Donnelly Corporation Reports Annual Financial Results for Fiscal 1998
11 August 1998
Donnelly Corporation Reports Annual Financial Results for Fiscal 1998
HOLLAND, Mich., Aug. 11 -- Donnelly Corporation
today reported fourth quarter and annual financial results for the 1998 fiscal
year.
Annual Financial Results
Led by exceptionally strong performance in its North American automotive
operations (NAAO), Donnelly achieved record sales of $763 million during
fiscal 1998, a 13.7 percent increase over sales of $671 million in fiscal
1997. Earnings for the 1998 fiscal year were $13 million, or $1.30 per share.
That compares with fiscal 1997 earnings of $10.0 million, or $1.01 per share,
which included a European restructuring charge to net income of $4 million, or
$.40 per share.
Net income in 1998 includes two non-recurring events:
* In the second quarter, a $2.2 million gain, net of taxes, on the sale of
Donnelly's interest in Applied Film Corporation of Boulder, Colorado.
* In the fourth quarter, a $2.3 million charge, net of taxes, primarily
for the write-off of tooling and other assets at the company's wholly owned
affiliate, Donnelly Optics Corporation, due to the loss of an order with a key
customer.
During the year Donnelly experienced year-over-year improvements in core
automotive operational performance from fiscal 1997. Particularly strong were
North American automotive operations, which finished the year with record
sales and net income. Also contributing were strong operational performances
at Donnelly facilities in France and Spain.
Although Donnelly experienced moderate year-over-year improvement in the
performance of European Automotive Operations (EAO) during fiscal 1997, a
delay in the company's planned European restructuring led to overall losses at
the unit for the year. The company's goal is to see additional improvements
in those operations during fiscal 1999.
Donnelly's strong NAAO sales performance during the year extended across
the company's automotive modular window, exterior hardware and interior
lighting and trim product lines. Net sales also benefited from Donnelly's
high dollar content on strong-selling vehicles such as the Ford Expedition and
Chrysler minivans. Overall auto industry production levels for fiscal 1998
increased by approximately 3% compared to fiscal 1997.
"While I am pleased with the progress we've made in improving our
operating performance, I am disappointed that progress was overshadowed by the
negative developments at our digital imaging affiliates," said Dwane
Baumgardner, chairman and chief executive officer. "Although we also felt the
financial impact of delays in our European restructuring, we have understood
those issues from the beginning and we have in place the plans for resolving
them. From a marketplace perspective, the acquisition in Europe has met our
expectations, and I am very confident that we will successfully carry out the
long-term restructuring needed there."
"However, the substantial losses we experienced through Donnelly Optics
and VISION Group prevented us from reaching our financial goals for the year.
That situation is intolerable for the company, and our task now is to resolve
those issues quickly and focus on earning a more competitive return for our
shareholders," Baumgardner said.
In July 1998, Donnelly announced that the company's fourth-quarter and
year-end earnings would be negatively affected by the loss of anticipated
orders for injection-molded lenses at Donnelly Optics Corporation, a wholly
owned subsidiary based in Tucson, Arizona. The charge against earnings
equaled $0.23 per share. Donnelly Optics produces high-quality, injection-
molded optical lenses for use in the computer, medical instruments and
automotive industries, among others.
Late in June, a key Donnelly Optics customer informed the company that,
due to changing market dynamics, the customer had decided to cancel orders
that Donnelly Optics had anticipated as an important source of business.
Donnelly Optics had scaled up its operations in Tucson in anticipation of
increased production volumes. As a result, Donnelly Optics is continuing to
experience losses that negatively affect corporate earnings. Donnelly
Corporation has announced that the company is evaluating options for
restructuring or repositioning Donnelly Optics to safeguard Donnelly's
investment and reduce the negative impact on the company's bottom-line
earnings.
The same market conditions that have hurt Donnelly Optics -- slower than
expected development of the digital imaging industry -- have also led to
losses at another non-automotive venture, VISION Group plc, of Edinburgh,
Scotland. Donnelly is an equity owner in VISION, which develops and produces
microchips that can process digital imaging information -- essentially a video
camera contained on a single computer chip.
Fourth Quarter Financial Results
Net sales for the fourth quarter of fiscal 1998 were $210 million, which
represented an increase of approximately 11 percent over the $188 million in
sales for the fourth quarter of fiscal 1997.
Net earnings for the quarter were $3.5 million, or $.35 per share, as
compared to $1.4 million or $.14 per share in fiscal 1997. However, earnings
for the quarter in each year were impacted by non-recurring charges. In 1998,
a charge of $2.3 million, net of taxes, was taken to write off tooling and
other assets at Donnelly Optics, and in 1997, a charge of $4 million, net of
taxes, was taken for the restructuring of Donnelly European operations.
Excluding these charges, earnings for the quarter were $5.8 million, compared
to $5.4 million in 1997, an increase of approximately 7.5 percent.
Donnelly Corporation is an international automotive supplier dedicated to
serving customers around the globe with industry-leading components and
systems in automotive mirrors, windows and interior trim and lighting.
Through its various product lines, Donnelly is a supplier to every major
automotive manufacturer in the world. The company has been based in Holland,
Michigan since 1905, and today has approximately 5,000 employees in eleven
countries worldwide. Donnelly is recognized as a leader in the application of
participative management, and has been named to Fortune magazine's list of the
"100 Best Companies to Work for in America."
DONNELLY CORPORATION AND SUBSIDIARIES
CONDENSED COMBINED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Twelve Months Ended
June 27, June 28, June 27, June 28,
In thousands, 1998 1997 1998 1997
except share data
Net sales $ 209,677 $ 188,179 $ 763,311 $ 671,297
Cost of sales 173,247 152,751 632,679 544,629
Gross profit 36,430 35,428 130,632 126,668
Operating expenses:
Selling, general
and administrative 20,315 19,206 70,372 66,530
Research and development 8,415 7,521 36,418 32,492
Non-recurring charges 3,468 9,965 3,468 9,965
Operating income 4,232 (1,264) 20,374 17,681
Non-operating (income) expenses:
Interest expense 1,636 1,876 8,347 9,530
Gain on sale of
equity investments - - (4,598) (872)
Other income, net (992) (744) (2,554) (2,982)
Income before taxes
on income 3,588 (2,396) 19,179 12,005
Taxes on income (103) (2,583) 5,053 2,786
Income before minority interest
and equity earnings 3,691 187 14,126 9,219
Minority interest in net losses
of subsidiaries 150 1,245 381 1,141
Equity in losses of affiliated
companies (360) (9) (1,498) (340)
Net income $ 3,481 $ 1,423 $ 13,009 $ 10,020
Per share of common stock:
Basic net income
per share $ 0.35 $ 0.14 $ 1.30 $ 1.01
Diluted net income
per share $ 0.34 $ 0.14 $ 1.29 $ 1.00
Cash dividends
declared $ 0.10 $ 0.10 $ 0.40 $ 0.36
Average common shares
outstanding 10,047,891 9,875,481 9,961,172 9,835,621
Certain reclassifications have been made to current and prior year,
previously released data to conform to the current presentation and had no
effect on net income reported for any period.
DONNELLY CORPORATION AND SUBSIDIARIES
CONDENSED COMBINED CONSOLIDATED BALANCE SHEETS
June 27, June 28,
In thousands 1998 1997
ASSETS
Current assets:
Cash and cash equivalents $ 5,628 $ 8,568
Accounts receivable, net 92,972 67,850
Inventories 44,146 42,484
Prepaid expenses
and other current assets 24,031 33,738
Total current assets 166,777 152,640
Net property, plant
and equipment 168,905 165,124
Other assets 42,203 40,529
Total assets $ 377,885 $ 358,293
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 77,595 $ 76,392
Other current liabilities 36,662 39,154
Current maturities
of long-term debt 55 103
Total
current liabilities 114,312 115,649
Long-term debt,
less current maturities 123,706 122,798
Deferred income taxes
and other liabilities 35,831 25,674
Total liabilities 273,849 264,121
Minority interest 754 345
Shareholders' equity 103,282 93,827
Total liabilities
and shareholders' equity $377,885 $358,293
Certain reclassifications have been made to current and prior year,
previously released data to conform to the current presentation and had no
effect on net income reported for any period.