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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 1, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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 Identification No.)
incorporation or organization)
21557 TELEGRAPH ROAD, SOUTHFIELD, MI 48034
(Address of principal executive offices) (zip code)
(810) 746-1500
(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 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 29, 1995: 46,090,123
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LEAR SEATING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED APRIL 1, 1995
INDEX
Part I - Financial Information: Page No.
Item 1 - Consolidated Financial Statements
Introduction to the Consolidated Financial Statements 3
Consolidated Balance Sheets - April 1, 1995 and
December 31, 1994 4
Consolidated Statements of Income - Three Month Periods
ended April 1, 1995 and April 2, 1994 5
Consolidated Statements of Cash Flows - Three Month
Periods ended April 1, 1995 and April 2, 1994 6
Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II - Other Information:
Item 6 - Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit Index 15
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LEAR SEATING CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION TO THE CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements of Lear Seating Corporation and
subsidiaries (Note 1) 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, 1994.
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.
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LEAR SEATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
April 1, December 31,
1995 1994
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(Unaudited)
ASSETS
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CURRENT ASSETS:
Cash and cash equivalents $ 16.2 $ 32.0
Accounts receivable 675.2 579.8
Inventories 114.8 126.6
Unbilled customer tooling 56.4 53.5
Other 41.7 26.4
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904.3 818.3
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PROPERTY, PLANT AND EQUIPMENT:
Land 37.0 36.6
Buildings and improvements 151.6 141.1
Machinery and equipment 332.1 326.8
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520.7 504.5
Less-Accumulated depreciation (162.7) (150.3)
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358.0 354.2
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OTHER ASSETS:
Goodwill, net 496.0 499.5
Deferred financing fees and other 39.6 43.1
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535.6 542.6
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$ 1,797.9 $ 1,715.1
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LIABILITIES AND STOCKHOLDER'S EQUITY
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CURRENT LIABILITIES:
Short-term borrowings $ 23.8 $ 84.1
Cash overdrafts 25.7 27.6
Accounts payable 686.8 656.7
Accrued liabilities 218.9 210.9
Current portion of long-term debt 1.6 1.9
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956.8 981.2
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LONG-TERM LIABILITIES:
Deferred national income taxes 25.4 25.3
Long-term debt 519.9 418.7
Other 78.7 76.3
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624.0 520.3
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 150,000,000 authorized at April 1,
1995 and December 31, 1994; 46,089,103 issued at April 1, 1995
and 46,088,278 issued at December 31, 1994 .5 .5
Additional paid-in capital 274.3 274.3
Notes receivable from sale of common stock (1.0) (1.0)
Less- Common stock held in treasury, 10,230 shares at
April 1, 1995 and December 31, 1994, at cost (.1) (.1)
Retained deficit (32.4) (49.4)
Minimum pension liability adjustment (5.8) (5.8)
Cumulative translation adjustment (18.4) (4.9)
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217.1 213.6
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$ 1,797.9 $ 1,715.1
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The accompanying notes are an integral part of this balance sheet.
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LEAR SEATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
Three Months Ended
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April 1, April 2,
1995 1994
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(Unaudited)
Net sales $ 1,043.5 $ 686.7
Cost of sales 966.9 636.7
Selling, general and administrative expenses 25.8 16.9
Amortization of goodwill 3.1 2.8
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Operating income 47.7 30.3
Interest expense 14.2 13.9
Other expense, net 2.1 2.6
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Income before provision for
national income taxes 31.4 13.8
Provision for national income taxes 14.4 7.3
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Net income $ 17.0 $ 6.5
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Net income per common share $ .34 $ .16
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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 MILLIONS)
Three Months Three Months
Ended Ended
April 1, 1995 April 2, 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17.0 $ 6.5
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of goodwill 18.4 13.1
Amortization of deferred financing fees .6 .5
Deferred national income taxes .1 (.9)
Other, net 5.8 2.0
Change in working capital items (77.2) (59.5)
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Net cash used by operating activities (35.3) (38.3)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (23.6) (15.4)
Other, net .1 3.6
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Net cash used by investing activities (23.5) (11.8)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Change in long-term debt, net 101.2 6.6
Short-term borrowings, net (57.0) (1.4)
Increase (decrease) in cash overdrafts (2.0) 25.0
Other, net -- .1
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Net cash provided by financing activities 42.2 30.3
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Effect of foreign currency translation .8 (.8)
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NET CHANGE IN CASH AND CASH EQUIVALENTS (15.8) (20.6)
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CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 32.0 55.0
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16.2 $ 34.4
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CHANGES IN WORKING CAPITAL
Accounts receivable $ (111.7) $ (57.3)
Inventories 5.0 4.1
Accounts payable 40.2 .3
Accrued liabilities and other (10.7) (6.6)
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$ (77.2) $ (59.5)
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SUPPLEMENTARY DISCLOSURE:
Cash paid for interest $ 19.1 $ 11.8
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Cash paid for income taxes $ 19.0 $ 6.5
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The accompanying notes are an integral part of these statements.
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LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Lear Seating
Corporation, a Delaware corporation ("the Company"), and its wholly-owned and
majority-owned subsidiaries. Investments in less than majority-owned
businesses are generally accounted for under the equity method.
A 33-for-1 split of the Company's common stock was effective as of the
Company's initial public offering in April, 1994. All references to the
numbers of shares of common stock, stock options, warrants and income (loss)
per share in the accompanying consolidated financial statements and notes
thereto have been adjusted to give effect to the split.
(2) ACQUISITION OF FIAT SEAT BUSINESS
On December 15, 1994, the Company purchased from Gilardini S.p.A., an
Italian Corporation, all of the outstanding common stock of Sepi S.p.A., an
Italian Corporation, all of the outstanding common stock of Sepi Poland
S.p. Z.o.o. and a 35% interest in a Turkish joint venture (collectively, the
"Fiat Seat Business," or "FSB"). The FSB is engaged in the design and
manufacture of automotive seating, with its principal customers being Fiat
S.p.A. and its affiliates ("Fiat"). In connection with this transaction, the
Company and Fiat entered into a long-term supply agreement for certain products
produced by the FSB.
This acquisition was accounted for as a purchase, and accordingly, the
operating results of the FSB have been included in the accompanying financial
statements since the date of the acquisition. Because the Company consolidates
the FSB on a one month lag, the results of operations for the quarter ended
April 1, 1995 includes only the results of operations of the FSB from the
acquisition date to the end of February 1995.
Assuming the acquisition had taken place as of the beginning of the
fiscal quarter ending April 2, 1994, the consolidated pro forma results of
operations of the Company for the first quarter of 1994 would have been as
follows, after giving effect to certain adjustments, including certain
operations adjustments consisting principally of management's estimates of the
effects of product pricing adjustments negotiated in connection with the
acquisition, increased interest expense, depreciation adjustments of certain
costs assumed by the seller and the related income tax effects (Unaudited: in
millions, except per share data):
Net sales $793.2
Net income 1.1
Net income per share $ 0.03
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LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(3) 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 millions):
April 1, December 31,
1995 1994
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Raw materials $ 84.6 $ 93.4
Work-in-process 11.8 13.9
Finished goods 18.4 19.3
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$ 114.8 $ 126.6
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(4) LONG-TERM DEBT
Long term debt is comprised of the following (in millions):
April 1, December 31,
1995 1994
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Domestic revolving credit loan $ 219.9 $ 121.9
German term loan 7.2 7.1
Industrial Revenue Bonds 19.0 19.0
Loans from Governmental Agencies 5.4 2.6
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251.5 150.6
Less- Current portion (1.6) (1.9)
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249.9 148.7
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Subordinated Debt:
8 1/4 % Subordinated Notes 145.0 145.0
11 1/4 % Senior Subordinated Notes 125.0 125.0
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270.0 270.0
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$ 519.9 $ 418.7
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LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(5) POST-RETIREMENT BENEFITS FOR FOREIGN PLANS
On January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Post-Retirement Benefits" for its
foreign plans. The Company adopted this statement for its domestic plans in
July, 1993. This standard requires that the expected cost of post-retirement
benefits be charged to expense during the years in which the employees render
service to the Company. The adoption of this statement for the Company's
foreign plans did not have a material effect on the Company's financial
position or results of operations.
(6) COMMON SHARES OUTSTANDING
The weighted average number of shares of common stock after giving effect
to the split of the Company's common stock (Note 1) is as follows for the
periods presented:
Three Months Ended
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April 1, 1995 April 2, 1994
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Primary 49,422,847 41,963,565
Fully Diluted 49,422,847 42,014,029
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ITEM 2 - MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 1, 1995 VS. THREE MONTHS ENDED APRIL 2, 1994.
Net sales of $1,043.5 million in the quarter ended April 1, 1995 surpassed
the first quarter of calendar 1994 by $356.8 million or 52.0%. Sales in the
first quarter of the current fiscal year benefited from incremental volume on
mature seating programs in North America and Europe, increased seat content per
vehicle, new business in the United States and Europe and the acquisition of
the Fiat Seat Business in December 1994.
Net sales in the United States of $499.4 million increased in the first
quarter of calendar 1995 as compared to the first quarter of the prior year by
$31.0 million or 6.6%. Sales in the current quarter reflect the benefit of
new General Motors passenger car and Ford truck programs as well as modest
vehicle production increases by domestic automotive manufacturers on carryover
seat programs. Partially offsetting the increases in sales was the relocation
of a passenger car program to Canada.
Net sales in Canada increased by $148.5 million to $215.0 million in the
quarter ended April 1, 1995 compared to $66.5 million in the quarter ended
April 2, 1994. Sales in 1995 benefited from the attainment of targeted levels
for a General Motors replacement passenger car program as compared to downtime
in the prior year. Further contributing to the increase in sales was the
relocation of a passenger car program, incremental volume on a new Ford truck
program and improved production activity on mature seating programs.
Net sales in Europe of $276.5 million in the current fiscal quarter
surpassed the first quarter of calendar 1994 by $173.2 million or 167.7%.
Sales in the quarter ended April 1, 1995 benefited from the contribution of
$82.9 million in sales from the FSB acquisition, as well as new business in
England, additional volumes on existing programs in Germany and Sweden. In
addition, favorable exchange rate fluctuations accounted for $19.3 million of
the increase.
Net sales in Mexico of $52.6 million in the quarter ended April 1, 1995
exceeded sales during the comparable period in the prior year by $4.1 million
or 8.4% largely as a result of increased production requirements on carryover
Ford passenger car and Chrysler truck programs which offset reduced sales to
Volkswagen.
Gross profit (net sales less cost of sales) and gross margin (gross profit
as a percentage of sales) were $76.6 million and 7.3%, respectively, for the
quarter ended April 1, 1995 as compared to $50.0 million and 7.3%,
respectively, in the first quarter of 1994. Gross profit in the first quarter
of 1995 benefited from increased volumes on mature North American seating
programs, along with improved performance at the Company's Scandinavian
operations, and cost reduction programs. These benefits were partially offset
by delayed new program start-up expenses, increased engineering expenses, and
pre-production and facility costs associated with new ventures in the Pacific
Rim.
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Selling, general and administrative expenses as a percentage of net sales
for the current quarter remained the same as the prior year at 2.5%. Actual
selling, general and administrative expenses increased by $8.9 million largely
as a result of the acquisition of FSB, engineering and support expenses
associated with the expansion of business and expenses related to the pursuit
of new business opportunities.
Operating income and operating margin (operating income as a percentage of
net sales) were $47.7 million or 4.6%, respectively, for the first quarter of
1995 as compared to $30.3 million or 4.4%, respectively, for the first quarter
of 1994. For the quarter ended April 1, 1995 as compared to the prior year,
the increase in operating income was largely attributable to the increase in
sales volumes on North American and Scandinavian mature seating programs,
partially offset by higher engineering and administrative support expenses and
operating losses associated with the integration of FSB into the Company's
operations. Non-cash depreciation and amortization charges were $18.4 million
during the quarter ended April 1, 1995 compared to $13.1 million in the
comparable period in the prior year.
During the first quarter of 1995, interest expense increased slightly in
comparison to the prior year. This was the result of additional interest
incurred on debt used to finance the FSB acquisition.
Other expense, including state and local taxes, foreign exchange gains and
losses, minority interests and equity in income of affiliates, decreased
slightly in comparison to the prior year. This was primarily due to increased
income derived from joint ventures accounted for under the equity method.
Net income for the first quarter of 1995 was $17.0 million, or $.34 per
share, as compared to net income of $6.5 million, or $.16 per share, in the
prior year first quarter. The provision for income taxes in the current
quarter was $14.4 million translating into an effective tax rate of 45.9%,
below the 52.9% rate for the first quarter of last year. Earnings per share
increased by 113% as compared to the prior year quarter, despite the fact that
the number of shares outstanding increased from 42 million shares to 49.4
million shares. The increase in shares outstanding is primarily the result of
the initial public offering in April, 1994.
LIQUIDITY AND CAPITAL RESOURCES
As of April 1, 1995, the Company had a $500.0 million revolving credit
facility (the "Credit Agreement") under which $219.9 million was borrowed and
outstanding and $61.7 million was committed and outstanding under letters of
credit, leaving $218.4 million unused and available. The Company also had
$19.0 million of Industrial Revenue Bonds (IRBs) outstanding, payable in 2024,
as well a term loan in Germany of $7.2 million, and governmental agency loans
in Canada and Italy of approximately $3.2 and $2.2 million, respectively. As
of April 1, 1995, the Company had net cash and cash equivalents of $16.2
million.
Amounts available under the Credit Agreement will be reduced by $58.8
million every six months beginning November 30, 1997, and the Credit Agreement
will expire on November 30, 1999. 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
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remainder of calendar year 1995 are $1.3 million and are $1.9 million for each
of the next three calendar years and $1.3 million in 1999.
On April 19, 1995, Lear Seating Canada, Ltd. entered into a revolving
term credit facility with The Bank of Nova Scotia, making available for the
Company's Canadian operations funds of up to $25 million Canadian. This
agreement replaced the Canadian Credit Agreement dated March 8, 1989.
Net cash flows used by operating activities were $35.3 million during the
quarter ended April 1, 1995 compared to $38.3 million during the comparable
period in 1994, principally due to higher earnings in 1995 which was partially
offset by the change in working capital.
The net change in working capital increased from a $59.5 million net use
of funds for the quarter ended April 2, 1994 to a $77.2 million use of funds
for the quarter ended April 1, 1995 primarily as a result of the increase in
receivable levels caused by the 52% increase in net sales and the lower level
of European receivable factoring. The cash provided from the increase in
accounts payable and cash overdrafts combined was $38.2 million compared to
$25.3 million for the same period in 1994 and is consistent with the increased
sales levels. Also contributing to the decrease in operating cash flows were
higher reimbursable preproduction development and production tooling costs
attributable to new programs.
In the quarter ended April 1, 1995, net cash used by investing activities
increased by $11.7 million to $23.5 million due to a significant number of new
programs scheduled to begin production during calendar 1995. During the first
quarter of 1995, the Company's capital expenditures totaled $23.6 million and
the Company currently anticipates an additional $80 million during the
remainder of fiscal 1995. Potential new business in South America and South
Africa would further increase capital expenditures.
The Company believes that cash flows 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
No exhibits or reports on Form 8-K were filed during the quarter ended
April 1, 1995.
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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 15, 1995 By: /s/ James H. Vandenberghe
--------------------------
James H. Vandenberghe
Executive Vice President
Chief Financial Officer
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LEAR SEATING CORPORATION
FORM 10-Q
EXHIBIT INDEX
FOR THE QUARTER ENDED APRIL 1, 1995
EXHIBIT
NUMBER
10.1 Credit Agreement dated April 19, 1995 between Lear Seating Canada,
Ltd. and The Bank of Nova Scotia with respect to the establishment
of credit facilities, filed herewith.
27. Financial Data Schedule for the Quarter Ended April 1, 1995.