FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 0-21139
DURA AUTOMOTIVE SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 38-3185711
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4508 IDS CENTER 55402
MINNEAPOLIS, MINNESOTA (Zip Code)
(Address of principal executive offices)
(612) 342-2311
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the Registrant's Class A common stock, par
value $.01 per share, at July 31, 1998 was 8,996,417 shares. The number of
shares outstanding of the Registrant's Class B common stock, par value $.01 per
share, at July 31, 1998 was 3,342,380 shares.
ITEM 1 - FINANCIAL INFORMATION
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS - UNAUDITED)
Three Months Ended June 30,
---------------------------
1998 1997
---------- ----------
Revenues $ 187,433 $ 115,350
Cost of sales 155,414 96,111
---------- ----------
Gross profit 32,019 19,239
Selling, general and administrative expenses 11,723 7,579
Amortization expense 2,345 891
---------- ----------
Operating income 17,951 10,769
Interest expense, net 5,870 1,957
---------- ----------
Income before provision for income taxes
and minority interest 12,081 8,812
Provision for income taxes 4,914 3,712
Minority interest 622 -
---------- ----------
Income before extraordinary item 6,545 5,100
Extraordinary item - loss on early
extinguishment of debt, net 3,250 -
---------- ----------
Net income $ 3,295 $ 5,100
---------- ----------
---------- ----------
Basic earnings per share:
Income before extraordinary item $ 0.70 $ 0.58
Extraordinary item (0.35) -
---------- ----------
Net income $ 0.35 $ 0.58
---------- ----------
---------- ----------
Diluted earnings per share:
Income before extraordinary item $ 0.67 $ 0.58
Extraordinary item (0.30) -
---------- ----------
Net income $ 0.37 $ 0.58
---------- ----------
---------- ----------
The accompanying notes are an integral part
of these condensed consolidated statements.
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DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS - UNAUDITED)
Six Months Ended June 30,
---------------------------
1998 1997
---------- ----------
Revenues $ 313,179 $ 222,717
Cost of sales 259,885 186,896
---------- ----------
Gross profit 53,294 35,821
Selling, general and administrative expenses 20,883 15,475
Amortization expense 3,596 1,774
---------- ----------
Operating income 28,815 18,572
Interest expense, net 8,808 3,853
---------- ----------
Income before provision for income taxes
and minority interest 20,007 14,719
Provision for income taxes 8,188 6,075
Minority interest 698 -
---------- ----------
Income before extraordinary item 11,121 8,644
Extraordinary item - loss on early
extinguishment of debt, net 3,250 -
---------- ----------
Net income $ 7,871 $ 8,644
---------- ----------
---------- ----------
Basic earnings per share:
Income before extraordinary item $ 1.23 $0.98
Extraordinary item (0.36) -
---------- ----------
Net income $ 0.87 $0.98
---------- ----------
---------- ----------
Diluted earnings per share:
Income before extraordinary item $ 1.20 $0.98
Extraordinary item (0.33) -
---------- ----------
Net income $ 0.87 $0.98
---------- ----------
---------- ----------
The accompanying notes are an integral part
of these condensed consolidated statements.
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DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
June 30, December 31,
Assets 1998 1997
- ---------------------------------------------- ---------- ------------
(unaudited)
Current assets:
Cash and cash equivalents $ 14,289 $ 4,148
Accounts receivable 147,642 79,032
Inventories 43,869 30,301
Other current assets 32,876 24,800
--------- ---------
Total current assets 238,676 138,281
Property, plant and equipment, net 162,378 101,538
Goodwill, net 376,983 160,063
Deferred income taxes and other assets, net 48,435 19,382
--------- ---------
$ 826,472 $ 419,264
--------- ---------
--------- ---------
Liabilities and Stockholders' Investment
- -------------------------------------------------
Current liabilities:
Current maturities of long-term debt $ 4,816 $ 2,241
Accounts payable 83,355 49,153
Accrued liabilities 84,135 36,583
--------- ---------
Total current liabilities 172,306 87,977
Long-term debt, net of current maturities 282,382 178,081
Other noncurrent liabilities 112,525 51,498
--------- ---------
Mandatorily redeemable convertible trust
preferred securities 55,250 -
Stockholders' investment:
Preferred stock - -
Common stock - Class A 86 42
Common stock - Class B 33 46
Additional paid-in capital 158,621 63,402
Retained earnings 48,899 41,028
Cumulative translation adjustment (3,630) (2,810)
--------- ---------
Total stockholders' investment 204,009 101,708
--------- ---------
$ 826,472 $ 419,264
--------- ---------
--------- ---------
The accompanying notes are an integral part
of these condensed consolidated balance sheets.
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DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS - UNAUDITED)
Six Months Ended June 30,
-------------------------
1998 1997
---------- ---------
OPERATING ACTIVITIES:
Net income $ 7,871 $ 8,644
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities -
Depreciation and amortization 11,135 6,826
Extraordinary loss on extinguishment of debt 3,250 -
Changes in other operating items (27,017) (9,505)
-------- --------
Net cash provided by (used in) operating activities (4,761) 5,965
-------- --------
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (153,458) (21,181)
Capital expenditures, net (10,061) (5,227)
Other, net (221) -
-------- --------
Net cash used in investing activities (163,740) (26,408)
-------- --------
FINANCING ACTIVITIES:
Proceeds from borrowings 185,803 138,225
Repayment of debt (153,844) (108,675)
Proceeds from issuance of common stock
and exercise of stock options 95,006 -
Proceeds from issuance of preferred securities 52,525 -
Other, net 244 220
-------- --------
Net cash provided by financing activities 179,734 29,770
-------- --------
EFFECT OF EXCHANGE RATES ON CASH (1,092) (215)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 10,141 9,112
CASH AND CASH EQUIVALENTS:
Beginning of period 4,148 1,667
-------- --------
End of period $ 14,289 $ 10,779
-------- --------
-------- --------
The accompanying notes are an integral part
of these condensed consolidated statements.
-5-
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying condensed consolidated financial statements have been
prepared by Dura Automotive Systems, Inc. (the "Company"), without
audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. The information furnished in the condensed
consolidated financial statements includes normal recurring
adjustments and reflects all adjustments which are, in the opinion of
management, necessary for a fair presentation of such financial
statements. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations. Although the Company believes that the
disclosures are adequate to make the information presented not
misleading, it is suggested that these condensed consolidated
financial statements be read in conjunction with the audited financial
statements and the notes thereto included in the Company's 1997 Annual
Report to Stockholders.
Revenues and operating results for the three and six months ended June
30, 1998 are not necessarily indicative of the results to be expected
for the full year.
Inventories consisted of the following (in thousands):
Jun. 30, 1998 Dec. 31, 1997
------------- -------------
Raw materials $ 21,467 $ 15,562
Work-in-process 14,414 9,126
Finished goods 7,988 5,613
----------- ---------
$ 43,869 $ 30,301
----------- ---------
----------- ---------
3. On June 17, 1998, the Company completed a public offering of 3,100,000
shares of its Class A common stock at an offering price of $32.75 per
share ("Offering"). Net proceeds to the Company, after underwriting
discounts and offering expenses, were approximately $95.0 million.
Proceeds from the Offering were used to retire outstanding
indebtedness. Certain stockholders of the Company converted 1,308,000
shares of Class B common stock of the Company into Class A stock and
sold such Class A stock concurrent with the Offering. In addition, an
employee of the Company exercised an option to acquire 5,000 shares of
Class A common stock at an exercise price of $14.50 per share, and
sold such Class A shares concurrent with the Offering. On July 1,
1998 the underwriters, pursuant to their over-allotment option,
purchased an additional 400,000 Class A shares resulting in additional
net proceeds of approximately $12.4 million to the Company.
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4. Basic earnings per share were computed by dividing net income by the
weighted average number of Class A and Class B common shares
outstanding during the periods. Diluted earnings per share include
(i) the effects of outstanding stock options using the treasury stock
method and (ii) the conversion of the Preferred Securities from their
date of issuance on March 20, 1998 as follows (in thousands, except
per share data):
Three Months Six Months
Ended June 30, Ended June 30,
----------------------- -----------------------
1998 1997 1998 1997
-------- -------- -------- --------
Net income $ 3,295 $ 5,100 $ 7,871 $ 8,644
Dividends on mandatorily redeemable
convertible preferred securities,
net of tax 622 - 698 -
-------- -------- -------- --------
Net income applicable to common
stockholders - diluted $ 3,917 $ 5,100 $ 8,569 $ 8,644
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average number of Class A
common shares outstanding 4,859 3,842 4,516 3,828
Weighted average number of Class B
common shares outstanding 4,452 4,963 4,553 4,975
Dilutive effect of outstanding stock
options after application of the
treasury stock method 114 58 92 57
Dilutive effect of mandatorily
redeemable convertible preferred
securities, assuming conversion 1,289 - 723 -
-------- -------- -------- --------
Diluted shares outstanding 10,714 8,863 9,884 8,860
-------- -------- -------- --------
-------- -------- -------- --------
Basic earnings per share $ 0.35 $ 0.58 $0.87 $ 0.98
-------- -------- -------- --------
-------- -------- -------- --------
Diluted earnings per share $ 0.37 $ 0.58 $0.87 $ 0.98
-------- -------- -------- --------
-------- -------- -------- --------
5. In May 1997, the Company acquired the automotive parking brake
business from Excel Industries, Inc. for approximately $2.9 million.
The acquisition increased the Company's penetration of the parking
brake market and expanded the Company's relationship with Chrysler.
The pro forma effects of this transaction are not material to the
Company's results of operations for the six months ended June 30,
1997.
In August 1997, the Company acquired GT Automotive Systems, Inc. ("GT
Automotive"), for approximately $45.0 million in cash and assumed
indebtedness, plus contingent payments. GT Automotive designs and
manufactures column-mounted shifter systems and turn signal and tilt
lever assemblies for North American OEMs. The acquisition of GT
Automotive, combined with the Company's existing position in
console-based shifter systems, increased the Company's share of the
North American shifter market. In addition, the acquisition added
Nissan as a customer.
-7-
In December 1997, the Company purchased approximately 19% of the
outstanding common stock of Thixotech Inc. ("Thixotech") for
approximately $0.5 million. The Company also loaned Thixotech an
additional $2.8 million pursuant to notes which are convertible into
additional common stock of Thixotech at the Company's option. If
exercised, the Company could own a majority of Thixotech. Thixotech
is currently pursuing the development of an alternative manufacturing
technology for component parts.
In December 1997, the Company acquired REOM Industries (Aust) Pty Ltd.
("REOM"), an Australian designer and manufacturer of jacks and parking
brakes, for approximately $3.7 million. The acquisition added market
penetration in parking brakes, added a new product (jacks) and
established a presence in the Pacific Rim. The pro forma effects of
this transaction are not material to the Company's results of
operations for the six month period ended June 30, 1997.
In March 1998, the Company acquired Universal Tool & Stamping Co.,
Inc. ("Universal"), a manufacturer of jacks for the North American
automotive industry, for approximately $18.0 million. The acquisition
provided the Company with a market presence for jacks in North America
and added Honda as a significant new customer.
In April 1998, the Company acquired all of the outstanding equity
interests of Trident Automotive plc ("Trident"). Trident had revenues
of approximately $300 million in 1997, of which 69 percent was derived
from sales of cable assemblies, principally to the automotive OEM
market, and the balance from door handle assemblies, lighting and
other products. Approximately 68 percent of Trident's revenues were
generated in North America, 27 percent in Europe and the remainder in
Latin America. Trident's operations are headquartered in Michigan
with manufacturing and technical facilities in Michigan, Tennessee,
Arkansas, Canada, the United Kingdom, Germany, France and Brazil.
Pursuant to the terms of the agreement, the Company acquired all of
the outstanding equity interests of Trident for total consideration of
$87.5 million in cash. In addition, the Company assumed $75 million
of Trident's outstanding 10% Senior Subordinated Notes due 2005. The
Company also repaid Trident's outstanding senior indebtedness of
approximately $53 million. The acquisition of Trident was financed
with borrowings under a new credit facility which is further described
in Note 6.
The acquisitions of GT Automotive, REOM, Universal and Trident have
been accounted for using the purchase method of accounting and,
accordingly, the assets acquired and liabilities assumed have been
recorded at fair value as of the dates of acquisition, with the excess
purchase price recorded as goodwill. The assets and liabilities have
been recorded based upon preliminary estimates of fair value. The
Company is further evaluating the fair value of certain assets
acquired and liabilities assumed. As a result, the final evaluation
will likely result in adjustments to the preliminary allocations which
may result in changes to goodwill.
-8-
The accompanying unaudited pro forma condensed results of operations
for the six months ended June 30, 1998 give effect to the acquisitions
of Universal and Trident, the Offering and the offering of the
Convertible Trust Preferred Securities, which is further described in
Note 7, as if such transactions had occurred at the beginning of the
period and exclude the effects of the extraordinary loss. The
following unaudited pro forma results of operations for the six months
ended June 30, 1997 give effect to the transactions described above
and the acquisition of GT Automotive as if such transactions had been
completed at the beginning of the period. The 1998 results of
operations of Trident for the period prior to its acquisition date,
which are included in the unaudited pro forma financial information,
reflect pretax charges of approximately $3.6 million relating to the
recognition of obligations to certain Trident customers. The
unaudited pro forma information does not purport to represent what the
Company's results of operations would actually have been if such
transactions in fact had occurred at such date or to project the
Company' results of future operations (in thousands, except per share
data):
Six Months Ended June 30,
--------------------------
1998 1997
---------- ----------
Revenues $ 425,570 $ 435,127
---------- ----------
---------- ----------
Operating income 31,446 $ 35,218
---------- ----------
---------- ----------
Net income $ 11,585 $ 14,952
---------- ----------
---------- ----------
Basic earnings per share $ 0.92 $ 1.22
---------- ----------
---------- ----------
Basic shares outstanding 12,264 12,303
---------- ----------
---------- ----------
Diluted earnings per share $ 0.92 $ 1.19
---------- ----------
---------- ----------
Diluted shares outstanding 13,658 13,649
---------- ----------
---------- ----------
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6. Long-term debt consisted of the following (in thousands):
June 30, December 31,
1998 1997
--------- -----------
Bank Credit Agreement:
Term loans $ 96,384 $ -
Revolving credit facilities 106,182 -
Trident 10% senior subordinated
notes, due 2005 75,000 -
Old Bank Credit Agreement - 165,158
Other 9,632 15,164
---------- ----------
287,198 180,322
Less-current maturities (4,816) (2,241)
---------- ----------
Total long-term debt $ 282,382 $ 178,081
---------- ----------
---------- ----------
On April 30, 1998 in connection with the acquisition of Trident, the
Company entered into a new $402.5 million credit agreement ("Credit
Agreement"). The Credit Agreement provided for revolving credit
facilities of $225 million, term loans of $100 million, an acquisition
facility of $30 million and a twelve month interim loan of $47.5
million. Proceeds from the Offering were partially used to retire the
interim loan and $3.6 million of the term loans. The Credit Agreement
has a term of five years and borrowings bear interest at the lenders
reference rate or the Eurocurrency rate. The interest rate on
borrowings outstanding under the Credit Agreement ranged from 6.875%
to 8.625% as of June 30, 1998. The Credit Agreement contains various
restrictive covenants which limit indebtedness, investments, rental
obligations and cash dividends. The Credit Agreement also requires
the Company to maintain certain financial ratios including minimum
liquidity and interest coverage. The Company was in compliance with
the covenants as of June 30, 1998. Borrowings under the Credit
Agreement are collateralized by the assets of the Company.
The Credit Agreement provides the Company with the ability to
denominate a portion of its revolving credit borrowings in foreign
currencies up to an amount equal to $100.0 million. As of June 30,
1998, $93.5 million of borrowings were denominated in US dollars, $5.5
million of borrowings were denominated in Canadian dollars, $2.0
million of borrowings were denominated in Australian dollars, $3.9
million of borrowings were denominated in Deutsche Marks, and $1.3
million in British pound sterling.
In connection with the termination of the Company's former credit
facility and the retirement of Trident's pre-acquisition credit
facility, the Company wrote-off deferred financing costs of
approximately $3.3 million, net of income taxes. This charge is
reflected as an extraordinary item in the accompanying statement of
operations.
-10-
In December 1997, Trident issued $75 million aggregate principal
amount senior subordinated notes. The notes bear interest at 10%,
payable semiannually, and are due in December 2005.
7. On March 20, 1998, Dura Automotive Systems Capital Trust (the
"Issuer"), a wholly owned statutory business trust of the Company,
completed the offering of $55.3 million of its 7 1/2% Convertible
Trust Preferred Securities ("Preferred Securities"), resulting in
net proceeds to the Company of approximately $52.6 million. The
Preferred Securities are redeemable, in whole or part, on or after
March 31, 2001 and all Preferred Securities must be redeemed no later
than March 31, 2028. The Preferred Securities are convertible, at
the option of the holder into Class A common stock of the Company 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 7/8 per
share. The net proceeds of the offering were used to repay
outstanding indebtedness. Dividends on the Preferred Securities,
net of the related income tax benefit, are reflected as minority
interest in the accompanying condensed consolidated statements of
operations.
No separate financial statements of the Issuer have been included
herein. The Company does 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 the Company, 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 1/2% Convertible Subordinated Debentures due March 31,
2028 issued by the Company and (iii) the obligations of the Issuer
under the Preferred Securities are fully and unconditionally
guaranteed by the Company.
8. Effective January 1, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." This statement 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. For the Company,
comprehensive income represents net income adjusted for foreign
currency translation adjustments. Comprehensive income was
approximately $3.3 million and $4.0 million for the three months ended
June 30, 1998 and 1997, respectively and approximately $7.4 million
for each of the six month periods ended June 30, 1998 and 1997.
9. During February 1998, the Financial Accounting Standards Board (the
"FASB") issued SFAS No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits," effective for fiscal years
beginning after December 31, 1997. SFAS No. 132 revises certain of
the disclosure requirements, but does not change the measurement or
recognition of those plans. SFAS No. 132 superceded SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions." The adoption of SFAS No. 132 will result in revised and
additional disclosures, but will have no effect on the financial
position, results of operations, or liquidity of the Company.
In June 1998 the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" effective for years beginning
after June 15, 1999. SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument,
-11-
including certain derivative instruments embedded in other contracts,
be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless
specific hedge criteria are met. Special accounting for qualifying
hedges allow a derivative's gains or losses to offset related results
on the hedged item in the income statement and requires that a company
must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. The Company has not yet
quantified the impacts of adopting SFAS No. 133 and has not yet
determined the timing or method of adoption.
10. Supplemental cash flow information (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1998 1997 1998 1997
-------- -------- -------- --------
Cash paid for -
Interest $ 6,393 $ 2,248 $ 9,452 $ 3,521
Income taxes 4,996 2,019 7,406 2,294
-12-
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1998 TO THE THREE MONTHS ENDED
JUNE 30, 1997
REVENUES -- Revenues for the three months ended June 30, 1998 increased by
$72.0 million, or 62%, to $187.4 million from $115.4 million for the three
months ended June 30, 1997. The increase in revenues is primarily the result of
the acquisitions of GT Automotive in August 1997, REOM in December 1997
Universal in March 1998 and Trident in April 1998. The increases were partially
offset by the effects of a strike at General Motors ("GM"). The Company
estimates the strike at GM decreased revenues by approximately $7 million.
COST OF SALES -- Cost of sales for the three months ended June 30, 1998
increased by $59.3 million, or 62%, to $155.4 million from $96.1 million for the
three months ended June 30, 1997. Cost of sales as a percentage of revenues for
the three months ended June 30, 1998 was 82.9% compared to 83.3% for the three
months ended June 30, 1997. The improvement in gross margins is primarily the
result of improved productivity at the Company's floor shifter operations offset
by the effects of the strike at GM.
S, G & A EXPENSES -- Selling, general and administrative expenses were $11.7
million for the three months ended June 30, 1998 compared to $7.6 million for
the three months ended June 30, 1997. The increase was due to increased support
for worldwide engineering and marketing efforts and the acquisitions of GT
Automotive and Trident. These increases were partially offset by consolidation
savings realized at KPI, VOFA and GT Automotive. As a percentage of revenues,
selling, general and administrative expenses were 6.3% for the three months
ended June 30, 1998 compared to 6.5% for the three months ended June 30, 1997.
INTEREST EXPENSE -- Interest expense for the three months ended June 30, 1998
was $5.9 million compared to $2.0 million for the three months ended June 30,
1997. The increase was due principally to borrowings incurred related to the
acquisitions of GT Automotive, Universal and Trident.
INCOME TAXES -- The effective income tax rate was 40.7% for the three months
ended June 30, 1998 and 42.1% for the three months ended June 30, 1997. The
effective rates differed from the statutory rates as a result of higher foreign
tax rates and the effects of state taxes and non-deductible goodwill
amortization.
MINORITY INTEREST -- Minority interest for the three months ended June 30,
1998 represent dividends, net of income tax benefits, on the Preferred
Securities which were issued on March 20, 1998.
EXTRAORDINARY ITEM -- The extraordinary loss for the three months ended June
30, 1998 represents the write-off, net of income taxes, of deferred financing
costs related to the Company's former credit facility and outstanding
indebtedness at Trident on the date of its acquisition.
-13-
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 TO THE SIX MONTHS ENDED
JUNE 30, 1997
REVENUES -- Revenues for the six months ended June 30, 1998 increased by $90.5
million, or 41%, to $313.2 million from $222.7 million for the six months ended
June 30, 1997. The increase in revenues is primarily the result of the
acquisitions of GT Automotive in August 1997, REOM in December 1997, Universal
in March 1998 and Trident in April 1998. The increase was partially offset by
the strike at GM.
COST OF SALES -- Cost of sales for the six months ended June 30, 1998
increased by $73.0 million, or 39%, to $259.9 million from $186.9 million for
the six months ended June 30, 1997. Cost of sales as a percentage of revenues
for the six months ended June 30, 1998 was 83.0% compared to 83.9% for the six
months ended June 30, 1997. The improvement in gross margins is primarily the
result of improved productivity at the Company's floor shifter operations, which
was acquired in December 1996.
S, G & A EXPENSES -- Selling, general and administrative expenses were $20.9
million for the six months ended June 30, 1998 compared to $15.5 million for the
six months ended June 30, 1997. The increase was due to increased support for
worldwide engineering and marketing efforts and the acquisitions of GT
Automotive and Trident. These increases were partially offset by consolidation
savings realized at KPI, VOFA and GT Automotive. As a percentage of revenues,
selling, general and administrative expenses were 6.7% for the six months ended
June 30, 1998 compared to 7.0% for the six months ended June 30, 1997.
INTEREST EXPENSE -- Interest expense for the six months ended June 30, 1998
was $8.8 million compared to $3.9 for the six months ended June 30, 1997. The
increase was due principally to borrowings incurred related to the acquisitions
of GT Automotive, Universal and Trident.
INCOME TAXES -- The effective income tax rate was 40.9% for the six months
ended June 30, 1998 and 41.3% for the six months ended June 30, 1997. The
effective rates differed from the statutory rates as a result of higher foreign
tax rates and the effects of state taxes and non-deductible goodwill
amortization.
MINORITY INTEREST -- Minority interest for the six months ended June 30, 1998
represent dividends, net of income tax benefits, on the Preferred Securities
which were issued on March 20, 1998.
EXTRAORDINARY ITEM -- The extraordinary loss for the six months ended June 30,
1998 represents the write-off, net of income taxes, of deferred financing costs
related to the Company's former credit facility and outstanding indebtedness at
Trident on the date of its acquisition.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998 the Company's bank credit agreement consisted of a $351
million secured credit facility. The facility provides for revolving credit
facilities of $225 million, term loans of $96 million and an acquisition
facility of $30 million. The facilities have terms of five years and bear
interest at the lender's reference rate or Eurocurrency rate. The credit
facilities contain various restrictive covenants which limit additional
indebtedness, investments, rental obligations and cash dividends. The credit
facilities also require the Company to maintain certain financial
-14-
ratios including minimum liquidity and interest coverage. Borrowings are
collateralized by the assets of the Company.
In May 1997, the Company acquired the automotive parking brake business from
Excel Industries, Inc. for approximately $2.9 million. The acquisition
increased the Company's penetration of the parking brake market and expanded the
Company's relationship with Chrysler.
In August 1997, the Company acquired GT Automotive for approximately $45.0
million in cash and assumed indebtedness, plus contingent payments. GT
Automotive designs and manufactures column-mounted shifter systems and turn
signal and tilt lever assemblies for North American OEMs. The acquisition of GT
Automotive, combined with the Company's existing position in console-based
shifter systems, increased the Company's share of the North American shifter
market. In addition, the acquisition added Nissan as a customer.
In December 1997, the Company purchased approximately 19% of the outstanding
common stock of Thixotech for approximately $0.5 million. The Company also
loaned Thixotech an additional $2.8 million pursuant to notes which are
convertible into additional common stock of Thixotech at the Company's option.
If exercised, the Company could own a majority of Thixotech. Thixotech is
currently pursuing the development of an alternative manufacturing technology
for component parts.
In December 1997, the Company acquired REOM, an Australian designer and
manufacturer of jacks and parking brakes, for approximately $3.7 million. The
acquisition added market penetration in parking brakes, added a new product
(jacks) and established a presence in the Pacific Rim.
In March 1998, the Company acquired Universal, a manufacturer of jacks for the
North American automotive industry, for approximately $18.0 million. The
acquisition provided the Company with a market presence for jacks in North
America and added Honda as a significant new customer.
On March 20, 1998, Dura Automotive Systems Capital Trust (the "Issuer"), a
wholly owned statutory business trust of the Company, completed the offering
of $55.3 million of its 7 1/2% Convertible Trust Preferred Securities
("Preferred Securities"), resulting in net proceeds of approximately $52.6
million. The Preferred Securities are redeemable, in whole or part, on or
after March 31, 2001 and all Preferred Securities must be redeemed no later
than March 31, 2028. The Preferred Securities are convertible, at the option
of the holder into Class A common stock of the Company 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 7/8 per share. The net proceeds of
the offering were used to repay outstanding indebtedness during April 1998.
In April 1998, the Company completed its acquisition of Trident. Trident had
revenues of approximately $300 million in 1997, of which 69 percent was derived
from sales of cable assemblies, principally to the automotive OEM market, and
the balance from door handle assemblies, lighting and other products.
Approximately 68 percent of Trident's revenues were generated in North America,
27 percent in Europe and the remainder in Latin America. Trident's operations
are headquartered in Michigan with manufacturing and technical facilities in
Michigan, Tennessee, Arkansas, Canada, the United Kingdom, Germany, France and
Brazil. Trident is a wholly owned indirect subsidiary of the Company. Pursuant
to the terms of the
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agreement, the Company acquired all of the outstanding equity interests of
Trident for total consideration of $87.5 million in cash. In addition, the
Company assumed $75 million of Trident's outstanding 10% Senior Subordinated
Notes due 2005. The Company also repaid Trident's outstanding senior
indebtedness of approximately $53 million.
On June 17, 1998, the Company completed a public offering of 3,100,000 shares
of its Class A common stock at an offering price of $32.75 per share
("Offering"). Net proceeds to the Company, after underwriting discounts and
offering expenses, were approximately $95 million and were used to retire
outstanding indebtedness. Certain stockholders of the Company converted
1,308,000 shares of Class B common stock of the Company into Class A stock
and sold such Class A stock concurrent with the Offering. In addition, an
employee of the Company exercised an option to acquire 5,000 shares of Class
A common stock at an exercise price of $14.50 per share, and sold such Class
A shares concurrent with the Offering. On July 1, 1998 the underwriters,
pursuant to their over allotment option, purchased an additional 400,000
Class A shares from the Company resulting in net proceeds of approximately
$12.4 million to the Company.
The Company believes borrowings under its new credit facility, together with
funds generated by the Company's operations, will provide sufficient liquidity
and capital resources for working capital, capital expenditures and other needs
through 1998.
The Company's principal source of funds has been, and is anticipated to be, its
cash flows from operations. During the six months ended June 30, 1998, the
Company generated cash from operations of $22.3 million, before the effects of
changes in working capital, compared to $15.5 million in 1997. The Company
estimates that it will fund approximately $19.0 million in capital expenditures
for the remainder of 1998. These capital expenditures will be used primarily
for the purchase of machinery and equipment to support new business awards, as
well as to support continued cost reduction efforts.
EFFECTS OF INFLATION
Inflation potentially affects the Company in two principal ways. First, a
portion of the Company's debt is tied to prevailing short-term interest rates
which may change as a result of inflation rates, translating into changes in
interest expense. Second, general inflation can impact material purchases,
labor and other costs. In many cases, the Company has limited ability to pass
through inflation-related cost increases due to the competitive nature of the
markets that the Company serves. In the past few years, however, inflation has
not been a significant factor for the Company.
FOREIGN CURRENCY TRANSACTIONS
A significant portion of the Company's revenues are derived from manufacturing
operations in Europe, Latin America and Canada. The results of operations and
the financial position of the Company's operations in these countries are
principally measured in their respective currency and translated into U.S.
dollars. The effects of foreign currency fluctuations in such countries are
somewhat mitigated by the fact that expenses are generally incurred in the same
currencies in which revenues are generated. The reported income of these
subsidiaries will be higher or lower depending on a weakening or strengthening
of the U.S. dollar against the respective foreign currency.
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A significant portion of the Company's assets are also based in its foreign
operations and are translated into U.S. dollars at foreign currency exchange
rates in effect as of the end of each period, with the effect of such
translation reflected as a separate component of stockholders' investment.
Accordingly, the Company's consolidated stockholders' investment will fluctuate
depending upon the weakening or strengthening of the U.S. dollar against the
respective foreign currency.
The Company's strategy for management of currency risk relies primarily upon
conducting its operations in such countries' respective currency and the Company
may, from time to time, engage in hedging programs intended to reduce its
exposure to currency fluctuations.
YEAR 2000
The Company is in the process of replacing and upgrading its computer systems,
which, among other things, will accommodate the year 2000 issues. The Company
currently expects its computer systems to be fully operational prior to the year
2000 so as not to adversely affect its operations. During 1998 and 1999, the
Company expects to incur costs of approximately $1.5 million and $2.5 million,
respectively, to make these replacements and upgrades. Failure of the Company
to make required modifications on a timely basis or the inability of other
companies with which the Company does business to complete their year 2000
modifications on a timely basis, could adversely affect the Company's
operations.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During June 1997, the Financial Accounting Standards Board released SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
effective for fiscal years beginning after December 14, 1997. SFAS No. 131
requires disclosure of business and geographic segments in the consolidated
financial statements of the Company. The Company will adopt SFAS No. 131 in
1998 and is currently analyzing the impact it will have on the disclosures in
its financial statements.
During February 1998, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," effective for fiscal years beginning after December
31, 1997. SFAS No. 132 revises certain of the disclosure requirements, but does
not change the measurement or recognition of those plans. SFAS No. 132
superceded SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." The adoption of SFAS No. 132 will result in revised and
additional disclosures, but will have no effect on the financial position,
results of operations, or liquidity of the Company.
In June 1998 the FASB issued SFAS No. 133 "Accounting for Derivative Instruments
and Hedging Activities" effective for years beginning after June 15, 1999. SFAS
No. 133 establishes accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments embedded in
other contracts be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
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derivative's fair value be recognized currently in earnings unless specific
hedge criteria are met. Special accounting for qualifying hedges allow a
derivative's gains or losses to offset related results on the hedged item in the
income statement and requires that a company must formally document, designate
and assess the effectiveness of transactions that receive hedge accounting. The
Company has not yet quantified the impacts of adopting SFAS No. 133 and has not
yet determined the timing or method of adoption.
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PART II. OTHER INFORMATION
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings:
Other than as reported in the Company's 1997 Annual Report on Form 10-K
under the caption "Legal Proceedings," the Company is not currently a party
to any material pending legal proceedings, other than routine matters
incidental to the business of the Company.
Item 2. Change in Securities:
None
Item 3. Defaults Upon Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders:
The registrant held its Annual Meeting of Stockholders on May 21, 1998.
Proxies for the meeting were solicited pursuant to Regulation 14. There
was no solicitation in opposition to management's nominees as listed in the
Proxy statement, and all such nominees (Robert E. Brooker, Jr., W.H.
Clement, Jack K. Edwards, Robert R. Hibbs, S.A. Johnson, John C. Jorgensen,
James L. O'Loughlin, Robert J. Orscheln, William J. Orscheln, Eric J. Rosen
and Karl F. Storrie) were elected. Of the 49,465,445 votes, at least
49,457,793 votes granted authority to vote for these directors and no more
than 7,602 abstaining votes were cast.
The retention of Arthur Andersen LLP as auditors was approved by the
stockholders. A total of 49,463,460 affirmative votes, 398 negative votes
and 1,587 abstaining votes were cast.
Item 5. Other Information:
None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
On May 13, 1998, the Company filed a Form 8-K relating to the April
30, 1998 acquisition of Trident Automotive plc.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DURA AUTOMOTIVE SYSTEMS, INC.
Date: August 14, 1998 By /s/ Stephen E.K. Graham
--------------------------
Stephen E.K. Graham
Vice President, Chief Financial Officer
(principal accounting and financial
officer)
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