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 MARCH 29, 1997
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 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 48086-5008
(Address of principal executive offices) (zip code)
(810) 746-1500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Approximate number of shares of Common Stock, $0.01 par value per share,
outstanding at April 30, 1997: 66,022,835
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LEAR CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 29, 1997
INDEX
Part I - Financial Information: Page No.
--------
Item 1 - Consolidated Financial Statements
Introduction to the Consolidated Financial Statements 3
Consolidated Balance Sheets - March 29, 1997 and
December 31, 1996 4
Consolidated Statements of Income - Three Month Periods
ended March 29, 1997 and March 30, 1996 5
Consolidated Statements of Cash Flows - Three Month
Periods ended March 29, 1997 and March 30, 1996 6
Notes to the Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Part II - Other Information:
Item 6 - Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit Index 17
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LEAR CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION TO THE CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements of Lear Corporation and
subsidiaries (the "Company") have been prepared by Lear 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, 1996.
The financial information presented reflects all adjustments (consisting only
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of the results of operations and statements of
financial position for the interim periods presented. These results are not
necessarily indicative of a full year's results of operations.
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LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
March 29, Dec. 31,
1997 1996
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 16.3 $ 26.0
Accounts receivable, net 983.6 909.6
Inventories 187.7 200.0
Recoverable customer engineering and tooling 115.7 113.9
Other 122.9 97.9
-------- --------
1,426.2 1,347.4
-------- --------
LONG-TERM ASSETS:
Property, plant and equipment, net 841.7 866.3
Goodwill, net 1,431.7 1,448.2
Other 160.8 154.9
-------- --------
2,434.2 2,469.4
-------- --------
$3,860.4 $3,816.8
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 10.5 $ 10.3
Accounts payable 1,004.0 960.5
Accrued liabilities 560.7 520.2
Current portion of long-term debt 9.7 8.3
-------- --------
1,584.9 1,499.3
-------- --------
LONG-TERM LIABILITIES:
Deferred national income taxes 43.6 49.6
Long-term debt 1,001.6 1,054.8
Other 194.1 194.4
-------- --------
1,239.3 1,298.8
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 150,000,000 authorized;
65,988,015 issued at March 29, 1997 and
65,586,129 issued at December 31, 1996 .7 .7
Additional paid-in capital 836.2 834.5
Notes receivable from sale of common stock (.6) (.6)
Less- Common stock held in treasury, 10,230 shares at cost (.1) (.1)
Retained earnings 236.0 194.1
Minimum pension liability adjustment (1.0) (1.0)
Cumulative translation adjustment (35.0) (8.9)
-------- --------
1,036.2 1,018.7
-------- --------
$3,860.4 $3,816.8
======== ========
The accompanying notes are an integral part of these balance sheets.
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LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
Three Months Ended
----------------------
March 29, March 30,
1997 1996
-------- --------
(Unaudited)
Net sales $1,724.0 $1,405.8
Cost of sales 1,546.1 1,285.2
Selling, general and administrative expenses 66.1 43.3
Amortization of goodwill 9.7 7.3
-------- --------
Operating income 102.1 70.0
Interest expense 27.2 24.4
Other expense, net 5.5 3.1
-------- --------
Income before provision for
national income taxes 69.4 42.5
Provision for national income taxes 27.5 16.7
-------- --------
Net income $ 41.9 $ 25.8
======== ========
Net income per common share $ .62 $ .43
======== ========
The accompanying notes are an integral part of these statements.
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LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
Three Months Ended
--------------------------------
March 29, March 30,
1997 1996
-------------- -----------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 41.9 $ 25.8
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of goodwill 43.5 33.2
Amortization of deferred financing fees .9 .8
Other, net (5.5) (7.2)
Change in working capital items (36.5) (30.0)
------- ------
Net cash provided by operating activities 44.3 22.6
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (32.6) (33.7)
Other, net (3.1) 3.0
------- ------
Net cash used in investing activities (35.7) (30.7)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in long-term debt, net (52.6) (4.5)
Increase (decrease) in cash overdrafts 17.1 (.4)
Short-term borrowings, net 1.1 .4
Other, net 1.3 .7
------- ------
Net cash used in financing activities (33.1) (3.8)
------- ------
Effect of foreign currency translation 14.8 (.6)
------- ------
NET CHANGE IN CASH AND CASH EQUIVALENTS (9.7) (12.5)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 26.0 34.1
------- ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16.3 $ 21.6
======= ======
CHANGES IN WORKING CAPITAL:
Accounts receivable $(126.0) $(43.5)
Inventories 6.9 18.2
Accounts payable 64.9 20.5
Accrued liabilities and other 17.7 (25.2)
------- ------
$ (36.5) $(30.0)
======= ======
SUPPLEMENTARY DISCLOSURE:
Cash paid for interest $ 36.5 $ 34.3
======= ======
Cash paid for income taxes $ 20.5 $ 16.4
======= ======
The accompanying notes are an integral part of these statements.
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LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Lear
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) ACQUISITION OF MASLAND CORPORATION AND PRO FORMA FINANCIAL DATA
On June 27, 1996, the Company, through a wholly owned subsidiary ("PA
Acquisition Corp."), acquired 97% of the issued and outstanding shares of
common stock of Masland Corporation ("Masland") pursuant to an offer to
purchase which was commenced on May 30, 1996. On July 1, 1996, the remaining
issued and outstanding shares of common stock of Masland were acquired and PA
Acquisition Corp. merged with and into Masland, such that Masland became a
wholly-owned subsidiary of the Company. The aggregate purchase price for the
acquisition of Masland (the "Masland Acquisition") was $475.7 million
(including the assumption of $80.7 million of Masland's existing net
indebtedness and $10.0 million in fees and expenses). Masland is a leading
supplier of floor and acoustic systems to the North American automotive market.
Masland also is a major supplier of interior luggage compartment trim
components and other acoustical products which are designed to minimize noise,
vibration and harshness for passenger cars and light trucks.
The Masland Acquisition was accounted for as a purchase, and accordingly,
the assets purchased and liabilities assumed in the acquisition have been
reflected in the accompanying consolidated balance sheets and the operating
results of Masland have been included in the consolidated financial statements
since the date of acquisition.
The following pro forma unaudited financial data is presented to
illustrate the estimated effects of (i) the Masland Acquisition (including the
refinancing of certain debt of Masland pursuant to the Company's prior
revolving senior credit facility (the "Prior $1.5 billion Credit Agreement")),
(ii) the completion of a second revolving credit facility (the "Prior $300
million Credit Agreement"), and (iii) the issuance of 7,500,000 shares of the
Company's common stock and the issuance of $200.0 million aggregate principal
amount of the Company's 9 1/2% Subordinated Notes in July, 1996, and the
application of the net proceeds to the Company therefrom to repay indebtedness
outstanding under the Company's Prior $1.5 billion Credit Agreement, a portion
of which was incurred to finance the Masland Acquisition, (collectively, the
"Pro Forma Transactions") as if the Pro Forma Transactions had occurred at the
beginning of the quarter ending March 30, 1996 (unaudited; in millions, except
per share data):
Net sales $1,527.3
Net income 27.9
Net income per common share .41
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LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(3) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
principally using the first-in, first-out method. Finished goods and
work-in-process inventories include material, labor and manufacturing overhead
costs. Inventories are comprised of the following (in millions):
March 29, Dec. 31,
1997 1996
---- ----
Raw materials $ 127.5 $ 124.7
Work-in-process 26.7 25.0
Finished goods 33.5 50.3
-------- --------
$ 187.7 $ 200.0
======== ========
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciable property is
depreciated over the estimated useful lives of the assets, using principally
the straight-line method. A summary of property, plant and equipment is shown
below (in millions):
March 29, Dec. 31,
1997 1996
---- ----
Land $ 52.3 $ 52.3
Buildings and improvements 289.6 287.6
Machinery and equipment 832.9 836.8
-------- --------
Total property, plant and equipment 1,174.8 1,176.7
Less accumulated depreciation (333.1) (310.4)
-------- --------
Net property, plant and equipment $ 841.7 $ 866.3
======== ========
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LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(5) LONG-TERM DEBT
Long term debt is comprised of the following (in millions):
March 29, Dec. 31,
1997 1996
--------- ---------
Credit agreements $ 450.3 $ 481.3
Industrial revenue bonds 22.6 22.6
Other 68.4 89.2
--------- ---------
541.3 593.1
Less- Current portion (9.7) (8.3)
--------- ---------
531.6 584.8
--------- ---------
9 1/2 % Subordinated Notes 200.0 200.0
8 1/4 % Subordinated Notes 145.0 145.0
11 1/4 % Senior Subordinated Notes 125.0 125.0
--------- ---------
470.0 470.0
--------- ---------
$ 1,001.6 $ 1,054.8
========= =========
(6) COMMON SHARES OUTSTANDING
The weighted average number of shares of common stock outstanding is as
follows for the periods presented:
Three Months Ended
----------------------
March 29, March 30,
1997 1996
---------- ----------
Primary 68,047,031 59,914,896
Fully Diluted 68,047,031 59,971,374
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LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(7) FINANCIAL ACCOUNTING STANDARDS
During 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share", which changes the calculation of earnings per share to be more
consistent with countries outside of the United States. In general, the
statement requires two calculations of earnings per share to be disclosed,
basic EPS and diluted EPS. Basic EPS is to be computed using only weighted
average shares outstanding. Diluted EPS is to be computed using the average
share price for the period when calculating the dilution of options and
warrants. This statement must be adopted by the Company in its December 31,
1997 consolidated financial statements and early adoption is not permitted. If
this statement had been adopted for the periods presented, the net income and
per share amounts would have been as follows (unaudited; in millions, except
per share data):
Three Months Ended
------------------------------
March 29, 1997 March 30, 1996
-------------- --------------
Net income $41.9 $25.8
===== =====
Basic net income per share $ .64 $ .46
===== =====
Diluted net income per
share $ .62 $ .43
===== =====
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 29, 1997 VS. THREE MONTHS ENDED MARCH 30, 1996.
Net sales of $1,724.0 million in the quarter ended March 29, 1997
surpassed the first quarter of 1996 by $318.2 million or 22.6%. Net sales as
compared to the prior year benefited from the June 1996 acquisition of Masland
Corporation ("Masland") and the December 1996 acquisition of Borealis
Industrier, AB ("Borealis") which collectively accounted for $207.6 million of
the increase. Further contributing to the overall increase in sales was new
business introduced globally within the past year and the incremental volume
and content on mature programs in North America and South America.
Net sales in the United States and Canada of $1,161.6 million in the first
quarter of 1997 exceeded the comparable period in the prior year by $245.0
million or 26.7%. Sales in the current quarter benefited from the contribution
of $149.3 million in sales from the Masland acquisition, introduction within
the past twelve months of new Ford and Chrysler truck programs and vehicle
production increases by domestic automotive manufacturers on established
programs.
Net sales in Europe of $415.1 million increased by $32.2 million or 8.4%
in the first quarter of 1997 as compared to the first quarter of 1996. Sales
in the quarter ended March 29, 1997 benefited from $47.7 million in sales from
the Borealis acquisition. Partially offsetting the increase in sales were
unfavorable exchange rate fluctuations in Germany and Sweden and a modest
downturn on industry build schedules for carryover programs.
Net sales of $147.3 million in the Company's remaining geographic regions,
consisting of Mexico, South America, the Asia/Pacific Rim region and South
Africa surpassed the first quarter of the prior year by $41.0 million or 38.6%.
Sales in the first quarter of 1997 benefited from increased Fiat and
Volkswagen programs in South America and $10.6 million in sales from a Masland
operation in Mexico. Partially offsetting the increase in sales was reduced
market demand for existing General Motors truck and Ford passenger car programs
in Mexico.
Gross profit (net sales less cost of sales) and gross margin (gross profit
as a percentage of net sales) were $177.9 million and 10.3% for the first
quarter of 1997 as compared to $120.6 million and 8.6% in the comparable period
of 1996. Gross profit in the current quarter reflects the contribution of the
Masland and Borealis acquisitions coupled with the benefits derived from the
overall growth in new and ongoing programs.
Selling, general and administrative expenses as a percentage of net sales
increased to 3.8% in the first quarter of 1997 as compared to 3.1% in the first
quarter of 1996. Actual expenditures increased in comparison to the comparable
period of the prior year due to the inclusion of Masland and Borealis operating
expenses as well as support expenses associated with established and potential
business opportunities.
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Operating income and operating margin were $102.1 million and 5.9% for the
first quarter of 1997 as compared to $70.0 million and 5.0% for the first
quarter of 1996. For the quarter ended March 29, 1997, operating income
benefited from the acquisition of Masland, increased market demand and content
on domestic car and light truck programs and improved performances at certain
South America and Asia/Pacific Rim operations. Partially offsetting the
increase in operating income were design, development and administrative
expenses, program expenses for recently opened facilities in South America and
the Asia/Pacific Rim region and the results of certain of the Company's
European operations. Non-cash depreciation and amortization charges were $43.5
million and $33.2 million for the first quarter of 1997 and 1996, respectively.
For the quarter ended March 29, 1997, interest expense increased over the
first quarter of 1996 by $2.8 million largely as a result of interest incurred
on additional debt utilized to finance the Masland and Borealis acquisitions.
Other expenses for the current quarter, which include state and local
taxes, foreign exchange, minority interests in consolidated subsidiaries,
equity in net income of affiliates and other non-operating expenses, increased
in comparison to the first quarter of the prior year as increases in the
provisions for minority interest and state and local taxes more than offset
foreign exchange gains.
Net income for the first quarter of 1997 was $41.9 million, or $.62 per
share, as compared to $25.8 million, or $.43 per share, in the corresponding
quarter in the prior year. The provision for income taxes in the current
quarter was $27.5 million, or an effective tax rate of 39.6% as compared to
$16.7 million, or an effective tax rate of 39.3% in the previous year.
Earnings per share increased in the first quarter of 1997 by 44.2% despite an
increase in the weighted average number of shares outstanding of approximately
8.0 million shares.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position continued to strengthen during the first
quarter of 1997. Strong cash flows from operations resulted in a total debt to
total capitalization ratio of 49.7% at March 29, 1997, down from 51.3% at
December 31, 1996.
The Company has a $1.8 billion multicurrency revolving credit facility
(the "Credit Agreement"). As of March 29, 1997, the Company had $450.3 million
outstanding under the Credit Agreement, and an additional $38.5 million was
committed under outstanding letters of credit, resulting in $1.3 billion unused
and available.
The Credit Agreement matures on September 30, 2001 and borrowings
thereunder may be used for general corporate purposes. The Credit Agreement is
guaranteed by certain of the Company's significant domestic subsidiaries and
secured by a pledge of the capital stock of certain of the Company's domestic
and foreign subsidiaries. In addition to debt outstanding under the Credit
Agreement, the Company had an additional $571.5 million of debt, including
short-term borrowings, primarily consisting of $470.0 million of subordinated
debentures due between 2000 and 2006. As of March 29, 1997 the Company had
$16.3 million of cash and cash equivalents. The Company's scheduled principal
payments on long-term debt are $8.0, $49.4,
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$6.6, $130.8 and $452.0 million in the remainder of 1997, 1998, 1999, 2000 and
2001, respectively.
Net cash provided by operating activities increased to $44.3 million for
the quarter ended March 29,1997 compared to $22.6 million during the same
period in 1996. Net income increased by 62%, from $25.8 million to $41.9
million, as a result of increased activity relating to the Masland acquisition,
new business awarded and increased volumes on existing business. In addition,
net income includes non-cash depreciation and goodwill amortization charges
which increased by $10.3 million, from $33.2 million to $43.5 million,
primarily as a result of the Masland and Borealis acquisitions. Cash flow
provided by net income and non-cash expenses was partially offset by the net
change in working capital.
The change in working capital resulted in a net use of $36.5 million and
$30.0 million for the first quarter of 1997 and 1996, respectively. Combined
with the increase in cash overdrafts, the working capital resulted in only a
$19.4 million use in the first quarter of 1997 compared to a $30.4 million use
for the same period in 1996.
Cash used in investing activities was $35.7 million in the first quarter
of 1997 versus $30.7 million in the same period of 1996. Capital expenditures
were $32.6 million in the first quarter of 1997 down slightly from $33.7
million in the first quarter of 1996. The Company currently anticipates
approximately $190 million in capital expenditures during fiscal 1997.
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.
ACCOUNTING POLICIES
During 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share", which changes the calculation of earnings per share to be more
consistent with countries outside of the United States. The Company expects to
adopt this statement in its December 31, 1997 consolidated financial
statements. The impact of adoption on the first quarter 1997 and 1996
financial statements is disclosed in Note 7 to its March 29, 1997 quarterly
financial statements included herein.
"SAFE HARBOR" PROVISIONS
This Report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Investors are cautioned that
any forward-looking statements, including statements regarding the intent,
belief, or current expectations of the Company or its management, are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those in the forward-looking
statements as a result of various factors including, but not limited to, (i)
general economic conditions in the markets in which the Company operates, (ii)
fluctuations in worldwide or regional automobile and light truck production,
(iii) labor disputes involving the Company or its significant customers, (iv)
changes in practices and/or policies of the Company's significant customers
towards outsourcing
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14
automotive components and systems, and (v) other risks detailed from time to
time in the Company's Securities and Exchange Commission filings. The Company
does not intend to update these forward-looking statements.
14
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LEAR CORPORATION
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27.1 Financial Data Schedule for the Quarter Ended March 29, 1997.
(b) Reports on Form 8-K.
No exhibits or reports on Form 8-K were filed during the quarter ended
March 29, 1997.
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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 CORPORATION
Dated: May 8, 1997 By: /s/ Donald J. Stebbins
-----------------------
Donald J. Stebbins
Senior Vice President,
Chief Financial Officer
and Treasurer
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LEAR CORPORATION
FORM 10-Q
EXHIBIT INDEX
FOR THE QUARTER ENDED MARCH 29, 1997
EXHIBIT
NUMBER
- -------
27.1 Financial Data Schedule for the Quarter Ended March 29, 1997.
17
5
1,000,000
3-MOS
DEC-31-1997
JAN-01-1997
MAR-29-1997
16
0
984
11
188
1,426
1,175
333
3,860
1,585
1,002
0
0
1
1,035
3,860
1,724
1,724
1,546
1,546
6
0
27
69
27
42
0
0
0
42
.62
.62
