1
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 SEPTEMBER 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 October 31, 1994: 22,088,107
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LARIZZA INDUSTRIES, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1994
INDEX
Page No.
--------
Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
September 30, 1994 and December 31, 1993 . . . . . . . . 3
Consolidated Condensed Statements of Operations -
Three Months and Nine Months Ended September 30, 1994
and 1993 . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 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 . . . . . . . . . . 8
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 10
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LARIZZA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
September 30, December 31,
1994 1993
---------------- ----------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 826 559
Accounts receivable, net 25,194 20,426
Inventories:
Raw materials 4,693 4,428
Work in process 1,317 1,032
Finished goods 2,227 1,808
--------- -------
Total inventories 8,237 7,268
--------- -------
Reimbursable tooling costs 2,922 2,178
Net current assets of discontinued operations 2,187 1,627
Other current assets 941 625
--------- -------
Total current assets 40,307 32,683
--------- -------
Property, plant and equipment, at cost 50,261 46,978
Less accumulated depreciation and amortization 23,022 20,862
--------- -------
Net property, plant and equipment 27,239 26,116
--------- -------
Notes receivable from principal shareholders 2,232 2,136
Goodwill and other intangibles, net 2,712 2,782
Net noncurrent assets of discontinued operations 68 137
--------- -------
$ 72,558 63,854
========= =======
Current liabilities:
Current installments of long-term debt and capitalized lease obligation $ 2,104 4,679
Accounts payable 17,568 14,267
Income taxes payable 3,675 1,008
Accrued salaries and wages 2,756 1,469
Accrual for loss on sale of discontinued operations 2,266 2,118
Other accrued expenses 6,197 4,863
--------- -------
Total current liabilities 34,566 28,404
--------- -------
Long-term debt, excluding current installments 27,300 81,460
Capitalized lease obligation, excluding current installments 593 780
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 (70,951) (83,873)
Foreign currency translation adjustment (3,977) (2,953)
--------- -------
Total shareholders' equity (deficit) 7,403 (64,073)
--------- -------
$ 72,558 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 Nine Months Ended
September 30, September 30,
----------------------- ----------------------
1994 1993 1994 1993
---- ---- ---- ----
Net sales $ 37,673 31,144 $ 121,513 110,149
Cost of goods sold 30,334 25,377 95,356 86,257
---------- ------ ---------- -------
Gross profit 7,339 5,767 26,157 23,892
Selling, general and administrative expenses 3,316 2,488 10,067 8,274
---------- ------ ---------- -------
Operating income 4,023 3,279 16,090 15,618
Other income (expense):
Interest expense, net (537) (1,509) (2,275) (4,740)
Foreign exchange gain (loss) 48 (16) 156 (192)
Other, net (51) (193) 96 (202)
---------- ------ ---------- -------
(540) (1,718) (2,023) (5,134)
---------- ------ ---------- -------
Income before income tax provision and extraordinary gain 3,483 1,561 14,067 10,484
Income tax provision 735 - 3,550 -
---------- ------ ---------- -------
Income before extraordinary gain 2,748 1,561 10,517 10,484
Extraordinary gain on refinancing of debt - - 2,405 -
---------- ------ ---------- -------
Net income $ 2,748 1,561 $ 12,922 10,484
========== ====== ========== =======
Income per common share:
Primary
Income before extraordinary gain $ .12 .11 .53 .76
Extraordinary gain - - .12 -
---------- ------ ---------- -------
Net income per common share $ .12 .11 $ .65 .76
========== ====== ========== =======
Fully diluted
Income before extraordinary gain $ .51 .62
Extraordinary gain .11 -
---------- -------
Net income per common share $ .62 .62
========== =======
Weighted average number of shares of common stock outstanding
Primary 22,088 13,805 19,995 13,805
Fully diluted n/a 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)
Nine Months Ended
September 30,
----------------------------------
1994 1993
------ ------
Operations:
Net income $ 12,922 10,484
Noncash items:
Depreciation and amortization 3,106 3,262
Foreign exchange (gain) loss (156) 192
Amortization of deferred gain (368) (1,007)
Extraordinary gain on refinancing of debt (2,405) -
Interest accrued on long-term debt 791 3,122
Operating working capital decrease (increase) 1,406 (293)
Other, net (252) 201
------------ --------
15,044 15,961
------------ --------
Investments:
Property, plant and equipment, net (4,161) (2,474)
Other, net (96) (116)
------------ --------
(4,257) (2,590)
------------ --------
Financing:
Issuance of debt 36,000 -
Repayments of debt (45,903) (10,647)
Other, net - (1,036)
------------ --------
(9,903) (11,683)
Effect of exchange rates on cash (617) (371)
------------ --------
Net increase in cash and cash equivalents 267 1,317
Cash and cash equivalents at beginning of period 559 489
------------ --------
Cash and cash equivalents at end of period $ 826 1,806
============ ========
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
SEPTEMBER 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 nine 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 first nine months of 1993, interest
expense of $3,122,000 related to the U.S. Loan was added back into
income. Such conversion was not dilutive during the quarter ended
September 30, 1993.
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 Bank of America Illinois (formerly 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 was 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 $16,050,000 was outstanding on September 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 October 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 and the assets of Hughes Plastics,
Inc.
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 $13,125,000 was outstanding on September 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 October 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 September 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 - $937,500; 1995 - $937,500; 1996 - $ 0, 1997-
$16,050,000, 1998 - $0; 1999 - $11,250,000.
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LARIZZA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(4) Subsequent Event
On October 20, 1994, the Company purchased all of the outstanding stock of
LVB Industries, Inc. and then merged LVB Industries, Inc. into its
wholly-owned subsidiary Hughes Plastics, Inc. The Purchase price is
subject to post closing adjustments which have not yet been determined.
In connection with the acquisition, the Company also entered into a
seven-year lease for a 70,000 square foot facility in St. Joseph Michigan,
with an option to extend the lease for an additional seven years, for
$21,000 a month. The Company also has an option to purchase the premises
for $2,000,000 during the initial term of the lease. Also in connection
with the acquisition, Hughes Plastics, Inc. guaranteed the Company's
loans agented by Bank of America Illinois and granted a security interest
in all of its assets to secure its obligations under the guaranty.
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ITEM 2.
LARIZZA INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Third Quarter Ended September 30, 1994 compared with
Third Quarter Ended September 30, 1993
Net sales increased $6.5 million, or 21.0%, in the quarter ended September
30, 1994 compared to the quarter ended September 30, 1993. This increase in
net sales resulted largely from increased production levels of vehicles in
which the Company's products are used. Future sales are expected to increase
as a result of the Company's acquisition of Hughes Plastics, Inc. effective
October 20, 1994. Hughes Plastics, Inc.'s sales for the three months ended
September 30, 1994 were approximately $3.7 million.
Gross profit increased $1.6 million, or 27.3%, in the quarter ended September
30, 1994 compared to the quarter ended September 30, 1993. This increase in
gross profit is a result of higher sales and higher gross profit margins. The
gross profit margin increased to 19.5% in the 1994 period from 18.5% in the
1993 period. Gross profit margins were impacted favorably by the effect of
higher sales on fixed costs.
Operating income for the quarter ended September 30, 1994 was $4.0 million
compared to operating income of $3.3 million for the quarter ended September
30, 1993. This increase in operating income resulted from increased gross
profit, partially offset by higher selling, general and administrative
expenses. Operating income as a percentage of net sales was 10.7% in the 1994
third quarter compared to 10.5% in the 1993 third quarter.
Selling, general and administrative expenses increased by $0.8 million in the
quarter ended September 30, 1994 compared to the quarter ended September 30,
1993. Selling expenses were up by $0.3 million as a result of higher sales,
and general and administrative expenses were up by $0.5 million as a result of
generally higher expenses.
Interest expense for the quarter ended September 30, 1994 decreased by $1.0
million compared to the quarter ended September 30, 1993, primarily as a
result of the conversion of $47.0 million of 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
$0.7 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 to use its remaining U.S. tax loss carryforwards during 1995.
Nine Months Ended September 30, 1994 compared with
Nine Months Ended September 30, 1993
Net sales for the nine months ended September 30, 1994 increased $11.4 million,
or 10.3%, compared with the net sales for the nine months ended September 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 $2.3 million, or 9.5%, in the nine month period ended
September 30, 1994 compared to the nine month period ended September 30, 1993.
This increase in gross profit is a result of higher sales. The gross profit
margin was 21.5% in the 1994 period and 21.7% in the 1993 period.
Operating income for the nine months ended September 30, 1994 was $16.1 million
compared to operating income of $15.6 million for the nine months ended
September 30, 1993. This increase in operating income resulted from increased
gross profit, partially offset by higher selling, general and administrative
expenses. Operating income as a percentage of net sales was 13.2% in the 1994
period compared to 14.2% in the 1993 period.
Selling, general and administrative expenses increased by $1.8 million in the
nine months ended September 30, 1994 compared to the nine months ended
September 30, 1993. Selling expenses were up by $0.6 million as a result of
higher sales and general and administrative expenses were up by $1.2 million.
The increase in general and administrative expenses resulted 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
generally higher expenses.
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LARIZZA INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest expense for the nine months ended September 30, 1994 decreased $2.5
million compared to the nine months ended September 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 nine month period, the Company recorded an income tax
provision of $3.6 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 to use its remaining U.S. tax loss carryforwards
during 1995.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's net cash position increased by $0.3 million during the first nine
months of 1994. Cash in the amount of $15.0 million was generated by
operations. Cash in the amount of $4.2 million was used for capital
expenditures and cash of $9.9 million was paid to reduce debt during the nine
months 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 requirements for the next twelve months. At
September 30, 1994, the Company had $10.4 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 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
10.2 Lease among Louis V. Buzzitta, Catherine F. Buzzitta and Hughes Plastics, Inc.
dated October 20, 1994.
10.10(a)(2) Second Amendment to Credit Agreement, dated as of October 19, 1994, among Larizza
Industries, Inc., various financial institutions and Bank of America Illinois.
10.10(b)(3) Note, dated as of August 31, 1994, in the principal amount of $17,375,000 from Larizza
Industries, Inc. to Continental Bank N.A.
10.10(b)(4) Note, dated as of August 31, 1994, in the principal amount of $6,950,000 from Larizza
Industries, Inc. to Sanwa Business Credit Corporation.
10.11(b)(3) Note dated as of August 31, 1994, in the principal amount of $7,031,250 from Manchester
Plastics, Ltd. to Continental Bank N.A.
10.11(b)(4) Note, dated as of August 31, 1994, in the principal amount of $2,812,500 from Manchester
Plastics, Ltd. to Sanwa Business Credit Corporation.
10.15 Stock Purchase Agreement, dated October 13, 1994, among Larizza Industries, Inc.
and Diane M. Buzzitta Trust, Phillip F. Wood, Trustee, Diane M. Buzzitta, Louis V. Buzzitta,
Joseph T. Buzzitta and James V. Buzzitta, LVB Industries, Inc. and Hughes Plastics, Inc.
10.15(a) Guarantee, dated as of October 21, 1994, by Hughes Plastics, Inc. in favor of Bank of
America Illinois and other Banks.
10.15(b) Security Agreement, dated as of October 21, 1994, between Hughes Plastics, Inc. and
Bank of America Illinois.
10.15(c) Subordinated Note, dated as of October 20, 1994, in the amount of $1,200,000 from Larizza
Industries, Inc. to Louis V. Buzzitta.
10.15(d) Subordinated Note, dated as of October 20, 1994, in the amount of $500,000 from Larizza
Industries, Inc. to Louis V. Buzzitta.
27 Financial Data Schedule
b) Reports on Form 8-K filed during the third quarter:
There were no reports on form 8-K filed by the Registrant during the
quarter ended September 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: November 7, 1994 Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer of the
Registrant)
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EXHIBIT INDEX
Exhibit
No. Description Page
- - - ------- ----------- ----
10.2 Lease Among Louis V. Buzzitta, Catherine F. Buzzitta and Hughes Plastics, Inc.
dated October 20, 1994.
10.10(a)(2) Second Amendment to Credit Agreement, dated as of October 19, 1994, among Larizza
Industries, Inc., various financial institutions and Bank of America Illinois.
10.10(b)(3) Note, dated as of August 31, 1994, in the principal amount of $17,375,000 from Larizza
Industries, Inc. to Continental Bank N.A.
10.10(b)(4) Note, dated as of August 31, 1994, in the principal amount of $6,950,000 from Larizza
Industries, Inc. to Sanwa Business Credit Corporation.
10.11(b)(3) Note dated as of August 31, 1994, in the principal amount of $7,031,250 from Manchester
Plastics, Ltd. to Continental Bank N.A.
10.11(b)(4) Note, dated as of August 31, 1994, in the principal amount of $2,812,500 from Manchester
Plastics, Ltd. to Sanwa Business Credit Corporation.
10.15 Stock Purchase Agreement, dated October 13, 1994, among Larizza Industries, Inc.
and Diane M. Buzzitta Trust, Phillip F. Wood, Trustee, Diane M. Buzzitta, Louis V. Buzzitta,
Joseph T. Buzzitta and James V. Buzzitta, LVB Industries, Inc. and Hughes Plastics, Inc.
10.15(a) Guarantee, dated as of October 21, 1994, by Hughes Plastics, Inc. in favor of Bank of
America Illinois and other Banks.
10.15(b) Security Agreement, dated as of October 21, 1994, between Hughes Plastics, Inc. and
Bank of America Illinois.
10.15(c) Subordinated Note, dated as of October 20, 1994, in the amount of $1,200,000 from Larizza
Industries, Inc. to Louis V. Buzzitta.
10.15(d) Subordinated Note, dated as of October 20, 1994, in the amount of $500,000 from Larizza
Industries, Inc. to Louis V. Buzzitta.
27 Financial Data Schedule