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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the fiscal year ended December 31, 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 0-13601
DURAKON INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Michigan 38-2492342
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
2101 N. Lapeer Road, Lapeer, Michigan 48446
Registrant's telephone number, including area code: (810) 664-0850
Securities registered pursuant to Section 12(b)of the Act: None
Securities registered pursuant to Section 12(g)of the Act: Common Stock, without
par value (Title of Class)
Indicate by check mark 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ x ]
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant as of March 21, 1997, computed by reference to
the last sale price for such stock on that date as reported on the Nasdaq
National Market System, was $56,684,725.
At March 21, 1997, the number of shares outstanding of the registrant's
Common Stock, without par value, was 6,210,292.
Portions of the registrant's Proxy Statement for its 1997 Annual Meeting
of Shareholders have been incorporated by reference in Part III of this Annual
Report on Form 10-K.
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PART I
ITEM 1. BUSINESS
Durakon Industries, Inc. (the "Company") was incorporated in Michigan on
December 21, 1983, and is the successor by merger to Durakon, Inc. which was
incorporated in Michigan in 1979. The Company operates its business in two
segments, the Vehicle Accessories segment and the Towing & Recovery segment.
Vehicle Accessories Segment. This segment's principal product is a
one-piece, seamless pickup truck bedliner, custom engineered and molded in
various sizes to fit most domestic and foreign pickup trucks. A matching
protector is supplied with each bedliner to protect the truck's tailgate.
Bedliners are constructed of high density polyethylene plastic, and are designed
to protect the entire bed area including the floor, front panel and sidewalls.
The Company markets bedliners under the Duraliner(R), AllStar(R) and Bodygard(R)
brand names and, to a lesser extent, manufactures for private labels. Purchasers
of the Duraliner(R) product also receive proprietary cargo restraining board
pockets (Duraloc(R)), two tier stacking capability and other premium features.
The Company's marketing strategy for pickup truck bedliners is to service
the aftermarket through distributors of light truck accessories, camper top
manufacturers, retail chains and mass merchandisers as well as directly
servicing original equipment manufacturers. Management believes that
purchasers of light trucks generally prefer to purchase add-on accessories,
such as a pickup truck bedliner, at the time they purchase their truck. This
allows installation of the bedliner prior to delivery, before damage to the
truck occurs, and also permits the buyer to finance the bedliner in conjunction
with the truck.
The Company also distributes through its Duraliner U.S.A. network, which
consists of 10 warehouses located throughout the country. Those warehouses sell
the Company's bedliners, as well as, DuraMat(R) bed floormats, Duratrunk(R)
storage containers, bumpers, running boards, bug shields, and a variety of other
accessories, all of which are manufactured by other companies. DuraMat(R) mats,
which are constructed of recycled rubber, are designed to protect the floor area
of pickup truck beds. The Duratrunk(R) is a high-density polyethylene plastic
storage container with proprietary design improvements over conventional
tool/storage boxes. During the third quarter of 1996, Durakon introduced the
DuraSport(TM) cargo liner, a protective liner for the back interiors of sport
utility vehicles.
Towing & Recovery Segment. Through its wholly-owned subsidiary Jerr-Dan
Corporation ("Jerr-Dan"), the Company manufactures and distributes rollback
carriers and tow trucks for use in the vehicle transportation, towing and
recovery industry.
Rollback carriers are fabricated from aluminum, steel and wood to provide
platforms which hydraulically tilt to allow a vehicle to be loaded thereon for
transportation. Carriers equipped with a towbar attachment can tow an
additional vehicle behind the unit. Some models are also available with an
optional platform above the driver's cab enabling an additional vehicle to be
transported. The Wrangler(TM), Shark(TM), Vector(TM), Rustler(TM), and
Elite(TM) models are designed for transporting automobiles and light-duty
vehicles, while the Transporter(TM) and Super Series(TM) models, with deck
capacities up to 30,000 pounds, can also transport heavy equipment. Rollback
carriers are typically purchased by salvage dealers, towing companies,
automobile dealers, industrial equipment distributors, and antique and race car
owners.
The towing and recovery products lift disabled vehicles by the wheels for
general towing applications. Wheel lift tow trucks have supplanted the
conventional hook and sling equipment by providing for damage-free towing to
vehicles with plastic front-end components and/or front-wheel drive. Jerr-Dan's
medium and heavy-duty towing units are equipped with frame-fork attachments to
enable a disabled vehicle to be picked up by its front axle. Units are
customarily supplied with boom and winch features for use in vehicle recovery
applications. Jerr-Dan's towing and recovery product line includes the HPL(TM),
HDL(TM), Power Grid(TM), and DeWalt(TM) models.
Jerr-Dan's marketing strategy is to compete nationally through its
independently-owned distributor network with innovative products of high
quality and superior customer service. Methods used to accomplish this
objective include advertising in trade journals, trade show participation,
publication of the Company's "Write-Carrier" magazine and utilization of the
distributor/customer in product development and improvement activities.
Jerr-Dan's manufacturing operations include the machining and fabrication
of steel and aluminum parts and assemblies, and the manufacture of hydraulic
componentry. Jerr-Dan's products are assembled, tested and
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installed on truck chassis purchased by Jerr-Dan or its customers, or sold in
kit form for installation by its distributors.
OTHER CORPORATE MATTERS
Employment. At December 31, 1996, the Company and its subsidiaries
employed 879 persons. Approximately 24% of its employees are covered by a
collective bargaining agreement with the International Union, United
Automobile, Aerospace and Agricultural Implement Workers of America. The most
recent agreement was ratified by the union on March 4, 1997, expires February
29, 2000, and covers 247 employees at the Lapeer, Michigan plant.
Significant Customers. No one customer accounts for more than 10% of
consolidated net sales and no material part of the Company's business is
dependent upon a single customer or a few customers.
Competition. In the opinion of management, the competitive factors in
each industry in which the Company and its subsidiaries operate include brand
recognition, total quality, marketing support, price, customer service, prompt
delivery and reputation. The Company emphasizes all of these factors in its
operating strategy.
The Vehicle Accessories segment markets its products worldwide to original
equipment manufacturers and to independent aftermarket distributors. The
Company's primary competitor in all of these markets is Penda Corporation, a
privately owned company headquartered in Portage, Wisconsin. While no market
data is readily available, the Company believes it has the largest share of the
market for pickup truck bedliners but believes that in 1996 Penda was the
largest supplier to original equipment manufacturers. There are many other
manufacturers of pickup truck bedliners but the Company believes that none of
them maintains a market share comparable to the Company or Penda.
In the Towing & Recovery segment, the Company primarily sells in North
America. While the Company is not aware of any source of market data on this
industry, it believes that Miller Industries, Inc., a publicly held company
headquartered in Atlanta, Georgia has the largest market share. There are
several smaller manufacturers of towing and recovery equipment, the largest of
which is believed to be Chevron, Inc., a privately held company headquartered
in Mercer, Pennsylvania is also a major competitor of the company. The Company
believes it maintains the second largest market share in the towing and
recovery industry.
Patents. The Company has a policy of filing patent applications for its
important product designs and manufacturing methods. The patents the Company
considers most valuable expire after 1999.
Backlogs. Neither the Vehicle Accessories segment nor the Towing &
Recovery segment maintain a sales backlog as sales orders are generally filled
within one month.
Raw Materials. Raw materials used in the production of the Company's
products are available from several sources. Management believes that its
present sources and adequate replacement sources will be available to meet the
Company's anticipated demand for the foreseeable future. Hydrocarbon based
resin, which is the principal raw material of the Vehicle Accessories segment,
is subject to significant price fluctuation.
Regulatory Requirements. The Company, as a manufacturer utilizing
hydrocarbon substances, is subject to provisions of state and federal laws
governing discharges of pollutants into the environment and the exposure of
employees to harmful substances. The Company believes that it is currently in
compliance with such applicable provisions and that continued compliance will
not require material capital expenditures.
ITEM 2. PROPERTIES ($ in 000's)
Vehicle Accessories Segment. The Company has two domestic manufacturing
locations for pickup truck bedliners. The largest one is owned, the other
facility is leased. The owned facility is a 326,800 square foot building
complex on 135 acres of land in Lapeer, Michigan. This facility also houses
the Company's warehouse facility, distribution center and administrative
offices. The leased facility is 102,000 square feet on 7 acres of land in
Clinton, Tennessee. The lease expires in 2003; rental under this lease was
approximately $255 in 1996.
The Company's Mexican subsidiary leases a 46,692 square foot manufacturing
facility in Lerma, Mexico. Rental under this lease agreement was $97 during
1996.
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The Company has 10 leased locations which operate under the name
"Duraliner U.S.A." that are primarily used as wholesale distribution centers.
These facilities, located in Santa Fe Springs and Stockton, California; Ft.
Lauderdale and Lakeland, Florida; New Orleans, Louisiana; Springfield,
Massachusetts; Westland, Michigan; Ft. Worth and Houston, Texas; and
Charleston, West Virginia, have approximately 9,000 to 21,000 square feet per
location. Aggregate rentals under these leases were approximately $550 in
1996. The expiration dates for these leases range from 1997 to 2002.
Towing & Recovery Segment. The Company owns an 112,000 square foot
manufacturing facility located on 12.5 acres of land in Greencastle,
Pennsylvania. This location also houses storage facilities and administrative
offices.
The Company leases two additional manufacturing and assembly facilities in
Greencastle, Pennsylvania. A 126,000 square foot manufacturing building on 10
acres has an annual rent of $360 with a lease expiration of June 30, 2011. An
assembly location of approximately 6,000 square feet with an annual rent of $18
is leased on a month-to-month basis.
The company also leases a manufacturing location in Channelview, Texas.
This facility is approximately 13,000 square feet at an annual rent of $50.
The lease expires November 30, 1999.
Additional warehousing and assembly space of 60,000 square feet is leased
in Las Vegas, Nevada to provide inventory availability for Jerr-Dan's western
distributors. Annual rent is $336. This lease expires July 31, 2000.
Adequacy of Facilities and Production Capacity. In the opinion of
management, the facilities and manufacturing capacity for both business
segments are adequate to operate at current market conditions. In 1997, the
company recognized a need for additional warehouse space to accommodate new
business.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in certain routine litigation incidental to its
business. The effect of such litigation on the business and financial
condition of the Company is not expected by management to be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
No matters were submitted to a vote of shareholders during the fourth
quarter of the fiscal year covered by this Report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq Stock Market under the
symbol "DRKN". The following table sets forth the high and low sale prices
reported on the Nasdaq Stock Market for the quarterly periods indicated:
1996 1995
Quarter High Low Quarter High Low
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First $13 $11 1/2 First $17 5/8 $15
Second 14 3/4 12 1/4 Second 16 7/8 15 1/4
Third 15 11 3/4 Third 16 12 3/4
Fourth 13 1/4 12 Fourth 15 1/4 11 1/4
On March 21, 1997, the last available sale price for shares of the Common
Stock of the Company, as reported on the Nasdaq Stock Market, was $12 1/2. As
of such date, the approximate number of record holders of the Common Stock was
358.
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Durakon has not paid a dividend on the Common Stock since the date on
which the Common Stock was first offered to the public. The Company's policy
is not to pay dividends, but to use excess cash to fund for future growth.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below have been derived
from the Company's Consolidated Financial Statements which have been audited by
Coopers & Lybrand L.L.P., and should be read in conjunction with the
Consolidated Financial Statements and related Notes.
1996 1995(1) 1994 1993(2) 1992
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($ in 000's, except per
share amounts)
OPERATIONS STATEMENT DATA:
Net sales $183,628 $172,051 $144,483 $105,738 $86,961
Operating income 13,133 5,171 19,487 14,937 13,458
Interest income/(expense), net 629 358 427 195 (445)
Net income 8,904 2,299 12,101 11,974 7,632
Net income per common share 1.34 .34 1.82 1.82 1.22
BALANCE SHEET DATA:
Working capital $ 35,150 $ 25,696 $ 25,539 $ 27,769 $21,666
Total assets 84,079 78,869 75,542 56,224 56,825
Long-term obligations 795 1,572 2,641 446 4,078
Shareholders' equity 65,760 56,556 54,237 41,673 29,202
PERCENTAGES AND RATIOS:
Gross profit 21.6% 21.1% 29.0% 31.9% 35.1%
Return on sales 4.8% 1.3% 8.4% 11.3% 8.8%
Current ratio 3.2 2.3 2.4 2.9 2.7
Ratio of long-term debt to
total capitalization .01 .03 .05 .01 .12
(1) Includes pre-tax charges of $2,900 for the loss on disposition of the ZZ
Wheelz subsidiary, $1,455 for re-engineering and consolidation of pickup
truck bedliner manufacturing operations, and $1,103 related to settlement
of a patent issue and write-off of a license agreement.
(2) Includes a pre-tax gain of $2,358 relating to the sale of a warrant to
purchase a minority share of DFM Corporation.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion relating to the three years ended December 31,
1996, should be read in conjunction with the Company's Consolidated Financial
Statements and related Notes:
CORPORATE DEVELOPMENT. ($ in 000's) In July of 1996, Jerr-Dan leased
approximately 126,000 square feet of additional manufacturing space to
accommodate the production of its new medium-duty towing vehicle. The addition
of the medium-duty towing vehicle model to its product line enables the
Company to offer a full range of towing and recovery equipment to its
distributors for the first time. Several innovative and patentable features are
incorporated into this new product including an industry-first corrosion-
resistant composite body.
On December 12, 1995, the Company decided to dispose of its ZZ Wheelz
subsidiary. The operation acquired in 1994 did not fit the long-term focus of
the Company. A $2,900 pre-tax charge was recorded in the fourth quarter of
1995 to write-off the investment and provide for anticipated costs to close the
facility.
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Effective July 1, 1995, Jerr-Dan acquired substantially all the assets of
DeWalt Manufacturing, Inc., a manufacturer of heavy-duty towing and recovery
vehicles in Channelview, Texas. Jerr-Dan's DeWalt Division provides a proven
product line in the heavy-duty market segment previously not serviced by the
Company.
Also in July 1995, Jerr-Dan opened a warehouse in Las Vegas, Nevada to
provide improved service to the Company's West Coast distributors. Inventory
is available in both kit and turnkey configurations.
In July 1994, the Company acquired Benton Plastics, Inc. ("Benton").
Benton is a manufacturer and distributor of bedliners under the brand name
"Bodygard." The total purchase price was $14,388.
NET SALES. ($ in 000's) The following table summarizes net sales by
business segment for the last three years:
Segment 1996 % 1995 % 1994 %
------- ---- - ---- - ---- -
Vehicle Accessories $ 85,109 46% $ 81,684 47% $ 75,163 52%
Towing & Recovery 98,519 54% 90,367 53% 69,320 48%
-------- ---- -------- ---- -------- ----
Total $183,628 100% $172,051 100% $144,483 100%
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Net sales increased 7% to $183,628 in 1996 versus 1995. In 1995 sales
increased 19% or $27,568 compared to 1994.
In the Vehicle Accessories segment net sales increased $3,425 or 4% from
1995. Bedliner unit sales increased 12.5% from the prior year. The Durakon
international distribution channels increased unit sales by 20.8% in 1996
compared to 1995. Domestic unit sales increased 11.7% in 1996 compared to
1995. Average bedliner net selling prices were down 6.2% from last
year due to the increased domestic aftermarket competition which put downward
pressure on pricing throughout the market. In 1995, sales increased $6,521 or
9% from 1994. Bedliner unit sales increased 16% from 1994. International
unit sales increased 43% in 1995 compared to 1994.
In the Towing & Recovery segment, 1996 net sales increased $8,152 or 9%
from 1995. The increase reflects a 10% improvement in sales of manufactured
equipment and an 8% rise in sales of truck chassis. Unit sales of rollback
carriers increased by less than 1% while the increase in unit sales of tow
truck bodies increased by 8%. Average selling prices for rollback carriers
were higher by 4% in 1996 as compared to 1995. Average tow truck equipment
selling prices increased by 20% in 1996 over 1995 reflecting increased sales
of medium and heavy-duty models. Net sales increased $21,047 or 30% in 1995
versus 1994. The increase was due to an equipment sales increase of 13% and
truck chassis sales increase of 52% over 1994. Unit sales of rollback carriers
increased 21%, while the volume of towing products were down 16% due to the
inability for a period of six months in 1995 to sell several models in the
light-duty product line following a patent settlement. A more advanced
light-duty towing product was introduced in the third quarter of 1995 and unit
sales of this new product had exceeded sales of the former product for
comparative periods in 1995 versus 1994. Average net selling prices for both
rollback carriers and tow truck bodies were higher, up 3% and 5%, respectively,
in 1995 compared to 1994.
GROSS PROFIT. ($ in 000's) The following table summarizes gross profit in
dollars and as a percent of sales by segment for the last three years:
Segment 1996 % 1995 % 1994 %
- ------- ---- - ---- - ---- -
Vehicle Accessories $24,946 29% $22,137 27% $29,240 39%
Towing & Recovery 14,732 15% 14,222 16% 12,707 18%
------- --- ------- --- ------- ---
Total $39,678 22% $36,359 21% $41,947 29%
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In 1996, gross margin in the Vehicle Accessories segment improved from 27%
to 29%. Margin rates improved primarily due to improved efficiencies and cost
reduction efforts in the manufacturing area. Manufacturing fixed cost
absorption rates also improved due to increased production volumes in 1996.
Manufacturing cost improvements were offset by a marked reduction in average
unit selling prices in the latter part of 1996. The implementation of an
aggressive pricing strategy was required to combat new competition in the
aftermarket channels. In 1995, gross margin in the Vehicle Accessories
segment declined 12 percentage points from 1994. Selling price decreased
coupled with increased material cost (raw material cost increases and higher
material usage to improve quality), a change to prepaid customer freight in
1995, and spending to improve manufacturing efficiency and product quality were
the reasons for the decline in gross margin. In 1995, approximately $1,898 of
non-recurring costs to improve manufacturing operations are reflected in gross
profit. The impact of these
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non-recurring costs was expected to be realized in lower unit production costs
beginning in the first quarter of 1996.
In the Towing & Recovery segment, gross margin in 1996 was 15% compared to
16% in 1995. The margin on manufactured equipment and service was 26% in 1996,
down 1% from 1995, which reflects the impact of increased sales of lower-margin
towing vehicles 1996. Margins on rollback carriers and light-duty tow trucks
remained consistent year to year. In 1995, gross margin was 16% compared to
18% in 1994. The margin on equipment sales was 27% in 1995, down 2% from the
prior year. In 1995, the increased costs of materials and product enhancements
were not completely offset by selling price increases and reductions realized
in fabrication costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. ($ in 000's) The following
table presents selling, general and administrative expenses by business segment
and as a percent of net sales for the last three years:
% Net % Net % Net
Segment 1996 Sales 1995 Sales 1994 Sales
------- ---- ------ ---- ----- ---- -----
Vehicle Accessories $17,949 21% $18,375 23% $14,905 20%
Towing & Recovery 8,596 9% 9,913 11% 7,555 11%
------ --- ------- --- ------- ---
Total $26,545 14% $28,288 16% $22,460 16%
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Selling, general and administrative expenses (SG&A) were 6% less in 1996
compared to 1995, and two points less as a percentage of net sales. In 1995,
SG&A expenses were 26% higher compared to 1994, but as a percentage of net
sales were unchanged.
In the Vehicle Accessories segment, 1996 SG&A was $426 less than in 1995
and as a percentage of net sales was two full percentage points lower. The
overall spending reduction was primarily the result of the elimination of costs
associated with ZZ Wheelz which was closed in 1995. In 1995, SG&A was $3,470
higher than in 1994 and as a percentage of sales was three points higher. The
majority of the increase was attributable to the inclusion of the Benton
Division and ZZ Wheelz for a full year which had SG&A of $3,707 versus five
months in 1994 which had SG&A of $1,568. The remainder of the increase
reflects spending to facilitate a software conversion, increased advertising
and increased salaries and wages.
In the Towing & Recovery segment, 1996 SG&A was $1,317 lower than 1995 and
2% lower as a percentage of net sales. The reduction is primarily due to
approximately $1,103 in one-time charges related to patent litigation and the
write-off of a license agreement which are reflected in 1995 expenses, together
with savings attained in other areas in 1996. In 1995 SG&A was $2,358 higher
than 1994 but as a percent of net sales was unchanged. Approximately $1,103 in
one-time charges were related to patent litigation and the write-off of a
license agreement. The balance of the increase relates to new product
development related to the new medium-duty wrecker products and administrative
expenses associated with the new DeWalt Division.
DISPOSITION OF SUBSIDIARY ($ in 000's) In December 1995 the Company
decided to close its ZZ Wheelz operations. The pre-tax charge of $2,900 to
write off the investment and provide for anticipated costs to close the
operation was recorded in the fourth quarter of 1995.
INTEREST INCOME/(EXPENSE), NET. ($ in 000's) Net interest income was $629
in 1996, $358 in 1995 and $427 in 1994. The 1996 increase in net interest
income primarily reflects lower interest expense in 1996 due to lower
outstanding debt. The reduction in net interest income in 1995 versus 1994
reflects higher interest income on larger cash balances offset by increased
interest expense from higher debt.
OTHER INCOME/(EXPENSE), NET. ($ in 000's) Other income in 1996 is $59
versus an expense of $411 in 1995 and income of $86 in 1994. In 1996, other
income related primarily to a gain on disposal of fixed assets and Duramex
royalties. In 1995, other expense relates primarily to transaction and
devaluation losses associated with the Mexican peso. In 1994, other income
includes the gain from the sale of a bond fund, net of Mexican peso transaction
and devaluation losses.
MINORITY INTEREST. ($ in 000's) Minority interest reflects the minority
shareholders' portion of the net income of Duramex which began operations in
April 1993. The minority interest elimination was $124 in 1996 compared to
$73 and $143 in 1995 and 1994, respectively.
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PROVISION FOR INCOME TAXES. The Company's effective tax rate was 35% in
1996, 54% in 1995 and 39% in 1994. The effective tax rate in 1996 is equal to
the statutory rate of 35%. The difference between 1995 effective rate and the
statutory rate of 35% is primarily due to the non-deductible portion of the
loss on disposition of ZZ Wheelz and a provision for state income taxes. The
difference between the 1994 effective rate and the statutory rate of 35% was
primarily due to a provision for state income taxes.
NET INCOME. ($ in 000's) Net income was $8,904 in 1996, $2,299 in 1995,
and $12,101 in 1994. The increase of $6,605 in 1996 reflects improved gross
margins and lower SG&A expenses.
The 1995 decrease of $9,802 from 1994 was primarily the result of lower
gross margins in both business segments, non-recurring charges related to the
loss on disposition of the ZZ Wheelz business unit, costs related to
re-engineering the manufacturing operations at the pickup truck bedliner
plants, expenses to consolidate manufacturing operations in the Vehicle
Accessories segment and costs associated with a patent settlement in the Towing
& Recovery segment.
Management does not believe that inflation had a significant impact on the
Company's operations during the last three years.
LIQUIDITY AND CAPITAL RESOURCES ($ in 000's)
At year-end 1996, the Company's cash balance was $8,597, compared to
$12,757 at year-end 1995 and $11,628 at year-end 1994. The current ratio was
3.2 at December 31, 1996 versus 2.3 in 1995 and 2.4 in 1994. During 1996, cash
of $3,350 was provided by operations versus $8,944 in 1995 and $12,488 in 1994.
Cash used in investing activities in 1996 was $5,774 compared to $6,636 in
1995 and $14,230 in 1994. The main usage of cash in 1996 was to build
inventories to service a new customer in the first quarter of 1997 and for the
purchase of equipment. In 1995, the main use of cash was for the purchase of
equipment. In 1994, the main uses of cash were investments in Benton Plastics
and ZZ Wheelz. Financing activities resulted in a net cash use of $1,722 in
1996 compared to $1,462 in 1995 and $1,755 in 1994. The decrease in cash in
1996 was $4,160 versus a net cash increase of $1,129 in 1995.
The Company's anticipated internal cash flow is expected to provide
sufficient liquidity to fund its near-term working capital needs. The Company
believes that its long-term working capital and other investment needs will be
satisfied through its internal cash flow and future borrowings, if necessary.
The Company also maintains a $20,000 revolving credit facility. There were no
borrowings against this facility as of December 31, 1996. However, letters of
credit have been issued against the credit line totaling $800 at December 31,
1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial information included
in this Report are set forth on the Index to Consolidated Financial Statements
and Financial Statement Schedule appearing on page F-1 of this Report.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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PART III
The information called for by the items within this part will be included
in the Company's 1997 Proxy Statement, and is incorporated herein by reference,
as follows:
Captions(s) in 1997
Proxy Statement
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ITEM 10. Directors and Executive Officers of the "Election of Directors", "Other Information
Registrant Relating To Directors" and "Executive Officers"
ITEM 11. Executive Compensation "Compensation of Executive Officers and Directors"
ITEM 12. Security Ownership of Certain "Election of Directors"
Beneficial Owners and Management
ITEM 13. Certain Relationships and Related "Certain Transactions with Management"
Transactions
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULE AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements:
The financial statements filed with this Report are listed on page F-1.
2. Financial Statement Schedule:
The financial statement schedule filed with this Report is listed on
page F-1. Other financial statement schedules, for which provision is
made in the applicable accounting regulations of the Securities and
Exchange Commission, are not required under the related instructions or
are inapplicable and, therefore, have been omitted.
3. Exhibits:
The exhibits filed with this Report are listed on the "Exhibit Index"
on page E-1.
(b) Reports on Form 8-K.
The Company was not required to file any current reports on Form 8-K
during the quarter ended December 31, 1996, and none was filed during
that period.
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SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the registrant has caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized, on March 21, 1997.
DURAKON INDUSTRIES, INC.
By: /s/David W. Wright
---------------------------------
David W. Wright, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated on March 21, 1997.
Signature Title
--------- -----
/s/David W. Wright Director (Principal Executive Officer)
- ------------------------
David W. Wright
/s/Thomas A. Galas Senior Vice President, Chief Financial Officer
- ------------------------ (Principal Financial and Accounting Officer)
Thomas A. Galas
/s/David Aronow Director
- ------------------------
David Aronow
/s/Phillip Wm. Fisher Director
- ------------------------
Phillip Wm. Fisher
/s/Richard J. Jacob Director
- ------------------------
Richard J. Jacob
/s/James P. Kelly Director
- ------------------------
James P. Kelly
/s/Robert M. Teeter Director
- ------------------------
Robert M. Teeter
11
DURAKON INDUSTRIES, INC. AND SUBSIDIARIES
INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Durakon Industries, Inc. are
referred to in Item 8:
Page
----
Report of Independent Accountants F-2
Consolidated Balance Sheets - December 31, 1996 and 1995 F-3
Consolidated Statements of Income - Years ended
December 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Shareholders' Equity - Years
ended December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows - Years ended
December 31, 1996, 1995 and 1994 F-6
Notes to consolidated financial statements F-7 to F-17
The following consolidated financial statement schedule of Durakon Industries,
Inc. is included herein:
Schedule II -- Valuation and qualifying accounts S-1
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
F-1
12
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Durakon Industries, Inc.:
We have audited the consolidated financial statements and financial statement
schedule of Durakon Industries, Inc. and Subsidiaries listed in the index on
page F-1 of this Form 10-K. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
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 provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Durakon
Industries, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
Coopers & Lybrand, L.L.P.
Detroit, Michigan
February 21, 1997
F-2
13
DURAKON INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
($ in 000's)
1996 1995
ASSETS ---- ----
Current assets:
Cash and equivalents $ 8,597 $12,757
Accounts receivable, less allowances of $637 and $640 20,175 17,468
Inventories 18,427 12,140
Prepaid expenses and other current assets 2,005 1,141
Deferred income taxes 2,245 2,526
------- -------
Total current assets 51,449 46,032
Property, plant and equipment less accumulated depreciation
of $24,656 and $20,673 20,754 18,346
Goodwill 11,278 13,870
Patents, less accumulated amortization of $1,804 and $2,369 406 507
Other assets 192 114
------- -------
TOTAL ASSETS $84,079 $78,869
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 251 $ 1,342
Accounts payable 9,940 10,058
Other current liabilities 6,108 8,936
------- -------
Total current liabilities 16,299 20,336
------- -------
Long-term debt 795 1,572
Deferred income taxes 1,050 346
Minority interest 175 59
------- -------
Total long-term liabilities 2,020 1,977
------- -------
Shareholders' equity:
Preferred stock, $1 par value - 100,000 shares authorized;
none issued -- --
Common stock, without par value - 15,000,000 shares authorized;
6,565,292 and 6,520,292 shares issued and outstanding 21,820 21,506
Accumulated translation adjustment (289) (275)
Retained earnings 44,229 35,325
------- -------
Total shareholders' equity 65,760 56,556
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $84,079 $78,869
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
14
DURAKON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995, 1994
($ in 000's, except per share amounts)
1996 1995 1994
---- ---- ----
Net sales $183,628 $172,051 $144,483
Cost of products sold 143,950 135,692 102,536
-------- -------- -------
Gross profit 39,678 36,359 41,947
Selling, general and
administrative expenses 26,545 28,288 22,460
Disposition of subsidiary -- 2,900 --
-------- -------- -------
Operating income
13,133 5,171 19,487
Interest income 778 775 612
Interest expense (149) (417) (185)
Other income/(expense), net 59 (411) 86
Minority interest (124) (73) (143)
-------- -------- -------
Income before income taxes 13,697 5,045 19,857
Provision for income taxes 4,793 2,746 7,756
-------- -------- -------
Net income $ 8,904 $ 2,299 $12,101
======== ======== =======
Net income per share of common stock $ 1.34 $ 0.34 $ 1.82
======== ======== =======
Weighted average shares (000's) 6,647 6,687 6,654
======== ======== =======
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
15
DURAKON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
($ in 000's)
Shares Equity
------- -------------------------------
Accumulated
Common Common Translation Retained
Stock Stock Adjustment Earnings
------- -------------------------------
Balance at December 31, 1993 6,476,359 $ 20,748 -- $ 20,925
--------- -------- ---- --------
Exercise of stock options 3,333 41 -- --
Issuance of common stock 40,600 710 -- --
Tax benefit of exercised options -- 7 -- --
Net income -- -- -- 12,101
Translation adjustments -- -- ($295) --
--------- -------- ---- --------
Balance at December 31, 1994 6,520,292 21,506 (295) 33,026
--------- -------- ---- --------
Net income -- -- -- 2,299
Translation adjustments -- -- 20 --
--------- -------- ---- --------
Balance at December 31, 1995 6,520,292 21,506 (275) 35,325
--------- --------- ---- --------
Exercise of stock options 45,000 146 -- --
Tax benefit of exercised options -- 168 -- --
Net income -- -- -- 8,904
Translation adjustments -- -- (14) --
--------- -------- ---- --------
Balance at December 31, 1996 6,565,292 $ 21,820 ($289) $ 44,229
========= ======== ==== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
16
DURAKON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
($ in 000's)
1996 1995 1994
----- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,904 $ 2,299 $12,101
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,179 5,002 3,897
Increase/(decrease) in minority interest, net 116 (222) 41
Increase/(decrease) in deferred income taxes 1,153 (1,084) (570)
Gain/(loss) on disposal of property, plant and equipment (36) 440 (83)
Net decrease/(increase) of other assets (82) 15 462
Increase/(decrease) due to changes in operating assets
and liabilities:
Accounts receivable (2,711) (2,454) (2,067)
Inventories (6,282) 1,462 (3,186)
Prepaid expenses and other current assets (859) 372 1,199
Accounts payable (124) 1,180 2,302
Accrued expenses and other current liability (908) 1,934 (1,608)
------- ------- -------
Net cash provided by operating activities 3,350 8,944 12,488
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (5,932) (6,763) (3,395)
Purchase of Benton Plastics and ZZ Wheelz -- -- (11,861)
Proceeds from cash receipt on note receivable -- -- 836
Proceeds from sale of property, plant and equipment 158 127 190
------- ------- -------
Net cash used in investing activities (5,774) (6,636) (14,230)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in long-term debt (1,868) (1,659) (3,039)
Proceeds from issuance of debt -- 197 1,243
Cash proceeds from exercise of stock options 146 -- 41
------- ------- -------
Net cash used in financing activities (1,722) (1,462) (1,755)
------- ------- -------
Effect of exchange rate changes on cash (14) 283 (424)
------- ------- -------
CASH AND EQUIVALENTS:
Increase/(decrease) for year (4,160) 1,129 (3,921)
Balance, beginning of year 12,757 11,628 15,549
------- ------- -------
BALANCE, END OF YEAR $ 8,597 $12,757 $11,628
======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
17
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Durakon
Industries, Inc. and its domestic wholly-owned subsidiaries and foreign
majority-owned subsidiary (the "Company"). All significant
intercompany accounts and transactions have been eliminated.
CASH AND EQUIVALENTS:
At December 31, 1996, 1995 and 1994, substantially all cash was held
at Comerica Bank.
For purposes of the statement of cash flows, cash and equivalents include
cash on hand, amounts due from banks and debt instruments purchased with an
original maturity of three months or less.
INVENTORIES:
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method for the Vehicle Accessories segment
and the last-in, first-out (LIFO) method for the Towing & Recovery segment.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. Depreciation is provided
on the straight-line method over the estimated useful lives of the assets.
Upon retirement or disposal of assets the costs and accumulated depreciation
are removed from the related accounts, and any gain or loss is included in
income.
INTANGIBLES:
Goodwill is being amortized using the straight-line method over periods not
exceeding 20 years. At each balance sheet date, management assesses whether
there has been an impairment in the carrying value of goodwill, primarily by
comparing current and projected sales, operating income and annual cash
flows with the carrying value of the assets. Purchase costs of patents are
being amortized using the straight-line method over the legal lives of the
patents, not to exceed 17 years.
RETIREMENT PLANS:
The Company has defined contribution retirement plans covering substantially
all employees. The Company's policy is to fund retirement costs accrued.
INCOME TAXES:
Income taxes are provided based on the liability method of accounting
pursuant to Statement of Financial Accounting Standards (FASB) No. 109,
"Accounting for Income Taxes". Deferred income taxes are recorded to
reflect the tax liability/benefit on future years of differences between the
tax basis and financial reporting amount of assets and liabilities at each
year-end.
FOREIGN CURRENCY TRANSLATION:
The assets and liabilities of the Company's foreign operation are translated
into U.S. dollars at current exchange rates, and revenues and expenses are
translated at average exchange rates for the year. Resulting translation
adjustments are reflected as a separate component of shareholders' equity.
Currency transaction gains and losses are reported in income.
F-7
18
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NET INCOME PER SHARE OF COMMON STOCK:
Net income per share of common stock is based on the weighted average number
of common shares outstanding after giving effect for common stock
equivalents arising from stock options.
SEGMENTS:
The Company operates in two business segments, Vehicle Accessories and
Towing & Recovery.
REPORTING:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS:
In March 1997, the FASB issued SFAS 128, "Earnings Per Share." SFAS 128
supersedes APB 15, "Earning Per Share," and simplifies the computation of
earning per share ("EPS") by replacing the "primary" EPS requirements of APB
15 with a "basic" EPS computation based upon weighted shares outstanding.
The new standard requires a dual presentation of basic and diluted EPS.
Diluted EPS is similar to "fully diluted" EPS required under APB 15. The
Company will adopt the provisions of this statement, as required, in 1997.
The impact the adoption of this statement is expected to have on the
financial statements has not yet been determined.
F-8
19
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACQUISITIONS ($ IN 000'S)
On July 29, 1994, Benton Plastics, Inc. ("Benton") was acquired for
$14,388. Benton is a manufacturer of bedliners with production
facilities in Maine and Tennessee. In 1995, manufacturing operations
were terminated in Maine.
The acquisition was accounted for as a purchase with the results of
Benton included from the acquisition date. The fair value of assets
acquired, including goodwill, was $16,753 and liabilities assumed totaled
$2,464. Goodwill of $13,273 is being amortized over 20 years on a
straight-line basis.
On June 10, 1994, G.C. Concepts, Inc. doing business as ZZ Wheelz, Inc.
was acquired for $656 in cash plus other consideration. ZZ Wheelz
manufactures and assembles wheel covers.
The acquisition was accounted for as a purchase with the results of ZZ
Wheelz included from the acquisition date. The fair value of assets
acquired, including goodwill, was $2,751 and liabilities assumed totaled
$1,385. Goodwill of $2,138 was being amortized over 15 years on a
straight-line basis. The disposition of ZZ Wheelz resulted in the
write-off of goodwill during 1995.
3. INVENTORIES
Inventories are summarized below ($ in 000's):
December 31,
-------------------
1996 1995
---- ----
[S] [C] [C]
Raw materials and work in process . . . . . . . . . $ 8,722 $ 5,838
Finished goods. . . . . . . . . . . . . . . . . . . 9,705 6,302
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . $18,427 $12,140
======= =======
The LIFO method of inventory valuation is used to value the inventory of
the Towing & Recovery segment, which represented approximately 54% of total
inventory at December 31, 1996 and 55% at December 31, 1995. The effect of LIFO
adjustments was to reduce net income by $181 in 1996 and $316 in 1995. At
December 31, 1996 and 1995, the Company's LIFO reserve was $1,547 and $1,276,
respectively.
F-9
20
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment is shown below ($ in 000's):
December 31,
------------
1996 1995
---- ----
Land. . . . . . . . . . . . . . . . . $ 1,990 $ 1,911
Buildings . . . . . . . . . . . . . . 8,137 8,055
Machinery and equipment . . . . . . . 35,283 29,053
------- -------
Total property, plant and equipment . 45,410 39,019
Less accumulated depreciation . . . . 24,656 20,673
------- -------
Net property, plant and equipment . . $20,754 $18,346
======= =======
5. OTHER CURRENT LIABILITIES
A summary of other current liabilities is shown below ($ in 000's):
December 31,
-----------------
1996 1995
---- ----
Accrued compensation . . . . . . . . . . . . . . . $1,594 $2,201
Legal reserve . . . . . . . . . . . . . . . . . . 1,031 1,004
Workers' compensation . . . . . . . . . . . . . . 369 233
Accrued income taxes . . . . . . . . . . . . . . . 89 --
Reserve for disposition of subsidiary. . . . . . . 362 2,900
Commission and royalties . . . . . . . . . . . . . 374 617
Health insurance . . . . . . . . . . . . . . . . . 532 521
Other . . . . . . . . . . . . . . . . . . . . . . 1,757 1,460
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . $6,108 $8,936
====== ======
6. RETIREMENT PLANS
Employer contributions to the 401(k) retirement plans amounted to $435
in 1996, $389 in 1995 and $368 in 1994.
7. LEASES
Rental expense under operating leases approximated $2,539 in 1996, $2,396
in 1995 and $2,019 in 1994. At December 31, 1996, future minimum lease
commitments under these leases were as follows:
Year ending December 31 ($ in 000's):
1997. . . . . . . . . . . . . . . . . . . . . $ 2,381
1998. . . . . . . . . . . . . . . . . . . . . 1,912
1999. . . . . . . . . . . . . . . . . . . . . 1,646
2000. . . . . . . . . . . . . . . . . . . . . 1,030
2001 and thereafter . . . . . . . . . . . . . 5,049
-------
$12,018
=======
F-10
21
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. CONTINGENCIES ($ IN 000'S)
The Company is contingently liable under the terms of agreements covering
certain of its customer's financing arrangements. The agreements provide
for the repurchase of products sold to customers in the event of default by
the customer to the financing company. The contingent liability under
these agreements was approximately $8,502 and $5,800 at December 31, 1996
and 1995, respectively. The Company has incurred no material losses
related to these agreements.
9. LONG-TERM DEBT
Long-term debt consisted of the following at December 31 ($ in 000's):
1996 1995
---- ----
Note payable, interest at 6%, to employees of Company, $1,000 due
August 31, 1996, collateralized by a standby letter of credit . . . . . . . $ -- $1,000
Duramex note payable to bank, interest at Libor plus 2.675%, which was
8.36% at December 31, 1996 and 1995, due in semi-annual installments
of $51 through 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311 448
Promissory notes to individuals, interest at 10%, interest paid annually,
principal due March 26, 1998 . . . . . . . . . . . . . . . . . . . . . . . -- 539
Loan payable to Pennsylvania Industrial Development Association,
interest at 2%, due in monthly installments of $3, through 2009 . . . . . . 368 393
Loan payable to Machinery and Equipment Loan Fund, interest at 2%,
due in monthly installments of $4, through 2001 . . . . . . . . . . . . . . 230 273
Duramex note payable to bank, interest at Libor plus 2.675%, which was
8.36% at December 31, 1996 and 1995, due in semi-annual installments
of $33, through 1998. . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 173
Note payable, net of imputed interest at 7.45%, of $11 in 1995 and
$22 in 1994, due in monthly installments of $8, through 1996. . . . . . . . -- 88
------ ------
1,046 2,914
Less current maturities. . . . . . . . . . . . . . . . . . . . . . . . . . . 251 1,342
------ ------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 795 $1,572
====== ======
Maturities of long-term debt during the next five years are $251, $257,
$191, $84 and $84.
The Company has a $20,000 unsecured revolving credit agreement with
Comerica Bank which expires June 30, 1997. Four standby letters of credit
totaling $800 reduced the available balance to $19,200 at December 31,
1996.
F-11
22
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation", effective with the 1996 financial statements. The Company,
however, has elected to continue to measure compensation cost using the
intrinsic value method, in accordance with APB Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees".
The Company has stock options outstanding under the 1988 Stock Option Plan
and the 1996 Stock Option Plan. Under the 1988 Stock Option Plan, the
Company has made available 500,000 shares of common stock for key
employees. The options vest and become exercisable in equal annual
installments, generally over a period of 4 years. In the 1988 and 1996
plans, the options expire after a period of 10 years. Certain options
which were issued in 1995 were immediately exercisable. At December 31,
1996, there were 20,734 shares that remained available for grant under the
1988 plan.
Under the 1996 Stock Option Plan, the Company has made available 500,000
shares of common stock for key employees. The options vest and become
exercisable in equal annual installments as defined in the agreements. At
December 31, 1996, there were 350,000 share that remained available for
grant under this plan.
In addition to the aforementioned plan, the Company has a stock option
agreement under which the Company has made available and granted 100,000
shares of common stock for this agreement. During 1996, no options were
exercised under this agreement.
Information concerning stock options under the 1988 and 1996 plans are as
follows:
1996 1995 1994
-------------------- ------------------ ---------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
-------------------- ------------------- ---------------------
Outstanding at January 1 468,334 $11.50 258,334 $ 6.68 241,667 $ 5.46
Options granted 150,000 $12.69 230,000 $16.00 20,000 $16.25
Options exercised 45,000 $3.25 -- -- 3,333 $12.25
Options canceled 3,334 $12.25 20,000 $16.25 -- --
Outstanding at December 31 570,000 $12.67 468,334 $11.98 258,334 $ 6.68
Exercisable at December 31 257,500 $10.10 248,334 $ 6.01 210,000 $ 6.09
The fair value of each option grant was estimated as of the date of the grant
using the Black-Scholes option-pricing model with the following assumptions used
for options granted in:
1996 1995
---- ----
Estimated fair value per share of options granted during the year $6.22 $8.71
Assumptions:
Dividend yield 0% 0%
Common stock volatility 45.34% 54.66%
Risk-free rate of return 6.3% 6.6%
Expected option term (in years) 5 5
F-12
23
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. ACCOUNTING FOR STOCK-BASED COMPENSATION (CONTINUED)
The Company has elected to continue applying the provisions of APB 25 and,
accordingly, no stock option compensation cost is included in income for
the 1988 and 1996 Plans. Had stock option compensation cost for these
plans been determined based on the fair value at the 1996 and 1995 grant
dates for awards under those Plans consistent with the methodology of SFAS
123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
1996 1995
---------------------------- -------------------------
As reported Pro forma* As reported Pro forma*
----------- ---------- ----------- ----------
Net Income (in 000's) $8,904 $8,286 $2,299 $1,986
Net income per common share $1.34 $1.25 $0.34 $0.30
* The pro forma disclosures may not be representative of the effects on
reported net income and earnings per share because only stock options
granted beginning in 1995 are reflected in the pro forma amounts. Other
factors that may impact pro forma disclosures in future years include the
vesting period of stock options, timing of additional grants and number of
additional shares granted.
The following table summarizes the status of the Company's stock
options outstanding and exercisable at December 31, 1996:
------------------------------------- -------------------------
Stock Options Stock Options
Outstanding Exercisable
------------------------------------- -------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Shares Contractual Exercise Shares Exercise
Exercise Prices (000's) Life Price (000's) Price
- -------------------------------------------------------------------------------------
$ 3.25 - $ 8.50 180 4.7 $ 4.08 180 $ 4.08
$ 8.51 - $12.69 200 4.7 $12.64 10 $12.50
$12.70 - $16.00 190 8.3 $15.88 68 $15.65
- -------------------------------------------------------------------------------------
Total 570 258
- -------------------------------------------------------------------------------------
F-13
24
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Business Segments
The Company operates in two segments, Vehicle Accessories and Towing &
Recovery. The Vehicle Accessories segment manufactures and distributes
pickup truck bedliners and other vehicle accessories. The Towing &
Recovery segment manufactures and mounts systems on purchased and
customer-supplied truck chassis, which provide the converted trucks with
the ability to transport vehicles ranging in size from automobiles to
heavy equipment. Foreign assets, revenues and export sales each
represent less than 10% of the Company's total.
Information regarding the Company's segments follows ($ in 000's):
1996 1995 1994
---- ---- ----
Net sales:
Vehicle Accessories $ 85,109 $ 81,684 $ 75,163
Towing & Recovery 98,519 90,367 69,320
-------- -------- --------
$183,628 $172,051 $144,483
======== ======== ========
Operating profit:
Vehicle Accessories $ 6,997 $ 862 $ 14,335
Towing & Recovery 6,136 4,309 5,152
-------- -------- --------
$ 13,133 $ 5,171 $ 19,487
======== ======== ========
Depreciation and amortization:
Vehicle Accessories $ 3,413 $ 3,780 $ 3,147
Towing & Recovery 766 1,222 750
-------- -------- --------
$ 4,179 $ 5,002 $ 3,897
======== ======== ========
Capital expenditures:
Vehicle Accessories $ 3,227 $ 6,079 $ 2,371
Towing & Recovery 2,705 684 1,024
-------- -------- --------
$ 5,932 $ 6,763 $ 3,395
======== ======== ========
Identifiable assets:
Vehicle Accessories $ 56,317 $ 57,546 $ 57,129
Towing & Recovery 27,789 21,323 18,413
-------- -------- --------
$ 84,106 $ 78,869 $ 75,542
======== ======== ========
F-14
25
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. INCOME TAXES
The provisions for income taxes are summarized below ($in 000's):
1996 1995 1994
---- ---- ----
Federal income taxes:
Currently payable . . . . . . . . $3,156 $3,227 $6,275
Deferred. . . . . . . . . . . . . 1,208 (935) 302
------ ------ ------
4,364 2,292 6,577
State income taxes . . . . . . . . 429 454 1,179
------ ------ ------
Provision for income taxes . . . . $4,793 $2,746 $7,756
====== ====== ======
Temporary differences which give rise to the deferred tax assets and
liabilities as of December 31, 1996 and 1995 are as follows ($ in 000's):
1996 1995
---- ----
Deferred Deferred Tax Deferred Deferred Tax
Tax Asset Liability Tax Asset Liability
--------- ------------ --------- ------------
Depreciation and goodwill amortization -- $895 -- $ 614
Bad debt allowance . . . . . . . . . . . . . . . $ 224 -- $ 224 --
Inventory . . . . . . . . . . . . . . . . . . . . 377 -- 493 --
Litigation reserve . . . . . . . . . . . . . . . 339 -- 329 --
Reserve for disposition of subsidiary . . . . . . 75 -- 398 --
Vacation pay accrual . . . . . . . . . . . . . . 206 -- 187 --
Reserve for returns and allowances. 186 -- 252 --
Warranty reserve . . . . . . . . . . . . . . . . 167 -- 95 --
Patent amortization . . . . . . . . . . . . . . . 145 -- 387 --
Reserve employee health benefit
claims . . . . . . . . . . . . . . . . . . 283 -- 205 --
Other miscellaneous accrued and
prepaid expenses . . . . . . . . . . . . . 88 -- 224 --
------ ---- ------ -----
Total deferred taxes $2,090 $895 $2,794 $ 614
====== ==== ====== =====
The consolidated income tax provision was different than the amount
computed using the United States statutory income tax rate for the reasons
set forth in the following table ($ in 000's):
1996 1995 1994
---- ---- -----
Tax at the statutory rate . . . . . . . . . . . . . . . $4,658 $1,715 $6,950
State income taxes . . . . . . . . . . . . . . . . . . 279 295 766
Change in valuation allowance . . . . . . . . . . -- -- (53)
Non-deductible loss from disposition of
subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . . (114) 599 --
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30) 137 93
------ ------ ------
Provision for income tax. . . . . . . . . . . . . . . $4,793 $2,746 $7,756
====== ====== ======
Effective tax rate. . . . . . . . . . . . . . . . . . . . . 35.0% 54.4% 39.1%
====== ====== ======
F-15
26
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. STATEMENT OF CASH FLOWS ADDITIONAL INFORMATION
Supplemental disclosures of cash flow information ($ in 000's):
1996 1995 1994
---- ---- ----
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 200 $ 420 $ 79
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . $3,430 $4,165 $7,440
Supplemental non-cash investing activities:
In 1996 the Company received a $168 tax benefit from the exercise of stock
options. In 1995 there were no stock options exercised. In 1994 the
Company received a $7 tax benefit from the exercise of stock options.
In connection with the acquisition of Benton Plastics in 1994, the Company
had recorded $1,000 to be paid over the next year to the former owners of
Benton.
14. OTHER INCOME AND (EXPENSE) ($ IN 000'S)
Net other income for 1996 of $59 primarily represents $36 of a gain on the
sale of property, plant and equipment and $16 of Duramex royalties.
Net other expense for 1995 of ($411) represents a loss due to the change
in exchange rates of the Mexican peso of ($438) which was offset by
miscellaneous income items.
Net other income for 1994 of $86 primarily represents gain on the sale of
property, plant and equipment partially offset by an additional provision
for contingent lease transactions.
F-16
27
DURAKON INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following presents financial data regarding the Company's quarterly
results of operations for 1996 and 1995 ($ in 000's, except per share
amounts):
First Second Third Fourth
Quarter Quarter Quarter Quarter (a)
------- ------ ------ ----------
1996:
Net sales. . . . . . . . . . . . . . . . . . . . $43,895 $49,430 $46,253 $44,050
Gross profit. . . . . . . . . . . . . . . . . . . 10,156 11,458 9,240 8,824
Net income . . . . . . . . . . . . . . . . . . . . 2,138 2,757 1,932 2,077
Net income per share of common
stock . . . . . . . . . . . . . . . . . . . . . . $ 0.32 $ 0.42 $ 0.29 $ 0.31
1995:
Net sales. . . . . . . . . . . . . . . . . . . . . . $44,044 $42,667 $42,596 $42,744
Gross profit. . . . . . . . . . . . . . . . . . . . 11,509 10,722 8,211 5,917
Net income/(loss) . . . . . . . . . . . . . . . 2,868 3,072 925 (4,566)
Net income/(loss) per share of common
stock . . . . . . . . . . . . . . . . . . . . . . . $ 0.43 $ 0.46 $ 0.14 $ (0.69)
(a) 1995 fourth quarter adjustments, relating to the disposition
of the ZZ Wheelz subsidiary ($2,900 before tax) reduced net income by
$2,490 ($0.37 per share), the re-engineering and consolidation of bedliner
manufacturing operations charges reduced gross profit by $1,606 and net
income $1,028 ($0.15 per share), and the patent settlement, license
write-down and outside engineering ($642 before tax) reduced net income by
$398 ($0.06 per share).
16. DISPOSITION OF SUBSIDIARY ($ IN 000'S, EXCEPT PER SHARE AMOUNTS)
On December 12, 1995, the Company decided to dispose of its ZZ Wheelz
subsidiary in Richardson, Texas. The disposal of ZZ Wheelz was
substantially completed in 1996. A $2,900 charge was recorded in the
fourth quarter of 1995 to write-off the investment and provided for
anticipated costs to close the facility. The operation had a net loss of
$560 or $0.08 per share in 1995.
17. SUBSEQUENT EVENTS
In the first quarter of 1997, the Company had repurchased 400,000 shares
of its outstanding common stock at a price of $13 per share. The shares
were retired. The Company believes that the repurchase of 6% of its
outstanding common stock will have a positive impact on the value of the
shareholders' investment.
F-17
28
DURAKON INDUSTRIES, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
($ in 000's)
Balance at Charged to
beginning costs an Other Charges Balance at
Year Description of year expenses accounts add (deduct) end of year
- --- ----------- -------- --------- --------- ------------ -----------
1996 Allowance for doubtful
accounts. . . . . . . . . ($640) ($478) $481 (1) ($637)
Patents, net of accumulated
amortization. . . . . . . $507 ($131) ($26) (5) $56 (3) $406
Non-compete, net of
accumulated amortization $143 ($143) $0
Goodwill, net of accumulated
amortization. . . . . . . $13,870 ($676) ($1,916) (5) $11,278
1995 Allowance for doubtful
accounts. . . . . . . . . ($474) ($221) -- $55 (1) ($640)
Patents, net of accumulated
amortization. . . . . . . $1,122 ($615) -- $507
Non-compete, net of
accumulated amortization. . $203 ($60) -- $143
Goodwill, net of accumulated
amortization. . . . . . . $15,078 ($885) ($323) (4) $13,870
1994 Allowance for doubtful
accounts. . . . . . . . . ($374) ($174) -- $51 (1) ($474)
$23 (2)
Patents, net of accumulated
amortization. . . . . . . $1,345 ($254) -- $29 (2) $1,122
$2 (3)
Non-compete, net of
accumulated amortization. . $136 ($133) -- $200 (3) $203
Goodwill, net of accumulated
amortization. . . . . . . -- ($333) -- $15,411 (3) $15,078
(1) Bad debts written off, net of recoveries.
(2) Adjustment due to acquisition of subsidiaries.
(3) Amount represents addition to goodwill, patent and non-compete agreement.
(4) Adjustments to prior acquisitions within last 18 months.
(5) Adjustment for write off of ZZ Wheelz.
S-1
29
EXHIBIT INDEX
Exhibit Sequential
Number Description of Exhibit Page Number
3(a) Articles of Incorporation of Durakon Industries, Inc., as amended
(4)
3(b) By-laws of Durakon Industries, Inc., as amended (4)
10.1 Employees' Retirement Savings Plan, as amended and restated (5)
10.4 1988 Stock Option Plan, as amended (6)
10.5 $20,000,000 Revolving Credit Loan Agreement by and between Durakon
Industries, Inc. and Comerica Bank, dated October 17, 1994, as
amended (2)
10.20 Consulting Agreement, dated August 1, 1994, by and between Durakon
Industries, Inc. and Robert Teeter (2)
10.22 Non-Qualified Stock Option Agreement, dated August 5, 1991, between
Durakon Industries, Inc. and Robert Teeter (4)
10.26 Indemnity Agreement, dated June 11, 1991, between Durakon Industries,
Inc. and Phillip Wm. Fisher (4)
10.28 Indemnity Agreement, dated August 8, 1991, between Durakon
Industries, Inc. and Robert Teeter (4)
10.30 Indemnity Agreement, dated June 11, 1991, between Durakon Industries,
Inc. and David W. Wright (4)
10.31 Indemnity agreement, dated October 25, 1993, between Durakon
Industries, Inc. and Richard J. Jacob (3)
10.32 Indemnity Agreement, dated May 16, 1995, between Durakon Industries,
Inc. and James P. Kelly (1)
10.33 Indemnity Agreement, dated July 18, 1995, between Durakon Industries,
Inc. and David S. Aronow (1)
10.34* Employment Agreement, dated June 27, 1996, effective July 1, 1996, by
and between Durakon Industries, Inc. and David Wright
10.35* Non-Qualified Stock Option Agreement, dated June 27, 1996 between
Durakon Industries, Inc. and David Wright
10.36* Employment Agreement, dated July 1, 1996 by and between Durakon
Industries, Inc. and Jim Kelly
E-1
30
10.37* 1996 Stock Option Plan
10.38* Non-Qualified Stock Option Agreement, dated May 16, 1995
between Durakon Industries, Inc. and Thomas A. Galas
10.39* Non-Qualified Stock Option Agreement, dated May 16, 1995
between Durakon Industries, Inc. and James P. Kelly
10.40* Non-Qualified Stock Option Agreement, dated April 1, 1996
between Durakon Industries, Inc. and David Wright
11* Calculation of Earnings Per Share
21* Subsidiaries of the Registrant
23.1* Consent of Independent Accountants
* Filed with this Report
(1) Previously filed under the corresponding Exhibit Number as an exhibit
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995, and incorporated herein by reference.
(2) Previously filed under the corresponding Exhibit Number as an exhibit
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference.
(3) Previously filed under the corresponding Exhibit Number as an exhibit
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993 and incorporated herein by reference.
(4) Previously filed under the corresponding Exhibit Number as an exhibit
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991, and incorporated herein by reference.
(5) Previously filed under the corresponding Exhibit Number as an exhibit
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990, and incorporated herein by reference.
(6) Previously filed under the corresponding Exhibit Number as an exhibit
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1987, and incorporated herein by reference.
E-2