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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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)
<Table>
DELAWARE 38-3185711
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2791 RESEARCH DRIVE, ROCHESTER HILLS, MICHIGAN 48309
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(248) 299-7500
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
CLASS A COMMON STOCK, $0.01 PAR VALUE
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Securities
Act. Yes [ ] No [X]
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated
filer [ ]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The aggregate value of Common Stock held by non-affiliates of the
Registrant was $78,885,583 as of June 30, 2005, based upon the closing price of
the Registrant's Common Stock reported for such date on the Nasdaq National
Market. Shares of Common Stock held by each executive officer and director and
by each person who owns 10% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. The determination
of affiliate status is not necessarily a conclusive determination for other
purposes. As of March 8, 2006, the Registrant had outstanding 18,814,806 shares
of Common Stock.
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DOCUMENTS INCORPORATED BY REFERENCE
Certain information is incorporated into Part III of this report by
reference to the Proxy Statement for the Registrant's annual meeting of
stockholders to be held on May 17, 2006 to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after the
end of the fiscal year covered by this Form 10-K.
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DURA AUTOMOTIVE SYSTEMS, INC.
INDEX
<Table>
PART I
Item 1. Business......................................................... 3
Item 1A. Risk Factors..................................................... 16
Item 1B. Unresolved Staff Comments........................................ 24
Item 2. Properties....................................................... 24
Item 3. Legal Proceedings................................................ 25
Item 4. Submission of Matters to a Vote of Security Holders.............. 25
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities................ 25
Item 6. Selected Financial Data.......................................... 25
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk....... 38
Item 8. Financial Statements and Supplementary Data...................... 39
Item 9. Changes and Disagreements With Accountants on Accounting and
Financial Disclosure............................................. 83
Item 9A. Controls and Procedures.......................................... 83
Item 9B. Other Information................................................ 87
PART III
Item 10. Directors and Executive Officers of the Registrant............... 87
Item 11. Executive Compensation........................................... 87
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.................................. 87
Item 13. Certain Relationships and Related Transactions................... 87
Item 14. Principal Accountant Fees and Services........................... 87
PART IV
Item 15. Exhibits and Financial Statement Schedule........................ 88
Signatures................................................................ 92
</Table>
2
PART I
ITEM 1. BUSINESS
Dura Automotive Systems, Inc. (a Delaware Corporation) is a holding company
whose predecessor was formed in 1990. Dura Automotive Systems, Inc. and its
subsidiaries (collectively referred to as "DURA", "Company", "we", "our" and
"us") is a leading independent designer and manufacturer of driver control
systems, seating control systems, glass systems, engineered assemblies,
structural door modules and exterior trim systems for the global automotive and
recreation & specialty vehicle ("RVSV") industries.
We sell our products to every major North American, Asian and European
automotive original equipment manufacturer ("OEM") and most RVSV OEMs. We have
63 manufacturing and product development facilities located in the United States
("U.S."), Brazil, Canada, China, Czech Republic, France, Germany, Mexico,
Portugal, Romania, Slovakia, Spain and the United Kingdom ("UK"). We also have a
presence in India, Japan, and Korea through sales offices, alliances or
technical licenses.
Over the past fifteen years, the automotive components supply and RVSV
industries have undergone significant consolidation and globalization as OEMs
reduced their supplier base. In order to lower costs and improve quality, OEMs
are awarding sole-source contracts to full-service suppliers who have the
capability to design and manufacture their products on a global basis. The OEMs'
criteria for supplier selection include not only cost, quality and
responsiveness, but also full-service design, engineering and program management
capabilities. OEMs are seeking suppliers capable of providing complete systems
and modules rather than suppliers who only provide separate component parts.
In response to these trends, over the past several years we pursued a
disciplined investment strategy that has provided a wider variety of product,
manufacturing and technical capabilities. We have broadened our geographic
coverage and strengthened our ability to design and manufacture products on a
global basis. As a full-service supplier with strong OEM relationships, we
expect to continue to benefit from the supply base consolidation trends.
We continued to focus on the diversification of our customer and product
base. Approximately 57% of 2005 revenues were generated from sales to the top
automotive OEMs in the world including, General Motors ("GM"), Ford, Toyota,
DaimlerChrysler, Renault-Nissan, Volkswagen, PSA Group ("PSA"), Honda and BMW.
European sourced sales to the big three customers (DaimlerChrysler, Ford and
General Motors) were 14% of consolidated revenue, with 22% being sourced in
North America in 2005. In 2005, 40% of our overall automotive revenues were
realized in Europe with the remainder primarily being realized in the America's.
In addition, the trend toward module sourcing has enabled us to expand our
customer base to include large Tier 1 automotive suppliers, including Lear
Corporation ("Lear") and Johnson Controls, Inc. ("JCI") which accounted for
approximately 11% of our revenues in 2005. Additionally, approximately 16% of
our revenues in 2005 came from RVSV customers including Fleetwood, Winnebago,
Coachmen, Jayco and numerous aftermarket distribution channels.
INDUSTRY TRENDS
Our performance and growth are directly related to certain trends within
the automotive and RVSV markets.
Increasing Electronic and Technological Content. The electronic and
technological content of vehicles continues to expand, largely driven by
consumer demand for greater vehicle performance, functionality, and affordable
convenience options as a result of increased communication abilities in vehicles
as well as increasingly stringent regulatory standards for energy efficiency,
emissions reduction, and increased safety. Mechatronic systems utilize
microprocessors and software to control the motion of mechanical devices.
Mechatronics is a growing market, as the electronic content on automobiles is
expected to rise to between 35% and 40% of a car's total cost by 2010, versus
25% in 2004. This environment will present substantial growth opportunities to
suppliers with the capability to design both the mechanical and electronic
portions of mechatronic systems and deliver optimized system performance and
value to OEM customers.
In 2005, we entered into a joint venture agreement with Olhotronic GmbH to
develop, manufacture and sell electronic modules used in mechatronic systems for
the automotive and RVSV industries. The new joint venture company conducts
business under the name Duratronics GmbH and is headquartered in Lohne, Germany.
3
Duratronics' products will be integrated with our portfolio of mechatronic
control systems and sold worldwide to automotive and RVSV OEMs, as well as to
dealerships and consumers through aftermarket channels. Duratronics' initial
products will include systems such as: shifter indication; electronic seating
controls; anti-pinch window electronics; and a portfolio of by-wire systems.
Utilization of Light-Weight Materials. Concern over the environmental
impact of the automotive industry has been growing, resulting in European and
U.S. regulations of vehicle emissions becoming more stringent. The automotive
manufacturer's need to improve overall fuel economy in vehicles has led to the
trend toward minimizing vehicle weight. The use of light-weight materials such
as aluminum is on the rise and heavier traditional materials such as steel and
iron are being replaced whenever possible.
Platform Derivatives. Automakers continue to expand the number of unique
models offered from vehicle platforms to provide increased options for vehicle
buyers. Platform derivatives often include a combination of sedans, wagons,
SUVs, crossovers, minivans, hatchbacks and a growing number of other
configurations on a single platform. Additionally, many vehicle platforms offer
certain vehicle models that deliver higher performance through the use of
lighter weight materials and enhanced power trains. The expansion in derivatives
drives an overall increase in platform volume, comprised of several lower volume
model configurations. To maintain a competitive cost structure while expanding
offerings, automakers seek innovative technologies and suppliers that can offer
solutions based on flexible manufacturing concepts that reduce capital and
tooling expenses. Suppliers with technologies that contribute to space frame
architectures for door and body components are able to provide significant
investment advantages for platform derivatives below 100,000 units.
Continuous Cost and Performance Improvement. In order to continue to
respond to increasingly competitive market pricing dynamics, suppliers are
establishing comprehensive plans to remove waste from the enterprise value
stream. This includes optimizing the design of products and manufacturing
processes above previous generations for improved efficiency and value.
Suppliers with the ability to generate savings through processes such as six
sigma, lean manufacturing, value analysis and value engineering ("VA/VE"), and
warranty analysis, coupled with strong execution and disciplines in advanced
product quality planning ("APQP") will be successful in offering continuous
improvement in value.
Safety Performance. Government agencies develop, promote, and implement
educational, engineering and enforcement programs directed toward ending
preventable tragedies and improving occupant safety related with vehicle use and
highway travel. These agencies also establish standards for safety performance
criteria that every new motor vehicle sold in a specified region must meet.
Standards range from those focused on crash avoidance features (such as brakes
and lighting) to ensuring vehicle crashworthiness through testing occupant
restraint systems (safety belts and airbags) and to protecting against fires
(fuel integrity). These standards set forward test procedures and specific
performance requirements. Vehicle manufacturers are required to certify that
each new vehicle sold meets all of the applicable standards. Should a vehicle
fail any aspect of the standard, the manufacturer is required to recall the
vehicle and fix the problem. Vehicle manufacturers and suppliers strive to
continuously improve vehicle and component safety performance. These efforts
include the creation of stringent safety programs aimed toward saving lives,
preventing injuries, and reducing traffic-related health care and other economic
costs. Suppliers with proven track records in developing and manufacturing
products that exceed government and OEM quality and safety standards offer
significant value to vehicle manufacturers and are at an advantage versus
suppliers of non-safety related products. We have extensive experience in the
design and manufacturing of safety related products. A majority of our products
are designed and tested to meet the stringent safety standards set both by
governments and OEMs.
System and Module Sourcing. OEMs increasingly seek suppliers capable of
manufacturing complete systems or modules of a vehicle rather than suppliers who
only produce individual components. By outsourcing complete systems or modules,
OEMs are able to reduce their costs associated with the design and integration
of different components and improve quality by enabling their suppliers to
assemble and test major portions of the vehicle prior to beginning production.
Often the modules are supplied to OEM factories on a just-in-time basis, which
involves the complex sequencing of discrete modules with specific vehicle build
schedules. Suppliers with in-line-vehicle-sequencing ("ILVS") capabilities will
have access to these contract opportunities. We continue to
4
invest in and expand our ILVS capabilities for products such as complex glass
modules, shifters and exterior trim packages.
Global Expansion into Emerging Markets. Regions such as Asia, Latin
America and Eastern Europe are expected to experience significant growth in
vehicle demand over the next ten years. Suppliers and OEMs are positioning
themselves to reach these emerging markets in a cost-effective manner by
expanding their geographic presence and marketing products that can be designed
in one vehicle center but customized, produced and sold in many different
geographic markets, thereby reducing design costs and take full advantage of
low-cost manufacturing locations. OEMs increasingly are requiring their
suppliers to have the capability to design and manufacture their products in
multiple geographic markets.
Ongoing Industry Consolidation. OEMs have continued to reduce their
supplier base, awarding sole-source contracts to full-service suppliers. As a
result, OEMs currently work with a smaller number of suppliers each of which
supplies a greater proportion of the total vehicle. Suppliers with sufficient
size, geographic scope and financial resources can best meet these requirements.
This environment provides an opportunity to grow by obtaining business
previously provided by other non full-service suppliers and by acquiring
suppliers that further enhance product, manufacturing and service capabilities.
OEMs rigorously evaluate suppliers on the basis of product quality, cost control
and reliability of delivery, product design capability, financial strength, new
technology implementation, facilities and overall management. Suppliers that
obtain superior ratings are considered for new business. These OEM practices
resulted in significant consolidation of component suppliers in certain
segments. We believe that opportunities exist for further consolidation within
the vehicle component supply industry. This is particularly true in Europe,
which has many suppliers with relatively small market shares.
BUSINESS STRATEGY
Our primary business objective is to capitalize on the technology,
globalization and system sourcing trends in the automotive supply and RVSV
industries in order to be the leading provider of the systems we supply to
customers worldwide.
Presently, we are focusing on the following key strategies:
Focus on Core Businesses. We continue to bolster our organic growth
strategy by seeking complimentary partnerships and investments that provide
a competitive advantage and growth opportunities for our core businesses.
As part of this strategy, we have placed a greater emphasis on achieving
higher returns on our investments and our individual business lines.
Accelerate Investments in New Product and Process Technologies. We
intend to accelerate our investments in new product and manufacturing
process technologies to strengthen and differentiate our product portfolio.
We also intend to continue our efforts to develop innovative products and
manufacturing processes to serve our customers better globally and improve
our product mix and profit margins.
Maximize Low-Cost Production Capabilities. We continuously implement
strategic initiatives designed to improve product quality while reducing
manufacturing costs. In addition, we continually evaluate opportunities to
maximize our facility and asset utilization worldwide. We also seek to
capitalize on opportunities to expand our manufacturing capabilities in
low-cost regions of the world, which are anticipated to develop into future
domestic sales to emerging markets. In February 2006, we announced an
operational restructuring plan designed to enhance performance
optimization, worldwide efficiency and financial results. This plan is an
acceleration of our previous strategies, focused on achieving improved
financial results by year-end 2007. The restructuring plan is expected to
impact over 50% of our worldwide operations either through product movement
or facility closures. We expect to complete this action by year-end 2007.
In addition, our purchasing organization will aggressively cut costs
throughout our supply chain resulting in a significant reduction of annual
purchasing costs. Cash costs for the restructuring plan are expected to be
approximately $100 million. These costs will relate primarily to employee
severance, capital investment, asset impairment, facility closure and
product move costs. We expect a three year payback on the investment. The
savings are expected primarily through a lower average global wage rate,
lower cost of purchased materials and operating efficiencies gained
5
as a result of facility consolidations and reorganizations. The
restructuring, we believe, can be financed with cash on hand and
availability under our existing revolving credit facility.
Reduce Debt. We will continue to focus on ways to strengthen our
balance sheet by increasing our cash flow and applying proceeds from growth
initiatives toward the reduction of debt. Through 2007, we will increase
debt to finance our February 2006 restructuring initiative that is planned
to enhance operational results. This plan should lead to improved
profitability levels enabling us to reduce our debt. We work to maximize
our cash flow available for debt reduction by boosting operating
efficiencies, implementing a disciplined capital expenditure program and
divesting non-core operating assets. We intend to continue leveraging our
existing asset base through a disciplined capital expenditure program
focused on return on invested capital. In addition, we intend to focus on
strategic partnerships and alliances that require minimal upfront cash
investments to pursue new business opportunities.
COMPANY HISTORY
DURA was formed in 1990 by Hidden Creek Industries ("Hidden Creek"), Onex
Corporation ("Onex"), J2R Corporation ("J2R") and certain others for the purpose
of acquiring certain operating divisions from the Wickes Manufacturing Company
("Wickes"). Onex is a publicly owned holding company based in Canada. Hidden
Creek was a private industrial management partnership comprised of Onex and J2R
and was based in Minneapolis, Minnesota. Hidden Creek provided certain
strategic, financial and acquisition services to us since our inception. Onex,
J2R and the principals of Hidden Creek divested their remaining Class B common
stock in 2004 and are no longer affiliated with us.
Our primary business objective has been to capitalize on the consolidation,
globalization and system sourcing trends in the automotive supply and recreation
vehicle industries in order to be the leading provider of the systems we supply
to OEMs worldwide. A key element of our growth strategy has been to add to our
ability to provide complete systems to our OEM customers. Historically, our
growth has come from acquisitions. Since inception, our growth through
acquisition included acquiring the following businesses:
<Table>
<Caption>
NAME: ACQUISITION DATE
- ----- ----------------
Alkin Co. .................................................. 1994
Pollone S.A. ............................................... 1996
Rockwell Light Vehicle Systems France S.A. ................. 1996
KPI Automotive Group........................................ 1996
VOFA Group.................................................. 1997
GT Automotive Systems, Inc. ................................ 1997
Thixotech Inc. ............................................. 1997
REOM Industries............................................. 1997
Universal Tool and Stamping Co., Inc. ...................... 1998
Trident Automotive PLC...................................... 1998
Hinge Business of Tower Automotive, Inc. ................... 1998
Excel Industries, Inc. ("Excel")............................ 1999
Adwest Automotive PLC....................................... 1999
Metallifacture Limited...................................... 1999
Seat Adjusting Business of Meritor Automotive, Inc. ........ 1999
Jack Division of Ausco Products, Inc. ...................... 2000
Bowden TSK.................................................. 2000
Reiche GmbH & Co. KG Automotive Components ("Reiche")....... 2000
Creation Group of Heywood Williams Group PLC ("Creation
Group")................................................... 2003
</Table>
6
Through the integration of acquired companies, we have identified certain
businesses as non-core and divested them as appropriate. Today all of these
acquired businesses have been fully integrated and are managed as one company.
In addition to acquisitions, we have also entered into strategic alliances
and joint ventures that complement the company's core initiatives. The following
is a list of significant ventures:
<Table>
<Caption>
DATE OF DURA DURA OWNERSHIP
JOINT VENTURE INVESTMENT %
- ------------- ------------ --------------
DURA Vehicle Components Co., Ltd. ............... 1999 90%
DURA GANXIANG Automotive Systems (Shanghai) Co.,
Ltd. .......................................... 2005 55%
DURATRONCIS GmbH................................. 2005 50%
</Table>
In February 2006, we announced that we are evaluating strategic
alternatives involving three of our manufacturing operations located in Lage,
Lippstadt and Rotenburg, Germany. At this time, no final decision has been made
nor has the Board of Directors' approval been obtained concerning the ultimate
strategy we will take. We have retained the services of a financial adviser to
assist in developing alternatives, including solicitation of interest from
prospective acquirers.
PRODUCTS
We are a leading independent designer and manufacturer of driver control
systems, seating control systems, glass systems, engineered assemblies,
structural door modules and exterior trim systems for the global automotive and
RVSV industries.
Although a portion of our products are sold directly to OEMs as finished
components, we use most of our products to produce "systems" or "subsystems,"
which are groups of component parts located throughout the vehicle which operate
together to provide a specific vehicle function.
A brief summary of each of our principal product categories is set forth
below:
<Table>
<Caption>
PRODUCT CATEGORY DESCRIPTION
- ---------------- -----------
Driver Control Systems.... Adjustable and traditional pedal systems, electronic
throttle controls, parking brake systems, cable systems,
hybrid electronic and traditional gear shift systems,
instrument panel beams
Seating Control Systems... 2, 4, 6 and 8-way power and manual seat adjusters,
first, second and third row applications, complete seat
structures, seat recliner assemblies, electronic seating
control modules
Glass Systems............. Urethane and polyvinyl chloride ("PVC") glass
encapsulated windows, integrated liftgate modules,
manual and power backlite windows, 1, 2 or 3-sided glass
modules, drop-door glass, hidden hardware glass and
integrated greenhouse systems
Door Systems and Modules.. Aluminum and steel body-in-white door modules, door
frames, glass run channels, guide rails, window lift
systems, space frame body components, structural beams
and cross members
Engineered Assemblies..... Spare tire carriers, jacks and tool kit assemblies;
hood, tailgate, and seat latch systems; hood, tailgate,
and door hinge systems; RVSV leveling and landing
systems and towing hardware
Exterior Trim Systems..... Roof and waist moldings, side frame trim, A, B & C-
pillar cappings, body color trim and bright trim
RVSV Appliances........... Water heaters, furnaces, stoves and ranges
</Table>
CUSTOMERS AND MARKETING
In 2005, approximately 75% of total worldwide light vehicle production
occurred outside of North America. We derive a significant amount of our revenue
from sales to OEMs located outside of North America. In Europe, we
7
supply products primarily to Volkswagen, GM, Ford, BMW, PSA (Peugeot and
Citroen), Renault-Nissan, and DaimlerChrysler.
The North American automotive industry is led by GM, Ford, Toyota and
DaimlerChrysler. New domestic manufacturers as a whole accounted for
approximately 32% of the market in 2005. In North America, we supply products
primarily to Ford, GM, DaimlerChrysler and Lear. We have also expanded our
global presence through acquisitions and internal growth. We have added new
customers and increased penetration into certain existing customers such as BMW,
Volkswagen, Toyota, Renault-Nissan, Honda and PSA.
See footnote 9 to the consolidated financial statements for more
information relating to revenues and long-lived assets for each geographic area
referenced above.
Our automotive customers award contracts for a particular vehicle platform,
which may include more than one car model. Such contracts range from one year to
the life of the model, which is generally three to seven years, and do not
require the customer to purchase a minimum number of parts. We also compete for
new business to supply parts for successor models. Because we supply parts for a
broad cross-section of both new and mature models, our reliance on any
particular model is minimized. We manufacture products for many of the most
popular car, light truck, sport utility and multi-activity-vehicle models in
North America and Europe.
Major customers for our RVSV products include Fleetwood, Winnebago, Thor,
Damon, Jayco, Coachmen, Monaco, Motor Coach and Navistar. Sales and engineering
groups are located in Elkhart, Indiana to service these customers. Customers in
the RVSV products market generally negotiate annual pricing contracts without
firm order commitments or long purchase order lead times. Therefore, the RVSV
group does not have a significant backlog of orders at any particular time.
Our sales and marketing efforts are designed to create overall awareness of
our engineering, design and manufacturing capabilities and to have us considered
and selected to supply our products for new and redesigned models of our OEM
customers. Our sales and marketing staff works closely with our design and
engineering personnel to prepare the materials used for bidding on new business
as well as to provide a consistent interface between us and our key customers.
Most of our sales and marketing personnel have engineering backgrounds which
enable them to understand and participate in the design and engineering aspects
of acquiring new business as well as ongoing customer service. We currently have
sales and marketing personnel located in every major region in which we operate.
When deemed appropriate, we also participate in industry trade shows and
advertise in industry publications.
Our sales distribution by geographic region for the years ended December
31, 2005, 2004 and 2003 was as follows:
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
----------------
REGION 2005 2004 2003
- ------ ---- ---- ----
North America........................................ 57% 59% 60%
Europe............................................... 40% 39% 38%
Other................................................ 3% 2% 2%
---- ---- ----
Total.............................................. 100% 100% 100%
==== ==== ====
</Table>
8
The following is a summary of our significant customers based on sales from
continuing operations for 2005, 2004 and 2003:
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
----------------
CUSTOMER 2005 2004 2003
- -------- ---- ---- ----
Ford................................................. 19% 19% 20%
GM................................................... 10% 12% 14%
Lear................................................. 10% 11% 12%
Volkswagen........................................... 10% 9% 9%
DaimlerChrysler...................................... 8% 8% 9%
BMW.................................................. 4% 4% 4%
Renault-Nissan....................................... 2% 2% 2%
PSA.................................................. 2% 2% 2%
JCI.................................................. 1% 1% 1%
Toyota............................................... 1% 1% 1%
Honda................................................ 1% 1% 1%
Fleetwood............................................ 1% 1% 1%
Other................................................ 31% 29% 24%
---- ---- ----
Total.............................................. 100% 100% 100%
==== ==== ====
</Table>
DESIGN AND ENGINEERING SUPPORT
We believe that engineering service and support are key factors in
successfully obtaining new business. We utilize program management with
dedicated program teams, which have full design, development, test and
commercial issues under the operational control of a single manager. In
addition, we have established cross-functional teams for each new program to
ensure efficient product development from program conception through product
launch.
We continuously expand the multi-geographic-flexibility of our product
development and manufacturing capabilities to support our customer's
globalization plans. In doing so, we offer design, sales and manufacturing
support near key customers in the major regions of the world. In 2004, we added
a technology and sales center in Velizy, France, near the design headquarters of
Renault-Nissan and PSA.
Separate advanced technology groups have been established to maintain our
position as a technology leader. The advanced technology groups have developed
many innovative features in our products, including many features that were
developed in conjunction with our customers. We utilize computer aided designs
("CAD") in the design process, which enables us to share data files with our
customers via compatible systems during the design stage, thereby improving
function, fit and performance within the total vehicle. We also utilize CAD
links with our manufacturing engineers to enhance manufacturability and quality
of the designs early in the development process.
We have over 600 pending and issued patents. Because of the size and
diversity of our patent portfolio and our current product innovation activities,
issued patents expire and new applications are filed on a regular basis.
Although we believe that, taken together, the patents and patents pending are
significant, the loss, failure to issue or expiration of any particular patent
or patent pending, would not be material to us.
MANUFACTURING
We employ a number of different manufacturing processes. We utilize
flexible manufacturing cells wherever possible in all manufacturing operations.
Manufacturing cells are clusters of individual manufacturing operations and work
stations grouped in a circular configuration, with the operators placed
centrally within the configuration. This provides flexibility by allowing
efficient changes to the number of operations each operator performs. When
compared to the more traditional, less flexible assembly line process, cell
manufacturing allows us to maintain our product output consistent with our
customers' requirements and reduce the level of inventory. We also pioneered
9
and employ "Super-cell" configurations which locate primary capital equipment
centrally among secondary assembly equipment, to reduce in-process inventory,
improve quality, and reduce manufacturing costs.
Assemblies such as jacks, parking brake levers, gear shifters and latches
consist of between 5 and 50 individual components, which are attached to form an
integrated mechanism. Although these assembly operations are generally performed
in manufacturing cells, high-volume, automated assembly machines are employed
where appropriate. The assembly operations construct the final product through
hot or cold forging machines, staking and riveting the component parts. A large
portion of the component parts are purchased from our outside suppliers.
However, we manufacture many of our stampings, a process that consists of
passing sheet metal through dies in a stamping press to form the metal into
three-dimensional parts. We produce stamped parts using single-stage and
progressive dies in presses, which range up to 800 tons. Through continuous
improvement teams, which stress employee involvement, manufacturing processes
are regularly upgraded to increase flexibility and efficiency; improve operating
safety and quality; and minimize changeover times of the dies and fixtures.
Our seat systems, door systems and body components use similar processes
coupled with roll forming and stretch bending. Roll forming is a continuous
process in which coiled steel is passed through a series of rollers which
progressively form the metal into a consistently shaped section. When viewed
from one end, the profile may be u-shaped for glass channels and roof rails.
More complex shapes are processed for upper door profiles. Stretch bending
involves clamping a length of the rolled profile at numerous points and then
twisting or bending the metal to form contoured surfaces, such as door frames.
Door and body components also require welding, grinding and polishing operations
to provide a smooth finish.
Cables are manufactured using a variety of processes, including plastic
injection molding, extrusion, wire flattening, spring making and zinc die
casting. Wire is purchased from outside suppliers and then woven into contra-
twisted layers on tubular stranders and bunching machines to produce up to 19-
wire stranded cable. Corrosion resistance is provided by a proprietary, ceramic
coating applied during the stranding process. The cable then is plastic-coated
by an extrusion process to provide a smooth, low friction surface that results
in high efficiency and durability. Conduit is then produced by flattening and
coiling wire, which is then extruded with a protective coating. Proprietary
strand and conduit cutting machines enable efficient processing. Assembly
operations are arranged in cells to minimize inventory, improve quality, reduce
scrap, improve productivity and enhance employee involvement. The cables are
assembled with various attachments and end fittings that allow the customer to
install the cables to the appropriate mating mechanisms.
Our glass systems broadly include two categories of products: mechanically
framed glass and molded framed glass. Mechanically framed glass products are
produced by putting glass panes through a series of processes, which include
adding handles, hinges, aluminum and steel based edge frame assemblies,
electrical connectors and fasteners. The production of molded framed glass
products involves two primary molding processes: Reaction Injection Molding
("RIM") and High Pressure Injection Molding ("HPIM"). Both processes provide a
"surround" to the glass panes that incorporates the styling, sealing and
mechanical attachment features of the product. Our ability to utilize either
process provides OEMs with the maximum advantage in terms of cost, styling
imperatives and robustness. The glass panes used in the production of our glass
systems are primarily purchased from outside suppliers. We produce certain of
our RVSV glass panes internally.
We utilize frequent communication meetings at all levels of manufacturing
to provide training and instruction as well as to assure a cohesive, focused
effort toward common goals. We encourage employee involvement in all aspects of
our business and view such involvement as a key element in our success. We also
aggressively pursue involvement from our suppliers, which is necessary to assure
a consistent high quality and on time delivery of raw materials and components.
Where practical, we utilize component suppliers in the design and prototype
stages of the new product development to facilitate the most comprehensive,
state-of-the-art designs available. We have made substantial investments in
manufacturing technology and product design capability to support our products.
This includes modern manufacturing equipment, fineblanking, sophisticated CAD
systems and highly-trained engineering personnel. These advanced capabilities
enable us to deliver superior product quality at globally competitive prices.
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QUALITY
The automotive industry has established a global quality management system
requirement known as ISO/TS 16949:2002. This requirement was specifically
designed by the automotive sector and is recognized by all automotive
manufacturers worldwide. Independent auditors must register suppliers as ISO/TS
16949:2002 compliant, no later than December 31, 2006 as a condition of doing
business with specific automotive customers. Third party registration can only
be obtained by demonstrating continuous improvement in manufacturing capability
and support processes. We have ISO/TS 16949:2002 registrations at over 95% of
our global automotive facilities as of December 31, 2005. In addition, we
maintain registration to the ISO 9000 quality management system for facilities
that serve the RVSV markets.
Our facilities have been recognized by our customers over the last five
years with various awards, such as the DaimlerChrysler Gold Award, recognition
by DaimlerChrysler as a supporting role in the Blackbelt Project of the Year
Award, Honda Quality and Delivery Performance Awards, Isuzu Quality Achievement
Award, Lear Hall of Fame Award, Nissan Quality Master Award, Nummi Delivery
Performance Award, PPG Delivery Award, Subaru Quality Achievement Award, Toyota
Quality Performance Achievement and Volkswagen Premier Supplier Award. We have
also received an "A" rating at Peugeot and Renault. Moreover, our RVSV group has
been the recipient of Fleetwood Industries Circle of Excellence: Quality
Supplier Award for many years as well as WDA Supplier of the Year.
We maintain an environmental management system at our automotive
manufacturing locations. The system meets the ISO 14001 standard and is
registered by independent third party auditors. The environmental management
system assists us in being a clean corporate citizen and provides a framework
for managing environmental aspects.
COMPETITION
We operate in a highly competitive environment. We principally compete for
new business at the beginning of the development of new models and upon the
redesign of existing models. New model development generally begins two to five
years before the OEMs manufacture such models for the public. Once a supplier
has been designated to supply parts for a new program, an OEM usually will
continue to purchase those parts from the designated producer for the life of
the program, although not necessarily for a redesign. Competitive factors in the
market for our products include product quality and reliability, cost, timely
delivery, technical expertise and development capability, new product innovation
and customer service. The number of our competitors has decreased due to the
supplier consolidation resulting from changing OEM policies. Some of our
competitors have substantial size, scale and financial resources.
In addition, there is substantial and continuing pressure by the OEMs to
reduce costs, including the cost of products purchased from outside suppliers
such as ourselves. Historically, we have been able to generate sufficient cost
savings to offset these price concessions.
We are a leading independent designer and manufacturer of driver control
systems, seating control systems, glass systems, engineered assemblies,
structural door modules, exterior trim systems and appliances for the global
automotive and RVSV industries. Set forth below is a brief summary of our most
significant competitors in several major product categories:
DRIVER CONTROL SYSTEMS:
Automotive Cables. We are the leading producer of automotive cables in
both North American and Europe. Major competitors include Teleflex Incorporated
("Teleflex"), Ficosa International, S.A. ("Ficosa") and Hi-Lex Corporation ("Hi-
Lex") in North America and Kuester & Co. GmbH ("Kuester"), Ficosa and Sila
Holding Industriale ("Sila") in Europe.
Parking Brakes. We are the leading producer of parking brakes in North
America. Traditional parking brake competitors include Flex-N-Gate, Magna
International Inc. ("Magna"), Ficosa, Otscon and Aisin Seiki. Competitors in the
electronic parking brake market include Kuester, TRW and Siemens VDO.
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Transmission Shifters. We are a leading producer of transmission shifters
in North America. Major competitors include Grand Haven Stamped Products,
Teleflex, and Tokai Rika. Our competitors in Europe include Lemforder, Teleflex,
Ficosa, and Sila.
Pedal Systems. Our primary competitors in pedal systems include KSR,
Drivesol, and Magna in North America.
SEATING CONTROL SYSTEMS:
Our primary competitors are the in-house operations of Lear, Intier
(Magna), JCI, and Faurecia. In addition, independent competitors include Brose
Fahrzeagteile Glaswerke GmbH & Co. ("Brose"), C. Rob Hammerstein GmbH & Co. KG,
Fischer and Keiper Recaro GmbH & Co.
GLASS SYSTEMS:
Our primary competitors in glass systems are Magna, Pilkington, PPG Inc.,
Guardian Industries, Inc. and Hehr International, Inc. in North America and
Sekurit and Pilkington in Europe.
ENGINEERED ASSEMBLIES:
Hood Latches. We are a leading producer of hood latches in North America.
Our primary competitors include Magna, Aisen Seiki and Pyeong HWA.
Jacks. We are a leading producer of jacks in North America. Our primary
competitors include Flex-N-Gate and Bosal.
Tire Carriers. We are a leading producer of tire carriers in North
America. Our primary competitors are Flex-N-Gate, Mivrag Cold Forming Technology
Ltd., Edscha and Fabco.
Hardware. We are a leading producer of RVSV hardware in North America. Our
primary competitors include Cequent (TriMas Corporation), Shelby Industries and
Lippert Components, Inc.
STRUCTURAL DOOR MODULES:
In this product group, we compete in door modules and window lift systems
as well as other product areas. The primary competitors for door modules in
North America and Europe include Brose, Delphi, ArvinMeritor, Magna, Matra,
Wagon, Amerimax and Phillips and for window lift systems in North America, we
compete with ArvinMeritor, Brose, Hi-Lex and Magna.
EXTERIOR TRIM SYSTEMS:
Our primary competitors in Europe for roof trim moldings, side frame trim,
A, B, & C-pillar cappings and body color trim include WKW and Aries.
RVSV APPLIANCES:
Our primary competitors for RVSV appliances include Suburban Manufacturing
(division of Airxcel) and Maytag Appliances/Magic Chef RV Products.
Our competitors in Asia and South America include many of the same
companies listed above by product category, who have opened facilities or formed
joint ventures in these regions with existing manufacturers.
SUPPLIERS AND RAW MATERIALS
Our principal raw materials include (1) coil steel and resin in mechanism
production, (2) metal wire and resin in cable production, (3) glass in window
systems and (4) aluminum in RVSV and Body & Glass extruded components. We do not
manufacture or sell primary glass. We primarily purchase hot and cold rolled,
galvanized, organically coated and aluminized steel. In general, the wire we
used is produced from steel with many of the same previously mentioned
characteristics except that it has a higher carbon content. We utilize plastic
resin to produce
12
the protective coating for cables and transmission shifter components. We employ
just-in-time manufacturing and sourcing systems enabling us to meet customer
requirements for faster deliveries while minimizing our inventory levels. We do
not carry inventories of raw materials or finished products in excess of those
reasonably required to meet production and shipping schedules.
Overall, raw steel and purchased parts with steel content accounted for the
most significant component of our raw materials costs in 2005. Steel prices
increased significantly during 2004. This increase had a negative impact on our
gross profit in 2005 and 2004. Steel prices declined somewhat during 2005 from
the average in 2004. To offset increasing steel costs, we have entered into
shorter term, 3-to-6 month supply agreements in the second half of 2005 and
early in 2006 with certain steel service centers. We believe we can continue to
obtain short term supply agreements. These arrangements do not contain minimum
purchase requirements. These relationships allow us to order precise quantities
and types of steel for delivery on short notice, thereby resulting in lower
inventory levels. In addition, we occasionally "spot buy" steel from service
centers to meet customer demand, engineering changes or new part tool trials. We
manage our raw material costs to mitigate the effect of rising steel prices on
our results of operations. This strategy includes working with suppliers to
minimize the overall impact of rising costs for raw material and purchased parts
through delaying the timing of any increase, selling steel waste and scrap at
the highest possible price, increasing cost reduction programs throughout the
business, and lastly, negotiating price relief from customers. Our results of
operations will continue to be adversely affected by higher steel prices unless
we are successful in passing along these increases to our customers or otherwise
offset these increased raw material costs through other operating efficiencies.
Other raw materials or components purchased by us include tools and dies,
motors, fasteners, springs, rivets and rubber products, all of which are
available from numerous sources.
PRODUCT WARRANTY MATTERS
We face an inherent business risk of exposure to product liability and
warranty claims in the event that our products fail to perform as expected and
such failure of the products results, or is alleged to result, in bodily injury
and/or property damage. We cannot assure that we will not experience any
material warranty or product liability losses in the future or that we will not
incur significant costs to defend such claims. In addition, if any of the
products are or are alleged to be defective, we may be required to participate
in a recall involving such products. Each OEM has its own policy regarding
product recalls and other product liability actions relating to its suppliers.
However, as suppliers become more integrally involved in the vehicle design
process and assume more of the vehicle assembly functions, OEMs are increasingly
looking to their suppliers for contribution when faced with product liability
claims. A successful claim brought against us or a requirement to participate in
a product recall may have a material adverse effect on our business. OEMs are
also 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 we supply
products to an OEM, an OEM may hold us responsible for some or all of the repair
or replacement costs of defective products under new vehicle warranties, when
the product supplied did not perform as represented.
We carry insurance for certain legal matters including product liability;
however, we do not carry insurance for recall matters, as the cost and
availability for such insurance, in the opinion of management, is cost
prohibitive or not available. We have established reserves for matters that are
probable and estimable in amounts management believes are adequate to cover
reasonable adverse judgments not covered by insurance. Based upon the
information available to management and discussions with legal counsel, it is
the opinion of management that the ultimate outcome of the various current legal
actions and claims that are incidental to our business will not have a material
adverse impact on our consolidated financial position, results of operations, or
cash flows; however, such matters are subject to many uncertainties, and the
outcomes of individual matters are not predictable with assurance.
The following are recent product warranty matters:
In December 2002, Renault-Nissan issued a claim to us requesting
payment for a recall of its Almera and Tino vehicles due to alleged
malfunctions of the parking brake mechanism. This recall included
approximately 125,000 vehicles manufactured world-wide. In September 2004,
we settled this matter with Renault-Nissan.
13
We agreed to pay Euro 3.0 million (approximately $3.7 million) and in
return, received a release from further liability as a result of this
recall and final payment was made in 2005.
In September 2004, Lear issued a letter to us requesting our
participation relating to a recall of Ford Windstar vehicles involving seat
latches. The recall included approximately 335,000 vehicles. We have
conducted our own investigation of this matter and believe we have met
Lear's specific design specifications. Based on these facts, we believe
that we have no responsibility for this recall.
In January 2005, Ford notified us of a field service action on its
Explorer vehicle due to alleged malfunction of the rear lift gate that was
manufactured by us. The field action was instituted by Ford in September
2004 on a maximum of 956,000 vehicles. Ford has alleged that we have some
responsibility for the malfunction; however, our review of the Ford
material and our own investigation, supports our opinion that we have no
liability or any responsibility for this matter. Ford has released us from
any financial liability for this matter.
ENVIRONMENTAL MATTERS
We are subject to the requirements of federal, state, local and foreign
environmental and occupational health and safety laws and regulations. We devote
resources to complying with these requirements and several of our facilities are
certified in accordance with ISO 14001, the international environmental
management standard. Nonetheless, there can be no assurance that we operate at
all times in complete compliance with all such requirements. We could be subject
to potentially significant fines and penalties for any noncompliance that may
occur. Although we have made and will continue to make capital and other
expenditures to comply with environmental requirements, we do not expect to
incur material capital expenditures for environmental controls in 2006 or 2007.
Some of our operations generate hazardous substances and some facilities
have a history of manufacturing operations by prior operators. Like all
manufacturers, if a release of hazardous substances occurs or has occurred at or
from any current or former properties or at a location where we have disposed of
wastes, we may be held liable for the contamination, and the amount of such
liability could be material.
The Michigan Department of Environmental Quality ("MDEQ") is investigating
contamination at our facility in Mancelona, Michigan. The investigation stems
from the discovery in the mid-1990s of trichloroethylene ("TCE") in groundwater
at the facility and offsite locations. We have not used TCE since we acquired
the Mancelona facility, although TCE may have been used by prior operators. MDEQ
has indicated that it does not consider us to be a responsible party for the
contamination under the Michigan environmental statutes. We have been
cooperating with the MDEQ, and have implemented MDEQ's due care requirements
with respect to the contamination. MDEQ installed a municipal drinking water
system in the area.
The Mancelona groundwater contamination matter is subject to an indemnity
from Wickes, the prior operator of the facility. Wickes agreed to indemnify us
with respect to certain environmental liabilities up to a $2.5 million cap
(which has not been reached). We will be obligated to indemnify Wickes with
respect to any liabilities above such cap. Wickes has been paying
indemnification claims relating to the Mancelona matter, subject to a
reservation of rights. On May 17, 2005, Collins & Aikman, an affiliate of
Wickes, filed a petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. Wickes may seek to discharge its remaining indemnity obligation
to us in connection with that reorganization.
As part of a 1998 settlement relating to the Excel Main Street Well Field
Site in Elkhart, Indiana, where TCE was detected in a municipal well field, we
have a continuing payment obligation for operation and maintenance of a
groundwater monitoring and treatment system near the well field. This obligation
will likely continue for several years. The annual cost to operate these systems
is not material. We are also completing cleanups at facilities in Einbeck,
Germany, and Rotenburg, Germany.
We have been named a potentially responsible party at several waste
disposal sites, including the Himco Dump site in Elkhart County, Indiana, and
the Lake Calumet site in Cook County, Illinois. Although the environmental laws
provide for joint and several liability at such sites, liability is typically
allocated among the viable parties
14
involved. We believe that we may have limited liability at some of these sites
and have established reserves based on our estimates of the potential liability
at the other sites.
We establish reserves for environmental liabilities when the liability is
probable and the amount of the loss can be reasonably estimated. We cannot
provide complete assurance, however, that our environmental liabilities will not
materially exceed the current amount of our reserves.
SEASONALITY
Essentially all of our business is directly related to automotive and RVSV
OEM production, which has demonstrated seasonality and is highly cyclical and
depends on general economic conditions, consumer spending and confidence. Any
significant reduction in vehicle production by automotive and RVSV OEMs would
have a material adverse effect on our business.
Our business is moderately seasonal as our primary North American customers
historically halt operations for approximately two weeks in July for vacations
and model changeovers and our European customers generally reduce production
during the month of August. Accordingly, third quarter results may reflect this
cyclicality.
EMPLOYEES
As of December 31, 2005, we employed approximately 8,000 people in North
America, 6,800 in Europe and 1,000 in other regions of the world. A substantial
number of our employees are members of unions. In the U.S. and Canada, we have
collective bargaining agreements with several unions including: the UAW; the
CAW; and the International Association of Machinists and Aerospace Workers.
Virtually all of our unionized facilities in the U.S. and Canada have separate
contracts. Each such contract has an expiration date independent of other labor
contracts. The majority of our non U.S. and Canadian employees are members of
industrial trade union organizations and confederations within their respective
countries. Many of these organizations and confederations operate under national
contracts, which are not specific to any one employer. Although we believe that
our relationship with our union employees is generally good, there can be no
assurance that we will be able to negotiate new agreements on favorable terms.
In the event we are unsuccessful in negotiating new agreements, these facilities
could be subject to work stoppages, which could have a material adverse effect
on our operations.
EXECUTIVE OFFICERS OF THE REGISTRANT:
<Table>
<Caption>
NAME AGE POSITION(S)
- ---- --- -----------
Lawrence A. Denton....... 55 Chairman of the Board of Directors,
President and Chief Executive Officer
Milton D. Kniss.......... 58 Executive Vice President and
President -- Control Systems Division
Keith R. Marchiando...... 43 Vice President, Chief Financial Officer
and Assistant Secretary
John J. Knappenberger 59 Vice President
Theresa L. Skotak........ 48 Vice President
Timothy C. Stephens...... 45 Vice President and President -- Atwood
Mobile Products Division
Jurgen von Heyden........ 58 Vice President and President -- Body &
Glass Division
</Table>
Lawrence A. Denton joined DURA as President and Chief Executive Officer in
January 2003 and was elected Chairman in November 2005. From 1996 until 2002,
Mr. Denton was President of Dow Automotive, a $1.3 billion business unit of The
Dow Chemical Company. Prior to that, he spent 24 years with Ford, where he held
a variety of senior management positions with increasing responsibility in
manufacturing, quality, sales and marketing, engineering and purchasing. Mr.
Denton is also currently a member of the Board of Directors of the Original
Equipment Suppliers Association, the Motor & Equipment Manufacturer's
Association, Kettering University, the Detroit Economic Club and Autotemp
Company.
15
Milton D. Kniss has served as Executive Vice President of Operations of
DURA since May 2000 and President of the Control Systems Division since October
2000. From April 1991 until January 1994, Mr. Kniss served as Director of
Michigan Operations for DURA. Mr. Kniss joined the predecessor in 1981 as a
Divisional Purchasing Manager, served as Plant Manager of East Jordan, Michigan
from 1982 until 1986, and Plant Manager of Gordonsville, Tennessee until 1991.
Keith R. Marchiando was appointed Vice President and Chief Financial
Officer effective March 2005. Mr. Marchiando served as DURA's Vice President and
Corporate Controller since joining DURA in April 2003. Prior to joining DURA,
Mr. Marchiando joined The Dow Chemical Company in 1997 and was instrumental in
the formation of Dow Automotive, a $1.3 billion business unit, where he held the
position of global finance director. Mr. Marchiando began his career at Ford in
1990, where he held finance positions of increasing responsibility in
manufacturing, purchasing and product development.
John J. Knappenberger has served as Vice President of Administration of
DURA since December 1995 and is currently responsible for Purchasing, Quality
and Information Technology. Prior to joining DURA, Mr. Knappenberger was
Director of Quality for Carrier Corporation's North American Operations,
manufacturers of heating and air conditioning systems, from February 1992. From
1985 to 1991, Mr. Knappenberger was employed by TRW, a supplier of components to
the automotive industry, beginning as Director of Quality in 1985 for the
Steering and Suspension Division and becoming Vice President, Quality for the
Automotive Sector in 1990.
Theresa L. Skotak has served as Vice President of Human Resources since May
2002. From March 1999 until May 2002 Ms. Skotak served as Director of Corporate
Human Resources and from April 1997 until March 1999, Ms. Skotak served as
Director of Human Resources for Excel. Prior to that Ms. Skotak was the Director
of Human Resources, N.A. for the Assembly and Test Division of Lucas Industries.
Timothy C. Stephens assumed the role of Vice President of DURA and
President of its Atwood Mobile Products Division in February 2006. Mr. Stephens
has been with DURA for the last 17 years serving in various management and
manufacturing positions throughout DURA's worldwide operations, lastly as Vice
President of the Shifter Cable Business Unit.
Jurgen von Heyden has served as Vice President of DURA and President of the
Body & Glass Division since February 2000. Mr. von Heyden previously served as
Managing Director of DURA Body & Glass Systems GmbH in Plettenberg, Germany from
March 1999 to February 2000. Prior to the acquisition of Excel, Mr. von Heyden
served as the Managing Director/CEO of Excel's European Body & Glass division
since 1997. Before joining Excel he was the Managing Director of Happich, later
becoming Becker-Group. Mr. von Heyden has been in the automotive supplier
industry since 1984 with professional training of Diplom-Ingenieur and Diplom-
Wirtschaftsingenieur.
There are no family relationships between any of DURA's executive officers
or directors.
ITEM 1A. RISK FACTORS
Our business is subject to a number of risks and uncertainties. You should
carefully read and consider the risk factors set forth below.
WE ARE DEPENDENT ON OUR LARGEST CUSTOMERS AND ON SELECTED VEHICLE PROGRAMS.
We are dependent on Ford, GM, Lear and Volkswagen as our largest customers.
Our revenues from Ford, GM, Lear and Volkswagen represented approximately 19%,
10%, 10%,and 10% , respectively, of our revenues for 2005. The loss of Ford, GM,
Lear or Volkswagen or any other significant customer could have a material
adverse effect on us. The contracts we typically enter into with many of our
customers, including Ford, GM, Lear and Volkswagen, provide for supplying the
customers' requirements for a particular model, rather than for manufacturing a
specific quantity of products. Such contracts range from one year to the life of
the platform or model, usually three to seven years, and do not require the
purchase by the customer of any minimum number of parts. Therefore, the loss of
any one of such customers or a significant reduction in demand for certain other
key models or a group of related models sold by any of our major customers could
have a material adverse effect on our existing and future revenues and net
income. In 2005, two of our key customers, General Motors and Ford, lost market
share in North America above
16
historical levels and, as a result, significantly reduced their production
volumes. From time to time, we are involved in product liability and pricing
claims with certain of our significant customers. As a result of these claims,
it is possible that our relationship with these customers could be adversely
affected.
THE CURRENT FINANCIAL CONDITION OF THE AUTOMOTIVE INDUSTRY IN THE UNITED
STATES COULD HAVE A NEGATIVE IMPACT ON OUR ABILITY TO FINANCE OUR OPERATIONS.
Several of our key North American customers face significant business
challenges due to increased competitive conditions and recent changes in
consumer demand. In operating our business, we depend on the ability of our
customers to timely pay the amounts we have billed them for tools and products.
Any disruption in our customers' ability to pay us in a timely manner because of
financial difficulty or otherwise would have a negative impact on our ability to
finance our operations. In addition, because of the challenging conditions
within the U.S. automotive industry, many automotive suppliers have filed for
bankruptcy. In light of these conditions, our suppliers could impose restrictive
payment terms on us that would have a negative impact our ability to finance our
operations.
OUR INABILITY TO COMPETE EFFECTIVELY IN THE HIGHLY COMPETITIVE AUTOMOTIVE
SUPPLY INDUSTRY COULD RESULT IN THE LOSS OF CUSTOMERS, WHICH COULD HAVE AN
ADVERSE EFFECT ON OUR REVENUES AND OPERATING RESULTS.
The automotive component supply industry is highly competitive. Some of our
competitors are companies, or divisions or subsidiaries of companies, that are
larger and have greater financial and other resources than we do. In addition,
with respect to certain of our products, we compete with divisions of our OEM
customers. There can be no assurance that our products will be able to compete
successfully with the products of these other companies, which could result in
the loss of customers and, as a result, decrease revenues and profitability.
We principally compete for new business both at the beginning of the
development of new models and upon the redesign of existing models by our major
customers. New model development generally begins two to five years prior to the
marketing of such models to the public. The failure to obtain new business on
new models or to retain or increase business on redesigned existing models could
adversely affect our business and financial results. In addition, as a result of
the relatively long lead times required for many of our complex structural
components, it may be difficult in the short-term for us to obtain new sales to
replace any unexpected decline in the sale of existing products. We may incur
significant expense in preparing to meet anticipated customer requirements which
may not be recovered.
IN THE LAST THREE FISCAL YEARS, WE HAVE EXPERIENCED DECLINING GROSS MARGIN,
AND WE MAY NOT SUCCEED IN RETURNING TO HISTORICAL GROSS MARGIN LEVELS.
Our gross margin has declined in each of the last three fiscal years from
13.8% in 2002 to 12.2% in 2003, 11.2% in 2004 and 11.0% in 2005. These declines
were a result of a number of factors including declines in North American OEMs
automotive production levels from previous levels resulting in lower fixed cost
absorption, and increased raw material costs that could not be passed along
fully to our customers. We cannot assure you that our gross margin will improve
or return to prior historical levels, and that any further reduction in customer
demand for the products that we supply would not have an further adverse effect
on our gross margin. A lack of improvement in our future gross margin levels
would harm our financial condition and adversely impact our business.
IF WE ARE UNABLE TO OBTAIN OUR RAW MATERIALS AT FAVORABLE PRICES, IT COULD
ADVERSELY IMPACT OUR FINANCIAL CONDITION.
Numerous raw materials are used in the manufacture of our products. Our
principal raw materials include (1) coil steel and resin in mechanism
production, (2) metal wire and resin in cable production and (3) glass in window
systems. The types of steel we purchase include hot and cold rolled, galvanized,
organically coated and aluminized steel. Overall, steel accounted for the most
significant component of our raw material costs in 2005. Steel prices increased
during 2004 to cyclical highs and remained at that level during part of 2005,
which had a negative impact on our gross profit in 2004 and 2005. To the extent
we are not able to pass on fully increased steel and other raw material costs to
our customers in a timely fashion or otherwise able to offset these increased
17
operating costs, our business, results of operations and financial condition
will continue to be adversely affected. Moreover, we may be materially and
adversely affected by the failure of our suppliers to perform as expected.
OUR GROSS MARGIN AND PROFITABILITY WILL BE ADVERSELY AFFECTED BY THE INABILITY
TO REDUCE COSTS OR INCREASE PRICES.
There is substantial continuing pressure from the major OEMs to reduce
costs, including the cost of products purchased from outside suppliers. In
addition, our business has a substantial fixed cost base. Therefore, our
profitability is dependent, in part, on our ability to spread fixed production
costs over increasing product sales. If we are unable to generate sufficient
production cost savings in the future to offset price reductions and any
reduction in consumer demand for automobiles resulting in decreased sales, our
gross margin and profitability would be adversely affected. In addition, our
customers often times require engineering, design or production changes. In some
circumstances, we may not be able to achieve price increases in amounts
sufficient to cover the costs of these changes.
CYCLICALITY AND SEASONALITY IN THE AUTOMOTIVE, RECREATION AND SPECIALTY
VEHICLE MARKETS COULD ADVERSELY AFFECT OUR REVENUES AND NET INCOME.
The automotive, recreation and specialty vehicle markets are highly
cyclical and both markets are dependent on general economic conditions and other
factors, including consumer spending preferences and the attractiveness of
incentives offered by OEMs, if any. In addition, automotive production and sales
can be affected by labor relations issues, regulatory requirements, trade
agreements and other factors. Economic factors adversely affecting automotive
production and consumer spending could adversely impact our revenues and net
income. The volume of automotive production in North America, Europe and the
rest of the world has fluctuated, sometimes significantly, from year to year,
and such fluctuations give rise to fluctuations in demand for our products. The
weakness in the North American OEMs automotive market has adversely affected our
operating results in 2005, and the weakness is expected to continue for some
time. In addition, because we have significant fixed production costs,
relatively modest declines in our customers' production levels can have a
significant adverse impact on our profitability. Our business is also somewhat
seasonal. We typically experience decreased revenues and operating income during
the third calendar quarter of each year due to the impact of scheduled OEM plant
shutdowns in July and August for vacations and new model changeovers.
WE ARE SUBJECT TO CERTAIN RISKS ASSOCIATED WITH OUR FOREIGN OPERATIONS THAT
COULD HARM OUR REVENUES AND PROFITABILITY.
We have significant operations in Europe, Canada, Asia and Latin America.
Certain risks are inherent in international operations, including:
- difficulty of enforcing agreements and collecting receivables through
certain foreign legal systems;
- foreign customers may have longer payment cycles than customers in the
United States;
- tax rates in certain foreign countries may exceed those in the United
States and foreign earnings may be subject to withholding requirements or
the imposition of tariffs, exchange controls or other restrictions;
- currency fluctuations and devaluations;
- general economic conditions, political unrest and terrorist attacks
against American interests in countries where we operate may have an
adverse effect on our operations in those countries;
- exposure to possible expropriation or other governmental actions;
- difficulties associated with managing a large organization spread
throughout various countries; and
- required compliance with a variety of foreign laws and regulations.
As we continue to expand our business globally, our success will be
dependent, in part, on our ability to anticipate and effectively manage these
and other risks. We cannot assure you that these and other factors will not
18
have a material adverse effect on our international operations or our business,
results of operations and financial condition as a whole.
CURRENCY EXCHANGE RATE FLUCTUATIONS COULD HAVE AN ADVERSE EFFECT ON OUR
REVENUES AND FINANCIAL RESULTS.
We generate a significant portion of our revenues and incur a significant
portion of our expenses in currencies other than U.S. dollars. To the extent
that we are unable to match revenues received in foreign currencies with costs
paid in the same currency, exchange rate fluctuations in any such currency could
have an adverse effect on our revenues and financial results. During times of a
strengthening U.S. dollar, our reported sales and earnings from our
international operations will be reduced because the applicable local currency
will be translated into fewer U.S. dollars. The strengthening of the foreign
currencies in relation to the U.S. dollar had a positive impact on our 2005
revenues of $40.0 million; in 2006, such currencies are currently experiencing a
decline.
OUR BUSINESS MAY BE DISRUPTED SIGNIFICANTLY BY WORK STOPPAGES AND OTHER LABOR
MATTERS.
Many OEMs and their suppliers have unionized work forces. Work stoppages or
slow-downs experienced by OEMs or their suppliers could result in slow-downs or
closures of assembly plants where our products are included in assembled
vehicles. In the event that one or more of our customers experiences a material
work stoppage, such work stoppage could have a material adverse effect on our
business.
As of December 31, 2005, a substantial number of our employees were
unionized. We have collective bargaining agreements with several unions
including the United Auto Workers, the Canadian Auto Workers, the International
Brotherhood of Teamsters and the International Association of Machinists and
Aerospace Workers. Virtually all of our unionized facilities in the United
States and Canada have separate local contracts with the union which represents
the workers employed there, with each such contract having an expiration date
independent of other labor contracts. The majority of our non U.S. and Canadian
employees are members of industrial trade union organizations and confederations
within their respective countries. Many of these organizations and
confederations operate under national contracts which are not specific to any
one employer. As a result, we may encounter strikes, further unionization
efforts or other types of conflicts with labor unions or our employees, any of
which could have an adverse effect on our operations or may limit our
flexibility in dealing with our workforce.
OUR OPERATING RESULTS MAY BE ADVERSELY AFFECTED BY ENVIRONMENTAL, HEALTH AND
SAFETY REQUIREMENTS.
We are required to comply with federal, state, local and foreign laws and
regulations governing the protection of the environment and occupational health
and safety, including laws regulating the generation, storage, handling, use and
transportation of hazardous materials; the emission and discharge of hazardous
materials into soil, air or water; and the health and safety of our colleagues.
We are also required to obtain and comply with environmental permits for certain
operations. We cannot assure you that we are at all times in complete compliance
with such laws, regulations and permits. If we violate or fail to comply with
the requirements, we could be fined or otherwise sanctioned by regulators. In
some instances, such a fine or sanction could be material. In addition, we have
made and will continue to make capital and other expenditures to comply with
environmental requirements. Environmental requirements may become more stringent
over time and we cannot assure you that we will not incur material environmental
costs or liabilities in the future.
We are also subject to laws requiring the cleanup of contaminated property.
Under these laws, we could be held liable for costs and damages relating to
contamination at our past or present facilities and at third-party sites to
which these facilities sent wastes. If a release of hazardous substances occurs
at or from any of our current or former facilities or another location where we
have disposed of wastes, we may be held liable for the contamination, and the
amount of such liability could be material. We are currently conducting a
cleanup of contamination at certain facilities in Germany. We are monitoring
environmental contamination at certain facilities in North America. We have also
been named a potentially responsible party for cleanup costs at two "Superfund"
cleanup sites. We have established accounting reserves for these contamination
liabilities, but we cannot assure you that our liabilities will not exceed our
reserves.
19
WE MAY BE ADVERSELY AFFECTED BY PRODUCT LIABILITY EXPOSURE CLAIMS.
We face an inherent business risk of exposure to product liability claims
in the event that the failure of our products to perform to specifications
results, or is alleged to result, in property damage, bodily injury and/or
death. We cannot assure you that we will not incur significant costs to defend
these claims or that we will not experience any material product liability
losses in the future. In addition, if any DURA-designed products are, or are
alleged to be defective, we may be required to participate in a recall involving
those products.
Each OEM has its own policy regarding product recalls and other product
liability actions relating to its suppliers. However, as suppliers become more
integrally involved in the vehicle design process and assume more vehicle
assembly functions, OEMs are increasingly looking to their suppliers for
contribution when faced with product recalls, product liability or warranty
claims. We cannot assure you that the future costs associated with providing
product warranties will not be material. A successful product liability claim
brought against us in excess of available insurance coverage or a requirement to
participate in any product recall may have a material adverse effect on our
results of operations or financial condition. In addition, OEMs are also
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 we supply products to an
OEM, an OEM may hold us responsible for some or all of the repair or replacement
costs of defective products under new vehicle warranties, when the product
supplied did not perform as represented.
Over the past five years, we have been involved in a number of product
warranty matters. In the aggregate, we incurred charges of $2.8 million, $2.1
million and $2.0 million in 2005, 2004 and 2003, respectively, in connection
with product warranty matters.
We carry insurance for certain legal matters including product liability;
however, we do not carry insurance for warranty or recall matters, as the cost
and availability for such insurance, in the opinion of management, is cost
prohibitive or not available. We have established reserves for matters that are
probable and estimable in amounts management believes are adequate to cover
reasonable adverse judgments not covered by insurance; however, we cannot assure
you that these reserves will be adequate to cover all warranty matters that
could possibly arise. The outcome of the various legal actions and claims that
are discussed above or other legal actions and claims that are incidental to our
business may have a material adverse impact on our consolidated financial
position, results of operations or cash flows.
TECHNOLOGICAL AND REGULATORY CHANGES MAY ADVERSELY AFFECT US.
Changes in legislative, regulatory or industry requirements or competitive
technologies may render certain of our products obsolete. Our ability to
anticipate changes in technology and regulatory standards and to develop and
introduce new and enhanced products successfully on a timely basis will be a
significant factor in our ability to grow and to remain competitive. We cannot
assure you that we will be able to achieve the technological advances that may
be necessary for us to remain competitive or that certain of our products will
not become obsolete. We are also subject to the risks generally associated with
new product introductions and applications, including lack of market acceptance,
delays in product development and failure of products to operate properly.
WE MAY MAKE STRATEGIC ACQUISITIONS AND ALLIANCES, WHICH PRESENT ADDITIONAL
RISKS.
Part of our growth strategy includes pursuing strategic acquisitions and
alliances. We cannot assure you that we will be able to consummate acquisitions
or alliances in the future on terms acceptable to us, if at all. In addition, we
cannot assure you that the integration of any future acquisitions will be
successful or that the expected strategic benefits of any future acquisitions or
alliances will be realized. Acquisitions may involve a number of special risks,
including, but not limited to:
- adverse short-term effects on our reported operating results;
- diversion of management's attention;
- difficulties assimilating and integrating the operations of the acquired
company with our own; and
- unanticipated liabilities or contingencies relating to the acquired
company.
20
WE MAY INCUR RESTRUCTURING CHARGES THAT WOULD REDUCE OUR EARNINGS.
During the last several years, we have evaluated our worldwide
manufacturing capacity utilization and opportunities for cost savings in light
of conditions in the North American and European automotive and recreational
vehicle markets. As a result of these evaluations, we have taken several actions
including closing certain facilities, combining facilities, reducing and
consolidating certain support activities and disposing of certain business
units. We have recorded restructuring charges and charges related to
discontinued operations as a result of these actions over the last several
years. Our reported earnings will be reduced in the event as we incur additional
charges in the future as a result of the current and any additional
restructuring activities undertaken by us.
WE MAY NOT ACCOMPLISH THE OBJECTIVES OF OUR FEBRUARY 9, 2006 RESTRUCTURING
IMITATIVE.
In February 2006, we announced a restructuring plan that we anticipate to
be complete by the end of 2007. The restructuring plan is expected to impact
over 50% of our worldwide operations either through product movement or facility
closures. Cash costs for the restructuring plan are expected to be approximately
$100 million, which includes estimated capital expenditures between $25 and $35
million. The remaining costs will relate primarily to employee severance,
capital investment, facility closure and product move costs. The majority of
these expenditures will occur by year end 2007.
As part of this initiative, we have identified certain key actions that
must be accomplished to achieve our projected cost savings:
- Our customers, as industry practice, must approve the movement of the
production of their parts along with prequalifying (PPAP) the new
production facility and production lines;
- Our customers must agree these cost reduction actions are being made to
meet our previously agreed to price reduction commitments;
- The representatives of our affected employees must support the
streamlining and moving of operations in a timely manner in order that we
meet the cost reduction objectives in the planned time period; and
- We must execute this initiative in the prescribed time period (all
actions must be accomplished by the end of 2007).
Any failure to obtain substantial completion of any of these key actions
may result in us not reaching a sufficient profitability level to enable us to:
beneficially refinance debt coming due in 2009; maintain the recorded goodwill
valuation; and not record a valuation reserve against the deferred income tax
benefits recognized for net operating loss and research and experimental tax
credit carryforwards.
WE MIGHT FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY OR THIRD PARTIES
MIGHT ASSERT THAT OUR TECHNOLOGIES INFRINGE ON THEIR INTELLECTUAL PROPERTY.
As part of our business strategy, we intend to accelerate our investment in
new product and process technologies in an effort to strengthen and
differentiate our product portfolio. As a result, we believe that the protection
of our intellectual property will become increasingly important to our business.
We rely on a combination of patents, trade secrets, trademarks and copyrights to
provide protection in this regard, but this protection might be inadequate. For
example, our pending or future patent applications might not be approved or, if
allowed, they might not be of sufficient strength or scope. Conversely, third
parties might assert that our technologies infringe their proprietary rights. In
either case, litigation which could result in substantial costs and diversion of
our efforts, might be necessary, and whether or not we are ultimately
successful, the litigation could adversely affect our business.
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION
AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER OUR OUTSTANDING
INDEBTEDNESS.
We have a significant amount of indebtedness. As of December 31, 2005, we
had $1,150.7 million of outstanding debt (excluding the fair market value of
interest rate swap agreements), and $339.7 million of stockholders' investment.
Our ratio of earnings to fixed charges for the year ended December 31, 2005, was
1.0x (See Exhibit 12.1). In addition, we may incur substantial additional
indebtedness in the future. Our existing senior
21
secured revolving credit facility ("Credit Agreement"), provides for borrowings
up to $175.0 million, which may be increased by up to $50.0 million, subject to
compliance with certain financial covenants and borrowing conditions set forth
therein.
Our indebtedness could have several important consequences, including but
not limited to the following:
- our ability to obtain additional financing in the future for working
capital, capital expenditures, potential acquisition opportunities,
general corporate purposes or other purposes may be impaired;
- our ability to finance our international operations in an effective tax
manner if we are unable to maintain the prescribed fixed charge ratio;
- fluctuations in market interest rates will affect the cost of our
borrowings, if not hedged by interest rate hedge agreements, because a
substantial portion of our indebtedness, is payable at variable rates;
- we are more highly leveraged than some of our competitors, which may
place us at a competitive disadvantage;
- a substantial portion of our cash flow from operations will be dedicated
to the repayment of our indebtedness, including indebtedness we may incur
in the future, and will not be available for other purposes, including
our operations, capital expenditures and future business opportunities;
- there would be a material adverse effect on our business and financial
condition if we were unable to service our indebtedness or obtain
additional financing, as needed; and
- we may be more vulnerable to economic downturns, may be limited in our
ability to withstand competitive pressures and may have reduced
flexibility in responding to changing business, regulatory and economic
conditions.
Our ability to service our indebtedness will depend on our future
performance, which will be affected by prevailing economic conditions and
financial, business, regulatory and other factors. Certain of these factors are
beyond our control. We believe that, based upon current levels of operations, we
will be able to meet our debt service obligations over the next 24 months.
Significant assumptions underlie this belief, including among other things, that
we will continue to be successful in implementing our business strategy and
restructuring initiatives; and that there will be no material adverse
developments in our business, liquidity or capital requirements. If we cannot
generate sufficient cash flow from operations to service our indebtedness and to
meet our other obligations and commitments, we might be required to refinance
our debt or to dispose of assets to obtain funds for such purpose. There is no
assurance that refinancings 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
our indentures and our existing Credit Agreement and $150.0 million senior
secured second lien term loan ("Second Lien Term Loan", collectively with Credit
Agreement, "Credit Facilities"). In the event that we were unable to refinance
our existing indebtedness or raise funds through asset sales, sales of equity or
otherwise, our ability to pay principal of, and interest on, the indebtedness
would be impaired.
DESPITE OUR SUBSTANTIAL INDEBTEDNESS, WE MAY STILL INCUR SIGNIFICANTLY MORE
DEBT, WHICH COULD FURTHER EXACERBATE THE RISKS DESCRIBED ABOVE.
As of December 31, 2005, we could have incurred $125.5 million of
additional indebtedness under the terms of our existing Credit Agreement. The
terms of the indentures governing our outstanding debt securities could permit
us to incur significant further indebtedness in the future.
TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH. OUR
ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Our ability to make payments on our indebtedness, and to fund planned
capital expenditures will depend on our ability to generate cash from our
operations in the future. This, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors that
are beyond our control. Based on our current
22
level of operations, we believe our cash flow from operations, available cash
and available borrowings under our Credit Agreement will be adequate to meet our
future liquidity needs for the foreseeable future.
We cannot assure you, however, that our business will generate sufficient
cash flow from operations or that future borrowings will be available to us
under our Credit Agreement or otherwise in an amount sufficient to enable us to
pay our indebtedness, or to fund our other liquidity needs. Our ability to
borrow under our Credit Agreement may be constrained by conditions including
limits on borrowings exceeding specified percentages of the applicable borrowing
base.
We have two significant public debt amortizations due in 2009 and 2012; 9%
senior subordinated notes due May 2009 ("Senior Subordinated Notes") in the
amount of $523.9 million; and 8 5/8% senior unsecured notes due April 2012
("Senior Unsecured Notes") in the amount of $400.0 million.
A substantial portion of our indebtedness bears interest at floating rates,
and therefore if interest rates increase, our debt service requirements will
increase. We may need to refinance or restructure all or a portion of our
indebtedness on or before maturity. We cannot assure you that we will be able to
refinance any of our indebtedness, including our Credit Facilities and our
outstanding debt securities, on commercially reasonable terms or at all. If we
cannot service our indebtedness, we may have to take actions such as selling
assets, seeking additional equity or reducing or delaying capital expenditures,
strategic acquisitions, investments and alliances. We cannot assure you that any
such actions, if necessary, could be effected on commercially reasonable terms,
or at all. In addition, the indentures relating to our debt securities and our
Credit Facilities, may restrict our ability to take any of these actions.
RESTRICTIVE COVENANTS IN OUR EXISTING SENIOR CREDIT FACILITY AND THE
INDENTURES GOVERNING OUR DEBT SECURITIES MAY RESTRICT OUR ABILITY TO PURSUE
OUR BUSINESS STRATEGIES.
The indentures governing our debt securities and our existing Credit
Facilities limit our ability, among other things, to:
- incur additional indebtedness;
- pay dividends, repurchase our capital stock or make certain other
restricted payments or investments;
- make investments;
- sell assets;
- consolidate, merge, sell or otherwise dispose of all or substantially all
of our assets; and
- create liens.
The ability of our foreign subsidiaries to incur any form of indebtedness
is prohibited under our indentures if we do not meet the fixed charge coverage
ratio, as defined therein, of at least 2 to 1. In addition, our Credit Agreement
includes other and more restrictive covenants that prohibit us from prepaying
our other indebtedness, while indebtedness under our Credit Agreement is
outstanding. Our Credit Agreement requires us to maintain a minimum fixed charge
coverage ratio if excess availability, as defined, falls below $35 million.
The restrictions contained in our Credit Facilities and the indentures
governing our debt securities could:
- limit our ability to plan for or react to market conditions or meet
capital needs or otherwise restrict our activities or business plans; and
- adversely affect our ability to finance our operations, strategic
acquisitions, investments or alliances or other capital needs or to
engage in other business activities that would be in our interest.
A breach of any of these restrictive covenants or our inability to comply
with the required financial ratios could result in a default under our Credit
Facilities and indentures. If a default occurs, the lenders under our Credit
Agreement may elect to declare all borrowings outstanding, together with accrued
interest and other fees, to be immediately due and payable which would result in
an event of default under our outstanding notes. The lenders will also have the
right in these circumstances to terminate any commitments they have to provide
further
23
borrowings. If we are unable to repay outstanding borrowings when due, the
lenders will also have the right to proceed against the collateral, including
our available cash, granted to them to secure the indebtedness. If the
indebtedness under either of our Credit Facilities and debt securities were to
be accelerated, we cannot assure you that our assets would be sufficient to
repay in full the indebtedness and our other indebtedness.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our world headquarters is located in Rochester Hills, Michigan. We lease
this facility, which is approximately 100,000 square feet, a portion of which is
used for product development activities.
We believe that the productive capacity and utilization of our facilities
is sufficient to allow us to conduct our operations in accordance with our
business strategy. All of our United States and Canadian owned facilities are
subject to liens under our Credit Facilities. The following table shows our
principal facilities as of December 31, 2005:
<Table>
<Caption>
NUMBER OF
COUNTRY SITES
- ------- ---------
Brazil......................................................... 1
Canada......................................................... 3
China.......................................................... 3
Czech Republic................................................. 3
France......................................................... 3
Germany........................................................ 9
Japan.......................................................... 1
Mexico......................................................... 3
Portugal....................................................... 2
Romania........................................................ 1
Slovakia....................................................... 1
Spain.......................................................... 3
United Kingdom................................................. 2
United States.................................................. 28
--
63
==
</Table>
Our manufacturing facilities have a combined square footage in excess of
7.8 million; approximately 78% of which is owned and approximately 22% is
leased. We will continue to evaluate our worldwide capacity utilization and may
consolidate the operations of certain manufacturing facilities and technical
centers.
In some cases, several of our manufacturing sites, technical centers and/or
product development centers and sales activity offices are located at a single
multi-purpose site. As of December 31, 2005, we had sites that contain technical
design and development capabilities in each of the major regions that support
customers around the world.
We believe that substantially all of our property and equipment is in good
condition and that we have sufficient capacity to meet our current manufacturing
needs. Utilization of our facilities varies with automotive and RVSV production
volumes and general economic conditions.
In 2006, as part of our restructuring plan, we expect to shift production
to our Eastern European and Mexican operations.
24
ITEM 3. LEGAL PROCEEDINGS
We are involved in routine litigation incidental to the conduct of our
business. We do not believe that any litigation to which we are currently a
party will have a material adverse effect on our business or financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of stockholders during the fourth
quarter of 2005.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Class A Common Stock is traded on The Nasdaq Stock Market, Inc.
("Nasdaq") under the symbol "DRRA." The following table sets forth, for the
periods indicated, the low and high closing sale prices for the Class A common
stock as regularly quoted on Nasdaq.
<Table>
<Caption>
LOW HIGH
------ ------
2005:
First Quarter........................................... $ 4.44 $10.60
Second Quarter.......................................... 3.40 5.15
Third Quarter........................................... 4.02 6.68
Fourth Quarter.......................................... 2.24 4.21
2004:
First Quarter........................................... $12.01 $16.60
Second Quarter.......................................... 8.77 13.61
Third Quarter........................................... 7.10 9.15
Fourth Quarter.......................................... 6.51 10.87
</Table>
As of March 2006, there were 911 holders of record of the outstanding Class
A common stock.
We have not declared or paid any dividends on our Common Stock in the past
and do not anticipate paying dividends in the foreseeable future. Any future
payment of dividends is within the discretion of the Board of Directors and will
depend upon, among other factors, the capital requirements, operating results
and financial condition of DURA. In addition, our ability to pay dividends is
limited under the terms of our Senior Unsecured Notes indenture and the Senior
Subordinated Notes indenture and by the terms of our Credit Facilities. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition-Liquidity and Capital Resources."
We did not repurchase any of our equity securities during the period
covered by this report.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data for DURA presented below for, and
as of the end of each of the years in the five-year period ended December 31,
2005, is derived from our Consolidated Financial Statements which have been
audited by Deloitte & Touche LLP, an independent registered public accounting
firm. The consolidated financial statements at December 31, 2005 and 2004 and
for each of the three years in the period ended December 31, 2005 and the
independent auditor's report thereon are included elsewhere in this report. The
consolidated financial statements at December 31, 2003, 2002 and 2001 and for
the years ended December 31, 2002 and 2001 are not included herein. This
selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and our Consolidated Financial Statements and Notes to Consolidated
Financial Statements, included elsewhere in this report. The comparability of
the information in the table below is impacted by: (i) the adoption of certain
new accounting pronouncements, including Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.
142") on January 1, 2002, which resulted in an goodwill impairment charge of
25
$205.2 million in 2002, Financial Accounting Standards Board ("FASB")
Interpretations ("FIN") 46, "Consolidation of Variable Interest Entities -- An
Interpretation of Accounting Research Bulletin No. 51", ("FIN 46"), effective
December 31, 2003, SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and
64 resulting in a reclassification of $55.2 million of mandatory redeemable
convertible trust preferred securities to long-term debt in 2003; Amendment of
FASB Statement No. 13; and Technical Corrections" and SFAS No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities", ("SFAS No. 146"),
effective January 1, 2003, (ii) our disposal of the Mechanical Assemblies Europe
business, which has been accounted for as a discontinued operation that resulted
in an loss on discontinuation of $0.1 million in 2005, $0.7 million in 2004,
$2.8 million in 2003, and $126.6 million in 2002; and (iii) the Creation Group
acquisition in June 2003, which is more fully discussed in the Management's
Discussion and Analysis of Results of Operations and Financial Condition section
included elsewhere in this report.
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
2005 2004 2003 2002 2001
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Sales, net.................... 2,344,139 2,492,543 2,380,794 2,360,323 2,333,705
Depreciation and
Amortization................ 80,361 83,388 77,567 69,321 89,634
Operating Income.............. 89,986 105,679 126,994 172,621 134,896
Net Income (Loss)............. 1,814 11,723 22,338 (288,671) 11,219
Basic Earnings per Share...... 0.10 0.67 1.37 2.39 1.19
Diluted Earnings per Share.... 0.10 0.66 1.35 2.31 1.18
BALANCE SHEET DATA:
Working Capital............... 183,151 254,557 248,010 212,063 80,642
Long-term Debt................ 1,150,733 1,195,617 1,192,876 1,069,054 1,012,127
Capital Expenditures.......... 66,817 67,208 67,673 54,312 67,108
Propery, Plant, and Equipment,
net......................... 458,258 487,106 488,363 444,479 476,972
Goodwill, net................. 854,296 906,584 859,022 774,983 962,467
Total Assets.................. 2,075,209 2,223,921 2,115,432 1,936,933 2,121,604
Stockholders' Investment...... 339,707 407,491 330,587 204,802 442,397
</Table>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
This report contains forward-looking statement within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act
of 1934. These statements relate to our expectations for future events and time
periods. All statements other than statements of historical facts are statements
that could be deemed to be forward-looking statements, including any statement
regarding trends in future revenues or results of operations, gross margins or
operating margins, expenses, earnings or losses from operations, restructuring
charges, future product developments and their marketability, any statements
regarding pending claims, including legal, warranty and environmental issues,
any statements regarding future economic or industry conditions, any statements
of expectations or belief, and any statement of assumptions underlying any of
the foregoing. Generally, forward-looking statements are typically identified by
use of the words such as "may", "will", "should", "expect", "anticipate",
"believe", "estimate" and similar words, although some forward-looking
statements may be expressed differently. There are certain important factors
that could cause future results to differ materially from those that might be
anticipated based on some of the statements made in this report. Investors are
cautioned that all forward-looking statements involve risks and uncertainty.
Actual results may differ materially from those in forward-looking statements as
a result of various factors including, but not limited to those items listed
under Item 1A. Risks Factors.
This discussion should be read in conjunction with our Consolidated
Financial Statements and the Notes to Consolidated Financial Statements included
elsewhere in this report.
26
OVERVIEW
We faced significant challenges in 2005 in the automotive industry, and the
RVSV industry continued to show strength. Factors affecting the automotive
industry in 2005 included: General Motors and Ford lost market share in North
America; the shift in consumer demand from SUVs to passenger cars; continued
pricing pressure from our customers; raw materials prices continued to be at
cyclical highs; and employee related costs, including medical and post-
retirement. The RVSV industry volumes in 2005 were higher than the record
volumes in 2004. Automotive industry factors had a negative impact on our
results in 2005 and will likely continue to adversely affect our operating
results over the near term.
Two years ago, our management implemented a four-point strategy to grow our
business and improve our balance sheet. This strategy consisted of: 1) improving
asset utilization and lowering our manufacturing costs; 2) reviewing our
business portfolio to ensure we were investing only in growing businesses with
acceptable returns; 3) focusing on product innovation as a catalyst for organic
growth, versus the previous acquisition strategy; and, 4) improving our balance
sheet by reducing debt. We believe we have made progress toward achieving our
organic growth and worldwide operating efficiency goals. As described above, the
automotive industry environment has changed since we developed our four-point
strategy, and, as a result, we must step up our speed of implementation.
We have established the need to accelerate our first area of strategic
focus: improving our asset utilization and lowering our manufacturing costs. In
February 2006, we announced a global operational restructuring plan designed to
enable us to improve our profitability and strengthen our financial results. We
believe it is imperative that we accomplish this restructuring by the end of
2007 to afford us the financial flexibility to grow our business and meet our
debt obligations. We also have improved our quality and delivery performance
during the last several years.
In our second area of strategic focus, we deployed a structured product
portfolio process to identify those businesses that could best contribute to our
technology and growth goals. In addition, we opened our new technology center
near Paris, France, and realized significant increase in business from French
customers in less than 24 months. In 2005, we complemented our electronics
capability with the creation of DURATRONICS, a joint venture company with
Olhotronics GmbH of Germany, to support Mechatronic development and
manufacturing. To capitalize on emerging markets in China, we formed the joint
venture DURA GANXIANG Automotive Systems, Co., Ltd., in 2005, gaining access to
vehicle manufacturers in China such as Shanghai Volkswagen, FAW-Volkswagen,
Shanghai General Motors, Chery Motors and China Brilliance. In support of
capital efficient growth programs, we secured a license to manufacture and
market the DURA RackLift(TM) all plastic window lift system.
In our third area of strategic focus, our innovation initiatives yielded
several new product prospects that we have commercialized, such as power
adjustable pedals, the industry's first capable hybrid shift by wire system,
flush-glass sliding window systems, the first all plastic window lift system,
and our automatic power leveling system for the RVSV market. We also have
promising products currently in design like our trackless power sliding door
systems, electronics to support many of our existing mechanical products, and
consumer convenience products such as sliding load floors.
In our fourth area of strategic focus of debt reduction, due to the factors
discussed above we have been unable to reduce debt. We believe that we will
increase borrowings over the next two years to fund new restructuring actions
necessary to obtain the profitability level required to significantly reduce our
debt.
SIGNIFICANT ACCOUNTING POLICIES
Our significant accounting policies are more fully described in Note 2 of
the consolidated financial statements. Certain of our accounting policies
require the application of significant judgment by management in selecting
appropriate assumptions for calculating financial estimates. By their nature,
these judgments are subject to an inherent degree of uncertainty.
Revenue Recognition and Sales Commitments. We recognize revenue when title
passes to our customers, which occurs primarily when products are shipped from
our facilities to our customers. We enter into agreements with our customers at
the beginning of a given vehicle's life to produce products. Once such
agreements are entered into by us, fulfillment of the customers' purchasing
requirements is our obligation for the entire production life of
27
the vehicle, with terms of up to seven years, and we generally have no
provisions to terminate such contracts. In certain instances, we may be
committed under existing agreements to supply product to our customers at
selling prices which are not sufficient to cover the direct cost to produce such
product. In such situations, we record a liability for the estimated amount of
such future losses. Such losses are recognized at the time that the loss is
probable and reasonably estimable and are recorded at the minimum amount
necessary to fulfill our obligations to our customers. The estimated amount of
such losses as of December 31, 2005 and 2004 were not significant.
Valuation of Goodwill and Other Intangible Assets. Goodwill represents the
excess of the purchase price over the fair value of the net assets acquired that
is subject to annual impairment testing in accordance with the provisions of
SFAS No. 142. Other intangible assets at December 31, 2005 are $17.6 million
primarily consisting of non-amortizable trademarks and amortizable license
agreements.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations," ("SFAS
No. 141") and SFAS No. 142. 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. Separable intangible assets that are
not deemed to have indefinite lives will continue to be amortized over their
useful lives, but with no maximum life. The amortization provisions of SFAS No.
142 apply to goodwill and intangible assets acquired after June 30, 2001. With
respect to goodwill and intangible assets acquired prior to July 1, 2001, we
adopted SFAS No. 142 effective January 1, 2002.
Upon adoption of SFAS No. 142, we completed step one of the transitional
goodwill impairment test, using a combination of valuation techniques, including
the discounted cash flow approach and the market multiple approach, for each of
our four reporting units (Control Systems, Body & Glass, Atwood Mobile Products
and Other Operating Companies). Upon completion of the required assessments
under SFAS No. 142, it was determined that the fair market value of the goodwill
assigned to our Control Systems and Other Operating Companies reporting units
was lower than its book value, resulting in a transitional impairment charge of
$205.2 million, representing the write-off of 25% of the Control Systems
reporting unit goodwill and 100% of the Other Operating Companies reporting unit
goodwill. The write-off was recorded as a cumulative effect of a change in
accounting principle in our consolidated statement of operations for the quarter
ended March 31, 2002. Under the valuation techniques and approach applied by us
in our SFAS No. 142 analysis, if a change in certain key assumptions is applied,
such as the discount rate, projected future cash flows and mix of cash flows by
geographic region, it could significantly impact the results of our assessment.
At May 1, 2005, holding other variables constant, a 50 basis point increase in
the discount rate used by us in our SFAS No. 142 analysis would not result in an
impairment of goodwill.
We perform impairment tests annually, during the second quarter, and
whenever events or circumstances occur indicating that goodwill or other
intangible assets might be impaired. Based upon our annual assessment during
2005, no impairment of goodwill or other intangible assets has occurred . If we
do not obtain the financial results planned for in our February 2006
restructuring initiatives, further impairment of our goodwill could occur.
Restructuring Charges. We recognize restructuring charges in accordance
with SFAS No. 88 "Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits", SFAS No. 112
"Employer's Accounting for Post-employment Benefits", SFAS No. 144 "Accounting
for the Impairment or Disposal of Long-Lived Assets", SFAS No. 146 "Accounting
for Costs Associated with Exit or Disposal Activities" and EITF 95-3
"Recognition of Liabilities in Connection with a Purchase Business Combination."
Such charges relate to exit activities and primarily include employee
termination charges, lease expenses net of any actual or estimated sublease
income, employee relocation, asset impairment charges, moving costs for related
equipment and inventory, and other exit related costs associated with a plan
approved by senior level management. The recognition of restructuring charges
requires us to make certain assumptions and estimates as to the amount and when
to recognize exit activity related charges. Quarterly, we re-evaluate the
amounts recorded and will adjust for changes in estimates as facts and
circumstances change.
Accounting for Income Taxes. We account for income taxes in accordance
with SFAS No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). As part of
the process of preparing our consolidated financial statements, we estimate our
income tax expense in each of the jurisdictions in which it operates. This
process includes an assessment of temporary differences which result from the
differing treatment of items for financial reporting and
28
income tax reporting purposes. These differences result in deferred tax assets
and liabilities, which are included within our consolidated balance sheet. The
deferred tax balances are adjusted to reflect tax rates, based on currently
enacted tax laws, which will be in effect in the years in which the temporary
differences are expected to reverse. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the results of operations
in the period that included the enactment date. We have provided deferred income
benefits on domestic and foreign Net Operating Loss Carryforwards to the extent
we believe we will utilize them in future tax filings. If we do obtain the
future profitability level used to estimate the utilization of these
carryforwards, or future forecasts are at a lower profitability than current
forecasts, we will be required to provide a valuation allowance against the
related deferred income tax asset.
A valuation allowance is required when it is more likely than not that all
or a portion of a deferred tax asset will not be realized. Significant judgment
is required in determining our provision for income taxes, deferred tax assets
and liabilities and any valuation allowance recorded against our net deferred
tax assets. We have recorded a valuation allowance of $68.8 million as of
December 31, 2005, due to uncertainties related to our ability to utilize some
of our deferred tax assets, primarily certain net operating loss carryovers. The
valuation allowance is based on our review of all available positive and
negative evidence, including our past and future performance in the
jurisdictions in which it operates, the market environment in which it operates,
the utilization of tax attributes in the past, the length of carryback and
carryforward periods in jurisdictions and evaluation of potential tax planning
strategies. In the event that actual results differ from these estimates or we
adjust these estimates in future periods, the effects of these adjustments could
materially impact our financial position and results of operations. The net
deferred tax asset as of December 31, 2005 was $73.5 million, net of a valuation
allowance of $68.8 million. In addition, during 2003 and 2004, we recorded total
losses from discontinued operations of $129.4 million related to the disposition
of the Mechanical Assemblies Europe business. We have not recorded tax benefits
for these losses as we believe it is more likely than not that such benefits
will not be realized.
We operate within multiple tax jurisdictions and are subject to audits in
these jurisdictions. Upon audit, these taxing jurisdictions could retroactively
disagree with our tax treatment of certain items. Consequently, the actual
liabilities with respect to any year may be determined long after financial
statements have been issued. We establish tax reserves for estimated tax
exposures. These potential exposures result from varying applications of
statutes, rules, regulations, case law and interpretations. The settlement of
these exposures primarily occurs upon finalization of tax audits. However, the
amount of the exposures can also be impacted by changes in tax laws and other
factors. On a quarterly basis, we evaluate the reserve amounts in light of any
additional information and adjust the reserve balances as necessary to reflect
the best estimate of the probable outcomes. We believe that we have established
the appropriate reserves for these estimated exposures. However, ultimate
results may differ from these estimates. The resolution of these tax matters in
a particular future period could have a material impact on our consolidated
statement of operations and provision for income taxes.
Defined Benefit Plans and Postretirement Benefits. We sponsor 13 defined
benefit type plans that cover certain hourly and salaried employees in the U.S.
and certain European countries. Our policy is to make annual contributions to
the plans to fund the normal cost as required by local regulations. In addition,
we have 9 postretirement medical benefit plans for certain employee groups and
have recorded a liability for our estimated obligation under these plans. In
calculating obligation and expense, we are required to select certain actuarial
assumptions. These assumptions include discount rate, expected long-term rate of
return on plan assets and rates of increase in compensation and healthcare
costs. Our assumptions are determined based on current market conditions,
historical information and consultation with and input from our actuaries. We
have historically used September 30 as our annual measurement date. For 2005, we
assumed discount rates of 3.75 to 6.00% for our pension benefits, and 5.00 to
5.50% for our postretirement benefits other than pensions to determine our
benefit obligations. Holding other variables constant (such as expected return
on plan assets and rate of compensation increase), a one percentage point
decrease in the weighted average discount rate would have increased our expense
by $1.8 million and obligations by $40.1 million.
We employ a building block approach in determining the expected long-term
rate of return for plan assets, based on historical markets, long-term
historical relationships between equities and fixed income and considering
current market factors such as inflation and interest rates. Holding other
variables constant (such as discount rate and rate of compensation increase) a
one percentage point decrease in the expected long-term rate of return on plan
29
assets would have increased our expense by $0.9 million. We expect to contribute
$8.5 million to our pension plans and $1.3 million to our postretirement medical
benefit plans in 2006.
We employ a total return on investment approach in managing pension plan
assets whereby a mix of equities and fixed income investments are used to
maximize the long-term return of plan assets for a prudent level of risk. At
September 30, 2005, our measurement date, our North American pension assets are
comprised of 63% equity securities and 37% debt securities. At September 30,
2005, our measurement date, our foreign pension assets are comprised of 60%
equity securities, 34% debt securities and 6% other investments (cash).
Specifically related to our postretirement medical benefit plans, assumed
health care cost trend rates have a significant effect on the amounts reported
for these plans. Holding other variables constant, a one percentage-point
decrease in assumed health care cost trend rates would have decreased our
expense by approximately $0.1 million and postretirement benefit obligation by
approximately $1.3 million.
While any negative impact of these Significant Accounting Policies would
generally result in non-cash charges to earnings, the severity of any charge and
its impact on stockholders' investment could adversely affect our borrowing
agreements, cost of capital and ability to raise external capital. Our senior
management has reviewed these Critical Accounting Policies with the Audit
Committee of our Board of Directors, and the Audit Committee has reviewed our
disclosure in this management discussion and analysis.
RESULTS OF OPERATIONS
<Table>
<Caption>
YEARS ENDED
DECEMBER 31,
-------------------
2005 2004 2003
----- ----- -----
Revenue............................................... 100.0% 100.0% 100.0%
Cost of sales......................................... 89.0% 88.8% 87.8%
----- ----- -----
Gross profit.......................................... 11.0% 11.2% 12.2%
Selling, general and administrative................... 6.7% 6.0% 6.5%
Facility consolidation, asset impairment and other
charges............................................. 0.5% 0.9% 0.4%
Amortization expense.................................. 0.0% 0.0% 0.0%
----- ----- -----
Operating income...................................... 3.8% 4.3% 5.3%
Interest expense, net of interest income.............. 4.3% 3.6% 3.4%
Gain (loss) on early extinguishment of debt........... 0.7% 0.0% 0.1%
----- ----- -----
Income from continuing operations before provision for
income taxes and minority interest.................. 0.2% 0.7% 1.8%
Provision for income taxes............................ 0.1% 0.2% 0.6%
Minority interest -- dividend on trust preferred
securities, net in 2003............................. 0.0% 0.0% 0.1%
----- ----- -----
Income from continuing operations..................... 0.1% 0.5% 1.1%
Loss from discontinued operations..................... 0.0% 0.0% 0.1%
----- ----- -----
Net income............................................ 0.1% 0.5% 1.0%
===== ===== =====
</Table>
Revenues. Revenues for 2005 declined $148.4 million, or 6%, to $2,344.1
million from $2,492.5 in 2004 principally as the result of significant
reductions in North American OEM requirements, particularly Ford and GM. Further
declines in European production and motor homes in our RVSV business also
contributed to lower revenues.
North American 2005 light vehicle production remained fairly consistent
with 2004's level; however, the Big 3 OEMs were down 4.7% for the year 2005
versus the year 2004. European overall production volumes were also down 0.8%
for the year 2005 versus the year 2004. In addition to the volume reductions
during 2005, we were negatively affected by unfavorable platform mix as certain
of our customers and larger programs were down more than the broader industry.
In the RVSV industry, volumes were up 3.9% in total for the year 2005 versus the
year 2004, however, Class A motorized vehicles, a key segment to us, was down
18.1% for the year 2005 versus the year
30
2004. Fourth quarter 2005 sales in the RVSV industry was favorably impacted by
sales to Federal Emergency Management Administration (FEMA) as a result of the
hurricanes early in the year.
Revenues for 2004 increased by $111.7 million, or 4.7%, to $2,492.5 million
from $2,380.8 million in 2003. Factors that favorably impacted revenue in 2004
included the strengthening of foreign currencies in relation to the U.S. dollar,
the effect of the acquisition of the Creation Group of $84.8 million and a
strengthening RVSV market of $18.8 million. Factors that offset these favorable
items were the impact of lower North American production volumes and selling
price reductions.
Our significant foreign denominated operations were favorably impacted by
the overall currency strengthening against the U.S. dollar in 2005 and 2004.
This favorable exchange rate change resulted in increased U.S. dollar revenues
of $40.0 million in 2005, and $116.5 million in 2004. In fourth quarter of 2005,
the EURO declined against the U.S. dollar resulting in a negative impact to
sales as compared to the fourth quarter of 2004. We are not able to predict what
the impact of future fluctuations of the foreign currency exchange to the U.S.
dollar will have on our operations.
During the third quarter of 2005, we learned Lear made the decision to
internally manufacture the seat adjusters for the redesigned full-size GM light
duty trucks and SUVs (GMT 900). We manufacture these products for the current
design of these vehicles. As a result, our revenue with Lear is expected to
decline as they begin manufacturing the GMT 900 program internally over the next
two years.
Cost of Sales. Cost of sales for 2005 increased slightly as a percent of
sales from that experienced in 2004 and 2003. The majority of the increase can
be attributed to lower absorption of fixed costs spread over lower production
volumes in 2005 than in 2004, and increased temporary cost associated with the
implementation of a new ERP system and centralization of certain support
functions. Such factors are expected to continue until operations are
streamlined, the new ERP system is implemented worldwide and the centralization
of certain support functions is completed. Steel spot prices increased in the
later half of 2005, the effect of which was minimized by us locking into six
month contracts at the end of June 2005. Steel cost reduction and selling price
recovery for increased steel costs favorably influenced our 2005 gross profit as
compared to 2004. In 2004, we did not receive relief from our customers for the
significant increased steel costs, which accounts for the majority of the
increase in the cost of sale percentage from 2003.
Effective June 30, 2005, we were 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 year ended
December 31, 2005. Based upon guidance from outside environmental legal counsel,
we had determined in the fourth quarter of 2005 that $1.8 million of previously
provided environmental reserves were no longer warranted. Accordingly, we
reversed this reserve tocost of sales.
Selling, General, and Administrative. Selling, general, and administrative
expenses for 2005 increased in both dollars and percent of sales from 2004 as a
result of increased engineering to develop new products, and increased general
and administrative costs associated mainly with the efforts to centralize
certain administrative functions and implementation of a new enterprise resource
planning (ERP) systems, as discussed above. These increases were offset by lower
selling expenses resulting from the streamlining of such function, and the
freezing of certain salary increases and elimination of the discretionary U.S.
401k contribution.
Selling, general, and administrative expenses for 2004 decreased from that
experienced in 2003 through efforts to contain such costs. Selling, general and
administrative expenses for 2004 and 2003 contain minor costs associated with
the implementation of a new ERP system or the centralization of certain support
functions.
Our goal continues to be to consolidate certain selling, general and
administrative functions and streamlining of others resulting in lower future
costs.
Facility Consolidation, Asset impairment and Other Charges. As a part of
our ongoing cost reduction and capacity utilization efforts, we have taken
numerous actions to improve our cost structure. Such costs include employee
termination benefits, asset impairment charges and other incremental costs,
including equipment and personnel relocation costs. These costs are reflected as
facility consolidation, asset impairments and other charges
31
in the consolidated statement of operations and were accounted for in accordance
with SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of
Defined Pension Plans and for Termination Benefits", 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".
In connection with the streamlining of operations during 2005, the Company
recorded facility consolidation, asset impairment and other charges of $11.4
million, consisting of severance costs of $6.7 million, asset impairment costs
of $3.2 million and facility closure and other costs of $1.5 million.
Major ongoing and 2005 completed restructuring actions are as follows:
- During the fourth quarter of 2005, we began a streamlining of a North
American plant that will be completed in 2007. Certain employee severance
related charges approximating $1.6 million were recorded in accordance
with SFAS No. 112 in 2005;
- During the third quarter of 2005, in order to improve capacity
utilization, we announced a plan to streamline our Einbeck, Germany,
manufacturing operation. This action is substantially completed and
resulted in a total severance cost of $0.3 million in 2005;
- During the second quarter of 2005, in order to improve capacity
utilization, we announced a plan to streamline our Plettenberg, Germany,
manufacturing operation during 2005 and 2006. In the third quarter, we
received approval for this action from the appropriate Workers' Council
and Union. Full identification of the actual employees has not been
completed, and accordingly we are not able to fully estimate the
severance to be incurred, as it will be based on numerous factors
depending on each individual's circumstances. This action is expected to
be completed by December 2006, and could result in a total severance
costs of approximately $4.3 million, of which $3.2 million has already
been incurred;
- During the first quarter of 2005, we announced a plan to migrate to one
enterprise resource planning system and centralize many of our functional
operations to better align with current business levels. These actions
are ongoing as we continue to migrate our U.S. operations. We are
anticipating total severance costs could be as high as $2 million
domestically, of which $1.3 million has been incurred so far in 2005. We
have not formalized the total impact to our international operations,
since meaningful migration and centralization will not begin until mid
2006 and are estimated to be completed sometime in 2007. We do expect
that upwards of 200 individuals could be impacted. We have not yet
identified specifically which individuals or group of individuals will be
impacted, or in which international locations they reside. Therefore we
are not able to estimate the termination liability impact at this time.
We do expect however that the international termination costs for this
action will exceed the related estimate for our U.S. operations;
- In 2004, we closed our Bondoufle, France, sales and engineering facility
and relocated to Velizy, France, which is located near our French OEM
customers. This action is complete and resulted in total restructuring
charges of $0.2 million in 2004;
- In 2004, we announced a plan to consolidate certain of our Body & Glass
Division product lines in Europe. This action is complete and resulted in
total charges of $3.3 million;
- In 2004, we announced a plan to exit our Rockford, Illinois, facility and
combine the business with other operations and relocate our Atwood Mobile
Products division headquarters from Rockford, Illinois, to Elkhart,
Indiana. This action is complete and resulted in total charges of $0.3
million in 2005 and $8.3 million in 2004;
- In 2004, we announced a plan to exit our Brookfield, Missouri, facility
and combine the business with other operations. This action is complete
and resulted in total charges of $0.9 million in 2005 and $2.5 million in
2004;
- In 2004, we exited our Pikeville, Tennessee, facility and combined the
business with other operations. This action is complete and resulted in
total charges of $0.2 million in 2005 and $3.0 million in 2004.
32
Future Restructuring Plan. In February 2006, we announced an operational
restructuring plan designed to enhance performance optimization, worldwide
efficiency and financial results. The restructuring plan is expected to impact
over 50% of our worldwide operations either through product movement or facility
closures. We expect to complete this action by year end 2007. Cash expenditures
for the restructuring plan are expected to be approximately $100 million, which
includes capital expenditures between $25 and $35 million. Restructuring cash
expenses will relate primarily to employee severance, facility closure and
product move costs. The restructuring plan will be financed with cash on hand
and availability under our existing revolving credit facility. We believe that
our current available liquidity will provide us with the funds necessary to
execute this restructuring plan along with our on going operating cash
requirements. Should our current liquidity not be adequate to fund the
restructuring plan and/or our ongoing cash requirements for operations, we may
be required to modify our plans.
Asset Impairments. For the year ended December 31, 2005 and December 31,
2004, we recorded $3.2 million and $7.1 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 consolidated statements of operations and were accounted for in
accordance with SFAS No. 144.
A rollforward of the accruals for facility consolidation, asset impairments
and other charges by quarter for the year ended December 31, 2005 follows (in
thousands):
<Table>
<Caption>
EMPLOYEE
TERMINATION ASSET IMPAIRMENT FACILITY CLOSURE
BENEFITS CHARGES AND OTHER COSTS TOTAL
----------- ---------------- ---------------- -------
Balance December 31, 2004........ $ 5,306 $ -- $ 522 $ 5,828
Adjustments/Charges.............. 1,046 136 484 1,666
Cash utilizations................ (3,478) -- (55) (3,533)
Non-cash/foreign exchange
impact/other................... -- (136) -- (136)
------- ------- ------- -------
Balance April 3, 2005............ 2,874 -- 951 3,825
------- ------- ------- -------
Adjustments/Charges.............. 1,144 1,129 351 2,624
Cash utilizations................ (1,728) -- (483) (2,211)
Non-cash/foreign exchange
impact/other................... -- (1,129) -- (1,129)
------- ------- ------- -------
Balance July 3, 2005............. 2,290 -- 819 3,109
------- ------- ------- -------
Adjustments/Charges.............. 880 -- 980 1,860
Cash utilizations................ (876) -- (1,052) (1,928)
Non-cash/foreign exchange
impact/other................... (416) -- -- (416)
------- ------- ------- -------
Balance October 2, 2005.......... 1,878 -- 747 2,625
------- ------- ------- -------
Adjustments/Charges.............. 3,665 1,895 (313) 5,247
Cash utilizations................ (1,307) -- (63) (1,370)
Non-cash/foreign exchange
impact/other................... (284) (1,895) 150 (2,029)
------- ------- ------- -------
Balance December 31, 2005........ $ 3,952 $ -- $ 521 $ 4,473
======= ======= ======= =======
</Table>
Amortization Expense. Amortization expense for the year ended December 31,
2005 was $0.4 million, which is unchanged compared to $0.4 million in 2004.
Interest Expense. Interest expense for the year ended December 31, 2005
increased by $10.5 million, or 11.7%, to $100.0 million from $89.5 million in
2004. Interest expense increased due to higher average interest rates on LIBOR
based borrowings, increased borrowings during 2005, and less favorable impact of
interest rate swaps. The fair value of the interest rate swap contracts was a
net loss of $10.8 million in 2005 versus a net gain of $18.3 million in 2004.
33
Gain on Early Extinguishment of Debt. During the fourth quarter of 2005,
we retired through purchase, Senior Subordinated Notes with an approximate face
value of $49.4 million resulting in a net pretax gain of $18.2, million after
the write off of $0.4 million of associated deferred debt issuance costs.
In the second quarter of 2005, we recognized a loss on early extinguishment
of debt in the amount of $3.3 million relating to debt issuance costs written
off when we terminated our 2003 Credit Agreement and entered into our new Credit
Facilities in May 2005.
Income Taxes. The effective income tax rates for 2005, 2004 and 2003
differ from the U.S. federal statutory rate primarily as a result of lower
foreign tax rates, the effects of state taxes, the provision of a valuation
allowances on certain losses in foreign jurisdictions and the adjustment to tax
contingency reserves based upon specific events occurring during the periods.
The effective rate for 2005 is higher than 2004's as a result of lower foreign
tax holidays and valuation adjustments on foreign losses net of the beneficial
impact of a settlement of a United States IRS audit issue. The effective rate
decreased in 2004 from 2003, primarily as a result of the 2004 foreign tax
holidays.
GEOGRAPHICAL RESULTS OF OPERATIONS
(Refer to Consolidating Guarantor and Non-Guarantor Financial Information
Footnote 13 to the consolidated financial statements contained in Item 8 of this
Form 10-K for detailed financial information of our U.S. and international
operations. The Non-Guarantor Companies financial information represents our non
United States operations.)
Our results of operations by geographic region are impacted by various
factors including vehicle production volumes, foreign exchange and general
economic conditions.
We sell our products to every major North American, Asian and European
automotive OEM and most RVSV OEMs. We have manufacturing and product development
facilities located in the United States, Brazil, Canada, China, Czech Republic,
France, Germany, Mexico, Portugal, Romania, Slovakia, Spain and the United
Kingdom. We also have a presence in India, Japan and Korea through sales office,
alliances or technical licenses.
Our foreign business has been increasing as a percentage of total revenue
due to the strengthening of foreign currencies in relation to the U.S. dollar
and lower North American automotive production volumes. Foreign currency
positively impacted revenue by $40 million in 2005 and $116.5 million in 2004.
Sales in the North American region represented 56.9% of consolidated sales in
2005, 59.3% in 2004, and 60.1% in 2003.
Geographically, we have experienced significant variability in income from
continuing operations between each of the last three years. Our domestic region
(North America) income from continuing operations has decreased over this
period.
Our profitability in the domestic region declined slightly in 2005 from
2004 as a ratio of sales, as fixed costs absorption was reduced due to lower
production volumes, increased costs related to the implementation process for a
new ERP system, and the centralization of certain support functions. These
factors accounted for almost all of the $26.3 million decline in gross profit
contributed by the domestic region. The domestic region's operating profit for
2005 was negatively impacted by higher selling, general and administrative
expense as a result of increased engineering to develop new products, increased
general and administrative costs associated mainly with the efforts to
centralize certain support functions and implementation of a new ERP systems,
and as a result of substantially higher facility and other consolidation costs.
Our profitability in the domestic region weakened in 2004 as compared to 2003
due to the reduction in automotive production volumes; increased interest
expense due to higher average interest rates; and the impact of steel was felt
more severely in our domestic operations as steel pricing increased more
significantly in North America during 2004. The North American region's
operating profit represented 58.7% of consolidated operating profit in 2005,
69.2% in 2004, and 67.9% in 2003.
Our profitability in the foreign region improved in 2005 as compared to
2004 due to lower manufacturing costs and lower selling, general and
administrative costs. Facility consolidation charges and other costs remained
fairly level year over year. Our 2004 profitability in the foreign region
weakened from that experienced in 2003 as a result
34
of increased facility consolidation costs, higher overall material costs and a
negative net impact from foreign exchange.
QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY
We typically experience 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 RVSV market is seasonal in that sales in
the fourth quarter are normally at reduced levels.
EFFECTS OF INFLATION
Inflation potentially affects us in two principal ways. First, a
significant portion of our 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, we have limited ability to pass through
inflation-related cost increases due to the competitive nature of the markets
that we serve. In the past few years, other than material costs, inflation has
not been a significant factor.
LIQUIDITY AND CAPITAL RESOURCES
During 2005, we used cash from operations of $13.0 million, compared to
generating cash from operations of $109.2 million last year. Cash generated from
operations before changes in working capital items was $21.2 million for 2005 a
decrease from the $85.6 million for 2004 as a result of lower net income after
giving effect to the non cash income items, such as the reversal of certain
environmental reserves. Non-cash working capital used cash of $34.2 million in
2005 compared to a source of $23.6 million in 2004. The increased cash usage for
working capital resulted primarily from increased accounts receivable resulting
form the termination by a major customer of its accelerated payment program and
delayed timing of payments by several major customers at year-end 2005.
Net cash used in investing activities was $64.3 million for 2005 compared
to $80.5 million used in 2004. In the 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 occurred in 2005. Net cash
capital expenditures totaled $66.8 million for 2005, compared with $67.2 million
in 2004. Capital expenditures were primarily for equipment and dedicated tooling
purchases related to new or replacement programs; several new customer programs
began in 2005. Non cash capital expenditures of $11.8 million occurred in 2005,
for which cash payment will occur in 2006.
Net cash used in financing activities totaled $4.3 million in 2005 compared
with $16.9 million in 2004. Cash proceeds of $11.4 million were received in the
second quarter of 2005 for the deferred gain on termination of interest rate
swaps. Usage of $30.8 million occurred in the fourth quarter for the
extinguishment of debt having a face value of $49.4 million.
In February 2005, we amended our then existing 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. We repaid $35.0 million of the Tranche C term loan, in
conjunction with this amendment.
In May 2005, we entered into new senior secured credit facilities with an
aggregate borrowing capacity of $325 million, consisting of a five-year $175
million asset-based revolver and a six-year $150 million Second Lien Term Loan.
Interest under these facilities is based on LIBOR. The 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 Second Lien Term Loan were used
to repay 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 December 31, 2005, our
liquidity under the Credit Agreement was $227.4 million, which includes cash on
hand of $101.9 million. The revolver is secured by certain U.S. and Canadian
assets and a 65% pledge of the stock of our foreign subsidiaries. The Second
Lien Term Loan is secured by all of the U.S. assets and a 65% pledge of the
stock of certain of foreign subsidiaries. In connection with the termination of
the then existing credit agreement, we wrote-off debt issuance costs of $3.3
million during the second
35
quarter of 2005. At December 31, 2005, we had $17.5 million of borrowings
outstanding under the revolving credit facility.
We are limited as to our ability to declare or make certain dividend
payments or other distributions of assets under our Credit Facilities, Senior
Unsecured Notes and Senior Subordinated Notes. Certain distributions relating to
items such as tax sharing arrangements, as required under our Preferred
Securities, are permitted.
We also utilize uncommitted overdraft facilities to satisfy the short-term
working capital requirements of our foreign subsidiaries. Currently we have
overdraft facilities available from banks of $14.2 million, under which no
borrowings are currently outstanding.
Our principal source of liquidity is cash flow generated from operations,
current cash balances and borrowings under our Credit Agreement. We believe that
such funds will be sufficient to meet our liquidity needs for at least the next
twelve months. Our principal use of liquidity will be to meet debt service
requirements, finance capital expenditures and approximately $100.0 million over
the next two years of anticipated cash restructuring charges, and related
capital expenditures, and to provide working capital availability. Capital
expenditures in 2006 are expected to be between $105.0 to $115.0 million as a
result of our announced in February 2006 restructuring actions. At this level of
capital spending, we will be required to obtain relief from our loan covenant
restriction for base annual capital expenditures of $85.0 million. We anticipate
the necessary relief will be obtained from the respective lenders.
We do not expect the February 2006, lowering of our corporate credit rating
by Standard & Poor's to "B-" from "B" to significantly affect our ability to
access additional liquidity if we choose to do so.
Our ability to service our indebtedness will depend on our and the
automotive industry's future performance, which will be affected by prevailing
economic conditions and financial, business, regulatory and other factors.
Certain of these factors are beyond our control. We believe, based upon current
levels of operations, we will be able to fund our debt service obligations for
at least the next 24 months. Significant assumptions underlie this belief,
including, among other things, that we will continue to be successful in
implementing our business strategy, especially our restructuring activities, and
that there will be no material adverse developments in our business, liquidity
or capital requirements. If we cannot generate sufficient cash flow from
operations to service our indebtedness and to meet our other obligations and
commitments, we might be required to refinance our debt or to dispose of assets
to obtain funds for such purpose. There is no assurance that refinancing or
asset dispositions could be affected on a timely basis or on satisfactory terms,
if at all, or would be permitted by the terms of the our existing debt
instruments. In the event that we are unable to refinance our various debt
instruments or raise funds through asset sales, sales of equity or otherwise,
our ability to pay principal of, and interest on, our debt would be impaired.
Future operating results will significantly influence our ability to reduce
borrowings and attract additional financing, through either stock or debt
offerings.
We have engaged J.P. Morgan Securities Inc. to arrange additional
borrowings of up to $75 million in the form of a new tranche loan under our
existing $150 million Second Lien Term Loan due May 2011. Specific terms and
conditions are still subject to finalization. In conjunction with this action,
we are also requesting minor amendments to our existing $175 million asset-based
revolving credit facility and the Second Lien Term Loan. The proceeds from this
new loan will be used for general corporate purposes. We expect to close the
transaction by the end of the first quarter.
OFF BALANCE SHEET ARRANGEMENTS
We use standby letters of credit to guarantee our performance under various
contracts and arrangements, principally in connection with our workers
compensation liabilities with insurers. These letters of credit contracts expire
annually and are usually extended on a year-to-year basis. At December 31, 2005,
we had outstanding letters of credit of $18.2 million. We do not believe that
they will be required to be drawn.
We currently do not have any nonconsolidated special purpose entity
arrangements.
36
MARKET RISK
We are 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. We do not enter into derivatives or other
financial instruments for trading or speculative purposes. We enter into
financial instruments to manage and mitigate the impact of changes in foreign
currency exchange rates and interest rates. The counterparties are major
financial institutions.
We manage our interest rate risk by balancing the amount of fixed and
variable debt. For fixed rate debt, interest rate changes affect the fair market
value of such debt, but do not impact earnings or cash flows. Conversely for
variable rate debt, interest rate changes generally do not affect the fair
market value of such debt but do impact future earnings and cash flows, assuming
other factors are held constant. At December 31, 2005, giving effect to the
interest rate swaps discussed below, we have fixed rate debt of $586.7 million
and variable rate debt of $556.7 million. Holding other variables constant (such
as foreign exchange rates and debt levels), a one percentage point increase in
interest rates would have decreased the fair market value of our debt at
December 31, 2005 by $40.1 million, $17.6 million of which relates to our
interest rate swap agreements (see below), and would be expected to have an
estimated reduction in pre-tax earnings and cash flows for the next year of
approximately $5.5 million.
At December 31, 2005, we had outstanding interest rate swap contracts that
effectively converted $400.0 million of our Senior Unsecured Notes into floating
rate obligations. Under these swap contracts, which expire in April 2012, we
receive payments at fixed rates, while we make payments at variable rates (8.31%
to 8.625% at December 31, 2005). The net interest paid or received is included
in interest expense. We have designated these swap contracts as fair value
hedges at their inception. At December 31, 2005, the fair value of the interest
rate swap contracts was a net loss position to us of $10.8 million, representing
the estimated shortfall that would accrue to us to terminate the agreements, and
is long-term debt with a corresponding decrease to related debt in the
accompanying consolidated December 31, 2005 balance sheet.
From time to time, we also use forward exchange contracts to hedge our
foreign currency exposure related to certain intercompany transactions. We may
designate such contracts at their inception as a cash flow hedge. At December
31, 2005, we had no outstanding forward exchange contracts.
FOREIGN CURRENCY TRANSACTIONS
A significant portion of our revenues are derived from manufacturing
operations in Europe, Canada and Latin America (43.0% of 2005 revenue). The
results of operations and the financial position of our operations in these
countries are principally measured in their respective currency and translated
into U.S. dollars. The effects of foreign currency fluctuations in such
countries are somewhat mitigated by the fact that expenses are generally
incurred in the same currencies in which revenues are generated. The reported
income of these subsidiaries will be higher or lower depending on a weakening or
strengthening of the U.S. dollar against the respective foreign currency.
At December 31, 2005, $1.1 billion of our assets are based in our 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, our consolidated stockholders' investment will fluctuate depending
upon the weakening or strengthening of the U.S. dollar against the respective
foreign currency.
Our strategy for management of currency risk relies primarily upon
conducting operations in such countries' respective currency and we may, from
time to time, engage in hedging programs intended to reduce the exposure to
currency fluctuations (see discussion above on "Market Risk").
37
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Market Risk" and "Foreign Currency Transactions" sections of Item 7.
CONTRACTUAL OBLIGATIONS
The following table presents our contractual obligations at December 31,
2005 (in thousands):
<Table>
<Caption>
PAYMENTS DUE BY PERIOD
-------------------------------------------------------
LESS THAN TWO-THREE FOUR-FIVE MORE THAN
TOTAL ONE YEAR YEARS YEARS FIVE YEARS
---------- --------- --------- --------- ----------
Senior Unsecured Notes........ $ 400,000 $ -- $ -- $ -- $400,000
Senior Subordinated Notes..... 523,906 -- -- 523,906 --
Capital lease obligations and
other noncurrent
liabilities................. 1,249 489 463 196 101
Convertible trust preferred
securities.................. 55,250 -- -- -- 55,250
Other long-term debt.......... 163,020 2,984 1,502 19,002 139,532
Interest expense(a)........... 539,768 103,207 206,143 120,235 110,183
Pension and post retirement
projected benefits.......... 105,247 9,632 18,870 19,910 56,835
Operating leases(b)........... 63,787 15,855 15,486 9,033 23,413
---------- -------- -------- -------- --------
$1,852,227 $132,167 $242,464 $692,282 $785,314
========== ======== ======== ======== ========
</Table>
- --------
(a) Interest expense obligations were calculated holding interest rates
constant as of December 31, 2005.
(b) Operating leases include lease commitments of $15.7 million that are
recorded in facility consolidation cost liabilities.
In addition to the obligations noted above, we have obligations reported as
other long term liabilities that consist principally of obligations for facility
closure and consolidation costs and warranty and environmental liabilities.
At December 31, 2005, we are not a party to any significant purchase
obligations for goods or services not incurred in the normal course of business.
We have committed to an approximate $9.1 million ten year lease of a facility
under construction in Mexico that is expected to run through 2016.
38
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
----
Report of Independent Registered Public Accounting Firm................. 40
Consolidated Balance Sheets as of December 31, 2005 and 2004............ 41
Consolidated Statements of Operations for the years ended December 31,
2005, 2004 and 2003................................................... 42
Consolidated Statements of Stockholders' Investment for the years ended
December 31, 2005, 2004 and 2003...................................... 43
Consolidated Statements of Cash Flows for the years ended December 31,
2005, 2004 and 2003................................................... 44
Notes to Consolidated Financial Statements.............................. 45
</Table>
39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Dura Automotive Systems, Inc.
We have audited the accompanying consolidated balance sheets of Dura
Automotive Systems, Inc. and subsidiaries (the "Company") as of December 31,
2005 and 2004, and the related consolidated statements of operations,
stockholders' investment, and cash flows for each of the three years in the
period ended December 31, 2005. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Dura Automotive Systems, Inc.
and subsidiaries as of December 31, 2005 and 2004, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2005, in conformity with accounting principles generally accepted
in the United States of America.
We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of the
Company's internal control over financial reporting as of December 31, 2005,
based on the criteria established in Internal Control -- Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated March 10, 2006, expressed an unqualified opinion on
management's assessment of the effectiveness of the Company's internal control
over financial reporting and an adverse opinion on the effectiveness of the
Company's internal control over financial reporting because of a material
weakness.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
March 10, 2006
40
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
AS OF DECEMBER 31
----------------------
2005 2004
---------- ----------
(IN THOUSANDS,
EXCEPT SHARE AMOUNTS)
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 101,889 $ 191,568
Accounts receivable, net of reserve for doubtful accounts
and sales allowance of $5,061 in 2005 and $3,806 in
2004................................................... 291,119 273,956
Inventories............................................... 132,148 149,834
Current portion of derivative instruments................. -- 7,746
Other current assets...................................... 107,650 92,016
---------- ----------
Total current assets................................... 632,806 715,120
---------- ----------
Property, Plant and Equipment:
Land and buildings........................................ 208,045 212,131
Machinery and equipment................................... 669,281 664,490
Construction in progress.................................. 43,499 43,821
Less -- Accumulated depreciation.......................... (462,567) (433,336)
---------- ----------
Net property, plant and equipment...................... 458,258 487,106
---------- ----------
Goodwill.................................................... 854,296 903,584
Noncurrent portion of derivative instruments................ -- 10,601
Other assets, net of accumulated amortization of $19,377 in
2005 and $31,162 in 2004.................................. 129,849 107,510
---------- ----------
$2,075,209 $2,223,921
========== ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable.......................................... $ 265,560 $ 270,341
Accrued liabilities....................................... 180,622 187,254
Current maturities of long-term debt...................... 3,473 2,968
---------- ----------
Total current liabilities.............................. 449,655 460,563
---------- ----------
Long-term debt, net of current maturities................... 171,577 150,898
Senior unsecured notes...................................... 400,000 400,000
Senior subordinated notes................................... 523,906 589,469
Convertible trust preferred securities subject to mandatory
redemption................................................ 55,250 55,250
Senior notes -- derivative instrument adjustment............ (10,781) 18,347
Minority interests.......................................... 4,864 --
Other noncurrent liabilities................................ 141,031 141,903
---------- ----------
Total liabilities...................................... 1,735,502 1,816,430
---------- ----------
Commitments and Contingencies (Notes 6, 10 and 11)
Stockholders' Investment:
Preferred stock, par value $1; 5,000,000 shares
authorized; none issued or outstanding................. -- --
Common stock, Class A; par value $.01; 60,000,000 shares
authorized............................................. 188 186
Common stock, Class B; par value $.01; 10,000,000 shares
authorized............................................. -- --
Additional paid-in capital................................ 351,994 351,571
Treasury stock at cost.................................... (1,948) (2,513)
Accumulated deficit....................................... (91,528) (93,342)
Accumulated other comprehensive income.................... 81,001 151,589
---------- ----------
Total stockholders' investment......................... 339,707 407,491
---------- ----------
$2,075,209 $2,223,921
========== ==========
</Table>
See notes to consolidated financial statements.
41
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
FOR THE YEARS ENDED DECEMBER 31
----------------------------------
2005 2004 2003
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
Revenues.......................................... $2,344,139 $2,492,543 $2,380,794
Cost of sales..................................... 2,086,421 2,214,113 2,089,243
---------- ---------- ----------
Gross profit.................................... 257,718 278,430 291,551
Selling, general and administrative expenses...... 155,901 150,489 154,935
Facility consolidation, asset impairment and other
charges......................................... 11,397 21,817 9,252
Amortization expense.............................. 434 445 370
---------- ---------- ----------
Operating income................................ 89,986 105,679 126,994
Interest expense, net of interest income of $2,987
in 2005, $2,985 in 2004, and $2,590 in 2003..... 100,021 89,535 81,921
Gain (loss) on early extinguishment of debt, net.. 14,805 -- (2,852)
---------- ---------- ----------
Income from continuing operations before
provision for income taxes and minority
interest..................................... 4,770 16,144 42,221
Provision for income taxes........................ 2,687 3,672 14,355
Minority interest:
Dividends on trust preferred securities, net.... -- -- 2,735
In non-wholly owned subsidiaries................ 177 -- --
---------- ---------- ----------
Income from continuing operations............... 1,906 12,472 25,131
Loss from discontinued operations, including loss
on disposal..................................... (92) (749) (2,793)
---------- ---------- ----------
Net income...................................... $ 1,814 $ 11,723 $ 22,338
========== ========== ==========
Basic earnings per share:
Income from continuing operations............... $ 0.10 $ 0.67 $ 1.37
Discontinued operations......................... -- (0.04) (0.15)
---------- ---------- ----------
Net income................................... $ 0.10 $ 0.63 $ 1.22
========== ========== ==========
Diluted earnings per share:
Income from continuing operations............... $ 0.10 $ 0.66 $ 1.35
Discontinued operations......................... -- (0.04) (0.15)
---------- ---------- ----------
Net income................................... $ 0.10 $ 0.62 $ 1.20
========== ========== ==========
</Table>
See notes to consolidated financial statements.
42
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
<Table>
<Caption>
COMMON STOCK
-----------------------------------------
CLASS A CLASS B ADDITIONAL TREASURY STOCK
------------------- ------------------- PAID-IN ----------------- ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL SHARES AMOUNT (DEFICIT)
---------- ------ ---------- ------ ---------- ------- ------- -----------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
BALANCE, DECEMBER 31,
2002..................... 16,489,739 $165 1,761,150 $ 17 347,065 177,122 $(1,974) $(127,403)
Sale of stock under
Employee Stock
Discount Purchase
Plan.................. 93,069 2 -- -- 576 -- -- --
Conversion from Class B
to Class A............ 115,000 1 (115,000) (1) -- -- -- --
Exercise of options...... 36,420 -- -- -- 1,101 -- -- --
Treasury shares, net..... -- -- -- -- 478 56,154 (478) --
Net income............... -- -- -- -- -- -- -- 22,338
Other comprehensive
income-
Foreign currency
translation
adjustment.......... -- -- -- -- -- -- -- --
Minimum pension
liability........... -- -- -- -- -- -- -- --
Derivative
instruments......... -- -- -- -- -- -- -- --
Total comprehensive
income................
---------- ---- ---------- ---- -------- ------- ------- ---------
BALANCE, DECEMBER 31,
2003..................... 16,734,228 168 1,646,150 16 349,220 233,276 (2,452) (105,065)
Sale of stock under
Employee Stock
Discount Purchase
Plan.................. 114,052 1 -- -- 937 -- -- --
Conversion from Class B
to Class A............ 1,646,150 16 (1,646,150) (16) -- -- -- --
Exercise of options...... 138,100 1 -- -- 1,353 -- -- --
Treasury shares, net..... -- -- -- -- 61 3,735 (61) --
Net income............... -- -- -- -- -- -- -- 11,723
Other comprehensive
income-
Foreign currency
translation
adjustment.......... -- -- -- -- -- -- -- --
Minimum pension
liability........... -- -- -- -- -- -- -- --
Total comprehensive
income.............. -- -- -- -- -- -- -- --
---------- ---- ---------- ---- -------- ------- ------- ---------
BALANCE, DECEMBER 31,
2004..................... 18,632,530 186 -- -- 351,571 237,011 (2,513) (93,342)
Sale of stock under
Employee Stock
Discount Purchase
Plan.................. 131,343 1 -- -- 592 -- -- --
Exercise of options...... 11,075 1 -- -- 79 -- -- --
Treasury shares, net..... -- -- -- -- (248) (53,328) 565 --
Net income............... -- -- -- -- -- 1,814
Other comprehensive loss
Foreign currency
translation
adjustment.......... -- -- -- -- -- -- -- --
Minimum pension
liability........... -- -- -- -- -- -- -- --
Total comprehensive
loss................ -- -- -- -- -- -- -- --
---------- ---- ---------- ---- -------- ------- ------- ---------
BALANCE, DECEMBER 31,
2005..................... 18,774,948 $188 -- $-- $351,994 183,683 $(1,948) $ (91,528)
========== ==== ========== ==== ======== ======= ======= =========
<Caption>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE STOCKHOLDERS'
INCOME (LOSS) INVESTMENT
------------- -------------
(IN THOUSANDS, EXCEPT SHARE
AMOUNTS)
BALANCE, DECEMBER 31,
2002..................... $(13,068) $204,802
Sale of stock under
Employee Stock
Discount Purchase
Plan.................. -- 578
Conversion from Class B
to Class A............ -- --
Exercise of options...... -- 1,101
Treasury shares, net..... -- --
Net income...............
Other comprehensive
income-
Foreign currency
translation
adjustment.......... 102,684
Minimum pension
liability........... (1,649)
Derivative
instruments......... 733
Total comprehensive
income................ 124,106
-------- --------
BALANCE, DECEMBER 31,
2003..................... 88,700 330,587
Sale of stock under
Employee Stock
Discount Purchase
Plan.................. -- 938
Conversion from Class B
to Class A............ -- --
Exercise of options...... -- 1,354
Treasury shares, net..... -- --
Net income...............
Other comprehensive
income-
Foreign currency
translation
adjustment.......... 69,669
Minimum pension
liability........... (6,780)
Total comprehensive
income.............. -- 74,612
-------- --------
BALANCE, DECEMBER 31,
2004..................... 151,589 407,491
Sale of stock under
Employee Stock
Discount Purchase
Plan.................. -- 593
Exercise of options...... -- 80
Treasury shares, net..... -- 317
Net income...............
Other comprehensive loss
Foreign currency
translation
adjustment.......... (64,832)
Minimum pension
liability........... (5,756)
Total comprehensive
loss................ -- (68,774)
-------- --------
BALANCE, DECEMBER 31,
2005..................... $ 81,001 $339,707
======== ========
</Table>
See notes to consolidated financial statements.
43
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
FOR THE YEARS ENDED DECEMBER
31
------------------------------
2005 2004 2003
--------- -------- ---------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Income from continuing operations...................... $ 1,906 $ 12,472 $ 25,131
Adjustments required to reconcile income from
continuing operations to net cash provided by
operating activities --
Depreciation and amortization....................... 80,361 83,388 77,567
Amortization of deferred financing fees............. 3,889 3,522 4,520
Facility consolidation and other.................... (1,359) 13,506 7,290
Deferred income tax benefit......................... (27,156) (16,663) (2,075)
Asset impairments................................... 3,160 7,100 6,102
Favorable settlement of environmental matters....... (9,960) -- --
(Gain)/Loss on early extinguishment of debt......... (14,805) -- 2,852
Change in other operating items:
Accounts receivable............................... (29,583) 29,257 36,199
Inventories....................................... 13,532 (15,746) 13,336
Other current assets.............................. (19,118) 7,695 15,386
Accounts payable and accrued liabilities.......... 989 2,392 (26,424)
Other assets, liabilities and non-cash items...... (14,848) (17,702) (25,538)
--------- -------- ---------
Net cash provided by (used in) operating
activities................................... (12,992) 109,221 134,346
--------- -------- ---------
INVESTING ACTIVITIES:
Capital expenditures................................... (66,817) (67,208) (67,673)
Acquisitions, net...................................... -- (13,327) (57,825)
Other.................................................. 2,490 -- --
--------- -------- ---------
Net cash used in investing activities.......... (64,327) (80,535) (125,498)
--------- -------- ---------
FINANCING ACTIVITIES:
Net borrowings under revolving credit facilities....... 17,500 -- --
Long-term borrowings................................... 153,285 568 55,795
Repayments of long-term borrowings..................... (179,459) (19,227) (63,962)
Purchase of treasury shares, net....................... -- (61) (478)
Minority interest distributions........................ (86) -- --
Proceeds from issuance of senior notes, net............ -- -- 50,000
Deferred gain on termination of interest rate swap..... 11,374 -- --
Proceeds from exercise of stock options and other,
net................................................. 673 2,353 2,156
Debt issue costs....................................... (7,613) (552) (4,927)
--------- -------- ---------
Net cash provided by (used in) financing
activities................................... (4,326) (16,919) 38,584
--------- -------- ---------
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS.... (7,942) (718) (12,717)
--------- -------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS FROM CONTINUING
OPERATIONS............................................. (89,587) 11,049 34,715
NET CASH FLOW FROM DISCONTINUED OPERATIONS --
Operating Activities................................... (92) (749) 3,316
CASH AND CASH EQUIVALENTS, beginning of period........... 191,568 181,268 143,237
--------- -------- ---------
CASH AND CASH EQUIVALENTS, end of period................. $ 101,889 $191,568 $ 181,268
========= ======== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for --
Interest............................................ $ 95,293 $ 85,217 $ 81,129
========= ======== =========
Income taxes........................................ $ 10,496 $ 10,330 $ 12,462
========= ======== =========
Capitalized interest................................... $ 453 $ -- $ --
========= ======== =========
Unpaid capital expenditures............................ $ 11,765 $ 12,516 $ 9,667
========= ======== =========
</Table>
See notes to consolidated financial statements.
44
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
1. ORGANIZATION AND BASIS OF PRESENTATION:
Dura Automotive Systems, Inc. (a Delaware Corporation) is a holding company
whose predecessor was formed in 1990. Dura Automotive Systems, Inc. and its
subsidiaries (collectively referred to as "DURA", "Company", "we", "our" and
"us") is a leading independent designer and manufacturer of driver control
systems, seating control systems, glass systems, engineered assemblies,
structural door modules and exterior trim systems for the global automotive and
recreation & specialty vehicle ("RVSV") industries.
We sell our products to every major North American, Asian and European
automotive original equipment manufacturer ("OEM") and nearly every RVSV OEM. We
have 63 manufacturing and product development facilities located in the United
States ("U.S."), Brazil, Canada, China, Czech Republic, France, Germany, Mexico,
Portugal, Romania, Slovakia, Spain and the United Kingdom ("UK"). We also have a
presence in India, Japan, and Korea through sales offices, alliances or
technical licenses.
2. SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated financial statements include our accounts and
those of our wholly and majority owned subsidiaries. Net earnings are reduced by
the portion of the net earnings of subsidiaries applicable to minority
interests. All majority owned subsidiaries are consolidated with all
intercompany accounts and activities being eliminated. The operating results of
DURA GANXIANG Automotive Systems (Shanghai) Co., Ltd., of which we own 55% of
its outstanding common stock, and DURA Vehicle Component Co. Ltd., of which we
own 90% of its outstanding common stock, are consolidated in the accompanying
financial statements with the non owned portion shown as minority interest. Our
50% investment in DURATRONICS GmbH is carried on the equity method as we do not
exert controlling interest over its operations.
CASH EQUIVALENTS:
Cash equivalents consist of money market instruments with original
maturities of three months or less and are stated at cost, which approximates
fair value.
INVENTORIES:
Inventories are valued substantially at the lower of first-in, first-out
cost or market.
Inventories consisted of the following (in thousands):
<Table>
<Caption>
DECEMBER 31,
------------------
2005 2004
-------- --------
Raw materials.......................................... $ 61,687 $ 71,881
Work-in-process........................................ 26,193 30,192
Finished goods......................................... 44,268 47,761
-------- --------
$132,148 $149,834
======== ========
</Table>
45
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER CURRENT ASSETS:
Other current assets consisted of the following (in thousands):
<Table>
<Caption>
DECEMBER 31,
-----------------
2005 2004
-------- -------
Excess of cost over billings on uncompleted tooling
projects.............................................. $ 50,761 $31,044
Deferred tax assets..................................... 17,978 21,618
Income and other tax receivables........................ 17,937 26,542
Prepaid expenses and other.............................. 20,974 12,812
-------- -------
$107,650 $92,016
======== =======
</Table>
Excess of cost over billings on uncompleted tooling projects represents
unbilled recoverable costs incurred by us in the production or procurement of
customer-owned tooling to be used by us in the manufacture of our products. We
receive a specific purchase order for this tooling and are reimbursed by the
customer within one operating cycle. Costs are deferred until reimbursed by the
customer. Forecasted losses on incomplete projects are recognized currently.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. For financial reporting
purposes, depreciation is provided on the straight-line method over the
following estimated useful lives:
<Table>
Buildings...................................... 20 to 30 years
Machinery and equipment........................ 3 to 20 years
Leasehold improvements......................... Shorter of useful life or lease term
</Table>
Maintenance and repairs are charged to expense as incurred. Major
betterments and improvements which extend the useful life of the item are
capitalized and depreciated. The cost and accumulated depreciation of property,
plant and equipment retired or otherwise disposed of are removed from the
related accounts, and any residual values are charged or credited to income.
GOODWILL AND OTHER NONCURRENT ASSETS:
Goodwill represents the excess of the purchase price over the fair value of
the net assets acquired that is subject to annual impairment testing in
accordance with the provisions of SFAS No. 142.
Other noncurrent assets consisted of the following (in thousands):
<Table>
<Caption>
DECEMBER 31,
------------------
2005 2004
-------- --------
Deferred income taxes.................................. $ 66,542 $ 43,872
Debt financing costs, net of amortization of $19,110 in
2005 and $30,910 in 2004............................. 19,115 19,184
Notes receivable....................................... 7,677 6,874
Other assets........................................... 18,868 21,669
Other intangible assets................................ 17,647 15,911
-------- --------
$129,849 $107,510
======== ========
</Table>
The amortization of other intangible assets was not significant in 2005 and
2004.
46
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In accordance with SFAS No. 142 , we perform impairment tests annually
using both a discounted cash methodology and a market multiple approach for each
of our four reporting units (Control Systems, Body & Glass, Atwood Mobile
Products and Other Operating Companies). This impairment test is conducted
during the second quarter, or whenever events or circumstances occur indicating
that goodwill or other intangible assets might be impaired. Based upon our
annual assessment during 2005, no impairment of goodwill or other intangible
assets has occurred. If we do not obtain the financial results planned for in
our February 2006 announced restructuring initiatives, further impairment of our
goodwill could occur.
A summary of the carrying amount of goodwill is as follows (in thousands):
<Table>
<Caption>
DECEMBER 31,
------------------
2005 2004
-------- --------
Beginning balance...................................... $903,584 $859,022
Acquisitions........................................... -- 2,269
Currency translation adjustment........................ (49,087) 42,358
Adjustments to goodwill................................ (201) (65)
-------- --------
Ending balance......................................... $854,296 $903,584
======== ========
</Table>
ACCRUED LIABILITIES:
Accrued liabilities consisted of the following (in thousands):
<Table>
<Caption>
DECEMBER 31,
------------------
2005 2004
-------- --------
Compensation and benefits.............................. $ 86,056 $ 96,054
Income and other taxes................................. 43,126 34,375
Interest............................................... 16,882 14,258
Facility closure, acquisition integrations and
discontinued operations.............................. 5,638 9,388
Warranty and environmental............................. 2,371 4,761
Other.................................................. 26,549 28,418
-------- --------
$180,622 $187,254
======== ========
</Table>
OTHER NONCURRENT LIABILITIES:
Other noncurrent liabilities consisted of the following (in thousands):
<Table>
<Caption>
DECEMBER 31,
------------------
2005 2004
-------- --------
Pension and post-retirement benefits................... $ 58,798 $ 63,323
Facility closure, acquisition integrations and
discontinued operations.............................. 17,014 18,568
Deferred tax liabilities............................... 8,439 14,940
Warranty and environmental............................. 12,283 21,272
Other.................................................. 44,497 23,800
-------- --------
$141,031 $141,903
======== ========
</Table>
47
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION AND SALES COMMITMENTS:
We recognize revenue when title passes to our customers, which occurs
primarily when products are shipped from our facilities to our customers. We
enter into agreements with our customers at the beginning of a given vehicle's
life to produce products. Once such agreements are entered into by us,
fulfillment of the customers' purchasing requirements is our obligation for the
entire production life of the vehicle, with terms of up to seven years, and we
generally have no provisions to terminate such contacts. In certain instances,
we may be committed under existing agreements to supply product to our customers
at selling prices which are not sufficient to cover the direct cost to produce
such product. In such situations, we record a liability for the estimated amount
of such future losses. Such losses are recognized at the time that the loss is
probable and reasonably estimable and are recorded at the minimum amount
necessary to fulfill our obligations to our customers. The estimated amount of
such losses as of December 31, 2005 and 2004 were not significant.
RESTRUCTURING CHARGES:
We recognize restructuring charges in accordance with SFAS No. 88
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits", SFAS No. 112 "Employer's Accounting
for Post-employment Benefits", SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets", SFAS No. 146 "Accounting for Costs Associated
with Exit or Disposal Activities" and EITF 95-3 "Recognition of Liabilities in
Connection with a Purchase Business Combination." Such charges relate to exit
activities and primarily include employee termination charges, lease expenses
net of any actual or estimated sublease income, employee relocation, asset
impairment charges, moving costs for related equipment and inventory, and other
exit related costs associated with a plan approved by senior level management.
The recognition of restructuring charges requires us to make certain assumptions
and estimates as to the amount and when to recognize exit activity related
charges. Quarterly, we re-evaluate the amounts recorded and will adjust for
changes in estimates as facts and circumstances change.
INCOME TAXES:
We account for income taxes in accordance with the provisions of SFAS No.
109, which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on differing treatment of items for financial
reporting and income tax reporting purposes. The deferred tax balances are
adjusted to reflect tax rates by tax jurisdiction, based on currently enacted
tax laws, which will be in effect in the years in which the temporary
differences are expected to reverse. We have provided deferred income benefits
on net operating loss carryforwards to the extent we believe we will utilize
them in future tax filings.
COMPREHENSIVE INCOME:
We follow the provisions of SFAS No. 130, "Reporting Comprehensive Income,"
("SFAS No. 130") which established standards for reporting and display of
comprehensive income and its components. 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. Comprehensive income
represents net income adjusted for foreign currency translation adjustments, the
deferred gain/loss on certain derivative instruments utilized to hedge our
interest and foreign exchange exposures, and additional minimum pension
liability. In accordance with SFAS No. 130, we have chosen to disclose
comprehensive income in the consolidated statements of stockholders' investment.
48
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of accumulated other comprehensive income are as follows (in
thousands):
<Table>
<Caption>
DECEMBER 31,
----------------------------
2005 2004 2003
-------- -------- --------
Foreign currency translation adjustment........ $108,688 $173,520 $103,850
Minimum pension liability...................... (27,687) (21,931) (15,150)
-------- -------- --------
$ 81,001 $151,589 $ 88,700
======== ======== ========
</Table>
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amount of cash and cash equivalents, accounts receivable,
inventory, accounts payable, accrued liabilities and revolving credit facilities
approximates fair value because of the short maturity of these instruments. The
carrying amount of our nonsubordinated long-term debt approximates fair value
because of the variability of the interest cost associated with these
instruments. The fair value of our 8 5/8% senior unsecured notes ("Senior
Unsecured Notes"), based on quoted market activity, approximated $326.0 million
as of December 31, 2005. The fair value of our 9% senior subordinated notes
("Senior Subordinated Notes"), based on quoted market activity, approximated
$223.0 million and Euro 54.6 million, respectively, as of December 31, 2005. The
fair value of our convertible trust preferred securities ("Preferred
Securities), is based on NASDAQ market quote activity, approximated $17.4
million as of December 31, 2005.
We also use forward exchange contracts to hedge our foreign currency
exposure related to certain intercompany transactions. We normally designate
these contracts at their inception as cash flow hedges. At December 31, 2005, we
had no outstanding forward exchange contracts.
We have outstanding interest rate swaps in the notional amount of $400.0
million that effectively converts the interest on our Senior Unsecured Notes to
a variable rate of 8.31% at December 31, 2005 from the fixed rate of 8.625%.
These interest rate swaps contracts are with various high credit quality major
financial institutions and expire in April 2012. At their inception, we
designated these contracts as fair value hedges. At December 31, 2005, based
upon market quotes, our swap contracts outstanding had a negative fair value of
$10.8 million, which is reflected in the consolidated balance sheet as long-term
debt with a corresponding adjustment to the carrying value of the associated
debt. We do not enter into or hold derivatives for trading or speculative
purposes.
COMMON STOCK:
The holder of each share of Class A and Class B common stock outstanding is
entitled to one vote per share. As of December 31, 2005, there were no shares of
Class B common stock outstanding.
STOCK BASED AWARDS:
Future grants of stock based awards will be accounted for in accordance
with SFAS No. 123(R) "Share-based Payment." On October 27, 2005, the
Compensation Committee of the Board of Directors approved the acceleration of
vesting of all outstanding out-of-the-money unvested stock options; accordingly,
all outstanding unvested stock options (2.7 million) issued by us became fully
vested (See Note 6).
USE OF ESTIMATES:
The preparation of consolidated financial statements in conformity with
Generally Accepted Accounting Principles in the U.S. requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. The ultimate results could differ from these estimates.
49
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOREIGN CURRENCY TRANSLATION:
Assets and liabilities of our foreign operations that do not use the U.S
dollar as their functional currency, are translated using the year-end rates of
exchange. Results of operations are translated using the average rates
prevailing throughout the period. Translation gains or losses are included in
accumulated other comprehensive income, a separate component of stockholders'
investment.
WARRANTY AND ENVIRONMENTAL:
We face an inherent business risk of exposure to product liability and
warranty claims in the event that our products fail to perform as expected and
such failure of our products result, or are 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 we supply products to an OEM, an OEM may hold us responsible
for some or all of the repair or replacement costs of defective products under
new vehicle warranties when the product supplied did not perform as represented.
In addition, we are subject to the requirements of federal, state, local and
foreign environmental and occupational health and safety laws and regulations.
Some of our operations generate hazardous substances. Like all manufacturers, if
a release of hazardous substances occurs or has occurred at or from any of our
current or former properties or at a landfill or another location where we have
disposed of wastes, we may be held liable for the contamination, which could be
material. Our policy is to record reserves for customer warranty and
environmental costs on a case by case basis at the time we believe such amount
is probable and reasonably estimable and to review these determinations on a
quarterly basis, or more frequently, as additional information is obtained. We
have established reserves for issues that are probable and reasonably estimable
in amounts management believes are adequate to cover reasonable adverse
judgments. We determine our warranty and environmental reserves based on
identified claims and the estimated ultimate projected claim cost. The final
amounts determined for these matters could differ significantly from recorded
estimates. We do not carry insurance for warranty or 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 our warranty
and environmental position (in thousands):
Warranty:
<Table>
<Caption>
DECEMBER 31,
----------------
2005 2004
------- -------
Beginning balance........................................ $ 8,874 $14,428
Reductions for payments made............................. (3,288) (4,952)
Additional reserves recorded............................. 2,847 2,145
Changes in preexisting reserves.......................... (413) (2,747)
------- -------
Ending balance........................................... $ 8,020 $ 8,874
======= =======
</Table>
Environmental:
<Table>
<Caption>
DECEMBER 31,
-----------------
2005 2004
-------- -------
Beginning balance....................................... $ 17,159 $16,934
Reductions for payments made............................ (320) (1,157)
Changes in preexisting reserves......................... (10,205) 1,382
-------- -------
Ending balance.......................................... $ 6,634 $17,159
======== =======
</Table>
Effective June 30, 2005, we were released from a potential environmental
exposure relating to a former manufacturing facility whose lease expired on that
date. Accordingly, we reversed the remaining environmental
50
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
exposure accrual to cost of sales resulting in a favorable $8.2 million impact
for the year ended December 31, 2005. Based upon guidance from outside
environmental legal counsel, we had determined in the fourth quarter of 2005
that $1.8 million of previously provided environmental reserves were no longer
warranted. Accordingly, we reversed this reserve to cost of sales.
NEW AND PROPOSED ACCOUNTING PRONOUNCEMENTS:
The Emerging Issues Task Force ("EITF") has recently released EITF Issue
No. 05-05, "Accounting for Early Retirement or Post employment Programs with
Specific Features (such as Terms Specified in Altersteilzeit Early Retirement
Arrangements)". Altersteilzeit (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. We
will be required to adopt EITF Issue 05-05 and believe the change will result in
a favorable change in accounting principles of approximately $1.0 million.
The FASB issued on July 15, 2005, for comment an exposure draft of a
proposed interpretation to SFAS No. 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 initial effective date for this
interpretation has been withdrawn by the FASB as they consider further
deliberations on the comments they received, which could result in modifications
to the proposed interpretation. Until a more defined proposed interpretation is
issued, we cannot determine the potential impact of this proposed interpretation
on our recording of deferred tax assets.
The FASB revised SFAS No. 123 in December 2004 and issued SFAS No. 123(R).
This statement supersedes 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. 123(R) 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.
123(R) to fiscal years beginning after June 15, 2005. As a result, we are
required to adopt SFAS No. 123(R) 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. We will adopt SFAS No.
123(R) for fiscal year 2006 following the modified prospective basis.
3. DISCONTINUED OPERATIONS:
During the fourth quarter of 2002, we adopted a plan to divest our
Mechanical Assemblies Europe business, as we believed this business would not
assist us in reaching our strategic growth and profitability targets for the
future. The Mechanical Assemblies Europe business generated annualized revenues
of $111.9 million from facilities in Grenoble and Boynes, France; and Woodley,
Nottingham and Stourport, UK. In March 2003, we completed the divestiture of our
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.
The discontinued operations' activities for the last three years has primarily
been the resolution of issues still open from when the operations were sold,
such as real estate leases, which have not been significant.
At December 31, 2005, we had remaining accruals related to the divestiture
of the Mechanical Assemblies Europe business of $16.8 million, primarily related
to the future net lease costs on facilities retained by us, which are
51
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
through 2021. Included in the $16.8 million is $3.0 million of acquisition
integration reserves related to facility closures.
The activity relating to accruals for discontinued operations follows (in
thousands):
<Table>
<Caption>
DECEMBER 31,
----------------
2005 2004
------- -------
Beginning balance....................................... $18,739 $18,869
Reductions for payments made............................ (1,245) (1,279)
Changes in pre-existing reserves........................ -- (551)
Accretion............................................... 1,204 1,241
Foreign exchange impact................................. (1,927) 459
------- -------
$16,771 $18,739
======= =======
</Table>
4. ACQUISITIONS:
2003 ACQUISITIONS:
On June 19, 2003, we reached an agreement with Heywood Williams Group PLC
("Heywood Williams") (UK) to acquire its Creation Group, a premier designer and
manufacturer of windows, doors and specialty products for the North American
recreation vehicle, motor vehicle accessories and manufactured housing markets.
The Creation Group, headquartered in Elkhart, Indiana, had 2002 revenues of $145
million, and had approximately 1,100 employees at 10 facilities in Indiana,
Ohio, and Pennsylvania. Financial terms of the deal included a purchase price of
$57 million, subject to a working capital adjustment and an earn out provision
of an additional $3 million if the acquired entity achieved certain financial
targets. The targets under the earn out provision were not achieved. We used
cash on hand to finance the transaction, which closed on July 23, 2003. The
acquisition was accounted for using the purchase method of accounting and,
accordingly, the assets acquired and liabilities assumed were recorded at fair
value as of the date of acquisition, with the excess purchase price recorded as
goodwill. Changes to the preliminary estimates within one year of the purchase
date were reflected as an adjustment to goodwill. In March 2004, we paid Heywood
Williams $0.7 million relating to a working capital adjustment to the original
purchase price. The purchase price adjustment was recorded as an increase to
goodwill as of March 31, 2004. Additionally in 2004, we made a final purchase
price adjustment of $0.3 million resulting in an increase to goodwill. The final
allocation of purchase price was not materially different from preliminary
allocations. The operating results of the Creation Group have been included in
our consolidated financial statements since the date of acquisition. The pro
forma effects of this transaction are not material to our results of operations.
In the first six months of 2004, we made a $12.6 million final payment
relating to our acquisition of Reiche in 2000, of which $1.3 million related to
an earn out payment resulting in an increase to goodwill. Reiche, located in
Germany, manufactures steering columns and steering column components for
European and North American OEMs.
ACQUISITION INTEGRATIONS:
We have developed and implemented the majority of the facility
consolidation plans designed to integrate the operations of our past
acquisitions. As of December 31, 2005, we have $1.4 million of purchase
liabilities recorded in conjunction with the acquisitions, principally related
to costs associated with the shutdown and consolidation of certain acquired
facilities. Costs incurred and charged to these reserves amounted to $1.4
million during the year ended December 31, 2005. The remaining employee
terminations and facility closures were completed by December 31, 2004, except
for contractual obligations, consisting principally of facility lease payments.
52
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. FACILITY CONSOLIDATION, ASSET IMPAIRMENT AND OTHER CHARGES:
FACILITY CONSOLIDATION:
As a part of our ongoing cost reduction and capacity utilization efforts,
we have taken numerous actions to improve our cost structure. Such costs include
employee termination benefits, asset impairment charges and other incremental
costs, including equipment and personnel relocation costs. These costs are
reflected as facility consolidation, asset impairments and other charges in the
consolidated statement of operations and were accounted for in accordance with
SFAS No. 88 "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits", 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".
In connection with the streamlining of operations during 2005, we recorded
facility consolidation, asset impairment and other charges of $11.4 million,
consisting of severance costs of $6.7 million and facility closure and other
costs of $4.7 million.
Major ongoing and 2005 completed restructuring actions are as follows:
- During the fourth quarter of 2005, we began a streamlining of a North
American plant that will be completed in 2007. Certain employee severance
related charges approximating $1.3 million were recorded in accordance
with SFAS No. 112;
- During the third quarter of 2005, in order to improve capacity
utilization, we announced a plan to streamline an Einbeck, Germany,
manufacturing operation. This action is substantially completed and
resulted in a total severance cost of $0.3 million in 2005;
- During the second quarter of 2005, in order to improve capacity
utilization, we announced a plan to streamline a Plettenberg, Germany,
manufacturing operation during 2005 and 2006. In the third quarter we
received approval for this action from the appropriate Workers' Council
and Union. Full identification of the actual employees has not been
completed, and accordingly we are not able to fully estimate the
severance to be incurred, as it will be based on numerous factors
depending on each individual's circumstances. The completion of this
action is expected to be completed by December 2006, and could result in
a total severance costs of $4.3 million, of which $3.2 million has
already been incurred;
- During the first quarter of 2005, we announced a plan to migrate to one
enterprise resource planning system and centralize many of our functional
operations to better align with current business levels. These actions
are ongoing as we continue to migrate our U.S. operations. We are
anticipating total severance costs could be as high as $2 million
domestically, of which $1.3 million has been incurred so far in 2005. We
have not formalized the total impact to our international operations,
since meaningful migration and centralization will not begin until mid
2006 and are estimated to be completed sometime in 2007. We do expect
that upwards of 200 individuals could be impacted. We have not yet
identified specifically which individuals or group of individuals will be
impacted, or in which international locations they reside. Therefore we
are not able to estimate the termination liability impact at this time.
We do expect however that the international termination costs for this
action will exceed the related estimate for our U.S. operations;
- In 2004 we closed our Bondoufle, France, sales and engineering facility
and relocated to Velizy, France, which is located near our French OEM
customers. This action is complete and resulted in total restructuring
charges of $0.2 million in 2004;
- In 2004 we announced a plan to consolidate certain of our Body & Glass
Division product lines in Europe. This action is complete and resulted in
total charges of $3.3 million;
- In 2004 we announced a plan to exit our Rockford, Illinois, facility and
combine the business with other operations and relocate our Atwood Mobile
Products division headquarters from Rockford, Illinois, to
53
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Elkhart, Indiana. This action is complete and resulted in total charges
of $0.3 million in 2005 and $8.3 million in 2004;
- In 2004 we announced in 2004 a plan to exit our Brookfield, Missouri,
facility and combine the business with other operations. This action is
complete and resulted in total charges of $0.9 million in 2005 and $2.5
million in 2004;
- We exited in 2004 our Pikeville, Tennessee, facility and combined the
business with our other operations. This action is complete and resulted
in total charges of $0.2 million in 2005 and $3.0 million in 2004.
Future Restructuring Plan (Unaudited). In February 2006, we announced an
operational restructuring plan designed to enhance performance optimization,
worldwide efficiency and financial results. The restructuring plan is expected
to impact over 50% of our worldwide operations either through product movement
or facility closures. We expect to complete this action by year end 2007. Costs
for the restructuring plan are expected to be approximately $100 million, which
includes estimated capital expenditures between $25 and $35 million. These costs
will relate primarily to employee severance, capital investment, facility
closure and product move costs. The restructuring plan will be financed with
cash on hand and availability under our existing revolving credit facility. We
believe that our current available liquidity will provide us with the funds
necessary to execute this restructuring plan along with our on going operating
cash requirements. Should our current liquidity not be adequate to fund the
restructuring plan and/or our ongoing cash requirements for operations, we may
be required to modify our plans or attempt to obtain additional debt or equity
financing. There can be no assurances such debt or equity financing would be
available or available on terms acceptable to us.
ASSET IMPAIRMENTS:
We recorded $3.2 million in 2005, $7.1 million in 2004 and $6.1 million in
2003, of asset impairment charges related to facility consolidation actions.
These charges are reflected as facility consolidation, asset impairments and
other charges in the consolidated statements of operations and were accounted
for in accordance with SFAS No. 144.
The activity relating to the accruals for facility consolidation, asset
impairments and other charges by quarter for the year ended December 31, 2005 is
as follows (in thousands):
<Table>
<Caption>
EMPLOYEE ASSET FACILITY
TERMINATION IMPAIRMENT CLOSURE AND
BENEFITS CHARGES OTHER COSTS TOTAL
----------- ---------- ----------- -------
Balance December 31, 2004.............. $ 5,306 $ -- $ 522 $ 5,828
Adjustments/Charges.................... 1,046 136 484 1,666
Cash utilizations...................... (3,478) -- (55) (3,533)
Non-cash/foreign exchange
impact/other......................... -- (136) -- (136)
------- ------- ------- -------
Balance April 3, 2005.................. 2,874 -- 951 3,825
------- ------- ------- -------
Adjustments/Charges.................... 1,144 1,129 351 2,624
Cash utilizations...................... (1,728) -- (483) (2,211)
Non-cash/foreign exchange
impact/other......................... -- (1,129) -- (1,129)
------- ------- ------- -------
Balance July 3, 2005................... 2,290 -- 819 3,109
------- ------- ------- -------
Adjustments/Charges.................... 880 -- 980 1,860
Cash utilizations...................... (876) -- (1,052) (1,928)
Non-cash/foreign exchange
impact/other......................... (416) -- -- (416)
------- ------- ------- -------
Balance October 2, 2005................ 1,878 -- 747 2,625
------- ------- ------- -------
Adjustments/Charges.................... 3,665 1,895 (313) 5,247
Cash utilizations...................... (1,307) -- (63) (1,370)
Non-cash/foreign exchange
impact/other......................... (284) (1,895) 150 (2,029)
------- ------- ------- -------
Balance December 31, 2005.............. $ 3,952 $ -- $ 521 $ 4,473
======= ======= ======= =======
</Table>
54
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. STOCKHOLDERS' INVESTMENT:
EARNINGS PER SHARE:
Basic earnings per share was computed by dividing net income by the
weighted average number of Class A common shares outstanding during the year.
Diluted earnings per share for the years ended December 31, 2005, 2004 and 2003
includes the effects of outstanding stock options using the treasury stock
method. (In thousands, except per share amounts):
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
-------------------------
2005 2004 2003
------- ------- -------
Net income applicable to common stockholders..... $ 1,814 $11,723 $22,338
======= ======= =======
Weighted average number of Class A common shares
outstanding.................................... 18,709 18,013 16,587
Weighted average number of Class B common shares
outstanding.................................... -- 495 1,726
------- ------- -------
18,709 18,508 18,313
======= ======= =======
Dilutive effect of outstanding stock options
after application of the treasury stock
method......................................... 152 360 250
------- ------- -------
Diluted shares outstanding....................... 18,861 18,868 18,563
======= ======= =======
Basic earnings per share......................... $ 0.10 $ 0.63 $ 1.22
======= ======= =======
Diluted earnings per share....................... $ 0.10 $ 0.62 $ 1.20
======= ======= =======
</Table>
Potential common shares of 4,814,083; 2,360,827; and 1,880,575 related to
our outstanding stock options were excluded from the computation of diluted
earnings per share for 2005, 2004 and 2003, respectively. Potential common
shares of 1,288,630 related to our Preferred Securities were excluded from the
computation of diluted earnings per share for the years ended December 31, 2005,
2004 and 2003, as inclusion of these shares would have been antidilutive.
55
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THE 1998 STOCK INCENTIVE PLAN:
Certain individuals who are full-time, salaried employees of DURA (Employee
Participants) are eligible to participate in the 1998 Stock Incentive Plan ("the
1998 Plan"). A committee of the Board of Directors selects the Employee
Participants and determines the terms and conditions of granted options. The
1998 Plan provides for the issuance of options at exercise prices equal to the
stock market price on the date of grant to Employee Participants covering up to
1,000,000 shares of Class A common stock of ours plus any shares carried over
from the 1996 Key Employee Stock Option Plan ("the 1996 Plan") plus an annual
increase, as defined in the 1998 Plan, subject to certain adjustments reflecting
changes in our capitalization. Such option grants vest up to four years from the
date of grant. Options available for future grants to purchase shares of our
Class A common stock were 455,090 at December 31, 2005. Information regarding
options outstanding from the 1996 Plan and the 1998 Plan is as follows:
<Table>
<Caption>
WEIGHTED WEIGHTED
SHARES AVERAGE AVERAGE FAIR EXERCISABLE
UNDER EXERCISE EXERCISE VALUE OF AT END OF
OPTION PRICE PRICE OPTIONS GRANTED YEAR
--------- ------------- -------- --------------- -----------
Outstanding, December 31, 2002.. 3,228,078 $7.50 - 38.63 $14.62 1,362,115
Granted....................... 815,600 5.60 - 9.02 6.95 $5.78
Exercised..................... (36,420) 7.50 - 15.31 8.35
Forfeited..................... (203,930) 7.02 - 29.25 12.34
--------- -------------
Outstanding, December 31, 2003.. 3,803,328 5.60 - 38.63 13.14 2,146,003
Granted....................... 1,109,500 9.52 9.52 7.61
Exercised..................... (138,100) 7.02 - 13.50 7.91
Forfeited..................... (306,800) 7.02 - 29.00 11.51
--------- -------------
Outstanding, December 31, 2004.. 4,467,928 5.60 - 38.63 12.58 2,552,315
Granted....................... 1,497,500 3.70 - 4.27 3.70 2.75
Exercised..................... (11,075) 7.02 - 9.15 7.84
Forfeited..................... (203,085) 3.70 - 29.00 14.53
--------- -------------
Outstanding, December 31, 2005.. 5,751,268 $3.70 - 38.63 $10.15 5,751,268
========= =============
</Table>
The following table summarizes information about stock options outstanding
at December 31, 2005:
<Table>
<Caption>
OPTIONS OUTSTANDING
--------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- ---------------------------
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
RANGE OF EXERCISABLE OPTIONS AT 12/31/05 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/05 EXERCISE PRICE
- ---------------------------- ----------- ---------------- -------------- ----------- --------------
$ 3.70 to 4.27............... 1,497,500 9.4 $ 3.70 1,497,500 $ 3.70
5.60 to 7.02............... 663,875 7.2 6.76 663,875 6.76
7.50.............. 724,935 5.1 7.50 724,935 7.50
8.25 to 9.52.............. 1,471,800 7.8 9.37 1,471,800 9.37
13.50 to 17.27............... 770,823 4.9 14.93 770,823 14.93
20.75 to 29.25............... 572,335 2.6 27.41 572,335 27.41
38.63............... 50,000 2.3 38.63 50,000 38.63
--------- ---------
5,751,268 5,751,268
========= =========
</Table>
The weighted average exercise price of options exercisable for the years
ended December 31, 2005, 2004 and 2003 were $10.15, $15.11 and $16.47,
respectively. The weighted average remaining contractual life of outstanding
options for the years ended December 31, 2005, 2004 and 2003 was 6.8 years, 6.9
years and 7.1 years, respectively.
56
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INDEPENDENT DIRECTOR STOCK OPTION PLAN:
The DURA Automotive Systems, Inc. Independent Director Stock Option Plan
("the Director Option Plan") provides for the issuance of options to Independent
Directors, as defined, to acquire up to 100,000 shares of our Class A common
stock, subject to certain adjustments reflecting changes in our capitalization.
The option exercise price must be at least 100% of the market value of the Class
A common stock at the time the option is issued. Such option grants vest six
months from the date of grant. As of December 31, 2005, we had granted options
under the Director Option Plan to acquire 21,000 shares of our Class A common
stock at an exercise price of $24.50 to $25.50 per share. As of December 31,
2005, 21,000 of these options were exercisable. No granted options have been
exercised or forfeited.
EMPLOYEE STOCK DISCOUNT PURCHASE PLAN:
The DURA Automotive Systems, Inc. Employee Stock Discount Purchase Plan
("the Employee Stock Purchase Plan") provides for the sale of up to 1,000,000
shares of our Class A common stock at discounted purchase prices, subject to
certain limitations. The cost per share under this plan is 85% of the market
value of our Class A common stock at the date of purchase, as defined. Pursuant
to this plan, 131,343, 96,944 and 93,069 shares of Class A common stock were
issued to employees during the years ended December 31, 2005, 2004, and 2003,
respectively. The weighted average fair value of shares purchased in 2005, 2004,
and 2003 was $4.51, $9.67 and $7.28, respectively.
DEFERRED INCOME LEADERSHIP STOCK PURCHASE PLAN:
During 1999, we established the Deferred Income Leadership Stock Purchase
Plan, which allows certain employees to defer receipt of all or a portion of
their annual cash bonus. Eligible employees may receive a matching contribution
of one-third of their deferral. The vesting of the matching contribution occurs
on the first day of the third plan year following the date of the employees'
deferral. In accordance with the terms of the plan, the employees deferral and
our matching contribution may be placed in a "Rabbi" trust, which invests solely
in our Class A common stock. As of December 31, 2005, 2004 and 2003, there were
16,868, 22,407 and 26,725 shares purchased through open market transactions that
had been distributed to employees. At December 31, 2005, we have purchased on
the open market 79,760 shares currently held in the "Rabbi" trust. These shares
have not yet been distributed to employees. In addition, 36,204 shares have yet
to be purchased for future obligations. This trust arrangement offers the
employee a degree of assurance for ultimate payment of benefits without causing
constructive receipt for income tax purposes. Distributions to the employee can
only be made in the form of our Class A common stock. Under the terms of the
plan, we have the option to buy the shares to be distributed in the open market
or issue shares that have been authorized under the plan. The plan provides for
the issuance of up to 500,000 shares of our Class A common stock, which are
still unissued at December 31, 2005. To date, we have used open market
transactions to meet our obligations under this plan. The assets of the trust
remain subject to our creditors and are not the property of the employees;
therefore, they are included as a separate component of stockholders' investment
under the caption Treasury Stock.
DIRECTOR DEFERRED STOCK PURCHASE PLAN:
During 2000, we established the Director Deferred Stock Purchase Plan,
which allows outside directors to defer receipt of all or a portion of their
annual director retainer fee. Eligible directors may receive a matching
contribution of one-third of their deferral. The vesting of the matching
contribution occurs on the first day of the third plan year following the date
of a directors' deferral. In accordance with the terms of the Plan, the
director's deferral and our matching contribution may be placed in a "Rabbi"
trust, which invests solely in our Class A common stock. For the years ended
December 31, 2005 and 2004 there were 36,460 and 48,879 shares, respectively,
purchased through open market transactions that had been distributed to
directors. At December 31, 2005, we have purchased on the open market 103,923
shares currently held in the "Rabbi" trust. These shares have not yet been
57
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
distributed to individual directors. No shares had been distributed prior to
2004. In addition, 105,234 shares have yet to be purchased for future
obligations. This trust arrangement offers the director a degree of assurance
for ultimate payment of benefits without causing constructive receipt for income
tax purposes. Distributions to the director can only be made in the form of our
Class A common stock. Under the terms of the plan, we have the option to buy the
shares to be distributed in the open market or issue shares that have been
authorized under the plan. The plan provides for the issuance of up to 200,000
shares of our Class A common stock, which are still unissued at December 31,
2005. To date, we have used open market transactions to meet our obligations
under this plan. The assets of the trust remain subject to our creditors and are
not the property of the directors; therefore, they are included as a separate
component of stockholders' investment under the caption Treasury Stock.
STOCK-BASED COMPENSATION PLANS:
We have elected to continue accounting for the above plans under APB No. 25
for the years ended December 31, 2005, 2004 and 2003, under which no
compensation cost were recognized in the consolidated statement of operations,
as all options are granted at market value. Had compensation cost for these
plans been determined as required under SFAS No. 123(R), our pro forma net
income (loss) and pro forma earnings (loss) per share would have been as follows
(in thousands, except per share amounts):
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
-------------------------
2005 2004 2003
------- ------- -------
Net income (loss)
As Reported - Basic............................. $ 1,814 $11,723 $22,338
Pro Forma (includes effect of accelerated
vesting)..................................... (8,338) 7,359 18,493
As Reported - Diluted........................... 1,814 11,723 22,338
Pro Forma (includes effect of accelerated
vesting)..................................... (8,338) 7,359 18,493
Basic earnings (loss) per share
As Reported..................................... 0.10 0.63 1.22
Pro Forma (includes effect of accelerated
vesting)..................................... (0.45) 0.40 1.01
Diluted earnings (loss) per share
As Reported..................................... 0.10 0.62 1.20
Pro Forma (includes effect of accelerated
vesting)..................................... (0.45) 0.39 1.00
</Table>
On October 27, 2005, the Compensation Committee (Committee) of the Board of
Directors approved the acceleration of all out-of-the-money unvested stock
options outstanding on that date. The Committee prescribed that the October 27,
2005's closing price of our Class A Common Stock as quoted on The Nasdaq Stock
Market ("Nasdaq") will be used to determine which outstanding unvested stock
options are out-of-the-money. With the prescribed closing quoted stock price
being $3.28 per share, all outstanding unvested stock options (2.7 million)
issued by the Company became fully vested. The acceleration of the out-of-the-
money options was undertaken to avoid future compensation expense that would be
required to be recognized when we adopt SFAS 123(R) on January 1, 2006. Future
SFAS 123(R) pretax expense avoided by this acceleration for the next three
calendar years is $4.7 million in 2006, $3.3 million in 2007 and $1.7 million in
2008. This avoided SFAS 123(R) expense is required to be fully recognized in
2005 pro forma net income presented above.
The effect of the stock issued under the Employee Stock Purchase Plan was
not material for 2005, 2004 and 2003. 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% and 3.70%, expected life of four years and an average expected
volatility of 64% in 2005 and 74% in 2004, respectively.
The FASB revised SFAS No. 123 in December 2004 and issued SFAS No. 123(R).
This statement supersedes APB No. 25, which resulted in no stock-based employee
compensation cost related to stock options if the options
58
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
granted had an exercise price equal to the market value of the underlying common
stock on the date of grant. SFAS No. 123(R) 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.
123(R) to fiscal years beginning after June 15, 2005. As a result, we are
required to adopt SFAS No. 123(R) 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. We will adopt SFAS No.
123(R) for fiscal year 2006 following the modified prospective basis.
DIVIDENDS:
We have not declared or paid any cash dividends in the past. As discussed
in Note 7, our 2005 Credit Agreement restricts the amount of dividends we can
declare or pay. As of December 31, 2005, under the terms of the Senior Unsecured
Notes, Senior Subordinated Notes, Second Lien Term Loan, and most restrictive
debt covenants of the 2005 Credit Agreement, we could not have paid any cash
dividends.
7. DEBT:
Debt consisted of the following (in thousands):
<Table>
<Caption>
DECEMBER 31,
----------------------
2005 2004
---------- ----------
Credit Agreement:
Revolving credit facility.......................... $ 17,500 $ --
Second lien term loan.............................. 150,000 --
Tranche term loans................................. -- 146,250
Senior unsecured notes............................... 400,000 400,000
Senior subordinated notes............................ 523,906 589,469
Convertible trust preferred securities............... 55,250 55,250
Senior unsecured notes - derivative instrument
adjustment......................................... (10,781) 18,347
Other................................................ 7,550 7,616
---------- ----------
1,143,425 1,216,932
Less - Current maturities............................ (3,473) (2,968)
---------- ----------
$1,139,952 $1,213,964
========== ==========
</Table>
In May 2005, we entered into new senior secured credit facilities with an
aggregate borrowing capacity of $325 million, consisting of a five-year $175
million asset-based revolving credit facility ("Credit Agreement") and a six-
year $150 million senior secured second lien term loan ("Second Lien Term
Loan"), both agreements collectively ("Credit Facilities"). Interest under these
facilities is based on LIBOR. The 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 Credit Agreement and the Second Lien Term Loan were used to repay the
existing $111 million term loan C facility and general corporate purposes. The
Credit Agreement is an asset-backed revolving credit facility, which is
supported by a borrowing base that is calculated monthly. Availability under the
Credit Agreement is determined by advances against eligible accounts
receivables, eligible inventory balances and certain fixed assets. On December
31, 2005, our availability under the Credit Agreement was $125.5 million. The
Credit Agreement is secured by certain U.S. and Canadian assets and a 65% pledge
of the stock of our foreign subsidiaries. The Second Lien Term Loan is secured
by all of the U.S. assets and a 65% pledge of the stock of certain of foreign
subsidiaries. In connection with the termination of the 2003 Credit Agreement,
we wrote off debt issuance costs of $3.3 million during the second quarter of
2005. This amount is reflected in net gain on early extinguishment of debt in
the consolidated statement of
59
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operations. At December 31, 2005, we had $17.5 million in borrowings outstanding
under the Credit Agreement. As of December 31, 2005, the rate on borrowings
under the Credit Agreement was based on LIBOR and was 8.25%. The Credit
Agreement contains various restrictive covenants which amongst other things,
limit indebtedness, investments, capital expenditures and certain dividends. The
Credit Agreement also requires us to maintain a minimum fixed charge coverage
ratio if excess availability, as defined, is less than $35 million. Our excess
availability was $125.5 million, as of December 31, 2005, thus, we were not
required to maintain this minimum fixed charge coverage ratio. We were in
compliance with all other covenants as of December 31, 2005.
In April 2002, we completed the offering of $350.0 million 8.625% Senior
Unsecured Notes, which are due April 2012. The interest on the 2002 Senior
Unsecured Notes is payable semi-annually each April and October. Principal is
payable in full in April 2012. In November 2003, we completed an additional
Senior Unsecured Notes offering of $50.0 million, which is due April 2012. The
interest on the 2003 Senior Unsecured Notes is payable semi-annually each April
and October.
We have $523.9 million of 9% Senior Subordinated Notes, which are due May
2009, outstanding as of December 31, 2005. The interest on the Senior
Subordinated Notes is payable semi-annually each May and November. These notes
are collateralized by guarantees of certain DURA subsidiaries.
During the fourth quarter of 2005 we retired through purchase, Senior
Subordinated Notes with an approximate face value of $49.4 million resulting in
a net pretax gain of $18.2 after the write-off of $0.4 million of associated
deferred debt issuance costs.
In March 1998, Dura Automotive Systems Capital Trust (the "Issuer"), a
wholly owned statutory business trust of DURA, completed the offering of its
Preferred Securities. The Preferred Securities are currently redeemable, in
whole or part, and must be redeemed no later than March 2028. The Preferred
Securities are convertible at the option of the holder into our Class A common
stock at a rate of 0.5831 shares of Class A common stock for each Preferred
Security, which is equivalent to a conversion price of $42.875 per share. The
net proceeds of the offering were used to repay outstanding indebtedness. We
were required to adopt FIN 46 to variable interest entities effective December
31, 2003. The application of FIN 46 resulted in the reclassification of the
Preferred Securities from the mezzanine section of the balance sheet for 2003 to
a long-term liability. In addition, Minority Interest -- Dividends on Trust
Preferred Securities, Net, are classified in the statement of operations as a
component of interest expense on a gross basis, prospectively, for periods
subsequent to December 31, 2003. No separate financial statements of the Issuer
have been included herein. We do not consider that such financial statements
would be material to holders of Preferred Securities because (i) all of the
voting securities of the Issuer are owned, directly or indirectly, by DURA, a
reporting company under the Exchange Act; (ii) the Issuer has no independent
operations and exists for the sole purpose of issuing securities representing
undivided beneficial interests in the assets of the Issuer and investing the
proceeds thereof in 7.5% convertible subordinated debentures due March 2028
issued by DURA; and (iii) the obligations of the Issuer under the Preferred
Securities are fully and unconditionally guaranteed by DURA.
We are limited as to our ability to declare or make certain dividend
payments or other distributions of assets under our Credit Facilities, Senior
Unsecured Notes and Senior Subordinated Notes. Certain distributions relating to
items such as a company stock purchase program, tax sharing arrangements, or
other distributions as required under our Preferred Securities, are permitted.
The Credit Agreement provides us with the ability to denominate a portion
of our revolving credit borrowings in Canadian dollars up to an amount equal to
$17.2 million.
We also utilize uncommitted overdraft facilities to satisfy the short-term
working capital requirements of our foreign subsidiaries. At December 31, 2005,
we had overdraft facilities available from banks of $14.2 million, of which we
had no borrowings outstanding.
We have outstanding interest rate swaps in the notional amount of $400.0
million that effectively converts the interest on our Senior Unsecured Notes to
a variable rate of 8.31% at December 31, 2005 from the fixed rate of
60
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8.625%. This interest rate swaps contracts are with various high credit quality
major financial institutions and expire in April 2012. At their inception, we
designated these contracts as fair value hedges. At December 31, 2005, based
upon market quotes, our swap contracts outstanding had a negative fair value of
$10.8 million.
Future maturities of long-term debt as of December 31, 2005 are as follows
(in thousands):
<Table>
2006.......................................................... $ 3,473
2007.......................................................... 978
2008.......................................................... 987
2009.......................................................... 524,789
2010.......................................................... 18,315
Thereafter.................................................... 594,883
----------
$1,143,425
==========
</Table>
We use standby letters of credit to guarantee our performance under various
contracts and arrangements. These letters of credit contracts expire annually
and are usually extended on a year-to-year basis. At December 31, 2005, we had
outstanding letters of credit of $18.2 million. We do not believe that they will
be required to be drawn.
8. INCOME TAXES:
The summary of income from continuing operations before provision for
income taxes and minority interest consisted of the following (in thousands):
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
---------------------------
2005 2004 2003
-------- -------- -------
United States................................... $(27,416) $(21,070) $(5,932)
Foreign......................................... 32,186 37,214 48,153
-------- -------- -------
$ 4,770 $ 16,144 $42,221
======== ======== =======
</Table>
The provision for income taxes consisted of the following (in thousands):
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
---------------------------
2005 2004 2003
-------- -------- -------
Currently payable -
United States................................. $ 3,358 $ 549 $ 764
Foreign....................................... 18,575 19,786 15,666
-------- -------- -------
21,933 20,335 16,430
-------- -------- -------
Deferred -
United States................................. (17,563) (12,189) (17)
Foreign....................................... (1,683) (4,474) (2,058)
-------- -------- -------
(19,246) (16,663) (2,075)
-------- -------- -------
$ 2,687 $ 3,672 $14,355
======== ======== =======
</Table>
The 2005 foreign tax expense was reduced by tax credits and tax holiday
benefits. The 2005 deferred tax (benefit) includes amounts attributable to net
operating loss carryforwards, tax credits, adjustments to deferred tax assets
and liabilities arising from changes in enacted tax rates in foreign
jurisdictions and net future deductions that we expect to utilize against future
operating income.
61
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the provision for income taxes at the statutory rates
to the reported income tax provision is as follows (in thousands):
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
-------------------------
2005 2004 2003
------- ------- -------
Federal provision at statutory rates.............. $ 1,669 $ 5,651 $14,777
Foreign net operating losses not benefited........ 650 3,327 3,442
Capital losses not benefited/(utilized)........... (816) 1,055 (630)
State taxes, net of federal income tax benefit.... (296) (198) (178)
Extraterritorial income exclusion benefit......... (890) (1,199) (1,875)
Foreign provision more than U.S. tax rate......... 6,353 (4,875) (1,102)
Research and development credits.................. (1,264) (1,710) (1,464)
Foreign tax holidays.............................. 335 (2,661) (449)
Change in tax contingency reserve................. (4,324) 3,609 --
Other non-deductible expenses..................... 1,055 319 2,176
Other adjustments................................. 215 354 (342)
------- ------- -------
$ 2,687 $ 3,672 $14,355
======= ======= =======
</Table>
A summary of deferred tax assets (liabilities) is as follows (in
thousands):
<Table>
<Caption>
DECEMBER 31,
------------------
2005 2004
-------- --------
Depreciation and property basis differences............ $(62,404) $(65,751)
Net operating loss carryforwards....................... 125,136 90,369
Postretirement benefit obligations..................... 20,622 21,700
Accrued interest....................................... 18,280 18,946
Accrued compensation costs............................. 12,220 14,622
Research and development and other credit
carryforwards........................................ 10,990 9,942
Facility closure and consolidation costs............... 1,476 5,890
Inventory valuation adjustments........................ 6,472 5,630
Warranty and environmental costs....................... 6,179 5,402
Capital loss carryforward.............................. 4,135 4,806
Loss contracts......................................... 846 1,611
Bad debt allowance..................................... 958 377
Other.................................................. (2,575) (3,042)
Valuation allowance.................................... (68,831) (63,074)
-------- --------
$ 73,504 $ 47,428
======== ========
</Table>
Current and noncurrent deferred tax assets and liabilities, within the same
tax jurisdiction, are offset for presentation in the consolidated balance sheet.
The December 31, 2005 consolidated balance sheet includes $18.0 million and
$66.5 million of current and noncurrent deferred tax assets, respectively; and
$2.6 million and $8.4 million of current and noncurrent deferred tax
liabilities, respectively. The December 31, 2004 consolidated balance sheet
includes $21.6 million and $43.9 million of current and noncurrent deferred tax
assets, respectively; and $3.2 million and $14.9 million of current and
noncurrent deferred tax liabilities, respectively.
62
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The valuation allowance primarily relates to the uncertainty regarding the
use of certain of our net operating loss and capital loss carryforwards. In 2005
and 2004, the valuation allowance increased by $5.8 million and $14.0 million,
respectively, primarily to reflect the current year losses in certain
jurisdictions where there is negative evidence which indicates that it is more
likely than not that loss carryforwards will not be utilizable, as well as the
impact of foreign exchange. No provision has been made for U.S. income taxes
related to undistributed earnings of foreign subsidiaries that are intended to
be permanently reinvested.
As of December 31, 2005, utilization of net operating losses are subject to
the tax laws of the applicable jurisdiction and will be limited by the ability
of the respective operations to generate taxable income. Capital loss
carryforwards of $8.1 million will expire in 2006. Capital loss carryforwards of
$2.1 million have no expiration date. We have recorded a valuation allowance on
a majority of the capital loss carryforwards as we believe that it is more
likely than not that a significant portion of these losses are not realizable.
We have been granted tax holidays in certain countries in which we operate that
will expire December 31, 2006.
We currently have $367.0 million of U.S. and foreign gross net operating
loss carryforwards on which we have provided a net deferred tax benefit of
$125.1 million. The general time frame of the net operating loss carryforwards
expiration is as follows:
<Table>
<Caption>
U.S. FOREIGN VALUATION NET
------ ------- --------- ------
2006 - 2009.................................. $ -- $ 9.0 $ -- $ 9.0
2010 - 2014.................................. -- 8.5 -- 8.5
2015 - 2019.................................. 10.4 26.0 (21.9) 14.5
2020......................................... 19.7 0.7 (0.7) 19.7
2021......................................... 9.8 -- -- 9.8
2023......................................... 48.7 -- -- 48.7
2024......................................... 32.5 -- -- 32.5
2025......................................... 64.0 -- -- 64.0
No expiration................................ -- 137.7 (92.3) 45.4
------ ------ ------- ------
$185.1 $181.9 $(114.9) $252.1
====== ====== ======= ======
</Table>
In addition, we currently have $6.0 million in state net operating loss
carryforwards, against which we have provide a valuation allowance of $4.1
million. These net operating loss carryforwards will expire in varying amounts
over the next 20 years.
We have provided deferred income tax benefits on $11.0 million of U.S.
Research and Experimental credit carryforwards that expire in the following
general time periods:
<Table>
2015-2019........................................................ $ 1.8
2020-2024........................................................ 8.0
2025-2029........................................................ 1.2
-----
$11.0
=====
</Table>
Based upon projections of future earnings, we believe we will be able to
utilize these net operating loss carryforwards and future research and
development income tax credits. We have approximately $300.0 million of
undistributed foreign earnings on which no U.S. income taxes have been provided.
We operate within multiple tax jurisdictions and are subject to audits in
these jurisdictions. Upon audit, these taxing jurisdictions could retroactively
disagree with our tax treatment of certain items. Consequently, the actual
liabilities with respect to any year may be determined long after financial
statements have been issued. We established tax reserves for estimated tax
exposures. These potential exposures result from varying applications of
63
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
statutes, rules, regulations, case law and interpretations. The settlement of
these exposures primarily occurs upon finalization of tax audits. However, the
amount of the exposures can also be impacted by changes in tax laws and other
factors. On a quarterly basis, we revalue the reserve amounts in light of any
additional information and adjust the reserve balances as necessary to reflect
the best estimate of the probable outcomes. We believe that we have established
the appropriate reserves for these estimated exposures. However, actual results
may differ from these estimates. The resolution of these tax matters in a
particular future period could have a material impact on our consolidated
statement of operations.
During 2005, we recognized $4.3 million of previously established tax
contingency valuation reserves as a result of a change in estimated exposures
due to favorable tax audit results obtained in the fourth quarter of 2005.
We recorded during the period of 2002 to 2005 total losses from
discontinued operations of $126.6 million. We have not recorded tax benefits for
these losses of $32.9 million as we believe it is more likely than not that such
losses will not be realized.
9. SEGMENT REPORTING:
We follow the provisions of SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). We are organized in three
divisions based on the products that each division offers to vehicle OEM
customers. Two divisions provide products to similar customers in the automotive
industry, while the other provides products for the RVSV industry. Each division
reports their results of operations, submits budgets, and makes capital
expenditure requests to the chief operating decision-making group. This group
consists of the president and chief executive officer, the presidents of the
three divisions, the chief financial officer and the vice-president of
administration and vice-president of human resources. Our operating segments
have been aggregated into one reportable segment, as we believe it meets the
aggregation criteria of SFAS No. 131. Our divisions, each with a separate
operational management team, are dedicated to providing vehicle components and
systems to OEM customers. Each of the divisions demonstrate similar economic
performance, mainly driven by vehicle production volumes of the customers for
which they service. All of our operations use similar manufacturing techniques
and utilize common cost-saving tools. These techniques include continuous
improvement programs designed to reduce our overall cost base and to enable us
to better handle OEM volume fluctuations.
The following table presents revenues and long-lived assets for each of the
geographic areas in which we operate (in thousands):
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
2005 2004 2003
---------------------- ---------------------- ----------------------
LONG-LIVED LONG-LIVED LONG-LIVED
REVENUES ASSETS REVENUES ASSETS REVENUES ASSETS
---------- ---------- ---------- ---------- ---------- ----------
North America.............. $1,333,863 $195,511 $1,477,678 $205,964 $1,430,319 $221,928
Europe..................... 938,522 242,350 967,600 266,703 914,601 253,253
Other foreign countries.... 71,754 20,397 47,265 14,439 35,874 13,182
---------- -------- ---------- -------- ---------- --------
$2,344,139 $458,258 $2,492,543 $487,106 $2,380,794 $488,363
========== ======== ========== ======== ========== ========
</Table>
Revenues are attributed to geographic locations based on the location of
product production.
64
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary composition by product category of our revenues
(in thousands):
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
----------------------------------
2005 2004 2003
---------- ---------- ----------
Driver control systems...................... $ 786,623 $ 846,295 $ 845,019
Glass systems............................... 350,675 402,337 369,364
Seating control systems..................... 302,849 344,033 363,652
Structural door modules..................... 234,655 231,646 202,302
Exterior trim systems....................... 148,517 173,212 177,667
Engineered assemblies....................... 137,168 151,632 161,000
RVSV appliances............................. 124,211 110,290 89,273
Other*...................................... 259,441 233,098 172,517
---------- ---------- ----------
Revenues from external customers............ $2,344,139 $2,492,543 $2,380,794
========== ========== ==========
</Table>
- --------
* Other - All individual components are less than 10% of total revenues.
Customers that accounted for a significant portion of consolidated revenues
for the years ended December 31, 2005, 2004 and 2003 were as follows:
<Table>
<Caption>
YEARS ENDED
DECEMBER 31,
----------------
2005 2004 2003
---- ---- ----
Ford..................................................... 19% 19% 20%
GM....................................................... 10% 12% 14%
Lear..................................................... 10% 11% 12%
Volkswagen............................................... 10% 9% 9%
</Table>
As of December 31, 2005, 2004 and 2003, receivables from these customers
represented approximately 48.0%, 41.2% and 38.2% of total accounts receivable,
respectively.
10. EMPLOYEE BENEFIT PLANS:
DEFINED BENEFIT PLANS AND POSTRETIREMENT BENEFITS:
We sponsor 13 defined benefit type plans that cover certain hourly and
salaried employees in the U.S., Canada and certain European countries. Our
policy is to make annual contributions to the plans to fund the normal cost as
required by local regulations. In addition, we have 9 postretirement medical
benefit plans for certain employee groups and have recorded a liability for our
estimated obligation under these plans. The tables below are based on a
September 30 measurement date.
65
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The change in benefit obligation, plan assets and funded status for the
plans related to continuing operations consisted of the following (in
thousands):
<Table>
<Caption>
PENSION PLANS IN
WHICH POSTRETIREMENT
ACCUMULATED BENEFITS
BENEFITS OTHER THAN
EXCEED ASSETS PENSIONS
------------------ ------------------
2005 2004 2005 2004
-------- -------- -------- --------
Change in Benefit Obligation:
Benefit obligation at beginning of
year............................... $150,376 $140,838 $ 30,727 $ 25,112
Service cost.......................... 2,197 2,344 650 643
Interest cost......................... 8,300 8,525 1,341 1,795
Plan participants' contributions...... -- -- 542 282
Amendments............................ (315) 224 (8,416) (420)
Actuarial (gain)/loss................. 12,217 4,510 (1,479) 6,312
Benefits paid......................... (9,790) (9,687) (3,336) (3,373)
Exchange rate changes................. (2,230) 3,622 229 376
-------- -------- -------- --------
Benefit obligation at end of year..... $160,755 $150,376 $ 20,258 $ 30,727
======== ======== ======== ========
Change in Plan Assets:
Fair value of plan assets at beginning
of year............................ $ 85,568 $ 79,100 $ -- $ --
Actual return on plan assets.......... 6,058 6,283 -- --
Employer contributions................ 8,177 8,148 3,337 3,373
Benefits paid......................... (9,056) (8,536) (3,337) (3,373)
Settlement............................ -- (1,405) -- --
Exchange rate changes................. 391 1,978 -- --
-------- -------- -------- --------
Fair value of plan assets at end of
year............................... $ 91,138 $ 85,568 $ -- $ --
======== ======== ======== ========
Change in Funded Status:
Funded status......................... $(69,617) $(64,808) $(20,258) $(30,727)
Unrecognized actuarial loss........... 44,719 35,763 3,063 7,943
Unrecognized prior service cost
(benefit).......................... 7,770 8,339 (1,534) (16)
Adjustment to recognize minimum
liability.......................... (50,982) (42,465) -- --
-------- -------- -------- --------
Accrued benefit cost.................... $(68,110) $(63,171) $(18,729) $(22,800)
======== ======== ======== ========
</Table>
For the years ended December 31, 2005 and 2004, the accumulated benefit
obligation for all defined benefit pension plans was $160.3 million and $150.1
million, respectively. As of December 31, 2005 and 2004, all of our defined
benefit and postretirement medical benefit plans had accumulated benefit
obligations that exceeded plan assets.
The following weighted-average assumptions were used to determine benefit
obligations:
<Table>
<Caption>
POST-
RETIREMENT
BENEFITS
PENSION OTHER THAN
BENEFITS PENSIONS
---------- ----------
2005 2004 2005 2004
---- ---- ---- ----
Discount rate...................................... 5.28% 5.77% 5.00% 6.00%
Rate of compensation increase...................... 1.65% 2.77% N/A N/A
</Table>
66
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following weighted-average assumptions were used to determine net
periodic benefit costs:
<Table>
<Caption>
POST-
RETIREMENT
BENEFITS
PENSION OTHER THAN
BENEFITS PENSIONS
---------- ----------
2005 2004 2005 2004
---- ---- ---- ----
Discount rate...................................... 5.51% 5.93% 5.00% 6.00%
Expected return on plan assets..................... 7.40% 7.80% N/A N/A
Rate of compensation increase...................... 1.65% 2.77% N/A N/A
</Table>
We employ a building block approach in determining the expected long-term
rate of return for plan assets. Historical markets are studied and long-term
historical relationships between equities and fixed income are preserved
consistent with the widely-accepted capital market principle that assets with
higher volatility generate a greater return over the long run. Current market
factors such as inflation and interest rates are evaluated before long-term
capital market assumptions are determined. The expected long-term portfolio
return is established via a building block approach with proper consideration of
diversification and rebalancing. Peer data and historical returns are reviewed
to check for reasonability and appropriateness.
The following health care cost trend rates were used to account for the
plans:
<Table>
<Caption>
2005 2004
------------- -------------
Health care cost trend rate assumed for next
year........................................... 9.00 - 13.00% 7.75 - 11.00%
Rate to which the cost trend rate is assumed to
decline (the ultimate trend rate).............. 5.00 - 6.00% 5.00 - 6.00%
Year that the rate reaches the ultimate trend
rate........................................... 2010 - 2013 2007 - 2009
</Table>
The components of net periodic benefit costs are as follows (in thousands):
<Table>
<Caption>
POSTRETIREMENT BENEFITS
OTHER THAN PENSIONS
PENSION BENEFITS YEARS ENDED DECEMBER
YEARS ENDED DECEMBER 31, 31,
------------------------- -----------------------
2005 2004 2003 2005 2004 2003
------- ------- ------- ------- ------ ------
Service cost......................... $ 2,197 $ 2,344 $ 3,704 $ 650 $ 643 $ 484
Interest cost........................ 8,300 8,525 7,949 1,339 1,795 1,649
Expected return on plan assets....... (6,677) (6,355) (5,810) -- -- --
Amendments/curtailments.............. -- 1,357 44 (3,562) (437) --
Amortization of prior service cost
(benefit).......................... 1,366 2,076 1,710 (7) (9) 60
Recognized actuarial loss............ 1,286 172 316 155 239 --
------- ------- ------- ------- ------ ------
Net periodic benefit cost............ $ 6,472 $ 8,119 $ 7,913 $(1,425) $2,231 $2,193
======= ======= ======= ======= ====== ======
</Table>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the post-retirement medical benefit plans. A one
percentage-point change in assumed health care cost trend rates would have the
following effects (in thousands):
<Table>
<Caption>
ONE PERCENTAGE-POINT ONE PERCENTAGE-POINT
INCREASE DECREASE
-------------------- --------------------
Effect on total of service and interest cost
components................................ $ 129 $ (127)
Effect on the post-retirement benefit
obligation................................ 1,268 (1,288)
</Table>
67
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Our North American pension plan weighted-average asset allocations at the
September 30, 2005 and 2004 measurement dates were as follows:
<Table>
<Caption>
PENSION
BENEFITS
----------
2005 2004
---- ----
Equity securities............................................ 63% 1%
Debt securities.............................................. 37% 12%
Other........................................................ -- 87%
--- ---
Total........................................................ 100% 100%
=== ===
</Table>
The September 30, 2004 North American plan assets were held in cash prior
to the transfer to a new investment manager. The investment strategy for the
North American defined benefit pension plans is becoming more conservative due
to the cessation of accepting new participants. The focus is on diminishing the
under funding of $44.6 million at December 31, 2005 and at the same time
protecting the participants' positions. Consequently, the current target
investment mix is 60% in equity securities and 40% in fixed income and debt
securities.
Our foreign pension plan weighted-average asset allocations at the
September 30, 2005 and 2004 measurement dates were as follows:
<Table>
<Caption>
PENSION
BENEFITS
----------
2005 2004
---- ----
Equity securities............................................ 60% 58%
Debt securities.............................................. 34% 35%
Other........................................................ 6% 7%
--- ---
Total........................................................ 100% 100%
=== ===
</Table>
The investment strategy for the foreign defined benefit pension plans is
becoming more conservative due to the cessation of accepting new participants.
The focus is on diminishing the under funding of $25.1 million at December 31,
2005 and at the same time protecting the participants' positions. Consequently,
the current target investment mix is 60% in equity securities and 40% in fixed
income and debt securities.
We employ a total return investment approach whereby a mix of equities and
fixed income investments are used to maximize the long-term return of plan
assets for a prudent level of risk. The intent of this strategy is to minimize
plan expenses by outperforming plan liabilities over the long run. Risk
tolerance is established through careful consideration of plan liabilities, plan
funded status, and corporate financial condition. The investment portfolio
contains a diversified blend of equity and fixed income investments.
Furthermore, equity investments are diversified across U.S. and non-U.S. stocks
as well as growth, value, and small and large capitalization companies. Other
assets such as real estate, private equity, and hedge funds are used judiciously
to enhance long-term returns while improving portfolio diversification.
Derivatives may be used to gain market exposure in an efficient and timely
manner; however, derivatives may not be used to leverage the portfolio beyond
the market value of the underlying investments. Investment risk is measured and
monitored on an ongoing basis through annual liability measurements, periodic
asset/liability studies, and quarterly investment portfolio reviews.
We expect to contribute $8.5 million to our pension plans and $1.3 million
to our postretirement medical benefit plans in 2006.
68
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents our projected benefit payments as of December
31, 2005 (in thousands):
<Table>
<Caption>
YEAR PENSION POST-RETIREMENT
- ---- ------- ---------------
2006................................................. $ 8,340 $1,293
2007................................................. 8,104 1,212
2008................................................. 8,321 1,233
2009................................................. 8,492 1,253
2010................................................. 8,942 1,222
Thereafter........................................... 50,302 6,533
</Table>
RETIREMENT SAVINGS PLANS:
We sponsor various employee retirement savings plans that allow qualified
employees to provide for their retirement on a tax-deferred basis. In accordance
with the terms of the retirement savings plans, we may match certain of the
participants' contributions and/or provide employer contributions based on our
performance and other factors. Our contributions totaled $3.9 million, $8.5
million, and $8.6 million during 2005, 2004, and 2003, respectively. We did not
make any discretionary contribution to the U.S. saving plan in 2005.
11. COMMITMENTS AND CONTINGENCIES:
LEASES:
We lease office space, manufacturing space and certain equipment under
operating lease agreements which require us to pay maintenance, insurance, taxes
and other expenses in addition to annual rentals. Of these lease commitments,
$15.7 million are included in facility closure and consolidation costs reserves.
Future annual rental commitments at December 31, 2005 under these operating
leases are as follows (in thousands):
<Table>
<Caption>
YEAR AMOUNT
- ---- -------
2006........................................................... $15,855
2007........................................................... 9,428
2008........................................................... 6,058
2009........................................................... 4,743
2010........................................................... 4,290
Thereafter..................................................... 23,413
</Table>
We have committed to lease a building currently being built in Mexico for a
period of ten years and rental charges that could aggregate $9.1 million.
LITIGATION:
We are involved in various legal proceedings. Due to their nature, such
legal proceedings involve inherent uncertainties, including, but not limited to,
court rulings, negotiations between affected parties and governmental
intervention. We have established reserves for matters that are probable and
reasonably estimable in amounts we believe are adequate to cover reasonable
adverse judgments not covered by insurance. Based upon the information available
to us and discussions with legal counsel, it is our opinion that the ultimate
outcome of the various legal actions and claims that are incidental to our
business will not have a material adverse impact on our consolidated financial
position, results of operations, or cash flows; however, such matters are
subject to many uncertainties, and the outcome of individual matters are not
predictable with assurance.
69
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. RELATED PARTY TRANSACTIONS:
We incurred fees to Hidden Creek Industries, a former affiliate, of $0.4
million in 2005 and $0.3 million in 2004, respectively, for business development
services. In 2003, we incurred fees to Hidden Creek of $1.1 million in
connection with a debt offering, acquisition and other business development
services.
In November 2001, we entered into a definitive agreement to divest our
Plastic Products business for total proceeds of $41.0 million. The transaction
closed on January 28, 2002. Two members of our Board of Directors are members of
management of an investor group, which is the general partner of the controlling
shareholder of the acquiring company. We currently hold a note receivable from
the acquiring company for $6.0 million as of December 31, 2005. Payments are due
on this note receivable of $4.0 million in February 2007 and $2.0 million in
February 2008.
During 1999, we formed Automotive Aviation Partners, LLC ("AAP") with our
former Chairman to facilitate the purchase of a corporate airplane. We owned 25%
of AAP and our former Chairman owned 75%. Each party provided guarantees for
their ownership percent in favor of the AAP's lending institution; our guarantee
was for $1.25 million. In 2001, we loaned $1.2 million to AAP (the "DURA Loan")
to enable it to make a principal and interest payment to the lending
institution. The former chairman had personally guaranteed repayment of 75% of
this loan. The DURA Loan was due and payable in October 2002. Subsequently, we
established a repayment schedule with our former Chairman with respect to his
guarantee, for which payments are current. As of December 31, 2005, the former
Chairman owed $0.5 million to us under this arrangement In March 2004, a wholly-
owned subsidiary of DURA acquired the former Chairman's 75% interest in AAP in
exchange for nominal consideration. We have repaid the loan to AAP's lending
institution and the former Chairman has been released from his guaranty to such
lender. The former Chairman remained liable under his guaranty to DURA at
December 31, 2005. The loan was subsequently paid off in January 2006.
In March 2003, we entered into a two year agreement with our former Chief
Executive Officer. Under the terms of the agreement, this individual would
receive an annual consulting fee of $525,000 for two years, stock options for
270,000 shares of Class A Common Stock and his existing vested options exercise
period were extended to the remaining life of those options. As of December 31,
2004, all 270,000 of the additional options have been granted.
During April 2004, Onex Corporation, our controlling shareholder at that
time, 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 our shareholder matters. As a
result, during June 2004, we 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 our 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 us. 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 $21.1
million as of December 31, 2005. Change of control is defined as the
accumulation by any person, entity or group of affiliated entities meeting
certain levels of voting power of our voting stock or the occurrence of certain
other specified events, as defined in the Agreements.
13. CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION:
The following consolidating financial information presents balance sheets,
statements of operations and cash flow information related to our business. Each
Guarantor, as defined, is a direct or indirect wholly owned subsidiary and has
fully and unconditionally guaranteed the Senior Subordinated Notes issued by
DURA Operating Corp. ("DOC"), 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.
The Non-Guarantor Companies financial information represents our non United
States operations.
70
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DURA AUTOMOTIVE SYSTEMS, INC.
CONSOLIDATING BALANCE SHEETS AS OF DECEMBER 31, 2005
<Table>
<Caption>
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
---------- --------- ---------- ------------ ------------
(AMOUNTS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents....... $ 3,911 $ (40) $ 98,018 $ -- $ 101,889
Accounts receivable, net of
allowances................... 39,630 88,508 162,981 -- 291,119
Inventories..................... 10,018 55,142 66,988 -- 132,148
Other current assets............ 30,247 9,635 67,768 -- 107,650
Due from affiliates............. 180,078 23,841 7,481 (211,400) --
---------- -------- ---------- ----------- ----------
Total current assets......... 263,884 177,086 403,236 (211,400) 632,806
---------- -------- ---------- ----------- ----------
Property, plant and equipment,
net............................. 54,280 108,126 295,852 458,258
Investment in subsidiaries........ 772,942 28,799 190,777 (992,518) --
Notes receivable from affiliates.. 423,553 358,908 37,724 (820,185) --
Goodwill.......................... 380,906 128,773 344,617 -- 854,296
Other assets, net of accumulated
amortization.................... 97,613 12,300 19,936 -- 129,849
---------- -------- ---------- ----------- ----------
$1,993,178 $813,992 $1,292,142 $(2,024,103) $2,075,209
========== ======== ========== =========== ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Accounts payable................ $ 40,516 $ 73,044 $ 152,000 $ -- $ 265,560
Accrued liabilities............. 70,481 12,138 98,003 -- 180,622
Current maturities of long-term
debt......................... 2,189 1,284 -- 3,473
Due to affiliates............... 26,951 179,300 5,149 (211,400) --
---------- -------- ---------- ----------- ----------
Total current liabilities.... 140,137 264,482 256,436 (211,400) 449,655
---------- -------- ---------- ----------- ----------
Long-term debt, net of current
maturities...................... 167,500 -- 4,077 -- 171,577
Senior unsecured notes............ 400,000 -- -- -- 400,000
Senior subordinated notes......... 523,906 -- -- -- 523,906
Convertible trust preferred
securities...................... 55,250 -- -- -- 55,250
Senior notes -- derivative
instrument adjustment........... (10,781) -- -- -- (10,781)
Other noncurrent liabilities...... 83,114 672 57,245 -- 141,031
Minority interest................. -- -- 4,864 -- 4,864
Notes payable to affiliates....... 371,632 160,065 288,488 (820,185) --
---------- -------- ---------- ----------- ----------
Total liabilities............ 1,730,758 425,219 611,110 (1,031,585) 1,735,502
---------- -------- ---------- ----------- ----------
Stockholders' investment, net..... 262,420 388,773 681,032 (992,518) 339,707
---------- -------- ---------- ----------- ----------
$1,993,178 $813,992 $1,292,142 $(2,024,103) $2,075,209
========== ======== ========== =========== ==========
</Table>
71
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DURA AUTOMOTIVE SYSTEMS, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2005
<Table>
<Caption>
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- ---------- ------------ ------------
(AMOUNTS IN THOUSANDS)
Revenues.......................... $ 282,854 $852,290 $1,236,610 $(27,615) $2,344,139
Cost of sales..................... 256,043 735,321 1,122,672 (27,615) 2,086,421
--------- -------- ---------- -------- ----------
Gross profit.................... 26,811 116,969 113,938 257,718
Selling, general and
administrative expenses......... 61,296 30,989 63,616 -- 155,901
Facility consolidation, asset
impairment and other charges.... 1,113 4,377 5,907 -- 11,397
Amortization expense.............. 222 182 30 -- 434
--------- -------- ---------- -------- ----------
Operating income................ (35,820) 81,421 44,385 -- 89,986
Interest expense, net of interest
income.......................... 88,224 2,330 9,467 -- 100,021
Gain on early extinguishment of
debt............................ 14,805 -- -- -- 14,805
--------- -------- ---------- -------- ----------
Income from continuing
operations before provision
for income taxes and minority
interest..................... (109,239) 79,091 34,918 -- 4,770
Provision for income taxes........ (55,346) 40,997 17,036 -- 2,687
Minority interest:
In non-wholly owned
subsidiaries................. (50,116) -- (7,553) 57,846 177
Dividends from affiliates......... (5,591) -- -- 5,591 --
--------- -------- ---------- -------- ----------
Income from continuing
operations...................... 1,814 38,094 25,435 (63,437) 1,906
Loss from discontinued operations,
including loss on disposal...... -- -- (92) -- (92)
--------- -------- ---------- -------- ----------
Net income...................... $ 1,814 $ 38,094 $ 25,343 $(63,437) $ 1,814
========= ======== ========== ======== ==========
</Table>
72
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DURA AUTOMOTIVE SYSTEMS, INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2005
<Table>
<Caption>
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------ ------------
(AMOUNTS IN THOUSANDS)
OPERATING ACTIVITIES:
Income from continuing
operations..................... $ 1,814 $ 38,093 $ 25,436 $(63,437) $ 1,906
Adjustments to reconcile income
(loss) from continuing
operations to net cash provided
by (used in) operating
activities:
Depreciation and amortization.. 8,922 19,932 51,507 -- 80,361
Amortization of deferred
financing fees............... 3,889 -- -- -- 3,889
Facility consolidation and
other........................ 246 (3,156) 1,551 -- (1,359)
Deferred income tax provision
(benefit).................... (45,694) 19,775 (1,237) -- (27,156)
Asset impairments.............. 759 2,401 -- -- 3,160
Favorable settlement of
environmental matters........ (1,200) (8,760) -- -- (9,960)
Gain on early extinguishment of
debt......................... (14,805) -- -- -- (14,805)
Changes in other operating
items........................ (7,939) (26,542) (14,547) -- (49,028)
--------- -------- --------- -------- ---------
Net cash provided by (used
in) operating activities.. (54,008) 41,743 62,710 (63,437) (12,992)
--------- -------- --------- -------- ---------
INVESTING ACTIVITIES:
Capital expenditures, net......... (10,803) (11,748) (44,266) -- (66,817)
Other............................. 662 2,661 (833) -- 2,490
--------- -------- --------- -------- ---------
Net cash used in investing
activities................... (10,141) (9,087) (45,099) -- (64,327)
--------- -------- --------- -------- ---------
FINANCING ACTIVITIES:
Long-term borrowings.............. 153,285 -- -- -- 153,285
Net borrowings under revolving
credit facilities.............. 17,500 -- -- -- 17,500
Repayments of long-term
borrowings..................... (178,129) (3) (1,327) -- (179,459)
Purchase of treasury shares and
other, net..................... -- -- -- -- --
Proceeds from exercise of stock
options, net................... 673 -- -- -- 673
Debt issue costs.................. (7,613) -- -- -- (7,613)
Deferred gain on termination of
interest rate swap............. 11,374 -- -- -- 11,374
Minority interest distribution.... -- -- (86) -- (86)
Dividends paid.................... -- (5,591) -- 5,591 --
--------- -------- --------- -------- ---------
Net cash provided by (used in)
financing activities......... (2,910) (5,594) (1,413) 5,591 (4,326)
--------- -------- --------- -------- ---------
EFFECT OF EXCHANGE RATES ON CASH AND
CASH EQUIVALENTS.................. 68,026 (28,728) (105,086) 57,846 (7,942)
--------- -------- --------- -------- ---------
NET CHANGE IN CASH AND CASH
EQUIVALENTS FROM CONTINUING
OPERATIONS........................ 967 (1,666) (88,888) -- (89,587)
NET CASH FLOW FROM DISCONTINUED
OPERATIONS........................ -- -- (92) -- (92)
CASH AND CASH EQUIVALENTS:
Beginning of period............... 2,944 1,626 186,998 -- 191,568
--------- -------- --------- -------- ---------
End of period..................... $ 3,911 $ (40) $ 98,018 $ -- $ 101,889
========= ======== ========= ======== =========
</Table>
73
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DURA AUTOMOTIVE SYSTEMS, INC.
CONSOLIDATING BALANCE SHEETS AS OF DECEMBER 31, 2004
<Table>
<Caption>
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
---------- --------- ---------- ------------ ------------
(AMOUNTS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents...... $ 2,944 $ 1,626 $ 186,998 $ -- $ 191,568
Accounts receivable, net of
allowances.................. 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......................... 380,907 128,773 393,904 -- 903,584
Noncurrent portion of derivative
instruments.................... 10,601 -- -- -- 10,601
Other assets, net of accumulated
amortization................... 61,918 15,668 29,924 -- 107,510
---------- -------- ---------- ----------- ----------
$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 unsecured notes........... 400,000 -- -- -- 400,000
Senior subordinated notes........ 589,469 -- -- -- 589,469
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, net.... 251,364 307,222 713,492 (864,587) 407,491
---------- -------- ---------- ----------- ----------
$1,899,092 $727,970 $1,336,348 $(1,739,489) $2,223,921
========== ======== ========== =========== ==========
</Table>
74
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DURA AUTOMOTIVE SYSTEMS, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
<Table>
<Caption>
(AMOUNTS IN THOUSANDS)
Revenues....................... $327,516 $972,793 $1,241,070 $(48,836) $2,492,543
Cost of sales.................. 298,655 839,237 1,125,057 (48,836) 2,214,113
-------- -------- ---------- -------- ----------
Gross profit................. 28,861 133,556 116,013 -- 278,430
Selling, general and
administrative expenses...... 55,379 31,111 63,999 -- 150,489
Facility consolidation, asset
impairment and other
charges...................... 295 17,232 4,290 -- 21,817
Amortization expense........... 222 182 41 -- 445
-------- -------- ---------- -------- ----------
Operating income............. (27,035) 85,031 47,683 -- 105,679
Interest expense, net of
interest income.............. 71,909 6,927 10,699 -- 89,535
-------- -------- ---------- -------- ----------
Income from continuing
operations before
provision for income taxes
and minority interest..... (98,944) 78,104 36,984 -- 16,144
Provision for income taxes..... (13,533) 11,561 5,644 -- 3,672
Minority interest:
In non-wholly owned
subsidiaries.............. (92,355) -- 482 91,873 --
Dividends from affiliates...... (4,899) -- -- 4,899 --
-------- -------- ---------- -------- ----------
Income from continuing
operations................ 11,843 66,543 30,858 (96,772) 12,472
Loss from discontinued
operations, including loss on
disposal..................... (120) -- (629) -- (749)
-------- -------- ---------- -------- ----------
Net income................ $ 11,723 $ 66,543 $ 30,229 $(96,772) $ 11,723
======== ======== ========== ======== ==========
</Table>
75
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DURA AUTOMOTIVE SYSTEMS, INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2004
<Table>
<Caption>
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------ ------------
(AMOUNTS IN THOUSANDS)
OPERATING ACTIVITIES:
Income (loss) from continuing
operations........................ $ 11,843 $ 66,543 $ 30,858 $(96,772) $ 12,472
Adjustments to reconcile income
(loss) from continuing operations
to net cash provided by (used in)
operating activities:
Depreciation and amortization..... 8,826 21,617 52,945 -- 83,388
Amortization of deferred financing
fees............................ 3,522 -- -- -- 3,522
Facility consolidation and other.. 8,736 1,932 2,838 -- 13,506
Deferred income tax provision
(benefit)....................... 750 (14,573) (2,840) -- (16,663)
Loss on early extinguishment of
debt............................ -- -- -- -- --
Equity in losses (earnings) of
affiliates and minority
interest........................ (92,355) -- 482 91,873 --
Changes in other operating items.. 91,986 (19,654) (59,336) -- 12,996
-------- -------- -------- -------- --------
Net cash provided by operating
activities................... 33,308 55,865 24,947 (4,899) 109,221
-------- -------- -------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures, net............ (9,399) (13,705) (44,104) -- (67,208)
Acquisitions, net.................... -- -- (13,327) -- (13,327)
-------- -------- -------- -------- --------
Net cash used in investing
activities................... (9,399) (13,705) (57,431) -- (80,535)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES:
Long-term borrowings................. -- -- 568 -- 568
Repayments of long-term borrowings... (8,897) (37) (10,293) -- (19,227)
Purchase of treasury shares and
other, net........................ (61) -- -- -- (61)
Proceeds from exercise of stock
options, net...................... 2,353 -- -- -- 2,353
Debt issue costs..................... (552) -- -- -- (552)
Debt financing (to) from affiliates.. (59,536) (36,724) 96,260 -- --
Dividends paid....................... -- (4,899) -- 4,899 --
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities......... (66,693) (41,660) 86,535 4,899 (16,919)
-------- -------- -------- -------- --------
EFFECT OF EXCHANGE RATES ON CASH AND
CASH EQUIVALENTS..................... 13,632 -- (14,350) -- (718)
-------- -------- -------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS
FROM CONTINUING OPERATIONS........... (29,152) 500 39,701 -- 11,049
NET CASH FLOW FROM DISCONTINUED
OPERATIONS........................... (120) -- (629) -- (749)
CASH AND CASH EQUIVALENTS:
Beginning of period.................. 32,216 1,126 147,926 -- 181,268
-------- -------- -------- -------- --------
End of period........................ $ 2,944 $ 1,626 $186,998 $ -- $191,568
======== ======== ======== ======== ========
</Table>
76
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DURA AUTOMOTIVE SYSTEMS, INC.
CONSOLIDATING BALANCE SHEETS AS OF DECEMBER 31, 2003
<Table>
<Caption>
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
---------- --------- ---------- ------------ ------------
(AMOUNTS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents...... $ 32,216 $ 1,126 $ 147,926 $ -- $ 181,268
Accounts receivable, net of
allowances.................. 18,721 75,182 180,442 -- 274,345
Inventories.................... 10,714 45,368 71,875 -- 127,957
Current portion of derivative
instruments................. 6,629 -- -- -- 6,629
Other current assets........... 18,234 19,831 56,980 -- 95,045
Due from affiliates............ 163,744 43,724 2,679 (210,147) --
---------- -------- ---------- ----------- ----------
Total current assets........ 250,258 185,231 459,902 (210,147) 685,244
---------- -------- ---------- ----------- ----------
Property, plant and equipment,
net............................ 56,473 125,865 306,025 -- 488,363
Investment in subsidiaries....... 679,527 22,490 74,820 (776,837) --
Notes receivable from
affiliates..................... 570,092 528,641 41,169 (1,139,902) --
Goodwill......................... 411,788 96,622 350,612 -- 859,022
Noncurrent portion of derivative
instruments.................... 12,844 -- -- -- 12,844
Other assets, net of accumulated
amortization................... 59,624 4,985 5,350 -- 69,959
---------- -------- ---------- ----------- ----------
$2,040,606 $963,834 $1,237,878 $(2,126,886) $2,115,432
========== ======== ========== =========== ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Accounts payable............... $ 40,559 $ 67,245 $ 136,191 $ -- $ 243,995
Accrued liabilities............ 58,735 30,350 98,416 -- 187,501
Current maturities of long-term
debt........................ 1,500 36 4,202 -- 5,738
Due to affiliates.............. 45,657 139,281 25,209 (210,147) --
---------- -------- ---------- ----------- ----------
Total current liabilities... 146,451 236,912 264,018 (210,147) 437,234
---------- -------- ---------- ----------- ----------
Long-term debt, net of current
maturities..................... 146,250 3 12,868 -- 159,121
Senior unsecured notes........... 400,000 -- -- -- 400,000
Senior subordinated notes........ 578,505 -- -- -- 578,505
Convertible trust preferred
securities..................... 55,250 -- -- -- 55,250
Senior notes -- derivative
instrument adjustment.......... 19,473 -- -- -- 19,473
Other noncurrent liabilities..... 61,113 12,168 61,981 -- 135,262
Notes payable to affiliates...... 404,690 459,336 275,876 (1,139,902) --
---------- -------- ---------- ----------- ----------
Total liabilities........... 1,811,732 708,419 614,743 (1,350,049) 1,784,845
---------- -------- ---------- ----------- ----------
Stockholders' investment, net.... 228,874 255,415 623,135 (776,837) 330,587
---------- -------- ---------- ----------- ----------
$2,040,606 $963,834 $1,237,878 $(2,126,886) $2,115,432
========== ======== ========== =========== ==========
</Table>
77
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DURA AUTOMOTIVE SYSTEMS, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003
<Table>
<Caption>
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- ---------- ------------ ------------
(AMOUNTS IN THOUSANDS)
Revenues.......................... $ 329,638 $933,508 $1,168,817 $ (51,169) $2,380,794
Cost of sales..................... 300,176 786,361 1,053,875 (51,169) 2,089,243
--------- -------- ---------- --------- ----------
Gross profit.................... 29,462 147,147 114,942 -- 291,551
Selling, general and
administrative expenses......... 65,919 29,614 59,402 -- 154,935
Facility consolidation and other
charges......................... 550 10,004 (1,302) -- 9,252
Amortization expense.............. 239 94 37 -- 370
--------- -------- ---------- --------- ----------
Operating income (loss)........... (37,246) 107,435 56,805 -- 126,994
Interest expense, net of
interest income.............. 69,489 2,105 10,327 -- 81,921
Loss on early extinguishment of
debt, net....................... 2,852 -- -- -- 2,852
Income (loss) from continuing
operations before provision for
income taxes and minority
interest........................ (109,587) 105,330 46,478 -- 42,221
Provision (benefit) for income
taxes........................ (29,101) 29,911 13,545 -- 14,355
Equity in (earnings) losses of
affiliates, net................. 22,379 -- (3,894) (18,485) --
Minority interest -- dividends
on trust preferred securities,
net............................. 2,735 -- -- -- 2,735
Dividends from affiliates......... (127,938) -- -- 127,938 --
Income from continuing
operations...................... 22,338 75,419 36,827 (109,453) 25,131
--------- -------- ---------- --------- ----------
Loss from discontinued
operations, including loss on
disposal..................... -- -- (2,793) -- (2,793)
--------- -------- ---------- --------- ----------
Net income........................ 22,338 75,419 34,034 (109,453) 22,338
========= ======== ========== ========= ==========
</Table>
78
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DURA AUTOMOTIVE SYSTEMS, INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2003
<Table>
<Caption>
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------ ------------
(AMOUNTS IN THOUSANDS)
OPERATING ACTIVITIES:
Income from continuing
operations..................... $ 22,338 $ 75,419 $ 36,827 $(109,453) $ 25,131
Adjustments to reconcile income
(loss) from continuing
operations to net cash provided
by (used in) operating
activities:
Depreciation and amortization.. 10,171 21,947 45,449 -- 77,567
Amortization of deferred
financing fees............... 4,520 -- -- -- 4,520
Facility consolidation and
other........................ -- -- 7,290 -- 7,290
Deferred income tax provision
(benefit).................... 1,862 5,447 (9,384) -- (2,075)
Loss on early extinguishment of
debt......................... 2,852 -- -- -- 2,852
Equity in losses (earnings) of
affiliates and minority
interest..................... 22,379 -- (3,894) (18,485) --
Changes in other operating
items........................ 26,007 (33,924) 26,978 -- 19,061
--------- --------- -------- --------- ---------
Net cash provided by
operating activities...... 90,129 68,889 103,266 (127,938) 134,346
--------- --------- -------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures, net......... 6,303 (11,327) (62,649) -- (67,673)
Acquisitions, net................. (57,825) -- -- -- (57,825)
--------- --------- -------- --------- ---------
Net cash used in investing
activities................ (51,522) (11,327) (62,649) -- (125,498)
--------- --------- -------- --------- ---------
FINANCING ACTIVITIES:
Long-term borrowings.............. -- -- 55,795 -- 55,795
Repayments of long-term
borrowings..................... (1,510) (85) (62,367) -- (63,962)
Purchase of treasury shares and
other, net..................... (478) -- -- -- (478)
Proceeds from issuance of senior
notes, net..................... 50,000 -- -- -- 50,000
Proceeds from exercise of stock
options, net................... 2,156 -- -- -- 2,156
Debt issue costs.................. (4,927) -- -- -- (4,927)
Debt financing (to) from
affiliates..................... (152,098) 71,076 81,022 -- --
Dividends paid.................... -- (127,938) -- 127,938 --
Net cash provided by (used in)
financing activities........... (106,857) (56,947) 74,450 127,938 38,584
--------- --------- -------- --------- ---------
EFFECT OF EXCHANGE RATES ON
CASH AND CASH
EQUIVALENTS............... 20,788 -- (33,505) -- (12,717)
--------- --------- -------- --------- ---------
NET CHANGE IN CASH AND CASH
EQUIVALENTS FROM CONTINUING
OPERATIONS........................ (47,462) 615 81,562 -- 34,715
NET CASH FLOW FROM DISCONTINUED
OPERATIONS........................ -- -- 3,316 -- 3,316
CASH AND CASH EQUIVALENTS:
Beginning of period................. 79,678 511 63,048 -- 143,237
--------- --------- -------- --------- ---------
End of period..................... $ 32,216 $ 1,126 $147,926 $ -- $ 181,268
========= ========= ======== ========= =========
</Table>
79
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is a condensed summary of actual quarterly results of
operations for 2005 and 2004 (in thousands, except per share amounts):
<Table>
<Caption>
(GAIN)/LOSS BASIC DILUTED
FROM NET EARNINGS EARNINGS
GROSS OPERATING DISCONTINUED INCOME (LOSS) (LOSS)
2005: REVENUES PROFIT INCOME OPERATIONS (LOSS) PER SHARE PER SHARE (A)
- ----- ---------- -------- --------- ------------ ------- --------- -------------
First................. $ 619,979 $ 60,581 $ 16,630 $(109) $(4,832) $(0.26) $(0.26)
Second................ 623,834 78,356 34,603 3 2,959 0.16 0.16
Third................. 535,922 51,205 13,400 -- (6,585) (0.35) (0.35)
Fourth................ 564,404 67,576 25,353 14 10,272 0.55 0.54
---------- -------- -------- ----- -------
$2,344,139 $257,718 $ 89,986 $ (92) $ 1,814
========== ======== ======== ===== =======
2004:
First................. $ 634,563 $ 76,665 $ 36,190 $(693) $ 9,168 $ 0.50 $ 0.48
Second................ 658,815 76,683 25,174 12 3,340 0.18 0.18
Third................. 616,363 63,904 20,134 (18) (2,697) (0.15) (0.15)
Fourth................ 582,802 61,178 24,181 (50) 1,912 0.10 0.10
---------- -------- -------- ----- -------
$2,492,543 $278,430 $105,679 $(749) $11,723
========== ======== ======== ===== =======
</Table>
In the second quarter of 2005, we were 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
in the second quarter. In the fourth quarter, cost of sales was positively
impacted by certain one time operational and commercial events in the amount of
$6.8 million. Additionally in the fourth quarter of 2005, net income was
increased by an $18.2 million gain on the early extinguishment of debt and a
$4.3 million favorable resolution of a tax matter.
The sum of the per share amounts for the quarters does not equal the total
for the year due to the application of the treasury stock method.
15. SUBSEQUENT EVENTS (UNAUDITED):
In February 2006, we announced that we are evaluating strategic
alternatives involving three of our manufacturing operations located in Lage,
Lippstadt and Rotenburg, Germany. At this time, no final decision has been made
nor has the Board of Directors approval been obtained concerning the ultimate
strategy DURA will take. We have retained the services of a financial adviser to
assist in developing alternatives, including solicitation of interest from
prospective acquirers.
Additionally in February 2006, we announced a restructuring plan that will
commence in 2006 and is anticipated to be completed by the end of 2007. The
restructuring plan is expected to impact over 50% of our worldwide operations
either through product movement or facility closures. Cash costs for the
restructuring plan are expected to be approximately $100 million, which includes
estimated capital expenditures between $25 and $35 million. These costs will
relate primarily to employee severance, capital investment, facility closure and
product move costs. The majority of these expenditures will occur by year end
2007. The cash expenditures are anticipated to be financed with cash on hand and
availability under our existing revolving credit facility (See Note 7).
We have engaged J.P. Morgan Securities Inc. to arrange additional
borrowings of up to $75 million in the form of a new tranche loan under our
existing $150 million senior secured second lien term loan due May 2011.
Specific terms and conditions are still subject to finalization. In conjunction
with this action, we are also requesting minor amendments to our existing $175
million asset-based revolving credit facility and the senior secured second lien
term loan. The proceeds from this new loan will be used for general corporate
purposes. We expect to close the transaction by the end of the first quarter.
80
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Dura Automotive Systems, Inc.
We have audited the consolidated financial statements of Dura Automotive
Systems, Inc. and subsidiaries (the "Company") as of December 31, 2005 and 2004,
and for each of the three years in the period ended December 31, 2005,
management's assessment of the effectiveness of the Company's internal control
over financial reporting as of December 31, 2005, and the effectiveness of the
Company's internal control over financial reporting as of December 31, 2005, and
have issued our reports thereon dated March 10, 2006 (which report on the
effectiveness of the Company's internal control over financial reporting
expresses an adverse opinion because of a material weakness); such consolidated
financial statements and reports are included elsewhere in this Form 10-K. Our
audits also included the consolidated financial statement schedule of the
Company listed in Item 15. This consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ DELOITE & TOUCHE LLP
Minneapolis, Minnesota
March 10, 2006
81
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
ACQUISITION INTEGRATIONS, PURCHASE LIABILITIES:
The transactions in the purchase liabilities account recorded in
conjunction with acquisitions account for the years ending December 31, 2005,
2004, and 2003 were as follows (in thousands):
<Table>
<Caption>
2005 2004 2003
------- ------- -------
Balance, beginning of the year.................... $ 6,406 $ 8,982 $11,694
Provisions........................................ -- 170 332
Adjustments....................................... (201) 40 (937)
Utilizations...................................... (1,720) (2,786) (2,107)
------- ------- -------
Balance, end of the year.......................... $ 4,485 $ 6,406 $ 8,982
======= ======= =======
</Table>
FACILITY CONSOLIDATION AND DISCONTINUED OPERATIONS:
The transactions in the facility consolidation reserve account for the year
ending December 31, 2005, 2004, and 2003 were as follows (in thousands):
<Table>
<Caption>
2005 2004 2003
------- -------- -------
Balance, beginning of the year................... $21,550 $ 19,875 $24,308
Provisions....................................... 5,499 12,904 9,201
Adjustments...................................... (418) (971) (7,735)
Utilizations..................................... (8,464) (10,258) (5,899)
------- -------- -------
Balance, end of the year......................... $18,167 $ 21,550 $19,875
======= ======== =======
</Table>
82
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants on accounting
and financial disclosure.
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of December 31, 2005, an evaluation was carried out under the
supervision and with the participation of DURA's management, including its Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of its 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
DURA 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.
INTERNAL CONTROL OVER FINANCIAL REPORTING
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rules 13a-15(f) and 15d-
15(f) under the Securities Exchange Act of 1934. Our internal control system is
designed to provide reasonable assurance to our management and board of
directors regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles. Our internal control over financial reporting
includes those policies and procedures that:
- Pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the
assets of the company;
- Provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
- Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company's assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over
financial reporting as of December 31, 2005. In making this assessment, we used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control -- Integrated Framework.
A material weakness is a significant deficiency (as defined in PCAOB
Auditing Standard No. 2), or combination of significant deficiencies, that
results in more than a remote likelihood that a material misstatement of the
annual or interim financial statements will not be prevented or detected.
Management determined that the processes and procedures surrounding the
accounting for the current tax effects of foreign nonrecurring transactions, as
well as foreign deferred income tax accounts, did not include adequate controls.
This was a result of late, inadequate or incomplete documentation, and was also
impacted by not having a global tax director during most of the fourth quarter
of 2005. These matters represent a design and operating deficiency and, based
upon misstatements requiring correction to the financial statements that
impacted the Income Tax Provision, Income Tax Payable and Deferred Income Tax
accounts, constitutes a material weakness.
83
As a result of the aforementioned material weakness, certain of our income tax
accounting calculations and reserves contained errors which were, individually
and in the aggregate, material. These errors were corrected in connection with
the preparation of our December 31, 2005 financial statements.
Based upon criteria established in Internal Control -- Integrated
Framework, the material weakness described above has caused management to
conclude we did not maintain effective internal control over financial reporting
as of December 31, 2005.
We have identified the following actions that are necessary to remediate
the material weakness described above: (i) critical assessment and re-
design/development of our processes and procedures for the detailed
documentation and reconciliations surrounding the tax effects of nonrecurring
transactions and deferred income tax accounting in our foreign tax jurisdictions
to help ensure that we are able to identify and address tax accounting issues in
a more timely and comprehensive manner; (ii) hiring additional tax department
personnel who have the appropriate skill and knowledge background with respect
to SFAS No. 109, Accounting for Income Taxes, SFAS No. 5, Accounting for
Contingencies, and other applicable rules and regulations with respect to tax
matters; (iii) implementing additional recurring review procedures to ensure
compliance with SFAS No. 109 and SFAS No. 5 and other applicable rules and
regulations with respect to tax matters; and (iv) hiring a new global tax
director to replace our former global tax director who left Dura in October
2005. During the first quarter of 2006, we hired a new global tax director. We
anticipate completing items (i), (ii) and (iii) during 2006. However, until
these actions are undertaken and the material weakness noted above is corrected,
there is continued risk of material misstatement to our interim and annual
financial statements.
Our independent registered public accounting firm has audited management's
assessment of the effectiveness of our internal control over financial reporting
as of December 31, 2005, as stated in the Report of Independent Registered
Public Accounting Firm, contained herein.
/s/ Lawrence A. Denton
----------------------------------------
Chairman of the Board of Directors,
President and Chief Executive Officer
/s/ Keith R. Marchiando
----------------------------------------
Vice President and Chief Financial
Officer
March 10, 2006
84
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Dura Automotive Systems, Inc.
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting appearing under
Item 9A, that Dura Automotive Systems, Inc. and subsidiaries (the "Company") did
not maintain effective internal control over financial reporting as of December
31, 2005, because of the effect of the material weakness identified in
management's assessment based on criteria established in Internal
Control -- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management's
assessment and an opinion on the effectiveness of the Company's internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinions.
A company's internal control over financial reporting is a process designed
by, or under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
A material weakness is a significant deficiency, or combination of
significant deficiencies, that results in more than a remote likelihood that a
material misstatement of the annual or interim financial statements will not be
prevented or detected. The Company determined that their processes and
procedures surrounding the preparation and review of the accounting for foreign
income taxes did not include adequate management oversight and review of
specialty transactions and deferred income tax accounts specifically related to
their foreign tax jurisdictions. This was a result of management's late,
inadequate or incomplete documentation. The aforementioned matters were also
impacted by not having a global tax director during most of the fourth quarter
of 2005. These matters represent a design and operating deficiency and, based
upon misstatements requiring correction to the financial statements that
impacted the income tax provision, income tax payable and deferred income tax
accounts, constitutes a material weakness. This material weakness was considered
in determining the nature, timing and extent of audit tests applied in our
audits of the consolidated financial statements and financial statement schedule
as of and for the year ended December 31, 2005, of the Company and this report
does not affect our reports on such financial statements and financial statement
schedule. This material weakness was considered in determining the nature,
timing, and extent
85
of audit tests applied in our audits of the consolidated financial statements
and financial statement schedule as of and for the year ended December 31, 2005,
of the Company and this report does not affect our reports on such financial
statements and financial statement schedule.
In our opinion, management's assessment that the Company did not maintain
effective internal control over financial reporting as of December 31, 2005, is
fairly stated, in all material respects, based on the criteria established in
Internal Control -- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Also in our opinion, because of the
effect of the material weakness described above on the achievement of the
objectives of the control criteria, the Company has not maintained effective
internal control over financial reporting as of December 31, 2005, based on the
criteria established in Internal Control -- Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated financial
statements and financial statement schedule as of and for the year ended
December 31, 2005, of the Company and our reports dated March 10, 2006,
expressed an unqualified opinion on those financial statements and financial
statement schedule.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
March 10, 2006
86
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
CODE OF ETHICS
We have adopted a Conflict of Interest and Code of Conduct which applies to
all of our employees and directors. The Conflict of Interest and Code of Conduct
is published on our website at www.duraauto.com. Any amendments to the Conflict
of Interest and Code of Conduct and waivers of the Conflict of Interest and Code
of Conduct for its Chief Executive Officer, Chief Financial Officer or
Controller will be published on its website. We will provide a copy of our
Conflict of Interest and Code of Conduct, free of charge, upon request. To
request a copy, please submit your request to: DURA Automotive Systems, Inc.
,2791 Research Drive, Rochester Hills, MI 48309, Attn: Corporate Secretary.
The information included under the headings "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in its definitive
proxy statement for its Annual Meeting of Shareholders to be held May 17, 2006,
is incorporated herein by reference.
Pursuant to General Instruction G(3) to Form 10-K and Instruction 3 to Item
401(b) of Regulation S-K, information regarding its executive officers is
provided in Item 1 of Part I of this Annual Report on Form 10-K under the
caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to
the sections labeled "Compensation of Directors" and "Executive Compensation"
which appear in our 2006 Proxy Statement, excluding information under the
headings "Compensation Committee Report on Executive Compensation" and
"Performance Graph."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Certain information required by Item 12 is incorporated herein by reference
to the sections labeled "Ownership of DURA Common Stock" and "DURA Equity
Compensation Plans", which appear in our 2006 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference to
the section labeled "Certain Relationships and Related Transactions" which
appears in our 2006 Proxy Statement.
ITEM 14. PRINCIPLE ACCOUNTANT FEES AND SERVICES
The information required by Item 14 is incorporated herein by reference to
the section labeled "Independent Auditor Fees" which appears in our 2006 Proxy
Statement.
87
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) DOCUMENTS FILED AS PART OF THIS REPORT ON FORM 10-K
(1) Financial Statements:
- Report of Independent Registered Public Accounting Firm
- Consolidated Balance Sheets as of December 31, 2005 and 2004
- Consolidated Statements of Operations for the Years Ended
December 31, 2005, 2004 and 2003
- Consolidated Statements of Stockholders' Investment for the
Years Ended December 31, 2005, 2004 and 2003
- Consolidated Statements of Cash Flows for the Years Ended
December 31, 2005, 2004 and 2003
- Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
- Financial Statement Schedule II -- Valuation and Qualifying
Accounts
(3) Exhibits: See "Exhibit Index"
88
DURA AUTOMOTIVE SYSTEMS, INC.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005
<Table>
<Caption>
PAGE
EXHIBIT NUMBER
------- ------
3.1 Restated Certificate of Incorporation of Dura Automotive *
Systems, Inc., incorporated by reference to Exhibit 3.1 of the
Registration Statement on Form S-4 (Registration No. 333-81213)
(the "S-4").
3.2 Amended and Restated By-laws of Dura Automotive Systems, Inc., *
incorporated by reference to exhibit 3.2 of the Registration
Statement on Form S-1 (Registration No. 333-06601) (the "S-1").
4.1 Registration Agreement, dated as of August 31, 1994, among *
DURA, Alkin and the MC Stockholders (as defined therein),
incorporated by reference to Exhibit 4.3 of the S-1.
4.2 Form of certificate representing Class A common stock of DURA, *
incorporated by reference to Exhibit 4.6 of the S-1
4.3 Indenture, dated April 22, 1999, between Dura Operating Corp., *
Dura Automotive. Systems, Inc., the Subsidiary Guarantors and
U.S. Bank Trust National Association, as trustee, relating to
the 9% senior subordinated notes denominated in U.S. dollars,
incorporated by reference to Exhibit 4.7 of the S-4.
4.4 Indenture, dated April 22, 1999, between Dura Operating Corp., *
Dura Automotive Systems, Inc., the Subsidiary Guarantors and
U.S. Bank Trust National Association, as trustee, relating to
the 9% senior subordinated notes denominated in Euros,
incorporated by reference to Exhibit 4.8 of the S-4.
4.5 Certificate of Trust of Dura Automotive Systems Capital Trust, *
incorporated by reference to Exhibit 4.8 of the Registrant's
Form S-3, Registration No. 333-47273 filed under the Securities
Act of 1933 (the "Form S-3").
4.6 Form of Amended and Restated Trust Agreement of Dura Automotive *
Systems Capital Trust among Dura Automotive Systems, Inc., as
Sponsor, The First National Bank of Chicago, as Property
Trustee, First Chicago Delaware, Inc., as Delaware Trustee and
the Administrative Trustees named therein, incorporated by
reference to Exhibit 4.9 of the Form S-3.
4.7 Form of Junior Convertible Subordinated Indenture between Dura *
Automotive Systems, Inc. and The First National Bank of
Chicago, as Indenture Trustee, incorporated by reference to
Exhibit 4.10 of the Form S-3.
4.8 Form of Preferred Security, incorporated by reference to *
Exhibit 4.11 of the Form S-3.
4.9 Form of Debenture, incorporated by reference to Exhibit 4.12 of *
the Form S-3.
4.10 Form of Guarantee Agreement between Dura Automotive Systems, *
Inc., as Guarantor, and The First National Bank of Chicago, as
Guarantee Trustee with respect to the Preferred Securities of
Dura Automotive Systems Capital Trust, incorporated by
reference to Exhibit 4.13 of the Form S-3.
4.11 Indenture, dated June 22, 2001, between Dura Operating Corp., *
Dura Automotive Systems, Inc., the Subsidiary Guarantors and
U.S. Bank Trust National Association, as trustee, relating to
the Series C and Series D, 9% senior subordinated notes
denominated in U.S. Dollars, incorporated by reference to
Exhibit 4.7 of the S-4.
4.12 Supplemental Indenture, dated July 29, 1999, between Dura *
Operating Corp., Dura Automotive Systems, Inc., the subsidiary
guarantors and U.S. Bank Trust National Association, as
trustee, relating to the 9% senior subordinated notes
denominated in U.S. dollars, incorporated by reference to
Exhibit 4.1 of the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1999.
4.13 Supplemental Indenture, dated July 29, 1999, between Dura *
Operating Corp., Dura Automotive Systems, Inc., the subsidiary
guarantors and U.S. Bank Trust National Association, as
trustee, relating to the 9% senior subordinated notes
denominated in Euros, incorporated by reference to Exhibit 4.2
of the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1999.
</Table>
89
<Table>
<Caption>
PAGE
EXHIBIT NUMBER
------- ------
4.14 Second Supplemental Indenture, dated June 1, 2001 between Dura *
Operating Corp., Dura Automotive Systems, Inc., the
guaranteeing subsidiary named therein, the original guarantors
named therein and U.S. Bank Trust National Association, as
trustee, relating to the 9% senior subordinated notes,
incorporated by reference to Exhibit 4.3 of the Registration
Statement on Form S-4 (Registration No. 333-65470).
4.15 Supplemental Indenture, dated as of February 21, 2002, by and *
among Dura G.P., Dura Operating Corp., Dura Automotive Systems,
Inc., Dura Automotive Systems Cable Operations, Inc., Universal
Tool & Stamping Company Inc., Adwest Electronics, Inc., Dura
Automotive Systems of Indiana, Inc., Atwood Automotive Inc.,
and Mark I Molded Plastics of Tennessee, Inc., Atwood Mobile
Products, Inc., and U.S. Bank Trust National Association, as
trustee under the indentures relating to the 9% senior
subordinated notes, incorporated by reference to Exhibit 10.4
of the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2002.
4.16 Indenture, dated April 18, 2002, between Dura Operating Corp., *
Dura Automotive Systems, Inc., the subsidiary guarantors named
therein and BNY Midwest Trust Company, as trustee, relating to
the 8 5/8% senior notes due 2012, incorporated by reference to
Exhibit 4.6 of the Registration Statement on Form S-4
(Registration No. 333-88800).
4.17 Supplemental Indenture, dated as of October 22, 2003, among *
Creation Group Holdings, Inc., Creation Group, Inc., Dura G.P.,
Dura Operating Corp., Dura Automotive Systems, Inc., Dura
Automotive Systems Cable Operations, Inc., Universal Tool &
Stamping Company, Inc., Adwest Electronics, Inc., Dura
Automotive Systems of Indiana, Inc., Atwood Automotive Inc.,
and Mark I Molded Plastics of Tennessee, Inc., Atwood Mobile
Products, Inc., and BNY Midwest Trust Company, as trustee,
relating to the 8 5/8% senior notes due 2012.
4.18 Supplemental Indenture, dated as of October 22, 2003 among *
Creation Group Holdings, Inc., Creation Group, Inc., Dura G.P.,
Dura Operating Corp., Dura Automotive Systems, Inc., Dura
Automotive Systems Cable Operations, Inc., Universal Tool &
Stamping Company, Inc., Adwest Electronics, Inc., Dura
Automotive Systems of Indiana, Inc., Atwood Automotive Inc.,
and Mark I Molded Plastics of Tennessee, Inc., Atwood Mobile
Products, Inc., and U.S. Bank Trust National Association, as
trustee, relating to the 9% senior subordinated notes.
10.1** 1996 Key Employee Stock Option Plan, incorporated by reference *
to Exhibit 10.27 of the S-1.
10.2** Independent Director Stock Option Plan, incorporated by *
reference to Exhibit 10.28 of the S-1.
10.3** Employee Stock Discount Purchase Plan, as amended, incorporated *
by reference to Exhibit B to the 2003 Proxy Statement filed
with the SEC on April 29, 2003.
10.4** Stock Option Agreement, dated as of August 31, 1994, between *
Dura Automotive Systems, Inc., and Alkin, incorporated by
reference to Exhibit 10.4 of S-1.
10.5** Dura Automotive Systems, Inc. 2003 Supplemental Executive *
Retirement Plan, incorporated by reference to Exhibit 10.6 to
Form 10-K for the year ended December 31, 2003, filed with the
SEC on March 11, 2004.
10.6** Consulting Agreement, dated as of April 1, 2003, between Dura *
Automotive Systems, Inc. and Karl F. Storrie, incorporated by
reference to Exhibit 10.7 to Form 10-K for the year ended
December 31, 2003, filed with the SEC on March 11, 2004.
10.7** Employment Letter, dated December 23, 2002, relating to the *
offer of employment for Mr. Larry Denton, incorporated by
reference to Exhibit 10.8 to Form 10-K for the year ended
December 31, 2003, filed with the SEC on March 11, 2004.
10.8** Employment Agreement, dated February 16, 2006, between Dura *
Automotive Systems, Inc. and Jr. Jurgen von Heyden,
incorporated by reference to Exhibit 10.1, 10.2 and 10.3 to
Form 8-K filed with the SEC on February 23, 2006.
</Table>
90
<Table>
<Caption>
PAGE
EXHIBIT NUMBER
------- ------
10.9** Severance Agreement, dated as of December 29, 2003 between Dura *
Automotive Systems, Inc. and Robert A. Pickering, incorporated
by reference to Exhibit 10.10 to Form 10-K for the year ended
December 31, 2003, filed with the SEC on March 11, 2004.
10.10** 1998 Stock Incentive Plan, as amended, incorporated by *
reference to Exhibit 10.1 of the Company's 2000 Form 10-Q for
the quarterly period ended June 30, 2004 filed with the SEC on
August 6, 2004.
10.11** Deferred Income Leadership Stock Purchase Plan, incorporated by *
reference to Appendix A of the 2000 Proxy Statement filed with
the SEC on May 25, 2000.
10.12** Director Deferred Stock Purchase Plan, incorporated by *
reference to Appendix B of the 2000 Proxy Statement filed with
the SEC on May 25, 2000.
10.13 Fifth Amended and Restated Credit Agreement, Dated May 3, 2005, *
among DURA Automotive Systems, Inc., as Parent Guarantor, The
Subsidiary Guarantors Party thereto, as Loan Guarantors, DURA
Operating Corp., and DURA Automotive Systems (Canada), Ltd., as
borrowers; and Bank of America, N.A., J.P. Morgan Chase Bank,
N.A., and J.P. Morgan Securities Inc., as lenders, incorporated
by reference to Exhibit 10.1 to Form 10-Q for the quarterly
period ended July 3, 2005, filed with the SEC on August 29,
2005.
10.14 $150,000,000 Credit Agreement dated May 3, 2005 among DURA *
Automotive Systems, Inc., as Parent Guarantor, DURA Operating
Corp., as Borrower, The Subsidiary Guarantors from time to time
parties thereto; and Wilmington Trust Company, Bank of America
Securities, LLC, J.P. Morgan Chase Bank, N.A., as lenders,
incorporated by reference to Exhibit 10.2 to Form 10-Q for the
quarterly period ended July 3, 2005, filed with the SEC on
August 29, 2005.
10.15 Intercreditor agreement dated May 3, 2005, incorporated by *
reference to Exhibit 10.3 to Form 10-Q for the quarterly period
ended July 3, 2005, filed with the SEC on August 29, 2005.
10.16 1998 Stock Incentive Plan, as amended May 25, 2000 and as *
further amended May 19, 2004, incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on From 10-Q for
the quarterly period ended June 30, 2004, filed with the SEC on
August 6, 2004.
10.17 Form of Change of Control Agreement dated as of June 16, 2004, *
incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2004, filed with the SEC on August 6, 2004.
10.18** Deferred Compensation Plan Change of Control Agreement dated as *
of June 16, 2004, incorporated by reference to Exhibit 10.3 to
the Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2004, filed with the SEC on August 6,
2004.
10.19** Plan participants of the Dura Automotive Systems, Inc. 2003 93
Supplemental Executive Retirement Plan as of March 1, 2006.
10.20** Plan participants of the Dura Automotive Systems, Inc. Change 94
of Control Agreements.
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges. 95
21.1 Subsidiaries of Dura Automotive Systems, Inc. 96
23.1 Consent of Deloitte and Touche LLP filed herewith. 99
31.1 Certification Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted 100
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted 101
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted 102
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted 103
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
</Table>
- --------
* Incorporated by reference.
** Indicates compensatory arrangement.
91
SIGNATURES
Pursuant to the requirements of Section 13 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.
By: /s/ LAWRENCE A. DENTON
------------------------------------
Lawrence A. Denton,
Chairman of the Board of Directors,
President and Chief Executive
Officer
Date: March 14, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LAWRENCE A. DENTON Chairman of the Board of Directors, March 14, 2006
- ------------------------------- President and Chief Executive
Lawrence A. Denton Officer (Principal Executive
Officer)
Director March 14, 2006
/s/ WALTER P. CZARNECKI
- -------------------------------
Walter P. Czarnecki
Director March 14, 2006
/s/ JACK K. EDWARDS
- -------------------------------
Jack K. Edwards
Director March 14, 2006
/s/ JAMES O. FUTTERKNECHT JR.
- -------------------------------
James O. Futterknecht, Jr.
Director March 14, 2006
/s/ YOUSIF B. GHAFARI
- -------------------------------
Yousif B. Ghafari
Director March 14, 2006
/s/ J. RICHARD JONES
- -------------------------------
J. Richard Jones
Director March 14, 2006
/s/ NICK G. PREDA
- -------------------------------
Nick G. Preda
Director March 14, 2006
/s/ RALPH R. WHITNEY, JR.
- -------------------------------
Ralph R. Whitney, Jr.
Vice President and Chief Financial March 14, 2006
/s/ KEITH R. MARCHIANDO Officer (Principal Financial and
- ------------------------------- Accounting Officer)
Keith R. Marchiando
</Table>
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