<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (Date of earliest event reported): MARCH 15, 1999
DURA AUTOMOTIVE SYSTEMS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation)
0-21139 38-3185711
(Commission File Number) (I.R.S. Employer Identification No.)
4508 IDS CENTER, MINNEAPOLIS, MINNESOTA 55402
(Address of Principal Executive Offices) (Zip Code)
(612) 342-2311
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
The undersigned Registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K, dated
March 15, 1999, relating to events occurring on March 15, 1999 and March 23,
1999, as set forth in the pages attached hereto.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
(1) The audited financial statements for Excel Industries, Inc.,
the business acquired, as of and for each of the three years
in the period ended January 2, 1999, together with a report of
independent public accountants, are hereby filed as part of
this Report on Form 8-K/A in the form attached as Exhibit 99.A.
(2) The audited financial statements for Adwest Automotive Plc,
the business acquired, as of and for each of the three years
in the period ended June 30, 1998, together with a report of
independent public accountants, and the unaudited financial
statements as of and for the period ended December 31, 1998
are hereby filed as part of this Report on Form 8-K/A in the
form attached as Exhibit 99.B.
(b) PRO FORMA FINANCIAL INFORMATION.
The required unaudited pro forma financial information for the
transactions that are the subject of this report, prepared as of
December 31, 1998 and March 31, 1999, are hereby filed as part of
this Report on Form 8-K/A in the form attached as Exhibit 99.C.
(c) EXHIBITS.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of KPMG Audit Plc.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
DURA AUTOMOTIVE SYSTEMS, INC.
Date: June 18, 1999 By: /s/ Stephen E.K. Graham
------------------------------------------
Name: Stephen E.K. Graham
Title: Vice President and Chief Financial
Officer (Principal Accounting and
Financial Officer)
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 8-K/A, into the Company's previously filed
Registration Statement File Nos. 333-17821 and 333-17821-1.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
June 16, 1999
<PAGE>
EXHIBIT 23.2
The Directors
Adwest Automotive Plc
Woodley
Reading
Berkshire
RG5 4SN
18 June 1999
We consent to the incorporation by reference in the Registration Statements
(Forms S-8 and S-8 POS both dated March 30, 1999) of Dura Automotive Systems,
Inc, of our report dated 7 September 1998 in respect of the consolidated balance
sheets of Adwest Automotive plc and its subsidiaries at 30 June 1998 and 30 June
1997 and the related consolidated profit and loss accounts, reconciliations of
movements in shareholders' funds and consolidated cash flow statements for each
of the years in the three year period ended 30 June 1998 which report appears in
the Form 8-K/A of Dura Automotive Systems, Inc. dated 18 June 1999.
Yours faithfully
KPMG Audit Plc
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To: Excel Industries, Inc.
We have audited the accompanying consolidated balance sheets of Excel
Industries, Inc. (an Indiana corporation) and Subsidiaries as of December 27,
1997 and January 2, 1999 and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended January 2, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these 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 Excel Industries,
Inc. and Subsidiaries as of December 27, 1997 and January 2, 1999, and the
results of their operations and their cash flows for each of the three years
in the period ended January 2, 1999 in conformity with generally accepted
accounting principles.
As explained in Note 2 to the financial statements, effective December 28,
1997, the Company changed its method of computing depreciation.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
June 16, 1999
<PAGE>
EXCEL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DEC. 27, JAN. 2,
1997 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments....................................................... $ 2,317 $ 16,290
Marketable securities................................................................. 24,420 14,000
Accounts receivable-trade, less allowances of $1,318 in 1997 and $1,810
in 1998............................................................................. 140,910 167,400
Customer tooling to be billed......................................................... 22,356 30,649
Inventories........................................................................... 40,929 59,402
Prepaid expenses...................................................................... 14,929 15,640
----------- -----------
Total current assets................................................................ 245,861 303,381
Property, plant and equipment:
Land.................................................................................. 3,227 5,153
Buildings and improvements............................................................ 52,056 77,101
Machinery and equipment............................................................... 225,046 302,691
Accumulated depreciation.............................................................. (119,361) (152,276)
----------- -----------
160,968 232,669
Goodwill, net of accumulated amortization of $5,387 in 1997 and $7,012
in 1998............................................................................... 35,960 41,865
Other assets............................................................................ 15,008 16,469
----------- -----------
$ 457,797 $ 594,384
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................................... $ 85,469 $ 107,052
Accrued liabilities:
Salaries and wages.................................................................. 9,249 16,875
Employee benefits................................................................... 11,136 14,464
Other............................................................................... 20,785 25,439
Income taxes payable.................................................................. -- 3,599
Current maturities of long-term debt.................................................. 2,672 17,156
----------- -----------
Total current liabilities........................................................... 129,311 184,585
Long-term debt.......................................................................... 105,943 149,879
Long-term employee benefits............................................................. 32,934 44,469
Other long-term liabilities............................................................. 4,294 9,085
Minority interest....................................................................... -- 12,108
Commitments and contingent liabilities.................................................. -- --
Shareholders' equity:
Preferred shares-no par value, authorized 1,000 shares; none issued................... -- --
Common shares-no par value, authorized 20,000 shares; issued and outstanding in 1997,
12,414; issued in 1998, 12,468...................................................... 114,730 115,646
Retained earnings..................................................................... 70,585 81,373
Accumulated other comprehensive income................................................ -- 1,045
Treasury shares at cost, 289 shares................................................... -- (3,806)
----------- -----------
Total shareholders' equity.......................................................... 185,315 194,258
----------- -----------
$ 457,797 $ 594,384
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of this statement.
2
<PAGE>
EXCEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------
<S> <C> <C> <C>
DEC. 28, DEC. 27, JAN. 2,
1996 1997 1999
---------- ---------- ------------
Net sales.................................................................. $ 887,741 $ 962,333 $ 1,106,103
Cost of goods sold......................................................... 783,375 846,990 995,982
---------- ---------- ------------
Gross profit............................................................. 104,366 115,343 110,121
Selling, administrative and engineering expenses........................... 65,652 79,267 78,615
---------- ---------- ------------
Operating income......................................................... 38,714 36,076 31,506
Interest expense........................................................... 9,784 10,984 11,628
Other income, net.......................................................... (1,736) (1,930) (2,074)
---------- ---------- ------------
Income before income taxes and minority interest......................... 30,666 27,022 21,952
Provision for income taxes................................................. 11,550 9,458 3,632
Minority interest.......................................................... -- -- 1,367
---------- ---------- ------------
Net income............................................................... $ 19,116 $ 17,564 $ 16,953
---------- ---------- ------------
---------- ---------- ------------
Net income per share:
Basic.................................................................... $ 1.79 $ 1.59 $ 1.37
Diluted.................................................................. 1.62 1.48 1.36
Cash dividends per share................................................... $ .455 $ .50 $ .50
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE>
EXCEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------
<S> <C> <C> <C>
DEC. 28, DEC. 27, JAN. 2,
1996 1997 1999
--------- --------- ---------
Cash flows from operating activities:
Net income..................................................................... $ 19,116 $ 17,564 $ 16,953
--------- --------- ---------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................................ 26,246 33,382 39,679
Deferred income taxes........................................................ (1,613) 3,093 782
Other........................................................................ 348 2,093 2,121
Changes in assets and liabilities, excluding effect of acquisitions:
Accounts receivable and prepaid expenses................................... 19,206 (12,396) 14,769
Inventories and customer tooling........................................... 25,955 (3,180) 5,119
Accounts payable and accrued liabilities................................... (19,409) (79) (3,421)
--------- --------- ---------
Total adjustments........................................................ 50,733 22,913 59,049
--------- --------- ---------
Net cash provided by operating activities................................ 69,849 40,477 76,002
--------- --------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment...................................... (29,209) (39,287) (45,958)
Businesses acquired............................................................ (58,984) (2,415) (10,080)
Sale (purchase) of investments, net............................................ 8,290 (2,471) 10,420
Proceeds from disposal of business............................................. -- 6,793 --
Other.......................................................................... 929 199 1,693
--------- --------- ---------
Net cash used for investing activities................................... (78,974) (37,181) (43,925)
--------- --------- ---------
Cash flows from financing activities:
Issuance of common shares...................................................... 278 543 916
Payments of long-term debt..................................................... (79,934) (2,470) (15,905)
Dividends...................................................................... (4,875) (5,632) (6,165)
Purchase of treasury shares.................................................... (155) -- (3,806)
Issuance of long-term debt..................................................... 100,000 -- 3,359
Other.......................................................................... -- -- 3,497
--------- --------- ---------
Net cash provided by (used for) financing activities..................... 15,314 (7,559) (18,104)
--------- --------- ---------
Net change in cash and short-term investments.................................... 6,189 (4,263) 13,973
Cash and short-term investments at beginning of period........................... 391 6,580 2,317
--------- --------- ---------
Cash and short-term investments at end of period................................. $ 6,580 $ 2,317 $ 16,290
--------- --------- ---------
--------- --------- ---------
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest....................................................................... $ 9,288 $ 11,182 $ 11,504
Income taxes, net of refunds................................................... 10,524 8,895 3,594
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE>
EXCEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON OTHER
SHARES COMMON RETAINED COMPREHENSIVE TREASURY
OUTSTANDING SHARES EARNINGS INCOME SHARES TOTAL
----------- ---------- --------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 30, 1995................ 10,703 $ 95,157 $ 44,412 $ (659) $ (4,593) $ 134,317
Comprehensive income
Net income................................ 19,116 19,116
Cumulative translation adjustment......... 45 45
Minimum pension liability adjustment...... 499 499
----------
Total comprehensive income.................. 19,660
----------
Dividends................................... (4,875) (4,875)
Share options exercised..................... 12 86 86
Shares issued under employee stock purchase
plan...................................... 15 192 192
Warrants issued............................. 1,500 1,500
Treasury shares purchased................... (12) (155) (155)
Treasury shares canceled.................... (4,748) 4,748 --
----------- ---------- --------- -------------- ---------- ----------
BALANCE AT DECEMBER 28, 1996................ 10,718 92,187 58,653 (115) -- 150,725
Comprehensive income
Net income................................ 17,564 17,564
Cumulative translation adjustment......... (45) (45)
Minimum pension liability adjustment...... 160 160
----------
Total comprehensive income.................. 17,679
----------
Dividends................................... (5,632) (5,632)
Share options exercised..................... 9 116 116
Shares issued under employee stock purchase
plan...................................... 22 427 427
Conversion of 10% subordinated notes........ 1,665 22,000 22,000
----------- ---------- --------- -------------- ---------- ----------
BALANCE AT DECEMBER 27, 1997................ 12,414 114,730 70,585 -- -- 185,315
Comprehensive income
Net income................................ 16,953 16,953
Cumulative translation adjustment......... 2,042 2,042
Minimum pension liability adjustment...... (997) (997)
----------
Total comprehensive income.................. 17,998
----------
Dividends................................... (6,165) (6,165)
Share options exercised..................... 13 162 162
Shares issued under employee stock purchase
plan...................................... 41 754 754
Treasury shares purchased................... (289) (3,806) (3,806)
----------- ---------- --------- -------------- ---------- ----------
BALANCE AT JANUARY 2, 1999.................. 12,179 $ 115,646 $ 81,373 $ 1,045 $ (3,806) $ 194,258
----------- ---------- --------- -------------- ---------- ----------
----------- ---------- --------- -------------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE>
EXCEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
The Company designs, manufactures and sells automotive window, door and
seating systems and decorative trims for original equipment manufacturers (OEMs)
and Tier I suppliers. It also manufactures and sells appliances, jacks and
couplers, and window and door systems for the recreational vehicle industry and
windows for the mass transit and heavy truck industries. The Company has
manufacturing facilities located in the United States, Mexico, Germany, United
Kingdom, Spain, Portugal, and the Czech Republic.
Effective July 1, 1998, the Company acquired 70 percent of Schade GmbH & Co.
KG, headquartered in Plettenberg, Germany as described in note 3.
2. SIGNIFICANT ACCOUNTING PRINCIPLES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. All significant intercompany transactions,
profits and balances are eliminated. The Company has a 25% interest in a
Brazilian joint venture, which is accounted for on the equity method and
resulted in losses of $1.5 million in 1998.
FISCAL YEAR
The Company's fiscal year consists of 52 or 53 weeks ending on the Saturday
nearest the calendar year end.
NET INCOME PER SHARE
In 1997, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share." All net income per share amounts reported
herein are in accordance with this Statement.
Basic net income per share is computed using the weighted average number of
shares outstanding during the period. Shares used to compute basic net income
per share were 10,709,000 for 1996, 11,079,000 for 1997 and 12,370,000 for 1998.
Diluted earnings per share assumes, when dilutive, the exercise of common
share options and warrants outstanding and the conversion of the 10% convertible
subordinated notes until their conversion into common shares in October, 1997.
Shares used to compute diluted earnings per share included the number of shares
used for basic net income per share plus 56,000 in 1996, 187,000 in 1997 and
118,000 in 1998 for the exercise of options and warrants and 2,220,000 in 1996
and 1,370,000 in 1997 for the assumed conversion of the notes. Net income used
to compute diluted earnings per share included an add-back of $1,907,000 in 1996
and $1,192,000 in 1997 for interest, net of taxes, on the notes.
SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES
Short-term investments amounting to $2,000,000 at December 27, 1997 and
$3,770,000 at January 2, 1999 consist of investments generally held in money
market funds.
Marketable securities represent investments with maturities generally longer
than 90 days. All securities mature prior to December, 1999 and are considered
available for sale. Interest and dividends on marketable securities are included
in income as earned. Realized gains or losses are determined on the specific
identification method.
6
<PAGE>
EXCEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
Marketable securities are carried at cost, which approximates market value,
and consist of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Government securities................................................... $ 10,885 $ --
Tax-free municipal securities........................................... 5,335 --
Municipal fund par value preferred shares............................... 2,200 --
Other tax-free securities............................................... 6,000 14,000
--------- ---------
$ 24,420 $ 14,000
--------- ---------
--------- ---------
</TABLE>
Other income includes interest income of $1,772,000 in 1996, $1,957,000 in
1997 and $2,005,000 in 1998.
INVENTORIES
Inventories are valued at the lower of cost or market. At December 27, 1997,
the LIFO method was used to value 84% of inventories. At January 2, 1999, the
last-in, first-out (LIFO) method was used to determine cost for approximately
60% of inventories while the first-in, first-out (FIFO) method was used for the
remaining inventories primarily related to foreign inventories.
CUSTOMER TOOLING TO BE BILLED
Excess of cost over billings on uncompleted tooling projects represents
costs incurred by the Company in the 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.
PROPERTIES
Property, plant and equipment are carried at cost and include expenditures
for new facilities and those which substantially increase the useful lives of
existing plant and equipment. Expenditures for repairs and maintenance are
expensed as incurred.
DEPRECIATION
The Company provides for depreciation of property, plant and equipment using
methods and rates designed to amortize the cost of such equipment over its
useful life. The estimated useful lives range from 10 to 40 years for buildings
and improvements and 2 to 20 years for machinery and equipment. Prior to 1998,
depreciation was computed using accelerated methods of depreciation for new
plant and equipment. A survey conducted by the Company confirmed that the
straight-line method of depreciation as the predominant method used throughout
the automotive supply industry. Accordingly, for new capital expenditures for
the 1998 fiscal year and thereafter, the Company adopted the straight-line
method of depreciation for financial reporting purposes. The favorable effect of
the change on net income for the year ending January 2, 1999 was approximately
$1.1 million or $.09 per share.
GOODWILL
The excess of purchase price over the fair value of net assets of acquired
businesses (goodwill) is amortized on a straight-line basis over 15 to 40 years.
The Company periodically evaluates whether events
7
<PAGE>
EXCEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates the fair value of all financial instruments where the
face value differs from the fair value, primarily long-term debt, based upon
quoted amounts or the current rates available for similar financial instruments.
If fair value accounting had been used at January 2, 1999, long-term debt would
exceed the reported level by approximately $9 million.
REVENUE RECOGNITION AND SALES COMMITMENTS
The Company recognizes revenue as its products are shipped to its customers.
The Company enters into agreements with its customers at the beginning of a
given vehicle's life to produce products. Once such agreements are entered into
by the Company, fulfillment of the customers' purchasing requirements is
generally the obligation of the Company for the entire production life of the
vehicle, generally with terms of up to seven years. In certain instances, the
Company may be committed under existing agreements to supply product to its
customers at selling prices which are not sufficient to cover the direct cost to
produce such product. In such situations, the Company records a liability for
the estimated future amount of such losses. Such losses are recognized at the
time that the loss is probable and reasonably estimable. The Company recorded a
$4.5 million reserve for these losses in 1998.
INCOME TAXES
Deferred income taxes are provided using the liability method in accordance
with SFAS No. 109, "Accounting for Income Taxes".
FOREIGN CURRENCY TRANSLATION
For operations outside the United States that prepare financial statements
in currencies other than the United States dollar, the balance sheet, income,
expense and cash flow amounts are translated in accordance with SFAS No. 52
"Foreign Currency Translation".
USE OF ESTIMATES
The preparation of 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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
8
<PAGE>
EXCEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS AND DISPOSALS
Effective July 1, 1998, the Company purchased through its wholly-owned
subsidiary, Excel Industries Germany GmbH, a 70% interest in Schade GmbH & Co.
K.G. (Schade) a German limited partnership. The aggregate purchase price for
Schade was DM 17,036,400, or approximately U.S. $9,689,000 plus transaction
costs. The Company also assumed approximately $68 million of Schade's debt. The
amount of the Company's contribution to the capital of Schade was DM 27,340,000,
or approximately U.S. $15,548,000. Funds for the purchase price for the
interests and the contribution came from the Company's cash on hand.
The remaining 30 percent of Schade is owned by Hella KG Hueck & Co., another
international OEM supplier. Schade has sales and manufacturing operations in
Germany, Portugal, Spain, United Kingdom and the Czech Republic with annual
sales of more than $300 million. Schade and its affiliated companies are engaged
in the manufacture and distribution of decorative trims, body components,
injected molded plastic components and modular windows for the automotive
industry.
The acquisition of Schade was accounted for as a purchase. The assets
acquired and liabilities assumed have been recorded based on preliminary
estimates of fair value as of the date of acquisition. The Company does not
believe the final allocation of purchase price will be materially different
from preliminary allocations. Any changes to the preliminary estimates will
be reflected as an adjustment to goodwill. The excess of the purchase price
over the estimated fair value of net assets acquired has been accounted for
as goodwill and is being amortized over 40 years using the straight-line
method.
The accompanying consolidated statements of income include the operating
results of Schade since July 1, 1998. Pro forma unaudited consolidated operating
results of the Company and Schade for the year ended December 27, 1997 and
January 2, 1999, assuming the acquisition had been made as of the beginning of
1997 and 1998, are summarized below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------
12/27/97 1/2/99
------------ ------------
<S> <C> <C>
Net sales......................................................... $ 1,243,541 $ 1,264,654
Net income........................................................ 21,116 18,919
Net income per share, basic....................................... 1.91 1.53
Net income per share, diluted..................................... 1.77 1.52
</TABLE>
On April 3, 1996, the Company completed the purchase of all of the
outstanding common shares of Anderson Industries, Inc. (Anderson) for
approximately $62,562,000 including five-year warrants for 381,000 shares of
Excel common stock exercisable at $13.25 per share (valued at $1.5 million) and
expenses of the transaction.
The acquisition of Anderson, a holding company whose main asset was Atwood
Industries, Inc. (Atwood), was accounted for as a purchase. Accordingly, the
purchase price was allocated to the net assets acquired based upon their
estimated fair market values. The excess of the purchase price over the
estimated fair value of net assets acquired, $26,482,000, was accounted for as
goodwill and is being amortized over 35 years using the straight-line method.
9
<PAGE>
EXCEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS AND DISPOSALS (CONTINUED)
The accompanying consolidated statements of income include the operating
results of Anderson since April 3, 1996. Pro forma unaudited consolidated
operating results of the Company and Anderson, assuming the acquisition had been
made as of the beginning of 1996, are summarized below (in thousands except per
share amounts):
<TABLE>
<CAPTION>
YEAR ENDED
12/28/96
-----------
<S> <C>
Net sales........................................................................ $ 985,555
Net income....................................................................... 20,745
Net income per share, basic...................................................... 1.94
Net income per share, diluted.................................................... 1.74
</TABLE>
The unaudited pro forma financial information presented for both
acquisitions is not necessarily indicative either of the results of operations
that would have occurred had the transactions been completed on the indicated
dates or of future results of operations of the combined companies.
In the first quarter of 1997 the Company recorded an $8.7 million pre-tax
restructuring reserve for the closure of manufacturing facilities in 1997 at
Rockford, Illinois and Battle Creek, Michigan which had been acquired as part of
the acquisition of Anderson. The reserve consists of personnel related costs
(mainly severance pay and fringe benefits) and costs related to the disposals of
buildings and equipment. The reserve increased the associated goodwill by $5.4
million (which is net of income taxes) and was not a charge to earnings. Total
charges to the reserve (personnel related costs and costs related to the
disposals of buildings and equipment) through January 2, 1999 were $7.8 million.
Any excess reserves remaining at the completion of the restructuring activities
will be recorded as a reduction in goodwill.
In January, 1997, the Company completed the purchase of the assets of The
Compliance Group located in Greendale, Wisconsin for approximately $2.4 million
in cash. The excess of the purchase price over the estimated fair value of
assets acquired ($2.5 million) has been accounted for as goodwill and is being
amortized over 15 years using the straight-line method.
In May, 1997, the Company completed the sale of the automotive parking brake
product line for $2.9 million, which was acquired when the Company purchased
Anderson. Sales were approximately $6 million in 1997 and $12 million in 1996 or
less than 2% of total sales. At the date of the Anderson acquisition, this asset
was held for sale and the gain on the sale was recorded as an adjustment to
goodwill.
In September, 1997, the Company announced the closure of its Italian
manufacturing division. Closing expenses recorded in the third quarter of 1997
were approximately $1,242,000. Historically, this division had annual sales of
approximately $2.5 million and losses in excess of $1 million. Losses in 1997
were approximately $900,000.
4. RESEARCH, ENGINEERING AND DEVELOPMENT
Research, engineering and development expenditures charged to operations
approximated $17,237,000 in 1996, $25,245,000 in 1997 and $28,900,000 in 1998.
10
<PAGE>
EXCEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Raw materials........................................................... $ 23,591 $ 32,515
Work in process and finished goods...................................... 18,674 28,553
LIFO reserve............................................................ (1,336) (1,666)
--------- ---------
$ 40,929 $ 59,402
--------- ---------
--------- ---------
</TABLE>
6. PENSION AND OTHER EMPLOYEE BENEFIT PLANS
PENSION AND PROFIT SHARING PLANS
The Company and its subsidiaries provide retirement benefits to
substantially all employees through various pension, savings and profit sharing
plans. Defined benefit plans provide pension benefits that are based on the
employee's final average salary for salaried employees and stated amounts for
each year of credited service for hourly employees.
It is the Company's policy to fund the ERISA minimum contribution
requirement. Plan assets are invested primarily in corporate equity securities,
fixed income bonds and insurance annuity contracts.
Contributions and costs for the Company's various other benefit plans are
generally determined based on the employee's annual salary. The Company also
provides supplemental retirement benefits for certain executives. Total expense
relating to the Company's retirement plans, including the defined contribution
and defined benefit pension plans, aggregated $7,577,000 in 1996, $8,153,000 in
1997, and $8,541,000 in 1998.
SUPPLEMENTAL AND OTHER POSTRETIREMENT BENEFITS
In addition to providing pension benefits, the Company provides certain
health care benefits to substantially all active employees and postretirement
health care benefits to certain salaried employees. In addition, certain hourly
and salary employees are eligible for postretirement medical coverage until age
65. The Company is primarily self-insured for such benefits.
11
<PAGE>
EXCEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. PENSION AND OTHER EMPLOYEE BENEFIT PLANS (CONTINUED)
The following provides a reconciliation of benefit obligations, plan assets
and funded status of the Company's pension and other postretirement benefit
plans (in thousands):
<TABLE>
<CAPTION>
OTHER
POSTRETIREMENT
PENSION BENEFITS BENEFITS
----------------------- ----------------------
<S> <C> <C> <C> <C>
1997 1998 1997 1998
---------- ----------- ---------- ----------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year....................... $ 43,613 $ 46,320 $ 12,656 $ 11,285
Acquired company.............................................. -- 11,607 -- --
Service cost.................................................. 2,687 3,221 1,060 952
Interest cost................................................. 3,207 3,779 913 922
Plan amendments............................................... 215 -- (1,804) --
Actuarial (gain) loss......................................... 320 2,802 (698) 2,476
Curtailments.................................................. (254) -- -- --
Benefits paid................................................. (3,468) (2,648) (842) (943)
---------- ----------- ---------- ----------
Benefit obligation at end of year............................. 46,320 65,081 11,285 14,692
---------- ----------- ---------- ----------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year................ 34,451 40,117 -- --
Acquired company.............................................. -- 2,614 -- --
Actual return on plan assets.................................. 6,139 4,943 -- --
Company contributions......................................... 2,995 3,367 842 943
Benefits paid................................................. (3,468) (2,648) (842) (943)
---------- ----------- ---------- ----------
Fair value of plan assets at end of year...................... 40,117 48,393 -- --
---------- ----------- ---------- ----------
Funded status................................................. (6,203) (16,688) (11,285) (14,692)
Unrecognized actuarial (gain) loss............................ 36 1,124 (4,524) (1,847)
Unrecognized prior service cost............................... 187 170 (2,556) (2,452)
Unrecognized transition obligation............................ (52) (41) -- --
---------- ----------- ---------- ----------
Net amount recognized......................................... $ (6,032) $ (15,435) $ (18,365) $ (18,991)
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Amounts recognized in the balance sheet consist of:
Accrued benefit liability................................... $ (6,260) $ (16,907) $ (18,365) $ (18,991)
Intangible asset............................................ 228 475 -- --
Accumulated other comprehensive income...................... -- 997 -- --
---------- ----------- ---------- ----------
Net amount recognized......................................... $ (6,032) $ (15,435) $ (18,365) $ (18,991)
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Weighted-average assumptions as of year end:
Discount rate................................................. 7.5% 5.5%-7.0% 7.5% 7.0%
Expected return on plan assets................................ 8.0% 8.0% N/A N/A
Rate of compensation increase................................. 5.0% 2.5%-4.0% N/A N/A
</TABLE>
The weighted average assumed health care cost trend rate used in measuring
the accumulated postretirement benefit obligation was 8.3% in 1997 and 7.7% in
1998, declining by .5% per year to a weighted average rate of 6.3%.
12
<PAGE>
EXCEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. PENSION AND OTHER EMPLOYEE BENEFIT PLANS (CONTINUED)
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $14,200,000, $14,151,000, and $12,117,000 at 1997
and $39,659,000, $37,479,000, and $24,927,000 at 1998 respectively.
The projected benefit obligation for pension plans outside of the U.S. are
$11,728,000 at January 2, 1999.
Components of net pension expense for qualified defined benefit pension
plans are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
Service cost..................................................... $ 2,470 $ 2,687 $ 3,221
Interest cost.................................................... 2,711 3,207 3,779
Expected return on plan assets................................... (2,248) (2,770) (3,086)
Net amortization of deferrals.................................... 53 48 28
--------- --------- ---------
Net periodic benefit cost........................................ $ 2,986 $ 3,172 $ 3,942
--------- --------- ---------
--------- --------- ---------
</TABLE>
The components of net periodic postretirement benefit cost are as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
Service cost..................................................... $ 868 $ 1,060 $ 952
Interest cost.................................................... 780 913 922
Amortization of prior service cost............................... (57) (56) (174)
Recognized actuarial gain........................................ (143) (147) (131)
--------- --------- ---------
Net periodic benefit cost........................................ $ 1,448 $ 1,770 $ 1,569
--------- --------- ---------
--------- --------- ---------
</TABLE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the other postretirement benefit plans. A
one-percentage-point change in assumed health care cost trend rates would have
the following effects (in thousands):
<TABLE>
<CAPTION>
1-PERCENTAGE 1-PERCENTAGE
POINT INCREASE POINT DECREASE
--------------- ---------------
<S> <C> <C>
Effect on total of service and interest cost................... $ 348 $ (283)
Effect on postretirement benefit obligation.................... 2,306 (1,920)
</TABLE>
13
<PAGE>
EXCEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT
Following is a summary of long-term debt of the Company (in thousands):
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
7.78% Senior notes.................................................... $ 100,000 $ 100,000
German bank loans..................................................... -- 51,261
Other................................................................. 8,615 15,774
---------- ----------
108,615 167,035
Current maturities.................................................... (2,672) (17,156)
---------- ----------
$ 105,943 $ 149,879
---------- ----------
---------- ----------
</TABLE>
The Senior notes are due April 30, 2011. Interest only is payable in
quarterly installments until 2000 at which time annual payments will commence
ranging from $3.9 million to $12.2 million. The debt agreements contain certain
restrictive covenants which, among other things, require that the Company
maintain certain financial ratios at specified levels, restrict the amount of
additional borrowings and limit the amount of dividends that can be paid.
The German bank loans consist of various loans that are payable periodically
through 2008 with interest rates ranging from 4% to 9%.
The other debt consists primarily of loans from previous Schade
shareholders, mortgages and equipment loans with interest rates ranging from
5.5% to 10.1%. Certain plant and equipment purchased with the proceeds of the
debt collateralize these obligations.
The Company had available unused unsecured lines of credit of approximately
$56,000,000 at January 2, 1999 under terms of an agreement executed in April,
1996. Funds are available under this agreement through April, 2000 at an
interest rate equal to the London Interbank rate plus 75 basis points.
Long-term debt maturities are $17,156,000 in 1999, $17,081,000 in 2000,
$11,904,000 in 2001, $11,020,000 in 2002, $21,243,000 in 2003 and $88,631,000
thereafter.
8. LEASES
The Company leases certain of its manufacturing facilities, sales offices,
transportation and other equipment. Total rental expense was approximately
$4,471,000 in 1996, $5,037,000 in 1997 and $4,505,000 in 1998. Future minimum
lease payments under noncancellable operating leases are $3,691,000 in 1999,
$2,811,000 in 2000, $2,180,000 in 2001, $1,638,000 in 2002, $1,188,000 in 2003
and $713,000 thereafter.
9. INCOME TAXES
Pre-tax income reported by U.S. and foreign subsidiaries was as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
United States................................................ $ 31,531 $ 29,070 $ 16,715
Foreign...................................................... (865) (2,048) 5,237
--------- --------- ---------
$ 30,666 $ 27,022 $ 21,952
--------- --------- ---------
--------- --------- ---------
</TABLE>
14
<PAGE>
EXCEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes is summarized below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
Current:
U.S. federal.................................................. $ 11,070 $ 5,187 $ 236
Foreign....................................................... -- -- 1,479
State......................................................... 2,093 1,178 1,078
--------- --------- ---------
13,163 6,365 2,793
--------- --------- ---------
Deferred:
U.S. federal.................................................. (1,720) 3,022 (96)
Foreign....................................................... -- -- 1,124
State......................................................... 107 71 (189)
--------- --------- ---------
(1,613) 3,093 839
--------- --------- ---------
$ 11,550 $ 9,458 $ 3,632
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and tax basis of the Company's assets and liabilities.
Current deferred income tax assets of $11,076,000 and $10,608,000 are classified
as prepaid expenses at December 27, 1997 and January 2, 1999, respectively.
Long-term deferred income tax liabilities of $2,051,000 and $4,510,000 are
classified as other long-term liabilities at December 27, 1997 and January 2,
1999 respectively.
Deferred income taxes are comprised of the following at December 27, 1997
and January 2, 1999 (in thousands):
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Gross deferred tax liabilities
Property, plant and equipment......................................... $ 16,457 $ 19,427
Other................................................................. 607 590
--------- ---------
17,064 20,017
--------- ---------
Gross deferred tax assets
Pension and postretirement benefit obligations........................ 14,036 16,486
Other accrued liabilities............................................. 11,898 9,629
Inventories........................................................... 155 --
Tax credit and net operating loss carryforwards....................... 1,355 1,162
--------- ---------
27,444 27,277
Valuation allowance..................................................... (1,355) (1,162)
--------- ---------
Net deferred tax assets................................................. $ 9,025 $ 6,098
--------- ---------
--------- ---------
</TABLE>
At December 27, 1997 and January 2, 1999 the Company maintained a valuation
allowance for foreign tax credit and foreign net operating loss carryforwards,
which expire in 1999-2004. Based upon past operating results, the Company
estimates that it is more likely than not that these carryforwards cannot be
15
<PAGE>
EXCEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
utilized before they expire. The Company does not provide U.S. income taxes on
earnings of foreign subsidiaries ($3.2 million) since it is intended that these
earnings be reinvested.
Provision for taxes on income in 1998 includes the benefit of tax credits
related to prior years. In 1998, the Company completed a review of qualified
research and development expenditures for the years 1994-1997 and recorded tax
credits totaling $4 million. The provision for income taxes computed by applying
the Federal statutory rate to income before income taxes is reconciled to the
recorded provision as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Tax at United States statutory rate............................. $ 10,733 $ 9,458 $ 7,683
State income taxes, net of federal benefit...................... 1,430 812 578
Research and development tax credits............................ (80) (187) (5,472)
Foreign income taxed at rates different than U.S................ 303 (186) 770
Foreign Sales Corporation....................................... (494) (682) (684)
Non-taxable interest income (340) (382) (235)
Amortization of goodwill........................................ 346 479 561
Other........................................................... (348) 146 431
--------- --------- ---------
$ 11,550 $ 9,458 $ 3,632
--------- --------- ---------
--------- --------- ---------
</TABLE>
10. COMMON SHARES
In 1997, the Company reserved 500,000 common shares for the Excel
Industries, Inc. 1997 Long-Term Incentive Plan (LTIP). Under the LTIP,
performance shares awarded to key executives of the Company are earned based on
the attainment of one or more pre-established performance goals over a specified
performance period. Through January 2, 1999, 135,000 performance shares had been
awarded.
The Company has 473,550 common shares reserved for issuance to officers,
other key employees and non-employee directors for the 1994 Stock Compensation
Plan (the Plan). The Plan provides that options may be granted at not less than
fair market value and are exercisable for ten years from the date of grant.
Generally, the options become exercisable at the rate of 25% per year commencing
one year from the date of grant.
16
<PAGE>
EXCEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMON SHARES (CONTINUED)
The following table sets forth stock option activity.
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------------------
1996 1997 1998
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Stock options outstanding at beginning of year........... 263,750 $ 12.23 250,900 $ 12.45 352,250 $ 14.73
Options granted.......................................... 15,000 12.25 127,000 19.19 9,000 17.17
Options exercised........................................ (12,200) 7.54 (9,400) 12.38 (13,100) 12.38
Options canceled......................................... (15,650) 12.38 (16,250) 15.73 (26,250) 16.53
--------- ----------- --------- ----------- --------- -----------
Stock options outstanding at end of year................. 250,900 $ 12.45 352,250 $ 14.73 321,900 $ 14.75
--------- ----------- --------- ----------- --------- -----------
--------- ----------- --------- ----------- --------- -----------
Options exerciseable at year end......................... 57,300 $ 12.56 110,000 $ 12.51 177,275 $ 13.48
--------- ----------- --------- ----------- --------- -----------
--------- ----------- --------- ----------- --------- -----------
</TABLE>
<TABLE>
<CAPTION>
EXERCISE PRICE RANGE
--------------------------
$12.25-$13.81 $16.13-$21.38 TOTAL
------------ ------------ ----------
<S> <C> <C> <C>
Options outstanding.................................. 210,900 111,000 321,900
Weighted average exercise price...................... $12.40 $19.21 $14.75
Remaining contractual life........................... 6.2 years 8.2 years 6.9 years
Options exercisable.................................. 147,525 29,750 177,275
Weighted average exercise price...................... $12.37 $18.98 $13.48
</TABLE>
The Company has adopted the disclosure only provisions of SFAS No. 123,
"Accounting for Stock Based Compensation." Accordingly, the element of
compensation cost applicable to the granting of stock options has not been
recognized for financial statement purposes. Had compensation cost for the
options granted been recognized for financial statement purposes using the
Black-Scholes option pricing model, the Company's net earnings and basic
earnings per share would have been reduced to the pro-forma amounts indicated
below (in thousands except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------------------
1996 1997 1998
---------------------- ---------------------- ----------------------
REPORTED PRO-FORMA REPORTED PRO-FORMA REPORTED PRO-FORMA
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net earnings..................... $ 19,116 $ 18,882 $ 17,564 $ 17,191 $ 16,953 $ 16,523
Per share........................ 1.79 1.77 1.59 1.55 1.37 1.34
</TABLE>
The fair value of the option grant is estimated on the date of grant with
the following assumptions:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Dividend yield................................................. 3.2% 2.8% 2.86%
Expected volatility............................................ 33% 31% 33%
Risk-free interest rate 6.5% 5.75% 4.5%
Expected life.................................................. 5 years 5 years 5 years
</TABLE>
The Company has an employee stock purchase plan and has reserved 251,659
common shares for this purpose. The plan allows eligible employees to authorize
payroll withholdings which are used to purchase
17
<PAGE>
EXCEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMON SHARES (CONTINUED)
common shares from the Company at ninety percent (90%) of the closing price of
the common shares on the date of purchase. Through January 2, 1999, 198,341
shares had been issued under the plan.
The Company has outstanding warrants for the purchase of 381,000 common
shares at a price of $13.25. These warrants were issued in connection with the
acquisition of Anderson Industries and if not exercised, expire April 2001.
The Company has a shareholder rights plan to protect shareholders against
unsolicited attempts to acquire control of the Company that do not offer what
the Company believes to be an adequate price to all shareholders. The rights
were issued to shareholders of record on January 22, 1996 and will expire on
January 22, 2006. The plan provides for the issuance of one right for each
outstanding share of the Company's Common Stock. The rights will become
exercisable only if a person or group acquires or announces a tender offer to
acquire 20% or more of the Company's outstanding voting stock. Each right
entitles the holder to buy one one-hundredth share of a newly authorized series
of preferred stock from the Company. Also, after such acquisition all rights
holders except the acquirer will be entitled to purchase common shares at
one-half of the then current market price of the common shares. Any activity
regarding this plan would have a dilutive effect on earnings per share
calculations.
11. SEGMENT INFORMATION AND MAJOR CUSTOMERS
The Company adopted SFAS No 131, "Disclosures About Segments of an
Enterprise and Related Information," in 1998 and restated prior year disclosures
for certain minor differences. The Company's operating segments are aggregated
for reporting purposes into two reportable segments based on similarities of the
nature of products and production processes, the types of customers, the method
of distribution of products, and economic characteristics.
The light vehicle products segment designs, manufactures and sells products
for passenger cars and pick-up trucks for OEMs and Tier I suppliers. Products
include plastic and metal framed window and door assemblies, manual and power
window regulator systems, manual seat systems, decorative trims and injection
molded plastic parts. Principal markets are in North America, Europe, and
Mexico.
The recreational vehicles, mass transit and heavy truck products segment
(RV/MT/HT) manufactures and sells products for recreational vehicles, mass
transit and heavy trucks. Products include appliances such as water heaters,
furnaces, stoves and ranges, hardware such as jacks and couplers, seating frames
and seat adjusters, preassembled doors and windows for motor homes and window
assembles for mass transit
18
<PAGE>
EXCEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SEGMENT INFORMATION AND MAJOR CUSTOMERS (CONTINUED)
systems and heavy trucks. Principal markets are in the United States. Segment
information is summarized in the following tables with years prior to 1998
restated (in thousands):
<TABLE>
<CAPTION>
LIGHT
VEHICLE RV/MT/HT
PRODUCTS PRODUCTS CORPORATE TOTAL
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
DECEMBER 28, 1996
Sales.................................... $ 730,255 $ 157,486 $ -- $ 887,741
Operating income(expense)................ 34,140 13,337 (8,763) 38,714
Assets................................... 301,197 87,643 54,394 443,234
Capital expenditures..................... 23,816 3,768 1,625 29,209
Depreciation and amortization expense.... 20,626 4,283 1,337 26,246
DECEMBER 27, 1997
Sales.................................... $ 759,569 $ 202,764 $ -- $ 962,333
Operating income(expense)................ 28,546 15,392 (7,862) 36,076
Assets................................... 319,284 84,156 54,357 457,797
Capital expenditures..................... 32,932 5,916 439 39,287
Depreciation and amortization expense.... 24,348 7,481 1,553 33,382
JANUARY 2, 1999
Sales.................................... $ 885,383 $ 220,720 $ -- $ 1,106,103
Operating income(expense)................ 18,051 19,737 (6,282) 31,506
Assets................................... 484,126 81,198 29,060 594,384
Capital expenditures..................... 40,824 4,779 355 45,958
Depreciation and amortization expense.... 31,725 6,905 1,049 39,679
</TABLE>
The following table presents revenues by country (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ------------
<S> <C> <C> <C>
United States.......................................... $ 742,047 $ 788,952 $ 786,672
Canada................................................. 106,640 134,801 125,376
Germany................................................ -- -- 111,180
Mexico................................................. 29,863 24,062 23,411
Other.................................................. 9,191 14,518 59,464
---------- ---------- ------------
$ 887,741 $ 962,333 $ 1,106,103
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
19
<PAGE>
EXCEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SEGMENT INFORMATION AND MAJOR CUSTOMERS (CONTINUED)
The following table presents long-lived assets by country (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
United States............................................ $ 201,253 $ 209,012 $ 216,230
Germany.................................................. -- -- 39,539
Other.................................................... 3,031 2,924 35,234
---------- ---------- ----------
$ 204,284 $ 211,936 $ 291,003
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Sales to three major customers, Ford Motor Company, DaimlerChrysler, and
General Motors Corporation, were approximately 47%, 12% and 6%, respectively, of
the Company's net sales in 1996 as compared to 41%, 11% and 7% in 1997 and 36%,
9% and 5% in 1998.
Accounts receivable from Ford Motor Company, DaimlerChrysler, and General
Motors Corporation approximated 60% of trade accounts receivable at December 27,
1997 and 46% at January 2, 1999.
12. CONTINGENCIES
A chemical cleaning compound, trichloroethylene (TCE), was found in the soil
and groundwater on the Company's property in Elkhart, Indiana, and in 1981 TCE
was found in a well field of the City of Elkhart in close proximity to the
Company's facility. On June 9, 1998, the United States District Court for the
Northern District of Indiana accepted a consent decree specifying a payment of
Federal Past Response Costs. Together with amounts due the Indiana Department of
Environmental Management, the Company paid approximately $3.4 million in 1998 to
complete its obligation for the remedial clean-up.
The Company has been named a potentially responsible party for costs at six
disposal sites. The remedial investigations and feasibility studies have been
completed, and the results of those studies have been provided to the
appropriate agencies. The studies indicated a range of viable remedial
approaches, but agreement has not yet been reached with the authorities on the
final remediation approach. Furthermore, the PRPs for these sites have not
reached an agreement on the allocation of costs between the PRPs. The Company
believes it either has no liability as a responsible party or that adequate
provisions have been recorded for current estimates of the Company's liability
and estimated legal costs associated with the settlement of these claims. It is
reasonably possible that the Company's recorded estimate of its obligation may
change in the near term.
There are claims and pending legal proceedings against the Company and its
subsidiaries with respect to taxes, workers' compensation, warranties and other
matters arising out of the ordinary conduct of the business. The ultimate result
of these claims and proceedings at January 2, 1999 is not determinable, but, in
the opinion of management, adequate provision for anticipated costs has been
made or insurance coverage exists to cover such costs.
20
<PAGE>
EXCEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth in summary form the quarterly results of
operations for the fiscal years ended December 27, 1997 and January 2, 1999 (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
1997
----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales.................................... $ 251,216 $ 264,474 $ 213,548 $ 233,095
Gross profit................................. 30,998 37,099 21,659 25,587
Net income................................... 6,302 9,067 297 1,898
Net income per share:
Basic...................................... $ .59 $ .85 $ .03 $ .16
Diluted.................................... .53 .75 .03 .16
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
1998
----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales.................................... $ 230,994 $ 247,237 $ 280,231 $ 347,641
Gross profit................................. 27,580 28,650 20,648 33,243
Net income................................... 5,379 5,756 1,589 4,229
Net income per share:
Basic...................................... $ .43 $ .46 $ .13 $ .35
Diluted.................................... .43 .46 .13 .35
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
14. SUBSEQUENT EVENT
On March 23, 1999, all of the Company's outstanding stock was acquired by
Dura Automotive Systems, Inc. (Dura). In the aggregate, the stockholders of
Excel received consideration of approximately $155.5 million in cash and
approximately 5.1 million shares of Dura's Class A common stock. Upon
completion of this transaction, the Company became a wholly owned subsidiary
of Dura.
Dura is a leading designer and manufacturer of driver control systems,
engineered mechanisms and cable-related systems for the global automotive
industry. Their products include parking brake systems, automotive cables,
transmission shifter systems, latches, underbody tire carriers, jacks, brake,
clutch and accelerator pedals and other mechanical assemblies. Their products
are sold to major North American OEMs, including Ford, General Motors and
DaimlerChrysler, as well as Japanese OEMs including Toyota and Honda. Dura's
European and Latin American facilities support Ford, GM, Volkswagen, Mercedes,
BMW, PSA (Peugeot and Citroen) and various other OEMs. Dura's operating
headquarters are in Rochester Hills, MI, and its corporate office is in
Minneapolis, MN.
21
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS OF ADWEST AUTOMOTIVE PLC
We have audited the accompanying consolidated balance sheets of Adwest
Automotive Plc and its subsidiaries at 30 June 1998 and 1997, and the related
consolidated profit and loss accounts, statements of movements in shareholders'
equity and consolidated cash flow statements for each of the years in the three
year period ended 30 June 1998. These consolidated financial statements are the
responsibility of the management of Adwest Automotive Plc. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audit.
We conducted our audits in accordance with auditing standards generally
accepted in the United Kingdom, which are substantially consistent with those of
the United States of America. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Adwest
Automotive Plc and its subsidiaries at 30 June 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three year
period ended 30 June 1998, in conformity with generally accepted accounting
principles in the United Kingdom.
Accounting principles generally accepted in the United Kingdom vary in
certain significant respects from accounting principles generally accepted in
the United States of America. Application of accounting principles generally
accepted in the United States would have affected net profit for the two years
ended 30 June 1998 and shareholders' equity at 30 June 1998 and 1997, to the
extent summarised in Note 31 to the consolidated financial statements.
London, England KPMG Audit Plc
7 September 1998 Chartered Accountants
Registered Auditor
1
<PAGE>
ADWEST AUTOMOTIVE PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 30 JUNE
<TABLE>
<CAPTION>
NOTES 1998 L000 1997 L000 1996 L000
----- --------- --------- ---------
<S> <C> <C> <C> <C>
TURNOVER.................................................................
Continuing operations.................................................. 149,166 150,842 127,345
Acquisitions........................................................... 73,024 -- --
--------- --------- ---------
TOTAL CONTINUING OPERATIONS.............................................. 222,190 150,842 127,345
Discontinued operations................................................ 24,680 40,570 96,305
Discontinued acquisitions.............................................. 2,983 -- --
--------- --------- ---------
2 249,853 191,412 223,650
--------- --------- ---------
OPERATING PROFIT
Continuing operations.................................................. 13,586 14,602 10,221
Acquisitions........................................................... 4,937 -- --
--------- --------- ---------
TOTAL CONTINUING OPERATIONS.............................................. 18,523 14,602 10,221
Discontinued operations................................................ 2,959 3,411 4,729
Discontinued acquisitions.............................................. (124) -- --
--------- --------- ---------
2 21,358 18,013 14,950
EXCEPTIONAL ITEMS........................................................ 3
Continuing operations.................................................. -- -- (3,130)
Discontinued operations................................................ -- -- (1,835)
--------- --------- ---------
OPERATING PROFIT AFTER EXCEPTIONAL ITEMS................................. 4 21,358 18,013 9,985
Associated undertakings................................................ 21 21 86
Profit less losses on disposal of interests in associates.............. -- -- 53
Profit/(losses) and provision for losses on disposal of subsidiaries... 4,051 (791) (9,096)
Goodwill written off on disposal of subsidiaries....................... (17,552) -- (20,173)
6 (13,501) (791) (29,269)
--------- --------- ---------
PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE INTEREST..................... 7,878 17,243 (19,145)
Net interest charge...................................................... 7 (5,199) (2,892) (3,852)
--------- --------- ---------
PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE TAXATION..................... 2,679 14,351 (22,997)
Taxation credit (charge)................................................. 8 (4,529) (4,527) 2,082
--------- --------- ---------
(LOSS)/PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION...................... (1,850) 9,824 (25,079)
Minority interests--equity............................................... (505) (400) (263)
--------- --------- ---------
(LOSS)/PROFIT FOR THE FINANCIAL YEAR..................................... (2,355) 9,424 (25,342)
Dividends................................................................ 9 (6,442) (6,428) (6,400)
--------- --------- ---------
RETAINED PROFIT/(LOSS)................................................... 24 (8,797) 2,996 (31,742)
--------- --------- ---------
--------- --------- ---------
EARNINGS PER SHARE
(Loss)/earnings per share................................................ 10 (2.8)p 11.4p (30.7)p
</TABLE>
2
<PAGE>
ADWEST AUTOMOTIVE PLC
CONSOLIDATED BALANCE SHEET
AT 30 JUNE
<TABLE>
<CAPTION>
NOTES 1998 L000 1997 L000
--------- --------- ---------
<S> <C> <C> <C>
FIXED ASSETS
Tangible assets................................................................... 12 61,545 37,336
Investments....................................................................... 14 755 805
--------- ---------
62,300 38,141
--------- ---------
CURRENT ASSETS
Stock and work in progress........................................................ 15 18,969 15,387
Debtors (see note below).......................................................... 16 59,646 45,840
Bank and cash balances............................................................ 19,732 22,272
--------- ---------
98,347 83,499
--------- ---------
CREDITORS: DUE WITHIN ONE YEAR
Bank loans and overdrafts......................................................... 19 9,885 821
Creditors......................................................................... 17 72,159 43,266
Proposed final dividend........................................................... 4,545 4,536
--------- ---------
86,589 48,623
--------- ---------
NET CURRENT ASSETS................................................................ 11,758 34,876
--------- ---------
TOTAL ASSETS LESS CURRENT LIABILITIES............................................. 74,058 73,017
CREDITORS: DUE AFTER MORE THAN ONE YEAR:
Borrowings........................................................................ 18 54,319 33,061
Others............................................................................ 18 8,375 6,320
--------- ---------
62,694 39,381
PROVISIONS FOR LIABILITIES AND CHARGES............................................ 21 (74) 1,533
--------- ---------
NET ASSETS........................................................................ 2 11,438 32,103
--------- ---------
--------- ---------
CAPITAL AND RESERVES
Called up share capital........................................................... 23 20,794 20,746
Share premium account............................................................. 23 486 355
Revaluation reserve............................................................... 24 761 876
Special reserve................................................................... 25 20,561 20,561
Profit and loss account........................................................... 24 38,885 47,235
--------- ---------
EQUITY SHAREHOLDERS' FUNDS BEFORE GOODWILL........................................ 81,487 89,773
Goodwill on acquisition........................................................... 26 73,241 60,322
--------- ---------
SHAREHOLDERS' FUNDS--EQUITY....................................................... 8,246 29,451
MINORITY EQUITY INTERESTS......................................................... 3,192 2,652
--------- ---------
11,438 32,103
--------- ---------
--------- ---------
</TABLE>
Debtors include amounts recoverable after more than one year of L8,655,000
(1997:L7,671,000).
3
<PAGE>
ADWEST AUTOMOTIVE PLC
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 JUNE
<TABLE>
<CAPTION>
1998 1997 1996
NOTES L000 L000 L000
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES................................ 28a 26,353 25,201 15,769
--------- --------- ---------
DIVIDENDS FROM ASSOCIATES................................................ 5 5 4
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received........................................................ 427 400 538
Interest paid on loans................................................... (4,961) (3,235) (4,079)
Interest paid on finance leases.......................................... (434) (285) (329)
Dividends paid to minority interest...................................... -- -- (122)
--------- --------- ---------
Net cash outflow from returns on investments and servicing of finance.... (4,968) (3,120) (3,992)
--------- --------- ---------
TAXATION PAID............................................................ (5,762) (3,459) (4,679)
--------- --------- ---------
CAPITAL EXPENDITURE
Purchase of tangible fixed assets........................................ (18,554) (6,708) (9,830)
Disposal of fixed assets................................................. 1,817 792 811
--------- --------- ---------
Net cash outflow from capital expenditure................................ (16,737) (5,916) (9,019)
--------- --------- ---------
ACQUISITIONS AND DISPOSALS
Receipts from sale of subsidiaries and businesses........................ 28f 21,141 12,373 28,445
Overdrafts and cash balances transferred as part of sale of
subsidiaries........................................................... -- 1,191 (44)
Receipts from sale of interest in associated undertaking................. -- -- 1,221
Purchase of subsidiary undertakings...................................... 28g (35,172) (1,809) (34,282)
Cash acquired with subsidiary acquired................................... 28g 2,697 -- 508
Additional investment in associate....................................... (38) -- --
--------- --------- ---------
Net cash flow from acquisitions and disposals............................ (11,372) 11,755 (4,152)
--------- --------- ---------
EQUITY DIVIDENDS PAID.................................................... (6,440) (6,418) (6,398)
--------- --------- ---------
MANAGEMENT OF LIQUID RESOURCES
Cash withdrawn from/(paid into) short term deposits...................... 12,811 (12,811) --
Monies paid into escrow account.......................................... (1,822) -- --
--------- --------- ---------
Net cash flow from management of liquid resources........................ 10,989 (12,811) (12,467)
--------- --------- ---------
NET CASH FLOW BEFORE FINANCING........................................... (7,932) 5,237 (12,467)
--------- --------- ---------
FINANCING
Receipts from issue of ordinary share capital............................ 179 188 352
Additional capital contribution from minority interest................... -- -- 1,346
New loans................................................................ 34,813 -- --
Repayment of loans....................................................... (23,951) (9,853) (1,455)
Finance lease capital repayments......................................... (875) (344) (321)
Movement on loan with associated undertaking............................. -- -- 420
--------- --------- ---------
Net cash flow from financing............................................. 10,166 (10,009) 342
--------- --------- ---------
Increase/(decrease) in cash.............................................. 28b 2,234 (4,772) (12,125)
--------- --------- ---------
--------- --------- ---------
</TABLE>
4
<PAGE>
ADWEST AUTOMOTIVE PLC
CONSOLIDATED CASH FLOW STATEMENT (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
NOTES L000 L000 L000
--------- --------- --------- ---------
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT (NOTE 28d)
<S> <C> <C> <C> <C>
Increase/(decrease) in cash in the year.................................. 2,234 (4,772) (12,125)
Cash outflow from reduction in debt and lease financing.................. 24,826 10,369 1,732
Cash inflow from new loans............................................... (34,813) (172) --
Cash flow from (decrease)/increase in liquid resources................... (10,989) 12,811 --
--------- --------- ---------
Change in net debt resulting from cash flows............................. (18,742) 18,236 (10,393)
--------- --------- ---------
Finance leases sold with subsidiaries.................................... 435 -- --
Loans and finance leases acquired with subsidiaries...................... (15,297) -- (537)
New finance leases....................................................... (1,840) (4,641) (78)
Translation difference................................................... 1,266 2,607 --
--------- --------- ---------
Movement in net debt in the year......................................... (34,178) 16,202 (11,008)
Net debt at 1 July....................................................... (17,959) (34,161) (23,153)
--------- --------- ---------
Net debt at 30 June...................................................... (52,137) (17,959) (34,161)
--------- --------- ---------
--------- --------- ---------
</TABLE>
5
<PAGE>
ADWEST AUTOMOTIVE PLC
STATEMENT OF CONSOLIDATED RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED 30 JUNE
<TABLE>
<CAPTION>
1998 1997 1996
L000 L000 L000
--------- --------- ---------
<S> <C> <C> <C>
(Loss)/profit for the financial year.............................................. (2,355) 9,424 (25,342)
Unrealised deficit on revaluation of properties................................... -- -- (50)
Currency translation differences on net investments............................... 332 (2,219) (462)
--------- --------- ---------
TOTAL RECOGNISED (LOSSES)/GAINS FOR THE FINANCIAL YEAR............................ (2,023) 7,205 (25,854)
--------- --------- ---------
--------- --------- ---------
</TABLE>
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
FOR THE YEAR ENDED 30 JUNE
<TABLE>
<CAPTION>
1998 1997 1996
L000 L000 L000
<S> <C> <C> <C>
(Loss)/profit for the financial year.............................................. (2,355) 9,424 (25,342)
Ordinary dividends................................................................ (6,442) (6,428) (6,400)
--------- --------- ---------
Retained (loss)/profit for the year............................................... (8,797) 2,996 (31,742)
Goodwill on disposal of subsidiaries included in the profit and loss account for
the year but previously written off............................................. 17,552 -- 20,173
Other recognised gains and losses................................................. 332 (2,219) (512)
New share capital issued.......................................................... 179 188 352
Goodwill in the year on acquisitions (see note 26)................................ (30,471) (1,329) (29,289)
--------- --------- ---------
Net reductions to shareholders' funds............................................. (21,205) (364) (41,018)
--------- --------- ---------
Shareholders' funds brought forward............................................... 29,451 29,815 70,833
--------- --------- ---------
Shareholders' funds carried forward............................................... 8,246 29,451 29,815
--------- --------- ---------
--------- --------- ---------
</TABLE>
6
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS
1 PRINCIPAL ACCOUNTING POLICIES
(a) The financial statements have been prepared under the historical cost
convention modified by the revaluation of certain properties, the Companies
Act 1985 and in accordance with applicable accounting standards.
(b) The consolidated accounts incorporate the accounts of the holding company
and its subsidiaries, together with the group's share of the results of its
associated undertakings.
Results of subsidiaries acquired are included from the effective date of
acquisition. Results of subsidiary and business disposals are included up to
the effective date of disposal.
(c) Premiums for goodwill and discounts on the acquisition of businesses,
subsidiary and associated undertakings are dealt with through reserves at
the time of purchase. The profit or loss on disposal of previously acquired
businesses reflects the attributable amount of premium or discount on
acquisition relating to that business.
(d) Depreciation and amortisation of fixed assets is on a straight line basis
calculated at the annual rates set out below which are estimated to write
off each asset over the term of its useful life to its residual value.
<TABLE>
<S> <C>
Freehold buildings.............. 2-2 1/2% Plant and equipment............... 10-15%
Long leasehold property........... 2 1/2% Vehicles............................. 25%
Short leasehold property.... over term of
lease
</TABLE>
(e) Deferred taxation is calculated using the liability method in respect of the
taxation effect of all timing differences to the extent that it is probable
that provisions will crystallise in the foreseeable future.
(f) Assets held under finance leases are capitalised as tangible fixed assets
and depreciated in line with group policy. The corresponding liability, net
of interest charges, is categorised under creditors due within one year and
after one year, as appropriate.
The interest element of the lease instalments is allocated over the life of
each lease so as to produce a constant periodic rate of charge.
(g) Operating leases are accounted for by charging the instalments as an expense
in the profit and loss account, on a straight line basis.
(h) Exchange rates
(i) Transactions denominated in foreign currencies are recorded at the rate
of exchange ruling at the date of the transaction. Balances denominated
in foreign currencies are translated into sterling at the exchange rate
ruling on the balance sheet date. Differences on exchange are dealt with
through the profit and loss account.
(ii) Exchange differences on translation of the net investment in overseas
subsidiaries and associated undertakings are taken to reserves. To the
extent that such net investment is matched by a corresponding currency
borrowing, the matching exchange difference is also taken to reserves.
(iii) Profits and losses of overseas subsidiaries are translated at average
rates of exchange during the year. The adjustment to financial year end
rates is taken to reserves.
(i) Research and development expenditure is charged to the profit and loss
account as incurred.
7
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
1 PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(j) Estimated current pension scheme surpluses are spread over the expected
average working lifetime of current pension scheme members after deducting
the regular cost of providing pension benefits.
(k) Stock and work in progress
(i) Stock and work in progress is stated at the lower of cost, including
factory overheads, and net realisable value.
(ii) Any significant pre-production costs on new products which are not
pre-funded by the customer are carried forward in work in progress. These
costs are then written off on a unit of production basis over the life of
the contract with the customer.
2 SEGMENTAL ANALYSIS
Turnover of the group, operating profit and net assets are analysed as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
L000 L000 L000
--------- --------- ---------
<S> <C> <C> <C>
CLASS OF BUSINESS
TURNOVER
Automotive:
UK............................................................................... 79,696 77,347 45,649
Rest of Europe................................................................... 134,384 65,315 70,871
USA.............................................................................. 8,110 8,180 10,825
--------- --------- ---------
Continuing operations............................................................ 222,190 150,842 127,345
Discontinued operations.......................................................... 27,663 40,570 96,305
--------- --------- ---------
249,853 191,412 223,650
--------- --------- ---------
--------- --------- ---------
OPERATING PROFIT
Automotive:
UK............................................................................... 7,281 6,637 3,827
Rest of Europe................................................................... 11,864 7,547 2,242
USA.............................................................................. (622) 418 1,022
--------- --------- ---------
Continuing operations............................................................ 18,523 14,602 7,091
Discontinued operations.......................................................... 2,835 3,411 2,894
--------- --------- ---------
21,358 18,013 9,985
--------- --------- ---------
--------- --------- ---------
NET ASSETS
Automotive continuing operations................................................. 62,545 35,028
Discontinued operations.......................................................... (501) 13,704
--------- ---------
62,044 48,732
--------- ---------
--------- ---------
</TABLE>
8
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
2 SEGMENTAL ANALYSIS (CONTINUED)
<TABLE>
<CAPTION>
TURNOVER BY DESTINATION TURNOVER BY ORIGIN
------------------------------- -------------------------------
1998 1997 1996 1998 1997 1996
L000 L000 L000 L000 L000 L000
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
GEOGRAPHICAL SEGMENTS
United Kingdom.................................. 76,193 84,583 98,189 79,696 91,895 112,316
Rest of Europe.................................. 140,542 72,736 64,905 137,367 65,315 81,697
USA............................................. 29,627 31,167 39,003 32,790 34,202 29,637
Rest of the World............................... 3,491 2,926 21,553 -- -- --
--------- --------- --------- --------- --------- ---------
249,853 191,412 223,650 249,853 191,412 223,650
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
OPERATING PROFIT NET ASSETS
------------------------------- --------------------
1998 1997 1996 1998 1997
L000 L000 L000 L000 L000
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
GEOGRAPHICAL SEGMENTS
United Kingdom............................................. 7,281 7,397 5,348 26,708 24,570
Rest of Europe............................................. 11,740 7,547 2,242 28,964 9,209
USA........................................................ 2,337 3,069 2,395 6,372 14,953
Rest of the World.......................................... -- -- -- -- --
--------- --------- --------- --------- ---------
21,358 18,013 9,985 62,044 48,732
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
1998 1997
L000 L000
--------- ---------
<S> <C> <C>
RECONCILIATION OF CONSOLIDATED NET ASSETS
Net assets as shown above.................................................................... 62,044 48,732
Associated undertaking....................................................................... 114 81
Proposed dividend............................................................................ (4,545) (4,536)
Net borrowings............................................................................... (44,472) (11,610)
Net taxation payable and deferred taxation................................................... (1,703) (564)
--------- ---------
Net assets per consolidated balance sheet.................................................... 11,438 32,103
--------- ---------
--------- ---------
</TABLE>
3 EXCEPTIONAL ITEMS
<TABLE>
<CAPTION>
1998 1997 1996
L000 L000 L000
--------- --------- ---------
<S> <C> <C> <C>
ONGOING ACTIVITIES:
Reorganisation and redundancy costs within the Automotive Division including
reduction of French Productive capacity................................................ -- -- 3,130
DISCONTINUED AND TO BE DISCONTINUED ACTIVITIES
Reorganisation and redundancy cost re Power Systems Division............................. -- -- 607
Redundancy, disruption and related costs with US electronics following
cancellation of customer order......................................................... -- -- 1,228
--------- --------- ---------
-- -- 4,965
--------- --------- ---------
--------- --------- ---------
</TABLE>
9
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
4 OPERATING PROFIT
Operating profit can be analysed as follows:
<TABLE>
<CAPTION>
1998 1997 1996
L000 L000 L000
<S> <C> <C> <C>
Turnover....................................................................... 249,853 191,412 223,650
Cost of sales.................................................................. (210,178) (156,799) 188,046
---------- ---------- ---------
Gross profit................................................................... 39,675 34,613 35,604
Distribution costs............................................................. (6,197) (4,404) (7,274)
Administration expenses........................................................ (12,120) (12,196) (18,345)
---------- ---------- ---------
Operating profit after exceptional items....................................... 21,358 18,013 9,985
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
Included above in 1996 is cost of sales of L670,000 and administration costs of
L4,295,000 relating to exceptional items.
<TABLE>
<CAPTION>
1998 1997 1996
L000 L000 L000
--------- --------- ---------
<S> <C> <C> <C>
OPERATING PROFIT IS AFTER CREDITING
Rents receivable..................................................................... 378 127 2,437
Pension credit (note 5).............................................................. 1,200 1,050 876
Industrial development government grant.............................................. 36 68 80
AND AFTER CHARGING:
Hire of plant and machinery.......................................................... 269 125 560
Other operating leases............................................................... 428 220 1,937
Depreciation of fixed assets--owned.................................................. 9,193 7,481 8,691
Depreciation of fixed assets held under finance leases............................... 402 174 159
Auditors' remuneration--audit........................................................ 257 274 358
Auditors' remuneration--other........................................................ 79 142 438
Research and development............................................................. 4,283 3,988 4,140
--------- --------- ---------
--------- --------- ---------
</TABLE>
10
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
5 EMPLOYEES OF THE GROUP AND PENSIONS COST
<TABLE>
<CAPTION>
1998 1997 1996
NUMBER NUMBER NUMBER
----------- ----------- -----------
<S> <C> <C> <C>
THE AVERAGE NUMBER OF PERSONS EMPLOYED BY THE GROUP WAS AS FOLLOWS:
Production.......................................................................... 3,270 2,290 3,219
Distribution........................................................................ 85 49 106
Administration...................................................................... 418 398 446
----------- ----------- -----------
3,773 2,737 3,771
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
L000 L000 L000
----------- ----------- -----------
<S> <C> <C> <C>
THE AGGREGATE PAYROLL COSTS OF THESE PERSONS WERE AS FOLLOWS:
Wages and salaries.................................................................. 55,506 40,207 53,413
Social security costs............................................................... 11,149 7,950 9,711
Pension costs....................................................................... 138 70 278
----------- ----------- -----------
66,793 48,227 63,402
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The Adwest Group 1988 Pension and Assurance Plan is a defined benefit scheme for
employees of the company and its UK subsidiaries who qualify for membership. The
assets of the scheme are held in separate trustee administered funds. Other
small pension schemes exist in certain subsidiaries.
Pension costs are determined in accordance with the recommendations of
independent actuaries using the projected unit method, so as to spread the cost
of pensions over employees' working lives with the group. Actuarial valuations
are completed every three years, the most recent being at 6 April 1995. The
assumptions which have the most significant effect on the results of the
valuation are those relating to the rate of return on investments and the rates
of increase in salaries and pensions. It was assumed that the average investment
return would exceed by 2% per annum the average rate of salary increase and that
present and future pensions would increase at a rate of 4% per annum.
At 6 April 1995 the assets of the plan amounted to L36,646,000, with investments
taken at market value. At that date, the actuarial value of the assets was
sufficient to cover 128% of the benefits that had accrued to members, after
allowing for expected future increases in earnings and pensions. Accordingly,
the actuaries have indicated that no company contributions were required and
therefore the Trustees have not called for, and the group has not paid, any
contributions during the year. The actuaries are currently carrying out a
valuation of the Plan as at 6 April 1998.
Using the same assumptions as in previous years, the credit to profits for the
year in respect of pensions would have been L1,600,000. In the light of recent
changes to tax credits available to exempt funds and until the actuarial
valuation at 6 April 1998 is available, it has been decided based on actuarial
advice, to limit the effect of pensions on the profit and loss account for the
year to a credit of L1,200,000 (1997: L1,050,000, 1996: L876,000). This credit
represents the amortisation of surpluses over the expected average working
lifetime of the current membership less the regular cost of providing pension
benefits.
The consolidated balance sheet recognises a prepayment of L7,948,000 (1997:
L6,748,000) representing the excess of the amortisation of surpluses over the
accumulated regular cost of providing benefits.
11
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
6 DISPOSALS
<TABLE>
<CAPTION>
1998 1997 1996
L000 L000 L000
--------- --------- ---------
<S> <C> <C> <C>
Discontinued:
Property Division.................................................................... (689) -- (1,574)
Automotive Division.................................................................. -- -- 15
UK Power Systems..................................................................... (558) (791) (5,742)
Profit on disposal of US Electronics before goodwill write off....................... 5,891 -- --
Loss on disposal of Heidemann Oberflachentechnik GmbH................................ (593) -- --
Cost of disposal..................................................................... -- -- (1,795)
--------- --- ---------
4,051 (791) (9,096)
Goodwill on disposal................................................................. (17,552) -- (20,173)
--------- --- ---------
(13,501) (791) (29,269)
--------- --- ---------
--------- --- ---------
</TABLE>
7 NET INTEREST CHARGE
<TABLE>
<CAPTION>
1998 1997 1996
L000 L000 L000
--------- --------- ---------
<S> <C> <C> <C>
Payable on bank loans and overdrafts repayable within five years...................... (4,250) (2,390) (1,991)
Payable on loans repayable after more than five years................................. (916) (852) (2,162)
Payable on finance leases............................................................. (434) (309) (329)
--------- --------- ---------
(5,600) (3,551) (4,482)
Bank and other interest receivable.................................................... 401 659 630
--------- --------- ---------
(5,199) (2,892) (3,852)
--------- --------- ---------
--------- --------- ---------
</TABLE>
8 TAXATION ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1998 1997 1996
L000 L000 L000
--------- --------- ---------
<S> <C> <C> <C>
TAXATION OF PROFITS ON ORDINARY ACTIVITIES IS MADE UP AS FOLLOWS:
UK corporation tax at 31% (1997:32.5%; 1996:33%)........................................ 2,901 1,258 1,906
Overseas taxation....................................................................... 1,994 2,112 1,320
Associated undertakings (including overseas taxation of L2,000 (1997: L8,000, 1996:
L12,000))............................................................................. 2 8 31
Deferred taxation (note 21)............................................................. (332) 1,133 (1,878)
Prior year adjustments.................................................................. (36) 16 (297)
ACT written off......................................................................... -- -- 1,000
--------- --------- ---------
4,529 4,527 2,082
--------- --------- ---------
--------- --------- ---------
</TABLE>
Total loss on disposals included in the Profit and Loss account, including
goodwill, is L13.5 million (1997 L791,000, 1996 L29.3 million) and the related
taxation charge is nil (1997 nil, 1996 nil).
12
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
9 DIVIDENDS
<TABLE>
<CAPTION>
1998 1997 1996
L000 L000 L000
--------- --------- ---------
<S> <C> <C> <C>
Interim paid 2.3p per share.............................................................. 1,897 1,892 1,877
Final proposed 5.5p per share............................................................ 4,545 4,536 4,523
--------- --------- ---------
6,442 6,428 6,400
--------- --------- ---------
--------- --------- ---------
</TABLE>
Shareholders holding 468,009 (1997: 533,792, 1996: 554,678) shares at 30 June
1998 have waived their entitlement to dividends and have been paid no dividends
during the year.
10 EARNINGS PER SHARE
(Loss)/earning per share are based on losses of L2,355,000 (1997 earnings of
L9,424,000, 1996 losses of L25,342,000) and on 83,057,054 (1997: 82,863,578,
1996: 82,504,902) ordinary shares in issue in the year weighted on a time basis.
11 NOTE OF HISTORICAL COST PROFITS/(LOSSES)
<TABLE>
<CAPTION>
1998 1997 1996
L000 L000 L000
--------- --------- ---------
<S> <C> <C> <C>
Profit/(loss) on ordinary activities before taxation................................ 2,679 14,351 (22,997)
Realisation of property revaluation gains of prior years............................ -- 433 14,845
Difference between the historical cost depreciation charge and the actual
depreciation for the year calculated on the revalued amount....................... 100 75 21
--------- --------- ---------
Historical cost profit/(loss) on ordinary activities before taxation................ 2,779 14,859 (8,131)
--------- --------- ---------
Historical cost (loss)/profit retained after taxation, minority interest and
dividends......................................................................... (8,697) 3,504 (16,876)
--------- --------- ---------
--------- --------- ---------
</TABLE>
13
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
12 FIXED ASSETS: TANGIBLE ASSETS
<TABLE>
<CAPTION>
ASSETS IN
LAND AND PLANT VEHICLES COURSE
BUILDINGS AND EQUIPMENT OF CONSTRUCTION TOTAL
L000 L000 L000 L000
----------- --------------- --------------- ---------
<S> <C> <C> <C> <C>
COST OR VALUATION
At 1 July 1997............................................. 11,155 62,758 2,763 76,676
Exchange rate adjustments.................................. (966) (2,462) -- (3,428)
Additions.................................................. 2,353 17,639 -- 19,992
Disposals.................................................. (2,192) (7,334) -- (9,526)
Transfers between categories............................... 3,255 (492) (2,763) --
Acquisition of subsidiaries................................ 12,267 35,277 -- 47,544
Disposal of fixed assets with subsidiaries sold............ (1,206) (6,162) -- (7,368)
----------- ------ ------ ---------
At 30 June 1998............................................ 24,666 99,224 -- 123,890
----------- ------ ------ ---------
DEPRECIATION
At 1 July 1997............................................. 2,403 36,937 -- 39,340
Exchange rate adjustments.................................. (146) (1,816) -- (1,962)
Disposals.................................................. (692) (5,936) -- (6,628)
Transfer between categories................................ 158 (158) -- --
Acquisition of subsidiaries................................ 1,406 24,738 -- 26,144
Disposal of subsidiaries................................... (945) (3,199) -- (4,144)
Charge for the year........................................ 671 8,924 -- 9,595
----------- ------ ------ ---------
At 30 June 1998............................................ 2,855 59,490 -- 62,345
----------- ------ ------ ---------
NET BOOK VALUES AT 30 JUNE 1998............................ 21,811 39,734 -- 61,545
----------- ------ ------ ---------
Net book values at 30 June 1997............................ 8,752 25,821 2,763 37,336
----------- ------ ------ ---------
----------- ------ ------ ---------
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT OTHER
PROPERTIES PROPERTIES TOTAL
L000 L000 L000
------------- ----------- ---------
<S> <C> <C> <C>
ANALYSIS OF LAND AND BUILDINGS
BY TENURE AT NET BOOK VALUE:
Freehold........................................................................ -- 19,103 19,103
Long lease...................................................................... 434 -- 434
Short lease..................................................................... 137 2,137 2,274
----- ----------- ---------
571 21,240 21,811
----- ----------- ---------
----- ----------- ---------
BY COST OR VALUATION:
Cost............................................................................ -- 23,014 23,014
Professional valuation--1989 to 1997............................................ -- 1,050 1,050
Directors' valuation--1998...................................................... 602 -- 602
----- ----------- ---------
602 24,064 24,666
----- ----------- ---------
----- ----------- ---------
</TABLE>
14
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
12 FIXED ASSETS: TANGIBLE ASSETS (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
L000 L000
--------- ---------
<S> <C> <C>
HISTORICAL COST OF LAND AND BUILDINGS:
Cost........................................................................................... 23,843 10,276
Depreciation................................................................................... 2,793 2,400
--------- ---------
21,050 7,876
--------- ---------
--------- ---------
</TABLE>
The net book value for the group included L6,578,000 (1997: L4,462,000) in
respect of land and buildings and assets in the course of construction and
L1,222,000 (1997: L551,000) in respect of plant, vehicles and equipment held
under finance leases. The depreciation included above in respect of these assets
is L402,000 (1997: L174,000).
The net book value of land and buildings includes amounts of L571,000 (1997:
L1,945,000) relating to investment properties and L1,110,000 (1997: L486,000)
relating to the value of land in other freehold property on which no
depreciation is charged.
<TABLE>
<CAPTION>
1998 1997 1996
L000 L000 L000
--------- --------- ---------
<S> <C> <C> <C>
CAPITAL COMMITMENTS:
Contracts placed......................................................................... 3,298 3,494 2,718
--------- --------- ---------
--------- --------- ---------
</TABLE>
13 SHARE OPTION TRUST
As at 30 June 1998, the total market value of own shares within the share
option trust was L62,000 below the original total cost. The directors do not
consider this diminution in value to be permanent and therefore no provision has
been made.
At 30 June 1998 the nominal value of own shares with the share option trust
was L114,392 (1997: L133,448).
14 INVESTMENTS
<TABLE>
<CAPTION>
1998 1997
L000 L000
----- -----
<S> <C> <C>
Investment in associated undertaking................................................................ 114 81
Investment in own shares............................................................................ 641 724
--- ---
755 805
--- ---
--- ---
</TABLE>
15
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
14 INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
L000 L000
----- -----
<S> <C> <C>
THE GROUP'S INVESTMENTS IN ASSOCIATED UNDERTAKING IS AS FOLLOWS:
Investments in shares of associated undertaking at cost
Share of post acquisition retained profits.......................................................... 53 15
Share of net assets................................................................................. 61 66
--
---
114 81
--- --
--- --
</TABLE>
<TABLE>
<CAPTION>
UNLISTED SHARES
L000
-----------------
<S> <C>
At July 1997...................................................................................... 81
Exchange differences.............................................................................. (19)
Share of profit before taxation................................................................... 21
Share of taxation................................................................................. (2)
Dividends......................................................................................... (5)
Additional investments in year.................................................................... 38
---
At 30 June 1998................................................................................... 114
---
---
</TABLE>
The results included for the associate are for the year ended 31 March 1998, the
latest available audited accounts.
Details of associated undertakings are set out in note 30.
15 STOCK AND WORK IN PROGRESS
<TABLE>
<CAPTION>
1998 1997
L000 L000
--------- ---------
<S> <C> <C>
Raw materials.................................................................................. 7,756 5,866
Work in progress............................................................................... 8,709 6,142
Finished goods................................................................................. 2,504 3,379
--------- ---------
18,969 15,387
--------- ---------
--------- ---------
</TABLE>
16 DEBTORS
<TABLE>
<CAPTION>
1998 1997
L000 L000
--------- ---------
<S> <C> <C>
Trade debtors.................................................................................. 38,384 32,925
Other debtors.................................................................................. 7,738 2,843
Taxation recoverable........................................................................... 1,395 923
Prepayments and accrued income................................................................. 12,129 9,149
--------- ---------
59,646 45,840
--------- ---------
--------- ---------
</TABLE>
Included in group prepayments is a sum of L7,948,000 (1997: L6,748,000)
attributable to advanced pension contributions extending beyond one year (note
5).
16
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
16 DEBTORS (CONTINUED)
Taxation recoverable in the group includes advanced corporation tax recoverable
after more than one year of L502,000 (1997: L923,000) which is expected to be
offset against mainstream corporation tax.
17 CREDITORS
<TABLE>
<CAPTION>
1998 1997
L000 L000
--------- ---------
<S> <C> <C>
Trade creditors................................................................................ 37,952 26,077
Finance lease obligations (note 20)............................................................ 891 643
Other creditors................................................................................ 11,505 1,702
PAYE and social security....................................................................... 4,553 3,543
Taxation payable............................................................................... 3,551 3,158
Accruals and deferred income................................................................... 13,707 8,143
--------- ---------
72,159 43,266
--------- ---------
--------- ---------
</TABLE>
Taxation payable in the Group includes advance corporation tax amounting to
L1,136,000 (1997: L1,132,000) attributable to the proposed final dividend.
18 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1998 1997
L000 L000
--------- ---------
<S> <C> <C>
Borrowings (note 19)........................................................................... 54,319 33,061
Finance lease obligations (note 20)............................................................ 6,774 5,706
Retirement indemnity provision................................................................. 1,601 614
--------- ---------
62,694 39,381
--------- ---------
--------- ---------
</TABLE>
19 BORROWINGS
<TABLE>
<CAPTION>
1998 1997
L000 L000
--------- ---------
<S> <C> <C>
Bank overdrafts................................................................................ 6,842 298
Bank and other loans repayable within one year................................................. 3,043 523
--------- ---------
9,885 821
--------- ---------
Bank and other loans repayable:
Between one and two years.................................................................... 14,503 150
Between two and five years................................................................... 25,358 23,292
In five years or more........................................................................ 14,458 9,619
--------- ---------
54,319 33,061
--------- ---------
--------- ---------
</TABLE>
In 1998, loans repayable after one year represent:
- -- Loans from two financial institutions totalling US $40,000,000. These US
notes are repayable in six annual instalments commencing in March 2000 and
bear interest at a fixed rate of 8.6%.
17
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
19 BORROWINGS (CONTINUED)
- -- A FF 85,000,000 loan from a UK bank, which is repayable in December 1999
and bears interest at a fixed rate of 4.99%.
- -- A DM 30,000.000 loan from a UK bank, which bears interest at a fixed rate
of 5.51%, and is repayable in five annual instalments commencing in October
1998.
- -- A DM 20,000,000 loan which bears interest at a fixed rate of 5.47%, and is
repayable in January 2003.
- -- A DM 20,000,000 loan which bears interest at a fixed rate of 5.84%, and is
repayable in twenty quarterly instalments commencing in March 2003.
Other bank borrowing bear interest at fluctuating rates, linked to the London
Inter-Bank Market rate.
There are no borrowings in the associated undertaking.
At 30 June 1998, the Group had forward contracts outstanding in Japanese Yen
amounting to the equivalent of L1,124,798 (1997: L1,415,000).
20 OBLIGATIONS UNDER FINANCE LEASES
<TABLE>
<CAPTION>
1998 1997
L000 L000
--------- ---------
<S> <C> <C>
THE FUTURE FINANCE LEASES PAYMENTS, TO WHICH THE GROUP WERE COMMITTED
AT 30 JUNE, WERE AS FOLLOWS:
Within one year.................................................................................. 891 643
Between one and five years....................................................................... 2,810 3,599
Over five years.................................................................................. 3,964 2,107
--------- ---------
7,665 6,349
--------- ---------
--------- ---------
</TABLE>
18
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
21 PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
PROVISION FOR LOSS ON
DISPOSAL OF REORGANISATION DEFERRED
SUBSIDIARIES PROVISION TAXATION TOTAL
L000 L000 L000 L000
--------------------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
At 1 July 1997........................................... 400 2,804 (1,671) 1,533
Exchange rate adjustments................................ -- (26) (32) (58)
Acquisition of subsidiaries.............................. -- -- 17 17
Charge to profit and loss account........................ -- 279 (332) (53)
Provisions utilised...................................... (300) (1,895) - (2,195)
Advance corporation tax and other movements.............. -- -- 867 867
Disposal of subsidiaries and business.................... -- (883) 698 (185)
--- ------ ----------- ---------
At 30 June 1998.......................................... 100 279 (453) (74)
--- ------ ----------- ---------
--- ------ ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
AMOUNTS AMOUNTS
NOT PROVIDED FOR PROVIDED FOR
IN THESE ACCOUNTS IN THESE ACCOUNTS
-------------------- --------------------
1998 1997 1998 1997
L000 L000 L000 L000
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
BALANCES FOR THE PROVISION OF DEFERRED TAXATION ARE ANALYSED AS
FOLLOWS:
Accelerated capital allowances................................. -- -- (1,650) 2,097
Other timing differences....................................... 349 163 1,432 (1,247)
--------- --------- --------- ---------
349 163 (218) 850
Advanced corporation tax recoverable........................... -- -- (235) (2,521)
--------- --------- --------- ---------
349 163 (453) (1,671)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
19
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
22 LEASE OBLIGATIONS
<TABLE>
<CAPTION>
LAND AND BUILDINGS
OTHER
-------------------- ------------------------
1998 L000 1997 L000 1998 L000 1997 L000
--------- --------- ----- -----
<S> <C> <C> <C> <C>
OPERATING LEASE RENTALS PAYABLE WITHIN ONE YEAR RELATING TO
COMMITMENTS EXPIRING:
Within one year.............................................................. -- 77 271 121
Within two and five years.................................................... 97 384 443 475
After five years............................................................. 945 884 -- --
--------- --------- --- ---
1,042 1,345 714 596
--------- --------- --- ---
--------- --------- --- ---
</TABLE>
23 SHARE CAPITAL AND SHARE PREMIUM ACCOUNT
<TABLE>
<CAPTION>
CALLED UP AND FULLY
AUTHORISED PAID
-------------------- --------------------
1998 L000 1997 L000 1998 L000 1997 L000
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Ordinary shares of 25p each.......................................... 25,000 25,000 20,794 20,746
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
NOMINAL VALUE SHARE PREMIUM
NUMBER L000 L000
------------ ------------- -----------------
<S> <C> <C> <C>
At 1 July 1997...................................................... 82,983,820 20,746 355
Shares issued under option schemes.................................. 190,088 48 131
------------ ------ ---
At 30 June 1998..................................................... 83,173,908 20,794 486
------------ ------ ---
------------ ------ ---
</TABLE>
24 RESERVES
<TABLE>
<CAPTION>
PROFIT AND LOSS
REVALUATION COMPANY AND PROFIT AND LOSS PROFIT AND
RESERVE SUBSIDIARIES ASSOCIATED LOSS TOTAL
L000 L000 UNDERTAKING L000 L000
------------- --------------- ----------------- -----------
<S> <C> <C> <C> <C>
At 1 July 1997........................................... 876 47,169 66 47,235
Retained (loss)/profit for the year...................... -- (8,811) 14 (8,797)
Exchange rate adjustments................................ (15) 366 (19) 347
Depreciation on revalued assets.......................... (100) 100 -- 100
--
--- ------ -----------
At 30 June 1998.......................................... 761 38,824 61 38,885
--- ------ -- -----------
--- ------ -- -----------
</TABLE>
25 SPECIAL RESERVE
The special reserve was created on 31 January 1996 when court permission was
obtained for the cancellation of the share premium account, which had a value at
that date of L20,561,000. The special reserve is non distributable.
20
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
26 GOODWILL
<TABLE>
<CAPTION>
1998 L000 1997 L000 1996 L000
--------- --------- ---------
<S> <C> <C> <C>
At start of year................................................................... 60,322 58,993 49,877
Purchase of Conversion Devices Inc................................................. -- -- 3,498
Purchase of Rearsby Automotive Limited............................................. -- -- 25,539
Transferred to profit and loss account on disposal of subsidiaries................. (17,552) -- (20,173)
Additional goodwill re Conversion Devices Inc...................................... -- 734 --
Additional goodwill re Rearsby Automotive Limited.................................. -- 595 --
Purchase of Heidemann Verwatungsgesellschaft mit beschranker Haftung............... 29,318 -- --
Other adjustments.................................................................. 1,153 -- 252
--------- --------- ---------
At end of year..................................................................... 73,241 60,322 58,993
--------- --------- ---------
--------- --------- ---------
</TABLE>
27 DIRECTORS' EMOLUMENTS AND SHARE INTERESTS
<TABLE>
<CAPTION>
1998 L000 1997 L000 1996 L000
----- ----- -----
<S> <C> <C> <C>
TOTAL DIRECTORS' EMOLUMENTS:
Fees and benefits to non-executive directors................................................. 99 121 130
Remuneration (including pension contributions)............................................... 621 498 622
Performance related emoluments............................................................... 95 217 100
--- --- ---
815 836 852
--- --- ---
--- --- ---
</TABLE>
28 CONSOLIDATED CASH FLOW STATEMENT
<TABLE>
<CAPTION>
1998 L000 1997 L000 1996 L000
--------- --------- ---------
<S> <C> <C> <C>
(a) RECONCILIATION OF OPERATING PROFIT TO NET CASH FLOW FROM
OPERATING ACTIVITIES
Operating profit................................................................ 21,358 18,013 9,985
Depreciation.................................................................... 9,595 7,655 8,850
Loss/(profit) on disposal of fixed assets....................................... 247 (86) --
Acquisition provisions utilised................................................. -- -- (272)
(Increase)/decrease in stocks................................................... (3,688) 5,241 (2,093)
(Increase)/decrease in debtors.................................................. (3,726) (1,145) (2,102)
Increase/(decrease) in creditors................................................ 2,567 (4,477) 1,401
--------- --------- ---------
Net cash flow from operating activities......................................... 26,353 25,201 15,769
--------- --------- ---------
--------- --------- ---------
</TABLE>
21
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
28 CONSOLIDATED CASH FLOW STATEMENT (CONTINUED)
<TABLE>
<CAPTION>
SHARE CAPITAL SHARE PREMIUM
CASH L000 L000 L000
--------- ------------- -----------------
<S> <C> <C> <C>
(b) ANALYSIS OF CHANGES IN CASH AND FINANCING DURING THE YEAR
At 1 July 1996........................................................... 12,073 20,695 218
Non-cash movements....................................................... 3,000 -- --
Exchange movements....................................................... (1,138) -- --
Net cash inflows......................................................... (4,772) 51 137
--------- ------ ---
Change in the year....................................................... (2,910) 51 137
--------- ------ ---
At 1 July 1997........................................................... 9,163 20,746 355
Exchange movements....................................................... (305) -- --
Net cash inflows......................................................... 2,234 48 131
--------- ------ ---
Change in the year....................................................... 1,929 48 131
--------- ------ ---
At 30 June 1998.......................................................... 11,092 20,794 486
--------- ------ ---
--------- ------ ---
</TABLE>
<TABLE>
<CAPTION>
1998 L000 1997 L000
--------- ---------
<S> <C> <C>
(c) ANALYSIS OF CASH
Cash at bank and in hand.................................................................... 17,934 9,461
Bank overdrafts............................................................................. (6,842) (298)
--------- ---------
11,092 9,163
--------- ---------
--------- ---------
</TABLE>
22
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
28 CONSOLIDATED CASH FLOW STATEMENT (CONTINUED)
<TABLE>
<CAPTION>
ACQUISITION OTHER NON
AT 1 JULY (EXCL CASH & CASH DISPOSAL OF EXCHANGE
1996 CASH FLOW OVERDRAFTS) MOVEMENTS SUBSIDIARIES MOVEMENT
L000 L000 L000 L000 L000 L000
---------- ---------- ----------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
(d) RECONCILIATION OF NET DEBT
Cash at bank and in hand...................... 13,515 (2,864) -- -- -- (1,190)
Bank overdrafts............................... (1,442) (1,908) -- 3,000 -- 52
----------
(4,772)
Borrowings due after one year................. (26,572) 263 -- (9,489) -- 2,737
Borrowings due within one year................ (16,741) 9,590 -- 6,489 -- 139
Finance leases................................ (2,921) 344 -- (4,641) -- 869
----------
10,197
Current asset investments..................... -- 12,811 -- -- -- --
--
---------- ---------- ----------- ----- -----------
(34,161) 18,236 -- (4,641) -- 2,607
--
--
---------- ---------- ----------- ----- -----------
---------- ---------- ----------- ----- -----------
<CAPTION>
AT 30 JUNE
1997
L000
-----------
<S> <C>
(d) RECONCILIATION OF NET DEBT
Cash at bank and in hand...................... 9,461
Bank overdrafts............................... (298)
Borrowings due after one year................. (33,061)
Borrowings due within one year................ (523)
Finance leases................................ (6,349)
Current asset investments..................... 12,811
-----------
(17,959)
-----------
-----------
</TABLE>
Current asset investments at 30 June 1997 represent cash balances on one month
and three months deposit.
<TABLE>
<CAPTION>
ACQUISITION
(EXCL CASH OTHER NON
AT 1 JULY & CASH DISPOSAL OF EXCHANGE
1997 CASH FLOW OVERDRAFTS) MOVEMENTS SUBSIDIARIES MOVEMENT
L000 L000 L000 L000 L000 L000
----------- ----------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cash at bank and in hand.............. 9,461 8,897 -- -- -- (514)
Bank overdrafts....................... (298) (6,753) -- -- -- 209
-----------
2,234
Borrowings due after one year......... (33,061) (9,453) (13,152) 83 -- 1,264
Borrowings due within one year........ (523) (1,409) (1,129) (83) -- 101
Finance leases........................ (6,349) 875 (1,016) (1,840) 435 230
-----------
(9,987)
Current asset investments............. 12,811 (10,989) -- -- -- (24)
----------- ----------- ----------- ----------- --- -----------
(17,959) (18,742) (15,297) (1,840) 435 1,266
----------- ----------- ----------- ----------- --- -----------
----------- ----------- ----------- ----------- --- -----------
<CAPTION>
AT 30 JUNE
1998
L000
-----------
<S> <C>
Cash at bank and in hand.............. 17,934
Bank overdrafts....................... (6,842)
Borrowings due after one year......... (54,319)
Borrowings due within one year........ (3,043)
Finance leases........................ (7,665)
Current asset investments............. 1,798
-----------
(52,137)
-----------
-----------
</TABLE>
Current asset investments at 30 June 1998 represent part of the sale proceeds
from the sale of the US Electronics companies, which are being held in an escrow
account until May 2001.
23
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
28 CONSOLIDATED CASH FLOW STATEMENT (CONTINUED)
(e) MAJOR NON-CASH TRANSACTIONS
During 1998 the Group entered into finance lease arrangements in respect of
assets with a total capital value at the inception of the leases of L1,840,000
(1997:L4,641,000).
<TABLE>
<CAPTION>
US ELECTRONICS
COMPANIES
L000
<S> <C>
(f) SALE OF SUBSIDIARY UNDERTAKINGS
Net assets sold excluding cash:
Fixed assets...................................................................................... 3,224
Stock............................................................................................. 8,157
Other working capital............................................................................. 3,741
------
Total net assets sold............................................................................. 15,122
Disposal costs paid out in cash................................................................... 1,937
Disposal costs accrued............................................................................ 128
Profit on sale.................................................................................... 5,891
------
23,078
------
------
SATISFIED BY:
Receipt of cash................................................................................... 21,256
Receipt of escrow monies.......................................................................... 1,822
------
Net inflow of cash................................................................................ 23,078
------
------
</TABLE>
The US Electronics subsidiaries sold during the year contributed L1,432,000 to
the group's net operating cash flows, paid L715,000 in respect of net returns on
investments and serving of finance, paid L731,000 in respect of taxation and
utilised L815,000 for capital expenditure.
24
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
28 CONSOLIDATED CASH FLOW STATEMENT (CONTINUED)
<TABLE>
<CAPTION>
FAIR VALUE
ADJUSTMENTS
HEIDEMANN ACCOUNTING POLICY FAIR VALUE
COMPANIES REVALUATIONS ADJUSTMENTS OTHER ADJUSTMENTS BALANCE SHEET
L000 L000 L000 L000 L000
----------- ------------- ------------------- ------------------- -------------
<S> <C> <C> <C> <C> <C>
(g) PURCHASE OF SUBSIDIARY
UNDERTAKINGS
Provisional net assets acquired:
Fixed assets...................... 22,549 (1,149) -- -- 21,400
Stock............................. 9,122 -- (316) -- 8,806
Other working capital............. (11,716) -- -- -- (11,716)
Provisions........................ -- -- (101) (562) (663)
Net borrowings.................... (14,281) -- -- -- (14,281)
----------- ------ --- --- -------------
5,674 (1,149) (417) (562) 3,546
Provisional goodwill (note 26).... 29,318
-------------
32,864
-------------
-------------
SATISFIED BY:
Purchase consideration............ 31,127
Acquisition costs................. 3,217
Cash acquired..................... (2,733)
-------------
Net outflow of cash (i)........... 31,611
Purchase consideration accrued.... 1,253
-------------
32,864
-------------
-------------
</TABLE>
The net assets acquired above exclude 5% of the net assets of Adwest Heidemann
Iberica SA which are held by a third party.
Certain fixed assets have been written down in the revaluation column to reflect
their value based upon current earnings and cash generation. The accounting
policy adjustments are to bring stock, warranty and repairs and maintenance
provisions in line with UK GAAP requirements. Other adjustments represent
provisions in respect of potential environmental liabilities at the time of
acquisition.
25
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
28 CONSOLIDATED CASH FLOW STATEMENT (CONTINUED)
<TABLE>
<CAPTION>
PURCHASE OF
SUBSIDIARY CASH ACQUIRED WITH
UNDERTAKINGS SUBSIDIARY ACQUIRED TOTAL
L000 L000 L000
------------ ------------------- ---------
<S> <C> <C> <C>
Net cash outflow of cash as above (i)................................ (34,344) 2,733 (31,611)
Minority interest in Adwest Heidemann Iberica SA cash................ -- (36) (36)
Deferred consideration re Electronics Division....................... (767) -- (767)
Other................................................................ (61) -- (61)
------------ ----- ---------
Per cash flow statement.............................................. (35,172) 2,697 (32,475)
------------ ----- ---------
------------ ----- ---------
</TABLE>
Heidemann Verwaltungsgesellschaft mit beschranker Haftung and its subsidiary
undertakings were acquired on 11 September 1997, and have been accounted for
using the acquisition method.
The subsidiary undertakings acquired during the year contributed L2,963,000 to
the group's net operating cash flows, paid L1,425,000 in respect of net returns
on investments and servicing of finance, received L372,000 in respect of
taxation and utilised L6,620,000 for capital expenditure.
In the year ended 31 January 1997, the latest available statutory accounts
before acquisition, the Heidemann group of companies had profit after tax of
L1,073,000 and minority interests of L281,000.
In the period 1 February 1997 to 11 September 1997 -- the date of acquisition by
Adwest, the unaudited results for the company showed the following.
<TABLE>
<CAPTION>
L000
<S> <C>
Turnover................................................................................................. 54,530
Operating profit......................................................................................... 2,788
Profit before taxation................................................................................... 1,954
Taxation charge.......................................................................................... 974
Minority interests....................................................................................... 97
---------
---------
</TABLE>
There were no material recognised gains or losses, other than the results for
the period shown above.
26
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
29 PRINCIPAL SUBSIDIARY UNDERTAKINGS
<TABLE>
<S> <C> <C> <C>
Adwest Steering Ltd. Woodley Power steering gears, precision UK
plastic parts
Adwest Bowden TSK Ltd. Llanelli Control cables, gearshifters UK
Adwest Bowden France SA Cauvigny, Boynes Control cables, gearshifters, France
handbrakes, jacks
Adwest Dauphinoise Thomson SA Grenoble Engine thermostats, wax element France
regulators
Adwest OCI SA La Talaudiere Gearshifters France
Adwest Driver Systems Ltd. Rearsby Pedal boxes, gearshifters, UK
handbrakes, suspension links
Adwest Western Automotive Inc. Michigan Precision tubular components and USA
engine thermostats
Adwest Western Thomson Ltd. Woodley, Chard Engine thermostats, radiator UK
caps
Adwest Heidemann Einbeck GmbH Einbeck Gearshifters, steering columns, Germany
tubular structures
Adwest Heidemann Rotenburg Rotenburg Valve spring retainers, fine Germany
GmbH blanked parts, tubular
structures
Adwest Heidemann Iberica SA Valencia, Pamplona Gearshifters, steering columns Spain
Adwest Kohler GmbH Lippstadt Fuel caps, precision pressed Germany
parts
Adwest Heidemann do Brasil Curitiba Gearshifters Brazil
</TABLE>
The Company owns 100% of the ordinary share capital of all subsidiaries, with
the exception of Adwest Bowden TSK Ltd of which 35% of the ordinary share
capital is owned by Nippon Cable Systems Inc. (TSK), a Japanese company, and
Adwest Heidemann Iberica SA, of which 5% of the ordinary share capital is owned
by local management.
The subsidiaries operate principally in the country in which they are
incorporated.
A full list of subsidiaries will be included within the next annual return.
30 ASSOCIATED UNDERTAKING
<TABLE>
<CAPTION>
ISSUED SHARE CAPITAL ACTIVITIES HOLDING INCORPORATED
------------------------------ ------------------- ----------- ---------------
<S> <C> <C> <C> <C>
Western Thomson (India) Ltd. (1) 295,878 shares (10 rupees p.s) Engine thermostats 49% India
</TABLE>
- --------------------------
(1) Held by Adwest Western Thomson Ltd. and located in Madras, India.
31 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The Group's accounts are prepared in conformity with generally accepted
accounting principles applicable in the United Kingdom (UK GAAP), which differ
in certain significant respects from those applicable in the United States (US
GAAP). These differences, together with the approximate effects of the
adjustments on net profit and shareholders' funds, relate principally to the
items set out below:
27
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
31 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
GOODWILL AND OTHER INTANGIBLE ASSETS
Under UK GAAP goodwill arising on acquisition has been charged to reserves.
Under US GAAP goodwill is capitalised and amortised by charges against income
over the period, not to exceed 40 years, over which the benefit arises. For US
GAAP, goodwill has been amortised by the Group over 40 years.
Under UK GAAP the profit and loss on the disposal of all or part of a previously
acquired business has been calculated after taking account of the gross amount
of any goodwill previously charged to reserves. Under US GAAP an adjustment to
profit or loss on disposal is required in respect of goodwill previously
amortised.
CUMULATIVE EXCHANGE LOSS ON SALE OF FOREIGN SUBSIDIARIES
Under UK GAAP gains or loss arising on the sale or liquidation of a foreign
subsidiary does not include the related cumulative exchange gain or loss,
previously recorded as a separate component of shareholders' equity for that
investment. Under US GAAP, the gain or loss on sale or liquidation includes the
related cumulative exchange gain or loss.
DIVIDENDS
Under UK GAAP dividends proposed after the end of an accounting period in
respect of that accounting period are deducted in arriving at retained earnings
for that period. Under US GAAP such dividends are not deducted until declared.
DEFERRED TAXATION
Under UK GAAP provision is made for deferred taxation only to the extent that it
is probable that an actual liability or asset will crystallise in the
foreseeable future. US GAAP requires full provision for deferred income taxes
under the liability method on all temporary differences and, if required, a
valuation allowance is established to reduce gross deferred taxation assets to
the amount which is more likely than not to be realised.
Deferred taxation also arises in relation to the tax effect of other US GAAP
differences.
PENSION COSTS
Under UK GAAP, the cost of providing pensions is charged against profits on a
systematic basis, with pension surpluses and deficits being amortised over the
expected remaining service lives of current employees. Under US GAAP, costs and
surpluses are similarly spread over the expected remaining service lives but
based on prescribed actuarial assumptions, allocation of costs and valuation
methods, which differ in certain respects from those used for UK GAAP.
DEFERRED PROFIT ON SALE OF PROPERTY
In 1996, properties were disposed of which had previously been revalued under UK
GAAP. No profit arose on this transaction under UK GAAP. A profit arises under
US GAAP on the basis that US GAAP does not permit the revaluation of property.
Under US GAAP, the element of the profit in respect of property subsequently
leased back on an operating lease basis is amortised in equal instalments over
the life of the lease.
28
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
31 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
EMPLOYEE SHARE TRUST ARRANGEMENTS
Employee share trusts have been established in order to hedge obligations in
respect of options issued under certain employee share option schemes. Under UK
GAAP the Company's ordinary shares held by the employee share trusts are
included at cost in fixed asset investments. Dividends receivable on such shares
are included in the statement of income. Under US GAAP, such shares and
dividends receivable from those shares are treated as treasury stock and
included in shareholders' equity.
REVALUATION OF FIXED ASSETS
Under UK GAAP the Group has revalued certain fixed assets. This is not permitted
under US GAAP.
PRE-PRODUCTION COSTS
Under UK GAAP, certain significant pre-production costs on new products which
are not prefunded by the customer are carried forward in work in progress. These
costs are then written off on a unit of production basis over the life of the
contract with the customer. Under US GAAP these costs are generally expensed as
incurred.
CURRENT ASSETS AND LIABILITIES
Under UK GAAP current assets include amounts which fall due after more than one
year. Under US GAAP such assets would be reclassified as non-current assets.
Also under UK GAAP provisions for liabilities and charges include amounts due
within one year which would be reclassified to current liabilities under US
GAAP.
EARNINGS PER ORDINARY SHARE
Under UK GAAP earnings per share is based on profit for the financial year and
computed using the weighted average number of Ordinary Shares in issue during
the year. Under US GAAP basic earnings per share is based on net income and
computed using the weighted average number of Ordinary Shares in issue during
the year. US GAAP also requires the presentation of diluted earnings per share
which is based upon net income, as adjusted, computed using the weighted average
shares and the effect of other dilutive instruments.
CASH FLOWS
The principal difference between UK GAAP and US GAAP is in respect of
classification. Under UK GAAP, the Group presents its cash flows for operating
activities, returns on investments and servicing of finance, taxation, capital
expenditures and financial investments, acquisition and disposals, equity
dividends paid, management of liquid resources, and financing. US GAAP requires
only three categories of cash flow activities which are operating, investing and
financing.
Cash flows arising from taxation and returns on investments and servicing of
finance under UK GAAP would, with the exception of dividends paid, be included
as operating activities under US GAAP; dividend payments would be included as a
financing activity under US GAAP. In addition, capital expenditures and
financial investment, acquisition and disposals, and management of liquid
resources under UK GAAP would be presented as investing activities under US
GAAP.
29
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
31 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
UK GAAP defines cash as cash in hand and deposits repayable on demand. Short
term deposits which are readily convertible into known amounts of cash at, or
close to, their carrying value are classified as liquid resources. US GAAP
defines cash and cash equivalents as cash in hand and short term highly liquid
investments with original maturities of three months or less. Cash flows in
respect of short term deposits with original maturities exceeding three months
are included in investing activities under US GAAP and are included in capital
expenditure and financial investment under UK GAAP.
Under US GAAP, the following amounts would be reported:
<TABLE>
<CAPTION>
1998 1997
L'000 L'000
--------- ---------
<S> <C> <C>
Net cash provided by operating activities.................................................... 15,628 18,627
Net cash used in investing activities........................................................ (29,931) 5,839
Net cash provided by/(used in) financing activities.......................................... 10,479 (14,519)
Effect of changes in exchange rate........................................................... (514) (1,190)
--------- ---------
Net (decrease)/increase in cash and cash equivalents......................................... (4,338) 8,757
Cash and cash equivalents at beginning of year............................................... 22,272 13,515
--------- ---------
Cash and cash equivalents at end of year..................................................... 17,934 22,272
--------- ---------
--------- ---------
</TABLE>
Effect on (loss)/profit attributable to shareholders of differences between UK
and US GAAP
<TABLE>
<CAPTION>
1998 1997
L'000 L'000
--------- ---------
<S> <C> <C>
(Loss)/profit attributable to shareholders as reported under UK GAAP......................... (2,355) 9,424
US GAAP adjustments:
Goodwill................................................................................... (1,377) (1,467)
Impact of goodwill previously amoritised on sale of subsidiary............................. 2,905 --
Cumulative exchange loss on sale of foreign subsidiaries................................... (1,182) --
Pension costs.............................................................................. 16 331
Deferred taxation--full provision.......................................................... (143) (168)
Tax effect of other US GAAP reconciling items.............................................. (30) (266)
Fixed asset revaluations................................................................... 100 508
Deferred profit on sale of property........................................................ 303 303
Pre-production costs....................................................................... (1,200) --
Other...................................................................................... 21 (16)
Minority interests......................................................................... -- (5)
--------- ---------
Net (loss)/income under US GAAP.............................................................. (2,942) 8,644
--------- ---------
--------- ---------
Net (loss)/income under US GAAP
Continuing................................................................................. 6,001 6,015
Discontinued............................................................................... (8,943) 2,629
--------- ---------
(2,942) 8,644
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
PENCE PER SHARE PENCE PER SHARE
1998 1997
----------------- -----------------
<S> <C> <C>
Basic and diluted earnings per share under US GAAP...............................
Continuing..................................................................... 7.3 7.2
Discontinued................................................................... (10.9) 3.3
----- ---
(3.6) 10.5
----- ---
----- ---
</TABLE>
30
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
31 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
Effect on shareholders' funds of differences between UK and US GAAP
<TABLE>
<CAPTION>
1998 1997
L'000 L'000
--------- ---------
<S> <C> <C>
Shareholders' funds as reported under UK GAAP.................................................. 8,246 29,451
US GAAP adjustments:
Goodwill..................................................................................... 64,744 52,109
Pension costs................................................................................ 4,930 4,913
Deferred taxation--full provision............................................................ (310) (168)
Tax effect of other US GAAP reconciling items................................................ (1,285) (1,283)
Fixed asset revaluations..................................................................... (761) (876)
Proposed dividends........................................................................... 4,545 4,536
Deferred profit on sale of property.......................................................... (4,127) (4,430)
Pre-production costs......................................................................... (1,200) --
Employee share trust arrangements............................................................ (641) (724)
Other........................................................................................ 99 86
Minority interests........................................................................... (149) (146)
--------- ---------
Shareholders' funds under US GAAP.............................................................. 74,091 83,468
--------- ---------
--------- ---------
</TABLE>
NEW US ACCOUNTING STANDARDS AND PRONOUNCEMENTS NOT YET ADOPTED
SFAS 133--In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities". This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognise
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Management has not determined the effect of the adoption of SFAS 133.
SOP 98-1--During January 1998, the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position 98-1 ACCOUNTING FOR THE COSTS
OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE ("SOP 98-1") which
becomes effective for all fiscal years beginning after December 15, 1998. Under
SOP 98-1, computer software costs that are incurred in the preliminary project
stage are expensed as incurred. Once specific capitalisation criteria have been
met, external direct costs of materials and service consumed in developing or
obtaining internal-use computer software, certain personnel costs, and interest
costs incurred when developing computer software for internal use are
capitalised. Training costs and data conversion costs are generally expensed as
incurred. Such capitalised costs are amortised over the estimated useful life of
the software. The company is evaluating the effect of the pronouncement.
NEW UK ACCOUNTING STANDARDS NOT YET ADOPTED
FRS 10 - Goodwill and Intangible Assets: In December 1997, the Accounting
Standard Board in the United Kingdom issued Financial Reporting Standard No. 10
"Goodwill and Intangible Assets" (FRS 10). FRS 10 requires that purchased
goodwill and intangible assets should be capitalised as assets and amortised
over the life of the assets. Goodwill and intangible assets need not be
amortised if it can be demonstrated that the current market value of the
goodwill or intangible is not below its carrying value.
31
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
31 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
FRS 10 is effective for accounting periods ending on or after 23 December 1998.
The standard does not require reinstatement of goodwill previously eliminated
against retained surplus.
FRS 11--Impairment of fixed assets and goodwill: In July 1998, the Accounting
Standards Board in the United Kingdom issued Financial Reporting Standard No. 11
"Impairment of fixed assets and goodwill" (FRS 11). The standard requires that
any impairment in the carrying value of fixed assets should be recognised in the
profit and loss account in the current period and requires that impairment
reviews be undertaken when there is some indication of impairment. The review
should be performed on individual income generating units based on discounted
cash flows. FRS 11 covers not only tangible fixed assets, intangible fixed
assets and goodwill but also investments in subsidiaries, associates and joint
ventures to the extent that they are not covered by other standards. FRS 11 is
effective for accounting periods ending on or after 23 December 1998.
FRS 12--Provisions, contingent liabilities and contingent assets: In September
1998, the Accounting Standard Board in the United Kingdom issued Financial
Reporting Standard No. 12 "Provisions, contingent liabilities and contingent
assets" (FRS 12). The principal feature of the standard is that it requires that
a provision is recognised when there is a legal or constructive obligation
arising from past events and it is probable (ie, more likely than not) that
there will be an outflow of benefits and the amount can be reliably estimated.
FRS 12 is effective for accounting periods ending on or after 23 March 1999.
FRS 13--Derivatives and other financial instruments--disclosures: In September
1998, the Accounting Standards Board in the United Kingdom issued Financial
Reporting Standard No. 13 "Derivatives and other financial instruments:
disclosures" (FRS 13). FRS 13 is concerned only with disclosure and the
requirements comprise both narrative and numerical disclosures. FRS 13 is
effective for accounting periods ending on or after 23 March 1999.
FRS 14--Earnings per share: In October 1998, the Accounting Standards Board in
the United Kingdom issued Financial Reporting Standard No. 14 "Earnings per
share" (FRS 14). The standard applies to all entities whose ordinary or
potential ordinary shares are currently publicly traded, or are in the process
of becoming so, and to any other entity providing earnings per share (eps)
information voluntarily. FRS 14 is effective for accounting periods ending on or
after 23 December 1998.
COMPANIES ACT 1985
These consolidated financial statements do not constitute "statutory accounts"
within the meaning of the Companies Act 1985 of Great Britain for any of the
periods presented. Statutory accounts for the years ended 30 June 1997 and 30
June 1998 have been filed with the United Kingdom's Registrar of Companies. The
auditor has reported on these accounts. The reports were unqualified and did not
contain statements under Section 237 (2) or (3) of the Act.
These consolidated financial statements exclude certain parent company
statements and other information required by the Companies Act 1985, however,
they include all material disclosures required by generally accepted accounting
principles in the United Kingdom including those Companies Act 1985 disclosures
relating to the statement of income and balance sheet items.
32
<PAGE>
ADWEST AUTOMOTIVE PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT--UK GAAP
FOR THE SIX MONTHS ENDED 31 DECEMBER
<TABLE>
<CAPTION>
1998 1997
----------- -----------
L000 L000
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
TURNOVER
Continuing operations................................................................... 118,155 99,203
Discontinued operations................................................................. -- 12,987
----------- -----------
118,155 112,190
----------- -----------
OPERATING PROFIT
Continuing operations................................................................... 8,326 7,587
Discontinued operations................................................................. -- 1,867
----------- -----------
PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST........................................... 8,326 9,454
Net interest charge..................................................................... (2,924) (2,196)
----------- -----------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION........................................... 5,402 7,258
Taxation charge......................................................................... (1,536) (2,249)
----------- -----------
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION............................................ 3,866 5,009
Profit attributable to minority shareholders--equity.................................... (133) (246)
----------- -----------
PROFIT FOR THE PERIOD................................................................... 3,733 4,763
Dividends:
Interim 0p per share (1997 2.3p)...................................................... -- (1,897)
----------- -----------
RETAINED PROFIT FOR THE PERIOD.......................................................... 3,733 2,866
----------- -----------
----------- -----------
Earnings per share--UK GAAP............................................................. 4.5p 5.7p
</TABLE>
33
<PAGE>
ADWEST AUTOMOTIVE PLC
CONSOLIDATED BALANCE SHEET--UK GAAP
AT 31 DECEMBER
<TABLE>
<CAPTION>
1998 1997
L000 L000
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
FIXED ASSETS
Tangible assets....................................................... 70,822 61,513
Investments........................................................... 755 770
----------- -----------
71,577 62,283
----------- -----------
CURRENT ASSETS
Stock and work in progress............................................ 22,314 26,295
Debtors............................................................... 53,214 56,004
Bank and cash balances................................................ 11,005 12,459
----------- -----------
86,533 94,758
----------- -----------
CREDITORS: DUE WITHIN ONE YEAR
Borrowings............................................................ (17,916) (9,143)
Other creditors....................................................... (70,906) (72,133)
----------- -----------
(88,822) (81,276)
----------- -----------
NET CURRENT (LIABILITIES) / ASSETS.................................... (2,289) 13,482
CREDITORS: DUE AFTER ONE YEAR
Borrowings............................................................ (45,593) (60,542)
Provisions and other creditors........................................ (8,782) (7,718)
----------- -----------
(54,375) (68,260)
----------- -----------
NET ASSETS............................................................ 14,913 7,505
----------- -----------
----------- -----------
CAPITAL AND RESERVES
Called up share capital............................................... 20,794 20,758
Reserves.............................................................. 63,464 72,503
----------- -----------
Equity shareholders' funds before goodwill............................ 84,258 93,261
Goodwill on acquisition............................................... (72,681) (88,890)
----------- -----------
Shareholders' funds--equity........................................... 11,577 4,371
MINORITY INTEREST--EQUITY............................................. 3,336 3,134
----------- -----------
14,913 7,505
----------- -----------
----------- -----------
</TABLE>
34
<PAGE>
ADWEST AUTOMOTIVE PLC
CONSOLIDATED CASH FLOW STATEMENT--UK GAAP
FOR THE SIX MONTHS ENDED 31 DECEMBER
<TABLE>
<CAPTION>
1997
1998 (RESTATED)
L000 L000
----------- -----------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
Net cash inflow from operating activities............................................... 8,391 17,807
Return on investments and servicing of finance.......................................... (2,947) (1,821)
Taxation paid........................................................................... (1,075) (3,180)
Capital expenditure..................................................................... (7,977) (7,594)
Equity dividends paid................................................................... (4,551) (4,536)
Acquisitions and disposals.............................................................. 2,872 (32,095)
Management of liquid resources.......................................................... -- 12,811
----------- -----------
Net cash flow before financing.......................................................... (5,287) (18,608)
Financing............................................................................... (2,946) 20,015
----------- -----------
(Decrease)/increase in cash............................................................. (8,233) 1,407
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT L000 L000
- ---------------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
(Decrease)/increase in cash in the period............................................... (8,233) 1,407
Cash outflow from reduction in debt and lease financing................................. 2,946 2,464
Cash inflow from new loans.............................................................. -- (22,420)
Cash inflow/(outflow) from movement in liquid resources................................. -- (12,811)
----------- -----------
Change in net debt resulting from cash flows............................................ (5,287) (31,360)
Loans and finance leases acquired with subsidiary....................................... -- (14,848)
New finance leases...................................................................... (2,038) (410)
Translation difference.................................................................. (2,576) 420
----------- -----------
Movement in net debt in the period...................................................... (9,901) (46,198)
Net debt at beginning of period......................................................... (52,137) (17,959)
----------- -----------
Net debt at end of period............................................................... (62,038) (64,157)
----------- -----------
----------- -----------
</TABLE>
35
<PAGE>
ADWEST AUTOMOTIVE PLC
RECONCILIATION OF MOVEMENTS IN CONSOLIDATED
SHAREHOLDERS' FUNDS
FOR THE SIX MONTHS ENDED 31 DECEMBER
<TABLE>
<CAPTION>
1998 1997
L000 L000
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Profit for the period................................................. 3,733 4,763
Ordinary dividends.................................................... -- (1,897)
----------- -----------
Retained profit for the period........................................ 3,733 2,866
Currency translation differences on net investments................... (374) 562
Prior year adjustment................................................. (588) --
New share capital issued.............................................. -- 60
Goodwill in the period on acquisitions................................ 560 (28,568)
----------- -----------
NET ADDITIONS/(REDUCTIONS) TO SHAREHOLDERS' FUNDS..................... 3,331 (25,080)
SHAREHOLDERS' FUNDS AT BEGINNING OF PERIOD............................ 8,246 29,451
----------- -----------
SHAREHOLDERS' FUNDS AT END OF PERIOD.................................. 11,577 4,371
----------- -----------
----------- -----------
</TABLE>
RECONCILIATION OF OPERATING PROFIT TO NET CASH FLOW FROM OPERATING ACTIVITIES
FOR THE SIX MONTHS ENDED 31 DECEMBER
<TABLE>
<CAPTION>
1998 1997
L000 L000
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Operating profit...................................................... 8,326 9,454
Depreciation.......................................................... 4,931 4,508
Increase in stocks.................................................... (1,893) (2,105)
Decrease in debtors................................................... 5,811 3,794
(Decrease)/increase in creditors...................................... (8,784) 2,156
----------- -----------
NET CASH FLOW FROM OPERATING ACTIVITIES............................... 8,391 17,807
----------- -----------
----------- -----------
</TABLE>
36
<PAGE>
ADWEST AUTOMOTIVE PLC
ANALYSIS OF NET DEBT
<TABLE>
<CAPTION>
OTHER AT 31
AT 1 JULY CASH FLOW NON CASH EXCHANGE DECEMBER
1998 NON CASH MOVEMENTS MOVEMENT 1998
----------- ----------- ----------- ----------- -----------
L000 L000 L000 L000 L000
<S> <C> <C> <C> <C> <C>
Cash at bank and in hand................................ 17,934 (10,143) -- 1,411 9,202
Bank overdraft.......................................... (6,842) 1,910 -- (535) (5,467)
-----------
(8,233)
-----------
Borrowings due after one year........................... (54,319) 10 11,083 (2,367) (45,593)
Borrowings due within one year.......................... (3,043) 2,185 (11,083) (508) (12,449)
Finance leases.......................................... (7,665) 751 (2,038) (582) (9,534)
-----------
2,946
-----------
Current asset investments............................... 1,798 -- -- 5 1,803
----------- ----------- ----------- ----------- -----------
(52,137) (5,287) (2,038) (2,576) (62,038)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
37
<PAGE>
ADWEST AUTOMOTIVE PLC
SEGMENTAL INFORMATION
FOR THE SIX MONTHS ENDED 31 DECEMBER
<TABLE>
<CAPTION>
1998 1997
L000 L000
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
TURNOVER
- ----------------------------------------------------------------------
CLASS OF BUSINESS
Automotive: UK........................................................ 32,460 36,004
Rest of Europe............................................. 80,327 59,274
USA........................................................ 5,368 3,925
----------- -----------
Continuing operations................................................. 118,155 99,203
Discontinued operations............................................... -- 12,987
----------- -----------
118,155 112,190
----------- -----------
----------- -----------
GEOGRAPHICAL SEGMENTS (BY DESTINATION)
- ----------------------------------------------------------------------
UK.................................................................... 30,841 34,437
Rest of Europe........................................................ 80,337 62,127
USA................................................................... 5,628 14,664
Rest of the World..................................................... 1,349 962
----------- -----------
118,155 112,190
----------- -----------
----------- -----------
OPERATING PROFIT
- ----------------------------------------------------------------------
CLASS OF BUSINESS
Automotive: UK........................................................ 928 3,147
Rest of Europe............................................. 7,933 4,649
USA........................................................ (535) (209)
----------- -----------
Continuing operations................................................. 8,326 7,587
----------- -----------
Operating profit as % of turnover..................................... 7.1% 7.7%
Discontinued operations............................................... -- 1,867
----------- -----------
Operating profit as % of turnover..................................... -- 14.4%
----------- -----------
8,326 9,454
----------- -----------
----------- -----------
</TABLE>
38
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS
(UNAUDITED)
1 PREPARATION OF INTERIM FINANCIAL REPORT
The accompanying Condensed Consolidated Financial Statements present the
financial position and results of operations of the Group and have been prepared
in accordance with UK GAAP, which differ in certain significant respects from
U.S. GAAP. See Note 5 for a discussion and quantifications of the principal
differences between UK GAAP affecting the Group.
The interim financial information included in these Condensed Consolidated
Financial Statements is unaudited but reflects all adjustments (consisting only
of normal recurring accruals) which are in the opinion of management necessary
for a fair presentation of the results for interim periods presented. The
interim Condensed Consolidated Financial Statements should be read in
conjunction with the Consolidated Financial Statements and notes thereto
included herein.
2 TAXATION CHARGE
The taxation charge before disposals is at an effective rate of 29%. This
compares to an effective rate of 31% for the half year to 31 December 1997.
3 EARNINGS PER SHARE
Earnings per share is calculated on earnings of L3,733,000 (L4,763,000 for
the half year to 31 December 1997) and on 83,173,908 (83,025,820 for the half
year to 31 December 1997) shares in issue, weighted on a time basis. Fully
diluted earnings per share based on the exercise of options under the employee
share schemes show no material dilution.
4 ACQUISITIONS AND DISPOSALS
Heidemann Verwaltungsgesellschaft mit beschrankter Haftung was acquired on
11 September 1997. The US Electronics division was sold in May 1998.
5 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
These accounts are prepared in conformity with generally accepted accounting
principles applicable in the United Kingdom (UK GAAP). These differ in certain
significant respects from those applicable in the United States (US GAAP). These
differences, together with the approximate effects of the adjustments on net
profits and shareholders' funds, relate principally to the items set out below:
GOODWILL AND OTHER INTANGIBLE ASSETS
Under UK GAAP goodwill arising on acquisition has been charged to reserves.
Under US GAAP goodwill is capitalised and amortised by charges against income
over the period, not to exceed 40 years, over which the benefit arises. For US
GAAP, goodwill has been amortised by the Group over 40 years.
PRIOR YEAR ADJUSTMENT
Under UK GAAP the introduction of a new accounting standard, FRS12, has been
treated as a prior year adjustment. Under US GAAP the charge is recognized in
the period in which the new accounting policy is implemented.
39
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
(UNAUDITED)
5 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
DIVIDENDS
Under UK GAAP dividends proposed after the end of an accounting period in
respect of that accounting period are deducted in arriving at retained earnings
for that period. Under US GAAP such dividends are not deducted until declared.
DEFERRED TAXATION
Under UK GAAP provision is made for deferred taxation only to the extent
that it is probable that an actual liability or asset will crystallise in the
foreseeable future. US GAAP requires full provision for deferred income taxes
under the liability method on all temporary differences and, if required, a
valuation allowance is established to reduce gross deferred taxation assets to
the amount which is more likely than not to be realised.
Deferred taxation also arises in relation to the tax effect of other US GAAP
differences.
PENSION COSTS
Under UK GAAP, the cost of providing pensions is charged against profits on
a systematic basis, with pension surpluses and deficits being amortised over the
expected remaining service lives of current employees. Under US GAAP, costs and
surpluses are similarly spread over the expected remaining service lives but
based on prescribed actuarial assumptions, allocation of costs and valuation
methods, which differ in certain respects from those used for UK GAAP.
DEFERRED PROFIT ON SALE OF PROPERTY
In 1996, properties were disposed of which had previously been revalued
under UK GAAP. No profit arose on this transaction under UK GAAP. A profit
arises under US GAAP on the basis that US GAAP does not permit the revaluation
of property. Under US GAAP, the element of the profit in respect of property
subsequently leased back on an operating lease basis is amortised in equal
instalments over the life of the lease.
EMPLOYEE SHARE TRUST ARRANGEMENTS
Employee share trusts have been established in order to hedge obligations in
respect of options issued under certain employee share option schemes. Under UK
GAAP the Company's ordinary shares held by the employee share trusts are
included at cost in fixed asset investments. Dividends receivable on such shares
are included in the statement of income. Under US GAAP, such shares and
dividends receivable from those shares are treated as treasury stock and
included in shareholders' equity.
REVALUATION OF FIXED ASSETS
Under UK GAAP the Group has revalued certain fixed assets. This is not
permitted under US GAAP.
40
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
(UNAUDITED)
5 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
PRE-PRODUCTION COSTS
Under UK GAAP, certain significant pre-production costs on new products
which are not pre-funded by the customer are carried forward in work in
progress. These costs are then written off on a unit of production basis over
the life of the contract with the customer. Under US GAAP these costs are
generally expensed as incurred.
CURRENT ASSETS AND LIABILITIES
Under UK GAAP current assets include amounts which fall due after more than
one year. Under US GAAP such assets would be re-classified as non-current
assets. Also under UK GAAP provisions for liabilities and charges include
amounts due within one year which would be re-classified to current liabilities
under US GAAP.
EARNINGS PER ORDINARY SHARE
Under UK GAAP earnings per share is based on profit for the financial year
and computed using the weighted average number of Ordinary Shares in issue
during the year. US GAAP also requires the presentation of diluted earnings per
share which is based upon net income, as adjusted, computed using the weighted
average shares and the effect of other dilutive instruments.
CASH FLOWS
The principal difference between UK GAAP and US GAAP is in respect of
classification. Under UK GAAP, the Group presents its cash flows for operating
activities, returns on investments and servicing of finance, taxation, capital
expenditures and financial investments, acquisition and disposals, equity
dividends paid, management of liquid resources, and financing. US GAAP requires
only three categories of cash flow activities which are operating, investing and
financing.
Cash flows arising from taxation and returns on investments and servicing of
finance under UK GAAP would, with the exception of dividends paid, be included
as operating activities under US GAAP; dividend payments would be included as a
financing activity under US GAAP. In addition, capital expenditures and
financial investment, acquisition and disposals, and management of liquid
resources under UK GAAP would be presented as investing activities under US
GAAP.
UK GAAP defines cash as cash in hand and deposits repayable on demand. Short
term deposits which are readily convertible into cash, into known amounts of
cash at, or close to, their carrying value are classified as liquid resources.
US GAAP defines cash and cash equivalents as cash in hand and short term highly
liquid investments with original maturities of three months or less. Cash flows
in respect of short term deposits with original maturities of three months or
less. Cash flows in respect of short term deposits with original maturities
exceeding three months are included in investing activities under US GAAP and
are included in capital expenditure and financial investment under UK GAAP.
41
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
(UNAUDITED)
5 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
Under US GAAP, the following amounts would be reported:
<TABLE>
<CAPTION>
HALF YEAR HALF YEAR
TO TO
31 DEC 1998 31 DEC 1997
----------- -----------
L'000 L'000
<S> <C> <C>
Net cash provided by operating activities.............................................. 4,368 12,806
Net cash used in investing activities.................................................. (5,105) (39,689)
Net cash (used in)/provided by financing activities.................................... (9,406) 17,242
Effect of changes in exchange rate..................................................... 1,411 (172)
----------- -----------
Net decrease in cash & cash equivalents................................................ (8,732) (9,813)
Cash & cash equivalents at beginning of year........................................... 17,934 22,272
----------- -----------
Cash & cash equivalents at end of year................................................. 9,202 12,459
----------- -----------
----------- -----------
</TABLE>
Effect on (loss)/profit attributable to shareholders of differences between
UK and US GAAP
<TABLE>
<CAPTION>
HALF YEAR HALF YEAR
TO TO
31 DEC 1998 31 DEC 1997
----------- -----------
L'000 L'000
<S> <C> <C>
Profit attributable to shareholders as reported under UK GAAP.......................... 3,733 4,763
US GAAP adjustments:
Goodwill............................................................................. (908) (519)
Pension costs........................................................................ (249) 9
Deferred taxation--full provision.................................................... (132) (91)
Tax effect of other US GAAP reconciling items........................................ 54 (5)
Fixed asset revaluations............................................................. 50 50
Deferred profit on sale of property.................................................. 152 152
Pre-production costs................................................................. (1,262) (383)
Other................................................................................ (36) (8)
Reverse prior year adjustment........................................................ (588) --
Minority interests................................................................... 8 (2)
----------- -----------
Net income under US GAAP............................................................... 822 3,966
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
EARNINGS EARNINGS
PER SHARE PER SHARE
1998 1997
----------- -----------
PENCE PENCE
<S> <C> <C>
Basic and diluted earnings per share under US GAAP
Continuing........................................................................... 1.7 2.5
Discontinued......................................................................... (0.7) 2.3
----------- -----------
1.0 4.8
----------- -----------
----------- -----------
</TABLE>
42
<PAGE>
ADWEST AUTOMOTIVE PLC
NOTES TO THE ACCOUNTS (CONTINUED)
(UNAUDITED)
5 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
Effect on shareholders' funds of differences between UK and US GAAP
<TABLE>
<CAPTION>
AS AT AS AT
31 DEC 1998 31 DEC 1997
----------- -----------
L'000 L'000
<S> <C> <C>
Shareholders' funds as reported under UK GAAP.......................................... 11,577 4,371
US GAAP adjustments:
Goodwill............................................................................. 66,323 80,545
Pension costs........................................................................ 4,681 4,922
Deferred taxation--full provision.................................................... (442) (259)
Tax effect of other US GAAP reconciling items........................................ (1,231) (1,288)
Fixed asset revaluations............................................................. (711) (819)
Proposed dividends................................................................... -- 1,897
Deferred profit on sale of property.................................................. (3,976) (4,278)
Pre-production costs................................................................. (2,462) (383)
Employee share trust arrangements.................................................... (641) (651)
Other................................................................................ (134) (94)
Minority interests................................................................... (141) (148)
----------- -----------
Shareholders' funds under US GAAP...................................................... 72,843 83,815
----------- -----------
----------- -----------
</TABLE>
43
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The Unaudited Pro Forma Statement of Operations for the year ended
December 31, 1998 gives effect to: (1) the acquisitions of Universal Tool &
Stamping Co., Inc. ("Universal"), Trident Automotive plc ("Trident"), the hinge
business of Tower Automotive, Inc. (the "Hinge Business"), Excel Industries,
Inc. ("Excel") and Adwest Automotive Plc ("Adwest") by Dura Automotive Systems,
Inc. ("Dura"), (2) Excel's July 1, 1998 acquisition of 70% of Schade GmbH & Co.
KG ("Schade"), (3) the March 1998 issuance of the 7 1/2% Convertible Trust
Preferred Securities (the "Trust Preferred Securities"), (4) the June 1998
offering of 3,500,000 shares of Dura's Class A common stock (the "June 1998
Offering"), (5) the borrowings under the amended and restated $1.15 billion
senior secured credit facility (the "New Credit Facility") and (6) the offering
of $300 million and Euro 100 million of senior subordinated notes (the
"Subordinated Notes") and the application of the net proceeds therefrom, as if
such transactions had occurred on January 1, 1998. The results of operations of
Adwest represent Adwest's results of operations for the twelve month period
ended December 31, 1998.
The Unaudited Pro Forma Statement of Operations for the three months
ended March 31, 1999 gives effect to: (1) the acquisitions of Excel and Adwest,
(2) the borrowings under the New Credit Facility and (3) the Subordinated Notes
and the application of the net proceeds therefrom, as if such transactions had
occurred on January 1, 1999.
The unaudited pro forma financial data are based on the assumptions and
adjustments described in the accompanying notes. The Unaudited Pro Forma
Statements of Operations do not purport to represent what our results of
operations actually would have been if the events described above had occurred
as of the dates indicated or what our results will be for any future periods.
The Unaudited Pro Forma Financial Statements are based upon assumptions and
adjustments that we believe are reasonable.
The acquisitions of the Hinge Business, Excel, Schade and Adwest 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 their respective acquisitions. These amounts have been
recorded based upon preliminary estimates as of such dates. Further adjustments
to the acquired assets and assumed liabilities will be reflected as a change in
goodwill.
<PAGE>
DURA AUTOMOTIVE SYSTEMS, INC.
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HINGE
DURA(1) UNIVERSAL(2) TRIDENT(3) BUSINESS(4) EXCEL(5)
-------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Revenues $739,467 $7,836 $104,555 $34,991 $1,106,103
Cost of sales 608,518 6,593 86,858 31,632 995,982
-------- ------ -------- ------- ----------
Gross profit 130,949 1,243 17,697 3,359 110,121
Selling, general & administrative
expenses 49,825 318 15,278 1,400 76,507
Amortization expense 9,868 -- 1,303 -- 2,108
-------- ------ -------- ------- ----------
Operating income 71,256 925 1,116 1,959 31,506
Interest expense, net 20,267 -- 4,402 -- 9,623
Other (income) expense -- -- 369 -- (69)
-------- ------ -------- ------- ----------
Income before provisions for income
taxes and minority interest 50,989 925 (3,655) 1,959 21,952
Provision for income taxes 20,933 370 (1,033) 784 3,632
Minority interest - trust preferred
securities 1,908 -- -- -- --
Minority interest in subsidiaries 1,481 -- -- -- 1,367
-------- ------ -------- ------- ----------
Income before extraordinary item 26,667 555 (2,622) 1,175 16,953
Extraordinary item - loss on early
extinguishment of debt, net 643 -- -- -- --
-------- ------ -------- ------- ----------
Net income (loss) $ 26,024 $ 555 $ (2,622) $ 1,175 $ 16,953
-------- ------ -------- ------- ----------
-------- ------ -------- ------- ----------
Diluted shares outstanding (15) 11,795
--------
--------
Diluted earnings per share (15) $ 2.37
--------
--------
Basic shares outstanding (15) 10,708
--------
--------
Basic earnings per share $ 2.43
--------
--------
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
SCHADE(6) ADWEST(7) ADJUSTMENTS PRO FORMA
--------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues $132,779 $399,717 $ -- $2,525,448
Cost of sales 117,593 346,972 (23,676)(8) 2,170,472
-------- -------- -------- ----------
Gross profit 15,186 52,745 23,676 354,976
Selling, general & administrative
expenses 7,494 23,974 (6,000)(9) 168,796
Amortization expense -- 2,927 6,399(10) 22,605
-------- -------- -------- ----------
Operating income 7,692 25,844 23,277 163,575
Interest expense, net 2,669 9,823 49,882(11) 96,666
Other (income) expense -- -- -- 300
-------- -------- -------- ----------
Income before provisions for income
taxes and minority interest 5,023 16,021 (26,605) 66,609
Provision for income taxes 1,419 6,094 (5,223)(12) 26,976
Minority interest - trust preferred
securities -- -- 580(13) 2,488
Minority interest in subsidiaries -- 633 1,081(14) 4,562
-------- -------- -------- ----------
Income before extraordinary item 3,604 9,294 (23,043) 32,583
Extraordinary item - loss on early
extinguishment of debt, net -- -- -- 643
-------- -------- -------- ----------
Net income (loss) $ 3,604 $ 9,294 $(23,043) $ 31,940
-------- -------- -------- ----------
-------- -------- -------- ----------
Diluted shares outstanding (15) 5,723 17,518
-------- ----------
-------- ----------
Diluted earnings per share (15) $ 1.82
----------
----------
Basic shares outstanding (15) 6,729 17,437
-------- ----------
-------- ----------
Basic earnings per share $ 1.83
----------
----------
</TABLE>
<PAGE>
DURA AUTOMOTIVE SYSTEMS, INC.
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
DURA(1) EXCEL(5) ADWEST(7) ADJUSTMENTS PRO FORMA
------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $264,701 $308,705 $80,346 $ -- $653,752
Cost of sales 218,219 272,716 69,840 (4,806)(8) 555,969
-------- -------- ------- -------- --------
Gross profit 46,482 35,989 10,506 4,806 97,783
Selling, general & administrative expenses 16,897 17,991 7,027 -- 41,915
Amortization expense 3,685 358 655 1,387(10) 6,085
-------- -------- ------- -------- --------
Operating income 25,900 17,640 2,824 3,419 49,783
Interest expense, net 6,895 2,704 2,035 13,912(11) 25,546
Other (income) expense -- (582) -- -- (582)
-------- -------- ------- -------- --------
Income before provisions for income
taxes and minority interest 19,005 15,518 789 (10,493) 24,819
Provision for income taxes 7,711 7,991 433 (6,083)(12) 10,052
Minority interest - trust preferred securities 611 -- -- -- 611
Minority interest in subsidiaries 1,342 (177) (15) -- 1,150
-------- -------- ------- -------- --------
Net income (loss) $ 9,341 $ 7,704 $ 371 $ (4,410) $ 13,006
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
Diluted shares outstanding (15) 14,253 4,599 18,852
-------- -------- --------
-------- -------- --------
Diluted earnings per share (15) $ 0.70 $ 0.72
-------- --------
-------- --------
Basic shares outstanding (15) 12,877 4,599 17,476
-------- -------- --------
-------- -------- --------
Basic earnings per share $ 0.73 $ 0.74
-------- --------
-------- --------
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(In thousands)
(1) Represents the results of operations of Dura for the year ended
December 31, 1998, including the results of operations of Universal,
Trident and the Hinge Business from their respective dates of
acquisition and for the three months ended March 31, 1999, including
the results of operations of Excel and Adwest from their respective
dates of acquisition.
(2) Represents the results of operations of Universal from January 1, 1998
through the date of acquisition, March 8, 1998.
(3) Represents the results of operations of Trident from January 1, 1998
through the date of acquisition, April 30, 1998.
(4) Represents the results of operations for the Hinge Business from
January 1, 1998 through the date of acquisition, August 31, 1998.
(5) Represents the results of operations for Excel for the year ended
December 31, 1998 and from January 1, 1999 through the date of
acquisition, March 23, 1999. The results of operations for the year
ended December 31, 1998 include the results of operations of Schade
from July 1, 1998, the date of its acquisition, through December 31,
1998.
(6) Represents the results of operations of Schade from January 1, 1998
through the date of its acquisition by Excel, July 1, 1998.
(7) Represents the results of operations for Adwest for the twelve months
ended December 31, 1998 and from January 1, 1999 through the date of
acquisition, March 15, 1999.
(8) Reflects the change in depreciation expense resulting from adjustments
to the depreciable lives of property, plant and equipment of Universal,
Trident, the Hinge Business, Excel, Schade and Adwest to their
estimated useful lives at the time of their acquisition and from
adjustments to value such property, plant and equipment at fair value
as of the date of acquisition as follows:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
1998 1999
---- ----
<S> <C> <C>
Universal $ 33 $ --
Trident 1,543 --
Hinge Business 474 --
Excel 12,886 2,962
Schade 5,740 1,282
Adwest 3,000 562
------- ------
Total $23,676 $4,806
------- ------
------- ------
</TABLE>
(9) Reflects the elimination of certain corporate payroll and related costs
and duplicate public company expenses arising from the acquisitions of
Excel and Adwest for the year ended December 31, 1998 as set forth
below:
<TABLE>
<S> <C>
Executive management payroll costs $3,500
Public company costs 1,700
Other 800
------
Total $6,000
------
------
</TABLE>
<PAGE>
(10) Represents the additional amortization of goodwill and other intangible
assets arising from the acquisitions of Universal, Trident, the Hinge
Business, Excel and Adwest, net of amortization of goodwill and other
intangible assets previously recorded by Trident, Excel and Adwest:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
1998 1999
------- -------
<S> <C> <C>
Amortization of goodwill and other intangible assets:
Universal $ 87 $ --
Trident 2,019 --
Hinge Business 345 --
Excel/Schade 4,968 1,159
Adwest 5,320 1,241
-------- -------
12,739 2,400
-------- -------
Amortization previously recorded by:
Trident (1,303) --
Excel (2,108) (358)
Adwest (2,927) (655)
-------- -------
(6,338) (1,013)
-------- -------
Net increase $ 6,399 $ 1,387
-------- -------
-------- -------
</TABLE>
Goodwill is amortized on a straight-line basis over a forty-year period.
Other intangible assets are amortized over the useful life of the related
asset.
(11) Represents the change in interest expense arising from:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
1998 1999
------ ------
<S> <C> <C>
Interest expense on Term Loan A $ 21,313 $ 5,328
Interest expense on Term Loan B 22,000 5,500
Interest expense on Subordinated Notes 36,720 9,180
Interest expense on Trident Notes, net 6,600 1,650
Interest expense on other senior indebtedness 6,033 2,888
Amortization of capitalized financing fees 4,000 1,000
-------- --------
Total adjustments 96,666 25,546
-------- --------
Interest expense, net previously recorded by:
Dura (20,267) (6,895)
Trident (4,402) -
Excel (9,623) (2,704)
Schade (2,669) -
Adwest (9,823) (2,035)
-------- --------
(46,784) (11,634)
-------- --------
Net increase $ 49,882 $ 13,912
-------- --------
-------- --------
</TABLE>
(12) Adjusts the provision for income taxes on a pro forma basis to reflect
Dura's incremental tax rate of 40.5%.
(13) Represents dividends, net of income taxes, on the Trust Preferred
Securities for the period prior to their issuance in March 1998.
(14) Represents the minority interest in the earnings of Schade for the
period prior to July 1, 1998, the date of its acquisition by Excel.
<PAGE>
(15) Basic earnings per share were computed by dividing net income by the
weighted average number of shares of Class A Common Stock and Class B
Common Stock outstanding during the year. Diluted earnings per share
for the three months ended March 31, 1999 include the dilutive effects
of outstanding stock options using the treasury stock method and
assumes the conversion of the Trust Preferred Securities into shares of
Class A Common Stock. Diluted earnings per share for the year ended
December 31, 1998 excludes the conversion of the Trust Preferred
Securities (into approximately 1,289,000 shares of Class A Common
Stock), as their effect is anti-dilutive. Pro forma weighted average
shares outstanding include the effects of the shares that were issued
in connection with the acquisition of Excel.
