FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 July 15, 1999 was 14,070,461 shares. The number of
shares outstanding of the Registrant's Class B common stock, par value $.01 per
share, at July 15, 1999 was 3,325,303 shares.
DURA AUTOMOTIVE SYSTEMS, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Statements of Operation for the Three
Months Ended June 30, 1999 and 1998 (unaudited)
Condensed Consolidated Statements of Operations for the Six
Months Ended June 30, 1999 and 1998 (unaudited)
Condensed Consolidated Balance Sheets at June 30, 1999
(unaudited) and December 31, 1998
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 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 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
-2-
ITEM 1 - FINANCIAL INFORMATION
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS - UNAUDITED)
Three Months Ended June 30,
------------------------------------
1999 1998
---- ----
Revenues $ 685,167 $ 187,433
Cost of sales 582,668 155,414
---------- ----------
Gross profit 102,499 32,019
Selling, general and administrative
expenses 38,079 11,723
Amortization expense 8,639 2,345
---------- ----------
Operating income 55,781 17,951
Interest expense, net 22,430 5,870
---------- ----------
Income before provision for income taxes,
equity in losses of affiliate and minority interests 33,351 12,081
Provision for income taxes 13,220 4,914
Minority interest and equity in losses of affiliates, net 1,151 --
Minority interest - dividends on trust
preferred securities, net 611 622
---------- ----------
Income before extraordinary item 18,369 6,545
Extraordinary item - loss on early
extinguishment of debt, net (2,700) (643)
---------- ----------
Net income $ 15,669 $ 5,902
========== ==========
Basic earnings per common share:
Income before extraordinary item $ 1.06 $ 0.70
Extraordinary item (0.16) (0.07)
---------- ----------
Net income $ 0.90 $ 0.63
========== ==========
Diluted earnings per common share:
Income before extraordinary item $ 1.00 $ 0.67
Extraordinary item (0.14) (0.06)
---------- ----------
Net income $ 0.86 $ 0.61
========== ==========
The accompanying notes are an integral part
of these condensed consolidated statements.
-3-
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS - UNAUDITED)
Six Months Ended June 30,
---------------------------------------
1999 1998
------------- ---------------
Revenues 949,868 $ 313,179
Cost of sales 800,887 259,885
---------- ----------
Gross profit 148,981 53,294
Selling, general and administrative
expenses 54,976 20,883
Amortization expense 12,324 3,596
---------- ----------
Operating income 81,681 28,815
Interest expense, net 29,325 8,808
---------- ----------
Income before provision for income taxes,
equity in losses of affiliate and minority interests 52,356 20,007
Provision for income taxes 20,931 8,188
Minority interest and equity in losses of
affiliates, net 2,493 --
Minority interest - dividends on trust
preferred securities, net 1,222 698
---------- ----------
Income before extraordinary item and
accounting change 27,710 11,121
Extraordinary item - loss on early
extinguishment of debt, net (5,402) (643)
Cumulative effect of change in accounting, net (3,147) --
---------- ----------
Net income $ 19,161 $ 10,478
========== ==========
Basic earnings per common share:
Income before extr. item and accounting change $ 1.83 $ 1.23
Extraordinary item (0.35) (0.07)
Cumulative effect of change in accounting (0.21) --
---------- ----------
Net income $ 1.27 $ 1.16
========== ==========
Diluted earnings per common share:
Income before extr. item and accounting change $ 1.74 $ 1.20
Extraordinary item (0.32) (0.07)
Cumulative effect of change in accounting (0.19) --
---------- ----------
Net income $ 1.23 $ 1.13
========== ==========
The accompanying notes are an integral part
of these condensed consolidated statements.
-4-
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
June 30, December 31,
ASSETS 1999 1998
- -------------------------------------------------------------------------- ------------- ----------------
(unaudited)
Current assets:
Cash and cash equivalents $ 91,640 $ 20,544
Accounts receivable, net 505,902 158,465
Inventories 143,034 50,498
Other current assets 97,315 45,924
---------- ----------
Total current assets 837,891 275,431
---------- ----------
Property, plant and equipment, net 472,397 188,732
Goodwill, net 1,002,652 435,960
Other assets, net 83,030 29,260
---------- ----------
$2,395,970 $ 929,383
========== ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- --------------------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt $ 10,616 $ 15,489
Accounts payable 255,619 99,512
Accrued liabilities 250,821 96,664
---------- ----------
Total current liabilities 517,056 211,665
---------- ----------
Long-term debt, net of current maturities 749,770 316,417
Subordinated notes 408,000 --
Other noncurrent liabilities 261,464 108,014
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 336,493 171,377
Retained earnings 86,213 67,052
Accumulated other comprehensive loss -
cumulative translation adjustment (18,449) (515)
---------- ----------
Total stockholders' investment 404,430 238,037
---------- ----------
$2,395,970 $ 929,383
========== ==========
The accompanying notes are an integral part
of these condensed consolidated balance sheets.
-5-
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS - UNAUDITED)
Six Months Ended June 30,
------------------------------------
1999 1998
--------- ----------
OPERATING ACTIVITIES:
Net income $ 19,161 $ 10,478
Adjustments to reconcile net income to
net cash provided by (used in) operating activities -
Depreciation and amortization 33,960 11,135
Equity in losses of affiliates and minority interest 2,493 --
Extraordinary loss on extinguishment of debt 5,402 643
Cumulative effect of change in accounting, net 3,147 --
Changes in other operating items (60,809) (22,636)
---------- ----------
Net cash provided by (used in) operating activities 3,354 (380)
---------- ----------
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (540,133) (157,839)
Capital expenditures, net (30,956) (10,061)
Other, net -- (221)
---------- ----------
Net cash used in investing activities (571,089) (168,121)
---------- ----------
FINANCING ACTIVITIES:
Proceeds from borrowings, net 269,901 31,959
Proceeds from Subordinated Note Offering, net 394,653 --
Debt issue costs (19,537) --
Proceeds from issuance of common stock
and exercise of stock options 1,379 95,006
Proceeds from issuance of preferred securities -- 52,525
Other, net -- 244
---------- ----------
Net cash provided by financing activities 646,396 179,734
---------- ----------
EFFECT OF EXCHANGE RATES ON CASH (7,565) (1,092)
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 71,096 10,141
CASH AND CASH EQUIVALENTS:
Beginning of period 20,544 4,148
---------- ----------
End of period $ 91,640 $ 14,289
========== ==========
The accompanying notes are an integral part
of these condensed consolidated statements.
-6-
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 and six months ended June 30,
1999 are not necessarily indicative of the results to be expected for the
full year.
2. Inventories consisted of the following (in thousands):
June 30, 1999 Dec. 31, 1998
--------------- ----------------
Raw materials $ 69,150 $ 23,067
Work-in-process 38,986 11,155
Finished goods 34,898 16,276
--------------- ----------------
$ 143,034 $ 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):
-7-
Three Months Six Months
Ended June 30, Ended June 30,
----------------------- -------------------------
1999 1998 1999 1998
------- ------- ------- -------
Net income $15,669 $ 5,902 $ 19,161 $ 10,478
Interest expense on mandatorily redeemable
convertible preferred securities, net of tax 611 622 1,222 698
Net income applicable to common ------- ------- ------- -------
stockholders - diluted $16,280 $ 6,524 $20,383 $11,176
======= ======= ======= =======
Weighted average number of Class A
common shares outstanding 14,023 4,859 11,787 4,516
Weighted average number of Class B
common shares outstanding 3,325 4,452 3,325 4,553
------- ------- ------- -------
17,348 9,311 15,112 9,069
Dilutive effect of outstanding stock options
after application of the treasury stock
method 133 114 111 92
Dilutive effect of outstanding warrants 152 -- 76 --
Dilutive effect of mandatorily redeemable
convertible preferred securities, assuming
conversion 1,289 1,289 1,289 723
------- ------- ------- -------
Diluted shares outstanding 18,922 10,714 16,588 9,884
======= ======= ======= =======
Basic earnings per share $ 0.90 $ 0.63 $ 1.27 $ 1.16
======= ======= ======= =======
Diluted earnings per share $ 0.86 $ 0.61 $ 1.23 $ 1.13
======= ======= ======= =======
4. In August 1998, the Company acquired the hinge business of Tower
Automotive, Inc. ("Hinge") 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"). The Company subsequently purchased the
remaining 5%. 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.
-8-
On June 28, 1999, Dura acquired Metallifacture Limited ("Metallifacture")
from Bullough plc for an aggregate purchase price of approximately $22.0
million. Metallifacture, located in Nottingham, England, is a manufacturer
of jacks and tire carriers for the European automotive industry. It has
revenues of approximately $25 million and its major customers include Ford,
General Motors, Rover, Nissan and Volkswagen. The impact of this
acquisition on the accompanying financial statements was insignificant.
The cash consideration related to the acquisitions of Adwest, Excel and
Metallifacture was financed with borrowings under a new credit facility
which is further described in Note 5.
The Company's acquisitions 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 Hinge, Excel and Adwest, the assets and
liabilities have been recorded based upon preliminary estimates of fair
value. At June 30, 1999, liabilities for approximately $88.9 million for
costs associated with the shutdown and consolidation of certain acquired
facilities and $58.1 million in severance costs are recorded on the
condensed consolidated balance sheet. Additional reserves of $46.3
million related to acquired facilities and $36.5 million in severance
costs were recorded during the second quarter of 1999. Costs incurred
and charged to such reserves amounted to $6.3 million related to
acquired facilities and $10.7 million in severance costs for the six
months ended June 30, 1999. The Company is further evaluating the fair
value of certain assets acquired and liabilities assumed in connection
with certain rationalization plans. As a result, the final evaluation
will likely result in adjustments to the preliminary allocations as
plans are finalized which may result in changes to goodwill.
The accompanying unaudited pro forma condensed results of operations for
the six months ended June 30, 1999 give effect to the acquisitions of
Adwest and Excel, the offering of the Senior Subordinated Notes and the
tender of the Trident Notes, which are further described in Note 5, as
if such transactions had occurred at the beginning of the period,
exclude the effects of the extraordinary loss and the cumulative effect
of change in accounting. The accompanying unaudited pro forma condensed
results of operations for the six months ended June 30, 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):
Pro Forma for the
Six Months Ended June 30,
----------------------------------------
1999 1998
------------ -----------
Revenues $ 1,338,919 $ 1,310,153
Operating income 105,066 88,953
Net income 31,909 23,164
Basic earnings per share $ 1.83 $ 1.34
Diluted earnings per share $ 1.75 $ 1.30
-9-
5. Long-term debt consisted of the following (in thousands):
June 30, December 31,
1999 1998
------------ ---------------
Credit Agreement:
Tranche A and B term loans $ 548,900 $ -
Revolving credit facility 130,976 -
Trident 10% senior subordinated
notes, due 2005 -- 81,150
Old Bank Credit Facility -- 243,510
Other 80,510 7,246
------------ -------------
760,386 331,906
Less-current maturities (10,616) (15,489)
------------ -------------
Total long-term debt $ 749,770 $ 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 June 30, 1999, rates on borrowings under the Credit
Agreement ranged from 4.85% 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 June 30, 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 June 30, 1999, $116.0 million
of borrowings were denominated in US dollars, $3.5 million of borrowings
were denominated in Canadian dollars, $3.2 million of borrowings were
denominated in Australian dollars, $4.4 million of borrowings were
denominated in Euros, and $4.0 million in British pound sterling.
On June 24, 1999, Dura retired the $75.0 million of Trident's
outstanding 10% Senior Subordinated Notes ("the Trident Notes") due
2005. The total consideration paid was approximately $84.0 million of
principal and premium and was funded through borrowings under the credit
agreement.
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, during the first
quarter of 1999. In addition, the Company wrote-off costs of
approximately $2.7 million, net of income taxes, related to the tender
of the Trident Notes during the second quarter of 1999. These charges
are reflected as extraordinary items in the accompanying statements of
operations for the three and six months ended June 30, 1999.
-10-
6. 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 $397.0 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. These notes are collateralized by guarantees of
certain of the Company's subsidiaries. (See Note 12).
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 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.
8. 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.
9. 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 $14.3 million for the three
months ended June 30, 1999 and comprehensive income of approximately $0.1
million for the three months ended June 30,1998. The Company had a
comprehensive loss of approximately $17.9 million for the six months ended
June 30, 1999 and comprehensive income of approximately $12.6 million for
the six months ended June 30, 1998.
-11-
10. 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 six months ended June 30,
1999.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" effective for years beginning after
June 15, 2000. 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.
11. Supplemental cash flow information (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
-------------- --------------- -------------- --------------
Cash paid for -
Interest $ 13,216 $ 6,393 $ 20,853 $ 9,452
Income taxes 5,317 4,996 9,048 7,406
12. Condensed consolidating guarantor and non-guarantor financial information:
The following condensed consolidating financial information presents
balance sheets, statements of operations and cash flow information related
to the Company's business. Each Guarantor, as defined, is a direct or
indirect wholly owned subsidiary of the Company and has fully and
unconditionally guaranteed the 9% senior subordinated notes issued by Dura
Operating Corp., on a joint and several basis. Separate financial
statements and other disclosures concerning the Guarantors have not been
presented because management believes that such information is not
material.
-12-
12. Condensed consolidating guarantor and non-guarantor financial information
(continued):
DURA AUTOMOTIVE SYSTEMS, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(AMOUNTS IN THOUSANDS)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
---------- --------- --------- ------------ ------------
Revenues $ 172,750 $ 62,499 $ 80,565 $ (2,635) $ 313,179
Cost of sales 145,006 50,710 66,804 (2,635) 259,885
---------- --------- --------- ------------ ----------
Gross profit 27,744 11,789 13,761 -- 53,294
Selling, general and
administrative expenses 11,037 3,528 6,318 -- 20,883
Amortization expense 1,740 978 878 -- 3,596
---------- --------- --------- ----------- ----------
Operating income 14,967 7,283 6,565 -- 28,815
Interest expense, net 6,144 734 1,930 -- 8,808
---------- --------- --------- ----------- ----------
Income before provision for
income taxes, equity in
(earnings) losses of
affiliates and minority
interests 8,823 6,549 4,635 -- 20,007
Provision for income taxes 3,220 2,561 2,407 -- 8,188
Equity in (earnings) losses
of affiliates (6,216) -- (1,610) 7,826 --
Minority interest-dividends on
trust preferred securities, net 698 -- -- -- 698
---------- --------- -------- ---------- ---------
Income before extraordinary
item 11,121 3,988 3,838 (7,826) 11,121
Extraordinary item - loss on
early extinguishment of
debt, net (643) -- -- -- (643)
--------- -------- -------- ---------- ---------
Net income (loss) $ 10,478 $ 3,988 $ 3,838 $ (7,826) $ 10,478
========= ======== ======== ========== =========
-13-
12. Condensed consolidating guarantor and non-guarantor financial information
(continued):
DURA AUTOMOTIVE SYSTEMS, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(AMOUNTS IN THOUSANDS)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ -----------
OPERATING ACTIVITIES:
Net income (loss) $ 10,478 $ 3,988 $ 3,838 $ (7,826) $ 10,748
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and amortization 5,769 2,177 3,189 -- 11,135
Equity in losses of affiliates
and minority interest (6,216) -- (1,610) 7,826 --
Extraordinary loss on
extinguishment of debt 643 -- -- -- 643
Changes in other operating
items 270 1,388 (24,294) -- (22,636)
--------- -------- ---------- ----------- -----------
Net cash provided by (used
in) operating activities 10,944 7,553 (18,877) -- (380)
--------- -------- ---------- ----------- -----------
INVESTING ACTIVITIES:
Acquisitions, net of cash
acquired -- (21,913) (135,926) -- (157,839)
Capital expenditures, net (4,493) (1,925) (3,643) -- (10,061)
Other, net (1,063) (3,897) 4,739 -- (221)
--------- -------- ---------- ----------- -----------
Net cash used in investing
activities (5,556) (27,735) (134,830) -- (168,121)
--------- -------- ---------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from borrowings, net (27,300) 8,500 50,759 -- 31,959
Debt financing (to)/from
affiliates (125,712) 15,726 109,986 -- --
Proceeds from issuance of
common stock and exercise
of stock options 95,006 -- -- -- 95,006
Proceeds from issuance of
preferred securities 52,525 -- -- -- 52,525
Other, net 244 75 (75) -- 244
--------- --------- --------- ------------ ------------
Net cash provided by
(used for) financing
activities (5,237) 24,301 160,670 -- 179,734
EFFECT OF EXCHANGE --------- --------- --------- ------------- ------------
RATES ON CASH -- -- (1,092) -- (1,092)
--------- --------- -------- ------------- ------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 151 4,119 5,871 -- 10,141
CASH AND CASH
EQUIVALENTS:
Beginning of period 1,292 134 2,722 -- 4,148
--------- -------- -------- ----------- ------------
End of period $ 1,443 $ 4,253 $ 8,593 $ -- $ 14,289
========= ======== ======== =========== ============
-14-
12. Condensed consolidating guarantor and non-guarantor financial information
(continued):
DURA AUTOMOTIVE SYSTEMS, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS AS OF JUNE 30, 1999
(AMOUNTS IN THOUSANDS)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
---------- ---------- ----------- ------------ ------------
Assets
- ----------------------------------
Current assets:
Cash and cash equivalents $ 78,156 $ (862) $ 14,346 $ -- $ 91,640
Accounts receivable, net 161,021 123,026 221,855 -- 505,902
Inventories 36,016 34,919 72,099 -- 143,034
Other current assets 35,781 28,504 33,030 -- 97,315
Due from affiliates 147,730 112,439 449 (260,618) --
----------- ---------- ---------- ------------ ----------
Total current assets 458,704 298,026 341,779 (260,618) 837,891
Property, plant and equipment,
net 110,399 109,585 252,413 -- 472,397
Investment in Subsidiaries 528,063 51,633 339,342 (919,038) --
Notes Receivable from
Affiliates 275,472 -- 40,842 (316,314) --
Goodwill, net 336,486 190,576 475,590 -- 1,002,652
Other assets, net 46,243 4,242 32,545 -- 83,030
---------- ---------- ---------- ----------- ----------
$1,755,367 $ 654,062 $1,482,511 $(1,495,970) $2,395,970
========== ========== ========== =========== ==========
Liabilities and Stockholders'
Investment
- ----------------------------------
Current liabilities:
Current maturities of long-
term debt $ 234 $ 1,244 $ 9,138 $ -- $ 10,616
Accounts payable 89,476 53,587 112,556 -- 255,619
Due to affiliates 36,256 114,138 110,224 (260,618) --
Accrued liabilities 91,140 53,461 106,220 -- 250,821
---------- ---------- ---------- ---------- ---------
Total current liabilities 217,106 222,430 338,138 (260,618) 517,056
Long-term debt, net of
current maturities 582,343 10,323 157,104 -- 749,770
Subordinated notes 408,000 -- -- -- 408,000
Other noncurrent liabilities 69,789 66,207 125,468 -- 261,464
Notes payable to affiliates -- 25,000 291,314 (316,314) --
---------- ---------- ---------- --------- ---------
Total liabilities 1,277,238 323,960 912,024 (576,932) 1,936,290
Mandatorily redeemable
convertible trust preferred
securities 55,250 -- -- -- 55,250
Stockholders' investment:
Common stock - Class A 140 298,661 575,549 (874,210) 140
Common stock - Class B 33 -- -- -- 33
Additional paid-in capital 336,493 -- -- -- 336,493
Retained earnings 86,213 31,446 16,441 (47,887) 86,213
Accumulated other compre-
hensive loss - cumulative
translation adjustment -- (5) (21,503) 3,059 (18,449)
---------- ---------- ---------- ----------- ----------
Total stockholders' investment 422,879 330,102 570,487 (919,038) 404,430
---------- ---------- ---------- ----------- ----------
$1,755,367 $ 654,062 $1,482,511 $(1,495,970) $2,395,970
========== ========== ========== =========== ==========
-15-
12. Condensed consolidating guarantor and non-guarantor financial information
(continued):
DURA AUTOMOTIVE SYSTEMS, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(AMOUNTS IN THOUSANDS)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
Revenues $ 357,110 $ 265,436 $ 337,349 $ (10,027) $ 949,868
Cost of sales 303,793 223,940 283,181 (10,027) 800,887
---------- ---------- ---------- ----------- -----------
Gross profit 53,317 41,496 54,168 -- 148,981
Selling, general and
administrative expenses 24,716 6,881 23,379 -- 54,976
Amortization expense 4,663 2,551 5,110 -- 12,324
---------- ---------- ---------- ----------- ----------
Operating income 23,938 32,064 25,679 -- 81,681
Interest expense, net 16,807 1,583 10,935 -- 29,325
---------- ---------- ---------- ----------- ----------
Income before provision for
income taxes, equity in
(earnings) losses of
affiliates and minority
interests 7,131 30,481 14,744 -- 52,356
Provision for income taxes 2,540 10,851 7,540 -- 20,931
Equity in (earnings) losses
of affiliates and minority interest (20,950) -- (2,457) 25,900 2,493
Minority interest-dividends on
trust preferred securities, net 1,222 -- -- -- 1,222
--------- --------- ---------- ----------- ---------
Income before extraordinary
item and accounting change 24,319 19,630 9,661 (25,900) 27,710
Extraordinary item - loss on
early extinguishment of
debt, net (2,011) -- (3,391) -- (5,402)
Cumulative effect of change
in accounting, net (3,147) -- -- -- (3,147)
--------- --------- ---------- ----------- --------
Net income (loss) $ 19,161 $ 19,630 $ 6,270 $ (25,900) $ 19,161
========= ========== ======== =========== ==========
-16-
12. Condensed consolidating guarantor and non-guarantor financial information
(continued):
DURA AUTOMOTIVE SYSTEMS, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(AMOUNTS IN THOUSANDS)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
---------- ---------- --------- ------------ -------------
OPERATING ACTIVITIES:
Net income (loss) $ 19,161 $ 19,630 $ 6,270 $ (25,900) $ 19,161
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and amortization 11,438 8,232 14,290 -- 33,960
Equity in losses of affiliates
and minority interest (20,950) -- (2,457) 25,900 2,493
Extraordinary loss on
extinguishment of debt 2,011 -- 3,391 -- 5,402
Cumulative effect of change
in accounting, net 3,147 -- -- -- 3,147
Changes in other operating
items 40,778 (43,258) (58,329) -- (60,809)
-------- ---------- --------- ----------- ---------
Net cash provided by (used in)
operating activities 55,585 (15,396) (36,835) -- 3,354
-------- ---------- --------- ----------- ---------
INVESTING ACTIVITIES:
Acquisitions, net of cash
acquired (442,501) -- (97,632) -- (540,133)
Capital expenditures, net (6,727) (9,218) (15,011) -- (30,956)
Other, net 572 (2,624) 2,052 -- --
--------- ---------- --------- ----------- ----------
Net cash used in investing
activities (448,656) (11,842) (110,591) -- (571,089)
--------- ---------- --------- ----------- ----------
FINANCING ACTIVITIES:
Proceeds from borrowings, net 419,762 (1,381) (148,480) -- 269,901
Proceeds from Subordinated
Note Offering, net 408,000 -- -- -- 408,000
Debt issue costs (32,884) -- -- -- (32,884)
Proceeds from issuance of
common stock and exercise
of stock options -- -- 1,379 -- 1,379
Debt financing (to)/from
affiliates (324,898) 28,314 296,584 -- --
--------- --------- --------- ----------- ----------
Net cash provided by
financing activities 469,980 26,933 149,483 -- 646,396
--------- --------- --------- ----------- ----------
EFFECT OF EXCHANGE
RATES ON CASH -- -- (7,565) -- (7,565)
--------- --------- --------- ----------- ----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 76,909 (305) (5,508) -- 71,096
CASH AND CASH
EQUIVALENTS:
Beginning of period 1,247 (557) 19,854 -- 20,544
--------- -------- --------- ------- ----------
End of period $ 78,156 $ (862) $ 14,346 $ -- $ 91,640
========= ======== ========= ======== ==========
-17-
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1999 TO THE THREE MONTHS ENDED
JUNE 30, 1998
REVENUES -- Revenues of $685.2 million for the three months ended June 30,
1999 increased substantially over the $187.4 million reported for the three
months ended June 30, 1998. The increase in revenues is primarily the result
of the acquisitions of Excel and Adwest in March 1999. Sales also benefited
from strong North American vehicle production during the quarter offset by
the effects of foreign exchange rates on European sales.
COST OF SALES -- Cost of sales for the three months ended June 30, 1999
increased by $427.3 million to $582.7 million from $155.4 million for the
three months ended June 30, 1998. Cost of sales as a percentage of revenues
for the three months ended June 30, 1999 was 85.0% compared to 82.9% for the
three months ended June 30, 1998. The corresponding decrease in gross margins
is primarily the result of historically lower margins being achieved at the
acquired operations.
S, G & A EXPENSES -- Selling, general and administrative expenses were $38.1
million for the three months ended June 30, 1999 compared to $11.7 million for
the three months ended June 30, 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 5.6% for the three
months ended June 30, 1999 compared to 6.3% for the three months ended June 30,
1998.
INTEREST EXPENSE -- Interest expense for the three months ended June 30, 1999
was $22.4 million compared to $5.9 million for the three months ended June 30,
1998. The increase was due principally to borrowings incurred related to the
acquisitions discussed above.
INCOME TAXES -- The effective income tax rate was 39.6% for the three months
ended June 30, 1999 and 40.7% for the three months ended June 30, 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. The decrease in rate from the prior period is due to the
varying tax rates among the tax jurisdictions for which the Company operates.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1999 TO THE SIX MONTHS ENDED
JUNE 30, 1998
REVENUES -- Revenues of $949.9 million for the six months ended June 30, 1999
increased substantially over the $313.2 million reported for the six months
ended June 30, 1998. The increase in revenues is primarily the result of the
acquisitions of Trident in April 1998 and Excel and Adwest in March 1999.
Sales for the six months also benefited from increased North American vehicle
production.
COST OF SALES -- Cost of sales for the six months ended June 30, 1999 increased
by $541.0 million to $800.9 million from $259.9 million for the six months ended
June 30, 1998. Cost of sales as a percentage of revenues for the six months
ended June 30, 1999 was 84.3% compared to 83.0% for the six months ended June
30, 1998. The corresponding decrease in gross margins is
-18-
primarily the result of lower margins at the acquired operations offset by
efficiency improvements at core Dura operations.
S, G & A EXPENSES -- Selling, general and administrative expenses were $55.0
million for the six months ended June 30, 1999 compared to $20.9 million for the
six months ended June 30, 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 5.8% for the six months ended
June 30, 1999 compared to 6.7% for the six months ended June 30, 1998.
INTEREST EXPENSE -- Interest expense for the six months ended June 30, 1999 was
$29.3 million compared to $8.8 million for the six months ended June 30, 1998.
The increase was due principally to borrowings incurred related to the
acquisitions discussed above.
INCOME TAXES -- The effective income tax rate was 40.0% for the six months
ended June 30, 1999 and 40.9% for the six months ended June 30, 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. The decrease in rate from the prior period is due to the
varying tax rates among the tax jurisdictions for which the Company operates.
LIQUIDITY AND CAPITAL RESOURCES
During the first half of 1999, Dura provided cash from operations of $3.4
million, compared to a $0.4 million use of cash in 1998. Cash generated from
operations before changes in working capital items was $64.0 million for 1999
compared to $22.2 million for 1998. Increases in working capital used cash of
$60.6 million in 1999 compared to $22.6 million in 1998. The increase in
working capital is primarily the result of the timing of cash receipts from
the Company's major customers which were received subsequent to quarter end.
Net cash used in investing activities was $571.1 million for the first half of
1999 as compared to $168.1 million in 1998. Net capital expenditures totaled
$31.0 million for the first half of 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 $10.1 million in 1998 and $157.8 million spent on
the acquisitions of Universal and Trident.
Net cash provided by financing activities totaled $646.4 million for the first
half of 1999 compared with $179.7 million in 1998. Included in this source of
funds is $408.0 million of cash which was provided through the subordinated note
offering discussed above.
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 June 30, 1999,
rates on borrowings under the Credit Agreement ranged from 4.85% 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 June 30, 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 June 30, 1999, $116.0 million of borrowings were
denominated in US dollars, $3.5 million of borrowings were denominated in
Canadian dollars, $3.2 million of borrowings were denominated in Australian
dollars, $4.4 million of borrowings were denominated in Euros, and $4.0 million
in British pound sterling.
At June 30, 1999, Dura had unused borrowing capacity of approximately $224.0
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 $100 million. Under present
conditions, management does not believe access to funds will restrict its
ability to pursue its acquisition strategy.
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
$397.0 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. These notes are
collateralized by guarantees of certain of the Company's subsidiaries.
-19-
On June 24, 1999, Dura retired the $75.0 million of Trident's outstanding 10%
Senior Subordinated Notes ("the Trident Notes") due 2005. The total
consideration paid was approximately $84.0 million of principal and premium
and was funded through borrowings under the credit agreement.
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 during the first quarter of 1999. In addition, the
Company wrote-off costs of approximately $2.7 million, net of income taxes
related to the tender of the Trident Notes (see Note 6) during the second
quarter of 1999. These charges are reflected as an extraordinary item in the
accompanying statement of operations for the six months ended June 30, 1999.
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.
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").
The Company subsequently purchased the remaining 5%. 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
-20-
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.
On June 28, 1999, Dura acquired Metallifacture Limited ("Metallifacture") from
Bullough plc for an aggregate purchase price of approximately $22.0 million
which was financed with borrowings under Dura's credit facility. Metallifacture,
located in Nottingham, England, is a manufacturer of jacks and tire carriers for
the European automotive industry. It has revenues of approximately $25 million
and its major customers include Ford, General Motors, Rover, Nissan and
Volkswagen.
-21-
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.
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.
-22-
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. Remediation activities for
92% of Dura's internal systems were completed as of June 30, 1999. The
remaining remediation activities will be completed during the third quarter
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 specific contingency plans, as necessary, to address the
risks which are identified. This will likely include resourcing materials or
building inventory banks. Dura has aggressively addressed this issue with all
major suppliers and believes contingency plans are in place.
Dura has spent approximately $4.0 million on Year 2000 activities to date and
anticipates that it will incur additional future costs not to exceed
$2.0 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, 2000. 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
-23-
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.
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.
-24-
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:
The registrant held its Annual Meeting of Stockholders on May 20, 1999.
Proxies for the meeting were solicited pursuant to Regulation 14. There
was no solicitation in opposition to management's nominees as listed in
the Proxy statement, and all such nominees (Robert E. Brooker, Jr.,
W.H. Clement, Jack K. Edwards, James O. Futterknecht, Jr., Robert R.
Hibbs, S.A. Johnson, J. Richard Jones, John C. Jorgensen, William L.
Orscheln, Eric J. Rosen, Karl F. Storrie and Ralph R. Whitney, Jr.)
were elected. Of the 44,626,803 votes, at least 41,413,781 votes
granted authority to vote for these directors and no more than
3,213,022 abstaining votes were cast.
The increase in the number of authorized shares of Class A Common Stock
was approved by the stockholders. A total of 42,099,373 affirmative
votes and no negative or abstaining votes were cast.
The changes to certain of the terms of the Class B Common Stock was
approved by the stockholders. A total of 42,899,668 affirmative votes
and no negative or abstaining votes were cast.
The retention of Arthur Andersen LLP as auditors was approved by the
stockholders. A total of 44,552,544 affirmative votes and
no negative or abstaining votes were cast.
Item 5. Other Information:
None
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Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
1.1 Purchase Agreement, dated April 15, 1999, among Dura
Operating Corp., Dura Automotive Systems, Inc. ("DASI"), the
subsidiary guarantors named therein (the "Subsidiary
Guarantors") and NationsBanc Montgomery Securities LLC, Bank
of America International Limited, Donaldson, Lufkin &
Jenrette Securities Corporation and Donaldson, Lufkin &
Jenrette International (collectively, the "Initial
Purchasers"), incorporated by reference to Exhibit 1.1 of the
Registration Statement on Form S-4 (Registration No.
333-81213) (the "S-4").
3.1 Restated Certificate of Incorporation of Dura Automotive
Systems, Inc., incorporated by reference to Exhibit 3.1
of the S-4.
4.1 First Amendment to Indenture, dated as of July 29, 1999,
among Dura Operating Corp., DASI and the subsidiary
guarantors and U.S. Bank Trust National Association.
4.2 First Amendment to Indenture, dated as of July 29, 1999,
among Dura Operating Corp., DASI and the subsidiary
guarantors U.S. Bank Trust National Association.
4.3 Indenture, dated April 22, 1999, between Dura Operating Corp.,
Dura Automotive Systems, Inc., the Subsidiary Guarantors and
U.S. Bank Trust National Association, as trustee, relating to
the Dollar Notes, incorporated by reference to Exhibit 4.7 of
the S-4.
4.4 Indenture, dated April 22, 1999, between Dura Operating Corp.,
Dura Automotive Systems, Inc., the Subsidiary Guarantors and
U.S. Bank Trust National Association as trustee, relating to the
Euro Notes, incorporated by reference to Exhibit 4-8 of the S-4.
4.5 Registration Rights Agreement, dated April 22, 1999, between the
Initial Purchasers and Dura Operating Corp., Dura Automotive
Systems, Inc. and the Subsidiary Guarantors, relating to the
Dollar Notes, incorporated by reference to Exhibit 4.9 of the
S-4.
4.6 Registration Rights Agreement, dated April 22, 1999, between
the Initial Purchasers and Dura Operating Corp., Dura
Automotive Systems, Inc. and the Subsidiary Guarantors,
relating to the Euro Notes, incorporated by reference to
Exhibit 4.10 of the S-4.
27.1 Financial Data Schedule.
(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/A dated
June 18, 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: August 16, 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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