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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended October 1, 1994 Commission File Number 1-9716
DONNELLY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Michigan
(State or other jurisdiction 38-0493110
of incorporation or organization) (IRS Employer
Identification No.)
414 East Fortieth Street
Holland, Michigan 49423
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code, (616) 786-7000
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 / /
4,156,590 shares of Class A Common Stock and 3,582,915 shares of Class
B Common Stock were outstanding as of October 31, 1994.
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DONNELLY CORPORATION
INDEX
Page
Numbering
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Combined Consolidated Balance
Sheets---October 1, 1994 and July 2, 1994. . . . . . 1
Condensed Combined Consolidated Statements of
Income---Three months ended October 1, 1994
and October 2, 1993 . . . . . . . . . . . . . . . 2
Condensed Combined Consolidated Statements of
Cash Flows---Three months ended October 1, 1994
and October 2, 1993 . . . . . . . . . . . . . . . . 3
Notes to Condensed Combined Consolidated
Financial Statements---October 1, 1994 . . . . . . 4-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . 6-8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . 9
Item 4. Submission of Matters to a Vote of Security Holders. . 9
Item 5. Other. . . . . . . . . . . . . . . . . . . . . . . . .10
Item 6. Exhibits and Reports on Form . . . . . . . . . . . . .10
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . .11
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1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DONNELLY CORPORATION
CONDENSED COMBINED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
October 1 July 2
1994 1994
--------- ---------
ASSETS
<S> <C> <C>
Cash and equivalents......................$ 5,344 $ 1,374
Accounts receivable, less allowances
of $666 and $676....................... 48,515 47,303
Inventories............................... 21,160 19,976
Prepaid expenses and other current assets. 19,799 16,911
-------- --------
Total current assets.................... 94,818 85,564
Property, plant and equipment............. 150,979 143,269
Less accumulated depreciation............. 54,915 51,898
-------- --------
Net property, plant and equipment....... 96,064 91,371
Other assets.............................. 7,185 6,866
-------- --------
Total assets............................$198,067 $183,801
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts and notes payable................$ 27,982 $ 34,227
Other current liabilities................. 15,160 14,931
-------- --------
Total current liabilities 43,142 49,158
Long-term debt, less current maturities... 72,915 53,138
Deferred income taxes and other
liabilities.............................. 9,414 9,068
-------- --------
Total liabilities....................... 125,471 111,364
-------- --------
Minority interest......................... 2,133 1,611
-------- --------
Preferred stock........................... 531 531
Common stock.............................. 778 777
Other shareholders' equity................ 69,154 69,518
-------- --------
Total shareholders' equity.............. 70,463 70,826
-------- --------
Total liabilities and
shareholders' equity..................$198,067 $183,801
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
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2
DONNELLY CORPORATION
CONDENSED COMBINED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
October 1 October 2
---------------------
1994 1993
________ _________
<S> <C> <C>
Net sales................................$ 86,741 $ 68,255
Costs and expenses:
Cost of sales......................... 68,640 54,119
Selling, general and administrative... 11,650 8,741
Research and development.............. 5,640 4,563
-------- --------
Operating income......................... 811 832
Interest expense...................... 1,150 765
Royalty income........................ (281) (270)
Other expense (income)................ 70 (43)
-------- --------
Income before taxes on income............ 12 380
Taxes on income (credit).............. 3 (283)
-------- --------
Income before minority interest
and equity earnings................... 9 663
Minority interest in net income of
subsidiary........................ (187) (192)
Equity in earnings (losses) of
affiliated companies.............. 93 (112)
-------- --------
Income (loss) before cumulative
effect of change in
accounting principle.............. (85) 359
Cumulative effect of adoption of
SFAS 109.......................... --- 513
-------- --------
Net income (loss)........................$ (85) $ 872
-------- --------
-------- --------
Per common share:
Income (loss) before cumulative
effect of change in
accounting principle.............. (0.01) 0.05
Cumulative effect of adoption of
SFAS 109.......................... --- 0.06
-------- --------
Net income (loss).....................$ (0.01) $ 0.11
-------- --------
-------- --------
Cash dividends declared..................$ 0.08 $ 0.08
Average common shares outstanding........ 7,730,386 7,710,439
</TABLE>
The accompanying notes are an integral part of these statements.
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3
DONNELLY CORPORATION
CONDENSED COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
October 1 October 2
---------------------
1994 1993
--------- ---------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss)........................$ (85) $ 872
Adjustments to reconcile net income (loss)
to net cash provided by operating activities
Depreciation and amortization............ 3,026 2,284
Deferred pension and postretirement
benefits................................ 381 328
Deferred income taxes.................... (892) (78)
Minority interest in net income
of subsidiary........................... 187 192
Equity in (earnings)losses of affiliated
companies............................... (114) 89
Cumulative effect of change in accounting
principle............................... (513)
Changes in operating assets and liabilities:
Accounts receivable.................... (1,212) (210)
Inventories............................ (1,184) (425)
Prepaid expenses and other current
assets.............................. (2,060) 703
Accounts payable and other current
liabilities........................... (6,016) (301)
Other.................................. (236) 64
-------- --------
NET CASH FROM (FOR) OPERATING
ACTIVITIES........................... (8,205) 3,005
-------- --------
INVESTING ACTIVITIES:
Capital Expenditures..................... (7,447) (5,154)
Change in unexpended bond proceeds....... 52 544
NET CASH FOR INVESTING ACTIVITIES...... (7,062) (4,610)
-------- --------
FINANCING ACTIVITIES:
Proceeds from long-term debt............. 19,778 3,800
Repayments on long-term debt............. --- (1,379)
Resources provided by minority interest.. 333 ---
-------- --------
Common stock issuance.................... 88 77
Dividends paid........................... (629) (549)
-------- --------
NET CASH FROM FINANCING ACTIVITIES..... 19,237 1,949
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS.... 3,970 344
CASH, AT BEGINNING OF PERIOD............. 1,374 1,214
-------- --------
CASH, AT END OF PERIOD...................$ 5,344 $ 1,558
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
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4
DONNELLY CORPORATION
NOTES TO CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
October 1, 1994
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed combined consolidated financial
statements have been prepared in accordance with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months ended October 1, 1994, should not be
considered indicative of the results that may be expected for the year
ended July 1, 1995. The combined consolidated balance sheet at
July 2, 1994, has been taken from the audited financial statements and
condensed. The accompanying condensed combined consolidated financial
statements and footnotes thereto should be read in conjunction with the
Company's annual report on Form 10-K for the year ended July 2, 1994.
The Company's fiscal year is the 52 or 53 week period ending the Saturday
closest to June 30th. Accordingly, each quarter ends on the Saturday
closest to quarter end. Both the quarters ended October 1, 1994 and
October 2, 1993 included 13 weeks.
NOTE B--INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
October 1, July 2,
(in thousands) 1994 1994
-------- -------
LIFO cost:
<S> <C> <C>
Finished products and work in process $ 9,891 $ 9,836
Raw materials 6,766 6,781
------- -------
6,657 16,617
------- -------
FIFO cost:
Finished products and work in process 2,043 1,915
Raw materials 2,460 1,444
------- -------
4,503 3,359
------- -------
$21,160 $19,976
------- -------
------- -------
</TABLE>
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5
NOTE C--INCOME PER SHARE
Income per share is computed by dividing net income, adjusted for preferred
stock dividends of approximately $10,000 in each respective quarter, by the
weighted average number of shares of Donnelly Corporation common stock
outstanding, as adjusted for stock splits.
NOTE D--SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Three Months Ended
October 1 October 2
(in thousands) 1994 1993
--------- ---------
<S> <C> <C>
Cash paid during the period for:
Interest $ 731 $ 780
Income taxes $2,500 $1,265
</TABLE>
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Item 2.
DONNELLY CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
1ST QUARTER REPORT
FOR THE THREE MONTHS ENDED OCTOBER 1, 1994
GENERAL
The Company's net sales and net income are subject to significant quarterly
fluctuations attributable primarily to production schedules of the
Company's major automotive customers. These same factors cause quarterly
results to fluctuate from year to year, as well as quarter to quarter.
RESULTS OF OPERATIONS
Consolidated net sales were $86.7 million in the first quarter of fiscal
1995, an increase of 27% over the first quarter of 1994. During this
period, North American automotive car and light truck production increased
over 15%. New business in complete exterior mirrors, door handles,
interior mirrors and Interior Systems, in addition to a stronger touch
screen market in the Information Products business, all contributed to the
stronger sales level.
Gross profit margin for the first quarter of fiscal 1995 was 20.9% compared
to 20.7% in the first quarter of fiscal 1994. Improvements in gross profit
margin resulting from higher volumes and cost reductions realized as a
result of the Company's commitment to continuous improvement were offset by
1) customer price pressures; 2) start-up costs associated with higher
production demands for new complete exterior mirror business; and 3) costs
associated with consolidating production equipment from two older interior
mirror facilities into a new facility while supporting strong industry
demand.
Selling, administrative and general expenses increased as a percent-of-
sales to 13.4% from 12.8% for the same period last year. The increase is
due to a higher level of patent litigation expenses compared to a year ago
and higher overhead costs to support start-up operations and business
transitions.
Research and development expenses for the first quarter were $5.6 million,
or 6.5% of sales, compared to 6.7% of sales last year. These costs remain
high as a result of costs incurred to support new business for complete
exterior mirrors and Modular Windows combined with the Company's continued
commitment to developing new and innovative technologies that improve the
function, quality and safety of automotive products.
Interest expense increased $.4 million in the first quarter of 1995,
compared to a year earlier. The increase resulted from higher interest
rates along with higher borrowing levels to support capital expenditures
and higher working capital.
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7
The Company had a net loss of ($85,000) in the first quarter of fiscal
1995. This compares to net income of $872,000 in the same period last
year, which included tax benefits associated with the adoption of FASB
statement 109 "Accounting for Income Taxes" and a retroactive reinstatement
of research and development tax credits resulting from a new federal tax
act. While the Company benfitted from stronger than normal sales in the
first quarter higher costs were incurred to support business transitions
and new business programs.
The Company's financial performance in fiscal 1994 and continuing into
fiscal 1995 is impacted by unprecedented capital expenditures and expenses
incurred in anticipation of meeting existing new customer orders. Projects
requiring these costs include the construction and equipping of several new
facilities, equipping a new product line for a major new order, and
transition costs associated with consolidating production equipment from
older facilities into a new facility. The new customer orders are
scheduled to begin production later in fiscal 1995 and in fiscal 1996.
For some time, the Company has had long term internal goals to achieve
annual compounded growth in sales and earnings of 15 percent. The Company
performed near these goals from 1992 to 1993. Although sales growth was
achieved in 1994, earnings for fiscal 1994 decreased from the preceding
fiscal year and earnings for fiscal 1995 are expected that the current
expansion projects will be nearly complete by the end of fiscal 1995 and
new that the new orders will be in production. Accordingly, based upon
existing customer orders, start-up dates and model sales as currently
projected by customers and continued strong automotive sales and general
economic conditions through 1995 and 1996 as anticipated by many analysts,
the Company is encouraged about its prospects to achieve or exceed its goal
for both sales and earnings on a cumulative basis in 1996 and 1997.
The Company's policy has been not to share future financial goals with the
public. It has deviated from that policy to put in perspective the results
of operations in the short term, which result from the Company's expansion
plans which were put in place several years ago.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio was 2.2 at October 1, 1994 compared to 1.7 at
June 2, 1994. Working capital increased by $15.3 million primarily due to
resources required for operating activities and an increase in cash
balances at the Company's affiliate operations. Capital expenditures were
$7.4 million during the first quarter and are expected to remain at, or
slightly above, this level, for each of the remainding quarters of the
fiscal year.
The Company's $55 million bank revolving credit agreement had borrowings
against it of $39.4 million at October 1, 1995. The Company expects to
issue a $15 million note at an interest rate of 7.22% with an insurance
company during the second quarter of fiscal 1995. The note has a four
month delayed takedown with principal payments commencing in fiscal 2000
until maturity in fiscal 2005. The Company believes that the borrowing
availability under the current revolving line of credit, together with the
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8
$15 million private placement note and funds generated by operations, will
meet the Company's current business needs.
On October 18, 1994, OSD Envizion Company entered into an agreement with a
major customer to sell certain operating assets. It is expected that at
consummation of this agreement the Company will liquidate its investment in
this affiliate for a cash price, resulting in a net gain. The Company's
investment in this unconsolidated affiliate consists of 50% partnership
interest and is accounted for using the equity method.
On October 28, 1994, the Company completed the sale of its appliance
products business to Gemtron Corporation for a cash price which resulted in
a pretax gain of approximately $4.5 million and a significant royalty
payment over the next two years.
<PAGE> 11
9
Item 1. Legal Proceedings
Certain electrochromic mirror technology of the Company has been the subject
of patent litigation between the Company and Gentex Corporation ("Gentex").
Following the settlement of prior litigation Gentex filed another lawsuit
against the Company on June 7, 1993. In this suit, Gentex alleged that the
Company's solid polymer film electrochromic mirror infringed one of the Gentex
patents involved in the prior litigation and that the Company has violated the
injunction entered by the court in the previous litigation. Gentex sought
unspecified damages and an injunction against further alleged infringement by
the Company. On March 21, 1994, the Company's motion for summary judgement of
non-infringement was granted and the lawsuit was dismissed. Gentex has filed
an appeal of this ruling, and no decision is expected on this until 1995.
The Company's lawsuit against Gentex, filed on July 8, 1993, remains
outstanding. In this suit, the Company has alleged that Gentex's lighted
electrochromic mirror infringes three of the Company's patents and that all of
Gentex's electrochromic mirrors infringe a fourth patent owned by the Company.
The Company is seeking unspecified damages and an injunction against further
infringement by Gentex. Pretrial discovery is being conducted in this action
and a trial has been scheduled to begin in October 1995. The Company has filed
a motion seeking a preliminary injunction against further infringement of one
of its patents pending final resolution of the lawsuit. Gentex has filed a
motion for summary judgement that the patent in question is invalid. Neither
of these motions has yet been decided by the court.
On October 13, 1994, the Company filed a second lawsuit against Gentex,
alleging that Gentex's inside and outside electrochromic mirrors infringe two
additional patents owned by the Company which relate to the protection of
electrochromic mirror from ultraviolet radiation. The Company is seeking
unspecified damages and an injunction against further infringement by Gentex.
The Company has also filed a motion seeking a preliminary injunction against
further infringement of these two patents pending final resolution of the
lawsuit. Gentex has not yet responded, and no trial date has been set in the
second lawsuit.
Item 4. Submission of Matters to a Vote of Security Holders
a. Donnelly Corporation's 1994 Annual Meeting of Shareholders was held
on October 21, 1994.
b. Proxies were distributed pursuant to Regulation 14A under the
Securities Exchange Act of 1934. There was no opposition to the
Board's nominees as listed in the proxy statement and Shareholders
elected the nominees currently serving in this capacity.
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10
Item 5. Other
On October 18, 1994, OSD Envision Company entered into an agreement with a
major customer to sell certain operating assets. It is expected that at
consummation of this agreement the Company will liquidate its investment in
this affiliate for a cash price, resulting in a net gain. The Company's
investment in this unconsolidated affiliate consists of a 50% partnership
interest and was accounted for using the equity method.
On October 28, 1994, the Company completed the sale of its appliance
products business to Gemtron Corporation for a cash price which resulted in
a pretax gain of approximately $4.5 million and a significant royalty
payment over the next two years.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - none
b. The Company did not file any reports on Form 8-K during the three
months ended October 1, 1994.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
DONNELLY CORPORATION
Registrant
Date: October 31, 1994
/S/ J. Dwane Baumgardner
J. Dwane Baumgardner
(Chairman, Chief Executive Officer, and
President)
Date: October 31, 1994
/S/ William R. Jellison
William R. Jellison
(Vice President, Chief Financial Officer,
and Treasurer)
