**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-Q**

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

**Forquarterly period ended October 1, 2006**

**Commissionfile number 1-12068**

**METALDYNE CORPORATION**

(Exact name of registrantas specified in its charter)

| **Delaware**                                |   | **38-2513957**                        |
|---------------------------------------------|--------|---------------------------------------|
| (State of  Incorporation)                   |   | (I.R.S. Employer  Identification No.) |
| **47659 Halyard Drive, Plymouth, Michigan** |   | **48170-2429**                        |
| (Address of  Principal Executive Offices)   |   | (Zip Code)                            |

 

(Registrant’s telephonenumber, including area code):  **(734) 207-6200**

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. YES   x    NO   o

Indicate by check mark whether the registrant is a largeaccelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act (Check one):

| Large accelerated filer  o | Accelerated filer   o | Non-accelerated  filer  x |
|---------------------------------|----------------------------|--------------------------------|

 

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

There is currently no public market for the registrant’scommon stock.

Numberof shares outstanding of the registrant’s common stock at November 1,2006:  42,844,760, par value $1.00 pershare.

 

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**METALDYNECORPORATIONINDEX**

|               | ** ** | ** **                                                                                                               | ** ** | **Page No.** |
|---------------|------------|--------------------------------------------------------------------------------------------------------------------------|------------|-------------------|
| Part I.  |       | FINANCIAL  INFORMATION                                                                                                   |       | 2                 |
| Item  1.      |       | Financial  Statements (Unaudited)                                                                                        |       | 2                 |
|          |       | Consolidated Balance Sheets—October 1, 2006 and  January 1, 2006                                          |       | 2                 |
|          |       | Consolidated Statements of Operations for the Three  and Nine Months Ended October 1, 2006 and October 2, 2005 |       | 3                 |
|          |       | Consolidated Statements of Cash Flows for the Nine  Months Ended October 1, 2006 and October 2, 2005           |       | 4                 |
|          |       | Notes to Consolidated Financial Statements                                                                               |       | 5                 |
| Item 2.       |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                              |       | 29                |
| Item 3.       |       | Quantitative and Qualitative Disclosure about Market  Risk                                                               |       | 57                |
| Item 4.       |       | Controls and Procedures                                                                                                  |       | 57                |
| Part II. |       | OTHER  INFORMATION AND SIGNATURE                                                                                         |       | 58                |

 

1

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**PART I.FINANCIAL INFORMATION**

**ITEM 1. FINANCIALSTATEMENTS**

**METALDYNECORPORATIONCONSOLIDATED BALANCE SHEETOCTOBER 1, 2006 AND JANUARY 1, 2006(Dollars in thousands except per share amounts)**

| ** **                                                                                                                                                                                                                                                       | ** ** | **October 1, 2006** | ** ** | **January 1, 2006** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| ** **                                                                                                                                                                                                                                                       | ** ** | **(Unaudited)**               | ** ** |
| **ASSETS**                                                                                                                                                                                                                                                       | ** ** |                          | ** ** | ** **                    |       |   | ** ** | ** ** |   |
| Current assets:                                                                                                                                                                                                                                                  | ** ** |                          | ** ** | ** **                    |       |   | ** ** | ** ** |   |
| Cash and cash equivalents                                                                                                                                                                                                                                        |       |                          | $          | 5,350                         |       |   |   | $ | 3,687 |   |   |
| Receivables,  net:                                                                                                                                                                                                                                               | ** ** |                          | ** ** | ** **                    |       |   | ** ** | ** ** |   |
| Trade (net of allowance for doubtful accounts of  $4,314 and $3,110 at October 1, 2006 and January 1, 2006,  respectively)                                                                                                                             |       |                          | 154,384    |                          |       |   | 130,018 |   |   |
| TriMas                                                                                                                                                                                                                                                           |       |                          | 2,177      |                          |       |   | 3,841 |   |   |
| Other                                                                                                                                                                                                                                                            |       |                          | 13,554     |                          |       |   | 6,020 |   |   |
| Total receivables, net                                                                                                                                                                                                                                           |       |                          | 170,115    |                          |       |   | 139,879 |   |   |
| Inventories                                                                                                                                                                                                                                                      |       |                          | 91,201     |                          |       |   | 84,265 |   |   |
| Deferred and refundable income taxes                                                                                                                                                                                                                             |       |                          | 11,006     |                          |       |   | 11,010 |   |   |
| Prepaid expenses and other assets                                                                                                                                                                                                                                |       |                          | 32,229     |                          |       |   | 29,668 |   |   |
| Assets of discontinued operations                                                                                                                                                                                                                                |       |                          | —     |                          |       |   | 116,612 |   |   |
| Total current assets                                                                                                                                                                                                                                             |       |                          | 309,901    |                          |       |   | 385,121 |   |   |
| Equity investments and receivables in affiliates                                                                                                                                                                                                                 |       |                          | 90,837     |                          |       |   | 90,928 |   |   |
| Property and equipment (net of accumulated  depreciation of $333,336 and $270,686 at October 1, 2006 and  January 1, 2006, respectively)                                                                                                               |       |                          | 651,943    |                          |       |   | 630,428 |   |   |
| Excess of cost over net assets of acquired companies                                                                                                                                                                                                             |       |                          | 589,258    |                          |       |   | 583,990 |   |   |
| Intangible and other assets                                                                                                                                                                                                                                      |       |                          | 143,265    |                          |       |   | 156,468 |   |   |
| Total assets                                                                                                                                                                                                                                                     |       |                          | $          | 1,785,204                     |       |   |   | $ | 1,846,935 |   |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                                                                                                                                    |       |                          |       |                          |       |   |   |   |   |
| Current liabilities:                                                                                                                                                                                                                                             |       |                          |       |                          |       |   |   |   |   |
| Accounts payable                                                                                                                                                                                                                                                 |       |                          | $          | 223,999                       |       |   |   | $ | 261,098 |   |   |
| Accrued liabilities                                                                                                                                                                                                                                              |       |                          | 132,092    |                          |       |   | 123,870 |   |   |
| Current liabilities of discontinued operations                                                                                                                                                                                                                   |       |                          | —     |                          |       |   | 37,400 |   |   |
| Current maturities, long-term debt                                                                                                                                                                                                                               |       |                          | 5,636      |                          |       |   | 6,640 |   |   |
| Total current liabilities                                                                                                                                                                                                                                        |       |                          | 361,727    |                          |       |   | 429,008 |   |   |
| Long-term debt                                                                                                                                                                                                                                                   |       |                          | 921,537    |                          |       |   | 850,739 |   |   |
| Deferred income taxes                                                                                                                                                                                                                                            |       |                          | 42,402     |                          |       |   | 42,402 |   |   |
| Minority interest                                                                                                                                                                                                                                                |       |                          | 728        |                          |       |   | 740 |   |   |
| Other long-term liabilities                                                                                                                                                                                                                                      |       |                          | 113,593    |                          |       |   | 99,591 |   |   |
| Long-term liabilities of discontinued operations                                                                                                                                                                                                                 |       |                          | —     |                          |       |   | 33,204 |   |   |
| Redeemable preferred stock, (aggregate liquidation  value: $202,967 and $180,908 at October 1, 2006 and January 1,  2006, respectively). Authorized: 1,198,693 shares; Outstanding: 1,189,694 shares  at October 1, 2006 and January 1, 2006 |       |                          | 194,811    |                          |       |   | 171,928 |   |   |
| Total liabilities                                                                                                                                                                                                                                                |       |                          | 1,634,798  |                          |       |   | 1,627,612 |   |   |
| Shareholders’ equity:                                                                                                                                                                                                                                       |       |                          |       |                          |       |   |   |   |   |
| Preferred stock (non-redeemable), $1 par, Authorized:  25 million; Outstanding: None                                                                                                                                                                             |       |                          | —     |                          |       |   | — |   |   |
| Common stock, $1 par, Authorized: 250 million;  Outstanding: 42.8 million at October 1, 2006 and January 1, 2006                                                                                                                                       |       |                          | 42,845     |                          |       |   | 42,845 |   |   |
| Paid-in capital                                                                                                                                                                                                                                                  |       |                          | 699,018    |                          |       |   | 698,868 |   |   |
| Accumulated deficit                                                                                                                                                                                                                                              |       |                          | (622,798   | )                             |       |   | (524,648 | ) |   |
| Accumulated other comprehensive income                                                                                                                                                                                                                           |       |                          | 31,341     |                          |       |   | 2,258 |   |   |
| Total shareholders’ equity                                                                                                                                                                                                                                  |       |                          | 150,406    |                          |       |   | 219,323 |   |   |
| Total liabilities  and shareholders’ equity                                                                                                                                                                                                                 |       |                          | $          | 1,785,204                     |       |   |   | $ | 1,846,935 |   |   |

 

See accompanying notes to the consolidated financial statements.

2

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**METALDYNE CORPORATIONCONSOLIDATED STATEMENT OF OPERATIONSFOR THE THREE AND NINE MONTHS ENDED OCTOBER 1, 2006 AND OCTOBER 2, 2005(Dollars in thousands except per share amounts)**

| ** **                                                                                                                                                                                                         | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                                                                                                         | ** ** | **October 1, 2006**    | ** ** | **October 2, 2005**   | ** ** | **October 1, 2006** | ** ** | **October 2, 2005** | ** ** |
| ** **                                                                                                                                                                                                         | ** ** | **(Unaudited)**                  | ** ** | **(Unaudited)**                 | ** ** |
| Net sales                                                                                                                                                                                                          |       |                             | $          | 411,807                         |       |   |   | $ | 442,837 |   |   |   | $ | 1,421,679 |   |   |   | $ | 1,438,814 |   |   |
| Cost of sales                                                                                                                                                                                                      |       |                             | (389,153   | )                               |       |   | (402,544 | ) |   |   | (1,302,978 | ) |   |   | (1,285,903 | ) |   |
| Gross profit                                                                                                                                                                                                       |       |                             | 22,654     |                            |       |   | 40,293 |   |   |   | 118,701 |   |   |   | 152,911 |   |   |
| Selling, general and administrative expenses                                                                                                                                                                       |       |                             | (25,196    | )                               |       |   | (30,294 | ) |   |   | (83,049 | ) |   |   | (86,148 | ) |   |
| Restructuring  charges                                                                                                                                                                                             |       |                             | (368       | )                               |       |   | (141 | ) |   |   | (770 | ) |   |   | (1,760 | ) |   |
| Operating profit  (loss)                                                                                                                                                                                           |       |                             | (2,910     | )                               |       |   | 9,858 |   |   |   | 34,882 |   |   |   | 65,003 |   |   |
| Other expense,  net:                                                                                                                                                                                               |       |                             |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest:                                                                                                                                                                                                          |       |                             |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                                                                                                                                                                                   |       |                             | (26,677    | )                               |       |   | (22,469 | ) |   |   | (74,788 | ) |   |   | (66,749 | ) |   |
| Preferred stock  dividends and accretion                                                                                                                                                                           |       |                             | (7,286     | )                               |       |   | (5,765 | ) |   |   | (22,883 | ) |   |   | (16,798 | ) |   |
| Equity income  (loss) from affiliates                                                                                                                                                                              |       |                             | (2,344     | )                               |       |   | 60 |   |   |   | (695 | ) |   |   | 1,641 |   |   |
| Other, net                                                                                                                                                                                                         |       |                             | (2,541     | )                               |       |   | (2,785 | ) |   |   | (12,361 | ) |   |   | (6,381 | ) |   |
| Other expense,  net                                                                                                                                                                                                |       |                             | (38,848    | )                               |       |   | (30,959 | ) |   |   | (110,727 | ) |   |   | (88,287 | ) |   |
| Loss from continuing operations before income taxes                                                                                                                                                                |       |                             | (41,758    | )                               |       |   | (21,101 | ) |   |   | (75,845 | ) |   |   | (23,284 | ) |   |
| Income tax  expense (benefit)                                                                                                                                                                                      |       |                             | 2,649      |                            |       |   | (8,544 | ) |   |   | 13,119 |   |   |   | (8,397 | ) |   |
| Loss from  continuing operations                                                                                                                                                                                   |       |                             | (44,407    | )                               |       |   | (12,557 | ) |   |   | (88,964 | ) |   |   | (14,887 | ) |   |
| Loss from  discontinued operations (net of tax of zero for the three and nine months  ended October 1, 2006 and $(1,266) and $(1,863) for the three and nine  months ended October 2, 2005, respectively |       |                             | (201       | )                               |       |   | (2,350 | ) |   |   | (638 | ) |   |   | (3,460 | ) |   |
| Loss on  discontinued operations (net of tax of zero)                                                                                                                                                              |       |                             | (1,686     | )                               |       |   | (323 | ) |   |   | (8,548 | ) |   |   | (323 | ) |   |
| Net loss                                                                                                                                                                                                           |       |                             | $          | (46,294                         | )          |   |   | $ | (15,230 | ) |   |   | $ | (98,150 | ) |   |   | $ | (18,670 | ) |   |
| Basic and diluted  loss per share:                                                                                                                                                                                 |       |                             |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss from  continuing operations                                                                                                                                                                                   |       |                             | $          | (1.04                           | )          |   |   | $ | (0.29 | ) |   |   | $ | (2.08 | ) |   |   | $ | (0.35 | ) |   |
| Loss from  discontinued operations                                                                                                                                                                                 |       |                             | —     |                            |       |   | (0.06 | ) |   |   | (0.01 | ) |   |   | (0.08 | ) |   |
| Loss on  discontinued operations                                                                                                                                                                                   |       |                             | (0.04      | )                               |       |   | (0.01 | ) |   |   | (0.20 | ) |   |   | (0.01 | ) |   |
| Net loss attributable to common stock                                                                                                                                                                              |       |                             | $          | (1.08                           | )          |   |   | $ | (0.36 | ) |   |   | $ | (2.29 | ) |   |   | $ | (0.44 | ) |   |
| Weighted average number  of shares outstanding for basic and diluted loss per share                                                                                                                                |       |                             | 42,845     |                            |       |   | 42,845 |   |   |   | 42,845 |   |   |   | 42,845 |   |   |

 

See accompanying notes to the consolidated financial statements.

3

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**METALDYNECORPORATION**

**CONSOLIDATEDSTATEMENT OF CASH FLOWS**

**FOR THE NINE MONTHSENDED OCTOBER 1, 2006 AND OCTOBER 2, 2005**

**(Dollars inthousands)**

| ** **                                                                                  | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                  | ** ** | **October 1,  2006**       | ** ** | **October 2,  2005** | ** ** |
| ** **                                                                                  | ** ** | **(Unaudited)**                 | ** ** |
| Operating activities:                                                                       |       |                            |       |   |   |   |   |   |   |
| Net loss                                                                                    |       |                            | $          | (98,150 | ) |   |   | $ | (18,670 | ) |   |
| Adjustments to reconcile  net loss to net cash provided by (used for) operating activities: |       |                            |       |   |   |   |   |   |   |
| Depreciation and  amortization                                                              |       |                            | 96,474     |   |   |   | 80,481 |   |   |
| Debt fee  amortization                                                                      |       |                            | 3,862      |   |   |   | 2,404 |   |   |
| Loss on fixed  asset dispositions                                                           |       |                            | 8,290      |   |   |   | 1,460 |   |   |
| Loss from  discontinued operations                                                          |       |                            | 638        |   |   |   | 3,460 |   |   |
| Loss on  discontinued operations                                                            |       |                            | 8,548      |   |   |   | 323 |   |   |
| Deferred income  taxes                                                                      |       |                            | 4          |   |   |   | (25,470 | ) |   |
| Preferred stock  dividends and accretion                                                    |       |                            | 22,883     |   |   |   | 16,798 |   |   |
| Non-cash interest  expense (interest accretion)                                             |       |                            | 243        |   |   |   | 214 |   |   |
| Equity income  (loss) from affiliates                                                       |       |                            | 695        |   |   |   | (1,641 | ) |   |
| Curtailment (gain)  loss on elimination of certain benefits                                 |       |                            | 165        |   |   |   | (7,123 | ) |   |
| Issuance of stock  options                                                                  |       |                            | 150        |   |   |   | — |   |   |
| Operating cash  flows provided by (used for) discontinued operations                        |       |                            | (2,998     | ) |   |   | 11,014 |   |   |
| Other, net                                                                                  |       |                            | 759        |   |   |   | 530 |   |   |
| Changes in assets and  liabilities, net of acquisition/disposition of business:             |       |                            |       |   |   |   |   |   |   |
| Receivables, net                                                                            |       |                            | 22,703     |   |   |   | (31,069 | ) |   |
| Net proceeds of  (reduction from) accounts receivable facility                              |       |                            | (45,634    | ) |   |   | 63,390 |   |   |
| Inventories                                                                                 |       |                            | (4,570     | ) |   |   | 6,090 |   |   |
| Prepaid expenses  and other assets                                                          |       |                            | (2,431     | ) |   |   | 1,859 |   |   |
| Accounts payable  and accrued liabilities                                                   |       |                            | (24,793    | ) |   |   | (6,831 | ) |   |
| Change in other  long-term assets                                                           |       |                            | (1,374     | ) |   |   | (1,624 | ) |   |
| Change in other  long-term liabilities                                                      |       |                            | (14,274    | ) |   |   | (13,285 | ) |   |
| Net cash provided  by (used for) operating activities                                       |       |                            | (28,810    | ) |   |   | 82,310 |   |   |
| Investing activities:                                                                       |       |                            |       |   |   |   |   |   |   |
| Capital  expenditures                                                                       |       |                            | (59,033    | ) |   |   | (76,284 | ) |   |
| Repurchase of leased  assets                                                                |       |                            | (40,047    | ) |   |   | — |   |   |
| Proceeds from  sale/leaseback of fixed assets                                               |       |                            | —     |   |   |   | 21,588 |   |   |
| Reimbursement from  acquisition of business, net of cash received                           |       |                            | —     |   |   |   | 7,960 |   |   |
| Proceeds from sale  of discontinued operations                                              |       |                            | 69,058     |   |   |   | — |   |   |
| Proceeds from sale  of fixed assets                                                         |       |                            | 922        |   |   |   | 82 |   |   |
| Investing cash  flows used for discontinued operations                                      |       |                            | (2,513     | ) |   |   | (8,749 | ) |   |
| Net cash used for  investing activities                                                     |       |                            | (31,613    | ) |   |   | (55,403 | ) |   |
| Financing activities:                                                                       |       |                            |       |   |   |   |   |   |   |
| Proceeds of term  loan facilities                                                           |       |                            | 58,900     |   |   |   | — |   |   |
| Principal payments  of term loan facilities                                                 |       |                            | (25,473    | ) |   |   | (442 | ) |   |
| Proceeds of  revolving credit facility                                                      |       |                            | 293,376    |   |   |   | 265,000 |   |   |
| Principal payments  of revolving credit facility                                            |       |                            | (245,639   | ) |   |   | (278,542 | ) |   |
| Proceeds of  swingline credit facility (net)                                                |       |                            | (9,605     | ) |   |   | — |   |   |
| Proceeds of other  debt                                                                     |       |                            | 4,829      |   |   |   | 4,844 |   |   |
| Principal payments  of other debt                                                           |       |                            | (7,656     | ) |   |   | (10,832 | ) |   |
| Capitalization of  debt refinancing fees                                                    |       |                            | (6,884     | ) |   |   | — |   |   |
| Financing cash  flows used for discontinued operations                                      |       |                            | —     |   |   |   | (135 | ) |   |
| Net cash provided  by (used for) financing activities                                       |       |                            | 61,848     |   |   |   | (20,107 | ) |   |
| Effect of exchange  rates on cash                                                           |       |                            | 238        |   |   |   | (500 | ) |   |
| Net increase in  cash                                                                       |       |                            | 1,663      |   |   |   | 6,300 |   |   |
| Cash and cash  equivalents, beginning of period                                             |       |                            | 3,687      |   |   |   | — |   |   |
| Cash and cash  equivalents, end of period                                                   |       |                            | $          | 5,350 |   |   |   | $ | 6,300 |   |   |
| Supplementary cash flow  information:                                                       |       |                            |       |   |   |   |   |   |   |
| Cash paid for  income taxes, net                                                            |       |                            | $          | 21,035 |   |   |   | $ | 8,559 |   |   |
| Cash paid for  interest                                                                     |       |                            | $          | 61,394 |   |   |   | $ | 54,813 |   |   |
| Noncash  transactions—capital leases                                                   |       |                            | $          | 591 |   |   |   | $ | 460 |   |   |

 

See accompanyingnotes to the consolidated financial statements.

4

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**METALDYNE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**1.****                 Businessand Other Information**

Metaldyne Corporation (“Metaldyne”or “the Company”) is a leading global manufacturer of highly engineered metalcomponents for the global light vehicle market. The Company’s products includemetal-formed and precision-engineered components and modular systems used invehicle powertrain and chassis applications.

The Company maintains afifty-two/fifty-three week fiscal year ending on the Sunday nearest to December 31.Fiscal years 2006 and 2005 are each comprised of fifty-two weeks and end on December 31,2006 and January 1, 2006, respectively. All year and quarter referencesrelate to the Company’s fiscal year and fiscal quarters unless otherwisestated.

In the fourth quarter of2005, the board of directors of the Company approved an agreement to sell itsbusiness of supplying forged metal components to the automotive light vehiclemarket (“North American Forging” or “Forging Operations”). The agreement wasentered into as of January 7, 2006 and, on March 10, 2006, the Companycompleted this divestiture. The Forging Operations, which were part of theChassis segment, generated approximately $358 million revenue in 2005 andincluded plants located in Royal Oak, Michigan; Fraser, Michigan; Troy,Michigan; Detroit, Michigan; Minerva, Ohio; Canal Fulton, Ohio and Ft. Wayne,Indiana. In accordance with SFAS No. 144, *Accountingfor the Impairment or Disposal of Long-Lived Assets*, all revenue andexpenses of the Forging Operations have been removed from the respectiveconsolidated income statement line items and reported separately asdiscontinued operations. In addition, assets and liabilities of the ForgingOperations have been removed from the respective consolidated balance sheetline items and reclassified separately as assets and liabilities ofdiscontinued operations. Cash flows generated by the Forging Operations havebeen removed from the respective consolidated cash flow line items and havebeen separately reported as cash flows from discontinued operations. Refer toNote 8, Discontinued Operations.

In the opinion of Companymanagement, the unaudited financial statements contain all adjustments,including adjustments of a normal recurring nature, necessary to present fairlythe financial position, results of operations and cash flows for the periodspresented. These statements should be read in conjunction with the Company’sfinancial statements included in the Annual Report on Form 10-K forthe fiscal year ended January 1, 2006 (the “2005 Form 10-K”).The results of operations for the period ended October 1, 2006 are notnecessarily indicative of the results for the full year.

The preparation ofconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States requires management to make estimatesand assumptions that affect amounts reported therein. Due to the inherentuncertainty involved in making estimates, actual results reported in futureperiods may differ from those estimates.

Consistent with operatingin the global vehicle industry, the Company anticipates significant competitivepressures and thus expects to face significant price reduction pressures fromits customer base. In 2003 and 2004, though, the Company invested significantlyin automation and underwent significant restructuring activities to helpaccommodate these pricing pressures. In addition, the Company faces anenvironment of increased cost to procure certain raw materials utilized in itsmanufacturing processes such as steel, energy, aluminum, molybdenum and nickel.Based on current prices, the agreements the Company currently has in place withits customers and cost reduction efforts in its business, it does notanticipate any significant incremental effect of material pricing on its 2006profitability relative to 2005.

5

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

The Company continues to explore other sources ofliquidity, including additional debt, but existing debt instruments may limitits ability to incur additional debt, and it may be unable to secure equity orother financing. Despite management’s belief regarding the adequacy of itsliquidity sources, there can be no assurance that the Company’s liquidity levelwill remain adequate in the future as it may be adversely impacted by a varietyof factors, many of which are beyond its control, including those referred toabove and elsewhere in this Form 10-Q.

**2.****                 StockOptions and Awards**

At October 1, 2006, theCompany had share-based awards outstanding under one stock-based employeecompensation plan, the 2001 Long Term Equity Incentive Plan (the “Plan”).Share-based awards under this plan consist of stock option awards andrestricted stock units. The shares issued pursuant to the options and units arerequired to be held and cannot be sold or transferred until the elapse of acertain time period after a public offering.

In 2004, the Company offered eligible employees theopportunity to participate in a Voluntary Stock Option Exchange Program (the “Program”),to exchange all of their then outstanding options to purchase shares of theCompany’s common stock granted under the Plan for new stock options andrestricted stock units to be granted under the Plan. Participation in theProgram was voluntary; however, elections were required to be received by January 14,2004, with new stock options granted on or after July 16, 2004 andrestricted stock units granted on January 15, 2004. Non-eligibleparticipants and one eligible employee not electing to participate in theProgram continue to hold the original options granted under the Plan.

Prior to January 2, 2006, the Company appliedAccounting Principles Board Opinion No. 25, *Accountingfor Stock Issued to Employees*, and related interpretations inaccounting for awards made under the Plan. Stock options granted under the Planhad an exercise price equal to or greater than the market value of the commonstock on the date of the grant, and accordingly, no compensation expense wasrecognized. Stock awards were valued at their fair market value measured at thedate of grant, and compensation expense was recognized over the vesting periodof the award.

Effective January 2, 2006, the Company adoptedthe provisions of SFAS No. 123R, *Share-Based Payment*,prospectively to new stock awards and to awards modified, repurchased, orcancelled after the date of adoption. The Company qualifies for the prospectivemethod in accordance with the provisions of SFAS No. 123R as the fairvalue of all options granted prior to January 2, 2006 was determined basedon the minimum value method. Under the prospective method, compensation expenserecognized during the nine months ended October 1, 2006 includedcompensation expense for all share-based awards granted on or after January 2,2006, based on the grant date fair value estimated in accordance with theprovisions of SFAS No. 123R. In accordance with the prospective method,results for prior periods have not been restated. The Plan is considered anequity plan under SFAS No. 123R, and compensation expense recognized aspreviously described is net of estimated forfeitures of share based awards overthe vesting period. The effect of adopting SFAS No. 123R was not materialto the Company’s loss from continuing operations and net loss for the ninemonths ended October 1, 2006.

Total stock-based compensation for the nine monthsended October 1, 2006 was $0.2 million, all of which related to stockoptions. At October 1, 2006, there was $0.7 million of unrecognizedcompensation expense related to these unvested awards granted under the Plan.Compensation 

6

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

expense is recognized on a straight-line basis, or$0.1 million for the quarter ended October 1, 2006, over the 3-yearvesting life of the stock options.

The fair value of each of the Company’s stock optionawards is estimated on the date of grant using a Black-Scholes option-pricingmodel that uses the assumptions noted in the table below. The fair value of theCompany’s stock option awards is expensed on a straight-line basis over thevesting period of the options, which is generally three years. Expectedvolatility is based on historical volatility and implied volatility of selectpublicly-traded competitors of the Company. The risk-free rate for periodswithin the contractual life of the stock option award is based on the yieldcurve of the zero-coupon U.S. Treasury strips on the date the award is grantedwith a maturity equal to the expected term of the award. The Company useshistorical data to estimate forfeitures within its valuation model. Theexpected term of awards granted is derived from historical experience under thePlan and represents the period of time that awards granted are expected to beoutstanding.

Thesignificant weighted average assumptions relating to the valuation of theCompany’s stock options for the nine months ended October 1, 2006 are asfollows.

| ** **                    | ** ** | **October 1, 2006** | ** ** |
|-------------------------------|------------|-------------------------------|------------|
| Dividend yield                |       |                          | —     |   |   |
| Volatility rate               |       |                          | 36.16      | % |   |
| Risk-free  interest rate      |       |                          | 4.36       | % |   |
| Expected option life  (years) |       |                          | 6 years    |   |   |

 

Theweighted average grant date fair value of stock options granted during the ninemonths ended October 1, 2006 was $2.17. The aggregate intrinsic value waszero for all outstanding options, vested and expected to vest in the futureoptions and exercisable options. Stock option awards activity for the ninemonths ended October 1, 2006 is as follows (shares in thousands):

| ** **                                                         | ** ** | **Shares Under  Options**(1) | ** ** | **Weighted Average  Exercise Price** | ** ** | **Weighted Average   Remaining  Contractual Term** | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------------|------------|------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| Outstanding at  January 2, 2006                               |       |                              | 2,984      |                                           |       |                                                              | $          | 9.68 |   |   |   | 6.5 years |   |   |
| Granted                                                            |       |                              | 398        |                                           |       |                                                              | $          | 6.50 |   |   |   |   |   |   |
| Forfeited                                                          |       |                              | (82        | )                                              |       |                                                              | $          | 6.50 |   |   |   |   |   |   |
| Outstanding at  October 1, 2006                               |       |                              | 3,300      |                                           |       |                                                              | $          | 9.37 |   |   |   | 6.1 years |   |   |
| Vested and expected to vest in the future at  October 1, 2006 |       |                              | 2,587      |                                           |       |                                                              | $          | 10.11 |   |   |   | 5.3 years |   |   |
| Exercisable at October 1, 2006                                |       |                              | 64         |                                           |       |                                                              |       |   |   |   | 4.5 years | (2) |   |
| Available for  grant at October 1, 2006                       |       |                              | 1,660      |                                           |       |                                                              |       |   |   |   |   |   |   |

----

(1)                Includes50 restricted stock units issued in 2004.

(2)                Appliesto 46 stock options.

**3.****                 AccountsReceivable Securitization and Factoring Agreements**

On April 29, 2005, the Company and its whollyowned special purpose subsidiary, MRFC, Inc. (“MRFC”), entered into a newaccounts receivable financing facility with General Electric Capital 

7

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

Corporation (“GECC”). Concurrent with entering into thisfacility, the former accounts receivable financing facility with JPMorgan ChaseBank, N.A. was terminated. On July 8, 2005, the Company and MRFC amendedand restated the existing accounts receivable financing facility with 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.

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 to a third party multi-seller receivables fundingcompany. The net proceeds of sale are less than the face amount of accountsreceivable sold by an amount that approximates the purchaser’s financing costs,which amounted to a total of $4.8 million and $3.1 million for the nine monthsended October 1, 2006 and October 2, 2005, respectively, and isincluded in other expense, net in the Company’s consolidated statement ofoperations. Prior to April 29, 2005, the Company’s trade accountsreceivable of substantially all domestic business operations were sold inconnection with the former accounts receivable financing facility with JPMorganChase Bank, N.A. At October 1, 2006 and January 1, 2006, the Company’sfunding under the facility was $37.7 million and $83.4 million, respectively,with availability based upon qualified receivables of $71.3 million and $126.8million, respectively, leaving $33.6 million available but not utilized at October 1,2006 and $43.4 million available but not utilized at January 1, 2006. Therate used to approximate the purchaser’s financing costs was based on LIBORplus 2.25% at October 1, 2006. In addition, the Company is required to paya 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’s foreign locations in France, Germany, Spain, Czech Republic andUnited Kingdom on a non-recourse basis. As of October 1, 2006 and January 1,2006, the Company had available $77.9 million and $71.9 million from thesecommitments, respectively, and approximately $50.0 million of receivables weresold under these programs as of October 1, 2006 and January 1, 2006.The Company pays a commission to the factoring company plus interest calculatedfrom the date the receivables are sold to either the customer’s due date or aspecified number of days thereafter, or until the receivable is deemeduncollectible. Commission expense related to these agreements is recorded inother expense, net on the Company’s consolidated statement of operations andtotaled $1.0 million for each of the nine month periods ended October 1,2006 and October 2, 2005.

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 1, 2006, collection ofapproximately $42.0 million of accounts receivable was accelerated under theremaining programs. Included in the above programs is approximately $25.9million that the Company continues to collect on an accelerated basis as aresult of favorable payment terms negotiated in connection with a businessacquisition. This agreement expires December 31, 2006. While the impact ofthe discontinuance of these programs may be partially offset by a greater 

8

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

utilization of the Company’saccounts receivable securitization facility, the Company continues to examineother alternative programs in the marketplace, as well as enhanced termsdirectly from its customers.

**4.****                 Inventories**

Inventoriesby component are as follows:

| ** **      | ** ** | **(In thousands)**       | ** ** |
|-----------------|------------|-------------------------------|------------|
| ** **      | ** ** | **October 1, 2006** | ** ** | **January 1, 2006** | ** ** |
| Raw materials   |       |                          | $          | 40,185 |   |   |   | $ | 38,727 |   |   |
| Work in process |       |                          | 15,187     |   |   |   | 16,138 |   |   |
| Finished goods  |       |                          | 35,829     |   |   |   | 29,400 |   |   |
|            |       |                          | $          | 91,201 |   |   |   | $ | 84,265 |   |   |

 

**5.****                 Excessof Cost over Net Assets of Acquired Companies and Intangible Assets**

**Acquired IntangibleAssets**

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

| ** **                                                   | ** ** | **(In thousands, except weighted average life)** | ** ** |
|--------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|
| ** **                                                   | ** ** | **As of October 1, 2006**                             | ** ** | **As of January 1, 2006** | ** ** |
| ** **                                                   | ** ** | **Gross  Carrying  Amount**                                               | ** ** | **Accumulated  Amortization** | ** ** | **Weighted  Average  Life** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Weighted  Average  Life** | ** ** |
| Amortized  Intangible Assets:                                |       |                                                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Customer Contracts                                           |       | $                                                                         | 75,471     |   |   | $ | (30,705 | ) |   | 10.9 years |   | $ | 74,969 |   |   | $ | (25,346 | ) |   | 10.9 years |   |
| Technology and Other                                         |       | 110,643                                                                   |       |   | (42,287 | ) |   | 14.3 years |   | 109,903 |   |   | (37,680 | ) |   | 14.3 years |   |
| Total                                                        |       | $                                                                         | 186,114    |   |   | $ | (72,992 | ) |   | 12.7 years |   | $ | 184,872 |   |   | $ | (63,026 | ) |   | 12.7 years |   |
| Aggregate  Amortization Expense (Included in Cost of Sales): |       |                                                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| For the nine months ended October 1, 2006               |       |                                                                      |       |   | $ | 9,966 |   |   |   |   |   |   |   |   |   |   |   |   |
| Estimated Amortization Expense:                              |       |                                                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| For the year ending December 31, 2006                   |       |                                                                      |       |   | 13,742 |   |   |   |   |   |   |   |   |   |   |   |   |
| For the year ending December 31, 2007                   |       |                                                                      |       |   | 13,651 |   |   |   |   |   |   |   |   |   |   |   |   |
| For the year ending December 31, 2008                   |       |                                                                      |       |   | 12,908 |   |   |   |   |   |   |   |   |   |   |   |   |
| For the year ending December 31, 2009                   |       |                                                                      |       |   | 12,908 |   |   |   |   |   |   |   |   |   |   |   |   |
| For the year  ending December 31, 2010                  |       |                                                                      |       |   | 11,157 |   |   |   |   |   |   |   |   |   |   |   |   |

 

9

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

**Goodwill**

Thechanges in the carrying amount of goodwill for the nine months ended October 1,2006 are as follows:

| ** **                             | ** ** | **(In thousands)** | ** ** |
|----------------------------------------|------------|-------------------------|------------|
| ** **                             | ** ** | **Chassis**             | ** ** | **Powertrain** | ** ** | **Total** | ** ** |
| Balance as of  January 1, 2006    |       | $                       | 235,638    |   |   | $ | 348,352 |   |   | $ | 583,990 |   |
| Exchange impact  from foreign currency |       | 8,182                   |       |   | 2,671 |   |   | 10,853 |   |
| Expiration of tax  contingency         |       | (2,793                  | )          |   | (2,792 | ) |   | (5,585 | ) |
| Balance as of  October 1, 2006    |       | $                       | 241,027    |   |   | $ | 348,231 |   |   | $ | 589,258 |   |

 

**6.****                 SegmentInformation**

The Company operates in two segments: the Chassissegment and the Powertrain segment. The Company has defined a segment as acomponent with business activity resulting in revenue and expense that has separatefinancial information evaluated regularly by the Company’s chief operatingdecision maker and its board of directors in determining resource allocationand assessing performance.

CHASSIS—Manufactures components, modules and systemsused in a variety of engineered chassis applications, including wheel-ends,knuckles and mini-corner assemblies. This segment utilizes a variety ofprocesses including hot, warm and cold forging, and machining and assembly.

POWERTRAIN—Manufactures a broad range of powertraincomponents, modules and systems, including sintered powder metal componentsboth forged and conventional, aluminum castings including valve bodies, clutchmodules, balance shaft modules, front cover assemblies, differential cases,crankshaft dampers and tubular fabricated products used for a variety ofapplications. This segment applies integrated program management to a broadrange of engine and transmission applications.

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 income (loss) from continuing operations and before interest, taxes,depreciation, amortization, asset impairment, loss on disposition ofmanufacturing equipment or facilities and non-cash losses on sale-leaseback ofproperty and equipment. 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.

Intercompany sales for the three and nine months endedOctober 1, 2006 were zero and $1.4 million in the Chassis segment and $0.1million and $0.8 million in the Powertrain segment, respectively. Intercompanysales for the three and nine months ended October 2, 2005 were $2.1million and $6.2 million in the Chassis segment and $0.8 million and $2.6million in the Powertrain segment, 

10

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

respectively. Intercompany sales are recognized in accordancewith the Company’s revenue recognition policy and are eliminated inconsolidation.

Segmentactivity for the three and nine months ended October 1, 2006 and October 2,2005 is as follows:

| ** **                                                             | ** ** | **(In thousands)**          | ** ** |
|------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                             | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
| ** **                                                             | ** ** | **October 1, 2006**    | ** ** | **October 2, 2005** | ** ** | **October 1, 2006** | ** ** | **October 2, 2005** | ** ** |
| **Sales**                                                              | ** ** |                             | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Chassis                                                                |       |                             | $          | 203,919 |   |   |   | $ | 234,465 |   |   |   | $ | 725,138 |   |   |   | $ | 766,057 |   |   |
| Powertrain                                                             |       |                             | 207,888    |   |   |   | 208,372 |   |   |   | 696,541 |   |   |   | 672,757 |   |   |
| Total Sales                                                            |       |                             | $          | 411,807 |   |   |   | $ | 442,837 |   |   |   | $ | 1,421,679 |   |   |   | $ | 1,438,814 |   |   |
| **Adjusted EBITDA**                                                    |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Chassis                                                                |       |                             | $          | 12,300 |   |   |   | $ | 18,924 |   |   |   | $ | 60,974 |   |   |   | $ | 65,567 |   |   |
| Powertrain                                                             |       |                             | 20,349     |   |   |   | 24,197 |   |   |   | 82,754 |   |   |   | 92,712 |   |   |
| Corporate/centralized  resources                                       |       |                             | (5,004     | ) |   |   | (4,939 | ) |   |   | (14,146 | ) |   |   | (10,964 | ) |   |
| Total Adjusted EBITDA                                                  |       |                             | 27,645     |   |   |   | 38,182 |   |   |   | 129,582 |   |   |   | 147,315 |   |   |
| Depreciation &  amortization                                  |       |                             | (30,719    | ) |   |   | (27,935 | ) |   |   | (96,474 | ) |   |   | (80,481 | ) |   |
| Other, net  (includes foreign currency, royalties and interest income) |       |                             | 164        |   |   |   | (389 | ) |   |   | 1,774 |   |   |   | (1,831 | ) |   |
| Operating profit  (loss)                                               |       |                             | $          | (2,910 | ) |   |   | $ | 9,858 |   |   |   | $ | 34,882 |   |   |   | $ | 65,003 |   |   |

 

| ** **                      | ** ** | **(In thousands)**       | ** ** |
|---------------------------------|------------|-------------------------------|------------|
| ** **                      | ** ** | **October 1, 2006** | ** ** | **January 1, 2006** | ** ** |
| **Total Assets**                |       |                          |       |   |   |   |   |   |   |
| Chassis                         |       |                          | $          | 722,463 |   |   |   | $ | 707,784 |   |   |
| Powertrain                      |       |                          | 794,304    |   |   |   | 763,112 |   |   |
| Corporate/centralized resources |       |                          | 268,437    |   |   |   | 259,427 |   |   |
| Assets held for sale            |       |                          | —     |   |   |   | 116,612 |   |   |
| Total                           |       |                          | $          | 1,785,204 |   |   |   | $ | 1,846,935 |   |   |

 

| ** **                      | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------|------------|---------------------------------|------------|
| ** **                      | ** ** | **October 1, 2006**   | ** ** | **October 2, 2005** | ** ** |
| **Capital Expenditures**        |       |                            |       |   |   |   |   |   |   |
| Chassis                         |       |                            | $          | 23,815 |   |   |   | $ | 31,942 |   |   |
| Powertrain                      |       |                            | 34,740     |   |   |   | 44,229 |   |   |
| Corporate/centralized resources |       |                            | 478        |   |   |   | 113 |   |   |
| Total                           |       |                            | $          | 59,033 |   |   |   | $ | 76,284 |   |   |

 

11

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

**7.**                 RestructuringRelated Integration Actions

Restructuringcosts incurred for the nine months ended October 1, 2006 were $0.8 millionand were primarily a result of the optimization of the Company’s Chassismanufacturing structure by moving certain programs between operating facilitieswhile reducing associated headcount and overhead costs. Costs incurred for thenine months ended October 2, 2005 were $1.8 million and primarilyreflected severance costs, as the Company streamlined its operations from threesegments into two beginning in 2005.

| ** **                       | ** ** | **(In thousands)**                    | ** ** |
|----------------------------------|------------|--------------------------------------------|------------|
| ** **                       | ** ** | **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** | ** ** | **2006  Additional  Severance  and Other  Exit Costs** | ** ** | **Total** | ** ** |
| Balance at  January 2, 2005 |       |                                       | $          | 675 |   |   |   | $ | (13 | ) |   |   | $ | 2,757 |   |   |   | $ | 445 |   |   |   | $ | — |   |   |   | $ | — |   |   | $ | 3,864 |   |
| Charges to  expense              |       |                                       | —     |   |   |   | 13 |   |   |   | (240 | ) |   |   | (12 | ) |   |   | 3,527 |   |   |   | — |   |   | 3,288 |   |
| Cash payments                    |       |                                       | (12        | ) |   |   | — |   |   |   | (2,436 | ) |   |   | (354 | ) |   |   | (2,529 | ) |   |   | — |   |   | (5,331 | ) |
| Other adjustments                |       |                                       | (218       | ) |   |   | — |   |   |   | 8 |   |   |   | (52 | ) |   |   | 99 |   |   |   | — |   |   | (163 | ) |
| Balance at  January 1, 2006 |       |                                       | $          | 445 |   |   |   | $ | — |   |   |   | $ | 89 |   |   |   | $ | 27 |   |   |   | $ | 1,097 |   |   |   | $ | — |   |   | $ | 1,658 |   |
| Charges to  expense              |       |                                       | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 770 |   |   | 770 |   |
| Cash payments                    |       |                                       | (123       | ) |   |   | — |   |   |   | (31 | ) |   |   | — |   |   |   | (807 | ) |   |   | (784 | ) |   | (1,745 | ) |
| Other adjustments                |       |                                       | —     |   |   |   | — |   |   |   | (58 | ) |   |   | (27 | ) |   |   | (90 | ) |   |   | 172 |   |   | (3 | ) |
| Balance at  October 1, 2006 |       |                                       | $          | 322 |   |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | 200 |   |   |   | $ | 158 |   |   | $ | 680 |   |

 

The above amountsrepresent total estimated cash payments, all of which are recorded in accruedliabilities in the Company’s consolidated balance sheet at October 1, 2006and January 1, 2006, respectively.

**8.**                 DiscontinuedOperations

On March 10, 2006, the Company completed thedivestiture of its Forging Operations to Forming Technologies, Inc., nowknown as FormTech Industries LLC, (the “Buyer”). In consideration for NorthAmerican Forging and upon the closing of the transaction, the Company receivedconsideration of approximately $79.2 million in cash (of which $10.1 millionwas used to repurchase assets held under sale-leasebacks), and retained itsinterest in trade accounts receivable of approximately $41 million. Inaddition, the Buyer assumed $7.5 million of outstanding indebtedness of NorthAmerican Forging, other working capital items and other specified liabilities.In accordance with the terms of the agreement, the Buyer and the Company are inthe process of determining an appropriate adjustment to be made to the purchaseprice based on working capital (excluding accounts receivable) that existed atthe time of the closing subject to certain limits. As part of the agreement,the Company will continue to provide management transition services, includingaccounting, finance and information technology support, to the Buyer forapproximately one year subsequent to the divestiture.

The Forging Operations, which were part of the Chassissegment and operated as a separate division with separate management within thesegment, manufacture a variety of gear blanks, driveline shaft blanks,differential gears, wheel end components and precision cold forged componentsfor global automotive original equipment manufacturers and Tier 1 componentsuppliers.

12

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

At January 1, 2006, the Company determined thatthe Forging Operations qualified for assets held for sale treatment and a lossof $140.5 million was recognized in our 2005 financial statements to reflectexcess of net book value of assets. Therefore, the results of operations forthe Forging Operations for the current and prior periods have been reported asdiscontinued operations. In addition, the assets and liabilities of the ForgingOperations have been reclassified as assets and liabilities of discontinued operationsin the Company’s consolidated balance sheet at January 1, 2006.

In conjunction with the closing of the transaction,the Company recorded an additional loss on discontinued operations ofapproximately $8.5 million. This loss reflects the excess of net book value ofassets and liabilities sold over the proceeds received and the recognition of$4.0 million in curtailment losses. Under the requirements of SFAS No. 88,*Employers’ Accounting for Settlements andCurtailments of Defined Benefit Pension Plans and for Termination Benefits*,and SFAS No. 106, *Employers’ Accounting forPostretirement Benefits Other than Pensions*, the Company recognizedcurtailment losses due to the divestiture of the Forging Operations.

Revenuefrom the Forging Operations, including sales with other Metaldyne affiliates,loss from discontinued operations and related tax benefit for the three andnine months ended October 1, 2006 (through the March 10, 2006 closingdate) and October 2, 2005 are presented below:

| ** **                                                      | ** ** | **(In millions)**           | ** ** |
|-----------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                      | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
| ** **                                                      | ** ** | **October 1, 2006**    | ** ** | **October 2, 2005** | ** ** | **October 1, 2006** | ** ** | **October 2, 2005** | ** ** |
| Sales to third  parties                                         |       |                             | $          | 0.4 |   |   |   | $ | 81.2 |   |   |   | $ | 63.4 |   |   |   | $ | 279.9 |   |   |
| Sales with other  Metaldyne affiliates                          |       |                             | $          | — |   |   |   | $ | 11.4 |   |   |   | $ | 9.5 |   |   |   | $ | 38.2 |   |   |
| Income (loss)  from discontinued operations before income taxes |       |                             | $          | (0.2 | ) |   |   | $ | (3.6 | ) |   |   | $ | (0.6 | ) |   |   | $ | (5.3 | ) |   |
| Income tax benefit                                              |       |                             | $          | — |   |   |   | $ | (1.2 | ) |   |   | $ | — |   |   |   | $ | (1.8 | ) |   |
| Loss from  discontinued operations                              |       |                             | $          | (0.2 | ) |   |   | $ | (2.4 | ) |   |   | $ | (0.6 | ) |   |   | $ | (3.5 | ) |   |
| Loss on discontinued  operations                                |       |                             | $          | (1.7 | ) |   |   | $ | (0.3 | ) |   |   | $ | (8.5 | ) |   |   | $ | (0.3 | ) |   |

 

13

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

Thecomponents of assets and liabilities of the discontinued operations in theconsolidated balancesheet as of January 1, 2006 are as follows:

| ** **                                     | ** ** | **(In thousands)**       | ** ** |
|------------------------------------------------|------------|-------------------------------|------------|
| ** **                                     | ** ** | **January 1, 2006** | ** ** |
| Cash                                           |       |                          | $          | 4 |   |   |
| Accounts  receivable                           |       |                          | 2,808      |   |   |
| Inventories                                    |       |                          | 36,151     |   |   |
| Prepaid expenses  and other                    |       |                          | 2,439      |   |   |
| Property and  equipment, net                   |       |                          | 73,896     |   |   |
| Other assets                                   |       |                          | 1,314      |   |   |
| Assets of discontinued operations              |       |                          | $          | 116,612 |   |   |
| Trade accounts payable                         |       |                          | $          | 29,992 |   |   |
| Accrued  liabilities                           |       |                          | 7,222      |   |   |
| Current portion  of long-term debt             |       |                          | 186        |   |   |
| Current liabilities of discontinued operations |       |                          | $          | 37,400 |   |   |
| Long-term debt                                 |       |                          | 7,500      |   |   |
| Other long-term  liabilities                   |       |                          | 25,704     |   |   |
| Total liabilities  of discontinued operations  |       |                          | $          | 70,604 |   |   |

 

**9.**                 RedeemablePreferred Stock

The Company has authorized and outstanding 644,540shares, $1 par value, of $64.5 million in liquidation value ($57.7 millioncarrying value as of October 1, 2006) Series A-1 preferredstock to DaimlerChrysler Corporation. The Company will accrete from thecarrying value to the liquidation value ratably over the ten-year period. The Series A-1preferred stock is mandatorily redeemable on December 31, 2013. Series A-1preferred stockholders are entitled to receive, when, as and if declared by theCompany’s board of directors, cumulative quarterly cash dividends at a rate of11% per annum plus 2% per annum for any period for which there are any accruedand unpaid dividends.

The Company has authorized 370,000 shares, $1 parvalue, of $36.1 million in liquidation value ($34.7 million carrying value asof October 1, 2006) Series A preferred stock, of which 361,001 sharesare issued and outstanding to Masco Corporation. The Company will accrete fromthe carrying value to the liquidation value ratably over the twelve-yearperiod. The Series A preferred stock is mandatorily redeemable on December 31,2012. Series A preferred stockholders are entitled to receive, when, asand if declared by the Company’s board of directors, cumulative quarterly cashdividends at a rate of 13% per annum for periods ending on or prior to December 31,2005 and 15% per annum for periods after December 31, 2005, plus 2% perannum for any period for which there are any accrued and unpaid dividends.

The Company has authorized and outstanding 184,153shares, $1 par value, with a carrying value of $18.4 million of redeemable Series Bpreferred stock to Heartland Industrial Partners (“Heartland”). The redeemable Series Bpreferred shares issued are mandatory redeemable on June 15, 2013. The Series Bpreferred stockholders are entitled to receive, when, as and if declared by theCompany’s board of directors, cumulative semi-annual cash dividends at a rateof 11.5% per annum.

14

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

As part of the Company’s planned merger with asubsidiary of Asahi Tec Corporation, holders of the Company’s redeemablepreferred stock will receive cash in exchange for their shares. However, theholders of these securities have agreed to reinvest their cash proceeds in newcommon and preferred shares of Asahi Tec Corporation.

Preferred stock dividends(including accretion of $0.8 million in each of 2006 and 2005) were $22.9million and $16.8 million, while dividend cash payments were zero, for the ninemonths ended October 1, 2006 and October 2, 2005, respectively.Unpaid accrued dividends were $84.0 million and $61.9 million at October 1,2006 and January 1, 2006, respectively. Redeemable preferred stock,consisting of outstanding shares and unpaid dividends, was $194.8 million and$171.9 million in the Company’s consolidated balance sheet at October 1,2006 and January 1, 2006, respectively.

**10.**          LossPer Share

Diluted earnings per share reflect the potentialdilution that would occur if securities or other contracts to issue commonstock were exercised or converted into common stock. Excluded from thecalculation of diluted earnings per share are stock options representing 3.3million and 2.7 million of common shares as they are anti-dilutive at October 1,2006 and October 2, 2005, respectively.

Contingently issuableshares, representing approximately 50,000 restricted common shares, have ananti-dilutive effect on earnings per share for each of the nine months ended October 1,2006 and October 2, 2005.

**11.**          ComprehensiveIncome (Loss)

TheCompany’s total comprehensive loss for the three and nine months ended October 1,2006 and October 2, 2005 is as follows:

| ** **                                                                            | ** ** | **(In thousands)**          | ** ** |
|---------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                            | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
| ** **                                                                            | ** ** | **October 1, 2006**    | ** ** | **October 2, 2005** | ** ** | **October 1, 2006** | ** ** | **October 2, 2005** | ** ** |
| Net income (loss)                                                                     |       |                             | $          | (46,294 | ) |   |   | $ | (15,230 | ) |   |   | $ | (98,150 | ) |   |   | $ | (18,670 | ) |   |
| Other  comprehensive income (loss):                                                   |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign currency translation adjustment                                               |       |                             | (1,547     | ) |   |   | 6,750 |   |   |   | 27,207 |   |   |   | (36,617 | ) |   |
| Change in the Company’s portion of TriMas’ currency  translation adjustment |       |                             | 151        |   |   |   | 778 |   |   |   | 1,876 |   |   |   | (1,261 | ) |   |
| Total other comprehensive income (loss)                                               |       |                             | (1,396     | ) |   |   | 7,528 |   |   |   | 29,083 |   |   |   | (37,878 | ) |   |
| Total comprehensive loss                                                              |       |                             | $          | (47,690 | ) |   |   | $ | (7,702 | ) |   |   | $ | (69,067 | ) |   |   | $ | (56,548 | ) |   |

 

15

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

**12.**          EmployeeBenefit Plans

Thefollowing represent the Company’s net periodic benefit (gain) cost (includingthe (gain) cost related to the Forging Operations) at October 1, 2006 and October 2,2005:

**Pension Benefits:**

| ** **                                       | ** ** | **(In thousands)**                            | ** ** |
|--------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                       | ** ** | **For the three months ended** | ** ** | **For the nine months ended** | ** ** |
| ** **                                       | ** ** | **October 1, 2006**                      | ** ** | **October 2, 2005** | ** ** | **October 1, 2006** | ** ** | **October 2, 2005** | ** ** |
| **Components of Net Periodic  Benefit Cost:**    | ** ** |                                               | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Service cost                                     |       |                                               | $          | 809 |   |   |   | $ | 639 |   |   |   | $ | 2,668 |   |   |   | $ | 2,167 |   |   |
| Interest cost                                    |       |                                               | 4,544      |   |   |   | 4,435 |   |   |   | 13,742 |   |   |   | 13,405 |   |   |
| Expected return  on plan assets                  |       |                                               | (4,830     | ) |   |   | (4,580 | ) |   |   | (14,529 | ) |   |   | (13,778 | ) |   |
| Amortization of  prior service cost              |       |                                               | 22         |   |   |   | 41 |   |   |   | 86 |   |   |   | 123 |   |   |
| Recognized loss  due to curtailments/settlements |       |                                               | 138        |   |   |   | — |   |   |   | 3,403 |   |   |   | — |   |   |
| Amortization of  net loss                        |       |                                               | 1,254      |   |   |   | 811 |   |   |   | 3,953 |   |   |   | 2,614 |   |   |
| Net periodic benefit  cost                       |       |                                               | $          | 1,937 |   |   |   | $ | 1,346 |   |   |   | $ | 9,323 |   |   |   | $ | 4,531 |   |   |

 

**OtherBenefits:**

| ** **                                              | ** ** | **(In thousands)**                            | ** ** |
|---------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                              | ** ** | **For the three months ended** | ** ** | **For the nine months ended** | ** ** |
| ** **                                              | ** ** | **October 1, 2006**                      | ** ** | **October 2 2005** | ** ** | **October 1, 2006** | ** ** | **October 2, 2005** | ** ** |
| **Components of Net Periodic  Benefit Cost:**           | ** ** |                                               | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Service cost                                            |       |                                               | $          | 401 |   |   |   | $ | 235 |   |   |   | $ | 1,158 |   |   |   | $ | 1,253 |   |   |
| Interest cost                                           |       |                                               | 447        |   |   |   | 328 |   |   |   | 1,290 |   |   |   | 1,670 |   |   |
| Amortization of  prior service cost                     |       |                                               | (134       | ) |   |   | (5,614 | ) |   |   | (298 | ) |   |   | (11,332 | ) |   |
| Recognized (gain)  loss due to curtailments/settlements |       |                                               | 270        |   |   |   | — |   |   |   | 570 |   |   |   | (2,487 | ) |   |
| Amortization of  net loss                               |       |                                               | 97         |   |   |   | 2,406 |   |   |   | 282 |   |   |   | 5,082 |   |   |
| Net periodic benefit  (gain) cost                       |       |                                               | $          | 1,081 |   |   |   | $ | (2,645 | ) |   |   | $ | 3,002 |   |   |   | $ | (5,814 | ) |   |

 

**Employer Contributions**

The Company expects to contribute $22.7 million to itsdefined benefit pension plans in 2006, of which approximately $20.4 million ofcontributions have been made through October 1, 2006. The defined benefitpension plan contributions include payments made directly to participants inunfunded plans.

The Company expects to contribute $11.0 million to itsdefined contribution (profit-sharing and 401(k) matchingcontribution) plans in 2006, of which approximately $7.0 million ofcontributions have been made through October 1, 2006.

In December 2004, the Company announced that itwould 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. A curtailment gain of$2.1 million (net of $0.4 million related to Forging Operations) is included inselling, general and administrative expenses in the Company’s 

16

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

consolidated statement of operations. As a result ofthe discontinuation of the plan, expenses related to the retiree medical andlife insurance plans for the nine months ended October 2, 2005 were $5.0million lower than what they would have been had the plan not beendiscontinued. $0.8 million of this amount is reflected in selling, general andadministrative expenses and $4.2 million is reflected in cost of sales in theCompany’s consolidated statement of operations.

The Company expects to contribute $1.6 million to itspostretirement medical and life insurance benefit plans in 2006, of whichapproximately $1.2 million of contributions have been made through October 1,2006.

In accordance with theterms of sale of the Forging Operations (refer to Note 8, DiscontinuedOperations), Metaldyne retained the responsibility for benefits accrued underthe defined benefit pension plans as of the March 10, 2006 closing datefor Forging Operations participants. The Company is responsible for providingpostretirement medical and life insurance coverage through the qualifiedMetaldyne health and welfare plans, as amended from time to time, for eligibleparticipants who retired from Metaldyne prior to the closing date, althoughsuch obligations related to employees of the Forging Operations at the time ofthe sale were transferred to the Buyer. This transferred obligation forpostretirement medical and life insurance benefit obligations was approximately$2.7 million. Under the requirements of SFAS No. 88, *Employers’Accounting for Settlements and Curtailments of Defined Benefit Pension Plansand for Termination Benefits*, and SFAS No. 106, *Employers’ Accounting for Postretirement Benefits Other than Pensions*,the Company recognized a $3.4 million and $0.6 million curtailment loss,respectively, due to the divestiture of the Forging Operations.

**13.**          RelatedParties

In the third quarter of 2006, the Company exercisedTriMas warrants, resulting in an additional 0.8 million shares of TriMas stockoutstanding and issued to the Company. Including such additional shares, theCompany owns approximately 4.8 million, or 23.2%, of the total outstanding shares of TriMas.

The Company has recorded$5.7 million due from TriMas as of October 1, 2006, consisting ofreceivables related to certain amounts owed by TriMas, including TriMas’pension obligations of approximately $4.2 million and reimbursement due forvarious invoices paid on TriMas’ behalf of approximately $1.5 million. Of suchamount, $3.5 million is recorded in equity investments and receivables inaffiliates in the Company’s consolidated balance sheet as of October 1,2006.

**14.**          Commitmentsand Contingencies and FIN 47 Obligations

The Company is subject to claims and litigation in theordinary course of its business but does not believe that any such claim orlitigation will have a material adverse effect on its financial position orresults of operations. The ultimate resolution of any such exposure to theCompany may differ due to subsequent developments. It is the Company’s policyto record charges to earnings when estimates of the Company’s exposure forlawsuits and pending or asserted claims meet the criteria for recognition underSFAS No. 5, “Accounting for Contingencies.”

The Company had a disagreement with a customerregarding material prices from its former Forging Operations sold in March 2006.Although the Company sold the business, it retained the existing receivables ofthat business as of the sale date. Approximately $1.0 million of accountsreceivables 

17

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

related to this issue was recorded on the Company’sconsolidated balance sheet as of January 1, 2006. In September 2006,the Company settled the dispute and recovered $0.8 million from this customer.The remaining accounts receivable was written off and no amounts related tothis issue are recorded on the Company’s balance sheet as of October 1,2006.

Under Financial AccountingStandards Board (“FASB’’) Interpretation (“FIN”) No. 47, *Accounting for Conditional Asset Retirement Obligations*,obligations associated with the retirement of long-lived assets are recordedwhen there is a legal obligation to incur such costs and the fair value of the liabilitycan be reasonably estimated. This amount is accounted for as an additionalelement of cost, and, like other cost elements, is depreciated over thecorresponding asset’s useful life. The Company’s accrual for asset retirementobligations totaled $4.2 million as of October 1, 2006. This amountis included in “accrued liabilities” on the consolidated balance sheet.

**15.**          RecentlyIssued Accounting Pronouncements Not Yet Adopted

In June 2006, the FASB issued FIN No. 48, *Accounting for Uncertainty in Income Taxes,* which clarifiesthe accounting for uncertainty in income taxes recognized in financialstatements in accordance with FASB Statement No. 109, *Accountingfor Income Taxes*. FIN 48 prescribes a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return and alsoprovides guidance on derecognition, classification, interest and penalties,accounting in interim periods, disclosure and transition. FIN 48 is effectivefor fiscal years beginning after December 15, 2006. The Company isassessing FIN 48 and has not yet determined the impact that the adoption ofthis Interpretation will have on its results of operations or financialposition.

In September 2006, the FASB issued SFAS No. 157,*Fair Value Measurements*, which definesfair value, establishes a framework for measuring fair value in generallyaccepted accounting principles (“GAAP”) and expands disclosures about fairvalue measurements. This Statement applies under other accountingpronouncements that require or permit fair value measurements, the FASB havingpreviously concluded in those accounting pronouncements that fair value is therelevant measurement attribute. This Statement does not require any new fairvalue measurements. However, for some entities, the application of thisStatement will change current practice related to the definition of fair value,the methods used to measure fair value and the expanded disclosures about fairvalue measurements. SFAS No. 157 is effective for financial statementsissued for fiscal years beginning after November 15, 2007, and interimperiods within those fiscal years. The Company is assessing SFAS No. 157and has not yet determined the impact that the adoption of this Statement willhave on its results of operations or financial position.

In September 2006,the FASB also issued SFAS No. 158, *Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans—an amendment of FASBStatements No. 87, 88, 106, and 132(R)*. SFAS No. 158requires an employer to recognize the overfunded or underfunded status of adefined benefit postretirement plan (other than a multiemployer plan) as anasset or liability in its statement of financial position and to recognizechanges in that funded status in the year in which the changes occur throughcomprehensive income. This Statement also requires an employer to measure thefunded status of a plan as of the date of its year-end statement of financialposition, with limited exceptions. Because the Company does not have publiclytraded equity securities, it is required to initially recognize the fundedstatus of its defined benefit postretirement plans and to provide the requireddisclosures as of the end of the fiscal year ending after June 15, 2007.The requirement to 

18

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

measure plan assets andbenefit obligations as of the date of the Company’s fiscal year-end statementof financial position is effective for fiscal years ending after December 15,2008. However, the Company is required to disclose the following information inthe notes to the financial statements for its fiscal year ending December 31,2006: (a) a brief description of the provisions of this Statement; (b) thedate that adoption is required; and (c) the date the Company plans toadopt the recognition provisions of this Statement, if earlier. The Company isassessing SFAS No. 158 and expects that the adoption of this Statementwill result in a reduction in comprehensive income. It is currently evaluatingthe amount by which shareholders’ equity may be reduced and other impacts, ifany, that SFAS No. 158 will have on the Company’s results of operations orfinancial position.

**16.**          PlannedMerger and Subsequent Events

On August 31, 2006 the Company signed anAgreement and Plan of Merger (the “Merger Agreement”), by and among theCompany, Asahi Tec Corporation, a Japanese corporation (“Asahi Tec”) and awholly-owned subsidiary of Asahi Tec (“Acquisition Sub”). Pursuant to theMerger Agreement, Acquisition Sub will merge with and into the Company and theCompany, which will continue as the surviving corporation, will become awholly-owned subsidiary of Asahi Tec (the “Merger”). At the effective time ofthe Merger, each share of common stock of the Company owned by the Company’slargest common stockholders (the “principal company stockholders”) will beconverted into the right to receive US$2.1833 in cash, without interest. Eachremaining share of common stock of the Company (other than shares owned by theCompany, Asahi Tec and Acquisition Sub and dissenting shares) will be convertedinto the right to receive US$2.40 in cash, without interest. The holders ofthese shares will receive a higher price per share if the Asahi Tec commonstock price over a 30 trading day period prior to closing is higher than theAsahi Tec common stock price for the similar period prior to the signing of theMerger Agreement. The principal company stockholders have been required, andhave agreed, to reinvest the cash they receive in the Merger in common stock ofAsahi Tec to be issued in a private placement. The shares will be issued at adiscount to the average closing price of Asahi Tec common stock over a 30trading day period prior to the signing of the Merger Agreement. In addition,holders of the Company’s preferred stock will receive cash for their shares onthe basis set forth in the Merger Agreement. The holders of the Company’s SeriesA and Series A-1 preferred stock have been required, and have agreed, toreinvest the cash they receive in the Merger in Asahi Tec convertible preferredstock to be issued in a private placement. The holder of the Company’s Series Bpreferred stock has been required, and has agreed, to reinvest the cash itreceives in the Merger in Asahi Tec’s common stock to be issued in a privateplacement at the same discount discussed above.

The Merger is subject tothe satisfaction or waiver of numerous conditions, including U.S. and Japaneseregulatory approvals, the absence of any material adverse change in theCompany, the closing of the private placements of Asahi Tec securities tocertain current stockholders of the Company, the receipt of financing for theMerger and related transactions, including to refinance Metaldyne’s senior bankdebt and accounts receivables facilities, the receipt of certain consents andwaivers from the Company’s bondholders and the completion of a tender offer fora minimum of $225 million aggregate principal amount of the Company’s 11%senior subordinated notes due 2012 and 10% senior subordinated notes due 2014.In addition, Asahi Tec may elect not to close if the Company’s corporate creditratings from Moody’s Investors Service, Inc. and Standard &Poor’s Ratings Group are lowered below specified levels and the interest costfor the Company’s senior term 

19

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

debt exceeds certainlevels. The debt financing commitments obtained by Asahi Tec and privateplacement agreements with current Metaldyne stockholders are subject to theirown closing conditions.

Subsequent to the quarter ended October 1, 2006,ongoing negotiations have been proceeding with respect to the MergerAgreement.  The Company believes that theAugust 31, 2006 transaction documentation contained in the Merger Agreement arenot terms upon which the Merger and related transactions can successfullyproceed.  The revised basis on which theCompany and Asahi Tec are proceeding requires actions and agreements which willrequire modified terms.  The anticipatedrevised terms will require that, among other things, (1) the Company and AsahiTec renegotiate the terms of the Merger Agreement with each other to reflectthe revised consent solicitations and to reflect the financial consequences ofthe new approach, (2) Asahi Tec renegotiate the terms of other transactiondocumentation with certain Company common and preferred stockholders to reflectthe foregoing as well, (3) Asahi Tec renegotiate revised commitments forfinancing the Merger and related transactions and for providing the Companywith adequate working capital (including a revised debt commitment letter forthe new Company senior secured credit facilities (the “New Facilities”)), andobtain the consent of Asahi Tec’s Japanese lenders and of the Tokyo StockExchange, (4) the Company and Asahi Tec obtain the requisite approvals of theirrespective Boards of Directors and (5) the consent or approval of the Companycommon stockholders be resolicited as required under applicable law.  No agreements with respect to the foregoinghave been reached, although discussions concerning certain of these matters areongoing.  The Company expects Asahi Tecand it will negotiate in good faith with each other and third parties tocomplete these actions on mutually acceptable terms.

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

The followingcondensed consolidating financial information presents:

(1)         Condensed consolidatingfinancial statements as of October 1, 2006 and January 1, 2006, andfor the three and nine months ended October 1, 2006 and October 2,2005 of (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 primarilyheld at Metaldyne Company LLC, a wholly owned subsidiary of MetaldyneCorporation and the guarantor subsidiaries. Equity in non-domestic subsidiaryinvestees is included in the guarantor column of the accompanying consolidatingfinancial information.

20

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

**Guarantor/Non-GuarantorCondensed Consolidating Balance SheetOctober 1, 2006(Unaudited)**
|                                                       | ** ** | **(In thousands)** | ** ** |
|-------------------------------------------------------|------------|-------------------------|------------|
| ** **                                            | ** ** | **Parent**              | ** ** | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| **Assets**                                            | ** ** | ** **              | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Current assets:                                       |       |                    |       |   |   |   |   | ** ** |   |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                            |       | $                       | —     |   | $ | — |   |   | $ | 5,350 | ** ** |   |   | $ | — |   |   |   | $ | 5,350 |   |   |
| Total receivables, net                                |       | —                  |       | 13,890 |   |   | 156,225 | ** ** |   |   | — |   |   |   | 170,115 |   |   |
| Inventories                                           |       | —                  |       | 55,202 |   |   | 35,999 | ** ** |   |   | — |   |   |   | 91,201 |   |   |
| Deferred and refundable  income taxes                 |       | —                  |       | 9,378 |   |   | 1,628 | ** ** |   |   | — |   |   |   | 11,006 |   |   |
| Prepaid expenses and  other assets                    |       | —                  |       | 24,095 |   |   | 8,134 | ** ** |   |   | — |   |   |   | 32,229 |   |   |
| Total current assets                                  |       | —                  |       | 102,565 |   |   | 207,336 | ** ** |   |   | — |   |   |   | 309,901 |   |   |
| Equity investments and  receivables in affiliates     |       | 90,837                  |       | — |   |   | — | ** ** |   |   | — |   |   |   | 90,837 |   |   |
| Property and equipment,  net                          |       | —                  |       | 388,243 |   |   | 263,700 | ** ** |   |   | — |   |   |   | 651,943 |   |   |
| Excess of cost over net  assets of acquired companies |       | —                  |       | 427,276 |   |   | 161,982 | ** ** |   |   | — |   |   |   | 589,258 |   |   |
| Investment in  subsidiaries                           |       | 254,380                 |       | 193,424 |   |   | — | ** ** |   |   | (447,804 | ) |   |   | — |   |   |
| Intangible and other  assets                          |       | —                  |       | 124,598 |   |   | 18,667 | ** ** |   |   | — |   |   |   | 143,265 |   |   |
| Total assets                                          |       | $                       | 345,217    |   | $ | 1,236,106 |   |   | $ | 651,685 | ** ** |   |   | $ | (447,804 | ) |   |   | $ | 1,785,204 |   |   |
| **Liabilities and Shareholders’ Equity**         | ** ** | ** **              | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Current liabilities:                                  |       |                    |       |   |   |   |   | ** ** |   |   |   |   |   |   |   |   |   |
| Accounts payable                                      |       | $                       | —     |   | $ | 128,218 |   |   | $ | 95,781 | ** ** |   |   | $ | — |   |   |   | $ | 223,999 |   |   |
| Accrued liabilities                                   |       | —                  |       | 108,662 |   |   | 23,430 | ** ** |   |   | — |   |   |   | 132,092 |   |   |
| Current maturities,  long-term debt                   |       | —                  |       | 2,555 |   |   | 3,081 | ** ** |   |   | — |   |   |   | 5,636 |   |   |
| Total current  liabilities                            |       | —                  |       | 239,435 |   |   | 122,292 | ** ** |   |   | — |   |   |   | 361,727 |   |   |
| Long-term debt                                        |       | 427,712                 |       | 493,821 |   |   | 4 | ** ** |   |   | — |   |   |   | 921,537 |   |   |
| Deferred income taxes                                 |       | —                  |       | 14,551 |   |   | 27,851 | ** ** |   |   | — |   |   |   | 42,402 |   |   |
| Minority interest                                     |       | —                  |       | — |   |   | 728 | ** ** |   |   | — |   |   |   | 728 |   |   |
| Other long-term  liabilities                          |       | —                  |       | 100,388 |   |   | 13,205 | ** ** |   |   | — |   |   |   | 113,593 |   |   |
| Redeemable preferred  stock                           |       | 194,811                 |       | — |   |   | — | ** ** |   |   | — |   |   |   | 194,811 |   |   |
| Intercompany accounts,  net                           |       | (427,712                | )          | 133,531 |   |   | 294,181 | ** ** |   |   | — |   |   |   | — |   |   |
| Total liabilities                                     |       | 194,811                 |       | 981,726 |   |   | 458,261 | ** ** |   |   | — |   |   |   | 1,634,798 |   |   |
| Shareholders’ equity:                            |       |                    |       |   |   |   |   | ** ** |   |   |   |   |   |   |   |   |   |
| Preferred stock                                       |       | —                  |       | — |   |   | — | ** ** |   |   | — |   |   |   | — |   |   |
| Common stock                                          |       | 42,845                  |       | — |   |   | — | ** ** |   |   | — |   |   |   | 42,845 |   |   |
| Paid-in capital                                       |       | 699,018                 |       | — |   |   | — | ** ** |   |   | — |   |   |   | 699,018 |   |   |
| Accumulated deficit                                   |       | (622,798                | )          | — |   |   | — | ** ** |   |   | — |   |   |   | (622,798 | ) |   |
| Accumulated other  comprehensive income               |       | 31,341                  |       | — |   |   | — | ** ** |   |   | — |   |   |   | 31,341 |   |   |
| Investment by  Parent/Guarantor                       |       | —                  |       | 254,380 |   |   | 193,424 | ** ** |   |   | (447,804 | ) |   |   | — |   |   |
| Total shareholders’  equity                      |       | 150,406                 |       | 254,380 |   |   | 193,424 | ** ** |   |   | (447,804 | ) |   |   | 150,406 |   |   |
| Total liabilities and shareholders’   equity     |       | $                       | 345,217    |   | $ | 1,236,106 |   |   | $ | 651,685 | ** ** |   |   | $ | (447,804 | ) |   |   | $ | 1,785,204 |   |   |

 

21

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

**Guarantor/Non-GuarantorCondensed Consolidating Balance SheetJanuary 1, 2006(Unaudited)**
|                                                                   | ** ** | **(In thousands)** | ** ** |
|-------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                        | ** ** | **Parent**              | ** ** | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| **Assets**                                                        | ** ** | ** **              | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Current assets:                                                   |       |                    |       |   |   |   |   | ** ** |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                                         |       | $                       | —     |   | $ | — |   |   | $ | 3,687 | ** ** |   |   | $ | — |   |   |   | $ | 3,687 |   |   |
| Total receivables, net                                            |       | —                  |       | 4,275 |   |   | 135,604 | ** ** |   |   | — |   |   |   | 139,879 |   |   |
| Inventories                                                       |       | —                  |       | 48,824 |   |   | 35,441 | ** ** |   |   | — |   |   |   | 84,265 |   |   |
| Deferred and refundable income taxes                              |       | —                  |       | 9,406 |   |   | 1,604 | ** ** |   |   | — |   |   |   | 11,010 |   |   |
| Prepaid expenses and other assets                                 |       | —                  |       | 20,244 |   |   | 9,424 | ** ** |   |   | — |   |   |   | 29,668 |   |   |
| Assets of discontinued operations                                 |       | —                  |       | 116,612 |   |   | — | ** ** |   |   | — |   |   |   | 116,612 |   |   |
| Total current assets                                              |       | —                  |       | 199,361 |   |   | 185,760 | ** ** |   |   | — |   |   |   | 385,121 |   |   |
| Equity investments  and receivables in affiliates                 |       | 90,928                  |       | — |   |   | — | ** ** |   |   | — |   |   |   | 90,928 |   |   |
| Property and  equipment, net                                      |       | —                  |       | 371,596 |   |   | 258,832 | ** ** |   |   | — |   |   |   | 630,428 |   |   |
| Excess of cost  over net assets of acquired companies   |       | —                  |       | 435,302 |   |   | 148,688 | ** ** |   |   | — |   |   |   | 583,990 |   |   |
| Investment in  subsidiaries                                       |       | 300,323                 |       | 217,642 |   |   | — | ** ** |   |   | (517,965 | ) |   |   | — |   |   |
| Intangible and  other assets                                      |       | —                  |       | 137,613 |   |   | 18,855 | ** ** |   |   | — |   |   |   | 156,468 |   |   |
| Total assets                                                      |       | $                       | 391,251    |   | $ | 1,361,514 |   |   | $ | 612,135 | ** ** |   |   | $ | (517,965 | ) |   |   | $ | 1,846,935 |   |   |
| **Liabilities  and Shareholders’ Equity**                    | ** ** | ** **              | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Current liabilities:                                              |       |                    |       |   |   |   |   | ** ** |   |   |   |   |   |   |   |   |   |
| Accounts payable                                                  |       | $                       | —     |   | $ | 201,747 |   |   | $ | 59,351 | ** ** |   |   | $ | — |   |   |   | $ | 261,098 |   |   |
| Accrued liabilities                                               |       | —                  |       | 96,012 |   |   | 27,858 | ** ** |   |   | — |   |   |   | 123,870 |   |   |
| Current liabilities of discontinued   operations                  |       | —                  |       | 37,400 |   |   | — | ** ** |   |   | — |   |   |   | 37,400 |   |   |
| Current maturities, long-term debt                                |       | —                  |       | 2,627 |   |   | 4,013 | ** ** |   |   | — |   |   |   | 6,640 |   |   |
| Total current liabilities                                         |       | —                  |       | 337,786 |   |   | 91,222 | ** ** |   |   | — |   |   |   | 429,008 |   |   |
| Long-term debt                                                    |       | 427,469                 |       | 423,010 |   |   | 260 | ** ** |   |   | — |   |   |   | 850,739 |   |   |
| Deferred income  taxes                                            |       | —                  |       | 14,967 |   |   | 27,435 | ** ** |   |   | — |   |   |   | 42,402 |   |   |
| Minority interest                                                 |       | —                  |       | — |   |   | 740 | ** ** |   |   | — |   |   |   | 740 |   |   |
| Other long-term  liabilities                                      |       | —                  |       | 86,980 |   |   | 12,611 | ** ** |   |   | — |   |   |   | 99,591 |   |   |
| Long-term  liabilities of discontinued   operations               |       | —                  |       | 33,204 |   |   | — | ** ** |   |   | — |   |   |   | 33,204 |   |   |
| Redeemable  preferred stock                                       |       | 171,928                 |       | — |   |   | — | ** ** |   |   | — |   |   |   | 171,928 |   |   |
| Intercompany  accounts, net                                       |       | (427,469                | )          | 165,244 |   |   | 262,225 | ** ** |   |   | — |   |   |   | — |   |   |
| Total liabilities                                                 |       | 171,928                 |       | 1,061,191 |   |   | 394,493 | ** ** |   |   | — |   |   |   | 1,627,612 |   |   |
| Shareholders’  equity:                                       |       |                    |       |   |   |   |   | ** ** |   |   |   |   |   |   |   |   |   |
| Preferred stock                                                   |       | —                  |       | — |   |   | — | ** ** |   |   | — |   |   |   | — |   |   |
| Common stock                                                      |       | 42,845                  |       | — |   |   | — | ** ** |   |   | — |   |   |   | 42,845 |   |   |
| Paid-in capital                                                   |       | 698,868                 |       | — |   |   | — | ** ** |   |   | — |   |   |   | 698,868 |   |   |
| Accumulated deficit                                               |       | (524,648                | )          | — |   |   | — | ** ** |   |   | — |   |   |   | (524,648 | ) |   |
| Accumulated other comprehensive income                            |       | 2,258                   |       | — |   |   | — | ** ** |   |   | — |   |   |   | 2,258 |   |   |
| Investment by Parent/Guarantor                                    |       | —                  |       | 300,323 |   |   | 217,642 | ** ** |   |   | (517,965 | ) |   |   | — |   |   |
| Total shareholders’ equity                                   |       | 219,323                 |       | 300,323 |   |   | 217,642 | ** ** |   |   | (517,965 | ) |   |   | 219,323 |   |   |
| Total liabilities and  shareholders’ equity                  |       | $                       | 391,251    |   | $ | 1,361,514 |   |   | $ | 612,135 | ** ** |   |   | $ | (517,965 | ) |   |   | $ | 1,846,935 |   |   |

 

22

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

**Guarantor/Non-GuarantorCondensed Consolidating Statement of OperationsThree Months Ended October 1, 2006(Unaudited)**
|                                                               | ** ** | **(In thousands)** | ** ** |
|---------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                    | ** ** | **Parent**              | ** ** | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net sales                                                     |       | $                       | —     |   | $ | 272,432 |   |   | $ | 139,375 |   |   |   | $ | — |   |   |   | $ | 411,807 |   |   |
| Cost of sales                                                 |       | —                  |       | (268,982 | ) |   | (120,171 | ) |   |   | — |   |   |   | (389,153 | ) |   |
| Gross profit                                                  |       | —                  |       | 3,450 |   |   | 19,204 |   |   |   | — |   |   |   | 22,654 |   |   |
| Selling, general  and administrative   expenses               |       | —                  |       | (19,427 | ) |   | (5,769 | ) |   |   | — |   |   |   | (25,196 | ) |   |
| Restructuring  charges                                        |       | —                  |       | (257 | ) |   | (111 | ) |   |   | — |   |   |   | (368 | ) |   |
| Operating profit  (loss)                                      |       | —                  |       | (16,234 | ) |   | 13,324 |   |   |   | — |   |   |   | (2,910 | ) |   |
| Other expense, net:                                           |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                              |       | —                  |       | (24,706 | ) |   | (1,971 | ) |   |   | — |   |   |   | (26,677 | ) |   |
| Preferred stock dividends and accretion                       |       | (7,286                  | )          | — |   |   | — |   |   |   | — |   |   |   | (7,286 | ) |   |
| Equity loss from affiliates                                   |       | (2,344                  | )          | — |   |   | — |   |   |   | — |   |   |   | (2,344 | ) |   |
| Other, net                                                    |       | —                  |       | (2,365 | ) |   | (176 | ) |   |   | — |   |   |   | (2,541 | ) |   |
| Other expense, net                                            |       | (9,630                  | )          | (27,071 | ) |   | (2,147 | ) |   |   | — |   |   |   | (38,848 | ) |   |
| Income (loss)  from continuing operations before income taxes |       | (9,630                  | )          | (43,305 | ) |   | 11,177 |   |   |   | — |   |   |   | (41,758 | ) |   |
| Income tax  expense (benefit)                                 |       | —                  |       | (1,810 | ) |   | 4,459 |   |   |   | — |   |   |   | 2,649 |   |   |
| Income (loss)  from continuing operations                     |       | (9,630                  | )          | (41,495 | ) |   | 6,718 |   |   |   | — |   |   |   | (44,407 | ) |   |
| Loss from  discontinued operations, net of tax                |       | —                  |       | (201 | ) |   | — |   |   |   | — |   |   |   | (201 | ) |   |
| Loss on  discontinued operations, net of   tax                |       | —                  |       | (1,686 | ) |   | — |   |   |   | — |   |   |   | (1,686 | ) |   |
| Equity in net  income of subsidiaries                         |       | (36,664                 | )          | 6,718 |   |   | — |   |   |   | 29,946 |   |   |   | — |   |   |
| Earnings (loss)  attributable to common stock                 |       | $                       | (46,294    | ) | $ | (36,664 | ) |   | $ | 6,718 |   |   |   | $ | 29,946 |   |   |   | $ | (46,294 | ) |   |

 

23

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

**Guarantor/Non-GuarantorCondensed Consolidating Statement of OperationsThree Months Ended October 2, 2005(Unaudited)**
|                                                               | ** ** | **(In thousands)** | ** ** |
|---------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                    | ** ** | **Parent**              | ** ** | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net sales                                                     |       | $                       | —     |   | $ | 324,789 |   |   | $ | 118,048 |   |   |   | $ | — |   |   |   | $ | 442,837 |   |   |
| Cost of sales                                                 |       | —                  |       | (305,662 | ) |   | (96,882 | ) |   |   | — |   |   |   | (402,544 | ) |   |
| Gross profit                                                  |       | —                  |       | 19,127 |   |   | 21,166 |   |   |   | — |   |   |   | 40,293 |   |   |
| Selling, general  and administrative   expenses               |       | —                  |       | (23,148 | ) |   | (7,146 | ) |   |   | — |   |   |   | (30,294 | ) |   |
| Restructuring  charges                                        |       | —                  |       | (113 | ) |   | (28 | ) |   |   | — |   |   |   | (141 | ) |   |
| Operating profit  (loss)                                      |       | —                  |       | (4,134 | ) |   | 13,992 |   |   |   | — |   |   |   | 9,858 |   |   |
| Other expense, net:                                           |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                              |       | —                  |       | (22,096 | ) |   | (373 | ) |   |   | — |   |   |   | (22,469 | ) |   |
| Preferred stock dividends and accretion                       |       | (5,765                  | )          | — |   |   | — |   |   |   | — |   |   |   | (5,765 | ) |   |
| Equity income from affiliates                                 |       | 60                      |       | — |   |   | — |   |   |   | — |   |   |   | 60 |   |   |
| Other, net                                                    |       | —                  |       | (2,055 | ) |   | (730 | ) |   |   | — |   |   |   | (2,785 | ) |   |
| Other expense, net                                            |       | (5,705                  | )          | (24,151 | ) |   | (1,103 | ) |   |   | — |   |   |   | (30,959 | ) |   |
| Income (loss)  from continuing operations before income taxes |       | (5,705                  | )          | (28,285 | ) |   | 12,889 |   |   |   | — |   |   |   | (21,101 | ) |   |
| Income tax  benefit                                           |       | —                  |       | (8,335 | ) |   | (209 | ) |   |   | — |   |   |   | (8,544 | ) |   |
| Income (loss)  from continuing operations                     |       | (5,705                  | )          | (19,950 | ) |   | 13,098 |   |   |   | — |   |   |   | (12,557 | ) |   |
| Loss from  discontinued operations, net of tax                |       | —                  |       | (2,350 | ) |   | — |   |   |   | — |   |   |   | (2,350 | ) |   |
| Loss on  discontinued operations, net of   tax                |       | —                  |       | (323 | ) |   | — |   |   |   | — |   |   |   | (323 | ) |   |
| Equity in net  income of subsidiaries                         |       | (9,525                  | )          | 13,098 |   |   | — |   |   |   | (3,573 | ) |   |   | — |   |   |
| Earnings (loss)  attributable to common stock                 |       | $                       | (15,230    | ) | $ | (9,525 | ) |   | $ | 13,098 |   |   |   | $ | (3,573 | ) |   |   | $ | (15,230 | ) |   |

 

24

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

**Guarantor/Non-GuarantorCondensed Consolidating Statement of OperationsNine Months Ended October 1, 2006(Unaudited)**

| ** **                                                    | ** ** | **(In thousands)** | ** ** |
|---------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                    | ** ** | **Parent**              | ** ** | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net sales                                                     |       | $                       | —     |   | $ | 981,239 |   |   | $ | 440,440 |   |   |   | $ | — |   |   | $ | 1,421,679 |   |
| Cost of sales                                                 |       | —                  |       | (934,810 | ) |   | (368,168 | ) |   |   | — |   |   | (1,302,978 | ) |
| Gross profit                                                  |       | —                  |       | 46,429 |   |   | 72,272 |   |   |   | — |   |   | 118,701 |   |
| Selling, general  and administrative expenses                 |       | —                  |       | (65,436 | ) |   | (17,613 | ) |   |   | — |   |   | (83,049 | ) |
| Restructuring  charges                                        |       | —                  |       | (355 | ) |   | (415 | ) |   |   | — |   |   | (770 | ) |
| Operating profit  (loss)                                      |       | —                  |       | (19,362 | ) |   | 54,244 |   |   |   | — |   |   | 34,882 |   |
| Other expense, net:                                           |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                              |       | —                  |       | (71,161 | ) |   | (3,627 | ) |   |   | — |   |   | (74,788 | ) |
| Preferred stock dividends and accretion                       |       | (22,883                 | )          | — |   |   | — |   |   |   | — |   |   | (22,883 | ) |
| Equity loss from affiliates                                   |       | (695                    | )          | — |   |   | — |   |   |   | — |   |   | (695 | ) |
| Other, net                                                    |       | —                  |       | (6,180 | ) |   | (6,181 | ) |   |   | — |   |   | (12,361 | ) |
| Other expense, net                                            |       | (23,578                 | )          | (77,341 | ) |   | (9,808 | ) |   |   | — |   |   | (110,727 | ) |
| Income (loss)  from continuing operations before income taxes |       | (23,578                 | )          | (96,703 | ) |   | 44,436 |   |   |   | — |   |   | (75,845 | ) |
| Income tax  expense (benefit)                                 |       | —                  |       | (1,252 | ) |   | 14,371 |   |   |   | — |   |   | 13,119 |   |
| Income (loss)  from continuing operations                     |       | (23,578                 | )          | (95,451 | ) |   | 30,065 |   |   |   | — |   |   | (88,964 | ) |
| Loss from  discontinued operations, net of tax                |       | —                  |       | (638 | ) |   | — |   |   |   | — |   |   | (638 | ) |
| Loss on  discontinued operations, net of tax                  |       | —                  |       | (8,548 | ) |   | — |   |   |   | — |   |   | (8,548 | ) |
| Equity in net  income of subsidiaries                         |       | (74,572                 | )          | 30,065 |   |   | — |   |   |   | 44,507 |   |   | — |   |
| Earnings (loss)  attributable to common stock                 |       | $                       | (98,150    | ) | $ | (74,572 | ) |   | $ | 30,065 |   |   |   | $ | 44,507 |   |   | $ | (98,150 | ) |

 

25

----

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

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

| ** **                                                    | ** ** | **(In thousands)** | ** ** |
|---------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                    | ** ** | **Parent**              | ** ** | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net sales                                                     |       | $                       | —     |   | $ | 1,057,925 |   |   | $ | 380,889 |   |   |   | $ | — |   |   | $ | 1,438,814 |   |
| Cost of sales                                                 |       | —                  |       | (977,056 | ) |   | (308,847 | ) |   |   | — |   |   | (1,285,903 | ) |
| Gross profit                                                  |       | —                  |       | 80,869 |   |   | 72,042 |   |   |   | — |   |   | 152,911 |   |
| Selling, general  and administrative expenses                 |       | —                  |       | (66,038 | ) |   | (20,110 | ) |   |   | — |   |   | (86,148 | ) |
| Restructuring  charges                                        |       | —                  |       | (1,502 | ) |   | (258 | ) |   |   | — |   |   | (1,760 | ) |
| Operating profit                                              |       | —                  |       | 13,329 |   |   | 51,674 |   |   |   | — |   |   | 65,003 |   |
| Other expense, net:                                           |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                              |       | —                  |       | (65,208 | ) |   | (1,541 | ) |   |   | — |   |   | (66,749 | ) |
| Preferred stock dividends and accretion                       |       | (16,798                 | )          | — |   |   | — |   |   |   | — |   |   | (16,798 | ) |
| Equity income from affiliates                                 |       | 1,641                   |       | — |   |   | — |   |   |   | — |   |   | 1,641 |   |
| Other, net                                                    |       | —                  |       | (7,661 | ) |   | 1,280 |   |   |   | — |   |   | (6,381 | ) |
| Other expense, net                                            |       | (15,157                 | )          | (72,869 | ) |   | (261 | ) |   |   | — |   |   | (88,287 | ) |
| Income (loss)  from continuing operations before income taxes |       | (15,157                 | )          | (59,540 | ) |   | 51,413 |   |   |   | — |   |   | (23,284 | ) |
| Income tax  expense (benefit)                                 |       | —                  |       | (20,915 | ) |   | 12,518 |   |   |   | — |   |   | (8,397 | ) |
| Income (loss)  from continuing operations                     |       | (15,157                 | )          | (38,625 | ) |   | 38,895 |   |   |   | — |   |   | (14,887 | ) |
| Loss from  discontinued operations, net of tax                |       | —                  |       | (3,460 | ) |   | — |   |   |   | — |   |   | (3,460 | ) |
| Loss on  discontinued operations, net of tax                  |       | —                  |       | (323 | ) |   | — |   |   |   | — |   |   | (323 | ) |
| Equity in net  income of subsidiaries                         |       | (3,513                  | )          | 38,895 |   |   | — |   |   |   | (35,382 | ) |   | — |   |
| Earnings (loss)  attributable to common stock                 |       | $                       | (18,670    | ) | $ | (3,513 | ) |   | $ | 38,895 |   |   |   | $ | (35,382 | ) |   | $ | (18,670 | ) |

 

26

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

**Guarantor/Non-GuarantorCondensed Consolidating Statement of Cash FlowsNine Months Ended October 1, 2006(Unaudited)**

| ** **                                             | ** ** | **(In thousands)** | ** ** |
|--------------------------------------------------------|------------|-------------------------|------------|
| ** **                                             | ** ** | **Parent**              | ** ** | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Cash flows from  operating activities:                 |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net cash provided by (used for) operating activities   |       | $                       | —     |   | $ | (100,672 | ) |   | $ | 71,862 |   |   |   | $ | — |   |   |   | $ | (28,810 | ) |   |
| Cash flows from  investing activities:                 |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital expenditures                                   |       | —                  |       | (43,043 | ) |   | (15,990 | ) |   |   | — |   |   |   | (59,033 | ) |   |
| Repurchase of leased assets                            |       | —                  |       | (40,047 | ) |   | — |   |   |   | — |   |   |   | (40,047 | ) |   |
| Proceeds from sale of discontinued operations          |       | —                  |       | 69,058 |   |   | — |   |   |   | — |   |   |   | 69,058 |   |   |
| Proceeds from sale of fixed assets                     |       | —                  |       | 922 |   |   | — |   |   |   | — |   |   |   | 922 |   |   |
| Investing cash flows used for discontinued  operations |       | —                  |       | (2,513 | ) |   | — |   |   |   | — |   |   |   | (2,513 | ) |   |
| Net cash used for investing activities                 |       | —                  |       | (15,623 | ) |   | (15,990 | ) |   |   | — |   |   |   | (31,613 | ) |   |
| Cash flows from  financing activities:                 |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds of term loan facilities                       |       | —                  |       | 58,900 |   |   | — |   |   |   | — |   |   |   | 58,900 |   |   |
| Principal payments of term loan facilities             |       | —                  |       | (25,473 | ) |   | — |   |   |   | — |   |   |   | (25,473 | ) |   |
| Proceeds of revolving credit facility                  |       | —                  |       | 293,376 |   |   | — |   |   |   | — |   |   |   | 293,376 |   |   |
| Principal payments of revolving credit facility        |       | —                  |       | (245,639 | ) |   | — |   |   |   | — |   |   |   | (245,639 | ) |   |
| Proceeds of swingline credit facility (net)            |       | —                  |       | (9,605 | ) |   | — |   |   |   | — |   |   |   | (9,605 | ) |   |
| Proceeds of other debt                                 |       | —                  |       | — |   |   | 4,829 |   |   |   | — |   |   |   | 4,829 |   |   |
| Principal payments of other debt                       |       | —                  |       | (1,597 | ) |   | (6,059 | ) |   |   | — |   |   |   | (7,656 | ) |   |
| Capitalization of debt financing fees                  |       | —                  |       | (6,884 | ) |   | — |   |   |   | — |   |   |   | (6,884 | ) |   |
| Net cash provided by (used for) financing activities   |       | —                  |       | 63,078 |   |   | (1,230 | ) |   |   | — |   |   |   | 61,848 |   |   |
| Effect of exchange rates on cash                       |       | —                  |       | — |   |   | 238 |   |   |   | — |   |   |   | 238 |   |   |
| Change in intercompany accounts                        |       | —                  |       | 53,217 |   |   | (53,217 | ) |   |   | — |   |   |   | — |   |   |
| Net increase in  cash                                  |       | —                  |       | — |   |   | 1,663 |   |   |   | — |   |   |   | 1,663 |   |   |
| Cash and cash  equivalents, beginning of period        |       | —                  |       | — |   |   | 3,687 |   |   |   | — |   |   |   | 3,687 |   |   |
| Cash and cash  equivalents, end of period              |       | $                       | —     |   | $ | — |   |   | $ | 5,350 |   |   |   | $ | — |   |   |   | $ | 5,350 |   |   |

 

** **

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

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

| ** **                                                        | ** ** | **(In thousands)** | ** ** |
|-------------------------------------------------------------------|------------|--------------------|------------|
| ** **                                                        | ** ** | **Parent**         | ** ** | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Cash flows from  operating activities:                            |       |               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net cash provided by operating activities                         |       | $                  | —     |   | $ | 9,560 |   |   | $ | 72,750 |   |   |   | $ | — |   |   |   | $ | 82,310 |   |   |
| Cash flows from  investing activities:                            |       |               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital expenditures                                              |       | —             |       | (53,733 | ) |   | (22,551 | ) |   |   | — |   |   |   | (76,284 | ) |   |
| Proceeds from sale/leaseback of fixed assets                      |       | —             |       | 21,588 |   |   | — |   |   |   | — |   |   |   | 21,588 |   |   |
| Reimbursement from acquisition of business, net of  cash received |       | —             |       | 7,960 |   |   | — |   |   |   | — |   |   |   | 7,960 |   |   |
| Proceeds from sale of fixed assets                                |       | —             |       | 82 |   |   | — |   |   |   | — |   |   |   | 82 |   |   |
| Investing cash flows used for discontinued  operations            |       | —             |       | (8,749 | ) |   | — |   |   |   | — |   |   |   | (8,749 | ) |   |
| Net cash used for investing activities                            |       | —             |       | (32,852 | ) |   | (22,551 | ) |   |   | — |   |   |   | (55,403 | ) |   |
| Cash flows from  financing activities:                            |       |               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Principal payments of term loan facilities                        |       | —             |       | (442 | ) |   | — |   |   |   | — |   |   |   | (442 | ) |   |
| Proceeds of revolving credit facility                             |       | —             |       | 265,000 |   |   | — |   |   |   | — |   |   |   | 265,000 |   |   |
| Principal payments of revolving credit facility                   |       | —             |       | (278,542 | ) |   | — |   |   |   | — |   |   |   | (278,542 | ) |   |
| Proceeds of other debt                                            |       | —             |       | — |   |   | 4,844 |   |   |   | — |   |   |   | 4,844 |   |   |
| Principal payments of other debt                                  |       | —             |       | (2,086 | ) |   | (8,746 | ) |   |   | — |   |   |   | (10,832 | ) |   |
| Financing cash flows used for discontinued  operations            |       | —             |       | (135 | ) |   | — |   |   |   | — |   |   |   | (135 | ) |   |
| Net cash used for financing activities                            |       | —             |       | (16,205 | ) |   | (3,902 | ) |   |   | — |   |   |   | (20,107 | ) |   |
| Effect of exchange rates on cash                                  |       | —             |       | — |   |   | (500 | ) |   |   | — |   |   |   | (500 | ) |   |
| Change in intercompany accounts                                   |       | —             |       | 39,497 |   |   | (39,497 | ) |   |   | — |   |   |   | — |   |   |
| Net increase in  cash                                             |       | —             |       | — |   |   | 6,300 |   |   |   | — |   |   |   | 6,300 |   |   |
| Cash and cash  equivalents, beginning of period                   |       | —             |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Cash and cash  equivalents, end of period                         |       | $                  | —     |   | $ | — |   |   | $ | 6,300 |   |   |   | $ | — |   |   |   | $ | 6,300 |   |   |

 

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

**Caution ConcerningForward-Looking Statements and Certain Risks Related to Our Business and Our Company—Safe HarborStatements**

You should read the following discussion together withthe Company’s consolidated financial statements and the notes to thosefinancial statements, which are included in this report. This report includingwithout limitation this Item 2, Management’s Discussion and Analysis ofFinancial Condition and Results of Operation, contains forward-lookingstatements made pursuant to the safe harbor provisions of Section 27A ofthe Securities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended. These statements reflect management’sexpectations, estimates, and assumptions, and its views about the Company’sfuture performance, its financial condition, its markets and many other mattersthat are based on information available at the time of the statement. All statements,other than statements of historical fact, included in this Form 10-Qreport (“Quarterly Report”) regarding Metaldyne’s strategy, future operations,financial condition, expected results and costs, new business, estimatedrevenues and losses, prospects and plans are forward-looking statements. Whenused in this Quarterly Report, the words “will,” “believe,” “anticipate,” “intend,”“estimate,” “expect,” “plan,” “project” and similar expressions are intended toidentify forward-looking statements, although not all forward-lookingstatements contain such identifying words. We caution readers not to placeundue reliance on these forward-looking statements, which speak only as of thedate hereof. Forward-looking statements are not guarantees of future performanceand involve numerous assumptions, risks, uncertainties and other factors,including those set forth below, which may cause the Company’s actual results,performance or achievements to differ materially from those expressed orimplied by the forward-looking statements.

Important factorsthat could cause actual results, performance or achievements to vary materiallyfrom those expressed or implied by the forward-looking statements included inthis Quarterly Report include, but are not limited to, general economicconditions in the markets in which we operate and industry-based factors suchas:

·       Dependenceon automotive industry and industry cyclicality;

·       Ourhigh degree of customer concentration;

·       Customerand critical employee retention;

·       Ourability to manage any impact from declines in North American automobile andlight truck builds;

·       Failureto recover increased raw material or energy costs;

·       Increasesin costs due to our supply base;

·  The impact of changing technology;

·       Ourability to address strategic opportunities and challenges;

·       Dependenceon key personnel and relationships;

·       Laborstoppages affecting OEMs;

·       Whethercustomer outsourcing trends will be favorable;

·       Risksof product liability and warranty claims; and

·       Risksrelated to environmental matters.

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In addition,factors more specific to us could cause actual results to vary materially fromthose anticipated in the forward-looking statements included in this QuarterlyReport such as:

·       Risksrelated to our planned merger with a subsidiary of Asahi Tec Corporation (the“Merger”), including any potential delay in or failure to complete the Merger,whether due to a failure to complete the related financings, the note tenderoffer, the consent solicitations or otherwise;

·       Unexpecteddelays or conditions in the receipt of regulatory and other third partyconsents and approvals for the Merger (including from U.S., German and Frenchantitrust authorities);

·       Anyfailure to timely consummate, implement and execute the Merger plans;

·       Ourhigh degree of substantial leverage and risks attendant to our ability toservice debt;

·       Adequacyof our liquidity to finance our capital expenditures and other cashrequirements;

·       Substantialrestrictions and covenants imposed by our credit facility and debt instrumentssuch as substantial capital requirements limitations;

·       Risksrelated to international sales;

·       Controlby our principal stockholder, Heartland Industrial Partners, L.P. and itsaffiliated funds;

·       Ourindustries are highly competitive and competition may increase in response tothe announcement of the Merger;

·       Ourability to continually implement internal control improvements; and

·       Ourability to identify and integrate attractive acquisitions and achieve the intendedbenefits.

We undertake no obligation to publicly update orrevise any forward-looking statements to reflect changed assumptions, theoccurrence of anticipated or unanticipated events, or changes to future resultsover time. See the cautionary statements included under Item 1A “Risk Factors”in our 2005 Form 10-K for a more detailed discussion of certain ofthe factors that could cause our actual results to differ materially from thoseincluded in the forward-looking statements. These cautionary statements qualifyall forward-looking statements attributable to us or persons acting on ourbehalf. When we indicate that an event, condition or circumstance could orwould have an adverse effect on us, we mean to include effects upon ourbusiness, financial and other conditions, results of operations and ability tomake payments on our outstanding debt. On May 16, 2006, the UAW announcedthat its membership had authorized a strike should Delphi Corporationunilaterally impose changes to its labor agreements. As discussed in our “RiskFactors” in our 2005 Form 10-K, this could seriously impact theprofitability of our business.

There are few published independent sources for datarelated to market share for many of our products. To the extent information isnot obtained or derived from independent sources, we have expressed our beliefon such matters based on our own internal analyses and estimates of our and ourcompetitors’ products and capabilities. We note that many of the industries inwhich we compete are characterized by competition among a small number of largesuppliers. Industry publications and surveys and forecasts that we have usedgenerally state that the information contained therein has been obtained from sourcesbelieved to be reliable. We have not independently verified any of the datafrom third-party sources nor have we ascertained the underlying assumptions orbases for any such information. In general, when we say we are a “leader” or a “leading”manufacturer or make similar statements about ourselves, we are expressing ourbelief that we formulated principally from our estimates and experiences in,and knowledge of, the markets in which we compete. In some cases, we possessindependent data to support our position, but that data may not be sufficientin isolation for us to reach the conclusions that we have reached without ourknowledge of our markets and businesses.

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**Executive Summary**

We are a leading globalmanufacturer of highly engineered metal components for the global light vehiclemarket with 2005 sales of approximately $1.9 billion. We operate two segmentsfocused on the global light vehicle market. The Chassis and Powertrain segmentsmanufacture, design, engineer and assemble metal-formed and precision-engineeredcomponents and modular systems used in the powertrain and chassis of vehicles.We serve approximately 200 automotive and industrial customers and our top tencustomers represent approximately 70% of total 2005 sales. Prior to November 2000,we were a public company. Since we were acquired in November 2000 by aprivate investor group, we have actively pursued opportunities for internalgrowth and strategic acquisitions that were unavailable to us when the majorityof our shares were publicly traded. Since November 2000, we have completedfour acquisitions—Simpson in December 2000, GMTI effective January 2001,Dana Corporation’s Greensboro, NC operation in May 2003, andDaimlerChrysler’s New Castle, IN operation at the beginning of our fiscal 2004.Each of these acquisitions has added to the full service, integrated metalsupply capabilities of our automotive operations. Additionally, we split offour non-automotive operations, divesting our former TriMas subsidiary in June 2002,our Fittings operation in April 2003 and two aluminum die castingfacilities in February 2004. On March 10, 2006, we completed thedivestiture of our North American Forging Operations (“North American Forging”or “Forging Operations”).

**Key FactorsAffecting 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, business that we win willgenerally not start production for two years or beyond. In addition, ourresults are heavily dependent on global vehicle production, and in particularthe North American vehicle production of the Big 3 domestic manufacturers(DaimlerChrysler, Ford and General Motors). Our customers generally requestthat we offer annual efficiency related price decreases on products we sellthem. Critical factors to be successful in this market include global low costproduction facilities, leading service and parts quality, and differentiatedproduct and process technology. Accordingly, we focus on managing our globalmanufacturing footprint in line with our customer needs and local marketmanufacturing cost differences, improving operating efficiency and productionquality of our plants, fixing or eliminating unprofitable facilities andreducing our overall material costs. In addition, we spend considerable timeand resources developing new technology and products to enhance performance and/ordecrease cost of the products we sell to our customers. See “Results ofOperations” for more details as to the factors that affect year over yearperformance.

Our strategy is centeredon growth through new business awards and acquisitions. We have a significantnew project backlog and have completed several acquisitions that we believewill enable us to better serve our customer base and provide enhanced returnsfor our stakeholders. In order to finance a large portion of this activity, weincurred significant new debt. As such, we have substantial leverage and areconstrained by various covenant limitations (see “Liquidity and CapitalResources - Debt, Capitalization and Available Financing Sources” for moredetails surrounding these covenants). As we continue to invest in the resourcesto produce our new business backlog and thus grow our business, a significantportion of our operating cash flow will be used to buy new capital equipment,expand production capacity and invest in new technology in addition toservicing principal and interest payments on our debt obligations. Therefore,we are focused on our cash generation ability (we monitor this internallythrough “Adjusted EBITDA.” See the discussion below in “Key Indicators ofPerformance (Non GAAP Financial Measures)” for further explanation), andworking capital and fixed asset efficiency to assess our ability to favorablyfinance our new business backlog.

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**Key Indicators ofPerformance (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 income (loss) fromcontinuing operations and before interest, taxes, depreciation, amortization,asset impairment, loss on disposition of manufacturing equipment or facilitiesand non-cash losses on sale-leaseback of property and equipment. In evaluatingAdjusted EBITDA, our management deems it important to consider the quality ofour underlying earnings by separately identifying certain costs undertaken toimprove our results, such as costs related to consolidating facilities andbusinesses in an effort to eliminate duplicative costs or achieve efficiencies,costs related to integrating acquisitions and restructuring costs related toexpense reduction efforts. Although our consolidation, restructuring andintegration efforts are continuing, our management analyzes these costs toevaluate underlying business performance. Caution must be exercised inanalyzing these items as they include substantially (but not necessarilyentirely) cash costs and there can be no assurance that we will ultimatelyrealize the benefits of these efforts. Moreover, even if the anticipatedbenefits are realized, they may be offset by other business performance orgeneral economic issues.

By selectingAdjusted EBITDA, management believes that it is the best indicator (togetherwith a careful review of the aforementioned items) of our ability to serviceand/or incur indebtedness as we are a highly leveraged company. We use AdjustedEBITDA as a key performance measure because we believe it facilitates operatingperformance comparisons from period to period and company to company by backingout potential 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 performanceon a more consistent basis, we also use Adjusted EBITDA for business planningpurposes, to incent and compensate our management personnel, as a measure ofsegment performance, in measuring our performance relative to that of ourcompetitors and in evaluating acquisition opportunities. In addition, webelieve Adjusted EBITDA and similar measures are widely used by investors,securities analysts, rating agencies and other interested parties as a measureof financial performance and debt-service capabilities. Our use of AdjustedEBITDA has limitations as an analytical tool, and you should not consider it inisolation or as a substitute for analysis of our results as reported underGAAP. 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 

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operating profit margins (operating profit as apercentage of net sales) at a segment level, which are discussed in detail inour year-to-year comparison of operating results.

Thefollowing is a reconciliation of our Adjusted EBITDA to net loss for the threeand nine months ended October 1, 2006 and October 2, 2005:

| ** **                                                | ** ** | **(In thousands)**          | ** ** |
|-----------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
| ** **                                                | ** ** | **2006**                         | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net income (loss)                                         |       | $                                | (46,294    | ) | $ | (15,230 | ) | $ | (98,150 | ) | $ | (18,670 | ) |
| Income tax  expense (benefit)                             |       | 2,649                            |       | (8,544 | ) | 13,119 |   | (8,397 | ) |
| Loss from  discontinued operations, net of tax            |       | 201                              |       | 2,350 |   | 638 |   | 3,460 |   |
| Loss on  discontinued operations, net of tax              |       | 1,686                            |       | 323 |   | 8,548 |   | 323 |   |
| Interest expense                                          |       | 26,677                           |       | 22,469 |   | 74,788 |   | 66,749 |   |
| Depreciation and  amortization in operating profit        |       | 30,719                           |       | 27,935 |   | 96,474 |   | 80,481 |   |
| Preferred stock  dividends and accretion                  |       | 7,286                            |       | 5,765 |   | 22,883 |   | 16,798 |   |
| Equity income  (loss) from affiliates                     |       | 2,344                            |       | (60 | ) | 695 |   | (1,641 | ) |
| Certain items  within Other, Net(1)                       |       | 2,377                            |       | 3,174 |   | 10,587 |   | 8,212 |   |
| Total Company Adjusted  EBITDA from continuing operations |       | $                                | 27,645     |   | $ | 38,182 |   | $ | 129,582 |   | $ | 147,315 |   |

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(1)                **Reconciliation of Other, Net Included in the Consolidated Statement ofOperations:**

| ** **                                                                                         | ** ** | **(In thousands)**          | ** ** |
|----------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                         | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
| ** **                                                                                         | ** ** | **2006**                         | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Items excluded  from Adjusted EBITDA (amortization of financing fees and A/R securitization  fees) |       |                             | $          | 2,377 |   |   | $ | 3,174 |   | $ | 10,587 |   | $ | 8,212 |   |
| Items included in  Adjusted EBITDA (includes foreign currency, royalties and interest income)      |       |                             | 164        |   |   | (389 | ) | 1,774 |   | (1,831 | ) |
| Total other, net                                                                                   |       |                             | $          | 2,541 |   |   | $ | 2,785 |   | $ | 12,361 |   | $ | 6,381 |   |

 

Thefollowing is a reconciliation of our Adjusted EBITDA to operating cash flow forthe nine months ended October 1, 2006 and October 2, 2005:

| ** **                                                                    | ** ** | **(In thousands)** | ** ** |
|-------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                    | ** ** | **2006**                | ** ** | **2005** | ** ** |
| Operating cash  flow                                                          |       | $                       | (28,810    | ) | $ | 82,310 |   |
| Net (proceeds of)  reduction from accounts receivable securitization facility |       | 45,634                  |       | (63,390 | ) |
| Change in certain  short-term assets and liabilities                          |       | 14,564                  |       | 50,402 |   |
| Cash paid for  interest                                                       |       | 61,394                  |       | 54,813 |   |
| Cash paid  (refunded) for income taxes, net                                   |       | 21,035                  |       | 8,559 |   |
| Change in  long-term assets                                                   |       | 1,374                   |       | 1,624 |   |
| Change in  long-term liabilities                                              |       | 14,274                  |       | 13,285 |   |
| Certain other  items                                                          |       | 5,724                   |       | 5,063 |   |
| Loss on fixed  asset dispositions                                             |       | (8,290                  | )          | (1,460 | ) |
| Curtailment gain  (loss) on elimination of certain benefits                   |       | (165                    | )          | 7,123 |   |
| Issuance of stock  options                                                    |       | (150                    | )          | — |   |
| Operating cash  flows from discontinued operations                            |       | 2,998                   |       | (11,014 | ) |
| Total Company Adjusted  EBITDA from continuing operations                     |       | $                       | 129,582    |   | $ | 147,315 |   |

 

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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 for the three and nine months ended October 1, 2006 and October 2,2005:

| ** **                                                                                                      | ** ** | **(In thousands)**          | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                      | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
| ** **                                                                                                      | ** ** | **2006**                         | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Restructuring  charges                                                                                          |       | $                                | (368       | ) | $ | (141 | ) | $ | (770 | ) | $ | (1,760 | ) |
| Fixed asset  losses                                                                                             |       | (462                             | )          | (1,128 | ) | (8,290 | ) | (1,460 | ) |
| Foreign currency  gains (losses)                                                                                |       | (502                             | )          | 69 |   | (2,127 | ) | 420 |   |
| Pension  curtailment loss and postretirement medical curtailment gain and elimination  of certain plan benefits |       | —                           |       | 2,434 |   | (165 | ) | 7,091 |   |
| Transaction expenses  related to the planned merger                                                             |       | (1,645                           | )          | — |   | (3,311 | ) | — |   |
|                                                                                                                 |            |                                  |            |  |  |  |  |  |  |  |  |  |  |

 

**DiscontinuedOperations**

On March 10, 2006, wecompleted the divestiture of our Forging Operations, and in accordance withSFAS No. 144, *Accounting for theImpairment or Disposal of Long-Lived Assets*, the results ofoperations for North American Forging for the current and prior periods havebeen reported as discontinued operations. In addition, the assets andliabilities of North American Forging have been reclassified as assets andliabilities of discontinued operations in our consolidated balance sheet at January 1,2006.

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**Results ofOperations**

***Quarter Ended October 1, 2006 versusOctober 2, 2005***

Thebelow results represent activity from our continuing operations for the threemonths ended October 1, 2006 and October 2, 2005.

***Net Sales.***   Net sales by segment and in total for thethree months ended October 1, 2006 and October 2, 2005 were:

| ** **          | ** ** | **(In thousands)**          | ** ** |
|---------------------|------------|----------------------------------|------------|
| ** **          | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
| **Segment**         | ** ** | ** **                       | ** ** | **October 1, 2006** | ** ** | **October 2, 2005** | ** ** |
| Chassis Segment     |       |                             | $          | 203,919 |   |   |   | $ | 234,465 |   |   |
| Powertrain  Segment |       |                             | 207,888    |   |   |   | 208,372 |   |   |
| Total Company       |       |                             | $          | 411,807 |   |   |   | $ | 442,837 |   |   |
|                     |            |                                  |            |  |  |  |  |  |  |  |  |  |  |

 

Our third quarter 2006 net sales were $411.8 millionversus third quarter 2005 net sales of $442.8 million. The primary driver ofthe $31.0 million decrease in our 2006 sales was approximately $45.0 million ofvolume reductions net of new business. Volume declines of approximately $35.0million within our Chassis segment and approximately $10.0 million in ourPowertrain segment were primarily the result of a 12% decrease in NorthAmerican vehicle production from our three largest customers (DaimlerChrysler,Ford and General Motors) during the quarter, which includes a 21% productiondecline by our largest customer, DaimlerChrysler. These volume declines were offset by anapproximate $9.0 million increase in sales reflecting higher material costspassed onto our customers and approximately $4.0 million of favorable movementsin foreign exchange.

***Gross Profit.***   Gross profit by segment andin total for the three months ended October 1, 2006 and October 2,2005 were:

| ** **                       | ** ** | **(In thousands)**          | ** ** |
|----------------------------------|------------|----------------------------------|------------|
| ** **                       | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
| **Segment**                      | ** ** | ** **                       | ** ** | **October 1, 2006** | ** ** | **October 2, 2005** | ** ** |
| Chassis Segment                  |       |                             | $          | 10,206 |   |   |   | $ | 16,584 |   |   |
| Powertrain  Segment              |       |                             | 15,489     |   |   |   | 24,123 |   |   |
| Corporate/centralized  resources |       |                             | (3,041     | ) |   |   | (414 | ) |   |
| Total Company                    |       |                             | $          | 22,654 |   |   |   | $ | 40,293 |   |   |
|                                  |            |                                  |            |  |  |  |  |  |  |  |  |  |  |

 

Our gross profit was $22.7 million, or 5.5% of netsales, for 2006 compared to $40.3 million, or 9.1% of net sales, for 2005. Thedecrease of $17.6 million is primarily attributable to $8.6 million in lostprofits due to the sales reduction discussed above; $2.8 million increase indepreciation and amortization expense; $2.0 million reduction in postretirementmedical curtailment gains; and $4.0 million in launch related costs in ourPowertrain segment. Additionally, raw material price increases of $1.3 millionthat were not offset by sales increases and $2.0 million in contested pricepremiums charged by a supplier were successfully offset through net costreductions in our operations and a $2.5 million reduction in lease expensesresulting from our early buyout of several operating leases earlier in 2006.

***Selling, General andAdministrative*.  **Selling, general and administrativeexpense was $25.2 million, or 6.1% of net sales, for 2006 compared to $30.3million, or 6.8% of sales, in 2005. The 2005 expense was benefited by a $0.4million curtailment gain related to reduction of certain postretirement medicalbenefits. By comparison, the 2006 expense was benefited by several factorsincluding a $0.4 million reduction in Sarbanes-Oxley Section 404 relatedexpenditures, an approximate $1.5 million reduction in commercial supportactivities driven by restructuring efforts in late 2005, an approximate $1.5million decrease in 

35

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various corporate expenses such as finance andinformation technology and a $3.6 million reduction in various items such asworkers compensation, health care and incentive compensation expense. Thesesavings were partially offset by approximately $1.6 million of expenses tosupport our planned merger with a subsidiary of Asahi Tec Corporation asexplained further in Note 16 to our consolidated financial statements.

***Depreciation and Amortization*.  **Depreciationand amortization expense by segment and in total for the three months endedOctober 1, 2006 and October 2, 2005 was:

| ** **                       | ** ** | **(In thousands)**          | ** ** |
|----------------------------------|------------|----------------------------------|------------|
| ** **                       | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
| **Segment**                      | ** ** | ** **                       | ** ** | **October 1, 2006** | ** ** | **October 2, 2005** | ** ** |
| Chassis Segment                  |       |                             | $          | 12,319 |   |   |   | $ | 12,783 |   |   |
| Powertrain  Segment              |       |                             | 16,273     |   |   |   | 12,870 |   |   |
| Corporate/centralized  resources |       |                             | 2,127      |   |   |   | 2,282 |   |   |
| Total Company                    |       |                             | $          | 30,719 |   |   |   | $ | 27,935 |   |   |
|                                  |            |                                  |            |  |  |  |  |  |  |  |  |  |  |

 

The net increase in depreciation and amortization ofapproximately $2.8 million is primarily attributable to additional depreciationon the leased assets repurchased during the first and second quarter of 2006 aswell as the impact of large investments in several of our powertraintechnologies in 2005.

***Operating Profit (Loss).*  **Operatingprofit (loss) was $(2.9) million, or (0.7)% of sales, for the third quarter of2006 compared to $9.9 million, or 2.2% of sales, for the same period in 2005.The $12.8 million decrease is principally explained by the factors discussedabove, including the $17.6 million reduction in gross profit offset by the $5.1million decrease in selling general and administrative expenses. Operatingprofit by segment for the three months ended October 1, 2006 andOctober 2, 2005 is as follows:

| ** **                       | ** ** | **(In thousands)**          | ** ** |
|----------------------------------|------------|----------------------------------|------------|
| ** **                       | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
| **Segment**                      | ** ** | ** **                       | ** ** | **October 1, 2006** | ** ** | **October 2, 2005** | ** ** |
| Chassis Segment                  |       |                             | $          | 67 |   |   |   | $ | 6,156 |   |   |
| Powertrain  Segment              |       |                             | 4,107      |   |   |   | 11,239 |   |   |
| Corporate/centralized  resources |       |                             | (7,084     | ) |   |   | (7,537 | ) |   |
| Total Company                    |       |                             | $          | (2,910 | ) |   |   | $ | 9,858 |   |   |
|                                  |            |                                  |            |  |  |  |  |  |  |  |  |  |  |

*** ***

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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 above.Accordingly, we have separately presented such amounts in the table below.Adjusted EBITDA decreased to $27.6 million in the third quarter of 2006 from$38.2 million during the same period in 2005. The primary drivers of thisdecrease are explained above in the operating profit and depreciation andamortization discussions and will be further detailed in the segment detailthat follows. Additionally, other, net expenses decreased $0.3 million,primarily due to various decreases in foreign receivable factoring fees andtooling amortization, offset by an increase in foreign currency losses.Adjusted EBITDA by segment for the three months ended October 1, 2006 andOctober 2, 2005 is as follows:

| ** **                                                                                                | ** ** | **(In thousands)**          | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
| **Segment**                                                                                               | ** ** | ** **                       | ** ** | **October 1, 2006** | ** ** | **October 2, 2005** | ** ** |
| Chassis Segment                                                                                           |       |                             | $          | 12,300 |   |   |   | $ | 18,924 |   |   |
| Powertrain  Segment                                                                                       |       |                             | 20,349     |   |   |   | 24,197 |   |   |
| Corporate/centralized  resources                                                                          |       |                             | (5,004     | ) |   |   | (4,939 | ) |   |
| Total Company                                                                                             |       |                             | $          | 27,645 |   |   |   | $ | 38,182 |   |   |
| Memo: Additional  amounts included in calculation of both operating profit and Adjusted EBITDA:           |       |                             |       |   |   |   |   |   |   |
| Restructuring charges                                                                                     |       |                             | $          | (368 | ) |   |   | $ | (141 | ) |   |
| Fixed asset disposal losses                                                                               |       |                             | (462       | ) |   |   | (1,128 | ) |   |
| Foreign currency gains (losses)                                                                           |       |                             | (502       | ) |   |   | 69 |   |   |
| Pension curtailment loss and postretirement medical  curtailment gain and elimination of certain benefits |       |                             | —     |   |   |   | 2,434 |   |   |
| Transaction  expenses related to the planned merger                                                       |       |                             | (1,645     | ) |   |   | — |   |   |
|                                                                                                           |            |                                  |            |  |  |  |  |  |  |  |  |  |  |

*** ***

***Interest Expense.******  ***Interestexpense increased from $22.5 million in the third quarter of 2005 to $26.7million in the third quarter of 2006. This $4.2 million increase is principallydue to an approximate 1.9% increase in the interest rate on our variable ratesenior debt facilities resulting from increases in LIBOR.

***Preferred Stock Dividends.***   Preferredstock dividends (including accretion of $0.3 million in each of 2006 and 2005)were $7.3 million in the third quarter of 2006 as compared to $5.8 million inthe third quarter of 2005. This increase is due to the compounded interest ondividends not yet remitted to the shareholders. Preferred stock dividends areincluded in “other expense, net” in our consolidated statement of operations.

***Equity Income (Loss) from Affiliates.******  ***Equity income(loss) from affiliates decreased from income of $0.1 million in the thirdquarter of 2005 to a loss of $2.3 million in the third quarter of 2006, due tothe operating results of our equity affiliate.

***Other, Net.******  ***Other, netdecreased by $0.3 million from a loss of $2.8 million in the third quarter of2005 to a loss of $2.5 million in the third quarter of 2006. This decrease isdue to various decreases in foreign receivable factoring fees, toolingamortization and other miscellaneous expenses, offset by an increase in foreigncurrency losses.

***Taxes.******  ***The provisionfor income taxes for the third quarter of 2006 was an expense of $2.6 millionas compared with a benefit of $8.5 million for the third quarter of 2005. Inthe third quarter of 2006, no benefit was recognized for the U.S. operatingloss and the foreign effective rate was 24.2%, compared to a U.S. effectiverate of 31.4% and a foreign effective rate of 17.9% in the third quarter of2005. Due to uncertainties related toour ability to utilize existing net operating losses, it was management’s decisionto record an increase to the valuation allowance against our domesticoperation’s net deferred tax assets. As a result, we increased the valuationallowance against our deferred tax assets of our domestic continuing operationsby $19.3 million in the third quarter of 2006. In the event that deferred taxassets are realizable 

37

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inthe future in excess of the net recorded valuation allowance, an adjustment tothe deferred tax asset will increase the tax benefit in the period suchdetermination is made.

***Loss from Discontinued Operations.***   Theloss from discontinued operations decreased $2.2 million from a loss of $2.4million in the third quarter of 2005 to a loss of $0.2 million in the thirdquarter of 2006. See Note 8, Discontinued Operations, to our consolidatedfinancial statements for additional discussion.

***Loss on Discontinued Operations.***   Theloss on discontinued operations increased $1.4 million from a loss of $0.3million in the third quarter of 2005 to a loss of $1.7 million in the thirdquarter of 2006. See Note 8, Discontinued Operations, to our consolidatedfinancial statements for additional discussion.

***Segment Information.***

*Chassis Segment.*   Sales for ourChassis segment were $203.9 million in the third quarter of 2006 versus $234.5million in the third quarter of 2005. Net sales decreased $30.5 millionprimarily due to approximately $35.0 million in volume declines net of newbusiness, offset by approximately $2.0 million related to changes in foreignexchange rates and approximately $2.0 million in increased raw material price movementsthat were reimbursed from our customers. The sales decrease of 13.1% wasprimarily driven by the 21% reduction in DaimlerChrysler’s third quarterproduction in North America as DaimlerChrysler represents over 50% of thesegment’s sales. Contributing over $9.0 million to the segment’s sales declinewas DaimlerChrysler’s changeover of its JR platform, which ended production inMay 2006. We have been awarded the replacement business for the JR, whichbegan production in August 2006. Operating profit for the segmentdecreased from $6.2 million in the third quarter of 2005 to $0.1 million in thethird quarter of 2006. The $6.1 million decrease is primarily due toapproximately $6.9 million in lost profits from the sales reduction discussedabove, offset by lease savings of $0.6 million and a $0.5 million reduction indepreciation and amortization expense. The remaining variance relates to costreductions in our operations that slightly exceeded an approximate $2.0 millionin contested price premiums charged by a supplier. Adjusted EBITDA decreased to$12.3 million versus $18.9 million in the prior year due to the aforementionedreasons.

| ** **                                                                                      | ** ** | **(In thousands)**          | ** ** |
|-------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                      | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
| **Chassis Segment**                                                                        | ** ** | ** **                       | ** ** | **October 1, 2006** | ** ** | **October 2, 2005** | ** ** |
| Sales                                                                                           |       |                             | $          | 203,919 |   |   |   | $ | 234,465 |   |   |
| Operating profit                                                                                |       |                             | $          | 67 |   |   |   | $ | 6,156 |   |   |
| Depreciation and  amortization                                                                  |       |                             | 12,319     |   |   |   | 12,783 |   |   |
| Foreign currency  gains (losses)                                                                |       |                             | (86        | ) |   |   | (15 | ) |   |
| Adjusted EBITDA                                                                                 |       |                             | $          | 12,300 |   |   |   | $ | 18,924 |   |   |
| Memo: Additional  amounts included in calculation of both operating profit and Adjusted EBITDA: |       |                             |       |   |   |   |   |   |   |
| Restructuring charges                                                                           |       |                             | $          | (185 | ) |   |   | $ | (30 | ) |   |
| Fixed asset gains  (losses)                                                                     |       |                             | (69        | ) |   |   | (57 | ) |   |
|                                                                                                 |            |                                  |            |  |  |  |  |  |  |  |  |  |  |

 

*Powertrain Segment.*   Salesfor our Powertrain segment decreased in the third quarter of 2006 to $207.9million versus $208.4 million in the third quarter of 2005. The primary driverof the $0.5 million decrease in sales is due to approximately $10.0 million involume reductions net of new business, primarily from our Big Three customers(DaimlerChrysler, Ford and General Motors), offset by approximately $2.0million related to changes in foreign exchange rates and approximately $7.0million in sales increases to our customers associated with the recovery ofmaterial cost increases. Operating profit decreased from $11.2 million to $4.1million in 2006. The decrease is due to a number of factors, including launchassociated costs ($4.0 million); increase in depreciation and amortizationexpense ($3.4 million); volume reductions 

38

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($1.7 million); and increased material costs(primarily aluminum) not recovered from our customers ($1.3 million). Thesewere offset by approximately $1.9 million in reduced lease expense from theearly buyout of three operating leases in the first half of 2006, $1.1 million innet cost reductions and a $0.5 million reduction in fixed asset losses.Adjusted EBITDA decreased from $24.2 million in the third quarter of 2005 to$20.3 million in 2006 due to the aforementioned items, offset by a $3.4 millionincrease in depreciation and amortization expense.

 

| ** **                                                            | ** ** | **(In thousands)**          | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                            | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
| **Powertrain Segment**                                           | ** ** | ** **                       | ** ** | **October 1, 2006** | ** ** | **October 2, 2005** | ** ** |
| Sales                                                                 |       |                             | $          | 207,888 |   |   |   | $ | 208,372 |   |   |
| Operating profit                                                      |       |                             | $          | 4,107 |   |   |   | $ | 11,239 |   |   |
| Depreciation and  amortization                                        |       |                             | 16,273     |   |   |   | 12,870 |   |   |
| Foreign currency  gains (losses)                                      |       |                             | (31        | ) |   |   | 88 |   |   |
| Adjusted EBITDA                                                       |       |                             | $          | 20,349 |   |   |   | $ | 24,197 |   |   |
| Memo: Additional  amounts included in calculation of adjusted EBITDA: |       |                             |       |   |   |   |   |   |   |
| Restructuring charges                                                 |       |                             | $          | (108 | ) |   |   | $ | (42 | ) |   |
| Fixed asset gains  (losses)                                           |       |                             | (15        | ) |   |   | (563 | ) |   |
|                                                                       |            |                                  |            |  |  |  |  |  |  |  |  |  |  |

 

*Corporate/Centralized Resources.  *AdjustedEBITDA for Corporate/Centralized Resources was a loss of $5.0 million in thethird quarter of 2006 versus a loss of $4.9 million in the same period in 2005.Third quarter 2005 expense was benefited by a $2.4 million  postretirement medical curtailment benefit,while the 2006 third quarter expense was negatively impacted by $1.6 million oftransaction expenses associated with the planned merger with a subsidiary of AsahiTec Corporation (as described in Note 16 to the consolidated financialstatements).   However, these items wereoffset in 2006 through an approximate $1.5 million reduction in corporateexpenses such as finance and information technology and a $0.4 millionreduction in Sarbanes-Oxley Section 404 expenditures. The remainingdifference is primarily explained by reductions in various expenses for itemssuch as workers’ compensation, health care and incentive compensation.Operating profit decreased by $0.5 million in 2006 due to the factors discussedabove plus an approximate $0.4 million increase in foreign currency losses.

| ** **                                                                                                      | ** ** | **(In thousands)**          | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                      | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
| **Corporate/Centralized Resources**                                                                        | ** ** | ** **                       | ** ** | **October 1, 2006** | ** ** | **July 3, 2005** | ** ** |
| Operating profit                                                                                                |       |                             | $          | (7,084 | ) |   |   | $ | (7,537 | ) |   |
| Depreciation and  amortization                                                                                  |       |                             | 2,127      |   |   |   | 2,282 |   |   |
| Foreign currency  gains (losses)                                                                                |       |                             | (385       | ) |   |   | (4 | ) |   |
| Other, net                                                                                                      |       |                             | 338        |   |   |   | 320 |   |   |
| Adjusted EBITDA                                                                                                 |       |                             | $          | (5,004 | ) |   |   | $ | (4,939 | ) |   |
| Memo: Additional  amounts included in calculation of both operating profit and Adjusted EBITDA:                 |       |                             |       |   |   |   |   |   |   |
| Restructuring charges                                                                                           |       |                             | $          | (75 | ) |   |   | $ | (69 | ) |   |
| Fixed asset gains (losses)                                                                                      |       |                             | (378       | ) |   |   | (508 | ) |   |
| Pension curtailment  loss and postretirement medical curtailment gain and elimination of certain  plan benefits |       |                             | —     |   |   |   | 2,434 |   |   |
| Transaction  expenses related to the planned merger                                                             |       |                             | (1,645     | ) |   |   | — |   |   |
|                                                                                                                 |            |                                  |            |  |  |  |  |  |  |  |  |  |  |

 

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# ***Nine Months Ended October 1,2006 versus October 2, 2005***

The below resultsrepresent activity from our continuing operations for the nine months ended October 1,2006 and October 2, 2005.

***Net Sales.  ***Netsales by segment and in total for the nine months ended October 1, 2006and October 2, 2005 were:

| ** **          | ** ** | **(In thousands)**         | ** ** |
|---------------------|------------|---------------------------------|------------|
| ** **          | ** ** | **Nine Months Ended** | ** ** | **Nine Months Ended** | ** ** |
| **Segment**         | ** ** | ** **                      | ** ** | **October 1, 2006** | ** ** | **October 2, 2005** | ** ** |
| Chassis Segment     |       |                            | $          | 725,138 |   |   |   | $ | 766,057 |   |   |
| Powertrain  Segment |       |                            | 696,541    |   |   |   | 672,757 |   |   |
| Total Company       |       |                            | $          | 1,421,679 |   |   |   | $ | 1,438,814 |   |   |
|                     |            |                                 |            |  |  |  |  |  |  |  |  |  |  |

 

Net sales for the first nine months of 2006 were$1,421.7 million versus $1,438.8 million for the first nine months of 2005. Theprimary driver of the decrease in our 2006 sales was the significantly lowerproduction levels of the North America Big 3 domestic manufacturers, down 3%,resulting in approximately $34.4 million sales volume decrease (or 2.6%) whichwas offset by $16.6 million in sales increases to our customers associated withthe recovery of material cost increases. Foreign exchange losses account for anapproximate $1.7 million decrease in sales for the period.

***Gross Profit.*****  **Gross profit by segment and in total for thenine months ended October 1, 2006 and October 2, 2005 were:

| ** **                       | ** ** | **(In thousands)**         | ** ** |
|----------------------------------|------------|---------------------------------|------------|
| ** **                       | ** ** | **Nine Months Ended** | ** ** | **Nine Months Ended** | ** ** |
| **Segment**                      | ** ** | ** **                      | ** ** | **October 1, 2006** | ** ** | **October 2, 2005** | ** ** |
| Chassis Segment                  |       |                            | $          | 53,744 |   |   |   | $ | 62,048 |   |   |
| Powertrain  Segment              |       |                            | 70,177     |   |   |   | 95,917 |   |   |
| Corporate/centralized  resources |       |                            | (5,220     | ) |   |   | (5,054 | ) |   |
| Total Company                    |       |                            | $          | 118,701 |   |   |   | $ | 152,911 |   |   |
|                                  |            |                                 |            |  |  |  |  |  |  |  |  |  |  |

 

Our gross profit was $118.7million or 8.3% of net sales for 2006 compared to $152.9 million or 10.6% ofnet sales for 2005. The decrease of $34.2 million is primarily driven byapproximately $13.7 million of charges associated with the early buyout ofoperating leases transacted in March and April of 2006, (consistingof approximately $8.0 million in additional amortization expense, $5.0 millionof additional depreciation and a $3.7 million fixed asset loss, offset somewhatby a $3.0 million reduction in lease expense).  Other factors negatively affecting grossprofit in the first nine months include $6.9 million of launch related costs inthe Powertrain segment (which includes $2.2 million to launch a new plant inSuzhou, China), $5.0 million due to the sales reductions discussed above and$3.0 million increase in depreciation and amortization expense. Further, the2005 comparative amount includes $4.3 million due to a one-time benefit in postretirementmedical curtailment gains in 2005. Another driver of the decrease was a $3.4million increase in raw material pricing relating to the lag in our pricingadjustments to customers for associated increases in raw material costs and a$2.1 million contested price premium from a supplier. Several other negativefactors impacted the first nine months of 2006, such as a $3.1 million increasein fixed asset losses, but these items were more than offset by cost reductionsachieved in the operations.

***Selling, Generaland Administrative.*****  **Selling,general and administrative expense was $83.0 million, or 5.8% of net sales, for2006 compared to $86.1 million, or 6.0% of sales, in 2005. Several of oursavings initiatives in selling, general and administrative expenses weremitigated by approximately $3.3 million of legal and administrative expenses tosupport our planned merger with a subsidiary of Asahi Tec Corporation (see Note 16 to the consolidated financial statements) and $2.8 million due to aone-time benefit in postretirement medical curtailment gains from 2005. In2006, we continue to benefit from prior year 

40

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restructuring efforts of approximately $3.5 millionfrom the consolidation of segments from three to two and the allocation ofsales and procurement to the operating groups. We also benefited from anapproximate $2.6 million decrease in workers’ compensation, health care andincentive compensation expense. We continue to benefit from reduced spending invarious home office departments such as a $1.0 million decrease in information technologies.

***Depreciation and Amortization*.****  **Depreciation and amortization expense by segmentand in total for the nine months ended October 1, 2006 and October 2,2005 was:

| ** **                       | ** ** | **(In thousands)**         | ** ** |
|----------------------------------|------------|---------------------------------|------------|
| ** **                       | ** ** | **Nine Months Ended** | ** ** | **Nine Months Ended** | ** ** |
| **Segment**                      | ** ** | ** **                      | ** ** | **October 1, 2006** | ** ** | **October 2, 2005** | ** ** |
| Chassis Segment                  |       |                            | $          | 40,195 |   |   |   | $ | 36,813 |   |   |
| Powertrain  Segment              |       |                            | 51,311     |   |   |   | 36,943 |   |   |
| Corporate/centralized  resources |       |                            | 4,968      |   |   |   | 6,725 |   |   |
| Total Company                    |       |                            | $          | 96,474 |   |   |   | $ | 80,481 |   |   |
|                                  |            |                                 |            |  |  |  |  |  |  |  |  |  |  |

 

The net increase in depreciation and amortization ofapproximately $15.9 million is primarily attributable to an $8.0 millionincrease in amortization of deferred losses and an approximate $5.0 million increase in additionaldepreciation due to the repurchase of leased assets during the first half of2006. Recent capital spending accounts for the remaining increase indepreciation expense.

***Operating Profit.******  ***Operating profit was$34.9 million, or 2.5% of sales, for the first nine months of 2006 compared to$65.0 million, or 4.5% of sales, for the same period in 2005. The $30.1 milliondecrease is principally explained by the factors discussed above. Decreasedgross profit results of $34.2 million were offset by approximately $3.1million of savings in selling, general and administrative expenses such asrestructuring actions in 2005. Operating profit by segment for the nine monthsended October 1, 2006 and October 2, 2005 is as follows:

| ** **                       | ** ** | **(In thousands)**         | ** ** |
|----------------------------------|------------|---------------------------------|------------|
| ** **                       | ** ** | **Nine Months Ended** | ** ** | **Nine Months Ended** | ** ** |
| **Segment**                      | ** ** | ** **                      | ** ** | **October 1, 2006** | ** ** | **October 2, 2005** | ** ** |
| Chassis Segment                  |       |                            | $          | 21,387 |   |   |   | $ | 28,761 |   |   |
| Powertrain  Segment              |       |                            | 31,931     |   |   |   | 55,342 |   |   |
| Corporate/centralized  resources |       |                            | (18,436    | ) |   |   | (19,100 | ) |   |
| Total Company                    |       |                            | $          | 34,882 |   |   |   | $ | 65,003 |   |   |
|                                  |            |                                 |            |  |  |  |  |  |  |  |  |  |  |

 

41

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***Adjusted EBITDA*.*****  ***Management reviews oursegment operating results based upon the Adjusted EBITDA definition asdiscussed in the “Key Indicators of Performance (Non-GAAP Financial Measures)”section. Accordingly, we have separately presented such amounts in the tablebelow. Adjusted EBITDA decreased to $129.6 million in the first nine months of2006 from $147.3 million during the same period in 2005. The primary drivers ofthis decrease, as explained above in the gross profit and selling, general andadministrative discussions, are due to increased fixed asset losses and aone-time benefit in postretirement medical curtailment gains in 2005 ofapproximately $6.8 million and $7.2 million, respectively. Additional detailsare discussed further in the segment discussions that follow. Adjusted EBITDAby segment for the nine months ended October 1, 2006 and October 2,2005 is as follows:

| ** **                                                                                                | ** ** | **(In thousands)**         | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                | ** ** | **Nine Months Ended** | ** ** | **Nine Months Ended** | ** ** |
| **Segment**                                                                                               | ** ** | ** **                      | ** ** | **October 1, 2006** | ** ** | **October 2, 2005** | ** ** |
| Chassis Segment                                                                                           |       |                            | $          | 60,974 |   |   |   | $ | 65,567 |   |   |
| Powertrain  Segment                                                                                       |       |                            | 82,754     |   |   |   | 92,712 |   |   |
| Corporate/centralized  resources                                                                          |       |                            | (14,146    | ) |   |   | (10,964 | ) |   |
| Total Company                                                                                             |       |                            | $          | 129,582 |   |   |   | $ | 147,315 |   |   |
| Memo: Additional  amounts included in calculation of both operating profit and Adjusted EBITDA:           |       |                            |       |   |   |   |   |   |   |
| Restructuring charges                                                                                     |       |                            | $          | (770 | ) |   |   | $ | (1,760 | ) |   |
| Fixed asset disposal losses                                                                               |       |                            | (8,290     | ) |   |   | (1,460 | ) |   |
| Foreign currency gains (losses)                                                                           |       |                            | (2,127     | ) |   |   | 420 |   |   |
| Pension curtailment loss and postretirement medical  curtailment gain and elimination of certain benefits |       |                            | (165       | ) |   |   | 7,091 |   |   |
| Transaction  expenses related to the planned merger                                                       |       |                            | (3,311     | ) |   |   | — |   |   |
|                                                                                                           |            |                                 |            |  |  |  |  |  |  |  |  |  |  |

*** ***

***Interest Expense.******  ***Interest expense increasedfrom $66.7 million in the first nine months of 2005 to $74.8 million in thesame period of 2006. This $8.0 million increase is principally due to anapproximate 2.0% increase in the interest rate on our variable rate senior debtfacilities resulting from increases in LIBOR.

***Preferred StockDividends.***   Preferred stockdividends (including accretion of $0.8 million in each of 2006 and 2005) were$22.9 million in the first nine months of 2006 as compared to $16.8 million inthe first nine months of 2005. This increase is attributable to additionalexpense of approximately $2.1 million associated with the correction ofhistorical accretion of dividend expense. The remaining increase is primarilydue to the compounded interest on dividends not yet remitted to theshareholders. Preferred stock dividends are included in “other expense, net” inour consolidated statement of operations.

***Equity Income(Loss) from Affiliates.******  ***Equity income (loss) fromaffiliates was approximately $(0.7) million and $1.6 million in the first ninemonths of 2006 and 2005, respectively, due to the operating results of ourequity affiliate.

***Other, Net.******  ***Other, net increased by$6.0 million to a loss of $12.4 million in the first nine months of 2006compared to a loss of $6.4 million in the same period of 2005. The primaryreason for the increase was an approximate $1.5 million increase inamortization of capitalized financing costs, $2.6 million increase in foreigncurrency losses and an increase of $1.7 million in expenses primarilyassociated with our accounts receivable securitization and foreign receivablefactoring fees.

***Taxes.******  ***The provision for incometaxes for the first nine months of 2006 was an expense of $13.1 million ascompared with a benefit of $8.4 million for the same period of 2005. For thefirst nine months of 2006, no benefit was recognized for the U.S. operating lossand the foreign effective rate was 29.1%, compared to a U.S. effective rate of28.9% and a foreign effective rate of 25.7% for the first nine months of 2005. Due to uncertainties related to our abilityto utilize our existing net operating losses, it was management’s decision 

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to record an increase tothe valuation allowance against our domestic operation’s net deferred taxassets. As result, we increased our valuation allowance against thedeferred tax assets of our domestic operations by $40.5 million in the firstnine months of 2006, which is comprised of (i) $37.3 million for continuing operations; (ii) $0.2 millionfor discontinued operations; and (iii) $3.0 million for the loss ondiscontinued operations for the first nine months of 2006. In the event that deferred tax assets arerealizable in the future in excess of the net recorded valuation allowance, anadjustment to the deferred tax asset will increase the tax benefit in theperiod such determination is made.

The tax benefit of $0.2 million for loss fromdiscontinued operations is fully offset by a $0.2 million valuation allowancerecorded for the first nine months of 2006.

The tax benefit of $3.0 million for the loss ondiscontinued operations is fully offset by a $3.0 million valuation allowancerecorded for the first nine months of 2006.

***Loss fromDiscontinued Operations.***   Theloss from discontinued operations decreased $2.9 million from a loss of $3.5million in the first nine months of 2005 to a loss of $0.6 million in the firstnine months of 2006. See Note 8, Discontinued Operations, to our consolidatedfinancial statements for additional discussion.

***Loss on Discontinued Operations.***   Werecorded a loss of $8.5 million related to the March 10, 2006 sale of theForging Operations. See Note 8, Discontinued Operations, to our consolidatedfinancial statements for additional discussion.

***Segment***Information***.***

*Chassis Segment.**  *Sales for our Chassis segment were $725.1million in the first nine months of 2006 versus $766.1 million in the sameperiod of 2005. Net sales decreased approximately $40.9 million, or 5.7%,primarily due to a $44.0 million in volume decline. Contributing to the $44.0volume decline was approximately $11.9 million decrease in the DaimlerChryslerJR platform due to a line shutdown for a vehicle changeover. We have beenawarded the replacement business on the new platform. As DaimlerChryslerrepresents over 50% of the segment’s sales, the main driver to its salesreduction was a 5.6% reduction in DaimlerChrysler’s production in North Americafor the first nine months of 2006 versus 2005. Foreign exchange rates decreasedsales by approximately $1.6 million, but this was more than offset by increasedraw material price movements that were reimbursed from our customers. Operatingprofit for the segment decreased from $28.8 million in the first nine months of2005 to $21.4 million in the first nine months of 2006. Of the $7.4 milliondecrease in profits, approximately $6.7 million of the decrease is due to thesales reduction discussed above. Several other factors during the first ninemonths of 2006, including $5.8 million in fixed asset losses, $3.4 million indepreciation and amortization and a $2.1 million contested price premiumcharged by a supplier, were offset by a $3.1 million gain from the successfulresolution of a commercial dispute with a customer and additional costreductions in the operations. Adjusted EBITDA decreased from $65.6 million in2005 to $61.0 million in 2006 primarily due to the aforementioned items.

| ** **                                                                                      | ** ** | **(In thousands)**         | ** ** |
|-------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                      | ** ** | **Nine Months Ended** | ** ** | **Nine Months Ended** | ** ** |
| **Chassis Segment**                                                                        | ** ** | ** **                      | ** ** | **October 1, 2006** | ** ** | **October 2, 2005** | ** ** |
| Sales                                                                                           |       |                            | $          | 725,138 |   |   |   | $ | 766,057 |   |   |
| Operating profit                                                                                |       |                            | $          | 21,387 |   |   |   | $ | 28,761 |   |   |
| Depreciation and  amortization                                                                  |       |                            | 40,195     |   |   |   | 36,813 |   |   |
| Foreign currency  gains (losses)                                                                |       |                            | (608       | ) |   |   | (7 | ) |   |
| Adjusted EBITDA                                                                                 |       |                            | $          | 60,974 |   |   |   | $ | 65,567 |   |   |
| Memo: Additional  amounts included in calculation of both operating profit and Adjusted EBITDA: |       |                            |       |   |   |   |   |   |   |
| Restructuring charges                                                                           |       |                            | $          | (324 | ) |   |   | $ | (241 | ) |   |
| Fixed asset gains  (losses)                                                                     |       |                            | (5,835     | ) |   |   | (26 | ) |   |
|                                                                                                 |            |                                 |            |  |  |  |  |  |  |  |  |  |  |

 

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*Powertrain Segment.*   Salesfor our Powertrain segment increased in the first nine months of 2006 to $696.5million versus $672.8 million in the first nine months of 2005. The primarydrivers of the $23.7 million increase in sales were an approximate $9.5 millionincrease in new business relating to new product launches and ramp up ofexisting programs, which is net of the 13.5% decrease in North American vehicleproduction of the Big 3 domestic manufacturers. Additionally, there wasapproximately $14.5 million in sales increases associated with the recovery ofmaterial costs passed through to our customers. Operating profit decreased from$55.3 million in 2005 to $31.9 million in 2006. The decrease is principally dueto a $14.4 million increase in depreciation and amortization expense and a $3.0million increase in fixed asset losses. Additionally, there was approximately$6.9 million in launch associated costs that relate to two large new programsin the second and third quarters, and a new facility in Suzhou, China. The remainingdecrease of $3.3 million is primarily due to increased material costs notoffset by sales price increases, partially due to the lag in our pricingadjustment to customers. These items were partially offset by an approximate$1.7 million increase in profits on increased sales for the first nine months,and $2.1 million reduction in lease expense due to the operating leasesrepurchased during the early half of 2006. Adjusted EBITDA decreased from $92.7million in the first nine months of 2005 to $82.8 million in 2006, due to theaforementioned discussion but offset by the $14.4 million increase indepreciation and amortization costs.

| ** **                                                            | ** ** | **(In thousands)**         | ** ** |
|-----------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                            | ** ** | **Nine Months Ended** | ** ** | **Nine Months Ended** | ** ** |
| **Powertrain Segment**                                           | ** ** | ** **                      | ** ** | **October 1, 2006** | ** ** | **October 2, 2005** | ** ** |
| Sales                                                                 |       |                            | $          | 696,541 |   |   |   | $ | 672,757 |   |   |
| Operating profit                                                      |       |                            | $          | 31,931 |   |   |   | $ | 55,342 |   |   |
| Depreciation and  amortization                                        |       |                            | 51,311     |   |   |   | 36,943 |   |   |
| Foreign currency  gains (losses)                                      |       |                            | (488       | ) |   |   | 427 |   |   |
| Adjusted EBITDA                                                       |       |                            | $          | 82,754 |   |   |   | $ | 92,712 |   |   |
| Memo: Additional  amounts included in calculation of adjusted EBITDA: |       |                            |       |   |   |   |   |   |   |
| Restructuring charges                                                 |       |                            | $          | (448 | ) |   |   | $ | (175 | ) |   |
| Fixed asset gains  (losses)                                           |       |                            | (3,916     | ) |   |   | (926 | ) |   |
|                                                                       |            |                                 |            |  |  |  |  |  |  |  |  |  |  |

 

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*Corporate/CentralizedResources.**  *Adjusted EBITDA for Corporate/CentralizedResources was a loss of $14.1 million in the first nine months of 2006 versus aloss of $11.0 million in the same period in 2005. We realized $2.0 million decreasein fixed asset gains, a decrease of $1.3 million in restructuring expenses, andan approximate $2.6 million decrease in various items such as workers’compensation, health care and incentive compensation expenses. These wereoffset by a $7.1 million decrease in postretirement medical curtailmentbenefits in the first nine months of 2006 and a $2.1 million increase in other,net and foreign exchange movements. Other cost savings, including reductions inour information technologies spending, were mitigated by $3.3 million in legaland other administrative expenses to support the planned merger with asubsidiary of Asahi Tec Corporation. Operating profit increased by $0.7 millionin 2006 due to the factors discussed above, as well as a $1.8 million decreasein depreciation and amortization.

| ** **                                                                                                      | ** ** | **(In thousands)**         | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                      | ** ** | **Nine Months Ended** | ** ** | **Nine Months Ended** | ** ** |
| **Corporate/Centralized Resources**                                                                        | ** ** | ** **                      | ** ** | **October 1, 2006** | ** ** | **October 2, 2005** | ** ** |
| Operating profit                                                                                                |       |                            | $          | (18,436 | ) |   |   | $ | (19,100 | ) |   |
| Depreciation and  amortization                                                                                  |       |                            | 4,968      |   |   |   | 6,725 |   |   |
| Foreign currency gains  (losses)                                                                                |       |                            | (1,031     | ) |   |   | — |   |   |
| Other, net                                                                                                      |       |                            | 353        |   |   |   | 1,411 |   |   |
| Adjusted EBITDA                                                                                                 |       |                            | $          | (14,146 | ) |   |   | $ | (10,964 | ) |   |
| Memo: Additional amounts included in calculation of  both operating profit and Adjusted EBITDA:                 |       |                            |       |   |   |   |   |   |   |
| Restructuring charges                                                                                           |       |                            | $          | 2 |   |   |   | $ | (1,344 | ) |   |
| Fixed asset gains  (losses)                                                                                     |       |                            | 1,461      |   |   |   | (508 | ) |   |
| Pension curtailment loss  and postretirement medical curtailment gain and elimination of certain plan  benefits |       |                            | (165       | ) |   |   | 7,091 |   |   |
| Transaction expenses related to the planned merger                                                              |       |                            | (3,311     | ) |   |   | — |   |   |
|                                                                                                                 |            |                                 |            |  |  |  |  |  |  |  |  |  |  |

 

**Liquidity and Capital Resources**

***Overview.******  ***Our objective is toappropriately finance our business through a mix of long-term and short-termdebt and to ensure that we have adequate access to funding. Our principal sourcesof liquidity are cash flow from operations, our revolving credit facility andour accounts receivable securitization facility and factoring agreements. As ofOctober 1, 2006, we have unutilized capacity under our revolving creditfacility that may be utilized for acquisitions, investments or capitalexpenditure needs. Our cash flow during the year is impacted by the volume andtiming of vehicle production, which includes a shutdown by our North Americancustomers for approximately two weeks in July and one week in December andreduced production in July and August for certain European customers.Management believes cash flow from operations and the planned debt financingand refinancing related to our planned merger with a subsidiary of Asahi TecCorporation will provide us with adequate sources of liquidity for theforeseeable future.

To facilitate thecollection of funds from operating activities, we have sold receivables underour accounts receivable facility and have entered into accelerated paymentcollection programs with certain customers. Although the majority of theaccelerated payment collection programs were discontinued as of or prior to January 2,2005, at October 1, 2006, collection of approximately $42.0 million ofaccounts receivable was accelerated under the remaining programs. Included inthe above programs is approximately $25.9 million that we continue to collecton an accelerated basis as a result of favorable payment terms negotiated inconnection with a business acquisition. This agreement expires December 31,2006. While the impact of the discontinuance of these programs may be partiallyoffset by a greater utilization of our accounts receivable securitizationfacility, we continue to examine other alternative programs in the marketplace,as well as enhanced payment terms directly from our customers.

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 of 

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activities focused onrevenue growth, cost reduction and strengthening the balance sheet. In thefirst nine months of 2006, we used our cash primarily to service our debtobligations, buy out certain operating leases and fund our capital expenditurerequirements.

***Liquidity.***   AtOctober 1, 2006, we had $5.4 million in cash on our consolidated balancesheet and approximately $82.9 million of undrawn commitments, which consistedof $49.3 million and $33.6 million from our revolving credit facility andaccounts receivable securitization facility, respectively. However, our accessto these two facilities at quarter end is limited by certain covenantrestrictions which, at October 1, 2006, would allow us to draw only $21.5million from these facilities out of the total amount available of $82.9million (see the next paragraph for a description of these limitations and “Debt,Capitalization and Available Financing Sources” below for further discussion onour debt covenants). The limitations, though, only restrict our availability onthe quarter end date and do not prevent us from drawing the entirety of ourundrawn commitments on dates between quarter ends. Availability under ouraccounts receivable securitization facility agreement at October 1, 2006is based on a day earlier receivables report so it should be noted that, as isthe case at each quarter end, receivables paid on the last day of the quarterwill reduce availability on the next business day. The amount of this reductionwas $17.0 million as of October 2, 2006. It should also be noted that January andJuly are typically periods in which the Company seasonally experienceslower availability. Approximately $97.7 million and $37.7 million wereoutstanding on our revolving credit facility and accounts receivablesecuritization facility, respectively, at October 1, 2006.

At October 1, 2006,our maximum debt capacity (including amounts drawn under our accountsreceivable securitization program) is computed by multiplying our leverageratio covenant of 5.25 by our bank agreement defined EBITDA, or approximately$188.65 million. Thus, our total debt capacity at October 1, 2006 isapproximately $990.4 million. Our actual debt plus the accounts receivablesecuritization at October 1, 2006 approximated $968.9 million, orapproximately $21.5 million less than our total capacity. Thus, as discussedabove, as of October 1, 2006, we had access to only $21.5 million of thetotal $82.9 million in undrawn commitments that would have otherwise beenavailable from our revolving credit and accounts receivable securitizationfacilities. However, as disclosed above, this leverage limitation does notimpact our ability to draw funds between quarter ends.

It should be noted thatour liquidity at quarter and year end tends to reflect peak availability due toour natural cash collection cycle. Liquidity in the middle of the month tendsto represent our lowest level. Over the last fiscal year, our trough liquidityhas generally ranged between $15 million and $60 million. We have taken actionsto improve our trough liquidity:  thesale of our North American Forging business, the net $25 million increase ofour term loan facility and the February 3, 2006 and August 18, 2006amended and restated credit agreements. Although these actions improved ourtrough liquidity in early 2006, in the third quarter of 2006 significantlylower production levels of the North America Big 3 domestic manufacturerscontributed to large reductions in sales and profits. The reductions inearnings and cash flow have offset (at least temporarily) some of the liquiditygenerated in the early part of 2006. These same market conditions and theirimpact on our financial performance have caused some suppliers to demandshorter payment terms which would exacerbate the negative impact on ourliquidity. There can be no assurance that other suppliers will not likewisetake actions that would further negatively impact our liquidity.

On February 3, 2006, we entered into an amendedand restated credit agreement in which the covenant restrictions discussedabove were significantly relaxed. The amendment and restatement affected thefollowing principal changes, as well as updating and technical changes, to thethen existing credit agreement: (a) it added an additional $50 million ofterm loans, of which $25 million was used to prepay the preexisting term loan; (b) itadjusted certain covenants to take account of the North American Forgingdivestiture and to provide the Company with additional covenant flexibility;and (c) it increased pricing on the existing revolving credit facility. Inaddition to repayment of the $25 million preexisting term loan, we wererequired to use the proceeds from the divestiture of North American Forging torepurchase at least $45 million of assets then under operating leasearrangements. We have repurchased approximately $50.1 million of assets underthese operating leases with the proceeds from the North American Forging sale, 

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$10.1 million of which wasrelated to North American Forging assets under operating leases. Excessproceeds can be used to repurchase additional assets under operating leasearrangements and to increase our liquidity through repayment of outstandingobligations under our revolving credit and accounts receivable securitizationfacilities.

On August 18, 2006,we again amended and restated our credit agreement. In doing so, we replacedthe $200 million revolving credit facility with a $50 million revolving creditfacility and a $150 million deposit-linked supplemental revolving facility,each of which matures August 18, 2011. The December 31, 2009 maturitydate for the term loans did not change. In addition to various technicalchanges, the amendment and restatement reduced the effective applicable marginon the revolving credit facility to 3.25% per annum with respect to the LondonInterbank Offered Rate (“LIBOR”) based borrowings and 2.25% per annum withrespect to base rate (ABR) borrowings; fixed the applicable margin on thesupplemental revolving credit facility at 4.50% per annum; and set theapplicable margin on the term loans at 3.75% for base rate loans and 4.50% forLIBOR based loans (adjusted for reductions in the leverage ratio). A commitmentfee of between 0.5% and 1% per annum is assessed on the unused portion of therevolving credit facility and is determined based on utilization.

Our accounts receivablesecuritization facility availability is based on several factors including thecredit ratings of our customer base, the customer concentration levels in theaccounts receivable securitization facility and the overall collectionperformance of our accounts. For example, the bankruptcy of Dana Corporation inMarch 2006 resulted in an immediate $6.9 million reduction in our accountsreceivable securitization availability. Additionally, the downgrade of FordMotor Company on June 28, 2006 resulted in a $4.6 million immediatereduction in availability. Due to the general industry environment, theavailability of this program decreased in the first part of 2006 and could beexpected to decrease further if the industry environment does not improve.

We have entered intoagreements with international invoice factoring companies to sell customeraccounts receivable of Metaldyne’s foreign locations in France, Germany, Spain,Czech Republic and United Kingdom on a non-recourse basis. As of October 1,2006, we had available approximately $77.9 million from these commitments, andapproximately $50.0 million of receivables were sold under these programs.

***TriMas Common Stock.***   Inthe third quarter of 2006, we exercised TriMas warrants, resulting in anadditional 0.8 million shares of TriMas stock outstanding and issued to theCompany. Including such additional shares, the Company owns approximately 4.8million, or 23.2%, of the total outstanding shares of TriMas.

***Debt, Capitalization and Available Financing Sources.***   OnDecember 20, 2005, we entered into a senior secured loan facility. Thissenior secured loan facility provided for term loans totaling $20 million untilJune 30, 2006, to finance in part the purchase of additional specifiedmachinery and equipment. As of October 1, 2006, $19.4 million was drawn onthis facility. A commitment fee of 7.5% per annum on the unused portion of thisloan accrued through June 30, 2006. The senior secured loan facilitymatures December 31, 2009.

On February 3, 2006,we entered into amended and restated credit agreement as described above. Thisagreement was amended and restated again on August 18, 2006. The amendedand restated credit agreement provides us with more favorable terms andadditional funding on our revolving credit and term loan facilities. Under thisamended and restated credit agreement, the applicable interest rate spreads onour term loan obligations increased over the current LIBOR and our leveragecovenant was modified to be less restrictive. The current applicable interestrate spread on our term loan obligations is 4.50%. On February 3, 2006,pursuant to the terms of the amended and restated credit agreement, we borrowed$50 million of additional term loans, of which $25 million was used to prepaythe preexisting term loan.

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The credit facilityincludes term loans with $374.7 million outstanding; a revolving creditfacility with a principal commitment of $50 million and no amounts outstanding;and a deposit-linked supplemental revolving facility with $97.7 millionoutstanding ($150 million outstanding less $52.3 million letters of credit) asof October 1, 2006. The revolving credit facility and deposit-linkedsupplemental revolving facility mature on August 18, 2011 and the termloan facility matures on December 31, 2009. The obligations under thecredit facility are collateralized by substantially all of our assets and theassets of substantially all of our domestic subsidiaries and are guaranteed bysubstantially all of our domestic subsidiaries on a joint and several basis.

Thefollowing summarizes our outstanding debt as of October 1, 2006 andJanuary 1, 2006:

| ** **                                                                                                                               | ** ** | **(In thousands)**       | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                                                                                               | ** ** | **October 1, 2006** | ** ** | **January 1, 2006** | ** ** |
| Senior credit  facilities:                                                                                                               |       |                          |       |   |   |   |   |   |   |
| Term loans (9.9% variable interest at  October 1, 2006)                                                                             |       |                          | $          | 374,720 |   |   |   | $ | 350,193 |   |   |
| Deposit-Linked Supplemental Revolving Facility (9.9%  interest at October 1, 2006)                                                  |       |                          | 97,737     |   |   |   | — |   |   |
| Revolving credit facilities (11.5% interest at  October 1, 2006)                                                                    |       |                          | —     |   |   |   | 59,605 |   |   |
| Total senior  credit facility                                                                                                            |       |                          | 472,457    |   |   |   | 409,798 |   |   |
| Senior secured  term loan credit facility, with interest payable quarterly, due 2009 (13.13%  variable interest at October 1, 2006) |       |                          | 19,400     |   |   |   | 10,500 |   |   |
| 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)                                |       |                          | 27,712     |   |   |   | 27,469 |   |   |
| Other debt  (various interest rates; includes capital lease obligations)                                                                 |       |                          | 7,604      |   |   |   | 9,612 |   |   |
| Total                                                                                                                                    |       |                          | $          | 927,173 |   |   |   | $ | 857,379 |   |   |
| Less current  maturities                                                                                                                 |       |                          | (5,636     | ) |   |   | (6,640 | ) |   |
| Long-term debt                                                                                                                           |       |                          | $          | 921,537 |   |   |   | $ | 850,739 |   |   |

 

At October 1, 2006,we were contingently liable for standby letters of credit totaling $52.9million issued on our behalf by financial institutions. These letters of creditare used for a variety of purposes, including meeting requirements toself-insure workers’ compensation claims. We are also contingently liable forfuture product warranty claims. We provide comprehensive warranties to ourcustomers. As a result of these warranties, we may be responsible for costsassociated with a product recall caused by a defect in a part that wemanufacture. We continuously monitor potential warranty implications of new andcurrent business to assess whether a liability should be recognized. TheCompany has experienced relatively nominal warranty costs and no significantwarranty accrual is reflected in the October 1, 2006 consolidated balancesheet.

Our senior credit facilitycontains covenants and requirements affecting us and our subsidiaries,including a financial covenant requirement for an Earnings Before InterestTaxes Depreciation and Amortization (“EBITDA”) to cash interest expensecoverage ratio to exceed 1.75 through the year ending December 31, 2006(at October 1, 2006, this ratio was 1.82); and a debt to EBITDA ratio notto exceed 5.25 through the year ending December 31, 2006 (atOctober 1, 2006, this ratio was 5.14). We were in compliance with the newcovenants throughout the quarter. Based on our anticipated EBITDA performanceand our planned merger with a subsidiary of Asahi Tec Corporation, weanticipate being in covenant compliance over the next four quarters.

***ForeignCurrency Risk.***   We are subject to the risk ofchanges in foreign currency exchange rates due to our global operations. Wemanufacture and sell our products primarily in North America and Europe. As a 

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result, our financialresults could be significantly affected by factors such as changes in foreigncurrency exchange rates or weak economic conditions in foreign markets in whichwe manufacture and distribute our products. Our operating results are primarilyexposed to changes in exchange rates between the U.S. dollar and Europeancurrencies.

As currency exchange rateschange, translation of the statements of operations of our internationalbusinesses into U.S. dollars affects year-over-year comparability of operatingresults. We generally do not hedge operating translation risks because cashflows from international operations are typically reinvested locally. Changesin foreign currency exchange rates are generally reported as a component ofstockholders’ equity for our foreign subsidiaries reporting in local currenciesand as a component of income for our foreign subsidiaries using the U.S. dollaras the functional currency. The change in our accumulated other comprehensiveincome relating to cumulative translation adjustments was $27.2 million for thenine months ended October 1, 2006, due to cumulative translationadjustments resulting primarily from changes in the Euro to the U.S. dollar.

As of October 1,2006, our net total assets (defined as total assets less total liabilities)subject to foreign currency translation risk were $1,156 million. The potentialdecrease in net total assets from a hypothetical 10% adverse change in quotedforeign currency exchange rates would be $115.6 million. The sensitivityanalysis presented assumes a parallel shift in foreign currency exchange rates.Exchange rates rarely move in the same direction. This assumption may overstatethe impact of changing exchange rates on individual assets and liabilitiesdenominated in a foreign currency.

***Interest Risk.***   Wegenerally manage our risks associated with interest rate movements through theuse of a combination of variable and fixed rate debt. Approximately $494.6million of our debt was variable rate debt at October 1, 2006. Ahypothetical 25 bps adverse movement in the interest rate on variable rate debtwould affect earnings on an annual basis by approximately $1.2 million.Approximately $436.6 million of our debt was fixed rate debt at October 1,2006. A hypothetical 25 bps adverse movement in interest rates would result ina loss in the fair value of this fixed rate debt of approximately $9.8 million.

***Off-Balance Sheet Arrangements.******  ***On April 29,2005, the Company and our wholly owned special purpose subsidiary, MRFC, Inc.(“MRFC”), entered into a new accounts receivable financing facility withGeneral Electric Capital Corporation (“GECC”). Concurrent with entering into thisfacility, our former accounts receivable financing facility with JPMorgan ChaseBank, N.A. was terminated. On July 8, 2005, the Company and MRFC amended and restated the existingaccounts receivable financing facility with GECC. The terms of the facilitythat were amended and restated included (a) extending the maturity date toJuly 8, 2010, (b) favorable adjustments to certain default triggers, (c) increasedprogram availability and (d) an increase to the applicable margin on LIBORbased drawings from 1.75% to 2.25%. The amendment and restatement alsoaddressed various technical matters. The amended and restated facilityrepresented the completion of the final step of the multi-step receivablesfacility modifications initiated on April 29, 2005.

We have entered into anarrangement to sell, on an ongoing basis, the trade accounts receivable ofsubstantially all domestic business operations to MRFC. MRFC from time to timemay sell an undivided fractional ownership interest in the pool of receivablesup to approximately $175 million to a third party multi-seller receivablesfunding company. The net proceeds of sale are less than the face amount ofaccounts receivable sold by an amount that approximates the purchaser’sfinancing costs, which amounted to a total of $4.8 million and $3.1 million forthe nine months ended October 1, 2006 and October 2, 2005,respectively, which is included in other expense, net in our consolidatedstatement of operations. Prior to April 29, 2005, trade accountsreceivable of substantially all of our domestic business operations were soldin connection with the former accounts receivable financing facility withJPMorgan Chase Bank, N.A. At October 1, 2006, our funding under thefacility was $37.7 million with availability based upon qualified receivablesof $71.3 million and $33.6 million available but not utilized. The rate used toapproximate the 

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purchaser’s financingcosts was based on LIBOR plus 2.25% at October 1, 2006. In addition, weare required to pay a fee of 0.5% on the unused portion of the facility.

We have entered intoagreements with international invoice factoring companies to sell customeraccounts receivable of Metaldyne’s foreign locations in France, Germany, Spain,Czech Republic and United Kingdom on a non-recourse basis. As of October 1,2006 and January 1, 2006, we had available $77.9 million and $71.9 millionfrom these commitments, respectively, and approximately $50.0 million ofreceivables were sold under these programs as of October 1, 2006 and January 1,2006. We pay a commission to the factoring company plus interest calculatedfrom the date the receivables are sold to either the customer’s due date or aspecified number of days thereafter, or until the receivable is deemeduncollectible. Commission expense related to these agreements is recorded inother expense, net on our consolidated statement of operations and totaled $1.0million for each of the nine months ended October 1, 2006 and October 2,2005.

***Certain Other Commitments.***   Wehave other cash commitments not relating to debt as well, such as those inrespect of leases and redeemable preferred stock.

*Sale-Leaseback Arrangements.*   Wehave historically engaged in a number of sale-leaseback transactions, includingthree transactions during 2005 which generated proceeds of $21.5 million. Thesesale-leasebacks were accounted for as operating leases with combined annuallease expense of approximately $4.0 million.

Additionally, in the firstnine months of 2006 we entered into three operating leases for machinery andequipment with combined annual lease expense of approximately $1.3 million. Weanticipate relying on sale-leaseback and other leasing opportunities as asource of cash to finance capital expenditures and other uses.

*Redeemable PreferredStock.*   We have outstanding $203.0 million inaggregate liquidation value ($110.8 million aggregate carrying value) as of October 1,2006 of Series A, B and A-1 redeemable preferred stock in respect ofwhich we have the option to pay cash dividends, subject to the terms of ourdebt instruments, at rates of 13% (15% beginning January 1, 2006), 11.5%and 11%, respectively, per annum initially and to effect a mandatory redemptionin December 2012, June 2013 and December 2013, respectively. Forperiods that we do not pay cash dividends on the Series A and Series A-1preferred stock, an additional 2% per annum of dividends is accrued. No cashdividends were paid during the nine months ended October 1, 2006. At October 1,2006, there were unpaid accrued dividends of $84.0 million, resulting inredeemable preferred stock of $194.8 million. In the event of a change incontrol or certain qualified equity offerings, we may be required to make anoffer to repurchase our outstanding preferred stock. We may not be permitted todo so and may lack the financial resources to satisfy these obligations.Consequently, upon these events, it may become necessary to recapitalize ourcompany or secure consents. As part of our planned merger with a subsidiary ofAsahi Tec Corporation, holders of our redeemable preferred stock will receivecash in exchange for their shares. However, the holders of these securitieshave agreed to reinvest their cash proceeds in new common and preferred sharesof Asahi Tec Corporation.

***TriMas Receivables.***   Wehave recorded $5.7 million due from TriMas as of October 1, 2006,consisting of receivables related to certain amounts from TriMas, includingTriMas’ pension obligations of approximately $4.2 million and reimbursement duefor various invoices paid on TriMas’ behalf of approximately $1.5 million. Ofsuch amount, $3.5 million is recorded in equity investments and receivables inaffiliates in our consolidated balance sheet as of October 1, 2006.

***Credit Rating.******  ***Metaldyne israted by Standard & Poor’s and Moody’s Ratings. As of October 1,2006, we have long-term ratings from Standard & Poor’s and Moody’s ofB/B2 on our senior credit facility, CCC+/Caa2 on our 10% senior notes due 2013and CCC+/Caa3 on our 11% senior subordinated notes due 2012, respectively. Ourgoal is to decrease our total leverage and thus improve our credit ratings. Inthe event of a credit downgrade, we believe we would continue to have access toadditional credit sources. However, our borrowing costs would further increase,our ability to access certain financial markets may 

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become limited, theperception of the Company in the view of our customers, suppliers and securityholders may worsen and, as a result, we may be adversely affected.

***CapitalExpenditures.******  ***Our capital expenditure programpromotes our growth-oriented business strategy by investing in our core areas,where efficiencies and profitability can be enhanced. Capital expenditures forour continuing operations by product segment for the periods presented were:

| ** **            | ** ** | **(In thousands)**       | ** ** |
|-----------------------|------------|-------------------------------|------------|
| ** **            | ** ** | **October 1, 2006** | ** ** | **October 2, 2005** | ** ** |
| Capital Expenditures: |       |                          |       |   |   |   |   |   |   |
| Chassis               |       |                          | $          | 23,815 |   |   |   | $ | 31,942 |   |   |
| Powertrain            |       |                          | 34,740     |   |   |   | 44,229 |   |   |
| Corporate             |       |                          | 478        |   |   |   | 113 |   |   |
| Total                 |       |                          | $          | 59,033 |   |   |   | $ | 76,284 |   |   |

 

***Cash Flows***

*Operatingactivities*—Cash flows used for operations were $28.8 millionfor the nine months ended October 1, 2006 compared to cash flows providedby operations of $82.3 million in 2005. The decrease is primarily the result ofa $109.0 million decrease in net proceeds from the accounts receivablesecuritization facility and a $14.0 million reduction in operating cash flowprovided by discontinued operations. This was somewhat offset by a $20.9million decrease in working capital usage (excluding the accounts receivablesecuritization facility) primarily due to the collection of accounts receivableretained from our North American Forging business after it was sold.

*Investingactivities*—Cash flows used for investing activities totaled$31.6 million for the nine months ended October 1, 2006 compared to $55.4million in 2005. The decrease of $23.8 million is primarily due to $69.1million of proceeds from the sale of our Forging Operations and $17.3 millionof lower capital expenditure spending, offset by $40.0 million used torepurchase assets under operating leases. Additionally, in the first ninemonths of 2005, we received $21.6 million in proceeds from sale-leasebacktransactions for equipment and a reduction of $8.0 million in our investment inNew Castle resulting from reimbursement relating to equipment purchases.

*Financingactivities*—Cash flow provided by financing activities totaled$61.8 million for the nine months ended October 1, 2006 compared with cashflows used for financing activities of $20.1 million in 2005. The net increaseis due to $58.9 million of proceeds from our term loan facilities and adecrease in net borrowings and repayments of $61.2 million on our revolvingcredit facilities, offset by $25.5 million of principal payments on the termloan facilities and $9.6 million of principal payments on our swingline creditfacilities in 2006 compared with 2005.

***Outlook***

Automotive vehicleproduction in 2006 is expected to be 3% less than 2005 production levels inNorth America and approximately 3% higher than 2005 production levels in theglobal market. However, 2006 automotive vehicle production for the NorthAmerica Big 3 is expected to be approximately 6% below 2005 production levelsin North America and approximately 1% below 2005 production levels globally.This difference is notable, given the proportion of our revenue that is derivedfrom the Big 3 in North America. There are several factors that could alterthis outlook, including a change in interest rates or an increase in vehicleincentives offered to consumers.

Our principal use of fundsfrom operating activities and borrowings for the next several years areexpected to fund interest and principal payments on our indebtedness, growthrelated capital expenditures and working capital increases, strategicacquisitions and lease expense. Our anticipated capital expenditures for 

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2006 are estimated to be approximately$75 million. Capital spending requirements prior to 2006 had been elevated dueto our efforts to transition our business to new technologies, capabilities andgeographies.

Management believes cashflow from operations and debt financing and refinancing from our accountsreceivable securitization program will provide us with adequate sources of liquidityfor the foreseeable future. On February 3, 2006, we entered into anamended and restated credit agreement that adjusted certain covenants to takeaccount of the North American Forging divestiture and to provide a certainamount of additional covenant flexibility. It also added an additional $50million term loan, of which $25 million was used to prepay the preexisting termloan. On August 18, 2006, we again amended and restated our creditagreement. In doing so, we replaced the $200 million revolving credit facility setto expire in May 2007 with a $50 million revolving credit facility and a$150 million deposit-linked supplemental revolving facility, both of whichmature on August 18, 2011. However, our sources of liquidity may beinadequate if we are unable to achieve operating targets, in which case we mayneed to seek additional covenant relief from our lending group. No assurancecan be given that we would be successful in negotiating such relief.

With respect to ouroperating targets, in the second half of 2006, significantly lower productionlevels of the North America Big 3 domestic manufacturers is contributing tolarge reductions in sales and profits. The reductions in earnings and cash flowhave offset (at least temporarily) some of the liquidity generated in the earlypart of 2006. These same market conditions and their impact on our financialperformance have caused some suppliers to demand shorter payment terms whichwould exacerbate the negative impact on our liquidity. There can be noassurance that other suppliers will not likewise take actions that wouldfurther negatively impact our liquidity.

Further, the covenants inour amended and restated credit agreement will become more restrictive after December 31,2006. The interest expense coverage ratio in the amended and restated creditagreement increases from 1.75 in 2006 to 2.00, 2.25 and 2.50, and the debt toEBITDA leverage ratio decreases from 5.25 in 2006 to 5.00, 4.50 and 4.00through the years ending 2007, 2008 and 2009, respectively. These changingratios coupled with a reduction of our sales will operate to further limit ourability to draw upon our revolving credit facility and accounts receivablesecuritization facility.

In addition, mattersaffecting the credit quality of our significant customers could adverselyimpact the availability of our receivables arrangements and our liquidity. Any debt rating downgrades and/orinsolvencies of our largest customers may have an adverse effect on ourliquidity as it could adversely impact our ability to borrow under our accountsreceivable securitization facility. For example, on June 28, 2006,Standard & Poor’s lowered its credit rating of Ford Motor Company, oneof our largest customers, resulting in a decrease of our borrowing capacityunder our accounts receivable securitization facility by approximately $4.6million. We continue to explore other sources of liquidity, includingadditional debt, but existing debt instruments may limit our ability to incuradditional debt, and we may be unable 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, aluminum, molybdenum and nickel. Based on current prices, theagreements we currently have in place with our customers and cost reductionefforts in our business, we do not anticipate any significant incrementaleffect of material pricing on our 2006 profitability relative to 2005.

Despite management’sbelief, there can be no assurance that our liquidity level will remain adequatein the future as it may be adversely impacted by a variety of factors, many ofwhich are beyond our control, including those referred to above and elsewherein this Form 10-Q.

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**Recently Issued Accounting Pronouncements Not YetAdopted**

In June 2006, theFinancial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48,*Accounting for Uncertainty in Income Taxes*(“FIN 48”) which clarifies the accounting for uncertainty in income taxesrecognized in financial statements in accordance with FASB Statement No. 109,*Accounting for Income Taxes*. FIN 48prescribes a recognition threshold and measurement attribute for the financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return and also provides guidance on derecognition,classification, interest and penalties, accounting in interim periods,disclosure and transition. FIN 48 is effective for fiscal years beginning afterDecember 15, 2006; however, earlier application of the provisions of thisInterpretation is encouraged. We are assessing FIN 48 and have not yetdetermined the impact that the adoption of this Interpretation will have on ourresults of operations or financial position.

In September 2006,the FASB issued SFAS No. 157, *Fair Value Measurements*,which defines fair value, establishes a framework for measuring fair value ingenerally accepted accounting principles (“GAAP”) and expands disclosures aboutfair value measurements. This Statement applies under other accountingpronouncements that require or permit fair value measurements, the FASB havingpreviously concluded in those accounting pronouncements that fair value is therelevant measurement attribute. This Statement does not require any new fairvalue measurements. However, for some entities, the application of thisStatement will change current practice related to the definition of fair value,the methods used to measure fair value and the expanded disclosures about fairvalue measurements. SFAS No. 157 is effective for financial statementsissued for fiscal years beginning after November 15, 2007, and interimperiods within those fiscal years. We are assessing SFAS No. 157 and havenot yet determined the impact that the adoption of this Statement will have onour results of operations or financial position.

In September 2006,the FASB also issued SFAS No. 158, *Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans—an amendment of FASBStatements No. 87, 88, 106, and 132(R).* SFAS No. 158requires an employer to recognize the overfunded or underfunded status of adefined benefit postretirement plan (other than a multiemployer plan) as anasset or liability in its statement of financial position and to recognizechanges in that funded status in the year in which the changes occur throughcomprehensive income. This Statement also requires an employer to measure thefunded status of a plan as of the date of its year-end statement of financialposition, with limited exceptions. Because we do not have publicly tradedequity securities, we are required to initially recognize the funded status ofour defined benefit postretirement plans and to provide the requireddisclosures as of the end of the fiscal year ending after June 15, 2007.The requirement to measure plan assets and benefit obligations as of the dateof our fiscal year-end statement of financial position is effective for fiscalyears ending after December 15, 2008. However, we are required to disclosethe following information in the notes to the financial statements for ourfiscal year ending December 31, 2006: (a) a brief description of theprovisions of this Statement; (b) the date that adoption is required; and (c) thedate that we plan to adopt the recognition provisions of this Statement, ifearlier. We are assessing SFAS No. 158 and expect that the adoption ofthis Statement will result in a reduction in comprehensive income. We arecurrently evaluating the amount by which shareholders’ equity may be reducedand other impacts, if any, that SFAS No. 158 will have on our results ofoperations or financial position.

**Other Matters**

**Merger Status**

As disclosed in Note 16 to the Company’s financialstatements included in this Form 10-Q, on August 31, 2006 the Company signed anAgreement and Plan of Merger (the “Merger Agreement”), by and among the Company,Asahi Tec Corporation, a Japanese corporation (“Asahi Tec”) and a wholly-ownedsubsidiary of Asahi Tec (“Acquisition Sub”).

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The obligations of the Company and Asahi Tec to closethe Merger under the Merger Agreement are subject to a number of conditions.  One of the most significant conditionspertains to the ability of the Company to secure consents from holders of its11% senior subordinated notes due 2012 (the “11% Notes”) and holders of its 10%senior notes due 2013 (the “Senior Notes”) to the Merger and relatedtransactions and to the contemplated distribution of the shares of common stockof TriMas Corporation (“TriMas”) owned by the Company (the “TriMasdistribution”).  Subsequent to theannouncement of the Merger, holders of the 11% Notes and the Senior Notespurporting to represent a majority of each of their outstanding issuesseparately announced that they had organized into steering committees and thatthey objected to the basis on which the Company and Asahi Tec had proposed tosolicit their consents.  In addition,subsequent to the announcement of the Merger, the Company announced that it andAsahi Tec had begun to consider a range of alternatives for soliciting consentsfrom these noteholders due to changed conditions in the bank market and theautomotive industry and trading levels in the Company notes.  Consequently, the Company entered intoconfidentiality agreements with members of the steering committee of holders ofthe 11% Notes (the “Subordinated Committee”) and members of the steeringcommittee of holders of the Senior Notes (the “Senior Committee”) for thepurpose of allowing it and Asahi Tec to discuss alternatives for obtaining suchconsents.  The confidentiality agreementsrequire the members of the Committees to maintain the confidentiality ofinformation concerning the proposed transactions that has not been the subjectof previous disclosure by the Company or that relates to potential terms forthe consent solicitations, as well as any other information that is materialand non-public.  The confidentialityagreements expressly require that the Company disclose such confidentialinformation not later than the expiration of the confidentiality agreements, asextended, which is scheduled to occur on November 15, 2006 (but ispresently expected to be extended).

Based upon progress made with the Committees to date,and with further discussions, the Company believes that consent solicitationswith respect to the Company notes can be structured in a manner acceptable tothe Company noteholders so as to permit the Merger and related transactions andTriMas distribution to proceed on a revised basis.  The Company believes that agreements inprinciple have been reached on certain key financial terms for the consentsolicitations with each of the Committees, but there remain outstanding issuesto be resolved through further discussion, particularly with the SeniorCommittee.  Noteholders are not under anyobligation to participate in the consent solicitations on this or any otherbasis. Discussions are expected to continue to occur, subject to satisfactoryextention of the confidentiality agreements. The anticipated revised terms of the consent solicitations will requirethat, among other things, (1) the Company and Asahi Tec renegotiate the termsof the Merger Agreement with each other to reflect the revised consentsolicitations and to reflect the financial consequences of the new approach,(2) Asahi Tec renegotiate the terms of other transaction documentation withcertain Company common and preferred stockholders to reflect the foregoing aswell, (3) Asahi Tec renegotiate revised commitments for financing the Mergerand related transactions and for providing the Company with adequate workingcapital (including a revised debt commitment letter for the new Company seniorsecured credit facilities (the “New Facilities”)), and obtain the consent ofAsahi Tec’s Japanese lenders and of the Tokyo Stock Exchange, (4) the Companyand Asahi Tec obtain the requisite approvals of their respective Boards ofDirectors and (5) the consent or approval of the Company common stockholders beresolicited as required under applicable law. No agreements with respect to the foregoing have been reached, althoughdiscussions concerning certain of these matters are ongoing.  The Company expects Asahi Tec and it willnegotiate in good faith with each other and third parties to complete theseactions on mutually acceptable terms.  Asrequired by Japanese law, Asahi Tec has announced a delay in its previouslyannounced planned closing date for the Merger, which it has now placed as adate that is expected to be not later than January 16, 2007.  Until the foregoing actions are completed andall issues resolved, the impact on the Company stockholders and on the Companycapital structure following the Merger cannot be quantified.  There can be no assurances that anyparticular terms will be agreed to or achieved on a timely basis or at all.

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There will be increased costs to the Company and AsahiTec associated with revised consent solicitations that will be financed througha combination of additional Company financing (in a form that has not yet beendetermined), a reduction in the amount of merger consideration payable to theCompany common stockholders (in an amount that is the subject of negotiation)and, potentially, a sale of some of the Company’s TriMas shares (and, thus,fewer shares could be available for distribution to the Companystockholders).  This is discussed infurther detail below.

The followingsummarizes the consent solicitations that the Company, with Asahi Tec’sconsent, presently expects to commence, assuming receipt of requisite corporateand shareholder approvals, successful renegotiation of revised transactiondocumentation, receipt of requisite third party consents and approvals andreceipt of revised financing commitments. The following is based upon negotiations led by Asahi Tec, with theparticipation of the Company and its financial advisor.  The consent solicitations will only beeffectuated pursuant to customary documentation, subject to appropriate termsand conditions and in compliance with applicable laws, and there can be noassurance of their success since discussions to date with the Committees arenon-binding on noteholders.

·  The Company presently expects to undertake aconsent solicitation to modify the 11% Notes indenture to permit the Merger andrelated transactions and the TriMas distribution and to waive the change ofcontrol provisions in the 11% Notes indenture, without tendering for any of the11% Notes as had been initially contemplated. Receipt of consents from a majority in principal amount of the 11% Noteswill be required for the Merger to proceed and the payment of any consent feewill be conditioned upon the closing of the Merger.  In connection with this consent solicitation,the Company is prepared to offer a consent fee in cash equal to 12.75% of theprincipal amount of the 11% Notes as to which consents are received and, ifpermitted by the lenders under the New Facilities and subject to satisfactoryintercreditor arrangements, to grant a junior lien on the assets of the Companyand its domestic subsidiaries that are pledged to secure the NewFacilities.  The Company expects tosolicit the consent of the holder of the 10% senior subordinated notes due 2014(the “DCX Notes” and, collectively with the 11% Notes and the Senior Notes, the“Notes”) on the same basis as the holders of the 11% Notes.

Asahi Tec has informed theCompany that it believes that there is an agreement in principle with theSubordinated Committee on the foregoing financial terms of the 11% Notesconsent solicitation.

·  The Company presently expects to undertake aconsent solicitation to modify the Senior Notes indenture to permit the Mergerand related transactions and the TriMas distribution and to waive the change ofcontrol provisions in the Senior Notes indenture without tendering for any ofthe Senior Notes.  Receipt of consentsfrom a majority in principal amount of the Senior Notes will be required for theMerger to proceed and the payment of any consent fee will be conditioned uponthe closing of the Merger.  The Companyis prepared to offer a consent fee in cash equal to 8% of the principal amountof the Senior Notes as to which consents are received and, if permitted by thelenders under the New Facilities and subject to satisfactory intercreditorarrangements, to grant a junior lien on the assets of the Company and itsdomestic subsidiaries that are pledged to secure the New Facilities.  In addition, the Company expects to committhat, following the closing of the Merger, the Company will commence a tenderoffer for up to $25 million in Senior Notes at par, plus accrued interest,subject to proration, if permitted by the New Facilities.

Asahi Tec has informed theCompany that, while there is an agreement in principle with the SeniorCommittee on the foregoing financial terms of the Senior Notes consentsolicitation, there are several known outstanding issues. Specifically, theSenior Committee has asked that the maturity date of the Senior Notes be shortenedto before that of the 11% Notes and TriMas shares (other 

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onesthat may be sold to finance the transactions, as discussed below) be retainedby the Company and pledged as collateral for the Senior Notes.

·  In addition, the Company expects to offer tomake certain other changes to the 11% Notes and Senior Notes indentures thatare favorable to holders:  inclusion of amandatory offer to purchase Notes at par with 50% of the net proceeds, up to$50 million, of any Asahi Tec equity offering (subject to certain exceptions tobe determined) contributed to the Company and permanent reductions in thepermitted senior credit facility basket of the debt incurrence restrictivecovenant when prepayments are made of the New Facilities.

·  Asahi Tec also indicated that it will makechanges to the Company’s corporate structure to enhance the security package tobe offered to holders of Notes:  a newintermediate holding company (“Newco”) will be inserted between the Company andthe borrower of the New Facilities, Metaldyne Company LLC, to act as a holdingcompany guarantor of the New Facilities and a guarantor of the Notes.  The Company would not be a guarantor of theNew Facilities and interests in Newco would be pledged to secure theNotes.  Asahi Tec has informed theCompany that, while this revised structure is subject to approval by thelenders under the New Facilities, the banks party to the current debtcommitment letter have agreed in principle to these changes. 

Discussions will continue with the Committees concerningother terms of the consent solicitations, the outcome of which could affect theconsent solicitations that Metaldyne expects to undertake.

As a result of the anticipated material changes in thecost of the transaction and the ongoing capital structure reflected above andthe impact of customer production declines on the Company, Asahi Tec hasinformed the Company that its willingness to proceed with the acquisition willrequire that the Company stockholders forego a portion of the previously agreedcash merger consideration.  Consequently,the Company expects that, if the acquisition proceeds, payments to the Companycommon stockholders will be materially reduced. However, the amount of the reduction is the subject of ongoing goodfaith negotiations and subject to the approval of the Company’s Board ofDirectors.

Regardless of any reduction in the amount of mergerconsideration payable to the Company common stockholders, the modified terms ofthe consent solicitations will require that additional funds be raised and willrequire that the New Facilities permit junior liens to secure the Notes.  Throughout discussions with the Committees,the Company understands that Asahi Tec has been having discussions with thebanks that provided a debt commitment letter for the New Facilities when theMerger Agreement was signed, as well as other potential financing sources,concerning additional debt commitments and permission for the junior liens.  In addition, due to the increased debtassociated with the revised consent solicitations and the impact of customerproduction cutbacks, the Company believes that it may be close to the pro formaconsolidated leverage ratio currently required, as of the closing, in the existingdebt commitment letter for the New Facilities. The pro forma adjustments will depend upon a number of factors at thetime of closing that cannot be definitively ascertained at this time.  Asahi Tec has informed the Company that itbelieves that, based on discussions with the banks that provided the debtcommitment letter, it expects the banks will work with Asahi Tec to modify thecommitments for the revised New Facilities to accommodate a variance from therequired leverage ratio, but the banks have not definitively agreed to do soand this is outside the control of the Company.

The Company also expects that a portion of the cashrequired for the revised consent solicitations may come from a sale of sharesof TriMas common stock that it owns.  TheCompany will be considering a proposal from its largest stockholder, HeartlandIndustrial Partners, L.P. and its affiliated funds (“Heartland”), to purchaseup to approximately $20 million in value of shares of TriMas common stockpresently owned by the Company.  Thissale of TriMas shares would provide additional funds for the transactions butreduce the number of shares available for the TriMas distribution.  The Company’s Board of Directors hasauthorized two disinterested members of the Board of Directors, Michael Loshand 

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Wendy Needham, to serve as a special committee inevaluating and negotiating the terms of any purchase by Heartland of TriMasshares.  This special committee has beenauthorized to retain its own advisors for this purpose.  Heartland has not yet made a specificproposal to the Company concerning a purchase of the TriMas shares. 

The Company believes that the August 31, 2006transaction documentation are not terms upon which the Merger and relatedtransactions can successfully proceed. The revised basis on which the Company and Asahi Tec are proceedingrequires actions and agreements referred to above.  There can be no assurance that the Company orAsahi Tec will be able to obtain the agreement of any person required to effectthe transactions on a modified basis or be able to secure the requisiteadditional financing commitments or sources of funds, in which case theacquisition will not proceed.  TheCompany filed a preliminary proxy/information statement based upon thetransaction as it was announced on August 31, 2006.  If the transactions proceed, the preliminaryproxy/information statement will need to be updated.

**Fiscal Year**

Our fiscal year ends onthe Sunday nearest to December 31.

**ITEM3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

In the normal course ofbusiness, we are exposed to market risk associated with fluctuations in foreignexchange rates. We are also subject to interest risk as it relates to long-termdebt. See Item 2, Management’s Discussion and Analysis of Financial Conditionand Results of Operations, for details about our primary market risks, and theobjectives and strategies used to manage these risks. For additionalinformation, see Note 12, Long-Term Debt, to the consolidated financialstatements in our 2005 Form 10-K.

**ITEM4. CONTROLS AND PROCEDURES**

In connection with itsaudit of the Company’s financial statements as of January 1, 2006, KPMGadvised the Company in March 2006 that certain control deficiencies overfixed asset perpetual records constituted a material weakness. Adjustments wererecorded in 2003 and 2005 based on the Company’s efforts to verify existenceand useful lives of owned and leased assets. It has been recommended thatexisting policies and procedures relative to the maintenance of perpetualrecords for owned and leased assets should be reviewed and revised, ifappropriate, to ensure timely identification and recording of changes toassets. In addition, procedures should be adopted to ensure periodic reviews offixed asset records in the future. This material weakness, if unaddressed,could result in material errors in the Company’s financial statements.

Realizing the controlsassociated with fixed assets were not sufficient to ensure timelyidentification of changes to assets, the Company undertook comprehensivephysical inventories of leased and owned assets during the current year, whichresulted in adjustments to previously recorded amounts of Company owned fixedassets and obligations for idle or missing leased assets. Utilizing the fixedasset information validated from these physical inventory procedures, theCompany intends to take additional actions to address the underlying processesto ensure that fixed asset activity is recorded on a timely basis. While theseprocess improvements are being implemented, the Company will continue tosupport this activity with periodic physical counts of fixed assets.

Throughout 2006, theCompany continues to identify opportunities to enhance controls over fixedassets through the continued review and enhancement of policies and procedures.In the third quarter of 2006, the Company engaged outside consultants to reviewits fixed asset policies and procedures. The Company completed theimplementation of an internal transfer process, requiring sign-offs from bothlocations affected by each transfer. The Company also started a pilot programto barcode fixed assets for enhanced tracking and made a concerted effort tosell idle assets in exchange for cash proceeds.

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**Disclosure Controls 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 1, 2006. 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.

**Change in Disclosure Controls and Procedures**

The Company has madechanges to improve its controls and procedures as discussed above.

**PART II. OTHERINFORMATION**

**METALDYNECORPORATION**

**Item 1.**                        LegalProceedings.

Not applicable.

**Item 1A.**                RiskFactors.

This Quarterly Reportshould be read in conjunction with the risk factors disclosed in the Company’s2005 Form 10-K and in Item 2, Management’s Discussion and Analysisof Financial Condition and Results of Operations—Caution Concerning Forward-LookingStatements and Certain Risks Related to Our Business and our Company—SafeHarbor Statements contained in this Form 10-Q.

**Item 2.**                        UnregisteredSales of Equity Securities and Use of Proceeds.

Not Applicable.

**Item 3. DefaultsUpon Senior Securities.**

Not Applicable.

**Item 4.**                        Submissionof Matters to a Vote of Security Holders.

By written consents datedAugust 31, 2006, solicited by Asahi Tec Corporation, the holders of31,980,405.75 shares of Metaldyne’s common stock, representing a majority ofthe common stockholders, and all of its preferred stockholders approved thepending merger of Metaldyne with a subsidiary of Asahi Tec Corporation (the“Merger”).  Metaldyne will provide itscommon stockholders with an Information Statement to inform them about theMerger and related transactions before the Merger becomes effective, asrequired by Section 14(c) of the Securities Exchange Act of 1934, as amended,and the regulations pursuant thereto.

**Item 5.**                        OtherInformation.

Not Applicable.

58

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**Item6.**                     Exhibits.

| Exhibit   Number | ** ** | **Description   of Exhibit**                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1              |       | Recapitalization  Agreement, dated as of August 1, 2000, between MascoTech, Inc. (now  known as Metaldyne Corporation) and Riverside Company LLC (including  Amendment No. 1 to the Recapitalization Agreement dated October 23,  2000 and Amendment No. 2 to the Recapitalization Agreement dated  November 28, 2000) (Incorporated by reference to Exhibit 2 to  MascoTech, Inc.’s Registration Statement on Form S-1 filed  December 27, 2000). |
| 2.2              |       | Agreement and  Plan of Merger, dated as of August 31, 2006, by and among Metaldyne  Corporation, Asahi Tec Corporation and Argon Acquisition Corp. (Incorporated  by reference to Exhibit 2.1 to Metaldyne Corporation’s Current Report on  Form 8-K filed September 7, 2006).                                                                                                                                                                                                   |
| 3.1              |       | Restated  Certificate of Incorporation of MascoTech, Inc. (Incorporated by  reference to Exhibit 3.1 to Metaldyne Corporation’s Annual Report on  Form 10-K for the year ended December 31, 2000).                                                                                                                                                                                                                                                                               |
| 3.2              |       | Bylaws of  Metaldyne Corporation, as amended (Incorporated by reference to  Exhibit 3.2 to MascoTech, Inc.’s Registration Statement on  Form S-1 filed December 27, 2000).                                                                                                                                                                                                                                                                                                       |
| 3.3              |       | Certificate of  Designation of Series A Preferred Stock and Series A-1  Preferred Stock (Incorporated by reference to Exhibit 10.5 to Metaldyne  Corporation’s Current Report on Form 8-K filed December 11,  2002).                                                                                                                                                                                                                                                        |
| 3.4              |       | Certificate of  Designation of Series B Preferred Stock (Incorporated by reference to  Exhibit 3.4 to Metaldyne Corporation’s Annual Report on Form 10-K  for the year ended January 2, 2005).                                                                                                                                                                                                                                                                                   |
| 4.1              |       | Shareholders Agreement,  dated as of November 28, 2000, by and among MascoTech, Inc., Masco  Corporation, Richard Manoogian, certain of their respective affiliates and  other co-investors party thereto (Incorporated by reference to  Exhibit 10.20 to MascoTech, Inc.’s Registration Statement on  Form S-1 filed December 27, 2000).                                                                                                                              |
| 4.2              |       | Indenture  relating to the 11% Senior Subordinated Notes due 2012, dated as of  June 20, 2002, by and among Metaldyne Corporation, each of the  Guarantors named therein, and The Bank of New York as Trustee (Incorporated  by reference to Exhibit 4.1 to Metaldyne Corporation’s Registration  Statement on Form S-4 filed on September 10, 2002).                                                                                                                            |
| 4.3              |       | Form of note  relating to the 11% Senior Subordinated Notes due 2012 (Included in  Exhibit 4.2).                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.4              |       | Registration  Rights Agreement relating to the notes, dated as of June 20, 2002, by  and among Metaldyne Corporation and the parties named therein (Incorporated  by reference to Exhibit 4.3 to Metaldyne Corporation’s Registration  Statement on Form S-4 filed on September 10, 2002).                                                                                                                                                                                       |
| 4.5              |       | Indenture  relating to the 10% Senior Subordinated Notes due 2014, dated as of  December 31, 2003, by and among Metaldyne Corporation, the Guarantors  named therein and the Trustee (as defined therein) (Incorporated by reference  to Exhibit 10.3 to Metaldyne Corporation’s Current Report on Form 8-K  filed January 14, 2004).                                                                                                                                            |
| 4.6              |       | Form of note  relating to the 10% Senior Subordinated Notes due 2014 (included in  Exhibit 4.5).                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.7              |       | Registration  Rights Agreement, dated as of December 31, 2003, by and among Metaldyne  Corporation, each of the Guarantors named therein, and DaimlerChrysler  Corporation (Incorporated by reference to Exhibit 10.4 to Metaldyne  Corporation’s Current Report on Form 8-K filed January 14,  2004).                                                                                                                                                                           |

59

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| 4.8  |   | Indenture  relating to the 10% Senior Notes due 2013, dated as of October 27, 2003,  by and among Metaldyne Corporation, each of the Guarantors named therein, and  The Bank of New York as Trustee (Incorporated by reference to  Exhibit 4.8 to Metaldyne Corporation’s Annual Report on Form 10-K  for the year ended December 28, 2003). |
|------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.9  |   | Form of note  relating to the 10% Senior Notes due 2013 (included in Exhibit 4.8).                                                                                                                                                                                                                                                                          |
| 4.10 |   | Registration  Rights Agreement relating to the 10% Senior Notes due 2013, dated as of  October 27, 2003, by and among Metaldyne Corporation and the other  parties named therein (Incorporated by reference to Exhibit 4.10 to  Metaldyne Corporation’s Annual Report on Form 10-K for the year  ended December 28, 2003).                   |
| 10.1 |   | Employment  Agreement, dated as of August 31, 2006, between Asahi Tec Corporation  and Timothy Leuliette (Incorporated by reference to Exhibit 10.1 to  Metaldyne Corporation’s Current Report on Form 8-K filed September 7,  2006).                                                                                                        |
| 10.2 |   | Employment  Agreement, dated as of August 31, 2006, between Asahi Tec Corporation  and Jeffrey Stafeil (Incorporated by reference to Exhibit 10.2 to  Metaldyne Corporation’s Current Report on Form 8-K filed  September 7, 2006).                                                                                                          |
| 10.3 |   | Employment  Agreement, dated as of August 31, 2006, between Asahi Tec Corporation  and Thomas Amato (Incorporated by reference to Exhibit 10.3 to Metaldyne  Corporation’s Current Report on Form 8-K filed September 7,  2006).                                                                                                             |
| 31.1 |   | Certification  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                   |
| 31.2 |   | Certification  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                   |
| 32.1 |   | Certification  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                   |
| 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 10, 2006 | 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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**METALDYNECORPORATION**

**EXHIBITINDEX**
| Exhibit    | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number** | ** ** | **Description of Exhibit**                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 2.1        |       | Recapitalization  Agreement, dated as of August 1, 2000, between MascoTech, Inc. (now  known as Metaldyne Corporation) and Riverside Company LLC (including  Amendment No. 1 to the Recapitalization Agreement dated October 23,  2000 and Amendment No. 2 to the Recapitalization Agreement dated  November 28, 2000) (Incorporated by reference to Exhibit 2 to MascoTech, Inc.’s  Registration Statement on Form S-1 filed December 27, 2000). |
| 2.2        |       | Agreement and  Plan of Merger, dated as of August 31, 2006, by and among Metaldyne  Corporation, Asahi Tec Corporation and Argon Acquisition Corp. (Incorporated  by reference to Exhibit 2.1 to Metaldyne Corporation’s Current Report on  Form 8-K filed September 7, 2006).                                                                                                                                                                                                  |
| 3.1        |       | Restated  Certificate of Incorporation of MascoTech, Inc. (Incorporated by  reference to Exhibit 3.1 to Metaldyne Corporation’s Annual Report on  Form 10-K for the year ended December 31, 2000).                                                                                                                                                                                                                                                                              |
| 3.2        |       | Bylaws of  Metaldyne Corporation, as amended (Incorporated by reference to  Exhibit 3.2 to MascoTech, Inc.’s Registration Statement on  Form S-1 filed December 27, 2000).                                                                                                                                                                                                                                                                                                      |
| 3.3        |       | Certificate of  Designation of Series A Preferred Stock and Series A-1  Preferred Stock (Incorporated by reference to Exhibit 10.5 to Metaldyne  Corporation’s Current Report on Form 8-K filed December 11,  2002).                                                                                                                                                                                                                                                       |
| 3.4        |       | Certificate of  Designation of Series B Preferred Stock (Incorporated by reference to  Exhibit 3.4 to Metaldyne Corporation’s Annual Report on Form 10-K  for the year ended January 2, 2005).                                                                                                                                                                                                                                                                                  |
| 4.1        |       | Shareholders  Agreement, dated as of November 28, 2000, by and among  MascoTech, Inc., Masco Corporation, Richard Manoogian, certain of their  respective affiliates and other co-investors party thereto (Incorporated by  reference to Exhibit 10.20 to MascoTech, Inc.’s Registration  Statement on Form S-1 filed December 27, 2000).                                                                                                                             |
| 4.2        |       | Indenture  relating to the 11% Senior Subordinated Notes due 2012, dated as of  June 20, 2002, by and among Metaldyne Corporation, each of the  Guarantors named therein, and The Bank of New York as Trustee (Incorporated  by reference to Exhibit 4.1 to Metaldyne Corporation’s Registration  Statement on Form S-4 filed on September 10, 2002).                                                                                                                           |
| 4.3        |       | Form of note  relating to the 11% Senior Subordinated Notes due 2012 (Included in  Exhibit 4.2).                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.4        |       | Registration  Rights Agreement relating to the notes, dated as of June 20, 2002, by  and among Metaldyne Corporation and the parties named therein (Incorporated  by reference to Exhibit 4.3 to Metaldyne Corporation’s Registration  Statement on Form S-4 filed on September 10, 2002).                                                                                                                                                                                      |
| 4.5        |       | Indenture  relating to the 10% Senior Subordinated Notes due 2014, dated as of  December 31, 2003, by and among Metaldyne Corporation, the Guarantors  named therein and the Trustee (as defined therein) (Incorporated by reference  to Exhibit 10.3 to Metaldyne Corporation’s Current Report on Form 8-K  filed January 14, 2004).                                                                                                                                           |
| 4.6        |       | Form of note  relating to the 10% Senior Subordinated Notes due 2014 (included in  Exhibit 4.5).                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.7        |       | Registration  Rights Agreement, dated as of December 31, 2003, by and among Metaldyne  Corporation, each of the Guarantors named therein, and DaimlerChrysler  Corporation (Incorporated by reference to Exhibit 10.4 to Metaldyne  Corporation’s Current Report on Form 8-K filed January 14,  2004).                                                                                                                                                                          |

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| 4.8  |   | Indenture  relating to the 10% Senior Notes due 2013, dated as of October 27, 2003,  by and among Metaldyne Corporation, each of the Guarantors named therein, and  The Bank of New York as Trustee (Incorporated by reference to  Exhibit 4.8 to Metaldyne Corporation’s Annual Report on Form 10-K  for the year ended December 28, 2003). |
|------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.9  |   | Form of note  relating to the 10% Senior Notes due 2013 (included in Exhibit 4.8).                                                                                                                                                                                                                                                                          |
| 4.10 |   | Registration  Rights Agreement relating to the 10% Senior Notes due 2013, dated as of  October 27, 2003, by and among Metaldyne Corporation and the other  parties named therein (Incorporated by reference to Exhibit 4.10 to  Metaldyne Corporation’s Annual Report on Form 10-K for the year  ended December 28, 2003).                   |
| 10.1 |   | Employment  Agreement, dated as of August 31, 2006, between Asahi Tec Corporation  and Timothy Leuliette (Incorporated by reference to Exhibit 10.1 to  Metaldyne Corporation’s Current Report on Form 8-K filed September 7,  2006).                                                                                                        |
| 10.2 |   | Employment  Agreement, dated as of August 31, 2006, between Asahi Tec Corporation  and Jeffrey Stafeil (Incorporated by reference to Exhibit 10.2 to  Metaldyne Corporation’s Current Report on Form 8-K filed  September 7, 2006).                                                                                                          |
| 10.3 |   | Employment  Agreement, dated as of August 31, 2006, between Asahi Tec Corporation  and Thomas Amato (Incorporated by reference to Exhibit 10.3 to Metaldyne  Corporation’s Current Report on Form 8-K filed September 7,  2006).                                                                                                             |
| 31.1 |   | Certification  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                   |
| 31.2 |   | Certification  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                   |
| 32.1 |   | Certification  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                   |
| 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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