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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the fiscal year ended December 31, 1997
/ / 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.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Michigan 38-2492342
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
2101 N. Lapeer Road, Lapeer, Michigan 48446
Registrant's telephone number, including area code: (810) 664-0850
Securities registered pursuant to Section 12(b)of the Act: None
Securities registered pursuant to Section 12(g)of the Act: Common Stock, without par value
(Title of Class)
</TABLE>
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 by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ x ]
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant as of March 20, 1998, computed by reference to
the last sale price for such stock on that date as reported on the Nasdaq
National Market System, was $40,273,454.
At March 20, 1998, the number of shares outstanding of the registrant's
Common Stock, without par value, was 6,245,292.
Portions of the registrant's Proxy Statement for its 1998 Annual Meeting
of Shareholders have been incorporated by reference in Part III of this Annual
Report on Form 10-K.
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PART I
ITEM 1. BUSINESS
Durakon Industries, Inc. (the "Company") was incorporated in Michigan on
December 21, 1983, and is the successor by merger to Durakon, Inc. which was
incorporated in Michigan in 1979. The Company operates its business in two
segments, the Vehicle Accessories segment and the Towing & Recovery segment.
Vehicle Accessories Segment. This segment's principal product is a
one-piece, seamless pickup truck bedliner, custom engineered and molded in
various sizes to fit most domestic and foreign pickup trucks. A matching
protector is supplied with each bedliner to protect the truck's tailgate.
Bedliners are constructed of high-density polyethylene plastic, and are designed
to protect the entire bed area including the floor, front panel and sidewalls.
The Company markets bedliners under the Duraliner(R), AllStar(R) and Bodygard(R)
brand names and also manufactures for private labels. Purchasers of the
Duraliner(R) product also receive proprietary cargo restraining board pockets
(Duraloc(TM)), two tier stacking capability and other premium features.
The Company's marketing strategy for pickup truck bedliners is to
service the aftermarket through distributors of light truck accessories, camper
top manufacturers, retail chains and mass merchandisers as well as directly
servicing original equipment manufacturers. Management believes that purchasers
of light trucks generally prefer to purchase add-on accessories, such as a
pickup truck bedliner, at the time they purchase their truck. This allows
installation of the bedliner prior to delivery, before damage to the truck
occurs, and also permits the buyer to finance the bedliner in conjunction with
the truck.
The Company also manufactures and markets the DuraSport(TM) cargo liner,
a protective liner for back interiors of sport utility vehicles; van liners to
protect the interiors of cargo vans; chassis cab covers and combination storage
and protective trays for the back of vans, sport utility vehicles and passenger
car trunks. Other products manufactured for the company on a proprietary basis
include the Durasport(TM) bedmat, a rubber mat designed to protect the
floor area of pickup truck beds; DuraTrunk(R), a high density polyethylene
plastic storage container; and DuraSport(TM) steps and running boards for
pickup trucks and sport utility vehicles constructed of polyurethane.
The Company also distributes products through its Duraliner USA network,
which consists of eight warehouses located throughout the country. In addition
to products manufactured by and for the Company, Duraliner USA also sells
and distributes a variety of other accessories such as hood protectors, bumpers
and tonneau covers manufactured by other companies.
Towing & Recovery Segment. Through its wholly-owned subsidiary Jerr-Dan
Corporation ("Jerr-Dan"), the Company manufactures and distributes rollback
carriers and tow trucks for use in the vehicle transportation, towing and
recovery industry.
Rollback carriers are fabricated from aluminum, steel and wood to
provide platforms, which hydraulically tilt to allow a vehicle to be loaded
thereon for transportation. Carriers equipped with a towbar attachment can tow
an additional vehicle behind the unit. Some models are also available with an
optional platform above the driver's cab enabling an additional vehicle to be
transported. The Wrangler(TM), Shark(TM), Vector(TM), Rustler(TM), Elite(TM),
and Stingray(TM) models are designed for transporting automobiles and light-duty
vehicles, while the Transporter(TM) and Super Series(TM) models, with deck
capacities up to 30,000 pounds, can also transport heavy equipment. Rollback
carriers are typically purchased by salvage dealers, towing companies,
automobile dealers, industrial equipment distributors, and antique and race car
owners.
Jerr-Dan also manufactures and markets towing and recovery equipment.
These products lift disabled vehicles by their wheels for general towing
applications. Wheel-lift trucks have supplanted the conventional hook and sling
equipment by providing for damage-free towing to vehicles with plastic front-end
components and/or front-wheel drive. Jerr-Dan's medium and heavy-duty units are
equipped with frame-fork attachments to enable a disabled vehicle to be picked
up by its front axle. Units are customarily supplied with boom and winch
features for use in vehicle recovery applications. Jerr-Dan's towing and
recovery line includes the HPL(TM), HDL(TM), Powergrid(TM), and DeWalt(TM)
models.
Jerr-Dan's marketing strategy is to compete nationally through its
independently-owned distributor network with innovative products of high quality
and superior customer service. Methods used to accomplish this objective include
advertising in trade journals, trade show participation, publication of the
Company's
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"Write-Carrier" magazine and utilization of the distributor/customer in product
development and improvement activities.
Jerr-Dan's manufacturing operations include the machining and
fabrication of steel and aluminum parts and assemblies, and the manufacture of
hydraulic componentry. Jerr-Dan's products are assembled, tested and installed
on truck chassis purchased by Jerr-Dan or its customers, or sold in kit form for
installation by its distributors.
OTHER CORPORATE MATTERS
Employment. At December 31, 1997, the Company and its subsidiaries
employed 847 persons. Approximately 29% of its employees are covered by a
collective bargaining agreement with the International Union, United Automobile,
Aerospace and Agricultural Implement Workers of America. The most recent
agreement was ratified by the union on March 4, 1997, expires February 29, 2000,
and covers 249 employees at the Lapeer, Michigan plant.
Significant Customers. No one customer accounts for more than 10% of
consolidated net sales and no material part of the Company's business is
dependent upon a single customer.
Competition. In the opinion of management, the competitive factors in
each industry in which the Company and its subsidiaries operate include brand
recognition, total quality, marketing support, price, customer service, prompt
delivery and reputation. The Company emphasizes all of these factors in its
operating strategy.
The Vehicle Accessories segment markets its products worldwide to
original equipment manufacturers and to independent aftermarket distributors.
The Company's primary competitor in all of these markets is Penda Corporation, a
privately owned company headquartered in Portage, Wisconsin. While no market
data is readily available, the Company believes it has the largest share of the
market for pickup truck bedliners. There are many other manufacturers of pickup
truck bedliners but the Company believes that none of them maintains a market
share comparable to the Company or Penda.
In the Towing & Recovery segment, the Company primarily sells in North
America. While the Company is not aware of any source of market data on this
industry, it believes that Miller Industries, Inc., a publicly held company
headquartered in Atlanta, Georgia has the largest market share. There are
several smaller manufacturers of towing and recovery equipment. The Company
believes it maintains the second largest market share in the towing and recovery
industry.
Patents. The Company has a policy of filing patent applications for its
important product designs and manufacturing methods. The patents the Company
considers most valuable expire after 1999.
Backlogs. Neither the Vehicle Accessories segment nor the Towing &
Recovery segment maintain a sales backlog as sales orders are generally filled
within one month.
Raw Materials. Raw materials used in the production of the Company's
products are available from several sources. Management believes that its
present sources and adequate replacement sources will be available to meet the
Company's anticipated demand for the foreseeable future. High-density
polyethylene resin, which is the principal raw material of the Vehicle
Accessories segment, is subject to significant price fluctuation.
Regulatory Requirements. The Company, as a manufacturer utilizing
plastic substances, is subject to provisions of state and federal laws governing
discharges of pollutants into the environment and the exposure of employees to
harmful substances. The Company believes that it is currently in compliance with
such applicable provisions and that continued compliance will not require
material capital expenditures.
ITEM 2. PROPERTIES ($ in 000's)
Vehicle Accessories Segment. The Company has two domestic manufacturing
locations for pickup truck bedliners. The largest one is owned, the other
facility is leased. The owned facility is a 326,800 square foot building complex
on 135 acres of land in Lapeer, Michigan. This facility also houses the
Company's warehouse facility, distribution center and administrative offices.
The leased facility is 102,000 square feet on 7 acres of land in Clinton,
Tennessee. The lease expires in 2003; rental under this lease was approximately
$255 in 1997.
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Additional warehousing space of 20,000 square feet is leased in Greenbrier,
Tennessee to provide inventory availability for the Ford business.
The Company's Mexican subsidiary leases a 46,692 square foot
manufacturing facility in Lerma, Mexico. Rental under this lease agreement was
$116 during 1997.
The Company has 8 leased locations, which operate under the name
"Duraliner U.S.A." that are primarily used as wholesale distribution centers.
These facilities, located in City of Industry, California; Ft. Lauderdale and
Lakeland, Florida; New Orleans, Louisiana; Westland, Michigan; Ft. Worth and
Houston, Texas; and Charleston, West Virginia, have approximately 9,000 to
21,000 square feet per location. Aggregate rentals under these leases were
approximately $435 in 1997. The expiration dates for these leases range from
1997 to 2002.
In June 1997, the Company entered into a joint venture with respect to
its Stockton, California wholesale distribution center to operate as "Duraliner
of California". In December 1997, the Springfield, Massachusetts warehouse was
closed with distribution in the territory contracted to a dedicated warehouse
operated by a third-party logistics firm.
Towing & Recovery Segment. The Company owns a 112,000 square foot
manufacturing facility located on 12.5 acres of land in Greencastle,
Pennsylvania. This location also houses storage facilities and administrative
offices.
The Company leases two additional manufacturing and assembly facilities
in Greencastle, Pennsylvania. A 126,000 square foot manufacturing building on 10
acres has an annual rent of $360 with a lease expiration of June 30, 2011. An
assembly location of approximately 6,000 square feet with an annual rent of $25
is leased on a month-to-month basis.
The Company also leases a manufacturing location in Channelview, Texas.
This facility is approximately 13,000 square feet at an annual rent of $50. The
lease expires November 30, 1999. In December 1997, the company decided to
transfer manufacturing operations of its DeWalt Division to Greencastle,
Pennsylvania. The Company is negotiating to terminate the lease in Channelview.
Additional warehousing and assembly space of 60,000 square feet is
leased in Las Vegas, Nevada to provide inventory availability for Jerr-Dan's
western distributors. Annual rent is $336 in 1997 and $349 thereafter. This
lease expires July 31, 2000.
Adequacy of Facilities and Production Capacity. In the opinion of
management, the facilities and manufacturing capacity for both business segments
are adequate to operate at current market conditions. In 1997, the company
recognized a need for additional warehouse space to accommodate new business in
the Towing and Recovery segment.
ITEM 3. LEGAL PROCEEDINGS
The Company is engaged from time to time in various litigation incident
to both segments of its business. Much of such litigation is covered in whole or
in part by insurance. Management of the Company believes that the Company is not
at present a party to any legal proceedings, which if decided in a manner
adverse to the Company, would be likely to have a material adverse effect on the
Company's results of operations or financial condition. The Company is a party
to the class action lawsuits described below.
Class Action Lawsuits
In the fourth quarter of 1996 and the first quarter of 1997, nine class
action lawsuits were filed in state and federal courts against the Company and
various other manufacturers of pickup truck bedliners. The cases are Jude
Vanderhoff, et al. v. Durakon Industries, Inc., et al., filed in the Circuit
Court of Jefferson County, Kentucky on February 6, 1997; James S. Sherman et al.
v. Durakon Industries, Inc., et al., filed in the Common Pleas Court of
Montgomery County, Ohio on January 23, 1997; Tennyson Smith, et al. v. Durakon
Industries, Inc., et al., filed in the Circuit Court of Greene County, Alabama
on November 7, 1996; Mary Ann Boyer, et al. v. Durakon Industries, Inc., et al.,
filed in the United States District Court for the Southern District of Florida
on November 8, 1996; Susan Stricklett, et al. v. Durakon Industries, Inc., et
al., filed in Champaign County, Illinois on November 7, 1996; Joseph Jetton, et
al. v. Durakon Industries, Inc., et al., filed in the United States District
Court for the Eastern District of Missouri on November 8, 1996; Jimmy E. Brown,
et al. v. Durakon Industries,
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Inc., et al., filed in the United States District Court for the Southern
District of Mississippi, Hattiesburg Division on November 6, 1996; Jon Brown
v. Durakon Industries, Inc., filed in the United States District Court for the
Northern District of Texas on February 10, 1997; and William Earl Crabtree,
et al. v. Durakon Industries, Inc., et. al., filed in the United States
District Court for the Middle District of Louisiana on November 13, 1996.
The foregoing cases are purportedly brought on behalf of all owners of
pickup truck bedliners made by the defendant manufacturers. None of these cases
seek damages for personal injuries. The complaints allege that the bedliners
manufactured by the defendants are defective and unreasonably dangerous because
the bedliners supposedly prevent the discharge of static electricity which can
accumulate on or in portable fuel containers and thereby create the potential
for an explosion if a container is filled with fuel while sitting on a bedliner.
The complaints allege that the defendants were aware of the alleged danger but
failed to provide a proper warning. The complaints filed in these cases, while
not identical, raise substantially similar legal theories, primarily claims of
breach of warranty, fraudulent misrepresentation, negligent misrepresentation,
negligence and strict liability in tort. The plaintiffs seek damages in
unspecified amounts and equitable relief, including a recall and replacement of
all bedliners, or a refund, and notification to all bedliner owners of the
purported danger. The complaints either request punitive damages or reserve the
right to seek punitive damages at a later date. The complaints all seek an award
of attorney's fees and costs.
On March 20, 1997, the United States District Court for the Southern
District of Mississippi, Hattiesburg Division, entered an Order Conditionally
Certifying Class for Settlement Purposes, Designating Class Counsel, Staying
Discovery and Pending Motions and Issuing Injunction in the Jimmy Brown case
(the "Order"). Pursuant to the Order, the court has (i) conditionally certified
the class for settlement purposes only and has stayed discovery and motions,
except for certain limited activities, in the Jimmy Brown case, (ii) enjoined
all members of the class and their attorneys from filing, commencing, continuing
or otherwise participating in any lawsuit based on or relating to the facts and
circumstances underlying the claims and causes of action set forth in the Jimmy
Brown lawsuit. In connection with the entry of the Order, the Vanderhoff,
Sherman and Jon Brown cases have been dismissed without prejudice and the
parties to the Smith, Boyer, Stricklett, Jetton, and Crabtree cases have jointly
requested the courts in those cases to stay all discovery and motion practice
pending the completion of settlement negotiations among the parties.
The Company believes the claims in these lawsuits are without merit and
it has specifically denied any fault or omission or any liability or violation
of the law in connection with the claims asserted therein. However, due to the
uncertainties of litigation, especially where jury trials are involved, and the
cost and distraction of defending multiple lawsuits in various jurisdictions,
the Company has determined that it would be in its best interest to explore the
possibility of settlement. The court's reason for entering the Order was for the
limited purpose of allowing the parties to enter into settlement negotiations.
The Order will remain effective for 90 days from the date it was entered or for
such longer time as the parties, in the discretion of the court, are engaged in
meaningful settlement discussions. If a settlement is reached, it will be
subject to approval by the court. Any defendant may withdraw from the
conditional certification after obtaining leave of the court, which may be
granted without a showing of cause. The withdrawal of any defendant will not
affect the conditional certification with respect to the remaining parties.
While settlement negotiations are continuing, there can be no assurance
that a settlement will be reached. In the event that settlement negotiations
should terminate, or if a settlement agreed to by the parties were not approved
by the court, the Company intends to vigorously defend these lawsuits.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
No matters were submitted to a vote of shareholders during the fourth
quarter of the fiscal year covered by this Report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq Stock Market under
the symbol "DRKN". The following table sets forth the high and low sale prices
reported on the Nasdaq Stock Market for the quarterly periods indicated:
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<TABLE>
<CAPTION>
1997 1996
Quarter High Low Quarter High Low
- ------- ---- --- ------- ---- ---
<S> <C> <C> <C> <C> <C>
First $15 $10 3/4 First $13 $11 1/2
Second 11 1/2 9 1/4 Second 14 3/4 12 1/4
Third 9 1/2 8 1/2 Third 15 11 3/4
Fourth 9 3/4 7 3/4 Fourth 13 1/4 12
</TABLE>
On March 20, 1998, the last available sale price for shares of the
Common Stock of the Company, as reported on the Nasdaq Stock Market, was $8.813
As of such date, the approximate number of record holders of the Common Stock
was 341.
Durakon has not paid a dividend on the Common Stock since the date on
which the Common Stock was first offered to the public. The Company's policy is
not to pay dividends, but to use excess cash to fund for future growth.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below have been
derived from the Company's Consolidated Financial Statements which have been
audited by Coopers & Lybrand L.L.P., and should be read in conjunction with the
Consolidated Financial Statements and related Notes.
<TABLE>
<CAPTION>
1997 1996 1995 (1) 1994 1993 (2)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
($ in 000's, except per
share amounts)
OPERATIONS STATEMENT DATA:
Net sales $179,908 $183,628 $172,051 $144,483 $105,738
Operating income 735 13,133 5,171 19,487 14,937
Interest income/(expense), net 69 629 358 427 195
Net income 1,103 8,904 2,299 12,101 11,974
Net income per common share - Basic .18 1.36 .35 1.86 1.85
Net income per common share - Diluted .18 1.34 .35 1.82 1.82
BALANCE SHEET DATA:
Working capital $ 31,681 $ 35,150 $ 25,696 $ 25,539 $ 27,769
Total assets 83,092 84,079 78,869 75,542 56,224
Long-term obligations 554 795 1,572 2,641 446
Shareholders' equity 62,286 65,760 56,556 54,237 41,673
PERCENTAGES AND RATIOS:
Gross profit 16.9% 21.6% 21.1% 29.0% 31.9%
Return on sales .6% 4.8% 1.3% 8.4% 11.3%
Current ratio 2.7 3.2 2.3 2.4 2.9
Ratio of long-term debt to
total capitalization .01 .01 .03 .05 .01
</TABLE>
(1) Includes pre-tax charges of $2,900 for the loss on disposition of the ZZ
Wheelz subsidiary, $1,455 for re-engineering and consolidation of pickup
truck bedliner manufacturing operations, and $1,103 related to
settlement of a patent issue and write-off of a license agreement.
(2) Includes a pre-tax gain of $2,358 relating to the sale of a warrant to
purchase a minority share of DFM Corporation.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion relating to the three years ended December 31,
1997, should be read in conjunction with the Company's Consolidated Financial
Statements and related Notes:
CORPORATE DEVELOPMENT. ($ in 000's) In December of 1997, Jerr-Dan closed
its Channelview, Texas manufacturing facility. Production of the DeWalt(TM)
heavy-duty towing and recovery vehicles has been moved to the Greencastle,
Pennsylvania location. A $289 pre-tax charge was recorded in the fourth quarter
of 1997 to provide for anticipated costs to transfer the DeWalt operation in
Channelview to Greencastle, PA.
In January of 1997, the Vehicle Accessories segment was awarded the Ford
service parts business. The company distributes light truck bedliners to Ford
dealerships in the United States, Canada and Mexico, through owned and non-owned
distribution centers. The contract will be up for renewal December 31, 2000.
In July of 1996, Jerr-Dan leased approximately 126,000 square feet of
additional manufacturing space to accommodate the production of its new
medium-duty towing vehicle. The addition of the medium-duty towing vehicle model
to its product line enables the Company to offer a full range of towing and
recovery equipment to its distributors. Several innovative and patentable
features are incorporated into this new product including an industry-first
corrosion-resistant composite body.
On December 12, 1995, the Company decided to dispose of its ZZ Wheelz
subsidiary. The operation acquired in 1994 did not fit the long-term focus of
the Company. A $2,900 pre-tax charge was recorded in the fourth quarter of 1995
to write-off the investment and provide for anticipated costs to close the
facility.
Effective July 1, 1995, Jerr-Dan acquired substantially all the assets
of DeWalt Manufacturing, Inc., a manufacturer of heavy-duty towing and recovery
vehicles in Channelview, Texas. Jerr-Dan's DeWalt Division provides a proven
product line in the heavy-duty market segment previously not serviced by the
Company.
Also in July 1995, Jerr-Dan opened a warehouse in Las Vegas, Nevada to
provide improved service to the Company's West Coast distributors. Inventory is
available in both kit and turnkey configurations.
NET SALES. ($ in 000's) The following table summarizes net sales by
business segment for the last three years:
<TABLE>
<CAPTION>
Segment 1997 % 1996 % 1995 %
- ------- ---- - ---- - ---- -
<S> <C> <C> <C> <C> <C> <C>
Vehicle Accessories $ 92,250 51% $ 85,109 46% $ 81,684 47%
Towing & Recovery 87,658 49% 98,519 54% 90,367 53%
-------- --- -------- --- -------- ---
Total $179,908 100% $183,628 100% $172,051 100%
======== === ======== === ======== ===
</TABLE>
Net sales decreased 2% to $179,908 in 1997 versus 1996. In 1996 sales
increased 7% or $11,577 compared to 1995.
In the Vehicle Accessories segment net sales increased $7,141 or 8% from
1996. Bedliner unit sales increased 11.7% from the prior year primarily due to
the Ford business. Ford provided an increase in OEM unit volume of 97% versus
1996. International unit sales increased by 52% in 1997 compared to 1996.
Aftermarket unit sales decreased 16% in 1997 compared to 1996. Average bedliner
net selling prices were down 2.6% from 1996 due to the increased domestic
aftermarket competition and OEM-Ford volume, which carries a lower selling price
than aftermarket. In 1996, sales increased $3,425 or 4% from 1995. Bedliner unit
sales increased 12.5% from 1995. International unit sales increased 21% in 1996
compared to 1995. Average bedliner net selling price was down 6.2% from 1995.
In the Towing & Recovery segment, 1997 net sales decreased $10,861 or
11% from 1996. The decrease reflects a 7% decline in sales of manufactured
equipment and service and a 14% decline in sales of truck chassis. Unit sales of
rollback carriers decreased by 18% while the decrease in unit sales of tow
vehicle bodies was 5%. Average net selling prices for rollback carriers were 2%
higher in 1997 than in 1996, primarily due to sales mix. Average net selling
prices of tow vehicle bodies were 22% higher in 1997 than in 1996 reflecting a
greater proportion of sales of medium-duty tow vehicle bodies. There were no
sales price increases in 1997. In 1996, sales increased $8,152 or 9% from 1995.
The increase reflects a 10% improvement in sales of manufactured
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equipment and an 8% rise in sales of truck chassis. Unit sales of rollback
carriers increased by less than 1% while the increase in unit sales of tow
vehicle bodies increased by 8%. Average selling prices for rollback carriers
were higher by 4% in 1996 as compared to 1995. Average tow vehicle bodies
equipment selling prices increased by 20% in 1996 over 1995 reflecting increased
sales of medium and heavy-duty models.
GROSS PROFIT. ($ in 000's) The following table summarizes gross profit in
dollars and as a percent of sales by segment for the last three
years:
<TABLE>
<CAPTION>
Segment 1997 % 1996 % 1995 %
- ------- ---- - ---- - ---- -
<S> <C> <C> <C> <C> <C> <C>
Vehicle Accessories $20,007 22% $24,946 29% $22,137 27%
Towing & Recovery 10,346 12% 14,732 15% 14,222 16%
------- -- ------- -- ------- -------
Total $30,353 17% $39,678 22% $36,359 21%
======= == ======= == ======= =======
</TABLE>
In 1997, gross margin in the Vehicle Accessories segment decreased from
29% to 22%. Margins were down due to lower net average selling prices, which
were caused by competition along with lower average margins on OEM sales.
Freight costs were $2.9 million higher in 1997 versus 1996 primarily due to the
Ford distribution costs. In 1996, gross margin in the Vehicle Accessories
segment increased 2 percentage points from 1995. Margin rates improved primarily
due to improved efficiencies and cost reduction efforts in the manufacturing
area. Manufacturing fixed cost absorption rates also improved due to increased
production volumes in 1996. Manufacturing cost improvements were offset by a
marked reduction in average unit selling prices in the latter part of 1996. The
implementation of an aggressive pricing strategy was required to combat new
competition in the aftermarket channels.
In the Towing & Recovery segment, gross margin in 1997 was 12% compared
to 15% in 1996. The margin on manufactured equipment and service was 21% in
1997, down 5% from 1996, which reflects the impact of increased sales of
lower-margin towing vehicles in 1997. Lower sales volumes in 1997 also had the
effect of reducing gross margins due to less favorable absorption of fixed
overhead costs than in 1996. Margins on rollback carriers and light-duty tow
trucks decreased by 3% on a year to year basis. In 1996 gross margin was 15%
compared to 16% in 1995. The margin on manufactured equipment and service was
26% in 1996, down 1% from 1995, which reflects the impact of increased sales of
lower-margin medium and heavy-duty tow trucks in 1996. Margins on rollback
carriers and light-duty tow trucks remained consistent year to year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. ($ in 000's) The following
table presents selling, general and administrative expenses by business segment
and as a percent of net sales for the last three years:
<TABLE>
<CAPTION>
% Net % Net % Net
Segment 1997 Sales 1996 Sales 1995 Sales
- ------- ---- ----- ---- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Vehicle Accessories $19,930 22% $17,949 21% $18,375 23%
Towing & Recovery 9,688 11% 8,596 9% 9,913 11%
------- -- ------- -- ------- --
Total $29,618 16% $26,545 14% $28,288 16%
======= == ======= == ======= ==
</TABLE>
Selling, general and administrative expenses (SG&A) were 12% higher in
1997 compared to 1996, and two points higher as a percentage of net sales. In
1996, SG&A expenses were 6% less compared to 1995, and two points less as a
percentage of net sales.
In the Vehicle Accessories segment, 1997 SG&A was $1,981 higher than in
1996 and as a percentage of net sales was one percentage point higher. The
increase in SG&A is primarily due to legal reserves associated with the nine
class action lawsuits filed against the Company and various other manufacturers
of pickup truck bedliners and professional fees. The increase in professional
fees relates largely to the company's profit improvement program. In 1996, SG&A
was $426 less than in 1995 and as a percentage of sales were two points lower.
The overall spending reduction was primarily the result of the elimination of
costs associated with ZZ Wheelz, which was closed in 1995.
In the Towing & Recovery segment, 1997 SG&A was $1,092 higher than 1996
and 2% higher as a percentage of net sales. The increase was due to costs
associated with the closing of the DeWalt facility in Channelview, Texas. The
remainder of the increase in SG&A is attributable to expansion of the Company's
product engineering capability and promotional expenses related to the
medium-duty tow vehicle product. In 1996 SG&A was $1,317 lower than 1995 and 2%
lower as a percentage of net sales. The reduction is primarily
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due to approximately $1,103 in one-time charges related to patent litigation
and the write-off of a license agreement which are reflected in 1995 expenses,
together with savings attained in other areas in 1996.
DISPOSITION OF SUBSIDIARY ($ in 000's) In December 1995 the Company
decided to close its ZZ Wheelz operations. The pre-tax charge of $2,900 to write
off the investment and provide for anticipated costs to close the operation was
recorded in the fourth quarter of 1995.
INTEREST INCOME/(EXPENSE), NET. ($ in 000's) Net interest income was $69
in 1997, $629 in 1996 and $358 in 1995. The decrease in net interest income is a
direct result of lower cash balance during 1997 compared to 1996. The 1996
increase in net interest income primarily reflects lower interest expense in
1996 due to lower outstanding debt.
OTHER INCOME/(EXPENSE), NET. ($ In 000's) Other net expense in 1997 was
$114 versus other net income of $59 in 1996 and other net expense of $411 in
1995. In 1997, other net expense primarily relates to a loss on disposal of
fixed assets. In 1996, other income related primarily to a gain on disposal of
fixed assets and Duramex royalties. In 1995, other expense relates primarily to
transaction and devaluation losses associated with the Mexican peso.
MINORITY INTEREST. ($ in 000's) Minority interest reflects the minority
shareholders' portion of the net income of Duramex that began operations in
April 1993 and Duraliner of California, which began a joint venture in June
1997. The minority interest was $247 in 1997 compared to $124 and $73 in 1996
and 1995, respectively.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was (149%)
in 1997, 35% in 1996 and 54% in 1995. During 1997 and 1996, the Internal
Revenue Service completed its audits of the Company's 1993, 1994, and 1995 tax
returns. Upon completion of the audits, the Company recovered the amount
accrued in excess of the adjustment required as a result of the audit. The
effective tax rate in 1996 was equal to the statutory rate of 35%. The
difference between 1995 effective rate and the statutory rate of 35% was
primarily due to the non-deductible portion of the loss on disposition of ZZ
Wheelz and a provision for state income taxes.
NET INCOME. ($ in 000's) Net income was $1,103 in 1997, $8,904 in 1996,
and $2,299 in 1995. The decrease of $7,801 in 1997 was primarily due to lower
gross margins in both business segments, lower average net selling prices in the
vehicle accessories segment, lower sales in the towing and recovery segment
due to the loss of three distributors which were purchased by a competitor,
and professional fees associated with implementing a improvement program. The
increase of $6,605 in 1996 reflects improved gross margins and lower SG&A
expenses.
YEAR 2000 DATE CONVERSION. Management has implemented a Company-wide
initiative to ensure that the Company's information systems and systems
applications are capable of processing data and transactions pertaining to the
year 2000. The initiative utilizes both Company resources and external resources
to identify systems and applications affected, to correct existing systems or to
acquire replacement systems, and to test the systems and applications for
compliance with the requirements for processing year 2000 information. The
Company is in the process of determining the total cost associated with the
required modifications and conversions.
Management does not believe that inflation had a significant impact on
the Company's operations during the last three years.
LIQUIDITY AND CAPITAL RESOURCES ($ in 000's)
At year-end 1997, the Company's cash balance was $7,907, compared to
$8,597 at year-end 1996 and $12,757 at year-end 1995. The current ratio was 2.7
at December 31, 1997 versus 3.2 in 1996 and 2.3 in 1995. During 1997, cash of
$9,780 was provided by operations versus $3,350 in 1996 and $8,944 in 1995. Cash
used in investing activities in 1997 was $5,434 compared to $5,774 in 1996 and
$6,636 in 1995. In 1997, the primary uses of cash were purchases of equipment
relating to production and the repurchases and retirement of 400,000 shares of
outstanding common stock at a price of $13 per share. In 1997, the decrease in
inventories of $1.7 million and the increase in other liabilities due to the
class action lawsuit had a positive impact on net cash provided by operating
activities. The main usage of cash in 1996 was to build inventories to service
the Ford program in the first quarter of 1997 and for the purchase of equipment.
In 1995, the main use of cash was for the
9
<PAGE> 10
purchase of equipment. Financing activities resulted in a net cash use of
$5,035 in 1997 compared to $1,722 in 1996 and $1,462 in 1995. The decrease in
cash in 1997 was $690 versus a net cash decrease of $4,160 in 1996.
The Company's anticipated internal cash flow is expected to provide
sufficient liquidity to fund its near-term working capital needs. The Company
believes that its long-term working capital and other investment needs will be
satisfied through its internal cash flow and future borrowings, if necessary.
The Company also maintains a $20,000 revolving credit facility. There were no
borrowings against this facility as of December 31, 1997. However, letters of
credit have been issued against the credit line totaling $950 at December 31,
1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial information included
in this Report are set forth on the Index to Consolidated Financial Statements
and Financial Statement Schedule appearing on page F-1 of this Report.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
The information called for by the items within this part will be
included in the Company's 1997 Proxy Statement, and is incorporated herein by
reference, as follows:
<TABLE>
<CAPTION>
Captions(s) in 1997
Proxy Statement
--------------------
<S> <C>
ITEM 10. Directors and Executive Officers of the "Election of Directors", "Other Information
Registrant Relating To Directors" and "Executive Officers"
ITEM 11. Executive Compensation "Compensation of Executive Officers and Directors"
ITEM 12. Security Ownership of Certain "Election of Directors"
Beneficial Owners and Management
ITEM 13. Certain Relationships and Related "Certain Transactions with Management"
Transactions
</TABLE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE AND
REPORTS ON FORM 8-K.
(a) 1. Financial Statements:
The financial statements filed with this Report are listed on
page F-1.
2. Financial Statement Schedule:
The financial statement schedule filed with this Report is listed
on page F-1. Other financial statement schedules, for which
provision is made in the applicable accounting regulations of the
Securities and Exchange Commission, are not required under the
related instructions or are inapplicable and, therefore, have
been omitted.
3. Exhibits:
10
<PAGE> 11
The exhibits filed with this Report are listed on the "Exhibit
Index" on page E-1.
(b) Reports on Form 8-K.
The Company was not required to file any current reports on Form
8-K during the quarter ended December 31, 1997, and none was
filed during that period.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the registrant has caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized, on March 23, 1998.
DURAKON INDUSTRIES, INC.
By: /s/David W. Wright
-------------------------------
David W. Wright, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated on March 23, 1998.
Signature Title
--------- -----
/s/David W. Wright Director (Principal Executive Officer)
- ---------------------------------
David W. Wright
/s/James C. Smith Corporate Controller
- --------------------------------- (Acting Financial and Accounting Officer)
James C. Smith
/s/David Aronow Director
- ---------------------------------
David Aronow
/s/Phillip Wm. Fisher Director
- ---------------------------------
Phillip Wm. Fisher
/s/ Richard J. Jacob Director
- ---------------------------------
Richard J. Jacob
/s/Robert M. Teeter Director
- ---------------------------------
Robert M. Teeter
<PAGE> 13
DURAKON INDUSTRIES, INC. AND SUBSIDIARIES
INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Durakon Industries, Inc. are
referred to in Item 8:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants F-2
Consolidated Balance Sheets - December 31, 1997 and 1996 F-3
Consolidated Statements of Income - Years ended
December 31, 1997, 1996, and 1995 F-4
Consolidated Statements of Shareholders' Equity - Years
ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows - Years ended
December 31, 1997, 1996 and 1995 F-6
Notes to consolidated financial statements F-7 to F-18
</TABLE>
The following consolidated financial statement schedule of Durakon Industries,
Inc. is included herein:
Schedule II -- Valuation and qualifying accounts S-1
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
F-1
<PAGE> 14
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Durakon Industries, Inc.:
We have audited the consolidated financial statements and financial statement
schedule of Durakon Industries, Inc. and Subsidiaries listed in the index on
page F-1 of this Form 10-K. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial position of Durakon
Industries, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
Coopers & Lybrand, L.L.P.
Detroit, Michigan
February 20, 1998
F-2
<PAGE> 15
DURAKON INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
($ in 000's)
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ---- ----
<S> <C> <C>
Current assets:
Cash and equivalents $7,907 $8,597
Accounts receivable, less allowances of $1,252 and $637 20,039 20,175
Inventories 16,748 18,427
Prepaid expenses and other current assets 2,401 2,005
Deferred income taxes 2,973 2,245
------- -------
Total current assets 50,068 51,449
Property, plant and equipment less accumulated depreciation
of $26,765 and $24,656 21,943 20,754
Goodwill 10,601 11,278
Patents, less accumulated amortization of $1,939 and $1,804 270 406
Other assets 210 192
------- -------
TOTAL ASSETS $83,092 $84,079
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $248 $251
Accounts payable 10,308 9,940
Other current liabilities 7,831 6,108
------- -------
Total current liabilities 18,387 16,299
------- -------
Long-term debt 554 795
Deferred income taxes 1,184 1,050
Minority interest 681 175
------- -------
Total long-term liabilities 2,419 2,020
------- -------
Shareholders' equity:
Preferred stock, $1 par value - 100,000 shares authorized; none issued -- --
Common stock, without par value - 15,000,000 shares authorized;
6,245,292 and 6,565,292 shares issued and outstanding 17,244 21,820
Accumulated translation adjustment (290) (289)
Retained earnings 45,332 44,229
------- -------
Total shareholders' equity 62,286 65,760
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $83,092 $84,079
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 16
DURAKON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
($ in 000's, except per share amounts)
<TABLE>
<Captiion>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales $179,908 $183,628 $172,051
Cost of products sold 149,555 143,950 135,692
-------- -------- --------
Gross profit 30,353 39,678 36,359
Selling, general and
administrative expenses 29,618 26,545 28,288
Disposition of subsidiary -- -- 2,900
-------- -------- --------
Operating income 735 13,133 5,171
Interest income 199 778 775
Interest expense (130) (149) (417)
Other income/(expense), net (114) 59 (411)
Minority interest (247) (124) (73)
-------- -------- --------
Income before income taxes 443 13,697 5,045
Provision, benefits, for income taxes (660) 4,793 2,746
-------- -------- --------
Net income $1,103 $8,904 $2,299
======== ======== ========
Basic earnings per share of common stock $0.18 $1.36 $0.35
======== ======== ========
Diluted earnings per share of common stock $0.18 $1.34 $0.35
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 17
DURAKON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
($ in 000's, except shares)
<TABLE>
<CAPTION>
Shares Equity
-------- --------------------------------
Accumulated
Common Common Translation Retained
Stock Stock Adjustment Earnings
----- ------ ----------- ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 6,520,292 21,506 (295) 33,026
--------- ------- ------- -------
Net income -- -- -- 2,299
Translation adjustments -- -- 20 --
--------- ------- ------- -------
Balance at December 31, 1995 6,520,292 21,506 (275) 35,325
--------- ------- ------- -------
Exercise of stock options 45,000 146 -- --
Tax benefit of exercised options -- 168 -- --
Net income -- -- -- 8,904
Translation adjustments -- -- (14) --
--------- ------- ------- -------
Balance at December 31, 1996 6,565,292 $21,820 ($289) $44,229
--------- ------- ------- -------
Exercise of stock options 80,000 409 -- --
Tax benefit of exercised options -- 215 -- --
Repurchase of Shares (400,000) (5,200) -- --
Net income -- -- -- 1,103
Translation adjustments -- -- (1) --
--------- ------- ------- -------
Balance at December 31, 1997 6,245,292 $17,244 ($290) $45,332
========= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 18
DURAKON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
($ in 000's)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net income $1,103 $8,904 $2,299
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,984 4,179 5,002
Increase/(decrease) in minority interest, net 506 116 (222)
Increase/(decrease) in deferred income taxes (379) 1,153 (1,084)
Gain/(loss) on disposal of property, plant and equipment 74 (36) 440
Net decrease/(increase) of other assets (18) (82) 15
Increase/(decrease) due to changes in operating assets
and liabilities:
Accounts receivable 136 (2,711) (2,454)
Inventories 1,679 (6,282) 1,462
Prepaid expenses and other current assets (396) (859) 372
Accounts payable 368 (124) 1,180
Accrued expenses and other current liabilities 1,723 (908) 1,934
------- ------- -------
Net cash provided by operating activities 9,780 3,350 8,944
------- ------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property, plant and equipment (5,622) (5,932) (6,763)
Proceeds from sale of property, plant and equipment 188 158 127
------- ------- -------
Net cash used in investing activities (5,434) (5,774) (6,636)
------- ------- -------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Decrease in long-term debt (244) (1,868) (1,659)
Proceeds from issuance of debt -- -- 197
Repurchase of common stock (5,200) -- --
Cash proceeds from exercise of stock options 409 146 --
------- ------- -------
Net cash used in financing activities (5,035) (1,722) (1,462)
------- ------- -------
Effect of exchange rate changes on cash (1) (14) 283
------- ------- -------
CASH AND EQUIVALENTS:
Increase/(decrease) for year (690) (4,160) 1,129
Balance, beginning of year 8,597 12,757 11,628
------- ------- -------
BALANCE, END OF YEAR $7,907 $8,597 $12,757
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 19
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Durakon
Industries, Inc., "The Company" and its domestic subsidiaries and foreign
majority-owned subsidiary, "Duramex". All significant intercompany
accounts and transactions have been eliminated.
CASH AND EQUIVALENTS:
At December 31, 1997, 1996 and 1995, substantially all cash was held at
Comerica Bank.
For purposes of the statement of cash flows, cash and equivalents include
cash on hand, amounts due from banks and debt instruments purchased with
an original maturity of three months or less.
INVENTORIES:
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method for the Vehicle Accessories segment
and the last-in, first-out (LIFO) method for the Towing & Recovery
segment.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. Depreciation is provided
on the straight-line method over the estimated useful lives of the assets.
Upon retirement or disposal of assets the costs and accumulated
depreciation are removed from the related accounts, and any gain or loss
is included in income.
INTANGIBLES:
Goodwill is being amortized using the straight-line method over a period
not exceeding 20 years. At each balance sheet date, management assesses
whether there has been an impairment in the carrying value of goodwill,
primarily by comparing current and projected sales, operating income and
annual cash flows with the carrying value of the assets. Purchase costs of
patents are being amortized using the straight-line method over the legal
lives of the patents, not to exceed 17 years.
RETIREMENT PLANS:
The Company has defined contribution retirement plans covering
substantially all employees. The Company's policy is to fund retirement
costs accrued.
INCOME TAXES:
Deferred income taxes are recorded to reflect the tax liability/benefit on
future years of differences between the tax basis and financial reporting
amount of assets and liabilities at each year-end.
FOREIGN CURRENCY TRANSLATION:
The assets and liabilities of the Company's foreign operation are
translated into U.S. dollars at current exchange rates, and revenues and
expenses are translated at average exchange rates for the year. Resulting
translation adjustments are reflected as a separate component of
shareholders' equity. Currency transaction gains and losses are reported
in income.
F-7
<PAGE> 20
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE OF COMMON STOCK:
Net income per share of common stock is calculated in accordance with
Statement of Financial Accounting Standards (FASB) No. 128.
SEGMENTS:
The Company operates in two business segments, Vehicle Accessories and
Towing & Recovery.
REPORTING:
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 and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS:
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income"
and SFAS 131, Disclosures about Segments of an Enterprise and Related
Information." The Company will adopt the provisions of both these
statements, as required, for the year ended December 31, 1998. At this
time the Company is evaluating the effects these statements will have on
its financial reporting and disclosures. Management believes the
statements will have no significant impact on the Company's Consolidated
Financial Statements.
F-8
<PAGE> 21
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVENTORIES
Inventories are summarized below ($ in 000's):
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Raw materials and work in process ................................... $ 8,279 $ 8,722
Finished goods ...................................................... 8,469 9,705
------- -------
Total ............................................................... $16,748 $18,427
======= =======
</TABLE>
The LIFO method of inventory valuation is used to value the inventory of
the Towing & Recovery segment, which represented approximately 49% of total
inventory at December 31, 1997 and 54% at December 31, 1996. The effect of
LIFO adjustments was to reduce net income by $37 in 1997 and $181 in 1996.
At December 31, 1997 and 1996, the Company's LIFO reserve was $1,518 and
$1,547, respectively.
3. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment is shown below ($ in 000's):
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Land .............................................................. $ 2,033 $ 1,990
Buildings ......................................................... 8,537 8,137
Machinery and equipment ........................................... 38,138 35,283
------- -------
Total property, plant and equipment ............................... 48,708 45,410
Less accumulated depreciation ..................................... 26,765 24,656
------- -------
Net property, plant and equipment ................................. $21,943 $20,754
======= =======
</TABLE>
F-9
<PAGE> 22
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. OTHER CURRENT LIABILITIES
A summary of other current liabilities is shown below ($ in 000's):
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Accrued compensation ................................................. $ 1,585 $ 1,594
Legal reserve ........................................................ 1,808 1,031
Workers' compensation ................................................ 524 369
Accrued income taxes ................................................. 605 89
Reserve for disposition of subsidiary and
distribution stores .............................................. 334 362
Commission and royalties ............................................. 417 374
Health insurance ..................................................... 424 532
Other ................................................................ 2,134 1,757
------- -------
Total ................................................................ $ 7,831 $ 6,108
======= =======
</TABLE>
5. RETIREMENT PLANS
Employer contributions to the 401(k) retirement plans amounted to $572 in
1997, $435 in 1996 and $389 in 1995.
6. LEASES
Rental expense under operating leases approximated $3,038 in 1997,
$2,539 in 1996 and $2,396 in 1995. At December 31, 1997, future minimum
lease commitments under these leases were as follows:
Year ending December 31 ($ in 000's):
<TABLE>
<C> <C>
1998 ....................................... $ 2,216
1999 ....................................... 2,047
2000 ....................................... 1,280
2001 ....................................... 898
2002 and thereafter ......................... 4,320
-------
$10,761
=======
</TABLE>
7. CONTINGENCIES ($ IN 000'S)
Various legal actions and other claims are pending or could be asserted
against the Company. Litigation is subject to many uncertainties; the
outcome of individual litigated matters is not predictable with
assurance, and it is reasonably possible that some of these matters may
be decided unfavorably to the Company. It is the opinion of management
that the ultimate liability, if any, with respect to these matters will
not materially affect the financial position of the Company. The
Company is contingently liable under the terms of agreements covering
certain of its customer's 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 $8,550 and $8,502 at
December 31, 1997 and 1996, respectively. The Company has incurred no
material losses related to these agreements.
F-10
<PAGE> 23
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT
Long-term debt consisted of the following at December 31 ($ in 000's):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Duramex note payable to bank, interest at Libor plus 2.675%, which was
8.4% and 8.36% at December 31, 1997 and 1996, respectively, due in
semi-annual installments of $51 through 1999 ......................................... 205 311
Loan payable to Pennsylvania Industrial Development Association,
interest at 2%, due in monthly installments of $3, through 2009 .................... 339 368
Loan payable to Machinery and Equipment Loan Fund, interest at 2%,
due in monthly installments of $4, through 2001 ..................................... 187 230
Duramex note payable to bank, interest at Libor plus 2.675%, which was
8.4% and 8.36% at December 31, 1997 and 1996, respectively, due in
semi-annual installments of $33, through 1998 ....................................... 71 137
------ ------
802 1,046
Less current maturities................................................................ 248 251
------ ------
Total long-term debt................................................................... $ 554 $ 795
====== ======
</TABLE>
Maturities of long-term debt during the next five years are $248, $176,
$75, $75, and $29.
The Company has a $20,000 unsecured revolving credit agreement with
Comerica Bank, which expires June 30, 2000. The related debt
outstanding at the close of business on December 31, 1997 was $0.
F-11
<PAGE> 24
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation", effective with the 1996 financial statements. The Company,
however, has elected to continue to measure compensation cost using the
intrinsic value method, in accordance with APB Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees".
The Company has stock options outstanding under the 1988 Stock Option Plan
and the 1996 Stock Option Plan. Under the 1988 Stock Option Plan, the
Company has made available 500,000 shares of common stock for key
employees. The options vest and become exercisable in equal annual
installments, generally over a period of 4 years. In the 1988 and 1996
plans, the options expire after a period of 10 years. Certain options,
which were issued in 1995, were immediately exercisable. At December 31,
1997, there were 163,234 shares that remained available for grant under the
1988 plan.
Under the 1996 Stock Option Plan, the Company has made available 500,000
shares of common stock for key employees. The options vest and become
exercisable in equal annual installments as defined in the agreements. At
December 31, 1997, there were 350,000 shares that remained available for
grant under this plan.
In addition to the aforementioned plans, the Company has a stock option
agreement under which the Company has made available and granted 100,000
shares of common stock for this agreement. During 1997, no options were
exercised under this agreement
Information concerning stock options are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------- ---------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
----------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 570,000 $11.01 468,334 $ 9.74 258,334 $ 5.35
Options granted -- -- 150,000 $12.69 230,000 $16.00
Options exercised 80,000 $ 5.11 45,000 $ 3.25 -- --
Options canceled 142,500 $16.00 3,334 $12.25 20,000 $16.25
Outstanding at December 31 347,500 $10.33 570,000 $11.01 468,334 $ 9.74
Exercisable at December 31 205,000 $ 8.72 257,500 $ 7.44 248,334 $ 4.90
</TABLE>
During 1997, no options were granted. The fair value of options granted in 1996
was estimated as of the date of the grant using the Black-Scholes
option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Estimated fair value per share of options granted during the year $6.22 $8.71
Assumptions:
Dividend yield 0% 0%
Common stock volatility 45.34% 54.66%
Risk-free rate of return 6.3% 6.6%
Expected option term (in years) 5 5
</TABLE>
F-12
<PAGE> 25
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. ACCOUNTING FOR STOCK-BASED COMPENSATION (CONTINUED)
The Company has elected to continue applying the provisions of APB 25 and,
accordingly, no stock option compensation cost is included in income for
the Stock Option Plans. Had stock option compensation cost for these plans
been determined based on the fair value at the grant dates for awards under
those Plans consistent with the methodology of SFAS 123, the Company's net
income and earnings per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
-------------------------- -----------------------
As reported Pro forma* As reported Pro forma*
-------------------------- -----------------------
<S> <C> <C> <C> <C>
Net Income (in 000's) $1,103 $626 $8,904 $8,286
Basic earnings per common share $0.18 $0.10 $1.36 $1.27
Diluted earnings per common share $0.18 $0.10 $1.34 $1.25
</TABLE>
* The pro forma disclosures may not be representative of the effects on
reported net income and earnings per share because only stock options
granted beginning in 1995 are reflected in the pro forma amounts. Other
factors that may impact pro forma disclosures in future years include the
vesting period of stock options, timing of additional grants and number
of additional shares granted.
The following table summarizes the status of the Company's stock options
outstanding and exercisable at December 31, 1997:
<TABLE>
<CAPTION>
------------------------------------------ ------------------------
Stock Options Stock Options
Outstanding Exercisable
------------------------------------------ ------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Shares Contractual Exercise Shares Exercise
Exercise Prices (000's) Life Price (000's) Price
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 3.25 - $ 8.50 100 3.8 $ 3.25 100 $ 3.25
$ 8.51 - $12.69 200 3.7 $12.64 57.5 $12.62
$12.70 - $16.00 47.5 7.3 $15.50 47.5 $15.50
----------------------------------------------------------------------------------------------
Total 347.5 205
----------------------------------------------------------------------------------------------
</TABLE>
F-13
<PAGE> 26
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. BUSINESS SEGMENTS
The Company operates in two segments, Vehicle Accessories and Towing &
Recovery. The Vehicle Accessories segment manufactures and distributes
pickup truck bedliners and other vehicle accessories. The Towing & Recovery
segment manufactures and mounts systems on purchased and customer-supplied
truck chassis, which provide the converted trucks with the ability to
transport vehicles ranging in size from automobiles to heavy equipment.
Foreign assets, revenues and export sales each represent less than 10% of
the Company's total.
Information regarding the Company's segments follows ($ in 000's):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Net sales:
<S> <C> <C> <C>
Vehicle Accessories $ 92,250 $ 85,109 $ 81,684
Towing & Recovery 87,658 98,519 90,367
-------- -------- --------
$179,908 $183,628 $172,051
======== ======== ========
Operating profit:
Vehicle Accessories $ 77 $ 6,997 $ 862
Towing & Recovery 658 6,136 4,309
-------- -------- --------
$ 735 $ 13,133 $ 5,171
======== ======== ========
Depreciation and amortization:
Vehicle Accessories $ 3,844 $ 3,413 $ 3,780
Towing & Recovery 1,140 766 1,222
-------- -------- --------
$ 4,984 $ 4,179 $ 5,002
======== ======== ========
Capital expenditures:
Vehicle Accessories $ 3,582 $ 3,227 $ 6,079
Towing & Recovery 2,040 2,705 684
-------- -------- --------
$ 5,622 $ 5,932 $ 6,763
======== ======== ========
Identifiable assets:
Vehicle Accessories $ 58,312 $ 56,290 $ 57,546
Towing & Recovery 24,780 27,789 21,323
-------- -------- --------
$ 83,092 $ 84,079 $ 78,869
======== ======== ========
</TABLE>
F-14
<PAGE> 27
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. INCOME TAXES
The provisions for income taxes are summarized below ($ in 000's):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Federal income taxes:
<S> <C> <C> <C>
Currently payable ......................................... $ (54) $ 3,156 $ 3,227
Deferred .................................................. (610) 1,208 (935)
------- ------- -------
(664) 4,364 2,292
State income taxes .......................................... 4 429 454
------- ------- -------
Provision for income taxes................................... $ (660) $ 4,793 $ 2.746
======= ======= =======
</TABLE>
Temporary differences which give rise to the deferred tax assets and liabilities
as of December 31, 1997 and 1996 are as follows ($ in 000's):
<TABLE>
<CAPTION>
1997 1996
---- ----
Deferred Deferred Tax Deferred Deferred Tax
Tax Asset Liability Tax Asset Liability
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Depreciation and goodwill amortization ..... -- $1,342 -- $ 895
Bad debt allowance ......................... $ 438 -- $ 224 --
Inventory .................................. 489 -- 377 --
Litigation reserve ......................... 701 -- 339 --
Reserve for disposition of subsidiary ...... 163 -- 75 --
Vacation pay accrual ....................... 219 -- 206 --
Reserve for returns and allowances ......... 199 -- 186 --
Warranty reserve ........................... 79 -- 167 --
Patent amortization ........................ 95 -- 145 --
Reserve employee health benefit
claims ............................ 299 -- 283 --
Other miscellaneous accrued and
prepaid expenses .................. 449 -- 88 --
------ ------ ------ ------
Total deferred taxes ....................... $3,131 $1,342 $2,090 $ 895
====== ====== ====== ======
</TABLE>
The consolidated income tax provision was different than the amount
computed using the United States statutory income tax rate for the reasons
set forth in the following table ($ in 000's):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Tax at the statutory rate .................................... $ 177 $ 4,658 $ 1,715
State income taxes ........................................... 3 279 295
Non-deductible loss from disposition of
subsidiary .................................... -- (114) 599
Research and development credits ............................. (118) -- --
Favorable settlement of various tax issues ................... (651) -- --
Other ........................................................ (71) (30) 137
------- ------- -------
Provision for income tax ..................................... $ (660) $ 4,793 $ 2,746
======= ======= =======
Effective tax rate ........................................... (149%) 35.0% 54.4%
======= ======= =======
</TABLE>
During 1997 and 1996, The Internal Revenue Service completed its audits of the
Company's 1993, 1994 and 1995 tax returns. Upon completion of the audits the
Company reversed the amount accrued in excess of the adjustment required as a
result of the audits.
F-15
<PAGE> 28
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. STATEMENT OF CASH FLOWS ADDITIONAL INFORMATION
Supplemental disclosures of cash flow information ($ in 000's):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash paid during the year for:
Interest ........................................................... $ 125 $ 200 420
Income taxes ....................................................... $ 275 $3,430 $4,165
</TABLE>
Supplemental non-cash investing activities:
In 1997 the Company received a $215 tax benefit from exercise of stock
options. In 1996 the Company received a $168 tax benefit from the exercise
of stock options. In 1995 there were no stock options exercised.
13. OTHER INCOME AND (EXPENSE) ($ IN 000'S)
Net other expense for 1997 of ($114) represents primarily losses on
disposal of various plant, property and equipment.
Net other income for 1996 of $59 primarily represents $36 of a gain on the
sale of property, plant and equipment and $16 of Duramex royalties.
Net other expense for 1995 of ($411) represents a loss due to the change in
exchange rates of the Mexican peso of ($438) which was offset by
miscellaneous income items.
F-16
<PAGE> 29
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following presents financial data regarding the Company's quarterly
results of operations for 1997 and 1996 ($ in 000's, except per share
amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1997:
<S> <C> <C> <C> <C>
Net sales .................................... $40,616 $46,198 $ 45,209 $ 47,885
Gross profit ................................. 7,476 8,145 6,742 7,990
Net income ................................... 257 390 (634)(1) 1,090(2)
Basic earnings per share of common
stock ...................................... $ 0.04 $ 0.06 $ (0.10) $ 0.18
Diluted earnings per share of common
stock ...................................... $ 0.04 $ 0.06 $ (0.10) $ 0.18
1996:
Net sales .................................... $43,895 $49,430 $ 46,253 $ 44,050
Gross profit ................................. 10,156 11,458 9,240 8,824
Net income ................................... 2,138 2,757 1,932 2,077
Basic earnings per share of common
stock ...................................... $ 0.33 $ 0.42 $ 0.29 $ 0.32
Diluted earnings per share of common
stock ...................................... $ 0.32 $ 0.42 $ 0.29 $ 0.31
</TABLE>
(1) Includes a $1.3 million inventory adjustment in the vehicle
accessories segment.
(2) Includes a $289 pre-tax charge to provide for anticipated costs
to terminate the Dewalt operation in Channelview, Texas and
reversal of $651 accrued in excess required as result of the
1993, 1994 and 1995 tax audits.
15. DISPOSITION OF SUBSIDIARY ($ IN 000'S, EXCEPT PER SHARE AMOUNTS)
On December 12, 1995, the Company decided to dispose of its ZZ
Wheelz subsidiary in Richardson, Texas. The disposal of ZZ Wheelz
was substantially completed in 1996. A $2,900 charge was recorded in
the fourth quarter of 1995 to write-off the investment and provided
for anticipated costs to close the facility. The operation had a net
loss of $560 or $0.08 per share in 1995.
F-17
<PAGE> 30
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. EARNINGS PER SHARE
In February, 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, "Earnings Per Share." The Statement simplifies the standards
for computing earnings per share (EPS) and makes them comparable to
international EPS standards. The statement requires the presentation of
both "basic" and "diluted" EPS on the face of the income statement with a
supplementary reconciliation of the numerators and denominators used in the
calculations. The statement is effective for financial statements issued
for the periods after December 15, 1997, including interim periods.
A reconciliation of the numerators and denominators used in the "basic" and
"diluted" EPS calculation follows:
<TABLE>
<CAPTION>
Year ended
December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income used for both "basic"
And "diluted" EPS calculation $ 1,103 $ 8,904 $ 2,299
Denominator:
Weighted average shares outstanding
for the period - used for "basic"
EPS calculation 6,254,804 6,540,450 6,520,292
Weighted average options outstanding
For the period 49,176 92,228 108,635
---------- ---------- ----------
Weighted average shares outstanding
for the period - used for "diluted"
EPS calculation 6,303,980 6,632,678 6,628,927
</TABLE>
There were 247,500, 190,000, and 230,000 options outstanding as of December 31,
1997,1996, and 1995, respectively, which are not included in the computation
of diluted EPS because to do so would have been antidilutive for the
years then ended. Earnings per share for the years ended December 31, 1996 and
1995 have been restated to conform to SFAS No. 128.
F-18
<PAGE> 31
DURAKON INDUSTRIES, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
($ in 000's)
<TABLE>
<CAPTION>
Balance at Charged to
beginning costs and Other Charges Balance at
Year Description of year expenses accounts add (deduct) end of year
- ---- ----------- ------------------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
1997 Allowance for doubtful
accounts. . . . . . . ($637) ($853) $238 (1) ($1,252)
Patents, net of accumulated
amortization. . . . . $406 ($136) $270
Goodwill, net of accumulated
amortization. . . . . $11,278 ($677) $10,601
1996 Allowance for doubtful
accounts. . . . . . . ($640) ($478) $481 (1) ($637)
Patents, net of accumulated
amortization. . . . . $507 ($131) ($26)(3) $56 (2) $406
Non-compete, net of
accumulated amortizatation $143 ($143) $0
Goodwill, net of accumulated
amortization. . . . . $13,870 ($676) ($1,916)(3) $11,278
1995 Allowance for doubtful
accounts. . . . . . . ($474) ($221) -- $55 (1) ($640)
Patents, net of accumulated
amortization. . . . . $1,122 ($615) -- $507
Non-compete, net of
accumulated amortizatation $ 203 ($60) -- $143
Goodwill, net of accumulated
amortization. . . . . $15,078 ($885) ($323)(3) $13,870
</TABLE>
(1) Bad debts written off, net of recoveries.
(2) Amount represents addition to goodwill, patent and non-compete agreement.
(3) Adjustment for write off of ZZ Wheelz.
S-1
<PAGE> 32
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description of Exhibit Page Number
- ------- ---------------------- -----------
<S> <C> <C>
3(a) Articles of Incorporation of Durakon Industries, Inc., as amended (4)
3(b) By-laws of Durakon Industries, Inc., as amended (4)
10.1 Employees' Retirement Savings Plan, as amended and restated (5)
10.5 $20,000,000 Revolving Credit Loan Agreement by and between
Durakon Industries, Inc. and Comerica Bank, dated October 17,
1994, as amended (2)
10.6* Amendment to Revolving Credit Agreement, dated June 30, 1997
10.20 Consulting Agreement, dated August 1, 1994, by and between
Durakon Industries, Inc. and Robert Teeter (2)
10.22 Non-Qualified Stock Option Agreement, dated August 5, 1991,
between Durakon Industries, Inc. and Robert Teeter (4)
10.26 Indemnity Agreement, dated June 11, 1991, between Durakon
Industries, Inc. and Phillip Wm. Fisher (4)
10.28 Indemnity Agreement, dated August 8, 1991, between Durakon
Industries, Inc. and Robert Teeter (4)
10.30 Indemnity Agreement, dated June 11, 1991, between Durakon
Industries, Inc. and David W. Wright (4)
10.31 Indemnity Agreement, dated October 25, 1993, between Durakon
Industries, Inc. and Richard J. Jacob (3)
10.32 Indemnity Agreement, dated May 16, 1995, between Durakon
Industries, Inc. and James P. Kelly (1)
10.33 Indemnity Agreement, dated July 18, 1995, between Durakon
Industries, Inc. and David S. Aronow (1)
10.34 Employment Agreement, dated June 27, 1996, effective July 1,
1996, by and between Durakon Industries, Inc. and David W.
Wright(6)
10.35 Non-Qualified Stock Option Agreement, dated June 27, 1996
between Durakon Industries, Inc. and David W. Wright(6)
10.36 Employment Agreement, dated July 1, 1996 by and between
Durakon Industries, Inc. and Jim Kelly(6)
</TABLE>
E-1
<PAGE> 33
10.37 1996 Stock Option Plan(6)
10.40 Non-Qualified Stock Option Agreement, dated April 1, 1996
between Durakon Industries, Inc. and David Wright(6)
22* Subsidiaries of the Registrant
23.1* Consent of Independent Accountants
27.9710K Financial Data Schedule
27.9510K Financial Data Schedule
27.961Q Financial Data Schedule
27.962Q Financial Data Schedule
27.963Q Financial Data Schedule
27.9610K Financial Data Schedule
27.971Q Financial Data Schedule
27.972Q Financial Data Schedule
27.973Q Financial Data Schedule
* Filed with this Report
(1) Previously filed under the corresponding Exhibit Number as an
exhibit to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995, and incorporated herein by
reference.
(2) Previously filed under the corresponding Exhibit Number as an
exhibit to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994 and incorporated herein by
reference.
(3) Previously filed under the corresponding Exhibit Number as an
exhibit to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993 and incorporated herein by
reference.
(4) Previously filed under the corresponding Exhibit Number as an
exhibit to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1991, and incorporated herein by
reference.
(5) Previously filed under the corresponding Exhibit Number as an
exhibit to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1990, and incorporated herein by
reference.
(6) Previously filed under the corresponding Exhibit Number as an
exhibit to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997, and incorporated herein by
reference.
E-2
<PAGE> 1
EXHIBIT 10.6
AMENDMENT NO. 1
AMENDMENT TO SECOND AMENDED
AND RESTATED REVOLVING CREDIT AGREEMENT
THIS AMENDMENT No. 1, dated as of the 30th day of June, 1997, by and
between DURAKON INDUSTRIES, INC., a Michigan corporation, of Lapeer, Michigan
(herein called "Company"), and COMERICA BANK, a Michigan banking corporation,
of Detroit, Michigan (herein called "Bank");
WITNESSETH:
WHEREAS, Company and Bank are parties to that certain Second Amended
and Restated Revolving Credit Agreement dated as of October 17, 1994 (herein
called the "Agreement");
WHEREAS, Company and Bank desire to amend the Agreement, as herein
provided;
NOW, THEREFORE, in consideration of the premises and for other valuable
consideration, Company and Bank hereby agree as follows:
1. The Agreement is hereby amended as follows:
(a) The definition of "Eurodollar Margin" set forth in Section 1 is
hereby amended by deleting the reference to the term
"Commitment Fee Percentage" in the chart set forth in said
definition, and inserting "Eurodollar Margin" in place thereof.
(b) The definition of "Revolving Credit Maturity Date" set forth in
Section 1 is hereby amended and restated to read in its
entirety as follows:
"Revolving Credit Maturity Date" shall mean June 30, 2000.
2. Company hereby represents and warrants that, after giving
effect to the amendments contained herein, (a) execution, delivery and
performance of this Amendment and any other documents and instruments required
under this Amendment or the Agreement are within Company's corporate powers,
have been duly authorized, are not in contravention of law or the terms of
Company's Articles of Incorporation or Bylaws, and do not require the consent
or approval of any governmental body, agency or authority; and this Amendment
and any other documents and instruments required under this Amendment or the
Agreement, will be valid and binding in accordance with their terms; (b) the
continuing representations and warranties of Company set forth in Sections 5.1
through 5.7 and in Sections 5.9 through 5.15 of the Agreement are true and
correct on and as of the date hereof with the same force and effect as if made
on and as of the date hereof; (c) the continuing representations and warranties
of Company set forth in Section 5.8 of the Agreement are true and correct as of
the date hereof with respect to the most recent financial statements furnished
to Bank by Company in accordance with the terms of the Agreement; and (d)
<PAGE> 2
EXHIBIT 10.6
no event of default, or any condition or event which, with the giving of
notice or the running of time, or both, would constitute an event of default,
has occurred and is continuing under the Agreement as of the date hereof.
3. This Amendment shall be effective as of the date hereof.
4. Except as modified hereby, all of the terms and conditions of
the Agreement shall remain in full force and effect.
5. Capitalized terms used but not otherwise defined herein shall
have the respective meanings ascribed to them in the Agreement.
WITNESS the due execution hereof on the day and year first above
written.
COMERICA BANK DURAKON INDUSTRIES, INC.
By: Robert W. Porterfield By: Daniel W. Wright
------------------------- ------------------------
Its: Vice President Its: President & CEO
------------------------- ------------------------
2
<PAGE> 1
EXHIBIT 22
SUBSIDIARIES OF DURAKON INDUSTRIES, INC.
NAME JURISDICTION
- ------------------------------- ---------------------
Jerr-Dan Corporation Pennsylvania
Durakon FSC, Inc. U.S. Virgin Islands
Durakon Mexicana, S.A. de C.V. Mexico
Benton Plastics, Inc. Tennessee
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 7,907
<SECURITIES> 0
<RECEIVABLES> 21,291
<ALLOWANCES> 1,252
<INVENTORY> 16,748
<CURRENT-ASSETS> 50,068
<PP&E> 48,708
<DEPRECIATION> 26,765
<TOTAL-ASSETS> 83,092
<CURRENT-LIABILITIES> 18,387
<BONDS> 2,419
0
0
<COMMON> 17,244
<OTHER-SE> 45,042
<TOTAL-LIABILITY-AND-EQUITY> 83,092
<SALES> 179,908
<TOTAL-REVENUES> 179,908
<CGS> 149,555
<TOTAL-COSTS> 179,173
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,252
<INTEREST-EXPENSE> 130
<INCOME-PRETAX> 443
<INCOME-TAX> (660)
<INCOME-CONTINUING> 1,103
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,103
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 12757
<SECURITIES> 0
<RECEIVABLES> 18108
<ALLOWANCES> 640
<INVENTORY> 12140
<CURRENT-ASSETS> 46032
<PP&E> 39019
<DEPRECIATION> 20673
<TOTAL-ASSETS> 78869
<CURRENT-LIABILITIES> 20336
<BONDS> 0
0
0
<COMMON> 21506
<OTHER-SE> 35050
<TOTAL-LIABILITY-AND-EQUITY> 78869
<SALES> 172051
<TOTAL-REVENUES> 172051
<CGS> 135692
<TOTAL-COSTS> 163980
<OTHER-EXPENSES> 411
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 417
<INCOME-PRETAX> 5045
<INCOME-TAX> 2746
<INCOME-CONTINUING> 2299
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2299
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 9836
<SECURITIES> 0
<RECEIVABLES> 19043
<ALLOWANCES> 741
<INVENTORY> 14342
<CURRENT-ASSETS> 46921
<PP&E> 40460
<DEPRECIATION> 21635
<TOTAL-ASSETS> 80504
<CURRENT-LIABILITIES> 19519
<BONDS> 0
0
0
<COMMON> 21506
<OTHER-SE> 37203
<TOTAL-LIABILITY-AND-EQUITY> 80504
<SALES> 43895
<TOTAL-REVENUES> 43895
<CGS> 33739
<TOTAL-COSTS> 40495
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3477
<INCOME-TAX> 1339
<INCOME-CONTINUING> 2138
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2138
<EPS-PRIMARY> .33
<EPS-DILUTED> .32
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<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> 10037
<SECURITIES> 0
<RECEIVABLES> 22210
<ALLOWANCES> 780
<INVENTORY> 14566
<CURRENT-ASSETS> 49939
<PP&E> 41327
<DEPRECIATION> 22423
<TOTAL-ASSETS> 81257
<CURRENT-LIABILITIES> 18096
<BONDS> 0
0
0
<COMMON> 21506
<OTHER-SE> 39956
<TOTAL-LIABILITY-AND-EQUITY> 81257
<SALES> 93325
<TOTAL-REVENUES> 93325
<CGS> 71711
<TOTAL-COSTS> 85654
<OTHER-EXPENSES> 73
<LOSS-PROVISION> 780
<INTEREST-EXPENSE> 50
<INCOME-PRETAX> 7821
<INCOME-TAX> 2926
<INCOME-CONTINUING> 4895
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4895
<EPS-PRIMARY> .75
<EPS-DILUTED> .74
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 11452
<SECURITIES> 0
<RECEIVABLES> 21569
<ALLOWANCES> 569
<INVENTORY> 16703
<CURRENT-ASSETS> 53636
<PP&E> 42625
<DEPRECIATION> 23212
<TOTAL-ASSETS> 84961
<CURRENT-LIABILITIES> 20001
<BONDS> 0
0
0
<COMMON> 21652
<OTHER-SE> 41888
<TOTAL-LIABILITY-AND-EQUITY> 84961
<SALES> 139578
<TOTAL-REVENUES> 139578
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