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 Commission File Number
September 30, 1995 1-9716
DONNELLY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
MICHIGAN 38-0493110
(State or other jurisdiction (IRS Employer
of incorporation or organization) 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 / /
4,215,467 shares of Class A Common Stock and 3,582,198 shares of
Class B Common Stock were outstanding as of October 31, 1995.
<PAGE> 2
DONNELLY CORPORATION
INDEX
Page
Numbering
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Combined Consolidated Balance
Sheets---September 30, 1995 and July 1, 1995.....3
Condensed Combined Consolidated
Statements of Income---Three months ended
September 30, 1995 and October 1, 1994...........4
Condensed Combined Consolidated Statements
of Cash Flows---Three months ended
September 30, 1995 and October 1, 1994...........5
Notes to Condensed Combined Consolidated
Financial Statements---September 30, 1995.......6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.....8-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................10
Item 4. Submission of Matters to a Vote of Security
Holders...........................................11
Item 6. Exhibits and Reports on Form 8K...................11
Signatures..................................................12
<PAGE> 3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DONNELLY CORPORATION AND SUBSIDIARIES
CONDENSED COMBINED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, July 1,
1995 1995
--------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 5,758 $ 5,224
Accounts receivable, less allowances
of $573 and $575 55,095 50,866
Inventories 25,047 22,042
Prepaid expenses and other current assets 27,152 21,674
-------- --------
Total current assets 113,052 99,806
Property, plant, and equipment 152,840 150,578
Less accumulated depreciation 56,711 56,642
-------- --------
Net property, plant, and equipment 96,129 93,936
Investments in and advances to affiliates 37,686 25,246
Other assets 4,539 4,800
-------- --------
Total assets $251,406 $223,788
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts and notes payable $ 42,281 $ 42,676
Other current liabilities 18,250 16,628
-------- --------
Total current liabilities 60,531 59,304
Long-term debt, less current maturities 97,568 66,374
Deferred income taxes and other
liabilities 13,136 12,926
-------- --------
Total liabilities 171,235 138,604
-------- --------
Minority interest 61 2,284
Preferred stock 531 531
Common stock 784 780
Other shareholders' equity 78,795 81,589
-------- --------
Total shareholders' equity 80,110 82,900
-------- --------
Total liabilities and shareholders'
equity $251,406 $223,788
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 4
DONNELLY CORPORATION AND SUBSIDIARIES
CONDENSED COMBINED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended
September 30, October 1,
1995 1994
-------- --------
<S> <C> <C>
Net Sales $ 90,523 $ 86,741
Cost and expenses:
Cost of Sales 76,838 68,640
Selling, general, and administrative 10,143 11,650
Research and development 5,629 5,640
-------- --------
Operating income (loss) (2,087) 811
Interest expense 1,735 1,150
Royalty income (1,328) (281)
Interest income (374) (39)
Other income (99) (31)
-------- --------
Income (loss) before taxes on income (2,021) 12
Taxes on income (credit) (717) 3
-------- --------
Income (loss) before minority interest
and equity earnings (1,304) 9
Minority interest in net (income)loss
of subsidiary 123 (187)
Equity in earnings (losses) of
affiliated companies (608) 93
-------- --------
Net loss $ (1,789) $ (85)
-------- --------
-------- --------
Per common share:
Net loss $ (0.23) $ (0.01)
Cash dividends declared $ 0.10 $ 0.08
Average common shares outstanding 7,773,432 7,730,386
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 5
DONNELLY CORPORATION AND SUBSIDIARIES
CONDENSED COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30, October 1,
1995 1994
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,789) $ (85)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Depreciation and amortization 3,683 3,026
Deferred pension and postretirement
benefits 479 381
Deferred income taxes 1,233 (892)
Minority interest in net income (loss)
of subsidiary (123) 187
Equity in (earnings) losses of affiliated
companies 1,097 (114)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable (4,229) (1,212)
Inventories (3,005) (1,184)
Prepaid expenses and other current assets (6,754) (2,060)
Accounts payable and other current
liabilities 1,491 (6,016)
Other (337) (236)
-------- --------
NET CASH FOR OPERATING ACTIVITIES (8,254) (8,205)
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (6,064) (7,447)
Loan to affiliate (13,680) 0
Purchase of minority interest (2,100) 0
Change in unexpended bond proceeds 174 52
Other --- ---
-------- --------
NET CASH FOR INVESTING ACTIVITIES (21,670) (7,395)
-------- --------
FINANCING ACTIVITIES:
Proceeds from long-term debt 30,930 19,778
Resources provided by minority interest --- 333
Common stock issuance 313 88
Dividends paid (785) (629)
-------- --------
NET CASH FROM FINANCING ACTIVITIES 30,458 19,570
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 534 3,970
CASH, AT BEGINNING OF PERIOD 5,224 1,374
-------- --------
CASH, AT END OF PERIOD $ 5,758 $ 5,344
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 6
DONNELLY CORPORATION
NOTES TO CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 1995
NOTE A---BASIS OF PRESENTATION
The accompanying unaudited condensed combined consolidated
financial statements have been prepared in accordance with the
instructions to Form 10-A 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 September 30, 1995
should not be considered indicative of the results that may be
expected for the year ended June 29, 1996. The combined
consolidated balance sheet at July 1, 1995 has been taken from
the audited consolidated 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 1,
1995.
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
September 30, 1995 and October 1, 1994 included 13 weeks.
NOTE B---INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
September 30, July 1,
(in thousands) 1995 1995
-------- --------
<S> <C> <C>
LIFO cost:
Finished products and work in process $ 6,822 $ 6,745
Raw materials 10,120 6,622
------- -------
16,942 13,365
FIFO costs:
Finished products and work in process 3,800 3,397
Raw materials 4,305 5,280
------- -------
8,105 8,677
------- -------
$25,047 $22,042
------- -------
------- -------
</TABLE>
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.
<PAGE> 7
NOTE D---SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Three Months Ended
September 30, October 1,
(in thousands) 1995 1994
-------- --------
<S> <C> <C>
Cash paid during the period for:
Interest $ 819 $ 731
Income taxes $ 101 $ 2,500
</TABLE>
<PAGE> 8
ITEM 2.
DONNELLY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
1ST QUARTER REPORT
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995
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 $90.5 million in the first quarter of
1996, an increase of more than 4% over the first quarter of
1995. The increase was primarily the result of new modular
window business at Chrysler and Ford and stronger sales at the
Company's Irish subsidiary. The increase in sales was offset by
the loss of the Saturn business at D&A Technology, Inc., the
Company's joint venture with Asahi Glass Company. This business
represented approximately 5% of the Company's combined
consolidated net sales in 1995. On September 22, 1995, the
Company completed the purchase of Asahi's 40% interest in D&A.
The operation has been reduced in size and is being maintained as
a division of the Company in Tennessee.
Gross profit margin for the first quarter of 1996 was 15.1%
compared to 20.9% for the first quarter of 1995. The Company's
gross profit margin was negatively affected by the simultaneous
start-up of three major new business programs which will
ultimately result in over $100 million in new business for the
Company annually. Two of the start-up programs are for major new
window systems and the third is for a sophisticated new
automotive painting process which will be used to produce
products for several new customers. The Company expects its gross
profit margin as a percent of sales to improve significantly
compared to the first quarter as the start-up problems with these
programs are resolved. Although global pricing pressures are
expected to continue, the Company is focused on reducing costs
through improved product design as well as a strong commitment to
continuous improvement implementation throughout the Company.
Selling, administration and general expenses in the first quarter
were at 11.2% of sales, down from 13.4% in the same period last
year. These expenses were lower from the previous year due to
the restructuring of certain non-automotive business in 1995 and
the Company's commitment to leverage these expenses with
continued increases in sales.
Research and development expenses for the first quarter were $5.6
million, or 6.2 % of sales, compared to 6.5% of sales last year.
The Company continues to be committed to develop new and
innovative technologies that improve the function, quality and
safety of automotive products and support new business for
complete exterior mirrors, electrochromic mirror systems, door
handles, interior systems and modular windows.
<PAGE> 9
Interest expense increased $0.5 million in the first quarter of
1996 to $1.7 million. The increase resulted from higher
borrowing levels to support the Company's investment in and
advances to Hohe, support higher working capital and capital
expenditures for the period. The Company advanced an additional
$13.7 million to Hohe in the first quarter. The advanced was
financed through the Company's existing borrowing agreements. An
increase in interest income was realized by the Company as a
result of the interest charged on the advances to Hohe.
Royalty income was $1.3 million in the first quarter of 1996
compared to $0.3 million in 1995. The increase primarily
resulted from royalty income associated with the appliance
business sold to Gemtron Corporation in 1995. The royalties
under this agreement are expected to continue through 1996.
Equity earnings (losses) of affliated companies was a loss of
$0.6 million in the first quarter of 1996 compared to earnings of
$0.1 million last year. The loss is primarily due to continued
start-up expenses at VLSI Limited and losses at Hohe for the
three month period ending August 31, 1995. Hohe's net sales and
net income are subject to significant quarterly fluctuations
attributable primarily to production schedules of major
automotive customers. The Company expects the start-up costs at
VLSI Limited to continue through the remainder of the fiscal
year.
The Company had a net loss of $1.8 million in the first quarter
of 1996. This compares to a net loss of $0.1 million in the same
period last year. While the Company benefited from stronger
sales than a year earlier and improved earnings from the
Company's subsidiary in Mexico, the Company's performance was
negatively affected by the simultaneous start-up of three major
new business programs, described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio was 1.9 and 1.7 at September 30, 1995
and July 1, 1995, respectively. Working capital was $52.5
million at September 30, 1995 compared to $40.5 million at July
1, 1995. This increase included higher customer tooling to be
billed to support new programs and increased inventories to
support new business programs reaching full production later this
year.
Capital expenditures for the first quarter of 1996 and 1995 were
$6.1 and $7.4 million, respectively. Capital spending will be
slightly lower in 1996 due to the completion of the building
additions required in the last two years in Langres, France and
Newaygo, Michigan to support new business programs; the transfer
of the Outside Mirror Glass product line to Mexico and the
consolidation of two older interior mirror facilities into a new
facility in Holland, Michigan.
The Company's $70 million bank revolving credit agreement had
borrowings against it of $46.8 million at September 30, 1995. In
July of 1995, the Company issued a senior note of $20.0 million
with an insurance company. The note has a four to five month
delayed takedown with principal payments commencing in fiscal
2001 until maturity in fiscal 2006. The Company expects to
increase the borrowing availability under the current revolving
line of credit by $20.0 million in the second quarter of fiscal
1996. The Company believes that the borrowing availability under
the current revolving line of credit, together with funds
generated by operations will meet the Company's current business
needs.
<PAGE> 10
ITEM 1. LEGAL PROCEEDINGS
PATENT LITIGATION. 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 judgment of non-infringement was granted and
the lawsuit was dismissed. Gentex filed an appeal of this
ruling. On November 3, 1995, the Court of Appeals for the
Federal Circuit affirmed the summary judgement decision and
dismissed Gentex's appeal.
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 mirrors 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 injunction against further
infringement by Gentex. A trial has been scheduled to begin in
February, 1996. Gentex filed several motions for summary
judgment, alleging that the patents in question are invalid or
not infringed, and that the Company is not entitled to certain
damages. The Court granted Gentex's motion for summary judgment
that two of the Company's patents relating to lighted mirrors are
invalid. The Court denied Gentex's remaining notions and granted
the Company's request to dismiss its claim under the third
lighted mirror patent without prejudice. The Company believes
that its lighted mirror patents are not invalid and has requested
permission to file an immediate appeal on this issue.
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 mirrors from
ultraviolet radiation. The Company subsequently amended its
complaint to allege that Gentex's inside and outside
electrochromic mirrors infringe a third patent owned by the
Company which also relates to the protection of electrochromic
mirrors 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
two of these patents pending final resolution of the lawsuit.
This motion has not yet been decided by the court, and no trial
date has been set in the second lawsuit.
On June 23, 1995, Gentex filed a lawsuit against the Company
seeking a declaration that three patents owned by the Company are
invalid and not infringed by Gentex. The Company has responded
by denying these allegations, and charging that two of the
patents in question are infringed by certain of Gentex's
electrochromic mirrors. The Company is seeking unspecified
damages and an injunction against further infringement by Gentex.
Gentex has filed a motion for summary judgment alleging that two
of the Company's patents are invalid; that motion has not yet
been decided and no trial date has been set.
OTHER LITIGATION. The Company and its subsidiaries are involved
in certain other legal actions and claims, including
environmental claims, arising in the ordinary course of
business. Management believes (based on advice of legal counsel)
that such litigation and claims will be resolved without material
effect on the Company's financial position or results of
operations.
<PAGE> 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Donnelly Corporation's 1995 Annual Meeting of Shareholders
was held on October 20, 1995.
(b) Proxies were distributed pursuant to Regulation 14A under
the SecuritiesExchange 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS - 27 FINANCIAL DATA SCHEDULE
(b) REPORTS ON FORM 8-K
The Registrant filed Form 8-K, dated May 29, 1995, which has
subsequently been amended in the period covered by this report,
relating to the acquisition of an interest in Hohe GmbH & Co. KG
("Hohe"), a German limited partnership. The filing included an
English language summary of an Acquisition Agreement and related
documents written in German between the Registrant, Donnelly
GmbH, Hohe and other parties related to Hohe, dated May 25, 1995,
consolidated financial statements of Hohe as of March 31, 1995
and 1994 (audited) and pro forma financial information of the
Registrant.
<PAGE> 12
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: November 14, 1995 /s/ J. Dwane Baumgardner
------------------------------
J. Dwane Baumgardner
(Chairman, Chief Executive
Officer, and President)
Date: November 14, 1995 /s/ William R. Jellison
------------------------------
William R. Jellison
(Vice President, Corporate
Controller, and Treasurer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
SEPTEMBER 30, 1995 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> JUN-29-1996
<PERIOD-END> SEP-30-1995
<CASH> 5,758
<SECURITIES> 0
<RECEIVABLES> 55,095
<ALLOWANCES> 573
<INVENTORY> 25,047
<CURRENT-ASSETS> 113,052
<PP&E> 152,840
<DEPRECIATION> 56,711
<TOTAL-ASSETS> 251,406
<CURRENT-LIABILITIES> 60,531
<BONDS> 97,568
<COMMON> 784
0
531
<OTHER-SE> 78,795
<TOTAL-LIABILITY-AND-EQUITY> 251,406
<SALES> 90,523
<TOTAL-REVENUES> 90,523
<CGS> 76,838
<TOTAL-COSTS> 76,838
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,735
<INCOME-PRETAX> (2,021)
<INCOME-TAX> (717)
<INCOME-CONTINUING> (1,789)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,789)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
