<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 December 31, 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 January 31, 1995.
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DONNELLY CORPORATION
INDEX
Page
Numbering
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Combined Consolidated Balance
Sheets---December 31, 1994 and July 2, 1994. . . . . 1
Condensed Combined Consolidated Statements of
Income---Three and six months ended December 31,1994
and January 1, 1994 . . . . . . . . . . . . . . . . 2
Condensed Combined Consolidated Statements of
Cash Flows---Six months ended December 31, 1994
and January 1, 1994 . . . . . . . . . . . . . . . . . 3
Notes to Condensed Combined Consolidated
Financial Statements---December 31, 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
<PAGE> 3
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DONNELLY CORPORATION
CONDENSED COMBINED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31 July 2
1994 1994
--------- ---------
ASSETS
<S> <C> <C>
Cash and equivalents $ 3,442 $ 1,374
Accounts receivable, less allowances
of $679 and $676 48,149 47,303
Inventories 19,219 19,976
Prepaid expenses and other current assets 15,289 16,911
--------- ---------
Total current assets 86,099 85,564
Property, plant and equipment 145,822 143,269
Less accumulated depreciation 56,282 51,898
--------- ---------
Net property, plant and equipment 89,540 91,371
Other assets 6,610 6,866
--------- ---------
Total assets $182,249 $183,801
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts and notes payable $ 27,839 $ 34,227
Other current liabilities 19,431 14,931
--------- ---------
Total current liabilities 47,270 49,158
Long-term debt, less current maturities 49,621 53,138
Deferred income taxes and other
liabilities 10,168 9,068
--------- ---------
Total liabilities 107,059 111,364
--------- ---------
Minority interest 1,728 1,611
--------- ---------
Preferred stock 531 531
Common stock 779 777
Other shareholders' equity 72,152 69,518
--------- ---------
Total shareholders' equity 73,462 70,826
--------- ---------
Total liabilities and
shareholders' equity $ 182,249 $ 183,801
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 4
2
DONNELLY CORPORATION
CONDENSED COMBINED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Dec 31 Jan 1 Dec 31 Jan 1
------------------- -------------------
1994 1994 1994 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 98,460 $ 80,070 $185,201 $148,325
Costs and expenses:
Cost of sales 76,148 63,444 144,788 117,563
Selling, general and administratie 11,099 9,154 22,749 17,895
Research and development 6,204 4,978 11,844 9,541
Gain on restructuring of business (4,678) --- (4,678) ---
Loss of discontinued business 2,413 --- 2,413 ---
-------- -------- -------- --------
Operating income 7,274 2,494 8,085 3,326
Interest expense 1,267 828 2,417 1,593
Royalty income (441) (400) (722) (670)
Other expense (105) 315 (175) 272
-------- -------- -------- --------
Income before taxes on income 6,553 1,751 6,565 2,131
Taxes on income 2,217 673 2,220 390
-------- -------- -------- --------
Income before minority interest and
equity earnings 4,336 1,078 4,345 1,741
Minority interest in net (income)
loss of subsidiary 405 (247) 218 (439)
Equity in earnings (losses) of
affiliated companies (42) (156) 51 (268)
-------- -------- -------- --------
Income before cumulative effect of
change in accounting principle 4,699 675 4,614 1,034
Cumulative effect of adoption of
SFAS 109 --- --- --- 513
-------- -------- -------- --------
Net income $ 4,699 $ 67 $ 4,614 $ 1,547
-------- -------- -------- --------
-------- -------- -------- --------
Per common share:
Income before cumulative effect of
change in accounting principle 0.61 0.09 0.59 0.14
Cumulative effect of adoption of
SFAS 109 --- --- --- 0.06
-------- -------- -------- --------
Net income $ 0.61 $ 0.09 $ 0.59 $ 0.20
-------- -------- -------- --------
-------- -------- -------- --------
Cash dividends declared $ 0.08 $ 0.08 $ 0.16 $ 0.16
Average common shares outstanding 7,739,650 7,714,628 7,735,018 7,712,534
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 5
3
DONNELLY CORPORATION
CONDENSED COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
December 31 January 1
--------------------------
1994 1994
----------- -----------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 4,614 $ 1,547
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 5,220 4,390
Deferred pension and postretirement benefits 971 532
Deferred income taxes (119) (100)
Minority interest in net (income) loss
of subsidiary (218) 439
Equity in (earnings)losses of affiliated
companies (60) 252
Gain on restructuring of business and loss
of discontinued business (2,265) ---
Cumulative effect of change in accounting
principle --- (513)
Changes in operating assets and liabilities:
Accounts receivable (1,018) (4,285)
Inventories (18) 217
Prepaid expenses and other current assets 1,631 398
Accounts payable and other current
liabilities (5,220) 973
Other (196) 31
-------- --------
NET CASH FROM OPERATING ACTIVITIES 3,322 3,881
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (10,802) (12,611)
Proceeds from sale of businesses 14,200 ---
Loan to affiliate (500) ---
Change in unexpended bond proceeds 68 997
Other (157) ---
-------- --------
NET CASH FROM (FOR) INVESTING ACTIVITIES 2,809 (11,614)
-------- --------
FINANCING ACTIVITIES:
Proceeds from long-term debt 15,000 15,000
Repayments on long-term debt (18,517) (6,607)
Resources provided by minority interest 491 ---
Common stock issuance 221 146
Dividends paid (1,258) (1,176)
-------- --------
NET CASH FROM (FOR) FINANCING ACTIVITIES (4,063) 7,363
-------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,068 (370)
CASH, AT BEGINNING OF PERIOD 1,374 1,214
-------- --------
CASH, AT END OF PERIOD $ 3,442 $ 844
-------- --------
-------- --------
</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)
December 31, 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 December 31, 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 December 31, 1994 and
January 1, 1994 included 13 weeks.
NOTE B--INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
December 31, July 2,
(in thousands) 1994 1994
----------- -----------
LIFO cost:
<S> <C> <C>
Finished products and work in process $ 7,710 $ 9,836
Raw materials 6,975 6,781
-------- --------
14,685 16,617
-------- --------
FIFO cost:
Finished products and work in process 2,353 1,915
Raw materials 2,181 1,444
-------- --------
4,534 3,359
-------- --------
$ 19,219 $ 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>
Six Months Ended
December January
-----------------------
(in thousands) 1994 1993
--------- ---------
<S> <C> <C>
Cash paid during the period for:
Interest $ 2,244 $ 780
Income taxes $ 3,150 $ 1,265
</TABLE>
NOTE E--GAIN ON RESTRUCTURING OF BUSINESS
Item 5. Other
In the second quarter of fiscal 1995, the Company entered into a
restructuring plan resulting in a net gain of $4.7 million. The
restructuring plan was implemented in an effort to move the Company towards
a much closer focus on its automotive businesses. The gain includes the
sale of the appliance business to Gemtron Corporation for a cash price and
a significant royalty payment over the next two years; the liquidation of
the Company's investment in OSD Envizion Company for a cash price following
OSD's sale of certain assets to a major customer; and the sale of 81% of
the Company's heavy truck mirror business. These non-automotive businesses
represented an insignificant portion of the Company's operating income in
fiscal 1994. Offsetting the gain on the sale of businesses were the
restructuring costs recognized in the second quarter to cover a severance
program and other expenses associated with the restructure of non-
automotive businesses.
The Company recognized a charge of $2.4 million in the second quarter for
the costs of a severance program and the write-down of operating assets for
the anticipated loss of business at D&A Technology, Inc. D&A Technology,
Inc. represented 6% of the Company's combined consolidated net sales in
fiscal 1994.
<PAGE> 8
6
Item 2.
DONNELLY CORPORATION AND SUBSIDIARIES
MANAGMENT DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
2ND QUARTER REPORT
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 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 from quarter to quarter.
RESULTS OF OPERATIONS
Consolidated net sales were $98.5 million in the second quarter of fiscal
1995, an increase of almost 23% over the second quarter of fiscal 1994.
Net sales for the six month period ending December 31, 1994 were $185.2
millon compared to $148.3 million in the same period last year. North
American car and light truck production increased over 6% and 10% for the
second quarter and six month periods, respectively. New business in
complete exterior mirrors, door handles and interior systems, strong demand
for modular windows at Ford and Chrysler, and a stronger touch screen
market in the Information Products business all contributed to the higher
sales level.
Gross profit margin for the second quarter of fiscal 1995 was 22.7%
compared to 20.8% in the same period last year. The Company's gross profit
margin has improved as a result of higher volumes, cost reductions realized
as a result of the Company's commitment to continuous improvement, and
successful progress in the implementation of new programs. The Company
continues to be committed to successfully completing a number of business
start-ups and transitions in the next six to nine months. Gross profit
margin during the first half of 1995 increased to 21.8% from 20.7% last
year.
Selling, administrative and general expenses in the second quarter were at
11.3% of sales, down slightly from 11.4% in the same period last year.
Research and development expenses for the second quarter were $6.2 million,
or 6.3% of sales, compared to 6.2% 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 develop new and innovative technologies that improve the
function, quality and safety of automotive products.
In the second quarter of fiscal 1995, the Company entered into a
restructuring plan resulting in a net gain of $4.7 million. The
restructuring plan was implemented in an effort to move the Company toward
a much closer focus on its automotive businesses. The gain includes the
sale of the appliance business to Gemtron Corporation for a cash price and
<PAGE> 9
7
a significant royalty payment over the next two years; the liquidation of
the Company's investment in OSD Envizion Company for a cash price
following OSD's sale of certain assets to a major customer; and the sale of
81% of the Company's heavy truck mirror business. These non-automotive
businesses represented an insignificant portion of the Company's operating
income in fiscal 1994. Offsetting the gain on the sale of businesses were
the restructuring costs recognized in the second quarter to cover a
severance program and other expenses associated with the restructure.
The Company recognized a charge of $2.4 million in the second quarter for
the costs of a severance program and the write-down of operating assets for
the anticipated loss of business at D&A Technology, Inc. D&A Technology,
Inc., a joint venture, which supplies modular windows assemblies to Saturn,
represented 6% of the Company's combined consolidated net sales in fiscal
1994.
Interest expense increased $.4 million in the second quarter of fiscal
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.
The Company had net income of $4.7 million and $4.6 million in the second
quarter and first six months of fiscal 1995, respectively. This compares
to a net income in the second quarter and first six months of fiscal 1994
of $.7 million and $1.5 million, respectively, 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.
The Company's financial performance in fiscal 1994 was impacted and is
continuing to be impacted by unprecedented capital expenditures and
expenses to prepare for and support new customer orders. Projects 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio was 1.8 at December 31, 1994 compared to 1.7 at
June 2, 1994. Working capital was $38.8 million at December 31, 1994
compared to $36.4 million at June 2,1994.
The Company issued a $15.0 million note at an interest rate of 7.22% with
an insurance company during the second quarter. The note has principal
payments commencing in fiscal 2000 until maturity in fiscal 2005. The
Company's $55 million bank revolving credit agreement had no borrowings
against it at December 31, 1994. The Company believes that the current
borrowing availability and funds generated by operations will meet the
Company's current business needs.
The Company received $5.0M in grants in the second quarter for the
<PAGE> 10
8
construction of a new facility in Newaygo.
Capital expenditures for the first six months of fiscal 1995 were $10.8
million compared to $12.6 million in fiscal 1994. Capital expenditures
will remain high through fiscal 1995 as a result of the construction and
equipping of several new facilities for new customer orders and
consolidation of production equipment into a new facility.
<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 6. Exhibits and Reports on Form 8-K
a. Exhibits - 27 Financial Data Schedule
b. The Company did not file any reports on Form 8-K during the three
months ended December 31, 1994.
<PAGE> 12
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
Date: February 10, 1995 /s/ J. Dwane Baumgardner
J. Dwane Baumgardner
(Chairman, Chief Executive Officer, and
President)
Date: February 10, 1995 /s/ William R. Jellison
William R. Jellison
(Vice President, Chief Financial Officer,
and Treasurer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
DECEMBER 31, 1994 DONNELLY CORPORATION FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-01-1995
<PERIOD-END> DEC-31-1994
<CASH> 3,442
<SECURITIES> 0
<RECEIVABLES> 48,149
<ALLOWANCES> 679
<INVENTORY> 19,219
<CURRENT-ASSETS> 86,099
<PP&E> 145,822
<DEPRECIATION> 56,282
<TOTAL-ASSETS> 182,249
<CURRENT-LIABILITIES> 47,270
<BONDS> 49,621
<COMMON> 779
0
531
<OTHER-SE> 72,683
<TOTAL-LIABILITY-AND-EQUITY> 182,249
<SALES> 98,460
<TOTAL-REVENUES> 0
<CGS> 76,148
<TOTAL-COSTS> 76,148
<OTHER-EXPENSES> (2,265)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,267
<INCOME-PRETAX> 6,533
<INCOME-TAX> 2,217
<INCOME-CONTINUING> 4,336
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,699
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
</TABLE>
