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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, 1996
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, 1996: 6,565,292
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<PAGE> 2
DURAKON INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
PART I Financial Information
Condensed consolidated balance sheets - September 30, 1996 and
December 31, 1995. 3-4
Condensed consolidated statements of operations - three and nine
months ended September 30, 1996 and 1995. 5
Condensed consolidated statements of cash flows - nine months ended
September 30, 1996 and 1995. 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
</TABLE>
<PAGE> 3
DURAKON INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
($ in Thousands) 1996 1995
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents $11,452 $12,757
Accounts receivable, less allowances of $569 and $640 21,569 17,468
Inventories:
Raw materials and work in process 5,885 5,838
Finished goods 10,818 6,302
------- -------
Total inventories 16,703 12,140
Prepaid expenses and other 1,782 1,141
Deferred income taxes 2,130 2,526
------- -------
Total current assets 53,636 46,032
Property, plant and equipment, net 19,413 18,346
Goodwill 11,447 13,870
Patents, net 382 507
Other assets 83 114
------- -------
$84,961 $78,869
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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<PAGE> 4
DURAKON INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
($ in Thousands) 1996 1995
------------- ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 176 $ 1,342
Accounts payable 11,925 10,058
Other current liabilities 7,900 8,936
------- -------
Total current liabilities 20,001 20,336
Long-term debt 982 1,572
Deferred income taxes 291 346
Minority interest 147 59
------- -------
Total liabilities 21,421 22,313
------- -------
Shareholders' equity:
Preferred stock, $1 par value - 100,000 shares -- --
authorized; none issued
Common stock, without par value - 15,000,000 shares
authorized; 6,565,292 and 6,520,292 shares issued and 21,652 21,506
outstanding (264) (275)
Accumulated translation adjustment 42,152 35,325
------- -------
Retained earnings 63,540 56,556
------- -------
Total shareholders' equity
$84,961 $78,869
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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<PAGE> 5
DURAKON INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
----------------------- -----------------
($ in Thousands, except per
share amounts) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $139,578 $129,307 $46,253 $42,596
Cost of products sold 108,724 98,865 37,013 34,385
-------- -------- ------- -------
Gross profit 30,854 30,442 9,240 8,211
Selling, general and
administrative expenses 20,451 19,681 6,508 6,754
-------- -------- ------- -------
Operating income 10,403 10,761 2,732 1,457
Interest income (expense), net 519 276 324 66
Other income (expense), net (64) (373) (19) (3)
-------- -------- ------- -------
Income before income taxes 10,858 10,664 3,037 1,520
Provision for income taxes 4,031 3,799 1,105 595
-------- -------- ------- -------
Net income $ 6,827 $ 6,865 $ 1,932 $ 925
======== ======== ======= =======
Net income per share of common stock $ 1.03 $ 1.03 $ 0.29 $ 0.14
======== ======== ======= =======
Weighted average shares (in 000's) 6,641 6,690 6,671 6,686
======== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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<PAGE> 6
DURAKON INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
($ in Thousands) 1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,827 $ 6,865
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,937 3,296
Gain on sale of property, plant and equipment -- (9)
Net (increase) decrease of intangible and other 31 (17)
Increase (decrease) in deferred income taxes 341 (20)
Increase (decrease) due to changes in current items:
Accounts receivable (4,101) (1,886)
Inventories (4,563) 240
Prepaid expenses and other current assets (641) 171
Accounts payable 1,867 (658)
Accrued expenses and other current liabilities (1,036) (1,281)
------- -------
Net cash provided by operating activities 3,662 6,701
------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment (3,606) (5,263)
Proceeds from note receivable -- --
Proceeds from retirement of property, plant and
equipment 150 24
------- -------
Net cash used in investing activities (3,456) (5,239)
Cash flows from financing activities:
Repayment of long-term debt (1,756) (1,118)
Borrowings of long-term debt -- 176
Increase (decrease) in minority interest, net 88 (171)
Cash proceeds from excercise of stock options 146 --
------- -------
Net cash used in financing activities (1,522) (1,113)
------- -------
Effect of exchange rate changes on cash 11 152
------- -------
Cash and cash equivalents:
Increase (decrease) for the period (1,305) 501
Balance, beginning of period 12,757 13,143
------- -------
Balance, end of period $11,452 $13,644
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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<PAGE> 7
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, 1996, and the results of operations and cash flows
for the three and nine month periods ended September 30, 1996 and 1995.
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 $7.3 million at September 30, 1996.
Note 3
The provision for income taxes resulted in effective tax rates of 36% and
37% for the quarter and nine months ended September 30, 1996, respectively.
The 1995 effective tax rates were 39% and 36% for the quarter and nine months
ended September 30, 1995, respectively. The 1996 and 1995 tax rates were
higher than the statutory federal income tax rate of 35% due to provision for
state income taxes.
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DURAKON INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain factors
which have affected the Company's financial position and operating results
during the periods included in the accompanying condensed consolidated
financial statements.
Results of Operations ($ in 000's)
Net sales increased by $3,657 or 9% for the three months ended September
30, 1996 and by $10,271 or 8% for the nine months ended September 30, 1996 over
the corresponding periods in 1995.
<TABLE>
<CAPTION>
Net Sales ($in 000's)
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------- --------------------------
% %
1996 1995 Increase 1996 1995 Increase
<S> <C> <C> <C> <C> <C> <C>
Segments:
Pickup accessories $21,176 $19,810 7% $ 65,700 $ 63,803 3%
Vehicle transportation 25,077 22,786 10% 73,878 65,504 13%
------- ------- --- -------- -------- ---
Total $46,253 $42,596 9% $139,578 $129,307 8%
======= ======= === ======== ======== ===
</TABLE>
Net sales in the pickup truck accessories segment increased $1,366 or 7%
in the third quarter 1996 compared to the corresponding period in 1995. Total
bedliner unit volume was up 16% over the third quarter of 1995. Volume
increases were realized in all distribution channels with significant
improvements in sales to domestic and international aftermarket distributors
and to domestic OEMs. The overseas business had a 74% increase in sales volume
in the third quarter of 1996. Average net selling prices were down
approximately 7% for the quarter compared to the same period last year as a
result of increased competition in aftermarket channels.
For the nine months ended September 30, 1996, net sales in the pickup
truck accessories segment increased $1,897 or 3% compared to the same period
in 1995. Year-to-date unit volume was up 10% over the same period in 1995.
The year-to-date impact of the increase in unit volume was largely offset by
the year-to-date 6% average net selling price decrease.
Net sales in the vehicle transportation segment increased by $2,291 or 10%
in the third quarter and by $8,374 or 13% for the first nine months of 1996
compared to the respective periods
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<PAGE> 9
in 1995. The sales increase reflects a modest price increase effective in the
first quarter and increased unit sales of both rollback car carriers and
wreckers. Truck chassis sales were 55% of total segment sales for the quarter
and 52% for the first nine months ending September 30, 1996.
Gross margin for the quarter ending September 30, 1996 was $9,240, up
$1,029 from the same period last year. The consolidated gross margin percent
increased to 20% from 19% in the third quarter of 1995.
<TABLE>
<CAPTION>
Gross Margin ($in 000's)
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ---------------------
% %
1996 1995 Increase 1996 1995 Increase
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Segments:
Pickup accessories $5,812 $5,067 15% $20,204 $20,123 0%
Vehicle transportation 3,428 3,144 9% 10,650 10,319 3%
------ ------ --- ------- ------- --
Total $9,240 $8,211 13% $30,854 $30,442 1%
====== ====== === ======= ======= ==
</TABLE>
In the pickup truck accessories segment for the quarter, the gross margin
percentage was 27% versus 26% in last years third quarter. The increase in
gross margin percentage in the third quarter was primarily due to lower cost
per unit reflecting increased volume and lower raw material cost which was
partially offset by lower prices. The gross margin was 31% for the nine months
ended September 30, 1996 which was equal to the same period last year.
Subsequent to the end of the quarter, the price of high density
polyethylene, the raw material used to manufacture bedliners, has increased.
It is expected, due to market conditions, to continue to increase moderately at
least through the end of the first quarter of 1997. At this time, we are
unable to determine the impact on increased resin cost.
The gross margin percent in the vehicle transportation segment remained
even with the third quarter of 1995 at 14% despite an increase in sales of
truck chassis which carry a lower gross margin than manufactured equipment.
For the nine months ended September 30, 1996 the gross margin percentage
declined to 14% from 16% in 1995. The decrease was a result of additional
overhead spending at the new manufacturing facility in Houston and the expanded
service location in Las Vegas.
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<PAGE> 10
Selling, general and administrative expenses were $6,508 for the third
quarter of 1996, a decrease of 4% from the third quarter of 1995. As a
percentage of sales, selling, general and administrative expenses were 14% in
the quarter ended September 1996 compared to 16% for the same period last year.
Year-to-date selling, general and administrative expenses were even with prior
year as a percentage of sales.
Selling, General and Administrative Expenses ($ in 000's)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- -------------------
% %
(Increase) (Increase)
1996 1995 Decrease 1996 1995 Decrease
---- ---- --------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Segments:
Pickup accessories $4,596 $4,458 (3%) $14,448 $13,313 (9%)
Vehicle transportation 1,912 2,296 17% 6,003 6,368 6%
------ ------ -- ------- ------- ---
Total $6,508 $6,754 4% $20,451 $19,681 (4%)
====== ====== == ======= ======= ==
</TABLE>
The increase in selling, general and administrative expenses in the pickup
truck accessories segment was attributable to additional staffing in customer
service at the Durakon pickup truck bedliner operations to better assist
customer needs, training and system development at the Company's Duraliner USA
locations and the establishment of a department dedicated to new product
development. The vehicle transportation segment selling, general and
administrative expenses were two percentage points, as a percent of net sales,
lower than 1995 quarter and year-to-date September 30, 1996. The decrease was
due to a reduction in legal costs in 1996 versus spending in 1995 related to
patent issues.
Operating income was $2,732 for the third quarter of 1996, up 87% from the
same period last year.
<TABLE>
<CAPTION>
Operating Income ($in 000's)
Three Months Ended Nine Months Ended
September 30 September 30
---------------------- -------------------------
% %
1996 1995 Increase 1996 1995 Increase
---- ---- -------- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Segments:
Pickup accessories $1,216 $ 609 100% $ 5,756 $ 6,810 (15%)
Vehicle transportation 1,516 848 79% 4,647 3,951 18%
------ ------ ---- ------- ------- -----
Total $2,732 $1,457 87% $10,403 $10,761 (3%)
====== ====== ==== ======= ======= =====
</TABLE>
- 10 -
<PAGE> 11
In the third quarter 1996, the pickup truck accessories segment
experienced a 100% increase in operating income due to higher sales volume and
lower cost per unit. The vehicle transportation segment had a 79% increase in
operating income which was primarily due to higher sales volume and reduced
selling, general and administrative expenses.
For the nine months ended September 30, 1996, consolidated operating
income was down 3% compared to 1995. The year-to-date decrease was primarily
due to the pickup truck accessories segment where average net selling prices in
1996 were lower due to increased competition. Operating income in the vehicle
transportation segment was 18% higher than the previous year due to higher
sales volume, decreased selling, general and administrative expenses, and the
acquisition of DeWalt in the third quarter 1995.
For the third quarter of 1996 net interest income was $324 compared to $66
for the third quarter of 1995. For the nine months ended September 30, 1996
net interest income was $519 compared to $276 for the same period in 1995. The
increase for the comparable quarter and year-to-date was due to interest income
received from a prior year tax settlement.
Net other expense for the third quarter was $19 compared to $3 in the
third quarter of 1995. Year-to-date net other expense was $64 in 1996 compared
to net other expense of $373 in 1995. Year-to-date 1995 was impacted by the
devaluation of the Mexican peso and subsequent translation losses.
The provision for income taxes resulted in effective tax rates of 36% and
37% for the quarter and nine months ended September 30, 1996, respectively,
compared to 39% and 36% for the same periods in 1995. The 1996 and 1995
effective rates includes provisions for state income taxes and the statutory
rate of 35% for federal income taxes.
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<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES ($ in 000's)
In the third quarter 1996, cash provided by operating activities totaled
$3,662 versus cash provided of $6,701 in the third quarter of 1995. The major
changes in cash were due to more extended credit terms to customers, increased
international sales and funding for inventories in both segments. The Company
has a $20 million unsecured revolving credit agreement with Comerica Bank which
expires June 30, 1997. Four standby letters of credit totaling $750 reduced
the available borrowing capacity to $19,250 at September 30, 1996.
PART II - OTHER INFORMATION
<TABLE>
<CAPTION>
Item 6 (b) - Exhibits and reports on form 8-K
Sequentially
Numbered
Exhibit # Description Page
- ----------------------- ----------------------- ------------
<S> <C> <C>
Exhibit 11 Calculation of earnings per share for the nine and three
months ended September 30, 1996 and 1995. 14-15
</TABLE>
No reports on form 8-K have been filed during the quarter ended September 30,
1996.
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<PAGE> 13
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 14, 1996 /s/ Thomas A. Galas
-----------------------------------------
Thomas A. Galas, Senior V.P. Finance
and Administration, Chief Financial Officer
(Principal Financial Officer)
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<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<S> <C>
11 Calculation of Earnings per share for the
nine and three months ended September 30, 1996
and 1995.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11
DURAKON INDUSTRIES, INC.
CALCULATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except per
share amounts)
Three Months Ended Sept 30,
---------------------------
1996 1995
---- ----
<S> <C> <C>
Net earnings available to common stockholders $1,932 $ 925
====== ======
Primary
Average number of shares oustanding 6,555 6,520
Add: Dilutive effect of stock options based
upon treasury stock method 116 166
------ ------
Total 6,671 6,686
====== ======
Per share amount $ 0.29 $ 0.14
====== ======
Fully diluted
Average number of shares outstanding 6,555 6,520
Add: Dilutive effect of stock options based
upon treasury stock method 104 168
------ ------
Total 6,659 6,688
====== ======
Per share amount $ 0.29 $ 0.14
====== ======
</TABLE>
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.
<PAGE> 2
EXHIBIT 11
(cont'd)
DURAKON INDUSTRIES, INC.
CALCULATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except per
share amounts)
Nine Months Ended Sept 30
1996 1995
---- ----
<S> <C> <C>
Net earnings available to common stockholders $6,827 $6,865
====== ======
Primary
Average number of shares oustanding 6,532 6,520
Add: Dilutive effect of stock options based
upon treasury stock method 109 170
------ ------
Total 6,641 6,690
------ ------
Per share amount $ 1.03 $ 1.03
====== ======
Fully diluted
Average number of shares outstanding 6,532 6,520
Add: Dilutive effect of stock options based
upon treasury stock method 104 170
------ ------
Total 6,636 6,690
====== ======
Per share amount $ 1.03 $ 1.03
====== ======
</TABLE>
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> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 11,452
<SECURITIES> 0
<RECEIVABLES> 21,569
<ALLOWANCES> 569
<INVENTORY> 16,703
<CURRENT-ASSETS> 53,636
<PP&E> 42,625
<DEPRECIATION> 23,212
<TOTAL-ASSETS> 84,961
<CURRENT-LIABILITIES> 20,001
<BONDS> 0
0
0
<COMMON> 21,652
<OTHER-SE> 41,888
<TOTAL-LIABILITY-AND-EQUITY> 84,961
<SALES> 139,578
<TOTAL-REVENUES> 139,578
<CGS> 108,724
<TOTAL-COSTS> 129,175
<OTHER-EXPENSES> 64
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 139
<INCOME-PRETAX> 10,858
<INCOME-TAX> 4,031
<INCOME-CONTINUING> 6,827
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,827
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 1.03
</TABLE>
