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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1994
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 1-9634
[LOGO]
LARIZZA INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Ohio 34-1376202
- -------------------------- --------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
Suite 1040
201 West Big Beaver Road
Troy, Michigan 48084
(Address of principal executive offices and zip code)
(810) 689-5800
(Registrant's telephone number, including area code)
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
Number of shares of Common Stock, without par value, of the registrant
outstanding as of April 30, 1994: 22,088,107
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LARIZZA INDUSTRIES, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 1994
INDEX
Page No.
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Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
March 31, 1994 and December 31, 1993 . . . . . . . . . . 3
Consolidated Condensed Statements of Operations -
Three Months Ended March 31, 1994 and 1993 . . . . . . . 4
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31,1994 and 1993 . . . . . . . 5
Notes to Consolidated Condensed Financial Statements . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 7
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 8
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LARIZZA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
March 31, December 31,
1994 1993
---------------- ----------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 8 559
Accounts receivable, net 24,159 20,426
Inventories:
Raw materials 4,477 4,428
Work in process 937 1,032
Finished goods 1,899 1,808
----------- -----------
Total inventories 7,313 7,268
----------- -----------
Reimbursable tooling costs 2,961 2,178
Net current assets of discontinued operations 1,975 1,627
Other current assets 1,031 625
----------- -----------
Total current assets 37,447 32,683
----------- -----------
Property, plant and equipment, at cost 46,880 46,978
Less accumulated depreciation and amortization 20,631 20,862
----------- -----------
Net property, plant and equipment 26,249 26,116
----------- -----------
Notes receivable from principal shareholders 2,167 2,136
Goodwill and other intangibles, net 2,700 2,782
Net noncurrent assets of discontinued operations 158 137
----------- -----------
$ 68,721 63,854
----------- -----------
----------- -----------
Current liabilities:
Current installments of long-term debt and capitalized lease obligation $ 4,675 4,679
Accounts payable 17,866 14,267
Income taxes payable 2,838 1,008
Accrued salaries and wages 2,078 1,469
Accrual for loss on sale of discontinued operations 2,165 2,118
Other accrued expenses 4,628 4,863
----------- -----------
Total current liabilities 34,250 28,404
----------- -----------
Long-term debt, excluding current installments 31,160 81,460
Capitalized lease obligation, excluding current installments 691 780
Deferred gain on debt restructure 2,461 6,097
Deferred income taxes 1,400 1,400
Accrued interest - 8,463
Other long-term liabilities 1,296 1,323
Shareholders' deficit:
Common stock 76,780 17,202
Additional paid-in capital 5,551 5,551
Accumulated deficit (80,474) (83,873)
Foreign currency translation adjustment (4,394) (2,953)
----------- -----------
Total shareholders' deficit (2,537) (64,073)
----------- -----------
$ 68,721 63,854
----------- -----------
----------- -----------
See accompanying notes to unaudited consolidated condensed financial statements.
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LARIZZA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
-----------------------------
1994 1993
----------- -----------
Net sales $ 41,061 39,615
Cost of goods sold 32,174 30,673
---------- ---------
Gross profit 8,887 8,942
Selling, general and administrative expenses 3,096 2,848
---------- ---------
Operating income 5,791 6,094
---------- ---------
Operating income (expense):
Interest expense, net (1,151) (1,661)
Foreign exchange gain (loss) 258 (254)
Other, net 336 (5)
---------- ---------
(557) (1,920)
---------- ---------
Income before income tax provision 5,234 4,174
Income tax provision 1,835 -
---------- ---------
Net income $ 3,399 4,174
---------- ---------
---------- ---------
Income per common share:
Primary $ .22 .30
---------- ---------
---------- ---------
Fully diluted $ .19 .24
---------- ---------
---------- ---------
Weighted average number of shares of common stock outstanding
Primary 15,738 13,805
Fully diluted 22,088 22,088
See accompanying notes to unaudited consolidated condensed financial statements.
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LARIZZA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
--------------------------
1994 1993
-------- --------
Operations:
Net income $ 3,399 4,174
Noncash items:
Depreciation and amortization 1,037 1,127
Foreign exchange (gain) loss (258) 254
Amortization of deferred gain (313) (336)
Interest accrued on long-term debt 791 1,029
Operating working capital decrease (increase) 249 (388)
Other, net (292) 17
------------ ------------
4,613 5,877
------------ ------------
Investments:
Property, plant and equipment, net (1,529) (359)
Other, net (31) (38)
------------ ------------
(1,560) (397)
------------ ------------
Financing:
Repayments of debt (3,350) (4,516)
Other, net - (121)
------------ ------------
(3,350) (4,637)
Effect of exchange rates on cash (254) (94)
------------ ------------
Net increase (decrease) in cash and cash equivalents (551) 749
Cash and cash equivalents at beginning of period 559 489
------------ ------------
Cash and cash equivalents at end of period $ 8 1,238
------------ ------------
------------ ------------
Noncash financing activities:
Conversion of debt to equity $ 59,578 -
------------ ------------
------------ ------------
See accompanying notes to unaudited consolidated condensed financial statements.
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LARIZZA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1994
(1) Basis of Presentation
In the opinion of management, the information furnished herein includes
all adjustments (all of which are of a normal recurring nature) necessary
for fair presentation of the results for the interim periods.
(2) Income Per Share
Primary income per common share is calculated by dividing net income by
the weighted average number of common shares outstanding during the
period.
On a fully-diluted basis, both net income and shares outstanding are
adjusted to assume the conversion of the U.S. Loan of $47.0 million plus
accrued interest into 8,283,040 shares of common stock at the beginning of
the period. To adjust net income for the first quarter of 1994, interest
expense of $791,000 related to the U.S. Loan was added back into income.
To adjust net income for the first quarter of 1993, interest expense of
$1,029,000 related to the U.S. Loan was added back into income.
On March 11, 1994, $47,000,000 in principal and $9,254,000 of accrued
interest relating to the Term Loans under the U.S. Loan (the then
outstanding principal and accrued interest with respect to such loans)
were converted into 8,283,040 shares of common stock. The conversion
reduces long-term debt, accrued interest and deferred gain on debt
restructure on the Company's balance sheet as of March 11, 1994 by
$47,000,000, $9,254,000 and $3,324,000 and increases common stock by
$59,578,000.
(3) New Credit Facility
On May 6 1994, the Company signed a new $50.0 million credit facility
agented by Continental Bank N.A..The initial borrowing of $36.0 million
consisted of $35.6 million used to repay existing indebtedness, resulting
in the recognition of the remaining $2.4 million of deferred gain on debt
restructure, and $.4 million used to pay various loan fees and expenses.
The new facility includes a $27 million revolving line of credit for the
Company and an $8 million revolving line of credit for tooling and capital
equipment for the Company. The amount available under the $27 million
line of credit is reduced by $250,000 at the end of each quarter in 1994
and $1,250,000 at the end of each subsequent quarter during the term of
the loan. Both lines of credit expire May 6, 1997. Interest on the loans
is based on Eurodollar rates or the bank's reference rate, plus a margin
(up to 3.00% for Eurodollar loans and 1.25% for reference rate loans) that
would vary each quarter based on specified financial covenants. The line
of credit also requires the Company to pay a commitment fee of .375% a
year on the average unused amount of the facility, plus additional annual
agent's fees. Interest and the commitment fee are payable quarterly. The
revolving line of credit is also available for letters of credit in
amounts not to exceed $2 million. On May 6, 1994, the Company borrowed
$21 million under the $27 million revolving credit facility and the bank
issued a $500,000 (Canadian) letter of credit securing checking account
overdrafts. Both lines of credit are secured by all of the assets of the
Company including the stock of its subsidiaries.
In addition, the new facility includes a $15 million term loan to
Manchester Plastics, Ltd., the Company's Canadian subsidiary, secured by
all of its assets. The loan is payable in four quarterly installments of
$937,500 beginning June 30, 1994, with the balance due May 7, 1999.
Interest on the loan is based on Eurodollar rates or the bank's reference
rate, plus a margin (up to 3.50% for Eurodollar loans and 1.75% for
reference rate loans) which vary each quarter based on the Manchester
Plastics' net worth.
The loans to the Company and to Manchester Plastics, Ltd. contain
various covenants, the more restrictive of which include limits on the
disposition of properties, limits on capital expenditures, maintenance of
certain financial levels and ratios and restrictions on additional
indebtedness and on the payment of dividends. The Company was in
compliance with all such covenants at May 6, 1994, and expects to be in
compliance throughout 1994.
Aggregate principal payments due on long-term debt for the next five
years are as follows: 1994 - $2,812,500; 1995 - $937,500; 1996 - $0; 1997
- $21,000,000; 1998 - $0; 1999 - $11,250,000.
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ITEM 2.
LARIZZA INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
First Quarter Ended March 31, 1994 compared with
First Quarter Ended March 31, 1993
Net sales increased $1,446,000, or 3.7%, in the quarter ended March 31, 1994
compared to the quarter ended March 31, 1993. This increase in sales resulted
largely from increased production levels of vehicles in which the Company's
products are used.
Gross income decreased $55,000, or 0.6%, in the quarter ended March 31, 1994
compared to the quarter ended March 31, 1993. The gross profit margin
decreased to 21.6% in the 1994 period from 22.6% in the 1993 period. Gross
profit margins were impacted negatively by start-up costs associated with new
programs.
Operating income for the quarter ended March 31, 1994 decreased $303,000, or
5.0%, compared to the quarter ended March 31, 1993. Operating income as a
percentage of net sales was 14.1% in the current quarter compared to 15.4% in
the comparable quarter of the prior year. This decrease in operating income
margins resulted primarily from an increase in selling expenses.
Selling, general and administrative expenses for the quarter increased by
$248,000, or 8.7%, due primarily to increased selling expenses. Selling,
general and administrative expenses as a percentage of net sales were 7.5% in
the first quarter of 1994 and 7.2% in the first quarter of 1993.
Interest expense for the quarter ended March 31, 1994 decreased $510,000, or
30.7% from the quarter ended March 31, 1993, primarily as a result of the
conversion of $47 million in principal amount of debt, plus the related accrued
interest, into equity on March 11, 1994. The conversion will reduce interest
expense in future periods.
Foreign exchange resulted in a $258,000 gain in the first quarter ended March
31, 1994, compared to a $254,000 loss in the first quarter last year. The
change is a result of currency fluctuations between the U.S. and Canadian
dollars.
During 1993, the Company's Canadian net operating loss carryforwards were fully
used, resulting in an income tax provision in the first quarter ended March 31,
1994 of $1,835,000, compared to no provision for income taxes in the first
quarter of 1993.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's net cash position decreased by $551,000 during the first quarter
of 1994. Cash in the amount of $4,613,000 was generated from operations. Cash
of $1,529,000 was used for capital expenditures and $3,350,000 was used to pay
debt.
On March 11, 1994, the Company's lenders converted $47,000,000 of principal and
$9,254,000 of accrued interest into 8,283,040 shares of common stock,
representing 37.5% of the company's outstanding common stock after such
conversion. This conversion reduced long-term debt, accrued interest and
deferred gain on debt restructure on the Company's balance sheet as of the
date of the conversion by $47,000,000, $9,254,000 and $3,324,000, respectively,
and increased shareholders' equity by $59,578,000.
The Company's primary needs for liquidity in the next twelve months will be to
support its working capital needs, debt service requirements and capital
expenditure requirements. The Company believes that cash generated by
operations plus amounts available under its new credit facility will be
adequate to fund its cash needs for the next twelve months. As of May 9, 1994,
the Company had $6 million available under its new line of credit, plus an
additional $8 million available for tooling and capital expenditure loans;
provided that, for loans to the Company or its Canadian subsidiary for capital
expenditures, the company seeking the loan first spends $5 million for capital
expenditures. For a description of the Company' s new credit facilities and
the amounts initially borrowed under the new facilities, see note 3 of Notes to
Consolidated Condensed Financial Statements contained in Part I of this Report.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
9.1 Amended and Restated Voting Trust Agreement among
Larizza Industries, Inc., Ronald T. Larizza and the
shareholders signing the agreement, dated as of May 4, 1994.
10.2 Asset Sale and Purchase Agreement, dated as of May 6,
1994, between Manchester Plastics, Ltd. and Larizza
Industries, Inc.
10.8(a) Amended and Restated Marketing, Selling, Administrative
and Management Services Agreement, dated as of May 6, 1994,
between Larizza Industries, Inc. and Manchester Plastics,
Ltd.
10.10(a) Credit Agreement, dated as of May 6, 1994, among Larizza
Industries, Inc., various financial institutions and
Continental Bank N.A.
10.10(b) Note, dated as of May 6, 1994, in the principal amount
of $35,000,000 from Larizza Industries, Inc. to Continental
Bank N.A.
10.10(c) Security Agreement, dated as of May 6, 1994, between
Larizza Industries, Inc. and Continental Bank N.A.
10.10(d) Company Pledge Agreement, dated as of May 6, 1994, between
Larizza Industries, Inc. and Continental Bank N.A.
10.10 (e) Form of Mortgage, Deed of Trust, Assignment of Leases
and Rents, Security Agreement and Financing Statement, dated
as of May 6, 1994, between Larizza Industries, Inc. and
Continental Bank N.A. covering properties located in
Manchester, Ann Arbor, Homer and Williamston, Michigan.
10.11(a) Credit Agreement, dated as of May 6, 1994, among
Manchester Plastics, Ltd., various financial institutions and
Continental Bank N.A.
10.11(b) Note, dated as of May 6, 1994, in the principal amount
of $15,000,000 from Manchester Plastics, Ltd. to Continental
Bank N.A.
10.11(c) General Security Agreement, dated as of May 6 1994,
between Manchester Plastics, Ltd. and Continental Bank N.A.
10.11(d) Demand Debenture, dated as of May 6, 1994, from
Manchester Plastics, Ltd. to Continental Bank N.A.
10.11(e) Debenture Pledge Agreement, dated as of May 6,
1994, between Manchester Plastics, Ltd. and Continental Bank
N.A.
10.11(f) Patent Security Agreement, dated as of May 6, 1994,
between Manchester Plastics, Ltd. and Continental Bank N.A.
10.11(g)(1) Charge/Mortgage of Land, dated as of May 6, 1994, from
Manchester Plastics, Ltd. to Continental Bank N.A. concerning
Gananoque and Stratford, Ontario properties.
10.11(g)(2) Charge/Mortgage of Land, dated as of May 6, 1994, from
Manchester Plastics, Ltd. to Continental Bank N.A. concerning
Scarborough, Ontario lease.
(b) Reports on Form 8-K filed during the first quarter:
There were no reports on Form 8-K filed by the Registrant
during the quarter ended March 31, 1994.
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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.
LARIZZA INDUSTRIES, INC.
/S/ Terence C. Seikel
Terence C. Seikel
Date: May 11, 1994 Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer of the
Registrant)
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EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
9.1 Amended and Restated Voting Trust Agreement among
Larizza Industries, Inc., Ronald T. Larizza and the
shareholders signing the agreement, dated as of May 4, 1994.
10.2 Asset Sale and Purchase Agreement, dated as of May 6, 1994,
between Manchester Plastics, Ltd. and Larizza Industries, Inc.
10.8(a) Amended and Restated Marketing, Selling,
Administrative and Management Services Agreement, dated as of
May 6, 1994, between Larizza Industries, Inc. and Manchester
Plastics, Ltd.
10.10(a) Credit Agreement, dated as of May 6, 1994, among
Larizza Industries, Inc., various financial institutions and
Continental Bank N.A.
10.10(b) Note, dated as of May 6, 1994, in the principal
amount of $35,000,000 from Larizza Industries, Inc. to Continental
Bank N.A.
10.10(c) Security Agreement, dated as of May 6, 1994,
between Larizza Industries, Inc. and Continental Bank N.A.
10.10(d) Company Pledge Agreement, dated as of May 6, 1994,
between Larizza Industries, Inc. and Continental Bank N.A.
10.10(e) Form of Mortgage, Deed of Trust, Assignment of Leases and Rents,
Security Agreement and Financing Statement, dated as of May 6,
1994, between Larizza Industries, Inc. and Continental Bank N.A.
covering properties located in Manchester, Ann Arbor, Homer and
Williamston, Michigan.
10.11(a) Credit Agreement, dated as of May 6, 1994, among Manchester
Plastics, Ltd., various financial institutions and Continental
Bank N.A.
10.11(b) Note, dated as of May 6, 1994, in the principal amount of
$15,000,000 from Manchester Plastics, Ltd. to Continental Bank
N.A.
10.11(c) General Security Agreement, dated as of May 6 1994,
between Manchester Plastics, Ltd. and Continental Bank N.A.
10.11(d) Demand Debenture, dated as of May 6, 1994, from
Manchester Plastics, Ltd. to Continental Bank N.A.
10.11(e) Debenture Pledge Agreement, dated as of May 6, 1994, between
Manchester Plastics, Ltd. and Continental Bank N.A.
10.11(f) Patent Security Agreement, dated as of May 6, 1994,
between Manchester Plastics, Ltd. and Continental Bank N.A.
10.11(g)(1) Charge/Mortgage of Land, dated as of May 6, 1994,
from Manchester Plastics, Ltd. to Continental Bank N.A. concerning
Gananoque and Stratford, Ontario properties.
10.11(g)(2) Charge/Mortgage of Land, dated as of May 6, 1994, from
Manchester Plastics, Ltd. to Continental Bank N.A. concerning
Scarborough, Ontario lease.