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UNITED STATES
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 APRIL 2, 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: 1-11311
LEAR SEATING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3386776
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21557 Telegraph Road, Southfield, MI 48034
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (810) 746-1500
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 the
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Approximate number of shares of Common Stock, $0.01 par value per share,
outstanding at April 30, 1994:
44,191,687
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LEAR SEATING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED APRIL 2, 1994
INDEX
Part 1 - Financial Information: Page No.
- ------------------------------- --------
Item 1 - Consolidated Financial Statements
Introduction to the Consolidated Financial Statements 3
Consolidated Balance Sheets - December 31, 1993 and
April 2, 1994 4
Consolidated Statements of Operations - Three Month
Periods ended April 3, 1993 and April 2, 1994 6
Consolidated Statements of Cash Flows - Three Month
Periods ended April 3, 1993 and April 2, 1994 7
Notes to Consolidated Financial Statements 8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Part II - Other Information:
Item 6 - Exhibits and Reports on Form 8-K 15
Signatures 16
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LEAR SEATING CORPORATION
PART 1 - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION TO THE CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements of Lear Seating Corporation and
subsidiaries have been prepared by Lear Seating Corporation (the "Company"),
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes that the disclosures are adequate to make
the information presented not misleading when read in conjunction with the
financial statements and the notes thereto included in the Company's Form 10-K
as filed with the Securities and Exchange Commission for the period ended
December 31, 1993.
The financial information presented reflects all adjustments (consisting only
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of the results of operations and statements of
financial position for the interim periods presented. These results are not
necessarily indicative of a full year's results of operations. All references
to the number of shares of common stock and income per share in the
accompanying financial statements and notes thereto have been adjusted to give
effect to the 33 for 1 stock split of the Company's common stock (Note 8).
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LEAR SEATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, April 2,
ASSETS 1993 1994
------ ----------------- ---------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 55,034 $ 34,372
Accounts receivable, net 272,421 328,472
Inventories 71,731 67,521
Unbilled customer tooling 19,441 15,967
Other 14,957 18,672
--------------- ---------------
433,584 465,004
--------------- ---------------
PROPERTY, PLANT AND EQUIPMENT:
Land 31,289 24,497
Buildings and improvements 114,514 101,941
Machinery and equipment 215,684 225,170
-------------- --------------
361,487 351,608
Less - Accumulated depreciation (110,530) (119,043)
--------------- ---------------
250,957 232,565
--------------- ---------------
OTHER ASSETS:
Goodwill, net 403,694 400,892
Deferred financing fees and other 26,056 24,166
--------------- ---------------
429,750 425,058
--------------- ---------------
$ 1,114,291 $ 1,122,627
--------------- ---------------
--------------- ---------------
The accompanying notes are an integral part of these balance sheets.
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LEAR SEATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
(In thousands)
December 31, April 2,
LIABILITIES AND STOCKHOLDERS' EQUITY 1993 1994
------------------------------------ ----------------- -----------------
(Unaudited)
CURRENT LIABILITIES:
Short-term borrowings $ 48,155 $ 27,093
Cash overdrafts 19,769 44,793
Accounts payable 298,326 297,990
Accrued liabilities 138,299 131,582
Current portion of long-term debt 1,168 1,170
-------------- --------------
505,717 502,628
-------------- --------------
LONG-TERM LIABILITIES:
Deferred national income taxes 15,889 14,944
Long-term debt 498,324 504,884
Other 38,716 39,571
-------------- --------------
552,929 559,399
-------------- --------------
COMMITMENTS AND CONTINGENCIES
COMMON STOCK SUBJECT TO REDEMPTION:
Common stock subject to limited rights of redemption,
$.01 par value, 30,001 shares at December 31, 1993
at an estimated maximum redemption price
of $13.64 per share 13,500 --
Notes receivable from sale of common stock (1,065) --
-------------- --------------
12,435 --
-------------- --------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 150,000,000 shares
authorized at December 31, 1993 and at April 2, 1994;
37,809,981 shares issued at December 31, 1993 and
38,833,014 at April 2, 1994, net of shares subject to
redemption 12 388
Additional paid-in capital 156,917 170,180
Notes receivable from sale of common stock -- (1,065)
Warrants to purchase common stock 10,000 5,511
Less - Common stock held in treasury, 3,300,000 shares
at December 31, 1993 and 1,828,827 shares
at April 2, 1994, at cost (10,000) (5,562)
Retained deficit (109,248) (102,720)
Minimum pension liability adjustment (4,164) (4,164)
Cumulative translation adjustment (307) (1,968)
-------------- --------------
43,210 60,600
-------------- --------------
$ 1,114,291 $ 1,122,627
-------------- --------------
-------------- --------------
The accompanying notes are an integral part of these balance sheets.
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LEAR SEATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Three Months Three Months
Ended Ended
April 3, 1993 April 2, 1994
----------------- -----------------
(Unaudited)
Net sales $ 458,022 $ 686,736
Cost of sales 417,798 636,763
Selling, general and
administrative expenses 14,629 16,885
Amortization of goodwill 2,187 2,802
----------- -----------
Operating income 23,408 30,286
Interest expense 9,977 13,930
Other expense (income) (51) 2,510
----------- -----------
Income before provision for
national income taxes 13,482 13,846
Provision for national income taxes 7,362 7,318
----------- -----------
Net income $ 6,120 $ 6,528
----------- -----------
----------- -----------
Net income per common share:
Primary $ 0.15 $ 0.16
----------- -----------
----------- -----------
Fully Diluted $ 0.15 $ 0.16
----------- -----------
----------- -----------
The accompanying notes are an integral part of these statements.
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LEAR SEATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Three Months
Ended Ended
April 3, 1993 April 2, 1994
----------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,120 $ 6,528
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization of goodwill 9,635 13,068
Amortization of deferred financing fees 765 565
Deferred national income taxes 485 (945)
Other, net (3,381) 2,035
Net change in working capital items 36,666 (59,526)
----------- -----------
Net cash provided (used) by operating activities 50,290 (38,275)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (6,071) (15,453)
Other, net 482 3,627
----------- -----------
Net cash provided (used) by investing activities (5,589) (11,826)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in long-term debt, net (9,594) 6,588
Short-term borrowings, net 171 (1,447)
Increase (decrease) in cash overdrafts (5,611) 25,024
Other, net ---- 88
----------- -----------
Net cash provided (used) by financing activities (15,034) 30,253
----------- -----------
Effect of foreign currency translation 599 (814)
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 30,266 (20,662)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 31,535 55,034
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 61,801 $ 34,372
----------- -----------
----------- -----------
CHANGES IN WORKING CAPITAL, NET OF EFFECTS
OF ACQUISITIONS:
Accounts receivable, net $ (3,656) $ (57,314)
Inventories 3,391 4,093
Accounts payable 23,665 255
Accrued liabilities and other 13,266 (6,560)
----------- -----------
$ 36,666 $ (59,526)
----------- -----------
----------- -----------
SUPPLEMENTARY DISCLOSURE:
Cash paid for interest $ 11,469 $ 11,818
----------- -----------
----------- -----------
Cash paid for income taxes $ 6,586 $ 6,508
----------- -----------
----------- -----------
The accompanying notes are an integral part of these statements.
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LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Lear
Seating Corporation ("the Company"), a Delaware corporation, and its
wholly-owned and majority-owned subsidiaries. Investments in less than
majority-owned businesses are generally accounted for under the equity method.
Prior to December 31, 1993, the Company was a wholly-owned subsidiary of
Lear Holdings Corporation ("Holdings"). On December 31, 1993, Holdings was
merged with and into the Company and the separate corporate existence of
Holdings ceased (the "Merger"). Prior to the Merger, Holdings had several other
wholly-owned subsidiaries, including LS Acquisition No. 14 ("LS No. 14"), Lear
Seating Holdings Corp. No. 50 ("LS No. 50") and Lear Seating Sweden, AB
("LS-Sweden"). In conjunction with the Merger, these companies became
subsidiaries of the Company. The Merger has been accounted for and reflected in
the accompanying financial statements as a merger of companies under common
control. As such, the financial statements of the Company have been restated as
if the current structure (post-Merger) had existed for all periods presented.
(2) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined principally using the first-in, first out method. Finished goods and
work-in-process inventories include material, labor and manufacturing overhead
costs.
Inventories are comprised of the following (in thousands):
DECEMBER 31, APRIL 2,
1993 1994
----------- --------
Raw materials $42,470 $50,808
Work in process 23,394 7,739
Finished goods 5,867 8,974
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$71,731 $67,521
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(3) 1994 REFINANCING
On February 3, 1994, the Company completed a public offering of
$145,000,000 of 8 1/4% Subordinated Notes, due 2002 (the "8 1/4% Notes"). The
8 1/4% Notes require interest payments semi-annually on February 1 and August
1. Fees and expenses related to the issuance of the 8 1/4% Notes were
approximately $5,000,000.
The net proceeds from the sale of the 8 1/4% Notes were used to finance
the redemption of 14% subordinated debentures, due 2000. Simultaneously with the
sale of 8 1/4% Notes, the Company called the 14% subordinated debentures for
redemption on March 4, 1994, at a redemption price equal to 105.4% of the
outstanding principal amount of $135,000,000, plus accrued interest to the
redemption date.
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LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) ACQUISITION
On November 1, 1993, the Company purchased certain assets of the
Plastics and Trim Products Division of Ford Motor Company ("Ford") consisting of
(i) the U.S. operations that supply seat trim and trimmed seat assemblies to
Ford which are manufactured by Favesa, S.A. de C.V. ("Favesa"); (ii) all of
the shares of Favesa, a maquiladora company located in Juarez, Mexico; and
(iii) certain inventories and assets employed in the operation of Favesa
(collectively referred to as the "NAB"). In connection with this transaction,
the Company and Ford entered into a long-term supply agreement for certain
products produced by these operations at agreed upon prices. This acquisition
was accounted for as a purchase, and accordingly, the operating results of the
NAB have been included in the accompanying financial statements since the date
of acquisition.
Assuming the acquisition had taken place as of the beginning of the
period, the consolidated pro forma results of operations of the Company would
have been as follows, after giving effect to certain adjustments, including
certain operations adjustments consisting principally of management's best
estimates of the effects of product pricing adjustments negotiated in connection
with the acquisition and incremental ongoing NAB engineering, overhead and
administrative expenses, increased interest expense and goodwill amortization
and the related income tax effects (unaudited, in thousands, except per share
data):
Three Months Ended
April 3, 1993
-------------
Net sales $581,150
Net income 8,302
Net income per common share 0.21
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LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) LONG-TERM DEBT
Long term debt is comprised of the following (in thousands):
DECEMBER 31, APRIL 2,
1994 1994
------------ --------
Senior Debt:
German term loan $ 7,592 $ 7,314
Revolving credit loans:
Domestic 230,700 225,700
Canadian - 3,040
---------- --------
230,700 228,740
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238,292 236,054
---------- --------
Less - current portion (1,168) (1,170)
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237,124 234,884
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Subordinated Debt:
11 1/4% Senior Notes 125,000 125,000
14 % Debentures 135,000 -
8 1/4% Notes - 145,000
---------- --------
260,000 270,000
Note Payable 1,200 -
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$498,324 $504,884
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(6) POST-RETIREMENT AND POST-EMPLOYMENT BENEFITS
On July 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers Accounting for Post-retirement Benefits Other Than
Pensions" for its domestic plans. The effect of the adoption of this standard
for the three months ended April 2, 1994 was an additional charge of
approximately $1.8 million. This charge includes approximately $.3 million of
amortization of the net transition obligation at the date of adoption of
approximately $25.6 million.
On January 1, 1994, the Company adopted Statement of Financial
Accounting Standards NO. 112, "Employers Accounting for Post-Employment
Benefits." This statement requires that employers accrue the cost of
post-employment benefits during the employees' active service. The impact of
adoption was not material to the Company's financial position or results of
operations.
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LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) NET INCOME PER COMMON SHARE
The weighted average number of shares of common stock after giving
effect to the split of the Company's common stock (Note 8) is as follows for the
periods presented:
Three Months Three Months
Ended Ended
April 3, 1993 April 2, 1994
------------- -------------
Primary 40,381,418 41,963,565
Fully Diluted 40,381,418 42,014,029
(8) SUBSEQUENT EVENTS
On April 13, 1994, the Company consumated an initial public offering of
its common stock at a price of $15.50 per share. Of the 10,312,500 shares
offered, 7,187,500 shares were sold by the Company and 3,125,000 shares were
sold by a stockholder of the Company. The net proceeds to the Company of
approximately $104 million were used to repay a portion of the indebtedness
outstanding under the credit agreement incurred to finance the NAB Acquisition.
Prior to the initial public offering of the Company's common stock, the
Company split its common stock at 33 for 1 and amended its Stockholders and
Registration Rights Agreement to, among other things, relax certain restrictions
on transfers of common stock owned by parties to the agreement and remove the
rights of certain management investors to require the Company to redeem their
stock upon certain triggering events. All references to the numbers of shares
of common stock and income per share in the accompanying financial statements
and notes thereto have been adjusted to give effect to the stock split.
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Item 2 - Managements' Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Three months ended April 2, 1994, compared with three months ended April
3, 1993.
Record sales of $686.7 million in the quarter ended April 2, 1994
surpassed the quarter ended April 3, 1993, by $228.7 million or 49.9%. Sales in
the first quarter of the current fiscal year benefitted from the acquisition of
the North American seat and seat cover business (the "NAB") from Ford Motor
Company on November 1, 1993, new business in North America and volume increases
on mature domestic seating programs.
Sales in the United States of $468.4 million increased in the first
quarter of calendar year 1994 as compared to the first quarter of the prior year
by $257.3 million or 121.8%. Sales for the quarter ended April 2, 1994,
benefitted from the contribution of $139.8 million in sales from the NAB
acquisition, vehicle production increases on mature seating programs by domestic
automotive manufacturers, incremental volume on new Chrysler truck and Ford
passenger car programs and sales of $37.2 million generated by a new lead vendor
program under which the Company assumed management of components for a seat
program with Ford.
Sales in Canada of $66.4 million declined in relation to the first
quarter of calendar year 1993 by $39.8 million due to downtime associated with a
General Motors plant conversion necessary for a replacement passenger car which
reduced sales by $52.3 million. Initial production of the replacement General
Motors program began in February 1994, with attainment of full production levels
scheduled for the latter part of the second quarter. Partially offsetting the
decrease were sales generated by the new Ford Windstar program introduced in
February 1994.
Sales in Europe of $103.3 million exceeded prior year by $7.6 million or
8.0%, despite unfavorable exchange rate fluctuations in Germany and Sweden, due
to additional volume on carryover seating programs in Germany and Austria and
new programs for the GM Opel 2800 and Jaguar which began production in the
current quarter.
Sales in Mexico of $48.6 million in the quarter ended April 2, 1994,
surpassed the first quarter of the prior year by $3.6 million largely as a
result of increased production requirements on existing Volkswagen and Chrysler
programs which offset reduced sales to General Motors.
Gross profit (net sales less cost of sales) and gross margin (gross
profit as a percentage of net sales) were $50.0 million and 7.3% for the quarter
ended April 2, 1994 as compared to $40.2 million and 8.8% in the previous year.
Gross profit in the first quarter of calendar year 1994 benefitted from the
increased sales in North America, including the benefit of the NAB acquisition
which offset engineering and preproduction costs for new operations in the
United States, Canada and England and lost margin contribution associated with
General Motors model
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changeover in Canada. SFAS 106 (post retirement health care costs) had an
unfavorable impact on gross profit in the current quarter of $1.6 million.
Selling, general and administrative expenses decreased to 2.5% of net
sales for the first quarter of calendar year 1994 as compared to 3.2% a year
earlier. The increase in actual expenditures was largely the result of business
unit expansion necessary to support domestic original equipment manufacturers
and to increased research and development costs for future seating programs and
the NAB business.
Operating income and operating margin were $30.3 million and 4.4% for
the period ending April 2, 1994, as compared to $23.4 million and 5.1% a year
earlier. The increase in operating income was largely the result of the NAB
acquisition coupled with the benefits derived from incremental volume on new and
mature seating programs in North America which offset engineering and facility
costs for programs to be introduced in the next twelve months, plant downtime in
Canada and the impact of SFAS 106. Non-Cash Depreciation and amortization
charges were $13.1 million and $9.6 million for the first quarter of calendar
year 1994 and 1993, respectively.
Interest expense increased in the quarter ended April 2, 1994, as
compared to the prior year due to additional debt incurred to finance the NAB
acquisition and the thirty day overlap of two individual issues of subordinated
debt caused by the refinancing of 14% subordinated debt with recently issued
8 1/4% subordinated debt.
Other expense for the three months ended April 2, 1994, including state
and local taxes, foreign exchange, minority interest and equity income of
affiliates increased in comparison to prior year due to reduced income derived
from joint ventures accounted for under the equity method and state and local
taxes associated with the purchase of the NAB.
Net Income of $6.5 million or fully diluted earnings per share of $.16
were realized for the quarter ended April 2, 1994, as compared to net income of
$6.1 million or fully diluted earnings per share of $.15 in the corresponding
quarter in the prior year. The net income of $6.5 million reflects additional
expenses of $1.8 million related to SFAS 106 and also a $7.3 million provision
for national income taxes which remained essentially unchanged from prior year.
Pro forma net income for the first quarter of 1994 after giving effect to the
refinancing of the 14 percent subordinated debt through the issuance of 8 1/4
percent subordinated debt and the recently completed initial public offering as
if these transactions had occurred as of the beginning of the quarter ended
April 2, 1994 would have been $8.5 million.
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LIQUIDITY AND FINANCIAL CONDITION
As of April 2, 1994, the Company had a $425.0 million revolving credit facility
under which $225.7 million was outstanding and $39.2 million was committed and
outstanding under letters of credit, leaving $160.1 million unused and
available. On April 13, 1994, the Company received net proceeds of $103.6
million related to the initial public offering of its common stock (See Note 8,
Subsequent Events, for a more complete discussion of this transaction). These
proceeds were used to reduce the amount outstanding under the credit facility
thereby increasing the amount unused and available under the revolving credit
facility by $103.6 million. The Company also had term loans outstanding in
Germany of approximately $7.3 million. As of April 2, 1994, the Company had
net cash and cash equivalents of $34.4 million.
Amounts available under the Credit Agreement will be reduced by $40.0 million
every six months beginning October 31, 1996, and the Credit Agreement will
expire on October 31, 1998. Excluding amounts outstanding under the Credit
Agreement which will be due upon the expiration of the Credit Agreement, the
Company's scheduled principal payments for the remainder of calendar year 1994
are $.8 million and are $1.1 million in each of the next five calendar years.
Changes in working capital declined from a source of $36.7 million in the first
quarter of 1993 to a use of $59.5 million in 1994 primarily as a result of
increased receivable levels from December 31, 1993 due to increased sales and
the addition of NAB. In addition, capital expenditures for the quarter ended
April 2, 1994 were $15.5 million, compared to $5.8 million during the same
quarter in 1993, due to a significant number of new program scheduled to begin
production during calendar 1994.
In February, 1994, the Company took advantage of the favorable interest rate
environment by refinancing $135.0 million in aggregate principal amount of its
14% Subordinated Debentures by issuing $145.0 million aggregate principal
amount of 8-1/4% Subordinated Notes due 2002. The additional proceeds were
used to pay a 5.4% call premium and a portion of the accrued interest due on
the redemption of the 14% Subordinated Debentures.
The Company believes that cash flow from operations and available credit
facilities will be sufficient to meet its debt service obligations, projected
capital expenditures and working capital requirements.
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LEAR SEATING CORPORATION
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
a. The following is the exhibit required to be filed as part of this
report:
4.1 First Amendment to the Lear Seating Corporation 1992 Stock
Option Plan.
b. The following report on Form 8-K was filed during the quarter
ended April 2, 1994:
Form 8-K dated February 8, 1994 which changed the Company's fiscal
year end from June 30 to December 31.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEAR SEATING CORPORATION
Dated: May 16, 1994 By:/s/ James H. Vandenberghe
-----------------------------------------------------
James H. Vandenberghe
Executive Vice President
Chief Financial Officer
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LEAR SEATING CORPORATION
EXHIBIT INDEX
QUARTER ENDED APRIL 2, 1994; FORM 10-Q
Exhibit
Number
- ------
Instruments defining the rights of security holders,
including indentures:
4.1 First Amendment to the Lear Seating Corporation
1992 Stock Option Plan.