-----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, HbEKHuxOiIhGjZoZbWp9gHigXYLw78m6pw2goPUNHgsZgh7dhGWGWFbKRuFuztU5 6MyLMETZIMDwy7iJs6TPRQ== 0000926044-96-000005.txt : 19960216 0000926044-96-000005.hdr.sgml : 19960216 ACCESSION NUMBER: 0000926044-96-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951230 FILED AS OF DATE: 19960214 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DONNELLY CORP CENTRAL INDEX KEY: 0000805583 STANDARD INDUSTRIAL CLASSIFICATION: GLASS PRODUCTS, MADE OF PURCHASED GLASS [3231] IRS NUMBER: 380493110 STATE OF INCORPORATION: MI FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09716 FILM NUMBER: 96519571 BUSINESS ADDRESS: STREET 1: 414 E FORTIETH ST CITY: HOLLAND STATE: MI ZIP: 49423 BUSINESS PHONE: 6167867000 MAIL ADDRESS: STREET 1: 424 EAST 40TH STREET CITY: HOLLAND STATE: MI ZIP: 49423 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter ended December 30, 1995 Commission File Number 1-9716 DONNELLY CORPORATION (Exact Name of Registrant as Specified in its Charter) Michigan 38-0493110 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 414 East Fortieth Street, Holland, Michigan 49423 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (616)786-7000 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 [ ] 4,215,467 shares of Class A Common Stock and 3,582,198 shares of Class B Common Stock were outstanding as of October 31, 1995. 1 DONNELLY CORPORATION INDEX Page Numbering PART 1. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Combined Consolidated Balance Sheets--- December 30, 1995 and July 1, 1995 3 Condensed Combined Consolidated Statements of Income--- Three and six months ended December 30, 1995 and December 31, 1994 4 Condensed Combined Consolidated Statements of Cash Flows--- Six months ended December 30, 1995 and December 31, 1994 5 Notes to Condensed Combined Consolidated Financial Statements---December 30, 1995 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-10 PART II. OTHER INFORMATION Item 1. Legal Proceedings 11 Item 6. Exhibits and Reports on Form 8K 12 Signatures 13 2 PART 1. FINANCIAL INFORMATION Item 1. Financial Statements and supplementary data
DONNELLY CORPORATION AND SUBSIDIARIES CONDENSED COMBINED CONSOLIDATED BALANCE SHEETS December 30, July 1, In thousands 1995 1995 ASSETS Current assets: Cash and cash equivalents $ 2,637 $ 5,224 Accounts receivable, less allowance of $570 and $575 59,552 50,866 Inventories 24,244 22,042 Prepaid expenses and other current assets 30,694 21,674 Total current assets 117,127 99,806 Property, plant and equipment 161,521 150,578 Less accumulated depreciation 62,785 56,642 Net property, plant and equipment 98,736 93,936 Investments in and advances to affiliates 38,312 25,246 Other assets 4,804 4,800 Total assets $258,979 $223,788 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts and notes payable $ 42,710 $ 42,676 Other current liabilities 17,858 16,628 Total current liabilities 60,568 59,304 Long-term debt, less current maturities 103,301 66,374 Deferred income taxes and other liabilities 13,889 12,926 Total liabilities 177,758 138,604 Minority interest 2,284 Preferred stock 531 531 Common stock 784 780 Other shareholders' equity 79,906 81,589 Total shareholders' equity 81,221 82,900 Total liabilities and shareholders' equity $258,979 $223,788 The accompanying notes are an integral part of these statements.
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DONNELLY CORPORATION AND SUBSIDIARIES CONDENSED COMBINED CONSOLIDATED STATEMENTS OF INCOME Three Months Ended Six Months Ended December 30, December 31, December 30, December 31, In thousands except share data 1995 1994 1995 1994 Net sales $ 106,823 $ 98,460 $ 197,346 $ 185,201 Cost and expenses: Cost of sales 86,793 76,148 163,631 144,788 Selling, general and administrative 9,880 11,099 20,023 22,749 Research and development 6,251 6,204 11,880 11,844 Gain on restructuring of business (2,265) (2,265) Operating income 3,899 7,274 1,812 8,085 Interest expense 2,002 1,267 3,737 2,417 Royalty income (1,175) (441) (2,503) (722) Interest income (230) (604) Other income (31) (105) (130) (175) Income before taxes on income 3,333 6,553 1,312 6,565 Taxes on income 1,147 2,217 430 2,220 Income before minority interest and equity earnings 2,186 4,336 882 4,345 Minority interest in net loss of subsidiary 79 405 202 218 Equity in earnings (losses) of affiliated companies 364 (42) (244) 51 Net income $ 2,629 $ 4,699 $ 840 $ 4,614 Per share of common stock: Net income $ 0.34 $ 0.61 $ 0.11 $ 0.59 Cash dividends declared $ 0.10 $ 0.08 $ 0.20 $ 0.16 Average common shares outstanding 7,797,808 7,739,650 7,785,620 7,735,018 The accompanying notes are an integral part of these statements.
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DONNELLY CORPORATION AND SUBSIDIARIES CONDENSED COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended December 30, December 31, In thousands 1995 1994 OPERATING ACTIVITIES Net income $ 840 $ 4,614 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,534 5,220 Deferred pension cost and postretirement benefits 968 971 Deferred income taxes 331 (119) Minority interest (202) (218) Equity in (earnings) losses of affiliated companies 562 (60) Restructuring gain (2,265) Changes in operating assets and liabilities: Accounts receivable (8,686) (1,018) Inventories (2,202) (18) Prepaid expenses and other current assets (9,443) 1,631 Accounts payable and other current liabilities 1,378 (5,220) Other (681) (196) Net cash from (for) operating activities (10,601) 3,322 INVESTING ACTIVITIES Capital expenditures (12,503) (10,802) Proceeds from sale of businesses 14,200 Loan to affiliate (13,683) (500) Purchase of minority interest (2,100) Change in unexpended bond proceeds 292 68 Other (157) Net cash from (for) investing activities (27,994) 2,809 FINANCING ACTIVITIES Proceeds from long-term debt 37,213 15,000 Repayments on long term debt (18,517) Resources provided by minority interest 491 Common stock issuance 411 221 Dividends paid (1,616) (1,258) Net cash from (for) financing activities 36,008 (4,063) Increase (decrease) in cash and cash equivalents (2,587) 2,068 Cash and cash equivalents, beginning of period 5,224 1,374 Cash and cash equivalents, end of period $ 2,637 $ 3,442 The accompanying notes are an integral part of these statements.
5 DONNELLY CORPORATION NOTES TO CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) December 30, 1995 NOTE A---BASIS OF PRESENTATION The accompanying unaudited condensed combined consolidated financial statements have been prepared in accordance with the instructions to Form 10-A and Article 10 of regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended December 30, 1995, should not be considered indicative of the results that may be expected for the year ended June 29, 1996. The combined consolidated balance sheet at July 1, 1995, has been taken from the audited consolidated financial statements and condensed. The accompanying condensed combined consolidated financial statements and footnotes thereto should be read in conjunction with the Company's annual report on Form 10-K for the year ended July 1, 1995. The Company's fiscal year is the 52 or 53 week period ending the Saturday closest to June 30. Accordingly, each quarter ends on the Saturday closest to quarter end. Both the quarters ended December 30, 1995, and December 31, 1994, included 13 weeks.
NOTE B---INVENTORIES Inventories consist of: (In thousands) December 30, July 1, 1995 1995 LIFO cost: Finished products and work in process $ 6,888 $ 6,745 Raw materials 7,839 6,622 14,727 13,365 FIFO costs: Finished products and work in process 2,436 3,397 Raw materials 7,081 5,280 9,517 8,677 $24,244 $22,042
NOTE C---INCOME PER SHARE Income per share is computed by dividing net income, adjusted for preferred stock dividends of approximately $10,000 in each respective quarter, by the weighted average number of shares of Donnelly Corporation common stock outstanding, as adjusted for stock splits. 6
NOTE D---SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Six Months Ended (In thousands) December 30, December 31, 1995 1994 Cash paid during the period for: Interest $ 1,427 $ 2,244 Income taxes $ 183 $ 3,150
7 Item 2. DONNELLY CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 2ND QUARTER REPORT FOR THE SIX MONTHS ENDED DECEMBER 30, 1995 GENERAL The Company's net sales and net income are subject to significant quarterly fluctuations attributable primarily to production schedules of the Company's major automotive customers. These same factors cause quarterly results to fluctuate year to year, as well as from quarter to quarter. RESULTS OF OPERATIONS The Company's net sales were $106.8 million in the second quarter of 1996, an increase of almost 8.5% over the same period last year and 18% over the first quarter of 1996. The increase over the second quarter of 1995 is due to new business programs in modular window systems (particularly for the newly redesigned Chrysler minivan), door handles and interior trim and lighting products. Net sales for the six month period were $197.3 million, an increase of 6.5%, or $12.1 million, over the same period last year. Net sales for the Company continued to grow despite a slightly lower carbuild in the second quarter compared to the same period last year, the loss of the Saturn business and significant price pressures from the Company's major automotive customers. The Saturn business at D&A Technology, Inc., the Company's joint venture with Asahi Glass Company, represented approximately 5% of the Company's combined consolidated net sale in 1995. In the first quarter of 1995, the Company completed the purchase of Asahi's 40% interest in D&A. The operation has been reduced in size and is being maintained as a division of the Company in Tennessee. Gross profit margin for the second quarter of 1996 was 18.8% compared to 15.1% for the first quarter of 1996. This improvement was primarily due to higher sales volumes, lower launch costs associated with new business programs and cost containment measures taken on discretionary expenditures. Despite these gains, margins continue to be substantially lower than the previous year's second quarter gross profit margin of 22.7% due to excessive costs associated with the start-up of new window and exterior door handle programs combined with continued global price decreases. In addition, the Company's subsidiary in Naas, Ireland is experiencing lower gross profit margins compared to last year due to pricing pressures from competition in Eastern Europe and Asia. The significant effort required to launch new programs, which will ultimately result in over $100 million in new business annually, has hampered the Company's ability to perform the necessary continuous improvement initiatives to offset price decreases. The gross profit margin for the Company for the first six months of 1996 was 17.1% compared to 21.8% for the same period last year. While it is expected that improvements will be made in gross profit margins with increased sales volumes, lower launch costs for new programs and implementation of continuous improvement programs, the Company does expect that 1996 margins will continue to fall below the previous year's level. Selling, administration and general expenses in the second quarter were 9.2% of sales, down from 11.3% in the same period last year. These expenses were lower due to the capitalization of legal costs associated with litigation to defend certain electrochromic patents of the Company beginning in 1996 (see Item 1). This is in 8 addition to the Company's commitment to leverage these expenses with continued increases in automotive sales. Research and development expenses for the second quarter were $6.3 million, or 5.9% of sales, compared to 6.3% of sales in the same period last year. The Company continues to be committed to develop new and innovative technologies that improve the function, quality and safety of automotive products and support new business for complete exterior mirrors, electrochromic mirror systems, door handles, interior systems and modular window systems. Interest expense increased $0.3 million in the second quarter of 1996 to $2.0 million. The increase resulted from higher borrowing levels to support the Company's investment in and advances to Hohe, the Company's equity affiliate in Germany, higher working capital and capital expenditures. The Company advanced an additional $13.7 million to Hohe in the first quarter of 1996. The advance was financed through the Company's existing borrowing agreements. An increase in interest income was realized by the Company as a result of the interest charged on the advances to Hohe. Royalty income was $1.2 million in the second quarter of 1996 compared to $0.4 million in 1995. The increase resulted from royalty income associated with the appliance business sold to Gemtron Corporation in 1995. The royalties under this agreement will continue through 1996 at which time the royalty agreement will be satisfied. Equity earnings of affiliated companies were $0.4 million in the second quarter of 1996 compared to an insignificant loss last year. Additional equity earnings from the acquisition of Hohe were offset by losses at Donnelly Applied Films Corporation, the Company's joint venture in Boulder Colorado, and VLSI Limited, the Company's joint venture in Scotland. The Company expects the start-up costs at VLSI Limited to continue through the remainder of the fiscal year. The Company recognized net income of $2.6 million in the second quarter compared to a first quarter loss of $1.8 million. The improvement in net income was due to higher sales volumes, lower launch costs associated with new business programs, the capitalization of patent litigation costs and higher equity earnings. Net income of $0.8 million for the first six months of 1996 compares to $4.6 million for the same period last year, which included $2.0 million of net income associated with the gain on the restructuring of non-automotive businesses. LIQUIDITY AND CAPITAL RESOURCES The Company's current ratio was 1.9 and 1.7 at December 30, 1995, and July 1, 1995, respectively. Working capital was $56.6 million at December 30, 1995, compared to $40.5 million at July 1, 1995. This increase included higher customer tooling and increased inventories to support new business programs reaching full production later this year. Capital expenditures for the first six months of 1996 were $12.5 million compared to $10.8 million for the same period last year. Capital spending will be slightly lower in 1996 due to the completion of the building additions required the last two years in Langres, France and Newaygo, Michigan to support new business programs; the transfer of the Outside Mirror Glass product line to Mexico and the consolidation of two older interior mirror facilities into a new facility in Holland, Michigan. 9 In the second quarter the Company amended its revolving credit loan agreement by increasing the amount to $80 million, and extending the maturity date to November 2002. The revolving credit agreement had borrowings against it of $33.2 million at December 30, 1995. In November 1995, the Company issued a senior note of $20.0 million with an insurance company. Principal payments commence in fiscal 2001 until maturity in fiscal 2006. The Company believes that the borrowing availability under the current revolving line of credit, together with funds generated by operations will meet the Company's current business needs. OUTLOOK The Company is committed to improving shareholder value through focused development of core automotive businesses primarily by increasing dollar content per vehicle through introduction of new technologies, increasing volume through penetration into new and emerging markets, improving the efficiency of current operations and the effectiveness by which the Company launches new products. In line with this strategy, the Company has continued in the last few years to build volume growth in all its existing businesses; introduce new products to the Company including exterior and interior door handles, modular window systems and encapsulated sunroofs, electrochromic mirrors and interior trim and lighting; completed the largest acquisition in the Company's history through the purchase of an equity share of Hohe GmbH & Co. K.G.; expanded and built production equipment and facilities; and undertook a major restructuring program. These actions continue to result in solid increases in sales revenues for the Company. Earnings growth from operations, however, has trailed the increase that the Company has experienced in sales revenues. The Company believes that future results of operations will continue to experience significant pressure due to general economic and industry conditions, introduction of new technologies and programs to the Company, significant global pricing pressures and the ability of the Company to move quickly on the introduction of improved program management and lean manufacturing systems. It is anticipated that the Company's operating results in the foreseeable future will continue to trail the increases in projected sales revenues due to these influences. In addition, it is expected that the third quarter of 1996 will continue to be significantly impacted by launch costs associated with new window and mirror products being introduced in the Company. 10 ITEM 1. LEGAL PROCEEDINGS Patent Litigation. Certain electrochromic mirror technology of the Company has been the subject of patent litigation between the Company and Gentex Corporation ("Gentex"). Following the settlement of prior litigation, Gentex filed another lawsuit against the Company on June 7, 1993. In this suit, Gentex alleged that the Company's solid polymer film electrochromic mirror infringed one of the Gentex patents involved in the prior litigation and that the Company has violated the injunction entered by the court in the previous litigation. Gentex sought unspecified damages and an injunction against further alleged infringement by the Company. On March 21, 1994, the Company's motion for summary judgment of non-infringement was granted and the lawsuit was dismissed. Gentex filed an appeal of this ruling. On November 3, 1995, the Court of Appeals for the Federal Circuit affirmed the summary judgment decision and dismissed Gentex's appeal. On December 18, 1995, the Court of Appeals for the Federal Circuit denied Gentex's request for a rehearing. The Company's lawsuit against Gentex, filed on July 8, 1993, remains outstanding. In this suit, the Company has alleged that Gentex's lighted electrochromic mirrors infringe three of the Company's patents and that all of Gentex's electrochromic mirrors infringe a fourth patent owned by the Company. The Company is seeking unspecified damages and injunction against further infringement by Gentex. A trial has been scheduled to begin in April 1996. Gentex filed several motions for summary judgment, alleging that the patents in question are invalid or not infringed, and that the Company is not entitled to certain damages. The Court granted Gentex's motion for summary judgment that two of the Company's patents relating to lighted mirrors are invalid. The Company believes that its lighted mirror patents are not invalid and has filed on appeal on this issue. On October 13, 1994, the Company filed a second lawsuit against Gentex, alleging that Gentex's inside and outside electrochromic mirrors infringe two additional patents owned by the Company which relate to the protection of electrochromic mirrors from ultraviolet radiation. The Company subsequently amended its complaint to allege that Gentex's inside and outside electrochromic mirrors infringe a third patent owned by the Company which also relates to the protection of electrochromic mirrors from ultraviolet radiation. The Company is seeking unspecified damages and an injunction against further infringement by Gentex. The Company has also filed a motion seeking a preliminary injunction against further infringement of two of these patents pending final resolution of the lawsuit. This motion has not yet been decided by the court, and no trial date has been set in the second lawsuit. On June 23, 1995, Gentex filed a lawsuit against the Company seeking a declaration that three patents owned by the Company are invalid and not infringed by Gentex. The Company has responded by denying these allegations, and charging that two of the patents in question are infringed by certain of Gentex's electrochromic mirrors. The Company is seeking unspecified damages and an injunction against further infringement by Gentex. Gentex has filed motions for summary judgment alleging that the patents in-suit are invalid. The Company has filed motions for summary judgment that the Court does not have the authority to decide a portion of the case relating to one patent, and to dismiss Gentex's allegation for failure to present proof relating to a portion of another patent. The Court has not yet decided these motions and no trial date has been set. Other Litigation. The Company and its subsidiaries are involved in certain other legal actions and claims, including environmental claims, arising in the ordinary course of business. Management believes (based on advice of legal counsel) that such litigation and claims will be resolved without material effect on the Company's financial position or results of operations. 11 Item 6. Exhibits and Reports on Form 8-K (a) EXHIBITS - 27 FINANCIAL DATA SCHEDULE (b) REPORTS ON FORM 8-K The Company did not file any reports on Form 8-K during the three months ended December 30, 1995. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunder duly authorized. DONNELLY CORPORATION Registrant Date: February 14, 1996 /s/ J. Dwane Baumgardner J. Dwane Baumgardner (Chairman, Chief Executive Officer, and President) Date: February 14, 1996 /s/ William R. Jellison William R. Jellison (Vice President, Corporate Controller, and Treasurer) 13 EX-5 2 [ARTICLE] 5 [LEGEND] This schedule contains summary financial information extracted from December 30, 1995 Donnelly Corporation financial statements and is qualified in its entirety by reference to such financial statements [/LEGEND] [PERIOD-TYPE] 3-MOS [FISCAL-YEAR-END] JUN-29-1995 [PERIOD-END] DEC-30-1995 [CASH] 2,637 [SECURITIES] 0 [RECEIVABLES] 59,552 [ALLOWANCES] 570 [INVENTORY] 24,244 [CURRENT-ASSETS] 117,127 [PP&E] 161,521 [DEPRECIATION] 62,785 [TOTAL-ASSETS] 258,979 [CURRENT-LIABILITIES] 60,568 [BONDS] 103,301 [PREFERRED-MANDATORY] 784 [PREFERRED] 0 [COMMON] 531 [OTHER-SE] 79,906 [TOTAL-LIABILITY-AND-EQUITY] 258,979 [SALES] 106,823 [TOTAL-REVENUES] 106,823 [CGS] 86,793 [TOTAL-COSTS] 86,793 [OTHER-EXPENSES] 0 [LOSS-PROVISION] 0 [INTEREST-EXPENSE] 2,002 [INCOME-PRETAX] 3,333 [INCOME-TAX] 1,147 [INCOME-CONTINUING] 2,186 [DISCONTINUED] 0 [EXTRAORDINARY] 0 [CHANGES] 0 [NET-INCOME] 2,629 [EPS-PRIMARY] 0.34 [EPS-DILUTED] 0.34
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