<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 1, 1995 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 / /
4,168,529 shares of Class A Common Stock and 3,582,915 shares of Class B Common
Stock were outstanding as of April 28, 1995.
<PAGE> 2
DONNELLY CORPORATION
INDEX
Page
Numbering
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Combined Consolidated Balance
Sheets---April 1, 1995 and July 2, 1994 . . . . . . . . 1
Condensed Combined Consolidated Statements of
Income---Three and nine months ended April 1, 1995
and April 2, 1994 . . . . . . . . . . . . . . . . . . . 2
Condensed Combined Consolidated Statements of
Cash Flows---Nine months ended April 1, 1995
and April 2, 1994 . . . . . . . . . . . . . . . . . . . 3
Notes to Condensed Combined Consolidated
Financial Statements---April 1, 1995. . . . . . . . . . 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 8K . . . . . . . . . . . . . . 10
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
<PAGE> 3
1
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
DONNELLY CORPORATION
CONDENSED COMBINED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
April 1 July 2
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 5,715 $ 1,374
Accounts receivable, less allowances
of $691 and $676 50,505 47,303
Inventories 21,086 19,976
Prepaid expenses and other current assets 19,419 16,911
-------- --------
Total current assets 96,725 85,564
Property, plant, and equipment 158,259 143,269
Less accumulated depreciation 59,589 51,898
-------- --------
Net property, plant, and equipment 98,670 91,371
Other assets 8,087 6,866
-------- --------
Total assets $203,482 $183,801
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts and notes payable $ 35,151 $ 34,227
Other current liabilities 21,658 14,931
-------- --------
Total current liabilities 56,809 49,158
Long-term debt, less current maturities 56,404 53,138
Deferred income taxes and other liabilities 10,704 9,068
-------- --------
Total liabilities 123,917 111,364
-------- --------
Minority interest 1,956 1,611
-------- --------
Preferred stock 531 531
Common stock 781 777
Other shareholders' equity 76,297 69,518
-------- --------
Total shareholders' equity 77,609 70,826
-------- --------
Total liabilities and shareholders' equity $203,482 $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 Nine Months Ended
April 1 April 2 April 1 April 2
------------------- -------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $ 96,708 $ 90,897 $281,909 $239,222
Costs and expenses:
Cost of sales 75,689 71,075 220,477 188,638
Selling, general and administrative 10,903 9,745 33,652 27,640
Research and development 5,288 5,675 17,132 15,216
Gain on restructuring and sale of
businesses --- --- (4,678) ---
Loss of discontinued business --- --- 2,413 ---
-------- -------- -------- --------
Operating income 4,828 4,402 12,913 7,728
Interest expense 1,106 960 3,523 2,553
Royalty income (1,150) (375) (1,872) (1,045)
Other (income) expense 16 (163) (159) 109
-------- -------- -------- --------
Income before taxes on income 4,856 3,980 11,421 6,111
Taxes on income 1,615 1,233 3,835 1,623
-------- -------- -------- --------
Income before minority interest and
equity earnings 3,241 2,747 7,586 4,488
Minority interest in net income of
subsidiary (227) (139) (9) (578)
Equity in earnings (losses) of
affiliated companies 62 71 113 (197)
-------- -------- -------- --------
Income before cumulative effect of
change in accounting principle 3,076 2,679 7,690 3,713
Cumulative effect of adoption of
SFAS 109 --- --- --- 513
-------- -------- -------- --------
Net income $ 3,076 $ 2,679 $ 7,690 $ 4,226
-------- -------- -------- --------
-------- -------- -------- --------
Per common share:
Income before cumulative effect of
change in accounting principle 0.40 0.35 0.99 0.48
Cumulative effect of adoption of
SFAS 109 --- --- --- 0.06
-------- -------- -------- --------
Net income $ 0.40 $ 0.35 $ 0.99 $ 0.54
-------- -------- -------- --------
-------- -------- -------- --------
Cash dividends declared $ 0.08 $ 0.08 $ 0.24 $ 0.24
Average common shares outstanding 7,746,977 7,718,623 7,739,005 7,714,563
</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>
Nine Months Ended
April 1 April 2
---------------------
1995 1994
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 7,690 $ 4,226
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,530 6,984
Deferred pension and postretirement benefits 1,408 808
Deferred income taxes (57) (100)
Minority interest in net income of subsidiary 10 578
Equity in (earnings) losses of affiliated companies (123) 148
Gain on restructuring, sale of businesses and
loss of discontinued business (2,265) ---
Cumulative effect of change in accounting
principle --- (513)
Changes in operating assets and liabilities:
Accounts receivable (3,375) (8,515)
Inventories (1,885) (3,414)
Prepaid expenses and other current assets (2,499) (1,197)
Accounts payable and other current liabilities 4,318 8,992
Other (441) (420)
-------- --------
NET CASH FROM OPERATING ACTIVITIES 11,311 7,577
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (21,685) (21,594)
Proceeds from sale of businesses 14,200 ---
Loan to affiliate (500) ---
Change in unexpended bond proceeds (865) 1,070
Other (357) (36)
-------- --------
NET CASH FOR INVESTING ACTIVITIES (9,207) (20,560)
-------- --------
FINANCING ACTIVITIES:
Proceeds from long-term debt 15,000 17,350
Repayments on long-term debt (11,734) (3,391)
Resources provided by minority interest 491 ---
Common stock issuance 367 214
Dividends paid (1,887) (1,804)
-------- --------
NET CASH FROM FINANCING ACTIVITIES 2,237 12,369
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,341 (614)
CASH, AT BEGINNING OF PERIOD 1,374 1,214
-------- --------
CASH, AT END OF PERIOD $ 5,715 $ 600
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 6
4
DONNELLY CORPORATION
NOTES TO CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
April 1, 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-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 1, 1995 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 April 1, 1995 and April 2, 1994
included 13 weeks.
NOTE B--INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
April 1 July 2
(in thousands) 1995 1994
-------- --------
<S> <C> <C>
LIFO cost:
Finished products and work in process $ 7,916 $ 9,836
Raw materials 8,201 6,781
-------- --------
$16,117 $16,617
-------- --------
FIFO cost:
Finished products and work in process $ 2,832 $ 1,915
Raw materials 2,137 1,444
-------- --------
4,969 3,359
-------- --------
$21,086 $19,976
-------- --------
-------- --------
</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.
NOTE D--SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Nine Months Ended
April 1 April 2
---------------------
(in thousands) 1995 1994
-------- --------
<S> <C> <C>
Cash paid during the period for:
Interest $ 1,180 $ 2,211
Income taxes $ 6,600 $ 3,145
</TABLE>
<PAGE> 7
5
Item 2.
DONNELLY CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
3RD QUARTER REPORT
FOR THE THREE AND NINE MONTHS ENDED APRIL 1, 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 $96.7 million in the third quarter of fiscal 1995,
an increase of almost 6% over the third quarter of fiscal 1994. Net sales for
the nine-month period ending April 1, 1995 were $281.9 million compared to
$239.2 million net sales in the same period last year. New business in
complete exterior mirrors, door handles, and interior systems, and strong
demand for modular windows at Ford and Chrysler, all contributed to the
stronger sales level.
Gross profit margin for the third quarter and nine-months of fiscal 1995 was
21.7% and 21.8%, respectively, compared to a gross profit margin of 21,8% for
the third quarter and 21.1% for the nine-months of fiscal 1994. The Company's
commitment to successful implementation of new programs, cost reductions
realized as a result of continuous improvement and higher volumes have had a
positive impact on gross profit. The Company's gross profit margin has
continued to remain strong despite price pressures from automotive customers,
significant increases in raw material costs and the completion of
unprecedented levels of business start-ups and transitions. It is expected
that price pressures from automotive customers and increases in costs for raw
materials will continue to challenge the Company.
Selling, administrative and general expenses in the third quarter were at
11.3% of sales, up from 10.7% in the same period last year primarily due to
higher legal expenses associated with the Gentex legal proceedings. (See Item
1.)
Research and development expenses for the third quarter were $5.3 million, or
5.5% of sales, compared to 6.2% 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 and modular windows.
In the second quarter of fiscal 1995, the Company entered into a plan to
restructure and sell certain nonautomotive businesses resulting in a net gain
of $4.7 million. 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 its investment in OSD Envizion Company
for a cash price following OSD's sale of certain assets to a major customer;
and the sale of the Company's heavy truck mirror business to KAM Truck
Components, Inc. for a cash price. 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 restructuring
of nonautomotive businesses.
<PAGE> 8
6
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
and 5% in the nine months ended April 1, 1995.
Royalty income was $1.2 million in the third quarter of fiscal 1995 compared
to $0.4 million in the same period last year. The increase resulted from
royalty income associated with the sale of the appliance business to Gemtron
Corporation.
The Company had net income of $3.1 million and $7.7 million in the third
quarter and first nine-months of fiscal 1995, respectively. This compares to
net income in the third quarter and first nine-months of fiscal 1994 of $2.7
million and $4.2 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 improvement in net income is the result of
higher sales and the sale of certain non-automotive businesses.
The Company's financial performance in fiscal 1994 and fiscal 1995 has been
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. New customer orders began production in the third quarter of
fiscal 1995 with additional orders starting production in early fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio was 1.7 at April 1, 1995 and June 2, 1994.
Working capital was $39.9 million at April 1, 1995 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 of fiscal 1995. The note has
principal payments commencing in fiscal 2000 until maturity in fiscal 2005.
The Company's $55 million bank revolving credit agreement had borrowings of
$8.0 million against it as of April 1, 1995. The Company believes that the
current borrowing availability and funds generated by operations will meet the
Company's current business needs.
The Company received $5.0 million in grants in the second quarter for the
construction of a new facility in Newaygo.
Capital expenditures for the first nine-months of fiscal 1995 and 1994 were
$21.7 and $21.6 million. Capital spending 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> 9
7
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 judgment 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 later in
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 judgment 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 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 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 5. Other
In the third quarter of fiscal 1995, the Company entered into an agreement in
principle to acquire a majority interest in Hohe GmbH & Co. KG.("Hohe"), the
largest producer of mirrors for the European auto industry. Hohe had annual
sales of approximately $185 million during fiscal year ending March 31, 1994.
It is expected that the transaction will be completed in the Company's fourth
quarter of fiscal 1995.
In the second quarter of fiscal 1995, the Company entered into a plan to
restructure and sell certain nonautomotive businesses resulting in a net gain
of $4.7 million. 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 its investment in OSD Envizion Company
for a cash price following OSD's sale of certain assets to a major customer;
and the sale of the Company's heavy truck mirror business to KAM Truck
Components, Inc. for a cash price. 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 restructuring
of nonautomotive businesses.
<PAGE> 10
8
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.
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 April 1, 1995.
<PAGE> 11
9
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 15, 1995 /s/ J. Dwane Baumgardner
J. Dwane Baumgardner
(Chairman, Chief Executive Officer, and
President)
Date: May 15, 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
APRIL 1, 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> JUL-01-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> APR-01-1995
<CASH> 5,715
<SECURITIES> 0
<RECEIVABLES> 50,505
<ALLOWANCES> 691
<INVENTORY> 21,086
<CURRENT-ASSETS> 96,725
<PP&E> 158,259
<DEPRECIATION> 59,589
<TOTAL-ASSETS> 203,482
<CURRENT-LIABILITIES> 56,809
<BONDS> 56,404
<COMMON> 781
0
531
<OTHER-SE> 76,297
<TOTAL-LIABILITY-AND-EQUITY> 203,482
<SALES> 96,708
<TOTAL-REVENUES> 0
<CGS> 75,689
<TOTAL-COSTS> 75,689
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,106
<INCOME-PRETAX> 4,856
<INCOME-TAX> 1,615
<INCOME-CONTINUING> 3,241
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,076
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
