FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___ to ___ Commission file number 0-21139 DURA AUTOMOTIVE SYSTEMS, INC. (Exact name of Registrant as specified in its charter) DELAWARE 38-3185711 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4508 IDS CENTER 55402 MINNEAPOLIS, MINNESOTA (Zip Code) (Address of principal executive offices) (612) 342-2311 (Registrant's telephone number, including area code) NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of shares outstanding of the Registrant's Class A common stock, par value $.01 per share, at November 1, 2002 was 16,483,280 shares. The number of shares outstanding of the Registrant's Class B common stock, par value $.01 per share, at November 1, 2002 was 1,761,150 shares. DURA AUTOMOTIVE SYSTEMS, INC. FORM 10-Q TABLE OF CONTENTS PART I FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2002 and 2001 (unaudited) Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 2002 and 2001 (unaudited) Condensed Consolidated Balance Sheets at September 30, 2002 (unaudited) and December 31, 2001 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001 (unaudited) Notes to Condensed Consolidated Financial Statements (unaudited) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures about Market Risk Item 4. Controls and Procedures PART II OTHER INFORMATION Item 1. Legal Proceedings Item 6. Exhibits and Reports on Form 8-K SIGNATURE CERTIFICATIONS -2- ITEM 1 - FINANCIAL INFORMATION DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS - UNAUDITED) Three Months Ended September 30, -------------------------------- 2002 2001 --------- --------- Revenues $ 586,797 $ 568,890 Cost of sales 517,075 500,723 --------- --------- Gross profit 69,722 68,167 Selling, general and administrative expenses 36,352 33,494 Facility consolidation and other charges 4,225 7,685 Amortization expense 283 6,833 --------- --------- Operating income 28,862 20,155 Interest expense, net 21,110 24,603 --------- --------- Income (loss) before provision for income taxes 7,752 (4,448) and minority interests Provision (benefit) for income taxes 3,177 (1,704) Minority interest - dividends on trust preferred securities, net 622 642 --------- --------- Net income (loss) $ 3,953 $ (3,386) ========= ========= Basic earnings (loss) per share: $ 0.22 $ (0.19) Basic shares outstanding 18,257 17,768 Diluted earnings (loss) per share: $ 0.21 $ (0.19) Diluted shares outstanding 18,660 17,768 The accompanying notes are an integral part of these condensed consolidated statements. -3- DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS - UNAUDITED) Nine Months Ended September 30, --------------------------------- 2002 2001 ----------- ----------- Revenues $ 1,870,261 $ 1,897,064 Cost of sales 1,634,220 1,647,979 ----------- ----------- Gross profit 236,041 249,085 Selling, general and administrative expenses 106,256 107,226 Facility consolidation and other charges 25,313 10,314 Amortization expense 968 20,527 ----------- ----------- Operating income 103,504 111,018 Interest expense, net 64,628 77,752 ----------- ----------- Income before provision for income taxes and minority interests 38,876 33,266 Provision for income taxes 26,402 12,641 Minority interest - dividends on trust preferred securities, net 1,865 1,927 ----------- ----------- Income before extraordinary item 10,609 18,698 Extraordinary item (3,422) -- ----------- ----------- Net income $ 7,187 $ 18,698 =========== =========== Basic earnings per share: Income before extraordinary item $ 0.59 $ 1.05 Extraordinary item (0.19) -- ----------- ----------- Net income $ 0.40 $ 1.05 =========== =========== Basic shares outstanding 18,002 17,747 =========== =========== Diluted earnings per share: Income before extraordinary item $ 0.57 $ 1.04 Extraordinary item (0.18) -- ----------- ----------- Net income $ 0.39 $ 1.04 =========== =========== Diluted shares outstanding 18,498 18,022 =========== =========== The accompanying notes are an integral part of these condensed consolidated statements. -4- DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS) September 30, December 31, Assets 2002 2001 ------ ------------- ------------ (unaudited) Current assets: Cash and cash equivalents $ 123,284 $ 32,289 Accounts receivable, net 331,809 293,476 Inventories 120,179 116,508 Other current assets 127,872 126,367 ----------- ----------- Total current assets 703,144 568,640 ----------- ----------- Property, plant and equipment, net 479,747 516,517 Goodwill, net 970,798 962,467 Fair value of derivative instruments 32,598 -- Deferred income taxes and other assets, net 79,636 73,980 ----------- ----------- $ 2,265,923 $ 2,121,604 =========== =========== Liabilities and Stockholders' Investment ---------------------------------------- Current liabilities: Accounts payable $ 271,358 $ 249,824 Accrued liabilities 235,812 177,327 Current maturities of long-term debt 4,646 60,847 ----------- ----------- Total current liabilities 511,816 487,998 ----------- ----------- Long-term debt, net of current maturities 1,094,577 1,015,579 Other noncurrent liabilities 125,329 120,380 Mandatorily redeemable convertible trust preferred securities 55,250 55,250 ----------- ----------- Stockholders' investment: Common stock - Class A 165 147 Common stock - Class B 17 31 Additional paid-in capital 346,913 342,694 Treasury stock (1,974) (1,891) Retained earnings 168,455 161,268 Accumulated other comprehensive loss (34,625) (59,852) ----------- ----------- Total stockholders' investment 478,951 442,397 ----------- ----------- $ 2,265,923 $ 2,121,604 =========== =========== The accompanying notes are an integral part of these condensed consolidated balance sheets. -5- DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS - UNAUDITED) Nine Months Ended September 30, ------------------------------- 2002 2001 --------- --------- OPERATING ACTIVITIES: Net income $ 7,187 $ 18,698 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 56,648 72,036 Deferred income taxes 9,372 706 Extraordinary loss on extinguishment of debt 3,422 -- Changes in other operating items 53,386 65,041 --------- --------- Net cash provided by operating activities 130,015 156,481 --------- --------- INVESTING ACTIVITIES: Net proceeds from disposition of businesses 31,122 -- Capital expenditures, net (40,422) (46,486) --------- --------- Net cash used in investing activities (9,300) (46,486) --------- --------- FINANCING ACTIVITIES: Short-term debt repayments, net (58,632) 755 Long-term debt repayments, net (309,888) (108,994) Proceeds from issuance of senior notes 350,000 -- Debt issue costs (10,964) -- Proceeds from issuance of common stock and exercise of stock options 4,223 -- Other, net (83) 286 --------- --------- Net cash used in financing activities (25,344) (107,953) --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (4,376) (12,278) --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 90,995 (10,236) CASH AND CASH EQUIVALENTS: Beginning of period 32,289 30,438 --------- --------- End of period $ 123,284 $ 20,202 ========= ========= SUPPLEMENTAL DISCLOSURE: Cash paid for interest $ 43,541 $ 63,366 Cash paid for income taxes $ 10,393 $ 3,241 The accompanying notes are an integral part of these condensed consolidated statements. -6- DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION General - Dura Automotive Systems, Inc. (a Delaware Corporation) and subsidiaries (Dura) designs and manufactures components and systems primarily for the global automotive industry. Dura has over 70 manufacturing and product development facilities located in the United States, Brazil, Canada, Czech Republic, France, Germany, Mexico, Portugal, Slovakia, Spain and the United Kingdom. We have prepared the condensed consolidated financial statements of Dura, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished in the condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments which are, in our opinion, necessary for a fair presentation of the results of operations and statements of financial position for the interim periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. We believe that the disclosures are adequate to make the information presented not misleading when read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission for the period ended December 31, 2001. Revenues and operating results for the nine months ended September 30, 2002 are not necessarily indicative of the results to be expected for the full year. 2. INVENTORIES Inventories consisted of the following (in thousands): September 30, December 31, 2002 2001 -------- -------- Raw materials $ 65,433 $ 65,228 Work-in-process 26,535 25,369 Finished goods 28,211 25,911 -------- -------- $120,179 $116,508 ======== ======== 3. EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share were computed by dividing net income by the weighted average number of Class A and Class B common shares outstanding during the period. Diluted earnings (loss) per share is computed under the treasury stock method and calculates the dilutive effect of potential common shares, as follows (in thousands, except share and per share amounts): -7- Three months Nine months ended September 30, ended September 30, ---------------------- ---------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Net income (loss) $ 3,953 $ (3,386) $ 7,187 $ 18,698 -------- -------- -------- -------- Weighted average number of Class A common shares outstanding 16,425 14,602 15,637 14,498 Weighted average number of Class B common shares outstanding 1,832 3,166 2,365 3,249 -------- -------- -------- -------- 18,257 17,768 18,002 17,747 Dilutive effect of outstanding stock options after application of the treasury stock method 403 -- 496 275 -------- -------- -------- -------- Diluted shares outstanding 18,660 17,768 18,498 18,022 ======== ======== ======== ======== Basic earnings (loss) per share $ 0.22 $ (0.19) $ 0.40 $ 1.05 ======== ======== ======== ======== Diluted earnings (loss) per share $ 0.21 $ (0.19) $ 0.39 $ 1.04 ======== ======== ======== ======== Potential common shares of approximately 1,289,000 relating to Dura's outstanding Preferred Securities were excluded from the computation of diluted earnings per share for the three months and nine months ended September 30, 2002 and 2001, as inclusion of these shares would have been anti-dilutive. In addition, outstanding stock options of approximately 445,000 were excluded from the computation of diluted earnings per share for the three months ended September 30, 2001, as inclusion of these options would have been anti-dilutive. 4. FACILITY CONSOLIDATION AND OTHER CHARGES Divestitures In May 2002, Dura divested its Steering Gear Business. The Steering Gear Business is a machining operation that utilized a technology that was determined to be non-essential to Dura's capabilities. This business employs approximately 200 people in England and generated annual revenue of approximately $20.0 million. The transaction resulted in a one-time charge of approximately $19.2 million consisting of asset write-downs and remaining contractual commitments. No tax benefit was recorded related to this charge. In addition, Dura also wrote-off approximately $2.1 million related to certain deferred tax assets and this is included in the provision for income taxes in the accompanying condensed consolidated statements of income for the nine months ended September 30, 2002. The effects of this divestiture on future operating results will not be significant. In November 2001, Dura entered into a definitive agreement to divest its Plastic Products Business for gross proceeds of approximately $41.0 million. The transaction closed in January 2002. The net cash proceeds of approximately $31.1 million were used to repay outstanding indebtedness. The Plastic Products Business designs, engineers, and manufactures plastic -8- components for a wide variety of automotive vehicle applications, focusing on the metal to plastic conversion and dual plastic applications markets. This business employs approximately 750 people in three facilities located in Mishawaka, Indiana, Bowling Green, Kentucky and Jonesville, Michigan and generated approximately $80.0 million in annual revenue. Two members of Dura's board of directors are members of management of an investor group which is general partner of the controlling shareholder of the acquiring company. Dura recorded a noncash charge of approximately $7.4 million in the fourth quarter of 2001 for the estimated loss upon divestment. In the second quarter of 2002, Dura recorded an additional $1.9 million charge related to final negotiation of purchase price adjustments. The effect of this divestiture on future operating results will not be significant. Restructuring During the third quarter of 2002, Dura continued its plan to exit certain of its non-core products and exited its pedals product line in Europe. Further, in order to improve capacity utilization, Dura announced a plan to combine its Benton Harbor and Butler facilities in North America. These actions, together with certain costs expensed as incurred and an adjustment made to a previously recorded reserve, resulted in a third quarter 2002 restructuring charge of $4.2 million. The charge related to the exit of the pedals product line in Europe included severance related costs of $1.3 million, asset impairment of $1.5 million and other facility closure costs of $0.5 million. No tax benefit was recorded related to this charge. The charge related to the closure of the Benton Harbor facility included severance of $0.6 million and facility closure costs of $0.5 million. Additionally, Dura expensed as incurred certain equipment relocation costs of $0.1 million and made an adjustment to reverse a previously recorded reserve of $0.3 million. Costs incurred and charged to the reserve related to the exit of the European pedals product line in Europe as of September 30, 2002 amounted to $0.1 million in severance related costs. The decision to exit the European pedals product line resulted in a reduction in the work force of approximately 25 salaried and 72 hourly employees, of which 1 salaried and 18 hourly employees have been severed as of September 30, 2002. These restructuring actions are anticipated to be complete by September 30, 2003. The decision to close the Benton Harbor facility will result in a reduction in the work force of approximately 12 salaried and 44 hourly employees. No employees have been severed as of September 30, 2002. These restructuring actions are anticipated to be complete by September 30, 2003. Throughout 2000 and 2001 Dura has evaluated manufacturing capacity issues and opportunities for cost reduction given the reduced demand in the North America automotive and recreational vehicle markets and the available capacity within Dura's operations. As a result, beginning in the fourth quarter of 2000, Dura began to implement several actions including discontinuing operations in two North American facilities, combining the Driver Control and Engineered Products divisions into one, Control Systems, and reducing and consolidating certain support activities to achieve an appropriate level of support personnel relative to remaining operations and future business requirements. These actions resulted in a fourth quarter 2000 restructuring charge of $6.8 million, including severance related payments of $6.2 million and facility closure costs of approximately $0.6 million. Additionally in 2000, Dura expensed as -9- incurred equipment relocation costs of $0.8 million. In continuation of the actions taken in 2000, Dura recorded $2.4 million of additional restructuring charges in the first quarter and $2.0 million in the fourth quarter of 2001 relating to employee severance. Dura also expensed as incurred approximately $0.2 million of equipment relocation costs incurred during the first quarter of 2001. The effect of the costs expensed as incurred are reflected as facility consolidation and other charges in the consolidated statements of operations. Costs incurred and charged to the reserves as of September 30, 2002 amounted to $10.1 million in severance related costs and $0.9 million in facility closure costs. During 2001 and 2002, additional adjustments were made of $0.2 million to decrease the reserve for employee severance, as the actual costs incurred were less than originally estimated. The decision to exit the two facilities resulted in a reduction in the work force of approximately 52 salaried and 408 hourly employees, all of which have been severed as of September 30, 2002. Additionally, the decision to consolidate two divisions into one and to reduce support personnel to a level consistent with future business requirements resulted in a reduction of approximately 217 salaried employees of which 216 have been severed as of September 30, 2002. These restructuring actions are anticipated to be complete in 2002. 5. ACQUISITION INTEGRATIONS Dura has developed and implemented the majority of the facility consolidation plans designed to integrate the operations of past acquisitions. As of September 30, 2002, purchase liabilities recorded in conjunction with the acquisitions included approximately $17.0 million for costs associated with the shutdown and consolidation of certain acquired facilities and $3.2 million for severance and other related costs. Adjustments to the reserve recorded during the three months ended September 30, 2002 included a net decrease of $0.5 million for costs related to acquired facilities and a net decrease of $0.7 million in severance and other related costs. All adjustments were reflected as an adjustment to goodwill. Costs incurred and charged to these reserves amounted to $0.9 million related to acquired facilities and $0.2 million in severance and other related costs during the quarter ended September 30, 2002. The remaining employee terminations and facility closures are expected to be completed by the end of 2002 except for certain contractual obligations, principally facility lease obligations that extend beyond that date. -10- 6. LONG-TERM DEBT Long-term debt consisted of the following (in thousands): September 30, December 31, 2002 2001 ----------- ----------- Credit Agreement: Tranche A and B term loans $ -- $ 454,306 Tranche C term loan 150,000 -- Revolving credit facility -- 62,584 Senior notes 350,000 -- Subordinated notes 549,029 539,700 Senior notes - derivative instrument adjustment 32,598 -- Other 17,596 19,836 ----------- ----------- 1,099,223 1,076,426 Less - Current maturities (4,646) (60,847) ----------- ----------- Total long-term debt $ 1,094,577 $ 1,015,579 =========== =========== In connection with the acquisitions of Adwest and Excel, Dura entered into an amended and restated $1.15 billion credit agreement (Credit Agreement). The Credit Agreement provides for revolving credit facilities of $400.0 million, a $275.0 million tranche A term loan, a $275.0 million tranche B term loan and a $200.0 million interim term loan facility. In April 2002, Dura completed the offering of $350.0 million 8 5/8 percent senior unsecured notes (Senior Notes), due April 2012. The interest on the Senior Notes is payable semi-annually beginning October 15, 2002. Net proceeds from this offering of approximately $341.0 million were used to repay the outstanding balance of the $275.0 million tranche A term loan, and a portion of the $275.0 million tranche B term loan. Dura then replaced the remaining tranche B term loan with a $150.0 million tranche C term loan. Borrowings under the tranche C term loan are based on LIBOR and are due and payable in December 2008 with no early payment penalties. In conjunction with these transactions, Dura obtained an amendment to the Credit Agreement to allow for the offering and to further relax certain financial covenants. Dura also entered into a fixed to floating interest rate swap (notional amount of $325.0 million) with various financial institutions that more closely mirrors the cost of its bank debt (see Note 8). In connection with the repayment of borrowings outstanding under the Credit Agreement, Dura wrote-off debt issuance costs of approximately $3.4 million, net of income taxes, during the second quarter of 2002. This write-off is reflected as an extraordinary item in the accompanying condensed consolidated statement of operations for the nine months ended September 30, 2002. As of September 30, 2002, rates on borrowings under the Credit Agreement are based on LIBOR and were 4.3 percent. The revolving credit facility is available until March 2005. Borrowings under the interim loan were due and payable in September 2000, and, as further discussed below, were repaid in April 1999. The Credit Agreement contains various restrictive covenants which limit indebtedness, investments, rental obligations and cash dividends. The Credit Agreement also requires Dura to maintain certain financial ratios including minimum -11- liquidity and interest coverage. Dura was in compliance with the covenants as of September 30, 2002. Borrowings under the Credit Agreement are collateralized by certain assets of Dura. The Credit Agreement provides Dura with the ability to denominate a portion of its revolving credit borrowings in foreign currencies up to an amount equal to $150.0 million. As of September 30, 2002, Dura had no borrowings outstanding under the revolver. Dura also utilizes uncommitted overdraft facilities to satisfy the short-term working capital requirements of its foreign subsidiaries. At September 30, 2002, Dura had no borrowings outstanding under its overdraft facilities. At September 30, 2002, Dura had overdraft facilities available from banks of approximately $40.4 million. In April 1999, Dura completed the offering of $300.0 million and Euro 100.0 million of 9 percent senior subordinated notes (Subordinated Notes), due May 2009. The interest on the Subordinated Notes is payable semi-annually. Net proceeds from this offering of approximately $394.7 million were used to repay the $200.0 million interim term loan, approximately $78.1 million to retire other indebtedness and approximately $118.9 million was used for general corporate purposes. In June 2001, Dura completed a similar offering of 9 percent senior subordinated notes due May 2009 with a face amount of $158.5 million. The interest on these notes is also payable semi-annually. Unamortized discount and debt issuance costs were approximately $8.5 million, yielding an imputed interest rate of 10 percent. Net proceeds of approximately $147.1 million were used to reduce the borrowings outstanding under the revolving credit facility. These notes are collateralized by guarantees of certain of Dura's subsidiaries. 7. BUSINESS COMBINATIONS, GOODWILL AND INTANGIBLE ASSETS In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting. Under SFAS No. 142 goodwill and intangible assets with indefinite lives are no longer amortized, but reviewed annually, or more frequently if impairment indicators arise. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives, but with no maximum life. The amortization provisions of SFAS No. 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, Dura is required to adopt SFAS No. 142 effective January 1, 2002. As of September 30, 2002, Dura has completed step one of the transitional goodwill impairment test. The results of this step have identified that Dura may have to record an impairment loss related to its Controls Systems and Other Operating Companies reportable units, as defined under SFAS No. 142. Based on current estimates, Dura believes the range of the transitional goodwill impairment to be from $200.0 million to $240.0 million. Dura will complete step two of the transitional goodwill impairment test prior to the end of the year. Had the non-amortization provision of SFAS No. 141 and 142 been adopted January 1, 2001, net income and earnings per share would have been reported as the following amounts (in thousands, except per share data): -12- Three months ended Nine months ended September 30, September 30, ------------------------------ ------------------------------ 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Net income (loss), as reported $ 3,953 $ (3,386) $ 7,187 $ 18,698 Add back goodwill amortization, net of tax -- 5,946 -- 17,868 ---------- ---------- ---------- ---------- Adjusted net income $ 3,953 $ 2,560 $ 7,187 $ 36,566 ========== ========== ========== ========== Basic earnings per share: Net income (loss), as reported $ 0.22 $ (0.19) $ 0.40 $ 1.05 Goodwill amortization -- 0.33 -- 1.01 ---------- ---------- ---------- ---------- Adjusted net income $ 0.22 $ 0.14 $ 0.40 $ 2.06 ========== ========== ========== ========== Basic shares outstanding 18,257 17,768 18,002 17,747 ========== ========== ========== ========== Diluted earnings per share: Net income (loss), as reported $ 0.21 $ (0.19) $ 0.39 $ 1.04 Goodwill amortization -- 0.33 -- 0.99 ---------- ---------- ---------- ---------- Adjusted net income $ 0.21 $ 0.14 $ 0.39 $ 2.03 ========== ========== ========== ========== Diluted shares outstanding 18,660 18,213 18,498 18,022 ========== ========== ========== ========== 8. DERIVATIVES AND HEDGING ACTIVITIES Dura is exposed to various market risks, including changes in foreign currency exchange rates and interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates. Dura does not enter into derivatives or other financial instruments for trading or speculative purposes. Dura enters into financial instruments to manage and reduce the impact of changes in foreign currency exchange rates and interest rates. The counter parties to these financial instruments are major financial institutions. Dura uses forward exchange contracts to hedge its foreign currency exposure related to the interest payments under its outstanding Euro 100.0 million denominated Senior Subordinated Notes. Dura designated these contracts at their inception as a cash flow hedge. At September 30, 2002, Dura had outstanding contracts to purchase Euro 4.5 million (approximately $3.9 million), representing the interest payments due during 2002. The estimated fair value of these foreign exchange contracts based upon market quotes was approximately $4.4 million. The net unrealized gain of approximately $0.5 million is included in accumulated other comprehensive income in the accompanying September 30, 2002 condensed consolidated balance sheet. Dura also uses forward exchange contracts to hedge its foreign currency exposure related to certain intercompany transactions. Dura designated these contracts at their inception as a cash flow hedge. At September 30, 2002, Dura had outstanding contracts to purchase Euro 16.0 million (approximately $15.6 million) and Pounds 2.0 million (approximately $3.1 million). -13- The estimated fair value of these foreign exchange contracts based upon market quotes was approximately $15.7 million and $3.1 million, respectively. The net unrealized loss of approximately $0.1 million on the contracts to purchase Euro 16.0 million is included in accumulated other comprehensive income in the accompanying September 30, 2002 condensed consolidated balance sheet. There was no change in the fair market value of the contract to purchase 2.0 million Pounds. In April 2002, in connection with the Senior Notes offering, Dura entered into a fixed to floating interest rate swap (notional amount of $325.0 million) with various financial institutions. Dura designated these contracts at their inception as a fair value hedge. At September 30, 2002, Dura's swap contract outstanding had a fair value based upon market quotes of approximately $32.6 million and this amount is included in long term debt in the accompanying September 30, 2002 condensed consolidated balance sheet. 9. COMPREHENSIVE INCOME (LOSS) Comprehensive income reflects the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. For Dura, comprehensive income (loss) represents net income adjusted for foreign currency translation adjustments and the deferred gain/ loss on derivative instruments utilized to hedge Dura's interest and foreign exchange exposures. Comprehensive income (loss) for the periods is as follows (in thousands): Three months ended Nine months ended September 30, September 30, ----------------------- ---------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Net income (loss) $ 3,953 $ (3,386) $ 7,187 $ 18,698 Other comprehensive income: Foreign currency translation adjustment (14,548) 1,998 24,531 (27,173) Derivative instruments 1,395 560 696 (57) -------- -------- -------- -------- Comprehensive income (loss) $ (9,200) $ (828) $ 32,414 $ (8,532) ======== ======== ======== ======== 10. NEW ACCOUNTING PRONOUNCEMENTS In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement requires recognition of a liability for any legal obligations associated with the retirement of a tangible long-lived asset. Any such liability will be recorded at fair value when incurred and generally results in an increase to the carrying amount of the related long-lived asset. This statement will be effective for Dura for the year ending December 31, 2003. The adoption of this statement is not anticipated to have a material effect on our results of operations or financial position. In July 2001, the FASB issued SFAS No. 144, "Impairment or Disposal of Long-Lived Assets," which was effective for fiscal years beginning after December 15, 2001. The provisions of this Statement provide a single accounting model for impairment and disposal of long-lived -14- assets. Dura adopted SFAS No. 144 on January 1, 2002. The adoption of this pronouncement did not have a material impact on our results of operations or financial position. In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". This statement eliminates the automatic classification of gain or loss on extinguishment of debt as an extraordinary item of income and requires that such gain or loss be evaluated for extraordinary classification under the criteria of Accounting Principles Board No. 30 "Reporting Results of Operations". This statement also requires sales-leaseback accounting for certain lease modifications that have economic effects that are similar to sales-leaseback transactions, and makes various other technical corrections to existing pronouncements. This statement will be effective for Dura for the year ending December 31, 2003. The adoption of this statement will result in a reclassification, within our results of operations, related to the write-off of debt issuance costs during the second quarter of 2002 in connection with certain financing transactions (see Note 6). In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No. 146"). SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)". The principal difference between SFAS No. 146 and EITF 94-3 relates to SFAS No. 146's requirements for the timing of recognizing a liability for a cost associated with an exit or disposal activity. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3 a liability for an exit cost was recognized at the date of an entity's commitment to an exit plan. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. SFAS No. 146 also increases the disclosure requirements associated with exit or disposal activities. SFAS No. 146 is applied prospectively. While Dura does not currently anticipate the adoption will have a material impact on the Company's current financial position or results of operations, should Dura initiate further exit or disposal activities in the future, Dura would be required to follow this new pronouncement. 11. RELATED PARTY TRANSACTION During 2001, Dura loaned approximately $1.2 million to Automotive Aviation Partners, LLC, (AAP LLC), an entity in which Dura's former Chairman, who is a member of the board of directors, is a 75% owner. Dura owns the other 25% of AAP LLC. A promissory note in favor of Dura, which evidences the loan, bears interest at the commercial prime lending rate and matured in October 2002. Dura is currently taking steps to obtain payment of the note. As security for the repayment of the loan, Dura's former Chairman has guaranteed repayment of 75% of the promissory note. The Board of Directors of Dura has authorized Dura to enter into a forbearance agreement with AAP LLC and the former Chairman pursuant to which Dura will agree to temporarily forbear from enforcing its rights under the guaranty, until March 30, 2003, in exchange for the efforts of AAP LLC and the former Chairman to grant a secondary subordinate security interest in the sole asset of AAP LLC in favor of Dura. This promissory note is included in -15- accounts receivable in the accompanying consolidated balance sheet of Dura as of September 30, 2002. 12. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION The following condensed consolidating financial information presents balance sheets, statements of income and cash flow information related to Dura's business. Each Guarantor, as defined, is a direct or indirect wholly owned subsidiary of Dura and has fully and unconditionally guaranteed the 9% senior subordinated notes issued by Dura Operating Corp., on a joint and several basis. Separate financial statements and other disclosures concerning the Guarantors have not been presented because management believes that such information is not material to investors. -16- 12. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION: (Continued) DURA AUTOMOTIVE SYSTEMS, INC. CONDENSED CONSOLIDATING BALANCE SHEETS AS OF SEPTEMBER 30, 2002 (AMOUNTS IN THOUSANDS - UNAUDITED) DURA NON- OPERATING GUARANTOR GUARANTOR CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED ----------- ----------- ----------- ------------ ------------ Assets - ------------------------- Current assets: Cash and cash equivalents $ 87,012 $ 1,092 $ 35,180 $ -- $ 123,284 Accounts receivable, net 81,944 34,000 215,865 -- 331,809 Inventories 28,425 20,569 71,185 -- 120,179 Other current assets 42,025 1,913 83,934 -- 127,872 Due from affiliates 87,031 72,862 -- (159,893) -- ----------- ----------- ----------- ----------- ----------- Total current assets 326,437 130,436 406,164 (159,893) 703,144 ----------- ----------- ----------- ----------- ----------- Property, plant and equipment, net 140,664 52,822 286,261 -- 479,747 Investment in subsidiaries 953,790 20,949 71,733 (1,046,472) -- Notes receivable from affiliates 147,864 186,851 70,713 (405,428) -- Goodwill, net 422,535 82,770 465,493 -- 970,798 Fair value of derivative instruments 32,598 -- -- -- 32,598 Other assets, net 53,306 654 25,676 -- 79,636 ----------- ----------- ----------- ----------- ----------- Total Assets $ 2,077,194 $ 474,482 $ 1,326,040 $(1,611,793) $ 2,265,923 =========== =========== =========== =========== =========== Liabilities and Stockholders' Investment - ----------------------------- Current liabilities: Accounts payable $ 102,142 $ 26,161 $ 143,055 $ -- $ 271,358 Accrued liabilities 101,569 16,932 117,311 -- 235,812 Current maturities of long- term debt 1,531 50 3,065 -- 4,646 Due to affiliates 75,461 49,698 34,734 (159,893) -- ----------- ----------- ----------- ----------- ----------- Total current liabilities 280,703 92,841 298,165 (159,893) 511,816 ----------- ----------- ----------- ----------- ----------- Long-term debt, net of current maturities 148,554 19 14,377 -- 162,950 Subordinated notes 931,627 -- -- -- 931,627 Other noncurrent liabilities 59,246 14,182 51,901 -- 125,329 Notes payable to affiliates 92,663 -- 312,765 (405,428) -- ----------- ----------- ----------- ----------- ----------- Total liabilities 1,512,793 107,042 677,208 (565,321) 1,731,722 ----------- ----------- ----------- ----------- ----------- Mandatorily redeemable convertible trust preferred securities 55,250 -- -- -- 55,250 Stockholders' investment: 513,576 367,440 679,032 (1,046,472) 513,576 Accumulated other comprehensive loss (4,425) -- (30,200) -- (34,625) ----------- ----------- ----------- ----------- ----------- Total Liabilities and Stockholders' Investment $ 2,077,194 $ 474,482 $ 1,326,040 $(1,611,793) $ 2,265,923 =========== =========== =========== =========== =========== -17- 12. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION: (Continued) DURA AUTOMOTIVE SYSTEMS, INC. CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 (AMOUNTS IN THOUSANDS - UNAUDITED) DURA NON- OPERATING GUARANTOR GUARANTOR CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED --------- --------- --------- ------------ ------------ Revenues $ 236,473 $ 88,460 $ 272,621 $ (10,757) $ 586,797 Cost of sales 202,369 71,264 254,199 (10,757) 517,075 --------- --------- --------- --------- --------- Gross profit 34,104 17,196 18,422 -- 69,722 Selling, general and administrative expenses 16,820 4,077 15,455 -- 36,352 Facility consolidation and other charges (116) 1,185 3,156 -- 4,225 Amortization expense 179 2 102 -- 283 --------- --------- --------- --------- --------- Operating income 17,221 11,932 (291) -- 28,862 Interest expense, net 24,960 (28) (3,822) -- 21,110 --------- --------- --------- --------- --------- Income (loss) before provision for income taxes, equity in (earnings) of affiliates and minority interest (7,739) 11,960 3,531 -- 7,752 --------- --------- --------- --------- --------- Provision (benefit) for income taxes (3,831) 4,105 2,903 -- 3,177 Minority interests and equity in (earnings) losses of affiliates, net (7,548) -- (1,960) 9,508 -- Minority interest-dividends on trust preferred securities, net 622 -- -- -- 622 Dividends (to)/ from affiliates (935) -- -- 935 -- --------- --------- --------- --------- --------- Income (loss) before extraordinary item 3,953 7,855 2,588 (10,443) 3,953 Extraordinary item -- -- -- -- -- --------- --------- --------- --------- --------- Net income (loss) $ 3,953 $ 7,855 $ 2,588 $ (10,443) $ 3,953 ========= ========= ========= ========= ========= -18- 12. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION: (Continued) DURA AUTOMOTIVE SYSTEMS, INC. CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 (AMOUNTS IN THOUSANDS) DURA NON- OPERATING GUARANTOR GUARANTOR CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED ----------- ----------- ----------- ------------ ------------ Revenues $ 798,156 $ 286,276 $ 821,836 $ (36,007) $ 1,870,261 Cost of sales 695,127 224,428 750,672 (36,007) 1,634,220 ----------- ----------- ----------- ----------- ----------- Gross profit 103,029 61,848 71,164 -- 236,041 Selling, general and administrative expenses 48,173 11,962 46,121 -- 106,256 Facility consolidation and other charges 1,747 1,185 22,381 -- 25,313 Amortization expense 653 5 310 -- 968 ----------- ----------- ----------- ----------- ----------- Operating income 52,456 48,696 2,352 -- 103,504 Interest expense, net 52,114 (78) 12,592 -- 64,628 ----------- ----------- ----------- ----------- ----------- Income (loss) before provision for income taxes, equity in (earnings) of affiliates and minority interest 342 48,774 (10,240) -- 38,876 ----------- ----------- ----------- ----------- ----------- Provision for income taxes 2,641 16,218 7,543 -- 26,402 Minority interests and equity in (earnings) losses of affiliates, net (12,003) -- (4,541) 16,544 -- Minority interest-dividends on trust preferred securities, net 1,865 -- -- -- 1,865 Dividends (to)/ from affiliates (2,770) -- -- 2,770 -- ----------- ----------- ----------- ----------- ----------- Income (loss) before extraordinary item 10,609 32,556 (13,242) (19,314) 10,609 Extraordinary item (3,422) -- -- -- (3,422) ----------- ----------- ----------- ----------- ----------- Net income (loss) $ 7,187 $ 32,556 $ (13,242) $ (19,314) $ 7,187 =========== =========== =========== =========== =========== -19- 12. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION: (Continued) DURA AUTOMOTIVE SYSTEMS, INC. CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 (AMOUNTS IN THOUSANDS - UNAUDITED) DURA NON- OPERATING GUARANTOR GUARANTOR CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED --------- --------- --------- ------------ ------------ OPERATING ACTIVITIES: Net income (loss) $ 7,187 $ 32,556 $ (13,242) $ (19,314) $ 7,187 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 19,630 7,070 29,948 -- 56,648 Deferred income taxes 5,013 -- 4,359 -- 9,372 Equity in earnings of affiliates and minority interest (12,003) -- (4,541) 16,544 -- Extraordinary item 3,422 -- -- -- 3,422 Changes in other operating items 81,625 (5,719) (22,520) -- 53,386 --------- --------- --------- --------- --------- Net cash provided by (used in) operating activities 104,874 33,907 (5,996) (2,770) 130,015 --------- --------- --------- --------- --------- INVESTING ACTIVITIES: Net proceeds from disposition of businesses 31,122 -- -- -- 31,122 Capital expenditures, net (7,390) (5,135) (27,897) -- (40,422) --------- --------- --------- --------- --------- Net cash provided by (used in) investing activities 23,732 (5,135) (27,897) -- (9,300) --------- --------- --------- --------- --------- FINANCING ACTIVITIES: Short-term repayments, net (41,500) -- (17,132) -- (58,632) Long-term repayments, net (270,143) (37) (39,708) -- (309,888) Proceeds from issuance of senior notes 350,000 -- -- -- 350,000 Debt issue costs (10,964) -- -- -- (10,964) Debt financing (to)/from affiliates (90,105) (26,730) 116,835 -- -- Proceeds from issuance of common stock and exercise of stock options 4,223 -- -- -- 4,223 Other, net (83) -- -- -- (83) Dividends paid -- (2,770) -- 2,770 -- --------- --------- --------- --------- --------- Net cash (used in) provided by financing activities (58,572) (29,537) 59,995 2,770 (25,344) EFFECT OF EXCHANGE RATE CHANGES ON CASH 6,285 -- (10,661) -- (4,376) --------- --------- --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 76,319 (765) 15,441 -- 90,995 CASH AND CASH EQUIVALENTS: Beginning of period 10,693 1,857 19,739 -- 32,289 --------- --------- --------- --------- --------- End of period $ 87,012 $ 1,092 $ 35,180 $ -- $ 123,284 ========= ========= ========= ========= ========= -20- 12. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION: (Continued) DURA AUTOMOTIVE SYSTEMS, INC. CONDENSED CONSOLIDATING BALANCE SHEETS AS OF DECEMBER 31, 2001 (AMOUNTS IN THOUSANDS) DURA NON- OPERATING GUARANTOR GUARANTOR CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED ----------- ----------- ----------- ------------ ------------ Assets - ------------------------- Current assets: Cash and cash equivalents $ 10,693 $ 1,857 $ 19,739 $ -- $ 32,289 Accounts receivable, net 113,655 25,205 154,616 -- 293,476 Inventories 34,425 17,591 64,492 -- 116,508 Other current assets 47,909 1,249 77,209 -- 126,367 Due from affiliates 149,969 63,358 2,241 (215,568) -- ----------- ----------- ----------- ----------- ----------- Total current assets 356,651 109,260 318,297 (215,568) 568,640 ----------- ----------- ----------- ----------- ----------- Property, plant and equipment, net 184,461 48,554 283,502 -- 516,517 Investment in subsidiaries 648,053 3,489 66,926 (718,468) -- Notes receivable from affiliates 278,213 146,409 70,711 (495,333) -- Goodwill, net 429,663 82,769 450,035 -- 962,467 Other assets, net 47,989 510 25,481 -- 73,980 ----------- ----------- ----------- ----------- ----------- Total Assets $ 1,945,030 $ 390,991 $ 1,214,952 $(1,429,369) $ 2,121,604 =========== =========== =========== =========== =========== Liabilities and Stockholders' Investment - ----------------------------- Current liabilities: Accounts payable $ 105,430 $ 17,655 $ 126,739 $ -- $ 249,824 Accrued liabilities 71,248 12,522 93,557 -- 177,327 Current maturities of long- term debt 42,122 50 18,675 -- 60,847 Due to affiliates 65,760 33,999 115,809 (215,568) -- ----------- ----------- ----------- ----------- ----------- Total current liabilities 284,560 64,226 354,780 (215,568) 487,998 ----------- ----------- ----------- ----------- ----------- Long-term debt, net of current maturities 962,350 56 53,173 -- 1,015,579 Other noncurrent liabilities 61,117 12,606 46,657 -- 120,380 Notes payable to affiliates 84,625 23,851 386,857 (495,333) -- ----------- ----------- ----------- ----------- ----------- Total liabilities 1,392,652 100,739 841,467 (710,901) 1,623,957 ----------- ----------- ----------- ----------- ----------- Mandatorily redeemable convertible trust preferred securities 55,250 -- -- -- 55,250 Stockholders' investment: 497,128 290,252 373,485 (718,468) 442,397 ----------- ----------- ----------- ----------- ----------- Total Liabilities and Stockholders' Investment $ 1,945,030 $ 390,991 $ 1,214,952 $(1,429,369) $ 2,121,604 =========== =========== =========== =========== =========== -21- 12. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION: (Continued) DURA AUTOMOTIVE SYSTEMS, INC. CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 (AMOUNTS IN THOUSANDS) DURA NON- OPERATING GUARANTOR GUARANTOR CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED --------- --------- --------- ------------ ------------ Revenues $ 258,843 $ 73,323 $ 247,355 $ (10,631) $ 568,890 Cost of sales 218,994 62,877 229,483 (10,631) 500,723 --------- --------- --------- --------- --------- Gross profit 39,849 10,446 17,872 -- 68,167 Selling, general and administrative expenses 17,892 3,533 12,069 -- 33,494 Facility consolidation and other charges 7,685 -- -- -- 7,685 Amortization expense 3,405 577 2,851 -- 6,833 --------- --------- --------- --------- --------- Operating income 10,867 6,336 2,952 -- 20,155 Interest expense, net 15,727 25 8,851 -- 24,603 --------- --------- --------- --------- --------- Income (loss) before provision for income taxes, equity in (earnings) losses of affiliates and minority interest (4,860) 6,311 (5,899) -- (4,448) Provision (benefit) for income taxes (705) 344 (1,343) -- (1,704) Minority interests and equity in (earnings) losses of affiliates, net 670 -- (1,096) 426 -- Minority interest-dividends on trust preferred securities, net 642 -- -- -- 642 Dividends (to)/ from affiliates (2,081) -- -- 2,081 -- --------- --------- --------- --------- --------- Net income (loss) $ (3,386) $ 5,967 $ (3,460) $ (2,507) $ (3,386) ========= ========= ========= ========= ========= -22- 12. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION: (Continued) DURA AUTOMOTIVE SYSTEMS, INC. CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (AMOUNTS IN THOUSANDS) DURA NON- OPERATING GUARANTOR GUARANTOR CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED ---------- ---------- ---------- ------------ ------------ Revenues $ 874,774 $ 230,061 $ 831,899 $ (39,670) $1,897,064 Cost of sales 750,655 188,759 748,235 (39,670) 1,647,979 ---------- ---------- ---------- ---------- ---------- Gross profit 124,119 41,302 83,664 -- 249,085 Selling, general and administrative expenses 58,250 10,926 38,050 -- 107,226 Facility consolidation and other charges 9,301 708 305 -- 10,314 Amortization expense 9,570 2,093 8,864 -- 20,527 ---------- ---------- ---------- ---------- ---------- Operating income 46,998 27,575 36,445 -- 111,018 Interest expense, net 45,930 621 31,201 -- 77,752 ---------- ---------- ---------- ---------- ---------- Income before provision for income taxes, equity in (earnings) losses of affiliates and minority interest 1,068 26,954 5,244 -- 33,266 Provision for income taxes 3,476 6,031 3,134 -- 12,641 Minority interests and equity in (earnings) losses of affiliates, net (15,751) -- (2,935) 18,686 -- Minority interest-dividends on trust preferred securities, net 1,927 -- -- -- 1,927 Dividends (to)/ from affiliates (7,282) -- -- 7,282 -- ---------- ---------- ---------- ---------- ---------- Net income (loss) $ 18,698 $ 20,923 $ 5,045 $ (25,968) $ 18,698 ========== ========== ========== ========== ========== -23- 12. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION: (Continued) DURA AUTOMOTIVE SYSTEMS, INC. CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (AMOUNTS IN THOUSANDS) DURA NON- OPERATING GUARANTOR GUARANTOR CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED --------- --------- --------- ------------ ------------ OPERATING ACTIVITIES: Net income $ 18,698 $ 20,923 $ 5,045 $ (25,968) $ 18,698 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 30,682 7,973 33,381 -- 72,036 Deferred income taxes (14,707) 14,573 840 -- 706 Equity in earnings of affiliates and minority interest (15,751) -- (2,935) 18,686 -- Changes in other operating items 76,838 14,621 (26,418) -- 65,041 --------- --------- --------- --------- --------- Net cash provided by operating activities 95,760 58,090 9,913 (7,282) 156,481 --------- --------- --------- --------- --------- INVESTING ACTIVITIES: Capital expenditures, net (7,512) (3,361) (35,613) -- (46,486) --------- --------- --------- --------- --------- FINANCING ACTIVITIES: Short-term borrowings (repayments), net 5,018 53 (4,316) -- 755 Long-term borrowings (repayments), net 71,061 65 (180,120) -- (108,994) Debt financing (to)/from affiliates (155,381) (47,239) 202,620 -- -- Proceeds from issuance of common stock and exercise of stock options 286 -- -- -- 286 Dividends paid -- (7,282) -- 7,282 -- --------- --------- --------- --------- --------- Net cash (used in) provided by financing activities (79,016) (54,403) 18,184 7,282 (107,953) EFFECT OF EXCHANGE RATE CHANGES ON CASH (10,695) -- (1,583) -- (12,278) --------- --------- --------- --------- --------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,463) 326 (9,099) -- (10,236) CASH AND CASH EQUIVALENTS: Beginning of period 18,154 1,060 11,224 -- 30,438 --------- --------- --------- --------- --------- End of period $ 16,691 $ 1,386 $ 2,125 $ -- $ 20,202 ========= ========= ========= ========= ========= -24- ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW North American automotive and recreation vehicle production volumes continued to be strong through the first nine months of 2002, however we are still cautious about the outlook for the remainder of the year. European automotive production volumes are down versus prior year and the outlook is less certain. RESULTS OF OPERATIONS The following management's discussion and analysis of financial condition and results of operations (MD&A) should be read in conjunction with the MD&A included in our Annual Report on Form 10-K for the year ended December 31, 2001. COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2002 TO THE THREE MONTHS ENDED SEPTEMBER 30, 2001 Revenues - Revenues for the three months ended September 30, 2002 were $586.8 million, an increase of $17.9 million, or 3.1%, from $568.9 million for the three months ended September 30, 2001. Factors that favorably impacted sales included increased volumes in the North American automotive and recreation vehicle markets, the strengthening of the European currencies in relation to the US dollar, and an increase in new business in Dura's core products. Offsetting these favorable items were a decrease in sales related to the divestiture of our Steering Gear, Plastic Products, Australia and Thixotech businesses along with weakness in the European automotive industry and the exiting of certain non-core businesses in Europe. Cost of Sales - Cost of sales for the three months ended September 30, 2002 were $517.1 million, an increase of $16.4 million, or 3.3% , from $500.7 million for the three months ended September 30, 2001. Cost of sales as a percentage of revenues for the third quarter of 2002 was 88.1%, which is basically flat compared to 88.0% in the third quarter of 2001. Facility Consolidation and Other Charges - During the third quarter of 2002, Dura continued its plan to exit certain of its non-core products and exited its pedals product line in Europe. Further, in order to improve capacity utilization, Dura announced a plan to combine its Benton Harbor and Butler facilities in North America. These actions, together with certain costs expensed as incurred and an adjustment made to a previously recorded reserve, resulted in a third quarter 2002 restructuring charge of $4.2 million. The charge related to the exit of the pedals product line in Europe included severance related costs of $1.3 million, asset impairment of $1.5 million and other facility closure costs of $0.5 million. The charge related to the closure of the Benton Harbor facility included severance of $0.6 million and facility closure costs of $0.5 million. Additionally, Dura expensed as incurred certain equipment relocation costs of $0.1 million and made an adjustment to reverse a previously recorded reserve of $0.3 million. Selling, General, and Administrative - Selling, general, and administrative expenses for the three months ended September 30, 2002 were $36.4 million, an increase of $2.9 million, or 8.7%, from $33.5 million for the three months ended September 30, 2001. As a percentage of revenue, selling, general and administrative expenses increased to 6.2% for 2002 compared to 5.9% in the third quarter of 2001. The increase in cost is primarily the result of Dura's ongoing investment in new technology. -25- Amortization Expense - Amortization expense for the three months ended September 30, 2002, was $0.3 million, a decrease of $6.5 million, or 95.9%, from $6.8 million for the three months ended September 30, 2001. The decrease is the result of Dura adopting SFAS No. 142 "Goodwill and Other Intangible Assets". Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no longer amortized, but reviewed annually, or more frequently if impairment indicators arise (See Adoption of SFAS No. 142 below). Interest Expense - Interest expense for the three months ended September 30, 2002 was $21.1 million, a decrease of $3.5 million, or 14.2%, from $24.6 million for the three months ended September 30, 2001. The decrease in interest expense is due to debt pay-down during 2001 and the first nine months of 2002 and lower interest rates on LIBOR contracts. This decrease was slightly offset by the higher interest cost related to the additional issuance of $158.5 million of Senior Subordinated Notes (see below). Income Taxes - The effective income tax rate was 41.0% for the three months ended September 30, 2002 and a benefit of 38.3% for the three months ended September 30, 2001. The effective tax rate for 2002 reflects the impact of not benefiting losses related to the exiting of the European pedals product line. The benefit in 2001 resulted from losses incurred in the third quarter of 2001. The overall effective rates differed from the statutory rates as a result of lower combined foreign tax rates, the effects of state taxes, the provision of a valuation allowance on certain losses in foreign jurisdictions, as well as the items discussed above. Minority Interest - Minority interest for the three months ended September 30, 2002 and September 30, 2001 represents dividends, net of income tax benefits, on the 7 1/2 percent Convertible Trust Preferred Securities ("Preferred Securities") which were issued on March 20, 1998. Adoption of SFAS No. 141 and 142 - In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting. Under SFAS No. 142 goodwill and intangible assets with indefinite lives are no longer amortized, but reviewed annually, or more frequently if impairment indicators arise. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives, but with no maximum life. The amortization provisions of SFAS No. 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, Dura is required to adopt SFAS No. 142 effective January 1, 2002. As of September 30, 2002, Dura has completed step one of the transitional goodwill impairment test. The results of this step have identified that Dura may have to record an impairment loss related to its Controls Systems and Other Operating Companies reportable units, as defined under SFAS No. 142. Based on current estimates, Dura believes the range of the transitional goodwill impairment to be from $200.0 million to $240.0 million. Dura will complete step two of the transitional goodwill impairment test prior to the end of the year. Had the non-amortization provisions of SFAS No. 141 and 142 been adopted January 1, 2001, net income and earnings per share would have been reported as the following amounts (in thousands, except per share data): -26- Three months ended September 30, ----------------------- 2002 2001 ---------- ---------- Net income (loss), as reported $ 3,953 $ (3,386) Add back goodwill amortization, net of tax -- 5,946 ---------- ---------- Adjusted net income $ 3,953 $ 2,560 ========== ========== Basic earnings per share: Net income (loss), as reported $ 0.22 $ (0.19) Goodwill amortization -- 0.33 ---------- ---------- Adjusted net income $ 0.22 $ 0.14 ========== ========== Basic shares outstanding 18,257 17,768 ========== ========== Diluted earnings per share: Net income (loss), as reported $ 0.21 $ (0.19) Goodwill amortization -- 0.33 ---------- ---------- Adjusted net income $ 0.21 $ 0.14 ========== ========== Diluted shares outstanding 18,660 18,213 ========== ========== COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2002 TO THE NINE MONTHS ENDED SEPTEMBER 30, 2001 Revenues - Revenues for the nine months ended September 30, 2002 were $1,871.3 million, a decrease of $25.8 million, or 1.4%, from $1,897.1 million for the nine months ended September 30, 2001. Factors that unfavorably impacted sales included the divestiture of our Steering Gear, Plastic Products, Australia and Thixotech businesses along with weakness in the European automotive industry. Slightly offsetting these unfavorable items was an increase in the North American automotive and recreational vehicle production volumes, the strengthening of the European currencies in relation to the US dollar, and an increase in new business in Dura's core products. Cost of Sales - Cost of sales for the nine months ended September 30, 2002 were $1,634.2 million, a decrease of $13.8 million, or 0.8%, from $1,648.0 million for the nine months ended September 30, 2001. Cost of sales as a percentage of revenues for the first nine months of 2002 increased to 87.4% compared to 86.9% in the first nine months of 2001. The corresponding reduction in gross margin is primarily the result of some difficult program launches that took place in Europe during the later part of 2001. Cost associated with these launches extended into the first quarter of 2002 and negatively impacted gross margin. By the second quarter of 2002 these costs were mostly behind us and operational efficiency continued to improve in Europe. In addition, North American automotive and recreational vehicle production volumes increased helping to positively impact gross margin. -27- Facility Consolidation and Other Charges - In May 2002, Dura divested its Steering Gear Business. The Steering Gear Business is a machining operation that utilized a technology that was determined to be non-essential to Dura's capabilities. This business employs approximately 200 people in England and generated annual revenue of approximately $20.0 million. The transaction resulted in a one-time charge of approximately $19.2 million consisting of asset write-downs and remaining contractual commitments. No tax benefit was recorded related to this charge. Dura also recorded an additional $1.9 million charge related to final negotiation of purchase price adjustments associated with the sale of the Plastics Products Business. During the third quarter of 2002, Dura continued its plan to exit certain of its non-core products and exited its pedals product line in Europe. Further, in order to improve capacity utilization, Dura announced a plan to combine its Benton Harbor and Butler facilities in North America. These actions, together with certain costs expensed as incurred and an adjustment made to a previously recorded reserve, resulted in a third quarter 2002 restructuring charge of $4.2 million. The charge related to the exit of the pedals product line in Europe included severance related costs of $1.3 million, asset impairment of $1.5 million and other facility closure costs of $0.5 million. The charge related to the closure of the Benton Harbor facility included severance of $0.6 million and facility closure costs of $0.5 million. Additionally, Dura expensed as incurred certain equipment relocation costs of $0.1 million and made an adjustment to reverse a previously recorded reserve of $0.3 million. Selling, General, and Administrative - Selling, general, and administrative expenses for the nine months ended September 30, 2002 were $106.3 million, a decrease of $0.9 million, or 0.8%, from $107.2 million for the nine months ended September 30, 2001. As a percentage of revenue, selling, general and administrative expenses was 5.7% for the first nine months of 2002 and 2001. Amortization Expense - Amortization expense for the nine months ended September 30, 2002 was $1.0 million, a decrease of $19.5 million from $20.5 million for the nine months ended September 30, 2001. The decrease is the result of Dura adopting the non-amortization provisions of SFAS No. 142 "Goodwill and Other Intangible Assets". Under SFAS No. 142 goodwill and intangible assets with indefinite lives are no longer amortized, but reviewed annually, or more frequently if impairment indicators arise (See Adoption of SFAS No. 142 below). Interest Expense - Interest expense for the nine months ended September 30, 2002 was $64.6 million, a decrease of $13.2 million, or 17.0%, from $77.8 million for the nine months ended September 30, 2001. The decrease in interest expense is due to significant debt pay-down during 2001 and the first three quarters of 2002 and a lower average borrowing rate. This decrease was slightly offset by the higher interest cost related to the additional issuance of $158.5 million of Senior Subordinated Notes (see below). Income Taxes - The effective income tax rate was 67.9% for the nine months ended September 30, 2002 and 38.0% for the nine months ended September 30, 2001. The significant increase in the effective tax rate relates to the impact of exiting the European pedals product line and the divestiture of the Steering Gear Business. Due to Dura's current tax position in the U.K. we provided no benefit on the $19.2 million loss recorded on the Steering Gear Business. In addition, $2.1 million was charged to the provision relating to certain deferred tax assets associated with the Steering Gear Business. The overall effective rates differed from the statutory rates as a result of lower combined foreign tax rates, the effects of state taxes, the provision of a valuation allowance on certain losses in foreign jurisdictions, as well as the items discussed above. -28- Minority Interest - Minority interest for the nine months ended September 30, 2002 and September 30, 2001 represents dividends, net of income tax benefits, on the 7 1/2 percent Preferred Securities which were issued on March 20, 1998. Adoption of SFAS No. 141 and 142 - In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting. Under SFAS No. 142 goodwill and intangible assets with indefinite lives are no longer amortized, but reviewed annually, or more frequently if impairment indicators arise. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives, but with no maximum life. The amortization provisions of SFAS No. 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, Dura is required to adopt SFAS No. 142 effective January 1, 2002. As of September 30, 2002, Dura has completed step one of the transitional goodwill impairment test. The results of this step have identified that Dura may have to record an impairment loss related to its Controls Systems and Other Operating Companies reportable units, as defined under SFAS No. 142. Based on current estimates, Dura believes the range of the transitional goodwill impairment to be from $200.0 million to $240.0 million. Dura will complete step two of the transitional goodwill impairment test prior to the end of the year. Had the non-amortization provision of SFAS No. 141 and 142 been adopted January 1, 2001, net income and earnings per share would have been reported as the following amounts (in thousands, except per share data): Nine months ended September 30, ----------------------- 2002 2001 ---------- ---------- Net income, as reported $ 7,187 $ 18,698 Add back goodwill amortization, net of tax -- 17,868 ---------- ---------- Adjusted net income $ 7,187 $ 36,566 ========== ========== Basic earnings per share: Net income, as reported $ 0.40 $ 1.05 Goodwill amortization -- 1.01 ---------- ---------- Adjusted net income $ 0.40 $ 2.06 ========== ========== Basic shares outstanding 18,002 17,747 ========== ========== Diluted earnings per share: Net income, as reported $ 0.39 $ 1.04 Goodwill amortization -- 0.99 ---------- ---------- Adjusted net income $ 0.39 $ 2.03 ========== ========== Diluted shares outstanding 18,498 18,022 ========== ========== -29- LIQUIDITY AND CAPITAL RESOURCES During the first nine months of 2002, Dura provided cash from operations of $130.0 million, compared to $156.5 million in 2001. Cash generated from operations before changes in working capital items was $76.6 million for the first nine months of 2002 compared to $91.4 million for 2001. Working capital generated cash of $53.4 million in the first nine months of 2002 compared to $65.0 million in 2001. This reduction in cash generated from working capital is primarily the result of the strengthening of the European currencies in relation to the US dollar. Net cash used in investing activities was $9.3 million for the first nine months of 2002 compared to $46.5 million in 2001. Net proceeds from disposition of the Plastic Products business provided $31.1 million and net capital expenditures totaled $40.4 million for the first nine months of 2002. The capital expenditures were primarily for equipment and dedicated tooling purchases related to new or replacement programs. This compares with net capital expenditures of $46.5 million in 2001. Net cash used in financing activities totaled $25.3 million for the first nine months of 2002 compared to $108.0 million in 2001, principally for the repayment of outstanding indebtedness. In connection with the acquisitions of Adwest and Excel, Dura entered into a $1.15 billion credit agreement. The Credit Agreement provides for revolving credit facilities of $400.0 million, a $275.0 million tranche A term loan, a $275.0 million tranche B term loan and a $200.0 million interim term loan facility. In April 2002, Dura completed the offering of $350.0 million 8 5/8 percent senior unsecured notes, due April 2012. The interest on the Senior Notes is payable semi-annually beginning October 15, 2002. Net proceeds from this offering of approximately $341.0 million were used to repay the outstanding balance of the $275.0 million tranche A term loan, and a portion of the $275.0 million tranche B term loan. Dura then replaced the remaining tranche B term loan with a $150.0 million tranche C term loan. Borrowings under the tranche C term loan are based on LIBOR and are due and payable in December 2008. In conjunction with these transactions, Dura obtained an amendment to the Credit Agreement to allow for the offering and to further relax certain financial covenants. Dura also entered into a fixed to floating interest rate swap (notional amount of $325.0 million) with various financial institutions that more closely mirrors the cost of its bank debt. In connection with the repayment of borrowings outstanding under the Credit Agreement, Dura wrote-off debt financing costs of approximately $3.4 million, net of income taxes, during the second quarter of 2002. This write-off is reflected as an extraordinary item in the accompanying condensed consolidated statement of income for the nine months ended September 30, 2002. As of September 30, 2002, rates on borrowings under the Credit Agreement are based on LIBOR and were 4.3 percent. The revolving credit facility is available until March 2005. Borrowings under the interim loan were due and payable in September 2000, and, as further discussed below, were repaid in April 1999. The Credit Agreement contains various restrictive covenants which limit indebtedness, investments, rental obligations and cash dividends. The Credit Agreement also requires Dura to maintain certain financial ratios including minimum liquidity and interest coverage. Dura was in compliance with the covenants as of September 30, 2002. Borrowings under the Credit Agreement are collateralized by certain assets of Dura. -30- The Credit Agreement provides Dura with the ability to denominate a portion of its revolving credit borrowings in foreign currencies up to an amount equal to $150.0 million. As of September 30, 2002, Dura had no borrowings outstanding under the revolver. At September 30, 2002, Dura had unused borrowing capacity of approximately $370.5 million of which $101.3 million was available under its most restrictive debt covenant. Dura also utilizes uncommitted overdraft facilities to satisfy the short-term working capital requirements of its foreign subsidiaries. At September 30, 2002, Dura had no borrowings outstanding under its overdraft facilities. At September 30, 2002, Dura had overdraft facilities available from banks of approximately $40.4 million. Dura believes the borrowing availability under its credit agreement, uncommitted overdraft facilities and funds generated by operations, should provide liquidity and capital resources to pursue its business strategy for the foreseeable future, with respect to working capital, capital expenditures, and other operating needs. Dura estimates its 2002 capital expenditures will be approximately $65.0 million. In April 1999, Dura completed the offering of $300 million and Euro 100.0 million of senior subordinated notes. The Subordinated Notes mature in May 2009 and bear interest at 9% per year, which is payable semi-annually. Net proceeds from this offering of approximately $394.7 million were used to repay the $200.0 million interim term loan, approximately $78.1 million to retire other indebtedness and approximately $118.9 million was used for general corporate purposes. In June 2001, Dura completed a similar offering of 9% senior subordinated notes due May 2009 with a face amount of $158.5 million. The interest on these notes is also payable semi-annually. Unamortized discount and debt issuance costs were $8.5 million, yielding an imputed interest rate of 10%. Net proceeds of approximately $147.1 million were used to reduce the borrowings outstanding under the revolving credit facility. These notes are collateralized by guarantees of certain of Dura's subsidiaries. Dura is limited as to its ability to declare or make certain dividend payments or other distributions of assets under its Credit Agreement and Subordinated Notes. Certain distributions are permitted including a company stock purchase program, tax sharing arrangements and distributions as required under Dura's Preferred Securities. QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY Dura typically experiences decreased revenues and operating income during the third calendar quarter of each year due to production shutdowns at OEMs for model changeovers and vacations. The recreational vehicle market is seasonal in that sales in the fourth quarter are normally at reduced levels. EFFECTS OF INFLATION Inflation potentially affects Dura in two principal ways. First, a significant portion of Dura's debt is tied to prevailing short-term interest rates which may change as a result of inflation rates, translating into changes in interest expense. Second, general inflation can impact material purchases, labor and other costs. In many cases, Dura has limited ability to pass through inflation-related cost increases due to the competitive nature of the markets that Dura serves. In the past few years, however, inflation has not been a significant factor. -31- FOREIGN CURRENCY TRANSACTIONS A significant portion of Dura's revenues during the three and nine months ended September 30, 2002 were derived from manufacturing operations in Europe, Canada and Latin America. The results of operations and the financial position of Dura's operations in these countries are principally measured in their respective currency and translated into U.S. dollars. The effects of foreign currency fluctuations in such countries are somewhat mitigated by the fact that expenses are generally incurred in the same currencies in which revenues are generated. The reported income of these subsidiaries will be higher or lower depending on a weakening or strengthening of the U.S. dollar against the respective foreign currency. A significant portion of Dura's assets at September 30, 2002 are based in its foreign operations and are translated into U.S. dollars at foreign currency exchange rates in effect as of the end of each period, with the effect of such translation reflected as a separate component of stockholders' investment. Accordingly, Dura's consolidated stockholders' investment will fluctuate depending upon the weakening or strengthening of the U.S. dollar against the respective foreign currency. Dura's strategy for management of currency risk relies primarily upon conducting its operations in such countries' respective currency and Dura may, from time to time, engage in hedging programs intended to reduce Dura's exposure to currency fluctuations. NEW ACCOUNTING PRONOUNCEMENTS In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement requires recognition of a liability for any legal obligations associated with the retirement of a tangible long-lived asset. Any such liability will be recorded at fair value when incurred and generally results in an increase to the carrying amount of the related long-lived asset. This statement will be effective for Dura for the year ending December 31, 2003. The adoption of this statement is not anticipated to have a material effect on our results of operations or financial position. In July 2001, the FASB issued SFAS No. 144, "Impairment or Disposal of Long-Lived Assets," which was effective for fiscal years beginning after December 15, 2001. The provisions of this Statement provide a single accounting model for impairment and disposal of long-lived assets. Dura adopted SFAS No. 144 on January 1, 2002. The adoption of this pronouncement did not have a material impact on our results of operations or financial position. In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". This statement eliminates the automatic classification of gain or loss on extinguishment of debt as an extraordinary item of income and requires that such gain or loss be evaluated for extraordinary classification under the criteria of Accounting Principles Board No. 30 "Reporting Results of Operations". This statement also requires sales-leaseback accounting for certain lease modifications that have economic effects that are similar to sales-leaseback transactions, and makes various other technical corrections to existing pronouncements. The adoption of this statement will result in a reclassification, within our results of operations, related to the write-off of debt issuance costs during the second quarter of 2002 in connection with certain financing transactions. -32- In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No. 146"). SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)". The principal difference between SFAS No. 146 and EITF 94-3 relates to SFAS No. 146's requirements for the timing of recognizing a liability for a cost associated with an exit or disposal activity. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3 a liability for an exit cost was recognized at the date of an entity's commitment to an exit plan. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with early adoption encouraged. SFAS No. 146 also increases the disclosure requirements associated with exit or disposal activities. SFAS No. 146 is applied prospectively. While Dura does not currently anticipate the adoption will have a material impact on its current financial position or results of operations, should Dura initiate further exit or disposal activities in the future, Dura would be required to follow this new pronouncement. FORWARD-LOOKING STATEMENTS All statements, other than statements of historical fact, included in this Form 10-Q, including without limitation the statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations" are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended. When used in this Form 10-Q, the words "anticipate," "believe," "estimate," "expect," "intends," and similar expressions, as they relate to Dura, are intended to identify forward-looking statements. Such forward-looking statements are based on the beliefs of Dura's management as well as on assumptions made by and information currently available to Dura at the time such statements were made. Various economic and competitive factors could cause actual results to differ materially from those discussed in such forward-looking statements, including factors which are outside the control of Dura, such as risks relating to: (i) the degree to which Dura is leveraged; (ii) Dura's reliance on major customers and selected models; (iii) the cyclicality and seasonality of the automotive market; (iv) the failure to realize the benefits of recent acquisitions and joint ventures; (v) obtaining new business on new and redesigned models; (vi) Dura's ability to continue to implement its acquisition strategy; and (vii) the highly competitive nature of the automotive supply industry. All subsequent written and oral forward-looking statements attributable to Dura or persons acting on behalf of Dura are expressly qualified in their entirety by such cautionary statements. -33- ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In April 2002, in connection with the Senior Note offering, Dura entered into a fixed to floating interest rate swap (notional amount of $325.0 million) with various financial institutions. Dura designated these contracts at their inception as a fair value hedge. At September 30, 2002, Dura's swap contract outstanding had a fair value based upon market quotes of approximately $32.6 million and this amount is included in long term debt in the accompanying September 30, 2002 condensed consolidated balance sheet. There have been no other material changes to our exposures to market risk since December 31, 2001. ITEM 4: CONTROLS AND PROCEDURES Within the 90-day period prior to the filing of this report, an evaluation was carried out under the supervision and with the participation of Dura management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective. No significant changes were made in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. -34- PART II. OTHER INFORMATION DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES Item 1. Legal Proceedings: Other than as reported in Dura's 2001 Annual Report on Form 10-K under the caption "Legal Proceedings," Dura is not currently a party to any material pending legal proceedings, other than routine matters incidental to the business of Dura. Item 6. Exhibits and Reports on Form 8-K: (a) Exhibits 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K During the quarter for which this report is filed, Dura filed the following Form 8-K Current Report with the Securities and Exchange Commission: 1. Dura's current report on Form 8-K dated August 13, 2002, under Item 9 (Commission File No. 0-21139). -35- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DURA AUTOMOTIVE SYSTEMS, INC. Date: November 14, 2002 By /s/ David R. Bovee ------------------ David R. Bovee Vice President, Chief Financial Officer (principal accounting and financial officer) -36- CERTIFICATION I, Karl F. Storrie, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Dura Automotive Systems, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Karl F. Storrie - -------------------- Karl F. Storrie President, Chief Executive Officer and Director November 14, 2002 CERTIFICATION I, David R. Bovee, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Dura Automotive Systems, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ David R. Bovee - ------------------- David R. Bovee Vice President and Chief Financial Officer November 14, 2002 EXHIBIT INDEX 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002