FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 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
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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 55042
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
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The number of shares outstanding of the Registrant's Class A common stock, par
value $.01 per share, at October 30, 1998 was 9,013,755 shares. The number of
shares outstanding of the Registrant's Class B common stock, par value $.01
per share, at October 30, 1998 was 3,329,303 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
SEPTEMBER 30,
----------------------
1998 1997
-------- --------
Revenues $185,204 $101,862
Cost of sales 153,345 86,413
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Gross profit 31,859 15,449
Selling, general and administrative expenses 13,103 7,497
Amortization expense 3,128 1,032
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Operating income 15,628 6,920
Interest expense, net 5,377 2,299
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Income before provision for income taxes
and minority interest 10,251 4,621
Provision for income taxes 4,403 1,964
Minority interest - dividends on trust
preferred securities, net 599 --
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Net income $ 5,249 $ 2,657
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-------- --------
Basic earnings per share $ 0.43 $ 0.30
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-------- --------
Diluted earnings per share $ 0.43 $ 0.30
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-------- --------
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)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1998 1997
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Revenues $498,383 $324,579
Cost of sales 413,230 273,309
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Gross profit 85,153 51,270
Selling, general and administrative expenses 33,986 22,972
Amortization expense 6,724 2,806
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Operating income 44,443 25,492
Interest expense, net 14,185 6,152
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Income before provision for income taxes
and minority interest 30,258 19,340
Provision for income taxes 12,591 8,039
Minority interest - dividends on trust
preferred securities, net 1,297 --
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Income before extraordinary item 16,370 11,301
Extraordinary item - loss on early
extinguishment of debt, net 3,250 --
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Net income $ 13,120 $ 11,301
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-------- --------
Basic earnings per share:
Income before extraordinary item $ 1.61 $ 1.28
Extraordinary item 0.32 --
-------- --------
Net income $ 1.29 $ 1.28
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-------- --------
Diluted earnings per share:
Income before extraordinary item $ 1.58 $ 1.27
Extraordinary item 0.29 --
-------- --------
Net income $ 1.29 $ 1.27
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-------- --------
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)
SEPTEMBER 30, DECEMBER 31,
ASSETS 1998 1997
------ ------------- ------------
(UNAUDITED)
Current assets:
Cash and cash equivalents $ 13,014 $ 4,148
Accounts receivable, net 163,270 79,032
Inventories 54,083 30,301
Other current assets 43,401 24,800
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Total current assets 273,768 138,281
Property, plant and equipment, net 180,776 101,538
Goodwill and other assets, net 396,886 160,063
Other assets, net 49,026 19,382
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$900,456 $419,264
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LIABILITIES AND STOCKHOLDERS' INVESTMENT
----------------------------------------
Current liabilities:
Current maturities of long-term debt $ 7,906 $ 2,241
Accounts payable 91,285 49,153
Accrued liabilities 106,351 36,583
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Total current liabilities 205,542 87,977
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Long-term debt, net of current maturities 238,771 178,081
Senior subordinated notes 75,000 --
Other noncurrent liabilities 99,221 51,498
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Total noncurrent liabilities 412,992 229,579
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Mandatorily redeemable convertible trust preferred
securities 55,250 --
Stockholders' investment:
Preferred stock -- --
Common stock - Class A 90 42
Common stock - Class B 33 46
Additional paid-in capital 171,252 63,402
Retained earnings 54,148 41,028
Cumulative translation adjustment 1,149 (2,810)
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Total stockholders' investment 226,672 101,708
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$900,456 $419,264
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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)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1998 1997
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OPERATING ACTIVITIES:
Net income $ 13,120 $ 11,301
Adjustments to reconcile net income to
net cash provided by (used in) operating activities -
Depreciation and amortization 19,357 9,170
Extraordinary loss on extinguishment of debt 3,250 --
Changes in other operating items (46,261) (24,379)
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Net cash used in operating activities (10,534) (3,908)
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INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (190,779) (64,273)
Capital expenditures, net (16,426) (6,157)
Other, net (167) --
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Net cash used in investing activities (207,372) (70,430)
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FINANCING ACTIVITIES:
Proceeds from borrowing 242,188 234,770
Repayments of debt (177,161) (156,831)
Proceeds from issuance of common stock
and exercise of stock options 107,441 --
Proceeds from issuance of preferred securities 52,525 --
Other, net 444 343
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Net cash provided by financing activities 225,437 78,282
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EFFECT OF EXCHANGE RATES ON CASH 1,335 (191)
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NET INCREASE IN CASH AND CASH EQUIVALENTS 8,866 3,753
CASH AND CASH EQUIVALENTS:
Beginning of period 4,148 1,667
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End of period $ 13,014 $ 5,420
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--------- --------
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.
Revenues and operating results for the three and nine months ended
September 30, 1998 are not necessarily indicative of the results to be
expected for the full year.
2. Inventories consisted of the following (in thousands):
SEPT. 30, 1998 DEC. 31, 1997
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Raw materials $21,844 $15,562
Work-in-process 17,213 9,126
Finished goods 15,026 5,613
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Total inventories $54,083 $30,301
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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.
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):
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THREE MONTHS NINE MONTHS
ENDED SEPT. 30, ENDED SEPT. 30,
---------------------- ---------------------
1998 1997 1998 1997
------- ------- ------- -------
Net income $ 5,249 $ 2,657 $13,120 $11,301
Dividends on mandatorily redeemable
convertible preferred securities, net of tax 599 -- 1,297 --
------- ------- ------- -------
Net income applicable to common
stockholders - diluted $ 5,848 $ 2,657 $14,417 $11,301
------- ------- ------- -------
------- ------- ------- -------
Weighted average number of Class A
common shares outstanding 9,000 3,869 6,011 3,842
Weighted average number of Class B
common shares outstanding 3,342 4,940 4,149 4,963
Dilutive effect of outstanding stock options
after application of the treasury stock
method 76 65 86 59
Dilutive effect of mandatorily redeemable
convertible preferred securities, assuming
conversion 1,289 -- 912 --
------- ------- ------- -------
Diluted shares outstanding 13,707 8,874 11,158 8,864
------- ------- ------- -------
------- ------- ------- -------
Basic earnings per share $ 0.43 $ 0.30 $ 1.29 $ 1.28
------- ------- ------- -------
------- ------- ------- -------
Diluted earnings per share $ 0.43 $ 0.30 $ 1.29 $ 1.27
------- ------- ------- -------
------- ------- ------- -------
5. In January 1997, the Company acquired all of the outstanding common stock
of the VOFA Group ("VOFA") for approximately $38.0 million in cash and
assumed indebtedness, plus contingent payments. VOFA designs and
manufactures shifter cables and other light duty cables for the European
automotive and industrial markets from facilities in Dusseldorf, Gehren and
Daun, Germany and Barcelona, Spain.
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
nine months ended September 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 nine month period
ended September 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 $75.0 million of
Trident's outstanding 10% Senior Subordinated Notes due 2005. The Company
also repaid Trident's outstanding senior indebtedness of approximately $53.0
million. The acquisition of Trident was financed with borrowings under a new
credit facility which is further described in Note 6.
In August 1998, the Company acquired the hinge business ("Hinge") of Tower
Automotive, Inc. for approximately $37.0 million. Hinge, which has annual
revenues of approximately $50.0 million, manufactures automotive hood and
deck lid hinges.
The acquisitions of GT Automotive, REOM, Universal, Trident and Hinge 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.
The accompanying unaudited pro forma condensed results of operations for the
nine months ended September 30, 1998 give effect to the acquisitions of
Universal, Trident and Hinge,
-8-
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 nine
months ended September 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):
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1998 1997
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Revenues $645,765 $659,015
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Operating income $ 49,102 $ 48,108
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Net income $ 17,390 $ 18,396
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Basic earnings per share $ 1.41 $ 1.50
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Basic shares outstanding 12,299 12,305
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Diluted earnings per share $ 1.41 $ 1.48
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Diluted shares outstanding 13,674 13,653
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6. Long-term debt consisted of the following (in thousands):
SEPTEMBER 30, DECEMBER 31,
1998 1997
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Bank Credit Agreement:
Term loans $ 96,577 $ --
Revolving credit facilities 140,449 --
Trident 10% senior subordinated
notes, due 2005 75,000 --
Old Bank Credit Agreement -- 165,158
Other 9,651 15,164
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321,677 180,322
Less-current maturities (7,906) (2,241)
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Total long-term debt $313,771 $178,081
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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 $225.0 million,
term loans of $100.0 million, an acquisition facility of $30.0 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 4.6% to 8.5% as
of September 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 September 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 September 30, 1998, $126.5 million of
borrowings were denominated in US dollars, $5.3 million of borrowings were
denominated in Canadian dollars, $2.1 million of borrowings were denominated
in Australian dollars, $4.2 million of borrowings were denominated in
Deutsche Marks, and $2.4 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
$8.0 million and $2.5 million for the three months ended September 30, 1998
and 1997, respectively and approximately $15.4 million and $9.9 million for
the nine months period ended September 30, 1998 and 1997, respectively.
The Financial Accounting Standards Board ("FASB") has issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
effective for fiscal years beginning after December 15, 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.
The FASB has also 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
-11-
plans. 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 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.
9. Supplemental cash flow information (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1998 1997 1998 1997
------ ------ ------- ------
Cash paid for -
Interest $6,407 $2,031 $15,859 $5,552
Income taxes 2,398 1,680 9,804 3,974
-12-
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1998 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1997
REVENUES -- Revenues for the three months ended September 30, 1998 increased
by $83.3 million, or 82%, to $185.2 million from $101.9 million for the three
months ended September 30, 1997. The increase in revenues relates primarily
to the acquisitions of GT Automotive in August 1997, REOM in December 1997,
Universal in March 1998, Trident in April 1998 and Hinge in August 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 $11.3 million for the three months ended September 30, 1998.
COST OF SALES -- Cost of sales for the three months ended September 30, 1998
increased by $66.9 million, or 77%, to $153.3 million from $86.4 million for
the three months ended September 30, 1997. Cost of sales as a percentage of
revenues for the three months ended September 30, 1998 was 83% compared to
85% for the three months ended September 30, 1997. The improvement in gross
margins is primarily the result of lower costs of purchased materials and
higher margins from efficiency improvements in acquired operations.
S, G & A EXPENSES -- Selling, general and administrative expenses for the
three months ended September 30, 1998 increased by $5.6 million to $13.1
million from $7.5 million for the three months ended September 30, 1997. The
increase was due to increased support for worldwide engineering and marketing
efforts and the acquisition of Trident partially offset by consolidation
savings realized at GT Automotive. As a percentage of revenues, selling,
general and administrative expenses were 7% for both three month periods
ended September 30, 1998 and 1997.
AMORTIZATION EXPENSE -- Amortization expense increased from $1.0 million for
the three months ended September 30, 1997 to $3.1 million for the three
months ended September 30, 1998. The increase is the result of goodwill
amortization resulting from the acquisitions of GT Automotive, REOM,
Universal, Trident and Hinge.
INTEREST EXPENSE -- Interest expense for the three months ended September 30,
1998 was $5.4 million compared to $2.3 for the three months ended September
30, 1997. The increase was due principally to borrowings incurred related to
the acquisitions of GT Automotive, Trident and Hinge.
INCOME TAXES -- The effective income tax rate was 43% for the three months
ended September 30, 1998 and 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 September
30, 1998 represents dividends, net of income tax benefits, on the Preferred
Securities which were issued March 20, 1998.
-13-
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1997
REVENUES -- Revenues for the nine months ended September 30, 1998 increased
by $173.8 million, or 54%, to $498.4 million from $324.6 million for the nine
months ended September 30, 1997. The increase in revenues relates primarily
to the acquisitions of GT Automotive, Universal, Trident and Hinge. These
increases were partially offset by the effects of a strike at GM. The
Company estimates the strike at GM decreased revenues by approximately $16.7
million for the nine months ended September 30, 1998.
COST OF SALES -- Cost of sales for the nine months ended September 30, 1998
increased by $139.9 million, or 51%, to $413.2 million from $273.3 million
for the nine months ended September 30, 1997. Cost of sales as a percentage
of revenues for the nine months ended September 30, 1998 was 83% compared to
84% for the nine months ended September 30, 1997. The improvement in gross
margins is primarily the result of lower costs of purchased materials and
higher margins from efficiency improvements in acquired operations.
S, G & A EXPENSES -- Selling, general and administrative expenses increased
by $11.0 million, or 48%, to $34.0 million for the nine months ended
September 30, 1998 from $23.0 million for the nine months ended September 30,
1997. The increase is due primarily to incremental costs from the
acquisition of GT Automotive and Trident. As a percentage of revenues,
selling, general and administrative expenses were 7% for both nine month
periods September 30, 1998 and 1997.
AMORTIZATION EXPENSE -- Amortization expense increased from $2.8 million for
the nine months ended September 30, 1997 to $6.7 million for the nine month
period ended September 30, 1998. The increase is the result of goodwill
amortization arising from the acquisition of GT Automotive, REOM, Universal,
Trident and Hinge.
INTEREST EXPENSE -- Interest expense for the nine months ended September 30,
1998 was $14.2 million compared to $6.2 million for the nine months ended
September 30, 1997. The increase was due principally to borrowings incurred
related to the acquisitions of GT Automotive, Universal, Trident and Hinge.
INCOME TAXES -- The effective income tax rate was 42% for the nine months
ended September 30, 1998 and 1997. The effective rates differed from the
statutory rates primarily as a result of higher foreign tax rates, state
taxes and non-deductible goodwill amortization.
MINORITY INTEREST -- Minority interest for the nine months ended September
30, 1998 represents dividends, net of income tax benefits, on the Preferred
Securities which were issued on March 20, 1998.
EXTRAORDINARY ITEM -- The extraordinary loss for the nine months ended
September 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.
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LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998 the Company's bank credit agreement consisted of a
$355.0 million secured credit facility. The facility provides for revolving
credit facilities of $225.0 million, term loans of $100.0 million and an
acquisition facility of $30.0 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
ratios including minimum liquidity and interest coverage. Borrowings are
collateralized by the assets of the Company.
In January 1997, the Company acquired all of the outstanding common stock of
VOFA for approximately $38.0 million in cash and assumed indebtedness, plus
contingent payments. VOFA designs and manufactures shifter cables and other
light duty cables for the European automotive and industrial markets from
facilities in Dusseldorf, Gehren and Daun, Germany and Barcelona Spain
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.
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
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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
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.
In August 1998, the Company acquired the hinge business of Tower Automotive,
Inc. for approximately $37.0 million. Hinge, which has annual revenues of
approximately $50.0 million manufactures automotive hood and deck lid hinges.
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. Dividends on the
Preferred Securities, net of the related income tax benefit, are reflected as
minority interest in the condensed consolidated statement of operations.
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.
During the nine months ended September 30, 1998, the Company used cash in
operations of $10.5 million, compared to $3.9 million in 1997. Cash
generated from operations before changes in working capital items was $35.7
million for the nine months ended September 30, 1998 compared to $20.5
million for the nine months ended September 30, 1997. Increases in working
capital used cash of $46.3 million in 1998 compared to $24.4 million in 1997.
The increases in working capital is primarily the result of the timing of
cash receipts and cash payments.
Net cash used in investing activities was $207.4 million for the nine months
ended September 30, 1998 as compared to $70.4 million in 1997. Net capital
expenditures totaled $16.4 million for the nine months ended September 30,
1998 primarily for equipment and dedicated tooling purchases related to new
or replacement programs with an additional $190.8
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million used for the acquisitions of Universal, Trident and Hinge. This
compares with net capital expenditures of $6.2 million in 1997 and $64.3
million spent on the acquisitions of VOFA, GT Automotive and REOM.
Net cash provided by financing activities totaled $225.4 million for the nine
months ended September 30, 1998 compared with $78.3 million in 1997.
Approximately $65.0 million of cash was provided through net borrowings. In
addition, the Company received $52.5 million of net proceeds from the
issuance of the Preferred Securities in March 1998 and $107.4 million of net
proceeds from the issuance of common stock in June and July 1998.
At September 30, 1998, the Company had unused borrowing capacity of $114.6
million, under its most restrictive debt covenant. The Company believes the
borrowing availability under its credit agreement, together with funds
generated by operations, should provide liquidity and capital resources to
pursue its business strategy for the foreseeable future, with respect to
working capital, capital expenditures, and other operating needs. The
Company estimates its 1999 capital expenditures will approximate $32.0
million. Under present conditions, management does not believe access to
funds will restrict its ability to pursue its acquisition strategy.
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.
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.
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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 currently working to resolve the potential impact of the year
2000 on the processing of time-sensitive information by the Company's
computerized information systems. Any of the Company's programs that have
time-sensitive software may recognize the year "00" as 1900 rather than the
year 2000. This could result in miscalculations, classification errors or
system failures.
While the Company's various operations are at different stages of Year 2000
readiness, the Company has nearly completed its global compliance review. Based
on the information available to date, the Company does not anticipate any
significant readiness problems with respect to its systems.
Most of the Company's facilities have completed the inventory and assessment
of their internal information technology ("IT") and non-IT systems (including
business, operating and factory floor systems) and are working on remediation,
as appropriate, for these systems. Those facilities that have not yet completed
this assessment process are expected to be finished by the end of 1998. The
remediation may include repair, replacement, or upgrading, of specific systems
and components, with priorities based on a business risk assessment. The
Company expects that remediation activities for its internal systems will be
completed during the second quarter of 1999, and contingency plans, as needed,
before the end of the year.
The most reasonable likely worst case scenario that the Company currently
anticipates with respect to Year 2000 is the failure of some of its
suppliers, including utilities suppliers, to be ready. This could cause a
temporary interruption of materials or services that the Company needs to
make its products, which could result in delayed shipments to customers and
lost sales and profits for the Company. As the critical supplier assessments
are completed, the Company will develop contingency plans, as necessary, to
address the risks which are identified. Although such plans have not been
developed yet, they might include resourcing materials or building inventory
banks.
The Company has spent approximately $1.5 million on Year 2000 activities to
date and anticipates that it will incur additional future costs not to exceed
$5.0 million in total in addressing Year 2000 issues.
The outcome of the Company's Year 2000 program is subject to a number of
risks and uncertainties, some of which (such as the availability of qualified
computer personnel and the Year 2000 responses of third parties) are beyond
its control. Therefore, there can be no assurances that the Company will not
incur material remediation costs beyond the above anticipated future costs,
or that the Company's business, financial condition, or results of operations
will not be significantly impacted if Year 2000 problems with its systems, or
with the products or systems of other parties with whom it does business, are
not resolved in a timely manner.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has released SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
effective for fiscal years beginning after December 15, 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.
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. 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 September 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 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.
FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical fact, included in this
Form 10-Q, including without limitation the statements under "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
are, or may be deemed to be, forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended. When used in this Form 10-Q, the words
"anticipate," "believe," "estimate," "expect," "intends," and similar
expressions, as they relate to the Company, are intended to identify
forward-looking statements. Such forward-looking statements are based on the
beliefs of the Company's management as well as on assumptions made by and
information currently available to the Company at the time such statements
were made. Various economic and competitive factors could cause actual
results to differ materially from those discussed in such forward-looking
statements, including factors which are outside the control of the Company,
such as risks relating to: (i) the degree to which the Company is leveraged;
(ii) the Company's reliance on major customers and selected models; (iii) the
cyclicality and seasonality of the automotive market; (iv) the failure to
realize the benefits of recent acquisitions and joint ventures; (v) obtaining
new business on new and redesigned models; (vi) the Company's ability to
continue to implement its acquisition strategy; and (vii) the highly
competitive nature of the automotive supply industry. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on behalf of the Company are expressly qualified in their entirety by
such cautionary statements.
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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:
None
Item 5. Other Information:
None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
On August 26, 1998 the Company filed a Form 8-K/A which amended
its Form 8-K filed May 14, 1998 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: November 13, 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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