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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 SEPTEMBER 30, 1995
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 incorporation or organization) (I.R.S. Employer Identification No.)
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 October 28, 1995: 56,236,541
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LEAR SEATING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
INDEX
Part I - Financial Information: Page No.
Item 1 - Consolidated Financial Statements
Introduction to the Consolidated Financial Statements 3
Consolidated Balance Sheets - September 30, 1995 and
December 31, 1994 4
Consolidated Statements of Income - Three and Nine Month Periods
ended September 30, 1995 and October 1, 1994 5
Consolidated Statements of Cash Flows - Nine Month
Periods ended September 30, 1995 and October 1, 1994 6
Notes to Consolidated Financial Statements 7
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 17
Signatures 18
Exhibit Index 19
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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 ("the Company") have been prepared by Lear Seating Corporation,
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 Annual
Report on 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 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)
September 30, December 31,
1995 1994
---- ----
(Unaudited)
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 15.2 $ 32.0
Accounts receivable 803.2 579.8
Inventories 185.9 126.6
Unbilled customer tooling 95.5 53.5
Other 44.3 26.4
-------- --------
1,144.1 818.3
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land 43.5 36.6
Buildings and improvements 242.6 141.1
Machinery and equipment 542.6 326.8
-------- --------
828.7 504.5
Less-Accumulated depreciation (193.8) (150.3)
-------- --------
634.9 354.2
-------- --------
OTHER ASSETS:
Goodwill, net 1,094.4 499.5
Deferred financing fees and other 83.6 43.1
-------- --------
1,178.0 542.6
-------- --------
$2,957.0 $1,715.1
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings
$ 24.4 $ 84.1
Cash overdrafts 58.1 27.6
Accounts payable 764.3 656.7
Accrued liabilities 293.3 210.9
Current portion of long-term debt 5.8 1.9
-------- --------
1,145.9 981.2
-------- --------
LONG-TERM LIABILITIES:
Deferred national income taxes 28.4 25.3
Long-term debt 1,131.6 418.7
Other 110.6 76.3
-------- --------
1,270.6 520.3
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 150,000,000 authorized at September 30, 1995
and December 31, 1994; 56,236,541 issued at September 30, 1995 and
46,088,278 issued at December 31, 1994 .6 .5
Additional paid-in capital 557.9 274.3
Notes receivable from sale of common stock (.9) (1.0)
Less- Common stock held in treasury, 10,230 shares at
April 1, 1995 and December 31, 1994, at cost
September 30, 1995 and December 31, 1994 , at cost (.1) (.1)
Retained earnings (deficit) 4.9 (49.4)
Minimum pension liability adjustment (5.8)
(5.8)
Cumulative translation adjustment (16.1) (4.9)
-------- --------
540.5 213.6
-------- --------
$2,957.0 $1,715.1
======== ========
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 MILLIONS, EXCEPT PER SHARE DATA)
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, October 1, September 30, October 1,
1995 1994 1995 1994
---- ---- ---- ----
(Unaudited) (Unaudited)
Net sales $ 1,080.6 $ 698.5 $ 3,266.7 $ 2,207.4
Cost of sales 997.4 649.6 3,012.0 2,029.9
Selling, general and administrative expenses 35.1 19.8 85.3 58.1
Amortization of goodwill 5.1 2.9 11.5 8.6
---------- --------- ---------- ----------
Operating income 43.0 26.2 157.9 110.8
Interest expense 21.6 10.2 50.0 35.2
Other expense, net 4.4 1.8 10.3 6.4
---------- --------- ---------- ----------
Income before provision for national income
taxes and extraordinary item 17.0 14.2 97.6 69.2
Provision for national income taxes 5.9 7.9 40.6 35.2
---------- --------- ---------- ----------
Net income (loss) before extraordinary item 11.1 6.3 57.0 34.0
Extraordinary loss on early extinguishment
of debt (2.6) -- (2.6) --
---------- --------- ---------- ----------
Net income (loss) $ 8.5 $ 6.3 $ 54.4 $ 34.0
========== ========= ========== ==========
Earnings per common share (Primary):
Net income (loss) before extraordinary item $ 0.22 $ 0.13 $ 1.14 $ 0.73
Extraordinary loss (0.05) -- (0.05) --
---------- --------- ---------- ----------
Net income (loss) $ 0.17 $ 0.13 $ 1.09 $ 0.73
========== ========= ========== ==========
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)
Nine Months Nine Months
Ended Ended
September 30, October 1,
1995 1994
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 54.4 $ 34.0
Adjustments to reconcile net income to net cash provided by operating
activities:
by operating activities-
Depreciation and amortization of goodwill 60.4 41.4
Amortization of deferred financing fees 1.9 1.8
Deferred national income taxes 3.1 (.7)
Extraordinary loss 2.6 --
Other, net .9 5.1
Change in working capital items, net of effects of acquisitions (117.1) (76.4)
-------- --------
Net cash provided by operating activities 6.2 5.2
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (65.9) (64.5)
Purchase of AIH, net of cash acquired (891.8) --
Other, net 2.2 6.5
-------- --------
Net cash used by investing activities (955.5) (58.0)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in long-term debt, net 689.0 (95.6)
Short-term borrowings, net (64.7) (12.0)
Increase in cash overdrafts 29.6 43.4
Proceeds from sale of common stock, net 281.6 103.7
Other, net (9.2) --
-------- --------
Net cash provided by financing activities 926.3 39.5
-------- --------
Effect of foreign currency translation 6.2 (2.8)
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (16.8) (16.1)
-------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 32.0 55.0
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 15.2 $ 38.9
======== ========
CHANGES IN WORKING CAPITAL
Accounts receivable $ (124.3) $ (99.5)
Inventories (14.4) (17.4)
Accounts payable 20.0 54.2
Accrued liabilities and other 1.6 (13.7)
-------- --------
$ (117.1) $ (76.4)
======== ========
SUPPLEMENTARY DISCLOSURE:
Cash paid for interest $ 53.9 $ 32.1
======== ========
Cash paid for income taxes $ 57.0 $ 30.2
======== ========
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, and its wholly-owned and majority-owned
subsidiaries. Investments in less than majority-owned businesses are generally
accounted for under the equity method.
(2) ACQUISITIONS
AUTOMOTIVE INDUSTRIES
On August 17, 1995, the Company purchased the issued and outstanding
shares of common stock of Automotive Industries Holding, Inc. ("AIH") for an
aggregate purchase price of approximately $927.6 million, including the
assumption of $284.4 million of AIH's existing indebtedness and $18.2 million
in fees and expenses. The initial funds for the purchase of AIH were provided
by borrowings under the New Credit Agreement, as described in Note 4.
AIH is a leading designer and manufacturer of high quality interior
trim systems and blow molded products principally for North American and
European automobile and light truck manufacturers. AIH's interior trim
products include complete door panel assemblies, seatbacks and inserts,
armrests, consoles and headliners. Blow molded products include windshield
wiper reservoirs, fuel tank shields and radiator coolant overflow reservoirs.
In 1994, AIH had revenues of approximately $512.8 million and operating income
of $63.9 million.
The acquisition was accounted for as a purchase, and accordingly, the
assets purchased and liabilities assumed in the acquisition have been reflected
in the accompanying balance sheet and the operating results of AIH have been
included in the accompanying statements of operations and cash flow since the
date of acquisition. The purchase price consisted of the following and has
been allocated to the net assets purchased as follows (in millions):
Consideration paid to stockholders,
including $1.9 million of stock options $ 625.0
Retirement of debt assumed 250.5
Estimated Fees and expenses 18.2
-------
Cost of acquisition $ 893.7
=======
Property, Plant and Equipment $ 267.8
Net non-cash working capital 59.9
Other long-term assets purchased
and liabilities assumed, net 8.7
Debt assumed (33.9)
Goodwill 591.2
-------
Total allocation of cost $ 893.7
=======
The allocation of the purchase price is based on historical information
and management's estimates which may differ from the final allocation.
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LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FSB ACQUISITION
In December 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).
Assuming the acquisitions of FSB and AIH had taken place as of the
beginning of each of the periods presented, the consolidated pro forma results
of operations of the Company would have been as follows, after giving effect to
certain pro forma adjustments (Unaudited, in millions, except per share data):
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, October 1, September 30, October 1,
1995 1994 1995 1994
---- ---- ---- ----
Net sales $ 1,178.1 $ 962.0 $ 3,790.4 $ 3,084.1
Income before
extraordinary item 8.2 4.2 65.0 38.3
Net income 5.6 4.2 62.4 38.3
Income per share
before extra-
ordinary item $ 0.14 $ 0.07 $ 1.09 $ 0.64
Net income per share $ 0.09 $ 0.07 $ 1.04 $ 0.64
The pro forma information above does not purport to be indicative of the
results that actually would have been achieved if the operations were combined
during the periods presented, and is not intended to be a projection of future
results or trends.
(3) ISSUANCE OF COMMON STOCK
In September 1995, the Company issued 10 million shares of common
stock. Concurrently with this issuance, 11.5 million shares were sold by
certain stockholders of the Company. Net of issuance costs, the Company
received approximately $281.6 million for the shares of common stock sold by
the Company. The proceeds of this issuance were used to repay indebtedness
incurred in connection with the purchase of AIH (Note 2).
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LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) NEW CREDIT AGREEMENT AND EARLY EXTINGUISHMENT OF DEBT
In connection with the AIH Acquisition, the Company entered into a
$1.5 billion secured revolving credit agreement established with Chemical Bank
and a syndicate of financial institutions (the "New Credit Agreement"). The
New Credit Agreement replaced the Company's prior $500 million credit facility
(the "Prior Credit Agreement") and accordingly, the unamortized portion of the
finance fees relating to the Prior Credit Agreement have been written off by
the Company in the current quarter as an extraordinary item. The net loss from
this extraordinary item, after the effect of income taxes, is $2.6 million.
Borrowings under the New Credit Agreement bear interest, at the
election of the Company, at a floating rate equal to (i) the higher of Chemical
Bank's prime rate and the federal funds rate plus .5% or (ii) the Eurodollar
rate (as defined in the New Credit Agreement) plus a borrowing margin of .5% to
1.0%. The New Credit Agreement is guaranteed by all of the Company's direct and
indirect wholly-owned domestic subsidiaries. The applicable borrowing margin
will be determined based on the satisfaction of specified ratios by the
Company. Amounts available to be drawn under the New Credit Agreement will be
reduced by an aggregate amount of $650 million during the term of the New
Credit Agreement, which matures on September 30, 2001. Under the New Credit
Agreement, dividends are limited to $2.5 million per quarter assuming no other
events of default had occurred.
As the Company's obligations under the New Credit Agreement will bear
interest at fluctuating rates, increases in interest rates on such obligations
could adversely affect the Company's results of operations and financial
condition. Under the New Credit Agreement, the Company is permitted to convert
variable rate interest obligations up to an aggregate of $500 million into
fixed interest rate agreements.
(5) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
principally determined by 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):
September 30, December 31,
1995 1994
---- ----
Raw materials $ 117.0 $ 93.4
Work-in-process 18.5 13.9
Finished goods 50.4 19.3
-------- -------
$ 185.9 $ 126.6
======== =======
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LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) LONG-TERM DEBT
Long term debt is comprised of the following (in millions):
September 30, December 31,
1995 1994
---- ----
Domestic revolving credit loan $ 808.8 $ 121.9
Domestic term loan 9.3 --
German term loan 6.5 7.1
Industrial Revenue Bonds 21.1 19.0
Capital lease obligations 12.2 --
Mortgages with banks 4.2 --
Loans from Governmental Agencies 5.3 2.6
--------- ---------
867.4 150.6
Less - Current portion (5.8) (1.9)
--------- ---------
861.6 148.7
--------- ---------
Subordinated Debt:
8 1/4 % Subordinated Notes 145.0 145.0
11 1/4 % Senior Subordinated Notes 125.0 125.0
--------- ---------
270.0 270.0
--------- ---------
$ 1,131.6 $ 418.7
========= =========
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LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) 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.
(8) COMMON SHARES OUTSTANDING
The weighted average number of shares of the Company's common stock is as
follows for the periods presented:
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, October 1, September 30, October 1,
1995 1994 1995 1994
---- ---- ---- ----
Primary 50,927,792 49,384,436 49,985,045 46,773,561
Fully Diluted 50,966,315 49,416,237 50,206,725 46,852,607
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ITEM 2 - MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1995 VS. THREE MONTHS ENDED OCTOBER 1, 1994.
Net sales of $1,080.6 million in the quarter ended September 30, 1995
surpassed the third quarter of 1994 by $382.1 million or 54.7%. Sales in the
third quarter of the current fiscal year benefited from the acquisitions of
Automotive Industries Holding Inc. (AIH) on August 17, 1995 and Fiat Seat
Business (FSB) on December 15, 1994 and to new business in North America.
Net sales in the United States and Canada of $730.3 million increased
in the third quarter of 1995 as compared to the third quarter of 1994 by $190.7
million or 35.3 %. Sales in the current quarter benefited from the
contribution of $82.4 million in sales from the AIH acquisition and new Ford
and General Motors passenger car and truck programs. Partially offsetting the
increase in sales is a modest downturn in production build schedules by
domestic automotive manufacturers on mature seat programs.
Net sales in Europe of $278.6 million in the third quarter of 1995
exceeded the comparable period in the prior year by $158.9 million or 132.7%.
Sales in the quarter ended September 30, 1995 benefited from $123.4 million in
sales from the FSB and AIH acquisitions, additional volume on existing programs
in Sweden and England and favorable exchange rate fluctuations in Germany and
Sweden.
Net sales in Mexico of $71.7 million in the current quarter surpassed
the third quarter of the prior year by $32.4 million or 82.4% largely as a
result of increased production requirements on established Chrysler truck and
General Motors passenger car programs and a new General Motors truck program.
Gross profit (net sales less cost of sales) and gross margin (gross
profit as a percentage of net sales) were $83.2 million and 7.7% for the
quarter ended September 30, 1995 as compared to $48.9 million and 7.0% in the
third quarter of 1994. Gross profit in the third quarter of 1995 benefitted
from the overall growth in North American and European sales activity,
including the acquisition of AIH and production of certain new business
programs in the United States and Mexico. Partially offsetting the increase in
gross profit were preproduction costs for the remainder of new operations in
the United States and costs associated with new ventures in the Pacific Rim,
South Africa and South America.
Selling, general and administrative expenses as a percentage of net
sales increased to 3.2% for the quarter ended September 30, 1995 as compared to
2.8% a year earlier. The increase in actual expenditures was largely the
result of the acquisitions of AIH and FSB and design and development costs
associated with the expansion of business.
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Operating income and operating margin (operating income as a
percentage of sales) were $43.0 million and 4.0% for the third quarter of 1995
as compared to $26.2 million and 3.8% for the third quarter of 1994. The
increase in operating income was primarily due to the AIH acquisition coupled
with the benefits derived from incremental volume on domestic and foreign car
and truck production. Partially offsetting the increase in operating income
was engineering and administrative support expenses associated with the
expansion of business, preproduction and facility costs for seat programs to be
introduced globally within the next twelve months and operating losses
associated with the integration of FSB into the company's operations. Non-cash
depreciation and amortization charges were $23.3 million and $14.5 million for
the third quarter of 1995 and 1994, respectively.
Interest expense for the third quarter of 1995 increased by $11.4
million from the comparable period in the prior year largely as a result of
interest incurred on the additional debt utilized to finance the AIH and FSB
acquisitions as well as higher interest rates in the current period for the
Company's Credit Facility.
Other expenses for the three months ended September 30, 1995 which
include state and local taxes, foreign exchange, equity income of
non-consolidated affiliates and other non-operating expenses, increased in
comparison to prior year due to foreign exchange losses incurred at the
Company's North American and European operations and to increased state and
local taxes associated with the AIH acquisition.
Net income for the third quarter of 1995 was $8.5 million, or $.17 per
share as compared to $6.3 million or $.13 per share in the corresponding
quarter in the prior year. The provision for income taxes was $5.9 million, or
an effective tax rate of 34.7% for the current quarter as compared to $7.9
million, or an effective tax rate of 55.6% in the prior year. The 34.7% rate
in the current quarter brings the nine-month tax rate in line with our current
estimated annual rate of approximately 40%. Net Income for the quarter ended
September 30, 1995 reflects an extraordinary loss of $2.6 million related to
the early retirement of debt.
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NINE MONTHS ENDED SEPTEMBER 30, 1995 VS. NINE MONTHS ENDED OCTOBER 1, 1994.
Net sales of $3,266.7 million for the nine month period of 1995
surpassed the nine month period of the prior year by $1,059.3 million or 48.0%.
Sales as compared to the prior year benefitted from increased production build
schedules on mature domestic and foreign seat programs, new business in North
America and Europe and the acquisitions of AIH and FSB. For the nine month
period ended September 30, 1995, AIH and FSB accounted for $420.8 million of
the company's net sales.
Gross profit and gross margin were $254.7 million and 7.8% for the
nine month period ended September 30, 1995 as compared to $177.5 million and
8.0% a year earlier. Gross profit in 1995 exceeded prior year due to increased
market demand on mature North American and European seat programs and to the
acquisition of AIH. Partially offsetting the increase in gross profit were
program start-up expenses for recently opened facilities in North America,
low margins at FSB, increased engineering expenses and costs associated
with new global business opportunities.
Selling, general and administrative expenses as a percentage of net
sales for the current period remained unchanged from prior year's 2.6%. The
increase in actual expenditures is primarily due to the acquisitions of FSB and
AIH, increased engineering and administrative expenses necessary to support
domestic automotive manufacturers and expenses related to new business
ventures.
Operating income and operating margin were $157.9 million and 4.8% for
1995 as compared to $110.8 million and 5.0% for the prior year. The increase
in operating income was largely the result of vehicle production increases on
carryover seat programs in North America and Europe and to the AIH acquisition
which offset increased engineering and administrative support expenses, costs
associated with new start-up facilities and losses related to FSB's operations.
Non-cash depreciation and amortization charges were $60.4 million and $41.4
million for the nine month period of the current and prior years, respectively.
For the nine months ended September 30, 1995, interest expense
increased by $14.8 million to $50.0 million as compared to prior year. The
increase in interest expense was largely attributable to the acquisitions of
AIH and FSB and to higher interest rates under the Company's credit facility.
Primarily as a result of foreign currency exchange fluctuations, other
expense, including state and local taxes, foreign exchange, minority interests
and equity in income of affiliates, increased in comparison to the prior
period.
Net income for the first nine months of 1995 was $54.4 million, or
$1.09 per share as compared to net income of $34.0 million, or $.73 per share.
The provision for income taxes in the current period was $40.6 million, or an
effective tax rate of 41.6% versus $35.2 million and 50.9% for the comparable
period in the previous year. The decrease in the rate compared to the previous
period is due primarily to changes in operating performance and related income
levels among the various tax jurisdictions. Earnings per share increased in
the current period by 49.3% despite an increase in the number of shares
outstanding and an extraordinary loss of $2.6 million for the early retirement
of debt.
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LIQUIDITY AND CAPITAL RESOURCES
Concurrently with the AIH Acquisition, the Company entered into a $1.5
billion secured revolving credit agreement with Chemical Bank and a syndicate
of financial institutions (the "New Credit Agreement"). Borrowings under the
New Credit Agreement were used (a) to finance the AIH Acquisition, including
related fees and expenses, (b) to refinance certain existing indebtedness of
AIH, (c) to refinance indebtedness under the Company's prior $500 million
credit agreement, and (d) for other general corporate purposes. Proceeds from
the New Credit Agreement will be available for general corporate purposes,
including acquisitions, until maturity on September 30, 2001.
On September 20, 1995, the Company issued 10.0 million shares of
common stock at $29.25 per share. The $281.6 million of proceeds, net of
issuance costs, received by the Company were used to repay indebtedness
incurred under the New Credit Agreement in connection with the purchase of AIH.
As of September 30, 1995, the Company had $863.7 million outstanding
under the New Credit Agreement ($54.9 million of which was outstanding under
letters of credit), resulting in approximately $636.3 million unused and
available. Of the $808.8 million of borrowings outstanding (excluding
letters of credit), $610.2 million related to the AIH Acquisition. The Company
had $15.2 million of cash and cash equivalents as of September 30, 1995.
Amounts available under the New Credit Agreement will be reduced by an
aggregate amount of $650.0 million prior to maturity on September 30, 2001.
Borrowings under the New Credit Agreement bear interest, at the election of the
Company, at a floating rate equal to (i) the higher of Chemical Bank's prime
rate and .5% above the federal funds rate or (ii) the Eurodollar rate plus a
margin of .5% to 1.0%. Under the New Credit Agreement, the Company is
permitted to convert variable interest rate obligations up to an aggregate of
$500 million into fixed interest rate agreements.
Net cash provided by operating activities increased to $6.2 million
during the nine months ended September 30, 1995 compared to $5.2 million during
the comparable period in 1994. Net income adjusted for a non-cash
extraordinary loss (the write off of deferred finance fees relating to the
existing $500 million credit agreement, $2.6 million) and non-cash depreciation
and goodwill amortization increased by $42.0 million, to $117.4 million for the
nine months ended September 30, 1995 from $75.4 million for the same period in
1994. Cash flow provided by earnings was partially offset by the net change in
working capital.
The net change in working capital resulted in a net use of $117.1
million and $76.4 million for the nine months ended September 30, 1995 and
October 1, 1994, respectively. The use of working capital was the result of
the increase in accounts receivable ($124.3 million in 1995 compared to $99.5
million in 1994) caused by a 32% increase in net sales for the nine months of
1995 over the comparable period in 1994, offset by the associated increase in
accounts payable ($20.0 million in 1995 and $54.2 million in 1994).
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For the nine months ended September 30, 1995, net cash used by
investing activities was $955.5 million as compared to $58.0 million for the
same period in 1994. In addition to the $891.8 million required for the AIH
Acquisition, the Company incurred $65.9 million for capital expenditures
relating to a significant number of new programs which have either began
production in 1995 or are scheduled to begin production in the near future.
This level of capital expenditures is consistent with that of 1994, $64.5
million.
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
The following reports on Form 8-K were filed during the quarter ended
September 30, 1995:
(a) August 11, 1995 - Amendment to the Form 8-K filed on December
15, 1994 for the acquisition of the Fiat Seat Business.
(b) August 28, 1995 - Form 8-K for the acquisition of Automotive
Industries Holding, Inc.
The following exhibits are being filed as part of this report:
EXHIBIT
NUMBER EXHIBIT
2.1 Agreement and Plan of Merger, dated as of July 16, 1995, among the Company, AIHI Acquisition
Corp. and Automotive Industries Holding, Inc. (incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K, dated August 17, 1995).
10.1 Employment Agreement dated July 12, 1995 between Automotive Industries, Inc. and F. F. Sommer.
10.2 Credit Agreement dated as of August 17, 1995, among the Company, the several financial
institutions parties thereto (collectively, the "Banks"), Chemical Bank, a New York banking
corporation, as administrative agent for the Banks and the Managing Agents, Co-Agents and Lead
Managers identified therein (incorporated by reference to Exhibit 99.1 to the Company's Current
Report on Form 8-K, dated August 17, 1995).
10.3 Automotive Industries Holding, Inc. 1992 Key Employee Stock Option Plan (incorporated by
reference to the Company's Registration Statement on Form S-8 (No. 33-61739)).
10.4 Form of Option Assumption Agreement for the Automotive Industries Holding, Inc. 1992 Key
Employee Stock Option Plan (incorporated b reference to the Company's Registration Statement on
Form S-8 (No. 33-61739)).
27. Financial Data Schedule for the Quarter Ended September 30, 1995, filed herewith.
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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: November 14, 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 SEPTEMBER 30, 1995
EXHIBIT
NUMBER EXHIBIT
2.1 Agreement and Plan of Merger, dated as of July 16, 1995, among the Company, AIHI Acquisition
Corp. and Automotive Industries Holding, Inc. (incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K, dated August 17, 1995).
10.1 Employment Agreement dated July 12, 1995 between Automotive Industries, Inc. and F. F. Sommer.
10.2 Credit Agreement dated as of August 17, 1995, among the Company, the several financial
institutions parties thereto (collectively, the "Banks"), Chemical Bank, a New York banking
corporation, as administrative agent for the Banks and the Managing Agents, Co-Agents and Lead
Managers identified therein (incorporated by reference to Exhibit 99.1 to the Company's Current
Report on Form 8-K, dated August 17, 1995).
10.3 Automotive Industries Holding, Inc. 1992 Key Employee Stock Option Plan (incorporated by
reference to the Company's Registration Statement on Form S-8 (No. 33-61739)).
10.4 Form of Option Assumption Agreement for the Automotive Industries Holding, Inc. 1992 Key
Employee Stock Option Plan (incorporated b reference to the Company's Registration Statement on
Form S-8 (No. 33-61739)).
27. Financial Data Schedule for the Quarter Ended September 30, 1995, filed herewith.
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