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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, 2002
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 August 1, 2002 was 16,376,497 shares. The number of
shares outstanding of the Registrant's Class B common stock, par value $.01 per
share, at August 1, 2002 was 1,841,150 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 June 30, 2002 and 2001 (unaudited)
Condensed Consolidated Statements of Operations for the Six
Months Ended June 30, 2002 and 2001 (unaudited)
Condensed Consolidated Balance Sheets at June 30, 2002
(unaudited) and December 31, 2001
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2002 and 2001 (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 STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS - UNAUDITED)
Three Months Ended June 30,
-----------------------------
2002 2001
--------- ---------
Revenues $ 667,283 $ 666,321
Cost of sales 577,312 577,310
--------- ---------
Gross profit 89,971 89,011
Selling, general and administrative expenses 35,637 36,099
Facility consolidation and other charges 21,088 --
Amortization expense 289 6,695
--------- ---------
Operating income 32,957 46,217
Interest expense, net 20,972 24,616
--------- ---------
Income before provision for income taxes and
minority interest 11,985 21,601
Provision for income taxes 15,952 8,061
Minority interest - dividends on trust preferred
securities, net 601 674
--------- ---------
Income (loss) before extraordinary item $ (4,568) $ 12,866
Extraordinary item (3,422) --
--------- ---------
Net income (loss) $ (7,990) $ 12,866
========= =========
Basic earnings (loss) per share:
Income (loss) before extraordinary item $ (0.26) $ 0.72
Extraordinary item (0.19) --
--------- ---------
Net income (loss) $ (0.45) $ 0.72
========= =========
Basic shares outstanding 17,935 17,757
========= =========
Diluted earnings (loss) per share:
Income (loss) before extraordinary item $ (0.26) $ 0.70
Extraordinary item (0.19) --
--------- ---------
Net income (loss) $ (0.45) $ 0.70
========= =========
Diluted shares outstanding 17,935 19,353
========= =========
The accompanying notes are an integral part of these condensed
consolidated statements.
-3-
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS - UNAUDITED)
Six Months Ended June 30,
---------------------------------
2002 2001
-------------- ---------------
Revenues $ 1,283,464 $ 1,328,174
Cost of sales 1,117,145 1,147,256
----------- -----------
Gross profit 166,319 180,918
Selling, general and administrative expenses 69,904 73,732
Facility consolidation and other charges 21,088 2,629
Amortization expense 685 13,694
----------- -----------
Operating income 74,642 90,863
Interest expense, net 43,518 53,149
----------- -----------
Income before provision for income taxes and
minority interest 31,124 37,714
Provision for income taxes 23,225 14,345
Minority interest - dividends on trust preferred
securities, net 1,243 1,285
----------- -----------
Income before extraordinary item $ 6,656 $ 22,084
Extraordinary item (3,422) --
----------- -----------
Net income $ 3,234 $ 22,084
=========== ===========
Basic earnings per share:
Income before extraordinary item $ 0.37 $ 1.25
Extraordinary item (0.19) --
----------- -----------
Net Income 0.18 1.25
=========== ===========
Basic shares outstanding 17,875 17,736
=========== ===========
Diluted earnings per share:
Income before extraordinary item $ 0.36 $ 1.22
Extraordinary item (0.18) --
----------- -----------
Net income $ 0.18 $ 1.22
=========== ===========
Diluted shares outstanding 18,417 19,214
=========== ===========
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 2002 2001
- ------------------------------------------------------------------ ----------------- ----------------
(unaudited)
Current assets:
Cash and cash equivalents $ 124,179 $ 32,289
Accounts receivable, net 332,664 293,476
Inventories 119,187 116,508
Other current assets 135,892 126,367
----------------- ----------------
Total current assets 711,922 568,640
----------------- ----------------
Property, plant and equipment, net 493,557 516,517
Goodwill, net 976,525 962,467
Deferred income taxes and other assets, net 84,164 73,980
----------------- ----------------
$ 2,266,168 $ 2,121,604
================= ================
Liabilities and Stockholders' Investment
- ------------------------------------------------------------------
Current liabilities:
Accounts payable $ 282,798 $ 249,824
Accrued liabilities 236,296 177,327
Current maturities of long-term debt 5,276 60,847
----------------- ----------------
Total current liabilities 524,370 487,998
----------------- ----------------
Long-term debt, net of current maturities 1,067,003 1,015,579
Other noncurrent liabilities 131,591 120,380
Mandatorily redeemable convertible trust preferred securities 55,250 55,250
----------------- ----------------
Stockholders' investment:
Common stock - Class A 163 147
Common stock - Class B 19 31
Additional paid-in capital 346,394 342,694
Treasury stock (1,652) (1,891)
Retained earnings 164,502 161,268
Accumulated other comprehensive loss (21,472) (59,852)
----------------- ----------------
Total stockholders' investment 487,954 442,397
----------------- ----------------
$ 2,266,168 $ 2,121,604
================= ================
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,
---------------------------------
2002 2001
------------- ---------------
OPERATING ACTIVITIES:
Net income $ 3,234 $ 22,084
Adjustments to reconcile net income to
net cash provided by operating activities -
Depreciation and amortization 37,323 47,992
Deferred income taxes 9,548 1,584
Extraordinary loss on extinguishment of debt 3,422 --
Changes in other operating items 53,119 65,287
--------- ---------
Net cash provided by operating activities 106,646 136,947
--------- ---------
INVESTING ACTIVITIES:
Net proceeds from disposition of businesses 31,122 --
Capital expenditures, net (25,935) (29,639)
--------- ---------
Net cash provided by (used in) investing activities 5,187 (29,639)
--------- ---------
FINANCING ACTIVITIES:
Short-term debt repayments, net (58,117) (5,074)
Long-term debt repayments, net (306,219) (100,617)
Proceeds from issuance of senior notes 350,000 --
Debt issue costs (10,964) --
Proceeds from issuance of common stock and
exercise of stock options 3,704 --
Other, net 239 105
--------- ---------
Net cash used in financing activities (21,357) (105,586)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1,414 (2,495)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 91,890 (773)
CASH AND CASH EQUIVALENTS:
Beginning of period 32,289 30,438
--------- ---------
End of period $ 124,179 $ 29,665
========= =========
SUPPLEMENTAL DISCLOSURE:
Cash paid for interest $ 39,977 $ 53,164
Cash paid (refunded) for income taxes $ 6,247 $ (588)
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. BASIS OF PRESENTATION
General - Dura Automotive Systems, Inc. (a Delaware Corporation) and
subsidiaries (Dura) designs and manufactures components and systems primarily
for the global automotive industry. Dura has over 70 manufacturing and product
development facilities located in the United States, Brazil, Canada, Czech
Republic, France, Germany, Mexico, Portugal, Spain and the United Kingdom.
We have prepared the condensed consolidated financial statements of
Dura, 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 our opinion, necessary for a fair presentation of the
results of operations and statements of financial position for the interim
periods presented. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to such rules and regulations. We believe that the disclosures
are adequate to make the information presented not misleading when read in
conjunction with the financial statements and the notes thereto included in our
Annual Report on Form 10-K, as filed with the Securities and Exchange Commission
for the period ended December 31, 2001.
Revenues and operating results for the six months ended June 30, 2002
are not necessarily indicative of the results to be expected for the full year.
2. INVENTORIES
Inventories consisted of the following (in thousands):
June 30, December 31,
2002 2001
---------- ------------
Raw materials $ 63,608 $ 65,228
Work-in-process 26,760 25,369
Finished goods 28,819 25,911
---------- ------------
$ 119,187 $ 116,508
========== ============
3. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share were computed by dividing net income by
the weighted average number of Class A and Class B common shares outstanding
during the period. Diluted earnings (loss) per share is computed under the
treasury stock method and calculates the dilutive effect of potential common
shares, as follows (in thousands, except share and per share amounts):
-7-
Three months Six months
ended June 30, ended June 30,
-------------------------- -------------------------
2002 2001 2002 2001
----------- ---------- ----------- ----------
Net income (loss) $ (7,990) $ 12,866 $ 3,234 $ 22,084
Interest expense on mandatorily redeemable
convertible preferred securities, net of tax - diluted -- 674 -- 1,285
-------- -------- -------- --------
Net income (loss) applicable to common
stockholders - diluted $ (7,990) $ 13,540 $ 3,234 $ 23,369
======== ======== ======== ========
Weighted average number of Class A
common shares outstanding 15,717 14,488 15,244 14,445
Weighted average number of Class B
common shares outstanding 2,218 3,269 2,631 3,291
-------- -------- -------- --------
17,935 17,757 17,875 17,736
Dilutive effect of outstanding stock options
after application of the treasury stock method -- 307 542 189
Dilutive effect of mandatorily redeemable
convertible preferred securities, assuming
conversion -- 1,289 -- 1,289
-------- -------- -------- --------
Diluted shares outstanding 17,935 19,353 18,417 19,214
======== ======== ======== ========
Basic earnings (loss) per share $ (0.45) $ 0.72 $ 0.18 $ 1.25
======== ======== ======== ========
Diluted earnings (loss) per share $ (0.45) $ 0.70 $ 0.18 $ 1.22
======== ======== ======== ========
Potential common shares of approximately 1,978,000, relating to Dura's
outstanding stock options and Preferred Securities were excluded from the
computation of diluted earnings per share for the three months ended June 30,
2002, as inclusion of these shares would have been anti-dilutive. Potential
common shares of approximately 1,289,000, relating to Dura's Preferred
Securities were excluded from the computation of diluted earnings per share for
the six months ended June 30, 2002, as inclusion of these shares would have been
anti-dilutive.
4. FACILITY CONSOLIDATION AND OTHER CHARGES
Divestitures
In May 2002, Dura divested its Steering Gear Business. The Steering Gear
Business is a machining operation that utilized a technology that was determined
to be non-essential to Dura's capabilities. This business employs approximately
200 people in England and generated annual revenue of approximately $20.0
million. The transaction resulted in a one-time charge of approximately $19.2
million consisting of asset write-downs and remaining contractual commitments.
No tax benefit was recorded related to this charge. In addition, Dura also
wrote-off approximately $2.1 million related to certain deferred tax assets and
this is included in the provision for income taxes in the accompanying condensed
consolidated statements of income for the three and six months ended June 30,
2002. The effects of this divestiture on future operating results will not be
significant.
-8-
In November 2001, Dura entered into a definitive agreement to divest its
Plastic Products Business for gross proceeds of approximately $41.0 million. The
transaction closed in January 2002. The net cash proceeds of approximately $31.1
million were used to repay outstanding indebtedness. The Plastic Products
Business designs, engineers, and manufactures plastic components for a wide
variety of automotive vehicle applications, focusing on the metal to plastic
conversion and dual plastic applications markets. This business employs
approximately 750 people in three facilities located in Mishawaka, Indiana,
Bowling Green, Kentucky and Jonesville, Michigan and generated approximately
$80.0 million in annual revenue. Two members of Dura's board of directors are
members of management of an investor group which is general partner of the
controlling shareholder of the acquiring company. Dura recorded a noncash charge
of approximately $7.4 million in the fourth quarter of 2001 for the estimated
loss upon divestment. In the second quarter of 2002, Dura recorded an additional
$1.9 million charge related to final negotiation of purchase price adjustments.
The effect of this divestiture on future operating results will not be
significant.
Restructuring
Throughout 2000 and 2001 Dura has evaluated manufacturing capacity
issues and opportunities for cost reduction given the reduced demand in the
North America automotive and recreational vehicle markets and the available
capacity within Dura's operations. As a result, beginning in the fourth quarter
of 2000, Dura began to implement several actions including discontinuing
operations in two North American facilities, combining the Driver Control and
Engineered Products divisions into one, Control Systems, and reducing and
consolidating certain support activities to achieve an appropriate level of
support personnel relative to remaining operations and future business
requirements. These actions resulted in a fourth quarter 2000 restructuring
charge of $6.8 million, including severance related payments of $6.2 million and
facility closure costs of approximately $0.6 million. Additionally in 2000, Dura
expensed as incurred equipment relocation costs of $0.8 million. In continuation
of the actions taken in 2000, Dura recorded $2.4 million of additional
restructuring charges in the first quarter and $2.0 million in the fourth
quarter of 2001 relating to employee severance. Dura also expensed as incurred
approximately $0.2 million of equipment relocation costs incurred during the
first quarter of 2001. The effect of the costs expensed as incurred are
reflected as facility consolidation and other charges in the consolidated
statements of operations.
Costs incurred and charged to the reserves as of June 30, 2002 amounted
to $9.9 million in severance related costs and $0.4 million in facility closure
costs. During 2001, additional adjustments were made of $0.1 million to decrease
the reserve for employee severance, as the actual costs incurred were less than
originally estimated.
The decision to exit the two facilities will result in a reduction in
the work force of approximately 52 salaried and 408 hourly employees of which 52
salaried and 406 hourly employees have been severed as of June 30, 2002.
Additionally, the decision to consolidate two divisions into one and to reduce
support personnel to a level consistent with future business requirements
resulted in a reduction of approximately 217 salaried employees of which 216
have been severed as of June 30, 2002. These restructuring actions are
anticipated to be complete in 2002.
-9-
5. ACQUISITION INTEGRATIONS
Dura has developed and implemented the majority of the facility
consolidation plans designed to integrate the operations of past acquisitions.
As of June 30, 2002, purchase liabilities recorded in conjunction with the
acquisitions included approximately $18.4 million for costs associated with the
shutdown and consolidation of certain acquired facilities and $4.1 million for
severance and other related costs. Costs incurred and charged to these reserves
amounted to $1.4 million related to acquired facilities and $0.6 million in
severance and other related costs during the quarter ended June 30, 2002. The
remaining employee terminations and facility closures are expected to be
completed by the end of 2002 except for certain contractual obligations that
extend beyond that date.
6. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
June 30, December 31,
2002 2001
----------- -----------
Credit Agreement:
Tranche A and B term loans $ -- $ 454,306
Tranche C term loan 150,000 --
Revolving credit facility -- 62,584
Senior notes 353,346 --
Subordinated notes 549,936 539,700
Other 18,997 19,836
----------- -----------
1,072,279 1,076,426
Less - Current maturities (5,276) (60,847)
----------- -----------
Total long-term debt $ 1,067,003 $ 1,015,579
=========== ===========
In connection with the acquisitions of Adwest and Excel, Dura 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.
In April 2002, Dura completed the offering of $350.0 million 8 5/8
percent senior unsecured notes (Senior Notes), due April 2012. The interest on
the Senior Notes is payable semi-annually. Net proceeds from this offering of
approximately $341.0 million were used to repay the outstanding balance of the
$275.0 million tranche A term loan, and a portion of the $275.0 million tranche
B term loan. Dura then replaced the remaining tranche B term loan with a $150.0
million tranche C term loan. Borrowings under the tranche C term loan are based
on LIBOR and are due and payable in December 2008 with no early payment
penalties. In conjunction with these transactions, Dura obtained an amendment to
the Credit Agreement to allow for the offering and to further relax certain
financial covenants. Dura also entered into a fixed to floating interest rate
swap (notional amount of $325.0 million) with various financial institutions
that more closely mirrors the cost of its bank debt (see Note 8). In connection
with the repayment of borrowings outstanding under the Credit Agreement, Dura
wrote-off debt issuance costs of approximately $3.4 million, net of income
taxes, during the second quarter of
-10-
2002. This write-off is reflected as an extraordinary item in the accompanying
condensed consolidated statements of operations for the three and six months
ended June 30, 2002.
As of June 30, 2002, rates on borrowings under the Credit Agreement are
based on LIBOR and were 4.3 percent. 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 Dura to maintain certain financial ratios including
minimum liquidity and interest coverage. Dura was in compliance with the
covenants as of June 30, 2002. Borrowings under the Credit Agreement are
collateralized by certain assets of Dura.
The Credit Agreement provides Dura with the ability to denominate a
portion of its revolving credit borrowings in foreign currencies up to an amount
equal to $150.0 million. As of June 30, 2002, Dura had no borrowings outstanding
under the revolver.
Dura also utilizes uncommitted overdraft facilities to satisfy the
short-term working capital requirements of its foreign subsidiaries. At June 30,
2002, Dura had no borrowings outstanding under its unsecured overdraft
facilities. At June 30, 2002, Dura had unsecured overdraft facilities available
from banks of approximately $37.1 million.
In April 1999, Dura completed the offering of $300.0 million and Euro
100.0 million of 9 percent senior subordinated notes (Subordinated Notes), due
May 2009. The interest on the Subordinated Notes is payable semi-annually. Net
proceeds from this offering of approximately $394.7 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 was used for general
corporate purposes. In June 2001, Dura completed a similar offering of 9 percent
senior subordinated notes due May 2009 with a face amount of $158.5 million. The
interest on these notes is also payable semi-annually. Unamortized discount and
debt issuance costs were approximately $8.5 million, yielding an imputed
interest rate of 10 percent. Net proceeds of approximately $147.1 million were
used to reduce the borrowings outstanding under the revolving credit facility.
These notes are collateralized by guarantees of certain of Dura's subsidiaries.
7. BUSINESS COMBINATIONS, GOODWILL AND INTANGIBLE ASSETS
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS
No. 141 requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method of accounting. Under SFAS No. 142
goodwill and intangible assets with indefinite lives are no longer amortized,
but reviewed annually, or more frequently if impairment indicators arise.
Separable intangible assets that are not deemed to have indefinite lives will
continue to be amortized over their useful lives, but with no maximum life. The
amortization provisions of SFAS No. 142 apply to goodwill and intangible assets
acquired after June 30, 2001. With respect to goodwill and intangible assets
acquired prior to July 1, 2001, Dura is required to adopt SFAS No. 142 effective
January 1, 2002. As of June 30, 2002, Dura has completed step one of the
transitional goodwill impairment test. The results of this step have identified
that Dura may have to record an impairment loss related to
-11-
its Controls Systems and Other Operating Companies reportable units, as defined
under SFAS No. 142. Based on current estimates, Dura believes the range of the
transitional goodwill impairment to be from $200.0 million to $240.0 million.
Dura will complete step two of the transitional goodwill impairment test prior
to the end of the year. Had the non-amortization provision of SFAS No. 141 and
142 been adopted January 1, 2001, net income and earnings per share would have
been reported as the following amounts (in thousands, except per share data):
Three months ended Six months ended
June 30, June 30,
---------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- --------- ----------
Net income (loss), as reported $ (7,990) $ 12,866 $ 3,234 $ 22,084
Add back goodwill amortization, net of
tax -- 5,886 -- 11,922
---------- ---------- ---------- ----------
Adjusted net income (loss) $ (7,990) $ 18,752 $ 3,234 $ 34,006
Basic earnings (loss) per share:
Net income (loss), as reported $ (0.45) $ 0.72 $ 0.18 $ 1.25
Goodwill amortization -- 0.33 -- 0.67
---------- ---------- ---------- ----------
Adjusted net income (loss) $ (0.45) $ 1.05 $ 0.18 $ 1.92
Diluted earnings (loss) per share:
Net income (loss), as reported $ (0.45) $ 0.70 $ 0.18 $ 1.22
Goodwill amortization -- 0.30 -- 0.62
---------- ---------- ---------- ----------
Adjusted net income (loss) $ (0.45) $ 1.00 $ 0.18 $ 1.84
8. DERIVATIVES AND HEDGING ACTIVITIES
Dura 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. Dura does not enter into derivatives or
other financial instruments for trading or speculative purposes. Dura enters
into financial instruments to manage and reduce the impact of changes in foreign
currency exchange rates and interest rates.
Dura uses forward exchange contracts to hedge its foreign currency
exposure related to the interest payments under its outstanding 100 million Euro
denominated Senior Subordinated Notes. Dura designated these contracts at their
inception as a cash flow hedge. At June 30, 2002, Dura had outstanding contracts
to purchase $4.5 million Euro (approximately $3.9 million), representing the
interest payments due during 2002. The estimated fair value of these foreign
exchange contracts based upon market quotes was approximately $4.4 million. The
net realized gain of approximately $0.5 million is included in accumulated other
comprehensive income in the accompanying June 30, 2002 condensed consolidated
balance sheet.
In April 2002, in connection with the Senior Note offering, Dura entered
into a fixed to floating interest rate swap (notional amount of $325.0 million)
with various financial institutions. Dura designated these contracts at their
inception as a fair value hedge. At June 30, 2002,
-12-
Dura's swap contracts outstanding had a fair value based upon market quotes of
approximately $3.3 million and this amount is included in long term debt in the
accompanying June 30, 2002 condensed consolidated balance sheet.
The counter parties to the above agreements are major financial
institutions. Dura does not enter into or hold derivatives for trading or
speculative purposes.
9. COMPREHENSIVE INCOME (LOSS)
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 Dura, comprehensive income (loss) represents net
income adjusted for foreign currency translation adjustments and the deferred
gain/ loss on derivative instruments utilized to hedge Dura's interest and
foreign exchange exposures. Comprehensive income (loss) for the periods is as
follows (in thousands):
Three months ended Six months ended
June 30, June 30,
------------------------- ------------------------
2002 2001 2002 2001
--------- ---------- -------- ---------
Net income (loss) $ (7,990) $ 12,866 $ 3,234 $ 22,084
Other comprehensive income:
Foreign currency translation
adjustment 46,110 (8,191) 39,079 (29,171)
Derivative instruments (1,102) (830) (699) (617)
-------- -------- -------- --------
Comprehensive income (loss) $ 37,018 $ 3,845 $ 41,614 (7,704)
======== ======== ======== ========
10. NEW ACCOUNTING PRONOUNCEMENTS
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This statement requires recognition of a liability for
any legal obligations associated with the retirement of a tangible long-lived
asset. Any such liability will be recorded at fair value when incurred and
generally results in an increase to the carrying amount of the related
long-lived asset. This statement will be effective for Dura for the year ending
December 31, 2003. The adoption of this statement will not have a material
effect on our results of operations or financial position.
In July 2001, the FASB issued SFAS No. 144, "Impairment or Disposal of
Long-Lived Assets," which was effective for fiscal years beginning after
December 15, 2001. The provisions of this Statement provide a single accounting
model for impairment of long-lived assets. Dura adopted SFAS No. 144 on January
1, 2002. The adoption of this pronouncement did not have a material impact on
our results of operations or financial position.
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". This statement eliminates the automatic classification of gain or
loss on extinguishment of debt as an extraordinary item of income and requires
that such gain or loss be evaluated for extraordinary classification under the
criteria of Accounting Principles Board No. 30 "Reporting Results of
-13-
Operations". This statement also requires sales-leaseback accounting for certain
lease modifications that have economic effects that are similar to
sales-leaseback transactions, and makes various other technical corrections to
existing pronouncements. This statement will be effective for Dura for the year
ending December 31, 2003. The adoption of this statement may result in a
reclassification within our results of operations.
11. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR
FINANCIAL INFORMATION
The following condensed consolidating financial information presents
balance sheets, statements of income and cash flow information related to Dura's
business. Each Guarantor, as defined, is a direct or indirect wholly owned
subsidiary of Dura 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 to investors.
-14-
11. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR
FINANCIAL INFORMATION: (Continued)
DURA AUTOMOTIVE SYSTEMS, INC.
CONSOLIDATING BALANCE SHEETS AS OF JUNE 30, 2002
(AMOUNTS IN THOUSANDS - UNAUDITED)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------ ------------
Assets
- -------------------------------
Current assets:
Cash and cash equivalents $ 60,912 $ 1,438 $ 61,829 $ -- $ 124,179
Accounts receivable, net 97,077 34,326 201,261 -- 332,664
Inventories 30,794 20,360 68,033 -- 119,187
Other current assets 41,115 2,169 92,608 -- 135,892
Due from affiliates 95,391 69,540 -- (164,931) --
----------- ----------- ----------- ----------- -----------
Total current assets 325,289 127,833 423,731 (164,931) 711,922
----------- ----------- ----------- ----------- -----------
Property, plant and equipment,
net 145,123 52,940 295,494 -- 493,557
Investment in subsidiaries 690,451 20,949 69,773 (781,173) --
Notes receivable from
affiliates 414,821 178,085 70,713 (663,619) --
Goodwill, net 423,392 82,770 470,363 -- 976,525
Other assets, net 58,259 655 25,250 -- 84,164
----------- ----------- ----------- ----------- -----------
Total Assets $ 2,057,335 $ 463,232 $ 1,355,324 $(1,609,723) $ 2,266,168
=========== =========== =========== =========== ===========
Liabilities and Stockholders'
Investment
- -------------------------------
Current liabilities:
Accounts payable $ 113,370 $ 27,612 $ 141,816 -- $ 282,798
Accrued liabilities 103,538 15,866 116,892 -- 236,296
Current maturities of long-
term debt 1,539 50 3,687 -- 5,276
Due to affiliates 72,518 45,744 46,669 $ (164,931) --
----------- ----------- ----------- ----------- -----------
Total current liabilities 290,965 89,272 309,064 (164,931) 524,370
----------- ----------- ----------- ----------- -----------
Long-term debt, net of
current maturities 1,051,844 32 15,127 -- 1,067,003
Other noncurrent liabilities 63,957 14,420 53,214 -- 131,591
Notes payable to affiliates 91,711 -- 571,908 (663,619) --
----------- ----------- ----------- ----------- -----------
Total liabilities 1,498,477 103,724 949,313 (828,550) 1,722,964
----------- ----------- ----------- ----------- -----------
Mandatorily redeemable
convertible trust preferred
securities 55,250 -- -- -- 55,250
Stockholders' investment: 503,608 359,508 406,011 (781,173) 487,954
----------- ----------- ----------- ----------- -----------
Total Liabilities & SH Invest $ 2,057,335 $ 463,232 $ 1,355,324 $(1,609,723) $ 2,266,168
=========== =========== ========== ============ ===========
-15-
11. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR
FINANCIAL INFORMATION: (Continued)
DURA AUTOMOTIVE SYSTEMS, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2002
(AMOUNTS IN THOUSANDS - UNAUDITED)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
------- --------- --------- ------------ ------------
Revenues $ 287,517 $ 104,879 $ 287,393 $ (12,506) $ 667,283
Cost of sales 250,693 80,608 258,517 (12,506) 577,312
--------- --------- --------- --------- ---------
Gross profit 36,824 24,271 28,876 -- 89,971
Selling, general and
administrative expenses 15,761 4,031 15,845 -- 35,637
Facility consolidation and other
charges 1,863 -- 19,225 21,088
Amortization expense 184 1 104 -- 289
--------- --------- --------- --------- ---------
Operating income 19,016 20,239 (6,298) -- 32,957
Interest expense, net 13,049 (26) 7,949 -- 20,972
--------- --------- --------- --------- ---------
Income before provision for
income taxes, equity in
(earnings) of affiliates and
minority interest 5,967 20,265 (14,247) -- 11,985
Provision for income taxes 5,330 6,378 4,244 -- 15,952
Equity in (earnings) of
affiliates, net 5,429 -- (1,439) (3,990) --
Minority interest-dividends on
trust preferred securities, net 601 -- -- -- 601
Dividends (to)/ from affiliates (825) -- -- 825 --
--------- --------- --------- --------- ---------
Income (loss) before
extraordinary item (4,568) 13,887 (17,052) 3,165 (4,568)
Extraordinary item (3,422) -- -- -- (3,422)
--------- --------- --------- --------- ---------
Net income (loss) $ (7,990) $ 13,887 $ (17,052) $ 3,165 $ (7,990)
========= ========= ========= ========= =========
-16-
11. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR
FINANCIAL INFORMATION: (Continued)
DURA AUTOMOTIVE SYSTEMS, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2002
(AMOUNTS IN THOUSANDS)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
---------- --------- ---------- ------------ ------------
Revenues $ 561,683 $ 197,816 $ 549,215 $ (25,250) $ 1,283,464
Cost of sales 492,758 153,164 496,473 (25,250) 1,117,145
----------- ----------- ----------- ----------- -----------
Gross profit 68,925 44,652 52,742 -- 166,319
Selling, general and
Administrative expenses 31,353 7,885 30,666 -- 69,904
Facility consolidation and
other charges 1,863 -- 19,225 -- 21,088
Amortization expense 474 3 208 -- 685
----------- ----------- ----------- ----------- -----------
Operating income 35,235 36,764 2,643 -- 74,642
Interest expense, net 27,154 (50) 16,414 -- 43,518
----------- ----------- ----------- ----------- -----------
Income before provision for
income taxes, equity in
(earnings) losses of affiliates
and minority interest 8,081 36,814 (13,771) -- 31,124
Provision for income taxes 6,472 12,113 4,640 -- 23,225
Minority interests and equity in
(earnings) losses of affiliates,
net (4,455) -- (2,581) 7,036 --
Minority interest-dividends on
Trust preferred securities, net 1,243 -- -- -- 1,243
Dividends (to)/ from affiliates (1,835) -- -- 1,835 --
----------- ----------- ----------- ----------- -----------
Income (loss) before
extraordinary item 6,656 24,701 (15,830) (8,871) 6,656
Extraordinary item (3,422) -- -- -- (3,422)
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 3,234 $ 24,701 $ (15,830) $ (8,871) $ 3,234
=========== =========== =========== =========== ===========
-17-
11. 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, 2002
(AMOUNTS IN THOUSANDS - UNAUDITED)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- ---------- --------- ------------ ------------
OPERATING ACTIVITIES:
Net income $ 3,234 $ 24,701 $ (15,830) $ (8,871) $ 3,234
Adjustments to reconcile net
income to net cash
provided by (used in)
operating activities:
Depreciation and amortization 13,429 4,778 19,116 -- 37,323
Deferred income taxes 5,014 -- 4,534 -- 9,548
Equity in (earnings) of affiliates
and minority interest (4,455) -- (2,581) 7,036 --
Extraordinary item 3,422 -- -- -- 3,422
Changes in other operating
items 76,165 (5,845) (17,201) -- 53,119
--------- --------- --------- --------- ---------
Net cash provided by (used
in) operating activities 96,809 23,634 (11,962) (1,835) 106,646
--------- --------- --------- --------- ---------
INVESTING ACTIVITIES:
Net proceeds from disposition of
businesses 31,122 -- -- -- 31,122
Capital expenditures, net (5,157) (2,825) (17,953) -- (25,935)
--------- --------- --------- --------- ---------
Net cash provided by (used in)
investing activities 25,965 (2,825) (17,953) -- 5,187
--------- --------- --------- --------- ---------
FINANCING ACTIVITIES:
Short-term borrowings
(repayments), net (41,490) -- (16,627) -- (58,117)
Long-term repayments, net (267,060) (24) (39,135) -- (306,219)
Proceeds from issuance of Senior
Notes 350,000 -- -- -- 350,000
Debt issue costs (10,964) -- -- -- (10,964)
Debt financing (to)/from affiliates (114,445) (19,369) 133,814 -- --
Proceeds from issuance of
common stock and exercise
of stock options 3,704 -- -- -- 3,704
Other, net 239 -- -- -- 239
Dividends paid -- (1,835) -- 1,835 --
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities (80,016) (21,228) 78,052 1,835 (21,357)
--------- --------- ---------- --------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON
CHANGES ON CASH 7,461 -- (6,047) -- 1,414
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS 50,219 (419) 42,090 -- 91,890
CASH AND CASH
EQUIVALENTS:
Beginning of period 10,693 1,857 19,739 -- 32,289
--------- --------- --------- --------- ---------
End of period $ 60,912 $ 1,438 $ 61,829 $ -- $ 124,179
========= ========= ========= ========= =========
-18-
11. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR
FINANCIAL INFORMATION: (Continued)
DURA AUTOMOTIVE SYSTEMS, INC.
CONSOLIDATING BALANCE SHEETS AS OF DECEMBER 31, 2001
(AMOUNTS IN THOUSANDS)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
-------- --------- ----------- ------------ ------------
Assets
- ------------------------------
Current assets:
Cash and cash equivalents $ 10,693 $ 1,857 $ 19,739 -- $ 32,289
Accounts receivable, net 113,655 25,205 154,616 -- 293,476
Inventories 34,425 17,591 64,492 -- 116,508
Other current assets 47,909 1,249 77,209 -- 126,367
Due from affiliates 149,969 63,358 2,241 $ (215,568) --
----------- ----------- ----------- ----------- -----------
Total current assets 356,651 109,260 318,297 (215,568) 568,640
----------- ----------- ----------- ----------- -----------
Property, plant and equipment,
net 184,461 48,554 283,502 -- 516,517
Investment in subsidiaries 648,053 3,489 66,926 (718,468) --
Notes receivable from
affiliates 278,213 146,409 70,711 (495,333) --
Goodwill, net 429,663 82,769 450,035 -- 962,467
Other assets, net 47,989 510 25,481 -- 73,980
----------- ----------- ----------- ----------- -----------
$ 1,945,030 $ 390,991 $ 1,214,952 $(1,429,369) $ 2,121,604
=========== =========== =========== =========== ===========
Liabilities and Stockholders'
Investment
Current liabilities:
Accounts payable $ 105,430 $ 17,655 $ 126,739 $ -- $ 249,824
Accrued liabilities 71,248 12,522 93,557 -- 177,327
Current maturities of long-
term debt 42,122 50 18,675 -- 60,847
Due to affiliates 65,760 33,999 115,809 (215,568) --
----------- ----------- ----------- ----------- -----------
Total current liabilities 284,560 64,226 354,780 (215,568) 487,998
=========== =========== =========== =========== ===========
Long-term debt, net of
current maturities 962,350 56 53,173 -- 1,015,579
Other noncurrent liabilities 61,117 12,606 46,657 -- 120,380
Notes payable to affiliates 84,625 23,851 386,857 (495,333) --
----------- ----------- ----------- ----------- -----------
Total liabilities 1,392,652 100,739 841,467 (710,901) 1,623,957
----------- ----------- ----------- ----------- -----------
Mandatorily redeemable
convertible trust preferred
securities 55,250 -- -- -- 55,250
Stockholders' investment: 497,128 290,252 373,485 (718,468) 442,397
----------- ----------- ----------- ----------- -----------
$ 1,945,030 $ 390,991 $ 1,214,952 $(1,429,369) $ 2,121,604
=========== =========== =========== =========== ===========
-19-
11. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR
FINANCIAL INFORMATION: (Continued)
DURA AUTOMOTIVE SYSTEMS, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2001
(AMOUNTS IN THOUSANDS)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----- --------- --------- ------------ ------------
Revenues $ 314,182 $ 82,812 $ 282,432 $ (13,105) $ 666,321
Cost of sales 271,879 65,518 253,018 (13,105) 577,310
--------- --------- --------- --------- ---------
Gross profit 42,303 17,294 29,414 -- 89,011
Selling, general and
administrative expenses 20,060 3,733 12,306 -- 36,099
Amortization expense 3,239 587 2,869 -- 6,695
--------- --------- --------- --------- ---------
Operating income 19,004 12,974 14,239 -- 46,217
Interest expense, net 14,024 (62) 10,654 -- 24,616
--------- --------- --------- --------- ---------
Income before provision for
income taxes, equity in
(earnings) of affiliates and
minority interest 4,980 13,036 3,585 -- 21,601
Provision for income taxes 3,206 3,319 1,536 -- 8,061
Minority interests and equity in
(earnings) of affiliates, net (11,766) -- (1,124) 12,890 --
Minority interest-dividends on
trust preferred securities, net 674 -- -- -- 674
Dividends (to)/ from affiliates -- (684) (681) 1,365 --
--------- --------- --------- --------- ---------
Net income (loss) $ 12,866 $ 10,401 $ 3,854 $ (14,255) $ 12,866
========= ========= ========= ========= =========
-20-
11. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR
FINANCIAL INFORMATION: (Continued)
DURA AUTOMOTIVE SYSTEMS, INC.
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2001
(AMOUNTS IN THOUSANDS)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------ ------------
Revenues $ 615,931 $ 156,738 $ 584,544 $ (29,039) $1,328,174
Cost of sales 531,661 125,882 518,752 (29,039) 1,147,256
---------- ---------- ---------- ---------- ----------
Gross profit 84,270 30,856 65,792 -- 180,918
Selling, general and
Administrative expenses 40,358 7,393 25,981 -- 73,732
Facility consolidation and
other charges 1,616 708 305 -- 2,629
Amortization expense 6,165 1,516 6,013 -- 13,694
---------- ---------- ---------- ---------- ----------
Operating income 36,131 21,239 33,493 -- 90,863
Interest expense, net 30,203 596 22,350 -- 53,149
---------- ---------- ---------- ---------- ----------
Income before provision for
income taxes, equity in
(earnings) of affiliates and
minority interest 5,928 20,643 11,143 -- 37,714
Provision for income taxes 4,181 5,687 4,477 -- 14,345
Minority interests and equity in
(earnings) of affiliates, net (21,622) -- (1,839) 23,461 --
Minority interest-dividends on
Trust preferred securities, net 1,285 -- -- -- 1,285
Dividends (to)/ from affiliates -- (1,366) (1,364) 2,730 --
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 22,084 $ 16,322 $ 9,869 $ (26,191) $ 22,084
========== ========== ========== ========== ==========
-21-
11. 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, 2001
(AMOUNTS IN THOUSANDS)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
-------- --------- --------- ------------ ------------
OPERATING ACTIVITIES:
Net income (loss) $ 22,084 $ 16,322 $ 9,869 $ (26,191) $ 22,084
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and amortization 20,726 5,485 21,781 -- 47,992
Deferred income taxes (14,708) 14,573 1,719 -- 1,584
Equity in losses of affiliates
and minority interest (16,421) -- (1,839) 18,260 --
Changes in other operating
items 73,891 14,374 (22,978) -- 65,287
--------- --------- --------- --------- ---------
Net cash provided by (used
in) operating activities 85,572 50,754 8,552 (7,931) 136,947
--------- --------- --------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures, net (4,990) (2,620) (22,029) -- (29,639)
--------- --------- --------- --------- ---------
Net cash used in investing
activities (4,990) (2,620) (22,029) -- (29,639)
--------- --------- --------- --------- ---------
FINANCING ACTIVITIES:
Short-term borrowings, net 3,318 53 (8,445) -- (5,074)
Long-term borrowings, net (75,873) 78 (24,822) -- (100,617)
Debt financing (to)/from
affiliates (148,000) (41,654) 189,654 -- --
Proceeds from issuance of
common stock and exercise
of stock options 105 -- -- -- 105
Dividends paid -- (6,566) (1,365) 7,931 --
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities (220,450) (48,089) 155,022 7,931 (105,586)
EFFECT OF EXCHANGE --------- -------- --------- --------- ----------
RATE ON CASH 139,927 -- (142,422) -- (2,495)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS 59 45 (877) -- (773)
CASH AND CASH
EQUIVALENTS:
Beginning of period 18,154 1,060 11,224 -- 30,438
--------- --------- --------- --------- ---------
End of period $ 18,213 $ 1,105 $ 10,347 $ -- $ 29,665
========= ========= ========= ========= =========
-22-
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
North American automotive and recreational vehicle production volumes proved to
be solid through the first half of 2002, however we are still cautious about the
outlook for the remainder of the year. European automotive production volumes
are down versus prior year and the outlook is less certain.
RESULTS OF OPERATIONS
The following management's discussion and analysis of financial condition and
results of operations (MD&A) should be read in conjunction with the MD&A
included in our Annual Report on Form 10-K for the year ended December 31, 2001.
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2002 TO THE THREE MONTHS ENDED
JUNE 30, 2001
Revenues - Revenues for the three months ended June 30, 2002 were $667.3
million, an increase of $1.0 million, from $666.3 million for the three months
ended June 30, 2001. Factors that favorably impacted sales included increased
volumes in the North American automotive and recreational vehicle markets and
the strengthening of the European currencies in relation to the US dollar.
Offsetting these favorable items were a decrease in sales related to the
divestiture of our Steering Gear, Plastic Products, Australia and Thixotech
businesses along with weakness in the European automotive industry.
Cost of Sales - Cost of sales for the three months ended June 30, 2002 and 2001
were $577.3 million. Cost of sales as a percentage of revenues for the second
quarter of 2002 was 86.5%, which is basically flat compared to 86.6% in the
second quarter of 2001.
Facility Consolidation and Other Charges - In May 2002, Dura divested its
Steering Gear Business. The Steering Gear Business is a machining operation that
utilized a technology that was determined to be non-essential to Dura's
capabilities. This business employs approximately 200 people in England and
generated annual revenue of approximately $20.0 million. The transaction
resulted in a one-time charge of approximately $19.2 million consisting of asset
write-downs and remaining contractual commitments. No tax benefit was recorded
related to this charge. Dura also recorded an additional $1.9 million charge
related to final negotiation of purchase price adjustments associated with the
sale of the Plastics Products Business.
Selling, General, and Administrative - Selling, general, and administrative
expenses for the three months ended June 30, 2002 were $35.6 million a decrease
of $0.5 million, or 1.3%, from $36.1 million for the three months ended June 30,
2001. As a percentage of revenue, selling, general and administrative expenses
decreased to 5.3% for 2002 compared to 5.4% in the second quarter of 2001. The
decrease in cost is primarily the result of the salaried headcount reductions
that occurred during the fourth quarter of 2001.
-23-
Amortization Expense - Amortization expense for the three months ended June 30,
2002, was $0.3 million a decrease of $6.4 million, or 95.7%, from $6.7 million
for the three months ended June 30, 2001. The decrease is the result of Dura
adopting SFAS No. 142 "Goodwill and Other Intangible Assets". Under SFAS No.
142, goodwill and intangible assets with indefinite lives are no longer
amortized, but reviewed annually, or more frequently if impairment indicators
arise (See Adoption of SFAS No. 142 below).
Interest Expense - Interest expense for the three months ended June 30, 2002 was
$21.0 million a decrease of $3.6 million, or 14.8%, from $24.6 million for the
three months ended June 30, 2001. The decrease in interest expense is due to
debt pay-down during 2001 and the first six months of 2002 and lower interest
rates on LIBOR contracts. This decrease was slightly offset by the higher
interest cost related to the additional issuance of $158.5 million of Senior
Subordinated Notes (see below).
Income Taxes - The effective income tax rate was 133.1% for the three months
ended June 30, 2002 and 37.3% for the three months ended June 30, 2001. The
significant increase in the effective tax rate relates to the divestiture of the
Steering Gear Business. Due to Dura's current tax position in the U.K. we
provided no benefit on the $19.2 million loss recorded during the second quarter
of 2002. In addition, $2.1 million was charged to the provision relating to
certain deferred tax assets associated with the Steering Gear Business. The
overall effective rates differed from the statutory rates as a result of lower
combined foreign tax rates, the effects of state taxes, the provision of a
valuation allowance on certain losses in foreign jurisdictions, as well as the
items discussed above.
Minority Interest - Minority interest for the three months ended June 30, 2002
and June 30, 2001 represents dividends, net of income tax benefits, on the 7 1/2
percent Convertible Trust Preferred Securities ("Preferred Securities") which
were issued on March 20, 1998.
Adoption of SFAS No. 141 and 142 - In July 2001, the FASB issued SFAS No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 requires all business combinations initiated after June
30, 2001 to be accounted for using the purchase method of accounting. Under SFAS
No. 142 goodwill and intangible assets with indefinite lives are no longer
amortized, but reviewed annually, or more frequently if impairment indicators
arise. Separable intangible assets that are not deemed to have indefinite lives
will continue to be amortized over their useful lives, but with no maximum life.
The amortization provisions of SFAS No. 142 apply to goodwill and intangible
assets acquired after June 30, 2001. With respect to goodwill and intangible
assets acquired prior to July 1, 2001, Dura is required to adopt SFAS No. 142
effective January 1, 2002. As of June 30, 2002, Dura has completed step one of
the transitional goodwill impairment test. The results of this step have
identified that Dura may have to record an impairment loss related to its
Controls Systems and Other Operating Companies reportable units, as defined
under SFAS No. 142. Based on current estimates, Dura believes the range of the
transitional goodwill impairment to be from $200.0 million to $240.0 million.
Dura will complete step two of the transitional goodwill impairment test prior
to the end of the year. Had the non-amortization provisions of SFAS No. 141 and
142 been adopted January 1, 2001, net income and earnings per share would have
been reported as the following amounts (in thousands, except per share data):
-24-
Three months ended
June 30,
---------------------------
2002 2001
---------- -------------
Net income (loss), as reported $ (7,990) $ 12,866
Add back goodwill amortization, net of
tax -- 5,886
---------- ----------
Adjusted net income (loss) $ (7,990) $ 18,752
========== ==========
Basic earnings (loss) per share:
Net income (loss), as reported $ (0.45) $ 0.72
Goodwill amortization -- 0.33
---------- ----------
Adjusted net income (loss) $ (0.45) $ 1.05
========== ==========
Diluted earnings (loss) per share:
Net income (loss), as reported $ (0.45) $ 0.70
Goodwill amortization -- 0.30
---------- ----------
Adjusted net income (loss) $ (0.45) $ 1.00
========== ==========
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2002 TO THE SIX MONTHS ENDED JUNE
30, 2001
Revenues - Revenues for the six months ended June 30, 2002 were $1,283.5 million
a decrease of $44.7 million, or 3.4%, from $1,328.2 million for the six months
ended June 30, 2001. Factors that unfavorably impacted sales included the
divestiture of our Steering Gear, Plastic Products, Australia and Thixotech
businesses along with weakness in the European automotive industry.
Slightly offsetting these unfavorable items was an increase in the North
American automotive and recreational vehicle production volumes and the
strengthening of the European currencies in relation to the US dollar.
Cost of Sales - Cost of sales for the six months ended June 30, 2002 were
$1,117.1 million a decrease of $30.2 million, or 2.6%, from $1,147.3 million for
the six months ended June 30, 2001. Cost of sales as a percentage of revenues
for the first six months of 2002 increased to 87.0% compared to 86.4% in the
first six months of 2001. The corresponding reduction in gross margin is
primarily the result of some difficult program launches that took place in
Europe during the later part of 2001. Cost associated with these launches
extended into the first quarter of 2002 and negatively impacted gross margin. By
the second quarter of 2002 these costs were mostly behind us and operational
efficiency continued to improve in Europe. In addition, North American
automotive and recreational vehicle production volumes increased helping to
positively impact gross margin.
Facility Consolidation and Other Charges - In May 2002, Dura divested its
Steering Gear Business. The Steering Gear Business is a machining operation that
utilized a technology that was determined to be non-essential to Dura's
capabilities. This business employs approximately 200 people in England and
generated annual revenue of approximately $20.0 million. The transaction
resulted in a one-time charge of approximately $19.2 million consisting of asset
write-downs and remaining contractual commitments. No tax benefit was recorded
related to this
-25-
charge. Dura also recorded an additional $1.9 million charge related to final
negotiation of purchase price adjustments associated with the sale of the
Plastics Products Business.
Selling, General, and Administrative - Selling, general, and administrative
expenses for the six months ended June 30, 2002 were $69.9 million, a decrease
of $3.8 million, or 5.2%, from $73.7 million for the six months ended June 30,
2001. As a percentage of revenue, selling, general and administrative expenses
decreased to 5.4% for 2002 compared to 5.6% for the first six months of 2001.
The decrease in cost is primarily the result of the salaried headcount
reductions that occurred during the fourth quarter of 2001.
Amortization Expense - Amortization expense for the six months ended June 30,
2002 was $0.7 million a decrease of $13.0 million from $13.7 million for the six
months ended June 30, 2001. The decrease is the result of Dura adopting the
non-amortization provisions of SFAS No. 142 "Goodwill and Other Intangible
Assets". Under SFAS No. 142 goodwill and intangible assets with indefinite lives
are no longer amortized, but reviewed annually, or more frequently if impairment
indicators arise (See Adoption of SFAS No. 142 below).
Interest Expense - Interest expense for the six months ended June 30, 2002 was
$43.5 million a decrease of $9.6 million, or 18.1%, from $53.1 million for the
six months ended June 30, 2001. The decrease in interest expense is due to
significant debt pay-down during 2001 and the first half of 2002 and a lower
average borrowing rate. This decrease was slightly offset by the higher interest
cost related to the additional issuance of $158.5 million of Senior Subordinated
Notes (see below).
Income Taxes - The effective income tax rate was 74.6% for the six months ended
June 30, 2002 and 38.0% for the six months ended June 30, 2001. The significant
increase in the effective tax rate relates to the divestiture of the Steering
Gear Business. Due to Dura's current tax position in the U.K. we provided no
benefit on the $19.2 million loss recorded during the second quarter of 2002. In
addition, $2.1 million was charged to the provision relating to certain deferred
tax assets associated with the Steering Gear Business. The overall effective
rates differed from the statutory rates as a result of lower combined foreign
tax rates, the effects of state taxes, the provision of a valuation allowance on
certain losses in foreign jurisdictions, as well as the items discussed above.
Minority Interest - Minority interest for the six months ended June 30, 2002 and
June 30, 2001 represents dividends, net of income tax benefits, on the 7 1/2
percent Preferred Securities which were issued on March 20, 1998.
Adoption of SFAS No. 141 and 142 - In July 2001, the FASB issued SFAS No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 requires all business combinations initiated after June
30, 2001 to be accounted for using the purchase method of accounting. Under SFAS
No. 142 goodwill and intangible assets with indefinite lives are no longer
amortized, but reviewed annually, or more frequently if impairment indicators
arise. Separable intangible assets that are not deemed to have indefinite lives
will continue to be amortized over their useful lives, but with no maximum life.
The amortization provisions of SFAS No. 142 apply to goodwill and intangible
assets acquired after June 30, 2001. With respect to goodwill and intangible
assets acquired prior to July 1, 2001, Dura is required to
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adopt SFAS No. 142 effective January 1, 2002. As of June 30, 2002, Dura has
completed step one of the transitional goodwill impairment test. The results of
this step have identified that Dura may have to record an impairment loss
related to its Controls Systems and Other Operating Companies reportable units,
as defined under SFAS No. 142. Based on current estimates, Dura believes the
range of the transitional goodwill impairment to be from $200.0 million to
$240.0 million. Dura will complete step two of the transitional goodwill
impairment test prior to the end of the year. Had the non-amortization provision
of SFAS No. 141 and 142 been adopted January 1, 2001, net income and earnings
per share would have been reported as the following amounts (in thousands,
except per share data):
Six months ended
June 30,
------------------------
2002 2001
--------- ----------
Net income (loss), as reported $ 3,234 $ 22,084
Add back goodwill amortization,
net of tax -- 11,922
--------- ----------
Adjusted net income (loss) $ 3,234 $ 34,006
========= ==========
Basic earnings (loss) per share:
Net income (loss), as reported $ 0.18 $ 1.25
Goodwill amortization -- 0.67
--------- ----------
Adjusted net income (loss) $ 0.18 $ 1.92
========= ==========
Diluted earnings (loss) per share:
Net income (loss), as reported $ 0.18 $ 1.22
Goodwill amortization -- 0.62
--------- ----------
Adjusted net income (loss) $ 0.18 $ 1.84
========= ==========
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 2002, Dura provided cash from operations of
$106.6 million, compared to $136.9 million in 2001. Cash generated from
operations before changes in working capital items was $53.5 million for the
first six months of 2002 compared to $71.7 million for 2001. Working capital
generated cash of $53.1 million in the first six months of 2002 compared to
$65.3 million in 2001. This reduction in cash generated from working capital is
primarily the result of the strengthening of the European currencies in relation
to the US dollar.
Net cash provided by investing activities was $5.2 million for the first six
months of 2002 as compared to a use of $29.6 million in 2001. Net proceeds from
disposition of businesses provided $31.1 million and net capital expenditures
totaled $25.9 million for the first six months of 2002. The capital expenditures
were primarily for equipment and dedicated tooling purchases related to new or
replacement programs. This compares with net capital expenditures of $29.6
million in 2001.
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Net cash used in financing activities totaled $21.4 million for the first six
months of 2002 compared with $105.6 million in 2001, principally for the
repayment of outstanding indebtedness.
In connection with the acquisitions of Adwest and Excel, Dura entered into a
$1.15 billion 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.
In April 2002, Dura completed the offering of $350.0 million 8 5/8 percent
senior unsecured notes, due April 2012. The interest on the Senior Notes is
payable semi-annually. Net proceeds from this offering of approximately $341.0
million were used to repay the outstanding balance of the $275.0 million tranche
A term loan, and a portion of the $275.0 million tranche B term loan. Dura then
replaced the remaining tranche B term loan with a $150.0 million tranche C term
loan. Borrowings under the tranche C term loan are based on LIBOR and are due
and payable in December 2008. In conjunction with these transactions, Dura
obtained an amendment to the Credit Agreement to allow for the offering and to
further relax certain financial covenants. Dura also entered into a fixed to
floating interest rate swap (notional amount of $325.0 million) with various
financial institutions that more closely mirrors the cost of its bank debt. In
connection with the repayment of borrowings outstanding under the Credit
Agreement, Dura wrote-off debt financing costs of approximately $3.4 million,
net of income taxes, during the second quarter of 2002. This write-off is
reflected as an extraordinary item in the accompanying condensed consolidated
statements of operations for the three and six months ended June 30, 2002.
As of June 30, 2002, rates on borrowings under the Credit Agreement are based on
LIBOR and were 4.3 percent. 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 Dura to maintain certain financial ratios including minimum liquidity
and interest coverage. Dura was in compliance with the covenants as of June 30,
2002. Borrowings under the Credit Agreement are collateralized by certain assets
of Dura.
The Credit Agreement provides Dura with the ability to denominate a portion of
its revolving credit borrowings in foreign currencies up to an amount equal to
$150.0 million. As of June 30, 2002, Dura had no borrowings outstanding under
the revolver.
At June 30, 2002, Dura had unused borrowing capacity of approximately $371.4
million of which $102.9 million was available under its most restrictive debt
covenant. Dura also utilizes uncommitted overdraft facilities to satisfy the
short-term working capital requirements of its foreign subsidiaries. At June 30,
2002, Dura had no borrowings outstanding under its unsecured overdraft
facilities. At June 30, 2002, Dura had unsecured overdraft facilities available
from banks of approximately $37.1 million. Dura believes the borrowing
availability under its credit agreement, uncommitted overdraft facilities and
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
2002 capital expenditures will be approximately $75.0 million.
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In April 1999, Dura completed the offering of $300 million and Euro 100 million
of senior 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 $394.7 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 was used for general corporate purposes. In June
2001, Dura completed a similar offering of 9% senior subordinated notes due May
2009 with a face amount of $158.5 million. The interest on these notes is also
payable semi-annually. Unamortized discount and debt issuance costs were $8.5
million, yielding an imputed interest rate of 10%. Net proceeds of approximately
$147.1 million were used to reduce the borrowings outstanding under the
revolving credit facility. These notes are collateralized by guarantees of
certain of Dura's subsidiaries.
Dura is limited as to its ability to declare or make certain dividend payments
or other distributions of assets under its Credit Agreement and Subordinated
Notes. Certain distributions are permitted including a company stock purchase
program, tax sharing arrangements and distributions as required under Dura's
Preferred Securities.
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. The recreational vehicle market is seasonal in
that sales in the fourth quarter are normally at reduced levels.
EFFECTS OF INFLATION
Inflation potentially affects Dura in two principal ways. First, a significant
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.
FOREIGN CURRENCY TRANSACTIONS
A significant portion of Dura's revenues during the three and six months ended
June 30, 2002 were derived from manufacturing operations in Europe, Canada and
Latin America. The results of operations and the 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 at June 30, 2002 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.
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Dura's strategy for management of currency risk relies primarily upon conducting
its operations in such countries' respective currency and Dura may, from time to
time, engage in hedging programs intended to reduce Dura's exposure to currency
fluctuations.
NEW ACCOUNTING PRONOUNCEMENTS
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This statement requires recognition of a liability for any legal
obligations associated with the retirement of a tangible long-lived asset. Any
such liability will be recorded at fair value when incurred and generally
results in an increase to the carrying amount of the related long-lived asset.
This statement will be effective for Dura for the year ending December 31, 2003.
The adoption of this statement will not have a material effect on our results of
operations or financial position.
In July 2001, the FASB issued SFAS No. 144, "Impairment or Disposal of
Long-Lived Assets," which was effective for fiscal years beginning after
December 15, 2001. The provisions of this Statement provide a single accounting
model for impairment of long-lived assets. Dura adopted SFAS No. 144 on January
1, 2002. The adoption of this pronouncement did not have a material impact on
our results of operations or financial position.
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections".
This statement eliminates the automatic classification of gain or loss on
extinguishment of debt as an extraordinary item of income and requires that such
gain or loss be evaluated for extraordinary classification under the criteria of
Accounting Principles Board No. 30 "Reporting Results of Operations". This
statement also requires sales-leaseback accounting for certain lease
modifications that have economic effects that are similar to sales-leaseback
transactions, and makes various other technical corrections to existing
pronouncements. The adoption of this statement may result in a reclassification
within our results of operations.
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
Dura, are intended to identify forward-looking statements. Such forward-looking
statements are based on the beliefs of Dura's management as well as on
assumptions made by and information currently available to Dura 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 Dura, such as
risks relating to: (i) the degree to which Dura is leveraged; (ii) Dura'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) Dura'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
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forward-looking statements attributable to Dura or persons acting on behalf of
Dura are expressly qualified in their entirety by such cautionary statements.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to our exposures to market risk since
December 31, 2001.
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PART II. OTHER INFORMATION
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings:
Other than as reported in Dura's 2001 Annual Report on Form 10-K under
the caption "Legal Proceedings," Dura is not currently a party to any
material pending legal proceedings, other than routine matters
incidental to the business of Dura.
Item 4. Submission of Matters to a Vote of Security Holders:
The Annual Meeting of Stockholders of Dura Automotive Systems, Inc. was
held on May 21, 2002. At the meeting, the following matters were
submitted to a vote of the stockholders of Dura:
1. The election of nine directors to serve for one year beginning
at the 2002 annual stockholders' meeting and expiring at the
2003 annual stockholders' meeting. Each of the nominees Scott
D. Rued, Robert E. Brooker, Jr., Jack K. Edwards, James O.
Futterknecht, Jr., S.A. Johnson, J. Richard Jones, Eric J.
Rosen, Karl F. Storrie and Ralph R. Whitney, Jr. were elected.
Each of the individuals nominated to serve as a director
received at least 26,973,092 votes representing 75% of the
shares eligible to vote.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
During the quarter for which this report is filed, Dura filed the
following Form 8-K Current Report with the Securities and Exchange
Commission:
1. Dura's current report on Form 8-K dated April 1, 2002,
under Item 5 and Item 7 (Commission File No. 0-21139).
2. Dura's current report on Form 8-K dated April 4, 2002,
under Item 5 and Item 7 (Commission File No. 0-21139).
3. Dura's current report on Form 8-K dated May 21, 2002,
under Item 4 and Item 7 (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 13, 2002 By /s/ David R. Bovee
--------------------
David R. Bovee
Vice President, Chief Financial Officer
(principal accounting and financial
officer)
EXHIBIT INDEX
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002