SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarter ended September 27, 1997 Commission File Number 1-9716
DONNELLY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Michigan 38-0493110
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
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 [ ]
5,495,782 shares of Class A Common Stock and 4,440,974 shares of Class B Common
Stock were outstanding as of October 31, 1997.
<PAGE>
DONNELLY CORPORATION
INDEX
Page
Numbering
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Combined Consolidated Balance Sheets
- September 27, 1997 and June 28, 1997 3
Condensed Combined Consolidated Statements of Income
- Three months ended September 27, 1997 and September 28, 1996 4
Condensed Combined Consolidated Statements of Cash Flows
- Three months ended September 27, 1997 and September 28, 1996 5
Notes to Condensed Combined Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition 8-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
DONNELLY CORPORATION AND SUBSIDIARIES
CONDENSED COMBINED CONSOLIDATED BALANCE SHEETS
<TABLE>
September 27, June 28,
In thousands 1997 1997
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ..................................................... $ 9,462 $ 8,568
Accounts receivable, less allowance of $959 and $1,064......................... 57,580 67,850
Inventories ................................................................... 45,020 42,484
Prepaid expenses and other current assets...................................... 35,552 33,738
Total current assets ........................................... 147,614 152,640
Property, plant and equipment ................................................. 288,563 286,451
Less accumulated depreciation ................................................. 122,799 121,327
Net property, plant and equipment .............................. 165,764 165,124
Investments in and advances to affiliates...................................... 15,405 15,487
Other assets .................................................................. 31,460 25,042
Total assets ................................................... $360,243 $358,293
LIABILITIES AND SHAREHOLDERSAE EQUITY Current liabilities:
Accounts and notes payable .................................................... $ 58,611 $ 76,392
Other current liabilities ..................................................... 38,508 39,257
Total current liabilities ...................................... 97,119 115,649
Long-term debt, less current maturities........................................ 142,509 122,798
Deferred income taxes and other liabilities.................................... 27,559 25,674
Total liabilities .............................................. 267,187 264,121
Minority interest ............................................................. 273 345
Preferred stock ............................................................... 531 531
Common stock .................................................................. 994 991
Other shareholders' equity .................................................... 91,258 92,305
Total shareholders' quity ...................................... 92,783 93,827
Total liabilities and shareholders' equity...................... $360,243 $358,293
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
CONDENSED COMBINED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
Three Months Ended
September 27, September 28,
In thousands except share data 1997 1996
<S> <C> <C>
Net sales ........................................................... $ 165,176 $ 113,400
Cost of sales ....................................................... 137,476 90,252
Gross profit ......................................... 27,700 23,148
Operating expenses:
Selling, general and administrative ................................. 15,265 11,087
Research and development ............................................ 9,345 7,119
Operating income ..................................... 3,090 4,942
Non-operating (income) expenses:
Interest expense .................................................... 2,404 1,957
Royalty income ...................................................... (102) (409)
Interest income ..................................................... (111) (72)
Other (income) expense, net ......................................... 187 317
Income before taxes on income......................... 712 3,149
Taxes on income ..................................................... 15 1,171
Income before minority interest and equity earnings .. 697 1,978
Minority interest in net loss of subsidiaries........................ 345 0
Equity in losses of affiliated companies............................. (56) (256)
Net income .......................................................... $ 986 $ 1,722
Per share of common stock:
Net income........................................... $ 0.10 $ 0.18
Cash dividends declared.............................. $ 0.10 $ 0.10
Average common shares outstanding.................... 9,892,525 9,795,769
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
DONNELLY CORPORATION AND SUBSIDIARIES
CONDENSED COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Three Months Ended
September 27, September 28,
In thousands 1997 1996
OPERATING ACTIVITIES
<S> <C> <C>
Net income ...................................... $ 986 $ 1,722
Adjustments to reconcile net income to net cash
from (for) operating activities:
Depreciation and amortization ................... 5,913 3,759
Gain on sale of property and equipment .......... (3) --
Deferred pension cost and postretirement benefits 173 1,340
Deferred income taxes ........................... 207 (688)
Minority interest loss .......................... (621) --
Equity in losses of affiliated companies ........ 56 1,318
Changes in operating assets and liabilities:
Repayment of accounts receivable ................ (3,775) --
Accounts receivable ............................. 12,590 (6,768)
Inventories ..................................... (3,772) (2,812)
Prepaid expenses and other current assets ....... (3,376) 658
Accounts payable and other current liabilities .. (15,580) 4,099
Other ........................................... (2,858) (459)
Net cash from (for) operating activities (10,060) 2,169
INVESTING ACTIVITIES
Capital expenditures ............................ (10,261) (3,676)
Proceeds from sale of property and equipment .... 298 --
Investments in and advances to equity affiliates (6) (4,054)
Other ........................................... (284) (679)
Net cash for investing activities (10,253) (8,409)
FINANCING ACTIVITIES
Proceeds from long-term debt .................... 22,747 11,264
Repayments on long-term debt .................... (405) --
Common stock issuance ........................... 297 247
Dividends paid .................................. (993) (922)
Net cash from financing activities 21,646 10,589
Effect of foreign exchange rate changes on cash . (439) --
Increase in cash and cash equivalents ........... 1,333 4,349
Cash and cash equivalents, beginning of period .. 8,568 1,303
Cash and cash equivalents, end of period ........ $ 9,462 $ 5,652
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
DONNELLY CORPORATION
NOTES TO CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
September 27, 1997
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 months ended September 27, 1997,
should not be considered indicative of the results that may be expected for the
year ended June 27, 1998. The combined consolidated balance sheet at June 28,
1997, has been taken from the audited combined 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 June 28, 1997.
The Company's fiscal year is the 52 or 53 week period ending the Saturday
closest to June 30. Accordingly, each quarter ends on the Saturday closest to
the calendar quarter end. Both the quarters ended September 27, 1997 and
September 28, 1996, included 13 weeks.
NOTE B--INVENTORIES
<TABLE>
Inventories consist of:
(In thousands) September 27, June 28,
1997 1997
<S> <C> <C>
FIFO and average cost:
Finished products and work in process 27,371 16,675
Raw materials ....................... 17,649 25,809
------- -------
$45,020 $42,484
======= =======
</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>
Three Months Ended
(In thousands) September 27, September 28,
1997 1996
Cash paid during the period for:
<S> <C> <C>
Interest ......... $1,617 $1,144
Income taxes...... $ 181 $2,698
</TABLE>
<PAGE>
NOTE E---INVESTMENTS IN AND ADVANCES TO AFFILIATES
On November 3, 1997, the Company formed Lear-Donnelly Overhead Systems, L.L.C.
("Lear-Donnelly"), a 50% owned joint venture with Lear Corporation ("Lear"),
based in Southfield, Michigan, one of the world's largest independent automotive
suppliers, Lear-Donnelly is engaged in the design, development and production of
overhead systems for the global automotive market, including complete overhead
systems, headliners, consoles and lighting components, vehicle electrification
interfaces, electronic components, visors and assist handles ("products"). Lear
and Donnelly each contributed certain technologies and assets for the creation
of the joint venture, including Lear's operations in Marlette, Michigan and
Prestige, in the Czech Republic as well as some equipment from Lear's operations
in England and Donnelly's interior lighting and trim facilities located in
Holland, Michigan and just outside of Dublin, Ireland, as well as some equipment
from Donnelly's operations in Grand Haven.
Lear-Donnelly will manufacture and supply products for both Donnelly and Lear,
who are responsible for the customer sales efforts to the original equipment
manufacturers. Because existing contracted sales are to be retained by the
Company, the Company's net sales levels will remain unchanged, however, the
Company's gross profit and operating margins will be unfavorably impacted due to
the net earnings of the joint venture being accounted for under the equity
method. However, the joint venture will not significantly impact the
comparability of net income of the Company from period to period.
NOTE F---GLOBAL REVOLVER
In September 1997, the Company entered into a new unsecured $160 million
multi-currency global revolving credit agreement to meet the financing needs of
Donnelly Corporation and its majority owned, controlled subsidiaries. This
multi-currency revolving credit agreement replaces the Company's previous
unsecured $80 million domestic credit agreement and its 75 million Deutsch Mark
revolving Eurocredit loan agreement. Borrowings under this agreement bear
interest, at the election of the Company at a floating rate equal to (i) the
Federal Funds Funding rate plus .385% to .875% or (ii) the Eurodollar rate plus
.185% to .675% based on specific financial ratios of the Company. The Company's
initial borrowings under the agreement bear interest at a floating rate of
approximately 3.5-4.0% per annum when borrowed in German Marks and 5.7-6.0% per
annum when borrowed in U.S. Dollars. This new revolving credit agreement
terminates in September 2004, with an opportunity for the Company to extend for
one year periods with the consent of all the revolver banks.
<PAGE>
Item 2.
DONNELLY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER REPORT
FOR THE THREE MONTHS ENDED SEPTEMBER 27, 1997
GENERAL
On November 3, 1997, the Company formed Lear-Donnelly Overhead Systems, L.L.C.
("Lear-Donnelly"), a 50% owned joint venture with Lear Corporation ("Lear"),
based in Southfield, Michigan, one of the world's largest independent automotive
suppliers. Lear-Donnelly is engaged in the design, development and production of
overhead systems for the global automotive market, including complete overhead
systems, headliners, consoles and lighting components, vehicle electrification
interfaces, electronic components, visors and assist handles ("products"). Lear
and Donnelly each contributed certain technologies and assets for the creation
of the joint venture, including Lear's operations in Marlette, Michigan and
Prestige, in the Czech Republic as well as some equipment from Lear's operations
in England and Donnelly's interior lighting and trim facilities located in
Holland, Michigan and just outside of Dublin, Ireland, as well as some equipment
from Donnelly's operations in Grand Haven.
Lear-Donnelly will manufacture and supply products for both Donnelly and Lear,
who are responsible for the customer sales efforts to the original equipment
manufacturers. Because existing contracted sales are to be retained by the
Company, the Company's net sales levels will remain unchanged, however, the
Company's gross profit and operating margins will be unfavorably impacted due to
the net earnings of the joint venture being accounted for under the equity
method. However, the joint venture will not significantly impact the
comparability of net income of the Company from period to period.
In the second quarter of 1997, the Company acquired a controlling interest in
the general partner of Donnelly Hohe, therefore, began consolidating the
financial statements of Donnelly Hohe with those of the Company. Prior to
acquiring control of the general partner, the Company's investment in Donnelly
Hohe was accounted for using the equity method. Because the Company's limited
partnership interest has remained unchanged, the impact on net income has
remained unchanged for each period reported.
The Company's fiscal year ends on the Saturday nearest June 30, and its fiscal
quarters end on the Saturdays nearest September 30, December 31, March 31 and
June 30. Donnelly Hohe's fiscal year ends on May 31, and its fiscal quarters end
on August 31, November 30, February 28 and May 31. Accordingly, the Company's
Combined Consolidated Financial Statements as of or for a period ended on a
particular date include Donnelly Hohe's financial statements as of or for a
period ended approximately one month before that date. The Company intends to
continue this practice. Accordingly, the Company's
<PAGE>
financial statements for the period ended September 27, 1997, consolidate
Donnelly Hohe's financial statements for the period ended August 31, 1997.
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. The comparability of the Company's results on a
period to period basis may also be affected by the Company's formation of new
joint ventures, alliances, acquisitions, and substantial investment in new
product lines.
RESULTS OF OPERATIONS
Net sales were $165.2 million in the first quarter of 1998 compared to $113.4
million for the first quarter of 1997. The consolidation of Donnelly Hohe
contributed approximately $44.1 million of net sales for the first quarter of
1998. Excluding Donnelly Hohe, consolidated net sales for the first quarter of
1998 were approximately $121.1 million, an increase of 6.7% over the first
quarter of 1997.
Net sales for the Company's North American operations increased by approximately
7% in 1998 compared to 1997. The increase was primarily due to programs launched
in 1997 running at full production volumes and new product introductions in the
modular window, door handle and interior trim product lines. North American car
and light truck build increased marginally during the period. The Company's
consolidated European net sales increased by approximately $44.2 million in 1998
from 1997 due to the consolidation of Donnelly Hohe. Excluding the consolidation
of Donnelly Hohe, net sales for the Company's European operations were at the
same level as 1997. It is expected that the Company's European sales will be
flat in the second quarter of 1998 compared to the second quarter of 1997.
Gross profit margin for the first quarter of 1998 was 16.8% compared to 20.4%
for the first quarter of 1997 due to the consolidation of Donnelly Hohe.
Donnelly Hohe's gross profit margins are lower than that of the Company's
operations in North America. The Company's North American gross profit margins
for the three month period were flat compared to the same period in 1997 despite
an unfavorable product mix and the costs associated with the ramp-up of the
Donnelly Optics business. A favorable arbitration award associated with Donnelly
Happich Technologies helped offset excess costs on the visor program and improve
margins slightly. The Company's European gross profit in the first quarter of
1998 was flat compared to the same period in 1997.
Selling, general and administrative expenses increased from $11.1 million in the
first quarter of 1997 to $15.3 million for the same period of 1998 due to the
consolidation of Donnelly Hohe and to support the ramp-up of the Donnelly Optics
business. Discount fees of $0.6 million associated with asset securitization
entered into in November 1996 are also included in selling, general and
administrative expenses. Despite the higher selling, general and administrative
expenses in the first quarter of fiscal 1998, these expenses decreased from 9.8%
of net sales in the first quarter of 1997 to 9.2% of net sales in 1998.
Research and development expenses for the first quarter of 1998 were $9.3
million, or 5.7% of net sales, compared to 6.3% of net sales for the first
quarter of 1997. These expenses were lower as a percentage to sales due to the
consolidation of Donnelly Hohe.
The Company's operating income was $3.1 million in the first quarter of 1998,
down from $4.9 million in 1997 primarily due to lower gross profit margins as a
percent to sales for the period. The Company's North American operating income
was lower as a percent to sales due to flat gross profit margins,
<PAGE>
operating losses associated with the start-up of Donnelly Optics and higher
administrative and research and development expenses. The Company's European
operating income was unfavorably impacted for the quarter by higher costs and
operational problems at the Company's Irish and German operations and
competitive pricing pressures. In Germany, plans for restructuring operations
were delayed due to the change in management at Donnelly Hohe. The new
management expects to implement a modified restructuring plan over the next four
to six months.
Interest expense was $2.4 million in the first quarter of 1998 compared to $2.0
million for the first quarter of the previous year. The higher interest expense
was due to the consolidation of Donnelly Hohe. Interest expense, excluding the
consolidation of Donnelly Hohe, was below the previous year level primarily due
to the asset securitization of accounts receivable. In the second quarter of
1997 the Company entered into an agreement to sell an interest in a defined pool
of trade accounts receivable. At September 27, 1997, a $35.0 million interest
had been sold under this agreement with proceeds used to reduce revolving lines
of credit. The discount expense associated with this transaction is included in
selling, general and administrative expenses.
Due to the consolidation of Donnelly Hohe, minority interest in net loss of
subsidiaries was $0.3 million in the first quarter of 1998. Equity in losses of
affiliated companies was $0.1 million in the first quarter of 1998 compared to
$0.3 million for the same period in 1997. In the first quarter of 1997 the
Company accounted for its investment in Donnelly Hohe under the equity method of
accounting.
The Company's effective tax rate was 2.1% for the three month period ended
September 27, 1997, compared to 37.2% for the three month period ended September
28, 1996. The decrease in the effective tax rate is primarily due to lower
earnings for the period and a higher marginal tax rate on operating losses at
the Company's Donnelly Hohe subsidiary. The Company expects that the average tax
rate for the twelve month period ended June 27, 1998 to be approximately between
32% to 35%.
Net income was $1.0 million in the first quarter of 1998 compared to $1.7
million the previous year. The decrease was primarily due to lower operating
margins as a percent to sales in the Company's North American operations,
operating losses at Donnelly Optics due to the ramp-up of this business, higher
research and development expenses and continued operating issues and pricing
pressures in the Company's European operations. The consolidation of Donnelly
Hohe did not impact the comparability of net income from 1997 to 1998 for the
three month period.
The Company continues to focus on implementing plans during 1998 to improve
financial performance over 1997 levels. However, the delays in implementing
improvements in Germany, operational difficulties in Ireland and the investments
required for Donnelly Optics are placing considerable pressure on financial
goals for the Company.
LIQUIDITY AND CAPITAL RESOURCES
In September 1997, the Company entered into a new unsecured $160 million
multi-currency global revolving credit agreement to meet the financing needs of
Donnelly Corporation and its majority owned, controlled subsidiaries. This
multi-currency revolving credit agreement replaces the Company's previous
unsecured $80 million domestic credit agreement and its 75 million Deutsche Mark
revolving Eurocredit loan agreement. Borrowings under this agreement bear
interest, at the election of the Company at a floating rate equal to (i) the
Federal Funds Funding rate plus .385% to .875% or (ii) the Eurodollar rate plus
.185% to .675% based on specific financial ratios of the Company. The Company's
initial borrowings under the agreement bear interest at a floating rate of
approximately 3.5-4.0% per
<PAGE>
annum when borrowed in German Marks and 5.7-6.0% per annum when borrowed in U.S.
Dollars. This new revolving credit agreement terminates in September 2004, with
an opportunity for the Company to extend for one year periods with the consent
of all the revolver banks.
The Company's $160 million multi-currency global revolving credit agreement had
borrowings against it of $41.9 million at September 27, 1997, compared to no
borrowings against the Company's $80 million bank revolving credit agreement at
June 28, 1997. The Company's 75 million Deutsch Mark (approximately $41 to $45
million) credit agreement had borrowings of $31.6 million at August 31, 1997,
compared to $33.4 million at May 30, 1997. This credit agreement was replaced by
the $160 million revolver in September, 1997. The increase in the Company's
borrowing is primarily to support capital expenditures and working capital
requirements for the period.
The Company's current ratio was 1.5 and 1.3 at September 27, 1997 and June 28,
1997, respectively. Working capital was $50.5 million at September 27, 1997,
compared to $37.0 million at June 28, 1997. The increase in working capital at
September 27, 1997 was primarily due to a decrease in accounts payable from
year-end levels caused by lower capital expenditures and lower operating costs
for the period compared to the period ended June 28, 1997.
Capital expenditures for the first three months of 1998 and 1997 were $10.3 and
$3.7 million, respectively. Capital spending in 1998 is expected to be higher
compared to the previous year due to the consolidation of Donnelly Hohe for the
entire twelve month period and new business in interior lighting and trim,
diffractive optics and electrochromic mirrors.
The Company believes that the long term liquidity and capital resource needs of
the Company will continue to be provided principally by funds from operating
activities, supplemented by borrowings under the Company's existing credit
facilities. The Company also considers equity offerings to properly manage the
Company's total capitalization position. The Company considers, from time to
time, new joint ventures, alliances and acquisitions, the implementation of
which could impact the liquidity and capital resource requirements of the
Company.
Except for Mexico, the value of the Company's consolidated assets and
liabilities located outside the United States and income and expenses reported
by the Company's foreign operations may be affected by translation values of
various functional currencies. Translation gains and loss adjustments are
reported as a separate component of shareholders' equity. For the Company's
subsidiary in Mexico, whose functional currency is the United States dollar,
transaction and translation gains or losses are reflected in net income for all
accounts other than intercompany balances of a long-term investment nature, for
which the translation gains or losses are reported as a separate component of
shareholders' equity.
The Company utilizes interest rate swaps and foreign exchange contracts to
manage exposure to fluctuations in interest and foreign currency exchange rates.
The risk of loss to the Company in the event of nonperformance by any party
under these agreements is not material.
"Safe Harbor" Provisions
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Investors are cautioned that
any forward-looking statements, including statements regarding the intent,
belief, or current expectations of the Company or its management, are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those in forward-looking statements as
a result of various factors including, but not limited to (i) general economic
conditions in the markets in which the Company operates, (ii) fluctuation
<PAGE>
in worldwide or regional automobile and light truck production, (iii) changes in
practices and/or policies of the Company's significant customers and (iv) other
risks and uncertainties. The Company does not intend to update these
forward-looking statements.
Recently Issued Accounting Standards
SFAS No. 128, "Earnings Per Share," establishes standards for computing and
presenting earnings per share ("EPS") and simplifies that standards previously
found in APB Opinion No. 15, which has been superseded. It replaces the
presentation of primary EPS with a presentation of basic EPS, which excludes
dilution and is computed by dividing net income available to common stockholders
by the weighted-average number of common shares outstanding for the period.
Diluted EPS is computed similarly to fully diluted EPS pursuant to APB No. 15.
This Statement is effective for the Company in 1998, and requires restatement of
all prior-period EPS data presented. It is not expected to have a material
effect on the accompanying financial statements.
SFAS No. 129, "Disclosure of Information about Capital Structure, " establishes
standards for disclosing information about an entity's capital structure. This
statement is effective for the Company in 1998 and will not have a material
effect on the accompanying financial statements.
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances in the financial statement that is displayed with the same prominence
as other financial statements. Comprehensive income is defined to include all
changes in equity except those resulting from investments by owners and
distributions to owners.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which supersedes SFAS No. 14, "Financial Reporting for Segments of
a Business Enterprise," establishes standards for the way that public
enterprises report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers.
SFAS No. 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Due to the recent issuance of these standards,
management has been unable to fully evaluate the impact if any, they may have on
future financial statement disclosures. However, results of operations and
financial position will be unaffected by implementation of these new standards.
No other recently issued accounting standards are expected to have a material
impact on the Company.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On January 21, 1997, Midwest Manufacturing Holdings, L.L.C. ("Midwest") filed a
lawsuit against the Company in Cook County, Illinois Circuit Court with respect
to terminated discussions regarding the possibility of Midwest's acquisition of
the Company's Information Products business. The litigation has been removed to
the Federal District Court for the Northern District of Illinois. Midwest
alleges that a verbal agreement to purchase the Information Products business
had been reached, and has filed its lawsuit in an attempt to compel the Company
to proceed with the sale or to pay Midwest damages. Management believes that the
claim by Midwest will be resolved without a material effect on the Company's
financial condition or results of operations and liquidity.
In June, 1994, the Company entered into a joint venture with Happich
Fahrzeug-InnausstaHung GmbH of Germany ("Happich") to purchase sun visors, grab
handles and other interior parts in North America. In July, 1995, when the joint
venture was at an early stage of its development, Happich expressed its desire
to terminate the joint venture. The parties had been engaged in arbitration over
the terms of the joint venture termination since July 29, 1996. On July 31, 1997
the Company was granted an interim arbitration award favorable to the Company
and indicating that the arbitration will be concluded without a material effect
on the Company's financial condition or results of operation and liquidity, with
the final award yet to be determined.
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 that such litigation and claims will be resolved
without material effect on the Company's financial position, results of
operations and liquidity, individually and in the aggregate.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Donnelly Corporation's 1997 Annual Meeting of Shareholders was held on
October 17, 1997.
(b) Proxies were distributed pursuant to Regulation 14A under the Securities
Exchange Act of 1934. There was no opposition to the Board's nominees as listed
in the proxy statement and shareholders elected the nominees as listed in the
proxy statement.
(c) At the 1997 Annual Meeting of Shareholders, the shareholders approved the
Donnelly Corporation 1997 Employee Stock Option Plan as described in the proxy
statement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
Exhibit 10.1 Donnelly Corporation Multi Currency Revolving Credit Loan
Agreement dated September 16, 1997
Exhibit 10.2 5th Amendment to the Donnelly Corporation 1987 Employee
Stock Purchase Plan
Exhibit 27 Financial Data Schedule
<PAGE>
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 19, 1997 /s/ J. Dwane Baumgardner
J. Dwane Baumgardner
(Chairman, Chief Executive
Officer, and President)
Date: November 19, 1997 /s/ William R. Jellison
William R. Jellison
(Vice President, Corporate
Controller, and Treasurer)
