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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1997.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
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COMMISSION FILE NUMBER: 1-11311
LEAR CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3386776
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
21557 TELEGRAPH ROAD, SOUTHFIELD, MI 48086-5008
(Address of principal executive offices) (zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (248) 746-1500
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, par value $.01 per share New York Stock Exchange
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.
---
As of March 3, 1998, the aggregate market value of the registrant's Common
Stock, par value $.01 per share, held by non-affiliates of the registrant was
$3,622,846,056. The closing price of the Common Stock on March 3, 1998 as
reported on the New York Stock Exchange was $54 7/16 per share.
As of March 3, 1998, the number of shares outstanding of the registrant's
Common Stock was 67,006,857 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the registrant's Notice of Annual Meeting of Stockholders
and Proxy Statement for its Annual Meeting of Stockholders to be held on May
14, 1998, as described in the Cross-Reference Sheet and a Table of Contents
included herewith, are incorporated by reference into Part III of this Report.
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CROSS REFERENCE SHEET
AND
TABLE OF CONTENTS
PAGE NUMBER
OR REFERENCE (1)
----------------
PART I
ITEM 1. Business.................................................................................... 1
ITEM 2. Properties.................................................................................. 15
ITEM 3. Legal proceedings........................................................................... 16
ITEM 4. Submission of matters to a vote of security holders......................................... 16
PART II
ITEM 5. Market for the Company's common stock 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. Consolidated financial statements and supplementary data.................................... 25
ITEM 9. Changes in and disagreements with accountants on accounting and financial disclosure........ 50
PART III
ITEM 10. Directors and executive officers of the Company (2)......................................... 51
ITEM 11. Executive compensation (3).................................................................. 51
ITEM 12. Security ownership of certain beneficial owners and management (4).......................... 51
ITEM 13. Certain relationships and related transactions (5).......................................... 51
PART IV
ITEM 14. Exhibits, financial statement schedules, and reports on Form 8-K 52.......................... 52
____________
(1) Certain information is incorporated by reference, as indicated below,
from the registrant's Notice of Annual Meeting of Stockholders and Proxy
Statement for its Annual Meeting of Stockholders to be held on May 14,
1998 (the "Proxy Statement").
(2) Proxy Statement sections entitled "Election of Directors" and
"Management and Directors."
(3) Proxy Statement section entitled "Executive Compensation."
(4) Proxy Statement section entitled "Management and Directors - Security
Ownership of Certain Beneficial Owners and Management."
(5) Proxy Statement section entitled "Certain Transactions."
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PART I
ITEM 1 - BUSINESS
As used in this Report, unless the context otherwise requires, the
"Company" or "Lear" refers to Lear Corporation and its consolidated
subsidiaries. A significant portion of the Company's operations are conducted
through wholly-owned subsidiaries of Lear Corporation.
BUSINESS OF THE COMPANY
GENERAL
Lear is the largest supplier of automotive interior systems in the
estimated $48 billion global automotive interior systems market and one of the
ten largest independent automotive suppliers in the world. The Company has
experienced substantial growth in market presence and profitability over the
last five years as a result of both internal growth and acquisitions. The
Company's sales have grown from approximately $2.0 billion for the year ended
December 31, 1993 to over $7.3 billion for the year ended December 31, 1997, a
compound annual growth rate of 39%. In addition, the Company's operating income
has grown from $79.6 million for the year ended December 31, 1993 to $481.1
million for the year ended December 31, 1997, a compound annual growth rate of
57%. The Company's present customers include 27 original equipment
manufacturers ("OEMs"), the most significant of which are Ford, General Motors,
Fiat, Chrysler, Volvo, Saab, Volkswagen and BMW. As of December 31, 1997, the
Company employed over 50,000 people in 25 countries and operated 179
manufacturing, technology, product engineering and administration facilities.
Lear has in-house capabilities in all five principal automotive
interior segments: seat systems; floor and acoustic systems; door panels;
instrument panels; and headliners. In addition, as one of the leading global
suppliers of interior systems and components to OEMs, Lear is able to offer its
customers design, engineering and project management support for the entire
automotive interior. Management believes that the ability to offer automotive
interior "one-stop-shopping" provides Lear with a competitive advantage as OEMs
continue to reduce their supplier base and demand improved quality and enhanced
technology. In addition, the Company's broad array of products and process
offerings enables it to provide each customer with products tailored to its
particular needs.
Lear is focused on delivering high quality automotive interior systems and
components to its customers on a global basis. Due to the opportunity for
significant cost savings and improved product quality and consistency, OEMs
have increasingly required their suppliers to manufacture automotive interior
systems and components in multiple geographic markets. In recent years, the
Company has aggressively expanded its operations in Western Europe and emerging
markets in Eastern Europe, South America, South Africa and the Asia/Pacific Rim
region, giving it the capability to provide its products on a global basis to
its OEM customers. In 1997, the Company implemented a new management structure
to support the global growth and as a result there are now two Chief Operating
Officers, one in charge of international operations and one in charge of North
American and South American operations. Also in 1997, the Company launched new
business for Audi and Porsche in Western Europe, expanded its seat system
program for Fiat in South America and commenced interior systems production for
Ford in China. In 1996, Lear entered into a joint venture to supply seat
systems in Thailand to a joint venture between Ford and Mazda. In addition,
during 1996 Lear was awarded a contract to supply seat and interior trim
systems in Argentina for Ford's Ranger program and began its production of seat
systems for the Palio (Fiat's world car) in Brazil. Since late 1995, the
Company has also established joint ventures in Brazil and Argentina and has
opened facilities in South Africa, India, Indonesia, Australia and Venezuela.
As a result of the Company's efforts to expand its worldwide operations, the
Company's sales outside the United States and Canada have grown from $0.6
billion, or 30.4% of the Company's net sales, for the year ended December 31,
1993 to $2.7 billion, or 36.5% of the Company's net sales, for the year ended
December 31, 1997.
In 1997, Lear held a 14% share of the estimated $48 billion global
automotive interior market. In addition, the Company in 1997 held a leading 37%
share of the estimated $8.2 billion North American seat systems market and a
40% share of the estimated $1.5 billion North American floor and acoustic
systems market. In 1997, the Company was also a leading independent supplier to
the estimated $7.5 billion Western European seat systems market, with an 18%
share. The door panel, headliner and instrument panel segments of the
automotive interior market contain no dominant independent supplier and are in
the early stages of the outsourcing and/or consolidation process. The Company
believes that the same competitive pressures that contributed to the rapid
expansion of its seat systems business in North America since 1983 will
continue to encourage OEMs in automotive markets around the world to outsource
more of their door panel, headliner and instrument panel requirements.
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The Company is the successor to a manufacturer of automotive steel
components founded in 1917 that served as a supplier to General Motors and Ford
from its inception.
STRATEGY
Lear's business objective is to expand its position as the leading
supplier of automotive interior systems in the world. Lear intends to build on
its full-service capabilities, strong customer relationships and worldwide
presence to increase its share of the global automotive interior market. To
achieve this objective, the Company intends to continue to pursue a strategy
based upon the following elements:
- - Enhance its Strong Relationships with OEMs. The Company's management has
developed strong relationships with its 27 OEM customers which allow Lear to
identify business opportunities and anticipate customer needs in the early
stages of vehicle design. Management believes that working closely with OEMs in
the early stages of designing and engineering vehicle interior systems gives it
a competitive advantage in securing new business. Lear maintains "Customer
Focused Divisions" for each of its major customers. This organizational
structure consists of several dedicated groups, each of which is focused on
serving the needs of a single customer and supporting that customer's programs
and product development. Each division can provide all the interior systems and
components the customer needs, allowing that customer's purchasing agents,
engineers and designers to have a single point of contact. Lear maintains an
excellent reputation with OEMs for timely delivery and customer service and for
providing world class quality at competitive prices. As a result of the
Company's service and performance record, many of the Company's facilities have
won awards from OEMs with which they do business.
- - Penetrate Emerging Markets. Geographic expansion will continue to be an
important element of the Company's growth strategy. In 1997, more than
two-thirds of total worldwide vehicle production occurred outside the United
States and Canada. Emerging markets such as South America and the Asia/Pacific
Rim region present strong global growth opportunities as demand for automotive
vehicles has been increasing dramatically in these areas. For example, from
1991 through 1997, sales of light vehicles in China have increased nearly 392%,
while sales in Brazil have increased over 146%. It is anticipated that
population and per capita income in China, Brazil and other emerging markets
will continue to increase. Industry analysts forecast that these underlying
trends will result in continued strong increases in light vehicle sales in
these and certain other emerging markets. As a result of Lear's strong customer
relationships and worldwide presence, management believes that the Company is
well positioned to expand with OEMs in emerging markets.
- - Capitalize on New Outsourcing Opportunities. The door panel, Western
European instrument panel and headliner segments of the automotive interior
market contain no dominant independent supplier and are in the early stages of
the outsourcing and/or consolidation process. These segments constituted over
20% of the total estimated $48 billion global automotive interior market in
1997. The Company believes that the same competitive pressures that contributed
to the rapid expansion of its seat systems business in North America since 1983
will continue to encourage customers to outsource more of their door,
instrument panel and headliner system and component requirements. In addition,
management believes that as the outsourcing of these systems accelerates and
OEMs continue their worldwide expansion and seek ways to improve vehicle
quality and reduce costs, OEMs will increasingly look to independent suppliers
such as Lear, to fill the role of "Systems Integrator" to manage the design,
purchasing and supply of the total automotive interior. In 1997, Lear was named
the interior systems integrator for a high profile Chrysler vehicle.
Management believes that Lear's full service capabilities make it well
positioned to obtain additional systems integrator awards.
- - Invest in Product Technology and Design Capability. Lear has made substantial
investments in product technology and product design capability to support its
products. The Company maintains six advanced technology centers and twenty-one
customer focused product engineering centers where it designs and develops new
products and conducts extensive product testing. The Company also has
state-of-the-art acoustics testing, instrumentation and data analysis
capabilities. Lear's investments in research and development are
consumer-driven and customer-focused. The Company conducts extensive analysis
and testing of consumer responses to automotive interior styling and
innovations. Because OEMs increasingly view the vehicle interior as a major
selling point to their customers, the focus of Lear's research and development
efforts is to identify new interior features that make vehicles safer, more
comfortable and attractive to consumers. For example, in 1997, the Company
introduced the Revolution(TM) Seat Module. The Revolution(TM) Seat Module
utilizes a unique seat frame that can be fitted with a wide variety of the
Company's seat backs and cushions to meet the needs of a range of different
vehicles. The Revolution(TM) Seat Module simplifies and standardizes seat
system assembly, enhances interior room and lowers total vehicle costs.
Additionally, in 1997, Lear expanded upon its One-Step(TM) door product and
introduced the One Step(TM) liftgate. Similar to the One Step(TM) door, this
product incorporates all necessary componentry, including hardware, electrical,
glass and interior trim, while providing unique structural integrity which
allows for both vehicle weight and cost savings.
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- - Utilize Worldwide JIT Facility Network. Beginning in the 1980s, Lear
established facilities, most of which were, and still are, dedicated to a
single customer, that allow it to receive components from its suppliers on a
just-in-time ("JIT") basis and deliver seat systems to its customers on a
sequential JIT basis. This process minimizes inventories and fixed costs for
both the Company and its customers and enables the Company to deliver products
in as little as 90 minutes notice. In many cases, by carefully managing floor
space and overall efficiency, Lear can move the final assembly and sequencing
of other interior systems and components from centrally located facilities to
its existing JIT facilities. Management believes that the efficient utilization
of the Company's JIT facilities located around the world is an important aspect
of Lear's global growth strategy and, together with the Company's system
integration skills, provides Lear with a significant competitive advantage in
terms of delivering total interior systems to OEMs.
- - Grow Through Strategic Acquisitions. Strategic acquisitions have been, and
management believes will continue to be, an important element in the Company's
worldwide growth and in its efforts to capitalize on the outsourcing and
supplier consolidation trends. The Company seeks acquisitions which strengthen
Lear's relationships with OEMs, complement Lear's existing products and process
capabilities and provide Lear with growth opportunities in new markets. The
Company has made eight acquisitions since 1993 and will continue to consider
strategic acquisitions that provide opportunities to enhance its market
position, expand its global presence, increase its product offerings, improve
its technological capabilities or enhance customer relationships.
The development and use of these strategies has been, and management
believes will continue to be, an important element in the Company's future
growth. For automotive vehicles manufactured in North America, Lear's total
content per vehicle has increased from $112 per vehicle in the fiscal year
ended December 31, 1993 to $320 per vehicle in the fiscal year ended December
31, 1997. For automotive vehicles manufactured in Western Europe, Lear's total
content per vehicle has increased from $34 per vehicle in the fiscal year ended
December 31, 1993 to $123 per vehicle in the fiscal year ended December 31,
1997. For automotive vehicles manufactured in South America, Lear's total
content per vehicle has increased from $1 per vehicle in the fiscal year ended
December 31, 1995 to $129 per vehicle in the fiscal year ended December 31,
1997.
ACQUISITIONS
To supplement its internal growth and implement its business strategy, the
Company has made several strategic acquisitions since 1990. The following is a
summary of recent major acquisitions:
ITT Automotive's Seat Sub-Systems Unit Acquisition
On August 25, 1997, the Company acquired the Seat Sub-Systems Unit of ITT
Automotive, a division of ITT Industries ("ITT Seat Sub-Systems"). ITT Seat
Sub-Systems was a North American supplier of power seat adjusters and power
recliners with 1996 sales to non-Lear facilities of approximately $115 million.
Keiper Seating Acquisition
On July 31, 1997, the Company acquired certain equity and partnership
interests in Keiper Car Seating GmbH&Co and certain of its subsidiaries and
affiliates (collectively, "Keiper Seating") for DM 400 million (approximately
$252.5 million). Keiper was a leading supplier of automotive vehicle seat
systems on a JIT basis for markets in Germany, Hungary, Italy, Brazil and South
Africa, and had 1996 sales of approximately $615 million. Management believes
that the Keiper acquisition will strengthen Lear's core seat system business,
expand Lear's presence in Europe, Brazil and South Africa and strengthen Lear's
relationships with Mercedes Benz, Audi, Volkswagen and Porsche.
Dunlop Cox Acquisition
On June 5, 1997, the Company acquired all of the outstanding shares of
capital stock of Dunlop Cox Limited ("Dunlop Cox"). Dunlop Cox, based in
Nottingham, England, provides Lear with the ability to design and manufacture
manual and electronically-powered automotive seat adjusters. For the year ended
December 31, 1996, Dunlop Cox had sales of approximately $39 million.
Borealis Acquisition
On December 10, 1996, the Company acquired all of the issued and
outstanding shares of common stock of Borealis Industrier, A.B. ("Borealis"), a
leading Western European supplier of instrument panels, door panels and other
automotive components. The acquisition of Borealis provided the Company with
the technology to manufacture instrument panels, giving the Company the ability
to produce all five principal automotive interior systems. Borealis also
produced door panels, climate systems, exterior trim and
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various components for the Western European automotive, light truck and heavy
truck industries. In addition, the Borealis acquisition increased the Company's
presence in the Western European market and strengthened its relationships with
Volvo, Saab and Scania. The aggregate purchase price for the Borealis
acquisition was approximately $91.1 million.
Masland Acquisition
On July 1, 1996, the Company completed the acquisition of all of the
issued and outstanding shares of common stock of Masland Corporation
("Masland") for an aggregate purchase price of $473.8 million. The acquisition
of Masland gave Lear manufacturing capabilities to produce floor and acoustic
systems. In 1997, as a result of the Masland acquisition, Lear held a 40% share
of the estimated $1.5 billion North American floor and acoustic systems market.
Also as a result of the Masland acquisition, Lear became a major supplier of
interior and luggage trim component and other acoustical products which are
designed to minimize noise, vibration and harshness for passenger cars and
light trucks. The Masland acquisition also provided Lear with access to certain
leading-edge technology. Its 33,000 square foot Technology Center in Plymouth,
Michigan provides full service acoustics testing, design, product engineering,
systems integration and program management.
AI Acquisition
On August 17, 1995, the Company acquired all of the issued and outstanding
shares of common stock of Automotive Industries Holding, Inc. ("AI"), a leading
designer and manufacturer of high quality interior systems and blow molded
plastic parts to automobile and light truck manufacturers. Prior to the AI
acquisition, Lear had participated primarily in the seat systems segment of the
interior market, which comprises approximately 50% of the total combined
worldwide interior market. By providing the Company with substantial
manufacturing capabilities in door panels and headliners, the AI acquisition
made Lear one of the largest independent Tier I suppliers of automotive
interior systems in the North American and Western European light vehicle
interior market.
FSB Acquisition
On December 15, 1994, the Company, through its wholly-owned subsidiary,
Lear Seating Italia Holdings, S.r.L., acquired the primary automotive seat
systems supplier to Fiat and certain related businesses (the "Fiat Seat
Business" or the "FSB"). Lear and Fiat also entered into a long-term supply
agreement for Lear to produce all outsourced automotive seat systems for Fiat
and affiliated companies worldwide. The acquisition of the Fiat Seat Business
not only established Lear as a market leader in automotive seat systems in
Europe, but, combined with its position in North America, made Lear one of the
largest automotive seat systems manufacturers in the world. In addition, it
gave the Company access to rapidly expanding markets in South America and has
resulted in the formation of new joint ventures which are supplying automotive
seat systems to Fiat or its affiliates in Brazil and Argentina.
NAB Acquisition
On November 1, 1993, Lear significantly strengthened its position in the
North American automotive seating market by purchasing the North American seat
cover and seat systems business (the "NAB") of Ford Motor Company. The NAB
consisted of an integrated United States and Mexican operation which produced
seat covers for approximately 80% of Ford's North American vehicle production
(as well as for several independent suppliers) and manufactures seat systems
for certain Ford models. 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 has provided Lear with better control over the
costs and quality of one of the critical components of a seat system. In
addition, by virtue of the NAB Acquisition, the Company has enhanced its
relationship with one of its largest OEM customers, entering into a five year
supply agreement with Ford, which expires in November 1998, covering models for
which the NAB had produced seat covers and seat systems at the time of the
acquisition. The Company also assumed during the term of the supply agreement
primary engineering responsibility for a substantial portion of Ford's car
models, providing Lear with greater involvement in the planning and design of
seat systems and related products for future light vehicle models.
Other
On February 24, 1998, the Company signed an agreement to negotiate
exclusively to acquire the seating business of Delphi Automotive Systems, a
division of General Motors Corporation ("Delphi Seating"). Delphi Seating is a
leading supplier of seat systems to General Motors. The Delphi Seating
acquisition is expected to close in the second quarter of 1998. However, there
can be no assurances that the Delphi Seating acquisition will be consummated.
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PRODUCTS
Lear's products have evolved from the Company's many years of
manufacturing experience in the automotive seat frame market where it has been
a 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 premier supplier of entire seat systems and seat components. With the
acquisitions of Borealis, Masland and AI, the Company has expanded its product
offerings and can now manufacture and supply its customers with complete
interiors, including floor and acoustic systems, door panels, instrument panels
and headliners. The Company also produces a variety of blow molded products and
other automotive components such as fluid reservoirs, fuel tank shields,
exterior airdams, front grille assemblies, engine covers, battery trays/covers
and insulators. Lear believes that as OEMs continue to seek ways to improve
vehicle quality while simultaneously reducing the costs of the various vehicle
components, they will increasingly look to suppliers such as Lear with the
capability to test, design, engineer and deliver products for a complete
vehicle interior. In addition, with the Borealis, Masland and AI Acquisitions,
the Company believes that it has significant cross-selling opportunities across
its customer base as well as its vehicle platforms and is well-positioned to
expand its position as the leading supplier of automotive interior systems and
components in the world.
The following is the approximate composition by product category of the
Company's net sales in the year ended December 31, 1997: seat systems, $4.8
billion; floor and acoustic systems, $0.6 billion; door panels, $0.3 billion;
headliners, $0.1 billion; instrument panels $.1 billion; and other components,
including tier II sales, $1.4 billion.
- - Seat Systems. The seat systems business consists of the manufacture, assembly
and supply of vehicle seating requirements. Seat systems typically represent
approximately 50% of the cost of the total automotive interior. The Company
produces seat systems for automobiles and light trucks that are fully finished
and ready to be installed in a vehicle. Seat systems are fully assembled seats,
designed to achieve maximum passenger comfort by adding a wide range of manual
and power features such as lumbar supports, cushion and back bolsters and leg
and thigh supports.
As a result of its product technology and product design strengths, the
Company has been a leader in incorporating convenience features and safety
improvements into its seat designs. The Company has also developed methods to
reduce its customers costs to install seating. For example, in 1997, the
Company showcased the Revolution(TM) Seat Module. The Revolution(TM) Seat
Module utilizes a unique seat frame that can be fitted with a wide variety of
the Company's seat backs and cushions to meet the needs of a range of
different vehicles. The Revolution(TM) Seat Module simplifies and standardizes
seat system assembly, enhances interior room and lowers total vehicle costs.
Additionally, in 1997, Lear began production of the ventilated seat for SAAB,
which draws heat and moisture away from the seat with fans that are embedded in
the seat cushions. In addition, Lear has increased production of its new
integrated restraint seat system that increases occupant comfort and
convenience. Licensed exclusively to Lear, this patented seating concept uses a
special ultra high-strength steel tower, a blow-molded seat back frame and a
split-frame design to improve occupant comfort and convenience. Other recent
product ideas include newly developed fabric seat heaters, a lightweight "ultra
low mass seat," and a Code-Alarm(TM) integrated seat, which includes a security
device that automatically moves the back of the driver seat against the
steering wheel to deter automobile theft.
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 is currently working with customers in the development of a number of
seat systems products to be introduced by automotive manufacturers in the
future.
- - Floor and Acoustic Systems. Floor systems consist both of carpet and vinyl
products, molded to fit precisely the front and rear passenger compartments of
cars and trucks, and accessory mats. While carpet floors are used predominately
in passenger cars and trucks, vinyl floors, because of their better wear and
washability characteristics, are used primarily in commercial and fleet
vehicles. The Company is one of the largest independent suppliers of vinyl
automotive floor systems in North America, and one of the only suppliers of
both carpet and vinyl automotive floor systems. With the Masland acquisition,
the Company acquired Maslite(TM), a material that is 40% lighter than vinyl,
which has replaced vinyl accessory mats on selected applications.
The automotive floor system is multi-purpose. Its performance is based on
the correct selection of materials to achieve an attractive, quiet, comfortable
and durable interior compartment. Automotive carpet requirements are more
stringent than the requirements for carpet used in homes and offices. For
example, automotive carpet must provide higher resistance to fading and
improved resistance to wear despite being lighter in weight than carpet found
in homes and offices. Masland's significant experience has enabled the Company
to meet these specialized needs. Carpet floor systems generally consist of
tufted carpet to which a specifically engineered thermoplastic backcoating has
been added. This backcoating, when heated, enables the Company to mold the
carpet to fit precisely the interior of the vehicle. Additional insulation
materials are added to provide noise, vibration and harshness
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resistance. Floor systems are complex products which are based on sophisticated
designs and use specialized design materials to achieve the desired visual,
acoustic and heat management requirements in the automotive interior.
Lear's primary acoustic product, after floor systems, is the dash
insulator. The dash insulator attaches to the vehicle's sheet metal firewall,
separating the passenger compartment from the engine compartment, and is the
primary component for preventing engine noise and heat from entering the
passenger compartment. The Company's ability to produce both the dash insulator
and the floor system enables it to accelerate the design process and supply an
integrated system. The Company believes that OEMs, recognizing the cost and
quality advantages of producing the dash insulator and the floor system as an
integrated system, will increasingly seek suppliers to coordinate the design,
development and manufacture of the entire floor and acoustic system.
In 1997, the Company held a 40% share in the estimated $1.5 billion North
American floor and acoustic systems market. In addition, the Company
participates in the European floor systems market through its joint venture
with Sommer-Allibert S.A.
- - Door Panels. Door panels consist of several component parts that are attached
to a base molded substrate by various methods. Specific components include
vinyl or cloth-covered appliques, armrests, radio speaker grilles, map pocket
compartments, carpet and sound-reducing insulation. Upon assembly, each
component must fit precisely, with a minimum of misalignment or gap, and must
match the color of the base substrate. In 1997, Lear introduced the
One-Step(TM) liftgate, which includes many of the features integrated in the
One-Step(TM) door including an innovative system which consolidates all of the
liftgate's internal mechanisms, including glass, window regulators and latches,
providing customers with a higher quality product at a lower price. Assembly of
the One-Step(TM) liftgate involves combining an injection molded plastic trim
panel with all major mechanical components into a single system which can be
shipped to OEMs fully assembled, tested and ready to install. Management
believes that both the One-Step(TM) door and One-Step(TM) liftgate, while not
yet in production, offer Lear significant opportunities to capture a major
share of the estimated $10 billion modular door market.
In 1997, among independent automotive interior suppliers, the Company held
a leading 14% share of the estimated $1.7 billion North American door panel
market. Management believes that this leadership position has been achieved by
offering OEMs the widest variety of manufacturing processes for door panel
production. In Western Europe, the Company held a small position in the door
panel market. These markets contain no dominant supplier and are just beginning
to experience the outsourcing and consolidation trends that have characterized
the seat systems market since the 1980's. With its global scope, technological
expertise and established customer relationships, Lear believes that it is
well-positioned to benefit from these positive industry dynamics.
- - Instrument Panels. The instrument panel is a complex system of foil
coverings, foams, plastics and metals designed to house various components and
act as a safety device for the vehicle occupants. Specific components of the
instrument panel include the heating, venting and air conditioning (HVA/C)
module, air distribution ducts, air vents, cross car structure, glove
compartment assemblies, electrical components, wiring harness, radio system,
and passenger airbag units. As the primary occupant focal point of the vehicle
interior, the instrument panel is designed to be aesthetically pleasing while
also serving as the structural carrier of various components.
Safety issues surrounding air bag technologies are currently a significant
focus of the instrument panel segment. Lear will continue to seek to increase
its presence in this area through its research and development efforts,
resulting in innovations such as the introduction of cost effective,
integrated, seamless airbag covers, which increase occupant safety. Management
believes that future trends in the instrument panel segment will continue to
focus on safety.
Cost, weight and part minimization are also key elements in instrument
panel development for the next generation of vehicle systems. Lear's goals are
to meet future OEM requirements by increasing the integration level of
instrument panel components, and by incorporating additional safety features on
the primary carrier. Currently, the majority of instrument panel components are
assembled at the assembly plant by the OEM. By utilizing its years of JIT
assembly experience of complex automotive interior systems, management believes
Lear has the ability to capitalize on the OEMs' trend toward outsourcing of
complete modular systems and to increase its share of the worldwide instrument
panel market.
- - Headliners. The Company designs and manufactures headliners, which consist of
the headliner substrate, covering material, visors, overhead consoles, grab
handles, coat hooks, lighting, wiring and insulators. As with door panels, upon
assembly, each headliner component must fit precisely and must match the color
of the base substrate. With its sophisticated design and engineering
capabilities, the Company believes it is able to supply headliners with
enhanced quality and lower costs than OEMs could achieve internally.
OEMs are increasingly requiring independent suppliers, such as Lear to
produce integrated overhead systems. In 1997, Lear introduced an advanced
overhead system which incorporates HVA/C ducting, an occupant position
detection system, CD changer,
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trim inflatable tubular structure side air bags and surround sound speakers
into a single integrated overhead system. The Company believes that as this and
other products move from the design stage to the production stage over the next
several years, Lear will have significant opportunities to increase its share
of the headliner market. In 1997, the Company created a joint venture with
Donnelly Corporation for the design, development, marketing and production of
overhead systems for the global automotive market.
The headliner market is highly fragmented, with no dominant independent
supplier. As OEMs continue to seek ways to improve vehicle quality and
simultaneously reduce costs, the Company believes that headliners will
increasingly be outsourced to suppliers such as Lear, providing the Company
with significant growth opportunities.
- - Component Products. In addition to the interior systems and other products
described above, the Company is able to supply a variety of interior trim, blow
molded plastic parts and other automotive components.
Lear produces seat covers for integration into its own seat systems and
for delivery to external customers. The Company's major external customers for
seat covers are other independent seat systems suppliers as well as the OEMs.
The Company is currently producing approximately 80% of the seat covers for
Ford's North American vehicles. The expansion of the Company's seat cover
business gives the Company better control over the 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.
Lear produces steel and aluminum seat frames for passenger cars and light
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 and government specified safety standards. The
Company's seat frames are either delivered to its own plants, where they become
part of a complete seat system that is sold to the OEM customer or are
delivered to other independent seating suppliers for use in the manufacture of
assembled seating systems.
The Company also produces a variety of interior trim products, such as
pillars, cowl panels, scuff plates, trunk liners, quarter panels and spare tire
covers, as well as blow molded plastic products, such as fluid reservoirs,
vapor canisters and duct systems. In contrast to interior trim products, blow
molded products require little assembly. However, the manufacturing process for
such parts demands considerable expertise in order to consistently produce
high-quality products. Blow molded parts are produced by extruding a shaped
parison or tube of plastic material and then clamping a mold around the
parison. High pressure air is introduced into the tube causing the hot plastic
to take the shape of the surrounding mold. The part is removed from the mold
after cooling and is finished by trimming, drilling and other operations.
MANUFACTURING
All of the Company's manufacturing facilities use JIT manufacturing
techniques. Most of the Company's seating related products and many of the
Company's other interior products are delivered to the OEMs on a JIT basis. The
JIT concept, first broadly utilized by Japanese automotive 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
adapted for compatibility with the greater volume requirements and geographic
distances of the North American market. The Company first developed JIT
operations in the early 1980's at its seat frame manufacturing plants in
Morristown, Tennessee and Kitchener, Ontario, Canada. These plants had
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 were next
applied to the Company's growing seat systems business and have now evolved
into sequential parts delivery principles. The Company's seating plants are
typically no more than 30 minutes or 20 miles from its customers' assembly
plants and are able to manufacture seats for delivery to the customers'
facilities 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 customers' needs for the following week.
In addition, constant computer and other communication connections are
maintained between personnel at the Company's plants and personnel at the
customers' plants to keep production current with the customers' demand.
As the Company expands its product line to include total automotive
interiors, it is also expanding its JIT facility network. The Company's
strategy is to leverage its JIT seat system facilities by moving the final
assembly and sequencing of other interior components from its centrally located
facilities to its JIT facilities.
A description of the Company's manufacturing processes for its product
segments is set forth below.
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- - Seat Systems. Seat 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. The
Company's principal bonding technique involves its patented SureBond(TM) and
DryBond(TM) processes, in which fabric is affixed to the underlying foam
padding using adhesives. The SureBond(TM) and DryBond(TM) processes have
several major advantages when compared to traditional methods, including design
flexibility, increased quality and lower cost. The SureBond(TM) and DryBond(TM)
processes, unlike alternative bonding processes, result in a more comfortable
seat in which air can circulate freely. The SureBond(TM) and DryBond(TM)
processes, moreover, are reversible, so that seat covers that are improperly
installed can be removed and repositioned properly with minimal materials cost.
In addition, the SureBond(TM) and DryBond(TM) processes are not capital
intensive when compared to competing bonding technologies. Approximately
one-fourth of the Company's seats are manufactured using the SureBond(TM) and
DryBond(TM) processes.
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
minimize production space, but also requires precise forecasts of the day's
output. Seats are assembled in modules, then tested and packaged for shipment.
The Company operates a specially designed trailer fleet that accommodates the
off-loading of vehicle seats at the customers' assembly plants.
The Company obtains steel, aluminum and foam chemicals used in its seat
systems from several producers under various supply arrangements. These
materials are readily available. Leather, fabric and certain purchased
components are generally purchased from various suppliers under contractual
arrangements usually lasting no longer than one year. Some of the purchased
components are obtained through the Company's own customers.
- - Floor and Acoustic Systems. The Company produces carpet at its plant in
Carlisle, Pennsylvania. Smaller "focused" facilities are dedicated to specific
groups of customers and are strategically located near their production
facilities. This proximity improves responsiveness to its customers and speeds
product delivery to customer assembly lines, which is done on a JIT basis. The
Company's manufacturing operations are complemented by its research and
development efforts, which have led to the development of a number of
proprietary products, such as its EcoPlus(TM) recycling process as well as
Maslite(TM), a lightweight proprietary material used in the production of
accessory mats.
- - Door Panels/Headliners. The Company uses numerous molding, bonding, trimming
and finishing manufacturing processes. The wide variety of manufacturing
processes helps to satisfy a broad range of customers' different cost and
functionality specifications. The Company's ability and experience in producing
interior products for such a vast array of applications enhances its ability to
provide total interior solutions to OEMs globally. The Company is beginning to
employ many of the same JIT principles used at the Company's seat facilities.
The core technologies used in the Company's door panel and headliner
systems include injection molding, low-pressure injection molding, rotational
molding and urethane foaming, compression molding of Wood-Stock(TM) (a
proprietary process that combines polypropylene and wood flour), glass
reinforced urethane and a proprietary headliner process. One element of Lear's
strategy is to focus on more complex, value-added products such as door panels
and armrests. The Company delivers these integrated systems at attractive
prices to the customer because certain services such as design and engineering
and sub-assembly are provided more cost efficiently by the Company. The
principal purchased components for interior trim systems are polyethylene and
polypropylene resins which are generally purchased under long-term agreements
and are available from multiple suppliers. Lear is continuing to develop
recycling methods in light of future environmental requirements and conditions
in order to maintain its competitive edge in this segment.
The combined pressures of cost reduction and fuel economy enhancement have
caused automotive manufacturers to concentrate their efforts on developing and
employing lower cost, lighter materials. As a result, plastic content in cars
and light trucks has grown significantly. Increasingly, automotive content
requires large plastic injection molded assemblies for both the interior and
exterior. Plastics are now commonly used in such nonstructural components as
interior and exterior trim, door panels, instrument panels, grilles, bumpers,
duct systems, taillights and fluid reservoirs. For interior trim applications,
substitution of plastics for other materials is largely complete, and little
growth through substitution is expected. However, further advances in injection
molding technologies are improving the performance and appearance of parts
molded in reinforced thermoplastics.
- - Instrument Panels. Lear's in-house process capabilities for producing
instrument panels include injection molding, vacuum forming, and other various
finishing methods. Lear's foil and foam capabilities, whereby molded vinyl is
bonded to a plastic substrate using an expandable foam, are used throughout the
world. One of Lear's current development projects is an instrument panel
concept for trucks
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produced with low pressure injection molding which management believes will be
in production by the second quarter of 1998. Lear is continuing to develop
recycling methods in light of future environmental requirements and conditions
in order to reduce costs and increase its presence in this segment. The wide
variety of available manufacturing processes helps Lear to continue to meet
customer cost and functionality specifications.
CUSTOMERS
Lear serves the worldwide automobile and light truck market, which
produces approximately 50 million vehicles annually. The Company's OEM
customers currently include Ford, General Motors, Fiat, Chrysler, Volvo, Saab,
Opel, Jaguar, Volkswagen, Audi, BMW, Rover, Honda USA, Daimler (Mercedes) Benz,
Mitsubishi, Mazda, Toyota, Subaru, Nissan, Isuzu, Peugeot, Porsche, Renault,
Suzuki, Saturn, Hyundai and Daewoo. During the year ended December 31, 1997,
Ford and General Motors, the two largest automobile and light truck
manufacturers in the world, accounted for approximately 29% and 27%,
respectively, of the Company's net sales. For additional information regarding
customers, foreign and domestic operations and sales, see Note 15, "Geographic
Segment Data," to the consolidated financial statements of the Company included
in this Report.
In the past six years, in the course of retooling and reconfiguring plants
for new models and model changeovers, certain OEMs have eliminated the
production of seat systems and other interior systems and components from
certain of their facilities, thereby committing themselves to purchasing these
items 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 and other interior systems and components
from full-service independent suppliers like Lear 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
and benefit rates, (ii) the elimination of working capital and personnel costs
associated with the production of interior systems by the OEM, (iii) a
reduction in net overhead expenses and capital investment due to the
availability of significant floor space for the expansion of other OEM
manufacturing operations and (iv) a reduction in transaction costs by utilizing
a limited number of sophisticated system suppliers instead of numerous
individual component suppliers. In addition, the Company offers improved
quality and on-going cost reductions to its customers through continuous,
Company-initiated design improvements. The Company believes that such cost
reductions will lead OEMs to outsource an increasing portion of their
automotive interior requirements in the future and provide the Company with
significant growth opportunities.
The Company's sales of value-added assemblies and component systems have
increased as a result of the decision by many OEMs to reduce their internal
engineering and design resources. In recent years, the Company has
significantly increased its capacity to provide complete engineering and design
services to support its product line. Because assembled parts such as door
panels, floor and acoustic systems, armrests and consoles need to be designed
at an early stage in the development of new vehicles or model revisions, the
Company is increasingly given the opportunity to participate earlier in the
product planning process. This has resulted in opportunities to add value by
furnishing engineering and design services and managing the sub-assembly
process for the manufacturer, as well as providing the broader range of parts
that are required for assembly.
Lear maintains "Customer Focused Divisions" for each of the Company's
major customers. This organizational structure consists of several dedicated
groups, each of which is primarily focused on serving the needs of a single
customer and supporting that customer's programs and product development. Each
division is capable of providing whatever interior component the customer
needs, thereby providing that customer's purchasing agents, engineers and
designers with a single point of contact for their total automotive interior
needs.
The Company receives blanket purchase orders from its customers that
normally cover annual requirements for products 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 products. Although such purchase
orders may be terminated at any time, the Company does not believe that any of
its customers have terminated a material purchase order prior to the end of the
life of a model. The primary risk to the Company is that an OEM will produce
fewer units of a model than anticipated. In order to reduce its reliance on any
one model, the Company produces interior systems and components for a broad
cross-section of both new and more established models.
The Company's sales for the year ended December 31, 1997 were comprised of
the following vehicle categories: 43% light truck; 21% mid-size; 18% compact;
12% luxury/sport; and 6% full-size. The following table presents an overview of
the major vehicle models for which the Company, or its affiliates, produces
automotive interior systems or components and the locations of such production:
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NORTH AMERICA
BMW:
Z3 FORD (CONT): GENERAL MOTORS (CONT): HONDA:
Z3 Coupe Ford Escort Chevrolet Lumina Accord
M Roadster Ford Expedition Chevrolet Malibu Acura CL
CHRYSLER: Ford Explorer Chevrolet Metro Civic
Chrysler Cirrus Ford F-Series Chevrolet Monte Carlo Passport
Chrysler Concorde Ford Mustang Chevrolet Prizm
Chrysler LHS Ford Ranger Chevrolet S 10 MAZDA:
Chrysler Sebring Ford Taurus Chevrolet Suburban 626
Chrysler Sebring Ford Windstar Chevrolet Swing B-Series Truck
Convertible Lincoln Continental Chevrolet Tahoe MX-6
Chrysler Town & Country Lincoln Navigator Chevrolet Venture MITSUBISHI:
Dodge Avenger Lincoln Town Car GMC Jimmy Eclipse
Dodge Caravan Mercury Grand Marquis GMC Safari Galant
Dodge Dakota Mercury Mountaineer GMC Savana
Dodge Durango Mercury Mystique GMC Sierra NISSAN:
Dodge Intrepid Mercury Sable GMC Sonoma Altima
Dodge Neon Mercury Tracer GMC Suburban Frontier
Dodge Ram Mercury Villager GMC Top-Kick Quest
Dodge Ram Van GMC Yukon Sentra
Dodge Ram Wagon GENERAL MOTORS: Oldsmobile 88
Dodge Ramcharger Buick Century Oldsmobile Achieva SUBARU/ISUZU:
Dodge Stratus Buick LeSabre Oldsmobile Aurora Isuzu Rodeo
Dodge Viper Buick Park Avenue Oldsmobile Bravada Subaru Legacy
Eagle Talon Buick Regal Oldsmobile Cutlass
Jeep Cherokee Buick Riviera Oldsmobile Intrigue TOYOTA:
Jeep Grand Cherokee Buick Skylark Oldsmobile Silhouette Avalon
Jeep Wrangler Cadillac Catera Pontiac Bonneville Camry
Plymouth Breeze Cadillac DeVille/Concours Pontiac Firebird Corolla
Plymouth Neon Cadillac Eldorado/Seville Pontiac Grand Am Sienna
Plymouth Prowler Chevrolet Astro Pontiac Grand Prix Tacoma
Plymouth Voyager Chevrolet Blazer Pontiac Sunfire
Chevrolet C/K Pontiac Tran Sport VOLKSWAGEN:
FORD: Chevrolet Camaro Saturn Cabrio
Ford Contour Chevrolet Cavalier Saturn EV1 Golf
Ford Crown Victoria Chevrolet Corvette GPA Minivan
Ford Econoline Chevrolet Express SUZUKI: Jetta
Chevrolet Kodiak Sidekick
Swift VOLVO:
S/V 70
WESTERN EUROPE
ALFA ROMEO: FERRARI: JAGUAR: OPEL (Con't):
145 F355 Berlinetta XJ Saloon Omega
146 F355 Spider XK8 Vectra
936 550 Maranello
Coupe/GTV LANCIA: PORSCHE:
Giuletta FIAT: Dedra 911
Spider Barchetta Delta Boxster
Bravo/Brava Kappa
AUDI: Coupe Y PEUGEOT:
A3 Ducato 306
A4 Marea MERCEDES: 406
A6 Panda A-class 406 Coupe
A8 Punto C-class
Cabriolet Punto Cabriolet E-class RENAULT:
SL Cabrio
BMW: FORD: SLK Clio
3 Series Escort Express
5 Series Fiesta NISSAN: Laguna
Ka Micra Megane
CHRYSLER: Mondeo Primera Safrane
Eurostar Puma Terrano Scenic
Scorpio Twingo
CITROEN: OPEL:
Berlingo HONDA: Astra ROLLS ROYCE:
Saxo Accord Calibra Rolls Royce:
Civic Corsa
Frontera
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WESTERN EUROPE (CONT)
ROVER: SAAB: VOLKSWAGEN: VOLVO:
100/Metro 9-3 Caravelle Series 800
200 9-5 Golf Series 900
400 9000 Passat C70
600 Vento S/V70
800 SEAT: S/V90
Defender Arosa
Discovery
Freelander TOYOTA:
MGF Avensis
Mini
Range Rover
OTHER REGIONS
AUSTRALIA INDONESIA SOUTH AFRICA S. AMERICA(CONT)
GENERAL MOTORS: GENERAL MOTORS: BMW: FIAT(CONT):
Berlina S-10 Blazer 3 Series Siena
Calais Tempra
Caprice KOREA HONDA: Uno
Executive HYUNDAI: Ballade
Statesman Grandeur Civic FORD:
Ute Ranger
POLAND MERCEDES:
CHINA DAEWOO: C-class GENERAL MOTORS:
FORD: Lublin E-class Chevrolet Cavalier
China Transit Chevrolet C/K
FIAT: Chevrolet Lumina
CZECH REPUBLIC 500 MITSUBISHI: Corsa
SKODA: 600 Colt Grand Blazer
Skoda Pickup Palio
Siena THAILAND PUEGEOT:
HUNGARY Uno VOLVO: 306
OPEL: S/V70 405
Astra OPEL: 900 Series 504
Astra
INDIA SOUTH AMERICA VOLKSWAGEN:
OPEL: VOLVO: FIAT: Gol
Astra S/V40 Duna Kombi
Fiorino Polo
Palio Saveiro
Because of the economic benefits inherent in outsourcing to suppliers such
as Lear and the costs associated with reversing a decision to purchase seat
systems and other interior systems and components from an outside supplier, the
Company believes that automotive manufacturers' commitment to purchasing
seating and other interior systems and components from outside suppliers,
particularly on a JIT basis, will increase. However, under the contracts
currently in effect in the United States and Canada between each of General
Motors, Ford and Chrysler with the United Auto Workers ("UAW") and the Canadian
Auto Workers ("CAW"), in order for any of such manufacturers to obtain from
external sources components that it currently produces, it must first notify
the UAW or the CAW of such intention. If the UAW or the CAW objects to the
proposed outsourcing, some agreement would have to be reached between the UAW
or the CAW and the OEM. Factors that will normally be taken into account by the
UAW, the CAW and the OEM include whether the proposed new supplier is
technologically more advanced than the OEM, whether the new supplier is
unionized, whether cost benefits exist 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, in
1997, the Company operated its Rochester Hills, Michigan, Wentzville, Missouri
and Lordstown, Ohio facilities 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 enters into these arrangements to enhance
its relationship with its customers. As of January 1, 1998, the Company
established its own work force at the Lordstown, Ohio facility replacing the
General Motors employees.
General Motors experienced work stoppages during 1996 and 1997, primarily
relating to the outsourcing of automotive components. Chrysler also experienced
a work stoppage in 1997, primarily relating to the outsourcing of automotive
components. These work stoppages halted the production of certain vehicle
models and adversely affected the Company's operations.
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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 productivity price reduction
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.
MARKETING AND SALES
Lear markets its products by maintaining strong customer relationships,
which have been developed over its 80-year history through extensive technical
and product development capabilities, reliable delivery of high quality
products, strong customer service, innovative new products and a competitive
cost structure. Close personal communications with automotive manufacturers is
an integral part of the Company's marketing strategy. Recognizing this, the
Company is organized into independent divisions, each with the ability to focus
on its customers and programs and each having complete responsibility for the
product, from design to installation. By moving the decision-making process
closer to the customer, and by instilling a philosophy of "cooperative
autonomy," the Company is more responsive to, and has strengthened its
relationships with, its customers. OEMs have generally continued to reduce the
number of their suppliers as part of a strategy of purchasing interior systems
rather than individual components. This process favors suppliers like Lear with
established ties to OEMs 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 OEMs from the preliminary design to the manufacture and
supply of interior systems or components. Manufacturers have increasingly
looked to suppliers like the Company to assume responsibility for introducing
product innovation, shortening the development cycle of new models, decreasing
tooling investment and labor costs, reducing the number of costly design
changes in the early phases of production and improving interior comfort and
functionality. Once the Company is engaged to develop the design for the
interior system or component of a specific vehicle model, it is also generally
engaged to supply these items when the vehicle goes into production. The
Company has devoted substantial resources toward improving its engineering and
technical capabilities and developing advanced technology centers in the United
States and in Europe. The Company has also developed full-scope engineering
capabilities, including all aspects of safety and functional testing, acoustics
testing and comfort assessment. In addition, the Company has established
numerous product engineering sites in close proximity to its OEM customers to
enhance customer relationships and design activity. Finally, the Company has
implemented a program of dedicated teams consisting of interior trim and seat
system personnel who are able to meet all of a customer's interior needs. These
teams provide a single interface for Lear's customers and help avoid
duplication of sales and engineering efforts.
TECHNOLOGY
The Company conducts advanced product design development at its advanced
technology centers in Southfield, Michigan, Plymouth, Michigan, Munich,
Germany, Tidaholm, Sweden, Coventry, England and Turin, Italy and at twenty-one
worldwide advanced product engineering centers. At these 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. The Company also has state-of-the-art acoustics testing,
instrumentation and data analysis capabilities.
The Company believes that in order to effectively develop total interior
systems, it is necessary to integrate the research, design, development and
styling of all interior subsystems. Accordingly, during 1997, the Company began
expanding its advanced technology center at its world headquarters in
Southfield, Michigan. When completed in 1998, the Company's advanced
technology center in Southfield will give Lear the distinction of being the
only global automotive supplier with engineering, research and development
capabilities for all five interior systems at one location.
The Company has dedicated, and will continue to dedicate, resources to
research and development to maintain its position as a leading technology
developer in the automotive interior industry. Research and development costs
incurred in connection with the development of new products and manufacturing
methods, to the extent not recoverable from the customer, are charged to
selling, general and administrative expenses as incurred. Such costs amounted
to approximately $90.4 million, $70.0 million, and $53.3 million for the years
ended December 31, 1997, 1996 and 1995, respectively. Engineering expenses
related to current production are charged to cost of sales as incurred and
amounted to $28.5 million, $21.4 million, and $14.1 million for the years ended
December 31, 1997, 1996 and 1995, respectively.
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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 (belt systems integrated into seats), side
impact air bags and child restraint seats. The Company continually invests in
its CAE and CAD/CAM systems. Recent enhancements to these systems include
customer telecommunications and direct interface with customer CAD systems.
Lear uses its patented SureBond(TM) process (the patent for which expires
in approximately six years) in bonding seat cover materials to the foam pads
used in certain of its seats. The SureBond(TM) process is used to bond a
pre-shaped cover to the underlying foam to minimize the need for sewing and to
achieve new seating shapes, such as concave shapes, which were previously
difficult to manufacture. The Company has recently improved this process
through the development of its patented DryBond(TM) process which allows for
the bonding of vinyl and leather to seat cushions and seat backs. This process
further increases manufacturing efficiency, provides longer work cycles for
automotive seats and yields more design flexibility for automotive interior
components.
The Company has virtually all technologies and manufacturing processes
available for interior trim and under-the-hood applications. The manufacturing
processes include, among other things, high and low pressure injection molding,
vacuum forming, blow molding, soft foam molding, heat staking, water jet
cutting, vibration welding, ultrasonic welding, and robotic painting. This wide
range of capabilities allows the Company to assist its customers in selecting
the technologies that are the most cost effective for each application.
Combined with its design and engineering capabilities and its state-of-the-art
technology and engineering centers, the Company provides comprehensive support
to its OEM customers from product development to production.
The Company owns one of the few proprietary-design dynamometers capable of
precision acoustics testing of front, rear and four-wheel drive vehicles.
Together with its custom-designed reverberation room, computer-controlled data
acquisition and analysis capabilities provide precisely controlled laboratory
testing conditions for sophisticated interior and exterior noise, vibration and
harshness (NVH) testing of parts, materials and systems, including powertrain,
exhaust and suspension components. The Company also owns a 29% interest in
Precision Fabrics Group, Inc. ("PFG"), which has patented a process to sew and
fold an ultralight fabric into airbags which are 60% lighter than airbags
currently used in the automotive industry. As this new airbag can fit into a
shirt pocket when folded, it is adaptable to side restraint systems (door
panels and seats) as well as headliners.
The Company holds a number of mechanical and design patents covering its
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. Additionally, the Company continues to identify and
implement new technologies for use in the design and development of its
products.
JOINT VENTURES AND MINORITY INTERESTS
The Company currently has twenty-six joint ventures, eleven of which are
included in the Company's consolidated financial statements, and fifteen of
which are included in the Company's consolidated financial statements using the
equity method of accounting. These joint ventures are located in 16 countries.
The Company pursues attractive joint ventures in order to assist its entry into
new markets, facilitate the exchange of technical information, expand its
product offerings, and broaden its customer base. In 1997, the Company formed a
joint venture with Donnelly Corporation for the design, development, marketing
and production of overhead systems for the global automotive market. Also in
1997, with the Kieper Seating Acquisition, the Company acquired interests in
joint ventures in Italy to supply seat systems to Alpha Romeo, Fiat, Lancia and
Ferrari and in South Africa to supply seat systems to Mercedes, Honda and
Mitsubishi. In 1996, the Company expanded its presence in the Asia/Pacific Rim
region with a joint venture with NHK Spring Co., Ltd. to supply seat systems in
Thailand to a joint venture between Ford and Mazda. In addition, Lear entered a
joint venture with Jiangling Motors Co., Ltd. to supply seat systems and
interior trim components in China for Isuzu trucks and Ford transit vans. In
addition, several of the Company's recent acquisitions, including Masland and
AI, have provided the Company with strategic joint ventures. With the Masland
Acquisition, Lear acquired interests in PFG and Sommer Masland (U.K.) Ltd.
Sommer Masland helped to expand Masland's geographical presence in Europe and
strengthened its relationship with several existing customers, including
Nissan, Peugeot and Saab. The AI Acquisition included a 40% interest in
Industrias Automotrices Summa, S.A. de C.V. (Mexico), as well as a 33% interest
in Guildford Kast Plastifol Ltd. (U.K.), both of which produce interior trim
parts for automobiles.
COMPETITION
The Company is the leading supplier of automotive interior products with
manufacturing capabilities in all five automotive interior systems: seat
systems; floor and acoustic systems; door panels; instrument panels; and
headliners. Within each system, the
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Company competes with a variety of independent suppliers and OEM in-house
operations. Set forth below is a summary of the Company's primary independent
competitors.
- - Seat Systems. Lear is one of three primary suppliers in the outsourced North
American seat systems market. The Company's main independent competitors are
Johnson Controls, Inc. and Magna International, Inc. The Company's major
independent competitors in Western Europe are Johnson Controls, Inc. and
Bertrand Faure (headquartered in France).
- - Floor and Acoustic Systems. Lear is one of the largest of the three primary
independent suppliers in the outsourced North American floor and acoustic
systems market. The Company's primary competitors are Collins & Aikman Corp.
Automotive Division, a division of Collins & Aikman Corporation, and the Magee
Carpet Company. The Company's major competitors in Western Europe include
Sommer Alibert Industrie, Emfisint Automotive SA, Radici Pietro Spa, Treves ETS
and Rieter Automotive.
- - Other Interior Systems and Components. The market for outsourced headliners
and door panels and the instrument panel market in Western Europe are highly
fragmented. The Company's major independent competitors in these segments
include Johnson Controls, Inc., Magna International, Inc., Davidson Interior
Trim (a division of Textron, Inc.), UT Automotive (a subsidiary of United
Technologies, Inc.), The Becker Group and a large number of smaller operations.
The Company's primary competitors in the North American instrument panel market
are Delphi Interior and Lighting Systems, a division of General Motors,
Visteon, a division of Ford Motor Company and Textron Automotive Company.
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, such as in the summer months when
plants close for model year changeovers and vacation. Historically, the
Company's sales and operating profit have been the strongest in the second and
fourth calendar quarters. Net sales for the year ended December 31, 1997 by
calendar quarter were as follows: first quarter, 24%; second quarter, 25%;
third quarter, 22%; and fourth quarter, 29%. See Note 16, "Quarterly Financial
Data," of the notes to the Company's consolidated financial statements included
in this Report.
EMPLOYEES
As of December 31, 1997, the Company employed approximately 20,600 persons
in the United States and Canada, 14,700 in Mexico, 12,300 in Europe and 3,400
in other regions of the world. Of these, about 8,300 were salaried employees
and the balance were paid on an hourly basis. Approximately 35,000 of the
Company's employees are members of unions. The Company has collective
bargaining agreements with several unions including: the UAW; the CAW; the
Textile Workers of Canada; the International Brotherhood of Teamsters,
Chauffeurs, Warehousemen, and Helpers of America; the International Association
of Machinists and Aerospace Workers; and the AFL-CIO. Each of the Company's
unionized facilities in the United States and Canada 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 majority of the Company's European and Mexican employees are
members of industrial trade union organizations and confederations within their
respective countries. The majority of these organizations and confederations
operate under national contracts which are not specific to any one employer.
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 generally good.
In addition, as part of its long-term agreements with General Motors, the
Company currently operates two facilities with an aggregate of approximately
600 General Motors' employees and reimburses General Motors for the wages of
such employees on the basis of the Company's wage structure.
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 beieve 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."
14
17
ITEM 2 - PROPERTIES
As of December 31, 1997, the Company's operations were conducted through
179 facilities, some of which are used for multiple purposes, including 144
manufacturing facilities, 21 product engineering centers and 6 advanced
technology centers, in 25 countries employing over 50,000 people worldwide. The
Company's world headquarters are located in Southfield, Michigan. The
facilities range in size from 1,500 square feet to 1,000,000 square feet.
No facility is materially underutilized. Of the 179 existing facilities
(which include facilities owned by the Company's less than majority-owned
affiliates), 85 are owned and 94 are leased with expiration dates ranging from
1998 through 2007. 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 -- Liquidity and Financial Condition."
The following table presents the locations of the Company's facilities:
ARGENTINA GERMANY POLAND UNITED STATES (CONTINUED)
Buenos Aires Besigheim Myslowice Fremont, OH
Cordoba Bremen-Mahndorf Tychy Greencastle, IN
Ebersberg Hammond, IN
AUSTRALIA Eisenach SINGAPORE Huron, OH
Adelaide Gustavsburg Singapore Janesville, WI
Brooklyn Kaiserslautern Kansas City, MO
Munich SOUTH AFRICA Lansing, MI
AUSTRIA Plattling Brits Lebanon, OH
Koflach Quakenbruck East London Lebanon, VA
Remscheid Lewistown, PA
BRAZIL Rietberg SPAIN Livonia, MI
Belo Horizonte Sulzbach Pamplona Lordstown, OH
Cacapava Wackersdorf Louisville, KY
Curitiba SWEDEN Luray, VA
Sao Paolo HUNGARY Arendal Madisonville, KY
Gyor Aviken Manteca, CA
CANADA Mor Bengtsfors Marlette, MI
Ajax Dals Langed Marshall, MI
Kitchener INDIA Fargelanda Melvindale, MI
Maple Gujarat Gnosjo Mendon, MI
Mississauga Goteborg Midland, TX
Oakville INDONESIA Ljungby Morristown, TN
St. Thomas Jakarta Tanumshede New Castle, DE
Whitby Tidaholm Newark, DE
Woodstock IRELAND Trollhattan Novi, MI
Naas Plymouth, MI
CHINA THAILAND Pontiac, MI
Nanchang ITALY Bangkok Rochester Hills, MI
Wanchai Caivano Khorat Romulus, MI
Cassino Roscommon, MI
CZECH REPUBLIC Grugliasco TURKEY Sheboygan, WI
Prestice Melfi Bursa Sidney, OH
Orbassano Southfield, MI
ENGLAND Pozzilli UNITED STATES Strasburg, VA
Colne Pozzo D'Adda Allen Park, MI Troy, MI
Coventry Termini Imerese Arlington, TX Walker, MI
Dunton Atlanta, GA Warren, MI
Middlemarch MEXICO Auburn Hills, MI Wentzville, MO
Nottingham Cuautitlan Bowling Green, OH West Chicago, IL
Tamworth Hermosillo Bridgeton, MO Winchester, VA
Tipton Juarez Carlisle, PA
Washington La Cuesta Covington, VA VENEZUELA
Naucalpan Dearborn, MI Valencia
FRANCE Puebla Detroit, MI
Meaux Ramos Arizpe Duncan, SC
Paris Rio Bravo El Paso, TX
Saltillo Elsie, MI
San Lorenzo Fenton, MI
Silao Frankfort, IN
Tlahuac
Toluca
15
18
ITEM 3 - LEGAL PROCEEDINGS
The Company is involved in certain legal actions and claims arising in the
ordinary course of business. 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 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."
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 two Superfund sites where liability has not been
substantially resolved. Management believes that the Company is, or may be,
responsible for less than one percent, if any, of the total costs at the two
Superfund sites. The Company has also been identified as a PRP at two
additional sites where liability has not been substantially resolved. In
addition, the Company is one of a number of defendants in a state court action
brought by a group of plaintiffs in Texas who have claimed various impacts from
a Texas landfill to which the Company and others allegedly sent waste. The
Company's expected liability, if any, at these additional sites is not
material. The Company has set aside reserves which management believes are
adequate to cover any such 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
No matters were submitted to a vote of security holders during the fourth
quarter of 1997.
16
19
PART II
ITEM 5 MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "LEA." The Transfer Agent and Registrar for the Company's Common
Stock is The Bank of New York, located in New York, New York. On March 3,
1998, there were 772 holders of record of the Company's Common Stock.
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. In
addition, the Company is subject to certain contractual restrictions on the
payment of dividends. See Note 8, "Long-Term Debt," of the notes to the
consolidated financial statements included in this Report for information
concerning such restrictions.
The following table sets forth the high and low sales prices per share of
Common Stock, as reported by the New York Stock Exchange, for the periods
indicated:
Price Range of
Year Ended December 31, 1997 Common Stock
- ---------------------------- --------------------------
High Low
------------ ------------
4th Quarter 51 11/16 44 15/16
3rd Quarter 50 1/8 42
2nd Quarter 43 1/8 33 1/4
1st Quarter 39 7/8 33 1/2
Price Range of
Year Ended December 31, 1996: Common Stock
- ----------------------------- --------------------------
High Low
------------ ------------
4th Quarter 38 7/8 31 3/4
3rd Quarter 39 7/8 29 7/8
2nd Quarter 39 1/4 27 1/2
1st Quarter 34 25 1/4
17
20
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 years ended December 31, 1997, 1996, 1995,
1994 and 1993, have been audited by Arthur Andersen LLP. 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" included in this
Report.
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS (1))
OPERATING DATA:
Net sales $ 7,342.9 $ 6,249.1 $ 4,714.4 $ 3,147.5 $ 1,950.3
Gross profit 809.4 619.7 403.1 263.6 170.2
Selling, general and administrative
expenses 286.9 210.3 139.0 82.6 62.7
Incentive stock and other
compensation expense (2) -- -- -- -- 18.0
Amortization 41.4 33.6 19.3 11.4 9.9
----------- ----------- ----------- ----------- -----------
Operating income 481.1 375.8 244.8 169.6 79.6
Interest expense, net 101.0 102.8 75.5 46.7 45.6
Other expense, net (3) 28.8 19.6 12.0 8.1 9.2
----------- ----------- ----------- ----------- -----------
Income before income taxes
and extraordinary items 351.3 253.4 157.3 114.8 24.8
Income taxes 143.1 101.5 63.1 55.0 26.9
----------- ----------- ----------- ----------- -----------
Income (loss) before
extraordinary items 208.2 151.9 94.2 59.8 (2.1)
Extraordinary items (4) 1.0 -- 2.6 -- 11.7
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 207.2 $ 151.9 $ 91.6 $ 59.8 $ (13.8)
=========== =========== =========== =========== ===========
Diluted income (loss) per share before
extraordinary items $ 3.05 $ 2.38 $ 1.79 $ 1.26 $ (.06)
Diluted net income (loss) per share $ 3.04 $ 2.38 $ 1.74 $ 1.26 $ (.39)
Weighted average shares outstanding (5) 68,248,083 63,761,634 52,488,938 47,438,477 35,500,014
BALANCE SHEET DATA:
Current assets $ 1,614.9 $ 1,347.4 $ 1,207.2 $ 818.3 $ 433.6
Total assets 4,459.1 3,816.8 3,061.3 1,715.1 1,114.3
Current liabilities 1,854.0 1,499.3 1,276.0 981.2 505.8
Long-term debt 1,063.1 1,054.8 1,038.0 418.7 498.3
Common stock subject to limited
redemption rights, net -- -- -- -- 12.4
Stockholders' equity 1,207.0 1,018.7 580.0 213.6 43.2
OTHER DATA:
EBITDA (6) $ 665.5 $ 518.1 $ 336.8 $ 225.7 $ 122.2
Capital expenditures $ 187.9 $ 153.8 $ 110.7 $ 103.1 $ 45.9
Number of facilities (7) 179 148 107 79 61
North American content per vehicle (8) $ 320 $ 292 $ 227 $ 169 $ 112
North American vehicle production (9) 15.6 15.0 14.9 15.2 13.7
Western Europe content per vehicle (10) $ 123 $ 109 $ 92 $ 44 $ 34
Western Europe vehicle production (11) 15.1 14.4 13.9 13.2 11.7
(1) Except per share data, weighted average shares outstanding, number of
facilities, North American content per vehicle, North American vehicle
production, Western Europe content per vehicle and Western Europe vehicle
production.
(2) Includes a one-time charge of $18.0 million, of which $14.5 million is
non-cash, for the year ended December 31, 1993 for incentive stock and
other compensation expense.
(3) Consists of foreign currency exchange gain or loss, minority interests in
consolidated subsidiaries, equity in net income of affiliates, state and
local taxes and other expense.
(4) The extraordinary items resulted from the prepayment of debt.
(5) Weighted average shares outstanding is calculated on a diluted basis.
(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 flows 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) "Western Europe content per vehicle" is the Company's net sales in Western
Europe divided by total Western Europe vehicle production.
(11) "Western Europe vehicle production" includes car and light truck production
in Austria, Belgium, France, Germany, Italy, Netherlands, Portugal, Spain,
Sweden, and the United Kingdom, estimated from industry sources.
18
21
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Year Ended December 31, 1997 Compared With Year Ended December 31, 1996.
Lear achieved record sales in 1997 for the sixteenth consecutive year with net
sales of $7.3 billion in the year ended December 31, 1997 exceeding 1996 net
sales by $1.1 billion, or 17.5%. Net sales in the current year benefited from
acquisitions, which collectively accounted for $.8 billion of the increase, new
business introduced in North America, South America and Europe and incremental
volume and content on established programs which was partially offset by $.2
billion of unfavorable foreign exchange.
Gross profit and gross margin improved to $809 million and 11.0% in 1997 as
compared to $620 million and 9.9% in 1996. Gross profit in the current year
reflects the contribution of acquisitions and the overall growth in industry
build schedules on passenger car and truck programs by domestic and foreign
automotive manufacturers.
Selling, general and administrative expenses, including research and
development, as a percentage of net sales increased to 3.9% in 1997 as compared
to 3.4% in the previous year. Actual expenditures in 1997 increased in
comparison to the prior year due to the integration of engineering and
administrative expenses incurred as a result of acquisitions and increased
North American, European and Asia/Pacific Rim research, development and
administrative expenses required to support existing and potential business
opportunities.
Operating income and operating margin were $481 million and 6.6% in the year
ended December 31, 1997 as compared to $376 million and 6.0% in the year ended
December 31, 1996. In 1997, operating income benefited from increased revenue
from domestic and foreign automotive manufacturers on new and existing car and
light truck programs coupled with the benefits derived from acquisitions.
Partially offsetting the increase in operating income were engineering and
administrative support expenses associated with the expansion of domestic and
international business. Non-cash depreciation and amortization charges were
$184 million and $142 million for the years ended December 31, 1997 and 1996.
For the year ended December 31, 1997, interest expense decreased in comparison
to prior year primarily as a result of savings generated from the redemption of
the Company's 11 1/4% senior subordinated notes, reduced interest rates in
certain currencies and the improvement in the Company's interest coverage ratio
which triggers reductions in the borrowing rate under the Company's $1.8
billion senior revolving credit facility (the "Credit Agreement"). Partially
offsetting the above was interest incurred on borrowings to finance
acquisitions.
Other expenses in 1997, which include state and local taxes, foreign exchange,
minority interests in consolidated subsidiaries, equity in net income of
affiliates and other non-operating expenses, increased to $29 million from $20
million in 1996 due to foreign exchange losses at the Company's North American
and Asia/Pacific Rim operations and to an increase in the provision for state
and local taxes which were partially offset by higher equity income from
affiliates.
Net income for the year ended December 31, 1997 was $207 million, or $3.04 per
share, as compared to $152 million, or $2.38 per share, for the year ended
December 31, 1996. The increase in net income was primarily due to increased
sales from new and existing car and light truck programs and acquisitions. The
provision for income taxes in 1997 was $143 million, an effective tax rate of
40.7%, as compared to $102 million, an effective tax rate of 40.1%, in the
previous year. The increase in rate is largely the result of the increase in
goodwill amortization in addition to changes in operating performance and
related income levels among the various tax jurisdictions. Earnings per share
increased in 1997 by 27.7% despite an increase in the weighted average number
of shares outstanding of approximately 4.4 million shares.
19
22
The following chart shows net sales and operating income of the Company by
principal geographic area:
GEOGRAPHIC OPERATING RESULTS (in millions)
DEC. 31, Dec. 31, Dec. 31,
Year ended 1997 1996 1995
------------------------------------------------------
NET SALES:
United States and Canada $4,665.5 $4,058.0 $3,108.0
Europe 1,949.1 1,621.8 1,325.4
Rest of World 728.3 569.3 281.0
------------------------------------------------------
Net Sales $7,342.9 $6,249.1 $4,714.4
======================================================
OPERATING INCOME:
United States and Canada $ 393.8 $ 302.6 $ 204.8
Europe 60.3 49.2 26.5
Rest of World 27.0 24.0 13.5
------------------------------------------------------
Operating Income $ 481.1 $ 375.8 $ 244.8
======================================================
United States and Canadian Operations
Net sales in the United States and Canada increased by 15.0% to $4.7 billion in
the year ended December 31, 1997 as compared to $4.1 billion in the year ended
December 31, 1996. Sales in 1997 benefited from new Ford, General Motors and
Chrysler sport utility and truck programs, $.3 billion from acquisitions and
increased industry build schedules by domestic automotive manufacturers on
mature programs. Partially offsetting the increase in sales was downtime
associated with customer work stoppages which collectively impacted revenue by
approximately $.1 billion.
Operating income and operating margin were $394 million and 8.4% in 1997 as
compared to $303 million and 7.5% in 1996. For the year ended December 31,
1997, operating income benefited from the overall growth in vehicle production
volumes for new and ongoing programs, coupled with the contribution of recent
acquisitions. Partially offsetting the increase in operating income were
design, development and administrative expenses, including costs incurred from
the integration of acquisitions necessary to support domestic business
operations.
European Operations
Net sales in Europe were $1.9 billion and $1.6 billion in the years ended
December 31, 1997 and 1996. Sales in 1997 reflect $.4 billion from recent
acquisitions and increased market demand on new and ongoing passenger car and
truck programs in Italy, Germany and Austria. Partially offsetting the
increase in sales were unfavorable exchange rate movements in Germany, Italy,
Sweden, Austria and Poland.
Operating income and operating margin were $60 million and 3.1% in 1997 as
compared to $49 million and 3.0% in 1996. Operating income in 1997 benefited
from acquisitions, increased market demand and content on mature seat and seat
component programs and the effect of the Company's cost reduction programs.
Partially offsetting the increase in operating income were new seat program
expenses in Scandinavia and costs associated with the integration of Keiper Car
Seating GMBH ("Keiper"), acquired in July 1997, into the Company's operations.
Rest of World Operations
Net sales of $.7 billion in 1997 in the Company's remaining geographic regions,
consisting of Mexico, South America, the Asia/Pacific Rim Region and South
Africa, increased by $.1 billion as compared to $.6 billion in the comparable
period in 1996. Sales in 1997 benefited from increased vehicle production on
new and established General Motors, Fiat and Volkswagen business in South
America and the contribution of recent acquisitions.
Operating income and operating margin were $27 million and 3.7% in 1997 as
compared to $24 million and 4.2% in 1996. For 1997, operating income reflects
the overall growth in revenue, including the benefits derived from new seat
programs launched within the past twelve months and incremental operating
income generated from recent acquisitions. Partially offsetting the increase
in operating income were facility and preproduction costs for recently opened
facilities in Thailand and Brazil and the production phase out of a General
Motors truck program in Mexico.
20
23
Year Ended December 31, 1996 Compared With Year Ended December 31, 1995.
Net sales of $6.2 billion in the year ended December 31, 1996 represented the
fifteenth consecutive year of record sales and exceeded sales of $4.7 billion
in the year ended December 31, 1995 by $1.5 billion, or 32.6%. Net sales in
1996, as compared to 1995, benefited from the full year contribution of the
acquisition of Automotive Industries Holding, Inc. ("AI") and the acquisition
of Masland Corporation ("Masland") in August 1995 and June 1996, respectively,
which collectively accounted for $.8 billion of the increase. Further
contributing to the overall increase in sales was new business introduced
globally during 1996 and incremental volume and content on mature programs.
Gross profit and gross margin improved to $620 million and 9.9% in 1996 as
compared to $403 million and 8.6% in 1995. Gross profit in 1996 reflects the
contribution of the AI and Masland acquisitions coupled with the benefits
derived from increased revenues from new and ongoing programs. Also
contributing to the increase in gross profit was a decrease in start-up
expenses from $32 million in 1995 to $18 million in 1996. Partially offsetting
the increase in gross profit was the cumulative impact of the General Motors
work stoppages in the first and fourth quarters of 1996 and downtime associated
with a Chrysler model changeover.
Selling, general and administrative expenses, including research and
development, as a percentage of net sales increased to 3.4% in the year ended
December 31, 1996 as compared to 2.9% in 1995. The increase in actual
expenditures in 1996 over 1995 was due to the inclusion of Masland and AI
operating expenses as well as increased research and development and
administrative support expenses associated with the expansion of domestic and
international business.
Operating income and operating margin were $376 million and 6.0% in the year
ended December 31, 1996 as compared to $245 million and 5.2% in 1995. For 1996,
operating income benefited from the incremental operating income generated from
acquisitions along with increased revenue from domestic and foreign automotive
manufacturers on new and mature programs. Partially offsetting the increase in
operating income were design, development and administrative expenses at North
American and European Technical Centers, Chrysler's downtime for model
changeover and the adverse impact of the General Motors work stoppages.
Non-cash depreciation and amortization charges were $142 million and $92
million for the years ended December 31, 1996 and 1995, respectively.
For the year ended December 31, 1996, interest expense increased by $27 million
to $103 million as compared to the year ended December 31, 1995. The increase
in interest expense was largely the result of interest incurred on additional
debt utilized to finance the Masland and AI acquisitions.
Other expenses, which include state and local taxes, foreign exchange, minority
interests in consolidated subsidiaries, equity in net income of affiliates and
other non-operating expenses, increased to $20 million in 1996 as compared to
$12 million in 1995 as the effect of higher sales volumes on state and local
taxes and the provision for minority interests from the Company's joint
ventures more than offset favorable foreign exchange related to the Company's
North American and European operations.
Net income in 1996 was $152 million, or $2.38 per share, as compared to $92
million, or $1.74 per share in 1995. The increase in net income in 1996 over
1995 was due to the Masland acquisition, a full year of activity from the
August 1995 AI acquisition, new business awarded, cost reduction programs and
increased production levels on existing programs. The provision for income
taxes in 1996 was $102 million, or an effective tax rate of 40.1%, as compared
to $63 million and 40.1% in 1995. Net income in 1995 reflects an extraordinary
loss of $3 million related to the early retirement of debt. Earnings per share
increased in 1996 by 36.8% despite an increase in the weighted average number
of shares outstanding of approximately 11.3 million shares.
United States and Canadian Operations
Net sales in the United States and Canada were $4.1 billion and $3.1 billion in
the years ended December 31, 1996 and 1995, respectively. Sales in 1996
benefited from the contribution of $.7 billion in incremental sales from the AI
and Masland acquisitions, new passenger car and truck programs introduced
within the past twelve months and modest vehicle production increases by
domestic automotive manufacturers on carryover programs. Partially offsetting
the increase in sales was the impact of the General Motors work stoppages and
downtime associated with a Chrysler model changeover.
21
24
Operating income and operating margin were $303 million and 7.5% in 1996 as
compared to $205 million and 6.6% in 1995. The increase in operating income was
largely the result of the benefits derived from the acquisitions of AI and
Masland as well as the overall growth in domestic vehicle sales, including
production of new business programs. Partially offsetting the increase in
operating income were reduced utilization at General Motors and Chrysler
facilities and higher engineering and administrative expenses necessary to
support established and new business opportunities.
European Operations
Net sales in Europe increased by 22.4% to $1.6 billion in the year ended
December 31, 1996 as compared to $1.3 billion in the year ended December 31,
1995. Sales in 1996 benefited from increased market demand on existing
passenger car and light truck programs in Italy, Germany and Austria and the
full year contribution of the AI acquisition.
Operating income and operating margin were $49 million and 3.0% in 1996 as
compared to $27 million and 2.0% in 1995. Operating income in 1996 benefited
from incremental volume on carryover seat and seat component programs, the
contribution of the AI acquisition and improved operating performance at
certain of the Company's facilities in England and Germany.
Rest of World Operations
Net sales of $.6 billion in 1996 in the Company's remaining geographic regions,
consisting of Mexico, South America, the Asia/Pacific Rim Region and South
Africa, increased by $.3 billion as compared to $.3 billion in the comparable
period in 1995. Sales in the year ended December 31, 1996 benefited from new
business operations in South America, the Asia/Pacific Rim Region and South
Africa which accounted for $.2 billion of the increase, higher production build
schedules for General Motors and Chrysler programs in Mexico and sales from a
Masland operation in Mexico.
Operating income and operating margin were $24 million and 4.2% in 1996 as
compared to $14 million and 4.8% in 1995. Operating income in 1996 increased
primarily due to the benefits derived from the growth in sales activity,
including the production of new business operations and the acquisition of
Masland. Partially offsetting the increase in operating income were facility
and preproduction costs for recently opened facilities in Argentina, India and
Venezuela.
LIQUIDITY AND FINANCIAL CONDITION
Capitalization
Strong operating cash flows and improved asset management during 1997 more than
offset acquisition costs and resulted in the Company's lowest ever debt to
total capitalization position, 47.9% at December 31, 1997 compared to 51.3% at
December 31, 1996.
Reflecting the improved financial position, Lear received credit upgrades in
1997 from both Standard and Poor's Corporation ("S&P") and Moody's Investor
Service ("Moody's"). S&P upgraded Lear's corporate credit rating from BB+ to
BBB- and the 8 1/4% and 9 1/2% Subordinated Notes from BB- to BB+. Moody's
upgraded Lear's Credit Agreement from Ba1 to Baa3 and the 8 1/4% and 9 1/2%
Subordinated Notes from B1 to Ba3.
As of December 31, 1997, the Company had $648 million outstanding under the
Credit Agreement and $53 million committed under letters of credit, resulting
in approximately $1.1 billion unused and available. The Credit Agreement
matures on September 30, 2001 and may be used for general corporate purposes,
including acquisitions. Financing for the Keiper Car Seating, ITT Seat
Sub-Systems, Dunlop Cox and Empetek acquisitions was provided from borrowings
under the Company's Credit Agreement. In November 1997, the Company amended
certain Credit Agreement covenants to reduce restrictions on the Company's
ability to make acquisitions or invest internationally. Additionally, a
mechanism was added to fund short-term fluctuations in the Company's daily
working capital requirements more efficiently.
In addition to debt outstanding under the Credit Agreement, the Company had
$462 million of debt outstanding as of December 31, 1997, consisting primarily
of $336 million of the 8 1/4% and 9 1/2% subordinated notes due between 2002
and 2006 and $38 million of short-term borrowings. On July 15, 1997, the
Company redeemed $125 million in aggregate principal amount of its 11 1/4%
Senior Subordinated Notes due 2000 at par with borrowings under the Credit
Agreement. The Company's scheduled principal payments on
22
25
long-term debt are $9, $17, $7, $652, and $139 million in 1998, 1999, 2000,
2001 and 2002, respectively. The majority of the 2001 required principal
repayments relate to the expiration of the Credit Agreement.
In December 1997, the Company filed a $400 million universal shelf registration
statement, under which a variety of senior and subordinated debt instruments
can be issued. This registration statement was declared effective in January
1998 by the Securities and Exchange Commission and improves the Company's
flexibility to issue debt securities to finance the replacement of existing
subordinated notes, to reduce borrowings under the Credit Agreement, to fund
acquisitions, or for general corporate purposes.
In July 1996, the Company issued and sold 7.5 million shares of common stock
at $33.50 per share and $200 million aggregate principal amount of its 9 1/2%
Subordinated Notes due 2006. The $438 million of net proceeds ($243 and $195
million from the common stock offering and the subordinated notes offering,
respectively) received by the Company were used to repay indebtedness incurred
under the Credit Agreement in connection with the acquisition of Masland in
June 1996.
Cash Flow
Cash flows from operating activities generated $449 million in 1997 and $463
million in 1996. Net income increased 36.4%, from $152 million in 1996 to
$207 million in 1997, as a result of acquisitions, new business and increased
volume and content on existing programs. In addition, non-cash depreciation
and goodwill amortization charges contributed $184 million in 1997 compared to
$142 million in 1996, with the increase largely attributable to the
acquisitions of Keiper Car Seating, Borealis and Masland. The net change in
working capital provided a cash source of $100 million in 1997 and $216 million
in 1996.
Net cash used in investing activities decreased from $682 million in 1996 to
$520 million in 1997. The 1996 Masland and Borealis acquisitions resulted in a
net use of funds of $529 million, while the 1997 Keiper Car Seating, ITT Seat
Subsystems and Dunlop Cox acquisitions resulted in an aggregate net use of $332
million.
Capital Expenditures
Capital expenditures increased from $154 million in 1996 to $188 million in
1997 as a result of acquisitions, information systems, cost reduction projects
and to support existing and future programs. Capital expenditures for 1998 are
expected to increase to approximately $250 million, with the majority related
to the expansion of facilities worldwide to accommodate new and existing
interior system programs.
The Company believes that cash flows from operations together with available
credit facilities will be sufficient to meet its debt service obligations,
projected capital expenditures and working capital requirements.
OTHER MATTERS
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 certain damages resulting from sites of past spills, disposal or other
releases of hazardous substances. The Company's policy is to comply with all
applicable environmental laws and maintain procedures to ensure compliance.
However, the Company has been, and in the future may become, the subject of
formal or informal enforcement actions or procedures. 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 two Superfund sites where liability
has not been completely determined. The Company has also been identified as a
PRP at two additional sites. Management believes that the Company is, or may be,
responsible for less than one percent, if any, of the total costs at the two
Superfund sites. Expected liability, if any, at the two additional sites is not
material.
23
26
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.
During 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for the reporting and display of
comprehensive income. Comprehensive income is defined as all changes in a
Company's net assets except changes resulting from transactions with
shareholders. It differs from net income in that certain items currently
recorded to equity would be a part of comprehensive income. Comprehensive
income must be reported in a financial statement with the cumulative total
presented as a component of equity. SFAS No. 130 must be adopted by the
Company in its 1998 quarterly financial statements.
Foreign Currencies
As a result of the Company's continued global expansion, the amount of its
revenues and expenses denominated in currencies other than the U.S. dollar
continues to increase. The Company closely monitors its exposure to currency
fluctuations and, where cost justified, adopts strategies to reduce this
exposure.
Year 2000
The Company is currently working to resolve the potential impact of the year
2000 on the processing of date-sensitive information by the Company's
computerized information systems. The year 2000 problem is the result of
computer programs being written using two digits (rather than four) to define
the applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000, which could result in miscalculations or system failures. The Company
has completed an evaluation of the impact of the year 2000 issue and management
believes that the costs of addressing this issue will not have a material
impact on the Company's financial position, results of operations or cash flows
in future periods. The Company will expense any maintenance or modification
costs incurred to resolve this issue while the costs of new software will be
capitalized and amortized over the software's useful life.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Investors are cautioned that
any forward-looking statements, including statements regarding the intent,
belief or current expectations of the Company or its management, are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those in forward-looking statements
as a result of various factors including, but not limited to, (i) general
economic conditions in the markets in which the Company operates, (ii)
fluctuation in worldwide or regional automobile and light truck production,
(iii) labor disputes involving the Company or its significant customers, (iv)
changes in practices and/or policies of the Company's significant customers
toward outsourcing automotive components and systems, (v) fluctuations in
currency exchange rates and (vi) other risks detailed from time to time in the
Company's Securities and Exchange Commission filings. The Company does not
intend to update these forward-looking statements.
24
27
ITEM 8 CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Public Accountants 26
Consolidated Balance Sheets as of December 31, 1997 and 1996 27
Consolidated Statements of Income for the years ended December 31,
1997, 1996 and 1995 28
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995 29
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995 30
Notes to Consolidated Financial Statements 31
25
28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Lear Corporation:
We have audited the accompanying consolidated balance sheets of LEAR
CORPORATION AND SUBSIDIARIES ("the Company") as of December 31, 1997 and 1996,
and the related consolidated statements of income, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1997.
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 audit 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 December
31, 1997 and 1996, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Detroit, Michigan,
January 30, 1998.
26
29
CONSOLIDATED BALANCE SHEETS
LEAR CORPORATION AND SUBSIDIARIES
(In millions, except share data)
December 31, 1997 1996
- ---------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 12.9 $ 26.0
Accounts receivable, net of reserves of $14.7 in 1997 and $9.0 in 1996 1,065.8 909.6
Inventories 231.4 200.0
Recoverable customer engineering and tooling 152.6 113.9
Other 152.2 97.9
- ---------------------------------------------------------------------------------------------------
Total current assets 1,614.9 1,347.4
- ---------------------------------------------------------------------------------------------------
Long-Term Assets:
Property, plant and equipment, net 939.1 866.3
Goodwill, net 1,692.3 1,448.2
Other 212.8 154.9
- ---------------------------------------------------------------------------------------------------
Total long-term assets 2,844.2 2,469.4
- ---------------------------------------------------------------------------------------------------
$4,459.1 $3,816.8
===================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ 37.9 $ 10.3
Accounts payable and drafts 1,186.5 960.5
Accrued liabilities 620.5 520.2
Current portion of long-term debt 9.1 8.3
- ---------------------------------------------------------------------------------------------------
Total current liabilities 1,854.0 1,499.3
- ---------------------------------------------------------------------------------------------------
Long-Term Liabilities:
Deferred national income taxes 61.7 49.6
Long-term debt 1,063.1 1,054.8
Other 273.3 194.4
- ---------------------------------------------------------------------------------------------------
Total long-term liabilities 1,398.1 1,298.8
- ---------------------------------------------------------------------------------------------------
Stockholders' Equity:
Common Stock, par value $.01 per share, 150,000,000 shares authorized,
66,872,188 and 65,586,129 shares issued at December 31,1997 and
1996, respectively .7 .7
Additional paid-in capital 851.9 834.5
Notes receivable from sale of common stock (.1) (.6)
Common stock held in treasury, 10,230 shares at cost (.1) (.1)
Retained earnings 401.3 194.1
Minimum pension liability (.5) (1.0)
Cumulative translation adjustment (46.2) (8.9)
- ---------------------------------------------------------------------------------------------------
Total stockholders' equity 1,207.0 1,018.7
- ---------------------------------------------------------------------------------------------------
$4,459.1 $3,816.8
===================================================================================================
The accompanying notes are an integral part of these consolidated balance
sheets.
27
30
CONSOLIDATED STATEMENTS OF INCOME
LEAR CORPORATION AND SUBSIDIARIES
(In millions, except per share data)
For the year ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
Net sales $ 7,342.9 $ 6,249.1 $ 4,714.4
Cost of sales 6,533.5 5,629.4 4,311.3
Selling, general and administrative expenses 286.9 210.3 139.0
Amortization of goodwill 41.4 33.6 19.3
- ------------------------------------------------------------------------------------------------------
Operating income 481.1 375.8 244.8
Interest expense 101.0 102.8 75.5
Foreign currency exchange loss 6.4 .5 8.6
Other expense, net 27.9 19.1 7.8
- ------------------------------------------------------------------------------------------------------
Income before provision for national income taxes,
minority interests in consolidated subsidiaries,
equity in net income of affiliates and extraordinary item 345.8 253.4 152.9
Provision for national income taxes 143.1 101.5 63.1
Minority interests in consolidated subsidiaries 3.3 4.0 (1.7)
Equity in net income of affiliates (8.8) (4.0) (2.7)
- ------------------------------------------------------------------------------------------------------
Income before extraordinary item 208.2 151.9 94.2
Extraordinary loss on early extinguishment of debt 1.0 -- 2.6
- ------------------------------------------------------------------------------------------------------
Net income $ 207.2 $ 151.9 $ 91.6
======================================================================================================
Basic net income per share:
Income before extraordinary item $ 3.14 $ 2.51 $ 1.92
Extraordinary loss (.01) -- (.05)
- ------------------------------------------------------------------------------------------------------
Basic net income per share $ 3.13 $ 2.51 $ 1.87
======================================================================================================
Diluted net income per share:
Income before extraordinary item $ 3.05 $ 2.38 $ 1.79
Extraordinary loss (.01) -- (.05)
- ------------------------------------------------------------------------------------------------------
Diluted net income per share $ 3.04 $ 2.38 $ 1.74
======================================================================================================
The accompanying notes are an integral part of these consolidated statements.
28
31
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
LEAR CORPORATION AND SUBSIDIARIES
(In millions)
For the year ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------
COMMON STOCK
Balance at beginning of period $ .7 $ .6 $ .5
Sale of common stock (Note 4) -- .1 .1
- ------------------------------------------------------------------------------
Balance at end of period $ .7 $ .7 $ .6
==============================================================================
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period $ 834.5 $ 559.1 $274.3
Sale of common stock (Note 4) 00 242.7 281.4
Stock options exercised 8.4 6.7 .2
Stock options cancelled (5.8) -- --
Tax benefit of stock options exercised 14.8 17.0 1.3
Conversion of Masland stock options -- 9.0 --
Conversion of AI stock options -- -- 1.9
- ------------------------------------------------------------------------------
Balance at end of period $ 851.9 $ 834.5 $559.1
==============================================================================
NOTE RECEIVABLE FROM SALE OF COMMON STOCK
Balance at beginning of period $ (.6) $ (.9) $ (1.0)
Repayment of stockholders' note receivable .5 .3 .1
- ------------------------------------------------------------------------------
Balance at end of period $ (.1) $ (.6) $ (.9)
==============================================================================
TREASURY STOCK
Balance at beginning of period $ (.1) $ (.1) $ (.1)
- ------------------------------------------------------------------------------
Balance at end of period $ (.1) $ (.1) $ (.1)
==============================================================================
RETAINED EARNINGS (DEFICIT)
Balance at beginning of period $ 194.1 $ 42.2 $(49.4)
Net income 207.2 151.9 91.6
- ------------------------------------------------------------------------------
Balance at end of period $ 401.3 $ 194.1 $ 42.2
==============================================================================
MINIMUM PENSION LIABILITY
Balance at beginning of period $ (1.0) $ (3.5) $ (5.8)
Minimum pension liability adjustment .5 2.5 2.3
- ------------------------------------------------------------------------------
Balance at end of period $ (.5) $ (1.0) $ (3.5)
==============================================================================
CUMULATIVE TRANSLATION ADJUSTMENT
Balance at beginning of period $ (8.9) $ (17.4) $ (4.9)
Cumulative translation adjustment (37.3) 8.5 (12.5)
- ------------------------------------------------------------------------------
Balance at end of period $ (46.2) $ (8.9) $(17.4)
==============================================================================
TOTAL STOCKHOLDERS' EQUITY $1,207.0 $1,018.7 $580.0
==============================================================================
The accompanying notes are an integral part of these consolidated statements.
29
32
CONSOLIDATED STATEMENTS OF CASH FLOWS
LEAR CORPORATION AND SUBSIDIARIES
(In millions)
For the year ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 207.2 $ 151.9 $ 91.6
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization of goodwill 184.4 142.3 92.0
Post-retirement benefits accrued, net 8.5 6.9 6.4
Extraordinary loss 1.0 -- 2.6
Recoverable customer engineering and tooling, net (48.4) (35.3) 15.6
Other, net (3.7) (19.1) (.6)
Net change in working capital items 100.4 215.9 (74.8)
- --------------------------------------------------------------------------------------------------
Net cash provided by operating activities 449.4 462.6 132.8
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (187.9) (153.8) (110.7)
Acquisitions (332.2) (529.0) (881.3)
Other, net .4 1.1 6.2
- --------------------------------------------------------------------------------------------------
Net cash used in investing activities (519.7) (681.7) (985.8)
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term revolving credit borrowings, net (Note 8) 136.9 (211.3) 595.2
Additions to other long-term debt 24.1 317.3 8.0
Reductions in other long-term debt (157.1) (113.7) (3.5)
Short-term borrowings, net 24.2 (7.5) (72.2)
Proceeds from sale of common stock, net 8.4 249.5 281.7
Deferred financing fees (.2) (3.1) (9.6)
Increase (decrease) in drafts 2.2 (29.5) 42.2
Other, net .5 (.1) .1
- --------------------------------------------------------------------------------------------------
Net cash provided by financing activities 39.0 201.6 841.9
- --------------------------------------------------------------------------------------------------
Effect of foreign currency translation 18.2 9.4 13.2
- --------------------------------------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (13.1) (8.1) 2.1
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 26.0 34.1 32.0
- --------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 12.9 $ 26.0 $ 34.1
==================================================================================================
CHANGES IN WORKING CAPITAL, NET OF EFFECTS OF ACQUISITIONS:
Accounts receivable, net $ (72.7) $ 42.5 $(156.4)
Inventories (10.3) 30.9 (27.4)
Accounts payable 150.4 52.7 42.6
Accrued liabilities and other 33.0 89.8 66.4
- --------------------------------------------------------------------------------------------------
$ 100.4 $ 215.9 $ (74.8)
==================================================================================================
SUPPLEMENTARY DISCLOSURE:
Cash paid for interest $ 109.3 $ 97.0 $ 72.9
==================================================================================================
Cash paid for income taxes $ 91.9 $ 74.3 $ 57.3
==================================================================================================
The accompanying notes are an integral part of these consolidated statements.
30
33
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Lear Corporation,
a Delaware corporation ("Lear"), and its wholly-owned and majority-owned
subsidiaries (collectively, the "Company"). Investments in less than
majority-owned businesses are generally accounted for under the equity method
(Note 6).
The Company and its affiliates are involved in the design and manufacture of
interior systems and components for automobiles and light trucks. The Company's
main customers are automotive original equipment manufacturers. The Company
operates facilities worldwide (Note 15). Certain foreign subsidiaries are
consolidated as of November 30.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method. Finished goods and work-in-process inventories
include material, labor and manufacturing overhead costs. Inventories are
comprised of the following (in millions):
December 31, 1997 1996
- ----------------------------------------------------------------------------------------------------
Raw materials $ 165.7 $ 124.7
Work-in-process 22.5 25.0
Finished goods 43.2 50.3
- ----------------------------------------------------------------------------------------------------
$ 231.4 $ 200.0
====================================================================================================
Recoverable Customer Engineering and Tooling
Costs incurred by the Company for certain engineering and tooling projects for
which customer reimbursement is anticipated are capitalized and classified as
either recoverable customer engineering and tooling or other long-term assets
dependent upon when reimbursement is anticipated. Provisions for losses are
provided at the time the Company anticipates engineering and tooling costs to
exceed anticipated customer reimbursement.
Property, Plant and Equipment
Property, plant and equipment is 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
- --------------------------------------------------------------------------------
A summary of property, plant and equipment is shown below (in millions):
December 31, 1997 1996
- -----------------------------------------------------------------------------------------------------
Land $ 60.5 $ 52.3
Buildings and improvements 345.9 302.2
Machinery and equipment 919.4 790.4
Construction in progress 54.8 31.8
- -----------------------------------------------------------------------------------------------------
Total property, plant and equipment 1,380.6 1,176.7
Less accumulated depreciation (441.5) (310.4)
- -----------------------------------------------------------------------------------------------------
Net property, plant and equipment $ 939.1 $ 866.3
=====================================================================================================
Goodwill
Goodwill is amortized on a straight-line basis over 40 years. Accumulated
amortization of goodwill amounted to $156.9 million and $115.1 million at
December 31, 1997 and 1996, respectively.
31
34
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
Long Term Assets
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No.121, "Recognition of Impairment of Long-Lived Assets," as of January 1,
1996. In accordance with this statement, the Company re-evaluates the carrying
values of its long-term assets whenever circumstances arise which call into
question the recoverability of such carrying values. The evaluation takes into
account all future estimated cash flows from the use of assets, with an
impairment being recognized if the evaluation indicates that the future cash
flows will not be greater than the carrying value. No such impairment was
recognized in 1997 or 1996.
Research and Development
Costs incurred in connection with the development of new products and
manufacturing methods to the extent not recoverable from the Company's
customers are charged to selling, general and administrative expenses as
incurred. These costs amounted to $90.4 million, $70.0 million and $53.3
million for the years ended December 31, 1997, 1996 and 1995, respectively.
Engineering expenses related to current production are charged to cost of sales
as incurred and amounted to $28.5 million, $21.4 million and $14.1 million for
the years ended December 31, 1997, 1996 and 1995, respectively.
Foreign Currency Translation
With the exception of foreign subsidiaries operating in highly inflationary
economies, which are measured in U.S. dollars, assets and liabilities of
foreign subsidiaries are translated into U.S. dollars at the exchange rates in
effect at the end of the period. Revenues and expenses of foreign subsidiaries
are translated using an average of exchange rates in effect during the period.
Translation adjustments that arise from translating a foreign subsidiary's
financial statements from the functional currency to U.S. dollars are reflected
as cumulative translation adjustment in the consolidated balance sheets. The
Company's operations in Brazil, whose functional currency is the Brazilian
Real, have not been treated as highly inflationary.
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.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Although no single asset or
liability subject to estimation is material to the Company's consolidated
financial position, in aggregate such items are material. Generally, assets and
liabilities subject to estimation and judgment include amounts related to
unsettled pricing discussions with customers and suppliers, pension and
post-retirement costs (Notes 10 and 11), plant consolidation and reorganization
reserves, self-insurance accruals, asset valuation reserves and accruals
related to litigation and environmental remediation costs. Management does not
believe that the ultimate settlement of any such assets or liabilities will
materially affect the Company's financial position or future results of
operations.
The Company has established reserves related to severance, business
consolidation and fixed asset recovery issues mainly as a result of the
acquisitions discussed in Note 3. As of December 31, 1997, reserves for
severance costs were $25.1 million, reserves for business consolidations were
$16.0 million and reserves for fixed asset recovery issues were $12.3 million.
The amount of these reserves utilized, including amounts paid or fixed asset
value adjustments, in the year ended December 31, 1997 was $6.9 million, $3.7
million, and $1.7 million for severance, business consolidations and fixed
asset recovery issues, respectively. As of December 31, 1996, reserves for
severance costs were $15.0 million, reserves for business consolidations were
$8.4 million and reserves for fixed asset recovery issues were $10.5 million.
32
35
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
Earnings Per Share
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share," which was
effective December 15, 1997. The statement changes the calculation of earnings
per share to be more consistent with countries outside of the United States.
In general, the statement requires two calculations of earnings per share to be
disclosed, basic EPS and diluted EPS. Basic EPS is computed using only
weighted average shares outstanding. Diluted EPS is computed using the average
share price for the period when calculating the dilution of stock options. Net
income per share information has been restated for all years presented. Shares
outstanding for the years ended December 31,1997, 1996 and 1995, respectively,
were as follows:
1997 1996 1995
---- ---- ----
Weighted average shares outstanding 66,304,770 60,485,696 48,944,181
Dilutive effect of stock options 1,943,313 3,275,938 3,544,757
---------- ---------- ----------
Diluted shares outstanding 68,248,083 63,761,634 52,488,938
========== ========== ==========
Reclassifications
Certain items in prior years' financial statements have been reclassified to
conform with the presentation used in the year ended December 31, 1997.
(3) ACQUISITIONS
1997 ACQUISITIONS
ITT AUTOMOTIVE SEAT SUB-SYSTEMS UNIT
On August 25, 1997, the Company acquired the Seat Sub-Systems Unit of ITT
Automotive, a division of ITT Industries ("ITT Seat Sub-Systems"). ITT Seat
Sub-Systems was a North American supplier of power seat adjusters and power
recliners with 1996 sales to non-Lear facilities of approximately $115 million.
KEIPER CAR SEATING GMBH & CO.
On July 31, 1997, the Company acquired certain equity and partnership interests
in Keiper Car Seating GmbH & Co. and certain of its subsidiaries and affiliates
(collectively, "Keiper Seating") for approximately $252.5 million. Keiper
Seating was a leading supplier of automotive vehicle seat systems with
operations in Germany, Italy, Hungary, Brazil and South Africa with unaudited
sales for the year ended December 31, 1996 of approximately $615 million.
As part of the Keiper Seating acquisition, the Company had acquired a 25%
ownership interest in Euro American Seating Corporation ("EAS"). On December
12, 1997, the Company acquired the remaining 75% of EAS. EAS was a supplier
of automotive seat systems to original equipment manufacturers with 1997 sales
of approximately $30 million.
DUNLOP COX LIMITED
On June 5, 1997, the Company acquired all of the outstanding shares of common
stock of Dunlop Cox Limited ("Dunlop Cox"). Dunlop Cox, based in Nottingham,
England, provided Lear with the ability to design and manufacture manual and
electronically-powered automotive seat adjusters. For the year ended December
31, 1996, Dunlop Cox had sales of approximately $39 million.
The ITT Seat Sub-Systems, Keiper Seating and Dunlop Cox acquisitions
(collectively, the "1997 Acquisitions") were accounted for as purchases, and
accordingly, the assets purchased and liabilities assumed in the acquisitions
have been reflected in the accompanying balance sheet as of December 31, 1997.
The operating results of the 1997 Acquisitions have been included in the
consolidated financial statements of the Company since the date of each
acquisition. The aggregate purchase price of the 1997 Acquisitions and related
allocation, were as follows (in millions):
33
36
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
- --------------------------------------------------------------------------------------
Consideration paid to former owners, net of cash acquired of $ 9.2 million $332.2
Deferred purchase price 28.1
Debt assumed 4.4
Estimated fees and expenses 3.5
- --------------------------------------------------------------------------------------
Cost of acquisitions $368.2
======================================================================================
Property, plant and equipment $ 85.0
Net working capital 11.9
Other assets purchased and liabilities assumed, net (4.9)
Goodwill 276.2
- --------------------------------------------------------------------------------------
Total cost allocation $368.2
======================================================================================
The purchase price and related allocation for each of these acquisitions may be
revised up to one year from the date of acquisition based on revisions of
preliminary estimates of fair values made at the date of purchase. Such
changes are not expected to be significant.
1996 ACQUISITIONS
BOREALIS INDUSTRIER, AB
On December 10, 1996, the Company acquired all of the issued and outstanding
capital stock of Borealis Industrier, AB ("Borealis") for an aggregate purchase
price of $91.1 million (including the assumption of $18.8 million of Borealis'
existing net indebtedness and $1.5 million of fees and expenses). Borealis was
a supplier of instrument panels and other interior components to the European
automotive market. The Borealis acquisition was accounted for as a purchase,
and accordingly, the assets purchased and liabilities assumed have been
reflected in the accompanying balance sheets. The operating results of Borealis
have been included in the consolidated financial statements of the Company
since the date of acquisition.
MASLAND CORPORATION
On June 27, 1996, the Company, through a wholly-owned subsidiary ("PA
Acquisition Corp."), acquired 97% of the issued and outstanding shares of
common stock of Masland Corporation ("Masland") pursuant to an offer to
purchase which was commenced on May 30, 1996. On July 1, 1996, the remaining
issued and outstanding shares of common stock of Masland were acquired and PA
Acquisition Corp. merged with and into Masland, such that Masland became a
wholly-owned subsidiary of the Company. The aggregate purchase price for the
acquisition of Masland (the "Masland Acquisition") was $473.8 million
(including the assumption of $80.7 million of Masland's existing net
indebtedness and $8.1 million in fees and expenses). Funds for the Masland
Acquisition were provided by borrowings under the $1.5 Billion Credit Agreement
and the $300 Million Credit Agreement, as described in Note 8.
Masland was a leading supplier of floor and acoustic systems to the North
American automotive market. Masland also was a major supplier of interior
luggage compartment trim components and other acoustical products which are
designed to minimize noise, vibration and harshness for passenger cars and
light trucks.
The Masland Acquisition was accounted for as a purchase, and accordingly, the
assets purchased and liabilities assumed in the acquisition have been reflected
in the accompanying balance sheets. The operating results of Masland have been
included in the consolidated financial statements of the Company since the date
of acquisition. The purchase price and final allocation, which was not
materially different than preliminary estimates, were as follows (in millions):
34
37
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
- ----------------------------------------------------------------------------------
Consideration paid to stockholders, net of cash acquired of $16.1 million $337.8
Consideration paid to former Masland stock option holders 22.1
Debt assumed 96.8
Stock options issued to former Masland option holders 9.0
Fees and expenses 8.1
- ----------------------------------------------------------------------------------
Cost of acquisition $473.8
==================================================================================
Property, plant and equipment $125.8
Net working capital 31.5
Other assets purchased and liabilities assumed, net (15.7)
Goodwill 332.2
- ----------------------------------------------------------------------------------
Total cost allocation $473.8
==================================================================================
See Note 17 for pro forma information.
1995 ACQUISITION
AUTOMOTIVE INDUSTRIES
On August 17, 1995, the Company purchased all of the issued and outstanding
shares of common stock of Automotive Industries Holding, Inc. ("AI") for an
aggregate purchase price of approximately $881.3 million, including the
retirement of $250.5 million of AI's existing indebtedness and $14.4 million in
fees and expenses (the "AI Acquisition"), including $4.8 million paid to Lehman
Brothers Inc., an affiliate of the Lehman Funds as defined in Note 4. AI was a
leading designer and manufacturer of high-quality interior trim systems and
blow molded products principally for North American and European car and light
truck manufacturers.
The AI Acquisition was accounted for as a purchase, and accordingly the assets
purchased and liabilities assumed in the acquisition have been reflected in the
accompanying balance sheets. The operating results of AI have been included in
the consolidated financial statements of the Company since the date of
acquisition. The purchase price and the related allocation, were as follows (in
millions):
- -------------------------------------------------------------------------------------
Cash consideration paid to stockholders, net of cash acquired of $9.1 million $614.5
Stock options issued to former AI option holders 1.9
Retirement of debt assumed 250.5
Fees and expenses 14.4
- -------------------------------------------------------------------------------------
Cost of acquisition $881.3
=====================================================================================
Property, plant and equipment $264.7
Net non-cash working capital 43.8
Other assets purchased and liabilities assumed, net (1.7)
Debt assumed (33.9)
Goodwill 608.4
- -------------------------------------------------------------------------------------
Total cost allocation $881.3
=====================================================================================
See Note 17 for pro forma information.
(4) PUBLIC STOCK OFFERINGS
COMPANY OFFERINGS
In July 1996, the Company issued and sold 7,500,000 shares of common stock in a
public offering (the "1996 Offering"). The total proceeds to the Company from
the stock issuance were $251.3 million. Fees and expenses related to the 1996
Offering totaled $8.5 million, including approximately $1.1 million paid to
Lehman Brothers Inc., an affiliate of the Lehman Funds. Net of issuance costs,
the Company received $242.8 million, which was used to repay debt incurred in
connection with the Masland Acquisition (Note 3). See Note 17 for pro forma
information.
35
38
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
In September 1995, the Company issued and sold 10,000,000 shares of common
stock in a public offering (the "1995 Offering"). The total proceeds to the
Company from the stock issuance were $292.5 million. Fees and expenses related
to the 1995 Offering totaled $11.0 million, including approximately $1.8
million paid to Lehman Brothers Inc. Net of issuance costs, the Company
received $281.5 million, which was used to repay debt incurred in connection
with the AI Acquisition (Note 3). See Note 17 for pro forma information.
SECONDARY OFFERINGS
In June 1997, the Company's then-largest shareholders, certain merchant banking
partnerships affiliated with Lehman Brothers Holdings, Inc., (the "Lehman
Funds"), sold all 10,284,854 of their remaining shares of common stock of Lear
in a secondary offering. Prior to the offering, the Lehman Funds held
approximately 16% of the outstanding common stock of the Company. The Company
received no proceeds from the sale of these shares.
Concurrent with the 1996 and 1995 Offerings, 7,500,000 shares and 11,500,000
shares, respectively, were sold by certain stockholders of the Company,
including the Lehman Funds. The Company received no proceeds from the sales of
these shares.
(5) SUBORDINATED NOTES OFFERINGS
In July 1996, the Company completed a public offering of $200.0 million
principal amount of its 9 1/2% Subordinated Notes due 2006 (the "9 1/2%
Notes"). Interest is payable on the 9 1/2% Notes semi-annually on January 15
and July 15. Fees and expenses related to the issuance of the 9 1/2% Notes were
approximately $4.5 million. Net of issuance costs, the Company received $195.5
million, which was used to repay debt incurred in connection with the
acquisition of Masland (Note 3). See Note 17 for pro forma information.
(6) INVESTMENTS IN AFFILIATES
The investments in affiliates are as follows:
Percent Beneficial Ownership as of December 31, 1997 1996 1995
-----------------------------------------------------------------------------
Sommer Masland UK Limited 50% 50% -%
Industrias Cousin Freres, S.L. (Spain) 50 50 50
Lear - Donnelly Overhead Systems, L.L.C. 50 - -
SALBI, A.B. 50 50 -
Lear Corporation Thailand 49 49 49
Detroit Automotive Interiors, L.L.C. 49 49 -
Interiores Automotrices Summa, S.A. de C.V. (Mexico) 40 40 40
General Seating of America, Inc. 35 35 35
General Seating of Canada, Ltd. 35 35 35
Markol Otomotiv Yan Sanayi Ve Ticaret (Turkey) 35 35 35
Jiangxi Jiangling Lear, Interior Systems Co., Ltd. (China) 33 50 -
Guildford Kast Plastifol Dynamics, Ltd. (U.K.) 33 33 33
Probel, S.A. (Brazil) 31 31 31
Precision Fabrics Group 29 29 -
Pacific Trim Corporation Ltd. (Thailand) 20 20 20
=============================================================================
All of the above investments in affiliates are accounted for using the equity
method, except Probel, S.A. which is accounted for using the cost method. The
investments in Guildford Kast Plastifol Dynamics, Ltd. and Interiores
Automotrices Summa, S.A. de C.V. were acquired as part of the AI Acquisition
(Note 3). The investments in Sommer Masland UK Limited and Precision Fabrics
Group were acquired as part of the Masland Acquisition (Note 3). The investment
in SALBI, A.B. was acquired as part of the Borealis acquisition (Note 3).
In October, 1997, the Company formed a joint venture with Donnelly Corporation
named Lear-Donnelly Overhead Systems, L.L.C. The joint venture designs,
develops, markets and produces overhead systems for the global automotive
market.
36
39
LEAR 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 millions):
December 31, 1997 1996
------------------------------------------------------------------
Balance sheet data:
Current assets $127.7 $134.1
Non-current assets 78.1 79.3
Current liabilities 69.8 67.7
Non-current liabilities 77.7 60.9
==================================================================
Year Ended December 31, 1997 1996 1995
------------------------------------------------------------------
Income statement data:
Net sales $493.2 $471.0 $201.6
Gross profit 75.4 68.1 37.9
Income before provision for income taxes 25.2 21.6 14.2
Net income 20.3 17.9 10.0
==================================================================
The aggregate investment in affiliates was $71.3 million and $53.2 million as
of December 31, 1997 and 1996, respectively. The Company had sales to
affiliates of approximately $28.1 million, $22.2 million and $17.6 million for
the years ended December 31, 1997, 1996 and 1995, respectively. Dividends of
approximately $3.9 million, $3.0 million and $1.3 million were received by the
Company for the years ended December 31, 1997, 1996 and 1995, respectively. The
Company has guaranteed certain obligations of its affiliates. The Company's
share of amounts outstanding under guaranteed obligations as of December 31,
1997 amounted to $3.1 million. Management does not believe that the Company
will be required to pay any amounts related to these guarantees.
On January 2, 1998, the Company purchased an additional 15% of the outstanding
common stock of General Seating of America, Inc. and General Seating of Canada,
Ltd.
(7) SHORT-TERM BORROWINGS
Short-term borrowings consist of lines of credit. At December 31, 1997, the
Company had unsecured lines of credit available from banks of approximately
$284.1 million, subject to certain restrictions imposed by the Credit Agreement
(Note 8). Weighted average interest rates on the outstanding borrowings at
December 31, 1997 and 1996 were 7.2% and 9.4%, respectively.
(8) LONG-TERM DEBT
Long-term debt is comprised of the following (in millions):
December 31, 1997 1996
----------------------------------------------------
Credit agreements $647.7 $481.3
Other 88.5 111.8
----------------------------------------------------
736.2 593.1
Less - Current portion (9.1) (8.3)
----------------------------------------------------
727.1 584.8
----------------------------------------------------
9 1/2% Subordinated Notes 200.0 200.0
8 1/4% Subordinated Notes 136.0 145.0
11 1/4% Senior Subordinated Notes - 125.0
----------------------------------------------------
336.0 470.0
----------------------------------------------------
$1,063.1 $1,054.8
====================================================
37
40
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
In November 1997, the Company amended its $1.8 billion senior revolving credit
facility (the "Credit Agreement") to reduce restrictions on the Company's
ability to make acquisitions or capital expenditures, and invest
internationally. Additionally, a money market rate swing-line loan option was
added. The Credit Agreement matures on September 30, 2001 and borrowings
thereunder may be used for general corporate purposes. The Credit Agreement is
secured by a pledge of the capital stock of certain of the Company's domestic
and foreign subsidiaries, and the Company's obligations thereunder are
guaranteed by certain of its significant domestic subsidiaries. Loans under the
Credit Agreement bear interest, at the election of the Company, at a floating
rate equal to (i) the higher of a specified bank's prime rate and the federal
funds rate plus 0.5%, (ii) the money market rate or (iii) the Eurodollar rate
plus .275% to .625%, depending on the level of a certain financial ratio.
The Company had available under the Credit Agreement unused long-term revolving
credit commitments of $1.1 billion at December 31, 1997, net of $53.1 million
of outstanding letters of credit. Borrowings on revolving credit loans were
$3,422.3 million, $2,790.8 million and $4,979.5 million for the years ended
December 31, 1997, 1996 and 1995, respectively. Repayments on revolving credit
loans were $3,260.3 million, $3,027.8 million and $4,384.3 million for the
years ended December 31, 1997, 1996 and 1995, respectively. Interest was being
charged at the Eurodollar rate plus .275%, approximately 5.83% at December
31, 1997 and the Eurodollar rate plus .300%, approximately 5.97% at December
31, 1996, for loans under the Credit Agreement.
Other senior debt at December 31, 1997, is principally made up of amounts
outstanding under the Canadian Dollar Revolving Term Facility, certain capital
leases and a term loan with a German bank. Other senior debt matures
principally in years 1998 to 2000 and bears interest at rates consistent with
the Company's other debt instruments.
The 8 1/4% Subordinated Notes, due in 2002, require interest payments
semi-annually on February 1 and August 1 and are callable beginning February 1,
1998. The 9 1/2% Subordinated Notes, due in 2006, require interest payments
semi-annually on January 15 and July 15 and are callable beginning July 15,
2001. In July 1997, the Company redeemed all of its 11 1/4% Senior Subordinated
Notes due 2000 (the "11 1/4% Notes") at par using borrowings under the Credit
Agreement. The accelerated amortization of deferred financing fees related to
the 11 1/4% Notes totaled approximately $1.6 million. This amount, net of the
related tax benefit of $.6 million, has been reflected as an extraordinary loss
in the consolidated statement of income.
In December 1996, the Company amended and restated its Credit Agreement with a
syndicate of financial institutions to consolidate a $1.5 billion credit
agreement originated in August 1995 (the "$1.5 Billion Credit Agreement") and
a $300 million credit agreement originated in June 1996 (the "$300 Million
Credit Agreement"). The $1.5 Billion Credit Agreement refinanced a $500
Million Credit Agreement which was originated in November 1994 (the "$500
Million Credit Agreement"). See Note 17 for pro forma information. The
accelerated amortization of deferred financing fees related to the $500 Million
Credit Agreement totaled approximately $4.0 million. This amount, net of the
related tax benefit of $1.4 million, has been reflected as an extraordinary
loss in the consolidated statement of income for the year ended December 31,
1995. Lehman Commercial Paper, Inc., an affiliate of the Lehman Funds, was a
managing agent of the $1.5 Billion Credit Agreement and received fees of $.5
million in connection with this transaction.
The Credit Agreement and indentures relating to the Company's subordinated debt
contain restrictive covenants. The most restrictive of these covenants are the
Credit Agreement's financial covenants related to maintenance of certain levels
of leverage and interest coverage. These agreements also, among other things,
restrict the Company's ability to incur additional indebtedness, declare
dividends, create liens, make investments and advances and sell assets.
The scheduled maturities of long-term debt at December 31, 1997 for the five
succeeding years are as follows (in millions):
1998 $ 9.1
- -------------------------------------------------------------------------
1999 17.4
- -------------------------------------------------------------------------
2000 6.5
- -------------------------------------------------------------------------
2001 651.8
- -------------------------------------------------------------------------
2002 139.0
- -------------------------------------------------------------------------
38
41
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
(9) NATIONAL INCOME TAXES
A summary of income before provision for national income taxes and components of
the provision for national income taxes is as follows (in millions):
Year Ended December 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------------------
Income before provision for national income taxes,
minority interests in consolidated subsidiaries, equity
in net income of affiliates and extraordinary item:
Domestic $ 213.2 $ 135.7 $ 51.0
Foreign 132.6 117.7 101.9
- ----------------------------------------------------------------------------------------------------
$ 345.8 $ 253.4 $ 152.9
====================================================================================================
Domestic provision for national income taxes:
Current provision $ 109.8 $ 48.4 $ 31.6
- ----------------------------------------------------------------------------------------------------
Deferred -
Deferred provision (18.3) 2.8 (12.2)
Benefit of previously unbenefitted net
operating loss carryforwards (5.9) - (.4)
- ----------------------------------------------------------------------------------------------------
(24.2) 2.8 (12.6)
- ----------------------------------------------------------------------------------------------------
Total domestic provision 85.6 51.2 19.0
- ----------------------------------------------------------------------------------------------------
Foreign provision for national income taxes:
Current provision 65.1 51.0 41.2
- ----------------------------------------------------------------------------------------------------
Deferred -
Deferred provision (1.9) 6.6 5.3
Benefit of previously unbenefitted net
operating loss carryforwards (5.7) (7.3) (2.4)
- ----------------------------------------------------------------------------------------------------
(7.6) (.7) 2.9
- ----------------------------------------------------------------------------------------------------
Total foreign provision 57.5 50.3 44.1
- ----------------------------------------------------------------------------------------------------
Provision for national income taxes $ 143.1 $ 101.5 $ 63.1
====================================================================================================
The differences between tax provisions calculated at the United States Federal
statutory income tax rate of 35% for the years ended December 31, 1997, 1996 and
1995, and the consolidated national income tax provision are summarized as
follows (in millions):
Year Ended December 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------------------
Income before provision for national income taxes,
minority interests in consolidated subsidiaries,
equity in net income of affiliates and extraordinary
item multiplied by the United States Federal statutory rate $121.0 $ 88.7 $ 53.5
Differences between domestic and effective foreign tax rates 3.9 1.3 (3.3)
Net operating losses not tax benefited 10.2 15.8 11.4
Decrease in valuation allowance (3.6) (8.3) (4.2)
Domestic income taxes provided on foreign earnings -- -- 2.6
Amortization of goodwill 12.4 10.4 5.8
Utilization of net operating losses and other (.8) (6.4) (2.7)
- ----------------------------------------------------------------------------------------------------
$143.1 $101.5 $ 63.1
====================================================================================================
Deferred national income taxes represent temporary differences in the
recognition of certain items for income tax and financial reporting purposes.
The components of the deferred national income tax (asset) liability are
summarized as follows (in millions):
39
42
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
December 31, 1997 1996
---------------------------------------------------------------------------
Deferred national income tax liabilities:
Long-term asset basis differences $ 63.4 $ 54.5
Taxes provided on unremitted foreign earnings 10.3 15.6
Retirement benefit plans -- 3.1
Deferred finance fees 2.9 --
Recoverable customer engineering and tooling 30.3 12.0
Other 2.1 10.3
---------------------------------------------------------------------------
$ 109.0 $ 95.5
===========================================================================
Deferred national income tax assets:
Tax credit carryforwards $ (.3) $ --
Tax loss carryforwards (78.7) (66.4)
Retirement benefit plans (22.4) (24.1)
Accruals (64.8) (32.1)
Self -insurance reserves (11.6) (10.4)
Asset valuations (18.2) --
Minimum pension liabilities (2.6) (2.1)
Deferred compensation (2.4) (3.9)
Other (6.5) (9.9)
---------------------------------------------------------------------------
(207.5) (148.9)
Valuation allowance 64.8 61.2
---------------------------------------------------------------------------
$(142.7) $ (87.7)
===========================================================================
Net deferred national income tax (asset) liability $ (33.7) $ 7.8
===========================================================================
Deferred national income tax assets have been fully offset by a valuation
allowance in certain foreign tax jurisdictions due to a history of operating
losses. The classification of the net deferred national income tax (asset)
liability is summarized as follows (in millions):
December 31, 1997 1996
- -----------------------------------------------------------------------------------
Deferred national income tax assets:
Current $ (85.9) $ (41.5)
Long-term (15.0) (2.9)
Deferred national income tax liabilities:
Current 5.5 2.6
Long-term 61.7 49.6
- -----------------------------------------------------------------------------------
Net deferred national income tax (asset) liability $ (33.7) $ 7.8
===================================================================================
Deferred national income 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 have
not been provided on the undistributed earnings of the Company's other foreign
subsidiaries as such amounts are considered to be permanently reinvested. The
cumulative undistributed earnings at December 31, 1997 on which the Company had
not provided additional national income taxes were approximately $106.9
million.
As of December 31, 1997, the Company had tax loss carryforwards of $189.0
million which relate to certain foreign subsidiaries. Of the total loss
carryforwards, $91.2 million has no expiration and $97.8 million expires in
1998 through 2004.
40
43
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
(10) RETIREMENT PLANS
The Company has noncontributory defined benefit pension plans covering certain
domestic employees and certain employees in foreign countries. The Company's
salaried plans provide benefits based on a five-year average earnings formula.
Hourly pension plans provide benefits under flat benefit formulas. The Company
also has contractual arrangements with certain employees which provide for
supplemental retirement benefits. In general, the Company's policy is to fund
these plans based on legal requirements, tax considerations and local
practices.
Components of the Company's net pension expense are as follows (in millions):
Year Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------------------
Service cost $ 14.7 $ 10.6 $ 6.2
Interest cost on projected benefit obligation 13.4 10.6 7.4
Actual return on assets (20.1) (13.1) (12.1)
Net amortization and deferral 13.4 8.4 6.9
- -------------------------------------------------------------------------------------------
Net pension expense $ 21.4 $ 16.5 $ 8.4
===========================================================================================
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 (based on September 30 and December 31 measurement
dates in 1997 and 1996, respectively, in millions):
DECEMBER 31, 1997 December 31, 1996
---------------------------- ----------------------------
PLANS WHOSE PLANS WHOSE Plans Whose Plans Whose
ASSETS EXCEED ABO EXCEEDS Assets Exceed ABO Exceeds
ABO ASSETS ABO Assets
- -------------------------------------------------------------------------------------------------------------------
Actuarial present value of:
Vested benefit obligation $ 38.2 $121.5 $ 26.8 $ 93.2
Non-vested benefit obligation 6.9 6.1 3.8 5.1
- ----------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation (ABO) 45.1 127.6 30.6 98.3
Effects of anticipated future compensation increases 19.9 8.4 19.4 5.8
- ----------------------------------------------------------------------------------------------------------------
Projected benefit obligation 65.0 136.0 50.0 104.1
Plan assets at fair value 59.6 78.4 39.2 68.8
- ----------------------------------------------------------------------------------------------------------------
Projected benefit obligation in excess of
plan assets 5.4 57.6 10.8 35.3
Unamortized net gain (loss) 3.8 (1.9) (2.1) (3.2)
Unrecognized prior service cost 2.1 (31.5) (.5) (21.6)
Unamortized net asset (obligation) at transition 1.9 1.1 2.4 (.9)
Adjustment required to recognize minimum liability -- 26.9 .1 18.2
- ----------------------------------------------------------------------------------------------------------------
Accrued pension liability recorded
in the consolidated balance sheets $ 13.2 $ 52.2 $ 10.7 $ 27.8
================================================================================================================
41
44
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
The projected benefit obligation for plans whose ABO exceeds assets includes
both foreign and domestic plans. For domestic plans this excess was $19.8
million and $18.9 million as of December 31, 1997 and 1996, respectively. The
actuarial assumptions used in determining pension expense and the funded status
information shown above were as follows:
Year Ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------
Discount rate:
Domestic plans 7.5% 7.25-7.5% 7.25-8%
Foreign plans 4.5-7.5% 7-8% 7-8%
- -----------------------------------------------------------------------------------------
Rate of salary progression:
Domestic plans 5% 5-5.8% 5.6%
Foreign plans 1-5% 3-5% 3-5%
- -----------------------------------------------------------------------------------------
Long-term rate of return on assets:
Domestic plans 9% 7.75-9% 7.75-9%
Foreign plans 7.5% 8% 8%
=========================================================================================
Plan assets include cash equivalents, common and preferred stock, and
government and corporate debt securities.
SFAS No. 87, "Employers' Accounting for Pensions," required the Company to
record a minimum liability as of December 31, 1997 and 1996. As of December 31,
1997, the Company recorded a long-term liability of $26.9 million, an
intangible asset of $26.1 million, which is included with other assets, and a
reduction in stockholders' equity of $.5 million, net of income taxes of $.3
million.
In 1997, one of the Company's defined benefit pension plans agreed to provide a
series of early retirement windows. In addition, the Canadian plans decreased
the assumed discount rate from 8.0% in 1996 to 7.5% in 1997. Also, the
measurement date was changed from December 31 in 1996 to September 30 in 1997.
The aggregate impact of these changes was to increase pension cost and ABO by
$4.0 million and $11.8 million, respectively.
In 1996, one of the Company's defined benefit pension plans increased the
benefit rate and increased the supplemental early retirement benefit. In
addition, the domestic plans decreased the assumed discount rate from 8.0% in
1995 to 7.5% in 1996. The aggregate impact of these changes was to increase
pension cost and ABO by $1.4 million and $5.0 million, respectively.
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 income was $10.4 million, $4.7 million and $2.6
million for the years ended December 31, 1997, 1996 and 1995, respectively.
(11) POST-RETIREMENT BENEFITS
The Company's post-retirement plans cover a portion of the Company's domestic
employees and Canadian employees. The 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.
On January 1, 1995, the Company adopted SFAS No. 106, "Employers' Accounting
for Post-retirement Benefits Other Than Pensions," for its foreign plans. This
standard 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. As of January 1, 1995, the Company's Accumulated Post-retirement
Benefit Obligation ("APBO") for its foreign plans was approximately $9.7
million which is being amortized over approximately 11 years, representing the
average remaining service life of the eligible employees.
The Company adopted SFAS No. 106 for its domestic plans as of July 1, 1993. At
that date, the Company's APBO was approximately $32.0 million. Because the
Company had previously recorded a liability of $6.3 million related to these
benefits,
42
45
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
the net transition obligation was $25.7 million and is being amortized over 20
years. The following table sets forth a reconciliation of the funded status of
the accrued post-retirement benefit obligation to the related amounts recorded
in the consolidated financial statements as of December 31, 1997 and 1996
(based on September 30 and December 31 measurement dates in 1997 and 1996,
respectively, in millions):
December 31, 1997 1996
- --------------------------------------------------------------------------
Accumulated Post-retirement Benefit Obligation:
Retirees $28.7 $27.2
Fully eligible active plan participants 9.2 8.3
Other active participants 32.3 30.8
Unrecognized net gain 6.9 4.8
Unrecognized prior service cost (.3) (1.4)
Unamortized transition obligation (27.5) (28.5)
- --------------------------------------------------------------------------
Liability recorded in the consolidated balance sheets $49.3 $41.2
==========================================================================
Components of the Company's net post-retirement benefit expense under SFAS
No. 106 were as follows (in millions):
Year Ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------
Service cost $ 4.6 $ 4.2 $ 3.6
Interest cost on APBO 4.9 4.0 3.5
Amortization of unrecognized net (gain) loss (.3) (.5) .4
Amortization of unrecognized prior service cost - .2 -
Amortization of transition obligation 1.8 1.8 1.8
- ------------------------------------------------------------------------------
Net post-retirement benefit expense $11.0 $ 9.7 $ 9.3
==============================================================================
For the domestic plans, the APBO was calculated using an assumed discount rate
of 7.5% as of December 31, 1997 and 1996. Domestic post-retirement benefit
expense was calculated using an assumed discount rate of 7.5% in 1997 and 1996
and 8.0% in 1995. Domestic health care costs were assumed to increase 9.2% in
1997, grading down over time to 5.5% in 10 years. For the foreign plans, 1997
and 1996 post-retirement benefit expense and the APBO as of December 31, 1997
and 1996, were calculated using an assumed discount rate of 8.0%. Foreign
health care costs were assumed to increase 8.5% in 1997, grading down over time
to 5.5% in 10 years. 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, 1997 by $8.8 million and increase the net
post-retirement benefit expense by $1.4 million for the year ended December 31,
1997.
(12) 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 ("CERCLA" or "Superfund"), for the
cleanup of contamination from hazardous substances at two 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.
Approximately 35,000 of the Company's workforce worldwide are subject to
collective bargaining agreements. 33% of the Company's workforce are subject to
collective bargaining agreements which expire within one year. Relationships
with all unions are good and management does not anticipate any difficulties
with respect to the agreements.
43
46
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)
Lease commitments at December 31, 1997 under noncancelable operating leases
with terms exceeding one year are as follows (in millions):
- ---------------------------------------------------------------------
1998 $ 41.3
1999 36.4
2000 30.6
2001 25.3
2002 22.3
2003 and thereafter 25.3
- ---------------------------------------------------------------------
Total $181.2
=====================================================================
The Company's operating leases cover principally buildings and transportation
equipment. Rent expense incurred under all operating leases and charged to
operations was $37.8 million, $29.8 million, and $21.2 million for the years
ended December 31, 1997, 1996 and 1995, respectively.
(13) STOCK OPTION PLANS
The Company has four stock option plans under which it has issued stock
options, the 1988 Stock Option Plan, the 1992 Stock Option Plan, the 1994 Stock
Option Plan, and the 1996 Stock Option Plan. Options issued to date under
these plans generally vest over a three-year period and expire ten years from
the original plan date.
As part of the acquisitions of AI and Masland (Note 3), outstanding AI stock
options were converted into options to acquire 229,405 shares of the Company's
common stock at prices ranging from $14.06 to $23.12 per share and outstanding
Masland stock options were converted into options to acquire 517,920 shares of
the Company's common stock at prices ranging from $11.63 to $30.17 per share.
The values of the AI and Masland options converted as of the date of each
acquisition were $1.9 million and $9.0 million, respectively, and were included
in the purchase price of each acquisition.
A summary of options transactions during each of the three years in the period
ended December 31, 1997 is shown below:
Stock Options Price Range
-------------------------------------------------------------------------------------------------
Outstanding at December 31, 1994 4,425,768 $ 1.29 - $15.50
Granted 265,405 $14.06 - $30.25
Expired or cancelled (49,000) $ 5.00 - $15.50
Exercised (165,263) $ 1.29
-------------
Outstanding at December 31, 1995 4,476,910 $ 1.29 - $30.25
Granted 1,076,920 $11.63 - $33.00
Expired or cancelled (36,000) $15.50 - $33.00
Exercised (1,832,588) $ 1.29 - $23.12
-------------
Outstanding at December 31, 1996 3,685,242 $ 1.29 - $33.00
Granted 554,000 $37.25
Expired or cancelled (166,685) $ 1.29 - $37.25
Exercised (1,286,059) $ 1.29 - $33.00
-------------
Outstanding at December 31, 1997 2,786,498 $ 1.29 - $37.25
=================================================================================================
Pro Forma
At December 31, 1997, the Company had several stock option plans, which are
described above. The Company applies APB Opinion 25 and related Interpretations
in accounting for its plans. Accordingly, compensation cost was calculated as
the difference between the exercise price of the option and the market value of
the stock at the date the option was granted. If compensation cost for the
Company's stock option plans was determined based on the fair value at the
grant dates consistent with the method prescribed in SFAS No. 123, "Accounting
for Stock-Based Compensation," the Company's net income and
44
47
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
earnings per share would have been reduced to the pro forma amounts indicated
below (in millions, except per share information).
Year Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------
As reported (in millions, except per share data)
Income before extraordinary item $208.2 $151.9 $94.2
Net income $207.2 $151.9 $91.6
Diluted net income per share before extraordinary item $ 3.05 $ 2.38 $1.79
Diluted net income per share $ 3.04 $ 2.38 $1.74
Pro forma
Income before extraordinary item $204.3 $150.4 $94.2
Net income $203.3 $150.4 $91.6
Diluted net income per share before extraordinary item $ 2.99 $ 2.36 $1.79
Diluted net income per share $ 2.98 $ 2.36 $1.74
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1997, 1996 and 1995: risk-free interest rates of
7.5%; expected dividend yields of 0.0%; and expected lives of 10 years. The
expected volatility used was 30.2% in 1997 and 31.5% in 1996 and 1995.
(14) FINANCIAL INSTRUMENTS
The Company hedges certain foreign currency risks through the use of forward
foreign exchange contracts and options. Such contracts are generally 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. The Company and its
subsidiaries had contracted to exchange notional United States dollar
equivalent principal amounts of $231.8 million as of December 31, 1997 and
$113.1 million as of December 31, 1996. All contracts outstanding as of
December 31, 1997 mature in 1998. The deferred gain on such contracts as of
December 31, 1997 was $.3 million compared to an unrealized loss of less than
$.1 million as of December 31, 1996.
The carrying values of the Company's subordinated notes vary from the fair
values of these instruments. The fair values were determined by reference to
market prices of the securities in recent public transactions. As of December
31, 1997, the aggregate carrying value of the Company's subordinated notes was
$336.0 million compared to an estimated fair value of $357.9 million. As of
December 31, 1996, the aggregate carrying value of the Company's subordinated
notes was $470.0 million compared to an estimated fair value of $485.9 million.
The carrying values of cash, accounts receivable, accounts payable and notes
payable approximate the fair values of these instruments due to the short-term,
highly liquid nature of these instruments. The carrying value of the Company's
senior indebtedness approximates its fair value which was determined based on
rates currently available to the Company for similar borrowings with like
maturities.
The Company uses interest rate swap contracts to hedge against interest rate
risks in future periods. As of December 31, 1997, the Company had entered into
three one-year swap contracts with an aggregate notional value of $120.0
million which became effective and/or go into effect between June 1997 and
August 1998. Pursuant to each of the contracts, the Company will make payments
calculated at a fixed rate of between 6.1% and 6.3% of the notional value and
will receive payments calculated at the Eurodollar rate. This effectively fixes
the Company's interest rate on the portion of the indebtedness under the Credit
Agreement covered by the contracts at the fixed rates in the contracts plus a
margin of .275% to .625% during the time the contracts are effective. The fair
value of these contracts as of December 31, 1997, and 1996 was a negative $0.2
million and negative $0.6 million, respectively.
Several of the Company's European subsidiaries factor their accounts receivable
with financial institutions subject to limited recourse provisions and are
charged a discount fee ranging from the current LIBOR rate plus 0.4% to plus
1.5%. The amount of such factored receivables, which is not included in
accounts receivable in the consolidated balance sheets at December 31, 1997 and
1996, was approximately $137.0 million and $152.6 million, respectively.
45
48
LEAR 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 Rest of World. The Rest of World segment includes
operations in Mexico, South America, South Africa and the Asia/Pacific Rim
region. Geographic segment information is as follows (in millions):
Year Ended December 31, 1997 1996 1995
- ----------------------------------------------------------
Net Sales:
United States $3,838.7 $3,386.6 $2,431.8
Canada 1,106.5 893.3 874.5
Europe 1,958.9 1,627.6 1,328.5
Rest of World 788.5 610.5 307.4
Intersegment sales (349.7) (268.9) (227.8)
- ----------------------------------------------------------
$7,342.9 $6,249.1 $4,714.4
==========================================================
Operating Income:
United States $ 311.8 $ 225.2 $ 152.4
Canada 82.0 77.4 52.4
Europe 60.3 49.2 26.5
Rest of World 27.0 24.0 13.5
- ----------------------------------------------------------
$ 481.1 $ 375.8 $ 244.8
==========================================================
Identifiable Assets:
United States $2,408.4 $2,288.3 $1,859.6
Canada 293.8 283.9 254.2
Europe 1,442.2 1,021.2 815.3
Rest of World 303.8 208.0 116.5
Unallocated (a) 10.9 15.4 15.7
- ----------------------------------------------------------
$4,459.1 $3,816.8 $3,061.3
==========================================================
(a) Unallocated Identifiable Assets consist of deferred financing fees.
The net assets of foreign subsidiaries were $439.6 million and $341.2 million
at December 31, 1997 and 1996, respectively. The Company's share of foreign net
income was $79.5 million, $67.5 million and $58.6 million for the years ended
December 31, 1997, 1996 and 1995, 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:
Year Ended December 31, 1997 1996 1995
- ----------------------------------------------------------
Ford Motor Company 29% 32% 33%
General Motors Corporation 27 30 34
Fiat S.p.A. 10 10 10
==========================================================
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.
46
49
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(16) QUARTERLY FINANCIAL DATA
(unaudited; in millions, except per share data)
THIRTEEN WEEKS ENDED
-----------------------------------------
MARCH 29, JUNE 28, SEPT. 27, DEC. 31,
1997 1997 1997 1997
- ----------------------------------------------------------------------------------------------
Net sales $1,724.0 $1,839.3 $1,635.9 $2,143.7
Gross profit 177.9 213.5 175.3 242.7
Income before extraordinary item 41.9 61.1 36.6 68.6
Net income 41.9 61.1 35.6 68.6
Diluted net income per share before extraordinary item .62 .90 .53 1.00
Diluted net income per share .62 .90 .52 1.00
==============================================================================================
Thirteen Weeks Ended
-----------------------------------------
March 30, June 29, Sept. 28, Dec. 31,
1996 1996 1996 1996
- ----------------------------------------------------------------------------------------------
Net sales $1,405.8 $1,618.7 $1,505.6 $1,719.0
Gross profit 120.6 166.9 143.7 188.5
Net income 25.8 50.1 24.8 51.2
Diluted net income per share .43 .83 .37 .75
==============================================================================================
(17) PRO FORMA FINANCIAL DATA
The following pro forma unaudited financial data is presented to illustrate the
estimated effects of (i) the 1996 Offering (Note 4), (ii) the Masland
Acquisition (Note 3), (iii) the refinancing of the Company's $500 Million
Credit Agreement (Note 8), (iv) the AI Acquisition (Note 3) and certain
acquisitions completed by AI prior to the acquisition of AI by Lear, (v) the
1995 Offering (Note 4), (vi) the completion of the $300 Million Credit
Agreement (Note 8), and (vii) the issuance of the 9-1/2% Notes (Note 5) as if
these transactions had occurred as of the beginning of each year presented (in
millions, except per share data). The 1997 Acquisitions have not been included
in the pro forma information as their inclusion would not be material to the
results of operations or financial position of the Company.
YEAR ENDED DECEMBER 31, 1996 Year Ended December 31, 1995
------------------------------------------------ -------------------------------------------------------------
OPERATING Operating
COMPANY MASLAND AND FINANCING PRO Company AI Masland and Financing Pro
HISTORICAL ACQUISITION ADJUSTMENTS FORMA Historical Acquisition Acquisition Adjustments Forma
- -----------------------------------------------------------------------------------------------------------------------------------
Net sales $ 6,249.1 $263.7 $(2.0) $6,510.8 $4,714.4 $523.7 $473.2 $(3.3) $5,708.0
Income before
extraordinary
item 151.9 10.4 (8.4) 153.9 94.2 18.0 17.4 (25.9) 103.7
Net income 151.9 10.4 (8.4) 153.9 91.6 18.0 17.4 (23.3) 103.7
Diluted net income
per share before
extraordinary item 2.38 2.27 1.79 1.54
Diluted net income
per share 2.38 2.27 1.74 1.54
===================================================================================================================================
47
50
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Lear Corporation:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of LEAR CORPORATION AND SUBSIDIARIES
("the Company") included in this Form 10-K, and have issued our report thereon
dated January 30, 1998. Our audits were made for the purpose of forming an
opinion on those financial statements taken as a whole. The schedule on page
49 is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and
is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the consolidated
financial statements and, in our opinion, fairly states 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 LLP
Detroit, Michigan
January 30, 1998.
48
51
LEAR CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
BALANCE AT BALANCE
BEGINNING OTHER END
DESCRIPTION OF PERIOD ADDITIONS RETIREMENTS CHANGES OF PERIOD
- ----------- ----------- ---------- ------------ ----------- ----------
FOR THE YEAR ENDED DECEMBER 31, 1995:
Valuation of accounts deducted from related assets:
Allowance for doubtful accounts $ 3.1 $ .5 $ (.5) $ .9 $ 4.0
Reserve for unmerchantable inventories 4.1 3.2 (2.1) 1.1 6.3
-------- -------- -------- -------- --------
$ 7.2 $ 3.7 $ (2.6) $ 2.0 $ 10.3
======== ======== ======== ======== ========
FOR THE YEAR ENDED DECEMBER 31, 1996:
Valuation of accounts deducted from related assets:
Allowance for doubtful accounts $ 4.0 $ 3.3 $ (.6) $ 2.3 $ 9.0
Reserve for unmerchantable inventories 6.3 4.6 (1.0) (.6) 9.3
-------- -------- -------- -------- --------
$ 10.3 $ $7.9 $ (1.6) $ 1.7 $ 18.3
======== ======== ======== ======== ========
FOR THE YEAR ENDED DECEMBER 31, 1997:
Valuation of accounts deducted from related assets:
Allowance for doubtful accounts $ 9.0 $ 5.1 $ (2.6) $ 3.2 $ 14.7
Reserve for unmerchantable inventories 9.3 3.6 (3.7) 3.2 12.4
-------- -------- -------- -------- --------
$ 18.3 $ 8.7 $ (6.3) $ 6.4 $ 27.1
======== ======== ======== ======== ========
49
52
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 disclosures.
50
53
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Incorporated by reference from the Proxy Statement sections entitled
"Election of Directors," and "Management and Directors."
ITEM 11 - EXECUTIVE COMPENSATION
Incorporated by reference from the Proxy Statement sections entitled
"Executive Compensation."
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Incorporated by reference from the Proxy Statement section entitled
"Management and Directors - Security Ownership of Certain Beneficial Owners and
Management."
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Proxy Statement section entitled
"Certain Transactions."
51
54
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT 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 December 31, 1997 and 1996.
Consolidated Statements of Income for the years ended December 31,
1997, 1996 and 1995.
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the years ended December
31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements
2. Financial Statements Schedules:
Report of Independent Public Accountants
Schedule II - Valuation and Qualifying Accounts
All other financial statement schedules are omitted
because such schedules are not required or the information
required has been presented in the aforementioned financial
statements.
3. The exhibits listed on the "Index to Exhibits" on pages 53
through 54 are filed with this Form 10-K or incorporated by reference
as set forth below.
(b) The following reports on Form 8-K were filed during the quarter ended
December 31, 1997.
None.
(c) The exhibits listed on the "Index to Exhibits" on pages 54 through 55 are
filed with this Form 10-K or incorporated by reference as set forth below.
(d) Additional Financial Statement Schedules.
None.
52
55
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 23, 1998.
Lear 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
Corporation and in the capacities indicated on March 23, 1998.
/s/ Kenneth L. Way /s/ Larry W. McCurdy
--------------------------------- -------------------------
Kenneth L. Way Larry W. McCurdy
Chairman of the Board and a Director
Chief Executive Officer
/s/ James H. Vandenberghe /s/ Roy E. Parrott
--------------------------------- -------------------------
James H. Vandenberghe Roy E. Parrott
Executive Vice President, a Director
Chief Financial Officer
and a Director
/s/ Robert E. Rossiter /s/ Robert W. Shower
--------------------------------- -------------------------
Robert E. Rossiter Robert W. Shower
President, Chief Operating Officer a Director
-International Operations
and a Director
/s/ Donald J. Stebbins /s/ David P. Spalding
--------------------------------- -------------------------
Donald J. Stebbins David P. Spalding
Senior Vice President and a Director
Chief Financial Officer
/s/ Gian Andrea Botta /s/ James A. Stern
--------------------------------- -------------------------
Gian Andrea Botta James A. Stern
a Director a Director
/s/ Irma B. Elder
---------------------------------
Irma B. Elder
a Director
53
56
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- ------- -------
3.1- Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit
3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 30, 1996).
3.2- Amended and Restated By-laws of the Company (incorporated by reference to Exhibit 3.4 to
Lear's Registration Statement on Form S-1 (No. 33-52565)).
4.1- Indenture dated as of July 1, 1996 by and between the Company and the Bank of New York, as
trustee, relating to the 9 1/2% Subordinated Notes due 2006 (incorporated by reference to
Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September
28, 1996).
4.2- Indenture dated as of February 1, 1994 by and between Lear and The First National Bank of
Boston, as Trustee, relating to the 8 1/4% Subordinated Notes (incorporated by reference to
Exhibit 4.1 to the Company's Transition Report on Form 10-K filed on March 31, 1994).
10.1- $1,800,000 Amended and Restated Credit and Guarantee Agreement dated as of December 20, 1996
(the "Credit Agreement") among the Company, Lear Corporation Canada Ltd., the foreign
subsidiary borrowers named therein, the several financial institutions party thereto
(collectively, the "Lenders"), The Chase Manhattan Bank, as general administrative agent for
the Lenders and The Bank of Nova Scotia, as Canadian administrative agent for the Lenders,
(incorporated by reference to Exhibit 10.1 to the Company's Report on Form 10-K filed for the
year ended December 31, 1996).
10.2- First Amendment, dated as of November 26, 1997 of the $1,800,000 Amended and Restated Credit
and Guarantee Agreement, dated as of December 20, 1996 among the Company, Lear Corporation
Canada Ltd., the foreign subsidiary borrowers named therein, the several financial
institutions party thereto (collectively, the "Lenders"), the Managing Agents named therein,
the Co-Agents named therein, the Lead Managers named therein, and The Bank of Nova Scotia and
The Chase Manhattan Bank, as administrative agents for the Lenders thereunder, filed
herewith.
10.3- Employment Agreement dated March 20, 1995 between the Company and Kenneth L. Way
(incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
10.4- Employment Agreement dated March 20, 1995 between the Company and Robert E. Rossiter
(incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
10.5- Employment Agreement dated March 20, 1995 between the Company and James H. Vandenberghe
(incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
10.6- Employment Agreement dated March 20, 1995 between the Company and Terrence E. O'Rourke
(incorporated by reference to Exhibit 10.6 to the Company's Report on Form 10-K filed for the
year ended December 31, 1996).
10.7- Employment Agreement dated May 29, 1996 between the Masland Corporation and Dr. Frank J.
Preston, filed herewith.
10.8- Stock Option Agreement dated as of September 29, 1988 between the Company and certain
management investors (the "Management Investors") (incorporated by reference to Exhibit 10.6
to the Company's Registration Statement on Form S-1 (No. 33-25256)).
10.9- Amendment to Stock Option Agreement dated as of March 2, 1995 between the Company and Kenneth
L. Way (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended July 1, 1995).
10.10- Amendment to Stock Option Agreement dated as of March 2, 1995 between the Company and Robert
E. Rossiter (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the quarter ended July 1, 1995).
10.11- Amendment to Stock Option Agreement dated as of March 2, 1995 between the Company and James
H. Vandenberghe (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report
on Form 10-Q for the quarter ended July 1, 1995).
10.12- Amendment to Stock Option Agreement dated as of March 2, 1995 between the Company and James
A. Hollars (incorporated by reference to Exhibit 10.6 to the Company's Quarterly Report on
Form 10-Q for the quarter ended July 1, 1995).
10.13- Amendment to Stock Option Agreement dated as of March 2, 1995 between the Company and Randal
T. Murphy (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on
Form 10-Q for the quarter ended July 1, 1995).
10.14- Lear's 1992 Stock Option Plan (incorporated by reference to Exhibit 10.7 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1993).
10.15- Amendment to Lear's 1992 Stock Option Plan (incorporated by reference to Exhibit 10.26 to the
Company's Transition Report on Form 10-K filed on March 31, 1994).
10.16- Lear's 1994 Stock Option Plan (incorporated by reference to Exhibit 10.27 to the Company's
Transition Report on Form 10-K filed on March 31, 1994).
54
57
EXHIBIT
NUMBER EXHIBIT
- ------- -------
10.17- Masland Holdings, Inc. 1991 Stock Purchase and Option Plan (incorporated by reference to
Exhibit 99.4 to the Company's Current Report on Form 8-K dated June 27, 1996).
10.18- Masland Corporation 1993 Stock Option Incentive Plan (incorporated by reference to Exhibit
99.5 to the Company's Current Report on Form 8-K dated June 27, 1995).
10.19- Lear's Supplemental Executive Retirement Plan, dated as of January 1, 1995 (incorporated by
reference to Exhibit 10.28 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.20- Share Purchase Agreement dated as of December 10, 1996, between the Company and Borealis
Holding AB, (incorporated by reference to Exhibit 10.23 to the Company's Report on Form 10-K
for the year ended December 31, 1996).
10.21- Agreement and Plan of Merger dated as of May 23, 1996, by and among the Company, PA
Acquisition Corp. and Masland Corporation (incorporated by reference to Exhibit 2.1 to the
Company's Registration Statement on Form S-3 (No. 333-05809)).
10.22- Agreement and Plan of Merger dated as of July 16, 1995, among the Company, AIHI Acquisition
Corp. and Automotive Industries Holding, Inc. (incorporated by reference to the Exhibit 2.1
to the Company's Current Report on Form 8-K dated August 17, 1995).
10.23- Lear Corporation 1996 Stock Option Plan, as amended and restated (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 28,
1997).
10.24- Lear Corporation Long-Term Stock Incentive Plan, as amended and restated (incorporated by
reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 28, 1997).
10.25- Lear Corporation Outside Directors Compensation Plan, as amended and restated (incorporated
by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 28, 1997).
10.26- Second Amended and Restated Secured Promissory Note dated as of March 29, 1997 between Lear
Corporation and James A. Hollars (incorporated by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 28, 1997).
10.27- Purchase Agreement dated as of May 26, 1997 among Keiper GmbH & Co., Putsch GmbH & Co. KG,
Keiper Recaro GmbH, Keiper Car Seating Verwaltungs GmbH, Lear Corporation GmbH & Co., and
Lear Corporation (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 28, 1997).
10.28- Operating Agreement of Lear Donnelly Overhead Systems, L.L.C. dated as of the 1st day of
November, 1997, by and between the Company and Donnelly Corporation, filed herewith.
10.29- Form of the Lear Corporation Long-Term Stock Incentive Plan Deferral and Restricted Stock
Unit Agreement, filed herewith.
10.30- Form of the Lear Corporation 1996 Stock Option Plan Stock Option Agreement, filed herewith.
10.31- Restricted Property Agreement dated as of December 17, 1997 between the Company and Robert E.
Rossiter, filed herewith.
10.32- Lear Corporation 1992 Stock Option Plan, 3rd amendment dated March 14, 1997, filed herewith.
10.33- Lear Corporation 1992 Stock Option Plan, 4th amendment dated August 4, 1997, filed herewith.
10.34- Employment Agreement dated March 20, 1995 between the Company and Gerald G. Harris (incorporated
by reference to Exhibit 10.7 to the Company's Report on Form 10-K for the year ended December 31, 1996).
11.1- Computation of income (loss) per share, filed herewith.
21.1- List of subsidiaries of the Company, filed herewith.
23.1- Consent of independent public accountants, filed herewith.
27.1- Financial Data Schedule, filed herewith.
55