**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 July 2, 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 markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

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

 

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

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

Number of shares outstanding of the registrant’scommon stock at August 1, 2006: 42,844,760, par value $1.00 per share.

 

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**METALDYNECORPORATION**

**INDEX**

|               | ** **                                                                                                        | ** ** | **Page No.** |
|---------------|-------------------------------------------------------------------------------------------------------------------|------------|-------------------|
| Part I.  | FINANCIAL INFORMATION                                                                                             |       |              | 2 |   |
| Item 1.       | Financial Statements (Unaudited)                                                                                  |       |              | 2 |   |
|          | Consolidated Balance Sheets—July 2,  2006 and January 1, 2006                                      |       |              | 2 |   |
|          | Consolidated Statements of Operations for  the Three and Six Months Ended July 2, 2006 and July 3, 2005 |       |              | 3 |   |
|          | Consolidated Statements of Cash Flows for  the Six Months Ended July 2, 2006 and July 3, 2005           |       |              | 4 |   |
|          | Notes to Consolidated Financial  Statements                                                                       |       |              | 5 |   |
| Item  2.      | Management’s Discussion and  Analysis of Financial Condition and Results of Operations                       |       |              | 27 |   |
| Item  3.      | Quantitative and Qualitative  Disclosure about Market Risk                                                        |       |              | 49 |   |
| Item  4.      | Controls and Procedures                                                                                           |       |              | 49 |   |
| Part II. | OTHER  INFORMATION AND SIGNATURE                                                                                  |       |              | 50 |   |

 

1

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**PART I. FINANCIAL INFORMATION**

**ITEM 1. FINANCIAL STATEMENTS**

**METALDYNECORPORATIONCONSOLIDATED BALANCE SHEETJULY 2, 2006 AND JANUARY 1, 2006(Dollars in thousands except per share amounts)**

| ** **                                                                                                                                                                                                                                                 | ** ** | **July 2, 2006** | ** ** | **January 1, 2006** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|-------------------------------|------------|
| ** **                                                                                                                                                                                                                                                 | ** ** | **(Unaudited)**            | ** ** |
| **ASSETS**                                                                                                                                                                                                                                                 | ** ** |                       | ** ** | ** **                    |       |   | ** ** | ** ** |   |
| Current assets:                                                                                                                                                                                                                                            | ** ** |                       | ** ** | ** **                    |       |   | ** ** | ** ** |   |
| Cash and cash equivalents                                                                                                                                                                                                                                  |       |                       | $          | 5,804                         |       |   |   | $ | 3,687 |   |   |
| Receivables, net:                                                                                                                                                                                                                                          | ** ** |                       | ** ** | ** **                    |       |   | ** ** | ** ** |   |
| Trade (net of allowance for doubtful accounts of  $3,340 and $3,110 at July 2, 2006 and January 1, 2006,  respectively)                                                                                                                          |       |                       | 140,603    |                          |       |   | 130,018 |   |   |
| TriMas                                                                                                                                                                                                                                                     |       |                       | 5,142      |                          |       |   | 3,841 |   |   |
| Other                                                                                                                                                                                                                                                      |       |                       | 10,861     |                          |       |   | 6,020 |   |   |
| Total receivables, net                                                                                                                                                                                                                                     |       |                       | 156,606    |                          |       |   | 139,879 |   |   |
| Inventories                                                                                                                                                                                                                                                |       |                       | 85,925     |                          |       |   | 84,265 |   |   |
| Deferred and refundable income taxes                                                                                                                                                                                                                       |       |                       | 11,002     |                          |       |   | 11,010 |   |   |
| Prepaid expenses and other assets                                                                                                                                                                                                                          |       |                       | 33,487     |                          |       |   | 29,668 |   |   |
| Assets of discontinued operations                                                                                                                                                                                                                          |       |                       | —     |                          |       |   | 116,612 |   |   |
| Total current assets                                                                                                                                                                                                                                       |       |                       | 292,824    |                          |       |   | 385,121 |   |   |
| Equity investments and receivables in affiliates                                                                                                                                                                                                           |       |                       | 93,031     |                          |       |   | 90,928 |   |   |
| Property and equipment (net of accumulated  depreciation of $314,015 and $270,686 at July 2, 2006 and  January 1, 2006, respectively)                                                                                                            |       |                       | 667,359    |                          |       |   | 630,428 |   |   |
| Excess of cost over net assets of acquired companies                                                                                                                                                                                                       |       |                       | 594,021    |                          |       |   | 583,990 |   |   |
| Intangible and other assets                                                                                                                                                                                                                                |       |                       | 143,200    |                          |       |   | 156,468 |   |   |
| Total assets                                                                                                                                                                                                                                               |       |                       | $          | 1,790,435                     |       |   |   | $ | 1,846,935 |   |   |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY**                                                                                                                                                                                                             |       |                       |       |                          |       |   |   |   |   |
| Current liabilities:                                                                                                                                                                                                                                       |       |                       |       |                          |       |   |   |   |   |
| Accounts payable                                                                                                                                                                                                                                           |       |                       | $          | 250,688                       |       |   |   | $ | 261,098 |   |   |
| Accrued liabilities                                                                                                                                                                                                                                        |       |                       | 125,125    |                          |       |   | 123,870 |   |   |
| Current liabilities of discontinued operations                                                                                                                                                                                                             |       |                       | —     |                          |       |   | 37,400 |   |   |
| Current maturities, long-term debt                                                                                                                                                                                                                         |       |                       | 40,491     |                          |       |   | 6,640 |   |   |
| Total current liabilities                                                                                                                                                                                                                                  |       |                       | 416,304    |                          |       |   | 429,008 |   |   |
| Long-term debt                                                                                                                                                                                                                                             |       |                       | 824,170    |                          |       |   | 850,739 |   |   |
| Deferred income taxes                                                                                                                                                                                                                                      |       |                       | 42,402     |                          |       |   | 42,402 |   |   |
| Minority interest                                                                                                                                                                                                                                          |       |                       | 726        |                          |       |   | 740 |   |   |
| Other long-term liabilities                                                                                                                                                                                                                                |       |                       | 121,284    |                          |       |   | 99,591 |   |   |
| Long-term liabilities of discontinued operations                                                                                                                                                                                                           |       |                       | —     |                          |       |   | 33,204 |   |   |
| Redeemable preferred stock, (aggregate liquidation  value: $195,956 and $180,908 at July 2, 2006 and January 1, 2006,  respectively). Authorized: 1,198,693 shares; Outstanding: 1,189,694 shares at  July 2, 2006 and January 1, 2006 |       |                       | 187,525    |                          |       |   | 171,928 |   |   |
| Total liabilities                                                                                                                                                                                                                                          |       |                       | 1,592,411  |                          |       |   | 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 July 2, 2006 and January 1, 2006                                                                                                                                    |       |                       | 42,845     |                          |       |   | 42,845 |   |   |
| Paid-in capital                                                                                                                                                                                                                                            |       |                       | 698,946    |                          |       |   | 698,868 |   |   |
| Accumulated deficit                                                                                                                                                                                                                                        |       |                       | (576,504   | )                             |       |   | (524,648 | ) |   |
| Accumulated other comprehensive income                                                                                                                                                                                                                     |       |                       | 32,737     |                          |       |   | 2,258 |   |   |
| Total shareholders’ equity                                                                                                                                                                                                                            |       |                       | 198,024    |                          |       |   | 219,323 |   |   |
| Total liabilities  and shareholders’ equity                                                                                                                                                                                                           |       |                       | $          | 1,790,435                     |       |   |   | $ | 1,846,935 |   |   |

 

See accompanying notes to the consolidated financial statements.

2

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**METALDYNE CORPORATIONCONSOLIDATED STATEMENT OF OPERATIONSFOR THE THREE AND SIX MONTHS ENDED JULY 2, 2006 AND JULY 3, 2005(Dollars in thousands except per share amounts)**

| ** **                                                                                                                                                                                                 | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                                                                                                                 | ** ** | **July 2, 2006**       | ** ** | **July 3, 2005**     | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| ** **                                                                                                                                                                                                 | ** ** | **(Unaudited)**                  | ** ** | **(Unaudited)**                | ** ** |
| Net sales                                                                                                                                                                                                  |       | $                                | 505,618    |                           | $          | 506,605 |   | $ | 1,009,872 |   | $ | 995,977 |   |
| Cost of sales                                                                                                                                                                                              |       | (449,328                         | )          | (445,541                       | )          | (913,825 | ) | (883,359 | ) |
| Gross profit                                                                                                                                                                                               |       | 56,290                           |       | 61,064                         |       | 96,047 |   | 112,618 |   |
| Selling, general and administrative expenses                                                                                                                                                               |       | (29,443                          | )          | (30,137                        | )          | (57,853 | ) | (55,854 | ) |
| Restructuring  charges                                                                                                                                                                                     |       | (324                             | )          | (367                           | )          | (402 | ) | (1,619 | ) |
| Operating profit                                                                                                                                                                                           |       | 26,523                           |       | 30,560                         |       | 37,792 |   | 55,145 |   |
| Other expense,  net:                                                                                                                                                                                       |       |                             |       |                           |       |   |   |   |   |
| Interest:                                                                                                                                                                                                  |       |                             |       |                           |       |   |   |   |   |
| Interest expense                                                                                                                                                                                           |       | (24,164                          | )          | (21,727                        | )          | (48,111 | ) | (44,280 | ) |
| Preferred stock dividends and accretion                                                                                                                                                                    |       | (9,125                           | )          | (5,597                         | )          | (15,597 | ) | (11,033 | ) |
| Equity income from affiliates                                                                                                                                                                              |       | 690                              |       | 976                            |       | 1,649 |   | 1,581 |   |
| Other, net                                                                                                                                                                                                 |       | (4,983                           | )          | (1,959                         | )          | (9,820 | ) | (3,596 | ) |
| Other expense, net                                                                                                                                                                                         |       | (37,582                          | )          | (28,307                        | )          | (71,879 | ) | (57,328 | ) |
| Income (loss) from continuing operations before  income taxes                                                                                                                                              |       | (11,059                          | )          | 2,253                          |       | (34,087 | ) | (2,183 | ) |
| Income tax  expense                                                                                                                                                                                        |       | 5,473                            |       | 1,703                          |       | 10,470 |   | 147 |   |
| Income (loss)  from continuing operations                                                                                                                                                                  |       | (16,532                          | )          | 550                            |       | (44,557 | ) | (2,330 | ) |
| Income (loss)  from discontinued operations (net of tax of zero for the three and six months  ended July 2, 2006 and $(263) and $(597) for the three and six months  ended July 3, 2005, respectively |       | 29                               |       | (490                           | )          | (437 | ) | (1,110 | ) |
| Loss on  discontinued operations (net of tax of zero)                                                                                                                                                      |       | —                           |       | —                         |       | (6,862 | ) | — |   |
| Net income (loss)                                                                                                                                                                                          |       | $                                | (16,503    | )                              | $          | 60 |   | $ | (51,856 | ) | $ | (3,440 | ) |
| Basic and diluted  loss per share:                                                                                                                                                                         |       |                             |       |                           |       |   |   |   |   |
| Loss from continuing operations                                                                                                                                                                            |       | $                                | (0.39      | )                              | $          | — |   | $ | (1.04 | ) | $ | (0.05 | ) |
| Loss from discontinued operations                                                                                                                                                                          |       | —                           |       | —                         |       | (0.01 | ) | (0.03 | ) |
| Loss on discontinued operations                                                                                                                                                                            |       | —                           |       | —                         |       | (0.16 | ) | — |   |
| Net loss attributable to common stock                                                                                                                                                                      |       | $                                | (0.39      | )                              | $          | — |   | $ | (1.21 | ) | $ | (0.08 | ) |
| Weighted average  number of shares outstanding for basic and diluted income (loss) per share                                                                                                               |       | 42,845                           |       | 42,845                         |       | 42,845 |   | 42,845 |   |

 

See accompanying notes to the consolidated financial statements.

3

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**METALDYNE CORPORATIONCONSOLIDATED STATEMENT OF CASH FLOWSFOR THE SIX MONTHS ENDED JULY 2, 2006 AND JULY 3, 2005(Dollars in thousands)**

| ** **                                                                                  | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                  | ** ** | **July 2,**               | ** ** | **July 3,** | ** ** |
| ** **                                                                                  | ** ** | **2006**                       | ** ** | **2005** | ** ** |
| ** **                                                                                  | ** ** | **(Unaudited)**                | ** ** |
| Operating activities:                                                                       |       |                           |       |   |   |
| Net loss                                                                                    |       | $                              | (51,856    | ) | $ | (3,440 | ) |
| Adjustments to reconcile net loss to net cash  provided by (used for) operating activities: |       |                           |       |   |   |
| Depreciation and  amortization                                                              |       | 65,755                         |       | 52,546 |   |
| Debt fee amortization                                                                       |       | 2,787                          |       | 1,570 |   |
| Loss on fixed asset  dispositions                                                           |       | 7,828                          |       | 332 |   |
| Loss from discontinued  operations                                                          |       | 437                            |       | 1,110 |   |
| Loss on discontinued  operations                                                            |       | 6,862                          |       | — |   |
| Deferred income taxes                                                                       |       | 321                            |       | (11,470 | ) |
| Preferred stock dividends  and accretion                                                    |       | 15,597                         |       | 11,033 |   |
| Non-cash interest expense  (interest accretion)                                             |       | 159                            |       | 140 |   |
| Equity income from  affiliates                                                              |       | (1,649                         | )          | (1,581 | ) |
| Curtailment (gain) loss  on elimination of certain benefits                                 |       | 165                            |       | (4,657 | ) |
| Operating cash flows  provided by (used for) discontinued operations                        |       | (1,625                         | )          | 9,052 |   |
| Other, net                                                                                  |       | (731                           | )          | (476 | ) |
| Changes in assets and liabilities, net of  acquisition/disposition of business:             |       |                           |       |   |   |
| Receivables, net                                                                            |       | 9,454                          |       | (36,388 | ) |
| Net proceeds of  (reduction from) accounts receivable facility                              |       | (16,844                        | )          | 38,600 |   |
| Inventories                                                                                 |       | 806                            |       | 4,712 |   |
| Prepaid expenses and  other assets                                                          |       | (3,743                         | )          | 3,160 |   |
| Accounts payable and  accrued liabilities                                                   |       | (9,450                         | )          | (1,727 | ) |
| Change in other long-term  assets                                                           |       | (994                           | )          | (2,976 | ) |
| Change in other long-term  liabilities                                                      |       | (5,921                         | )          | (4,158 | ) |
| Net cash provided by operating  activities                                                  |       | 17,358                         |       | 55,382 |   |
| Investing activities:                                                                       |       |                           |       |   |   |
| Capital expenditures                                                                        |       | (47,070                        | )          | (54,183 | ) |
| Repurchase of leased  assets                                                                |       | (40,047                        | )          | — |   |
| Proceeds from  sale/leaseback of fixed assets                                               |       | —                         |       | 16,350 |   |
| Reimbursement from  acquisition of business, net of cash received                           |       | —                         |       | 7,960 |   |
| Proceeds from sale of  discontinued operations                                              |       | 69,058                         |       | — |   |
| Investing cash flows used  for discontinued operations                                      |       | (2,513                         | )          | (4,997 | ) |
| Net cash used for investing  activities                                                     |       | (20,572                        | )          | (34,870 | ) |
| Financing activities:                                                                       |       |                           |       |   |   |
| Proceeds of term loan  facilities                                                           |       | 58,900                         |       | — |   |
| Principal payments of  term loan facilities                                                 |       | (25,473                        | )          | (442 | ) |
| Proceeds of revolving  credit facility                                                      |       | 145,000                        |       | 215,000 |   |
| Principal payments of  revolving credit facility                                            |       | (169,605                       | )          | (228,542 | ) |
| Proceeds of other debt                                                                      |       | 4,331                          |       | 3,047 |   |
| Principal payments of  other debt                                                           |       | (6,455                         | )          | (8,845 | ) |
| Capitalization of debt  refinancing fees                                                    |       | (2,310                         | )          | — |   |
| Issuance of stock options                                                                   |       | 78                             |       | — |   |
| Financing cash flows used  for discontinued operations                                      |       | —                         |       | (135 | ) |
| Net cash provided by  (used for) financing activities                                       |       | 4,466                          |       | (19,917 | ) |
| Effect of exchange  rates on cash                                                           |       | 865                            |       | (595 | ) |
| Net increase in  cash                                                                       |       | 2,117                          |       | — |   |
| Cash and cash  equivalents, beginning of period                                             |       | 3,687                          |       | — |   |
| Cash and cash  equivalents, end of period                                                   |       | $                              | 5,804      |   | $ | — |   |
| Supplementary cash flow information:                                                        |       |                           |       |   |   |
| Cash paid for income  taxes, net                                                            |       | $                              | 15,284     |   | $ | 4,146 |   |
| Cash paid for interest                                                                      |       | $                              | 47,078     |   | $ | 42,920 |   |
| Noncash transactions—capital leases                                                    |       | $                              | 367        |   | $ | 339 |   |

 

See accompanying notes 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 metal components for theglobal light vehicle market. The Company’s products include metal-formed andprecision-engineered components and modular systems used in vehicletransmission, engine and chassis applications.

The Company maintains a fifty-two/fifty-three weekfiscal year ending on the Sunday nearest to December 31. Fiscal years 2006and 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 of 2005, the board of directorsof the Company approved an agreement to sell its business of supplying forgedmetal components to the automotive light vehicle market (“North AmericanForging” or “Forging Operations”). The agreement was entered into as of January 7,2006 and, on March 10, 2006, the Company completed this divestiture. TheForging Operations, which were part of the Chassis segment, generatedapproximately $358 million revenue in 2005 and included plants located in RoyalOak, Michigan; Fraser, Michigan; Troy, Michigan; Detroit, Michigan; Minerva,Ohio; Canal Fulton, Ohio and Ft. Wayne, Indiana. In accordance with SFAS No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets,” all revenueand expenses 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 Company management, the unauditedfinancial statements contain all adjustments, including adjustments of a normalrecurring nature, necessary to present fairly the financial position, resultsof operations and cash flows for the periods presented. These statements shouldbe read in conjunction with the Company’s financial statements included in theAnnual Report on Form 10-K for the fiscal year ended January 1,2006 (the “2005 Form 10-K”). The results of operations for theperiod ended July 2, 2006 are not necessarily indicative of the resultsfor the full year.

The preparation of consolidated financial statementsin conformity with accounting principles generally accepted in the UnitedStates requires management to make estimates and assumptions that affectamounts reported therein. Due to the inherent uncertainty involved in makingestimates, actual results reported in future periods may differ from thoseestimates.

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

At July 2, 2006, theCompany had share-based awards outstanding under one stock-based employeecompensation plan, the 2001 Long Term Equity Incentive Plan (the “Plan”). Share-basedawards under this plan consist of stock option awards and restricted stockunits. The shares issued pursuant to the options and units are required to beheld and cannot be sold or transferred until the elapse of a certain timeperiod 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 

5

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

purchase shares of the Company’s common stock grantedunder the Plan for new stock options and restricted stock units to be grantedunder the Plan. Participation in the Program was voluntary; however, electionswere required to be received by January 14, 2004, with new stock optionsgranted on or after July 16, 2004 and restricted stock units granted on January 15,2004. Non-eligible participants and one eligible employee not electing toparticipate in the Program continue to hold the original options granted underthe Plan.

Prior to January 2, 2006, the Company appliedAccounting Principles Board Opinion No. 25, “Accounting for Stock Issuedto Employees,” and related interpretations in accounting for awards made underthe Plan. Stock options granted under the Plan had an exercise price equal toor greater than the market value of the common stock on the date of the grant,and accordingly, no compensation expense was recognized. Stock awards werevalued at their fair market value measured at the date of grant, andcompensation expense was recognized over the vesting period of the award.

Effective January 2, 2006, the Company adoptedthe provisions of SFAS No. 123R, “Share-Based Payment” prospectively tonew stock awards and to awards modified, repurchased, or cancelled after thedate of adoption. The Company qualifies for the prospective method inaccordance with the provisions of SFAS No. 123R as the fair value of alloptions granted prior to January 2, 2006 was determined based on theminimum value method. Under the prospective method, compensation expense recognizedduring the six months ended July 2, 2006 included compensation expense forall share-based awards granted on or after January 2, 2006, based on thegrant date fair value estimated in accordance with the provisions of SFAS No. 123R.In accordance with the prospective method, results for prior periods have notbeen restated. The Plan is considered an equity plan under SFAS No. 123R,and compensation expense recognized as previously described is net of estimatedforfeitures of share based awards over the vesting period. The effect ofadopting SFAS No. 123R was not material to the Company’s loss fromcontinuing operations and net loss for the six months ended July 2, 2006.

Total stock-based compensation for the six monthsended July 2, 2006 was $0.1 million, all of which related to stockoptions. At July 2, 2006, there was $0.7 million of unrecognizedcompensation expense related to these unvested awards granted under the Plan.Compensation expense is recognized on a straight-line basis, or $0.1 million forthe quarter ended July 2, 2006, over the 3-year vesting life of thestock 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.

6

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

Thesignificant weighted average assumptions relating to the valuation of theCompany’s stock options for the six months ended July 2, 2006 and July 3,2005 are as follows.

| ** **                    | ** ** | **July 2, 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 sixmonths ended July 2, 2006 was $2.17. The aggregate intrinsic value waszero for all outstanding options, vested and expected to vest in the future optionsand exercisable options. Stock option awards activity for the six months ended July 2,2006 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                                                         |       |                                    | 355        |                                           |       |                                                        | $          | 6.50 |   |   |   |   |   |   |
| Forfeited                                                       |       |                                    | (82        | )                                              |       |                                                        | $          | 6.50 |   |   |   |   |   |   |
| Outstanding at  July 2, 2006                               |       |                                    | 3,257      |                                           |       |                                                        | $          | 9.41 |   |   |   | 6.3 years |   |   |
| Vested and expected to vest in the future at  July 2, 2006 |       |                                    | 2,018      |                                           |       |                                                        | $          | 10.84 |   |   |   | 5.4 years |   |   |
| Exercisable at July 2, 2006                                |       |                                    | 46         |                                           |       |                                                        |       |   |   |   | 4.8 years |   |   |
| Available for  grant at July 2, 2006                       |       |                                    | 1,703      |                                           |       |                                                        |       |   |   |   |   |   |   |

OP

----

(1)                Includes50 restricted stock units issued in 2004.

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

On April 29, 2005, the Company and its newlyformed wholly owned special purpose subsidiary, MRFC, Inc. (“MRFC”),entered into a new accounts receivable financing facility with General ElectricCapital Corporation (“GECC”). Concurrent with entering into the new facility,the former accounts receivable financing facility with JPMorgan Chase Bank,N.A. was terminated. On July 8, 2005, the Company and MRFC amended andrestated 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 receivablesfunding company. The net proceeds of sale are 

7

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

less than the face amount of accounts receivable soldby an amount that approximates the purchaser’s financing costs, which amountedto a total of $3.4 million and $1.7 million for the six months ended July 2,2006 and July 3, 2005, respectively, and is included in other expense, netin the Company’s consolidated statement of operations. Prior to April 29,2005, the Company’s trade accounts receivable of substantially all domesticbusiness operations were sold in connection with the former accounts receivablefinancing facility with JPMorgan Chase Bank, N.A. At July 2, 2006 and January 1,2006, the Company’s funding under the facility was $66.5 million and $83.4million, respectively, with availability based upon qualified receivables of$75.5 million and $126.8 million, respectively, and $8.9 million available butnot utilized at July 2, 2006 and $43.4 million available but not utilizedat January 1, 2006. The rate used to approximate the purchaser’s financingcosts was based on LIBOR plus 2.25% at July 2, 2006. In addition, theCompany is required to pay a fee of 0.5% on the unused portion of the facility.

The Company has entered into agreements withinternational invoice factoring companies to sell customer accounts receivableof Metaldyne’s foreign locations in France, Germany, Spain, Czech Republic andUnited Kingdom on a non-recourse basis. As of July 2, 2006 and January 1,2006, the Company had available $78.9 million and $71.9 million from thesecommitments, and approximately $53.2 million and $50.0 million of receivableswere sold under these programs, respectively. The Company pays a commission tothe factoring company plus interest from the date the receivables are sold tothe date of customer payment. Commission expense related to these agreements isrecorded in other expense, net on the Company’s consolidated statement ofoperations and totaled $1.0 million and $0.9 million for the six months ended July 2,2006 and July 3, 2005, respectively.

Tofacilitate the collection of funds from operating activities, the Company hasentered into accelerated payment collection programs with certain customers.Although the majority of the accelerated payment collection programs werediscontinued as of or prior to January 2, 2005, at July 2, 2006,collection of approximately $46.4 million of accounts receivable wasaccelerated under the remaining programs. Included in the above programs isapproximately $28.2 million that the Company continues to collect on anaccelerated 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 the Company’s accounts receivablesecuritization facility, the Company continues to examine other alternativeprograms in the marketplace, as well as enhanced terms directly from itscustomers.

**4.****                 Inventories**

Inventoriesby component are as follows: 

| ** **      | ** ** | **(In thousands)**    | ** ** |
|-----------------|------------|----------------------------|------------|
| ** **      | ** ** | **July 2, 2006** | ** ** | **January 1, 2006** | ** ** |
| Raw materials   |       |                       | $          | 39,085 |   |   |   | $ | 38,727 |   |   |
| Work in process |       |                       | 16,984     |   |   |   | 16,138 |   |   |
| Finished goods  |       |                       | 29,856     |   |   |   | 29,400 |   |   |
|            |       |                       | $          | 85,925 |   |   |   | $ | 84,265 |   |   |

 

8

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

**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 July 2, 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                                                |       | $                                                                         | 75,490     |   |   | $ | (29,074 | ) |   | 10.9 years |   | $ | 74,969 |   |   | $ | (25,346 | ) |   | 10.9 years |   |
| Technology and Other                                              |       | 110,671                                                                   |       |   | (40,589 | ) |   | 14.3 years |   | 109,903 |   |   | (37,680 | ) |   | 14.3 years |   |
| Total                                                             |       | $                                                                         | 186,161    |   |   | $ | (69,663 | ) |   | 12.7 years |   | $ | 184,872 |   |   | $ | (63,026 | ) |   | 12.7 years |   |
| Aggregate Amortization Expense (Included in Cost of  Sales): |       |                                                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| For the six months ended July 2, 2006                   |       |                                                                      |       |   | $ | 6,637 |   |   |   |   |   |   |   |   |   |   |   |   |
| 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 |   |   |   |   |   |   |   |   |   |   |   |   |

 

**Goodwill**

Thechanges in the carrying amount of goodwill for the six months ended July 2,2006 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 |       | 9,134                   |       |   | 2,867 |   |   | 12,001 |   |
| Expiration of tax  contingency         |       | (985                    | )          |   | (985 | ) |   | (1,970 | ) |
| Balance as of  July 2, 2006       |       | $                       | 243,787    |   |   | $ | 350,234 |   |   | $ | 594,021 |   |

 

9

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

**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 hasseparate financial information evaluated regularly by the Company’s chiefoperating decision maker and its board of directors in determining resourceallocation and assessing performance.

CHASSIS—Manufactures components, modules and systemsused in a variety of engineered chassis applications, including wheel-ends,axle shaft, knuckles and mini-corner assemblies. This segment utilizes avariety of processes including hot, warm and cold forging, powder metal forgingand machinery and assembly.

POWERTRAIN—Manufactures a broad range of enginecomponents, modules and systems, including sintered metal, powder metal,hydraulic controls, precision shafts, and forged and tubular fabricatedproducts used for a variety of applications. These applications include balanceshaft modules and front cover assemblies. This segment applies integratedprogram management to a broad range 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 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 six months ended July 2,2006 were $0.8 million and $1.4 million in the Chassis segment and $0.2 millionand $0.7 million in the Powertrain segment, respectively. Intercompany salesfor the three and six months ended July 3, 2005 were $2.8 million and $4.1million in the Chassis segment and $1.1 million and $1.8 million in thePowertrain segment, respectively. Intercompany sales are recognized inaccordance with the Company’s revenue recognition policy and are eliminated inconsolidation.

10

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

Segment activity for thesix months ended July 2, 2006 and July 3, 2005 is as follows:

| ** **                                                             | ** ** | **(In thousands)**          | ** ** |
|------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                             | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
| ** **                                                             | ** ** | **July 2, 2006**       | ** ** | **July 3, 2005** | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| **Sales**                                                              |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Chassis                                                                |       |                             | $          | 261,141 |   |   |   | $ | 273,749 |   |   | $ | 521,219 |   |   | $ | 531,592 |   |   |
| Powertrain                                                             |       |                             | 244,477    |   |   |   | 232,856 |   |   | 488,653 |   |   | 464,385 |   |   |
| Total Sales                                                            |       |                             | $          | 505,618 |   |   |   | $ | 506,605 |   |   | $ | 1,009,872 |   |   | $ | 995,977 |   |   |
| **Adjusted EBITDA**                                                    | ** ** |                             |       |   |   |   |   |   | ** ** | ** ** | ** ** |   |   |   |   |
| Chassis                                                                |       |                             | $          | 32,896 |   |   |   | $ | 25,116 |   |   | $ | 48,674 |   |   | $ | 46,643 |   |   |
| Powertrain                                                             |       |                             | 29,166     |   |   |   | 34,705 |   |   | 62,405 |   |   | 68,515 |   |   |
| Corporate/centralized  resources                                       |       |                             | (7,007     | ) |   |   | (2,130 | ) |   | (9,142 | ) |   | (6,025 | ) |   |
| Total Adjusted EBITDA                                                  |       |                             | 55,055     |   |   |   | 57,691 |   |   | 101,937 |   |   | 109,133 |   |   |
| Depreciation &  amortization                                  |       |                             | (28,866    | ) |   |   | (26,351 | ) |   | (65,755 | ) |   | (52,546 | ) |   |
| Other, net  (includes foreign currency, royalties and interest income) |       |                             | 334        |   |   |   | (780 | ) |   | 1,610 |   |   | (1,442 | ) |   |
| Operating profit                                                       |       |                             | $          | 26,523 |   |   |   | $ | 30,560 |   |   | $ | 37,792 |   |   | $ | 55,145 |   |   |

 

| ** **                      | ** ** | **(In thousands)**    | ** ** |
|---------------------------------|------------|----------------------------|------------|
| ** **                      | ** ** | **July 2, 2006** | ** ** | **January 1, 2006** | ** ** |
| **Total Assets**                |       |                       |       |   |   |   |   |
| Chassis                         |       | $                          | 733,996    |   |   | $ | 707,784 |   |   |
| Powertrain                      |       | 806,329                    |       |   | 763,112 |   |   |
| Corporate/centralized resources |       | 250,110                    |       |   | 259,427 |   |   |
| Assets held for sale            |       | —                     |       |   | 116,612 |   |   |
| Total                           |       | $                          | 1,790,435  |   |   | $ | 1,846,935 |   |   |

 

| ** **                      | ** ** | **Six Months Ended** | ** ** |
|---------------------------------|------------|--------------------------------|------------|
| ** **                      | ** ** | **July 2, 2006**     | ** ** | **July 3, 2005** | ** ** |
| **Capital Expenditures**        |       |                           |       |   |   |   |   |   |   |
| Chassis                         |       |                           | $          | 19,447 |   |   |   | $ | 23,850 |   |   |
| Powertrain                      |       |                           | 27,424     |   |   |   | 30,143 |   |   |
| Corporate/centralized resources |       |                           | 199        |   |   |   | 190 |   |   |
| Total                           |       |                           | $          | 47,070 |   |   |   | $ | 54,183 |   |   |

 

11

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

**7.      Restructuring Related Integration Actions**

Restructuringcosts incurred for the six months ended July 2, 2006 were $0.4 million andprimarily reflect headcount reductions from the Company’s European locations. Costsincurred for the six months ended July 3, 2005 were $1.6 million andprimarily reflected severance costs, as the Company streamlined its operationsfrom three segments 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              |       |                                       | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 402 |   |   | 402 |   |
| Cash payments                    |       |                                       | (62        | ) |   |   | — |   |   |   | (31 | ) |   |   | — |   |   |   | (726 | ) |   |   | (486 | ) |   | (1,305 | ) |
| Other adjustments                |       |                                       | —     |   |   |   | — |   |   |   | (58 | ) |   |   | (27 | ) |   |   | (89 | ) |   |   | 171 |   |   | (3 | ) |
| Balance at July 2,  2006    |       |                                       | $          | 383 |   |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | 282 |   |   |   | $ | 87 |   |   | $ | 752 |   |

 

The above amountsrepresent total estimated cash payments, all of which are recorded in accruedliabilities in the Company’s consolidated balance sheet at July 2, 2006and January 1, 2006, respectively.

**8.      Discontinued Operations**

On March 10, 2006, the Company completed thedivestiture of its Forging Operations to Forming Technologies, Inc. (the “Buyer”).In consideration for North American Forging and upon the closing of thetransaction, the Company received consideration of approximately $79.2 millionin cash (of which $10.1 million was used to repurchase assets held undersale-leasebacks), and retained its interest in trade accounts receivable ofapproximately $41 million. In addition, the Buyer assumed $7.5 million ofoutstanding indebtedness of North American Forging, other working capital itemsand other specified liabilities. In accordance with the terms of the agreement,the Buyer and the Company are in the process of determining an appropriateadjustment to be made to the purchase price based on working capital (excludingaccounts receivable) that existed at the time of the closing subject to certainlimits. As part of the agreement, the Company will continue to providemanagement transition services, including accounting, finance and informationtechnology support, to the Buyer for approximately one year subsequent to thedivestiture.

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.

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 reflect 

12

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

excess of net book value of assets. Therefore, theresults of operations for the Forging Operations for the current and priorperiods have been reported as discontinued operations. In addition, the assetsand liabilities of the Forging Operations have been reclassified as assets andliabilities of discontinued operations in the Company’s consolidated balancesheet at January 1, 2006.

In conjunction with the closing of the transaction,the Company recorded an additional loss on discontinued operations ofapproximately $6.9 million. This loss reflects the excess of net book value ofassets and liabilities sold over the proceeds received and the recognition of$3.4 million in curtailment losses. Under the requirements of SFAS No. 88,“Employers’ Accounting for Settlements and Curtailments of Defined BenefitPension Plans and for Termination Benefits,” and SFAS No. 106, “Employers’Accounting for Postretirement Benefits Other than Pensions,” the Companyrecognized curtailment 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 and sixmonths ended July 2, 2006 (through the March 10, 2006 closing date)and July 3, 2005 are presented below:

| ** **                                             | ** ** | **(In millions)**           | ** ** |
|--------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                             | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
| ** **                                             | ** ** | **July 2, 2006**       | ** ** | **July 3, 2005** | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| Sales to third  parties                                |       |                             | $          | — |   |   |   | $ | 95.3 |   |   |   | $ | 63.0 |   |   |   | $ | 198.8 |   |   |
| Sales with other  Metaldyne  affiliates                |       |                             | $          | — |   |   |   | $ | 12.8 |   |   |   | $ | 9.5 |   |   |   | $ | 26.9 |   |   |
| Loss from discontinued operations before income  taxes |       |                             | $          | — |   |   |   | $ | (0.8 | ) |   |   | $ | (0.4 | ) |   |   | $ | (1.7 | ) |   |
| Income tax benefit                                     |       |                             | $          | — |   |   |   | $ | (0.3 | ) |   |   | $ | — |   |   |   | $ | (0.6 | ) |   |
| Loss from discontinued  operations                     |       |                             | $          | — |   |   |   | $ | (0.5 | ) |   |   | $ | (0.4 | ) |   |   | $ | (1.1 | ) |   |

 

Thecomponents of assets and liabilities of the discontinued operations in theconsolidated balance sheet 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 |   |   |

 

13

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

**9.      Redeemable Preferred Stock**

The Company has authorized and outstanding 644,540shares, $1 par value, of $64.5 million in liquidation value ($57.5 millioncarrying value as of July 2, 2006) Series A-1 preferred stockto DaimlerChrysler Corporation. The Company will accrete from the carryingvalue 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 ($34.6 million carrying value asof July 2, 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.

Preferred stock dividends(including accretion of $0.5 million in each of 2006 and 2005) were $15.6million and $11.0 million, while dividend cash payments were zero, for the sixmonths ended July 2, 2006 and July 3, 2005, respectively. Unpaidaccrued dividends were $77.0 million and $61.9 million at July 2, 2006 andJanuary 1, 2006, respectively. Redeemable preferred stock, consisting ofoutstanding shares and unpaid dividends, was $187.5 million and $171.9 millionin the Company’s consolidated balance sheet at July 2, 2006 and January 1,2006, respectively.

**10.   Loss Per 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 3.2million and 2.7 million of common shares as they are anti-dilutive at July 2,2006 and July 3, 2005, respectively.

Contingently issuableshares, representing approximately 50,000 restricted common shares, have ananti-dilutive effect on earnings per share for each of the six months ended July 2,2006 and July 3, 2005.

14

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

**11.   Comprehensive Income (Loss)**

TheCompany’s total comprehensive income (loss) for the period was as follows:

| ** **                                                                            | ** ** | **(In thousands)**          | ** ** |
|---------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                            | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
| ** **                                                                            | ** ** | **July 2, 2006**       | ** ** | **July 3, 2005** | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| Net income (loss)                                                                     |       |                             | $          | (16,503 | ) |   |   | $ | 60 |   |   |   | $ | (51,856 | ) |   |   | $ | (3,440 | ) |   |
| Other comprehensive  income (loss):                                                   |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign currency translation adjustment                                               |       |                             | 19,603     |   |   |   | (30,630 | ) |   |   | 28,754 |   |   |   | (43,367 | ) |   |
| Change in the Company’s portion of TriMas’ currency  translation adjustment |       |                             | 1,571      |   |   |   | (1,126 | ) |   |   | 1,725 |   |   |   | (2,039 | ) |   |
| Total other comprehensive income (loss)                                               |       |                             | 21,174     |   |   |   | (31,756 | ) |   |   | 30,479 |   |   |   | (45,406 | ) |   |
| Total comprehensive  income (loss)                                                    |       |                             | $          | 4,671 |   |   |   | $ | (31,696 | ) |   |   | $ | (21,377 | ) |   |   | $ | (48,846 | ) |   |

 

**12.   Employee Benefit Plans**

Thefollowing represent the Company’s net periodic benefit (gain) cost (includingthe (gain) cost related to the Forging Operations) at July 2, 2006 and July 3,2005:

**Pension Benefits:**

| ** **                                              | ** ** | **(In thousands)**                            | ** ** |
|---------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                              | ** ** | **For the three months ended** | ** ** | **For the six months ended** | ** ** |
| ** **                                              | ** ** | ** July 2, 2006 **             | ** ** | ** July 3, 2005 ** | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| **Components of Net Periodic  Benefit Cost:**           | ** ** |                                               | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Service cost                                            |       |                                               | $          | 842 |   |   |   | $ | 768 |   |   |   | $ | 1,859 |   |   |   | $ | 1,528 |   |   |
| Interest cost                                           |       |                                               | 4,608      |   |   |   | 4,480 |   |   |   | 9,198 |   |   |   | 8,970 |   |   |
| Expected return  on plan assets                         |       |                                               | (4,825     | ) |   |   | (4,598 | ) |   |   | (9,699 | ) |   |   | (9,198 | ) |   |
| Amortization of  prior service cost                     |       |                                               | 23         |   |   |   | 42 |   |   |   | 64 |   |   |   | 82 |   |   |
| Recognized (gain)  loss due to curtailments/settlements |       |                                               | —     |   |   |   | — |   |   |   | 3,265 |   |   |   | — |   |   |
| Amortization of  net loss                               |       |                                               | 1,313      |   |   |   | 903 |   |   |   | 2,699 |   |   |   | 1,803 |   |   |
| Net periodic benefit  cost                              |       |                                               | $          | 1,961 |   |   |   | $ | 1,595 |   |   |   | $ | 7,386 |   |   |   | $ | 3,185 |   |   |

 

**OtherBenefits:**

| ** **                                              | ** ** | **(In thousands)**                            | ** ** |
|---------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                              | ** ** | **For the three months ended** | ** ** | **For the six months ended** | ** ** |
| ** **                                              | ** ** | ** July 2, 2006 **             | ** ** | ** July 3, 2005 ** | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| **Components of Net Periodic  Benefit Cost:**           | ** ** |                                               | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Service cost                                            |       |                                               | $          | 370 |   |   |   | $ | 446 |   |   |   | $ | 757 |   |   |   | $ | 1,018 |   |   |
| Interest cost                                           |       |                                               | 407        |   |   |   | 547 |   |   |   | 843 |   |   |   | 1,342 |   |   |
| Amortization of  prior service cost                     |       |                                               | (82        | ) |   |   | (5,625 | ) |   |   | (164 | ) |   |   | (5,718 | ) |   |
| Recognized (gain)  loss due to curtailments/settlements |       |                                               | —     |   |   |   | — |   |   |   | 300 |   |   |   | (2,487 | ) |   |
| Amortization of  net loss                               |       |                                               | 90         |   |   |   | 2,503 |   |   |   | 185 |   |   |   | 2,676 |   |   |
| Net periodic benefit  (gain) cost                       |       |                                               | $          | 785 |   |   |   | $ | (2,129 | ) |   |   | $ | 1,921 |   |   |   | $ | (3,169 | ) |   |

 

15

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

**Employer Contributions**

The Company expects to contribute $23.7 millionto its defined benefit pension plans in 2006, of which approximately$10.4 million of contributions have been made through July 2, 2006.The expected contribution amount assumes that the funding law applicable for2005 is extended as proposed by Congress for the 2006 plan year. Absent thisextension, the Company would expect to contribute an additional $2.0 million tothe defined benefit pension plans for 2006.

The Company expects to contribute $11.0 millionto its defined contribution (profit-sharing and 401(k) matching contribution)plans in 2006, of which approximately $5.0 million of contributions havebeen made through July 2, 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 six monthsended July 3, 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 consolidatedstatement of operations. As a result of the discontinuation of the plan,expenses related to the retiree medical and life insurance plans for the sixmonths ended July 3, 2005 were $2.6 million lower than what theywould have been had the plan not been discontinued. $0.4 million of this amountis reflected in selling, general and administrative expenses and$2.2 million is reflected in cost of sales in the Company’s consolidatedstatement of operations.

The Company expects to contribute $1.6 million toits postretirement medical and life insurance benefit plans in 2006, of whichapproximately $0.9 million of contributions have been made throughJuly 2, 2006.

In accordance with theterms of sale of the Forging Operations (refer to Note 8, Discontinued Operations),all defined benefit pension plan obligations relating to the Forging Operations’employees will be retained by the Company. Postretirement medical and lifeinsurance benefit obligations relating to the former Forging Operations’employees will also be retained by the Company with obligations related to thecurrent employees transferred to the new owners. This transferred obligationfor postretirement medical and life insurance benefit obligations wasapproximately $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’ Accountingfor Postretirement Benefits Other than Pensions,” the Company recognized a $3.1million and $0.3 million curtailment loss, respectively, due to the divestitureof the Forging Operations.

**13.   Related Parties**

On June 6, 2002, theCompany sold 66% of its former TriMas subsidiary to Heartland and otherinvestors. The Company’s current ownership percentage in TriMas isapproximately 24%. The Company has recorded $8.6 million due from TriMas,consisting of tax net operating losses created prior to the disposition ofTriMas, pension obligations, reimbursement due for cash payments made relatedto postretirement obligations and other expense reimbursements in the ordinarycourse of business, of which $5.1 million is recorded as receivables fromTriMas and $3.5 million is recorded as equity investments in and receivablesfrom affiliates in the Company’s consolidated balance sheet as of July 2,2006.

16

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

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

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.

The Company has 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. The Company believes that there will be afavorable outcome to the customer dispute based on information currentlyavailable. Approximately $1.0 million of accounts receivables related to thisissue is recorded on the Company’s consolidated balance sheet as of July 2,2006 and January 1, 2006. It is the Company’s policy to record charges toearnings when estimates of the Company’s exposure for lawsuits and pending orasserted claims meet the criteria for recognition under SFAS No. 5, “Accountingfor Contingencies.”

Under FASB Interpretation(FIN) No. 47, *Accounting for ConditionalAsset Retirement Obligations*, obligations associated with theretirement of long-lived assets are recorded when there is a legal obligationto incur such costs and the fair value of the liability can be reasonablyestimated. This amount is accounted for as an additional element of cost, and,like other cost elements, is depreciated over the corresponding asset’s usefullife. As of July 2, 2006, the Company recorded $3.8 million for assetretirement obligations. This amount is included in “accrued liabilities” on theconsolidated balance sheet.

**15.   New Accounting Pronouncement**

In June 2006, theFinancial Accounting Standards Board, or FASB, issued FASB Interpretation No. 48,*Accounting for Uncertainty in Income Taxes*,or 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. The Company is assessing FIN 48 and has not yetdetermined the impact that the adoption of this Interpretation will have on itsresults of operations or financial position.

**16.   Subsequent Event**

As disclosed in itsCurrent Report on Form 8-K filed July 14, 2006, the Company isseeking to refinance the approximately $200 million revolving portion of itsexisting approximately $575 million senior secured credit facilities to extendmaturities and to make certain other technical changes. As of July 2,2006, $35 million is outstanding on the revolving portion of the existingfacility, all of which is classified as “current maturities, long-term debt” onthe Company’s consolidated balance sheet. The revolving portion of the existingfacility matures on May 28, 2007.

17

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

**17.   Condensed Consolidating Financial Statementsof Guarantors of Senior Subordinated Notes**

The followingcondensed consolidating financial information presents:

(1)         Condensed consolidatingfinancial statements as of July 2, 2006 and January 1, 2006, and forthe three and six months ended July 2, 2006 and July 3, 2005 of (a) MetaldyneCorporation, the parent and issuer, (b) the guarantor subsidiaries, (c) thenon-guarantor subsidiaries and (d) the Company 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 in subsidiariesare recorded at cost and adjusted for the Company’s share of the subsidiaries’cumulative results of operations, capital contributions, distributions andother equity changes. The principal elimination entries eliminate investmentsin subsidiaries and intercompany balances and transactions.

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.

18

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

**Guarantor/Non-GuarantorCondensed Consolidating Balance SheetJuly 2, 2006(Unaudited)**

| ** **                                            | ** ** | **(In thousands)** | ** ** |
|-------------------------------------------------------|------------|-------------------------|------------|
| ** **                                            | ** ** | **Parent**              | ** ** | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| **Assets**                                            | ** ** | ** **              | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Current assets:                                       |       |                    |       |   |   |   |   | ** ** |   |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                            |       | $                       | —     |   | $ | — |   |   | $ | 5,804 | ** ** |   |   | $ | — |   |   |   | $ | 5,804 |   |   |
| Total receivables, net                                |       | —                  |       | 17,154 |   |   | 139,452 | ** ** |   |   | — |   |   |   | 156,606 |   |   |
| Inventories                                           |       | —                  |       | 48,705 |   |   | 37,220 | ** ** |   |   | — |   |   |   | 85,925 |   |   |
| Deferred and refundable  income taxes                 |       | —                  |       | 9,378 |   |   | 1,624 | ** ** |   |   | — |   |   |   | 11,002 |   |   |
| Prepaid expenses and  other assets                    |       | —                  |       | 25,352 |   |   | 8,135 | ** ** |   |   | — |   |   |   | 33,487 |   |   |
| Total current assets                                  |       | —                  |       | 100,589 |   |   | 192,235 | ** ** |   |   | — |   |   |   | 292,824 |   |   |
| Equity investments and  receivables in affiliates     |       | 93,031                  |       | — |   |   | — | ** ** |   |   | — |   |   |   | 93,031 |   |   |
| Property and equipment,  net                          |       | —                  |       | 398,627 |   |   | 268,732 | ** ** |   |   | — |   |   |   | 667,359 |   |   |
| Excess of cost over net  assets of acquired companies |       | —                  |       | 433,332 |   |   | 160,689 | ** ** |   |   | — |   |   |   | 594,021 |   |   |
| Investment in  subsidiaries                           |       | 292,518                 |       | 200,821 |   |   | — | ** ** |   |   | (493,339 | ) |   |   | — |   |   |
| Intangible and other  assets                          |       | —                  |       | 124,143 |   |   | 19,057 | ** ** |   |   | — |   |   |   | 143,200 |   |   |
| Total assets                                          |       | $                       | 385,549    |   | $ | 1,257,512 |   |   | $ | 640,713 | ** ** |   |   | $ | (493,339 | ) |   |   | $ | 1,790,435 |   |   |
| **Liabilities and Shareholders’ Equity**         | ** ** | ** **              | ** ** | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Current liabilities:                                  |       |                    |       |   |   |   |   | ** ** |   |   |   |   |   |   |   |   |   |
| Accounts payable                                      |       | $                       | —     |   | $ | 153,614 |   |   | $ | 97,074 | ** ** |   |   | $ | — |   |   |   | $ | 250,688 |   |   |
| Accrued liabilities                                   |       | —                  |       | 101,463 |   |   | 23,662 | ** ** |   |   | — |   |   |   | 125,125 |   |   |
| Current maturities,  long-term debt                   |       | —                  |       | 37,647 |   |   | 2,844 | ** ** |   |   | — |   |   |   | 40,491 |   |   |
| Total current  liabilities                            |       | —                  |       | 292,724 |   |   | 123,580 | ** ** |   |   | — |   |   |   | 416,304 |   |   |
| Long-term debt                                        |       | 427,628                 |       | 396,256 |   |   | 286 | ** ** |   |   | — |   |   |   | 824,170 |   |   |
| Deferred income taxes                                 |       | —                  |       | 13,845 |   |   | 28,557 | ** ** |   |   | — |   |   |   | 42,402 |   |   |
| Minority interest                                     |       | —                  |       | — |   |   | 726 | ** ** |   |   | — |   |   |   | 726 |   |   |
| Other long-term  liabilities                          |       | —                  |       | 107,654 |   |   | 13,630 | ** ** |   |   | — |   |   |   | 121,284 |   |   |
| Redeemable preferred  stock                           |       | 187,525                 |       | — |   |   | — | ** ** |   |   | — |   |   |   | 187,525 |   |   |
| Intercompany accounts,  net                           |       | (427,628                | )          | 154,515 |   |   | 273,113 | ** ** |   |   | — |   |   |   | — |   |   |
| Total liabilities                                     |       | 187,525                 |       | 964,994 |   |   | 439,892 | ** ** |   |   | — |   |   |   | 1,592,411 |   |   |
| Shareholders’ equity:                            |       |                    |       |   |   |   |   | ** ** |   |   |   |   |   |   |   |   |   |
| Preferred stock                                       |       | —                  |       | — |   |   | — | ** ** |   |   | — |   |   |   | — |   |   |
| Common stock                                          |       | 42,845                  |       | — |   |   | — | ** ** |   |   | — |   |   |   | 42,845 |   |   |
| Paid-in capital                                       |       | 698,946                 |       | — |   |   | — | ** ** |   |   | — |   |   |   | 698,946 |   |   |
| Accumulated deficit                                   |       | (576,504                | )          | — |   |   | — | ** ** |   |   | — |   |   |   | (576,504 | ) |   |
| Accumulated other  comprehensive income               |       | 32,737                  |       | — |   |   | — | ** ** |   |   | — |   |   |   | 32,737 |   |   |
| Investment by  Parent/Guarantor                       |       | —                  |       | 292,518 |   |   | 200,821 | ** ** |   |   | (493,339 | ) |   |   | — |   |   |
| Total shareholders’ equity                       |       | 198,024                 |       | 292,518 |   |   | 200,821 | ** ** |   |   | (493,339 | ) |   |   | 198,024 |   |   |
| Total liabilities and shareholders’ equity       |       | $                       | 385,549    |   | $ | 1,257,512 |   |   | $ | 640,713 | ** ** |   |   | $ | (493,339 | ) |   |   | $ | 1,790,435 |   |   |

 

19

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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 |   |   |

 

20

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

**Guarantor/Non-GuarantorCondensed Consolidating Statement of OperationsThree Months Ended July 2, 2006(Unaudited)**

| ** **                                                    | ** ** | **(In thousands)** | ** ** |
|---------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                    | ** ** | **Parent**              | ** ** | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net sales                                                     |       | $                       | —     |   | $ | 351,291 |   |   | $ | 154,327 |   |   |   | $ | — |   |   |   | $ | 505,618 |   |   |
| Cost of sales                                                 |       | —                  |       | (322,752 | ) |   | (126,576 | ) |   |   | — |   |   |   | (449,328 | ) |   |
| Gross profit                                                  |       | —                  |       | 28,539 |   |   | 27,751 |   |   |   | — |   |   |   | 56,290 |   |   |
| Selling, general  and administrative expenses                 |       | —                  |       | (23,112 | ) |   | (6,331 | ) |   |   | — |   |   |   | (29,443 | ) |   |
| Restructuring  charges                                        |       | —                  |       | (141 | ) |   | (183 | ) |   |   | — |   |   |   | (324 | ) |   |
| Operating profit                                              |       | —                  |       | 5,286 |   |   | 21,237 |   |   |   | — |   |   |   | 26,523 |   |   |
| Other expense, net:                                           |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                              |       | —                  |       | (23,358 | ) |   | (806 | ) |   |   | — |   |   |   | (24,164 | ) |   |
| Preferred stock dividends and  accretion                      |       | (9,125                  | )          | — |   |   | — |   |   |   | — |   |   |   | (9,125 | ) |   |
| Equity income from affiliates                                 |       | 690                     |       | — |   |   | — |   |   |   | — |   |   |   | 690 |   |   |
| Other, net                                                    |       | —                  |       | (2,195 | ) |   | (2,788 | ) |   |   | — |   |   |   | (4,983 | ) |   |
| Other expense, net                                            |       | (8,435                  | )          | (25,553 | ) |   | (3,594 | ) |   |   | — |   |   |   | (37,582 | ) |   |
| Income (loss)  from continuing operations before income taxes |       | (8,435                  | )          | (20,267 | ) |   | 17,643 |   |   |   | — |   |   |   | (11,059 | ) |   |
| Income tax  expense                                           |       | —                  |       | (311 | ) |   | 5,784 |   |   |   | — |   |   |   | 5,473 |   |   |
| Income (loss)  from continuing operations                     |       | (8,435                  | )          | (19,956 | ) |   | 11,859 |   |   |   | — |   |   |   | (16,532 | ) |   |
| Income from  discontinued operations, net of tax         |       | —                  |       | 29 |   |   | — |   |   |   | — |   |   |   | 29 |   |   |
| Equity in net  income of subsidiaries                         |       | (8,068                  | )          | 11,859 |   |   | — |   |   |   | (3,791 | ) |   |   | — |   |   |
| Earnings (loss)  attributable to common stock                 |       | $                       | (16,503    | ) | $ | (8,068 | ) |   | $ | 11,859 |   |   |   | $ | (3,791 | ) |   |   | $ | (16,503 | ) |   |

 

21

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

**Guarantor/Non-GuarantorCondensed Consolidating Statement of OperationsThree Months Ended July 3, 2005(Unaudited)**

| ** **                                                    | ** ** | **(In thousands)** | ** ** |
|---------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                    | ** ** | **Parent**              | ** ** | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net sales                                                     |       | $                       | —     |   | $ | 371,655 |   |   | $ | 134,950 |   |   |   | $ | — |   |   |   | $ | 506,605 |   |   |
| Cost of sales                                                 |       | —                  |       | (336,767 | ) |   | (108,774 | ) |   |   | — |   |   |   | (445,541 | ) |   |
| Gross profit                                                  |       | —                  |       | 34,888 |   |   | 26,176 |   |   |   | — |   |   |   | 61,064 |   |   |
| Selling, general  and administrative  expenses                |       | —                  |       | (23,113 | ) |   | (7,024 | ) |   |   | — |   |   |   | (30,137 | ) |   |
| Restructuring  charges                                        |       | —                  |       | (357 | ) |   | (10 | ) |   |   | — |   |   |   | (367 | ) |   |
| Operating profit                                              |       | —                  |       | 11,418 |   |   | 19,142 |   |   |   | — |   |   |   | 30,560 |   |   |
| Other expense, net:                                           |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                              |       | —                  |       | (21,279 | ) |   | (448 | ) |   |   | — |   |   |   | (21,727 | ) |   |
| Preferred stock dividends and accretion                       |       | (5,597                  | )          | — |   |   | — |   |   |   | — |   |   |   | (5,597 | ) |   |
| Equity income from affiliates                                 |       | 976                     |       | — |   |   | — |   |   |   | — |   |   |   | 976 |   |   |
| Other, net                                                    |       | —                  |       | (2,909 | ) |   | 950 |   |   |   | — |   |   |   | (1,959 | ) |   |
| Other expense, net                                            |       | (4,621                  | )          | (24,188 | ) |   | 502 |   |   |   | — |   |   |   | (28,307 | ) |   |
| Income (loss)  from continuing operations before income taxes |       | (4,621                  | )          | (12,770 | ) |   | 19,644 |   |   |   | — |   |   |   | 2,253 |   |   |
| Income tax expense  (benefit)                                 |       | —                  |       | (5,174 | ) |   | 6,877 |   |   |   | — |   |   |   | 1,703 |   |   |
| Income (loss)  from continuing operations                     |       | (4,621                  | )          | (7,596 | ) |   | 12,767 |   |   |   | — |   |   |   | 550 |   |   |
| Loss from  discontinued operations, net of tax                |       | —                  |       | (490 | ) |   | — |   |   |   | — |   |   |   | (490 | ) |   |
| Equity in net  income of subsidiaries                         |       | 4,681                   |       | 12,767 |   |   | — |   |   |   | (17,448 | ) |   |   | — |   |   |
| Earnings (loss)  attributable to common stock                 |       | $                       | 60         |   | $ | 4,681 |   |   | $ | 12,767 |   |   |   | $ | (17,448 | ) |   |   | $ | 60 |   |   |

 

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

**Guarantor/Non-GuarantorCondensed Consolidating Statement of OperationsSix Months Ended July 2, 2006(Unaudited)**

| ** **                                                         | ** ** | **(In thousands)** | ** ** |
|--------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                         | ** ** | **Parent**              | ** ** | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net sales                                                          |       | $                       | —     |   | $ | 708,807 |   |   | $ | 301,065 |   |   |   | $ | — |   |   |   | $ | 1,009,872 |   |   |
| Cost of sales                                                      |       | —                  |       | (665,828 | ) |   | (247,997 | ) |   |   | — |   |   |   | (913,825 | ) |   |
| Gross profit                                                       |       | —                  |       | 42,979 |   |   | 53,068 |   |   |   | — |   |   |   | 96,047 |   |   |
| Selling, general  and administrative expenses                      |       | —                  |       | (46,009 | ) |   | (11,844 | ) |   |   | — |   |   |   | (57,853 | ) |   |
| Restructuring  charges                                             |       | —                  |       | (98 | ) |   | (304 | ) |   |   | — |   |   |   | (402 | ) |   |
| Operating profit  (loss)                                           |       | —                  |       | (3,128 | ) |   | 40,920 |   |   |   | — |   |   |   | 37,792 |   |   |
| Other expense, net:                                                |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                                   |       | —                  |       | (46,455 | ) |   | (1,656 | ) |   |   | — |   |   |   | (48,111 | ) |   |
| Preferred stock dividends and  accretion                           |       | (15,597                 | )          | — |   |   | — |   |   |   | — |   |   |   | (15,597 | ) |   |
| Equity income from affiliates                                      |       | 1,649                   |       | — |   |   | — |   |   |   | — |   |   |   | 1,649 |   |   |
| Other, net                                                         |       | —                  |       | (3,815 | ) |   | (6,005 | ) |   |   | — |   |   |   | (9,820 | ) |   |
| Other expense, net                                                 |       | (13,948                 | )          | (50,270 | ) |   | (7,661 | ) |   |   | — |   |   |   | (71,879 | ) |   |
| Income (loss)  from continuing operations before income taxes |       | (13,948                 | )          | (53,398 | ) |   | 33,259 |   |   |   | — |   |   |   | (34,087 | ) |   |
| Income tax  expense                                                |       | —                  |       | 558 |   |   | 9,912 |   |   |   | — |   |   |   | 10,470 |   |   |
| Income (loss)  from continuing  operations                         |       | (13,948                 | )          | (53,956 | ) |   | 23,347 |   |   |   | — |   |   |   | (44,557 | ) |   |
| Loss from  discontinued operations, net of tax                |       | —                  |       | (437 | ) |   | — |   |   |   | — |   |   |   | (437 | ) |   |
| Loss on  discontinued operations, net  of tax                      |       | —                  |       | (6,862 | ) |   | — |   |   |   | — |   |   |   | (6,862 | ) |   |
| Equity in net  income of subsidiaries                              |       | (37,908                 | )          | 23,347 |   |   | — |   |   |   | 14,561 |   |   |   | — |   |   |
| Earnings (loss)  attributable to common stock                      |       | $                       | (51,856    | ) | $ | (37,908 | ) |   | $ | 23,347 |   |   |   | $ | 14,561 |   |   |   | $ | (51,856 | ) |   |

 

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

**Guarantor/Non-GuarantorCondensed Consolidating Statement of OperationsSix Months Ended July 3, 2005(Unaudited)**

| ** **                                                    | ** ** | **(In thousands)** | ** ** |
|---------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                    | ** ** | **Parent**              | ** ** | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net sales                                                     |       | $                       | —     |   | $ | 733,136 |   |   | $ | 262,841 |   |   |   | $ | — |   |   |   | $ | 995,977 |   |   |
| Cost of sales                                                 |       | —                  |       | (671,394 | ) |   | (211,965 | ) |   |   | — |   |   |   | (883,359 | ) |   |
| Gross profit                                                  |       | —                  |       | 61,742 |   |   | 50,876 |   |   |   | — |   |   |   | 112,618 |   |   |
| Selling, general  and administrative expenses                 |       | —                  |       | (42,890 | ) |   | (12,964 | ) |   |   | — |   |   |   | (55,854 | ) |   |
| Restructuring  charges                                        |       | —                  |       | (1,389 | ) |   | (230 | ) |   |   | — |   |   |   | (1,619 | ) |   |
| Operating profit                                              |       | —                  |       | 17,463 |   |   | 37,682 |   |   |   | — |   |   |   | 55,145 |   |   |
| Other expense, net:                                           |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                              |       | —                  |       | (43,112 | ) |   | (1,168 | ) |   |   | — |   |   |   | (44,280 | ) |   |
| Preferred stock dividends and  accretion                      |       | (11,033                 | )          | — |   |   | — |   |   |   | — |   |   |   | (11,033 | ) |   |
| Equity income from affiliates                                 |       | 1,581                   |       | — |   |   | — |   |   |   | — |   |   |   | 1,581 |   |   |
| Other, net                                                    |       | —                  |       | (5,606 | ) |   | 2,010 |   |   |   | — |   |   |   | (3,596 | ) |   |
| Other expense, net                                            |       | (9,452                  | )          | (48,718 | ) |   | 842 |   |   |   | — |   |   |   | (57,328 | ) |   |
| Income (loss)  from continuing operations before income taxes |       | (9,452                  | )          | (31,255 | ) |   | 38,524 |   |   |   | — |   |   |   | (2,183 | ) |   |
| Income tax  expense (benefit)                                 |       | —                  |       | (12,580 | ) |   | 12,727 |   |   |   | — |   |   |   | 147 |   |   |
| Income (loss) from  continuing operations                     |       | (9,452                  | )          | (18,675 | ) |   | 25,797 |   |   |   | — |   |   |   | (2,330 | ) |   |
| Loss from  discontinued operations, net of tax                |       | —                  |       | (1,110 | ) |   | — |   |   |   | — |   |   |   | (1,110 | ) |   |
| Equity in net  income of subsidiaries                         |       | 6,012                   |       | 25,797 |   |   | — |   |   |   | (31,809 | ) |   |   | — |   |   |
| Earnings (loss)  attributable to common stock                 |       | $                       | (3,440     | ) | $ | 6,012 |   |   | $ | 25,797 |   |   |   | $ | (31,809 | ) |   |   | $ | (3,440 | ) |   |

 

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

**Guarantor/Non-GuarantorCondensed Consolidating Statement of Cash FlowsSix Months Ended July 2, 2006(Unaudited)**

| ** **                                             | ** ** | **(In thousands)** | ** ** |
|--------------------------------------------------------|------------|-------------------------|------------|
| ** **                                             | ** ** | **Parent**              | ** ** | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Cash  flows from operating activities:                 |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net cash provided by (used  for) operating activities  |       | $                       | —     |   | $ | (58,303 | ) |   | $ | 75,661 |   |   |   | $ | — |   |   |   | $ | 17,358 |   |   |
| Cash  flows from investing activities:                 |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital expenditures                                   |       | —                  |       | (36,481 | ) |   | (10,589 | ) |   |   | — |   |   |   | (47,070 | ) |   |
| Repurchase of leased assets                            |       | —                  |       | (40,047 | ) |   | — |   |   |   | — |   |   |   | (40,047 | ) |   |
| Proceeds from sale of  discontinued operations         |       | —                  |       | 69,058 |   |   | — |   |   |   | — |   |   |   | 69,058 |   |   |
| Investing cash flows used  for discontinued operations |       | —                  |       | (2,513 | ) |   | — |   |   |   | — |   |   |   | (2,513 | ) |   |
| Net cash used for investing  activities                |       | —                  |       | (9,983 | ) |   | (10,589 | ) |   |   | — |   |   |   | (20,572 | ) |   |
| 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                 |       | —                  |       | 145,000 |   |   | — |   |   |   | — |   |   |   | 145,000 |   |   |
| Principal payments of  revolving credit facility       |       | —                  |       | (169,605 | ) |   | — |   |   |   | — |   |   |   | (169,605 | ) |   |
| Proceeds of other debt                                 |       | —                  |       | — |   |   | 4,331 |   |   |   | — |   |   |   | 4,331 |   |   |
| Principal payments of other  debt                      |       | —                  |       | (924 | ) |   | (5,531 | ) |   |   | — |   |   |   | (6,455 | ) |   |
| Capitalization of debt  financing fees                 |       | —                  |       | (2,310 | ) |   | — |   |   |   | — |   |   |   | (2,310 | ) |   |
| Issuance of stock options                              |       | —                  |       | 78 |   |   | — |   |   |   | — |   |   |   | 78 |   |   |
| Net cash provided by (used  for) financing activities  |       | —                  |       | 5,666 |   |   | (1,200 | ) |   |   | — |   |   |   | 4,466 |   |   |
| Effect of exchange rates on  cash                      |       | —                  |       | — |   |   | 865 |   |   |   | — |   |   |   | 865 |   |   |
| Change in intercompany  accounts                       |       | —                  |       | 62,620 |   |   | (62,620 | ) |   |   | — |   |   |   | — |   |   |
| Net increase in cash                                   |       | —                  |       | — |   |   | 2,117 |   |   |   | — |   |   |   | 2,117 |   |   |
| Cash and cash equivalents,  beginning of period        |       | —                  |       | — |   |   | 3,687 |   |   |   | — |   |   |   | 3,687 |   |   |
| Cash and cash equivalents, end of period               |       | $                       | —     |   | $ | — |   |   | $ | 5,804 |   |   |   | $ | — |   |   |   | $ | 5,804 |   |   |

 

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

**Guarantor/Non-GuarantorCondensed Consolidating Statement of Cash FlowsSix Months Ended July 3, 2005(Unaudited)**

| ** **                                                             | ** ** | **(In thousands)** | ** ** |
|------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                             | ** ** | **Parent**              | ** ** | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Cash flows from operating activities:                                  |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net cash provided by  operating activities                             |       | $                       | —     |   | $ | 27,632 |   |   | $ | 27,750 |   |   |   | $ | — |   |   |   | $ | 55,382 |   |   |
| Cash flows from investing activities:                                  |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital expenditures                                                   |       | —                  |       | (36,911 | ) |   | (17,272 | ) |   |   | — |   |   |   | (54,183 | ) |   |
| Proceeds from  sale/leaseback of fixed assets                          |       | —                  |       | 16,350 |   |   | — |   |   |   | — |   |   |   | 16,350 |   |   |
| Reimbursement from  acquisition of business, net of cash received |       | —                  |       | 7,960 |   |   | — |   |   |   | — |   |   |   | 7,960 |   |   |
| Investing cash flows used  for discontinued operations                 |       | —                  |       | (4,997 | ) |   | — |   |   |   | — |   |   |   | (4,997 | ) |   |
| Net cash used for investing  activities                                |       | —                  |       | (17,598 | ) |   | (17,272 | ) |   |   | — |   |   |   | (34,870 | ) |   |
| Cash flows from financing activities:                                  |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Principal payments of term  loan facilities                            |       | —                  |       | (442 | ) |   | — |   |   |   | — |   |   |   | (442 | ) |   |
| Proceeds of revolving  credit facility                                 |       | —                  |       | 215,000 |   |   | — |   |   |   | — |   |   |   | 215,000 |   |   |
| Principal payments of  revolving credit facility                       |       | —                  |       | (228,542 | ) |   | — |   |   |   | — |   |   |   | (228,542 | ) |   |
| Proceeds of other debt                                                 |       | —                  |       | — |   |   | 3,047 |   |   |   | — |   |   |   | 3,047 |   |   |
| Principal payments of other  debt                                      |       | —                  |       | (1,419 | ) |   | (7,426 | ) |   |   | — |   |   |   | (8,845 | ) |   |
| Financing cash flows used  for discontinued operations                 |       | —                  |       | (135 | ) |   | — |   |   |   | — |   |   |   | (135 | ) |   |
| Net cash used for financing  activities                                |       | —                  |       | (15,538 | ) |   | (4,379 | ) |   |   | — |   |   |   | (19,917 | ) |   |
| Effect of exchange rates on  cash                                      |       | —                  |       | — |   |   | (595 | ) |   |   | — |   |   |   | (595 | ) |   |
| Change in intercompany  accounts                                       |       | —                  |       | 5,504 |   |   | (5,504 | ) |   |   | — |   |   |   | — |   |   |
| Net increase in cash                                                   |       | —                  |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Cash and cash equivalents,  beginning of period                        |       | —                  |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Cash and cash equivalents, end of period                               |       | $                       | —     |   | $ | — |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   |

 

 

26

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

**Executive Summary**

We are a leading globalmanufacturer of highly engineered metal components for the global light vehiclemarket with 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 andprecision-engineered components and modular systems used in the transmissions,engines and chassis of vehicles. We serve approximately 200 automotive andindustrial customers and our top ten customers represent approximately 70% oftotal 2005 sales. Prior to November 2000, we were a public company. Sincewe were acquired in November 2000 by a private investor group, we haveactively pursued opportunities for internal growth and strategic acquisitionsthat were unavailable to us when the majority of our shares were publiclytraded. Since November 2000, we have completed four acquisitions—Simpsonin December 2000, GMTI effective January 2001, Dana Corporation’sGreensboro, NC operation in May 2003, and DaimlerChrysler’s New Castle, INoperation at the beginning of our fiscal 2004. Each of these acquisitions hasadded to the full service, integrated metal supply capabilities of ourautomotive operations. Additionally, we split off our non-automotiveoperations, divesting our former TriMas subsidiary in June 2002, ourFittings operation in April 2003 and two aluminum die casting facilitiesin February 2004. On March 10, 2006, we completed the divestiture ofour North American Forging Operations (“North American Forging” or “ForgingOperations”).

**Key FactorsAffecting our Reported Results**

We operate in extremely competitive markets. Our customersselect us based upon numerous factors including technology, quality and price.Supplier selection is generally finalized several years prior to the start ofvehicle production and as a result, business that we win will generally notstart production for two years or beyond. In addition, our results are heavilydependent on global vehicle production, and in particular the North Americanvehicle production of the Big 3 domestic manufacturers (GM, Ford, andDaimlerChrysler). Our customers generally require that we offer annualproductivity and efficiency related price decreases on products we sell them.Critical factors to be successful in this market include global low costproduction facilities, leading service and parts quality, and differentiated productand 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 performanceand/or decrease 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 loss from continuingoperations and before interest, taxes, depreciation, amortization, assetimpairment, loss on disposition of manufacturing equipment or facilities andnon-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 of segmentperformance, in measuring our performance relative to that of our competitorsand in evaluating acquisition opportunities. In addition, we believe AdjustedEBITDA and similar measures are widely used by investors, securities analysts,rating agencies and other interested parties as a measure of financialperformance and debt-service capabilities. Our use of Adjusted EBITDA haslimitations as an analytical tool, and you should not consider it in isolationor as a substitute for analysis of our results as reported under GAAP. Some ofthese 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 

28

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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 six months ended July 2, 2006 and July 3, 2005:

| ** **                                                | ** ** | **(In thousands)**          | ** ** |
|-----------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
| ** **                                                | ** ** | **2006**                         | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net income (loss)                                         |       | $                                | (16,503    | ) | $ | 60 |   | $ | (51,856 | ) | $ | (3,440 | ) |
| Income tax  expense                                       |       | 5,473                            |       | 1,703 |   | 10,470 |   | 147 |   |
| (Gain) loss from  discontinued operations, net of tax     |       | (29                              | )          | 490 |   | 437 |   | 1,110 |   |
| Loss on  discontinued operations, net of tax              |       | —                           |       | — |   | 6,862 |   | — |   |
| Interest expense                                          |       | 24,164                           |       | 21,727 |   | 48,111 |   | 44,280 |   |
| Depreciation and  amortization in operating  profit       |       | 28,866                           |       | 26,351 |   | 65,755 |   | 52,546 |   |
| Preferred stock  dividends and accretion                  |       | 9,125                            |       | 5,597 |   | 15,597 |   | 11,033 |   |
| Equity income  from affiliates                            |       | (690                             | )          | (976 | ) | (1,649 | ) | (1,581 | ) |
| Certain items  within Other, Net(1)                       |       | 4,649                            |       | 2,739 |   | 8,210 |   | 5,038 |   |
| Total Company Adjusted  EBITDA from continuing operations |       | $                                | 55,055     |   | $ | 57,691 |   | $ | 101,937 |   | $ | 109,133 |   |

----

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

| ** **                                                                                         | ** ** | **(In thousands)**                      | ** ** |
|----------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                                                         | ** ** | **Three Months Ended**             | ** ** | **Six Months Ended** | ** ** |
| ** **                                                                                         | ** ** | **   2006   ** | ** ** | **   2005   ** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Items excluded  from Adjusted EBITDA (amortization of financing fees and A/R securitization  fees) |       |                                         | $          | 4,649 |   |   |   | $ | 2,739 |   |   | $ | 8,210 |   | $ | 5,038 |   |
| Items included in  Adjusted EBITDA (includes foreign currency, royalties and interest income)      |       |                                         | 334        |   |   |   | (780 | ) |   | 1,610 |   | (1,442 | ) |
| Total other, net                                                                                   |       |                                         | $          | 4,983 |   |   |   | $ | 1,959 |   |   | $ | 9,820 |   | $ | 3,596 |   |

 

Thefollowing is a reconciliation of our Adjusted EBITDA to operating cash flow forthe six months ended July 2, 2006 and July 3, 2005:

| ** **                                                   | ** ** | **(In thousands)** | ** ** |
|--------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                   | ** ** | **2006**                | ** ** | **2005** | ** ** |
| Operating cash  flow                                         |       | $                       | 17,358     |   | $ | 55,382 |   |
| Net proceeds of  accounts receivable securitization facility |       | 16,844                  |       | (38,600 | ) |
| Change in working  capital                                   |       | (847                    | )          | 28,549 |   |
| Cash paid for  interest                                      |       | 47,078                  |       | 42,920 |   |
| Cash paid  (refunded) for income taxes, net                  |       | 15,284                  |       | 4,146 |   |
| Change in  long-term assets                                  |       | 994                     |       | 2,976 |   |
| Change in  long-term liabilities                             |       | 5,921                   |       | 4,158 |   |
| Certain items  within Other, Net                             |       | 5,994                   |       | 3,803 |   |
| Loss on fixed  asset dispositions                            |       | (7,828                  | )          | (332 | ) |
| Curtailment gain  (loss) on elimination of certain benefits  |       | (165                    | )          | 4,657 |   |
| Operating cash  flows from discontinued operations           |       | 1,625                   |       | (9,996 | ) |
| Deferred income  taxes                                       |       | (321                    | )          | 11,470 |   |
| Total Company Adjusted  EBITDA from continuing operations    |       | $                       | 101,937    |   | $ | 109,133 |   |

 

29

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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:

| ** **                                                                                                      | ** ** | **(In thousands)**                      | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Three Months Ended**             | ** ** | **Six Months Ended** | ** ** |
| ** **                                                                                                      | ** ** | **   2006   ** | ** ** | **   2005   ** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Restructuring  charges                                                                                          |       | $                                            | (324       | ) |   | $ | (367 | ) |   | $ | (402 | ) | $ | (1,619 | ) |
| Fixed asset  losses                                                                                             |       | (2,216                                       | )          |   | (301 | ) |   | (7,828 | ) | (332 | ) |
| Foreign currency  gains (losses)                                                                                |       | (297                                         | )          |   | (8 | ) |   | (1,625 | ) | 351 |   |
| Pension curtailment loss  and postretirement medical curtailment gain and elimination of certain plan  benefits |       | —                                       |       |   | 2,577 |   |   | (165 | ) | 4,657 |   |
|                                                                                                                 |            |                                              |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

**DiscontinuedOperations**

On March 10, 2006, wecompleted the divestiture of our Forging Operations, and in accordance withSFAS No. 144, “Accounting for the Impairment or Disposal ofLong-Lived Assets,” the results of operations for North American Forging forthe current and prior periods have been reported as discontinued operations. Inaddition, the assets and liabilities of North American Forging have beenreclassified as assets and liabilities of discontinued operations in ourconsolidated balance sheet at January 1, 2006.

**Results ofOperations**

***Quarter Ended July 2, 2006 versus July 3,2005***

The below results represent activity from ourcontinuing operations for the three months ended July 2, 2006 and July 3,2005.

***Net Sales.******  ***Net sales by segmentand in total for the three months ended July 2, 2006 and July 3, 2005were:

| ** **         | ** ** | **(In thousands)**          | ** ** |
|--------------------|------------|----------------------------------|------------|
| ** **         | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
| **Segment**        | ** ** | ** **                       | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| Chassis Segment    |       |                             | $          | 261,141 |   |   |   | $ | 273,749 |   |   |
| Powertrain Segment |       |                             | 244,477    |   |   |   | 232,856 |   |   |
| Total Company      |       |                             | $          | 505,618 |   |   |   | $ | 506,605 |   |   |
|                    |            |                                  |            |  |  |  |  |  |  |  |  |  |  |

 

Our second quarter 2006 net sales were $505.6 millionversus second quarter 2005 net sales of $506.6 million. An increase of $11.6million in our Powertrain segment was slightly more than offset by a $12.6million decrease in our Chassis segment. The above sales increases werenegatively affected by the 1.1% decrease in North American vehicle productionfrom our three largest customers (DaimlerChrysler, Ford and General Motors) duringthe quarter.

***Gross Profit.*****  **Gross profit by segment and in totalfor the three months ended July 2, 2006 and July 3, 2005 were:

| ** **                       | ** ** | **(In thousands)**          | ** ** |
|----------------------------------|------------|----------------------------------|------------|
| ** **                       | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
| **Segment**                      | ** ** | ** **                       | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| Chassis Segment                  |       |                             | $          | 32,294 |   |   |   | $ | 24,565 |   |   |
| Powertrain  Segment              |       |                             | 27, 263    |   |   |   | 36,099 |   |   |
| Corporate/centralized  resources |       |                             | (3,267     | ) |   |   | 400 |   |   |
| Total Company                    |       |                             | $          | 56,290 |   |   |   | $ | 61,064 |   |   |
|                                  |            |                                  |            |  |  |  |  |  |  |  |  |  |  |

 

30

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Our gross profit was $56.3 million, or 11.1% of netsales, for 2006 compared to $61.1 million, or 12.1% of net sales, for 2005. Thedecrease of $4.8 million is primarily attributable to a $2.5 million increasein depreciation and amortization expense and a $1.9 million incremental fixedasset loss in the period. Several other items in the quarter served toeffectively offset each other. Items positively impacting the quarter includedan approximate net $4.1 million gain from the successful resolution of acommercial dispute with a customer and a $2.5 million reduction in leaseexpense due to the operating leases repurchased during the first quarter.However, these items were offset by a $2.2 million reduction in postretirementmedical curtailment gains from actions taken in 2005; $2.9 million oflaunch-related expense associated with our new facility in China and two largenew program awards in the process of launching during the quarter; $2.0 millionfrom a less favorable sales mix of our products; and approximately $0.6 millionof raw material price increases not offset by sales increases (primarily relatedto aluminum).

***Selling, General and Administrative.*****  **Selling, general and administrativeexpense was $29.4 million, or 5.8% of net sales, for 2006 compared to $30.1million, or 5.9% of sales, in 2005. 2005 expense was benefited by a $0.4million curtailment gain related to reduction of certain postretirement medicalbenefits. The remaining $1.5 million decrease primarily relates to costreductions and efficiency gains in our operating segments’ support functions.

***Depreciation andAmortization.*****  **Depreciationand amortization expense by segment and in total for the three months ended July 2,2006 and July 3, 2005 was:

| ** **                       | ** ** | **(In thousands)**          | ** ** |
|----------------------------------|------------|----------------------------------|------------|
| ** **                       | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
| **Segment**                      | ** ** | ** **                       | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| Chassis Segment                  |       |                             | $          | 11,282 |   |   |   | $ | 12,038 |   |   |
| Powertrain  Segment              |       |                             | 15,309     |   |   |   | 12,073 |   |   |
| Corporate/centralized  resources |       |                             | 2,275      |   |   |   | 2,240 |   |   |
| Total Company                    |       |                             | $          | 28,866 |   |   |   | $ | 26,351 |   |   |
|                                  |            |                                  |            |  |  |  |  |  |  |  |  |  |  |

 

The net increase in depreciation and amortization ofapproximately $2.5 million is primarily attributable to additional depreciationon the leased assets repurchased during the first quarter of 2006.

***RestructuringCharges.*****  **Weincurred $0.3 million of restructuring charges in the second quarter of 2006compared to $0.4 million in the second quarter of 2005. The 2006 charges areprimarily a result of the optimization of our Chassis manufacturing footprintby moving certain programs between operating facilities while reducingassociated headcount and overhead costs. Net restructuring activity consistingof severance costs in the second quarter of 2006 is as follows:

| ** **                    | ** ** | **(In thousands)** | ** ** |
|-------------------------------|------------|-------------------------|------------|
| ** **                    | ** ** | **Severance  Costs**    | ** ** |
| Balance  April 2, 2006   |       |                    | $          | 938 |   |   |
| Charges to  expense           |       |                    | 324        |   |   |
| Cash payments                 |       |                    | (510       | ) |   |
| Other adjustments             |       |                    | —     |   |   |
| Balance at July 2,  2006 |       |                    | $          | 752 |   |   |

 

***Operating Profit.******  ***Operating profit was$26.5 million, or 5.2% of sales, for the second quarter of 2006 compared to$30.5 million, or 6.0% of sales, for the same period in 2005. The $4.0 milliondecrease is principally explained by the factors discussed above, including a $2.5million increase in depreciation and amortization, a $2.6 million reduction inpostretirement medical curtailment gains, $0.6 million increase in raw materialpricing (primarily aluminum) and a $1.9 million increase in fixed asset losses.Offsetting these 

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declines was a $4.1 million gain from the successfulresolution of a commercial dispute with a customer. The elements of each ofthese variations are discussed in greater detail above. Operating profit bysegment for the three months ended July 2, 2006 and July 3, 2005 isas follows:

| ** **                       | ** ** | **(In thousands)**          | ** ** |
|----------------------------------|------------|----------------------------------|------------|
| ** **                       | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
| **Segment**                      | ** ** | ** **                       | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| Chassis Segment                  |       |                             | $          | 21,674 |   |   |   | $ | 13,098 |   |   |
| Powertrain  Segment              |       |                             | 13,796     |   |   |   | 22,624 |   |   |
| Corporate/centralized  resources |       |                             | (8,947     | ) |   |   | (5,162 | ) |   |
| Total Company                    |       |                             | $          | 26,523 |   |   |   | $ | 30,560 |   |   |
|                                  |            |                                  |            |  |  |  |  |  |  |  |  |  |  |

 

***Adjusted EBITDA.*****  **Management reviews our segmentoperating results based upon the Adjusted EBITDA definition as discussed in the“Key Indicators of Performance (Non-GAAP Financial Measures)” section.Accordingly, we have separately presented such amounts in the table below.Adjusted EBITDA decreased to $55.1 million in the second quarter of 2006 from$57.7 million during the same period in 2005. The primary drivers of thisdecrease are explained above in the operating profit discussion and will befurther detailed in the segment detail that follows. Additionally, Adjusted EBITDAdecreased by $0.5 million due to foreign exchange movements and reducedinterest income. The “Segment Information” below provides a reconciliationbetween Adjusted EBITDA and operating profit.

| ** **                                                                                                | ** ** | **(In thousands)**          | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
| **Segment**                                                                                               | ** ** | ** **                       | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| Chassis Segment                                                                                           |       |                             | $          | 32,896 |   |   |   | $ | 25,116 |   |   |
| Powertrain Segment                                                                                        |       |                             | 29,166     |   |   |   | 34,705 |   |   |
| Corporate/centralized  resources                                                                          |       |                             | (7,007     | ) |   |   | (2,130 | ) |   |
| Total Company                                                                                             |       |                             | $          | 55,055 |   |   |   | $ | 57,691 |   |   |
| Memo: Additional amounts included in calculation of  both operating profit and Adjusted EBITDA:           |       |                             |       |   |   |   |   |   |   |
| Restructuring charges                                                                                     |       |                             | $          | (324 | ) |   |   | $ | (367 | ) |   |
| Fixed asset disposal losses                                                                               |       |                             | (2,216     | ) |   |   | (301 | ) |   |
| Foreign currency gains (losses)                                                                           |       |                             | (297       | ) |   |   | (8 | ) |   |
| Pension curtailment loss and postretirement medical  curtailment gain and elimination of certain benefits |       |                             | —     |   |   |   | 2,577 |   |   |
|                                                                                                           |            |                                  |            |  |  |  |  |  |  |  |  |  |  |

 

***Interest Expense.******  ***Interestexpense increased from $21.7 million in the second quarter of 2005 to $24.2 millionin the second quarter of 2006. This $2.5 million increase is principally due toan approximate 1.8% increase in the interest rate on our variable rate seniordebt facilities resulting from increases in LIBOR.

***Preferred Stock Dividends.***   Preferredstock dividends (including accretion of $0.3 million in each of 2006 and 2005)were $9.1 million in the second quarter of 2006 as compared to $5.6 million inthe second quarter of 2005. This increase is partly attributable to additionalexpense of approximately $2.1 million associated with the correction ofhistorical accretion of dividend expense. The remaining increase in the periodrelates 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 from Affiliates.******  ***Equity incomefrom affiliates decreased from income of $1.0 million in the second quarter of2005 to income of $0.7 million in the second quarter of 2006, due to theoperating results of our equity affiliate.

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***Other, Net.******  ***Other, netincreased by $3.0 million to a loss of $5.0 million in the second quarter of2006 compared to a loss of $2.0 million in the second quarter of 2005. Theprimary reason for the increase is due to a $1.0 million increase inamortization of capitalized financing costs, $0.3 million increase in foreigncurrency loss and an approximate increase of $0.5 million in expenses primarilyassociated with our accounts receivable securitization and foreign receivablefactoring fees.

***Taxes.******  ***The provisionfor income taxes for the second quarter of 2006 was an expense of $5.5 millionas compared with an expense of $1.7 million for the second quarter of 2005. Inthe second quarter of 2006, no benefit was recognized for the U.S. operatingloss and the foreign effective rate was 30.9%, compared to a U.S. effectiverate of 22.6% and a foreign effective rate of 28.3% in the second quarter of2005. Due to uncertainties related toour ability to utilize our existing net operating losses, it was management’sdecision to 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 $5.9 million in the second quarter of 2006. In the event that deferred taxassets are realizable in the future in excess of the net recorded valuationallowance, an adjustment to the deferred tax asset will increase the taxbenefit in the period such determination is made.

***Income (Loss) from Discontinued Operations.***   Theloss from discontinued operations decreased $0.5 million from a loss of $0.5million in the second quarter of 2005 to income of $0.03 million in the secondquarter of 2006. See Note 8, Discontinued Operations, to our consolidatedfinancial statements for additional discussion.

***Segment Information.***

*ChassisSegment.*   Sales for our Chassis segment were$261.1 million in the second quarter of 2006 versus $273.7 million in thesecond quarter of 2005. Net sales decreased approximately $12.6 millionprimarily due to the shutdown of the DaimlerChrysler JR platform for a vehiclechangeover. The Company has been awarded business on the replacement vehicle tothe JR platform, which is expected to launch in the third quarter of 2006.Operating profit for the segment increased from $13.1 million in the secondquarter of 2005 to $21.7 million in the second quarter of 2006. The $8.6million increase is primarily due to a $4.1 million gain from the successfulresolution of a commercial dispute with a customer and approximately $5.0million of net cost reductions in the business. Fixed asset gains of $1.4million and lease savings of $0.6 million were primarily offset by the lostprofit from the sales reduction discussed above. Adjusted EBITDA increased to$32.9 million versus $25.1 million in the prior year due to the aforementionedreasons.

| ** **                                                                                      | ** ** | **(In thousands)**          | ** ** |
|-------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                      | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
| **Chassis Segment**                                                                        | ** ** | ** **                       | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| Sales                                                                                           |       |                             | $          | 261,141 |   |   |   | $ | 273,749 |   |   |
| Operating profit                                                                                |       |                             | $          | 21,674 |   |   |   | $ | 13,098 |   |   |
| Depreciation and  amortization                                                                  |       |                             | 11,282     |   |   |   | 12,038 |   |   |
| Foreign currency  gains (losses)                                                                |       |                             | (60        | ) |   |   | (20 | ) |   |
| Adjusted EBITDA                                                                                 |       |                             | $          | 32,896 |   |   |   | $ | 25,116 |   |   |
| Memo: Additional amounts included in calculation of  both operating profit and Adjusted EBITDA: |       |                             |       |   |   |   |   |   |   |
| Restructuring charges                                                                           |       |                             | $          | (86 | ) |   |   | $ | (61 | ) |   |
| Fixed asset gains (losses)                                                                      |       |                             | 1,397      |   |   |   | (172 | ) |   |
|                                                                                                 |            |                                  |            |  |  |  |  |  |  |  |  |  |  |

 

*PowertrainSegment.**  *Salesfor our Powertrain segment increased in the second quarter of 2006 to $244.5 millionversus $232.9 million in the second quarter of 2005. The primary driver of theapproximate $11.6 million increase in sales relates to our balance shaftmodule business (primarily our new Korean 

33

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operation) and our sintered metal operation. Operatingprofit decreased from $22.6 million to $13.8 million in 2006. The decrease isprincipally due to a $3.4 million increase in fixed asset losses, $2.9 millionin launch associated costs and $3.2 million increase in depreciation andamortization expense. The $2.9 million in launch costs relate to the completionof our new China facility and two large new programs in the process oflaunching in the quarter. Adjusted EBITDA decreased from $34.7 million in thefirst quarter of 2005 to $29.2 million in 2006 due to the aforementioned itemsoffset by a $3.2 million increase in depreciation and amortization expense.

| ** **                                                            | ** ** | **(In thousands)**          | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                            | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
| **Powertrain Segment**                                           | ** ** | ** **                       | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| Sales                                                                 |       |                             | $          | 244,477 |   |   |   | $ | 232,856 |   |   |
| Operating profit                                                      |       |                             | $          | 13,796 |   |   |   | $ | 22,624 |   |   |
| Depreciation and  amortization                                        |       |                             | 15,309     |   |   |   | 12,073 |   |   |
| Foreign currency  gains (losses)                                      |       |                             | 61         |   |   |   | 8 |   |   |
| Adjusted EBITDA                                                       |       |                             | $          | 29,166 |   |   |   | $ | 34,705 |   |   |
| Memo: Additional amounts included in calculation of  adjusted EBITDA: |       |                             |       |   |   |   |   |   |   |
| Restructuring charges                                                 |       |                             | $          | (211 | ) |   |   | $ | (28 | ) |   |
| Fixed asset gains  (losses)                                           |       |                             | (3,538     | ) |   |   | (129 | ) |   |
|                                                                       |            |                                  |            |  |  |  |  |  |  |  |  |  |  |

 

*Corporate/CentralizedResources.**  *Adjusted EBITDA for Corporate/CentralizedResources was a loss of $7.0 million in the second quarter of 2006 versus aloss of $2.1 million in the same period in 2005. We realized a $2.6 milliondecrease in postretirement medical curtailment benefits in the second quarterof 2006, $0.2 million in Sarbanes-Oxley Section 404 compliance initiativesand a $1.1 million increase in other, net and foreign exchange movements. Theremaining increase is primarily explained by an increase in various corporateinitiatives designed to expand the business. Operating profit decreased by $3.8million in 2006 due to the factors discussed above.

| ** **                                                                                                           | ** ** | **(In thousands)**          | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                           | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
| **Corporate/Centralized Resources**                                                                             | ** ** | ** **                       | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| Operating profit                                                                                                     |       |                             | $          | (8,947 | ) |   |   | $ | (5,162 | ) |   |
| Depreciation and  amortization                                                                                       |       |                             | 2,275      |   |   |   | 2,240 |   |   |
| Foreign currency  gains (losses)                                                                                     |       |                             | (298       | ) |   |   | 4 |   |   |
| Other, net                                                                                                           |       |                             | (37        | ) |   |   | 788 |   |   |
| Adjusted EBITDA                                                                                                      |       |                             | $          | (7,007 | ) |   |   | $ | (2,130 | ) |   |
| Memo: Additional amounts included in calculation of  both operating profit and Adjusted EBITDA:                      |       |                             |       |   |   |   |   |   |   |
| Restructuring  charges                                                                                               |       |                             | $          | (27 | ) |   |   | $ | (278 | ) |   |
| Fixed asset gains  (losses)                                                                                          |       |                             | (75        | ) |   |   | — |   |   |
| Pension curtailment loss  and postretirement medical  curtailment gain and elimination of certain plan benefits |       |                             | —     |   |   |   | 2,577 |   |   |
|                                                                                                                      |            |                                  |            |  |  |  |  |  |  |  |  |  |  |

 

***Six Months Ended July 2, 2006 versus July 3,2005***

The below results represent activity from ourcontinuing operations for the six months ended July 2, 2006 and July 3,2005.

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***Net Sales.******  ***Net sales by segmentand in total for the six months ended July 2, 2006 and July 3, 2005were:

| ** **         | ** ** | **(In thousands)**        | ** ** |
|--------------------|------------|--------------------------------|------------|
| ** **         | ** ** | **Six Months Ended** | ** ** | **Six Months Ended** | ** ** |
| **Segment**        | ** ** | ** **                     | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| Chassis Segment    |       |                           | $          | 521,219 |   |   |   | $ | 531,592 |   |   |
| Powertrain Segment |       |                           | 488,653    |   |   |   | 464,385 |   |   |
| Total Company      |       |                           | $          | 1,009,872 |   |   |   | $ | 995,977 |   |   |
|                    |            |                                |            |  |  |  |  |  |  |  |  |  |  |

 

Net sales for the first six months of 2006 were$1,009.9 million versus $996.0 million for the first six months of 2005. Theprimary driver of the increase in our 2006 sales was $19.0 million in net newbusiness from our Powertrain segment, offset by a $10.0 million reduction inour Chassis segment. The remaining increase in sales primarily relates to thepass through of increased raw material prices to our customers. The above salesincreases were somewhat aided by the 0.5% increase in North American vehiclesproduced by our three largest customers (DaimlerChrysler, Ford and GeneralMotors) during the period.

***Gross Profit.*****  **Gross profit by segment and in totalfor the six months ended July 2, 2006 and July 3, 2005 were:

| ** **                       | ** ** | **(In thousands)**        | ** ** |
|----------------------------------|------------|--------------------------------|------------|
| ** **                       | ** ** | **Six Months Ended** | ** ** | **Six Months Ended** | ** ** |
| **Segment**                      | ** ** | ** **                     | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| Chassis Segment                  |       |                           | $          | 43,538 |   |   |   | $ | 45,464 |   |   |
| Powertrain  Segment              |       |                           | 54,688     |   |   |   | 71,794 |   |   |
| Corporate/centralized  resources |       |                           | (2,179     | ) |   |   | (4,640 | ) |   |
| Total Company                    |       |                           | $          | 96,047 |   |   |   | $ | 112,618 |   |   |
|                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |

 

Our gross profit was $96.0 million or 9.5% of netsales for 2006 compared to $112.6 million or 11.3% of net sales for 2005. Thedecrease of $16.6 million is primarily attributable to charges associated withthe early buyout of three operating leases in the first six months of 2006. Weincurred approximately $8.0 million in additional amortization expense, $2.5million of additional depreciation and a $3.7 million fixed asset loss as aresult of the early buyout.

The remaining decrease of $2.4 million is primarilyattributable to charges in the first six months of 2006. The primary drivers ofthe decrease were a $2.7 million increase in depreciation and amortizationexpense and a $3.8 million additional fixed asset loss. Other items negativelyimpacting the first six months include a $2.3 million reduction inpostretirement medical curtailment gains from actions taken in 2005; $2.9million of launch expense associated with our new facility in China and twolarge new program awards in the process of launching; and approximately $2.0million from a less favorable sales mix of our products. However, these itemswere offset by profits from the additional sales volume, an approximate net$4.1 million gain from the successful resolution of a commercial dispute with acustomer and a $2.5 million reduction in lease expense due to the operatingleases repurchased during the first six months of the year.

***Selling, General and Administrative.*****  **Selling, general and administrativeexpense was $57.9 million, or 5.7% of net sales, for 2006 compared to $55.9million, or 5.6% of sales, in 2005. The $2.0 million increase from 2005 to 2006is primarily explained by a $2.5 million postretirement medical curtailmentgain recorded in the first six months of 2005. The remaining decrease inselling, general and administrative expense is primarily driven byadministrative cost reductions in our operating groups and more than offsetsthe approximate $1.0 million spent on our Sarbanes-Oxley Section 404compliance efforts.

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***Depreciation andAmortization.*****  **Depreciationand amortization expense by segment and in total for the six months ended July 2,2006 and July 3, 2005 was:

| ** **                       | ** ** | **(In thousands)**        | ** ** |
|----------------------------------|------------|--------------------------------|------------|
| ** **                       | ** ** | **Six Months Ended** | ** ** | **Six Months Ended** | ** ** |
| **Segment**                      | ** ** | ** **                     | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| Chassis Segment                  |       |                           | $          | 27,876 |   |   |   | $ | 24,030 |   |   |
| Powertrain  Segment              |       |                           | 35,038     |   |   |   | 24,073 |   |   |
| Corporate/centralized  resources |       |                           | 2,841      |   |   |   | 4,443 |   |   |
| Total Company                    |       |                           | $          | 65,755 |   |   |   | $ | 52,546 |   |   |
|                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |

 

The net increase in depreciation and amortization ofapproximately $13.2 million is primarily attributable to the recognition of$8.0 million of deferred losses on previous sale-leaseback transactions; theCompany repurchased the assets on three of these leases in the first six monthsof 2006. Approximately $2.5 million ofthe increase is due to additional depreciation on the repurchase of leasedassets during the first quarter of 2006. Recent capital spending accounts forthe remaining increase in depreciation expense.

***RestructuringCharges.*****  **Weincurred $0.4 million of restructuring charges in the first six months of 2006compared to $1.6 million incurred in the same period of 2005. The 2006 chargesare primarily as a result of charges to optimize the manufacturing footprint ofour Chassis segment by moving certain programs between operating facilitieswhile reducing associated headcount and overhead costs. Net restructuringactivity in the first six months of 2006 is as follows:

| ** **                    | ** ** | **(In thousands)** | ** ** |
|-------------------------------|------------|-------------------------|------------|
| ** **                    | ** ** | **Severance  Costs**    | ** ** |
| Balance  January 1, 2006 |       |                    | $          | 1,658 |   |   |
| Charges to  expense           |       |                    | 402        |   |   |
| Cash payments                 |       |                    | (1,305     | ) |   |
| Other adjustments             |       |                    | (3         | ) |   |
| Balance at July 2,  2006 |       |                    | $          | 752 |   |   |

 

***Operating Profit.******  ***Operating profit was$37.8 million, or 3.7% of sales, for the first six months of 2006 compared to$55.1 million, or 5.5% of sales, for the same period in 2005. The $17.3 milliondecrease is principally explained by the factors discussed above, including a$13.2 million increase in depreciation and amortization, a $4.8 millionreduction in postretirement medical curtailment gains and a $7.5 million increasein fixed asset losses. Offsetting these declines were profits from theadditional sales volume, a $1.2 million decrease in restructuring charges andthe $4.1 million gain from the successful resolution of a commercial disputewith a customer. The elements of each of these variations are discussed ingreater detail above. Operating profit by segment for the six months ended July 2,2006 and July 3, 2005 is as follows:

| ** **                       | ** ** | **(In thousands)**        | ** ** |
|----------------------------------|------------|--------------------------------|------------|
| ** **                       | ** ** | **Six Months Ended** | ** ** | **Six Months Ended** | ** ** |
| **Segment**                      | ** ** | ** **                     | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| Chassis Segment                  |       |                           | $          | 21,320 |   |   |   | $ | 22,605 |   |   |
| Powertrain  Segment              |       |                           | 27,824     |   |   |   | 44,103 |   |   |
| Corporate/centralized  resources |       |                           | (11,352    | ) |   |   | (11,563 | ) |   |
| Total Company                    |       |                           | $          | 37,792 |   |   |   | $ | 55,145 |   |   |
|                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |

 

***Adjusted EBITDA.*****  **Management reviews our segmentoperating results based upon the Adjusted EBITDA definition as discussed in the“Key Indicators of Performance (Non-GAAP Financial Measures)” section. Accordingly,we have separately presented such amounts in the table below. Adjusted EBITDA 

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decreased to $101.9 million in the first six months of2006 from $109.1 million during the same period in 2005. The primary drivers ofthis decrease are explained above in the operating profit discussion and willbe further detailed in the segment detail that follows. Additionally, AdjustedEBITDA decreased by $2.0 million due to foreign exchange movements. The “SegmentInformation” below provides a reconciliation between Adjusted EBITDA andoperating profit.

| ** **                                                                                                 | ** ** | **(In thousands)**        | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                 | ** ** | **Six Months Ended** | ** ** | **Six Months Ended** | ** ** |
| **Segment**                                                                                                | ** ** | ** **                     | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| Chassis Segment                                                                                            |       |                           | $          | 48,674 |   |   |   | $ | 46,643 |   |   |
| Powertrain Segment                                                                                         |       |                           | 62,405     |   |   |   | 68,515 |   |   |
| Corporate/centralized  resources                                                                           |       |                           | (9,142     | ) |   |   | (6,025 | ) |   |
| Total Company                                                                                              |       |                           | $          | 101,937 |   |   |   | $ | 109,133 |   |   |
| Memo: Additional amounts included in calculation of  both operating profit and Adjusted EBITDA:            |       |                           |       |   |   |   |   |   |   |
| Restructuring charges                                                                                      |       |                           | $          | (402 | ) |   |   | $ | (1,619 | ) |   |
| Fixed asset disposal losses                                                                                |       |                           | (7,828     | ) |   |   | (332 | ) |   |
| Foreign currency gains (losses)                                                                            |       |                           | (1,625     | ) |   |   | 351 |   |   |
| Pension  curtailment loss and postretirement medical curtailment gain and elimination  of certain benefits |       |                           | (165       | ) |   |   | 4,657 |   |   |
|                                                                                                            |            |                                |            |  |  |  |  |  |  |  |  |  |  |

 

***Interest Expense.******  ***Interestexpense increased from $44.3 million in the first six months of 2005 to $48.1million in the same period of 2006. This $3.8 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 $0.5 million in each of 2006 and 2005)were $15.6 million in the first six months of 2006 as compared to $11.0 millionin the first six months of 2005. This increase is attributable to a 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 from Affiliates.******  ***Equity incomefrom affiliates was approximately $1.6 million in each of the first six monthsof 2006 and 2005, due to the operating results of our equity affiliate.

***Other, Net.******  ***Other, netincreased by $6.2 million to a loss of $9.8 million in the first six months of2006 compared to a loss of $3.6 million in the same period of 2005. The primaryreason for the increase is due to a $1.2 million increase in amortization ofcapitalized financing costs, $2.0 million increase in foreign currency loss andan approximate increase of $1.8 million in expenses primarily associated withour accounts receivable securitization and foreign receivable factoring fees.

***Taxes.******  ***The provisionfor income taxes for the first six months of 2006 was an expense of $10.5million as compared with an expense of $0.1 million for the same period of2005. For the first six months of 2006, no benefit was recognized for the U.S.operating loss and the foreign effective rate was 31.2%, compared to a U.S.effective rate of 27.0% and a foreign effective rate of 29.0% for the first sixmonths of 2005. Due to uncertaintiesrelated to our ability to utilize our existing net operating losses, it was management’sdecision to record an increase to the valuation allowance against our domesticoperation’s net deferred tax assets. As a result, we increased thevaluation allowance against our deferred tax assets of our domestic operationsby $20.7 million in the first six months of 2006, which is comprised of (i) $18.1 million for continuing operations; (ii) $0.2million for discontinued operations; and (iii) $2.4 million for the losson discontinued operations for the first six months of 2006. In the event that deferred tax assets arerealizable 

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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.

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

The tax benefit of $2.4 million for the loss ondiscontinued operations is fully offset by a $2.4 million valuation allowancerecorded for the first six months of 2006.

***Income (Loss) from Discontinued Operations.***   Theloss from discontinued operations decreased $0.7 million from a loss of $1.1million in the first six months of 2005 to a loss of $0.4 million in the firstsix months of 2006. See Note 8, Discontinued Operations, to our consolidatedfinancial statements for additional discussion.

***Loss on Discontinued Operations.***   Werecorded a loss of $6.9 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$521.2 million in the first six months of 2006 versus $531.6 million in thesame period of 2005. Net sales decreased approximately $10.4 million due toseveral offsetting factors but the net reduction primarily relates to theshutdown of the DaimlerChrysler JR platform for a vehicle changeover. TheCompany has been awarded business on the replacement vehicle to the JRplatform, which is expected to launch in the third quarter. Operating profitfor the segment decreased from $22.6 million in the first six months of 2005 to$21.3 million in the first six months of 2006. The $1.3 million decrease is dueto several offsetting factors. During the first quarter of 2006, the segment wasnegatively impacted by the early buyout of three operating leases, which wasthe primary contributor to a $7.4 million increase in fixed asset losses and a$4.6 million increase in depreciation and amortization expense. However, thesecond quarter of 2006 included a $4.1 million gain from the successfulresolution of a commercial dispute with a customer, approximately $5.0 millionof net cost reductions in the business and a $0.8 million reduction indepreciation and amortization. Adjusted EBITDA increased to $48.7 millionversus $46.6 million in the prior year primarily due to aforementioned reasonsand a $3.8 million increase in depreciation and amortization expense.

| ** **                                                                                      | ** ** | **(In thousands)**        | ** ** |
|-------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                      | ** ** | **Six Months Ended** | ** ** | **Six Months Ended** | ** ** |
| **Chassis Segment**                                                                        | ** ** | ** **                     | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| Sales                                                                                           |       |                           | $          | 521,219 |   |   |   | $ | 531,592 |   |   |
| Operating profit                                                                                |       |                           | $          | 21,320 |   |   |   | $ | 22,605 |   |   |
| Depreciation and  amortization                                                                  |       |                           | 27,876     |   |   |   | 24,030 |   |   |
| Foreign currency  gains (losses)                                                                |       |                           | (522       | ) |   |   | 8 |   |   |
| Adjusted EBITDA                                                                                 |       |                           | $          | 48,674 |   |   |   | $ | 46,643 |   |   |
| Memo: Additional amounts included in calculation of  both operating profit and Adjusted EBITDA: |       |                           |       |   |   |   |   |   |   |
| Restructuring charges                                                                           |       |                           | $          | (139 | ) |   |   | $ | (211 | ) |   |
| Fixed asset gains  (losses)                                                                     |       |                           | (5,766     | ) |   |   | 31 |   |   |
|                                                                                                 |            |                                |            |  |  |  |  |  |  |  |  |  |  |

 

*PowertrainSegment.**  *Salesfor our Powertrain segment increased in the first six months of 2006 to $488.7 millionversus $464.4 million in the first six months of 2005. The primary drivers ofthe $24.3 million increase in sales were an approximate $19.0 millionincrease in net new business relating to new product launches and ramp up ofexisting programs, as well as approximately $9.0 million in sales increases toour customers associated with the recovery of material costs from ourcustomers. Foreign exchange losses and 

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productivity discounts given to customers account forthe remaining change in sales for the period. Operating profit decreased from$44.1 million to $27.8 million in 2006. The decrease is principally due to an$11.0 million increase in depreciation and amortization expense and a $3.5million increase in fixed asset losses. The $11.0 million increase indepreciation and amortization is driven by approximately $7.0 million relatedto the early buyout of three operating leases, while the remaining increase isprimarily attributable to recent years’ capital expenditures. The remainingdecrease is principally due to $2.9 million in launch associated costs. Thelaunch costs relate to our completion of our new China facility and two largenew programs in the process of launching during the quarter. Adjusted EBITDAdecreased from $68.5 million in the first six months of 2005 to $62.4 millionin 2006, due to the aforementioned discussion but offset by the $11.0 millionincrease in depreciation and amortization costs.

| ** **                                                            | ** ** | **(In thousands)**        | ** ** |
|-----------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                            | ** ** | **Six Months Ended** | ** ** | **Six Months Ended** | ** ** |
| **Powertrain Segment**                                           | ** ** | ** **                     | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| Sales                                                                 |       |                           | $          | 488,653 |   |   |   | $ | 464,385 |   |   |
| Operating profit                                                      |       |                           | $          | 27,824 |   |   |   | $ | 44,103 |   |   |
| Depreciation and  amortization                                        |       |                           | 35,038     |   |   |   | 24,073 |   |   |
| Foreign currency  gains (losses)                                      |       |                           | (457       | ) |   |   | 339 |   |   |
| Adjusted EBITDA                                                       |       |                           | $          | 62,405 |   |   |   | $ | 68,515 |   |   |
| Memo: Additional amounts included in calculation of  adjusted EBITDA: |       |                           |       |   |   |   |   |   |   |
| Restructuring charges                                                 |       |                           | $          | (340 | ) |   |   | $ | (133 | ) |   |
| Fixed asset gains  (losses)                                           |       |                           | (3,901     | ) |   |   | (363 | ) |   |
|                                                                       |            |                                |            |  |  |  |  |  |  |  |  |  |  |

 

*Corporate/CentralizedResources.**  *Adjusted EBITDA for Corporate/CentralizedResources was a loss of $9.1 million in the first six months of 2006 versus aloss of $6.0 million in the same period in 2005. We realized $1.9 million infixed asset gains and a decrease of $1.3 million in restructuring expenses in2006. These were offset by a $4.8 million decrease in postretirement medicalcurtailment benefits in the first six months of 2006 and a $1.7 millionincrease in other, net and foreign exchange movements. Operating profitdecreased by $1.2 million in 2006 due to the factors discussed above, as wellas a $1.6 million decrease in depreciation and amortization.

| ** **                                                                                                      | ** ** | **(In thousands)**        | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                      | ** ** | **Six Months Ended** | ** ** | **Six Months Ended** | ** ** |
| **Corporate/Centralized Resources**                                                                        | ** ** | ** **                     | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| Operating profit                                                                                                |       |                           | $          | (11,352 | ) |   |   | $ | (11,563 | ) |   |
| Depreciation and  amortization                                                                                  |       |                           | 2,841      |   |   |   | 4,443 |   |   |
| Foreign currency gains  (losses)                                                                                |       |                           | (646       | ) |   |   | 4 |   |   |
| Other, net                                                                                                      |       |                           | 15         |   |   |   | 1,091 |   |   |
| Adjusted EBITDA                                                                                                 |       |                           | $          | (9,142 | ) |   |   | $ | (6,025 | ) |   |
| Memo: Additional  amounts included in calculation of both operating profit and Adjusted EBITDA:                 |       |                           |       |   |   |   |   |   |   |
| Restructuring charges                                                                                           |       |                           | $          | 77 |   |   |   | $ | (1,275 | ) |   |
| Fixed asset gains  (losses)                                                                                     |       |                           | 1,839      |   |   |   | — |   |   |
| Pension curtailment loss  and postretirement medical curtailment gain and elimination of certain plan  benefits |       |                           | (165       | ) |   |   | 4,657 |   |   |
|                                                                                                                 |            |                                |            |  |  |  |  |  |  |  |  |  |  |

 

**Liquidity andCapital Resources**

***Overview.******  ***Our objectiveis to appropriately finance our business through a mix of long-term andshort-term debt and to ensure that we have adequate access to liquidity. Ourprincipal sources of liquidity are 

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cash flow from operations,our revolving credit facility and our accounts receivable securitizationfacility and factoring agreements. As of July 2, 2006, we have unutilizedcapacity under our revolving credit facility that may be utilized foracquisitions, investments or capital expenditure needs. Our cash flows duringthe year are impacted by the volume and timing of vehicle production, whichincludes a shutdown by our North American customers for approximately two weeksin July and one week in December and reduced production in July andAugust for certain European customers. Management believes cash flow fromoperations and debt financing and refinancing from our revolving creditfacility and our accounts receivable securitization program will provide uswith adequate sources of liquidity for the foreseeable future.

To facilitate the collection of funds from operatingactivities, we have sold receivables under our accounts receivable facility andhave entered into accelerated payment collection programs with certaincustomers. Although the majority of the accelerated payment collection programswere discontinued as of or prior to January 2, 2005, at July 2, 2006,collection of approximately $46.4 million of accounts receivable wasaccelerated under the remaining programs. Included in the above programs isapproximately $28.2 million that we continue to collect on an accelerated basisas a result 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 greaterutilization of our accounts receivable securitization facility, we continue toexamine other alternative programs in the marketplace, as well as enhancedpayment 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 ofactivities focused on revenue growth, cost reduction and strengthening thebalance sheet. In the first six months of 2006, we used our cash primarily toservice our debt obligations and to fund our capital expenditure requirements.

***Liquidity.***   At July 2,2006, we had approximately $120.7 million of undrawn commitments, whichconsisted of $111.8 million and $8.9 million from our revolving credit facilityand accounts receivable securitization facility, respectively. In addition, wehad $5.8 million in cash on our consolidated balance sheet. Availability underour accounts receivable securitization facility agreement at such date is basedon a day earlier receivables report so it should be noted that, as is the caseat each quarter end, receivables paid on the last day of the quarter willreduce availability on the next business day. The amount of this reduction was$3.9 million as of July 3, 2006. It should also be noted that January andJuly are typically periods in which the Company seasonally experienceslower availability. Approximately $35.0 million and $66.5 million wereoutstanding on our revolving credit facility and accounts receivablesecuritization facility, respectively, at July 2, 2006. Our access tothese two facilities is limited by certain covenant restrictions (see “Debt,Capitalization and Available Financing Sources” below for further discussion onour debt covenants). At July 2, 2006, we were not limited by thesecovenant restrictions.

At July 2, 2006, our maximum debt capacity (includingamounts drawn under our accounts receivable securitization program) is computedby multiplying our leverage ratio covenant of 5.25 by our bank agreementdefined EBITDA, or approximately $201.9 million. Thus, our total debt capacityat July 2, 2006 is approximately $1,060.0 million. Our actual debt plusthe accounts receivable securitization at July 2, 2006 approximated $935.3million, or approximately $124.7 million less than our total capacity. Thus, asdiscussed above, as of July 2, 2006, we were not limited by our covenantsand had access to the entire $120.7 million of undrawn commitments discussedabove.

It should be noted that our liquidity at quarter andyear end tends to reflect peak availability due to our natural cash collectioncycle. Liquidity in the middle of the month tends to represent our lowestlevel. Over the last fiscal year, our trough liquidity has generally rangedbetween $15 million and $60 million. However, we have taken actions that haveimproved our trough liquidity in early 2006: the sale of our 

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North American Forging business, the net $25 millionincrease of our term loan facility and the February 3, 2006 amended andrestated credit agreement. There can be no assurance that our liquidity willactually improve in the coming year as it may be adversely impacted by otherfactors, many of which are beyond our control, including those referred tobelow and elsewhere in this Form 10-Q.

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 affects thefollowing principal changes, as well as updating and technical changes, to theexisting credit agreement: (a) it added an additional $50 million of termloans, 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 assetsunder these operating leases with the proceeds from the North American Forgingsale, $10.1 million of which was related to North American Forging assets underoperating leases. Excess proceeds can be used to repurchase additional assetsunder operating lease arrangements and to increase our liquidity throughrepayment of outstanding obligations under our revolving credit and accountsreceivable securitization facilities. All term loans mature on December 31,2009.

Our accounts receivable securitization facilityavailability is based on several factors including the credit ratings of ourcustomer base, the customer concentration levels in the accounts receivablesecuritization facility and the overall collection performance of our accounts.For example, the bankruptcy of Dana Corporation resulted in an immediate $6.9million reduction in our accounts receivable securitization availability.Additionally, the downgrade of Ford Motor Company on June 28, 2006resulted in a $4.6 million immediate reduction in availability. Due to thegeneral industry environment, the availability of this program has decreased inthe first part of 2006 and could be expected to decrease further if theindustry environment does not improve.

Subsequent to the March 3, 2006 bankruptcy ofDana Corporation and certain of its subsidiaries (the “Dana debtors”), weentered into negotiations with Dana and a settlement was approved in May 2006which, among other things, approved the payment of damages to the Companyrelating to the Dana debtors’ rejection in bankruptcy of a supply agreement;approved the payment of 75% of certain administrative claims; and approved ourright to offset certain payments due to a Dana foreign subsidiary againstpre-petition receivables from certain Dana debtors. Following this approval, weliquidated the balance of our pre-petition trade claims against the Danadebtors (after giving effect to the settlement agreement, including the damagesportion) through the sale of the trade claims to General Electric CapitalCorporation through MRFC, Inc., our wholly owned special purposesubsidiary. This transaction closed on June 21, 2006, and as a result, werealized a net positive impact from this sale in the second quarter ofapproximately $4.1 million from continuing operations.

We have entered into agreements with internationalinvoice factoring companies to sell customer accounts receivable of Metaldyne’sforeign locations in France, Germany, Spain, Czech Republic and United Kingdomon a non-recourse basis. As of July 2, 2006, we had availableapproximately $78.9 million from these commitments, and approximately $53.2million of receivables were sold under these programs.

***TriMas Common Stock.***   TheCompany owns 4.8 million shares of TriMas stock, or approximately 24% of thetotal outstanding shares of TriMas.

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***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 July 2, 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 an amendedand restated credit agreement as described above. The amended and restatedcredit agreement provides us with more favorable terms and additional fundingon our revolving credit and term loan facilities. Under this amended andrestated credit agreement, the applicable interest rate spreads on our termloan obligations increased over the current London Interbank Offered Rate (“LIBOR”)and our leverage covenant was modified to be less restrictive. The currentapplicable interest rate spread on our term loan obligations is 4.50%. On February 3,2006, pursuant to the terms of the amended and restated credit agreement, weborrowed $50 million of additional term loans, of which $25 million was used toprepay the preexisting term loan. A commitment fee of 1% per annum is assessedon the unused portion of the revolving credit facility.

The credit facility includes term loans with $374.7million outstanding and a revolving credit facility with a principal commitmentof $200 million, of which $35 million was outstanding as of July 2, 2006.The revolving credit facility matures on May 28, 2007 and the term loanfacility matures on December 31, 2009. The obligations under the creditfacility are collateralized by substantially all of our assets and of 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 July 2, 2006 and January 1,2006:

| ** **                                                                                                                            | ** ** | **(In thousands)**    | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                                                                                            | ** ** | **July 2, 2006** | ** ** | **January 1, 2006** | ** ** |
| Senior credit  facilities:                                                                                                            |       |                       |       |   |   |   |   |   |   |
| Term loans (9.5% variable interest at July 2,  2006)                                                                             |       |                       | $          | 374,720 |   |   |   | $ | 350,193 |   |   |
| Revolving credit facility (9.7% to 11.5% interest at  July 2, 2006)                                                              |       |                       | 35,000     |   |   |   | 59,605 |   |   |
| Total senior  credit facility                                                                                                         |       |                       | 409,720    |   |   |   | 409,798 |   |   |
| Senior secured  term loan credit facility, with interest payable quarterly, due 2009 (13.13%  variable interest at July 2, 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)                             |       |                       | 27,628     |   |   |   | 27,469 |   |   |
| Other debt  (various interest rates; includes capital lease obligations)                                                              |       |                       | 7,913      |   |   |   | 9,612 |   |   |
| Total                                                                                                                                 |       |                       | $          | 864,661 |   |   |   | $ | 857,379 |   |   |
| Less current  maturities                                                                                                              |       |                       | (40,491    | ) |   |   | (6,640 | ) |   |
| Long-term debt                                                                                                                        |       |                       | $          | 824,170 |   |   |   | $ | 850,739 |   |   |

 

At July 2, 2006, we were contingently liable forstandby letters of credit totaling $53.2 million issued on our behalf byfinancial institutions. These letters of credit are used for a variety ofpurposes, including meeting requirements to self-insure workers’ compensationclaims. We are also contingently liable for future product warranty claims. Weprovide comprehensive warranties to our customers. As a result of thesewarranties, we may be responsible for costs associated with a product recallcaused by a defect in a part that we manufacture. We continuously monitorpotential warranty implications of new and current business to assess whether aliability should be recognized. The Company has experienced relatively 

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nominal warranty costs and no significant warrantyaccrual is reflected in the July 2, 2006 consolidated balance sheet.

Our senior credit facility contains covenants andrequirements affecting us and our subsidiaries, including a financial covenantrequirement for an Earnings Before Interest Taxes Depreciation and Amortization(“EBITDA”) to cash interest expense coverage ratio to exceed 1.75 through theyear ending December 31, 2006; and a debt to EBITDA ratio not to exceed5.25 through the year ending December 31, 2006. We were in compliance withthe new covenants throughout the quarter. Based on our anticipated EBITDAperformance, we anticipate being in covenant compliance over the next fourquarters.

***Foreign Currency Risk.***   Weare subject to the risk of changes in foreign currency exchange rates due toour global operations. We manufacture and sell our products primarily in NorthAmerica and Europe. As a result, our financial results could be significantlyaffected by factors such as changes in foreign currency exchange rates or weakeconomic conditions in foreign markets in which we manufacture and distributeour products. Our operating results are primarily exposed to changes inexchange rates between the U.S. dollar and European currencies.

As currency exchange rates change, translation of thestatements of operations of our international businesses into U.S. dollarsaffects year-over-year comparability of operating results. We generally do nothedge operating translation risks because cash flows from internationaloperations are typically reinvested locally. Changes in foreign currencyexchange rates are generally reported as a component of stockholders’ equityfor our foreign subsidiaries reporting in local currencies and as a componentof income for our foreign subsidiaries using the U.S. dollar as the functionalcurrency. The change in our accumulated other comprehensive income relating tocumulative translation adjustments was $28.8 million for the six months ended July 2,2006, due to cumulative translation adjustments resulting primarily fromchanges in the Euro to the U.S. dollar.

As of July 2, 2006, our net total assets (definedas total assets less total liabilities) subject to foreign currency translationrisk were $1,043.2 million. The potential decrease in net total assets from ahypothetical 10% adverse change in quoted foreign currency exchange rates wouldbe $104.3 million. The sensitivity analysis presented assumes a parallel shiftin foreign currency exchange rates. Exchange rates rarely move in the same direction.This assumption may overstate the impact of changing exchange rates onindividual assets and liabilities denominated 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 $431.7million of our debt was variable rate debt at July 2, 2006. A hypothetical25 bps adverse movement in the interest rate on variable rate debt would affectearnings on an annual basis by approximately $1.1 million. Approximately $437.1million of our debt was fixed rate debt at July 2, 2006. A hypothetical 25bps adverse movement in interest rates would result in a loss in the fair valueof this fixed rate debt of approximately $8.7 million.

***Off-Balance Sheet Arrangements.******  ***On April 29,2005, the Company and our newly formed wholly owned special purpose subsidiary,MRFC, Inc. (“MRFC”), entered into a new accounts receivable financingfacility with General Electric Capital Corporation (“GECC”). Concurrent withentering into the new facility, our former accounts receivable financingfacility with JPMorgan Chase Bank, N.A. was terminated. On July 8, 2005,the Company and MRFC amended andrestated the existing accounts receivable financing facility with GECC. Theterms of the facility that were amended and restated included (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 represented the completion of the final step ofthe multi-step receivables facility modifications initiated on April 29,2005.

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We have entered into an arrangement to sell, on anongoing basis, the trade accounts receivable of substantially all domesticbusiness operations to MRFC. MRFC from time to time may sell an undividedfractional ownership interest in the pool of receivables up to approximately$175 million to a third party multi-seller receivables funding company. The netproceeds of sale are less than the face amount of accounts receivable sold byan amount that approximates the purchaser’s financing costs, which amounted toa total of $3.4 million and $1.7 million for the six months ended July 2,2006 and July 3, 2005, respectively, which is included in other expense,net in our consolidated statement of operations. Prior to April 29, 2005,trade accounts receivable of substantially all of our domestic businessoperations were sold in connection with the former accounts receivablefinancing facility with JPMorgan Chase Bank, N.A. At July 2, 2006, ourfunding under the facility was $66.5 million with availability based upon qualifiedreceivables of $75.4 million and $8.9 million available but not utilized. Therate used to approximate the purchaser’s financing costs was based on LIBORplus 2.25% at July 2, 2006. In addition, we are required to pay a fee of0.5% on the unused portion of the facility.

We have entered into agreements with internationalinvoice factoring companies to sell customer accounts receivable of Metaldyne’sforeign locations in France, Germany, Spain, Czech Republic and United Kingdomon a non-recourse basis. As of July 2, 2006 and January 1, 2006, wehad available $78.9 million and $71.9 million from these commitments, andapproximately $53.2 million and $50.0 million of receivables were sold underthese programs, respectively. We pay a commission to the factoring company plusinterest from the date the receivables are sold to the date of customerpayment. Commission expense related to these agreements is recorded in otherexpense, net on our consolidated statement of operations and totaled $1.0million and $0.9 million for the six months ended July 2, 2006 and July 3,2005, respectively.

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

*Sale-LeasebackArrangements.*   We have historically engaged in anumber of sale-leaseback transactions, including three transactions during 2005which generated proceeds of $21.5 million. These sale-leasebacks were accountedfor as operating leases with combined annual lease expense of approximately$4.0 million.

Additionally, in the first six months of 2006 weentered into two operating leases for machinery and equipment with combinedannual lease expense of approximately $1.0 million. We anticipate relying onsale-leaseback and other leasing opportunities as a source of cash to financecapital expenditures and other uses.

*Redeemable PreferredStock.*   We have outstanding $196.0 million inaggregate liquidation value ($110.5 million aggregate carrying value) as of July 2,2006 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 six months ended July 2, 2006. At July 2,2006, there were unpaid accrued dividends of $77.0 million, resulting inredeemable preferred stock of $187.5 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.

***TriMas Receivables.***   Wehave recorded approximately $8.6 million as of July 2, 2006, consisting ofreceivables related to certain amounts from TriMas, $3.5 million of which isrecorded in equity investments and receivables in affiliates in ourconsolidated balance sheet as of July 2, 2006. These amounts includeTriMas’ obligations resulting from tax net operating losses created prior tothe disposition of TriMas of 

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approximately $3.0million, pension obligations of approximately $0.7 million, and reimbursementdue for cash payments made related to postretirement obligations and variousinvoices paid on TriMas’ behalf of approximately $1.4 million.

***Credit Rating.******  ***Metaldyne israted by Standard & Poor’s and Moody’s Ratings. As of July 2,2006, we have long-term ratings from Standard & Poor’s and Moody’s ofB/B3 on our senior credit facility, CCC+/Caa1 on our 10% senior notes due 2013and CCC+/Caa2 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 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.

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

| ** **            | ** ** | **(In thousands)**    | ** ** |
|-----------------------|------------|----------------------------|------------|
| ** **            | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| Capital Expenditures: |       |                       |       |   |   |   |   |   |   |
| Chassis               |       |                       | $          | 19,447 |   |   |   | $ | 23,850 |   |   |
| Powertrain            |       |                       | 27,424     |   |   |   | 30,143 |   |   |
| Corporate             |       |                       | 199        |   |   |   | 190 |   |   |
| Total                 |       |                       | $          | 47,070 |   |   |   | $ | 54,183 |   |   |

 

***Cash Flows***

*Operating activities*—Cashflows provided by operations were $17.4 million for the six months ended July 2,2006 compared to $55.4 million in 2005. The decrease is primarily the result ofa $55.4 million decrease in net proceeds from the accounts receivable securitizationfacility and an $10.7 million reduction in operating cash flow provided bydiscontinued operations. This was offset by a $27.3 million decrease in workingcapital usage (excluding the accounts receivable securitization facility).

*Investing activities*—Cashflows used in investing activities totaled $20.6 million for the six monthsended July 2, 2006 compared to $34.9 million in 2005. The increase of$14.3 million is primarily due to $69.1 million of proceeds from the sale ofour Forging Operations and $7.1 million of lower capital expenditure spending,offset by $40.0 million used to repurchase assets under operating leases. Additionally,in the first six months of 2005, we received $16.4 million in proceeds fromsale-leaseback transactions for equipment and a reduction of $8.0 million inour investment in New Castle resulting from reimbursement relating to equipmentpurchases.

*Financingactivities*—Cash flow provided by financing activities totaled$4.5 million for the six months ended July 2, 2006 compared with cashflows used by financing activities of $19.9 million in 2005. The net increaseis due to $58.9 million of proceeds from our term loan facilities, offset by$25.5 million of principal payments on the term loan facilities and an increasein net borrowings and repayments of $11.1 million on our revolving creditfacilities in 2006 compared with 2005.

***Outlook***

Automotive vehicle production in 2006 is expected tobe consistent with 2005 production levels in North America and approximately3.5% higher than 2005 production levels in the global market. However, 2006automotive vehicle production for the “Big 3” is expected to be approximately2% below 2005 production 

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levels. 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 funds from operating activitiesand borrowings for the next several years are expected to fund interest andprincipal payments on our indebtedness, growth related capital expenditures andworking capital increases, strategic acquisitions and lease expense. Ouranticipated capital expenditures for 2006 are estimated to be between $70million and $75 million. Capital spending requirements prior to 2006 had beenelevated due to our efforts to transition our business to new technologies,capabilities and geographies.

Management believes cash flow from operations and debtfinancing and refinancing from our accounts receivable securitization programwill provide us with adequate sources of liquidity for the foreseeable future.On February 3, 2006, we entered into an amended and restated creditagreement that adjusted certain covenants to take account of the North AmericanForging divestiture and to provide additional covenant flexibility. It alsoadded an additional $50 million term loan, of which $25 million was used toprepay the preexisting term loan. However, our sources of liquidity may beinadequate if we are unable to achieve operating targets, in which case we may needto seek additional covenant relief from our lending group. No assurance can begiven that we would be successful in negotiating such relief. The interestexpense coverage ratio in the amended and restated credit agreement increasesfrom 1.75 in 2006 to 2.00, 2.25 and 2.50, and the debt to EBITDA leverage ratiodecreases from 5.25 in 2006 to 5.00, 4.50 and 4.00 through the years ending2007, 2008 and 2009, respectively. In addition, matters affecting the creditquality of our significant customers could adversely impact the availability ofour receivables arrangements and our liquidity. Any debt rating downgrades and/or insolvencies of our largest customersmay have an adverse effect on our liquidity as it could adversely impact ourability to borrow under our accounts receivable securitization facility. Forexample, on June 28, 2006, Standard & Poor’s lowered its creditrating of Ford Motor Company, one of our largest customers, resulting in adecrease of our borrowing capacity under our accounts receivable securitizationfacility by approximately $4.6 million. We continue to explore othersources of liquidity, including additional debt, but existing debt instrumentsmay limit our ability to incur additional debt, and we may be unable to secureequity 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.

**New AccountingPronouncement**

In June 2006, theFinancial Accounting Standards Board, or FASB, issued FASB Interpretation No. 48,*Accounting for Uncertainty in Income Taxes*,or 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.

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**Other Matters**

**Fiscal Year**

Our fiscal year ends onthe Sunday nearest to December 31.

**Caution Concerning Forward Looking Statements andCertain Risks Related to Our Business and Our Company—Safe HarborStatements**

This report contains statements reflecting the Company’sviews about its future performance, its financial condition, its markets andmany other matters that constitute “forward-looking statements.” These viewsinvolve risks and uncertainties that are difficult to predict and may cause theCompany’s actual results and/or expectations about various matters to differsignificantly from those discussed in such forward-looking statements. Allstatements, other than statements of historical fact included in this quarterlyreport, regarding our strategy, future operations, financial condition,expected results and costs, new business, estimated revenues and losses,prospects and plans are forward-looking statements. When used in this quarterlyreport, the words “will,” “believe,” “anticipate,” “intend,” “estimate,” “expect,”“project” and similar expressions are intended to identify forward-lookingstatements, although not all forward-looking statements contain suchidentifying words. You should not place undue reliance on these forward-lookingstatements. All forward-looking statements speak only as of the date of thisquarterly report and we undertake no obligation to update such information.Readers should consider that various factors may affect whether actual resultsand experience correspond with our forward-looking statements and that many ofthese factors also represent risks attendant to owning securities in theCompany, including those identified below.

Risks anduncertainties that could cause actual results to vary materially from thoseanticipated in the forward-looking statements included in this Form 10-Qreport (“Quarterly Report”) include general economic conditions in the marketsin which we operate and industry-based factors such as:

·       Dependenceon automotive industry and industry cyclicality;

·       Customerconcentration;

·       Abilityto finance capital requirements;

·       Failureto recover increased raw material costs;

·       Increasesin costs due to our supply base;

·       Ourindustries are highly competitive;

·       Liquidityarrangements;

·       Changingtechnology;

·       Challengesof strategic opportunities;

·       Dependenceon key personnel and relationships;

·       Laborstoppages affecting OEMs;

·       Outsourcingtrends;

·       Internationalsales;

·       Productliability and warranty claims;

·       Environmentalmatters;

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·       Controlby principal stockholder;

·       Termsof stockholder agreement;

·       Leverage;ability to service debt;

·       Substantialrestrictions and covenants; and

·       Implementationof control improvements.

In addition, factors more specific to us could causeactual results to vary materially from those anticipated in the forward-lookingstatements included in this Quarterly Report such as substantial leverage,substantial capital requirement limitations imposed by our debt instruments,our ability to identify attractive strategic acquisition opportunities and tosuccessfully integrate acquired businesses including actions we have identifiedas providing cost-saving opportunities.

We disclose important factors that could cause ouractual results to differ materially from our expectations under Item 1A “RiskFactors” in our 2005 Form 10-K, under Item 2, Management’sDiscussion and Analysis of Financial Condition and Results of Operations tothis Report and elsewhere in this Quarterly Report. These cautionary statementsqualify all forward-looking statements attributable to us or persons acting onour behalf. 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 the notes. On May 16, 2006, the UAW announced that itsmembership had authorized a strike should Delphi Corporation unilaterallyimpose changes to its labor agreements. As discussed in our “Risk Factors” inour 2005 Form 10-K, this could seriously impact the profitability ofour business.

There are few publishedindependent sources for data related to the market share data for many of ourproducts. To the extent information is otherwise not obtained or derived fromindependent sources, we have expressed our belief based on our own internalanalyses and estimates of our and our competitors’ products and capabilities.We note that many of the industries in which we compete are characterized bycompetition among a small number of large suppliers. Industry publications andsurveys and forecasts that we have used generally state that the informationcontained therein has been obtained from sources believed to be reliable. Wehave not independently verified any of the data from third-party sources norhave we ascertained the underlying assumptions or bases for any suchinformation. 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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**ITEM 3.**                QUANTITATIVEAND 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.

**ITEM 4.**                CONTROLSAND PROCEDURES

In connection with its audit of the Company’sfinancial statements as of January 1, 2006, KPMG advised the Company in March 2006that certain control deficiencies over fixed asset perpetual recordsconstituted a material weakness. Adjustments were recorded in 2003 and 2005based on the Company’s efforts to verify existence and useful lives of ownedand leased assets. It has been recommended that existing policies andprocedures relative to the maintenance of perpetual records for owned andleased assets should be reviewed and revised, if appropriate, to ensure timelyidentification and recording of changes to assets. In addition, proceduresshould be adopted to ensure periodic reviews of fixed asset records in thefuture. This material weakness, if unaddressed, could result in material errorsin the Company’s financial statements.

Realizing the controls associated with fixed assetswere not sufficient to ensure timely identification of changes to assets, theCompany undertook comprehensive physical inventories of leased and owned assetsduring the current year, which resulted in adjustments to previously recordedamounts of Company owned fixed assets and obligations for idle or missingleased assets. Utilizing the fixed asset information validated from thesephysical inventory procedures, the Company intends to take additional actionsto address the underlying processes to ensure that fixed asset activity isrecorded on a timely basis. While these process improvements are beingimplemented, the Company will continue to support this activity with periodicphysical counts of fixed assets.

In the second quarter of2006, the Company clarified the roles and responsibilities for fixed assetcompliance. In doing so, a Fixed Asset Champion was assigned at each locationand is responsible for all owned and leased assets. In addition, all existingfixed asset policies have been reviewed and revised, if appropriate, andtraining has been performed for all locations.

**Disclosure Controlsand 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 July 2, 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 inDisclosure Controls and Procedures**

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

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**PART II.OTHER INFORMATION**

**METALDYNE CORPORATION**

**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.

**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.

At the annual meeting of our stockholders held on May 3,2006, our stockholders elected the following nominees to our board ofdirectors, with votes cast as follows:

Charles E. Becker—37,795,890.95 shares for, 15,041.75shares against/withheld and 5,004,547.30 abstentions;

Marshall A. Cohen—37,789,605.45 shares for, 21,337.25shares against/withheld and 5,004,537.30 abstentions;

Cynthia L. Hess—37,787,848.50 shares for, 23,094.20shares against/withheld and 5,004,537.30 abstentions;

Timothy D. Leuliette—37,528,559.75 shares for,281,334.75 shares against/withheld and 5,005,585.50 abstentions;

J. Michael Losh—37,795,921.20 shares for, 15,021.50shares against/withheld and 5,004,537.30 abstentions;

Wendy Beale Needham—37,794,221.20 shares for,15,021.50 shares against/withheld and 5,006,237.30 abstentions;

Daniel P. Treadwell—37,792,960.05 shares for,17,082.65 shares against/withheld and 5,005,437.30 abstentions; and

Samuel Valenti, III—37,795,921.20 shares for,15,021.50 shares against/withheld and 5,004,537.30 abstentions.

As was originally reportedby the Company on July 13, 2006 on Form 8-K, on July 11,2006 Samuel Valenti, III resigned from the board of directors of MetaldyneCorporation effective as of that date.

**Item 5.**                        OtherInformation.

Not Applicable.

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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). |
| 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).                    |
| 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: August 8, 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). |
| 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).                        |
| 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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