**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 April 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

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated 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.

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

 

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**METALDYNECORPORATION**

**INDEX**
| Part I.  |   | FINANCIAL  INFORMATION                                                                                      |   |   |   |
|---------------|--------|-------------------------------------------------------------------------------------------------------------|--------|--------|--------|
| Item  1.      |   | Financial  Statements (Unaudited)                                                                           |   |   |   |
|          |   | Consolidated  Balance Sheets—April 2, 2006 and January 1, 2006                               |   | 2      |   |
|          |   | Consolidated Statements of Operations for the Three  Months Ended April 2, 2006 and April 3, 2005 |   | 3      |   |
|          |   | Consolidated Statements of Cash Flows for the Three  Months Ended April 2, 2006 and April 3, 2005 |   | 4      |   |
|          |   | Notes to Consolidated Financial Statements                                                                  |   | 5      |   |
| Item 2.       |   | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                 |   | 24     |   |
| Item 3.       |   | Quantitative and Qualitative Disclosure about Market  Risk                                                  |   | 41     |   |
| Item  4.      |   | Controls  and Procedures                                                                                    |   | 41     |   |
| Part II. |   | OTHER  INFORMATION AND SIGNATURE                                                                            |   | 42     |   |

 

1

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**PART I.FINANCIAL INFORMATION**

**ITEM 1. FINANCIALSTATEMENTS**

**METALDYNE CORPORATIONCONSOLIDATED BALANCE SHEETApril 2, 2006 and January 1, 2006(Dollars in thousands except per share amounts)**

| ** **                                                                                                                                                                                                                                                    | ** ** | **April 2, 2006** | ** ** | **January 1, 2006** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-------------------------------|------------|
| ** **                                                                                                                                                                                                                                                    | ** ** | **(Unaudited)**             | ** ** |
| **ASSETS**                                                                                                                                                                                                                                                    | ** ** |                        | ** ** | ** **                    |       |   | ** ** | ** ** |   |
| Current assets:                                                                                                                                                                                                                                               | ** ** |                        | ** ** | ** **                    |       |   | ** ** | ** ** |   |
| Cash and cash  equivalents                                                                                                                                                                                                                                    |       |                        | $          | 5,992                         |       |   |   | $ | 3,687 |   |   |
| Receivables, net:                                                                                                                                                                                                                                             | ** ** |                        | ** ** | ** **                    |       |   | ** ** | ** ** |   |
| Trade (net of  allowance for doubtful accounts of $5,146 and $3,110 at April 2, 2006  and January 1, 2006, respectively)                                                                                                                            |       |                        | 171,710    |                          |       |   | 130,018 |   |   |
| TriMas                                                                                                                                                                                                                                                        |       |                        | 5,132      |                          |       |   | 3,841 |   |   |
| Other                                                                                                                                                                                                                                                         |       |                        | 7,349      |                          |       |   | 6,020 |   |   |
| Total receivables,  net                                                                                                                                                                                                                                       |       |                        | 184,191    |                          |       |   | 139,879 |   |   |
| Inventories                                                                                                                                                                                                                                                   |       |                        | 85,221     |                          |       |   | 84,265 |   |   |
| Deferred and  refundable income taxes                                                                                                                                                                                                                         |       |                        | 10,937     |                          |       |   | 11,010 |   |   |
| Prepaid expenses  and other assets                                                                                                                                                                                                                            |       |                        | 31,478     |                          |       |   | 29,668 |   |   |
| Assets of  discontinued operations                                                                                                                                                                                                                            |       |                        | —     |                          |       |   | 116,612 |   |   |
| Total current  assets                                                                                                                                                                                                                                         |       |                        | 317,819    |                          |       |   | 385,121 |   |   |
| Equity investments  and receivables in affiliates                                                                                                                                                                                                             |       |                        | 90,770     |                          |       |   | 90,928 |   |   |
| Property and  equipment (net of accumulated depreciation of $291,752 and $270,686 at  April 2, 2006 and January 1, 2006, respectively)                                                                                                              |       |                        | 661,384    |                          |       |   | 630,428 |   |   |
| Excess of cost  over net assets of acquired companies                                                                                                                                                                                                         |       |                        | 587,712    |                          |       |   | 583,990 |   |   |
| Intangible and  other assets                                                                                                                                                                                                                                  |       |                        | 149,414    |                          |       |   | 156,468 |   |   |
| Total assets                                                                                                                                                                                                                                                  |       |                        | $          | 1,807,099                     |       |   |   | $ | 1,846,935 |   |   |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                                                                                                                                                |       |                        |       |                          |       |   |   |   |   |
| Current liabilities:                                                                                                                                                                                                                                          |       |                        |       |                          |       |   |   |   |   |
| Accounts payable                                                                                                                                                                                                                                              |       |                        | $          | 269,189                       |       |   |   | $ | 261,098 |   |   |
| Accrued  liabilities                                                                                                                                                                                                                                          |       |                        | 137,770    |                          |       |   | 123,870 |   |   |
| Current  liabilities of discontinued operations                                                                                                                                                                                                               |       |                        | —     |                          |       |   | 37,400 |   |   |
| Current  maturities, long-term debt                                                                                                                                                                                                                           |       |                        | 6,042      |                          |       |   | 6,640 |   |   |
| Total current  liabilities                                                                                                                                                                                                                                    |       |                        | 413,001    |                          |       |   | 429,008 |   |   |
| Long-term debt                                                                                                                                                                                                                                                |       |                        | 854,610    |                          |       |   | 850,739 |   |   |
| Deferred income  taxes                                                                                                                                                                                                                                        |       |                        | 42,402     |                          |       |   | 42,402 |   |   |
| Minority interest                                                                                                                                                                                                                                             |       |                        | 748        |                          |       |   | 740 |   |   |
| Other long-term  liabilities                                                                                                                                                                                                                                  |       |                        | 124,648    |                          |       |   | 99,591 |   |   |
| Long-term liabilities  of discontinued operations                                                                                                                                                                                                             |       |                        | —     |                          |       |   | 33,204 |   |   |
| Redeemable  preferred stock, (aggregate liquidation value: $187,106 and $180,908 at  April 2, 2006 and January 1, 2006, respectively). Authorized:  1,198,693 shares; Outstanding: 1,189,694 shares at April 2, 2006 and  January 1, 2006 |       |                        | 178,401    |                          |       |   | 171,928 |   |   |
| Total liabilities                                                                                                                                                                                                                                             |       |                        | 1,613,810  |                          |       |   | 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 April 2, 2006  and January 1, 2006                                                                                                                                     |       |                        | 42,845     |                          |       |   | 42,845 |   |   |
| Paid-in capital                                                                                                                                                                                                                                               |       |                        | 698,882    |                          |       |   | 698,868 |   |   |
| Accumulated  deficit                                                                                                                                                                                                                                          |       |                        | (560,001   | )                             |       |   | (524,648 | ) |   |
| Accumulated other  comprehensive income                                                                                                                                                                                                                       |       |                        | 11,563     |                          |       |   | 2,258 |   |   |
| Total  shareholders’ equity                                                                                                                                                                                                                              |       |                        | 193,289    |                          |       |   | 219,323 |   |   |
| Total liabilities  and shareholders’ equity                                                                                                                                                                                                              |       |                        | $          | 1,807,099                     |       |   |   | $ | 1,846,935 |   |   |

 

See accompanying notes to the consolidated financial statements.

2

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

| ** **                                                                                         | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                         | ** ** | **April 2, 2006**      | ** ** | **April 3, 2005** | ** ** |
| ** **                                                                                         | ** ** | **(Unaudited)**                  | ** ** |
| Net sales                                                                                          |       |                             | $          | 504,254 |   |   |   | $ | 489,372 |   |   |
| Cost of sales                                                                                      |       |                             | (464,497   | ) |   |   | (437,818 | ) |   |
| Gross profit                                                                                       |       |                             | 39,757     |   |   |   | 51,554 |   |   |
| Selling, general and administrative expenses                                                       |       |                             | (28,410    | ) |   |   | (25,717 | ) |   |
| Restructuring  charges                                                                             |       |                             | (78        | ) |   |   | (1,252 | ) |   |
| Operating profit                                                                                   |       |                             | 11,269     |   |   |   | 24,585 |   |   |
| Other expense,  net:                                                                               |       |                             |       |   |   |   |   |   |   |
| Interest:                                                                                          |       |                             |       |   |   |   |   |   |   |
| Interest expense                                                                                   |       |                             | (23,947    | ) |   |   | (22,553 | ) |   |
| Preferred stock dividends and accretion                                                            |       |                             | (6,472     | ) |   |   | (5,436 | ) |   |
| Equity income from affiliates                                                                      |       |                             | 959        |   |   |   | 605 |   |   |
| Other, net                                                                                         |       |                             | (4,837     | ) |   |   | (1,637 | ) |   |
| Other expense, net                                                                                 |       |                             | (34,297    | ) |   |   | (29,021 | ) |   |
| Loss from continuing operations before income taxes                                                |       |                             | (23,028    | ) |   |   | (4,436 | ) |   |
| Income tax  expense (benefit)                                                                      |       |                             | 4,997      |   |   |   | (1,556 | ) |   |
| Loss from  continuing operations                                                                   |       |                             | (28,025    | ) |   |   | (2,880 | ) |   |
| Loss from  discontinued operations (net of tax of zero and $(334) in 2006 and 2005,  respectively) |       |                             | (466       | ) |   |   | (620 | ) |   |
| Loss on  discontinued operations (net of tax of zero)                                              |       |                             | (6,862     | ) |   |   | — |   |   |
| Net loss                                                                                           |       |                             | $          | (35,353 | ) |   |   | $ | (3,500 | ) |   |
| Basic and diluted  loss per share:                                                                 |       |                             |       |   |   |   |   |   |   |
| Loss from continuing operations                                                                    |       |                             | $          | (0.65 | ) |   |   | $ | (0.07 | ) |   |
| Loss from discontinued operations                                                                  |       |                             | (0.01      | ) |   |   | (0.01 | ) |   |
| Loss on discontinued operations                                                                    |       |                             | (0.16      | ) |   |   | — |   |   |
| Net loss attributable to common stock                                                              |       |                             | $          | (0.82 | ) |   |   | $ | (0.08 | ) |   |
| Weighted average  number of shares outstanding for basic and diluted loss per share                |       |                             | 42,845     |   |   |   | 42,845 |   |   |

 

See accompanying notes to the consolidated financial statements.

3

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

| ** **                                                                                  | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                  | ** ** | **April 2,  2006**          | ** ** | **April 3,  2005** | ** ** |
| ** **                                                                                  | ** ** | **(Unaudited)**                  | ** ** |
| Operating activities:                                                                       |       |                             |       |   |   |
| Net loss                                                                                    |       | $                                | (35,353    | ) | $ | (3,500 | ) |
| Adjustments to reconcile net loss to net cash  provided by (used for) operating activities: |       |                             |       |   |   |
| Depreciation and  amortization                                                              |       | 36,889                           |       | 26,195 |   |
| Debt fee amortization                                                                       |       | 1,012                            |       | 778 |   |
| Loss on fixed asset  dispositions                                                           |       | 5,612                            |       | 31 |   |
| Loss from discontinued  operations                                                          |       | 466                              |       | 620 |   |
| Loss on discontinued  operations                                                            |       | 6,862                            |       | — |   |
| Deferred income taxes                                                                       |       | 73                               |       | (3,517 | ) |
| Preferred stock dividends  and accretion                                                    |       | 6,472                            |       | 5,436 |   |
| Non-cash interest expense  (interest accretion)                                             |       | 78                               |       | 78 |   |
| Equity income from  affiliates                                                              |       | (959                             | )          | (605 | ) |
| Curtailment (gain) loss  on elimination of certain benefits                                 |       | 165                              |       | (2,080 | ) |
| Operating cash flows  provided by (used for) discontinued operations                        |       | (1,625                           | )          | 8,566 |   |
| Other, net                                                                                  |       | (888                             | )          | 870 |   |
| Changes in assets and liabilities, net of  acquisition/disposition of business:             |       |                             |       |   |   |
| Receivables, net                                                                            |       | (36,933                          | )          | (37,292 | ) |
| Net proceeds of  (reduction from) accounts receivable facility                              |       | (2,551                           | )          | 37,017 |   |
| Inventories                                                                                 |       | (99                              | )          | (6,036 | ) |
| Prepaid expenses and  other assets                                                          |       | (1,844                           | )          | (3,598 | ) |
| Accounts payable and  accrued liabilities                                                   |       | 26,426                           |       | 3,491 |   |
| Change in other long-term  assets                                                           |       | (4,520                           | )          | 425 |   |
| Change in other long-term  liabilities                                                      |       | (1,868                           | )          | (3,353 | ) |
| Net cash provided by  (used for) operating activities                                       |       | (2,585                           | )          | 23,526 |   |
| Investing activities:                                                                       |       |                             |       |   |   |
| Capital expenditures                                                                        |       | (26,591                          | )          | (23,845 | ) |
| Repurchase of leased  assets                                                                |       | (36,136                          | )          | — |   |
| Proceeds from  sale/leaseback of fixed assets                                               |       | —                           |       | 6,490 |   |
| Reimbursement from  acquisition of business, net of cash received                           |       | —                           |       | 5,750 |   |
| Proceeds from sale of  discontinued operations                                              |       | 69,058                           |       | — |   |
| Investing cash flows used  for discontinued operations                                      |       | (2,513                           | )          | (3,051 | ) |
| Net cash provided by  (used for) investing activities                                       |       | 3,818                            |       | (14,656 | ) |
| Financing activities:                                                                       |       |                             |       |   |   |
| Proceeds of term loan  facilities                                                           |       | 53,750                           |       | — |   |
| Principal payments of  term loan facilities                                                 |       | (25,000                          | )          | — |   |
| Proceeds of revolving  credit facility                                                      |       | 135,000                          |       | 65,000 |   |
| Principal payments of  revolving credit facility                                            |       | (159,605                         | )          | (70,767 | ) |
| Proceeds of other debt                                                                      |       | 1,431                            |       | 1,570 |   |
| Principal payments of  other debt                                                           |       | (2,585                           | )          | (4,555 | ) |
| Capitalization of debt  refinancing fees                                                    |       | (2,196                           | )          | — |   |
| Issuance of stock options                                                                   |       | 14                               |       | — |   |
| Financing cash flows used  for discontinued operations                                      |       | —                           |       | (68 | ) |
| Net cash provided by  (used for) financing activities                                       |       | 809                              |       | (8,820 | ) |
| Effect of exchange rates  on cash                                                           |       | 263                              |       | (50 | ) |
| Net increase in cash                                                                        |       | 2,305                            |       | — |   |
| Cash and cash  equivalents, beginning of period                                             |       | 3,687                            |       | — |   |
| Cash and cash  equivalents, end of period                                                   |       | $                                | 5,992      |   | $ | — |   |
| Supplementary cash flow information:                                                        |       |                             |       |   |   |
| Cash paid for income  taxes, net                                                            |       | $                                | 4,943      |   | $ | 2,929 |   |
| Cash paid for interest                                                                      |       | $                                | 13,331     |   | $ | 11,649 |   |
| Noncash transactions—capital leases                                                    |       | $                                | 178        |   | $ | 245 |   |

 

See accompanying notes to the consolidated financial statements.

4

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**METALDYNE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**1.**                 Business andOther 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 Company enteredinto a definitive agreement to sell its business of supplying forged metalcomponents to the automotive light vehicle market (“North American Forging” or “ForgingOperations”). On March 10, 2006, the Company completed this divestiture.The Forging Operations, which were part of the Chassis segment, generatedapproximately $358 million revenue in 2005 and included plants located inRoyal Oak, Michigan; Fraser, Michigan; Troy, Michigan; Detroit, Michigan;Minerva, Ohio; Canal Fulton, Ohio and Ft. Wayne, Indiana. In accordance withSFAS No. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets,” all revenue and expenses of the Forging Operations have been removedfrom the respective consolidated income statement line items and reportedseparately as discontinued operations. In addition, assets and liabilities ofthe Forging Operations have been removed from the respective consolidatedbalance sheet line items and reclassified separately as assets and liabilitiesof discontinued 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 April 2, 2006 are not necessarily indicative of the resultsfor the full year.

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

**2.**                 StockOptions and Awards

At April 2, 2006, theCompany had share-based awards outstanding under one stock-based employeecompensation plan, the 2001 Long Term Equity Incentive Plan (the “Plan”).Share-based awards under this plan consist of stock option awards andrestricted stock units. These options and units are required to be held andcannot be exercised until the elapse of a certain time period after a publicoffering.

Beginning in 2004, the Company offered eligibleemployees the opportunity to participate in a new Voluntary Stock OptionExchange Program (the “Program”), to exchange all of their outstanding optionsto purchase shares of the Company’s common stock granted under the Plan for newstock options and restricted stock units to be granted under the Plan.Participation in the Program was voluntary; however, elections were required tobe received by January 14, 2004, with new stock options granted on orafter July 15, 2004 and restricted stock units granted on January 15,2004. Non-eligible participants in the 

5

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

existing Plan and oneeligible employee not electing to participate in the new Program continue toparticipate in the existing 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 Company’s stock-based compensation plan. Stock options granted under thePlan had an exercise price equal to or greater than the market value of thecommon stock on the date of the grant, and accordingly, no compensation expensewas recognized. Stock awards were valued at their fair market value measured atthe date of grant, and compensation expense was recognized over the vestingperiod 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 expenserecognized during the three months ended April 2, 2006 includedcompensation expense for all share-based awards granted on or after January 2,2006, based on the grant date fair value estimated in accordance with theprovisions of SFAS No. 123R. In accordance with the prospective method,results for prior periods have not been restated. The Company’s stock awardplan is considered an equity plan under SFAS No. 123R, and compensationexpense recognized as previously described is net of estimated forfeitures ofshare based awards over the vesting period. The effect of adopting SFAS No. 123Rwas not material to the Company’s loss from continuing operations and net lossfor the three months ended April 2, 2006.

Total stock-based compensation for the three monthsended April 2, 2006 was $14,000, all of which related to stock options. AtApril 2, 2006, there was $157,000 of unrecognized compensation expenserelated to these unvested awards granted under the Company’s stock-basedcompensation plan. Compensation expense is recognized on a straight-line basis,or $14,000 per quarter, over the 3-year vesting life of the stockoptions.

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 theCompany’s stock-based compensation plan and represents the period of time thatawards granted are expected to be outstanding.

6

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

The significant weightedaverage assumptions relating to the valuation of the Company’s stock optionsfor the three months ended April 2, 2006 and April 3, 2005 are asfollows.

| ** **                    | ** ** | **April 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 thethree months ended April 2, 2006 was $2.17. The aggregate intrinsic valuewas zero for all outstanding shares, vested and expected to vest in the futureshares and exercisable shares. Stock option awards activity for the threemonths ended April 2, 2006 is as follows (shares in thousands):

| ** **                                                       | ** ** | **Shares Under  Option(1)** | ** ** | **Weighted Average  Exercise Price** | ** ** | **Weighted Average  Remaining  Contractual Term** | ** ** |
|------------------------------------------------------------------|------------|----------------------------------|------------|------------------------------------------------|------------|-------------------------------------------------------------|------------|
| Outstanding at  January 2, 2006                             |       |                             | 2,984      |                                           |       |                                                        | $          | 9.68 |   |   |   | 7.5 years |   |   |
| Granted                                                          |       |                             | 79         |                                           |       |                                                        | $          | 6.50 |   |   |   |   |   |   |
| Forfeited                                                        |       |                             | (30        | )                                              |       |                                                        | $          | 6.50 |   |   |   |   |   |   |
| Outstanding at  April 2, 2006                               |       |                             | 3,033      |                                           |       |                                                        | $          | 9.63 |   |   |   | 7.5 years |   |   |
| Vested and expected to vest in the future at  April 2, 2006 |       |                             | 2,090      |                                           |       |                                                        | $          | 10.69 |   |   |   | 7 years |   |   |
| Exercisable at April 2, 2006                                |       |                             | —     |                                           |       |                                                        |       |   |   |   | — |   |   |
| Available for  grant at April 2, 2006                       |       |                             | 1,927      |                                           |       |                                                        |       |   |   |   |   |   |   |

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(1)          Includes50,000 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 less than the face 

7

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

amount of accountsreceivable sold by an amount that approximates the purchaser’s financing costs,which amounted to a total of $1.7 million and $1.0 million for thethree months ended April 2, 2006 and April 3, 2005, respectively, andis included in other expense, net in the Company’s consolidated statement ofoperations. Prior to April 29, 2005, the Company’s trade accountsreceivable of substantially all domestic business operations were sold inconnection with the former accounts receivable financing facility with JPMorganChase Bank, N.A. At April 2, 2006, the Company’s funding under thefacility was $80.8 million, with availability based upon qualifiedreceivables of $103.4 million, and $22.6 million available but notutilized at April 2, 2006. The rate used to approximate the purchaser’sfinancing costs was based on LIBOR plus 2.25% at April 2, 2006. Inaddition, the Company is required to pay a fee of 0.5% on the unused portion ofthe facility.

The Company has entered into agreements withinternational invoice factoring companies to sell customer accounts receivableof Metaldyne foreign locations in France, Germany, Spain, Czech Republic andUnited Kingdom on a non-recourse basis. As of April 2, 2006 and January 1,2006, the Company had available $74.8 million and $71.9 million fromthese commitments, and approximately $50.8 million and $50.4 millionof receivables were sold under these programs, respectively. The Company pays acommission to the factoring company plus interest from the date the receivablesare sold to the date of customer payment. Commission expense related to theseagreements is recorded in other expense, net on the Company’s consolidatedstatement of operations and totaled $0.5 million for each of the threemonths ended April 2, 2006 and April 3, 2005.

To facilitate thecollection of funds from operating activities, the Company has entered intoaccelerated payment collection programs with certain customers. Although themajority of the accelerated payment collection programs were discontinued as ofor prior to January 2, 2005, at April 2, 2006, collection ofapproximately $50.0 million of accounts receivable was accelerated underthe remaining programs. Included in the above programs is approximately $28.7 millionthat the Company continues to collect on an accelerated basis as a result offavorable payment terms negotiated in connection with a business acquisition.This agreement expires December 31, 2006. While the impact of thediscontinuance of these programs may be partially offset by a greaterutilization of the Company’s accounts receivable securitization facility, theCompany continues to examine other alternative programs in the marketplace, aswell as enhanced terms directly from its customers.

**4.**                 Inventories

Inventoriesby component are as follows:

| ** **      | ** ** | **(In thousands)**     | ** ** |
|-----------------|------------|-----------------------------|------------|
| ** **      | ** ** | **April 2, 2006** | ** ** | **January 1, 2006** | ** ** |
| Raw materials   |       |                        | $          | 37,491 |   |   |   | $ | 38,727 |   |   |
| Work in process |       |                        | 17,398     |   |   |   | 16,138 |   |   |
| Finished goods  |       |                        | 30,332     |   |   |   | 29,400 |   |   |
|            |       |                        | $          | 85,221 |   |   |   | $ | 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 April 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                                           |       | $                                                                         | 75,109     |   |   | $ | (17,299 | ) |   | 10.9 years |   | $ | 74,969 |   |   | $ | (25,346 | ) |   | 10.9 years |   |
| Technology and Other                                         |       | 110,108                                                                   |       |   | (49,038 | ) |   | 14.3 years |   | 109,903 |   |   | (37,680 | ) |   | 14.3 years |   |
| Total                                                        |       | $                                                                         | 185,217    |   |   | $ | (66,337 | ) |   | 12.7 years |   | $ | 184,872 |   |   | $ | (63,026 | ) |   | 12.7 years |   |
| Aggregate Amortization Expense (Included in Cost of  Sales): |       |                                                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| For the three months ended April 2, 2006                |       |                                                                      |       |   | $ | 3,311 |   |   |   |   |   |   |   |   |   |   |   |   |
| 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 three months ended April 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 |       | 2,896                   |       |   | 826 |   |   | 3,722 |   |
| Balance as of  April 2, 2006      |       | $                       | 238,534    |   |   | $ | 349,178 |   |   | $ | 587,712 |   |

 

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 key indicatorof financial operating performance. The Company defines Adjusted EBITDA as lossfrom continuing operations and before interest, taxes, depreciation,amortization, asset impairment, loss on disposition of manufacturing equipmentor facilities and non-cash losses on sale-leaseback of property and equipment.Adjusted EBITDA is a non-GAAP measure and therefore caution must be exercisedin using Adjusted EBITDA as an analytical tool and should not be used inisolation or as a substitute for analysis of our results as reported underGAAP. In evaluating Adjusted EBITDA, management deems it important to considerthe quality of the Company’s underlying earnings by separately identifyingcertain costs undertaken to improve the Company’s results, such as costsrelated to consolidating facilities and businesses in an effort to eliminateduplicative costs or achieve efficiencies, costs related to integratingacquisitions and restructuring costs related to expense reduction efforts.

Intercompany sales for the three months ended April 2,2006 were $0.6 million and $0.6 million in the Chassis and Powertrainsegments, respectively. Intercompany sales for the three months ended April 3,2005 were $1.3 million and $0.7 million in the Chassis and Powertrainsegments, respectively. Intercompany sales are recognized in accordance withthe Company’s revenue recognition policy and are eliminated in consolidation.

10

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

Segmentactivity for the three months ended April 2, 2006 and April 3, 2005is as follows:

| ** **                                                             | ** ** | **(In thousands)**          | ** ** |
|------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                             | ** ** | **Three Months Ended** | ** ** |
| ** **                                                             | ** ** | **April 2, 2006**      | ** ** | **April 3, 2005** | ** ** |
| **SALES**                                                              |       |                             |       |   |   |   |   |   |   |
| Chassis                                                                |       |                             | $          | 260,078 |   |   |   | $ | 257,843 |   |   |
| Powertrain                                                             |       |                             | 244,176    |   |   |   | 231,529 |   |   |
| Total Sales                                                            |       |                             | $          | 504,254 |   |   |   | $ | 489,372 |   |   |
| **Adjusted  EBITDA**                                                   |       |                             |       |   |   |   |   |   |   |
| Chassis                                                                |       |                             | $          | 15,778 |   |   |   | $ | 21,527 |   |   |
| Powertrain                                                             |       |                             | 33,239     |   |   |   | 33,810 |   |   |
| Corporate/centralized  resources                                       |       |                             | (2,135     | ) |   |   | (3,895 | ) |   |
| Total Adjusted EBITDA                                                  |       |                             | 46,882     |   |   |   | 51,442 |   |   |
| Depreciation &  amortization                                  |       |                             | (36,889    | ) |   |   | (26,195 | ) |   |
| Other, net  (includes foreign currency, royalties and interest income) |       |                             | 1,276      |   |   |   | (662 | ) |   |
| Operating profit                                                       |       |                             | $          | 11,269 |   |   |   | $ | 24,585 |   |   |

 

| ** **                      | ** ** | **(In thousands)**     | ** ** |
|---------------------------------|------------|-----------------------------|------------|
| ** **                      | ** ** | **April 2, 2006** | ** ** | **January 1, 2006** | ** ** |
| **Total  Assets**               |       |                        |       |   |   |   |   |
| Chassis                         |       | $                           | 702,550    |   |   | $ | 707,784 |   |   |
| Powertrain                      |       | 772,553                     |       |   | 763,112 |   |   |
| Corporate/centralized resources |       | 331,996                     |       |   | 259,427 |   |   |
| Assets held for sale            |       | —                      |       |   | 116,612 |   |   |
| Total                           |       | $                           | 1,807,099  |   |   | $ | 1,846,935 |   |   |

 

| ** **                      | ** ** | **Three Months Ended** | ** ** |
|---------------------------------|------------|----------------------------------|------------|
| ** **                      | ** ** | **April 2, 2006**      | ** ** | **April 3, 2005** | ** ** |
| **Capital  Expenditures**       |       |                             |       |   |   |   |   |   |   |
| Chassis                         |       |                             | $          | 12,369 |   |   |   | $ | 9,435 |   |   |
| Powertrain                      |       |                             | 14,200     |   |   |   | 14,276 |   |   |
| Corporate/centralized resources |       |                             | 22         |   |   |   | 134 |   |   |
| Total                           |       |                             | $          | 26,591 |   |   |   | $ | 23,845 |   |   |

 

11

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

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

Restructuringcosts incurred for the three months ended April 2, 2006 were $0.1 millionand primarily reflect headcount reductions from the Company’s Europeanlocations. Costs incurred for the three months ended April 3, 2005 were$1.3 million and primarily reflect severance costs, as the Companystreamlined its operations from 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              |       |                                       | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 78 |   |   | 78 |   |   |
| Cash payments                    |       |                                       | —     |   |   |   | — |   |   |   | (31 | ) |   |   | — |   |   |   | (587 | ) |   |   | (177 | ) |   | (795 | ) |   |
| Other adjustments                |       |                                       | —     |   |   |   | — |   |   |   | (66 | ) |   |   | (27 | ) |   |   | (89 | ) |   |   | 179 |   |   | (3 | ) |   |
| Balance at April 2,  2006   |       |                                       | $          | 445 |   |   |   | $ | — |   |   |   | $ | (8 | ) |   |   | $ | — |   |   |   | $ | 421 |   |   |   | $ | 80 |   |   | $ | 938 |   |   |
|                                  |            |                                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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

**8.**                 DiscontinuedOperations

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 $10.0 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 millionof outstanding indebtedness of North American Forging, other working capitalitems and other specified liabilities. Within 120 days from the transactionclose, the Buyer and the Company will adjust the final proceeds based onworking capital (excluding accounts receivable) that existed at the time of theclosing subject to certain limits, in accordance with the terms of theagreement. 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 1component suppliers.

At January 1, 2006, the Company determined thatthe Forging Operations qualified for assets held for sale treatment. Therefore,the results 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 

12

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

Operations have beenreclassified as assets and liabilities of discontinued operations in theCompany’s consolidated balance sheet at January 1, 2006.

In conjunction with the closing of the transaction,the Company recorded a loss on discontinued operations of approximately $6.9 million.This loss reflects the excess of net book value of assets and liabilities soldover the proceeds received and the recognition of $3.4 million incurtailment losses. 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 recognizedcurtailment losses due to the divestiture of the Forging Operations.

Revenuefrom the Forging Operations, including sales with other Metaldyne affiliates,loss from discontinued operations and related tax benefit for the three monthsended April 2, 2006 (through the March 10, 2006 closing date) and April 3,2005 are presented below:

| ** **                                             | ** ** | **(In millions)**      | ** ** |
|--------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                             | ** ** | **April 2, 2006** | ** ** | **April 3, 2005** | ** ** |
| Sales to third  parties                                |       |                        | $          | 63.4 |   |   |   | $ | 103.4 |   |   |
| Sales with other  Metaldyne affiliates                 |       |                        | $          | 9.5 |   |   |   | $ | 14.1 |   |   |
| Loss from discontinued operations before income  taxes |       |                        | $          | (0.5 | ) |   |   | $ | (0.9 | ) |   |
| Income tax benefit                                     |       |                        | $          | — |   |   |   | $ | (0.3 | ) |   |
| Loss from discontinued  operations                     |       |                        | $          | (0.5 | ) |   |   | $ | (0.6 | ) |   |

 

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.**                 RedeemablePreferred Stock

The Company has authorized and outstanding 644,540shares, $1 par value, of $64.5 million in liquidation value ($57.3 millioncarrying value as of April 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 preferredstock 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 carryingvalue as of April 2, 2006) Series A preferred stock, of which 361,001are issued and outstanding to Masco Corporation. The Company will accrete fromthe carrying value to the liquidation value ratably over the twelve-yearperiod. The 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 redeemableSeries B preferred stock to Heartland Industrial Partners (“Heartland”).The redeemable Series B preferred shares issued are mandatory redeemableon June 15, 2013. The Series B preferred stockholders are entitled toreceive, when, as and if declared by the Company’s Board of Directors,cumulative semi-annual cash dividends at a rate of 11.5% per annum.

Preferred stock dividends(including accretion of $0.3 million in each of 2006 and 2005) were $6.5 millionand $5.4 million, while dividend cash payments were zero, for the threemonths ended April 2, 2006 and April 3, 2005, respectively. Unpaidaccrued dividends were $68.1 million and $61.9 million at April 2,2006 and January 1, 2006, respectively. Redeemable preferred stock, consistingof outstanding shares and unpaid dividends, was $178.4 million and $171.9 millionin the Company’s consolidated balance sheet at April 2, 2006 and January 1,2006, respectively.

**10.**          LossPer Share

Diluted earnings per share reflect the potential dilutionthat would occur if securities or other contracts to issue common stock wereexercised or converted into common stock. Excluded from the calculation ofdiluted earnings per share are stock options representing 3.0 million and2.7 million of common shares as they are anti-dilutive at April 2,2006 and April 3, 2005, respectively.

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

14

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

**11.**          ComprehensiveIncome (Loss)

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

| ** **                                                                            | ** ** | **(In thousands)**          | ** ** |
|---------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                            | ** ** | **Three Months Ended** | ** ** |
| ** **                                                                            | ** ** | **April 2, 2006**      | ** ** | **April 3, 2005** | ** ** |
| Net loss                                                                              |       |                             | $          | (35,353 | ) |   |   | $ | (3,500 | ) |   |
| Other  comprehensive income (loss):                                                   |       |                             |       |   |   |   |   |   |   |
| Foreign currency translation adjustment                                               |       |                             | 9,151      |   |   |   | (12,737 | ) |   |
| Change in the Company’s portion of TriMas’ currency  translation adjustment |       |                             | 154        |   |   |   | (913 | ) |   |
| Total other comprehensive income (loss)                                               |       |                             | 9,305      |   |   |   | (13,650 | ) |   |
| Total comprehensive loss                                                              |       |                             | $          | (26,048 | ) |   |   | $ | (17,150 | ) |   |

 

**12.**          EmployeeBenefit Plans

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

| ** **                                              | ** ** | **(In thousands)**                            | ** ** |
|---------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                              | ** ** | **Pension Benefits**                          | ** ** | **Other Benefits** | ** ** |
| ** **                                              | ** ** | **For the three months ended** | ** ** | **For the three months ended** | ** ** |
| ** **                                              | ** ** | **April 2, 2006**                        | ** ** | **April 3, 2005** | ** ** | **April 2, 2006** | ** ** | **April 3, 2005** | ** ** |
| **Components  of Net Periodic Benefit Cost:**           | ** ** |                                               | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Service cost                                            |       |                                               | $          | 1,017 |   |   |   | $ | 760 |   |   |   | $ | 387 |   |   |   | $ | 570 |   |   |
| Interest cost                                           |       |                                               | 4,590      |   |   |   | 4,490 |   |   |   | 436 |   |   |   | 800 |   |   |
| Expected return  on plan assets                         |       |                                               | (4,874     | ) |   |   | (4,600 | ) |   |   | — |   |   |   | — |   |   |
| Amortization of  prior service cost                     |       |                                               | 41         |   |   |   | 40 |   |   |   | (82 | ) |   |   | (90 | ) |   |
| Recognized (gain)  loss due to curtailments/settlements |       |                                               | 3,265      |   |   |   | — |   |   |   | 300 |   |   |   | (2,490 | ) |   |
| Amortization of  net loss                               |       |                                               | 1,386      |   |   |   | 900 |   |   |   | 95 |   |   |   | 170 |   |   |
| Net periodic benefit  (gain) cost                       |       |                                               | $          | 5,425 |   |   |   | $ | 1,590 |   |   |   | $ | 1,136 |   |   |   | $ | (1,040 | ) |   |

 

**Employer**Contributions

Metaldyne previously disclosed in its financialstatements for the year ended January 1, 2006, that it expected tocontribute $23.7 million to its defined benefit pension plans in 2006.This amount assumes that the funding law applicable for 2005 is extended asproposed by Congress for the 2006 plan year. Absent this extension, the Companywould expect to contribute an additional $2 million to the defined benefitpension plans for 2006. As of April 2, 2006, approximately $4.7 millionof contributions have been made.

The Company also disclosed in its financial statementsfor the year ended January 1, 2006, that it expected to contributeapproximately $11.0 million to its defined contribution (profit-sharingand 401(k) matching contribution) plans in 2006. The Company contributedapproximately $3.1 million to its defined contribution plans as of April 2,2006.

In December 2004, the Company announced that itwill discontinue retiree medical and life insurance coverage to its salariedand nonunion retirees and their beneficiaries effective January 1, 2006.The Company recorded a curtailment gain of $2.5 million for the threemonths ended April 3, 2005 pursuant to 

15

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

this announcement. Acurtailment gain of $2.1 million (net of $0.4 million related toForging Operations) is included in selling, general and administrative expensesin the Company’s consolidated statement of operations.

In accordance with theterms of sale of the Forging Operations (refer to Note 8, DiscontinuedOperations), all defined benefit pension plan obligations relating to the ForgingOperations’ employees will be retained by the Company. Postretirement medicaland life insurance benefit obligations relating to the former ForgingOperations’ employees will also be retained by the Company with obligationsrelated to the current employees transferred to the new owners. Thistransferred obligation for postretirement medical and life insurance benefitobligations was approximately $2.7 million. Under the requirements of SFASNo. 88, “Employers’ Accounting for Settlements and Curtailments of DefinedBenefit Pension Plans and for Termination Benefits,” and SFAS No. 106, “Employers’Accounting for Postretirement Benefits Other than Pensions,” the Companyrecognized a $3.1 million and $0.3 million curtailment loss,respectively due to the divestiture of the Forging Operations.

**13.**          RelatedParties

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 andreceivables from affiliates in the Company’s consolidated balance sheet as of April 2,2006.

**14.**          Commitmentsand Contingencies

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 Company has one knowndisagreement with a customer regarding material prices from its former ForgingOperations sold in March 2006. Although the Company sold the business, itretained the existing receivables of that business as of the sale date. TheCompany believes that there will be a favorable outcome to the customer disputebased on information currently available. Approximately $1 million ofaccounts receivables related to this issue is recorded on the Company’sconsolidated balance sheet as of April 2, 2006 and January 1, 2006.It is the Company’s policy to record charges to earnings when estimates of theCompany’s exposure for lawsuits and pending or asserted claims meet thecriteria for recognition under SFAS No. 5, “Accounting for Contingencies.”The ultimate resolution of any such exposure to the Company may differ due tosubsequent developments.

16

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

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

The following condensed consolidating financialinformation presents:

(1)         Condensed consolidatingfinancial statements as of April 2, 2006 and January 1, 2006, and forthe three months ended April 2, 2006 and April 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 insubsidiaries are recorded at cost and adjusted for the Company’s share of thesubsidiaries’ cumulative results of operations, capital contributions,distributions and other equity changes. The principal elimination entrieseliminate investments in subsidiaries and intercompany balances andtransactions.

Investments in non-domestic subsidiaries are primarilyheld at Metaldyne Company LLC, a wholly owned subsidiary of MetaldyneCorporation and the guarantor subsidiaries. Equity in non-domestic subsidiaryinvestees is included in the guarantor column of the accompanying consolidatingfinancial information.

17

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

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

| ** **                                            | ** ** | **(In thousands)** | ** ** |
|-------------------------------------------------------|------------|-------------------------|------------|
| ** **                                            | ** ** | **Parent**              | ** ** | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| **Assets**                                            |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current assets:                                       |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                             |       | $                       | —     |   | $ | — |   |   | $ | 5,992 |   |   |   | $ | — |   |   |   | $ | 5,992 |   |   |
| Total receivables, net                                |       | —                  |       | 20,120 |   |   | 164,071 |   |   |   | — |   |   |   | 184,191 |   |   |
| Inventories                                           |       | —                  |       | 50,120 |   |   | 35,101 |   |   |   | — |   |   |   | 85,221 |   |   |
| Deferred and refundable income taxes                  |       | —                  |       | 9,411 |   |   | 1,526 |   |   |   | — |   |   |   | 10,937 |   |   |
| Prepaid expenses and other assets                     |       | —                  |       | 24,892 |   |   | 6,586 |   |   |   | — |   |   |   | 31,478 |   |   |
| Total current assets                                  |       | —                  |       | 104,543 |   |   | 213,276 |   |   |   | — |   |   |   | 317,819 |   |   |
| Equity investments  and receivables in affiliates     |       | 90,770                  |       | — |   |   | — |   |   |   | — |   |   |   | 90,770 |   |   |
| Property and  equipment, net                          |       | —                  |       | 400,706 |   |   | 260,678 |   |   |   | — |   |   |   | 661,384 |   |   |
| Excess of cost  over net assets of acquired companies |       | —                  |       | 435,302 |   |   | 152,410 |   |   |   | — |   |   |   | 587,712 |   |   |
| Investment in  subsidiaries                           |       | 280,920                 |       | 208,902 |   |   | — |   |   |   | (489,822 | ) |   |   | — |   |   |
| Intangible and  other assets                          |       | —                  |       | 129,429 |   |   | 19,985 |   |   |   | — |   |   |   | 149,414 |   |   |
| Total assets                                          |       | $                       | 371,690    |   | $ | 1,278,882 |   |   | $ | 646,349 |   |   |   | $ | (489,822 | ) |   |   | $ | 1,807,099 |   |   |
| **Liabilities and Shareholders’ Equity**         |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current  liabilities:                                 |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accounts payable                                      |       | $                       | —     |   | $ | 183,464 |   |   | $ | 85,725 |   |   |   | $ | — |   |   |   | $ | 269,189 |   |   |
| Accrued liabilities                                   |       | —                  |       | 113,243 |   |   | 24,527 |   |   |   | — |   |   |   | 137,770 |   |   |
| Current maturities, long-term debt                    |       | —                  |       | 2,753 |   |   | 3,289 |   |   |   | — |   |   |   | 6,042 |   |   |
| Total current liabilities                             |       | —                  |       | 299,460 |   |   | 113,541 |   |   |   | — |   |   |   | 413,001 |   |   |
| Long-term debt                                        |       | 427,547                 |       | 426,789 |   |   | 274 |   |   |   | — |   |   |   | 854,610 |   |   |
| Deferred income  taxes                                |       | —                  |       | 11,397 |   |   | 31,005 |   |   |   | — |   |   |   | 42,402 |   |   |
| Minority interest                                     |       | —                  |       | — |   |   | 748 |   |   |   | — |   |   |   | 748 |   |   |
| Other long-term  liabilities                          |       | —                  |       | 111,797 |   |   | 12,851 |   |   |   | — |   |   |   | 124,648 |   |   |
| Redeemable  preferred stock                           |       | 178,401                 |       | — |   |   | — |   |   |   | — |   |   |   | 178,401 |   |   |
| Intercompany  accounts, net                           |       | (427,547                | )          | 148,519 |   |   | 279,028 |   |   |   | — |   |   |   | — |   |   |
| Total liabilities                                     |       | 178,401                 |       | 997,962 |   |   | 437,447 |   |   |   | — |   |   |   | 1,613,810 |   |   |
| Shareholders’ equity:                            |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred stock                                       |       | —                  |       | — |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Common stock                                          |       | 42,845                  |       | — |   |   | — |   |   |   | — |   |   |   | 42,845 |   |   |
| Paid-in capital                                       |       | 698,882                 |       | — |   |   | — |   |   |   | — |   |   |   | 698,882 |   |   |
| Accumulated deficit                                   |       | (560,001                | )          | — |   |   | — |   |   |   | — |   |   |   | (560,001 | ) |   |
| Accumulated other comprehensive income                |       | 11,563                  |       | — |   |   | — |   |   |   | — |   |   |   | 11,563 |   |   |
| Investment by Parent/Guarantor                        |       | —                  |       | 280,920 |   |   | 208,902 |   |   |   | (489,822 | ) |   |   | — |   |   |
| Total shareholders’ equity                       |       | 193,289                 |       | 280,920 |   |   | 208,902 |   |   |   | (489,822 | ) |   |   | 193,289 |   |   |
| Total liabilities and  shareholders’ equity      |       | $                       | 371,690    |   | $ | 1,278,882 |   |   | $ | 646,349 |   |   |   | $ | (489,822 | ) |   |   | $ | 1,807,099 |   |   |

 

18

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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 |   |   |

 

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

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

| ** **                                                    | ** ** | **(In thousands)** | ** ** |
|---------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                    | ** ** | **Parent**              | ** ** | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net sales                                                     |       | $                       | —     |   | $ | 357,516 |   |   | $ | 146,738 |   |   |   | $ | — |   |   |   | $ | 504,254 |   |   |
| Cost of sales                                                 |       | —                  |       | (343,076 | ) |   | (121,421 | ) |   |   | — |   |   |   | (464,497 | ) |   |
| Gross profit                                                  |       | —                  |       | 14,440 |   |   | 25,317 |   |   |   | — |   |   |   | 39,757 |   |   |
| Selling, general  and administrative expenses            |       | —                  |       | (22,897 | ) |   | (5,513 | ) |   |   | — |   |   |   | (28,410 | ) |   |
| Restructuring  charges                                        |       | —                  |       | 43 |   |   | (121 | ) |   |   | — |   |   |   | (78 | ) |   |
| Operating profit  (loss)                                      |       | —                  |       | (8,414 | ) |   | 19,683 |   |   |   | — |   |   |   | 11,269 |   |   |
| Other expense,  net:                                          |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                              |       | —                  |       | (23,097 | ) |   | (850 | ) |   |   | — |   |   |   | (23,947 | ) |   |
| Preferred stock dividends and accretion                       |       | (6,472                  | )          | — |   |   | — |   |   |   | — |   |   |   | (6,472 | ) |   |
| Equity income from affiliates                                 |       | 959                     |       | — |   |   | — |   |   |   | — |   |   |   | 959 |   |   |
| Other, net                                                    |       | —                  |       | (1,620 | ) |   | (3,217 | ) |   |   | — |   |   |   | (4,837 | ) |   |
| Other expense, net                                            |       | (5,513                  | )          | (24,717 | ) |   | (4,067 | ) |   |   | — |   |   |   | (34,297 | ) |   |
| Income (loss)  from continuing operations before income taxes |       | (5,513                  | )          | (33,131 | ) |   | 15,616 |   |   |   | — |   |   |   | (23,028 | ) |   |
| Income tax  expense                                           |       | —                  |       | 869 |   |   | 4,128 |   |   |   | — |   |   |   | 4,997 |   |   |
| Income (loss)  from continuing operations                     |       | (5,513                  | )          | (34,000 | ) |   | 11,488 |   |   |   | — |   |   |   | (28,025 | ) |   |
| Loss from  discontinued operations, net of tax                |       | —                  |       | (466 | ) |   | — |   |   |   | — |   |   |   | (466 | ) |   |
| Loss on  discontinued operations, net of tax                  |       | —                  |       | (6,862 | ) |   | — |   |   |   | — |   |   |   | (6,862 | ) |   |
| Equity in net  income of subsidiaries                         |       | (29,840                 | )          | 11,488 |   |   | — |   |   |   | 18,352 |   |   |   | — |   |   |
| Earnings (loss)  attributable to common stock                 |       | $                       | (35,353    | ) | $ | (29,840 | ) |   | $ | 11,488 |   |   |   | $ | 18,352 |   |   |   | $ | (35,353 | ) |   |

 

20

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

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

| ** **                                                    | ** ** | **(In thousands)** | ** ** |
|---------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                    | ** ** | **Parent**              | ** ** | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net sales                                                     |       | $                       | —     |   | $ | 361,481 |   |   | $ | 127,891 |   |   |   | $ | — |   |   |   | $ | 489,372 |   |   |
| Cost of sales                                                 |       | —                  |       | (334,627 | ) |   | (103,191 | ) |   |   | — |   |   |   | (437,818 | ) |   |
| Gross profit                                                  |       | —                  |       | 26,854 |   |   | 24,700 |   |   |   | — |   |   |   | 51,554 |   |   |
| Selling, general  and administrative expenses                 |       | —                  |       | (19,777 | ) |   | (5,940 | ) |   |   | — |   |   |   | (25,717 | ) |   |
| Restructuring  charges                                        |       | —                  |       | (1,032 | ) |   | (220 | ) |   |   | — |   |   |   | (1,252 | ) |   |
| Operating profit                                              |       | —                  |       | 6,045 |   |   | 18,540 |   |   |   | — |   |   |   | 24,585 |   |   |
| Other expense,  net:                                          |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                              |       | —                  |       | (21,833 | ) |   | (720 | ) |   |   | — |   |   |   | (22,553 | ) |   |
| Preferred stock dividends and accretion                       |       | (5,436                  | )          | — |   |   | — |   |   |   | — |   |   |   | (5,436 | ) |   |
| Equity income from affiliates                                 |       | 605                     |       | — |   |   | — |   |   |   | — |   |   |   | 605 |   |   |
| Other, net                                                    |       | —                  |       | (2,697 | ) |   | 1,060 |   |   |   | — |   |   |   | (1,637 | ) |   |
| Other expense, net                                            |       | (4,831                  | )          | (24,530 | ) |   | 340 |   |   |   | — |   |   |   | (29,021 | ) |   |
| Income (loss)  from continuing operations before income taxes |       | (4,831                  | )          | (18,485 | ) |   | 18,880 |   |   |   | — |   |   |   | (4,436 | ) |   |
| Income tax  expense (benefit)                                 |       | —                  |       | (7,406 | ) |   | 5,850 |   |   |   | — |   |   |   | (1,556 | ) |   |
| Income (loss)  from continuing operations                     |       | (4,831                  | )          | (11,079 | ) |   | 13,030 |   |   |   | — |   |   |   | (2,880 | ) |   |
| Loss from  discontinued operations, net of tax           |       | —                  |       | (620 | ) |   | — |   |   |   | — |   |   |   | (620 | ) |   |
| Equity in net  income of subsidiaries                         |       | 1,331                   |       | 13,030 |   |   | — |   |   |   | (14,361 | ) |   |   | — |   |   |
| Earnings (loss)  attributable to common stock            |       | $                       | (3,500     | ) | $ | 1,331 |   |   | $ | 13,030 |   |   |   | $ | (14,361 | ) |   |   | $ | (3,500 | ) |   |

 

21

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**METALDYNECORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

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

| ** **                                             | ** ** | **(In thousands)** | ** ** |
|--------------------------------------------------------|------------|-------------------------|------------|
| ** **                                             | ** ** | **Parent**              | ** ** | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Cash flows from  operating activities:                 |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net cash provided by (used for) operating activities   |       | $                       | —     |   | $ | (28,292 | ) |   | $ | 25,707 |   |   |   | $ | — |   |   |   | $ | (2,585 | ) |   |
| Cash flows from  investing activities:                 |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital expenditures                                   |       | —                  |       | (20,790 | ) |   | (5,801 | ) |   |   | — |   |   |   | (26,591 | ) |   |
| Repurchase of leased assets                            |       | —                  |       | (36,136 | ) |   | — |   |   |   | — |   |   |   | (36,136 | ) |   |
| Proceeds from sale of discontinued operations          |       | —                  |       | 69,058 |   |   | — |   |   |   | — |   |   |   | 69,058 |   |   |
| Investing cash flows used for discontinued  operations |       | —                  |       | (2,513 | ) |   | — |   |   |   | — |   |   |   | (2,513 | ) |   |
| Net cash provided by (used for) investing activities   |       | —                  |       | 9,619 |   |   | (5,801 | ) |   |   | — |   |   |   | 3,818 |   |   |
| Cash flows from  financing activities:                 |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds of term loan facilities                       |       | —                  |       | 53,750 |   |   | — |   |   |   | —- |   |   |   | 53,750 |   |   |
| Principal payments of term loan facilities             |       | —                  |       | (25,000 | ) |   | — |   |   |   | — |   |   |   | (25,000 | ) |   |
| Proceeds of revolving credit facility                  |       | —                  |       | 135,000 |   |   | — |   |   |   | — |   |   |   | 135,000 |   |   |
| Principal payments of revolving credit facility        |       | —                  |       | (159,605 | ) |   | — |   |   |   | — |   |   |   | (159,605 | ) |   |
| Proceeds of other debt                                 |       | —                  |       | — |   |   | 1,431 |   |   |   | — |   |   |   | 1,431 |   |   |
| Principal payments of other debt                       |       | —                  |       | (420 | ) |   | (2,165 | ) |   |   | — |   |   |   | (2,585 | ) |   |
| Capitalization of debt financing fees                  |       | —                  |       | (2,196 | ) |   | — |   |   |   | — |   |   |   | (2,196 | ) |   |
| Issuance of stock options                              |       | —                  |       | 14 |   |   | — |   |   |   | — |   |   |   | 14 |   |   |
| Net cash provided by (used for) financing activities   |       | —                  |       | 1,543 |   |   | (734 | ) |   |   | — |   |   |   | 809 |   |   |
| Effect of exchange rates on cash                       |       | —                  |       | — |   |   | 263 |   |   |   | — |   |   |   | 263 |   |   |
| Change in intercompany accounts                        |       | —                  |       | 17,130 |   |   | (17,130 | ) |   |   | — |   |   |   | — |   |   |
| Net increase in  cash                                  |       | —                  |       | — |   |   | 2,305 |   |   |   | — |   |   |   | 2,305 |   |   |
| Cash and cash equivalents,  beginning of period        |       | —                  |       | — |   |   | 3,687 |   |   |   | — |   |   |   | 3,687 |   |   |
| Cash and cash  equivalents, end of period              |       | $                       | —     |   | $ | — |   |   | $ | 5,992 |   |   |   | $ | — |   |   |   | $ | 5,992 |   |   |

 

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**METALDYNECORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded)**

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

| ** **                                                        | ** ** | **(In thousands)** | ** **                           |
|-------------------------------------------------------------------|------------|-------------------------|--------------------------------------|
| ** **                                                        | ** ** | **Parent**              | ** **                           | **Guarantor** | ** ** | **Non-Guarantor** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Cash flows from  operating activities:                            |       |                    |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net cash provided by operating activities                         |       | $                       |      — |   |   | $ | 17,096 |   |   |   | $ | 6,430 |   |   |   | $ |      — |   |   |   | $ | 23,526 |   |   |
| Cash flows from  investing activities:                            |       |                    |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital expenditures                                              |       | —                  |                                 |   | (16,135 | ) |   |   | (7,710 | ) |   |   | — |   |   |   | (23,845 | ) |   |
| Proceeds from sale/leaseback of fixed assets                      |       | —                  |                                 |   | 6,490 |   |   |   | — |   |   |   | — |   |   |   | 6,490 |   |   |
| Reimbursement from acquisition of business, net of  cash received |       | —                  |                                 |   | 5,750 |   |   |   | — |   |   |   | — |   |   |   | 5,750 |   |   |
| Investing cash flows used for discontinued  operations            |       | —                  |                                 |   | (3,051 | ) |   |   | — |   |   |   | — |   |   |   | (3,051 | ) |   |
| Net cash used for investing activities                       |       | —                  |                                 |   | (6,946 | ) |   |   | (7,710 | ) |   |   | — |   |   |   | (14,656 | ) |   |
| Cash flows from  financing activities:                            |       |                    |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds of revolving credit facility                             |       | —                  |                                 |   | 65,000 |   |   |   | — |   |   |   | — |   |   |   | 65,000 |   |   |
| Principal payments of revolving credit facility                   |       | —                  |                                 |   | (70,767 | ) |   |   | — |   |   |   | — |   |   |   | (70,767 | ) |   |
| Proceeds of other debt                                            |       | —                  |                                 |   | — |   |   |   | 1,570 |   |   |   | — |   |   |   | 1,570 |   |   |
| Principal payments of other debt                                  |       | —                  |                                 |   | (755 | ) |   |   | (3,800 | ) |   |   | — |   |   |   | (4,555 | ) |   |
| Financing cash flows used for discontinued  operations            |       | —                  |                                 |   | (68 | ) |   |   | — |   |   |   | — |   |   |   | (68 | ) |   |
| Net cash provided by (used for) financing activities              |       | —                  |                                 |   | (6,590 | ) |   |   | (2,230 | ) |   |   | — |   |   |   | (8,820 | ) |   |
| Effect of exchange rates on cash                                  |       | —                  |                                 |   | — |   |   |   | (50 | ) |   |   | — |   |   |   | (50 | ) |   |
| Change in intercompany accounts                                   |       | —                  |                                 |   | (3,560 | ) |   |   | 3,560 |   |   |   | — |   |   |   | — |   |   |
| Net increase in  cash                                             |       | —                  |                                 |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Cash and cash  equivalents, beginning of period                   |       | —                  |                                 |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Cash and cash  equivalents, end of period                         |       | $                       | —                               |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   |

 

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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 “Debt, Capitalization andAvailable Financing Sources” for more details surrounding these covenants). Aswe continue to invest in the resources to produce our new business backlog andthus grow our business, a significant portion of our operating cash flow willbe used to buy new capital equipment, expand production capacity and invest innew technology in addition to servicing principal and interest payments on ourdebt obligations. Therefore, we are focused on our cash generation ability (wemonitor this internally through “Adjusted EBITDA.” See the discussion below in “KeyIndicators of Performance (Non GAAP Financial Measures)” for furtherexplanation), and working capital and fixed asset efficiency to assess ourability to favorably finance our new business backlog.

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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 ofsegment performance, in measuring our performance relative to that of ourcompetitors and in evaluating acquisition opportunities. In addition, webelieve Adjusted EBITDA and similar measures are widely used by investors,securities analysts, rating agencies and other interested parties as a measureof financial performance and debt-service capabilities. Our use of AdjustedEBITDA has limitations as an analytical tool, and you should not consider it inisolation or as a substitute for analysis of our results as reported underGAAP. Some of these limitations are:

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

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

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

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

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

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

Because of these limitations, Adjusted EBITDA shouldnot be considered as a measure of discretionary cash available to us to investin the growth of our business. We compensate for these limitations by relyingprimarily on our GAAP results and using Adjusted EBITDA only supplementally. 

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We carefully review ouroperating profit margins (operating profit as a percentage of net sales) at asegment level, which are discussed in detail in our year-to-year comparison ofoperating results.

Thefollowing is a reconciliation of our Adjusted EBITDA to net loss for the threemonths ended April 2, 2006 and April 3, 2005:

| ** **                                                | ** ** | **(In thousands)** | ** ** |
|-----------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                | ** ** | **2006**                | ** ** | **2005** | ** ** |
| Net loss                                                  |       | $                       | (35,353    | ) | $ | (3,500 | ) |
| Income tax  expense (benefit)                             |       | 4,997                   |       | (1,556 | ) |
| Loss from  discontinued operations, net of tax            |       | 466                     |       | 620 |   |
| Loss on  discontinued operations, net of tax              |       | 6,862                   |       | — |   |
| Interest expense                                          |       | 23,947                  |       | 22,553 |   |
| Depreciation and  amortization in operating profit        |       | 36,889                  |       | 26,195 |   |
| Preferred stock  dividends and accretion                  |       | 6,472                   |       | 5,436 |   |
| Equity income  from affiliates                            |       | (959                    | )          | (605 | ) |
| Certain items  within Other, Net(1)                       |       | 3,561                   |       | 2,299 |   |
| Total Company  Adjusted EBITDA from continuing operations |       | $                       | 46,882     |   | $ | 51,442 |   |

----

(1)          Reconciliationof Other, Net Included in the Consolidated Statement of Operations:

| ** **                                                                                         | ** ** | **(In thousands)** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                                         | ** ** | **2006**                | ** ** | **2005** | ** ** |
| Items excluded  from Adjusted EBITDA (amortization of financing fees and A/R securitization  fees) |       | $                       | 3,561      |   | $ | 2,299 |   |
| Items in Adjusted  EBITDA (includes foreign currency, royalties and interest income)               |       | 1,276                   |       | (662 | ) |
| Total other, net                                                                                   |       | $                       | 4,837      |   | $ | 1,637 |   |

 

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

| ** **                                                   | ** ** | **(In thousands)** | ** ** |
|--------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                   | ** ** | **2006**                | ** ** | **2005** | ** ** |
| Operating cash  flow                                         |       | $                       | (2,585     | ) | $ | 23,526 |   |
| Net proceeds of  accounts receivable securitization facility |       | 2,551                   |       | (37,017 | ) |
| Change in working  capital                                   |       | 12,450                  |       | 43,435 |   |
| Cash paid for  interest                                      |       | 13,331                  |       | 11,649 |   |
| Cash paid  (refunded) for income taxes, net                  |       | 4,943                   |       | 2,929 |   |
| Change in  long-term assets                                  |       | 4,520                   |       | (425 | ) |
| Change in  long-term liabilities                             |       | 1,868                   |       | 3,353 |   |
| Certain items  within Other, Net                             |       | 2,119                   |       | 1,478 |   |
| Reimbursement  from acquisition of business                  |       | —                  |       | 5,750 |   |
| Loss on  discontinued operations                             |       | 6,862                   |       | — |   |
| Foreign currency  gain (loss)                                |       | (1,328                  | )          | 359 |   |
| Curtailment gain  (loss) on elimination of certain benefits  |       | (165                    | )          | 2,080 |   |
| Operating cash  flows from discontinued operations           |       | 1,625                   |       | (8,566 | ) |
| Other                                                        |       | 691                     |       | 2,891 |   |
| Total Company  Adjusted EBITDA from continuing operations    |       | $                       | 46,882     |   | $ | 51,442 |   |

 

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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)** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                                                      | ** ** | **2006**                | ** ** | **2005** | ** ** |
| Restructuring  charges                                                                                          |       | $                       | (78        | ) | $ | (1,252 | ) |
| Fixed asset  losses                                                                                             |       | (5,612                  | )          | (31 | ) |
| Foreign currency  gains (losses)                                                                                |       | (1,328                  | )          | 359 |   |
| Pension curtailment loss  and postretirement medical curtailment gain and elimination of certain plan  benefits |       | (165                    | )          | 2,080 |   |
|                                                                                                                 |            |                         |            |  |  |  |  |

 

**DiscontinuedOperations**

On March 10, 2006, wecompleted the divestiture of our Forging Operations, and in accordance withSFAS No. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets,” the results of operations for North American Forging for the currentand prior periods have been reported as discontinued operations. In addition,the assets and liabilities of North American Forging have been reclassified asassets and liabilities of discontinued operations in our consolidated balancesheet at January 1, 2006.

**Results ofOperations**

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

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

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

| ** **          | ** ** | ** ** | ** ** | **(In thousands)**                                   | ** ** |
|---------------------|------------|------------|------------|-----------------------------------------------------------|------------|
| **Segment**         | ** ** | ** ** | ** ** | **Three Months Ended  April 2, 2006** | ** ** | **Three Months Ended  April 3, 2005** | ** ** |
| Chassis Segment     |       |       | $          | 260,078                                                   |       |   |   | $ | 257,843 |   |   |
| Powertrain  Segment |       |       | 244,176    |                                                      |       |   | 231,529 |   |   |
| Total Company       |       |       | $          | 504,254                                                   |       |   |   | $ | 489,372 |   |   |

 

Our first quarter 2006 net sales were $504 millionversus first quarter 2005 net sales of $489 million. The primary driver ofthe increase in our 2006 sales was $19 million in additional net newbusiness related to new product launches and ramp up of existing programs. ThePowertrain segment contributed $11 million in net new business from newproduct launches and ramp up of existing programs, while the Chassis segmentcontributed $8 million, primarily from the ramp up of existing programs.The above sales increases were positively affected by the 1.9% increase inNorth American vehicles production from our three largest customers(DaimlerChrysler, Ford and General Motors) during the quarter. In addition,price increases to reflect rising costs of raw materials resulted inapproximately $2 million increase in sales, but this was offset byapproximately $6 million in foreign exchange movements.

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

| ** **                       | ** ** | ** ** | ** ** | **(In thousands)**                                   | ** ** |
|----------------------------------|------------|------------|------------|-----------------------------------------------------------|------------|
| **Segment**                      | ** ** | ** ** | ** ** | **Three Months Ended  April 2, 2006** | ** ** | **Three Months Ended  April 3, 2005** | ** ** |
| Chassis Segment                  |       |       | $          | 11,244                                                    |       |   |   | $ | 20,899 |   |   |
| Powertrain  Segment              |       |       | 27,425     |                                                      |       |   | 35,695 |   |   |
| Corporate/centralized  resources |       |       | 1,088      |                                                      |       |   | (5,040 | ) |   |
| Total Company                    |       |       | $          | 39,757                                                    |       |   |   | $ | 51,554 |   |   |

 

Our gross profit was $39.8 million or 7.9% of netsales for 2006 compared to $51.6 million or 10.5% of net sales for 2005.The decrease of $11.8 million is attributable to charges associated withthe early buyout of three operating leases in the first quarter of 2006. Weincurred an approximate $8 million in additional amortization expense anda $3.7 million fixed asset loss as a result of the early buyout.Offsetting these decreases were improvements in year over year gross profit dueto the increase in sales as well as an improvement in the sales mix to highermargin product lines.

***Selling, Generaland Administrative.*****  **Selling, general and administrative expense was $28.4 million,or 5.6% of net sales, for 2006 compared to $25.7 million, or 5.3% ofsales, in 2005. The $2.7 million increase from 2005 to 2006 is primarilyexplained by a $2.1 million postretirement medical curtailment gainrecorded in the first quarter of 2005. The remaining increase in selling,general and administrative expense is primarily driven by approximately $0.7 millionspent on our Sarbanes-Oxley Section 404 efforts.

***Depreciation and Amortization.*****  **Depreciation and amortizationexpense by segment and in total for the three months ended April 2, 2006and April 3, 2005 was:

| ** **                       | ** ** | ** ** | ** ** | **(In thousands)**                                   | ** ** |
|----------------------------------|------------|------------|------------|-----------------------------------------------------------|------------|
| **Segment**                      | ** ** | ** ** | ** ** | **Three Months Ended  April 2, 2006** | ** ** | **Three Months Ended  April 3, 2005** | ** ** |
| Chassis Segment                  |       |       | $          | 16,594                                                    |       |   |   | $ | 11,992 |   |   |
| Powertrain  Segment              |       |       | 19,729     |                                                      |       |   | 12,000 |   |   |
| Corporate/centralized  resources |       |       | 566        |                                                      |       |   | 2,203 |   |   |
| Total Company                    |       |       | $          | 36,889                                                    |       |   |   | $ | 26,195 |   |   |

 

The net increase in depreciation and amortization ofapproximately $10.7 million is primarily attributable to the recognitionof $8 million of deferred losses on previous sale-leaseback transactionswhich the Company repurchased the assets on three of these leases in the firstquarter of 2006. Recent capitalspending in excess of depreciation accounts for the remaining increase indepreciation expense.

***Restructuring Charges.*****  **We incurred $0.1 million ofrestructuring charges in the first quarter of 2006 compared to $1.2 millionincurred in the first quarter of 2005. The 2006 charges are primarily as aresult of headcount reductions from our European locations. Net restructuringactivity in the first quarter of 2006 is as follows:

| ** **                     | ** ** | **(In thousands)** | ** ** |
|--------------------------------|------------|-------------------------|------------|
| ** **                     | ** ** | **Severance  Costs**    | ** ** |
| Balance  January 1, 2006  |       |                    | $          | 1,658 |   |   |
| Charges to  expense            |       |                    | 78         |   |   |
| Cash payments                  |       |                    | (795       | ) |   |
| Other adjustments              |       |                    | (3         | ) |   |
| Balance at April 2,  2006 |       |                    | $          | 938 |   |   |

 

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***Operating Profit.******  ***Operating profit was$11.3 million, or 2.2% of sales, for the first quarter of 2006 compared to$24.6 million, or 5.0% of sales, for the same period in 2005. The $13.3 milliondecrease is principally explained by the factors discussed above, including a $10.7 millionincrease in depreciation and amortization, a $2.1 million reduction inpostretirement medical curtailment gains and a $5.6 million increase infixed asset losses. Offsetting these declines were profits from the additionalsales volume and a decrease in restructuring charges. The elements of each ofthese variations are discussed in greater detail above. Operating profit bysegment for the three months ended April 2, 2006 and April 3, 2005 isas follows:

| ** **                       | ** ** | ** ** | ** ** | **(In thousands)**                                   | ** ** |
|----------------------------------|------------|------------|------------|-----------------------------------------------------------|------------|
| **Segment**                      | ** ** | ** ** | ** ** | **Three Months Ended  April 2, 2006** | ** ** | **Three Months Ended  April 3, 2005** | ** ** |
| Chassis Segment                  |       |       | $          | (354                                                      | )          |   |   | $ | 9,507 |   |   |
| Powertrain  Segment              |       |       | 14,028     |                                                      |       |   | 21,479 |   |   |
| Corporate/centralized  resources |       |       | (2,405     | )                                                         |       |   | (6,401 | ) |   |
| Total Company                    |       |       | $          | 11,269                                                    |       |   |   | $ | 24,585 |   |   |

 

***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 $46.9 million in the first three months of2006 from $51.4 million during the same period in 2005. The primarydrivers of this decrease are explained above in the operating profit discussionand will be further detailed in the segment detail that follows. Additionally,other, net expenses increased $1.5 million, primarily due to $0.9 millionin foreign currency losses in the first quarter of 2006 versus $0.4 millionin foreign currency gains in 2005. The “Segment Information” below provides areconciliation between Adjusted EBITDA and operating profit.

| ** **                                                                                                 | ** ** | ** ** | ** ** | **(In thousands)**                                   | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|------------|------------|-----------------------------------------------------------|------------|
| **Segment**                                                                                                | ** ** | ** ** | ** ** | **Three Months Ended  April 2, 2006** | ** ** | **Three Months Ended  April 3, 2005** | ** ** |
| Chassis Segment                                                                                            |       |       | $          | 15,778                                                    |       |   |   | $ | 21,527 |   |   |   |
| Powertrain  Segment                                                                                        |       |       | 33,239     |                                                      |       |   | 33,810 |   |   |   |
| Corporate/centralized  resources                                                                           |       |       | (2,135     | )                                                         |       |   | (3,895 | ) |   |   |
| Total Company                                                                                              |       |       | $          | 46,882                                                    |       |   |   | $ | 51,442 |   |   |   |
| Memo: Additional amounts included in calculation of  both operating profit and Adjusted EBITDA:            |       |       |       |                                                      |       |   |   |   |   |   |
| Restructuring charges                                                                                      |       |       | $          | (78                                                       | )          |   |   | $ | (1,252 | ) |   |   |
| Fixed asset disposal losses                                                                                |       |       | (5,612     | )                                                         |       |   | (31 | ) |   |   |
| Foreign currency gains (losses)                                                                            |       |       | (1,328     | )                                                         |       |   | 359 |   |   |   |
| Pension curtailment loss  and postretirement medical curtailment gain and elimination of certain  benefits |       |       | (165       | )                                                         |       |   | 2,080 |   |   |   |

 

 

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***Interest Expense.******  ***Interestexpense increased from $22.5 million in the first quarter of 2005 to $23.9 millionin the first quarter of 2006. This $1.4 million increase is principallydue to an approximate 2% increase in interest on our variable rate senior debtfacilities resulting from increases in LIBOR.

***Equity Income(Loss) from Affiliates.******  ***Equity income(loss) from affiliates increased from income of $0.6 million in the firstquarter of 2005 to income of $1.0 million in the first quarter of 2006,due to the operating results of our equity affiliate.

***Other, Net.******  ***Other, netincreased by $3.2 million to a loss of $4.8 million in the firstquarter of 2006 compared to a loss of $1.6 million in the first quarter of2005. The primary reason for the increase is due to a $1.3 million foreigncurrency loss in the first quarter of 2006 as compared to a $0.4 milliongain for the same period in 2005, or a net increase of $1.7 million. Theremaining increase is primarily due to a $1.2 million increase in costsassociated with our accounts receivable securitization program.

***Preferred StockDividends.***   Preferred stock dividends(including accretion of $0.3 million in each of 2006 and 2005) were $6.5 millionin the first quarter of 2006 as compared to $5.4 million in the firstquarter of 2005. This increase is due to the compounded interest on dividends notyet remitted to the shareholders. Preferred stock dividends are included in “otherexpense, net” in our consolidated statement of operations.

***Taxes.******  ***The provisionfor income taxes for the first quarter of 2006 was an expense of $5.0 millionas compared with a benefit of $1.6 million for the first quarter of 2005.In the first quarter of 2006, no benefit was recognized for the U.S. operatingloss and the foreign effective rate was 31.6%, compared to a U.S. effective taxrate of 30.5% and a foreign effective rate of 29.2% in the first quarter of2005. The reason for the lack of a tax benefit for the U.S. operating loss isdue to an increase in the valuation allowance against our net deferred taxassets of our domestic operations. The valuation allowance recorded in thefirst quarter of 2006 of $14.8 million is comprised of (i) $12.2 millionfor continuing operations; (ii) $0.2 million for discontinuedoperations; and (iii) $2.4 million for the loss on discontinuedoperations. Due to uncertainties related to our ability to utilize our deferredtax assets, which consist primarily of net operating losses, it was management’sdecision to record an increase to the valuation allowance against our domesticoperation’s net deferred tax assets. In the event that deferred tax assets arerealizable in the future in excess of the net recorded valuation allowance, anadjustment to the deferred tax asset will increase the tax benefit in theperiod such determination is made.

The tax benefit of $0.2 million for loss from discontinuedoperations is fully offset by a $0.2 million valuation allowance recordedfor the first quarter of 2006.

The tax benefit of $2.4 million for the loss ondiscontinued operations is fully offset by a $2.4 million valuationallowance recorded for the first quarter of 2006.

***Loss fromDiscontinued Operations.******  ***Theloss from discontinued operations decreased $0.1 million from a loss of$0.6 million in the first quarter of 2005 to a loss of $0.5 millionin the first quarter of 2006. See Note 8, Discontinued Operations, to ourconsolidated financial statements for additional discussion.

***Loss on Discontinued Operations.***   Werecorded a loss of $6.9 million related to the March 10, 2006 sale ofthe Forging Operations. See Note 8, Discontinued Operations, to ourconsolidated financial statements for additional discussion.

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***Segment Information.***

*ChassisSegment.**  *Salesfor our Chassis segment were $260.1 million in the first quarter of 2006versus $257.8 million in the first quarter of 2005. Net sales increasedapproximately $2 million due to approximately $8 million increase innet new business, offset by approximately $4 million related to changes inforeign exchange rates and approximately $1 million in reduced rawmaterial price movements that are reimbursed from our customers. Operatingprofit for the segment decreased from $9.5 million in the first quarter of2005 to ($0.4) million in the first quarter of 2006. The $9.9 milliondecrease is due to a $7.4 million increase in fixed asset losses as wellas an increase of $4.6 million in depreciation and amortization expense.Both of these changes were substantially driven by the early buyout of threeoperating leases during the first quarter of 2006. This was offset by a $1 millionbenefit in material as well as $1 million in cost reductions. AdjustedEBITDA decreased to $15.8 million versus $21.5 million in the prioryear due to the aforementioned reasons, as well as a $0.5 million increasein foreign currency losses.

| ** **                                                                                      | ** ** | ** ** | ** ** | **(In thousands)**                                   | ** ** |
|-------------------------------------------------------------------------------------------------|------------|------------|------------|-----------------------------------------------------------|------------|
| **Chassis Segment**                                                                        | ** ** | ** ** | ** ** | **Three Months Ended  April 2, 2006** | ** ** | **Three Months Ended  April 3, 2005** | ** ** |
| Sales                                                                                           |       |       | $          | 260,078                                                   |       |   |   | $ | 257,843 |   |   |
| Operating profit                                                                                |       |       | $          | (354                                                      | )          |   |   | $ | 9,507 |   |   |
| Depreciation and  amortization                                                                  |       |       | 16,594     |                                                      |       |   | 11,992 |   |   |
| Foreign currency  gains (losses)                                                                |       |       | (462       | )                                                         |       |   | 28 |   |   |
| Adjusted EBITDA                                                                                 |       |       | $          | 15,778                                                    |       |   |   | $ | 21,527 |   |   |
| Memo: Additional  amounts included in calculation of both operating profit and Adjusted EBITDA: |       |       |       |                                                      |       |   |   |   |   |
| Restructuring charges                                                                           |       |       | $          | 53                                                        |       |   |   | $ | 150 |   |   |
| Fixed asset  (gains) losses                                                                     |       |       | 7,163      |                                                      |       |   | (203 | ) |   |

 

*Powertrain Segment.**  *Sales for our Powertrain segmentincreased in the first quarter of 2005 to $244.2 million versus $231.5 millionin the prior period. The primary driver of the approximate $13 millionincrease in sales is an approximate $11 million increase in net new businessrelating to new product launches and ramp up of existing programs as well asapproximately $3 million in sales increases to our customers associatedwith the recovery of material costs to our customers. This was offset byapproximately $2 million related to changes in foreign exchange rates.Operating profit decreased from $21.5 million to $14.0 million in2006. The decrease is principally due to a $7.7 million increase indepreciation and amortization expense offset by incremental profit on the netnew business increase noted above. The $7.7 million increase indepreciation and amortization is driven by $5 million related to the earlybuyout of three operating leases, while the remaining increase is primarilyattributable to recent years’ capital expenditures exceeding depreciationexpense. Material cost increases not reimbursed from our customers were offsetby net cost reductions in the operations. Adjusted EBITDA increased from $33.8 millionthe first quarter of 2005 to $33.2 million in 2006, due to theaforementioned incremental profit on net new business, offset by a $0.8 millionincrease in foreign currency losses.

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| ** **                                                            | ** ** | ** ** | ** ** | **(In thousands)**                                   | ** ** |
|-----------------------------------------------------------------------|------------|------------|------------|-----------------------------------------------------------|------------|
| **Powertrain Segment**                                           | ** ** | ** ** | ** ** | **Three Months Ended  April 2, 2006** | ** ** | **Three Months Ended  April 3, 2005** | ** ** |
| Sales                                                                 |       |       | $          | 244,176                                                   |       |   |   | $ | 231,529 |   |   |
| Operating profit                                                      |       |       | $          | 14,028                                                    |       |   |   | $ | 21,479 |   |   |
| Depreciation and  amortization                                        |       |       | 19,729     |                                                      |       |   | 12,000 |   |   |
| Foreign currency  gains (losses)                                      |       |       | (518       | )                                                         |       |   | 331 |   |   |
| Adjusted EBITDA                                                       |       |       | $          | 33,239                                                    |       |   |   | $ | 33,810 |   |   |
| Memo: Additional amounts included in calculation of  adjusted EBITDA: |       |       |       |                                                      |       |   |   |   |   |
| Restructuring charges                                                 |       |       | $          | 129                                                       |       |   |   | $ | 105 |   |   |
| Fixed asset  (gains) losses                                           |       |       | 363        |                                                      |       |   | 234 |   |   |

 

***Corporate/Centralized Resources.******  ***AdjustedEBITDA for Corporate/Centralized Resources was a loss of $2.1 million inthe first quarter of 2006 versus a loss of $3.9 million in the same periodin 2005. We realized $1.9 million in fixed asset gains and a decrease of$1.1 million in restructuring expenses in 2006. In addition, there was anapproximate $1 million decrease in administrative costs. These were offsetby a $1.9 million decrease in pension and postretirement medicalcurtailment benefits in the first quarter of 2006, as well as $0.4 millionincrease in foreign currency losses. Operating profit increased by $4.0 millionin 2006 due to the factors discussed above, as well as a $1.6 milliondecrease in depreciation and amortization.

| ** **                                                                                                      | ** ** | ** ** | ** ** | **(In thousands)**                                   | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|------------|------------|-----------------------------------------------------------|------------|
| **Corporate/Centralized Resources**                                                                        | ** ** | ** ** | ** ** | **Three Months Ended  April 2, 2006** | ** ** | **Three Months Ended  April 3, 2005** | ** ** |
| Operating profit                                                                                                |       |       | $          | (2,405                                                    | )          |   |   | $ | (6,401 | ) |   |
| Depreciation and  amortization                                                                                  |       |       | 566        |                                                      |       |   | 2,203 |   |   |
| Foreign currency  gains (losses)                                                                                |       |       | (348       | )                                                         |       |   | — |   |   |
| Other, net                                                                                                      |       |       | 52         |                                                      |       |   | 303 |   |   |
| Adjusted EBITDA                                                                                                 |       |       | $          | (2,135                                                    | )          |   |   | $ | (3,895 | ) |   |
| Memo: Additional amounts included in calculation of  both operating profit and Adjusted EBITDA:                 |       |       |       |                                                      |       |   |   |   |   |
| Restructuring  charges                                                                                          |       |       | $          | (104                                                      | )          |   |   | $ | 997 |   |   |
| Fixed asset  (gains) losses                                                                                     |       |       | (1,914     | )                                                         |       |   | — |   |   |
| Pension curtailment loss  and postretirement medical curtailment gain and elimination of certain plan  benefits |       |       | 165        |                                                      |       |   | (2,080 | ) |   |

 

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**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 cash flow from operations, our revolvingcredit facility and our accounts receivable securitization facility andfactoring agreements. As of April 2, 2006, we have unutilized capacityunder our revolving credit facility that may be utilized for acquisitions,investments or capital expenditure needs. Our cash flows during the year areimpacted by the volume and timing of vehicle production, which includes ashutdown by our North American customers for approximately two weeks in July andone week in December and reduced production in July and August forcertain European customers. Management believes cash flow from operations anddebt financing and refinancing from our accounts receivable securitizationprogram will provide us with adequate sources of liquidity for the foreseeablefuture.

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 April 2,2006, collection of approximately $50.0 million of accounts receivable wasaccelerated under the remaining programs. Included in the above programs isapproximately $28.7 million that we continue to collect on an acceleratedbasis as a result of favorable payment terms negotiated in connection with abusiness acquisition. This agreement expires December 31, 2006. While theimpact of the discontinuance of these programs may be partially offset by agreater utilization of our accounts receivable securitization facility, wecontinue to examine other alternative programs in the marketplace, as well asenhanced payment terms directly from our customers.

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 quarter of 2006, we used our cash primarily toservice our debt obligations and to fund our capital expenditure requirements.

***Liquidity.***   AtApril 2, 2006, we had approximately $133.5 million of undrawncommitments, which consisted of $110.9 million and $22.6 million fromour revolving credit facility and accounts receivable securitization facility,respectively. In addition, we had $6.0 million in cash on our consolidatedbalance sheet. Availability under our accounts receivable securitizationfacility agreement at such date is based on a day earlier receivables report soit should be noted that, as is the case at each quarter end, receivables paidon the last day of the quarter will reduce availability on the next businessday. The amount of this reduction was $5.0 million as of April 3,2006. It should also be noted that January and July are typicallyperiods in which the Company seasonally experiences lower availability.Approximately $35.0 million and $80.8 million were outstanding on ourrevolving credit facility and accounts receivable securitization facility,respectively, at April 2, 2006. Our access to these two facilities islimited by certain covenant restrictions (see “Debt, Capitalization andAvailable Financing Sources” for further discussion on our debt covenants). At April 2,2006, we were limited by these covenant restrictions and could thus draw only$127.2 million from these facilities of the $133.5 million totalavailable in undrawn commitments.

At April 2, 2006, our maximum debt capacity(including amounts drawn under our accounts receivable securitization program)is computed by multiplying our leverage ratio covenant of 5.25 by our bankagreement defined EBITDA, or approximately $204.3 million. Thus, our totaldebt capacity at April 2, 2006 is approximately $1,072.8 million. Ouractual debt plus the accounts receivable securitization at April 2, 2006approximated $945.6 million, or approximately $127.2 million lessthan our total capacity. Thus, as discussed above, as of April 2, 2006, wehad access to only $127.2 million of the total $133.5 million inundrawn commitments discussed above that we could have drawn from our revolvingcredit and accounts receivable securitization facilities.

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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 actionsthat have improved our trough liquidity in early 2006:  the sale of our North American Forgingbusiness, the net $25 million increase of our term loan facility and the February 3,2006 amended and restated credit agreement. There can be no assurance that ourliquidity will actually improve in the coming year as it may be adverselyimpacted by other factors, many of which are beyond our control, includingthose referred to below 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 adds an additional $50 million ofterm loans, of which $25 million was used to prepay the preexisting termloan; (b) it adjusts certain covenants to take account for the NorthAmerican Forging divestiture and to provide the Company with additionalcovenant flexibility; and (c) it increases pricing on the existingrevolving credit facility. We are required to use the proceeds from thedivestiture of North American Forging to prepay (a) $25 million ofthe preexisting term loan and (b) to repurchase at least $45 millionof assets currently under operating lease arrangements. We have repurchasedapproximately $46 million of assets under these operating leases with theproceeds from the North American Forging sale, $11.3 million of which wasrelated to North American Forging assets under operating leases. Excessproceeds can be used to repurchase additional assets under operating leasearrangements and to increase our liquidity through repayment of outstandingobligations under our revolving credit and accounts receivable securitizationfacilities. On February 3, 2006, pursuant to the terms of the amended andrestated credit agreement, we borrowed $50 million of additional termloans. 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 recent bankruptcy of Dana Corporation resulted in an immediate$6.9 million reduction in our accounts receivable securitizationavailability. Due to the general industry environment, the availability of thisprogram has decreased in the first part of 2006 and could be expected todecrease further if the industry environment does not improve.

We have entered into agreements with internationalinvoice factoring companies to sell customer accounts receivable of Metaldyneforeign locations in France, Germany, Spain, Czech Republic and United Kingdomon a non-recourse basis. As of April 2, 2006, we had availableapproximately $74.8 million from these commitments, and approximately$50.8 million of receivables were sold under these programs.

***TriMas CommonStock.***   The Company owns 4.8 millionshares of TriMas stock, or approximately 24% of the total outstanding shares ofTriMas.

***Debt,Capitalization and Available Financing Sources.***   OnDecember 20, 2005, we entered into a senior secured loan facility. Thissenior secured loan facility provides for term loans totaling $20 million,of which $14.3 million was drawn as of April 2, 2006 and theremainder of which is available until June 30, 2006 to finance in part thepurchase of additional specified machinery and equipment. A commitment fee of7.5% per annum on the unused portion of this loan will accrue through June 30,2006. The senior secured loan facility matures 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 

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applicable interest ratespreads on our term loan obligations increased over the current LondonInterbank Offered Rate (“LIBOR”) and our leverage covenant was modified to beless restrictive. The current applicable interest rate spread on our term loanobligations is 4.50%. On February 3, 2006, pursuant to the terms of theamended and restated credit agreement, we borrowed $50 million ofadditional term loans, of which $25 million was used to prepay thepreexisting term loan. A commitment fee of 1% per annum is assessed on theunused portion of the revolving credit facility.

In December 2004, we obtained an amendment of ourcredit facility to, among other things, modify certain negative covenants.Under this amendment, the applicable interest rate spreads on our term loanobligations increased from 4.25% to 4.50% over the current London InterbankOffered Rate (“LIBOR”) and our leverage covenant was modified to be lessrestrictive.

The credit facility includes term loans with $375.2 millionoutstanding and a revolving credit facility with a principal commitment of $200 million.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 April 2, 2006 and January 1,2006:

| ** **                                                                                                                             | ** ** | **(In thousands)**     | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                             | ** ** | **April 2, 2006** | ** ** | **January 1, 2006** | ** ** |
| Senior credit  facilities:                                                                                                             |       |                        |       |   |   |   |   |   |   |
| Term loans (9.0% to 11.5% variable interest at  April 2, 2006)                                                                    |       |                        | $          | 375,193 |   |   |   | $ | 350,193 |   |   |
| Revolving credit facility (9.3% to 11.0% interest at  April 2, 2006)                                                              |       |                        | 35,000     |   |   |   | 59,605 |   |   |
| Total senior  credit facility                                                                                                          |       |                        | 410,193    |   |   |   | 409,798 |   |   |
| Senior secured  term loan credit facility, with interest payable quarterly, due 2009 (14.25%  variable interest at April 2, 2006) |       |                        | 14,250     |   |   |   | 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)                         |       |                        | 27,547     |   |   |   | 27,469 |   |   |
| Other debt  (various interest rates; includes capital lease obligations)                                                               |       |                        | 8,662      |   |   |   | 9,612 |   |   |
| Total                                                                                                                                  |       |                        | $          | 860,652 |   |   |   | $ | 857,379 |   |   |
| Less current  maturities                                                                                                               |       |                        | (6,042     | ) |   |   | (6,640 | ) |   |
| Long-term debt                                                                                                                         |       |                        | $          | 854,610 |   |   |   | $ | 850,739 |   |   |

 

At April 2, 2006, we were contingently liable forstandby letters of credit totaling $54.1 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 nominalwarranty costs and no significant warranty accrual is reflected in the April 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 

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December 31, 2006;and a debt to EBITDA ratio not to exceed 5.25 through the year ending December 31,2006. We were in compliance with the new covenants throughout the quarter.Based on our anticipated EBITDA performance, we anticipate being in covenantcompliance over the next four quarters.

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

As currency exchange rates change, translation of thestatements of operations of our international businesses into U.S. dollarsaffects year-over-year comparability of operating results. We do not hedgeoperating translation risks because cash flows from international operationsare generally reinvested locally. Changes in foreign currency exchange ratesare generally reported as a component of stockholders’ equity for our foreignsubsidiaries reporting in local currencies and as a component of income for ourforeign subsidiaries using the U.S. dollar as the functional currency. The portionof our accumulated other comprehensive income relating to cumulativetranslation adjustments was $9.2 million for the three months ended April 2,2006, due to cumulative translation adjustments resulting primarily fromchanges in the U.S. dollar to the Euro.

As of April 2, 2006, our net total assets(defined as total assets less total liabilities) subject to foreign currencytranslation risk were $1,015 million. The potential decrease in net totalassets from a hypothetical 10% adverse change in quoted foreign currencyexchange rates would be $101.5 million. The sensitivity analysis presentedassumes a parallel shift in foreign currency exchange rates. Exchange ratesrarely move in the same direction. This assumption may overstate the impact ofchanging exchange rates on individual assets and liabilities denominated in aforeign currency.

***Interest Risk.***   Wegenerally manage our risks associated with interest rate movements through theuse of a combination of variable and fixed rate debt. Approximately $427.5 millionof our debt was variable rate debt at April 2, 2006. A hypothetical 25 bpsadverse movement in the interest rate on variable rate debt would affectearnings on an annual basis by approximately $1.1 million. Approximately$437.4 million of our debt was fixed rate debt at April 2, 2006. Ahypothetical 25 bps adverse movement in interest rates would result in a lossin the fair value of this fixed rate debt of approximately $8.3 million.

***Off-Balance SheetArrangements.******  ***On April 29, 2005, the Companyand our newly formed 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,our former accounts receivable financing facility with JPMorgan Chase Bank,N.A. was terminated. On July 8, 2005, the Company and MRFC amended and restated our existingaccounts receivable financing facility with GECC. The terms of the facilitythat were amended and restated include (a) extending the maturity date to July 8,2010, (b) favorable adjustments to certain default triggers, (c) increasedprogram availability and (d) an increase to the applicable margin on LIBORbased drawings from 1.75% to 2.25%. The amendment and restatement alsoaddressed various technical matters. The amended and restated facility representsthe completion of the final step of the multi-step receivables facilitymodifications initiated on April 29, 2005.

We have entered into an arrangement to sell, on anongoing basis, the trade accounts receivable of substantially all domesticbusiness operations to MRFC. MRFC from time to time may sell an undividedfractional ownership interest in the pool of receivables up to approximately$175 million to a third party multi-seller receivables funding company.The net proceeds of sale are less than the face amount of accounts receivablesold by an amount that approximates the purchaser’s financing costs, whichamounted to a total of $1.7 million and $1.0 million for the threemonths ended April 2, 2006 and April 3, 2005, 

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respectively, and isincluded in other expense, net in our consolidated statement of operations.Prior to April 29, 2005, trade accounts receivable of substantially all ofour domestic business operations were sold in connection with the formeraccounts receivable financing facility with JPMorgan Chase Bank, N.A. At April 2,2006, our funding under the facility was $80.8 million with availabilitybased upon qualified receivables of $103.4 million and $22.6 millionavailable but not utilized at April 2, 2006. The rate used to approximatethe purchaser’s financing costs was based on LIBOR plus 2.25% at April 2,2006. In addition, we are required to pay a fee of 0.5% on the unused portionof the facility.

We have entered into agreements with internationalinvoice factoring companies to sell customer accounts receivable of Metaldyneforeign locations in France, Germany, Spain, Czech Republic and United Kingdomon a non-recourse basis. As of April 2, 2006 and January 1, 2006, wehad available $74.8 million and $71.9 million from these commitments,and approximately $50.8 million and $50.4 million of receivables weresold under these programs, respectively. We pay a commission to the factoringcompany plus interest from the date the receivables are sold to the date ofcustomer payment. Commission expense related to these agreements is recorded inother expense, net on our consolidated statement of operations and totaled $0.5 millionfor each of the three months ended April 2, 2006 and April 3, 2005.

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

*Sale-LeasebackArrangements.*   We have historically engaged in anumber of sale-leaseback transactions, including three transactions during 2005which generated proceeds of $21.5 million. These sale-leasebacks wereaccounted for as operating leases with combined annual lease expense ofapproximately $4 million.

We anticipate relying on sale-leaseback and otherleasing opportunities as a source of cash to finance capital expenditures andother uses. Our 2006 capital and operating lease expense commitments areapproximately $59 million.

*RedeemablePreferred Stock.*   We have outstanding $187.1 millionin aggregate liquidation value ($110.3 million aggregate carrying value)as of April 2, 2006 of Series A, B and A-1 redeemable preferredstock in respect of which we have the option to pay cash dividends, subject tothe terms of our debt instruments, at rates of 13% (15% beginningJanuary 1, 2006), 11.5% and 11%, respectively, per annum initially and toeffect a mandatory redemption in December 2012, June 2013 andDecember 2013, respectively. For periods that we do not pay cash dividendson the Series A and Series A-1 preferred stock, an additional2% per annum of dividends is accrued. No cash dividends were paid during thethree months ended April 2, 2006. At April 2, 2006, there were unpaidaccrued dividends of $68.1 million, resulting in redeemable preferredstock of $178.4 million. In the event of a change in control or certainqualified equity offerings, we may be required to make an offer to repurchaseour outstanding preferred stock. We may not be permitted to do so and may lackthe financial resources to satisfy these obligations. Consequently, upon theseevents, it may become necessary to recapitalize our company or secure consents.

***TriMas Receivables.******  ***We have recordedapproximately $8.6 million as of April 2, 2006, consisting of receivablesrelated to certain amounts from TriMas, $3.5 million of which is recorded inequity investments and receivables in affiliates in our consolidated balancesheet as of April 2, 2006. These amounts include TriMas’ obligationsresulting from tax net operating losses created prior to the disposition ofTriMas of approximately $3.0 million, pension obligations of approximately $0.7million, and reimbursement due for cash payments made related to postretirementobligations and various invoices paid on TriMas’ behalf of approximately $1.4million.

***Credit Rating.******  ***Metaldyne israted by Standard & Poor’s and Moody’s Ratings. As of April 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.Capital expenditures for our continuing operations by product segment for theperiods presented were:

| ** **            | ** ** | **(In thousands)**     | ** ** |
|-----------------------|------------|-----------------------------|------------|
| ** **            | ** ** | **April 2, 2006** | ** ** | **April 3, 2005** | ** ** |
| Capital Expenditures: |       |                        |       |   |   |   |   |   |   |
| Chassis               |       |                        | $          | 12,369 |   |   |   | $ | 9,435 |   |   |
| Powertrain            |       |                        | 14,200     |   |   |   | 14,276 |   |   |
| Corporate             |       |                        | 22         |   |   |   | 134 |   |   |
| Total                 |       |                        | $          | 26,591 |   |   |   | $ | 23,845 |   |   |

 

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***Cash Flows***

*Operatingactivities*—Cash flows used for operating activities were $2.6 million for the threemonths ended April 2, 2006 compared to cash flows provided by operatingactivities of $23.5 million for the three months ended April 3, 2005. Thereduction in the cash flows from operations of $26.1 million for the firstquarter of 2006 as compared to 2005 is primarily the result of a $39.6 milliondecrease in net proceeds from the accounts receivable securitization facilityand a $10 million reduction in operating cash flow from discontinued operations.This was offset by a $31 million decrease in working capital usage in thequarter (excluding the accounts receivable securitization facility).

*Investingactivities*—Cash flows provided by investing activitiestotaled $3.8 million for the three months ended April 2, 2006 compared tocash flows used for investing activities of $14.7 million for the three monthsended April 3, 2005. The increase of $18.5 million is due to $69.1 millionof proceeds from the sale of our Forging Operations, offset by $36.1 millionused to repurchase assets under operating leases in the first quarter of 2006.Additionally, in the first quarter of 2005, we received $6.5 million inproceeds from a sale-leaseback transaction for equipment and a reduction of$5.8 million in our investment in New Castle resulting from reimbursementrelating to equipment purchases. Capital expenditures increased $2.8 millionfor the first three months of 2006 compared to 2005.

*Financingactivities*—Cash flows provided by financing activitiestotaled $0.8 million for the three months ended April 2, 2006 compared tocash flows used for financing activities of $8.8 million for the three monthsended April 3, 2005. The net increase in cash flows provided by financingactivities of $9.6 million for the first quarter of 2006 as compared to 2005 isdue to $53.8 million of proceeds from our term loan facilities, offset by $25million of principal payments on the term loan facilities and a net increase inpayments of $18.8 million on our revolving credit facilities in 2006 comparedwith 2005. This was offset by the capitalization of $2.2 million in debtfinancing fees in the first quarter of 2006.

***Outlook***

Automotive vehicleproduction in 2006 is expected to be consistent with 2005 production levels inNorth America and approximately 3.5% higher than 2005 production levels in theglobal market. However, 2006 automotive vehicle production for the “Big 3” isexpected to be approximately 2% below 2005 production levels. There are severalfactors that could alter this outlook, including a change in interest rates oran increase in vehicle incentives offered to consumers.

Our principal use of fundsfrom operating activities and borrowings for the next several years areexpected to fund interest and principal payments on our indebtedness, growthrelated capital expenditures and working capital increases, strategicacquisitions and lease expense. Our anticipated capital expenditures for 2006are estimated to be approximately $70 million. Capital spending requirementsover the last several years has been elevated due to our efforts to transitionour business to new technologies, capabilities and geographies.

Management believes cashflow from operations and debt financing and refinancing from our accountsreceivable securitization program will provide us with adequate sources ofliquidity for the foreseeable future. On February 3, 2006, we entered intoan amended and restated credit agreement that adjusted certain covenants totake account of the North American Forging divestiture and to provideadditional covenant flexibility. It also added an additional $50 million termloan, of which $25 million was used to prepay the preexisting term loan.However, our sources of liquidity may be inadequate if we are unable to achieveoperating targets in which we may need to seek additional covenant relief fromour lending group. No assurance can be given that we will be successful innegotiating such relief. The interest expense coverage ratio in the amended andrestated credit agreement increases to 2.00, 2.25 and 2.50, and the debt toEBITDA leverage ratio decreases 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 

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adverselyimpact the availability of our receivables arrangements and our liquidity. Any debt rating downgrades and/orinsolvencies of our largest customers may have an adverse effect on ourliquidity as it could adversely impact our ability to borrow under our accountsreceivable securitization facility. For example, on November 1, 2005,Moody’s lowered its credit rating of General Motors, one of our largestcustomers, resulting in a decrease of our borrowing capacity under our accountsreceivable securitization facility by approximately $3.0 million. Wecontinue to explore other sources of liquidity, including additional debt, butexisting debt instruments may limit our ability to incur additional debt, andwe may be unable to secure equity or other financing.

Consistent with operatingin the global vehicle industry, we anticipate significant competitive pressuresand thus expect to face significant price reduction pressures from our customerbase. In 2003 and 2004, though, we invested significantly in automation andunderwent significant restructuring activities to help accommodate thesepricing pressures. In addition, we face an environment of increased cost toprocure certain raw materials utilized in our manufacturing processes such assteel, energy, molybdenum and nickel. Based on current prices, the agreementswe currently have in place with our customers and cost reduction efforts in ourbusiness, we do not anticipate any negative incremental effect of materialpricing on our 2006 profitability relative to 2005.

**Other Matters**

**Fiscal Year**

Our fiscal year end on theSunday nearest to December 31.

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

This report containsstatements reflecting the Company’s views about its future performance, itsfinancial condition, its markets and many other matters that constitute “forward-lookingstatements.” These views involve risks and uncertainties that are difficult topredict and may cause the Company’s actual results and/or expectations aboutvarious matters to differ significantly from those discussed in suchforward-looking statements. All statements, other than statements of historicalfact included in this quarterly report, regarding our strategy, futureoperations, financial condition, expected results and costs, new business,estimated revenues and losses, prospects and plans are forward-lookingstatements. When used in this quarterly report, the words “will,” “believe,” “anticipate,”“intend,” “estimate,” “expect,” “project” and similar expressions are intendedto identify forward-looking statements, although not all forward-looking statementscontain such identifying words. You should not place undue reliance on theseforward-looking statements. All forward-looking statements speak only as of thedate of this annual report and we undertake no obligation to update suchinformation. Readers should consider that various factors may affect whetheractual results and experience correspond with our forward-looking statementsand that many of these factors also represent risks attendant to owningsecurities in the Company, including the following:

Risksand uncertainties 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;

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·       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;

·       Controlby principal stockholder;

·       Termsof stockholder agreement;

·       Leverage;ability to service debt;

·       Substantialrestrictions and covenants; and

·       Implementationof control improvements.

In addition, factors morespecific to us could cause actual results to vary materially from thoseanticipated in the forward-looking statements included in this Quarterly Reportsuch as substantial leverage, substantial capital requirement limitationsimposed by our debt instruments, our ability to identify attractive strategicacquisition opportunities and to successfully integrate acquired businessesincluding actions we have identified as providing cost-saving opportunities.

We disclose importantfactors that could cause our actual results to differ materially from ourexpectations under Item 1A “Risk Factors” in our 2005 Form 10-K,under Item 2, Management’s Discussion and Analysis of Financial Condition andResults of Operations to this Report and elsewhere in this Quarterly Report.These cautionary statements qualify all forward-looking statements attributableto us or persons acting on our behalf. When we indicate that an event,condition or circumstance could or would have an adverse effect on us, we meanto include effects upon our business, financial and other conditions, resultsof operations and ability to make payments on the notes. On May 16, 2006,the UAW announced that its membership had authorized a strike should Delphi Corporationunilaterally impose changes to its labor agreements. As discussed in our “RiskFactors” in our 2005 Form 10-K, this could seriously impact theprofitability of our business.

There are few 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 

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of, themarkets in which we compete. In some cases, we possess independent data tosupport our position, but that data may not be sufficient in isolation for usto reach the conclusions that we have reached without our knowledge of ourmarkets and businesses.

**ITEM3.**                QUANTITATIVE ANDQUALITATIVE 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. Also see Note 12,Long-Term Debt, in the notes to the consolidated financial statements foradditional information in our 2005 Form 10-K.

**ITEM4.**                CONTROLS ANDPROCEDURES

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

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

**Disclosure Controls and Procedures**

Concurrent with thequarterly review of the Company’s financial statements, management, with theparticipation of our Chief Executive Officer and Chief Financial Officer,concluded an evaluation of the effectiveness of our disclosure controls andprocedures (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) ofthe Securities Exchange Act of 1934) pursuant to Rule 13a-15 of theExchange Act. Our disclosure controls and procedures are designed only toprovide reasonable assurance that they will meet their objectives. Based uponthat evaluation, the Chief Executive Officer and Chief Financial Officerconcluded that the Company’s disclosure controls and procedures are noteffective to provide reasonable assurance that they will meet their objectivesas of April 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.

**Changes in Disclosure Controls and Procedures**

None.

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**PART II. OTHERINFORMATION**

**METALDYNECORPORATION**

**Item 1.**                        LegalProceedings.

Not applicable.

**Item 1A.**                RiskFactors.

This Quarterly Reportshould be read in conjunction with the risk factors disclosed in the Company’s2005 Form 10-K.

**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.

Not Applicable.

**Item 5.**                        OtherInformation.

Not Applicable.

**Item 6.**                        Exhibits.

**(A) Exhibits:**
| Exhibit 12   |   | Computation of Ratio of Earnings to Combined Fixed  Charges and Preferred Stock Dividends.                                          |
|-------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------|
| Exhibit 21.1 |   | Subsidiaries of  Metaldyne Corporation.                                                                                             |
| Exhibit 31.1 |   | Certification pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002. |
| Exhibit 31.2 |   | Certification pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002. |
| Exhibit 32.1 |   | Certification pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002. |
| Exhibit 32.2 |   | Certification pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002. |

 

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**SIGNATURE**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.
|                         | ** ** | **METALDYNE CORPORATION** |
|-------------------------|------------|---------------------------|
| ** **              | ** ** | **(Registrant)**          |
| DATE: May 12, 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           | ** ** | ** **                                                                                                                          | ** ** | ** ** |
|-------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
| Exhibit 12   |       | Computation of Ratio of  Earnings to Combined Fixed Charges and Preferred Stock Dividends.                                          |
| Exhibit 21.1 |       | Subsidiaries of  Metaldyne Corporation.                                                                                             |
| Exhibit 31.1 |       | Certification  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002. |
| Exhibit 31.2 |       | Certification  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002. |
| Exhibit 32.1 |       | Certification  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002. |
| Exhibit 32.2 |       | Certification pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002. |

 

 

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