<PAGE> 1
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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 June 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 July 31, 1996: 6,542,792
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DURAKON INDUSTRIES, INC.
INDEX
PAGE
NUMBER
PART I Financial Information
Condensed consolidated balance sheets - June 30, 1996 and
December 31, 1995. 3-4
Condensed consolidated statements of operations - three and six
months ended June 30, 1996 and 1995. 5
Condensed consolidated statements of cash flows - six months
ended June 30, 1996 and 1995. 6
Notes to condensed consolidated financial statements. 7
Management's discussion and analysis of financial condition
and results of operations. 8-12
PART II Other Information.
Item 4(a) Submission of Matters to a Vote of Security Holders 12
Item 6(b) Exhibits and Reports on Form 8-K. 13
Signatures 14
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DURAKON INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
($ in Thousands) 1996 1995
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $10,037 $12,757
Accounts receivable, less allowances of $780 and $640 21,430 17,468
Inventories:
Raw materials and work in process 6,150 5,838
Finished goods 8,416 6,302
------- -------
Total inventories 14,566 12,140
Prepaid expenses and other 1,412 1,141
Deferred income taxes 2,494 2,526
------- -------
Total current assets 49,939 46,032
Property, plant and equipment, net 18,904 18,346
Goodwill 11,616 13,870
Patents, net 415 507
Deferred income taxes 269 268
Other assets 114 114
------- -------
$81,257 $79,137
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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<PAGE> 4
DURAKON INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
($ in Thousands) 1996 1995
------- ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,200 $ 1,342
Accounts payable 10,007 10,058
Other current liabilities 6,889 8,936
------- -------
Total current liabilities 18,096 20,336
Long-term debt 1,000 1,572
Deferred income taxes 581 614
Minority interest 118 59
------- -------
Total liabilities 19,795 22,581
------- -------
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
Accumulated translation adjustment (264) (275)
Retained earnings 40,220 35,325
------- -------
Total shareholders' equity 61,462 56,556
------- -------
$81,257 $79,137
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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<PAGE> 5
DURAKON INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ---------------------
($ in Thousands, except per
share amounts) 1996 1995 1996 1995
---------- ------- -------- ----------
<S> <C> <C> <C> <C>
Net sales $93,325 $86,711 $49,430 $42,667
Cost of products sold 71,711 64,480 37,972 31,945
------- ------- ------- -------
Gross profit 21,614 22,231 11,458 10,722
Selling, general and
administrative expenses 13,943 12,927 7,187 6,410
------- ------- ------- -------
Operating income 7,671 9,304 4,271 4,312
Interest income (expense), net 195 210 79 75
Other income (expense), net (45) (370) (6) 26
------- ------- ------- -------
Income before income taxes 7,821 9,144 4,344 4,413
Provision for income taxes 2,926 3,204 1,587 1,341
------- ------- ------- -------
Net income $4,895 $5,940 $2,757 $3,072
======= ======= ======= =======
Net income per share of common stock $0.74 $0.89 $0.42 $0.46
======= ======= ======= =======
Weighted average shares (in 000's) 6,661 6,692 6,667 6,689
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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<PAGE> 6
DURAKON INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
($ in Thousands) 1996 1995
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $4,895 $5,940
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,887 2,069
Gain on sale of property, plant and equipment -- (9)
Net increase of intangible and other assets -- 13
Decrease in deferred income taxes -- (20)
Increase (decrease) due to changes in current items:
Accounts receivable (3,962) (635)
Inventories (2,426) (3,442)
Prepaid expenses and other current assets (271) 68
Accounts payable (51) 2,633
Accrued expenses and other current liabilities (2,047) (1,404)
------- --------
Net cash provided by operating activities 25 5,213
------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (2,251) (4,230)
Proceeds from note receivable -- --
Proceeds from retirement of property, plant and equipment 150 17
------- --------
Net cash used in investing activities (2,101) (4,213)
Cash flows from financing activities:
Repayment of long-term debt (714) (579)
Borrowings of long-term debt -- 176
Increase (decrease) in minority interest, net 59 (171)
------- --------
Net cash used in financing activities (655) (574)
------- --------
Effect of exchange rate changes on cash 11 164
------- --------
Cash and cash equivalents:
Increase (decrease) for the period (2,720) 590
Balance, beginning of period 12,757 13,143
------- --------
Balance, end of period $10,037 $13,733
======= ========
</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 June 30, 1996, and the results of operations and cash flows for
the three and six month periods ended June 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 $7.6 million at June 30, 1996.
Note 3
The provision for income taxes reflects effective tax rates of 36% and
37% for the quarter and six months ended June 30, 1996, respectively. The 1995
effective tax rates were 30% and 35% for the quarter and six months ended June
30, 1995, respectively. The 1996 tax rates were higher than the statutory
federal income tax rate of 35% due to provision for state income taxes. The
1996 effective tax rates were higher than 1995 effective tax rates due to the
settlement of an income tax dispute.
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<PAGE> 8
DURAKON INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
factors which have affected the Company's financial position and operating
results during the periods included in the accompanying condensed consolidated
financial statements.
Results of Operations ($ in 000's)
Net sales increased by $6,763 or 16% for the three months ended June
30, 1996 and by $6,614 or 8% for the six months ended June 30, 1996 over the
corresponding periods in 1995.
Net Sales ($ in 000's)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------------- -------------------
% %
1996 1995 Increase 1996 1995 Increase
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Segments:
- --------
Pickup accessories $24,026 $22,232 8% $44,524 $43,993 1%
Vehicle transportation 25,404 20,435 24% 48,801 42,718 14%
------- ------- --- ------- ------- --
Total $49,430 $42,667 16% $93,325 86,711 8%
======= ======= === ======= ======= ==
</TABLE>
Net sales in the pickup truck accessories segment increased $1,794 or
8% in the second quarter 1996 compared to the corresponding period in 1995.
Total bedliner unit volume was up 19% over the second quarter of 1995. Volume
increases were realized in all distribution channels with significant
improvements in sales to U.S. distributors and to OEMs. However, average
selling prices were down 6% for the quarter compared to the same quarter last
year as a result of increased competition in aftermarket channels. Average net
selling prices have remained stable throughout the first six months of 1996.
For the six months ended June 30, 1996, net sales in the pickup truck
accessories segment increased $531 or 1% compared to the same period in 1995.
Year-to-date unit volume was up 7% over the same period in 1995. The
year-to-date increase in unit volume was largely offset by the year-to-date 6%
average selling price decrease.
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<PAGE> 9
Net sales in the vehicle transportation segment increased by $4,969 or
24% in the second quarter and by $6,083 or 14% for the first six months of 1996
compared to the respective periods in 1995. The sales increase reflects a
modest price increase effective in the first quarter, increased unit sales in
all product lines and includes heavy-duty wrecker sales since the DeWalt
acquisition which occurred in July 1995. Truck chassis sales were 51% of total
sales for the quarter and the first six months ending June 30, 1996.
Gross margin for the quarter ending June 30, 1996 was $11,458, up $736
from the same period last year. The consolidated gross margin percent declined
to 23% from 25% in the second quarter of 1995.
Gross Margin ($ in 000's)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------------- -------------------
% %
1996 1995 Increase 1996 1995 Increase
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Segments:
- --------
Pickup accessories $ 7,750 $ 7,446 4% $14,392 $15,056 ( 4%)
Vehicle transportation 3,708 3,276 13% 7,222 7,175 1%
------- ------- -- ------- ------- ---
Total $11,458 $10,722 7% $21,614 $22,231 ( 3%)
======= ======= == ======= ======= ====
</TABLE>
In the pickup truck accessories segment for the quarter, the gross
margin percentage was 32% versus 33% in last years second quarter. The gross
margin was 32% for the six months ended June 30, 1996 versus 34% for the same
period last year. The decrease in gross margin percentage was due primarily to
lower average selling price and to increased production costs.
The gross margin percent in the vehicle transportation segment
declined to 15% in the second quarter of 1996 compared to 16% for the same
period last year. Higher unit volume in truck chassis, which carry a lower
gross margin than manufactured equipment, and additional overhead spending
associated with new western manufacturing and service locations.
Selling, general and administrative expenses were $7,187 for the
second quarter of 1996, an increase of 12% over the second quarter of 1995. As
a percentage of sales, selling, general
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<PAGE> 10
and administrative expenses were 14% in the quarter ended June 1996 compared to
15% for the same period last year. Year-to-date selling, general and
administrative expenses remained even with prior years as a percentage of
sales.
Selling, General and Administrative Expenses ($ in 000's)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------------- -------------------
% %
1996 1995 Increase 1996 1995 Increase
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Segments:
- --------
Pickup accessories $ 5,067 $ 4,387 (16%) $ 9,852 $ 8,855 (11%)
Vehicle transportation 2,120 2,023 ( 5%) 4,091 4,072 ( 1%)
------- ------- --- ------- ------- ---
Total $ 7,187 $ 6,410 (12%) $13,943 $12,927 ( 8%)
======= ======= === ======= ======= ===
</TABLE>
The increase in selling, general and administrative expenses in the
pickup truck accessories segment was attributable to additional staffing,
training and system development at the Company's Duraliner USA locations and a
newly created department of new product engineers. The vehicle transportation
segment selling, general and administrative expenses were slightly higher due
to the acquisition of DeWalt Division in July 1995.
Operating income was $4,271 for the second quarter of 1996, down 1%
from the same period last year.
Operating Income ($ in 000's)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------------- -------------------
% %
1996 1995 Increase 1996 1995 Increase
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Segments:
- --------
Pickup accessories $ 2,683 $ 3,059 (12%) $ 4,540 $ 6,201 (27%)
Vehicle transportation 1,588 1,253 27% 3,131 3,103 1%
------- ------- --- ------- ------- ---
Total $ 4,271 $ 4,312 ( 1%) $ 7,671 $ 9,304 (18%)
======= ======= ==== ======= ======= ====
</TABLE>
The pickup truck accessories segment experienced a 12% decrease due to
lower average selling prices and higher selling, general and administrative
expenses. The vehicle transportation segment had a 27% increase in operating
income which was primarily due to increased sales
- 10 -
<PAGE> 11
volume.
For the six months ended June 30, 1996, consolidated operating income
was down 18% compared to 1995. The year-to-date decrease was primarily due to
the pickup truck accessories segment where average selling prices were down due
to increased competition. Operating income in the vehicle transportation
segment was slightly higher than the previous year despite slow sales in the
first quarter.
For the second quarter of 1996 net interest income was $79 compared to
$75 for the second quarter of 1995. For the six months ended June 30, 1996 net
interest income was $195 compared to $210 for the same period in 1995. The
decline for the comparable quarter and year-to-date reflects lower amounts of
cash to invest.
Net other income/expense for the second quarter was $6 net other
expense compared to $26 net other income in the second quarter of 1995.
Year-to-date net other expense was $45 in 1996 compared to net other expense of
$370 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 six months ended June 30, 1996, respectively,
compared to 30% and 35% for the same periods in 1995. The 1996 effective rates
includes provisions for state income taxes and the statutory rate of 35% for
federal income taxes in part by the settlement of an income tax dispute. The
1995 effective tax rate for the second quarter reflects the favorable
settlement of a federal tax dispute.
Subsequent to the end of the quarter, and in response to competitors'
price reductions, the Company has initiated price reductions on certain of its
pickup truck bedliner products. These products are sold in the price sensitive
segment of the aftermarket. The Company is working to realize operating cost
reductions to mitigate the impact of the price reductions.
- 11 -
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
In the second quarter 1996, cash provided by operating activities
totaled $25 versus cash provided of $5,213 in the second quarter of 1995. The
major changes in cash were due to more flexible credit terms to new customers
and funding for inventories in the pickup truck accessories segment. The
Company has a $20 million unsecured revolving credit agreement with Comerica
Bank which expires June 30, 1997. Six standby letters of credit totaling
$2,250 reduced the available borrowing capacity to $17,750 at June 30, 1996.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Company was held on May 21,
1996. At the annual meeting, David S. Aronow, Phillip Wm. Fisher, Richard J.
Jacob, James P. Kelly, Wesley W. Lang, Jr., Robert M. Teeter and David W.
Wright were elected as directors of the Company to serve until the 1997 Annual
Meeting of Shareholders or until their successors are elected and qualified.
<TABLE>
<CAPTION>
Votes
-----
Authority
Name For Withheld
---- ---- --------
<S> <C> <C>
David S. Aronow 6,070,845 22,551
Phillip Wm. Fisher 6,071,345 22,051
Richard J. Jacob 6,070,945 22,451
James P. Kelly 6,071,345 22,051
Wesley W. Lang, Jr. 6,071,345 22,051
Robert M. Teeter 6,071,345 22,051
David W. Wright 6,071,345 22,051
</TABLE>
There were no abstentions or broker non-votes in connection with the
election of the directors at the Annual Meeting.
- 12 -
<PAGE> 13
Item 6 (b) - Exhibits and reports on form 8-K
Sequentially
Numbered
Exhibit # Description Page
- --------- ----------- ------------
Exhibit 11 Calculation of earnings per share for the six
and three months ended June 30, 1996 and 1995. 15-16
No reports on form 8-K have been filed during the quarter ended June 30, 1996.
- 13 -
<PAGE> 14
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: August 12, 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> 15
EXHIBIT INDEX
Exhibit # Description
- --------- -----------
11 Calculation of earnings per share for the six and three
months ended June 30, 1996 and 1995.
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 11
DURAKON INDUSTRIES, INC.
CALCULATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except per
share amounts)
THREE MONTHS ENDED JUNE
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Net earnings available to common stockholders $2,757 $3,072
====== ======
Primary
Average number of shares oustanding 6,520 6,520
Add: Dilutive effect of stock options based
upon treasury stock method 147 169
------ ------
Total 6,667 6,689
====== ======
Per share amount $0.42 $0.46
====== ======
Fully diluted
Average number of shares outstanding 6,520 6,520
Add: Dilutive effect of stock options based
upon treasury stock method 147 169
------ ------
Total 6,667 6,689
====== ======
Per share amount $0.42 $0.46
====== ======
</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)
SIX MONTHS ENDED JUNE
----------------------
1996 1995
-------- --------
<S> <C> <C>
Net earnings available to common stockholders $4,895 $5,940
====== ======
Primary
Average number of shares oustanding 6,520 6,520
Add: Dilutive effect of stock options based
upon treasury stock method 141 172
------ ------
Total 6,661 6,692
====== ======
Per share amount $0.74 $0.89
====== ======
Fully diluted
Average number of shares outstanding 6,520 6,520
Add: Dilutive effect of stock options based
upon treasury stock method 141 172
------ ------
Total 6,661 6,692
====== ======
Per share amount $0.74 $0.89
====== ======
</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> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 10,037
<SECURITIES> 0
<RECEIVABLES> 22,210
<ALLOWANCES> 780
<INVENTORY> 14,566
<CURRENT-ASSETS> 49,939
<PP&E> 41,483
<DEPRECIATION> 22,579
<TOTAL-ASSETS> 81,257
<CURRENT-LIABILITIES> 18,096
<BONDS> 0
0
0
<COMMON> 21,506
<OTHER-SE> 39,956
<TOTAL-LIABILITY-AND-EQUITY> 81,257
<SALES> 93,325
<TOTAL-REVENUES> 93,325
<CGS> 71,711
<TOTAL-COSTS> 85,654
<OTHER-EXPENSES> 45
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 100
<INCOME-PRETAX> 7,821
<INCOME-TAX> 2,926
<INCOME-CONTINUING> 4,895
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,895
<EPS-PRIMARY> .74
<EPS-DILUTED> .74
</TABLE>
