |   |   |   |   |
| Interest expense                              |       | —                  |       |          | (65,390    | )             |       |             | (1,540     | )                |       |   | — |   |   |   | (66,930 | ) |   |   |
| Preferred stock  dividends and accretion      |       | (16,800                 | )          |          | —     |          |       |             | —     |             |       |   | — |   |   |   | (16,800 | ) |   |   |
| Equity income (loss)  from affiliates, net    |       | 1,640                   |       |          | —     |          |       |             | —     |             |       |   | — |   |   |   | 1,640 |   |   |   |
| Other, net                                    |       | —                  |       |          | (9,180     | )             |       |             | 1,280      |             |       |   | — |   |   |   | (7,900 | ) |   |   |
| Other expense, net                            |       | (15,160                 | )          |          | (74,570    | )             |       |             | (260       | )                |       |   | — |   |   |   | (89,990 | ) |   |   |
| Income (loss) before  income taxes            |       | (15,160                 | )          |          | (65,180    | )             |       |             | 51,410     |             |       |   | — |   |   |   | (28,930 | ) |   |   |
| Income tax expense  (benefit)                 |       | —                  |       |          | (22,780    | )             |       |             | 12,520     |             |       |   | — |   |   |   | (10,260 | ) |   |   |
| Equity in net income of  subsidiaries         |       | (3,510                  | )          |          | 38,890     |          |       |             | —     |             |       |   | (35,380 | ) |   |   | — |   |   |   |
| Net income (loss)                             |       | $                       | (18,670    | )             |       | $             | (3,510     | )                |       |             | $          | 38,890 |   |   |   | $ | (35,380 | ) |   |   | $ | (18,670 | ) |   |   |

 

23

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**METALDYNE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Guarantor/Non-GuarantorCondensed Consolidating Statement of OperationsNine Months Ended October 3, 2004(Unaudited)**

| ** **                                               | ** ** | ** **              | ** ** | ** **    | ** ** | **NON-**      | ** ** | ** **       | ** ** | ** **       | ** ** |
|----------------------------------------------------------|------------|-------------------------|------------|---------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                               | ** ** | **PARENT**              | ** ** | **GUARANTOR** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
| ** **                                               | ** ** | **(In thousands)** | ** ** |
| Net sales                                                |       | $                       | —     |          |       | $             | 1,190,900  |             |       |             | $          | 313,810 |   |   |   | $ | — |   |   |   | $ | 1,504,710 |   |   |   |
| Cost of sales                                            |       | —                  |       |          | (1,116,290 | )             |       |             | (249,640   | )                |       |   | — |   |   |   | (1,365,930 | ) |   |   |
| Gross profit                                             |       | —                  |       |          | 74,610     |          |       |             | 64,170     |             |       |   | — |   |   |   | 138,780 |   |   |   |
| Selling, general and administrative expenses             |       | —                  |       |          | (81,550    | )             |       |             | (16,800    | )                |       |   | — |   |   |   | (98,350 | ) |   |   |
| Restructuring charges                                    |       | —                  |       |          | (1,060     | )             |       |             | (870       | )                |       |   | — |   |   |   | (1,930 | ) |   |   |
| Loss on disposition of manufacturing facilities          |       | —                  |       |          | (7,600     | )             |       |             | —     |             |       |   | — |   |   |   | (7,600 | ) |   |   |
| Operating profit (loss)                                  |       | —                  |       |          | (15,600    | )             |       |             | 46,500     |             |       |   | — |   |   |   | 30,900 |   |   |   |
| Other expense, net:                                      |       |                    |       |          |       |          |       |             |       |             |       |   |   |   |   |   |   |   |   |   |
| Interest expense                                         |       | —                  |       |          | (56,360    | )             |       |             | (5,130     | )                |       |   | — |   |   |   | (61,490 | ) |   |   |
| Preferred stock dividends and accretion                  |       | (13,830                 | )          |          | —     |          |       |             | —     |             |       |   | — |   |   |   | (13,830 | ) |   |   |
| Non-cash gain on maturity of interest rate  arrangements |       | —                  |       |          | 6,590      |          |       |             | —     |             |       |   | — |   |   |   | 6,590 |   |   |   |
| Equity income (loss) from affiliates, net                |       | 5,200                   |       |          | —     |          |       |             | —     |             |       |   | — |   |   |   | 5,200 |   |   |   |
| Other, net                                               |       | —                  |       |          | (3,440     | )             |       |             | (1,450     | )                |       |   | — |   |   |   | (4,890 | ) |   |   |
| Other expense, net                                       |       | (8,630                  | )          |          | (53,210    | )             |       |             | (6,580     | )                |       |   | — |   |   |   | (68,420 | ) |   |   |
| Income (loss) before income taxes                        |       | (8,630                  | )          |          | (68,810    | )             |       |             | 39,920     |             |       |   | — |   |   |   | (37,520 | ) |   |   |
| Income tax expense (benefit)                             |       | —                  |       |          | (26,380    | )             |       |             | 14,650     |             |       |   | — |   |   |   | (11,730 | ) |   |   |
| Equity in net income of subsidiaries                     |       | (17,160                 | )          |          | 25,270     |          |       |             | —     |             |       |   | (8,110 | ) |   |   | — |   |   |   |
| Net income (loss)                                        |       | $                       | (25,790    | )             |       | $             | (17,160    | )                |       |             | $          | 25,270 |   |   |   | $ | (8,110 | ) |   |   | $ | (25,790 | ) |   |   |
|                                                          |            |                         |            |               |            |               |            |                  |            |                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

24

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**METALDYNE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**Guarantor/Non-GuarantorCondensed ConsolidatingStatement of Cash FlowsNine Months Ended October 2, 2005(Unaudited)**

| ** **                                                             | ** ** | ** **              | ** ** | ** **                     | ** ** | **NON-**      | ** ** | ** **       | ** ** | ** **       | ** ** |
|------------------------------------------------------------------------|------------|-------------------------|------------|--------------------------------|------------|---------------|------------|------------------|------------|------------------|------------|
| ** **                                                             | ** ** | **PARENT**              | ** ** | **GUARANTOR**                  | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
| ** **                                                             | ** ** | **(In thousands)** | ** ** |
| Operating activities:                                                  |       |                    |       |                           |       |          |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Net cash provided by (used for) operating activities                   |       |                    | $          |     — |       |          |       | $                | 9,640      |             |       |   | $ | 72,750 |   |   |   | $ |     — |   |   |   | $ | 82,390 |   |   |
| Investing  activities:                                                 |       |                    |       |                           |       |          |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Capital expenditures                                                   |       |                    | —     |                           |       |          | (62,480    | )                |       |             | (22,550    | ) |   |   | — |   |   |   | (85,030 | ) |   |
| Proceeds from sale/leaseback of fixed  assets                          |       |                    | —     |                           |       |          | 21,590     |             |       |             | —     |   |   |   | — |   |   |   | 21,590 |   |   |
| Reimbursement from acquisition of business, net  of cash received |       |                    | —     |                           |       |          | 7,960      |             |       |             | —     |   |   |   | — |   |   |   | 7,960 |   |   |
| Net cash used for investing activities                                 |       |                    | —     |                           |       |          | (32,930    | )                |       |             | (22,550    | ) |   |   | — |   |   |   | (55,480 | ) |   |
| Financing  activities:                                                 |       |                    |       |                           |       |          |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Principal payments of term loan facilities                             |       |                    | —     |                           |       |          | (440       | )                |       |             | —     |   |   |   | — |   |   |   | (440 | ) |   |
| Proceeds of revolving credit facility                                  |       |                    | —     |                           |       |          | 265,000    |             |       |             | —     |   |   |   | — |   |   |   | 265,000 |   |   |
| Principal payments of revolving credit  facility                       |       |                    | —     |                           |       |          | (278,540   | )                |       |             | —     |   |   |   | — |   |   |   | (278,540 | ) |   |
| Proceeds of other debt                                                 |       |                    | —     |                           |       |          | —     |             |       |             | 4,840      |   |   |   | — |   |   |   | 4,840 |   |   |
| Principal payments of other debt                                       |       |                    | —     |                           |       |          | (2,220     | )                |       |             | (8,750     | ) |   |   | — |   |   |   | (10,970 | ) |   |
| Net cash used for financing activities                                 |       |                    | —     |                           |       |          | (16,200    | )                |       |             | (3,910     | ) |   |   | — |   |   |   | (20,110 | ) |   |
| Effect of exchange on cash                                             |       |                    | —     |                           |       |          | —     |             |       |             | (500       | ) |   |   | — |   |   |   | (500 | ) |   |
| Change in intercompany accounts                                        |       |                    | —     |                           |       |          | 39,490     |             |       |             | (39,490    | ) |   |   | — |   |   |   | — |   |   |
| Net increase (decrease) in cash                                        |       |                    | —     |                           |       |          | —     |             |       |             | 6,300      |   |   |   | — |   |   |   | 6,300 |   |   |
| Cash and cash equivalents, beginning of period                    |       |                    | —     |                           |       |          | —     |             |       |             | —     |   |   |   | — |   |   |   | — |   |   |
| Cash and cash  equivalents, end of period                              |       |                    | $          | —                         |       |          |       | $                | —     |             |       |   | $ | 6,300 |   |   |   | $ | — |   |   |   | $ | 6,300 |   |   |

25

----

**METALDYNE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded)**

**Guarantor/Non-GuarantorCondensed Consolidating Statement of Cash FlowsNine Months Ended October 3, 2004(Unaudited)**

|                                                                       | ** ** | ** **              | ** ** | ** **    | ** ** | **NON-**      | ** ** | ** **       | ** ** | ** **       | ** ** |
|-----------------------------------------------------------------------|------------|-------------------------|------------|---------------|------------|---------------|------------|------------------|------------|------------------|------------|
|                                                                       | ** ** | **PARENT**              | ** ** | **GUARANTOR** | ** ** | **GUARANTOR** | ** ** | **ELIMINATIONS** | ** ** | **CONSOLIDATED** | ** ** |
| ** **                                                            | ** ** | **(In thousands)** | ** ** |
| Operating activities:                                                 |       |                    |       |          |       |          |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Net cash provided  by operating  activities                           |       |                    | $          | —        |       |          |       | $                | 47,660     |             |       |   | $ | 45,270 |   |   |   | $ |     — |   |   |   | $ | 92,930 |   |   |
| Investing activities:                                                 |       |                    |       |          |       |          |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Capital  expenditures                                                 |       |                    | —     |          |       |          | (80,300    | )                |       |             | (24,950    | ) |   |   | — |   |   |   | (105,250 | ) |   |
| Proceeds from sale/leaseback of fixed  assets                         |       |                    | —     |          |       |          | 72,530     |             |       |             | —     |   |   |   | — |   |   |   | 72,530 |   |   |
| Disposition of  manufacturing  facilities                             |       |                    | —     |          |       |          | (500       | )                |       |             | —     |   |   |   | — |   |   |   | (500 | ) |   |
| Payments for acquisition of business, net of cash  received |       |                    | —     |          |       |          | (203,870   | )                |       |             | —     |   |   |   | — |   |   |   | (203,870 | ) |   |
| Net cash used for  investing activities                               |       |                    | —     |          |       |          | (212,140   | )                |       |             | (24,950    | ) |   |   | — |   |   |   | (237,090 | ) |   |
| Financing activities:                                                 |       |                    |       |          |       |          |       |             |       |             |       |   |   |   |   |   |   |   |   |   |   |
| Principal payments  of term loan facilities                      |       |                    | —     |          |       |          | (880       | )                |       |             | —     |   |   |   | — |   |   |   | (880 | ) |   |
| Proceeds of revolving credit facility                                 |       |                    | —     |          |       |          | 181,960    |             |       |             | —     |   |   |   | — |   |   |   | 181,960 |   |   |
| Principal payments  of revolving credit facility                 |       |                    | —     |          |       |          | (125,910   | )                |       |             | —     |   |   |   | — |   |   |   | (125,910 | ) |   |
| Proceeds of senior subordinated notes, due 2014                  |       |                    | 26,920     |          |       |          | —     |             |       |             | —     |   |   |   | — |   |   |   | 26,920 |   |   |
| Proceeds of other  debt                                               |       |                    | —     |          |       |          | —     |             |       |             | 1,220      |   |   |   | — |   |   |   | 1,220 |   |   |
| Principal payments of other debt                                      |       |                    | —     |          |       |          | (3,550     | )                |       |             | (3,850     | ) |   |   | — |   |   |   | (7,400 | ) |   |
| Issuance of Series A-1  preferred  stock                         |       |                    | 55,340     |          |       |          | —     |             |       |             | —     |   |   |   | — |   |   |   | 55,340 |   |   |
| Net cash provided by (used for)  financing activities            |       |                    | 82,260     |          |       |          | 51,620     |             |       |             | (2,630     | ) |   |   | — |   |   |   | 131,250 |   |   |
| Effect of exchange  on cash                                           |       |                    | —     |          |       |          | —     |             |       |             | 280        |   |   |   | — |   |   |   | 280 |   |   |
| Change in intercompany accounts                                       |       |                    | (82,260    | )             |       |          | 98,490     |             |       |             | (16,230    | ) |   |   | — |   |   |   | — |   |   |
| Net increase  (decrease) in cash                                      |       |                    | —     |          |       |          | (14,370    | )                |       |             | 1,740      |   |   |   | — |   |   |   | (12,630 | ) |   |
| Cash and cash equivalents, beginning  of period                  |       |                    | —     |          |       |          | 10,750     |             |       |             | 3,070      |   |   |   | — |   |   |   | 13,820 |   |   |
| Cash and cash  equivalents, end of period                   |       |                    | $          | —        |       |          |       | $                | (3,620     | )                |       |   | $ | 4,810 |   |   |   | $ |     — |   |   |   | $ | 1,190 |   |   |

                                                                                                                                                

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**ITEM 2.**                MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

**Executive Summary**

We are a leading globalmanufacturer of highly engineered metal components for the global light vehiclemarket with 2004 sales of approximately $2 billion. We operate two segmentsfocused on the global light vehicle market. The Chassis and Powertrain segmentsmanufacture, design, engineer and assemble metal-formed andprecision-engineered components and modular systems used in the transmissions,engines and chassis of vehicles. We serve approximately 200 automotive andindustrial customers and our top ten customers represented approximately 67% oftotal 2004 sales. Prior to November 2000, we were a publicly tradedcompany. Since we were acquired in November 2000 by a private investorgroup, we have actively pursued opportunities for internal growth and strategicacquisitions that were unavailable to us when the majority of our shares werepublicly traded. Since November 2000, we have completed four acquisitions—Simpsonin December 2000, GMTI effective January 2001, Dana Corporation’sGreensboro, NC operation in May 2003, and DaimlerChrysler’s New Castleoperation at the beginning of our fiscal 2004. Each of these acquisitions hasadded to the full service, integrated metal supply capabilities of ourautomotive operations. Additionally, we split off our non-automotive and othernon-core operations, divesting our former TriMas subsidiary in June 2002,our Fittings operation in April 2003 and two aluminum die castingfacilities in February 2004. In December 2004, we resumed a smalloperation at one of these two aluminum die casting facilities due to the purchaser’scessation of business in 2004. On October 28, 2005, we announced that weare currently seeking to divest of our Forging Operations. The ForgingOperations generate approximately $345 million revenue annually andinclude plants located in Royal Oak, Michigan; Fraser, Michigan; Troy,Michigan; Detroit, Michigan; Minerva, Ohio; Canal Fulton, Ohio and Ft. Wayne,Indiana.

**KeyFactors Affecting our Reported Results**

We operate in extremely competitive markets. Ourcustomers select us based upon numerous factors including technology, qualityand price. Supplier selection is generally finalized several years prior to thestart of vehicle production and, as a result, new business will generally notstart production for two years or more beyond the award date. In addition, ourresults are heavily dependent on global vehicle production, and in particularthe North American vehicle production of the Big 3 domestic manufacturers(Ford, General Motors and DaimlerChrysler). Our customers generally requirethat we offer annual productivity and efficiency related price decreases onproducts we sell them. Critical factors to be successful in this market includeglobal low cost production facilities, leading service and parts quality, anddifferentiated product and process technology. Accordingly, we focus onmanaging our global manufacturing presence in line with our customer needs andlocal market manufacturing cost differences, improving operating efficiency andproduction quality of our plants, fixing or eliminating unprofitable facilitiesand reducing our overall material costs. In addition, we spend considerabletime and resources developing new technology and products to enhanceperformance and/or decrease cost of the products we sell to our customers. See “Resultsof Operations” for more details as to the factors that affected year over yearperformance.

The rise in raw material costs, especially steel,continues to negatively impact our results. Raw material costs increased ourcost of goods sold by approximately $95 million in the first nine months of2005 (approximately $57 million related to steel increases). Note that steelprice increases primarily relate to our Forgings Operations within the Chassissegment, while the remaining increases are spread across all of our otherbusinesses and are related to numerous raw material increases such asmolybdenum and casting components we purchase. However, we were able to offsetalmost all of this increase through negotiated or contractual price recoveryfrom our customers; cost reductions and a decrease in our annual 

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productivity/price reductionsgiven to our customers; scrap sales; and steel resourcing efforts. Our abilityto offset increases in raw material on a going forward basis is not guaranteed.

Our strategy is centered on growth through newbusiness awards and selected strategic acquisitions. We have a significant newproject backlog and have completed several recent acquisitions that we believewill enable us to better serve our customer base and provide enhanced returns.In order to finance a large portion of this activity, we incurred significantnew debt. As such, we have substantial leverage and are constrained by variouscovenant limitations (see “Debt, Capitalization and Available Financing Sources”for more details surrounding these covenants). As we continue to invest in theresources to produce the products in our new business backlog and thus grow ourbusiness, a significant portion of our operating cash flow will be used to buynew capital equipment, expand production capacity and invest in new technologyin addition to servicing principal and interest payments on our debtobligations. Therefore, we are focused on our cash generation ability (wemonitor this internally through “Adjusted EBITDA.” See the discussion below in “KeyIndicators of Performance (Non-GAAP Financial Measures)” for furtherexplanation) and working capital and fixed asset efficiency to assess ourability to favorably finance our new business backlog.

In January 2005, wereorganized and consolidated our operations into two segments: the Chassissegment and the Powertrain segment. The Chassis segment consists of the formerChassis operations plus a portion of the former Driveline operations, while thePowertrain segment consists of the former Engine operations combined with theremainder of the former Driveline operations. The prior year amounts have beenrestated to reflect these changes for comparison purposes.

**KeyIndicators of Performance (Non-GAAP Financial Measures)**

In evaluating our business, our management considersAdjusted EBITDA as a key indicator of financial operating performance and as ameasure of cash generating capability.

We define Adjusted EBITDA as net income (loss) beforecumulative effect of accounting change and before interest, taxes,depreciation, amortization, asset impairment, non-cash losses on sale-leasebackof property and equipment and non-cash restricted stock award expense. Inevaluating Adjusted EBITDA, our management deems it important to consider thequality of our underlying earnings by separately identifying certain costsundertaken to improve our results, such as costs related to consolidatingfacilities and businesses in an effort to eliminate duplicative costs orachieve efficiencies, costs related to integrating acquisitions and restructuringcosts related to expense reduction efforts. Although our consolidation,restructuring and integration efforts are continuing and driven in part by ouracquisition activity, our management eliminates these costs to evaluateunderlying business performance. Caution must be exercised in eliminating theseitems as they include substantially (but not necessarily entirely) cash costsand there can be no assurance that we will ultimately realize the benefits ofthese efforts. Moreover, even if the anticipated benefits are realized, theymay be offset by other business performance or general economic issues.

Managementbelieves that Adjusted EBITDA is the best indicator (together with a carefulreview of the aforementioned items) of our ability to service and/or incurindebtedness as we are a highly leveraged company. We use Adjusted EBITDA as akey performance measure because we believe it facilitates operating performancecomparisons from period to period and company to company by backing outpotential differences caused by variations in capital structures (affectinginterest expense), tax positions (such as the impact on periods or companies ofchanges in effective tax rates or net operating losses), and the impact ofpurchase accounting and SFAS No. 142 (affecting depreciation andamortization expense). Because Adjusted EBITDA facilitates internal comparisonsof our historical operating performance on a more consistent basis, we also useAdjusted EBITDA for business planning purposes, to incent and compensate ourmanagement personnel, as a measure of segment performance, in measuring our 

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performance relative to that of our competitors and inevaluating acquisition opportunities. In addition, we believe Adjusted EBITDAand similar measures are widely used by investors, securities analysts, ratingagencies and other interested parties as a measure of financial performance anddebt-service capabilities. Our use of Adjusted EBITDA has limitations as ananalytical tool, and you should not consider it in isolation or as a substitutefor analysis of our results as reported under GAAP. Some of these limitations are:

·       Itdoes not reflect our cash expenditures for capital equipment or contractualcommitments;

·       Althoughdepreciation and amortization are non-cash charges, the assets beingdepreciated and amortized may have to be replaced in the future, and AdjustedEBITDA does not reflect cash requirements for such replacements;

·       Itdoes not reflect changes in, or cash requirements for, our working capitalneeds;

·       Itdoes not reflect the interest expense or the cash requirements necessary toservice interest or principal payments on our indebtedness;

·       Itincludes amounts resulting from matters we consider not to be indicative ofunderlying performance of our fundamental business operations, as discussedherein; and

·       Othercompanies, including companies in our industry, may calculate these measuresdifferently than we do, limiting their usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA shouldnot be considered as a measure of discretionary cash available to us to investin the growth of our business. We compensate for these limitations by relyingprimarily on our GAAP results and using Adjusted EBITDA only supplementally. Wecarefully review our operating profit margins (operating profit as a percentageof net sales) at a segment level, which are discussed in detail in ouryear-to-year comparison of operating results.

Thefollowing is a reconciliation of our Adjusted EBITDA to net loss for the threeand nine months ended October 2, 2005 and October 3, 2004:

| ** **                                          | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                          | ** ** | **2005**                         | ** ** | **2004**                        | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                          | ** ** | **(In thousands)**          | ** ** |
| Net loss                                            |       | $                                | (15,230    | )                               | $          | (17,370 | ) | $ | (18,670 | ) | $ | (25,790 | ) |
| Income tax  benefit                                 |       | (9,810                           | )          | (11,860                         | )          | (10,260 | ) | (11,730 | ) |
| Interest expense                                    |       | 22,550                           |       | 21,740                          |       | 66,930 |   | 61,490 |   |
| Depreciation and  amortization in operating  profit |       | 34,880                           |       | 31,360                          |       | 101,500 |   | 95,360 |   |
| Non-cash stock  award expense                       |       | —                           |       | 130                             |       | — |   | 600 |   |
| Preferred stock  dividend                           |       | 5,770                            |       | 4,860                           |       | 16,800 |   | 13,830 |   |
| Gain on maturity  of interest rate arrangements     |       | —                           |       | —                          |       | — |   | (6,590 | ) |
| Loss on  disposition of manufacturing facilities    |       | —                           |       | —                          |       | — |   | 7,600 |   |
| Equity income  from affiliates, net                 |       | (60                              | )          | (760                            | )          | (1,640 | ) | (5,200 | ) |
| Certain items  within other, net(1)                 |       | 3,910                            |       | 1,430                           |       | 9,740 |   | 5,250 |   |
| Adjusted EBITDA                                     |       | $                                | 42,010     |                            | $          | 29,530 |   | $ | 164,400 |   | $ | 134,820 |   |

----

(1)          Reconciliationof Other Expense:

29

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| ** **                                                                                         | ** ** | **Three Months Ended**                         | ** ** | **Nine Months Ended**                          | ** ** |
|----------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                                         | ** ** | **    2005    ** | ** ** | **    2004    ** | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                         | ** ** | **(In thousands)**                                  | ** ** |
| Items excluded  from Adjusted EBITDA (amortization  of financing fees and A/R securitization fees) |       |                                                     | $          | 3,910                                                    |       |   |   | $ | 1,430 |   |   | $ | 9,740 |   | $ | 5,250 |   |
| Items included in  Adjusted EBITDA (includes foreign currency, royalties and interest income)      |       |                                                     | (400       | )                                                        |       |   | 40 |   |   | (1,840 | ) | (360 | ) |
| Total other, net                                                                                   |       |                                                     | $          | 3,510                                                    |       |   |   | $ | 1,470 |   |   | $ | 7,900 |   | $ | 4,890 |   |

 

Thefollowing details certain items relating to our consolidation, restructuringand integration efforts and other charges not eliminated in determiningAdjusted EBITDA, but that we would eliminate in evaluating the quality of ourAdjusted EBITDA:

| ** **                                                                         | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                         | ** ** | **2005**                         | ** ** | **2004**                        | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                         | ** ** | **(In thousands)**          | ** ** |
| Restructuring  charges                                                             |       | $                                | (200       | )                               | $          | (220 | ) | $ | (1,880 | ) | $ | (1,930 | ) |
| Fixed asset  losses                                                                |       | (1,960                           | )          | (790                            | )          | (2,850 | ) | (1,540 | ) |
| Foreign currency  gains (losses)                                                   |       | 70                               |       | 160                             |       | 150 |   | (560 | ) |
| Independent  investigation fees                                                    |       | —                           |       | (8,600                          | )          | — |   | (15,030 | ) |
| Post retirement medical  curtailment gain and elimination of certain plan benefits |       | 3,540                            |       | —                          |       | 9,610 |   | 1,980 |   |
|                                                                                    |            |                                  |            |                                 |            |  |  |  |  |  |  |  |  |

 

**Results ofOperations**

As a result of ourreorganization of the Company’s structure in the first quarter of 2005, theprior year amounts have been restated to reflect these changes for comparisonpurposes.

***Quarter Ended October 2, 2005 versus October 3,2004***

***Net Sales.******  ***Net sales by segmentand in total for the three months ended October 2, 2005 and October 3,2004 were:

| ** **          | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
|---------------------|------------|----------------------------------|------------|----------------------------------|------------|
| **Segment**         | ** ** | ** **                       | ** ** | **October 2, 2005**    | ** ** | **October 3, 2004** | ** ** |
| ** **          | ** ** | **(In thousands)**          | ** ** |
| Chassis Segment     |       |                             | $          | 296,940                          |       |   |   | $ | 290,370 |   |   |
| Powertrain  Segment |       |                             | 215,730    |                             |       |   | 211,310 |   |   |
| Total Company       |       |                             | $          | 512,670                          |       |   |   | $ | 501,680 |   |   |
|                     |            |                                  |            |                                  |            |  |  |  |  |  |  |  |  |

 

Our third quarter 2005 net sales were $513 millionversus third quarter 2004 net sales of $502 million. The primary driver of theapproximate $11.0 million increase in our 2005 sales was approximately $19 millionin new business resulting from new product launches and ramp up of existingprograms. The ramp up of several product lines (primarily the DaimlerChryslerLX and WK vehicle platforms) within our Chassis segment contributed $8 millionto the increase in the segment. The Powertrain Group contributed $11 million innew business from new product launches and ramp up of existing programs.However these gains were fully offset through lost business of approximately$20 million from programs going out of production and price reductions grantedto our end customers. Price increases to reflect the rising cost of rawmaterials resulted in an approximate $21 million increase in sales whileforeign exchange movements provided a $1 million benefit during the quarter.The remaining change in our net sales is primarily explained by the 1.3%decrease in North American vehicle production from our three largest customers(Ford, General Motors and DaimlerChrysler) during the third quarter of 2005 as wellas a reduction of 

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approximately fiveproduction days during the quarter versus the prior year. The specific salesdifferences are further explained in the segment information section.

***Gross Profit.*****  **Gross profit by segment and in totalfor the three months ended October 2, 2005 and October 3, 2004 were:

| ** **                       | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
|----------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| **Segment**                      | ** ** | ** **                       | ** ** | **October 2, 2005**    | ** ** | **October 3, 2004** | ** ** |
| ** **                       | ** ** | **(In thousands)**          | ** ** |
| Chassis Segment                  |       |                             | $          | 15,380                           |       |   |   | $ | 14,760 |   |   |
| Powertrain  Segment              |       |                             | 23,480     |                             |       |   | 24,460 |   |   |
| Corporate/centralized  resources |       |                             | 590        |                             |       |   | (5,040 | ) |   |
| Total Company                    |       |                             | $          | 39,450                           |       |   |   | $ | 34,180 |   |   |
|                                  |            |                                  |            |                                  |            |  |  |  |  |  |  |  |  |

 

Our gross profit was $39.5 million or 7.7% of netsales for 2005 compared to $34.2 million or 6.8% of net sales for 2004. Of the$3.5 million benefit that we experienced in the quarter related to our decisionto discontinue post retirement medical benefits for salaried and non-unionhourly employees, approximately $3.2 million benefited gross profit while theremaining $0.4 million benefit was recorded in selling, general andadministrative expenses. However, offsetting this $3.2 million benefit to grossprofits, 2005 results were negatively affected by two non-cash adjustments: anapproximate $2 million loss related to fixed asset disposals and an approximate$3.5 million increase in depreciation and amortization expense.

The resulting improvement in third quarter 2005performance primarily relates to profitability enhancement in the business,including cost reductions and improved pricing agreements with customers torecapture raw material cost increases.

***Selling, General and Administrative.*****  **Selling, general and administrativeexpenses were $32.5 million, or 6.3% of net sales, for the third quarter of2005 compared to $35.9 million, or 7.2% of sales, for the third quarter of 2004.The $3.4 million decrease from 2004 to 2005 is primarily the result of thefollowing:

| ** **                                                                             | ** ** | **(In thousands)** | ** ** |
|----------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ***Quarter  Ended October 2, 2005 versus October 3, 2004 Benefit (Cost)***   |       |                    |       |   |   |
| Independent  investigation fees(1)                                                     |       |                    | $          | 8,600 |   |   |
| Post retirement  medical curtailment gain and elimination of certain  plan benefits(2) |       |                    | 390        |   |   |
| Increase in  incentive compensation in 2005(3)                                         |       |                    | (4,500     | ) |   |
| Increase in accounts  receivable securitization facility fees(4)                       |       |                    | (240       | ) |   |
|                                                                                        |            |                         |            |  |  |  |

----

Notes:

(1)                 The independentinvestigation was completed in 2004.

(2)                 Representscurtailment and other gains related to the elimination of post retirementmedical and life insurance benefits. Note that the remaining $3.2 million ofcurtailment gain was recognized above in Gross Profit.

(3)                 Dueto operating environment and effect of the independent accounting investigationin 2004, management bonuses were reduced approximately $4.5 million in thethird quarter of 2004.

(4)                 Representslegal and audit fees not capitalized in conjunction with the new accountsreceivable securitization facility. See also Note 3 included in the notes tothe financial statements contained herein.

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***Depreciation and Amortization.*****  **Depreciation and amortizationexpense by segment and in total for the three months ended October 2, 2005and October 3, 2004 was:

| ** **                       | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
|----------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| **Segment**                      | ** ** | ** **                       | ** ** | **October 2, 2005**    | ** ** | **October 3, 2004** | ** ** |
| ** **                       | ** ** | **(In thousands)**          | ** ** |
| Chassis Segment                  |       |                             | $          | 19,420                           |       |   |   | $ | 17,180 |   |   |
| Powertrain  Segment              |       |                             | 13,180     |                             |       |   | 10,800 |   |   |
| Corporate/centralized  resources |       |                             | 2,280      |                             |       |   | 3,380 |   |   |
| Total Company                    |       |                             | $          | 34,880                           |       |   |   | $ | 31,360 |   |   |
|                                  |            |                                  |            |                                  |            |  |  |  |  |  |  |  |  |

 

The net increase in depreciation and amortization ofapproximately $3.5 million is principally explained by capital spendingexceeding our depreciation expense over the past several years. Thus, the additional capital spendingaccounts for the increase in depreciation expense.

***RestructuringCharges.*****  **Weincurred $0.2 million of restructuring charges in each of the third quarters of2005 and 2004. The third quarter of 2005 charges are primarily as a result ofheadcount reductions related to the consolidations of our operations into twosegments. Net restructuring activity in the third quarter of 2005 is asfollows:

| ** **                       | ** ** | **Severance**           | ** ** |
|----------------------------------|------------|-------------------------|------------|
| ** **                       | ** ** | **Accrued Costs**  | ** ** |
| ** **                       | ** ** | **(In thousands)** | ** ** |
| Balance  July 3, 2005       |       |                    | $          | 2,360 |   |   |
| Charges to  expense              |       |                    | 200        |   |   |
| Cash payments                    |       |                    | (1,090     | ) |   |
| Balance at  October 2, 2005 |       |                    | $          | 1,470 |   |   |

*** ***

***Operating Profit.******  ***Operating profit was$6.7 million, or 1.3% of sales, for the third quarter of 2005 compared to anoperating loss of $1.9 million, or (0.4)% of sales, for the same period in2004. This $8.6 million increase is principally explained by the factorsdiscussed above, including additional sales volumes, expenses surrounding the2004 independent investigation, the post retirement curtailment gain and otherchanges in our selling, general and administrative expenses. Operating profitby segment for the three months ended October 2, 2005 and October 3,2004 is as follows:

| ** **                       | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
|----------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| **Segment**                      | ** ** | ** **                       | ** ** | **October 2, 2005**    | ** ** | **October 3, 2004** | ** ** |
| ** **                       | ** ** | **(In thousands)**          | ** ** |
| Chassis Segment                  |       |                             | $          | 3,190                            |       |   |   | $ | 2,630 |   |   |
| Powertrain  Segment              |       |                             | 10,390     |                             |       |   | 10,860 |   |   |
| Corporate/centralized  resources |       |                             | (6,850     | )                                |       |   | (15,410 | ) |   |
| Total Company                    |       |                             | $          | 6,730                            |       |   |   | $ | (1,920 | ) |   |
|                                  |            |                                  |            |                                  |            |  |  |  |  |  |  |  |  |

*** ***

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***Adjusted EBITDA.*****  **Management reviews our segmentoperating results based upon the Adjusted EBITDA definition as discussed in the“Key Indicators of Performance (Non-GAAP Financial Measures)” section. Accordingly,we have separately presented such amounts in the table below. Adjusted EBITDAincreased to $42.0 million in the third quarter of 2005 from $29.5 millionduring the same period in 2004. The primary drivers of this increase areexplained above in the operating profit and depreciation and amortizationdiscussions, and will be further detailed in the segment detail that follows. Additionally,in “Segment Information” below, we provide a reconciliation between AdjustedEBITDA and operating profit.

| ** **                                                                                      | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| **Segment**                                                                                     | ** ** | ** **                       | ** ** | **October 2, 2005**    | ** ** | **October 3, 2004** | ** ** |
| ** **                                                                                      | ** ** | **(In thousands)**          | ** ** |
| Chassis Segment                                                                                 |       |                             | $          | 22,610                           |       |   |   | $ | 19,810 |   |   |
| Powertrain  Segment                                                                             |       |                             | 23,570     |                             |       |   | 21,660 |   |   |
| Corporate/centralized  resources                                                                |       |                             | (4,170     | )                                |       |   | (11,940 | ) |   |
| Total Company                                                                                   |       |                             | $          | 42,010                           |       |   |   | $ | 29,530 |   |   |
| Memo: Additional amounts included in calculation of  both operating profit and Adjusted EBITDA: |       |                             |       |                             |       |   |   |   |   |
| Restructuring charges                                                                           |       |                             | $          | (200                             | )          |   |   | $ | (220 | ) |   |
| Fixed asset disposal losses                                                                     |       |                             | (1,960     | )                                |       |   | (790 | ) |   |
| Foreign currency gains                                                                          |       |                             | 70         |                             |       |   | 160 |   |   |
| Independent investigation fees                                                                  |       |                             | —     |                             |       |   | (8,600 | ) |   |
| Post retirement  medical curtailment gain and elimination of certain plan benefits              |       |                             | 3,540      |                             |       |   | — |   |   |
|                                                                                                 |            |                                  |            |                                  |            |  |  |  |  |  |  |  |  |

*** ***

***Interest Expense.******  ***Interestexpense increased from $21.7 million in the third quarter of 2004 toapproximately $22.6 million in 2005. The increase is principally due to averageinterest rates that are approximately 2.2% higher on our term loan andrevolving credit facility borrowings during the third quarter of 2005 versusthe prior year.

***Equity Income from Affiliates.******  ***Equity incomefrom affiliates was $0.1 million in the third quarter of 2005 versus $0.8million in 2004. The $0.7 million decrease versus our third quarter 2004 incomeis primarily due to the sale of our interest in Saturn Electronics &Engineering, Inc. in December 2004 and the sale of a portion of ourinvestment in TriMas to Masco Corporation in November 2004, as well as theoperating performance of TriMas in the third quarter of 2005 versus the sameperiod in 2004.

***Other, Net.******  ***Other, net wasa loss of $3.5 million in the third quarter of 2005 versus a loss of $1.5 millionin the third quarter of 2004. This increase in the loss is due primarily to anincrease in fees associated with our accounts receivable securitizationprogram.

***Preferred Stock Dividends.***   Preferredstock dividends (including accretion of $0.3 million in 2005) were $5.8 millionin the third quarter of 2005 as compared to $4.9 million for the same period in2004. This increase is due to compounding interest on unpaid dividends.

***Taxes.******  ***The provisionfor income taxes for the third quarter of 2005 was a benefit of $9.8 million ascompared with a benefit of $11.9 million for the third quarter of 2004. Due tothe relationship of U.S. losses to non-U.S. income, the net consolidated effectivetax rate differs significantly from a customary tax rate. In the second quarterof 2005, the U.S. effective tax rate was 32% and the foreign effective tax ratewas 18% compared to a U.S. effective tax rate of 33% and a foreign effectiverate of 37% in the third quarter of the prior year. The primary reasons for theCompany’s effective tax rate being different from the statutory rate of 35% arenon-deductible preferred stock dividends, foreign statutory rates lower thanthe U.S. rate, benefit recognized for unanticipated utilization of foreign netoperating loss and the inclusion of a provision for unremitted earnings of aforeign subsidiary under APB No. 23.

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***Segment Information.***

*ChassisSegment.**  *Salesfor our Chassis Segment increased in the third quarter of 2005 to $297 millionversus $290 million in the prior period. The primary driver of the approximate$6.6 million increase in sales is the addition of approximately $8 million inadditional volume primarily related to the DaimlerChrysler LX and WK vehicleplatforms. Additionally, there was an increase of approximately $15 million inprograms going out of production and price reductions granted to our customers,but this was offset by approximately $16 million in sales increases to ourcustomers associated with the recovery of material costs increases andapproximately $3 million in additional sales from a facility that wastransferred from the Powertrain Group. The remaining decrease in sales isprimarily attributable to five less production days in our third quarter of2005 versus 2004 and the 1.3% reduction in North American vehicle production byour Big Three customers (Ford, General Motors and DaimlerChrysler).

The2005 third quarter Adjusted EBITDA for the segment increased to $22.6 millionversus $19.8 million in the third quarter of 2004 driven primarily by costreductions of $3.3 million in excess of lost business and productivity offeredour customers. We additionally benefited through the recovery of $4.1 millionrelated to claims recovered from a customer of which $1 million related tocosts expensed in prior periods. Offsetting these benefits was a $1.9 millionunfavorable change in our product mix and a $0.8 million increase in fixedasset losses. Operating profit increased by only $0.1 million in the third quarter of 2005 primarily due to anincrease of $2.2 million indepreciation and amortization expense.

| ** **                                                                                      | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                                                                                      | ** ** | **October 2, 2005**    | ** ** | **October 3, 2004**    | ** ** |
| **Chassis Segment**                                                                        | ** ** | ** **                       | ** ** | **(In thousands)**          | ** ** |
| Sales                                                                                           |       |                             | $          | 296,940                          |       |   |   | $ | 290,370 |   |   |
| Operating profit                                                                                |       |                             | $          | 3,190                            |       |   |   | $ | 2,630 |   |   |
| Depreciation and  amortization                                                                  |       |                             | 19,420     |                             |       |   | 17,180 |   |   |
| Adjusted EBITDA                                                                                 |       |                             | $          | 22,610                           |       |   |   | $ | 19,810 |   |   |
| Memo: Additional  amounts included in calculation of both operating profit and Adjusted EBITDA: |       |                             |       |                             |       |   |   |   |   |
| Restructuring charges                                                                           |       |                             | $          | (40                              | )          |   |   | $ | (80 | ) |   |
| Fixed asset gains  (losses)                                                                     |       |                             | (570       | )                                |       |   | 220 |   |   |
|                                                                                                 |            |                                  |            |                                  |            |  |  |  |  |  |  |  |  |

* *

*PowertrainSegment.*   Sales for our Powertrain segment were$216 million in the third quarter of 2005 versus $211 million in 2004. Netsales increased approximately $4.4 million due to an approximate $11 millionincrease from existing customers and products launched in 2005 as well as anapproximate $1 million increase associated with changes in foreign exchangerates. In addition, there were approximately $5 million in sales increasesassociated with the recovery of raw material costs from our customers. This wasoffset by approximately $3 million related to transferring a facility to theChassis group in January 2005 and approximately $5 million in programsgoing out of production and price reductions granted to our customers. Theremaining decrease in sales is primarily attributable to five less productiondays in our third quarter of 2005 versus 2004 and the 1.3% reduction in NorthAmerican vehicle production by our Big Three customers (Ford, General Motors andDaimlerChrysler).

34

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AdjustedEBITDA for the segment increased to $23.6 million versus $22 million in theprior year. The increase is principally due to the incremental profit on thesales volume increase noted above and cost reductions in the business outpacingcost increases. Operating profit decreased by $0.5 million in the third quarterof 2005 primarily due to an increase of $2.4 million in depreciation andamortization expense in 2005.

| ** **                                                                                       | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| **Powertrain Segment**                                                                      | ** ** | ** **                       | ** ** | **October 2, 2005**    | ** ** | **October 3, 2004** | ** ** |
| ** **                                                                                       | ** ** | **(In thousands)**          | ** ** |
| Sales                                                                                            |       |                             | $          | 215,730                          |       |   |   | $ | 211,310 |   |   |
| Operating profit                                                                                 |       |                             | $          | 10,390                           |       |   |   | $ | 10,860 |   |   |
| Depreciation and  amortization                                                                   |       |                             | 13,180     |                             |       |   | 10,800 |   |   |
| Adjusted EBITDA                                                                                  |       |                             | $          | 23,570                           |       |   |   | $ | 21,660 |   |   |
| Memo:  Additional amounts included in calculation of both operating profit and  Adjusted EBITDA: |       |                             |       |                             |       |   |   |   |   |
| Restructuring charges                                                                            |       |                             | $          | (90                              | )          |   |   | $ | (60 | ) |   |
| Fixed asset losses                                                                               |       |                             | (880       | )                                |       |   | (730 | ) |   |
|                                                                                                  |            |                                  |            |                                  |            |  |  |  |  |  |  |  |  |

 

*Corporate/CentralizedResources.**  *Adjusted EBITDA for Corporate/CentralizedResources was a loss of $4.2 million in the third quarter of 2005 versus a lossof $11.9 million in the same period in 2004. The most significant factor inthis reduction is the $8.6 million spent in 2004 related to the independentinvestigation. The remaining change primarily reflects two offsetting factors:a $3.5 million gain in 2005 related to a post retirement medical curtailmentand a $4.5 million reduction in 2004 incentive compensation (management bonus wasreduced in third quarter of 2004 to reflect market environment). The operatingloss declined by $8.6 million in 2005 due to the factors discussed above and adecrease of approximately $1.1 million in 2005 depreciation and amortizationexpense.

| ** **                                                                                      | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| **Corporate/Centralized Resources**                                                        | ** ** | ** **                       | ** ** | **October 2, 2005**    | ** ** | **October 3, 2004** | ** ** |
| ** **                                                                                      | ** ** | **(In thousands)**          | ** ** |
| Operating profit                                                                                |       |                             | $          | (6,850                           | )          |   |   | $ | (15,410 | ) |   |
| Non-cash stock  award expense                                                                   |       |                             | —     |                             |       |   | 130 |   |   |
| Depreciation and  amortization                                                                  |       |                             | 2,280      |                             |       |   | 3,380 |   |   |
| Other, net                                                                                      |       |                             | 400        |                             |       |   | (40 | ) |   |
| Adjusted EBITDA                                                                                 |       |                             | $          | (4,170                           | )          |   |   | $ | (11,940 | ) |   |
| Memo: Additional  amounts included in calculation of both operating profit and Adjusted EBITDA: |       |                             |       |                             |       |   |   |   |   |
| Restructuring charges                                                                           |       |                             | $          | (70                              | )          |   |   | $ | (80 | ) |   |
| Fixed asset losses                                                                              |       |                             | (510       | )                                |       |   | (280 | ) |   |
| Independent investigation fees                                                                  |       |                             | —     |                             |       |   | (8,600 | ) |   |
| Post retirement medical curtailment gain and  elimination of certain plan benefits         |       |                             | 3,540      |                             |       |   | — |   |   |
| Foreign currency  gains(1)                                                                      |       |                             | 70         |                             |       |   | 160 |   |   |
|                                                                                                 |            |                                  |            |                                  |            |  |  |  |  |  |  |  |  |

----

(1)                Onlyincluded in Adjusted EBITDA.

 

35

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***Nine Months Ended October 2, 2005 versus October 3,2004***

***Net Sales.******  ***Net sales by segmentand in total for the nine months ended October 2, 2005 and October 3,2004 were:

| ** **          | ** ** | **Nine Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|---------------------|------------|---------------------------------|------------|---------------------------------|------------|
| **Segment**         | ** ** | ** **                      | ** ** | **October 2, 2005**   | ** ** | **October 3, 2004** | ** ** |
| ** **          | ** ** | **(In thousands)**         | ** ** |
| Chassis Segment     |       |                            | $          | 984,830                         |       |   |   | $ | 859,450 |   |   |
| Powertrain  Segment |       |                            | 695,710    |                            |       |   | 645,260 |   |   |
| Total Company       |       |                            | $          | 1,680,540                       |       |   |   | $ | 1,504,710 |   |   |
|                     |            |                                 |            |                                 |            |  |  |  |  |  |  |  |  |

 

Net sales for the first nine months of 2005 were$1,681 million versus $1,505 million for the first nine months of 2004. Theprimary driver of the increase in our 2005 sales was $173 million in newbusiness resulting from new product launches and ramp up of existing programs.Offsetting this increase was approximately $73 million in programs going out ofproduction and price reductions granted to our customers. In addition, we hadapproximately $86 million increase in sales associated with material costrecovery from customers as well as a $9 million increase from changes inforeign exchange rates. However, these increases were partially offset byapproximately a $4 million decrease related to our divestiture of two aluminumdie casting facilities in the first quarter of 2004. The specific salesdifferences are further explained in the segment information section. Theremaining change in sales primarily relates to the effect of the 5.5% decreasein North American vehicle production from our three largest customers (Ford,General Motors and DaimlerChrysler).

***Gross Profit.*****  **Gross profit by segment and in totalfor the nine months ended October 2, 2005 and October 3, 2004 were:

| ** **                       | ** ** | **Nine Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|----------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| **Segment**                      | ** ** | ** **                      | ** ** | **October 2, 2005**   | ** ** | **October 3, 2004** | ** ** |
| ** **                       | ** ** | **(In thousands)**         | ** ** |
| Chassis Segment                  |       |                            | $          | 63,470                          |       |   |   | $ | 67,140 |   |   |
| Powertrain  Segment              |       |                            | 94,440     |                            |       |   | 84,370 |   |   |
| Corporate/centralized  resources |       |                            | (2,670     | )                               |       |   | (12,730 | ) |   |
| Total Company                    |       |                            | $          | 155,240                         |       |   |   | $ | 138,780 |   |   |
|                                  |            |                                 |            |                                 |            |  |  |  |  |  |  |  |  |

 

Our gross profit was $155.2 million or 9.2% of netsales for 2005 compared to $138.8 million or 9.2% of net sales for 2004. Theincrease of $16.5 million was primarily due to the sales increase discussedabove.

There were three other offsetting factors affectinggross margin in the first nine months. The first factor which reduced grossmargin in 2005 was a $1.3 million increase in fixed asset losses. The secondfactor reducing 2005 gross margin relates to a $6.1 million increase indepreciation and amortization expense. Both of these factors, however, wereoffset by the approximate $6.4 million of a benefit in gross profit relating toour decision to discontinue certain retirement medical benefits.

36

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***Selling, General and Administrative.*****  **Selling, general and administrativeexpenses were $92.3 million, or 5.4% of net sales, for 2005 compared to $98.4million, or 6.5% of sales, in 2004. The $6.1 million decrease from 2004 to 2005is primarily the result of the following: 

| **Nine Months Ended October 2, 2005 versus October 3, 2004 Benefit (Cost)** | ** ** | ** ** | ** ** | **(In thousands)** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|-------------------------|------------|
| Independent  investigation fees(1)                                                                                                 |       |       | $          | 15,030                  |       |   |
| Post retirement  medical curtailment gain and elimination of certain plan   benefits(2)                                            |       |       | 770        |                    |       |
| Increase in  incentive compensation in 2005(3)                                                                                     |       |       | (4,500     | )                       |       |
| Increase in  accounts receivable securitization facility fees(4)                                                                   |       |       | (880       | )                       |       |

----

Notes:

(1)                 The independentinvestigation was completed in 2004.

(2)                 Representscurtailment and other gains related to the elimination of post retirementmedical and life insurance benefits. Note that the remaining $6.4 million ofcurtailment gain was recognized above in Gross Profit.

(3)                 Dueto operating environment and effect of the independent accounting investigationin 2004, management bonuses were reduced approximately $4.5 million in thethird quarter of 2004. 

(4)                 Representslegal and audit fees not capitalized in conjunction with the new accountsreceivable securitization facility. See also Note 3 included in the notes tothe financial statements contained herein.

***Depreciation and Amortization.*****  **Depreciation and amortizationexpense by segment and in total for the nine months ended October 2, 2005and October 3, 2004 was:

| ** **                       | ** ** | **Nine Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|----------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| **Segment**                      | ** ** | ** **                      | ** ** | **October 2, 2005**   | ** ** | **October 3, 2004** | ** ** |
| ** **                       | ** ** | **(In thousands)**         | ** ** |
| Chassis Segment                  |       |                            | $          | 56,780                          |       |   |   | $ | 51,480 |   |   |
| Powertrain  Segment              |       |                            | 38,000     |                            |       |   | 35,940 |   |   |
| Corporate/centralized  resources |       |                            | 6,720      |                            |       |   | 7,940 |   |   |
| Total Company                    |       |                            | $          | 101,500                         |       |   |   | $ | 95,360 |   |   |
|                                  |            |                                 |            |                                 |            |  |  |  |  |  |  |  |  |

 

The net increase in depreciation and amortization ofapproximately $6 million is principally explained by capital spending exceedingour depreciation expense over the past several years. Thus, the additional capital spending accounts for the increase indepreciation expense.

***Restructuring Charges.*****  **Restructuring charges of $1.9million in the first nine months of 2005 were essentially unchanged whencompared to the same period in 2004.****The 2005charges are primarily as a result of headcount reductions related to the consolidationof our operations into two segments. Net restructuring activity in the firstnine months of 2005 is as follows:

| ** **                       | ** ** | **Severance  Costs**    | ** ** |
|----------------------------------|------------|-------------------------|------------|
| ** **                       | ** ** | **(In thousands)** | ** ** |
| Balance  January 2, 2005    |       |                    | $          | 3,930 |   |   |
| Charges to  expense              |       |                    | 1,880      |   |   |
| Cash payments                    |       |                    | (4,340     | ) |   |
| Balance at  October 2, 2005 |       |                    | $          | 1,470 |   |   |

 

37

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***BusinessDisposition.*****  **Inconnection with our sale of two aluminum die casting facilities in our former Drivelinesegment, we incurred a $7.6 million charge in the first nine months of 2004. Thischarge represents approximately a book value of $12 million in fixed assets anddeferred financing fees offset by the $4.1 million in cash consideration paidby Lester PDC for the assets.

***Operating Profit.******  ***Operating profitincreased from $30.9 million in 2004 to $61.1 million in 2005. The makeup ofthe components of the increased operating profit performance are explainedabove in gross margin, selling, general and administrative expense,depreciation and amortization, restructuring and business dispositiondiscussions. Operating profit by segment for the nine months ended October 2,2005 and October 3, 2004 is as follows:

| ** **                       | ** ** | **Nine Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|----------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| **Segment**                      | ** ** | ** **                      | ** ** | **October 2, 2005**   | ** ** | **October 3, 2004** | ** ** |
| ** **                       | ** ** | **(In thousands)**         | ** ** |
| Chassis Segment                  |       |                            | $          | 24,700                          |       |   |   | $ | 29,270 |   |   |
| Powertrain  Segment              |       |                            | 53,390     |                            |       |   | 36,000 |   |   |
| Corporate/centralized  resources |       |                            | (17,030    | )                               |       |   | (34,370 | ) |   |
| Total Company                    |       |                            | $          | 61,060                          |       |   |   | $ | 30,900 |   |   |
|                                  |            |                                 |            |                                 |            |  |  |  |  |  |  |  |  |

 

***Adjusted EBITDA.*****  **Management reviews our segmentoperating results based upon the Adjusted EBITDA definition as discussed in the“Key Indicators of Performance (Non-GAAP Financial Measures)” section. Accordingly,we have separately presented such amounts in the table below. Adjusted EBITDAincreased to $164.4 million in the first nine months of 2005 from $134.8million during the same period in 2004. The primary drivers of this increaseare explained above in the operating profit and depreciation and amortizationdiscussions, and will be further detailed in the segment detail that follows. Additionally,in “Segment Information” below, we provide a reconciliation between AdjustedEBITDA and operating profit.

| ** **                                                                                      | ** ** | **Nine Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| **Segment**                                                                                     | ** ** | ** **                      | ** ** | **October 2, 2005**   | ** ** | **October 3, 2004** | ** ** |
| ** **                                                                                      | ** ** | **(In thousands)**         | ** ** |
| Chassis Segment                                                                                 |       |                            | $          | 81,480                          |       |   |   | $ | 80,750 |   |   |
| Powertrain  Segment                                                                             |       |                            | 91,390     |                            |       |   | 79,550 |   |   |
| Corporate/centralized  resources                                                                |       |                            | (8,470     | )                               |       |   | (25,480 | ) |   |
| Total Company                                                                                   |       |                            | $          | 164,400                         |       |   |   | $ | 134,820 |   |   |
| Memo: Additional amounts included in calculation of  both operating profit and Adjusted EBITDA: |       |                            |       |                            |       |   |   |   |   |
| Restructuring charges                                                                           |       |                            | $          | (1,880                          | )          |   |   | $ | (1,930 | ) |   |
| Fixed asset disposal losses                                                                     |       |                            | (2,850     | )                               |       |   | (1,540 | ) |   |
| Foreign currency gains (losses)                                                                 |       |                            | 420        |                            |       |   | (560 | ) |   |
| Independent investigation fees                                                                  |       |                            | —     |                            |       |   | (15,030 | ) |   |
| Post retirement  medical curtailment gain and elimination of certain plan benefits              |       |                            | 9,610      |                            |       |   | 1,980 |   |   |
|                                                                                                 |            |                                 |            |                                 |            |  |  |  |  |  |  |  |  |

 

***Interest Expense.******  ***Interestexpense increased from $61.5 million in the first nine months of 2004 toapproximately $66.9 million in 2005. The increase is principally due to averageinterest rates that are approximately 2% higher on our term loan and revolvingcredit facility borrowings during the first nine months of 2005 versus theprior year.

***Equity Income fromAffiliates.******  ***Equity income from affiliates was $1.6million in the first nine months of 2005. This represents a decrease versusincome of $5.2 million during the same period of 2004 and is 

38

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due to the sale of ourinterest in Saturn Electronics & Engineering, Inc. in December 2004and the sale of a portion of our investment in TriMas to Masco Corporation in November 2004.

***Other, Net.******  ***Other, net wasa loss of $7.9 million in the first nine months of 2005 versus a loss of $4.9million in the first nine months of 2004. This increase in the loss is dueprimarily to an increase in fees associated with our accounts receivablesecuritization program and the recording of a $1.2 million gain recognized onthe disposition of a joint venture in Korea in the second quarter of 2004.

***Preferred StockDividends.***   Preferred stock dividends(including accretion of $0.8 million and $0.2 million in 2005 and 2004,respectively) were $16.8 million in the first nine months of 2005 as comparedto $13.8 million for the same period in 2004. This increase is due to compoundinginterest on unpaid dividends.

***Taxes.******  ***The provisionfor income taxes for the first nine months of 2005 was a benefit of $10.3million as compared with a benefit of $11.7 million for the same period of 2004.Due to the relationship of U.S. losses to non-U.S. income, the net consolidatedeffective tax rate differs significantly from a customary tax rate. For thefirst nine months of 2005, the U.S. effective tax rate was 29% and the foreigneffective tax rate was 26% compared to a U.S. effective tax rate of 33% and aforeign effective tax rate of 37% for the first nine months of 2004. Theprimary reasons for the Company’s effective tax rate being different from thestatutory rate of 35% are non-deductible preferred stock dividends, foreignstatutory rates lower than the U.S. rate, benefit recognized for unanticipatedutilization of foreign net operating loss and the inclusion of a provision forunremitted earnings of a foreign subsidiary under APB No. 23.

***Segment Information.***

*ChassisSegment.**  *Salesfor our Chassis Segment increased in the first nine months of 2005 to $985million versus $859 million in the prior period. The primary driver of theapproximate $125.4 million increase in sales is the addition of approximately$112 million in net additional volume during the first nine months of 2005driven by sales increases for several DaimlerChrysler vehicle platforms such asthe LX and WK. Offsetting this increase was approximately $58 million inprograms going out of production and price reductions granted to our customers.Additionally, there were approximately $63 million in sales increases to ourcustomers associated with the recovery of approximately $75 million inmaterial costs increases, approximately $10 million in additional sales from afacility that was transferred from the Powertrain Group and a $4 millionincrease from the change in foreign exchange rates. The remaining salesdifference is principally explained by the 5.5% reduction in North Americanvehicle production from our three largest customers (Ford, General Motors andDaimlerChrysler).

39

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AdjustedEBITDA for the segment increased from $80.7 million in the first nine months of2004 to $81.5 million in 2005. Incremental profit from the additional revenueof approximately $11 million and cost reductions in the business ofapproximately $20 million were essentially offset by not passing throughapproximately $11 million of raw material costs increases and the loss ofapproximately $16 million in profit from lost/attrition business and othereconomic cost increases in our business (such as healthcare, wages, etc.).Operating profit decreased by $4.6million in the first nine months of 2005 due to the above factors aswell as an increase of $5.3 millionin depreciation and amortization expense and a $1.8 million increase in fixedasset losses.

| ** **                                                                                      | ** ** | **Nine Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| **Chassis Segment**                                                                        | ** ** | ** **                      | ** ** | **October 2, 2005**   | ** ** | **October 3, 2004** | ** ** |
| ** **                                                                                      | ** ** | **(In thousands)**         | ** ** |
| Sales                                                                                           |       |                            | $          | 984,830                         |       |   |   | $ | 859,450 |   |   |
| Operating profit                                                                                |       |                            | $          | 24,700                          |       |   |   | $ | 29,270 |   |   |
| Depreciation and  amortization                                                                  |       |                            | 56,780     |                            |       |   | 51,480 |   |   |
| Adjusted EBITDA                                                                                 |       |                            | $          | 81,480                          |       |   |   | $ | 80,750 |   |   |
| Memo: Additional amounts  included in calculation of both operating profit and Adjusted EBITDA: |       |                            |       |                            |       |   |   |   |   |
| Restructuring charges                                                                           |       |                            | $          | (310                            | )          |   |   | $ | (1,170 | ) |   |
| Fixed asset gains (losses)                                                                      |       |                            | (1,010     | )                               |       |   | 770 |   |   |
|                                                                                                 |            |                                 |            |                                 |            |  |  |  |  |  |  |  |  |

 

*PowertrainSegment.**  *Salesfor our Powertrain segment were $696 million in the first nine months of 2005versus $645 million in 2004. The primary driver of the approximate $50.5million increase in sales is the addition of approximately $60 million inadditional volume during the first nine months of 2005. Offsetting thisincrease was approximately $16 million in programs going out of production,approximately $10 million related to transferring a facility to the Chassisgroup in January 2005 and price reductions granted to our customers. Inaddition, there were approximately $21 million in sales increases associatedwith the recovery of higher material costs from our customers as well asapproximately a $5 million benefit in foreign exchange fluctuations. This wasoffset by approximately $4 million related to the divestiture of two aluminumdie casting facilities in January 2004.

Adjusted EBITDA for thesegment increased to $91.4 million versus $79.5 million in the prior year. Theincrease is principally due to the incremental profit on the sales volumeincrease noted above and cost reductions achieved in the business in excess ofcost increases. Operating profit increased from $36.0 million in 2004 to $53.4million in 2005. In addition to the factors discussed above influencingAdjusted EBITDA, the increase in 2005 is primarily attributable to a $7.6million charge in the first nine months of 2004 in connection with thedisposition of two manufacturing facilities, offset by an increase of $2.1million in 2005 depreciation and amortization expense.

| ** **                                                                                      | ** ** | **Nine Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| **Powertrain Segment**                                                                     | ** ** | ** **                      | ** ** | **October 2, 2005**   | ** ** | **October 3, 2004** | ** ** |
| ** **                                                                                      | ** ** | **(In thousands)**         | ** ** |
| Sales                                                                                           |       |                            | $          | 695,710                         |       |   |   | $ | 645,260 |   |   |
| Operating profit                                                                                |       |                            | $          | 53,390                          |       |   |   | $ | 36,000 |   |   |
| Asset impairment                                                                                |       |                            | —     |                            |       |   | 7,600 |   |   |
| Depreciation and amortization                                                                   |       |                            | 38,000     |                            |       |   | 35,940 |   |   |
| Adjusted EBITDA                                                                                 |       |                            | $          | 91,390                          |       |   |   | $ | 79,540 |   |   |
| Memo: Additional amounts included in calculation of  both operating profit and Adjusted EBITDA: |       |                            |       |                            |       |   |   |   |   |
| Restructuring charges                                                                           |       |                            | $          | (230                            | )          |   |   | $ | (140 | ) |   |
| Fixed asset losses                                                                              |       |                            | (1,250     | )                               |       |   | (1,100 | ) |   |
|                                                                                                 |            |                                 |            |                                 |            |  |  |  |  |  |  |  |  |

 

40

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*Corporate/CentralizedResources.**  *Adjusted EBITDA for Corporate/CentralizedResources was a loss of $8.5 million in the first nine months of 2005 versus aloss of $25.5 million in same period in 2004. This decrease in expense isprimarily attributable to the $15 million of independent investigation feesincurred in the first nine months of 2004 and an increase of approximately $8 millionin increased benefits relating to actions taken surrounding our post retirementmedical and pension benefits ($9.6 million gain in 2005 versus a $2 milliongain in 2004). The net remaining increase in expense is principally explainedby an approximate $4.5 million reduction in incentive compensation in 2004versus 2005. Operating profit increased by $17.3 million in 2005 due to thefactors discussed above.

| ** **                                                                                      | ** ** | **Nine Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| **Corporate/Centralized Resources**                                                        | ** ** | ** **                      | ** ** | **October 2, 2005**   | ** ** | **October 3, 2004** | ** ** |
| ** **                                                                                      | ** ** | **(In thousands)**         | ** ** |
| Operating loss                                                                                  |       |                            | $          | (17,030                         | )          |   |   | $ | (34,370 | ) |   |
| Non-cash stock award  expense                                                                   |       |                            | —     |                            |       |   | 600 |   |   |
| Depreciation and  amortization                                                                  |       |                            | 6,720      |                            |       |   | 7,940 |   |   |
| Other, net                                                                                      |       |                            | 1,840      |                            |       |   | 350 |   |   |
| Adjusted EBITDA                                                                                 |       |                            | $          | (8,470                          | )          |   |   | $ | 25,480 |   |   |
| Memo: Additional amounts  included in calculation of both operating profit and Adjusted EBITDA: |       |                            |       |                            |       |   |   |   |   |
| Restructuring charges                                                                           |       |                            | $          | (1,340                          | )          |   |   | $ | (620 | ) |   |
| Fixed asset losses                                                                              |       |                            | (590       | )                               |       |   | (1,210 | ) |   |
| Independent  investigation fees                                                                 |       |                            | —     |                            |       |   | (15,030 | ) |   |
| Post retirement medical  curtailment gain and elimination of certain plan benefits         |       |                            | 9,610      |                            |       |   | 1,980 |   |   |
| Foreign currency gains (losses)(1)                                                              |       |                            | 420        |                            |       |   | (560 | ) |   |
|                                                                                                 |            |                                 |            |                                 |            |  |  |  |  |  |  |  |  |

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(1)                 Onlyincluded in Adjusted EBITDA.

**Liquidity and Capital Resources**

***Overview.******  ***Our objectiveis to appropriately finance our business through a mix of long-term andshort-term debt and to ensure that we have adequate access to liquidity. Ourprincipal sources of liquidity are cash flow from operations, our revolvingcredit facility and our accounts receivable securitization facility andfactoring agreements. As of October 2, 2005, we have unutilized capacityunder our revolving credit facility that may be utilized for acquisitions,investments or capital expenditure needs. Our cash flows during the year areimpacted by the volume and timing of vehicle production, which includes ashutdown by our North American customers for approximately two weeks inJuly and one week in December and reduced production in July andAugust for certain European customers. Management believes cash flow fromoperations and debt financing and refinancing from our accounts receivablesecuritization program will provide us with adequate sources of liquidity forthe foreseeable future.

To facilitate the collectionof funds from operating activities, we have sold receivables under our accountsreceivable facility and have entered into accelerated payment collectionprograms with certain customers. Although the majority of the acceleratedpayment collection programs were discontinued as of or prior to January 2,2005, at October 2, 2005 collection of approximately $24.2 million ofaccounts receivable was accelerated under the remaining programs. In additionto the above programs, we continue to collect approximately $22 million permonth on an accelerated basis as a result of favorable payment terms that wehave negotiated with one of our customers, through an agreement that willexpire December 31, 2006. These payments are received on average 20 daysafter shipment of product to our customer. While the impact of thediscontinuance of the accelerated collection programs may be partially offsetby a greater utilization of our accounts receivable securitization facility, wecontinue to examine other alternative programs in the marketplace, as well asenhanced payment terms directly from our customers.

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Our capital planning process is focused on ensuringthat we use our cash flow generated from our operations in ways that enhancethe value of our company. Historically, we have used our cash for a mix ofactivities focused on revenue growth, cost reduction and strengthening thebalance sheet. In the first nine months of 2005, we have used our cashprimarily to service our debt obligations and to fund our capital expenditurerequirements. 

***Liquidity.***   AtOctober 2, 2005, we had approximately $111 million of undrawn andavailable commitments from our revolving credit facility, accounts receivablesecuritization facility and $6 million in cash on our balance sheet.Approximately $50 million and $126.6 million were outstanding on our revolvingcredit facility and accounts receivable securitization facility, respectively,at October 2, 2005. Our access to these two facilities is limited bycertain covenant restrictions (see “Debt, Capitalization and AvailableFinancing Sources” for further discussion on our debt covenants), but at October 2,2005, we could have drawn the entire $111 million remaining undrawn on ourrevolving credit facility and accounts receivable securitization facility.

We have entered into agreements with internationalinvoice factoring companies to sell customer accounts receivable of Metaldyneforeign locations in France, Germany, Spain, United Kingdom and Mexico on anon-recourse basis. As of October 2, 2005, we had available approximately$66 million from these commitments, and approximately $47 million ofreceivables were sold under these programs.

At October 2, 2005, our maximum debt capacity(including amounts drawn under our accounts receivable securitization program)is computed by multiplying our leverage ratio covenant of 5.00 by our bankagreement defined EBITDA of approximately $220.7 million. Thus, our total debtcapacity at October 2, 2005 is approximately $1,103 million. Our actualdebt plus the accounts receivable securitization at October 2, 2005approximated $978 million, or approximately $125 million less than our totalcapacity. However, as discussed above, our revolving credit and accountsreceivable securitization availability only amounted to $111 million as of October 2,2005. 

It should be noted that our liquidity at quarter endtends to reflect peak availability due to our natural cash collection cycle.Liquidity in the middle of the month tends to represent our trough liquidity.Over the last twelve months, our trough liquidity has generally ranged between$15 million and $60 million. See “Liquidity Arrangements,” “Leverage; Abilityto Service Debt” and “Substantial Restrictions and Covenants” risk factors inthe “Other Matters” section.

***TriMas Common Stock.***   Weown 4.8 million shares of TriMas stock, or approximately 24% of the total outstandingshares of TriMas. 

***Debt,Capitalization and Available Financing Sources.***   InDecember 2004, we obtained an amendment of our credit facility to, amongother things, modify certain negative covenants. Under this amendment, theapplicable interest rate spreads on our term loan obligations increased from4.25% to 4.50% over the current London Interbank Offered Rate (“LIBOR”), andour leverage covenant was modified to be less restrictive.

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On December 31,2003, the Company issued $31.7 million of 10% senior subordinated notes due2014 to DaimlerChrysler. These notes have a carrying amount of $27.4 million asof October 2, 2005. The notes were issued as part of the financing of theNew Castle acquisition. The following summarized our outstanding debt as of October 2,2005 and January 2, 2005:

| ** **                                                                                               | ** ** | **October 2, 2005** | ** ** | **January 2, 2005** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| ** **                                                                                               | ** ** | **(In millions)**        | ** ** |
| Senior credit  facilities:                                                                               |       |                          |       |                          |       |   |   |   |   |
| Term loan                                                                                                |       |                          | $          | 350,630                       |       |   |   | $ | 351,080 |   |   |
| Revolving credit facility                                                                                |       |                          | 50,000     |                          |       |   | 63,540 |   |   |
| Total senior  credit facility                                                                            |       |                          | $          | 400,630                       |       |   |   | $ | 414,620 |   |   |
| 11% senior  subordinated notes, with interest payable semi-annually, due 2012                            |       |                          | 250,000    |                          |       |   | 250,000 |   |   |
| 10% senior notes,  with interest payable semi-annually, due 2013                                         |       |                          | 150,000    |                          |       |   | 150,000 |   |   |
| 10% senior  subordinated notes, with interest payable semi-annually, due 2014 (face  value 31.7 million) |       |                          | 27,390     |                          |       |   | 27,180 |   |   |
| Other debt  (includes capital lease obligations)                                                         |       |                          | 19,430     |                          |       |   | 25,900 |   |   |
| Total                                                                                                    |       |                          | $          | 847,450                       |       |   |   | $ | 867,700 |   |   |
| Less current  maturities                                                                                 |       |                          | (8,000     | )                             |       |   | (12,250 | ) |   |
| Long-term debt                                                                                           |       |                          | $          | 839,450                       |       |   |   | $ | 855,450 |   |   |

 

At October 2, 2005, we were contingently liablefor standby letters of credit totaling $69.3 million issued on our behalf byfinancial institutions. These letters of credit are used for a variety ofpurposes, including meeting requirements to self-insure workers’ compensationclaims. 

Our senior credit facility contains covenants andrequirements affecting us and our subsidiaries, including a financial covenantrequirement for an Earnings Before Interest Taxes Depreciation and Amortization(“EBITDA”) to cash interest expense coverage ratio to exceed 2.20 through October 2,2005, increasing to 2.30 for the quarters ending January 1, 2006 and April 2,2006; and a debt to EBITDA leverage ratio not to exceed 5.00 through October 2,2005, decreasing to 4.75 for the quarter ending January 1, 2006. We werein compliance with the preceding financial covenants throughout the quarter. In2006, our interest coverage covenant is 2.30 in the first quarter and graduallyincreases to 2.50 in the second quarter, 2.65 in the third quarter and 2.75 inthe fourth quarter. Our leverage ratio covenant is 4.75 in the fourth quarterof 2005, decreasing to 4.50 in the second quarter of 2006, 4.25 in the third quarterof 2006 and 4.0 in the fourth quarter of 2006. Based on our anticipated EBITDAperformance combined with the successful completion of certain debt reducingtransactions (including sale-leasebacks and project financing), we anticipatebeing in covenant compliance over the next four quarters.

***Interest RateHedging Arrangements.***   All of our interestrate protection arrangements matured in February 2004, and as a result oftheir maturity, a cumulative non-cash pre-tax gain of $6.6 million was recordedand is reflected as a gain on maturity of interest rate arrangements in ourconsolidated statement of operations for the three months ended March 28,2004. Prior to the expiration of these agreements, we recognized additionalinterest expense of $1.1 million during the three months ended March 28,2004. 

***Foreign CurrencyRisk.***   We are subject to the risk of changesin foreign currency exchange rates due to our global operations. We manufactureand sell our products primarily in North America and Europe. As a result, ourfinancial results could be significantly affected by factors such as changes inforeign currency exchange rates or weak economic conditions in foreign marketsin which we manufacture and distribute our products. Our operating results areprimarily exposed to changes in exchange rates between the U.S. dollar andEuropean currencies.

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As currency exchange rates change, translation of thestatements of operations of our international businesses into U.S. dollarsaffects year-over-year comparability of operating results. We do not hedgeoperating translation risks because cash flows from international operationsare generally reinvested locally. Changes in foreign currency exchange ratesare generally reported as a component of stockholders’ equity for our foreignsubsidiaries reporting in local currencies and as a component of income for ourforeign subsidiaries using the U.S. dollar as the functional currency. Theportion of our other comprehensive loss relating to cumulative translationadjustments was $35.4 million for the nine months ended October 2, 2005(primarily from changes in the U.S. dollar to the Euro).

As of October 2, 2005, our net current assets(defined as current assets less current liabilities) subject to foreigncurrency translation risk were $28.9 million. The potential decrease in netcurrent assets from a hypothetical 10% adverse change in quoted foreigncurrency exchange rates would be $2.9 million. The sensitivity analysispresented assumes a parallel shift in foreign currency exchange rates. Exchangerates rarely move in the same direction. This assumption may overstate theimpact of changing exchange rates on individual assets and liabilitiesdenominated in a foreign currency.

***Interest Risk.***   TheCompany generally manages its risk associated with interest rate movementsthrough the use of a combination of variable and fixed rate debt. At October 2,2005, approximately $412.1 million of our debt was variable rate debt. Ahypothetical 25 bps adverse movement in the interest rate on variable rate debtwould affect earnings by approximately $1 million on an annual basis.Approximately $439.7 million of our debt was fixed rate debt at October 3,2005. A hypothetical 25 bps adverse movement in interest rates would result ina loss in the fair value of this fixed rate debt of approximately $7.3 million.

***Off-Balance SheetArrangements.******  ***OnJuly 8, 2005, the Company and our wholly owned special purpose subsidiary,MRFC, Inc. (“MRFC”), amended and restated our existing accounts receivablefinancing facility with General Electric Capital Corporation (“GECC”). Theterms of the facility that were amended and restated include (a) extendingthe maturity date to July 8, 2010, (b) favorable adjustments tocertain default triggers, (c) increased program availability and (d) anincrease to the applicable margin on LIBOR based drawings from 1.75% to 2.25%.The amendment and restatement also addressed various technical matters. Theamended and restated facility represents the completion of the final step ofthe multi-step receivables facility modifications initiated on April 29,2005. Refer also to the Company’s Form 10-Q for the period ended July 3,2005.

We have entered into an arrangement to sell, on anongoing basis, the trade accounts receivable of substantially all domesticbusiness operations to MRFC. MRFC from time to time may sell an undivided fractionalownership interest in the pool of receivables up to approximately $175 millionto a third party multi-seller receivables funding company. The net proceeds ofsale are less than the face amount of accounts receivable sold by an amountthat approximates the purchaser’s financing costs, which amounted to a total of$4.3 million and $2.1 million for the nine months ended October 2, 2005and October 3, 2004, respectively, and is included in other expense, netin the Company’s consolidated statement of operations. Prior to April 29,2005, the Company’s trade accounts receivable of substantially all domesticbusiness operations were sold in connection with JPMorgan Chase Bank, N.A.. At October 2,2005, total usage and availability under the accounts receivable facility wasapproximately $126.6 million and $156.9 million, respectively, with $30.3million available but not utilized. The interest rate was based on LIBOR plus2.25% at October 3, 2005. In addition, we are required to pay a fee of0.5% on the unused portion of the facility. 

We have entered into agreements with internationalinvoice factoring companies to sell customer accounts receivable of Metaldyneforeign locations in France, Germany, Spain, United Kingdom and Mexico on anon-recourse basis. As of October 2, 2005, we had approximately $66million available from these commitments, and approximately $47 million ofreceivables were sold under these programs. We pay 

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a commission to thefactoring company plus interest from the date the receivables are sold untilthe date of customer payment. Commission expense related to these agreementsare recorded in other expense, net on the Company’s consolidated statement ofoperations.

***Certain OtherCommitments.***   We have other cash commitmentsnot relating to debt as well, such as those in respect of leases and redeemablepreferred stock. 

*Sale-LeasebackArrangements.*   We have engaged in a number ofsale-leaseback transactions, including three transactions during the first ninemonths of 2005. In February 2005, we entered into a sale-leasebacktransaction for machinery and equipment with a third party lessor, and received$11.4 million cash as part of this transaction. In April 2005, weentered into a sale-leaseback transaction for machinery and equipment with athird party lessor, and received $4.9 million cash as part of this transaction.We also entered into a sale-leaseback transaction in September 2005 formachinery and equipment with a third party lessor, and received $5.2 millioncash as part of this transaction. 

In the first quarter of 2004, we entered into twosale-leaseback transactions for machinery and equipment with a third partylessor, and received $11.8 million and $7.2 million cash as part of these twotransactions. We also entered into a $65 million sale-leaseback on December 31,2003, as part of our financing related to the purchase of New Castle. Thislease for New Castle equipment is also accounted for as an operating lease andthe annual lease expense is approximately $10 million.

We continue to rely on sale-leaseback and otherleasing opportunities as a source of cash to finance capital expenditures andfor debt reduction and other uses.

*RedeemablePreferred Stock.*   We have outstanding $175.2 millionin aggregate liquidation value ($109.7 million aggregate carrying value) as of October 2,2005 of Series A, B and A-1 redeemable preferred stock in respect of whichwe have the option to pay cash dividends, subject to the terms of our debtinstruments, at rates of 13%, 11.5% and 11%, respectively, per annum initiallyand to effect a mandatory redemption in December 2012, June 2013 and December 2013,respectively. For periods that we do not pay cash dividends on the Series Aand Series A-1 preferred stock, an additional 2% per annum of dividends isaccrued. No cash dividends were paid during the nine months ended October 2,2005. At October 2, 2005, there were unpaid accrued dividends of$56.3 million, resulting in redeemable preferred stock of $166 million.In the event of a change in control or certain qualified equity offerings, wemay be required to make an offer to repurchase our outstanding preferred stock.We may not be permitted to do so and may lack the financial resources tosatisfy these obligations. Consequently, upon these events, it may becomenecessary to recapitalize our company or secure consents. 

***TriMas Receivables.***   Wehave recorded approximately $7.8 million consisting of receivables related tocertain amounts from TriMas, $4.2 million of which is recorded in equityinvestments and receivables in affiliates in the Company’s consolidated balancesheet as of October 2, 2005. These amounts include TriMas’ obligationsresulting from tax net operating losses created prior to the disposition ofTriMas of approximately $2.2 million, pension obligations of approximately $4.3million, reimbursement due for cash payments made related to post-retirementobligations and various invoices paid on TriMas’ behalf of approximately $0.4million.

During the third quarter 2005, TriMas agreed to indemnifyus for the cost of certain post-retirement benefit plans for retired employeesof former operations attributed to TriMas. As a result, as of October 2,2005, we recorded a $0.9 million receivable due from TriMas asreimbursement for amounts previously paid, a reduction of $4.0 million in ourlong-term liability for amounts expected to be paid in future periods, a $4.7 millionreduction in equity investments in and receivables from affiliates and areduction in costs of sales of $0.2 million.

***Credit Rating.******  ***Metaldyne israted by Standard & Poor’s and Moody’s Ratings. As of October 2,2005, we have long-term ratings from Standard & Poor’s and Moody’s ofB/B3 on our senior credit facility, 

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CCC+/Caa1 on our 10% seniornotes due 2013 and CCC+/Caa2 on our 11% senior subordinated notes due 2012,respectively. Our goal is to decrease our total leverage and thus improve ourcredit ratings. In the event of a credit downgrade, we believe we wouldcontinue to have access to additional credit sources. However, our borrowingcosts would further increase, our ability to access certain financial marketsmay become limited, the perception of the Company in the view of our customers,suppliers and security holders may worsen and as a result, the Company may beadversely affected.

***Capital Expenditures.******  ***Our capitalexpenditure program promotes our growth-oriented business strategy by investingin our core areas, where efficiencies and profitability can be enhanced. Capitalexpenditures by product segment for the periods presented were:

| ** **             | ** ** | **October 2, 2005** | ** ** | **October 3, 2004** | ** ** |
|------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| ** **             | ** ** | **(In thousands)**       | ** ** |
| Capital  Expenditures: |       |                          |       |                          |       |   |   |   |   |
| Chassis                |       |                          | $          | 39,680                        |       |   |   | $ | 43,900 |   |   |
| Powertrain             |       |                          | 45,240     |                          |       |   | 59,900 |   |   |
| Corporate              |       |                          | 110        |                          |       |   | 1,450 |   |   |
| Total                  |       |                          | $          | 85,030                        |       |   |   | $ | 105,250 |   |   |

 

***Contractual Cash Obligations.******  ***Under variousagreements, we are obligated to make future cash payments in fixed amounts.These include payments under our long-term debt agreements, rent paymentsrequired under lease agreements and various severance obligations undertaken.The following table summarizes our fixed cash obligations over various futureperiods as of October 2, 2005.

| ** **                                               | ** ** | **Payments Due by Periods** | ** ** |
|----------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                               | ** ** | **Total**                                  | ** ** | **Less Than  One Year** | ** ** | **1-3  Years** | ** ** | **3-5  Years** | ** ** | **After  5 Years** | ** ** |
| ** **                                               | ** ** | **(In millions)**                     | ** ** |
| Long-term debt                                           |       | $                                          | 540        |   |   | $ | 29 |   |   | $ | 107 |   | $ | 404 |   |   | $ | — |   |   |
| 11% Senior  subordinated notes due 2012                  |       | 441                                        |       |   | 27 |   |   | 55 |   | 55 |   |   | 304 |   |   |
| 10% Senior notes  due 2013                               |       | 275                                        |       |   | 15 |   |   | 30 |   | 30 |   |   | 200 |   |   |
| 10% Senior  subordinated notes due 2014                  |       | 59                                         |       |   | 3 |   |   | 7 |   | 6 |   |   | 43 |   |   |
| Other debt                                               |       | 14                                         |       |   | 5 |   |   | 1 |   | 8 |   |   | — |   |   |
| Capital lease  obligations                               |       | 8                                          |       |   | 4 |   |   | 2 |   | 1 |   |   | 1 |   |   |
| Operating lease  obligations                             |       | 351                                        |       |   | 57 |   |   | 102 |   | 79 |   |   | 113 |   |   |
| Purchase  obligations(1)                                 |       | 81                                         |       |   | 65 |   |   | 15 |   | 1 |   |   | — |   |   |
| Redeemable  preferred stock, including accrued dividends |       | 457                                        |       |   | 22 |   |   | 54 |   | 72 |   |   | 309 |   |   |
| Pension  contributions (data available through 2006)     |       | 29                                         |       |   | 23 |   |   | 6 |   | — |   |   | — |   |   |
| Contractual  severance                                   |       | 2                                          |       |   | 2 |   |   | — |   | — |   |   | — |   |   |
| Total contractual  obligations(1)                        |       | $                                          | 2,257      |   |   | $ | 252 |   |   | $ | 379 |   | $ | 656 |   |   | $ | 970 |   |   |

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(1)                Totalpurchase obligations and contractual obligations exclude accounts payable andaccrued liabilities.

Total contractual obligations at October 2, 2005include interest expense and preferred stock dividend obligations based on theterms of each agreement or the rate as of October 2, 2005 for variableinstruments.

At October 2, 2005,we were contingently liable for standby letters of credit totaling $69.3million issued on our behalf by financial institutions. We are alsocontingently liable for future product warranty claims. We provide warrantiesto our customers. As a result of these warranties, we may be responsible for 

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costsassociated with a product recall caused by a defect in a part that wemanufacture. We continuously monitor potential warranty implications of new andcurrent business.

***Cash Flows***

*Operatingactivities—**Cash*flows provided by operationswere $82.4 million for the nine months ended October 2, 2005 compared to$92.9 million in 2004. Working capital usage in the first nine months of 2005declined $24.9 million versus the same period in 2004, but this was more thanoffset by a $23.9 million decrease in net proceeds from the accounts receivablesecuritization facility. The remaining drivers of the reduction in operatingcash flow during the first nine months of 2005 were a $6.3 million increase incash interest paid and an approximate $4 million increase in defined benefitplan contributions.

*Investingactivities—**Cash*flows used in investingactivities totaled $55.5 million for the nine months ended October 2, 2005compared to $237.1 million in 2004. We acquired the remaining ownership of theNew Castle facility in 2004 for approximately $204 million including fees andexpenses (net of approximately $14 million in discounts on the $31.7 millionsubordinated debt and the $64.5 million preferred stock issued to fund thetransaction). Offsetting the cost of the New Castle acquisition were proceedsfrom a sale-leaseback transaction of approximately $65 million on the acquiredNew Castle equipment.

Excluding the net New Castle acquisition investment of$139 million ($204 million acquisition less $65 million sale leaseback),cash flows used in investing activities for the nine months ended October 2,2005 decreased by approximately $43 million versus the comparable period in2004. The key drivers of the decrease include a $20.2 million decrease incapital expenditures, a $14.1 million increase in proceeds from asale-leaseback transaction and a reduction of $8.0 million in our investment inNew Castle resulting from reimbursement relating to equipment purchases. SeeNote 8, Acquisitions, for additional discussion of the reimbursement.

*Financing activities—**Cash*flows used infinancing activities totaled $20.1 million for the nine months ended October 2,2005 compared with cash flows provided by financing activities of $131.3million in 2004, or a $151.4 increase in cash used in financing activities in2005. In 2004, we borrowed an approximate $57 million from our revolvingcredit facility and issued $82.3 million fair value in new debt and preferredstock to acquire New Castle. Adjusting for the New Castle transaction in 2004,financing cash flows decreased approximately $12 million in 2005, primarilyresulting from a reduction in borrowing from our revolving credit facility.

***Outlook***

Automotive vehicle production in 2005 is expected tobe slightly above 2004 production levels in both North America and the globalmarket. However, 2005 NAFTA vehicle production for the “Big 3” is expected tobe approximately 5.3% below 2004 production levels. There are several factorsthat could alter this outlook, including a change in interest rates or anincrease in vehicle incentives offered to consumers.

Our principal use of funds from operating activitiesand borrowings for the next several years are expected to fund interest andprincipal payments on our indebtedness, growth related capital expenditures andworking capital increases, strategic acquisitions and lease expense. Our anticipatedcapital expenditures for 2005 is estimated to be approximately $120 million.Capital spending requirements over the last several years has been elevated dueto our efforts to transition our business to new technologies, capabilities andgeographies. However, in 2006 we expect that capital expenditures will declineand are currently expected to approximate between $65 and $75 million. However,if we are successful in selling our North American forging operations (see Note17 to our consolidated financial statements contained herein), our 2006anticipated cash expenditures would reduce to approximately $55 to $70 million.

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Management believes cashflow from operations and debt financing and refinancing from our accountsreceivable securitization program will provide us with adequate sources ofliquidity for the foreseeable future. However, our sources of liquidity may beinadequate if we are unable to achieve operating targets, which would cause usto seek covenant relief from existing lenders in the near future. In addition,due to an increasingly restrictive covenant structure under our loan agreementsaffecting future periods, we may need to seek additional covenant relief fromour lending group. However, no assurance can be given that we will besuccessful in negotiating such relief. In addition, matters affecting thecredit quality of our significant customers could adversely impact theavailability of our receivables arrangements and our liquidity. Any debt rating downgrades and/or insolvenciesof our largest customers may have an adverse effect on our liquidity as itcould adversely impact our ability to borrow under our accounts receivablesecuritization facility. For example, on November 1, 2005, Moody’s loweredits credit rating of General Motors, one of our largest customers, resulting ina decrease of our borrowing capacity under our accounts receivablesecuritization facility by approximately $3.0 million. We continue toexplore other sources of liquidity, including additional debt, but existingdebt instruments may limit our ability to incur additional debt, and we may beunable to secure equity or other financing.

Consistent with operatingin the global vehicle industry, we anticipate significant competitive pressuresand thus expect to face significant price reduction pressures from our customerbase. In 2003 and 2004, though, we invested significantly in automation andunderwent significant restructuring activities to help accommodate thesepricing pressures. In addition, we face an environment of increased cost toprocure certain raw materials utilized in our manufacturing processes such assteel, energy, molybdenum and nickel. In general, steel prices have risen since2003 by as much as 60-100% and have thus created significant tensionbetween steel producers, suppliers and end customers. Based on current prices,the agreements we currently have in place with our customers and cost reductionefforts in our business, we do not anticipate any negative incremental effectof material pricing on our 2005 profitability relative to 2004.

**NewAccounting Pronouncements**

In October 2004, theU.S. government enacted the American Jobs Creation Act of 2004 (“Act”). ThisAct provides for a special one-time tax deduction of 85% of certain foreignearnings that are repatriated to the U.S. provided certain criteria are met. Weare currently analyzing the provisions of the Act and the feasibility ofseveral alternative scenarios for the potential repatriation of a portion ofthe earnings of our non-U.S. subsidiaries. In general, it is our practice andintention to reinvest the earnings of our non-U.S. subsidiaries in thoseoperations and therefore we do not currently anticipate repatriation ofearnings under the Act.

In November 2004, theFASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43,Chapter 4,” to clarify that abnormal amounts of idle facility expense, freight,handling costs and wasted material (spoilage) should be recognized as currentperiod charges, and that allocation of fixed production overheads to the costsof conversion be based on normal capacity of the production facilities.SFAS No. 151 is effective for inventory costs incurred during fiscalyears beginning after June 15, 2005. Accordingly, we will adopt SFAS No. 151for the fiscal year beginning January 2, 2006. We have evaluated thispronouncement and do not believe it will have a significant impact on ourresults of operations or financial position.

InDecember 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-BasedPayment.” This Statement is a revision of SFAS No. 123, “Accounting forStock-Based Compensation” and supercedes APB No. 25, “Accounting for StockIssued to Employees.” SFAS No. 123 (revised 2004) requires that thecompensation cost relating to stock options and other share-based compensationtransactions be recognized at fair value in financial statements. Due to theCompany being a nonpublic entity as defined in SFAS No. 123 (revised2004), this Statement is effective for us at the beginning of our fiscal year2006. We will then be required to record any compensation expense using thefair value method in connection with 

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option grants to employees after adoption. We arecurrently reviewing the provisions of this Statement and will adopt it no laterthan our fiscal year beginning January 2, 2006.

InMarch 2005, the FASB issued FASB Interpretation No. (FIN) 47, “Accountingfor Conditional Asset Retirement Obligations” which clarifies the term “conditionalasset retirement obligation” used in SFAS No. 143, “Accounting for AssetRetirement Obligations.” The Company must adopt the requirements of FIN 47 by December 31,2005 and we have not yet completed our evaluation of whether FIN 47 will resultin the recognition of additional asset retirement obligations for us.

InMay 2005, the FASB issued SFAS No. 154, “Accounting Changes and ErrorCorrections: a replacement of APB Opinion No. 20 and FASB Statement No. 3.”This Statement requires retrospective application for voluntary changes inaccounting principles and changes required by an accounting pronouncement thatdoes not include specific transition provisions, unless it is impracticable todo so. Retrospective application results in the restatement of prior periods’financial statements to reflect the change in accounting principle. APB OpinionNo. 20 previously required that the impact of most voluntary changes inaccounting principles be recognized in the period of the change as a cumulativeeffect of a change in accounting principle. The provisions of this Statementare to be applied prospectively to accounting changes made in fiscal yearsbeginning after December 15, 2005. We will adopt the provisions of thisStatement prospectively to accounting changes made after January 1, 2006.

**Other Matters**

**Fiscal Year**

Effective beginning in2002, our fiscal year ends on the Sunday nearest to December 31.

**CautionConcerning Forward Looking Statements and Certain Risks Related to Our Businessand Our Company—Safe Harbor Statements**

Thisreport contains statements reflecting the Company’s views about its futureperformance, its financial condition, its markets and many other matters thatconstitute “forward-looking statements.” These views involve risks anduncertainties that are difficult to predict and may cause the Company’s actualresults and/or expectations about various matters to differ significantly fromthose discussed in such forward-looking statements. All statements, other thanstatements of historical fact included in this quarterly report, regarding ourstrategy, future operations, financial condition, expected results and costs,new business, estimated revenues and losses, prospects and plans areforward-looking statements. When used in this quarterly report, the words “will,”“believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similarexpressions are intended to identify forward-looking statements, although notall forward-looking statements contain such identifying words. You should notplace undue reliance on these forward-looking statements. All forward-lookingstatements speak only as of the date of this quarterly report and we undertakeno obligation to update such information. Readers should consider that variousfactors may affect whether actual results and experience correspond with ourforward-looking statements and that many of these factors also represent risksattendant to owning securities in the Company, including the following:

·       *Dependence on Automotive Industry and IndustryCyclicality*—The industries in which we operate depend upon generaleconomic conditions and are highly cyclical. Our performance is affectedparticularly by new vehicle sales, which can be highly sensitive to changes ininterest rates, consumer confidence and fuel costs. We experience salesdeclines during the third calendar quarter as a result of scheduled OEMshutdowns.

To the extent ourproduction volumes have been positively impacted by OEM new vehicle salesincentives, such as 0% financing and cash rebates, these sales incentives maynot be sustained or may cease to favorably impact our sales. For example, October 2005sales for two of our three 

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largest customers declinedapproximately 26% from prior year results. Throughout the summer of 2005, bothof these customers sold new vehicles at below dealer cost, creating increaseddemand for new vehicle sales. However, these sales incentives have beendiscontinued, resulting in a decline in new vehicle sales. Any sustainedweakening in our sale volume with any of our three largest customers could havea material adverse effect on us.

·       *Customer Concentration*—Our base ofcustomers is concentrated among original equipment manufacturers in North America,particularly the large automotive manufacturers, and the loss of business froma major customer, the discontinuance of particular vehicle models or a changein regulations or auto consumer preferences could materially adversely affectus.

Severalof our OEM customers have recently announced plans to further consolidate theirnumber of suppliers. A loss of significant business from, or adverseperformance by, any of these OEM customers or our significant Tier I and TierII suppliers serving these OEM customers would be harmful to us and make itmore difficult for us to meet our obligations. Delphi Corporation recentlyfiled for protection under Chapter 11 of the U.S. bankruptcy code. Should otherof our customers take similar action, we could be adversely affected.

·       *Ability to Finance Capital Requirements*—Ourbusiness is capital intensive. We have made substantial capital investments toimprove capacity and productivity and to meet customer requirements. Moreinvestment is required to maintain and expand our future business awards. If weare unable to meet future capital requirements, our business may be materiallyadversely affected.

·       *Failure to Recover Increased Raw Material Costs*—Therise in raw material and energy costs, especially the cost of steel, continuesto negatively impact our results. Although certain raw material costs such assteel have started to decrease in 2005, there is no guarantee that thesedecreases will continue. While we have been able to successfully offset almostall of the increased raw material costs through a combination of contractualprice recovery from our customers, cost reductions, a decrease in the annualproductivity/price reductions provided to our customers, scrap sales and steelresourcing efforts, there is no guarantee that any of these efforts willcontinue to be successful. Moreover, certain of our material price recoveryagreements are limited in duration and others are cancelable by our customersat any time.

·       *Increases in Costs Due to Our Supply Base—*Theloss of a substantial number of our suppliers could negatively affect ourfinancial health and results. In addition, certain of our suppliers havesuffered financial distress, which may materially adversely impact us as wellin terms of the potential for interrupted supply, unfavorable payment termsand/or higher prices. Specifically, two of our largest suppliers declaredbankruptcy in 2004, and we have been forced to renegotiate the terms of certainof our contracts with these suppliers. The additional effects on us from theseand other bankruptcies is unknown, but they could result in us paying higherprices, having less favorable payment terms and/or experiencing a disruption inthe supply of parts to us or our customers.

·       *Our Industries are Highly Competitive*—Continuingtrends among our customers will increase competitive pressures in ourbusinesses. Certain of our competitors have greater financial resources and, insome cases, we compete with our own customers. The continuing trend towardslimiting outside suppliers involves significant risks, as well asopportunities, and has increased competition. We have experienced and maycontinue to experience adverse pricing pressures as a result.

·       *Liquidity Arrangements—*We rely upon anumber of arrangements for our liquidity, which, if limited, could materiallyand adversely affect our ability to meet our commercial and financialobligations and to grow our business.

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·       *Changing Technology*—Our products aresubject to changing technology, which could place us at a competitivedisadvantage relative to alternative products introduced by competitors. We mayrequire significant ongoing and recurring additional capital expenditures andinvestment in research and development, manufacturing and other areas to remaincompetitive.

·       *Challenges of Strategic Opportunities—*Wemay selectively pursue strategic opportunities like acquisitions, jointventures and divestitures but we may not be able to successfully do so orrealize the intended benefits of such transactions. We recently announced thatwe are exploring a possible divestiture of our North American forging business.Our North American Forging Operations is part of our Chassis segment andrepresents approximately 15% of our total sales.

·       *Dependence on Key Personnel and Relationships*—Wedepend on the services of key individuals, particularly our executive officers,and our relationship with our controlling stockholder. The loss of any keyindividual or change in our relationship with our controlling stockholder couldmaterially and adversely harm us.

·       *Labor Stoppages Affecting OEMs*—We maybe subject to work stoppages at our facilities or those of our principalcustomers or suppliers, which could materially and adversely harm us.

·       *Outsourcing Trend*—Our strategies may notsucceed if anticipated outsourcing among automotive manufacturers fails tomaterialize to the extent we have assumed. Principal risks to continuedoutsourcing are union/labor considerations and objections.

·       *International Sales*—A growing portion ofour revenue may be derived from international sources, which exposes us tocertain risks, such as foreign trade restrictions, government embargoes,tariffs, foreign currency risks, expatriation risks and political instability.As part of our business strategy, we intend to expand our internationaloperations through internal growth and acquisitions. For example, we recentlyannounced plans to expand our manufacturing location in South Korea. Inaddition, we announced that we are currently seeking to divest of our ForgingOperations, which, if completed, would have the effect of increasing ourpercentage of sales derived from our subsidiaries located outside of the UnitedStates.

·       *Product Liability**and WarrantyClaims*—We may incur material losses and costs as a result of productliability and warranty claims that may be brought against us in the event thatthe use of our current and formerly manufactured or sold products results, oris alleged to result, in bodily injury and/or property damage or fails to meetour customer specifications. In addition, claims may be asserted against us inrespect of formerly owned operations, such as TriMas, for which we areindemnified. In the event of financial difficulties, TriMas may be unable tosatisfy indemnification claims.

·       *Environmental Matters*—Our business may bematerially and adversely affected by compliance obligations and liabilitiesunder environmental laws and regulations.

·       *Control by Principal Stockholder*—We arecontrolled by Heartland, whose interests in our business may be different thanother investors in the Company.

·       *Terms of Stockholders Agreement*—Provisionsof a stockholders agreement among the majority of our stockholders imposesignificant operating and financial restrictions on our business withoutcertain stockholder agreement. In the event our significant stockholders areunable to agree on certain actions, we may be materially and adverselyimpacted.

·       *Leverage; Ability to Service Debt*—We may not be able tomanage our business as we might otherwise do so due to our high degree ofleverage. Our high degree of leverage means that we must dedicate significantcash flow to debt service. By doing so, we will have greater difficulty inmeeting other important commercial and financial obligations or in pursuingvarious strategies and opportunities.

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·       *Substantial Restrictions and Covenants*—Restrictionsin our debt instruments limit our ability to take certain actions, including toincur further debt, finance capital expenditures, pay dividends and sell oracquire assets or businesses. These restrictions may prevent us from takingactions in the interests of our security holders. In addition, our ability tocomply with our financial covenants in our debt instruments may be impacted bynumerous matters, including matters beyond our control. In the event we areunable to satisfy these covenants in the future, we will be in default and maybe materially and adversely impacted. In addition, our accounts receivablefacility is subject to customer concentration limits based on the creditratings of each customer. The availability under our receivables facility maybe curtailed by the credit ratings downgrades of Ford Motor Company and GeneralMotors Corporation if we are unable to obtain the consent of the lenders underour senior secured credit facility to enter into an intercreditor agreementwith GECC. Any further downgrades of these or other of our customers could havea material adverse impact on our liquidity.

·       *Implementation of Control Improvements—*We have not yetcompleted implementation of our current plans to improve our internal controlsand may be unable to remedy certain internal control weaknesses identified byour independent auditors and take other actions to meet our 2007 compliancedeadline for Section 404 of the Sarbanes-Oxley Act of 2002.

We undertake no obligation to update publicly anyforward-looking statements, whether as a result of new information, futureevents or otherwise.

There are few published independent sources for datarelated to the markets for many of our products. To the extent we are able toobtain or derive data from independent sources, we have done so. In particular,we used a report produced by the Ducker Research Company, Inc. profilingNorth American Forging, Foundry and Machinery Industries prepared in 2000 forHeartland Industrial Partners, L.P., our largest shareholder. To the extentinformation in the Ducker Report is dated, we have expressed our belief byextrapolating data from the Ducker Report using other publicly availableinformation about the competitors and products addressed in the Ducker Report. Tothe extent information is otherwise not obtained or derived from independentsources, we have expressed our belief based on our own internal analyses andestimates of our and our competitors’ products and capabilities. We note thatmany of the industries in which we compete are characterized by competitionamong a small number of large suppliers. Industry publications and surveys andforecasts that we have used generally state that the information containedtherein has been obtained from sources believed to be reliable. We have notindependently verified any of the data from third-party sources nor have weascertained the underlying assumptions or bases for any such information. Ingeneral, when we say we are a “leader” or a “leading” manufacturer or makesimilar statements about ourselves, we are expressing our belief that weformulated principally from our estimates and experiences in, and knowledge of,the markets in which we compete. In some cases, we possess independent data tosupport our position, but that data may not be sufficient in isolation for usto reach the conclusions that we have reached without our knowledge of ourmarkets and businesses.

In addition to theforegoing, readers of this quarterly report are cautioned that, prior to thefiling of the 2003 Form 10-K Report, the Commission provided theCompany with comments in the ordinary course on its filings under theSecurities Exchange Act of 1934 as amended. The Company believes that it hassupplementally or in this report adequately responded to the Staff’s commentson the Company’s filings. However, it is entirely possible that disclosure maychange as a result of the Commission’s review of this filing and the Company’sresponses to those comments.

**ITEM3.**                QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK

In thenormal course of business, we are exposed to market risk associated withfluctuations in foreign exchange rates. We are also subject to interest risk asit relates to long-term debt. See “Management’s 

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Discussion and Analysis of Financial Condition andResults of Operations” for details about our primary market risks, and theobjectives and strategies used to manage these risks. Also see Note 11 “Long-TermDebt” in the notes to the consolidated financial statements for additionalinformation in our 2004 Form 10-K.

**ITEM4.**                CONTROLS ANDPROCEDURES

In March 2005, KPMG informedthe Company that the following items constituted material weaknesses: theextent to which manual journal entries at the plant level were able to be madewithout appropriate review or supporting documentation; the extent to whichmanual corporate level adjustments were required in the consolidation andfinancial reporting/close process; the need to perform regular, detailedaccount analyses and reconciliations; the need to improve controls to limitaccess to accounts payable and vendor files; the need to enhance controlsrelated to fixed assets to ensure, among other things, timely assetclassifications and the need to develop a process for controlling access to itsvarious information technology systems. These material weaknesses, ifunaddressed, could result in material errors in the Company’s financialstatements.

The Company believes thatcertain of the issues highlighted above are caused in part by the predecessorcompanies’ previously highly decentralized structure and the integration oftheir various financial systems, which current management has been addressingover time since the acquisition of the Company in November 2000.

The Company has devotedsubstantial resources to the improvement and review of its control processesand procedures. The Company has taken actions or considered actions to addressconcerns and issues referred to above, and will continue taking actions asnecessary to further address such concerns and issues, by (1) makingpersonnel and organizational changes; (2) improving communications andinternal reporting; (3) simplifying and making consistent variousaccounting policies and procedures and enhancing related documentation; (4) significantlyexpanding its training programs for both accounting and non-accountingemployees related to accounting matters; (5) increasing management’s focuson internal controls and improving the extent and timing of managementoversight in a number of areas; and (6) implementing processes andprocedures to reduce manual interventions and adjustments and moreappropriately limit access to certain files and systems. The Company’s AuditCommittee and its Board of Directors have reviewed the actions undertaken inresponse to the material weaknesses outlined above and continue to monitoractions to improve control processes and procedures.

Specificremedial actions that have been undertaken since the independent investigationin 2004 include the following:

·       substantialadditional training of accounting personnel and non-accounting personnel inaccounting matters, including a Senior Financial Director of Europeanoperations;

·       revisedincentive compensation system to eliminate plant specific performance criteriain favor of division-wide criteria;

·       inorder to improve consistency in the financial reporting process, we appointed aFinancial Controller to oversee all North American plant controllers and workto ensure that public reporting requirements are understood throughout theNorth American plants;

·       appointeda Director, Sarbanes Oxley Implementation in order to manage the Company’sefforts to comply with the requirements of Section 404 of theSarbanes-Oxley Act and have begun the process of identifying required keycontrols and performing process control evaluations at those significant plantlocations;

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·       hirednew members of the corporate accounting staff that have, in conjunction withplant operating personnel, instituted improvements in accounting for fixedassets, including construction-in-progress;

·       improvedcorporate accounting policies and procedures documentation, including theinstitution of quarterly updates on accounting policy and procedure changes;

·       addressingcontrols and procedures related to inventory at our plant operations from theparticipation of a cross-functional team of finance, information systems andoperating professionals;

·       elevatedthe organizational importance of the internal audit function through theaddition of more experienced staff, new and enhanced internal auditing scopeand procedures and an enhanced reporting connection between the internal auditfunction and the Audit Committee;

·       improvedprocedures and review process relative to account reconciliations and requiredsupport, including the addition of new, standardized corporate policy acrossthe corporation;

·       improvedinternal controls over financial reporting at the Company’s European locationsby reorganizing the reporting structure and requiring all European plantcontrollers to report directly to a Senior Finance Director that, in turn,reports directly to the Chief Financial Officer;

·       separatedassignments, responsibility and access between the accounts payable group andcentral procurement group; and

·       improvedprocedures and review processes relative to plant manual journal entries,including the adoption of a new corporate policy requiring approval of manualjournal entries exceeding certain designated thresholds.

The Company continues toevaluate the effectiveness of its controls and procedures on an ongoing basisand intends to implement further actions in its continuing efforts tostrengthen the control process.

In addition, the Companyis in the process of completing a thorough review of its internal controls,including information technology systems and financial reporting as part of theCompany’s preparation for compliance with the internal control over financialreporting requirements of Section 404 of the Sarbanes-Oxley Act.Given the need to fully remedy the internal control weaknesses identified byKPMG, there can be no assurance that the Company will be able to remedy theseweaknesses and take other actions required for compliance with Section 404of the Sarbanes-Oxley Act by the required compliance date. The Company mustbegin to comply with these requirements for its fiscal year ending December 31,2007.

**DisclosureControls and Procedures**

Concurrent with thequarterly review of the Company’s financial statements, management, with theparticipation of our Chief Executive Officer and Chief Financial Officer,concluded an evaluation of the effectiveness of our disclosure controls andprocedures (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) ofthe Securities Exchange Act of 1934) pursuant to Rule 13a-15 of theExchange Act. Our disclosure controls and procedures are designed only toprovide reasonable assurance that they will meet their objectives. Based uponthat evaluation, the Chief Executive Officer and Chief Financial Officerconcluded that the Company’s disclosure controls and procedures are noteffective to provide reasonable assurance that they will meet their objectivesas of October 2, 2005. Consequently, in connection with the preparation ofthis Quarterly Report, management of the Company undertook and completedreconciliations, analyses and reviews in addition to those historicallycompleted to confirm that this Quarterly Report fairly presents in all materialrespects the financial condition, results of operations and cash flows of theCompany as of, and for, the periods presented in accordance with generallyaccepted accounting principles.

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**PART II.   OTHERINFORMATION**

**METALDYNE CORPORATION**

Items 1, 2 and 5 are notapplicable.

**Item 6.**                        Exhibits.

**(A)****        Exhibits:**

| Exhibit 10.17.2 |   | Second Amendment to Employment Agreement between  Metaldyne Corporation and Jeffrey M. Stafeil.                                     |
|----------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------|
| Exhibit 12      |   | Computation of Ratio of  Earnings to Combined Fixed Charges and Preferred Stock Dividends.                                          |
| Exhibit 31.1    |   | Certification pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002. |
| Exhibit 31.2    |   | Certification pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002. |
| Exhibit 32.1    |   | Certification pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002. |
| Exhibit 32.2    |   | Certification pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002. |

 

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**SIGNATURE**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

| ** **                    | **Metaldyne Corporation** |
|-------------------------------|---------------------------|
| ** **                    | **(Registrant)**          |
| DATE:  November 16, 2005 | BY:                       | /s/ JEFFREY M. STAFEIL |
|                          |                      | Jeffrey M.  Stafeil |
|                          |                      | *Executive  Vice President and  Chief Financial Officer* |
|                          |                      | *(Chief  Accounting Officer and  Authorized Signatory)* |

 

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**METALDYNECORPORATIONEXHIBIT INDEX**
| Exhibit              | ** ** | ** **                                                                                                                          | ** ** | ** ** |
|----------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
| Exhibit 10.17.2 |       | Second Amendment to  Employment Agreement between Metaldyne Corporation and Jeffrey M. Stafeil.                                     |
| Exhibit 12      |       | Computation of  Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.                                          |
| Exhibit 31.1    |       | Certification  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002. |
| Exhibit 31.2    |       | Certification  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302  of the Sarbanes-Oxley Act of 2002. |
| Exhibit 32.1    |       | Certification  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002. |
| Exhibit 32.2    |       | Certification pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002. |

 

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