<PAGE> 1
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 OCTOBER 1, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number: 1-11311
LEAR SEATING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3386776
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21557 Telegraph Road, Southfield, MI 48034
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (810) 746-1500
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days.
Yes __X__ No ____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Approximate number of shares of Common Stock, $0.01 par value per share,
outstanding at October 29, 1994:
45,906,167
--------------
<PAGE> 2
LEAR SEATING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 1, 1994
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information: Page No.
------------------------------- --------
<S> <C>
Item 1 - Consolidated Financial Statements
Introduction to the Consolidated Financial Statements 3
Consolidated Balance Sheets - December 31, 1993 and
October 1, 1994 4
Consolidated Statements of Income - Three and Nine Month
Periods ended October 2, 1993 and October 1, 1994 6
Consolidated Statements of Cash Flows - Nine Month
Periods ended October 2, 1993 and October 1, 1994 7
Notes to Consolidated Financial Statements 8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Part II - Other Information:
----------------------------
Item 6 - Exhibits and Reports on Form 8-K 17
Signatures 18
----------
Exhibit Index 19
-------------
</TABLE>
2
<PAGE> 3
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, 1993.
The financial information presented reflects all adjustments (consisting only
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of the results of operations and statements of
financial position for the interim periods presented. These results are not
necessarily indicative of a full year's results of operations. All references
to the number of shares of common stock and income per share in the
accompanying financial statements and notes thereto have been adjusted to give
effect to the 33 for 1 stock split of the Company's common stock (Note 3).
3
<PAGE> 4
LEAR SEATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, October 1,
ASSETS 1993 1994
------ --------------- -------------
(Unaudited)
-
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 55,034 $ 38,897
Accounts receivable 272,421 373,396
Inventories 71,731 89,333
Unbilled customer tooling 19,441 43,608
Other 14,957 20,102
----------- -----------
433,584 565,336
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land 31,289 26,001
Buildings and improvements 114,514 109,400
Machinery and equipment 215,684 263,016
----------- -----------
361,487 398,417
Less-Accumulated depreciation (110,530) (142,148)
----------- -----------
250,957 256,269
----------- -----------
OTHER ASSETS:
Goodwill, net 403,694 401,817
Deferred financing fees and other 26,056 22,226
----------- -----------
429,750 424,043
----------- -----------
$ 1,114,291 $ 1,245,648
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
4
<PAGE> 5
LEAR SEATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31, October 1,
LIABILITIES AND STOCKHOLDERS EQUITY 1993 1994
----------------------------------- ----------- ----------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings $ 48,155 $ 16,422
Cash overdrafts 19,769 63,357
Accounts payable 298,326 356,783
Accrued liabilities 138,299 155,885
Current portion of long-term debt 1,168 1,270
------------- -----------
505,717 593,717
------------- -----------
LONG-TERM LIABILITIES:
Deferred national income taxes 15,889 15,222
Long-term debt 498,324 402,572
Other 38,716 42,340
------------- -----------
552,929 460,134
------------- -----------
COMMITMENTS AND CONTINGENCIES
COMMON STOCK SUBJECT TO REDEMPTION:
Common stock subject to limited rights of redemption,
$.01 par value, 990,033 shares at December 31, 1993
at an estimated maximum redemption price
of $13.64 per share 13,500 ---
Notes receivable from sale of common stock (1,065) ---
------------- -----------
12,435 ---
------------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 49,500,000 and 150,000,000
authorized at December 31, 1993 and October 1, 1994,
respectively; 37,809,981 outstanding at December 31, 1993, net
of shares subject to redemption, and 46,020,514 outstanding at 12 460
October 1, 1994
Additional paid-in capital 156,917 273,730
Notes receivable from sale of common stock --- (1,030)
Warrants to purchase common stock 10,000 417
Less- Common stock held in treasury, 3,300,000 shares
at December 31, 1993 and 137,643 shares at October 1, 1994, (10,000) (468)
at cost
Retained deficit (109,248) (75,282)
Minimum pension liability adjustment (4,164) (4,164)
Cumulative translation adjustment (307) (1,866)
------------- -----------
43,210 191,797
------------- -----------
$ 1,114,291 $ 1,245,648
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
5
<PAGE> 6
LEAR SEATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ --------------------------
October 2, October 1, October 2, October 1,
1993 1994 1993 1994
--------------- ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 399,066 $ 698,508 $1,344,136 $2,207,370
Cost of sales 377,239 649,571 1,224,329 2,029,843
Selling, general and
administrative expenses 12,695 19,793 47,746 58,091
Amortization of goodwill 2,187 2,899 7,361 8,603
------------ ---------- ---------- ----------
Operating income 6,945 26,245 64,700 110,833
Interest expense 11,418 10,204 32,307 35,215
Other expense, net 1,070 1,843 3,654 6,411
------------ ---------- ---------- ----------
Income (loss) before provision for
national income taxes and
extraordinary item (5,543) 14,198 28,739 69,207
Provision for national income taxes 5,286 7,884 18,683 35,241
------------ ---------- ---------- ----------
Net income (loss) before
extraordinary item (10,829) 6,314 10,056 33,966
Extraordinary loss on early
extinguishment of debt (535) --- (535) ---
------------ ---------- ---------- ----------
Net Income (loss) $ (11,364) $ 6,314 $ 9,521 $ 33,966
============ ========== ========== ==========
Earnings per common share:
Net Income (loss) before
extraordinary item $ (0.31) $ 0.13 $ 0.25 $ 0.73
Extraordinary loss (0.01) --- (0.01) ---
------------ ---------- ---------- ----------
Net Income (loss) $ (0.32) $ 0.13 $ 0.24 $ 0.73
============ ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
LEAR SEATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
October 2, 1993 October 1, 1994
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,521 $ 33,966
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization of goodwill 30,991 41,407
Amortization of deferred financing fees 2,099 1,799
Deferred national income taxes (15,826) (667)
Extraordinary loss 535 ---
Other, net (476) 5,115
Net change in working capital items 35,260 (76,440)
----------- -----------
Net cash provided by operating activities 62,104 5,180
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (27,084) (64,533)
Other, net 994 6,497
----------- -----------
Net cash used by investing activities (26,090) (58,036)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in long-term debt, net (35,199) (95,605)
Short-term borrowings, net (2,910) (12,042)
Increase (decrease) in cash overdrafts 9,705 43,373
Proceeds from sale of common stock, net --- 103,700
Other, net 1,639 45
----------- -----------
Net cash provided (used) by financing activities (26,765) 39,471
----------- -----------
Effect of foreign currency translation 1,747 (2,752)
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 10,996 (16,137)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 31,535 55,034
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 42,531 $ 38,897
=========== ===========
CHANGES IN WORKING CAPITAL
Accounts receivable $ 12,552 $ (99,494)
Inventories 3,931 (17,374)
Accounts payable (12,945) 54,213
Accrued liabilities and other 31,722 (13,785)
----------- -----------
$ 35,260 $ (76,440)
=========== ===========
SUPPLEMENTARY DISCLOSURE:
Cash paid for interest $ 31,488 $ 32,109
=========== ===========
Cash paid for income taxes $ 22,523 $ 30,236
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Lear
Seating Corporation ("the Company"), a Delaware corporation, and its
wholly-owned and majority-owned subsidiaries. Investments in less than
majority-owned businesses are generally accounted for under the equity method.
Prior to December 31, 1993, the Company was a wholly-owned subsidiary
of Lear Holdings Corporation ("Holdings"). On December 31, 1993, Holdings was
merged with and into the Company and the separate corporate existence of
Holdings ceased ("the Merger"). Prior to the Merger, Holdings had several
other wholly-owned subsidiaries, including LS Acquisition No. 14 ("LS No. 14"),
Lear Seating Holdings Corp. No. 50 ("LS No. 50") and Lear Seating Sweden, AB
("LS-Sweden"). In conjunction with the Merger, these companies became
subsidiaries of the Company. The Merger has been accounted for and reflected
in the accompanying financial statements as a merger of companies under common
control. As such, the financial statements of the Company have been restated
as if the current structure (post-Merger) had existed for all periods
presented.
(2) LETTER OF INTENT TO ACQUIRE FIAT SEAT BUSINESS
On September 15, 1994, the Company announced that it entered into a letter
of intent with Gilardini S.p.A. ("Gilardini"), a subsidiary of Fiat S.p.A.
("Fiat"), for the acquisition of its SEPI S.p.A. subsidiary ("SEPI") and
certain other assets of Gilardini collectively referred to as the Fiat Seat
Business. The Company's preliminary estimate of the cost of the acquisition is
250 billion lira, or approximately $160 million.
SEPI is the primary automotive seating system supplier to Fiat and had
1993 sales of approximately 553 billion lira, or $350 million. SEPI operates
eight production facilities in Italy which supplied seats for over 1 million
vehicles in 1993 with approximately 1800 employees. The acquisition would also
include two production facilities in Poland and minority interests in
operations in Spain and Turkey. In connection with the acquisition, the
Company and Fiat would enter into a supply agreement for SEPI to provide
substantially all of Fiat's outsourced automotive seat requirements.
Consummation of the acquisition is subject to certain conditions, among
which are the satisfactory completion of the Company's due diligence review and
negotiation and signing of final documentation.
(3) INITIAL PUBLIC OFFERING
On April 13, 1994, the Company consummated an initial public offering
of its common stock at a price of $15.50 per share. Of the 10,312,500 shares
offered, 7,187,500 shares were sold by the Company and 3,125,000 shares were
sold by a stockholder of the Company. The net proceeds to the Company of
approximately $104 million were used to repay a portion of the indebtedness
outstanding under the Company's existing credit facility incurred to finance
the NAB Acquisition.
8
<PAGE> 9
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Prior to the initial public offering of the Company's common stock,
the Company effected a 33-for-1 split of its outstanding common stock and
amended its Stockholders and Registration Rights Agreement to, among other
things, relax certain restrictions on transfers of common stock owned by
parties to the agreement and remove the rights of certain management investors
to require the Company to redeem their stock upon certain triggering events.
All references to the numbers of shares of common stock and income per share
for all periods prior to the stock split in the accompanying financial
statements and notes thereto have been adjusted to give effect to the stock
split.
(4) ACQUISITION OF NAB
On November 1, 1993, the Company purchased certain assets of the Plastics
and Trim Products Division of Ford Motor Company ("Ford") consisting of (i) the
U.S. operations that supply seat trim and trimmed seat assemblies to Ford which
are manufactured by Favesa, S.A. de C.V. ("Favesa"); (ii) all of the shares
of Favesa, a maquiladora company located in Juarez, Mexico; and (iii) certain
inventories and assets employed in the operation of Favesa (collectively
referred to as the "NAB"). In connection with this transaction, the Company
and Ford entered into a long-term supply agreement for certain products
produced by these operations at agreed upon prices. This acquisition was
accounted for as a purchase, and accordingly, the operating results of the NAB
have been included in the accompanying financial statements since the date of
acquisition.
Assuming the acquisition had taken place as of the beginning of the
periods presented and after giving effect to certain adjustments, including
certain operations adjustments consisting principally of management's best
estimates of the effects of product pricing adjustments negotiated in
connection with the acquisition and incremental ongoing NAB engineering,
overhead and administrative expenses, increased interest expense and goodwill
amortization and the related income tax effects, the consolidated pro forma
results of operations of the Company would have been as follows (unaudited, in
thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 2, 1993 October 2, 1993
--------------- ---------------
<S> <C> <C>
Net Sales $503,632 $1,705,572
Net Income (loss) (8,789) 15,851
Net Income (loss) per common share (0.25) 0.39
</TABLE>
9
<PAGE> 10
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined principally using the first-in, first out method. Finished goods
and work-in-process inventories include material, labor and manufacturing
overhead costs.
Inventories are comprised of the following (in thousands):
<TABLE>
<CAPTION>
December 31, October 1,
1993 1994
---- ----
<S> <C> <C>
Raw materials $ 42,470 $ 68,256
Work-in-process 23,394 8,663
Finished goods 5,867 12,414
--------- ---------
$ 71,731 $ 89,333
========= =========
</TABLE>
(6) LONG-TERM DEBT
Long term debt is comprised of the following (in thousands):
<TABLE>
<CAPTION>
December 31, October 1,
1993 1994
---- ----
<S> <C> <C>
Senior Debt:
German term loan $ 7,592 $ 7,303
Revolving credit loans:
Domestic 230,700 100,200
Canadian --- 7,339
---------- ----------
238,292 114,842
Less - current portion (1,168) (1,270)
---------- ----------
237,124 113,572
---------- ----------
Subordinated Debt:
11 1/4% Senior Notes 125,000 125,000
14% Debentures 135,000 ---
8 1/4% Notes --- 145,000
---------- ----------
260,000 270,000
Notes Payable 1,200 ---
Industrial Revenue Bonds --- 19,000
---------- ----------
$ 498,324 $ 402,572
========== =========
</TABLE>
10
<PAGE> 11
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) 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 3) is as follows for the
periods presented:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- ----------------------------
October 2, 1993 October 1, 1994 October 2, 1993 October 1, 1994
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Primary 35,500,014 49,384,436 40,381,418 46,773,561
Fully Diluted 35,500,014 49,416,237 40,381,418 46,852,607
</TABLE>
11
<PAGE> 12
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 1, 1994 VS. THREE MONTHS ENDED OCTOBER 2, 1993.
Sales of $698.5 million in the quarter ended October 1, 1994, exceeded the
quarter ended October 2, 1993 by $299.4 million or 75.0%. Sales in the third
quarter of the current year benefited from new business in North America and
Europe, incremental volume on mature seating programs in the United States and
Europe and the acquisition of the North American seat and seat cover business
(NAB) from Ford Motor Company on November 1, 1993.
Sales in the United States of $386.0 million increased in the third
quarter of calendar year 1994 as compared to the third quarter of the prior
year by $190.3 million or 97.2%. Sales in the third quarter of 1994 reflect
vehicle production increases on established seating programs by domestic
automotive manufacturers, the contribution of the NAB acquisition, and
incremental volume on new Chrysler truck and Ford passenger car programs.
Sales in Canada of $153.5 million in the third quarter of calendar
1994 surpassed prior year by $67.7 million or 78.9% due to a new Ford truck
program introduced in February 1994, the relocation of a NAB passenger car
program to Canada and to improved production build schedules by original
equipment manufacturers on carryover programs. Partially offsetting the
increase in sales were lower production volumes for a General Motors
replacement passenger car launched in the first quarter of calendar 1994.
Sales in Europe of $119.7 million in the current fiscal year exceeded
the third quarter of calendar 1993 by $42.8 million or 55.7% due to the
contribution of new seat programs in Germany and England, additional volume on
existing programs by automotive manufacturers in Germany, Austria and Sweden
and favorable exchange rate fluctuations in Germany.
Sales in Mexico of $39.3 million were slightly unfavorable to prior
year by 3.3% largely as a result of the product phase out of a General Motors
truck program, participation in a customer cost reduction program and new
program costs which offset increased Chrysler truck and Ford passenger car seat
programs.
Gross profit (net sales less cost of sales) and gross margin (gross
profit as a percentage of sales) were $48.9 million and 7.0% for the quarter
ended October 1, 1994 as compared to $21.8 million or 5.5% in the third quarter
of calendar 1993. Gross profit in the third quarter of calendar 1994 benefited
from increased market demand for new and mature seating programs in North
America and Europe, the NAB acquisition and productivity improvement programs.
Partially offsetting the increase in gross profit were facility and
preproduction costs for new programs in the United States, Europe and
Australia.
Selling, general and administrative expenses as a percentage of net sales
declined from 3.2% in the third quarter of calendar year 1993 to 2.8% for the
current quarter. Actual selling, general and administrative expenses increased
$7.1 million largely as a result of administration support expenses
12
<PAGE> 13
and design and development costs associated with the expansion of business and
expenses related to new business opportunities.
Operating income (gross profit less selling, general and administrative
expenses) and operating margin (operating income as a percentage of sales) were
$26.2 million and 3.8% for the third quarter of calendar 1994 as compared to
$6.9 million and 1.7% a year earlier. The growth in operating income was
primarily due to incremental domestic and foreign car and truck production
coupled with the NAB acquisition and improved performance at start-up
operations in North America. Partially offsetting the increase in operating
income were engineering and preproduction costs at the remaining start-up
operations and increased operating expenses noted above. Non-cash depreciation
and amortization charges were $14.5 million and $10.3 million for the third
quarter of calendar year 1994 and 1993, respectively.
During the three months ended October 1, 1994, interest expense decreased
by $1.2 million from the comparable period in the prior year. A net decrease
in subordinated debt interest expense of $1.8 million due to the refinancing of
14% debentures with 8 1/4% notes was partially offset by interest on debt
incurred to finance the NAB acquisition.
Other expense for the quarter ended October 1, 1994, which includes state
and local taxes, foreign exchange gains and losses, equity in non-consolidated
affiliates, and miscellaneous non-operating expenses, increased slightly from
the prior year. Higher state and local tax expense in the current quarter due
to increased domestic sales resulted in the higher current year expense.
Net income for the third quarter was $6.3 million, or $0.13 per share,
compared to a net loss of $11.4 million, or $0.32 per share a year ago. Net
earnings improved due to increased market demand for new and mature seating
programs and the inclusion of the NAB. Also favorably affecting the quarterly
results in 1994 compared to the same period in 1993 were interest savings due
to the refinancing of subordinated debt in the first quarter of 1994 and the
Company's initial public offering in the second quarter of 1994. The current
quarter net income reflects $2.3 million additional income tax provision as
compared to the prior year quarter. The higher tax provision is a result of
higher third quarter pretax earnings primarily from U.S. and Canadian
operations.
13
<PAGE> 14
NINE MONTHS ENDED OCTOBER 1, 1994 VS. NINE MONTHS ENDED OCTOBER 2, 1993.
Sales of $2,207.4 million for the nine month period of calendar 1994
surpassed the nine month period of the prior year by $863.2 million or 64.2%.
Sales as compared to prior year benefited from increased market demand on
carryover domestic and foreign seat programs, new business in North America,
and the acquisition of NAB.
Gross profit and gross margin were $177.5 million and 8.0% for the nine
month period ended October 1, 1994 as compared to $119.8 million and 8.9% in
the prior year. Gross profit in calendar 1994 improved due to incremental
domestic and foreign passenger car and truck production, including the benefit
of the NAB acquisition which offset new business costs in North America and
Europe, lost margin contribution associated with a General Motors model
changeover in Canada, severance costs associated with the downsizing of German
component operations and additional postretirement expense due to the adoption
of SFAS 106.
Selling, general and administrative expenses declined as a percentage of
sales to 2.6% from 3.6% in the comparable period last year. The increase in
actual expenditures was largely the result of technical and administrative
expenses necessary to support increased business in North America.
Operating income and operating margin were $110.8 million and 5.0% for
calendar 1994 as compared to $64.7 million and 4.8% a year earlier. The
increase in operating income was primarily due to the NAB acquisition coupled
with the benefits derived from incremental volume on new and mature seating
programs in North America and Europe which offset costs associated with
start-up facilities, plant downtime in Canada, lower margin contribution in
Mexico and postretirement health care expense. Non-cash depreciation and
amortization charges were $41.4 million and $31.0 million for the nine month
period of the current and prior calendar years, respectively.
During the nine months ended October 1, 1994, interest expense increased
$2.9 million to $35.2 million as compared to the nine months ended October 2,
1993. The refinancing of the 14% debentures with 8 1/4% notes during the first
quarter of 1994 provided a net interest savings of approximately $3.1 million,
but was offset by higher short-term interest expense in Europe and interest
expense incurred on debt used to finance the NAB purchase.
Other expense for the nine months ended October 1, 1994 increased by
approximately $2.7 million over the comparable period in 1993. Higher North
American sales in the current year contributed an additional $2.3 million in
state and local tax expense which led to the overall increase in other expense.
Net income for the first nine months of 1994 was $34.0 million, or $0.73
per share, compared to net income of $9.5 million, or $0.24 per share for the
same period in 1993. Income before taxes and extraordinary items increased
$40.5 million in the nine months ended October 1, 1994 over the comparable 1993
period. Higher earnings from mature U.S. operations and improved results from
the Company's European operations as well as the inclusion of the NAB in 1994
were the primary contributors of the increase. The improved earnings resulted
in higher tax provisions in the current year nine month period.
14
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
As of October 1, 1994, the Company had a $425.0 million revolving credit
facility under which $80.0 million was borrowed and outstanding and $59.7
million was committed and outstanding under letters of credit, leaving $285.3
million unused and available. On April 13, 1994, the Company received net
proceeds of $103.7 million related to the initial public offering of its common
stock. These proceeds were used to reduce the amount outstanding under the
credit facility thereby increasing the amount unused and available under the
revolving credit facility by $103.7 million. The Company also had term loans
outstanding in Germany of approximately $7.3 million. As of October 1, 1994,
the Company had net cash and cash equivalents of $38.9 million.
Net cash flows provided by operating activities were $5.2 million during
the nine months ended October 1, 1994 compared to $62.1 million during the same
period in fiscal 1993, principally due to the change in working capital as
discussed below, partially offset by higher earnings in 1994 and lower deferred
tax asset due to utilization of net operating loss carryforwards in the U.S.
The net change in working capital declined from a source of $35.3 million
for the nine months ended October 2, 1993 to a use of $76.4 million for the
nine months ended October 1, 1994 primarily as a result of the increase in
receivable levels caused by the 64.2% increase in net sales as well as lower
than normal receivable balances at December 31, 1993 due to plant downtime in
Canada. Also contributing to the decrease in operating cash flows were higher
reimbursable preproduction development and production tooling costs
attributable to new programs in 1994.
During the first nine months of 1994, net cash used by investing
activities increased by $31.9 million to $58.0 million. The increase was
primarily due to capital expenditures of $64.5 million in the nine months ended
October 1, 1994 compared to $27.0 million expended in the comparable period in
1993. Of the 1994 expenditures, approximately $28.9 million was spent on new
production facilities to support the Company's sales growth. The remainder was
spent on existing plants and administrative support facilities. For the
remainder of 1994, the Company currently anticipates an additional $35.5
million in capital expenditures.
In February, 1994, the Company took advantage of the favorable interest
rate environment by refinancing $135.0 million in aggregate principal amount of
its 14% Subordinated Debentures by issuing $145.0 million aggregate principal
amount of 8-1/4% Subordinated Notes due 2002. The additional proceeds were
used to pay a 5.4% call premium and a portion of the accrued interest due upon
the redemption of the 14% Subordinated Debentures.
As discussed in Note 2 of the Notes to Consolidated Financial Statements,
the Company has entered into a letter of intent with Gilardini S.p.A, a
subsidiary of Fiat S.p.A, to acquire the Fiat Seat Business. The Company's
preliminary estimate of the purchase price is approximately $160 million. In
connection with this potential acquisition, the Company has entered into
negotiations with banks associated with the Company's $425.0 million revolving
credit facility to amend the agreement to increase the total available credit,
reduce pricing, modify certain covenants, and allow for the utilization of
available credit under the agreement for the purchase of the Fiat Seat
Business. The Company had $285.3 million in available credit under the
agreement at October 1, 1994.
15
<PAGE> 16
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.
16
<PAGE> 17
LEAR SEATING CORPORATION
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is required to be filed as part of this report:
27. Financial Data Schedule for the Quarter Ended October 1, 1994.
(b) The following report on Form 8-K was filed during the quarter ended
October 1, 1994:
Form 8-K, dated September 15, 1994, Press Release dated September 16,
1994 disclosing the Company's Letter of Intent to Acquire Fiat
Seat Business.
17
<PAGE> 18
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, 1994 By: /s/ James H. Vandenberghe
---------------------------------------------------
James H. Vandenberghe
Executive Vice President
Chief Financial Officer
18
<PAGE> 19
LEAR SEATING CORPORATION
FORM 10-Q
EXHIBIT INDEX
FOR THE QUARTER ENDED OCTOBER, 1, 1994
Exhibit
Number Description Page
- ------- ----------- ----
27. Financial Data Schedule for the Quarter Ended October 1, 1994.
19
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