Donnelly Corporation Reports Second Quarter Financial Results
28 January 1999
Donnelly Corporation Reports Second Quarter Financial Results
HOLLAND, Mich., Jan. 28 -- Donnelly Corporation
today reported second quarter financial results for its 1999 fiscal year. Net
sales for the second quarter were a record $239 million, a 23 percent increase
over the $195 million in sales for the same period last year. The sales
increase was primarily due to a favorable sales mix and continuing strong
vehicle demand in North America and Europe.
The company's net earnings for the second quarter of fiscal 1999 were $1.5
million, a decrease of 72 percent from second-quarter earnings of $5.2 million
during fiscal 1998. This represents earnings per share of $0.14 during the
period, compared with earnings per share of $0.52 for the second fiscal
quarter of last year. However, net earnings in the second quarter of fiscal
1998 included a one-time, pre-tax gain of approximately $4.6 million, or $0.22
per share after tax, from Donnelly's sale of its 50% interest in Applied Films
Corporation of Boulder, Colorado.
Key Issues & Developments
Several key factors contributed to the year-to-year decrease in earnings
for the period. They included:
* Ongoing operational issues in the company's European automotive
operations.
* Losses at two Donnelly affiliates -- Donnelly Optics Corporation and
VISION Group plc.
* Significant, ongoing investments in upgrading Donnelly's information
technologies capabilities.
On an operating basis, Donnelly's North American Automotive Operations
(NAAO) continued to turn in strong performance during the second quarter, with
sales at record levels for the period. A key factor in the strong NAAO
results was Donnelly's high level of dollar content on a mix of popular
vehicles such as the Ford Expedition and Chrysler minivan. NAAO also
experienced strong performance from the replacement parts business the company
won in 1998.
In Europe, Donnelly's sales during the second quarter were also robust.
However, the company continued to experience losses in overall European
operations due primarily to operational issues in Ireland and at two Donnelly
Hohe facilities in Germany. Donnelly's European management team is in the
process of completing a comprehensive turnaround plan for the company's
European operations, and aggressive implementation of the plan is expected to
begin during the current fiscal year.
During the quarter, Donnelly moved to sharply reduce the negative impact
on earnings created by its two digital imaging affiliates, Donnelly Optics
Corporation and VISION Group plc. In December, the company announced that it
had agreed to merge Donnelly Optics with Applied Image Group of Rochester, New
York. Donnelly now owns a minority share of less than 20 percent in the
combined entity.
Also in December, Donnelly sold a portion of its ownership in VISION
Group, thereby reducing its ownership stake in the Edinburgh, Scotland-based
company to less than 20 percent. In a subsequent action, Donnelly agreed to
commit all of its remaining shares to a tender offer made for all of VISION
Group by STMicroelectronics. When that transaction is completed, Donnelly
will no longer hold an ownership stake in VISION Group.
Through the Donnelly Optics and VISION Group transactions, Donnelly will
continue to have strong links to digital imaging technologies, and at the same
time the company will eliminate the negative impact of the two ventures on
overall corporate earnings. However, given the timing of the transactions
late in the second quarter, the full benefits of these actions are not
reflected in second-quarter results.
The second quarter also held a number of important new business wins for
Donnelly. They included major wins for supplying interior electrochromic (EC)
mirrors on two key North American light truck programs and a large order for
complete outside mirrors on a third light truck program in North America.
Both are high-growth product lines for Donnelly, and in each case Donnelly
unseated established competitors to win the business.
"While we recognize that the expectations of the financial community are
very conservative for the year, we are pleased that we were able to exceed
them during our second quarter," said Dwane Baumgardner, Donnelly chairman and
chief executive officer. "Having removed the negative impact of the digital
imaging businesses, and with the situation in Europe expected to improve as a
result of our turnaround plan, we believe that we are on a trend toward
exceeding current analyst consensus estimates for the entire fiscal year.
"In the second quarter we continued to implement the plan we outlined last
autumn to dramatically improve our profitability," Baumgardner continued. "In
addition to the steps taken in Europe and with our digital imaging businesses,
we have also taken concrete actions to reduce costs and better leverage our
overhead in corporate and NAAO operations. That will contribute to improved
performance this year and help us build a much stronger position overall in
the year ahead."
Year-To-Date Performance
Net sales for the first half of fiscal 1999 were $429 million, compared to
sales of $360 million for the same period last year. Net sales for the period
are up 19 percent. Net earnings (losses) for the half were ($.5) million,
compared to $6.2 million for the same period one year ago. This represents a
loss of ($0.06) per share for the first half of fiscal 1999, compared to 1998
first-half earnings of $0.62 per share.
Donnelly Corporation is an international automotive supplier dedicated to
serving customers around the globe with industry-leading components and
systems in automotive mirrors, windows, door handles 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 5,500 employees in
14 countries worldwide.
In addition, Donnelly is nationally recognized as a leader in the
application of participative management principles and systems.
This press release contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Investors are
cautioned that any current expectations of the Company, or its management, are
not guarantees of future performance and involve risk and uncertainties.
Actual results may differ materially from those in forward-looking statements
as a result of various factors including, but not limited to (a) general
economic and currency conditions in the markets in which the Company operates;
(b) fluctuation in worldwide or regional automobile and light truck
production; (c) changes in practices and/or policies of the Company's
significant customers; and (d) other risks and uncertainties.
DONNELLY CORPORATION AND SUBSIDIARIES
CONDENSED COMBINED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
January 2, December 27, January 2, December 27,
In thousands, 1999 1997 1999 1997
except share data
Net sales $239,093 $194,800 $428,696 $359,976
Cost of sales 204,004 161,220 366,846 298,423
Gross profit 35,089 33,580 61,850 61,553
Operating expenses:
Selling, general and
administrative 21,997 17,498 40,585 32,677
Research and
development 9,782 9,704 19,067 19,408
Operating income 3,310 6,378 2,198 9,468
Non-operating (income)
expenses:
Interest expense 2,172 2,290 4,182 4,694
Gain on sale of
equity investment (368) (4,598) (368) (4,598)
Other income, net (441) (511) (891) (537)
Income (loss) before
taxes on income 1,947 9,197 (725) 9,909
Taxes on income
(credit) 386 3,733 (654) 3,748
Income (loss) before
minority interest and
equity earnings 1,561 5,464 (71) 6,161
Minority interest in net
(income) losses
of subsidiaries (275) (111) (42) 234
Equity in earnings
(losses) of affiliated
companies 165 (184) (426) (240)
Net income (loss) $1,451 $5,169 $(539) $6,155
Per share of common stock:
Basic net income
(loss) per share $0.14 $0.52 $(0.06) $0.62
Diluted net income
(loss) per share $0.14 $0.51 $(0.06) $0.61
Cash dividends
declared $0.10 $0.10 $0.20 $0.20
Average common
shares
outstanding 10,086,514 9,940,564 10,082,230 9,916,545
Certain reclassifications have been made to 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
January 2, June 27,
In thousands 1999 1998
ASSETS
Current assets:
Cash and cash equivalents $15,459 $5,628
Accounts receivable, net 72,531 92,972
Inventories 45,548 44,146
Prepaid expenses and other current assets 26,475 24,031
Total current assets 160,013 166,777
Net property, plant and equipment 176,372 168,905
Other assets 56,269 42,203
Total assets $392,654 $377,885
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $95,939 $77,595
Other current liabilities 38,136 36,662
Current maturities of long-term debt 59 55
Total current liabilities 134,134 114,312
Long-term debt, less current maturities 112,155 123,706
Deferred income taxes and other liabilities 38,840 35,831
Total liabilities 285,129 273,849
Minority interest 900 754
Shareholders' equity 106,625 103,282
Total liabilities and shareholders' equity $392,654 $377,885