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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended: Commission file number:
December 31, 1996 0-21139
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DURA AUTOMOTIVE SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 38-3185711
(State of Incorporation) (I.R.S. Employer Identification No.)
4508 IDS CENTER
MINNEAPOLIS, MINNESOTA 55402
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (612) 342-2311
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $.01 per share
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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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
As of March 21, 1997, 3,825,756 shares of Class A Common Stock of the
Registrant were outstanding and the aggregate market value of the Class A Common
Stock of the Registrant (based upon the last reported sale price of the Common
Stock at that date by the Nasdaq National Market System), excluding shares owned
beneficially by affiliates, was approximately $89,905,000. In addition,
4,976,254 shares of Class B Common Stock of the Registrant were outstanding at
March 21, 1997.
Information required by Items 5,6,7 and 8 of Part II of this Annual Report on
Form 10-K incorporates by reference information (to the extent specific sections
are referred to herein) from the Registrant's Annual Report to Stockholders for
the year ended December 31, 1996 (the "1996 Annual Report"). Information
required by Items 10, 11, 12 and 13 of Part III of this Annual Report on Form
10-K incorporates by reference information (to the extent specific sections are
referred to herein) from the Registrant's Proxy Statement for its annual meeting
to be held May 14, 1997 (the "1997 Proxy Statement").
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PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
BACKGROUND OF COMPANY
Dura Automotive Systems, Inc. and its subsidiaries (collectively referred
to as the "Company") is a leading designer and manufacturer of mechanical
assemblies and integrated systems for the global automotive industry. The
Company believes that it is the largest supplier of both parking brake
mechanisms and parking brake cables to original equipment manufacturers ("OEMs")
in North America, with market shares of over 60% and over 40%, respectively.
The Company supplies both parking brake mechanisms and cables, as well as
complete parking brake systems, which consist of parking brake mechanisms and
cables that connect the brake mechanism to the brake drum. In addition, the
Company designs and manufactures a variety of automotive cables, latches,
transmission shifter mechanisms and other mechanical assemblies. The Company's
products are sold to almost every major North American automotive OEM, including
Ford, GM and Chrysler, as well as to foreign OEMs such as Toyota.
The Company has supplied parking brake components and automotive cables to
OEMs since 1961 and 1970, respectively, and was granted its first parking brake
patent in 1967. The Company has continually increased its design capabilities,
allowing it to capitalize on the desire of its customers to shift total design
responsibilities to their suppliers. The Company believes it is the only North
American supplier with the capability to design, manufacture and assemble a
complete parking brake system for its customers. As a result of the Company's
significant design, engineering and project management capabilities, the Company
has been designated as the only Full Service Supplier of parking brake systems
to Ford and is the largest supplier of such systems to GM.
The Company manufactures products for many of the most popular car, light
truck, sport utility and mini-van models, including the Ford Taurus, Escort,
Explorer, Ranger and F-Series pickups, GM C/K pickups, Saturn and Toyota Camry.
The Company is generally the sole supplier of the parts it sells to OEMs and
will ordinarily continue to supply parts for a particular model for the life of
the model, which usually ranges from three to seven years.
The Company was formed by an investor group organized by Hidden Creek
Industries ("Hidden Creek") to acquire the Dura Automotive Hardware and
Mechanical Components divisions (the "Dura Divisions") from Wickes Manufacturing
Company ("Wickes"). Following this acquisition in November 1990, Hidden Creek
hired a new management team that implemented a series of strategic changes
designed to improve product quality and reduce manufacturing costs through,
among other things, the introduction of cellular manufacturing methods,
consolidation of manufacturing facilities, improvement in inventory management
and reduction of scrap. Since November 1990, the Company has completed the
following strategic acquisitions and divestiture:
- In August 1994, the Company combined its operations with the automotive
parking brake cable and lever business and light duty cable business (the "Brake
and Cable Business") of Alkin Co. ("Alkin") which significantly expanded the
Company's size and capabilities. Since that acquisition, the Company has
achieved significant cost savings through the consolidation of
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manufacturing facilities, sales, engineering and design functions and the
reduction of administrative personnel.
- On April 2, 1995, the Company sold the net assets of its window regulator
business to Rockwell International Corporation for approximately $18.0 million
in cash, resulting in a pretax gain of approximately $4.2 million.
- In August 1996, the Company formed a joint venture with another automotive
supplier to participate equally in the acquisition of a 26% interest in Pollone,
S.A., a manufacturer of automotive components and mechanical assemblies
headquartered in Sao Paulo, Brazil, for $5 million.
- In October 1996, the Company acquired the parking brake business of
Rockwell Light Vehicle Systems France S.A. The aggregate purchase price was
approximately $3.75 million. The parking brake business is operated from a
facility in St. Die, France.
- In December 1996, the Company acquired all of the outstanding common stock
of KPI Automotive Group (KPI) from Sparton Corporation for approximately $78.8
million in cash. KPI manufactures shifter systems, parking brake mechanisms,
brake pedals, underbody spare tire carriers and airbag components for the North
American automotive industry from facilities in Indiana and Michigan. The
acquisition was financed with proceeds from borrowings under the Company's bank
credit agreement.
- On January 10, 1997, the Company acquired all of the outstanding common
stock of the VOFA Group (VOFA) for approximately $38 million in cash and assumed
indebtedness. The purchase was financed with borrowings under the Company's
bank credit agreement. The Company may also make additional payments of up to
approximately $6 million if certain operating targets are achieved by VOFA in
the first three years following the acquisition. VOFA manufactures shifter
cables, brake cables and other light duty cables for the European automotive and
industrial markets from facilities in Dusseldorf, Gehren and Daun, Germany and
Barcelona, Spain.
BUSINESS STRATEGY
The principal objective of the Company is to capitalize on opportunities
created by the consolidation of the automotive mechanical assembly industry and
the growth of systems sourcing on a global basis through both internal
development and strategic acquisitions. The key elements of the Company's
strategy include:
TECHNICAL DESIGN AND ENGINEERING CAPABILITIES. The Company has maintained
a technological advantage through its investment in product development and
advanced engineering. The Company's Advanced Technology Group has developed
many innovative features utilized in the Company's products, including
self-adjust features in parking brakes and automotive cables, vacuum and
electric releasing parking brake mechanisms and selector brackets on
transmission shifters. The Company was the first to provide a brake cable with
a ten-year-life and will manufacture and assemble the industry's first plastic
pedal for the 1998 model year Chrysler Intrepid/Concorde parking brake. The
Company also designed a combination transmission shifter/four-wheel drive
selector into a dual-function unit that will be manufactured for the 1999 model
year Chrysler Grand Cherokee. The Company works with OEMs throughout the
product development process from concept vehicle and prototype development
through the design and implementation of manufacturing processes. The
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Company's computer-aided design systems are compatible with its major customers,
enabling the Company to communicate design developments with customer engineers
throughout the design and development stage.
EFFICIENT MANUFACTURING/CONTINUOUS IMPROVEMENT PROGRAMS. Following the
acquisition of the Dura Divisions, new management implemented a series of
strategic changes designed to improve product quality and reduce manufacturing
costs through, among other things, the introduction of cellular manufacturing
methods, consolidation of manufacturing facilities, improvement in inventory
management and reduction of scrap. The Company has also achieved significant
cost savings subsequent to the acquisition of the Brake and Cable Business by
implementing similar improvements to its operations as well as through the
consolidation of manufacturing facilities and sales, engineering and design
functions and reduction of administrative personnel.
STRATEGIC ACQUISITIONS. The Company believes that the continuing trend
toward supplier consolidation in certain product segments, together with recent
system and global sourcing trends, will provide attractive opportunities to
acquire high-quality companies whose acquisition will allow the Company to
expand into new geographic markets, add new customers, provide new product,
manufacturing and service capabilities or increase model penetration with
existing customers. The Company's acquisitions described above are a result of
this initiative, providing additional product capabilities such as automotive
cables, enhanced system capabilities including both mechanisms and cables and
new customers. The Company seeks to make acquisitions that will strengthen its
ability to supply its products in Europe and other markets outside of North
America. The Company is focusing on automotive assemblies that utilize the
Company's assembly and design capabilities and, preferably, use attaching cables
to capitalize on the Company's system knowledge.
EXPANDING CUSTOMER RELATIONSHIPS. The Company has developed strong
customer relationships based on its long history of high-quality manufacturing,
significant investment in design and engineering capabilities, access to and
relationships with OEMs' engineering and purchasing personnel and ability to
produce complete systems. Strong customer relationships allow the Company to
identify business opportunities and react to customer needs in the early stages
of vehicle design and, therefore, maintain and increase its volume with
particular customers. The Company's strategy is to increase volume by marketing
a broader range of its products to existing customers and by developing new
products that complement its existing product lines. In addition to its
continuing strong relationships with Ford and GM, the Company has developed a
strong relationship with Toyota, which relationship has grown substantially from
limited model coverage in 1991 to a full range of Toyota vehicles in 1996,
including two models manufactured in Japan. The Company has also experienced
significant success at Chrysler in recent months, including the award of
business for the 1998 model year Intrepid/Concorde and the 1999 model year Grand
Cherokee. These customer relationships are also expanding outside the North
American market as the Company supplies its products on a global basis.
MANAGEMENT AND WORKFORCE INCENTIVES. The Company's leadership team has an
average of 20 years of experience in the automotive supply industry and has a
significant stake in the Company's success. The Company provides
ownership-related incentives to other managers and salaried and hourly employees
through grants under the Stock Option Plan and participation in the Employee
Stock Purchase Plan.
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PRODUCTS
The Company's current products consist primarily of parking brake systems,
transmission shifter mechanisms and systems, automotive cables and latches,
spare tire carriers and brake and accelerator pedals. The Company's product
offerings include foot and hand operated parking brakes; manual and automatic
floor mounted transmission shifters; parking brake, shifter, throttle, oil
level, hood release and fuel door cables; and primary, secondary and combination
hood, deck lid and tail gate latches. The Company offers parking brake, shifter
and latch systems (which consist of mechanisms and cables), allowing OEMs to
capitalize on the Company's expertise in manufacturing both components
individually and as an integrated system.
The Company's current products are further described and illustrated in the
1996 Annual Report.
CUSTOMERS AND MARKETING
The North American automotive market is dominated by Ford, GM and Chrysler,
with Japanese and foreign manufacturers capturing approximately 20% of the
market. The Company supplies its products primarily to Ford, GM, Chrysler and
Toyota.
The following is a summary of the Company's customers that accounted for at
least 3% of revenues in the past three fiscal years:
YEAR ENDED DECEMBER 31,
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CUSTOMER 1996 1995 1994
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Ford............................... 49% 52% 57%
GM................................. 36 35 29
Chrysler........................... 8 6 9
Toyota............................. 5 5 3
Other.............................. 2 2 2
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Total............................ 100% 100% 100%
------- ------- --------
------- ------- --------
The Company's customers award contracts for a particular car model. Such
contracts range from one year to the life of the model, which is generally three
to seven years, and do not require the purchase by the customer of any minimum
number of parts. The Company also competes for new business to supply parts for
successor models and therefore is subject to the risk that the OEM will not
select the Company to produce parts on a successor model. Because the Company
supplies parts for a broad cross-section of both new and mature models, its
reliance on any particular model is minimized. The Company manufactures
products for many of the most popular car, light truck, sport utility and
mini-van models, including the Ford Taurus, Escort, Explorer, Ranger and
F-Series pickups, GM C/K pickups, Saturn and Toyota Camry.
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Although not comprehensive, the following table presents an overview of the
major models for which the Company has orders to supply products on current or
new model vehicles:
CUSTOMER CAR MODELS TRUCK MODELS
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Ford Contour/Mystique/Mondeo, Bronco, Econoline,
Continental/Town Car, Mark/ Expedition,
Mark VIII, Taurus/Sable, Explorer/Mountaineer,
Thunderbird/Cougar F-Series, Ranger,
Villager, Windstar
GM Achieva/Grand Am, Century, Safari/Astro, Blazer/
Corsica/Beretta, Corvette, Jimmy, C/K Truck/Tahoe/
Deville/Seville, Firebird/ Sierra/Yukon, Silhouette/
Camaro, Lumina/Grand Prix/ TransSport/Lumina,
Regal, Aurora/Riviera, S-10 Pick-up/Sonoma/
Caprice, Olds 98/ Bravada, Suburban
Park Avenue, Olds
88/Bonneville/LeSabre,
all Saturn models,
Sunfire/Cavalier, Inovate
Chrysler Interpid/Concorde, Neon, Caravan, Dakota, Grand
Prowler, Viper Cherokee, Ram Van,
Voyager
Toyota Avalon, Camry, Corolla, Previa
Lexus, Prizm
Most of the parts the Company produces have a lead time of two to five
years from product development to production. Examples of recently awarded new
business include parking brakes and hood latches for Ford's 1999 model year
DEW98, shifters, parking brakes and parking brake cables for Chrysler's 1999
model year Grand Cherokee, parking brakes for Chrysler's 1998 model year
Intrepid/Concorde, parking brakes, hood latches and service brake pedals for
Toyota's 1997 model year Previa and shifters and shifter cable systems for GM's
1999 model year Inovate.
DESIGN AND ENGINEERING SUPPORT
The Company believes that engineering service and support are key factors
in successfully obtaining new business. The Company utilizes program management
with customer-dedicated program teams, which have full design, development, test
and commercial issues under the operational control of a single manager. In
addition, cross-functional teams are established for each new program to ensure
proper management from program conception through product launch. Advanced
technology development is used to maintain product and process technology for
the Company's products, with customers often included in the product development
teams.
The Company's Technical Center is located in Rochester Hills, Michigan,
which is near the development centers of each of the Company's top four
customers. A separate Advanced Technology Group has been established to
maintain the Company's position as a technology leader. The Advanced Technology
Group has developed many innovative features in the Company's products, many of
which features were developed in conjunction with the Company's customers. The
Company utilizes Computer Aided Designs ("CAD") in the design process, which
enables the Company to share data files with its customers' compatible systems
during the design stage, improving function, fit and performance within the
total vehicle. The Company also utilizes CAD links with its manufacturing
facilities to assure manufacturability and quality of the designs through early
involvement of the manufacturing engineers.
The Company has more than 100 patents granted or in the application
process. The patents granted expire over several years beginning in late 1996.
Although the Company believes that, taken together, the patents are significant,
the loss or expiration of any particular patent would not be material to the
Company.
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COMPETITION
The Company operates in a highly competitive environment. The number of
the Company's competitors has decreased due to the supplier consolidation
resulting from changing OEM policies. The Company currently estimates that it
has over 60% of the North American parking brake market. Its competitors for
parking brakes include Magna International Inc. and Atwood Industries Inc., a
division of Excel Corporation. The Company estimates it has over 40% of the
brake cable market. Dominion Controls Company is the Company's largest
competitor in brake cables. In the hood latch market, the Company estimates it
has approximately 20% of the market. Competitors in the hood latch market
include Magna International Inc. and the Inland Fisher Guide Division of GM. In
the North American shifter market, the Company believes its share is
approximately 30% of the market The Company's largest competitors in the
shifter market are Grand Haven Stamped Products Co. and Atwood Industries Inc.
The Company principally competes for new business at the beginning of the
development of new models and upon the redesign of existing models. New model
development generally begins two to five years before the marketing of such
models to the public. Once a producer has been designated to supply parts for a
new program, an OEM usually will continue to purchase those parts from the
designated producer for the life of the program, although not necessarily for a
redesign. Competitive factors in the market for the Company's products include
product quality and reliability, cost, timely delivery, technical expertise and
development capability, new product innovation and customer service.
SUPPLIERS AND RAW MATERIALS
The principal raw materials purchased by the Company are steel, wire and
resin. The types of steel the Company purchases include hot and cold rolled,
galvanized, organically coated and aluminized steel. In general, the wire used
by the Company is produced from steel with many of the same characteristics with
the exception that it has a higher carbon content. The Company utilizes plastic
resin to produce the protective coating for its cables. The Company employs
just-in-time manufacturing and sourcing systems enabling it to meet customer
requirements for faster deliveries while minimizing its need to carry
significant inventory levels. The Company has not experienced any significant
shortages of raw materials and normally does not carry inventories of raw
materials or finished products in excess of those reasonably required to meet
production and shipping schedules.
The Company typically negotiates blanket purchase orders or 12-month supply
agreements with integrated steel suppliers, mini-mills and service centers that
have demonstrated timely delivery, quality steel and competitive prices. These
relationships allow the Company to order precise quantities and types of steel
for delivery on short notice, thereby permitting the Company to maintain low
inventories. In addition, the Company occasionally must "spot buy" steel from
service centers to meet unexpected customer demand, engineering changes or new
part tool trials.
Other raw materials purchased by the Company include dies, fasteners,
springs, rivets and rubber products, all of which are available from numerous
sources.
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EMPLOYEES
As of December 31, 1996, the Company employed approximately 3,200 persons,
approximately 620 of whom are salaried and the balance of whom are paid on an
hourly basis. Approximately 480 employees located at the Company's facilities
in Matamoros, Mexico and East Jordan and Mancelona, Michigan are currently
covered by collective bargaining agreements. The collective bargaining
agreement at the Michigan facilities is with the UAW and expires in December
2000. The collective bargaining agreement at the Matamoros facility is with the
Confederacion de Trabajadores de Mexico and expires in August 1997. Although
management believes that the Company's relationship with its union employees at
these facilities is good, there can be no assurance that the Company will be
able to negotiate new agreements on favorable terms. In the event the Company
is unsuccessful in negotiating new agreements, these facilities could be subject
to work stoppages, which would have a material adverse effect on the operations
of the Company.
(b) SAFE HARBOR PROVISIONS
Forward-looking statements included in this Form 10-K are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. There are certain important factors that could cause future results to
differ materially from those that might be anticipated based on some of the
statements made in this report. Investors are cautioned that all
forward-looking statements involve risks and uncertainty. Among the factors
that could cause actual results to differ materially are the following:
- RELIANCE ON MAJOR CUSTOMERS. The Company's two largest customers,
Ford and GM, represented approximately 49% and 36%, respectively, of the
Company's 1996 revenues. The loss of Ford, GM or any of the Company's other
significant customers could have a material adverse effect on the Company.
- RISK OF CUSTOMER LABOR INTERRUPTIONS. Substantially all of the hourly
employees of the North American OEMs are represented by the United Automobile,
Aerospace and Agricultural Implement Workers of America (the "UAW") under
similar collective bargaining agreements. The failure of Ford, GM or any other
significant customer of the Company to reach agreement with the UAW relating to
specific labor interruptions or disputes resulting in either a work stoppage or
strike at any of their production facilities could have a material adverse
effect on the Company.
- INDUSTRY CYCLICALITY AND SEASONALITY. The automotive market is highly
cyclical and is dependent on consumer spending. Economic factors adversely
affecting automotive production and consumer spending could adversely impact the
Company.
- FAILURE TO OBTAIN BUSINESS RELATED TO NEW AND REDESIGNED MODEL
INTRODUCTIONS. The Failure of the Company to obtain new business on new models
or to retain or increase business on redesigned existing models could adversely
affect the Company.
- PRODUCT LIABILITY EXPOSURE. The Company faces an inherent business
risk of exposure to product liability claims in the event that the failure of
its products result in personal injury or death, and there can be no assurance
that the Company will not experience material product liability losses in the
future.
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ITEM 2. PROPERTIES
FACILITIES
The following table provides information regarding the Company's principal
facilities. The Company believes that the productive capacity and utilization
of its facilities are sufficient to allow the Company to conduct its operations
in accordance with its business strategy. All of the owned facilities are
subject to liens under the Company's credit agreement.
SQUARE TYPE OF DESCRIPTION
LOCATION FOOTAGE INTEREST OF USE
- ------------------------------- ------------ --------- -----------------------
Mancelona, Michigan.......... 167,000 Owned Manufacturing
Moberly, Missouri............ 165,000 Owned Manufacturing
East Jordan, Michigan........ 135,000 Owned Manufacturing
Spring Lake, Michigan........ 95,000 Owned Manufacturing
White Cloud, Michigan........ 94,000 Leased Manufacturing
Hannibal, Missouri (South)... 90,000 Owned Manufacturing
Hartford City, Indiana....... 70,000 Owned Manufacturing
Brownstown, Indiana.......... 68,000 Owned Manufacturing
Rochester Hills, Michigan.... 65,000 Leased Product Development/
Operating Headquarters
Hannibal, Missouri (North)... 64,000 Owned Manufacturing
Gladwin, Michigan............ 60,000 Owned Manufacturing
Brookfield, Missouri......... 51,000 Owned Manufacturing
Grand Haven, Michigan........ 48,000 Leased Product Development
Moberly, Missouri (1)........ 46,000 Leased Manufacturing
Matamoros, Mexico............ 42,000 Owned Manufacturing
St. Die, France.............. 10,000 Leased Manufacturing
Minneapolis, Minnesota....... 5,700 Leased Corporate Headquarters
Novi, Michigan............... 5,000 Leased Sales
(1) Will be vacated by July 1, 1997.
Management believes that substantially all of its property and equipment is
in good condition and that it has sufficient capacity to meet its current
manufacturing needs.
ITEM 3. LEGAL PROCEEDINGS
The Company faces an inherent business risk of exposure to product
liability claims in the event that the failure of its products results in
personal injury or death, and there can be no assurance that the Company will
not experience any material product liability losses in the future. In
addition, if any Company-designed products prove to be defective, the Company
may be required to participate in a recall involving such products.
In late 1994, Ford issued a recall of a series of manual-transmission Ford
F-Series pick-ups to repair the self-adjust parking brakes originally
manufactured by the Brake and Cable Business. Ford had received several reports
that the brakes failed. Pursuant to a letter agreement entered into in
connection with the acquisition of the Brake and Cable Business, the Company
agreed to reimburse Ford for up to $6.0 million of Ford's costs of the recall.
The Company has reimbursed Ford for the full amount under this agreement. The
company is also involved in a product recall relating to the same issue with
respect to the Ford Contour/Mystique in Europe. The Company has agreed to pay
50% of the costs of that recall not to exceed $1.0 million, which payments
totaled $.4 million as of December 31, 1996.
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The type of alleged failures that prompted the F-Series recalls have also
led to a number of claims and lawsuits filed against Ford and, in certain
instances, against the Company and/or Alkin. The Company may be subject to
claims brought directly against the Company by injured occupants of Ford
vehicles and to claims for contribution or indemnification asserted by Ford.
The agreement relating to the acquisition of the Brake and Cable Business
provided that the Company is liable for claims arising out of accidents that
take place on or after August 31, 1994 and that the Company will be liable for
other claims only to the extent any losses by Alkin relating to such claims are
not paid by Alkin's insurance policies (either because they are not over the
deductible amount, because Alkin's policy limits have been exceeded or because
they are not covered by Alkin's insurance policies for other reasons). Two
cases are currently pending directly against the Company or Alkin relating to
personal injury claims, and Ford has received over 400 claims (generally for
property damage) relating to alleged defects in the self-adjust parking brakes.
The claims that purport to seek recovery for personal injury allegedly as a
result of the recall condition, with several exceptions, have generally
involved relatively minor injuries, suffered principally while occupants were
trying to stop or jump out of rolling vehicles. Ford has maintained that the
Company or Alkin is responsible for all damages or liabilities arising out of
these claims. The Company disputes this position. By December 1996, Ford had
tendered its defense of 17 such claims to the Company and Alkin, and indicated
that it would look to the Company and Alkin for indemnification were Ford
ultimately found to be liable and required to make any payments relating to
such claims. The Company and Alkin have submitted these claims to their
insurance carriers. The Company has attempted to work together with Ford to
address the claims arising from the self-adjust parking brakes originally
manufactured by the Brake and Cable Business and does not believe that these
claims have adversely affected its business relationship with Ford.
From time to time, in the ordinary course of its business, the Company
receives notice from a customer that a product may not be properly
functioning. For example, in November 1995, the Company was notified by
Chrysler that it had received reports of a number of parking brake failures
in manual transmission vehicles, particularly in Europe. The Company has had
no further contacts from Chrysler regarding this matter. In addition,
Chrysler has alleged that KPI produced minivan brake pedals with improper
pedal pad reinforcements, resulting in some failures as a consequence of
pedal pads bending. It is possible that Chrysler could seek contribution from
the Company for costs it incurs if recalls were undertaken for these or
similar matters or for costs associated with possible repairs.
In January 1996, the Company was served with a complaint alleging a
wrongful death as the result of injuries purportedly caused by a
defectively-designed manual release for an emergency brake on a 1990 Cadillac
Fleetwood. The lawsuit is in preliminary stages and has been referred to the
Company's insurance carrier.
In June 1996, the Company was served with a complaint alleging a wrongful
death as the result of injuries purportedly caused by a defectively designed
rear latch on a Chrysler mini-van. Chrysler and two other suppliers to Chrysler
were also named as defendants in the complaint. The lawsuit is in preliminary
stages and has been referred to the Company's insurance carrier. In addition,
Chrysler has agreed to assume the defense of, and to indemnify the Company with
respect to, this claim as long as the plaintiffs do not make any claim alleging
a manufacturing defect as it relates to the Company. There can be no assurance
that the plaintiffs will not make such an allegation.
In early November 1996, the Company was served with a lawsuit brought by
affiliates of AIG, the Company's excess insurance carrier, in Toronto, Canada
seeking a declaratory judgment that the umbrella and excess liability
policies that it had issued to Onex do not provide coverage in connection
with allegedly defective self-adjust parking brakes manufactured by Alkin
prior to August 31, 1994. The AIG policies at issue provided (a) the first
layer of excess coverage (beyond the Company's $3 million primary policy per
year) for claims arising from August 31, 1994 - April 1, 1996 in the amount
of $20 million per year, and (b) an additional layer of excess coverage at
$33 - $53 million per year. In principal part, the AIG affiliates claim that
the policies do not provide coverage with respect to products manufactured
prior to August 31, 1994 or liabilities assumed by the Company pursuant to
purchase agreements. The AIG affiliates also claim that the policies should
be voided with respect to self-adjust parking brake claims for inadequate
disclosure at the time the policies were applied for. The Company and Onex
dispute the allegations of the Ontario lawsuit and have filed a counterclaim
against the AIG affiliates for breach of contract.
The Company believes it maintains adequate insurance, including product
liability coverage, to cover the claims described above. The Company has also
established reserves in amounts it believes adequate to cover any adverse
judgments. However, any adverse judgment in excess of its insurance coverage
and such reserves could result in a material adverse effect on the Company.
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ENVIRONMENTAL MATTERS
The Company is subject to the requirements of federal, state, and local
environmental and occupational health and safety laws and regulations. There
can be no assurance that the Company is at all times in complete compliance with
all such requirements. Although the Company has made and will continue to make
capital and other expenditures to comply with environmental requirements, the
Company does not expect to incur material capital expenditures for environmental
controls in 1997. If a release of hazardous substances occurs on or from the
Company's properties or any associated offsite disposal location, or if
contamination is discovered at any of the Company's current or former
properties, the Company may be held liable for remediation costs and expenses,
and the amount of such liability could be material.
In 1995, the Michigan Department of Environmental Quality ("MDEQ")
requested that Wickes and the Company investigate environmental conditions at
the Company's Mancelona facility and at certain adjacent property retained by
Wickes. Wickes and the Company jointly completed the requested investigation in
January of 1996. In 1997, Wickes and the Company agreed to undertake additional
investigatory work requested by MDEQ, which work is expected to be completed by
mid-1997. Depending upon the results of this work, the Company could incur
additional costs to further investigate or conduct cleanup at the facility.
In 1993, the Company received requests for information pursuant to CERCLA
from the U.S. EPA with respect to two landfill sites located in Toledo, Ohio.
In 1994, the Company received a notice of potential liability under CERCLA from
the EPA with respect to one of the sites. The Company responded to the requests
and notice by explaining to the EPA that it had no involvement with these sites,
which ceased operations prior to the formation of the Company in 1990. In
October, 1996 the Company received notice that a motion had been filed to add
the Company as a defendant in a suit by the City of Toledo involving one of the
sites. As of March 13, 1997 the Company has received no word of the disposition
of the motion and the Company is not a party to the litigation. The City
alleges that the Company is liable as the successor-in-interest to Dura
Corporation. The Company has written to the City denying that the Company is a
successor and urging that the claim against the Company be dropped. The Company
is awaiting a response. If the claims goes forward, the Company would be one of
approximately 25 defendants. The total recovery sought by the City, and the
amount allegedly attributable to the Company, are unknown to the Company.
In connection with the Company's acquisition of certain assets from Wickes
in 1990, and subject to certain limitations, Wickes agreed to indemnify the
Company for environmental liabilities arising from the operation of the acquired
facilities prior to the acquisition. The Company and Wickes subsequently agreed
that the Company had provided Wickes with timely and adequate notice with
respect to certain matters (including the matters described in the immediately
preceding paragraph) and that, subject to the limitations set forth in the
agreement, those matters are covered by the Wickes indemnification. There can
be no assurance, however, that all costs associated with such matters will
ultimately be reimbursed by Wickes. The Company does not currently believe that
any liability associated with the foregoing matters will be material to the
Company.
In December, 1996 the Company acquired the stock of certain subsidiaries of
Sparton Corporation. In connection with the acquisition, such subsidiaries
retained their liability under CERCLA with respect to certain waste disposal
sites, subject to indemnification by Sparton for liability in excess of a $1
million aggregate threshold amount, up to a $15 million aggregate cap. Of these
sites, the sites as to which the subsidiaries' liability has not yet been
resolved through a
-11-
<PAGE>
settlement are the Third Site in Zionsville, Indiana and the Northeast Gravel
Site in Grand Rapids, Michigan. Based upon estimates provided by Sparton, the
cost to resolve the liability of the acquired subsidiaries at the
Sparton-related sites is not currently expected to be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of Stockholders during the fourth
quarter of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by Item 5 is incorporated herein by reference to
the section labeled "Stock Information" which appears in the Company's 1996
Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
The information required by Item 6 is incorporated herein by reference to
the section labeled "Selected Consolidated Financial Data" which appears in the
Company's 1996 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The information required by Item 7 is incorporated herein by reference to
the section labeled "Management's Discussion and Analysis of Results of
Operations and Financial Condition" which appears in the Company's 1996 Annual
Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is incorporated herein by reference to
the Consolidated Balance Sheets, Consolidated Statements of Operations,
Consolidated Statements of Stockholders' Investment, Consolidated Statements of
Cash Flows, Notes to Consolidated Financial Statements and the Report of
Independent Public Accountants, which appear in the Company's 1996 Annual
Report.
Management of the Company is responsible for the financial information and
representations contained in the consolidated financial statements and other
sections of the 1996 Annual Report. The consolidated financial statements have
been prepared in conformity with generally accepted accounting principles and
therefore include certain amounts based on management's best estimates and
judgments. The financial information contained elsewhere in the 1996 Annual
Report is consistent with that in the consolidated financial statements.
The Company maintains internal accounting control systems which management
believes provide reasonable assurance that the Company's assets are properly
safeguarded and accounted for, that the Company's books and records properly
reflect all transactions, and that the Company's policies and procedures are
implemented by qualified personnel. Reasonable assurance is based upon the
recognition that the cost of an internal control system should not exceed the
related benefits.
-12-
<PAGE>
The Audit Committee of the Board of Directors meets with representatives of
management and Arthur Andersen LLP, the Company's independent public
accountants, on financial reporting matters and the evaluation of internal
accounting controls. The independent public accountants have free access to
meet with the Audit Committee, without the presence of management, to discuss
any appropriate matters.
Arthur Andersen LLP is engaged to express an opinion as to whether the
consolidated financial statements present fairly, in all material respects and
in accordance with generally accepted accounting principles, the financial
position, results of operations and cash flows of the Company. Solely for
purposes of planning and performing their audit of the Company's 1996 financial
statements, Arthur Andersen LLP obtained an understanding of, and selectively
tested, certain aspects of the Company's system of internal controls.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. DIRECTORS OF THE REGISTRANT
The information required by Item 10 with respect to the directors is
incorporated herein by reference to the section labeled "Election of Directors"
which appears in the Company's 1997 Proxy Statement.
B. EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Company's executive officers as of March 21, 1997:
Name Age Position(s)
---- --- -----------
S.A. Johnson . . . . . . . . . . 56 Chairman and Director
Karl F. Storrie. . . . . . . . . 59 President, Chief Executive Officer
and Director
David R. Bovee . . . . . . . . . 47 Vice President, Chief Financial
Officer and Assistant Secretary
Joe A. Bubenzer. . . . . . . . . 45 Senior Vice President
Robert R. Hibbs. . . . . . . . . 35 Vice President and Director
John J. Knappenberger. . . . . . 50 Vice President
Milton D. Kniss. . . . . . . . . 49 Vice President
Craig L. Lamiman . . . . . . . . 42 Vice President
Scott D. Rued. . . . . . . . . . 40 Vice President
-13-
<PAGE>
S.A. JOHNSON has served as Chairman and a Director of the Company since
November 1990. Mr. Johnson is the founder, Chief Executive Officer and
President of Hidden Creek, a private industrial management company based in
Minneapolis, Minnesota, which has provided certain management and other services
to the Company. Mr. Johnson is also the President of J2R Corporation (J2R).
Prior to forming Hidden Creek, Mr. Johnson served from 1985 to 1989 as Chief
Operating Officer of Pentair, Inc., a diversified industrial company. From 1981
to 1985, Mr. Johnson was President and Chief Executive Officer of Onan Corp., a
diversified manufacturer of electrical generating equipment and engines for
commercial, defense and industrial markets. Mr. Johnson served as Chairman and
a director of Automotive Industries Holding, Inc., a supplier of interior trim
components to the automotive industry, from May 1990 until its sale to Lear
Corporation in August 1995. Mr. Johnson is also Chairman and a director of
Tower Automotive, Inc., a manufacturer of engineered metal stampings and
assemblies for the automotive industry.
KARL F. STORRIE has served as President, Chief Executive Officer and a
Director of the Company since March 1991. Prior to joining the Company and from
1986, Mr. Storrie was Group President of a number of aerospace manufacturing
companies owned by Coltec Industries, a multi-divisional public corporation.
Prior to becoming a Group President, Mr. Storrie was a Division President of two
aerospace design and manufacturing companies for Coltec Industries from 1981 to
1986. During his thirty-five year career, Mr. Storrie has held a variety of
positions in technical and operations management. Mr. Storrie is also a
director of Argo-Tech Corporation, a manufacturer of aircraft fuel, boost and
transfer pumps.
DAVID R. BOVEE has served as Vice President and Chief Financial Officer of
the Company since November 1990. Mr. Bovee also serves as Assistant Secretary
for the Company. Prior to joining the Company, Mr. Bovee served as Vice
President at Wickes in its Automotive Group from 1987 to 1990.
JOE A. BUBENZER has served as Vice President Sales/Engineering since
joining the Company in October 1993 and was named Senior Vice President of
Sales, Engineering and Business Development in 1995. Prior to joining the
Company, Mr. Bubenzer filled various executive positions with ITT Automotive, a
supplier of components to the automotive industry, where he worked for six
years, and, prior to such time, at GM, where he worked for 14 years.
ROBERT R. HIBBS has served as a Director of the Company since August 1994
and as Vice President since November 1990. Mr. Hibbs, a stockholder of J2R, has
also served as Vice President-Corporate Development of Hidden Creek since
January 1994 and as a Director from April 1990 through December 1993. Prior
thereto, Mr. Hibbs worked in the corporate finance area with Drexel Burnham
Lambert, an investment banking firm, in New York from 1988 to 1990.
JOHN J. KNAPPENBERGER has served as Vice President of Quality and Materials
of the Company since December 1995. Prior to joining the Company, Mr.
Knappenberger was Director of Quality for Carrier Corporation's North American
Operations, manufacturers of heating and air conditioning systems, from February
1992. From 1985 to 1991, Mr. Knappenberger was employed by TRW Inc., a supplier
of components to the automotive industry, beginning as Director of Quality in
1985 for the Steering and Suspension Division and becoming Vice President,
Quality for the Automotive Sector in 1990.
-14-
<PAGE>
MILTON D. KNISS has served as Vice President of Operations of the Company
since January 1995. From April 1991 until January 1995, Mr. Kniss served as
Director of Michigan Operations for the Company. Mr. Kniss joined the
predecessor in 1981 as a Divisional Purchasing Manager, served as Plant Manager
of East Jordan, Michigan from 1982 until 1986, and Plant Manager of
Gordonsville, Tennessee until 1991.
CRAIG L. LAMIMAN has served as Vice President of the Company since August
1994. Prior to joining the Company, Mr. Lamiman served as Director of
Industrial Relations at United Technologies Corporation, a diversified
publicly-held corporation, and President and CEO of his own company in
Connecticut. Mr. Lamiman served in several positions while at Pepsico, Inc.
from 1980 to 1988, the most recent being as Regional Personnel Director for
Pepsi-Cola International Limited (U.S.A.).
SCOTT D. RUED has served as Vice President of the Company since November
1990. Mr. Rued, a stockholder of J2R, has also served as Executive Vice
President and Chief Financial Officer of Hidden Creek since January 1994 and
served as it Vice President Finance and Corporate Development from June 1989
through 1993. Mr. Rued has served as Vice President, Corporate Development and
a director of Tower Automotive, Inc. since April 1993. Mr. Rued served as Vice
President, Chief Financial Officer and a director of Automotive Industries
Holding, Inc. from April 1990 until its sale to Lear Corporation in August 1995.
Mr. Rued is also a director of The Rottlund Company, Inc., a corporation engaged
in the development and sale of residential real estate.
C. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The information required by Item 10 with respect to compliance with
reporting requirements is incorporated herein by reference to the section
labeled "Section 16(a) Beneficial Ownership Reporting Compliance" which appears
in the Company's 1997 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to
the sections labeled "Compensation of Directors" and "Executive Compensation"
which appear in the Company's 1997 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference to
the section labeled "Security Ownership" which appears in the Company's 1997
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference to
the section labeled "Certain Relationships and Related Transactions" which
appears in the Company's 1997 Proxy Statement.
-15-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT
(1) FINANCIAL STATEMENTS:
The following are incorporated herein by reference to the
Company's 1996 Annual Report:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Investment for the Years
Ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(2) EXHIBITS: See "Exhibit Index" beginning on page 18.
(b) REPORTS ON FORM 8-K
On December 20, 1996, the Company filed Form 8-K reporting under Item
2 of that Report the acquisition of the KPI Group of Sparton
Corporation on December 5, 1996.
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 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: March 21, 1997 By/s/ S.A. Johnson
--------------------------------------
S.A. Johnson, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ S.A. Johnson Chairman and Director March 21, 1997
- --------------------------
S.A. Johnson
/s/ Karl F. Storrie President, Chief Executive March 21, 1997
- -------------------------- Officer (Principal Executive
Karl F. Storrie Officer) and Director
/s/ Robert R. Hibbs Vice President and March 21, 1997
- -------------------------- Director
Robert R. Hibbs
/s/ Neil C. Anderson Director March 21, 1997
- --------------------------
Neil C. Anderson
/s/ Robert E. Brooker, Jr. Director March 21, 1997
- --------------------------
Robert E. Brooker, Jr.
/s/ W.H. Clement Director March 21, 1997
- --------------------------
W.H. Clement
/s/ Jack K. Edwards Director March 21, 1997
- --------------------------
Jack K. Edwards
/s/ James O'Loughlin Director March 21, 1997
- --------------------------
James O'Loughlin
/s/ William L. Orscheln Director March 21, 1997
- --------------------------
William L. Orscheln
/s/ Eric J. Rosen Director March 21, 1997
- --------------------------
Eric J. Rosen
/s/ Barbara A. Westhues Director March 21, 1997
- --------------------------
Barbara A. Westhues
/s/ David R. Bovee Vice President and Chief March 21, 1997
- -------------------------- Financial Officer (Principal
David R. Bovee Accounting Officer)
-17-
<PAGE>
DURA AUTOMOTIVE SYSTEMS, INC.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Page Number in
Sequential
Numbering
of all Form 10-K
Exhibit and Exhibit Pages
------- -----------------
<S> <C> <C>
3.1 Form of Amended and Restated Certificate of *
Incorporation of the Company, incorporated by
reference to Exhibit 3.1 of the Registrant's
Form S-1, Registration No. 333-06601 filed under
the Securities Act of 1933 (the "S-1").
3.2 Form of Amended and Restated By-laws of the *
Company, incorporated by reference to Exhibit 3.2
of the S-1.
4.1 Stockholders Agreement, dated as of August 31, 1994, *
by and among the Company, Onex U.S. Investments,
Inc., J2R, Alkin, the HCI Stockholders (as defined
therein) and the Management Stockholders (as defined
therein), incorporated by reference to Exhibit 4.1
of the S-1.
4.2 Amendment to Stockholders Agreement, dated May 17, *
1995, by and between the Company, Onex DHC LLC,
J2R, Alkin, the HCI Stockholders (as defined
therein) and the Management Stockholders (as
defined therein), incorporated by reference to
Exhibit 4.2 of the S-1.
4.3 Registration Agreement, dated as of August 31, 1994, *
among the Company, Alkin and the MC Stockholders
(as defined therein), incorporated by reference to
Exhibit 4.3 of the S-1.
4.4 Amendment to Registration Agreement, dated May 17, *
1995, by and between the Company, the MC
Stockholders (as defined therein) and Alkin,
incorporated by reference to Exhibit 4.4 of the S-1.
4.5 Investor Stockholder Agreement, dated as of *
August 31, 1994, by and among the Company, Onex
U.S. Investments, Inc., J2R and certain other
stockholders party thereto, incorporated by
reference to Exhibit 4.5 of the S-1.
4.6 Form of certificate representing Class A Common *
Stock of the Company, incorporated by reference
to Exhibit 4.6 of the S-1.
10.1 Joint Venture Agreement, dated as of August 31, *
1994, by and among the Company, Alkin, MCHC,
Onex and J2R, incorporated by reference to
Exhibit 10.1 of the S-1.
10.2** Management Contribution Agreement, dated as of *
August 31, 1994, by and among the Company, Kim B.
Clark and the Management Stockholders (as defined
therein), incorporated by reference to Exhibit
10.2 of the S-1.
10.3** Management Agreement, dated as of August 31, 1994, *
by and between Hidden Creek and Dura Operating
Corp. (formerly known as Dura Automotive Systems,
Inc.) ("Dura Operating"), incorporated by
reference to Exhibit 10.3 of the S-1.
10.4** Stock Option Agreement, dated as of August 31, 1994, *
between the Company and Alkin, incorporated by
reference to Exhibit 10.4 of the S-1.
10.5** Stock Option Agreement, dated as of August 31, 1994, *
between the Company and Kim B. Clark, incorporated
by reference to Exhibit 10.5 of the S-1.
10.6 Subordinated Promissory Note, dated August 31, *
1994, of the Company in the amount of $2,000,000
in favor of Alkin, incorporated by reference to
Exhibit 10.6 of the S-1.
10.7 Subordinated Promissory Note, dated August 31, 1994, *
of MCHC in the amount of $1,800,000 in favor of
Onex Ohio Holdings, Inc., incorporated by reference
to Exhibit 10.7 of the S-1.
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<PAGE>
10.8 Subordinated Promissory Note, dated August 31, 1994, *
of MCHC in the amount of $200,000 in favor of J2R,
incorporated by reference to Exhibit 10.8 of the S-1.
10.9 Credit Agreement, dated as of August 31, 1994, among *
Dura Operating, certain commercial lending
institutions, The Bank of Nova Scotia, Comerica Bank,
The Chase Manhattan Bank and Continental Bank,
incorporated by reference to Exhibit 10.9 of the S-1.
10.10 Security Agreement, dated as of August 31, 1994, *
between Dura Operating and Continental Bank, as agent,
incorporated by reference to Exhibit 10.10 of the S-1.
10.11 Pledge Agreement, dated as of August 31, 1994, entered *
into by Dura Operating in favor of Continental Bank,
as agent, incorporated by reference to Exhibit 10.11
of the S-1.
10.12 Guaranty, dated August 31, 1994, by Dura de Mexico *
S.A. de C.V. ("Dura Mexico") in favor of the Agents,
the Co-Agents and the Lenders (each as defined therein),
incorporated by reference to Exhibit 10.12 of the S-1.
10.13 Accounts Receivable Pledge Agreement, dated as of *
August 31, 1994, by and between Continental Bank,
as agent, and Dura Mexico, incorporated by reference
to Exhibit 10.13 of the S-1.
10.14 Corporate Guaranty, dated August 31, 1994, by MCHC *
in favor of the Agent, Co-Agents and Lenders (each
as defined therein), incorporated by reference to
Exhibit 10.14 of the S-1.
10.15 Pledge Agreement, dated as of August 31, 1994, by *
MCHC in favor of Continental Bank, as agent,
incorporated by reference to Exhibit 10.15 of the S-1.
10.16 Letter Agreement, dated August 25, 1994, between the *
Company and Ford, incorporated by reference to
Exhibit 10.16 of the S-1.
10.17 Promissory Note, dated December 31, 1991, of Karl F. *
Storrie in favor of Continental Bank, as agent,
incorporated by reference to Exhibit 10.17 of
the S-1.
10.18 Asset Purchase Agreement, dated March 23, 1995, by *
and among Dura Operating, the Company and Rockwell
International Corporation, incorporated by reference
to Exhibit 10.18 of the S-1.
10.19 Subscription Agreement, dated as of June 26, 1995, by *
and between the Company and the persons listed on
the signature pages thereto, incorporated by
reference to Exhibit 10.19 of the S-1.
10.20 Subscription Agreement, dated as of June 26, 1995, *
by and between the Company, David P. Klosterman and
Craig L. Lamiman, incorporated by reference to
Exhibit 10.20 of the S-1.
10.21** Letter Agreement, dated November 9, 1995, between *
the Company and John J. Knappenberger, incorporated
by reference to Exhibit 10.21 of the S-1.
10.22** Letter Agreement, dated August 16, 1994, between *
the Company and Craig L. Lamiman, incorporated by
reference to Exhibit 10.21.1 of the S-1.
10.23** Letter Agreement, dated September 1, 1994, between *
the Company and David P. Klosterman, incorporated
by reference to Exhibit 10.21.2 of the S-1.
10.24 Lease, entered into as of January 5, 1988, between *
the City of Moberly, Missouri and Alkin,
incorporated by reference to Exhibit 10.22 of the S-1.
10.25 Net Lease, made as of March 16, 1995, by and *
between First Industrial Financing Partnership,
L.P. ("First Industrial") and Dura Operating,
incorporated by reference to Exhibit 10.23 of the S-1.
10.26 First Addendum to New Lease, dated April 24, 1995, *
between First Industrial and Dura Operating,
incorporated by reference to Exhibit 10.24 of the S-1.
10.27 Lease of Office Space, dated June 14, 1991, between *
80 South Eight Street Limited Partnership ("Eighth
Street") and Hidden Creek, incorporated by reference
to Exhibit 10.25 of the S-1.
10.28 Amendment and Renewal of Lease, made as of April 30, *
1993, by and
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<PAGE>
between Eighth Street and Hidden Creek,
incorporated by reference to Exhibit 10.26 of the S-1.
10.29** Form of 1996 Key Employee Stock Option Plan, *
incorporated by reference to Exhibit 10.27 of the S-1.
10.30** Form of Independent Director Stock Option Plan, *
incorporated by reference to Exhibit 10.28 of the S-1.
10.31** Form of Employee Stock Discount Purchase Plan, *
incorporated by reference to Exhibit 10.29 of the S-1.
10.32 Form of Amended and Restated Stockholders Agreement, *
incorporated by reference to Exhibit 10.30 of the S-1.
10.33 Form of Amended and Restated Investor Stockholders *
Agreement, incorporated by reference to Exhibit 10.31
of the S-1.
11 Statement of Computation of Earnings Per Share for __
the Year Ended December 31, 1996 filed herewith.
13.1 Annual Report to Stockholders for the year ended __
December 31, 1996 filed herewith.
21.1 Subsidiaries of the Company filed herewith. __
23.1 Consent of Arthur Andersen LLP filed herewith. __
27.1 Financial Data Schedule filed herewith. __
</TABLE>
__________________
* Incorporated by reference.
** Indicates compensatory arrangement.
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<PAGE>
EXHIBIT 11
DURA AUTOMOTIVE SYSTEMS, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Net income $ 10,128 $ 10,126 $ 2,580
--------- --------- --------
--------- --------- --------
Weighted average number of Class A
common stock 1,434 - -
Weighted average number of Class B
common stock 5,000 4,967 3,423
Dilutive effect of outstanding stock options
after application of the treasury stock
method (1) 28 22 8
--------- --------- --------
Common and common equivalent shares
outstanding 6,462 4,989 3,431
--------- --------- --------
--------- --------- --------
Net income per common and common
equivalent share (2) $ 1.57 $ 2.03 $ 0.75
--------- --------- --------
--------- --------- --------
</TABLE>
(1) Cheap stock is included in the calculation for all periods presented in
accordance with the rules and regulations of the Securities and Exchange
Commission.
(2) The calculation of net income per common and common equivalent share for
the years ended December 31, 1996, 1995 and 1994 are the same on a primary
and fully diluted basis.
<PAGE>
DURA AUTOMOTIVE SYSTEMS, INC.
[DURA LOGO] THE GLOBAL PROVIDER OF DRIVER CONTROL SYSTEMS
1996 ANNUAL REPORT
<PAGE>
MISSION
Dura Automotive Systems, Inc., is a quality designer and producer of world-class
control systems for the global automotive industry. Our products and services
provide the customer with innovative solutions that exceed their expectations.
VISION
Our vision is to grow into a global public presence with sales of $1 billion by
the year 2000. Through empowerment of our employees operating in a team
environment, we will provide state-of-the-art technology and differentiating
system solutions, making us the clear choice for quality, value and
affordability by our customers, while at the same time maximizing the return to
all our company stakeholders.
VALUES
We pledge to provide an atmosphere that allows all stakeholders in our company
(customers, employees, suppliers, owners, community and environment) to achieve
success and satisfaction. Our achievements will be accomplished through open
communications and ethical practices, while striving for quality products and
opportunities for our employees.
POLICY
Through employee involvement and continuous improvement, Dura is committed to
exceeding our customers' expectations for price, quality and delivery, while
creating a clean, safe work environment.
BUSINESS DESCRIPTION
The company's products include parking brake systems, automotive cables,
latches, transmission shifter mechanisms and systems, and other mechanical
assemblies. These products are sold to major North American original equipment
manufacturers (OEMs), including Ford, General Motors and Chrysler, as well as
foreign OEMs, such as Toyota. Customers of the company's foreign operations
include Ford, VW, BMW, PSA (Peugeot) and various other OEMs.
Dura's team members total more than 3,200 and are located at the company's
operating headquarters and technical center in Rochester Hills, Michigan, and at
20 other facilities in North and South America and Europe. Dura's corporate
offices are in Minneapolis, Minnesota.
<PAGE>
GLOBAL PRESENCE
MICHIGAN: EAST JORDAN,
GLADWIN,
GRAND HAVEN,
MANCELONA,
ROCHESTER HILLS,
SPRING LAKE,
WHITE CLOUD
INDIANA: BROWNSTOWN,
HARTFORD CITY
MISSOURI: BROOKFIELD,
HANNIBAL,
MOBERLY
MEXICO: MATAMOROS
[PICTURE OF EARTH (GLOBE)]
FRANCE: ST. DIE
GERMANY: DAUN,
DUSSELDORF,
GEHREN
SPAIN: BARCELONA
BRAZIL: SAO PAULO
<PAGE>
DIRECTORS
S.A. (TONY) JOHNSON
Chairman
Dura Automotive Systems, Inc.
KARL F. STORRIE
President, Chief Executive Officer
Dura Automotive Systems, Inc.
NEIL C. ANDERSON
Senior Vice President of Finance
Orscheln Management Co.
ROBERT E. BROOKER, JR.
Former President, Chief Operating Officer
Connell Limited Partnership
W.H. CLEMENT
Vice Chairman
Hidden Creek Industries
J.K. (JACK) EDWARDS
Executive Vice President
Cummins Engine Co.
ROBERT R. HIBBS
Vice President
Dura Automotive Systems, Inc.
JAMES L. O'LOUGHLIN
Senior Vice President
Orscheln Management Co.
WILLIAM L. (BARRY) ORSCHELN
President
Orscheln Management Co.
ERIC J. ROSEN
Managing Director
Onex Investment Corp.
BARBARA A. WESTHUES
Senior Vice President
Orscheln Management Co.
OFFICERS
S.A. (TONY) JOHNSON
Chairman
KARL F. STORRIE
President and Chief Executive Officer
DAVID R. BOVEE
Vice President, Chief Financial Officer
and Assistant Secretary
JOE A. BUBENZER
Senior Vice President
ROBERT R. HIBBS
Vice President
JOHN J. KNAPPENBERGER
Vice President
MILTON D. KNISS
Vice President
CRAIG L. LAMIMAN
Vice President
SCOTT D. RUED
Vice President
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts)
YEAR ENDED YEAR ENDED
DEC 31, 1996 DEC 31, 1995* CHANGE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES $245,329 $239,598 2.4%
OPERATING INCOME 19,326 17,172 12.5%
NET INCOME** 11,506 9,689 18.8%
NET INCOME PER SHARE** 1.30 1.10 18.2%
WORKING CAPITAL 27,528 13,392 105.6%
LONG-TERM DEBT 77,376 46,639 65.9%
STOCKHOLDERS' INVESTMENT 87,367 27,683 215.6%
RETURN ON ENDING
STOCKHOLDERS' INVESTMENT** 13.2% 35.0% NA
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING** 8,821,000 8,784,000 .4%
NUMBER OF EMPLOYEES 3,233 2,650 22.0%
</TABLE>
'95* $240
'96 $245
[BAR CHART]
REVENUES
in millions
'95* $17
'96 $19
[BAR CHART]
OPERATING INCOME
in millions
'95* $10
'96 $12
[BAR CHART]
NET INCOME**
in millions
'95* $1.10
'96 $1.30
[BAR CHART]
NET INCOME PER SHARE**
PRO FORMA --
* GIVES EFFECT TO THE APRIL 1, 1995 SALE OF THE COMPANY'S WINDOW REGULATOR
BUSINESS AS IF IT OCCURRED AT THE BEGINNING OF 1995.
** GIVES EFFECT TO THE INITIAL PUBLIC OFFERING AS IF IT HAD OCCURRED AT THE
BEGINNING OF 1995.
1
<PAGE>
"PREPARING FOR THE FUTURE"
TO OUR STOCKHOLDERS, TEAM MEMBERS AND STAKEHOLDERS
Karl Storrie and Tony Johnson
[PICTURE]
We are pleased to introduce you to Dura Automotive Systems in this, our
first annual report as a public company. It is an exciting time to be a part of
the automotive industry which is currently going through considerable change.
This period presents both sizable opportunities as well as challenges for a Tier
One supplier, like Dura.
In this report, we would like to share with you how we plan to insure that
Dura develops as "The Global Provider of Driver Control Systems" and is chosen
by its customers as their supplier of choice.
INTRODUCTION TO DURA
Dura is a leading designer and manufacturer of highly engineered mechanical
assemblies and integrated systems. We characterize our products as those the
driver of the car interacts with to provide an actuation somewhere on the
vehicle. Our products include parking brake systems, gear shifter systems,
various hood and trunk releases, external mirror
<PAGE>
adjuster cables, latches, hinges and underbody tire carriers. The photos on
page five of this report will give you a better feel for our products.
Let's review briefly how we got to where we are today.
THE JOURNEY TO DATE
Dura's roots go back to the 1940s when the company established itself as a
technological leader in the supply of mechanical components to the automotive
industry. The new Dura was created in 1990 with the acquisition of two
underperforming businesses that held strong market positions but were in danger
of losing preferred supplier status at their major customers. The first steps
involved a turnaround initiative and a strategic refocusing, which resulted in a
unified company with strong customer support. Dura was then ready to enter its
growth phase.
In 1994, we completed an acquisition that transformed Dura into one of two
companies in the world capable of delivering systems that combine the control
mechanism with the actuating cable. Recent acquisitions and internal growth
position us with unique systems capability on a global basis.
Through this period, one overriding initiative was replacing the old
command and control management style with leadership teams that involve everyone
in the company. Involving and utilizing the talents of all our people has
brought the vitality and creativity required to accomplish our objectives to
date. Moreover, we believe that this will fuel our ability to accomplish our
growth strategy in the future.
OUR STRATEGY
As we said earlier, significant changes are happening in the worldwide
automotive industry that are resulting in a sweeping consolidation of the supply
base. We believe surviving companies will be required to provide full service
from initial design through the manufacturing process on a global basis. Dura's
response has been to develop a strategy that is fairly simple and
straightforward -- and we believe effective. (Some of you may recognize it).
It is:
- To continuously grow our market position as a leading systems supplier
through internal growth and new program awards. We expect to do this by
constantly exceeding our customers' expectations. (We think the achievement
of this goal will go a long ways toward making us our customers' supplier
of choice.)
- To make strategic acquisitions that:
-Add new product technologies,
-Add new processing technologies and methods,
-Add new customers,
-Add new leadership and people strengths, and
-Expand our geographic presence.
When all is said and done, we believe if we effectively execute our
strategy, we will continue to enhance our value to our customers and to our
stockholders.
1996 IN REVIEW
In all facets of our business, 1996 was a good year! The financial return
targets that we had internally developed were exceeded, in spite of labor issues
at a major customer that caused shutdowns in the first and fourth quarters.
We were awarded several major new programs that will go into production in
1998-2000. Of greater significance, many of these programs were from a customer
who had given up on the old Dura. We are both pleased and proud that through
hard work and solid technology advances, we were able to win our way back.
In addition, we made three strategically
3
<PAGE>
important acquisitions. It might be helpful to match these acquisitions against
our criteria.
1. Rockwell Parking Brakes -- France
- A new patented product
- A new customer (the French automakers)
- An experienced French team
- A European manufacturing location
Four out of five.
2. KPI Division of Sparton Corporation -- North America
- A significantly expanded product line -- gear shifters, which combined
with Dura's existing presence, positions us as one of the two largest
suppliers in our segment in North America
- Adds a patented new product -- tire carrier systems
- Significantly expands our business at our largest customer
- Adds strong leadership and technical skills to our team
Again, four out of five.
3. VOFA Group -- Germany and Spain (acquisition closed on January 10, 1997)
- A new product -- push pull cables used for gear shift systems, solidifying
our systems capabilities in Europe
- New processing techniques for light duty cables that are used in a variety
of applications
- Adds almost all European car producers as our customers, thus positioning
us for future expansion with them
- Adds experienced European management to the Dura leadership team
- Adds production capability in Germany and Spain
Five for five.
And, last but not least, each of these acquisitions is expected to be
additive to earnings in the first year.
Combining these three acquisitions with Dura's base of business takes us
well over $400 million in revenues. Assuming some additional acquisitions and
our current booked internal growth, we are well on the way to achieving our
growth targets through the year 2000.
In addition, all of Dura became ISO certified in 1996. So, maybe 1996 was
a great year.
OUR VIEW OF THE FUTURE
The changes in our industry, earlier described as both opportunities and
challenges, will continue. The consolidation of suppliers that began in the
United States has spread worldwide. Customers are carefully picking those
suppliers, choosing those that they believe can support their plans on a global
basis. We believe Dura has positioned itself to capture the opportunities
present. And, while there will be plenty of challenges, we think of these as
disguised opportunities. With this attitude, a dedicated leadership team and
workforce (who, by the way, are themselves significant stockholders in the
company), and continued hard work, we believe we can be "The Full Service Global
Supplier of Choice" in our segment of the vehicle. We also strongly believe
that achieving this will continue to create value for all who are associated
with us.
Thanks for your attention and interest.
/s/ Karl Storrie /s/ Tony Johnson
Karl Storrie Tony Johnson
President and Chairman
Chief Executive Officer
<PAGE>
PRODUCT OVERVIEW
FOOT-OPERATED
PARKING BRAKE
AND CABLE
[PICTURE]
AUTOMATIC
TRANSMISSION
SHIFTER
AND CABLE
[PICTURE]
HOOD LATCH
AND CABLE
[PICTURE]
HAND-OPERATED
PARKING BRAKE
AND CABLE
[PICTURE]
LICENSE PLATE
HOUSING
ASSEMBLY
[PICTURE]
TIRE CARRIER
AND CABLE
[PICTURE]
BRAKE PEDAL SYSTEM
[PICTURE]
REVENUES BY PRODUCT CATEGORY 1996 1997 EST.
- --------------------------------------------------------------------------------
PARKING BRAKES 39%
PARKING BRAKES 26%
CABLE ASSEMBLIES 39%
BRAKE CABLES 23%
LATCHES 12%
LIGHT DUTY CABLES 15%
OTHER BODY HARDWARE 6%
TRANSMISSION SHIFTERS 13%
[PIE CHARTS]
TRANSMISSION SHIFTERS 4%
SHIFTER CABLES 6%
LATCHES 5%
TIRE CARRIERS 4%
PEDALS 3%
OTHER 5%
OEMs increasingly seek suppliers capable of manufacturing complete vehicle
systems, reducing costs associated with the design and integration of different
components and improving quality. Dura is capitalizing on this trend. For
example, Dura is the only North American supplier with the capability to design,
manufacture and assemble complete parking brake systems for customers.
Dura works with OEMs throughout the product development process, from
concept to prototype development, through the design and implementation of the
manufacturing process. This entire process can take two to five years.
Mechanical assemblies typically consist of five to 50 individual
components, which are assembled to form an integrated mechanism. Cables,
manufactured using a variety of processes, including injection molding,
extrusion, wire flattening, spring making and zinc diecasting, are attached to
the mechanism to create the mechanism-cable system.
5
<PAGE>
THE GLOBAL PROVIDER OF DRIVER CONTROL SYSTEMS
[LOGO] AT DURA, OUR DESIGN AND technology resources and manufacturing
capacities are directed toward one goal: to make Dura the global provider of
driver control systems which actuate parking brakes, floor-mounted shifters,
hood and liftgate latches, underbody tire carriers and many other mechanisms on
a vehicle. As vehicle manufacturers establish operations worldwide, they are
challenging suppliers to not only meet tough quality and cost standards, but to
deliver components and systems on time to their assembly plants around the
world.
BUILDING BLOCKS FOR GROWTH
Consolidation in the automotive supplier industry is a natural outgrowth of
fewer suppliers having the ability to meet our customers' demanding
requirements. As an established leader in driver control systems, Dura is
committed to growing with its customers and building on four competitive
advantages:
- Expanding already broad capabilities, encompassing advanced product design
and engineering services, as well as manufacturing and assembling
technologies;
- Building on a solid customer base. For example, Dura is the only Full
Service Supplier of parking brake systems to Ford and the largest supplier of
such systems to GM.
- A proven ability to consolidate and absorb acquired companies. Since 1994,
Dura has effectively combined the operations of five separate businesses.
- Expanding global coverage. During 1996, Dura has deepened its presence in
Europe and South America and continues to explore locations elsewhere in the
world important to our customers.
TEAM-BASED LEADERSHIP
To achieve our ambitious targets, we foster team-based leadership
throughout the organization. Dura's six-member leadership team sets one- and
five-year goals for the overall company direction. Directors and other key
managers working with Dura's extended leadership team take these goals and
develop supportive objectives. The extra-extended leadership team, comprising
more than 50 corporate and plant leaders from across the company, develop
specific work plans. Teams from various plant locations meet regularly to
determine action steps. In addition, employee meetings are held frequently at
all locations to review progress.
In the following pages, we proudly feature three teams as examples of how
Dura's team-based leadership works to meet our company goals and the challenges
of our industry.
Our INTERNATIONAL BUSINESS DEVELOPMENT TEAM has acted quickly, completing
acquisitions in Europe and South America to assure our customers that we can
provide mechanical systems wherever needed. In addition, our customers expect
their suppliers, including Dura, to reduce costs every year. The COST REDUCTION
TEAM reviews and encourages initiatives across the whole company; at Dura,
everyone does things every day to cut expenses. The EXTRA MILER TEAM recognizes
employees who have "gone the extra mile" and won the praise of their peers for
making Dura a better place to work, more efficient and a better service
provider.
<PAGE>
OUR INTERNATIONAL BUSINESS DEVELOPMENT TEAM INCLUDES SENIOR MANAGERS WITH BROAD
EXPERIENCE, WHO ARE CAPABLE OF THOROUGHLY ASSESSING A POTENTIAL ACQUISITION --
FROM FINANCIALS TO MANAGEMENT TO THE PLANT FLOOR. WE BEGIN WITH A LIST OF
ACQUISITION CANDIDATES THAT ARE WELL REGARDED BY OUR CUSTOMERS. THEN, WE
EVALUATE EACH OF THEIR PLANTS USING FIVE CLEAR CRITERIA: MANAGEMENT STRENGTH,
GEOGRAPHICALLY STRATEGIC LOCATION, A CUSTOMER BASE THAT BROADENS OUR OWN,
PRODUCTS THAT EXPAND OUR CURRENT LINES AND TECHNOLOGY THAT COMPLEMENTS DURA'S
EXISTING CAPABILITIES. WHEN WE FIND A STRONG PROSPECT, WE EXPAND THE REVIEW
PROCESS TO OBTAIN INPUT FROM MANY OF THE TOP DURA MANAGERS. WE TAKE THE TIME TO
GET TO KNOW THE OWNERS AND EARN THEIR TRUST, AND WE ARE WILLING TO WORK TOWARD
A MUTUALLY BENEFICIAL AGREEMENT. SINCE MID-1995, WE HAVE COMPLETED ACQUISITIONS
INVOLVING FIVE PLANTS IN FRANCE, GERMANY AND SPAIN, AS WELL AS TAKING A MINORITY
INTEREST IN A BRAZILIAN PLANT. WE ARE PROUD OF THESE NEW DURA FACILITIES AND
THEIR ABILITY TO MEET OUR CUSTOMERS' NEEDS.
INTERNATIONAL BUSINESS DEVELOPMENT TEAM
William Febbo, manager-business development and international accounts, and
Klaus Vorbruggen, VOFA president and chief executive officer, played critical
roles in the VOFA acquisition.
[PICTURE]
EXPAND INTERNATIONALLY TO MEET CUSTOMER DEMANDS OVERSEAS
7
<PAGE>
ACHIEVE COST SAVINGS EXCEEDING THREE PERCENT OF REVENUES
Daniel Zoulek was part of a brake assembly team that found $71,000 in annual
cost savings, by reconfiguring the work cell, reducing the number of operators
and cutting floor space.
[PICTURE]
COST REDUCTION TEAM
THE COST REDUCTION TEAM, COMPRISING DIRECTORS OF PURCHASING, SALES AND
ENGINEERING, AND BRAKE AND CABLE OPERATIONS, COORDINATES A PROGRAM THAT INVOLVES
EVERY EMPLOYEE AND OUR SUPPLY PARTNERS. WE LOOK AT EVERY NICKEL AND DIME. WHAT
HAVE WE ACCOMPLISHED? ON A LARGE SCALE, DURA PLANTS HAVE ADOPTED CELLULAR
MANUFACTURING OPERATIONS TO REDUCE INVENTORY COSTS AND IMPROVE PRODUCTIVITY. WE
HAVE DEVELOPED MORE EFFICIENT ASSEMBLY PROCESSES AND COST-SAVING DESIGN CHANGES.
IN ADDITION, WE'VE MET WITH SUPPLIERS TO DISCUSS COST ISSUES AND ENLIST THEIR
HELP. AND MANY OF OUR SUPPLIERS HAVE PROPOSED CHANGES. FOR ALL OF 1996, DURA
EXCEEDED OUR COST REDUCTION GOALS BY 30 PERCENT. AND WE ACCOMPLISHED THIS
WITHOUT A REDUCTION IN CUSTOMER SERVICE OR PRODUCT QUALITY. IN FACT, DURA
BECAME QS9000 CERTIFIED, THE CURRENT QUALITY STANDARD IN THE AUTOMOTIVE
INDUSTRY, FOR ALL OF ITS U. S. FACILITIES IN 1996.
<PAGE>
IN MID-1995, FOUR DURA FACILITIES IN MISSOURI FORMED A SERIES OF TEAMS TO
INCREASE EMPLOYEE INVOLVEMENT IN PLANT OPERATIONS, ATTRACT QUALIFIED EMPLOYEES
AND IMPROVE PRODUCTIVITY. ALL-PLANT MEETINGS SHARED DURA'S MISSION AND VALUES,
AND STRESSED THAT EACH EMPLOYEE MAKES A DIFFERENCE. EMPLOYEES VOLUNTEERED TO
SERVE ON QUALITY, SAFETY, CELLULAR MANUFACTURING AND TRAINING TEAMS. NOW, PEERS
TEACH PEERS, TEAMS WRITE PLANT POLICY, AND EMPLOYEES HAVE A NEW SENSE OF
OWNERSHIP IN DURA. THE EMPLOYEE MOTIVATION TEAM RECOGNIZES INDIVIDUALS WHO HAVE
GONE THE EXTRA MILE WITH THE "EXTRA MILER" AWARD - A SOURCE OF ENORMOUS PRIDE
AND RESPECT. SINCE THE LAUNCH OF THE TEAM PROGRAM, EMPLOYEE TURNOVER HAS
DROPPED BY 50 PERCENT AND BETTER QUALIFIED CANDIDATES ARE APPLYING FOR
POSITIONS. IN ADDITION, THE CABLE OPERATIONS HAVE SEEN SIGNIFICANT IMPROVEMENTS
IN SCRAP, QUALITY AND PRODUCTIVITY RATINGS THAT ARE ENHANCING CUSTOMER
RELATIONSHIPS AND HAVE BEEN RECOGNIZED THROUGH THE EXTRA MILER PROGRAM.
EXTRA MILER TEAM
BE THE EMPLOYER OF CHOICE
Valerie Mosley and Joe Adcock of the Hannibal South Plant, Hannibal, Missouri,
have both been recognized with the "Extra Miler" award.
9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31,
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues. . . . . . . . . . . . . . . . . . . $ 245,329 $ 253,726 $ 189,675 $ 129,328 $ 125,412
Cost of sales . . . . . . . . . . . . . . . . 208,939 220,274 170,748 116,961 115,045
Selling, general and
administrative expenses . . . . . . . . . . 16,028 14,798 10,362 8,293 7,036
Amortization expense. . . . . . . . . . . . . 1,036 1,094 690 487 507
Operating income. . . . . . . . . . . . . . . 19,326 17,560 7,875 3,587 2,824
Interest expense. . . . . . . . . . . . . . . 2,589 4,822 3,473 1,533 1,268
Other (income) expense. . . . . . . . . . . . - (4,240) - - 500
Provision for income taxes. . . . . . . . . . 6,609 6,852 1,822 936 641
Net income. . . . . . . . . . . . . . . . . . 10,128 10,126 2,580 1,118 415
----------------------------------------------------------------------
Net income per share. . . . . . . . . . . . . $ 1.57 $ 2.03 $ .75
</TABLE>
<TABLE>
<CAPTION>
DEC. 31, DEC. 31,
1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,528 $ 13,392
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246,129 140,531
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,376 46,639
Stockholders' investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,367 27,683
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
REVENUES
Revenues for 1996 decreased by $8.4 million, or 3.3 percent, to $245.3
million from $253.7 million for 1995. The decrease was due to the divestiture
of the window regulator business to Rockwell International Corporation in April
1995, which represented a decrease of approximately $14.1 million, and the
effects of the 1996 General Motors strikes, which adversely impacted the
Company's operations by approximately $4.5 million. These decreases were offset
by incremental new business, including the benefits of the Chrysler mini-van
tailgate latch replacement program, and the effects of the December 1996
acquisition of KPI Automotive Group (KPI).
COST OF SALES
Cost of sales for 1996 decreased by $11.4 million, or 5.2 percent, to $208.9
million from $220.3 million in 1995. As a percentage of revenues, cost of sales
decreased to 85.2 percent for 1996 from 86.8 percent for 1995, resulting in an
improved gross margin of 14.8 percent from 13.2 percent in the preceding year.
The improvement in gross margin is a result of (i) the divestiture of the window
regulator business,
<PAGE>
which had lower margins, (ii) the Company's cost reduction efforts, which
included the implementation of more flexible cellular manufacturing methods,
(iii) the closing of an underutilized facility, and (iv) improved margins on
various replacement business as a result of the Company's advanced engineering
process.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by $1.2 million, or
8.1 percent, to $16.0 million for 1996 from $14.8 million for 1995. The
increased expenses were primarily a result of costs incurred as a result of
providing a greater level of design and engineering services to the Company's
customers. As a percentage of revenues, selling, general and administrative
expenses increased to 6.5 percent for 1996 from 5.9 percent for 1995, primarily
as a result of the increased costs incurred in providing a greater level of
design and engineering services to customers and the increased expenses related
to the KPI acquisition.
INTEREST EXPENSE
Interest expense for 1996 decreased by $2.2 million, or 45.8 percent, to $2.6
million from $4.8 million for 1995. The decrease was primarily due to the
repayment of debt with the net proceeds from the sale of the window regulator
business in April 1995 and the 1996 initial public offering of 3,795,000 shares
of Class A common stock.
INCOME TAXES
The effective income tax rate for 1996 was 39.5 percent compared to 40.4
percent for 1995. The effective rates were higher than federal statutory rates
primarily as a result of state income taxes and nondeductible goodwill
amortization.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994
REVENUES
Revenues for 1995 increased by $64.0 million, or 33.8 percent, to $253.7
million from $189.7 million for 1994. This increase was primarily due to the
full year impact of the August 1994 acquisition of the brake and cable business
of Alkin Co. (Alkin), which added approximately $100 million of revenues in
1995, and the addition of approximately $12 million of incremental new business
relating to the liftgate and hood latches for the Ford Taurus/Sable, parking
brakes for the Toyota Avalon and the tailgate latch replacement program for the
Chrysler mini-van, all of which began production in the fourth quarter of 1994
or early 1995. This was partially offset by the April 1995 divestiture of the
window regulator business, which had accounted for $62.1 million of revenues in
1994 compared to $14.1 million in 1995.
COST OF SALES
Cost of sales for 1995 increased by $49.6 million, or 29.0 percent, to $220.3
million from $170.7 million for 1994. As a percentage of revenues, cost of
sales decreased to 86.8 percent for 1995 from 90.0 percent for 1994, resulting
in an improved gross margin of 13.2 percent from 10.0 percent in the preceding
year. The improvement in gross margin was the result of (i) the divestiture of
the window regulator business, which generated lower margins, (ii) the synergies
resulting from consolidation of Alkin within the Company, (iii) the integration
of the Company's business, which included relocating production activities and
the closing of certain facilities, and (iv) the Company's efforts to improve its
production processes, including the implementation of more flexible cellular
manufacturing techniques. These improvements were partially offset by launch
costs associated with new liftgate and hood latch business on the redesigned
1996 model year Ford Taurus/Sable and the tailgate latch replacement for the
Chrysler mini-van.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by $4.4 million, or
42.8 percent, to $14.8 million for 1995 from $10.4 million for 1994. The
increased expenses were the result of the full year impact of the acquisition of
Alkin, as well as costs incurred in providing a greater level of design and
engineering services to the Company's customers. As a percentage of revenues,
selling, general and administrative expenses increased to 5.9 percent for 1995
from 5.4 percent for 1994, primarily a result of the increased costs incurred in
providing a greater level of design and engineering services to customers. The
increases were partially offset by reduced costs as a result of the sale of the
window regulator business.
INTEREST EXPENSE
Interest expense for 1995 increased by $1.3 million, or 38.8 percent, to $4.8
million from $3.5 million for 1994. The increase was the result of increased
borrowings in the fourth quarter of 1994 as a result of the acquisition of
Alkin. Partially offsetting this increase was a reduction from the repayment of
borrowings upon the sale of the window regulator business in April 1995.
OTHER INCOME
Other income of $4.2 million for 1995 represents the pretax gain on the sale
of the window regulator business. The Company received cash proceeds of $18.0
million from the sale, which were used to reduce outstanding indebtedness.
INCOME TAXES
The effective income tax rate for 1995 was 40.4 percent compared to 41.4
percent for 1994. The decrease is due principally to the lower percentage
impact of permanent differences on pretax income. The effective rates were
higher than federal statutory rates primarily as a result of state income taxes
and nondeductible goodwill amortization.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On August 31, 1994, the Company completed the acquisition of Alkin for (i)
2,206,890 shares of Class B common stock, (ii) an option to purchase up to an
additional 14,420 shares of Class B common stock at an exercise price of $1.45
per share and (iii) cash consideration, net of assumed indebtedness, of
approximately $40 million. In addition to borrowings under its revolving credit
facility, the Company financed a portion of the acquisition of Alkin by
borrowing $4.0 million from certain stockholders of the Company, including Onex
($1.8 million), J2R ($0.2 million) and Alkin ($2.0 million).
On April 2, 1995, the Company completed the sale of the window regulator
business to Rockwell International Corporation for net cash consideration of
$18.0 million, resulting in a pretax gain of $4.2 million.
On August 14, 1996, the Company completed an initial public offering of
3,795,000 shares of its Class A common stock at a price of $14.50 per share.
The Company realized net proceeds of approximately $50 million from this
offering.
In August 1996, the Company formed a joint venture with another automotive
supplier to participate equally in the acquisition of a 26 percent interest in
Pollone, S.A., a manufacturer of automotive components and mechanical assemblies
headquartered in Sao Paulo, Brazil, for $5 million. The Company has accounted
for its portion of this investment using the cost method of accounting.
In October 1996, the Company acquired the parking brake business of Rockwell
Light Vehicle Systems France S.A. The aggregate purchase price was approximately
$3.75 million. The parking brake business is operated from a facility in St.
Die, France.
In December 1996, the Company acquired all of the outstanding common stock of
KPI from Sparton Corporation for approximately $78.8 million in cash. KPI
manufactures shifter systems, parking brake mechanisms, brake pedals, underbody
spare tire carriers and airbag components for the North American automotive
industry from facilities in Indiana and Michigan. The acquisition was financed
with proceeds from borrowings under the Company's revolving credit facility.
On January 10, 1997, the Company acquired all of the outstanding common stock
of the VOFA Group (VOFA) for approximately $38 million in cash and assumed
indebtedness. The Company will also make additional payments of up to
approximately $6 million if certain operating targets are achieved by VOFA in
the first three years following the acquisition. VOFA manufactures shifter
cables, brake cables and other light duty cables for the European automotive and
industrial markets from facilities in Dusseldorf, Gehren and Daun, Germany and
Barcelona, Spain.
The Company's principal source of funds has been, and is anticipated to
continue to be, its cash flows from operations. During 1996, the Company
generated $19.5 million from operations before the effects of changes in working
capital compared to $16.5 million in 1995. The cash generated from operations
combined with net proceeds of approximately $50 million from the Offering and
borrowings under the Company's bank credit agreement were used to fund capital
expenditures of $6.3 million and to finance the acquisitions referred to above.
The Company estimates that it will fund approximately $15 million in capital
expenditures in 1997. These capital expenditures will be used primarily for the
purchase of machinery and equipment to support new business awards, as well as
to finance continued cost reduction efforts.
The Company believes that funds available under its bank credit agreement,
together with funds generated by the Company's operations, will provide the
Company with sufficient liquidity and capital resources for working capital,
capital expenditures and other needs. However, any significant acquisitions may
require additional debt or equity financing. The Company believes additional
financing will be available from bank lenders, through the issuance of public or
private debt securities or through the additional public offerings of equity
securities.
QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY
The Company typically experiences decreased revenues and operating income during
the third calendar quarter of each year due to production shutdowns at the
automotive manufacturers for model changeovers and vacations.
EFFECTS OF INFLATION
Inflation generally affects the Company by increasing the interest expense of
floating rate indebtedness and by increasing the cost of labor, equipment and
raw materials. Management believes that inflation has had an effect on the
Company's business over the past 18 months due to rising labor costs and raw
material costs, primarily steel, although at a rate below the producer price
index. Although certain of the Company's customer contracts provide that
increases in the Company's cost of raw materials in certain circumstances may be
passed through to its customers, prevailing industry practices have not allowed
the Company to pass such costs on to its customers.
<PAGE>
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
DEC. 31, 1996 DEC. 31, 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,667 $ 1,732
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,490 34,990
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,093 11,916
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,678 10,352
---------------------------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,928 58,990
---------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,926 9,333
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,800 34,889
Construction in progress. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,811 2,731
Less-accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . (15,190) (10,246)
---------------------------------
Net property, plant and equipment. . . . . . . . . . . . . . . . . . . . . 47,347 36,707
---------------------------------
Other Assets:
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,300 42,388
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,815 5,671
Less-accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . (4,261) (3,225)
---------------------------------
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,854 44,834
---------------------------------
$ 246,129 $ 140,531
---------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,230 $ 24,865
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,090 15,596
Current maturities of long-term debt. . . . . . . . . . . . . . . . . . . . . . 80 5,137
---------------------------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 56,400 45,598
LONG-TERM DEBT, NET OF CURRENT MATURITIES . . . . . . . . . . . . . . . . . . . 77,376 46,639
OTHER NONCURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . 24,986 20,611
---------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 3, 9, 10 AND 11)
STOCKHOLDERS' INVESTMENT:
Preferred stock, par value $1; 5,000,000 shares authorized; none issued
or outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Common stock, Class A; par value $.01; 30,000,000 shares authorized;
3,795,000 and 0 shares issued and outstanding. . . . . . . . . . . . . . . 38 -
Common stock, Class B; par value $.01; 10,000,000 shares authorized;
4,998,254 and 5,007,307 shares issued and outstanding. . . . . . . . . . . 50 50
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . 63,061 13,563
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,386 14,258
Common stock subscriptions receivable . . . . . . . . . . . . . . . . . . . . . (168) (188)
---------------------------------
Total stockholders' investment . . . . . . . . . . . . . . . . . . . . . . 87,367 27,683
---------------------------------
$ 246,129 $ 140,531
---------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
13
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 245,329 $ 253,726 $ 189,675
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . 208,939 220,274 170,748
-----------------------------------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . 36,390 33,452 18,927
Selling, general and administrative expenses. . . . . . . . . . . 16,028 14,798 10,362
Amortization expense. . . . . . . . . . . . . . . . . . . . . . . 1,036 1,094 690
-----------------------------------------
Operating income . . . . . . . . . . . . . . . . . . . . . . 19,326 17,560 7,875
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . 2,589 4,822 3,473
Gain on sale of window regulator business . . . . . . . . . . . . -- 4,240 --
-----------------------------------------
Income before income taxes . . . . . . . . . . . . . . . . . 16,737 16,978 4,402
Provision for income taxes. . . . . . . . . . . . . . . . . . . . 6,609 6,852 1,822
-----------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,128 $ 10,126 $ 2,580
-----------------------------------------
Net income per common and common
equivalent share. . . . . . . . . . . . . . . . . . . . $ 1.57 $ 2.03 $ .75
-----------------------------------------
Weighted average common and common
equivalent shares outstanding . . . . . . . . . . . . . 6,462 4,989 3,431
-----------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
(in thousands, except share amounts)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------------ COMMON
CLASS A CLASS B ADDITIONAL STOCK
------------------ ------------------ PAID-IN RETAINED SUBSCRIPTIONS
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS RECEIVABLE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 . . . . . . - $- 2,700,206 $27 $ 2,893 $ 1,552 $(103)
Repurchase of common
stock, net. . . . . . . . . . . . . - - (2,910) - (3) - (28)
Issuance of common stock
for acquisition . . . . . . . . . . - - 2,206,890 22 10,478 - -
Net income . . . . . . . . . . . . . . - - - - - 2,580 -
----------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 . . . . . . - - 4,904,186 49 13,368 4,132 (131)
Repurchase of common
stock, net. . . . . . . . . . . . . - - (46,204) - (155) - 19
Issuance of common stock . . . . . . . - - 149,325 1 350 - (76)
Net income . . . . . . . . . . . . . . - - - - - 10,126 -
----------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 . . . . . . - - 5,007,307 50 13,563 14,258 (188)
Initial public offering of
common stock, net . . . . . . . . . 3,795,000 38 - - 49,537 - -
Repurchase of common
stock, net. . . . . . . . . . . . . - - (9,053) - (39) - 20
Net income . . . . . . . . . . . . . . - - - - - 10,128 -
----------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 . . . . . . 3,795,000 $38 4,998,254 $50 $63,061 $24,386 $(168)
----------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,128 $ 10,126 $ 2,580
Adjustments required to reconcile net income to net
cash provided by (used in) operating activities-
Depreciation and amortization. . . . . . . . . . . . . . . . 6,079 5,578 3,725
Deferred income tax provision. . . . . . . . . . . . . . . . 3,331 5,067 1,507
Gain on sale of window regulator business. . . . . . . . . . - (4,240) -
Change in other operating items:
Accounts receivable . . . . . . . . . . . . . . . . . . (2,248) 11,772 (6,997)
Inventories . . . . . . . . . . . . . . . . . . . . . . 458 2,167 1,821
Other current assets. . . . . . . . . . . . . . . . . . 3,038 (1,405) (3,261)
Accounts payable. . . . . . . . . . . . . . . . . . . . (859) (2,656) (6,813)
Accrued liabilities and other . . . . . . . . . . . . . (135) (13,271) 1,282
------------------------------------------
Net cash provided by (used in)
operating activities. . . . . . . . . . . . . . . . . . 19,792 13,138 (6,156)
------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures, net . . . . . . . . . . . . . . . . . . . . (6,260) (6,116) (5,406)
Acquisitions, net . . . . . . . . . . . . . . . . . . . . . . . . (83,850) - (39,428)
Sale of window regulator business, net. . . . . . . . . . . . . . - 18,006 -
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . (4,983) (462) (2,044)
------------------------------------------
Net cash provided by (used in)
investing activities. . . . . . . . . . . . . . . . . . (95,093) 11,428 (46,878)
------------------------------------------
FINANCING ACTIVITIES:
Borrowings under revolving credit facility. . . . . . . . . . . . 145,500 95,500 91,625
Repayments of revolving credit facility . . . . . . . . . . . . . (68,500) (105,750) (83,550)
Proceeds from issuance of debt. . . . . . . . . . . . . . . . . . - - 66,500
Repayments of debt. . . . . . . . . . . . . . . . . . . . . . . . (51,320) (12,740) (22,660)
Stock offering proceeds, net. . . . . . . . . . . . . . . . . . . 49,575 - -
Sale (repurchase) of common stock, net. . . . . . . . . . . . . . (19) 139 (3)
Proceeds from notes payable to stockholders . . . . . . . . . . . - - 1,125
------------------------------------------
Net cash provided by (used in)
financing activities. . . . . . . . . . . . . . . . . . 75,236 (22,851) 53,037
------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . (65) 1,715 3
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD. . . . . . . . . . 1,732 17 14
------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD. . . . . . . . . . . . . $ 1,667 $ 1,732 $ 17
------------------------------------------
------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for-
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,195 $ 4,822 $ 2,781
------------------------------------------
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . $ 2,087 $ 2,285 $ 145
------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
Dura Automotive Systems, Inc. (the Company) and subsidiaries design and
manufacture mechanical assembly systems, components, hardware and cables for use
in the automotive industry and have manufacturing facilities located in Indiana,
Michigan, Missouri, Mexico and France. As discussed in Note 11, in January
1997, the Company completed an acquisition which adds production facilities in
Germany and Spain.
2. SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
FISCAL YEAR:
The Company reports its operating results based on a 52/53-week fiscal
year. For presentation purposes, the Company uses December 31 as the fiscal
year end.
CASH EQUIVALENTS:
Cash equivalents consist of money market instruments with original
maturities of three months or less and are stated at cost which approximates
fair value.
INVENTORIES:
Inventories are valued at the lower of first-in, first-out (FIFO) cost or
market.
Inventories consisted of the following (in thousands):
Dec. 31, 1996 Dec. 31, 1995
Raw materials. . . . . . . . . . . . . . . . $ 9,384 $ 5,841
Work in process. . . . . . . . . . . . . . . 4,767 3,883
Finished goods . . . . . . . . . . . . . . . 3,942 2,192
-----------------------------
$ 18,093 $ 11,916
-----------------------------
-----------------------------
OTHER CURRENT ASSETS:
Other current assets consisted of the following (in thousands):
Dec. 31, 1996 Dec. 31, 1995
Excess of cost over billings on
uncompleted tooling projects. . . . . . . $ 7,541 $ 8,653
Deferred income taxes. . . . . . . . . . . . 6,067 -
Prepaid expenses . . . . . . . . . . . . . . 1,070 1,699
-----------------------------
$ 14,678 $ 10,352
-----------------------------
-----------------------------
Excess of cost over billings on uncompleted tooling projects represents
costs incurred by the Company in production of customer-owned tooling to be used
by the Company in the manufacture of its products. The Company receives a
specific purchase order for this tooling and is reimbursed by the customer
within one operating cycle.
Costs are deferred until reimbursed by the customer. Forecasted losses on
incomplete projects are recognized currently.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. For financial reporting
purposes, depreciation is provided on the straight-line method over the
following estimated useful lives:
Buildings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 years
Machinery and equipment. . . . . . . . . . . . . . . . . . . . . .3 to 20 years
Accelerated depreciation methods are used for tax reporting purposes.
Maintenance and repairs are charged to expense as incurred. Major
betterments and improvements which extend the useful life of the item are
capitalized and depreciated. The cost and accumulated depreciation of property,
plant and equipment retired or otherwise disposed of are removed from the
related accounts and any residual values are charged or credited to income.
OTHER ASSETS:
Goodwill represents the excess of the purchase price over the fair value of
the net assets acquired and is being amortized on a straight-line basis over 40
years. Other assets principally consist of transaction costs, representing
costs incurred related to the acquisitions and are being amortized over five to
seven years.
The Company periodically evaluates whether events and circumstances have
occurred which may affect the estimated useful life or the recoverability of the
remaining balance of its goodwill and other long-lived assets. If such events
or circumstances were to indicate that the carrying amount of these assets would
not be recoverable, the Company would estimate the future cash flows expected to
result from the use of the assets and their eventual disposition. If the sum of
the expected future cash flows (undiscounted and without interest charges) were
less than the carrying amount of goodwill, the Company would recognize an
impairment loss.
Certain tooling and design costs related to previously proven product
designs are reimbursed by the Company's customers as the related product is sold
through an incremental increase in each product's unit selling price. Such
costs are capitalized and amortized based upon the unit of production method
over the life of the related tool. Amounts capitalized and included in other
assets were $2,948,000 at December 31, 1996 and $2,437,000 at December 31, 1995.
If the Company forecasts that the amount of capitalized tooling and design costs
exceeds the amount to be reimbursed by the customer, a loss is recognized
currently. Research and development and start-up costs, which are not material,
are expensed as incurred.
<PAGE>
ACCRUED LIABILITIES:
Accrued liabilities consisted of the following (in thousands):
Dec. 31, 1996 Dec. 31, 1995
Compensation and benefits. . . . . . . . . . $ 9,663 $ 4,256
Medical insurance. . . . . . . . . . . . . . 5,641 4,016
Product warranty . . . . . . . . . . . . . . 1,929 1,125
Interest . . . . . . . . . . . . . . . . . . 361 763
Other. . . . . . . . . . . . . . . . . . . . 8,496 5,436
----------------------------
$ 26,090 $ 15,596
----------------------------
----------------------------
OTHER NONCURRENT LIABILITIES:
Other noncurrent liabilities consisted of the following (in thousands):
Dec. 31, 1996 Dec. 31, 1995
Legal and environmental. . . . . . . . . . . $ 8,477 $ 8,568
Post-retirement medical benefits . . . . . . 6,097 5,724
Accrued pension and profit sharing . . . . . 1,721 1,782
Other. . . . . . . . . . . . . . . . . . . . 8,691 4,537
----------------------------
$ 24,986 $ 20,611
----------------------------
----------------------------
INCOME TAXES:
The Company accounts for income taxes under the liability method, which
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using currently enacted tax
rates.
COMMON STOCK:
The holder of each share of Class A common stock outstanding is entitled to
one vote per share and the holder of each share of Class B common stock
outstanding is entitled to 10 votes per share.
DERIVATIVE FINANCIAL INSTRUMENTS:
The Company's only involvement with derivative financial instruments, none
of which were used for trading purposes, consisted of an interest rate cap
agreement and a swap agreement used to hedge against exposure to fluctuations in
interest rates on the Company's term loan and revolving credit facility. The
interest rate cap agreement and swap agreement were terminated during 1996 and
the costs to terminate such agreements were not material. The Company manages
exposure to counterparty credit risk by entering into such transactions with
major financial institutions that are expected to perform under the terms of
such agreements. Costs of such agreements are amortized over the period of the
related borrowings and were not material to the Company as of or for the years
ended December 31, 1996, 1995 and 1994. In addition, at no time during such
periods were such transactions material nor did the Company have a material risk
of off-balance sheet accounting loss.
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE:
Net income per common and common equivalent share is computed by dividing
net income by the weighted average number of shares of common and common stock
equivalent shares outstanding during each period. Pursuant to Securities and
Exchange Commission rules, common stock issued and common stock options granted
within one year immediately preceding the offering date at prices below the
proposed offering price have been reflected in the net income per share
calculation as if they had been outstanding for all periods presented.
USE OF ESTIMATES:
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Ultimate results could differ from those
estimates.
3. STOCKHOLDERS' INVESTMENT:
INITIAL PUBLIC OFFERING OF CLASS A COMMON STOCK:
On August 14, 1996, the Company completed an initial public offering of
3,795,000 shares of its Class A common stock at $14.50 per share (the
"Offering"). The Company received net proceeds of approximately $50 million
from the Offering. Net proceeds from the Offering were used to repay certain
outstanding indebtedness. Immediately prior to the completion of the Offering,
the Company's board of directors and stockholders approved an Amended and
Restated Certificate of Incorporation and a recapitalization pursuant to which
the outstanding shares of the Company's Class A, B and C common stock were
exchanged for 4,998,254 shares in the aggregate of the Company's new Class B
common stock (out of a total of 10,000,000 shares of Class B common stock
authorized for issuance under the Amended and Restated Certificate of
Incorporation). Immediately after the consummation of the recapitalization and
the Offering, the Company had outstanding 8,793,254 shares of common stock. In
addition, the Company has options outstanding to purchase 32,045 shares of Class
B common stock at an exercise price of $1.45 per share. The accompanying
consolidated financial statements have been retroactively restated to give
effect to the recapitalization as if it had occurred at the beginning of the
earliest period presented.
STOCK OPTION PLAN:
Prior to consummation of the Offering, the board of directors and
stockholders of the Company approved the 1996 Key Employee Stock Option Plan
(the "Stock Option Plan"). Certain people who are full-time, salaried employees
of the Company are eligible to participate in the Stock Option Plan (an
"Employee Participant"). A committee of the board of directors will select the
Employee Participants
17
<PAGE>
and determine the terms and conditions of the options. The Stock Option Plan
provides for the issuance of options to Employee Participants covering up to
600,000 shares of Class A common stock of the Company, subject to certain
adjustments reflecting changes in the Company's capitalization. Information
regarding the Stock Option Plan is as follows:
Shares Under Exercise
Option Prices
- ---------------------------------------------------------------------------
Outstanding at December 31, 1995 . . . . . . - $ -
Granted. . . . . . . . . . . . . . . . . . 108,134 14.50
Granted. . . . . . . . . . . . . . . . . . 76,100 20,75
Granted. . . . . . . . . . . . . . . . . . 3,500 23.50
Exercised. . . . . . . . . . . . . . . . . - -
Terminated . . . . . . . . . . . . . . . . - -
Outstanding at December 31, 1996 . . . . . . 187,734 $14.50-23.50
- ---------------------------------------------------------------------------
Weighted average fair value
of options granted . . . . . . . . . . . . $ 8.92
- ---------------------------------------------------------------------------
As of December 31, 1996, none of the options were vested or exercisable.
INDEPENDENT DIRECTOR STOCK OPTION PLAN:
Prior to consummation of the Offering, the board of directors and
stockholders of the Company approved the Dura Automotive Systems, Inc.
Independent Director Stock Option Plan (the "Director Option Plan") that
provides for the issuance of options to Independent Directors, as defined, to
acquire up to 100,000 shares of the Company's Class A common stock, subject to
certain adjustments reflecting changes in the Company's capitalization. The
option exercise price must be at least 100 percent of the fair value of the
Class A common stock at the time the option is issued. Such option grants vest
six months from the date of grant. As of December 31, 1996, the Company had
granted options under the Director Option Plan to acquire 15,000 shares of the
Company's Class A Common Stock at an exercise price of $25.50 per share. As of
December 31, 1996, no options were exercisable.
EMPLOYEE STOCK DISCOUNT PURCHASE PLAN:
Prior to consummation of the Offering, the board of directors and
stockholders of the Company approved the Dura Automotive Systems, Inc. Employee
Stock Discount Purchase Plan (the "Employee Stock Purchase Plan") which provides
for the sale of up to 500,000 shares of the Company's Class A common stock at
discounted purchase prices, subject to certain limitations. The cost per share
under this plan is 85 percent of the market value of the Company's Class A
common stock at the date of purchase, as defined. During the year ended
December 31, 1996, no shares of Class A common stock were issued to employees
pursuant to this plan.
STOCK-BASED COMPENSATION PLANS:
As discussed above, the Company has two stock option plans, the Stock
Option Plan and the Director Option Plan, and an Employee Stock Purchase Plan.
The Company accounts for these plans under APB Opinion No. 25, under which no
compensation cost has been recognized. Had compensation cost for these plans
been determined consistent with Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," (SFAS No. 123), the Company's
pro forma net income and pro forma earnings per share would have been as follows
(in thousands):
Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995
- ---------------------------------------------------------------------------
Net income As Reported $ 10,128 $ 10,126
Pro Forma $ 10,114 $ 10,126
Net income per common
and common As Reported $ 1.57 $ 2.03
equivalent share Pro Forma $ 1.57 $ 2.03
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
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 used for grants in 1996: risk free interest rates of 6.1 percent
and 6.4 percent; expected life of seven years; expected volatility of 19 percent
and 28 percent. No options were granted during 1995.
4. ACQUISITIONS AND DIVESTITURE:
On August 31, 1994, Alkin Co. (Alkin), a manufacturer of parking brake
cables and levers and light duty cables, transferred certain assets and
liabilities to the Company. Alkin received total consideration of approximately
$50.5 million, consisting of 2,206,890 shares of Class B common stock and an
option to purchase up to 14,420 additional shares of Class B common stock at an
exercise price of $1.45 per share with a combined value of approximately $10.5
million and cash consideration, net of assumed indebtedness, of approximately
$40 million.
In August 1996, the Company formed a joint venture with another automotive
supplier to participate equally in the acquisition of a 26 percent interest in
Pollone, S.A., a manufacturer of automotive components and mechanical assemblies
headquartered in SAo Paulo, Brazil, for $5 million. The Company has accounted
for its portion of this investment using the cost method of accounting.
In October 1996, the Company acquired the parking brake business of
Rockwell Light Vehicle Systems France S.A. (the French Operations). The
aggregate purchase price was approximately $3.75 million. The parking brake
business is operated from a facility in St. Die, France. The pro forma effects
of this transaction are not material to the Company's results of operations for
the years ended December 31, 1996 and 1995.
<PAGE>
In December 1996, the Company acquired all of the outstanding common stock
of KPI Automotive Group (KPI) from Sparton Corporation for approximately $78.8
million in cash. KPI manufactures shifter systems, parking brake mechanisms,
brake pedals, underbody spare tire carriers and airbag components for the North
American automotive industry from facilities in Indiana and Michigan. The
acquisition was financed with proceeds from borrowings under the Company's
revolving credit facility.
The acquisitions of Alkin, the French Operations and KPI have been
accounted for using the purchase method of accounting and, accordingly, the
assets acquired and liabilities assumed have been recorded at their fair values
as of the dates of the acquisitions. The excess of the purchase price over the
fair value of the assets acquired and liabilities assumed has been recorded as
goodwill. The assets acquired and liabilities assumed of the French Operations
and KPI have been recorded based upon preliminary estimates of fair value as of
the dates of acquisition. The Company does not believe the final allocations of
the purchase price will be materially different than the preliminary
allocations.
On April 2, 1995, the Company sold the net assets of its window regulator
business to Rockwell International Corporation for approximately $18.0 million
in cash, resulting in a pretax gain of approximately $4.2 million. The results
of operations of the window regulator business have been included in the
accompanying consolidated financial statements through April 2, 1995, the date
of divestiture.
Following are unaudited pro forma results of operations for the years ended
December 31, 1996 and 1995 as if the Offering, the acquisition of KPI and the
divestiture of the window regulator business had been completed at the beginning
of the respective periods (in thousands, except per share data):
Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995
Revenues . . . . . . . . . . . . . . . . . $ 335,144 $ 324,882
--------------------------------
--------------------------------
Operating income . . . . . . . . . . . . . $ 22,993 $ 22,797
--------------------------------
--------------------------------
Net income . . . . . . . . . . . . . . . . $ 10,963 $ 9,763
--------------------------------
--------------------------------
Net income per common
and common equivalent share. . . . . . . $ 1.24 $ 1.11
--------------------------------
--------------------------------
The unaudited pro forma financial information does not purport to represent
what the Company's financial position or results of operations would actually
have been if these transactions had occurred at such dates or to project the
Company's future results of operations.
5. DEBT:
Debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
Dec. 31, Dec. 31,
1996 1995
<S> <C> <C>
Revolving credit facility, due December 2001,
interest at the lender's prevailing reference rate, the
federal funds rate plus 0.50% or LIBOR plus
1% minus the Eurocurrency Reserve Percentage,
at the discretion of the Company (6.06% to
8.25% at December 31, 1996). . . . . . . . . . . . . . . . . . $ 77,000 $ -
Revolving credit facility, interest at the lender's
prevailing reference rate plus up to 0.50% or the
Eurodollar rate plus 0.75% to 1.75% at the
discretion of the Company (6.81% to 8.5% at
December 31, 1995), repaid during 1996 . . . . . . . . . . . . - 9,750
Term loan, principal and interest due in quarterly
installments through June 2001, interest at the
lender's prevailing reference rate plus up to 0.50%
or the Eurodollar rate plus 0.75% to 1.75% at
the discretion of the Company (6.94% to 8.5%
at December 31, 1995), repaid during 1996. . . . . . . . . . . - 37,408
Subordinated promissory notes, payable to
stockholders, due December 2001, interest due
semiannually at 6.93%, repaid during 1996. . . . . . . . . . . - 4,000
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 456 618
----------------------------
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,456 51,776
Less - current maturities. . . . . . . . . . . . . . . . . . . . (80) (5,137)
----------------------------
$ 77,376 $ 46,639
----------------------------
----------------------------
</TABLE>
Future maturities of long-term debt as of December 31, 1996 are as follows
(in thousands):
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 80
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,182
---------
$ 77,456
---------
---------
The Company's bank credit agreement, as amended, consists of a revolving
credit facility with a committed amount of $150 million, is collateralized by
substantially all assets of the Company and matures in December 2001. The
agreement also provides the Company with the ability to borrow in foreign
currencies up to an amount equivalent to $30 million. Prior to the Offering,
the Company had a $37.4 million term loan and $4.0 million in subordinated
promissory notes payable to stockholders, which were repaid in August 1996 with
proceeds from the Offering. The remaining proceeds were used to pay down the
revolving credit facility. The bank credit agreement requires the Company to
pay a facility fee on the commitment amount of .25 percent and contains various
restrictive covenants, which, among other matters, require the Company to
maintain certain financial ratios, including minimum liquidity and interest
coverage. At December 31, 1996, approximately $43 million of borrowing capacity
was available under the bank credit agreement. The bank credit agreement also
limits additional indebtedness, investments, rental obligations and cash
dividends. The Company was in compliance with all such covenants at December
31, 1996
19
<PAGE>
and 1995. In addition, the Company has outstanding letters of credit in the
amount of $1.7 million expiring through October 1997.
6. INCOME TAXES:
The provision for income taxes consisted of the following (in thousands):
Year Ended Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
Current. . . . . . . . . $ 3,278 $ 1,785 $ 315
Deferred . . . . . . . . 3,331 5,067 1,507
------------------------------------------------
Total. . . . . . . . . . $ 6,609 $ 6,852 $ 1,822
------------------------------------------------
------------------------------------------------
A reconciliation of the provision for income taxes at the statutory rates
to the reported income tax provision is as follows (in thousands):
Year Ended Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
Federal provision at
statutory rates. . . . . . . $ 5,858 $ 5,898 $ 1,497
Amortization of non-
deductible goodwill. . . . . 224 255 115
State taxes, net of
federal benefit. . . . . . . 652 685 210
Foreign sales corporation. . .
benefit. . . . . . . . . . . (192) - -
Other, net . . . . . . . . . . 67 14 -
------------------------------------------------
Total. . . . . . . . . . . . . $ 6,609 $ 6,852 $ 1,822
------------------------------------------------
------------------------------------------------
The Company records its deferred income tax assets to the extent that it
believes that it is more likely than not that such assets will be realized. As
of December 31, 1995, the Company had established a valuation allowance for all
of its net deferred income tax assets as their realization was not assured.
During 1996, the Company concluded it was more likely than not that such
deferred tax assets would be realized. Accordingly, the valuation allowance was
eliminated. Due to the difference in the income tax and financial reporting
bases of assets acquired and liabilities assumed in the Company's acquisitions,
the reversal of the valuation allowance has been reflected as a reduction of
goodwill in the accompanying consolidated balance sheet as of December 31, 1996.
A summary of deferred tax assets (liabilities) is as follows (in
thousands):
Dec. 31, 1996 Dec. 31, 1995
Accrued legal and insurance costs. . . . . . $ 5,306 $ 5,387
Depreciation and property basis
differences. . . . . . . . . . . . . . . . (3,539) (1,459)
Accrued integration reserves . . . . . . . . 1,332 2,078
Deferred research and development costs. . . (1,251) (833)
Postretirement benefit obligations . . . . . 1,247 1,031
Accrued compensation costs . . . . . . . . . 798 868
Inventories. . . . . . . . . . . . . . . . . 307 344
Tax credit carryforwards . . . . . . . . . . - 1,375
Other reserves and accruals not
deductible for tax purposes. . . . . . . . 1,867 1,442
Valuation allowance. . . . . . . . . . . . . - (10,233)
-------------------------
Net deferred income taxes. . . . . . . . . . $ 6,067 $ -
-------------------------
-------------------------
7. MAJOR CUSTOMERS:
The Company sells its products directly to automobile manufacturers.
Following is a summary of customers that accounted for more than 5 percent of
consolidated revenues for the three years in the period ended December 31, 1996:
Year Ended Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
Ford . . . . . . . . . . 49% 52% 57%
GM . . . . . . . . . . . 36% 35% 29%
Chrysler . . . . . . . . 8% 6% 9%
Toyota . . . . . . . . . 5% 5% 3%
As of December 31, 1996 and 1995, receivables from these customers
represented 89 percent and 91 percent of total accounts receivable.
8. MANAGEMENT AGREEMENT:
Under the terms of a management agreement, which was terminated in August
1996, the Company paid Hidden Creek Industries (HCI), an affiliate of the
Company, monthly management fees for certain administrative services. Total
management fees of approximately $881,000 for the year ended December 31, 1996,
$733,000 for the year ended December 31, 1995 and $500,000 for the year ended
December 31, 1994 are included in selling, general and administrative expenses
in the accompanying consolidated statements of operations.
In addition, the Company paid fees to HCI of approximately $750,000 in 1996
in connection with the acquisitions and the Offering, $250,000 in 1995 in
connection with the divestiture and $500,000 in 1994 in connection with the
Alkin acquisition. See Note 4 for discussion of acquisitions and divestiture.
9. EMPLOYEE BENEFIT PLANS:
PENSION PLANS:
The Company sponsors two defined benefit pension plans which cover certain
hourly and salaried employees. The Company's policy is to make annual
contributions to the plans to fund the normal cost and the unfunded frozen
initial liability over 11.5 years. The salaried employee related plan was
curtailed during 1996. The Company agreed to provide certain additional
benefits to a defined group of individuals who were included in the salaried
employee plan under a separate defined contribution plan, and has accrued the
present value of such benefits. The net effect of the curtailment and the
provision for benefits under the separate defined contribution plan was not
material.
<PAGE>
Net pension expense consisted of the following (in thousands):
Year Ended Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
Service cost-benefits earned
during the year. . . . . . . . . . $ 236 $ 413 $ 394
Interest cost on projected
benefit obligation . . . . . . . . 243 277 242
Return on plan assets. . . . . . . . (237) (150)
(116)
Net amortization and deferral. . . . 65 26 26
-----------------------------------------
Net pension expense. . . . . . . . . $ 307 $ 566 $ 546
-----------------------------------------
-----------------------------------------
Pursuant to Statement of Financial Accounting Standards No. 87, "Employers'
Accounting for Pensions," the Company has recorded deferred pension costs of
$393,000, $194,000 and $220,000 at December 31, 1996, 1995 and 1994 related to
the minimum pension liability, which are classified as other assets in the
accompanying consolidated balance sheets.
The funded status of the Company's plans is as follows (in thousands):
Dec. 31, 1996 Dec. 31, 1995
Actuarial present value of:
Vested benefit obligation. . . . . . . . . $ 2,825 $ 2,164
--------------------------
Accumulated benefit obligation . . . . . . $ 3,393 $ 2,855
--------------------------
Projected benefit obligation . . . . . . . $ 3,393 $ 3,987
Plan assets at fair value. . . . . . . . . . 2,732 2,305
--------------------------
Projected benefit obligation in
. . . . . . . . . . .excess of plan assets 661
1,682
Unrecognized net loss. . . . . . . . . . . . (31) (18)
Prior service cost . . . . . . . . . . . . . (394) (194)
Adjustment to recognize minimum liability. . 661 312
--------------------------
Accrued pension costs. . . . . . . . . . . $ 897 $ 1,782
--------------------------
--------------------------
The accumulated and projected benefit obligations were determined using an
assumed discount rate of 7.5 percent at December 31, 1996 and 1995. The assumed
long-term rate of return on assets was 8.0 percent at December 31, 1996 and 7.5
percent at December 31, 1995. Plan assets consist principally of common stock,
fixed income securities and guaranteed investment contracts.
RETIREMENT SAVINGS PLANS:
The Company sponsors employee retirement savings plans which allow
qualified employees to provide for their retirement on a tax-deferred basis. In
accordance with the terms of the retirement savings plans, the Company is
required to match certain of the participants' contributions and/or provide
employer contributions based on the Company's performance and other factors.
Such employer contributions totaled $1,556,000, $976,000 and $419,000 during
fiscal 1996, 1995 and 1994.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
The Company has various postretirement medical benefit plans for certain
employee groups and has recorded a liability for its estimated obligations under
these plans.
Net periodic postretirement benefit cost is as follows (in thousands):
Year Ended Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
Service cost-benefits earned
during the year. . . . . . . . $ 84 $ 74 $ 54
Interest cost on projected
benefit obligation . . . . . . 558 679 529
Net amortization and deferral. . 127 124 93
-----------------------------------------
Net periodic postretirement
benefit cost . . . . . . . . . $ 769 $ 877 $ 676
-----------------------------------------
-----------------------------------------
The funded status of the Company's plans is as follows (in thousands):
Dec. 31, 1996 Dec. 31, 1995
Accumulated benefit obligation . . . . . . . $ 4,544 $ 7,738
Plan assets at fair value. . . . . . . . . . - -
--------------------------
Projected benefit obligation in excess
of plan assets . . . . . . . . . . . . . 4,544 7,738
Prior service cost . . . . . . . . . . . . . 97 -
Unrecognized net gain (loss) . . . . . . . . 1,456 (2,014)
--------------------------
Accrued postretirement benefits. . . . . . $ 6,097 $ 5,724
--------------------------
--------------------------
For measurement purposes, an 8 percent annual rate of increase for the
healthcare cost trend was assumed for 1996. The rate was assumed to decrease 1
percent annually to 5 percent at 2001 and remain level thereafter. Increasing
the assumed healthcare cost trend assumption by one percentage point would
increase the accumulated postretirement benefit obligation by approximately
$247,000 and the net periodic postretirement expense by approximately $45,000
for the year ended December 31, 1996.
10. COMMITMENTS AND CONTINGENCIES:
ALKIN SERVICE AND SUPPLY AGREEMENTS:
In connection with the acquisition of Alkin, the Company entered into
agreements with Alkin whereby the Company is to receive services related to data
processing, payroll and personnel administration, and other administrative
matters. Amounts paid under these service agreements were $1,258,000, $1,788,000
and $570,000 for the years ended December 31, 1996, 1995 and 1994. Future
minimum commitments under the service agreements are approximately $100,000 in
1997. In addition, the Company and Alkin have mutually agreed to supply each
other's operations with certain items necessary for the manufacture of their
products. These supply agreements are for periods of up to five years and are
at terms which the Company believes are no less favorable than could be obtained
from an independent party.
21
<PAGE>
LEASES:
The Company leases office and manufacturing space and certain equipment
under operating lease agreements which require it to pay maintenance, insurance,
taxes and other expenses in addition to annual rentals. Future annual rental
commitments at December 31, 1996 under these operating leases are as follows (in
thousands):
Year Amount
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,357
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,121
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 732
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 545
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 471
Therafter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,222
--------
$ 5,448
--------
--------
PRODUCT WARRANTY:
In connection with the acquisition of Alkin, the Company agreed to assume
the liability for two potential product recalls by a customer, related to two
parking brake systems manufactured by Alkin. The customer has agreed to limit
the liability of the Company in connection with the potential recalls to $7
million. Based upon claims initiated against the customer and/or Alkin to date
and an estimate of claims to be initiated, the Company has established reserves
that it believes are adequate to cover any potential future liabilities.
LITIGATION:
The Company is party to certain claims arising in the ordinary course of
business. In the opinion of management, based upon the advice of legal counsel,
the outcomes of such claims are not expected to be material to the Company.
ENVIRONMENTAL MATTERS:
Due to the nature of its business, the Company may, from time to time, be
exposed to potential liabilities to clean up environmental contaminants. The
Company has been named as one of four potentially responsible parties related to
groundwater contamination in East Jordan, Michigan, that was in existence at the
date of the Company's formation. In addition, the Company has also been named
as one of numerous potentially responsible parties related to soil contamination
in Toledo, Ohio. The Company has provided reserves which management believes
are adequate to cover any exposure related to these matters. In addition, the
Company's former owners have agreed to indemnify the Company for any costs in
excess of the provided reserves related to the East Jordan, Michigan
contamination.
11. VOFA ACQUISITION:
On January 10, 1997, the Company acquired all of the outstanding common
stock of the VOFA Group (VOFA) for approximately $38 million in cash and assumed
indebtedness. The purchase was financed with borrowings under the Company's
bank credit agreement. The Company will also make additional payments of up to
approximately $6 million if certain operating targets are achieved by VOFA in
the first three years following the acquisition. VOFA manufactures shifter
cables, brake cables and other light duty cables for the European automotive and
industrial markets from facilities in Dusseldorf, Gehren and Daun, Germany and
Barcelona, Spain. The acquisition of VOFA will be accounted for as a purchase
and, accordingly, VOFA's assets and liabilities will be recorded at fair values
as of the acquisition date.
12. QUARTERLY FINANCIAL DATA
(UNAUDITED):
The following is a condensed summary of actual quarterly results of
operations for 1996 and 1995 (in thousands except per share amounts):
Net Income
Per Common
and Common
Gross Operating Net Equivalent
Revenues Profit Income Income Share
1996:
First $ 59,303 $ 7,462 $ 3,336 $ 1,347 $ .27
Second 68,054 10,754 6,822 3,607 .72
Third 57,130 7,120 3,250 1,746 .25
Fourth 60,842 11,054 5,918 3,428 .39
------------------------------------------------------
$ 245,329 $ 36,390 $ 19,326 $ 10,128 $ 1.57
------------------------------------------------------
------------------------------------------------------
1995:
First $ 80,707 $ 9,019 $ 5,607 $ 2,442 $ .50
Second 62,159 9,117 5,236 4,984 1.00
Third 51,426 5,568 1,833 417 .08
Fourth 59,434 9,748 4,884 2,283 .45
------------------------------------------------------
$ 253,726 $ 33,452 $ 17,560 $ 10,126 $ 2.03
------------------------------------------------------
------------------------------------------------------
The sum of per share amounts for the quarters of 1996 do not equal the
total for the year due to the timing of the Offering and its effects on the
computation of weighted average number of shares outstanding.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO DURA AUTOMOTIVE SYSTEMS, INC.:
We have audited the accompanying consolidated balance sheets of Dura Automotive
Systems, Inc. (a Delaware corporation) and Subsidiaries as of December 31, 1996
and 1995 and the related consolidated statements of operations, stockholders'
investment and cash flows for each of the three years in the period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Dura Automotive Systems,
Inc. and Subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
January 31, 1997
23
<PAGE>
CORPORATE AND STOCKHOLDER INFORMATION
STOCKHOLDER SERVICES
DURA AUTOMOTIVE SYSTEMS, INC.
4508 IDS Center
Minneapolis, Minnesota 55402
Ph: 612-342-2311
Fax: 612-332-2012
INDEPENDENT PUBLIC ACCOUNTANTS
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
GENERAL COUNSEL
KIRKLAND & ELLIS
Chicago, Illinois
PUBLIC RELATIONS COUNSEL
PADILLA SPEER BEARDSLEY INC.
Minneapolis, Minnesota
REGISTRAR AND TRANSFER AGENT
FIRSTAR TRUST COMPANY
Milwaukee, Wisconsin
800-508-2623
ANNUAL MEETING
The annual meeting of stockholders will be held on Wednesday, May 14, 1997 at 1
p.m., Eastern time, at Dura Automotive Systems, Inc., 2791 Research Drive,
Rochester Hills, Michigan.
FORM 10-K
Copies of the Form 10-K, filed with the Securities and Exchange Commission, are
available upon request from Stockholder Services, Dura Automotive Systems, Inc.,
4508 IDS Center, Minneapolis, Minnesota 55402.
STOCK INFORMATION
Dura Automotive Systems, Inc.'s Common Stock has traded on the Nasdaq National
Market under the symbol DRRA since August 14, 1996. The following stock prices
were obtained from Nasdaq reports:
DRRA Stock Price by Quarter
1996 Low High
Fourth Quarter . . . . . . . . . . . . . . . 18 3/4 27 3/4
Third Quarter. . . . . . . . . . . . . . . . 17 19 3/4
<PAGE>
[LOGO] DURA AUTOMOTIVE SYSTEMS, INC.
OPERATING HEADQUARTERS
DURA AUTOMOTIVE SYSTEMS, INC.
2791 RESEARCH DRIVE
ROCHESTER HILLS, MI 48309-3575
PH: 810-299-7500
FAX: 810-299-7501
CORPORATE HEADQUARTERS
DURA AUTOMOTIVE SYSTEMS, INC.
4508 IDS CENTER
MINNEAPOLIS, MN 55402
PH: 612-342-2311
FAX: 612-332-2012
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF THE REGISTRANT
Dura Operating Corp.
Dura de Mexico S.A. de C.V.
Dura Automotive Shifter
System Operations
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statement File No. 333-17821.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
March 26, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS FOUND IN THE COMPANY'S
1996 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001016177
<NAME> DURA AUTOMOTIVE SYSTEMS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,667
<SECURITIES> 0
<RECEIVABLES> 49,490
<ALLOWANCES> 0
<INVENTORY> 18,093
<CURRENT-ASSETS> 83,928
<PP&E> 62,537
<DEPRECIATION> 15,190
<TOTAL-ASSETS> 246,129
<CURRENT-LIABILITIES> 56,400
<BONDS> 0
0
0
<COMMON> 88
<OTHER-SE> 87,279
<TOTAL-LIABILITY-AND-EQUITY> 246,129
<SALES> 245,329
<TOTAL-REVENUES> 245,329
<CGS> 208,939
<TOTAL-COSTS> 208,939
<OTHER-EXPENSES> 17,064
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,589
<INCOME-PRETAX> 16,737
<INCOME-TAX> 6,609
<INCOME-CONTINUING> 10,128
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,128
<EPS-PRIMARY> 1.57
<EPS-DILUTED> 1.57
</TABLE>
