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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1995
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 0-13601
DURAKON INDUSTRIES, INC.
Incorporated under the IRS Employer ID No.:
laws of Michigan 38-2492342
2101 N. Lapeer Road
Lapeer, Michigan 48446
(810) 664-0850
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 the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date:
Common Stock, without par value; as of October 31, 1995:
6,520,292
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<PAGE>
DURAKON INDUSTRIES, INC.
INDEX
PAGE
NUMBER
PART I Financial Information
Condensed consolidated balance sheets -
September 30, 1995 and December 31, 1994. 3-4
Condensed consolidated statements of
operations - three and nine months ended
September 30, 1995 and 1994. 5
Condensed consolidated statements of cash
flows - nine months ended September 30, 1995
and 1994. 6
Notes to condensed consolidated financial
statements. 7
Management's discussion and analysis of
financial condition and results of operations. 8-11
PART II Other Information.
Item 6(b) Exhibits and Reports on Form 8-K. 12
Signatures 13
<PAGE>
<TABLE>
DURAKON INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
September 30, December 31,
($ in Thousands) 1995 1994
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents $13,644 $13,143
Accounts receivable, less
allowances of $534 and $474 17,104 15,203
Inventories:
Raw materials and work in process 6,328 5,908
Finished goods 7,225 7,885
Total inventories 13,553 13,793
Prepaid expenses and other 1,371 1,542
Deferred income taxes 1,513 1,426
Total current assets 47,185 45,107
Property, plant and equipment, net 18,237 15,607
Goodwill 14,557 15,078
Patents, net 790 1,122
Other assets 118 143
$80,887 $77,057
The accompanying notes are an integral part of the condensed
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
DURAKON INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
September 30, December 31,
($ in Thousands) 1995 1994
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current maturities of
long-term debt $1,694 $1,767
Accounts payable 10,106 10,756
Other current liabilities 5,756 7,045
Total current liabilities 17,556 19,568
Long-term debt 1,772 2,641
Deferred income taxes 397 330
Minority interest 110 281
Shareholders' equity:
Preferred stock, $1 par value -
100,000 shares authorized; none
issued -- --
Common stock, without par value -
15,000,000 shares authorized;
6,520,292 shares issued and
outstanding 21,506 21,506
Currency translation (345) (295)
Retained earnings 39,891 33,026
Total shareholders' equity 61,052 54,237
$80,887 $77,057
The accompanying notes are an integral part of the condensed
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
DURAKON INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
($ in Thousands, except per
share amounts)
Nine months ended Three months ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $129,307 $105,183 $42,596 $38,693
Cost of products sold 98,865 74,042 34,385 27,544
Gross profit 30,442 31,141 8,211 11,149
Selling, general and
administrative expenses 19,681 16,353 6,754 5,652
Operating income 10,761 14,788 1,457 5,497
Interest income 584 475 181 144
Interest expense (308) (118) (115) (70)
Other income (expense),
net (373) (41) (3) (60)
Income before income
taxes 10,664 15,104 1,520 5,511
Provision for income
taxes 3,799 5,879 595 2,031
Net income $6,865 $9,225 $925 $3,480
Net income per share of
common stock $1.03 $1.39 $0.14 $0.52
Weighted average shares
(in 000's) 6,690 6,643 6,686 6,665
The accompanying notes are an integral part of the condensed
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
DURAKON INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
($ in Thousands)
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $6,865 $9,225
Adjustment to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 3,296 2,647
Gain on sale of property, plant
and equipment (9) (69)
Net decrease (increase) of intangible
and other assets (17) 104
Increase (decrease) in deferred
income taxes (20) (671)
Increase (decrease) due to changes in
current items:
Accounts receivable (1,886) (3,520)
Inventories 240 (3,510)
Prepaid expenses and other current assets 171 1,779
Accounts payable (658) 2,951
Accrued expenses and other current
liabilities (1,281) 843
Net cash provided by operating activities 6,701 9,779
Cash flows from investing activities:
Purchases of property, plant and
equipment (5,263) (2,097)
Purchase of Benton Plastics, Inc. and
G.C. Concepts, Inc. -- (14,631)
Proceeds from note receivable -- 836
Proceeds from retirement of property,
plant and equipment 24 80
Net cash used in investing activities (5,239) (15,812)
Cash flows from financing activities:
Repayment of long-term debt (1,118) (2,841)
Borrowings of long-term debt 176 1,841
(Increase)/decrease in minority
interest, net (171) 280
Cash proceeds from exercise of stock
options -- 41
Net cash used in financing activities (1,113) (679)
Effect of exchange rate changes on cash 152 (48)
Cash and cash equivalents:
Increase (decrease) for the period 501 (6,760)
Balance, beginning of period 13,143 17,041
Balance, end of period $13,644 $10,281
The accompanying notes are an integral part of the condensed
consolidated financial statements.
</TABLE>
<PAGE>
DURAKON INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1
The unaudited condensed consolidated financial statements
and notes should be read in conjunction with the annual
consolidated financial statements and notes thereto. Results of
operations for interim periods should not be considered as
indicative of results to be expected for a full year.
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements contain all
adjustments (consisting only of normal recurring accruals)
necessary to present fairly the Company's financial position as
of September 30, 1995, and the results of operations and cash
flows for the three and nine month periods ended September 30,
1995 and 1994.
Note 2
The Company is contingently liable under the terms of
agreements covering certain of its customers' financing
arrangements. The agreements provide for the repurchase of
products sold to customers in the event of default by the
customer to the financing company. The contingent liability
under these agreements was approximately $6.2 million at
September 30, 1995.
Note 3
The provision for income taxes reflects effective tax rates
of 39% and 36% for the quarter and nine months ended September
30, 1995, respectively. The 1994 effective tax rates were 37%
and 39% for the quarter and nine months ended September 30, 1994,
respectively. The 1995 tax rates were higher than the statutory
federal income tax rate of 35% due to provision for state income
taxes. The year-to-date rate was lower than the quarterly rate
due to the settlement of an income tax dispute in the second
quarter.
<PAGE>
DURAKON INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of
certain factors which have affected the Company's financial
position and operating results during the periods included in the
accompanying condensed consolidated financial statements.
Results of Operations
Net sales increased by $3,903,000 or 10% for the three
months ended September 30, 1995 and by $24,124,000 or 23% for the
nine months ended September 30, 1995 over the corresponding
periods in 1994.
<TABLE>
($ in 000's) Three Months Ended Nine Months Ended
September 30 September 30
<CAPTION>
% Increase %
1995 1994 (Decrease) 1995 1994 Increase
<S> <C> <C> <C> <C> <C> <C>
Net sales
Pickup access. $19,810 $20,913 ( 5%) $63,803 $54,858 16%
Vehicle trans. 22,786 17,780 28% 65,504 50,325 30%
Total $42,596 $38,693 10% $129,307 $105,183 23%
Net sales in the pickup truck accessories segment decreased
$1,103,000 or 5% in the third quarter 1995 compared to the
corresponding period in 1994. Total unit volume was 2% below the
third quarter of 1994. Unit volume through domestic aftermarket
channels was 1% below the third quarter of 1994. Without the
addition of Benton Plastics in 1994, domestic aftermarket unit
volume was down 17% in the quarter. An aggressive pricing
strategy was implemented in the third quarter of 1995 with the
objective of capturing additional domestic market share.
International unit volume was strong except in Mexico, where
volume was below the 1994 third quarter due to a continuing weak
economy. Average net prices were down in most channels from
the third quarter 1994 due to increased OE programs directed to
the aftermarket.
For the nine months ended September 30, 1995, net sales in
the pickup truck accessories segment increased $8,945,000 or
16%, with unit volume up 26%, compared to the same period in
1994. Net sales and unit volumes would have both decreased 10%
without the volume from Benton Plastics. International unit
volume was 56% above 1994 levels in the nine month period ended
September 30, 1995. Average prices were down in most channels
due to continuing price pressures in the industry.
<PAGE>
Net sales in the vehicle transportation segment increased by
$5,006,000 or 28% in the third quarter and by $15,179,000 or 30%
for the first nine months of 1995 compared to the respective
periods in 1994. Unit volume of rollback car carriers was up 17%
in the quarter and 25% year-to-date. Wheel lift unit sales were
below comparative periods for last year due to the withdrawal of
a previously offered wheelgrid feature. Net sales increased at a
rate higher than unit volume in both the quarter and year-to-date
due to higher net selling prices and a larger percentage of truck
chassis sales.
For the third quarter of 1995, the consolidated gross margin
percentage was 19% compared to 29% for the same period last year.
The gross margin was 24% for the nine months ended September 30,
1995 versus 30% for the nine months ended September 30, 1994. The
pickup truck accessories segment margins were fourteen percentage
points lower in the quarter and eight percentage points lower in
the nine month period ended September 30, 1995 as compared to the
same periods in 1994. The pickup truck accessories margins were
lower in the third quarter and for the nine month period due to
lower average selling prices, increased cost of raw materials, a
change to prepaid customer freight, higher spending for process
and product engineering, lower utilization of plant capacity, and
higher sales from Benton at lower margins.
The market price of HDPE (high density polyethylene), the
raw material from which the Company's bedliners are manufactured,
has been decreasing in recent months. While the current
direction of resin costs appears to be favorable, there can be no
assurance that the industry will not experience future cost
increases, or that such cost increases will not adversely effect
the Company.
The vehicle transportation segment experienced lower margins
in the quarter due to significantly increased sales of lower
margin truck chassis as well as reduced margins on sales of
rollback car carriers due to product mix. The vehicle transportation
segment experienced lower margins in the nine months ended
September 30, 1995 primarily due to increased sales of lower
margin truck chassis.
Selling, general and administrative expenses increased
$1,102,000 or 20% in the third quarter and $3,328,000 or 20%
year-to-date compared to the same periods in 1994. As a percent
of net sales, spending for the third quarter was 1% higher than
1994 and even with 1994 on a year-to-date basis. In the quarter,
spending was $655,000 higher in the vehicle transportation
segment for legal costs, the write-down of a patent license
agreement and increased commissions on higher sales. Spending
was also $447,000 higher in the quarter in the pickup truck
accessories segment to improve customer service in the
company-owned distribution centers, increased advertising, and
expenditures to upgrade information systems. Year-to-date,
spending was $2,035,000 higher in the pickup truck accessories
segment primarily due to the inclusion of Benton and ZZ Wheelz,
which were acquired in the third quarter of 1994. In addition,
there was higher spending to improve the operations of the
company-owned distribution centers. Year-to-date spending was
$1,293,000 higher in the vehicle transportation segment due to
increased legal costs resulting from a patent dispute, ongoing
product liability litigation, the write-down of a patent, and
costs for new product development.
For the third quarter of 1995, interest income was $181,000
compared to $144,000 for the third quarter of 1994. For the
nine months ended September 30, 1995, interest income was
$584,000 compared to $475,000 for the same period in 1994,
reflecting higher cash balances. Interest expense was $115,000
in the third quarter 1995 compared to $70,000 in the same period
in 1994. Year-to-date, interest expense was $308,000 compared to
$118,000 in the first nine months of 1994, reflecting new debt
acquired in late 1994.
Net other expense for the third quarter was $3,000 compared
to $60,000 in the third quarter of 1994. Year-to-date net other
expense was $373,000 in 1995 compared to $41,000 in 1994.
Year-to-date 1995 reflects the impact of the devaluation of the
Mexican pesos and subsequent translation losses.
The provision for income taxes reflected effective tax rates
of 39% and 36% for the quarter and nine months ended September
30, 1995, respectively, compared to 37% and 39% for the same
periods in 1994. The effective rates were higher than the
statutory federal income tax rate of 35% due to the provision for
state income taxes. Additionally, the rate for the nine months
ended September 30, 1995 includes the settlement of an income tax
dispute in the second quarter.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Year-to-date September 1995, cash provided by operating
activities totaled $6.7 million, $3.1 million below the first
nine months of 1994. The Company has a $20 million unsecured
revolving credit agreement with Comerica Bank which expires June
30, 1997. Letters of credit totaling $2,200,000 reduced the
available borrowing capacity to $17,800,000 at September 30,
1995.
PART II - OTHER INFORMATION
Item 6 (b) - Exhibits and reports on form 8-K
Sequentially
Numbered
Exhibit # Description Page
Exhibit 11 Calculation of earnings per share for
the nine and three months ended
September 30, 1995 and 1994. 14-15
<PAGE>
SIGNATURES
Pursuant to the requirement to the Security Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Durakon Industries, Inc.
(Registrant)
Date: November 15, 1995 /s/Thomas A. Galas
Thomas A. Galas, Senior V.P.
Finance and Administration,
Chief Financial Officer
(Principal Financial Officer)
</TABLE>
<TABLE>
EXHIBIT 11
DURAKON INDUSTRIES, INC.
CALCULATION OF EARNINGS PER SHARE
(UNAUDITED)
(In thousands, except per
share amounts)
<CAPTION>
Three Months Ended September 30,
1995 1994
<S> <C> <C>
Net earnings available to common
stockholders $925 $3,480
Primary
Average number of shares oustanding 6,520 6,517
Add: Dilutive effect of stock options
based upon treasury stock method 166 148
Total 6,686 6,665
Per share amount $0.14 $0.52
Fully diluted
Average number of shares outstanding 6,520 6,517
Add: Dilutive effect of stock options
based upon treasury stock method 168 148
Total 6,688 6,665
Per share amount $0.14 $0.52
Note: This calculation is required by Regulation S-K, Item 601,
and is filed as an exhibit under Item 6(b) of Form 10-Q.
</TABLE>
<PAGE>
<TABLE>
EXHIBIT 11
(cont'd)
DURAKON INDUSTRIES, INC.
CALCULATION OF EARNINGS PER SHARE
(UNAUDITED)
(In thousands, except per
share amounts)
<CAPTION>
Nine Months Ended September 30,
1995 1994
<S> <C> <C>
Net earnings available to common
stockholders $6,865 $9,225
Primary
Average number of shares oustanding 6,520 6,493
Add: Dilutive effect of stock options
based upon treasury stock method 170 150
Total 6,690 6,643
Per share amount $1.03 $1.39
Fully diluted
Average number of shares outstanding 6,520 6,493
Add: Dilutive effect of stock options
based upon treasury stock method 170 150
Total 6,690 6,643
Per share amount $1.03 $1.39
Note: This calculation is required by Regulation S-K, Item 601,
and is filed as an exhibit under Item 6(b) of Form 10-Q.
</TEXT)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 13,644
<SECURITIES> 0
<RECEIVABLES> 17,104
<ALLOWANCES> 534
<INVENTORY> 13,553
<CURRENT-ASSETS> 47,185
<PP&E> 38,198
<DEPRECIATION> 19,961
<TOTAL-ASSETS> 80,887
<CURRENT-LIABILITIES> 17,556
<BONDS> 0
<COMMON> 21,506
0
0
<OTHER-SE> 39,546
<TOTAL-LIABILITY-AND-EQUITY> 80,887
<SALES> 129,307
<TOTAL-REVENUES> 129,307
<CGS> 98,865
<TOTAL-COSTS> 118,546
<OTHER-EXPENSES> 373
<LOSS-PROVISION> 25
<INTEREST-EXPENSE> 309
<INCOME-PRETAX> 10,664
<INCOME-TAX> 3,799
<INCOME-CONTINUING> 6,865
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,865
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 1.03
</TABLE>
