ITEM 1. BUSINESS
(a) General Development of Business
The Company is engaged primarily in the design, manufacture, marketing and sale of glass related and plastic molded products for the automotive industry. The Company also supplies glass coatings for the transportation, electronics, and computer industries (either solely or through several joint ventures) and supplies plastic molded products for the appliance industry.
On August 15, 1994, the Company announced an agreement to sell its appliance products business to Gemtron Corporation. This segment represented approximately 1% of combined consolidated net sales of the Company is fiscal 1994. Closing of the sale is expected to occur by October 1, 1994. While final proceeds have not yet been determined, it is expected that the transaction will include a cash price payable at closing resulting in a net gain and a royalty payment over each of the next two years.
The Company was incorporated in Michigan in 1936. The Company's corporate offices are located at 414 East Fortieth Street, Holland, Michigan, 49423, and its telephone number is (616) 786-7000. Unless otherwise noted or indicated by the context, the term "Company" includes Donnelly Corporation, its wholly owned subsidiaries and Donnelly Export Corporation, a shareholder Domestic International Sales Corporation under the Internal Revenue Code owned entirely by the holders of the Company's Class B Common Stock.
ITEM 1(b) Financial Information About Industry Segments
The Company is primarily engaged in the research, design, development, manufacture, marketing and sale of interior and exterior rearview mirrors, interior lighting and interior trim products, and modular windows for world automotive markets. Prior to 1993, the Company was also engaged in the research, design, development, manufacture, marketing and sale of highly technical solid-state glass coatings for products used primarily in the electronic and computer industries worldwide. This segment represented approximately 11% of combined consolidated net sales of the Company in fiscal 1992. Effective May 3, 1992, the liquid crystal display products aspect of the coated products business was transferred to Donnelly Applied Films Corporation, a 50% owned joint venture accounted for on the equity method of accounting. As a result, this segment is no longer reported separatly. Excluding the contributions of various coatings related joint ventures, the Company's market focus is nearly exclusively automotive in fiscal 1994.
ITEM 1(c) Narrative Description of Business
Products, Services, Markets and Methods of Distribution
Automotive Products
Automotive Vision. The Company manufactures a wide range of interior and exterior rearview mirror products.
Interior Rearview Mirrors. The Company began producing prismatic day/night mirror glass in 1939 and has been a leading innovator of interior rearview mirrors in the United States since that time. The Company now supplies interior rearview mirror assemblies to General Motors Corporation, Ford Motor Company and Chrysler Corporation (the "Big Three" automakers), the North American facilities of foreign owned automakers (the "New Automotive Manufacturers") and North American joint ventures between the Big Three automakers and foreign automakers. Through DML, its Irish subsidiary, the Company supplies interior rearview mirror assemblies to French automotive manufacturers. DML also manufactures and sells prismatic interior rearview mirror glass to foreign producers of interior rearview mirrors.
The Company has also developed complex modular interior mirror assemblies, including mirrors with added features such as lights. Lighted mirrors direct light down to the laps of the driver and passenger for reading or general lighting. Sales of lighted mirrors have increased significantly since their introduction in fiscal 1985.
The Company is developing and offering for sale, various electrochromic technologies for use in day/night automotive mirror systems which automatically dim when headlights approach from the rear. Some of these electrochromic technologies have been subject of litigation. See Item 3. The company is also developing electronic vision systems for vehicles which make use of advanced sensors and video microchip technology to control dimmable interior and exterior mirror systems.
Exterior Rearview Mirrors. In 1987, the Company began manufacturing exterior rearview mirror assemblies for cars and trucks. Exterior mirror assemblies are more complex than base interior rearview mirror assemblies given that, among other things, they contain either manual or motorized actuators for remote adjustment. In addition, most new vehicles are equipped with two exterior mirrors. Accordingly, the per vehicle sales price of exterior mirror assemblies substantially exceeds that of interior rearview mirror assemblies. The Company supplies exterior rearview mirror assemblies to Honda of America, Ford and Mazda. The Company also supplies Kenworth Truck Company ("Kenworth"), a major manufacturer of large trucks.
A new area of growth for the Company arising out of established skills in automotive paint and plastic molding is the manufacture of exterior trim components. While still a small product line for the Company, the Company is now producing exterior door handles for Honda and Ford.
The Company manufactures and supplies flat and convex chrome- coated mirror glass to other manufacturers of exterior mirror assemblies. This product line supplies mirror components to other complete mirror manufacturors and to the Company's own internal complete mirror operation. This is a small product line that is being relocated to Monterrey, Mexico in fiscal 1995.
The Company introduced a new mirror system innovation during the 1993 fiscal year. Trademarked INTELLIGENT VISION, this system combines a unique new electrochromic material with a video microchip which operates as a "smart sensor". This system permits the user to monitor light levels from behind the vehicle and automatically adjusts all three rearview mirrors independently to compensate for glare. It is expected that the INTELLIGENT VISION system will be available sometime in fiscal 1998.
The Company has made significant investments in the development of solid-state, thin-film electrochromic technology that has potential for mirror and window applications. This technology allows the user to control the reflection of light off glass through the application of an electrical current to a solid-state coating applied to the glass. Using this technology, the Company has developed and markets GLARESTOPPER solid-state electrochromic mirrors for large trucks. This mirror permits truck drivers to manually adjust the glare of their mirrors by a range of up to ten times.
Interior Lighting and Trim. The Company manufactures various interior trim products including dome lights, interior door lights, lighted and non-lighted grab handles and coat hooks. The Company's interior lighting products are based on both plastic molding and optics technology. While the Company entered this market relatively recently, it believes the market will expand due to automakers' desire to add value to their cars and the trend toward modularization of components. The Company believes automakers will increasingly seek suppliers who can provide complete interior lighting and trim systems. The Company currently supplies these products to the Big Three automakers and has orders from Honda and Toyota.
Modular Windows. Modular windows consist of window glass and a plastic molding that encapsulates various components, such as the frame, grommet, trim and hardware. These windows, offer improved quality, aerodynamics, and performance at a competitive price to conventional window systems. Recent product additions include hinged windows, "flush surface" windows that involve single sided encapsulation, bonding of hardware directly to glass, and the incorporation of color matched body hardware into the window system. Its windows are used for rear & liftgate windows, quarter windows, aperture windows, fixed vent windows and windshields on over 40 current models, including vehicles produced by each of the Big Three automakers and certain of the New Automotive Manufacturers. Increasing use of modular windows by the Big Three automakers reflects trends in the industry towards outsourcing, modularization and reliance on suppliers for design. Based upon the number of modular windows that have been specified and are being designed for future models, the Company expects continued expansion of the market for modular windows sold to the Big Three automakers and New Automotive Manufacturers. Through D&A Technology, Inc. ("D&A") the Company, will provide substantially all the modular windows for General Motors' Saturn cars through the 1995 model year. Replacement business for D&A has not been booked and an evaluation regarding the future of this business is being made. The Company also has another window manufacturing facility in Mt. Sterling, Kentucky, which will focus on customers in this geographic area.
Modular windows can be molded using polyvinyl chloride ("PVC") or a urethane reaction injection molding process ("RIM"). The PVC process is less expensive primarily because the material is less costly and does not require painting. PVC, however, is more difficult to mold, particularly for large windows. The Company believes that its ability to design and mold windows in either process and its expertise in PVC molding are significant competitive factors.
The Company has licensed major automotive glass companies in Europe and Japan to manufacture modular windows for sale in foreign markets using the Company's technology.
Non-Automotive Businesses
The Company is heavily committed to its core automotive businesses and it will remain the company's central focus. However, the Company has developed a number of significant non-automotive businesses and relationships over the years. These activities developed from core technologies that had applications outside of the automotive industry.
Each of our non-automotive businesses are being structured to be operated independently from the Company's core automotive businesses.
Information Products. The Company's various, electrically conductive, transparent, thin-film, coated glass products are used in computer applications such as touch screens, contrast enhancement computer screens, computer face plates which shield the operator from terminal emissions, and pen-interface electronic devices.
Appliance Products. A relatively new product line at the Company, this group manufactures a variety of unique, attractive, modular glass shelves for refrigerators. These shelves make use of Company's extensive plastic molding and glass fabrication technologies and are designed to contain spills. On August 15, 1994, the Company announced its intent to sell the appliance products product line to Gemtron Corporation. See Item 1a.
ITEM 2. PROPERTIES
The company owns or leases facilities which are located throughout the United States, Ireland, and Mexico. The location, square footage, and use of the most significant facilities at August 31, 1994, were as follows:
LOCATION Owned Locations Square Footage Use Holland, Michigan 1,043,000 Manufacturing, Warehouse, and Office Grand Haven, Michigan 127,000 Manufacturing, Warehouse, and Office Mt. Sterling, Kentucky 37,000 Manufacturing, Warehouse, and Office Naas, Ireland 84,000 Manufacturing, Warehouse, and Office Manorhamilton, Ireland 21,600 Manufacturing, Warehouse, and Office Leased Locations Mt. Pleasant, Tennessee 50,000 Manufacturing, Warehouse, and Office Leased Office and Warehouses (7) Holland and Detroit, Michigan; Tucson, Arizona; and Tokyo, Japan 105,000 Warehouse and Office
The Company believes its facilities are modern, well-maintained and adequately insured. Because of its rapid growth in sales the Company is continually evaluating the need for additional office, manufacturing and warehouse space.
As of July 2, 1994, the Company had capital expenditure purchase commitments outstanding of approximately $15 million.
ITEM 3
ITEM 3 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"). The Company entered into a settlement agreement with Gentex on May 20, 1993. Under this agreement the Company paid a total of $3.6 million in satisfaction of Gentex's claims for damages in the lawsuits. Following this settlement, 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.
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.
ITEM 4
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended July 2, 1994.
PART II.
ITEM 5
ITEM 5 MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The Common Shares are traded on the American Stock Exchange under the symbol DON. The following table sets forth for the fiscal periods indicated the high and low sale prices of the Common Shares, as reported by the American Stock Exchange, and dividends declared per share.
As of August 31, 1994, the Company had approximately 1,100 holders of record.
ITEM 6
ITEM 6 SELECTED FINANCIAL DATA
ITEM 7
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
General
Donnelly'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.
Comparison of 1994 to 1993
Donnelly's sales increased 12.1% to $337.3 million in 1994, from $300.9 million in 1993. North American automotive production increased 9% over the same period. Sales growth occurred despite flat or declining pricing. A primary contributor of the sales growth was new complete exterior mirror business for both Ford and Mazda which began in the last half of 1994. Strong demand for modular windows, especially at Ford and Chrysler, is continuing to boost sales. Interior mirror sales increased in North America, helping to offset the negative sales impact caused by the European recession. Sales increases of interior systems, information products and appliance products also helped the Company's sales increase outpace automotive production.
Gross profit margin decreased to 21.8% of sales in 1994, from 22.9% in 1993. This decrease resulted from: the European recession's impact on Donnelly Mirrors, Ltd. (DML) an Irish subsidiary; start-up costs associated with new complete exterior mirror production including a second shift paint operation; and business units undergoing significant transition costs, including the exterior mirror glass move to Mexico and the interior mirror consolidation into a new facility in Western Michigan. Improved operating results from the interior mirror and exterior mirror glass business transitions should begin in 1995 and be completed by the end of 1996. Customer price pressure continues. However, the Company is committed to a company-wide continuous improvement program which is expected to reduce its costs.
Selling, administrative and general expenses were $38.0 million or 11.3% of sales in 1994, a decrease from 12.3% in 1993. Patent litigation costs were significantly lower than last year.
Research and development expenses were 6.3% of sales in 1994 compared to 5.3% in 1993. The increase is primarily the result of significant development costs to support new business for Ford and Mazda complete exterior mirror systems in model years 1995 and beyond, along with the new Chrysler minivan modular window business slated for start-up in late 1995. The Company anticipates research and development expenses as a percentage of sales will return to prior ranges as revenues are generated from this new business.
As a result of the European recession, a restructuring charge of $1.2 million was recognized in the fourth quarter of 1994 to cover a severance program and other expenses associated with the restructuring of DML.
Interest expense increased to $3.5 million in 1994, from $3.2 million in 1993. Lower interest rates helped to offset the impact of higher borrowing levels to support increased capital spending.
Minority interest in net income of subsidiary was $0.8 million in 1994 compared to $0.7 million in 1993. D&A Technology Inc. (D&A) showed solid performance again this year and is expected to remain strong in 1995. However, replacement business for D&A, beginning in 1996, has not been booked and an evaluation regarding the future of this business is being made. D&A currently represents 6% of the Company's combined consolidated sales.
Equity in earnings of affiliated companies decreased to a $0.1 million loss in 1994, compared to $0.6 million of income in 1993. This was due to a downturn in the demand and price reductions for coated glass used in liquid crystal displays, which is supplied by Donnelly Applied Films Corporation (DAFC). This market appears to be improving.
The Company had net income in 1994 of $7.3 million, compared to $7.9 million last year. Higher sales resulting from increased North American automotive production and new complete exterior mirror business, lower general and administrative expenses as a percent-of-sales, tax benefits associated with adopting SFAS 109 and retroactively reinstated research and development tax credits resulting from the new tax act helped to offset a number of unfavorable items, including: 1) a deep and prolonged recession in Europe along with a restructuring charge which impacted DML; 2) increased research and development expenditures to support new complete exterior mirror and modular window programs and no offsetting revenues; 3) increased competition, volatile pricing and a downturn (apparently short-term) in the demand for coated glass used in liquid crystal displays; and 4) increased postretirement health care costs associated with the adoption of SFAS 106. 1993 also included the $3.6 million patent settlement.
Comparison of 1993 to 1992
Donnelly's sales and earnings set records in 1993 in spite of costly patent litigation and settlement charges. Sales were $300.9 million in 1993, an increase of 10.9% over sales of $271.4 million in 1992. The increase was reduced by the impact of the transfer of the Company's display coatings business to DAFC, a joint venture formed in May 1992. Because DAFC's financial statements are not consolidated with those of the Company, sales of DAFC were not included in the Company's reported sales for 1993. Sales increased 20.6% if display coatings sales were also excluded from 1992 reported sales. North American automotive production increased 8.2% during this same period. The increase in sales resulted from the increase in automotive production and strong sales of modular window systems particularly for the S-10 Blazer, Saturn, Taurus, Aerostar and Jeep Grand Cherokee programs.
Gross profit margin increased to 22.9% in 1993, from 22.4% in 1992. Operational improvements and higher sales volumes, especially in modular windows helped offset price pressures in the automotive industry.
Selling, administrative and general expenses of $37.0 million increased to 12.3% of sales in 1993, from 12.1% of sales in 1992. This increase occurred due to the high level of legal expenses compared to 1992. Without the excessive legal charges these expenses would have decreased as a percentage of sales.
Research and development expenses remained consistent with those in 1992, at 5.3% of sales.
Interest expense decreased in 1993 to $3.2 million from $3.5 million in 1992. Lower interest rates along with lower borrowing levels on average both favorably impacted performance in 1993. Lower debt levels throughout 1993 resulted from the Company's common stock offering in May of 1992 and the transfer of $6.8 million of debt to DAFC.
Royalty income was $1.7 million in 1993, compared to $1.2 in 1992. The increase primarily resulted from increased automotive production in 1993. The Company paid $3.6 million in patent litigation settlements in 1993, which significantly impacted financial performance for the year.
Minority interest in net income of subsidiary of $0.7 million in 1993 compared to $0.03 million in 1992 resulted from improved performance at D&A. This improvement primarily resulted from higher sales volumes due to strong Saturn sales and production. The Company was also able to take advantage of a tax benefit associated with prior operating losses at D&A which were incurred during start-up. The benefit from utilizing the loss carryforward was recognized as an extraordinary item and had an income effect of $0.6 million in 1993 compared to $0.2 million in 1992.
Equity in earnings of affiliated companies increased to $0.6 million in 1993 primarily as a result of DAFC's performance.
The Company had record net income of $7.9 million in 1993, compared to $7.1 million in 1992. Increased sales volumes and improvements in operations offset higher patent litigation and settlement costs and customer price reductions.
ACQUISITION
In June 1994, Donnelly acquired 100% of the outstanding stock of an Irish company that primarily supplies complete exterior mirrors to Honda of Europe and Rover. The company has been renamed Donnelly Vision Systems Europe, Ltd. This acquisition had no material effect on the combined consolidated financial statements of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio was 1.7 at July 2, 1994 and 2.0 at July 3, 1993. Working capital was $36.4 million at July 2, 1994, compared to $33.8 million at July 3, 1993. This increase included higher customer tooling to be billed to support new programs, increased accounts receivable and inventories due to higher sales levels and assets included in the Irish acquisition.
Capital spending levels increased to $35.3 million in 1994, from $17.0 million in 1993 and $9.9 million in 1992. Capital expenditures in 1994 supported a number of major programs throughout the Company. Many of these will not be completed until 1995. A wide range of expansion activities occurred in the modular window and complete exterior mirror areas to support new business programs. A new redesigned manufacturing facility for interior mirrors will consolidate operations from three other facilities to improve productivity. A new facility was also constructed in Mexico to relocate and consolidate the production of exterior mirror glass, currently being produced in three separate facilities.
The Company expects its 1995 capital expenditures will remain high to support further expansion of both building and equipment for modular windows (including a new operation in France) and complete exterior mirrors; completion of the interior mirror transition; and other capital needed to meet future business commitments. The Company expects to finance this growth with its current revolving credit agreement and new senior notes of $15.0 million issued with an insurance company early in fiscal 1995. The notes have a four month delayed takedown with principal payments commencing in fiscal 2000 until maturity in fiscal 2005.
FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) ISSUES
Effective July 4, 1993, the Company adopted SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," as explained in Note 6 to the combined consolidated financial statements. The impact of adopting this change increased postretirement health care costs by $1.1 million in 1993.
Effective July 4, 1993, the Company adopted SFAS 109, "Accounting for Income Taxes," as explained in Note 7 to the combined consolidated financial statements. This change favorably effected earnings by $0.5 million, which is reported separately in the combined consolidated statements of income.
No other recently adopted or issued FASB statements have or are expected to have a material impact on the Company.
SUBSEQUENT EVENT
On August 15, 1994, the Company announced an agreement to sell its appliance products business to Gemtron Corporation. This segment represented approximately 1% of combined consolidated net sales of the Company in fiscal 1994. Closing of the sale is expected to occur by October 1, 1994. While final proceeds have not yet been determined, it is expected that the transaction will include a cash price payable at closing resulting in a net gain of less than $5 million and a royalty payment over each of the next two years.
ITEM 8
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
COMBINED CONSOLIDATED STATEMENTS OF INCOME
The accompanying notes are an integral part of these statements.
COMBINED CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these statements.
COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these statements.
COMBINED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
The accompanying notes are an integral part of these statements. NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination and Consolidation
The combined consolidated financial statements include the accounts of Donnelly Corporation, Donnelly Export Corporation and all majority owned subsidiaries (the Company) after all significant intercompany balances, transactions and shareholdings have been eliminated. Investments in 20% to 50% owned companies are accounted for using the equity method of accounting.
Voting control of Donnelly Corporation and Donnelly Export Corporation is vested in the same shareholders and the corporations are under common management. Because of these relationships, the accounts of the two corporations are included in the financial statements as if they were a single entity.
Foreign Currency Translation
Assets and liabilities of the Company's foreign consolidated subsidiaries are translated into U.S. dollars at exchange rates in effect at the end of the period, while income and expenses are translated at the average rates of exchange during the period. Translation adjustments are reported in a separate component of shareholders' equity. Other foreign currency transaction gains (losses) included in net income were $(0.3) million, $0.2 million, and $0.02 million for 1994, 1993, and 1992, respectively.
Cash and Cash Equivalents
Cash equivalents include all highly liquid investments with a maturity of three months or less when purchased.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method, except for inventories of the majority owned subsidiaries which are valued at the first-in, first-out (FIFO) method.
Property, Plant, and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided primarily by the sum-of-the-years-digits accelerated method for property acquired prior to July 1, 1988, and the straight-line method for property acquired after June 30, 1988. Depreciation is computed over the estimated useful lives of the assets as follows:
Years Buildings 10 to 40 Machinery and equipment 3 to 12
For tax purposes, useful lives and accelerated methods are used as permitted by the taxing authorities.
Income Taxes
Effective July 4, 1993, deferred taxes reflect the differences between the financial statement and tax basis of assets and liabilities. Available tax credits are taken into income as reductions of current income tax provisions.
Income Per Share of Common Stock
Income per share is computed by dividing net income, adjusted for preferred stock dividends, by the weighted average number of shares of Donnelly Corporation common stock outstanding, as adjusted for stock splits (7,716,923 in 1994, 7,686,104 in 1993 and 7,070,201 in 1992).
Fiscal Year
The Company's fiscal year is the 52 or 53 week period ending the Saturday nearest June 30. Fiscal years 1994, 1993 and 1992 ended on July 2, July 3 and June 27, respectively, and included 52 weeks, 53 weeks and 52 weeks, respectively.
Reclassifications
Certain reclassifications have been made to prior year data to conform to the current year presentation.
2. INVENTORIES
Inventories consist of:
If only the first-in, first-out method of inventory valuation had been used, inventories would have been $0.6 million and $0.9 million higher than reported at July 2, 1994 and July 3, 1993, respectively, and would have approximated replacement cost.
3. DEBT
Debt consists of:
The Company has a $55 million Revolving Credit Agreement which expires July 16, 1997. Interest is at prime unless one of three alternative elections are made by the Company. It is the Company's intent to refinance Senior Notes with the revolving credit agreement.
The $9.5 million industrial revenue bonds are secured by letters of credit which must be renewed annually. All industrial revenue bonds are collateralized by the purchased land, building and equipment.
Early in fiscal 1995, the Company issued a $15 million note at an interest rate of 7.22% with an insurance company. The note has a four month delayed takedown with principal payments commencing in fiscal 2000 until maturity in fiscal 2005.
The various borrowings subject the Company to certain restrictions relating to, among other things, minimum net worth, payment of dividends and maintenance of certain financial ratios. Retained earnings available for dividends at July 2, 1994, are $17.4 million.
Annual principal maturities consist of:
The Company has interest rate swap agreements which convert a total of $20 million of variable interest rate debt to fixed interest rates averaging 8.38%. These agreements expire in fiscal 1998 and 1999. Net payments or receipts under these agreements are included in interest expense.
The Company also provides a guarantee for up to $7 million of DAFC's borrowings. This guarantee will be gradually eliminated by the end of 1996.
Interest payments of $3.7 million, $3.3 million and $3.9 million were made in 1994, 1993 and 1992, respectively.
4. PREFERRED STOCK AND COMMON STOCK
Each share of 7 1/2% cumulative preferred stock is entitled to one vote for the election of the members of the Board of Directors not elected by the holders of Class A Common Stock, and all other matters at all shareholders' meetings whenever dividend payments are in arrears for four cumulative quarters. No arrearage existed at July 2, 1994. The preferred stock is redeemable in whole or in part, if called by the Company, at $10.50 per share. There are 1,000,000 authorized shares of series preferred stock, no par value. At July 2, 1994 and July 3, 1993, no series preferred stock was outstanding.
Each share of Class A Common Stock and Class B Common Stock is entitled to one vote and ten votes, respectively, at all shareholders' meetings. The holders of Class A Common Stock are entitled to elect one-quarter of the members of the Board of Directors. The remaining directors are elected by the holders of Class B Common Stock and any preferred stock entitled to vote.
5. STOCK PURCHASE AND OPTION PLANS
The Company's Employees' Stock Purchase Plan permits the purchase in an aggregate amount of up to 437,800 shares of Class A Common Stock. Eligible employees may purchase stock at market value, or 90% of market value if the price is $8 per share or higher, up to a maximum of $5,000 per employee in any calendar year. The Company issued 19,677 shares in 1994, 18,526 shares in 1993 and 10,299 shares in 1992 under this plan.
The Company's Stock Option Plans permit the granting of either nonqualified or incentive stock options to certain key employees and directors to purchase in an aggregate amount of up to 862,500 shares of the Company's Class A Common Stock. The options, which become exercisable twelve months after date of grant, expire after ten years from date of grant. Although the plan administrator may establish the nonqualified option price at below market value at date of grant, incentive stock options may be granted only at prices not less than the market value.
Options have been granted to purchase common stock at prices ranging from $9.20 to $20.125 per share. A summary of option transactions follows:
The Company has reserved 473,225 shares for future grants at July 2, 1994.
6. BENEFIT PLANS
A. Pension Benefits
The Company sponsors defined benefit pension plans covering substantially all employees. Pension costs for the plans are funded in amounts which equal or exceed regulatory requirements. Benefits under these plans are based primarily on years of service and compensation.
Assumptions and net periodic pension cost are as follows:
The increase in the net periodic pension cost in 1994 was primarily due to the change in the discount rate.
The funded status of the defined benefit pension plans is summarized below.
B. Postretirement Health Care Benefits
The Company provides certain health care and life insurance benefits for eligible active and retired employees. The plan contains cost saving features such as deductibles, coinsurance and a lifetime maximum and is unfunded.
Prior to July 4, 1993, the cost of providing these benefits was recognized as a charge to income in the period the claims were paid and was $0.2 million in 1993 and 1992. Effective July 4, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This Statement requires the accrual, during the employee's years of service, of the expected cost of providing those benefits to an employee and the employee's beneficiaries and covered dependents. The net transition obligation represents the difference between the accrued postretirement benefit costs prior to the adoption of SFAS No. 106 and the Plan's unfunded accumulated postretirement benefit obligation as of July 4, 1993. The net transition obligation of $7.9 million at July 4, 1993 will be amortized over 22 years.
The components of the net periodic postretirement benefit cost for the year ended July 2, 1994, are as follows:
The postretirement benefit liability recognized in the 1994 balance sheet is as follows:
The actuarial calculation assumes a health care inflation rate of 13% in 1994, declining uniformly to 6% in 2000, and remaining level thereafter. The health care cost trend rate has an effect on the amounts reported. Increasing the assumed health care inflation rate by 1% would increase the accumulated postretirement benefit obligation by $0.6 million, and the net periodic postretirement benefit cost for the year by $40,000. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 8.25%.
C. Other Postemployment Benefits
Effective July 4, 1993, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits." The new rules require recognition of specified postemployment benefits provided to former or inactive employees, such as severance pay, workers compensation, supplemental employment benefits, disability benefits and continuation of health care and life insurance coverage. Adoption of the new rules did not have a material effect on the Company's 1994 net earnings or financial position.
7. TAXES ON INCOME
Effective July 4, 1993, the Company prospectively adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". The cumulative effect of this accounting change of $0.5 million is reported separately in the combined consolidated statement of income. Deferred income taxes under SFAS No. 109 reflect the impact of "temporary differences" between the amounts of assets and liabilities for financial reporting purposes and the reserve amounts as measured by income tax laws. The tax effects of temporary differences which give rise to a significant portion of deferred tax assets (liabilities) are as follows:
The difference from the amount that would be computed by applying the federal statutory income tax rate to income before taxes on income is reconciled as follows:
The Company recognized a $0.6 million and $0.2 million extraordinary tax benefit in 1993 and 1992, respectively, from utilization of the net operating loss carryforward relating to previous start-up losses of D&A Technology, Inc.
Deferred income taxes in 1993 and 1992 were provided for significant timing differences in the recognition of revenue and expenses for tax and financial statement purposes, principally depreciation and pension costs.
Cumulative undistributed earnings of the foreign subsidiary amounted to $1.7 million and $5.1 million at July 2, 1994 and July 3, 1993, respectively, the majority of which is intended to be permanently reinvested.
8. COMMITMENTS AND CONTINGENCIES
A. Patent Litigation
Certain electrochromic mirror technology of the Company has been the subject of patent litigation between the Company and Gentex Corporation ("Gentex"). The Company entered into a settlement agreement with Gentex on May 20, 1993. Under this agreement the Company paid a total of $3.6 million in satisfaction of Gentex's claims for damages in the lawsuits. Following this settlement, 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 had 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 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.
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.
B. 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.
C. Other
As of July 2, 1994, the Company had capital expenditure purchase commitments outstanding of approximately $15 million.
9. LEASES
The Company leases various facilities and equipment. Rental expense charged to operations amounted to approximately $2.5 million for 1994, $2.5 million for 1993, and $2.3 million for 1992.
Future minimum lease payments consist of:
10. SEGMENT REPORT
The Company is primarily engaged in the research, design, development, manufacture, marketing and sale of interior and exterior rearview mirrors, interior lighting and interior trim products, and modular windows for world automotive markets. Prior to 1993, the Company was also engaged in the research, design, development, manufacture, marketing and sale of highly technical solid-state glass coatings for products used primarily in the electronics and computer industries worldwide. Effective May 3, 1992, the liquid crystal display products aspect of the coated products business was transferred to Donnelly Applied Films Corporation, a 50% owned joint venture accounted for on the equity method of accounting. As a result, this segment is no longer reported separately. This segment represented approximately 11% of combined consolidated net sales of the Company in fiscal 1992.
Export revenues are foreign revenues produced by identifiable assets located in the United States. Foreign revenues are generated by identifiable assets located at the Company's Irish subsidiaries which produce automotive products. A summary of the Company's operations by geographic area follows:
Sales to major U.S. automobile manufacturers as a percent of the Company's net sales follows:
11. RESTRUCTURING CHARGES
In the fourth quarter of 1994, the Company recognized restructuring costs of $1.2 million, or the equivalent of 10 cents per share after taxes. This charge is to cover a severance program and other expenses associated with the restructuring of DML. A restructuring charge of $0.9 million was taken in the fourth quarter of 1992 to cover an early retirement and severance program and other expenses associated with the formation of the DAFC joint venture.
12. SUBSEQUENT EVENT
On August 15, 1994, the Company announced an agreement toits appliance products business to Gemtron Corporation. This segment represented approximately 1% of combined consolidated net sales of the Company in fiscal 1994. Closing of the sale is expected to occur by October 1, 1994. While final proceeds have not yet been determined, it is expected that the transaction will include a cash price payable at closing resulting in a net gain of less than $5 million and a royalty payment over each of the next two years.
13. COMMON STOCK PRICE PER SHARE - UNAUDITED
14. QUARTERLY FINANCIAL DATA - UNAUDITED
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Donnelly Corporation is responsible for the preparation and integrity of the combined consolidated financial statements and all other information contained in this Annual Report. The financial statements were prepared in accordance with generally accepted accounting principles and include amounts that are based on management's informed estimates and judgements.
In fulfilling its responsibility for the integrity of financial information, management has established a system of internal accounting control which provides reasonable assurance that assets are properly safeguarded and accounted for and that transactions are executed in accordance with management's authorization and recorded and reported properly.
The financial statements have been audited by our independent public accountants, BDO Seidman, whose unqualified report is presented on the next page. The independent accountants provide an objective assessment of the degree to which management meets its responsibility for fairness of financial reporting. They regularly evaluate the internal control structure and perform such tests and other procedures as they deem necessary to reach and express an opinion on the fairness of the financial statements.
The Audit Committee of the Board of Directors, consisting solely of outside Directors, meets regularly with the independent public accountants and management to review and discuss the major audit findings, the adequacy of the system of internal accounting control and quality of financial reporting. The independent accountants also have free access to the Audit Committee to discuss auditing and financial reporting matters with or without management present.
J. Dwane Baumgardner, Ph.D. Chief Executive Officer and Chairman of the Board
James A. Knister Senior Vice President of Administration and Chief Financial Officer
William R. Jellison, CMA Vice President of Financial Operations, Treasurer and Corporate Controller
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
DONNELLY CORPORATION HOLLAND, MICHIGAN
We have audited the combined consolidated balance sheets of Donnelly Corporation and subsidiaries as of July 2, 1994 and July 3, 1993, and the related combined consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended July 2, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Donnelly Mirrors Limited, a foreign subsidiary, which statements reflect total assets and net sales constituting 8% and 5%, respectively, for 1994, 10% and 8% for 1993, and 8% of net sales for 1992, of related combined consolidated totals. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for Donnelly Mirrors Limited, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the combined consolidated financial statements referred to above present fairly, in all material respects, the financial position of Donnelly Corporation and subsidiaries as of July 2, 1994 and July 3, 1993, and the results of their operations and their cash flows for each of the three years in the period ended July 2, 1994, in conformity with generally accepted accounting principles.
As discussed in notes 6 and 7 to the combined consolidated financial statements, effective July 4, 1993, the Company changed its method of accounting for postretirement health care benefits and income taxes, respectively.
BDO Seidman Certified Public Accountants Grand Rapids, Michigan July 28, 1994, except for Note 12, as to which the date is August 15,
ITEM 9
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III.
ITEM 10
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors of Registrant. Information relating to directors and director nominees of the registrant contained in the registrant's definitive Proxy Statement for its Annual Meeting of Shareholders to be held October 21, 1994, and filed pursuant to Regulation 14A, is incorporated by reference.
Executive Officers of Registrant.
The Executive Officers of the Company are as follows:
Name Age Positions and Year Offices held First Elected Executive Officer
J. Dwane Baumgardner 54 Director,Chairman, CEO, 1978 President James A. Knister 56 Senior Vice President & CFO 1972 Ronald A. VandenBerg 55 Senior Vice President 1976 John F. Donnelly, Jr. 42 Senior Vice President 1986 Bob J. Tennison 47 Senior Vice President 1994 Richard G. Williams 48 Senior Vice President 1994
John F. Donnelly, Jr., is a descendant of Bernard P. Donnelly, Sr., the Company's founder, and is the brother of Joan E. Donnelly, a director of the Company. B. Patrick Donnelly, III, Joan E. Donnelly, Thomas E. Leonard, Gerald T. McNeive and Rudolph B. Pruden, all Directors of the Company, are descendants of, or are married to descendants of Bernard P. Donnelly. There are no other family relationships between or among the above-named executive officers. There are no arrangements or understandings between any of the above-named officers pursuant to which any of thnamed an officer.
Dr. Baumgardner has been Chief Executive Officer and a director since 1982, and Chairman of the Board since 1986. Mr. Knister has been a Senior Vice President since 1988 and a Vice President and CFO for more than five years. Mr. VandenBerg has been a Senior Vice President since 1984. John F. Donnelly, Jr. was elected Senior Vice President in fiscal 1993. Prior to that time he was a Vice President from 1986 through 1993. Mr. Tennison joined Donnelly in August, 1994. Prior to joining Donnelly, Mr. Tennison was a division president at Hennessey Industries, a division of Danahar Corporation, from October 1991 to 1994; Director of Manufacturing at Sauer-Sundstrand from July 1990 to 1991; and President of Manufacturing Services International, a division of Perry Group, Inc. from 1987 to 1990. Mr. Williams joined Donnelly in August, 1994. Prior to joining Donnelly, Mr. Williams was Vice President of Diversified Products, a division of Automotive Industries from August 1993 to 1994; President of Automotive Industries Sales, Inc. from August 1992 to 1993; Vice President of Sales and Marketing for Standard Products Company from November 1991 to 1992; Managing Director for Lear Seating Sweden A.B. from November 1990 to 1991; and Vice President of J.I.T. Operations Europe, a division of Lear Seating Corporation, from November 1989 to 1990. All terms of office are on an annual basis which will expire on October 21, 1994.
ITEM 11
ITEM 11 EXECUTIVE COMPENSATION
Information relating to executive compensation is contained under the caption "Executive Compensation" in the Company's definitive Proxy Statement for its Annual Meeting of Shareholders to be held October 21, 1994 and the information within those sections is incorporated herein by reference.
ITEM 12
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The sections entitled "Voting Securities and Principal Holders Thereof", "Nominees for Election as Directors" and "Securities Ownership of Management" in the definitive Proxy Statement for the Company's Annual Meeting of Shareholders to be held October 21, 1994, and the information within those sections are incorporated by reference.
ITEM 13
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Certain Transactions" in the definitive Proxy Statement for the Company's Annual Meeting of Shareholders to be held October 21, 1994, and the information within that section is incorporated by reference.
PART IV.
ITEM 14
ITEM 14 EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES (a) (1) Combined Consolidated Form 10-K Financial Statements (Page)
Combined Consolidated Balance Sheets July 2, 1994 and July 3, 1993 21
Combined Consolidated Statements of Income - years ended July 2, 1994; July 3, 1993; and June 27, 1992 20
Combined Consolidated Statements of Shareholders' Equity - years ended July 2, 1994; and July 3, 1993; June 27, 1992 23-24
Combined Consolidated Statements of Cash Flows - years ended July 2, 1994; July 3, 1993; and June 27, 1992 22
Notes to the Combined Consolidated Financial Statements 25-37
Report of Independent Certified Public Accountants 38-39
Report of Foreign Subsidiary's Independent Certified Public Accountants 49-50
Form 10-K (Page)
(a) (2) Schedules
Report of Independent Certified Public Accountants on Schedules 44
Schedule V Property Plant and Equipment 45
Schedule VI Accumulated Depreciation of Property Plant and Equipment 46
Schedule of VIII Valuation and Qualifying Accounts 47
Schedule X Supplementary Income Statement Information 48
All other schedules are not submitted because they are not applicable or not required or because the required information is included in the financial statements or notes thereto.
Except for those portions thereof incorporated by reference in this Form 10-K, the 1994 Annual Report to Shareholders is not to be deemed filed as a part of this Report.
(a) (3) Exhibits
Reference is made to the Exhibit Index which is found on the last two pages of the body of this Form 10-K Annual Report preceding the exhibits.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the year ended July 2, 1994.
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate section of this report.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate section of this report.
SIGNATURES
Pursuant to the requirements of Section 13 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DONNELLY CORPORATION
/s/J. Dwane Baumgardner - - - ----------------------------- Chairman, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the Registrant in the capacity indicated. The person named below hereby appoints J. Dwane Baumgardner and James A. Knister, and each of them severally, as his or her attorney in fact, to sign in his or her name and on his or her behalf, as a director or officer of the Registrant, and to file with the Commission any and all amendments to this report on Form 10-K.
/s/J. Dwane Baumgardner /s/James A. Knister - - - ------------------------- -------------------------- Chairman, Chief Executive Senior Vice President Officer, and Director and Chief Financial Officer
/s/William R. Jellison /s/Arnold F. Brookstone - - - -------------------------- --------------------------- Vice President, Corporate Director Controller and Treasurer
/s/B. Patrick Donnelly III /s/Joan E. Donnelly - - - -------------------------- ----------------------------- Director Director
/s/Thomas E. Leonard /s/Gerald T. McNeive - - - ------------------------- -------------------------------- Director Director
/s/Rudolph B. Pruden /s/Donald R. Uhlmann - - - ------------------------- --------------------------------- Director Director
/s/Glenn M. Walters /s/R. Eugene Goodson - - - ------------------------- --------------------------------- Director Director
DATE: Donnelly Corporation Annual Report - Form 10-K
Report of Independent Certified Public Accountants on Financial Statement Schedules
Donnelly Corporation Holland, Michigan
The audits referred to in our report dated July 28, 1994, relating to the combined consolidated financial statements of Donnelly Corporation and subsidiaries, which is contained in Item 8 of this Form 10-K, included the audit of the financial statement schedules listed in the accompanying index. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based upon our audits.
In our opinion, such financial statement schedules present fairly, in all material respects, the information set forth therein.
/s/BDO SEIDMAN - - - --------------------------- Grand Rapids, Michigan July 28, 1994
DONNELLY CORPORATION SCHEDULE V PROPERTY, PLANT AND EQUIPMENT (IN THOUSANDS)
(1) ASSETS TRANSFERRED TO THE DAFC JOINT VENTURE. SEE ITEM 1(B) (2) ASSETS PURCHASED IN ACQUISITION OF SUBSIDIARY.
DONNELLY CORPORATION SCHEDULE VI ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT (IN THOUSANDS) YEAR ENDED JUNE 27, 1992
(1) ASSETS TRANSFERRED TO THE DAFC JOINT VENTURE. SEE ITEM 1 (B). (2) ASSETS PURCHASED IN ACQUISITION OF SUBSIDIARY.
DONNELLY CORPORATION SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
YEAR ENDED JUNE 27, 1992
(1) INFORMATION IN THIS COLUMN IS NOT SIGNIFICANT DONNELLY CORPORATION SCHEDULE X SUPPLEMENTARY INCOME STATEMENT INFORMATION (IN THOUSANDS)
(1) ITEM DOES NOT EXCEED 1% OF TOTAL SALES AND REVENUES AS REPORTED IN THE RELATED INCOME STATEMENT
Report of the Auditors to the members of Donnelly Mirrors Limited
We have audited the balance sheets at 2 july 1994 and 3 July 1993, the related profit and loss accounts, cash flow statements and notes thereon for the three years in the period ended 2 July 1994.
Respective responsibilities of directors and auditors
As described below the company's directors are responsible for the preparation of the financial statements. It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion to you.
Company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company and of the profit or loss for that period. In preparing those financial statements, the directors are required to:
* select suitable accounting policies and then apply them consistently * make judgements and estimates that are reasonable and prudent * prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business
The directors are responsible for keeping proper books of account which disclose with reasonable accuracy at any time the financial position of the company and to enable them to ensure that the financial statements comply with the Companies Acts, 1963 to 1990 and the European Communities (Companies:Group Accounts)Regulations, 1992. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the company and to prevent and detect fraud and other irregularities.
Basis on opinion
We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of the state of the company's affairs at 2 July 1994 and 3 July 1993 and of its loss for the years ended 2 July 1994, 3 July 1993, and 27 June 1992 and have been properly prepared in accordance with the Companies Acts, 1963 to 1990 and the European Communities (Companies: Group Accounts)Regulations , 1992.
We have obtained all the information and explanations we considered necessary for the purposes of our audit. In our opinion proper books of account have been kept by the company. The financial statements are in agreement with the books of account.
In our opinion the information given in the reports of the directors included with the financial statements is consistent with those financial statements.
The net assets of the company, as stated in the balance sheet are more than half of the amount of its called up share capital and, in our opinion, on that basis there did not exist at 2 July 1994 a financial situation which, under Section 40(1) of the Companies (Amendment) Act, 1983, would require the convening of an extraordinary general meeting of the company.
/s/KPMG Peat Marwick - - - ----------------------------- Chartered Accountants Registered Auditors
29 July 1994
Annual Report - Form 10-K
Exhibit Index
3 Articles of Incorporation and Bylaws are incorporated by reference to Exhibit 3.1 and 3.2 of Registrant's Registration Statement on Form S-1, as amended, dated March 9, 1988, (Registration No. 33-17167) ("S-1 Registration Statement").
4 A specimen stock certificate of the Class A Common Stock was filed as a part of a Registration Statement on Form S- 1 (Registration No. 33-17167) as Exhibit 4.1, and the same is hereby incorporated herein by reference.
10.1 Nationwide Life Insurance Company Debt Agreement
10.2 The NBD loan agreement was filed as part of Form 10-K for the fiscal year ending July 3, 1993 as Exhibit 10.1 and is hereby incorporated herein by reference.
10.3 The Principal Mutual Debt Agreement was filed as part of Form 10-K for the fiscal year ending July 3, 1993 as Exhibit 10.2 and is hereby incorporated herein by reference.
10.4A Merger Agreement for the Merger of Donnelly Coated Corporation ("DCC") into Applied Coated Corporation, among Registrant, DCC, Applied Films Lab, Inc. and Cecil Vanalsburg, John Chapin, and Richard Condon, dated February 24, 1992, was filed as part of a Registration Statement on Form S-2 (Registration No. 33-47036) as Exhibit 10.7, and the same is hereby incorporated herein by reference.
10.5 The form of Indemnity Agreement between the Registrant and each of its directors was filed as a part of a Registration Statement on Form S-1 (Registration No. 33-17167) as Exhibit 10.8, and the same is hereby incorporated herein by reference.
10.6 The Donnelly Corporation Stock Option Plan was filed as part of a Registration Statement on Form S-1 (Registration No. 33- 17167) as Exhibit 10.9, and the same is hereby incorporated herein by reference.
10.7 The Donnelly Corporation 1987 Employees' Stock Purchase Plan, including amendments was filed as part of a Registration Statement on Form S-8 (Registration No. 33-34746) as Exhibit 28.1, the same is hereby incorporated herein by reference.
10.8A Joint Venture Agreement among Asahi Glass Company, Ltd., AP Technoglass Corporation and Registrant, dated July 20, 1989, was filed as part of a Registration Statement on Form S-2 (Registration No. 33-47036) as Exhibit 10.13, and the same is hereby incorporated herein by reference.
22 Schedule of Affiliates.
24.1Consent of BDO Seidman, independent accountants.
24.2Consent of KPMG Peat Marwick, independent accountants.
27 Financial Data Schedules