<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 January 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 / /
4,134,815 shares of Class A Common Stock and 3,583,632 shares of Class
B Common Stock were outstanding as of February 10, 1994.
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DONNELLY CORPORATION
CONDENSED COMBINED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
January 1 July 3
1994 1993
--------- ---------
ASSETS
<S> <C> <C>
Cash and equivalents.................... $ 844 $ 1,214
Accounts receivable, less allowances
of $556 and $562..................... 43,511 39,226
Inventories............................. 14,832 15,049
Prepaid expenses and other current assets 11,653 12,050
-------- --------
Total current assets.................. 70,840 67,539
Property, plant and equipment........... 125,609 113,237
Less accumulated depreciation........... 51,690 47,318
-------- --------
Net property, plant and equipment..... 73,919 65,919
Other assets............................ 5,155 6,382
-------- --------
Total assets.......................... $149,914 $139,840
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts and notes payable.............. $ 19,056 $ 22,896
Other current liabilities............... 15,123 10,811
-------- --------
Total current liabilities............. 34,179 33,707
Long-term debt, less current maturities. 42,081 33,688
Deferred income taxes and other
liabilities............................ 6,711 6,210
-------- --------
Total liabilities..................... 82,971 73,605
-------- --------
Minority interest....................... 1,194 689
-------- --------
Preferred stock......................... 531 531
Common stock............................ 776 775
Other shareholders' equity.............. 64,442 64,240
-------- --------
Total shareholders' equity............ 65,749 65,546
-------- --------
Total liabilities and
shareholders' equity................ $149,914 $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 Six Months Ended
January 1 January 2 January 1 January 2
--------------------- ---------------------
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales....................... $ 80,070 $ 70,659 $148,325 $138,510
Costs and expenses:
Cost of sales................ 63,444 55,098 117,563 107,695
Selling, general and
administrative.......... 9,154 8,242 17,895 17,158
Research and development..... 4,978 3,836 9,541 7,540
-------- -------- -------- --------
Operating income................ 2,494 3,483 3,326 6,117
Interest expense............. 828 812 1,593 1,657
Royalty income............... (400) (401) (670) (759)
Other expense................ 315 40 272 90
-------- -------- -------- --------
Income before taxes on income... 1,751 3,032 2,131 5,129
Taxes on income.............. 673 1,023 390 1,768
-------- -------- -------- --------
Income before minority interest
and equity earnings.......... 1,078 2,009 1,741 3,361
Minority interest in net
income of subsidiary..... (247) (158) (439) (348)
Equity in earnings (losses)
of affiliated companies.. (156) 69 (268) 353
-------- -------- -------- --------
Income before extraordinary gain
and cumulative effect of
change in accounting
principle................ 675 1,920 1,034 3,366
Tax benefit from utilization
of loss carryforward..... --- 169 --- 269
Cumulative effect of adoption
of SFAS 109.............. --- --- 513 ---
-------- -------- -------- --------
Net income...................... $ 675 $ 2,089 $ 1,547 $ 3,635
-------- -------- -------- --------
-------- -------- -------- --------
Per common share:
Income before extraordinary
gain and cumulative effect
of change in accounting
principle................ 0.09 0.25 0.14 0.44
Tax benefit from utilization
of loss carryforward.... --- 0.02 --- 0.03
Cumulative effect of adoption
of SFAS 109.............. --- --- 0.06 ---
-------- -------- -------- --------
Net income................... $ 0.09 $ 0.27 $ 0.20 $ 0.47
-------- -------- -------- --------
-------- -------- -------- --------
Cash dividends declared......... $ 0.08 $ 0.07 $ 0.16 $ 0.14
Average common shares
outstanding................ 7,714,628 7,679,340 7,712,534 7,675,113
</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>
Six Months Ended
January 1 January 2
-----------------------
1994 1993
--------- ---------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income................................. $ 1,547 $ 3,635
Depreciation and amortization.............. 4,390 3,928
Deferred income taxes...................... (100) (189)
Minority interest in net income of
subsidiary.............................. 439 348
Equity in (earnings)losses of affiliated
companies............................... 252 (408)
Extraordinary gain......................... --- (269)
Cumulative effect of adoption of SFAS 109.. (513) ---
Changes in operating assets and liabilities:
Accounts receivable................... (4,285) 6,607
Inventories........................... 217 (280)
Prepaid expenses and other current
assets............................. 398 (1,292)
Accounts payable and other current
liabilities........................ 973 (4,051)
Postretirement benefits................. 532 ---
Other................................... 31 172
-------- --------
NET CASH FROM OPERATING ACTIVITIES...... 3,881 8,201
-------- --------
INVESTING ACTIVITIES:
Capital Expenditures....................... (12,611) (5,114)
Change in unexpended bond proceeds......... 997 (4,281)
Other...................................... --- (100)
-------- --------
NET CASH FOR INVESTING ACTIVITIES....... (11,614) (9,495)
-------- --------
FINANCING ACTIVITIES:
Proceeds from long-term debt............... 15,000 5,000
Repayments on long-term debt............... (6,607) (3,546)
Common stock issuance...................... 146 243
Dividends paid............................. (1,176) (1,354)
-------- --------
NET CASH FROM FINANCING ACTIVITIES...... 7,363 343
-------- --------
DECREASE IN CASH AND EQUIVALENTS CASH...... (370) (951)
AND EQUIVALENTS, AT BEGINNING OF PERIOD.... 1,214 3,769
-------- --------
CASH AND EQUIVALENTS, AT END OF PERIOD..... $ 844 $ 2,818
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 5
DONNELLY CORPORATION
NOTES TO CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
January 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 and six months ended January 1, 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 January 1, 1994 and
January 2, 1993 included 13 weeks. The first half of 1994 included 26
weeks compared to 27 weeks for the same period last year.
NOTE B--INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
January 1 July 3
(in thousands) 1994 1993
--------- ---------
<S> <C> <C>
LIFO cost:
Finished products and work in process. $ 7,489 $ 7,840
Raw materials......................... 5,417 5,256
-------- --------
12,906 13,096
-------- --------
FIFO cost:
Finished products and work in process. 1,250 1,345
Raw materials......................... 676 608
-------- --------
1,926 1,953
-------- --------
$ 14,832 $ 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>
Six Months Ended
January 1 January 2
-------------------------
(in thousands) 1994 1993
--------- ----------
<S> <C> <C>
Cash paid during the period for:
Interest.................................... $ 1,479 $ 1,171
Income taxes................................ $ 2,290 $ 2,815
</TABLE>
<PAGE> 7
Item 2.
DONNELLY'S CORPORATION AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATION AND FINANCIAL CONDITION
2ND QUARTER REPORT
FOR THE THREE MONTHS ENDED JANUARY 1, 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 quarter to quarter.
Consolidated net sales were $80,070,000 in the second quarter of 1994, an
increase of 13% over the second quarter last year. North American
automotive production increased 9% during this period. Sales increases in
modular window systems and complete exterior mirrors, along with the higher
North American automotive production, more than offset the effects of a
severe recession in the European automotive market.
Consolidated net sales for the first half of 1994 were $148,325,000
compared to $138,510,000 for the first half of 1993, an increase of 7%.
North American automotive production increased 10% in the same period.
Gross profit margin for the second quarter of 1994 was 20.8% compared to
22.0% in the second quarter of 1993. The decrease resulted from lower
margins at the Company's Irish subsidiary due to the European recession and
start-up costs associated with new and transitioning business units. While
margins should improve in the second half of the year, they will be
negatively impacted over the next 12-18 months as many business units
prepare for new business or complete a transition process. Gross profit
margin during the first half of 1994 decreased to 20.7% from 22.2% last
year.
Selling, administrative and general expenses decreased as a percent-of-
sales to 11.4% from 11.7% in the second quarter compared to a year ago.
Actual selling, administrative and general expenses increased by $812,000
and $737,000 for the second quarter and first half, respectively. Patent
litigation costs continue, however at significantly lower levels than last
year.
Research and development expenses for the second quarter and first half 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.
Interest expense increased $16,000 in the second quarter, but decreased
$64,000 in the first half of 1994. Lower interest rates helped offset
<PAGE> 8
higher borrowing levels. Interest expense will increase in the second half
as capital investments to support future sales and profitability growth
continues.
Other expenses in the second quarter of 1994 were $315,000 compared to
40,000 a year earlier. The current quarter's expense was primarily due to
charges taken at the Company's Irish subsidiary related to the downturn in
the European automotive industry.
The Company had net income in the second quarter of 1994 of $675,000
compared to $2,089,000 in the same period last year. Earnings decreased
due to the following reasons: 1) a deep and prolonged recession in Europe
has 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 is negatively
affecting Donnelly Applied Films performance and 4) a $350,000
postretirement health care cost. The Company had earnings in the first
half of $1,547,000 compared to $3,635,000 in the first half of 1993. Tax
benefits associated with adopting SFAS 109 and retroactively reinstated
research and development tax credits resulting from the new tax act helped
offset some of the negative variances occurring in the period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio was 2.1 at January 1, 1994 and July 3, 1993.
Working capital increased $2,829,000 to $36,661,000 due to higher accounts
receivables at the end of the second quarter. This occurred due to the
holiday period at the end of the second quarter. Capital expenditures were
$12,611,000 in the first half of 1994, in support of facility expansions
for modular window systems, and exterior and interior mirrors. Capital
spending is projected to increase in the second half of the year and
continue at a high level next year to support expanding and restructuring
business requirements. These programs include 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 only had $6.3 million borrowed against it
as of January 1, 1994.
<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").
Gentex brought two patent lawsuits against the Company alleging that the
Company's chemical electrochromic mirrors (as opposed to solid-state, thin-
film or polymer film electrochromic mirrors) infringed four Gentex patents.
On April 20, 1993, following a jury trial in one of those lawsuits, the
court entered judgement in favor of Gentex. The court awarded Gentex
damages and enjoined the Company from the manufacture, use or sale of
certain chemical electrochromic mirrors.
The Company entered into a settlement agreement with Gentex on May 20,
1993. Under this agreement the Company paid a total of $3.6 million in
satisfaction of Gentex's claims for damages in both lawsuits. The
provisions of the injunction entered by the court were not affected by this
settlement agreement.
On June 7, 1993, Gentex filed another lawsuit against the Company. In this
suit Gentex has alleged that the Company's solid polymer film
electrochromic mirror infringes one of the Gentex patents involved in the
prior litigation, and that the Company has violated the injunction entered
by the court in the litigation. Gentex is seeking unspecified damages and
an injunction against further alleged infringement by the Company. The
Company has denied that its solid polymer film electrochromic mirror
infringes the Gentex patent, and has denied that it violated the court's
injunction. Pre-trial discovery is being conducted in the lawsuit and
trial has been scheduled to begin on May 16, 1994.
On July 8, 1993, the Company filed a lawsuit against Gentex. In this suit
the Company has alleged that Gentex's lighted electrochromic mirror
infringes three of the Company's patents, and that Gentex's electrochromic
mirror infringes a fourth patent owned by the Company. The Company is
seeking unspecified damages and an injunction against further infringement
by Gentex. Gentex has not yet answered the Company's complaint and no
trial date has been set.
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 January 1, 1994.
<PAGE> 10
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
/s/ J. Dwane Baumgardner
Date: February 10, 1994
---------------------------------------
J. Dwane Baumgardner
(Chairman, and Chief Executive Officer)
/s/ James A. Knister
Date: February 10, 1994
---------------------------------------
James A. Knister
(Senior Vice President and Chief Financial
Officer)
