10-K405 1 FORM 10-K, ITEM 405 CHECKED SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ________________ FORM 10-K (Mark One) _X_ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 1994, or ___ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ________ to ________ Commission file number 0-627 ________________ DOUGLAS & LOMASON COMPANY (Exact Name of Registrant as Specified in its Charter) MICHIGAN 38-0495110 (State or other Jurisdiction of (IRS Employer Identification No.) Incorporation or Organization) 24600 Hallwood Court, Farmington Hills, Michigan 48335-1671 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (810) 478-7800 Securities Registered Pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- --------------------- None None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $2.00 par value (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. __X__ As of March 10, 1995, 4,242,970 shares of Common Stock of the Registrant were outstanding, and the aggregate market value of the shares of Common Stock as of such date (based on the closing price in the Nasdaq National Market) of the Registrant held by nonaffiliates (including certain officers and non-officer directors) was approximately $60,748,548. Documents Incorporated by Reference The following documents are incorporated by reference into this Form 10-K: Part I: Item 1 - Part of Annual Report of the Registrant for the year ended December 31, 1994 Part II: Items 5-8 - Part of Annual Report of the Registrant for the year ended December 31, 1994 Part III: Items 10-12 - Part of definitive Proxy Statement of the Registrant dated March 31, 1995 filed pursuant to Regulation 14A. PART I Item 1. Business Douglas & Lomason Company (the "Company" or the "Registrant") is a major supplier of original equipment parts to the North American automotive industry. Automotive products, which have accounted for approximately 94% of the Company's total sales during each of the last three years, include fully trimmed seating, seating components and mechanisms, and decorative and functional body trim parts. These products are manufactured primarily for the three major U.S. automotive manufacturers and other original equipment suppliers. The Company also manufactures material handling systems and custom truck bodies and trailers. These products have accounted for approximately 6% of the Company's total sales during each of the last three years. The Registrant classifies its business into two segments: automotive products and industrial and commercial products. Exclusive of automotive products, no segment accounts for 10 percent or more of consolidated revenues or profits. A summary of certain segment information appears in note (6) of notes to consolidated financial statements on page 20 of the 1994 Annual Report to Shareholders and is incorporated herein by reference. AUTOMOTIVE PRODUCTS Seating Seating systems and components account for the principal portion of the Company's automotive business. The Company is one of the major independent manufacturers and assemblers of seating systems and components for the North American automotive industry. Seat assemblies produced by the Company satisfy the seat requirements of a full range of vehicles. The Company currently supplies complete seats to customer assembly plants on a "just-in-time" (JIT) "sequenced parts delivery" (SPD) basis for passenger cars and vans. The Company's seat frame business has grown significantly over the 48 years it has been supplying seating systems and components to the North American automotive industry. The Company believes it is currently one of the largest independent manufacturers of seat frames in North America. The seat frames manufactured by the Company are incorporated by it into complete seats and sold to vehicle assembly plants and are also sold separately to other seat assemblers. The Company believes that it is recognized as one of the most vertically integrated independent seat manufacturers in North America. The Company is capable of producing seat frames, manual seat mechanisms, foam, covers, suspension systems, and plastic seat trim at its manufacturing facilities. The Company believes that opportunities for growth may emerge in foreign transplant operations in North America and from the expanding trend toward seat assembly outsourcing in Europe. The Company has established technical and business relationships with three Japanese partners to facilitate the exchange of technical information and to establish business relationships with foreign automakers. In 1988, the Company formed a 50/50 joint venture company with Namba Press Works Co., Ltd. of Japan. This company, named Bloomington-Normal Seating Company, is located in Normal, Illinois and manufactures seating systems for Diamond-Star Motors, a subsidiary of Mitsubishi Motors Corporation. The Company also has a license agreement with Imasen Electric of Japan for the manufacture of manual seat adjuster mechanisms. Body Trim Components The Company has been supplying decorative body trim components to the automotive industry since 1902. These products include body side, wheel opening and structural B-pillar moldings, head and tail lamp bezels, bumpers, including those back filled with Azdel, and window and door sealing systems. The Company has the capability of processing large quantities of metal, plastic and composite material parts through injection molding, pressing, rolling, laminating and extruding systems and finishing parts through anodizing and painting. The Company produces a variety of injection molded and extruded plastic moldings including bi-laminate body side and deck lid moldings. These moldings can be finished in a variety of ways such as with a high gloss, in body colors including metallics, or with encapsulated colorful graphics. Product Engineering The Company pursues new products and processes through a 180 person product engineering staff. This staff is customer-focused in that all new projects must be based on a customer's requirements. This facilitates the development of products in shorter lead time and matches products more closely to consumer requirements. Sales and Customers Sales coverage by the Company of the North American automotive industry is maintained by an experienced direct sales staff consisting of 24 account managers, divided into separate and distinct customer-focused groups. The sales group is supported by fully developed program management teams incorporating simultaneous engineering techniques. The percent of sales to total automotive sales of seating systems and body trim components to the three major automotive manufacturers during the past three years is as follows:
1992 1993 1994 Chrysler Corporation........................ 50% 51% 39% Ford Motor Company.......................... 25 25 40 General Motors Corporation.................. 18 15 14
Sales percentages include sales to other seat assemblers for ultimate sale to the above customers. INDUSTRIAL AND COMMERCIAL PRODUCTS This segment of the Company's business accounted for approximately 6% of total Company sales in each of the three years ended December 31, 1994. -2- Industrial and commercial products include: Material Handling Equipment. The Company designs and manufactures material handling equipment such as conveyors, bagging and packaging machines, pulleys and rollers. The Company also produces related equipment such as elevators, bag flatteners, automatic palletizers and bag placers. These products are sold to the agriculture, mining and transportation industries among others. Custom Truck Bodies and Trailers. The Company serves the food and beverage industry through the design and manufacture of delivery truck bodies and trailers for soft drinks, beer, bottled water, bakery products, milk and ice cream, meats, frozen foods and other products. These units include side-loading aluminum bodies and trailers, and steel, aluminum or reinforced fiberglass refrigerated truck bodies and trailers. Competition The Company is one of the three major independent seat suppliers to the North American automotive industry. The Company's primary independent competitors are Johnson Controls Inc.'s Automotive Products Group and Lear Seating Inc. The Company also competes with captive seating suppliers, namely: Delphi Interior and Lighting Systems of General Motors Corporation and the Plastic Trim Products Division of Ford Motor Company. The Company's body trim business competes with a significant number of major competitors. There are 10 to 12 with a full range of material, process and product capabilities similar to the Company's and several competitors with specialized niche products. GENERAL Raw materials purchased by the Registrant consisting of carbon steel, aluminum, stainless steel, plastics, and fabric are generally available from numerous independent sources. Management believes that the trend in its material costs is upward. While the Registrant owns several patents and patent rights, patent protection is not materially significant to its business. To the best of the Registrant's knowledge, its permits are in compliance with all federal, state and local environmental protection provisions. The number of persons employed by the Registrant at December 31, 1994 was 6,039. The Registrant does not consider its business seasonal except to the extent that automotive changeovers to new models affect business conditions. Item 2. Properties The corporate offices of the Company and the product engineering staff are located in Farmington Hills, Michigan in three buildings containing approximately 96,000 square feet. Information as to the Company's 18 principal facilities in operation as of December 31, 1994 is set forth below: -3-
Approximate Year Owned or Location Square Feet Acquired Leased AUTOMOTIVE Seating Columbus, Nebraska............................ 273,400 1965 Owned Milan, Tennessee.............................. 202,300 1976 Owned Red Oak, Iowa................................. 193,500 1967 Owned Marianna, Arkansas............................ 188,200 1960 Owned Ciudad Acuna, Mexico.......................... 134,100 1987 Owned Excelsior Springs, Missouri................... 87,500 1993 Leased Troy, Missouri.(1)............................ 82,500 1990 Leased Orangeville, Ontario, Canada.(1).............. 28,300 1992 Leased Del Rio, Texas.(1)............................ 25,000 1987 Leased Saltillo, Mexico.............................. 44,000 1993 Owned Body Trim Components Carrollton, Georgia........................... 240,700 1955 Owned 48,900 1979 Owned LaGrange, Georgia............................. 85,900 1988 Leased INDUSTRIAL AND COMMERCIAL Material Handling Equipment Humboldt, Iowa................................ 96,300 1968 Owned Dakota City, Iowa............................. 50,500 1978 Owned Fairfield, CA.(1)............................. 4,900 1993 Leased Custom Truck Bodies and Trailers Columbus, Georgia............................. 133,000 1962 Owned Amory, Mississippi............................ 67,000 1982 Owned Kansas City, Missouri......................... 10,400 1983 Leased ---------------- (1) A distribution facility.
The Company believes that substantially all of its property and equipment is in good condition and adequate for its present requirements. Item 3. Legal Proceedings There are no material legal proceedings pending against the Registrant or its subsidiaries. Item 4. Submission of Matters to a Vote of Security Holders Not applicable -4- Executive Officers of the Registrant The names and ages of all executive officers of the Registrant are as follows:
Has Served in Position Name Position Since Age Harry A. Lomason II Chairman of the Board 1992 President 1976 Chief Executive Officer 1982 60 James B. Nicholson Vice Chairman of the Board 1990 51 James J. Hoey Senior Vice President and 1992 Chief Financial Officer 1985 58 Roger H. Morelli Senior Vice President- Manufacturing 1987 50 Steven C. Bruck Vice President-Design, Development and Engineering Services 1984 38 Ollie V. Cheatham Vice President-Human Resources 1984 50 A. Warren Vice President-Safety, Daubenspeck III Environmental and Loss Control 1988 43 Martin A. DiLoreto Vice President-Marketing and Business Planning 1994 59 Scott E. Paradise Vice President-Automotive Sales 1993 40 Joe Kamil Vice President-Business Development and Advanced Engineering 1991 41 Robert D. Stachura Vice President and Executive Manager- Manufacturing 1990 52 H. James Kouris Vice President-Purchasing 1976 64 Dan D. Smith Vice President-Cost Analysis and Information Technology 1989 46 Gary A. Pniewski Vice President-Seating and Decorative Trim Engineering 1994 50 Verne C. Hampton II Secretary 1977 61 Melynn M. Zylka Treasurer 1990 34
-5- Officers of the Registrant are elected each year at the Annual Meeting of the Board of Directors to serve for the ensuing year or until their successors are elected and qualified. All of the executive officers of the Registrant named above have held various executive positions with the Registrant for more than five years except: Mr. Nicholson who has been President and Chief Executive Officer of PVS Chemicals, Inc. and a Director of the Company for more than five years; Mr. Bruck who joined the Company in 1993 after having served as Vice President, Product Engineering Group at RCO the preceding five years; Mr. Pniewski who joined the Company in January 1994 after serving in various positions with Ford Motor Company for more than twenty years, the most recent of which was Vehicle Seat Systems Engineering Manager in the Plastics and Trim Products Division; and Mr. Hampton who has been a partner with the law firm of Dickinson, Wright, Moon, Van Dusen and Freeman for more than five years. There is no family relationship between any of the foregoing persons. PART II Item 5. Market for the Registrant's Common Equity and Related Shareholder Matters The information set forth under the caption "Shareholder Information" on page 26 the 1994 Annual Report of the Registrant is incorporated by reference herein. As of December 31, 1994, there were 757 holders of record of the Registrant's Common Stock. Item 6. Selected Financial Data The information set forth under the caption "Selected Financial and Other Data" on pages 24 and 25 the 1994 Annual Report of the Registrant is incorporated by reference herein. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 12 and 13 of the 1994 Annual Report of the Registrant is incorporated by reference herein. Item 8. Financial Statements and Supplementary Data The information set forth on pages 14 through 25 of the 1994 Annual Report of the Registrant is incorporated by reference herein. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not Applicable -6- PART III Item 10. Directors and Executive Officers of the Registrant The information set forth under the caption "Information About Directors and Nominees for Directors" on pages 3 and 4 of the definitive Proxy Statement of the Registrant dated March 31, 1995 filed with the Securities and Exchange Commission pursuant to Regulation 14A is incorporated by reference herein for information as to directors of the Registrant. Reference is made to Part I of this Report for information as to executive officers of the Registrant. Item 11. Executive Compensation The information set forth under the caption "Executive Compensation" on pages 7, 8 and 9 of the definitive Proxy Statement of the Registrant dated March 31, 1995 filed with the Securities and Exchange Commission pursuant to Regulation 14A is incorporated by reference herein. Item 12. Security Ownership of Certain Beneficial Owners and Management The information set forth under the caption "Security Ownership" on pages 1 and 2 of the definitive Proxy Statement of the Registrant dated March 31, 1995 filed with the Securities and Exchange Commission pursuant to Regulation 14A is incorporated by reference herein. Item 13. Certain Relationships and Related Transactions Not applicable -7- PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) The following documents are filed as a part of this report: 1. Financial Statements The following consolidated financial statements of Douglas & Lomason Company and subsidiaries included in the Douglas & Lomason Company 1994 Annual Report to its Shareholders for the year ended December 31, 1994, are incorporated herein by reference: Consolidated Balance Sheets at December 31, 1994 and 1993. Consolidated Statements of Earnings for each of the years in the three year period ended December 31, 1994. Consolidated Statements of Shareholders' Equity for each of the years in the three year period ended December 31, 1994. Consolidated Statements of Cash Flows for each of the years in the three year period ended December 31, 1994. Notes to Consolidated Financial Statements. The consolidated financial information for the years ended December 31, 1994, 1993, and 1992 set forth under "Index to Consolidated Financial Statements and Schedules." EXHIBITS (The Exhibit marked with one asterisk below was filed as an Exhibit to the Form 10-K Report of the Registrant for the fiscal year ended December 31, 1983; the Exhibit marked with two asterisks below was filed as an Exhibit to the Form 10-Q Report of the Registrant for the quarter ended June 30, 1988; the Exhibit marked with three asterisks below was filed as an Exhibit to the Form 10-K Report of the Registrant for the fiscal year ended December 31, 1989; the Exhibits marked with four asterisks below were filed as Exhibits to the Form 10-K Report of the Registrant for the fiscal year ended December 31, 1991; the Exhibit marked with five asterisks below was filed as an Exhibit to the Form 10-K Report of the Registrant for the fiscal year ended December 31, 1992, the Exhibits marked with six asterisks were filed as -8- Exhibits to the Form 10-K Report of the Registrant for the fiscal year ended December 31, 1993, and the Exhibit marked with seven asterisks below was filed as an Exhibit to the Form 10-Q Report of the Registrant for the quarter ended June 30, 1994, and are incorporated herein by reference, the Exhibit numbers in brackets being those in such Form 10-K or 10-Q Reports). (3)(a)****** Restated Articles of Incorporation of Registrant.[(3)(a)] (3)(b)****** By-Laws of the Registrant. [(3)(b)] (4)(a)** Term Loan Agreement dated as of May 20, 1988 between Registrant and the Banks named in Section 2.1 thereof [1]. (4)(a)(1)**** Amendments to Term Loan Agreement Agreement dated as of May 20, 1988. [(4)(a)(1)] (4)(b)**** Term Loan Agreement dated as of December 19, 1991 between Registrant and NBD Bank, N.A. and Manufacturers Bank, N.A., as amended. [(4)(b)] (4)(c)******* Amended and Restated Credit Agreement dated as of June 24, 1994, between Registrant and the banks named in Section 2.1 thereof. [4] (10)(a)* 1982 Incentive Stock Option Plan of the Registrant [10](#) (10)(b)*** 1990 Stock Option Plan of the Registrant [(10)(b)](#) (10)(c)**** Joint Venture Agreement dated as of July 25, 1986 between Registrant and Namba Press Works Co., Ltd. [(10)(c)] (13) Portions of 1994 Annual Report of Registrant. (21)***** Subsidiaries of the Registrant. [(22)] (23) Consent of KPMG Peat Marwick LLP. (27) Financial Data Schedule (b) Reports on Form 8-K. The Registrant has not filed any reports on Form 8-K during the last quarter of the period covered by this report. (#) This document is a management contract or compensatory plan. -9- SIGNATURES Pursuant to the requirements of the Section 13 or 15 (d) 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 on the 29th day of March, 1995. DOUGLAS & LOMASON COMPANY By: /s/ H. A. Lomason II ---------------------------- H. A. Lomason II Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) By: /s/ James J. Hoey ---------------------------- James J. Hoey Senior Vice President and Chief Financial Officer (Principal Financial Officer) By: /s/ Melynn M. Zylka ---------------------------- Melynn M. Zylka Treasurer (Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 29th, 1995. Signature Title /s/ James E. George Director -------------------------- James E. George /s/ Verne C. Hampton II Director -------------------------- Verne C. Hampton II /s/ H. A. Lomason II Director -------------------------- H. A. Lomason II /s/ Dale A. Johnson Director -------------------------- Dale A. Johnson /s/ Charles R. Moon Director -------------------------- Charles R. Moon /s/ James B. Nicholson Director -------------------------- James B. Nicholson /s/ Gary T. Walther Director -------------------------- Gary T. Walther -10- DOUGLAS & LOMASON COMPANY AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES The consolidated balance sheets of the Company and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1994 together with the related notes and the report of KPMG Peat Marwick LLP, independent certified public accountants, all contained in the Company's 1994 annual report to shareholders, are incorporated herein by reference. The following additional financial data should be read in conjunction with the financial statements in the 1994 annual report to shareholders. All other schedules are omitted, as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes. Financial statements and related schedules of the Registrant have been omitted because the Registrant is primarily an operating company and the subsidiaries included in the consolidated financial statements are totally held. Index Page ---- Independent Auditors' Report F-2 Schedule VIII - Valuation and Qualifying Accounts F-3 F-1 Independent Auditors' Report The Board of Directors and Shareholders Douglas & Lomason Company: Under date of January 31, 1995, we reported on the consolidated balance sheets of Douglas & Lomason Company and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1994, as contained in the 1994 annual report to Shareholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1994. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related consolidated financial statement schedules as listed in the accompanying index. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. As discussed in notes 1 and 8 to the consolidated financial statements, the Company changed its method of accounting for income taxes and postretirement benefits other than pensions in 1993. /s/ KPMG Peat Marwick LLP Detroit, Michigan January 31, 1995 F-2 Schedule VIII DOUGLAS & LOMASON COMPANY AND SUBSIDIARIES Valuation and Qualifying Accounts Years ended December 31, 1994, 1993, and 1992 (Expressed in thousands of dollars)
Balance at Charged to Balance at December 31, Costs and December 31, 1991 Expenses Deductions 1992 ------------ ---------- ---------- ------------ None -- -- -- -- ===== ===== ===== ===== Balance at Charged to Balance at December 31, Costs and December 31, 1992 Expenses Deductions 1993 ------------ ---------- ---------- ------------ Other accrued plant closing liabilities -- 9,078 -- 9,078 ===== ===== ===== ===== Balance at Charged to Balance at December 31, Costs and December 31, 1993 Expenses Deductions 1994 ------------ ---------- ---------- ------------ Other accrued plant closing liabilities 9,078 -- 5,397 3,681 ===== ===== ===== =====
F-3
EX-13 2 REQUIRED INFORMATION FROM 1994 ANNUAL REPORT Exhibit 13 MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES Funds provided from operations of $15.8 million and proceeds from new borrowings of $9.0 million were the Company's primary sources of cash in 1994. The funds provided from operations were positively impacted by the increase in operating income of $21.4 million in 1994 from $11.2 million before provision for plant closings in 1993. Funds generated from operations and net borrowings enabled the Company to purchase additional plant and equipment amounting to $14.6 million and reduce long-term debt by $5.8 million. Debt to total capitalization was 27.1% at December 31, 1994. In June 1994, the Company entered into an Amended and Restated Unsecured Revolving Credit Agreement with two banks which matures in June 1997, but may be extended for two additional years. The amended agreement increased the credit facility from $20.0 million to $35.0 million. Borrowings under this facility totaled $16.0 million at December 31, 1994, with an effective interest rate of 6.7%, leaving $19.0 million available to borrow. Management believes it has adequate sources of liquidity to meet the Company's operating and capital expenditure requirements in 1995. RESULTS OF OPERATIONS -- 1994 VERSUS 1993 Net Sales Net sales of $566.8 million in 1994 were the highest in the Company's history and increased 33% over 1993 net sales of $424.8 million. Fourth quarter 1994 net sales of $182.4 million increased 62% compared to $112.6 million in the fourth quarter of 1993. Fourth quarter 1994 sales were also the highest in the Company's history. The sales increase was due principally to the commencement of full production of fully trimmed seats for the recently introduced Ford Contour and Mercury Mystique models at the Company's new Excelsior Springs, Missouri plant, and the increased production of fully trimmed seats for the Ford Aerostar minivan at the Troy, Missouri plant. Industry sales of automobiles, vans and light trucks continued to be positively affected by a strong consumer demand throughout 1994, which is expected to continue into 1995. Cost of Sales Cost of sales as a percentage of net sales declined slightly in 1994 to 92.4% compared to 92.7% in 1993. This slightly favorable trend was attributable to the significantly higher sales volume during the last six months of 1994. Higher raw material prices, particularly in metals, chemicals and plastics, and pressure for customer price concessions could result in a trend toward reduced margins in 1995 despite anticipated higher sales volume. During the fourth quarter of 1993 the Company decided to close certain plants, and in connection therewith established a plant closing accrual of $10.0 million for employee severance benefit costs, environmental costs, facilities maintenance and other, $4.0 million of which remained at December 31, 1994. The accrual reduction included $1.2 million of employee severance and benefits and $650,000 of facilities maintenance costs taken into income during the third and fourth quarters of 1994, respectively. Furthermore, in compliance with current guidance, site restoration and other environmental exit costs of $2.5 million were reclassified from the provision for plant closing accrual to other accrued liabilities during the fourth quarter of 1994. Selling, General and Administrative Expenses Selling, general and administrative expenses in 1994 increased approximately $2.2 million from 1993, but decreased significantly as a percent of sales to 3.9% compared to 4.6% of sales in 1993. Incentive compensation, additional staffing, travel and professional services expense were the principal components of the increase in 1994, but should not continue to increase in 1995. Depreciation Expense Depreciation expense in 1994 increased $1.2 million or 10% from 1993. The increase was attributable to increased capital expenditures in 1994 of $14.6 million and in 1993 of $20.5 million. Interest Expense Interest expense in 1994 decreased $86,000 or 3% from 1993. This decrease was attributable to the lower debt level in the first and second quarters of 1994. 12 Net Earnings (Loss) Net earnings in 1994 of $12.5 million or $2.95 per share compared with a net loss of $7.2 million or $1.70 per share in 1993. Results for 1993 included a $9.6 million after tax provision for closing certain plants and a $3.8 million after tax provision to reflect the change in the method of accounting for postretirement benefits other than pensions which was in conformity with Financial Accounting Standards No. 106, "Accounting for Postretirement Benefits." Net earnings in 1993 exclusive of the two items mentioned above were $6.2 million or $1.47 per share. The improvement in 1994 net earnings was primarily attributable to the significant sales increase of 33%, which included higher production of automobiles and light trucks nationwide, combined with cost reductions and improvements in productivity in several areas. RESULTS OF OPERATIONS -- 1993 VERSUS 1992 Net Sales Net sales of $424.8 million for 1993 increased 9% compared to 1992 net sales of $391.2 million. Sales of products for Chrysler's highly successful LH model and increased sales at the Richmond, Michigan plant prior to its closing in May, 1993 were the significant components of the 1993 sales increase. The decline in sales as a result of the planned plant closings was more than offset by the start-up of new production in 1994. Cost of Sales Cost of sales as a percentage of net sales increased to 92.7% in 1993 compared to 91.6% in 1992. This unfavorable trend in both the third and fourth quarter of 1993 was a direct result of the excess start-up costs at the new plant in Saltillo, Mexico, combined with an increase in the price of steel which is a major component in automotive seating systems. Price concessions to customers also adversely affected the cost of sales ratio. The total cost reduction estimated to be realized from the plant closings was expected to approximate $3.0 million in 1994 and $5.0 million annually thereafter. Selling, General and Administrative Expenses Selling, general and administrative expenses in 1993 increased approximately $1.8 million from 1992, but remained constant as a percentage of sales. Additional staffing for Sales and Information Services was the principal component of this increase. Depreciation Expense Depreciation expense in 1993 increased $1.6 million or 15% from 1992. The increase was attributable to significantly higher capital expenditures of $20.5 million in 1993 and $16.7 million in 1992. The effect of the plant closings was expected to result in a decrease in depreciation expense of approximately $1.0 million in 1994. Interest Expense Interest expense in 1993 decreased $.8 million or 23% from 1992. This decrease was attributable to lower average debt and lower interest rates. Debt to total capitalization was 21.9% at December 31, 1993. Net Earnings (Loss) The net loss in 1993 of $7.2 million or $1.70 per share resulted principally from the change in accounting principle of $3.8 million or $.90 per share and the provision for plant closings of $9.6 million or $2.28 per share. Net earnings from operations in 1993, exclusive of the two items mentioned above, were $6.2 million or $1.47 per share compared to $8.8 million or $2.25 per share in 1992. The 1993 net earnings from operations before the provision for plant closings were negatively impacted by excessive start-up costs at the Saltillo, Mexico plant and an increase in the price of steel which is a major component in automotive seating systems. Customer price concessions also affected net sales and net earnings adversely. The fourth quarter net loss of $7.9 million or $1.86 per share was significantly contributed to by the provision for plant closings of $9.6 million or $2.28 per share. Net earnings from operations before the provision for plant closings in the fourth quarter were $1.7 million or $.42 per share compared to $3.0 million or $.72 per share in 1992. New Accounting Standard In November 1992, FASB issued Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits," which requires employers to record postemployment benefit costs that are probable and estimable over the period during which the benefit vests or accumulates. The provisions of Statement No. 112 are effective for fiscal years beginning after December 15, 1993. The Company does not expect implementation of this Statement in 1994 to have any effect on its financial statements. 13 [GRAPHIC: This page also has two bar charts on the left side of the page; one showing a five-year range of Total Assets, the other showing a five-year range of Long-Term Debt. The values are as follows:]
1990 1991 1992 1993 1994 Total Assets $148.8 $139.2 $156.4 $174.3 $211.6 Long-Term Debt $ 67.6 $ 46.5 $ 25.7 $ 21.8 $ 31.9 In millions of dollars.
Douglas & Lomason Company and Subsidiaries CONSOLIDATED BALANCE SHEETS December 31, 1994 and 1993 1994 1993 Assets Current assets: Cash $ 6,532,415 $ 2,745,818 Accounts receivable (note 6) 99,927,502 70,458,109 Inventories (note 2) 19,791,325 14,435,433 Deferred tax assets (note 5) 2,843,000 5,542,000 Prepaid expenses and other current assets 810,040 1,042,843 Total current assets 129,904,282 94,224,203 Property, plant and equipment at cost less accumulated depreciation (notes 3, 4 and 9) 66,787,613 69,109,773 Other assets 14,871,532 10,949,345 $ 211,563,427 $ 174,283,321 Liabilities and Shareholders' Equity Current liabilities: Short-term borrowings (note 4) $ -- $ 7,000,000 Current installments of long-term debt (note 4) 5,938,130 5,829,315 Accounts payable 54,428,598 31,100,497 Accrued payroll 3,728,693 3,280,660 Income taxes payable 1,865,401 800,149 Accrued plant closing expenses (note 9) 3,782,964 5,065,000 Other accrued expenses (note 7) 9,847,115 4,943,872 Total current liabilities 79,590,901 58,019,493 Long-term debt, excluding current installments (note 4) 31,887,500 21,825,630 Postretirement benefits, other than pensions (note 8) 7,533,669 6,521,094 Deferred income taxes (note 5) 651,000 992,000 Other liabilities (notes 9 and 10) 6,171,429 9,250,484 Shareholders' equity (notes 4 and 11): Preferred stock, no par value. Authorized 500,000 shares; no shares issued -- -- Common stock, $2 par value. Authorized 10,000,000 shares; issued 4,228,720 in 1994 (4,227,220 in 1993) 8,457,440 8,454,440 Other capital 27,997,976 27,986,476 Retained earnings 52,048,512 41,253,360 Foreign currency translation adjustment (note 12) (2,775,000) (19,656) Total shareholders' equity 85,728,928 77,674,620 $ 211,563,427 $ 174,283,321 See accompanying notes to consolidated financial statements.
14 [GRAPHIC: This page also has a bar chart on the lower right of the page, showing a five-year range of Interest Expense. The values are as follows:]
1990 1991 1992 1993 1994 Interest Expense $ 8.0 $ 5.4 $ 3.5 $ 2.7 $ 2.6 In millions of dollars.
Douglas & Lomason Company and Subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS Years ended December 31, 1994, 1993 and 1992 1994 1993 1992 Net sales $ 566,818,933 $ 424,842,681 $ 391,178,399 Cost of sales 523,576,928 393,934,783 358,190,994 Gross profit 43,242,005 30,907,898 32,987,405 Selling, general and administrative expenses 21,889,605 19,670,926 17,834,224 Provision for plant closings (note 9) -- 15,000,000 -- Operating income (loss) 21,352,400 (3,763,028) 15,153,181 Other income (expenses): Interest expense (2,619,609) (2,706,072) (3,530,314) Interest income and other, net 961,624 451,526 970,020 (1,657,985) (2,254,546) (2,560,294) Earnings (loss) before income taxes and cumulative effect of change in accounting principle 19,694,415 (6,017,574) 12,592,887 Income tax expense (benefit) (note 5) 7,208,000 (2,607,000) 3,823,000 Earnings (loss) before cumulative effect of change in accounting principle 12,486,415 (3,410,574) 8,769,887 Cumulative effect at January 1, 1993 of change in accounting for postretirement benefits other than pensions, net of income tax benefit (note 8) -- (3,756,930) -- Net earnings (loss) $ 12,486,415 $ (7,167,504) $ 8,769,887 Earnings (loss) per share before cumulative effect of change in accounting principle $ 2.95 $ (.80) $ 2.25 Cumulative per share effect of change in accounting for postretirement benefits other than pensions, net of income tax benefit -- (.90) -- Net earnings (loss) per share $ 2.95 $ (1.70) $ 2.25 Dividends per share $ .40 $ .40 $ .30 Weighted average number of common and common equivalent shares outstanding 4,228,120 4,214,372 3,890,115 See accompanying notes to consolidated financial statements.
15 [GRAPHIC: This page also shows two bar charts on the left side of the page; one showing a five-year range of Shareholders' Equity, the other showing a five-year range of Dividends, with the comment "1990 and 1991 dividends retroactively adjusted to reflect 1992 3-for-2 stock split." The values are as follows:]
1990 1991 1992 1993 1994 Shareholders' Equity $ 47.4 $ 54.2 $ 85.9 $ 77.7 $ 85.7 Dividends $ .07 $ .14 $ .30 $ .40 $ .40 -- 1990 and 1991 dividends retroactively adjusted to reflect 1992 3-for-2 stock split. -- In millions of dollars except dividends.
Douglas & Lomason Company and Subsidiaries CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years ended December 31, 1994, 1993 and 1992 Foreign Currency Common Other Retained Translation Shareholders' Stock Capital Earnings Adjustment Equity Balance at December 31, 1991 $ 6,297,336 $ 5,305,491 $ 42,600,917 $ -- $ 54,203,744 Net earnings -- -- 8,769,887 -- 8,769,887 Dividends, $.30 per share -- -- (1,262,830) -- (1,262,830) Issuance of 114,157 shares under employee stock option plans, net of 1,868 shares received as consideration for exercised stock options 228,314 1,310,466 -- -- 1,538,780 Redemption of 174 fractional shares as a result of 3-for-2 stock split (348) 348 -- -- -- Issuance of 932,294 shares through public offering, net of expenses 1,864,588 20,766,808 -- -- 22,631,396 Balance at December 31, 1992 8,389,890 27,383,113 50,107,974 -- 85,880,977 Net loss -- -- (7,167,504) -- (7,167,504) Dividends, $.40 per share -- -- (1,687,110) -- (1,687,110) Foreign currency translation adjustment -- -- -- (19,656) (19,656) Issuance of 32,275 shares under employee stock option plan 64,550 603,363 -- -- 667,913 Balance at December 31, 1993 8,454,440 27,986,476 41,253,360 (19,656) 77,674,620 Net earnings -- -- 12,486,415 -- 12,486,415 Dividends, $.40 per share -- -- (1,691,263) -- (1,691,263) Foreign currency translation adjustment -- -- -- (2,755,344) (2,755,344) Issuance of 1,500 shares under employee stock option plan 3,000 11,500 -- -- 14,500 Balance at December 31, 1994 $ 8,457,440 $ 27,997,976 $ 52,048,512 $ (2,775,000) $ 85,728,928 See accompanying notes to consolidated financial statements.
16
Douglas & Lomason Company and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1994, 1993 and 1992 1994 1993 1992 Cash flows from operating activities: Net earnings (loss) $ 12,486,415 $ (7,167,504) $ 8,769,887 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Provision for plant closings -- 15,000,000 -- Cumulative effect of change in accounting for postretirement benefits other than pensions, net of tax benefit -- 3,756,930 -- Depreciation 13,212,329 12,002,047 10,431,627 Net (gain) loss on sale of property, plant and equipment (106,929) (68,241) 58,469 Provision for deferred income taxes 2,358,000 (6,386,000) (14,000) Changes in operating assets and liabilities: Increase in accounts receivable (29,469,393) (14,859,688) (7,125,536) Decrease (increase) in inventories (5,355,892) 4,278,033 (195,438) Increase in prepaid expenses and other assets (3,689,384) (4,216,235) (1,039,454) Increase in accounts payable 23,328,101 11,251,672 7,101,746 Increase (decrease) in other current liabilities 6,416,528 (822,225) (1,079,099) Decrease in plant closing accrual (3,903,913) -- -- Increase in other liabilities 555,397 1,151,245 400,190 Net cash provided by operating activities 15,831,259 13,920,034 17,308,392 Cash flows from investing activities: Proceeds from the sale of property, plant and equipment 1,541,066 416,291 301,283 Capital expenditures (14,629,379) (20,459,754) (16,743,833) Net cash used in investing activities (13,088,313) (20,043,463) (16,442,550) Cash flows from financing activities: Net proceeds from public stock offering -- -- 22,631,396 Proceeds from issuance of long-term debt 16,000,000 -- -- Principal payments on long-term debt (5,829,315) (5,330,679) (21,341,271) Proceeds from (payments on) short-term borrowings, net (7,000,000) 7,000,000 -- Proceeds from exercised stock options, net 14,500 667,913 1,538,780 Dividends paid (1,691,263) (1,687,110) (1,262,830) Net cash provided by financing activities 1,493,922 650,124 1,566,075 Effect of translation adjustment on cash (450,271) (19,656) -- Net increase (decrease) in cash 3,786,597 (5,492,961) 2,431,917 Cash at beginning of year 2,745,818 8,238,779 5,806,862 Cash at end of year $ 6,532,415 $ 2,745,818 $ 8,238,779 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 2,546,656 $ 2,716,378 $ 3,561,905 Income taxes $ 3,550,000 $ 5,078,975 $ 3,942,491 See accompanying notes to consolidated financial statements.
17 Douglas & Lomason Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1994, 1993 and 1992 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the financial statements of Douglas & Lomason Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The Company's investment in a 50% owned affiliate is accounted for on the equity method. Cash Equivalents For the purposes of the statements of cash flows, the Company considers all liquid debt instruments with original maturities of three months or less to be cash equivalents. Financial Instruments Financial instruments consist primarily of cash equivalents, accounts receivable, accounts payable and bank debt. At December 31, 1994, the Company believes the fair value of these financial instruments approximates the carrying amount. Inventories Inventories are stated as the lower of cost or market (net realizable value). Cost for substantially all inventories is determined by the last-in, first-out (LIFO) cost method. Tooling in process represents unique manufacturing equipment costs incurred, which are partially reimbursed by customers, and the balance amortized over the years the tools benefit. Pre-production design and engineering costs incurred at the request of the customer, when significant, are capitalized and amortized over the years the costs benefit. Tooling and pre-production design and engineering costs that benefit future periods, less accumulated amortization, are included in other assets, with the current portion included in inventory. Property, Plant and Equipment Property, plant and equipment are stated at cost. Plant and equipment under capital leases are stated at the present value of future minimum lease payments. Depreciation is computed using both straight line and accelerated methods over the estimated useful lives of the assets: 10 to 20 years for land improvements, 10 to 40 years for buildings and 2 to 12 years for machinery and equipment. Plant and equipment held under capital leases and leasehold improvements are amortized straight line over the shorter of the lease term or estimated useful life of the asset. The cost and accumulated depreciation of a fully depreciated asset remain in the accounts. When a sale or abandonment occurs, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected in earnings. Repairs and maintenance are charged to earnings as incurred; renewals and betterments are capitalized. Income Taxes Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." For the year ended December 31, 1992, income taxes were determined in accordance with Statement of Financial Accounting Standards No. 96, "Accounting for Income Taxes." Both Statement 109 and Statement 96 require income taxes be determined using the asset and liability method. Accordingly, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The adoption of Statement 109 did not have a material effect on the 1993 consolidated financial statements. Pensions and Postretirement Benefits Other Than Pensions Annual costs of the Company's pension and postretirement benefits other than pensions are determined actuarially in accordance with Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions," and No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." Translation of Foreign Currencies Assets and liabilities of foreign subsidiaries are generally translated at current exchange rates, and related translation adjustments are reported as a component of shareholders' equity. Income statement accounts are translated at the average rates during the period. Net Income Per Share Net income per share is computed using the weighted average number of shares of common stock and common stock equivalents outstanding during the year. Commitments and Contingencies Liabilities are recorded for loss contingencies, including environmental remediation costs, arising from claims, assessments, and other sources when the amount of the assessment and/or remediation cost is probable and can be reasonably estimated. Reclassification Certain amounts related to prior years have been reclassified to conform with the 1994 presentation. 18 (2) INVENTORIES Substantially all inventories are valued on the last-in, first-out (LIFO) cost method. In the opinion of management, the first-in, first-out (FIFO) cost approximates replacement cost. Inventories consist of the following:
1994 1993 Raw materials $14,511,645 $12,741,266 Work in process 6,834,045 5,327,528 Tooling in process 2,063,979 2,010,539 Finished goods 5,838,950 3,356,670 Inventories at FIFO basis 29,248,619 23,436,003 Less adjustment of certain inventories to a LIFO basis 9,457,294 9,000,570 $19,791,325 $14,435,433
(3) PROPERTY, PLANT AND EQUIPMENT A summary of property, plant and equipment follows:
1994 1993 Land and land improvements $ 3,069,743 $ 3,393,836 Buildings and building improvements 28,193,582 29,213,262 Machinery and equipment 118,884,782 107,468,485 Construction in process 602,287 2,675,640 150,750,394 142,751,223 Less accumulated depreciation 83,962,781 73,641,450 $ 66,787,613 $ 69,109,773
Amounts included above, which have been capitalized under capital lease obligation, are as follows:
1994 1993 Machinery and equipment $6,181,567 $6,181,567 Less accumulated depreciation 3,938,113 3,508,462 $2,243,454 $2,673,105
(4) INDEBTEDNESS Long-term debt is summarized as follows:
1994 1993 Notes payable to banks $35,062,500 $23,437,500 Capital leases 1,163,130 2,217,445 Other 1,600,000 2,000,000 37,825,630 27,654,945 Less current installments 5,938,130 5,829,315 $31,887,500 $21,825,630
In 1994, the Company entered into an unsecured revolving credit agreement aggregating $35.0 million with two banks which replaces the line of credit previously in effect. Interest only payments are due at various dates at interest rates based on various factors which are at or below the banks' prime rate. At December 31, 1994, $16.0 million was outstanding on the revolving agreement, and the effective interest rate was 6.75 percent. This revolver expires on June 24, 1997, but may be extended for two additional years. At December 31, 1994, the Company had an unsecured term loan with two banks totaling $12.5 million. Quarterly payments of principal and interest (at 7.95%) are required with the final balance due October 31, 1999. The aggregate maturities on this loan are $2,500,000 each year from 1995 through 1999. The Company had another unsecured term loan agreement with two banks totaling $6,562,500 at December 31, 1994. Quarterly payments of principal and interest (at 9.95%) are required with the final balance due May 31, 1998. The aggregate maturities on this loan are $1,875,000 each year from 1995 through 1997 and $937,500 in 1998. During 1993, the Company acquired intangible assets in exchange for a $2.0 million obligation, payable in five equal annual installments through 1998. At December 31, 1994, the unpaid portion of this obligation was $1.6 million. Under a capital lease agreement, the Company agreed to purchase certain equipment at a nominal amount on the expiration date. The following is a schedule of future minimum lease payments under this capital lease agreement, together with the present value of the total minimum lease payments: Total minimum lease payments expiring in 1995 $ 1,236,306 Less amount representing interest at 9.94% 73,176 Present value of minimum lease payments $ 1,163,130
The bank notes and capital lease agreement contain restrictive covenants regarding consolidated working capital and funded debt to capitalization. The Company was in compliance with all such covenants at December 31, 1994. (5) INCOME TAXES Earnings (loss) before income taxes and the cumulative effect of a change in accounting, as shown in the consolidated statements of earnings, consist of the following:
1994 1993 1992 Domestic $ 19,486,892 $ (4,344,385) $ 12,891,117 Foreign 207,523 (1,673,189) (298,230) $ 19,694,415 $ (6,017,574) $ 12,592,887
Components of income tax expense (benefit) are as follows:
1994 1993 1992 Current: Federal $ 4,619,000 $ 3,438,000 $ 3,556,000 State 231,000 343,000 160,000 Foreign -- (2,000) 121,000 4,850,000 3,779,000 3,837,000 Deferred: Federal 2,100,000 (4,969,000) (225,000) State 234,000 (580,000) 211,000 Foreign 24,000 (837,000) -- 2,358,000 (6,386,000) (14,000) $ 7,208,000 $ (2,607,000) $ 3,823,000
19 (5) INCOME TAXES (CONTINUED) A reconciliation of the "expected" income tax expense (benefit) based on the federal corporate income tax rate of 35% (34% in 1993 and 1992) to the actual income tax expense (benefit) is as follows:
1994 1993 1992 Expected income tax expense (benefit) $ 6,893,000 $(2,046,000) $ 4,281,000 State income tax expense (benefit), net of federal income tax benefit 302,000 (156,000) 245,000 Research and development tax credits (200,000) (332,000) (700,000) Foreign tax rate differential -- (268,000) 222,000 Other items, net 213,000 195,000 (225,000) Actual income tax expense (benefit) $ 7,208,000 $(2,607,000) $ 3,823,000
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1994 and 1993, are as follows:
1994 1993 Deferred tax assets: Plant and equipment, due to difference in depreciation $ 801,000 $ 1,696,000 Accrued postretirement benefits deductible for tax purposes when paid 3,688,000 2,768,000 Other expenses deductible for tax purposes when paid 2,203,000 2,377,000 Accrued plant closing costs 3,700,000 5,397,000 Other items, net 4,580,000 765,000 Gross deferred assets 14,972,000 13,003,000 Less valuation allowance (1,463,000) (1,463,000) Deferred tax assets 13,509,000 11,540,000 Deferred tax liabilities: Plant and equipment, due to difference in depreciation 7,644,000 6,745,000 Other items, net 3,673,000 246,000 Deferred tax liabilities 11,317,000 6,991,000 Net deferred tax assets $ 2,192,000 $ 4,549,000
Management has determined, based on the Company's history of domestic taxable income and its expectation of the future, that domestic operating income of the Company will likely be sufficient to fully recognize these net deferred tax assets. (6) INDUSTRY SEGMENT The Company's operations are within the following industry segments: automotive products, material handling equipment and specialized truck bodies and trailers. A summary of certain segment information and a reconciliation to the related consolidated financial statements amounts follow:
1994 1993 1992 Sales to customers Automotive products $ 530,866,173 $ 397,356,003 $ 363,299,730 All other segments 35,952,760 27,486,678 27,878,669 Total sales $ 566,818,933 $ 424,842,681 $ 391,178,399 Operating profit (loss) Automotive products $ 23,453,958 $ (1,601,322) $ 18,268,931 All other segments 2,547,605 1,456,917 (258,530) Total operating profit (loss) $ 26,001,563 $ (144,405) $ 18,010,401 Identifiable assets Automotive products $ 183,358,186 $ 149,772,959 $ 135,277,457 All other segments 14,616,905 12,032,522 9,217,223 197,975,091 161,805,481 144,494,680 Corporate assets 13,588,336 12,477,840 11,856,449 Total assets $ 211,563,427 $ 174,283,321 $ 156,351,129
Automotive product operations relate principally to the production of fully trimmed seating, seat frame assemblies and mechanisms, decorative moldings, and energy management systems used as components in the assembly of passenger cars and trucks. Automotive product sales and trade accounts receivable consist of the following components:
1994 1993 1992 Automotive Product Sales Chrysler 39% 51% 50% Ford Motor 40 25 25 General Motors 14 15 18 All other 7 9 7 Total Automotive Sales 100% 100% 100%
Sales are classified by ultimate customer and may have been sold through other Tier 1 suppliers.
1994 1993 Automotive trade accounts receivable Chrysler 34% 55% Ford Motor 43 16 General Motors 12 12 All other 11 17 Total automotive trade accounts receivable 100% 100%
20 (6) INDUSTRY SEGMENT (CONTINUED) Other automotive product sales include sales to Bloomington-Normal Seating Company (a 50% owned affiliate) which approximated $23.0 million, $18.7 million and $23.6 million for the years ended December 31, 1994, 1993 and 1992, respectively. Total accounts receivable from Bloomington-Normal Seating Company approximated $6.4 million and $1.7 million at December 31, 1994 and 1993, respectively. Depreciation expense and capital expenditures of the automotive products segment were as follows:
1994 1993 1992 Depreciation expense $11,294,236 $10,700,000 $ 9,600,000 Capital expenditures $12,934,027 $18,200,000 $15,700,000
Identifiable assets are those assets used in, or resulting from, the operation of a segment. Corporate assets, principally cash, administrative offices and other assets, are not classified as identifiable assets. (7) PENSION BENEFITS The Company has non-contributory pension plans covering substantially all of its salaried and hourly employees. The benefits are based on either years of service and the employee's compensation during the last five years of employment, or a fixed-dollar rate for each year of credited service up to a maximum of forty years. The Company's policy is to fund pension costs accrued. The following table sets forth the funded status of the plans and amounts recognized in the Company's consolidated balance sheets at December 31, 1994 and 1993:
1994 1993 Actuarial present value of benefit obligations: Vested benefit obligations $ 29,623,000 $ 30,072,000 Accumulated benefit obligations $ 30,325,000 $ 31,338,000 Projected benefit obligations $ 35,268,000 $ 37,378,000 Plan assets at fair market value 39,100,000 42,471,000 Plan assets in excess of projected benefit obligations 3,832,000 5,093,000 Unamortized transition assets (2,629,000) (2,963,000) Unamortized prior service cost 2,073,000 1,673,000 Unrecognized net gain (5,848,000) (4,971,000) Accrued pension cost included in the consolidated balance sheets $ 2,572,000 $ 1,168,000
Assets in the plans consist mainly of investments in common stocks, private sector bonds and federal government obligations. The components of net pension costs for the years ended December 31, 1994, 1993 and 1992, were as follows:
1994 1993 1992 Service cost $ 2,376,000 $ 2,033,000 $ 1,836,000 Interest cost 2,663,000 2,469,000 2,212,000 Actual return on assets 2,081,000 300,000 (8,388,000) Net amortization and deferral (5,716,000) (4,384,000) 5,190,000 Net pension cost $ 1,404,000 $ 418,000 $ 850,000
Assumptions used in accounting for the pension plans as of December 31, 1994, 1993 and 1992, were as follows:
1994 1993 1992 Discount rate 8.25% 7.25% 8.00% Rate of increase in compensation levels 4.00% 4.00% 5.00% Expected long-term rate of return on assets 8.00% 8.00% 8.00%
(8) OTHER POSTRETIREMENT BENEFITS In addition to providing pension benefits, the Company sponsors two postretirement benefit plans that cover salaried employees and their dependents. One plan provides medical benefits and the other plan provides life insurance benefits. The postretirement medical plan is contributory until the retiree turns age 65, or if the retiree is at least age 62 and retired with 15 or more years of service. The accounting for this plan is consistent with the Company's expressed intent to modify its future contribution policy such that the Company's contributions will be capped at three times the 1993 cost levels. The life insurance plan provides death benefits that vary depending on salary at retirement. The Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pension," as of January 1, 1993. The effect of adopting Statement 106 on net earnings for the year ended December 31, 1993 was a decrease of approximately $4,040,000, which included an increase in the pre-tax net periodic postretirement benefit cost of approximately $559,000. Postretirement benefit costs were less than $200,000 for the year ended December 31, 1992, which were recorded on a cash basis and have not been restated. 21 (8) OTHER POSTRETIREMENT BENEFITS (CONTINUED) The following table presents the funded status of these obligations reconciled with amounts recognized in the Company's consolidated balance sheets at December 31, 1994 and 1993:
1994 1993 Accumulated postretirement benefit obligation: Retirees $ 3,680,000 $ 3,492,000 Fully eligible active salaried employees 231,000 1,364,000 Other active employees 4,456,000 4,399,000 8,367,000 9,255,000 Plan assets at fair value, primarily insurance contracts 807,000 921,000 Accumulated postretirement benefit obligation in excess of plan assets 7,560,000 8,334,000 Unrecognized net loss (26,000) (1,813,000) Accrued postretirement benefit cost included in the consolidated balance sheets $ 7,534,000 $ 6,521,000 Net periodic postretirement benefit cost for 1994 and 1993 includes the following components: Service cost $ 456,000 $ 341,000 Interest cost 598,000 572,000 Actual return on assets (60,000) (59,000) Net amortization and deferral 19,000 -- Net periodic postretirement benefit cost $ 1,013,000 $ 854,000
For measurement purposes, the annual percent rate of increase in the per capita cost of health care benefits (i.e. health care cost trend rate) for 1994 was assumed to vary by age category and by type of health care service. For benefits provided to participants under age 65, the 1994 trend was assumed to be 14% for prescription drugs and 13.2% for all other costs. These rates were assumed to decrease gradually to approximately 6% over the next 15 years and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1994 by 1.1% and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended December 31, 1994 by .8%. The weighted average discount rate and rate of increase in future compensation levels used in determining the accumulated postretirement benefit obligation were 8.25 % and 4%, respectively, at December 31, 1994. The expected long-term rate of return on assets was 8%. The unrecognized net loss is being amortized over the average remaining service period of active plan participants (21 years). (9) PROVISION FOR PLANT CLOSINGS During the fourth quarter of 1993, the Company recorded a charge of $15.0 million in connection with management's decision to close certain automotive plants. This resulted in an after tax charge of $9.6 million or $2.28 per share. $5.0 million of this charge was immediately utilized for the devaluation of building and equipment. At December 31, 1994 and 1993, the components of the accrual consist of the following:
1994 1993 Employee severance and benefit costs $ 1,000,000 $ 3,000,000 Site restoration and other environmental exit costs -- 2,500,000 Facility maintenance costs and other 3,000,000 4,500,000 $ 4,000,000 $10,000,000
During 1994, $850,000 was charged to facility maintenance costs and other, and $800,000 for the payment of employee severance and benefit costs. These severance payments represented the majority of the 12% expected workforce reduction. In addition, $1.2 million of employee severance and benefit costs and $650,000 of facilities, maintenance and other costs were taken into income during the third and fourth quarters of 1994, respectively. Furthermore, in compliance with current guidance, site restoration and other environmental exit costs of $2.5 million were reclassified from the provision for plant closing accrual to other accrued liabilities during the fourth quarter of 1994. The cash outflows for the remaining accrued liability are expected to occur over the next two years. Selected financial information for these automotive facilities for the years ended December 31, are as follows:
1994 1993 1992 Sales $ 34,798,664 $ 71,754,231 $ 84,256,465 Pre-tax earnings (loss) $ 359,027 $(15,597,071) $ (1,902,175)
(10) ENVIRONMENTAL MATTERS The Company is involved in proceedings related to environmental matters under the Comprehensive Environmental Response Compensation and Liability Act (Superfund) and similar state laws at three sites. The Company is one of several potentially responsible parties in one case. As of December 31, 1994 and 1993, the Company has recorded an accrual of $3.5 million and $3.1 million, respectively, for estimates of future clean-up costs in connection with its internal site assessment and compliance program. Estimates of future liability are based on an evaluation of currently available facts regarding each individual site and consider factors including existing technology, presently enacted laws and regulations, and prior Company experience in remediation of contaminated sites. Changes in EPA standards, improvements in clean-up technology and discovery of additional information concerning these sites and other sites could result in future expenses that are greater than the accrued liability. Management believes that these matters will not have a material adverse effect upon its future financial position or results of operations. 22 (11) STOCK OPTION PLANS Under the Company's 1990 Stock Option Plan, 225,000 shares (as adjusted for the 1992 stock split) of the Company's common stock have been reserved for grants to officers and key employees at prices which are not less than the fair market value on the date of the grant. Stock options outstanding of 7,875 at December 31, 1993, under the 1982 Incentive Stock Option Plan are exercisable at an option price of $17.50 per share. This Plan expired in February, 1992 and, accordingly, no additional options are available for grant. Stock options outstanding of 92,500 at December 31, 1994, under the 1990 Plan are exercisable at a weighted option price of $16.98 per share. Options granted, but not exercised, expire within five years from the date of the grant. Transactions for the years ended December 31, 1994, 1993 and 1992, were as follows:
Number of Shares 1994 1993 1992 Outstanding at beginning of year 66,175 100,075 133,575 Granted 38,000 -- 83,575 Exercised (1,500) (32,275) (116,025) Canceled (2,300) (1,625) (1,050) Outstanding at end of year 100,375 66,175 100,075 Available for grant at end of year 42,850 78,550 78,050
(12) FOREIGN CURRENCY TRANSLATION Net exchange gains and losses resulting from the translation of assets and liabilities of foreign subsidiaries are accumulated in a separate section of shareholders' equity titled, "foreign currency translation adjustment." Also included are the effects of exchange rate changes on intercompany transactions of a long-term nature. Analysis of this account follows:
1994 1993 1992 Balance at beginning of year $ (19,656) $ -- $ -- Translation adjustments (2,755,344) (19,656) -- Balance at end of year $(2,775,000) $(19,656) $ --
INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors of Douglas & Lomason Company: We have audited the accompanying consolidated balance sheets of Douglas & Lomason Company and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Douglas & Lomason Company and subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994 in conformity with generally accepted accounting principles. As discussed in note 1 to the consolidated financial statements, the Company changed its method of accounting for income taxes in 1993 to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." As discussed in note 8 to the consolidated financial statements, the Company also adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" in 1993. /s/ KPMG Peat Marwick LLP Detroit, Michigan January 31, 1995 23
Douglas & Lomason Company and Subsidiaries SELECTED FINANCIAL AND OTHER DATA (In thousands of dollars except as to per share and other data) 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 FOR THE YEAR Net sales...... $566,819 $424,843 $391,178 $375,618 $418,118 $424,926 $325,498 $296,723 $286,536 $266,626 $244,986 Cost of sales......... 523,577 393,935 358,191 342,202 385,302 406,470 313,943 270,824 267,600 243,669 223,289 Gross profit... 43,242 30,908 32,987 33,416 32,816 18,456 11,555 25,899 18,936 22,957 21,697 Capital additions..... 14,629 20,460 16,744 6,098 8,749 16,708 26,805 13,113 11,939 11,127 5,217 Depreciation expense....... 13,212 12,002 10,432 10,611 11,666 11,169 7,636 5,374 4,825 3,725 3,318 Interest expense....... 2,620 2,706 3,530 5,416 8,028 8,322 3,787 2,255 2,459 2,385 2,306 Income tax expense (benefit)..... 7,208 (2,607) 3,823 4,650 3,102 (2,296) (3,692) 4,838 2,669 4,846 5,186 Earnings (loss) before cumulative effect of change in accounting principle..... 12,486 (3,411) 8,770 7,235 4,964 (3,372) (4,629) 6,239 3,193 6,651 5,783 Net earnings (loss)........ 12,486 (7,168) 8,770 7,235 4,964 (3,372) (3,969) 6,239 3,193 6,651 5,783 AT YEAR END Total assets... $211,563 $174,283 $156,351 $139,192 $148,820 $169,975 $161,916 $118,480 $ 99,631 $ 92,331 $ 78,295 Working capital....... 50,313 36,205 50,633 45,723 52,689 31,123 33,025 38,103 34,730 38,845 31,351 Property, plant and equipment less accumulated depreciation.. 66,788 69,110 66,022 60,070 64,726 67,886 62,525 43,361 35,631 28,524 21,127 Long-term debt.......... 31,888 21,826 25,655 46,486 67,627 56,253 48,911 29,499 28,679 24,450 16,122 Shareholders' equity........ 85,729 77,675 85,881 54,204 47,382 41,408 45,096 51,838 42,441 39,882 33,894 PER SHARE DATA Book value..... $ 20.27 $ 18.37 $ 20.47 $ 17.21 $ 15.05 $ 13.68 $ 15.09 $ 16.71 $ 14.69 $ 13.97 $ 11.95 Net earnings (loss) per share......... 2.95 (1.70) 2.25 2.29 1.57 (1.12) (1.31) 2.05 1.11 2.33 2.04 Dividends...... .40 .40 .30 .14 .07 .25 .33 .33 .33 .27 .27 OTHER DATA Number of employees..... 6,039 5,697 5,817 5,562 5,424 6,285 6,076 3,994 3,612 3,581 3,301 Number of shareholders.. 757 806 846 858 887 903 891 842 702 630 612 Weighted average number of common and common equivalent shares outstanding... 4,228,120 4,214,372 3,890,115 3,154,365 3,159,311 3,018,002 3,033,798 3,046,578 2,880,246 2,849,163 2,834,274 Per share data and outstanding shares for 1991 and prior have been retroactively adjusted to reflect the 1992 3-for-2 stock split distributed April 2, 1992.
QUARTERLY FINANCIAL SUMMARY (In thousands of dollars except as to per share data; unaudited) First Second Third Fourth 1994 Quarter Quarter Quarter Quarter Total Net sales $123,466 $123,253 $137,680 $182,420 $566,819 Gross profit 11,156 9,671 5,654 16,761 43,242 Earnings before income taxes 5,300 3,901 449 10,044 19,694 Net earnings 3,315 2,511 234 6,426 12,486 Net earnings per share .78 .60 .05 1.52 2.95 First Second Third Fourth 1993 Quarter Quarter Quarter Quarter Total Net sales $115,403 $103,859 $ 92,995 $112,586 $424,843 Gross profit 12,412 8,295 2,367 7,834 30,908 Earnings (loss) before income taxes and cumulative effect of change in accounting principle 6,792 2,855 (3,038) (12,627) (6,018) Net earnings (loss) 605 1,850 (1,763) (7,860) (7,168) Earnings (loss) per share before cumulative effect of change in accounting principle 1.04 .44 (.42) (1.86) (.80) Net earnings (loss) per share .14 .44 (.42) (1.86) (1.70) Fourth quarter net earnings in 1994 were affected by the capitalization of pre-production design and engineering costs of $0.46 per share. Fourth quarter net earnings in 1993 were negatively impacted by the provision for plant closings of $2.28 per share.
24 / 25 [two-page spread] SHAREHOLDER INFORMATION Annual Meeting The Annual Meeting of Shareholders will be held on Friday, April 28, 1995, at 11:00 a.m., EDT, at the Neva Lomason Memorial Library in Carrollton, Georgia. All shareholders are cordially invited to attend. Stock Market Information Douglas & Lomason Company common stock is traded in the National Market System of The Nasdaq Stock Market under the symbol DOUG. Stock price quotations are printed daily in major newspapers. As of December 31, 1994, there were 4,228,720 shares of common stock outstanding, of which approximately 15% was owned by officers and directors and 47% by institutions. At that date, there were 757 shareholders of record. Also at that date, the following securities firms were registered as market makers of the Company's common stock: Bear, Stearns & Co. Inc. Mayer & Schweitzer, Inc. Stifel Nicolaus & Co. First of Michigan Corporation Neuberger & Berman Troster Singer Corp. Herzog, Heine, Geduld, Inc. Sherwood Securities Corp. S. J. Wolfe & Co.
The Company has paid a cash dividend each year since 1957. Subject to approval of the Board of Directors, dividends are customarily paid on the Company's common stock on or about March 31, June 30, September 30 and December 31. Form 10-K and Other Financial Publications The Form 10-K for the year ended December 31, 1994, as well as other financial publications of the Company, may be obtained without charge. Requests should be directed to Patricia L. Shelton, Assistant Vice President and Assistant Secretary, at the corporate offices. Investor Relations Contact Shareholders and prospective investors may contact the Company with questions or requests for additional information. Inquiries should be directed to James J. Hoey, Senior Vice President and Chief Financial Officer, at the corporate offices. Shareholder Assistance Inquiries related to shareholder records, change of name, address, or ownership of stock, and lost or stolen stock certificates should be directed to the Transfer Agent and Registrar: State Street Bank and Trust Company P.O. Box 8200 Boston, MA 02266-8200 (800) 257-1770 Independent Auditors KPMG Peat Marwick LLP, Detroit, MI Legal Counsel Dickinson, Wright, Moon, Van Dusen & Freeman, Detroit, MI Smith, Currie & Hancock, Atlanta, GA Stock Prices and Cash Dividends
1994 MARKET PRICE CASH QUARTER HIGH LOW DIVIDEND FIRST ....................... 20 1/2 15 $.10 SECOND ...................... 19 1/2 17 3/4 $.10 THIRD ....................... 20 1/2 14 3/4 $.10 FOURTH ...................... 18 14 1/2 $.10 ---- $.40 ====
1993 MARKET PRICE CASH QUARTER HIGH LOW DIVIDEND FIRST ....................... 29 22 1/4 $.10 SECOND ...................... 29 22 1/2 $.10 THIRD ....................... 27 1/2 16 3/4 $.10 FOURTH ...................... 20 16 $.10 ---- $.40 ====
26 APPENDIX GRAPHIC AND IMAGE MATERIAL IN THIS DOCUMENT (as required pursuant to Rule 304(a) of Regulation S-T) The following is a narrative description of the graphic or image material which appears in Exhibit 13 to the Registrant's Annual Report on Form 10-K. Exhibit 13 contains pages extracted from the Registrant's 1994 Annual Report to Shareholders which are incorporated by reference into the Form 10-K. Page No. In 1994 Annual Report Description ------- ----------- 14 Two bar charts; one showing a five-year range of Total Assets, and the other showing a five-year range of Long-Term Debt. Fully described in position in body of document. 15 Bar chart showing a five-year range of Interest Expense. Fully described in position in body of document. 16 Two bar charts; one showing a five-year range of Shareholders' Equity, and the other showing a five-year range of Dividends. Fully described in position in body of document.
EX-23 3 CONSENT OF KPMG PEAT MARWICK LLP Exhibit 23 [Letterhead of KPMG Peat Marwick LLP] KPMG Peat Marwick LLP Suite 1200 150 West Jefferson Detroit, MI 48226-4429 The Board of Directors and Shareholders Douglas & Lomason Company: We consent to incorporation by reference in the Registration Statement No. 33-36359 on Form S-8 of Douglas & Lomason Company of our report dated January 31, 1995, relating to the consolidated balance sheets of Douglas & Lomason Company and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1994, and all related schedules, which report appears in the December 31, 1994, annual report on Form 10-K of Douglas & Lomason Company. Our report refers to the changes in accounting for income taxes and postretirement benefits other than pensions in 1993. /s/ KPMG Peat Marwick LLP Detroit, Michigan March 20, 1995 Member Firm of Klynvald Peat Marwick Goerdeler EX-27 4 ART 5 FDS, D&L 1994 FORM 10-K405
5 1,000 12-MOS DEC-31-1994 DEC-31-1994 $ 6,532 0 99,928 0 19,791 129,904 150,750 83,963 211,563 79,591 37,826 8,457 0 0 77,271 211,563 566,819 566,819 523,577 523,577 21,890 0 2,620 19,694 7,208 12,486 0 0 0 12,486 2.95 0