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 March 31, 1999
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 April 30, 1999 was 13,948,116 shares. The number of
shares outstanding of the Registrant's Class B common stock, par value $.01 per
share, at April 30, 1999 was 3,325,305 shares.
DURA AUTOMOTIVE SYSTEMS, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 1999 and 1998 (unaudited)
Condensed Consolidated Balance Sheets at March 31, 1999
(unaudited) and December 31, 1998
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1999 and 1998 (unaudited)
Notes to Condensed Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
-2-
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 March 31,
-----------------------------------
1999 1998
-------------- ---------------
Revenues $ 264,701 $ 125,746
Cost of sales 218,219 104,471
-------------- ---------------
Gross profit 46,482 21,275
Selling, general and administrative expenses 16,897 9,160
Amortization expense 3,685 1,251
-------------- ---------------
Operating income 25,900 10,864
Interest expense, net 6,895 2,938
-------------- ---------------
Income before provision for income taxes,
equity in losses of affiliate and minority
interests 19,005 7,926
Provision for income taxes 7,711 3,274
Equity in losses of affiliate and minority
interests 1,342 --
Minority interest - dividends on trust preferred
securities, net 611 76
-------------- ---------------
Income before extraordinary item and
accounting change 9,341 4,576
Extraordinary item - loss on early
extinguishment of debt, net (2,702) --
Cumulative effect of change in accounting, net (3,147) --
-------------- ---------------
Net income $ 3,492 $ 4,576
-------------- ---------------
-------------- ---------------
Basic earnings per common share:
Income before extraordinary item and
accounting change $ 0.73 $ 0.52
Extraordinary item (0.21) --
Cumulative effect of change in accounting (0.25) --
-------------- ---------------
-------------- ---------------
Net income $ 0.27 $ 0.52
-------------- ---------------
-------------- ---------------
Basic shares outstanding 12,877 8,826
-------------- ---------------
-------------- ---------------
Diluted earnings per common share:
Income before extraordinary item and
accounting change $ 0.70 $ 0.52
Extraordinary item (0.19) --
Cumulative effect of change in accounting (0.22) --
-------------- ---------------
Net income $ 0.29 $ 0.52
-------------- ---------------
-------------- ---------------
Diluted shares outstanding 14,253 9,012
-------------- ---------------
-------------- ---------------
The accompanying notes are an integral part of these condensed
consolidated statements.
-3-
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
March 31, December 31,
Assets 1999 1998
- ------------------------------------------------------------------ ----------------- ----------------
(unaudited)
Current assets:
Cash and cash equivalents $ 39,267 $ 20,544
Accounts receivable, net 471,282 158,465
Inventories 150,471 50,498
Other current assets 129,082 45,924
----------------- ----------------
Total current assets 790,102 275,431
----------------- ----------------
Property, plant and equipment, net 523,287 188,732
Goodwill, net 898,342 435,960
Deferred income taxes and other assets, net 48,836 29,260
----------------- ----------------
$ 2,260,567 $ 929,383
----------------- ----------------
----------------- ----------------
Liabilities and Stockholders' Investment
- ------------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt $ 14,945 $ 15,489
Accounts payable 283,125 99,512
Accrued liabilities 226,142 96,664
----------------- ----------------
Total current liabilities 524,212 211,665
----------------- ----------------
Long-term debt, net of current maturities 1,057,146 316,417
Other noncurrent liabilities 230,497 108,014
Mandatorily redeemable convertible trust preferred securities 55,250 55,250
----------------- ----------------
Stockholders' investment:
Preferred stock - -
Common stock - Class A 140 90
Common stock - Class B 33 33
Additional paid-in capital 335,884 171,377
Retained earnings 70,544 67,052
Accumulated other comprehensive loss -
cumulative translation adjustment (13,139) (515)
----------------- ----------------
Total stockholders' investment 393,462 238,037
----------------- ----------------
$ 2,260,567 $ 929,383
----------------- ----------------
----------------- ----------------
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)
Three Months Ended March 31,
------------------------------------
1999 1998
---------------- ---------------
OPERATING ACTIVITIES:
Net income $ 3,492 $ 4,576
Adjustments to reconcile net income to
net cash provided by (used in) operating activities -
Depreciation and amortization 10,507 3,067
Deferred income taxes (3,057) --
Equity in losses of affiliates and minority interest 1,342 --
Extraordinary loss on extinguishment of debt 2,702 --
Cumulative effect of change in accounting, net 3,147 --
Changes in other operating items (17,746) (9,785)
---------------- ---------------
Net cash provided by (used in) operating activities 387 (2,142)
---------------- ---------------
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (540,133) (18,578)
Capital expenditures, net (5,994) (3,733)
Other 2,227 --
---------------- ---------------
Net cash used in investing activities (543,900) (22,311)
---------------- ---------------
FINANCING ACTIVITIES:
Proceeds from borrowings 904,680 67,903
Repayment of debt (321,761) (53,403)
Debt issuance costs (19,537) --
Proceeds from issuance of common stock and
exercise of stock options 770 256
Proceeds from issuance of preferred securities -- 52,566
---------------- ---------------
Net cash provided by financing activities 564,152 67,322
---------------- ---------------
EFFECT OF EXCHANGE RATE ON CASH (1,916) (79)
---------------- ---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 18,723 42,790
CASH AND CASH EQUIVALENTS:
Beginning of period 20,544 4,148
---------------- ---------------
End of period $ 39,267 $ 46,938
---------------- ---------------
---------------- ---------------
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 1998 Annual
Report to Stockholders.
Revenues and operating results for the three months ended March 31, 1999
are not necessarily indicative of the results to be expected for the full
year.
2. Inventories consisted of the following (in thousands):
Mar. 31, 1999 Dec. 31, 1998
----------------- -----------------
Raw materials $ 73,375 $ 23,067
Work-in-process 41,087 11,155
Finished goods 36,009 16,276
----------------- -----------------
$ 150,471 $ 50,498
----------------- -----------------
----------------- -----------------
3. 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 quarter. 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 amounts):
-6-
Three Months Ended March 31,
--------------------------------------
1999 1998
---------------- ------------------
Net income $ 3,492 $ 4,576
Interest expense on mandatorily redeemable
convertible preferred securities, net of tax 611 76
---------------- -----------------
Net income applicable to common
stockholders -- diluted $ 4,103 $ 4,652
---------------- -----------------
---------------- -----------------
Weighted average number of Class A
common shares outstanding 9,552 4,172
Weighted average number of Class B
common shares outstanding 3,325 4,654
---------------- -----------------
12,877 8,826
Dilutive effect of outstanding stock options
after application of the treasury stock method 87 28
Dilutive effect of mandatorily redeemable
convertible preferred securities, assuming
conversion 1,289 158
---------------- -----------------
Diluted shares outstanding 14,253 9,012
---------------- -----------------
---------------- -----------------
Basic earnings per share $ 0.27 $ 0.52
---------------- -----------------
---------------- -----------------
Diluted earnings per share $ 0.29 $ 0.52
---------------- -----------------
---------------- -----------------
4. 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 the Company's credit facility.
-7-
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.
On March 15, 1999, Dura acquired through a cash tender offer approximately
95% of the outstanding ordinary shares of Adwest Automotive plc ("Adwest").
Adwest has annual revenues of approximately $400 million and is a supplier
of driver control products primarily for European OEMs. The Company paid
approximately $320 million to acquire all of the outstanding shares of
Adwest, including the assumption of approximately $106.1 million in
indebtedness in connection with the acquisition of Adwest.
On March 23, 1999, the Company completed its merger with Excel Industries,
Inc. ("Excel"). Excel has annual revenues of approximately $1.1 billion of
which 75 percent is derived from the automotive/light truck market and the
remainder from the recreational vehicle, mass transit and heavy truck
markets. Approximately 78 percent of Excel's revenues is generated in North
America with the remainder in Europe. The Company issued an aggregate of
approximately 5.1 million shares of its Class A Common Stock and paid
$155.5 million in cash to Excel's former shareholders. The Company also
assumed approximately $100.0 million of indebtedness in connection with the
merger with Excel.
The cash consideration related to the acquisitions of Adwest and Excel was
financed with Borrowings under a new credit facility which is further
described in Note 5.
The acquisitions of Universal, Trident, Hinge, Excel and Adwest 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. With respect to the acquisitions of Trident, Hinge, Excel and
Adwest, the assets and liabilities have been recorded based upon
preliminary estimates of fair value. At March 31, 1999, liabilities for
approximately $44.5 million for costs associated with the shutdown and
consolidation of certain acquired facilities and $30.9 million in
severance costs are recorded on the condensed consolidated balance sheet.
No additional reserves were recorded during the first quarter of 1999.
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 three months ended March 31, 1999 give effect to the acquisitions of
Adwest and Excel and the offering of the Senior Subordinated Notes, which
is further described in Note 5, as if such transactions had occurred at the
beginning of the period and exclude the effects of the extraordinary loss.
The accompanying unaudited pro forma condensed results of operations for
the three months ended March 31, 1998 give effect to the transactions
described above, the acquisitions of Universal, Trident and Hinge, the
offering of Class A common stock, which is further described in Note 7, and
the offering of the Convertible Trust Preferred Securities, which is
further described in Note 6, as if such transactions had occurred at the
beginning of the period and exclude the effects of the extraordinary loss.
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):
-8-
Pro Forma for the
Three Months Ended March 31,
--------------------------------------
1999 1998
------------------- -----------------
Revenues $ 653,752 $627,033
Operating income 49,285 40,028
Net income 13,540 10,921
Basic earnings per share $ 0.77 $ 0.63
Diluted earnings per share 0.75 0.62
5. Long-term debt consisted of the following (in thousands):
March 31, December 31,
1999 1998
----------------- -----------------
Bank Credit Facility:
Tranche A and B term loans $ 525,740 $ -
Interim term loan 200,000 -
Revolving credit facility 100,086 -
Trident 10% senior subordinated
notes, due 2005 80,934 81,150
Old Bank Credit Agreement - 243,510
Other 165,331 7,246
----------------- -----------------
1,072,091 331,906
Less-current maturities (14,945) (15,489)
----------------- -----------------
Total long-term debt $ 1,057,146 $ 316,417
----------------- -----------------
----------------- -----------------
In connection with the acquisitions of Adwest and Excel, the Company
entered into an amended and restated $1.15 billion credit agreement
("Credit Agreement"). The Credit Agreement provides for revolving credit
facilities of $400.0 million, a $275.0 million tranche A term loan, a
$275.0 million tranche B term loan and a $200.0 million interim term loan
facility. As of March 31, 1999, rates on borrowings under the Credit
Agreement ranged from 5.28% to 10.0%. Borrowings under the tranche A term
loan are due and payable in March 2005 and borrowings under the tranche B
term loan are due and payable in March 2006. The revolving credit facility
is available until March 2005. Borrowings under the interim loan were due
and payable in September 2000, and, as further discussed below, were repaid
in April 1999. The Credit Agreement contains various restrictive covenants
which limit indebtedness, investments, rental obligations and cash
dividends. The Credit Agreement also requires the Company to maintain
certain financial ratios including minimum liquidity and interest coverage.
The Company was in compliance with the covenants as of March 31, 1999.
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 March 31, 1999, $84.0 million of
borrowings were denominated in US dollars, $3.4 million of borrowings were
denominated in Canadian dollars, $2.5 million of borrowings were
denominated in Australian dollars, $4.5 million of borrowings were
denominated in Euros, and $5.7 million in British pound sterling.
-9-
In connection with the termination of the Company's former credit facility,
the Company wrote-off deferred financing costs of approximately $2.7
million, net of income taxes. This charge is reflected as an extraordinary
item in the accompanying statement of operations for the three months ended
March 31, 1999.
On April 23, 1999, the Company completed the offering of $300 million and
Euro 100 million of senior subordinated notes ("Subordinated Notes"). The
Subordinated Notes mature in May 2009 and bear interest at 9% per year,
which is payable semi-annually. Net proceeds from this offering of
approximately $297.0 million were used to repay the $200.0 million interim
term loan, approximately $78.1 million to retire other indebtedness and
approximately $118.9 million will be used for general corporate purposes.
In December 1997, Trident issued senior subordinated notes with a face
value of $75 million. The notes bear interest at 10%, payable semiannually,
and are due in December 2005. The notes were recorded at their fair value
of $81.2 million. The premium in excess of face value will be amortized
over the life of the notes using the effective interest method.
6. 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 operation.
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 will be 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.
7. 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-
-10-
allotment option, purchased an additional 400,000 Class A shares resulting
in additional net proceeds of approximately $12.4 million to the Company.
8. 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. The Company
had a comprehensive loss of approximately $9.1 million for the three months
ended March 31, 1999 and comprehensive income of approximately $3.7 million
for the three months ended March 31, 1998.
9. Effective January 1, 1999, the Company adopted the provisions of the
Financial Accounting Standards Board Statement of Position ("SOP") No.
98-5, "Reporting on the Costs of Start-Up Activities." SOP 98-5 requires
costs associated with certain start-up activities be expensed as incurred
versus capitalizing and expensing them over a period of time. Previously,
the Company capitalized certain design and engineering costs which related
to future programs and amortized these costs over the life of the program
once production began. Pursuant to the provisions of SOP 98-5, the Company
wrote off the unamortized balance of such capitalized costs, net of income
tax benefits, of approximately $3.1 million. The write-off is reflected as
a cumulative effect of change in accounting in the accompanying condensed
consolidated statement of operations for the three months ended March 31,
1999.
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.
10. Supplemental cash flow information (in thousands):
Three Months Ended March 31,
--------------------------------------
1999 1998
----------------- -----------------
Cash paid for -
Interest $ 7,637 $ 3,032
Income taxes 3,731 2,410
-11-
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1999 TO THE THREE MONTHS ENDED
MARCH 31, 1998
REVENUES -- Revenues of $264.7 million for the three months ended March 31, 1999
increased substantially over $125.7 million for the three months ended March 31,
1998. The increase in revenues is primarily the result of the acquisitions of
Universal in March 1998, Trident in April 1998, the Hinge Business in September
1998, Excel in March 1999 and Adwest in March 1999.
COST OF SALES -- Cost of sales for the three months ended March 31, 1999
increased by $113.7 million to $218.2 million from $104.5 million for the three
months ended March 31, 1998. Cost of sales as a percentage of revenues for the
three months ended March 31, 1999 was 82.4% compared to 82.1% for the three
months ended March 31, 1998. The corresponding improvement in gross margins is
primarily the result of lower costs of purchased materials and higher margins
from efficiency improvements and plant rationalizations in acquired operations.
S, G & A EXPENSES -- Selling, general and administrative expenses were $16.9
million for the three months ended March 31, 1999 compared to $9.2 million for
the three months ended March 31, 1998. The increase was due primarily to
incremental costs from the acquisitions discussed above. As a percentage of
revenues, selling, general and administrative expenses were 6.4% for the three
months ended March 31, 1999 compared to 7.3% for the three months ended March
31, 1998.
INTEREST EXPENSE -- Interest expense for the three months ended March 31, 1999
was $6.9 million compared to $2.9 million for the three months ended March 31,
1998. The increase was due principally to borrowings incurred related to the
acquisitions discussed above.
INCOME TAXES -- The effective income tax rate was 40.6% for the three months
ended March 31, 1999 and 41.3% for the three months ended March 31, 1998. 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.
LIQUIDITY AND CAPITAL RESOURCES
In connection with the acquisitions of Adwest and Excel, the Company entered
into an amended and restated $1.15 billion credit agreement ("Credit
Agreement"). The Credit Agreement provides for revolving credit facilities of
$400.0 million, a $275.0 million tranche A term loan, a $275.0 million tranche B
term loan and a $200.0 million interim term loan facility. As of March 31, 1999,
rates on borrowings under the Credit Agreement ranged from 5.28% to 10.0%.
Borrowings under the tranche A term loan are due and payable in March 2005 and
borrowings under the tranche B term loan are due and payable in March 2006. The
revolving credit facility is available until March 2005. Borrowings under the
interim loan were due and payable in September 2000 and, as further discussed
below, were repaid in April 1999. The Credit Agreement contains various
restrictive covenants which limit indebtedness, investments, rental obligations
and cash dividends. The Credit Agreement also requires the Company to maintain
-12-
certain financial ratios including minimum liquidity and interest coverage. The
Company was in compliance with the covenants as of March 31, 1999. 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 March 31, 1999, $84.0 million of borrowings were
denominated in US dollars, $3.4 million of borrowings were denominated in
Canadian dollars, $2.5 million of borrowings were denominated in Australian
dollars, $4.5 million of borrowings were denominated in Euros, and $5.7 million
in British pound sterling.
In connection with the termination of the Company's former credit facility, the
Company wrote-off deferred financing costs of approximately $2.7 million, net of
income taxes. This charge is reflected as an extraordinary item in the
accompanying statements of operations for the three months ended March 31, 1999.
On April 23, 1999, the Company completed the offering of $300 million and Euro
100 million of senior subordinated notes ("Subordinated Notes"). The
Subordinated Notes mature in May 2009 and bear interest at 9% per year, which is
payable semi-annually. Net proceeds from this offering of approximately $297.0
million were used to repay the $200.0 million interim term loan, approximately
$78.1 million to retire other indebtedness and approximately $118.9 million will
be used for general corporate purposes.
In December 1997, Trident issued senior subordinated notes with a face value of
$75 million. The notes bear interest at 10%, payable semiannually, and are due
in December 2005. The notes were recorded at their fair value of $81.2 million.
The premium in excess of face value will be amortized over the life of the notes
using the effective interest method.
In March 1998, Dura acquired Universal, a manufacturer of jacks for the North
American automotive industry, for approximately $18.0 million. The acquisition
provided Dura 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 Dura, 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 Dura 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.
In April 1998, Dura 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
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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 Dura. Pursuant
to the terms of the agreement, Dura acquired all of the outstanding equity
interests of Trident for total consideration of $87.5 million in cash. In
addition, Dura assumed $75 million of Trident's outstanding 10% Senior
Subordinated Notes due 2005. Dura also repaid Trident's outstanding senior
indebtedness of approximately $53 million.
On June 17, 1998, Dura 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 Dura, after underwriting discounts and offering expenses, were
approximately $95 million and were used to retire outstanding indebtedness.
Certain stockholders of Dura converted 1,308,000 shares of Class B common stock
of Dura into Class A stock and sold such Class A stock concurrent with the
Offering. In addition, an employee of Dura 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 Dura resulting in net proceeds of approximately
$12.4 million to Dura.
In August 1998, Dura acquired the hinge business of Tower Automotive, Inc. (the
"Hinge Business") for approximately $37.0 million. The Hinge Business, which has
annual revenues of approximately $50.0 million manufactures automotive hood and
deck lid hinges.
On March 15, 1999, Dura acquired through a cash tender offer approximately 95%
of the outstanding ordinary shares of Adwest Automotive plc ("Adwest"). Adwest
has annual revenues of approximately $400 million and is a supplier of driver
control products primarily for European OEMs. The Company paid approximately
$320 million to acquire all of the outstanding shares of Adwest, including the
assumption of approximately $106.1 million in indebtedness in connection with
the acquisition of Adwest.
On March 23, 1999, the Company completed its merger with Excel Industries, Inc.
("Excel"). Excel has annual revenues of approximately $1.1 billion of which
75 percent is derived from the automotive/light truck market and the remainder
from the recreational vehicle, mass transit and heavy truck markets.
Approximately 78 percent of Excel's revenues is generated in North America with
the remainder in Europe. The Company issued an aggregate of approximately 5.1
million shares of its Class A Common Stock and paid $155.5 million in cash to
Excel's former shareholders. The Company also assumed approximately $100.0
million of indebtedness in connection with the merger with Excel.
During the first quarter of 1999, Dura provided cash from operations of
$387,000, compared to a $2.1 million use of cash in 1998. Cash generated from
operations before changes in working capital items was $18.1 million for 1999
compared to $7.6 million for 1998. Increases in working capital used cash of
$17.7 million in 1999 compared to $9.8 million in 1998. 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 $543.9 million for the first quarter
of 1999 as compared to $22.3 million in 1998. Net capital expenditures totaled
$6.0 million for the first quarter of
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1999 primarily for equipment and dedicated tooling purchases related to new
or replacement programs with an additional $540.1 million used for the
acquisitions of Adwest and Excel. This compares with net capital expenditures
of $3.7 million in 1998 and $18.6 million spent on the acquisition of
Universal.
Net cash provided by financing activities totaled $564.2 million for the first
quarter of 1999 compared with $67.3 million in 1998. Approximately $582.9
million of cash was provided through net borrowings.
At March 31, 1999, giving effect to the offering of the Subordinated Notes,
Dura had unused borrowing capacity of approximately $170 million under its
most restrictive debt covenant. Dura 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. Dura estimates its 1999 capital
expenditures will approximate $105 million. Under present conditions,
management does not believe access to funds will restrict its ability to
pursue its acquisition strategy.
QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY
Dura typically experiences decreased revenues and operating income during the
third calendar quarter of each year due to production shutdowns at OEMs for
model changeovers and vacations.
EFFECTS OF INFLATION
Inflation potentially affects Dura in two principal ways. First, a portion of
Dura's debt is tied to prevailing short-term interest rates which may change as
a result of inflation rates, translating into changes in interest expense.
Second, general inflation can impact material purchases, labor and other costs.
In many cases, Dura has limited ability to pass through inflation-related cost
increases due to the competitive nature of the markets that Dura serves. In the
past few years, however, inflation has not been a significant factor for Dura.
MARKET RISK
The Company is exposed to various market risks, including changes in foreign
currency exchange rates and interest rates. Market risk is the potential loss
arising from adverse changes in market rates and prices, such as foreign
currency exchange and interest rates. The Company does not enter into
derivatives or other financial instruments for trading or speculative purposes.
The Company manages its interest rate risk by balancing the amount of fixed and
variable debt. For fixed rate debt, interest rate changes affect the fair market
value but do not impact earnings or cash flows. Conversely for variable rate
debt, interest rate changes generally do not affect the fair market value but do
impact future earnings and cash flows, assuming other factors are held constant.
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FOREIGN CURRENCY TRANSACTIONS
A significant portion of Dura's revenues were derived from manufacturing
operations in Europe, Latin America and Canada. The results of operations and
financial position of Dura's operations in these countries are principally
measured in their respective currency and translated into U.S. dollars. The
effects of foreign currency fluctuations in such countries are somewhat
mitigated by the fact that expenses are generally incurred in the same
currencies in which revenues are generated. The reported income of these
subsidiaries will be higher or lower depending on a weakening or strengthening
of the U.S. dollar against the respective foreign currency.
A significant portion of Dura's assets are based in its foreign operations and
are translated into U.S. dollars at foreign currency exchange rates in effect as
of the end of each period, with the effect of such translation reflected as a
separate component of stockholders' investment. Accordingly, Dura's consolidated
stockholders' investment will fluctuate depending upon the weakening or
strengthening of the U.S. dollar against the respective foreign currency.
Dura's strategy for management of currency risk relies primarily upon conducting
its operations in such countries' respective currency and may, from time to
time, engage in hedging programs intended to reduce Dura exposure to currency
fluctuations.
YEAR 2000
Dura is currently working to resolve the potential impact of the year 2000 on
the processing of time-sensitive information by Dura's computerized information
systems. Any of Dura'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 Dura's various operations are at different stages of Year 2000 readiness,
Dura has nearly completed its global compliance review. Based on the information
available to date, Dura does not anticipate any significant readiness problems
with respect to its systems.
Most of Dura'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. The remediation may include repair, replacement
or upgrading of specific systems and components, with priorities based on a
business risk assessment. Dura 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 reasonably likely worst case scenario that Dura 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 Dura needs to make its products, which could result
in delayed shipments to customers and lost sales and profits for Dura. As the
critical supplier assessments are completed, Dura 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. Dura has
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aggressively addressed this issue with all major suppliers and believes
contingency plans are in place.
Dura has spent approximately $2.5 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 Dura'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 Dura will not incur material
remediation costs beyond the above anticipated future costs, or that Dura'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
In June 1998 the Financial Accounting Standards Board 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. Dura has not yet quantified the impacts of
adopting SFAS No. 133.
In April 1998, the Financial Accounting Standards Board issued Statement of
Position ("SOP") No. 98-5, "Reporting on the Costs of Start-Up Activities"
effective for fiscal years beginning after December 15, 1998. SOP 98-5 requires
the expensing of start-up activities as incurred, versus capitalizing and
expensing them over a period of time. Dura adopted SOP 98-5 during the first
quarter of 1999, by recording a cumulative effect of change in accounting, net
of income taxes, of approximately $3.1 million or $0.22 per diluted share.
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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.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Market Risk" and "Foreign Currency Transactions" sections of Item 2:
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
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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 1998 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:
10.1 Amended and Restated Credit Agreement dated as of March 19, 1999
among Dura Automotive Systems, Inc., as Parent Guarantor, Dura
Operating Corp., Dura Automotive Systems (Europe) GmbH, Dura
Asia-Pacific Pty Limited ACN 004 884 539 and Dura Automotive
Systems (Canada), Ltd., as Dura Borrowers, Trident Automotive
Plc, Dura Automotive Systems Limited, Spicebright Limited, Dura
Automotive Systems Cable Operations Inc., Dura Automotive
Systems Cable Operations Canada, Inc. and Moblan Investments
B.V., as Trident Borrowers, Dura Automotive Acquisition Limited,
as the initial Adwest Borrower, Bank of America National Trust
and Savings Association, as Agent, BA Australia Limited, as
Australian Lender, Bank of America Canada, as Canadian Lender,
Bank of America National Trust and Savings Association, as Swing
Line Lender and Issuing Lender, and the other financial
institutions party hereto; NationsBanc Montgomery Securities
LLC, as Lead Arranger and Book Manager.
27.1 Financial Data Schedule.
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(b) Reports on Form 8-K:
During the quarter for which this report is filed, the Company
filed the following Form 8-K Current Reports with the Securities
and Exchange Commission:
1. The Company's Current Report on Form 8-K dated January 22,
1999 (Commission File No. 0-21139).
2. The Company's Current Report on Form 8-K dated February 3,
1999 (Commission File No. 0-21139).
3. The Company's Current Report on Form 8-K dated February 16,
1999 (Commission File No. 0-21139).
4. The Company's Current Report on Form 8-K dated March 30,
1999 (Commission File No. 0-21139).
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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: May 17, 1999 By /s/ Stephen E.K. Graham
------------------------------------------
Stephen E.K. Graham
Vice President, Chief Financial Officer
(principal accounting and financial
officer)
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