-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, jP0w75eZC54kr0JdSUyztdXuOiJWPmI5OiMi/sbokaLa+1wTe5U/NC4wkuHSgS35 rlep61LziXCp1SkEZo+V/Q== 0000950124-94-001708.txt : 19941116 0000950124-94-001708.hdr.sgml : 19941116 ACCESSION NUMBER: 0000950124-94-001708 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19941001 FILED AS OF DATE: 19941114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEAR SEATING CORP CENTRAL INDEX KEY: 0000842162 STANDARD INDUSTRIAL CLASSIFICATION: 2531 IRS NUMBER: 133386776 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11311 FILM NUMBER: 94559383 BUSINESS ADDRESS: STREET 1: 21557 TELEGRAPH RD CITY: SOUTHFIELD STATE: MI ZIP: 48034 BUSINESS PHONE: 3137461500 MAIL ADDRESS: STREET 1: 21557 TELEGRAPH CORP CITY: SOUTHFIELD STATE: MI ZIP: 48034 FORMER COMPANY: FORMER CONFORMED NAME: LEAR SIEGLER SEATING CORP DATE OF NAME CHANGE: 19900723 10-Q 1 FORM 10-Q 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 -------------- 2 LEAR SEATING CORPORATION FORM 10-Q FOR THE QUARTER ENDED OCTOBER 1, 1994 INDEX
Part I - Financial Information: Page No. ------------------------------- -------- 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 -------------
2 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 4 LEAR SEATING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
December 31, October 1, ASSETS 1993 1994 ------ --------------- ------------- (Unaudited) - 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 =========== ===========
The accompanying notes are an integral part of these balance sheets. 4 5 LEAR SEATING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE DATA)
December 31, October 1, LIABILITIES AND STOCKHOLDERS EQUITY 1993 1994 ----------------------------------- ----------- ---------------- (Unaudited) 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 =========== ===========
The accompanying notes are an integral part of these balance sheets. 5 6 LEAR SEATING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Nine Months Ended ------------------------------ -------------------------- October 2, October 1, October 2, October 1, 1993 1994 1993 1994 --------------- ------------ ----------- ----------- (Unaudited) (Unaudited) 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 ============ ========== ========== ==========
The accompanying notes are an integral part of these statements. 6 7 LEAR SEATING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Nine Months Nine Months Ended Ended October 2, 1993 October 1, 1994 --------------- --------------- 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 =========== ===========
The accompanying notes are an integral part of these statements. 7 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 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):
Three Months Ended Nine Months Ended October 2, 1993 October 2, 1993 --------------- --------------- Net Sales $503,632 $1,705,572 Net Income (loss) (8,789) 15,851 Net Income (loss) per common share (0.25) 0.39
9 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):
December 31, October 1, 1993 1994 ---- ---- Raw materials $ 42,470 $ 68,256 Work-in-process 23,394 8,663 Finished goods 5,867 12,414 --------- --------- $ 71,731 $ 89,333 ========= =========
(6) LONG-TERM DEBT Long term debt is comprised of the following (in thousands):
December 31, October 1, 1993 1994 ---- ---- 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 ========== =========
10 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:
Three Months Ended Nine Months Ended -------------------------- ---------------------------- October 2, 1993 October 1, 1994 October 2, 1993 October 1, 1994 --------------- --------------- --------------- --------------- 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
11 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 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 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 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 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 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 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 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 EX-27 2 EXHIBIT 27
5 1,000 9-MOS DEC-31-1994 JAN-01-1994 OCT-01-1994 38,897 0 373,396 0 89,333 565,336 398,417 142,148 1,245,648 593,717 402,572 460 0 0 191,337 1,245,648 2,207,370 2,207,370 2,029,843 2,029,843 73,105 0 35,215 69,207 35,241 33,966 0 0 0 33,966 .73 .72
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