EX-99.1 10 dex991.txt FINANCIALS OF DONNELLY ELECTRONICS Donnelly Electronics, Inc. Financial Statement Year Ended December 31, 2000 Six Months Ended December 31, 1999 Year Ended June 26, 1999 Year Ended June 27, 1998 (unaudited) Donnelly Electronics, Inc. Contents Independent Auditors' Report 3 Financial Statements Balance Sheets 4 Statements of Operations 5 Statements of Equity (Deficit) 6 Statements of Cash Flows 7-8 Notes to Financial Statement 9-16 2 Independent Auditors' Report Donnelly Electronics, Inc. Holly, Michigan We have audited the accompanying balance sheets of Donnelly Electronics, Inc. as of December 31, 2000, December 31, 1999 and June 26, 1999, and the related statements of operations, equity (deficit) and cash flows for the year ended December 31, 2000, the six months ended December 31, 1999 and the year ended June 26, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Donnelly Electronics, Inc. as of December 31, 2000, December 31, 1999 and June 26, 1999, and the results of its operations and cash flows for the year ended December 31, 2000, the six months ended December 31, 1999 and the year ended June 26, 1999 in conformity with accounting principles generally accepted in the United States of America. /s/ BDO Seidman LLP Grand Rapids, Michigan August 15, 2001 3
June 27, December 31, December 31, June 26, 1998 2000 1999 1999 (unaudited) ---------------------------------------------------------------------------------------------------------------------- Assets (Notes 6 and 9) Current Assets Cash and cash equivalents $ - $ 382,226 $ 28,200 $ 207,010 Accounts receivable - trade 945,667 385,429 377,013 30,071 Accounts receivable - affiliate (Note 9) 3,563,062 1,732,370 795,823 226,057 Inventories (Note 3) 2,315,161 1,154,510 831,616 385,052 Recoverable customer tooling 775,212 157,863 72,292 1,916 Prepaid expenses and other 3,925 38,614 13,214 11,061 ---------------------------------------------------------------------------------------------------------------------- Total Current Assets 7,603,027 3,851,012 2,118,158 861,167 ---------------------------------------------------------------------------------------------------------------------- Property, Plant and Equipment Machinery and equipment 7,033,586 5,663,919 2,882,918 2,055,000 Tooling 128,137 361,953 64,853 2,134 Leasehold improvements 227,975 149,767 32,053 12,181 Furniture and fixtures 55,038 50,421 47,178 44,604 ---------------------------------------------------------------------------------------------------------------------- 7,444,736 6,226,060 3,027,002 2,113,919 Less accumulated depreciation and amortization 1,420,978 855,628 607,654 355,507 ---------------------------------------------------------------------------------------------------------------------- Net Property, Plant and Equipment 6,023,758 5,370,432 2,419,348 1,758,412 ---------------------------------------------------------------------------------------------------------------------- Other Assets (Note 4) Recoverable customer tooling 775,213 157,864 72,292 1,916 Notes receivable - shareholders 70,385 24,000 24,000 - Deposits 491,810 260,236 335,439 55,000 ---------------------------------------------------------------------------------------------------------------------- Total Other Assets 1,337,408 442,100 431,731 56,916 ---------------------------------------------------------------------------------------------------------------------- Total Assets $ 14,964,193 $ 9,663,544 $ 4,969,237 $ 2,676,495 ----------------------------------------------------------------------------------------------------------------------
4 Donnelly Electronics, Inc. Balance Sheets
June 27, December 31, December 31, June 26, 1998 2000 1999 1999 (unaudited) -------------------------------------------------------------------------------------------------------------------- Liabilities and Equity (Deficit) Current Liabilities Checks issued in advance of deposits $ 269,425 $ - $ - $ - Outstanding borrowings on line of credit (Note 6) 650,000 - - 671,000 Accounts payable - trade 4,048,147 1,863,909 1,269,926 932,359 Accrued expenses 663,738 388,476 82,567 20,080 Deferred revenues 78,828 28,666 28,666 - Current maturities of advances from affiliate (Note 9) 15,540,572 - - - Current maturities of long-term debt (Note 6) 218,725 201,900 201,900 96,000 -------------------------------------------------------------------------------------------------------------------- Total Current Liabilities 21,469,435 2,482,951 1,583,059 1,719,439 Advances from Affiliate (Note 9) - 14,483,553 7,606,305 1,219,574 Long-Term Debt, less current maturities (Note 6) 253,726 458,427 559,378 293,971 -------------------------------------------------------------------------------------------------------------------- Total Liabilities 21,723,161 17,424,931 9,748,742 3,232,984 -------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- Equity (Deficit) Preferred stock, non-redeemable non-voting, 7% cumulative, $1,000 par; shares authorized 15,000, shares issued and outstanding 9,000 (Note 9) 9,000,000 - - - Common stock, no par; shares authorized 150,000, shares issued and outstanding 100,000 - - - - Losses in excess of capital (8,924,642) Accumulated deficit (6,834,326) - - - Member's deficit - (7,761,387) (4,779,505) (556,489) -------------------------------------------------------------------------------------------------------------------- Total Deficit (6,758,968) (7,761,387) (4,779,505) (556,489) -------------------------------------------------------------------------------------------------------------------- Total Liabilities and Deficit $ 14,964,193 $ 9,663,544 $ 4,969,237 $ 2,676,495 --------------------------------------------------------------------------------------------------------------------
See accompanying independent auditors' report and notes to financial statements. 5 Donnelly Electronics, Inc. Statements of Operations
Year Six Months Year Year Ended Ended Ended Ended June 27, December 31, December 31, June 26, 1998 2000 1999 1999 (unaudited) -------------------------------------------------------------------------------------------------------------------- Net Sales (Note 9) $ 19,427,002 $ 6,848,587 $ 7,571,920 $ 7,072,763 Cost of Sales (Note 9) 15,886,035 5,949,085 6,914,859 5,614,506 -------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- Gross profit 3,540,967 899,502 657,061 1,458,257 Selling, General and Administrative Expenses (Note 9) 9,956,232 3,424,907 4,571,072 2,576,208 -------------------------------------------------------------------------------------------------------------------- Operating Loss (6,415,265) (2,525,405) (3,914,011) (1,117,951) -------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- Non-Operating Income (Expenses) Interest expense (1,408,170) (425,451) (378,774) (52,040) Interest income 8,614 12,603 9,238 12,772 Other, net (236,145) (44,629) 531 (759) -------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- Non-Operating Expenses, net (1,635,701) (457,477) (369,005) (40,027) -------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- Net Loss $ (8,050,966) $ (2,982,882) $ (4,283,016) $ (1,157,978) --------------------------------------------------------------------------------------------------------------------
See accompanying independent auditors' report and notes to financial statements. 6
Donnelly Electronics, Inc. Statements of Equity (Deficit) Preferred Common Losses in Member's Total Excess of Accumulated Equity Equity Stock Stock Capital Deficit (Deficit) (Deficit) -------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- Balance, June 29, 1997 (unaudited) $ - $ - $ - $ - $ 601,489 $ 601,489 Net loss for the year (unaudited) - - - - (1,157,978) (1,157,978) ------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- Balance, June 27, 1998 (unaudited) - - - - (556,489) (556,489) Member contributions - - - - 60,000 60,000 Net loss for the year - - - - (4,283,016) (4,283,016) ------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- Balance, June 26, 1999 - - - - (4,779,505) (4,779,505) Member contributions - - - - 1,000 1,000 Net loss for the six month period - - - - (2,982,882) (2,982,882) ------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1999 - - - - (7,761,387) (7,761,387) Member contributions - - - - 53,385 53,385 Net loss for the year (6,834,326) (1,216,640) (8,050,966) "C" Corporation conversion - - (8,924,642) - 8,924,642 - Preferred stock issued (Note 9) 9,000,000 - - - - 9,000,000 ------------------------------------------------------------------------------------------------------------------- Balance, December 31, 2000 $ 9,000,000 $ - $ (8,924,642) $ (6,834,326) $ - $ (6,758,968) ------------------------------------------------------------------------------------------------------------------- See accompanying independent auditors' report and notes to financial statements.
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Donnelly Electronics, Inc. Statements of Cash Flows Year Six Months Year Year Ended Ended Ended June 27, Ended December 31, June 26, 1998 December 31, 2000 1999 1999 (unaudited) ---------------------------------------------------------------------------------------------------------------------- Operating Activities $(8,050,966) $(2,982,882) $(1,157,978) $ 4,283,016) Net loss Depreciation and amortization 710,422 247,975 252,625 257,107 Loss (gain) on disposal of property and equipment 198,295 - (477) 1,301 Changes in operating assets and liabilities: Accounts receivable - trade (560,238) (8,416) (346,942) (8,825) Accounts receivable - affiliate (1,830,692) (936,547) (569,766) (70,252) Inventories (1,160,651) (322,894) (446,564) (777) Recoverable customer tooling (1,234,698) (171,143) (140,752) 31,977 Prepaid expenses and other 34,689 (25,400) (2,153) (11,061) Accounts payable - trade 2,184,238 593,983 335,567 504,164 Accrued expenses 275,262 305,909 62,487 6,670 Deferred revenues 50,162 - 28,666 - ---------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------- Net cash used for operating activities (9,384,177) (3,299,415) (5,108,325) (447,674) ---------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------- Investing Activities Issuance of notes receivable (53,385) - (24,000) - Payment received on notes receivable 7,000 - - - Capital expenditures (1,562,043) (3,199,059) (913,084) (1,460,350) Net change in deposits (231,574) 75,203 (280,439) (5,000) ---------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (1,840,002) (3,123,856) (1,217,523) (1,465,350) ----------------------------------------------------------------------------------------------------------------------
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Donnelly Electronics, Inc. Statements of Cash Flows Year Six Months Year Year Ended Ended Ended June 27, Ended December 31, June 26, 1998 December 31, 2000 1999 1999 (unaudited) -------------------------------------------------------------------------------------------------------------------- Financing Activities Net change in checks issued in advance of deposits 269,425 - - - Net change in outstanding borrowings on line of credit 650,000 - (671,000) 201,000 Proceeds from long-term debt - - 529,516 473,078 Repayments of long-term debt (187,876) (100,951) (158,209) (83,107) Advances from affiliates (Note 9) 10,057,019 6,877,248 6,386,731 1,068,074 Member contributions 53,385 1,000 60,000 - -------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- Net cash from financing activities 10,841,953 6,777,297 6,147,038 1,659,045 -------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents (382,226) 354,026 (178,810) (253,979) Cash and Cash Equivalents, beginning of period 382,226 28,200 207,010 460,989 -------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents, $ - $ 382,226 $ 28,200 $ 207,010 end of period --------------------------------------------------------------------------------------------------------------------
See accompanying independent auditors' report and notes to financial statements. 9 1. Summary of Nature of Business Significant Accounting Donnelly Electronics, Inc. (Company) designs Policies and manufactures advanced electronic circuit boards and related products which are sold to automotive suppliers as well as non- automotive customers primarily in Michigan. The Company was initially formed in 1996 as a Michigan Limited Liability Company and was subsequently converted into a "C" Corporation effective March 1, 2000. The Company was an 18% owned affiliate of Donnelly Corporation (Donnelly) as of December 31, 1999, June 26, 1999, and June 27, 1998. As of December 31, 2000, Donnelly owned 18% of the Company's common stock and held $9 million of 7% non-voting preferred stock. On December 29, 2000, Donnelly gave notice of its intent to acquire all of the outstanding stock of the Company which it did not currently own pursuant to an option agreement dated January 1, 1998. This transaction was finalized in February 2001, with Donnelly acquiring all of the outstanding equity of the Company not then owned by Donnelly for $4.5 million, paid equally in cash and through the issuance of Donnelly's Class A Common Stock. Unaudited Financial Information Unaudited financial information for the year ended June 27, 1998, as presented in the financial statements and the accompanying notes to the financial statements, is provided for comparison purposes and includes any normal, recurring adjustments, which are, in the opinion of management, necessary for a fair presentation. 10 Donnelly Electronics, Inc. Notes to Financial Statements (Information as of and for the year ended June 27, 1998 is unaudited) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Although management's estimates are not currently expected to change materially in the foreseeable future, the results the Company will ultimately experience could differ from the amounts assumed. Revenue Recognition The Company's source of revenue is generated from the sale of its products. Revenue is recognized when products are shipped. Amounts billed to customers for shipping and handling are included in net sales while shipping and handling costs incurred by the Company are included in cost of sales. Cash Equivalents Cash equivalents include all highly liquid investments with a maturity of three months or less when purchased. Inventories Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method. 11 Donnelly Electronics, Inc. Notes to Financial Statements (Information as of and for the year ended June 27, 1998 is unaudited) Pre-Production Costs Pre-production costs incurred for tools that the Company will not own are capitalized as incurred up to the contractually guaranteed reimbursement amount and classified as recoverable customer tooling. These costs are recoverable from the customer under guaranteed contractual agreements at the time of tool completion, approval and billing or over the contractual period, which is generally three years, through piece rate charges at the time each part is shipped. Pre-production costs incurred for tools that the Company will own for use in producing products under contractual arrangements are capitalized as incurred and classified as property, plant and equipment. Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation and amortization are computed over the estimated useful lives of the assets, generally three to ten years, primarily by the straight-line method. Long-Lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. If it is determined that an impairment loss has occurred based on expected future operating undiscounted cash flows, the asset is written down to its estimated net realizable value. Warranty Reserves The Company accrues for warranty claims when events exist that make the loss probable and the loss can be reasonably estimated. Adjustments are made to established reserves when changes in management estimates and industry conditions occur. 12 Donnelly Electronics, Inc. Notes to Financial Statements (Information as of and for the year ended June 27, 1998 is unaudited) Income Taxes Prior to its conversion to a "C" Corporation effective March 1, 2000, the Company was a pass through entity for tax purposes. Effective March 1, 2000, deferred income taxes reflect the tax effects of temporary differences between the financial statement and tax base of assets and liabilities and operating loss carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Research and Development Costs Research, development and product improvement costs are charged to expense as they are incurred. Research, development and product improvement costs included in selling, general and administrative expenses approximated $4.7 million, $1.9 million, and $1.6 million for the years ended December 31, 2000, June 26, 1999, and June 27, 1998, and $1.4 million for the six months ended December 31, 1999. 2. Fiscal Year End Change Effective July 4,1999, the Company changed the date of its fiscal year end from the last Saturday in June to December 31. The years ended December 31, 2000, June 26, 1999, and June 27, 1998, all consisted of 52 weeks. The six-month period ended December 31, 1999, consisted of 27 weeks. All year references relate to the Company's fiscal years, unless otherwise stated. 3. Inventories Inventories consist of:
June 27, December 31, December 31, June 26, 1998 2000 1999 1999 (unaudited) -------------------------------------------------------------------------------- Finished goods and work in process $ 234,317 $ 160,557 $ 116,979 $ 98,776 Raw materials 2,080,844 993,953 714,637 286,276 -------------------------------------------------------------------------------- $ 2,315,161 $ 1,154,510 $ 831,616 $ 385,052 --------------------------------------------------------------------------------
13 Donnelly Electronics, Inc. Notes to Financial Statements (Information as of and for the year ended June 27, 1998 is unaudited) 4. Other Assets Notes Receivable - shareholders The Company has notes receivable from shareholders. These notes require no monthly payments and bear interest at 7% with no specified maturity date. Deposits The Company makes deposits on certain equipment while in production by vendors. The deposit amounts will be used to decrease the amount due for the equipment upon its completion. 5. Employee Benefit Plans The Company has a defined contribution 401(k) plan covering substantially all employees with six months of service. Employees may contribute to the plan an amount not to exceed 15% of eligible compensation. The Company may make discretionary matching contributions to the plan, which approximated $36,000, $37,000, and $38,000 for the years ended December 31, 2000, June 26, 1999, and June 27, 1998, and $21,000 for the six months ended December 31, 1999. 6. Debt and Other The Company has a line of credit with a bank Financing in the amount of $1,000,000 that bears Arrangements interest at 0.5% below the prime rate (effectively 9.0% at December 31, 2000) and matures on April 1, 2001. The line of credit is secured by all tangible and intangible assets of the Company. Long-term debt consists of the following:
June 27, December 31, December 31, June 26, 1998 2000 1999 1999 (unaudited) -------------------------------------------------------------------------------- Secured term loan payable to bank $ 154,762 $ 242,762 $ 290,762 $ 386,892 Secured term loan payable to bank 217,689 414,764 467,715 - Other - 2,801 2,801 3,079 -------------------------------------------------------------------------------- 472,451 660,327 761,278 389,971 Less current maturities 218,725 201,900 201,900 96,000 -------------------------------------------------------------------------------- $ 253,726 $ 458,427 $ 559,378 $ 293,971 --------------------------------------------------------------------------------
14 Donnelly Electronics, Inc. Notes to Financial Statements (Information as of and for the year ended June 27, 1998 is unaudited) The Company has two secured term loan agreements with a bank which mature on August 1, 2002 and December 1, 2003, respectively. The agreements provide for monthly principal payments of $8,000 and $8,825, respectively, plus interest at the prime rate (effectively 9.5% at December 31, 2000). Maturities of long-term debt are as follows:
Year ending -------------------------------------------------------------------------------- 2001 $ 218,725 2002 156,662 2003 97,064 -------------------------------------------------------------------------------- $ 472,451 --------------------------------------------------------------------------------
7. Taxes on Income The tax effect of temporary differences which give rise to deferred tax assets (liabilities) are as follows:
December 31, 2000 -------------------------------------------------------------------------------- Net operating loss carryforwards $ 2,392,000 Accumulated depreciation (426,000) -------------------------------------------------------------------------------- 1,966,000 Valuation allowance (1,966,000) -------------------------------------------------------------------------------- Net deferred tax asset $ - --------------------------------------------------------------------------------
Net operating loss carryforwards of $6.8 million are available to offset federal taxable income in future years, expiring in 2020. At December 31, 2000, the Company's net deferred tax assets are fully offset by a valuation allowance. Prior to March 1, 2000, the Company was a pass through entity for tax purposes and no deferred tax assets or liabilities were recorded. 15 Donnelly Electronics, Inc. Notes to Financial Statements (Information as of and for the year ended June 27, 1998 is unaudited) 8. Operating Lease The Company is obligated under a five- year operating lease arrangement, covering its entire manufacturing facility, which expires in September 2001. Future minimum lease payments under the lease, excluding renewals and purchase options, are $103,500 for 2001. Under the lease agreement, the Company has the option to renew the lease for another five years under the same terms, except the monthly rental charge may be adjusted to reflect changes in the landlord's cost of financing upon commencement of the renewal term. The Company also has the option to purchase the property prior to 180 days before the expiration of the lease, including the five-year extension period, under the terms specified in the lease agreement. Rent expense under all operating leases was approximately $281,000, $247,000, and $223,000 for the years ended December 31, 2000, June 26, 1999, and June 27, 1998, and $123,000 for the six months ended December 31, 1999. 9. Transactions With Current affiliate receivable amounts Affiliates represent trade accounts receivable from Donnelly. Accounts receivable with affiliated companies accounted for 79%, 82%, 68%, and 88% of the outstanding accounts receivable at December 31, 2000, December 31, 1999, June 26, 1999, and June 27, 1998. Advances from affiliate consists of funds advanced to the Company from Donnelly primarily for the purpose of funding negative results of operations and expenditures for ongoing capital projects. Advances from affiliate are due in full on the later of June 30, 2001 or the closing under "put" or "call" options. The current agreement provides for quarterly payments of interest only at a rate of 7.0%, with the entire unpaid balance due at maturity, and is secured by all of the assets of the Company. This interest is subordinate to any security interest of the Company's principal commercial bank in the Company's assets. In conjunction with the "C" Corporation conversion effective March 1, 2000, $9 million of funds previously advanced to the Company from Donnelly were converted to 9,000 preferred shares of the Company with par value of $1,000 per share. 16 Donnelly Electronics, Inc. Notes to Financial Statements (Information as of and for the year ended June 27, 1998 is unaudited) Net sales include sales to Donnelly of approximately $12.6 million, $5.2 million, and $7.0 million for the years ended December 31, 2000, June 26, 1999, and June 27, 1998, and $5.1 million for the six months ended December 31, 1999. The Company is assessed charges by Donnelly included in cost of sales which approximated $.6 million, $1.4 million, and $0 for the years ended December 31, 2000, June 26, 1999, and June 27, 1998, and $.3 million for the six months ended December 31, 1999. The Company is also assessed charges by Donnelly related to the use of personnel, facilities and equipment reflected in selling, general and administrative expenses which approximated $5.6 million, $1.7 million and $1.1 for the fiscal years ended December 31, 2000, June 26, 1999, and June 27, 1998, and $2.3 million for the six months ended December 31, 1999. 17