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 July 3, 2005
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.)
2791 RESEARCH DRIVE 48309
ROCHESTER HILLS, MICHIGAN (Zip Code)
(Address of principal executive offices)
(248) 299-7500
(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 August 1, 2005 was 18,709,890 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 and
Six Months Ended July 3, 2005 and June 27, 2004 (unaudited)
Condensed Consolidated Balance Sheets at July 3, 2005 (unaudited)
and December 31, 2004
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended July 3, 2005 and June 27, 2004 (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 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
CERTIFICATIONS
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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 Six Months Ended
---------------------------- ----------------------------
July 3, 2005 June 27, 2004 July 3, 2005 June 27, 2004
------------ ------------- ------------ -------------
Revenues $623,834 $658,815 $1,243,813 $1,293,378
Cost of sales 545,478 582,132 1,104,876 1,140,030
-------- -------- ---------- ----------
Gross profit 78,356 76,683 138,937 153,348
Selling, general and administrative expenses 41,025 39,816 83,198 78,727
Facility consolidation, asset impairments and
other charges 2,624 11,578 4,290 13,026
Amortization expense 104 115 216 231
-------- -------- ---------- ----------
Operating income 34,603 25,174 51,233 61,364
Interest expense, net 24,907 21,539 49,877 42,788
Loss on early extinguishment of debt 3,349 -- 3,349 --
-------- -------- ---------- ----------
Income (loss) from continuing operations
before provision for income taxes and
minority interest 6,347 3,635 (1,993) 18,576
Provision (benefit) for income taxes 3,391 307 (226) 5,387
-------- -------- ---------- ----------
Income (loss) from continuing operations 2,956 3,328 (1,767) 13,189
Gain (loss) from discontinued operations, net 3 12 (106) (681)
-------- -------- ---------- ----------
Net income/(loss) $ 2,959 $ 3,340 $ (1,873) $ 12,508
======== ======== ========== ==========
Basic earnings (loss) per share:
Income from continuing operations $ 0.16 $ 0.18 $ (0.09) $ 0.72
Discontinued operations -- -- (0.01) (0.04)
-------- -------- ---------- ----------
Net income/(loss) $ 0.16 $ 0.18 $ (0.10) $ 0.68
======== ======== ========== ==========
Basic shares outstanding 18,704 18,442 18,683 18,413
======== ======== ========== ==========
Diluted earnings (loss) per share:
Income from continuing operations $ 0.16 $ 0.18 $ (0.09) $ 0.70
Discontinued operations -- -- (0.01) (0.04)
-------- -------- ---------- ----------
Net income/(loss) $ 0.16 $ 0.18 $ (0.10) $ 0.66
======== ======== ========== ==========
Diluted shares outstanding 18,818 18,966 18,683 18,963
======== ======== ========== ==========
The accompanying notes are an integral part of these
condensed consolidated statements.
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DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
July 3, December 31,
2005 2004
----------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 101,701 $ 191,568
Accounts receivable, net 345,152 273,956
Inventories 132,805 149,834
Current portion of derivative instruments -- 7,746
Other current assets 103,762 92,016
---------- ----------
Total current assets 683,420 715,120
---------- ----------
Property, plant and equipment, net 447,848 487,106
Goodwill, net 866,486 903,584
Noncurrent portion of derivative instruments 1,422 10,601
Deferred income taxes and other assets, net 98,977 107,510
---------- ----------
$2,098,153 $2,223,921
========== ==========
Liabilities and Stockholders' Investment
Current liabilities:
Accounts payable $ 259,868 $ 270,341
Accrued liabilities 170,403 187,254
Current maturities of long-term debt 1,292 2,968
---------- ----------
Total current liabilities 431,563 460,563
---------- ----------
Long-term debt, net of current maturities 1,131,620 1,158,714
Mandatorily redeemable convertible trust preferred securities 55,250 55,250
Other noncurrent liabilities 129,952 141,903
Stockholders' investment:
Common stock - Class A 187 186
Additional paid-in capital 352,102 351,571
Treasury stock at cost (2,006) (2,513)
Accumulated deficit (95,215) (93,342)
Accumulated other comprehensive income 94,700 151,589
---------- ----------
Total stockholders' investment 349,768 407,491
---------- ----------
$2,098,153 $2,223,921
========== ==========
The accompanying notes are an integral part of these
condensed consolidated balance sheets.
-4-
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS - UNAUDITED)
Six Months Ended
----------------------------
July 3, 2005 June 27, 2004
------------ -------------
OPERATING ACTIVITIES:
Income (loss) from continuing operations $ (1,767) $ 13,189
Adjustments to reconcile income from continuing
operations to net cash provided by operating activities -
Depreciation and amortization 41,708 43,438
Deferred financing fees 5,266 1,740
Deferred income taxes 1,866 (106)
Changes in other operating items (107,154) (49,135)
--------- --------
Net cash (used in) provided by operating activities (60,081) 9,126
--------- --------
INVESTING ACTIVITIES:
Acquisitions, net -- (13,327)
Capital expenditures, net (27,604) (29,303)
--------- --------
Net cash used in investing activities (27,604) (42,630)
--------- --------
FINANCING ACTIVITIES:
Long-term borrowings 149,994 568
Repayments of long-term borrowings (146,946) (17,385)
Debt issuance costs (7,001) (389)
Deferred gain on termination of interest rate swap 11,374 --
Proceeds from issuance of common stock and
exercise of stock options 444 1,613
Other, net 594 (87)
--------- --------
Net cash provided by (used in) financing activities 8,459 (15,680)
--------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (10,535) 3,041
--------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS FROM
CONTINUING OPERATIONS (89,761) (46,143)
NET OPERATING CASH FLOW USED IN DISCONTINUED OPERATIONS (106) (681)
CASH AND CASH EQUIVALENTS:
Beginning of period 191,568 181,268
--------- --------
End of period $ 101,701 $134,444
========= ========
SUPPLEMENTAL DISCLOSURE:
Cash paid for interest $ 45,385 $ 39,692
Cash paid for income taxes $ 11,602 $ 5,629
The accompanying notes are an integral part of these
condensed consolidated statements.
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DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Dura Automotive Systems, Inc. (a Delaware Corporation) and subsidiaries
("Dura") designs and manufactures components and systems for the global
automotive and recreation & specialty vehicle industries. Dura has
manufacturing and product development facilities located in the United States,
Brazil, Canada, China, Czech Republic, France, Germany, Mexico, Portugal,
Slovakia, Spain and the United Kingdom. Dura also has a presence in Japan and
India through alliances or technical licenses.
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, 2004.
Revenues and operating results for the six months ended July 3, 2005 are
not necessarily indicative of the results to be expected for the full year.
Certain 2004 amounts have been reclassified to conform to the 2005
presentation.
2. INVENTORIES
Inventories consisted of the following (in thousands):
July 3, December 31,
2005 2004
-------- ------------
Raw materials $ 61,043 $ 71,881
Work-in-process 28,115 30,192
Finished goods 43,647 47,761
-------- --------
$132,805 $149,834
======== ========
3. STOCKHOLDERS' INVESTMENT
Earnings Per Share
Basic earnings 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. In accordance with Statement of Financial Accounting Standards
("SFAS") No. 128, the dilutive impact of the outstanding common stock options
was computed using the Treasury Stock Method. The impact of the outstanding
common stock options was antidilutive in the six months ended July 3, 2005. The
Mandatorily Redeemable Convertible Trust Preferred Securities dilution
(convertible into 1,289,000 shares) was computed using the If-converted method.
These Preferred Securities were antidilutive in the periods presented.
-6-
The computations of earnings (loss) per share for the presented periods are as
follows:
(in thousands, except per share amounts):
Three months ended Six months ended
------------------ ------------------
July 3, June 27, July 3, June 27,
2005 2004 2005 2004
------- -------- ------- --------
Net income (loss) applicable to common
stockholders - diluted $ 2,959 $ 3,340 $(1,873) $12,508
Weighted average number of Class A
common shares outstanding 18,704 18,072 18,683 17,424
Weighted average number of Class B
common shares outstanding -- 370 -- 989
------- ------- ------- -------
18,704 18,442 18,683 18,413
Dilutive effect of outstanding stock options
after application of the treasury stock method 114 524 -- 550
Dilutive effect of mandatorily redeemable
convertible preferred securities, assuming
conversion -- -- -- --
------- ------- ------- -------
Diluted shares outstanding 18,818 18,966 18,683 18,963
======= ======= ======= =======
Basic earnings (loss) per share $ 0.16 $ 0.18 $ (0.10) $ 0.68
======= ======= ======= =======
Diluted earnings (loss) per share $ 0.16 $ 0.18 $ (0.10) $ 0.66
======= ======= ======= =======
Potential diluted common shares of 102,861 relating to Dura's outstanding
stock options were excluded from the computation of diluted loss per share for
the six months ended July 3, 2005, as inclusion would have been anti-dilutive.
-7-
Stock-Based Compensation Plans
Dura has elected to continue accounting for its stock-based compensation
plans under APB Opinion No. 25, "Accounting for Stock Issued to Employees",
under which no compensation cost has been recognized during the three and six
months ended July 3, 2005 and June 27, 2004, as the exercise prices of all
options are equal to the market value of Dura's stock on the grant date. Had
compensation cost for these plans been determined as required under SFAS No.
123, "Accounting for Stock-Based Compensation", Dura's pro forma net income and
pro forma earnings per share would have been as follows (in thousands, except
per share amounts):
Three months ended Six months ended
------------------ ------------------
July 3, June 27, July 3, June 27,
2005 2004 2005 2004
------- -------- ------- --------
Net income (loss)
As Reported - Basic $2,959 $3,340 $(1,873) $12,508
Pro Forma $2,021 $2,404 $(3,557) $10,715
As Reported - Diluted $2,959 $3,340 $(1,873) $12,508
Pro Forma $2,021 $2,404 $(3,557) $10,715
Basic earnings (loss) per share
As Reported $ 0.16 $ 0.18 $ (0.10) $ 0.68
Pro Forma $ 0.11 $ 0.13 $ (0.19) $ 0.58
Diluted earnings (loss) per share
As Reported $ 0.16 $ 0.18 $ (0.10) $ 0.66
Pro Forma $ 0.11 $ 0.13 $ (0.19) $ 0.57
The effect of the stock issued under the Employee Stock Purchase Plan was
not material for 2005 and 2004. The fair value of each option grant is estimated
on the date of the grant using the Black-Scholes option-pricing model with the
principal following weighted average assumptions: risk-free interest rate of
3.69 percent and 3.7 percent, expected life of four years and an average
expected volatility of 64 and 74 percent for the three and six months ended
July 3, 2005 and June 27, 2004, respectively.
4. DISCONTINUED OPERATIONS
During the fourth quarter of 2002, Dura adopted a plan to divest its
Mechanical Assemblies Europe business, as it believed this business would not
assist Dura in reaching its strategic growth and profitability targets for the
future. The Mechanical Assemblies Europe business generated annualized revenues
of approximately $111.9 million from facilities in Grenoble and Boynes, France;
and Woodley, Nottingham and Stourport, UK. In March 2003, Dura completed the
divestiture of its Mechanical Assemblies Europe business to Magal Engineering
and members of the local management group, located in Woodley, England. The
Mechanical Assemblies Europe divestiture was treated as a discontinued operation
under SFAS No. 144.
During the year ended December 31, 2004, net negative adjustments totaling
$0.7 million were recorded resulting from less favorable settlement of retained
liabilities than anticipated.
At July 3, 2005, Dura had remaining reserves related to the divestiture of
the Mechanical Assemblies Europe business of $17.5 million, primarily related to
the facilities retained by Dura, principally lease costs, and are anticipated to
be completed in 2021. Also included in the $17.5 million is $3.0 million of
-8-
acquisition integration reserves related to facility closures. During the
quarter ended July 3, 2005 the reserve decreased by approximately $1.0 million
due to the impact of foreign currency exchange rates and increased by
approximately $0.3 million primarily due to an increase in the long-term lease
commitments. Costs incurred and charged to the reserve during 2005 included $0.6
million related to facility closure and other costs.
5. FACILITY CONSOLIDATION, ASSET IMPAIRMENTS, AND OTHER CHARGES
Facility Consolidation
As a part of Dura's ongoing cost reduction and capacity utilization
efforts, Dura has taken numerous actions to improve its cost structure. These
costs are reflected as facility consolidation and other charges in the
consolidated statement of operations and were accounted for in accordance with
SFAS No. 112, "Employers' Accounting for Postemployment Benefits", SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", and SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities".
During the second quarter of 2005, in order to improve capacity
utilization, Dura announced a plan to streamline a German manufacturing
operation during 2005, which is expected to result in a 170 employee reduction.
This action resulted in a restructuring charge of $0.5 million, relating
primarily to severance. In addition, Dura expensed approximately $0.1 million of
severance during the quarter, related to this action. Dura expects to incur $4.4
million in additional severance costs through December 31, 2005.
During the first quarter of 2005, Dura announced a plan to migrate to one
enterprise resource planning system and centralize many of its functional
operations to better align with current business levels. These actions are
anticipated to result in the reduction of approximately 400 employees worldwide
of which approximately one-half have been completed. Dura has accrued
approximately $3.2 million in severance related to these actions. Of this
amount $0.9 million is related to restructuring and charged to facility
consolidation. Costs incurred and charged to the restructuring reserve as of
July 3, 2005 amounted to $0.5 million. Dura expects to incur additional
restructuring charges related to these actions of approximately $1.7 million
in severance costs and intends to be substantially completed by
December 31, 2006.
During the fourth quarter of 2004, Dura closed its Bondoufle, France sales
and engineering facility and relocated to Velizy, France, which is located near
its French OEM customers. This action resulted in a restructuring charge of $0.3
million related to facility closure and other costs. Costs incurred and charged
to the reserve as of July 3, 2005 amounted to $0.2 million in facility closure
costs.
During the second quarter of 2004, in order to improve capacity
utilization, Dura announced a plan to consolidate certain of its Body & Glass
Division product lines in Europe. This action resulted in a restructuring charge
of $1.5 million and $2.5 million in the second and third quarters of 2004,
respectively, relating primarily to severance, which completed the facility
consolidation charges to be incurred related to this action. Additionally, there
was a $0.2 million adjustment to decrease the reserve in the fourth quarter of
2004. Continuing these actions in 2005, Dura adjusted the reserve down by $0.3
million during the first quarter and made an additional accrual of $0.1 million
in the second quarter of 2005. Costs incurred and charged to the reserve as of
July 3, 2005 amounted to $3.4 million in severance related costs. In addition,
during the second quarter of 2004, Dura announced a plan to exit two
manufacturing facilities in Rockford, Illinois and combine the business with
other Dura operations. Dura also announced the relocation of its Atwood Mobile
Products division headquarters from Rockford, Illinois to Elkhart, Indiana.
These actions resulted in a restructuring charge of $1.7 million, $1.2 million,
and $0.8 million in the second, third and fourth quarters of 2004, respectively,
relating primarily to
-9-
severance. Dura also expensed as incurred approximately $0.3 million and $1.8
million of facility closure and other costs in the third quarter and fourth
quarters of 2004, of which $0.2 million is related to asset impairments. These
actions continued during 2005 with an additional restructuring charge of $0.8
million and $0.1 million in the first and second quarters, respectively, of
which $0.7 million is related to severance and $0.2 million is related to
facility closure and other costs. Dura also expensed as incurred $0.3 million
and $0.1 million of facility closure and other costs in the first and second
quarters of 2005, respectively, which included asset impairment charges of $0.1
million. Costs incurred and charged to the reserve as of July 3, 2005 amounted
to $3.9 million in severance related costs. Dura does not expect to incur any
additional restructuring charges related to the exit of the Rockford facility.
During the first quarter of 2004, in order to improve capacity utilization,
Dura announced a plan to exit its Brookfield, Missouri facility and combine the
business with other Dura operations. This action resulted in a restructuring
charge of $0.1 million, $0.4 million, $0.2 million and $0.2 million in the
first, second, third and fourth quarters of 2004, respectively, relating
primarily to severance. Dura also expensed as incurred approximately $0.1
million of facility closure and other costs in each of the second, third and
fourth quarters of 2004. Continuing these actions in 2005, Dura had an
additional restructuring charge of $0.2 million in the second quarter and
expensed as incurred approximately $0.1 million of facility closure and other
costs in the first quarter. Costs incurred and charged to the reserve as of July
3, 2005 amounted to $0.9 million in severance related costs. Dura does not
expect to incur any additional restructuring charges related to the exit of the
Brookfield facility. In addition, during the first quarter of 2004, Dura
announced a plan to exit its Pikeville, Tennessee facility and combine the
business with other Dura operations. This action resulted in a restructuring
charge of $0.4 million and $0.5 million in the first and second quarters of
2004, respectively, relating to severance. Costs incurred and charged to the
reserve as of July 3, 2005 amounted to $0.8 million in severance related costs.
In continuation of these actions, Dura expensed as incurred approximately $0.1
million of facility closure and other costs in the second and third quarters of
2004, combined. Included in this charge is an additional $0.2 million related to
fixed asset write-downs and a $0.2 million adjustment to reduce the facility
consolidation charge in the third quarter. Dura does not expect to incur any
additional restructuring charges related to the exit of the Pikeville facility.
During the second quarter of 2003, Dura announced a plan to exit its
Fulton, Kentucky facility. This action resulted in a second quarter 2003
restructuring charge of $1.5 million, including severance of $0.3 million and
facility closure and other costs of $1.2 million. In continuation of these
actions during 2003, Dura recorded $1.3 million of additional restructuring
charges, including severance of $1.2 million and facility closure and other
costs of $0.1 million. Dura also expensed as incurred approximately $2.5 million
and $3.4 million of certain facility closure and other costs incurred during the
third and fourth quarters of 2003, respectively. During 2004, Dura continued
such actions and recorded $0.2 million and $0.4 million in the first and third
quarters, respectively, of additional restructuring charges for severance
related costs. Dura also expensed as incurred $0.1 million, $0.2 million, and
$0.1 million in the first, second and fourth quarters of 2004, respectively,
related to severance costs and $0.2 million of facility closure and other costs
in the first quarter of 2004. Costs incurred and charged to the reserve as of
July 3, 2005 amounted to $2.0 million in severance related costs and $1.4
million in facility closure and other costs. Dura does not expect to incur any
additional restructuring charges related to the exit of the Fulton facility.
Asset Impairments
For the quarters ended July 3, 2005 and June 27, 2004, Dura recorded $1.1
million and $6.7 million, respectively, of asset impairment charges related to
prior facility consolidation actions. These charges are reflected as facility
consolidation, asset impairments and other charges in the condensed consolidated
statements of operations and were accounted for in accordance with SFAS No. 144.
-10-
6. ACQUISITION INTEGRATIONS
Dura has developed and implemented the majority of the facility
consolidation plans designed to integrate the operations of past acquisitions.
As of July 3, 2005, purchase liabilities recorded in conjunction with the
acquisitions included approximately $1.1 million for costs associated with the
shutdown and consolidation of certain acquired facilities and $0.9 million for
severance and other related costs. Costs incurred and charged to these reserves
amounted to $0.4 million related to the consolidation of certain acquired
facilities and $0.1 million related to severance during second quarter 2005. The
employee terminations and facility closures were completed by December 31, 2004
except for contractual obligations, consisting principally of facility lease
payments, which will continue through 2005.
7. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
July 3, December 31,
2005 2004
---------- ------------
2005 Credit Agreement:
Second Lien term loan $ 150,000 $ --
2003 Credit Agreement:
Tranche C term loan -- 146,250
Senior notes 400,000 400,000
Subordinated notes 575,366 589,469
Mandatorily redeemable convertible
trust preferred securities 55,250 55,250
Senior notes - derivative
instrument adjustment 1,422 18,347
Other 6,124 7,616
---------- ----------
1,188,162 1,216,932
Less - Current maturities (1,292) (2,968)
---------- ----------
Total long-term debt $1,186,870 $1,213,964
========== ==========
In April 2002, Dura completed the offering of $350.0 million 8 5/8 percent
senior unsecured notes ("2002 Senior Notes"), due April 2012. The interest on
the 2002 Senior Notes is payable semi-annually beginning October 15, 2002. 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 November 2003, Dura completed the 2003 Senior Notes offering of $50.0
million. The interest on the 2003 Senior Notes is payable semi-annually
beginning April 15, 2004. In conjunction with this transaction, Dura amended and
restated its revolving credit facility ("2003 Credit Agreement"). The 2003
Credit Agreement provided for $175.0 million of revolving credit, available
until October 2008.
In February 2005, Dura amended its 2003 Credit Agreement to, among other
things, adjust the total leverage, senior leverage and interest coverage ratios
that it was required to maintain over the next six quarters beginning April 3,
2005. As part of that amendment, Dura repaid $35.0 million of the tranche C term
loan.
-11-
In May 2005, Dura entered into new senior secured credit facilities with an
aggregate borrowing capacity of approximately $325 million, consisting of a
five-year $175 million asset-based revolving credit facility ("2005 Credit
Agreement") and a six-year $150 million senior secured second lien term loan.
Interest under these facilities is based on LIBOR. The senior secured second
lien term loan is due and payable in its entirety in May 2011. Proceeds of
$144.0 million, net of transaction costs for the new revolver and the senior
secured second lien term loan were used to repay Dura's existing $111 million
term loan C facility and general corporate purposes. The revolver is an
asset-backed revolving credit facility, which is supported by a borrowing base
that is calculated monthly. Availability under the revolver is determined by
advances against eligible accounts receivables, eligible inventory balances and
certain fixed assets. On July 3, 2005, Dura's liquidity under the new senior
secured credit facilities was $256.6 million, including cash of $101.7 million.
The revolver is secured by certain of Dura's U.S. and Canadian assets and a 65
percent pledge of the stock of Dura's foreign subsidiaries. The senior secured
second lien term loan is secured by all of the U.S. assets and a 65 percent
pledge of the stock of Dura's foreign subsidiaries. In connection with the
termination of Dura's 2003 Credit Agreement, Dura wrote-off debt issuance costs
of approximately $3.3 million during the second quarter of 2005. At July 3,
2005, Dura had no borrowings outstanding under the revolving credit facility.
Dura has $575.4 million of 9 percent Subordinated Notes, due May 2009
outstanding as of July 3, 2005. The interest on the Subordinated Notes is
payable semiannually. These notes are collateralized by guarantees of certain of
Dura's subsidiaries.
Dura also utilizes uncommitted overdraft facilities to satisfy the
short-term working capital requirements of its foreign subsidiaries. At July 3,
2005, Dura had overdraft facilities available from banks of approximately $24.7
million, of which, it had no borrowings outstanding.
Included in interest expense, net, in the consolidated statements of
operations is approximately $0.6 million and $0.7 million of interest income
earned on Dura's cash balances in the quarters ended July 3, 2005 and June 27,
2004, respectively and $1.3 million and $1.2 million for the six months ended
July 3, 2005 and June 27, 2004, respectively.
8. BUSINESS COMBINATIONS, GOODWILL AND INTANGIBLE ASSETS
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 for
impairment annually, or more frequently if impairment indicators arise.
During the second quarter of 2005, we performed our annual evaluation using
both a discounted cash flow methodology and a market multiple approach. Based
on the results of this evaluation, we determined that no further impairment
beyond that recorded in prior years is currently required. A separate
evaluation was conducted for each of our current reporting units: Control
Systems; Body & Glass; Mobile Products; and Other Operating Companies.
Separable intangible assets that are not deemed to have indefinite lives
will continue to be amortized over their useful lives. Other intangible assets
at July 3, 2005 are approximately $16.4 million, primarily consisting of
non-amortizable trademarks and amortizable license agreements. The amortization
of other intangible assets was not significant in 2005 and 2004.
9. 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
-12-
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.
On May 12, 2005, Dura terminated its fixed to floating interest rate swap
contracts having an aggregated notional amount of $400 million, which we
established in conjunction with the 2002 Senior Notes and 2003 Senior Notes
offerings, respectively. Dura realized a cash net gain of $11.4 million upon
their settlement. This gain is being amortized over the remaining life of the
2003 and 2002 notes. At July 3, 2005, the deferred gain is approximately $11.2
million and is classified in other noncurrent liabilities. On May 16, 2005, Dura
entered into a new set of fixed to floating interest rate swap contracts,
expiring in April 2012 and also having an aggregate notional amount of $400
million with various financial institutions, replacing those that were
terminated. At July 3, 2005, these outstanding interest rate swap contracts
effectively converted $400 million of our Senior Notes into floating rate
obligations. Dura receives payments at a fixed rate (8.625%), while it makes
payments at variable rates (7.38% at July 3, 2005). The net interest paid or
received is included in interest expensed. Dura designated these swap contracts
as fair value hedges at their inception. At July 3, 2005, the fair value of the
interest rate swap contracts was a net gain position for Dura of approximately
$1.4 million, representing the estimated benefit that would accrue to Dura if we
were to terminate the agreements, and is included in noncurrent assets with a
corresponding increase to debt in the accompanying condensed consolidated July
3, 2005 balance sheet.
From time to time, Dura also uses forward exchange contracts to hedge its
foreign currency exposure related to certain intercompany transactions. There
were no contracts outstanding at July 3, 2005.
10. COMPREHENSIVE INCOME
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 represents net income adjusted
for foreign currency translation adjustments, minimum pension liability and the
deferred gain/ loss on derivative instruments utilized to hedge Dura's interest
and foreign exchange exposures. Comprehensive income for the periods is as
follows (in thousands):
Three months ended Six months ended
------------------- -------------------
July 3, June 27, July 3, June 27,
2005 2004 2005 2004
-------- -------- -------- --------
Net income (loss) $ 2,959 $3,340 $ (1,873) $12,508
Other comprehensive income:
Foreign currency
translation adjustment (36,477) 2,462 (57,287) (8,263)
Minimum pension liability 234 (5) 399 70
Derivative instruments 334 147 -- 147
-------- ------ -------- -------
Comprehensive income (loss) $(32,950) $5,944 $(58,761) $ 4,462
======== ====== ======== =======
11. WARRANTY AND ENVIRONMENTAL
Dura faces an inherent business risk of exposure to product liability and
warranty claims in the event that its products fail to perform as agreed upon
and such failure of its products results, or is alleged to result, in bodily
injury and/or property damage. OEMs are increasingly requiring their outside
suppliers to guarantee or warrant their products, and bear the costs of repair
and replacement of such products under new vehicle warranties. Depending on the
terms under which Dura supplies products to an OEM, an OEM may hold Dura
responsible for some or all of the repair or replacement costs of defective
-13-
products under new vehicle warranties, when the product supplied did not perform
as represented. In addition, Dura is subject to the requirements of federal,
state, local and foreign environmental and occupational health and safety laws
and regulations. Some of Dura's operations generate hazardous substances. Like
all manufacturers, if a release of hazardous substances occurs or has occurred
at or from any of Dura's current or former properties or at a landfill or
another location where Dura has disposed of wastes, Dura may be held liable for
the contamination, and the amount of such liability could be material. Dura's
policy is to record reserves for customer warranty and environmental costs on a
case by case basis at the time it believes such amount is probable and estimable
and to review these determinations on a quarterly basis, or more frequently, as
additional information is obtained. Dura has established reserves for issues
that are probable and estimable in amounts management believes are adequate to
cover reasonable adverse judgments. Dura determines its warranty and
environmental reserves based on identified claims and the estimated ultimate
projected claim cost. The final amounts determined to be due related to these
matters could differ significantly from recorded estimates. Dura no longer
carries insurance for recall matters, as the cost and availability for such
insurance, in the opinion of management, is cost prohibitive or not available.
The following presents a summary of Dura's warranty and environmental position
(in thousands):
WARRANTY ENVIRONMENTAL
-------- -------------
Balance at December 31, 2004 $ 8,937 $17,159
Reductions for payments made (1,455) (205)
Additional reserves recorded 1,846 20
Changes in pre-existing reserves (833) (8,247)
------- -------
Balance at July 3, 2005 $ 8,495 $ 8,727
======= =======
Effective June 30, 2005, Dura was released from a potential environmental
exposure relating to a former manufacturing facility whose lease expired on that
date. Accordingly, we reversed the remaining environmental exposure accrual to
cost of sales resulting in a favorable $8.2 million impact for the quarter and
the six months ended July 3, 2005.
12. NEW AND PROPOSED ACCOUNTING PRONOUNCEMENTS
The FASB revised SFAS No. 123 in December 2004 and issued SFAS No.
123(R). This Statement supercedes APB No. 25, which resulted in no stock-based
employee compensation cost related to stock options if the options granted had
an exercise price equal to the market value of the underlying common stock on
the date of grant. SFAS No. 123R requires recognition of employee services
provided in exchange for a share-based payment based on the grant date fair
market value. In April 2005, the SEC delayed the effective date of SFAS No. 123R
to fiscal years beginning after June 15, 2005. As a result, Dura is required to
adopt SFAS No. 123R as of January 1, 2006. As of the effective date, this
Statement applies to all new awards issued as well as awards modified,
repurchased, or cancelled. Additionally, for stock-based awards issued prior to
the effective date, compensation cost attributable to future services will be
recognized as the remaining service is rendered. Dura may also elect to restate
prior periods by applying a modified retrospective method to periods prior to
the effective date. Dura is in the process of determining which method of
adoption it will elect. See Note 3 for SFAS No. 123 required disclosures and the
estimated impact of adoption of SFAS 123R if it had been adopted as of the
beginning of the periods presented.
The Emerging Issues Task Force ("EITF") has recently released EITF Issue
No. 05-05, "Accounting for Early Retirement or Postemployment Programs with
Specific Features (such as Terms Specified in Altersteilzeir Early Retirement
Arrangements)". Altersteilzeir (ATZ) in Germany is an early retirement program
designed to create an incentive for employees, within a certain age group, to
leave their employers before the legal retirement age. Although established by
law, the actual arrangement between
-14-
employers and employees is negotiated. EITF Issue 05-05 will require, as of the
beginning of 2006, Dura to accrue special retirement benefits. We are currently
reviewing the impact, if any, to the Company but do not believe it will be
material.
The FASB issued on July 15, 2005, for comment an exposure draft of a
proposed interpretation to SFAS 109 on the accounting for uncertain tax
positions, that seeks to reduce widespread diversity in accounting for income
taxes. The exposure draft requires that a tax position meet a "probable
recognition threshold" for the benefit of the uncertain tax position to be
recognized in the financial statements. This threshold is to be met assuming
that the tax authorities will examine the uncertain tax position. The exposure
draft contains guidance with respect to the measurement of the benefit that is
recognized for an uncertain tax position, when that benefit should be
derecognized, and other matters. The proposed effective date for this
interpretation is as of the end of the first fiscal year ending after December
15, 2005. We are currently reviewing the impact of this proposed interpretation
for the impact to our recording of deferred tax assets. While still under
review, we believe any material tax position we have taken will meet the
"probable recognition threshold".
13. DEFINED BENEFIT PLANS AND POST-RETIREMENT BENEFITS
Dura sponsors 17 defined benefit plans that cover certain hourly and
salaried employees in the United States and certain European countries. Dura's
policy is to make annual contributions to the plans to fund the normal cost as
required by local regulations. In addition, Dura has eight postretirement
medical benefit plans for certain employee groups and has recorded a liability
for its estimated obligation under these plans. During 2005, Dura terminated a
postretirement medical plan relating to former employees of a closed facility,
which had been voluntarily extended beyond its initial term by the Company. A
gain was realized on this termination and is reflected in the following tables.
The components of net periodic benefit costs are as follows (in thousands):
Postretirement Benefits
Pension Benefits Other than Pensions
Three Months Ended Three Months Ended
---------------------------- ----------------------------
July 3, 2005 June 27, 2004 July 3, 2005 June 27, 2004
------------ ------------- ------------ -------------
Service cost $ 545 $ 586 $ 185 $ 161
Interest cost 2,079 2,131 349 449
Expected return on plan assets (1,644) (1,589) -- --
Amendments/curtailments -- 339 (3,441) (109)
Amortization of prior service cost 294 519 -- (2)
Recognized actuarial loss 367 43 48 60
------- ------- ------- -----
Net periodic benefit cost $ 1,641 $ 2,029 $(2,859) $ 559
======= ======= ======= =====
-15-
Postretirement Benefits
Pension Benefits Other than Pensions
Six Months Ended Six Months Ended
---------------------------- ----------------------------
July 3, 2005 June 27, 2004 July 3, 2005 June 27, 2004
------------ ------------- ------------ -------------
Service cost $ 1,132 $ 1,172 $ 370 $ 322
Interest cost 4,170 4,262 800 898
Expected return on plan assets (3,295) (3,178) -- --
Amendments/curtailments -- 678 (3,441) (218)
Amortization of prior service cost 589 1,038 -- (4)
Recognized actuarial loss 737 86 138 120
------- ------- ------- ------
Net periodic benefit cost $ 3,333 $ 4,058 $(2,133) $1,118
======= ======= ======= ======
Dura previously disclosed in its financial statements for the year ended
December 31, 2004, that it expected to contribute $7.3 million to its pension
plans and $2.9 million to its post-retirement medical benefit plans in 2005. As
of July 3, 2005, $4.2 million and $1.2 million of contributions have been made
to the pension and postretirement benefit plans, respectively. Dura anticipates
contributing an additional $3.6 million to its pension plans and $1.1 million to
its post-retirement medical benefit plans in 2005 for total estimated
contributions during 2005 of $10.1 million.
14. RELATED PARTY TRANSACTIONS
During April 2004, Onex, Dura's controlling shareholder through their Class
B common shares voting control, converted all of its remaining Class B common
stock into Class A common stock, resulting in a single class of voting shares
outstanding and effectively eliminated their majority voting control over
shareholder matters of Dura. As a result, during June 2004, Dura entered into
change of control agreements ("the Agreements") with certain key officers and
directors. The Agreements provide for severance pay including incentive
compensation, continuation of certain other benefits, gross-up of payments
deemed to be excess parachute payments, additional years of credited service
under Dura's supplemental executive retirement plan and undiscounted lump-sum
payment of the benefit due there-under within ten days of the termination date,
and indemnification of the individual with respect to certain matters associated
with their employment by Dura. In the event of a change of control, the benefit
to be received by certain key officers and directors from existing agreements
and the Agreements noted above is currently approximately $22.0 million as of
December 31, 2004. "Change of control" is defined as the accumulation by any
person, entity or group of affiliated entities meeting certain levels of voting
power of Dura's voting stock or the occurrence of certain other specified
events, as defined in the Agreements.
15. INCOME TAXES
The effective income tax rates for the second quarter and first six months
of 2005 differs from the U.S. federal statutory rate primarily as a result of
lower foreign tax rates, the effects of state taxes and the provision of a
valuation allowances on certain losses in foreign jurisdictions.
American Jobs Creation Act of 2004
In October 2004, the American Jobs Creation Act of 2004 ("the Act") was
signed into law. The Act creates a temporary incentive for U.S. corporations to
repatriate earnings from foreign subsidiaries by providing an 85% dividends
received deduction for certain dividends from controlled foreign
-16-
corporations to the extent the dividends exceed a base amount and are invested
in the United States pursuant to a domestic reinvestment plan. The temporary
incentive is available to Dura in 2005.
The deduction is subject to a number of limitations and the U.S Treasury
Department is still in the process of providing clarifying guidance on key
elements of the repatriation provision. On July 21 identical Bills were
introduced in the House and the Senate to make retroactive technical corrections
to the Act including technical corrections to the repatriation provision. Dura
continues to evaluate the repatriation provision including the guidance that has
been issued to date and the associated tax, treasury, legal and business
considerations. Dura expects to complete its evaluation of the potential
dividends it may transact under the repatriation provision, if any, by the end
of the third quarter 2005.
16. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
The following condensed consolidating financial information presents
balance sheets, statements of operations and of cash flows 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 percent
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.
-17-
16. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION:
(Continued)
DURA AUTOMOTIVE SYSTEMS, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS AS OF JULY 3, 2005
(AMOUNTS IN THOUSANDS - UNAUDITED)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
---------- --------- ---------- ------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 21,665 $ (481) $ 80,517 $ -- $ 101,701
Accounts receivable, net 47,564 109,270 188,318 -- 345,152
Inventories 10,644 51,910 70,251 -- 132,805
Other current assets 22,447 16,054 65,261 -- 103,762
Due from affiliates 190,011 39,221 8,527 (237,759) --
---------- -------- ---------- ----------- ----------
Total current assets 292,331 215,974 412,874 (237,759) 683,420
---------- -------- ---------- ----------- ----------
Property, plant and equipment, net 53,110 111,189 283,549 -- 447,848
Investment in subsidiaries 808,795 28,799 188,289 (1,025,883) --
Notes receivable from affiliates 409,609 382,508 22,439 (814,556) --
Goodwill, net 380,907 128,773 356,806 -- 866,486
Noncurrent portion of derivative
instruments 1,422 -- -- -- 1,422
Other assets, net 69,962 8,465 20,550 -- 98,977
---------- -------- ---------- ----------- ----------
Total Assets $2,016,136 $875,708 $1,284,507 $(2,078,198) $2,098,153
========== ======== ========== =========== ==========
Liabilities and Stockholders'
Investment
Current liabilities:
Accounts payable $ 41,414 $ 76,196 $ 142,258 $ -- $ 259,868
Accrued liabilities 45,612 19,914 104,877 -- 170,403
Current maturities of long-term debt -- -- 1,292 -- 1,292
Due to affiliates 42,469 178,421 16,869 (237,759) --
---------- -------- ---------- ----------- ----------
Total current liabilities 129,495 274,531 265,296 (237,759) 431,563
---------- -------- ---------- ----------- ----------
Long-term debt, net of current
maturities 150,000 -- 4,833 -- 154,833
Subordinated notes 975,365 -- -- -- 975,365
Mandatorily redeemable convertible
trust preferred securities 55,250 -- -- -- 55,250
Senior notes - derivative instrument
adjustment 1,422 -- -- -- 1,422
Other noncurrent liabilities 63,328 9,622 57,002 -- 129,952
Notes payable to affiliates 379,948 157,820 276,788 (814,556) --
---------- -------- ---------- ----------- ----------
Total liabilities 1,754,808 441,973 603,919 (1,052,315) 1,748,385
---------- -------- ---------- ----------- ----------
Stockholders' investment 273,678 433,735 573,537 (1,025,883) 255,067
Cumulative translation adj. (12,350) -- 107,051 -- 94,701
---------- -------- ---------- ----------- ----------
Total Liabilities and
Stockholders' Investment $2,016,136 $875,708 $1,284,507 $(2,078,198) $2,098,153
========== ======== ========== =========== ==========
-18-
16. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION:
(Continued)
DURA AUTOMOTIVE SYSTEMS, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
JULY 3, 2005
(AMOUNTS IN THOUSANDS - UNAUDITED)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------ ------------
Revenues $ 74,157 $223,080 $333,988 $ (7,391) $623,834
Cost of sales 69,180 183,718 299,971 (7,391) 545,478
-------- -------- -------- -------- --------
Gross profit 4,977 39,362 34,017 -- 78,356
Selling, general and administrative expenses 16,737 7,762 16,526 -- 41,025
Facility consolidation, asset impairments and
other charges 506 825 1,293 -- 2,624
Amortization expense 55 45 4 -- 104
-------- -------- -------- -------- --------
Operating income (12,321) 30,730 16,194 -- 34,603
Interest expense (income), net 22,742 (184) 2,349 -- 24,907
Loss on early extinguishment of debt 3,349 -- -- -- 3,349
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before provision for income taxes and
minority interest (38,412) 30,914 13,845 -- 6,347
Provision (benefit) for income taxes (28,041) 21,461 9,971 -- 3,391
Equity in (earnings) losses of affiliates, net (11,976) -- (4,635) 16,611 --
Dividends (to) from affiliates (1,354) -- -- 1,354 --
-------- -------- -------- -------- --------
Income from continuing operations 2,959 9,453 8,509 (17,965) 2,956
Income from discontinued operations -- -- 3 -- 3
-------- -------- -------- -------- --------
Net income (loss) $ 2,959 $ 9,453 $ 8,512 $(17,965) $ 2,959
======== ======== ======== ======== ========
-19-
16. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION:
(Continued)
DURA AUTOMOTIVE SYSTEMS, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED
JULY 3, 2005
(AMOUNTS IN THOUSANDS - UNAUDITED)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------ ------------
Revenues $149,379 $447,470 $661,288 $(14,324) $1,243,813
Cost of sales 142,017 385,531 591,652 (14,324) 1,104,876
-------- -------- -------- -------- ----------
Gross profit 7,362 61,939 69,636 -- 138,937
Selling, general and administrative expenses 34,107 15,500 33,591 -- 83,198
Facility consolidation, asset impairments and
other charges 1,358 1,834 1,098 -- 4,290
Amortization expense 111 91 14 -- 216
-------- -------- -------- -------- ----------
Operating income (28,214) 44,514 34,933 -- 51,233
Interest expense (income), net 43,371 1,564 4,942 -- 49,877
Loss on early extinguishment of debt 3,349 -- -- -- 3,349
-------- -------- -------- -------- ----------
Income (loss) from continuing operations
before provision for income taxes and
minority interest (74,934) 42,950 29,991 -- (1,993)
Provision (benefit) for income taxes (43,286) 26,969 16,091 -- (226)
Equity in (earnings) losses of affiliates, net (26,739) -- (5,242) 31,981 --
Dividends (to) from affiliates (3,036) -- -- 3,036 --
-------- -------- -------- -------- ----------
Income from continuing operations (1,873) 15,981 19,142 (35,017) (1,767)
Loss from discontinued operations -- -- (106) -- (106)
-------- -------- -------- -------- ----------
Net income (loss) $ (1,873) $ 15,981 $ 19,036 $(35,017) $ (1,873)
======== ======== ======== ======== ==========
-20-
16. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION:
(Continued)
DURA AUTOMOTIVE SYSTEMS, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED
JULY 3, 2005
(AMOUNTS IN THOUSANDS - UNAUDITED)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------ ------------
OPERATING ACTIVITIES:
Income (loss) from continuing operations $ (1,873) $ 15,982 $ 19,141 $(35,017) $ (1,767)
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by operating
activities:
Depreciation and amortization 4,506 10,342 26,860 -- 41,708
Amortization of deferred financing fees 5,266 5,266
Deferred income taxes (11,632) 14,573 (1,075) -- 1,866
Equity in earnings of affiliates and minority interest (26,739) -- (5,242) 31,981 --
Changes in other operating items 3,030 (17,312) (92,872) -- (107,154)
--------- -------- --------- -------- ---------
Net cash (used in) provided by operating activities (27,442) 23,585 (53,188) (3,036) (60,081)
--------- -------- --------- -------- ---------
INVESTING ACTIVITIES:
Acquisitions, net -- -- -- -- --
Capital expenditures, net (6,306) (6,607) (14,691) -- (27,604)
--------- -------- --------- -------- ---------
Net cash used in investing activities (6,306) (6,607) (14,691) -- (27,604)
--------- -------- --------- -------- ---------
FINANCING ACTIVITIES:
Long-term borrowings 150,001 -- (7) -- 149,994
Repayments of long-term borrowings (146,250) (3) (693) -- (146,946)
Purchase of treasury shares and other 594 594
Debt financing (to) from affiliates 69,649 (15,123) (54,526) -- --
Proceeds from issuance of common stock and exercise of
stock options 444 -- -- -- 444
Debt issuance costs (7,001) -- (7,001)
Deferred gain on termination of interest rate swap 11,374 11,374
Dividends paid -- (3,959) 923 3,036 --
--------- -------- --------- -------- ---------
Net cash provided by (used in) financing activities 78,811 (19,085) (54,303) 3,036 8,459
EFFECT OF EXCHANGE RATE
CHANGES ON CASH (14,968) -- 4,433 -- (10,535)
--------- -------- --------- -------- ---------
NET CHANGE IN CASH AND CASH
EQUIVALENTS FROM CONTINUING OPERATIONS 30,095 (2,107) (117,749) -- (89,761)
NET OPERATING CASH FLOW USED IN
DISCONTINUED OPERATIONS -- -- (106) -- (106)
CASH AND CASH EQUIVALENTS:
Beginning of period 2,944 1,626 186,998 -- 191,568
--------- -------- --------- -------- ---------
End of period $ 33,039 $ (481) $ 69,143 $ -- $ 101,701
========= ======== ========= ======== =========
-21-
16. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION:
(Continued)
DURA AUTOMOTIVE SYSTEMS, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS AS OF DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
---------- --------- ---------- ------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 2,944 $ 1,626 $ 186,998 $ -- $ 191,568
Accounts receivable, net 27,455 82,504 163,997 -- 273,956
Inventories 12,735 60,326 76,773 -- 149,834
Current portion of derivative instruments 7,746 -- -- -- 7,746
Other current assets 14,485 19,868 57,663 -- 92,016
Due from affiliates 181,728 39,261 7,599 (228,588) --
---------- -------- ---------- ----------- ----------
Total current assets 247,093 203,585 493,030 (228,588) 715,120
---------- -------- ---------- ----------- ----------
Property, plant and equipment, net 52,560 115,582 318,964 -- 487,106
Investment in subsidiaries 761,450 28,799 74,338 (864,587) --
Notes receivable from affiliates 384,563 235,563 26,188 (646,314) --
Goodwill, net 380,907 128,773 393,904 -- 903,584
Noncurrent portion of derivative instruments 10,601 -- -- -- 10,601
Other assets, net 61,918 15,668 29,924 -- 107,510
---------- -------- ---------- ----------- ----------
Total Assets $1,899,092 $727,970 $1,336,348 $(1,739,489) $2,223,921
========== ======== ========== =========== ==========
Liabilities and Stockholders'
Investment
Current liabilities:
Accounts payable $ 45,103 $ 70,663 $ 154,575 $ -- $ 270,341
Accrued liabilities 57,888 22,412 106,954 -- 187,254
Current maturities of long-term debt 1,500 3 1,465 -- 2,968
Due to affiliates 41,586 150,935 36,067 (228,588) --
---------- -------- ---------- ----------- ----------
Total current liabilities 146,077 244,013 299,061 (228,588) 460,563
---------- -------- ---------- ----------- ----------
Long-term debt, net of current maturities 144,750 3 6,145 -- 150,898
Senior notes 400,000 -- -- -- 400,000
Subordinated notes 589,469 -- -- -- 589,469
Mandatorily redeemable convertible trust preferred
securities 55,250 55,250
Senior notes - derivative instrument adjustment 18,347 -- -- -- 18,347
Other noncurrent liabilities 57,083 18,450 66,370 -- 141,903
Notes payable to affiliates 236,752 158,282 251,280 (646,314) --
---------- -------- ---------- ----------- ----------
Total liabilities 1,647,728 420,748 622,856 (874,902) 1,816,430
---------- -------- ---------- ----------- ----------
Stockholders' investment 263,392 307,222 549,875 (864,587) 255,902
Cumulative translation adjustment (12,028) -- 163,617 -- 151,589
---------- -------- ---------- ----------- ----------
Total Liabilities and
Stockholders' Investment $1,899,092 $727,970 $1,336,348 $(1,739,489) $2,223,921
========== ======== ========== =========== ==========
-22-
16. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION:
(Continued)
DURA AUTOMOTIVE SYSTEMS, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE
THREE MONTHS ENDED JUNE 27, 2004
(AMOUNTS IN THOUSANDS - UNAUDITED)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------ ------------
Revenues $ 87,360 $262,366 $322,759 $(13,670) $658,815
Cost of sales 80,704 226,895 288,203 (13,670) 582,132
-------- -------- -------- -------- --------
Gross profit 6,656 35,471 34,556 -- 76,683
Selling, general and administrative
expenses 15,600 7,764 16,452 -- 39,816
Facility consolidation, asset impairments and
other charges 40 10,091 1,447 -- 11,578
Amortization expense 59 46 10 -- 115
-------- -------- -------- -------- --------
Operating income (loss) (9,043) 17,570 16,647 -- 25,174
Interest expense (income), net 17,820 1,194 2,525 -- 21,539
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before provision for income taxes and
minority interest (26,863) 16,376 14,122 -- 3,635
Provision (benefit) for income taxes (4,398) 2,241 2,464 -- 307
Equity in earnings of affiliates, net (24,613) -- (1,083) 25,696 --
Dividends from affiliates (1,192) -- -- 1,192 --
-------- -------- -------- -------- --------
Income (loss) from continuing operations 3,340 14,135 12,741 (26,888) 3,328
Loss from discontinued operations -- -- 12 -- 12
-------- -------- -------- -------- --------
Net income (loss) $ 3,340 $ 14,135 $ 12,753 $(26,888) $ 3,340
======== ======== ======== ======== ========
-23-
16. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION:
(Continued)
DURA AUTOMOTIVE SYSTEMS, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE
SIX MONTHS ENDED JUNE 27, 2004
(AMOUNTS IN THOUSANDS - UNAUDITED)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------ ------------
Revenues $170,653 $508,636 $641,217 $(27,128) $1,293,378
Cost of sales 156,708 436,403 574,047 (27,128) 1,140,030
-------- -------- -------- -------- ----------
Gross profit 13,945 72,233 67,170 -- 153,348
Selling, general and administrative
expenses 31,788 15,583 31,356 -- 78,727
Facility consolidation, asset impairments and
other charges 40 11,173 1,813 -- 13,026
Amortization expense 119 91 21 -- 231
-------- -------- -------- -------- ----------
Operating income (loss) (18,002) 45,386 33,980 -- 61,364
Interest expense (income), net 35,112 2,351 5,325 -- 42,788
-------- -------- -------- -------- ----------
Income (loss) from continuing operations
before provision for income taxes and
minority interest (53,114) 43,035 28,655 -- 18,576
Provision (benefit) for income taxes (11,679) 10,193 6,873 -- 5,387
Equity in earnings of affiliates, net (51,419) -- (1,313) 52,732 --
Dividends from affiliates (2,524) -- -- 2,524 --
-------- -------- -------- -------- ----------
Income (loss) from continuing operations 12,508 32,842 23,095 (55,256) 13,189
Loss from discontinued operations -- -- (681) -- (681)
-------- -------- -------- -------- ----------
Net income (loss) $ 12,508 $ 32,842 $ 22,414 $(55,256) $ 12,508
======== ======== ======== ======== ==========
-24-
16. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION:
(Continued)
DURA AUTOMOTIVE SYSTEMS, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED
JUNE 27, 2004
(AMOUNTS IN THOUSANDS - UNAUDITED)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------ ------------
OPERATING ACTIVITIES:
Income (loss) from continuing operations $ 12,508 $ 32,842 $ 23,095 $(55,256) $ 13,189
Adjustments to reconcile income (loss)
from continuing operations to net cash
provided by operating activities:
Depreciation and amortization 4,642 11,423 27,373 -- 43,438
Amortization of deferred financing fees 1,740 1,740
Deferred income taxes -- -- (106) -- (106)
Equity in earnings of affiliates and
minority interest (51,420) -- (1,313) 52,733 --
Changes in other operating items 55,418 (7,092) (97,461) -- (49,135)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities 22,888 37,173 (48,412) (2,523) 9,126
-------- -------- -------- -------- --------
INVESTING ACTIVITIES:
Acquisitions, net -- (1,846) (11,481) -- (13,327)
Capital expenditures, net (2,729) (5,878) (20,696) -- (29,303)
-------- -------- -------- -------- --------
Net cash used in investing activities (2,729) (7,724) (32,177) -- (42,630)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES:
Long-term borrowings -- -- 568 -- 568
Repayments of long-term borrowings (7,772) (19) (9,594) -- (17,385)
Purchase of treasury shares and other (87) (87)
Debt financing (to) from affiliates (21,801) (27,151) 48,952 -- --
Proceeds from issuance of common stock
and exercise of stock options 1,613 -- -- -- 1,613
Other, net (4,927) -- 4,538 -- (389)
Dividends paid -- (2,523) -- 2,523 --
-------- -------- -------- -------- --------
Net cash (used in) provided by financing
activities (32,974) (29,693) 44,464 2,523 (15,680)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH (4,117) -- 7,158 -- 3,041
-------- -------- -------- -------- --------
NET CHANGE IN CASH AND CASH
EQUIVALENTS FROM CONTINUING
OPERATIONS (16,932) (244) (28,967) -- (46,143)
NET OPERATING CASH FLOW USED IN
DISCONTINUED OPERATIONS -- -- (681) -- (681)
CASH AND CASH EQUIVALENTS:
Beginning of period 32,216 1,126 147,926 -- 181,268
-------- -------- -------- -------- --------
End of period $ 15,284 $ 882 $118,278 $ -- $134,444
======== ======== ======== ======== ========
-25-
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Dura's results of operations were impacted by several global economic
factors during the quarter ended July 3, 2005. Worldwide vehicle production
declines impacted revenue for the second quarter and first six months of 2005
compared with 2004 related periods. North American vehicle production declined
approximately 1.8 percent in the second quarter from that in 2004's second
quarter, while vehicle production remained consistent in Europe. Approximately
56 percent of Dura's 2005 second quarter total revenues were generated in North
America, compared to 60 percent in 2004's second quarter. Dura's production
costs are higher in Europe as compared to North America; thus, our future
profitability could be impacted as volumes change and /or as new business awards
change geographically for us. Dura is taking numerous actions to improve its
cost structure, including various restructuring activities and plant
consolidations. Similar actions will continue throughout the remainder of 2005
as Dura works to maximize its worldwide facility and asset utilization. The cost
of raw materials negatively impacted Dura's results from operations for the
first six months of 2005 and the full year 2004. Dura has been able to partially
offset these costs through actions taken internally and with its supplier and
customer base. Dura is seeing a current easing in steel pricing from prior
year's levels and expects it to remain at the lower cost level through the
remainder of 2005. Variances in raw material pricing impacts our operations to
the extent we receive or give pricing adjustments from or to our major
customers.
Dura's significant Euro denominated operations were favorably impacted by
the Euro strengthening against the Dollar in the first six months of 2005. This
favorable exchange rate change resulted in a $20.2 million increase in Dura's
second quarter 2005 revenue as compared to the same period last year. Subsequent
to July 3, 2005, the Euro's value against the Dollar has declined. If this trend
continues throughout the remainder of 2005, we expect our revenues and results
of operations to be impacted accordingly. The strength of the Euro also
significantly impacted our consolidated debt levels at July 3, 2005. At July 3,
2005, approximately $127.1 million of Dura's debt is denominated in Euro or
other foreign currencies.
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, 2004.
Revenues - Revenues for the three months ended July 3, 2005 were $623.8
million, a decrease of $35.0 million, or 5.3 percent, from $658.8 million for
the three months ended June 27, 2004. Revenues for the six months ended July 3,
2005 were $1,243.8 million, a decrease of $49.6 million, or 3.8 percent, from
$1,293.4 million for the six months ended June 27, 2004. Reduced worldwide
vehicle production volume, primarily in North America, and product platform mix
changes were the major causes of reduced revenues in 2005. This reduction was
offset moderately by the strengthening of the Euro and partial steel price
recovery.
Cost of Sales - Cost of sales for the three months ended July 3, 2005 were
$545.5 million, a decrease of $36.7 million, or 6.3 percent, from $582.1 million
for the three months ended June 27, 2004. Cost of sales as a percentage of
revenues for the second quarter of 2005 was 88.8 percent (before the favorable
impact of the resolution of an environmental issue), which is comparable to the
88.4 percent in the second quarter of 2004. Cost of sales for the six months
ended July 3, 2005 was $1,104.9 million, a decrease of $35.2 million, or 3.1
percent, from $1,140.0 million for the six months ended June 27, 2004. Cost of
sales as a percentage of revenues for the first six months of 2005 increased to
89.5 percent (before the favorable impact of the resolution of an environmental
issue) compared to 88.1 percent in the first six months
-26-
of 2004. These minor increases in percentage of sales are mainly attributable to
lower production volumes impacting fixed cost absorption. Both the second
quarter and first six months of 2005 cost of sales were favorably impacted by an
$8.2 million resolution of an environmental issue.
Effective June 30, 2005, Dura was released from a potential environmental
exposure relating to a former manufacturing facility whose lease expired on that
date. Accordingly, we reversed the remaining environmental exposure accrual to
cost of sales resulting in a favorable $8.2 million impact for the quarter and
the six months ended July 3, 2005.
Selling, General, and Administrative - Selling, general, and administrative
expenses for 2005's second quarter were $41.0 million, an increase of $1.2
million, or 3.0 percent, from the $39.8 million for the same period last year.
As a percentage of revenue, selling, general and administrative expenses
increased to 6.6 percent for 2005 compared to 6.0 percent in 2004. Selling,
general, and administrative expenses for the six months ended July 3, 2005 were
$83.2 million, an increase of $4.5 million, or 5.7%, from $78.7 million for the
six months ended June 27, 2004. As a percentage of revenue, selling, general and
administrative expenses increased to 6.7% for 2005 compared to 6.1% in the first
six months of 2004. The increase is primarily due to investment in prototypes
and related engineering development costs supporting new programs. Dura's goal
continues to be to consolidate certain selling, general and administrative
functions and streamlining of others resulting in lower future costs.
Facility Consolidation, Asset Impairments, and Other Charges -
Facility Consolidation
As a part of Dura's ongoing cost reduction and capacity utilization
efforts, Dura has taken numerous actions to improve its cost structure. These
costs are reflected as facility consolidation and other charges in the
consolidated statement of operations and were accounted for in accordance with
SFAS No. 112, "Employers' Accounting for Postemployment Benefits", SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", and SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS
No. 146").
During the second quarter of 2005, in order to improve capacity
utilization, Dura announced a plan to streamline a German manufacturing
operation that is expected to result in a 170-employee reduction. This action
resulted in a restructuring charge of $0.5 million, relating primarily to
severance. In addition, Dura expensed approximately $0.1 million of severance
during the quarter, related to this action. Dura expects to incur $4.4 million
in additional severance costs through December 31, 2005.
During the first quarter of 2005, Dura announced a plan to migrate to one
enterprise resource planning system and centralize many of its functional
operations to better align with current business levels. These actions are
anticipated to result in the reduction of approximately 400 employees worldwide
of which approximately one-half have been completed. Dura has accrued
approximately $3.2 million in severance related to these actions. Of this
amount $0.9 million is related to restructuring and charged to facility
consolidation. Costs incurred and charged to the restructuring reserve as of
July 3, 2005 amounted to $0.5 million. Dura expects to incur additional
restructuring charges related to these actions of approximately $1.7 million
in severance costs and intends to be substantially completed by
December 31, 2006.
During the fourth quarter of 2004, Dura closed its Bondoufle, France sales
and engineering facility and relocated to Velizy, France, which is located near
its French OEM customers. This action resulted in a restructuring charge of $0.3
million related to facility closure and other costs. Costs incurred and charged
to the reserve as of July 3, 2005 amounted to $0.2 million in facility closure
costs.
-27-
During the second quarter of 2004, in order to improve capacity
utilization, Dura announced a plan to consolidate certain of its Body & Glass
Division product lines in Europe. This action resulted in a restructuring charge
of $1.5 million and $2.5 million in the second and third quarters of 2004,
respectively, relating primarily to severance, which completed the facility
consolidation charges to be incurred related to this action. Additionally, there
was a $0.2 million adjustment to decrease the reserve in the fourth quarter of
2004. Continuing these actions in 2005, Dura adjusted the reserve down by $0.3
million during the first quarter and made an additional accrual of $0.1 million
in the second quarter of 2005. Costs incurred and charged to the reserve as of
July 3, 2005 amounted to $3.4 million in severance related costs. In addition,
during the second quarter of 2004, Dura announced a plan to exit two
manufacturing facilities in Rockford, Illinois and combine the business with
other Dura operations. Dura also announced the relocation of its Atwood Mobile
Products division headquarters from Rockford, Illinois to Elkhart, Indiana.
These actions resulted in a restructuring charge of $1.7 million, $1.2 million,
and $0.8 million in the second, third and fourth quarters of 2004, respectively,
relating primarily to severance. Dura also expensed as incurred approximately
$0.3 million and $1.8 million of facility closure and other costs in the third
quarter and fourth quarters of 2004, of which $0.2 million is related to asset
impairments. These actions continued during 2005 with an additional
restructuring charge of $0.8 million and $0.1 million in the first and second
quarters, respectively, of which $0.7 million is related to severance and $0.2
million is related to facility closure and other costs. Dura also expensed as
incurred $0.3 million and $0.1 million of facility closure and other costs in
the first and second quarters of 2005, respectively, which included asset
impairment charges of $0.1 million. Costs incurred and charged to the reserve as
of July 3, 2005 amounted to $3.9 million in severance related costs. Dura does
not expect to incur any additional restructuring charges related to the exit of
the Rockford facility.
During the first quarter of 2004, in order to improve capacity utilization,
Dura announced a plan to exit its Brookfield, Missouri facility and combine the
business with other Dura operations. This action resulted in a restructuring
charge of $0.1 million, $0.4 million, $0.2 million and $0.2 million in the
first, second, third and fourth quarters of 2004, respectively, relating
primarily to severance. Dura also expensed as incurred approximately $0.1
million of facility closure and other costs in each of the second, third and
fourth quarters of 2004. Continuing these actions in 2005, Dura had an
additional restructuring charge of $0.2 million in the second quarter and
expensed as incurred approximately $0.1 million of facility closure and other
costs in the first quarter. Costs incurred and charged to the reserve as of July
3, 2005 amounted to $0.9 million in severance related costs. Dura does not
expect to incur any additional restructuring charges related to the exit of the
Brookfield facility. In addition, during the first quarter of 2004, Dura
announced a plan to exit its Pikeville, Tennessee facility and combine the
business with other Dura operations. This action resulted in a restructuring
charge of $0.4 million and $0.5 million in the first and second quarters of
2004, respectively, relating to severance. Costs incurred and charged to the
reserve as of July 3, 2005 amounted to $0.8 million in severance related costs.
In continuation of these actions, Dura expensed as incurred approximately $0.1
million of facility closure and other costs in the second and third quarters of
2004, combined. Included in this charge is an additional $0.2 million related to
fixed asset write-downs and a $0.2 million adjustment to reduce the facility
consolidation charge in the third quarter. Dura does not expect to incur any
additional restructuring charges related to the exit of the Pikeville facility.
During the second quarter of 2003, Dura announced a plan to exit its
Fulton, Kentucky facility. This action resulted in a second quarter 2003
restructuring charge of $1.5 million, including severance of $0.3 million and
facility closure and other costs of $1.2 million. In continuation of these
actions during 2003, Dura recorded $1.3 million of additional restructuring
charges, including severance of $1.2 million and facility closure and other
costs of $0.1 million. Dura also expensed as incurred approximately $2.5 million
and $3.4 million of certain facility closure and other costs incurred during the
third and fourth quarters of 2003, respectively. During 2004, Dura continued
such actions and recorded $0.2 million and $0.4 million in the first and third
quarters, respectively, of additional restructuring charges
-28-
for severance related costs. Dura also expensed as incurred $0.1 million, $0.2
million, and $0.1 million in the first, second and fourth quarters of 2004,
respectively, related to severance costs and $0.2 million of facility closure
and other costs in the first quarter of 2004. Costs incurred and charged to the
reserve as of July 3, 2005 amounted to $2.0 million in severance related costs
and $1.4 million in facility closure and other costs. Dura does not expect to
incur any additional restructuring charges related to the exit of the Fulton
facility.
Asset Impairments
For the quarters ended July 3, 2005 and June 27, 2004, Dura recorded $1.1
million and $6.7 million, respectively, of asset impairment charges related to
prior facility consolidation actions. These charges are reflected as facility
consolidation, asset impairments and other charges in the condensed consolidated
statements of operations and were accounted for in accordance with SFAS No. 144.
Interest Expense - Interest expense for the second quarter of 2005 was
$24.9 million, an increase of $3.4 million, or 15.6% from $21.5 million in
2004's second quarter. Interest expense for the six months ended July 3, 2005
was $49.9 million, an increase of $7.1 million, or 16.6%, from $42.8 million for
the six months ended June 27, 2004. The increases resulted from increased
borrowings and increased interest rates.
Loss on early extinguishment of debt - The loss for the quarter ended
July 3, 2005 represents the write-off of debt issuance costs in connection with
the termination of Dura's 2003 Credit Agreement.
Income Taxes - The effective income tax rates for the second quarter and
first six months of 2005 differs from the U.S. federal statutory rate primarily
as a result of lower foreign tax rates, the effects of state taxes and the
provision of a valuation allowances on certain losses in foreign jurisdictions.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 2005, Dura used cash from operations of
$60.1 million, compared to generating cash from operations of $9.1 million in
2004. Cash generated from operations before changes in working capital items was
$47.1 million for the first six months of 2005 a decrease from the $58.2 million
for 2004 as a result of lower net income. Working capital used cash of $107.2
million in the first six months of 2005 compared to $49.1 million in 2004. The
increase cash usage for working capital resulted primarily from increased
accounts receivable including the termination of a major customers accelerated
payment program.
Net cash used in investing activities was $27.6 million for the first six
months of 2005 compared to $42.6 million used in 2004. In the first six months
of 2004, $13.3 million was used for acquisitions, $12.6 million was used for the
final purchase option for the Reiche acquisition, and $0.7 million was used for
a purchase price adjustment for the Creation Group acquisition. No acquisitions
were conducted in the first six months of 2005. Net capital expenditures totaled
$27.6 million for the first six months of 2005, which is line with 2004's $29.3
million. The capital expenditures were primarily for equipment and dedicated
tooling purchases related to new or replacement programs.
Net cash generated in financing activities totaled $8.5 million for the
first six months of 2005 compared to $15.7 million cash used in 2004. $11.4
million of this cash source represents the cash proceeds of the deferred gain on
termination of interest rate swaps.
-29-
In February 2005, Dura amended its 2003 Credit Agreement to, among other
things, adjust the total leverage, senior leverage and interest coverage ratios
that it was required to maintain over the next six quarters beginning April 3,
2005. As part of that amendment, Dura repaid $35.0 million of the tranche C term
loan.
In May 2005, Dura entered into new senior secured credit facilities with an
aggregate borrowing capacity of approximately $325 million, consisting of a
five-year $175 million asset-based revolving credit facility ("2005 Credit
Agreement") and a six-year $150 million senior secured second lien term loan.
Interest under these facilities is based on LIBOR. The senior secured second
lien term loan is due and payable in its entirety in May 2011. Proceeds of
$144.0 million, net of transaction costs for the new revolver and the senior
secured second lien term loan were used to repay Dura's existing $111 million
term loan C facility and general corporate purposes. The revolver is an
asset-backed revolving credit facility, which is supported by a borrowing base
that is calculated monthly. Availability under the revolver is determined by
advances against eligible accounts receivables, eligible inventory balances and
certain fixed assets. On July 3, 2005, Dura's liquidity under the new senior
secured credit facilities was $256.6 million. The revolver is secured by certain
of Dura's U.S. and Canadian assets and a 65 percent pledge of the stock of
Dura's foreign subsidiaries. The senior secured second lien term loan is secured
by all of the U.S. assets and a 65 percent pledge of the stock of certain of
Dura's foreign subsidiaries. In connection with the termination of Dura's 2003
Credit Agreement, Dura wrote-off debt issuance costs of approximately $3.3
million during the second quarter of 2005. At July 3, 2005, Dura had no
borrowings outstanding under the revolving credit facility.
In April 1999, Dura completed the offering of its 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.
Dura is limited as to its ability to declare or make certain dividend
payments or other distributions of assets under its 2005 Credit Agreement,
Senior Notes and Subordinated Notes. Certain distributions relating to items
such as a company stock purchase program, tax sharing arrangements, as required
under Dura's Preferred Securities, are permitted.
Dura also utilizes uncommitted overdraft facilities to satisfy the
short-term working capital requirements of its foreign subsidiaries. At July 3,
2005, Dura had overdraft facilities available from banks of approximately $24.7
million, of which, it had no borrowings outstanding.
Included in interest expense, net, in the consolidated statements of
operations is approximately $0.6 million and $0.7 million of interest income
earned on Dura's cash balances in the quarters ended July 3, 2005 and June 27,
2004, respectively and $1.3 million and $1.2 million for the six months ended
July 3, 2005 and June 27, 2004, respectively.
-30-
Dura's principal source of liquidity is cash flow generated from operations
and borrowings under its $175 million revolving credit facility. Dura believes
that such funds will be sufficient to meet its liquidity needs for at least the
next twelve months. Dura's principal use of liquidity will be to meet debt
service requirements, finance capital expenditures and to provide working
capital availability. Dura expects that capital expenditures in 2005 will be
approximately $70.0 million. These capital expenditures will be used primarily
for equipment and dedicated tooling purchases and facility improvements.
Dura's ability to service its indebtedness will depend on its future
performance, which will be affected by prevailing economic conditions and
financial, business, regulatory and other factors. Certain of these factors are
beyond Dura's control. Dura believes that, based upon current levels of
operations, it will be able to meet its debt service obligations when due.
Significant assumptions underlie this belief, including, among other things,
that Dura will continue to be successful in implementing its business strategy
and that there will be no material adverse developments in its business,
liquidity or capital requirements. If Dura cannot generate sufficient cash flow
from operations to service its indebtedness and to meet its other obligations
and commitments, Dura might be required to refinance its debt or to dispose of
assets to obtain funds for such purpose. There is no assurance that refinancing
or asset dispositions could be effected on a timely basis or on satisfactory
terms, if at all, or would be permitted by the terms of the New Credit
Agreement. In the event that Dura is unable to refinance its various debt
facilities or raise funds through asset sales, sales of equity or otherwise, its
ability to pay principal of, and interest on, its debt would be impaired.
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.
FOREIGN CURRENCY TRANSACTIONS
A significant portion of Dura's revenues during the three and six months
ended July 3, 2005 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 currencies 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 currencies.
Dura's significant Euro denominated operations were favorably impacted by
the Euro strengthening against the Dollar in the first six months of 2005. This
favorable exchange rate change resulted in a $20.2 million increase in Dura's
second quarter 2005 revenue as compared to the same period last year. Subsequent
to July 3, 2005, the Euro's value against the Dollar has declined. If this trend
continues throughout the remainder of 2005, we expect our revenues and results
of operations to be impacted accordingly. The strength of the Euro also
significantly impacted our consolidated debt levels at July 3, 2005. At July 3,
2005, approximately $127.1 million of Dura's debt is denominated in Euro or
other foreign currencies.
A significant portion of Dura's assets at July 3, 2005 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 currencies.
-31-
Dura's strategy for management of currency risk relies primarily upon
conducting its operations in such countries' respective currencies and Dura may,
from time to time, engage in hedging programs intended to reduce Dura's exposure
to currency fluctuations.
NEW ACCOUNTING PRONOUNCEMENTS
The FASB revised SFAS No. 123 in December 2004 and issued SFAS No.
123(R). This Statement supercedes APB No. 25, which resulted in no stock-based
employee compensation cost related to stock options if the options granted had
an exercise price equal to the market value of the underlying common stock on
the date of grant. SFAS No. 123R requires recognition of employee services
provided in exchange for a share-based payment based on the grant date fair
market value. In April 2005, the SEC delayed the effective date of SFAS No. 123R
to fiscal years beginning after June 15, 2005. As a result, Dura is required to
adopt SFAS No. 123R as of January 1, 2006. As of the effective date, this
Statement applies to all new awards issued as well as awards modified,
repurchased, or cancelled. Additionally, for stock-based awards issued prior to
the effective date, compensation cost attributable to future services will be
recognized as the remaining service is rendered. Dura may also elect to restate
prior periods by applying a modified retrospective method to periods prior to
the effective date. Dura is in the process of determining which method of
adoption it will elect. See Note 3 for SFAS No. 123 required disclosures and the
estimated impact of adoption of SFAS 123R if this SFAS had been adopted as of
the beginning of the periods presented.
The Emerging Issues Task Force ("EITF") has recently released EITF Issue
No. 05-05, "Accounting for Early Retirement or Postemployment Programs with
Specific Features (such as Terms Specified in Altersteilzeir Early Retirement
Arrangements)". Altersteilzeir (ATZ) in Germany is an early retirement program
designed to create an incentive for employees, within a certain age group, to
leave their employers before the legal retirement age. Although established by
law, the actual arrangement between employers and employees is negotiated. EITF
Issue 05-05 will require as of the beginning of 2006 for us, the accrual of
special retirement benefits. We are currently reviewing the impact, if any, to
the Company but do not believe it will be material.
The FASB issued on July 15, 2005, for comment an exposure draft of a
proposal interpretation to SFAS 109 on the accounting for uncertain tax
positions that seeks to reduce widespread diversity in accounting for income
taxes. The exposure draft requires that a tax position meet a "probable
recognition threshold" for the benefit of the uncertain tax position to be
recognized in the financial statements. This threshold is to be met assuming
that the tax authorities will examine the uncertain tax position. The exposure
draft contains guidance with respect to the measurement of the benefit that is
recognized for an uncertain tax position, when that benefit should be
derecognized, and other matters. The proposed effective date for this
interpretation is as of the end of the first fiscal year ending after December
15, 2005. We are currently reviewing the impact of this proposed interpretation
for the impact to our recording of deferred tax assets. While still under
review, we believe any material tax position we have taken will meet the
"probable recognition threshold."
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
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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 consolidation and cost reduction
strategies; 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.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At July 3, 2005, Dura had outstanding interest rate swap contracts that
effectively converted $400.0 million of its Senior Notes into floating rate
obligations. Under these swap contracts, which expire in April 2012, Dura
receives payments at a fixed rate (8.625 percent), while it makes payments at
variable rates (7.38 percent at July 3, 2005). The net interest paid or received
is included in interest expense. Dura designated these swap contracts as fair
value hedges at their inception. At July 3, 2005, the fair value of the interest
rate swap contracts was a net gain position for Dura of approximately $1.4
million, representing the estimated benefit that would accrue to Dura to
terminate the agreements, and is included in noncurrent assets with a
corresponding increase to debt in the accompanying consolidated July 3, 2005
balance sheet.
From time to time, Dura also uses forward exchange contracts to hedge its
foreign currency exposure related to certain intercompany transactions. There
were no contracts outstanding at July 3, 2005.
There have been no other material changes to our exposures to market risk
since July 3, 2005.
ITEM 4: CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of July 3, 2005, an evaluation was carried out under the supervision and
with the participation of the company's 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
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based
upon that evaluation, the Chief Executive Officer and the Chief Financial
Officer concluded that the design and operation of these disclosure controls and
procedures were effective to ensure that information required to be disclosed by
the company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in applicable rules and forms.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING DURING THE QUARTER ENDED
JULY 3, 2005
There were no significant changes in our internal control over financial
reporting that occurred during the Company's quarter ended July 3, 2005 that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
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PART II. OTHER INFORMATION
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings:
Other than as reported in Dura's 2004 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 4. Submission of Matters to a Vote of Security Holders:
The Annual Meeting of Stockholders of Dura Automotive Systems, Inc. was
held on May 18, 2005. At the meeting, the following matters were submitted
to a vote of the stockholders of Dura:
1. The election of nine directors to serve for one year beginning at the
2005 annual stockholders' meeting and expiring at the 2006 annual
stockholders' meeting. Each of the nominees: Scott D. Rued, Lawrence
A. Denton, Nick G. Preda, Yousif B. Ghafari, Jack K. Edwards, James O.
Futterknecht, Jr., Ralph R. Whitney, Jr., J. Richard Jones, and Walter
P. Czarnecki were elected. Each of the individuals nominated to serve
as a director received at least 13,604,008 votes representing 78% of
the shares eligible to vote.
2. The ratification of the appointment of Deloitte & Touche LLP as the
Company's independent registered public accounting firm. We received
17,343,776 votes representing 99% in favor of the ratification for the
appointment of Deloitte & Touche LLP to serve as the Company's
independent public accountants for 2005.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
10.1 Fifth Amendment and Restated Credit Agreement & Amended and
Restated Pledge and Security Agreement dated May 3, 2005
10.2 Second Lien $150,000,000 Credit Agreement & Pledge and Security
Agreement dated May 3, 2005
10.3 Intercreditor Agreement dated May 3, 2005
31.1 Certification by Lawrence A. Denton, President, Chief Executive
Officer and Director
31.2 Certification by Keith R. Marchiando, Vice President and Chief
Financial Officer
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
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During the three months ended July 3, 2005 for which this report is filed,
Dura Automotive Systems, Inc. filed the following reports on Form 8-K:
March 31, 2005, Form 8-K reporting under "Item 8.01 Other Events"
disclosing the new senior secured credit facilities with an aggregate
borrowing capacity of approximately $290 million.
April 18, 2005, Form 8-K reporting under "Item 5.02 Departure of
Directors or Principal Officers; Election of Directors; Appointment of
Principal Officers" disclosing the appointment of Walter P. Czarnecki
and Nick G. Preda to the company's board of directors.
April 28, 2005, Form 8-K reporting under "Item 2.02 Results of
Operations and Financial Condition" disclosing earnings for the three
months ended April 3, 2005.
April 29, 2005, Form 8-K reporting under "Item 1.01 Entry into a
Material Definitive Agreement" disclosing the entrance of David Bovee
into the 2003 Supplemental Executive Retirement Plan Change of Control
Agreement and to amend his existing stock option agreements to extend
the period within which the options may be exercised.
May 3, 2005, Form 8-K reporting under "Item 1.01 Entry into a Material
Definitive Agreement" disclosing the entrance into a senior revolving
credit facility and Second Lien Agreement.
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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: August 11, 2005 By /s/ Keith R. Marchiando
---------------------------------------
Keith R. Marchiando
Vice President, Chief Financial Officer
(principal accounting and financial
officer)
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EXHIBIT INDEX
Exhibit 10.1 Fifth Amendment and Restated Credit Agreement & Amended and
Restated Pledge and Security Agreement dated May 3, 2005
Exhibit 10.2 Second Lien $150,000,000 Credit Agreement & Pledge and Security
Agreement dated May 3, 2005
Exhibit 10.3 Intercreditor Agreement dated May 3, 2005.
Exhibit 31.1 Certification by Lawrence A. Denton, President, Chief Executive
Officer and Director
Exhibit 31.2 Certification by Keith R. Marchiando, Vice President and Chief
Financial Officer
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