Lear Corporation's Third Quarter EPS Rises 42%
SOUTHFIELD, Mich., Oct. 18, 2002; Lear Corporation one of the world's leading automotive interior suppliers, today reported its financial results for the third quarter of 2002.officer
For the third quarter of 2002, Lear posted net sales of $3.3 billion, operating income of $158.9 million and net income of $61.6 million, or $0.91 per share. These results compare to net sales of $3.1 billion, operating income of $137.5 million and net income of $15.7 million, or $0.24 per share in 2001. Excluding non-recurring items and goodwill amortization for the third quarter of 2001, Lear had adjusted operating income of $137.5 million and net income of $41.8 million, or $0.64 per share.
"Our goal at Lear is to work in close partnership with our customers to deliver the highest quality and best value. We believe this focus on customer satisfaction and the fundamentals of our business will deliver superior value to our shareholders," said Bob Rossiter, President and Chief Executive Officer. "During the quarter, the recognition we received from our customers and the credit rating agencies, combined with our improving financial results, provide solid evidence that our customer-focused strategy is working."
Rossiter continued, "The Lear team pulled together to make the third quarter another success. The recent promotions of Don Stebbins to president and chief operating officer - North and South America and Doug DelGrosso to president and chief operating officer - Europe, Asia and Africa underscore our confidence in their abilities to keep the momentum going in the future."
Net sales and operating income for the quarter rose 7% and 16%, respectively, compared with 2001, reflecting higher North American vehicle production and new business globally, offset partially by lower vehicle production in Western Europe and South America. Earnings per share in the recently completed quarter were $0.91 compared with $0.64 in the third quarter of 2001, excluding non-recurring items and goodwill amortization. This improvement reflects both higher operating earnings and lower interest expense.
During the quarter, Lear received the DaimlerChrysler Interior Component Award, and five Lear locations earned the DaimlerChrysler Gold Award. Lear has now received formal recognition from all of its major customers worldwide. In addition, both Standard and Poor's Ratings Service and Moody's Investors Service raised their credit rating outlook for Lear.
Fourth Quarter and Full Year Outlook
For the fourth quarter, we anticipate net sales to be up 5%-7% compared with a year ago, reflecting higher vehicle production in North America and the addition of new business globally, offset by lower vehicle production in Western Europe. We expect earnings per share in the range of $1.52 to $1.67. We estimate capital spending of approximately $125 million and free cash flow to be in the range of $75-$125 million.
For the full year, we anticipate vehicle production volume for North America of about 16.5 million units and vehicle production volume for Western Europe in the range of 15.7 million to 15.9 million units. At these production levels, we expect earnings per share in the range of $4.40 to $4.55, excluding the goodwill impairment charge recorded earlier this year. We estimate full year capital spending to be about $300 million and full year free cash flow to be in the range of $300 to $350 million.
Preliminary 2003 Outlook
Our initial planning assumption for North American vehicle production is approximately 16.0 million units. For Western Europe and South America, we see industry production in line with 2002.
Within this production environment, worldwide net sales are expected to grow by approximately 4%-6%, primarily reflecting the addition of new business globally. We also see our operating margins continuing to improve.
We forecast a tax rate of 32%, average shares outstanding for the year of 68.5 million and capital spending of approximately $300 million. We see free cash flow up from 2002, allowing for continued debt reduction and a further strengthening of the balance sheet. Interest expense should approximate $200 million for the year. We also plan to begin expensing employee stock options. This is expected to reduce earnings per share by $0.07 in 2003, assuming a mid-year option grant, consistent with prior years.
For 2003, we see earnings per share growth between 10%-15% compared with 2002.
Lear Corporation, a Fortune 150 company headquartered in Southfield, Mich., USA, focuses on integrating complete automotive interiors, including seat systems, interior trim and electrical systems. With annual net sales of $13.6 billion in 2001, Lear ranks as one of the world's leading automotive interior suppliers and the world's fifth-largest automotive supplier. Lear's world-class products are designed, engineered and manufactured by over 115,000 employees in more than 300 facilities located in 33 countries. Information about Lear and its products is available on the Internet at www.lear.com
Lear Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited; in millions, except per share amounts)
Three Months Ended
September 28, 2002 September 29, 2001
Reported Adjusted Reported Adjusted (i)
Net sales $3,337.4 $3,337.4 $3,106.7 $3,106.7
Cost of goods sold 3,053.1 3,053.1 2,846.9 2,846.9
Selling, general
and administrative
expenses 125.4 125.4 122.3 122.3
Amortization of
goodwill - - 22.5 (b) -
Interest expense 53.0 53.0 63.8 63.8
Other expense, net 13.2 13.2 24.5 (c) 12.5
Income before
income taxes 92.7 92.7 26.7 61.2
Income taxes 31.1 31.1 11.0 (b,c) 19.4
Net income $61.6 $61.6 $15.7 $41.8
Diluted net income
per share $0.91 $0.91 $0.24 $0.64
Weighted average
number of shares
outstanding - diluted 67.5 67.5 65.6 65.6
Nine Months Ended
September 28, 2002 September 29, 2001
Reported Adjusted (h) Reported Adjusted (i)
Net sales $10,664.2 $10,664.2 $10,219.7 $10,219.7
Cost of goods sold 9,778.0 9,778.0 9,383.2 (d) 9,378.2
Selling, general
and administrative
expenses 389.9 389.9 384.5 (d) 379.4
Amortization of
goodwill - - 67.2 (b) -
Interest expense 163.4 163.4 209.6 (e) 206.6
Other expense, net 41.9 41.9 45.9 (c,f,g) 42.2
Income before income
taxes and cumulative
effect of a change
in accounting
principle 291.0 291.0 129.3 213.3
Income taxes 97.5 97.5 54.2 (b-g) 67.8
Income before
cumulative effect
of a change in
accounting principle 193.5 193.5 75.1 145.5
Cumulative effect of
a change in
accounting principle,
net of tax 298.5 (a) - - -
Net income (loss) $(105.0) $193.5 $75.1 $145.5
Diluted net income
(loss) per share
Income before
cumulative effect
of a change in
accounting
principle $2.89 $2.89 $1.15 $2.23
Cumulative effect
of a change in
accounting
principle 4.46 (a) - - -
Diluted net income
(loss) per share $(1.57) $2.89 $1.15 $2.23
Weighted average
number of shares
outstanding -
diluted 67.1 67.1 65.2 65.2
(a) - (i) See additional disclosures
Lear Corporation and Subsidiaries
Additional Disclosures
- (a) On January 1, 2002, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." Under this statement, goodwill is no longer amortized, but is subject to annual impairment analysis (see note (b)). The Company's initial impairment analysis compared the fair values of each of its reporting units, based on discounted cash flow analyses, to the related net book values. As a result, the Company recorded impairment charges of $310.8 million ($298.5 million after-tax or $4.46 per share) as of January 1, 2002. These charges are reflected as a cumulative effect of a change in accounting principle, net of tax in the consolidated statement of income for the nine months ended September 28, 2002.
- (b) The three month and nine month 2001 "Reported" results have not been restated to reflect the elimination of amortization of goodwill under SFAS No.142, "Goodwill and Other Intangible Assets." The three month and nine month 2001 "Adjusted" results have been presented as if SFAS No.142 had been adopted as of January 1, 2001. The amortization of goodwill was $22.5 million ($18.8 million after-tax or $0.29 per share) for the three months ended September 29, 2001 and $67.2 million ($57.1 million after-tax or $0.88 per share) for the nine months ended September 29, 2001.
- (c) On March 31, 2002, the Company adopted SFAS No.145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No.13 and Technical Corrections." Under this statement, gains and losses associated with the extinguishment of debt are no longer classified as extraordinary. As such, the redemption premium and the write-off of deferred financing fees of $12.0 million ($7.3 million after-tax or $0.11 per share) related to the Company's redemption of its 9.50% subordinated notes due 2006 in August 2001 is included in other expense, net in the consolidated statements of income for the three months and nine months ended September 29, 2001.
- (d) During the first nine months of 2001, the Company completed actions to reduce its cost base. The non-recurring costs, comprised of severance costs less the associated savings, were recorded in cost of goods sold and selling, general and administrative expenses in the amounts of $5.0 million and $5.1 million, respectively. The net after-tax charge related to these severance actions was $6.1 million or $0.09 per share.
- (e) During the first quarter of 2001, the Company made the initial draws under an asset-backed securitization. Approximately $3.0 million in non- recurring expenses were incurred as a result of the transaction. The after- tax impact of these expenses was $1.8 million or $0.03 per share.
- (f) The write-off of deferred financing fees of $1.0 million ($0.6 million after-tax or $0.01 per share) related to the Company's amendment and restatement of its $2.1 billion credit agreement in March 2001 is included in other expense, net in the consolidated statement of income for the nine months ended September 29, 2001.
- (g) In March 2001, the Company completed the sale of its Spanish wire business for $35.5 million, resulting in a gain of $12.4 million pre-tax ($5.6 million after-tax). This gain was partially offset by a $3.1 million pre-tax charge recorded to write-down certain long-lived assets to net realizable value. The net result of these transactions was a $9.3 million pre-tax gain ($2.5 million after-tax or $0.04 per share).
- (h) Excludes the impact from the item included in (a) above.
- (i) Excludes the impact from the items in (b) through (g) above.
Lear Corporation and Subsidiaries
Consolidated Balance Sheets
(in millions)
September 28, 2002 December 31, 2001
ASSETS (Unaudited) (Audited)
Current:
Cash and cash equivalents $86.4 $87.6
Accounts receivable, net 1,773.1 1,392.8
Inventories 497.4 440.3
Recoverable customer
engineering and tooling 175.3 191.6
Other 270.5 254.5
2,802.7 2,366.8
Long-Term:
PP&E, net 1,664.9 1,715.7
Goodwill, net 2,828.9 3,139.5
Other 397.0 357.2
4,890.8 5,212.4
Total Assets $7,693.5 $7,579.2
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Short-term borrowings $88.0 $63.2
Accounts payable and drafts 2,191.3 1,982.9
Accrued liabilities 1,203.1 1,007.2
Current portion of long-term debt 3.5 129.5
3,485.9 3,182.8
Long-Term:
Long-term debt 2,134.9 2,293.9
Other 578.1 543.4
2,713.0 2,837.3
Stockholders' Equity 1,494.6 1,559.1
Total Liabilities and
Stockholders' Equity $7,693.5 $7,579.2
Lear Corporation and Subsidiaries
Supplemental Data
(Unaudited; in millions, except content per vehicle data)
Three Months Ended
September 28, 2002 September 29, 2001
Net Sales
U.S. and Canada $1,948.3 $1,802.3
Europe 1,022.0 936.8
Rest of World 367.1 367.6
Total $3,337.4 $3,106.7
Reported
Operating income $158.9 $137.5
Goodwill amortization - (22.5)
Operating income after
amortization $158.9 $115.0
Adjusted
Operating income $158.9 $137.5
Content Per Vehicle *
North America $583 $588
Western Europe 273 243
South America 78 95
Depreciation $75.3 $71.6
Capital Expenditures $70.8 $69.7
Nine Months Ended
September 28, 2002 September 29, 2001
Net Sales
U.S. and Canada $6,319.4 $5,974.2
Europe 3,263.1 3,167.0
Rest of World 1,081.7 1,078.5
Total $10,664.2 $10,219.7
Reported
Operating income $496.3 $452.0
Goodwill amortization - (67.2)
Operating income after
amortization $496.3 $384.8
Adjusted
Operating income $496.3 $462.1
Content Per Vehicle *
North America $569 $572
Western Europe 254 235
South America 86 102
Depreciation $223.0 $227.2
Capital Expenditures $173.3 $157.4
* Content Per Vehicle for 2001 updated for revised production actuals