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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 JUNE 30, 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 July 29, 1994: 22,088,107
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LARIZZA INDUSTRIES, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 1994
INDEX
Page No.
--------
Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
June 30, 1994 and December 31, 1993 . . . . . . . . . . 3
Consolidated Condensed Statements of Operations -
Three Months and Six Months Ended June 30, 1994 and 1993 4
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30,1994 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 4. Submission of Matters to a Vote of Security Holders . . 9
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 9
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LARIZZA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
June 30, December 31,
1994 1993
------------ ------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 125 559
Accounts receivable, net 25,963 20,426
Inventories:
Raw materials 3,873 4,428
Work in process 1,092 1,032
Finished goods 1,883 1,808
--------- ---------
Total inventories 6,848 7,268
--------- ---------
Reimbursable tooling costs 2,734 2,178
Net current assets of discontinued operations 2,020 1,627
Other current assets 1,208 625
--------- ---------
Total current assets 38,898 32,683
--------- ---------
Property, plant and equipment, at cost 48,458 46,978
Less accumulated depreciation and amortization 21,625 20,862
--------- ---------
Net property, plant and equipment 26,833 26,116
--------- ---------
Notes receivable from principal shareholders 2,199 2,136
Goodwill and other intangibles, net 2,687 2,782
Net noncurrent assets of discontinued operations 147 137
--------- ---------
$ 70,764 63,854
========= =========
Current liabilities:
Current installments of long-term debt and capitalized lease obligation $ 3,029 4,679
Accounts payable 16,194 14,267
Income taxes payable 3,252 1,008
Accrued salaries and wages 2,092 1,469
Accrual for loss on sale of discontinued operations 2,210 2,118
Other accrued expenses 6,358 4,863
--------- ---------
Total current liabilities 33,135 28,404
--------- ---------
Long-term debt, excluding current installments 30,000 81,460
Capitalized lease obligation, excluding current installments 635 780
Deferred gain on debt restructure - 6,097
Deferred income taxes 1,400 1,400
Accrued interest - 8,463
Other long-term liabilities 1,296 1,323
Shareholders' equity (deficit):
Common stock 76,780 17,202
Additional paid-in capital 5,551 5,551
Accumulated deficit (73,699) (83,873)
Foreign currency translation adjustment (4,334) (2,953)
---------- ----------
Total shareholders' equity (deficit) 4,298 (64,073)
---------- ----------
$ 70,764 63,854
========== ==========
See accompanying notes to unaudited consolidated 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 Six Months Ended
June 30, June 30,
--------------------- ---------------------
1994 1993 1994 1993
---- ---- ---- ----
Net sales $ 42,779 39,390 $ 83,840 79,005
Cost of goods sold 32,848 30,207 65,022 60,880
---------- --------- ---------- ----------
Gross profit 9,931 9,183 18,818 18,125
Selling, general and administrative expenses 3,655 2,938 6,751 5,786
---------- ---------- ---------- ----------
Operating income 6,276 6,245 12,067 12,339
Other income (expense):
Interest expense, net ( 587) (1,570) (1,738) (3,231)
Foreign exchange gain (loss) (150) 78 108 (176)
Other, net (189) (4) 147 ( 9)
---------- ----------- ---------- ----------
(926) (1,496) (1,483) (3,416)
---------- ---------- ---------- ----------
Income before income tax provision and extraordinary gain 5,350 4,749 10,584 8,923
Income tax provision 980 - 2,815 -
---------- ----------- ---------- ----------
Income before extraordinary gain 4,370 4,749 7,769 8,923
Extraordinary gain on refinancing of debt 2,405 - 2,405 -
---------- ---------- ---------- ----------
Net income $ 6,775 4,749 $ 10,174 8,923
========== ========== ========== ==========
Income per common share:
Primary
Income before extraordinary gain $ .20 . 34 $ .41 .65
Extraordinary gain .11 - .13 -
---------- ---------- --------- ----------
Net income per common share $ .31 .34 $ .54 .65
========== ========== ========= ==========
Fully diluted
Income before extraordinary gain $ .26 $ .39 .50
Extraordinary gain - .11 -
----------- ---------- ----------
Net income per common share $ .26 $ .50 .50
=========== ========== ==========
Weighted average number of shares of common stock outstanding
Primary 22,088 13,805 18,930 13,805
Fully diluted 22,088 22,088 22,088
See accompanying notes to unaudited consolidated financial statements.
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LARIZZA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
--------------------------
1994 1993
------ ------
Operations:
Net income $ 10,174 8,923
Noncash items:
Depreciation and amortization 2,065 2,231
Foreign exchange (gain) loss (108) 176
Amortization of deferred gain (368) (671)
Extraordinary gain on refinancing of debt (2,405) -
Interest accrued on long-term debt 791 2,071
Operating working capital increase (522) (83)
Other, net (252) 17
------------ ----------
9,375 12,664
------------ ----------
Investments:
Property, plant and equipment, net (3,162) (833)
Other, net (63) (77)
------------ ----------
(3,225) (910)
------------ ----------
Financing:
Issuance of debt 36,000 -
Repayments of debt (42,213) (7,262)
Other, net - (957)
------------ -----------
(6,213) (8,219)
Effect of exchange rates on cash (371) (212)
------------ ----------
Net increase (decrease) in cash and cash equivalents (434) 3,323
Cash and cash equivalents at beginning of period 559 489
------------ ----------
Cash and cash equivalents at end of period $ 125 3,812
============ ==========
Noncash financing activities:
Conversion of debt to equity $ 59,578
============
See accompanying notes to unaudited consolidated financial statements.
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LARIZZA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
JUNE 30, 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 were
adjusted to assume the conversion of the U.S. Loan of $47,000,000 plus
accrued interest into 8,283,040 shares of common stock at the beginning of
the period. To adjust net income for the first six months of 1994,
interest expense of $791,000 related to the U.S. Loan was added back into
income. To adjust net income for the second quarter and first six months
of 1993, interest expense of $1,042,000 and $2,071,000, respectively,
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
reduced 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, respectively, and increased common
stock by $59,578,000.
(3) New Credit Facility / Extraordinary Gain
On May 6, 1994, the Company signed a new $50,000,000 credit facility
agented by Continental Bank N.A..The initial borrowing of $36,000,000
consisted of $35,600,000 used to repay existing indebtedness and $400,000
used to pay various loan fees and expenses. This debt refinancing
resulted in the recognition of the remaining deferred gain on debt
restructure which is recorded as an extraordinary gain in the second
quarter of 1994.
The new facility includes a $27,000,000 revolving line of credit for the
Company, of which $18,750,000 was outstanding on June 30, 1994, and an
$8,000,000 revolving line of credit for tooling and capital equipment for
the Company. The amount available under the $27,000,000 line of credit is
reduced by $250,000 at the end of each quarter in 1994 (beginning June 30,
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 which can vary each quarter based on specified financial covenants.
The margins at July 1, 1994 were 1.75% for Eurodollar Loans and 0% for
reference rate loans. 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. 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 $2,000,000. 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 $15,000,000 term loan to
Manchester Plastics, Ltd., the Company's Canadian subsidiary, secured by
all of its assets, of which $14,062,500 was outstanding on June 30, 1994.
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
which varies each quarter based on Manchester Plastics' net worth. The
margins at July 1, 1994 were 3.50% for Eurodollar loans and 1.75% for
reference rate loans. Interest is payable quarterly.
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 June 30, 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 - $1,875,000; 1995 - $937,500; 1996 - $2,500,000
1997 - $16,250,000; 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:
Second Quarter Ended June 30, 1994 compared with
Second Quarter Ended June 30, 1993
Net sales increased $3.4 million, or 8.6%, in the quarter ended June 30, 1994
compared to the quarter ended June 30, 1993. This increase in net sales
resulted largely from increased production levels of vehicles in which the
Company's products are used.
Gross profit increased $0.7 million, or 8.1%, in the quarter ended June 30,
1994 compared to the quarter ended June 30, 1993. This increase in gross
profit is a result of higher sales. The gross profit margin was 23.2% in the
1994 period and 23.3% in the 1993 period. Gross profit margins in the current
period were impacted slightly by start-up costs associated with new business.
Operating income for the quarter ended June 30, 1994 was $6.3 million compared
to operating income of $6.2 million for the quarter ended June 30, 1993.
Operating income as a percentage of net sales was 14.7% in the current quarter
compared to 15.9% in the comparable prior year's quarter. The decrease in
operating income margins was a result of higher selling, general and
administrative costs.
Selling, general and administrative expenses increased $0.7 million in the
quarter ended June 30, 1994 compared to the quarter ended June 30, 1993. This
increase resulted primarily from costs associated with the filing of a
registration statement which was subsequently withdrawn and a refinancing of
the Company's remaining debt, as well as increased selling expenses. As
described in Note 3 of Notes to Consolidated Condensed Financial Statements,
the Company signed a $50.0 million credit facility with Continental Bank N.A.
during the second quarter of 1994.
Interest expense for the quarter ended June 30, 1994 decreased $1.0 million
compared to the quarter ended June 30, 1993, primarily as a result of the
conversion of $47.0 million in principal amount of debt, plus the related
accrued interest, into common stock on March 11, 1994.
During the current quarter, the Company recorded an income tax provision of
$1.0 million. The Company had no income tax provision in the prior year's
period as a result of U.S. and Canadian tax loss carryforwards. The Canadian
tax loss carryforwards were fully used during the fourth quarter of 1993. The
Company expects its tax rate to increase in the last two quarters of 1994 but
to remain below the statutory tax rate as the Company utilizes its remaining
U.S. tax loss carryforward.
Six Months Ended June 30, 1994 compared with
Six Months Ended June 30, 1993
Net sales for the six months ended June 30, 1994 increased $4.8 million, or
6.1%, compared with the net sales for the six months ended June 30, 1993. This
increase in net sales resulted largely from increased production levels of
vehicles in which the Company's products are used.
Gross profit increased $0.7 million, or 3.8%, in the six month period ended
June 30, 1994 compared to the six month period ended June 30, 1993. This
increase in gross profit is a result of higher sales offset slightly by lower
gross profit margins. The gross profit margin was 22.4% in the 1994 period
compared to 22.9% in the 1993 period. Gross profit margins in the current
period were impacted negatively by start-up costs associated with new business.
Operating income for the six months ended June 30, 1994 was $12.1 million
compared to operating income of $12.3 million for the six months ended June 30,
1993. Operating income as a percentage of sales was 14.4% in the current
period compared to 15.6% in the comparable prior year period. The decrease in
operating income margins resulted from slightly lower gross profit margins and
higher selling, general and administrative costs.
Selling, general and administrative expenses increased $1.0 million in the six
months ended June 30, 1994 compared to the six months ended June 30, 1993.
This increase resulted largely from costs associated with the filing of a
registration statement which was subsequently withdrawn and a refinancing of
the Company's remaining debt, as well as increased selling expenses.
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LARIZZA INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest expense for the six months ended June 30, 1994 decreased $1.5 million
compared to the six months ended June 30, 1993, primarily as a result of the
conversion of $47.0 million in principal amount of debt, plus the related
accrued interest, into common stock on March 11, 1994.
During the current six month period, the Company recorded an income tax
provision of $2.8 million. The Company had no income tax provision in the
prior year's period as a result of U.S. and Canadian tax loss carryforwards.
Canadian tax loss carryforwards were fully used during the fourth quarter of
1993. The Company expects its tax rate to increase in the last two quarters of
1994 but to remain below the statutory tax rate as the Company utilizes its
remaining U.S. tax loss carryforward.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's cash position decreased by $0.4 million during the first half of
1994. Cash in the amount of $9.4 million was generated by operations. Cash in
the amount of $3.2 million was used for capital expenditures and cash of $6.2
million was paid to reduce debt during the first half of 1994.
On March 11, 1994, the Company's lenders converted $47.0 million of principal
and $9.3 million of accrued interest into 8.3 million 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 $47.0 million, $9.3 million and $3.3 million,
respectively, and increased shareholders' equity by $59.6 million.
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. At June 30, 1994,
the Company had $8.0 million available under its new line of credit, plus, if
certain conditions are met, an additional $8.0 million available for tooling
and capital expenditure loans. For a description of the Company's new credit
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on May 31,
1994. At the annual meeting, the following persons were elected as
directors of the Company and the following votes were cast for or were
withheld from voting with respect to the election of each such person:
Votes
------------------------
Name For Withheld
-------- --- --------
Ronald T. Larizza 17,897,283 93,505
Edward L. Sawyer, Jr. 17,897,308 93,480
Edward W. Wells 17,897,308 93,480
Charles Fazio 17,930,708 60,080
Frank E. Blazey, Jr. 17,930,708 60,080
Arthur L. Wiseley 17,930,708 60,080
There were no abstentions or broker non-votes in connection with the
election of the directors at the annual meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.9(c) Consulting Agreement, dated as of June 15, 1994
between Larizza Industries, Inc. and The
Edgewater Group, Inc.
10.9(d) Finders Agreement, dated as of June 15, 1994,
between Larizza Industries, Inc. and the
Edgewater Group, Inc.
10.10(a)(1) First Amendment to Credit Agreement, dated as of
June 2, 1994, among Larizza Industries, Inc.,
various financial institutions and Continental
Bank N.A.
10.10(b)(1) Note, dated as of June 15, 1994, in the principal
amount of $24,500,000 from Larizza Industries,
Inc. to Continental Bank N.A.
10.10(b)(2) Note, dated as of June 15, 1994, in the principal
amount of $10,500,000 from Larizza Industries,
Inc. to The First National Bank of Boston.
10.11(a)(1) First Amendment to Credit Agreement, dated as of
June 2, 1994, among Manchester Plastics, Ltd.,
various financial institutions and Continental
Bank N.A.
10.11(b)(1) Note, dated as of June 15, 1994, in the principal
amount of $10,500,000 from Manchester Plastics,
Ltd. to Continental Bank N.A.
10.11(b)(2) Note, dated as of June 15, 1994, in the principal
amount of $4,500,000 from Manchester Plastics,
Ltd. to The First National Bank of Boston.
(b) Reports on Form 8-K filed during the second quarter:
There were no reports on Form 8-K filed by the Registrant during
the quarter ended June 30, 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: August 2,1994 Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer of the
Registrant)
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EXHIBIT INDEX
Exhibit
No. Description Page
- - ------- ----------- ----
10.9(c) Consulting Agreement, dated as of June 15, 1994 between
Larizza Industries, Inc. and The Edgewater Group, Inc.
10.9(d) Finders Agreement, dated as of June 15, 1994, between
Larizza Industries, Inc. and the Edgewater Group, Inc.
10.10(a)(1) First Amendment to Credit Agreement, dated as of June 2,
1994, among Larizza Industries, Inc., various financial
institutions and Continental Bank N.A.
10.10(b)(1) Note, dated as of June 15, 1994, in the principal amount
of $24,500,000 from Larizza Industries, Inc. to Continental
Bank N.A.
10.10(b)(2) Note, dated as of June 15, 1994, in the principal amount
of $10,500,000 from Larizza Industries, Inc. to The First
National Bank of Boston.
10.11(a)(1) First Amendment to Credit Agreement, dated as of
June 2, 1994, among Manchester Plastics, Ltd., various
financial institutions and Continental Bank N.A.
10.11(b)(1) Note, dated as of June 15, 1994, in the principal amount
of $10,500,000 from Manchester Plastics, Ltd. to
Continental Bank N.A.
10.11(b)(2) Note, dated as of June 15, 1994, in the principal amount
of $4,500,000 from Manchester Plastics, Ltd. to The First
National Bank of Boston.