-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wn84GRq/1nLUbAZFJinpPFyA7fZyYQcR9pMNacEInlVDEgVslJryVZVRQHQLHjDg /2Il4KR6zFJIK/cDPrQemw== 0000950123-03-012764.txt : 20031114 0000950123-03-012764.hdr.sgml : 20031114 20031114155418 ACCESSION NUMBER: 0000950123-03-012764 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIAMOND TRIUMPH AUTO GLASS INC CENTRAL INDEX KEY: 0001109531 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AUTOMOTIVE REPAIR, SERVICES & PARKING [7500] IRS NUMBER: 232758853 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-33572 FILM NUMBER: 031004498 BUSINESS ADDRESS: STREET 1: 220 DIVISION STREET CITY: KINGSTON STATE: PA ZIP: 18704 BUSINESS PHONE: 5702879915 MAIL ADDRESS: STREET 1: 220 DIVISION STREET CITY: KINGSTON STATE: PA ZIP: 18704 10-Q 1 y91750e10vq.txt 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended September 30, 2003 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 333-33572 -------------- DIAMOND TRIUMPH AUTO GLASS, INC. (Exact name of registrant as specified in its charter) DELAWARE 23-2758853 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 220 DIVISION STREET, KINGSTON, PENNSYLVANIA 18704 (Address, including zip code of principal executive offices) (570) 287-9915 (Telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or Section 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2 Yes [ ] No [X] As of November 14, 2003, there were 1,011,366 shares outstanding of Diamond's Common Stock ($.01 par value) and 35,000 shares outstanding of Diamond's Series A 12% Senior Cumulative Preferred Stock ($.01 par value). DIAMOND TRIUMPH AUTO GLASS, INC. FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2003 INDEX
Page No. -------- Part I. Financial Information Item 1. Consolidated Financial Statements Condensed Consolidated Balance Sheets - September 30, 2003 (unaudited) and December 31, 2002............. 3 Condensed Consolidated Statements of Operations - Three Months Ended September 30, 2003 and 2002 (unaudited)............. 4 Condensed Consolidated Statements of Operations - Nine Months Ended September 30, 2003 and 2002 (unaudited).................... 5 Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2003 and 2002 (unaudited).................... 6 Notes to Unaudited Condensed Consolidated Financial Statements...... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 11 Item 3. Quantitative and Qualitative Disclosures about Market Risk.......... 15 Item 4. Controls and Procedures............................................. 16 Part II. Other Information Item 1. Legal Proceedings................................................... 17 Item 6. Exhibits and Reports on Form 8-K.................................... 17 Signature........................................................... 18
2 PART I FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS DIAMOND TRIUMPH AUTO GLASS, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands except per share amounts)
September 30, December 31, 2003 2002 ------------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 1,760 $ 2,094 Accounts receivable, net 12,301 11,403 Other receivables 256 349 Inventories 13,634 15,712 Prepaid expenses 1,906 1,562 Deferred income taxes 3,608 4,277 --------- --------- Total current assets 33,465 35,397 --------- --------- Equipment and leasehold improvements, net 6,852 8,006 Deferred loan costs and senior notes discount, net 2,889 4,001 Deferred income taxes 34,600 35,932 Other assets 407 486 --------- --------- Total assets $ 78,213 $ 83,822 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable $ 12,713 $ 9,856 Accrued expenses: Payroll and related items 5,641 5,729 Accrued interest 3,693 2,155 Accrued income taxes 288 451 Other 989 710 --------- --------- Total accrued expenses 10,611 9,045 --------- --------- Total current liabilities 23,324 18,901 --------- --------- Long-term debt: Senior notes 79,758 93,000 --------- --------- Total long-term debt 79,758 93,000 --------- --------- Total liabilities 103,082 111,901 --------- --------- Series A 12% senior cumulative preferred stock - par value $0.01 per share; authorized 100,000 shares; issued and outstanding 35,000 shares in 2003 and 2002, at liquidation preference value 67,064 61,373 --------- --------- Stockholders' equity (deficit): Common stock - 2003 and 2002 par value $0.01 per share; authorized 1,100,000 shares; issued and outstanding 1,026,366 shares in 2003 and 2002 10 10 Additional paid-in capital 29,256 34,947 Deferred compensation (281) (360) Retained earnings (accumulated deficit) (120,618) (123,749) Common stock in treasury, at cost, 15,000 shares in 2003 and 2002 (300) (300) --------- --------- Total stockholders' equity (deficit) (91,933) (89,452) --------- --------- Total liabilities and stockholders' equity (deficit) $ 78,213 $ 83,822 ========= =========
See notes to condensed consolidated financial statements 3 DIAMOND TRIUMPH AUTO GLASS, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Dollars in Thousands except per share amounts)
Three Months Ended Three Months Ended September 30, 2003 September 30, 2002 ------------------ ------------------ Net sales $ 57,090 $ 52,970 Cost of sales 17,509 15,858 -------- -------- Gross profit 39,581 37,112 Operating expenses 37,117 34,565 -------- -------- Income from operations 2,464 2,547 Other (income) expense: Interest income -- (75) Interest expense 2,037 2,572 -------- -------- 2,037 2,497 -------- -------- Income before provision for income taxes 427 50 Provision for income taxes 167 21 -------- -------- Net income 260 29 Preferred stock dividends 1,954 1,735 -------- -------- Net income applicable to common stockholders ($ 1,694) ($ 1,706) ======== ========
See notes to condensed consolidated financial statements 4 DIAMOND TRIUMPH AUTO GLASS, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Dollars in Thousands except per share amounts)
Nine Months Ended Nine Months Ended September 30, 2003 September 30, 2002 ------------------ ------------------ Net sales $ 171,013 $ 155,531 Cost of sales 52,282 44,545 --------- --------- Gross profit 118,731 110,986 Operating expenses 108,004 99,599 --------- --------- Income from operations 10,727 11,387 Other (income) expense: Interest income (21) (178) Interest expense 5,615 7,715 --------- --------- 5,594 7,537 --------- --------- Income before provision for income taxes 5,133 3,850 Provision for income taxes 2,002 1,617 --------- --------- Net income 3,131 2,233 Preferred stock dividends 5,691 5,055 --------- --------- Net loss applicable to common stockholders ($ 2,560) ($ 2,822) ========= =========
See notes to condensed consolidated financial statements 5 DIAMOND TRIUMPH AUTO GLASS, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in Thousands except per share amounts)
Nine Months Ended Nine Months Ended September 30, 2003 September 30, 2002 ------------------ ------------------ OPERATING ACTIVITIES Net cash provided by operating activities $ 12,099 $ 8,424 -------- -------- INVESTING ACTIVITIES Capital expenditures (981) (3,006) Proceeds from sale of equipment 60 93 Decrease (increase) in other assets 78 (40) -------- -------- Net cash (used in) investing activities (843) (2,953) -------- -------- FINANCING ACTIVITIES Payment for redemption of senior notes (11,590) -- Net proceeds from credit facility 6,000 -- Payments on credit facility (6,000) -- Deferred loan cost -- (50) -------- -------- Net cash (used in) financing activities (11,590) (50) -------- -------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (334) 5,421 Cash and cash equivalents, beginning of period 2,094 6,592 -------- -------- Cash and cash equivalents, end of period $ 1,760 $ 12,013 ======== ========
See notes to condensed consolidated financial statements 6 DIAMOND TRIUMPH AUTO GLASS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands except per share amounts) NOTE 1. SIGNIFICANT ACCOUNTING POLICIES These interim financial statements are unaudited but, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the data for the interim periods presented. The interim financial statements should be read in conjunction with the audited financial statements and notes thereto contained in Diamond's Annual Report on Form 10-K for the fiscal year ended December 31, 2002. Diamond's results for interim periods are not normally indicative of results to be expected for the fiscal year. Weather has historically affected Diamond's sales, net income and earnings before interest expense, income taxes, depreciation and amortization expense ("EBITDA"), with severe weather generating increased sales, net income and EBITDA, and mild weather resulting in lower sales, net income and EBITDA. In addition, Diamond's business is somewhat seasonal, with the first and fourth calendar quarters traditionally its slowest periods of activity. Preferred Stock - At September 30, 2003 and December 31, 2002, the liquidation value of the Preferred Stock recorded on Diamond's Balance Sheet was $67,064 and $61,373, respectively, which includes dividends of $32,064 and $26,373, respectively. Borrowings: Credit Facility - On March 27, 2000, Diamond entered into a revolving credit facility (the "Credit Facility"). The Credit Facility has an initial term of four years and provides for revolving advances of up to the lesser of: (1) $25,000; (2) the sum of 85% of Diamond's Eligible Accounts Receivable (as defined in the Credit Facility) plus 85% of Diamond's Eligible Inventory (as defined in the Credit Facility), less certain reserves; or (3) an amount equal to 1.5 times Diamond's EBITDA (as defined in the Credit Facility) for the prior twelve months. A portion of the Credit Facility, not to exceed $10,000, is available for the issuance of letters of credit, which generally have an initial term of one year or less. Diamond had $6,391 in outstanding letters of credit at September 30, 2003. Borrowings under the Credit Facility bear interest, at Diamond's discretion, at either the Chase Manhattan Bank Rate (as defined in the Credit Facility) or LIBOR, plus a margin of 0.75% for the Chase Manhattan Rate and 2.50% for the LIBOR Rate. In addition, a commitment fee of 0.25% is charged against any unused balance of the Credit Facility. Interest rates are subject to increases or reductions based upon Diamond meeting certain EBITDA levels. The proceeds of the Credit Facility are available for working capital requirements and for general corporate purposes. The Credit Facility is secured by first priority security interests in all of Diamond's tangible and intangible assets. In addition, the Credit Facility contains certain restrictive covenants including, among other things, the maintenance of a minimum EBITDA level of $10,500 for the prior twelve months, as well as restrictions on additional indebtedness, dividends and certain other significant transactions. Diamond was in compliance with these covenants at September 30, 2003. There were no borrowings against the credit facility as of September 30, 2003. During April and May 2003, Diamond repurchased $11,042 principal amount of its senior notes for a repurchase price of $9,544. These repurchases resulted in a gain of $1,065 which was the difference between the carrying value of the senior notes, including unamortized debt issuance costs at the time of their repurchase, and the amount paid to repurchase the senior notes. In accordance with SFAS No. 145, this gain is included within interest expense. During September 2003, Diamond repurchased $2,200 principal amount of its senior notes for a repurchase price of $2,046. This repurchase resulted in a gain of $74 which was the difference between the carrying value of the senior notes, including unamortized debt issuance costs at the time of their repurchase, and the amount paid to repurchase the senior notes. In accordance with SFAS No. 145, this gain is included within interest expense. 7 DIAMOND TRIUMPH AUTO GLASS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Dollars in thousands except per share amounts) Stock Option Plan: In September 1998, the Board of Directors and stockholders of Diamond approved and adopted the Diamond Triumph Auto Glass 1998 Stock Option Plan (the "1998 Plan"). The 1998 Plan provides for the issuance of a total of 30,000 authorized and unissued shares of common stock. As of September 30, 2003, the Board of Directors had granted 24,925 options to key employees of Diamond with an exercise price of $20.00 per share, which approximates fair value at the date of grant. The options vest evenly over five years and may not be exercised until the earlier of (a) 90 days after Diamond's Common Stock has become publicly traded or (b) 91 days prior to the tenth anniversary of the date of the grant. The 1998 Plan expires in September 2008. No options were granted in 2002 and 500 options were granted during the nine months ended September 30, 2003. Diamond accounts for its stock option plan under Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," under which no compensation cost has been recognized for options issued to employees at fair market value on the date of grant. In 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 established a fair value based method of accounting for stock-based compensation plans. SFAS No. 123, as amended by SFAS No. 148, requires that a company's financial statements include certain disclosures about stock-based employee compensation arrangement regardless of the method used to account for the plan. As allowed by SFAS No. 123, Diamond has elected to continue to account for its employee stock-based compensation plans under APB Opinion No. 25, and adopted only the disclosure requirements of SFAS No. 123. Had Diamond recognized compensation cost for its stock based compensation plans consistent with the provisions of SFAS 123, Diamond's net income would have been reduced to the following pro forma amounts:
NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, Net Income 2003 2002 2003 2002 ------- ------- ----- ---- As reported $ 3,131 $ 2,233 $ 260 $ 29 Add stock-based employee compensation expense included in reported net income, net of tax 48 82 16 16 Deduct total stock-based employee compensation expense determined under fair-value-based method for all rewards, net of tax (55) (89) (18) (18) ------- ------- ----- ---- Pro forma $ 3,124 $ 2,226 $ 258 $ 27 ======= ======= ===== ====
The fair value of the options granted of $2.84 is estimated using the Black-Scholes option-pricing model with the following assumptions: risk-free interest rate of 4.65%, volatility of 0% and expected dividend yield of 0%. 8 DIAMOND TRIUMPH AUTO GLASS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands except per share amounts) NOTE 2. PREFERRED STOCK The stockholders of Diamond have, effective July 1, 2003, amended its Charter with respect to its class of Preferred Stock, which eliminated the April 10, 2010 mandatory redemption clause. There was no impact of this amendment on Diamond's balance sheet. NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS In November 2002, the FASB issued Interpretation No. 45, which elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The Interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the Interpretation are effective for guarantees issued or modified after December 31, 2002. The disclosure requirements were effective for financial statements for interim or annual periods ending after December 15, 2002. Diamond adopted the initial recognition provisions of Interpretation No. 45 in January of 2003. The initial adoption of Interpretation No. 45 did not have a material impact on Diamond's results of operations or financial position. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It applies specifically to a number of financial instruments that companies have historically presented within their financial statements either as equity or between the liabilities section and the equity section, rather than as liabilities. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 had no impact on Diamond. NOTE 4. EXECUTIVE COMPENSATION On June 1, 2002 (the "Grant Date"), Norman Harris (the "Executive") and Diamond entered into a Restricted Stock Agreement (the "Agreement") pursuant to which the Executive purchased from Diamond 26,366 shares (the "Restricted Shares") of Diamond's common stock, par value $0.01 per share, for nominal consideration. The Agreement generally restricts the sale or transferability of shares of Common Stock held by the Executive before the Restrictions (as defined in the Agreement) have lapsed. The Executive has all rights and privileges of a stockholder with respect to the Restricted Shares, including voting rights and the right to receive dividends paid with respect to the Restricted Shares. Generally, the Restricted Shares vest and the Restrictions lapse: (i) with respect to 20% of the Restricted Shares on the Grant Date; and (ii) with respect to 20% of the Restricted Shares on each subsequent anniversary of the Grant Date until the Restricted Shares are fully vested. Compensation expense, unearned restricted stock compensation, and proceeds from common stock issued have been recognized based on the vesting periods and an estimated fair market value of $20 per share. NOTE 5. LEGAL PROCEEDINGS On May 2, 2002, Diamond filed an amended Complaint with the United States District Court, Middle District of Pennsylvania against Safelite Glass Corporation (the "Defendant"). Diamond alleges, among other things, that the Defendant's conduct as (i) an operator of national telephone call centers which takes first notice of loss calls from insureds of several of the largest automobile insurers in the United States (the "Insurers"); (ii) a provider of various claims processing services to the Insurers as a third-party administrator; and (iii) an operator of a network of retail repair and replacement facilities who perform work for the Insurers as Safelite affiliates, violated certain federal and state laws and give rise to other legal and equitable claims against the Defendant. Diamond alleges that the Defendant engaged in various practices designed to divert customers away from Diamond to the Defendant, and that Diamond has suffered damages as a result of this conduct in an amount to be determined at trial. 9 DIAMOND TRIUMPH AUTO GLASS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands except per share amounts) On November 1, 2002, the Defendant filed a counter claim against Diamond, alleging, among other things, that Diamond has engaged and continues to engage in publishing certain false and defamatory statements about the Defendant to automobile insurance companies that are the Defendant's clients. Defendant alleges that this alleged conduct has injured the Defendant's goodwill and business reputation with its insurance clients and in the autoglass repair and replacement industry. Among other things, the Defendant is seeking damages in an amount to be determined at trial. On February 3, 2003, Delbert Rice and Kenneth E. Springfield, Jr., on behalf of themselves and all others similarly situated (the "Plaintiffs"), filed a class action Complaint in the Court of Common Pleas of Luzerne County, Pennsylvania against Diamond. Plaintiffs allege, among other things, Diamond violated certain sections of the Pennsylvania Unfair Trade Practices and Consumer Protection Law and common law. Plaintiffs allege that this alleged conduct has caused monetary damages to Plaintiffs. Among other things, Plaintiffs are seeking damages in an amount to be determined at trial. Diamond believes Plaintiffs' allegations are without merit and plans to vigorously contest this complaint. Diamond is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on Diamond's financials, results of operations or financial position. No amounts have been recorded in the consolidated financial statements for any of these legal actions. NOTE 6. INCOME TAXES As disclosed in Diamond's 10-K for the year ended December 31, 2002, on February 20, 2002 the Internal Revenue Service issued a notice of proposed adjustments, which included disallowance of Diamond's tax deductible goodwill from Diamond's March 31, 1998 Recapitalization Transaction (as defined in Diamond's 10-K for the year ended December 31, 2002). The proposed adjustments by the Internal Revenue Service would result in $7.3 million of federal tax deficiencies owed by Diamond for the period December 31, 1998 through December 31, 2002, plus possible interest and penalties and any resultant increases in current state tax expense for this period. Additionally, the deferred tax asset established in 1998 would be eliminated, as well as net operating loss carryforwards from previous deductions of the tax goodwill. The carrying amount of these assets at December 31, 2002 is approximately $36.5 million. In addition, Diamond would be responsible to fund a current federal tax liability for the nine months ended September 30, 2003 of approximately $2.1 million plus possible interest and penalties, and any resulting increases in current state tax expense for 2003. Diamond continues to strongly believe that the Recapitalization Transaction was properly accounted for and has appealed the Internal Revenue Service's proposed adjustment. If such appeal were ultimately unsuccessful, the Internal Revenue Service's proposed adjustment would have a material adverse affect on Diamond's liquidity, cash flows, balance sheet and results of operations. NOTE 7. CONTINGENT GUARANTEED COMMITMENTS Diamond leases certain vehicles under operating leases having lease terms of 367 days. The leases have monthly renewal options. The vehicle lease agreement provides for terminal lease payments for guaranteed residual values reduced by actual proceeds from the vehicle sale in the event the lease is not renewed. The contingent guaranteed residual value payment commitment was $10.6 million at September 30, 2003. No amounts have been accrued related to this contingent obligation because Diamond does not believe it is probable that the payments will be required. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table summarizes Diamond's historical results of operations and historical results of operations as a percentage of sales for the nine and three months ended September 30, 2003 and 2002.
NINE MONTHS ENDED SEPTEMBER 30, THREE MONTHS ENDED SEPTEMBER 30, ------------------------------------------------------------------------------------- 2003 2002 2003 2002 -------------------- -------------------- -------------------- -------------------- $ % $ % $ % $ % -------- -------------------------------- --------- ------------------------------- (DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS) Net Sales 171.0 100.0 155.5 100.0 57.1 100.0 53.0 100.0 Cost of Sales 52.3 30.6 44.5 28.6 17.5 30.6 15.9 30.0 -------- ---------- -------- ---------- -------- --------- --------- --------- Gross Profit 118.7 69.4 111.0 71.4 39.6 69.4 37.1 70.0 Operating Expenses 108.0 63.1 99.6 64.1 37.1 65.0 34.6 65.3 -------- ---------- -------- ---------- -------- --------- --------- --------- Income From Operations 10.7 6.3 11.4 7.3 2.5 4.4 2.5 4.7 Interest Income 0.0 0.0 (0.2) (0.1) 0.0 0.0 (0.1) (0.2) Interest Expense 5.6 3.3 7.7 5.0 2.0 3.5 2.6 4.9 -------- ---------- -------- ---------- -------- --------- --------- --------- 5.6 3.3 7.5 4.8 2.0 3.5 2.5 4.7 -------- ---------- -------- ---------- -------- --------- --------- --------- Income before provision for income taxes 5.1 3.0 3.9 2.5 0.5 0.9 0.0 0.0 Provision (Benefit) for income taxes 2.0 1.2 1.6 1.0 0.2 0.4 0.0 0.0 -------- ---------- -------- ---------- -------- --------- --------- --------- Net income 3.1 1.8 2.3 1.5 0.3 0.5 0.0 0.0 ======== ========== ======== ========== ======== ========= ========= ========= EBITDA (1) 12.8 7.5 13.7 8.8 3.1 5.4 3.4 6.4
(1) EBITDA is defined as earnings before interest expense, taxes, depreciation and amortization, which for Diamond is income from operations plus depreciation and amortization and interest income. EBITDA is not a measurement of financial performance under accounting principles generally accepted in the United States of America, or GAAP, and should not be considered in isolation or as an alternative to income from operations, net income, cash flows from operating activities or any other measure of performance or liquidity derived in accordance with GAAP. EBITDA is presented because Diamond believes it is an indicative measure of its operating performance and its ability to meet its debt service requirements and is used by investors and analysts to evaluate companies in its industry as a supplement to GAAP measures Not all companies calculate EBITDA using the same methods; therefore, the EBITDA figures set forth herein may not be comparable to EBITDA reported by other companies. A substantial portion of Diamond's EBITDA must be dedicated to the payment of interest on its outstanding indebtedness and to service other commitments, thereby reducing the funds available to Diamond for other purposes. Accordingly, EBITDA does not represent an amount of funds that is available for management's discretionary use.
Nine Months Ended Three Months Ended September 30, September 30, --------------------- ------------------------ 2003 2002 2003 2002 -------- -------- -------- -------- (dollars in millions) (dollars in millions) Income from operations $ 10.7 $ 11.4 $ 2.5 $ 2.5 Depreciation and amortization 2.1 2.1 0.6 0.8 Interest Income 0.0 0.2 0.0 0.1 -------- -------- -------- -------- EBITDA $ 12.8 $ 13.7 $ 3.1 $ 3.4 ======== ======== ======== ========
11 NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2002 Net Sales. Net sales for the nine-month period ended September 30, 2003 increased 10.0% to $171.0 million from $155.5 million as compared to the nine-month period ended September 30, 2002. Installation units sold through September 30, 2003 increased 15.2% compared to the nine-month period ended September 30, 2002. Diamond's revenue per installation unit for the nine-month period ended September 30, 2003 was 4.6% below the revenue per installation unit for the nine-month period ended September 30, 2002. The increase in sales and installation units is primarily due to the increase in demand due to harsh winter weather conditions. The decrease in revenue per installation unit is primarily due to a series of price changes made to the list prices developed by the National Auto Glass Specifications ("NAGS"), an independent third party. These price changes, effective January 2003, have resulted in a 4% to 5% decrease in overall list prices. Gross Profit. Gross profit was $118.7 million for the nine months ended September 30, 2003 and $111.0 million for the nine months ended September 30, 2002. Gross profit decreased as a percentage of sales to 69.4% for the nine months ended September 30, 2003 from 71.4% for the nine months ended September 30, 2002. The decrease in gross profit percentage is due to a decrease in average revenue per installation unit and an increase in average cost per installation unit. Operating Expenses. Operating expenses increased by $8.4 million or 8.4% to $108.0 million during the nine-month period ended September 30, 2003 from $99.6 million for the nine-month period ended September 30, 2002. Approximately $2.1 million of increased operating expenses are directly related to expansion in service centers, primarily for wages and wage related expenses, advertisement and promotional expenses and occupancy costs. The increase in operating expenses was also due to an increase in wages and wage related expense, primarily at the service centers, due to an increase in unit demand and to general wage increases, an increase in insurance expense due to rising insurance premiums, an increase in advertisement and promotional expenses and an increase in vehicle fuel costs due to rising prices and increased consumption. We also experienced an increase in vehicle lease expense due to an increase in fleet size to support expansion and continued replacement of owned vehicles with leased vehicles. Depreciation and amortization expense of $2.1 million for the nine-month period ended September 30, 2003 was flat compared with the nine-month period ended September 30, 2002. Increases in depreciation and amortization expense related to certain sales, billing, and financial system software and computer hardware were offset by a decrease in expense due to the increased use of a master fleet leasing program for the lease of mobile installation and distribution service vehicles. Income From Operations. Income from operations for the nine months ended September 30, 2003 decreased by $0.7 million, or 6.1%, to $10.7 million from $11.4 million for the nine months ended September 30, 2002. This decrease was primarily due to the decrease in gross profit percentage and increased operating costs discussed above. Interest Expense. Interest expense for the nine months ended September 30, 2003 decreased $2.1 million, or 27.3%, to $5.6 million from $7.7 million for the nine months ended September 30, 2002. The decrease was due primarily to a net gain of $1.1 million from the repurchase of $13.2 million in aggregate principal of senior notes during the nine months ended September 30, 2003. The decrease was also a direct result from reduced interest expense realized by the repurchase of $20.2 million in aggregate principal amount of senior notes since December 2002. Net Income. Net income for the nine months ended September 30, 2003 increased by $0.8 million to $3.1 million from $2.3 million for the nine months ended September 30, 2002. Net income as a percentage of sales increased 0.3% for the nine months ended September 30, 2003 compared to the nine months ended September 30, 2002. The increase in net income and net income margin during the nine months ended September 30, 2003 compared to the nine months ended September 30, 2002 was primarily due to the $1.1 million gain and related reduced interest expense realized from the repurchase of senior notes during the nine months ended September 30, 2003, which was partially offset by the impact of decreased gross profit percentage and increased operating costs discussed above. 12 EBITDA. EBITDA for the nine months ended September 30, 2003 decreased 6.6% to $12.8 million from $13.7 million for the nine months ended September 30, 2002. EBITDA as a percentage of sales decreased to 7.5% for the nine months ended September 30, 2003 from 8.8% for the nine months ended September 30, 2002. The decrease in EBITDA for the nine months ended September 30, 2003 was primarily due to the decrease in gross profit percentage and increased operating costs discussed above. THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2002 Net Sales. Net sales for the three-month period ended September 30, 2003 increased 7.7% to $57.1 million from $53.0 million as compared to the three-month period ended September 30, 2002. Installation units sold for the three-month period ended September 30, 2003 increased 15.4% compared to the three-month period ended September 30, 2002. Diamond's revenue per installation unit for the three-month period ended September 30, 2003 was 6.8% below the revenue per installation unit for the three-month period ended September 30, 2002. The increase in sales and installation units is primarily due to increased demand. The decrease in revenue per installation unit is primarily due to a series of price changes made to the list prices developed by the National Auto Glass Specifications ("NAGS"), an independent third party. These price changes, effective January 2003, have resulted in a 4% to 5% decrease in overall list prices. Gross Profit. Gross profit was $39.6 million for the three months ended September 30, 2003 and $37.1 million for the three months ended September 30, 2002. Gross profit decreased as a percentage of sales to 69.4% for the three months ended September 30, 2003 from 70.0% for the three months ended September 30, 2002. The decrease in gross profit percentage is due to the decrease in average revenue per installation unit. Operating Expenses. Operating expenses increased by $2.5 million or 7.2% to $37.1 million during the three-month period ended September 30, 2003 from $34.6 million for the three-month period ended September 30, 2002. Approximately $0.3 million of increased operating expenses are directly related to expansion in service centers, primarily for wages and wage related expenses, advertisement and promotional expenses and occupancy costs. The increase in operating expenses was also due to an increase in wages and wage related expense, primarily at the service centers, due to an increase in unit demand and to general wage increases, an increase in insurance expense due to rising insurance premiums, an increase in advertisement and promotional expenses and an increase in vehicle fuel costs due to rising prices and increased consumption. We also experienced an increase in vehicle lease expense due to an increase in fleet size to support expansion and continued replacement of owned vehicles with leased vehicles. Depreciation and amortization expense for the three months ended September 30, 2003 decreased by $0.2 million, or 25.0%, to $0.6 million from $0.8 million for the three months ended September 30, 2002. Increases in depreciation and amortization expense related to certain sales, billing, and financial system software and computer hardware were offset by a decrease in expense due to the increased use of a master fleet leasing program for the lease of mobile installation and distribution service vehicles. Income From Operations. Income from operations of $2.5 million for the three months ended September 30, 2003 was flat compared to the three months ended September 30, 2002. Income from operations decreased as a percentage of sales to 4.4% for the three months ended September 30, 2003 from 4.7% for the three months ended September 30, 2002, which was primarily due to the decrease in gross profit percentage and increased operating costs discussed above. Interest Expense. Interest expense for the three months ended September 30, 2003 decreased $.6 million, or 23.1%, to $2.0 million from $2.6 million for the three months ended September 30, 2002. The decrease was due primarily to a gain from the repurchase of $2.2 million in aggregate principal amount of senior notes in September 2003. The decrease was also a direct result from reduced interest expense realized by the repurchase of $20.2 million in aggregate principal amount of senior notes since December 2002. Net Income. Net income for the three months ended September 30, 2003 increased by $0.3 million to $.3 million compared to the three months ended September 30, 2002. Net income as a percentage 13 of sales for the three months ended September 30, 2003 increased .5% compared to the three months ended September 30, 2002. The increase in net income during the three months ended September 30, 2003 compared to the three months ended September 30, 2002 was primarily due to the gain and related reduced interest expense realized from the repurchase of senior notes, which was partially offset by the impact of decreased gross profit percentage and increased operating costs discussed above. EBITDA. EBITDA for the three months ended September 30, 2003 decreased by $.3 million, or 8.8%, to $3.1 million from $3.4 million for the three months ended September 30, 2002. EBITDA as a percentage of sales decreased to 5.4% for the three months ended September 30, 2003 from 6.4% for the three months ended September 30, 2002. The decrease in EBITDA for the three months ended September 30, 2003 was primarily due to the decrease in gross profit percentage and increased operating costs discussed above. LIQUIDITY AND CAPITAL RESOURCES Diamond's need for liquidity will arise primarily from the interest payable on its 9 1/4% Senior Notes or the "Notes", its Credit Facility and the funding of Diamond's capital expenditures and working capital requirements. There are no mandatory principal payments on the Notes prior to their maturity on April 1, 2008 and, except to the extent that the amount outstanding under the Credit Facility exceeds the borrowing base, no required payments of principal on the Credit Facility prior to its expiration on March 27, 2004. Diamond expects to renew the Credit Facility prior to its expiration. Diamond may from time to time repurchase Notes in the open market. Net Cash Provided by Operating Activities. Net cash provided by operating activities for the nine months ended September 30, 2003 increased by $3.7 million to $12.1 million from $8.4 million for the nine months ended September 30, 2002. The change was primarily attributable to an increase in Diamond's net earnings, as well as a decrease in accounts receivable and inventories, which were partially offset by a gain on the extinguishment of debt. Net Cash Used in Investing Activities. Net cash used in investing activities for the nine months ended September 30, 2003 decreased $2.1 million to $0.8 million from $3.0 million used in investing activities for the nine months ended September 30, 2002. The primary reason for the variance was a decrease in capital expenditures discussed below. Net Cash Used in Financing Activities. Net cash used in financing activities for the nine months ended September 30, 2003 was $11.6 million compared to $0.1 million used in financing activities in the nine months ended September 30, 2002. The primary reason for this increase in cash used by financing activities was due to the repurchase of senior notes during the nine months ended September 30, 2003. Capital Expenditures. Capital expenditures for the nine months ended September 30, 2003 were $1.0 million, as compared to $3.0 million for the nine months ended September 30, 2002. The decrease is due to the higher costs incurred during the nine months ended September 30, 2002 related to the continued upgrade of Diamond's management information systems. Liquidity. Management believes that Diamond will have adequate capital resources and liquidity to satisfy its debt service obligations, working capital needs and capital expenditure requirements, including those related to the opening of new service centers and distribution centers for the foreseeable future. Diamond's capital resources and liquidity are expected to be provided by Diamond's net cash provided by operating activities and borrowings under the Credit Facility. See " -- Notes to Condensed Consolidated Financial Statements - Note 6 - Income Tax" for a discussion of the Internal Revenue Service's proposed adjustments with respect to Diamond's tax treatment of its Recapitalization Transaction (as defined in Diamond's 10-K for the year ended December 31, 2002). 14 RELATED PARTY TRANSACTIONS On July 1, 2003, Diamond entered into an employment agreement with Michael A. Sumsky, pursuant to which Mr. Sumsky agreed to serve as the President, Chief Financial Officer, Secretary and General Counsel of Diamond at an annual salary of $350,000, subject to annual review based on Diamond's and Mr. Sumsky's performance. The employment agreement provides for a term commencing on July 1, 2003 and ending on December 31, 2004. In addition to his annual salary, Mr. Sumsky is eligible to receive a bonus based upon the achievement of certain criteria. The employment agreement also contains various severance, non-competition, non-solicitation provisions, non-disclosure and assignment of inventions provisions. On November 1, 2003, Diamond entered into an amendment to that certain lease agreement dated July 1, 2000 between Richard Rutta & Kenneth Levine Real Estate Partnership, a partnership wholly owned by Richard Rutta and Kenneth Levine, and Diamond for certain leased premises located at 220 Division Street, Kingston, PA 18704. The amendment increased the square footage being leased to Diamond from 102,075 square feet to 206,080 square feet and increased the total annual rent from $235,787 to $465,740. The annual rent shall be increased by four percent on January 1, 2004 and each January 1st thereafter. ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Diamond has a revolving Credit Facility that provides for revolving advances of up to $25.0 million, and matures in March 2004. Borrowings under the Credit Facility bear interest, at Diamond's discretion, at either the Chase Manhattan Bank Rate (as defined in the Credit Facility) or LIBOR, plus a margin of 0.75% for the Chase Manhattan Rate and 2.50% for the LIBOR Rate. In addition, a commitment fee of 0.25% is charged against any unused balance of the Credit Facility. Interest rates are subject to increases or reductions based upon Diamond meeting certain EBITDA levels. At September 30, 2003, Diamond had no outstanding borrowings under the Credit Facility. FORWARD-LOOKING STATEMENTS Readers are cautioned that there are statements contained in this report which are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). Forward-looking statements include statements which are predictive in nature, which depend upon or refer to future events or conditions, which include words such as "expects," "anticipates," "intends," "plans," "believes," "will," "estimates," or similar expressions. In addition, any statements concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future actions, which may be provided by management, are also forward-looking statements as defined by the Act. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties, and assumptions about Diamond, economic and market factors and the industries in which Diamond does business, among other things. These statements are not guarantees of future performance and Diamond has no specific intention to update these statements. These forward-looking statements, like any forward-looking statements, involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. The risks and uncertainties include the effect of overall economic and business conditions, the demand for Diamond's products and services, regulatory uncertainties, the impact of competitive products and pricing, changes in customers' ordering patterns and potential system interruptions. This list should not be construed as exhaustive. Diamond's annual report on Form 10-K in respect of the fiscal year ended December 31, 2002 discusses certain of these risks and uncertainties under the caption "Factors Affecting Future Performance." 15 ITEM 4 CONTROLS AND PROCEDURES Diamond maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in Diamond's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to Diamond's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As required by SEC Rule 13a-15(b), Diamond carried out an evaluation, under the supervision and with the participation of Diamond's management, including Diamond's Chief Executive Officer and Diamond's Chief Financial Officer, of the effectiveness of the design and operation of Diamond's disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, Diamond's Chief Executive Officer and Chief Financial Officer concluded that Diamond's disclosure controls and procedures were effective at the reasonable assurance level. There has been no change in Diamond's internal controls over financial reporting during Diamond's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Diamond's internal controls over financial reporting. 16 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On May 2, 2002, Diamond filed an amended Complaint with the United States District Court, Middle District of Pennsylvania against Safelite Glass Corporation (the "Defendant"). Diamond alleges, among other things, that the Defendant's conduct as (i) an operator of national telephone call centers which takes first notice of loss calls from insureds of several of the largest automobile insurers in the United States (the "Insurers"); (ii) a provider of various claims processing services to the Insurers as a third-party administrator and; (iii) an operator of a network of retail repair and replacement facilities who perform work for the Insurers as Safelite affiliates, violated certain federal and state laws and give rise to other legal and equitable claims against the Defendant. Diamond alleges that the Defendant engaged in various practices designed to divert customers away from Diamond to the Defendant, and that Diamond has suffered damages as a result of this conduct in an amount to be determined at trial. On November 1, 2002, the Defendant filed a counter claim against Diamond, alleging, among other things, that Diamond has engaged and continues to engage in publishing certain false and defamatory statements about the Defendant to automobile insurance companies that are the Defendant's clients. Defendant alleges that this alleged conduct has injured the Defendant's goodwill and business reputation with its insurance clients and in the autoglass repair and replacement industry. Among other things, the Defendant is seeking damages in an amount to be determined at trial. On February 3, 2003, Delbert Rice and Kenneth E. Springfield, Jr., on behalf of themselves and all others similarly situated (the "Plaintiffs"), filed a class action Complaint in the Court of Common Pleas of Luzerne County, Pennsylvania against Diamond. Plaintiffs allege, among other things, Diamond violated certain sections of the Pennsylvania Unfair Trade Practices and Consumer Protection Law and common law. Plaintiffs allege that this alleged conduct has caused monetary damages to Plaintiffs. Among other things, Plaintiffs are seeking damages in an amount to be determined at trial. Diamond believes Plaintiffs' allegations are without merit and plans to vigorously contest this complaint. Diamond is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on Diamond's financials, results of operations or liquidity. No amounts have been recorded in the consolidated financial statements for any of these legal actions. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------ ----------- 10.2 Amended Lease Agreement, dated November 1, 2003, between Diamond Triumph Auto Glass, Inc. and Richard Rutta & Kenneth Levine Real Estate Partnership. 31.3 Sarbanes-Oxley Section 302(a) Certification of the Chief Executive Officer. 31.4 Sarbanes-Oxley Section 302(a) Certification of the Chief Financial Officer. 32.3 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer.
17
32.4 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Chief Financial Officer.
(B) REPORTS ON FORM 8-K Form 8-K filed on August 14, 2003, reporting that Diamond Triumph Auto Glass, Inc. issued a press release announcing its operating and financial results for the quarter ended June 30, 2003. SIGNATURE PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. DIAMOND TRIUMPH AUTO GLASS, INC. Date: November 14, 2003 By: /s/ Michael A. Sumsky ------------------------------ Name: Michael A. Sumsky Title: President, Chief Financial Officer and General Counsel (Principal Financial and Chief Accounting Officer) 18 EX-10.2 3 y91750exv10w2.txt AMENDED LEASE AGREEMENT AMENDED LEASE AGREEMENT SECTION I PARTIES This document serves as an amendment to that certain lease agreement dated July 1, 2000 between RICHARD RUTTA & KENNETH LEVINE REAL ESTATE PARTNERSHIP with an address at 220 Division Street, Kingston, PA 18704 as Landlord, and DIAMOND TRIUMPH AUTO GLASS, INC., with offices at 220 Division Street, Kingston, Pennsylvania, 18704, as Tenant for certain leased premises located at 220 Division Street, Kingston, PA 18704 as described in more detail below. SECTION II DESCRIPTION OF LEASED PREMISES Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, certain premises containing approximately 51,000 sq. ft. of office space and approximately 148,080 sq. ft. of warehouse space located at 220 DIVISION STREET, KINGSTON, PA 18704 which premises shall hereafter be referred to as the Premises and the related parking spaces located in the lot across the street from the Premises and approximately 7,000 sq. ft. of garage space located at the rear section of said lot. The aforementioned Premises together with the parking lot shall hereafter collectively be referred to as the Premises and are more fully described in Exhibit A attached hereto and incorporated to be reference herein. SECTION III TERM The Premises are leased for a term to commence on NOVEMBER 1, 2003 and to end on DECEMBER 31, 2005. OPTION TO RENEW The parties agree that this lease shall be renewed, upon the same terms and conditions, for additional two (2) year periods, unless this lease is terminated by either the Landlord or Tenant by such party providing written notice at least sixty (60) days prior to the expiration of the then current lease period. SECTION IV RENT The total annual rent is the sum of $465,740 ($2.26/sq.ft. per annum) which sum is payable in equal monthly installments, of $38,812 in advance, on the 1st day of each calendar month during the Term. In addition, the Landlord and Tenant acknowledge and agree that effective each January 1st of each calendar year rental period that the annual rent shall be increased by four percent (4%) for each such calendar year. As such, the annual rent shall be increased as of January 1, 2004 and each January 1st thereafter. The Landlord and Tenant acknowledge and agree that the annual rent shall be subject to adjustment during any option or renewal period. The failure of the Landlord to increase the annual rent during any renewal period shall not prohibit the Landlord from subsequently adjusting or increasing the rent during a subsequent renewal period. SECTION V USE AND OCCUPANCY Tenant shall use and occupy the Premises primarily as a warehouse for automobile windshields and other related glass products and also a portion as a Corporate office headquarters. Landlord represents that the Premises may lawfully be used for such purpose and in the event such use is prohibited by any zoning law or ordinance during the term that the Tenant shall have the right to terminate its obligations hereunder by thirty (30) days written notice to Landlord. 1 SECTION VI PLACE FOR PAYMENT OF RENT Tenant shall pay rent to Landlord at Landlord's above stated address, or at such other place as Landlord may designate in writing. SECTION VII CARE AND REPAIR OF PREMISES Tenant shall commit no act of waste and shall take good care of the Premises and the fixtures and appurtenances therein, and shall, in the use and occupancy of the Premises, conform to all laws, orders, and regulations of the federal, state and municipal governments as relate solely to Tenant's use, manner or use of occupancy of the Premises and Tenant's obligations hereunder shall not extend to conditions pre-existing the commencement of the term of this Lease. Not later than the last day of the term, Tenant shall, at Tenant's expense, remove all of Tenant's personal property and those improvements made by fixtures, cabinet work, movable paneling, partitions and the like; repair all injury done by or in connection with the installation or removal of the property and shall restore the premises to the same good order and condition in which they were at the commencement of this Lease, reasonable wear, and damage by fire, the elements or the agents, servants, visitors or licensees of Landlord excepted. SECTION VIII ALTERATIONS, ADDITIONS OR IMPROVEMENTS Tenant shall not, without first obtaining the consent of Landlord, make any structural alterations, or improvements in, to or about the Premises. Landlord shall not unreasonably withhold consent. SECTION IX PROHIBITION AGAINST ACTIVITIES INCREASING FIRE INSURANCE RATES Tenant shall not do or suffer anything to be done on the Premises, which will cause an increase in the cost of fire insurance on the building. If Tenant shall cause the cost of fire insurance to increase Tenant will be responsible for the incremental increase in said costs. SECTION X ACCUMULATION OF WASTE OR REFUSE MATTER Tenant shall not permit the accumulation of waste or refuse matter on the leased Premises or anywhere in or near the building. SECTION XI ASSIGNMENT OR SUBLEASE Tenant shall not, without first obtaining the consent of the Landlord, assign this Lease, in whole or in part, or sublet the Premises or any part of such Premises. Landlord expressly covenants that such consent shall not be unreasonably withheld. The Landlord and Tenant acknowledge and agree that in the event the Tenant effectuates a sale of substantially all of the assets or attempts to effectuate the transfer of the leasehold interest herein in conjunction with a consolidation, merger or pooling of interests of Tenant, that this lease at the Landlord's sole option, may either be terminated or the lease may be extended and Landlord at his election may renegotiate the rent at the time of such transfer or sale. 2 SECTION XII UTILITIES Tenant will pay for all electricity for the Premises herein leased and all other utilities serving the Premises. SECTION XIII DAMAGES TO BUILDING If the building is damaged by fire or any other cause, the Landlord will promptly make such repairs as are reasonably necessary. In the event said repairs are not promptly made, then the Tenant may, but shall not be obligated, to make said repairs and deduct the cost of same from rent which may thereafter become due. In the event such damage prevents or hinders the Tenant from conducting its business on the Premises, then the Tenant may, upon five (5) days written notice, terminate this Lease. Upon said termination, the Tenant's obligation hereunder shall cease as of date of such termination notice. In any case in which use of the Premises is affected by damage to the building, there shall be either an abatement or an equitable reduction in rent depending on the period for which, and the extent to which, the Premises are unusable for the purposes for which the Premises are leased under this agreement. SECTION XIV CONDITION OF THE PREMISES The Landlord represents that upon the commencement of the term of this Lease the plumbing, heating, ventilating, air conditioning systems and electrical systems shall be in proper working order, and the roof shall be free of leaks. It shall be the Tenant's responsibility to properly maintain the plumbing, heating, ventilating, air conditioning and electrical systems in the Premises, however, nothing contained herein shall obligate the Tenant to replace these systems. The Landlord shall be solely responsible for maintaining the structural integrity of the building, including but not limited to the foundation and bearing walls, as well as the roof and all exterior portions of the building and Premises. SECTION XV AUTHORITY The parties hereto represents that they have full authority to enter into this agreement, and to bind the respective parties hereto. The Landlord represents that it is the sole owner of the leased Premises. SECTION XVI BROKERAGE COMMISSION The Landlord and Tenant represent and acknowledge that the contracting party shall be solely responsible for any real estate brokerage commission that the Landlord or Tenant directly contracted with a third party, which may be due as a result of such party directly contracting with a third party for such services. SECTION XVII WAIVERS OF SUBROGATION In the event of loss or damage to the building, the Premises and/or any contents, each party shall look first to any insurance in its favor before making any claim against the other party; and , to the extent possible without additional cost, each party shall obtain, for each policy of such insurance, provisions permitting waiver of any claim against the other party for loss or damage within the scope of such insurance, and each party, to such extent permitted, for itself or its insurers, waives all such insured claims against the other party. However, the Landlord and Tenant agree to indemnify and hold harmless each other from any losses or damages arising under the terms of this Agreement, arising from the intentional acts or gross negligence of the other party. 3 SECTION XVIII EMINENT DOMAIN If the entire Premises or any part of the Premises or any estate therein, or any other part of the building materially affecting Tenant's use of the Premises, be taken by eminent domain, then at the Tenant's option, this Lease shall terminate on the date when title vests pursuant to such taking. The rent, and any additional rent, shall be apportioned as of the termination date, and any rent paid for any period beyond such date shall be repaid to Tenant. Tenant shall not be entitled to any part of the award for such taking or any payment in lieu of such payment, but Tenant may file a claim for any taking of fixtures and improvements owned by Tenant, and for moving expenses. SECTION XIX LANDLORD'S REMEDIES ON DEFAULT If Tenant defaults in the payment of rent, or any additional rent or defaults in the performance of any of the other covenants or conditions of this agreement, Landlord may give Tenant notice of such default and if Tenant does not cure any rent, or additional rent, default within seven (7) days, or other default within ten (10) days, after giving of such notice (or if such other default is of such nature that it cannot be completely cured within such period, or if Tenant does not commence such good faith curing within such ten (10) days notice period and thereafter proceed with reasonable diligence and in good faith to cure such default), then Landlord may terminate this lease on not less than seven (7) days; notice to Tenant. On the date specified in the notice, the term of this Lease shall terminate and Tenant shall then quit and surrender the Premises to Landlord. If this Lease shall been so terminated by Landlord, Landlord may, at any time thereafter, resume possession of the Premises by any lawful means and remove Tenant or other occupants and their effects. SECTION XX EFFECT OF FAILURE TO INSIST ON STRICT COMPLIANCE WITH CONDITIONS The failure of either party to insist on strict performance of any covenant or condition of this agreement, or to exercise any option herein contained, shall not be construed as a waiver of such covenant, condition, or option in any other instance. This Lease cannot be modified or terminated orally. SECTION XXI COLLECTION OF RENT FROM ANY OCCUPANT If the Premises are sublet or occupied by anyone other than Tenant, and Tenant is in default under this agreement, or if this Lease is assigned by Tenant, Landlord may collect rent from the assignee, subtenant, or occupant, and apply the net amount collected to the rent herein reserved. No such collection shall be deemed a waiver of the covenant herein against assignment and subletting, or the acceptance of such assignee, subtenant, or occupant as Tenant, or a release of Tenant from further performance of the covenants herein contained. SECTION XXII LANDLORD'S RIGHT TO CURE TENANT'S BREACH If Tenant breaches any covenant or condition of this Lease, Landlord may, on reasonable notice to Tenant, (except that no notice need be given in case of emergency), cure such breach at the expense of Tenant and the reasonable amount of all expenses, including attorneys' fees, incurred by Landlord in so doing, (whether paid by Landlord or not), shall be deemed additional rent payable on demand. SECTION XXIII MECHANICS' LIEN Tenant shall, within thirty days (30) after notice from Landlord, discharge or post security for, any mechanics' liens for materials or labor claimed to have been furnished to the Premises on Tenant's behalf. 4 SECTION XXIV NOTICES Any notice by either party to the other shall be in writing and shall be deemed to have been duly given only if delivered personally, or sent by certified mail in an addressed postpaid envelope; if to Tenant, Diamond Triumph Auto Glass, Inc., 220 Division Street, Kingston, Pennsylvania, 18704, Attn: Norm Harris, CEO, with copy to Mike Sumsky, President; if to Landlord, at Landlord's address as set forth above to the attention of Kenneth Levine or Richard Rutta; or to either, at such other address as Tenant or Landlord respectively, may designate in writing. Notice shall be deemed to have been duly given, if delivered personally, upon delivery, and if mailed, upon the receipt of such certified mail. SECTION XXV LANDLORD'S RIGHT TO INSPECTION, REPAIR AND MAINTENANCE The Landlord may during the term, at reasonable times and upon adequate notice have access to the Premises (except that no notice need be given in case of emergency), for the purpose of inspection or the making of such repairs, replacements or additions in, to, on and about the Premises or the building. SECTION XXVI INTERRUPTION OF SERVICE OR USE Interruption or curtailment of any service maintained in the building, if caused by strikes, mechanical difficulties, or any causes beyond Landlord's control, whether similar or dissimilar to those enumerated, shall not entitle Tenant to any claim against Landlord or to any abatement in rent, and shall not constitute constructive or partial eviction, unless Landlord fails to take such measures as may be reasonable in the circumstances to restore the service without undue delay. If the Premises are rendered untenantable in whole or in part, for a period of more than three (3) business days, by the interruption or curtailment of any such services or the making of repairs, replacements, or additions, other than those made with Tenant's consent or caused by misuse or neglect by Tenant's agents, servants, visitors, or licensees, there shall be a proportionate abatement of rent during the period of such untenantability. If the Premises shall remain untenantable for twenty (20) days, the Tenant may at its option terminate this Lease. SECTION XXVII LANDLORD'S RIGHT TO SHOW PREMISES Landlord may show the Premises to prospective purchasers and mortgagees and during the two (2) months prior to termination of this Lease, to prospective tenants, during business hours upon reasonable notice to Tenant. SECTION XXVIII EFFECT OF OTHER REPRESENTATIONS No representations or promises shall be binding on the parties to this agreement except those representations and promises contained herein or in some future writing signed by the party making such representations or promises. SECTION XXIX QUIET ENJOYMENT Landlord covenants that if, and so long as, Tenant pays the rent, and any additional rent as herein provided, Tenant shall peaceably and quietly have, hold and enjoy the Premises for the entire term herein mentioned, subject to the provisions of this Lease. If the Tenant's rights pursuant to this paragraph are materially and substantially impaired and remain so impaired, upon ten (10) days written notice to the Landlord the Tenant shall have the right to terminate this lease. 5 SECTION XXX SIGNS Tenant shall have the right, at its expense, to erect on the exterior of the Premises its standard signs, which signs shall be structurally sound and in conformity with existing municipal regulations SECTION XXXI LIABILITY INSURANCE Tenant shall during the entire term hereof, keep in full force and effect, a policy of public and general liability insurance including umbrella liability insurance and property insurance and workers compensation liability insurance with respect to the Premises, and the business operated by Tenant and any subtenants of Tenant in the Premises, in which the limits of such pubic and general liability coverage including umbrella liability coverage shall not be less than Five Million ($5,000,000.) Dollars, combined bodily injury and property damage. Such policy shall include the Landlord as an additional insured. The Tenant acknowledges and agrees that the Tenant shall bear the premium cost of the above referenced insurance maintained by the Tenant. The Tenant and Landlord further acknowledge that the Tenant shall obtain property insurance for the Premises, including the real property thereon. However, the Landlord acknowledges that the Landlord shall reimburse the Tenant for the Premises cost related to the real property coverage obtained by the Tenant for the Premises. SECTION XXXII ENVIRONMENTAL INDEMNITY BY LANDLORD Landlord will indemnify Tenant and save it harmless from and against any failure on the part of the Landlord or any prior owner of the Premises or on the part of any prior occupant of the Premises to comply with the provisions of any local, state or federal hazardous waste or environmental laws, including, but not limited to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. 1801-1812; and the Resource Conservation and Recovery Act of 1976, 42 U.S.C. 6901-6987 (hereinafter collectively referred to as the "Hazardous Waste Laws"). Tenant shall not be responsible for curing any failure on the part of the Landlord or any prior owner of the Premises or on the parts of any prior occupant of the Premises to comply with the provisions of any Hazardous Waste Laws. SECTION XXXIII ENVIRONMENTAL INDEMNITY BY TENANT Tenant warrants and represents that during Tenant's use and occupancy of the demised Premises, Tenant shall not utilize any portion of the demised Premises for the production, disposal, storage treatment, processing or other handling of waste contamination, PCB's or any other toxic or hazardous substances and Tenant shall indemnify and hold Landlord harmless for any violation of Hazardous Waste Laws. SECTION XXXIV GROSS LEASE It is clearly understood that this is a Gross Lease and that the Landlord shall pay all costs relating to its ownership of the Building and Premises, including but not limited to, taxes, insurance and like charges other than the property insurance expense as set for the in Section XXXI above. In addition, Landlord shall provide all exterior maintenance on the entire building and Premises and provide snow plowing of the parking lot adjacent to the demised Premises. 6 SECTION XXXV TENANT'S CERTIFICATION AS TO FORCE AND EFFECT OF LEASE Tenant shall, from time to time, upon not less than seven (7) days' prior written request by Landlord, execute, acknowledge, and deliver to Landlord, a written statement certifying that the Lease is unmodified and in full force and effect, or that the Lease is in full force and effect as modified and listing the instruments of modification; the dates to which the rents and other charges have been paid; and, whether or not to the best of Tenant's knowledge, Landlord is in default under this Lease and, if so, specifying the nature of the default. It is intended that any such statement delivered pursuant to this Section may be relied upon by a prospective purchaser of Landlord's interest or mortgagees of Landlord's interest or the assignee of any mortgages upon Landlord's interest in the building. SECTION XXXVII SECTION HEADINGS The Section headings in this Lease are intended for convenience only and shall not be taken into consideration in any construction or interpretation of this Lease or any of its provisions. DATED: OCTOBER 28, 2003 /S/ KENNETH LEVINE /S/ SALLY A SIDOREK - ---------------------------------------------------- ---------------------- LANDLORD: RICHARD RUTTA & KENNETH LEVINE PARTNERSHIP WITNESS: /S/ KENNETH LEVINE /S/ SALLY A SIDOREK - ---------------------------------------------------- ---------------------- TENANT: DIAMOND TRIUMPH AUTO GLASS, INC. WITNESS: 7 EXHIBIT A (PAGE 1 OF 4) 220 DIVISION STREET, KINGSTON, PA 18704 KINGSTON FACILTY OCCUPIED SQUARE FOOTAGE SUMMARY
GARAGE WAREHOUSE OFFICE REPAIR TOTAL --------- ------ ------ ----- MOD 1 1ST FLOOR 47,500 7,500 55,000 MOD 1 2ND FLOOR 24,000 41,000 65,000 MOD 2 42,500 2,500 45,000 MOD 3 31,680 31,680 MOD 5 (50% OCCUPANCY) 2,400 2,400 GARAGE REPAIR FACILTY 7,000 7,000 TOTAL UTILIZED SQ FT 148,080 51,000 7,000 206,080
EXHIBIT A (PAGE 2 OF 4) 220 DIVISION STREET, KINGSTON, PA 18704 [FIRST FLOOR FLOORPLAN GRAPHIC] EXHIBIT A (PAGE 3 OF 4) 220 DIVISION STREET, KINGSTON, PA [SECOND FLOOR FLOORPLAN GRAPHIC] EXHIBIT A (PAGE 4 OF 4) 220 DIVISION STREET, KINGSTON, PA - -------------------------------------------------------------------------------- GARAGE REPAIR FACILITY 7,000 sq. ft. - -------------------------------------------------------------------------------- EX-31.3 4 y91750exv31w3.txt CERTIFICATION I, Norman Harris, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Diamond Triumph Auto Glass, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I, are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 14, 2003 By: /s/ Norman Harris ------------------------------- Chief Executive Officer EX-31.4 5 y91750exv31w4.txt CERTIFICATION I, Michael A. Sumsky, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Diamond Triumph Auto Glass, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I, are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 14, 2003 By: /s/ Michael A. Sumsky ---------------------------------- Chief Financial Officer EX-32.3 6 y91750exv32w3.txt CERTIFICATION CERTIFICATION OF CHIEF EXECUTIVE OFFICER Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Diamond Triumph Auto Glass, Inc. (the "Company") hereby certifies that: (i) the accompanying Quarterly Report on Form 10-Q of the Company for the nine months ended September 30, 2003 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: November 14, 2003 /s/ Norman Harris --------------------------------------- Norman Harris Chief Executive Officer The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. EX-32.4 7 y91750exv32w4.txt CERTIFICATION CERTIFICATION OF CHIEF FINANCIAL OFFICER Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Diamond Triumph Auto Glass, Inc.(the "Company") hereby certifies that: (i) the accompanying Quarterly Report on Form 10-Q of the Company for the nine months ended September 30, 2003 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: November 14, 2003 /s/ Michael A. Sumsky --------------------------------------- Michael A. Sumsky Chief Financial Officer The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. -2- -----END PRIVACY-ENHANCED MESSAGE-----