FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the period ended June 30, 1996
---------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________
Commission file number 1-5599
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GREAT DANE HOLDINGS INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 54-0698116
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
2016 North Pitcher Street, Kalamazoo, Michigan 49007
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (616) 343-6121
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Indicate by check mark whether Registrant (1) 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 Registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
----- -----
There were 1,002.083 shares of Registrant's only class of common stock
outstanding as of August 9, 1996.
<PAGE-1>
INDEX
GREAT DANE HOLDINGS INC. AND SUBSIDIARIES
Page Number
-----------
PART I FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheets at December 31, 1995
and June 30, 1996. . . . . . . . . . . . . . . . . . . . 2-3
Consolidated Statements of Operations for
the Three Months Ended June 30, 1995 and
June 30, 1996. . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations for
the Six Months Ended June 30, 1995 and
June 30, 1996. . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for
the Six Months Ended June 30, 1995 and
June 30, 1996. . . . . . . . . . . . . . . . . . . . . . 6-7
Notes to Consolidated Financial Statements . . . . . . . 8-9
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . 10-12
PART II OTHER INFORMATION
Item 5 Other Information . . . . . . . . . . . . . . . . . . . .13
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . . . .13
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
<PAGE-2>
Balance-Sheets
CONSOLIDATED BALANCE SHEETS
GREAT DANE HOLDINGS INC. AND SUBSIDIARIES
(in thousands, except per share amounts)
(unaudited)
December 31, June 30,
1995 1996
------------- -----------
ASSETS
Cash and cash equivalents $ 41,086 $ 31,615
Accounts receivable, less allowance for
doubtful accounts of $1,564 (1995)
$1,598 (1996) 101,138 112,987
Inventories 84,686 80,924
Other current assets 26,574 37,102
---------- ----------
Total current assets 253,484 262,628
Property, plant and equipment, net 123,864 133,129
Insurance Subsidiary's investments 110,058 111,233
Cost in excess of net assets acquired,
net of accumulated amortization of $8,752
(1995) and $9,377 (1996) 41,243 40,618
Trademark, net of accumulated amortization
of $2,450 (1995) and $2,625 (1996) 10,996 10,821
Other assets 30,960 35,485
---------- ----------
Total Assets $ 570,605 $ 593,914
========== ==========
<PAGE-3>
Balance-Sheets--Continued
CONSOLIDATED BALANCE SHEETS--CONTINUED
GREAT DANE HOLDINGS INC. AND SUBSIDIARIES
(in thousands, except per share amounts)
(unaudited)
December 31, June 30,
1995 1996
------------ -------------
LIABILITIES AND SHAREHOLDERS' DEFICIT:
Accounts payable $ 71,989 $ 75,235
Notes payable 3,133 ---
Income taxes payable 9,305 9,126
Accrued compensation 18,490 17,382
Accrued interest 11,049 10,875
Customer deposits 14,315 1,149
Other accrued liabilities 43,390 54,554
Current portion of long-term debt 16,260 19,137
---------- ----------
Total current liabilities 187,931 187,458
Long-term debt, excluding current portion 276,918 273,759
Insurance Subsidiary's unpaid losses and
loss adjustment expenses 78,151 80,261
Unearned insurance premiums 12,545 23,249
Deferred income taxes 1,675 2,393
Postretirement benefits other than pensions 52,766 53,474
Other noncurrent liabilities 46,930 45,546
Minority interest 1,748 2,655
---------- ----------
Total liabilities 658,664 668,795
Shareholders' deficit:
Common stock, par value $1.00:
Authorized 3,000 shares
Outstanding 1,000 (1995) 1,002.083
(1996) shares 1 1
Additional paid-in capital 14,999 15,044
Retained earnings 23,128 38,106
Unrealized appreciation on Insurance
Subsidiary's investments in certain
debt and equity securities 2,186 341
Amount paid in excess of Motors'
net assets (128,373) (128,373)
---------- ----------
Total shareholders' deficit (88,059) (74,881)
---------- ----------
Total Liabilities and
Shareholders' Deficit $ 570,605 $ 593,914
========== ==========
See notes to consolidated financial statements.
<PAGE-4>
Statements of Operations--3 Months
CONSOLIDATED STATEMENTS OF OPERATIONS
GREAT DANE HOLDINGS INC. AND SUBSIDIARIES
(in thousands, except per share amounts)
(unaudited)
Three Months Ended June 30,
1995 1996
---------- ----------
Revenues $ 329,527 $ 270,016
Cost of revenues (281,379) (231,212)
---------- ----------
Gross profit 48,148 38,804
Selling, general and administrative expense (22,982) (21,650)
---------- ----------
Operating profit 25,166 17,154
Interest expense (10,840) (9,294)
Interest income 2,275 2,223
Other income, net 474 3,128
---------- ----------
Income before minority equity and
income taxes 17,075 13,211
Minority equity (329) (547)
---------- ----------
Income before income taxes 16,746 12,664
Income tax expense (7,171) (4,332)
---------- ----------
Net income $ 9,575 $ 8,332
========== ==========
Weighted average number of shares used in
per share computations 1,000 1,002
========== ==========
Net income per share $ 9,575 $ 8,315
========== ==========
See notes to consolidated financial statements.
<PAGE-5>
Statements of Operations--6 Months
CONSOLIDATED STATEMENTS OF OPERATIONS
GREAT DANE HOLDINGS INC. AND SUBSIDIARIES
(in thousands, except share and per share amounts)
(unaudited)
Six Months Ended June 30,
1995 1996
---------- ----------
Revenues $ 651,920 $ 535,563
Cost of revenues (557,910) (460,347)
---------- ----------
Gross profit 94,010 75,216
Selling, general and administrative expense (46,358) (44,027)
---------- ----------
Operating profit 47,652 31,189
Interest expense (21,304) (18,718)
Interest income 4,552 4,379
Other income, net 1,186 4,037
Special Credit--Note F --- 4,300
---------- ----------
Income before minority equity and
income taxes 32,086 25,187
Minority equity (742) (907)
---------- ----------
Income before income taxes 31,344 24,280
Income tax expense (13,476) (9,302)
---------- ----------
Net income $ 17,868 $ 14,978
========== ==========
Weighted average number of shares used in
per share computations 1,000 1,002
========== ==========
Net income per share $ 17,868 $ 14,948
========== ==========
See notes to consolidated financial statements.
<PAGE-6>
Statements of Cash Flows
CONSOLIDATED STATEMENTS OF CASH FLOWS
GREAT DANE HOLDINGS INC. AND SUBSIDIARIES
(in thousands)
(unaudited)
Six Months Ended June 30,
1995 1996
---------- ----------
Cash flows from operating activities:
Net income $ 17,868 $ 14,978
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 11,122 9,883
Deferred income tax benefit (1,604) (503)
Amortization of cost in excess of
net assets acquired 625 625
Amortization of debt discount 893 479
Gain on sale of property, plant
and equipment (335) (215)
Investment gains (116) (665)
Increase in minority equity 742 907
Other noncash charges 5,760 4,258
Changes in operating assets and
liabilities:
Accounts receivable (43,540) (11,952)
Inventories (19,069) 3,762
Insurance Subsidiary's reinsurance
receivable (68) 114
Other assets (4,128) (13,335)
Accounts payable 18,683 3,246
Income taxes (2,766) (182)
Unpaid losses and loss adjustment
expenses 3,583 2,110
Unearned insurance premiums 5,187 10,704
Postretirement benefits other
than pensions 724 708
Other liabilities (3,212) (8,253)
---------- ----------
Net cash flow provided by (used in)
operating activities (9,651) 16,669
<PAGE-7>
Statements of Cash Flows--Continued
CONSOLIDATED STATEMENTS OF CASH FLOWS--CONTINUED
GREAT DANE HOLDINGS INC. AND SUBSIDIARIES
(in thousands)
(unaudited)
Six Months Ended June 30,
1995 1996
---------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment $ (24,656) $ (19,424)
Proceeds from disposal of property, plant
and equipment and other productive assets 656 491
Purchase of investments available for sale (14,592) (19,249)
Purchases of investments held to maturity (336) --
Proceeds from sale of investments available
for sale 5,474 10,268
Proceeds from maturity and redemption of
investments held to maturity 6,901 5,622
Other 69 11
---------- ----------
Net cash flow used in investing activities (26,484) (22,281)
Cash flows from financing activities:
Proceeds from borrowings 119,694 21,407
Repayments of borrowings (78,543) (25,301)
Proceeds from issuance of common stock --- 35
---------- ----------
Net cash flow provided by (used in)
financing activities 41,151 (3,859)
---------- ----------
Increase (decrease) in cash and cash
equivalents 5,016 (9,471)
Beginning cash and cash equivalents 34,874 41,086
---------- ----------
Ending cash and cash equivalents $ 39,890 $ 31,615
========== ==========
See notes to consolidated financial statements.
<PAGE-8>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GREAT DANE HOLDINGS INC. AND SUBSIDIARIES
JUNE 30, 1996
(unaudited)
NOTE A--BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company have been
prepared in accordance with generally accepted accounting principles for
interim financial information, the instructions to Form 10-Q and Rule 10-01
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 Management's opinion, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six months ended
June 30, 1996, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996. For further information,
refer to the audited consolidated financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended
December 31, 1995.
NOTE B--PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Great Dane
Holdings Inc. and its subsidiaries, including Great Dane Trailers, Inc.
(Great Dane) and Checker Motors Corporation ("Motors") and Motors' wholly-
owned subsidiaries, including American Country Insurance Company ("Insurance
Subsidiary").
NOTE C-INVENTORIES
Inventories are summarized below (dollars in thousands):
December 31, June 30,
1995 1996
-------------- --------------
Raw materials and supplies $ 53,097 $ 51,666
Work-in-process 10,501 8,054
Finished goods 21,088 21,204
---------- ----------
$ 84,686 $ 80,924
========== ==========
NOTE D--INCOME TAXES
The Company's estimated effective tax rate differs from the statutory rate
because of state income taxes as well as the impact of the reporting of
certain income and expense items in the financial statements which are not
taxable or deductible for income tax purposes.
During the quarter ended June 30, 1996, the income tax rate used to
calculate income taxes was changed. The change was the result of, among
other things, the impact of certain tax strategies on state income taxes.
The change in rate had the effect of increasing net income by $1.1 million
($1,131 per share).
<PAGE-9>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
GREAT DANE HOLDINGS INC. AND SUBSIDIARIES
(unaudited)
NOTE E--STOCK ISSUANCE
1.042 shares of common stock were issued on each of April 2, 1996, and
January 4, 1996, to an executive officer of the Company in connection with
an agreement between this executive officer and the Company.
NOTE F--SPECIAL CREDIT
On February 8, 1989, the Boeing Company ("Boeing") filed a lawsuit naming
the Company, together with three prior subsidiaries of the Company, as
defendants in Case No. CV89-119MA, United States District Court for the
District of Oregon. On December 22, 1993, the Company entered into a
settlement with Boeing, settling all claims asserted by Boeing in the
lawsuit. Pursuant to the settlement terms, the Company agreed to pay Boeing
$12.5 million over the course of five years, $5 million of which had been
committed by certain insurance companies in the form of cash or an
irrevocable letter of credit as of that date. Accordingly, a $7.5 million
special charge was recorded in 1993 to provide for the cost associated with
this legal proceeding.
Since the date of the settlement with Boeing, and as a result of agreements
negotiated with insurance companies, the total cost to the Company related
to the Boeing lawsuit has decreased to $3.2 million. The lower cost
principally related to an insurance settlement negotiated in the quarter
ended March 31, 1996. Accordingly, a special credit of $4.3 million was
recorded in the quarter ended March 31, 1996, relating to the finalization
of insurance settlements.
NOTE G--SUBSEQUENT EVENT
On July 3, 1996, Motors executed an agreement to purchase the balance of the
common stock of South Charleston Stamping & Manufacturing Company ("SCSM")
from the minority interest holder for $5.5 million, $1 million of which was
paid upon the signing of the agreement. In connection with the purchase,
Motors also executed a $4.5 million promissory note payable in four payments
over the next ten months with interest at 10% per annum.
<PAGE-10>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GREAT DANE HOLDINGS INC. AND SUBSIDIARIES
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Available cash and cash equivalents, cash flow generated from (used in)
operations ($(9.7) million and $16.7 million for the six months ended June 30,
1995 and 1996, respectively) and proceeds from borrowings have provided
sufficient liquidity and capital resources for the Company to conduct its
operations during the first six months of 1995 and 1996.
The Company is a holding company and is, therefore, dependent on cash flow
from its operating subsidiaries in order to meet its obligations. The Company's
operating subsidiaries are required, pursuant to financing agreements with third
parties, to meet certain covenants, which may have the effect of limiting cash
available to the Company. Further, the payment of dividends by the Insurance
Subsidiary is currently subject to the notification, reporting and disapproval
requirements of the Insurance Code of the State of Illinois Department of
Insurance. The operating subsidiaries' plans indicate that sufficient funds are
anticipated to be available to the Company to meet its short-term obligations.
Certain efforts have been made over the past several years to restructure
the Company. As a result of these efforts, subsidiary debt was restructured and
certain of the 12-3/4% Senior Debentures and the 14-1/2% Subordinated Discount
Debentures were repurchased. However, the Company has been unsuccessful in
completing an overall comprehensive restructuring. Management of the Company
continually reassesses the financial condition and prospects of the Company.
As a result of this reassessment, the Company has retained an investment banking
organization to act as its exclusive financial advisor to consider certain
strategic alternatives, including the merger, recapitalization or potential sale
of the entire company or one or more of its subsidiaries.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1996
Compared to Three Months Ended June 30, 1995
-------------------------------------------------
Revenues decreased $59.5 million during the three months ended June 30,
1996, as compared to the same period in 1995. The lower revenues are
principally attributed to lower Trailer Manufacturing revenues ($73.4 million)
primarily associated with lower volume in trailer sales. The volume decline
represents the effect of weakened demand for the movement of freight resulting
in decreased sales of truck trailers. Automotive Products revenues increased
$11.9 million during the three months ended June 30, 1996, as compared to the
same period in 1995. Revenues associated with the production of tooling for
certain customers accounted for the increased revenues for the segment.
The Company's operating profit decreased $8.0 million in the 1996 period
compared to the 1995 period. This decrease is attributed to a decrease of
Trailer Manufacturing operating profits ($9.5 million) which is principally due
to lower volume of trailer sales indicated above and slightly lower margins.
The volume decline represents the effect of weakened demand for the movement of
freight resulting in decreased sales of truck trailers. The margins were
impacted by certain raw material price increases. The Automotive Products
<PAGE-11>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED
GREAT DANE HOLDINGS INC. AND SUBSIDIARIES
operating profits increased $0.7 million, primarily due to the mix of sales and
the increase in revenues.
During the quarter ended June 30, 1996, the Company recorded $2.9 million
of other income related to a nonrecurring refund.
During the quarters ended June 30, 1996 and 1995, $0.5 and $0.3 million
charges, respectively, were recorded to reflect minority equity in SCSM, a
subsidiary of Motors. On July 3, 1996, Motors executed an agreement to purchase
the entire minority interest in SCSM for $5.5 million in cash and notes.
Income tax expense is lower for financial statement purposes than would be
computed if the statutory rate were used. During the quarter ended June 30,
1996, the income tax rate used to calculate income taxes was changed. The
change was the result of, among other things, the impact of certain tax
strategies on state income taxes. The change in rate had the effect of
increasing net income by $1.1 million ($1,131 per share).
Net income was $8.3 million for the three months ended June 30, 1996, as
compared to $9.6 million for the comparable period in 1995. The decline in net
income is attributed to the reasons mentioned above.
Six Months Ended June 30, 1996
Compared to Six Months Ended June 30, 1995
-------------------------------------------------
Revenues decreased $116.4 million during the six months ended June 30,
1996, as compared to the same period in 1995. The lower revenues are
principally attributed to lower Trailer Manufacturing revenues ($140.5 million)
primarily associated with lower volume in trailer sales. The volume decline
represents the effect of weakened demand for the movement of freight resulting
in decreased sales of truck trailers. Automotive Products revenues increased
$20.8 million during the six months ended June 30, 1996, as compared to the same
period in 1995. Revenues associated with the production of tooling for certain
customers accounted for the increased revenues for the segment.
The Company's operating profit decreased $16.5 million in the 1996 period
compared to the 1995 period. This decrease is attributed to a decrease of
Trailer Manufacturing operating profits ($16.5 million) which is principally
due to lower volume of trailer sales indicated above and slightly lower mar-
gins. The volume decline represents the effect of weakened demand for the
movement of freight resulting in decreased sales of truck trailers. The
margins were impacted by certain raw material price increases. The Automotive
Products operating profits decreased ($0.1 million) primarily due to the mix of
sales, as well as certain raw material price increases. The profit margins on
tooling programs are lower than margins on contract parts production.
<PAGE-12>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED
GREAT DANE HOLDINGS INC. AND SUBSIDIARIES
On February 8, 1989, the Boeing Company ("Boeing") filed a lawsuit naming
the Company, together with three prior subsidiaries of the Company, as
defendants in Case No. CV89-119MA, United States District Court for the District
of Oregon. On December 22, 1993, the Company entered into a settlement with
Boeing, settling all claims asserted by Boeing in the lawsuit. Pursuant to the
settlement terms, the Company agreed to pay Boeing $12.5 million over the course
of five years, $5 million of which had been committed by certain insurance
companies in the form of cash or irrevocable letter of credit as of that date.
Accordingly, a $7.5 million charge was recorded in 1993 to provide for the cost
associated with this legal proceeding.
Since the date of the settlement with Boeing, and as a result of agreements
negotiated with insurance companies, the total cost to the Company related to
the Boeing lawsuit has decreased to $3.2 million. The lower cost principally
related to an insurance settlement negotiated in the quarter ended March 31,
1996. Accordingly, a special credit of $4.3 million was recorded in the quarter
ended March 31, 1996, relating to the finalization of insurance settlements.
During the six months ended June 30, 1996 and 1995, a $0.9 million and $0.7
million charge, respectively, was recorded to reflect minority equity in South
Charleston Stamping & Manufacturing Company ("SCSM"), a subsidiary of Motors.
Income tax expense is higher for financial statement purposes than would
be computed if the statutory rate were used because of state income taxes and
the impact of the reporting of certain income and expense items in the financial
statements which are not taxable or deductible for income tax purposes. During
the quarter ended June 30, 1996, the income tax rate used to calculate income
taxes was changed. The change was the result of, among other things, the impact
of certain tax strategies on state income taxes. The change in rate had the
effect of increasing net income by $1.1 million ($1,131 per share).
Net income was $15.0 million for the six months ended June 30, 1996, as
compared to $17.9 million for the comparable period in 1995. The decline in net
income is attributed to the reasons mentioned above.
<PAGE-13>
PART II
OTHER INFORMATION
GREAT DANE HOLDINGS INC. AND SUBSIDIARIES
Item 5: Other Information
The Company has retained the firm of Berenson Minella & Company as its
exclusive financial advisor to consider certain strategic alternatives,
including the merger,recapitalization or potential sale of the entire company
or one or more of its subsidiaries.
Item 6: Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
10.1 - Employment Agreement, dated May 25, 1993, between American
Country Insurance Company and Edwin W. Elder III, as amended
by amendments dated June 7, 1995 and April 15, 1996.
10.2 - Employment Agreement, commencing as of August 1, 1996, between
CMC Kalamazoo Inc. and Larry D. Temple.
10.3 - Employment Agreement, dated as of August 1, 1996, between
South Charleston Stamping & Manufacturing Company and John T.
Wise.
10.4 - Stock Purchase Agreement, dated as of June 28, 1996, by and
between Checker Motors Corporation and the Trustees under the
ELIC Trust (the "Trustees").
10.5 - Guaranty, dated as of July 3, 1996 by South Charleston
Stamping & Manufacturing Company in favor of the Trustees.
10.6 - Third Amendment, dated as of June 5, 1996 among Checker Motors
Corporation, Yellow Cab Company, Chicago AutoWerks, Inc., CMC
Kalamazoo Inc., South Charleston Stamping & Manufacturing
Company, the Lenders named therein and NBD Bank, as Agent.
27.1 - Financial Data Schedule
(b) Reports on Form 8-K
-------------------
None
<PAGE-14>
GREAT DANE HOLDINGS INC. AND SUBSIDIARIES
SIGNATURE
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 thereunto duly authorized.
GREAT DANE HOLDINGS INC.
------------------------------
(Registrant)
/s/ Marlan R. Smith
----------------------------------------
Marlan R. Smith
Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Date: August 9, 1996