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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/ / Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended or
/X/ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from July 1, 1993 to
December 31, 1993.
COMMISSION FILE NUMBER: 33-52565
LEAR SEATING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3479398
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
21557 TELEGRAPH ROAD, SOUTHFIELD, MI 48034
(Address of principal executive offices) (zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 810-746-1500
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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 such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
As of February 15, 1994, the aggregate market value of all shares of common
stock held by non-affiliates of the registrant was $0.
As of February 15, 1994, the number of shares outstanding of the registrant's
Common Stock, par value $.01 per share, was 1,176,448 shares.
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CROSS REFERENCE SHEET
AND
TABLE OF CONTENTS
PAGE NUMBER
OR
REFERENCE
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PART I
ITEM 1. Business............................................................. 1
ITEM 2. Properties........................................................... 14
ITEM 3. Legal proceedings.................................................... 16
ITEM 4. Submission of matters to a vote of security holders.................. 16
PART II
ITEM 5. Market for registrant's common equity and related stockholder
matters.............................................................. 17
ITEM 6. Selected financial data.............................................. 18
ITEM 7. Management's discussion and analysis of financial condition and
results of operations................................................ 19
ITEM 8. Financial statements and supplementary data.......................... 27
ITEM 9. Changes in and disagreements with accountants on accounting and
financial disclosure................................................. 61
PART III
ITEM 10. Directors and executive officers of the registrant................... 61
ITEM 11. Executive compensation............................................... 64
ITEM 12. Security ownership of certain beneficial owners and management....... 73
ITEM 13. Certain relationships and related transactions....................... 74
PART IV
ITEM 14. Exhibits, financial statement schedules, and reports on Form 8-K..... 77
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EXPLANATORY NOTES
On March 8, 1994, the Company filed a Registration Statement on Form S-1
(the "Registration Statement") with the Securities and Exchange Commission
relating to the public offering of 9,375,000 shares of the Company's Common
Stock, $.01 par value per share ("Common Stock"), in the United States and
internationally (the "Offerings"). Prior to the commencement of the Offerings,
it is contemplated that a 33-for-1 split of the Company's outstanding Common
Stock will be effected (the "Stock Split"), and the Registration Statement,
which as of the filing date of this Form 10-K has not yet been declared
effective, assumes the consummation of the Stock Split. However, the information
contained in this Form 10-K has not been adjusted to reflect the Stock Split.
As used in this Form 10-K, unless the context otherwise requires, the
"Company" or "Lear" refers to Lear Seating Corporation and its consolidated
subsidiaries after giving effect to the Merger (as defined herein).
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PART I
ITEM 1 -- BUSINESS
GENERAL
The Company is the largest independent supplier of automobile and light
truck seat systems in North America and is one of the largest independent
suppliers of such systems and components worldwide. The Company's principal
products include finished automobile and light truck seat systems, automobile
and light truck seat frames, seat covers and other seat components. The
Company's seat systems, which are designed, manufactured and assembled at the
Company's manufacturing facilities, are shipped to customer assembly plants on a
just-in-time ("JIT") basis for installation in vehicles near the end of the
assembly process. This JIT process enables the Company to optimize inventory
turnover and deliver products to its customers on as little as 90 minutes
notice. In the twelve months ended December 31, 1993, approximately 70% of
Lear's net sales were generated from sales in the United States and Canada, with
the balance of sales being primarily in Europe and Mexico. The Company's present
customers include 16 original equipment manufacturers ("OEMs"), the most
significant of which are Ford, General Motors, Chrysler, Volvo, Volkswagen, Saab
and Mazda.
The Company's net sales have grown rapidly from approximately $159.8
million in the fiscal year ended June 30, 1983 to approximately $1.8 billion in
the fiscal year ended June 30, 1993, a ten-year average compound annual growth
rate of approximately 27.1%. The Company has expanded its operations to
facilitate such growth primarily through capital expenditures necessary to
construct or acquire new facilities and to enhance existing facilities. This
growth in sales is attributable primarily to the trend in the automotive
industry to "outsource" more of its requirements for automotive components,
particularly high cost components such as seat systems. Outsourcing has been
increased in response to competitive pressures on OEMs to improve quality and
reduce capital needs and the costs of labor, overhead and inventory. The
outsourced market for automobile and light truck seat systems in North America
is approximately 65% of the total North American seat systems market
(approximately 83% taking into account future seating programs that have been
awarded).
In addition to outsourcing the production of seat systems, OEMs
increasingly are transferring the primary responsibility for design, engineering
and quality control of these products to suppliers, such as Lear, with proven
design, engineering and JIT program management and manufacturing capabilities.
Suppliers that design, engineer, manufacture and conduct quality control testing
are generally referred to as "Tier I" suppliers. The Company believes that early
involvement in the design and engineering of new seating products as a Tier I
supplier affords the Company a competitive advantage in securing new business
and provides its customers with significant cost reduction opportunities through
the coordination of the design, development and manufacturing processes.
The Company has enhanced its design and engineering capabilities by
building two technical centers and making other investments to upgrade its
capabilities. The Company is continuing this process of investing to
substantially improve all aspects of its safety and functional testing and
comfort assessment capabilities. An example of the Company's design and
engineering capabilities is the development of the Company's patented SureBond
process, which bonds seat covers to foam pads, minimizing the need for sewing.
"See Business -- Manufacturing." The Company believes its enhanced design and
engineering capabilities have contributed to the increase in the Company's North
American Content per Vehicle (as defined herein) from $12 to $98 between the
fiscal years ended June 30, 1983 and 1993.
As a result of the Company's demonstrated capabilities as a full-service
Tier I supplier, it has captured more than one-third of the outsourced market
for automobile and light truck seat systems and seat components in North America
and has become a leading supplier to this market in Europe. The Company's
reputation with OEMs for timely delivery, customer service and quality products
at competitive prices has resulted in many of the Company's facilities winning
recognition awards from its customers.
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The Company's continued expansion as a Tier I supplier has resulted in new
business which recently has begun or will begin production over the next
eighteen months. Such business includes new passenger car and light truck
programs for the Dodge Ram Pick-up Truck, the Ford Mustang, the Ford Windstar
Minivan, the BMW 3 Series and all Jaguar models, as well as the GM Opel Omega,
the Chevrolet Cavalier and the Oldsmobile Aurora. In addition, in December 1993,
the Company was awarded the seat system assembly responsibility for the Ford
Taurus/Mercury Sable vehicle lines for seat systems scheduled to begin
production in 1995. Ford Taurus has been the best selling car line in the United
States for the past two years. As a result of this new business, the Company
expects to construct several new seat facilities, which typically involve an
upfront cost of between $6.0 million and $9.0 million per facility for owned
facilities and between $1.0 million and $6.0 million per facility for leased
facilities.
On November 1, 1993, the Company significantly expanded its operations in
North America by purchasing certain portions of Ford's North American seat cover
and seat systems business (the "NAB") for $173.4 million in cash (after giving
effect to an adjustment in the purchase price for changes in NAB working
capital) and approximately $10.5 million in notes payable to Ford or its
affiliates (the "NAB Acquisition"). The NAB consists of an integrated United
States and Mexican operation which produces seat covers for approximately 80% of
Ford's North American vehicle production and manufactures seat systems for
Ford's Crown Victoria and Grand Marquis vehicles. For the twelve months ended
December 31, 1993, and after giving effect to the pro forma adjustments related
to the NAB Acquisition, gross sales, EBITDA (as defined herein) and operating
income of the NAB were approximately $572.7 million, $49.0 million and $37.9
million, respectively.
In connection with the NAB Acquisition, the Company entered into a
five-year supply agreement with Ford covering models for which the NAB produces
seat covers and seat systems, establishing the Company as Ford's leading seat
systems supplier. In addition, the Company believes that, as a result of the NAB
Acquisition, its relationship with Ford will be enhanced, enabling Lear to be
more involved in the planning and design of seat systems and related products
for future vehicle models.
Lear believes that the same competitive pressures that contributed to the
rapid expansion of its business in North America will require auto makers in
Europe to outsource more of their seating requirements. The outsourced market
for automobile and light truck seat systems in Europe is approximately 41% of
the total European seat systems market. Over the past four years, the Company
has aggressively pursued expansion in Europe both with its existing and new
customers. As a result of its efforts, the Company has been awarded significant
business in Sweden, Germany, Austria and England from General Motors-Adam Opel,
Saab, Volvo, Chrysler, Volkswagen and Jaguar. Consequently, the Company's net
sales in Europe have grown from approximately $145.5 million in the fiscal year
ended June 30, 1991 to approximately $432.5 million in the fiscal year ended
June 30, 1993.
The Company also has positioned itself as the leading supplier of seat
systems and seat components in Mexico through its ownership of Central de
Industrias S.A. de C.V. ("CISA"), the largest independent automotive seat
systems manufacturer in Mexico serving Mexican domestic producers. As a result
of its presence in Mexico, the Company believes that it will benefit from the
growing activity of United States-based and German-based OEMs in Mexico. The
Company also believes that it will benefit from the additional business
opportunities resulting from the passage of the North American Free Trade
Agreement ("NAFTA").
On December 31, 1993, Lear Holdings Corporation ("Holdings"), the parent of
the Company, merged with and into the Company (the "Merger"), and the separate
corporate existence of Holdings ceased on that date. Unless the context
otherwise indicates, all information contained herein is presented as if the
Merger had occurred as of the date or as of the beginning of the period
indicated.
In February 1994, the Company also changed its fiscal year end from June 30
to December 31, effective December 31, 1993.
The Company is the successor to a seat frame manufacturing business founded
in 1917 that served as a supplier to General Motors and Ford from its inception.
Holdings was organized in August 1988 to effect the
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leveraged acquisition (the "1988 Acquisition") of all of the outstanding common
stock of Lear Seating Corporation (formerly known as Lear Siegler Seating Corp.)
and certain other subsidiaries of Lear Siegler Holdings Corp. comprising its
seating group (the companies acquired being collectively referred to herein as
the "Seating Group").
The Company's principal executive offices are located at 21557 Telegraph
Road, Southfield, Michigan 48034. Its telephone number at that location is (810)
746-1500. The Company was incorporated in Delaware on January 13, 1987.
BUSINESS STRATEGY
To take advantage of additional business opportunities, the Company has
positioned itself as a global Tier I supplier of entire seat systems to OEMs.
Tier I status typically means that the supplier is awarded the seat program for
a particular vehicle in the early stages of the vehicle's design. The Tier I
supplier becomes responsible for total seat program management, including
design, development, component sourcing, quality assurance procedures,
manufacture and delivery to the OEM's assembly plant. The OEM benefits from
lower costs, improved quality, timely delivery and the administrative
convenience of being able to treat seating as a single component instead of as
numerous individual components. The Company believes that its early involvement
in the design and engineering of new seat products as a Tier I supplier affords
the Company a competitive advantage in securing new business. The Company has
become a significant Tier I supplier by implementing a strategy based upon the
following elements:
- Strong Relationships with the OEMs. The Company's management has
developed strong relationships with its OEM customers which allow Lear to
identify business opportunities and react to customer needs in the early stages
of vehicle design. The Company works closely with OEMs in designing and
engineering seat systems and maintains an excellent reputation with the OEMs for
timely delivery and customer service and for providing world class quality at a
competitive price. Many of the Company's facilities have won awards from OEMs
and others, including the General Motors Mark of Excellence Award, the General
Motors Supplier of the Year Award, the General Motors Top Supplier Award in
Mexico, the Ford Q-1 Award at 15 plants, the General Motors of Europe 1991 and
1992 Supplier of the Year Award, the Chrysler Quality Excellence Award, the Saab
100% Supplier Performance Award and the Mazda Most Valuable Supplier Award.
- Product Technology and Product Design Capability. Lear has made
substantial investments in product technology and product design capability to
support its products, including the building of two technical centers (one in
the United States in 1988 and one in Europe in 1991) and upgrading the Company's
computer aided design/computer aided manufacturing ("CAD/CAM") systems. In
addition, the Company is in the process of investing approximately $6.0 million
to substantially broaden its engineering capabilities, including all aspects of
safety and functional testing and comfort assessment. The Company's strong
product focus and global business base provide it access to worldwide seat
technology. The Company's participation with customers in the early phases of
product design, including participation at its ten remote engineering sites
located near customers, enables it to improve the quality of the product and to
meet target costs. Furthermore, the Company has established formal programs
which provide for an ongoing review of product design and production in order to
establish the means of obtaining additional cost improvement. An example of the
Company's product technology and product design capability is the development of
its SureBond process, which was patented in 1987. Sales of seat systems using
the SureBond process accounted for approximately 35% of the Company's net sales
for the twelve months ended December 31, 1993. See "Business -- Manufacturing."
- Lean Manufacturing Philosophy. Lear has adopted a "lean manufacturing"
philosophy that seeks to eliminate waste and inefficiency in its own operations
and in those of its customers. The Company believes that it provides superior
quality seating products at lower costs than the OEMs. The Company, whose
facilities are linked by computer directly to those of its suppliers and
customers, receives components from its suppliers, and delivers seat systems and
components to its customers on a JIT basis, which minimizes inventories and
fixed costs and enables the Company to deliver products on as little as 90
minutes notice. In the twelve months ended December 31, 1993, the Company's
overall annual inventory turnover rate was 36 times (excluding the
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effects of the NAB Acquisition) and up to 150 times in the case of certain of
the Company's JIT plants. The Company also minimizes fixed costs by using the
existing suppliers to the OEMs and the OEMs themselves for certain components
instead of attempting to produce such components itself. In cases where one of
the Company's manufacturing facilities is underutilized, the Company is able to
redistribute products to increase facility utilization.
Typically, the upfront cost of constructing a new seat systems facility is
between $6.0 and $9.0 million per facility for owned facilities and between $1.0
million and $6.0 million per facility for leased facilities. The principal costs
in starting a new seat systems facility arise from the acquisition of the land,
construction of the building and installation of conveyor systems. Because most
seat assembly work is manual and does not require complex equipment, capital
costs are relatively low.
Another example of the Company's "lean manufacturing" philosophy is the
establishment of a "Champion Program" in the fiscal year ended June 30, 1993
whereby individual members of management are responsible for working with a
specific vendor to aggressively reduce costs. The success of the program has
allowed the Company to negotiate on-going cost reduction agreements with many of
its customers. The Champion Program has been expanded since June 30, 1993 to
European suppliers as well as to product and manufacturing design.
NAB ACQUISITION
On November 1, 1993, Lear significantly strengthened its position in the
North American automotive seating market by purchasing the NAB from Ford for
$173.4 million in cash (after giving effect to an adjustment in the purchase
price for changes in NAB working capital) and approximately $10.5 million in
notes payable to Ford or its affiliates. The NAB Acquisition included the
machinery, equipment, real property and other assets used in the operations of
the NAB as well as the stock of Favesa S.A. de C.V. ("Favesa"), an operation
located in Juarez, Mexico.
The NAB consists of an integrated United States and Mexican operation which
produces seat covers for approximately 80% of Ford's North American vehicle
production and manufactures seat systems for Ford's Crown Victoria and Grand
Marquis vehicles. The Company's United States and Canadian revenues as a
percentage of total net sales would have been approximately 68% had the NAB
Acquisition not occurred versus 75% had the NAB Acquisition occurred on the
first day of calendar year 1993. The cost structure of the NAB is very similar
to the Company's current business in that costs are largely variable and,
therefore, responsive to demand. Prior to the NAB Acquisition, the Company
outsourced a significant portion of its seat cover requirements. The expansion
of the Company's seat cover business allows the Company better control over the
costs and quality of one of the critical components of a seat system. Because of
the Company's belief in its ability to produce seat covers and seat systems at
attractive margins, the NAB Acquisition is expected to improve the Company's
operating performance.
For the twelve months ended December 31, 1993, after giving pro forma
effect to the NAB Acquisition, gross sales, EBITDA and operating income of the
NAB were approximately $572.7 million, $49.0 million and $37.9 million,
respectively.
In connection with the NAB Acquisition, the Company entered into a
five-year supply agreement with Ford covering models for which the NAB currently
produces seat covers and seat systems at agreed upon prices. The Company also
assumed during the term of the supply agreement primary engineering
responsibility for a substantial portion of Ford's car models. As a result, the
NAB Acquisition establishes the Company as Ford's leading seat systems supplier
and strengthens the Company's relationship with one of its two largest customers
and the world's second largest automobile manufacturer. In addition, the Company
believes that because of the NAB Acquisition it will be further integrated by
Ford into the planning and design of seat systems and related products for
future vehicle models. On a pro forma basis, after giving effect to the NAB
Acquisition, the Company's net sales in the twelve months ended December 31,
1993 to Ford and General Motors were approximately equal. The NAB Acquisition
also provides the Company with a prototype for enhancing its relationships with
OEMs in a manner that allows OEMs to take better advantage of the
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Company's engineering, design and manufacturing expertise than is currently
afforded under conventional supply agreements.
The sale of the NAB was conducted on an auction basis in which Ford
determined that the Company was one of only two qualified final bidders based
upon technical resources, capabilities and expertise in automotive and light
truck seat systems. The selection of the Company as the successful bidder
highlights the Company's position as a leading supplier of quality seat systems.
The NAB incorporates both U.S. and Mexican operations. The manufacture of
seat covers and seat systems takes place in Juarez, Mexico at the NAB's
maquiladora subsidiary, Favesa. Favesa's maquiladora status allows the NAB to
produce seat systems and seat covers in Mexico for sale in the United States
without paying import or export duties as raw materials and finished goods cross
the United States/Mexican border. To maintain its maquiladora status, Favesa
must return its production to the United States, where it is sold by the NAB.
This maquiladora arrangement is in direct contrast to the Company's other
Mexican subsidiary, CISA, a non-maquiladora operation, whose sales are almost
entirely to Mexican plants. The Company believes that the passage of NAFTA will
present additional business opportunities as current maquiladora operations are
allowed to produce product for use in Mexico.
PRODUCTS
Lear's products have evolved from the Company's many years of experience in
the seat frame market where it has been a major supplier to General Motors and
Ford since its inception in 1917. The seat frame has structural and safety
requirements which make it the basis for overall seat design and was the logical
first step to the Company's emergence as a dominant supplier of entire seat
systems.
All of the Company's products are manufactured using JIT manufacturing
techniques, and most of the Company's products, including all seat systems, are
delivered to the OEMs on a JIT basis. The JIT concept, first broadly utilized by
Japanese automobile manufacturers, is the cornerstone of the Company's
manufacturing and supply strategy. This strategy involves many of the principles
of the Japanese system, but was redeveloped for compatibility with the greater
volume requirements and geographic distances of the North American market. The
Company first developed JIT operations in the early 1980s at its seat frame
manufacturing plants in Morristown, Tennessee and Kitchener, Ontario. These
plants previously operated under traditional manufacturing practices, resulting
in relatively low inventory turnover rates, significant scrap and rework, a high
level of indirect labor costs and long production set-up times. As a result of
JIT manufacturing techniques, the Company has been able to consolidate plants,
increase capacity and significantly increase inventory turnover, quality and
productivity.
The JIT principles first developed at Lear's seat frame plants in 1983 were
next applied to the Company's growing seat systems business. The Company's
seating plants are typically no more than 30 minutes from its customers'
assembly plants and manufacture seats for delivery to the customer's facility in
as little as 90 minutes. Orders for the Company's seats are received on a weekly
basis, pursuant to blanket purchase orders for annual requirements. These orders
detail the customer's needs for the ensuing week. In addition, on each work day,
constant computer and other communication is maintained between personnel at the
Company's plants and personnel at the customer's plants to keep production
current with the customer's demand.
The following is the approximate composition by product category of the
Company's net sales in the twelve months ended December 31, 1993, after giving
pro forma effect to the NAB Acquisition: seat systems, 73%; seat covers, 14%;
seat frames, 8%; and seat components, 5%.
- Seat Systems. The seat systems business consists of the manufacture,
assembly and supply of entire seating requirements for a vehicle or assembly
plant. The Company produces seat systems for automobiles and light trucks that
are fully finished and ready to be installed in a vehicle. Included within the
Company's seat systems production are high performance seats for luxury versions
of the OEMs' specialty cars, such as the Chevrolet Corvette, the Ford Taurus
SHO, the Mercury Cougar XR7, the Ford Thunderbird Super Coupe, the Ford Mustang
GT and the Dodge Viper. High performance seats are fully assembled seats,
ergonomically
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designed by the Company to achieve maximum passenger comfort. They have a wide
range of manual and power comfort features such as lumbar supports, cushion and
back bolsters and leg and thigh supports that are typically used to provide
product differentiation for specialty vehicles. As OEMs continue to view seat
systems as a distinguishing marketing feature, the advanced features
incorporated initially in high performance seats are more frequently becoming
standard features in a wider variety of later production vehicles.
The market for seat systems developed as a result of North American
automobile manufacturers' need to restructure assembly plant methods in response
to vigorous foreign competition in the early 1980's. The Company was positioned
to take advantage of this growing market through its long standing relationships
with customers. These relationships have been fostered through the Company's
performance in seat frame manufacturing over the years and its demonstrated
ability to supply and manage total seat systems. The Company believes that its
position in the seat systems market will improve as seats with advanced features
become an increasingly important criterion for distinguishing between competing
vehicle models. Seat systems are shipped to customers in the order in which they
are installed in vehicles.
The Company's major seat systems customers include Ford, General Motors,
Chrysler, Volvo, Volkswagen, Saab and Mazda. In addition, through its joint
ventures with NHK Spring Co., Ltd., the Company supplies seat systems to SIA (a
joint venture between Fuji Heavy Industries (Subaru) and Isuzu) and to CAMI (a
joint venture between Suzuki and General Motors). The Company and its affiliates
serve assembly plants for these customers through 22 different dedicated JIT
facilities.
The Company's seat systems sales for the twelve months ended December 31,
1993 broke down into the following vehicle categories: 47% light truck, 22%
mid-size, 13% full size, 8% luxury, 6% compact and 4% sport vehicles. These
vehicles included the Chevrolet/GMC Suburban, the Chevrolet/GMC Pick-up Truck,
the Ford Explorer, the Oldsmobile Delta 88, the Buick LeSabre, the Chevrolet
Lumina, the Buick Regal, the Mercury Cougar XR7, the Saab 9000 and the Chevrolet
Corvette. As part of the NAB Acquisition, the Company has also assumed seat
systems responsibility for the Ford Crown Victoria and the Mercury Grand Marquis
and has assumed Tier I engineering responsibilities for the Ford Escort, the
Lincoln Town Car, the Mercury Tracer and the Mercury Grand Marquis.
As a result of its product technology and product design strengths, the
Company can provide ergonomic designs which offer styling flexibility at low
cost. In addition, the Company is able to incorporate many convenience features
and safety improvements into its seat designs, such as storage armrests, rear
seat fold down panels, integrated restraint systems and child restraint seats.
Lear's position as a market leader in seat systems is largely attributable
to seating programs on new vehicle models launched in the past five years. The
Company believes that supplying seating for these new vehicle models will
provide it with a long-term revenue stream throughout the lives of these models.
The Company is currently working with customers in the development of a number
of seat systems products to be introduced by automobile manufacturers in the
late 1990's, which it expects will lead to an increase in outsourcing
opportunities in the future. The Company has been awarded several new programs
which have recently begun or are scheduled to begin production in the fiscal
years ending December 31, 1994 through 1996. Such business includes new
passenger car and light truck programs for the Dodge Ram Pick-up Truck, the Ford
Mustang, the Ford Windstar Minivan, the BMW 3 Series, all Jaguar models, as well
as the GM Opel Omega, the Chevrolet Cavalier and the Oldsmobile Aurora. In
addition, in December 1993, the Company was awarded the seat system assembly
responsibility for the Ford Taurus/Mercury Sable vehicle lines for seat systems
scheduled to begin production in early 1995. Ford Taurus has been the best
selling car line in the United States for the past two years. See "Business --
General" for additional information on new business scheduled to begin
production in the next eighteen months.
- Seat Covers. Lear produces seat covers at its Fairhaven, Michigan and
Saltillo, Mexico facilities, which deliver seat covers primarily to other
Company plants. In addition, pursuant to the NAB Acquisition, the Company
acquired a portion of Ford's North American seat cover and seat systems business
and is producing approximately 80% of the seat covers for Ford's North American
vehicles. After the NAB Acquisition, the Company's major external customers for
seat covers are Ford and other independent suppliers. The expansion of the
Company's seat cover business allows the Company better control over the
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costs and quality of one of the critical components of a seat system. Typically,
seat covers comprise approximately 30% of the aggregate cost of a seat system.
- Seat Frames. Lear produces steel and aluminum seat frames for passenger
cars and light and medium trucks. Seat frames are primarily manufactured using
precision stamped, tubular steel and aluminum components joined together by
highly automated, state-of-the-art welding and assembly techniques. The
manufacture of seat frames must meet strict customer specified safety standards.
The Company's seat frames are either delivered to its own plants where they
become part of a completed seat that is sold to the OEM customer, to
customer-operated assembly plants or to other independent seating suppliers
where they are used in the manufacture of assembled seating systems.
The Company's product development engineers continue to advance its
technological position with such innovative material applications as aluminum
and plastic frames and new seat designs which dramatically reduce seat weight
while increasing usable automotive vehicle interior space or increasing safety.
- Seat Components. The Company designs and manufactures plastic storage
armrests for inclusion in seat systems at its plant in Mendon, Michigan.
Vehicles in which these components are found are the Dodge Ram Pick-up Truck,
the Ford F-Series Pick-up Truck, the Buick LeSabre and the Oldsmobile Delta 88.
The Company also manufactures decorative, painted and assembled injection molded
components at the Mendon facility that are used in automotive vehicle interiors.
MANUFACTURING
Lear has developed a comprehensive manufacturing philosophy for seat
systems that allows it to make optimal use of its manufacturing facilities in a
high volume market. This concept, based on JIT manufacturing techniques, was
developed in the early 1980's to meet the requirements of its customers seeking
to reduce costs and improve quality. The Company has over ten years of
experience in JIT management and manufacturing. See "Business -- Products."
Seat and component assembly techniques fall into two major categories,
traditional assembly methods (in which fabric is affixed to a frame using
velcro, wire or other material) and more advanced bonding processes. There are
two bonding techniques employed by the Company, the Company's patented SureBond
process, a technique in which fabric is affixed to the underlying foam padding
using adhesives, and the Company's licensed foam-in-place process, in which foam
is injected into a fabric cover. The SureBond process has several major
advantages when compared to traditional methods, including design flexibility,
increased quality and lower cost. The SureBond process, unlike alternative
bonding processes, results in a more comfortable seat in which air can circulate
freely. The SureBond process, moreover, is reversible, so that seat covers that
are improperly installed can be removed and repositioned properly with minimal
materials cost. In addition, the SureBond process is not capital intensive when
compared to competing technologies.
The seat assembly process begins with pulling the requisite components from
inventory. Inventory at each plant is kept at a minimum, with each component's
requirement monitored on a daily basis. This allows the plant to devote the
maximum space to production, but also requires precise forecasts of the day's
output. Seats are assembled by three or four person teams, then tested and
packaged for shipment. The Company operates its own specially designed trailer
fleet that accommodates the off-loading of vehicle seats at the assembly plant.
Lear obtains steel, aluminum and foam chemicals used in its seat systems
from various producers under various supply arrangements. Leather, fabric and
purchased components generally are purchased from various suppliers under
contractual arrangements typically lasting no longer than one year. All such
materials are readily available. Some of the purchased components are obtained
through the Company's own customers.
CUSTOMERS
Lear serves the worldwide automobile and light truck market, which produces
over 30 million vehicles annually. The outsourced market for automobile and
light truck seat systems in North America is
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approximately 65% of the total North American seat systems market, which total
market is estimated to have annual revenues of approximately $6.0 billion. The
outsourced market for seat systems in Europe is approximately 41% of the total
European seat systems market, which total market is estimated to have annual
revenues of approximately $3.6 billion. The Company believes that the same
competitive pressures that contributed to the rapid expansion of its business in
North America since 1983 will continue to encourage auto makers in the North
American and the European markets to outsource more of their seating
requirements. Over the past three years, the Company has aggressively pursued
expansion in Europe, both with its existing and new customers. Approximately
65%, 70% and 75% of Lear's net revenues were from sales in the United States and
Canada in the fiscal years ended June 30, 1993, 1992 and 1991, respectively,
with the balance of sales in Europe and Mexico. On a pro forma basis, as if the
NAB Acquisition had occurred at the beginning of the twelve months ended
December 31, 1993, net revenues in the United States and Canada would have
amounted to approximately 75% of the Company's total net revenues in the twelve
months ended December 31, 1993.
The Company's OEM customers currently include Ford, General Motors,
Chrysler, Volvo, Volkswagen, Saab, Mazda, BMW, Jaguar, Audi, Subaru, Isuzu,
Suzuki, Daimler-Benz, Renault and Peugeot. For additional information regarding
customers and foreign and domestic operations and sales, see Note 15,
"Geographic Segment Data," to the consolidated financial statements of the
Company included in this report on Form 10-K.
In the past six years, in the course of retooling and reconfiguring plants
for new models and model changeovers, OEMs have eliminated seating production
from certain of their facilities, thereby committing themselves to purchasing
seat systems and components from outside suppliers. During this period, the
Company became a supplier of these products for a significant number of new
models, many on a JIT basis.
The purchase of seat systems on a JIT basis has allowed the Company's
customers to realize a competitive advantage as a result of (i) a reduction in
labor costs since suppliers like the Company generally enjoy lower direct labor
rates, (ii) the elimination of working capital and personnel costs associated
with the production of seat systems by the OEM, (iii) a reduction in net
overhead expenses and capital investment due to the availability of
approximately 60,000 to 80,000 square feet of plant space for expansion of other
manufacturing operations which was previously associated with seat production at
the OEM facilities and (iv) a reduction in transaction costs because of the
customer's ability to deal with a limited number of sophisticated system
suppliers as opposed to numerous individual component suppliers. In addition,
the Company offers improved quality and on-going cost reductions to its
customers through design improvements and its Champion Program.
The Company receives blanket purchase orders from its customers that
normally cover annual requirements for seats to be supplied for a particular
vehicle model. Such supply relationships typically extend over the life of the
model, which is generally four to seven years, and do not require the purchase
by the customer of any minimum number of seats. In order to reduce its reliance
on any one model, the Company produces
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complete seat systems and components for a broad cross-section of both new and
more established models. Vehicles with seat systems sold by the Company and its
affiliates in the indicated locations include:
UNITED STATES AND CANADA:
OEM/MODELS OEM/MODELS
FORD: GENERAL MOTORS:
Ford Crown Victoria Buick LeSabre
Ford Explorer Sports Bucket, Buick Park Avenue
Eddie Bauer & Limited Edition Buick Regal
Ford F-Series Pick-up Truck Chevrolet Corvette
Ford Lightning Pick-up Truck Chevrolet Lumina
Ford Mustang GT & LX Chevrolet Blazer/GMC Yukon
Ford Probe Chevrolet C/K Pick-up Truck
Ford Ranger Supercab/STX Chevrolet Kodiak
Ford Taurus SHO Chevrolet Sport Van
Ford Thunderbird SC Chevrolet/GMC G-Van
Ford Windstar Minivan Chevrolet/GMC Pick-up Truck
Mercury Cougar XR7 Chevrolet/GMC Suburban
Mercury Grand Marquis GMC Rally/Vandura Van
CHRYSLER: GMC Sierra Crew Cab
Dodge Dakota Pick-up Truck GMC Sierra Pick-up Truck
Dodge Ram Charger GMC Top Kick
Dodge Ram Pick-up Truck Oldsmobile Delta 88
Dodge Viper FUJI/ISUZU:
CAMI -- GENERAL MOTORS/SUZUKI: Isuzu Trucks
Geo Metro Subaru Legacy
Geo Tracker HYUNDAI:
Suzuki Sidekick Sonata
Suzuki Swift
EUROPE:
OEM/MODELS OEM/MODELS
GENERAL MOTORS: SAAB:
Opel Astra Saab 900
Opel Calibra Saab 9000
Opel Corsa VOLVO:
Opel Omega 800 Series
Opel Senator 900 Series
Opel Vectra JAGUAR:
CHRYSLER: XJS
Eurostar Minivan XJ6
MEXICO:
OEM/MODELS OEM/MODELS
FORD: GENERAL MOTORS:
Ford Escort Chevrolet S-10 Blazer
Ford F-Series Chevrolet Cavalier
Ford Thunderbird VOLKSWAGEN:
Mercury Cougar Beetle
Mercury Grand Marquis Golf
Mercury Tracer Jetta
CHRYSLER: Vanagon Minivan
Club Cab Pick-up Truck
Dodge Ram Pick-up Truck
Because of the economic benefits inherent in the JIT manufacturing process
and the costs associated with reversing a decision to purchase seat systems from
an outside supplier, the Company believes that automobile manufacturers' level
of commitment to purchasing seating from outside suppliers, particularly on a
JIT basis, will increase. However, under the contracts currently in effect in
the United States between each of General Motors, Ford and Chrysler with the
United Automobile, Aerospace and Agricultural Implement Workers of America (the
"UAW"), in order for any of such manufacturers to obtain components that it
currently
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produces itself from external sources, it must first notify the UAW of such
intention. If the UAW objects to the proposed outsourcing, some agreement will
have to be reached between the UAW and the OEM. Factors that will normally be
taken into account by the UAW and the OEM include whether the proposed new
supplier is technologically more advanced than the OEM, cost and whether the OEM
will be able to reassign union members whose jobs are being displaced to other
jobs within the same factories. As part of its long-term agreement with General
Motors, the Company operates its Grand Rapids, Michigan facility with General
Motors employees and reimburses General Motors for the wages of such employees
on the basis of the Company's employee wage structure. The Company is
negotiating with General Motors to expand this program to other facilities. The
Company enters into these arrangements to enhance its relationship with its
customers.
The Company's contracts with its major customers generally provide for an
annual productivity price reduction and, in some cases, provide for the recovery
of increases in material and labor costs. Cost reduction through design changes,
increased productivity and similar programs with the Company's suppliers have
generally offset changes in selling prices. The Company's cost structure is
comprised of a high percentage of variable costs. The Company believes that this
structure provides it with additional flexibility during economic cycles.
General Motors and Ford, the two largest automobile and light truck
manufacturers in the world, are also the Company's two largest customers,
accounting for 45% and 28%, respectively, of the Company's net sales during the
twelve months ended December 31, 1993. After giving pro forma effect to the NAB
Acquisition, the Company's net sales to General Motors and Ford for the twelve
months ended December 31, 1993 were approximately equal.
MARKETING AND SALES
Lear markets its products by maintaining strong relationships with its
customers fostered during its 76-year history through strong technical and
product development capabilities, reliable delivery of high quality products,
strong customer service, innovative new products and a competitive cost
structure. Close personal communication with automobile manufacturers from the
corporate to the plant level is an integral part of the Company's marketing
strategy. Automobile manufacturers have increasingly reduced their number of
suppliers as part of their move to purchase systems rather than discrete
components. This process favors suppliers, like the Company, with established
ties to automobile manufacturers and the demonstrated ability to adapt to the
new competitive environment in the automotive industry.
The Company's sales are originated almost entirely by its sales staff. This
marketing effort is augmented by design and manufacturing engineers who work
closely with automobile manufacturers from the preliminary design to the
manufacture and supply of a seating system. Manufacturers have increasingly
looked to suppliers like the Company to assume responsibility for the
introduction of product innovation, shorten the development cycle of new models,
decrease tooling investment and labor costs, reduce the number of costly design
changes in the early phases of production and improve seat comfort and
functionality. Once the Company is engaged to develop the design for the seating
of a specific vehicle model, it is also generally engaged to supply the vehicle
with seating when it goes into production. The Company has responded to this
trend by improving its engineering and technical capabilities and building
technical centers in the United States in 1988 and in Europe in 1991 at a cost
of approximately $8.0 million in the aggregate. The Company is also currently in
the process of investing approximately $6.0 million in developing full-scope
engineering capabilities, including all aspects of safety and functional testing
and comfort assessment. In addition, the Company has established ten remote
engineering sites in close proximity to several of its OEM customers to enhance
customer relationships and design activity. As part of the NAB Acquisition, the
Company is assuming, during the five-year term of the supply agreement entered
into in connection with the NAB Acquisition, responsibility for a substantial
portion of Ford's seat systems design capability and, accordingly, is building a
75,000 square foot dedicated engineering facility in Dearborn, Michigan to
service Ford products.
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TECHNOLOGY
Lear conducts advanced product design and development at its technical
centers in Southfield, Michigan and Rietberg, Germany. At the technical centers,
the Company tests its products to determine compliance with applicable safety
standards, the products' quality and durability, response to environmental
conditions and user wear and tear. In the past, the Company has developed a
number of designs for innovative seat features which it has patented, including
ergonomic features such as adjustable lumbar supports and bolster systems and
adjustable thigh supports. In addition, the Company incorporates many
convenience, comfort and safety features into its seat designs, including
storage armrests, rear seat fold down panels, integrated restraint systems and
child restraint seats. The Company has recently invested to further upgrade its
CAD/CAM systems including three-dimensional color graphics, customer
telecommunications and direct interface with customer CAD systems. Research and
development costs incurred in connection with the development of new products
and manufacturing methods (not including additional research and development
costs paid for by the customer) amounted to approximately $16.2 million, $18.2
million, $11.4 million, $7.9 million for the twelve months ended December 31,
1993 and the fiscal years ended June 30, 1993, 1992 and 1991, respectively.
Lear uses its patented SureBond process (the patent for which has
approximately 10 years remaining) in bonding seat cover materials to the foam
pads used in certain of its seats. The SureBond process is used to bond a
pre-shaped cover to the underlying foam to minimize the need for sewing and
achieve new seating shapes, such as concave shapes, which were previously
difficult to manufacture.
The Company, through its wholly-owned subsidiary, Progress Pattern Corp.
("Progress Pattern"), produces patterns and tooling for use in the automotive
casting industry. Its capabilities include foundry and vacuum form tooling,
porous mold design and lost foam tooling production. The pattern operation is
also integral to the Company's seating design programs, including independent
product design and development, contract design, engineering services,
manufacturing feasibility and engineering cost studies. Progress Pattern also
manufactures production tooling for the Company's plastic and foam molding
operations. In addition to providing support for the Company's continuing seat
design, Progress Pattern provides services to its own customers, including Ford
and General Motors. It produced the casting tooling for the General Motors
Saturn engine.
The Company holds a number of mechanical and design patents covering its
automotive seating products and has numerous applications for patents currently
pending. In addition, the Company holds several trademarks relating to various
manufacturing processes. The Company also licenses its technology to a number of
seating manufacturers.
The Company has and will continue to dedicate resources to research and
development to maintain its position as a leading developer of technology in the
automotive seating industry.
JOINT VENTURES AND MINORITY INTERESTS
Lear conducts a portion of its business through joint ventures in order to
facilitate the exchange of technical information and the establishment of
business relationships with foreign automakers. The joint ventures in which the
Company participates include: (i) General Seating of America, a joint venture
with NHK Spring Co., Ltd. of Japan in which the Company has a 35% interest,
which supplies trimmed seating to SIA (a joint venture between Fuji Heavy
Industries (Subaru) and Isuzu) and (ii) General Seating of Canada Limited, a
joint venture with NHK Spring Co., Ltd. of Japan in which the Company has a 35%
interest, which supplies trimmed seating from a plant in Woodstock, Ontario to
CAMI (a joint venture between Suzuki and General Motors). In addition, the
Company has a 31% interest in Probel, S.A., a Brazilian automotive seat
component and furniture manufacturer, and a 20% interest in Pacific Trim Corp.
Ltd., a Thai manufacturer of automotive vehicle seat systems and seat covers.
See Note 7, "Investments in Affiliates," to the consolidated financial
statements of the Company included in this report on Form 10-K.
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COMPETITION
Lear is one of the two primary suppliers in the outsourced North American
seat systems market. The Company's main independent competitor is Johnson
Controls, Inc., and it competes, to a lesser extent, with Douglas & Lomason
Company and Magna International, Inc. The Company's major independent
competitors in Europe, besides Johnson Controls, Inc., are Bertrand Faure
(headquartered in France) and Keiper Recaro (headquartered in Germany). The
Company also competes with the OEMs' in-house seating suppliers. The Company
competes on the basis of technical expertise, reliability, quality and price.
The Company believes its technical resources, product design capabilities and
customer responsiveness are the key factors that allow it to compete
successfully in the seat system market.
SEASONALITY
Lear's principal operations are directly related to the automotive
industry. Consequently the Company may experience seasonal fluctuation to the
extent automotive vehicle production slows, including times such as the summer
months when plants close for model year changeovers and vacation and around
Christmas when plants close for approximately 1.5 weeks. Historically, the
Company's sales have been the strongest in the second calendar quarter. However,
in the twelve months ended December 31, 1993, net sales in the fourth calendar
quarter exceeded the second calendar quarter due to the NAB Acquisition and new
programs which the Company began during 1993. Net sales for the twelve months
ended December 31, 1993 by calendar quarter broke down as follows: first
quarter, 23.4%; second quarter, 25.0%; third quarter, 20.5%; and fourth quarter,
31.1%. Operating profit of the Company has historically been strongest in the
second calendar quarter and the weakest in the third calendar quarter. See Note
16, "Quarterly Financial Data," in the consolidated financial statements
included elsewhere in this report on Form 10-K.
EMPLOYEES
After giving effect to the NAB Acquisition, the Company employs
approximately 4,600 persons in the United States, 10,000 in Mexico, 1,500 in
Canada, 1,400 in Germany, 800 in Sweden, 90 in Austria and 80 in France. Of
these, about 2,700 are salaried employees and the balance are paid on an hourly
basis. Approximately 9,600 of the Company's employees are members of unions. The
Company has collective bargaining agreements with several unions including the
UAW; National Automobile, Aerospace and Agricultural Implement Workers Union of
Canada; the Textile Workers of Canada; the Confederation of Mexican Workers; the
International Brotherhood of Teamsters, Chauffeurs, Warehousemen, and Helpers of
America; and the International Association of Machinists and Aerospace Workers,
AFL-CIO, and its Local Lodge PM 2811 of Detroit and vicinity. Each of the
Company's facilities has a separate contract with the union which represents the
workers employed there, with each such contract having an expiration date
independent of the Company's other labor contracts. The Company has experienced
some labor disputes at its plants, none of which has significantly disrupted
production or had a materially adverse effect on its operations. The Company has
been able to resolve all such labor disputes and believes its relations with its
employees are good.
ENVIRONMENTAL
The Company is subject to various laws, regulations and ordinances which
govern activities such as discharges to the air and water, as well as handling
and disposal practices for solid and hazardous wastes and which impose costs and
damages associated with spills, disposal or other releases of hazardous
substances. The Company believes that it is in substantial compliance with such
requirements. Management does not believe that it will incur compliance costs
pursuant to such requirements that would have a material adverse effect on the
Company's consolidated financial position or future results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company -- Environmental Matters."
RECENT DEVELOPMENTS
On March 8, 1994, the Company filed a Registration Statement on Form S-1
with the Securities and Exchange Commission relating to the offering of
9,375,000 shares of the Company's Common Stock, $.01 par
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value per share ("Common Stock"), in the United States and internationally (the
"Offerings"). Of the 9,375,000 shares being offered, 6,250,000 shares are being
offered by the Company and 3,125,000 shares are being offered by a stockholder
of the Company (the "Selling Stockholder"). The Company will not receive any of
the proceeds from the sale of Common Stock by the Selling Stockholder. In
connection with the Offerings, the Company's Certificate of Incorporation will
be amended and restated (as so amended and restated, the "Restated Certificate
of Incorporation") to, among other things, increase the authorized capital of
the Company. Immediately prior to the commencement of the Offerings, it is
contemplated that a 33-for-1 split of the Company's Common Stock will be
effected.
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ITEM 2 -- PROPERTIES
The Company's operations are conducted through 60 facilities, including
four facilities acquired as part of the NAB Acquisition and six facilities
operated by the Company's less than majority-owned affiliates. The Company's
management is headquartered in Southfield, Michigan. The headquarters building,
which accommodates both the main office and the technical center, was completed
in June 1988. Twenty-two of the plants are dedicated to providing seat systems
to nearby assembly plants. The others focus on the production for a combination
of seat systems and other seating products. Substantially all owned facilities
secure borrowings under the Company's various debt agreements.
The Company's facilities are located in appropriately designed buildings
which are kept in good repair with sufficient capacity to handle present
volumes. The Company has designed its facilities to provide for efficient JIT
manufacturing of its products. No facility is materially underutilized.
Management believes substantially all of the Company's property and equipment is
in good condition and that it has sufficient capacity to meet its current and
expected manufacturing and distribution needs. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Company --
Capital Expenditures."
The following table provides certain information regarding the Company's 60
operating facilities, including five facilities currently under construction:
BUILDING
OWNED/ SQUARE LEASE
FACILITY LEASED FEET FUNCTION EXPIRATION
- ----------------------------------- ------ -------- ------------------------------- ---------------
UNITED STATES:
Southfield, MI..................... O 70,000 administrative offices and --
technical center
Detroit, MI........................ O 156,800 manufacture of seat systems --
Romulus I, MI...................... O 89,600 manufacture of seat systems --
Romulus II, MI..................... O 88,200 manufacture of seat systems --
Fenton, MI......................... O 75,800 manufacture of seat systems --
Morristown, TN..................... O 235,900 manufacture of seat components --
Lorain, OH......................... L 42,100 manufacture of seat systems July 1998
Mendon, MI......................... O 168,500 manufacture of seat components --
and other plastic products
Southfield, MI..................... O 65,000 manufacture of seat tooling --
Grand Rapids, MI................... (1) 66,560 manufacture of seat frames --
Southfield, MI..................... O 19,000 technical center --
Louisville, KY..................... L 72,000 manufacture of seat systems January 1995
Janesville, WI..................... O 120,000 manufacture of seat systems --
Fairhaven, MI...................... L 68,603 manufacture of seat covers July 1995
Dearborn, MI....................... L 22,250 engineering offices July 1997
Flint, MI.......................... L 10,083 engineering offices August 1996
Warren, MI......................... L 17,500 engineering offices March 1997
Dearborn, MI....................... L(2) 23,483 engineering offices March 1995
Duncan, SC......................... L(3) 38,926 manufacture of seat systems 10 years from
completion
Lordstown, OH...................... O(3) 96,000 manufacture of seat systems --
Pontiac, MI........................ L(3) 101,600 manufacture of seat systems August 1997
CANADA:
Kitchener, Ontario................. O 343,044 manufacture of seat frames --
Ajax, Ontario...................... O 120,000 manufacture of seat systems --
Whitby, Ontario.................... O 187,400 manufacture of seat systems --
Cowansville, Quebec................ L 50,750 manufacture of seat systems (4)
Oakville, Ontario.................. O 90,000 manufacture of seat systems --
St. Thomas, Ontario................ L(3) 100,000 manufacture of seat systems January 2005
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BUILDING
OWNED/ SQUARE LEASE
FACILITY LEASED FEET FUNCTION EXPIRATION
- ----------------------------------- ------ -------- ------------------------------- ---------------
EUROPE:
Meaux, France...................... O 48,300 manufacture of seat components --
Paris, France...................... L 2,500 administrative offices January 1995
Blere, France...................... O 14,300 manufacture of wire components --
Rietberg, Germany.................. O 193,143 manufacture of seat components --
Rietberg, Germany.................. O 17,635 technical center --
Quakenbruck, Germany............... O 139,500 manufacture of seat components --
Gustavsburg, Germany............... L 177,000 manufacture of seat systems June 2002
Eisenach, Germany.................. O 77,500 manufacture of seat systems --
Schwalbach, Germany................ L 10,500 administrative offices October 1996
Koflach, Austria................... L 63,307 manufacture of seat systems January 1995
Trollhattan, Sweden................ L 135,102 manufacture of seat systems December 1996
Bengtsfors, Sweden................. L 246,726 manufacture of seat systems September 2007
Coventry, England.................. L(5) 22,000 manufacture of seat systems May 1994
MEXICO:
Saltillo I......................... L 91,025 manufacture of seat covers January 1998
Saltillo II........................ L(3) 43,000 manufacture of seat systems July 1994
Mexico City........................ L 6,880 administrative offices June 1997
Tlahuac............................ O 339,000 manufacture of seat components --
L 8,900 warehouse June 1997
Naucalpan.......................... L 66,000 manufacture of seat systems August 1994
Cuautitlan......................... L 75,000 manufacture of seat systems (4)
Puebla............................. L 81,000 manufacture of seat systems (4)
Hermosillo......................... O 121,000 manufacture of seat systems --
Atoto.............................. L 18,275 manufacture of seat systems June 1996
Rio Bravo.......................... O(6) 202,700 manufacture of seat covers --
San Lorenzo........................ O(6) 287,000 manufacture of seat covers --
La Cuesta.......................... O(6) 392,500 manufacture of seat covers --
Omega.............................. L(7) 270,000 manufacture of seat systems November 1994
AFFILIATES OR MINORITY INTERESTS:
Woodstock, Ontario; Canada......... O(8) 120,000 manufacture of seat systems --
Frankfort, Indiana................. O(8) 82,000 manufacture of seat systems --
Khorat; Thailand................... L(8) 30,000 manufacture of seat covers and --
seat systems
Suzano, Sao Paulo; Brazil.......... O(8) 344,448 manufacture of seat components --
Ipiranga, Sao Paulo; Brazil........ L(8) 355,212 manufacture of seat components --
Jaguare, Sao Paulo; Brazil......... L(8) 96,876 manufacture of seat components --
- -------------------------
(1) This facility is operated for General Motors.
(2) A new 75,000 square foot engineering facility is currently under
construction.
(3) Facility currently under construction.
(4) Currently leased on a month-to-month basis pending agreement on a longer
lease term.
(5) A new 42,000 square foot manufacturing facility is currently under
construction, which will be dedicated to the manufacture of seat systems.
(6) Acquired as part of the NAB Acquisition.
(7) On March 15, 1994, the Company exercised an option to cause Ford to purchase
this facility along with a facility in El Jarudo, Mexico in consideration of
Ford cancelling $19.9 million of indebtedness owed by Favesa to Ford. At
that time, the Company vacated the El Jarudo facility and entered into a
lease of the Omega facility which expires on the earlier of November 30,
1994 or the date the Company vacates the Omega facility.
(8) Owned or leased by affiliates or minority interests of the Company.
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ITEM 3 -- LEGAL PROCEEDINGS
Management of the Company does not believe that any of the litigation in
which the Company is currently engaged, either individually or in the aggregate,
will have a material effect on the Company's consolidated financial position or
future results of operations.
The Company has been identified as a potentially responsible party ("PRP")
under the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended ("CERCLA" or "Superfund"), for the cleanup of contamination
from hazardous substances at three Superfund sites where liability has not been
determined. The Company also may incur indemnification obligations for cleanup
at two sites which are the subject of Superfund proceedings. Management believes
that the Company is, or may be, responsible for less than one percent, if any,
of the total costs at each site. The Company has set aside reserves which
management believes are adequate to cover any such potential liabilities.
Management believes that such matters will not result in liabilities that will
have a material adverse effect on the Company's consolidated financial position
or future results of operations.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 20, 1993, the holders of a majority of the outstanding Common
Stock of Lear Holdings Corporation ("Holdings") approved, by written consent,
the merger (the "Merger") of Holdings with and into the Company, effective as of
December 31, 1993. Pursuant to the Merger, each share of capital stock of
Holdings was exchanged for a like share of capital stock of the Company, and the
Company assumed all of Holdings' contractual and other rights and obligations.
In addition, the directors of Holdings became the directors of the Company upon
consummation of the Merger.
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PART II
ITEM 5 -- MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is subject to restrictions on sale and transfer
and there is no established public trading market for the Company's Common
Stock. However, on March 8, 1994, the Company filed a Registration Statement on
Form S-1 relating to an initial public offering of its Common Stock. See
"Business -- Recent Developments."
To date, the Company has never paid a cash dividend on its Common Stock.
Any payment of dividends in the future is dependent upon the financial
condition, capital requirements, earnings of the Company and other factors.
However, the Company currently intends to retain all future earnings, if any, to
fund the development and growth of its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future. Also the Company
is subject to certain contractual restrictions on the payment of dividends. See
Note 9 to the consolidated financial statements included in Item 8 herein for
information concerning such restrictions.
On February 15, 1994, there were 38 holders of record of the Company's
Common Stock.
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ITEM 6 -- SELECTED FINANCIAL DATA
The following income statement and balance sheet data were derived from the
consolidated financial statements of the Company. The consolidated financial
statements of the Company for the nine months ended June 30, 1989, for each of
the fiscal years ended June 30, 1990, 1991, 1992 and 1993 and for the twelve and
six months ended December 31, 1993 have been audited by Arthur Andersen & Co.
The consolidated financial statements of the Company for the six months ended
January 2, 1993 are unaudited; however, in the Company's opinion, reflect all
adjustments, consisting only of normal recurring items, necessary for a fair
presentation of the financial position and results of operations of the Company
for such period. In February 1994 the Company changed its fiscal year end from
June 30 to December 31 effective December 31, 1993. The results of operations
for any interim period are not necessarily indicative of results of operations
for a full year. The selected financial data below should be read in conjunction
with the consolidated financial statements of the Company and the notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company."
NINE TWELVE SIX SIX
MONTHS YEAR YEAR YEAR YEAR MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, DECEMBER 31, JANUARY 2, DECEMBER 31,
1989 1990 1991 1992 1993 1993(1) 1993 1993(1)
-------- ---------- ---------- ---------- ---------- ------------ ----------- ------------
(DOLLARS IN THOUSANDS(2))
OPERATING DATA:
Net sales........... $807,365 $1,067,878 $1,085,319 $1,422,740 $1,756,510 $1,950,288 $ 811,440 $1,005,218
Gross profit........ 81,632 104,707 101,429 115,641 152,499 170,215 54,519 72,235
Selling, general and
administrative
expenses.......... 18,477 28,247 41,596 50,074 61,898 62,717 26,847 27,666
Incentive stock and
other compensation
expense(3)........ 1,107 1,353 1,353 (12) -- 18,016 -- 18,016
Amortization........ 10,174 13,838 13,810 8,746 9,548 9,929 4,374 4,755
-------- ---------- ---------- ---------- ---------- ------------ ----------- ------------
Operating income.... 51,874 61,269 44,670 56,833 81,053 79,553 23,298 21,798
Interest expense,
net............... 50,982 61,184 61,676 55,158 47,832 45,656 26,943 24,767
Other expense,
net(4)............ 2,141 4,044 2,144 5,837 5,260 9,180 2,676 6,596
-------- ---------- ---------- ---------- ---------- ------------ ----------- ------------
Income (loss) before
taxes on income
and extraordinary
items............. (1,249) (3,959) (19,150) (4,162) 27,961 24,717 (6,321) (9,565)
Income taxes........ 7,409 16,630 14,019 12,968 17,847 26,864 4,450 13,467
-------- ---------- ---------- ---------- ---------- ------------ ----------- ------------
Net income (loss)
before
extraordinary
items............. (8,658) (20,589) (33,169) (17,130) 10,114 (2,147) (10,771) (23,032)
-------- ---------- ---------- ---------- ---------- ------------ ----------- ------------
Extraordinary
items(5).......... -- -- -- (5,100) -- (11,684) -- (11,684)
-------- ---------- ---------- ---------- ---------- ------------ ----------- ------------
Net income (loss)... $ (8,658) $ (20,589) $ (33,169) $ (22,230) $ 10,114 $ (13,831) $ (10,771) $ (34,716)
-------- ---------- ---------- ---------- ---------- ------------ ----------- ------------
-------- ---------- ---------- ---------- ---------- ------------ ----------- ------------
Net income (loss)
per share before
extraordinary
items............. $ (16.35) $ (41.18) $ (66.36) $ (20.36) $ 8.33 $ (2.00) $ (10.20) $ (21.41)
Net income (loss)
per share......... $ (16.35) $ (41.18) $ (66.36) $ (26.42) $ 8.33 $ (12.86) $ (10.20) $ (32.27)
Weighted average
shares
outstanding....... 529,640 500,000 499,803 841,464 1,213,608 1,075,758 1,055,660 1,075,758
BALANCE SHEET DATA:
Current assets...... $200,002 $ 223,212 $ 213,806 $ 282,864 $ 325,199 $ 433,584 $ 308,464
Total assets........ 734,582 747,583 729,670 799,884 820,209 1,114,291 809,859
Current
liabilities....... 201,117 254,514 287,111 344,169 374,950 505,717 367,782
Long-term debt...... 433,336 402,800 386,655 348,331 321,116 498,324 331,930
Common stock subject
to limited
redemption rights,
net............... 1,770 1,795 1,770 3,465 3,885 12,435 3,885
Stockholders'
equity............ 48,876 35,292 4,335 49,317 75,101 43,210 53,506
OTHER DATA:
EBITDA(6)........... $ 74,826 $ 94,252 $ 81,428 $ 91,807 $ 121,707 $ 122,112 $ 43,259 $ 43,664
Capital
expenditures...... $ 11,353 $ 14,906 $ 20,892 $ 27,926 $ 31,595 $ 45,915 $ 14,669 $ 28,989
Number of
facilities(7)..... 30 33 40 45 48 61 45 61
North American
Content per
Vehicle(8)........ $ 67 $ 77 $ 84 $ 94 $ 98 $ 112 $ 100 $ 133
North American
vehicle production
(in
millions)(9)...... 10.8 12.4 11.2 12.2 13.6 13.7 5.9 6.1
Inventory Turnover
Ratio(10)......... 27.4 25.6 30.3 36.7 36.0
- -------------------------
(1) On July 1, 1993, the Company adopted SFAS 106 (as defined herein). As a
result, the twelve months and six months ended December 31, 1993 represent
the first periods during which the Company began to incur additional
expense associated with the adoption of SFAS 106. The additional expense
for each of these periods was $3,273.
(2) Except per share data and North American Content per Vehicle.
(3) Includes a one-time charge of $18,016, of which $14,474 is non-cash, for
the twelve and six months ended December 31, 1993 for incentive stock and
other compensation expense (see Note 14 "Warrants, Stock Options and Common
Stock Subject to Redemption" in the consolidated financial statements
included elsewhere in this report on Form 10-K).
(4) Consists of foreign currency exchange gain or loss, minority interest in
net income of subsidiaries, equity (income) loss of affiliates, state and
local taxes and other expense.
(5) The extraordinary items result from the prepayment of debt.
(6) "EBITDA" is operating income plus depreciation and amortization. EBITDA
does not represent and should not be considered as an alternative to net
income or cash flow from operations as determined by generally accepted
accounting principles.
(7) Includes facilities operated by the Company's less than majority-owned
affiliates and facilities under construction.
(8) "North American Content per Vehicle" is the Company's net sales in North
America divided by total North American vehicle production.
(9) "North American vehicle production" includes car and light truck production
in the United States, Canada and Mexico estimated from industry sources.
(10) "Inventory Turnover Ratio" is cost of goods sold divided by average
inventory. The Inventory Turnover Ratio for the twelve months ended
December 31, 1993 excludes the NAB, which was acquired by the Company on
November 1, 1993.
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ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY
RESULTS OF OPERATIONS
Lear has expanded its net revenues at an annual compound growth rate of
approximately 27.1% during the period from July 1, 1983 to June 30, 1993. Since
the fiscal year ended June 30, 1990, the Company has increased its net sales by
64.5% by building upon its existing business in the United States and Canada and
significantly expanding its operations in Europe and Mexico.
As a result of significant new business added since the fiscal year ended
June 30, 1990, the Company has experienced substantial upfront costs for new
programs and new facilities. Such costs consist of administrative expenses in
Europe, engineering and design expenses for new seating programs and new
facility costs, including pre-production expenses and inefficiencies incurred
until the customer reaches normal operating levels. New business which has been
added since the fiscal year ended June 30, 1990 includes seat systems for the
GM-Suburban, Saab, Volvo, GM-Opel (2 facilities), Chrysler-Europe, Hyundai and
Volkswagen-Mexico, as well as a seat cover manufacturing facility in Mexico. The
Company expenses such non-recurring pre-production expenses as they are
incurred.
The Company's financial results in the fiscal year ended June 30, 1993
improved over prior fiscal years as a result of improved operating efficiencies
obtained at new facilities which impacted prior fiscal year results unfavorably
and strong performance at established facilities. Together these facilities
offset new program costs associated with the Dodge Ram Pick-up Truck, the Ford
Mustang, the Ford Windstar Minivan and the GM Opel Omega and facility costs
relating to new programs for BMW and Jaguar, which have begun production since
the end of the fiscal year ended June 30, 1993 or will begin production in
calendar year 1994.
The Company's financial results for the fiscal year ended June 30, 1993 do
not include the NAB Acquisition. After giving effect to the NAB Acquisition, the
Company's net sales, EBITDA and operating income for the fiscal year ended June
30, 1993 were approximately $2.2 billion, $171.7 million and $119.8 million,
respectively. See "Business -- NAB Acquisition."
Results for the six months ended December 31, 1993 do not include the NAB
for periods prior to November 1, 1993 and do include additional expense due to
the adoption by the Company of the prospective method of Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Post-retirement
Benefits Other than Pensions" ("SFAS 106"). The implementation of SFAS 106 had
an unfavorable impact in the six months ended December 31, 1993 on gross profit
of $2.9 million, operating income of $3.3 million and net income of $3.3
million. See the consolidated financial statements of the Company included
elsewhere in this report on Form 10-K.
The Company's financial results for the twelve and six months ended
December 31, 1993 include a one-time charge of $18.0 million for compensation
expense for past services of certain key management employees, of which $14.5
million was non-cash. Accelerated vesting of incentive management stock options
under the 1992 Stock Option Plan and the issuance of the remaining options under
the 1992 Stock Option Plan to 66 individuals resulted in the one-time non-cash
charge of $14.5 million. Also included in the one-time charge was $3.5 million
of cash compensation expense. The $3.5 million payment was made to 28 of the
Management Investors (as defined herein) in order to assist such individuals in
achieving some liquidity, which in certain instances will enable such
individuals to repay debt incurred in connection with the 1988 Acquisition
without necessitating the sale of any Common Stock.
The Company's performance is dependent on automotive vehicle production,
which is seasonal in nature. The third calendar quarter is historically the
Company's weakest quarter due to the impact of customer plant shutdowns for
vacation and model changeover which affect automotive production in both North
America and Europe. See Note 16 to the consolidated financial statements of the
Company included elsewhere in this report on Form 10-K.
In February 1994, the Company changed its fiscal year end from June 30 to
December 31, effective December 31, 1993.
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23
The following chart shows operating results of the Company by principal
geographic area:
GEOGRAPHIC OPERATING RESULTS
SIX MONTHS SIX MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JANUARY 2, DECEMBER 31,
1991 1992 1993 1993 1993
---------- ---------- ---------- ----------- ------------
(DOLLARS IN THOUSANDS)
NET SALES:
United States...................... $ 468,808 $ 597,160 $ 765,652 $ 335,669 $ 551,211
Canada............................. 349,931 403,351 372,045 164,861 168,613
Europe............................. 145,540 268,175 432,546 218,055 189,337
Mexico............................. 121,040 154,054 186,267 92,855 96,057
---------- ---------- ---------- ----------- ------------
Net sales..................... $1,085,319 $1,422,740 $1,756,510 $ 811,440 $1,005,218
---------- ---------- ---------- ----------- ------------
---------- ---------- ---------- ----------- ------------
OPERATING INCOME (LOSS):
United States...................... $ 6,181 $ 32,002 $ 51,752 $ 17,550 $ 27,081
Canada............................. 35,303 14,695 15,308 1,808 12,128
Europe............................. (3,667) 2,952 (3,907) (1,847) (7,608)
Mexico............................. 8,206 7,172 17,900 5,787 8,213
Unallocated corporate expense(1)... (1,353) 12 -- -- (18,016)
---------- ---------- ---------- ----------- ------------
Operating income.............. $ 44,670 $ 56,833 $ 81,053 $ 23,298 $ 21,798
---------- ---------- ---------- ----------- ------------
---------- ---------- ---------- ----------- ------------
- ---------------
(1) Unallocated corporate expense consists of incentive stock option expense and
other one-time compensation expense.
Six Months Ended December 31, 1993 Compared With Six Months Ended January 2,
1993.
Net sales of $1,005.2 million in the six months ended December 31, 1993
surpassed the six months ended January 2, 1993 by $193.8 million or 23.9%
despite the effect of depressed automotive vehicle sales on existing seating
programs in Europe. Net sales benefitted from the purchase of the NAB on
November 1, 1993, new business in the United States and Europe and incremental
volume on established domestic seating programs.
Net sales in the United States of $551.2 million in the six months ended
December 31, 1993 increased by $215.5 million or 64.2% from the comparable
period in the prior year, reflecting $86.0 million in sales from the NAB
Acquisition, improved domestic car and truck production on established seating
programs, incremental sales from new seat programs, including the Dodge Ram
Pick-up Truck and the Ford Mustang, and sales generated by a new lead vendor
program under which the Company assumed management of components for a seat
program with Ford.
Net sales in Canada for the six months ended December 31, 1993 of $168.6
million exceeded sales during the comparable period in the prior year by $3.8
million or 2.3%, reflecting modest vehicle production increases on established
General Motors seat programs. Net sales were adversely impacted by downtime
associated with a General Motors plant conversion necessary for a replacement
mid-size passenger car model introduction. Production for that replacement
program is scheduled to begin in the first quarter of 1994.
Net sales in Europe of $189.3 million in the six months ended December 31,
1993 declined in relation to the six months ended January 2, 1993 by $28.7
million or 13.2% due to reduced vehicle production requirements for carryover
seating programs in Sweden and Finland and unfavorable exchange rate
fluctuations. Partially offsetting the decrease in sales was additional volume
on established seating programs in Germany and Austria.
20
24
Net sales in Mexico of $96.1 million increased in the six month period
ended December 31, 1993 compared to the six month period ended January 2, 1993
due to increased production activity on existing Volkswagen and Chrysler
programs.
Gross profit (net sales less cost of sales) and gross margin (gross profit
as a percentage of net sales) were $72.2 million and 7.2% for the six month
period ended December 31, 1993 as compared to $54.5 million and 6.7% for the
prior comparable period. Gross profit and gross margin in the six month period
ended December 31, 1993 benefitted from the overall increase in North American
automotive production, productivity improvement programs, favorable Canadian
exchange rate fluctuations and the NAB Acquisition. Partially offsetting the
increase in gross profit were reduced capacity utilization in Europe, facility
pre-production costs for seating programs in Canada, England and Germany, the
devaluation of the Swedish krona and severance costs associated with the
downsizing of German component operations. The adoption of SFAS 106 had an
unfavorable impact on gross profit in the six month period ended December 31,
1993 of $2.9 million.
Selling, general and administrative expenses decreased to 2.8% of net sales
for the six months ended December 31, 1993 as compared to 3.3% for the
comparable period in the prior year. While expenditures for the more recent
period increased 3.1%, or $0.8 million, over the earlier period, an increase in
sales led to an overall decrease in these expenses as a percentage of sales.
Primarily contributing to the increase in selling, general and administrative
expenses in the six month period ended December 31, 1993 were design,
development and pre-production costs relating to a new BMW seating program
scheduled to be launched in mid-1994.
Operating income and operating margin (operating income as a percentage of
net sales), before the one-time charge of $18.0 million for incentive stock and
other compensation expense, were $39.1 million and 3.9% for the six months ended
December 31, 1993 compared to $23.3 million and 2.9% during the comparable
period in the prior year. The increase in operating income was due largely to an
overall increase in net sales in North America, including an increase in net
sales as a result of the NAB Acquisition and productivity improvements, which
offset lower margin contribution in Europe and the adoption of SFAS 106.
Non-cash depreciation and amortization charges were $21.9 million and $19.9
million for the six months ended December 31, 1993 and January 2, 1993,
respectively.
Interest expense for the six month period ended December 31, 1993 decreased
by $2.2 million from the comparable period in the prior year primarily due to
the refinancing of certain subordinated and senior debt at lower interest rates,
lower European interest rates, reduced borrowings in Canada and Europe and
reduced amortization of financing fees due to the early extinguishment of debt.
See Note 3, "1994 Refinancing -- Subsequent Event," to the Company's
consolidated financial statements included elsewhere in this report on Form
10-K.
Other expense for the six months ended December 31, 1993, including state
and local taxes, foreign exchange loss, minority interest in income of
subsidiaries and equity in income of affiliates, increased in comparison to the
comparable period in the prior year due to the $4.0 million write-off of
equipment associated with a discontinued Volkswagen program in Germany and
non-seating related assets in the United States.
A loss of $5.0 million, before extraordinary items and the one-time charge
of $18.0 million for incentive stock and other compensation expense, was
recognized for the six months ended December 31, 1993 as compared to a net loss
of $10.8 million in the prior comparable period. The net loss in the six months
ended December 31, 1993 reflects a $13.5 million provision for national income
taxes of which approximately $8.7 million relates to foreign operations. For the
six month period ended December 31, 1993, the Company recognized a net loss of
$34.7 million after giving effect to an extraordinary item for the early
extinguishment of debt of $11.7 million and the one-time charge of $18.0 million
for incentive stock and other compensation expense. The extraordinary item was
comprised of unamortized deferred financing fees expense and a call premium
resulting from the redemption of the 14% Subordinated Debentures, net of related
tax effects.
21
25
Fiscal Year Ended June 30, 1993 Compared With Fiscal Years Ended June 30, 1992
And 1991
Net sales of $1.8 billion in the fiscal year ended June 30, 1993 represents
the Company's twelfth consecutive year of increased sales. Net sales increased
$333.8 million or 23.5% over the fiscal year ended June 30, 1992 and $671.2
million or 61.8% as compared to the fiscal year ended June 30, 1991. Net sales
in the fiscal year ended June 30, 1993 as compared to the fiscal year ended year
ended June 30, 1992 benefitted from new business in the United States and
Europe, full year production of a second facility in Sweden for Volvo, of which
the Company assumed control in November 1991, and incremental volume on domestic
and Mexican programs. In comparison to the fiscal year ended June 30, 1991, net
sales increased in the fiscal year ended June 30, 1992 by $337.4 million or
31.1% due to the contribution of new business in North America and Europe,
volume increases in domestic and foreign carryover programs, including
production of replacement programs, and the acquisition of existing operations
from Saab and Volvo to handle new programs.
Gross profit and gross margin were $152.5 million and 8.7% in the fiscal
year ended June 30, 1993, $115.6 million and 8.1% in the fiscal year ended June
30, 1992 and $101.4 million and 9.3% in the fiscal year ended June 30, 1991.
Gross profit and gross margin in the fiscal year ended June 30, 1993 surpassed
that of the prior fiscal year due to the benefit of incremental volume,
including production of new business programs, productivity improvement programs
and improved operating performance at new facilities in North America, Europe
and Mexico. Partially offsetting the increase in gross profit were participation
in customer cost reduction programs, plant shutdown costs at a dedicated
facility in Finland, nonrecurring favorable foreign exchange effect on sales and
a retroactive price increase recognized in the first and second quarters of the
fiscal year ended June 30, 1992. Gross profit in the fiscal year ended June 30,
1992 increased as compared to the fiscal year ended June 30, 1991 as the overall
growth in sales activity coupled with productivity improvements more than offset
customer cost reduction programs. Comparing the same periods, gross margin
declined as a result of the incurrence of start-up costs at several new
facilities.
Selling, general and administrative expenses as a percentage of net sales
remained unchanged at 3.5% in the fiscal year ended June 30, 1993 as compared to
the prior fiscal year. The increase in actual expenses was largely the result of
increased research and development costs for future seating programs in the
United States, Canada and Europe. Further contributing to the increase in
expenses were administrative support expenses for Mexican operations and costs
associated with the establishment of customer business units in North America.
In comparison to the fiscal year ended June 30, 1991, selling, general and
administrative expenses in the fiscal year ended June 30, 1992 increased due to
design and development costs for future seat systems and technical and
administrative support for new and existing European and Mexican operations.
Operating income and operating margin were $81.1 million and 4.6% in the
fiscal year ended June 30, 1993, $56.8 million and 4.0% in the fiscal year ended
June 30, 1992 and $44.7 million and 4.1% in the fiscal year ended June 30, 1991.
The growth in operating income in the fiscal year ended June 30, 1993 as
compared to the prior fiscal year was due to incremental volume on established
seating programs and improved performance at new seat and seat cover facilities.
Partially offsetting the increase in operating income were pre-production and
facility costs for programs to be introduced after June 30, 1993, plant shutdown
costs and nonrecurring prior fiscal year adjustments noted above. As compared to
the fiscal year ended June 30, 1991, operating income in the fiscal year ended
June 30, 1992 increased due to the benefit of vehicle production increases by
automotive manufacturers on established programs in North America and Europe
which offset customer cost reduction programs and start-up costs associated with
the introduction of new seat systems within established business programs.
Non-cash depreciation and amortization charges were $40.7 million in the fiscal
year ended June 30, 1993, $35.0 million in the fiscal year ended June 30, 1992
and $36.8 million in the fiscal year ended June 30, 1991.
Interest expense in the fiscal year ended June 30, 1993 declined in
relation to the fiscal year ended June 30, 1992 and the fiscal year ended June
30, 1991 due to lower interest rates on bank debt, refinancing of certain
subordinated debt at a lower interest rate and the application of funds received
from the capital infusions initiated on September 27, 1991 and July 30, 1992.
See Notes 4 and 5 of the consolidated financial statements of the Company
included in this report on Form 10-K for additional information regarding these
transactions.
22
26
Other expense, including state and local taxes, foreign exchange gain or
loss, minority interests and equity in income of affiliates, decreased in the
fiscal year ended June 30, 1993 in comparison to the fiscal year ended June 30,
1992 as reduced income derived from joint ventures accounted for under the
equity method coupled with the Company's write-off of its $1.7 million
investment in Probel S.A., a Brazilian company, were more than offset by the
expense portion of nonrecurring capitalization and related costs of $3.2 million
associated with the 1991 Transactions (as defined under "Certain Relationships
and Related Transactions") which were incurred in the fiscal year ended June 30,
1992. Other expense in the fiscal year ended June 30, 1992 increased in
comparison to the fiscal year ended June 30, 1991 due to costs related to the
1991 Transactions.
Net income of $10.1 million was realized in the fiscal year ended June 30,
1993 as compared to a net loss of $22.2 million in the fiscal year ended June
30, 1992. The net income of $10.1 million in the fiscal year ended June 30, 1993
reflects an $11.9 million provision for foreign national income taxes as
compared to an $8.2 million provision in the fiscal year ended June 30, 1992. In
comparison to a net loss of $33.2 million in the fiscal year ended June 30,
1991, the net loss of $22.2 million in the fiscal year ended June 30, 1992
reflects a $13.0 million provision for national income taxes as compared to a
provision of $14.0 million in the previous fiscal year and to a $5.1 million
extraordinary loss on the early retirement of debt.
United States Operations
Net sales in the United States were $765.7 million, $597.2 million and
$468.8 million in the fiscal years ended June 30, 1993, 1992 and 1991,
respectively. Net sales in the fiscal year ended June 30, 1993 surpassed the
fiscal year ended June 30, 1992 due to improved domestic car and truck
production on established seating programs in the second half of the fiscal year
ended June 30, 1993 coupled with a new Ford passenger car program and the
attainment of targeted production levels for a General Motors truck program
introduced in the fall of 1991. Net sales in the fiscal year ended June 30, 1992
reflect vehicle production increases from the prior fiscal year's depressed
operating levels by OEMs on certain established seating programs and the launch
of a new General Motors truck program.
Operating income and operating margin were $51.8 million and 6.8% in the
fiscal year ended June 30, 1993, $32.0 million and 5.4% in the fiscal year ended
June 30, 1992 and $6.2 million and 1.3% in the fiscal year ended June 30, 1991.
The growth in operating income and operating margin was due to the benefits
derived from incremental volume on established and new seating programs,
productivity improvements and improved operating performance at new seat systems
and seat cover facilities. Partially offsetting the increase in operating income
were participation in customer cost reduction programs and preproduction costs
associated with a new seating program scheduled to begin production in mid-1994.
Operating income and operating margin in the fiscal year ended June 30, 1992
increased as compared to the fiscal year ended June 30, 1991 due to the transfer
of component production from Canada in order to benefit from lower operating
costs and incremental volume on established seating programs.
Canadian Operations
Net sales from Canadian operations were $372.0 million in the fiscal year
ended June 30, 1993, $403.4 million in the fiscal year ended June 30, 1992 and
$349.9 million in the fiscal year ended June 30, 1991. Net sales in the fiscal
year ended June 30, 1993 were adversely impacted by market demand and vehicle
inventories as General Motors announced temporary plant shutdowns and production
adjustments on existing passenger car and light truck programs. In comparison to
the fiscal year ended June 30, 1991, net sales in the fiscal year ended June 30,
1992 benefitted from incremental volume on carryover General Motors car and
truck programs and to the launch of a new Hyundai passenger car program, which
was partially offset by the transfer of component production from Canada to the
United States.
Operating income and operating margin were $15.3 million and 4.1% in the
fiscal year ended June 30, 1993, $14.7 million and 3.6% in the fiscal year ended
June 30, 1992 and $35.3 million and 10.1% in the fiscal year ended June 30,
1991. Operating income in the fiscal year ended June 30, 1993 as compared to the
prior fiscal year benefitted from productivity improvement programs, favorable
exchange rate fluctuations and improved operating performance at a new seat
facility. Partially offsetting the increase in operating income were reduced
vehicle production schedules on existing programs and engineering costs
associated with a future Ford seating program. Operating income in the fiscal
year ended June 30, 1992 declined in relation to the
23
27
fiscal year ended June 30, 1991 due to a shift in component production to the
Company's United States facilities in order to take advantage of lower operating
costs, participation in customer cost reduction programs, incremental costs
associated with the start-up of a new seat facility and to design and
development costs related to a future Ford seat system.
European Operations
Net sales in Europe were $432.5 million in the fiscal year ended June 30,
1993, $268.2 million in the fiscal year ended June 30, 1992 and $145.5 million
in the fiscal year ended June 30, 1991. Net sales in the fiscal year ended June
30, 1993 exceeded the prior fiscal year due to the addition of new operations in
Germany and Austria, the full year impact resulting from the acquisition of
facilities in Sweden and Finland and incremental volume on carryover programs in
Germany. Partially offsetting the increase in net sales were reduced vehicle
production schedules for established seating programs in Sweden and unfavorable
exchange rate fluctuations. Net sales in the fiscal year ended June 30, 1992
surpassed net sales in the prior fiscal year due to additional volume on an
existing program in Sweden and the acquisition of facilities in Sweden and
Finland in November 1991 and January 1992, respectively, while demand for
existing programs in Germany remained essentially unchanged.
The Company's European operations sustained an operating loss of $3.9
million in the fiscal year ended June 30, 1993 as compared to operating income
of $3.0 million in the fiscal year ended June 30, 1992 and an operating loss of
$3.7 million in the fiscal year ended June 30, 1991. The $6.9 million
unfavorable variance in the fiscal year ended June 30, 1993 was the result of
lower margin products introduced at an established facility in Germany,
technical and administration costs required to support European manufacturing
facilities, a retroactive price increase recognized in the first half of the
fiscal year ended June 30, 1992 and the devaluation of the Swedish krona, which
was partially offset by the favorable impact of foreign exchange rates. Also
contributing to the decrease in operating income were reserves established by
the Company for the anticipated plant shutdown costs at a dedicated facility in
Finland due to the customer transfer of production to alternative locations in
Europe. Partially offsetting the decrease in operating income was the overall
growth in sales activity, including production from new programs in Germany and
Austria and to the full year contribution of facilities in Sweden and Finland of
which the Company assumed control in the fiscal year ended June 30, 1992.
Operating income of $3.0 million in the fiscal year ended June 30, 1992
increased by $6.6 million as compared to the fiscal year ended June 30, 1991 due
to improved pricing on an existing program, incremental volume on carryover
programs and improved operating performance at an established facility in Sweden
which combined to more than offset pre-production, technical and administrative
costs necessary to support new facilities opened as a result of seating programs
awarded.
Mexican Operations
Net sales in Mexico were $186.3 million in the fiscal year ended June 30,
1993, $154.1 million in the fiscal year ended June 30, 1992 and $121.0 million
in the fiscal year ended June 30, 1991. Net sales in the fiscal year ended June
30, 1993 surpassed the fiscal year ended June 30, 1992 and the fiscal year ended
June 30, 1991 due to increased production activity on established General
Motors, Ford, Volkswagen and Chrysler programs.
Operating income and operating margin in Mexico were $17.9 million and 9.6%
in the fiscal year ended June 30, 1993, $7.2 million and 4.7% in the fiscal year
ended June 30, 1992 and $8.2 million and 6.8% in the fiscal year ended June 30,
1991. The increase in operating income and operating margin in the fiscal year
ended June 30, 1993 as compared to the prior fiscal year was due to the benefit
of additional sales, productivity improvement programs and improved
manufacturing performance at a seat cover facility. Operating income and
operating margin in the fiscal year ended June 30, 1992 declined in relation to
the fiscal year ended June 30, 1991 as a result of the Company's participation
in a customer cost reduction program and incremental start-up costs associated
with a new seat cover facility.
LIQUIDITY AND FINANCIAL CONDITION
On October 25, 1993, the Company amended and restated the Original Credit
Agreement (as amended and restated, the "Credit Agreement"), increasing the
Company's total availability to $425.0 million from
24
28
$150.0 million, reducing the Company's average bank borrowing costs by
approximately 150 basis points and enabling the Company to refinance all of its
then outstanding indebtedness under the Company's Original Credit Agreement, to
retire the GECC Mortgage Loan and to finance a portion of the NAB Acquisition.
As of December 31, 1993, and after giving effect to the 1994 Note Offering, the
Offerings and the application of the net proceeds therefrom, the Company would
have had $178.4 million outstanding under the Credit Agreement ($36.8 million of
which would have been outstanding under letters of credit), resulting in $246.6
million unused and available. The Company also had term loans outstanding in
Germany of approximately $7.6 million.
Of the $230.7 million of borrowings actually outstanding under the Credit
Agreement as of December 31, 1993, $173.4 million related to the NAB
Acquisition. The remaining $57.3 million outstanding related to the early
retirement of term debt during the calendar year 1993.
Amounts available under the Credit Agreement will be reduced by $40.0
million every six months beginning October 31, 1996, and the Credit Agreement
will expire on October 31, 1998. Excluding amounts outstanding under the Credit
Agreement which will be due upon the expiration of the Credit Agreement, the
Company's scheduled principal payments are $1.2 million in calendar year 1994,
$2.4 million in calendar year 1995 and $1.2 million in each of the next three
calendar years.
Net cash provided by operating activities increased to $94.5 million in the
fiscal year ended June 30, 1993, compared to $48.0 million and $33.5 million in
the fiscal years ended June 30, 1992 and 1991, respectively. The increase in
cash flow in the fiscal year ended June 30, 1993 reflected higher operating
earnings and reduced working capital requirements. The reduced working capital
requirements were primarily the result of improved management of inventories,
customer tooling and accounts payable. Inventories declined by 12.0% in the
fiscal year ended June 30, 1993 despite record net sales in that year.
Net cash provided by operating activities increased to $17.1 million during
the six months ended December 31, 1993. Cash flow increases resulted from
improved operating earnings and management of accounts receivable, inventories
and accounts payable, offset by the use of proceeds necessary to finance the
working capital requirement of the NAB.
During the fiscal year ended June 30, 1993 and the six months ended
December 31, 1993, cash generated from operations and funds available under the
Original Credit Agreement were sufficient to meet the Company's debt service and
capital expenditure requirements. The Company believes that cash flows from
operations and funds available from existing credit facilities (principally the
Credit Agreement) will be sufficient to meet its future debt service
obligations, projected capital expenditures and working capital requirements.
Since July 1992, the Company has taken advantage of the favorable interest
rate environment by refinancing a substantial portion of its long-term debt to
reduce its ongoing interest expense. In February 1994, the Company refinanced
$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 on the redemption of the 14% Subordinated
Debentures. In July 1992, the Company refinanced $85.0 million in aggregate
principal amount of its 14 1/4% Senior Subordinated Discount Notes by issuing
$125.0 million aggregate principal amount of the Senior Subordinated Notes. The
additional proceeds were used to prepay $15.0 million of term loans and
temporarily reduce outstanding revolving loans under the Original Credit
Agreement and for general corporate purposes.
In the fiscal years ended June 30, 1993 and 1992, gross proceeds of $20.4
and $75.0 million, respectively, were received from the issuance of Common
Stock. The Common Stock proceeds were used to reduce borrowings under the
Original Credit Agreement in each year, as well as fund the Company's expansion.
CAPITAL EXPENDITURES
For the fiscal year ended June 30, 1993, capital expenditures of the
Company were $31.6 million. For the fiscal years ended June 30, 1992 and June
30, 1991, capital expenditures of the Company were $27.9 million
25
29
and $20.9 million, respectively. The Company estimates that it spent, in the
aggregate, between $10.0 million and $15.0 million in the fiscal years ended
June 30, 1992 and 1993, respectively, for equipment replacement and
refurbishment. For the six months ended December 31, 1993, capital expenditures
of the Company were $29.0 million. The Company anticipates that during the
fiscal year ending December 31, 1994, capital expenditures will aggregate
approximately $60.0 million, of which approximately $35.0 million will relate to
the addition of new facilities and the completion of previously started
facilities required to support new seat systems programs. The remainder will be
used to establish new programs in existing facilities and for ongoing
maintenance requirements. The Company anticipates that cash generated from
operations and borrowings under the Credit Agreement will provide sufficient
funds for planned capital expenditures.
ENVIRONMENTAL MATTERS
The Company is subject to local, state, federal and foreign laws,
regulations and ordinances (i) which govern activities or operations that may
have adverse environmental effects and (ii) that impose liability for the costs
of cleaning up and certain damages resulting from sites of past spills, disposal
or other releases of hazardous substances. The Company currently is engaged in
the cleanup of hazardous substances at certain sites owned, leased or operated
by the Company, including soil and groundwater cleanup at its facility in
Mendon, Michigan. Management believes that the Company will not incur compliance
costs or cleanup costs at its facilities with known contamination that would
have a material adverse effect on the Company's consolidated financial position
or future results of operations.
The Company has been identified as a potentially responsible party ("PRP")
under the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended ("CERCLA" or "Superfund"), for the cleanup of contamination
from hazardous substances at three Superfund sites where liability has not been
determined. The Company also may incur indemnification obligations for cleanup
at two sites which are the subject of Superfund proceedings. Management believes
that the Company is, or may be, responsible for less than one percent, if any,
of the total costs at each site. The Company has set aside reserves which
management believes are adequate to cover any such potential liabilities.
Management believes that such matters will not result in liabilities that will
have a material adverse effect on the Company's consolidated financial position
or future results of operations.
INFLATION AND ACCOUNTING POLICIES
Lear's contracts with its major customers generally provide for an annual
productivity price reduction and provide for the recovery of increases in
material and labor costs in some contracts. Cost reduction through design
changes, increased productivity and similar programs with the Company's
suppliers generally have offset changes in selling prices. The Company's cost
structure is comprised of a high percentage of variable costs. The Company
believes that this structure provides it with additional flexibility during
economic cycles.
In December 1990, the Financial Accounting Standards Board issued SFAS 106,
which sets forth new standards on accounting for post-retirement benefits other
than pensions. This standard requires that the expected cost of these benefits
must be charged to expense during the years in which the employees render
service. The Company prospectively has adopted the new standard for its domestic
plans effective July 1, 1993 and will adopt the standard no later than required
for its foreign plans. The Company's actuaries have determined the domestic
transition obligation at July 1, 1993 to be approximately $25.6 million (net of
a previously recorded liability of $6.3 million) before income taxes, which will
be amortized over 20 years. The Company's results for the six months ended
December 31, 1993 reflect an increase of approximately $3.3 million for
post-retirement benefits as computed under this new standard than would have
been recorded under the Company's previous method, which recognized these costs
on a cash basis. The additional expense of $3.3 million includes approximately
$641,000 of amortization of the Company's transition obligation.
In November 1992, the Financial Accounting Standards Board issued SFAS 112,
"Employers Accounting for Post-Employment Benefits." This statement requires
that employers accrue the cost of post-employment benefits during the employees'
active service. The Company will adopt this statement effective January 1, 1994
and believes that the adoption of this statement will not have a material effect
on its financial position or results of operations.
26
30
ITEM 8 -- FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
LEAR SEATING CORPORATION AND SUBSIDIARIES
PAGE
----
Report of Independent Public Accountants.............................................. 28
Consolidated Balance Sheets as of June 30, 1992, 1993 and December 31, 1993........... 29
Consolidated Statements of Operations for the years ended June 30, 1991, 1992 and 1993
and for the twelve months and six months ended December 31, 1993.................... 30
Consolidated Statements of Stockholders' Equity for the years ended June 30, 1991,
1992
and 1993 and for the twelve months and six months ended December 31, 1993........... 31
Consolidated Statements of Cash Flows for the years ended June 30, 1991, 1992 and 1993
and for the twelve months and six months ended December 31, 1993.................... 32
Notes to Consolidated Financial Statements............................................ 33
Report of Independent Public Accountants.............................................. 54
Schedule II -- Amounts Receivable from Employees...................................... 55
Schedule V -- Property, Plant and Equipment........................................... 56
Schedule VI -- Accumulated Depreciation of Property, Plant and Equipment.............. 57
Schedule VII -- Guarantees of Securities of Other Issuers............................. 58
Schedule VIII -- Valuation and Qualifying Accounts.................................... 59
Schedule X -- Supplementary Income Statement Information.............................. 60
27
31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Lear Seating Corporation:
We have audited the accompanying consolidated balance sheets of LEAR
SEATING CORPORATION AND SUBSIDIARIES ("the Company") as of June 30, 1992, June
30, 1993 and December 31, 1993 and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended June 30,
1991, 1992 and 1993 and for the twelve months and six months ended December 31,
1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of June 30,
1992, June 30, 1993 and December 31, 1993 and the results of its operations and
its cash flows for the years ended June 30, 1991, 1992 and 1993 and for the
twelve months and six months ended December 31, 1993, in conformity with
generally accepted accounting principles.
As discussed in Note 12 to the consolidated financial statements, as of
July 1, 1993, the Company changed its method of accounting for post-retirement
benefits other than pensions.
/s/ ARTHUR ANDERSEN & CO.
Detroit, Michigan,
February 10, 1994 (Except with
respect to the matters discussed in
Note 18, as to which the date is
March 2, 1994).
28
32
LEAR SEATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, 1992 JUNE 30, 1993 DECEMBER 31, 1993
------------- ------------- -----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 33,217 $ 53,787 $ 55,034
Accounts receivable, less allowance for doubtful accounts of $239 at
June 30, 1992, $516 at June 30, 1993 and $644 at December 31,
1993.............................................................. 178,070 215,745 272,421
Inventories......................................................... 46,427 40,877 71,731
Unbilled customer tooling........................................... 10,741 8,565 19,441
Other............................................................... 14,409 6,225 14,957
------------- ------------- -----------------
282,864 325,199 433,584
------------- ------------- -----------------
PROPERTY, PLANT AND EQUIPMENT:
Land................................................................ 13,718 13,405 31,289
Buildings and improvements.......................................... 79,252 73,015 114,514
Machinery and equipment............................................. 160,123 180,208 210,654
Construction in progress............................................ 3,144 2,094 5,030
------------- ------------- -----------------
256,237 268,722 361,487
Less -- Accumulated depreciation................................ (76,732) (103,527) (110,530)
------------- ------------- -----------------
179,505 165,195 250,957
------------- ------------- -----------------
OTHER ASSETS:
Goodwill, less accumulated amortization of $36,568 at June 30, 1992,
$46,116 at June 30, 1993 and $50,871 at December 31, 1993......... 317,913 309,165 403,694
Deferred financing fees, net........................................ 7,765 9,825 14,377
Investments in affiliates and other................................. 11,837 10,825 11,679
------------- ------------- -----------------
337,515 329,815 429,750
------------- ------------- -----------------
$ 799,884 $ 820,209 $ 1,114,291
------------- ------------- -----------------
------------- ------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings............................................... $ 11,982 $ 1,211 $ 48,155
Cash overdrafts..................................................... 8,324 17,317 19,769
Accounts payable.................................................... 204,865 248,454 298,326
Accrued liabilities................................................. 81,716 106,707 138,299
Financing lease obligation.......................................... 10,296 -- --
Current portion of long-term debt................................... 26,986 1,261 1,168
------------- ------------- -----------------
344,169 374,950 505,717
------------- ------------- -----------------
LONG-TERM LIABILITIES:
Deferred national income taxes...................................... 26,392 15,536 15,889
Long-term debt...................................................... 348,331 321,116 498,324
Other............................................................... 28,210 29,621 38,716
------------- ------------- -----------------
402,933 366,273 552,929
------------- ------------- -----------------
COMMITMENTS AND CONTINGENCIES
COMMON STOCK SUBJECT TO REDEMPTION:
Common stock subject to limited rights of redemption, $.01 par
value, 27,450 shares at June 30, 1992, 30,001 shares at June 30,
1993 and December 31, 1993, at estimated maximum redemption price
of $165 per share at June 30, 1992 and 1993 and $450 per share at
December 31, 1993................................................. 4,530 4,950 13,500
Notes receivable from sale of common stock.......................... (1,065) (1,065) (1,065)
------------- ------------- -----------------
3,465 3,885 12,435
------------- ------------- -----------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 250,000 shares authorized, no
shares issued..................................................... -- -- --
Common stock, $.01 par value, 1,500,000 shares authorized at June
30, 1992 and 1993 and 2,000,000 shares authorized at December 31,
1993, 1,027,096 shares issued at June 30, 1992, 1,145,757 shares
issued at June 30, 1993 and December 31, 1993, net of shares
subject to redemption............................................. 10 12 12
Additional paid-in capital.......................................... 131,650 150,993 156,917
Warrants exercisable for common stock............................... 10,000 10,000 10,000
Less -- Common stock held in treasury, 102,551 shares at June 30,
1992, 100,000 shares at June 30, 1993 and December 31, 1993, at
cost.............................................................. (10,255) (10,000) (10,000)
Retained deficit.................................................... (84,646) (74,532) (109,248)
Minimum pension liability adjustment................................ (2,858) (3,240) (4,164)
Cumulative translation adjustment................................... 5,416 1,868 (307)
------------- ------------- -----------------
49,317 75,101 43,210
------------- ------------- -----------------
$ 799,884 $ 820,209 $ 1,114,291
------------- ------------- -----------------
------------- ------------- -----------------
The accompanying notes are an integral part of these balance sheets.
29
33
LEAR SEATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
TWELVE MONTHS SIX MONTHS
YEAR ENDED JUNE 30, ENDED ENDED
------------------------------------ DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1993
---------- ---------- ---------- ------------- ------------
Net sales........................... $1,085,319 $1,422,740 $1,756,510 $ 1,950,288 $1,005,218
Cost of sales....................... 983,890 1,307,099 1,604,011 1,780,073 932,983
Selling, general and administrative
expenses.......................... 41,596 50,074 61,898 62,717 27,666
Incentive stock and other
compensation expense (Note 14).... 1,353 (12) -- 18,016 18,016
Amortization of goodwill and other
intangible assets................. 13,810 8,746 9,548 9,929 4,755
---------- ---------- ---------- ------------- ------------
Operating income.................. 44,670 56,833 81,053 79,553 21,798
Interest expense.................... 61,676 55,158 47,832 45,656 24,767
Foreign currency exchange (gain)
loss.............................. 1,717 300 470 49 (193)
Other expense, net.................. 1,574 7,859 4,331 7,750 6,520
---------- ---------- ---------- ------------- ------------
Income (loss) before provision for
national income taxes, minority
interests in net income of
subsidiaries, equity income of
affiliates and extraordinary
item........................... (20,297) (6,484) 28,420 26,098 (9,296)
Provision for national income
taxes............................. 14,019 12,968 17,847 26,864 13,467
Minority interests in net income of
subsidiaries...................... 1,770 691 470 349 88
Equity (income) loss of
affiliates........................ (2,917) (3,013) (11) 1,032 181
---------- ---------- ---------- ------------- ------------
Income (loss) before extraordinary
item........................... (33,169) (17,130) 10,114 (2,147) (23,032)
Extraordinary loss on early
extinguishment of debt............ -- 5,100 -- 11,684 11,684
---------- ---------- ---------- ------------- ------------
Net income (loss)................... $ (33,169) $ (22,230) $ 10,114 $ (13,831) $ (34,716)
---------- ---------- ---------- ------------- ------------
---------- ---------- ---------- ------------- ------------
Net income (loss) per common share
(Note 18):
Income (loss) before extraordinary
item........................... $ (66.36) $ (20.36) $ 8.33 $ (2.00) $ (21.41)
Extraordinary loss................ -- (6.06) -- (10.86) (10.86)
---------- ---------- ---------- ------------- ------------
$ (66.36) $ (26.42) $ 8.33 $ (12.86) $ (32.27)
---------- ---------- ---------- ------------- ------------
---------- ---------- ---------- ------------- ------------
The accompanying notes are an integral part of these statements.
30
34
LEAR SEATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
WARRANTS MINIMUM
ADDITIONAL EXERCISABLE PENSION CUMULATIVE
COMMON PAID-IN INTO TREASURY RETAINED LIABILITY TRANSLATION
STOCK CAPITAL COMMON STOCK STOCK DEFICIT ADJUSTMENT ADJUSTMENT TOTAL
------ ---------- ------------ -------- --------- ---------- ---------- --------
BALANCE, JUNE 30, 1990............ $ 6 $ 59,454 $ 10,000 $(10,000) $ (29,247) $ -- $ 5,079 $ 35,292
Net loss........................ -- -- -- -- (33,169) -- -- (33,169)
Stock option compensation....... -- 1,353 -- -- -- -- -- 1,353
Re-acquisition of 650 shares of
common stock subject to
redemption from management
investors, at cost............ -- 65 -- (65) -- -- -- --
Foreign currency translation.... -- -- -- -- -- -- 859 859
------ ---------- ------------ -------- --------- ---------- ---------- --------
BALANCE, JUNE 30, 1991............ 6 60,872 10,000 (10,065) (62,416) -- 5,938 4,335
Net loss........................ -- -- -- -- (22,230) -- -- (22,230)
Stock option compensation....... -- (12) -- -- -- -- -- (12)
Re-acquisition of 1,900 shares
of common stock subject to
redemption from management
investors, at cost............ -- 190 -- (190) -- -- -- --
Sale of additional 454,545
shares of common stock, net of
transaction expenses.......... 4 72,384 -- -- -- -- -- 72,388
Recognize minimum pension
liability adjustment.......... -- -- -- -- -- (2,858) -- (2,858)
Foreign currency translation.... -- -- -- -- -- -- (522) (522)
Restate common stock subject to
redemption to estimated
maximum redemption value...... -- (1,784) -- -- -- -- -- (1,784)
------ ---------- ------------ -------- --------- ---------- ---------- --------
BALANCE, JUNE 30, 1992............ 10 131,650 10,000 (10,255) (84,646) (2,858) 5,416 49,317
Net loss........................ -- -- -- -- (10,771) -- -- (10,771)
Sale of additional 121,212
shares of common stock, net of
transaction expenses.......... 2 19,598 -- -- -- -- -- 19,600
Sale of 2,551 shares of treasury
stock to management
investors..................... -- (255) -- 255 -- -- -- --
Foreign currency translation.... -- -- -- -- -- -- (4,640) (4,640)
------ ---------- ------------ -------- --------- ---------- ---------- --------
BALANCE, JANUARY 2, 1993.......... 12 150,993 10,000 (10,000) (95,417) (2,858) 776 53,506
Net income...................... -- -- -- -- 20,885 -- -- 20,885
Minimum pension liability
adjustment.................... -- -- -- -- -- (382) -- (382)
Foreign currency translation.... -- -- -- -- -- -- 1,092 1,092
------ ---------- ------------ -------- --------- ---------- ---------- --------
BALANCE, JUNE 30, 1993............ 12 150,993 10,000 (10,000) (74,532) (3,240) 1,868 75,101
Net loss........................ -- -- -- -- (34,716) -- -- (34,716)
Incentive stock option
compensation.................. -- 14,474 -- -- -- -- -- 14,474
Minimum pension liability
adjustment.................... -- -- -- -- -- (924) -- (924)
Foreign currency translation.... -- -- -- -- -- -- (2,175) (2,175)
Restate common stock subject to
redemption to estimated
maximum redemption value...... -- (8,550) -- -- -- -- -- (8,550)
------ ---------- ------------ -------- --------- ---------- ---------- --------
BALANCE, DECEMBER 31, 1993........ $ 12 $156,917 $ 10,000 $(10,000) $(109,248) $ (4,164) $ (307) $ 43,210
------ ---------- ------------ -------- --------- ---------- ---------- --------
------ ---------- ------------ -------- --------- ---------- ---------- --------
The accompanying notes are an integral part of these statements.
31
35
LEAR SEATING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
TWELVE SIX
MONTHS MONTHS
YEAR ENDED JUNE 30, ENDED ENDED
------------------------------- DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1993
-------- -------- --------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................... $(33,169) $(22,230) $ 10,114 $ (13,831) $ (34,716)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities --
Depreciation and amortization of goodwill and other
intangible assets...................................... 36,758 34,974 40,654 42,559 21,866
Incentive stock option compensation...................... 1,353 (12) -- 14,474 14,474
Accreted interest on Senior Subordinated Discount
Notes.................................................. 10,322 4,738 -- -- --
Amortization of deferred financing fees.................. 4,096 3,198 2,972 2,594 1,065
Deferred national income taxes........................... (6,987) (1,672) (10,856) (12,342) (90)
Post-retirement benefits accrued......................... -- -- -- 3,273 3,273
Loss on retirement of property, plant and equipment...... 316 82 374 6,752 6,373
Extraordinary loss....................................... -- 5,100 -- 11,684 11,684
Other, net............................................... (3,103) (2,932) 482 (294) 583
Net change in working capital items...................... 23,921 26,801 50,760 58,388 (7,368)
-------- -------- --------- ------------ ------------
Net cash provided by operating activities.............. 33,507 48,047 94,500 113,257 17,144
-------- -------- --------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment................. (20,892) (27,926) (31,595) (45,915) (28,989)
Acquisitions (Note 6)...................................... (7,527) (650) -- (172,065) (172,065)
Proceeds from sale of property, plant and equipment........ 2,860 996 1,044 968 133
Other, net................................................. (1,862) 1,593 (170) 2,226 2,207
-------- -------- --------- ------------ ------------
Net cash used by investing activities.................. (27,421) (25,987) (30,721) (214,786) (198,714)
-------- -------- --------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term revolving credit borrowings, net (Note 9)........ 8,952 (10,284) (24,130) 225,512 230,700
Additions to other long-term debt.......................... -- 20,000 125,000 -- --
Reductions in other long-term debt......................... (26,699) (69,209) (154,055) (103,618) (54,150)
Short-term borrowings, net................................. 21,653 (15,270) (10,771) 12,828 17,729
Proceeds from sale of common stock, net.................... -- 72,388 20,020 -- --
Deferred financing fees.................................... -- (1,839) (5,032) (10,508) (10,508)
Increase (decrease) in cash overdrafts..................... (2,205) (10,867) 8,993 3,321 2,452
Other, net................................................. (25) (190) -- -- --
-------- -------- --------- ------------ ------------
Net cash provided (used) by financing activities....... 1,676 (15,271) (39,975) 127,535 186,223
-------- -------- --------- ------------ ------------
Effect of foreign currency translation..................... 2,423 540 (3,234) (2,507) (3,406)
-------- -------- --------- ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS...................... 10,185 7,329 20,570 23,499 1,247
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............. 15,703 25,888 33,217 31,535 53,787
-------- -------- --------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................... $ 25,888 $ 33,217 $ 53,787 $ 55,034 $ 55,034
-------- -------- --------- ------------ ------------
-------- -------- --------- ------------ ------------
CHANGES IN WORKING CAPITAL, NET OF EFFECTS OF ACQUISITIONS:
Accounts receivable, net................................... $ 21,061 $(42,334) $ (42,564) $ (83,475) $ (60,319)
Inventories................................................ (2,682) (6,081) 4,219 2,947 (4,225)
Accounts payable........................................... 4,346 62,128 49,605 93,950 56,465
Accrued liabilities and other.............................. 1,196 13,088 39,500 44,966 711
-------- -------- --------- ------------ ------------
$ 23,921 $ 26,801 $ 50,760 $ 58,388 $ (7,368)
-------- -------- --------- ------------ ------------
-------- -------- --------- ------------ ------------
SUPPLEMENTARY DISCLOSURE:
Cash paid for interest..................................... $ 47,304 $ 47,584 $ 41,130 $ 42,088 $ 20,235
-------- -------- --------- ------------ ------------
-------- -------- --------- ------------ ------------
Cash paid for income taxes................................. $ 22,900 $ 12,135 $ 21,843 $ 15,685 $ 4,255
-------- -------- --------- ------------ ------------
-------- -------- --------- ------------ ------------
The accompanying notes are an integral part of these statements.
32
36
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 (Note 7).
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.
In February 1994, the Company changed its fiscal year end from June 30 to
December 31, effective December 31, 1993. Accordingly, the twelve months ended
December 31, 1993 does not constitute a fiscal year.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
Transactions and balances among the Company and its subsidiaries have been
eliminated in the consolidated financial statements.
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):
JUNE 30, JUNE 30, DECEMBER 31,
1992 1993 1993
-------- -------- ------------
Raw materials................................... $ 29,931 $ 29,005 $ 42,470
Work-in-process................................. 9,849 8,331 23,394
Finished goods.................................. 6,647 3,541 5,867
-------- -------- ------------
$ 46,427 $ 40,877 $ 71,731
-------- -------- ------------
-------- -------- ------------
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 as follows:
Buildings and improvements..................................... 20 to 25 years
Machinery and equipment........................................ 5 to 15 years
Goodwill and Other Intangible Assets
Goodwill consists of purchase price and related acquisition costs in excess
of the fair value of identifiable assets acquired. Goodwill is amortized on a
straight-line basis over 40 years. The Company evaluates the
33
37
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
carrying value of goodwill for potential impairment on an ongoing basis. Such
evaluations compare operating income before amortization of goodwill of the
operations to which goodwill relates to the amortization recorded. The Company
also considers future anticipated operating results, trends and other
circumstances in making such evaluations.
Other intangible assets, consisting of a license agreement, were amortized
over the two-year term of the agreement, which expired in September 1990.
Deferred Financing Fees
Costs incurred in connection with the issuance of debt are amortized over
the term of the related indebtedness using the effective interest method.
Research and Development
Costs incurred in connection with the development of new products and
manufacturing methods are charged to operations as incurred. Such costs amounted
to $7,923,000, $11,387,000, $18,229,000, $16,177,000 and $7,062,000 for the
years ended June 30, 1991, 1992 and 1993 and for the twelve and six months ended
December 31, 1993, respectively.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are generally translated
into U.S. dollars at the exchange rates in effect at the end of the period.
Revenue and expense accounts are translated using a weighted average of exchange
rates in effect during the period. Translation adjustments that arise from
translating a foreign subsidiary's financial statements from functional currency
to U.S. dollars are reflected as cumulative translation adjustment in the
consolidated balance sheets.
Until December 31, 1992, non-monetary assets and liabilities of a foreign
subsidiary operating in Mexico were translated using historical rates, while
monetary assets and liabilities were translated at the exchange rates in effect
at the end of the period, with the U.S. dollar effects of exchange rate changes
included in the results of operations. As of January 1, 1993, Mexico's economy
was no longer deemed to be highly inflationary, and since then, the accounts of
the subsidiary operating in Mexico have been translated consistent with other
foreign subsidiaries.
Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the functional currency,
except those transactions which operate as a hedge of a foreign currency
investment position, are included in the results of operations as incurred.
Income Taxes
The consolidated financial statements reflect the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes", for
all periods presented. Since the twelve months ended December 31, 1993 does not
constitute a fiscal year, the consolidated national income tax provision for
this period was determined based upon the provisions of APB Opinion No. 28,
"Interim Financial Reporting."
Deferred national income taxes represent the effect of cumulative temporary
differences between income and expense items reported for financial statement
and tax purposes, and between the bases of various assets and liabilities for
financial statement and tax purposes. Deferred tax assets are reduced by a
valuation allowance if, based on the weight of evidence, it is deemed more
likely than not that the asset will not be realized.
34
38
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net Income (Loss) Per Common Share
The weighted average number of common shares outstanding for the years
ended June 30, 1991, 1992 and 1993 and for the twelve and six months ended
December 31, 1993 were 499,803; 841,464; 1,213,608; 1,075,758, and 1,075,758,
respectively. Shares exercisable under the 1988 Stock Option Plan, 1992 Stock
Option Plan, and the warrants (Note 14) are included in the weighted average
share calculation for the year ended June 30, 1993. These shares are not
included in the calculation of weighted average common shares outstanding in
other periods as their impact would be anti-dilutive. Weighted averages do not
reflect the stock split (Note 18).
Industry Segment Reporting
The Company is principally engaged in the design and manufacture of
automotive seating and, therefore, separate industry segment reporting is not
applicable.
Reclassifications
Certain items in prior years' financial statements have been reclassified
to conform with the presentation used in the periods ended December 31, 1993.
(3) 1994 REFINANCING -- SUBSEQUENT EVENT
On February 3, 1994, the Company completed a public offering of
$145,000,000 of 8 1/4% Subordinated Notes, due 2002 (the "8 1/4% Notes"). The
8 1/4% Notes require interest payments semi-annually on February 1 and August 1.
Fees and expenses related to the issuance of the 8 1/4% Notes are expected to be
approximately $5,000,000, including underwriting fees of $2,400,000 paid to
Lehman Brothers Inc.
The net proceeds from the sale of the 8 1/4% Notes were used to finance the
redemption of the 14% Subordinated Debentures. Simultaneous with the sale of
8 1/4% Notes, the Company called the 14% Subordinated Debentures for redemption
on March 4, 1994, at a redemption price equal to 105.4% of the outstanding
principal amount of $135,000,000, plus accrued interest to the redemption date.
The premium for early extinguishment of the 14% Subordinated Debentures and the
accelerated amortization of deferred financing fees totaled approximately
$10,718,000. This amount has been reflected as an extraordinary loss in the
periods ending December 31, 1993. The deferred tax benefit related to this
extraordinary loss was offset by a valuation allowance.
(4) 1992 REFINANCING AND SALE OF COMMON STOCK
On July 30, 1992, the Company sold $125,000,000 of 11 1/4% Senior
Subordinated Notes (the "11 1/4% Notes") (Note 9). Fees and expenses related to
issuance of the 11 1/4% Notes were approximately $5,032,000, including
consulting and underwriting fees of $2,200,000 paid to Lehman Brothers Inc. and
$50,000 paid to FIMA Finance Management, Inc., an affiliate of IFINT-USA Inc.
("FIMA"), for consulting fees.
Simultaneous with the sale of the 11 1/4% Notes, the Company issued 121,212
shares of common stock to the four merchant banking partnerships affiliated with
Lehman Brothers Inc. ("Lehman Funds") and FIMA, for total proceeds of
approximately $20,000,000. Fees and expenses related to the sale were $400,000,
paid to the Lehman Funds and FIMA. Certain management investors also purchased
2,551 shares of common stock previously held in treasury for approximately
$421,000.
On August 14, 1992, the Company redeemed the 14 1/4% Senior Subordinated
Discount Notes (the "Discount Notes") at a redemption price equal to 103% of the
outstanding principal amount of $85,000,000 plus accrued interest. The
prepayment premium for early extinguishment of these notes and the accelerated
35
39
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amortization of deferred financing fees totaled approximately $4,686,000 and
have been reflected as an extraordinary loss in the year ended June 30, 1992.
The deferred tax benefit related to this extraordinary loss was offset by a
valuation allowance.
A portion of the net proceeds from the sale of the 11 1/4% Notes and common
stock described above were used to finance the redemption of the Discount Notes
and to prepay $15,000,000 of the Domestic Term Loan. The balance of the proceeds
was designated for temporary reduction of outstanding borrowings on the Domestic
Revolving Credit Loan, expansion of the Company's operations and for general
corporate purposes.
(5) 1991 CAPITALIZATION AND RELATED TRANSACTIONS
Capitalization
Pursuant to a Stock Purchase Agreement dated September 27, 1991 (the "1991
Agreement"), the Company issued 454,545 shares of common stock to the Lehman
Funds and FIMA, for total proceeds of approximately $75,000,000. Fees and
expenses related to the sale and the transactions described below approximated
$7,700,000, of which approximately $3,200,000 was charged to other expense and
approximately $1,800,000 was capitalized as deferred financing fees. Such fees
and expenses included $4,500,000 paid to Lehman Brothers. The Lehman Funds and
FIMA also purchased all of the outstanding common stock and warrants owned by
the Company's former majority owner, General Electric Capital Corporation
("GECC"), and certain other stockholders.
Simultaneous with the sale of common stock, the Company obtained a
$20,000,000 real estate mortgage from GECC.
The net proceeds from the sale of common stock and the real estate mortgage
were used to reduce outstanding borrowings on the Domestic Revolving Credit Loan
by $32,000,000, to prepay the Domestic Term Loan by $48,500,000, and to purchase
LS-Sweden (see discussion below). A write-off of deferred financing fees of
$414,000 related to the prepayment of the Domestic Term Loan was recognized as
an extraordinary loss in the consolidated statement of operations for the year
ended June 30, 1992. The deferred tax benefit related to this extraordinary loss
was offset by a valuation allowance.
Assuming the sale of common stock and the retirement of debt had taken
place on July 1, 1990, the Company's unaudited pro forma net loss per common
share, which does not reflect the stock split (Note 18), for the year ended June
30, 1991 would have been $32.65. The pro forma results and the weighted average
shares outstanding used to calculate the pro forma net loss per common share
give effect to the reduced interest expense, net of related income taxes, and
the increased number of shares that would have been outstanding from July 1,
1990 through June 30, 1991, respectively.
The 1991 Agreement required the Company to make certain representations and
warranties prior to the sale with respect to its tax position and title to the
new shares. The Company is required to indemnify the parties to the Agreement
for any aggregate losses, liabilities, claims or expenses arising from a breach
of the aforementioned representations and warranties. Management is not
currently aware of any information or condition which will require
indemnification under the terms of the Agreement.
Lear Seating Sweden, AB
In October 1990, the Company entered into an agreement with Saab Automobile
AB ("Saab") in which, effective January 1991, Saab agreed to purchase, and the
Company agreed to supply, completely assembled seat modules on a just-in-time
basis to Saab's production facilities located in Trollhattan, Sweden. The
Company then established a Swedish subsidiary, Lear Seating Sweden, AB
("LS-Sweden").
36
40
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In February 1991, the Company sold its investment in the common stock of
LS-Sweden to GECC, then a major shareholder of the Company, for $100,000. The
Company entered into an agreement with GECC to continue to manage the operations
of LS-Sweden. GECC agreed to provide sufficient funds to LS-Sweden to finance
the purchase of inventory and equipment from Saab at estimated book value of
approximately $3,900,000 and to fund working capital requirements. In addition,
GECC agreed to provide the Company with the right of first refusal in the event
of sale, assignment, or transfer of substantially all of the assets or common
stock of LS-Sweden.
On September 27, 1991, and as part of the capitalization, the Company
reacquired all common stock of LS-Sweden from GECC for $100,000. In addition,
the Company repaid cumulative advances from GECC to LS-Sweden and related
expenses in the aggregate amount of approximately $7,300,000.
The sale and purchase transactions described above related to LS-Sweden's
common stock are accounted for as transactions between entities under common
control. Accordingly, the Company's consolidated financial statements include
the balance sheet accounts and results of operations of LS-Sweden as if it were
a subsidiary of the Company since its inception in January 1991.
(6) ACQUISITIONS
Acquisition of Certain Assets of the North American Seating Business of Ford
Motor Company ("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 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. The purchase price, after giving
effect to an adjustment related to changes in NAB working capital, was financed
and allocated to the purchased assets as follows (in thousands):
Cash consideration paid to seller, net of cash acquired of
$2,671........................................................... $170,727
Execution of promissory notes (Notes 8 and 9)...................... 10,500
Fees and expenses (including $500 paid to Lehman Brothers Inc.).... 1,338
--------
Total purchase price.......................................... $182,565
--------
--------
Property, Plant and Equipment...................................... $ 85,565
Net non-cash working capital....................................... 773
Other assets purchased and liabilities assumed, net................ (3,057)
Goodwill........................................................... 99,284
--------
Total purchase price allocation............................... $182,565
--------
--------
The cash portion of the purchase price was financed with borrowings under
the Company's domestic credit agreement (Note 9). The purchase price and related
allocation may be revised in the next year based on revisions of preliminary
estimates of fair values made at the date of purchase. Such changes are not
expected to be significant.
As part of the NAB Acquisition, the Company has exercised an option to
cause Ford to purchase two facilities in consideration of Ford cancelling a
$19,915,000 note payable (Note 8). The Company has
37
41
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
exercised this option, and the sale of these facilities is scheduled to occur on
March 15, 1994. The Company will lease one of these facilities until the earlier
of March 15, 1996 or the date it vacates this facility.
Assuming the acquisition had taken place as of the beginning of each period
presented, the consolidated pro forma results of operations of the Company would
have been as follows, after giving effect to certain adjustments, including
certain operations adjustments consisting principally of managements' 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 (Unaudited; in thousands, except per share data):
TWELVE MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
JUNE 30, 1993 DECEMBER 31, 1993 DECEMBER 31, 1993
------------- ----------------- -----------------
Net sales........................................ $ 2,235,150 $ 2,361,422 $ 1,159,482
Income (loss) before extraordinary item.......... 26,580 5,058 (19,582)
Net income (loss)................................ 26,580 (6,626) (31,266)
Income per common share before extraordinary
item........................................... 21.90 3.96 (18.20)
Net income (loss) per common share............... 21.90 (5.28) (29.06)
The pro forma information above does not reflect the stock split (Note 18)
and does not purport to be indicative of the results that actually would have
been obtained if the operations were combined during the periods presented, and
is not intended to be a projection of future results or trends.
Acquisition of Central de Industrias, S.A. de C.V. ("CISA")
From April 1991 through October 1991, the Company, through LS No. 50,
acquired approximately 4,514,600 shares of the common stock of CISA for an
aggregate purchase price of approximately $8,177,000, including related
expenses. These shares represented approximately 38% of CISA's outstanding
common stock. Prior to this purchase, the Company had owned approximately 61% of
CISA's common stock, resulting in a total ownership interest of over 99%. These
acquisitions were accounted for as purchases and the aggregate purchase price
approximated the fair value of net assets acquired.
Acquisition of Fair Haven Industries, Inc.
In July 1990, the Company, through a subsidiary, acquired 9,600 newly
issued shares of the common stock of Fair Haven Industries, Inc. ("FHI") for
approximately $750,000, plus related expenses. The shares acquired represented
approximately 49% of FHI's outstanding common stock. The Company also received
an option to acquire an additional 2% of FHI common stock for nominal additional
consideration and an irrevocable proxy to vote those shares, resulting in a
controlling interest. The 2% option was exercised in December 1991.
The acquisition was accounted for as a purchase. The excess of the purchase
price over the fair value of net assets acquired was approximately $3,801,000
with the minority interest valued at zero. Subsequently, the Company determined
that the excess purchase price of $3,801,000 was not realizable and recorded the
amount as a charge against operating income in the year ended June 30, 1991. FHI
has been included in the Company's consolidated financial statements for all
periods presented.
In August 1993, the Company reached a settlement with the former owners of
FHI in which the Company agreed to purchase the remaining 49% of FHI's common
stock and release all claims against the former owners arising from the July
1990 purchase. The settlement amount, plus related legal costs, was not
significant and was charged to operating income in the year ended June 30, 1993.
38
42
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) INVESTMENTS IN AFFILIATES
The investments in affiliates are as follows:
PERCENT BENEFICIAL OWNERSHIP
-----------------------------------
JUNE 30, DECEMBER
-------------------- 31,
1991 1992 1993 1993
---- ---- ---- -----------
General Seating of America, Inc.................. 35% 35% 35% 35%
General Seating of Canada, Ltd................... 35 35 35 35
Pacific Trim Corporation Ltd. (Thailand)......... 20 20 20 20
Probel, S.A. (Brazil)............................ 31 31 31 31
Moldeados Interiores, S.A. de C.V................ 38 -- -- --
The above businesses are generally involved in the manufacture of
automotive seating and seating components.
Investments in General Seating of America, Inc., General Seating of Canada,
Ltd., and Pacific Trim Corporation Ltd. are accounted for using the equity
method. In June 1993, the Company revalued its investment in Probel, which was
previously accounted for using the cost method, to zero due to continued
operating losses and other factors impacting its potential recoverability. A
charge of approximately $1,700,000 was recorded and is reflected in equity
income of affiliates in the consolidated statement of operations in the year
ended June 30, 1993 and the twelve months ended December 31, 1993.
The investment in Moldeados Interiores, S.A. de C.V. was accounted for
using the equity method until its sale in July 1991. The gain recognized on this
sale was not material.
The aggregate investment in affiliates was $6,379,000, $4,756,000 and
$4,593,000 as of June 30, 1992, June 30, 1993 and December 31, 1993,
respectively.
Dividends of approximately $930,000 and $985,000 were received by the
Company in the years ended June 30, 1992 and 1993, respectively, from General
Seating of Canada, Ltd. No other dividends were received by the Company from
affiliates during 1991, 1992 or 1993.
39
43
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized group financial information for affiliates accounted for under
the equity method is as follows (unaudited, in thousands):
JUNE JUNE DECEMBER
30, 30, 31,
1992 1993 1993
------- ------- -----------
Balance sheet data:
Current assets................................ $19,032 $17,004 $18,277
Non-current assets............................ 15,154 13,717 14,081
Current liabilities........................... 18,847 16,757 14,478
Non-current liabilities....................... 5,700 5,700 5,700
TWELVE MONTHS SIX MONTHS
YEAR ENDED JUNE 30, ENDED ENDED
-------------------------------- DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1993
-------- -------- -------- ------------- ------------
Income statement data:
Net sales.......................... $114,705 $129,220 $119,837 $ 122,448 $ 58,399
Gross profit....................... 17,541 19,335 13,001 12,593 4,915
Income before provision for income
taxes........................... 8,491 11,643 10,833 7,317 2,347
Net income......................... 7,926 8,246 6,566 5,031 1,409
The Company had sales to affiliates of approximately $10,393,000,
$11,787,000, $10,711,000, $11,123,000 and $5,315,000 for the years ended June
30, 1991, 1992 and 1993, and for the twelve and six months ended December 31,
1993, respectively. Included in the Company's accounts receivable are trade
receivables from affiliates of approximately $1,056,000, $878,000 and $936,000
at June 30, 1992, June 30, 1993 and December 31, 1993, respectively.
The Company has guaranteed certain obligations of its affiliates. The
Company's share of amounts outstanding under guaranteed obligations as of June
30, 1992, June 30, 1993 and December 31, 1993 amounted to $3,484,000, $3,224,000
and $6,253,000, respectively.
(8) SHORT-TERM BORROWINGS
Short-term borrowings are comprised of the following (in thousands):
JUNE 30, 1992 JUNE 30, 1993 DECEMBER 31, 1993
------------- ------------- -----------------
Lines of credit..................................... $11,982 $ 1,211 $18,152
Unsecured notes payable --
Ford Motor Company, non-interest bearing.......... -- -- 9,300
Ford Motor Company, 11 1/2% (Note 6).............. -- -- 19,915
Trade acceptance payable, 7 1/4%.................... -- -- 788
------------- ------------- -----------------
$11,982 $ 1,211 $48,155
------------- ------------- -----------------
------------- ------------- -----------------
At December 31, 1993, the Company has lines of credit available with banks
of approximately $69,190,000, subject to certain restrictions imposed by the
credit agreement (Note 9). Short-term bank
40
44
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
borrowings, in U.S. dollar equivalents, based on the amounts outstanding at the
end of each month were as follows for the indicated period (in thousands):
YEAR ENDED JUNE 30, TWELVE MONTHS SIX MONTHS
----------------------------- ENDED ENDED
1991 1992 1993 DECEMBER 31, 1993 DECEMBER 31, 1993
------- ------- ------- ----------------- -----------------
Maximum amount outstanding at any
month-end....................... $21,119 $18,092 $16,260 $18,152 $18,152
Average amount outstanding........ 12,540 15,394 8,198 6,908 7,362
Weighted average interest rate at
end of period................... 16.9% 8.7% 8.6% 6.3% 6.3%
Weighted average interest rate
during the period............... 16.3% 13.2% 9.9% 6.0% 6.9%
(9) LONG-TERM DEBT
Long-term debt is comprised of the following (in thousands):
JUNE 30, 1992 JUNE 30, 1993 DECEMBER 31, 1993
------------- ------------- -----------------
Senior Debt:
Term loans --
Domestic....................................... $ 51,300 $ 33,550 $ --
Canadian....................................... 50,000 -- --
German......................................... 9,887 8,827 7,592
------------- ------------- -----------------
111,187 42,377 7,592
------------- ------------- -----------------
Revolving credit loans --
Domestic....................................... 16,662 -- 230,700
Canadian....................................... 7,468 -- --
------------- ------------- -----------------
24,130 -- 230,700
------------- ------------- -----------------
Mortgage payable.................................. 20,000 20,000 --
------------- ------------- -----------------
155,317 62,377 238,292
Less -- Current portion................... (26,986) (1,261) (1,168)
------------- ------------- -----------------
128,331 61,116 237,124
------------- ------------- -----------------
Subordinated Debt:
14 1/4% Senior Subordinated Discount Notes (Note
4)............................................. 85,000 -- --
11 1/4% Senior Subordinated Notes (Note 4)........ -- 125,000 125,000
14% Subordinated Debentures (Note 3).............. 135,000 135,000 135,000
------------- ------------- -----------------
220,000 260,000 260,000
------------- ------------- -----------------
Note Payable........................................ -- -- 1,200
------------- ------------- -----------------
$ 348,331 $ 321,116 $ 498,324
------------- ------------- -----------------
------------- ------------- -----------------
In October 1993, the Company amended and restated its existing credit
agreement with a syndicate of banks. The new $425 million revolving credit
facility (the "Credit Agreement") enabled the Company to replace the existing
Domestic Term Loan and Domestic Revolving Credit Facility, finance the cash
portion of the NAB Acquisition (Note 6) and retire an existing $20 million
mortgage payable. The accelerated amortization of deferred financing fees
related to the previous Domestic Term Loan and Domestic Revolving Credit
Facility and the mortgage payable totaled approximately $1,464,000. This amount,
net of the related tax benefit of $498,000, has been reflected as an
extraordinary loss in the periods ending December 31, 1993.
41
45
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with this transaction, the Company paid $500,000 to Lehman
Brothers for consulting fees. In addition, Lehman Commercial Paper, Inc., an
affiliate of the Lehman Funds, is a managing agent of the Credit Agreement and
received fees of $666,000.
Loans under the Credit Agreement bear interest at the Eurodollar rate plus
3/4% to 1 1/2% or prime rate plus 0% to 1/2%, depending on the satisfaction of
certain financial ratios. The Company pays a commitment fee on the unused
balance of the facility of 3/8% to 1/2%, depending on certain ratios. At
December 31, 1993, interest was being charged at the Eurodollar rate plus 1 1/2%
and the commitment fee is 1/2%. Amounts available to be drawn under the Credit
Agreement will decrease by $40 million on each of October 31, 1996, April 29,
1997, October 31, 1997 and April 29, 1998. The facility expires on October 31,
1998.
The German Term Loan bears interest at a stated rate of 9.125%, is payable
in Deutschemarks in quarterly installments of approximately $292,000 through
March 2000, and is collateralized by certain assets of a German subsidiary.
The Canadian Revolving Credit Loan bears interest at the prime rate plus
1/2%, is payable in September 1994, with an option to extend through September
1995 with the consent of the lending banks, and is guaranteed by letters of
credit issued under the Credit Agreement.
The Company had available unused long-term revolving credit commitments of
$157,454,000 at December 31, 1993, net of $36,846,000 of outstanding letters of
credit. Borrowings on revolving credit loans were $665,594,000, $737,839,000,
$549,208,000, $986,308,000 and $820,519,000 for the years ended June 30, 1991,
1992 and 1993 and the twelve and six months ended December 31, 1993,
respectively. Repayments on revolving credit loans were $656,642,000,
$748,123,000, $573,338,000, $760,796,000 and $589,819,000 for the years ended
June 30, 1991, 1992 and 1993 and the twelve and six months ended December 31,
1993, respectively.
The weighted average interest rates on the Senior Debt as of June 30, 1992,
June 30, 1993 and December 31, 1993 were 7.3%, 7.5% and 5.1%, respectively.
The 11 1/4% Senior Subordinated Notes, due in 2000, require payments of
interest semi-annually.
The 14% Subordinated Debentures were redeemed subsequent to December 31,
1993 in connection with the refinancing (Note 3).
The Credit Agreement and Subordinated Debt Agreements contain numerous
restrictive covenants. The most restrictive of these covenants are financial
covenants related to maintenance of certain levels of net worth, operating
profit and interest coverage. The financial covenants generally become more
restrictive with the passage of time. These agreements also, among other things,
significantly restrict the Company's ability to incur additional indebtedness,
declare dividends, make investments and advances, sell assets and limit capital
expenditures to specified amounts. The German Term Loan agreement also contains
certain restrictive covenants.
As of December 31, 1993, the Company is unable to declare dividends. Loans
under the Credit Agreement and the German Term Loan are collectively
collateralized by substantially all assets of the Company.
The scheduled maturities of long-term debt at December 31 for the five
succeeding years before consideration of the refinancing described in Note 3 are
as follows (in thousands):
1994............................................................... $ 1,168
1995............................................................... 2,368
1996............................................................... 1,168
1997............................................................... 1,168
1998............................................................... 265,618
42
46
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) NATIONAL INCOME TAXES
A summary of income (loss) before provision for national income taxes and
components of the provision for national income taxes for the indicated periods
is as follows (in thousands):
TWELVE SIX
MONTHS MONTHS
YEAR ENDED JUNE 30, ENDED ENDED
------------------------------- DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1993
-------- -------- ------- ------------ ------------
Income (loss) before
provision for national
income taxes, minority
interests in net income
of subsidiaries, equity
income of affiliates
and extraordinary item:
Domestic............ $(47,302) $(19,964) $ 6,759 $ (3,433) $(15,105)
Foreign............. 27,005 13,480 21,661 29,531 5,809
-------- -------- ------- ------------ ------------
$(20,297) $ (6,484) $28,420 $ 26,098 $ (9,296)
-------- -------- ------- ------------ ------------
-------- -------- ------- ------------ ------------
Domestic provision for
national income taxes:
Current provision... $ -- $ 2,146 $ 6,873 $ 7,442 $ 5,404
-------- -------- ------- ------------ ------------
Deferred --
Deferred
provision...... 958 2,603 1,481 904 943
Tax benefit of net
operating
losses carried
back........... (6,119) -- -- -- --
Benefit of
previously
unbenefitted
net operating
loss
carryforwards... -- -- (2,446) (2,953) (1,613)
-------- -------- ------- ------------ ------------
(5,161) 2,603 (965) (2,049) (670)
-------- -------- ------- ------------ ------------
Foreign provision for
national income taxes:
Current provision... 21,006 12,494 17,449 22,477 9,739
-------- -------- ------- ------------ ------------
Deferred --
Deferred
provision...... 242 (2,123) (1,725) (1,006) (1,006)
Adjustment due to
changes in
enacted tax
rates.......... -- -- (993) -- --
Tax benefit of
operating
losses......... (2,068) (2,152) (2,792) -- --
-------- -------- ------- ------------ ------------
(1,826) (4,275) (5,510) (1,006) (1,006)
-------- -------- ------- ------------ ------------
Provision for national
income taxes........... $ 14,019 $ 12,968 $17,847 $ 26,864 $ 13,467
-------- -------- ------- ------------ ------------
-------- -------- ------- ------------ ------------
43
47
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The differences between the United States Federal statutory income tax rate
of 35% for the periods ended December 31, 1993 and 34% for the years ended June
30, 1991, 1992 and 1993 and the consolidated effective national income tax rate
for the periods indicated are summarized as follows (in thousands):
TWELVE MONTHS SIX MONTHS
YEAR ENDED JUNE 30, ENDED ENDED
----------------------------- DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1993
------- ------- ------- ------------- ------------
Income (loss) before provision for
national income taxes, minority
interests in net income of
subsidiaries, equity income of
affiliates and extraordinary item
multiplied by the United States Federal
statutory rate......................... $(6,901) $(2,205) $ 9,663 $ 9,135 $ (3,254)
Utilization of domestic net operating
loss carryforwards..................... -- -- (2,446) (2,953) (1,613)
Differences between domestic and
effective foreign tax rates............ 9,999 3,636 901 3,664 2,420
Operating losses not tax benefitted...... 6,663 8,562 3,674 4,850 4,280
Increase in valuation allowance.......... -- -- 426 8,775 10,850
Domestic income taxes provided on foreign
earnings............................... -- -- 1,564 875 70
Amortization of goodwill................. 4,259 2,974 3,246 3,344 1,531
Other, net............................... (1) 1 819 (826) (817)
------- ------- ------- ------------- ------------
$14,019 $12,968 $17,847 $26,864 $ 13,467
------- ------- ------- ------------- ------------
------- ------- ------- ------------- ------------
Deferred national income taxes represent temporary differences in the
recognition of certain items for income tax and financial reporting purposes.
The components of the net deferred national income tax liability are summarized
as follows (in thousands):
JUNE 30, JUNE 30, DECEMBER 31,
1992 1993 1993
-------- -------- ------------
Deferred national income tax liabilities:
Depreciation and basis difference.......... $ 28,165 $ 18,837 $ 13,788
Financing and intercompany transactions.... 9,348 9,855 9,663
Taxes provided on unremitted foreign
earnings................................ 2,346 1,930 6,054
Benefit plans.............................. -- 1,234 1,264
Other...................................... 1,440 1,740 2,646
-------- -------- ------------
$ 41,299 $ 33,596 $ 33,415
-------- -------- ------------
-------- -------- ------------
44
48
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, JUNE 30, DECEMBER 31,
1992 1993 1993
-------- -------- ------------
Deferred national income tax assets:
Tax credit carryforwards................... $(18,105) $(18,105) $(23,671)
Tax loss carryforwards..................... (7,187) (13,203) (17,082)
Benefit plans.............................. (3,676) (4,645) (6,153)
Accruals................................... (3,306) (3,654) (5,435)
Deferred financing fees.................... (2,922) (1,640) (4,742)
Minimum pension liability adjustment....... (1,563) (1,962) (1,784)
Alternative minimum tax carryforward....... (1,242) (1,053) (432)
Deferred compensation...................... (1,324) (1,324) (7,640)
Other...................................... (413) (1,398) (1,290)
-------- -------- ------------
(39,738) (46,984) (68,229)
Valuation allowance.......................... 24,209 30,108 51,454
-------- -------- ------------
(15,529) (16,876) (16,775)
-------- -------- ------------
Net deferred national income tax liability... $ 25,770 $ 16,720 $ 16,640
-------- -------- ------------
-------- -------- ------------
The net deferred national income tax liability includes deferred tax assets
of $2,173,000, $81,000 and $58,000 as of June 30, 1992, June 30, 1993 and
December 31, 1993, respectively, and a deferred tax liability of $1,551,000,
$1,265,000 and $1,561,000 as of June 30, 1992, June 30, 1993 and December 31,
1993, respectively, which have been classified as current in the consolidated
balance sheets and a deferred tax asset of $752,000 as of December 31, 1993,
which has been classified as long-term in the consolidated balance sheet.
Deferred national income taxes and withholding taxes have been provided on
earnings of the Company's Canadian subsidiary to the extent it is anticipated
that the earnings will be remitted in the form of future dividends. Deferred
national income taxes and withholding taxes have not been provided on the
undistributed earnings of the Company's European and Mexican subsidiaries as
such amounts are deemed to be permanently reinvested. The cumulative
undistributed earnings at December 31, 1993 on which the Company had not
provided additional national income taxes and withholding taxes were
approximately $19,942,000.
In June 1993, the Company settled with the Canadian taxing authorities on
the open issues relating to its Canadian tax returns through 1989. In addition,
a settlement was reached with Revenue Canada regarding treatment of certain
items relating to the Company's financing subsidiaries. The expense related to
these settlements was provided by the Company prior to the year ended June 30,
1993, and did not have a material effect on the Company's results of operations
or financial position.
As of December 31, 1993 the Company had a net operating loss carryforward
for United States income tax return purposes of approximately $1,039,000,
subject to certain limitations, expiring in the year 2006. In addition, two
European subsidiaries had net operating loss carryforwards for tax return
purposes totalling approximately $31,500,000, which have no expiration date, and
FHI had a net operating loss carryforward of approximately $7,200,000, expiring
in 2007. The foreign tax credit carryforwards expire in 1994 through 1996.
(11) RETIREMENT PLANS
The Company has noncontributory defined benefit pension plans covering
substantially all domestic employees and certain employees in foreign countries.
The Company's salaried plans provide benefits based on a career average earnings
formula. Hourly pension plans provide benefits under flat benefit formulas. The
Company also has a contractual arrangement with a key employee which provides
for supplemental retirement benefits. In general, the Company's policy is to
fund these plans based on legal requirements, tax considerations, and local
practices.
45
49
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Components of the Company's pension expense include the following for the
periods indicated (in thousands):
TWELVE MONTHS SIX MONTHS
YEAR ENDED JUNE 30, ENDED ENDED
----------------------------- DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1993
------- ------- ------- ------------- ------------
Service cost...................................... $ 2,229 $ 2,921 $ 3,096 $ 3,466 $ 1,918
Interest cost on projected benefit obligation..... 5,309 6,211 5,908 6,142 3,188
Actual return on assets........................... (2,942) (4,894) (6,618) (7,847) (4,538)
Net amortization and deferral..................... (1,886) 471 1,785 3,131 2,238
------- ------- ------- ------------- ------------
Net pension expense............................... $ 2,710 $ 4,709 $ 4,171 $ 4,892 $ 2,806
------- ------- ------- ------------- ------------
------- ------- ------- ------------- ------------
The following table sets forth a reconciliation of the funded status of the
Company's defined benefit pension plans to the related amounts recorded in the
consolidated balance sheets (in thousands):
JUNE 30, 1992 JUNE 30, 1993 DECEMBER 31, 1993
---------------------------- ---------------------------- ----------------------------
PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE
ASSETS EXCEED ABO EXCEEDS ASSETS EXCEED ABO EXCEEDS ASSETS EXCEED ABO EXCEEDS
ABO ASSETS ABO ASSETS ABO ASSETS
------------- ----------- ------------- ----------- ------------- -----------
Actuarial present value of:
Vested benefit obligation.... $11,393 $47,570 $13,946 $48,001 $11,938 $ 58,076
Non-vested benefit
obligation................. 42 2,171 809 1,908 77 3,139
------------- ----------- ------------- ----------- ------------- -----------
Accumulated benefit obligation
(ABO)........................ 11,435 49,741 14,755 49,909 12,015 61,215
Effects of anticipated future
compensation increases....... 983 8,366 9,135 883 1,075 10,097
------------- ----------- ------------- ----------- ------------- -----------
Projected benefit obligation... 12,418 58,107 23,890 50,792 13,090 71,312
Plan assets at fair value...... 16,952 36,674 21,942 36,034 18,317 42,833
------------- ----------- ------------- ----------- ------------- -----------
Projected benefit obligation in
excess of (less than) plan
assets....................... (4,534) 21,433 1,948 14,758 (5,227) 28,479
Unamortized net loss........... (3,027) (6,838) (2,946) (4,943) (1,270) (12,461)
Unrecognized prior service
cost......................... -- 165 641 (2,041) (20) (1,065)
Unamortized net asset
(obligation) at transition... 5,047 (1,922) 4,039 (1,413) 4,001 (1,580)
Adjustment required to
recognize minimum
liability.................... -- 6,545 -- 7,601 -- 11,105
------------- ----------- ------------- ----------- ------------- -----------
Accrued pension (asset)
liability recorded in the
consolidated balance
sheets....................... $(2,514) $19,383 $ 3,682 $13,962 $(2,516) $ 24,478
------------- ----------- ------------- ----------- ------------- -----------
------------- ----------- ------------- ----------- ------------- -----------
46
50
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The actuarial assumptions used in determining pension expense and the
funded status information shown above were as follows:
TWELVE MONTHS SIX MONTHS
YEAR ENDED JUNE 30, ENDED ENDED
--------------------- DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1993
---- ---- ---- ------------- ------------
Discount rate:
Domestic plans.............................. 8% 8% 8% 7.5-8% 7.5-8%
Foreign plans............................... 10% 9% 7-9% 7-9% 7-8%
Rate of salary progression:
Domestic plans.............................. 6% 6% 6% 6% 6%
Foreign plans............................... 4% 1-5% 3-5% 3-5% 3-5%
Long-term rate of return on assets:
Domestic plans.............................. 9% 9% 9% 9% 9%
Foreign plans............................... 10% 9% 9% 8-9% 8%
Plan assets include cash equivalents, common and preferred stock, and
government and corporate debt securities.
Statement of Financial Accounting Standards No. 87, "Employers' Accounting
for Pensions," required the Company to record a minimum liability as of June 30,
1992, June 30, 1993 and December 31, 1993. As of December 31, 1993, the Company
recorded a long-term liability of $11,105,000, an intangible asset of
$5,157,000, which is included with other assets, and a reduction in
stockholders' equity of $4,164,000, net of income taxes of $1,784,000.
The Company also sponsors defined contribution plans and participates in
Government sponsored programs in certain foreign countries. Contributions are
determined as a percentage of each covered employee's salary. The Company also
participates in multi-employer pension plans for certain of its hourly employees
and contributes to those plans based on collective bargaining agreements. The
aggregate cost of the defined contribution and multi-employer pension plans
charged to operations was $1,001,000, $1,093,000, $1,335,000, $1,712,000 and
$1,002,000 for the years ended June 30, 1991, 1992 and 1993 and the twelve and
six months ended December 31, 1993, respectively.
(12) POST-RETIREMENT BENEFITS
On July 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers Accounting for Post-retirement Benefits Other Than
Pensions" for its domestic plans. This standard, which must be adopted for
foreign plans no later than 1995, requires that the expected cost of post-
retirement benefits be charged to expense during the years in which the
employees render service to the Company.
The Company's domestic post-retirement plans generally provide for the
continuation of medical benefits for all employees who complete 10 years of
service after age 45 and retire from the Company at age 55 or older. The Company
does not fund its post-retirement benefit obligation. Rather, payments are made
as costs are incurred by covered retirees.
As of July 1, 1993, the Company's accumulated post-retirement benefit
obligation was approximately $31,925,000. Because the Company had previously
recorded a liability of $6,277,000 related to these benefits, the net transition
obligation, which will be amortized over 20 years, was $25,648,000. The
following table sets forth a reconciliation of the funded status of the accrued
post-retirement benefits liability to the related
47
51
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amounts recorded in the financial statements as of December 31, 1993, excluding
the amounts related to the acquisition of the NAB as discussed below (in
thousands):
Accumulated Post-retirement Benefit Obligation ("APBO"):
Retirees......................................................... $ 10,776
Fully eligible active plan participants.......................... 4,051
Other active participants........................................ 19,783
Unamortized Transition Obligation.................................. (25,007)
--------
Liability Recorded in the Balance Sheet (includes current liability
of $675)......................................................... $ 9,603
--------
--------
Components of the Company's post-retirement benefit expense based upon an
adoption date of July 1, 1993 for the indicated periods were as follows (in
thousands):
YEAR SIX MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1993 1993
------------ ------------
Service cost......................................... $1,719 $1,719
Interest cost on APBO................................ 1,313 1,313
Amortization of transition obligation................ 641 641
------------ ------------
Net post-retirement benefit expense.................. $3,673 $3,673
------------ ------------
------------ ------------
The APBO as of December 31, 1993 was calculated using an assumed discount
rate of 7.5%. Health care costs were assumed to rise 13.8% in 1994, with the
assumed rate increase decreasing by 1% per year to a minimum of 6.4% in 2008. To
illustrate the significance of these assumptions, a rise in the assumed rate of
health care cost increases of 1% each year would increase the APBO as of
December 31, 1993 by $4,702,000 and increase the net post-retirement benefit
expense by $577,000 for the six months ended December 31, 1993.
In connection with the acquisition of the NAB (Note 6) the Company assumed
certain post-retirement obligations. Accordingly, a liability for the estimated
APBO of $965,000 was recorded in purchase accounting.
Prior to July 1, 1993, post-retirement benefit costs were expensed as
incurred. Benefit payments were approximately $1,076,000, $883,000, $826,000,
$758,000 and $400,000 for the years ended June 30, 1991, 1992 and 1993 and for
the twelve and six months ended December 31, 1993.
In November 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 112, "Employers Accounting for
Post-Employment Benefits." This statement requires that employers accrue the
cost of post-employment benefits during the employees' active service. The
Company will adopt this statement effective January 1, 1994. The Company
believes that the adoption of this statement will not have a material effect on
its financial position of results of operations.
(13) COMMITMENTS AND CONTINGENCIES
The Company is the subject of various lawsuits, claims and environmental
contingencies. In addition, the Company has been identified as a potentially
responsible party under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("Superfund"), for the cleanup of
contamination from hazardous substances at three Superfund sites, and may incur
indemnification obligations for cleanup at two additional sites. In the opinion
of management, the expected liability resulting from these matters is adequately
covered by amounts accrued, and will not have a material adverse effect on the
Company's consolidated financial position or future results of operations.
Two of the Company's European subsidiaries factor their accounts receivable
with a bank subject to limited recourse provisions and are charged a discount
fee equal to the current LIBOR rate plus 1%. The
48
52
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amount of such factored receivables, which was not included in accounts
receivable in the consolidated balance sheet at December 31, 1993, was
approximately $38,485,000.
Lease commitments at December 31, 1993 under noncancelable operating leases
with terms exceeding one year are as follows (in thousands):
1994................................................................ $15,802
1995................................................................ 13,300
1996................................................................ 8,987
1997................................................................ 7,666
1998................................................................ 6,905
1999 and thereafter................................................. 41,233
-------
Total............................................................. $93,893
-------
-------
The Company's operating leases cover principally buildings and
transportation equipment. Rent expense incurred under all operating leases and
charged to operations was $4,760,000, $8,598,000, $11,573,000, $12,599,000 and
$6,529,000 for the years ended June 30, 1991, 1992 and 1993 and the twelve and
six months ended December 31, 1993, respectively.
In January 1992, the Company entered into an agreement with Volvo
Personvagnar AB ("Volvo") to either purchase or cause a third party to purchase
certain real property from Volvo. From January 1, 1992 until September 1992, the
Company accounted for the transaction as a financing lease. In September 1992,
the City of Bengtsfors, Sweden purchased this property from Volvo and
subsequently leased it to LS-Sweden for a term of 15 years. The lease with the
City of Bengtsfors requires quarterly lease payments of approximately $500,000,
and is accounted for as an operating lease. These payments are included in the
table above.
(14) WARRANTS, STOCK OPTIONS AND COMMON STOCK SUBJECT TO REDEMPTION
Warrants
In 1988, the Company sold warrants exercisable into 100,000 shares of
common stock. The warrants, which entitle the holder to receive one share of
common stock for no additional consideration, became exercisable on December 1,
1993. None of the warrants have been exercised as of December 31, 1993.
1988 Stock Option Plan
At December 31, 1993, 64,584 options granted under a stock option plan
dated September 29, 1988 were issued and outstanding. The options vested over a
three-year period and are currently exercisable at $42.50 per share. The
difference between the exercise price and the market value at the date of grant
was amortized to expense over the vesting period.
1992 Stock Option Plan
Under the 1992 stock option plan, the Company may grant up to 58,000 stock
options to the management investors and certain other management personnel.
During fiscal 1993, the Company granted 41,700 of these options. On December 31,
1993, the remaining 16,300 options under this plan were granted. Pursuant to a
plan amendment effective December 31, 1993, all of the options became
immediately vested and will generally become exercisable at $165 per share on
September 28, 1996, or sooner in the case of certain triggering events.
Stock option expense for the six months and twelve months ended December
31, 1993 was approximately $14,474,000, and is included in incentive stock and
other compensation expense in the accompanying statements of operations. The
expense recognized reflects the immediate vesting of the previously unvested
49
53
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
options on December 31, 1993, based on the estimated market value of the common
stock of the Company of $450 per share.
In addition to the stock option expense, incentive stock and other
compensation expense in the accompanying statements of operations includes
$3,542,000 in special management bonuses approved by the Board of Directors as
of December, 1993.
The changes in the number of options outstanding for the periods indicated
are as follows:
TWELVE MONTHS SIX MONTHS
YEAR ENDED JUNE 30, ENDED ENDED
------------------------- DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1993
------ ------ ------- ------------- ------------
Options outstanding at beginning
of period..................... 67,642 69,996 64,584 106,284 106,284
Options Granted............... 2,942 -- 41,700 16,300 16,300
Options Revoked............... 588 5,412 -- -- --
------ ------ ------- ------------- ------------
Options outstanding at end of
period........................ 69,996 64,584 106,284 122,584 122,584
------ ------ ------- ------------- ------------
------ ------ ------- ------------- ------------
Under the terms of the Stockholders' and Registration Rights Agreement,
shares of common stock held by certain management investors are subject to
redemption at the option of the holder in the event of death, disability and
certain events of termination, as defined in the agreement. In such event, the
redemption price is the higher of cost or fair market value, as defined, as of
the date of the exercise of the option. Shares subject to such a redemption
option at December 31, 1993 total 30,001, distributed among 33 investors (Note
18).
Because no public market exists for the common stock of the Company and no
fair market value appraisal of the common stock had been performed, shares
subject to limited rights of redemption were stated at cost of $100 per share as
of June 30, 1991. At June 30, 1992 and June 30, 1993, these shares were stated
at $165 per share, representing the maximum estimated fair market value of the
stock based on the price per share in the September 1991 capitalization
transaction (Note 5) and the sale of common stock in July 1992 (Note 4). At
December 31, 1993, the shares are stated at $450 per share, representing an
estimated market value of the common stock of the Company. In the accompanying
consolidated balance sheets, common stock subject to redemption is stated net of
the related notes receivable from sale of common stock.
50
54
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) GEOGRAPHIC SEGMENT DATA
Worldwide operations are divided into four geographic segments -- United
States, Canada, Europe and Mexico. The European geographic segment includes
operations in Austria, Finland, France, Germany, Sweden and the United Kingdom.
Geographic segment information is as follows (in thousands):
TWELVE SIX
MONTHS MONTHS
YEAR ENDED JUNE 30, ENDED ENDED
------------------------------------ DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1993
---------- ---------- ---------- ------------ ------------
Net sales:
United States....... $ 490,611 $ 684,979 $ 847,133 $1,060,555 $ 587,064
Canada.............. 360,705 427,457 389,924 397,488 179,695
Europe.............. 145,540 268,175 434,146 407,488 191,844
Mexico.............. 128,880 173,383 203,218 208,647 106,410
Intersegment
sales............ (40,417) (131,254) (117,911) (123,890) (59,795)
---------- ---------- ---------- ------------ ------------
$1,085,319 $1,422,740 $1,756,510 $1,950,288 $1,005,218
---------- ---------- ---------- ------------ ------------
---------- ---------- ---------- ------------ ------------
Operating Income:
United States....... $ 6,181 $ 32,002 $ 51,752 $ 61,283 $ 27,081
Canada.............. 35,303 14,695 15,308 25,628 12,128
Europe.............. (3,667) 2,952 (3,907) (9,668) (7,608)
Mexico.............. 8,206 7,172 17,900 20,326 8,213
Unallocated(a)...... (1,353) 12 -- (18,016) (18,016)
---------- ---------- ---------- ------------ ------------
$ 44,670 $ 56,833 $ 81,053 $ 79,553 $ 21,798
---------- ---------- ---------- ------------ ------------
---------- ---------- ---------- ------------ ------------
Identifiable Assets:
United States....... $ 341,676 $ 350,694 $ 369,982 $ 679,686 $ 679,686
Canada.............. 209,813 197,371 200,195 180,144 180,144
Europe.............. 112,982 179,482 181,077 170,838 170,838
Mexico.............. 53,525 64,572 59,130 68,249 68,249
Unallocated(b)...... 11,674 7,765 9,825 14,377 14,377
---------- ---------- ---------- ------------ ------------
$ 729,670 $ 799,884 $ 820,209 $1,113,294 $1,113,294
---------- ---------- ---------- ------------ ------------
---------- ---------- ---------- ------------ ------------
- -------------------------
(a) Unallocated Operating Income consists of incentive stock option and other
compensation (Note 14).
(b) Unallocated Identifiable Assets consist of deferred financing fees.
The net assets of foreign subsidiaries were $169,461,000, $236,019,000,
$215,255,000 and $231,691,000 at June 30, 1991, 1992 and 1993 and December 31,
1993, respectively. The Company's share of foreign net income (loss) was
$8,438,000, $7,544,000, $8,508,000, $6,034,000 and $(2,412,000) for the years
ended June 30, 1991, 1992 and 1993 and for the twelve and six months ended
December 31, 1993, respectively.
A majority of the Company's sales are to automobile manufacturing
companies. The following is a summary of the percentage of net sales to major
customers:
TWELVE MONTHS SIX MONTHS
YEAR ENDED JUNE 30, ENDED ENDED
-------------------- DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1993
---- ---- ---- ------------- ------------
General Motors Corporation.......... 51% 52% 48% 45% 42%
Ford Motor Company.................. 26 22 22 28 33
51
55
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, a significant portion of remaining sales are to the above
automobile manufacturing companies through various other automotive suppliers or
to affiliates of these automobile manufacturing companies. The majority of the
Company's accounts receivable are due from the customers listed above.
(16) QUARTERLY FINANCIAL DATA (UNAUDITED)(A)
THIRTEEN
WEEKS THIRTEEN WEEKS THIRTEEN WEEKS THIRTEEN WEEKS
ENDED ENDED ENDED ENDED
SEPTEMBER 28, DECEMBER 28, MARCH 28, JUNE 30,
1991 1991 1992 1992
------------- -------------- -------------- --------------
Net sales................ $ 284,431 $359,725 $339,233 $439,351
Gross profit............. 17,761 27,164 25,244 45,472
Income (loss) before
extraordinary item..... (14,689) 926 (4,667) 1,300
Net income (loss)........ (15,103) 926 (4,667) (3,386)
Income (loss) before
extraordinary item per
common share........... $(28.94) $.84 $(4.90) $1.37
Net income (loss) per
common share........... $(29.76) $.84 $(4.90) $(3.56)
FOURTEEN WEEKS THIRTEEN WEEKS THIRTEEN WEEKS THIRTEEN WEEKS
ENDED ENDED ENDED ENDED
OCTOBER 3, JANUARY 2, APRIL 3, JUNE 30,
1992(B) 1993(B) 1993 1993
-------------- -------------- -------------- --------------
Net sales............... $359,136 $452,304 $458,022 $487,048
Gross profit............ 21,415 33,104 40,224 57,756
Income (loss) before
extraordinary item.... (12,291) 1,520 6,120 14,765
Net income (loss)....... (12,291) 1,520 6,120 14,765
Income (loss) before
extraordinary item per
common share.......... $(11.86) $1.24 $5.00 $12.06
Net income (loss) per
common share.......... $(11.86) $1.24 $5.00 $12.06
THIRTEEN WEEKS THIRTEEN WEEKS
ENDED ENDED
OCTOBER 2, DECEMBER 31,
1993 1993
-------------- --------------
Net sales.......................................... $399,066 $606,152
Gross profit....................................... 21,827 50,408
Income (loss) before extraordinary item............ (10,829) (12,203)
Net income (loss).................................. (11,364) (23,352)
Income (loss) before extraordinary item per common
share............................................ $(10.08) $(11.34)
Net income (loss) per common share................. $(10.56) $(21.71)
- -------------------------
(a) Dollar amounts are in thousands, except per share data.
(b) The provision for national income taxes for the fourteen weeks ended October
3, 1992 and the thirteen weeks ended January 2, 1993 were approximately
$1,687,000 and $2,763,000, respectively.
52
56
LEAR SEATING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(17) FINANCIAL INSTRUMENTS
The Company hedges certain foreign currency risks through the use of
forward foreign exchange contracts and options. Such contracts are deemed as and
are effective as hedges of the related transactions. As such, gains and losses
from these contracts are deferred and are recognized on the settlement date,
consistent with the related transactions. As of December 31, 1993, the Company
and its subsidiaries have contracted to exchange up to $107,000,000 U.S. for
fixed amounts of Canadian dollars. In addition, the Company and its subsidiaries
have contracted to purchase 4,000,000 British Pounds for fixed amounts of German
Marks. The contracts mature during 1994.
The historical cost of certain of the Company's financial instruments
varies from the fair values of these instruments. The instruments listed below
have fair values which differ significantly from their carrying values. The
carrying values of all other financial instruments approximate the fair values
of such instruments.
ITEM CARRYING VALUE FAIR VALUE
-------------------------------------------------- -------------- ------------
German Term Loan.................................. $ 7,592,000 $ 8,869,000
Senior Subordinated Notes......................... 125,000,000 136,250,000
Subordinated Debentures........................... 135,000,000 143,100,000
Fair values of financial instruments were determined as follows:
Cash, Accounts Receivable, Accounts Payable and Notes Payable -- Fair
values were estimated to be equal to carrying values because of the
short-term, highly liquid nature of these instruments.
Senior Indebtedness -- Fair values were determined based on rates
currently available to the Company for similar borrowings of the same
maturities.
Subordinated Debt -- Fair values were determined by reference to
market prices of the securities in recent public transactions.
(18) STOCK SPLIT, INITIAL PUBLIC OFFERING AND AMENDMENT TO STOCKHOLDERS AND
REGISTRATION RIGHTS AGREEMENT -- SUBSEQUENT EVENTS
On March 2, 1994, the Company's Board of Directors approved a 33 to 1 split
of the common stock of the Company to be effective immediately prior to a
planned public offering of the Company's common stock. References to the numbers
of shares of common stock, stock options and income (loss) per share in the
accompanying financial statements and notes thereto have not been adjusted to
give effect to the stock split.
After giving pro forma effect to the stock split, income (loss) per common
share would have been as follows for the periods indicated.
TWELVE SIX
MONTHS MONTHS
YEAR ENDED JUNE 30, ENDED ENDED
----------------------- DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1993
------ ----- ---- ------------ ------------
Income (loss) before extraordinary item........ $(2.01) $(.62) $.25 $ (.06) $ (.65)
Extraordinary loss............................. -- (.18) -- (.33) (.33)
------ ----- ---- ------ ------
Net Income (loss).............................. $(2.01) $(.80) $.25 $ (.39) $ (.98)
------ ----- ---- ------ ------
------ ----- ---- ------ ------
The Board of Directors also approved an initial public offering of the
Company's common stock. Upon consummation of the offering, the Stockholders and
Registration Rights Agreement will be amended in order to, among other things,
relax certain restrictions on transfers of common stock owned by the parties to
the agreement and remove the rights of certain management investors to require
the Company to redeem their stock upon death, disability and certain events of
termination.
53
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Lear Seating Corporation:
We have audited in accordance with generally accepted auditing standards
the consolidated financial statements of LEAR SEATING CORPORATION AND
SUBSIDIARIES ("the Company") included in this Form 10-K and have issued our
report thereon dated February 10, 1994 (except with respect to the matters
discussed in Note 18, as to which the date is March 2, 1994). Our audits were
made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedules listed in the Index to Financial Statements and
Supplementary Data are the responsibility of the Company's management and are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audits
of the consolidated financial statements and, in our opinion, fairly state in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN & CO.
Detroit, Michigan
February 10, 1994
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LEAR SEATING CORPORATION AND SUBSIDIARIES
SCHEDULE II -- AMOUNTS RECEIVABLE FROM EMPLOYEES(A)
(IN THOUSANDS)
BALANCE AT BALANCE AT
BEGINNING END
NAME OF PERSON OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
- ---------------------------------------------------------- ---------- --------- ---------- ----------
FOR THE YEAR ENDED JUNE 30, 1991:
K. Way, Chairman and Chief Executive Officer............ $ 368 $ 42 $ -- $ 410
R. Rossiter, President and Chief Operating Officer...... 368 42 -- 410
J. Vandenberghe, Executive Vice President, Chief
Financial Officer and Secretary....................... 123 14 -- 137
J. Hollars, Senior Vice President -- International
Operations............................................ 123 14 -- 137
T. Melson, Senior Vice President -- Manufacturing
Planning.............................................. 123 14 -- 137
R. Murphy, Vice President and General Manager --
Chrysler/BMW Operations............................... 123 14 -- 137
R. Williams, Vice President -- European JIT
Operations............................................ 123 14 -- 137
---------- --------- ---------- ----------
$1,351 $ 154 $ -- $1,505
---------- --------- ---------- ----------
---------- --------- ---------- ----------
FOR THE YEAR ENDED JUNE 30, 1992:
K. Way, Chairman and Chief Executive Officer............ $ 410 $ 36 $ -- $ 446
R. Rossiter, President and Chief Operating Officer...... 410 36 -- 446
J. Vandenberghe, Executive Vice President, Chief
Financial Officer and Secretary....................... 137 12 -- 149
J. Hollars, Senior Vice President -- International
Operations............................................ 137 12 -- 149
T. Melson, Senior Vice President -- Manufacturing
Planning.............................................. 137 12 -- 149
R. Murphy, Vice President and General Manager --
Chrysler/BMW Operations............................... 137 12 -- 149
R. Williams, Vice President -- European JIT
Operations............................................ 137 -- (137) --
---------- --------- ---------- ----------
$1,505 $ 120 $ (137) $1,488
---------- --------- ---------- ----------
---------- --------- ---------- ----------
FOR THE YEAR ENDED JUNE 30, 1993:
K. Way, Chairman and Chief Executive Officer............ $ 446 $ 34 $ -- $ 480
R. Rossiter, President and Chief Operating Officer...... 446 34 -- 480
J. Vandenberghe, Executive Vice President, Chief
Financial Officer and Secretary....................... 149 11 -- 160
J. Hollars, Senior Vice President -- International
Operations............................................ 149 11 -- 160
T. Melson, Senior Vice President -- Manufacturing
Planning.............................................. 149 11 -- 160
R. Murphy, Vice President and General Manager --
Chrysler/BMW Operations............................... 149 11 -- 160
---------- --------- ---------- ----------
$1,488 $ 112 $ -- $1,600
---------- --------- ---------- ----------
---------- --------- ---------- ----------
FOR THE SIX MONTHS ENDED DECEMBER 31, 1993:
K. Way, Chairman and Chief Executive Officer............ $ 480 $ 18 $ -- $ 498
R. Rossiter, President and Chief Operating Officer...... 480 18 -- 498
J. Vandenberghe, Executive Vice President, Chief
Financial Officer and Secretary....................... 160 6 -- 166
J. Hollars, Senior Vice President -- International
Operations............................................ 160 6 -- 166
T. Melson, Senior Vice President -- Manufacturing
Planning.............................................. 160 6 -- 166
R. Murphy, Vice President and General Manager --
Chrysler/BMW Operations............................... 160 6 -- 166
---------- --------- ---------- ----------
$1,600 $ 60 $ -- $1,660
---------- --------- ---------- ----------
---------- --------- ---------- ----------
- -------------------------
(A) Long-term notes were issued in connection with the sale of stock to certain
management investors. These notes, including accrued interest, mature on
January 31, 1997 and bear interest at a rate of prime plus 1 1/2% through
December 31, 1993.
55
59
LEAR SEATING CORPORATION AND SUBSIDIARIES
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
BALANCE AT BALANCE AT
BEGINNING ADDITIONS OTHER END
DESCRIPTION OF PERIOD AT COST RETIREMENTS CHANGES(B) OF PERIOD
- ---------------------------------- ---------- --------- ----------- ---------- ----------
FOR THE YEAR ENDED JUNE 30, 1991:
Land............................ $ 12,697 $ -- $ (900) $ 499 $ 12,296
Buildings and improvements...... 58,490 5,487 (1,532) 2,989 65,434
Machinery and equipment......... 126,579 15,376 (4,194) 2,546 140,307
Construction in progress........ 2,334 29(a) (440) 1 1,924
---------- --------- ----------- ---------- ----------
$ 200,100 $ 20,892 $ (7,066) $ 6,035(c) $ 219,961
---------- --------- ----------- ---------- ----------
---------- --------- ----------- ---------- ----------
FOR THE YEAR ENDED JUNE 30, 1992:
Land............................ $ 12,296 $ 1,626 $ (205) $ 1 $ 13,718
Buildings and improvements...... 65,434 14,608 (244) (546) 79,252
Machinery and equipment......... 140,307 22,014 (1,746) (452) 160,123
Construction in progress........ 1,924 478(a) (197) 939 3,144
---------- --------- ----------- ---------- ----------
$ 219,961 $ 38,726(e) $ (2,392) $ (58)(d) $ 256,237
---------- --------- ----------- ---------- ----------
---------- --------- ----------- ---------- ----------
FOR THE YEAR ENDED JUNE 30, 1993:
Land............................ $ 13,718 $ 1,474 $ (1,608) $ (179) $ 13,405
Buildings and improvements...... 79,252 3,722 (9,004) (955) 73,015
Machinery and equipment......... 160,123 27,353 (3,303) (3,965) 180,208
Construction in progress........ 3,144 (954)(a) (47) (49) 2,094
---------- --------- ----------- ---------- ----------
$ 256,237 $ 31,595 $ (13,962)(f) $ (5,148) $ 268,722
---------- --------- ----------- ---------- ----------
---------- --------- ----------- ---------- ----------
FOR THE SIX MONTHS ENDED DECEMBER
31, 1993:
Land............................ $ 13,405 $ 18,417 $ (7) $ (526) $ 31,289
Buildings and improvements...... 73,015 43,523 -- (2,024) 114,514
Machinery and equipment......... 180,208 49,650 (13,988) (5,216) 210,654
Construction in progress........ 2,094 2,964(a) -- (28) 5,030
---------- --------- ----------- ---------- ----------
$ 268,722 $ 114,554(g) $ (13,995) $ (7,794) $ 361,487
---------- --------- ----------- ---------- ----------
---------- --------- ----------- ---------- ----------
- -------------------------
(a) Net of transfers to various property, plant and equipment categories.
(b) Includes changes due to fluctuations in foreign currency exchange rates.
(c) Amount includes $5,977,000 of additions to property, plant and equipment
through acquisitions (Note 6 to the financial statements).
(d) Amount includes $234,000 of additions to property, plant and equipment
through acquisitions (Note 6 to the financial statements).
(e) Amount includes $10,800,000 of additions to property, plant and equipment
through a financing lease obligation (Note 13 to the financial statements).
(f) Amount includes $10,800,000 of retirement of property, plant and equipment
through release from a financing lease obligation (Note 13 to the financial
statements).
(g) Amount includes $85,565,000 of additions to property, plant and equipment
through acquisitions (Note 6 to the financial statements).
56
60
LEAR SEATING CORPORATION AND SUBSIDIARIES
SCHEDULE VI -- ACCUMULATED DEPRECIATION
OF PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
BALANCE AT BALANCE AT
BEGINNING ADDITIONS OTHER END
DESCRIPTION OF PERIOD AT COST RETIREMENTS CHANGES(A) OF PERIOD
- ------------------------------------------ ---------- --------- ----------- ---------- ----------
FOR THE YEAR ENDED JUNE 30, 1991:
Buildings and improvements.............. $ 3,985 $ 2,429 $ (180) $ (1) $ 6,233
Machinery and equipment................. 27,246 20,519 (2,086) (133) 45,546
---------- --------- ----------- ---------- ----------
$ 31,231 $22,948 $(2,266) $ (134) $ 51,779
---------- --------- ----------- ---------- ----------
---------- --------- ----------- ---------- ----------
FOR THE YEAR ENDED JUNE 30, 1992:
Buildings and improvements.............. $ 6,233 $ 2,892 $ (219) $ (69) $ 8,837
Machinery and equipment................. 45,546 23,336 (1,177) 190 67,895
---------- --------- ----------- ---------- ----------
$ 51,779 $26,228 $(1,396) $ 121 $ 76,732
---------- --------- ----------- ---------- ----------
---------- --------- ----------- ---------- ----------
FOR THE YEAR ENDED JUNE 30, 1993:
Buildings and improvements.............. $ 8,837 $ 3,202 $ (294) $ (149) $ 11,596
Machinery and equipment................. 67,895 27,904 (2,328) (1,540) 91,931
---------- --------- ----------- ---------- ----------
$ 76,732 $31,106 $(2,622) $ (1,689) $ 103,527
---------- --------- ----------- ---------- ----------
---------- --------- ----------- ---------- ----------
FOR THE SIX MONTHS ENDED DECEMBER 31,
1993:
Building and improvements............... $ 11,596 $ 1,655 $ (331) $ (269) $ 12,651
Machinery and equipment................. 91,931 15,456 (7,157) (2,351) 97,879
---------- --------- ----------- ---------- ----------
$ 103,527 $17,111 $(7,488) $ (2,620) $ 110,530
---------- --------- ----------- ---------- ----------
---------- --------- ----------- ---------- ----------
- -------------------------
(a) Includes changes due to fluctuations in foreign currency exchange rates.
57
61
LEAR SEATING CORPORATION AND SUBSIDIARIES
SCHEDULE VII -- GUARANTEES OF SECURITIES OF OTHER ISSUERS
TOTAL AMOUNT
TITLE OF ISSUE OF GUARANTEED AND
NAME OF ISSUER SECURITIES GUARANTEED OUTSTANDING NATURE OF GUARANTEE
- ------------------------ ------------------------ -------------- ------------------------
General Seating of Letter of credit $1,995,000 Guarantee of payment of
America, Inc. securing an Economic amounts outstanding on
Development Revenue guaranteed obligations
Bond, Series 1988
General Seating of Banker's Acceptance $4,258,000 Guarantee of payment of
Canada, Ltd. unsecured bank loan
--------------
$6,253,000
--------------
--------------
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LEAR SEATING CORPORATION AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE AT BALANCE AT
BEGINNING OTHER END
DESCRIPTION OF PERIOD ADDITIONS RETIREMENTS CHANGES(A) OF PERIOD
- ------------------------------------------ ---------- --------- ----------- ---------- ----------
FOR THE YEAR ENDED JUNE 30, 1991:
Valuation of accounts deducted from
related assets:
Allowance for doubtful accounts...... $ 32 $ 170 $ (103) $ -- $ 99
Reserve for unmerchantable
inventories........................ 681 2,321 (1,663) (24) 1,315
Deferred tax asset valuation
allowance.......................... 18,105 -- -- -- 18,105
---------- --------- ----------- ---------- ----------
$ 18,818 $ 2,491 $(1,766) $ (24) $ 19,519
---------- --------- ----------- ---------- ----------
---------- --------- ----------- ---------- ----------
FOR THE YEAR ENDED JUNE 30, 1992:
Valuation of accounts deducted from
related assets:
Allowance for doubtful accounts...... $ 99 $ 206 $ (68) $ 2 $ 239
Reserve for unmerchantable
inventories........................ 1,315 2,840 (1,740) (34) 2,381
Deferred tax asset valuation
allowance.......................... 18,105 6,104 -- -- 24,209
---------- --------- ----------- ---------- ----------
$ 19,519 $ 9,150 $(1,808) $ (32) $ 26,829
---------- --------- ----------- ---------- ----------
---------- --------- ----------- ---------- ----------
FOR THE YEAR ENDED JUNE 30, 1993:
Valuation of accounts deducted from
related assets:
Allowance for doubtful accounts...... $ 239 $ 473 $ (187) $ (9) $ 516
Reserve for unmerchantable
inventories........................ 2,381 1,390 (1,976) (56) 1,739
Deferred tax asset valuation
allowance.......................... 24,209 8,345 (2,446) -- 30,108
---------- --------- ----------- ---------- ----------
$ 26,829 $10,208 $(4,609) $ (65) $ 32,363
---------- --------- ----------- ---------- ----------
---------- --------- ----------- ---------- ----------
FOR THE SIX MONTHS ENDED DECEMBER 31,
1993:
Valuation of accounts deducted from
related assets:
Allowance for doubtful accounts...... $ 516 $ 318 $ (144) $ (46) $ 644
Reserve for unmerchantable
inventories........................ 1,739 617 (243) (180) 1,933
Deferred tax asset valuation
allowance.......................... 30,108 22,959 (1,613) -- 51,454
---------- --------- ----------- ---------- ----------
$ 32,363 $23,894 $(2,000) $ (226) $ 54,031
---------- --------- ----------- ---------- ----------
---------- --------- ----------- ---------- ----------
- -------------------------
(a) Includes changes due to fluctuations in foreign currency exchange rates.
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LEAR SEATING CORPORATION AND SUBSIDIARIES
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
(IN THOUSANDS)
FOR THE
FOR THE FOR THE FOR THE FOR THE SIX MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1993
----------- ----------- ----------- ------------- ------------
Charged to costs and
expenses -- Maintenance
and repairs............... $15,294 $20,545 $24,883 $26,181 $ 13,739
Amounts charged to costs and expenses for (1) taxes, other than payroll and
income taxes, (2) royalties, and (3) advertising costs have been omitted since
each is less than 1% of net sales.
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64
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no disagreement between the management of the Company and
the Company's accountants on any matter of accounting principles or practices or
financial statement disclosure.
PART III
ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information concerning the individuals who are
directors and executive officers of the Company.
YEARS WITH THE
NAME AGE POSITION COMPANY
- ------------------------------ --- ------------------------------------------- --------------
Kenneth L. Way................ 54 Chairman of the Board and Chief Executive 28(1)
Officer
Robert E. Rossiter............ 48 President, Chief Operating Officer and 22(1)
Director
James H. Vandenberghe......... 44 Executive Vice President and Chief 21
Financial Officer
James A. Hollars.............. 49 Senior Vice President -- International 20
Operations
Barthold H. Hoemann........... 54 Senior Vice President -- North American JIT 13
Operations
Theodore E. Melson............ 50 Senior Vice President -- Manufacturing 6
Planning
Donald J. Stebbins............ 36 Vice President, Treasurer and Assistant 2
Secretary
Joseph F. McCarthy............ 50 Vice President, Secretary and General --
Counsel
Larry W. McCurdy.............. 58 Director (1)
Jeffrey P. Hughes............. 53 Director (2)
David P. Spalding............. 39 Director (2)
James A. Stern................ 43 Director (3)
Eliot Fried................... 61 Director (3)
Robert W. Shower.............. 56 Director (4)
Gian Andrea Botta............. 40 Director (5)
Gordon C. Davidson............ 67 Director (6)
N. Peter Ruys................. 45 Director (7)
- -------------------------
(1) Member of the Board of Directors of the Company since 1988.
(2) Member of the Board of Directors of the Company since September 1991.
(3) Member of the Board of Directors of the Company since the Merger and
Director of Holdings from September 1991 until the Merger.
(4) Member of the Board of Directors of the Company since the Merger and
Director of Holdings from November 1991 until the Merger.
(5) Member of the Board of Directors of the Company since the Merger and
Director of Holdings from July 1993 until the Merger.
(6) Member of the Board of Directors of the Company since the Merger and
Director of Holdings from August 1992 until the Merger.
(7) Member of the Board of Directors of the Company since February 1993.
Set forth below is a description of the business experience of each
director and executive officer of the Company.
Kenneth L. Way. Mr. Way was elected to and has held the position of
Chairman of the Board and Chief Executive Officer of the Company since 1988.
Prior to this he served as Corporate Vice President, Automotive Group of Lear
Siegler, Inc. ("LSI") since October 1984. During the previous six years, Mr. Way
was President of LSI's General Seating Division. Prior to this, he was President
of LSI's Metal Products Division in Detroit for three years. Other positions
held by Mr. Way during his 28 years with LSI include Manufacturing Manager of
the Metal Products Division and Manager of Production Control for the
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65
Automotive Division in Detroit. Mr. Way also serves as a director of Hayes
Wheels International Incorporated.
Robert E. Rossiter. Mr. Rossiter became President of the Company in 1984
and a Director and the Chief Operating Officer of the Company in 1988. He joined
LSI in 1971 in the Material Control Department at the Automotive Division, then
joined the Metal Products Division of LSI as Production Control Manager, and
subsequently moved into sales and sales management. In 1979, he joined the
General Seating Division as Vice President of Sales and worked in that position,
as well as Vice President of Operations, until 1984.
James H. Vandenberghe. Mr. Vandenberghe was appointed Senior Vice President
- -- Finance, Secretary and Chief Financial Officer of the Company in 1988. He was
appointed Executive Vice President of the Company in 1993. He joined LSI's
Automotive Division in 1973 as a financial analyst and was promoted to positions
at the Metal Products Division and the Automotive Group office, and in 1978 was
named the Vice President -- Finance for the Plastics Division. In 1983, Mr.
Vandenberghe was appointed Vice President -- Finance for the General Seating
Division. Prior to 1988, Mr. Vandenberghe had been responsible for project
management, United States operations, and international operations of the
Company.
James A. Hollars. Mr. Hollars is currently Senior Vice President --
International Operations of the Company. He was promoted to Vice President --
International upon the sale of LSI's Power Equipment Division to Lucas
Industries in 1988. Mr. Hollars joined LSI's Metal Products Division in 1973 as
the Manufacturing Manager and later served as Vice President -- Manufacturing
for No-Sag Spring Division. In 1979, he was named President of the Foam Products
Division and was subsequently promoted to President at the Anchorlok Division in
1985 and the Power Equipment Division in 1986.
Barthold H. Hoemann. Mr. Hoemann is Senior Vice President -- North American
JIT Operations of the Company. He was promoted to this position in 1993.
Previously he served as Vice President -- Component Operations for Seating in
1992 and 1993 and as Vice President and General Manager of Lear's subsidiary,
Lear Plastics Corporation, in 1991 and 1992. From 1988 until 1991, Mr. Hoemann
was the Chief Executive Officer of Peerless Corporation. Mr. Hoemann has over 30
years experience as a senior manager and officer in manufacturing companies such
as the AC Spark Plug Division of General Motors and the Plastics and Peerless
Divisions of LSI.
Theodore E. Melson. Mr. Melson is Senior Vice President -- Manufacturing
Planning of the Company. Mr. Melson was promoted to Senior Vice President in
1992, before which he was responsible for all North American JIT Operations of
the Company. Mr. Melson joined the Seating Group in 1987 after 25 years with
General Motors. His latest assignment at General Motors was as Director of
Materials Management at the Willow Run assembly plant. During his General Motors
career, he worked for Fisher Body Division, Chevrolet Division, General Motors
Assembly Division and Buick-Olds-Cadillac Division. He held positions in many
areas of Materials, Manufacturing Systems Development, Forward Planning and
Industrial Engineering.
Donald J. Stebbins. Mr. Stebbins is currently Vice President and Treasurer
of the Company. He joined the Company in June 1992 from Bankers Trust Company,
New York, where he was Vice President for four years. Prior to his tenure at
Bankers Trust Company, Mr. Stebbins held positions at Citibank, N.A. and The
First National Bank of Chicago.
Joseph F. McCarthy. Mr. McCarthy will join Lear as Vice President,
Secretary and General Counsel effective April 1, 1994. Mr. McCarthy currently
serves as Vice President -- Legal and Secretary for both Hayes Wheels
International, Inc. and Kelsey-Hayes Company. Prior to joining Hayes Wheels
International, Inc. and Kelsey-Hayes Company, Mr. McCarthy was a partner in the
law firm of Kreckman & McCarthy from 1973 to 1983.
Larry W. McCurdy. Mr. McCurdy became a Director of the Company in 1988. Mr.
McCurdy has been the President and Chief Executive Officer of Moog Automotive,
Inc. since November 1985, and prior thereto President and Chief Operating
Officer of Echlin, Inc. ("Echlin"), since August 1983, after serving as Vice
President of Finance from February 1983. Prior to joining Echlin, he served in
various material positions with Tenneco, Inc. He was formerly Chairman of the
Board of Directors of the Motor and Equipment
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66
Manufacturing Association (MEMA). At the present time he serves as a director of
Mohawk Industries, Inc., Breed Technologies, Inc. and as a trustee of Millikin
University.
Jeffrey P. Hughes. Mr. Hughes became a Director of the Company in September
1991. He has been a Managing Director of Lehman Brothers Inc. for more than five
years, and is a Director of Sun Distributors, L.P. and Parisian, Inc.
David P. Spalding. Mr. Spalding became a Director of the Company in
September 1991. He has been a Managing Director of Lehman Brothers Inc. since
February 1991. Previously, he held the position of Senior Vice President of
Lehman Brothers Inc. from September 1988 to February 1991. From April 1987 to
September 1988, he was Senior Vice President of General Electric Capital
Corporation Corporate Finance Group, Inc. Prior to 1987 he was Vice President of
The First National Bank of Chicago. Mr. Spalding is a Director of Parisian,
Inc., American Marketing Industries Holdings Inc. and SLB/GP Inc.
James A. Stern. Mr. Stern became a Director of the Company on December 31,
1993 upon consummation of the Merger. From September 1991 until the Merger, Mr.
Stern was a Director of Holdings. He has been a Managing Director of Lehman
Brothers Inc. for more than five years. He is also a director of K&F Industries
Inc., American Marketing Industries Holdings Inc., Infinity Broadcasting
Corporation, R.P. Scherer Corporation and Noel Group, Inc.
Eliot Fried. Mr. Fried became a Director of the Company on December 31,
1993 upon consummation of the Merger. From September 1991 until the Merger, Mr.
Fried was a Director of Holdings. He has been a Managing Director of Lehman
Brothers Inc. for more than five years. Mr. Fried is a director of Bridgeport
Machines, Inc., Energy Ventures Corporation and American Marketing Industries
Holdings Inc.
Robert W. Shower. Mr. Shower became a Director of the Company on December
31, 1993 upon consummation of the Merger. From November 1991 until the Merger,
Mr. Shower was a Director of Holdings. Mr. Shower was appointed Senior Vice
President and Chief Financial Officer of Seagull Energy Corporation in March
1992, elected a director in May 1992, and recently named Executive Vice
President. Prior thereto, he served as Senior Vice President of Corporate
Development at Albert Fisher, Inc. in 1991 and 1992, Vice President of Finance
and CFO at AmeriServ in 1990 and 1991 and as a Managing Director of Corporate
Finance with Lehman Brothers Inc. from 1986 to 1990. From 1964 to 1986, Mr.
Shower served in a variety of financial executive positions with The Williams
Companies where he was a member of the Board of Directors and Executive Vice
President of Finance and Administration from 1977 to 1986.
Gian Andrea Botta. Mr. Botta became a Director of the Company on December
31, 1993 upon consummation of the Merger. Prior to the Merger, Mr. Botta was a
Director of Holdings. Mr. Botta has been President of IFINT-USA Inc., an
affiliate of FIMA, since 1993 and was Vice President of Acquisitions of
IFINT-USA Inc. for more than five years prior thereto. Mr. Botta is a member of
the Board of Directors of Kendall International, ICF International, and
Chartwell Re Corporation.
Gordon C. Davidson. Mr. Davidson became a Director of the Company on
December 31, 1993 upon consummation of the Merger. From August 1992 until the
Merger, Mr. Davidson was a Director of Holdings. Mr. Davidson is currently a
partner with Lubar & Co. Incorporated. Prior to that, Mr. Davidson was President
and Director of NML Corp., a subsidiary of Northwestern Mutual Life Insurance
Company and is a former director of Mortgage Guaranty Insurance Corp., Capital
Court Corp., First Mortgage Company of Texas, Inc. and Futura Gear Works, Inc.
N. Peter Ruys. Mr. Ruys became a Director of the Company in 1993. Since
1993, Mr. Ruys has been Chief Financial Officer of IFINT S.A., the international
investment company of IFI S.p.A., the parent company of the Agnelli Group. Since
1981, Mr. Ruys has been Secretary and Treasurer of IFINT-USA Inc., a subsidiary
of IFINT S.A. Mr. Ruys is a Trustee of Corporate Property Investors.
All directors hold office until the annual meeting of stockholders next
following their election, or until their successors are elected and qualified.
Pursuant to the Stockholders Agreement, Messrs. Hughes, Spalding, Stern, Fried,
Davidson and Shower serve on the Board of Directors of the Company as
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67
representatives of the Lehman Funds, Messrs. Botta, Ruys and McCurdy serve as
representatives of FIMA and Messrs. Way and Rossiter serve as representatives of
the Management Investors.
It is anticipated that prior to the Offerings, the composition of the
Company's Board of Directors will change. Pursuant to the Company's Restated
Certificate of Incorporation, which will be in effect upon the closing of the
Offerings, the Board of Directors will be divided into three classes of
directors serving staggered three-year terms.
The Board of Directors has established permanent executive, audit and
compensation committees. The membership of each of these committees is
determined from time to time by the Board of Directors. The current members of
the Executive Committee of the Board of Directors are Messrs. Hughes, Spalding,
Stern, Way and Rossiter. The current members of the Audit Committee of the Board
of Directors are Messrs. Shower and McCurdy. The current members of the
Compensation Committee of the Board of Directors are Messrs. Hughes, Spalding
and McCurdy.
Directors of the Company who are not currently receiving compensation as
officers or employees of the Company or Lehman Brothers Inc. receive an annual
fee of $20,000 and a fee of $1,000 for each meeting of the Board of Directors or
any committee thereof that they attend, provided that directors are not paid a
fee for any additional meetings which are held on the same day. Directors are
also reimbursed for their expenses incurred in attending meetings. In addition,
directors of the Company will be eligible to receive grants of stock options
under the 1994 Stock Option Plan. See "Executive Compensation -- 1994 Stock
Option Plan." Prior to the commencement of the Offerings, Messrs. Shower,
Davidson and McCurdy will each receive options to purchase 10,000 shares of
Common Stock under the 1994 Stock Option Plan.
Officers of the Company are elected by the Board of Directors and serve at
the discretion of the Board. Messrs. Way, Rossiter, Vandenberghe, Hollars,
Hoemann, Melson, Stebbins and McCarthy have employment agreements with the
Company. See "Executive Compensation -- Employment Agreements."
ITEM 11 -- EXECUTIVE COMPENSATION
The following table summarizes information concerning annual and long-term
cash and non-cash compensation paid to or accrued for the benefit of the Chief
Executive Officer and each of the four other most highly compensated executive
officers of the Company (collectively, the "named executive officers") for all
services rendered in all capacities to the Company for the six months ended
December 31, 1993 and for each of the Company's fiscal years ending June 30,
1993, 1992 and 1991. In February 1994, the Company changed its fiscal year end
from June 30 to December 31, effective December 31, 1993.
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SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION(4)
-------------------------------
ANNUAL COMPENSATION AWARDS
---------------------------------- --------------------- PAYOUTS
OTHER RESTRICTED -------
ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
SALARY BONUS COMPENSATION AWARDS SARS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITIONS PERIOD(1) ($) ($)(2) ($)(3) (#) (#) ($) ($)(5)
- ---------------------------- ---------- -------- -------- ------------ ---------- -------- ------- ------------
Kenneth L. Way.............. 6 months $237,000 $237,500 $830,000 $5,000
Chairman of the Board and FY1993 462,000 450,000 5,500 9,000
Chief Executive Officer FY1992 452,000 315,000
FY1991 415,000 205,000
Robert E. Rossiter.......... 6 months 173,000 172,500 830,000 3,000
President, Chief Operating FY1993 335,000 325,000 3,500 5,000
Officer and Director FY1992 325,000 220,000
FY1991 300,000 145,000
James H. Vandenberghe....... 6 months 123,000 127,500 277,000 3,000
Executive Vice President FY1993 223,000 175,000 2,600 5,000
and Chief Financial Officer FY1992 218,000 120,000
FY1991 200,000 82,000
James A. Hollars............ 6 months 127,000 68,000 277,000 3,000
Senior Vice President -- FY1993 230,000 125,000 2,000 3,000
International Operations FY1992 208,000 100,000
FY1991 198,000 60,000
Theodore E. Melson.......... 6 months 109,000 54,000 277,000 3,000
Senior Vice President -- FY1993 212,000 102,000 2,000 5,000
Manufacturing Planning FY1992 211,000 90,000
FY1991 200,000 60,000
- -------------------------
(1) The six month period listed is the six months ended December 31, 1993 and
the fiscal years are the fiscal years ended June 30, 1993, 1992 and 1991.
(2) Pursuant to the Company's Senior Executive Incentive Compensation Plan, the
Company awards annual bonuses to its executive officers based on the
attainment of financial and nonfinancial objectives. All bonuses set forth
in this column were awarded pursuant to the Senior Executive Incentive
Compensation Plan. For a description of the Senior Executive Incentive
Compensation Plan and the criteria used for the determination of awards
thereunder, see "Executive Compensation -- Senior Executive Incentive
Compensation Plan."
(3) Consists of one-time payments to the named executive officers.
(4) The Company does not have restricted stock award plans or long-term
incentive plans and has not granted stock appreciation rights ("SARs").
(5) Includes 401(k) contributions made and life insurance premiums paid by the
Company on behalf of the named executive officers.
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The following table provides information, with respect to the named
executive officers of the Company, concerning the grants of stock options during
the fiscal year ended June 30, 1993 and the potential value of unexercised
options on an aggregated basis. No stock options were granted to any such
officers during the six months ended December 31, 1993.
OPTION GRANTS IN THE FISCAL YEAR ENDED JUNE 30, 1993
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS ASSUMED ANNUAL RATES OF
UNDERLYING GRANTED TO STOCK PRICE APPRECIATION FOR
OPTIONS EMPLOYEES EXERCISE OR OPTION TERM
GRANTED IN FISCAL BASE PRICE EXPIRATION -------------------------------
NAME (#)(1) YEAR ($/SHARE) DATE 5%($) 10%($)
- ------------------------------- --------- ---------- ----------- ---------- ----------- ----------------
Kenneth L. Way................. 5,500 13.2% $165.00 6-1-2002 $ 501,000 $1,232,000
Robert E. Rossiter............. 3,500 8.4% 165.00 6-1-2002 319,000 784,000
James H. Vandenberghe.......... 2,600 6.2% 165.00 6-1-2002 237,000 582,000
James A. Hollars............... 2,000 4.8% 165.00 6-1-2002 182,000 448,000
Theodore E. Melson............. 2,000 4.8% 165.00 6-1-2002 182,000 448,000
- -------------------------
(1) For a discussion of the options granted, see "Executive Compensation -- 1992
Stock Option Plan" below.
The following table provides information, with respect to the named
executive officers, concerning the exercise or settlement of stock options
during the fiscal year ended June 30, 1993 and the six months ended December 31,
1993 and unexercised stock options held as of December 31, 1993.
AGGREGATED OPTION EXERCISES IN THE FISCAL YEAR ENDED JUNE 30, 1993
AND THE SIX MONTHS ENDED DECEMBER 31, 1993 AND
OPTION VALUES AT DECEMBER 31, 1993
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, DECEMBER 31,
1993 1993(1)
SHARES ------------ ---------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- -------------------------------------------- ----------- ----------- ------------ ---------------------
Kenneth L. Way.............................. -- -- 11,765/5,500 $4,794,826/$1,568,160
Robert E. Rossiter.......................... -- -- 7,059/3,500 2,876,895/ 997,920
James H. Vandenberghe....................... -- -- 4,471/2,600 1,822,156/ 741,312
James A. Hollars............................ -- -- 4,471/2,000 1,822,156/ 570,240
Theodore E. Melson.......................... -- -- 4,471/2,000 1,822,156/ 570,240
- -------------------------
(1) Based on a Common Stock valuation of $450 per share as of December 31, 1993.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the Merger, the Company's compensation policies were determined
and executive officer compensation decisions were made by Holdings' Board of
Directors and its Compensation Committee (the "Holdings Compensation
Committee"). The Holdings Compensation Committee was comprised of three
non-employee directors: Messrs. Hughes, McCurdy and Spalding. Messrs. Hughes and
Spalding are both Managing Directors of Lehman Brothers Inc., an affiliate of
the Lehman Funds. The Lehman Funds beneficially own approximately 66.9% of the
Common Stock of the Company (assuming all outstanding Warrants are exercised and
no outstanding Options are exercised). For periods after the Merger, the Board
of Directors of the Company has appointed a compensation committee (the
"Compensation Committee") comprised of the same individuals who served on the
Holdings Compensation Committee prior to the Merger.
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During the six months ended December 31, 1993 and the fiscal year ended
June 30, 1993, the Holdings Compensation Committee and the Compensation
Committee authorized the remuneration plans for senior management. In addition,
the Holdings Compensation Committee and the Compensation Committee exercised
administrative power with respect to the Company's remuneration plans. Neither
the Board of Directors of Holdings or the Company rejected nor modified any
action taken by the Holdings Compensation Committee or the Compensation
Committee, respectively.
No member of the Holdings Compensation Committee or the Compensation
Committee was, during the fiscal year ended June 30, 1993 or the six months
ended December 31, 1993, an officer, former officer or employee of Holdings, the
Company or any of their subsidiaries. No executive officer of Holdings or the
Company served as a member of (i) the compensation committee of another entity
in which one of the executive officers of such entity served on the Holdings
Compensation Committee, (ii) the Board of Directors of another entity in which
one of the executive officers of such entity served on the Holdings Compensation
Committee or (iii) the compensation committee of another entity in which one of
the executive officers of such entity served as a member of Holdings' or the
Company's Board of Directors.
Lehman Brothers Inc., an affiliate of the Lehman Funds, acted as an
underwriter in connection with the Company's public offering of the Senior
Subordinated Notes and the 8 1/4% Subordinated Notes and is acting as an
underwriter in the Offerings. Lehman Brothers Inc. also provided advisory
services to the Company in connection with the Equity Investment (as defined
herein) and the consummation of the Credit Agreement, for which it received
fees. In addition, Lehman Commercial Paper Inc., an affiliate of the Lehman
Funds, is a managing agent and a lender under the Credit Agreement. See "Certain
Relationships and Related Transactions."
SENIOR EXECUTIVE INCENTIVE COMPENSATION PLAN
Lear has established a Senior Executive Incentive Compensation Plan
effective July 1, 1989 (the "Senior Executive Incentive Plan"). The Senior
Executive Incentive Plan provides for the assignment of target annual awards
expressed as a percentage of a participant's annual salary, and the actual
award, unless modified by the Board of Directors, will vary from 0% to 167% of
the target award opportunity based on attainment of financial and nonfinancial
objectives. The financial criteria, representing 60% of the bonus potential, are
based on achievement of a targeted level of pre-tax operating income and cash
flow for the overall Company based on the approved operating budget. An overall
average threshold is calculated, based on the ratio that the actual pre-tax
operating income and actual cash flow bear to the budget pre-tax operating
income and the budget cash flow. No payments are made unless 85% of that
threshold is attained, and a maximum attainment is set at 120% of that
threshold. The nonfinancial criteria, representing 40% of the bonus potential,
are based on the achievement of specific individual objectives that are
determined by the Chief Executive Officer and approved by the Board of Directors
of Lear. Participants in the Senior Executive Incentive Plan were selected from
executives who were in positions to materially influence the annual financial
results of Lear in the targeted areas. In the twelve month period ending
December 31, 1994, the target award opportunities under the Senior Executive
Incentive Plan for each of Messrs. Way, Rossiter, Vandenberghe, Hollars and
Melson are $285,000, $207,000, $153,000, $115,000 and $112,500, respectively.
MANAGEMENT INCENTIVE COMPENSATION PLAN
Lear has established a Management Incentive Compensation Plan effective
July 1, 1989 (the "Management Incentive Plan") for certain individuals who are
not participants in the Senior Executive Incentive Plan. The Management
Incentive Plan provides for the assignment of target annual awards expressed as
a percentage of a participant's annual salary, and the actual award will vary
from 0% to 140% of the target award opportunity based on attainment of financial
and nonfinancial objectives. The financial criteria, representing 50% of the
bonus potential, are based on achievement of a targeted level of pre-tax
operating income and cash flow for the overall Company based on the approved
operating budget. An overall average threshold is calculated, based on the ratio
that the actual pre-tax operating income and actual cash flow bear to the budget
pre-tax operating income and the budget cash flow. No payments are made unless
85% of that threshold is attained, and a maximum attainment is set at 120% of
that threshold. The nonfinancial criteria, representing
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50% of the bonus potential, are based on the achievement of specific individual
objectives that are determined by the senior management and approved by the
Chief Executive Officer of Lear. Participants in the Management Incentive Plan
were selected from managers who were in positions to materially influence the
annual financial results of Lear in the targeted areas.
PENSION PLAN AND BENEFITS
The executive officers (as well as other employees of Lear) participate in
the Lear Seating Corporation (LSC) Pension Plan (the "Pension Plan"). The
Pension Plan is a qualified pension plan under the Internal Revenue Code, which
is integrated with Social Security benefits. Any active employee of Lear who was
a participant in the Lear Siegler Diversified Holding Corp. Pension Plan on
September 29, 1988, is eligible to participate, and each other eligible employee
(non-union employees not covered by another pension plan and certain union
employees) becomes a participant on the July 1st or January 1st following
completion of one year of service. The benefits are funded by employer
contributions that are determined under accepted actuarial principles and
applicable Federal tax law.
The Pension Plan contains three sets of benefit provisions: the Lear
provisions, the Fabricated Products Operations ("FPO") provisions, and the
Progress Pattern provisions. The Lear provisions are the principal provisions of
the Pension Plan (see below). The FPO and Progress Pattern provisions are
grandfathering provisions carried forward from the Lear Siegler Diversified
Holdings Corp. Pension Plan, and apply to those participants who were covered by
such provisions of that plan.
Under the Lear formula, pension benefits are based on a participant's
"final average earnings," which is the average compensation for the highest five
consecutive calendar year earnings of the last 15 years of employment.
Compensation includes all cash compensation reported for federal income tax
purposes excluding sales incentive bonuses. Assuming retirement at age 65, the
annual retirement benefit (based on a life annuity) is equal to the greater of:
a. 1.10% times final average earnings times years of credited service
(to a maximum of 25 years) plus 0.65% times final average earnings in
excess of covered compensation times credited service (to a maximum
of 25 years), or
b. $177.00 times years of credited service.
Covered compensation is a 35 year average of the Social Security Taxable
Wage Base as defined in I.R.S. Notice 89-70.
Participants who are former FPO employees (as of December 31, 1985), or are
former employees of Progress Pattern Corporation (as of November 30, 1984), are
eligible to have their pension determined through the application of a floor
provision, which guarantees a minimum pension benefit. Pension benefits will be
calculated in two ways, using first the new Pension Plan formula, and then using
the floor provision. If the pension benefits are greater by applying the floor
provision, then the participants will receive benefits under the floor
provision.
Assuming retirement at age 65, by applying the floor provision the benefit
will be:
a. 0.8% times final average earnings times years of credited service
plus
b. 0.65% times final average earnings in excess of $10,000 times years
of credited service (to a maximum of 35 years).
Participants formerly covered by the Progress Pattern provisions were
covered by the FPO provisions on and after October 1, 1989.
The benefits under the Pension Plan become vested if a participant was
fully vested in the Lear Siegler Diversified Holdings Corp. Pension Plan, or
upon the attainment of five years of combined vesting service under the Lear
Siegler Diversified Holdings Corp. Pension Plan, and the Pension Plan, or upon
completion of five years of service.
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The following table indicates estimated annual benefits payable upon normal
retirement at age 65, based on a life annuity for various compensation levels
and years of service classification, under the Lear provisions:
ANNUAL BENEFIT FOR YEARS
OF SERVICE INDICATED*
ANNUAL COVERED -------------------------------------------
COMPENSATION COMPENSATION 10 15 20 25
- ------------ ------------ ------- ------- ------- -------
$200,000 $ 55,500 $31,393 $47,089 $62,785 $78,481
250,000 55,500 36,443 54,665 72,886 91,108
300,000 55,500 36,443 54,665 72,886 91,108
350,000 55,500 36,443 54,665 72,886 91,108
400,000 55,500 36,443 54,665 72,886 91,108
450,000 55,500 36,443 54,665 72,886 91,108
500,000 55,500 36,443 54,665 72,886 91,108
and over
- -------------------------
* The maximum annual retirement benefit under the Pension Plan for 1993 is
$91,108 and the maximum average compensation which can be considered in the
determination of annual compensation for 1993 is $228,860.
The following table indicates estimated annual benefits payable upon normal
retirement at age 65, based on a life annuity for various compensation levels
and years of service classifications under FPO provisions:
ANNUAL BENEFIT FOR YEARS
OF SERVICE INDICATED*
-------------------------------------------
ANNUAL SALARY 10 15 20 25
- ------------- ------- ------- ------- -------
$ 200,000 $28,350 $42,525 $56,700 $70,875
250,000 32,535 48,802 65,069 81,337
300,000 32,535 48,802 65,069 81,337
350,000 32,535 48,802 65,069 81,337
400,000 32,535 48,802 65,069 81,337
450,000 32,535 48,802 65,069 81,337
500,000 32,535 48,802 65,069 81,337
and over
- -------------------------
* The maximum annual retirement benefit under the Pension Plan for 1993 is
$81,337 and the maximum average compensation which can be considered in the
determination of annual compensation for 1993 is $228,860.
Kenneth L. Way, Theodore E. Melson, and James A. Hollars are covered by the
Lear provisions, and Robert E. Rossiter and James H. Vandenberghe are covered by
the FPO provisions. At age 65, it is estimated that Kenneth L. Way will have 15
years of service with Lear; Robert E. Rossiter will have 21 years; Theodore E.
Melson will have 19 years; James H. Vandenberghe will have 25 years; and James
A. Hollars will have 20 years. The average annual compensation for participants
covered by the Lear provisions is substantially similar to the compensation
reported in the Summary Compensation Table. The compensation covered under the
Pension Plan for the fiscal year ending June 30, 1993 was $228,860 for Robert E.
Rossiter and James H. Vandenberghe, both of whom are covered under the FPO
provisions.
The Pension Plan grants credit for all years of pension service with Lear
Siegler Diversified Holdings Corp. and with Lear, and offsets the retirement
benefit payable by the Lear Siegler Diversified Holdings Corp. Pension Plan
against the benefit payable by the Pension Plan.
As an option to normal retirement, a participant who is age 55 or older
with 10 years of service may elect to receive an early retirement benefit
commencing at age 55 or older.
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401(K) SAVINGS PLAN
Lear adopted a plan effective February 1, 1989 pursuant to Section 401(k)
of the Internal Revenue Code (the "401(k) Plan") for non-union employees who
have completed a three month period of service and attained the age of
twenty-one. Under the 401(k) Plan, each eligible employee may elect to defer a
portion of his or her salary each year. The portion deferred will be paid by the
Company to the trustee under the 401(k) Plan. Lear makes a matching contribution
to the plan each month on behalf of each participant in an amount equal to 50%
of such participant's salary deferral contributions which are not in excess of
4% of such participant's compensation, provided however, that the matching
contribution for a participant in any year may not exceed $1,150. Matching
contributions become vested under the 401(k) Plan at a rate of 20% for each full
year of service. For the period ending June 30, 1993, each of the Chief
Executive Officer and the named executive officers of the Company received the
maximum matching contribution under the plan of $1,150.
1988 STOCK OPTION PLAN
Under a stock option plan dated September 29, 1988 (the "1988 Stock Option
Plan"), the Company has outstanding options to purchase 63,055 shares of Common
Stock, which are held by the Management Investors. All of these outstanding
options are fully vested and are exercisable at $42.50 per share.
SUPPLEMENTAL PENSION PLAN
Lear has maintained a supplemental pension plan (the "Supplemental Pension
Plan") originally established for officers of Lear Siegler, Inc. The
Supplemental Pension Plan provides supplemental retirement benefits in excess of
those provided by the Lear and FPO plans previously discussed pursuant to a
formula based on final average compensation and credited years of service.
Employees of Lear who were participants in the Supplemental Pension Plan for
officers of Lear Siegler, Inc. at September 30, 1988 are eligible to participate
in the Supplemental Pension Plan. Mr. Way is the only officer of Lear who is a
participant in the Supplemental Pension Plan. At age 65, Mr. Way will have 25
credited years of service under the Supplemental Pension Plan.
The following table indicates estimated supplemental annual benefits
payable upon normal retirement at age 65 based on a life annuity for various
compensation levels and years of service classifications under the Supplemental
Pension Plan provisions:
ANNUAL BENEFIT FOR YEARS
OF SERVICE INDICATED
-----------------------------------------------
ANNUAL SALARY 10 15 20 25
- ------------- -------- -------- -------- --------
$ 300,000 $ 12,450 $ 18,674 $ 24,899 $ 31,124
400,000 29,950 44,924 59,899 74,874
500,000 47,450 71,174 94,899 118,624
600,000 64,950 94,424 129,899 162,374
700,000 82,450 123,674 164,899 206,124
800,000 99,950 149,924 199,899 219,874
900,000 117,450 176,174 234,899 293,624
1,000,000 134,950 202,424 269,899 337,374
1992 STOCK OPTION PLAN
The Company has adopted the 1992 Stock Option Plan (the "1992 Stock Option
Plan"), pursuant to which management employees are eligible to receive awards of
stock options. The 1992 Stock Option Plan is administered by the Compensation
Committee of the Company's Board of Directors. Subject to the terms of the 1992
Stock Option Plan, the Committee selects the management employees eligible to
receive awards under the 1992 Stock Option Plan, determines the size of the
awards granted thereunder, and administers and interprets the plan.
Under the 1992 Stock Option Plan, the Company has outstanding options to
purchase 58,000 shares of Common Stock, which are held by certain management
personnel. All of these outstanding options are fully
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vested and generally become exercisable at $165.00 per share as of September 28,
1996. However, if an option holder's employment with the Company terminates
prior to September 28, 1996, other than by reason of retirement, death or
disability, such holder's options will not become exercisable until September 1,
2001. Options held by a holder retiring prior to September 28, 1996 will become
exercisable on the earlier of two years from the date of retirement or September
28, 1996. If an option holder's employment terminates due to death or disability
prior to September 28, 1996, his options will become exercisable on September
28, 1996 and remain so for 90 days thereafter.
1994 STOCK OPTION PLAN
Prior to the consummation of the Offerings, the Company will adopt the 1994
Stock Option Plan (the "1994 Stock Option Plan"), pursuant to which directors,
officers and employees of the Company and other individuals who are primarily
responsible for the management and success of the Company will be entitled to
receive awards of options. Each option granted pursuant to the 1994 Stock Option
Plan shall be designated at the time of grant as either an "incentive stock
option" or as a "non-qualified stock option."
The 1994 Stock Option Plan will be administered by the Compensation
Committee of the Company's Board of Directors. Subject to the terms of the 1994
Stock Option Plan, the Committee will determine who among those eligible will be
granted options, the time or times at which options will be granted, the number
of shares to be subject to options, the duration of options, any conditions to
the exercise of options, and the manner in and price at which options may be
exercised.
Under the 1994 Stock Option Plan, the Company may grant options with
respect to a total of 625,000 (after giving effect to the Stock Split) shares of
Common Stock. The Compensation Committee will award options to purchase 498,750
(after giving effect to the Stock Split) shares of Common Stock (of which
173,500 (after giving effect to the Stock Split) will be granted to senior
officers and directors of the Company) prior to the consummation of the
Offerings, each having an exercise price equal to the per share public offering
price in the Offerings.
Any key employee shall be eligible to receive incentive stock options or
non-qualified stock options granted under the 1994 Stock Option Plan. Any
employee, any director of the Company, whether or not an employee, and any other
individual who in the judgment of the Compensation Committee performs valuable
and important services for the Company shall be eligible to receive
non-qualified stock options.
The exercise price of each option issued under the 1994 Stock Option Plan
will be determined by the Compensation Committee of the Company's Board of
Directors, provided that in the case of incentive stock options, the exercise
price may not be less than 100% of the grant date fair market value of the
shares of Common Stock covered by such options. If an incentive stock option is
granted to an employee who owns more than 10% of the total combined voting power
of all classes of the Company's outstanding capital stock, then the exercise
price thereof may not be less than 110% of the grant date fair market value of
the Common Stock covered by such option.
Options granted under the 1994 Stock Option Plan may not be transferred
other than by will or the laws of descent and distribution and, during the
lifetime of the option holder, may be exercised solely by him. The aggregate
fair market value (determined at the time the option is granted) of the shares
as to which an employee may first exercise incentive stock options in any one
calendar year may not exceed $100,000. The Compensation Committee may impose any
other conditions to exercise it deems appropriate.
EMPLOYMENT AGREEMENTS
Lear has entered into employment agreements with the individuals named in
the Summary Compensation Table. The employment agreements, as amended, expire on
October 1, 1995, and provide for, among other things, rates of compensation and
bonuses. Each of Messrs. Way's, Rossiter's and Vandenberghe's employment
agreement provides for an annual base salary of $475,000, $345,000, and
$255,000, respectively. Messrs. Hollars' and Melson's employment agreements
provide for an annual base salary of $265,000 and
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$225,000, respectively. Increases in these salaries, as well as bonuses, are at
the sole discretion of the Board of Directors of the Company.
Each employment agreement provides that (i) upon the death of the employee,
Lear will pay to his estate or designated beneficiary his full base salary for
an additional 12 months; (ii) upon termination for disability, the employee will
receive all compensation payable under Lear's disability and medical plans and
programs plus an additional payment from Lear so that the aggregate amount of
salary continuation from all sources equals his base salary through the
remaining term of the agreement; and (iii) upon termination for good reason, the
employee will receive his full base salary to the end of the term of agreement.
If the employment agreement is terminated for cause, the employee is only
entitled to receive unpaid salary and benefits, if any, accrued through the
effective date of the employee's termination.
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ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table and accompanying footnotes set forth certain
information regarding beneficial ownership of the Company's Common Stock as of
February 15, 1994, (i) by each person who is known by the Company to own
beneficially more than 5% of the outstanding shares of Common Stock, (ii) by
each director of the Company, (iii) by each named executive officer of the
Company and (iv) by all directors and executive officers of the Company as a
group:
NUMBER OF
SHARES
OF COMMON STOCK PERCENTAGE
OWNED OF
BENEFICIALLY(1) COMMON STOCK
--------------- ------------
Lehman Funds(2)................................................. 786,628 72.9%
FIMA Finance Management Inc.(3)................................. 261,668 24.3
Management Investors as a group(4).............................. 94,967(5) 8.3
Kenneth L. Way(6)(7)............................................ 17,393(8) 1.6
Robert E. Rossiter(6)(7)........................................ 10,269(9) *
James H. Vandenberghe(7)........................................ 6,684(10) *
Thomas E. Melson(7)............................................. 6,371(11) *
James A. Hollars(7)............................................. 6,371(11) *
Total Executive Officers and Directors as a group (8
individuals).................................................. 48,093(12) 4.3
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* Less than 1%
(1) As of January 31, 1994 notices of exercise had been delivered to the
warrant agent with respect to Warrants exercisable for 41,227 shares of
Common Stock but no shares had been issued in exchange for such Warrants.
(2) The number of shares beneficially owned by the Lehman Funds includes
281,635 shares of Common Stock and 912 Warrants owned by Lehman Brothers
Merchant Banking Portfolio Partnership L.P. and 191,428 shares of Common
Stock and 620 Warrants owned by Lehman Brothers Capital Partners II, L.P.
(each located at Three World Financial Center, New York, New York 10285);
77,429 shares of Common Stock and 251 Warrants owned by Lehman Brothers
Offshore Investment Partnership L.P. and 233,597 shares of Common Stock and
756 Warrants owned by Lehman Brothers Offshore Investment Partnership-Japan
L.P. (each located at Clarendon House, Church Street, Hamilton HMCX,
Bermuda). Lehman Brothers Merchant Banking Partners Inc. and Lehman
Brothers II Investment Inc. are the general partners of Lehman Brothers
Merchant Banking Portfolio Partnership L.P and Lehman Brothers Capital
Partners II, L.P., respectively, and Lehman Brothers Offshore Partners Ltd.
is the general partner of Lehman Brothers Offshore Investment
Partnership-Japan L.P. and Lehman Brothers Offshore Investment Partnership
L.P. Each such general partner may be deemed to own beneficially the shares
directly owned by the entity of which it is the general partner. Each such
general partner is an indirect wholly-owned subsidiary of Lehman Brothers
Group Inc., which is a wholly owned subsidiary of Lehman Brothers Holdings
Inc. Each of the partnerships may be deemed to share with Lehman Brothers
Merchant Banking Partners Inc. the power to vote and the power to dispose
of the shares owned by such partnership. The address of Lehman Brothers
Merchant Banking Partners Inc. is Three World Financial Center, New York,
New York 10285.
(3) FIMA is a wholly-owned subsidiary of IFINT. IFINT, a Luxembourg
corporation, is the international investment holding company of IFI, the
parent company of the Agnelli Group. The address of FIMA is Wickam's Cay,
Road Town, Tortola, British Virgin Islands.
(4) The Management Investors include thirty-four individuals who are directors,
officers or managers or employees of former employees of the Company. None
of the Management Investors beneficially owns more than 5% of the Company's
Common Stock.
(5) The number of shares of Common Stock beneficially owned by the Management
Investors includes 63,055 shares issuable under currently exercisable
options and 1,221 Warrants. Excludes 36,200 shares of Common Stock issuable
upon exercise of options that will generally become exercisable on
September 28, 1996.
(6) The individual is a director of the Company.
(7) The individual is a named executive officer of the Company.
(8) Includes 11,765 shares of Common Stock issuable under currently exercisable
options and 118 Warrants.
(9) Includes 7,059 shares of Common Stock issuable under currently exercisable
options.
(10) Includes 4,471 shares of Common Stock issuable under currently exercisable
options and 102 Warrants.
(11) Includes 4,471 shares of Common Stock issuable under currently exercisable
options.
(12) Excludes 22,000 shares of Common Stock issuable upon exercise of options
that will generally become exercisable on September 28, 1996.
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ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE 1988 ACQUISITION
At the closing of the 1988 Acquisition on September 30, 1988, Kidder,
Peabody Group Inc. ("KPG"), certain Management Investors, and certain other
investors purchased an aggregate of 598,750 shares of Common Stock. On October
6, 1988, FIMA first acquired an ownership interest in the Company by purchasing
195,000 shares of Common Stock of the Company from KPG.
THE 1991 TRANSACTIONS
On September 27, 1991, the Company engaged in a series of related
transactions (the "1991 Transactions") for the purpose of raising additional
capital to repay a portion of the Company's outstanding indebtedness under its
credit agreement (the "Original Credit Agreement") and to fund the acquisition
of Lear Seating Sweden, AB ("LS Sweden"). A portion of the payments made under
the Company's Original Credit Agreement increased availability thereunder, which
was used to finance expansion of the Company's operations. As part of the 1991
Transactions, (i) the Company sold an aggregate of 454,545 additional shares of
the Company's Common Stock to the Lehman Funds and FIMA at a price of $165.00
per share for an aggregate amount of approximately $75.0 million (the "Stock
Sale"); (ii) the Lehman Funds purchased all of the Company's outstanding Common
Stock and Warrants owned by GECC and all of the Company's outstanding Common
Stock owned by INVEST; (iii) the Lehman Funds and FIMA purchased the Company's
outstanding Common Stock held by MH Capital Partners, Inc.; (iv) the Company
entered into certain amendments to the Original Credit Agreement; and (v) the
Company borrowed $20.0 million from GECC, which was secured by a First Mortgage
and Security Agreement covering certain of Lear's domestic facilities, machinery
and equipment (the "GECC Mortgage Loan"), the entire proceeds of which were used
to repay permanently a portion of the term loans outstanding under the Original
Credit Agreement.
After giving effect to the 1991 Transactions (i) the Lehman Funds owned a
total of 693,180 shares of the Company's Common Stock and Warrants exercisable
for an additional 2,539 shares of the Company's Common Stock, or approximately
62.3% of the Company's outstanding Common Stock (assuming the exercise of all
outstanding Warrants and Options) for an aggregate consideration of
approximately $114.8 million and (ii) FIMA acquired an additional 36,365 shares
of the Company's Common Stock at an aggregate consideration of approximately
$6.0 million, for a total of 231,365 shares of the Company's Common Stock, or
approximately 20.7% of the Company's outstanding Common Stock (assuming the
exercise of all outstanding Warrants and Options). For additional information
regarding the 1991 Transactions, see the consolidated financial statements of
the Company included elsewhere in this Prospectus.
Proceeds from the Stock Sale and the GECC Mortgage Loan were utilized to
purchase the stock of LS Sweden from GECC for $100,000, to repay GECC's
financing to LS Sweden of approximately $7.3 million, to pay down term loans
under the Original Credit Agreement by $48.5 million, to pay down borrowings
under the Original Credit Agreement by $32.0 million, and to pay fees and
expenses of approximately $7.7 million related to the 1991 Transactions.
Included in the $7.7 million in fees and expenses is $4.5 million paid to Lehman
Brothers Inc. for fees related to the above transactions. The remainder of the
fees related to legal and administrative expenses incurred by the Company,
Lehman Brothers Inc., FIMA and GECC related to the Stock Sale and the GECC
Mortgage Loan which were paid by the Company.
Subsequent to the 1991 Transactions, on June 1, 1992 a new Bank Act (the
"Bank Act") was enacted in Canada requiring an order of the Minister of Finance
(Canada) to permit the Lehman Funds to continue to hold their existing indirect
investment in Lear's Canadian operations. An application for an order has been
made and, based upon advice of their Canadian counsel, the Lehman Funds
anticipate receipt of such order. Should the application for the order be
denied, Lear could, among other things, move its operations out of Canada or
divest such operations or the Lehman Funds could, among other things, reduce
their indirect ownership of the voting shares of Lear's Canadian companies below
10% to comply with the Bank Act.
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SENIOR SUBORDINATED NOTE OFFERING AND EQUITY INVESTMENT
In order to support the Company's future expansion in North America and
Europe, in July 1992, the Company entered into an agreement to sell $20.0
million of Common Stock to its major stockholders, the Lehman Funds and FIMA
(the "Equity Investment"). Simultaneous with the Equity Investment, the Company
effected a public offering of $125.0 million of the Senior Subordinated Notes.
Lehman Brothers Inc., an affiliate of the Lehman Funds, acted as an underwriter
in connection with the offering and received underwriting fees of approximately
$2.2 million. Lehman Brothers Inc. and IFINT received fees of approximately
$450,000 and $150,000, respectively, for advisory services rendered to the
Company in connection with the Equity Investment and the public offering of the
Senior Subordinated Notes. Mr. Botta is an officer of an affiliate of FIMA and
serves as a director of the Company. Messrs. Hughes, Spalding, Stern and Fried,
each a Managing Director of Lehman Brothers Inc., serve as directors of the
Company.
Shortly after the Equity Investment, the Company sold 2,551 shares of
Common Stock to eighteen employees of the Company for approximately $421,000 in
cash.
THE NAB ACQUISITION AND THE CREDIT AGREEMENT
In connection with the NAB Acquisition and the consummation of the Credit
Agreement, Lehman Brothers Inc., an affiliate of the Lehman Funds, provided
certain advisory and valuation services to the Company for which it received
aggregate fees of approximately $1.0 million. In addition, Lehman Commercial
Paper Inc., an affiliate of the Lehman Funds, is a managing agent and a lender
under the Credit Agreement for which it received and will continue to receive
its proportionate share of payments made by the Company under the Credit
Agreement.
8 1/4% SUBORDINATED NOTE OFFERING
On February 3, 1993 the Company effected a public offering of $145.0
million of its 8 1/4% Subordinated Notes and applied the net proceeds therefrom
to redeem $135.0 million of its 14% Subordinated Debentures, together with
premiums and accrued interest thereon. Lehman Brothers Inc., an affiliate of the
Lehman Funds, acted as an underwriter in connection with the offering and
received underwriting fees of approximately $2.4 million.
THE OFFERINGS
Lehman Brothers Inc. is an Underwriter for the Offerings and will receive
compensation in such capacity.
STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT
The Amended and Restated Stockholders and Registration Rights Agreement,
dated as of September 27, 1991 (the "Stockholders and Registration Rights
Agreement"), among the Company, the Lehman Funds, FIMA and the Management
Investors was entered into in connection with the 1991 Transactions. Upon
consummation of the Offerings, the Stockholders and Registration Rights
Agreement will be amended in order, among other things, to relax certain
restrictions on transfers of Common Stock owned by the parties thereto and to
remove the rights of each Management Investor to require the Company to purchase
his or her shares upon death, disability and certain events of termination. Upon
consummation of the Offerings, the Stockholders and Registration Rights
Agreement will provide, among other things, that (i) if FIMA desires to sell
more than 5% of the fully diluted shares of Common Stock of the Company in a
transaction or series of related transactions to a single third party (a
"Substantial Sale") prior to September 27, 1995 or such later date prior to
September 27, 2001 to which the right of the Lehman Funds to compel the transfer
of the Company (described in clause (iii) below) is extended, FIMA must offer
such shares to the Lehman Funds prior to offering them to such third party; (ii)
the Lehman Funds, FIMA and, to a limited extent after September 27, 1996, the
Management Investors will have the right to include their shares of Common Stock
in Substantial Sales by the Lehman Funds and FIMA until September 27, 2001; and
(iii) the Lehman Funds may compel all stockholders party to the Stockholders and
Registration Rights Agreement to sell their shares
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79
of Common Stock, or otherwise cause the transfer thereof, in a sale of the
Company prior to September 27, 1995 or such later date prior to September 27,
2001 selected by the Lehman Funds.
The Stockholders and Registration Rights Agreement will continue (i) to
place significant restrictions on the Management Investors' rights to transfer
their shares to a third party prior to September 27, 1996 and (ii) to include
certain registration rights. See "Description of Capital Stock -- Stockholders
and Registration Rights Agreement."
MANAGEMENT EQUITY PARTICIPATION
The Management Investors entered into Management Subscription Agreements
with the Company dated as of September 29, 1988 (collectively, the "Management
Equity Agreement") pursuant to which each of the Management Investors purchased
Common Stock at $100.00 per share for consideration consisting of cash and/or
recourse or non-recourse promissory notes (the "Management Notes"). As of
December 31, 1993, the outstanding balance of the Management Notes of each of
Messrs. Way and Rossiter was approximately $498,000 and the outstanding balance
of the Management Notes of each of Messrs. Vandenberghe, Hollars and Melson was
approximately $166,000. Each of the Management Notes, including accrued
interest, matures on January 25, 1997 and bears interest at a rate of LIBOR plus
1.50%.
In addition, pursuant to the 1988 Stock Option Plan, as of January 31,
1993, the Company granted to the Management Investors options to acquire an
aggregate of up to 63,055 authorized but unissued shares of the Company's Common
Stock. These options of the Management Investors vested over the course of three
years and are exercisable for $42.50 per share, in cash, which is lower than the
$100.00 per share paid in connection with the 1988 Acquisition. These options
must be exercised within ten years of the date of grant. See "Executive
Compensation -- 1988 Stock Option Plan."
Under the 1992 Stock Option Plan, the Company may grant up to 58,000
options to certain management personnel. As of December 31, 1993, all of these
options have been granted and are vested. All options under the 1992 Stock
Option Plan become exercisable at $165 per share as of September 28, 1996 or
sooner in the case of certain triggering events.
In addition, under the 1994 Stock Option Plan, directors, officers and
employees of the Company may receive awards of stock options. See "Executive
Compensation -- 1994 Stock Option Plan."
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PART IV
ITEM 14 -- EXHIBITS, FINANCIAL SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Form 10-K.
1. Consolidated Financial Statements:
Report of Independent Public Accountants
Consolidated Balance Sheets as of June 30, 1992, 1993 and December 31,
1993.
Consolidated Statements of Operations for the years ended June 30,
1991, 1992 and 1993 and for the twelve months and six months ended
December 31, 1993.
Consolidated Statements of Stockholders' Equity for the years ended
June 30, 1991, 1992 and 1993 and for the twelve months and six months
ended December 31, 1993.
Consolidated Statements of Cash Flows for the years ended June 30,
1991, 1992 and 1993 and for the twelve months and six months ended
December 31, 1993.
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
Report of Independent Public Accountants
Schedule II -- Amounts Receivable from Employees
Schedule V -- Property, Plant and Equipment
Schedule VI -- Accumulated Depreciation of Property, Plant and
Equipment
Schedule VII -- Guarantees of Securities of Other Issuers
Schedule VIII -- Valuation and Qualifying Accounts
Schedule X -- Supplementary Income Statement Information
3. The exhibits listed on the "Index to Exhibits" on page 78 are filed
with this Form 10-K or incorporated by reference as set forth below.
(b) No reports on Form 8-K were filed during the quarter ended December 31,
1993.
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INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- --------- ---------------------------------------------------------------------
3.1 -- Certificate of Incorporation of Lear Seating Corporation ("Lear" or
the "Company"), as currently in effect on September 30, 1988
(incorporated by reference to Exhibit 3.1 to Holdings' and Lear's
Registration Statement on Form S-1 (No. 33-25256)).
3.2 -- Certificate of Amendment as filed on May 15, 1990 to the Certificate
of Incorporation of Lear (incorporated by reference to Exhibit 3.2 to
Holdings' and Lear's Registration Statement on Form S-1 (No.
33-47867)).
3.3 -- Form of Restated Certificate of Incorporation of Lear to be filed
prior to the consummation of the Offerings.
3.4 -- Amended and Restated By-laws of Lear (incorporated by reference to
Exhibit 3.4 to Lear's Registration Statement on Form S-1 (No.
33-52565).
3.5 -- Merger Agreement dated December 31, 1993, by and between Lear and
Holdings (incorporated by reference to Exhibit 3.4 to Lear's
Registration Statement on Form S-1 (No. 33-51317)).
4.1 -- Indenture by and between Lear and The First National Bank of Boston,
as Trustee, relating to the 8 1/4% Subordinated Notes.
4.2 -- Form of 11 1/4% Senior Subordinated Note Indenture dated as of July
15, 1992 between Lear and The Bank of New York, as Trustee
(incorporated by reference to Exhibit 4.1 to Holdings' and Lear's
Registration Statement on Form S-1 (No. 33-47867)).
10.1 -- Amended and Restated Credit Agreement dated as of October 25, 1993
(the "Credit Agreement") among Holdings, Lear, Chemical Bank, as
agent for the bank parties thereto, and Bankers Trust Company, The
Bank of Nova Scotia, Citicorp USA, Inc. and Lehman Commercial Paper
Inc., as managing agents (incorporated by reference to Exhibit 4 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
October 2, 1993).
10.2 -- Amendment No. 1 to the Credit Agreement dated as of January 27, 1994
(incorporated by reference to Exhibit 10 to Lear's Current Report on
Form 8-K dated February 11, 1994).
10.3 -- Credit Agreement dated as of March 8, 1989, as amended June 21, 1989
(the "Canadian Credit Agreement"), between Lear Seating Canada, Ltd.
and The Bank of Nova Scotia with respect to the establishment of
credit facilities (incorporated by reference to Exhibit 10.28 to
Lear's Annual Report on Form 10-K for the year ended June 30, 1989).
10.4 -- Amendment dated September 13, 1989 to the Canadian Credit Agreement
(incorporated by reference to Exhibit 10.30 to Lear's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1989).
10.5 -- Amendment dated March 28, 1990 to the Canadian Credit Agreement
(incorporated by reference to Exhibit 10.11 to Holdings' and Lear's
Registration Statement on Form S-1 (No. 33-47867)).
10.6 -- Amendment dated October 11, 1990 to the Canadian Credit Agreement
(incorporated by reference to Exhibit 10.12 to Holdings' and Lear's
Registration Statement on Form S-1 (No. 33-47867)).
10.7 -- Amendment dated January 23, 1992 to the Canadian Credit Agreement
(incorporated by reference to Exhibit 10.13 to Holdings' and Lear's
Registration Statement on Form S-1 (No. 33-47867)).
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82
EXHIBIT
NUMBER EXHIBIT
- --------- ---------------------------------------------------------------------
10.8 -- Senior Executive Incentive Compensation Plan of Lear (incorporated by
reference to Exhibit 10.14 to Holdings' and Lear's Registration
Statement on Form S-1 (No. 33-47867)).
10.9 -- Management Incentive Compensation Plan of Lear (incorporated by
reference to Exhibit 10.15 to Holdings' and Lear's Registration
Statement on Form S-1 (No. 33-47867)).
10.10 -- Form of Warrant Agreement dated as of December 15, 1988 between
Holdings and Norwest Bank, N.A., as Warrant Agent (incorporated by
reference to Exhibit 4.3 to Holdings' and Lear's Registration
Statement on Form S-1 (No. 33-25256)).
10.11 -- Stock Option Agreement dated as of September 29, 1988 between
Holdings and certain management investors (the "Management
Investors") (incorporated by reference to Exhibit 10.6 to Holdings'
and Lear's Registration Statement on Form S-1 (No. 33-25256)).
10.12 -- Employment Agreement dated September 29, 1998 between Lear and
Kenneth L. Way (incorporated by reference to Exhibit 10.7 to
Holdings' and Lear's Registration Statement on Form S-1 (No.
33-25256)).
10.13 -- Employment Agreement dated September 29, 1988 between Lear and Robert
E. Rossiter (incorporated by reference to Exhibit 10.8 to Holdings'
and Lear's Registration Statement on Form S-1 (No. 33-25256)).
10.14 -- Employment Agreement dated September 29, 1988 between Lear and James
H. Vandenberghe (incorporated by reference to Exhibit 10.9 to
Holdings' and Lear's Registration Statement on Form S-1 (No.
33-25256)).
10.15 -- Employment Agreement dated September 29, 1988 between Lear and James
A. Hollars (incorporated by reference to Exhibit 10.10 to Holdings'
and Lear's Registration Statement on Form S-1 (No. 33-25256)).
10.16 -- Employment Agreement dated September 29, 1988 between Lear and Randal
T. Murphy (incorporated by reference to Exhibit 10.12 to Holdings'
and Lear's Registration Statement on Form S-1 (No. 33-25256)).
10.17 -- Employment Agreement dated as of September 29, 1988 between Lear and
Ted E. Melson (incorporated by reference to Exhibit 10.13 to
Holdings' and Lear's Registration Statement on Form S-1 (No.
33-25256)).
10.18 -- Employment Agreement dated June 1, 1992 between Lear and Donald J.
Stebbins (incorporated by reference to Exhibit 10.17 to Lear's
Registration Statement on Form S-1 (No. 33-51317)).
10.19 -- Amendments to Employment Agreements dated as of September 21, 1991 by
and between Lear and each of Messrs. Way, Vandenberghe, Rossiter,
Hollars, Melson and Murphy (incorporated by reference to Exhibit 28.7
to Holdings' Current Report on Form 8-K dated September 24, 1991).
10.20 -- Stock Purchase Agreement dated July 25, 1990 by and between Fair
Haven Industries, Inc., Bradley D. Osgood, Robert Michelin and LS
Acquisition Corporation No. 24. (incorporated by reference to Exhibit
10.34 to Holdings' Annual Report on Form 10-K for the year ended June
30, 1991).
10.21 -- Purchase Agreement dated July, 1990 by and between Fairfax
Industries, Inc. and LS Acquisition Corporation No. 24 (incorporated
by reference to Exhibit 10.37 to the Company's Annual Report on Form
10-K for the year ended June 30, 1991).
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83
EXHIBIT
NUMBER EXHIBIT
- --------- ---------------------------------------------------------------------
10.22 -- Amended and Restated Stockholders and Registration Rights Agreement
dated as of September 27, 1991 by and among Holdings, the Lehman
Funds, Lehman Merchant Banking Partners Inc., as representative of
the Lehman Partnerships, FIMA Finance Management Inc., a British
Virgin Islands corporation, and the Management Investors
(incorporated by reference to Exhibit 2.2 to Holdings' Current Report
on Form 8-K dated September 24, 1991).
10.23 -- Waiver and Agreement dated September 27, 1991, by and among Holdings,
Kidder Peabody Group Inc., KP/Hanover Partners 1988, L.P., General
Electric Capital Corporation, FIMA Finance Management Inc., a
Panamanian corporation, FIMA Finance Management Inc., a British
Virgin Islands corporation, MH Capital Partners Inc., successor by
merger and name change to MH Equity Corp., SO.PA.F. Societa
Partecipazioni Finanziarie S.p.A., INVEST Societa Italiana
Investimenti S.p.A., the Lehman Partnerships and the Management
Investors (incorporated by reference to Exhibit 2.3 to Holdings'
Current Report on Form 8-K dated September 24, 1991).
10.24 -- Form of Amendment to Amended and Restated Stockholders and
Registration Rights Agreement.
10.25 -- 1992 Stock Option Plan (incorporated by reference to Exhibit 10.7 to
Lear's Annual Report on Form 10-K for the year ended June 30, 1993).
10.26 -- Form of Amendment to 1992 Stock Option Plan.
10.27 -- Form of 1994 Stock Option Plan.
10.28 -- Stock Purchase Agreement dated as of July 21, 1992 among the Company,
the Lehman Funds and FIMA Finance Management Inc., a British Virgin
Islands corporation (incorporated by reference to Exhibit 10.33 to
Holdings' and Lear's Registration Statement on Form S-1 (No.
33-47867)).
10.29 -- Asset Purchase & Supply Agreement dated as of November 18, 1991
between Lear Seating Sweden, AB and Volvo Car Corporation
(incorporated by reference to Exhibit 10.34 to Holdings' and Lear's
Registration Statement on Form S-1 (No. 33-47867)).
10.30 -- Purchase Agreement dated as of November 1, 1993 between the Company
and Ford Motor Company (incorporated by reference to Exhibit 10 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
October 2, 1993).
11.1 -- Computation of income (loss) per share.
21.1 -- List of subsidiaries of the Company.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 28, 1994.
Lear Seating Corporation
By: /s/ KENNETH L. WAY
------------------------
Kenneth L. Way
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Lear Seating
Corporation and in the capacities indicated March 28, 1994.
/s/ KENNETH L. WAY /s/ LARRY MCCURDY
------------------------ ---------------------
Kenneth L. Way Larry McCurdy
Chairman of the Board and a Director
Chief Executive Officer
/s/ JAMES H. VANDENBERGHE /s/ JEFFREY P. HUGHES
------------------------------- -------------------------
James H. Vandenberghe Jeffrey P. Hughes
Executive Vice President and Secretary a Director
(Principal Financial Officer)
/s/ GIAN ANDREA BOTTA
------------------------------- -----------------------
Robert E. Rossiter Gian Andrea Botta
a Director a Director
/s/ DAVID P. SPALDING /s/ ROBERT SHOWER
-------------------------- ---------------------
David P. Spalding Robert Shower
a Director a Director
/s/ ELIOT FRIED /s/JAMES A. STERN
------------------- ---------------------
ELIOT FRIED JAMES A. STERN
A DIRECTOR A DIRECTOR
/S/ GORDON C. DAVIDSON /s/ N. PETER RUYS
---------------------------- ----------------------
Gordon C. Davidson N. Peter Ruys
a Director a Director
81