SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. FORM 10-Q (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter ended June 30, 1996 ( ) 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 0-627 Douglas & Lomason Company (exact name of registrant as specified in its charter) Michigan 38-0495110 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 24600 Hallwood Court, Farmington Hills, Michigan 48335-1671 (Address of principal executive offices)(Zip Code) Registrant's telephone number, including area code: (810) 478-7800 Former name, former address and former fiscal year, if changed since last year: Same Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. YES_X_ NO___ CLASS OUTSTANDING AT AUGUST 15, 1996 Common stock, $2 par value 4,245,127 shares DOUGLAS & LOMASON COMPANY Consolidated Condensed Balance Sheets (in thousands) June 30 December 31 1996 1995 ------- ----------- ASSETS Current assets: Cash $ 4,342 $ 4,587 Accounts receivable 96,556 93,486 Inventories Raw materials 10,165 10,562 Work in process and finished goods 13,060 15,520 -------- -------- 23,225 26,082 Prepaid expenses and other current assets 4,199 7,618 -------- -------- 128,322 131,773 Property, plant and equipment, net 74,113 76,164 Intangibles 36,656 38,179 Other non-current assets 28,454 22,773 -------- -------- Total assets $267,545 $268,889 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 4,963 $ 4,775 Accounts payable and accrued expenses 62,929 80,944 --------- -------- Total current liabilities 67,892 85,719 Long-term debt, less current maturities 78,849 69,113 Postretirement benefits other than pensions 9,059 8,598 Other liabilities and deferred credits 18,993 19,112 Shareholders' equity Preferred stock No par value, authorized 500,000 shares, issued - none Common stock Par value $2 per share authorized 10,000,000 shares; issued and outstanding 4,243,021 shares in 1996 and 1995 8,486 8,486 Other capital 28,088 28,088 Retained earnings 61,050 54,543 Foreign currency translation adjustment (4,872) (4,770) --------- -------- Total shareholders' equity 92,752 86,347 --------- -------- Total liabilities and shareholders' equity $ 267,545 $268,889 ========= ======== 2 DOUGLAS & LOMASON COMPANY Consolidated Condensed Statements of Income (in thousands, except per share data) Three Months Ended Six Months Ended June 30 June 30 ------------------ ---------------- 1996 1995 1996 1995 ---- ---- ---- ---- Net sales $ 156,155 $ 130,602 $ 298,986 $ 285,660 Cost of sales 140,928 125,131 272,514 268,890 ----------- ----------- ----------- ----------- Gross profit 15,227 5,471 26,472 16,770 Selling, general and administrative expense 8,153 5,959 15,258 12,022 ----------- ----------- ----------- ----------- Operating income (loss) 7,074 (488) 11,214 4,748 Other income (expenses): Interest expense, net (1,594) (1,054) (3,157) (1,750) Interest income and other 529 46 1,594 262 ----------- ----------- ----------- ----------- (1,065) (1,008) (1,563) (1,488) Earnings (loss) before provision for income taxes 6,009 (1,496) 9,651 3,260 Income tax expense (benefit) 1,680 (1,040) 2,295 335 ----------- ----------- ----------- ----------- Net earnings (loss) $ 4,329 $ (456) $ 7,356 $ 2,925 =========== =========== =========== =========== Net earnings (loss) per share $ 1.02 $ (.11) $ 1.73 $ .69 =========== =========== =========== =========== Weighted average number of shares $ 4,243,021 4,243,580 4,243,021 4,239,365 =========== =========== =========== =========== 3 DOUGLAS & LOMASON COMPANY Consolidated Condensed Statements of Cash Flows (in thousands) Six Months Ended June 30 ---------------- 1996 1995 -------- ------ Cash flows from operating activities: Net earnings $ 7,356 $ 2,925 Depreciation and amortization 6,686 6,437 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (3,158) 8,940 Decrease in inventories 2,857 2,847 Increase in prepaid expenses and other assets (739) (7,188) Decrease in accounts payable, and accrued expenses (18,575) (8,176) Increase in other liabilities 1,031 485 -------- ------- Net cash (used) provided by operating activities (4,542) 6,270 Cash flows from investing activities: Proceeds from the sale of property, plant and equipment --- 84 Acquisition of property, plant and equipment (4,653) (9,356) Cost of acquisition, net of cash --- (43,488) ------- ------- Net cash used by investing activities (4,653) (52,760) ------- ------- Cash flows from financing activities: Proceeds from long-term debt 12,000 47,000 Repayment of long-term debt (2,076) (3,221) Proceeds from exercised stock options, net --- 129 Dividends paid (849) (849) -------- ------- Net cash provided by financing activities 9,075 43,059 ------- ------- Effect of translation on cash (125) (719) Net decrease in cash (245) (4,150) Cash at beginning of year 4,587 6,532 -------- ------- Cash at end of quarter $ 4,342 $ 2,382 ======== ======= 4 DOUGLAS & LOMASON COMPANY Notes to Consolidated Condensed Financial Statements 1. In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of June 30, 1996 and 1995, and the results of operations for the six months then ended, and changes in financial position for the six months then ended, subject to year end audit adjustments. 2. On June 8, 1995, Douglas & Lomason Company (the "Company") acquired the stock of Bestop, Inc. ("Bestop"). Bestop is the leading designer and manufacturer in North America of soft tops and accessories for small sport utility vehicles. Bestop sells its product domestically and internationally to original equipment manufacturer (OEM) companies and in the aftermarket. The purchase agreement required a purchase price of approximately $43,952,000. The acquisition will be accounted for in accordance with the purchase method of accounting. Had the acquisition of Bestop, Inc. occurred as of January 1, 1995, revenues, net income and earnings per share would have been as follows: Three Months Ended Six Months Ended June 30 June 30 ------------------ ---------------- (in 000's except for per share data) 1996 1995 1996 1995 ---- ---- ---- ---- Revenues $156,155 $143,108 $298,986 $314,025 Net Income $ 4,329 $ (928) $ 7,356 $ 2,310 Earnings Per Share $ 1.02 $ (.22) $ 1.73 $ .54 5 Management's Discussion and Analysis of Financial Conditions and Results of Operations Liquidity and Capital Resources At June 30, 1996, the Company had working capital of $60.4 million and available borrowings of $15.0 million on a $60.0 million revolver credit agreement with two banks. Funds from borrowings, $12.0 million, less repayment of long-term debt of $2.1 million provided cash available for capital expenditures of $4.7 million and cash necessary for operating activities of $4.5 million. Capital expenditures in 1996 are anticipated to be approximately $15.0 million. Results of Operations Net Sales Net sales for the three months ended June 30, 1996, were $156.2 million, an increase of 19.6% over sales of $130.6 million in the second quarter of 1995. Sales for the six month period of 1996 were $299.0 million versus $285.7 million for the same period of 1995, an increase of 4.7%. The acquisition of Bestop in June 1995 accounted for the majority of the sales increase, but the Company also benefited from increased production of the Ford Aerostar minivan and the Ford Contour/Mercury Mystique for which the Company is the lead supplier of complete seating systems. Cost of Sales The cost of sales as a percentage of sales decreased to 90.2% for the three month period ended June 30, 1996, compared to 95.8% in the same period of 1995. For the six month period ended June 30, 1996, the cost of sales as a percentage of sales was 91.1% compared to 94.1% in 1995. Several factors contributed to the improvement in 1996, including cost reductions achieved through Value Analysis/Value Engineering efforts, increased production volume at a number of plants, the full quarter impact of Bestop in 1996 and a dramatic improvement in medical insurance claims. Selling, General and Administrative Expenses Selling, general and administrative expenses for the three month period ended June 30, 1996, increased $2.2 million over the same period of 1995 as a result of the consolidation of the selling, general and administrative expenses of Bestop, Inc. acquired in June of 1995. Interest Expense Interest expense in the second quarter of 1996 of $1.6 million increased $.5 million or 51.2% from the $1.1 million reported for the same period of 1995 principally as a result of the higher debt level in 1996. In June 1995, the Company borrowed $44.0 million to acquire Bestop, Inc. Net Earnings (Loss) Net earnings of $4.3 million or $1.02 per share in the second quarter of 1996 compared with a net loss of $456.0 thousand or $.11 per share in the second quarter of 1995 improved principally as a result of the lower cost mentioned previously in the cost of sales. For the six months ended June 30, 1996, the Company recorded net earnings of $7.4 million or $1.73 per share compared with net earnings of $2.9 million or $.69 per share in the first six months of 1995. 6 Financial Condition The balance sheet remains strong at June 30, 1996. The current ratio was 1.9 to 1 and the ratio of debt to total capitalization was .45 to 1 at June 30, 1996. On August 7, 1996, in response to increased trading volume and per share price, the Company announced that it was engaged in discussions regarding a possible business combination. No assurance can be given that the discussions will result in the consumation of any transaction. The Company will not issue any further press releases or comments concerning the discussions until they are finalized or terminated. 7 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote for Security Holders The following information is furnished with respect to the Annual Meeting of security holders of the Registrant held during April 1996: (a) A meeting was held on April 26, 1996, and was an Annual Meeting. (b) Not applicable. (c) At such meeting the nominee for election as a director, Verne C. Hampton II, was elected for the term of office to expire at the 1999 Annual Meeting of Shareholders. The votes cast with respect to such nominee for director are as follows: Votes to Withhold Authority to Vote Votes for for the Nominee Nominee Nominee ------- ------- ------- Verne C. Hampton II 3,977,353 28,007 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 20.1. Agreement dated as of May 17, 1996 between Registrant and Harry A. Lomason II. 20.2. Form of Agreement dated as of May 17, 1996 between Registrant and the following executive officers of Registrant: James J. Hoey, Roger H. Morelli, Dan D. Smith and certain other officers. (b) Reports on Form 8-K The Registrant filed no reports on Form 8-K duirng the quarter for which this report is filed. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DOUGLAS & LOMASON COMPANY ------------------------- (Registrant) Date: August 15, 1996 /s/ James J. Hoey ------------------------- James J. Hoey Senior Vice President & Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) 8