<PAGE> 1
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 April 2, 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 / /
4,140,160 shares of Class A Common Stock and 3,583,632 shares of Class
B Common Stock were outstanding as of May 6, 1994.
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DONNELLY CORPORATION
CONDENSED COMBINED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
April 2 July 3
1994 1993
--------- ---------
ASSETS
<S> <C> <C>
Cash and equivalents.................... $ 600 $ 1,214
Accounts receivable, less allowances
of $619 and $562..................... 47,741 39,226
Inventories............................. 18,463 15,049
Prepaid expenses and other current assets 13,248 12,050
-------- --------
Total current assets.................. 80,052 67,539
Property, plant and equipment........... 134,669 113,237
Less accumulated depreciation........... 54,277 47,318
-------- --------
Net property, plant and equipment 80,392 65,919
Other assets............................ 5,826 6,382
-------- --------
Total assets.......................... $166,270 $139,840
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts and notes payable.............. $ 24,049 $ 22,896
Other current liabilities 18,150 10,811
-------- --------
Total current liabilities............. 42,199 33,707
Long-term debt, less current maturities. 47,646 33,688
Deferred income taxes and other
liabilities............................ 7,150 6,210
-------- --------
Total liabilities..................... 96,995 73,605
-------- --------
Minority interest....................... 1,333 689
-------- --------
Preferred stock......................... 531 531
Common stock............................ 777 775
Other shareholders' equity.............. 66,634 64,240
-------- --------
Total shareholders' equity............ 67,942 65,546
-------- --------
Total liabilities and
shareholders' equity................ $166,270 $139,840
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 3
DONNELLY CORPORATION
CONDENSED COMBINED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 2 April 3 April 2 April 3
-------------------- --------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales....................... $ 90,897 $ 79,625 $239,222 $218,135
Costs and expenses:
Cost of sales................ 71,075 61,630 188,638 169,325
Selling, general and
administrative.......... 9,745 9,844 27,640 27,002
Research and development..... 5,675 4,127 15,216 11,667
-------- -------- -------- --------
Operating income................ 4,402 4,024 7,728 10,141
Interest expense............. 960 755 2,553 2,412
Royalty income............... (375) (370) (1,045) (1,129)
Other expense................ (163) (88) 109 2
-------- -------- -------- --------
Income before taxes on income... 3,980 3,727 6,111 8,856
Taxes on income.............. 1,233 1,267 1,623 3,035
-------- -------- -------- --------
Income before minority interest
and equity earnings.......... 2,747 2,460 4,488 5,821
Minority interest in net
income of subsidiary..... (139) (213) (578) (561)
Equity in earnings (losses)
of affiliated companies.. 71 206 (197) 559
-------- -------- -------- --------
Income before extraordinary gain
and cumulative effect of
change in accounting
principle................ 2,679 2,453 3,713 5,819
Tax benefit from utilization
of loss carryforward..... --- 178 --- 447
Cumulative effect of adoption
of SFAS 109.............. --- --- 513 ---
-------- -------- -------- --------
Net income...................... $ 2,679 $ 2,631 $ 4,226 $ 6,266
-------- -------- -------- --------
-------- -------- -------- --------
Per common share:
Income before extraordinary
gain and cumulative effect
of change in accounting
principle................ 0.35 0.32 0.48 0.76
Tax benefit from utilization
of loss carryforward..... --- 0.02 --- 0.05
Cumulative effect of adoption
of SFAS 109.............. --- --- 0.06 ---
Net income................... $ 0.35 $ 0.34 $ 0.54 $ 0.81
-------- -------- -------- --------
-------- -------- -------- --------
Cash dividends declared......... $ 0.08 $ 0.07 $ 0.24 $ 0.21
Average common shares
outstanding................ 7,718,623 7,692,852 7,714,563 7,980,879
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 4
DONNELLY CORPORATION
CONDENSED COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
April 2 April 3
--------------------
1994 1993
-------- --------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income................................. $ 4,226 $ 6,266
Depreciation and amortization.............. 6,984 6,121
Deferred income taxes...................... (100) (111)
Minority interest in net income of
subsidiary.............................. 578 561
Equity in (earnings)losses of affiliated
companies................................. 148 (614)
Extraordinary gain......................... --- (447)
Cumulative effect of adoption of SFAS 109.. (513) ---
Postretirement Benefits.................... 808 ---
Changes in operating assets and liabilities:
Accounts receivable...................... (8,515) 440
Inventories.............................. (3,414) (268)
Prepaid expenses and other current
assets................................ (1,197) (3,166)
Accounts payable and other current
liabilities........................... 8,992 3,204
Other.................................... (420) 59
-------- --------
NET CASH FROM OPERATING ACTIVITIES....... 7,577 12,045
-------- --------
INVESTING ACTIVITIES:
Capital Expenditures....................... (21,594) (9,617)
Change in unexpended bond proceeds......... 1,070 (2,839)
Other...................................... (36) (600)
-------- --------
NET CASH FOR INVESTING ACTIVITIES........ (20,560) (13,056)
-------- --------
FINANCING ACTIVITIES:
Proceeds from long-term debt............... 17,350 5,000
Repayments on long-term debt............... (3,391) (2,868)
Common stock issuance...................... 214 433
Dividends paid............................. (1,804) (2,189)
-------- --------
NET CASH FROM FINANCING ACTIVITIES....... 12,369 376
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS...... (614) (635)
CASH, AT BEGINNING OF PERIOD............... 1,214 3,769
-------- --------
CASH, AT END OF PERIOD..................... $ 600 $ 3,134
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 5
DONNELLY CORPORATION
NOTES TO CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
April 2, 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 and nine months ended April 2, 1994, should not be
considered indicative of the results that may be expected for the year
ended July 2, 1994. The combined consolidated balance sheet at
July 3, 1993, 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 3, 1993.
The Company's fiscal year is the 52 or 53 week period ending the Saturday
closest to June 30th. Accordingly, each quarter will end on the Saturday
closest to quarter end. Both the quarters ended April 2, 1994 and April 3,
1993 included 13 weeks. The first nine months of 1994 included 39 weeks
compared to 40 weeks for the same period last year.
NOTE B--INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
April 2 July 3
(in thousands) 1994 1993
-------- --------
<S> <C> <C>
LIFO cost:
Finished products and work in process. $ 9,784 $ 7,840
Raw materials......................... 6,629 5,256
-------- --------
16,413 13,096
-------- --------
FIFO cost:
Finished products and work in process. 1,381 1,345
Raw materials......................... 669 608
-------- --------
2,050 1,953
-------- --------
$ 18,463 $ 15,049
-------- --------
-------- --------
</TABLE>
<PAGE> 6
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>
Nine Months Ended
April 2 April 3
--------------------
(in thousands) 1994 1993
-------- --------
<S> <C> <C>
Cash paid during the period for:
Interest................................... $ 2,211 $ 2,147
Income taxes............................... $ 3,145 $ 3,565
</TABLE>
<PAGE> 7
Item 2.
DONNELLY CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
3RD QUARTER REPORT
FOR THE THREE AND NINE MONTHS ENDED APRIL 2, 1994
RESULTS OF OPERATIONS
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 from quarter to quarter.
Consolidated net sales in the third quarter of 1994 were $90,897,000, an
increase of 14% over the third quarter of 1993. During this period, North
American (N.A.) automotive production increased 8%. New complete exterior
mirror business for Ford began in the third quarter, more than offsetting
the negative sales impact caused by the European recession. Sales
increases in Interior Systems, Appliance Products and Information Products
also helped the Company's sales increase to outpace N.A. automotive
production.
Consolidated net sales for the first nine months of 1994 were $239,222,000,
an increase of 10% over the same period last year. N.A. automotive
production increased 8% in the same period.
Gross profit margin for the third quarter of 1994 was 21.8% compared to
22.6% in the third quarter of 1993. The decrease resulted from: the
European recession's impact on the Company's Irish subsidiary; start-up
costs associated with new complete exterior mirror production including a
second shift painting operation; and business units undergoing significant
transitions. Margins will continue to be negatively impacted over the next
12-15 months as many business units prepare for new business or complete a
transition process. Gross profit for the first nine months of 1994 was
21.2% compared to 22.4% last year.
Selling, administrative and general expenses of $9,745,000 or 10.7% of
sales in the third quarter decreased from $9,844,000 or 12.4% in the same
period last year. Selling, administrative and general expenses increased
by $638,000 for the first nine months of 1994 to 11.6%, compared to 12.4%
for the same period last year. Patent litigation costs in both the three
and nine month periods are significantly lower than last year.
Research and development expenses for the third quarter and first nine
months of 1994 were 6.2% and 6.4% of sales, respectively. Expenses in both
periods were nearly a full percentage point higher than last year. These
increases are primarily the result of significant development costs being
incurred to support new business for Ford and Mazda complete exterior
mirror systems in model years 1995 and beyond, along with the new Chrysler
minivan modular window business slated for start-up in late 1995.
<PAGE> 8
Interest expense increased $205,000 in the third quarter and $141,000 in
the first nine months of 1994. Lower interest rates continued to help
offset the higher borrowing levels caused by increased capital spending.
Royalty income in the third quarter and first nine months of 1994 were
$375,000 and $1,045,000 respectively, virtually flat with the same periods
last year.
The Company had net income of $2,679,000 in the third quarter, compared to
$2,631,000 in the same period last year. Higher sales resulting from the
increased N.A. automotive production and new complete exterior mirror
business, along with lower selling, general and administration expenses as
a percent-of-sales allowed the Company's earnings to remain flat with the
same period last year. This performance occurred despite: 1) a deep and
prolonged recession in Europe which negatively impacted Donnelly's Irish
subsidiary; 2) increased research and development expenditures to support
new complete exterior mirror and modular window programs 3) increased
competition and a downturn in the demand for coated glass used in liquid
crystal displays negatively affecting Donnelly Applied Films performance
and 4) postretirement health care cost of $344,000. The Company had
earnings in the first nine months of 1994 of $4,226,000 compared to
$6,266,000 in the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio was 1.9 at April 2, 1994 and 2.0 at July 3,
1993. Working capital increased $4,021,000 to $37,853,000 to support the
higher sales level. Capital expenditures were $21,594,000 in the first
nine months of 1994, in support of facility expansions for modular windows,
and exterior and interior mirrors. Capital spending is projected to
continue at a high level through the remainder of 1994 and throughout 1995
to support construction of new modular window and complete exterior mirror
equipment and facilities, redesign of existing manufacturing areas, and
construction of new facilities to consolidate operations and replace older
facilities. The increased spending will be financed primarily through the
Company's $55 million revolving credit agreement, which had borrowings of
$13,300,000 against it as of April 2, 1994. The Company also expects to
issue an additional $15,000,000 private placement note with an insurance
company by the end of the 1994 calendar year.
<PAGE> 9
Item 1. Legal Proceedings
Certain electrochromic mirror technology of the Company is the subject of
patent litigation between the Company and Gentex Corporation ("Gentex").
Following the settlement in May 1993, of two lawsuits previously filed by
Gentex, 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.
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 April 2, 1994.
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: May 6, 1994 /S/ J. Dwane Baumgardner
J. Dwane Baumgardner
(Chairman, and Chief Executive Officer)
Date: May 6, 1994 /S/ James A. Knister
James A. Knister
(Senior Vice President and Chief Financial
Officer)
