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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 September 30, 2004
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.)
2791 RESEARCH DRIVE 48309
ROCHESTER HILLS, MICHIGAN (Zip Code)
(Address of principal executive offices)
(248) 299-7500
(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 November 1, 2004 was 18,630,280 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 September 30, 2004 and 2003 (unaudited)
Condensed Consolidated Statements of Operations for the Nine
Months Ended September 30, 2004 and 2003 (unaudited)
Condensed Consolidated Balance Sheets at September 30, 2004
(unaudited) and December 31, 2003
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2004 and 2003 (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
Item 4. Controls and Procedures
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
CERTIFICATIONS
-2-
ITEM 1: FINANCIAL INFORMATION
DURA AUTOMOTIVE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS - UNAUDITED)
Three Months Ended September 30,
2004 2003
---------- ----------
Revenues $ 616,363 $ 554,398
Cost of sales 552,459 493,300
--------- ---------
Gross profit 63,904 61,098
Selling, general and administrative expenses 38,606 37,370
Facility consolidation and other charges 5,061 (4,040)
Amortization expense 103 71
--------- ---------
Operating income 20,134 27,697
Interest expense, net 23,907 20,253
--------- ---------
Income/(loss) from continuing operations before provision for
income taxes and minority interest (3,773) 7,444
Provision/(benefit) for income taxes (1,094) 1,871
Minority interest - dividends on trust preferred securities, net - 725
--------- ---------
Income/(loss) from continuing operations (2,679) 4,848
Gain/(loss) from discontinued operations, net (18) 348
--------- ---------
Net income/(loss) $ (2,697) $ 5,196
========= =========
Basic earnings/(loss) per share:
Income/(loss) from continuing operations $ (0.15) $ 0.26
Discontinued operations - 0.02
--------- ---------
Net income/(loss) $ (0.15) $ 0.28
========= =========
Basic shares outstanding 18,578 18,335
========= =========
Diluted earnings/(loss) per share:
Income/(loss) from continuing operations $ (0.15) $ 0.26
Discontinued operations - 0.02
--------- ---------
Net income/(loss) $ (0.15) $ 0.28
========= =========
Diluted shares outstanding 18,578 18,711
========= =========
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 PER SHARE AMOUNTS - UNAUDITED)
Nine Months Ended September 30,
2004 2003
------------ ------------
Revenues $ 1,909,742 $ 1,753,633
Cost of sales 1,692,490 1,537,848
----------- -----------
Gross profit 217,252 215,785
Selling, general and administrative expenses 117,333 114,805
Facility consolidation and other charges 18,087 (2,016)
Amortization expense 334 212
----------- -----------
Operating income 81,498 102,784
Interest expense, net 66,695 61,627
----------- -----------
Income from continuing operations before provision for
income taxes and minority interest 14,803 41,157
Provision for income taxes 4,293 13,994
Minority interest - dividends on trust preferred securities, net - 2,051
----------- -----------
Income from continuing operations 10,510 25,112
Gain/(loss) from discontinued operations, net (699) 81
----------- -----------
Net income $ 9,811 $ 25,193
=========== ===========
Basic earnings per share:
Income from continuing operations $ 0.57 $ 1.38
Discontinued operations (0.04) -
----------- -----------
Net income $ 0.53 $ 1.38
=========== ===========
Basic shares outstanding 18,468 18,295
=========== ===========
Diluted earnings per share:
Income from continuing operations $ 0.56 $ 1.36
Discontinued operations (0.04) -
----------- -----------
Net income $ 0.52 $ 1.36
=========== ===========
Diluted shares outstanding 18,881 18,494
=========== ===========
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)
September 30, December 31,
2004 2003
------------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 174,935 $ 181,268
Accounts receivable, net 333,093 274,345
Inventories 138,694 127,957
Current portion of derivative instruments 10,987 6,629
Other current assets 81,968 95,045
------------ -----------
Total current assets 739,677 685,244
------------ -----------
Property, plant and equipment, net 460,261 488,363
Goodwill, net 866,725 859,022
Noncurrent portion of derivative instruments 13,154 12,844
Deferred income taxes and other assets, net 69,521 69,959
------------ -----------
$ 2,149,338 $ 2,115,432
============ ===========
Liabilities and Stockholders' Investment
Current liabilities:
Accounts payable $ 250,458 $ 243,995
Accrued liabilities 215,026 187,501
Current maturities of long-term debt 2,813 5,738
------------ -----------
Total current liabilities 468,297 437,234
------------ -----------
Long-term debt, net of current maturities 1,153,148 1,157,099
Mandatorily redeemable convertible trust preferred securities 55,250 55,250
Other noncurrent liabilities 120,205 135,262
Stockholders' investment:
Common stock - Class A 186 168
Common stock - Class B - 16
Additional paid-in capital 351,167 349,220
Treasury stock at cost (2,513) (2,452)
Accumulated deficit (95,254) (105,065)
Accumulated other comprehensive income 98,852 88,700
------------ -----------
Total stockholders' investment 352,438 330,587
------------ -----------
$ 2,149,338 $ 2,115,432
============ ===========
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)
Nine Months Ended September 30,
2004 2003
---------- ------------
OPERATING ACTIVITIES:
Income from continuing operations $ 10,510 $ 25,112
Adjustments to reconcile income from continuing
operations to net cash provided by operating activities -
Depreciation and amortization 64,758 56,167
Deferred income taxes (6) 315
Changes in other operating items (14,353) (42,476)
--------- ---------
Net cash provided by operating activities 60,909 39,118
--------- ---------
INVESTING ACTIVITIES:
Acquisitions, net (13,327) (57,684)
Capital expenditures, net (43,963) (46,217)
--------- ---------
Net cash used in investing activities (57,290) (103,901)
--------- ---------
FINANCING ACTIVITIES:
Long-term borrowings 568 16,400
Repayments of long-term borrowings (18,539) (20,873)
Proceeds from issuance of common stock and
exercise of stock options 1,948 1,004
Other, net (613) (478)
--------- ---------
Net cash used in financing activities (16,636) (3,947)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 7,382 (3,342)
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS FROM
CONTINUING OPERATIONS (5,634) (72,072)
NET CASH FLOW FROM DISCONTINUED OPERATIONS (699) 6,190
CASH AND CASH EQUIVALENTS:
Beginning of period 181,268 143,237
--------- ---------
End of period $ 174,935 $ 77,355
========= =========
SUPPLEMENTAL DISCLOSURE:
Cash paid for interest $ 45,069 $ 42,677
Cash paid for income taxes $ 8,165 $ 9,993
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
Dura Automotive Systems, Inc. (a Delaware Corporation) and subsidiaries
("Dura") designs and manufactures components and systems for the global
automotive and recreation vehicle industries. Dura has 62 manufacturing and
product development facilities located in the United States, Brazil, Canada,
China, Czech Republic, France, Germany, Mexico, Portugal, Slovakia, Spain and
the United Kingdom. Dura also has a presence in Japan and India through
alliances or technical licenses.
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, 2003.
Revenues and operating results for the nine months ended September 30,
2004 are not necessarily indicative of the results to be expected for the full
year.
2. INVENTORIES
Inventories consisted of the following (in thousands):
September 30, December 31,
2004 2003
------------- ------------
Raw materials $ 69,897 $ 64,416
Work-in-process 30,125 31,011
Finished goods 38,672 32,530
-------- --------
$138,694 $127,957
======== ========
3. STOCKHOLDERS' INVESTMENT
Earnings Per Share
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 period. In accordance with Statement of Financial Accounting Standards
("SFAS") No. 128, an entity that reports a discontinued operation, an
extraordinary item, or the cumulative effect of an accounting change in a period
shall use income from continuing operations, adjusted for preferred dividends,
as the control number in determining whether those potential common shares are
dilutive or antidilutive. As a result, diluted earnings per share, and all other
diluted per share amounts presented, were computed utilizing the same number of
potential common shares used in computing the diluted per share amount for
income from continuing operations,
-7-
regardless if those amounts were antidilutive to their respective basic per
share amounts, as follows (in thousands, except per share amounts):
Three months Nine months
ended September 30, ended September 30,
-------------------- -------------------
2004 2003 2004 2003
--------- -------- -------- --------
Net income/(loss) $ (2,697) $ 5,196 $ 9,811 $ 25,193
Interest expense on mandatorily redeemable
convertible preferred securities, net of tax - - - -
-------- -------- -------- --------
Net income/(loss) applicable to common
stockholders - diluted $ (2,697) $ 5,196 $ 9,811 $ 25,193
======== ======== ======== ========
Weighted average number of Class A
common shares outstanding 18,578 16,603 17,808 16,543
Weighted average number of Class B
common shares outstanding - 1,732 660 1,752
-------- -------- -------- --------
18,578 18,335 18,468 18,295
Dilutive effect of outstanding stock options
after application of the treasury stock method - 376 413 199
Dilutive effect of mandatorily redeemable
convertible preferred securities, assuming
conversion - - - -
-------- -------- -------- --------
Diluted shares outstanding 18,578 18,711 18,881 18,494
======== ======== ======== ========
Basic earnings/(loss) per share $ (0.15) $ 0.28 $ 0.53 $ 1.38
======== ======== ======== ========
Diluted earnings/(loss) per share $ (0.15) $ 0.28 $ 0.52 $ 1.36
======== ======== ======== ========
Potential common shares of approximately 1,289,000 and interest expense
for the three months ended September 30, 2004 of $0.7 million and for the nine
months ended September 30, 2004 of $2.2 million, relating to Dura's outstanding
7 1/2 percent Convertible Trust Preferred Securities ("Preferred Securities")
were excluded from the computation of diluted earnings/(loss) per share, as
inclusion of these shares and the related interest expense would have been
anti-dilutive. In addition, potential common shares of 139,000 related to Dura's
outstanding stock options were excluded from the computation of diluted
earnings/(loss) per share for the three months ended September 30, 2004, as
inclusion of these shares would have been anti-dilutive.
-8-
Stock-Based Compensation Plans
Dura has elected to continue accounting for its stock-based compensation
plans under APB Opinion No. 25, "Accounting for Stock Issued to Employees",
under which no compensation cost has been recognized during the three and nine
months ended September 30, 2004 and 2003, as the exercise prices of all options
are equal to the market value of Dura's stock on the grant date. Had
compensation cost for these plans been determined as required under SFAS No.
123, "Accounting for Stock-Based Compensation", Dura's pro forma net
income/(loss) and pro forma earnings/(loss) per share would have been as follows
(in thousands, except per share amounts):
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
2004 2003 2004 2003
---------- --------- --------- ----------
Net income/(loss)
As Reported - Basic $ (2,697) $ 5,196 $ 9,811 $ 25,193
Pro Forma $ (3,765) $ 4,237 $ 6,950 $ 22,397
As Reported - Diluted $ (2,697) $ 5,196 $ 9,811 $ 25,193
Pro Forma $ (3,765) $ 4,237 $ 6,950 $ 22,397
Basic earnings/(loss) per share
As Reported $ (0.15) $ 0.28 $ 0.53 $ 1.38
Pro Forma $ (0.20) $ 0.23 $ 0.38 $ 1.22
Diluted earnings/(loss) per share
As Reported $ (0.15) $ 0.28 $ 0.52 $ 1.36
Pro Forma $ (0.20) $ 0.23 $ 0.37 $ 1.21
The effect of the stock issued under the Employee Stock Purchase Plan was
not material for 2004 and 2003. There were no options granted during the
quarters ended September 30, 2004 and 2003, respectively. The fair value of each
option grant is estimated on the date of the grant using the Black-Scholes
option-pricing model with the following weighted average assumptions: risk-free
interest rate of 3.7 percent and 2.5 percent, expected life of four years and an
average expected volatility of 74 and 82 percent for the nine months ended
September 30, 2004 and 2003, respectively.
4. ACQUISITIONS
On June 19, 2003, Dura reached an agreement with Heywood Williams Group
PLC ("Heywood Williams") (United Kingdom) to acquire its Creation Group, a
premier designer and manufacturer of windows, doors and specialty products for
the North American recreation vehicle, motor vehicle accessories and
manufactured housing markets. The Creation Group, headquartered in Elkhart,
Indiana, had 2002 revenues of $145 million, and has approximately 1,100
employees at 10 facilities in Indiana, Ohio and Pennsylvania. Financial terms of
the deal included a purchase price of $57 million, subject to a working capital
adjustment and an earnout provision of an additional $3 million if the acquired
entity achieved certain financial targets. The targets under the earnout
provision were not achieved. Dura used cash on hand to finance the transaction,
which closed on July 23, 2003. The acquisition was accounted for using the
purchase method of accounting and, accordingly, the assets acquired and
liabilities assumed were recorded at fair value as of the date of acquisition,
with the excess purchase price recorded as goodwill. Changes to the preliminary
estimates within one year of the purchase date were reflected as an adjustment
to goodwill. In March 2004, Dura paid Heywood Williams $0.7 million relating to
a working capital adjustment to the original purchase price. The purchase price
adjustment was recorded as an
-9-
increase to goodwill as of March 31, 2004. The final allocation of purchase
price was not materially different from preliminary allocations. The operating
results of the Creation Group have been included in the consolidated financial
statements of Dura since the date of acquisition. The pro forma effects of this
transaction are not material to Dura's results of operations.
In the first six months of 2004, Dura made a $12.6 million final payment
relating to its acquisition of Reiche GmbH & Co. KG Automotive Components
("Reiche") in 2000. Reiche, located in Germany, manufactures steering columns
and steering column components for European and North American OEMs.
5. DISCONTINUED OPERATIONS
During the fourth quarter of 2002, Dura adopted a plan to divest its
Mechanical Assemblies Europe business, as it believed this business would not
assist Dura in reaching its strategic growth and profitability targets for the
future. The Mechanical Assemblies Europe business generated annualized revenues
of approximately $111.9 million from facilities in Grenoble and Boynes, France;
and Woodley, Nottingham and Stourport, UK. In March 2003, Dura completed the
divestiture of its Mechanical Assemblies Europe business to Magal Engineering
and members of the local management group, located in Woodley, England.
The Mechanical Assemblies Europe divestiture was treated as a discontinued
operation under SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets". The results of operations of the Mechanical Assemblies
Europe business and the related charges have been classified as discontinued
operations in the condensed consolidated statements of operations.
In conjunction with that decision, Dura recorded a loss from the European
Mechanical Assemblies business of approximately $107.4 million in the fourth
quarter of 2002, of which approximately $15.0 million was paid in cash.
Including the previously disclosed and reported divestiture of the Steering Gear
product line in the second quarter of 2002 and the European pedal product line
in the third quarter of 2002, the total loss from discontinued operations for
the year ended December 31, 2002 was $126.6 million, on which no tax benefit was
recorded. These losses related primarily to asset write-downs of $53.3 million,
contractual commitments and transaction related costs of $15.0 million, and
year-to-date operating losses of $58.3 million. The operating losses included a
pension settlement charge of $18.1 million and facility consolidation costs
related to the Steering and Pedal product line disposals completed in the second
and third quarter of 2002 of $19.2 million and $2.4 million, respectively.
At September 30, 2004, Dura had remaining reserves related to the
divestiture of the European Mechanical Assemblies business of $18.2 million,
including estimated severance, facility consolidation and other contractual
commitments. The contractual commitments related to the facilities retained by
Dura, principally lease costs, are anticipated to be completed in 2021.
-10-
Summary operating results of the discontinued operations for the three and
nine months ended September 30, 2003 are as follows (in thousands):
Three months Nine months
ended September 30, ended September 30,
2003 2003
---------- ---------
Revenues $ - $ 14,992
Cost of sales - 16,053
---------- --------
Gross loss - (1,061)
Selling, general and administrative expenses - 787
---------- --------
Operating loss - (1,848)
Interest expense, net - 29
---------- --------
Net loss from discontinued operations $ - $ (1,877)
========== ========
During the quarter ended March 31, 2003, as part of the final negotiations
surrounding the disposition, a net positive adjustment of $0.9 million was
recorded upon disposal of the discontinued operations, which, when included with
the loss from operations of approximately $1.9 million, resulted in a net loss
from discontinued operations of approximately $1.0 million for the quarter ended
March 31, 2003. An additional net positive adjustment of $0.7 million was
recorded during the second quarter of 2003 from a more favorable settlement of
retained liabilities than anticipated, resulting in a net loss from discontinued
operations of approximately $0.3 million in the six months ended June 30, 2003.
During the quarter ended March 31, 2004, net negative adjustments totaling $0.7
million were recorded resulting from less favorable settlement of retained
liabilities than anticipated. There was no additional significant activity
during the second and third quarters ended June 30 and September 30, 2004,
respectively.
6. FACILITY CONSOLIDATION AND OTHER CHARGES
Facility Consolidation
As a part of Dura's ongoing cost reduction and capacity utilization
efforts, Dura has taken numerous actions to improve its cost structure. These
costs are reflected as facility consolidation and other charges in the
consolidated statement of operations and were accounted for in accordance with
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
("SFAS No. 146").
During the second quarter of 2004, in order to improve capacity
utilization, Dura announced a plan to consolidate certain of its Body & Glass
Division product lines in Europe. This action resulted in a restructuring charge
of $1.3 million and $2.5 million in the second and third quarters of 2004,
respectively, relating primarily to severance, which completed the facility
consolidation charges to be incurred related to this action. Costs incurred and
charged to the reserve as of September 30, 2004 amounted to $0.6 million in
severance related costs. In addition, during the second quarter of 2004, Dura
announced a plan to exit two manufacturing facilities in Rockford, Illinois and
combine the business with other Dura operations. Dura also announced the
relocation of its Atwood Mobile Products division headquarters from Rockford,
Illinois to Elkhart, Indiana. These actions resulted in a restructuring charge
of $1.7 million and $1.2 million in the second and third quarters of 2004,
relating primarily to severance. Costs incurred and charged to the reserve as of
September 30, 2004 amounted to $0.4 million in severance related costs. Dura
also expensed as incurred approximately $0.3 million of facility closure and
other costs in the third quarter of 2004, of which $0.2 million is related to
equipment write-downs. Dura expects to incur additional restructuring charges
related to the exit of the Rockford facilities of
-11-
approximately $0.7 million relating to severance and $0.3 million relating to
facility closure and other costs through September 30, 2005.
During the first quarter of 2004, in order to improve capacity
utilization, Dura announced a plan to exit its Brookfield, Missouri facility and
combine the business with other Dura operations. This action resulted in a
restructuring charge of $0.1 million, $0.4 million and $0.2 million in the
first, second, and third quarters of 2004, respectively, relating primarily to
severance. Dura also expensed as incurred approximately $0.1 million of facility
closure and other costs in each of the second and third quarters of 2004. Dura
expects to incur $0.3 million of additional restructuring charges associated
with the exit of the Brookfield facility through December 31, 2004. In addition,
during the first quarter of 2004, Dura announced a plan to exit its Pikeville,
Tennessee facility and combine the business with other Dura operations. This
action resulted in a restructuring charge of $0.4 million and $0.5 million in
the first and second quarters of 2004, respectively, relating to severance.
Costs incurred and charged to the reserve as of September 30, 2004 amounted to
$0.7 million in severance related costs. In continuation of these actions, Dura
expensed as incurred approximately $0.1 million of facility closure and other
costs in the second and third quarters of 2004, combined. Included in this
charge is an additional $0.2 million related to fixed asset write-downs and a
$0.2 million adjustment to reduce the facility consolidation charge in the third
quarter. Dura may incur an immaterial amount of additional restructuring charges
related to facility and other costs associated with the exit of the Pikeville
facility through December 31, 2004.
During the fourth quarter of 2003, Dura announced a plan to exit its
Melun, France facility and combine the business with other Dura operations. This
action resulted in a fourth quarter 2003 restructuring charge of $0.7 million
relating to severance. Dura also expensed as incurred approximately $0.1 million
of facility closure and other costs incurred during the fourth quarter of 2003.
Costs incurred and charged to the reserve as of September 30, 2004 amounted to
$0.5 million in severance related costs. In continuation of these actions, Dura
recorded an additional restructuring charge of $0.2 million for facility closure
and other costs and adjusted the severance reserve down by $0.1 million in the
second quarter of 2004. Dura may incur an immaterial amount of additional
restructuring charges related to facility and other costs associated with the
exit of the Melun facility through December 31, 2004.
During the second quarter of 2003, Dura announced a plan to exit its
Fulton, Kentucky facility in North America. This action resulted in a second
quarter 2003 restructuring charge of $1.5 million, including severance of $0.3
million and facility closure and other costs of $1.2 million. In continuation of
these actions during 2003, Dura recorded $1.3 million of additional
restructuring charges, including severance of $1.2 million and facility closure
and other costs of $0.1 million. Dura also expensed as incurred approximately
$2.5 million and $3.4 million of certain facility closure and other costs
incurred during the third and fourth quarters of 2003, respectively. During
2004, Dura continued such actions and recorded $0.2 million and $0.4 million in
the first and third quarters, respectively, of additional restructuring charges
for severance related costs. Dura also expensed as incurred $0.1 million and
$0.2 million in the first and second quarters of 2004, respectively, related to
severance costs and $0.2 million of facility closure and other costs in the
first quarter of 2004. Costs incurred and charged to the reserve as of September
30, 2004 amounted to $1.8 million in severance related costs and $1.3 million in
facility closure and other costs. Dura may incur an immaterial amount of
additional restructuring charges related to facility and other costs associated
with the exit of the Fulton facility through December 31, 2004.
In the fourth quarter of 2003, Dura adopted a plan to sell its Cauvigny
facility for total proceeds of $0.8 million, and to contribute $2.1 million to
the buyer. This action resulted in a fourth quarter 2003 restructuring charge of
$2.2 million, including the planned payments to the buyer of $2.1 million and
facility closure and other costs of $0.1 million. Dura also expensed as incurred
approximately $2.4 million during the fourth quarter of 2003, consisting
principally of asset impairment. Costs incurred and charged to the reserve as of
September 30, 2004 amounted to $2.3 million in facility closure and other costs.
In continuation of these actions, Dura expensed as incurred approximately $0.3
million and
-12-
$0.1 million in the first and second quarters of 2004, respectively, of
additional facility closure and other costs, which completed the facility
consolidation charges to be incurred related to this action.
Asset Impairments
During the second quarter of 2004, Dura recorded $6.7 million in asset
impairment charges related to building write-downs for the facility
consolidation actions taken during 2004 and 2003. These costs are reflected as
facility consolidation and other charges in the consolidated statement of
operations and were accounted for in accordance with SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144").
7. ACQUISITION INTEGRATIONS
Dura has developed and implemented the majority of the facility
consolidation plans designed to integrate the operations of past acquisitions.
As of September 30, 2004, purchase liabilities recorded in conjunction with the
acquisitions included approximately $9.7 million for costs associated with the
shutdown and consolidation of certain acquired facilities and $2.5 million for
severance and other related costs. Costs incurred and charged to these reserves
amounted to $0.5 million related to the consolidation of certain acquired
facilities and $0.1 million related to severance during the quarter ended
September 30, 2004. The employee terminations and facility consolidations were
completed by December 31, 2002 except for certain contractual obligations,
consisting principally of facility lease payments that will continue through
2005.
8. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
September 30, December 31,
2004 2003
------------- ------------
Credit Agreement:
Tranche C term loan $ 146,625 $ 147,750
Senior notes 400,000 400,000
Subordinated notes 577,915 578,505
Mandatorily redeemable convertible trust 55,250 55,250
preferred securities
Senior notes - derivative
instrument adjustment 24,141 19,473
Other 7,280 17,109
------------ -----------
1,211,211 1,218,087
Less - Current maturities (2,813) (5,738)
------------ -----------
Total long-term debt $ 1,208,398 $ 1,212,349
============ ===========
In March 1999, Dura entered into an amended and restated $1.15 billion
credit agreement ("Credit Agreement"). The Credit Agreement originally provided
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 ("2002 Senior Notes"), due April 2012. The interest on
the 2002 Senior Notes is payable semi-annually beginning October 15, 2002. 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
-13-
$150.0 million tranche C term loan. In addition, the revolving credit facility
was decreased to $390.0 million. 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 2002 Senior Notes offering and to further
adjust certain financial covenants.
In November 2003, Dura completed the offering of $50.0 million 8 5/8
percent senior unsecured notes ("2003 Senior Notes"), due April 2012. The
interest on the 2003 Senior Notes is payable semi-annually beginning April 15,
2004. Net proceeds from this offering of approximately $48.5 million were used
to replenish cash balances used to fund the acquisition of the Creation Group.
In conjunction with this transaction, Dura amended and restated its revolving
credit facility. The new revolving credit facility ("New Credit Agreement")
provides for $175.0 million of revolving credit, available until October 2008.
At September 30, 2004, under its most restrictive debt covenant, Dura had
availability of $138.4 million including cash and revolver. The existing tranche
C term loan remained outstanding. In connection with the termination of Dura's
existing Credit Agreement, Dura wrote-off debt issuance costs of approximately
$2.9 million during the fourth quarter of 2003. The write-off of debt issuance
costs was classified as a component of income from continuing operations in
accordance with the provisions of SFAS No. 145.
Included in interest expense, net, in the consolidated statements of
operations is approximately $0.9 million and $0.5 million of interest income
earned on Dura's cash balances in the quarters ended September 30, 2004 and
2003, respectively and $2.1 million and $2.0 million for the nine months ended
September 30, 2004 and 2003, respectively.
As of September 30, 2004, rates on borrowings under the New Credit
Agreement are based on LIBOR and were 4.34 percent. The New Credit Agreement
contains various restrictive covenants which include the limit of indebtedness,
investments and dividends. The New Credit Agreement also requires Dura to
maintain certain financial ratios including debt and interest coverage. Dura was
in compliance with the covenants as of September 30, 2004. Borrowings under the
New Credit Agreement are collateralized by substantially all assets of Dura.
The New 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 $50.9 million. As of September 30, 2004 and 2003, 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
September 30, 2004, Dura had no borrowings outstanding under its overdraft
facilities. At September 30, 2004, Dura had overdraft facilities available from
banks up to an amount equal to $54.1 million.
9. SUBORDINATED NOTES
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.
-14-
10. BUSINESS COMBINATIONS, GOODWILL AND INTANGIBLE ASSETS
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 for
impairment 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.
Other intangible assets at September 30, 2004 are approximately $9.0 million,
primarily consisting of non-amortizable trademarks and amortizable license
agreements.
During the second quarter of 2004, Dura adjusted goodwill for a purchase
price adjustment related to the Creation Group acquisition. The adjustment
increased goodwill by $0.7 million (see Note 4). In addition, Dura increased
goodwill during the second quarter of 2004 by $1.9 million for the final payment
for the Reiche acquisition, primarily related to earnout provisions of the
agreement. There have been no other changes in the carrying value of goodwill
during 2004, other than fluctuations due to changes in foreign currency exchange
rates.
During the second quarter of 2004, Dura performed its annual impairment
assessment related to goodwill and other intangible assets. Dura completed step
one of the goodwill impairment test using a combination of valuation techniques,
including the discounted cash flow approach and the market multiple approach,
for each of its four reporting units (Control Systems, Body & Glass, Mobile
Products and Other Operating Companies). Upon completion of the required
assessments under step one of SFAS No. 142, it was determined that no impairment
of goodwill or other intangible assets had occurred.
11. 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. The counter parties to these
financial instruments are major financial institutions.
Dura uses forward exchange contracts to hedge its foreign currency
exposure related to the interest payments under its outstanding Euro 100.0
million denominated Subordinated Notes. Dura designated these contracts at their
inception as a cash flow hedge. At September 30, 2004, Dura had an outstanding
contract to purchase Euro 4.5 million (approximately $5.3 million), representing
the interest payments due during 2004. The estimated fair value of these foreign
exchange contracts based upon market quotes was approximately $5.6 million. The
net unrealized gain of $0.3 million is included in accumulated other
comprehensive income in the accompanying September 30, 2004 condensed
consolidated balance sheet.
In April 2002, in connection with the 2002 Senior Notes offering, Dura
entered into fixed to floating interest rate swaps (notional amount of $325.0
million) with various financial institutions. At their inception Dura designated
these contracts as fair value hedges. In November 2003, in connection with the
2003 Senior Notes offering, Dura also entered into fixed to floating interest
rate swaps (notional amount of $75.0 million) with various financial
institutions that more closely mirrors the cost of its bank debt. At September
30, 2004, Dura's swap contracts outstanding had a fair value based upon market
quotes of approximately $24.1 million and this amount is included in the
condensed consolidated balance sheet as of September 30, 2004.
-15-
12. COMPREHENSIVE INCOME
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 represents net income
adjusted for foreign currency translation adjustments, minimum pension liability
and the deferred gain/ loss on derivative instruments utilized to hedge Dura's
interest and foreign exchange exposures. Comprehensive income for the periods is
as follows (in thousands):
Three months ended Nine months ended
September 30, September 30,
--------------------- --------------------
2004 2003 2004 2003
--------- --------- -------- ---------
Net income/(loss) $ (2,697) $ 5,196 $ 9,811 $ 25,193
Other comprehensive income:
Foreign currency
translation adjustment 18,127 6,332 9,863 48,546
Minimum pension liability (46) (10) 25 (134)
Derivative instruments 117 67 264 760
-------- -------- -------- --------
Comprehensive income $ 15,501 $ 11,585 $ 19,963 $ 74,365
======== ======== ======== ========
13. LEGAL, ENVIRONMENTAL AND WARRANTY
Dura is subject to various legal actions and claims incidental to its
business, including those arising out of alleged defects, product warranties,
employment-related matters and environmental matters. For example, Dura faces an
inherent business risk of exposure to product liability and warranty claims in
the event that its products fail to perform as expected and such failure of our
products results, or is alleged to result, in bodily injury and/or property
damage. OEMs are increasingly requiring their outside suppliers to guarantee or
warrant their products and bear the costs of repair and replacement of such
products under new vehicle warranties. Depending on the terms under which Dura
supplies products to an OEM, an OEM may hold Dura responsible for some or all of
the repair or replacement costs of defective products under new vehicle
warranties when the product supplied did not perform as represented. Dura's
policy is to record reserves for legal, environmental and customer warranty
costs on a case by case basis at the time it believes such amount is probable
and estimable and to review these determinations on a quarterly basis, or more
frequently, as additional information is obtained. Dura has established reserves
for issues that are probable and estimable in amounts management believes are
adequate to cover reasonable adverse judgments. Dura determines its warranty
reserve based on identified claims and the estimated ultimate projected claim
cost. The final amounts determined to be due related to these matters could
differ significantly from recorded estimates. Dura carries insurance for certain
legal matters including product liability; however, it no longer carries
insurance for recall matters, as the cost and availability for such insurance,
in the opinion of management, is cost prohibitive or not available. The
following presents a summary of Dura's legal, environmental and warranty
position (in thousands):
-16-
Balance at December 31, 2003 $ 23,170
Reductions for payments made (3,341)
Additional reserves recorded 1,293
Changes in pre-existing reserves (234)
--------
Balance at September 30, 2004 $ 20,888
========
14. NEW ACCOUNTING PRONOUNCEMENTS
During May 2004, the FASB issued FASB Staff Position (FSP) FAS 106-2,
Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003. This FSP provides guidance on
accounting for the effects of the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the Act), to employers that sponsor postretirement
health care plans where the prescription drug benefits available under the plan
are actuarially equivalent to Medicare Part D and thus qualify for the subsidy
under the Act and the expected subsidy will offset or reduce the employer's
share of the cost of the underlying postretirement prescription drug coverage on
which the subsidy is based. The FSP also requires certain disclosures related to
the impact of the Act. Dura adopted this FSP on July 1, 2004. The adoption of
this FSP did not have a material impact on Dura's consolidated balance sheet or
results of operations.
In December 2003, the FASB issued SFAS No. 132(R), a revision to SFAS No.
132, "Employers' Disclosure about Pensions and Other Postretirement Benefits".
SFAS No. 132(R) does not change the measurement or recognition related to
pension and other postretirement plans required by SFAS No. 87, "Employers'
Accounting for Pensions", SFAS No. 88, "Employers' Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for Termination Benefits",
and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" and retains the disclosure requirements contained in SFAS No. 132.
SFAS No. 132(R) requires additional disclosures about the assets, obligations,
cash flows and net periodic benefit cost of defined benefit pension plans and
other defined benefit postretirement plans. SFAS No. 132(R) is effective for
financial statements with fiscal years ending after December 15, 2003, with the
exception of disclosure requirements related to foreign plans and estimated
future benefit payments which are effective for fiscal years ending after June
15, 2004. Dura included the required annual disclosures in its consolidated
financial statements as of and for the year ended December 31, 2003 and has
included the required interim disclosures in Note 15 to its condensed
consolidated financial statements. The adoption of SFAS No. 132(R) did not
impact Dura's consolidated balance sheet or results of operations.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities". The Interpretation addresses the consolidation of variable
interest entities, including entities commonly referred to as special purpose
entities. Dura was required to apply FIN 46 to all new variable interest
entities created or acquired after January 31, 2003. In October 2003, the FASB
issued FSP FIN 46-6, "Effective Date of FIN 46, Consolidation of Variable
Interest Entities." FSP FIN 46-6 extended the required effective date of FIN 46
for variable interest entities created or acquired prior to February 1, 2003.
Dura was required to apply FIN 46 to such entities effective December 31, 2003.
The application of FIN 46 resulted in a reclassification of the Preferred
Securities from the mezzanine section of the balance sheet for 2003 to a
long-term liability. In addition, Minority Interest - Dividends on Trust
Preferred Securities, Net is classified in the statement of operations as a
component of interest expense on a gross basis, for periods subsequent to
December 31, 2003.
15. DEFINED BENFIT PLANS AND POST-RETIREMENT BENEFITS
Dura sponsors 15 defined benefit plans that cover certain hourly and
salaried employees in the United States and certain European countries. Dura's
policy is to make annual contributions to the plans
-17-
to fund the normal cost as required by local regulations. In addition, Dura has
ten postretirement medical benefit plans for certain employee groups and has
recorded a liability for its estimated obligation under these plans.
The components of net periodic benefit costs are as follows (in
thousands):
Postretirement Benefits
Pension Benefits Other than Pensions
Three Months Ended September 30, Three Months Ended September 30,
-------------------------------- --------------------------------
2004 2003 2004 2003
------------- ------------ ----------- -----------
Service cost $ 293 $ 581 $ 153 $ 113
Interest cost 1,451 1,407 449 396
Expected return on plan assets (1,430) (1,281) - -
Amendments/curtailments 105 11 - -
Amortization of prior service cost 86 60 - -
Recognized actuarial loss 224 171 78 -
------------ ----------- ----------- -----------
Net periodic benefit cost $ 729 $ 949 $ 680 $ 509
============ =========== =========== ===========
Dura previously disclosed in its financial statements for the year ended
December 31, 2003, that it expected to contribute $5.8 million to its pension
plans and $2.0 million to its post-retirement medical benefit plans in 2004. As
of September 30, 2004, $5.2 million and $2.1 million of contributions have been
made to the pension and postretirement benefit plans, respectively. Dura
anticipates contributing an additional $1.2 million to its pension plans and
$0.7 million to its post-retirement medical benefit plans in 2004 for total
estimated contributions during 2004 of $9.2 million.
16. RELATED PARTY TRANSACTIONS
In March 2003, Dura entered into a two-year agreement with its former
Chief Executive Officer. Under the terms of the agreement, this individual will
receive an annual consulting fee of $525,000 for two years, stock options for
270,000 shares of Class A Common Stock, and his existing vested options exercise
periods were extended to the remaining life of those options. As of September
30, 2004, all 270,000 of the additional options have been granted.
During April, 2004, Dura's controlling shareholder converted all of its
Class B common shares into Class A common shares, resulting in a single class of
voting shares outstanding and effectively eliminated their majority voting
control over shareholder matters of Dura. As a result, during June 2004, Dura
entered into change of control agreements (the Agreements) with certain key
officers and directors. The Agreements provide for severance pay including
incentive compensation, continuation of certain other benefits, gross-up of
payments deemed to be excess parachute payments, additional years of credited
service under Dura's supplemental executive retirement plan and undiscounted
lump-sum payment of the benefit due there-under within ten days of the
termination date, and indemnification of the individual with respect to certain
matters associated with their employment by Dura. "Change in control" is defined
as the accumulation by any person, entity or group of affiliated entities
meeting certain levels of voting power of Dura's voting stock or the occurrence
of certain other specified events, as defined in the Agreements.
-18-
17. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
The following condensed consolidating financial information presents
balance sheets, statements of operations and of cash flows 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 percent
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.
-19-
17. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION:
(Continued)
DURA AUTOMOTIVE SYSTEMS, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS AS OF SEPTEMBER 30, 2004
(AMOUNTS IN THOUSANDS - UNAUDITED)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 25,281 $ 2,146 $ 147,508 $ - $ 174,935
Accounts receivable, net 26,959 102,621 203,513 - 333,093
Inventories 10,615 55,938 72,141 - 138,694
Current portion of derivative
instruments 10,987 - - - 10,987
Other current assets 6,404 20,791 54,773 - 81,968
Due from affiliates 176,373 39,236 12,768 (228,377) -
----------- ----------- ----------- ----------- ------------
Total current assets 256,619 220,732 490,703 (228,377) 739,677
----------- ----------- ----------- ----------- ------------
Property, plant and equipment, net 50,589 116,764 292,908 - 460,261
Investment in subsidiaries 731,275 17,748 74,571 (823,594) -
Notes receivable from affiliates 348,792 138,685 49,345 (536,822) -
Goodwill, net 380,652 128,810 357,263 - 866,725
Noncurrent portion of derivative
instruments 13,154 - - - 13,154
Other assets, net 48,979 15,813 4,729 - 69,521
----------- ----------- ----------- ----------- ------------
Total Assets $ 1,830,060 $ 638,552 $ 1,269,519 $(1,588,793) $ 2,149,338
=========== =========== =========== =========== ============
Liabilities and Stockholders'
Investment
Current liabilities:
Accounts payable $ 36,847 $ 80,673 $ 132,938 $ - $ 250,458
Accrued liabilities 59,394 37,710 117,922 - 215,026
Current maturities of long-term debt 1,500 12 1,301 - 2,813
Due to affiliates 46,485 153,540 28,352 (228,377) -
----------- ----------- ----------- ----------- ------------
Total current liabilities 144,226 271,935 280,513 (228,377) 468,297
----------- ----------- ----------- ----------- ------------
Long-term debt, net of current
maturities 145,125 - 5,968 - 151,093
Senior notes 400,000 - - - 400,000
Subordinated notes 577,914 - - - 577,914
Mandatorily redeemable convertible
trust preferred securities 55,250 - - - 55,250
Senior notes - derivative instrument
adjustment 24,141 - - - 24,141
Other noncurrent liabilities 50,923 19,621 49,661 - 120,205
Notes payable to affiliates 191,645 75,756 269,421 (536,822) -
----------- ----------- ----------- ----------- ------------
Total liabilities 1,589,224 367,312 605,563 (765,199) 1,796,900
----------- ----------- ----------- ----------- ------------
Stockholders' investment 240,836 271,239 663,957 (823,594) 352,438
----------- ----------- ----------- ----------- ------------
Total Liabilities and
Stockholders' Investment $ 1,830,060 $ 638,551 $ 1,269,520 $(1,588,793) $ 2,149,338
=========== =========== =========== =========== ============
-20-
17. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION:
(Continued)
DURA AUTOMOTIVE SYSTEMS, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2004
(AMOUNTS IN THOUSANDS - UNAUDITED)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
Revenues $ 81,504 $ 243,649 $ 303,473 $ (12,262) $ 616,363
Cost of sales 78,460 214,448 271,814 (12,262) 552,459
--------- --------- --------- ----------- -----------
Gross profit 3,044 29,201 31,659 - 63,904
Selling, general and administrative expenses 14,916 8,096 15,595 - 38,606
Facility consolidation and other charges 44 2,560 2,456 - 5,061
Amortization expense 48 45 10 - 103
--------- --------- --------- ----------- -----------
Operating income (11,964) 18,500 13,598 - 20,134
Interest expense, net 18,467 2,928 2,512 - 23,907
--------- --------- --------- ----------- -----------
Income (loss) from continuing operations
before provision for income taxes and
minority interest (30,431) 15,572 11,086 - (3,773)
Provision (benefit) for income taxes (3,967) 1,626 1,247 - (1,094)
Equity in (earnings) losses of affiliates, net (22,554) - 1,561 20,993 -
Dividends (to) from affiliates (1,213) (561) (562) 2,336 -
--------- --------- --------- ----------- -----------
Income/(loss) from continuing operations (2,697) 14,507 8,840 (23,329) (2,679)
Loss from discontinued operations - - (18) - (18)
--------- --------- --------- ----------- -----------
Net income (loss) $ (2,697) $ 14,507 $ 8,822 $ (23,329) $ (2,697)
========= ========= ========= =========== ===========
-21-
17. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION:
(Continued)
DURA AUTOMOTIVE SYSTEMS, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2004
(AMOUNTS IN THOUSANDS - UNAUDITED)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------ ------------
Revenues $ 252,157 $ 752,285 $ 944,690 $(39,390) $1,909,742
Cost of sales 235,168 650,851 845,861 (39,390) 1,692,490
--------- --------- --------- -------- ----------
Gross profit 16,989 101,434 98,829 - 217,252
Selling, general and administrative
expenses 46,704 23,679 46,950 - 117,333
Facility consolidation and other charges 83 13,734 4,270 - 18,087
Amortization expense 167 136 31 - 334
--------- --------- --------- -------- ----------
Operating income (29,965) 63,885 47,578 - 81,498
Interest expense, net 53,579 5,279 7,837 - 66,695
--------- --------- --------- -------- ----------
Income (loss) from continuing operations
before provision for income taxes and
minority interest (83,544) 58,606 39,741 - 14,803
Provision (benefit) for income taxes (15,647) 11,819 8,121 - 4,293
Equity in (earnings) losses of affiliates, net (73,973) - 248 73,725 -
Dividends (to) from affiliates (3,735) - - 3,735 -
--------- --------- --------- -------- ----------
Income/(loss) from continuing operations 9,811 46,787 31,372 (77,460) 10,510
Loss from discontinued operations - - (699) - (699)
--------- --------- --------- -------- ----------
Net income (loss) $ 9,811 $ 46,787 $ 30,673 $(77,460) $ 9,811
========= ========= ========= ======== ==========
- 22 -
17. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION:
(Continued)
DURA AUTOMOTIVE SYSTEMS, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2004
(AMOUNTS IN THOUSANDS - UNAUDITED)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------ ------------
OPERATING ACTIVITIES:
Income (loss) from continuing operations $ 9,811 $ 46,787 $ 31,372 $ (77,460) $ 10,510
Adjustments to reconcile income (loss)
from continuing operations to net cash
provided by operating activities:
Depreciation and amortization 7,461 17,304 39,993 - 64,758
Deferred income taxes 14,573 (14,573) (6) - (6)
Equity in earnings of affiliates and
minority interest (73,975) - 248 73,725 (2)
Changes in other operating items 83,845 (10,580) (87,618) - (14,353)
--------- --------- --------- --------- ---------
Net cash (used in) provided by operating
activities 41,715 38,938 (16,011) (3,735) 60,907
--------- --------- --------- --------- ---------
INVESTING ACTIVITIES:
Acquisitions, net - - (13,327) - (13,327)
Capital expenditures, net (5,692) (9,108) (29,163) - (43,963)
--------- --------- --------- --------- ---------
Net cash used in investing activities (5,692) (9,108) (42,490) - (57,290)
--------- --------- --------- --------- ---------
FINANCING ACTIVITIES:
Long-term borrowings - - 568 - 568
Repayments of long-term borrowings (8,522) (28) (9,989) - (18,539)
Purchase of treasury shares and other (61) (61)
Debt financing (to) from affiliates (34,346) (25,047) 59,393 - -
Proceeds from issuance of common stock
and exercise of stock options 1,948 - - - 1,948
Other, net (552) - (552)
Dividends paid - (3,735) - 3,735 -
--------- --------- --------- --------- ---------
Net cash (used in) provided by financing
activities (41,533) (28,810) 49,972 3,735 (16,636)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH (1,425) - 8,807 - 7,382
--------- --------- --------- --------- ---------
NET CHANGE IN CASH AND CASH
EQUIVALENTS FROM CONTINUING
OPERATIONS (6,935) 1,020 281 - (5,634)
NET CASH FLOW FROM
DISCONTINUED OPERATIONS - - (699) - (699)
CASH AND CASH EQUIVALENTS:
Beginning of period 32,216 1,126 147,926 - 181,268
--------- --------- --------- --------- ---------
End of period $ 25,281 $ 2,146 $ 147,508 $ - $ 174,935
========= ========= ========= ========= =========
- 23 -
17. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION:
(Continued)
DURA AUTOMOTIVE SYSTEMS, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS AS OF DECEMBER 31, 2003
(AMOUNTS IN THOUSANDS)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- ---------- ------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 32,216 $ 1,126 $ 147,926 $ - $ 181,268
Accounts receivable, net 18,721 75,182 180,442 - 274,345
Inventories 10,714 45,368 71,875 - 127,957
Current poriton of derivative
instruments 6,629 - - - 6,629
Other current assets 18,234 19,831 56,980 - 95,045
Due from affiliates 163,744 43,724 2,679 (210,147) -
---------- --------- ---------- ------------ ----------
Total current assets 250,258 185,231 459,902 (210,147) 685,244
---------- --------- ---------- ------------ ----------
Property, plant and equipment, net 56,473 125,865 306,025 - 488,363
Investment in subsidiaries 679,527 22,490 74,820 (776,837) -
Notes receivable from affiliates 570,092 528,641 41,169 (1,139,902) -
Goodwill, net 411,788 96,622 350,612 - 859,022
Noncurrent portion of derivative
instruments 12,844 - - - 12,844
Other assets, net 59,624 4,985 5,350 - 69,959
---------- --------- ---------- ------------ ----------
Total Assets $2,040,606 $ 963,834 $1,237,878 $ (2,126,886) $2,115,432
========== ========= ========== ============ ==========
Liabilities and Stockholders'
Investment
Current liabilities:
Accounts payable $ 40,559 $ 67,245 $ 136,191 $ - $ 243,995
Accrued liabilities 58,735 30,350 98,416 - 187,501
Current maturities of long-term debt 1,500 36 4,202 - 5,738
Due to affiliates 45,657 139,281 25,209 (210,147) -
---------- --------- ---------- ------------ ----------
Total current liabilities 146,451 236,912 264,018 (210,147) 437,234
---------- --------- ---------- ------------ ----------
Long-term debt, net of current
maturities 146,250 3 12,868 - 159,121
Senior notes 400,000 - - - 400,000
Subordinated notes 578,505 - - - 578,505
Mandatorily redeemable convertible trust
preferred securities 55,250 55,250
Senior notes - derivative instrument
adjustment 19,473 - - - 19,473
Other noncurrent liabilities 61,113 12,168 61,981 - 135,262
Notes payable to affiliates 404,690 459,336 275,876 (1,139,902) -
---------- --------- ---------- ------------ ----------
Total liabilities 1,811,732 708,419 614,743 (1,350,049) 1,784,845
---------- --------- ---------- ------------ ----------
Stockholders' investment 228,874 255,415 623,135 (776,837) 330,587
---------- --------- ---------- ------------ ----------
Total Liabilities and
Stockholders' Investment $2,040,606 $ 963,834 $1,237,878 $ (2,126,886) $2,115,432
========== ========= ========== ============ ==========
- 24 -
17. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION:
(Continued)
DURA AUTOMOTIVE SYSTEMS, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2003
(AMOUNTS IN THOUSANDS - UNAUDITED)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------ ------------
Revenues $ 74,159 $ 226,770 $ 265,257 $(11,788) $554,398
Cost of sales 68,876 195,762 240,450 (11,788) 493,300
--------- --------- --------- -------- --------
Gross profit 5,283 31,008 24,807 - 61,098
Selling, general and administrative
expenses 16,189 7,542 13,639 - 37,370
Facility consolidation and other charges 63 4,134 (8,237) - (4,040)
Amortization expense 60 2 9 - 71
--------- --------- --------- -------- --------
Operating income (loss) (11,029) 19,330 19,396 - 27,697
Interest expense (income), net 17,096 877 2,280 - 20,253
--------- --------- --------- -------- --------
Income (loss) from continuing operations
before provision for income taxes and
minority interest (28,125) 18,453 17,116 - 7,444
Provision (benefit) for income taxes (6,331) 3,922 4,280 - 1,871
Equity in earnings of affiliates, net (26,351) - (595) 26,946 -
Minority interest - dividends on trust
preferred securities, net 725 - - - 725
Dividends from affiliates (1,364) - - 1,364 -
--------- --------- --------- -------- --------
Income (loss) from continuing operations 5,196 14,531 13,431 (28,310) 4,848
Loss from discontinued operations - - 348 - 348
--------- --------- --------- -------- --------
Net income (loss) $ 5,196 $ 14,531 $ 13,779 $(28,310) $ 5,196
========= ========= ========= ======== ========
- 25 -
17. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION:
(Continued)
DURA AUTOMOTIVE SYSTEMS, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2003
(AMOUNTS IN THOUSANDS - UNAUDITED)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------ ------------
Revenues $ 245,671 $ 688,357 $ 857,772 $ (38,167) $1,753,633
Cost of sales 228,250 582,372 765,393 (38,167) 1,537,848
--------- --------- --------- --------- ----------
Gross profit 17,421 105,985 92,379 - 215,785
Selling, general and administrative expenses 48,213 21,740 44,852 - 114,805
Facility consolidation and other charges 550 5,642 (8,208) - (2,016)
Amortization expense 179 5 28 - 212
--------- --------- --------- --------- ----------
Operating income (loss) (31,521) 78,598 55,707 - 102,784
Interest expense (income), net 53,200 822 7,605 - 61,627
--------- --------- --------- --------- ----------
Income (loss) from continuing operations
before provision for income taxes and
minority interest (84,721) 77,776 48,102 - 41,157
Provision (benefit) for income taxes (23,477) 23,038 14,433 - 13,994
Equity in earnings of affiliates, net (84,734) - (2,504) 87,238 -
Minority interest - dividends on trust
preferred securities, net 2,051 - - - 2,051
Dividends from affiliates (3,754) - - 3,754 -
--------- --------- --------- --------- ----------
Income (loss) from continuing operations 25,193 54,738 36,173 (90,992) 25,112
Loss from discontinued operations - - 81 - 81
--------- --------- --------- --------- ----------
Net income (loss) $ 25,193 $ 54,738 $ 36,254 $ (90,992) $ 25,193
========= ========= ========= ========= ==========
-26-
17. CONDENSED CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION:
(Continued)
DURA AUTOMOTIVE SYSTEMS, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2003
(AMOUNTS IN THOUSANDS - UNAUDITED)
DURA NON-
OPERATING GUARANTOR GUARANTOR
CORP. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------ ------------
OPERATING ACTIVITIES:
Income (loss) from continuing operations $ 25,193 $ 54,738 $ 36,173 $(90,992) $ 25,112
Adjustments to reconcile income (loss)
from continuing operations to net cash
provided by operating activities:
Depreciation and amortization 8,007 16,548 31,612 - 56,167
Deferred income taxes (245) 245 315 - 315
Equity in earnings of affiliates and
minority interest (84,734) - (2,504) 87,238 -
Changes in other operating items 46,610 (30,291) (58,795) - (42,476)
--------- --------- --------- --------- ----------
Net cash provided by (used in) operating
activities (5,169) 41,240 6,801 (3,754) 39,118
--------- --------- --------- --------- ----------
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (57,684) - - (57,684)
Capital expenditures, net (3,489) (7,362) (35,366) - (46,217)
--------- --------- --------- --------- ----------
Net cash used in investing activities (61,173) (7,362) (35,366) - (103,901)
--------- --------- --------- --------- ----------
FINANCING ACTIVITIES:
Long-term borrowings 813 - 15,587 - 16,400
Repayments of long-term borrowings (760) (63) (20,050) - (20,873)
Debt financing (to) from affiliates 153 (28,914) 28,761 - -
Proceeds from issuance of common stock
and exercise of stock options 1,004 - - - 1,004
Other, net (478) - - - (478)
Dividends paid - (3,754) - 3,754 -
--------- --------- --------- --------- ----------
Net cash (used in) provided by financing
activities 732 (32,731) 24,298 3,754 (3,947)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 9,958 - (13,300) - (3,342)
--------- --------- --------- --------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS
FROM CONTINUING OPERATIONS (55,652) 1,147 (17,567) - (72,072)
NET CASH FLOW FROM DISCONTINUED OPERATIONS - - 6,190 - 6,190
CASH AND CASH EQUIVALENTS:
Beginning of period 79,678 511 63,048 - 143,237
--------- --------- --------- --------- ----------
End of period $ 24,026 $ 1,658 $ 51,671 $ - $ 77,355
========= ========= ========= ========= ==========
-27-
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Dura's results of operations were impacted by several global economic
factors during the quarter ended September 30, 2004. During the third quarter of
2004 North American vehicle production was down approximately 1.5 percent and
European production was up approximately 2.6 percent when compared to the prior
year period. Approximately 60 percent of Dura's total revenues were generated in
North America during the third quarter of 2004 as compared to 61 percent in
2003. Dura's cost of production is higher in Europe as compared to North
America; thus, its future profitability could be impacted as volumes change and
/or as new business is awarded, should its current cost structure and revenue
mix by geographic location remain consistent. Dura is taking numerous actions to
improve its cost structure, including the various restructuring activities and
plant consolidations undertaken during 2003 and the first nine months of 2004.
Similar actions will continue throughout the remainder of 2004 as Dura works to
maximize its facility and asset utilization worldwide. The cost of steel has
increased industry wide during the first nine months of 2004 and this has placed
increased pressure on Dura's margins. If the elevated steel pricing continues
and Dura is unable to offset the impact through other cost reductions or price
increases, it may negatively impact Dura's full year results.
Given the significance of Dura's operations in Europe, the strengthening of
the Euro against the dollar, resulted in a $22.9 million increase to revenue in
the third quarter of 2004 as compared to 2003. Should the Euro stabilize at its
current levels, or continue to increase in 2004, Dura would anticipate a
continued increase of the proportion of its revenues from Europe relative to
North America, resulting in a corresponding increase in cost of sales and
downward pressure on gross margin for the reasons noted above. The fluctuation
of the Euro also has a significant impact on Dura's consolidated debt levels. At
September 30, 2004, approximately $131.6 million of Dura's debt is denominated
in Euro or other foreign currencies. The weakening of the European currencies
from December 31, 2003 to September 30, 2004 decreased Dura's total debt level
by approximately $1.5 million, holding all other factors constant.
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, 2003.
In conjunction with Dura's policy to close the fiscal quarter end on the
Sunday closest to the calendar quarter end and December 31 for year end, there
were five additional business days in the three months ended October 3, 2004 as
compared to the three months ended September 28, 2003. For presentation
purposes, Dura refers to the calendar month end as its fiscal quarter end.
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2004 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 2003
Revenues - Revenues for the three months ended September 30, 2004 were
$616.4 million, an increase of $62.0 million, or 11.2 percent, from $554.4
million for the three months ended September 30, 2003. Factors that favorably
impacted revenue during the three months ended September 30, 2004 included the
strengthening of the European currencies in relation to the U.S. dollar of $22.9
million, the effect of the Creation Group acquisition of $13.7 million and the
effect of five additional business days during the third quarter of 2004. These
increases were partially offset by lower North American production volumes and
selling price reductions.
-28-
Cost of Sales - Cost of sales for the three months ended September 30, 2004
were $552.5 million, an increase of $59.2 million, or 12.0 percent, from $493.3
million for the three months ended September 30, 2003. Cost of sales as a
percentage of revenues for the third quarter of 2004 was 89.6 percent, which is
up compared to 89.0 percent in the third quarter of 2003. The increase in cost
of sales is due to the strengthening of the European currencies in relation to
the U.S. dollar of approximately $18.6 million, the acquisition of the Creation
Group, the impact of elevated steel pricing and five additional business days
during the third quarter of 2004. These increases were partially offset by
operational and purchasing cost reductions and lower North American production
volumes.
Selling, General, and Administrative - Selling, general, and administrative
expenses for the three months ended September 30, 2004 were $38.6 million, an
increase of $1.2 million, or 3.3 percent, from $37.4 million for the three
months ended September 30, 2003. As a percentage of revenue, selling, general
and administrative expenses decreased to 6.3 percent for 2004 compared to 6.7
percent in the third quarter of 2003. The decrease as a percentage of sales is
primarily the result of Dura's continued effort to redeploy or eliminate certain
of its selling, general and administrative expenses, partially offset by the
impact of foreign exchange. Dura's goal is to reallocate certain of the selling,
general and administrative expenses to further support organic growth while
maintaining a 6.0 percent expense as a percentage of revenue.
Facility Consolidation and Other Charges -
Facility Consolidation
As a part of Dura's ongoing cost reduction and capacity utilization
efforts, Dura has taken numerous actions to improve its cost structure. These
costs are reflected as facility consolidation and other charges in the
consolidated statement of operations and were accounted for in accordance with
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
("SFAS No. 146").
During the second quarter of 2004, in order to improve capacity
utilization, Dura announced a plan to consolidate certain of its Body & Glass
Division product lines in Europe. This action resulted in a restructuring charge
of $1.3 million and $2.5 million in the second and third quarters of 2004,
respectively, relating primarily to severance, which completed the facility
consolidation charges to be incurred related to this action. Costs incurred and
charged to the reserve as of September 30, 2004 amounted to $0.6 million in
severance related costs. In addition, during the second quarter of 2004, Dura
announced a plan to exit two manufacturing facilities in Rockford, Illinois and
combine the business with other Dura operations. Dura also announced the
relocation of its Atwood Mobile Products division headquarters from Rockford,
Illinois to Elkhart, Indiana. These actions resulted in a restructuring charge
of $1.7 million and $1.2 million in the second and third quarters of 2004,
relating primarily to severance. Costs incurred and charged to the reserve as of
September 30, 2004 amounted to $0.4 million in severance related costs. Dura
also expensed as incurred approximately $0.3 million of facility closure and
other costs in the third quarter of 2004, of which $0.2 million is related to
equipment write-downs. Dura expects to incur additional restructuring charges
related to the exit of the Rockford facilities of approximately $0.7 million
relating to severance and $0.3 million relating to facility closure and other
costs through September 30, 2005.
During the first quarter of 2004, in order to improve capacity utilization,
Dura announced a plan to exit its Brookfield, Missouri facility and combine the
business with other Dura operations. This action resulted in a restructuring
charge of $0.1 million, $0.4 million and $0.2 million in the first, second, and
third quarters of 2004, respectively, relating primarily to severance. Dura also
expensed as incurred approximately $0.1 million of facility closure and other
costs in each of the second and third quarters of 2004. Dura expects to incur
$0.3 million of additional restructuring charges associated with the exit of the
Brookfield facility through December 31, 2004. In addition, during the first
quarter of 2004, Dura announced a plan to exit its Pikeville, Tennessee facility
and combine the business with other Dura
-29-
operations. This action resulted in a restructuring charge of $0.4 million and
$0.5 million in the first and second quarters of 2004, respectively, relating to
severance. Costs incurred and charged to the reserve as of September 30, 2004
amounted to $0.7 million in severance related costs. In continuation of these
actions, Dura expensed as incurred approximately $0.1 million of facility
closure and other costs in the second and third quarters of 2004, combined.
Included in this charge is an additional $0.2 million related to fixed asset
write-downs and a $0.2 million adjustment to reduce the facility consolidation
charge in the third quarter. Dura may incur an immaterial amount of additional
restructuring charges related to facility and other costs associated with the
exit of the Pikeville facility through December 31, 2004.
During the fourth quarter of 2003, Dura announced a plan to exit its Melun,
France facility and combine the business with other Dura operations. This action
resulted in a fourth quarter 2003 restructuring charge of $0.7 million relating
to severance. Dura also expensed as incurred approximately $0.1 million of
facility closure and other costs incurred during the fourth quarter of 2003.
Costs incurred and charged to the reserve as of September 30, 2004 amounted to
$0.5 million in severance related costs. In continuation of these actions, Dura
recorded an additional restructuring charge of $0.2 million for facility closure
and other costs and adjusted the severance reserve down by $0.1 million in the
second quarter of 2004. Dura may incur an immaterial amount of additional
restructuring charges related to facility and other costs associated with the
exit of the Melun facility through December 31, 2004.
During the second quarter of 2003, Dura announced a plan to exit its
Fulton, Kentucky facility in North America. This action resulted in a second
quarter 2003 restructuring charge of $1.5 million, including severance of $0.3
million and facility closure and other costs of $1.2 million. In continuation of
these actions during 2003, Dura recorded $1.3 million of additional
restructuring charges, including severance of $1.2 million and facility closure
and other costs of $0.1 million. Dura also expensed as incurred approximately
$2.5 million and $3.4 million of certain facility closure and other costs
incurred during the third and fourth quarters of 2003, respectively. During
2004, Dura continued such actions and recorded $0.2 million and $0.4 million in
the first and third quarters, respectively, of additional restructuring charges
for severance related costs. Dura also expensed as incurred $0.1 million and
$0.2 million in the first and second quarters of 2004, respectively, related to
severance costs and $0.2 million of facility closure and other costs in the
first quarter of 2004. Costs incurred and charged to the reserve as of September
30, 2004 amounted to $1.8 million in severance related costs and $1.3 million in
facility closure and other costs. Dura may incur an immaterial amount of
additional restructuring charges related to facility and other costs associated
with the exit of the Fulton facility through December 31, 2004.
In the fourth quarter of 2003, Dura adopted a plan to sell its Cauvigny
facility for total proceeds of $0.8 million, and to contribute $2.1 million to
the buyer. This action resulted in a fourth quarter 2003 restructuring charge of
$2.2 million, including the planned payments to the buyer of $2.1 million and
facility closure and other costs of $0.1 million. Dura also expensed as incurred
approximately $2.4 million during the fourth quarter of 2003, consisting
principally of asset impairment. Costs incurred and charged to the reserve as of
September 30, 2004 amounted to $2.3 million in facility closure and other costs.
In continuation of these actions, Dura expensed as incurred approximately $0.3
million and $0.1 million in the first and second quarters of 2004, respectively,
of additional facility closure and other costs, which completed the facility
consolidation charges to be incurred related to this action.
Asset Impairments
During the second quarter of 2004, Dura recorded $6.7 million in asset
impairment charges related to building write-downs for the facility
consolidation actions taken during 2004 and 2003. These costs are reflected as
facility consolidation and other charges in the consolidated statement of
operations and were accounted for in accordance with SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144").
-30-
Amortization Expense - Amortization expense for the three months ended
September 30, 2004, was $0.1 million, which is flat compared to $0.1 million for
the three months ended September 30, 2003.
Interest Expense - Interest expense for the three months ended September
30, 2004 was $23.9 million, an increase of $3.6 million, or 18.0 percent, from
$20.3 million for the three months ended September 30, 2003. The increase in
interest expense is due to the prospective classification of the Minority
Interest - Dividends on Trust Preferred Securities included as a component of
interest expense in accordance with Dura's adoption of FIN 46 effective December
31, 2003. In addition, interest expense increased due to the issuance of the
2003 Senior Notes and by higher average interest rates on LIBOR based borrowings
in the third quarter of 2004.
Income Taxes - The effective income tax rate was 29.0 percent for the three
months ended September 30, 2004 and 25.1 percent for the three months ended
September 30, 2003. The 25.1 percent rate for the three months ended September
30, 2003 reduced the nine-month effective rate to 34 percent as compared to 29
percent for the nine months ended September 30, 2004. The decrease in the
effective tax rate relates primarily to the mix of income among Dura's North
American and European tax jurisdictions and the impact of tax planning
strategies slightly offset by not benefiting losses in certain locations and
increases in valuation allowances. The overall effective rates differed from
statutory rates as a result of lower combined foreign tax rates, the effects of
state taxes and the provision of a valuation allowance on certain losses in
foreign jurisdictions.
Minority Interest - Minority interest for the three months ended September
30, 2004 has been classified as a component of interest expense in accordance
with the Company's adoption of FIN 46 effective December 31, 2003. Minority
interest for the three months ended September 30, 2003 represents dividends, net
of income tax benefits, on the 7 1/2 percent Preferred Securities ("Preferred
Securities") which were issued on March 20, 1998.
Discontinued Operations - Discontinued operations for the three months
ended September 30, 2004 was a loss of $18 thousand, a decrease of $0.4 million,
from the $0.3 million for the three months ended September 30, 2003. These
amounts relate to adjustments associated with the March 2003 divestiture of
Dura's Mechanical Assemblies Europe business. Future adjustments related to
certain retained liabilities of the discontinued operations may occur in the
future and any such adjustments may be material.
The Mechanical Assemblies Europe divestiture was treated as a discontinued
operation under SFAS No. 144. The results of operations of the Mechanical
Assemblies Europe business and the related charges have been classified as
discontinued operations in the condensed consolidated statements of operations.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2004 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2003
Revenues - Revenues for the nine months ended September 30, 2004 were
$1,909.7 million, an increase of $156.1 million, or 8.9%, from $1,753.6 million
for the nine months ended September 30, 2003. Factors that favorably impacted
revenue during the nine months ended September 30, 2004 included the
strengthening of the European currencies in relation to the U.S. dollar of $88.1
million, the effect of the Creation Group acquisition of $86.1 million and a
strengthening recreation vehicle market of $25.4 million. Partially offsetting
these favorable items was the impact of lower North American production volumes
and selling price reductions.
Cost of Sales - Cost of sales for the nine months ended September 30, 2004
were $1,692.5 million, an increase of $154.6 million, or 10.1%, from $1,537.8
million for the nine months ended September 30, 2003. Cost of sales as a
percentage of revenues for the first nine months of 2004 increased to 88.6% for
2004 compared to 87.7% in the first nine months of 2003. The increase in cost of
sales is due to the
-31-
strengthening of the European currencies in relation to the U.S. dollar of
approximately $72.6 million, the acquisition of the Creation Group and the
impact of elevated steel pricing. These increases were partially offset by
operational and purchasing cost reductions.
Selling, General, and Administrative - Selling, general, and administrative
expenses for the nine months ended September 30, 2004 were $117.3 million, an
increase of $2.5 million, or 2.2%, from $114.8 million for the nine months ended
September 30, 2003. As a percentage of revenue, selling, general and
administrative expenses decreased to 6.1% for 2004 compared to 6.5% in the first
nine months of 2003. The decrease as a percentage of sales is primarily the
result of Dura's continued effort to redeploy or eliminate certain of its
selling, general and administrative expenses, partially offset by the impact of
foreign exchange. Dura's goal is to reallocate certain of the selling, general
and administrative expenses to further support organic growth while obtaining a
6.0 percent expense as a percentage of revenue.
Facility Consolidation and Other Charges -
Facility Consolidation
As a part of Dura's ongoing cost reduction and capacity utilization
efforts, Dura has taken numerous actions to improve its cost structure. These
costs are reflected as facility consolidation and other charges in the
consolidated statement of operations and were accounted for in accordance with
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
("SFAS No. 146").
During the second quarter of 2004, in order to improve capacity
utilization, Dura announced a plan to consolidate certain of its Body & Glass
Division product lines in Europe. This action resulted in a restructuring charge
of $1.3 million and $2.5 million in the second and third quarters of 2004,
respectively, relating primarily to severance, which completed the facility
consolidation charges to be incurred related to this action. Costs incurred and
charged to the reserve as of September 30, 2004 amounted to $0.6 million in
severance related costs. In addition, during the second quarter of 2004, Dura
announced a plan to exit two manufacturing facilities in Rockford, Illinois and
combine the business with other Dura operations. Dura also announced the
relocation of its Atwood Mobile Products division headquarters from Rockford,
Illinois to Elkhart, Indiana. These actions resulted in a restructuring charge
of $1.7 million and $1.2 million in the second and third quarters of 2004,
relating primarily to severance. Costs incurred and charged to the reserve as of
September 30, 2004 amounted to $0.4 million in severance related costs. Dura
also expensed as incurred approximately $0.3 million of facility closure and
other costs in the third quarter of 2004, of which $0.2 million is related to
equipment write-downs. Dura expects to incur additional restructuring charges
related to the exit of the Rockford facilities of approximately $0.7 million
relating to severance and $0.3 million relating to facility closure and other
costs through September 30, 2005.
During the first quarter of 2004, in order to improve capacity utilization,
Dura announced a plan to exit its Brookfield, Missouri facility and combine the
business with other Dura operations. This action resulted in a restructuring
charge of $0.1 million, $0.4 million and $0.2 million in the first, second, and
third quarters of 2004, respectively, relating primarily to severance. Dura also
expensed as incurred approximately $0.1 million of facility closure and other
costs in each of the second and third quarters of 2004. Dura expects to incur
$0.3 million of additional restructuring charges associated with the exit of the
Brookfield facility through December 31, 2004. In addition, during the first
quarter of 2004, Dura announced a plan to exit its Pikeville, Tennessee facility
and combine the business with other Dura operations. This action resulted in a
restructuring charge of $0.4 million and $0.5 million in the first and second
quarters of 2004, respectively, relating to severance. Costs incurred and
charged to the reserve as of September 30, 2004 amounted to $0.7 million in
severance related costs. In continuation of these actions, Dura expensed as
incurred approximately $0.1 million of facility closure and other costs in the
second and third quarters of 2004, combined. Included in this charge is an
additional $0.2 million related
-32-
to fixed asset write-downs and a $0.2 million adjustment to reduce the facility
consolidation charge in the third quarter. Dura may incur an immaterial amount
of additional restructuring charges related to facility and other costs
associated with the exit of the Pikeville facility through December 31, 2004.
During the fourth quarter of 2003, Dura announced a plan to exit its Melun,
France facility and combine the business with other Dura operations. This action
resulted in a fourth quarter 2003 restructuring charge of $0.7 million relating
to severance. Dura also expensed as incurred approximately $0.1 million of
facility closure and other costs incurred during the fourth quarter of 2003.
Costs incurred and charged to the reserve as of September 30, 2004 amounted to
$0.5 million in severance related costs. In continuation of these actions, Dura
recorded an additional restructuring charge of $0.2 million for facility closure
and other costs and adjusted the severance reserve down by $0.1 million in the
second quarter of 2004. Dura may incur an immaterial amount of additional
restructuring charges related to facility and other costs associated with the
exit of the Melun facility through December 31, 2004.
During the second quarter of 2003, Dura announced a plan to exit its
Fulton, Kentucky facility in North America. This action resulted in a second
quarter 2003 restructuring charge of $1.5 million, including severance of $0.3
million and facility closure and other costs of $1.2 million. In continuation of
these actions during 2003, Dura recorded $1.3 million of additional
restructuring charges, including severance of $1.2 million and facility closure
and other costs of $0.1 million. Dura also expensed as incurred approximately
$2.5 million and $3.4 million of certain facility closure and other costs
incurred during the third and fourth quarters of 2003, respectively. During
2004, Dura continued such actions and recorded $0.2 million and $0.4 million in
the first and third quarters, respectively, of additional restructuring charges
for severance related costs. Dura also expensed as incurred $0.1 million and
$0.2 million in the first and second quarters of 2004, respectively, related to
severance costs and $0.2 million of facility closure and other costs in the
first quarter of 2004. Costs incurred and charged to the reserve as of September
30, 2004 amounted to $1.8 million in severance related costs and $1.3 million in
facility closure and other costs. Dura may incur an immaterial amount of
additional restructuring charges related to facility and other costs associated
with the exit of the Fulton facility through December 31, 2004.
In the fourth quarter of 2003, Dura adopted a plan to sell its Cauvigny
facility for total proceeds of $0.8 million, and to contribute $2.1 million to
the buyer. This action resulted in a fourth quarter 2003 restructuring charge of
$2.2 million, including the planned payments to the buyer of $2.1 million and
facility closure and other costs of $0.1 million. Dura also expensed as incurred
approximately $2.4 million during the fourth quarter of 2003, consisting
principally of asset impairment. Costs incurred and charged to the reserve as of
September 30, 2004 amounted to $2.3 million in facility closure and other costs.
In continuation of these actions, Dura expensed as incurred approximately $0.3
million and $0.1 million in the first and second quarters of 2004, respectively,
of additional facility closure and other costs, which completed the facility
consolidation charges to be incurred related to this action.
Asset Impairments
During the second quarter of 2004, Dura recorded $6.7 million in asset
impairment charges related to building write-downs for the facility
consolidation actions taken during 2004 and 2003. These costs are reflected as
facility consolidation and other charges in the consolidated statement of
operations and were accounted for in accordance with SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144").
Amortization Expense - Amortization expense for the nine months ended
September 30, 2004, was $0.3 million, which is basically flat compared to $0.2
million for the nine months ended September 30, 2003.
Interest Expense - Interest expense for the nine months ended September 30,
2004 was $66.7 million, an increase of $5.1 million, or 8.3%, from $61.6 million
for the nine months ended September 30, 2003.
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The increase in interest expense is due to the prospective classification of the
Minority Interest - Dividends on Trust Preferred Securities included as a
component of interest expense in accordance with Dura's adoption of FIN 46
effective December 31, 2003. In addition, interest expense increased due to the
issuance of the 2003 Senior Notes and by higher average interest rates on LIBOR
based borrowings during the nine months ended September 30, 2004.
Income Taxes - The effective income tax rate was 29.0% for the nine months
ended September 30, 2004 and 34.0% for the nine months ended September 30, 2003.
The decrease in the effective tax rate relates primarily to the mix of income
among Dura's North American and European tax jurisdictions and the impact of tax
planning strategies, slightly offset by not benefiting losses in certain
locations and increases in valuation allowances. The overall effective rates
differed from statutory rates as a result of lower combined foreign tax rates,
the effects of state taxes and the provision of a valuation allowance on certain
losses in foreign jurisdictions.
Minority Interest - Minority interest for the nine months ended September
30, 2004 has been classified as a component of interest expense in accordance
with the Company's adoption of FIN 46 effective December 31, 2003. Minority
interest for the nine months ended September 30, 2003 represents dividends, net
of income tax benefits, on the 7 1/2 percent Preferred Securities which were
issued on March 20, 1998.
Discontinued Operations - Loss from discontinued operations for the nine
months ended September 30, 2004 was $0.7 million, a decrease of $0.8 million,
from the $0.1 million gain for the nine months ended September 30, 2003. These
amounts relate to adjustments associated with the March 2003 divestiture of
Dura's Mechanical Assemblies Europe business. Future adjustments related to
certain retained liabilities of the discontinued operations may occur in the
future and any such adjustments may be material.
The Mechanical Assemblies Europe divestiture was treated as a discontinued
operation under SFAS No. 144. The results of operations of the Mechanical
Assemblies Europe business and the related charges have been classified as
discontinued operations in the condensed consolidated statements of operations.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 2004, Dura generated cash from operations
of $60.9 million, compared to generating cash from operations of $39.1 million
in 2003. Cash generated from operations before changes in working capital items
was $75.3 million for the first nine months of 2004 compared to $81.6 million
for 2003. Working capital used cash of $14.4 million in the first nine months of
2004 compared to using cash of $42.5 million in 2003. This decrease in cash used
from working capital is primarily the result of the timing of cash receipts
relating to customer reimbursable tooling offset by the strengthening of the
European currencies in relation to the US dollar.
Net cash used in investing activities was $57.3 million for the first nine
months of 2004 compared to $103.9 million used in 2003. In the first nine months
of 2004, $13.3 million was used for acquisitions, of which $12.6 million was
used for the final purchase option for the Reiche acquisition and $0.7 million
was used for a purchase price adjustment for the Creation Group acquisition. Net
capital expenditures totaled $44.0 million for the first nine months of 2004
compared to $46.2 million for the first nine months of 2003. The capital
expenditures were primarily for equipment and dedicated tooling purchases
related to new or replacement programs.
Net cash used in financing activities totaled $16.6 million for the first
nine months of 2004 compared to $3.9 million in 2003, principally for the
repayment of outstanding indebtedness.
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In March 1999, Dura entered into an amended and restated $1.15 billion
credit agreement ("Credit Agreement"). The Credit Agreement originally provided
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 ("2002 Senior Notes"), due April 2012. The interest on
the 2002 Senior Notes is payable semi-annually beginning October 15, 2002. 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. In addition, the
revolving credit facility was decreased to $390.0 million. 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 2002 Senior Notes
offering and to further adjust certain financial covenants.
In November 2003, Dura completed the offering of $50.0 million 8 5/8
percent senior unsecured notes ("2003 Senior Notes"), due April 2012. The
interest on the 2003 Senior Notes is payable semi-annually beginning April 15,
2004. Net proceeds from this offering of approximately $48.5 million were used
to replenish cash balances used to fund the acquisition of the Creation Group.
In conjunction with this transaction, Dura amended and restated its revolving
credit facility. The new revolving credit facility ("New Credit Agreement")
provides for $175.0 million of revolving credit, available until October 2008.
At September 30, 2004, under its most restrictive debt covenant, Dura had
availability of $138.4 million including cash and revolver. The existing tranche
C term loan remained outstanding. In connection with the termination of Dura's
existing Credit Agreement, Dura wrote-off debt issuance costs of approximately
$2.9 million during the fourth quarter of 2003. The write-off of debt issuance
costs was classified as a component of income from continuing operations in
accordance with the provisions of SFAS No. 145.
Included in interest expense, net, in the consolidated statements of
operations is approximately $0.9 million and $0.5 million of interest income
earned on Dura's cash balances in the quarters ended September 30, 2004 and 2003
respectively and $2.1 million and $2.0 million for the nine months ended
September 30, 2004 and 2003, respectively.
As of September 30, 2004, rates on borrowings under the New Credit
Agreement are based on LIBOR and were 4.34 percent. The New Credit Agreement
contains various restrictive covenants which include the limit of indebtedness,
investments and dividends. The New Credit Agreement also requires Dura to
maintain certain financial ratios including debt and interest coverage. Dura was
in compliance with the covenants as of September 30, 2004. Borrowings under the
New Credit Agreement are collateralized by substantially all assets of Dura.
The New 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 $50.9 million. As of September 30, 2004 and 2003, 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
September 30, 2004, Dura had nothing outstanding under its overdraft facilities.
At September 30, 2004, Dura had overdraft facilities available from banks up to
an amount equal to $54.1 million.
In April 1999, Dura completed the offering of its 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
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$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.
Dura is limited as to its ability to declare or make certain dividend
payments or other distributions of assets under its New Credit Agreement, Senior
Notes and Subordinated Notes. Certain distributions relating to items such as a
company stock purchase program, tax sharing arrangements, as required under
Dura's Preferred Securities, are permitted.
Dura's principal source of liquidity is cash flow generated from operations
and borrowings under its $175 million revolving credit facilities. Dura believes
that such funds will be sufficient to meet its liquidity needs for at least the
next twelve months. Dura's principal use of liquidity will be to meet debt
service requirements, finance capital expenditures and to provide working
capital availability. Dura expects that capital expenditures in 2004 will be
approximately $70.0 million. These capital expenditures will be used primarily
for equipment and dedicated tooling purchases and facility improvements.
Dura's ability to service its indebtedness will depend on its future
performance, which will be affected by prevailing economic conditions and
financial, business, regulatory and other factors. Certain of these factors are
beyond Dura's control. Dura believes that, based upon current levels of
operations, it will be able to meet its debt service obligations when due.
Significant assumptions underlie this belief, including, among other things,
that Dura will continue to be successful in implementing its business strategy
and that there will be no material adverse developments in its business,
liquidity or capital requirements. If Dura cannot generate sufficient cash flow
from operations to service its indebtedness and to meet its other obligations
and commitments, Dura might be required to refinance its debt or to dispose of
assets to obtain funds for such purpose. There is no assurance that refinancing
or asset dispositions could be effected on a timely basis or on satisfactory
terms, if at all, or would be permitted by the terms of the New Credit
Agreement. In the event that Dura is unable to refinance the New Credit
Agreement or raise funds through asset sales, sales of equity or otherwise, its
ability to pay principal of, and interest on, its debt would be impaired.
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 with the exception of steel costs, which have impacted our
results of operations during 2004.
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FOREIGN CURRENCY TRANSACTIONS
A significant portion of Dura's revenues during the three and nine months
ended September 30, 2004 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 currencies 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 currencies.
A significant portion of Dura's assets at September 30, 2004 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 currencies.
Dura's strategy for management of currency risk relies primarily upon
conducting its operations in such countries' respective currencies and Dura may,
from time to time, engage in hedging programs intended to reduce Dura's exposure
to currency fluctuations.
NEW ACCOUNTING PRONOUNCEMENTS
During May 2004, the FASB issued FASB Staff Position (FSP) FAS 106-2,
Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003. This FSP provides guidance on
accounting for the effects of the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the Act), to employers that sponsor postretirement
health care plans where the prescription drug benefits available under the plan
are actuarially equivalent to Medicare Part D and thus qualify for the subsidy
under the Act and the expected subsidy will offset or reduce the employer's
share of the cost of the underlying postretirement prescription drug coverage on
which the subsidy is based. The FSP also requires certain disclosures related to
the impact of the Act. Dura adopted this FSP on July 1, 2004. The adoption of
this FSP did not have a material impact on Dura's consolidated balance sheet or
results of operations.
In December 2003, the FASB issued SFAS No. 132(R), a revision to SFAS No.
132, "Employers' Disclosure about Pensions and Other Postretirement Benefits".
SFAS No. 132(R) does not change the measurement or recognition related to
pension and other postretirement plans required by SFAS No. 87, "Employers'
Accounting for Pensions", SFAS No. 88, "Employers' Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for Termination Benefits",
and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" and retains the disclosure requirements contained in SFAS No. 132.
SFAS No. 132(R) requires additional disclosures about the assets, obligations,
cash flows and net periodic benefit cost of defined benefit pension plans and
other defined benefit postretirement plans. SFAS No. 132(R) is effective for
financial statements with fiscal years ending after December 15, 2003, with the
exception of disclosure requirements related to foreign plans and estimated
future benefit payments which are effective for fiscal years ending after June
15, 2004. Dura included the required annual disclosures in its consolidated
financial statements as of and for the year ended December 31, 2003 and has
included the required interim disclosures in Note 15 to its consolidated
financial statements. The adoption of SFAS No. 132(R) did not impact Dura's
condensed consolidated balance sheet or results of operations.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities". The Interpretation addresses the consolidation of variable
interest entities, including entities commonly referred to as special purpose
entities. Dura was required to apply FIN 46 to all new variable interest
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entities created or acquired after January 31, 2003. In October 2003, the FASB
issued FSP FIN 46-6, "Effective Date of FIN 46, Consolidation of Variable
Interest Entities." FSP FIN 46-6 extended the required effective date of FIN 46
for variable interest entities created or acquired prior to February 1, 2003.
Dura was required to apply FIN 46 to such entities effective December 31, 2003.
The application of FIN 46 resulted in a reclassification of the Preferred
Securities from the mezzanine section of the balance sheet for 2003 to a
long-term liability. In addition, Minority Interest - Dividends on Trust
Preferred Securities, Net is classified in the statement of operations as a
component of interest expense on a gross basis, for periods subsequent to
December 31, 2003.
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 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
At September 30, 2004, Dura had outstanding interest rate swap contracts
that effectively converted $400.0 million of its Senior Notes into floating rate
obligations. Under these swap contracts, which expire in April 2012, Dura
receives payments at fixed rates, while it makes payments at variable rates (8.6
percent to approximately 5.1 percent at September 30, 2004). The net interest
paid or received is included in interest expense. Dura designated these swap
contracts as fair value hedges at their inception. At September 30, 2004, the
fair value of the interest rate swap contracts was a net gain position for Dura
of approximately $24.1 million, representing the estimated benefit that would
accrue to Dura to terminate the agreements, and is included in current and
noncurrent assets with a corresponding increase to debt in the accompanying
consolidated September 30, 2004 balance sheet.
There have been no other material changes to our exposures to market risk
since December 31, 2003.
ITEM 4: CONTROLS AND PROCEDURES
As of the end of the period covered by this Quarterly Report on Form 10-Q,
we conducted an evaluation, under the supervision and with the participation of
our principal executive officer and principal financial officer, of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended). Based on this
evaluation, the principal executive officer and principal financial officer
concluded that our disclosure controls and procedures are effective to ensure
that information we are required to disclose in reports that we file or
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submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in SEC rules and
forms. There was no change in our internal control over financial reporting
during our most recently completed fiscal quarter that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.
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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 2003 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 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
31.1 Certification by Lawrence A. Denton, President, Chief
Executive Officer and Director
31.2 Certification by David R. Bovee, Vice President and
Chief Financial Officer
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
32.2 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
None
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DURA AUTOMOTIVE SYSTEMS, INC.
Date: November 8, 2004 By /s/ David R. Bovee
---------------------------------------
David R. Bovee
Vice President, Chief Financial Officer
(principal accounting and financial
officer)
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EXHIBIT INDEX
Exhibit 31.1 Certification by Lawrence A. Denton, President, Chief Executive
Officer and Director
Exhibit 31.2 Certification by David R. Bovee, Vice President and Chief
Financial Officer
Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002